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TMI Blog2012 (5) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... ings AO noticed that assessee had shown short term capital gains from sale of shares at Rs.77,12,025/-. It was further noticed that assessee had shown some profit from speculated transactions also. Since there was high frequency of transactions, a show because notice was issued as to why short term capital gains should not be assessed as business income. In response, it was stated that assessee was a house-wife and was investing in shares and units by subscribing to good IPOs. Sometimes some shares have been purchased from the market also. The assessee has not borrowed any funds and only surplus funds have been invested in the shares. It was also stated that in the balance-sheet assessee has treated all the shares as investments. During the year there were only 33 transactions and average number of transactions every month worked out to one in eleven days and, therefore, same could not be treated as business of dealing in shares. It was also pointed out that in most of the cases shares have been held for more than about 4 months and, therefore, same should be assessed as gains from short term capital gains. 3. The AO after examining the above submissions observed that asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s involved in this activity were in the nature of business and after referring to few decisions, he held that these transactions were in the nature of business and accordingly income from sale and purchase of shares was assessed as income from business. 4. Before the ld. CIT(A) various submissions were made which have been summarised by him at para-7 of his order which reads as under: "7. The appellant is aggrieved by the stand taken by the A.O. She states she is a housewife. She was not involved in any business or is a partner or director in any of the family companies. She used to invest her capital and savings in various investment instruments available. The balance sheet furnished with the return shows that she had invested her entire capital in shares, debentures, Public Provident Fund, jewellery and bank deposits. The appellant earned Short Term capital gains of Rs.77,12,025/- during the year and offered the same for tax u/s. 111-A. She has stated that the observation of the A.O. in paragraph 6 of the assessment, which formed the basis for his conclusion that she traded in shares, are not correct. She has stated that she held the shares of Wyeth Limited for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sold shares throughout the year. She had dealt in shares of 3 companies throughout the year. Some of these may be sale of shares obtained by IPOs as noted by the appellant. But even otherwise there are purchase of other entities like Sesa Goa, Selan Exploration, Zenith Paper Products, Glaxo etc. It may be true that the major portion of the transactions related to sale of shares of Wyeth Ltd and then purchase of shares of Ispat Industries and Vakrangee Software. Even then, if one looks at the picture dispassionately, one gets an impression that there was purchase and sale of shares on a regular basis and that the nature of transactions is indicative of more of trading than investment. The appellant was quite sensitive to the market trends and whenever an opportunity up, she has seized the opportunity and has purchased or sold shares to making profits. This would mean that the appellant was not satisfied with investing and waiting for dividend income from her investment in shares of mutual funds. Another point which has been noted by the appellant in her response to the A.O. is that the average number of transactions every month works out to one is 11 days and such a thin volume w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, atleast on the principle of consistency the gain from short term investment should be treated only as short term capital gain. 6. On the other hand, Ld. DR strongly supported the order of the AO and the Ld.CIT[A]. He particularly invited our attention to para-9 of the assessment order and pointed out that the AO has clearly demonstrated as how the assessee has entered into speculation transactions. Therefore, the intention of the assessee was to deal in shares. 7. We have considered the rival submissions carefully. Though AO has mentioned in para-9 regarding a transaction of 1,00,000 shares of Ispat Inds., which have been first sold in the morning between 9.58 and 11.46 am and the same have been purchased later on the same day between 12.15 to 2.40 p.m. Similar is the position in respect of 65000 shares of Selan Exploration. Though principally it does not seems to be a case of mistake because if it was really a mistake then the broker would not have given the profit to the assessee because in the reverse situation i.e. if it was a case of loss assessee would not have made payment of loss to the broker. Moreover, there is no evidence to show that the bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervation of the AO regarding purchase of Ispat shares contract note which runs into 7 pages would not amount to many transactions. In fact, assessee has placed only one order. It is a common knowledge that once an order is placed and that too for a large quantity, it will not be executed immediately by the electronic system of the stock exchange. The execution is dependent on the corresponding sales by the sellers at similar price which have put their bids on the system. The stock exchange executes the trade when the price of buyer and seller matches. For the same transaction there can be either many buyers or many sellers and if some customer wants to buy a large quantity of shares, such orders may be executed in few minutes or sometimes within a few hours. Perusal of the contract note filed before us shows that the order regarding purchase of 665000 shares of Ispat Inds., has been executed from 12;30.58 on 12;32.55 [as date and time given in the contract note 1st page]. We are extracting the first page of the contract note which is as under: Securities BOUGHT FOR you for Delivery/Clearing Order No. Trade No. Trade Time Quantity Kind of security Purc ..... 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