TMI Blog2012 (5) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... .R. Sood, Accountant Member 1. In this appeal the assessee has raised the following two grounds: 1. On facts and in the circumstances of the case, the CIT (A) was not justified in confirming the action of the AO of treating the Income of Rs.7712025/- from sale of investments in shares as "Profits of the business" instead of "Short Term Capital Gains". 2. The CIT (A) erred in observing that "the appellant has purchased and sold shares to realize the profit based on share price movements. Normally, this is done by some one who is the activity of share trading." He failed to appreciate that seizing an opportunity is a well desired quality of an investor and this alone could not be a reason to hold that the assessee was engaged in the business of trading in shares. 2. After hearing both the parties, we find that during the assessment proceedings 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 03.02.2005 it is noticed that the assessee has sold shares in Ispat Industries at trade time 12.15 to 12.20 and sold 1,00,000 shares of Ispat Industries and purchased the same at trade time 2.30 to 2.40 which means assessee has gone short i.e., sold without having shares. The assessee has indulged in same practice of selling shares in 1349 of Selan Exploration at trade time 9.58 to 9.59 and then squared it of by purchasing the same shares (66349) at trade time 10.10 to 11.46. The balance 65,000 is delivery. These 65,000 shares of Selan Exploration are sold on 17.03.2005. The assessee has shown the gains made on 25.02.2005 as speculation income and gain/loss made on 17.03.2005 as short term capital gain! loss." In view of the above facts, AO further referred to the circular issued by the Board for determining whether the transactions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase and sale of Ispat Industries, the appellant states that she placed one single order for buying 665000 shares of Ispat Industries and similarly of sale. The numbers reported in contract note is not indicative of volume of buying or selling and observations of the A.O. in this regard are not correct but based on misunderstanding of the contract note. The appellant neither intended to indulge in business of share trading nor could this inference be drawn on given facts. It is therefore requested that income returned as Short term capital gains be treated as such." After examining these submissions, ld. CIT(A) did not accept the same vide para-8 which reads as under: 8. I have carefully considered the submission of the appellant. I have also perused the records. It is noted that the appellant had regularly purchased and 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 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as sale order but the same was later on reversed. In any case, some profit was generated in this transaction which because of the mistake became speculated transaction. But such speculated profit has been shown by the assessee separately. He also mentioned that basically assessee has sold large number of shares of Wyeth Ltd. which were acquired many years ago and the funds were invested in purchase of shares of Ispat Ltd., and Vakrangee Software. The other transactions basically related to some of the shares allotted through IPOs. All these factors clearly show that assessee never had any intention to trade in shares and it was only an investment. He also referred to the assessment orders for assessment years 2003-04 to 2007-08 wherein some short term capital gain was earned by the assessee and was accepted accordingly. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat some gains have been made out of the some shares allotted in Ispat Inds., for example the following companies shares have been allotted through IPOs and have been sold and generated the capital gains, are as under: PARTICULARS/DATE OF DESCRIPTION OF ASSETS QUANTITY DATE OF PURCHASE SALES Dredging Corporation (IPO) GAIL India Ltd. (IPO) IPCL (IPO) Petronet LNG (IPO) Bank of Maharashtra (IPO) Power Trading Corporation (IPO) NGC (IPO) 12.000 144.000 259.000 800.000 200.000 100.000 70.000 18-03-04 25-03-94 11-03-04 24-03-04 02-04-04 23-03-04 05-04-04 13-04-04 13-04-04 14-04-04 15-04-04 03-05-04 07-06-04 Apart from this, some mutual funds have been purchased. Otherwise, there is hardly any other transaction. This clearly shows that very few transactions have been carried on by the assessee. The observation 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The above clearly shows that part of the purchase order has been executed in various trades. Thus, it has to be construed that only one transaction and splitting of the transaction by the electronic system of the stock exchange will not mean that this is a case of many transactions. These facts very clearly show that assessee has done only 33 transactions as claimed before the AO and, in fact, parts of these transactions are also on account of allotment of shares through IPOs. If IPOs transactions are removed the total transactions would be even less than 25. We are of the opinion that AO was wrong in concluding that frequency of transactions was very high. When these few transactions are considered with the transactions regarding sale of shares of Wyeth Ltd., which were held for almost 10 years, it becomes clear that assessee is only an investor and cannot be called a trader. We further appreciate that no office infrastructure was created by the assessee. Even the funds were her own funds and no borrowings have been made for such investments. These factors only contribute to show that assessee is only an investor. In these circumstances, we are of the opinion, that transactions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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