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TMI Blog2013 (9) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 33,10,000 The assessee company showed the above transactions of purchases and sale of shares in its profit and loss account as under :- "Profit on sale of investment Rs.32,65,980/- Sale of Shares M/F. Units, Debenture Rs. 3,90,000/- Closing stock of shares, debentures Miscellaneous income Rs. 4,00,000/- Total Rs.40,55,980/- Expenditure : Opening stock of share & debentures Rs. 4,00,000/- Purchase of shares, M.F., Units, Debentures Rs.37,00,000/- Administrative Exp. Rs. 76,601/- Preliminary Exp. W.O. ------ Rs.41,76,601/- Loss : Rs. 1,20,621/-" 3.1 The AO observed that loss of Rs.33,10,000/- incurred by the assessee form share transactions was business loss as it was reflected in its Profit and loss account as share trading. According to the AO this purchase and sale of shares of other companies is speculation business according to Explanation to Sec.73 of the I.T. Act and therefore the loss of Rs.33,10,000/- would be speculation loss. On a show-cause notice from the AO to the assessee he explained that the shares on which the loss was incurred was part of investment made by it and not part of trading activity and therefore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation sheet, suggests that the assessee had intentions of trading in those shares. In this respect it is pointed out that the assessee had also shown profit on sale of other shares held as investment, under the business head, which was rightly treated by the A.O. as short-term capital gain. The head under which income is shown in the return of income and computation sheet is immaterial. One has to see the intention of the assessee at the time of purchase of the asset and other circumstances to determine whether profit derived or loss suffered is liable to be assessed under the head 'Business'. The Hon'ble Courts have consistently held that the intention of the assessee is to be gathered from the facts and circumstances of the case. During the financial year under consideration the assessee has not don any trading business on shares. The opening stock and the closing stock of the shares also remained the same. In the absence of any transaction of shares on trading account, it would be incorrect to infer that the assessee was doing business in shares. There was no other purchase or sale of shares during the year to suggest that the assessee was a trader in shares during the year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of income filed with the return. Secondly he has called this as business transaction because in the P&L account the sale and purchase of these shares has been shown separately. These two reasons are dealt with below one by one. In respect of the first argument of the A.O. I feel that in this particular case just because the assessee has shown this transaction as business loss in the return it cannot be concluded that actually it was a business transaction. If this argument is made the ground to decide the nature of this transaction then the profit of Rs.32,65,980/- earned by the assessee on sale of investment will also have to be taken as a business profit because in the computation of income even this profit has been reflected as business profit. But his profit has been earned by selling shares of M/s. Neeraj Estates (P.) Ltd. which were clearly reflected as investment in the accounts at the beginning of the p.yr. under consideration. Thus it can be said that there was a mistake in the return in correctly representing the income of the assessee under the correct head of income as per the I.T. Act and this mistake should not be made the basis for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss and therefore the AO was justified in not allowing the set off this loss against other income in view of the Explanation to section 73 of the Act. 5. On the other hand, the ld. AR of the assessee vehemently argued in support of the ld. CIT(A). He submitted that the assessee was holding shares as investment and during the year under consideration has earned profit form sale of its investment of Rs.32,65,980/-. He submitted that as the shares on which loss was incurred by the assessee were sold during year itself after its purchase. Therefore the same cannot be shown as investment in the books of account by the assessee. He submitted that the shares purchase were of private limited company and were invested for business purposes and as sufficient amount of shares cannot be purchased. The shares were sold and in this process the assessee incurred loss which was short term capital loss and therefore the ld. CIT(A) has rightly allowed its setting off against the long term capital gain by the assessee and sold the shares held as investment. 6. We have heard the rival submissions and perused the orders of the authorities below and materials available on record. In the instant case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment or capital asset of the assessee giving rise to the capital loss to the assessee. 6.5 It is a well settled position that the assessee may acquire shares as stock in trade of its business or may acquire shares as investment or the very same assessee may acquire certain shares as stock in trade and other shares as an investor also. In our considered opinion, whether the shares in question was stock in trade of the assessee or capital investment depends upon the intention with which the shares were acquired by the assessee. If the intention of the assessee at the time of acquiring of the shares was to earn profit by selling the same again then the same constitutes stock in trade in the hands of the assessee giving rise to business income or business loss or when the shares were acquired with the intention to enjoy the fruits of such acquisition then the same constitutes capital asset in the hands of the assessee giving rise to capital gain or capital loss. The real intention of the assessee is to be gathered by taking complete fact and circumstances into consideration. There may be several factors like the manner of presentation of the same in the books of account, volume of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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