TMI Blog2013 (11) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares instead of retaining the same at the end of the year. No benefit of reduction in value of stock and payment of STT was obtained by the assessee in any of the years indicate that the assessee was only an investor and not a trader - The reason for offering the five transactions as business income was also properly explained as punching errors by broker and sale during non-delivery period of stock exchange which have been considered as speculative in nature. The transactions cannot be treated differently in the year under consideration - Even otherwise, if the investment in the earlier year is treated as stock in trade in this year then in view of the provisions of section 45(2), the difference in the market price and the cost as shown in the books of account would be treated as capital gain. - ITA No.6094/Mum/2011 - - - Dated:- 27-2-2013 - B Ramakotaiah and Sanjay Garg, JJ. Appellant Rep by: Mrs Rupinder Brar Respondent Rep by: Shri Pradip Kapasi ORDER:- Per: B Ramakotaiah: This is an appeal by Revenue against the order of the CIT(A)-27, Mumbai dated 27.05.2011 on the issue whether gains shown by the assessee under the short term capital gains can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly treated the entire investment in shares as an investment and not as stock in-trade . The income from transfer of shares was always offered to tax as capital gain. Shares held as Investments were valued at cost and no mark to market loss was provided for. The portfolio held by the appellant over the years when considered in the light of No. of scripts held/purchased/sold and the corresponding no. of transactions, investment being made from own funds and the fact of receiving dividend over the years as can be seen from table No. 1 above would undoubtedly establish the appellant as an investor and not a trader. It is worthwhile to note that even in the subsequent years despite registering losses from sale of shares, the appellant has consistently followed the practice of treating them as Capital Gains. 7.2 Coming to the year under consideration, at the outset, apparently the A.O. ha arrived at a conclusion of high volume and frequency of transactions by relying on the number of 60 scrips (i.e., opening investment + Purchases + sales + closing Investments) as against 35 scrips actually sold where STCG has been earned during the year. By no stretch of imagination, dealing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in the year of sale. 7.7 The appellant was not transacting frequently for smaller gains as was reflected from total Capital Gains on cost of Investment sold being more than 50% during the year as can be seen from table no. 3. 7.7 The average capital appreciation was a huge for the top four scrips (Jai Corp, Sahara Housing, Flat Product Essar Oil), which together accounted for 110% of the total capital gains. This clearly reflects that the intention was clearly not to frequently trade or churn for smaller returns that are normally traits of traders in business. 7.8 The shares of Jai Corp Ltd., which accounted for 75% of the entire short term capital gains, were held for duration of around 10 months most of the shares were brought in Dec 06 and sold in end Oct-Nov 07. Notably, the Appellant held these shares during the entire process when the Company undertook issue of Bonus Shares and Split the shares. Further, 45,407 shares of Jai Corp Ltd. which were purchased in July 2007 were not sold during the year and formed part of the closing balance of Investments as on Mar 08. This reflects the orientation of the Appellant towards holding investments for longer period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term capital gains has not been distributed by the A.O. for the year under consideration and thus, the A.O. himself has accepted that the appellant was investor in shares also. In such circumstances, there is no reason for the A.O. to treat the investment in shares by the Appellant as trading in shares for A.Y. 2008-09. The uniformity in treatment and consistency under the same fact and circumstances is one of the fundamentals of the judicial principles which cannot be brushed aside without proper reason. 7.12 The appellant used her own surplus funds for investing in shares. She has neither borrowed any money from external sources nor paid interest thereon. The loans appearing in the Balance Sheet of the appellant as on March 2004, 2005 and 2006 are explained to be in the nature of temporary personal family transfers from her sons and do not carry any interest. There are no outstanding loans including from any family members as on March 2007 and 2008. 7.13 The appellant earned Rs.8,54,790/- by way of dividend which gives a yield of 1.4$ on average holding of her investment as at March 2007. The ratio of dividend needs to be seen only as a% of Investment and not as a % ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ani ITA No. 6429/Mum/2009. 10. In view of the detailed discussion of the facts and the legal position and the back ground of the amended provisions of taxation of capital gains on sale of shares, I have no hesitation to hold that the income from short term capital gains offered to tax require no disturbance and cannot be treated as business income. Accordingly, the appeal is allowed in favour of the appellant on this issue. 7. The learned D.R. relied on the observations of the AO whereas the learned counsel relied on the order of the CIT(A) and also furnished the fact sheet and submissions made to the CIT(A). The learned counsel also placed on record the Coordinate Bench decision in Sri Jai Mahendra Shah in ITA No. 6093/Mum/2011 dated 31.08.12 on similar facts in the case of assessee s son. 8. After considering the rival submissions and perusing the record and orders of authorities, we agree with the findings of the learned CIT(A) who dealt with the facts and law very clearly. We do not have to repeat the same findings here as the same fact sheet was placed before us also. Suffice to say that arguments of the learned AO were countered on facts by the assessee and consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is respect. The CIT (A) has considered the issue in para 7.7 as under: 7.7. There was no transactions without delivery except for three odd transactions during the entire year, which were primarily due to errors or confusion with the Broker relating to punching errors by Broker relating to code of clients, No-delivery period, etc. which are sufficiently explained at table no.3. Similarly, the volume of transactions classified as speculation amounted to only 0.07% of the overall share sale volumes indicating negligibility of such transactions that resulted by default due to the errors of the Broker as explained at table no.8, and not due to any organized or systematic activity of the appellant requiring time and efforts. Noting has been brought before us to controvert the finding of the CIT (A) on this point. In view of the fact that the Broker has confirmed the punching error for these three transactions and were scored off and reversed immediately on the same day, it cannot be said that the assessee was engaged in the speculative transactions. Turning to the next objection of the Assessing Officer regarding borrowed funds, it has been explained by the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted as such. There is no merit in Revenue grounds. Accordingly, they are dismissed. 11. In the cross objection, assessee has raised the following grounds:- 1. The ld. AO and the ld. CIT (A) erred in law and on facts in not applying the provisions of section 45(2) for computing the capital gains in respect of the shares held as capital asset which by the action of the ld. AO were treated as stock in trade and further erred in law and on facts in taxing such income as business income instead of capital gains. Your appellant prays that full effect be given to the provisions of section 45(2) in assessing the total income. 2. The ld. AO and the ld. CIT (A) erred in law and on facts in not allowing the business loss that arose on valuation of shares held at the yearend by applying the principle of lower of the cost or market value in as much as the transactions in shares were held to be business transactions by the ld. AO and as a consequence thereof such shares were required to be treated as stock in trade and be valued as per the accounting practices and principles that are accepted in tax laws. Your appellant prays that the business loss representing the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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