TMI Blog2014 (2) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific claim that some of the shares were held since FY. 2002-03 - FAA has completely ignored the submissions made by the assessee in this regard - Without assigning any reasons for treating the income of LTCG as business income, he has confirmed the order of the AO – the matter needs further verification – thus, the matter remitted back to the FAA for adjudication – Decided partly in favour of Assessee. - ITA No. 5766,5767/Mum/2010 - - - Dated:- 8-1-2014 - B R Mittal And Rajendra, JJ. For the Appellant : Dr K Shivaram For the Respondent : Shri Ganesh Bare ORDER:- Order u/s.254(1)of the Income- tax Act,1961(Act) PER : Rajendra Challenging the orders of the CIT(A)-25, Mumbai, assessee has filed following Grounds of Appeal for the AY-2006-07 and 2007-08: ITA No. 5766/Mum/2010- AY-2006-07 1. On the facts and in the circumstances of the assessee's case and in law the learned CIT(A) has erred in upholding the assessment of the sum of Rs.10,73,360/- as income from business, from share trading as against short term capital gain shown in the return of income filed by the assessee. 2. The assessee craves leave to add, amend, alter or delete any of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as business income. After considering the submissions of the assessee he held that the assessee was having a systematic and regular course of share transacting activity, that there was a continuity of the share transactions activity over a period of time, that there was a clear "profit motive" in the transactions taken up by the assessee,that that in none of the years the assessee had ever suffered any net loss,that careful perusal of the details of STCG disclosed by the assessee proved that the quantity of shares transacted and the quantum of amounts involved was huge, that the holding period of shares in most of the cases was less than even a month and in some of the case it was only for a few days. AO cited more than ten examples where shares were held for a period less than 30 days, that he had been indulging in share transaction activity on frequent basis and was dealing in same share or scrip many times during the year, that delivery or non-delivery of shares made no difference to decide the issue. 3. Against the order of the AO, assessee preferred an appeal before the First Appeal Authority (FAA). After considering the submissions of the assessee and the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc., the nature of transactions cannot be debarred to be held as trading in nature under such facts which were falling under certain criterias.He further held that if the transactions in shares were substantial, it was an indication to trade and therefore income from it could be identified as business income,that high transaction and low holdings indicated trade, that low transaction and high holding was indication of investments and hence capital gain, that if the purchase and sale was for profit-making it indicated trading but if purchase and sale was for retention and appreciation in valuation it had be treated as capital gains. In short, he held that factors; like frequency of purchase and disposal of shares, ratio between purchase, sales and holding period of shares, intention of the assessee; were relevant for deciding the issue as whether a particular transaction was an investment or business. He finally held that transactions carried out by the assessee for the year under appeal were to be held as business transactions and not investment. He relied upon the cases of V Nagesh (ITA54l0/Mum/2008 AY 2005-06 dated 24-9-2009) and Smt. Sadhana Nabera (ITA-2586 Mumbai/2009 dated 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for investments in M/s JBF Industries Ltd. of which assessee is a promoter.He referred to the case of Gopal Purohit (20 DTR 99-Mumbai-Trib), that the Case Laws relied by the FAA were not applicable to the facts of the assessee's case.He referred to page no. 20,23,29-32of the paper book.He relied upon the case delivered by the C bench of ITAT Mumbai in the case of Pradip U. Patel (ITA/8688/Mum/2011dtd.28/12/2012). "8. We have carefully considered the orders of the authorities below and the submissions of Ld. Representatives of the parties.We have also considered the cases which have been referred to by the authorities below in their respective orders. We have also perused the relevant pages of the Paper Book and particularly Pg. Nos. 18 to 21 of the Paper Book which is a share holding chart in terms of number of days of the shares held by the assessee and the companies of which the assessee purchased/sold shares in the Financial Year relevant to the AY under consideration. On perusal of the details of the said shares, we observe that there are no repetitive transactions in shares of the same script in the Financial Year relevant to the AY under consideration. Further, it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court has laid down the following test in the CIT Vs. Rewashankar A Kothari [201 CTR 510] to decide whether the assessee was a dealer in shares or a mere investor. (1) The first test is whether the initial acquisition of the subject matter of the transaction was with the intention of dealing in the item or with a view to finding on investment. If the transaction, since inception appears to be impressed with a character of a commercial transaction entered into with a character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guide line; (2) The second test is to how the assessee dealt with the subject matter of transaction during the time the asset was with the assessee whether it has been treated as stock-in-trade, are being shown in the books of account and balance sheet as an investment; (3) The third is how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessment. This factor, can afford good and cogent evidence to judge the nature of transaction. The Hon'ble Apex Court has observed in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the nature of investment or trade. No single factor has been prescribed by the courts in this regard-AO has to decide various factors cumulatively. Circular issued by the CBDT has also mentioned indicative factors.Now we would like to discuss the facts of the case.We find that shares of 21 Century Ltd., Cholamandalam Ltd., Global Board Ltd., G.K.W. Ltd., Arrow Web Ltd., Pacific Cotspin Ltd., ESAB India Ltd., Rathi Ispat Ltd., G.E. Shipping Ltd., Ridhi Sidhi Gluco Biols Ltd., PSL Holding, Govind Rubber Ltd., Marico Industries Ltd. and UTV Software (pages 29-32 of the PB) were sold by him within the period of 30 days, that in many a cases there were repetitive transactions, that in two cases shares were sold on the same day, that the STCG, amounting to Rs. 10.32 lacs, was earned by the assessee from the shares sold within a period of 30 days, that assessee had suffered losses in the shares which were held between the 30 days to 365 days, that the net STCG was result of the shares held for lesser period of time. Considering these facts, we are of the opinion that assessee cannot be held an investor for the shares sold during the year under consideration, as the activities carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see were to be taxed under the head income from business. 6.1. Assessee preferred an appeal before the FAA. Before him,assessee had raised the issues of STCG as well as LTCG that were assessed under the head business income. After considering the submissions of the assessee and the assessment order he confirmed the order of the AO. 6.2. Before us, AR submitted that arguments made for the earlier year were to be considered for the year under consideration as far as STCG was concerned. With regard to the LTCG, he submitted that FAA was not justified in treating the income arising out of sale of shares held for more than 365 days as business income, that such shares were investments of the assessee. DR supported the order of the FAA. 6.3. We have heard the rival submissions and have perused the material before us.We are of the opinion that profit earned by the assessee from the shares sold within the period of thirty days has been rightly assessed under the head business income. During the year under consideration the assessee had sold the shares of Cairn India, Essar Oil Ltd., Divis lab Ltd., J K Industries, Jyoti Structure, Sun TV Ltd., Sesagoa, Varun Shipping within an interv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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