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2015 (3) TMI 705 - ITAT HYDERABAD

2015 (3) TMI 705 - ITAT HYDERABAD - TMI - Profit on sale of shares - short term and long term capital gain v/s business income - Held that:- The assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business. Since in earlier assessment years the claim of the assessee was consistently accepted as short term capital gain, it was held that the rule of consistency as propounded by Hon .....

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e was hold the shares in his books as investor, as well as stock-intrade separately. The decision in the case of Janak S Ranawala,(2006 (12) TMI 261 - ITAT MUMBAI ) further supports the case of he assessee. Likewise, the decision from Hon'ble Madras High Court in CIT vs N.S.S. Investment Pvt Ltd. (2005 (4) TMI 45 - MADRAS High Court ), CIT vs. Associated Industrial Development Company, (1971 (9) TMI 3 - SUPREME Court) supports the case of the assessee. Accordingly, we uphold the order of CIT .....

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07- 08 on 27.07.2007 admitting total income of ₹ 84,02,637 consisting of income from salaries amounting to ₹ 13,38,600, income from dividend of ₹ 4,43,857, income from house property amounting to ₹ 3,88,668 and income from sale of shares under the short term capital gains amounting to ₹ 61,66,584 and long term capital gains amounting to ₹ 4,07,933. 3. The AO rejected various contentions of the assessee and held that the claim of the assessee from profit on sal .....

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n a short span of time giving it a character of trading activity depending on market fluctuations. It was observed by the AO that the assessee borrowed funds on various dates and purchased shares of ₹ 1,39,70,018 and sold shares of ₹ 90,86,837. Thus the AO concludedthe assessment for A.Y 2007-08 treating the profit earned on sale of sahres as business profits out of busines sincome and not as capital gains. AO rejected the claim of the assessee for ₹ 61,66,584 under the short t .....

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llant is only an investor in shares and not a trader. The appellant has sold the shares held by him both for long term and short term periods and has derived long term and short term capital gain. During the assessment year he also redeemed units of Mutual Funds held by him on short term basis and derived short term capital gain on the redemption of mutual funds. The following are the details of the capital gains income on the sale of shares and redemption of Mutual Fund units. The appellant has .....

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097/- viz ₹ 8,73,513/-+Rs.61,66,584/-). • In the assessment order the Assessing Officer has made some incorrect statements. Hence it has become necessary to place before the learned commissioner the errors in the assessment order in relation to the factual position. The Assessing Officer, at page 4 last para, observed as under: • The second contention raised by assessee that he had never re-entered into any of the script which he had sold once. He also further submitted that he h .....

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profit. The appellant has been buying and selling various scripts at various times. Sometimes • it is possible that the shares of a company purchased at earlier time were sold and new shares of the same company purchased at a later time. It is also possible that shares of a particular company would have been sold at different times in different lots. Therefore, the observations of the Assessing Officer about the contentions raised by the appellant are not factually true. No such contention .....

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taken delivery of the shares purchased by him and the shares were credited to his deemat account. The SIT was paid on all transactions. These shares were held by the appellant at all times in his deemat account. The shares were sold from the deemat account by debiting the deemat account. The Assessing Officer in table-1 furnished incomplete particulars. The shares sold which are shown in table-1 have been held for a sizable number of days in the deemat account as per the details furnished below. .....

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Date of Date when No. of the script shares purchase these are days held purchased sold before sale Name of the Script No. of shares purchased Date of purchased Date when these shares are sold No. of days held before sale HINDAL 1000 02.08.2006 01.02.2007 183 ALECHE 793 27.12.2006 17.01.2007 21 ALECHE 3980 29.12.2006 17.01.2007 19 AKRINIR 86 13.02.2007 07.02.2007 7 • The Assessing Officer merely tried to tally the dates without realizing that shares which were sold were purchased on an earli .....

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ear the total number of transactions were 325 in number. He could only find four transactions where the dates are tallied. For the remaining transactions, the dates differ. But here again the conclusion drawn by him, is not true. Even if for any reason, the assessing officer concludes that these four transactions represent business activity, the business profits should be restricted to only these transactions and no further. • At table-2 of the Assessment Order, the Assessing Officer, has i .....

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the deemat account of the appellant before sale. The appellant therefore is furnishing the details of the number of days these shares were held in his deemat account Name of the Script No. of shares purchased 12.07.2006 Date of sale of these shares No. of days held before sale ICIBAN 1000 27.07.2006 15 NATALU 1000 10.11.2006 121 RELPET 4000 18.09.2006 68 TATAPOW 420 27.07.2006 15 TOTAL 6420 Name of the Script No. of shares purchased 12.07.2006 Date of sale of these shares No. of days held befor .....

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28.07.2006 Date of sale of these shares No. of days held before sale ALEGHE 9000 21.10.2006 36 RELlNO 1300 20.11.2006 40 TGS 1000 19.10.2006 34 TOTAL 11300 (iii) The transaction of 15. 1.2007 Name of the Script No. of shares purchased 15.01.2007 Date of sale of these shares No. of days held before sale BAJH/N 1000 19.02.2007 35 GAl/NO 2580 27.02.2007 43 GOOPOW 1000 31.01.2007 16 HGLlNF 1000 31.01.2007 16 H/NLEV 1000 07.05.2007 112 H/NZIN 500 07.05.2007 112 MAASOF 5000 06.02.2007 22 MUKANO 2000 0 .....

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d by the Assessing Officer. • A statement was filed before the Assessing Officer, showing number of days for which shares were held before they were sold during the year. The holding of shares varies for different periods as under. This clearly demonstrates the time lag the date of purchase and date of sale. No. of transactions Amount of capital gain Rs. a. Numbe r of transactions where shares were held less than 10 days 38 4,22,585 b. Number of transactions where shares were held between 1 .....

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se shares were held up to 31.03.07 Date of sale of these shares in next year Total no. of days these shares were held before sale (i) (ii) (iii) (iv) (v) (vi) BPL 2000 01.03.2007 30 18.07.2007 139 BPL 2625 01.03.2007 30 09.04.2007 139 BSES 1 22.01.2007 68 28.06.2007 157 BROINI 186 31032007 1 09.04.2007 10 CAIIND 9000 1.3.2007 30 9.4.2007 39 COMTEC 100 13.2.2007 46 7.1.2008 328 GAUAMB 2000 1.3.2007 30 17.5.2007 77 EVIACC 220 31.3.2007 1 9.4.2007 10 HINLEV 1000 15.1.2007 75 7.5.2007 112 ICIBAN 800 .....

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102 SAGCEM 3050 06.02.2007 53 30.05.2007 113 TlSCO 600 06.02.2007 53 27.06.2007 140 V/JATE 300 31.03.2007 1 09.04.2007 10 VISINO 900 01.03.2007 30 09.04.2007 39 PIL 2442900 2006-2007 Still holding • The Assessing Officer in the assessment order has refrained from going into the length of holding of the shares. He selectively highlighted only those few details to draw adverse conclusion while the remaining information was not looked at all or was ignored though was relevant for consideration .....

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was declared in the tax return and a statement showing details was also furnished. The said statement showing list of dividend is again enclosed. The appellant s intention to hold shares was also to earn dividends. As at the end of the year, the appellant is holding shares and mutual funds of value ₹ 2,88,62,302l-. • The reasons for selling the shares within the same year is only because of the taxation rate for the shares held for a short term period is concessional rate at 10%. &bul .....

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has been wrongly treated as business income and assessed to tax as business profit. • In the past years also there were similar sale of shares. For example in the Assessment year 2006-07 the appellant sold shares and the short term capital gain on such sale of shares is ₹ 82,49,206/-. An enquiry was made regarding the sale of shares during the AY 2006-07 by the Assessing Officer vide his letter dated 30.05.2008 and after considering the explanation provided by the appellant, the Asses .....

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first entered into deemat account of the appellant and it is only from the deemat account that the shares were sold. The sale of shares represented only those shares which were first purchased, held in deemat account and later sold. • The appellant followed consistent practice of keeping records and statements as his investment in shares at the end of the year. • This is not even a case where the appellant held some shares on trading account and some as investment. The entirety of the .....

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not deal in any futures & options at all. • There is no infrastructure employed in the form of employees, regular office establishment etc. The appellant did not indulge in any kind of advertising or canvassing or made any declaration at any point of time that he is a trader in shares. • No loans were borrowed for the purpose of acquiring the shares. There was no payment of interest by the appellant. All the shares were purchased out of own funds available with the appellant for in .....

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lso a Director of Pennar Industries Limited for last 10 years. • All the shares sold falling under long term capital gain are relating to only one company viz. Pennar Profiles Limited which the appellant was the Managing Director for a period of 12 long years . All these shares sold were allotted on subscription by the company on 31.07.2005. These shares were held for a period of more than 16 months before they were sold on 28th November, 2006. • All the above factors cumulatively prov .....

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(P) Ltd 799/Mum/2009 24.11.2010 3 Management Structure & Systems (P) Ltd vs. ITO 6966/Mum/2007 30.04.2010 4 ACIT vs. Naishadh V. Vachharajani 6429/Mum/2009 5 Janak S. Rangwalla v. ACIT SOT 627 25.02.2011 6 CIT vs. Gopal Purohit 1121/2009 Mumbai HC 06.01.2010 Principle of Consistency 1 Radhasoami Satsang v. CIT S.C 193 ITR 321 2 DIT vs. Lovely Bal Shiksha Prasad S.C 266 ITR 349 3 Tarben Ramanbhai Patel v. ITO & Others GUJARAT 215 ITR 323 4 Dhansiram Agarwalla v. CIT GUWAHATI 217 ITR 4 5 .....

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also submitted additional grounds of appeal which are as follows: • The appellant contends that the description in the cause title of the assessment order at Col.9, under the head nature of business shown as share trading and other income is not correct. There is no business carried by the appellant. The said column should be kept blank. In the alternative, in the said column the appellant should be described as salaried employee , 7. The CIT(A) held as follows: The assessee s contention th .....

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urce of income was from short term capital gains which were assessed as business income. Thus the column was correctly filed. Further, the assessee in his submissions before the CIT (A) mentioned that there are wrong statements made in the assessment order at Para No.3 of Page 3, Para No.4 at Page 4, Para 2 at Page No.5 and at Para 2 at Page 6. As verified from records, it was submitted that these are typing mistake while cut pasting the data from a similar assessment order. These are not wrong .....

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frequent transactions in the shares and the intention of the assessee is not to invest for earning the dividends or for capital appreciation, but to earn profit at a short notice. The assessee has not denied the frequency of transactions he made. Details of some of the transactions were even mentioned in assessment order. Thus the assessment was correctly made by treating the short term capital gains as business income. 8. The CIT (A) held as follows: 6.0 I have gone through the facts of the ca .....

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AO in the assessment order. These facts have no bearing on the issue which is before me. During the course of proceedings, the AR of the appellant drew a parallel and a comparative factual position in support of his contention from the decision of ITAT & Mumbai High Court in the case of Gopal Purohit. 6.1 It is observed that in the earlier years the AO has the claim of the appellant uninterrupted on identical facts which are prevalent during the year under consideration and allowed the same .....

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investment but an intentional activity in the form of business adventure. An intention is an anticipated outcome that is guided through a process and a purpose to obtain the end result. In the case of the appellant such intention is not clearly brought out by the AO to give it a character of adventure or business activity . 9. The ld Counsel reiterated the submissions made before the CIT (A). The ld DR relied on the decision of Smt. Sadhana Nabera vs. ACIT (ITA No.2586/Mum/2009) dated 26th Marc .....

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on the case laws referred to by lower authorities in their respective orders. The question as to whether the assessee has earned capital gain or business profits on the shares sold by him depend on the facts and circumstances of each case. Such decision is to be arrived at by taking into account the intention of the assessee while purchasing the shares, as to whether the same was acquired for holding as investment or for doing business therein. The treatment given by the assessee in its books o .....

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ing out of sale of such shares are liable to be treated as business income. Volume and frequency of transaction is also one of the guiding factors to find out whether assessee is engaged in the business of purchase and sale of shares or making investment to have capital gains thereon. In the instant cases before us, we found that the assessee has invested in shares of Indian Companies which is clear from the statement of shareholding of the assessee. Thus, the fact of the assessee investing in s .....

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ost or market price whichever is lower, the gain arising out of sale of shares could easily be treated as business income. Assessee had not valued the shares as stock but valued the same as investment. Thus, what was a capital asset will remain a capital asset unless a person holding the asset himself changes the nature by a specific action like conversion of capital asset into stock in trade. In view of the decision of Hon'ble Supreme Court in the case of Ram Kumar Agarw & Brothers, 205 .....

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hed aside without proper reasoning. In this regard, reliance can be placed on the decision in case of S.M.K. Shares and Stock Broking Private Limited, I.T.A. No. 799/Mum/09 order dated 24.n.201O. In this proposition, the decision of Hon ble Supreme Court in the case of Gopal Purohit, 228 CTR 582, is very much relevant and important. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conc .....

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