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2015 (4) TMI 756 - ITAT MUMBAI

2015 (4) TMI 756 - ITAT MUMBAI - TMI - Treatment of gain on sale of shares - Business income or Capital gains - No borrowings to fund investment - Held that:- On going through the order of the CIT(A) and the material placed on record, we find that the CIT(A) has taken into consideration the facts as well as legal position and the circulars of the CBDT, but did not interpret the same judiciously, as per the apparent facts of the case. Since the number of transactions were 48 in the entire year, t .....

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approach by the assessee as well as by the department. However, in the instant years, the revenue authorities did not specify anything to suggest that somehow the facts were different, or conduct of the assessee was so different, to hold differently. We find ourselves gainfully supported by the decision of Special Bench of the ITAT at Mumbai in the case of Gopal Purohit [2009 (2) TMI 233 - ITAT BOMBAY-G] , which has since been approved by the Hon’ble Bombay High Court, dismissing the appeal fil .....

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es in an organized and in any continuity. Besides this one of the most important factors is the intention the assessee. The intention has to be seen at the time of acquisition of shares, i.e. whether to hold or dispose off. This has to be gathered from the actual conduct of the assessee while dealing with the shares, We are supported by the decision of the Hon’ble Supreme Court in the case of CIT vs Madangopal Radheylal [1968 (9) TMI 14 - SUPREME Court]. In the instant case the holding period is .....

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And Shri Vivek Varma JJ. For the Appellant : Shri Madhur Agarwal For the Respondent : Shri Pavan Kumar Beerla ORDER Per Vivek Varma, JM: The two appeals are filed by the assessee against the orders of CIT(A) 9, Mumbai, both dated 12.10.2009. The issues raised in both the assessee s cases are same, i.e. treating gain on the sale of shares as business income in place of capital gains, claimed by the assessee. We, therefore, are disposing off both the appeals through this common and consolidated o .....

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ther than capital gains the assessee has shown dividend income of ₹ 1,99,958/- and debenture interest at ₹ 484/- 3. In the assessment proceeding, AO asked the assessee to explain as to why profits on the purchase and sale of shares, shown under the head short term capital gains, should not be brought to tax under the head Business Income . The assessee filed detailed submissions vide letters dated 17.122007 and 26.122007. The AO also noticed that the assessee has used borrowed funds .....

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tio of sales and purchases i.e. one to one sales and purchases, iv) Devotion of time and money in the activity as a means of livelihood of assessee, etc. 4. The AO further held that the assessee carried out the transactions only to avoid payment of taxes and to reduce the tax burden. The AO held that the assessee had shown these transaction of purchase and sale of shares when Security transaction act was introduced. This clearly means that the intention of the assessee was to earn profits from t .....

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essee also submitted that it was investing in shares and securities since 1995 and was also doing trading in shares till 31.03.2003. Since then, there is no SIT and there is no activity by the assessee in the nature of trade. The assessee also submitted that the transactions were delivery based and there were no borrowed funds. 7. The assessee also pointed out that the average period of holding in the case of STCG was 84 days and in LTCG, it was more than 16 months. It was further submitted that .....

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lied on the following case laws: Sr. No Case Law Citation A Janak S Rangwala 11 SOT 624 B Fidelity Northstar Fund & Ors 288 ITR 641(AAR) C Bikhamchand Bagri vs CIT 44 ITR 746 D CIT vs NSS Investment (P) Ltd 277 ITR 149(MAD) 8. The CIT(A), after considering the detailed arguments of the assessee, held, I have considered the submissions of the assessee and perused the facts of the case. The question whether particular transactions are trade transactions or are in the nature of investments only .....

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onorable Supreme Court observed that 'the presence of all these factors may help the court to draw an (inference that a transaction is in the nature of trade, but it is not a matter of merely counting the numbers of facts and circumstances pro and cons, what is important is to consider their distinctive character.' CBDT bas also issued clarified this issue from time to time. First clarification was in the form of instruction 1827, dated August 31, 1989 and second clarification was by cir .....

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ransaction. If purchases are made with a view to resell it may be treated as trade transactions. (ii) Whether the assessee is a trader in commodity and the transaction of purchase and sale of commodity are allied to his usual trade or business or incidental to it. (iii) Whether the assessee has carried out any act subsequent to purchase to improve the quality of product and whether these acts are usually carried out in that trade. (iv) The period of holding of assets. (v) Substantial nature of t .....

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for giving different treatment. This -point has also been emphasized in the board circular no 4/2007 dated 15.6.2007. (xi) Continuity of transactions. If there is-continuity andregularity then it can be held that a person is carrying out business in those transactions. (xii) Sources of investments. It borrowed funds are utilized in the transactions are trading in nature. Court has time and again held that it is not possible to enumerate all the legal principles that should guide the AO. These l .....

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chand Thapar & Bros Pvt. Limited Vs CIT 82 ITR 899 10. Fidelity Northstar Fund, in re 288 IIR 641 12. N S S Investment Pvt Limited 277 ITR 149 (MAD) 13. CIT Vs Motley Finance Limited. 190ITR 719 These legal principles are only illustrative and not exhaustive. Therefore the AO has to decide the issue on the facts and circumstances of each case. 3.2 In the case of the Assessee it has shown short term capital gains of ₹ 24,82465/-. The AO has wrongly taken the figure at ₹ 23,12,026/ .....

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assessee in shares is only ₹ 98.77 lacs. Thus the turnover of the Assessee is nearly three times of average fund used for investment. It is further seen that the assessee company has only two shareholders. These two persons are also the directors of the Assessee company. These persons are Mr. S.P. Tulsian and his wife Tulsian. Shri S. P. Tulsian is a member of National Stock Exchange and this main income is earned from brokerage He earned brokerage of ₹ 31,09,770/- From shares. He is .....

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the investment of the assessee in shares on average is ₹ 80 lakhs. In comparison to dividend income, the gain of the assessee on in purchase and sale of shares is ₹ 31,46,605/-. The claim of the assessee that it indulged frequently in purchase and sale of shares to protect the value of its investment, is not sustainable in view of high profit earned by the assessee from the purchase and sale of shares. The Assessee came to profits of ₹ 24,82,465/- on average investment of S .....

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he AO had made the wrong basis for treating the capital gains as business income as he had surmised that the assessee was using borrowed funds to fund its investments. The AR took us through APB 17 to show that there was no loan at all, but there has been an increase in the investment portfolio from ₹ 73,27,350/- to ₹ 98,77,083/-. The AR also pointed out complete details of sale and purchase in the investment portfolio was submitted before the revenue authorities, which showed 48 tra .....

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, we find that the CIT(A) has taken into consideration the facts as well as legal position and the circulars of the CBDT, but did not interpret the same judiciously, as per the apparent facts of the case. Since the number of transactions were 48 in the entire year, this according to the CIT(A) was high in the case of the investor. This view by the CIT(A) baldly sustaining the observation of the AO. When we look into the facts, we find that the assessee is neither holding any SIT portfolio, nor w .....

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ifferently. We find ourselves gainfully supported by the decision of Special Bench of the ITAT at Mumbai in the case of Gopal Purohit vs JCIT, reported in 122 TTJ 87 (Mum-SB), which has since been approved by the Hon ble Bombay High Court, dismissing the appeal filed by the department u/s 260A, reported in 336 ITR 287, wherein the basic ratio as laid down was in the case of consistent approach to be adopted in case of separate portfolios maintained by the assessee. 15. As mentioned earlier even .....

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