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2015 (7) TMI 914 - ITAT AHMEDABAD

2015 (7) TMI 914 - ITAT AHMEDABAD - [2015] 42 ITR (Trib) 442 (ITAT [Ahm]) - Transaction of shares - business income instead of short term capital gain - Held that:- In the immediately subsequent year, ld. Assessing Officer has treated the asssessee as an investor. Similarly, in Assessment Year 2010-11 again, ld. Assessing Officer has accepted the assessee as investor vide assessment order dated 28-01-2013 passed u/s. 143. According to the assessee, in earlier years also, her status was never cha .....

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rder of the Commissioner of Income Tax (Appeals) deleting the addition of ₹ 61,64,711/- out of ₹ 61,97,756/- treated by Assessing Officer as business income instead of short term capital gain shown by the assessee. - Decided against revenue.

Addition on interest income - CIT(A) deleted the addition - Held that:- Without appreciating the fact that FDs have not matured at the end of the year and, hence, the said interest figure cannot be adopted, the ld. Assessing Officer h .....

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figure, therefore, we do not find any merit in this ground of appeal also. It is rejected.- Decided against revenue. - ITA No. 1639/Ahd/2011 - Dated:- 24-7-2015 - Shri G. D. Agrawal and Shri Rajpal Yadav, JJ. For the Petitioner : Smt. Sonia Kumar, Sr. D.R. For the Respondent : Shri Hardik V. Vora, A.R. ORDER PER : RAJPAL YADAV, JUDICIAL MEMBER:- Revenue is in appeal before us against the order of ld. Commissioner of Income Tax (Appeals) dated 28th February, 2011 passed for Assessment Year 2008- .....

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t and a notice u/s. 143(2) was issued on 26th August, 2009. The Assessing Officer thereafter issued a questionnaire u/s. 142(1) on 6th January, 2010. In response to the notice, Shri Chetan Desai, chartered accountant appeared on behalf of the assessee from time to time and submitted the requisite details. On scrutiny of the accounts, it revealed to the ld. Assessing Officer that assessee has declared short term capital gain of ₹ 61,97,756/- and paid taxes on it u/s. 111(a) of the income ta .....

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ee as to why the short term capital gain disclosed by her be not treated as a business income. The ld. Assessing Officer has reproduced the details of shares purchases and their sales on page no. 3 of the assessment order. He further observed that in response to the show cause notice, assessee was required to submit her reply by 4th December, 2010 but she failed to respond. Thus, the Assessing Officer treated the short term capital gain of ₹ 61,97,756/- disclosed by assessee as business in .....

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ore than ₹ 3.05 crores per annum and for the said job, she has to also frequently make visits out of India. The learned AR further explained that the appellant is the vice-president of the company handling the operation of Surat and Mumbai office and marketing the products of the company through out the country and for which she has even been allotted a residential accommodation at Mumbai in addition to her own residence at Surat and thus, leaving no time for her to indulge in any other bu .....

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The appellant has also consistently shown the shares in her balance sheet as investments and not as stock in trade and thereby also not claimed the benefit of diminution in the market value of the shares since in case of stock in trade, the valuation thereof has to be done at cost or market value whichever is lower. The appellant has also shown that if the shares held by her at the year end are valued at cost of market value whichever is lower, then the income on the sale of shares during the y .....

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g period in case of shares sold during the year also works out to 69 days i.e. a period of more than 2 months. Thus, the volume and frequency in the case of the appellant suggests the act as an investor and not as a business-man since a business-man would generally not carry out his business for only 56 days out of 365 days in a year. Moreover, the Board Circular no - 4 dated 15-06-2007, lays down various principles for distinction between shares held as investment and shares held as stock in tr .....

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ck in trade and the total effect of all the principles should be considered to arrive at a final conclusion. Hence, in the present case, the AO is not correct to correct to a conclusion that the shares are held by the appellant as stock in trade only on the principle of frequency of transactions without considering all the other principles is laid down in the said Circular as discussed earlier. Further, the AO's observation that the purchase and sale of shares on the same day, in different l .....

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hase or sale of the ordered quantity in different lots during the market hours on the same day so as to fetch a best price for his client instead of buying or selling on a single time and moreover, sometimes, even the entire lot as ordered by the buyer for purchase of sale may not be available in one go. The said view even stands affirmed by the Mumbai Bench of the ITAT in the case of Mr. Nehal V. Shah Vs. ACIT 21(1) in ITA No. 2733/Mumbai/2009 vide order dated 15-12-2010 wherein also it has bee .....

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ale of shares on the same day, which is not through her DEMAT account and thus, as per the provisions of section 43(5), I hold that only the said amount of ₹ 33,0457- out of the short term capital gain of ₹ 61,97,756/-, needs to be treated as business income and the balance amount of ₹ 61,64,711/- needs to be treated as short term capital gain income. In result the ground of appeal no. 1 as raised by the appellant stands partly allowed. 5. We have duly considered rival contenti .....

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on as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise a debate. Nevertheless, we have to look into the curious features of this case which will goad us .....

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e facts of a case to find out whether transaction(s) in question are in the nature of trade or are merely for investment purposes: (1) What is the intention of the assessee at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or nontrading asset. (2) Whether assessee has borro .....

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ings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motiv .....

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authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice verse. 7. It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stockin- trade .....

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ying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made? 10. It is permissible as per CBDT s Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for .....

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ure. This expression has been construed to mean that it is used in the taxing statute in a sense of an occupation or profession which occupies the time attention and labour of a person with an object of making profit. Hon ble Madras High Court in the case of Commissioner of Income Tax vs. Amalgamation Pvt. Lt reported in 108 ITR page 855 has observed that, requirement of business is that there must be real, substantial and systematic, organized course of activity or conduct with the set purpose .....

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to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to .....

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es and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes s .....

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a detailed evaluation of a large number of decisions, the ITAT had culled out the broad test to be applied on facts of any given case. Hon ble jurisdictional High court has also propounded certain broad test under which the transaction of an assessee to be examined. 10. In the light of the above, let us examine the facts of the present case, the stand of the assessee is that she is a full time employee in Sarin Technology (India) Pvt. Ltd drawing yearly salary of more than 3.05 crore. He had sur .....

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2nd April, 2007. According to the assessee, it was a single transaction of 10,200 of shares and not 15 transactions as mis-understood by the Assessing Officer. The asssessee also highlighted that in the past and subsequent year, she has always treated her shares as investment in the balance sheet and not stock in trade, because the shares were valued at cost and not on market value on the closing day of the year. She had no infrastructure i.e. office or supporting employees for looking after inv .....

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tor. Similarly, in Assessment Year 2010-11 again, ld. Assessing Officer has accepted the assessee as investor vide assessment order dated 28-01-2013 passed u/s. 143. According to the assessee, in earlier years also, her status was never changed by the Assessing Officer. On due consideration of these facts, we are of the view that ld. Assessing Officer was simply influenced by magnitude of transactions. To our mind, magnitude of transaction is one of other factor amongst others for deciding the n .....

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