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Dy. Commissioner of Income-tax, Circle-8, Surat Versus Smt. Rajeshwari Mehta, Surat

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 changed by the Assessing Officer. On due consideration of these facts, we are o .....

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8377; 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 FD’s have not matured at the end of the year and, hence, the said interest figure cannot be adopted, the ld. Assessing Officer has erred in taking the figure of ₹ 2,63,748/- against the figure of &# .....

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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 2008-09. 2. In the first ground of appeal, revenue has pleaded that ld. Commissio .....

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ficer 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 tax act. The ld. Assessing Officer on an analysis of the details of shares pur .....

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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 income. 4. On appeal, ld. Commissioner of Income Tax (Appeals) has accepted th .....

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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 business activity. Thus, the quantum of salary and the scope of the job prime- .....

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s 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 year would work out to ₹ 44,74,8137- as against the short term capital .....

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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 trade such as whether the shares are held by the assessee as a capital asset o .....

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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 lots, of the same company, vide a single contract note, is very high and thus .....

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rs 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 been held that the sales on the same day but in different lots of the shares of .....

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us, 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 contentions and gone through the record carefully. The issue, whether gain from sale .....

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lish 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 on just conclusion. 6. Before we embark upon an inquiry on the facts of pre .....

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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 borrowed money to purchase and paid interest thereon? Normally, money is borrowed .....

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s 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 motive is an essential ingredient of trade. (5) How the value of the items has be .....

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e 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) then onus would shift to Revenue to prove that apparent is not real. 8. Th .....

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ing 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 each type, there are distinctive features for both and there is no interming .....

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g 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 of earning profit is to be termed business. 8. The hon ble Gujarat High Cour .....

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s. (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 why and how and for what purpose the sale was effected subsequently. (c) Th .....

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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 such an activity. (f) The last but not the least, rather the most important t .....

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t 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 surplus funds with her which have been invested in shares and mutual funds. In .....

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0,200 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 investment. She had made the entire transaction through demat account, and has .....

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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 nature of investment, whether it was a trading in shares or simplicitor inves .....

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