TMI Blog2015 (9) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... ce sheet of the assessee it is quite clear that no specific funds were borrowed for the purchase of shares and the main source of investment in shares and securities was from the capital account of the assessee. Assessee has also maintained separate profit and loss account for F & O business and no link between investment account and F & O business has been brought on record by the AO and the investment in shares and securities have been brought forward from Financial Year wherein as on 31st March, 2005 the investment in shares and security ₹ 1,05,11,605/-and thereafter during the Financial Year 2005-06 the shares purchased and sold under the investment account have been treated as short-term and long term capital gains. However, looking to the transactions entered into by the assessee as shown under the head short term capital gains, have been properly analyzed by the CIT(A) and, therefore, in view of above, we do not find any error at the end of learned first appellate authority and, therefore, no interference is called for in the order of CIT(A). - Decided against revenue. - ITA No.1496/Ahd/2011 - - - Dated:- 28-8-2015 - Shri Rajpal Yadav and Manish Borad, JJ. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case on the principles laid down for finding that whether the transactions of purchase and sale of shares constitute under this activity or short term/long term capital or both depending upon the treatment given by the assessee in his books of accounts. However, the CIT(A) heavily relied on the decision of ITAT, Ahmedabad in the case of Shri Sugam Chand C. Shah vs. ACIT, Circle-3, Surat in ITA No.3554/Ahd/2008 for AY 2005-06 and 1932/Ahd/2009 for AY 2006- 07 and made the following finding :- 2.3 I have considered the facts of the case, assessment order and appellant s submission. Assessing Officer treated short-term capital gain disclosed by the appellant as business profit on the ground that appellant was not making investment but trading in shares. On the identical facts, ITAT Ahmedabad in the case of Shri Sugam Chand C. Shah vs. ACIT, Circle-3, Surat in ITA Nos. 3554/Ahd/2008 for AY 2005-06 and 1932/Ahd/2009 for AY 2006-07 held that in cases the shares are held for more than 30 days, the transaction has to be categorized on an investment transaction whereas the sales held for a period upto 30 days, the same shall be treated as business transactions. In arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and Revenue is holding such accounting treatment as investment in the past. Thus, there cannot be a fixed criteria to decide as in the present case whether assessee has traded in shares eventhough assessee held them as investment. 18. Though it has been held in the case of Sarnath Infrastructure (P) Ltd.(supra) that delivery of shares is an important criteria for holding that assessee is investing in them but after dematization where shares are delivered in the DEMAT account the next day, it cannot be held that in all such cases, it would be investment and not trading. If that is so held, then all those traders in shares in whose DEMAT accounts shares are delivered can be said to have earned capital gains and not profits. Therefore, only one criteria, i.e. Delivery of shares alone will not be sufficient to decide the issue. Even otherwise in Sarnath Infrastructure (P) Ltd.(supra) itself it has been held that cumulative effect of several factors will decide the issue. 19. Considering the totality and peculiarity of the facts of this case, we find that assessee is neither fully acting as a trader nor as fully investor. Demarcation is quite hazy; though in the books he is show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BDT Circular also recognizes possibilities of two portfolios i.e. one investment portfolio comprising of securities which are to be treated as capital asset and the other trading portfolio comprising of stock-in-trade which are to be treated as trading assets. The ld. AR made reference to certain principles culled out from the decision of ITAT Lucknow Bench in the case of Sarnath Infrastructure (P) Ltd. vs. ACIT 124 ITD 71 (Luck). After considering the above ruling we culled out following principles which can be applied on the facts of the case to find out whether the transactions in question are in the nature of trade or are merely for the purpose of investment. The relevant portion from the above judgment read as below- In view of the Circular No.4 of 2007, dated 15.6.2007, and various decided cases, following principles can be applied on facts of a case to find out whether transactions in question are in nature of trade or merely for investment. a. 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 that it gives to such purchase in its books of account. Whether it is treated as stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or not so much frequency of sale and purchase will alone be not sufficient to say that the assessee was holding the shares (or the items in question) for investment. i. One has to find out what are the legal requirements for dealing as a trader in the item in question and whether the assessee is complying 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? j. It is permissible as per the CBDT s Circular No.4 of 2007 dated 15.6.2007, that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate accounts for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. k. Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors, has to be seen.(Pra 13) 7. The ld. AR of the assessee made following submission. While applying the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpared to a trader in shares. Looking at the above facts it is aptly clear that the transactions executed by the assessee vis a vis his average holding of shares in value and days, the activity of the assessee are not in the nature of business and hence constitute investment activity. The assessee is following a prudent method of diversifying his risk by investment in a number of scripts and this is a prudent practice followed by major mutual funds to derisk their portfolio. Hence the contention of the assessing officer that the assessee is holding a large no of scrips and has transacted in a large number of script in no way can classify the activity of the assessee as trading activity. (iii) whether the motive behind purchase and sale of shares was earning profit or income by way of dividend, etc: The above principle states the investment should be made with the objective to earn dividend, etc. The assessee has earned substantial dividend income of ₹ 2,92,293/-, had the investments be held for a short period the assessee could not have earned dividend income of substantial nature being almost 3% of the average investment holding. In light of the above circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue came to ₹ 13426527/- only and ₹ 15795963/- respectively and magnitude of some transactions were very high and the AO also mentioned that in case of shares of IPCL, on a particular date there was purchase transaction of more than 6900 shares involving investment of ₹ 11,93,196/- which were sold on the very same day at ₹ 15,52,426/-. It is also seen by the AO that the assessee was engaged in the business of F O transaction and during the year the sales in F O category amounted to ₹ 5,66,37,310/- and the assessee has shown the profit from F O business at ₹ 4,75,294/-. Due to these very reasons the AO has believed that the transactions of sale and purchase of shares which were claimed by the assessee under short term capital gain head, as income from business transaction. But the AO has accepted the capital gains from sale of shares held by the assessee for more than one year as long term capital gain which means that the AO has accepted that assessee is having some part of his portfolio as for investment and not for business which further gives support to the claim of assessee by showing income from share transactions in two heads i.e. ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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