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Dy. CIT, Shri Bahubali Shantilal, Shah Gujarat Samachar, Ahmedabad Versus Shri Bahubali Shantilal, Shah Gujarat Samachar & ACIT, Ahmedabad

2015 (12) TMI 509 - ITAT AHMEDABAD

Treatment given to the profits earned on sale of shares - whether it is to be considered as “business income” or “capital gains” - Held that:- CIT(A) has noted that the shares were acquired by the Assessee in IPO, ILFS Ltd. and J M Financial Services Pvt. Ltd. had partly financed the acquisition of those shares, the entities who had financed had charged fees and the shares were sold shortly after their acquisition. The activity of Assessee was held by the ld. CIT(A) to be in an organized and sys .....

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d, we find that ld. CIT(A) has given a finding of fact that the underlying shares have been acquired by Assessee’s own funds and no borrowed funds have been used, the Assessee had treated the shares as “Investments” and not as “stock in trade” and the motive of trading in those shares have not been established by the A.O and merely by referring to the volume and number of transactions does not establish the motive of Assessee to be a trader of shares. These finding of fact of ld. CIT(A) has not .....

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Petitioner : Shri Dinesh Singh, Sr. D.R. For the Respondent : Shri S.N. Soparkar, A.R. ORDER PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. These 4 appeals of which 2 are filed by the Assessee and 2 appeals are filed by the Revenue are against the order of CIT(A)-I Ahmedabad, dated 24.02.2010 & 09.12.2010 for A.Ys. 2006-07 & 2007-08 respectively. 2. Before us, at the outset ld. A.R. submitted that though the appeals relate to two different assessment years but the issues involved in both the .....

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to be having income from salary, business of share trading, capital gains and other sources. Assessee filed his return of income for AY 2006-07 on 30.12.2006 declaring total income of ₹ 2,48,57,450/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 30.12.2008 and the total income was determined at the ₹ 2,46,96,280/- by inter alia treating the gains earned from sale of shares as business income instead of short term capit .....

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f Capital gain. It is submitted that the income of the assessee be treated and taxed as capital gain only and not as Business Income. 2. Without prejudice to the above, the learned C.I.T. (Appeals) erred in holding that the assessee had derived the surplus of ₹ 28,52,583/- in the purchase and sale of shares of the companies, which were acquired through two entities, who were charging fees for such activities and therefore, the point for determination is that it is a systematic activity of .....

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arned C.I.T. (Appeals) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now. 5. On the other hand the grounds raised by the Revenue in ITA No. 1361/Ahd/2010 reads as under:- 1. The ld. CIT(A) has erred in law and on facts in directing the A.O. to tax surplus of ₹ 1,29,68,597/- arising from sale of shares and securities as short term capital gains as per the provisions of Section 111A and not as business income. 2. On the facts and in t .....

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12 months were considered as Long term capital gains (LTCG) (being ₹ 85,21,36,058/-) and the profit on sale of shares which were held by the Assessee for less than 12 months were treated as Short term capital gains (STCG) (being ₹ 1,58,21,181/-). The treatment of Assessee s claim of LTCG was accepted by the AO but on perusing the details of the transactions that had resulted into gains and that were considered by Assessee as STCG, AO noticed that the transactions of purchases were o .....

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ing purchase of shares and had also obtained overdraft facilities and the interest cost incurred was added to the cost of shares or debited the interest account and that the Assessee had advanced funds to the persons involved in IPO scam for subscribing to the IPO and then in turn obtained the shares from those persons and were sold by Assessee. A.O was therefore of the view that the intention of holding the shares for a longer period and enjoying its benefit was missing in the case of Assessee. .....

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olding as under:- 8.1 Before deciding the main issue, the facts are required to be recapitulated. The facts emerging in the present case are :- The appellant, in the previous year under consideration, has got surplus of ₹ 1,58,21,180/- in the share transactions. In the return, the aforesaid surplus amount has been offered to tax as STCG, which is taxed @ 10%. The appellant has not directly advanced any funds to Rupal Panchal and others, who are involved in the IPO Scam. This has been categ .....

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s Pvt. Ltd. had also partly financed such activity. The appellant has provided part finance to M/s. IL&FS and M/s. J.M. Financial Services Pvt. Ltd. for making application in the IPOs of IDFC Ltd. and Yes Bank Ltd. After acquisition of these shares, these shares have been sold as per the details mentioned by the Assessing Officer at page 19 of the assessment order. 8.2 In the light of these facts, the issue for determination is as to whether the surplus of ₹ 1,58,21,180/- is to be taxe .....

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ciples laid down by Hon ble ITAT, Ahmedabad in the order in the case of M/s. Hipolin Ltd., supra, the facts in the present case are required to be examined. In the present case, the appellant has derived surplus of ₹ 28,52,583/- in the sales/purchase of shares of the companies, the shares of which were acquired through IPOs by applying for the same through M/s. IL&FS and M/s. J.M. Financial Services Pvt. Ltd. The financing for such IPOs is partly borne by appellant and partly by IL& .....

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nufacture." The word "adventure" is defined in the shorter oxford dictionary as a pecuniary venture .................. and the word pecuniary venture, in its turn, is defined as "a commercial enterprise in which there is considerable risk of loss as well as chance of gain." 8.4 In the present case, the appellant has partly financed in the IPOs of certain companies to M/s. J. M. Financial Pvt. Ltd. and M/s. IL&FS. After allotment, these shares have been transferred to .....

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Officer is directed to tax ₹ 28,52,583/- at the rates applicable in the case of business and profession. 8.5 As regards to balance surplus amount of ₹ 1,29,68,597/-, this surplus has arisen as the appellant had mainly invested in shares it's own funds. It is also noticed that investment in shares is shown by the appellant in the account under the head Investment and not stock in trade. Thus, the appellant's intention of making investment was clear. The appellant has not incur .....

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han one year. This itself suggest that the short period of holding is not the criteria to be considered as trading transactions. Apart from this, the section 111A also provides for specific treatment of tax in respect of short term capital asset, particularly when STT has been paid. In appellant's case, the transactions are subjected to STT. Reference may also be made to the Bombay ITAT decision in the case of Gopal Purohit 29 SOT 117, which supports the appellant's explanation. In the c .....

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us. 9. Before us, the Ld AR apart from reiterating the submissions made before AO and CIT(A) further submitted that there are only 57 transactions during the year and the average number of transactions in a month are only 5 and Assessee had also earned huge dividend of ₹ 91.66 lacs. He also submitted on perusing the Balance Sheet it can be seen that against the Investment of ₹ 25.20 crores as on 31.3.2006, Assessee s own capital was ₹ 28.99 crore meaning thereby that most of th .....

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neriwal Vs DCIT (2012) 134 ITD 179 (Bom), ACIT vs Smt Gargi S Patel (2012) 13 ITR (Trib) 386 (Ahm), Dev Ashok Karvat vs DCIT (2012) 50 SOT 167 (Mum) and CIT vs Rohit Anand (2010) 327 ITR 445 (Del). He further submitted that AO is wrong in observing that the Assessee has advanced money to people involved in IPO scam and submitted that Assessee had not acquired any shares from the persons involved in IPO scam and that the observation of the AO was factually incorrect. He further submitted that on .....

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the assessee. 10. The Ld DR on the other hand supported the order of AO and further submitted that in the present case, of the total profits which have been claimed by the Assessee as STGG, Assessee has earned ₹ 71.80 lacs from the sale of shares where the holding period of shares ranged between 0 to 33 days, that the Assessee has also indulged in speculation of shares as is evident from the computation of income and that the facts in the present case are similar to that of Manoj Samderia .....

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LTCG, there is no dispute between both the parties. The dispute is only with respect to the treatment to be given to profits that have been earned on sale of shares which have been held for less than 12 months i.e. whether the profits are to be considered as business income or Short terms capital gains . The total profits of ₹ 1,58,21,180/- is also not in dispute. We find that ld. CIT(A) has noted and which is not disputed by the Assessee is that ₹ 28,52,583/- has been earned by the .....

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nature of trade and therefore it was considered to be a business activity. Before us, no material has been placed on record by the Assessee to controvert the findings of ld. CIT(A). In view of the aforesaid facts and the reasoning given by ld. CIT(A), we do not find any reason to interfere in his order. As far as the treatment of the surplus of ₹ 1,29,68,597/- which is held to be STCG is concerned, we find that ld. CIT(A) has given a finding of fact that the underlying shares have been acq .....

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