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ASSISTANT COMMISSIONER OF INCOME-TAX Versus MRS. PRIYABEN AMALBHAI KOTHARI

2015 (12) TMI 1227 - ITAT AHMEDABAD

Profit earned on sale of share - long-term capital gains OR business income - Held that:- There has been some deviation to the contentions placed by learned authorised representative in relation to consistent treatment of transactions of purchase/sale of shares under the head "shares investment account". There is no dispute that the books of account are audited under section 44AB of the Act duly certified by the chartered accountant and showing the total stock of equity shares held by the assess .....

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he assessee will place all records. If the Assessing Officer is satisfied that the assessee has consistently treated the shares investment account as her investment for long-term purposes and has not shifted the stock in investment account to shares trading stock account or share derivatives account or vice versa then the Assessing Officer will accept the claim of the assessee of claiming deduction under section 10(38) of the Act for long-term capital gains from sale of equity shares and if cont .....

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an, authorised representative, for the respondent. ORDER The order of the Bench was delivered by 1. Manish Borad (Accountant Member).-This is an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals)- XVI, Ahmedabad, dated September 12, 2011. Assessment order for the assessment year 2008-09 has been framed under section 143(3) of the Income-tax Act, 1961 (in short the Act) by the Assistant Commissioner of Income-tax, Circle-10, Ahmedabad, vide order dated December 23 .....

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ome-tax (Appeals) may be set aside and that the order of the Assess ing Officer be restored to the above extent. 2. Briefly stated the facts of the case are that the assessee filed return of income for the financial year 2007-08 relevant to the assessment year 2008- 09 on September 29, 2008 declaring total income of ₹ 11,43,940. The case was selected for scrutiny and assessment was completed by issuance of notice under section 143(2) of the Act on December 23, 2010. In the return of income .....

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(closing stock of shares) and not under the head "investment" consistently. 3. In disallowing the claim of exemption under section 10(38) of the Act the Assessing Officer relied on the decision of the hon'ble Supreme Court in the case of CIT v. Associated Industrial Development Co. P. Ltd. [1971] 82 ITR 586 (SC) wherein the hon'ble court has observed (headnote)- "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter .....

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nvestment will be based on the intention of the assessee and intention can be judged on the basis of the records of the assessee and it clearly transpires from the past records of the assessee that the shares held by the assessee forms part of the stock-in-trade. 5. Taking reliance on the above judicial pronouncement, the Assessing Officer went ahead in making the addition of ₹ 28,81,963 in the hands of the assessee by treating the profit from sale of equity shares as business income where .....

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IT v. Associated Industrial Development Co. P. Ltd. [1971] 82 ITR 586 (SC), which was the main basis taken by the Assessing Officer in making the addition in the hands of the assessee. It would be relevant to reproduce the relevant contents of the order of the Commissioner of Income-tax (Appeals) which reads as under : "2.12 The Assessing Officer has relied upon the decision of the hon'ble Supreme Court in the case of CIT v. Associated Industrial Development Co. P. Ltd. [1971] 82 ITR 58 .....

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holdings in the various companies were treated as investment and not as stock-in-trade of the assessee's share-dealing business. The Income-tax Officer held that the profit was taxable as the assessee was entitled, under its memorandum of association to deal in shares. On appeal, the Appellate Assistant Commissioner upheld the Income-tax Officer's orders. On second appeal, the Tribunal held that the assessee was a dealer in shares which were confined to the shares of the managed companie .....

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be a capital and not a revenue receipts. On appeal before the Supreme Court, it was held that- 'The High Court went beyond the matters which were the sub ject-matter of controversy before the Departmental authorities and the Appellate Tribunal. It was never the case of the assessee at any stage that although it was a dealer in shares those shares which were the subject-matter of sale were held by way of investment. It had maintained throughout that all the shares were held by it as an inves .....

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or, the multiplicity of the transactions occurring successively over the years supported the departmental stand that the assessee had ceased to be an investor and had become a dealer. . . . Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any di .....

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admittedly proceeds of sale of all the shares held by the assessee were being credited as and when the sales were made and that these shares had not been sold with any amount of frequency could not be regarded as sufficient to establish that these shares had been held by way of investment. Even otherwise it was for the Appellate Tribunal to give its decision on facts and since no decision was invited from the Tribunal as to whether the shares in question had been held by way of investment it was .....

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ur the appellant. There is no case of the extensive dealings and other facts and circumstances which were taken into consideration. There is absence of the multiplicity of the transactions occurring successively over the year. The appellant had established that the sold shares were shown as investment in the ledger account maintained in the books of account as 'shares investment account'. The 400 shares of Syntex Industries Ltd. valued at ₹ 880 were shown in 'share delivery acc .....

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ares investment account' was conveniently ignored by the Assessing Officer. Even otherwise also, the entry in the books of account are not conclusive to hold the sale of shares as business income. There is absence of multiplicity of the transactions occurring successively over the year and extensive dealings. There was absence of frequency continuity and regularity of transactions of purchase and sale of shares as the most important test laid down by the hon'ble Gujarat High Court in the .....

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the profit on sale of aforesaid shares for ₹ 28,81,963 as 'long-term capital gains'. The only ground of appeal is allowed. 3.0 In the result the appeal is allowed." 7. Aggrieved, the Revenue is in appeal before us. 8. The learned Departmental representative along with relying on the order of the Assessing Officer also submitted that as the assessee herself has been showing the investments in equity shares under the head 'closing stock' forming part of trading and prof .....

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spect of long-term investment as well as trading of shares. The long-term capital gain arose only from few scrips which were held for a period of more than 12 months. The learned authorised representative also submitted that the assessee has bifurcated his closing stock of shares in three sub- groups namely-'shares investment account', 'shares delivery account' and 'shares derivatives account' and the total closing stock as on March 31, 2008 in these sub-groups was ₹ .....

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16, 2012 that the assessee has shown long-term capital loss of ₹ 1,84,140 during the assessment year 2005-06 and there was no capital gains during the assessment year 2006-07 and the assessment year 2007-08 and the assessee has shown long-term capital gains from sale of shares held for investment at ₹ 28,81,963 during the assessment year 2008-09 which is under appeal. In a nut shell learned authorised representative tried to convince that the assessee who even if has shown the total .....

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and the surplus/ deficit from the transactions from purchase/sales of shares under shares stock account and shares derivative account are being shown as business income. 10. We have heard the rival contentions and gone through the facts and circumstances of the case and perused the material on record. The issue before us is to examine as to whether the Assessing Officer is correct in treating the surplus amount arising out of sale and purchase of shares at ₹ 28,81,963 as business income, .....

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k and derivatives. The impugned additions pertain to investment portfolio. The Commissioner of Income-tax (Appeals) also mentioned in his appellate order that there is no bar in law that the present gain maintained to different portfolios. The Commissioner of Income-tax (Appeals) has given his finding on facts which has not been controverted by the Revenue. 11. Now in order to examine the contentions of the learned authorised representative in regard to the claim of the assessee of maintaining t .....

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on record the sub-group share investment account as on March 31, 2006, March 31, 2007 and March 31, 2008 and asserted upon that the surplus and deficit from sale of shares held in this sub-group has been consistently shown as capital gain. Before we analyse this aspect we reproduce below the details of long-term capital gain shown by the assessee in the relevant financial year for the year under appeal : Name of company Date of purchase No. of shares Net capital gain (Rs.) Aditya Birla Ltd. 1.4 .....

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ether in one chart against the particular company : Share investment account Particulars Quantity as on 31.3.2006 Quantity as on 31.3.2007 Quantity as on 31.3.2008 AIPL 5,045 nos. 5,045 nos. 5,045 nos. AMAL Co Poly Fibres 475 nos. 475 nos. 475 nos. A.S.E. 130 nos. 130 nos. 130 nos. Asea Ltd. DEB 24 nos. 24 nos. 24 nos. Bartronics India Ltd. 25,000 nos. 22,000 nos. 3,000 nos. BFL Software 200 nos. 200 nos. Bharat Forge Ltd. 800 nos. 800 nos. BIRL 3M 200 nos. 200 nos. Britania Ind Ltd. 50 nos. Guj .....

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3. The above chart of share investment account as on March 31, 2006, March 31, 2007 and March 31, 2008 will help to note that which company's share have been sold during the particular year so as to reconcile with the capital gain from sale of shares shown by the assessee in its return of income. From going through the above share investment account following issues are noticed : (1) The quantity of shares of Bartronics India Ltd. as on March 31, 2006 was shown at 25,000 nos. and the same re .....

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were appearing in the shares investment account as on March 31, 2006 as well as on March 31, 2007 but are not appearing in the shares investment account as on March 31, 2008. BFL Software (500) Birla 3M (200) Gujarat Foils (100) Indo Gulf Fertilizer Corpn. (500) Kerala Ayur (500) Neycl Shares (1000) Padmani Tech (200) SSI (200) Telco (100) 14. Thus this raises question-that if all these shares were sold during the financial year 2007-08 then why the long-term capital gains/long-term capital los .....

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