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TMI Blog2016 (1) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds urged by the assessee relate to the following issues:- (a) Assessment of Capital gain arising on sale of shares as "Business income". (b) Non-allowing of expenses, if the profit on sale of shares is assessed as Business income. (c) Rejection of claim to value closing stock of shares at lower or cost or market value. 3. The facts relating to the case are stated in brief. The assessee company was formed in the year 1994 with the objective of making investment in shares and also do financing activities. It effectively commenced operations in the year relevant to the AY 2004-05. Its gross income for the year relevant to AY 2004-05 and 2005-06 consisted of following items of receipts:- Particulars of receipts AY 2005-06 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the order of the assessing officer. 6. The Ld Counsel appearing for the assessee submitted that the assessee had held the shares for sufficiently long period and further the own funds available with the assessee were sufficient enough to make the investments. He further submitted that the assessee has shown the purchase of shares as "Investment" in its books of account and also earned sufficient amount of dividend income. Accordingly he submitted that the tax authorities are not justified in assesing the profit arising on sale of shares as business income of the assessee. He further submitted that the Tribunal has considered an identical issue in AY 2006-07 and has held that the profit arising on sale of shares is assessable as Capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its income through share trading activity and further it has also incurred losses in that activity in both the years. The Assessing officer has noticed that the volume of purchase and sale of shares was very high in both the years. For example, in the year relevant to AY 2004-05, the assessee has purchased shares worth 43.69 crores and sold shares worth Rs. 39.82 crores, both aggregating to about Rs. 83 crores. The high volume of turnover, in our view also, shows that the assessee was continuously carrying on the activity of purchase and sale of shares. 10. The assessee has claimed that it has used own funds for purchasing shares. However, an analysis of Balance sheet filed by the assessee, in our view, shows otherwise. The Balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lume of purchases and sales. The very fact that the assessee has incurred losses also in the share trading activity further fortifies the same, since the sale of share at losses would be normally undertaken to reduce further loss, which would be possible only if one continuously monitors the movements of the share market. Thus, it is seen that the assessee has been monitoring the movement of share prices in a continuous manner, which is the striking feature of a Share trader only. Further, we have noticed that the interest income formed miniscule portion of its gross income. We notice that the assessee has given loans and advances only to seven parties in the year relevant to AY 2004-05 and to five parties in the year relevant to AT 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account are not always determinative factor to decide about the intention of the assessee. We also agree with the said observations of the tax authorities. 14. In view of the foregoing discussions, we are of the view that it cannot be said that the assessee's intention at the time of purchase of shares was to hold them as investments. In our view, the assessee's conduct and surrounding circumstances discussed above would show that the assessee has actually intended to deal in shares as a trader only. Hence, in our view, the Ld CIT(A) was justified in confirming the assessment of profit arising on sale of shares as business income of the assessee. 15. Before us, the assessee placed reliance on the order passed by the co-ordinate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest expenses and other expenses, if the profit arising on sale of shares is assessed as business income. We notice that the Ld CIT(A) has already given similar directions to the assessing officer. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to consider all the expenses that may be claimed by the assessee. 18. The next issue contested by the assessee relates to the valuation of the closing stock of shares. Though the assessee valued the shares "At cost" in the books, it claimed before the assessing officer that the valuation should be done at lower of cost or market value of shares. The said claim was rejected by both the tax authorities. We notice that the assessing officer has observed that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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