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2016 (1) TMI 605 - ITAT MUMBAI

2016 (1) TMI 605 - ITAT MUMBAI - TMI - Assessment of Capital gain arising on sale of shares as “Business income" - Held that:- As 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 .....

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ares at cost in its books of account and further the “Profits and gains from business” has to be arrived at in accordance with the method regularly followed by the assessee. The AO has further pointed out that the closing stock of the first year becomes opening stock of the succeding year and hence the ultimate tax effect would be nil. In our view, there is merit in the stand taken by the assessing officer. As observed by him the Profits and gains of business has to be arrived at the method of a .....

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d by the assessee are directed against the common order dated 06-04-2011 passed by Ld CIT(A)-9, Mumbai for assessment years 2004-05 and 2005-06. The issues urged in both these appeals are identical in nature and hence they were heard together and are being disposed of by this common order, for the sake of convenience. 2. The 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 .....

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ing items of receipts:- Particulars of receipts AY 2005-06 2004-05 Profit on sale of shares 3,70,58,123 5,17,13,449 Interest income 11,81,549 4,44,026 Dividend income 30,17,098 32,46,765 It is also pertinent to note that the assessee suffered on sale of shares to the tune of ₹ 2,00,94,768/- and ₹ 97,23,342/- during the years relevant to the AY 2005-06 and 2004-05 respectively. The assessee declared profit/loss arising on sale of shares under the head Income from Capital gains. Howeve .....

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s At cost . Before the tax authorities, it did put a claim to allow valuation of the closing stock of shares at lower of cost or market value. The said claim did not find favour with the tax authorities. Hence the assessee has urged before us both the alternative claims discussed above. 5. It may be noticed here that the appeals filed by the assessee before the Tribunal were originally disposed of by restoring the matter to the file of Ld CIT(A) with the direction to pass a reasoned order. In th .....

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d 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 gain only. 7. The Ld D.R, on the contrary, submitted that the assessee has borrowed funds for purchasing shares. Further the volume of purchase and sales are very high which would vindicate the stand of .....

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king investments, but it was to earn profit by trading in shares. 8. We heard the parties and perused the record. We notice that the assessee company was formed with the main objective of carrying on financing activities. Though the assessee company was formed in the year 1994, it effectively commenced its operations only in the year relevant to the assessment year 2004-05. A perusal of the components of gross receipts extracted above would show that the assessee has earned major chunk of its in .....

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y 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 ₹ 39.82 crores, both aggregating to about ₹ 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 .....

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en fully funded by the borrowed funds of ₹ 1082.08 lakhs only. Thus, we notice that the assessee has purchased shares only out of borrowed funds during the financial year relevant to the AY 2004-05. In the year relevant to the assessment year 2005-06, the assessee has brought in Share capital to the tune of ₹ 5.00 crores. However, we notice that the borrowings have come down only to ₹ 836.68 lakhs, which means that the assessee has repaid loans only to the tune of ₹ 245.4 .....

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ed out the share trading activity in a continuous manner, in view of the huge volume 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 continu .....

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Hence, there is merit in the observation of the AO that the assessee has devoted most of its time to share trading activity only. 12. Further, a perusal of the Computation of total income filed by the assessee for both the years under consideration would show that the assessee has declared huge amount of Short term Capital gains only (Rs.412.07 lakhs in AY 2004-05 and ₹ 165.12 lakhs in AY 2005-06) in both the years, except a nominal amount of ₹ 6047/- as Long term capital gain in AY .....

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shares as a trader only. The assessing officer has further pointed out that the dividend has been earned only from part of the shares, which shows that the intention of the assessee was not always to earn dividend income by holding the shares as its investment. The assessing officer has also pointed out that the entries made in the 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. 1 .....

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. Before us, the assessee placed reliance on the order passed by the co-ordinate bench in AY 2006-07, wherein the Tribunal has reversed the findings of the assessing officer, i.e., this issue was decided in favour of the assessee. We further notice that the order passed by the Tribunal for AY 2006-07 was subsequently followed by the Tribunal in AY 2007-08 and 2008-09. Admittedly all the above said orders pertain to succeeding years, where as we have considered the facts available on record for t .....

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5 to 2008-09. Hence, there is no inconsistency in the stand of the assessing officer and hence, we are of the view that the assessee could not place reliance on the above said decision of Hon ble jurisdictional Bombay High Court. Since we have decided this issue on the basis of facts available in the instant case, the other case law relied upon by the assessee need not require consideration. 16. In view of the foregoing discussions, we uphold his order on this issue. 17. The alternative contenti .....

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