TMI Blog2011 (6) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as the first fold of grievance is concerned, we do not find much force in the contentions raised by the assessee. He has filed the return on 29th July, 2007 declaring an income of ₹ 2,62,78,928. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Act was issued on 16th September 2008 which was duly served upon the assessee on 20th September 2008. The proviso appended to sub-section (2) of section 143 of the Act has been amended by the Finance Act, 2008. Prior to amendment in this proviso, no notice under section 143(2) could be served on the assessee after the expiry of 12 months from the end of the month in which the return was furnished. However, after the amendment which has been given effect from 1.4.1988, no notice under sec. 143(2) can be served after the expiry of 6 months from the end of the financial year in which the return is furnished. The Board has also explained that amended proviso of sub-section(2) of section 143 would apply to all such return where notice under section 143(2) could still be issued on Ist of April 2008 under the preamended provisions. The return was filed by the assessee on 29th July 2007. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were not converted into stock-in-trade; xii. Substantial income is earned by way of dividends. 5. Assessing Officer thereafter observed that in order to examine assessee s contentions that the shares were held as investment and not as stock in trade, it is pertinent to examine the facts of the assessee s case in the light of guidelines laid down by the CBDT vide Circular No. 4 of 2007. According to the Assessing Officer, the Board has referred various decisions of the Hon'ble High Courts as well as of Hon'ble Supreme Court. It also includes the ruling given by the Authority of Advance Rulling in 288 ITR 641. Assessing Officer on the strength of this Circular has observed that there are three basic parameters for applying on any transaction for judging whether it is adventure in trade or an investment. According to him, mere existence of the powers in the Memorandum of Association for permitting a company to purchase and sale shares is not a dessive factor for deciding the nature of the transaction. The nature ought to be appreciated from the accounts whether the shares were held as stock-in-trade or not. The substantial nature of transaction, the manner of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and sale of shares was done with the motive of earning profit meaning that the transactions are in the nature of trade. (v) Investment is done from savings/wealth/money/capital generated from one s regular activity. For example a salaried person obtains salary and the excess/surplus money is put in investments. Similarly surplus money/savings of a business man is put in investments. In this case, assessee has no other source of earning but the activity of investment itself. Such an activity thus cannot be termed as that of investment. In fact assessee is in the business of trading in shares securities. (vi) Assessee s contention that he has no time to undertake any business because he is full time involved in the upkeep of ancestral properties is also not acceptable. The scale and frequency of his transactions demand lotoff attention and time. Moreover as per assessee s own submission, a careful analysis, study risk management is done by him before investing. These activities certainly demand substantial time devotion. Thus it cannot be accepted that assessee is full time engaged in the upkeep of ancestral properties. In fact assessee is full time involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital gains. This indicates that assessee operates in the nature of trader and not an investor. (xiv) The portfolio of the assessee would have mostly comprised Government bonds and securities if assessee was an investor. Whereas in his case it is not so. Moreover, this is particularly noteworthy when he himself submits that his objective is to refrain from participation in risk potential activities. This again points to his being a trader and not an investor . 6. Appeal to the learned CIT(Appeals) did not bring any relief to the assessee. 7. Shri Ajay Vohra, learned counsel for the assessee submitted that the issue, whether an assessee has made investment or traded in shares had always given rise to lotoff debate. It is always difficult for the adjudicating authority to clearly draw a line between these two activities. He drew our attention towards two paper books filed by the assessee, one contains copies of 20 judgments rendered by the Hon'ble High Court as well as ITAT. The other contains 243 pages of different details submitted by the assessee during the course of assessment proceedings. He pointed out that right from the judgment of Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing this contention, learned counsel for the assessee further relied upon the order of the ITAT in the case of Shri Prakash Baburao passed in ITA No. 3719/Del/09. He placed on record copy of the ITAT s order. In this case also, assessee was a retired lecturer devoted himself for propagating in religious activities as a member of ISCON. He had transacted in 54 scripts which resulted in sales of more than ₹ 24 crores. Because of this magnitude, Assessing Officer treated him as a trader in shares. On appeal, Learned CIT(Appeals) held that assessee made investments. The ITAT has upheld the order of the Learned CIT(Appeals). Thus, according to the learned counsel for the assessee, frequency of transaction cannot be a criteria for branding any assessee as conducting business in shares. The learned counsel for the assessee further explained the position of the assessee vis- -vis the objection pointed out by the Assessing Officer as well as Learned CIT(Appeals). We will deal with each reason assigned by the Assessing Officer and explained by the assessee. 8. Learned DR on the other hand submitted that frequency of transaction conducted by the assessee itself suggests that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alizing profit or purchases are made for retention and appreciation in its value ? Former will indicate intention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet ? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee) is authorized in memorandum of association/articles of association ? Whether for trade or for investment ? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity ? And vice versa. (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CG Intimation u/s.143(1) of the Act. 2005-06 LTCG STCG Assessment u/s.143(3) of the Act, accepting the appellant as investor and the gains as capital gains. 2006-07 LTCG STCG LTCG= Accepted by the Assessing Officer STCG=In dispute. 2007-08 LTCG STCG Intimation u/s 143 of the Act. 2008-09 LTCG STCG Assessment u/s 143(3) of the Act, accepting the long term capital gains declared in the return. 11. It also emerges out from the record that assessee being investor has not been maintaining any office established or keeping any staff. He is also not registered with any authority or body such as stock exchange and SEBI etc. He is not maintaining regular books of account but submitted the details in respect of the investment before the Assessing Officer. He has not classified the shares held by him as stock-in-trade. The entire portfolio is valued at cost and not at cost or market price whichever is lower because that can only be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, no claim of STT, service-tax etc. and funds were used from his own. We find that Learned CIT(Appeals) has pointed out two more aspects apart from the one pointed out by the Assessing Officer in respect of frequent transaction. Learned CIT(Appeals) has observed that assessee entered into transaction without taking deliveries. The learned counsel for the assessee at the time of hearing, submitted that in paragraph No. 5.5.3, Learned First Appellate Authority has made a reference of acknit-knitting. He pointed out that this observation of the Learned CIT(Appeals) is based on just four transactions which were basically a punching error by the broker of the assessee. He pointed out that assessee had given orders to the broker on 6.4.2005 and 16.5.2005 but due to punching error, the broker also entered sale transaction of the very same shares and the trade got executed on the BSE Terminal which could not be reversed. The assessee had placed on record the details of this transaction. It relates to broker bonanza stock (BT 39). The amount involved is ₹ 16,944 and ₹ 53,885. The square off difference is 188 and 110 rupees. Thus, assessee has squared up these tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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