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2016 (4) TMI 813

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..... itioner : Shri Tej Shah For the Respondent : Shri Narendra Singh, Sr.DR ORDER Per Rajpal Yadav, Judicial Member The assessee is in appeal before us against the order of ld.CIT(A)- XIV, Ahmedabad dated 22.7.2011 passed for the Asstt. Year 2008-09. 2. Though the assessee has taken seven grounds of appeal, but its grievance revolves around two issues viz. (a), the ld.CIT(A) has erred in treating the short term capital gain/long term capital gain arising from sale of shares, as business income, and (b) the ld.CIT(A) has erred in confirming the levy of interest under section 234C of the Income Tax Act, 1961. 3. Brief facts of the case are that the assessee is a company, it has filed its return of income on 25.9.2008 declaring total income at ₹ 29,63,630/-. The case was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee on 19.8.2009. On scrutiny of the accounts, it revealed to the AO that the assessee has shown long term capital gain as well as short term capital gain on sale of shares. In the opinion of the AO, the transactions undertaken by the assessee are voluminous, and therefore, the assessee is to b .....

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..... - F amounting to ₹ 2,59,72,782/- as on 31/03/2008. This is a value of shares at cost held by the appellant. (iii) The investment portfolio is the only portfolio which is maintained by the appellant for the purpose of sale and purchase of shares. There is no other portfolio for trading. (iv) The appellant is also doing trading in F O segment and trading of ₹ 39.56,707/- has been shown by the appellant during the year. It was NIL in the preceding year. (v) The appellant has taken loan of ₹ 8,95,480/- from one of the Director of the Company. (vi) The appellant has shown the shares as investment in books of accounts since long. (vii) The department has also accepted the method of accounting shown by the appellant since earlier years. However, the present year is the first year under scrutiny. (viii) A perusal of statement of short term capital gain show that the appellant has also sold certain shares within a short period of holding which is as low as one day, two day, five days. The period in some cases also go up to fourteen days, twenty eight days, forty eight days etc. (ix) The volume of share transactions totals to  .....

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..... or retention and appreciation its value? Former will indicate intention of trades 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 verse. 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 discharge the primary onus and could prima facie show .....

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..... subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stock-intrade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods concerned. In a case where there is repetitio .....

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..... n by the assessee, and thereafter, those were sold, then this activity would be considered as investment in shares. But the ld.CIT(A) without appreciating the fact whether the delivery was taken or not, simply observed that this decision is not applicable. The order of the Tribunal has been upheld by the Hon ble Bombay High Court also in the case of Gopal Purohit (supra). The assessee has not used borrowed funds. It has not claimed administrative expenditure. The only circumstances, which is against the assessee is number of transactions. But that is only one circumstance amongst others required to be appreciated by the adjudicating authority to collect the intention of the assessee while making investment. In our opinion, the ld.Revenue authorities have not appreciated the transactions in right perspective. We have also been appraised that even in subsequent years, the transactions of investment by the assessee have not been disturbed. In view of the above discussion, we allow the appeal of the assessee and direct the AO to treat the assessee as investor and the gain arisen to the assessee on transfer of shares is to be treated under the head capital gain . 11. As far as charg .....

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