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Tarujyot Investment Ltd. Versus ACIT, Cir. 8 Ahmedabad

2016 (4) TMI 813 - ITAT AHMEDABAD

Sale of shares - short term capital gain/long term capital gain or business income - Held that:- 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 appreciat .....

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icial Member And Shri N. K. Billaiya, Accountant Member For the Petitioner : 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 .....

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evealed 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 be treated as trader in the shares. The ld.AO has specifically highlighted the following points: 4.1 The assessee purchased and sold lacs of shares aggregating in total to almost two lakh shares during the year. 4.2 The assessee purchased and sold 48 differ .....

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assessee indulged in buying and selling of shares on almost each day that market was open. 4. The ld.AO, thereafter, made reliance on the decision of Hon ble Madras High Court in the case of CIT Vs. Amalgamations P.Ltd., 108 ITR 885, CBDT Circular No.4/2007 and other decisions of the Hon ble Madras High Court. He held that since the assessee has undertaken a large number of transactions, therefore, its activity are to be treated as in the nature of business instead of simplicitor investment. 5. .....

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copy of Memorandum of Association and statement of Long Term and Short Term Capital Gain for the year under consideration submitted by the appellant. The facts which emerge from the above documents and are important for the decision of the case are as under: (i) The appellant is a Limited Company incorporated to carry on the business of investment company and to invest in and acquire and hold shares, stocks, debentures etc. (ii) The balance sheet for the Assessment Year 2008-09 shows various as .....

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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 cer .....

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ain arisen to the assessee on sale of shares is to be treated as business income. 7. Before us, the ld.counsel for the assessee reiterated his contentions as were raised before the Revenue authorities below. He specifically took us through the submissions reproduced by the ld.CIT(A). On the other hand, ld.DR relied upon the orders of the Revenue authorities. 8. Before we embark upon an inquiry on the facts of present case so as to find out, whether assessee is to be termed as involving in the tr .....

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the assessee at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or nontrading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for re .....

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e investment). (4) Whether purchase and sale is for realizing profit or purchases are made for 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 .....

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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 that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. 8. The mere fact of credit of sale proceeds of shares ( or for that matter any other item .....

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t item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made? 10. It is permissible as per CBDT s Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. 11. Not one or two factors out of above alon .....

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s decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a .....

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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 partners .....

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of business. 10. In the light of the above, if we examine the record carefully, then, it would emerge out that first contention of the assessee was that it had started investment in shares since 1986. In all these years, shares were treated as investment in the accounts maintained by the assessee, and this treatment was never disturbed by the Revenue. This plea of the assessee was rejected by the CIT(A) simply on account of nonapplicability of principle of res judicata on the income tax proceedi .....

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ered whether since 1986, the assessee is consistent to make investment in shares. If that be so, what happen in assessment year 2008-09 to change the colour of transaction. The arguments raised by the assessee are not of such nature which are to be noted and rejected without appreciating in right perspective. The next circumstances pointed out by the assessee are that it has paid security transactions tax, therefore, its transactions should be treated of an investor. This argument was raised by .....

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