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2016 (4) TMI 813 - ITAT AHMEDABAD

2016 (4) TMI 813 - ITAT AHMEDABAD - [2016] 48 ITR (Trib) 33 - 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. .....

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No. 2268/Ahd/2011 - Dated:- 18-4-2016 - Shri Rajpal Yadav, Judicial 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( .....

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n 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 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 .....

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knowledge and experience to indulge in share trading. 4.7 The 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 i .....

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eturn of income for the present year as well as earlier years, 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 .....

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rading 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 sho .....

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hat the assessee is to be treated as a trader in shares. The gain 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 fin .....

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merely for investment purposes: (1) What is the intention of 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 .....

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icate trade whereas low transactions and high holdings indicate 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 balanc .....

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o 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 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 .....

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ements, if it is claimed that it is dealing as a trader in that 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 th .....

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977 CTR 647. These tests read as under: After analyzing various 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 transacti .....

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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 pa .....

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rence can readily be drawn that the activity is in the nature 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 nonapplica .....

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there, returns were filed from those accounts. It can be gathered 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 .....

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