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The DCIT, Circle-2, Jaipur Versus Shri Mahender Kumar Bader

2016 (5) TMI 29 - ITAT JAIPUR

Income arising from sales of shares - treated as business income or short term capital gain - Held that:- Since the assessee has treated the securities as investment and not as stock in trade in all the years, therefore, in view of the CBDT Circular No. 6/2016 dated 29.02.2016, the revenue is not permitted to take a contrary view in the present year and claimed that the security is stock in trade and, therefore, the profit/gain caused to the assessee be treated as business income. In our view, t .....

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.Y. 2008-09. The ground raised is as under : Whether on the facts and in the circumstances of the case and in law the ld. CIT (A) was justified in treating income arising from sales of shares as income from short term capital gain ignoring the facts that there were substantial and frequent transactions and motive was to earn profit and holding period of such shares was very short. 2. The brief facts of the case are that the assessee has filed the return of income on 29.09.2008 declaring total in .....

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activity but it is the business of the assessee. During the course of the proceedings, the assessee was asked to submit an analysis of the entire port folio taking into consideration various parameters such as number of scrips, volume, frequency of transactions and their systematic and period nature. The details regarding the inherent nature of the port folio were duly analyzed in the light of CBDT Circular No 4 of 2007 dated 15.06.2007, decision of Apex Court in the case of CIT vs. Associated .....

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ing the year. The volume of transactions can be ascertained from the details of shares transaction entered into by the assessee. On careful analysis of the entire portfolio and resultant purchase and sale of scrips, the AO observed that the transactions entered into by the assessee are numerous periodic, repetitive with great amount of regularity & periodically. The AO also observed that there has been a systematic and regular trading pattern and shares have been purchased and sold at very r .....

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shares for the purposes of earning income from capital gains and dividend thereon. The AO found the explanation of the assessee unacceptable seeing the details furnished by the assessee as hardly one can earn any dividend with such short period of holdings. The AO noticed that the average holding period in many scrips ranges from merely few day to few months. From the details furnished it is clear that out of total no. of shares, most of transactions held is for less than 5 months, many of the s .....

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es as his investment and declare capital gain if any arising at the time of sale which has been accepted and assessed as such. Assessee has never done share transaction with the intention of business. As is evident that the number of scripts is which assessee has invested are very less and the same has been done with the motive of investment and the assessee has regularly declared the same as his share investment. We are enclosing the copy of returns and computation showing the capital gain decl .....

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s the holding period; frequency of transaction and other criteria laid down determines nature of transactions. Mere fact that assessee has taken delivery, at most, put the nature of business as non speculative business income. The AO observed that the assessee himself has claimed that on the basis of shares, allegedly closing stock of the assessee lying with broker, he is allowed to purchase & sale of shares on credit. Such nature of transaction merely fortifies the fact that assessee is eng .....

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O placing reliance on the various judicial precedents held that entries in the books of account alone are not conclusive proof to decide the real nature of transactions and also one cannot rely on mere book entries to arrive at a proper conclusion as to the real nature of the income. The AO observed that the activity so carried out by the assessee clearly substantiate that the assessee has been indulged in the activities of business or profession by virtue of trading in shares, mutual funds, deb .....

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nsacted within few days. Thus the AO treated the profit of ₹ 73,70,214/- as income from business instead of income declared by the assessee as a short term capital gain, and added the same to the total income of the assessee. 4. Being aggrieved by the order of AO, the assessee carried the matter before ld. CIT (A) who after discussing the matter at length, allowed the ground of the assessee by observing as under :- I have considered the facts of the case and the submissions made. The submi .....

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7 is clearly applicable wherein it was held that The assessee is an investor. Such being the case, merely because assessee transacted in 158 shares that should not be taken as a sold criterion to come to the conclusion that assessee is a trader in shares. It is not in dispute that in the books of accounts assessee has declared the shares as investment and the finding of the learned CIT (A) that only own funds were utilized for purchase of shares was not contradicted by the learned DR. It was als .....

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the books of accounts has declared the shares as investment and the findings of the AO that only own funds were utilized for purchase of shares was not contradicted by the AO,. Hence, the transaction of purchase and sale of shares in the instant case, deserves to be considered as investment and profit thereon has to be assessed to tax under the head capital gains . The appellant succeeds on this ground. 5. Now the revenue is before us. 5.1 We have heard the rival contention of the parties and ha .....

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he head Capital Gains, even if the same was disadvantageous to the assessee. The ld. CIT (A) has mentioned the same in the order as under :- Yet another important fact having bearing on the issue under appeal is that the assessee continued to declare the gains/losses under the head Capital Gains. In the A.Y. 2010-11 the assessee lost the benefit of set off of Long Term Capital Loss amounting to ₹ 27,94,426/- because he had declared the said loss under the head capital gain and not under th .....

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ates the investment in shares, being of capital assets. It was further submitted that the assessee has declared the short term capital gain of ₹ 2,83,209/- in the A.Y. 2007-08. The ld. CIT (A) has not disturbed the finding while passing the order under section 143(2) of the IT Act. The ld. A/R further relied upon the following judgments in support of his contention : CIT vs. Karamchand Thapar & Sons Ltd. 115 ITR 250 (Cal.) Trupti Investment Co. vs. ITO 35 ITD 200 (ITAT Ahmedabad) CIT v .....

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ted as short term capital gain. After the matter was heard on 11.02.2016, the CBDT came out with the Circular No. 6/2016 dated 29.02.2016 in the following manner :- Sub-section (14) of Section 2 of the Income-tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares .....

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hares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while re .....

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ng whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months im .....

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