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The DCIT, Central Circle-1, Surat Versus M/s. Tejas Securities

2016 (5) TMI 153 - ITAT AHMEDABAD

Short term capital gains OR business income - Held that:- The assessee has always valued its investments at cost price and not market price. Its short term capital gains read the impugned sums of ₹ 2,59,43,473/- comprising a sum of ₹ 2,95,48,114/- from a single scrip namely M/s. Reliance Natural Resources Ltd. purchased on 5th April, 10th May, 23rd May and 2nd July 2007 (this last day involves three transactions). This followed sale of the scrip involving all shares on 04-03-2008. Th .....

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e account accepted for the last many years. This is not the Revenue’s case that assessee has been engaged in any intra-day sale/purchase transactions. We repeat that assessee has carried out 85 purchase transactions and 67 sale transactions during the relevant previous year. Meaning thereby that there is no transaction carried out in more than ½ of the relevant previous year. We conclude in these peculiar facts and circumstances that the CIT(A) has rightly treated assessee’s profits of ₹ 2 .....

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, arise from two separate orders of the CIT(A)-II, Ahmedabad dated 01-07-2011 & 07-07-2011 in appeal nos. CIT(A)-II/CC.1/115/2010-11 & CIT(A)- II/CC.1/109/2010-11;respectively, in proceedings under section 143(3) r.w.s. 153C of the Income Tax Act, 1961; in short the Act . 2. We come to rival pleadings first. The Revenue s appeals challenge the lower appellate orders deleting additions of ₹ 2,59,43,473/- and ₹ 1,01,11,129/- thereby considering assessee s share profit as short .....

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ving Revenue s appeal IT(SS)A 531/Ahd/2011 and assessee s CO filed therein as lead cases. 4. We come to relevant facts. The assessee is a partnership firm trading in derivatives. It emerges that the department carried out a search in case of M/s. Garden Silk group of cases on 12-06-2008. This culminated in issuance of section 153C notice dated 31-12- 2008. The assessee filed return on 31-03-2009 stating income of ₹ 8,18,67,567/-. The same stood proceeded on 24-03-2010. The Assessing Office .....

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has been shown as earned. The assessee has opening stock of ₹ 30463511/- (Equity share of ₹ 30463511, MF Units of Rs. Nil) and closing balance of ₹ 69632791/- (Equity shares of ₹ 47129771, M F Units of ₹ 22503030). In the short term capital gain statement, the assessee has shown sale of shares of ₹ 204752211/- (Equity Shares of ₹ 204752211, MF Units of Rs. Nil) and purchased shares of ₹ 191492612/- (Equity shares of ₹ 191492612, MF Units of R .....

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ve in the corresponding transactions. 6. The assessee filed its reply on 18-04-2010. It pleaded to have entered into corresponding shares and mutual fund transactions as investment not involving any trading adventurism. It termed its profits therefrom as merely incidental arising from its shares and mutual fund investments. The assessee stated that the relevant financial year involved investments at cost of ₹ 7,37,69,971/- as on 31-03- 2008. Next submission was that mere number and frequen .....

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6-2006 prescribing certain test on the issue. The assessee further raises an alternate plea that if its shares and mutual funds profits are treated as business income, necessary corollary would be that the said gains arising in case of bonus shares deserve to be treated as capital gains only since received as a part of capital investments. 7. This case file reveals that the Assessing Officer did not get impressed with assessee s multi-faceted submission narrated hereinabove. He quoted a catena o .....

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ed transactions and 67 sale transactions. The Assessing Officer was of the opinion that facts of the instant case indicated the assessee to be involved in regular business of shares not giving rise to any need for funds as in case of an investor. He remarked that the assessee s intention pre-dominantly appeared to acquire controlling interest in the corresponding corporate entity. The Assessing Officer s view was that these short term trading profits were only an extended arm of the regular deri .....

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also the detailed submissions made on behalf of the appellant-firm and also perused the decisions cited by the learned A.R. In my view the question in the present case has to be considered and determined on the basis of the factual position which emerges from the records and from the discussion given above. In the written submissions the appellant has commented on the various grounds indicated by the Assessing Officer for treating the short term capital gain as business income. The most importa .....

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ual funds. Having regard to the clear facts of this case, I do not find any substance in this assumption of the Assessing Officer. From the details furnished, which are part of the record, it is clear that on sale of such shares which have been held by the appellant-firm for various periods ranging from 1 day to 180 days, appellant has incurred loss of around ₹ 1.27 crores. There could have been no motive to incur such loss by way of short term capital loss and get a set off against short .....

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ment and is binding on all the partners. There are four partners in the appellantfirm and the terms and conditions of the partnership deed are binding on them. If a partnership firm flouts mandatory provisions of the partnership deed which is a legal contractual agreement, the opposing partners can always challenge and all the legal consequences would follow. Further, a legal document has to be read as a whole and not in piecemeal and on selective basis. While the Assessing Officer accepts the a .....

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llowed by the appellant-firm for the past several years. The Assessing Officer has not rejected these books of account and he has not distributed the quantum of the income. He has only treated the short term capital gain as business income. Another important point is that the appellant has been following the same system of accounting much prior to the insertion of section 111A in the I.T. Act with effect from 1.4.2005. This shows that there was no motive or intention on the part of the appellant .....

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rchased from 5th April, 2007 to 2nd July, 2007. These shares were held by the appellant for various periods ranging from 246 days to 334 days and were sold on 4th March, 2008 on one day. Obviously, this was done by the appellant having regard to the market trend. It is also significant to note that the shares of this company were accumulated without any sales having taken place before purchase of total accumulated shares of particular script. Thereafter, the shares were held for sufficiently lon .....

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ny adverse inference from the Board s circular referred to above. The circular only stipulates certain guidelines which can be applied to the particular facts and circumstances of a given case. In any case, even this circular is not adverse to the assessee firm considering the purchase and sales of shares, the period of share of shareholding, delivery of shares, payment for purchase of shares, registry of shares in its name etc etc. 9. We have heard both the parties. Case file perused. The sole .....

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. of shares sale/purchase transactions, volume, frequency, continuity and regularity followed by necessary inference to be drawn from magnitude of transactions and holding period etc. A perusal of the case file reveals that the assessee has always been treated as an investor and not a trader. Case records contained CIT(A) s different orders; all dated 07-07-2011 in assessment years 2003-04 to 2007-08 treating assessee s short term capital gains/losses of ₹ 2,12,522/-, ₹ 1,45,680/-, & .....

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units as under:- The business of the partnership shall not include trading in equity shares and units issued by mutual funds. The partnership, can however, invest the funds of the partnership into equity shares through the primary or secondary market or through any portfolio management schemes recognized by the Securities and Exchange Board of India and/or in units of mutual funds and such equity shares/units shall constitute the investment portfolio of the partnership and not stock in trade 10 .....

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hat the assessee s holding period of these shares ranging from 8 to 11 months during which not even a single share was sold. If we exclude this scrip, what is left is net result of loss of ₹ 36 lacs approximately. We confronted the Revenue with all this factual evidence. It fails to controvert the lower appellate authorities findings that the assessee has always been treating its shares and mutual funds in question as investments by maintaining a separate account accepted for the last many .....

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