TMI Blog2010 (9) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... Short term capital gain from mutual funds ₹ 9,39,630 Short term capital gain on sale shares Rs.1,01,75,316 Long term capital gain on sale of shares ₹ 61,14,079 Rs.1,70,61,000 3. On seeing the volume of transactions and the quantum of capital gains reported by the assessee company, the Assessing Officer thought it fit to enquire whether the shares and securities were purchased and sold by the assessee company by way of investment or by way of business. After making verifications, the Assessing Officer found that investments made by the assessee during the previous year were of very high amount, that in the beginning of the previous year, the amount was Rs,3,2368,640/-, whereas at the end of the previous year, the amount was ₹ 4,62,9,833/-, that the dividend income earned by the assessee at ₹ 4,89,178/-, was very negligent when compared to the investment in shares. The Assessing Officer observed that the assessee has borrowed an amount of ₹ 60 lakhs during the previous year relevant to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e turnover of assessee s share business for the preceding assessment year was 1.12 crores and for the impugned assessment year it was 1.72 crores and the figures are comparable. 7. In the light of the above findings, the CIT(A) allowed the appeal filed by the assessee and directed the Assessing Officer to assess those amounts under the head capital gains as returned by the assessee company. 8. The Revenue is aggrieved and, therefore, this second appeal before us. 9. The grounds raised by the Revenue in its appeal read as follows: 1) The learned CIT(A) was not justified in holding that the profit on sale of the shares assessed by the Assessing Officer as business income, was assessable as capital gain without appreciating the facts and circumstances stated in the assessment order. 2) The learned CIT(A) has erred in not taking into consideration the high volume of transaction in shares, on the ground that the transactions were done through M/s Kotak Securities Ltd., while arriving at his findings. 3) The learned CIT(A) has erred in not noting that the assessee company itself has treated loss on derivatives and mutual funds as business loss . 4) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. 12. Shri H.N Khincha, the learned Chartered Accountant appearing for the respondent contended that the foremost piece of evidence in deciding the nature of transactions carried on by the assessee in shares is the nature of treatment given by the assessee in its books of accounts and financial statements. He explained that wherever the assessee has declared income or loss under the head capital gains , the shares were shown under the head investments . This is the foremost evidence that should be accepted in favour of the assessee. 13. The learned Chartered Accountant further argued that the assessee company never carried on the activity of buying and selling of shares directly. The assessee company has appointed M/s Kotak Securities Ltd., as its portfolio Manger and all the activities were monitored by the portfolio manager. The mode of conducting the transactions in the above manner shows that the assessee was holding the shares as investments. 14. The learned Chartered Accountant further explained that the observation of the Assessing Officer that the dividend earned by the assessee company was comparatively nominal is not a sound reason to reject the contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gain as shown by the assessee 16. The learned Chartered Accountant further relied on the judgment of the Hon ble Bombay High Court in the case of CIT Vs. Gopal Purohit, 228 CTR 582, wherein the Hon ble Court has held that the volume and number of transactions are not decisive in understanding the true nature of the transactions. He also made a reference to the order of the ITAT Mumbai Bench in the case of Janak S Rangwalla Vs. ACIT, 11 SOT 627, wherein it was held that the intention of the assessee is paramount and it is to be gathered from the facts and circumstances of the case. 17. We heard both sides in detail. The learned Chartered Accountant in the course of argument has advanced a proposition that the shares held by the assessee company needs to be treated as investments for the reason that the transactions in those shares were managed by portfolio manager and the assessee had not involved directly in those transactions. On perusal of the judgments and the orders relied on by the learned Chartered Accountant, we do not find anything supporting the above proposition as a general rule. Engaging a portfolio manager may not be confined to a case of investments alone. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had availed a loan of ₹ 60 lakhs during the relevant previous year and the said borrowed fund was used for purchasing shares. The CIT(A) has not examined many more relevant facts which are necessary to adjudicate the issue. The CIT(A) has made a general statement that the contention of the assessee was accepted for the earlier years as well and the volume of business was comparable to the earlier assessment year. The assessee company itself has admitted carrying on business in derivatives and mutual funds. Therefore, it is not a case of exclusive investments . Even, if we accept the contention of the assessee that the disputed shares were held as investments, it is equally to be seen that the assessee company was carrying business also in that line. Therefore, instead of blindly relying on the decisions for the earlier assessment years, the facts for the impugned assessment years ought to have been examined, so as to clearly distinguish the bundles of those transactions, which were in the nature of business and the other set of transactions, which were in the nature of investments. 22. In the facts and circumstances, we are of the considered view that all these m ..... 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