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2016 (5) TMI 470 - ITAT AHMEDABAD

2016 (5) TMI 470 - ITAT AHMEDABAD - TMI - Sale of shares - Short Term Capital Gain OR business income - Held that:- It cannot be said that assessee was only a trader in shares because assessee has clearly demarcated the transactions in his books of account, which proves that he was an investor in shares and securities upto end of F.Y. 2006-07 and commenced the business of shares and securities during Asst. Year 2008-09 i.e. F.Y. 2007-08. However, shares and securities held upto 31.3.2007 were so .....

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t so to satisfy himself with expenditure incurred in relation to earning dividend income which has not been added back by the assessee neither he has made a proper calculation with respect to provisions of section 14A r.w.rule 8D. We, therefore, are of the view that ld. CIT(A) has rightly deleted the disallowance of ₹ 11,598/- u/s 14A r. w. rule 8D as Assessing Officer has made ad hoc disallowance of equal amount of the exempt income at ₹ 11,598/- Decided against revenue - ITA No. 16 .....

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11.2010. Revenue has raised following grounds :- 1. The Ld. Commissioner of Income tax (A) has erred in law and on facts in directing the Assessing Officer to treat the income of ₹ 2,04,87,755/- from the sale of shares as Short Term Capital Gain, instead of business income, as assessed by the Assessing Officer. 2. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of ₹ 11,598/- made U/S.14A r.w. Rule-8D of the I.T. Rules, 1962. 3. On the .....

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93,12,540/-. The case was selected for scrutiny assessment under CASS. Notice u/s 143(2) of the Act was issued on 19.8.2009 and served upon the assessee. During the year under consideration assessee disclosed short term capital gain of ₹ 2,04,87,755/-, business loss at ₹ 14,64,380/- and speculation income of ₹ 87,595/-. The assessee also claimed exemption of dividend income of ₹ 11,598/- and gift of ₹ 10,005/-. During the course of assessment proceedings, assessee w .....

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shares thereafter has been shown as business income. However, ld. Assessing Officer was not convinced with the reply because he observed that in the audit report in form No.3CD it was clearly mentioned that assessee is engaged in the business of trading in shares and securities and also voluminous transactions were frequently entered into by the assessee in purchase and sale of shares and as a result he disallowed the claim of assessee for short term capital gain and treated the same as busines .....

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by accepting the contention of assessee by treating the profits from sale of shares at ₹ 2,04,87,755/- as short term capital gain instead of business income as assessed by Assessing Officer by observing as under :- 2.3 I have carefully considered the rival submissions. I have also -gone through the assessment order and submissions of the Id. A.R. After taking in view of material available on records and the legal position on this issue, I am inclined to agree with the submissions of the Id .....

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hat appellant has claimed sale proceeds of stocks as short term capital gain in respect of 7/8 scrips only. Most of these scrips were purchased in the immediately preceding A.Y. i.e. A.Y. 2007-08. In the balance sheet of A.Y. 2007-08 i.e. F.Y. 2006-07 appellant has declared investments in the following shares: 1) HDFC Plating Rate Income Fund 2) Kotak Bond fund 3) Hindustan Unilever Ltd. 4) ICICI Bank Ltd. 5) Lok Housing Construction Ltd. 6) NTPC Ltd. 7) Parshwanath Developers Ltd. 8) Reliance C .....

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v/s. JC1T 209 SOT 117 and Hon'ble Lucknow ITAT in the case of Sarnath Infrastructure Pvt.Ltd. v/s. ACIT 122 TTJ 216 it is held that it is open to the assessee to maintain two separate portfolios, one relating to investment and another relating to business activities involving dealing in shares. The Tribunal had correctly held that the delivery based transactions in the present case, should be treated as those in the nature of investment transacttbns and the profit received should be treated .....

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decisions, sale proceeds in respect of these shares should be treated as capital gains. In view of the above, I am of the firm opinion that sale proceeds of ₹ 2,04,87,755/- should be taxed as short term capital gain as declared by the assessee. This ground of appeal is allowed. 5. Aggrieved, Revenue is now in appeal before the Tribunal. 6. Ld. DR supported the order of Assessing Officer and did not place anything new before us. 7. On the other hand, ld. AR submitted that assessee is a CFA .....

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ent in mutual funds at ₹ 6,38,951/- and investment in govt. securities at ₹ 1,20,000/- and exhibited that short term capital gain shown during the year under appeal are in relation to sale of investments held by assessee as on 31st March, 2007. The ld. AR further submitted that during his employment period, Lok Housing & Construction Ltd. a public limited company floated issue of fully convertible warrants having lock in period of one year from the date of allotment and the asses .....

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ortfolios simultaneously i.e. investment portfolio and trading portfolio and about the treatment of investment in the books of account as to whether they are shown as investment or stock in trade or both. Since the case of assessee falls in the line with circular of CBDT and factual circumstances which are very clear that investments held by assessee as on 31st March, 2007 were sold during the year and profits relating to these shares have been shares as short term capital gain and long term cap .....

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treated the same as business income. Ld. AR has referred and relied on the decision of the co-ordinate bench, Mumbai in the case of ACIT vs. Naishadh V. Vachharajani in ITA No.6429/Mum/2009 for Asst. Year 2006-07, vide order dated 25.2.2011. On going through the computation of income, we observe that assessee has shown short term capital gain of ₹ 2,04,87,755/- and while examining this computation in the light of submission by ld. AR that, this short term capital gain is arising out of th .....

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or acquiring fully convertible warrants of this company on 26th February, 2006 and paid 10% i.e. ₹ 4.60 per warrant for 95,000 warrants at the time of application. Thereafter on 10.5.2006 warrants were allotted to the assessee for an amount of ₹ 4,37,000/- which is duly appearing in the balance sheet of assessee as on 31st March, 2007 under the investment in shares head. Thereafter in the beginning of F.Y. 2007-08 assessee in order to get warrants converted into equity shares paid th .....

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ture against business income. This shows that gain of ₹ 2,03,86,984/- from sale of shares of Lok Housing & Construction Ltd. got its origination in the previous year when warrants were acquired by paying 10% of the cost of warrants. 12. We further find that co-ordinate bench Mumbai has adjudicated similar issue wherein assessee has shown income from long term capital gain and short term capital gain, speculation profit F&O trading and income from profession and held in favour of as .....

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hich gave rise to Long Term Capital gains, were listed out. A perusal of this list shows that in the case of Satyam Computers, the assessee held the shares from more than 12 years. In the case of Kitply Industries the shares were held from more than 10 years. In the case of Pidilite Industries and Radico Khaitan the shares were held for more than 13 years and 11 years. The shares of IFCI were also held for 11 years and 6 months. A perusal of the period holding, demonstrates that the assessee has .....

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200 days. Most of the shares, as pointed out by the CIT(Appeals), were held for a period of 2 to 5 months. The assessee has offered the income from speculation and income from Futures and Options as business income. Keeping in view the facts of the case, we are of the considered opinion that the order of the CIT(Appeals) at para 5, which is extracted below, is to be upheld: "5. Decision with reasoning: 5.1 I have considered the submissions of the representative and the stand taken by the A. .....

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ecause the appellant was having speculative business in shares, that does not mean that even the delivery based transactions of shares should be assessed under the head business. The Hon'ble Hyderabad Tribunal in the case of Shah-La Investments and Financial Consultants Pvt. Ltd. vs. Dy. CIT (2 SOT 371) held that there is no bar for the same assessee to do business in shares and hold some shares as investment. Further as contended by the representative, the appellant has no borrowed funds ei .....

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ome shares were held for more than a month and other shares were held for a very short period. Even in respect of short term capital gain, the appellant had already submitted before the A.O. they were held for at least 2-5 months and further submitted the details of demat account to prove this claim. But the A.O. merely held that the shares were held for very short period except very few shares which were held for more than a month. Thus, I find that the A.O. did not appreciate the facts of the .....

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mum of two years and maximum of 13 years. Thus, there is no reason to assess long term capital gain under the head business. Similarly for short term capital gain it is seen that most of the shares were held for more than a month and some shares were held even for more than 300 days like SP1C company shares. Most of the shares were held for more than 100 days while it is true that very few shares were held for less than 100 days. Thus, the finding of the A.O. is incorrect in as much as the remar .....

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opal Purohit vs. JCIT (29 SOT 117) held as under in para 8.1 "In our view, the legislative change of this nature, whereby no change has been made in respect of nature and modus operandi of such share transactions, resulting into any advantage cannot be taken away by the Revenue Authorities in this manner and in these circumstances, we are of the view that, principle of consistency, though it is an exception to the principle res judicata must be applied here. It is further so because the pay .....

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IT (11 SOT 627) held as under on the principle of consistency and the issue of magnitude of transactions: "The mere volume of transaction transacted by he assessee would not alter the nature of transaction. It is an established principle that income is to be computed with regard to the transaction. The transaction in whole has to be taken into consideration and the magnitude of the transaction does not alter the nature of transaction. Though the principle of res judicata does not apply to t .....

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year being a unit, what was decided in one year might not apply in the following year, where a fundamental aspect permeating through different assessment years has been fond as a fact one way or the other and parties have allowed that position to be sustained by no challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." The same view has been taken by the Hon'ble Delhi Court in CIT V. Neo Poly Pack (P) Ltd. [2000] 245 ITR 492. .....

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he purchase of shares is same as in the preceding years and the same merits to be accepted as Short Term Capital Gains. There is no basis for treating the assessee as a trader in shares, when his intention was to hold the shares in Indian companies as an investment and not as stock-in-trade. The mere magnitude of transaction does not change the nature of transaction, which are being assessed as income from Capital Gains in the past several years." 5.4 When viewed in the light of the above j .....

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o-ordinate bench in the light of facts discussed in the case of assessee we are of the view that it cannot be said that assessee was only a trader in shares because assessee has clearly demarcated the transactions in his books of account, which proves that he was an investor in shares and securities upto end of F.Y. 2006-07 and commenced the business of shares and securities during Asst. Year 2008-09 i.e. F.Y. 2007-08. However, shares and securities held upto 31.3.2007 were sold during financial .....

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