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Shri Amar H. Patel Versus DCIT-17 (3) Mumbai

2016 (5) TMI 1081 - ITAT MUMBAI

Sale of shares - Short Term Capital Gain or Business income - Held that:- It is an admitted fact that around 90% of the total gains is from sale of the shares of FCS Softwares Solutions Ltd. It is also an undisputed fact that the assessee had applied in the shares of the IPO of the said company from borrowed capital. Merely because the shares were applied through borrowed capital cannot be a ground for treating the capital gains as business income. The IPO funding availed by the assessee was to .....

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We, therefore set aside the findings of the Ld. CIT(A) and direct the AO to treat the Short Term Capital Gain on sale of shares. - Decided in favour of the assessee - ITA No. 6568/Mum/2010 - Dated:- 5-4-2016 - Shri Joginder Singh, Judicial Member And Rajendra, Accountant Member For the Revenue : Shri Arvind Kumar For the Assessee : Shri Nishit Gandhi ORDER Per Rajendra A. M. Challenging the order, dated 30.06.2010, of CIT (A) - 29, Mumbai, the assessee has filed the present appeal. Assessee, an .....

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purchase and sale of shares, that he had earned most of its income by way of investment in shares which were taken on loan from various parties, IPO funding and investment in mutual funds, that most of the share transactions were either squared up in a very short duration of time. Considering the facts of the case, the AO held that transactions undertaken by the assessee were not in the nature of investment, that he had earned short term capital gain through his business activities.. He called f .....

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he head short term capital gain, as claimed by him. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the first appellate authority (FAA).Before him, it was argued that the assessee was an investor, that in earlier years similar income by shown under the head short term capital gain, that he had made application in IPO as a retail investor, that he had made investments with borrowed funds knowing that the investment will give good return. After considering the assessme .....

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. 4. During the course of hearing before us, the authorised representative(AR)stated that investment through IPOs showed that intention of the assessee was to make investment, that utilisation of borrowed funds was no bar to make investment in a capital assets, that frequency of share transactions was very low, that the average period of holding was approximately 40 days, the assessee was an investor in shares since the past many years and had been assessed as such.He further stated that the ide .....

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e of ₹ 14, 54, 100/-. The return was selected for scrutiny assessment. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has declared Short Term Capital Gain of ₹ 17, 26, 855/-.The AO further noticed that 90% of the income has been derived from one transaction which was on allotment of shares in IPO of FCS Softwares Solutions Ltd. The AO also noticed that the application in the IPO was made out of borrowed funds and the shares w .....

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he assessee did not find favour with the AO. The AO observed that the assessee has applied for the IPO of FCS Softwares Solutions Ltd., by taking finance from M/s. Merit Credit Corpn. Ltd. and also from Masat Texturisers & Twisting Pvt. Ltd. The application amount was for 35 lakhs shares amountinto ₹ 8.75 lakhs. The assessee was allotted 12971 shares on 17.9.2005 and the shares were sold on 22.9.2005 and 23.9.2005 at the average rate of ₹ 228/- as against the purchase price of &# .....

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assessee explained that after he has sold the shares at an average rate of ₹ 228/- per share the share price came down to ₹ 93.60 within one month and therefore being a prudent investor, the assessee's decision for selling the shares at the right time has earned him Short Term Capital Gains. The Ld. Counsel further stated that utilization of borrowed funds is no bar to make an investment in capital asset. The Ld. Counsel further stated that the assessee has dealt only in 19 scrip .....

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