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2016 (7) TMI 17 - ITAT AHMEDABAD

2016 (7) TMI 17 - ITAT AHMEDABAD - TMI - Revision u/s 263 - whether gain from sale of shares is to be assessed as a business income or short term capital gain/long term capital gain? - Held that:- CIT(A) did not dispute with regard to the contention of the assessee that in the books the assessee has shown share transaction as an investor. Her status as investor was accepted by the department in preceding year as well as in subsequent year. The assessee has not used any borrowed funds. It has not .....

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n by the assessee or not. In our opinion, the ld.CIT failed to make a case that the assessee was trading in shares and not made investment. The reason assigned by the CIT is based only one circumstance, which was also not being conclusively demonstrated. No doubt, three scrip were sold by the assessee in very short span of time, but the total investment made by the assessee, with regard to the short term capital gain is in nine scrip. Similarly, under long term capital gain, it has purchased sha .....

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sessee : Shri M.K. Patel, AR For The Revenue : Shri R.I. Patel ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: The assessee is in appeal before us against the order of the CITIII, Ahmedabad dated 23.3.2011 passed in the Asstt.Year 2006-07 under section 263 of the Income Tax Act, 1961. 2. Though the assessee has taken five grounds of appeal, but its grievances revolve around a single issue, whereby, it has challenged the order of the CIT passed under section 263 of the Income Tax Act. 3. Brief facts of .....

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he Income Tax Act deserves to be taken against the assessee. The ld.Commisisoner has observed that besides doing normal business, the assessee was also trading in shares and the AO treated the income arising out of sale of shares as short term capital gain. According to the ld.Commissioner, in view of Explanation below section 73, profit in trading in shares was required to be treated as speculation business, and the profit from such speculation business was required to be assessed at normal rat .....

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d not accept contention of the assessee. He observed that though the assessee had a turnover of ₹ 9.87 crores in seed business, but it has purchased shares of Bank of Baroda, which sold within 10 days. Similarly, the shares of Suzlon and Jet Air were sold in between two days and 15 days. Thus, according to the CIT, the assessee was trading in shares, and therefore, the profit from trading in shares was required to be treated as from speculation business. 5. Before us, the ld.counsel for th .....

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se and sale of shares of other companies. The assessee has held the shares as an investment. The assessee has shown the cost of shares as investment in the Balance Sheet (Copy of which is submitted herewith). Had the assessee engaged in the business of trading of shares the stock of shares held by it would have been shown as stock in trade. As such the assessee has correctly shown the income as Short Term or Long Term capital gains as the case may be. The explanation to Section 73 is applicable .....

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AO has passed the assessment order after considering the CBDT circular nos 4/2007 dated 15.06.2007 as referred to in your aforesaid notice. The said circular has referred to the observation of the Hon'ble Supreme Court in case of CIT (Central), Calcutta Vs Associated Industrial Development Co. (P) Ltd 82 ITR 586 as under: "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who hold .....

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re also few. In these circumstances it cannot be said that the assessee was engaged in the business of the share trading or it has ever any intention of share trading. In view of the above facts, it is respectfully submitted that the order passed by the JCIT is neither erroneous nor prejudicial to the interest of revenue and hence the action u/s 263 may kindly be dropped. 6. He further contended that Explanation to section 73 is applicable where there is a loss from share trading. In the case of .....

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9.87 crores is miniscule. In this way, he submitted that the ld.CIT failed to bring any material to indicate the fact that the assessee was in the business of share trading. 7. On the other hand, the ld.DR relied upon the order of the CIT. 8. We have duly considered rival contentions and gone through the record carefully. The issue, whether gain from sale of shares is to be assessed as a business income or short term capital gain/long term capital gain, is a highly debatable issue. It always pu .....

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s always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise a debate. Nevertheless, we have to look into the curious features of this case which will goad us on just conclusion. 9. Before we embark upon an inquiry on the facts of present case so as to find out, whether assessee is to be termed as involving in the trading of shares or to be treated as a simplicitor investor .....

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ther item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or nontrading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchase and disp .....

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g profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued .....

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olding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. 8. The mere fact of credit of sale proceeds of shares ( or for that matter any other item in question) in a particular account or not so much frequen .....

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l business in that item) since beginning or when purchases were made? 10. It is permissible as per CBDT s Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. 11. Not one or two factors out of above alone will be sufficient to come to a definite conclusion but th .....

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rtain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often appl .....

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uch activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, .....

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