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2016 (7) TMI 17

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..... nvestment. 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 shares of three companies only. Therefore we are of the view that the ld.CIT could not bring sufficient material on record demonstrating the fact that the assessee was acting as trader and not an investor. Therefore, we allow the appeal of the assessee, and set aside the order passed under section 263 of the Income Tax Act, 1961 - Decided in favour of assessee. - ITA No.1824/Ahd/2011 - - - Dated:- 1-6-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER For The Assessee : 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 assess .....

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..... ssessment order passed by the Jt Commissioner of Income Tax (AO), Range-5, Ahmedabad on 16.12.2008 is not erroneous in any manner nonetheless prejudicial to the revenue. 2. It is submitted that the explanation to Section 73 is not applicable to the assessee as the assessee is not engaged in the business of purchase 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 to those companies whose any part of business consists in the purchase and sales of shares of other companies. Here obviously no part of the business of the assessee consists of purchase and sale of shares of other companies. The assessee only makes investment and making investment is also not business of the company. It is therefore submitted that the assessee has .....

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..... ave 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 puzzled the adjudicator even after availability of large numbers of authoritative pronouncements by the Hon ble Supreme Court/Hon ble High Court. The reason for the puzzle is, one has to gather the intention of an assessee while he entered into the transaction. The expression intention as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is 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 tra .....

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..... ade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice verse. 7. It is for the assessee to adduce evidence to show that his holding 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 frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. 9. One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to .....

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..... t, 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, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proposition to the strength of holding then an inference can readily be drawn that the activity is in the nature of business. 11. In the light of the above, let us examine the facts of the present case. The ld.CIT 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 incurred any expenditure for portfolio management or keeping a track on the investment. The shares were not valued either at market value or at cost, whichever is lower on the close of the year. We hav .....

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