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2016 (8) TMI 999 - ITAT PUNE

2016 (8) TMI 999 - ITAT PUNE - TMI - Gain arising on sale of shares - business income OR short term capital gain - Held that:- A perusal of Clause (b) reproduced above would show that where the shares are held for a period of more than 12 months, the Revenue shall not dispute the income offered by the assessee on transfer of shares as Capital Gain, provided the assessee consistently treat those shares as investment. However, in the present case we find that the shares on which the assessee has c .....

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or The Assessee : Shri Nikhil Pathak For The Revenue : Mrs. Nishtha Tiwari ORDER PER VIKAS AWASTHY, JM : The appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-III, Pune dated 31-08-2011 for the assessment year 2006-07. 2. The brief facts of the case as emanating from records are: The assessee is engaged in the business of share trading. The assessee filed his return of income for the assessment year under appeal on 31-10-2006 declaring total income o .....

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7; 24,69,343/- and Short Term Capital Gain arising out of purchase and sale of shares ₹ 1,37,45,845/-. Apart from the above, the assessee had declared income from remuneration ₹ 79,923/- and income from house property ₹ 50,804/-. During the course of scrutiny assessment proceedings, the Assessing Officer observed that the assessee has not maintained separate bank accounts and the demat accounts for trading of shares under investment portfolio and business portfolio. The Assessi .....

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certain other expenses such as software development charges, telephone expenses, vehicle expenses etc. Aggrieved by the assessment order dated 11-11-2008, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order upheld the findings of Assessing Officer in treating Short Term Capital Gain on sale and purchase of shares as Business Income of the assessee. In respect of disallowance of interest of ₹ 4,39,73 .....

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e. ii. Confirming the disallowance of interest to the extent of ₹ 3,78,499/-. 4. Shri Nikhil Pathak appearing on behalf of the assessee submitted that the assessee is having two separate portfolios for shares held as investment and stock in trade. The assessee has voluntarily disclosed substantial amount i.e. ₹ 2,94,00,958/- on account of trading in shares. The ld. AR referred to the balance sheet of the assessee at page 19 of the paper book to emphasize that the assessee has made in .....

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he income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. The ld. AR further in support of his submissions placed reliance on the decision of Coordinate Bench of the Tribunal in the case of Jawaharlal P. Mehta Vs. DCIT in ITA No. 1463/PN/2008 for the assessment year 2005-06 decided on 29-11-2013. The ld. AR further pointed that the Commissioner of Income Tax (Appeals) while deciding this issue has placed reliance on the decision o .....

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year 2003-04 decided on 23-08-2011. 5. In respect of ground No. 2 relating to disallowance of interest expenditure, the ld. AR of the assessee stated at the Bar that he is not pressing the same. 6. Per contra, Mrs. Nishtha Tiwari representing the Department vehemently supported the order of Commissioner of Income Tax (Appeals) in rejecting the contentions of the assessee. The ld. DR submitted that the assessee has not maintained separate bank account and demat account for the alleged investment .....

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d and sold on some day. Therefore, the frequency of the transactions clearly show that the intention of the assessee was to earn quick profits. The transactions were clearly for business purpose and were not in the nature of investment. The ld. DR vehemently defended the findings of Commissioner of Income Tax (Appeals) and prayed for dismissing the appeal of the assessee. 7. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities be .....

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assessee to show from records that two separate portfolios are maintained and there is no imaginary distinction. The assessee is required to maintain separate bank accounts for the two portfolios as well as separate demat accounts for shares held as stock in trade and investment. In the present case, the assessee is engaged in trading of shares and has claimed to have held shares and securities for trading purpose, as well as investment. However, the assessee has failed to substantiate from reco .....

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count. 9. A perusal of the impugned order shows that the assessee has made huge borrowings for purchase of shares. The assessee has admitted the fact that part of borrowings were utilized for purchase of shares allegedly held as investment. However, no precise distinction has been made by the assessee to show the borrowings utilized for purchasing the shares held as investment. The ld. AR pointed that in the Balance Sheet, the assessee has separately shown investment in shares to the tune of  .....

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nt cannot be demonstrative of the true nature of transactions. This principle has been further reiterated by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Gopal Purohit reported as 336 ITR 287 (Bom). 10. The ld. AR has tried to take support from the decision of Coordinate Bench of the Tribunal in the case of Jawaharlal P. Mehta Vs. DCIT (supra). In the said case the assessee had declared Long Term Capital Gain and Short Term Capital Gain from the sale of shares. .....

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g business. In the backdrop of these facts, the Tribunal held that income from sale of shares where holding period of shares is less than 30 days should be treated as business income and the remaining amount should be treated as Long Term Capital Gain and Short Term Capital Gain, as the case may be. We find the facts of the said case are entirely different from the facts of the case in hand. Therefore, the assessee cannot take any advantage from the aforesaid decision. 11. The ld. AR of the asse .....

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s/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. Whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further inst .....

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