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2016 (7) TMI 1236 - ITAT MUMBAI

2016 (7) TMI 1236 - ITAT MUMBAI - TMI - Income from sale of shares - Long term capital gains v/s business income - Held that:- The assessee sold 25 script during the year out of which three were of Long term which were held for more than 12 months and 21 scrips were held for less than a year. In all there were 28 transactions of purchases and 43 transactions of sales in all. The average period of holding for long term securities was 768 days whereas the securities which yielded short term capita .....

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ment in shares in other years which were even scrutinized u/s 143(3). Moreover, the case of the assessee is fortified by the CBDT circular bearing number 6 of 2016 dated 29.2.2016. - The assessee was not carrying any trading activity into equity shares and securities and therefore, we are inclined to set aside the order of the ld. CIT(A) and direct the AO to treat the income from sale and purchase of shares as short term and long term capital gains. - Decided in favour of assessee - ITA. No .....

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e income from Long Term Capital Gains on sale of shares shown by the assessee and claimed as exempt u/s 10(38) of the Act. Similarly the grievances as raised in ground no.2 and 3 are against upholding the order of AO treating the Short Term Capital Gain of ₹ 2,57,89,560/- and Short Term Capital Loss of ₹ 7,57,10,331/- (on equity shares) as business income and business loss respectively. Since the issues in all the three grounds of appeals relates to same issue of capital gain being t .....

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during the course of assessment proceedings found that the assessee has incurred loss from the derivative trading of ₹ 27,14,30,253/ and assessee has incurred short term capital loss on equity shares of ₹ 7,57,10,331/-, Short term capital gain on equity shares of ₹ 2,57,89,650/- and long term capital gains on sale of shares ₹ 5,14,30,041/- besides showing speculation profit on equity shares of ₹ 10,471/-. The Long Term Capital Gains of ₹ 5,14,30,041/ on sale .....

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ee. The assessee replied the show cause notice vide his letter dated 1.11.2010 AO which was considered and rejected by the AO and finally assessment was framed at loss of ₹ 26,99,20,980/- by treating the gain/loss on sale of equity shares as loss/profit from business activity vide order dated 31.12.2010 passed under section 143(3) of the Act. Aggrieved by the order of AO, the assessee preferred an appeal before the First Appellate Authority, who after considering the submissions of the ld. .....

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act that principles of res-judicata is not applicable to tax proceedings, it is held that the appellant has clearly indulged in adventure in the nature of trade. The AO has rightly brought the profits on sale of shares/securities under the head, declared as LTCG and STCG/STCL as profits and gains from business. The ground thus is dismissed Aggrieved by the order of ld.CIT(A), the assessee is in appeal before the Bench. 4. The ld. AR vehemently submitted that the assessee company is primarily eng .....

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which were completed and framed u/s 143(3) of the Act such as for the assessment years 2005-06 and 2007-08, the said scrips which were sold were accepted as opening and closing investment respectively and not as stock-in-trade and therefore the income accruing or loss arising there from would be long term/short term loss depending upon the period of holding of the particular script. Moreover, the shares were valued at the end of year at the cost and not at market value or cost whichever lower m .....

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conclusion that the assessee was doing huge trading activities in sharers. The ld. AR also argued that holding period or frequency of transactions or turnover should not be taken as basis to form an opinion whether the assessee was engaged in the activity of business in shares or investments in shares. The assessee has purchased shares with an intention to earn dividend and appreciation in the value of shares and therefore the contention of the AO that the assessee has subsequently, changed its .....

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fence of his arguments, the ld.AR relied on the decisions in the case of CIT V/s Associated Industrial Development Co.(P.) Ltd. [1971] 82 ITR 586 (SC) and CIT V/s H. Holck Larsen [1986] 160 ITR 67 (SC). Finally, the ld.AR placed before us a copy of circular issued by the CBDT vide Circular No.6 of 2016, dated 29.2.2016 wherein it has been provided that if the shares and securities held for a period of more than 12 months before the transfer and the assessee desires to treat the income arising fr .....

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been made clear that unnecessary controversy which was resulted in unending litigation due to treatment of loss/gain on sale of shares by the department was intended to be put at rest and that the LTCG on sale of shares and securities may be directed to be treated as gain/loss from investment and not from business by setting aside the order of ld.CIT(A). 5. The ld. DR on the other hand, relied heavily on the orders of authorities below and prayed that same be upheld by dismissing the appeal of .....

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in/loss from sale of shares being investments which was accepted by the revenue as is clear from the assessment order passed u/s 143(3) for the assessment years 2005-06 and 2007-08 by the department in the earlier years even in the scrutiny proceedings as is clear from the copy of the assessment orders for the assessment years 2005-06 and 2007-08, which are placed at pages 10 to 15 of the assessee s paper book. The assessee has been consistently showing closing and opening value of shares and se .....

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loss on shares to the tune of ₹ 7,57,10,331/-. It is also clear from the copy of profit and loss account that shares at the beginning and at the closing of the year were never shown as stock-in-trade but it has been shown under the head Investments Schedule-6 to the Balancesheet. The relevant extract is given herein for the sake of better understanding SCHEDULE -6 INVESTMENT (AT COST) We also note that the assessee sold 25 script during the year out of which three were of Long term which .....

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eveals that the revenue has consistently accepted the stand of the assessee barring the year under consideration. The details in respect of previous years are reproduced below for the sake of better understanding of the issue involved: AY Remarks LTCG LTCL STCG STCL 2005-06 Accepted u/s 143(3) 77,18,627 - 32,58,466 2,70,640 2006-07 Accepted u/s 143(1) 40,91,787 - 25,59,171 14,48,287 2007-08 Accepted u/s 143(3) 36,98,798 - 1,32,58,078 11,986 2008-09 Year under consideration 5,14,30,041 - 2,57,89, .....

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As it is clear from the above table. Moreover, the case of the assessee is fortified by the CBDT circular bearing number 6 of 2016 dated 29.2.2016 which is reproduced below for better understanding : Circular No.6 of 2016, dated 29th February, 2016 Sub: Issue of taxability of surplus on sale of shares and securities -capita. Gins or business income-instruction in order to reduce litigation-reg. 1. Sub-section (14) of Section 2 of the Income-tax Act, 1961 ( Act‟) defines the term capital a .....

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sentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2.Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stockin-trade. The Central Board of Direct Taxes ( CBDT) has also, through Instruction No. 1827, dated August 31, 1989 and Circular No.4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations . 3.Disputes, however, cont .....

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kes 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 instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following- (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to tre .....

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