TMI Blog2017 (3) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Authority. There is no evidence with the revenue to establish the nexus between the assessee and the group of two persons namely Rual Naresh Panchal and Suandh Estate & Investment Pvt. Ltd. There is nothing on record to suggest that the assessee has colluded with Smt. Rupal Naresh Panchal and Sugandh Estate & Investment Pvt. Ltd. in a manner that would indicate that shares were acquired for the purpose of trade. Such nexus has not been established. The observation of the First Appellate Authority are only inferential without any concrete material in the possession of the A.O./CIT(A). The revenue has grossly failed to establish that the assessee was trading in shares. On the contrary, the ld. Senior Counsel has successively proved the assessee is an investor. Therefore, the surplus of ₹ 3,93,54,700/- has to be taxed as Short Term Capital Gain. - Decided in favour of assessee - ITA. Nos: 3421 & 3439/AHD/2009 - - - Dated:- 22-2-2017 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER For The Appellant : Shri S.N. Soparkar, A.R. For The Respondent : Shri James Kurian, Sr. D.R. PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ou. 6. In response to the above, the assessee submitted the required details vide letter dated 18.03.2008. 7. On perusal of the reply, the A.O. noted that apart from the above shares, the assessee has traded as well as invested in various scrips during the year under consideration and surplus arising out of the purchase and sale of shares of IPOs and other companies have shown as short term capital gains. This was not acceptable to the A.O. for the following reasons:- (1) On going through the returns of income for the year under consideration it is noticed that the purchase and sales of securities is allied to your usual trade or business or incidental to it and it was not an occasional independent activity. (2) On most of the occasions where the shares were acquired with the intention to resale at a profit only and there was no intention to hold them for long term appreciation. (3) The details submitted shows that the activity of subscribing to various IPOs through the companies as referred to above or HNl category was on large scale. (4) It is also noted that on receipt of refund/ allotment of a particular IPO, again the surplus funds were invested in another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee assailed the assessment order before the First Appellate Authority and reiterated its claim of being an investor. 11. After considering the detailed submission made by the assessee qua the findings of the A.O., the ld. CIT(A) observed that the following facts emerge:- (a) The appellant company, in the previous year under consideration, has got surplus of ₹ 3,93,54,700/- in the share transactions. In the return, the aforesaid surplus amount has been offered to tax as STCG, which is taxed @ 10%. (b) Out of total surplus amount of ₹ 3,93,54,700/-, the surplus amount of ₹ 2,31,86,300/- has been generated in the sale / purchase of shares of the companies, the shares of which were acquired through Rupal Naresh Panchal and M/s. Sugandh Estate Investment Pvt. Ltd. The modus operand! of these groups and amount advanced by the appellant to these parties has also been mentioned in the instant appellate order. (c) The balance surplus of ₹ 1,61,68,400/- (Rs.3,93,54,700 - ₹ 2,31,86,300) in share transactions has been generated in dealing with shares, which related to Rupal Panchal and M/s. Sugandh Estate and Investment Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee at the time of purchase of shares (or any other item). This can be found out from the treatment-it gives to such purchase in its books of account. Whether it is treated as stock-in-trade or investment. Whether shown in opening / closing stock or shown separately as investment or non-trading 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 purchases and disposal in that particular item ? If purchase and sale are frequent, or there are substantial transactions in that in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of 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 apparen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases were made? (10) It is permissible as per CBDT's Circular No. 4 of 2007of 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 the cumulative effect of several factors has to be seen. 13. In the light of the principles laid down by the Co-ordinate Bench in the case of Hipolin Ltd. (supra), the ld. CIT(A) examined the facts of the case in hand. The ld. CIT(A) observed that the assessee has derived surplus of ₹ 2,31,86,300/- from the purchase and sales of shares of the companies which were acquired through Rupal Naresh Panchal and M/s. Sugandh Estate Investment Pvt. Ltd. The First Appellate Authority further observed that the assessee company has financed more than ₹ 20 crores, these two concerns with the intention that these groups would make multiple applications in the IPO of certain companies. No security of any kind has been taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R. that this activity was carried out simply keeping in view the profit motive in an organized manner. 18. ITAT Lucknow Bench in the case of Sarnath Infrastructure Pvt. Ltd. reported in 120 TTJ 216 has laid down certain tests which read as under:- 13. After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether transaction(s) in question are in the nature of trade or are merely for investment purposes: (1) What is the intention of the assessee at the time of purchase of the shares (or any other 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 disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention (to carry on illegal 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 the cumulative effect of several factors has to be seen. 11. The Hon'ble Gujarat High Court had also an occasion to consider this issue in the case of Commissioner of Income Tax vs. Riva Sharkar A Kothari reported in 283 ITR 338. Hon'ble court has made reference to the test laid by it in its earlier decision rendered in the case of Pari Mangaldas Girdhardas vs. CIT reported in 1977 CTR 647. These tests read as under: After analyzing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment and not stock-in-trade . We also find that at the end of the year, the assessee has not valued the shares in the manner stock is being valued. The assessee has paid security transaction tax. The finding of the ld. CIT(A) are based on the facts that the assessee has financed more than 20 crores to Smt. Rupal Naresh Panchal and Sugandh Estate and Investment Pvt. Ltd. group with the intention that this group would make multiple application in the IPOs of certain companies. The second reason assigned by the ld. CIT(A) is that the assessee did not take any kind of security from these persons. 20. However, we do not find any material brought on record by the revenue which could substantiate the apprehensions made by the First Appellate Authority. There is no evidence with the revenue to establish the nexus between the assessee and the group of two persons namely Rual Naresh Panchal and Suandh Estate Investment Pvt. Ltd. There is nothing on record to suggest that the assessee has colluded with Smt. Rupal Naresh Panchal and Sugandh Estate Investment Pvt. Ltd. in a manner that would indicate that shares were acquired for the purpose of trade. Such nexus has not been establish ..... X X X X Extracts X X X X X X X X Extracts X X X X
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