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Rakesh Kumar Gupta Versus Income-tax Officer, Ward 37 (3) , New Delhi

2017 (10) TMI 537 - ITAT DELHI

Income from sale of shares - nature of income - Business income OR STCG - as per revenue intention of the assessee was not to invest in shares, but to earn profit from sale of shares - Held that:- We find that during the year, the assessee has purchased and sold the shares of ₹ 22.03 crores and odd and ₹ 24.12 crores and odd respectively. Some of the shares of Axis Bank were purchased in the previous year, out of which some were sold and balance has been shown as on 31.03.2009. On ex .....

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2010. In case of other shares – K.K. Securities, the assessee had value of shares at ₹ 1,71,62,647/- as on 31.03.2009 but up to the impugned year, the assessee has sold all the shares. On perusal of the computation filed by the assessee and the capital account, the assessee has not received any dividend during the year. The assessee has received only dividend of ₹ 350/- in F.Y. 31.03.2009. In view of the characteristics of share transactions undertaken by the assessee, we do not find .....

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because the assessee has filed the return on 20.03.2011 and the ld. CIT(A) has upheld the action of the Assessing Officer which, in our opinion, does not call for any interference. The return of income has been filed belatedly. Therefore, the loss cannot be carried forward as per provisions of the Income-tax Act. Therefore, the ground taken by the assessee for carry forward of the speculation loss is also dismissed. - ITA No. 5845/Del./2014 - Dated:- 9-10-2017 - Shri H.S. Sidhu, Judicial Member .....

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3 of the Assessment Order as business against Short Term Capital Gains declared is illegal, arbitrary, unwarranted, uncalled for and against the facts and circumstances of the case. 2) The action of the Ld. CIT(A) in confirming the action of the Ld. Assessing Officer in not accepting Jobbing Losses as Business Loss/Short Term Capital Gains and treating it as speculation is illegal, arbitrary, unwarranted, uncalled for and against the facts and circumstances of the case. 3) The action of the Ld. .....

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irming the action of the Ld. AO in not allowing set off of brought forward losses of ₹ 45,60,675/- against the Short Term Capital Gains of sale of shares for current assessment year of ₹ 32,96,534/- as claimed in the Income Tax Return is illegal, arbitrary, unwarranted, uncalled for and against the facts and circumstances of the case. 6) The action of the Ld. CIT(A)'s in confirming the action of the AO in not giving a finding regarding carry forward of losses of short term Capita .....

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ned income from short-term capital gain and income from other sources. In the assessment proceedings, the AO observed that the assessee has shown short-term capital gains of ₹ 32,96,534/-. The AO asked for the details of the purchase and sales of shares. In response, the assessee filed a summary statement of shares issued by M/s. K.K. Securities Ltd. and M/s. Singhal Capital Services Ltd., through which the assessee made transactions of purchase and sale of shares. He further submitted the .....

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show cause notice to the assessee to explain why the trading in shares should not be assessed under the head income from business and profession as income from speculation business in respect of intraday transactions in shares and as income from business in respect of trading in shares on delivery basis, as the assessee has done trading in shares daily and in very high volumes. In response, the assessee submitted that he has invested in shares with intention of growth and investment on the advi .....

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earn higher profit from price movement of shares on regular basis. Further the account indicates a level of volume that would engage considerable time and attention of the assessee. Considering the magnitude and frequency of trade in shares it can be easily concluded that the motive of the assessee was never earning capital gain by investing in shares. The motive of the assessee was to earn higher profit from trading in shares. The fact is that the assessee is dealing in stocks and shares. In vi .....

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ies Ltd. He also declared net gain of ₹ 18,05,920/-from share transactions on delivery basis and net loss of ₹ 97,528/- from share transactions on jobbing basis on transactions done through M/s. Singhal Capital Services Ltd. Therefore, net normal business profit on delivery based trade is taken at Rs,37,1 1,501/- and net speculation business loss on jobbing transactions is taken at ₹ 2,13,007/-. Since the assessee has filed his return of income belatedly on 20.03.2011, loss on .....

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and the ld. CIT(A) after considering the order of the Assessing Officer and submissions of the assessee, confirmed the addition of ₹ 37,11,501/- and did not allow the carry forward of losses. The ld. CIT(A) has partly allowed the addition of ₹ 1,23,775/- and ₹ 20,739/-. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT on the issue of capital gain or business income and not allowing the carry forward losses. 5. The learned AR reiterated the submission .....

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d in the previous year and it has been shown in the balance sheet under the head investment and the current year s purchase of shares which remained at the year end, has also been shown under the head investment . The appellant has been dealing in shares all alone in the past. The surplus/losses have always been treated by the Income-tax Department under the head capital gain . In the assessment year 2008-09, the Assessing Officer has accepted the contention of the assessee, which is on paper bo .....

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f the lower authorities and submitted that the ld. CIT(A) has done reasoned order which does not require any interference. The assessee has done huge transactions in shares and has also done intraday transactions. It is clear from the finding of the Assessing Officer on the tables noted at para No. 3 of the assessment order that the intention of the assessee was not to invest in shares, but to earn profit from sale of shares. The assessee has not received any dividend during the year. 7. After h .....

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ase of shares 57 times and sale of shares 59 times. There are several instances when the assessee has purchased the shares and sold them either the same day or after a few days. In most of the cases, the assessee has done intraday transactions. From the balance sheet filed by the assessee for the impugned year placed at paper book page-33, we find that the shares held by the assessee are reflected as under : Sl. No. Name of the Company Value as on 31.03.09 Value as on 31.03.10 1. Abhishek Ind. ( .....

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lue of shares at ₹ 1,71,62,647/- as on 31.03.2009 but up to the impugned year, the assessee has sold all the shares. On perusal of the computation filed by the assessee and the capital account, the assessee has not received any dividend during the year. The assessee has received only dividend of ₹ 350/- in F.Y. 31.03.2009. In view of the characteristics of share transactions undertaken by the assessee, we do not find any justification to discard the findings reached by the authoritie .....

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l Fabrics (P.) Ltd. v. Dy. CIT [2012] 49 SOT 303 /17 taxmann.com 50 (Mum.) and decision dated 6th January, 2012 in the case of Diligent Services (P.) Ltd. v. Asstt. CIT [IT Appeal Nos.3299/Delhi/09 and 3318/Delhi/09]. On the other hand, the ld. AR on behalf of the assessee supported the order of the ld. CIT(A) while contending that their claim as an investor has been accepted in the preceding year. Inter alia, the ld. AR relied upon decision dated 6-1-2010 in CIT v. Gopal Purohit [2010] 188 Taxm .....

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377; 65,45,321/-, on sale of such shares as business income while the ld. CIT(A) following the view taken in. M/s Gopal Purohit (supra) accepted the claim of the assessee, reflecting the income under the head 'short term capital gains'. The assessee is in the business of exporting jewellery and handicrafts goods and is stated to be trading in shares for the preceding three or four years. The assessee claimed that in the earlier years their claim as an investor has been accepted by the AO .....

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in the preceding years were similar to the facts and circumstances in the year under consideration. In these circumstances, reliance on decision of the AO in the preceding year is totally misplaced. 5.1 One of the relevant tests, in determining as to whether or not the shares/securities are a capital asset, is whether it is in the nature of fixed asset or constitutes the stock-in-trade of the assessee's business. Fixed asset is what the owner turns to profit keeping the asset in his own poss .....

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y of accumulated profits, whether capitalized or not. Section 2(42-A)of the Act defines short-term capital asset to mean a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. However for share held in a company or any other security listed in a recognised stock exchange in India, this period is 12 months. Section 2(42-B) defines short term capital gain to mean capital gain arising from the transfer of a short term capital asset. U .....

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term capital gains in certain cases and, under sub-section (1) thereof, where the total income of an assessee includes any income chargeable under the head capital gains , arising from the transfer of a short term capital asset being an equity share in a company and such transaction is chargeable to securities transaction tax, the tax payable by the assessee shall be the aggregate of the amount of income tax calculated, on such short term capital gains, at the rate of fifteen per cent. 5.2. If .....

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trade. If the assessee held the shares as stock in trade , and not as investment, then such shares would stand excluded from the definition of short term capital asset , and the profit earned on the sale of such shares would not be exigible to tax as short term capital gain , but as profits and gains from business . 5.3 In determining the issue as to whether, after acquiring the shares, the assessee dealt with it as an investor, or carried on business with it, treating it as its stock-intrade or .....

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s or it was made as an investment. The intention of the assessee is best known to him and the dispute comes to the appellate authorities only when the Revenue authorities do not accept the claim of the assessee.The distinction whether the investment transaction is a mere realisation of the investment or an act done for making profits depends on the question whether the excess was an enhancement of the value by realising a security or a gain in an operation of profit making. If the transaction is .....

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res and securities the stock-in-trade of a business?, as was observed in Raja Bahadur Kamakhya Narain Singh v. CIT [1970] 77 ITR 253 (SC). There is no material before us that shares and securities purchased in the year under consideration and classified as investment in books were actually intended to be held as long term investments. Profits realised by the sale of shares may be capital if the seller is an ordinary investor changing his securities, but it may be income if the seller of the shar .....

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of ₹ 4.9 crore were purchased. The fact that few shares were held for only a day or two reflects the dominant or even sole intention to resell, which is a relevant factor and raises a strong presumption, but by itself is not conclusive proof, of trade. The intention to resell would, in conjunction with the conduct of the assessee and other circumstances, point to the business character of the transactions. [CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) and Venkatas .....

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ially one of fact. [CIT v. Ram Kumar Aggarwal & Bros. [1994] 205 ITR 251/[1993] 71 Taxman 510 (SC).The various authorities have laid down certain guidelines on the basis of which the intention of the assessee can be inferred. In the case of Sarnath Infrastructure (P.) Ltd. v. Asstt. CIT [2010] 124 ITD 71 (Luck.), the ITAT culled out various parameters, which may be applied to determine whether the transaction of purchase and sale of share is in the nature of trade or investment. The relevant .....

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tely 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 purposes 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 purchases and sales are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of inte .....

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nd 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 at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stockin- trade. (6) How the company (assessee) is authorized in memorandum .....

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d 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 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 .....

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rading 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. 5.4 Even CBDT in Circular No.4/2007 dt.15.6.2007 has laid down the principles for holding as to when profits earned from transactions in share s .....

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-term capital assets and gains are dealt with under section 2(42A) and section 2(42B). 3. Trading asset is dealt with under section 28 of the Act. 4. The Central Board of Direct Taxes (CBDT) through Instruction No. 1827 dated August 31, 1989, had brought to the notice of the Assessing Officers that there is a distinction between shares held as investment (capital asset) and shares held as stockin- trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of .....

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mal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-in-trade and those which are held by way of investment. 6. In the case of CIT v. H. Holck Larsen [1986] 160 ITR 67, the Supreme Court observed (page 87) : The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of invest .....

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the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction ; (ii) the substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions ; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in t .....

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her the purchase of shares by a FII in exercise of the power in the memorandum of association/trust deed was as stock-in-trade as the mere existence of the power to purchase and sell shares will not by itself be decisive of the nature of transaction. We have to verify as to how the shares were valued/held in the books of account i.e., whether they were valued as stock-in-trade at the end of the financial year for the purpose of arriving at business income or held as investment in capital assets. .....

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apital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade ; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield ca .....

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ng Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee a .....

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ect of all relevant factors and circumstances that determines the character of the transaction. Each case has to be determined on the total impression created on the mind of the court by all the facts and circumstances disclosed in a particular case. One of the principal tests is whether the transaction is related to the business normally carried on by an assessee. The nature of the commodity would also be a relevant factor. It is equally well settled that, merely because the original purchase w .....

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ari Mangaldas Girdhardas v. CIT [1977] CTR 647 (Guj), after analysing 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 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 commer .....

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ment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such 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 a .....

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holding, then an inference can readily be drawn that the activity is in the nature of business. 5.6 In the instant case, the assessee has been habitually trading in quoted shares and the frequency of such purchases and disposal as also the fact that with the investment of 'Rs. 1 crore in shares, the assessee had turnover of over ₹ 4 crores, indicates nothing but intention of trade. It may be pointed out that the assessee earned only a meager amount of dividend of ₹ 21,952/- in t .....

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holds the commodity for a longer period so as to have income as well as appreciation in value. The ld. CIT(A) pointed out that the assessee has not borrowed any funds for carrying the shares transactions. In our opinion, this is not the crucial factor to ascertain as to whether or not the assessee was an investor in shares or trader. Though the number of scrips is less than 25 as pointed out by the ld. CIT(A) but the period of holding and the ratio of turnover and stock reflects that the assesse .....

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income is in the form of annual dividend and therefore, an investor in shares will normally be holding shares for more than a year and any sale before one year has to be explained from the circumstances of the case. The profit motive is also relevant but this is also not conclusive because even an investor may earn profit by way of appreciation. As is apparent from the aforesaid facts, the transactions of purchase of shares, and thereafter selling it with in few days and most of the time within .....

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ociated Industrial Development Co. (P.) Ltd., [1971] 82 ITR 586, the Hon'ble Supreme Court held 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 holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-in-trade and those which are .....

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action. The totality of all the facts will have to be borne in mind and the correct legal principles applied to these. If all the relevant factors have been taken into consideration and there has been no misapplication of the principles of law, then the conclusion arrived at by the Tribunal cannot be interfered with because the inference is a question of law, if such an inference was a possible one, subject, however, that all the relevant factors have been duly weighed and considered by the Trib .....

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be treated as investment. The Tribunal in case of Gopal Purohit (supra), decided the issue, following the decision of Tribunal in case of Sarnath Infrastructure (P.) Ltd (supra) holding that facts in the case of Sarnath Infrastructure(P.) Ltd. (supra), were identical. However, it is noted that in Sarnath Infrastructure (P.) Ltd (supra), the shares sold out of investment account had been held for 23 years and Revenue could not show any shares sold which had been purchased during the year or in th .....

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Tribunal as well as the Hon'ble High court in case of Gopal Purohit (supra),cannot be considered as a precedent for the proposition that all delivery based shares have to be treated as investment activity. The assessee can also be a trader in case of delivery based purchases and sales, which is a normal feature of any trading activity. Therefore, reliance placed by the ld. AR on the decision in the case of Gopal Purohit (supra) is totally misplaced. 6. In view of the foregoing,we are of the .....

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to the conclusion that the assessee is indulging in activities of a trader in shares. As observed in Sutlej Cotton Mills Supply Agency Ltd. (supra), it is a matter of first impression with the Court whether a particular transaction is in the nature of trade or not. ; it is not even the assessee's case that they had held all the shares for a long duration. The facts and circumstances of the case before us, when viewed in the light of principles laid down in the various decisions referred to a .....

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