2015 (6) TMI 796 - AT - Income Tax

Share transaction - short term capital gain or income from business - whether impugned shares were held by assessee as its investment and were taxable as short term capital gain on its transfer as held by CIT(A) - Held that - The evidence on record have been relied upon by assessee for establishing that the shares were purchased on 30-08-2007 by M/s TCG Stock Broking Ltd. on assessee s behalf, has not at all been controverted by the department. It is a simple case of purchase of shares by an individual through broker, who held the shares in its D-mat A/c till the transfer of the shares in D-mat account on the date when the assessee intended to sell the same. The broker was holding shares on behalf of assessee because consideration was paid by assessee through journal entry in the running a/c of assessee with broker. It is a normal share trading transaction in support of which all the ingredients regarding purchase and sales were fully established by the assessee. Merely because the shares were kept in the brokers code from 30-8-2007 till 26-12-2007, on which date the shares were transferred to assessee s d-mat account with main broker, cannot be the basis for coming to the conclusion that the actual purchase took place on 26-12-2007 by assessee. In the books of account of sub-broker, the purchase was recorded in assessee s account on 30-8-2007 and the shares were D-mated in assessee s account by principal broker on 26-12-2007 from the sub-broker s account clearly demonstrate that the assessee had purchased shares on 30-8-2007, which were held on assessee s behalf by M/s TCG Stock Broking Ltd. The sole reason assigned by AO for coming to the conclusion that the shares were held as stock in trade was that the shares were transferred on the same date on which it was purchased. This finding is completely erroneous on the face of it in the back drop of evidence brought on record. We accordingly, confirm the order of CIT(A). - Decided against revenue.

Summary

Issues involved:
1. Determination of whether the short term capital gains claimed by the assessee should be treated as business income due to high volumes of share transactions.
2. Verification of the purchase date of 25000 shares of a specific company by the assessee.
3. Assessment of whether the transaction involving the sale of shares was an adventure in the nature of trade or an investment.

Issue 1: The first issue revolved around the classification of the short term capital gains claimed by the assessee as business income. The Assessing Officer (AO) raised concerns regarding the large volumes of share transactions and sought explanations from the assessee. The assessee maintained that the shares were held as investments, supported by detailed documentation of share transactions and payment of security transaction tax on actual delivery basis. However, the AO contended that the transaction was an adventure in the nature of trade, leading to the treatment of short term capital gains as income from business.

Issue 2: The second issue focused on verifying the purchase date of 25000 shares of a specific company by the assessee. The AO questioned the purchase date based on discrepancies in the information received from the broker and sought further details through summons and information requests under Section 133(6). The AO concluded that the assessee failed to substantiate the purchase of shares before a specific date, highlighting the absence of necessary agreements between involved parties.

Issue 3: The final issue involved determining whether the transaction involving the sale of shares was an adventure in the nature of trade or an investment. The Commissioner of Income Tax (Appeals) (CIT(A)) allowed the assessee's appeal based on evidence provided by the assessee, including statements and account details from brokers. The CIT(A) emphasized the importance of the assessee meeting the onus of proof and highlighted that the department failed to counter the evidence presented. The Tribunal upheld the CIT(A)'s decision, emphasizing that the evidence supported the conclusion that the shares were purchased on a specific date and held as investments, not for trading purposes.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision based on the evidence presented by the assessee regarding the purchase and holding of shares as investments, thereby rejecting the AO's classification of the transaction as an adventure in the nature of trade.