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2017 (3) TMI 808 - AT - Income TaxTransaction of shares - capital gain or business income - Held that - CIT(A) has accepted the contentions of the assessee with regard to the investment, which were not made through Smt. Rupal Naresh Panchal and Sudgandh Estate & Investment Pvt. Ltd. We find that in the accounts, the assessee has shown the shares under the head investment 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. 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 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
Issues Involved:
1. Classification of Short Term Capital Gain as business income. 2. Treatment of surplus from share transactions. 3. Distinction between investment and trading activities. Detailed Analysis: 1. Classification of Short Term Capital Gain as Business Income: The primary issue in these cross appeals was whether the surplus generated from the sale of shares should be classified as Short Term Capital Gain (STCG) or business income. The Assessee claimed the surplus as STCG, while the Assessing Officer (A.O.) treated it as business income. The A.O. argued that the nature of transactions, including the frequency and volume of trades, indicated a business activity rather than an investment. 2. Treatment of Surplus from Share Transactions: The A.O. issued a show cause notice to the Assessee, questioning the classification of the surplus from share transactions as STCG. The Assessee contended that the transactions were made with an investment intent, not for trading. However, the A.O. observed that the Assessee's activities, such as frequent trading and short holding periods, were indicative of a business. The A.O. also noted that the Assessee had engaged in large-scale IPO subscriptions and subsequent sales, which further suggested a business motive. Consequently, the A.O. treated the surplus of ?3,93,54,700/- as business income. 3. Distinction between Investment and Trading Activities: The First Appellate Authority (CIT(A)) partially upheld the A.O.'s decision, distinguishing between transactions involving certain groups (Rupal Naresh Panchal and Sugandh Estate & Investment Pvt. Ltd.) and other transactions. The CIT(A) concluded that the surplus from dealings with these groups should be treated as business income due to the organized and systematic nature of the activities. However, the surplus from other transactions was treated as STCG, as the Assessee had invested its own funds and followed investment practices. The ITAT examined the principles laid down in various judicial decisions, including the case of Hipolin Ltd. and Sarnath Infrastructure Pvt. Ltd., to determine whether the transactions were in the nature of trade or investment. The ITAT noted that the Assessee had shown the shares as investments in its accounts, paid security transaction tax, and did not value the shares as stock-in-trade. The ITAT also observed that the revenue failed to establish a nexus between the Assessee and the groups involved in the IPO scam, and there was no concrete evidence to support the A.O.'s and CIT(A)'s conclusions. Conclusion: The ITAT concluded that the revenue did not provide sufficient evidence to prove that the Assessee was trading in shares. The Assessee successfully demonstrated that it was an investor, and the surplus of ?3,93,54,700/- should be taxed as STCG. The ITAT allowed the Assessee's appeal, directing the A.O. to treat the surplus as STCG instead of business income. Consequently, the revenue's appeal was dismissed, and the Assessee's appeal was allowed. Order Pronouncement: The order was pronounced in Open Court on 22-02-2017.
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