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TMI Blog2010 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... ares and the balance amounting to Rs.42,995 was on account of sale of units of mutual funds. It was also found by the AO that there were several scrips in which the assessee had transacted during the year under consideration and even the frequency of transactions was on higher side. He noted that long term capital gain had arisen to the assessee from 98 transactions of sale of shares and the transactions in shares giving rise to short term capital gains were 395. He noted that out of these 395 transactions resulting into short term capital gains, purchase transactions were 182 whereas sale transactions were 213 and total 142 scrips of different companies were involved in the said transactions. Keeping in view these facts and figures of the assessees' case, the AO required the assessee to explain as to why the transactions in shares should not be treated as an activity in itself which was like any normal business activity. In reply, a detailed written submission was filed by the assessee the gist of which as given by the AO in the assessment order, is reproduced below :- "(1) The assessee does not possess any educational qualifications or experience in financial or stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the assessee thus was primarily intended to make profits from the transactions in shares and it was rather incidental that she received dividend on some of the shares so transacted. As regards the intention of the assessee that the income from speculation was separately declared by her as business income, the Assessing Officer held that the income from speculation activity in any case was separate from capital gains and merely because the income from the "non delivery" transactions were offered by the assessee as business income, it could not follow that the income from "delivery based" transactions has to be treated as capital gains. As regards the submission of the assessee that she took advantage of favourable market conditions in the year under consideration to realise gains by selling some of her shares held as investments, the Assessing Officer held that this submission of the assessee made the case of the Revenue stronger for treating the transactions in shares as business activity in nature. He noted that many shares were acquired and sold by the assessee in the year under consideration itself which clearly indicated that the assessee essentially had a profit motiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year have been disposed of during the year itself. (vii) The time devoted to the activity and the extent to which it is the means of livelihood. The assessee has disclosed taxable incomes of Rs. 71.04 lacs out of which Rs. 67.82 lacs are out of short term capital gain. The exempted incomes include dividend from shares. The assessee is also in receipt of a share of dividend of Rs. 76.98 lacs under the trust created as per the will of late Mrs. Jasoda Narottam. It may be seen that none of these exempted incomes call for any direct involvement of the assessee. Hence it can be safely concluded that her entire preoccupation is with purchase and sale of shares. (viii) Whether the securities purchased and sold are listed or unlisted. All the trading is in listed shares. Purchase of unlisted shares (generally done with investment motive) would have given a benefit of doubt to the assessee. (ix) Whether investment is in sister/related companies. The dividend received as a part of the trust created as per the will of late Mrs. Jasoda Narottam is from the shares of Parle Products Pvt. Ltd. The assessee is a member of the family owning the said company. (x) & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as stock in share: 1. Intention supported by facts : The intention of the appellant was always to invest his surplus post tax income in shares and securities and to earn dividend income and also future capital accretion. This fact is clearly underlined by dividend income of Rs. 62,58,348 earned by the appellant during the year under consideration. Also the substantial average holding period (in case of STCG - four to five months) states that the appellant has held the shares for a long period of time irrespective of substantial increase in the market value of the investment. This is clearly contrary to the act of a person dealing in shares as he would liquidate his holding as soon as he earns a substantial amount of profit. 2. Substantial Holding Period : The shares are not purchased for immediate sell-off but with the intention to invest. The same is purchased and kept for reasonably long period till the time the objective is achieved. 3. Substantial Dividend Income : Substantial dividend is also earned consistently every year. During the year, dividend of Rs.62,58,348 was earned. 4. Treatment In Books : Purchase of shares has been account in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding period of shares to distinguish between trading and investment which is arbitrary and not in consonance with the CBDT Circular 1827 dated 31.08.89 supplemented with CBDT Circular No.4 of 2007 dated 15.06.2007. 2. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer restored. 3. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary. GROUNDS OF CROSS-OBJECTIONS : 1. The learned CIT(A) erred in partly confirming the action of the assessing officer of treating the short term capital gain from sale of shares as business income. He erred in directing the assessing officer to treat the surplus/loss on sale of shares held for less than 30 days as business income/loss. He erred in holding that the assessee is both an investor as well as trader in shares. 2. Each one of above grounds of appeal is without prejudice to the other. 3. The respondent reserves the right to amend, alter or add to the above grounds of appeal 8. The learned DR at the outset invited our attention to the reasons given by the AO on pages 17 to 19 of his order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s investor in shares and the profit arising from the transactions in shares was assessed in her hands under the head capital gains. He submitted that even in the year under consideration, the AO has accepted the claim of the assessee for long term capital gain arising from the sale of shares which were held for a period of more than one year. He pointed out that some of the shares purchased by the assessee in lots in the earlier years were partly sold in the year under consideration within a period of one year and the remaining shares of the same lot were sold after a period of one year. He submitted that the profit arising from sale of the said shares within a period of one year was held by the AO as business income of the assessee whereas the profit arising from sale of shares from the same lot after a period of one year was accepted by him as long term capital gain as claimed by the assessee. He contented that the AO thus has taken different stand as regards the intention of the assessee by treating some shares of the same lot purchased by her as stock in trade and the remaining shares as investment. He contented that the assessee cannot have a different intention to buy one lot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of the assessee for long term capital gains is concerned, the AO himself has accepted the same and this is a peculiar fact involved in the present case having material and direct bearing on the issue under consideration. This is because if the AO himself has accepted that some of the shares were purchased and held by the assessee as investment while allowing the claim of the assessee for long term capital gain arising from the sale thereof, there is no justification for him to say that the assessee had purchased and held other shares as stock in trade merely because they were sold within a period of one year especially when other facts relevant thereto were almost similar. As rightly submitted by the learned counsel for the assessee in this regard, if one lot of say 1000 shares of a particular company was purchased by the assessee in the earlier year and 500 shares of the said lot were sold by her in the year under consideration before a period of one year and the balance 500 shares were sold again in the year under consideration but after the period of one year, it cannot be said that there were two intentions of the assessee behind purchase of the same lot of shares. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , did not make any adverse comment on the claim of the assessee for long term capital gain thereby accepting the said claim by implication. The Assessing Officer thus treated the shares dealt in by the assessee partly as investment and partly as stock in trade merely on the basis of period of holding of the said shares ignoring the fact that the same were purchased by the assessee in a similar manner and treated as investment. The order of the AO on this issue thus is self contradictory which becomes more evident from one instance pointed out by the learned counsel for the assessee involving the shares of M/s. Banswara Centex Ltd. The said shares were purchased by the assessee in the lot of 5000 on 11.11.2004 out of which 3000 shares were sold within a period of one year whereas the remaining 2000 shares were sold after a period of one year. All these shares were treated by the assessee as investment and the profit arising from sale thereof was offered to tax as short term gain and long term capital gain depending on the period of holding. In sofar as the shares which were sold by the assessee after a period of one year, the AO accepted the treatment given by the assessee to the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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