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TMI Blog2010 (11) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) erred in treating income from share trading as investment income. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred ignoring the facts that due to high frequency of transactions, the profits from such transaction should be treated as business income. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred not appreciating the fact that the assessee has in subsequent years declared income from similar transactions as business income. 2. Brief facts of the case are that, the assessee company, a member of Bombay Stock Exchange, in the relevant assessment year, filed return of income declaring total income at ₹ 58,92,409/- which was duly accompanied with tax audit report under section 44AB of the Income Tax Act, 1961 (for short the Act ). The Assessing Officer noticed that the assessee had disclosed short term capital gains during the year at ₹ 42,34,000 and long term capital gains at ₹ 60,95,000. He noted that the assessee had purchased shares in small lots and entered into more than 300 transactions during the year. Thus, the assessee had consistently purchased and sold the shares during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be paid in shares which yielded no dividend was correct. We cannot say that this was not a relevant circumstances of the Tribunal to take into consideration for coming to the conclusion that the transaction was an adventure in the nature of business. 3. Before the learned CIT(A), the assessee submitted that the composition of its long term capital gains and short term capital gains was as under: Short term capital gains (without STT) 2,83,973 b) Short term capital gains (with STT) 39,51,295 42,34,268 c) Long term capital gains (without STT) 15,48,988 d) Long term capital gain (with STT) 45,46, 233 60,95,221 Short term capital gains (without STT) Regular Transactions 251410.13 In short duration / auction sale Short term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Pages 5 to 7 of the order passed by the CIT(A). The assessee had submitted the details of sale and purchase of shares from which it was noticed that majority of shares had been held by the assessee for more than 300, 200 and 100 days and only in a very small number of cases, shares were sold within ten days. Further, CBDT Circular dated 15th June 2007 was pointed out before the CIT(A), wherein it was clarified by the CBDT that it was possible for a tax payer two portfolios i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading asset. Where the assessee has two portfolios, the assessee may have income under both the heads i.e., capital gains as well as business income. 7. Learned Departmental Representative referred to Page 8 of assessment order, wherein AO s findings have been summed up. He further referred to Page 24 of the paper book wherein the computation of income is contained which shows profit on sale of investment was ₹ 1,03,29,489 as against which the dividend income was ₹ 3,29,999 only. Thus, he submitted that it is evident th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide order dated 24th February 2010 and in ITA no.2586/Mum./ 2009, in the case of Smt. Sadhna Nabera Vs ACIT, vide order dated 26th March 2010, in support of his contentions. 8. Per contra, learned Counsel referred to Page 8 of the assessment order to demonstrate that the Assessing Officer had questioned the assessee s transactions only in regard to which the assessee had returned its income as short term capital gains of ₹ 42,34,000. He pointed out that long term capital gains of ₹ 60,95,000 havenot been disputed by the Assessing Officer. He further referred to Para 2.4 of the CIT(A) s order wherein the CIT(A) had noted that majority of shares were held by the assessee for more than 300, 200 and 100 days and in a very small number of cases, the shares were sold within ten days. 9. Learned Counsel further referred to the assessment order for assessment year 2001 02 contained at Pages 1 to 4 and pointed out that the Assessing Officer, under section 143(3), had accepted the assessee s claim regarding long term capital gains and short term capital gains with respect to shares sold by it. He referred to Page 7 of the paper book, wherein balance sheet as on 31st Mqarc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harat Kunverji Kania, vide order dated 15th May 2009; iii) Decision of Mumbai Bench of the Tribunal in ITA No. 3861, 3862 3863/Mum./2001 in the case of Shri Motilal Oswal, vide consolidated order dated 28th August 2006; and iv) Decision of Mumbai Bench of the Tribunal in ITA No. 2801/Mum./2000, ITA No.2802/Mum./2000 and ITA No. 5488/Mum./2001, in the case of J.M. Shares and Stock Brokers Ltd., vide consolidated order dated 30th November 2007. 11. Learned Counsel submitted that insofar as Smt. Sadhna Nabera (supra) case is concerned, the same is distinguishable on facts because that was a case concerning transactions between shares of group companies. Further, the assessee had borrowed funds for making investment in shares and in earlier years, there was nil income from capital gains or very small long term capital gains. These features clearly distinguish the case of the assessee from that of Smt. Sadhana Nabera (supra). As regards the decision in the case of Jayshree Pradip Shah (supra), Ld. counsel submitted that in the said case, the assessee had shown non delivery based transactions under the head Business Income , whereas, all the transactions wherein delivery of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies; xii. Whether transaction is by promoters of the company; xiii. Total number of stocks dealt in; and xiv. Whether money has been paid or received or whether these are only book entries. 13. CBDT, vide Circular No.4/2007 dated 15th June 2007, has observed that whether a particular holding of shares is by way of investment or form part of the stock in trade is a matter which is within the knowledge of the assessee who holds his shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he is maintaining any stock-in-trade or holding the shares by way of investment. In the present case, it is not disputed that the assessee had maintained this distinction in its records. It is true that volume of transaction is an important indicator of the intention of the assessee whether to deal in shares as trading asset or to hold the shares as investor but certainly not the sole criterion. In our considered opinion, the Assessing Officer s conclusion that since sale and purchase had been determined by the volatility in the market, the same is against the basic feature of investor, is not based on sound rational re ..... 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