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TMI Blog2013 (8) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as business income. Transaction to be treated as short term or long term capital gain - Assessee got the shares transferred to demat account as on 31.03.2005 and sold as on 18.04.2005 - There is no verifiable evidence to establish whether the assessee purchased shares on 02.04.04 as claimed – Held that:- Assessee purchased the shares and transferred them into demat account on 31.03.05 - Gain earned by the assessee can be brought to tax as capital gain but as short term capital gain, as there is evidence of purchase as on 31.03.05 and sale as on 18.04.05 - A.O. is directed to treat gains as short term capital gain and tax accordingly. Commission amount on presumption and notion for computing tax - Commission paid at 5% for arranging long term capital gain – Held that:- The transaction is neither proved as an arranged one and nor there is evidence on record that the assessee arranged transaction by paying any commission. The presumptions cannot be made while bringing an amount to tax and no notional amount can be brought to tax – Deletion of commission amount as there is no evidence of assessee paying any commission so to sustain the addition so made. - ITA No. 2081/Mum/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as bogus income) he analysed the transactions, and gave direction to treat most of the amount as long term capital gain except the amount to the extent of Rs.73,483/- on the transactions of sale of Amtek Auto Ltd. which were also allowed to be treated as business income. With reference to the treatment of bogus income, he while considering that the assessee has not proved the purchase of shares except that shares were available for sale as they came into demat account of the assessee as on 31.03.2005, bifurcated the transactions as that of cost of purchase of shares at Rs.22,48,000/- as undisclosed investment and the balance of Rs.2,46,900/- as income of the assessee. Therefore, this order of the CIT(A) resulted in enhancement of income of Rs.1,36,000/- being cost shown by the assessee. He also confirmed the addition on account of 5% commission paid. 4. The assessee placed on record the paper book containing page 1 to 171 in two volumes and detailed note on various issues. The ld. DR also submitted a note on various cases decided by the ITAT on the issue of assessing the income from profit on shares as business income. We have heard the ld. AR and the ld. DR and their content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the intention was only to make profits based on impulsive decisions, normally as in business, the assessee could have earned a profit of Rs 9, 55,442 by selling the shares and not withheld the said shares as investments. 2. Usual Trade or business as income from business is almost 90% of the total income. i) This is factually incorrect in as much the business income is approx 72% and not 90%. It will not be out of place to mention that the said business income comprises of Rs 48.00 lacs from derivative trading. (ii) Substantial dividend income earned. 3. Holding period i) The scrips on which short term capital gain is earned are held for a period ranging from 1-9 months. Holding period of top four scrips in terms of profit value shows that the holding ranges from 6 to 9 months. ii) Statement showing holding period in range of 30 days to 100 days shows that almost 50% of the scrips on which short-term capital gain is earned is held for more than 60 days. iii) The investment is made after a detailed analysis of the future prospects of the investee company and with an intention to hold the same. Further, the same have been sold either to reduce the risk/loss connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions are concerned, assessee was involved in share transactions in earlier years and also in later years. Considering the transactions and submissions of the assessee, we are of the opinion that the same cannot be treated as business income as assessee had no borrowed funds, no set up to do share transactions as a trading activity and further long term gains assessed as business income was treated as long term capital gain, following the principles laid down by the Hon'ble High Court of Bombay in the case of Gopal Purohit vs. JCIT 228 CTR582(Bom), the investment activity in earlier year can not be taken as business activity in this year. Coupled with the fact that the assessee has neither claimed benefit of opening and closing stock, nor AO disturbed the working of the assessee except treating the gain as business income, We are of the opinion that income declared by the assessee as short term capital gain can not be treated as business income. Eventhough both the parties relied on various case law on the issue, but issue is to be decided on facts and considering the conduct of the assessee in earlier years and later years and the fact that the assessee separately dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he part of the appellant with the sole motive of showing the short term capital gain or business income on sale of such shares as long term capital gain and thereby claiming exemption u/s. 10(38) of the Act is unacceptable as well as against the provisions of the Act. Therefore, on account of the same and further in view of the aforesaid discussion, the entire long term capital gain on sale of 600 shares of Amtek Auto Ltd. is directed to be considered as part of business income of the appellant instead of long term capital gain shown by the appellant. As the appellant is found engaged in the repetitive purchase and sale of the same item or script being the shares of Amtek Auto Ltd. for more than four times during the relevant assessment year, I am of the considered opinion that the income arisen thereon is in the nature of her business income and not in the nature of capital gains. This ground of appeal raised by the appellant is therefore, partly allowed." 6.1 Contesting the above, it is submission of assessee that further shares are also to be treated as long term capital gain and balance, if any should be treated as short term capital gain. The purchase and sale are as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the above details, since CIT(A) has accepted part of the same as long term capital gain, we direct the AO to accept the long term capital gain as detailed above and balance of the amount as short term capital gain. Since assessee's investments are not considered as trading activity vide ground No.2, the gain on the balance of shares in Amtek Auto Ltd. are to be considered as short term capital gain. With these directions ground No.3 is considered as allowed. 7. Ground No.4. This issue arises in this way. The assessee had long term capital gain of Rs.33,64,385/- out of which a sum of Rs.23,58,900/- pertained to long term capital gain on sale of M/s. Interlink Finance and Investment Ltd. The AO noticed that the shares have been purchased on 02.04.2004 for consideration of Rs.1,36,000/- and sold during the year on 08.04.2006 for a sum of Rs.24,94,900/- thereby earning the gain. The assessee claimed the entire gain as exempt under section 10(38) of the Income tax Act. The AO on enquiry found that contract notes and purchase bills were issued by broker M/s. T.H. Vakil Shares and Securities Pvt. Ltd. and there were some other transactions showing speculation profit of 197.18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance of the AR as discussed above. The AR vide her letter dated 23.12.2010 has submitted in this regard as under: "We refer to the discussions we had with you in connection with the appellate proceedings in the case of our above named client for income-tax A.Y.2006-07. In this connection and further to the written submissions made on 19th March, 2010, 29th March, 2010, 28th April, 2010, letter dated 10th May, 2010 and letter dated 3rd Dec., 2010,we submit as under :- Ground of appeal number 3(b) -- Treatment of long term capital gain Rs.23,58,900/- on sale of 10,000 shares of Interlink Finance (IFSL) (said shares) held as investments, as income from other sources. We refer to the copy of the statement on oath of Mr.Narendra Shah furnished to us by you on 2lst Dec.,2010 in response to our submission that the AO has violated the principles of natural justice by not granting sufficient opportunity to the appellant to present her case in as much there is not even a whisper in the show cause notice about the statement recorded during the survey, the basis on which he has made the impugned addition and that he has not furnished to the appellant, even before passing the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /contract notes regarding the sale of 10,000 shares of Interlink Finance and Investment Ltd dated 02.04.2004, which Shri Narendra R.Shah has categorically admitted having issued without receiving any consideration transfer of shares to the appellant. Or in other words he has categorically admitted that all these bills/contract notes are mere accommodation bills/entries issued by the said broker. It was also confirmed that no actual transactions in this regard were carried out by the said broker. The adjustment of purchase consideration based on the said contract note / invoices issued were also confirmed to be bogus. These findings of the AO and the evidences gathered by the AO provided to the appellant/ AR as discussed above are not rebutted by the AR by furnishing any cogent contrary evidences. Therefore, on account of these clinching evidences gathered by the AO as a result of the systematic enquiries carried out as discussed in the assessment order prove beyond doubt that no such purchase of alleged shares were made by the appellant from the broker M/s.T.H. Vakil Shares Securities Pvt. Ltd as per the purchase bill/broker note or contract note dated 02.04.2004. However, at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the average price of the day works out to Rs. 224.80 per share. Accordingly, presuming that the appellant has purchased these shares on average price of the script the purchase cost of these shares in the hands of the appellant works out to Rs.22,48,000/- (i.e. Rs.224.80 x 10000) as on the date of credit of these shares into the demat account of the appellant. Since, the entire source thereof is unexplained, therefore, I find that the AO is fully justified in treating the purchase cost of these shares amounting to Rs.22,48,000/- as her undisclosed income or investment. Accordingly, the addition made to this extent is confirmed. Further, the appellant has sold these shares for a sum of Rs.24,94,900/- on 18.04.2005 i.e. immediately after its purchase, therefore, the entire gain thereon due to my reasons discussed in the preceding paragraphs of this order is treated as business income of the appellant. Accordingly, the entire addition made on this account amounting to Rs.24,94,900/- is confirmed i.e. Rs.22,48,000/- on account of unexplained investment and further Rs.2,46,900/- on account of business income of the appellant for the relevant assessment year. No deduction on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the opinion that the gain earned by the assessee can be brought to tax as capital gain but as short term capital gain, as there is evidence of purchase as on 31.03.05 and sale as on 18.04.05. Since assessee claimed only amount of Rs.1,36,000/- as cost, there is no need for estimating the cost at Rs.22,48,000/- on presumptions as was done by the CIT(A). The transaction can be much before that date also as it will take time to get them into demat account. In the circumstances of the case, considering the evidence on record, we direct the AO to treat the gain offered by the assessee as short term capital gain and determine the tax liability accordingly. Ground No.4 is allowed partially. 8. Ground No.5 pertains to addition of Rs.1,17,945/- being alleged commission paid for arranging long term capital gain. The AO was of the opinion that the assessee has arranged the transaction in such a way so as to claim exemption under long term capital gain and calculated 5% of the amount as commission paid to 3rd parties for arranging the said long term capital gain. The ld. CIT(A) confirmed the same as he held that transaction is an accommodation transfer for arranging long term capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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