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TMI Blog2013 (10) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... puted the fact that assessee has not used any borrowed funds for the purpose of purchase of shares and same is also fortified on perusal of profit and loss account, that no interest has been claimed towards expenses - mere volume of transaction does not mean that assessee is a trader. The intention with which purchase has been made has to be seen. It is held that if in earlier year, the department has treated the assessee as an 'investor', it cannot take a different view in subsequent year - in assessment year 2004-05, assessee has shown short term capital gain as well as long term capital gain and department while making the assessment u/s.143(3) of the Act vide order dated 11.8.2006, copy placed on record, accepted the capital gain shown by the assessee - Following decision of Gopal Purohit vs JCIT [2009 (2) TMI 233 - ITAT BOMBAY-G] - Decided in favour of assessee. Disallowance of telephone expenses - Held that:- disallowance of 20% of telephone expenses made by authorities below on the ground that some expenses are required to be made in regard to exempt income is on higher side. However, personal use of telephone is not ruled out. Hence, disallowance of expenses reduced to 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that assessee is maintaining separate portfolios in respect of shares held as investment and also shares held on trading account. He submitted that assessee valued the shares held in investment portfolios on cost while shares held in trading account had been valued on market price or cost price whichever is lower. Ld A.R. referred page 4 of PB which is a copy of balance sheet for the financial year relevant to assessment year under consideration to substantiate his above submissions. He submitted that there is an investment in shares of Rs.55,94,573.17 as on 31.3.2005 and the same have been shown specifically under the "investment". Ld A.R. further referred page 5 of PB which is a copy of profit and loss account and submitted that the long term capital gain, short term capital gain and speculative dealing on shares are specifically stated therein. Ld A.R. referred page 2 of PB, which contains details of shares held as 'stock-in-trade'. Ld A.R. submitted that assessee is maintaining separate portfolio in respect of details of shares held as investment in shares aggregating to Rs.55,94,573.17 and referred pages 22 to 23 of PB. He further referred page 24 of PB which contains d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were trading transactions or whether these were in the nature of investment was a question of law. This was a mixed question of law and fact. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing officers. 8. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles :- (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. 12. These instructions shall supplement the earlier Instruction no. 1827 dated August 31, 1989." 5. Ld A.R. submitted that CBDT circular itself provides that a tax payer can have two portfolios i.e. an investment portfolio for which securities are to be treated as capital assets and trading portfolio comprising of securities held as stock in trade. Ld A.R. further referred pages 203 to 206 of PB which contains gist of number of cases and submitted that as per ratio laid down in those cases, said shares are to be considered as investment and the profit is to be considered as short term capital gain. He further submitted that there no borrowed money was used by the assessee for the purpose of investment in shares. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t repetitive transactions in the same scrips. The department has not disputed the fact that assessee has not used any borrowed funds for the purpose of purchase of shares and same is also fortified on perusal of profit and loss account, that no interest has been claimed towards expenses. The ITAT Mumbai has held in the case of Janak S Rangwala vs ACIT, 11 SOT 627 that mere volume of transaction does not mean that assessee is a trader. The intention with which purchase has been made has to be seen. It is held that if in earlier year, the department has treated the assessee as an 'investor', it cannot take a different view in subsequent year. In the case before us, it also observed that in assessment year 2004-05, assessee has shown short term capital gain as well as long term capital gain and department while making the assessment u/s.143(3) of the Act vide order dated 11.8.2006, copy placed on record, accepted the capital gain shown by the assessee. In the case of Gopal Purohit vs JCIT, 29 SOT 117(Mum), ITAT has held that most crucial source of gathering intention of assessee as regards nature of transaction is the accounts maintained by the assessee. It is further held that delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on higher side. However, we observe that personal use of telephone is not ruled out. Hence, we reduce the disallowance of expenses to 10%. AO is directed accordingly. Ground No.3 is allowed in part. 13. Ground No.4 of appeal relates to confirmation of disallowance on account of demat charges of Rs.1,143/-. 14. Having heard both the sides, we do not find any infirmity in the order of ld CIT(A) to confirm the disallowance of Rs.1,143/- on account of demat charges as income of the assessee has been assessed under the head "Capital Gain" except speculative profit of Rs.2,90,664/-. Hence, Ground No.4 is rejected. 15. In Ground No.5 of appeal, assessee has disputed the confirmation of disallowance on account of stamp duty charges of Rs.6,565/-. 16. Having heard both sides, we are of the considered view that disallowance on account of stamp duty charges is not justified as genuine of the said expenditure is not justified by the authorities below, hence disallowance of Rs.6,565/- is deleted by allowing Ground No.5 of the appeal. 17. In the result, appeal filed by assessee is allowed in part. Order pronounced in the open court on 12th June, 2013. - - TaxTMI - TMITax - Incom ..... 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