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TMI Blog2013 (11) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... gain earned by the assessee consists of long term capital gain as well the short term capital gains on sale of shares as under: - i. Long Term Capital Gain (exempt u/s. 10(38) of Income Tax Act) Rs. 1,73,43,980/- ii. Short Term Capital gain Rs. 9,24,38,619/- The AO has taxed short term capita gain of Rs. 9,24,38,619/- as business income and accordingly levied tax on the same at normal rate. 3. The reasons for considering the short term capital gains as business income by the AO are as under: - (a) The assessee dealt with more than 60 companies during the year. (b) Holding period of shares is less than 30 days in more than 30% cases. (c) ¼ of the transactions involving 1/5th of the turnover was done in one month only. (d) There are five speculative transactions and the assessee filed 3CD report accepting the nature of transactions as 'trading in shares". (e) The assessee is a Director in M/s. Jayanand Securities Ltd. which is engaged in share business. (f) Dividend income is very small compared to gains earned. The AO held that assessee is a dealer in shares and is engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for only 3 days in the first four month. Further, during the period of eight months, there were transfer transactions on only 15 days. The absence of regular transactions in shares for eight months in the year clearly highlights that the transactions were not entered into frequently, continuously and regularly by the appellant. 7.4 The appellant has earned 75% of the total Short Term Capital Gains with a holding period more than 9 months. In other word, only 25% of the overall capital gain for the appellant has accrued from stocks where the weighted average holding duration for scripts was up to 9 months. In respect of sale of shares within a month of holding it was explained to be triggered by an unprecedented volatility in the market between Nov'07 to Jan'08, that the appellant sold off shares within a short period of holding at loss in fear of further large fall in market. 7.5 The weighted average holding duration of all the stocks (short term & long term) sold under capital gains during the year amounted to 182 days or 6 months. For the stocks resulting in short term capital gains the weighted average holding is for 140 days and for the stocks ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant unbooked and unrealized capital gain of Rs.356 lakhs in the scrips of Flat Products Equipments and Jai Corp as on March 31, 2008 having an average holding period of 13 months. A trader would have definitely realized the huge profit immediately and not carried out profits to the next year. Besides, there was a substantial long term capital gain of Rs.1.34 Cr in A.Y. 2009-10 apart from a huge quantum of unrealized Long Term Capitla Gains lying in the closing Investment for A.Y. 2010-11. Presence of such huge unrealised capital gains having longer holding period clearly indicates intention of the appellant of trying to seek longer term capital appreciation. That apart, the Quantum and Value of transactions of the appellant in the subsequent years were significantly lower compared to Assessment Year 2008-09. Had the appellant been a trader in shares, transactions in shares would have increased further in the subsequent years instead of witnessing a sharp contraction. 7.11 The appellant has derived significant long term capital gains over the years. In A.Y. 2005-06 and 2006-07, long term capital gains amounted to 93% and 63% respectively of the total capital gains earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions without delivery during any of the past years. The appellant has sufficiently explained the back ground of the speculation loss reported during the year and it's presentation in the accounts, supported by the audited accounts. There is no other contrary material brought on record to dispute the appellant's claim in this regard. 7.15 The appellant has sufficiently explained the nature of work carried on by her, resulting in the processional come offered to tax, and therefore, the appellant's substantive activity cannot be held to be that of share trading in the sense that the investment activity can be regarded as ancillary to such share trading." 6. On considering the legal aspects of the case the CIT(A) held in paras 8.3, 9 and 10 as under: - "8.3 Further, having regard to the facts noted at paras 7 to 7.16 above, there is a substantial compliance on the part of the appellant in terms of Instruction No. 1827 dated 31st August 1989 and Draft Instruction dated 16th May 2006 of the Central Board of Direct Taxes in respect of tests laid down therein to distinguish between shares held as stock-in-trade and shares held as investment that the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Bench in the case of Jay Mahendera Shah in ITA No. 6093/Mum/2011 & CO No. 156/2012 dated 31-08-12 considered similar facts and dismissed Revenue appeal by holding as under: - "6. We have considered the rival submissions and relevant material available on record. The finding of the AO based broadly on the observations viz., (i) huge turnover with large number of transactions (ii) short period of holding in respect of three scrips (iii) speculative transactions on three occasions and (iv) borrowed funds. The volume of transaction itself cannot be a sole criteria when the frequency of the transactions were not so high. In the case in hand, the number of days during which either the purchase or sale transactions carried out were 64 days in the entire year which shows that the frequency is not high in comparison to the volume of transaction. Further, the total number of scrips in which the sale and purchase done giving raise to Short Term Capital Gain and Long Term Capital Gain are only 27. Therefore, this fact supports the case of the assessee. As regards the holding period, the weighted average period of shares of 27 scrips was 113 days. Therefore, selecting only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. 7. It is pertinent to note that in the earlier years as well as in the subsequent years, the AO has accepted the capital gain offered by the assessee. When the assessee has treated the shares as investment in the books of account and valued at cost, then the explanation of the assessee is clear that the shares were retained as investment. Further 99% of the Short Term Capital Gain is from the sale of shares which were purchased in the earlier year and accepted by the AO in the said year as investment. Therefore, these transactions cannot be treated differently in the year under consideration. Even otherwise, if the investment in the earlier year is treated as stock in trade in this year then in view of the provisions of section 45(2), the difference in the market price and the cost as shown in the books of account would be treated as capital gain. 8. Thus, the facts and circumstances of the case clearly demonstrate that the intention of the assessee to hold the shares as investment and not stock in trade. The motive of the transaction of sale and purchase was not to realize the profit at the earliest possible occasion but to retain share for app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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