9911796707
TMI Blog2015 (6) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... clared by the appellant. 2.1. That the CIT(A) erred, on facts and in law, in holding that the shares held and disclosed as "investment" in the balance sheet were in the nature of trading asset(s) and not capital asset(s), as claimed by the appellant. 2.1. That the CIT(A) erred, on facts and in law, in holding that the shares held and disclosed as "investment" in the balance sheet were in the nature of trading asset(s) and not capital asset(s), as claimed by the appellant. 2.2 That the CIT(A) erred, on facts and in law, in holding that the intention of the appellant in purchasing shares of so-called insignificant companies revealed that the intention of the appellant was to resell the shares, rather than to hold them or retain them as capital asset. 2.3 That the CIT(A) erred, on facts and in law, in affirming the action of the assessing officer in assessing capital gains as business of levelling various false/baseless allegations, without judiciously appreciating the submission of the appellant. 3. That the AO/CIT(A) erred on facts and in law in charging interest under section 2348 and 234C of the Act." 2. Ground No.1 is general in nature and so is not adjudicated. Apropos grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was claimed. The appellant also claimed loss of Rs. 12,11,585/- on sales of future shares as a loss from business or profession which was set off against income from other sources. 6. The claim of the long term capital gains as above became the bone of contention. Therefore a show cause notice was issued to the appellant by the AO vide letter dated 27.02.2013 asking the assessee to explain as to why the income arising from the sale of M/s Balrarnpur Chini, M/s GMR and M/s Pacelep amounting to Rs. 2,77,73,257/- should not be treated as income from business of share transaction. The above referred show cause notice is reproduced for reference as under: "As per Column 8(a) of 3 CD of the audit report, nature of business or profession has been written as share transaction, then why purchase of share of Rs. 3,87,78,265.27 has been shown as investment, in share in the asset side of the balance sheet of the year under consideration and not shown as closing stock of the business. As per Column 8(a) of from 3CD of the audit report, nature of business or profession has been written as share transaction, then why the income arising from the sale of share of Balrampur Chini, GMR and Pacel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of the 3CDReport filed during the course of proceedings in the case of M/s Shubhkaran Dass Chiranjilal (Agency) with PAN AAAPC3276C which shows that M/s Subhkaranadass Chiranjilal Agencies is a sole proprietary firm in the name of Sh. Vinod Chaudhary (PAN AAAPC3276C). When the status of the above is a firm then how the assessee has stated that he is a Director in the above company. * Moreover assessee has declared only Rs. 24000/- salary income as a director from the so called company in his computation of income for AY 2010-11. Keeping in view of the above facts, I arrived at the conclusion that the assessee spent most of his time in no other work except share trading. * The assessee is running his business of share trading by making a sole proprietary firm named M/s. Ashish Choudhary stock Investment whose business premises address is 4410, Ganesh Bazar, Cloth Market, Delhi-110006 as declared by the assessee. The assessee filed a profit &loss account balance sheet and tax Audit report of his firm. Keeping in view the above facts, I also arrived at conclusion that the assessee has well developed infrastructure in the form of office equipments and only indulged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30000 10000 75000 5000 20800 10000 10000 10000 10000 79200 100360 100800 25800 20800 0 30000 20000 10000 20000 10000 0 2. SVC Resources 31.08.2007 14.07.2009 14.07.2009 17.07.2009 04.08.2009 11.08.2009 12.08.2009 21.08.2009 26.08.2009 03.09.2009 07.09.2009 08.09.2009 11.09.2009 15.09.2009 15.09.2009 16.09.2009 22.09.2009 23.09.2009 400000 30000 20000 25000 5000 30000 20000 25000 25000 50000 10000 15000 25000 25000 15500 3000 6500 25000 400000 370000 350000 325000 275000 245000 225000 200000 175000 125000 115000 100000 75000 50000 34500 31500 25000 0 3. Spentex Industries Limited 31.05.2007 31.05.2007 28.06.2007 03.07.2007 05.07.2007 18.07.2007 19.07.2007 27.07.2007 27.07.2007 24.01.2008 18.07.2008 14.10.2008 17.10.2008 24.10.2008 31.10.2008 04.02.2011 05.02.2011 07.02.2011 07.02.2011 08.02.2011 08.02.2011 08.02.2011 09.02.2011 09.02.2011 10.02.2011 10.02.2011 11.02.2011 11.02.2011 14.02.2011 21.02.2011 21.02.2013 22.02.2013 25.02.2013 27.02.2013 01.02.2013 04.03.2013 04.03.2013 06.03.2013 07.03.2013 07.03.2013 07.03.2013 12.03.2013 13.03.2013 13.03.2013 4000 10000 1261 5000 300 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 3000 1500 1000 6000 3000 1540 1460 200 2800 4500 7000 14969 1500 14000 8000 5000 3460 2000 1800 280 0 3000 4500 0 JMC Projects (India) Limited 08.05.2007 10.05.2007 12.05.2007 26.05.2007 01.06.2007 28.06.2007 29.06.2007 03.07.2007 03.07.2007 05.07.2007 35000 5000 5000 1004 996 1103 6897 5000 5000 5000 35000 30000 25000 23996 23000 21897 15000 10000 5000 0 9. Venus Remedies Limited 08.05.2007 26.11.2007 27.11.2007 29.11.2007 03.02.2010 01.02.2011 08.02.2011 08.02.2011 24.12.2011 04.04.2012 12.04.2012 20200 107 2393 500 9000 1227 6773 20000 40000 20200 20301 22700 23200 3200 12200 13427 20200 40500 200 40200 10. Parsvnath Development 08.05.2007 14.05.2007 14.05.2007 27.08.2009 20.10.2010 20.10.2010 9100 32 64 7500 1600 32 9100 1600 0 32 0 64 11. Morepen Laboratories Ltd 08.05.2007 24.10.2007 31.11.2007 22.11.2007 05.12.2007 03.02.2011 531004 300000 81004 45350 25000 37965 0 531004 450000 404650 379650 0 300000 9. According to AO, the assessee e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income from capital gain, the most important test is whether the initial acquisition of the share was with the intention of dealing in the share as an investment or to treat it as stock-in-trade. The intention of the assessee is best known to him; however the conduct of the assessee shows his intention. In the instant case the transaction of share have been made which are in the ordinary line of assessor‟s business and the assessee has also accepted this fact by opening a share trading firm conducting share business. 12. Therefore, according to AO, what is important is that a huge income was earned from share trading business which has been classified by him as income from long term gain and claimed as exempt. There is no material to show that share and securities purchased by the assessee were actually intended to be held as long term investment. The substantial nature of transaction, the magnitude of the share purchased and sold and between the purchase and sale holding, reveals the intention of the assessee as a trader in shares and not as an investor. 13. Therefore, the AO concludes in the instant case that the assessee has been habitually trading in quoted share by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions, then the AO wondered as to why the investment in shares should not be treated as stock in trade and resultant gains arising there from as income from business. In reply to the said objection the ld AR contended before the authorities below that the appellant is transacting in the capital markets in two capacities: (a) As an investor in shares through physical delivery of shares in the demat account b) As a trader dealing in share derivatives (futures and options) without physical delivery on recognized stock exchange. 18. So, according to the ld AR, it is the second set of transactions which qualify as business of the appellant and for which the appellant has undertaken to get his accounts audited from a chartered accountant under section 44AB of the Act. According to him, it is settled law that transaction of sale and purchase of derivatives (without actual delivery) is to be classified under the business head. The Ld. AR pointed out that earlier as per section 54(5) of the Act the sale and purchase of share derivatives were treated as speculative transactions. However, the Finance Act, 2005 w.e.f. 1.4.2006 inserted proviso (d), which provided that trading in deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (iv) The total volume of trade of shares during the year was around Rs. 4 crores. So, the same cannot be said to be huge considering the daily average turnover on stock exchanges is to the tune of Rs. 5,000 crores. (v) To the observation of the AO that the appellant has earned a meagre dividend of Rs. 1,09,444/- during the year under consideration on opening share investment of Rs. 4,07,48,118/- viz, 0.27% of the value of investment, it was pointed out by the ld AR that Reliance Industries Limited (the largest cash rich company in India) during financial year 2009-10 declared a dividend of Rs. 7 per share; whereas, the market price as on 31.3.2010 was Rs.I,100 i.e. a dividend percentage of 0.63%. Thus, the dividend received is not 'meager' as termed by the assessing officer and is, in turn, adequate as per industry average. Further, when the main intention is to realize the capital appreciation, earning of dividends is incidental and cannot be a determining factor for classification of asset into 'Investment' or 'Stock in trade'. Further, there are so many mutual funds, etc. with growth option. So according to ld AR, if we go by the assessing officer' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegation of the assessing officer that the appellant spends most of his time in share - trading is baseless and is a figment of imagination. According to the ld AR, investment in shares is only a secondary task and is intended to capital appreciation of his own money. 25. Countering the next objection of the assessing officer that the appellant is running his business in the name of proprietorship firm namely, M/s Ashish Choudhary Stock Investments and has a well developed infrastructure the Ld. AR submitted that there is no firm by the name of M/s. Ashish Choudhary Stock Investments. No bank account exists in this name. Further the Ld. AR wondered as to how a well developed infrastructure be maintained by incurring an expenditure of Rs. 7,000/- that too the said expenditure was on account of audit fees which is beyond imagination. 26. In respect to the last allegation that the appellant had major source of income from share "transactions and thus, these transactions are to be held as business transactions". The Ld. AR submitted that just because the amount of capital gains is big, it does not mean that the transaction would classify as business. Share investments made with a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ITAT held that depending upon the frequency and volume of shares and comparing the same with the other decided cases, the profit from share investments was held as short term capital gain. In this case, the data with respect to the frequency and volume in a few decided cases was compared where the transactions have been held as investments. The table containing the same was shown to us which is reproduced below:- 30. Further, the period of holding for capital gains realised by appellant is tabulated as under: Period of holding Capital gain Percentage Less than 30 days 91,652 0.33 30-90 days 18,125 0.06 90-180 days - - 180 - 270 days 282,658 1.00 270-375 days 13,689 0.05 1 year - 2 year 14,020,161 49.75 More than 2 years 13,753,096 48.81 Total 28,179,381 31. In view of the table as above, the ld AR contended that the appellant‟s case is most strong as the period of holding is most and number of scrips as well as number of purchase and sale days is least. Attention was also invited to the decision in the case ACIT vs. Manoj Kumar Samdaria, relied upon by the AO is distinguishable on facts as in that case, there was sale of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) The assessee continued to receive dividend on matters (scrips) irrespective of whether it showed it as alleged investment or for trading, and in fact the reconciliation of so called alleged investment scrips with details on record is not done to support the stand of assessee as the so called scrips on which L TCG and STCG were shown in returns were not shown to the Revenue in details filed by assessee at that point of time. e) The assessee needless to add as per form 3CD for AYI-II is as per column 8(a) doing business in "shares transaction" like past years 08-09, 09-1 0, -This puts to rest any plea raised by assessee regarding investment -Further assessee purchased frequently Balram Chini , Aftek Venus, Sujana, TIL, ReI. GMR Infra., Pacelep in initial FY 2008 ,and started selling the same immediately by June 2008- 09-10 years thus showing that its actual intention is trading in shares ; Further it also advanced substantial advance to M/s Shubkaran Dass Chiranjivi Lall who infact further traded in shares to buttress the share trading portfolio of assessee ( injcidentally the assessee is connected with other entity M/s Shubkaran Dass Chiranjivi Lall) . Such examplers abound in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares, for instance, would be capital if the assessee is an ordinary investor realising his holding; but it would be revenue, if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction. For instance, an assessee may invest his capital in share's with the intention to resell them if in future their sale may bring in higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature of trade. The test often applied is, has the assessee made his shares and securities the stock-in-trade of a business." 41. The Hon‟ble Gujarat High Court in the matter of CIT vs Manish Natkulal Lavti: 218 Taxman 308, dated 1.10.2012 has upheld the Tribunal's following observations and dismissed the departmental appeal:- "4. We have considered the rival submissions on either side and have also perused the material available on record. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision, should be liberally construed as held by the Supreme Court in the case of Bajaj Tempo Ltd. v. CIT : (1992) 196 ITR 188, wherein the Hon'ble Supreme Court observed as under: "A provision in a taxing statute granting incentive for promoting growth and development should be construed liberally and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it." 44. In order to find an answer to the issue before us, we have to appreciate the facts of the case by taking into account the details of sale, purchase and investment in shares, the intention of the assessee, various case laws and circulars of CBDT in this regard. The CBDT circular no. 4/2007 has referred to various principles laid down by judicial authorities in order to enable making distinction between shares held for trading and shares held as investments and have clarified that total effect of all the principles should be considered in determining whether in a given case the shares are held by assessee as investment or stock in trade. In the case of CIT Vs. Associated Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is to be noted that due to large number of companies listed on stock exchange and volatility in the market, even a serious investor has to frequently shuffle his portfolio but it does not signify that the investor is trading. 46. At any rate, where a particular lot of shares are primarily intended for trading, the same would not be held for weeks or months. In the case of the present assessee, all the shares have been sold after the delivery of same were taken by it in its bank account. The expression "similar transactions by the same person" and "same sort of property" needs to be emphasized. An investor may buy or sell everyday but that may not be considered such frequency as to lead to the inference of trading. It is only when particular scrip is bought and sold a number of times over a short period that an inference of trading as against investment may be drawn. In the case of the present assessee, the allegation of frequency is not only unsupported but incorrect as well if scrip wise details are analyzed in Para 21 and 22 (supra). According to the ld. AR, all shares purchased were duly transferred to the DMAT account of the assessee firm and all the transactions were done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there is no organized effort to obtain profit. 50. The intention of the assessee is the key to decide whether the transaction in shares was for trading or investment let us look into some case laws in CIT vs. Jindal Exports Ltd. (Delhi) TM 101 ITD 129 where in the it was observed at page 139 as under : "A company can be said to carry on the business partly in shares only where the shares are purchased as stock in trade and not otherwise. If shares are purchased by a company by way of investment then loss arising from the sale of such shares in my opinion would be capital loss and can never be considered as business loss". In Karam Chand Thapar & Bros (P) Ltd. vs. CIT 82 ITR 899 the Supreme Court has held that the fact that the assessee had shown these shares as investment share in its books as well as in its balance sheet was by itself not conclusive but it was a relevant circumstances on which the tribunal could have relied for drawing its inference." 51. In Punjab state Industrial Development Corporate Ltd. Vs ClT 292 ITR (AT) 268 the ITAT Special Bench has held as under "shares may be held by an assessee as a capital investment or as stock in trade depending upon a large n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or an adventure. in the nature of trade, has a very thin line of demarcation. Even a single instance of transaction can be regarded as business an 'even multiple transaction sometimes is deemed as investments. So the criteria for deciding . whether it is investment or business are that of the intention of the assessee. Viz whether the assessee's real intention is to invest or the intention was in the nature of trade. The findings given by the Tribunal is that the assessee had no intention to trade in shares. Hence, the purchase of shares could not be business asset in the hands of the assessee. The assessee has rightly offered the same under the head "Capital Gains" The Tribunal also correctly arrived at a conclusion that it is only an investment activity and held that the profits derived from sale of shares is subject to capital gains." 53. In the case of Commissioner of Income-tax (Central), Calcutta v. Associated Industrial development Co. (P.) Ltd. [1971] 82 ITR 586, the Hon‟ble Supreme Court observed that: "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er words, there is no frequent in and out of these shares. 58. It is manifest from a perusal of the Balance Sheet at Page 4 investment, schedule 2, reveals an investment of Rs. 3,87,78,265/- for the year ending 31.03.2010. And from a perusal of the balance sheet of Assessment Year 2008-09 at the time of purchase of shares it is reflected as investments. (35/DPB, Vol-II, which continues to be reflected as investment in Assessment Year 2009-10 (66-72) DPB Vol-II), and when it is sold out in this assessment year obviously it will not figure as investment in the balance sheet of the relevant Assessment Year so from the said fact, it is discernible that the assessee had the initial intention to hold these shares as `Investment‟. This is another reason to show the assessee‟s intention of holding the shares as investment ab initio. 59. The contention of the ld DR that investment in shares were not reflected as investment in the balance sheet is factually incorrect. On the contrary, shares held by the appellant were duly shown as "investment" in the financial statements for the year ended 31st March, 2008 and 31st March, 2009. The said shares were not acquired/ held as "stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s acquired during the intervening period, say in 2008, obviously the opening balance as on 01.04.2004 would be reflected as „nil‟ in the statement from the period from 01.04.2004. Therefore, the contention of the DR that in respect of certain scripts opening balance is shown as nil is, it is incorrect. For example, shares in M/s. Aftek Limited were acquired on 22.01.2008 (refer page 2 of DPB - Voll). Since the said shares were acquired in 2008, obviously the opening balance as on 01.04.2004 would be nil. We find nothing turns around the said contention of the ld DR and so is rejected. 63. As regards the contention of the ld DR that the assessee had transaction in future & Option (F&O), we find that it is a matter of record that income from F&O transactions were duly declared as "business income" by the appellant. In fact, it is the case of the appellant that income from F&O transactions, which are non-delivery based transactions, are on business/ trading account whereas, transactions on purchase and sale of shares, which are delivery based and held for substantial period of time prior to transfer, are of capital account. In identical circumstances, the Courts and vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the ld DR that amount were advanced to M/s. Shubkaran Das Chiranji Lal for trading in shares is factually incorrect for the simple reason as pointed out by the ld AR that the said firm has never traded/ invested / purchased shares, but is engaged in the family business of trading in textile. In fact, it is nobody‟s case, not even assessing officer/ CIT(A) that the advances were given by the appellant to the said firm for trading in shares. The contention of the ld DR is contrary to facts emerging from records and can best be termed as guess work. 68. The contention of ld DR that transaction in shares was not subject matter of scrutiny in assessment year 2009-10 (and not A. Y 2008-09 as mentioned by DR) is not correct. In fact, office note appended to the assessment order (refer page 3 of DPB - Vol IV which has been reproduced in this order in para 79 makes it patently clear that transaction in shares were duly examined by the assessing officer. 69. It may be noted that once nature of shares are accepted in the earlier assessment year, then the same cannot be denied in the subsequent year at the time of transfer. The following cases say that: * CIT v. Gopal Purohi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isheshwara Singh vs. ClL: 41 ITR 685(SC): In that case, on account of substantial nature of transactions, magnitude of shares, transaction of sale of shares were held to be business income. In the present case, gain arose on account of transfer of five scripts only and there were no substantial transactions of purchase/sale of shares. The shares were held as investment and not as stock-in-trade and all the transactions were delivery based. c) CIT v. Madan Gopal Radhey Lal : 73 ITR 652 (SC): In that case, the assessee was holding shares as "stock-in-trade" and was allotted bonus shares in proportion to its existing holding. In these facts, gain arising on transfer of shares were held to be in the course of and part of share dealing business and was held to be revenue receipt. In fact, in the said decision, the Apex Court categorically observed, "A trader may acquire a commodity in which he is dealing for his own purposes, and hold it apart from the stock-in-trade of his business. There is no presumption that every acquisition by a dealer in a particular commodity is acquisition for the purpose of his business; in each case the question is one of intention to he gathered from the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been controverted on behalf of the Revenue by any cogent material, whereas, it is clear from a perusal of the audited balance sheet at P.4 of P.B. that the shares was brought from appellants own fund. 74. Apart from that, it is an undisputed fact that the assessee took delivery of such shares after making full payment and it was not a case of settling the transaction of purchase and sale of such shares during the settlement period itself. This is another reason to indicate that the intention of the assessee to hold them as Investment. 75. Another factor which needs to be mentioned is that the assessee was consistently holding some other shares as investment over a period of time and was regularly earning income from their sale by declaring profit as „Short-term capital gain‟ or „Long-term capital gain‟ depending upon the period of their holding. Earlier years also the assessee was engaged in the purchase of shares as Investment and showing profit from their sale under the head „Capital gains‟. This treatment of profit from sale of shares held as investment has not been disputed by the AO in the assessments made u/s 143(3) of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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