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TMI Blog2010 (3) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares were sold for a value of ₹ 2,69,71,368/-. The transactions were effected by actual delivery of shares at the time of purchase and sale of shares except in the case of Hiran Orgo Chem, where there are 19 transactions of purchase and sale on the same day of various number of shares involving a total purchase of ₹ 7,00,457 and sale of ₹ 6,95,224 with a loss of ₹ 5,232/-. There were expenses incurred with reference to brokerage, interest, security transactions, bank charges , etc. totally to ₹ 1,67,829/-. In all the transactions where capital gain shown during the year the holding period was less than even 6 months. Most of the gain earned by the assessee is in the shares held for a period 31 days to 90 days to an extent of ₹ 30.81 lakhs and 90 day to 180 days, i.e. ₹ 51.29 lakhs. In fact there were no shares which were held for more than 6 months period on which gains were earned. Thus the maximum holding period was from 1 day to a maximum of 180 days. In the first 6 months of the year the assessee has transacted in 25 scrips and gained ₹ 45,659/- and the investment in those shares is not much when compared to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies are engaged in the business of share trading. For the assessment year under consideration the assessee had disclosed business and professional income Nil, short term capital gain before 01.10.2004 at ₹ 45,659/- and short term capital gain after 01.10.2004 at ₹ 79,74,441/- and income form other sources at ₹ 60,691/-. She also claimed dividend income of ₹ 2,24,307/- as exempt. On scrutiny of the details of short term capita gain disclosed the A.O. was of the opinion that the assessee has entered into voluminous transactions of purchase and sale of shares and out of these transactions some transaction in which delivery had not been taken, the assessee has treated as speculation loss and some of the transactions are treated as investments and losses were also claimed as set off against short term capital gain. The A.O. asked the assessee to explain why the income earned on transaction of shares should not be considered as business income. The A.O. has taken the nature of capital gains received for analysis and observed that the assessee has transacted total number of 2,12,281 shares involving ₹ 1.87 crores as purchase cost and sold them for a cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney and utilised in investment in shares and this is not prohibited and was duly approved by the Hon'ble Apex Court in the case of CIT vs. Rajendra Prasad Moody 115 ITR 519 and it was also contended that intraday transactions resulting in loss of ₹ 7,499/- has no relevance and totally out of context for determining the capital gain on other shares. It was submitted that the intention of the assessee was always to hold the shares as investment but in few cases the shares purchased were sold of same day because of some wrong decision while making the investment. It will be a case of capital gain/loss and the A.O. was treating it as a speculation loss. The assessee also clarified that the Assessing Officer s finding that delivery of only 58637 shares were taken is not correct as assessee purchased 1 lakhs shares of TASC Pharma Ltd. out of which 61713 shares were received in the d-mat account of the assessee and the balance 38807 was received in the d-mat account of the concerned broker thereby taking delivery of all the shares. With reference to the dividend income being compared lower than the capital gain, it was submitted that there is no correlation between these two ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition will not change the nature of transaction. Appellant has taken loans from banks, financial institutions and private parties and related concern to the extent of ₹ 2.84 crors (earlier year ₹ 44.77 lacs as per Balance-sheet) to do share business and paid interest of ₹ 1,82,805/- in the current year. The other facts which indicate that assessee was dealing in shares as trader is that she has pledged the shares to ICICI HSBC for availment of loan and also borrowed 96000 shares from its associate companies for the purpose of mortgage for loan. She has borrowed money from individuals, financial institutions, bank and associates concern and paid interest to the extent of ₹ 1,82,806/- on loan taken. No prudent person will incurred interest on loan for the purpose of investment but certainly for the purpose of business. The assessee was well acquainted with the activity of share market though her companies and family members and was using the full flashed infrastructure facilities of own related concerns. The shares shown in the Balance-sheet of F.Y. 2003-04 are not sold in the F.Y. 2004-05 but increased in the current year which shows that stock of investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspects to determine whether any transaction is trading or investment. a) Magnitude of purchase and sale b) Period of holding c) Motive behind it 7. On the basis of this factual finding and also analysing the case laws regarding adventure in the nature of trade in para 3.8 and 3.9 the CIT(A) held that the assessee is engaged in adventure in nature of trade on full scale and it has shown purchase of shares as investment and gains as short term capital with a view to avoid tax. Investment shown in the books of account is nothing but stock-in-trade. Accordingly he upheld the action of the A.O., hence the assessee is aggrieved. 8. The learned counsel drawing our attention to the paper book filed in which the details of assessee s investments and share transactions are furnished, submitted that the assessee has investment of ₹ 1.70 lakhs at the end of F.Y. 2002-03 which has increased to ₹ 17.68 lakhs by the end of the year under appeal and the assessee is a high net worth investor having capital of ₹ 21.94 lakhs. It was further submitted that many of the shares were taken delivery and the principles established by the Hon'ble ITAT in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38301 30,660 10,500 IPO Hiran orgo chem. 19834 700,436 Various dates Various dates 695,185 (5,251) 5,249 Gain on Shares held for the period from 16 day to 30 days Tricom 7000 38358 700,910 38383 579,530 (121,380) Hiran orgo chem. 2500 38371 90,500 38399 120,650 30,150 Hiran orgo chem. 1834 38380 70,792 38399 88,509 17,716 (73,514) Gain on Shares held for the period from 31 day to 90 days TASC Pharma Ltd. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86 902,553 Sterling Tools Ltd. 10000 38274 1,306,527 38415 1,718,400 411,874 TASC Pharma Ltd. 4700 38266 536,975 38396 929,613 392,638 TASC Pharma Ltd. 41493 38266 4,740,575 38370 8,162,627 3,422,053 5,129,053 8,142,269 Less: Expenses incurred in connection with above Bank Charges 884 D-Mat Charges 27,313 Brokerage, Service Tax on Brokerage Etc. 17,097 Interest Expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as stock-in-trade. It is also held in the case of Motilal Hirabhai Spg. Svg. Co. Ltd. 113 ITR 173 (Guj) and Raja Bahadur Visheshwara Sing 41 ITR 685 (SC) that treatment in the books by an assessee will not be conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organised activity with profit motive then it becomes business profit not capital gain. In the case of CIT vs. PKN Co Ltd.60 ITR 65 it was held that purchase with an intention to resale will also, under the changed circumstance, would be capital gains. It is also held in the case of Saroj Kumar Mazumdar vs. CIT 37 ITR 242 by the Hon'ble Supreme Court that purchase with an intention to resale in order to gain profit will be business profit depending on the circumstances of the case like nature quantity of purchase and nature operation involved. It was also held in the case of Janki Ram Bahadur Ram vs. CIT 57 ITR 21(SC) that no single fact has any decisive significance and the question must be answered depending on the collective effect of all relevant material brought on record. 14. Keeping in view the above principles, the facts in the present case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,810.00 SARVODAYA LABS 1995-96 1,300 5,200.00 GN17 SONI CAPITAL 06-Dec-00 500 11,071.07 GA021 BEST MULYANKAN 04-Apr-00 2,000 83,922.26 GA38 TATIA FINANCE 09-Dec-99 3,000 33,239.32 THIRUMALAI CHEM 1995-96 2,000.00 XPRO INTERNATIONAL 1995-96 3,215.00 255,314.44 16. Out of these, the investment in Adhunik Finance, Sarvodaya Labs, Soni Capital, Tatia Finance, Thirumalai Cehm, Xpro International have continued in the next year also whereas investments in Denim Organic and Vjilcdm to an extent of ₹ 90 ,000 were shown afresh and added to the investment list in the nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 73) is that the assessee has transacted in one share of Hiran Orgo Chem frequently. One argument which was raised before the CIT(A) explaining daily transactions without delivery was that the assessee by mistake has made some investment and realising that the transactions were not gainful immediately sold for a loss on the same day. This argument is to be considered in the light of the transactions entered by the assessee in Hiran Orgo Chem s case. There are purchases and sales of shares on 06.12.2004 to 21.12.2004 on a daily basis and the maximum purchase in a day was of about 1910 shares and investment in a particular day was about ₹ 67,472/-. If assessee has by mistake invested in that scrip on a particular day, it is not explained how only this scrip was transacted from 16.12.2004 to 21.12.2004 frequently 19 times. Not only that in the same period, the assessee also invested in the same scrip on various dates to earn profit of ₹ 1,21,913/- on 10500 shares the cost of which was about ₹ 3,63,000/- and sold for a gain. It shows that the explanation given for the day-to-day transactions is not correct and the assessee has invested frequently in the particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Gopal Purohit 122 TTJ 97 where in respect of share transactions the ITAT accepted as investment and also on the principle of consistency in the matter of assessment. The Tribunal found that the said assessee has consistently been investing in shares and ratio of sales to investment was very less. In the above referred case there was long term capital gain of ₹ 1.12 crores which was claimed exempt and long term capital gain taxable at 10% to the tune of ₹ 60 lakhs in addition to profit from trading in shares taxable at 10% and short term capital gain at 10% of ₹ 57.31 lakhs. In that case the assessee was investing for a long period and offering the long term capital gain which is more than short term capital gain and share holdings varied from one year to 5 years. No such facts exist in the present case. In fact there are no long term gains in assessee s case except in small amounts in A.Y. 2001-02 and in the later year only on one group which was discussed above which are from investments discussed above of few company shares. In view of the facts of the case, we are of the opinion that the decision in the case of Gopal Purohit, upheld by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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