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TMI Blog2010 (8) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the instant case do not persuade us to hold that the shares were held as investment since these are not held for such a long period so as to treat the same as investment. The frequency and volume of the transactions in the instant case give an impression that the assessee did not intend to acquire the shares with business motive. In the case of an investment a person usually watches the market over a longer period of time before selling of the shares. The earning of dividend and the appreciation of the shares is the primary consideration. It is only a trader who would look for short-term gains from purchase and sale of shares. Therefore, the treatment given by the assessee to the said transactions in the books of account, in our opinion, is not the only determinative factor about the nature of the transactions. The submission of the learned counsel for the assessee that in the preceding year the Assessing Officer has accepted the long-term capital loss on sale of shares and, therefore, the same should be followed this year is also without much force since principle of res judicata does not apply to income-tax proceedings and every assessment is independent. When there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 10,96,185. From the various details furnished by the assessee, the Assessing Officer noted that out of the short-term capital gain of ₹ 10,96,197 for the whole year an amount of ₹ 26,507 pertains to short-term capital gain earned up to 30-9-2004 and ₹ 10,69,690 relates to short-term capital gain effective from 1-10-2004. Further the assessee has claimed interest payment of ₹ 1,25,687 to M/s. J.M. Lease Consultants Pvt. Ltd. and ₹ 53,142 has been claimed as portfolio management fee paid to M/s. Alchemy Capital Management. The Assessing Officer asked the assessee to explain the reasons as to why the income earned from transaction in shares could not be treated as trading income since the interest bearing funds have been utilised for investment and the services of portfolio management consultants have been availed of. 5. It was explained by the assessee that the newly inserted proviso of section 111A requires the assessee to pay tax at 10 per cent on short-term capital gain since securities transactions tax has been paid on the transactions. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are investment in character. A perusal of detail will show that the transactions started after July 2004 and there was a high frequency of transaction. The transactions were done in a systematic manner with the help of professional consultant. The manner in which huge loan was taken to subscribe to IPOs of some companies shows that the loan was never taken for investment in shares but to sell off the shares immediately after the allotment. This was the trend. The transaction was clearly in the nature of trading. The manner of transaction in shares also shows that there was no element of pride in possession of shares. The loans taken, payment of service fee and frequency of transaction taken together substantiate the Assessing Officer s view that the transactions have acquired the character of trading. I, therefore, concur with the view of the Assessing Officer. The treatment of ₹ 10,96,197 as trading income is, therefore, confirmed. The ground fails. Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 8. The learned counsel for the assessee referring to Paper Book pages 1 and 2 submitted that the assessee during the assessment year 2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention of the Bench to the schedule of investment in shares giving details of purchase date, No. of shares and their value. Referring to page 17 of the Paper Book, he drew the attention of the Bench to the statement of short-term capital gain/loss up to 30-9-2004. Referring to pages 18 and 19 of the Paper Book, he drew the attention of the Bench to the short term capital gain/loss from 1-10-2004 to 31-3-2005. 9. He submitted that the assessee has made about 50 transactions in the whole year which cannot be treated as high volume. Any prudent businessman in a volatile market would have done this. He submitted that the assessee has dealt in 14 scrips where the period of holding is less than one month. He has transacted in 16 scrips where the holding period is between one month to three months and in 13 scrips where the holding period is more than three months. As regards the allegation of the revenue that borrowed funds have been used, he submitted that for applying for more number of shares and to get the desired number of shares, the assessee has borrowed from bank and financial institutions. He submitted that the assessee has not carried out any systematic activity in share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied, he submitted it is not conclusive and each year is separate. If the fact during the year is different from the earlier year, the rule of consistency need not be applicable. He submitted that entries in the books of account may be an indicator but not conclusive. Referring to the chart filed by the assessee showing the details of shares transacted during the year, he submitted that the assessee is indulging in frequent buying and selling of shares which shows the motive of the assessee as a trader in shares and not as an investor. He submitted that the frequent buying and selling of shares should be considered as trading activity rather than investment activity since a trader wants a quick profit in a short span. He also relied on a couple of decisions of the Tribunal. 11. The learned counsel for the assessee, in his rejoinder, submitted that the shares of NTPC were sold after allotment. However, the shares of PNB are not sold and are continuing. He submitted that payment of higher portfolio management fee does not mean that the assessee is engaged in trading. He submitted that unless there is some valid reason, the rule of consistency should be followed and there should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28-2-2005 144,784 23-3-2005 174,643 29,860 5. Essar Steel 1,850 2-3-2005 87,172 23-3-2005 105,931 18,759 6. Essar Steel 3,850 28-2-2005 182,760 24-3-2005 211,211 28,452 7. Essar Steel 2,150 2-3-2005 101,308 24-3-2005 117,949 16,641 8. Codiam International 246 6-12-2004 24,908 9-12-2004 26,925 2,017 9. Gujarat Alkali 925 13-12-2004 97,366 24-12-2004 116,300 18,935 10. MTNL 500 29-12-2004 78,615 20-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 177,815 10-3-2005 241,420 63,605 7. Exide Industry 215 27-9-2004 33,512 29-10-2004 31,534 (1,978) 8. Gujarat Alkali 1,575 13-12-2004 165,785 21-2-2004 201,886 36,101 9. Gujarat Alkali 625 21-9-2004 37,713 12-11-2004 69,013 31,300 10. Glenmark Pharma 400 31-1-2005 200,500 3-3-2005 241,792 41,292 11. Hotel Leela Venure Ltd. 500 21-9-2004 38,165 14-12-2004 70,325 32,160 12. IDBI 2,000 2-12-2004 191,780 1-2-2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21-9-2004 248,880 1-2-2005 321,691 72,811 7. Jyoti Structure 1,350 21-9-2004 141,233 31-1-2005 178,454 37,221 8. Jyoti Structure 400 21-9-2004 41,847 14-3-2005 73,416 31,569 9. Matrix Laboratories 70 27-9-2004 110,170 12-1-2005 147,001 36,831 10. Matrix Laboratories 400 27-9-2004 62,954 27-1-2005 69,837 6,882 11. Matrix Laboratories 400 27-9-2004 62,954 15-2-2005 73,416 10,462 12. Praj Industry 350 29-11-2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. 6. In the case of CIT v. H. Holck Larsen ( 160 ITR 67 ), the Supreme Court observed : The High Court, in our opinion, made a mistake in observing whether 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 account, the magnitude of purchases and sales and the ratio between purchases and sales and the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness profit and not capital gain. (e) Purchase with intention to resell can constitute capital gain or business profit depending on circumstances like quantity of purchase and nature of activity. (f) No single fact has any decisive significance and the question must be answered depending upon selective effect of all relevant materials brought on record. 16. From the chart filed by the learned counsel for the assessee giving the details of shares transacted during the year, it is seen that the shares are held for a few days only and in very few cases for a few months but in no case it is exceeding 200 days. Purchase of shares during the year and selling them frequently in short period, in our opinion, do indicate that the assessee has purchased the shares with a motive to earn profit in a short period. Therefore, the facts of the instant case do not persuade us to hold that the shares were held as investment since these are not held for such a long period so as to treat the same as investment. The frequency and volume of the transactions in the instant case give an impression that the assessee did not intend to acquire the shares with business motive. In the case of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground raised by the assessee has been dismissed. Following the same ratio this ground by the assessee is dismissed. 20. Grounds of appeal Nos. 2 and 3 by the assessee read as under : 2. The learned CIT(A) has grossly erred in law as well as on facts in restricting the disallowance of telephone expenses amounting to 5 per cent of the total telephone expenses. 3. The learned CIT(A) has grossly erred in law as well as on facts in restricting the disallowance of motorcar expenses amounting to 10 per cent of motor car expenses including insurance and depreciation. 21. After hearing both the sides, we find the Assessing Officer disallowed on ad hoc basis 10 per cent of telephone expenses at ₹ 7,320 and 15 per cent of the motorcar expenses at ₹ 5,622 being personal in nature. The CIT(A) restricted disallowance of telephone expenses from 10 per cent to 5 per cent and motorcar expenses from 15 per cent to 10 per cent. In our opinion, the order of the CIT(A) is quite reasonable since personal element in case of telephone expenses and motorcar expenses cannot be ruled out. Since the disallowance of telephone expenses has been restricted at 5 per cent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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