9911796707
TMI Blog2012 (3) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... s as business income instead of short term capital gain declared by the assessee. It emerges out from the record that assessee has declared short term capital gain of ₹ 4,89,64,389/- and income under the head other sources at ₹ 3,11,416/-. It has also declared dividend income of ₹ 18,138/- and long term capital gain on sale of the shares at ₹ 68,786/-. On an analysis of the short term capital gain computation Ld. AO formed an opinion that assessee bought large quantities and sold large quantities of shares of 12 companies during the year. These transactions were made in a very short span of time. In his opinion this frequency of sale and purchase deserves to be treated as business activity or an adventure in the nature of business. Therefore he issued a show cause notice, as to why the short term capital gain shown by the assessee should not be treated as a trading receipt. The assessee has made elaborate submissions. Ld. AO has observed that board has issued a circular bearing No. 4/2007 dated 15.6.2007 wherein the board apprised the income tax authorities to find out distinctions between shares held as stock in trade and shares held as investment. The bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of which STCG has been claimed have been held for a period less than 100 days, with majority of cases falling between 30- 45 days. There cannot be any investment for such short period, and these transactions can only be in the nature of share trading transactions. (Para 6.4 of impugned order). e. The assessee has not used its own capital but the investment in shares has been financed through pledging of these shares with brokers. (Para 6.5 of impugned order) f. That the assessee has done repeated and frequent transactions in all the above shares. A perusal of the account statement with the brokers / depository as placed on record vide letter dated 11.11.2010 reveals that the said statement is running in to hundreds of pages and on each day innumerable transactions have been carried out. Infact such is the magnitude of the account statement that the same has to be kept in a separate folder. (Para 6.6. of impugned order) g. That apart from trading in shares, there is no other source of income of the assessee. It is therefore just unimaginable as to how the same can be investment moreso, when transactions are done in huge quantities and in high frequencies. (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on investments. According to the assessee the investments were made for earning from capital appreciation and dividend, thus yield of dividend cannot be a criteria for categorization the investment made by the assessee as a business activity. The assessee further pointed out that if an investor received a meager dividend on the investment then that cannot be a yardstick to determine that investment was made for business purpose, because receipt of dividend is completely beyond the control of investor and depend completely on performance of the company. The declaration of the dividend is in the discretion of the said company. The assessee also pointed out that receipt of dividend is also depends on the facts that whether investor holds the shares on the appointed date when dividend was announced. If an investor kept the investment for 364 days, but not holding share on recorded date, he will not be entitled to receive dividend. Thus according to the assessee there are so many aspects which deserves to be looked into. The assessee has made detailed submissions on each of the reasons assigned by the AO which has been noticed by the Ld. CIT(A) on pages No. 19 to 31. Ld. First Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. Ld. DR relied upon the order of AO. He pointed out that assessee retained the share for a very short period. AO has highlighted various aspects which indicate that the assessee was involved in trading activities. On the other hand Ld. Counsel for the assessee took us through the explanation of assessee given on each points raised by the AO. He also submitted that Ld. First Appellate Authority on an analysis of the assessee s submission rightly formulated 12 points (extracted supra) which can goad an authority to say that there was not trading in shares. He also pointed out that this controversy arose in number of cases and assessee placed on record a list of 50 cases before the Ld. First Appellate Authority. Ld. First Appellate Authority has noticed the citation on pages No. 28 to 31. He pointed out that in the case of Ramesh Babu Rao noticed by the Ld. CIT(A) at S. No. uu. page 30 of the order, the assessee has carried out transaction in 54 scrips his sales were more than 24 crores and on an analysis of the record Tribunal has held him as investor. He heavily relied upon the order of Ld. CIT(A). 6. On due consideration of the facts and circumstances we are of the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and disposal in that particular item ? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value ? Former will indicate intention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet ? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds in the purchase of shares. The Karta of the HUF was in full time employment as director of numerous real estate development companies. The holding period was not very short, in any case shares were sold within one year i.e. why assessee is showing as a short term capital gain but Ld. First Appellate Authority observed that average holding period was more than 50 days. The assessee has not indulge in sale and purchase of large number of companies. It made investment only on 12 companies. Thus it indicate that scrip handled by the assessee is of only 12 companies. The transactions were not continuous and regular but were sporadic. All transactions were delivery based transactions and the assessee did not indulge in transaction without actual delivery. In the last asstt. year the stand of assessee of an investor was not disturbed by the Revenue. We find that Ld. First Appellate Authority has examined the issue from all possible angles in its lucid and well reasoned order. It does not call for any interference at our end. 8. The next of the grievance raised by the revenue is that Ld. CIT(A) has erred in dropping the proceeding u/s 271A and 271B of the Act. These are the consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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