TaxTMI 
TaxTMI 
2011 (12) TMI 21
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....n the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to treat the income of Rs.31,11,006 earned on trading of long term share holding as 'income under the head capital gain' instead of 'business income', as held by the A.O. 2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing". 2. The brief facts of the case are that the assessee has filed its return of income electronically on 30.11.2006 declaring a total income of Rs.3,19,787. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Income-tax Act, 1961 was issued on 21.11.2007. During the year under consideration, the assessee company was engaged in the business of dealing in the auto spare parts and investment in bonds, mutual funds and other securities. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has disclosed long term capital gain and short term capital gain as under: (a) Long term Capital Gain (STT Paid) (b) Long term capital gains 31,29,971.30 Less: Long term capital loss 16,964.79 31,13,006.31 (b)Short Term Capital Ga....
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....investments and regular business. b) No separate bank account is maintained for differentiating the alleged investment made and for business activity. c) Moreover, the assessee had made payment for purchase of shares only from the income received from business and not invested the funds from independent sources. d) The assessee has utilized the sale proceed of shares alleged to be investment for the business purpose. Merely, an assumption by the assessee that their purchases are investment is not sufficient. If it is allowed then every person shall opt for income trading of shares as capital gain income, only because tax on capital gain is either levied lesser rate or Nil rate. e) The assessee had income from speculation business in shares, therefore, it is found that the assessee was in the business of sale-purchase of shares. f) The assessee had also incurred losses from purchase-sale of alleged investments. If the motive of assessee was investment then they would not have sold those shares for loss. g) Number of transactions were numerous. h) Quantum of sale-purchase was huge. i) A single script was frequently purchased and sold". 4. Dissatisfied with ....
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....orated on 18.12.1984 under the name and style of M/s. Anamika Leasing Co. Ltd., its name was subsequently changed to the present name and an approval was granted by the Registrar of Companies on 8.10.2002. The assessee was to undertake number of objects i.e. to carry on the business of higher purchase and leasing and to acquire on hire purchase lease basis all type of industrial office plant etc. to finance the industrial enterprises, to loan or advance money to builders, to carry on the business of finance, trust, legal trusts and to finance industrial enterprises, to carry on the business of commission agent, broker, factories, consultants, representative, middleman in real estates, iron and steel, food grains, importer and exporters, to manufacture, assemble, buy, sell, distribute, import exports and auto parts etc. The assessee has been investing in the past and a scrutiny assessment was made in assessment year 2005-06 wherein the investment in the shares have been treated as of an investors. The closing stock of assessment year 2005-06 has become the opening stock of this assessment year. How that investment could take a colour of trading in this year when assessee has not con....
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.... treat the investment of the assessee as a trading activity. He further submitted that this is one factor which may goad of an adjudicating authority to harbor a belief that a transaction may be of a trading transaction but solely on the basis of this one factor, it cannot held that assessee was involved in trading of shares. How frequency of transaction has been looked into at various levels. He made a reference to the Order of the ITAT in the case of Shri Ramesh Babu Rao rendered by the ITAT, Mumbai in ITA No.3719/Mum/2009. In this case, the assessee had dealt with 54 scripts which were purchased and sold during the year which results in sales of more than Rs.24 crores but after looking into other aspects, ITAT has upheld the conclusion of Learned CIT(Appeals) that share transactions of the assessee were to be treated as investment and giving rise to long term capital gain. Similarly, in the case of Shri Vinod Kumar Kataria, ITAT, Mumbai in ITA No.6556/Mum/09 has upheld the claim of assessee for long term capital gain, the assessee has purchased shares of Rs.4.21 crores and undertaken a number of sales and purchase transactions. Apart from these decisions, he relied upon the deci....
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....at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated as stock-in13 trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon. Normally, money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchases 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 inve....
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....tive effect of several factors has to be seen. 9. Let us examine the facts of present case in the light of these tests. In the books of account, assessee has shown its purchases of shares as investment. The copies of the balance sheet ending as on 31.3.2005 as well as on 31.3.2006 are available. Assessee has not used borrowed funds for the purchase of shares. Assessing Officer has pointed out that assessee is not maintaining separate bank account and it has used the business funds. The assessee pointed out that share capital of more than Rs.304 crores is available with the assessee. The non-maintenance of separate bank account, would not be a very material facts. The next test is about the frequency of purchases and disposal of particular item. Yes, there are frequent transactions and this test goes against the assessee. The value of the shares at the close of the year has been taken at cost and not at market price or cost whichever is lower. It indicates that the shares available with the assessee were not treated as stock-in-trade. In the Memorandum of Association, investment in shares is one of the line of activity assessee has to take. Thus, on an examination of the facts on....