TaxTMI 
TaxTMI 
2010 (2) TMI 875
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....also making made purchases and sales of shares of companies and units of mutual funds from which the assessee for the relevant year had declared dividend income of Rs.21.74 lakhs. The income from sale and purchase of shares had been declared by the assessee as capital gain, treating the share transaction as investment activity. The assessee for the relevant year disclosed short-term capital gain of Rs.1,99,38,647 and long-term capital gain of Rs.1,32,23,337. 3. The Assessing Officer after examination of necessary details submitted during the assessment proceedings noted in the assessment order that the assessee was involved in frequent purchases and sales of shares. The total number of purchases during the year were 162 and sales were 149 totalling 311 transactions during a period of 120 days during which the stock market functioned during the year which meant. He listed 23 instances of purchases and sales at page 3 of the assessment order in which shares purchased had been sold after a gap varying from two days to 31 days. The Assessing Officer also observed that the assessee had engaged three brokers for purchase and sales of shares and had paid demat charges of Rs.3.50....
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....ectation of a certain level of appreciation. It was also submitted that during the year, the market conditions were favourable and these expectations of appreciation were reached in comparable shorter period resulting into shorter holding period. It was pointed out that the Assessing Officer had made a selective working of holding period. Taking into account mostly the loss cases to show that the average holding period was less than 30 days but considering the entire short-term transactions, the average holding period was 122 days. It was accordingly argued that the claim of the assessee that the share transactions were investment transactions should be accepted as done in earlier years. 5. CIT(A) after considering submissions of the assessee and after taking into account the various court rulings and circulars of the CBDT observed that whether a particular transaction is a trading transaction or an investment activity has to be decided after taking into account various factors such as manner of maintaining books of account, volume, magnitude and frequency of transactions, time devoted expenses incurred including borrowings made for the activity etc., and no sin....
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....in, there were only 41 purchases and 47 cases of sales giving an average 3-4 transactions in a month. The assessee had heavy investment of Rs.17.16 crores and the entire investment was confined to only 20 scrips and short-term capital gain had arisen only from 15 scrips. Considering the high investment made the frequency and volume of transactions could not be said to be high. 6.1 It was pointed out that investment pattern in the earlier year was also similar in which short-term capital gain has been accepted by the department. For instance, in the assessment year 2004-05, in respect of short-term capital gain the assessee had 39 transactions and numbers of sale were 64, and the pattern of transaction was same as in the current year. The Assessing Officer in that year had accepted the short-term capital of Rs.2.03 crores declared by the assessee as is clear from the assessment order passed under section 143(3) available at page 39 of the paper book. It was also pointed out that the Assessing Officer had prepared a selective list of transactions to show low holding period which did not give true picture of the overall transaction pattern. The Learned AR further argued that....
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....ivity in purchase and sale of shares and income declared therefrom as capital gain has been accepted by the department in the earlier years. There is no dispute about these facts. However in the current year the Assessing Officer has treated the purchases and sales of shares as trading activity and has assessed the income as business income. The case of the Assessing Officer is that the assessee had entered into several transactions - 162 cases of purchases and 149 cases of sales during the year with sale volume of about Rs.50 crores. The assessee had engaged three brokers and had paid substantial amount of demat charges of Rs.3.50 lakhs. The Assessing Officer therefore took the view that the assessee was in the business of organized share trading and accordingly he treated the income from purchase and sale of shares as business income. The decision of the Assessing Officer has been upheld by the CIT(A). 7.1 The case of the assessee is that it had not undertaken large number of transactions in shares. The total number of purchases and sales were only 41 and 47 respectively for the whole year. A single purchase may consist of several small quantities coming from different ....
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....the prices of shares. A trader normally makes sales and purchases on daily basis and would not like to hold on to purchases for more than a week. Therefore in case the person has held the purchases for more than a month, this will give a strong indication of investment activity. In the case of the assessee the average holding period is more than four months. Considering the entirety of facts and circumstances, the share transactions in our view have all the attributes of investment activity. The principle of consistency also supports the case of the assessee. Similar transactions undertaken by the assessee which had been declared as investment activity have been accepted by the department in the earlier years. In the immediate preceding year, i.e., assessment year 2004-05 in which the assessee had larger number of transactions, Le. 39 cases of purchases and 64 cases of sales, the share activity has been accepted by the department and capital gain declared has been accepted. The revenue cannot deviate from the accepted position in the earlier year when the situation is identical. This view is also supported by the decision of Mumbai Bench of the Tribunal in case of Gopal Purohit v. ....