TaxTMI 
TaxTMI 
2012 (9) TMI 441
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....ade, treating the STCG on sale of investment as business income. 3. The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." I.T.A. no.1744/Del./2011[AY 2006-07] 1. "On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting addition of the STCG of Rs.2,23,81,485/- on sale of investments as business income made by Assessing Officer. 2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." I.T.A. No.988/Del./2012[AY 2007-08] 1. "Whether learned CIT(A) was correct on facts and circumstances of the case and in law in treating the profit from sale and purchase of shares amounting to Rs.91,49,936/- as capital gain against business income treated by the Assessing Officer. 2. Whether learned CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs.2,90,97,550/- made by the Assessing Officer on account of loss in share transactions 3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." I.....
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....Y2006-07 Shares Mutual Fund 22,628,147.68 80,000,000.00 18 10 45,778736.46 170,000000.00 14 9 56404,072.68 207,152861.60 21,080960.55 47500,000.00 4,927414.00 17,454,071.00 4200296.00 - 510,829.00 22782075.0 AY2007-08 Shares Mutual Fund 21,080,960.55 47,500,000.00 21 3 34,828923.36 60,100,000.00 10 4 36,251066.14 74392,931.53 22958725.78 40100000.00 2,257004.00 6892,932.00 1104213.95 - 120480.75 AY2008-09 Shares Mutual Fund 22,958,725.78 40,100,000.00 19 5 119094130.13 60,000000.00 16 3 140394168.45 61125997.13 59595111.66 50000000.00 56,111369.00 540,831.00 2,035,898.85 10,358,702.83 374,298.25 12,692,763.18 Summary of Trading Portfolio- Shares & Mutual Fund Particulars Investments made during the year Sales during the year Closing Investments Profit & Loss Dividend Received during the year No. of Trans. Amount (Rs.) No. of Trans Amount (Rs.) Amount (Rs.) Amount (Rs.) Amount (Rs.) AY2005-06 Shares 2 1,398,071 2 1,220,448.36 Nil (177,622.65) Mutual ....
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....ther the company would earn income under the head capital gains or business income from sale of shares, also appears correct. In the instant case during the year the appellant is holding certain share and mutual funds under the head investments and profit on sale of investments has been offered for taxation under the head capital gain. On similar facts the Hon'ble Mumbai High Court in the case of CIT Vs. Gopal Purohit I.T.A. No.1121 of 2009 vide order dated 06.01.2010 has held as under: "2. The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in the ....
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.... 1(Del.); Vinod M. Shah Vs. Addl. CIT, 38 SOT 5039Mum); J.M. Share & Stock Brokers Ltd. Vs. JCIT in I.T.A. no.2801/Mum/00; and DCIT Vs. Shri Ramesh Babu Lal in ITA nos.4084, 5318 & 5319/Mum/2009 besides few other decisions of the ITAT. 6. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions relied upon by the ld. AR. The issue before us is as to whether prof it on sale of shares/mutual funds is to be assessed as business income or income from capital gain .As is apparent from the aforesaid facts, the AO treated the entire gain on sale of shares/mutual funds ,be that short term capital gain or long term capital gain on sale of shares/mutual funds as detailed above, as business income. The ld. CIT(A) found that the assessee held certain share and mutual funds under the head investments and profit on sale of investments has been offered for taxation under the head capital gain. Only two transactions in shares were undertaken in the period relevant to the AY 2005-06,which were shown under the head business and the assessee suffered loss Rs.177,622.65 in these transactions. In the period relevant to the AYs 2006-07 to 2008-09, the asse....
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.... law, then the conclusion arrived at by the Tribunal cannot be interfered with because the inference is a question of law, if such an inference was a possible one, subject, however, that all the relevant factors have been duly weighed and considered by the Tribunal, the inference reached by the Tribunal should not be interfered with." 6.2 In the case of Sarnath Infrastructure Pvt. Ltd.,122 TTJ 216, the Lucknow Bench of the ITAT have culled out various principles which may be applied to determine whether the transaction of purchase and sale of share is in the nature of trade or investment. The relevant observations of the ITAT in that case read as under: "The following principles can be applied on the facts of a case to find out whether transaction(s) in question are in the nature of trade or are merely for investment purposes: (1) What is the intention of the assessee at the time of purchase of the shares. This can be found out from the treatment it gives to such purchase in its books of account-whether it is treated as stock-in-trade or investment; whether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has bo....
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.... (9) One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item ? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made ? (10) It is permissible as per CBDT's Circular No. 4 of 2007 of 15-6-2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. (11) Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen. 6.3 CBDT in their circular no. 4/2007, dated June 15, 2007 have brought out the following distinction between shares held as stock-in-trade and shares held as investment: "Sub : Distinction between shares held as stock-in-trade and shares held as investment-Tests for such a d....
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....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 holding would furnish a good guide to determine the nature of transactions ; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade ; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt. 9. Dealing with the above three principles, the AAR has observed in the case of Fidelity group as under (page 661) : We shall revert to the aforementioned principles. The first principle requires us to ascertain whether the purchase of shares by a FII in exercise of the power in the memorandum of association/trust deed was as stock-in-trade as the mere existence of the power to purchase and sell shares will not by itself be decisive of the nature of transaction. We have to verify as to how the shares wer....
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....i Bench in the case of Janak S. Rangwala, 11 SOT 627 held as under: "The mere volume of transaction transacted by the assessee would not alter the nature of transaction. It is an established principle that income is to be computed with regard to the transaction. The transaction in whole has to be taken into consideration and the magnitude of the transaction does nor after the nature of transaction. Though the principle of res judicata does not apply to the Income-tax proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years unless there is a material change in the facts. (Para 6] 6.5 Similarly, the ITAT, Mumbai Bench in the case of Gopal Purohit v. JCIT [(2009) 29 SOT 117 (Mum)] followed the decision of the ITAT, Lucknow Bench in the case of Sarnath Infrastructure Pvt. Ltd. (supra) and held that the delivery based transaction should be treated as of the nature of investment transactions and profit therefrom should be treated as short term capital gain or long term capital gain depending upon the period of holding. On appeal by the Reven....
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....esell, if an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business. However, though profit motive in entering into a transaction is not decisive, if the facts and circumstances indicate that the purchase of the asset was made solely and exclusively with an intention to resell the asset at a profit, it would be a strong factor for inferring that the transaction was in the nature of business. In the case of Pari Mangaldas Girdhardas v. CIT [1977] CTR 647 (Guj), after analysing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c....
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....sets, we are of the opinion that the assessee's version that the aforesaid shares/mutual funds were held by way of investment in the years under consideration has to be accepted. Since the ld. DR did not place before us any material controverting the aforesaid findings of facts recorded by the ld. CIT(A) nor brought to our notice any contrary decision, we have no alternative but to uphold the findings of the ld. CIT(A). Therefore, ground nos. 1 & 2 in the appeal for the AY 2005-06 & ground no.1 in their appeals for the AY 2006-07 to 2008-09 are dismissed. 8. Now adverting to ground no.2 in the appeal for the AY 2007- 08, the AO noticed during the course of assessment proceedings that the assessee debited an amount of Rs.2,90,97,550/- on account of loss in share transactions. To a query by the AO, the assessee did not file any details nor produced contract notes and vouchers in support of these transactions. Accordingly the AO disallowed the claim of loss. 9. On appeal, the ld. CIT(A) allowed the claim of the assessee in the following terms:- "7. Ground of appeal No.5 relates to the grievance of the appellant against the disallowance of Rs.2,90,97,550/- on account of loss o....
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....nd the facts on record. The Assessing Officer has concluded that the assessee has booked bogus loss on the ground that the assessee did not produce any contract notes or vouchers to substantiate its claim of loss in share transactions. On the other hand, it was claimed on behalf of the appellant that the vouchers and contract notes along with the books of accounts were produced before the A.O. on 21.08.2009 and 23.10.2009 during the assessment proceedings. In order to verify the claim of the appellant, the Assessing Officer was directed to provide the relevant assessment records for A.Y. 2007-08 which were duly sent by him. The perusal of the assessment records shows that in the letter dated 21.08.2009 filed with the Assessing Officer in para-3 (Paper Book Page no 32) the following submissions were made by the assessee :- "3. We are evidencing the copy of account of loss in share transaction. Bills of brokers produced herewith for verification." However there is a remark after cutting the above submissions- ''Not produced" with signature by the Assessing Officer. 7.2 The perusal of the order sheet also reveals that there is an entry dated 23.10.2009 which reads as under.- ....