TaxTMI 
TaxTMI 
2012 (10) TMI 15
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....for adjudication. The surviving grounds No.1 and 2 and the additional ground are reproduced herein below for consideration. "1. That on the facts and in the circumstances of the case, the Hon'ble C.I.T.(A) has erred in sustaining addition of Rs.7,00,000/- by way of disallowance of "Loss on Forfeiture of Shares" as Business loss and treating same as "Capital Loss." 2. That on the facts and in the circumstances of case, Hon'ble C.I.T.(A) has erred in sustaining addition of Rs. 33,08,337/-by way of disallowance of "Loss on Sale of Shares" as Business loss and treating same as "Capital Loss." Additional Ground: "(4) Without prejudice to other grounds of appeal, the appellant, as an alternate plea, humbly begs to pray that ....
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.... term or long term, because these shares were disclosed in the balance sheet under the head investment. 5. Ground No.1: forfeiture on account of purchase and sale of shares of M/s. Kapees Filament Pvt. Ltd. amounting to Rs. 7,00,000/-. The learned AR submitted before us that the partial payment made for allotment of shares of M/s. Kapees Filament Pvt. Ltd. for Rs. 7,00,000/- was disclosed under the head investment held in stock in trade and, therefore, being part of stock in trade, the same ought to be treated as trading loss and not as capital loss. The learned DR on the other hand, firmly asserted that the disclosure of the assessee of the above said investment was under the head investment and, therefore, the loss on account of the same....
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....During the assessment proceedings the learned AO observed that the assessee had purchased 1066789 shares at an average rate of Rs.18.15 for a total consideration of Rs. 1,93,60,706/-. On sale of the same the assessee had shown average sale consideration at Rs.15.05 aggregating to total sale consideration to Rs. 1,60,52,368/- and thus worked out a trading loss of Rs.33,08,337/-. However, the learned AO observed that the assessee had disclosed 1054289 shares of Mohit Industries as investment in equity shares. Accordingly, the learned AO worked out 510014 to be classified as long term investment as shown in Annexure A of the assessment order. The average purchase consideration per share was worked out at Rs. 13.80 amounting to Rs. 70,47,48,338....
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....aper book filed by the appellant it appears that the share in Mohit Industries are held as stock in trade. Thus it is very clear that the objective of the assessee company in purchasing the shares of 'M' Mohit Industries Pvt. Ltd., was to trade in these shares and not for holding the same as investments. It is pertinent to note that Section 2(14) of the Act specifically excludes stock-in-trade from the ambit of "Capital asset". Therefore, we hereby hold that the gain or loss accrued on purchase and sales of shares of Mohit Industries to be treated as trading loss. 10. Additional ground of the assessee: to treat the purchases and sales of derivatives (futures and options) under the head income from capital gain/loss. The learned AR submitte....
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....tment or stock- in- trade. If the intention of the assessee was for making investments then the profit or loss arising out of the transaction will be taxed under the head "capital gains" and at the same time if the intention of the assessee was to trade by holding the asset as stock in trade, the income or loss arising out of the transactions will be taxed under the head "income from business or profession" (trading profit or loss). At this juncture, it is very essential to understand the nature of transactions in dealing with derivative. The Security Laws (Second Amendment Act, 1999) has included derivatives in the definition of "securities". Derivative includes:- (a) A security derived from a debts instruments, share, loan, whether....
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.... derivatives whereby securities are purchased and sold the nature of transaction has to be looked into as a whole before arriving at a decision whether the purchases or sales were for the purpose of investment or stock in trade. Future contract means a legally binding agreement to buy or sell the underlying security on a future date. The contract express on a pre-specified date which is called expiry date of the contract. On expiry, "futures" can be settled by delivery of the underlying asset or by cash. Option contract is a type of derivative contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a pre-determined price within or at end of a specified period. The buyer/ho....