TaxTMI 
TaxTMI 
2014 (4) TMI 866
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the accounts, the Assessing Officer felt that assessee has disclosed long term capital gains to the tune of Rs. 31,13,006.51/- and Rs. 26,82,115.35/- claimed as short term capital gain was not permissible. The assessee claimed that the amounts were not business income, but towards capital gains from sale of investments, as stated in its returns. The AO held that the income or profits gained were, in truth, business income, having regard to the normal business activities of the assessee and given the pattern of sale and purchase transactions, especially since no books were separately maintained for the purpose. The assessee's appeal was partly accepted to the extent that the Commissioner (Appeals) ("CIT(A)") held that the claim for long term capital gains was established. However, the contentions with respect to short term capital gains were rejected. Both the assessee and the Revenue appealed to the ITAT. The assessee's appeal was allowed by the ITAT, in its impugned order; the Revenue's appeal, however, was rejected. 3. The CIT (A), on being approached, accepted the assessee's plea with respect to long term capital gain, but upheld the decision of the AO, in regard to the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lt, this ground of the appellant is partly allowed and relief is allowed only to the extent of amount of long term capital gain of Rs 31,13,006/- while the amount of Rs. 26,82,115/- shown as short term capital gain is held to be business income. As a result, this ground is partly allowed...." 4. The ITAT, in its impugned order, differed with the Appellate Commissioner's conclusions and found that the assessee's claim that it had derived short term capital gain of Rs. 26,82,115/- was justified. It was held that: "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 nonmaintenance of separate bank account, would not be a very material fact. The next test is about the frequency of purchases and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the failure of the assessee to maintain separate books of account in respect of its investments, and for regular business, placed a heavy burden upon it to establish that the claim made was indeed profit by way of capital gains, and not through business or trading. The failure to maintain separate books made it impossible to bifurcate the income generated between sale of shares and funds invested in business. The ITAT also overlooked the fact that the assessee was utilizing the funds of business for purchase of investment, which casts doubt on its claim that the amounts were used for investment. Most importantly, it was submitted that the frequency and volume of purchase and sale of shares, particularly of some scrips showed that the intention of the assessee was to generate income through trade, rather than invest in them. This aspect, submitted the Revenue's counsel, was gone into in great detail by the CIT (Appeals) but was entirely overlooked by the ITAT. 6. The assessee urges that the ITAT's impugned order does not call for interference. It is submitted in this regard that whether it is the volume, frequency test, or the duration of holding of shares, or whether the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2005 Mahabir Spinning Mills 26.05.2005 09.06.2005 Mahabir Spinning Mills 26.05.2005 10.06.2005 Mahabir Spinning Mills 26.05.2005 13.06.2005 Mahabir Spinning Mills 27.05.2005 13.06.2005 Krishan Engineering 25.08.2005 30.08.2005 Krishan Engineering 26.08.2005` 30.08.2005 Krishan Engineering 26.08.2005 06.09.2005 Krishan Engineering 26.08.2005 09.09.2005 Rajesh Exports 24.08.2005 16.09.2005 Rajesh Exports 24.08.2005 19.09.2005 Rajesh Exports 25.08.2005 19.09.2005 Rajesh Exports 16.09.2005 19.09.2005 P.B. Infra 28.11.2005 28.11.2005 P.B. Infra 28.11.2005 02.12.2005 9. Apart from the above significant aspect, the AO and the CIT (A) observed that the assessee had been purchasing and selling a large number of shares of a few companies. It was also held that the transactions involved large or substantial sums of money. The CIT (A) pertinently made the following observations: "...it is important to keep in mind that whenever any share is purchased with the intention of investment, it cannot be sold off within a very short span of time, since the share market is....