TaxTMI 
TaxTMI 
2015 (2) TMI 685
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....s engaged into transactions of purchase and sale of shares with the intention to earn profit but some of the shares were shown as investment and assessee had claimed short term and long term capital gain on them. Therefore, assessee was confronted as to why the short term and long term capital gains be not treated as business income. In response to the query, the assessee furnished following reply: "Hence, by evaluating 'the above definition the investment in shares made by the assessee in his personal names and payment made in his personal capacity and shown in his personal balance sheet as investment in shares shall for all practical purposes be treated as capital assets, hence. covered under the provision 2(14) and any profit or gains from transfer of his capital assets shall be chargeable to income tax under the head of capital gain under the provision of section 45(I). CBDT in their latest circularNo.4 dated 15.6.2007 has clearly distinguished between business income and capital gain and have also directed the following ruling of Supreme Court in the same. CIT (Central) Calcutta Vs Associated Industrial Development Company Pvt. Ltd. (1971) 82 ITR 586 SC and also confirm....
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....Two separate Bank Accounts are maintained, one being Saving Bank Account in the name of Mr. Anil Kumar Bajaj and second being Current Account in the name of Firm M/s Bajaj Insurance Management. (f) On the principle of consistency, in earlier years the claimed Capital Gains of the Assessee being accepted as such. 8.2 On the other hand, it is seen that the Assessing Officer has treated the claimed Short Term and Long Term Capital Gains on transactions of Shares as Business Income on the basis of the following factors :- (i) The Assessee was engaged in Inter Code transactions in ID No. 880 and 975. (ii) Funds have been frequently transferred between' the two Bank Accounts. (iii) The Assessee has pledged the Shares (which are claimed to be for purely investment purpose) to M/s Composite Securities Limited as margin against cash and F&O Segment, and thus the Shares were used for business purposes. (iv) The Assessee had taken loans for purchase of Shares. (v) The number of transactions of Shares being substantial. (vi) - The motive of the Assessee being to earn business profits. (vii) The Assessee having purchased Shares with the sole intention of re-sellin....
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....whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. How the value of the items has been taken in the balance sheet. If the items in question are valued at cost, it would indicate that they are investment or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. How the company (assessee) is authorized in Memorandum of Association/Articles of Association. Whether for trade or for investment. If authorized only for trade, then whether there are separate resolutions of the Board of Directors to carry out investments in that commodity and vice' verso. It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie' show that particular item is held as investment (or say, stock-in-trade) then onus would shift to revenue to prove that apparent is not real. The....
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....8. Looking at the facts and circumstances of the particular case, the Hon'ble ITAT noted the, findings of the Ld. CIT(A) with approval. The Ld. CIT(A) had observed that the Appellant was showing profit and loss in the Trading Account as. Business In-come and the surplus arising on account of purchase andsale of Shares in his own account was being shown as Short Term/Long Term Capital Gains/Loss and that this practice was regularly followed by the Appellant for many years and accepted by the Department. It was also held by the Ld. CIT(A) that the Shares which are the subject matter of discussion had been held by the Appellant for more than a year. It was also held by the Ld. CIT(A) that "As regards, observations of the AO that there has been frequent transfer of funds from the assessees current account to his personal account, I find that no material substantiating the aforesaid findings has been placed on record in. Thus the Ld. CIT(A) held that the entire Capital Gains on the Share transactions were in the nature of Capital Gains particularly in view of:- i) Principle of Consistency ii) The Shares being held for more than a year iii) Specific finding by the CIT(A) tha....
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....in the Assessment Order on page 3, where the Ld. Assessing Officer has not only mentioned about the intermingling but has also given specific instances of such an intermingling in the form of Inter Code transactions in the two Trading Codes maintained by the Assessee. The Assessing Officer has mentioned the specific instances of such intermingling as under :- "The assessee is also doing inter code transactions in 10 No. 880 & 975 detailed below:- Date Sett Traxn No. Dote Chq. Bill No. Particulars No. Ref. Debit Credit Balance 06.02.2008 JV 87-0602 Amt tr. to code-880 Amt. tr. to code-880 5000000.00 -14482 27.02.2008 JV 2-2702 Amt. tr. to cade-880 2000000.00 0.00 27.03.2008 JV 5-2703 6000000.00 0.00 8.11 Though the Appellant has submitted lengthy and detailed Grounds of Appeal and also detailed Submissions, but nowhere in the Grounds of Appeal or in any of the Submissions, the above mentioned findings of the Assessing Officer have been challenged. What to say of any rebuttal of the findings of the Assessing Officer, there is not even a whisper in the' detailed Grounds--of Appeal and' the various submissions agai....
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....een that the Shares of 'Compauge" which' were purchased on 16.07.2007 for Rs. 65,575/- were sold on 16.07.2007 itself for Rs. 65,800/-, thus there being almost no holding period at all. It is also noteworthy, that in such a case the Share perhaps would not even have been placed in the Demat Account as it was sold on the same day. Such activity is definitely in the realm of business, and definitely is not investment. 8. 14 In view of the above discussion, it is clear that there are material changes of facts as compared to the preceding years of the Assessee and hence the principle of consistency would not apply. Keeping in view the principles propounded by Hon'ble ITAT, Lucknow mentioned above and also in view of the entire legal position and the facts and circumstances of the transactions in question, it is obvious that the transactions on which Short Term Capital Gain are shown in the nature of trading. Though the Appellant claimed that there are separate Books of Account and that there is separate Trading Code, separate Demat Account, and separate Bank Account etc. and the transactions of trading and investment are carried out separately in the name of M/s Bajaj In....
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....d for more than one year, the income will be treated as long term capital gain and if shares are held for less than 1 year, the same will be treated as short term capital gain. 6. Ld. D.R. on the other hand submitted that the assessee was dealing in sales and purchase of share transaction and invited our attention to paper book page 58 where a copy of audit report was placed. Ld. D.R. also invited our attention to the fact that in the audit report, it was mentioned that the assessee was engaged in sales and purchase of shares. Regarding intermingling of accounts, the Ld. D.R. submitted that the assessee had transferred funds from current account to his individual account and, therefore, he in fact had used business funds for purchase of shares in his individual capacity, which tantamount to business activities as funds related to business were used. Moreover, the shares held for investment were pledged to obtain funds for business purposes, therefore, the purpose of purchase of such shares was to augment business activities. 7. Ld. D.R. further submitted that Ld. CIT(A) has clearly distinguished the facts and circumstances of the present year with the facts and circumstances ....
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....ions of the Appellant. 7.1 The Appellant has stated as under in his Submissions dated 02-01-2012.:- "The Assessing Officer has given absurd reason while treating the Long Term Capital Gain and short term capital gain as earned by the assessee as business profit. The Assessing Officer has failed to analyze the facts of the case as brought before him by the assessee. We summarize the facts which requires attention from your good self as under; a) Assessee in his Individual capacity acts as an Investor for last more than 25 years (i) Wherein all Investments in the shares are held in Demat account as maintained by him with the Depository for last number of years (Copy of Demat Account as maintained by the assessee is enclosed at page 36 to 42) (ii) All investment of shares are properly reflected in the Books of accounts as maintained by the assessee in his personnel capacity for last number of years (Copy of Balance sheet as 31st March 2004, 31st Mar, 2005, 31st March 2006, 31st March, 2007 as well as 31st March 2008 is enclosed at page 43 to 53) iii) All transactions as made (or purchase and sale of shares by the assessee are made with a member Broker of National ....
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....accruing by change in such investment (by sale of shares) will yield capital gain and the revenue receipt. viii) Assessee has earned dividend income of Rs. 1,26,479/- during the assessment year from the investments in shares as made by him: Shares are held in Demat account, the average period of holding of the shares as sold by the assessee during the assessment year and details of shares as held by the assessee are as under:- Particulars Shares Sold No. of days Long Term Capital Gain MRPL Ltd. 50 756 (356) Universal Cables Ltd. 118 > 4000 7159 Steel Casting Ltd. 100 > 3200 21421 Wall Street Finance 6147 404 (13799) Vikas WSP Ltd. 2153 > 1500 82626 Federal Bank Ltd. 2725 454 548167 Compact Disc Ltd. 4775 > 4000 339481 Indian Sucrose Ltd. 4230 Sepl.2005 (96746) 8,88,153/- Particulars Shares held No. of days Cubex Tubing Ltd. 20 Since 1995 Nucent Estate Ltd. 138 Since 1995 Nemtach India Ltd. 500 Dec. 1999 Vikas WSP Ltd. 347 March 2001 Vatsa Corp. Ltd. 40000 April 1998 ....
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....es are carried out by him including trading in derivatives. Summary of such activities are as under; (i) M/s Bajaj Insurance Management are maintaining a separate Client Code. no. 880 with the Member National Stock Exchange M/s Composite Securities Limited in which all transactions are the Future & Option (F&O) segment with no delivery based transactions. (Copy of account in the books of M/s Composite Securities Ltd. (Member Broker) of the Firm M/s Bajaj insurance Management 65 to 71) (ii) M/s Bajaj insurance Management are maintain separate books of accounts for trading in F & 0 Segment and getting their accounts audited under 44A B of Income Tax Act, 1961. (COP)* of such Audited balance sheet as at 31st March 2007 enclosed I to 15) (iii) All income/loss in the derivative segments are shown under the head "income from Business/profession" by the assessee on the same basis as shown in the earlier assessment years. (iv) No delivery of shares allowed under F & 0 segments, hence, assessee does not have any stock in trade on account F & 0 segments as at 31 March 2008 as per Audited Balance Sheet. (v) No funds have been diverted by the assessee from Account of Bajaj insur....
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....nt view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings, The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The revenue did not furnish any justification for adopting a different approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question. In so far as Question (c) is concerned, again there cannot be any dispute about the basic proposition that "entries in the books of account alone are not conclusive in determining the nature, of income. The Tribunal has applied the correct Principle in arriving at the decision in' the facts of the present case. The finding of fact does not call for interference in an appeal under section 260A. No substantial question of law is raised. The appeal is accordingly dismissed. And also judgment of th....
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....erm gain are derived out as such. It is clarify that since F&O Segment is derivative segment hence, there is no delivery transaction and all income or losses on sale purchase are part of business income/loss. C) The assessee has not borrowed any funds for investment in shares except family borrowing, however, no interest have been paid by the assessee on any borrowing. D) Treatment of short term and long term capital gain/loss or on similar basis as followed by the assessee in the previous years and such treatment has been accepted by the department in such earlier. E) The assessee is maintain separate client code and separate account for his dealing in cash segment which is delivery base in the name of Anil Kumar Baja] which code no. 975 with M/s Composite Securities Ltd. (Member broker), the assessee is maintaining his separate F&O Segmenttrading account in the name of M/s Baja] Insurance Management with code no. 880 with M/s Composite Securities Ltd. (Member broker). There are the following judicial pronouncement in favour of the assessee cited as under Management Structure & System vs. ITO (ITAT) Mumbai Hitesh Satish Chandra Doshi vs. JCIT (ITAT) Mumbai Mahendra C S....