TaxTMI 
TaxTMI 
2015 (3) TMI 705
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....eciation of capital on investment. The AO also observed that the volume and frequency of the transaction is high and the intention of the assessee was to make profit on sale of shares and he had no intention to hold the shares for a long period to earn dividend. The AO observed that the assessee indulged in recurrent activity of investing in shares and also reinvesting the profits earned from such transactions within a short span of time giving it a character of trading activity depending on market fluctuations. It was observed by the AO that the assessee borrowed funds on various dates and purchased shares of Rs. 1,39,70,018 and sold shares of Rs. 90,86,837. Thus the AO concludedthe assessment for A.Y 2007-08 treating the profit earned on sale of sahres as business profits out of busines sincome and not as capital gains. AO rejected the claim of the assessee for Rs. 61,66,584 under the short term capital gain and prepared trading and loss a/c of sale and purchase transaction and arrived at the net profit of Rs. 70,45,550 and determined the total income at Rs. 88,85,670. 4. The assessee preferred appeals before the CIT (A). The assessee filed written submissions in support of hi....
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....re sold and new shares of the same company purchased at a later time. It is also possible that shares of a particular company would have been sold at different times in different lots. Therefore, the observations of the Assessing Officer about the contentions raised by the appellant are not factually true. No such contention was ever advanced. * The Assessing Officer has also drawn a chart (Table-1 at page-2 of the Assessment Order) to support that the appellant purchased and sold the very same share on the same day perhaps to support his conclusion that they were business transactions. In other words these are treated by the Assessing Officer as "buy today and sell today" transactions which are not delivery based. This is not true. No shares were ever sold without taking delivery. The appellant had taken delivery of the shares purchased by him and the shares were credited to his deemat account. The SIT was paid on all transactions. These shares were held by the appellant at all times in his deemat account. The shares were sold from the deemat account by debiting the deemat account. The Assessing Officer in table-1 furnished incomplete particulars. The shares sold which are show....
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....other companies were sold on a single day. He has given three such dates i.e. 12.07.2006, 28.12.2006 and 15.01.2007 for this purpose. The appellant submits that in respect of these transactions the shares that were purchased were sold much later and the shares that were sold were bought much earlier. The Assessing Officer has ignored the number of days for which the shares were held in the deemat account of the appellant before sale. The appellant therefore is furnishing the details of the number of days these shares were held in his deemat account Name of the Script No. of shares purchased 12.07.2006 Date of sale of these shares No. of days held before sale ICIBAN 1000 27.07.2006 15 NATALU 1000 10.11.2006 121 RELPET 4000 18.09.2006 68 TATAPOW 420 27.07.2006 15 TOTAL 6420 Name of the Script No. of shares purchased 12.07.2006 Date of sale of these shares No. of days held before sale PUNTRA 600 01.04.2006 102 INNCOM 1000 25.04.2006 78 OPTCIR 1674 25.04.2006 78 PETLlNG 200 18.04.'2006 85 POWTRA 100 18.04.2006 85 ....
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....an 10 days 38 4,22,585 b. Number of transactions where shares were held between 11 days to 30 days 38 4,22,585 c. Number of transactions where shares were held between 31 to 60 days 94 11,54,235 d. Number of transactions where shares were held between 61 to 120 days 57 16,99,225 e. Number of transactionswhere shares were held above 121 days. 32 13,25,303 * In addition, the appellant has held number of shares as investment in his deemat account as on 31.03.2007 as per statement given below: Name of the Script Name of share Date of purchase of these shares No. of days these shares were held up to 31.03.07 Date of sale of these shares in next year Total no. of days these shares were held before sale (i) (ii) (iii) (iv) (v) (vi) BPL 2000 01.03.2007 30 18.07.2007 139 BPL 2625 01.03.2007 30 09.04.2007 139 BSES 1 22.01.2007 68 28.06.2007 157 BROINI 186 31032007 1 09.04.2007 10 CAIIND 9000 1.3.2007 30 9.4.2007 39 COMTEC 100 13.2.2007 46 7.1.2008 328 GAUAMB 2000 ....
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....ling the shares within the same year is only because of the taxation rate for the shares held for a short term period is concessional rate at 10%. * The appellant has also derived long term capital gain from the sale of shares held by him for periods in excess of one year. Particulars of this long term capital gain on sale of shares has also been furnished to the Assessing Officer. The appellant had been allotted shares of Pennar Profiles Limited on 31.07.2005. These shares were sold during 28.11.2006 to 21.12.2006. A statement showing long term capital gain earned is enclosed. This long term capital gain on shares at Rs. 8, 73,513/- has been wrongly treated as business income and assessed to tax as business profit. * In the past years also there were similar sale of shares. For example in the Assessment year 2006-07 the appellant sold shares and the short term capital gain on such sale of shares is Rs. 82,49,206/-. An enquiry was made regarding the sale of shares during the AY 2006-07 by the Assessing Officer vide his letter dated 30.05.2008 and after considering the explanation provided by the appellant, the Assessing Officer had accepted the profit derived on the sale of s....
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.... The appellant is also a Director of Pennar Industries Limited for last 10 years. * All the shares sold falling under long term capital gain are relating to only one company viz. Pennar Profiles Limited which the appellant was the Managing Director for a period of 12 long years . All these shares sold were allotted on subscription by the company on 31.07.2005. These shares were held for a period of more than 16 months before they were sold on 28th November, 2006. * All the above factors cumulatively prove that the income derived on the sale of shares should be treated as capital gain and not as business income. * Based on the above factual position, the legal aspects may now be considered by the learned commissioner 5. The assessee also relied on the following decisions in support of the sale of shares, should be assessed as capital gains and not as business income: S. No. Name ITA No. Date of order 1 Gopal Purohit vs. JCIT 4854/Mum/2008 10.02.2009 2 DCIT vs. SMK Shares & Stock Broking (P) Ltd 799/Mum/2009 24.11.2010 3 Management Structure & Systems (P) Ltd vs. ITO 6966/Mum/2007 30.04.2010 4 ACIT vs. Naishadh V. Vach....
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.... was submitted that these are typing mistake while cut pasting the data from a similar assessment order. These are not wrong statements but these are mistakes in typing the order. The data do not pertain to the assessee. However, the above mentioned wrong details have no bearing on the assessment made. As mentioned above, though assessee has salary income, the assessee's main source of income was from dealing in shares. The assessee has classified them as short term capital gains and it was assessed as business income for reasons discussed in the assessment order. As discussed in the assessment order the assessee made frequent transactions in the shares and the intention of the assessee is not to invest for earning the dividends or for capital appreciation, but to earn profit at a short notice. The assessee has not denied the frequency of transactions he made. Details of some of the transactions were even mentioned in assessment order. Thus the assessment was correctly made by treating the short term capital gains as business income. 8. The CIT (A) held as follows: "6.0 I have gone through the facts of the case and submissions made by the appellant. There is a considerable....
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....ual matrix of the case. We had also deliberated on the case laws referred to by lower authorities in their respective orders. The question as to whether the assessee has earned capital gain or business profits on the shares sold by him depend on the facts and circumstances of each case. Such decision is to be arrived at by taking into account the intention of the assessee while purchasing the shares, as to whether the same was acquired for holding as investment or for doing business therein. The treatment given by the assessee in its books of account is also one of the decisive factors to find out whether the shares were held as investment or stock in trade. If the shares are bought with the intention of earning capital gains thereon and also dividend income by keeping the same as investment, the gain arising there from is required to be treated as capital gains. On the other hand, if the shares are purchased with the intention to earn profit thereon and the same is treated as stock in trade in the books of account, the profit arising out of sale of such shares are liable to be treated as business income. Volume and frequency of transaction is also one of the guiding factors to fin....