TaxTMI 
TaxTMI 
2010 (3) TMI 1092
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....ned by the assessee on sale of shares is to be treated as short term capital gain or income from business. The assessee is an individual and Director/shareholder of M/s. Hemkanak Merchantile Pvt. Ltd. and Adhunik Finance Pvt. Ltd. Her husband is also Director and shareholder in Emerging Capital Advsors Ltd., Simcorp Fund Ltd. and Adhunik Finance Ltd. and all these companies are engaged in the business of share trading. For the assessment year under consideration the assessee had disclosed business and professional income Nil, short term capital gain before 01.10.2004 at Rs. 45,659/- and short term capital gain after 01.10.2004 at Rs. 79,74,441/- and income form other sources at Rs. 60,691/-. She also claimed dividend income of Rs. 2,24,307/- as exempt. On scrutiny of the details of short term capita gain disclosed the A.O. was of the opinion that the assessee has entered into voluminous transactions of purchase and sale of shares and out of these transactions some transaction in which delivery had not been taken, the assessee has treated as speculation loss and some of the transactions are treated as investments and losses were also claimed as set off against short term capital gai....
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.....O. was wrong in considering the activity of investment in shares as there is no intention of holding the shares as stock-in-trade and it was a regular practice of showing share purchases as investment and whatever shares are sold the gains were accounted for as capital gains. It was further contended that the assessee has borrowed money and utilised in investment in shares and this is not prohibited and was duly approved by the Hon'ble Apex Court in the case of CIT vs. Rajendra Prasad Moody 115 ITR 519 and it was also contended that intraday transactions resulting in loss of Rs. 7,499/- has no relevance and totally out of context for determining the capital gain on other shares. It was submitted that the intention of the assessee was always to hold the shares as investment but in few cases the shares purchased were sold of same day because of some wrong decision while making the investment. It will be a case of capital gain/loss and the A.O. was treating it as a speculation loss. The assessee also clarified that the Assessing Officer's finding that delivery of only 58637 shares were taken is not correct as assessee purchased 1 lakhs shares of TASC Pharma Ltd. out of which 6171....
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.... squared shares is claimed as Short Term Capital Gain instead of speculation loss/profit as no delivery was taken. Similar is the position about shares transacted after 01.10.2004 to 31.03.2005. Only few shares are not sold in few days. Only because some shares are kept in more than one year due to market condition will not change the nature of transaction. Appellant has taken loans from banks, financial institutions and private parties and related concern to the extent of Rs. 2.84 crors (earlier year Rs. 44.77 lacs as per Balance-sheet) to do share business and paid interest of Rs. 1,82,805/- in the current year. The other facts which indicate that assessee was dealing in shares as trader is that she has pledged the shares to ICICI & HSBC for availment of loan and also borrowed 96000 shares from its associate companies for the purpose of mortgage for loan. She has borrowed money from individuals, financial institutions, bank and associates concern and paid interest to the extent of Rs. 1,82,806/- on loan taken. No prudent person will incurred interest on loan for the purpose of investment but certainly for the purpose of business. The assessee was well acquainted with the activity....
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....capital gain when shares are sold within one year and holding period in most of transactions is only one day and in some cases a few months. Recently Hon'ble CBDT had issued circular No. 4/2007 dated 15.06.2007 after considering various judgements on the identical issue and concluded three aspects to determine whether any transaction is trading or investment. a) Magnitude of purchase and sale b) Period of holding c) Motive behind it" 7. On the basis of this factual finding and also analysing the case laws regarding adventure in the nature of trade in para 3.8 and 3.9 the CIT(A) held that the assessee is engaged in adventure in nature of trade on full scale and it has shown purchase of shares as investment and gains as short term capital with a view to avoid tax. Investment shown in the books of account is nothing but stock-in-trade. Accordingly he upheld the action of the A.O., hence the assessee is aggrieved. 8. The learned counsel drawing our attention to the paper book filed in which the details of assessee's investments and share transactions are furnished, submitted that the assessee has investment of Rs. 1.70 lakhs at the end of F.Y. 2002-....
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....p; Various dates Various dates 695,185 (5,251) 5,249 Gain on Shares held for the period from 16 day to 30 days Tricom 7000 38358 700,910 38383 579,530 (121,380) Hiran orgo chem. 2500 38371 90,500 38399 120,650 30,150 Hiran orgo chem. 1834 38380 70,792 38399 88,509 17,716 (73,514) Gain on Shares held for the period from 31 day to 90 days TASC Pharma Ltd. 34807 38266 3,976,700 38309 4,803,371 1,826,671 TASC Pharma Ltd. 4000 38266 457,000 38338 704,880 247,880 TASC Pharma Ltd. 15000 38266 1,713,750 38352 2,636,550 922,800 Hiran orgo chem 50 38322 1,857 38359 1,742 (114) Hiran orgo chem 154 38322 5 ,718 38379 5,630 (89) Hiran orgo chem 96 38322 3,564 38393 4,394 829 Hiran orgo chem 354 38342 12,294 38393 16,203 3,908 Hiran orgo chem 781 38342 27,124 38399 37,691 10,567 ....
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....ency and regularity of share transactions done in organized manner indicate business activity - CIT VS. Motilal Hirabhai Spg. & Svg. Co. Ltd. 13 ITR 173 (Gju), Raja Bahadur Visheshwara Singh vs. CIT 41 ITR 685 (SC), Punjab Cooperative Bank Ltd. vs. CIT 8 ITR 635, etc. 13. It is held that whether a transaction of sale and purchase of shares were trading transactions or they were in the nature of investment is a mixed question of law and facts as held by the Hon'ble Supreme Court in the case of CIT vs. H. Holck Larsen 160 ITR 67. It is further held in the case of CIT vs. Associated Industrial Development Co. P. Ltd. 82 ITR 586 that it is possible that the assessee to be both an investor as well as dealer in shares. Whether a particular holding is by way of investment or form part of stockin- trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares which are held as investment and those held as stock-in-trade. It is also held in the case of Motilal Hirabhai Spg. & Svg. Co. Ltd. 113 ITR 173 (Guj) and Raja Bahadur Visheshwara Sing 41 ITR 685 (SC) that treatment....
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....accordingly the assessee is an investor. An analysis of the investment schedule in various years indicate the investment in 201-02 was to the tune of Rs. 2,55,315/- . Assessee furnished the following details: - LIT OF INVESTMENT AS ON 31.03.2001 ALLOTTED ADHUNIK FINANCE 2,300 23,000.00 GA47 ELECTRO KELV 14-Feb-01 1,000 19,128.24 GA48 ELECTRO KELV 21-Feb-01 500 8,250.00 GA52 ELECTRO KELV 20-Mar-01 500 3,950.00 GE61 NAT. ALUMINIU 23-Feb-01 1,000 60,528.55 GA055 PENTA GLON 28-Apr-00 100 1,810.00 SARVODAYA LABS 1995-96 1,300 5,200.00 GN17 SONI CAPITAL 06-Dec-00 500 11,071.07 GA021 BEST MULYANKAN 04-Apr-00 2,000 83,922.26 GA38 TATIA FINANCE 09-Dec-99 3,000 33,239.32 THIRUMALAI CHEM 1995-96 2,000.00 XPRO INTERNATIONAL 1995-96 3,215.00 255,314.44 16. Out of these, the investment in Adhunik Finance, Sarvodaya Labs, Soni Capital, Tatia Finance, Thirumalai Cehm, Xpro International have continued in the next year als....
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....it in short period. An interesting aspect noticed from the details of short term capital gains statement filed in this regard ( page 73) is that the assessee has transacted in one share of Hiran Orgo Chem frequently. One argument which was raised before the CIT(A) explaining daily transactions without delivery was that the assessee by mistake has made some investment and realising that the transactions were not gainful immediately sold for a loss on the same day. This argument is to be considered in the light of the transactions entered by the assessee in Hiran Orgo Chem's case. There are purchases and sales of shares on 06.12.2004 to 21.12.2004 on a daily basis and the maximum purchase in a day was of about 1910 shares and investment in a particular day was about Rs. 67,472/-. If assessee has by mistake invested in that scrip on a particular day, it is not explained how only this scrip was transacted from 16.12.2004 to 21.12.2004 frequently 19 times. Not only that in the same period, the assessee also invested in the same scrip on various dates to earn profit of Rs. 1,21,913/- on 10500 shares the cost of which was about Rs. 3,63,000/- and sold for a gain. It shows that the explana....