TaxTMI 
TaxTMI 
2011 (5) TMI 983
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....005. In this return of income, the assessee declared income under the head 'income from house property', 'income from business', 'income from short-term capital gain' and 'income from other sources'. The AO framed the assessment under section 143(3) at total income of ₹ 79,28,750/- wherein he treated the short-term capital gain of ₹ 68,87,173/- as business income. The reasoning given by the AO for treating short-term capital gain as business income are that the assessee earned dividend of ₹ 2,93,491/- whereas the profit from sale of share was ₹ 68,87,173/-. According to the AO, this shows that main purpose of investment was to earn profit from transaction in shares. The ratio of dividend to profit was 1:24. 3.1 The second reason given by the AO was frequency of transaction. There are 533 transactions in total during the year. The next reason taken by the AO was period of holding of shares. The AO noticed that the assessee held 75% of scrip for less than 45 days and had transacted as and when there was scope to earn profit. Apart from this, the AO mentioned that the assessee had taken unsecured loans amounting to ₹ 37,43,772/- during the year for engag....
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....east in two scrips in more than two transactions on the same working day, the total number of transactions being 533 during the year. Secondly, the motive behind the transaction is not for the Assessee or the AR to declare, and the Department is not bound to accept such a declaration. As clearly laid down in Circular No.4 issued by the CBDT, there are several factors or parameters which have to be examined for the purpose of deciding as to whether a set of transactions is in the nature of business transactions or mere investments. 6.1 Both the A.O. and the Assessee have referred to and relied extensively on CBDT's Cir. No.4 of 2007 dtd, 15.6.2007 which exhaustively lays down the parameters for determining as to whether a set of transactions is in the nature of business transactions or mere investments. The AO has referred to and placed reliance upon the decision of the Hon'ble Supreme Court in the case of H. Holck Larsen (1986) 160 ITR 67, on which also was the Circular No.4 based. In this case, the Hon'ble Supreme Court observed that the question whether the transactions of sale and purchase of shares are trading transactions or are in the nature of investments, is ....
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....at the activity of the Assessee of purchasing and selling shares during the year, was clearly a business activity. 6.3 The most significant fact bought out by the AO was that the Assessee was transacting through a renowned share broking firm. If he was indeed an ordinary investor he would not have engaged such a major share-broking firm for transacting in shares. Further, he maintained five accounts in four different banks for the purpose of his share dealings. These facts clearly showed that the Assessee was nor an ordinary 'investor' but was running a regular business establishment, and his main business activity was transacting in shares. 6.4 The AO observed that the share trading activity was the main activity engaged in by him. Inspite of such large scale ninvestments", the Assessee had earned dividend of only ₹ 2,93,491 whereas, the profit/gain on the sale of shares was ₹ 68,87,173, the ratio of dividend to profit was thus only 1:24. This was inspite of the fact that it was only the profit and not the total sale consideration, such profit having been computed after adjusting for losses incurred from such transactions. The AR has not been able to....
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....t stabilises. A person who transacts in times of market volatility is a high-risk taker who seeks to reap profits from such turbulence. A normal household investor cannot be expected to ride such a volatile market. Thus, the volume of the transactions, the frequency, as also the magnitude of the transactions clearly indicate and point to the fact that the Assessee was not a small time household investor, but a person who was involved in the big time business of share trading. 6.6 It was also clearly brought out by the AO that the Assessee had taken unsecured loans from various parties totalling ₹ 37,43,772 for the purpose of trading in the shares. The AR has however stated that the Assessee had transacted in shares with his own funds. But he has not furnished any detail or evidence to support such a claim. This important finding of the AO clearly contradicts the Assessee's and the AR's claim that he had invested his own funds. The fact that the Assessee had taken such substantial loans to buy the shares, clearly shows that it was essentially a business activity that he was engaged in. No prudent person would take loans from the market or even from known persons and....
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....e business of purchase and sale of shares but only an investor. Therefore, in the assessment year under appeal, there is no justification for adopting a divergent approach. For this proposition, reliance was placed on the judgment of the Hon'ble Bombay High Court in the case of CIT-vs Gopal Purohit reported in 228 CTR (Bom) 582. The Counsel of the assessee also relied on the decision of ITAT 'E' Bench, Mumbai in the case of Shantilal M. Jain - vs- ACIT in ITA No.2690/Mum/2010 delivered on 27.04.2011 (copy placed at page 73 of the paper book). The relevant para relied on by the ld. Counsel of the assessee is para 8, which reads as under: "8. In the instant case, we find the assessment order was passed on 31.12.2008 for the Assessment Year 2006-07 wherein the Assessing Officer has treated the STCG as business income. Against this, the assessee filed an appeal before the CIT(A), who vide order dated 17.2.2010 upheld the action of the Assessing Officer. We find the Assessing Officer in the order passed u/s 143(3) on 29.10.2009 for Assessment Year 2007-08 has accepted the STCG declared by the assessee. The above order of the Assessing Officer was after the order passed u/s 143(3) for ....