TaxTMI 
TaxTMI 
2016 (10) TMI 987
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....O that assessee has shown long term capital gain of Rs. 3,12,50,000/- on sale of shares of M/s.PMC Buildwell Pvt. Ltd. ("PMCB" for short). On further inquiry, it revealed to the AO that the assessee has alleged purchases of 2500 shares of "PMCB" on 5.10.2006 at the rate of Rs. 10/- per share. She has sold these shares on 27.11.2007 and 28.1.2008. She has sold shares at the rate of Rs. 12,500/- per share. She computed long term capital gain and offered that gain for taxation. According to the assessee, she has paid long term capital gain tax at Rs. 70 lakhs. The AO has made an inquiry about these transactions. He rejected the claim of the assessee and observed that the assessee did not submit copies of share certificate, share transfer form for purchase and sale of shares. The assessee did not file balance sheet or cash account or details of investments along with return of the Asstt.year 2007-08. She has shown holding of the shares as on 31.3.2007. Thus, according to the AO, the date of acquisition of the shares is to be taken as 31.3.2007, and if that be so, then shares have been sold within one year from the date of acquisition, i.e. the sales have been made 27.11.2007 and 28.1.2....
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....td. 4) Date of registration of M/s. Spaze Towers P. Ltd. and its share holding from the date of incorporation till date. 5) What is the nexus between the M/s. PMC Buildwell P. Ltd and M/s. Spaze Towers P. Ltd." 6. The ld.ADIT had conducted an inquiry and submitted his report. Copy of the report is available at page nos.35 to 45 of the paper book. The assessee, thereafter, contended that she was a salaried person. She has made only investment in these shares. She has not carried out any business activities in the assessment year. She made reference to large number of decisions, which have been referred to by the ld.CIT(A). 7. With regard to the allegation of the AO that the assessee has shown lesser sale value of the shares, it was contended that the AO failed to take note of the liabilities of "PMCB". If those liabilities are deducted, then value per share would be around Rs. 9,798/-. The assessee also pointed out she was holding 2500 shares only. There were other two persons who held remaining 7500 shares. In their case, Addl.DIT has accepted sale price at the rate of Rs. 12,500/- per share. The ld.CIT(A) has examined all these aspects lucidly and elaborately. The ld.CIT(A)....
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....ether shown in opening/closing stock or shown separately as investment or nontrading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchase and disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares 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. (5) How the value of the items ....
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.... court has made reference to the test laid by it in its earlier decision rendered in the case of Pari Mangaldas Girdhardas vs. CIT reported in 1977 CTR 647. These tests read as under: "After analyzing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourt....
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....ase & sales and the ratio between purchases and sales and holding of shares would furnish a good guide to determine the nature of transactions. Ordinarily, the purchase & sales of shares with the motive of earning profit would result in the transactions being in nature of trade / adventure in nature of trade; but where the object of investment in shares of a company is to the derive income by way of dividends etc. then the profits accruing by sale of the shares will yield capital gains and not revenue receipt. If the facts of the assessee's case are tested on these guiding principles then it comes out that the investment made by ne assessee in the shares of this private limited company was in the nature of capital investment. This was the solitary transaction of sale of shares during the year. As there is no open market for selling these shares and there were restrictions on transfer of these shares being shares of a private limited company, it cannot be said that the motive was to earn profit by reselling the same. The arguments of the assessee that due to increase in the value of the assets (land) held by the company and due to leverage effect of borrowed funds, the value of ....
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....spicion only. He himself failed to collect any material for demonstrating the fact that these transaction as a pre-arranged transaction. There might be various reasons for all of sudden increase in the price of the shares. One possible reason could be permission to construct a tower on the land owned by "PMCB". Even a single transaction can be treated as a venture into a trade, but the AO failed to point out those peculiar circumstances. Reasons given by the ld.CIT(A) in the finding extracted supra would indicate that the assessee has not borrowed funds for making investment. She has not shown shares as stock-in-trade. She did not take help of experts; she did not incur any expenditure towards selling consultancy or maintaining of any office. She has not purchased shares of any other companies in this period. Thus, facts emerge out from the record, if we examine in the light of various tests propounded by the Hon'ble jurisdictional High Court as well as by the ITAT in the case of Sarnath Infrastructure Pvt. Ltd., 10 TTJ 216, then it would reveal that theld.CIT(A) has taken a correct view of treating the transaction as simplicitor investment. 14. The next fold of dispute is whether ....
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.... CIT vs. | George Henderson and Co. Ltd (66 ITR 622), has held that in the case of sale price of asset, there would be no question of any market value and all that one has to see that what is the consideration bargained for. Thus, even if presuming that the share transactions are business in nature, market rate cannot be applied in absence of any cogent material or evidence available in possession of AO. In the case of appellant, AO has estimated the value of shares by giving a general statement that the city Gurgaon is one of the costliest cities of the country therefore estimation of Rs. 5,000/- per sq. yard is reasonable. AO has no comparable case or any specific information that the appellant has received money over and above what the appellant has shown in the return of income. Moreover, while estimating the market value of shares of company, AO has simply forgotten to reduce the cost value / book value of the property, owned by M/s. PMC Buildwell P. Ltd, from the sale value. As the appellant has also submitted during appellate proceedings that the AO has made apparent mistake in calculating the value of these shares at Rs. 25,896/- per share. The appellant has given a chart t....
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.... aspect of transactions, commission u/s.131(1)(d) was issued but the ITO (Inv.), Unit-V(3), New Delhi, in his report, after recording the statements of relevant persons as well as examining the transactions entered into, did not give any finding to show that these were the prearranged or stage managed transactions. In his remand report dated 10.02.2012, AO also has repeated the facts of assessment order but failed to give any specific reason to hold that these transactions are prearranged or stage managed. On the other hand, appellant has shown Long Term Capital Gain of Rs. 3,12,25,000/- in the return of income and paid taxes on that and AO himself has assessed this income under the head Business Income. Treating the transactions as sham and assessing the same as a taxable business income, both are contradictory. Investigation conducted by ITO (Inv.) also does not support the theory of AO. In view of these facts, it is held that transactions entered in to by appellant are genuine in nature. 5.7 In the assessment order, AO has proposed to assess the income on account of aforesaid share transactions, either as Business Income or as Short Term Capital Gain. So far as the issue of ca....