TaxTMI 
TaxTMI 
2017 (2) TMI 908
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....A is justified in treating the assessee as an investor of shares as against trader of shares treated by the ld AO in the facts and circumstances of the case. 4. The facts for the Asst Year 2006-07 are adjudicated herein and the decision rendered thereon would apply with equal force for Asst Year 2009-10 also as the facts are identical thereon except with variance in figures and number of scrips handled by the assessee. 5. The brief facts of this issue is that the assessee filed its return of income for Asst Year 2006-07 on 31.7.2006 declaring total income of Rs. 1,22,46,624/- and assessment was completed u/s 143(3) of the Act assessing the total income at Rs. 1,22,46,620/- by the ld AO. Later the ld CIT vide his order u/s 263 of the Act dated 25.3.2011 set aside the assessment framed by the ld AO with some directions. Accordingly, the ld AO pursuant to the ld CIT's order /s 263 of the Act framed the assessment u/s 143(3) / 263 of the Act on 22.12.2011. In the said assessment, the ld AO treated the short capital gains reported by the assessee as business income treating the assessee as a trader in shares. During the course of assessment proceedings, the assessee was directed by th....
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....necessary qualification and competence to carry out the business of dealing in shares , securities and units of mutual funds. With regard to the arguments of the assessee that the transactions of these shares and mutual funds have been consistently been shown in the books of accounts under the head 'investments', the ld AO observed that the treatment in the books by an assessee is not conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive, then it becomes business profit and not capital gain. He concluded by stating that the assessee has been doing this activity of shares and mutual funds continuously for years and the volume clearly reflects that he is trading in shares and securities and in no way be called as investor in shares and securities. The mere object is not to earn dividend income but to earn income by utilizing his expert knowledge of share market and then to earn profit. A normal man would not be doing frequently, such volumes without having expertise knowledge. Based on these observations, the ld AO concluded that the activity of investment in shares and mutual funds t....
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....ve to submit additional grounds of appeal, if any, at or before the time of hearing and /or alter, modify, reframe any grounds of appeal at or before the time of hearing. " 7. The ld DR reiterated the findings of the ld AO. In response to this, the ld AR argued the following :- (a) The shares and mutual funds invested by the assessee were shown under the head 'Investments' in the books of accounts of the assessee regularly over the years. This has not been disputed by the revenue in the earlier years. (b) From the perusal of the balance sheets of earlier years and during the year under review, it could be seen that the assessee never had any borrowings. (c) The assessee does not have any stock in trade with respect to securities and mutual funds in its books. (d) The ld AO had accepted the exemption u/s 10(38) for long term capital gains claimed by the assessee and hence to that extent, he accepts to the fact that the assessee is an investor. But his finding in the assessment order go to prove that the assessee had only fully dealt with the shares and mutual funds only as a trader and not as an investor at all. (e) Assessments for the Asst Years 2004-05 and 2005-06 were compl....
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....erused the materials available on record including the paper book of the assessee comprising of computation of total income and tax thereon (pages 1 to 3 of PB) ; statement of accounts as on 31.3.2006 along with relevant schedules (Pages 4 to 7 of PB) ; Order u/s 143(3) of the Act dated 6.11.2008 for AY 2006-07 (Pages 8 to 9 of PB) ; Order u/s 263 of the Act dated 25.3.2011 for AY 2006-07 (Pages 10 to 14 of PB) ; Relevant Extracts of Reply dated 19.1.2011 filed during proceedings u/s 263 of the act along with relevant annexures (Pages 15 to 19 of PB) and Relevant Extracts of Reply dated 24.1.2011 filed during proceedings u/s 263 of the Act (Pages 20 to 23 of PB). Apart from this, we have also gone through the Scrutiny assessment order u/s 143(3) of the Act together with computation of total income and Statement of Accounts of the assessee with schedules for the Asst Years 2004-05 and 2005-06. We find that all the arguments of the ld AR find lot of force in the facts of the instant case. We find that the shares before the date of its sale were held for a period ranging from 13 days to 356 days and to this extent the factual inaccuracy on the part of the ld AO on the holding period o....
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....cision of the Hon'ble Supreme Court in the case of Radhasaomi Satsang reported in 193 ITR 321 (SC). We find that the reliance placed on the various decisions by the ld AR are very well founded. For the sake of brevity, we would like to confine our discussions only on the order of co-ordinate bench of this tribunal which had dealt the other decisions also relied upon by the ld AR, wherein one of the member was also a party to that order, it was held that :- "5.3 We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee containing the scrutiny assessment orders of the assessee for the Asst years 2002-03, 2004-05, 2008-09 & 2010-11 ; statement of total income for the Asst Year 2010-11 ; audited financial statements for the years ended 31.3.2004 & 31.3.2005 ; details of profit on sale of investments ; details of investments and stock in trade for five years and compilation of various case laws on the impugned issue. We find that the assessee is engaged in investment activity and business activity for years together. We also find that the co- ordinate bench decision of this tribunal for the Asst Year 1992-....
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....s routed through a recognized stock exchange and securities transaction tax is suffered by the assessee, then the long term capital gains arising on such sale would be exempt u/s 10(38) of the Act. Similarly with effect from 1.4.2005, the short term capital gains, if subjected to levy of securities transaction tax, would be liable for concessional rate of tax as against the normal rate of tax @ 30%. We also find that the Learned AO had not brought any evidence on record that the assessee was trying to shift any of its trading assets from the trading portfolio of shares & units to the investment portfolio to take advantage of lower tax rates under the head capital gains and vice versa wherever losses were incurred on sale of investments. It is not in dispute that the assessee had not converted any of the shares under investment category into stock in trade. 5.3.1.1 As stated supra we find that certain shares under investment portfolio were held by the assessee from the year 1995 onwards. Just because if during the mid of the relevant financial year, certain tax benefits have been given in respect of capital gains, that cannot, in any way, lead to an assumption or presumption that ....
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....ing 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 stock in trade, then onus would shift to revenue to prove that apparent is not real. In the instant case, we find from the details in the paper book that the assessee had duly discharged its primary onus of demarcating the scripts held for investment and for trading and the resultant gains derived therefrom. Even the CBDT Circular No. 4 of 2007 dated 15.6.2007 envisages the practice of assessee's maintaining dual portfolios. We also find that the decision was rendered by the Hon'ble Bombay High Court in the case of CIT v. Gopal Purohit [2011] 336 ITR 287/[2010] 188 Taxman 140 wherein the assessee had maintained dual portfolios and ultimately the court held that the resultant gains from investment activity would beassessable as capital gains and not business income. We also find that the valuation of investments has been done by the assessee at cost as could be evident from the accounting policies forming part of the audited financial statements. 5.3.2.....
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....walla v. Asstt. CIT [2007] 11 SOT 627 (Mum), wherein it was held that: "It is the intention of the assessee which is to be seen to determine the nature of transaction conducted by the assessee. Though the investment in shares is on a large magnitude but the same shall not decide the nature of transaction. Similar transactions of sale and purchase of shares in the preceding years have been held to be income from capital gains both on long term and short term basis. The transaction in the year under consideration on account of sale and purchase of shares is same as in the preceding years and the same merits to be accepted as short term capital gains. There is no basis for treating the assessee as a trader in shares, when his intention to hold the shaes in Indian companies as an investment and not as stock in trade. The mere magnitude of the transaction does not change the nature of transaction, which are being assessed as income from capital gains in the past several years. The Assessing officer is directed to set off the Long Term Capital Loss against the Short Term Capital Gain of the year under consideration. The grounds of appeal raised by the assessee are allowed." 5.3.4.1 W....
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.... Calcutta High Court in the case of CIT v. H K Financiers (P.) Ltd. [2015] 61 taxmann.com 175/234 Taxman 43 (Cal) for the Asst Year 2007-08 had held as below:- '3. The Assessing Officer has laid stress on motive. To begin with motive is something, which is locked in the mind of the person. No direct evidence as regards motive is possible. Motive can be inferred from the conduct of the person concerned but that is bound to remain an inference, which may or may not be correct. We have today dictated a judgment in the case of CIT v. Merlin Holding (P.) Ltd. [IT Appeal No. 101 of 2011, dated 12-5- 2015] wherein the following views have been expressed by us: "From the tenor of the submissions made by Mr. Saraf noted above, it appears that the case of the revenue is that in the facts of the case the finding that the income was earned from investment could not have been recorded. If that is the proposition then it is for the revenue to show that such a finding is not possible in law. That was not even suggested. What remains then is a question of appreciation of evidence, which has already been done. No fruitful purpose is likely to be served by remanding the matter. We do not fin....
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.... own funds in the form of sale of shares held as investments. This goes to prove that the own funds along with borrowed funds have been utilised for both investment and trading activities of the assessee. He accordingly held that the finding of the Learned AO that borrowed funds were utilized for investments to be factually incorrect. This finding given by the Learned CIT(A) is not refuted by the Learned DR before us for both the asst years under appeal. We find that the Hon'ble Calcutta High Court in the case of Jt. CIT v. Bajranglal Chowdhury [2015] 58 taxmann.com 204/232 Taxman 246 had held as below:- 1. The appeal is directed against a judgment and order dated March 13, 2014, by which the learned Income-tax Appellate Tribunal dismissed an appeal preferred by the Revenue. 2. The Assessing Officer held that the transaction in shares undertaken by the assessee was in the nature of a business transaction and not investment. Aggrieved by the order of the Assessing Officer, an appeal was preferred by the assessee which was allowed by the Commissioner of Income-tax (Appeals) holding that the transaction was really in the nature of an investment. The appellate authority discu....
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....d have to be paid in shares which yielded no dividend was correct. We cannot say that this was not a relevant circumstances for the Tribunal to take into consideration for coming to the conclusion that the transaction was an adventure in the nature of business." 5. It would appear from the aforesaid finding that the apex court was of the opinion that the view formed by the Tribunal was a possible view in the facts and circumstances of the case. The judgment is not, however, an authority for the proposition that since purchase was made by borrowed funds, it is bound to become a business transaction. The Tribunal in that case had taken a possible view. Therefore, the apex court did not interfere. 6. No other submission was made. We are of the opinion that the view taken by the learned Tribunal in this case is also based on evidence and is a possible view. There is, as such, no reason why the High Court should interfere.) 7. For the aforesaid reasons, we refuse to admit the appeal, which is, accordingly, dismissed.' 5.3.6 Period of Holding of shares We find that one of the main arguments of the revenue seems to be the shorter duration for which the shares were held by ....
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....senting capital assets. The decisions used to be taken by the assessee at the time of purchase itself based on different factors whether any share and security was to be held as investment or trading. When the shares are accounted for in the books as investment shares, the volume of transaction of such shares cannot alter its status from investment to trading. Profit on sale of such investment shares held, as capital assets are assessable under the head capital gain. Period of holding of such assets cannot determine its status or change it from investment (capital) to trading (stock in trade). The audited accounts for the Assessment Year 04-05 and the earlier years placed in the paper book made it clear that every year the assessee had acquired shares for trading purpose and separately also for investment purpose with an intention to earn dividend income in addition to the prospect of making profit on sale of such investment shares at an appropriate opportune moment without making any hurry for self ignoring dividend. The investment shares and securities purchased and held till their sale had dual purpose i.e. for earning dividend as an incidental income as well as to make profit o....
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....so seen that the Learned AO had also accepted the stand of the assessee in the immediately succeeding assessment year as investment transactions under scrutiny proceedings vide 143(3) order dated 12.10.2009. We find that the frequency of transactions does not really matter and what is to be seen is the intention of the assessee whether he wants to penetrate into the capital market for the purpose of investment or for making speculative gains by doing day trading and dealing in futures and options. It is also seen that the Learned AO had clearly stated in his assessment order that the interest on borrowings were paid by the assessee only for trading in shares and this itself goes to prove that the assessee had clearly bifurcated his activities into two parts - one towards investment in shares out of own funds of the assessee and other towards trading in shares out of own and borrowed funds of the assessee. It is also seen that the assessee has been doing this activity consistently. It is also seen from the balance sheet filed by the assessee that the assessee had clearly classified the share transactions under the head Investments. This itself clearly proves the intention of the ass....
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....e case may be, long term capital gain, depending upon the period of the holding. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transactions namely, those by way of investment on one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law. In so far as Question (b) is concerned, the Tribunal has observed in paragraph 8.1. of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The revenue submitted that a different 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 ....