TaxTMI 
TaxTMI 
2018 (2) TMI 181
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....nal") in ITA no. 2826/Mum/2015 for assessment year 2010-11, read as under:- " (i) "On the facts and in the circumstances of the case, and in law, the Ld CIT(A) erred in treating the business income as capital gain, whereas assessee had invested in shares to make profit and not to make investment." (ii) .. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in not considering the volume of profits and nature and frequency of transactions is nothing but trading in shares with an intention to earn quick profits out of trading activity and not to earn dividend out of investment in shares." (iii) "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in treating the profits from sale of shares as capital gains without taking note of sale pattern of shares which clearly establishes the intention of the assessee to earn profits and not to make investment." (iv) "The appellant prays that the order of the Ld CIT(A) on the above grounds be set aside and that of the A.O. be restored." (v) The appellant craves leave to amend or alter any ground or add a new ground." 3. The grounds of appeal raised by the Assessee in....
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....l gains and short term capital gains be not disallowed, to which the assessee submitted that assessee is an investor in shares . It was submitted by the assessee that the share purchased by the assessee were generally held for more than one year and shares were shown as investments in books of accounts under the head „Investments‟ . It was submitted by the assessee that the intention of the assessee is to hold the shares for investments on which dividend income was also earned . It was submitted that shares were not held as stock-in-trade and the shares were not reshuffled for long period . It was submitted by the assessee that the accounts of the assessee were audited u/s. 44AB by a chartered accountant. It was also submitted that assessee also dealt in Futures and Options(F&O) and the income from future & options was declared as business income (loss) under the head „Income from Business or Profession‟ . It was submitted that the Revenue had accepted the stand of the assessee in the preceding years as the same treatment was given by the assessee to the investments in the past which was accepted by Revenue in the earlier years. The A.O brought out the detai....
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....4 2000 5425879.4 61647.93 Total 70022 18821024 70022 18994449 173425.11 Cipla Ltd. 17.02.10 326.5914 10000 3265913.7 18.02.10 319.516 4 10000 3195163.5 Total 10000 3265913.7 10000 3195163.5 -70750.23 Reliance Infra Projects 03.03.10 258.5993 20000 5171985.4 08.03.10 17742 4614336 -557649.44 2258 597792.71 597792.71 Total 20000 5171985.4 20000 5212128.7 40143.27 Punjab National Bank 02.03.10 922.0935 5000 4610467.7 0 -4610467.7 03.03.10 931.1285 5000 4655642.3 03.03.10 925.132 10000 9251320 4595677.7 Total 10000 9266110 10000 9251320 -14789.96 Reliance Industries 19.02.10 991.1002 10000 99110002 23.02.10 977..1538 10000 9771537.6 -139464.13 Total 10000 99110002 10000 9771537.6 -139464.13 Siemens Ltd. 16.02.10 665.2332 10000 6652331.8 17.2.10 664.9134 10000 6649133.9 -3197.93 Total 10000 6652331.8 100....
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.... 29.12.08 63981 3,006,259.12 46.99 29.12.08 15738 738,112.43 46.9 200295 48,776,173.98 200295 9,251,775.86 39,524,398.12 BREAK UP OF PERIOD OF HOLDING NAME OF HOLDING NO.OF %OF % of total THE SCRIP PERIOD SHARES TOTAL CAPITAL GAIN/LOSS CORE UPT02 GAIN PROJECT YEARS 200295 100 39,524,398.12 100 Total S 200295 100 39,524,398.12 100 On the analysis of the above charts, the A.O reached the conclusion that the assessee is trader in shares and not an investor and it was also observed by the AO that assessee has mainly dealt in the share of the company named Core Projects Ltd. from which the income from short term capital gains and long term cap....
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....n Balance Sheet as at 31-03-2010. The AO issued notices u/s 133(6) to the broker namely NKB Securities at the following addresses mentioned in contract note and as provided by the assessee but which notices were returned un-served with the remarks "not available at the address-left" , as under: 1. Mumbai Address 130-132 Great Western Bldg, Apollo Street, Mumbai-400023 2. Bhopal Address 250 Sagar Plaza, Zone-II, M.P. Nagar, Near Sargam Cinema, Bhopal 462003 The A.O in order to verify transaction also sent notice u/s. 133(6) to National Stock Exchange to confirm the transaction of the assessee in F&O segment through NKB Securities to which National Stock Exchange replied that the said transactions in F & O segment to have not taken place during the said period. The AO show caused the assessee to explain as to why these transactions in F & O segment be not treated as non genuine to which the assessee submitted that the transactions in F & O segment with NKB Securities was genuine and secondly it was submitted that the payments to NKB Securities was made in the subsequent year i.e. in the financial year 2010-11. The A.O treated the said transactions in F & O segment to ....
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....of assessee, therefore he should be in a position to produce evidence to establish the distinction between the shares held as stock-in-trade and by way of investment. The system of accounting has remained the same for the investment portfolio and the business portfolio. Therefore, what emerges in the present case is that definitely the appellant was trading in F&O shares, however, part of the shares have been held as investment and there appears to be no reason to treat the same as business income. Merely making profit cannot be held as adventure in the nature of trade since investment portfolios are created and held with the spirit of earning/ multiplying the value of the money. Therefore, in light of the above, the ground of appeal is allowed. The income from shares is to be treated as capital gains and taxed as such." With respect to the second issue of the disallowance of the loss incurred in F&O trade , the learned CIT-A vide appellate order dated 25-2-2015 held as under:- " I have gone through the findings of the AO and the submissions of the appellant. From the facts as elucidated by the AO, it is clearly evident that the appellant has failed to provide any credible evid....
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....g in shares with a view to make profits. It was submitted by learned CIT-DR that since the assessee is also rendering consultancy services in the investment field which must be taken into account to hold that the assessee is a trader . Our attention was drawn to paper book filed by the assessee where assessee‟s financial statements are placed. It was submitted that in the Balance Sheet of the assessee there are no loans but owned funds are only to tune of Rs. 4.05 crores and it is the credits extended by creditors mainly the share brokers which has enabled assessee to make investments to the tune of Rs. 15 crores in shares which itself lead to the conclusion that the assessee is doing business in shares with funds belonging to others as unusual high credit is extended to the assessee by creditors . It was submitted by learned CIT-DR that dividend income was received only to the tune of Rs. 7.42 lacs on investment of more than Rs. 15 crores and it clearly reflect that the assessee is a trader in shares and securities. Our attention was drawn to the appellate order of learned CIT(A) . The learned counsel for the assessee submitted that the dealing in the share are investment w....
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....assessee also never produced said broker NKB Securities before the authorities below. It was submitted by learned CIT-DR that NSE also has stated in response to notice u/s. 133(6) that assessee has not dealt with F&O segment during the impugned period and no such records of the assessee in F & O segment dealt with the broker NKB Securities exists in NSE data base . It was submitted that NSE reply was forwarded to the assessee but the assessee was not able to rebut this finding given by NSE despite opportunities being granted at AO as well learned CIT(A) level. It was submitted that even before tribunal no such cogent evidences are brought on record to prove that the F & O losses are genuine. It was submitted by learned CIT-DR that the assessee is unnecessarily adopting the tactics to get the matter set aside to have fresh round of litigation to drag litigation indefinitely while there is no material on record to justify set aside of the issue back to the file of the authorities below. The assessee in its rejoinder submitted that NKB Securities is now available and matter can be set aside and restored to the file of the A.O and the assessee will produce said NKB Securities before t....
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....o 1 Week 10000 100 -139464.13 100 TOTAL 10000 -139464.13 6 Siemens Ltd. Holding Period No. of Shares % of Total Gain/Loss % of Total Gain Loss Up to 1 Week 10000 100 -3197.93 100 10000 -3197.93 7 Core Projects Up to 6 Months 841232 53.13 42749578.4 40.81 Above 6 742200 46.87 61855488.3 59.13 months Total 1583432 100 1046050567 100 DETAILS OF SHORT TERM CAPTIAL GAIN Date of sale NO.OF NO.OF LONG TERM SHARES DATE OF SHARES CAPITAL GAIN SOLD AMOUNT RATE PURCHASE PURCHASED AMOUNT RATE /LOSS 31.03.2010 200295 48,776,173.98 243.52 23.12.08 5706 278,852.22 48.87 24.12.08 6000 273,847.85 45.64 24.12.08 16000 732,039.61 45.75 26.12.08 54370 2,474,466.95 45.51  ....
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.... creditors which also majorly constitute payable on F & O transaction wherein interest is found debited for the transactions in F & O segment. The period of holding in case of majority of shares on which short term capital gains has arisen is ranging from 4 months upwards and insignificant amount of capital gain /loss has arisen on sale of shares within 1 months of its acquisition . The said statement which was filed by the assessee before authorities below and which remained uncontroverted by Revenue is as under:- Statement showing period of holding and percentage of gain for FY 2010-11 S.No. Period Gain/(loss) (In Rs.) % of Total Gain 1. Upto 1 week -28507 -0.027 2. Upto 1 Month 13875 0.0133 3. Above 4 Months 10739828 10.268 4. Above 5 Months 32009750 30.605 5. Above 6 Months 61855488 59.141 104590434 100.00 On the perusal of the frequency of the transactions which has led to earning of short term capital gains as is depicted in above charts, we are of the considered view that that assessee has made investments in shares and it could not be categorised that the assessee is trader in shares even though majorly the assessee earned capital ....
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....erm capital gain earned by the assessee. The assessee claimed to have made F&O purchases from NKB Securities on which loss of Rs. 7.38 crores was incurred. The assessee has outstanding of more than Rs. 7 crores payable to NKB Securities as at the year end i.e. 31-03-2010. The assessee dealt with said NKB Securities in F&O segment through out the year but the said broker party namely NKB Securities did not ask for the payments nor recovered the amount from margin money to recoup its losses and allowed losses to accumulate which is against the normal conduct of business at stock exchange which stipulate T+2 settlement period i.e. trade is to be settled with payment within two days from the date of trade . The business conducted at stock exchanges is highly regulated and controlled business by SEBI as well by stock exchanges. The business conduct of the assessee with NKB Securities in F & O segment is against the normal conduct of business at stock exchange and the onus is heavy on the assessee to prove that the said transactions are genuine. The Revenue made due inquires with NKB Securities by issuing notices u/s. 133(6) at their Bhopal and Mumbai addresses but the said notices retur....