AI Drafter 
TaxTMI 
TaxTMI 
2016 (7) TMI 1492
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....dated 05.02.2010 pertaining to A.Y. 2005-06. 4. The grievance of the Revenue is twofold;- (i) Treatment of profit arising out of the sale of shares under the head short term capital gains as against business income assessed by the A.O. and (ii) Deletion of the addition made u/s. 68 on account of unexplained cash credit of Rs. 20 lakhs. 5. While scrutinizing the return of income, the A.O. found that the assessee has disclosed income of Rs. 4,04,21,395/- on account of sale of shares under the head short term capital gains. The A.O. found that the total purchases of shares were at Rs. 23,11,60,762/- and the sales were at Rs. 20,78,12,094/- . The A.O. further found that the shares in hand at the end of the financial year were valued at cost. The A.O. noticed that the assessee has obtained unsecured loans of Rs. 15,21,48,804/-. The A.O. was of the firm belief that the borrowed funds have been utilized for the purchase of shares and, therefore, issued a show notice to the assessee to explain why the surplus from the sale of shares be not treated as business income. Assessee filed a detailed reply explaining why the surplus should be treated under the head capital gains. 6. The d....
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....res is by way of investment or forms part of the stock-in-trade is a matter which is -within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-intrade and those which are held by way of investment" 11. The CBDT has further thrown light on this controversial issue in its Circular No. 6/2016 dated 29.02.2016 and the same reads as under:- Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income - Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of the income-tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capita! assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in sh....
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....is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 12. Considering the facts in hand, in the light of the aforementioned circular of the Board, in our considered opinion, the intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an investor and showing the shares as investment, we do not find any reason to disturb the intention of the assessee. The assessee under consid....
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....concluded by observing that the A.O. totally ignored that the figures in the balance sheet was taken at net that is the differential amount of the debits and credits in the grouping under the head sundry debtors. The ld. CIT(A) was convinced with the genuineness of the loan amount and accordingly deleted the addition of Rs. 20 lakhs. 19. Aggrieved by this, the revenue is before us. The ld. D.R. relied upon the findings of the A.O. The ld. counsel for the assessee reiterated what has been stated before the lower authorities and relied upon the same set of documents which were considered by the First Appellate Authority. 20. We have given a thoughtful consideration to the orders of the authorities below. We find that the assessee has successfully discharged the onus cast upon him by virtue of Section 68 of the Act. Documentary evidences on record show that the identity of the creditor, genuineness of the transaction and the capacity of the lender have been successfully established by the assessee. The First Appellate Authority have thoroughly examined the evidences on record and the ld. D.R. could not point out any fallacy/flaw/error in the findings of the First Appellate autho....
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....ich could show that the purchase of shares were not at the prevalent market price, the shares so purchased were transferred to the demat account of the assessee from where they were sold. The mode of acquisition would not be a factor to decide the nature of transaction. Under this alleged modus operandi, (in the case of Smt. Rupal Naresh Panchal), the assessee could procure large number of shares, but that would not change the character of transaction from investment to trader. Further, there is no evidence with the Revenue to establish the nexus. There is no evidence on record which can demonstrate that the assessee has colluded with Smt. Rupal Naresh Panchal in a manner that would indicate that shares were acquired for the purpose of trade. Such nexus has not been established. The observations of the revenue authorities are only inferential without any concrete material in the possession of the A.O. 29. In our considered opinion, the activity of the assessee by virtue of mode of acquisition of shares cannot be segregated into two parts. The First Appellate Authority has erred in creating an artificial distinction only on the basis of mode of acquisition. 30. We have no hesi....