TaxTMI 
TaxTMI 
2022 (8) TMI 346
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....hares held by the assessee as investment. The return was processed u/s. 143(1) of the Act and then selected for scrutiny assessment. 3. During the course of assessment proceedings, the Assessing Officer found that the assessee had sold shares mainly in one company namely Sintex Industries Limited (for short SIL). As on 01/04/2010, the assessee was holding 1,91,693 shares of SIL purchased before 31/03/2009. During the month of March 2010 assessee has purchased 32,76,952 shares of SIL and the same were sold between14/07/2010 to 19/07/2010. This clearly shows the assessee has traded in shares of SIL and earned huge profit and claimed the same as capital gain. Therefore, a show cause notice dated 19.02.2014 was issued to the assessee and was required to explain why the Short Term Capital Gain (STCG) of Rs. 22.36 crore should not be taxed as business income, since there was no business activity by the assessee other than these sale of SIL shares. 4. The assessee replied that it had made investment in shares of Sintex Industries Ltd. company only with a motive to hold it as investment and the shares had never been converted into stock-in-trade. The assessee was properly maintaining two....
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....two separate portfolios has been duly accepted by the department in the scrutiny assessment made for all the Assessment Years up to Assessment Year 2010-11. Thus for the present Assessment Year 2011-12, the Assessing Officer is not justified in treating the transaction of disposal of shares held as investment as "trading in shares" and thereby treating the short term capital gain as "income from business". On principle of consistency of approach, the Assessing Officer grossly erred in treating the surplus on sale of investments as income from the sale. In support of the same, the assessee relied upon various judgments of the Hon'ble Supreme Court and various High Courts. The assessee further submitted that it is an undisputed fact that as on 31/03/2010, the assesse company was holding 51,93,393 shares of Sintex Industries Ltd. as investment Out of the above said shares, the assessee company had sold of 32,76,952 shares in the month of July, 2010 and claimed as Short Term Capital Gain of Rs. 22,36,38,580/-. The STCG, which is arising on transfer of shares held as "investment" is chargeable to tax at the special rate prescribed u/s. 111A of the Act. However, the assessing officer err....
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....month of March 2010 @ 270.73/- to 289.02 and sold 3,46,699 Sintax share in the month of April 2010 @ 312.39/- to 313.48/-. Thereafter 12,07,351 and 3,52,343 shares were sold in the month of June and July 2010 respectively. Since the appellant was not following FIFO method so true picture of the transaction was not shown therefore the holding period was shown more than 2 years. 7.5 From the foregoing it is evident that the intention of the appellant at the time of purchase of the shares, is to earn large profit and not to hold the stock as investment. The appellant has only dealt in the share of Sintex as others investment is in private limited company. The book treatment given by the appellant is sham as most of the shares were purchases in the month of April and sold also in the same financial year and it appears that the appellant was having some inside information and was acting on the same. 7.6 The Appellant, as found out by the AO has resorted to borrowed funds for investments in shares. The investments are made out of the borrowed funds which facts is born out based on the records. The frequency of transactions in the case of the Appellant is too high. This fact is eviden....
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....ff against any other head. Thus the alternative ground is dismissed. 8. Aggrieved against the same the assessee is in appeal before us raising the following Grounds of appeal: 1. The learned Commissioner of Income Tax (Appeals) - 6, Ahmedabad ["the CIT(A)"] erred in fact and in law in confirming the order of Income Tax Officer, Ward-1(3), Ahmedabad ["the AO"] which is in fact bad in law and on contrary to the facts of the case. It is submitted that the same may be cancelled or suitably modified. 2. The learned CIT (A) erred in fact and in law in confirming the action of the AO of treating the short term capital gain of Rs. 22,36,38,580 as Income chargeable under the head "Profits and gains from Business or profession" and thereby computing tax at higher rate of 30% as against tax rate of 15% as provided under section 111A of the Income Tax Act, 1961. 3. The learned CIT (A) erred in fact and in law in confirming the action of the AO of treating shares held by appellant as stock-in-trade instead of the fact that shares were held by appellant were in nature of 'Investment' which are subject to tax as per provisions of section 111A /112 of the Income Tax Act, 1961, 4. ....
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....ares held as "Investment" and offered to tax as STGC cannot be charged as "Business Income". 9.2. The Ld.Counsel further relied upon the decision of the Coordinate Bench in the case of Jank S. Rangwalla vs.ACIT (2007) 11 SOT 627 (Mum) wherein it was held that the mere holding of large magnitude of shares as investment on year to year and the transaction of sale would not form the basis to determine the nature of the transaction. 9.3. Regarding Ground no. 4 namely computation of Gain/Loss as per First In First Out (for short FIFO). The Ld. A.R. submitted the Assessing Officer considered the entire sale transaction as business income and concluded that the assessee has not followed FIFO to determine the profits whereas the assessee is following FIFO method for accounting of shares. In fact the Short Term Capital Gain working given by the assessee as clearly adopted the FIFO method which was not considered by the lower authorities. 10. Per contra, the Ld.D.R. appearing for the Revenue strongly supported the order of the lower authorities and pleaded to confirm the addition made by the lower authorities. 11. We have given our thoughtful consideration and perused the materials avail....
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....pleted on 18.02.2013 accepting the return filed by the assessee. Thus, the assessing Officer cannot take a different stand for the present assessment year 2011-12. 11.1. The method of maintaining two portfolios is fully recognized under the accounting parlance and CBDT Circular No. 4 of 2007 dated 15/06/2007 recognized the same. This issue has been clarified by the Jurisdictional High Court in the case of Pr.CIT vs. Bhanuprasad D Trivedi (HUF) cited (supra) wherein it is held as follows: 3. Insofar as the first question is concerned, the Tribunal while confirming the view of the CIT (Appeals) referred to and relied upon the decision of Supreme Court in case of CIT v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 as also the CBDT circular dated 15.06.2007 highlighting that whether a particular holding of shares, 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 stock-in-trade and those which are held by w....
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....urities, whether the same is in the nature of a capital asset or stock-in- trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT') has also, through instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the tax payers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in ....
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....l remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. As it can be seen from the assessment order, the assessee is consistently taking the same stand of that the shares held as "investment" is offered for capital gains or loss. The Assessing Officer has not given any clear cut finding that the shares held as "stock-in-trade" were sold by the assessee and claiming capital gain. When this basic foundation is not being doubted by the Assessing Officer. The action of the A.O. treating the sale of shares held as "investment" by the assessee and offered the same for short term capital gain cannot be treated as business income. For the only reason that the assessee is not carrying out any business activity during this assessment year except the sale of shares. 13.1. This view of ours is supported by the Jurisdictional High Court in the case of Deepaben Amitbhai Shah vs. DCIT cited (supra) wherein held as follows: When assesses had made investment in shares as investor, income arising to assessee on sale of those shares would be assessable as 'capital gains', and not ....