The AO held the assessee to be a trader in shares & assessed the gains as business profits on the ground that (a) there was high frequency & sale transactions, (b) there were instances where delivery was not taken and shares were sold within a short period, (c) 88% of the shares sold were purchased during the year and (d) the available capital was turned over 85 times to make purchases of Rs.23 crores & sales of Rs. 29 crores. This was confirmed by the CIT (A). On appeal by the assessee, HELD allowing the appeal:
Sometimes a single transaction is split by the computers trading of the stock exchanges into many smaller transactions but that does not mean that assessee has carried so many transactions. If someone places an order for purchase of 500 shares and the same is executed by the electronic trading system of stock exchange into 50 smaller transactions, it does not mean that 50 transactions have been entered into. It has to be treated as one transaction only.
Intent of the Assessee can be known from the fact that despite increase in market value of shares at year end by more then 50% he haven’t sold the shares. At the end of the year, the assessee was holding shares worth Rs. 11.56 crores with a market value of Rs.17.69 crores. If assessee was a trader, he would have definitely realized the huge profit of almost Rs. 6 crores immediately and not carried out the stock to the next year.
No delivery transactions which were settled on the same day appear to be cases where the particulars were wrongly carried out on behalf of the assessee by the broker & that’s why assessee got them settled on the same day;
The assessee has not borrowed any money and he was occupied full time in the business of garments;
In identical circumstances in the case of the assessee’s sister, the Tribunal had decided in favour.
CITATION
Mr. Nehal V. Shah vs. ACIT
ITA. No. 2733/Mum/2009
Assessment year 2005-2006
ORDER
PER T.R. SOOD, A.M.
1. In this appeal various grounds have been raised. But only dispute before us raised by the assessee is that learned CIT(A) erred in confirming the short term capital gain of Rs. 1,07,70,524/-.
2. The assessee is engaged in the business of garments manufacturing and exporting garments and was also making investments in shares. During the assessment proceedings it was noted by the Assessing Officer that the assessee had shown short term capital gain of Rs. 1,07,70,524/-. On enquiry, it was stated before him that assessee was engaged in the business of manufacturing and exporting of garments through a firm viz., M/s. Zen Clothing Co. where assessee was a working partner. Assessee was also a Director in a company known as Chanakya International (P) Ltd. which was also engaged in the business of export of garments. It was stated that assessee is only an investor and has not borrowed any money for investing shares. Further assessee was not very much experienced in the share line. Therefore, assessee was also taking services of portfolio management service provider. Most of the investments were had for more than one year and assessee had earned dividend income also.
The Assessing Officer did not find force in the submissions and observed that assessee had entered into total 127 purchase transactions and 83 sale transactions which is a very high frequency. No investor indulged in such high frequency of transactions. It was further observed that in the following transactions assessee has not taken even the delivery and the shares was sold immediately.
