M/S KANJI LILADHAR,MUMBAI vs. ACIT-12(1), MUMBAI

The assessee is a partnership firm engaged in trading and investment in shares. During the year under consideration it declared short term capital gain of ` 8,10,573/- and long term capital gain of ` 72,24,140/-. The Assessing Officer accepted the long term capital gain, but did not accept short term capital gain. He took the view that the frequency and volume of transactions in respect of short term capital gain were very high and assessee has carried out those transactions as a trader. Accordingly, he assessed the short term capital gain of ` 8,10,573/- as profit and gains of business and the same was 2 M/s. Kanji Liladhar also confirmed by learned CIT(A). Aggrieved, the assessee has filed this appeal before us.

The learned AR submitted that the assessee has maintained two separate portfolios namely one for trading activity and another for investment activity. He submitted that earlier years as well as in the subsequent years, the capital gain declared by the assessee has been accepted by the Assessing Officer. He submitted that the Assessing Officer has accepted capital gains in the assessment done u/s 143(3) of the Act for A.Y. 2004-05 and 2006-07.

The A.R further submitted that the assessee has not used any interest bearing borrowed funds for purchasing shares held as investment. He further submitted that the holding period ranges from four to ten months and the same shows that the assessee intended to hold the shares as its investment. The assessee has received dividend income of ` 5.26 lakhs from 119 companies, which also prove the intention of the assessee. He submitted that the assessee has dealt in shares of 52 companies during the year under consideration, whereas it had dealt in shares of 77 companies in A.Y. 2006-07. Accordingly, by placing reliance on the decision of Hon'ble Jurisdictional High Court in the case of Gopal Purohit (228 CTR 582), the learned AR submitted that short term capital gain declared by the assessee should be accepted. Learned AR further submitted that learned CIT(A) has given importance to certain repetitive transactions carried on by the assessee. Learned AR submitted that there is a time gap between one set of transactions and other set of transactions. Accordingly he submitted that the same should not be used to decide this issue against the assessee.

On the contrary learned Departmental Representative submitted that the volume and frequency of transactions were very high and hence the Assessing Officer has treated the assessee as a trader in shares. He submitted that the Assessing Officer has placed reliance on the decision rendered by the Mumbai Bench of the Tribunal in the case of Harsha N. Mehta Vs. DCIT (ITA No.

We have heard the parties and perused the record. The question as to whether a person has held the shares as an investor or trader is to be decided on the basis of various factors that were listed out by the Hon’ble Courts, which have also been summarized by the CBDT in its circular. In particular, the intention of the assessee at the time of purchase of shares has to be ascertained on the basis of surrounding circumstances. In the instant case, we notice that the assessee has maintained two separate portfolios, i.e., one for trading shares and another for investment shares. The Balance Sheet of the assessee shows the Investment separately. The assessee has not used any interest bearing funds for making investments. The holding period of the shares was also found to be reasonable. The very fact that the assessee has declared long term capital gains (which has since been accepted by the AO), in our view, support the case of the assessee that he has purchased the shares for holding them as investments. Hence, in our view, the short term capital gains declared by the assessee should not be doubted with, since they have been sold within a period of one year. Even though there is repetition of purchases, the Ld A.R demonstrated that the repetition has taken place in sets after considerable time gap. It was also stated that the capital gains declared by the assessee in the past has been accepted. Hence, we are of the view that there is no justification for not accepting short term capital gains in this year alone. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to assess the short term capital gains arising on sale of shares under the head “Capital gains”.

The next issue relates to the disallowance made u/s 14A of the Act. At the time of hearing, the Ld A.R did not press this ground in view of the smallness of the amount. Accordingly we dismiss the ground relating to the same.

The next issue relates to charging of interest u/s 234A & 234B. It is consequential in nature and hence requires no adjudication.

In the result, the appeal filed by the assessee is partly allowed.