Not keeping separate books together with frequent transactions means that gains from shares has to be assessed as business profits instead of as STCG

CIT vs. M/s D&M Components Ltd (Delhi High Court)

The AO and CIT(A) held that separate books were not used. Amounts were freely transferred from the profits gained to business and vice-versa. However, perhaps the single-most telling circumstance is the volume, frequency, duration (of holding) of the transactions. Apart from the above significant aspect, the AO and the CIT (A) observed that the assessee had been purchasing and selling a large number of shares of a few companies. It was also held that the transactions involved large or substantial sums of money. Whenever any share is purchased with the intention of investment, it cannot be sold off within a very short span of time, since the share market is always fluctuating. Since in the present case, very frequent purchase and sale of shares have been done it indicates that the main intention of the assessee was to earn income out of these shares which have been claimed to be under the head of short term capital gains. Having regard to the short duration of holding of the shares, and the lack of clarity in the account books, this Tribunal was wrong in assessing the gains as STCG instead of as business profits