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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE I KUL BHARAT & HONBLE MANISH BORAD
PER MANISH BORAD.
The above appeal filed at the instance of revenue and Cross Objection filed by the assessee pertaining to Assessment Year 2008- 09 are directed against the orders of Ld. Commissioner of Income Tax
Rajeev Choudhary ITA Nos.293/Ind/2012& C.O.No.65/Ind/2012
(Appeals)-I (in short ‘Ld.CIT(A)’], Indore dated 05.03.2012 which are arising out of the order u/s 147/143(3) dated 21.12.2010 framed by ACIT-2(1), Indore.
The grounds raised by the revenue are as under;
I TA No.293/Ind/2012, Assessment Year 2008-09
“On the facts and in law and in the circumstances of the case the Ld.CIT(A) erred in :- 1. The Ld. CIT (A) has erred in treating the income of Rs. 118,57,282/- earned from sale and purchase of share as STCG instead of business income without considering the magnitude, intention, frequency of transactions which reflects modus operandi of assessee of share business as an adventure in the nature of trade. 2. The Ld CIT (A) has erred in not appreciation the fact that assessee has purchased shares of a very large amount of Rs. 12,02,54,365/- and sold the shares for Rs. 14,20,85,990/- . These figures themselves speak which is the prime activity and that is the dominant intention of the assessee. The magnitude of share transaction is on so higher side that it cannot be said that main activity of the assessee was of doctor's profession. 3. Appreciating the assessee's version that he is a leading eye surgeon having no time for carrying out share business and share business is not of his line, it may be mentioned that it is not necessary that a person should engage physically for carrying out such business that to when the assessee is having time for doing speculative business”.
The grounds raised by the assessee are as under;-
C.O. No.65/Ind/2012 (Assessment Year 2008-09)
On the facts and circumstances of the case and in law the Learned CIT- (A) appreciating the submissions made before him was fully justified in treating the addition of Rs. 1,18,57,282/- earned from sale and purchase of shares transactions as short term capital gain instead of adventure in the nature of trade as business income with considering the magnitude, 2
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dominant intension and nature of shares transactions as an investment. a) On the facts and circumstances of the case and in law the Learned CIT- (A) appreciating the submissions made before him was fully justified in treating the investment in shares and debentures of Rs. 4,02,19,282/- from his own funds like other investment in PPF and fixed deposits, it would make no difference even if the transaction is a single, multiple or isolated. b) In the assessee's case the transactions are outside the line of profession of medical. The character of the transaction cannot solely be determined upon the application of any abstract rule, principle or test but must depend upon facts and circumstances of the case. c) It is further submitted that the investment in shares/debentures with a view to realize better price, without anything more, is consistent with the realization of capital investment and surplus received by the assessee will not be trading or business profit. 02. That the learned CIT(A) has confirmed the disallowance made by the learned AO of Rs. 2,15,542/- by invoking the provision of section 14A to be read with Rule 8D of IT Rules, 1962 without pointing out his dis-satisfaction for claim of expenditure incurred by the assessee for earning dividend income of Rs.4,37,354/-. Looking to the facts and circumstances of the case, the appellant provided full details of expenses at Rs. 5,27,267/- out of which is already disallowed of Rs. 66,700/- for long term capital gain which does not form part of total income. Further disallowance of Rs. 2,15,542/- out of dividend income of Rs. 4,37,354/- for which assessee has not incurred any expenditure direct or indirect in relation to dividend income which is not form part of total income. It is therefore prayed that the appeal so filed by the Department may kindly be dismissed as there is no merit in the appeal so filed”.
Brief facts as culled out from the records are that the assessee is an individual and practicing as a Doctor under sole proprietorship concern M/s. Chaudhary Eye & Retina Research Centre. E-return of income filed on 29.05.2008 declaring total income of Rs.3,14,17,278/-. Case was selected for scrutiny and necessary notice u/s 143(2) of the Act was duly served upon the assessee.
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During the course of assessment proceedings Ld. Assessing Officer in short ‘Ld.AO’) observe that the assessee apart from earning professional income by running M/s. Chaudhary Eye & Retina Research Centre has also earned substantial income from purchase and sale of equity shares which included Long term Capital Gain at Rs.35,22,054/- and Short Term Capital Gain at Rs.1,18,57,282/-. Ld. Assessing Officer was satisfied with the claim of long term capital gain of Rs.35,22,054/-. The Ld. Assessing Officer examined in detail about the profit from purchase and sale of equity shares at Rs.1,18,57,282/- by calling necessary details of the equity shares purchased and sold and financial ledger for the transactions carried out during the year. After going through submissions made by the assessee as well as facts available on record Ld. AO came to a conclusion that the alleged profit of Rs.1,18,57,282/- is a profit from running of share business which is in an adventure in the nature of business and the assessee has wrongly claimed the benefit of lower tax rate by showing it has short term capital gain. Ld. Assessing Officer also made disallowance u/s 14A of the Act at Rs.2,15,542/-. Accordingly, the income of the assessee was assessed and computed in the following manner:
STCG shown in return to be treated as Business Income 1,18,57,282/- Add: Expenses not allowable pertaining to LTCG claimed exempted as per note above 66,700/- 1,19,23,982/-
With the above remarks the total income is computed as under:
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A) Profit and Gains of Business or Profession 1,78,51,212 B) Profit and Gain of Speculation Business 72,551 C) Income from Short Term Capital Gain Treated as business income as discussed above 1,19,23,982 D) Income from other sources a) Dividend income not exempted As discussed above 2,15,542 b) Income from interests 18,19,034 c) Winning from Lotteries etc. 500 d) Minors, Total Income clubbed 9,386 20,44,462 Gross Total Income 3,18,92,207 Less: a) Deductions u/s 80-C 1,00,000 b) Deductions u/s 80-G 20,500 (-) 1,20,500 Total Income 3,17,71,707/- Rounded off 3,17,71,700/- Income assessee under section 143(3) of IT, Act, 1961 at Rs.3,17,71,700/-
Aggrieved assessee preferred an appeal before the ld. CIT(A) and partly succeeded as Ld. CIT(A) confirmed the disallowance u/s 14A of the Act at Rs.2,15,542/- and allowed the assessee’s claim of profit from purchase and sale of equity shares held for less then one year at Rs.1,18,57,282/- as short term capital gain.
Aggrieved revenue is now in appeal before the Tribunal against the finding of Ld. CIT(A) whereas the assessee has raised cross objection raising two issues; firstly supporting the finding of Ld. CIT(A) relating to claim of short term capital gain from purchase & sale of equity shares and also raised ground against the disallowance confirmed by
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the Ld. CIT(A) u/s 14A of the Act at Rs.2,15,542/-.
We will fist take the Revenue’s appeal wherein sole issue raised is against the finding of Ld. CIT(A) treating the income of Rs.1,18,57,282/- as profit from purchase & sale of shares as short term capital gain instead of business income without considering the magnitude, intention, frequency on transactions which reflects modus operandi of the assessee of share business as adventure in the nature of trade.
Ld. Departmental Representative (DR) vehemently argued supporting following findings of Ld. Assessing Officer:
“The submission of the assessee has been duly considered in reference to the - circular of the CBDT no. 4/2007, but not accepted because of the following reasons:- (i) The assessee is deriving income from the F & 0 as well as speculation share trading which are purely business income. The person who is in the Trading never can be an investor because by the pattern itself it is difficult to distinguish the Short Term Capital Gain and business trading in shares. (ii) The frequency of the transactions are also against the assessee. The sale value of the shares are in crores, the number of scrips are huge and by no stretch of imagination it can be said as "Investment". Therefore in totality of the facts and the circumstances the STCG shown of Rs. 1,18,57,2821- is treated as Business income from share trading. I am also satisfied that the assessee has submitted inaccurate particulars which attract penalty u/s271 (1)( c). Accordingly penalty u/s 271 (1 )(c ) is initiated. The above issue is also dealt by the Hon'ble ITAT, Mumbai in two recent cases and held as under :- (A) Sadhana Nabera vs. ACIT (ITAT Mumbai) dated 2510512010
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Tests laid down to determine whether income from shares is "business" income or "capital gains"
The assessee, a director and shareholder in a company engaged in share trading, returned income of Rs.78,89,499 earned by her on transfer of shares as a "short-term capital gain". The A 0 took the view that as there were voluminous transactions, the assessee was engaged in share trading and the income was assessable as "business income". This was upheld by the CIT (A). On appeal, HELD dismissing the appeal: (i) The legal principles are well settled viz. that:
(a) Whether a transaction of sale and purchase of shares is a trading or investment transaction is a mixed question of law and facts,
(b) It is possible for an assessee to be both an investor as well as dealer in shares, (c) Whether a particular holding is by way of investment or of stock-in-trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares held as investment and those held as stock-in-trade,
(d) The treatment in the books by an assessee is not conclusive and if the volume, frequency and regularity at which transactions arc carried out indicate systematic and organized activity with profit motive then it becomes business profit not capital gain,
(e) Purchase with intention to resale can constitute capital gains or business profit depending on circumstances like quantity of purchase and nature of activity,
(f) No single fact has any decisive significance and the question must be answered depending on the collective effect of all relevant material brought on record.
(ii) These principles have to be applied to the following facts:
(a) The assessee entered into transaction of purchases and sale of shares of about 32 companies totalling Rs. 1,87,83,440 which were sold for Rs.2,69, 71,368. Though most transactions were effected by actual delivery, the holding period was less than 6 months. Most of the gain was earned in shares held for a period for short periods;
(b) In the earlier years the assessee has nil or small long term
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capital gain which indicates that holding investments for a longer period is not the main intention except few scrips which are carried over without any transactions year after year. Accordingly to the extent of investment activity in shares one can see that the assessee has invested in some 5 to 6 companies scrips which have been carried over from year to year in which there are no frequent or large number of transactions and these investments in shares can be considered as assessee's proper "investments";
(c) Purchase and sale of shares in short period indicates that the assessee purchased the shares with a motive to earn profit in short period;
(d) The assessee borrowed funds to purchase shares;
(e) The dividend received was meager;
(iii) These facts indicate that the intention of the assessee was to gain profits by dealing in short term period only. Consequently, the income from sale of shares was assessable as "income from business" and not "short-term capital gains"; (8) Jayshree Pradip Shah vs ACIT C-25(2)
I. T.A No. 360BIMuml07 (Assessment Year: 2004-05) dated 24th Feb. 2010
Keeping in mind, the above broad principles, we shall now examine the case of the assessee. The assessee during the previous year had entered into transactions of purchase of shares of about 200 companies totaling to Rs. 1,01,51,786/- and all those shares were sold for a value of Rs. 1, 10,45,798/-. The above transactions were effected by actual delivery of shares at the lime of purchase and sale. Besides such transactions, the assessee had also entered into transactions of purchase and sale of shares where there was no actual delivery. The net profit after expenses, on such transactions was Rs. 36.503/-. Both the aforesaid transactions were in respect of transaction of purchase and sale of shares where the holding period was less than 12 months. The profit on transaction and sale of shares where there was no delivery was offered to lax by the assessee as speculative income under the head business income. The income from other transactions where there was actual delivery was claimed by the assessee to be STCG. Such transactions were about 800 number during the previous year. The maximum holding period was from 1 day to maximum 6 month. The conduct of the assessee in showing income from delivery based
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transactions as STCG and non delivery based transaction as business income only shows that but for actual delivery even income from income from those transaction would have been considered as speculative income and business income. In other words the nature of speculative transactions have been considered by the assessee herself 10 constitute business. The income from delivery based transactions arc sought to be projected as STCG only because: there was actual delivery and because they were shown as investments in the books of accounts of the assessee. We arc of the view that the above two aspects will not make any difference to the nature of transaction where delivery is effected considering the other facts prevailing the case of the assessec viz.,
(a) The volume and frequency of the' transactions which were about 800 in number where the holding period was between minimum of 1 day to maximum o( 6 months.
(b) Shares of more than 200 companies had been bought and sold by the assessee during the previous year.
(c) The volume of purchase and sale (delivery based) of the assessee during the previous year was Rs. 1,01,51,786/ and Rs. 1,10,45,798/- respectively. The value of investment as on 31.3.2004 was only Rs. 11,14,054/-.
(d) The purchase and sale of shares was the only activity of the-assessee.
(e) The period of holding being very short it is reasonable to presume that the purchase was made with an intention to resell.
(f) The scale of activity is substantial.
(g) The transactions were continuous and regular besides being systematic.
(h) Borrowed funds had been used for purchase of shares Learned counsel for the assessee's contention that borrowed funds were used to buy immovable property remains unsubstantiated and the findings of the Assessing Officer to the contrary should therefore prevail.
(i) Substantial time devoted by the assessee to the activity of purchase and sale. In fact, the only source of income in the profit and loss account is from purchase and sale of shares.
(j) All the shares sold and purchased arc of listed companies.
(k) Composition of the dividend income is meager, which goes to show that
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the assessee never locked for returns from investments.
In the light of the above circumstances prevailing in the case of the assessee we are of the view that the conclusion of the revenue authorities that the income from sale of shares declared by the assessee as STCG is income from business is correct and calls for no interference.
Per contra Ld. Counsel for the assessee has made following written submissions:
“02. Regarding short term/long term capital gain.
Assessee made investment in shares and treated the same as capital gains both long term and short term capital gains was earned. Income from non delivery transactions was offered as business income. AO treated short term capital gain as business income holding that all though assessee dealt in limited number of shares, but the volume of transactions was high. No funds were borrowed for making investment in shares and dividend earned on the same. These fact not been disputed by the AO. It would make no difference even if the transaction is a single, multiple or isolated.
The character of the transaction cannot be solely be determined upon the application of any abstract rule, principle or test but must depend upon facts and circumstances of the case. He does not deal in the purchase and sale of shares daily or regularly like traders. He has not absorbed himself in the business of shares. He purchase and sale shares it and when advised by the experts and brokers.
The ratios of this case are similarly with the case of Assistant Commissioner of Income Tax Vs. Shri Sanjay Soni (2012) 20 IT] 454. Held by the ITA T Indore Bench, Indore is in favour of the assessee. The photocopy of the same has already been filed. The ITAT Indore Bench, Indore applying the judgment of CIT Vs. Shri Omprakash Suri (2012) 19 IT] 326 (MP) .. Held that assessee invested to earn dividend - No funds were borrowed for making investment - Income is treated as short term capital Gains.
Similarly, assessee's have two port folios, one for investment and other for share trading. Since period of holding of investment in shares is less than one year, capital gain is to be treated as short term.
As already stated in our earlier submission the consistency is observed by the Department in the case of assessee right from A.Y. 2001-02 has to be followed. In all these previous years losses/income from purchase and sale 10
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of shares has been treated by the Department as capital loss/gain. He. has. handsome money. He tries his luck by making investment in shares in good quantity. He has adopted the mode of investment in shares because money invested therein is readily realizable, without any efforts.
The assessee's shares activity treated as investment in earlier years cannot be treated as business in subsequent year if facts are the same. Reliance is placed on the decision of High Court of Bombay in the case of Commissioner of Income Tax Vs. Gopal Purohit Income Tax Appeal No. 1121 0/2009 dated 06.01.2010.
It is therefore submitted that the order of the CIT(A) be upheld and appeal of the Department be dismissed and cross objection of the assessee be allowed.
He further submitted that
On perusal of balance sheet filed by respondent from A. Y. 2002-03 to A.Y. 2011-12, you will appreciate the facts that the assessee is always making investments as under: i) Shares. and debentures. ii) Public Provident Fund. iii) Fixed Deposits.
Financial Shares./ Debenture PPF Fixed Deposit Year
2001-02 75,94,928 2,21,860 16,68,920 2002-03 81 22637 322757 18,09,668 2003-04 74,75,564 4,19,888 -- 2004-05 1,91,63,008 5,27,212 1,63,92,724 2005-06 3,42,86,111 6,43,589 41,25,229 2006-07 4,66,25,677 7,66,009 -- 2007-08 4,02,19,282 8,97,290 2,58,81,088 2008-09 3,18,64,816 10,37,064 7,05,07,582 2009-10 3,27,45,371 11,90,869 7,54,71,050 2010-11 9,98,77,183 13,55,639 3,06,37,308 2011-12 9,91,15,979 15,65,801 3,03,19,554
Statement of Dividend, PPF interest, FUR Interest and Long Term & Short Term Gain & Long Term Short Term Gain
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F.Y Dividend PPF F.D. Long Term Short Term Income Interest interest Gain Gain 2001-02 13,289 21,860 67,322 -- 31,40,245 2002-03 1,76,589 40,897 1,40,746 -- (-)49,13,018 2003-04 3,69,254 27,131 8,150 -- 63,18,449 2004-05 2,42,162 37,324 3,92,724 15,97,049 1,02,38,693 2005-06 1,23,550 46,377 2,38,676 97,48,386 32,29,256 2006-07 3,29,368 52,420 99,339 13,67,339 32,79,855 2007-08 4,37,354 77281 17,90,494 35,22,054 1,18,57,282 2008-09 6,33,223 71,274 5612 179 (-)25,31,605 8,89,162 2009-10 14,05,361 84,805 65,84,736 (-)21,92,310 33,03,469 2010-11 6,61,670 95,270 59,08,981 85,35,041 2,83,525 2011-12 4,59,287 1,11,162 28,68,793 (-)5,03,234 7,98,900
Statement regarding professional income short term gain and investment in shares during the years relevant to A.Y. 2003-04 to A.Y. 2008-09. S.No. A.Y Professional Income from Investment in Income(Rs.) Shares shares (Rs.) (STCG)(Rs.). 1 2203-04 61,04,167 (-)49,13,018 78,34,600 2 2004-05 65,73,595 63,18,449 69,84,657 3 2005-06 63,90,950 82,88,624 1,65,21,224 4 2006-07 85,00,933 32,29,256 3,57,14,124 5 2007-08 87,85,201 32,79,854 4,66,25,676 6 2008-09 1,78,51,212 1,18,57,282 4,02,19,282
The nature of transaction of sale and purchase of shares has remained the same year after and the assessee has consistently shown them as investment. After considering the above statement CIT(A) "it was considered as his investment", Held that purchases of shares were made by his own savings. So that, income from purchase and sale of shares by the assessee deserves to be treated as short term capital gain only. It is mentioned in CIT(A) order dated 30. 05.2011 on page No. 12 to 13.
On the facts and circumstances of the case and in law the learned CIT(A) appreciating the submissions made before him was fully justified in treating the addition of Rs. 1,18,57,282/- earned from sale and purchase of shares transactions as short term capital gain instead of adventure in the nature of trade as business income with considering the magnitude, dominant intension and nature of share transactions as an investment. It is submitted that the point has been discussed by learned CIT(A) in para 2.2, 2.3, 2.4, 2.5 & 2.6 .. The assessee is relies on the same.
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As already stated above the consistency is observed by the Department in the case of assessee right from A.Y. 2001-02 to 2007-08 except in the A. Y. 2004-05 reopened the case u/s, 147 of IT Act. In all these previous years losses/income from purchase and sale of shares has been treated by the Department as capital loss/gain. The said issue has already been decided by the learned CIT(A) in the assessee's appeal no. IT-283/2009-10/40 dated 30.05.2011 in favour of the assessee. The department has been filed the appeal against the CIT(A) order for the A.Y. 2004-05 before ITAT Indore Bench, Indore which is pending for order.
Moreover following points needs attention:-
The assessee is renowned Eye surgeon and all the time he is busy in his profession. He does not have any business at all. He has earned money in profession which he invest by way of fixed deposits in the banks and also purchased and sale of shares of various Indian Companies.
ii. He does not have any shop/office for trading in shares. He does not deal in the purchase and sale of shares regularly. It would make no difference even if the transaction is a single, multiple or isolated.
iii. He has not absorbed himself in the business of shares. He purchase and sale shares it and when advised by the experts and/or brokers, so that he may invest his own money profitably. For this purpose he does not borrow money from other persons.
iv, He has handsome money. He tries his luck by making investment in shares in good quantity. The CIT(A) has already given the details of his investments from A.Y. 2003-04 to 2008-09 on page no. 11 of the order.
v. He has adopted the mode of investments in shares because money invested therein is readily realizable, without any efforts.
vi. The character of the transaction cannot solely be determined upon the application of any abstract rule, principle or test but must depend upon facts and circumstances of the case.
vii. It is further submitted that the investment in shares/debentures with a view to realize better price, without anything more, is consistent with the realization of capital investment and surplus received by the assessee will not be trading or business profit.
Reliance is placed on ITO vs. Rohit Anand (2009) 34 SOT 42 (Delhi) and CIT vs. H.R. Stock Holdings Ltd. (2010) 33 DTR (Del.) 117.
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The main objection of the learned AO is that "assessee has purchased shares of very large amount of Rs 12,02,54,365/- and sold the shares for Rs, 14,20,85,990/-. These figures themselves speak transaction is on so hire side so that it cannot be said main activity of the assessee was of doctor's profession."
i. The most of the share transactions routed through Demate account with State Bank of Indore. The copy of Demate account regarding investment in shares have already been filed before AO during the course of assessment proceedings,
ii. The assessee has treated the entire investment in the shares as an investment only and not as stock-in-trade. Another important aspect to be considered here is that the assessee is not a share broker not is he having a registration with any stock exchange. The assessee invested his own money in shares/debentures. The appellant has not borrowed any money for investing in shares and used his own surplus funds and these fact not been disputed by the AO .
In this connection the following papers/documents are as under :-
a. Summary of short term gain on share transactions company wise is on page . 10 to 23 of paper book.
b. Ledger copy of investment in shares and sale of shares during the year under consideration is on page 2.4 to 48 of paper book.
c. Balance sheet and profit & loss account for the year ending 31 st March, 2008 is on page 49. to 51 of paper book.
The learned CIT(A) is justified holding that the income derived by the assessee from the share transactions is a short term capital gain.
The ratios of this case are similarly with the appellant's case held by jurisdictional Hon'ble High Court in the case of CIT Vs. Shree Om Prakash Sur; (2012) 191TJ 326 (M.P.).
Held - "that assessee invested to earn dividend - No funds were borrowed for making investment - Income is treated as short term capital gain"'.
The ITAT Indore Bench, Indore applying the judgment of CIT Vs .Om Prakash Suri; (2012) 19 ITJ 326 (M.P) is In favour of assessee in the following cases:-
(1) Commissioner of Income Tax Vs. Sanjay Soni (20.12) 20. IT J 454.
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(ii Shri Manish Karwa Vs. ACIT - 5(1), Indore I.T.A. No. 3o.711nd12,Qo.9 order dated 20.12.2013
(iii) Shri SushilKarwa Vs. ACIT - 5(1}, Indore. I.T.A. No. 3o.811nd/2Qo.9 order dated 20.12.20.3
(iv) Smt. Sudha Karwa Vs. ACIT - 5(1), Indore I.T.A. No. 3o.9/1nd/2o.o.9 order dated 20.12.2013
(v) Shri Vishnu Karwa Vs. ACIT - 5(1), Indore I.T.A. No. 31o./lnd/200.9 order dated 20.12.2013
(vi) Shri Subhashchand Karwa (HUF) Vs. ACIT - 5(1), Indore I.T.A. No. 3·11/1nd/2o.o.9 order dated 20.12.2013
(vii) Shri Sushil J. Karwa (HUF) Vs. ACIT - 5(1), Indore I. T .. A. No .. 312/1nd/2.o.o.9 order dated 20.12.2013
(viii) Shri Mukesh Karwa Vs. ACIT - 5(1), Indore I.T.A. No. 313/1ndJ2o.09 order dated 20.12.201i3
(ix) Shri AnQOp Karwa Vs .. ACIT - 5(1), Indore I.T.A. No. 314/1nd/2o.09 order dated 20.12.20.13
(x) Shri Ashish Karwa Vs. ACIT .. 5(1), Indore I.T.A. No. 315/1nd/2.o.o.9 order dated 20.12.20.13
(xi) Smt. Ani Karwa Vs. ACIT - 5(1), Indore I.T.A. No .. 3461lnd/2o.o.9 order dated 20.12.20.13
(xll) Smt. Suvarna Karwa Vs. ACIT - 5(1), Indore I.T.A. No. 347/1ndJ2o.09 order dated 20.12.20.13
(xiii) Smt. Mathura Devi KalWa Vs. ACIT - 5(1), Indore I. T.A. No. 348/1nd/2o.o.9 order dated 20.12.2013
Hon'ble ITAT Mumbai Benches "E", Mumbai in the case of ACIT - 19 (3), Mumbai Vs. Shri Sachin R. Tendulkar, ITA No. 3217/Mum/2014 for the A.Y. 2010-11 and ITA No. 1411!Mum/2015 for the A.Y. 2011-12 dated 25.01.2017 in favour of the assessee. In the result, appeal is filed by the Revenue are dismissed regarding income from capital gains. The copy of the same is on page 52 to 80 of paper book.
It is therefore submitted that the order of the CIT(A) be upheld and appeal of
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the Department be dismissed and cross objection of the assessee be allowed. 10. We have heard the rival contentions, perused the record placed before us and have carefully gone through the judgments referred and relied by the Ld. counsel for the assessee. Issue before us raised by the Revenue is that whether the income of Rs.1,18,57,282/- from sale/purchase of shares earned by the assessee during the year is to be taxed as short term capital gain or as a business income.
Submissions made by the Ld. counsel for the assessee mainly indicates that the assessee is a renowned eye surgeon and all the time he is very busy in his profession. He invests his professional income in fixed deposits and equity shares. He has not borrowed any money for investing in the equity shares. He is consistently showing the profits/loss from purchase/sale of equity shares under the head capital gain since last many years. Investment in the share has been disclosed as investment and not as stock in trade. The reliance has been placed on plethora of judgment in support of its claim that the impugned income of Rs.1,18,57,282/- has been rightly shown as short term capital gain.
It is an established fact that the issue relating to taxability of gain/loss from purchase/sale of equity shares is purely a matter of fact and the treatment of such gain/loss can be decided only on the basis of the facts of the particular assessee. Though the Ld. Counsel for the assessee has relied on many judgments but in our humble view the decision cannot be applied squrely on the facts of the
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assessee. Though the facts before the Hon'ble High Court of Bombay in the case of ITO vs. Gopal Purohit are similar to a considerable extent but the view cannot be applied on the facts of the assessee because it does not fulfill the rule of consistency. In the case of assessee in the preceding year there was meager income from purchase and sale of equity shares which considerably increased from year to year with the fact that the assessee also start share trading business as well as trading of future & options (F&O). For this very reason the rule of consistency cannot be applied. Even otherwise the case of assessee was never subject to scrutiny for examining this issue of purchase and sale of shares and it was only for A.Y. 2004-05 that the case was reopened and the assessing officer therein has decided that the gain from purchase and sale of shares held for less then one year is to be taxed as business income. Therefore, we are inclined to adjudicate the issue raised before us by the Revenue purely on the basis of the following facts of the instant appeal emerging from perusal of the records:-
a. Paper book page 117 reveals that the assessee sold securities worth Rs. 12,41,10,593/- and claimed deduction for purchase valuing at Rs.11,17,26,044/- and cost of transfer at Rs.5,27,267/-.
b. In the audited profit and loss account appearing at page 50 of the paper book dated 23.05.2018, equity shares held as on 1st April, 2007 have been shown under the head opening stock along with purchase of Rs.12,02,54,265/-, sales at Rs.14,20,85990/- and
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closing stock at Rs.3,99,59,591/-.
c. On the income side of the profit and loss account along with opening stock, purchases sales and closing stock of equity shares, income from dividend, assessee has also shown profit from share trading byway of profit and loss from future & option (F & O) transactions, Profit and loss account JMMSFS Ltd. F & O, shown under the head share trading, profit/loss. It shows that the assessee is suo moto accepting that regular business transactions of share trading are carried out by him.
d. The profit and loss account has been audited by Chartered Accountant firm in order to certify the transactions shown under the head opening stock, purchase direct expenses, indirect income, share trading profit, F & O profit and closing stock.
e. Moving on to the frequency of transactions carried out during the year ledger account of investment in shares purchases placed at pages 24 to 39 of the paper book dated 23.05.2018 shows that approx. 288 transactions took place for the purchase of equity shares which have been carried out throughout year. Similarly, around 162 transactions for sales have been entered with various share brokers including Arihant Capital Market Ltd., J.M. Finance P. Ltd. etc. Undisputedly the assessee had entered into multiple transactions for various listed companies however in the case of BOC India Ltd. around 70 transactions of sales took place during the year and the assessee purchased 1,07,640 equity share valuing at 18
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Rs.1,58,73,054/- and sold the equity shares of the same quantity. In the case of Escorts Ltd. 253934 equity shares were purchased and sold during the year on 52 occasions. In case of Fortis Health Care Ltd. 1,88,690 equity shares were purchased and sold scattered over on 31 transactions.
The above given facts have nowhere during the course of proceeding before the lower authorities as well as before us have been disputed by ld. counsel for the assessee. The picture which can be framed in the light of the above facts shows that though the assessee has not borrowed the money for investing into the business but apart from that all other basic feature of carrying on regular business have been performed by the assessee. It has nowhere been pleaded that the assessee has kept designated employee/portfolio manager to take care of investments. Therefore, all these huge number of transactions of regular purchase/sale of equity shares of various listed companies share trading transactions have been carried out by the assessee himself. The assessee has also earned income from future and option transactions of equity shares which itself infer that the assessee is into business of share trading.
Such issues of taxability of gain from equity shares whether being short term capital gain or business income arises for the difference in tax rates applicable to both of such incomes. Short term capital gain is taxable @ of 10% if gain is generated from sale of listed securities. In the instant case also the issue being the same
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where focus before us is to examine that “whether the gain from purchase/sale transactions carried out by the assessee round the year of listed equity share is to be taxed under the head of short term capital gain @ 10% or as business income. It has been pleaded before us that assessee is showing the equity shares under the head investments and is also eligible to maintain multiple portfolios one in the investment in equity share and other for the purpose of business.
It is observed that the assessee is maintaining the details/records of purchase/sale of equity shares as if it is running a business. It is consistently maintaining the books of account showing the details of equity shares under the head opening stock, closing stock, purchases & sales and gross profit which is a regulars real feature of showing the business transactions. Normally there is no requirement to get audited the gain/loss from purchase and sale of equity shares claimed under the head short term capital gain by an auditor but the assessee has disclosed all the transactions relating to equity shares under the head profit and loss account and got it certified by the auditor.
Frequency of transactions also plays vital role in examining taxability of such transactions. Though it is pleaded that the assessee is a very busy Doctor engaged in the professional work but what transpires from the records is that the assessee is devoting his time and knowledge for regular purchase and sale of equity shares round the year. Even otherwise there is no Estoppel by law on the
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assessee to carry more than one business or profession. There are innumerable instances where a particular individual carries on multiple businesses from multiple locations then why cannot the assessee.
There seems to be a consistent touch of assessee with the equity market as frequent transactions of purchase and sale of the same script are done during the year which normally is not a practice of an investor because the investor usually invests and then wait for considerable time and the reason for such waiting is that the investor who is normally engaged in other business or profession make such investments to fetch some income without investing much time on trading such investments on regular basis. For this reason the investors invests the money in fixed deposits Public Provident funds as well as equity shares and other investments options.
But the situation in the case of assessee seems to be different because assessee is keeping continuous watch on the share market. He selects various scripts for regular purchase and sale and he is also engaged in the future and option market. Hundreds of transactions have been entered with the same brokers for purchase/sale. No separate demat account have been kept by the assessee relating to the alleged investment in equity shares and profit and sale from share trading and future and option. In these given facts it is hard to believe that such gain from such magnitude
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of transactions can be taxed under the head of short term capital gain.
Ld. AO was fair enough to give the benefit of exemption for the long term capital gain but as regards the alleged income of Rs.1,18,57,282/-, we find merit in the finding of Ld. AO and are inclined to hold that the alleged income of Rs.1,18,57,282/- is purely income from business from purchase/sale of shares and therefore, is to be taxed as a business income. We, therefore, allow the grounds raised by the revenue and dismiss the ground no.1 raised in the cross objection filed by the assessee.
Now we take cross objection filed by the assessee. We have already decided ground no.1 of this cross objection along with revenue’s appeal. We are left with ground no.2 in the cross objection through which the assessee has challenged the finding of Ld. CIT(A) confirming the disallowance u/s 14A of the Act at Rs.2,15,542/-.
Brief facts relating to this ground are that the Ld. Assessing Officer while examining the records during the course of assessment proceedings observed that assessee has earned dividend income of Rs.4,37,354/-, He applied provisions of section 14A of the Act r.w.r.t. Rule 8D of the I.T. Rules 1962 and on the basis of the method provided therein computed an amount of Rs.2 15,542/- being spent for earning exempted income.
Aggrieved assessee preferred an appeal before the Ld. CIT(A) but
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failed to succeed.
Now the assessee is in appeal through this cross objection raising ground no.2.
Ld. Counsel for the assessee argued referring to following written submissions:
Disallowance made by the learned AO of Rs. 2,15,542/- by invoking the provision of section 14A to be read with Rule 8D of IT Rules, 1962.
That the learned CITCA) has confirmed the disallowance made by the learned AO of Rs, 2,15,.542/- by invoking the provision of section 14A to be read with Rule ~ 8D of IT Rules, 1962 without pointing out his dissatisfaction for claim of expenditure incurred by the assessee for earning dividend income of Rs. 4,37,354/-. i. The appellant provided full details of expenses at Rs. 5,27,267/- out of which is already disallowed expenses of Rs. 66,700/- for long term capital gain which does not form part of total income. Further disallowance of Rs, 2,15,542/- out of dividend Income of Rs. 4,37,354/- for which assessee has not incurred any expenditure direct or indirect in relation to dividend income which is not form part of total income under the act for such previous year. The appellant has maintained the separate books of accounts regarding investment made in shares, mutual funds. The appellant has claimed the following expenses for investments in shares: Bank/De-met charges 37,451 Cess on ST 4,224 Brokerage 2,66,205 Service Tax on brokerage 1,71,442 Transaction charges 46,159 Stamp charges 815 Turnover charges 970 Total 5,27,267
ii. The said expenses Rs. 5,27,267/- claimed against short-term capital gain on sale of shares. During the year under appeal short term sale proceeds of shares Rs. 12,41,10,593/- and long term sale proceeds of shares Rs, 1,79,75,397/-. Thus the total sale proceeds of Rs. 14,20,85,990/-. The
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short term sale proceeds 87.35% and long term sale proceeds 12.65°/0. The short term expenses Rs, 4,60,567 (527267 X 87.351100) and long term expenses Rs. 66,700 (527267 X 12.65/100) out of the said expenses Rs. 5,27,267. The expenses incurred Rs. 66,700 for long term capital gain which is already disallowed in the assessment order pertaining to LTCG claimed as exempted income.
iii. Section 14A - Expenditure incurred in relation to income not includible in total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part. of the total income under this act.
iv. The claim made by the appellant that no expenditure has been incurred in relation to income, which does not form part of the total income under the Act for such previous year. Disallowance u/s. 14A of the Act requires finding of incurring of expenditure. Where it found that for earning exempted income no expenditure has been incurred, disallowance u/s 14A of the Act cannot be made. In the present . appeal learned AO without pointing out his dis- satisfactions for claim of expenditure incurred by the assessee for earning dividend income of Rs. 437354/- That the learned AO disallowed a sum of Rs, 2,15,542 by invoking the provision of section 14A to be r.w Rule 8D of IT Rules, 1962 by taking average of investment shown in this year and earlier year multiplied by 0.5% i.e. Rs. 2,15,542.
v. That the Assessing Officer should have determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income which does not form part of the total income as contemplated under Section 14A. AO not adopt reasonable basis for effecting the apportionment. Looking to the facts and circumstances of the case, the appellant provided the full details of expenses at Rs. 5,27,267 out of which is already disallowed of Rs. 66,700 for long term capital gain which does not form part of total income. Further disallowance of Rs. 2,15,542 out of dividend income of Rs, 4,37,354 for which assessee has not incurred any expenditure direct or indirect in relation to dividend income which is not form part of total income.
vi The learned CIT(A) confirmed the disallowance made by the AO of Rs. 2,15,5421/- is not correct as per u/s 14A of the Act, which is not as per the facts of the case.
Regarding similar issue in the case of Shri Sachin R. Tendalkar disallowance made by the AO u/s, 14A r.w. Rule - 8D for Rs. 76,55,841/- which has been deleted by learned CIT(A) as no expenses were claimed in the profit & loss account attributable to the earning of exempt income.
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Therefore, no disallowance was possible under the law. Held - That the amount of gain arising from sale/purchase of shares was assessed as income from capital gains. The copy of the same is on page 52to M of paper book. Disallowance u/s. 14A of the Act is not warranted. It is therefore submitted that in the appellant case the order of the CIT(A) regarding short term capital gain be upheld and disallowance of Rs, 2,15,542/- out of dividend income of Rs, 4,37,354/- for which assessee has not incurred any expenditure direct or indirect in relation to dividend income the same may kindly be allow. Appeal of the Department be dismissed and cross objection of the assessee be allowed. 25. Per contra Ld. DR supported the order of the both lower authorities.
We have heard the rival contentions, perused the record placed before us. The issue raised by the assessee in this cross objection relates to disallowance u/s 14A of the Act at Rs.2,15,542/-. As discernable from the records, the assessee has earned long term capital gain, dividend income and also business income from trading in shares and futures and option. The assessee has also shown short term capital gain from purchase and sale of listed equity share which have been held by us to be business income while deciding the issue raised by the revenue for the instant year under appeal.
As far as disallowance u/s 14A of the Act is concerned, we find that assessee has suo moto disallowed a sum of Rs.66,700/- which is proportionately calculated to have been incurred for earning exempted income. In the finding given by the assessing officer in the assessment order there is no whisper about his satisfaction as to 25
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whether any interest bearing funds have nexus to the investment in listed securities or any other expenditure claimed as deduction has been incurred which has its nexus to the earning of exempted income.
In the absence of such satisfaction on the part of the assessing officer as well as the fact that the assessee has not claimed any expenditure in the profit and loss account to earn the exempted income we find that the judgment of Coordinate Mumbai Bench in the case of ACIT vs. Sachin R. Tendulkar dated 25.01.2017 is squarely applicable on the assessee wherein it was held that “ as no expenses were claimed in the profit and loss account attributable to the earning of exempt income, therefore no disallowance is called for u/s 14A of the Act r.w. Rule-8D”.
Therefore, in the given facts and circumstances of the case and in view of the decision of the Coordinate Bench Mumbai referred above we are of the considered opinion that no disallowance was called for u/s 14A of the Act at Rs. 2,15,542/- by the assessing officer. We therefore, set aside the finding of the Ld. CIT(A) and delete the disallowance of Rs.2,15,542/- made by the assessing officer byway invoking provision of section 14A of the Act. Thus, ground no.2 of the cross objection filed by the assessee is allowed.
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In the result, the appeal of the revenue is allowed and cross objection of the assessee is partly allowed.
The order pronounced in the open Court on 10 .01.2019.
Sd/- Sd/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 10th January, 2019
Patel/PS Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.
By Order, Asstt.Registrar, I.T.A.T., Indore