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Before: SMT. P. MADHAVI DEVI
IN THE INCOME TAX A PPELLATE TRIBUNAL HYDERABAD BENCH ‘SMC', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
ITA No. 1260/Hyd/2016 Assessment Year: 2009-10 Brahmananda Shastry vs. Income-tax Officer, Vishnuvajjhala, Ward – 4(2), Hyderabad. Hyderabad. PAN – ABQPV 3714 M42R Appellant Respondent Assessee by: Shri S. Rama Rao Revenue by: Shri Nilanjan Dey Date of hearing: 09/12/2019 Date of pronouncement: 13/12/2019 O R D E R PER P. MADHAVI DEVI, J.M.: This is an appeal filed by the assessee against the order of CIT(A) – 1, Hyderabad dated 26/07/2017 for AY 2009-10.
Brief facts of the case are that assessee, an individual, who was carrying on legal profession and also made purchase and sale of shares during the relevant FY, filed his return of income for AY 2009-10 on 23/07/2009 declaring total income of Rs. 1,46,081/-. AO noticed that assessee has made transactions in shares during FY 2008-09 to the tune of Rs. 106,52,31,955/-, but, the assessee has not declared speculation profit/loss on securities nor capital gains/loss on such sale of shares. Therefore, he issued a notice u/s 148 of the Act as according to him, there was escapement of income.
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In response to the said notice u/s 148, assessee filed a letter dated 14/11/2011 stating that the return filed on 23/07/2009 may be treated as a return filed in response to the said notice. Thereafter, assessee appeared and furnished certain information, which according to AO, was not sufficient and therefore, summons u/s 131 was issued on 03/09/2012 and sworn statement of the assessee was recorded. On perusal of the said statement and the material available on record, AO observed that the assessee has entered into various transactions of purchase and sale of shares and according to him, intra day transactions have resulted in speculation profit of Rs. 10,73,610/- and from other transactions, there was short term capital loss to the extent of Rs. 69,22,728/- and long term capital gains to the extent of Rs. 1,76,760/-. Therefore, he issued a show cause notice to this effect. The assessee argued that speculation profit should be adjusted against short term capital loss u/s 70 of the IT Act. However, AO observed that the speculation profit of intra-day transactions can be adjusted against any other profits of business, but not against capital losses. Further, AO observed that the assessee had loss of Rs. 40,000/- under the head business or profession which only can be set off against speculation profit u/s 71(2A) of the Act. Thereafter, he proceeded to complete the assessment by bringing to tax the income from speculation profits of Rs. 10,73,610.
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Aggrieved, the assessee preferred an appeal before the CIT(A) by raising a ground that the entire speculation profit of Rs. 10,73,610/- should not have been brought to tax and the expenditure for earning the same should have been allowed.
The CIT(A) confirmed the order of AO and the assessee is in second appeal before the Tribunal by raising the following grounds of appeal: “1. The order of the learned Commissioner of Income- Tax (Appeals) is erroneous both on facts and in law. 2. The learned Commissioner of Income-Tax (Appeals) erred in holding that the loss derived on the trading in of shares of Rs.69,22,728/represents the Short Term Capital Loss. The learned Commissioner of Income-Tax (Appeals) ought to have considered the facts of the case and held that the activity carried on by the appellant is a trading activity of purchase and sale of shares and that the loss arising on sale of shares is a loss assessable under the head "Business". 3. The learned Commissioner of Income-Tax (Appeals) erred in holding that the gain derived on the trading in of shares of Rs. 1,76,760/- represents the Long Term Capital Gain. The learned Commissioner of Income-Tax (Appeals) ought to have considered the facts of the case and held that the activity carried on by the appellant is a trading activity of purchase and sale of shares and that the gain arising on sale of shares is a gain assessable under the head "Business". 4. Any other ground that may be urged at the time of hearing.
4.1 Further, assessee has raised the following additional grounds of appeal and prayed for admission of the same.
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“1) The CIT (A) erred in not allowing any expenditure against the income determined by the Assessing Officer. 2) The Assessing Officer and the CIT (A) erred in not treating all the transactions carried on as the business transactions. 3) The CIT (A) ought to have held that the intra day transactions are not speculative transactions and they are part of the business transactions. 4) The CIT (A) ought to have determined the loss derived in trading in of shares of Rs.69,22,728/- also as the business loss. 5) The CIT (A) ought to have treated all the transactions in shares as in the nature of business transactions and determined loss. The above additional grounds may kindly be considered and appropriate orders be passed in the matter.”
The ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that the assessee had started the purchase and sale of share transactions only in the earlier FY and the assessee had reported capital gains on such transactions. He submitted that in this year, the assessee had entered into regular business of purchase and sale of shares and therefore, entire income therefrom is assessee’s business income, but, the AO has erroneously treated part of the transactions i.e. intra-day transactions only as speculation profit, whereas the other transactions have been held to be sale of investments. This according to the ld. counsel for the assessee is not correct. He submitted that all the transactions should be considered as assessee’s business transactions of purchase and sale of
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shares only. He submitted that in the subsequent year, he had no such transactions. Thus, the said business had been closed down. Therefore, according to him, the expenditure incurred by the assessee for carrying on purchase and sale of shares should have been allowed from the profit earned from such purchase and sale transactions. He, therefore, prayed that the additional grounds of appeal filed by the assessee be admitted and adjudicated.
The ld. DR, on other hand, argued against the admission of additional grounds. He submitted that only legal grounds can be admitted and since the assessee has raised factual grounds, the same should not be admitted and adjudicated. He submitted that before the AO as well as before the CIT(A), the assessee has only raised a ground that the expenditure for earning speculation profit should also be allowed and it is for the first time that the assessee has taken the ground that entire transactions should be considered as business transactions. He, therefore, prayed for the dismissal of the assessee’s appeal.
Having regard to the rival contentions and having gone through the details of the transactions of purchase and sale of shares done by the assessee, I am of the view that all the transactions have to be either treated as business
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transactions or investments and cannot be bifurcated intra-day transactions and other transactions. Looking into volume of transactions and the frequency of purchase and sale of shares, I am inclined to accept that the assessee was engaged in the business of purchase and sale of shares. Therefore, I am inclined to admit the additional ground of appeal and remit the issue to the file of AO with a direction to treat the income arising out of the purchase and sale of shares as business income and allow the expenditure claimed by the assessee after verification of the same. 8. In the result, appeal of the assessee is treated as allowed for statistical purposes. Pronounced in the open court on 13th December, 2019.
Sd/- (P. MADHAVI DEVI) JUDICIAL MEMBER
Hyderabad, dated 13th December, 2019. kv Copy forwarded to: 1. Brahmananda Shastry Vishnuvajjhala, C/o Sri S. Rama Rao, Advocate, Flat No. 102, Shriya’s Elegance, 3-6-643, Street No. 9, Himayatnagar, Hyderabad – 500 029. 2. ITO, Ward – 4(2) (presently ITO, Ward-4(1)), IT Towers, AC Guards, Hyderabad – 500 004 3. CIT(A) - 1, Hyderabad. 4. Pr. CIT – 1, Hyderabad. 5. The DR, ITAT, Hyderabad 6. Guard File