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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: MS SUCHITRA KAMBLE & SHRI PRASHANT MAHARISHI
1 ITA No. 7828/Del/2019
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’ NEW DELHI
BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
I.T.A. No. 7828/DEL/2019 (A.Y 2015-16)
(THROUGH VIDEO CONFERENCING)
Surya Kant Gupta Vs ITO H. No. 651, FF, Sector-10A, Near Ward-4(2)HSIDC Building, Menakshi Public School, Gurgaon, Vanijya Nikunj, Udyog Vihar Haryana Phase-5, Gurgaon PAN: AAJPG5098B Haryana (APPELLANT)
Appellant by Sh. M. R. Sahu, CA Respondent by Sh. Prakash Dubey, Sr. DR
Date of Hearing 30.06.2021 Date of Pronouncement 18.08.2021
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against order dated 29/07/2019 passed by CIT(A)-1 Gurgaon, for assessment year 2015-16.
The grounds of appeal are as under:- 1. “That on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in confirming the finding of the AO that transaction of sale of shares of M/s HCL Technologies Ltd reflect active involvement of assessee as a ' trader' rather than as an 'investor' ignoring the fact that assessee is actively involved in other gainful activities. 2. That on the facts and circumstances of the case and in law , the Ld.CIT(A) has grossly erred in confirming the order of the AO that assessee's dealing in
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the shares of M/s HCL Technologies Ltd is in the nature of 'trade' where as AO accepted assessee as an 'investor' for dealing in other shares and securities. 3. That on the facts and circumstances of the case and in law , the Ld. CIT(A) has erred in confirming the order of AO and not following the binding legal precedents where it was decided that the nature of 'bonus shares' was on 'capital account'. 4. That on the facts and circumstances of the case and in law , the Ld.CIT(A) has further grossly erred in not following the provisions of section 55(2)(aa) clause (iii)(a) in arriving at the cost of the 'bonus shares' as 'nil'. 5. That on the facts and circumstances of the case and in law , the Ld.CIT(A) has erred in not holding that 'short term capital loss' suffered on sale of shares of M/s HCL Technologies Ltd was made within four corners of law which is permissible under the I.T Act-1961. 6. That on the facts and circumstances of the case Ld. CIT(A) has further grossly erred in confirm the 'business loss' of Rs.6,67,382/- arrived by AO ignoring the computation of the assessee as 'short term capital loss' amounting to Rs.1,23,14,530/- relating to shares of M/s HCL Technologies Ltd. 7. That the Ld. CIT(A) has further grossly erred in relying on the judgments totally in applicable to the facts of the case and further placed reliance on the , provisions not applicable to the facts of the case 8. That the above grounds are independent and without prejudice to each other. The Assessee craves the right to amend, add, delete, replace , all or any of the grounds of appeal either during the course of hearing or at any time before hearing of this appeal. PRAYER/RELIEF CLAIMED: 1. To hold assessee as an 'investor' not as ' trader' in relation to dealing in shares of M/s HCL Technologies Ltd . 2. To allow computation of the assessee that is 'short term capital loss' of Rs l,23,14,530/- on sale of shares M/s HCL Technologies Ltd is as per law
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accordingly set off is permissible against' short term capital gain’ earned on sales of other shares and securities during the relevant assessment year. 3. Any other relief as deemed fit in circumstances of the case .
The assessee is an individual and partner in M/s Hirow Industries to file a return of income for Assessment Year 2015-16 declaring total income of Rs. 33,53,380/-. The Assessing Officer observed that the short term capital loss of Rs. 1,23,14,530/- was mainly on account of sale of shares of one Company namely HCL Technologies Ltd. which was completed by the assessee as an investment and the Assessing Officer treated the same as business of trading in shares. The Assessing Officer further observed that HCL Technologies Ltd. had announced its scheme of issue of bonus shares during the period January, 2015 i.e. on 31.01.2015. As per this scheme the company M/s HCL Technology Ltd. would issue bonus shares to the existing shareholders on 20/3/2015 in proportion of 1:1. The shares became the ex-bonus- share as on 19.03.2015. The assessee purchased 11,400/- equity shares in M/s. HCL Technologies Ltd. from 17/3/2015 to 18/3/2015. After the allotment of bonus shares, the assessee sold the entire holding of 11400 shares held as original shares as 23.03.2015 and incurred a loss of Rs. 1,23,14,530/-. The purchase of shares of M/s HCL Technology Ltd. was made out of funds generated in the form of loan from M/s Aditya Finance. Therefore, the Assessing Officer observed that the assessee effected sale of 11,400/- shares out of the original shares at an excess bonus rates on 27/3/2015 with sale consideration of Rs. 1,09,79,767/- at an average sale rate of Rs. 963.18 per equity shares which resulted in the short term capital loss of Rs. 1,23,14,530/- which was adjusted in the computation of income. The Assessing Officer held that in respect to purchase and sale of equity shares of HCL Technologies Ltd. carried out by the assessee indicated that the assessee was a trader in shares and not an investor. As per the Assessing Officer , dealings in the shares of HCL Technologies Ltd. indicated a pre projected intention to set off the short term capital loss incurred on account of bonus stripping of HCL Technologies Ltd. shares
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against the short term capital gain earned on the sale of other equity shares with mutual funds. Thus, the Assessing Officer made addition of enhanced short term capital loss by an amount of Rs. 1,23,14,513.05 and treated Rs. 1, 16,88,467.50/- as income from short term capital gain.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. AR submitted that as per the Assessing Officer the motive of the assessee in dealing in the shares of HCL Technologies Ltd. was Tax Avoidance and Dubious Tax Planning and the Assessing Officer applied ratio of the decision of the Hon'ble Supreme Court in case of McDowell & Company Ltd. Vs. ITO (1985) 154 ITR 148. The Ld. AR submitted that the decision of the Hon’ble Apex Court in case of McDowell & Company Ltd. establish the principal that the bonafide business arrangement with incidental fall out by way of tax benefit can be tolerated but tax avoidance or tax evasion by means of a colourable device or make belief transaction and dubious means cannot be recognized. The Ld. AR further submitted that tax planning is not illegal/illegitimate/impermissible and once transaction is genuine and treated as proper variation, even if entered with a motive to avoid tax would not become colourable device special to any disqualification. The Ld. AR relied upon the following decisions:- (i) Vodafone International Holdings B V Vs. UOI (2012) 341 ITR 1 (Supreme Court) (ii) CIT Vs. Walfort Shares and Stock Broker Pvt. Ltd. (201) 326 ITR 1 (Supreme Court) (iii)UOI Vs. Azadi Bachao Andolan (2003) 263 ITR 706 (Supreme Court) (iv) Porrits & Spencerr (Asia) Ltd. Vs. CIT (2010) 329 ITR 222 (P &H High Court) (v) Banyan & Berry Vs. CIT(1996) 222 ITR 831 (Gujrat High Court ) (vi) CIT Vs. Special Prints Ltd. (2013) 356 ITR 404 (Gujrat High Court)
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(vii) Bhourka Engineering Industry Ltd. Vs. DCIT (2013) 356 ITR 25 (Karnataka High Court).
The Ld. AR submitted that Lower Authorities have erred in the activity of dealing in shares of HCL Technologies Ltd. as a business activity. The assessee was wholly time involved as managing partner of M/s Hi Row Industries and there was neither an organization activity or trading in shares and there was neither any organizationally support in this regard. Lower Authorities have erred in confirming without bonus shares received form part of stock in trade and taking the cost of shares sold on an average basis also wrong. The Ld. AR relied upon the decision of the Hon'ble Supreme Court in case of CIT Vs. Madan Gopal Radhe Lal 73 ITR 652 and also relied upon the decision of the Hon’ble Bombay High Court in case of PCIT Vs. Ashok Apparels Pvt. Ltd (2019) 106 Taxman.com 63 (Bombay High Court). The Ld. AR submitted that the decision of the Hon'ble Supreme Court in case of Commissioner of Inland Revenue Vs. John Blott (1921) 8 T.C. 101 has identical facts and no distinction can be made in the present case. The facts are virtually identical. As observed by the Hon'ble Supreme Court in case of Shares given by company in proportion to the holding of equity capitalization by share holders would in the absence of express provision to be contrary be treated as capital and not income. The Assessing Officer has merely proceeded on the basis that the origin of the bonus shares being the shares held by the assessee by way of stock in trade, necessarily the bonus shares would also partake the same character. The Ld. AR contended that the quantity of bonus shares could not be considered by determining the cost of original shares sold during the year under consideration. This is also on par with Section 55(2)(aa)(iiia) of the Act where in the cost of bonus shares is to be taken as ‘Nil’ and the entire cost is liable to be adjusted on the original shares. The Ld. AR relied upon the decision of the Hon’ble Delhi High Court in case of CIT Vs. ESS Jay Enterprises Pvt. Ltd. (2007) 165 Taxman 465 as well as the Hon'ble Supreme Court’s decision in case of Raja Bahadur Kamakhya Narain Singh Vs. CIT (1970) 77
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ITR 253. During the year under consideration the assessee has sold other shares and units of mutual funds and profit arising from such transactions have accepted by the Assessing Officer to be assessable as capital gains. Furthermore, it was pointed out that in the preceding assessment years sale as well as in the subsequent Assessment Years, the Assessing Officer has assessed gain on sale shares as an income assessable under the head capital gains. The Ld. AR further submitted that the CBDT Circular No. 6 dated 29/2/2016 relating to the whether the particular holding of shares by way of investments or forms part of the stock in trade is a matter which is within the knowledge of the assessee who hold the shares and it should in normal circumstances be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are stock in trade and those which are held by way of investment. The Ld. AR relied upon the decision of the Tribunal in case of Adar Poonawalla Vs. Additional CIT ITA Nos. 7641/PN/2012 & 824/PN/2012 order dated 30/1/2015. Thus, the Ld. AR prayed that the appeal of the assessee be allowed by treating the assessee as an investor for purchase and sale of shares of HCL Technologies Ltd.
The Ld. DR relied upon the assessment order and the order of the CIT(A). The Ld. DR further submitted the shares were purchased through loan taken from M/s Aditya Finance. The Ld. DR further submitted that the Circular No. 6 dated 29.02.2016 is only applicable for 12 months and not applicable in assessee’s case. Thus, the Ld. DR submitted that the appeal of the assessee be dismissed as the CIT(A) has taken cognizance of all the aspects and confirmed the addition.
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that HCL Technologies Ltd. had announced its scheme of issue of bonus shares during the period January, 2015 i.e. on 31.01.2015. As per this scheme the company M/s HCL Technology
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Ltd. would issue bonus shares to the existing shareholders on 20/3/2015 in proportion of 1:1. The shares became the ex-bonus- share as on 19.03.2015. The assessee purchased 11,400/- equity shares in M/s. HCL Technologies Ltd. from 17/3/2015 to 18/3/2015. After the allotment of bonus shares, the assessee sold the entire holding of 11400 shares held as original shares as 23.03.2015 and incurred a loss of Rs. 1,23,14,530/-. It is an undisputed fact that the assessee was whole time Managing Partner of M/s High Row Industries and was receiving salary. The sale of shares as trading activity by the Assessing Officer is not justifiable as the assessee is not into the business of dealings in shares. In fact, the assessee treated the income as short term capital gain and set off the loss incurred in the transaction against the Long Term Gain obtained from the dealings in sale of other equity shares and mutual funds. In fact, the assessee made investment in mutual funds and equity shares of Rs. 6,26,063.35/- on these transactions. During the previous, year, the assessee had made transaction in ten companies’ equity shares and mutual funds which includes HCL as well. The decision relied by the Ld. AR in case of Adar Poonawalla (supra) is apt in the present case as in that case as well the issue was relating to loss on account of sale of shares of HCL Technologies which was adjusted against Long Term Capital Gain. The contention of the Ld. DR that the shares were purchased through loan will not make any impact as the assessee’s profile is that of investor and not that of trader which was not at all disputed by the Assessing Officer at any point of time. The transaction of sale and purchase of shares were also not held as non genuine by the Assessing Officer at any point of time. Thus, the Assessing Officer as well as the CIT(A) was not right making addition and confirming the same. Therefore, we direct the Assessing Officer to re-compute the capital gain/loss on the sale of shares of HCL Technologies Ltd. thereby taking the same to be assessable under the head capital gains as per law. Hence, appeal of the assessee is allowed.
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In result, appeal of the assessee is allowed.
Order pronounced in the Open Court on this 18th Day of August, 2021. Sd/- Sd/- (PRASHANT MAHARISHI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 18/08/2021 R. Naheed * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT NEW DELHI