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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI PAWAN SINGH (JM) & SHRI S RIFAUR RAHMAN (AM) Shri Vinod M Shah
O R D E R PER PAWAN SINGH, JM : 1. This appeal filed by the revenue challenging the correctness of the order of learned Commissioner of Income tax {ld CIT(A)}-7, Mumbai dated 02-04-2018 for the assessment year 2009-10. The revenue has raised the following grounds of appeal:-
“1) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing short term capital loss of Rs. 3,89,77,779/- as claimed by the assessee, instead of Business Loss as assessed by the Assessing Officer?" 2) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing long term capital loss of Rs. 1,19,257/- as claimed by the assessee, instead of Business Loss as assessed by the Assessing Officer?"
The facts in brief are that the assessee is an individual and while filing return of income for assessment year (AY) 2009-10 has shown income
Vinod M Shah (AY 2009-10) from business, capital gain & other sources. The assessee declared total taxable income of Rs.2,11,770/-. The return of income was initially processed under section (u/s) 143(1) of the I.T. Act, 1961 (Act).
Thereafter, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued and served on the assessee. During the assessment proceedings, the assessing officer (AO) noted that the assessee has shown ‘long term capital loss’ and ‘short term capital losses’ on sale of shares. The AO issued show cause notice to the assessee as to why the losses on share trading under the head ‘ capital gain’ should not be treated as business loss. The assessee filed its detailed reply dated 09.12.2011, the AO has extracted the contents of reply in para 4 of the assessment order. In the reply the assessee besides the other contention contended that he is in the business of manufacturing and export of garments. The assessee has employed more than 10 persons for his business. The assessee is investor in share and the loss suffered by him is long term or short term capital loss. The assessee has no infrastructure facilities for investing in shares. The assessee has shown his investments in his balance sheet under the head ‘investments’. The AO, after considering the submissions and taking in consideration of frequency of transaction, period of holding rejected the contention of the assessee and treated 2
Vinod M Shah (AY 2009-10) the loss on investments in shares as ‘business losses’ against ‘long term capital loss’ and ‘short term capital loss’ claimed by the assessee claiming himself as an investors in shares. On appeal, the Ld. CIT(A) reversed the order of assessing officer. Aggrieved by the order of Ld. CIT (A), the revenue has filed the present appeal before the Tribunal.
We have heard the learned departmental representative (Ld. DR) for the revenue and the learned authorised representative (Ld.AR) of the assessee. The Ld. DR heavily relied upon the order of assessing officer. The ld. DR for the revenue submits that the nature of investment, frequency of transaction and period of holding clearly shows that the assessee is not the investor, rather investing money for the purpose of maximising the income/ gain and is clearly indulging in the business of shares.
On the other hand, submitted that the assessee is in the business of manufacturing and export of garments and garment panels and accessories and group companies employing more than 10 employees.
The assessee does not have any infrastructure facilities or staff etc employed for the earning of capital gains. Assessee has investments in shares which are also reflected in the Balance Sheet under the head ‘investments’ right from the day one. All the investment in shares and mutual funds are made by the assessee from his own funds. There is no 3
Vinod M Shah (AY 2009-10) borrowing made by him for investments in shares and mutual funds.
The intention of assessee was to earn dividend and appreciation in value of investments. During the year the dividend earned is of Rs. 77.13 lacs. The assessee has no future and options (Derivative) transactions. The assessee has taken and given delivery of the shares and are duly reflected in the demat account. Copies of demat statements for April 08 to March 09 were furnished before the AO.
The average period of holding in respect of shares sold is approximalty 98 days only shares held as short term capital assets are considered. In cases the average holding period is considered in respect of all the shares sold by assessee during the year, the average period of holding is 379 days. The assessee has also incurred a huge amount of Rs. 3,33,649/- on demat charges. Further, the assessee has always accounted for his investment in shares as investment and not as stock in trade. Up to assessment year 2004-05 the investment in shares has always been treated as investments (and not as business transaction.
For assessment year (AY) 2005-06 for the first time, the department took the view that the investment transactions are business transactions. However, the Hon'ble income tax appellate tribunal has upheld the view of the assessee and considered share transactions as investment transactions. The order of the tribunal is placed on record. 4
Vinod M Shah (AY 2009-10) Further, the cost value of investments as on 31-03-2009 is at Rs.61,21,91,339/- for shares and Rs.44,04,342/- for mutual funds and the own capital of the assessee is at Rs.67,55,72,354 and no borrowings have been used by the assessee for purchase of shares and mutual funds which could be seen from the balance-sheet, itself. The investment in shares was made through Initial Public Offer (IPO) or purchases through registered & recognized stock broker either on BSE or NSE. All the shares, securities and mutual funds are reflected in the balance-sheet under the head, ‘investments’ for all the years and accepted by the department. All the shares purchased or sold are delivery based. All the shares are duly reflected in demat account of the assessee. The ld AR for the assessee further argued that when the shares which are shown at the time of its purchase in the balance-sheet as investments and which is accepted in earlier years, then sale of the said investments in subsequent years cannot be treated as stock in trade and thereby the sale of the said shares requires to be accepted as short or long term capital loss / gain.
The ld AR for the assessee also furnished the details of his investment and treatment by assessing officer from AY 2004-05 till 2016-17 and would submit that in AY 201-12, 2014-15 to 2016-17 the revenue accepted the claim of assessee as investor in shares and allowed capital 5
Vinod M Shah (AY 2009-10) gain in assessment order passed u/s 143(3). The return for AY 2012-13 &2013-14 was not selected for scrutiny. The copy of assessment order for AY 2011-12 to 2016-17 is also placed on record. In support of his submissions the ld.AR for the assessee relied upon the decision of Hon’ble jurisdictional High Court in the case of CIT Vs Gopal Purohit 336 ITR 287 (Bom).
We have considered the submission of both the parties and have gone through the orders of authorities below. We have also deliberated on various case law relied by the assessee and the lower authorities. We have noted that the assessing officer while treating the long term and short term capital loss as business loss has observed that the assessee is involved in frequent purchase and sale of shares during the year including the speculative transactions. The total purchases were 118 and sales 95 in the year. And that each purchase and sale is a complete transaction in itself. In case of purchase, the buyer gets the shares and the seller gets money so that transaction is complete and vice versa in sale. So the total number of transactions in the year by the assessee is 213 in as many as 220 days that the share market works. The assessee, but for few days, has on an average made at least one transaction (either purchased or sold) every day in the shares. This frequency of assessee’s transaction indicates an intention to sell for profit. By no 6
Vinod M Shah (AY 2009-10) stretch of imagination can one be said to be investing in a thing / goods / stock / article etc if he is either buying it or selling it every day. The number of transactions in case of investment is few and far in between.
One would argue that the frequency of the assessee’s transaction is less than that of a business. No doubt the frequency is less than that of a provision stores, or cloth retail stores, etc, but surely in many businesses such as real estate, art dealer, high end luxury goods, luxury car dealers (Mercedes, Porsche, Bentley, Ferrari etc), wedding dress designers, high end fashion boutiques, etc where the value of each transaction is high, the frequency will be much lesser than the frequency of the assessee share transactions.
Before the ld. CIT(A), the assessee made exhaustive submissions and filed written submissions, which have been recorded by Ld.CIT(A) at paras 6.1 & 6.2 of his order. The Ld. CIT(A) noted that on similar issues, the Tribunal for AYs 2005-06 & 2007-08 allowed similar relief to the assessee. We have noted that the assessee has given detailed history of investments in share in a tabular form. From the perusal of the detailed history, we have noted that the assessee was allowed the claim of short term and long term capital gain on investment in shares by Tribunal for A.Y. 2005-06; assessment for AY 2006-07 was not selected for scrutiny and for AY 2007-08 short term capital gain 7
Vinod M Shah (AY 2009-10) treated as a business loss. However, on appeal before the Tribunal in /Mum/2011 allowed relief to the assessee.
Again for AYs 2010-11 the case was not selected for scrutiny. Again the return of income for AY 2011-12 was selected for scrutiny and the assessing officer accepted the claim of assessee and allowed capital gain in assessment order passed under section 143(3) rws 147dated 17.12.2018. However, for AYs 2014-15 to 2016-17, the assessee was allowed capital gain in the scrutiny assessments under section 143(3) vide order dated 22.12.2016, 11.02.2017 and 05.12.2018 respectively.
We have further noted that the assessing officer has accepted LTCG on sales of 9 scrip of Rs. 6,44,09,662/-. The contention of the assessee that he has not invested any borrowed money in investment in shares is not disputed by assessing officer.
For the year under consideration, the Ld.AR of the assessee has filed working and the period of holding of short term loss on investment in shares and mutual funds and submitted that only total 20 scrip were sold during the year as a short term investment and only 2 mutual funds were sold. The details of working for short term capital loss on shares, for appreciation of period of holding and number of scrip, the details extracted are as under;
Period No. of Scrip STCL(Rs) 8
Vinod M Shah (AY 2009-10) 0-30 06 67,72,342 31-60 03 (11565785) 61-90 04 (149531) 91-180 05 (6971022) 181-270 02 (2168564) 271-365 04 (24401645) Total (38484205 Similarly, the period of holding and number of mutual funds sold during the year on which short term capital loss was shown are as under Period No. of Mutual funds sold STC (L)/ G(Rs) 0-30 01 38115 31-60 01 1937 61-90 01 516 91-180 Nil Nil 181-270 01 (399500) 271-365 Nil Nil Total (358932) 11. The aforementioned details furnished by ld. AR for the assessee are not disputed by ld DR for the revenue. At the cost of repetition, we retreat that the assessee was allowed as an investor by Tribunal in appeals for AYs 2005-06 & 2006-07 and the AO for AYS 2014-15 to 2016-17 has allowed capital gain on similar transactions, the assessee cannot be treated differently for the year under consideration.
The Hon’ble Bombay High Court in case of CIT vs Gopal Purohit (supra) held that the revenue must adhere uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee (assessee itself). We have further noted that CBDT in its circular No.6/2016(F.No.225/12/2016-ITA-II) dated 29- 02-2016 has instructed its officers; 9
Vinod M Shah (AY 2009-10) (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; (c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.
Considering the aforesaid factual and legal submission and considering the fact that the Ld. CIT(A), after considering the order of Tribunal for AY 2005-06 & 2006-07 and in AY 2014-15 to 2016-17 the claim of assessee as investor in shares was allowed by assessing officer himself. The ld CIT(A) also followed the decision of jurisdictional High Court of CIT Vs Gopal Purohit (supra) and allowed relief to the assessee. The ld CIT(A) has given categorical finding after considering the period of holding, frequency of transaction and numbers of scrip.
Therefore, we do not find any infirmity in the order of Ld.CIT(A) on both the grounds of appeal raised by the revenue. Accordingly, we uphold the order of ld. CIT(A). In the result the grounds of appeal raised by the revenue are dismissed.
Vinod M Shah (AY 2009-10) 14. In the result, appeal filed by the revenue is dismissed.