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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI KULDIP SINGH
This appeal by the Revenue is preferred against the order of the Commissioner of Income Tax [Appeals] – XXXIII, New Delhi dated 17.01.2013 pertaining to assessment year 2006-07.
The solitary grievance of the assessee is that the CIT(A) erred in directing the Assessing Officer to treat the gain of Rs. 2,95,41,232/- to tax under the head ‘capital gain’ instead of ‘business gain’.
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has shown total income of Rs. 3.11 crores which included Rs. 2.95 crores shown as short term capital gain, which is taxable at special rate of 10%. The Assessing Officer was of the opinion that the assessee has been consistently dealing in the shares at heavy scale. Vide order sheet entry dated 24.12.2009, the assessee was asked to show cause as to why short term capital gain of Rs. 2.95 crores should not be treated a business income. The assessee replied that during the year under consideration, the assessee had applied for shares in different IPOs and after getting allotment, the assessee sold the shares at the right opportunity.
After considering the reply of the assessee, which is exhibited at page 3 of the assessment order, the Assessing Officer noted that the reply was not acceptable. The Assessing Officer was convinced that dealing in shares was the main activity of the assessee and, accordingly, treated the short term capital gain as business income of the assessee.
Aggrieved, the assessee carried the matter before the CIT(A) and reiterated what has been stated during the course of assessment proceedings.
After considering the facts and submissions, the CIT(A) held as under:
“I have considered the assessment order and the written submissions of the ld. AR. The appellant company during the year under consideration has only acquired these shares through IPOs, taken delivery & then sold wherever it got the opportunity. The appellant company has treated these share acquisition & sale as investment in books of accounts & has not claimed security transaction tax as business expenditure, the Assessing Officer has not proved the frequency of transaction to term these acquisitions of shares & its sale to be treated as business income. The appellant company is basically in the business of commodity market. The A.O's finding that for A.Y. 07-08. The appellant has turnover of share transaction of Rs. 80 crores does not change the character of transaction for A.Y. 06-07. As per the circular of CBDT relied by Ld AR Supra, even during the same year the assessee can have trading as well as investment transaction of shares. Second finding of Assessing Officer that the appellant has used borrowed fund, therefore the transaction are business is also not proper. As this criterion cannot only decide the transaction as business. Ld AR has relied on various judicial pronouncement where even borrowed fund is applied, the share transaction have resulted into short term capital gain. Considering all the facts and circumstances of the case, in my view the transaction of shares acquired through IPOs & subsequent sale is not business. Therefore, Assessing Officer is directed to treat the gain to tax it under the head 'capital gain' instead of business income. This ground of appeal is allowed.”
Before us, the ld. DR strongly supported the findings of the AO.
8. Per contra, the ld. AR relied upon the findings of the CIT(A).
We have considered the orders of the authorities below. The facts on record show that during the year, the assessee made investments in shares thought public offer of issue of the following : 1. IDFC 2. SUZLON 3. ICICI 4. GSPL 5. IMOX
10. This shows that the assessee never purchased shares from open market. When the shares were allotted, the assessee waited for the right opportunity and sold the shares thereby making profits which were returned as short term capital gain. It is not the case of the Assessing Officer that the assessee has been consistently buying and selling shares of the same company or companies. The only grievance of the Assessing Officer is that the assessee sold the shares in a very short span of time. This objection of the Assessing Officer is not acceptable when law itself provides that profits on shares held for less than 12 months shall be treated as short term capital gain. Therefore, in the light of the said provisions of the Act, the Assessing Officer cannot say that why the shares were held for less than 12 months. Moreover, shares applied through IPOs are directly allotted in the DEMAT account and if subsequent sale has to be made through DEMAT account. There is no dispute that the Security Transaction Tax paid by the assessee was never claimed as expenditure. Considering the facts of the case in totality, we do not find any reason to interfere with the findings of the CIT(A).
In the result, the appeal of the Revenue is dismissed.
The order is pronounced in the open court on 12.12.2018.