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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI RAJESH KUMAR (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 08.02.2018 passed by the Commissioner of Income Tax (Appeals)-36 (for short ‘the CIT(A), Mumbai, for the assessment year 2013-14, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the ‘Act’).
Brief facts of the case are that the assessee filed his return of income for the assessment year under consideration declaring the total income of Rs. 45,13,520/-. The AO completed the assessment u/s 143 (3) of the Act and determined the total income of Rs. 4,05,56,740/- after making addition of Rs. 3,60,21,982/- treating the long term capital gain claimed by the assessee and excluding the loss of Rs. 88,881/- claimed by the assessee as short term capital loss treating the same as business loss. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the Assessment Year: 2013-14 assessee directed the AO to allow the claim of long term capital gain of Rs. 3,60,21,982/- and compute the total income of the assessee accordingly. The revenue is in appeal against the said findings of the Ld. CIT (A).
The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1. “Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in allowing business income of Rs. 3,60,21,982/- as Long Term Capital Gains ignoring the decision of Gujarat High Court in the case of CIT vs. Motilal Hirabhai Spg. & Wvg. Co. Ltd. [1978] 113 ITR 173 (Guj) and Raja Bahadur Visheshwar Singh vs. CIT [1961] 41 ITR 685 (SC) where it was held that if the volume, frequency & regularity with which transactions are carried out indicate systematic and organized activity with profit motive, then it would be a case of business profit and not capital gain. 2. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to treat the income earned by the assessee from transacting in shares as capital gains and not business income by relying upon his decision in the case of the assessee for AY 2010- 11, ignoring the fact that the nature of the issue is such that the principal of res judicata cannot be applied and the Ld. CIT (A) has failed to establish that the facts of the present year are similar to that of AY 2010-11 3. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to treat the income earned by the assessee from transacting in shares as capital gains and not business income by relying upon his decision in the case of assessee for AY 2010-11 without analyzing the facts pertaining to the transactions in shares for the year under consideration. 4. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to treat the income earned by the assessee from transacting in shares as capital gains and not business income by relying upon his decision in the case of the assessee for AY 2010- Assessment Year: 2013-14 11 ignoring the fact that the assessee has carried out voluminous number of transactions in various scripts and the said shares have been bought and sold again and again rendering the classification of the shares as ‘stock- in-trade.”
At the outset, the Ld. counsel for the assessee submitted that this issue is covered in favour of the assessee by the order of the Mumbai Bench of the Tribunal rendered in assessee’s own case for the AY 2010-11. The Ld. counsel further submitted that the order passed by the Ld. CIT (A) is in accordance with the findings of the Mumbai Tribunal and hence there is no infirmity in the order of the Ld. CIT (A) to interfere with the same.
On the other hand, the Ld. Departmental Representative (DR) did not controvert the facts narrated by the Ld. counsel for the assessee, however, supported the assessment order passed by the AO. 6. We have perused the orders passed by the authorities below and the order passed by the coordinate Bench in the assesee’s own case for the AY 2010-11. As pointed out by the Ld. counsel, the Ld. CIT (A) has decided the issue involved in this appeal in favour of the assessee by following the decision of his predecessor passed in the assessee’s own case for the AY 2010-11 confirmed by the ITAT, Mumbai vide order dated 12.04.2017. The operative part of the order passed by the Ld. CIT (A) reads as under:-
“ 4.2. In Ground No. 3 to 7 appellant has challenged that the activity of purchase and sale of shares is not adventure in the nature of trade and the income from the same is not ‘business income’ but ‘capital gain’. AO has wrongly treated the plant as ‘trader in share’ as against ‘investor in share’. This issue has already been decided in favour of the appellant by the CIT(A)-39, Mumbai in the case of the appellant in Appeal No.CIT(A)-39/IT-03/AC-20(2)/2013- 14 for AY 2010-11 dated 31.03.2015. By following earlier decisions, it is held that the appellant is an individual Assessment Year: 2013-14 carrying on business as inter-corporate finance broker, lender and had dealt in shares, debentures since last so many years. During the year under consideration, the appellant has shown short term capital loss at Rs. 88,881/- u/s 111A of the Act and Long Term Capital Gain of Rs. 3,60,21,982/- u/s 10(38) of the Act from sale of shares. However, AO in the assessment order treated such capital gains as business income and computed the total income of the appellant accordingly. There is no case of the AO for treating long-term capital gain as business income. In view of earlier decisions, the same is directed to be assessed as long term capital gain as shown by the appellant. I of the view that the AO was not justified in treating the income shown by the appellant under the head capital gains both LTGC and STCG/L as business income. In my considered view, there is no reason and ground for the AO to deviate from the past stand of the Department of treating the appellant is an investor in shares. Therefore, AO is directed to treat the capital gains of the appellant both long-term and short-term loss/gain as such treating the appellant is an investor in shares and not as business income. The Grounds of appeal are allowed. This view is also confirmed by the Hon’ble ITAT in vide order dated 12.04.2017.
7. We notice that the coordinate Bench has decided the identical issue in favour of the assessee in assessee’s own case ITA No.3661/M/2015 pertaining to the assessment year2010-11 by upholding the findings of the Ld. CIT(A). The operative part of the decision of the coordinate Bench reads as under:-
“16. Further, we have also examined the reasoning given by the CIT(A) in his order vide paras 6.21 to 6.29 which relate to STCG and find the same is relevant. Considering the significance, the findings of the CIT(A), given in para 6.29 of his order is extracted and the same reads as under:- “6.29. In view of the above discussion and considering the whole gamut of fact, the exhaustive submissions of the Assessment Year: 2013-14 appellant, the various case laws cited by the AO as well as the appellant, I of the view that the AO was not justified in treating the income shown by the appellant under the head capital gains both LTCG and STCG amounting to Rs.4,19,33,271/-as business income. In my view, there is no reason and ground for the AO to deviate from the past stand of the Department of treating the appellant as an investor in shares. Therefore, the AO is directed to treat the capital gains of the appellant both long-term and short-term amounting to Rs.4,19,33,271/- as such treating the appellant as an investor in shares and not as business income. The findings of the AO in this regard are reversed. The grounds of appeal are allowed.”
17. After examining the said paras 6.21 to 6.29 of the CIT(A)’s order, we find that the CIT (A) has applied the judgment of the Hon’ble Supreme Court in the case of CIT vs. Gopal Purohit [336 ITR 287] (Mum) before coming to the conclusion that the STCG should be treated as business income of the assessee.
18. To sum up, we find the view of the AO in treating the LTCG and STCG as business income of the assessee is not proper. Considering statutory provisions regarding the definition of LTCG, we are convinced that the view of CIT(A) are sustainable. Similarly, regarding the claim of STCG also, we find that (i) the consistency principles; (ii) use of own funds of Rs. 54 Crs. (iii) earning of gross dividend income of Rs. 1.20 Crs or Rs. 30 Lakh on account of short-term capital assets; (iv) details given in the contract notes regarding intention of certain shares in physical form etc., suggest that the STCG in question cannot be held as business income.
19. Therefore, in our opinion the decision of the CIT(A) on this issue is fair and reasonable and does not called for any interference. Accordingly, grounds raised by the revenue with regard to both the STCG and LTCG are dismissed.”
The coordinate Bench has decided the identical issue by upholding the findings of the Ld. CIT (A) in assessee’s own case for the AY 2010-11 discussed above. Since, this issue has been decided by the coordinate Bench in favour of Assessment Year: 2013-14 the assessee and since the findings of the Ld. CIT (A) are based on the decision of the coordinate Bench rendered in the assessee’s own case for the AY 2010- 11 discussed above, we do not find any reason to interfere with the findings of the Ld.CIT (A). Hence, respectfully following the decision of the coordinate Bench, we uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. Accordingly, we direct the AO to compute the income of the assessee in terms of the order passed by the Ld. CIT (A).