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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the ld ACIT, Circle-33(1), New Delhi against the order of the ld CIT(A), XI, New Delhi dated 28.04.2016 for Assessment Year 2011-12. The only ground of the appeal of the revenue is that the assessee has earned profit on sale of mutual funds of Rs. 26953746/- as capital gain shown by the assessee. The ld AO treated the same as business income but the ld CIT(A) held it to be capital gain.
Brief facts of the case shows that the assessee is an individual who filed his return of income on 26.09.2011 declaring income of Rs. 9591980/-. He is engaged in the business of trading in securities, derivatives and professional income. He also derived salary. The assessee has also shown capital gain.
During the year the assessee has shown capital gain of Rs. 26953746/- arising out of the sale of mutual funds in one AMC in four different schemes. The holding period of the mutual funds were from 72 days to 186 days. The ld AO noted the Circular No. 74/2007 dated 15.06.2007 and held that the assessee is engaged in the business of trading and investment in shares and mutual funds. He bought units of mutual funds Page | 1 ACIT Vs Sunil Bakht (Assessment Year: 2011-12) during the year and same were also sold in the same year. The ld AO held it to be business income instead of capital gain offered by the assessee and passed an order u/s 143(3) of the Act on 07.03.2014.
The assessee aggrieved with the order preferred an appeal before the ld CIT(A), who held that gain earned by the assessee is capital gain and not business income vide para No. 3.7 to 3.11 of his order as under:- 3.7 I have considered the submissions of the appellant and the facts of the case along with the documents on record. The appellant had filed certain evidence more particularly annexure-8 showing the details of long term capital gains and short term capital gains, the amount invested and the period of holding in a tabular form during the appellate proceedings. Even though, it is part of books of accounts of the appellant but since the same was not submitted during the assessment proceedings the same was forwarded to the AO vide this office letter dt. 15.10.2015 as referred above for acceptance of said evidence under Rule-46A. The AO in both the remand report has not objected to the filing of above statement and since it is part of books of accounts the same is admitted as the same are in support of the grounds of appeal and the explanation of the AR that it was required to be filed after the receipt of the assessment order is acceptable. 3.8 The Assessing Officer in coming to the conclusion that the capital gains amounting to Rs. 2,69,53,746/- was business income observed in para 4.3.5 (ii) that the period of holding the investment varied from as short as few days to few months and in most of the cases, the period of holding was less than one month. However, on perusal of the holding period as submitted in Annexure-8 of the written submission filed in the appellate proceedings, it is seen that out of total capital gains investments in Kotak India Real Estate Fund-1, DWS fix term fund series 43 regular growth and Birla Sun Life dynamic bond fund-Regular Income-Monthly Dividend are long term investments and held between FY 2006-07 to 2009-10 and constitutes over 76% of the capital gains at book value by the appellant. As regards, the investments in short term capital gains, it is seen in Annexure-8 that the period of holding of these funds vary between 72 days to 1007 days. The Annexure-8 and the written submission was forwarded to the Assessing Officer and was requested to give a categorical finding regarding the correctness of the finding given in the para 4.3.5 (ii) in the assessment order as discussed above. The Assessing Officer in her remand report did not contradict the submission of the appellant with respect to the period of holding as claimed by him. However, the Assessing Officer in para 5 of the remand report reiterated that period of Page | 2 ACIT Vs Sunil Bakht (Assessment Year: 2011-12) holding was short in most of the cases and assessee had dealt a larger number of shares/securities in this year and most of the cases shares/securities were bought and sold during the year. To substantiate the Assessing Officer pointed out the following 4 securities which were bought and sold during the year. The details of such securities including the purchase price/sales price and the gains and the period of holdings of these assets are as under:
: S.No. Name of the company Date of Purchase cost (Rs.) Date of sale Sale amount Profit/loss Period purchase of (Rs.) (Rs.) holding 1. DSP Black Rock M1CR 05.07.2010 1,00,00,000/- 15.09.2010 1,12,88,135/- 12,88,135/- 72 days Cap 2. DSP black rock equity 13.03.2010 5,00,000/- 14.09.2010 5,85,671/- 85,671/- 185 fund days DSP Black Rock Equity 15.03.2010 5,00,000/- 17.09.2010 5,29,841/- 29,841/- 186 3. Fund days 4. DSP Black Rock Focus 10.06.2010 1,00,00,000/- 15.09.2010 1,11,08,000/- 11,08,000/- 97 days 25-Fund 3.9 Even though, the submission of the Assessing Officer is correct that the above assets were purchased and sold during the same year but it is to be noted that the assets at serial no. 2 & 3 were purchased and sold in two different financial years and in all the transactions, the period of holding is not as short as few days but varies between 72 days to 97 days and it does not show the intent of the appellant to do business in the above mutual funds but to earn appreciation in the value of investment over a interval of time. 3.10 The Assessing Officer in the Remand Report has relied upon the decision in the case of PVS Raju vs. Addl. CIT, Hyderabad (supra) to contend that the frequency, magnitude and the volume of transaction of the appellant justifies the action of the Assessing Officer in treating the capital gain amounting to Rs. 2,69,53,746/- as business income. The same has been carefully considered but not found to be acceptable. In the case relied upon the Assessing Officer, the Hon’ble High Court in para 15 has listed out several factors for determining the trading in shares as business income. On perusal of the same, it is seen that the same are not applicable in the case of the appellant. This is evident from the fact of the period of holding of the assets sold during the year and further the appellant under the head capital gains has shown gains from the mutual funds and not from shares. In this regard, the submission of the appellant that he has no control on the manner in which further investments are made by mutual funds indicates his intention to be an investor, is also acceptable. The appellant maintains separate portfolio of the business income dealing in shares and has opening stock of securities (Rs. 2.25 crores), purchase of securities (Rs. Page | 3 ACIT Vs Sunil Bakht (Assessment Year: 2011-12) 2.87 crores) and sale of securities (Rs. 3.48 crores) and closing stock of securities (Rs. 1.00 crores) which shows the intent of the appellant to hold shares as business assets and hold mutual funds as capital assets. Further, the department has consistently accepted the capital gains shown in respect of mutual funds in the assessment order u/s 143(3) for AY2004-05. The appellant had declared capital loss amounting to Rs. 40,13,539/- in respect of similar mutual fund transactions in AY 2013-14, which has also been accepted as capital loss in order u/s. 143(3) dt. 18.03.2016. 3.11 Therefore, in view of the above discussion, it is held that the appellant has right considered the capital gains in respect of the mutual funds as shown in annexure-8 as discussed above in his computation of income and the same is in harmony with circular no. 4/2007 dt. 15.06.2007. Further, the same is also acceptable by applying the principle of consistency as no new facts have been brought for this year. Therefore, the action of the Assessing Officer in treating the capital gains of Rs. 2,69,53,746/- as business income is not justified and the Assessing Officer is directed to accept the amount of Rs, 2,69,53,746/- as capital gains as offered by the appellant. Ground no. A (1 to 9) of the appeal is allowed.”