ACIT 33(3), MUMBAI vs. REKHA KHANDELWAL, MUMBAI

Brief facts of the case are that the assessee an individual engaged in the business of trading in derivatives and shares, filed its return of income for the assessment year under consideration declaring total income of Rs. 1,54,13,409/-. The assessee had shown the income from business, income from capital gain and income from other sources. The assessment was completed u/s. 143(3) r.w.s. 147 of the Act, determining the total income of the assessee at Rs. 1,52,23,410/- after making certain additions. The AO treated the short term capital gain claimed by the assessee as business income and determined the total income of the assessee accordingly. The assessee challenge the assessment order before the Ld. CIT(A). The Ld. CIT(A) after hearing the assessee partly allowed the appeal of the assessee and reversed the findings of the AO regarding the claim of the assessee pertaining to the short term capital gain. Against the said findings of the Ld. CIT(A) the revenue is in appeal before the Tribunal.

The revenue has challenge the findings of the Ld. CIT(A) on the following effective grounds:- “On the facts and in the circumstances of the case and in law, the Id.CIT(A) erred to accept claim of Short Term Capital gain on profit arising from purchase and sale of shares instead of business income treated by AO without appreciating the facts that assessee is dealing in large volume of shares, most of the shares are bought and sold within short period, while some are not sold due to market conditions and their holding with assessee remains beyond few days, it will not change the nature of transactions and the assessee is very well engaged in the CO. No.274/Mum/2018 business of share trading, which denotes that the motive of the assesses is to carry on business in shares to book profit rather than investment in shares.

Before us the Ld. Departmental Representative (DR) submitted that the findings of the AO are based on the decision of the ITAT rendered in assessees own case in for the assessment year 2005-06. In the said assessment year the AO had assessed the income from trading of shares as business income as against the short term capital gain claimed by the assessee. The assessment order was confirmed by the Ld. CIT(A) as well as by the ITAT. During the course of assessment proceeding the assessee furnished breakup of equity shares held by it and from the said details it transpired that nearly 35% of the total holding was between 30 days or less than 30 days. The Ld. DR further submitted that on the basis of the holding period and the conduct of the assessee it can be concluded that the shares were purchased and sold to realise maximum gains. The assessee did not earn substantial amount of dividends in the past as well as in the assessment year under consideration. The Ld. DR further submitted that since the AO has given his findings on the basis of the decision rendered by the ITAT Mumbai in the case of Gopal Purohit vs. JCIT, the Ld. CIT(A) should have upheld the findings of the AO.

On the other hand the Ld. Counsel for the assessee relying on the appellate order passed by the Ld. CIT(A) submitted that in the immediate preceding assessment year the ITAT has decided the identical issue in favour of the assessee in the assesses own case. The Ld. Counsel further submitted that the facts of the present case are similar to the facts of the case of the assessee pertaining to the AY 2006-07. The shares were purchased out of the own funds and 60% of the profit on sale of shares was derived from the share held for a period 30 to 90 days and there being no material change and diversion in the activity of the assessee as compared to the earlier year, the AO CO. No.274/Mum/2018 cannot take different view in present assessment year. The Ld. Counsel submitted that in the light of the aforesaid facts there is no infirmity in the order of the Ld. CIT(A), hence the appeal filed by the revenue may be dismissed.

We have gone through the orders passed by the authorities below in the light of the rival submissions of the parties. The Ld. CIT(A) has basically allowed the appeal of the assessee by following decision of the coordinate Bench of the Tribunal rendered in for AY 2006-07. The operative part of the order of the Ld. CIT(A) reads as under:- 6.2 I have considered the facts of the case, submissions of the appellant and the stand of the AO in the assessment order. It is noted that on similar facts this issue was raised in the immediately preceding A.Y. 2006-07. The matter travelled before CIT(A). The issue was decided in favour of the appellant by my predecessor who has allowed the claim of the short term capital gain of the assessee by following the decision of the Tribunal in the case of Gopal Purohit reported in 29 SOT 117, which has been confirmed by the Hon'ble jurisdictional High Court, and held that the delivery based transactions are to be treated as investment and income therefrom is to be taxed as short term or long term capital gain and not business income as held by the AO. This matter further travelled to the ITAT. The Hon'ble Mumbai TV BENCH ITAT in its order dt. 26 March, 2013 in ITA No.3523/Mum/2010(Asst Year 2006-07) Rekha Khandelwal, Mumbai vs Department Of Income Tax on 12 February, 2010 after considering the full facts of the case, decided the matter in favour of the assessee and upheld the order of the CIT(A). It was held that there was no justification for assessing the short term capital gain admitted by the appellant under the head business. In view of this binding precedent and facts of the case remaining same, there is no