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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: Shri Shamim Yahya & Shri Pawan Singhand
आदेश / O R D E R Per Shamim Yahya (Accountant Member) This appeal by the assessee is directed against order of the Ld. CIT(A)-28, Mumbai, dated 29/09/2017 and pertains to Assessment Year 2011-12. The grounds of appeal raised by the assessee are as under:-
“1. The Commissioner of Income-Tax [Appeals](hereinafter referred to as the “CIT[A]” erred in confirming the amount of Rs.22,38,004/- claimed under Short Term Capital Gain as Business Income. 2. The CIT[A] erred in confirming the amount of Rs.1,10,915/- u/s 14A of the I.T. Act, 1961.
The brief, facts of the case are that the assessee is having income from salary income, capital gain and other sources. The case was selected for scrutiny under CCIT selection. Relevant details relating to the above source of income and copies of contract notes, bank statements, etc, were called for, examined by the AO. The AO noted that assessee has declared short term capital gains at Rs.22,38,005/- for the previous year relevant to A.Y. 2011-
During the course of assessment proceedings vide letter dated 14/02/2014, the assessee was asked to explain why STCG in shares should not be treated as business income instead of short term capital gains as the assessee had dealt in numerous and multiple share transactions. The assessee submitted as under:-
4.1 The assessee has submitted letter dated 1 1.02.2014 and 25.02.2014. In letter dated 11.02.2014, assessee has stated as under:-
"This is in continuation of discussion our representative Mr. Ashok Shah had with you:
My sources of income is as under:
a. Salary Income. b. Income from business and profession, which inter alia includes following :- i. Futures and Options. ii. Speculation Loss. iii. Commission. iv. Share of Profit from Partnership Firm. c. Capital Gains. d. Income from Other Sources, inter alia includes i. Dividends from Companies and from Mutual Fund. ii. Interest Income from loans and advances, lease rent, service charges etc.
2. The above facts show that I am having multiple activities having income in various heads. This shows that investment in shares is not business at all as I am occupied with various activities as mentioned above.
Even in shares and securities I have following income :- i. Future & Options. ii. Speculation. iii. Capital gains.
This clearly shows that I have different portfolio for Trading and Investment. I have offered the profit from Future & Options & Speculation as a business Income.
further state that Capital Gain from shares are as under:-
i. Short Term Capital Gain on Sale of Shares, purchased and sold on recognized stock exchange. ii. Long Term capital gain on sale of shares, mainly of Universal Container Freight Station Put. Ltd.
4. Short Term Capital Gain
i. The Detail working of Short Term Capital Gain is enclose herewith :- ii. Yourgood self will observe from the above details that during the year I have done only 30 transactions of Purchase & Sales. iii. The full consideration for purchase of the shares is paid through my bank account. iv. The transactions are spread over nine months of the year. v. I have made major profit from sale of shares of SUPREME INDUSTRY which is in B group of stock exchange and same scripts was held my me for about five months. vi. I have earned total dividend of Rs. 1,65,951/-from the shares. From above fact it is clear that profit on sale of shares details of which is submitted as above is a short term capital gain". The submissions made by the assessee is carefully perused and considered but is not acceptable. 3. The Ld. AO was not convinced with the reply of the assessee. He referred to the CBDT Circular and various case laws. He made general observation about volume, frequency of transaction and observed that the some shares have been sold in a matter of few days. He concluded as under:-
4.13. Another important point to mention here is that assessee has earned Long Term Capital Gain of just Rs.3,53,674/-. It clearly shows that assessee do not hold shares for long term as investment. 4.14. In view of the above discussion, I hold that the assessee is carrying out trading activity in respect of sale and purchase of shares. Accordingly, the income from short term capital gain of Rs.22,38,004/- is treated as Income from business and taxed as normal rates.”
The assessee preferred an appeal before the Ld.
CIT(A). The ld. CIT(A) referred to several case laws and without adverting to the application of those case laws to the facts of the present case he held that appeal is dismissed.
Learned counsel of the assessee submitted that on identical facts in assessee's own case for Assessment Year 2010-11, the learned CIT(A) has held that the gain should be treated as short-term capital gains. Learned counsel submitted that the order of the assessing officer was of the similar nature. He submitted that these facts were submitted before the learned CIT(A) in the present Assessment Year. However he submitted that without pointing out any distinguishing feature learned CIT(A) held that the said order cannot be applied. Learned counsel also placed reliance upon the decision of honourable High Court in the case of CIT vs Data Mahendra Shah in of 2013 dated 09/11/2015. He further submitted that the decision of Bombay High Court in the case of principle CIT vs Viksit Engineering Ltd. in ITA No.485 of 2016, order dated 26/11/2018 is also applicable. In this regard he referred to par 7 of the Honourable High Court order as under:-
“We note the fact, that the issue of classification of income on sale of shares as business income or as short term Capital gains is to be decided the facts of each case. The tests to be applied for such determination is provided in CBDT Circular No.4 of 2007. We note that the Tribunal kept in mind the tests as provided in the above Circular in the context of the facts and found is that these investments were out of its own funds and not borrowed funds, further it maintained a distinction between trading in shares and investments. Thus, two portfolios one for "Investment" and other for "Trading". Besides for the earlier years the Revenue accepted the claim of short term capital gain. We are of the view that respondent holding the shares for a short period, will not convert the Capital gain into business income. This would be contrary to be legislative mandate which itself provides that when the investment is held for less than 12 months, it is to be termed as short term capital gain. Moreover, the impugned order of the Tribunal also in the present facts correctly placed reliance, upon the decision of this Court in the case of CIT Vs. Gopal Purohit."
Hence learned counsel submitted that the issue should be decided in favour of the assessee.
Per Contra learned departmental representative relied upon the order's of the authorities below.
We have carefully considered the submission and perused the records we find that it is the submission of the learned counsel of the assessee that on identical facts in the earlier year, the Learned CIT(A) has decided the issue in favour of assessee. We are in agreement with the submission of the learned counsel of the assessee that without pointing out any distinguishing feature as compared to last year learned CIT(A) has refused to follow the same. We further find that assessee submissions in detail before the assessing officer has not been properly considered. By generally observing that in some cases shares has been transacted in a matter of a few days the assessing officer has made a sweeping comment that assessee is a trader in shares. The Assessing Officer has totally ignored the submission of the assessee where the assessee mentions that it has received major share of gain from share, where the assessee has held that share for longer periods. Furthermore on the same fats honourable Bombay High Court in similar conditions has upheld the ITAT order holding that the assessee’s transaction cannot be treated as trading in shares, inasmuch as, assessee has used own funds and it has maintained proper distinction between trading in shares and investment. The authorities below have not brought out properly any distinguishing features. Hence in our considered opinion without cogent reasoning authorities below have rejected the assessee’s contention that it is not engaged in trading of shares rather it is making investment in shares. In these circumstances on the touchstone of honourable Bombay High Court decision referred above, we set aside the order's of authorities below and decide the issue favour of assessee.
In the result, appeal by the assessee stands allowed Order pronounced in the Open Court on 25/04/2019