ASST CIT 24(1), MUMBAI vs. DIPAK K. SHAH, MUMBAI

Grounds of appeal read as under : 1. "Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in allowing business income of Rs. 1,62, 95,0467- as Long Term capital gains of Rs. 1,78, 33, 4647- and Short

Brief facts. Since facts are similar, we are referring to facts and figures from A.Y. 2012-13. The facts of the case are that assessee filed return of income on 23.07.2010 by declaring total income of Rs.44,50,9407-. Subsequently, the assessee filed Revised return of income. The return was processed u/s. 143(1) of the Act. Later on, the case was taken up for scrutiny assessment. Notice u/s.143(2) of the Act was issued on 19.09.2013 and duly served upon the assessee. Notice u/s. 142(1) of the Act alongwith questionnaire was also issued and duly served upon the assessee. The assessee is engaged in the business of trading in shares and also engaged in the business of Inter-Corporate deposit, bill discounting and offered business income of Rs.44,27,483/- mainly from brokerage and bill discounting. During the year, the assessee has shown LTCG of Rs.1,78,33,464/- from sale of shares which has been claimed exempted under section 10(38) of the Act. He also claimed Short Term Capital Loss (STCL) of Rs.15,38,418/-. During the course of assessment proceedings,, the assessee was asked to furnish details of short term capital loss, long term capital gain, broker note, and also explain why the income earned by the share transaction should be treated as business income. It was also show caused that why capital gain/loss should not be treated as business income/loss. Assessee's submission has been considered by the AO but the same was not found to be acceptable as considered in the previous years. In this case, in A.Y. 2010-11 the assessee has been treated as engaged in trading of shares. The income therefore is held to be business income and not capital gain as claimed in Return of Income. The facts & legal position in this year in comparison to A.Y. 2010-11 are same. There is no change in facts as well as legal position. In view of detailed discussion in A.Y. 2010-11, in A.Y. 2012-13 also, assessee is held to be engaged in shares trading activity. Accordingly, Long Term Capital Gain at Rs.1,78,33,464/- and Short Term Capital Loss (STCG) of Rs.15,38,418/-was treated as business income.

On considering the volume frequency, regularity of share transactions and magnitude of money involved therein, it is observed by the AO that the 4 Shri Deepak K. Shah assessee is a trader in shares. However, the assessee has not offered his entire income from share transactions as income from business. He declared himself an investor in shares and only a meager part of income from share transactions was declared as income from business. Where there was no delivery of shares in Demat account of the assessee there only he declared income from business otherwise every transaction gave rise to capital gain. In the instant case the assessee declares income from share transactions are as income from capital gain and also income from business and profession. In light of above discussion and as per mandate of para no. 10 of the circular and keeping in mind the observation of Hon'ble Apex Court in the case of CIT Calcutta v. Associated Industrial Development which says that assessee can maintain two portfolio viz. investment portfolio and trading portfolio and that nature of holding of shares either as stock in trade or as investment is best to known to the assessee so he should produce evidence for the purpose. Thus, assessee has failed to put anything on record in order to show two separate portfolios. There are no two portfolios in assessee's case as such. If assessee affirms that he maintains two portfolios one of them generates business income having speculation transactions, then it is not a correct affirmation. In case of speculation transactions asset is not held by the assessee because it was never delivered to him. On the basis of above discussion, the AO took considered view that the assessee does not have separate portfolio for capital assets held by him.

In view of the above, AO concluded that the assessee's entire gamut of business activities is filled with financial assets. He appears to be an expert in this business. He does these activities as an individual and also in partnership firms. He is master in this business and plays multiple roles there. In financial asset, he appears to be broker at one place, trader at another and investor at third place. Assessee asserts that he has two portfolios, one contains tax free bonds, deposits, shares held in physical form and delivery based shares purchased through demat account, other is business portfolio which contains shares which were never held by the 5 Shri Deepak K. Shah assessee. Which had never been delivered to the assessee and assessee earns speculation income from them. The income from shares transaction is not the income from business and from capital gain as claimed by the assessee; rather it is income from business (delivery based transactions) and income from speculative business (non-delivery based transaction). Therefore, the income declared by the assessee as Short Term Capital Loss and Long Term Capital Gains from shares transactions was assessed by the AO as income from business u/s.28 of the Income Tax Act, 1961.

Upon assessee’s appeal learned CIT(A) granted relief to the assessee placing reliance upon ITAT order in assessee’s own case for A.Y. 2010-11.

Learned CIT(A) held as under :-

Against the above order, assessee is in appeal before us.

We have heard both the counsel and perused the records.

Learned Counsel of the assessee contended that the issue is covered in favour of the assessee by the decision of ITAT in assessee’s own case as above. He further submitted that in similar facts in assessee’s wife case also the ITAT has declared the issue in favour of the assessee for A.Y. 2010-11 & 2012-13.

Per contra, learned Departmental Representative relied upon the order of the Assessing Officer.

Upon careful consideration, we find that issue in covered in favour of the assessee in assessee’s own case as above. No distinguishing feature has been brought to our note. It is also not the case that Hon'ble Bombay High Court has reversed the ITAT decision. Accordingly, following the precedence from ITAT in assessee’s own case we uphold the order of learned CIT(A).

Grounds raised in cross objection read as under :-

Learned Counsel of the assessee submitted that he shall not be pressing for the ground raised in cross objection challenging the reopening. Accordingly the ground raised in cross objection is dismissed.

Other ground raised in the cross objection is consequential.

In the result, appeal by the Revenue and Cross Objection by the assessee stand dismissed.