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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-49, Mumbai [in short ‘CIT(A)’] and arise out of the assessment completed u/s 143(3) r.w.s. 153A of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. We begin with the assessment year (AY) 2006-07.
Ketan Pravinchandra Kamdar 2 136/Mum/2 Assessment Year: 2006-07 2. The grounds of appeal filed by the assessee read as under:
1. The Ld. CIT(A) erred in confirming the treatment of Short Term Capital Gain to the extent of Rs.1,29,033/- out of the total short term capital gains of Rs.13,47,000/- under the head ‘Business Income’ instead of ‘Capital Gains’.
2. The Ld. CIT(A) ought not to have treated the Short Term Capital Gain of Rs.1,29,033/- under the head ‘Business Income’ instead of ‘Capital Gains’.
3. The Short Term Capital Gain of Rs.1,29,033/- on sale of shares requires to be taxed under the head ‘Capital Gains’ and not as ‘Business Income’.
4. Without prejudice to the above, if the gain on sale of shares is treated as business income then expenses proportionate to the gains of Rs.1,29,033/- requires to be allowed.
3. Briefly stated, the facts of the case are that the assessee filed his return of income for the AY 2006-07 on 17.11.2006 declaring total income of Rs.94,47,687/-. Then, in compliance to the notice u/s 153A(1)(a), the assessee filed a return of income declaring total income of Rs.94,54,381/-. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee has claimed Short Term Capital Gains (STCG) against the transaction of scrips amounting to Rs.13,47,000/- and the quantity of such scrips was 153310. After verification of the details, the AO noticed that out of 153310 units, 55181 units were sold within 30 days and only 8604 scrips were sold after 180 days. The AO thus came to an opinion that the intention of the assessee was to earn profits and not appreciation of the shares.
Ketan Pravinchandra Kamdar 3 136/Mum/2016 In response to a query raised by the AO vide order sheet noting dated 20.01.2014 to explain why the income from sale/purchase of shares should not be treated as business income, the assessee filed a reply vide letter dated 15.02.2014 which has been produced by the AO at page 5-10 of his assessment order dated 30.03.2014. However, the AO was not convinced with the above reply on the ground that (i) the assessee has sold most of the shares with a period ranging from one day to six months, the motive being to earn quick profits as there is no question of earning dividend, (ii) out of 153310 units, 55181 units were sold within 30 days, 12000 within three months and 15000 units within six months. Only 8604 units were sold after six months, (iii) the assessee has made repetitive transactions in scrips like Bharati Shipyard, Elpro, Himco Ele, Sah Petro. In these scrips, the assessee has purchased, then sold and then again purchased and again sold the shares in the same scrips, (iv) if the sale of shares has been made because of the need for funds, the same can be regarded as investment. In this case, the assessee has himself submitted that he is earning from his business as a Director in K. Amish Kumar Trading Pvt. Ltd., so there is no such circumstance that warranted distress sale, (v) if the assessee can prove that the purchase is necessitated not merely by motives of profits but is undertaken, on account of other motives e.g. for acquiring controlling interest etc., the transaction can be regarded as investment. There is no such factor in the present case, (vi) the plea of the assessee that he has maintained two separate portfolios is not supported by any evidence, (vii) the assessee has claimed that he has shown these shares as investment in his accounts and not shown them Ketan Pravinchandra Kamdar 4 136/Mum/2016 as stock-in-trade. However, this is a factor which is clearly at the discretion of the assessee and shares will always be shown as investment because of preferential tax treatment available for capital gains, (viii) the asseessee has purchased these shares from secondary market, (ix) the shares purchased and sold by the assessee are liquid shares and traded on BSE/NSE (x) the assessee has sold shares of Rs.1,46,35,551/- and purchased shares of Rs.1,31,97,477/-. Hence, the magnitude of transaction is very large, (xi) the assessee has stated that he has earned dividend of Rs.38,799/- and Long Term Capital Gains (LTCG) of Rs.1,87,561/- on shares. He has not stated how much dividend has been earned from the shares sold on which STCG has been claimed as earned. It is unlikely that there is any chance to earn dividend on these shares as these were retained by the assessee for very short period. The dividend of profit ratio is only 2.8%. On the basis of the above reasons, the AO treated the STCG of Rs.13,47,000/- and LTCG of Rs.1,87,561/- aggregating to Rs.15,34,561/- as income from business. The assessee has debited expenses of Rs.91,075/- pertaining to sale/purchase of shares in the capital account. The AO allowed these expenses and brought to tax the aggregate of Rs.14,43,486/- as income from business.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). It is observed by the Ld. CIT(A) that the assessee has disclosed LTCG of Rs.1,87,561/- and STCG of Rs.13,47,000/- and has earned dividend income of Rs.38,799/-. The assessee has shown capital Ketan Pravinchandra Kamdar 5 136/Mum/2016 balance of Rs.4.90 crores, out of which investment in shares stood at Rs.2.06 crores. The Ld. CIT(A) has further noted that the assessee has been consistently showing such gains from sale of shares and mutual funds as capital gains which was assessed as such in AYs 2003-04 and 2004-05. Further, while passing order u/s 153A r.w.s. 143(3) on 30.03.2014, the AO has assessed the STCG as business income for AYs 2006-07 to 2007- 08 and as capital gains for AYs 2009-10 to 2012-13. Thus there is lack of consistency in the treatment given to the income from sale of shares. In respect of the repetitive transactions in the case of Bharati Shipyard, Sah Petro, the Ld. CIT(A) noticed that the amounts of gains treated as business income was Rs.1,29,033/-. During the course of appellate proceedings, the assessee filed before the Ld. CIT(A) a copy of the order of the Tribunal in the case of his father Mr. Pravinchandra N. Kamdar for AY 2007-08, wherein the Tribunal have directed the AO to bring to tax the profits arising from sale of shares under STCG as shown by the assessee. The Ld. CIT(A) thus noticed that the facts in the instant case are similar to the case of the assessee’s father Mr. Pravinchandra N. Kamdar for AY 2007-08, except for the fact that the assessee has carried out repetitive transaction of purchase/sale during the year in some scrips of Bharat Shipyard and Sah Petro. In view of the above facts and considering the order of the Tribunal in the case of Mr. Pravinchandra Kamdar for AY 2007-08, the Ld. CIT(A) held that the income/gains arising from the sale of shares and Ketan Pravinchandra Kamdar 6 136/Mum/2016 mutual funds is to be taxed as income from capital gains and not as business income except for the gains amounting to Rs.1,29,033/- involving repetitive transaction. Accordingly, the Ld. CIT(A) directed the AO to recompute the total income and bring to tax the profit arising from the sale of shares under the head ‘STCG’ at Rs.12,17,967/-, LTCG at Rs.1,87,561/- [exempt u/s 10(38)] and under the head business income at Rs.1,29,033/-. Also it is clarified by him that no allowance against business income is given considering that the same was not claimed by the assessee in the return of income and further considering that such amount, even if allowed would be liable to disallowance u/s 14A r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962.
Before us, the Ld. counsel of the assessee files a Paper Book (P/B) containing (i) Details of Heads of Income, (ii) The status of taxability of Capital Gains based on Orders u/s 143(3), (iii) The status of taxability of Capital Gains based on Oders u/s 153A r.w.s. 143(3), (iv) Analysis of Capital Gains vis-à-vis Investment in Shares & Capital, (v) Period-wise holding of Short Term Capital Gains shares, (vi) Date-wise Terms Capital Gains, (vii) Date-wise Long Term Capital Gains, (viii) Statement of Number of transaction of Capital Gains, (ix) Statement of Number of Purchase transactions, (x) Statement of Capital balance vis-à-vis Investments, (xi) Comparison with CBDT Instruction No. 1827 dated 31.08.1989, (xii) Comparison of facts between Appellant and Gopal Purohit’s case, (xiii) IT Acknowledgement for return filed u/s 153A along with computation of income, (xiv) Balance Sheet, Income & Ketan Pravinchandra Kamdar 7 136/Mum/2016 Expenditure a/c and Capital a/c, (xv) copies of assessment order (a) AY 2003-04 – order u/s 143(3) r.w.s. 254 dated 20.12.2010, (b) AY 2004-05 – order u/s 143(3) dated 10.11.2006, (c) AY 2007-08 – order u/s 143(3) dated 16.12.2009. The Ld. counsel also files a legal P/B containing (i) CBDT Circular No. 6/2016 dated 29.02.2016 in relation to determining tax, (ii) Copy of ITAT order in the case of Shri P.N. Kamdar v. ACIT, (iii) List of Case Laws relied upon (iv) Copy of Orders (1) CIT v. Gopal Purohit (2010) 228 CTR 582 (Bom.) S.L.P. rejected (2011) 334 ITR 308 (SC) (St.), (2) Jaya Chheda v. ACIT [2018] 89 taxmann.com 152 (Bom.) dated 08.11.2017, (3a) CIT v. Naishadh V. Vachharajani (Bom.) 2011-TIOL-663, (3b) Naishadh v. Vachhariajani v. ACIT ITA No. 6429/Mum/2009. (ITAT Mumbai) (4) Pr. CIT v. Bhanuprasad D Trivedi (HUF) [2017] 87 taxmann.com 137 (Guj.), (5) Dr. Rahul Doctor v. ACIT (ITAT Mumbai) ITA No. 2784/Mum/2016, (6) Business Match Services (I) (P.) Ltd. v. DCIT [2017] 82 taxmann.com 235 (ITAT Mumbai), (7) Manish Karwa v. ACIT 45 taxmann.com 351 (Indore-Trib). 5.1 The Ld. counsel also submits that the Ld. CIT(A) has failed to follow consistency in the treatment of capital gains in spite of the fact that in the orders u/s 153A r.w.s. 143(3) dated 30.03.2014 passed for AYs 2009-10, 2010-11, 2011-12 and 2012-13, the AO has treated the gains on sale of shares as capital gains. It is further stated that all the investment in shares and mutual funds are made by the assessee from his own funds. There are no borrowings made by the assessee for investment in shares and mutual Ketan Pravinchandra Kamdar 8 136/Mum/2016 funds. It is stated that the intention of the assessee is to earn dividend and appreciation in value of investments. During the year, the dividend earned is of Rs.38,799/-. It is submitted that the assessee does not have any futures and options transactions.
Per contra the Ld. DR supports the order passed by the Ld. CIT(A) and submits that the assessee has indulged in repetitive transactions in scrips of Bharati Shipyard and Sah Petro and therefore, the Ld. CIT(A) has rightly held that the gains of Rs.1,29,033/- be treated as business income. Thus, the Ld. DR supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. 7.1 Let us now discuss the case laws relied upon and filed by the Ld. counsel. In Jaya Chheda (supra), it has been held that (i) where in case of 42 out of 86 transactions during the year, holding of shares was only upto 7 days and in respect of 44 transactions, without any examination of details and factual aspects, the Tribunal rejected claim of assessee that it was STCG, since in other transactions, holding period of shares was upto 244 days and entire data of each transaction was available, finding recorded Tribunal will have to be held as perverse and (ii) 30 days holding period could not have been taken as a fixed criteria for determining nature of transaction. In Gopal Purohit (supra), the Hon’ble High Court has mentioned the following: “2. The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of Ketan Pravinchandra Kamdar 9 136/Mum/2016 transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate port folios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in the present case, should be treated as those in the nature of investment transactions and the profit received there from should be treated either as short term or, as the case may be, long term capital gain, depending upon the period of the holding. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transaction namely, those by way of investment on one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law.” Further, the Hon’ble High Court confirmed the order of the Tribunal holding that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly, in the case of the assessee. In Bhanuprasad D. Trivedi (HUF) (supra), it is held that where assessee had purchased shares with clear intention of being an investor and held shares by way of investment, gain arising out of transfer of shares should be treated as capital gains and not business income. In P.N. Kamdar, (supra), the Tribunal found that the assessee was not churning the shares, buying and selling the shares again and again. We refer here to para 8.1 of the said order of the Tribunal dated Ketan Pravinchandra Kamdar 10 136/Mum/2016 27.05.2014. Thus considering the volume and frequency of transactions and also the past assessment history of the assessee, the Tribunal directed the AO to tax the profit arising from sale of shares under the head ‘STCG’ as shown by the assessee. In Manish Karwa (supra), it is held that merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to assessee, it would not lead to conclusion that the assessee had no intention to keep shares as investor, but actually intended to trade in shares. In Business Match Services (I) (P.) Ltd. (supra), it is held that where intention of assessee at time of purchase of shares was to hold it as its investment, gains arising on its sale should be assessed under the head capital gains and not business income. In Dr. Rahul Doctor (supra), it is held that the in order to reduce the risk of loss of capital or income, the investor may try diversify the investment. Therefore, there may be a case of reshuffling portfolio by selling some scrips and buying of some scrips to mitigate the scope of law of capital or income. Therefore, the reshuffling in a short period it not necessarily to be taken as an activity of trading when the intention was to reduce the risk of loss of capital. In Naishadh V. Vachharajani (supra), the Tribunal followed the order of ITAT in the case of Janak S. Kangwala v. ACIT 11 SOT 627, wherein it is held that it is the intention of the assessee, which is to be seen to determine the nature of transaction conducted by the assessee. Though the investment in shares is on a large magnitude but the same Ketan Pravinchandra Kamdar 11 136/Mum/2016 shall not decide the nature of transaction. Similar transaction of sale and purchase of shares in the preceding years have been held to the income from capital gains both on long term and short term basis. The above order of the Tribunal has been confirmed by the Hon’ble Bombay High Court in CIT v. Naishadh Vachharajani in ITA (L) No. 1042 of 2011. 7.2 In the instant case, the assessee has entered repeatedly in the scrips which he had already disposed of as listed at para 7.3 & 8 infra. The same is done in a systematic and organized manner. Therefore, the case of the assessee is distinguishable from the above case-laws relied on by the Ld. counsel. It is a settled law that the doctrine of res judicata or estoppel by record does not apply to AO’s decisions. A finding or decision of the income tax authorities in one year may be departed from in a subsequent year. It has been held so in New Jehangir Vakil Mills v. CIT 49 ITR 137 (SC) and Sanakarlinga v. CIT 4 ITC 226, 241 (FB). 7.3 In the impugned assessment year, the fact remains that there are repetitive transactions of purchase and sales indulged in by the assessee in the scrips of Bharati Shipyard and Sah Petro. The details are as under: Sr. Name of the company No. of shares Date of Dale of sale Book Gains No. purchase (Rs.) 1 Bharati Shipyard 1700 19.09.2005 28.09.2005 8410 2 Bharati Shipyard 3300 19.09.2005 23.12.2005 -72422 3 Bharati Shipyard 2700 01.09.2005 23.12.2005 -62534 4 Bharati Shipyard 9000 11.11.2005 23.12.2005 173056 Ketan Pravinchandra Kamdar 12 ITA Nos. 135, 136/Mum/2016 5. Bharati Shipyard 3000 11.11.2005 31.01.2006 165405 6 Sah Petro 45496 04.08.2005 04.08.2005 7632 7 Sah Petro 323 05.08.2005 09.08.2005 147 8 Sah Petro 11227 08.08.2005 09.08.2005 -1348 9 Sah Petro 25000 08.08.2005 11.08.2005 -4917 10 Sah Petro 11227 11.08.2005 12.08.2005 -75590 11 Sah Petro 460 11.08.2005 08.12.2005 -8806 In the instant case, the assessee has entered repeatedly in the above scrips which he had already disposed of. The same is done in a systematic and organized manner which is sine qua non of business income. In view of the above repetitive transactions of purchase and sales in the scrips of Bharati Shipyard and Sah Petro, the Ld. CIT(A) has rightly treated the amount of Rs.1,29,033/- as business income. However, we direct the AO to allow the related business expenses on the above income. The assessee is directed to file before the AO the relevant documents/evidence on the above. Needless to say, the AO would give reasonable opportunity of being heard to the assessee in this regard. Assessment Year: 2008-09 8. The Ld. CIT(A) has directed the AO to recompute the total income and bring to tax the profit arising from the sale of shares under the head ‘STCG’ at Rs.95,87,586/-, LTCG at Rs. 202,44,894/- and under the head business income at Rs.21,80,288/-. Also it is clarified by him that no allowance against business income is given considering that the same Ketan Pravinchandra Kamdar 13 ITA Nos. 135, 136/Mum/2016 was not claimed by the assessee in the return of income and further considering that such amount, even if allowed would be liable to disallowance u/s 14A r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962. The facts for AY 2008-09 being identical with AY 2006-07, we delineate below only the repetitive transactions of sale and purchase in the scrip of Great Offshore Ltd., Orbitco, JSW Steel Ltd., Sesa Goa Ltd. and K.S. Oils Ltd. Sr. No. Name of the company No. of Data of Date of sale Book Gains shares purchase (Rs.) 1 Great Offshore Ltd 1000 24.11.2006 07.05.2007 432,257 2 Great Offshore Ltd 1000 24.11.2006 21.05.2007 404,666 3 Great Offshore Ltd 1000 21.12.2006 21.05.2007 5,636 4. Great Offshore Ltd 50 29.05.2007 18.06.2007 3639 5 Great Offshore Ltd. 200 30.05.2007 27.06.2007 12,267 6 Great Offshore Ltd. 800 30.06.2007 06.09.2007 55,524 7 Orbitco 2000 25.04 2007 30.05.2007 131,064 e Orbitco 1000 25.04.2007 22.06.2007 77,534 9 Orbit Corp 1000 09.08.2007 06.09.2007 39,610 10 JSW Steel Ltd. 500 01.07.2007 10.07.2007 11,921 11 JSW Steel Ltd. 500 21.08.2007 03.10.2007 132,702 12 JSW Steel Ltd. 750 21.08.2007 10.10.2007 203,932 13 Sesa Goa Ltd. 250 27.08.2007 29.08.2007 26,296 14 Sesa Goa Ltd. 250 27.08.2007 03.10.2007 223,792 15 Sesa Goa Ltd. 250 11.09.2007 03.10.2007 158,104 Ketan Pravinchandra Kamdar 14 ITA Nos. 135, 136/Mum/2016 16 Sesa Goa Ltd. 750 11.09.2007 05.10.2007 576,426 17 K.S Oils Ltd. 5000 25.05.2007 30.10.2007 188,412 18 K.S Oils Ltd. 5000 01.11.2007 14.12.2007 64,306 19 K.S Oils Ltd. 5000 01.11.2007 28.12.2007 83,260 20 K.S Oils Ltd. 10000 01.11.2007 27.12.2007 191,499