ACIT 4(2)(1), MUMBAI vs. VIMLA SURESH JAJOO, MUMBAI

O R D E R Per G Manjunatha, AM : This appeal filed by the revenue is directed against the order of the CIT(A)-9, Mumbai dated 25-10-2016 and it pertains to AY 2013-14. The revenue has raised the following grounds of appeal:-

1. "On the facts and'in the circumstarices"'oj"tfi,e.;.case and in law, the Ld. CIT(A) erred in deleting .the disallowance made;by the AO of Short Term Capital Gain amounting to Rs. 1,01,46,749/- as -business income"

3 ITA280/Mum/2017 considering relevant submissions of the assessee and also by following the decision of ITAT, Mumbai Bench in assessee’s own case for AYs 2005-06 to 2008-09 held that income from sale of shares is being consistently assessed by the department under the head ‘capital gains’ during the earlier assessment years during this year also there is no reason for the AO to change the head of income when the factual position continues to be the same. The relevant portion of the order of CIT(A) is extracted below:-

5.3. I have considered the stand of the AO as well as the submissions of the appellant. During the Asst Year 2005-2006, 2006-2007, 2008-2009 and 2011- 12 the Assessing Officer has assessed the income from Short Term Capital Gains as Business Income which was reversed by the CIT(Appeals) and by ITAT. The Ld. AR produced the Copies of the order of ITAT dismissing the appeal by the department for Asst Year 2005-2006, 2006-2007 and 2008-2009. Further, an action U/s. 263 was initiated by the CIT- 4 Mumbai for Asst Year 2003-2004 for treating the Capital Gains as business income. The Hon'ble ITAT has quashed the order U/s. 263 of CIT- 4 Mumbai for A.Y. 2003-04. The appellant filed the copies of relevant ITAT order. The Hon'ble ITAT while quashing the order U/s 263 of CIT - 4 Mumbai has observed that "The Income from sale of shares is being consistently assessed by the department under the head capital gains during the earlier assessment years and during the present year also the assessing officer had adopted the same view. When the factual position continues to be same, there has to be consistency of approach by the department and merely on that .ground it cannot be said that the assessing officer's order was erroneous." Further the Hon'ble Bombay High court in appellant's own case has vide OF 2009 has dismissed the appeal of the revenue against the order of ITAT quashing the order of CIT u/s. 263 for want of substantial question of law for A.Y. 2003-04. The appellant produced the copy of relevant Order also. Since the issue has been decided by Hon'ble ITAT as well as Hon'ble Bombay High Court in appellants own case in earlier assessment years, the issue is to be treated as covered in favour of the appellant. Accordingly, the AO is directed to treat the claim of the appellant as income from capital gain on share and units of mutual funds and not as business income and charge income tax

4 ITA280/Mum/2017 on the appellant as per Income Tax Law.” 4. We have heard both the parties and perusede the materials available on record. At the outset, the Ld.AR for the assessee submitted that the issue is squarely covered by the decision of ITAT, “J” Bench in assessee’s own case for AY 2011-12 in dated 16-12-2016 where the ITAT, under similar circumstances, by following the earlier decision of ITAT for AYs 2006-07 to 2008-09 held that income from sale of shares is to be assessed as ‘Income from short term capital gain and not as ‘business income’. The Ld.DR present for the revenue fairly accepted that the issue is covered in favour of the assessee by the decision of Tribunal for earlier years. We find tht the co-ordinate bench of ITAT in ITA No.515/Mum/2015 for AY 2011-12 has considered similar issue and after analyising the facts of the case directed the AO to assess profit derived from sale and purchase of shares to be assessed as ‘Income from short term capital gain’. The relevant portion of the order is extracted below:-

“ 5. We have perused the orders of the authorities below and the co-ordinate bench decision in assessee's own case and also one Mr. Suresh K. Jajoo which is the combined order of the co-ordinate bench relating to both these assessees and found that the co-ordinate bench held that the gain on sale of shares in both these assessee's cases has to be assessed under the head "Short/Long term capital gains" and not under the head "Business income". We observe from the order of the co-ordinate bench that in the case of "Suresh K. Jajoo" in of 2008 for the assessment year 2005-06 the co-ordinate bench held as under: 8. We have considered the rival submissions. There is no dispute relating to the fact that the assessee in earlier years has been treated by the department as an investor. The assessee, as discussed above, has been continuously allowed the set off of short term capital loss and 5 ITA280/Mum/2017 long term capital loss in the earlier assessment years. The assessee had been dealing in two types of transactions in securities. The assessee had shown investments and had claimed capital gains relating to the shares. It is also a fact on the file that by the amendment brought by Finance Act, 2004, by insertion of provisions of section 111A and section 10(38), the levy of tax has been reduced to 10% on short term capital gains and long term capital gains have been made exempt. Under the old provisions of the Act, profits or gains arising to an investor from the transfer of securities were charged depending on the period of holding of the said securities. Short term capital gains were taxed at applicable rates (normal rates) and long term capital gains were taxed at the rate of 20% after adjusting for inflation by indexing the cost of acquisition. For listed securities, the tax payer had an option to pay tax on long term capital gains at the rate of 10% but without indexation. In case of trader in securities, however, the capital gains were taxed as any other normal business income. Thus, tax liability on the income for sale and purchase of shares as regards to short term capital gains and business income was at par. The issue of treatment of income from share transaction as short term capital gains or business income has in fact arisen after the amendment brought with Finance Act, 2004 w.e.f. 01.10.2004. It is an admitted fact on the file that prior to the amendment when the tax of short term capital gains, as discussed above, was at par with that of business income, the department has been consistently accepting the treatment of income by the assessee as capital gains. Merely because the rate of tax has been reduced in respect of short term capital gains and long term capital gains have been exempt during the year by way of an amendment to the provisions as discussed above, that itself, cannot be a ground for the AO to depart from its consistent stand of treating the assessee as an investor and thereby to charge the income earned by the assessee from share transactions as business income. As discussed above, at the time of purchase of shares even during the year but prior to 01.10.2004, the assessee was not guided or influenced by lower tax rate in case of short term capital gains as the rate for business income and short term capital gains was at par. The assessee, however, was treating himself as an investor and keeping the shares as investments in his account irrespective of the probable tax implication as there were no such tax implications as discussed above. The intention of the assessee, while purchasing the share, is the important and guiding factor as to whether the same was purchased with an intention of investment or for trading. The facts of the case as discussed above, clearly reveal that the assessee had treated the shares as investments in his account. As discussed above, if during the mid of the relevant Financial Year, certain tax benefits have been given in respect of capital gains, that cannot, in any way, lead to an assumption or presumption that the intention of the assessee at the time of purchase of shares was that of a trader and not of an investor. The treatment of the investment in the account books of the assessee was also a relevant guiding factor. The AO has also not pointed out as to in what manner the activity of the assessee for the year under consideration had been changed from investor to that of a trader especially when the department had consistently been treating him as an investor. It is also pertinent to mention here that as discussed above, in subsequent assessment years the department has again accepted the assessee as an investor. It is for the first time that in this year under consideration i.e. A.Y. 2005-06 the assessee had been treated as a trader because of certain tax benefits granted to an investor in securities by way of amendment in the relevant provisions of the Income Tax Act and subsequently for the A.Ys 2006-07 to 2008-09, the assessee was treated as trader. However, the Ld. CIT(A) following the principle of consistency has held the assessee for the impugned assessment years i.e. A.Y. 2005-06 to A.Y. 2008-09 as investor. Though the principle v, of resjudicata is not applicable in income tax proceedings but the principle of consistency equires that the view taken in one year should be followed in subsequent years unless the facts or the legal position justify departure there from; reliance can be placed in this respect on the authoritie of the Hon'ble Bombay High Court in 'CIT vs. Darius Pandole' [(2011 330 ITR 485 (Bom.)] and in 'CIT vs. Gopal Purohit [(2011) 336 ITR 287 (Bom.).

6 ITA280/Mum/2017

"ITA NOS.5441/M/Z008 (A.Y. 2005-06) & 4476/M/2012 (A.Y. 2006-07) Revenue's appeals) 24. The common issue raised in both the appeals is as to whether the income from share transactions is to be assessed as business income or capital gains. The facts and issues involved in these appeals are identical to that of the appeals in relation to Shri Suresh K. Jajoo. Even the Ld. CIT(A) has also discussed the case of the present assessee in the impugned order which has also been reproduced above while deciding the appeal of the assessee Shri Suresh K. Jajoo. Since the facts and circumstances in this case are identical to the case of Shri Suresh K. Jajoo, hence in in view of our findings given above, these appeals of the Revenue are hereby dismissed. ITA NQ.5302/M/2011 (for A.Y. 2008-09) (Revenue's appeal) 25. The Revenue in this appeal has raised two effective grounds of appeal

. The first ground is as to whether the income earned by the assessee from sale and purchase of shares is to be assessed as capital gains or business income. Since the facts and circumstances are identical as in the case of Shri Suresh K. Jajoo and in view of our findings given above, this ground of the Revenue's appeal is hereby dismissed."

7. Following the order of the co-ordinate bench, we affirm the order of the Ld. CIT(A) for this year also in holding that the income from sale of shares is to be assessed as "Income from short term capital gain" and not as "Business income."

Sr.PS, ITAT, Mumbai