KARSANDAS L. DANANI,MUMBAI vs. DCIT 23(2), MUMBAI

DCIT 23(2) Karsandas L. Danani बिधम/ Pratyakshakr Bhavan, 603, C-9, Neelam Nagar, Bandra Kurla Complex, Phase-II, Gavanpada, Vs. Mumbai-400051. Mulund (e), Mumbai-400081 स्थायीलेखासं./जीआइआरसं./ PAN No. AACPD0514G (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri H. S. Raheja प्रत्यथीकीओरसे/Respondentby : ShriM. C. Omi Ningshen सुनवाईकीतारीख/ : 08.02.18 Date of Hearing घोषणाकीतारीख / : 26/02/2018 Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

Karsandas L. Danani 1. On the facts & circumstances of the case & in the law the CIT(A) erred in holding income earned by the appellant of the nature of Short Term Capital Gain as business income disregarding the fact that the shares which were sold were of the nature of investment & were not stock in trade.

2. On the facts & circumstances of the case & in the law Ld. CIT(A) erred in holding that thetransaction of the appellant were in the nature of trading in share even though the same were not held as business asset or stock in trade and inflict the same were shown under the head investment in opening and closing balance sheet and therefore the income earned was not business income

3. The appellant craves leave to, and to. alter or vary the grounds of appeal at or before the hearing of the appeal

Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal of the assessee.

Now before us, the assessee has preferred the present appeal by raising the above grounds.

Ground No. 1& 2. 4. These grounds raised by the assessee are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in holding income earned by the appellant in the nature of ‘Short Term Capital Gain’ as ‘business income’, disregarding the fact that the shares which were sold were of the nature of Karsandas L. Danani ‘investment’ & were not ‘stock in trade’. Therefore, we thought it fit to dispose of both the grounds by this common order.

2.1 During appeal, the Ld. AR has filed a Paper Book showing details of transactions. From the details of transactions in Asian Cerc, it is seen that sales have been made on 05.04.2006, 25.04.2006, 12.05.2006, 18.05.2006, 22.05.2006, 30.05.2006, 05.06.2006, 12.06.2006, 14.06.2006, 11.08.2006, 14.08.2006, 16.08.2006 & 06.09.2006 and purchases have been made on 26.04.2006, 03.05.2006, 04.05.2006, Karsandas L. Danani 11.05.2006, 16.05.2006, 23.05.2006, 02.06.2006, 09.06.2006, 17.07.2006, 18.07.2006, 21.07.2006, 24.07.2006 & 09.08.2006. From the details of dares of purchase and sale during the year, it is evident that average period of holding of shares is very small of 1 day, 2 days, 3 days etc. The Ld. AR has not given details of purchase in respect of opening stock of shares, but from the nature of transactions during the year it appears that opening stock was acquired only during the fag end of the year. Though the appellant has shown the opening stock of shares as investment in Balance-sheet but it is irrelevant to determine the exact nature of activity and the taxability of the resultant income. it is settled law that book entries are irrelevant to determine the taxability of given transaction.

2.2 The profit margin also in the transactions for which they have been sold afterpurchase is very small such as, on 25.04.2006 shares have been sold @ Rs.51.83 per share whereas on 26.04.2006 it has been purchased @ Rs.1.10 per share. Ifservice tax/ brokerage etc. are considered included in this price, still the marginis only about 70 paise per share in a transaction Rs.51 per share. Similar is the case in other three shares also.

Karsandas L. Danani 2.3 It is also found that shares have been purchased and sold- regularly andalternatively and it is not a case that shares have only been purchased during a purchase cycle and have only been sold during sale cycle. Purchases and salestransactions are very frequent and alternate to each other. Therefore, these transactions cannot be regarded as investment transactions. In case of shares of Lumax Industries also, shares have been purchased on 10th &llth July 2006 and sold on 241h July 2006 and again purchased on 2V4 & 22nd August 2006 and sold on 251h August 2006 and again purchased on 281h August 2006 and sold on 61h September 2006. Profit margins are also similar.

2.4 Therefore, all these transactions, in which shares have been held for one day ortwo days and alternately purchase and sale transactions have been made, cannot be regarded as investment activities of the appellant and therefore, income of the appellant cannot be held to be Short Term Capital Gain. The transactions of theappellant are of the shares and, therefore, income has rightlybeen taxed by the AO as Business Income. Reliance in this regard is placed on the order of Hon'ble Delhi High Court in the case of Sahara India Housing Corporation Ltd., in 1TA No.740/2009, 762/2009 and 847/2009. In this case, Karsandas L. Danani High Court has laid down tests for determination of taxability of transactions in shares as Short Term Capital Gains or Business Income and, inter-alia, tile condition laid down by Hon'ble High Court as under:

(F) The last but not the least, rather the most important test, is as to thevolume, continuityand regularity of transactions of purchase and saleof the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business.

2.5 Considering the tests and the act in this case, the income of the appellant in This case is heId4O be assessable under the head Business Income. The order of the AU is, therefore, upheld and the appeal is hereby dismissed.

Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised before the revenue authorities. On the contrary Ld. DR relied upon the orders passed by the revenue authorities. After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and Karsandas L. Danani submissions made by both the parties and judgments relied upon by both the parties, we find that Ld. CIT(A) has considered all the facts of the present case and has correctly noticed that as per the details of dates of purchases and sales made during the year the average period of holding of shares is very small i.e. of 1 day, 2 days, 3 days, etc. We further noticed that, Ld CIT(A) determined the exact nature of activities and the taxability of the resultant income on the basis of details filed by the assessee. Even before us, Ld. AR appearing on behalf of the assessee could not point out any glaring or definite error in the fatual findings recorded by the revenue authorities. We also noticed that the shares have been purchased and sold by the assessee regularly and alternatively and as per the facts, it is not a case that shares have only been purchased during a purchase cycle and have only been sold during sale cycle. In this case, purchases and sales transactions are very frequent and alternate to each other. Ld. CIT(A) has also given the details in respect of separate scripts, therefore Ld. CIT(A) has correctly held that the transactions carried out by the assessee are of the nature of ‘trading in share’, hence income was rightly taxed by the revenue Karsandas L. Danani authorities as ‘business income’. While doing so, the revenue authorities had correctly relied upon the orders passed by Hon’ble Delhi High Court in the case of Sahara India Housing Corporation Ltd., in 1TA No.740/2009, 762/2009 and 847/2009, which has also been explained in para no. 2.4 of the order of Ld. CIT(A). The Hon’ble High Court in the above case has laid down tests for determination of taxability of transactions in shares as STCG or business income and inter alia, the condition (f) laid down by Hon’ble High Court as under:- ‘(f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business.’ Apart from above, Ld. DR also relied upon the orders passed by the Coordinate Bench of Hon’ble ITAT in for AY 2005-06 wherein under the similar Karsandas L. Danani circumstances, the findings of the revenue authorities were upheld. From the totality of the facts, we are also of the view that although the assessee has shown the opening stock of shares as investment in balance sheet, but no details of purchase in respect of opening stock of shares has been filed. From the nature of transactions during the year, it appears that opening stock was acquired only during the fag end of the year. Therefore, it is relevant to consider the opening stock of shares as ‘investment’ in balance sheet to determine the exact nature of activity and the taxability of the resultant income.

Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these grounds raised by the assessee stands dismissed.

Karsandas L. Danani Ground No. 3 6. This ground is general in nature, thus requires no specific adjudication.