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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’ NEW DELHI
Before: SH. BHAVNESH SAINI
PER BHAVNESH SAINI, JUDICIAL MEMBER
This appeal by the assessee has been directed against the order of Ld.CIT(A)-18, New Delhi dated 30.03.2015 for A.Y.2008-09, challenging the orders of the authorities below in making addition of Rs.25,28,437/- by treating the same as business income instead of short term capital gains.
Briefly the facts of the case are that the assessee filed return declaring taxable income at Rs.33,65,327/-. The assessee has declared short term capital loss of Rs.50,34,051/- from trading in future & options.
Further, he has declared short term capital gain of Rs.75,02,488/- in respect of share trading and has consequently declared net short term capital gain of Rs.25,28,437/- on which 10% tax has been paid. The AO asked the assessee to file the details of sales and purchases. The AO noted
Page 2 of 6 that the nature of security transaction and the manner in which the same have been done, determines its nature i.e. whether the same are in the nature of business or only an investment activity The AO noted that following principles shall be considered i.e magnitude of purchase and sales and frequency of transactions; period for which shares are held i.e. holding period; and incase of investment, the objective is to earn income by way of dividends while in case of purchase and sale of shares, the motive is realizing profits which would lead to the inference of trade/adventure in the nature of trade. The AO noted the details and transactions carried out by the assessee at pages 2 & 3 of the assessment order and noted that the motive of the assessee was trading and not of investment. It was also noted that the assessee has indulged in mostly “day trading” where buy and sell transactions are settled during the same day without any delivery.
The AO after relying upon several decisions noted that the income of the assessee at Rs.25,28,437/- is business income instead of short term capital gain as claimed by the assessee. The assessee preferred appeal before the Ld.CIT(A), however, the appeal of the assessee has been disposed.
Ld. counsel for the assessee reiterated the submissions made before the authorities below and referred to computation of income, return of income and assessment orders u/s 143(3) for A.Ys. 2006-07 & 2009-10 in which on these identical facts, the AO accepted the capital gains declared
Page 3 of 6 by the assessee. The orders dated 28.11.2008 and 06.06.2011 are filed in the Paper Book. He has referred to Paper Book page 36 which is statement of purchase, sale after incorporate holding as on 31.03.2007 which indicated that none of the scrips enumerated by the AO have been sold without delivery. In the first column, it is mentioned that the scrips were held as on 31.03.2007 i.e. preceding assessment year i.e 2007-08 which is opening stock and out of the same, sales have been made in assessment year under appeal. Paper Book page 38 is further details of scrips holding to show sales scrips, purchases in the year under appeal which have been sold in the next year. Ld. counsel for the assessee, therefore, submitted that the findings of the AO are wholly incorrect that the assessee is indulged in day trading and indulged in transactions without delivery. He has submitted that the assessee made investment in shares only, therefore, it was rightly declared as capital gains. He has submitted on the principle of consistency, the authorities below should not have taken a different view on the identical facts and relied upon the order of ITAT, Mumbai Bench in the case of Sandip Y. Shah (HUF) vs DCIT in dated 09.09.2015 in which it was held that “on rule of consistency, the authorities below should not have taken a different way.”
The findings in para 10 of the order are reproduced hereunder:-
“As mentioned elsewhere, the assessment for A.Y. 2004-05, 2005-06, 2006-07 and 2009-10 have been made u/s. 143(3) of the Act. In all these scrutiny assessments, we find that the assessee’s main source of income is from speculation income, Short Term Capital gains
Page 4 of 6 and income from other sources. Rule of consistency says that on same set of facts, the Revenue authorities should not take a different view. There has to be uniformity in treatment and consistency when the facts and circumstances are identical particularly in the case of the assessee. Our view is fortified by the decision of the Hon'ble Bombay High Court in the case of Gopal Purohit (supra). We also find that the findings of the Ld. CIT(A) is heavily based on the fact that the assessee is indulged in intra-day trading of shares. We find that the assessee has shown the same as business income. Therefore, there is no merit in the findings of Ld. CIT(A). Respectfully following the orders of the earlier years and the subsequent years, in the light of the decision of the Hon'ble Bombay High Court in the case of Gopal Purohit (supra), we set aside the findings of the Ld. CIT(A) and direct the AO to treat the Short term Capital Gain as Short term capital gain.”
On the other hand, Ld. DR relied upon the authorities below and submitted that in earlier years, only source of investment have been examined by the AO. The assessee made sale and purchase of shares with profit motive, therefore, it was adventure in the nature of trade. Ld. DR submitted that there are heavy sales and purchases in the assessment year under appeal. Ld. DR relied upon the order of the Delhi High Court in the case of CIT vs D&M Components Ltd. in dated 21.04.2014 in which considering the short duration of holding of shares and lack of clarity in the account books, the court held that overall effect would be to reveal that sale and purchase of shares in respect of Rs.26,82,115/- as short term capital gain can not be sustained. The said amount was treated as business income and not as capital gain.
I have considered rival submissions. The AO has reproduced the details of scrips, purchase and sales in the assessment order and Page 5 of 6 considering the huge volumes of transaction noted that the assessee has profit motive to indulge in trade and not in investment. The assessee however filed complete details from pages 36 to 42 of the Paper Book to show that substantial share holding were coming up for from 2006-07 which have been sold In assessment year under appeal. Ld. counsel for the assessee also demonstrated that incase of other transactions either the shares/scrips were held as opening balance from the earlier years or purchased in the year under consideration which have been sold in subsequent year. Therefore, the AO was not justified in recording the finding of fact against the assessee for the purpose of holding that the assessee was indulged in trading activities only. The assessee has been dealing in shares in earlier and in subsequent years and on the identical transaction has shown capital gains which have been accepted by the AO in the scrutiny assessment u/s 143(3) in assessment years 2006-07 and 2009-10 by accepting the claim of the assessee of capital gains. Therefore, the assessee has been able to prove that the assessee made investment with objective to earn income by way of dividend. There are no transactions conducted by the assessee during the shorter period, therefore, authorities below should have followed the principle of consistency and should have accepted the claim of the assessee of capital gains instead of business income. I, therefore, do not find any justification to sustain the orders of the authorities below. I, accordingly, set aside the Page 6 of 6 orders of the authorities below and direct the AO to treat Rs.25,28,437/- as short term capital gains as is claimed by the assessee in the return of income.
In the result, the appeal of the assessee is allowed.
The order is pronounced in the open court.