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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-45, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-45/JCIT-33(2)/IT-85/13-14 dated 29-03-2015. The Assessment was framed by the Joint Commissioner of Income Tax, Range-25(3), Mumbai (in short JCIT) for the assessment year 2010-11 vide order dated 22-03-2013 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first common issue in this appeal of Revenue is against the order of CIT(A) in directing the AO to treat the profit arising out of purchase and sale of shares as long term capital gain/ short term capital
(A.Y. 2010-11) gains as the case may be, instead of business income treated by the Assessing Officer. For this Revenue has raised following ground No.1: -
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to accept the claim of Short Term Capital Gain of Rs.2,73,66,432/- and Long Term Capital loss of 11,57,949/- on profit arriving from purchase and 1a.pf shares instead of business income treated by the AD without appre'1atthThe fact that the assesse is dealing in large volume of shares, most of the shares are bought and said within short period, while some are not sold due to market conditions and their holding with the assesse remains beyond few days, it will not change the nature of transactions and the assesse is very well engaged in the business of share trading. which denote that the motive of the assesse is to carry on business in shares to book profit rather than investment in shares.'”
Briefly stated facts are that the assessee declared a total income of ₹ 2,75,06,690/- in his return of income, which includes short term capital gain of ₹ 2,73,66,432/- and long term capital loss is of ₹ 11,57,949/- on account of purchase and sale of shares. The details of purchase and sale of shares on long term basis and short term basis are as under: - Short Term Capital Gain
Holding Peirod No. of Purchase % of Total STCG shares Amount purchase transacted Less than 7 days 2,828 444342 0.26 58919 7 to 30 days 94367 10165166 5.90 1086774 31 to 90 days 584763 146583889 85.10 22056439 91 to 180 days 258126 11806403 6.85 5577425 181 to 365 days 86100 3254777 1.89 (1413125) 1026184 172254576 100 27366432
(A.Y. 2010-11) Long Term Capital Gain
Holding Peirod No. of Purchase % of Total LTCG shares Amount purchase transacted 1 to 2 years 37,506 5,000,147 97.88 (1,175,326) 2.to 3 years 1,500 108,132 2.12 17,377 3 to 4 years - - - - More than 4 years - - - - 39,006 5,108,279 100 (1,157,949) 4. The AO during the course of assessment proceedings noticed that the assessee has earned a small dividend amount of ₹ 60,147/- of 10.26 lakhs shares, which were purchase for a sum of ₹ 17.23 crores. According to AO, dividend earning is only by chance and shares are hold by assessee for a very less period, accordingly, he held the activity as business and treated the shares capital gain as business income of the assessee. The AO also allowed the long term capital loss as business loss. Aggrieved assessee preferred the appeal before CIT(A).
The CIT(A) relying on the order of predecessor for AY 2008-09 deleted the addition and treated the income from sale and purchase of shares as short term capital gain (‘STCG’) and Long term capital gain (‘LTCG’) as the case may be, by observing in Para 5 as under: -
“5. I have considered the contention of the AO and the submissions of the appellant and I have also gone through the facts of the case. It is a fact that the appellant is a senior citizen and was an ex-employee of State Bank of India. The retirement proceeds and savings are what the appellant has put as investment portfolio in the shares that he has traded. In the earlier years also, the Revenue has held the sale consideration on the shares as capital
(A.Y. 2010-11) gains. The appellant has been valuing the shares at cost and holding the same in the balance sheet as investments. The STE paid has been claimed as deduction and no rebate u/s 88E has been claimed. On similar facts for A.Y.2008-09, my predecessor has held the transaction to be treated as capItal gains and I find no difference in the facts for the present year also. Merely because large part of shares has been held between 31 to 90 days cannot be enough fact to construe the income to be taken as income from business because the very fact that in the case of shares, the statute categorized the holding of shares upto one year as short term capital asset and anything more than one year as long term capital asset, itself mandates the need to carefully look into the facts and circumstances of each case to arrive at the correct categorization of the holding pattern to result into either business or capital gains. As can be seen from the entirety of the facts in the present case, the appellant, while certainly making profits from his holdings, cannot be said to be indulged in the business of share trading. Profit motive per se cannot be enough to hold that any short term holding would result in income being classified as business income. Therefore, in light of the above
(A.Y. 2010-11) facts, the Income from is held as income from capital gains. The ground of appeal is allowed.”
Aggrieved, now Revenue is in second appeal before Tribunal.
At the outset, the learned Counsel for the assessee stated that Tribunal has decided exactly on identical facts in assessee’s own case for AY 2008-09 in and 3359/Mum/2011 vide order dated 29-05-2015 treated the profit arising out of sale and purchase of shares as capital gains. He drew our attention to Para 6 of the Tribunal’s order which reads as under: -
“6. We have heard both the parties and their contentions have carefully been considered. So far as it relates to the case of individual, for immediate preceding assessment year similar claim has been accepted by way of an assessment order passed under section 143(3) of the Act. According to the figures placed in the chart the assessee in earlier year has dealt in number of scrips i.e. 11 and in respect of A.Y 2008-09 the scrips dealt in are 16. There is not much difference in the position of sale and purchase of shares except higher value of the shares”, the period of holding is also substantial and main income has been earned by the assessee in two scrips only. All these positions have been described in the chart , which have been reproduced in the above part of this order. The AO has not brought out any substantial difference in the facts between the case for the year under consideration and for (A.Y. 2010-11) assessment year 2007-08. The assessee is an old person and is regularly making investment in the shares and the number of scrips dealt is also not high. We do not find any differential fact for the year under consideration as compared to the immediate preceding assessment year for which similar activity has been held to be assessable under the head capital gain. There is also no substantial difference in the activities carried out by the assessee in individual capacity vis-à-vis in the capacity of HUF. The assessee did not utilize the borrowed funds for making investment as the entire investment is made out of own capital of the assessee. Keeping in view all these facts, which have been accepted by Ld. CIT(A) by detailed discussion in the case of HUF and also in view of facts of the present case and position depicted in the charts, we are of the opinion that Ld. CIT(A) did not commit any error in granting impugned relief to the present assessees. We decline to interfere in the relief granted by him. Accordingly, the appeals filed by the Revenue are dismissed.”
When pointed out to the learned Senior Departmental Representative, he could not make any factual difference between this year and AY 2008-09. Hence, respectfully following the Tribunal’s decision and taking a consistent view, we confirm the order of CIT(A) and this issue of Revenue’s appeal is dismissed.
The next issue in this appeal of Revenue is against the order of CIT(A) deleting the addition of disallowance of interest expenditure of ₹ 37,70,333/-. For this Revenue has raised following ground No. 2 and 3: -
(A.Y. 2010-11) “2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the additions of Rs 37.70,333/- without appreciating the fact that after treating the share transaction as business activity, the assesse is not entitled to claim the interest expenditure against profit in share transaction activity as the assesse himself stated that he utilized own surplus fund for investing in shares."
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred to establish the borrowing of funds vis-a-vis interest expenditure, and also, to establish the fact that the interest expenditure is allowable only if the amount borrowed has been utilized for the purpose of earning interest income .”
At the outset, the learned Senior Departmental Representative, took us through the findings of the AO first and stated that this interest has been disallowed by AO for the reason that the share transaction is treated as business activity. He then took us through the CIT(A)’s finding, wherein CIT(A) has not recorded the facts and passed a cryptic order by observing as under: -
“I have gone through the facts and the circumstances of the case and I md that the issue of not allowing it against business income become irrelevant in light of the decision on ground no, 1. The other claim of the appellant that the same should be allowed against income from other sources is found to (A.Y. 2010-11) have merits and is allowable as such. Ground of Appeal is allowed.”
9. In view of the above, the learned Departmental Representative stated that the issue may be remanded back to the file of the CIT(A) for a fresh adjudication. On the other hand, the learned Counsel for the assessee also fairly agreed for set aside the issue to the file of the CIT(A) but he stated that this interest expenditure of ₹ 37,70,000/- on account of interest earned on FDRS. It was claimed that the amount borrowed has been utilized for the investment in FDR and once, the income is greater than the interest expenditure the same is to be allowed as expenses. For this he relied on the decision of the co-ordinate Bench of this Tribunal of Agra Bench in the case of Raj Kumari Agarwal vs. DCIT in for AY 2008-09 vide order dated 18-07-2014.
In view of the above facts and circumstances, we remand this matter back to the file of the AO to examine whether the assessee has earned FDR income which has nexus with the expenditure of interest and also consider the order of Tribunal of Agra Bench in the case of Raj Kumari Agarwal (supra). Accordingly, this issue of Revenue’s appeal is allowed for statistical purposes by set aside the orders of lower authorities and remanding the matter back to the file of the Assessing Officer.
In the result, the appeal of Revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 23-11-2017.