SUBHASH N SHAH (HUF),MUMBAI vs. ACIT 25(2), MUMBAI

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ITA 1989/MUM/2012Status: DisposedITAT Mumbai17 November 2017AY 2007-086 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee has consistently treated share transactions as investments and reported gains as capital gains, a practice accepted by the revenue in other years. The volume of transactions alone is insufficient to classify the assessee as a trader.

What were the facts?

The Assessing Officer (AO) treated the surplus from share transactions as business income instead of capital gains, citing frequent transactions and high volume. The assessee contended that shares were held as investments and this treatment was accepted in previous and subsequent years.

What were the issues?

Whether the income from share transactions should be treated as business income or capital gains, considering the nature and volume of transactions and past treatment by the revenue.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI

Before: SHRI D.T.GARASIA, JM & SHRI RAJESH KUMAR, AM

For Respondent: Shri Purushottam Kumar
Hearing: 21.9.2017Pronounced: 17.11.2017

सुनवाई की तारीख /Date of Hearing : 21.9.2017 घोषणा की तारीख /Date of Pronouncement : 17.11.2017 आदेश / O R D E R PER RAJESH KUMAR, A. M: This is an appeal filed by the assessee challenging the order of the ld.CIT(A)-35, Mumbai dated 5.12.2011 whereby the ld.CIT(A) has confirmed the assessment order passed by the AO in violation of principle of natural justice without giving proper opportunity of being heard and framing the Rs.13,92,230/- by treating it as income from business or profession instead of capital gain.

2.

After hearing both the parties and on perusal of material placed before us, we find that the assessee did not produce any material which proves that the AO did not provide opportunity to the assessee and passed the order in violation of principle of natural justice. Hence, the first ground raised

by the assessee stands dismissed.

3. The second ground raised by the assessee is against upholding the order of AO of treating income of Rs.13,92,230/- as business income instead of capital gains.

4. The facts leading to this issue are that during the course of assessment proceedings, the AO observed that the assessee has shown surplus of Rs.13,90,227/- and Rs.2003/- as Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG) respectively on the sale of shares. The AO further observed that the transactions in trading activities done by the assessee were at frequent interval and profit earned from share transactions under the head STCG was not acceptable. The AO noted that in view of volume of trading activities the profit earned from the sale and purchases of the shares cannot be treated as income from the STCG. Accordingly, the assessee was issued show cause notice to show cause as to why the profit declared from the STCG should not be treated as income from business and be added to the total income of the assessee. The assessee replied the said show cause notice vide his submissions dated 12.11.2009 by submitting that all the shares purchased were held as investments and sold as investments and duly reflected so in the Balance Sheet of the assessee. The same treatment was given to similar transactions investments in the preceding and succeeding years. The assessee also referred to the decision of the Hon„ble Supreme Court in the case of CIT V/s Associated Industrial (1971) 82 ITR 586 SC, wherein it has been held “Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge, of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment” . The assessee also submitted that in the purchase and sale of shares there is no motive of earning the profit would result in the transactions being in the nature of trading activity but the object is to earn dividend and appreciation in the value of investments and therefore the same has to be treated as investments. The assessee also filed the periodicity of transactions. The AO was not convinced with the submissions of the assessee and treated the income from share transactions as business income by framing the 143(3) of the Act vide assessment order dated 20.11.2009.

5.

In the appellate proceedings, the FAA dismissed the appeal of the assessee after considering the submissions of the assessee by observing and holding that the period of holding of the assessee was very short and by just showing that the shares were purchased as investments and were shown as such in the books of account did not mean that the assessee was an investor, whereas the volume undertaken by the assessee were huge and were rightly treated by the AO as trading activity and thus upheld the order of AO. Aggrieved by the order of the FAA, the assessee is in appeal before us.

6.

The ld. AR vehemently argued before us that the assessee is a “HUF” and has been making investments on regular basis right from the AY-2003-04 and also in the succeeding years. The ld AR also submitted that over the years the purchases of the shares were shown as investments and the resultant profit or loss were shown as STCG and LTCG as the capital gain as the case may be and the department has accepted the same for all the years except the present one. Even in the succeeding years from the assessment year 2008-09 till AY 20010-11 the revenue has accepted the gain of the as STCG or LTCG where the volume of transactions and resultant gain was much more than the current year. Whereas, the ld. DR relied on the orders

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