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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य,राजे�� के अनुसार लेखा सद�य लेखा सद�य राजे�� के अनुसार राजे�� के अनुसार -Per Rajendra,AM: राजे�� के अनुसार Challenging the order,dt.31/01/2012 of CIT(A) -27,Mumbai the Assessing officer(AO) has filed the present appeal.Assessee,an individual,filed her return of income on 27/09/2008, declaring total income of Rs.1.44 crores.The AO completed the assessment on 3/12/2010, u/s. 143(3) of the Act,determining her income at Rs. 1.46 crores. 2.Effective Ground of appeal is about treating the transaction of purchase and sale of shares as Short Term Capital Gains(STCG).During the assessment proceedings,the AO found that the assessee had shown income under the head STCG,amounting to Rs.95.02 lakhs,that out of the said income Rs.94.27 lakhs were shown to have been earned from sale of shares.The AO directed her to explain as to why the STCG should not be treated as business income as the borrowed funds were utilized for making investments. The AO observed that the assessee had a huge turnover(Rs.16 crores approx.) of shares(Rs.7.83 crores purchases + Rs.8.77 crores sales),that in some cases the holding period was only five days , that the assessee had carried out transaction in derivatives,that she was devoting her time and energy in share business only,that she had borrowed Rs.2.82 crores for making investments, that she was indulging in business and showing part of business as investment to claim the lower rate of taxation, that the total investment of the assessee was to the tune of Rs.5.06 crores, that out of the said amount of Rs.2.82 crores had been funded from borrowings. Finally, he held that 2472/M/12(08-09)-Smt. Supriya Poongalia.
income retuned by the assessee under the head STCG , to the tune of Rs.94.27 lakhs was to be taxed as her business income 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA) and made detailed submissions. After considering the available material,he held that the assessee was a partner in four partnership firms,that the share trading was not the sole activity of the assessee, that as per the provisions of the Act assessee could be an investor as well as a trader,that the mere fact that she was dealing in derivatives could not be held against her.He referred to the case of JM Shares and Stock Brokers and Instruc - tion No.1827 dtd. 31/8/1989 as well as Cir.No.4/2007 dtd. 15/6/2007 and observed that the assessee had been an investor in shares all along,that over the years she had consistently treated the entire investment in shares as an investment and not as stock in trade, that the income from transfer of shares was always offered to tax as capital gains, shares held as investments were valued at costs and no market loss was provided for.Considering the portfolios held by the assessee, the No. of scrips held/purchased/sold, corresponding number of transaction and receipt of dividend income by assessee,he held that assessee was an investor and not a trader,that in the subsequent AY.s,despite registering losses from sale of shares,she had consistently followed the practice treating the shares as investment.He further held ,that during the year she had purchased 91 scrips and sold 103 scrips involving 297 transactions,that by no stretch of imagination,dealing in 194 scrips could be considered as high volume,that transactions were not entered into continuously and regularly throughout the year,that she had reported 297 transactions on 210 working days which proved that average number of transactions were less than two per day,that the transactions were not entered into frequently,continuously and regularly by her,that she had earned 64.47% of the total STCG with a holding period of three to six months and 19.72% of capital gains with a holding period between six to nine months,that short duration transactions were triggered by an unprecedented volatility in the market during Nov '07 to Jan'08, that she had not resorted to churning of shares or repetitive transactions of the same company that could have otherwise resulted in increased transactions, except to the extent of reshuffling of the portfolio to minimize the loss/maximize the gain,that the AO's conclusion that appellant's holding period was short was driven by the isolated fact of appellant's holding of certain scripts and was out of context and could not be generalised,that she had used her own surplus funds for investing in shares,that she has neither borrowed any money from external sources nor paid interest thereon except a small amount of loan repaid during the year on which interest of Rs.48200 2472/M/12(08-09)-Smt. Supriya Poongalia. was paid,that the current liabilities appearing in the Balance Sheet of the appellant were in the nature of temporary personal family transfers and did not carry any interest,that the analysis of balance sheet showed that she had enough capital to cover her investments in shares and the same could not be attributed to the aforesaid current liabilities,that investment in shares as percentage of capital always showed the sufficiency of capital over the years,that investment in shares was not out of borrowed funds,that the stand of the appellant as an investor had been accepted by the AO in the earlier years AY.s (2005-06 to 2007-08)in the scrutiny assessments,that the capital gains on sale of shares and securities were accepted and taxed as STCG and LTCG,that shares were accepted as Investments in the Balance Sheet,that the facts of the case are similar in A.Ys. 2005-06 to 2007-2008 & 2008-2009,that no fresh material had been brought on record by the AO,that her claim regarding LTCG had not been disturbed by the AO for the year under consideration,that thus the AO himself had accepted that she was an investor in shares also,that STCG of Rs.28,81,288/0 was attributable to the sale of bonus shares of India Bull Real Estate (Rs.591100) and Unitech (Rs.2290188),that the AO himself had accepted the LTCG from sale of shares of Unitech,that there could not be any reason to hold the STCG from the same scrip as business income,that shares of the same company could not be treated as investments at one place and stock-in-trade at other place, that there was no reason for the AO to treat the investment in shares by the assessee as stock- in-trade for A.Y.2008-09.He relied upon the cases of Janak S.Rangwalla(11 SOT 627), Gopal Purohit (228 CTR 582), Rohit Anand (327 ITR 445),SMK Shares & Stock Broking Pvt.Ltd.( ITA/799/ Mum/ 2009), Vinod K.Nevatia (ITA/6556/Mum/2009 & 181/Mum/2010).Finally, he allowed the appeal of the assessee. 4.During the course of hearing before us the Departmental Representative(DR) stated that period of holding of the security was very short, that the assessee had borrowed the funds for making investments, that she had huge turnover of shares, that intention of the assessee was to do business,that she was active in dealing in derivatives.The Authorised Representative (AR)supported the order of the FAA and stated that in similar circumstances in the case of the mother (Nirmaladevi Poongalia) of the assessee, the Tribunal had decided the issue in favour of the assessee.He referred to the case of Nirmaladevi Poongalia in Mum/2012 dated 15/02/2017 for assessment year 2008-09. 5.We have heard the rival submissions and perused the material before us. We find that in the case of the mother of the assessee,similar issue had travelled up to the Tribunal.In that matter also the AO had treated the income from share business as business income advancing the 2472/M/12(08-09)-Smt. Supriya Poongalia. same arguments. We would like to refer to the relevant portion of the order of the Tribunal and same reads as under :-
“4. Both the issues lead only one ground in which the revenue has alleged that the order of the CIT(A) is wrong by treating the income from shares as Short Term Capital Gain instead of business income. The learned representative of the department has argued that the assessee has huge turnover of shares during the year with large number of transactions and in some cases the holding period of shares was of the two days and the assessee’s turnover was to the tune of Rs.4.26 Crores and the assessee only carried out the transaction in share purchase and sale and claimed as Short Term Capital Gain which is wrong. It is also argued that the assessee also used the borrowed funds to the tune of Rs.1.01 Crores for the investment in the shares, therefore the nature of income of assessee is only business income and the assessee claimed the Short Term Capital Gain wrongly and illegally which has wrongly been held by the CIT(A) as income from Short Term Capital Gain, therefore, the order of the CIT(A) is wrong against law and facts and is liable to be set aside. However, on the other hand the learned representative of the assessee has placed reliance on the order passed by the CIT(A) in question. Before proceeding further it is necessary to advert the finding of the CIT(A) on record which is hereby reproduced as under:- “7. I have carefully considered the contents of the assessment order and the appellant’s submissions. From the paper book and other submissions filed before me by the appellant from time to time and from the analysis of the data presented above, in my considered opinion, the following facts emerge in an undisputed manner. 7.1 Appellant is a partner in four different partnership firms and share trading is not the sole activity of the appellant. Apparently the AO was influenced by the fact that the appellant is also trading in derivatives to conclude that she is knowledgeable in stock market operations in depth and all the activities carried on by her are in the nature of business. It is not out of place to mention that law allows appellant to carry out the dual roles is the manner in which the investment activities are carried out, and the mere fact that she deals in derivatives, cannot be held against her. Hon’ble ITAT in the cases of J.M.Shares & Stock Brokers V. DCIT (2007) and DCIT Vs. SMK Shares & Stock Broking (2010). Where the assessee was a stock broker but it was consistently following the practice of holding some shares as ‘stock in trade’ and other shares as ‘investments’ and the question arose whether the profits on the sale of shares held as investments constituted a capital gain or business profits, held that: (i) The assessee had been consistent in its practice of treating some shares as stock and others as a capital asset. While the shares held as capital asset were valued at cost in the accounts, the shares held as stock-in-trade were valued at the lower of cost or market value; (ii) There is no bar on a stock broker holding shares as an investment. The mere fact that the assessee is an expert in share trading does not mean that he cannot hold shares as a capital asset. The magnitude of the transaction does not change the nature of the transaction. (iii) It is no more res integra that a person can be both ‘Investor’ as well as ‘Trader’ in shares. (Draft Instruction No.2005, Instruction No.1827 dated 31.8.1989 & Circular No.4/2007 dated 15.6.2007 referred). The assessee has to maintain the distinction between shares held as stock and those held as investments in its records; 7.2 The appellant has been an investor in shares all along. Over the years she has consistently treated the entire investment in shares as an ‘investment’ and not as ‘stockin-trade’. The income from transfer of shares was always offered to tax as capital gain. Shares held as investments were valued at cost and no mark to market loss was provided for. The portfolio held by the appellant over the years when considered in the light of No. of scrips held / purchased/ sold and the corresponding no. of transactions and the fact of receiving dividend over the years as can be seen from table 1 above would undoubtedly establish the appellant as an investor and not a trader. It is worthwhile to note that even in the subsequent years despite registering losses from sale of shares, the appellant has consistently followed the practice of treating them as capital gains. 7.3 Coming to the year under consideration, at the outset, apparently the A.O. has arrived at a conclusion of high volume and frequency of transactions without going into the details. As noted 2472/M/12(08-09)-Smt. Supriya Poongalia. from the data presented in the above tables, during the year appellant has purchased 50 scrips and sold 45 scrips involving 232 transactions. By no stretch of imagination, dealing in 95 scrips, involving 232 transactions for the entire year can be considered as high volume when viewed in the background of the daily transactions carried out in BSE/NSE. 7.4 As can be seen from the data at above tables, transactions were not entered into continuously and regularly throughout the year. The appellant has not transacted at all during 120 days out of 250 working days during the year. This suggests that the appellant has not transacted during approx.. 50% of the total working days during the year. This clearly highlights that the transactions were not entered into frequently, continuously and regularly by the appellant. 7.5 The appellant has earned 46% of the total Short Term Capital Gains with a holding period more than 9 months and 57% of capital gains with a holding period between one to six months. It was hardly 1.38% of the overall capital gain for the appellant has accrued from stocks where the weighted average holding duration for scripts was up to 1 month. In respect of sale of shares within a month of holding it was explained to be triggered by an unprecedented volatility in the market during Nov’ 07 to Jan’ 08 that the appellant sold off shares within a short period of holding at loss, in fear of further large fall in market. Further, as submitted during the present proceedings, appellant has not resorted to churning of shares or repetitive transactions of the same company that could have otherwise resulted in increased transactions, except to the extent of reshuffling of the portfolio to minimize to loss / maximize the gain. Therefore, A.O.’s conclusion that appellant’s holding period is short, driven by the isolated fact of appellant’s holding of the scrip ‘BAG films’ is out of context and cannot be generalized. 7.6 The appellant used her own surplus funds for investing in shares. She has neither borrowed any money from external sources nor paid interest thereon except an amount of Rs.3 lakhs borrowed in earlier year, which stands at Rs.6 lakhs as on 31.3.2008, including the accrued interest. Current liabilities appearing in the Balance Sheet of the appellant are explained to be in the nature of temporary personal family transfers and do not carry any interest. Further, the analysis of balance sheet shows appellant has enough capital to cover her investments in shares and the same cannot attributed to the aforesaid loan of Rs.6 lakhs. Investment in shares as percentage of capital always showed the sufficiency of capital over the years as can be noted from table 1 above. Therefore, there is no truth in AO’s observation that investment in shares was out of borrowed funds. 7.7 The stand of the appellant as an Investor has been accepted by the A.O. in the earlier under section 143(3). The assessment for A.Y.2007-07 was completed u/s.143(3) by DCIT Circle 2, Jaipur and the capital gains on sale of shares and securities were accepted and taxed as short term at Rs.26,22,295/- and long term capital gain assessed at Rs.1,86,846/-. Besides, shares were accepted as Investments in the balance sheet. Apparently, the facts of the case are similar in A.Ys. 2007-08 and 2008-09 and no fresh material has been brought on record by the A.O. at present. Further, appellant’s claim regarding long term capital gains has not been disturbed by the A.O. for the year under consideration and thus, the A.O. himself has accepted that the appellant was investor in shares also. Further, STCG of Rs.30,45,361/- is attributable to the sale of bonus shares of India Bull Real Estate (Rs.22,91,233/), Netwrok 18 (Rs.3,59,267/-) and TV18 (Rs.3,94,860/-). In fact AO himself accepted the LTCG from sale of shares of India Bulls Real Estate and TV18 and there cannot be any reason to hold the STCG from the same scrips as business income. Shares of the same company cannot be treated as investments at one place and stock-in-trade at other place. Therefore, I am of the considered opinion that in the given facts and circumstances, there is no reason for the A.O. to treat the investment in shares by the appellant as stock-in-trade for A.Y.2008-09. The uniformity in treatment and consistency under the same facts and circumstances is one of the fundamental judicial principles which cannot be brushed aside without proper reason.
That apart there are a plethora of decisions by the various benches of Hon. High Courts and ITAT holding the issue in favour of appellant involving similar facts, and for the sake of brevity, even if they are taken into consideration for arriving at the conclusion that the appellant is an investor the same are not reproduced. However to name a few Janak S. Rangwalla vs ACIT (11 SOT 627), CIT Vs. Gopal Purohit 228 CTR 582 (Bom.)(2010), CIT Vs. Rohit Anand (2010) 327 ITR 445 (Del), DCIT Vs. SMK Shares & Stock Broking Pvt. Ltd. Vinod K. Nevatia ITA No.6556/Mum/2009 and 181/Mum/2010 and Naishadh V. Vachharajani ITA No.6429/Mum/2009.
In view of the detailed discussion of the facts and the legal position and the back ground of the amended provisions on taxation of capital gains on sale of shares w.e.f.1/10/2004, I have no 2472/M/12(08-09)-Smt. Supriya Poongalia.
hesitation to hold that the income from short term capital gains offered to tax require no disturbance and cannot be treated as business income. Accordingly, the appeal is allowed in favour of the appellant on this issue.
On appraisal of the above mentioned order the CIT(A) has described each and every aspect of the investment of the assessee in shares. The CIT(A) was of the view that the facts and circumstances of the case are quite similar to the earlier years and the principle of consistency and uniformity is not required to be discredited in the circumstances when there is no major change in the transaction of the assessee. The CIT(A) has also placed reliance upon the law settled by the order of Hon’ble ITAT in the cases of J.M.Shares & Stock Brokers V. DCIT (2007), Janak S. Rangwalla vs ACIT (11 SOT 627), CIT Vs. Gopal Purohit 228 CTR 582 (Bom.)(2010), CIT Vs. Rohit Anand (2010) 327 ITR 445 (Del), DCIT Vs. SMK Shares & Stock Broking Pvt. Ltd. Vinod K. Nevatia ITA No.6556/Mum/2009 and 181/Mum/2010 and Naishadh V. Vachharajani ITA No.6429/Mum/2009. Moreover, it also came into the notice that the Assessing Officer has treated the income from shares as Short Term Capital Gain for the A.Y.2006-07, 2007-08, 2008-09, 2009-10 and 2010-11. Apparently, the transaction in the shares was treated by the Assessing Officer as income from Short Term Capital Gain in the earlier as well as in the subsequent years. No major change of any kind was brought into the notice by the revenue. The rule of consistency has properly been followed. In view of the said circumstances, we are of the view that the CIT(A) has passed the order judiciously and correctly which is not require to be interfere with at this appellate stage.
In the result appeal filed by the revenue is hereby Dismissed.” 5.1.We find that in the earlier years,the AO had treated the income from sale of shares under the head income from other sources.While finalising the order for the year under considera – tion,he has not brought on record any fact to prove that facts for the earlier years were distinguishable. Before us also, nothing was produced that could lead to the conclusion that facts for the year under appeal were different from facts of earlier years. We are aware that the principles of res-judicata do not apply to income tax proceedings.However, principle of consistency is applicable to determine the tax liability of an assessee . The AOs’ can deviate from orders of earlier years, provided that new facts are brought on record.Uniformity in treatment and consistency under the same facts and circumstances is one of the fundamental judicial principles which cannot be brushed aside without proper reason. Besides,the FAA has given a categorical finding of fact that the assessee was showing shares as part of her investment and that same were valued at cost. No authority is required to hold that an assessee can be a trader and an investor at the same time. The AO has accepted the claim of the assessee in case of LTCG in case of some of the scrips but be held that STCG for the same scrips was to be assessed under the business income.After considering the volume of transactions, period of holding and other relevant factors the FAA had held that she was an investor.In our opinion his order does not suffer from any factual or legal infirmity.So, confirming the same we decide the effective Ground of appeal against the AO. As a result , appeal filed by the AO stands dismissed.