CHANDRA RAMESH,CHENNAI vs. ACIT, CHENNAI

आदेश/ O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

148,241&20/CIT(A)-2/2013-14 dated 16.12.2016 for the assessment years 1998-99 to 2000-2001.

:-2-: 372 & 373/Mds/2017

:-3-: 372 & 373/Mds/2017 2.1 In adherence to the directions of the Hon'ble ITAT, the AO posted the cases for hearings on various dates. However, there was no response , whatsoever , from the assesse and finally, after informing the assessee that its absence for the said hearings would be inferred that it has no bonafide submissions to be made and it has no objections against the proceedings being finalized for these years on merits also , the cases remained unrepresented and hence the AO passed orders u/s.144 r.w.s. 254 on 23.12.2010 for all these ays on the lines of the original assessment Orders, excepting the relief provided by the Hon'ble ITAT. Aggrieved, the assessee filed appeals for these years before the CIT (A).

2.2 The CIT (A) after considering all the pleas and the material furnished by the assessee confirmed the additions/ disallowances on account of loss from trading in shares for which delivery has been madefor a y 1998-99 and on account of provision for diminution in the value of shares for all the three a ys. i.e. ays. 1998-99 to 2000-01. Aggrieved , the assessee filed these appeals with following common grounds of appeal .

“1. The order of the learned CIT appeals is contrary to law and opposed to the facts of the case. 2. The learned CIT Appeals has erred in concluding that the shares held by the appellant constituted investments and not stock in trade. 3. The Learned CIT Appeals has erred in overlooking the fact that the appellant had by conduct treated the investments in shares as stock in trade only. The appellant had been offering the profit/losses on sale of shares as business income in all the years.

:-4-: 372 & 373/Mds/2017

4. The Learned CIT Appeals has erred in concluding that merely because the shares were shown under “Investments” it was not stock in trade for the appellant.

5. The learned CIT Appeals had erred in overlooking the fact that CBDT vide its circular dated 29th February, 2016 instructed that wherever the assessee has chosen to treat investments as stockintrade it should not be interfered with and the same should be accepted. The appellant has been consistently valuing the investments at cost or market price whichever is lower and offering the profit/loss as business income only and not under “ capital gains”. 6. The appellant craves leave to alter/ file additional grounds of appeal.”

“4. The common ground in all the above appeals relates to the determination whether the appellant is engaged in the business of trading in shares. The appellant is an individual engaged in the business of trading in shares. She is an individual member of the Bangalore stock exchange and a corporate member of the NSE in professional category. The appellant has been consistently valuing all the shares held by her at cost or market value whichever is less as it represents the stock in trade. Every year at the year end the market value of the shares held by her would be ascertained and wherever it is lower than cost a provision is made for the fall in the value of her shares. The details of such provision made for the various years under appeal are as under: Ay: 1998-99 Rs.1,58,333/- Ay: 1999-00 Rs. Nil Ay: 2000-01 Rs.9,46,713/-

The appellant had during the relevant years engaged in trading of shares as under:

:-5-: 372 & 373/Mds/2017

AsstYr Purchase Sales 1998-99 441319426 440079655 1999-2000 24085693 18750067 2000-2001 50609265 45310171

The details of shares bought and sold during each year is enclosed in the Annexure-1. The appellant has been consistently valuing the shares as stated above and making a provision for diminution in value wherever required. The volume of trading in shares clearly indicates that the appellant's business is trading in shares. The appellant has all along been offering the profit/(loss) on sale of shares as business income only as under: 31-03-98 (1243878) 31-03-99 (501015) 31-03-00 343379 31-03-2001 (303993) 31-03-2003 1776738 31-03-2005 159961 31-03-2006 1085562 The CBDT vide circular' no 6/2016 dt 29/02/2016 has clarified that "where the assessee itself irrespective of the holding period of the shares opts to treat them as stock in trade, the income. "(copy of the circular enclosed)'

5. In the case of Commissioner of Income Tax (Centra!), Calcutta Vs Associated Industrial Development Company (P) Ltd (82 ITR 586), the Supreme Court observed that: "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 appellant has by her conduct of offering the profit/loss on sale of shares as business income and not as capital gains has clearly indicated that she is engaged in the business of trading in shares. The learned Assessing Officer had not provided sufficient opportunity to the appellant to establish the above facts.

:-6-: 372 & 373/Mds/2017

For a particular asset to be treated as stock in trade the intension whether to make profit or earn dividends, frequency of transactions, and the treatment of the same in the books of accounts are the determinate factor. The appellant by consistently returning the profit/loss as business income, valuing the shares at cost or market price whichever is tower has clearly established that it is stock in trade. This is also supported by the fact that the appellant is a dealer, trader in shares which is proved by the frequency of transactions undertaken during these years. In view of the above it is prayed that the order of the learned AO be set aside and relief as prayed for be granted. "

Per contra, the DR relied on the order of the CIT(A) and her findings .

The assessee has furnished a paper book, giving the breakup of investment for ays 1997-98 to 1999-2000 which is extracted as under:

“FY 1997-98 1998-99 1999-2000 Rs Rs Rs INVESTMENT CRFS 6550000 6550000 7500000 CRFO 6844940 6844940 6109940 CRSS 2081622 2081622 2081622 15476562 15476562 15691562

Others-Stock In Trade 495586 5363069 3577876 (SIT) Total Incl S-I-T 15972148 20839631 19269438 Lower of CM/MP 337253 5363069 2631163 Provision 158333 158333 946713

:-7-: 372 & 373/Mds/2017 and submitted that the investments shown under schedule F of the balance sheet comprises the value of stock-in-trade also. For example, the others- stock in trade in above table denotes the stock in trade. Thus, the assesse submits that though it is a wrong entry, the fact remains that the assessee was undertaking trade in shares and the closing stock of shares in trade was wrongly included in the investments, however, all her claims made in all these ays are verifiable with reference to purchases, sales of stock and its valuation etc. The AR invited our attention to page No. 9 to 28 of the paper book, specifically page Nos. 21 to 28 on the impugned issues. We have considered the assessee’s reply and find that prima facia, the facts associated with the issues require proper verification and due decision. In view of the above facts and circumstances, we deem it fit to set aside the impugned issues to the AO for a fresh examination. The AO shall afford adequate opportunity to the assessee to lay the relevant materials in support of her contention and after affording adequate opportunity, shall pass speaking orders in accordance with law. The appeals filed by the assessee for ays 1998-99 to 2000-01 are treated as allowed for statistical purposes.

:-8-: 372 & 373/Mds/2017

Order pronounced on Friday, the 08th day of December, 2017 at Chennai.