SUNIL M. KHEMANI,,NASHIK vs. ASSISTANT COMMISSIONER OF INCOME TAX,,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM

This appeal filed by assessee is directed against the order of Commissioner of Income Tax (Appeal)-13, Pune dated 06.09.2016 for assessment year 2006-07.

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and general in nature and hence, requires no adjudication. Accordingly,

grounds No. 2 to 5 are dismissed. The only ground left for adjudication is

ground No. 1 which reads as under:

“1. The learned CIT(A) erred in holding that the income of Rs.15,38,011/- arising on sale of shares was to be assessed as business income as against short term capital gains claimed by the assessee.”

and derives his income from salary, trading in shares, running of the petrol

pump, dividend and interest. The assessee filed return of income on

17.10.2006 declaring total income of Rs.21,14,105/-. Thereafter, the case was

selected for scrutiny and statutory notices were duly served upon the

assessee. During assessment proceedings, the Assessing Officer assessed total

income of Rs.21,43,390/- (rounded off) against the returned total income of

Rs.21,14,105/-. The Assessing Officer, in assessment order passed u/s.143(3)

of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) treated the

income of Rs.15,38,011/-, earned on account of the sale of shares, as his

business income and not the capital gains.

The CIT(A) confirmed the addition of Rs.15,38,011/- treating the same as

profit on sale of shares in the assessment year under consideration. Now, the

assessee is in appeal before us assailing ground No. 1 as extracted above.

was not aware of the accounting standards and procedures. The transactions

of buying and selling of shares through demat account could also have been

routed through the investment account in the place of the profit and loss

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account. He further submitted that the assessee had made investments and

trading in shares on delivery basis and on F & O basis and trading in shares

was not his regular business activity. The Ld. AR further submitted that

reflection of transaction as ‘trading in shares’ in the books of accounts does

not change the nature and extent of the income from one head to other. The

Ld. AR for the assessee relied on various cases laws and judgments in this

regard. Para 2.4 to 2.5 of the CIT(A)’s order are relevant.

orders of Assessing Officer/ CIT(A) and submitted that it is a case of change

of decisions. Referring to the book entries, Ld. DR submitted that the assessee

intended to treat the transaction as business activity and subsequently,

assessee treated the same as capital gains. The same is not permissible

considering the circular of the Board issued from time to time.

the Assessing Officer observed the assessee has shown income from short

term capital gain on share at Rs.15,38,011/-. After perusing the tax audit

report, which reflects that as on the last day of the financial year, the stock of

shares has been shown as ‘closing stock’. The nature of the assessee’s

business as per tax audit report was ‘trading in shares’. Accordingly, the

Assessing Officer treated the income earned from share trading as his

‘business income’. The CIT(A) dealt with this issue in Para 2.14 to 2.20 of his

order and confirmed the order of Assessing Officer. For the sake of

completeness, the relevant paragraphs are extracted as under:

“2.14 It is settled as to whether income from the sale of shares is a mixed question of facts and law. It is obvious that amongst both, the applicable law can be decided only after the facts are clear. As regard to the facts, whether a person wishes to invest in shares or wishes to carry on trading in shares is the matter of the purchaser's intention. Only he knows as to whether he has purchased shares either for

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trading or for the investment purposes. The Appellant in this case after discussing this matter with his tax consultant has knowingly decided and has signed his tax audit report and his return of income accordingly. The Appellant has treated shares as his stock-in-trade, however, he wishes to argue based on the legal decisions that the purchase was made for the purpose of investment. This is his contrary position on facts and on his intentions than his original admitted position. The Appellant should establish that his earlier decision to treat purchased shares as stock-in-trade was erroneous if he wishes to change his admitted position. The Appellant should also prove that the change made by him is a bona fide and has not been done only to gain the tax advantage. The Appellant has not done established that the change made by him was bonafide. 2.15 On ascertaining the person's intentions, the honourable Supreme Court in the case of Delta International Ltd v Shyam Sunder Ganeriwalla AIR 1999 SC 2607 in the context of deciding the issue as to whether a particular transaction is of 'lease' or 'licence', held as under: (2) The intention of the parties is to be gathered from the document itself ; Mainly, intention is to be gathered from the meaning and the words used in the document except where it is alleged and proved that document is a camouflage. If the terms of the document evidencing the agreement between the parties are not clear, the surrounding circumstances and the conduct of the parties have also to be borne in mind of ascertaining the real relationship between the parties. 2.16 Thus, the honourable Supreme Court has held that the person's intention can be gathered from the document itself (accounting entries in this case) and with the help of the surrounding circumstances. If the facts of the instant case are examined in the light of this law laid down by the honourable Supreme Court, it may be recalled that the Appellant in his Tax Audit Report has shown shares as on the last day of the financial year as 'closing stock'. The Appellant has the Tax Audit Report mentioned in his nature of the business as 'trading in shares'. Further, the Appellant had himself in his written submission stated that he was not able to produce any documentary evidence to contradict the findings of the AO. 2.17 As stated, it is unlikely that the Appellant did not know his own intentions because the act of signing of own return is a conscious decision taken after the due deliberations with his tax consultant. For the arguments sake, even if it was an error, the Appellant remained silent when asked to clarify his intentions by the learned AO during the assessment proceedings. His silence would be unlikely if he had committed an error. On the contrary, he would have immediately clarified as to why he made the error in declaring the income earned from sale of shares in his return of income.

2.18 I do not find it convincing at all that the Appellant initially had intention to trade and later on he stated that his real intention was of investment after remaining silent to the learned AO's question!! According to me, the Appellant may not know the accounting standards and procedures and it is also true that this was his first year of dealing in shares however; it is unlikely he did not know that whether he purchased shares for investment or for trading. For me, this is the clear case of after-thought and not the honest change of the admitted position on the Appellant's part. Hence, the Appellant's argument on treating shares as his investment has no credibility.

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2.19 The Appellant’s reliance on different case laws in my is irrelevant as I am not convinced that the appellant has established its case on facts. Therefore, the issue of application of law does not arise. Similarly, I do not accept the application of the law relied on by the Appellant that the nomenclature given by him to the transaction is not conclusive, if the real nature of the transaction is different. According to me, consideration of this law would arise only if the Appellant's admitted nomenclature of the transaction of stock-in -trade is proved incorrect. The Appellant's actions can be used to decide his real intentions and to decide as to whether the Appellant's nomenclature given by him to the transactions is correct or not. However, when the Appellant's intentions are not honest and are motivated only by tax considerations then, there is no question of deciding as to whether the nomenclature of his transactions is correct or not. 2.20. In view of the above discussion, I am of the considered view that the learned AO has rightly treated the profit on sale of shares in the assessment year under Consideration as the Appellant's business income. Accordingly, I confirm the addition of Rs.15,38,011/- made by the learned AO treating the Appellant's short term capital gain as his business income.”

I find that it is an admitted fact that assessee changed his stand from

‘business income’ to ‘capital gains’. Considering the above, I am of the view

that CIT(A) has rightly upheld the order of Assessing Officer treating the profit

on sale of shares in the assessment year under consideration as ‘business

income’ and not the capital gains. Therefore, I am of the view that the

discussion given by CIT(A) on this issue is fair and reasonable and does not

call for any interference. Accordingly, ground No. 1 raised by assessee is

dismissed.

In the result, appeal of the assessee is dismissed. 8.

Order pronounced on 16th day of May, 2018.

Sd/-

(डी.क�णाकरा राव/D. Karunakara Rao) लेखा सद�य / ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 16th May, 2018. SB

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आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-13, Pune. 4. The Pr. CIT (Central), Nagpur. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.