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Income Tax Appellate Tribunal, : ‘D’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S.Viswanethra Ravi
This appeal by the Revenue is against the order dt. 20-08-2015 of the CIT-A, 11, Kolkata for the A.Y 2010-11.
The only issue is to be decided as to whether the CIT-A was justified in treating the net profit on purchase and sale of shares as short term capital gain in the facts and circumstances of the case.
Brief facts relating to the issue are that the assessee is a company and engaged in the business of stock broking, investments and trading in shares & securities. The assessee filed its e- return of income on 14-10-2010 showing total income of Rs.2,06,85,242/-. The assessee is a registered member of National Stock Exchange (NS) & Bombay Stock Exchange(BSE). Notices u/s. 143(2) and 142(1) of the Act were issued. In response to which, representing the assessee, Shri Sushil Kumar Bhartia, Accountant of the assessee company appeared from time to time. The assessee claimed an amount of Rs.1,93,46,646/- as short term capital gain (STCG), during the course of examination and verification of short term capital gain 2 M/s. Jet Age Securities Pvt. Ltd the AO asked the assessee to furnish the various details of share transactions. On perusal of the same, the AO formed an opinion that the assessee purchased and sold various shares and its main object is to maximize its profit by taking advantage of the market and asked the assessee to explain why the said net profit on sale of shares should not be tread as income from trading activities. In reply, the assessee stated before the AO that it has two separate portfolios i) investments portfolio and ii) other is stock portfolio. The assessee will decide at the time of purchase of securities to which portfolio that were brought for. The assessee also submitted that it followed these two methods of portfolio since past several years. The revenue also accepted the same as short term capital gain in the earlier years. But, the AO did not accept such submissions of the assessee and held that net profit on purchase and sale of shares of Rs. 1,93,46,646/-as income from business and added an amount of Rs.1,93,46,646/- to the total income of the assessee by his order passed u/s. 143(3) of the Act on 15-03-2013.
Before the CIT-A, the assessee reiterated the same submissions made before the AO. In support of the contention, the assessee placed reliance on various case laws for such proposition that the Revenue shall follow the rule of consistency.
The CIT-A examining the books of account and balance sheet found that the assessee maintained two accounts for investments as well as trading. The assessee also disclosed the income derived from both portfolios separately. This method has been followed for the past several years of assessment and, therefore, allowed the grounds of appeal of assessee and treated the income derived from sale of shares as short term capital gain. Relevant finding of the CIT-A in this regard is reproduced herein below:-
“4.4. In the present case the appellant has consistently disclosed shares in its Balance Sheet by way of Investments. These investments were accounted in the appellant's books as also in the Balance Sheet "at cost" and not by following the "lower of the cost 3 M/s. Jet Age Securities Pvt. Ltd or market value" principle which is applicable to stock-in-trade. I further find that in the past assessment also the assessee had disclosed the shares by way of investments and income derived from transfer of shares was always disclosed under the head capital gains. The appellant's disclosure of shares in its books by way of investment was not disputed by the revenue in any of the past assessments. Income from transfer of shares computed by the appellant as capital gains was never assessed under the head business. In view of this factual background I find no reasonable basis for the AO to adopt an entirely contrary stand in AY 2010-2011 when there was no material change in factual matrix. 4.5. Although principle of res judicata does not strictly apply to the tax proceedings; yet the principle of consistency is one of the judicial principle which is required to be followed when fundamental facts permeating through various years are same and identical. The Bombay ITAT and later on the Bombay High Court in the case of CIT Vs. Gopal Purohit ( 336 ITR 28) have held that where in the past income tax assessments assessee's delivery based transactions in shares were considered to be Investment transactions then income arising from delivery based transactions was required to be assessed as "capital gains" and not "business profits" in AY 2005-06. In the case of Shri Amitabh Sonthalia by following the principle of consistency it was held that the income from transfer of shares was required to be assessed as capital gains. In that case the assessee carried substantial quantities of shares by way of Investment. Despite large volume of transactions it was had held that the assessee was Investor in shares and not dealer in shares and therefore income was assessable under the head capital gains. It was held that the act of personal capital being invested in acquisition of share amounted to Investment activity and therefore income on sale of shares was assessable under the head capital gains and not business profits. On further appeal; the Revenue's appeal was dismissed by the Tribunal. In the case of Shri Amitabh Sonthalia the decision of the IT AT was also confirmed by the Jurisdictional Calcutta High Court. Facts involved in the present case are pari materia with these decided cases. Respectfully following the court decisions I direct the AO to assess the gain of Rs.1,93,46,646/- under the head "capital gains". I also direct the AO to grant exemption to which the assessee may be eligible in law or to levy tax at the concessional rate as provided in law. The appellant's appeal is accordingly treated as allowed. As a result Ground Nos. 1 to 3 of the appellant are allowed.”
Before us the ld.DR relied on the order of the AO. On the other hand, the ld.AR of the assessee filed before us two sets of Paper Book-No.1 consisting of pages 1-44 and Paper Book No. 2 consisting of pages 1-76. The ld.AR further submits that the Revenue has been accepted the same treatment of the last several years of assessment. It was also submitted, the assessee explained by a letter dt. 25-02- 2013 why the net profit on shares should not be treated as short term capital gain. But, the AO without following the principle of consistency treated the income on shares as business income, which is bad in law. For such proposition of rule of consistency, the ld.AR of the assessee referred to assessment of past years for the A.Y 2007- 08, 08-09 and 2009-10, which are available at pages 65-76 of the Paper Book-No. 2 and argued that the assessee has followed the same method and there was no deviation of method in the year under consideration. In support of the contention, he placed reliance on an order of this Tribunal in assessee’s own case for the A.Y 2006- 07, placed on record at pages 62-64 of the Paper Book No.2 and 4 M/s. Jet Age Securities Pvt. Ltd argued that this Tribunal decided the same issue for the A.Y 2006-07, wherein it held the units of mutual funds shown as investment since inception are to be treated as short term capital gain and referred to para 8 of the said order, placed at page 62 of the Paper Book No. 2. The ld. AR submits that the assessee followed consistently the same in the last several years and the same should be accepted by the Revenue for the A.Y under consideration also. The ld.AR of the assessee placed his reliance on the decision of the Hon’ble High Court of Calcutta in the case of Amitabh Sonthalia in GA No. 2877 of 2013, placed at pages 3-4 of the Paper Book No.1.
Heard rival submissions and perused the material available on record. It is not disputed that treatment of income from sale of shares from investment portfolio is short term capital gain from A.Y 2006-07 to 2009-10. We find that in the A.Y 2006-07 this Tribunal held that the said income is not business income, directed the AO to treat the same as short term capital gain. Thereby the Revenue has been following the same from A.Y 2007-08 to 2009-10, which are evident from pages 65-75 of the Paper book-No. 2. We further find that the similar issue was disposed by the Hon’ble High Court of Calcutta in the case of Amitabh Sonthalia supra, wherein it was held that there is distinction between the investment and stock in trade. The income arises out of investment has to be treated as income from capital gain. In this regard, we may refer to the following observation of the Hon’ble High Court of Calcutta, as below:-
“We have heard both the parties and are of the opinion that no interference is called for. The Tribunal in its order under challenge held, inter alia, as follows:
" Once this is an established position, that assessee maintained the distinction in books of accounts between his investments and stock in trade and also maintained distinction of short term investments as well as long term investment and such investment were accepted by revenue in earlier years all long, now they cannot take u-turn and change the head of income without any basis".
Mr. Bhowmick, learned advocate appearing in support of the appeal submitted that the appeal preferred by the Revenue was dismissed by the Tribunal merely because the income in the past had been treated to have arisen out of investment rather than A business income. Mr. Murarka, learned advocate appearing for the assessee submitted that one of the reasons assigned by the Tribunal is that the income had earlier been treated to have arisen out of investments but the other reason given by the Tribunal is that the assessee has always maintained a distinction in its books of accounts between 5 M/s. Jet Age Securities Pvt. Ltd the investments and stock in trade and has, therefore, led appropriate evidence to show which part of the income arose out of investments and which part of the income arose out of the business. He drew our attention to the judgment in the case of Commissioner of Income Tax, Calcutta Vs. Associated Industrial Development Pvt. Ltd. reported in 82 ITR 586 wherein the Apex Court held as follows:
" 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".
Mr. Murarka submitted that the assessee has duly discharged his burden by proving that it has always maintained a distinction between the investment and the stock-in-trade. The Revenue was not in a position to find any fault with the evidence adduced by the assessee. He submitted that the Tribunal in the circumstances had no option, but to dismiss the appeal.”
Further, we may refer to the finding of the Tribunal in assessee’s on case for the A.Y 2006-07 and relevant portion at para no. 8, which is reproduced herein below:-
“8. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the fact that the assessee has shown the shares as well as the units of the mutual fund as investments since from the inception and further declared the income from sale of such shares either long- term capital gains or short-term capital gains depending upon the period of holding, we find no justification on the part of the AO to treat the short-term capital gains arising to the assessee as business income, though the said shares of units of the mutual funds are shown by the assessee as investment. Therefore, we find no infirmity in the orders of the Ld. CIT(A) in directing the AO to treat the short-term capital gains instead of business income. “ 9. In view of our above discussion and the findings of the Hon’ble High Court in the case of supra and the Tribunal in assessee’s own case for the A.Y 2006-07, we find that the CIT-A was justified in treating the net profit on purchase and sale of shares as short term capital gain. Therefore, the ground raised by the revenue on this issue is dismissed.