JCIT RG 12(2), MUMBAI vs. NEENA RAJAN MEHRA, MUMBAI

We have heard the submission of learned DR for revenue and the learned AR for the assessee and perused the material available on record. The learned DR for the revenue submit that he relied on the order of assessing officer and prayed that order of assessing officer be restored by reversing the order of Commissioner (Appeals). In reply to the submission of the ld DR for revenue, the learned AR of the assessee submits that he relied upon the order of Commissioner (Appeals) and prayed that he has placed on record his ITA No. 7189/M/2012 for AY 2006-07 ITA No. 3015/M/2012 for AY 2008-09 submission by way of written synopsis. In the written synopsis the learned AR for the assessee submitted that assessee is a partner in three firms, doing business in Hotel industry and has received income has remuneration, interest and profit from the business of Rs. 1,95,26,307/-. The assessee has loss during the year from derivative trading in share and it is properly reflected in books of account as loss for the year. The investment in shares and gain thereof is a passive income. The assessee is maintaining regular books of account with proper bifurcations of share held as investments. The average holding period of shares sold is more than four months for short-term capital gain and two years for long-term capital gain. The assessee has not invested in shares from borrowed funds. The assessee has sufficient interest refund available with her. No margin funding is used for the purchase and sale of shares. All investments are made from her savings from the income received from Hotel business, where the assessee the partner. The assessee has paid STT in respect of share transaction as applicable to the investment. In preceding years the assessee earned income from capital gain both long-term and short-term basis. The purchase of Shares is the same as in the preceding years, which was accepted by revenue as short-term capital gain. There is no change in the pattern of transactions. For assessment year 2008-09, the case of assessee was taken up for scrutiny and the similar treatment was treated as business income, however on appeal before Commissioner (Appeals) the income from head ‘Capital Gain’ was treated as short-term capital gain and long-term capital gain and the treatment of income under the head ‘Business income’ was reverse. The assessee has not deviated from the classification, which she has been showing in the past. During the year under consideration the assessee received dividend of Rs.23,85,102/-. Further, the learned AR of assessee besides the other various decision relied on the decision of Tribunal in Mahendra C. Shah Vs ACIT in /M/2008, ACIT versus Mahendra C. Shah in ITA No. 4932/M/2009, Nagindas P. Sheth (HUF) versus JCIT ITA No. 961/M /2010, Gopal Purohit Versus JCIT (ITA No.4854/M/2008, the decision of Bombay ITA No. 7189/M/2012 for AY 2006-07 ITA No. 3015/M/2012 for AY 2008-09 High Court in CIT Versus Gopal Purohit 228 CTR 582 (Bombay) and circular number 4 /20007 dated 15 June 2007.

We have considered the submissions of learned representatives of the parties and gone through the orders of the authorities below. The assessing officer while framing the assessment order on the directions/ order of learned Commissioner under section 263 dated 15 July 2008 issued notice to the assessee to give her submission/explanation along with supporting evidence. The assessee filed her written submission vide her reply dated 25 November 2011, 29th November 2011 and 20 December 2011. We have seen that the assessee has made the similar contention in her reply, as her learned AR made in his written submission before us. The contention of assessee was not accepted by assessing officer holding that the assessee is regularly and frequently dealing with the activity of sale and purchase of share which is evident from DMAT account, brokers note and the corresponding bank accounts. The activities of share trading are systematic and organised activity of assessee. There is continuity in share transaction over a period of time which is evident from return of income filed by assessee for earlier years and subsequent year where income from shares trading has been continuously appearing at source of income. The quantity of shares transacted and the quantum of amount involved its substantial. High-volume of transaction is a characteristic feature of any commercial activity the intention of assessee is to earn profit as the assessee is not interested in holding the share for long time to earn dividend income. The assessing officer further observed that against the purchase of shares of Rs. 1.41 Crore, the sale proceeds from the same is of Rs.2.29 Crore. The earning of dividend is not the primary motive the facts indicate that assessee was engaged in share transaction with profit motive and the same is in the nature of trading. We have further seen that during the assessment proceedings the representative of assessee made a submission that there was an error in the figures of short-term capital gain and the long-term capital gain. The long-term capital gain was shown at Rs. 11,76,969/- and short-term capital gain was shown at Rs. 87,79,642/-. Thus, assessee submitted for AY 2006-07 ITA No. 3015/M/2012 for AY 2008-09 revised figure of long-term capital gains of Rs. 42,40,823 /- and short-term capital gain of Rs. 57,15,788/-. The fresh claim of assessee was not accepted by assessing officer holding that the assessee has not filed revised return of income. The assessing officer relied on the decision of Hon’ble Supreme Court in case of Goetz (India) Versus CIT [2007] 157 Taxman 1(SC) and rejected the fresh claim of assessee. The assessing officer observed that the assessee has offered derivative income as business profit and not claimed “set off” of any business loss against the income from derivatives. The assessing officer further observed that the issue whether any portion of transaction relates to the period prior to the insertion of section 43(5) and the issue of notification dated 25 January 2006 for notifying BSE and NSE as recognised Stock Exchange to determine as to whether any of derivative transaction is in the nature of speculative transaction. The assessing officer concluded that no infirmity that requires any adverse action came to his notice. The assessing officer treated the sale of shares as ‘business income’ in the assessment order passed under section 143(3)rws 263 of the Act. Before learned Commissioner (Appeals), the assessee again urged the similar contention. The learned Commissioner (Appeals) observed that there is two basic issues before him to decide the appeal viz; (i) whether the profit on sale of shares during the year which has been shown by the assessee as a ‘short-term capital gain’ arising out of investment in shares in question as investors is to be assessed under the head ‘income from business’ or whether the same is to be assessed under the head ‘capital gain’ as disclosed by the assessee in her return of income and (ii) whether the assessing officer was right in ignoring the request of the assessee to take correct figure of short-term capital gain at Rs. 39,96,286/-against short- term capital gain of Rs. 87,79,642/- wrongly shown by assessee in her return of income and allowing consequential request of long-term capital gain from Rs.11,76,969/- to Rs. 59,60,325/-after verification. The learned Commissioner (Appeals) further observed that the various Courts and CBDT have laid down the parameters for ascertaining whether the activities of assessee was in the nature of investment activities or a trading activities. The parameter includes for AY 2006-07 ITA No. 3015/M/2012 for AY 2008-09 intention of assessee at the time of purchase of share, frequency of transaction, continuity, volume of shares, holding period, treatment in the books of account, owned funds or utilised borrowed funds and devotion of time to the activities etc. The Courts/ Tribunals have also held that single parameters would not be decisive and it is the only the cumulative effect of all these criteria which would be important to decide whether assessee was an investor or trader. Thus, keeping in the above parameter in mind, it has to be decided whether the assessee can be treated as an investor or he/she is to be treated as a trader or the income in question is to be taxed under the head ‘capital gain’ or under the head ‘income from business and profession’. The assessee can have two portfolios of share one for trading and one for investment purposes. Thus, the assessee can be both as a dealer in share as well as investor in share at the same time. The assessee has disclosed income of Rs. 87,79,642/- under the head ‘short-term capital gains’ which was later on revised Rs.39,62,86/-in the course of assessment proceeding before the assessing officer. Out of total 129 transactions, in 16 transactions the shares were sold within one month of their purchase. This represents 12.40% of short-term capital gains in such transaction is to the total short-term capital gain and during the year comes to 9.82%, remaining 7.75% of the transaction relates to sales where the shares were sold after holding for a period of more than one month but before two month of their purchases. Short-term capital gain and on such transaction is 2.63%. Further, 13.18% of shares were sold after 2 months but before 3 months, 4.65% share were sold after three-months but before 4 months and substantial 44.19% of the shares were sold after 6 months but before 12 month of their purchase. Further, 54.53% of short term capital gain is an during the year in such transaction of share held for a period of 6 months but less than 12 months. Certainly, there are sales of shares which have been sold within few days of their purchases. The total nature of transaction and the conduct of assessee have to be seen to decide whether assessee acted as a trader or investor. The learned Commissioner (Appeals) concluded that assessee has been consistently disclosing herself to be an investor in respect of her activity for AY 2006-07 ITA No. 3015/M/2012 for AY 2008-09 in question the year on which capital gain has been disclosed is reflected in her books of account as an investment. The balance-sheet of assessee disclosed the share which were bought in the immediately preceding assessment year and were sold during the relevant financial year. Further, in the assessment year 2007- 08, the revenue has accepted the assessee as investor in share in respect of her identical activities. The learned Commissioner (Appeals) further concluded that majority of shares were sold after holding for more than 30 days, there are instances where the assessee has made a loss, however being investors it does not mean that the investor would always make a profit and will not suffer losses in their transactions. The learned Commissioner (Appeals) also examined the availability of funds and the investment made by assessee from her own funds. There is no repetitive transaction. The learned Commissioner(Appeals) also considered the treatment of the similar transaction in assessment year 2007-08 is “ capital gain” and the order of Commissioner Appeals for assessment year 2008-09 dated 17/02/2012 (which is impugned in before us) and accepted the appeal of the assessee.

The coordinate bench of Tribunal in Mahendra C. Shah Vs ACIT(supra) held that where the assessee had shown share as investment in his balance-sheet and assessee’s stand that in all earlier assessment years shares were held as investment was accepted by the revenue and in those year a number of companies whose share were held by the assessee remained more or less constant, assessee could be said to be an investor in share and, therefore surplus arising on sale of shares should be assessed as capital gain and not as business income. In Nagindas P. Sheth (HUF) Versus JCIT (supra) the coordinate bench held that, when in earlier years and subsequent years the assessing officer accepted, in the scrutiny assessment proceeding, the assessee as an investor. Such being the case, merely because the assessee transacted in 158 shares that should not be taken as a sole criteria to come to the conclusion that assessee is a trader in shares. It was further held that it is not in dispute that in the books of account assessee has declared the shares as an investment and the finding of learned ITA No. 7189/M/2012 for AY 2006-07 ITA No. 3015/M/2012 for AY 2008-09 Commissioner (Appeals) that only own funds were utilised for the purpose of share was not contradicted by the revenue. In Gopal Purohit Versus JCIT (supra ) Hon’ble Bombay High Court held that when the assessee was an engaged in the activity of sale and purchase of shares for a quite long period, and was noted that non-delivery based transaction had been treated by assessee as business activity and delivery based transaction had been treated as investment activities and accordingly the assessee had claimed himself both dealer as well as investor and had offered income for taxation accordingly, which had been claim to have been accepted by the revenue authorities in earlier years. The nature of activities, modus operandi of the assessee, manner of keeping record and presentation of shares as investment at the years and were same in all the years, and, hence, apparently there appear to be no reason as to why the claims made by assessee should not be accepted. It was further held that following the principle of consistency, the different view should not be taken, when facts and circumstances are identical, particularly in case of assessee. The Hon’ble Delhi High Court in CIT Vs Amit Jain [2015] 374 ITR 550(Delhi) also held when that the value and the frequency of transactions are not conclusive factor. When the similar income in the past and in subsequent year accepted as capital gain and there is no distinctive material to differentiate the assessee’s activities for the assessment year under consideration, the principle of consistency must be followed.

Considering the above factual and legal discussion, we have seen that the learned Commissioner (Appeals) has already considered all the relevant factors qua the facts of the case and passed the reasoned order. The revenue has not differentiated as to how the facts of the year under consideration are different from the years when the assessee was accepted as investor. Thus, we do not find any illegality or infirmity in the order passed by learned Commissioner (Appeals) hence the grounds of appeal raised by revenue are dismissed. In the result appeal of the revenue is dismissed.