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Assessee by : Shri J.P. Bairagra -AR Revenue by : Mrs. Beena Santosh -DR Date of hearing : 23.02.2017 Date of Pronouncement : 24.03.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal under section 253 of the Income Tax Act (the Act) by assessee is directed against the order of Ld. Commissioner of Income-Tax (Appeals) [Ld. CIT(A)]-15, Mumbai dated 27.03.2015 for Assessment Year (AY) 2010-11. The assessee has raised only one ground of appeal
; (1) The learned CIT(A) erred in holding that Short Term Capital Gain (STCG) earned and Long Term Capital Loss (LTCL) incurred by the assessee by should be treating as Business Income/Loss.
2. Brief facts of the case are that the assessee filed return of income for relevant AY on 29.07.2010 declaring total income of Rs. 2,94,35,182/-. The assessment was completed on 28.02.2013 u/s 143(3) of the Act. The Assessing Officer (AO) while passing the assessment order treated the STCG as Business Income and LTCL was also treated as Business Loss. On appeal before the ld. CIT(A), the treatment of STCG as business income was sustained, however, in respect of LTCL, the assessee was granted partial relief for set off business income for Mr. Narayanswami Jayakumar 9 scrips sold during the year by the assessee. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the Ld. Authorized Representative (AR) of the assessee and Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld. AR of the assessee argued that during the year, the assessee earned STCG of Rs. 1,33,58,000/- and incurred LTCL of Rs. 298,58,436/-, the assessee paid the tax on STCG and not claimed the carried forward LTCL sustained. The AO treated the STCG as Business Income and not discussed anything regarding LTCL sustained by assessee. The ld. CIT(A) confirmed the action of AO and directed that LTCL in respect of some scrips should be treated as Business Loss. The ld. AR of the assessee further submitted that assessee invested in share out of which own capital. The assessee owned a capital of Rs. 46.22 Crore. The assessee invested in shares of Rs. 26.85 Crore only. The assessee has not used any funds for making investment in the share. The assessee earned the STCG in 9 scrips where the holding period is between 2 days to 361 days, the average holding period of this transaction is 111 days. The LTCL incurred in 3 scrips where the holding period is 362 to 1544 days. Thus, the average holding period is 858 days. The claim of assessee cannot be rejected, similarly on the basis of which quantity of share and short period holding. Besides that the assessee has earned dividend income of Rs. 10.02 Crore during the year. The assessee treated the investment in share as investment in the books of accounts and valued the same at cost while Business Income, the assessee valued the closing stock at cost or market values whichever is less. It was further argued that in a previous year i.e. in AY 2009-10 and in subsequent assessment years i.e. AYs 2011-12, 2012-13 and again in 2013-14 the similar claim of assessee was accepted by the assessing officer and the copies of the return of income and the assessment order for all these assessment years under section 143(1) is placed on record. In support of his contention, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in Gopal Purohit vs. JCIT 366 TTR 287 (Bom) and the decision of ACIT vs. Narayan Prasad R. Iyer (ITA No. 5014/M/2012, Mr. Narayanswami Jayakumar decision of Smt. Anju P. Saraf vs. ACIT (ITA No. 4216/M/12) dated 23.07.2014 and Sunil Kumar Ganeriwal vs. DCIT 134 ITD 179. The ld. AR of the assessee further argued that the reliance made on other decision is filed in the firm of legal Paper Book. On the other hand, ld. DR for the Revenue supported the order of authorities below. The ld DR further submitted that the assessment orders, wherein the assessee is claiming that his claim for STCG was accepted by AO, are the order wherein the return was processed under section 143(1) only and there was no scrutiny assessment under section 143(3) of the Act.
We have heard the rival contention of the parties and perused the material available on record including the copy Paper Book and the various decisions placed on record. The AO while framing assessment noticed that assessee has shown the amount of Rs. 1,33,58,000/- as ‘Income from Investment’ and shown it under the head STCG. The assessee was asked to explain as to why STCG should not be treated as “Business Income” considering the short period of time and volume of transaction. The assessee filed his reply dated 21.02.2013. In reply that assessee contended that share being held as investments being capital asset and accordingly shown under the head “Capital Gain”. The assessee further contended that he himself is employee as president with Prime Securities Ltd., a listed company, engaged in the business of debt and equity organization, merchant banking and other financial advisory services. The assessee is full time employee. The assessee over the years invested his capital among various asset classes including in shares. The capital of the assessee as on 31.03.2010 was for Rs. 46.22 Crore and assessee has invested only Rs. 26.85 Crore in share of listed and unlisted company, the intention of the assessee is of investment and has been recorded in the books of account, the assessee has not borrowed any fund for investment in share. The assessee has earned STCG of Rs. 1,33,58,000/- and has suffered LTCL of Rs. 2,98,58,436/-, these facts goes to show that assessee is investor in shares and not a traders in share. The reply of the assessee was not accepted by AO holding that the frequency of purchase, sale, intention of holding and manner of Mr. Narayanswami Jayakumar
his transaction has to be seen for determining the nature of transaction and not the entries in the books of account. The entries in the books of account are not conclusive. The AO further hold that assessee is one of the key employee who is acting as a President of the company i.e. Prime Securities Ltd. which is a sister concerned of Prime Booking Ltd., which into the share broking business, the nature of business of the employer companies of the assessee enables the assessee to have the information with regard to the financial performance of various companies and other related details which helps in creating the movement of share price of those companies. Secondly, the investor is a person who invested the money in Bank for the purpose of gaining dividend income and also long term holding of those shares thereby providing the capital appreciation on the investment. The investors mostly are exposing to the information about the company which is in public domain or the manner in which periodical result are declared by the companies. The AO further analyzed the transaction in the following manner: Sr. Name of the scrip Quantity of Date of Date of sale Average Gain/Loss N share purchase days of o. purchased holding period 1 Aban Offshore Ltd. 71312 20,21,28 to 220,23,24,26, 120 days 2,90,82,735 30.07.09 30.11.09 2 Bajaj Hindustan 224660 20.11.09 & 03,04.12.09 & 12 days 2 12,17,938 Ltd. 14.01.10 15.01.10 & days 04.02.10 3 Balrampur Chini 200000 23.11.09 25.11.09 2 days 16,86,000 Mills Ltd. 4 Bharti Shipyard Ltd. 247500 03,04,07.12.0 14/15.01.10 38 days 2,31,42,575 9 5 Bhrandhouse 176524 02.05.08 23,24,27 & 365 days (-)68,14,304 Retails Ltd. 28.04.09 6 Jindal Saw Ltd. 158000 26.11.09 08,11 & 36 days 7,63,571 31.12.09 7 Shree Renuka Sugar 590000 16.07.09, 20.07.09, 4 days 10 (-)4,47,72,150 Ltd. 24/25.11.09, 30.11.09 & days, 12 15.01.10, 07.12.09, days 10/11.03.10 23.03.10 8 S Kumar 587489 06.10.08 29/30.07.09 300 days 88,15,490 Nationwide Ltd. 9 Thomas Cook 60000 30.11.09 10/11.03.10 100 days 2,33,145 23,15,485 1,33,58,000
The AO after considering the pattern of sale and purchase, period of holding and frequency of sale, motive for purchase and magnitude of the share concluded that the intention of assessee in dealing of share is of a trading. After Mr. Narayanswami Jayakumar
considering the finding of AO and the submission made on behalf of assessee, the ld. CIT(A) concluded that the holding period is as low as 2 days to 4 days or 10 days to 12 days and applied the provisions of Circular No. 4 dated 15.06.2007. After applying the parameters and guidelines for deciding the nature and activities, wherein the holding period of 2 days, 4 days, 10 days and 12 days in case of 3 scripts and just over a month in 2 scripts and for 2 scripts holding period is very short. The ld CIT(A) observed that in Aban Offshore Ltd. the holding is 120 days, in Brandhouse Retails Ltd the holding period is 365 days., in S.Kumar Nationwide Ltd. the holding period is, 300 days and in Thomas Cook the holding period is 100 days. The ld. CIT(A) observed that though the assessee has not utilized borrowed fund on account of frequency and short period holding and merely for the reasons the assessee says that they are shown as investment, cannot be accepted and the treatment of STCG was upheld by ld. CIT(A). The Co-ordinate Bench of Mumbai Tribunal in Rikeen P. Dalal vs. DCIT (2014) 41 taxman.com 326 (Mum Trib.) almost on similar facts while dealing with the similar issues held as under: “6. We have carefully considered the rival submissions in the light of material placed before us. The first reason described by the AO to take divergent view during the year under consideration is that the assessee has already shown certain income from share transactions as income from business and rest as income from short term capital gain. According to AO such differentiation is only as per convenience of the assessee. This is because the AO has found that income from F&O trading has been treated by the assessee as business income. During the course of arguments it was shown to us that similar income was earned by the assessee in preceding year as well as subsequent years. Therefore, such reason does not lead to difference in fact for the year under consideration. Moreover, as per decision of Hon'ble Bombay High Court in the case of Gopal Purohit (supra) the Tribunal has been held to be right in accepting the position that it is open to an assessee to maintain two separate portfolio, one relating to investment in shares and another relating to business activities involving dealing in shares. Therefore, according to well established principle of law the assessee can maintain two separate portfolios, one relating to investment in shares and another relating to business activities. 6.1 Another reason stated by the AO is that on the basis of entries in the books of accounts the claim of the assessee cannot be accepted that shares shown as investment should be considered to have given rise to income assessable under the head "capital gain". This is true that entries in the books of accounts are not relevant to determine the character of the transactions. However, at the same time with regard to similar issues the department in the earlier as well as subsequent years has accepted the claim Mr. Narayanswami Jayakumar of the assessee that the shares shown as investment give rise to an income which is assessable under the head "capital gain". 6.2 Another reason provided by the AO is that principle of res-judicata does not apply to Income Tax proceedings. It is true that principle of res-judicata does not apply to Income Tax proceedings but at the same time it is also well established that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical particularly in the case of assessee. This principle has been accepted by the Hon'ble Jurisdictional High Court in the case of Gopal Purohit (supra) as per following observations. "In so far as question (b) is concerned, the Tribunal has observed in paragraph 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The Revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification jar adopting a divergent approach jar the assessment year in question. Question (b), therefore, does not also raise any substantial question of law." [Emphasis supplied]
6.3 In the present case it has been shown to us that in assessment years 2007-08, 2009- 10 and 2010-11 similar transactions have been accepted as giving rise to income assessable under the head capital gain and only during the year under consideration a different view has been taken which is not liable to be approved in view of aforementioned decision of Hon'ble Bombay High Court in the case of Gopal Purohit (supra).
6.4 Another objection raised by the AO is that volume of transactions, frequency and investment in the year under consideration are high and there are borrowed funds utilized by the assessee. We found that the facts of the case of the assessee for present year are no more different from the facts in the case of assessee for A. Y 2007-08, 2009-10 and 2010-11 as it will be clear from the chart produced by Ld. AR which is also reproduced para 4 of this order. From the above chart it can be noted that the average period of holding does not vary much as for the year under consideration it is 99 days when they are compared to A. Y s 2009-10 and 2010-11 which is 91 days and 118 days respectively. The investment for the year under consideration is Rs. 493.00 lacs as against investment of Rs. 332.00 lacs, Rs. 297.40 lacs and Rs. 1296.92 lacs for assessment years 2007-08, 2009-10 and 2010-11 respectively. Similarly, interest expenditure of the assessee for the year under consideration are Rs. 3.35 lacs against Rs. 2.12 lacs , Rs. 10.35 lacs and Rs. 11.98 lacs for the assessment years 2007-08, 2009-10 and 20 I 0-11 respectively. Therefore, it cannot be said that assessee has utilized substantial borrowed funds for making investments in shares. The capital of the assessee is also a sum of Rs. 833.00 lacs for the year under consideration as against Rs. 335.00 lacs, Rs. 685.68 lacs and Rs. 627.48 lacs for assessment years 2007-08, 2009-10 and 20 I 0-11 respectively. However, the number of transactions and number of scrips dealt by the assessee is on higher side but that alone cannot be said to be a factor to deviate from the view taken in earlier and subsequent years. For this purpose reference can be made to the decision of ITAT in the case of Mrs. Sejal Dalal (supra), the relevant portion of the observations have already been reproduced in para 4.1 of this order.
Mr. Narayanswami Jayakumar
6.5 We have also gone through the assessment orders for assessment years 2007-08, 2009-10 and 2010-11 and the relevant papers filed in the paper book to show that under identical facts the AO in earlier as well as subsequent years has accepted this claim of the assessee by way of order passed under section 143(3) of the Act. The details of these orders have already been described in Para 4.2 of this order. 6.6 The principle approved by Hon'ble Bombay High Court in the case of Gopal Purohit (supra) has been applied by Mumbai ITAT in other decisions also which have been relied upon by Ld. AR, wherein finding that in earlier year/subsequent year similar claim was accepted by the revenue, the Tribunal has granted the relief. Relevant Observations of the Tribunal from those decisions have already been reproduced in the above part of this order. 6.7 In this view of the situation, we hold that amountof short term capital gain shown by the assessee Rs. 5,85,40,417/- cannot be assessed as business income. The same is assessable as short term capital gain in view of uniformity in treatment and consistency. We direct accordingly.” Further, the Co-ordinate Bench in case of DCIT vs. E-cap Partners 45 taxmann.com 342, Hitesh Satischandrad Doshi vs. JCIT 140 TTJ 32, Sunil Kumar Ganeriwal vs. DCIT- 134 ITD 179 and ACIT vs. Shri Narayan Prasad R. Iyer – dated 04.03.2016 has taken a similar view as held in case of Rikeen P. Dalal (supra). The Hon’ble jurisdictional High Court in CIT vs. Harit Exports ltd. (226 taxman 260) held: That where the assessee maintained a separate portfolio from the beginning with regard to the transaction/investment and where the share had been treated. The total number of transactions is only 27 during the entire period, this itself shown that activity of sale and purchase of share in the investment portfolio is not frequent. None of the transaction in the same scripts is repetitive in these circumstances, and finding that volume of the investment as indicated in the separate portfolio is enough to indicate that trading in transaction have been undertaken from the income under the head and not from borrowed fund. The balance-sheet of assessee shown that fund is mere investment made by assessee and it is enough for indulging in the trade transaction in such circumstances and going by frequency of transaction and applying the relevant test and allowed the claim of STCG. We may further referred the decision of jurisdictional High Court in case of Gopal Purohit vs. JCIT [336 ITR 287(Bom)] held that though the principle of Mr. Narayanswami Jayakumar res-judicata is not applicable to the assessment proceeding, yet there should be uniformity in treatment and consistency with facts and circumstances are identical. Now turning to the facts of the present case during the year under consideration, the shares of 12 companies were sold, out of which share of 3 companies were held for over a year, the sale of share of 9 companies held in different parties, period of which is less than a year. The assessee made the investment in share of Rs. 26.85 Crore out of assessee’s own capital of Rs. 46.22 Crore. Admittedly, no funds were used by assessee for making investment in shares. The assessee earned STCG in 9 scripts whether holding period is in between 2 days to 361 days. Thus, the average period of holding of these transactions is 111 days. The LTCL incurred in 3 scrips is 858 days. Moreover, the assessee earned dividend income during the year of Rs. 10,02,610/-, there is no dispute that assessee treated the investment in share as investment in the books of account. Thus, considering the number of transaction, period of holding and consistent practice of assessee, we hold that the income earned by assessee from 9 scripts are capital gain. Moreover, the Revenue has accepted the similar income as capital gain for Ay 2009-10 and further subsequent to the AY under consideration i.e. for AY 2011-12, 2012-13 and 2013-14.
Hence, considering the above discussed legal position as held in various decision of Co-ordinate Bench of this Tribunal, we set-aside the order of AO and ld. CIT(A) and direct the CIT(A) to accept the claim of assessee as STCG. We have further seen that before the ld. CIT(A), the assessee in alternative pleaded that in case, the assessee is held trader in share, in that case the transaction of sale of share held for more than a year which were shown as investment should be treated is business transaction and loss incurred on those transaction must be allowed to be set off against the business income. The ld. CIT(A) while confirming the action of AO for treating the STCG as Business Income allowed the set off of business loss against 9 scripts sold during the year. As we have reversed the finding of lower authorities that allowing the Mr. Narayanswami Jayakumar