Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 27-02-2017 घोषणा क" तार"ख /Date of Pronouncement : 14-03-2017 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 07th April, 2016 passed by the learned Commissioner of Income Tax (Appeals)- 6, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2004-05, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 31-12-2009 passed by the learned Assessing Officer (Hereinafter called “ the AO”) u/s 143(3) r.w.s. 147 of the Income-tax Act,1961 (Hereinafter called “the Act”).
ITA 4495/Mum/2016 2
The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) reads as under:-
“1. On facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals) [CIT (A)l has erred in upholding that the assessee is a trader in shares, thereby rejecting the assessee's claim that he is an investor in shares.
2. Without prejudice to above, the CIT (A) has erred in directing the AO to re-compute the value of the opening stock as on 01/04/2003 at cost or market price whichever is lower. The opening stock in a particular year is always the closing stock of the previous year and cannot be re-computed. The Act also provides only for the closing stock to be valued at cost or market price whichever is lower. The CIT(A) has further erred in not appreciating that the department has accepted the assessee to be an investor in shares for the past several years and for all subsequent years. The direction as given by the CIT (A) as regards re-valuing opening stock is incorrect and may therefore be cancelled. In the alternative the difference in value of closing stock as on 31/3/2003 and opening stock as on 1/4/2003 may be directed to be allowed as a loss or profit as the case may be.”
The brief facts of the case are that during the course of assessment proceedings u/s 143(3) r.w.s. 147 of the Act, the assessee was asked to furnish details of sales and purchase of shares for the financial year 2002-03, 2003-04 and 2004-05 and in response the assessee submitted details called for by the AO . It was observed by AO from details filed by the assessee that the assessee had carried out 102 share transactions on account of purchase of shares and 188 share transactions on account of sale of shares. It was observed by A.O. as held in the assessment year 2002-03 and earlier years, that the assessee had been carrying out business of share trading which can be confirmed from earlier assessment orders wherein the assessee's income was assessed as income from share trading business under the head Income from ‘Profit and Gains from Business or Profession’. The learned CIT(A) for assessment year 2001-02 has examined these facts and gave a categorical finding that the assessee is not an investor but he is engaged in the share ITA 4495/Mum/2016 3 trading business. The A.O. observed that there is no change in the facts of the assessee's case in this regard for this year also. In the circumstances, the A.O. treated the share transactions carried out by the assessee as business income and claim of loss on this count under the head short term capital loss was disallowed as the same was treated as income from business under the head ‘Profit and Gains from business or Profession’ . Accordingly, the net profit arrived at Rs. 5,62,823/- arising from the share trading transactions of the assessee was treated by the AO as assessee’s income under the head ‘Profit and Gain of Business and Profesion’ instead of being treated as income under the head ‘Income from Capital Gains’ and accordingly added to the total income of the assessee vide assessment order dated 31st December, 2009 u/s 143(3) r.w.s. 147 of the Act.
Aggrieved by assessment order dated 31-12-2009 passed by the A.O. u/s 143(3) r.w.s. 147 of the Act. , the assessee filed first appeal before the ld. CIT(A) whereby the ld. CIT(A) dismissed the appeal of the assessee vide appellate orders dated 20-09-2011 in first round of litigation. The matter went up to the tribunal and the tribunal vide its order dated 27-11-2013 in confirmed the decision of ld. CIT(A) in respect of first ground and in respect of ground No. 2 & 3, set aside the order of the ld. CIT(A) and restored back to the file of the ld. CIT(A) for passing a speaking order adjudicating various disputes raised by the assessee , in the first round of litigation.
Before the ld. CIT(A) , the assessee filed written submissions , where in it was contended that no borrowed funds were used for purchase of shares which are held as investment . The copies of Balance Sheet for assessment year 2001-01 to 2004-05 were enclosed. It was submitted that for assessment year 2000-01 , assessment was re-opened by the AO to treat the assessee as an investor in shares. It was submitted that for the assessment year 2000-01, ITA 4495/Mum/2016 4 the assessee in his return claimed business loss of Rs.1,59,212/- . The AO invoked provisions of Section 147 of the 1961 Act and held the assessee to be an investor vide orders dated 30-11-2005 passed by the AO u/s 143(3) r.w.s. 147 of 1961 Act. It was submitted that learned CIT(A) vide orders dated 22.09.2006 held the assessee to be a trader in shares for the assessment year 2000-01, as was originally claimed by the assessee in the return of income filed with the Revenue. It was submitted that for assessment year 2001-02, the assessee had claimed a business loss on trading of shares of Rs. 2,80,792/- . It was submitted that aforesaid trading loss was for dealing in purchase and sale of shares for the period 01-04-2000 to 31-05-2000 , after which the assessee discontinued share trading business activities. Thereafter, the assessee had incurred short term capital loss of Rs.3,36,674/- and long term capital loss of Rs. 4,81,712/- and a speculation loss of Rs. 2,87,184/- on shares. The assessment for assessment year 2001-02 was re-opened by the AO u/s 147 of 1961 Act which was completed on 30-11-2005 to treat the assessee as an investor by disallowing the business loss of Rs. 2,80,792/- claimed by the assessee. It was submitted that learned CIT(A) vide orders dated 22.09.2006 granted the business loss of Rs. 2,80,792/- for the period 01-04-2000 to 31-05-2000 holding the assessee to be a trader in share for two months. It was submitted that for assessment year 2002-03, the assessment in the case of the assessee was completed u/s 143(3) of 1961 Act on 29-12-2004 by treating assessee as an investor as was claimed by the assessee in the return of income filed with Revenue. The assessment for assessment year 2002-03 were re-opened and the assessee was held to be a trader in shares vide orders dated 30-12-2009 passed by the AO in re- assessment proceedings. The assessee submitted that learned CIT(A) quashed the re-opening vide appellate orders dated 20-09-2011, wherein the assessee was held to be an investor and not trader of the shares. It was submitted that for assessment year 2003-04 , the return of income was processed u/s 143(1) of 1961 Act wherein income from sale of shares were held to be an income ITA 4495/Mum/2016 5 from capital gains as claimed by the assessee in his return of income filed with the Revenue. It was submitted that for assessment year 2004-05, the return of income was processed u/s 143(1) of 1961 Act which was re-opened to treat assessee as a trader. The AO relied upon order of learned CIT(A) for assessment year 2001-02 wherein the assessee was a trader only for a period of two months i.e. April and May 2000. The learned CIT(A) upheld the findings of the AO by holding him to be a trader for assessment year 2004-05 in first round of litigation. The appellate order of the learned CIT(A) for impugned assessment year was set aside by tribunal in first round of litigation, was the submission of the assessee before learned CIT(A). It was submitted that thereafter for subsequent assessment years post assessment year 2004-05, assessee was accepted to be an investor in shares by Revenue and not as trader in shares. It was submitted that these assessments were accepted u/s 143(1) of 1961 Act. The assessee submitted details of number of purchase and sale transactions in shares for the period from assessment year 2002-03 to 2004-05 , as detailed hereunder :
S.No. Asst. Year No. of No. of Sales Remarks Purchase Transactions Transactions i. 2002-03 86 110 Treated as investor by the assessee as well as ii. 2003-04 271 215 Department except for A.Y. 2004-05, where iii. 2004-05 102 188 the assessee has treated himself as investor, whereas the Department has treated him as a trader The complete analysis of working of short term capital and long term capital gains were submitted before the AO and it was submitted that the assessee has held individual scrips for more than 30 days except for shares mentioned ITA 4495/Mum/2016 6 in page 66 to 69, wherein the shares were held for less than a month and disposed off immediately after purchasing mostly under speculation. It was submitted that F&O and speculative transactions are declared as business income and not income from capital gains. The assessee relied on several case laws which are listed at page 8 of learned CIT(A) appellate orders dated 07-04- 2016. The assessee submitted that these shares were not procured from any borrowings. The assessee ceased to be trader in shares from 31-05-2000. The shares have been classified as investment in the statement of affairs . The assessee relied upon CBDT circular dated 29-02-2016 and also decision of Hon’ble Bombay High Court in the case of Gopal Purohit in 188 taxman 140(Bom.) and submitted that the assessee case is squarely covered. The ld. CIT(A) after considering submissions of the assessee observed that assessee has been systematically undertaking purchase and sale transactions over the years. It has 86, 271 and 102 purchase transactions and 110, 215 and 188 sale transactions in assessment years 2002-03, 2003-04 and 2004-05 respectively. It was observed by learned CIT(A) that the assessee also carried out speculation and F&O transactions during the year apart from transactions giving rise to short-term capital gain and long-term capital gain. The ld. CIT(A) observed that the assessee has undertaken both speculative and short-term transactions of the same share on different occasions . Hence, it was observed by learned CIT(A) that the intention appears to maximize profit from share transactions rather than enjoy dividend income and appreciation in value of shares. It was observed that there was also no consistency in respect of treatment of shares in the books of assessee. The assessee treated himself as a trader up-to assessment year 2001-02 and the A.O has thereafter treated the assessee as a trader up-to 2004-05. No assessment order was passed for assessment years 2003-04 and 2005-06 where assessee had claimed to be an investor, as the said returns were processed u/s 143(1) of 1961 Act. Thus, there is no consistency in the treatment of share transaction over the years. The ld. CIT(A) held that that ITA 4495/Mum/2016 7 considering number of transactions, frequency of transactions, holding period and repetitive transaction in the same scrips, assessee was held by learned CIT(A) to be trader in shares and dismissed the appeal of the assessee. The ld. CIT(A) also directed A.O. to verify the details of opening stock and closing stock of each share and adopt the value on the basis of cost or market price whichever is less, as the assessee was held to be trader by learned CIT(A) vide appellate orders dated 07-04-2016 passed by learned CIT(A) in second round of litigation.
Aggrieved by the appellate order dated 07-04-2016 passed by the ld. CIT(A), the assessee filed appeal before the tribunal.
The ld. Counsel for the assessee submitted that this is second round of litigation and in the first round of litigation the matter was set aside by the tribunal to the file of ld. CIT(A) for de novo determination/adjudication of the issue on merits. The assessee has filed all the facts by way of written submission before learned CIT(A) and our attention was drawn to the appellate order of learned CIT(A) .It was submitted that for assessment year 2005-06, no scrutiny assessment was carried out by Revenue u/s 143(3) r.w.s. 143(2) of 1961 Act . It was submitted that during the impugned assessment year, the assessment was reopened treating the assessee as trader. It was submitted that investment in shares was made out of owned funds and no borrowed funds were used for making investments in shares. There were 188 sales transactions and 102 purchase transactions undertaken by assessee during the impugned assessment year. The assessee relied on CBDT circular no. 6/2016 dated 29-02-2016 and contended that the assessee is investor in shares after 31-05-2000, when he joined employment with Indusind Bank. The assessee has not used any borrowed funds for acquisition of shares and intention was to invest own money in shares. The transactions in purchase and sale of shares are not much as ITA 4495/Mum/2016 8 detailed above. The assessee has reflected the shares investment as ‘Investment’ in statement of affair filed with Revenue consistently and not routed through profit and loss account as were required for preparation of trading account . The assessee joined Indusind Bank on 30.05.2010 and thereafter the assessee ceased to be trader in shares. The AO re-opened the concluded assessments in earlier years but learned CIT(A) has given relief . The details of the treatment given by the AO and learned CIT(A) for share transactions was detailed before us. It was submitted that principles of consistency has to be followed as in the earlier year , the assessee was accepted by Revenue as investor either by the AO or by learned CIT(A). It was submitted that even for subsequent years , the assessee was accepted to be investor by Revenue and principles of consistency has to be followed. Thus, it was submitted that the assessee is an investor in shares and as such should be accepted as investor in shares and gains from sale of shares are to be brought to tax as ‘income from capital gains’. It was submitted that if at all assessee is to be treated as trader in shares, then without prejudice, both opening and closing stock should be adjusted to reflect cost or market value whichever is less.
The ld. D.R. relied upon the CBDT circular No. 6/2016 dated 29-02- 2016 and submitted that the same is not with retrospective effect and the same is prospective in nature. The learned DR rely on orders of the learned CIT(A) wherein the learned CIT(A) has done detailed analyses. . The ld. D.R. submitted that the assessee himself agreed that he was trader in shares till 2001. Principles of res judicata are not applicable to income tax proceedings. The assessee is a trader in shares. It was submitted that for two years i.e. assessment years 2003-04 and 2005-06 , the return of income were processed u/s 143(1) off 1961 Act and hence the same cannot be accepted to contend that consistency should be followed as the Revenue has not done detailed scrutiny in those years u/s 143(2) r.w.s. 143(3) of 1961 Act. The ld. ITA 4495/Mum/2016 9 DR contended that learned CIT(A) has rightly directed A.O. to adopt value of closing stock on the basis of cost or market price, whichever is less .
The learned counsel for the assessee submitted in rejoinder that Revenue is blowing hot and cold as different treatment were given by AO and CIT(A) for different years ,while assessee is an investor.. It was submitted that CBDT circular no 6/2016 dated 29-02-2016 is guidance and need to be applied retrospectively.
We have considered rival contentions and also perused the material available on record. We have observed that the assessee has undertaken transactions in purchase and sale of shares. The assessee is consistently dealing in shares till assessment year 2001-02 as trader and joined employment with Indusind Bank on 30-05-2010. The assessee has declared itself as investor since 30-05-2010, which stand of the assessee being investor in shares was finally accepted by Revenue either by the AO or by learned CIT(A) while adjudicating first appeal for all these years , except for the impugned assessment year wherein AO and learned CIT(A) have held assessee to be a trader in shares and income was brought to tax as income from ‘Profit and Gains of Business or Profession’ . The assessee has not borrowed any funds for making investments in shares which were invested out of own funds. The assessee has also reflected investment in shares as ‘Stock’ in the Balance Sheet filed by the assessee with Revenue and the same is not reflected as opening or closing stock in Profit and loss account as the same was not routed through Profit and Loss Account . The assesse has valued investments in shares in Balance Sheet at ‘Cost’ consistently. We have also gone through assessment orders as well appellate orders of learned CIT(A) of earlier years and have observed that assessee was finally treated as an investor since assessment year 2001-02 onwards ( for post 30-5-2010 transactions) except for impugned assessment year. Nothing contrary is ITA 4495/Mum/2016 10 brought on record by learned DR to disprove this contentions of the assessee. We have also carefully gone through number of transactions, volumes, frequency etc. of investment in shares . We have also observed that assessee has contended that for the transactions squared within 30 days of acquisitions , the same be treated as business income and for transactions for sale of shares which were sold beyond 30 days of purchase of and not more than twelve months , the resultant gains from the sale of shares be classified and brought to tax under the head ‘Income from Capital Gains’ for the shares dealt which are listed securities as per mandate of Section 2(42A) of 1961 Act. We do not find any merit in the contentions of the Revenue of treating assessee as a trader in shares for impugned assessment years. Principles of res-judicata no doubt are not applicable to the income-tax proceedings but principles of consistency are to be applied (Ref: Radhasoami Satsang v. CIT (1992) 193 ITR 321(SC) ). Under these circumstances as detailed above, we hold that the assessee is an investor in shares and gains arising from sale of shares for the period of holding from 30 days to not more than twelve months be treated as short term capital gains in case of listed securities as are provided as per mandate of Section 2(42A) of 1961 Act, and where period of holding prior to sale of share is up-to 30 days, the same is to be treated as income from ‘Profit and Gains of Business or Profession’ as it has an indica of trade and shall be brought to tax accordingly. We further hold that opening and closing stock of shares held as investments are to be valued at cost as is valued by the assessee and not at cost or market value whichever is lower as is directed by learned CIT(A), as the shares were held as investments and not as stock-in-trade. We order accordingly.
In the result, appeal filed by the assessee in 2004-05 is partly allowed as indicated above.
ITA 4495/Mum/2016 11