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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 26/03/2015 of the CIT (A)-37,Mumbai, the Assessing Officer (AO)has filed the present appeal.Assessee,an individual, filed his return of income on 30/07/2010, declaring total income of Rs. 1.91 crores. The AO completed the assessment under section 143 (3) of the Act, on 26/03/2013, determining his income at Rs.1.69 crores .
Effective ground of appeal is about treating and amount of Rs. 1.87 crores under the head Short-Term Capital Gains (STC G) against business income as held by the AO. During the assessment proceedings, the AO found that the assessee had declared STCG of Rs.1.87 crores in addition to the income from house property, income from other sources and profit and gives from business and profession, that the assessee was engaged in the business of purchase and sale of shares, that there were large number of transactions of securities, that in some of the cases the holding period was less than one year. He asked the assessee to explain as to why the STCG should not be treated as business income. After considering his reply, the AO held that mere classification of the shares is investment in the financial statement would not prove that shares must always be held as investment, that simply the valuation of investment at cost would not change the real nature of the activity, that the assessee was totally employed for stock market operations, that trading in shares and speculation was the main activity of the assessee, that he was in the market for maximizing the profit, that he had held shares for a period of less than 30 days for certain transactions (49 scrips), that there was a very high irregularity in trading pattern and the transactions were carried out at a substantial frequency,
3539/M/15(10-11) Sunil G. Raheja that the assessee could not be treated an investor, that the principles of res judicata would not apply to income tax proceedings. Finally he held that net amount of Rs. 1.62 crores (after allowing for deduction of STT and interest) was to be taxed as business income. The AO also referred to the Circular No. 4/2007, issued by the CBDT.
3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate authority (FAA). Before her, it was argued that the shares purchased by him fell within the definition of short-term capital asset as defined in section 2 (42 A) of the Act, that after payment of STT it was fair and unjust to expect that the assessee would pay additional tax, that the shares in question had all along been valued at cost and treated as investment, that he had incurred losses on similar transactions and had not claimed such losses as business loss. He relied upon the cases of Gopal Purohit (228 CTR 582), Ketha Kumar A.Shah (242 ITR 83) and S. Ramaathirtham (306 ITR 239) and argued that entire amount of Rs.1.87 crores was to be treated as STCG.
After considering the submission of the assessee and the assessment order, the FAA held that the reasons given by the AO to treat the STCG as business income were generic in nature, that STCG income had arisen from the transaction in only 25 scrips as against 49 stated by the AO, that the AO had observed that transactions ran into several pages, that share transactions were carried out electronically, that in order for purchase/sale for a given quantity of any one scrip would be generally split into multiple transactions, that the number of transactions has to be seen in conjunction with other factors, that the assessee had engaged in transaction of shares of only 25 companies which by itself could not be held to be unusual for an investor, that the losses incurred on such transaction were not claimed as business loss by the assessee, that the amount of capital gain from shares which had been transacted in within less than 30 days was only to the tune of Rs.2.73 lakhs, that test check of the share transactions from the Demat account showed that same were delivery-based, that there was an established pattern bearing the characteristic of trade or business. The FAA referred to the cases of Hitesh Doshi (46 SOT 336), Koradia Constructions Pvt. Ltd.(146ITD251),E CAP Partners (ITA/4785/Mum/2009, dated 15/01/2014) Mahindra C. Shah (ITA/6289/ Mum/2008 & ITA/4932/Mum/2009, dated 18/05/2011) and observed that investment of the assessee was substantially in blue-chip companies, that mere frequency or volume of share transactions could not be held sufficient to classify the income as being business income, that the assessee was deriving income from business, house property and other sources, that an assessee can
3539/M/15(10-11) Sunil G. Raheja carry on business in shares and simultaneously maintain an investment portfolio. Finally, she held that entire amount of Rs. 1.87 crores was to be taxed under the head STCG.
4.During the course of hearing before us, the Departmental Representative (DR) supported the order of the AO and stated that the holding period was less than 30 days, that the assessee had entered into frequent buying and selling of shares.The Authorised Representative (AR) relied upon the order of the FAA and stated that the assessee was treating the shares as investment,that loss arising out of share transactions was not claimed as business loss by him.
5.We have heard the rival submissions and perused the material before us. We find that while determining the head of income,the AO had referred to circular of the CBDT and had,in his 17 pages order,narrated the principles that governing the treatment to be given to the share transactions for treating them stock in trade /investment.While writing the theory he forgot to mention the basic facts that would decide the issue i.e.,as to whether the transactions entered in to by the assessee were part of his business activities or investment.Theories have to be applied to the facts of the case to make an item of income taxable.In the Circular, the CBDT has laid down certain parameters as to how the share transactions should be treated.The AO has to apply those principles on the given facts.In the case under consideration the assessee was treating the shares as his investment in its books of account, besides he is valuing it at cost.These two parameters are,to a great extent,decisive to hold an assessee a trader/ investor.The AO has not furnished any details about the total investments, frequency of the transactions, utilisation of borrowed funds.These factors also have to be considered to deal with the issue of treating the share transaction as business income /income from capital gains.The FAA has given a finding of fact that holding period of 25 scrips was less than a period of one month .The AO had mentioned that the number of such scrips was 49.Thus, the finding given by the AO is factually incorrect.If the gains arising out of such transactions are considered it becomes clear that it is miniscule of the income offered by the assessee.The FAA has mentioned that total gains from such transaction was Rs.2.98 lakhs only as against the total income of Rs.1.89 crores offered under the head of STCG. It is also a fact that assessee had not claimed any loss against the investment portfolio.Considering the totality of the facts and circumstances of the case, we are of the opinion that the order of the FAA does not suffer from any factual infirmity.So, confirming the same we decide the effective Ground of appeal against the AO.