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Income Tax Appellate Tribunal, MUMBAI BENCHES “H”, MUMBAI
Before: Shri D.T. Garasia, & Shri AshwaniTaneja
आदेश /O R D E R
Per AshwaniTaneja, AM:
This appeal has been filed by the Revenue against the order of Commissioner of Income Tax (hereinafter referred as ‘Ld. CIT(A)’)Mumbai-35, dated 23/03/2011 passed against the assessment order of the Assessing Officer (in short ‘AO’) u/s 143 2 Meenal D. Shah (3) of the Income Tax Act 1961, dated 14/12/2010 for AY 2008- 09 on the following grounds:
“1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is erred in directing the Assessing Officer to accept the claim of the assessee shown as Short Term Capital Gain at Rs.1,61,37,023/- and Long Term Capital Gain (exempt) at Rs.72,355/- out of purchase and sale of shares, instead of “income from business or profession” treated by the Assessing officer, without appreciating the fact that the assessee has indulged in huge volume of share transactions and has devoted most of his time for this activity.” 2.“The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the A.O. be restored.” 3.“The appellant craves leave to amend or alter any ground or add a new ground.” 2.During the course of hearing, it has been argued by the Ld. DR appearing on behalf of the Revenue that the assessee has been regularly doing transaction in shares which shows that intention of the assessee was to make profit by doing trading in the shares of various companies. Therefore, the AO had rightly treated the income arising on sale purchase of shares as assessable under the head ‘income from business’. He submitted that Ld. CIT(A) has wrongly reversed the order of AO, therefore, order of Ld. CIT(A) should be reversed and that order of AO should be restored.
3.Per contra Ld. Counsel of the Assessee vehemently supported the order of Ld. CIT(A). It was submitted that assessee has been making investment into shares since last many years. The amount invested in shares has always been shownas part of ‘Investment’ in the Balance Sheet. The resultant gain arising from the shares has always been offered as assessable under head 3 Meenal D. Shah ‘income from capital gains’ and the same has been accepted as such by the AO. It is for the first time that in this year the AO has treated as ‘income from business’. He relied upon the detailed and well-reasoned finding of Ld. CIT(A) and requested for upholding the same. He also placed before us copies of Income Tax Returns and Balance Sheets filed along with Return of Income since AY 2006-07 showing that shares have always been shown as part of ‘Investments’, and have never been shown as part of ‘closing stock’. Further, the resultant gain has always been disclosed in the return as ‘income from capital gain’ i.e. as ‘short term capital gain’ or ‘long term capital gain’ depending upon the period of holding of the shares.
4.We have gone through the orders passed by the Lower Authorities. The only issue to be decided by us is whether the amount of gain earned by the assessee of sale by shares would be assessable under head ‘income of capital gains’ as was claimed by the assessee in the return of income or as‘income from business’ as was done by the AO in the Assessment order. The brief background is that assessee’s income mainly comprises from income from house property, short term capital gains& long term capital gain on sale of shares and income from other sources. The assessee was not engaged in any other business. The AO held that the transactions of sale and purchase of shares done by the assessee amounted to share trading business. In the appeal before Ld. CIT(A), the assessee demonstrated with the helpof details and evidences that assessee had never been engaged in the business of share trading. The assessee had always acted like an investor. The shares have been sold 4 Meenal D. Shah admittedly to maximise the gain and minimise the losses. Ld. CIT(A) examined all the details and held that the assessee always acted like an investor and therefore, resultant gain was assessable under the head ‘income from capital gain’. The relevant part of order of Ld. CIT(A) reproduced hereinabove: “ DECISION WITH REASONING: I have considered the submissions of the representative and the stand taken by the A.O. admittedly, the appellant undertook share transactions only between November, 2007 to March, 2008 and in the beginning of the year there were very few transactions upto September, 2007 whereas the A.O. held that the appellant undertook share transactions on regular basis throughout the year. Further, the share transactions undertaken by the appellant in the earlier years in negligible, considering the fact that the appellant admitted only short term capital gain of Rs.43,914/- and long term capital gain of Rs.26,610/- for A.Y.2007-08 and the closing value of investment as on 31.03.2006 and as on 31.03.2007 was only Rs.15,18,219/- and Rs.15,36,215/- respectively when compared to the value of closing investment as on 31.03.2008 at Rs.44,17,548/-. From the above and the statement of the capital gain working filed by the appellant before the A.O., it is seen that the appellant undertook share transactions only between November 2007 to March 2008. In view of the above peculiar facts of the case, it cannot be said that the appellant was a regular trader in shares. The A.O. held in page 13 &14 of the assessment order that the appellant used borrowed funds of Rs.1,30,000/- for purchase of shares whereas the appellant claimed before the A.O. in the letter submitted before the A.O. that the appellant made investment from own funds and the borrowed funds were not used as remarked by the A.O. at the end of page 5 of the assessment order A perusal of the balance sheet filed along with the return of income shows that the appellant has adequate own capital for purchase of shares. The capital as per balance sheet was Rs.2,51,28,490/- whereas the investment in shares at cost was only Rs.44,17,548/-. As per the balance sheet a sum of Rs.6,50,000/- was shown as 5 Meenal D. Shah deposit which was on account of security deposit for lease of premises given by the appellant. Apart from the above lease deposit of Rs.1,30,000/- is shown as borrowing and the same was explained as utilised for making loans and advances which is much higher at Rs.80 lakhs. Thus, the A.O. erred in giving a finding in the assessment order that the appellant utilized borrowed funds contrary to the material available on record. Further, it is noticed that the appellant consistently valued closing investment in shares at cost in the earlier years and the loss on account of decline in the value of the shares was not claimed for A.Yrs. 2006-07 & 2007-08. In fact, the appellant has consistently offered the profit on sale of shares under the head short term capital gain or long term capital gain depending upon the period of holding for A.Y. 2006-07 and 2007-08. Further, the appellant dealt with only 42 scrips in respect of short term capital gain and 7 scrips in respect of long term capital gain during the period of 4 to 5 months in this year which cannot be treated as business income on the ground that the appellant was a regular trader in shares. Further as contended by the representative, the major portion of capital gain was made only in 10 scrips which indicated that the appellant was only an investor which the A.O. completely overlooked. Based on the principle of consistency, the appellant is to be treated as investor as held by the Hon’ble Mumbai Tribunal in the case of Gopal Purohit (29 SOT 117) and it was further held in the above case that all the delivery based transactions should be treated as short term capital gain or long term capital gain depending upon the period of holding. The above decision of the Hon’ble Tribunal was upheld by the Hon’ble Bombay High Court (228 CTR 582). Further, there is no dispute that the appellant took delivery of all the rate applicable to the investment. In view of the above, I hold that the profit on sale of shares is liable to be assessed under the head short term capital gain or long term capital gain depending upon the period of holding. It is true that in many cases the appellant held the shares for few days but at the same time the appellant held some of the shares for 117 days, 300 days, 344 days and 144 days. Further, as contended by the representative even though the shares were purchased as investment, the subsequent developments like change in Government policy, change in management and change in 6 Meenal D. Shah share market trend forced the appellant to sell the shares within short time to safe guard investment which would not alter the investment into stock-in-trade. As held by the Hon’ble Mumbai Tribunal in the case of Gopal Purohit vs. JCIT (29 SOT 117) the principle of consistency should be followed and the very fact that the appellant admitted profit on sale of shares under the head capital gains in the earlier years shown that the same cannot be changed in the subsequent years. 5.We have gone through the detailed and well reasoned findings of Ld. CIT(A). This fact is not disputed that assessee has always disclosed the amount of shares as part of ‘investments’ and the resultant gain on sale of shares was assessedas‘income from capital gains’. The claim of assessee has always been accepted as such except in this year. Further, Ld. CIT(A) has held that the holding period of the shares even in those cases where short term capital gain has been earned was like 117 days, 300 days, 344 days and 144 daysetc. The AO has discussed in the Assessment order at page 12 about only part of the transactions wherein shares were held for only few days. It was shown that the gains/loss incurred on such shares constituted for not more than one-third of the total amount of short term capital gain disclosed by the assessee in its return of income. In our view,totality of facts and circumstances of the case indicate that the gain earned by the assessee has rightly been shown as ‘income from capital gains’.The findings recorded by Ld. CIT(A) are well reasoned and correct in view of the facts of this case as well as under the law. No interference is called for in the order of Ld. CIT(A), therefore, same is upheld.
In the result, appeal filed by the Revenue is dismissed.
7 Meenal D. Shah Order was pronounced in the open court at the conclusion of hearing.