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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI G.S.PANNU, AM & SHRI AMARJIT SINGH, JM
Revenue by: Shri Suman Kumar Assessee by: Shri Anuj Kisnadwala सुनवाईकीतारीख / Date of Hearing:10.02.2017 घोषणाकीतारीख /Date of Pronouncement:.15.02.2017 आदेश / O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 31.01.2012 passed by the Commissioner of Income Tax (Appeals)-27, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2008-09.
The revenue has raised the following grounds:-
ITA No.2474/M/12 A.Y. 2008-09
1. The Ld. CIT(A) has erred in treating the transaction of purchase and sale of shares as STCG instead of business income.
2. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
The brief facts of the case are that the assessee filed her return of income on 27.09.2008 declaring total loss to the tune of Rs.1,43,19,428/-. The return of income was processed u/s.143(1) of the Income Tax Act, 1961( in short “the Act”). The case was selected for scrutiny and statutory notice u/s.143(2) of the Act dated 02.09.2009 was issued and served upon the assessee on 26.09.2009. Thereafter, the notice u/s.142(1) of the Act dated 04.10.2010 was issued and served upon the assessee. The assessee has declared business income, income from capital gains and other sources. The assessee had shown his income from Short Term Capital Gain but on seeing the transaction of the assessee, the Assessing Officer treated the Short Term Capital Gain to the tune of Rs.70,88,207/- as business income. Feeling aggrieved the assessee filed an appeal before the CIT(A) who treated the business income to the tune of Rs,70,88,207/- as Short Term Capital Gain, therefore, the revenue has filed the present appeal before us. ISSUE NO.1 TO 2:-
ITA No.2474/M/12 A.Y. 2008-09
Both the issues lead only one ground in which the revenue has alleged that the order of the CIT(A) is wrong by treating the income from shares as Short Term Capital Gain instead of business income. The learned representative of the department has argued that the assessee has huge turnover of shares during the year with large number of transactions and in some cases the holding period of shares was of the two days and the assessee’s turnover was to the tune of Rs.4.26 Crores and the assessee only carried out the transaction in share purchase and sale and claimed as Short Term Capital Gain which is wrong. It is also argued that the assessee also used the borrowed funds to the tune of Rs.1.01 Crores for the investment in the shares, therefore the nature of income of assessee is only business income and the assessee claimed the Short Term Capital Gain wrongly and illegally which has wrongly been held by the CIT(A) as income from Short Term Capital Gain, therefore, the order of the CIT(A) is wrong against law and facts and is liable to be set aside. However, on the other hand the learned representative of the assessee has placed reliance on the order passed by the CIT(A) in question. Before proceeding further it is necessary to advert the finding of the CIT(A) on record which is hereby reproduced as under:- “7. I have carefully considered the contents of the assessment order and the appellant’s submissions. From the paper book and other submissions filed before me by A.Y. 2008-09 the appellant from time to time and from the analysis of the data presented above, in my considered opinion, the following facts emerge in an undisputed manner. 7.1 Appellant is a partner in four different partnership firms and share trading is not the sole activity of the appellant. Apparently the AO was influenced by the fact that the appellant is also trading in derivatives to conclude that she is knowledgeable in stock market operations in depth and all the activities carried on by her are in the nature of business. It is not out of place to mention that law allows appellant to carry out the dual roles is the manner in which the investment activities are carried out, and the mere fact that she deals in derivatives, cannot be held against her. Hon’ble ITAT in the cases of J.M.Shares & Stock Brokers V. DCIT (2007) and DCIT Vs. SMK Shares & Stock Broking (2010). Where the assessee was a stock broker but it was consistently following the practice of holding some shares as ‘stock in trade’ and other shares as ‘investments’ and the question arose whether the profits on the sale of shares held as investments constituted a capital gain or business profits, held that:
ITA No.2474/M/12 A.Y. 2008-09 (i) The assessee had been consistent in its practice of treating some shares as stock and others as a capital asset. While the shares held as capital asset were valued at cost in the accounts, the shares held as stock-in-trade were valued at the lower of cost or market value; (ii) There is no bar on a stock broker holding shares as an investment. The mere fact that the assessee is an expert in share trading does not mean that he cannot hold shares as a capital asset. The magnitude of the transaction does not change the nature of the transaction. (iii) It is no more res integra that a person can be both ‘Investor’ as well as ‘Trader’ in shares. (Draft Instruction No.2005, Instruction No.1827 dated 31.8.1989 & Circular No.4/2007 dated 15.6.2007 referred). The assessee has to maintain the distinction between shares held as stock and those held as investments in its records; 7.2 The appellant has been an investor in shares all along. Over the years she has consistently treated the entire investment in shares as an ‘investment’ and not as ‘stock- in-trade’. The income from transfer of shares was always offered to tax as capital gain. Shares held as investments A.Y. 2008-09 were valued at cost and no mark to market loss was provided for. The portfolio held by the appellant over the years when considered in the light of No. of scripts held / purchased/ sold and the corresponding no. of transactions and the fact of receiving dividend over the years as can be seen from table 1 above would undoubtedly establish the appellant as an investor and not a trader. It is worthwhile to note that even in the subsequent years despite registering losses from sale of shares, the appellant has consistently followed the practice of treating them as capital gains. 7.3 Coming to the year under consideration, at the outset, apparently the A.O. has arrived at a conclusion of high volume and frequency of transactions without going into the details. As noted from the data presented in the above tables, during the year appellant has purchased 50 scrips and sold 45 scrips involving 232 transactions. By no stretch of imagination, dealing in 95 scrips, involving 232 transactions for the entire year can be considered as high volume when viewed in the background of the daily transactions carried out in BSE/NSE. 7.4 As can be seen from the data at above tables, transactions were not entered into continuously and regularly ITA No.2474/M/12 A.Y. 2008-09 throughout the year. The appellant has not transacted at all during 120 days out of 250 working days during the year. This suggests that the appellant has not transacted during approx.. 50% of the total working days during the year. This clearly highlights that the transactions were not entered into frequently, continuously and regularly by the appellant. 7.5 The appellant has earned 46% of the total Short Term Capital Gains with a holding period more than 9 months and 57% of capital gains with a holding period between one to six months. It was hardly 1.38% of the overall capital gain for the appellant has accrued from stocks where the weighted average holding duration for scripts was up to 1 month. In respect of sale of shares within a month of holding it was explained to be triggered by an unprecedented volatility in the market during Nov’ 07 to Jan’ 08 that the appellant sold off shares within a short period of holding at loss, in fear of further large fall in market. Further, as submitted during the present proceedings, appellant has not resorted to churning of shares or repetitive transactions of the same company that could have otherwise resulted in increased transactions, except to the extent of reshuffling of the A.Y. 2008-09 portfolio to minimize to loss / maximize the gain. Therefore, A.O.’s conclusion that appellant’s holding period is short, driven by the isolated fact of appellant’s holding of the scrip ‘BAG films’ is out of context and cannot be generalized. 7.6 The appellant used her own surplus funds for investing in shares. She has neither borrowed any money from external sources nor paid interest thereon except an amount of Rs.3 lakhs borrowed in earlier year, which stands at Rs.6 lakhs as on 31.3.2008, including the accrued interest. Current liabilities appearing in the Balance Sheet of the appellant are explained to be in the nature of temporary personal family transfers and do not carry any interest. Further, the analysis of balance sheet shows appellant has enough capital to cover her investments in shares and the same cannot attributed to the aforesaid loan of Rs.6 lakhs. Investment in shares as percentage of capital always showed the sufficiency of capital over the years as can be noted from table 1 above. Therefore, there is no truth in AO’s observation that investment in shares was out of borrowed funds. 7.7 The stand of the appellant as an Investor has been accepted by the A.O. in the earlier under section 143(3).
ITA No.2474/M/12 A.Y. 2008-09 The assessment for A.Y.2007-07 was completed u/s.143(3) by DCIT Circle 2, Jaipur and the capital gains on sale of shares and securities were accepted and taxed as short term at Rs.26,22,295/- and long term capital gain assessed at Rs.1,86,846/-. Besides, shares were accepted as Investments in the balance sheet. Apparently, the facts of the case are similar in A.Ys. 2007-08 and 2008-09 and no fresh material has been brought on record by the A.O. at present. Further, appellant’s claim regarding long term capital gains has not been disturbed by the A.O. for the year under consideration and thus, the A.O. himself has accepted that the appellant was investor in shares also. Further, STCG of Rs.30,45,361/- is attributable to the sale of bonus shares of India Bull Real Estate (Rs.22,91,233/), Netwrok 18 (Rs.3,59,267/-) and TV18 (Rs.3,94,860/-). In fact AO himself accepted the LTCG from sale of shares of India Bulls Real Estate and TV18 and there cannot be any reason to hold the STCG from the same scrips as business income. Shares of the same company cannot be treated as investments at one place and stock-in-trade at other place. Therefore, I am of the considered opinion that in the given facts and circumstances, there is no reason for the A.O. to treat the investment in shares by the appellant as stock-in-trade for A.Y. 2008-09 A.Y.2008-09. The uniformity in treatment and consistency under the same facts and circumstances is one of the fundamental judicial principles which cannot be brushed aside without proper reason.
That apart there are a plethora of decisions by the various benches of Hon. High Courts and ITAT holding the issue in favour of appellant involving similar facts, and for the sake of brevity, even if they are taken into consideration for arriving at the conclusion that the appellant is an investor the same are not reproduced. However to name a few Janak S. Rangwalla vs ACIT (11 SOT 627), CIT Vs. Gopal Purohit 228 CTR 582 (Bom.)(2010), CIT Vs. Rohit Anand (2010) 327 ITR 445 (Del), DCIT Vs. SMK Shares & Stock Broking Pvt. Ltd. ITA No. 799/Mum/2009, Vinod K. Nevatia ITA No.6556/Mum/2009 and 181/Mum/2010 and Naishadh V. Vachharajani ITA No.6429/Mum/2009.
In view of the detailed discussion of the facts and the legal position and the back ground of the amended provisions on taxation of capital gains on sale of shares w.e.f.1/10/2004, I have no hesitation to hold that the income from short term capital gains offered to tax require no disturbance and cannot be treated as business ITA No.2474/M/12 A.Y. 2008-09 income. Accordingly, the appeal is allowed in favour of the appellant on this issue.
On appraisal of the above mentioned order the CIT(A) has described each and every aspect of the investment of the assessee in shares. The CIT(A) was of the view that the facts and circumstances of the case are quite similar to the earlier years and the principle of consistency and uniformity is not required to be discredited in the circumstances when there is no major change in the transaction of the assessee. The CIT(A) has also placed reliance upon the law settled by the order of Hon’ble ITAT in the cases of J.M.Shares & Stock Brokers V. DCIT (2007), Janak S. Rangwalla vs ACIT (11 SOT 627), CIT Vs. Gopal Purohit 228 CTR 582 (Bom.)(2010), CIT Vs. Rohit Anand (2010) 327 ITR 445 (Del), DCIT Vs. SMK Shares & Stock Broking Pvt. Ltd. Vinod K. Nevatia ITA No.6556/Mum/2009 and 181/Mum/2010 and Naishadh V. Vachharajani ITA No.6429/Mum/2009. Moreover, it also came into the notice that the Assessing Officer has treated the income from shares as Short Term Capital Gain for the A.Y.2006-07, 2007-08, 2008-09, 2009-10 and 2010-11. Apparently, the transaction in the shares was treated by the Assessing Officer as income from Short Term Capital Gain in the earlier as well as in the subsequent years. No major change of any kind was brought into the notice by the revenue. The rule of consistency has properly been followed. In ITA No.2474/M/12 A.Y. 2008-09 view of the said circumstances, we are of the view that the CIT(A) has passed the order judiciously and correctly which is not require to be interfere with at this appellate stage.
In the result appeal filed by the revenue is hereby Dismissed Order pronounced in the open court on 15th February, 2017.