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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’, NEW DELHI
Before: SHRI O.P. KANT & SHRI K.N. CHARY
Date of hearing 15.07.2019 Date of pronouncement 31.07.2019 ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 20/01/2014 passed by the Ld. Commissioner of Income-tax (Appeals)-XI, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2008-09 raising following grounds: 1. That in the facts and circumstances of the case and in law the order passed by Commissioner of Income Tax (Appeals) –XI, New Delhi, hereinafter referred as “CIT(A)”, being perverse to the facts and against the settled principles of law, is void qua treating capital loss/gain on disposal of listed equity shares as business income.
2. That in the facts and circumstances of the case and in law the Ld. CIT(A) erred in upholding assessment order taxing claim of capital loss arisen on disposal of investments as business loss under the head “income from business and profession”.
That the appellant crave leave of this Hon’ble Court to amend, alter the grounds of appeal before hearing.
2. Briefly stated facts of the case are that the assessee was engaged in dealing securities. For the year under consideration, the assessee filed return of income on 29/09/2008 declaring total income of Rs.42,86,830/- alongwith long-term capital loss of Rs.19,21,025/-and short-term capital loss of Rs.67,82,919/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. In the assessment order passed on 24/12/2010 under section 143(3) of the Act, the Assessing Officer held the transaction entered into by the assessee during the year under consideration as speculation trading and treated the entire capital loss of Rs.87,03,944/-as speculation loss and assessed the income accordingly. On further appeal, the Ld. CIT(A) upheld the action of the Assessing Officer of holding the sale transaction of business income but the action of treating capital loss as a speculation losses was rejected. Aggrieved with the finding of the Ld. CIT(A) of holding the share transaction of business income, the assesseeis in appeal before the Tribunal raising the grounds as reproduced above.
3. Before us, Ld. counsel of the assessee filed paper-book containing pages 1 to 164. The Ld. counsel relying on the CBDT circular No. 6 of the 2016 submitted that the activity of share transactions of the assessee are assessable under the head capital gain and not under the head ‘profit and gains of the business or profession’. The Ld. counsel also relied on the decision of the Hon’ble Delhi High Court in the case of Principal Commissioner of Income-Tax-6 Vs. MB FinMart Private Limited in ITA 836/2016 and decision of the Hon’ble High Court of Bombay in the case of Viksit Engineering Limited in of 2016. 4. On the contrary, the Ld. DR relied on the decision of the Tribunal in the case of the assessee for assessment year 2007-08, wherein identical circumstances the transaction of the dealing in share by the assessee has been held as assessable under the head of ‘profit and gains of the business or profession’. 5. We have heard the rival submission and perused the relevant material on record. The Ld. CIT(A) has mentioned that the Assessing Officer has followed order of the earlier assessment year and treated the transaction of the assessee under the head profit and gains of the business or profession. The fact that circumstances of share transaction in the year under consideration are identical to the earlier year, has not been disputed before us. We find that the Tribunal in ITA No. 4411/del/2013 in the case of the assessee for assessment year 2007-08 has considered the issue of taxability of share transaction in the case of the assessee in the light of various judicial decisions and held that such transactions are assessable under the head ‘profit and gains of the business or profession’. The relevant finding of the Tribunal is reproduced as under:
“12. In the light of above decisions, we are required to examine existence of various factors, which on considering in holistic manner determine whether the nature of transactions of purchase and sale of securities falls in the category of profit and gains of business or capital gain.
As regards to the argument of the learned AR that long-term capital gain transactions have been accepted by the AO, whereas short-term capital gain transactions have not been accepted, we find from page 102 of the assessee’s paper book that in case of long term capital gain the assessee transacted in 5 scrips only and the holding period was approximately 400 days. These shares were purchased in the financial year 2005-06 for long-term holding. We find from the records that no borrowed funds have been utilized for investment in these shares. In the circumstances, the Hon’ble High Court in the case of M/s. D & M Components Ltd. (supra) has also affirmed the transactions in the category of long-term capital gain and we do not find any error in accepting these transactions by the AO as long-term capital gain. In the case of M/s. D & M Components Ltd. (supra), the Hon’ble High Court has accepted the transaction of long-term capital gain, however the transactions claimed by the assessee as short- term capital gain are held to be in the nature of business income, thus, respectfully following the judgment of the Hon’ble High Court, we don’t find any error in accepting the transactions of long-term capital gain & simultaneously not accepting the transaction of short- term capital gain by the AO.
One of the factors is the utilization of the borrowed funds. In the case of assessee, funds contributed through capital were to be utilized in the business of manufacturing and trade of power control equipments, however, the same was utilized in purchase and sale of securities. Though no borrowed funds utilized, but the funds meant for business activity have been utilized towards purchase and sale of securities and no surplus funds generated from business activity have been invested in the purchase and sale of shares.
Another factor to be observed is the maintenance of books of accounts and other records. We find that the assessee has maintained separate ledger accounts for shares in the category of investment and in the category of stock in trade but no separate books of accounts have been maintained and the amounts were transferred from investment to stock in trade, which is evident from the note 9 of Schedule 14 of financial statements for the year ending on 31/03/2007, which is placed at pages 150 of the paper book. We also find that no separate demat account is maintained in respect of investment activity. In clause 8(a) of Form No. 3 CD for the year under consideration, which is placed at page No. 118 of the paper book, the auditor has mentioned the business or profession of the assessee as dealing in securities of business and investments. We find that minutes of meeting of Director or Board resolution only cannot decide whether the sale transactions are in the category of investment.
One of the another important factor is the volume, frequency and consistency of transactions. The assessee has provided details of shares transactions on pages 100 to 101 of the paper book under the head short-term capital gain, which are reproduced as under:
DETAIL OF SHORT TERM CAPITAL GAIN WITH HOLDING PERIOD Name of S No of Shares Capital Gain Date of Sale Price With Date of Purchase Cost Holding Sale STT Purchase Without STT Period STCG on 0 to 90 days hodina period Era Constr 7782 19.02.2007 3,418,535 5 02.2007 3,836,068 (417,532) 14 Era Constr 4657 19.02.2007 2,047,303 5.02.2007 2,295,627 (248,324) 14 Era Constr 10360 20.02.2007 4,570,525 5.02.2007 5,106,870 (536,345) 15 Era Constr 12108 20.02.2007 5,345,682 5.02.2007 5,968,531 (622,848) 15 Era Constr 5500 21.02.2007 2,435,103 5 02.2007 2,711,176 (276,073) 16 Era Constr 4500 21.02.2007 1,993,690 5.02.2007 2,218,235 (224,545) 16 Yes Bank 5000 12.03.2007 621,949 15.02 .2007 749,632 (127,684) 25 Yes Bank 5000 12.03.2007 621,949 5.03.2007 667,372 (45,423) 7 21,054,736 Total 23,553,510 (2,498,774) STCG on 91 to180 days hodinq period Karuturi.Cc 7000 24.04.2006 1,014,900 30.11.2005 643,173 371,727 145 Karuturi.Cc 5000 25.04.2006 761,061 .11 & 1.12.20 460,708 300,353 146 Karuturi.Cc 20000 26.04.2006 3,195,776 1.12.2005 1,850,626 1,345,150 147 Mawana S 3859 26.04.2006 462,840 7 12.2005 384,720 78,119 141 Riga Sugai 15000 26.04.2006 2,104,617 12.01.2006 1,397,680 706,937 136 Karuturi.Cc 5000 27.04.2006 838,769 1.12.2005 462,656 376,113 148 Riga Suga 900 27.04.2006 125,617 12.01.2006 83,861 41,756 137 Karuturi.Cc 5000 28.04.2006 880,651 1.12.2005 462,656 417,995 148 Riga Suga 9100 28.04.2006 1,192,065 12.01.2006 847,926 344,139 138 Alps Indus 15000 05.05.2006 3,843,774 23.01.2006 2,160,379 1,683,395 102 PBA 25000 05.05.2006 4,322,383 28.11.2005 2,371,534 1,950,848 97 ITC Limite< 15000 05.06.2006 2,438,219 09.12.2005 2,040,415 397,804 178 10000 162 Lok Housir 21.09.2006 2,377,627 12.04.2006 3,710,760 (1,333,133) Total 23,558,298 16,877,095 6,681,204 STCG on 181 to 270 days hoding period ITC Limitec 10000 05.06.2006 1,625,479 28.11.2005 1,388,933 236,547 189 Mc Nally B 5000 05.06.2006 548,387 29.11.2005 493,098 55,289 188 Karuturi.Cc 8000 14 08.2006 846,608 1.12.2005 740,250 106,357 256 Karuturi.Cc 10000 14.08.2006 1,058,260 31.01.2006 1,053,474 4,786 195 Era Constr 5000 6.09.2006 1,634,209 1.12.2005 695,868 938,341 279 Era Constr 3000 11.09.2006 961,716 1 12.2005 417,521 544,195 284 Mc Nally B 4682 14.09.2006 499,358 29 11,2005 461,737 37,621 289 Lok Housir 10000 19.09.2006 2,568,166 10.02.2006 697,437 1,870,729 221 Lok Housir 25000 19.09.2006 6,420,415 14.02.2006 1,827,627 4,592,788 217 Lok Housir 1000 19.09.2006 256,817 20.02.2006 84,642 172,175 211 Lok Housir 17000 20.09.2006 4,156,762 20.02.2006 1,438,907 2,717,854 212 Lok Housir 7000 21.09.2006 1,664,339 20.02.2006 592,491 1,071,848 213 Mc Nally B 682 6.10.2006 75,879 06.02.2006 78,247 (2,368) 242 Mc Nally B 1500 9.10.2006 175,171 6.02.2006 172,097 3,075 245 Mc Nally B 7500 11.10.2006 825,824 02. & 7.02.20 860,814 (34,991) 246 Total 23,317,389 11,003,142 12,314,247 • STCG on 271 to above hoding period Era Constr 5000 5.10.2006 1,699,134 1.12.2005 695,868 1,003,266 308 Era Constr 3000 6.10.2006 1,069,229 1.12.2005 417,521 651,708 309 Me Nally B 318 6.10.2006 35,381 29.11.20005 31,361 4,019 311 Era Constr 2000 9.10.2006 703,109 1.12.2005 2.78,347 424,762 312 NTPC 10000 7.11.2006 1,306,815 28.11.2005 1,078,197 228,618 344 Om Metals 3000 1.02.2007 179,529 13.02.2006 118,769 60,760 353 Ansal Hou: 1034 2.02.2007 401,825 26.04.2006 411,818 (9,993) 282 Ansal Hou: 3966 2.02.2007 1,541,265 26.04.2006 1,579,565 (38,300) 282 Reliance C 250 2.02.2007 163,980 28.01.2006 60,410 103,570 370 Madhav M 5000 2.02.2007 725,297 10.04.2006 579,521 145,776 298 Om Metals 20225 2.02.2007 1,255,144 13.02.2006 800,703 454,441 354 Om Metals 26000 7.02.2007 1,609,164 13.02.2006 1,029,334 579,831 359 Madhav M 10000 7.02.2007 1,438,146 10.04.2006 1,159,042 279,104 298 10000 NTPC 21.03.2007 1,423,568 22.05.2006 1,053,817 369,751 303 Total 13,551,585 9,294,271 4,257,313 - Gross 351016 120,854,544 74,349,017 46,505,527
We find from the above that the assessee has transacted in single scrip in multiple times during the year but sometimes even more than once in a day itself. For example, the scrip ‘Era Construction’ has been transacted on 19/02/2007, 20/02/2007, 21/02/2007, 06/09/2006, 11/09/2006, 09/10/2006. Similarly, the scrip ‘Karutri Company’ has also been transacted many times during the year. The quantity of scrip transacted in each transaction is in thousands. The sale volume transacted under the head short- term gain is more than Rs. 12 crores. The assessee has sold total shares quantity of Rs. 3.51 Lacs. All these figures establish existence of the factor of volume, frequency and consistency of transactions.
We find that whenever any shares is purchased with the intention of investment, it cannot be sold within a short period as the market fluctuate because of many national and international events. In the present case, the frequent purchase and sales of the shares indicates that the intention of the assessee was to earn profit over a short period on the money means for manufacturing of power equipments, parked temporarily in the share market. 19. In the case of M/s D & M Components Ltd. (supra), the Hon’ble Court has referred to the Supreme Court decision in the case of P. Mohammed Meerakhan Vs. Commissioner of Income Tax, Kerala, 73 ITR 735 (SC), wherein it is held that there is no single test or formula which could be applied in determining whether the transaction was an adventure in the nature of trade or not and the question depends in each case on total impression and effect of all relevant factors and circumstances proved therein which determine the character of the transaction.
In the facts of the case, we find that mere not using interest bearing borrowed funds is not sufficient to conclude that transaction of share sales are not business income. Having regard to the volume and frequency of the transactions, no separate books of accounts or demat accounts and other facts and circumstances, we are of the opinion that overall effect of all the factors revealed that the activity of sale and purchase of shares claimed under the head ‘short-term capital gain’ cannot be sustained and it is held as the activity in the nature of business and assessable under the head ‘profit and gains of the business’. Accordingly, we uphold the finding of the learned Commissioner of Income-Tax(Appeals) on the issue in dispute and the ground of the appeal is dismissed.
As the facts and circumstances in the year under consideration are identical to the facts and circumstances of the case of the assessee for assessment year 2007-08, respectfully following the finding of the coordinate bench, we uphold the finding of the Ld. CIT(A) on the issue in dispute. The grounds of appeal
of the assessee are accordingly dismissed. 7. In the result, the appeal of the assessee is dismissed. Order is pronounced in the open court on 31st July, 2019.