DCIT-1(1), BHOPAL vs. SHRI PRAKASH BHOJWANI, BHOPAL

आदेश/O R D E R

Per B.M. Biyani, A.M.:

“(1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in considering the amount of Rs. 49,76,484/- as short term capital gain to be taxed u/s 111UA @ 15% out of total income from share trading of Rs. 57,28,867/- when the assessee was found to be involved in regular trading of shares.

Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in considering the income of Rs. 86,88,690/- as income from Long Term Capital Gain, when no sale deed was submitted during the course of assessment proceedings and transfer of land is claimed on the basis of written agreement on stamp paper and power of attorney? 2. Originally this appeal of revenue/appellant was dismissed vide order dated 07.07.2023 on account of low tax effect. Subsequently, the revenue came in M/A No. 9/Ind/2020 claiming that the case was falling within exception in Para 10(c) of the CBDT Circular No. 3/2018 relating to low tax effect. Therefore, the revenue’s appeal ought to be decided on merit in stead of dismissing on low tax effect. The revenue’s claim was found correct; therefore the impugned M/A was allowed; the original order dated 07.07.2023 was re-called and the appeal was restored with original number. This way, the present appeal has again come for hearing before this Bench.

(i) Income of Rs. 57,28,867/- originally assessed as short-term capital gain u/s 111A is re-characterized as Business income. (ii) Income of Rs. 86,88,960/- originally assessed as long-term capital gain is re-characterised as Income from Other Source.

Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 Ground No. 1:

“2. In his reply, the assessee submitted that he purchased the shares as investment and not for the purpose of trading in the said shares. Assessee has also submitted that as per the tabulation sheet, enclosed with the written reply, the total no. of transactions of investment in the year were 320 out of which intra-day sales were only 79, and that out of his total short term capital gain only Rs. 7,52,383/- was on account of intra-day sales and purchase of shares and constitute business income u/s 28 of the Act. The assessee further submitted that the shares investment is his “Investment Portfolio” which comprise of shares of different companies. Assessee stated in his reply that “… there are shares of different companies and, therefore, to maintain the said portfolio, there are many times intra-day sales and purchases but those transactions should not be taken in isolation”. The reply of the assessee was duly considered but not found acceptable since he himself accepted that there were many times intra-day sales and purchases of shares and he also offered in his written reply a sum of Rs. 7,52,383/- as business income from intra-day sales and purchases of shares. On verification of record available with this office and the written submission of the assessee, many transactions of shares were found to be intra-day sales and purchases of shares and thus constituting business income. Therefore, an amount of Rs. 57,28,867/- has been claimed under wrong head as Short-Term Capital Gain and same is treated as business income for calculation of the total income of the assessee and the tax thereon.”

“8. Ground No. 2 is against treating short term capital gain of Rs. 57,28,867/- as business income. 8.1 The AO has noted in the reasons recorded u/s 147 and assessment order that many transactions of shares were found to be intraday sale and purchase of shares which constituted business income. Therefore, the short term capital gain of Rs. 57,28,867/- was treated as business income as against short term capital gain.

Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 8.2 The appellant had submitted before the AO that out of his total short term capital gain only Rs. 7,52,383/- was on account of intraday sale and purchase of shares. However, the AO was not convinced and he treated the entire short term capital gain as business income. 8.3 During appeal, the AO submitted complete details of day trading transactions of sale and purchase of shares and details of short term capital gain of shares. It has been claimed that all the current transactions were resulting in short term capital gain on shares and it has been argued that frequency of transaction in share and period of holding is not determinative factor in deciding capital gain or business income. Reliance has been placed on CIT vs. Merlin Holding Pvt.Ltd., 375 ITR 118 (Cal). 8.4 From the details filed, it is observed that the appellant had shown short term capital gain of Rs. 62,52,950/- and after claiming carry forward capital loss of Rs. 5.24 lakh, the net amount of Rs. 57,28,867/- was shown. From the details filed before the AO and during appeal, it is observed that only amount of Rs. 7,52,383/- was pertaining to the intraday sale and purchase of shares which can be treated as business income as per the provisions of section 43(5) of the Act. The share transactions settled otherwise than physical delivery are to be treated as speculative transactions as per section 43(5). The remaining transactions have resulted in short term capital gain. Therefore, the AO’s action in treating the entire short term capital of Rs. 57,28,867/- as business income was incorrect, unjustified and arbitrary. In the facts and circumstances of the case, the amount of Rs. 7,52,383/- only pertaining to the intraday sale and purchase of shares settled without physical delivery is to be treated as business income. Therefore, out of addition of Rs. 57,28,867/-, an amount of Rs. 7,52,383/- is confirmed and the balance is deleted. This ground of appeal is partly allowed.”

8. Before us, Learned Representatives of both sides made their respective arguments for and against the action of AO. While Ld. DR for revenue supported the order of AO, Ld. AR for assessee defended the order of CIT(A). Ld. DR emphasized that the AO has noted that there were many transactions of intra-day sale and purchase which constituted business income. He also contended that the whopping number of 320 transactions itself indicates that the assessee’s case is like business activity and not investment activity, therefore also the AO has rightly assessed all transactions done by assessee during the year as business income. Per contra, Ld. AR for assessee submitted that it is true that while filing return, the assessee did not segregate ‘intra-day transactions’ from ‘delivery-based transactions’ and made a consolidated statement, filed at Page No. 117-127 of the Paper-Book. Although such consolidated statement itself shows the Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 dates of purchase, dates of sales, etc. from which ‘intra-day transactions’ could be easily picked up but the assessee’s belief was since the ‘intra-day transactions’ were done to protect ‘investment porfolio’, the income generated therefrom was also in the nature of short-term capital gain u/s 111A. But, when the AO questioned this point during assessment- proceeding, the assessee made a separate statement of ‘intra-day transactions’ and submitted to AO, copy filed at Page No. 142-145 of Paper- Book. From this statement of ‘intra-day transactions’, it is easily discernible that an income of Rs. 7,52,383/- was only earned and therefore the assessee clearly intimated this fact to AO without any hesitation. Therefore, the AO should have ideally assessed only income to the extent of Rs. 7,52,383/- as business income and remaining income as short-term capital gain u/s 111A. But the AO made a bald statement in assessment-order that there were ‘many transactions of intra-day sale and purchase’, disregarding the accurate statement of ‘intra-day transactions’ filed by assessee and went to the extent of assessing entire income as business income. Ld. AR submitted that the CIT(A), during first-appeal, understood assessee’s case properly and passed a proper order. Ld. AR also submitted that the assessee is a regular investor and doing ‘delivery-based transactions’ year after year and income from such transactions was declared as short-term capital gain u/s 111A in past also, which is evident from copies of ITRs of earlier AYs 2005-06, 2006-07 and 2008-09 filed at Page No. 147, 155 and 156 respectively in the Paper-Book. Ld. AR further submitted that one should not be swayed by total number of 320 transactions done by assessee during a financial year of 12 months/365 days to conclude that it constituted business activity of assessee. He submitted that with the technological advancements in stock-markets and market volatility, the people are tempted to undertake transactions every now and then. Therefore, the number of transactions should not be a basis to construe assessee’s activity as business-activity. He carried us to a statement of holding period of delivery-transactions prepared and submitted by assessee to AO, copy at Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 Page No. 128-140 of Paper-Book which clearly reveals holding period varying from 2 days to 41, 44, 47 days, even as high as 158 days in one case. Therefore, the assessee’s activity except ‘intra-day transactions’ was very much in the nature of investment activity and rightly accepted so by CIT(A). Reliance is placed on CIT Vs. Gopal Purohit 336 ITR 287 (Bom HC) where it was held thus:

“2. The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in the present case, should be treated as those in the nature of investment transactions and the profit received therefrom should be treated either as short-term or, as the case may be, long-term capital gain, depending upon the period of the holding. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transactions namely, those by way of investment on one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law.” Further reliance is placed on CIT Vs. Merlin Holding Pvt. Ltd. 375 ITR 118 (Cal HC) taken into account by CIT(A).

“6. These are the facts and circumstances, which according to him, go to show that the assessee primarily was in the business of dealing in shares rather than in the business of investment. The frequency of transaction highlighted by Mr. Saraf is not decisive on either side. Frequency alone cannot show that the intention was not to make an investment. The legislature has not made any distinction on the basis of frequency of transaction. The benefit of short-term capital gain can be availed for any period of retention upto 12 months. Although a ceiling has been provided but there is no indication as regards the floor, which can be as little as one day. When that is the position in law and the investor has adduced proof to show that some transactions Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 were intended to be business transaction, some transactions were intended to be by way of investment and some transactions were by way of speculation and the revenue has not been able to find fault from the evidence adduced then the mere fact that there were 1000 transactions in a year or the mere fact that the majority of the income was from the share dealing or that the Managing Director of the assessee is also a Managing Director of a firm of share brokers cannot have any decisive value. The question essentially is a question of fact. The CIT Appeal and the learned Tribunal have concurrently held against the views of the Assessing Officer. On the basis of the submissions made by the learned Advocate for the appellant, it is not possible to say that the views entertained by the CIT Appeal or the learned Tribunal were not a possible view. Therefore, the judgment cannot be said to be perverse.”

Ground No. 2:

“3. In the written reply dated 03.08.2015, the assessee has submitted that the sale deed of the land sold by him is with the purchaser and requested for some more time to submit the sale deed of the said land. Assessee has been asked to produce the same on 07.08.2015. The assessee vide his letter dated 07.08.2015 stated that “the assessee had submitted sale-agreement Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 regarding sale of land at the time of assessment proceedings of the relevant A.Y. Therefore, it is requested to kindly refer the same”. Thus on both the occasions assessee failed to produce the sale-deed of the land sold by him. Further, a notice u/s 133(6) dated 01.10.2015 was issued and served on Shri Vipin Goel, the purchaser, to produce a copy of sale-deed, if any. In response to said notice Shri Vipin Goel vide letter dated 05.01.2015 has informed that no sale-deed was executed for the impugned land and that only a power of attorney was obtained from Shri Prakash Bhojwani for the sale of said land. LTCG should have been claimed according to the sale deed of the said property, which was not produced during the course of assessment proceedings, thus it is a violation of the provisions of section 50C of the Act. Therefore, an amount of Rs. 86,88,960/- has been claimed under wrong head as Long-Term Capital Gain and same is treated as income from Other sources for calculation of the total income of the assessee and the tax thereon.”

9.1 The appellant had shown long term capital gain on transfer of land of Rs. 86,88,960/-. This was accepted in the original assessment. In the re- assessment order, the AO has observed that the sale deed of the property was not produced during the assessment which was violation of provisions of section 50C of the Act and, therefore, the long term capital gain was wrongly claimed and the amount was treated as income from other sources.

9.2 The appellant has submitted that a land at Lalghati, Bhopal, was acquired by his father which was transferred in the name of his mother on father’s death. The mother executed a will on 15.04.2006 and after her death on 23.12.2006, the land was transferred in the name of the assessee and his brothers. Subsequently, vide relinquishment deed dated 28.04.2009, the two brothers relinquished their interest in favour of the assessee and thus, the assessee became the full owner of the plot. The land was transferred to M/s. Raksha Builders for a consideration of Rs. 88,80,000/- vide a written agreement executed on Rs. 100/- stamp paper and power of attorney. The payment of Rs. 85,00,000/- was received through bank channels in F.Y. 2009-10 and the sum of Rs. 3,80,000/- was outstanding. The possession of and was also handed over in F.Y. 2010-11 and the builder developed a colony on the said and subsequently. Based on these facts, the appellant had shown long term capital gain in A.Y. 2010-11 after claiming indexed cost of acquisition of Rs. 1,91,040/-. It has been explained that the plot was sold on power of attorney and written agreement and the sale deed was not got executed by the builder and, therefore, the sale deed was not furnished before the AO. Copy of agreement, details of payment receipt and certificate from builder etc. submitted before AO have been filed. It has been contended that non submission of sale deed was explained to the AO and the same could not have led to treating the long term capital gain as income from other sources.

9.3 It is observed that the appellant had itself treated the transaction as transfer in the assessment year under consideration. In absence of registered Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 sale deed, the AO could have held that the transaction did not result in ‘transfer’ u/s 2(47) of the act. In that case, no capital gain would have been taxable in the current year. However, as the appellant had handed over the land acquired from his father and mother by way of written agreement and power of attorney to the builder for consideration received by banking channels, the transaction became a transfer u/s 2(47) of the Act resulting in long term capital gain which had been rightly shown by the appeal in the return of income. If the AO was ,of the view that in absence of sale deed, capital gain was not chargeable, this could not have led to a conclusion that the entire consideration was income from other sources. As the acquisition of land by way of inheritance from parents, transfer through written agreement and receipt of consideration from the builder through banking channel is not in dispute and is supported by proper documentary evidences, the AO was not justified in treating the long term capital gain as income from other sources. In the facts and circumstances of the case, it is held that the action of the AO in treating the long term capital gain as income from other sources was incorrect unjustified and arbitrary. The long term capital gain shown by the appellant on this transaction is to be assessed as such as against income from other sources. These grounds of appeal are therefore, allowed. “

14. Before us, Ld. DR for revenue submitted that there is no sale-deed of the impugned transaction, the assessee is claiming to have sold land on the basis of unregistered agreement. Therefore, the AO has rightly taxed the income declared by assessee as Income from Other Source there being absence of sale-deed. Per contra, Ld. AR for assessee submitted that the impugned land was initially acquired by assessee’s father which got transferred to assessee’s mother on death of father. After death of mother on 23.12.2006, the land came to the hands of assessee and his two brothers under mother’s will. Thereafter, two brothers relinquished their shares in favour of assessee. This way, the assessee became full owner of land. Ultimately, the assessee sold land through an agreement accompanied by a power of attorney, received major part of consideration through cheque and the possession was also handed over to the buyer. Based on these facts, the assessee rightly declared long-term capital gain. Ld. AR submitted that if the department’s argument of absence of sale-deed is given any weightage, then the only implication would be such that the transaction itself would not be considered as having materialized in the eyes of law, consequently there would be no income or taxable income in the hands of assessee in view of CIT Vs. Balbir Singh Maini 86 Taxmann.com 94 (SC). Thus, it would be Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 more detrimental to department since the transaction itself would not give rise to any taxable income. The CIT(A) has also accepted this point. Therefore, in the situation, the long-term capital gain declared by assessee must be accepted and the order passed by CIT(A) must be upheld.

The facts also make it clear that the land sold by assessee was long-term in terms of provisions of section 2(29A)/2(29B)/2(42A)/2(42B) of the act and no doubt is being expressed by revenue qua the long-term nature of transaction. It is true that the sale of land on the basis of unregistered agreement is not recognized in the eyes of law as per decision of Hon’ble apex court in CIT Vs. Balbir Singh Maini 86 Taxmann.com 94 (SC), therefore the transaction does not give any rise to taxable income if strictly construed. But the facts of present case are peculiar. The assessee has himself declared the income and the department has also assessed the same in original assessment made u/s 143(3) as well as in re-opened assessment u/s 147. Therefore, both sides are ad idem to pay/charge tax on transaction. When it is so, we are only concerned to look at the nature of income. Since the assessee has earned impugned income from sale of plot held as long-term, the nature of income would be long-term capital gain only and it cannot be an Income from Other Sources. Therefore, we are inclined Dy. CIT,1(1), Bhopal vs. Shri Prakash Bhojwani, Bhopal Assessment year 2010-11 to accept the order passed by CIT(A) in this regard. The same is hereby upheld. The revenue fails in this ground also.

Order pronounced in the open court on 02/01/2024.