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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI JASON P. BOAZ, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The Present Appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)- 8, dated 10.10.2014 on the grounds of appeal mentioned herein below.
(A.Y. 2010-11) Usha K. Singhania vs. ACIT General: “1. 1.a. erred in treating your appellant as a trader and not as an investor in respect of income arising on sale of shares held by your appellant as investment; 1.b. erred in treating Short Term Gains and Long Term Gains of your appellant as Business income ignoring following relevant facts in case of your appellant: i. Appellant consistently follows the accounting principle of treating investment in Shares as "Capital Assets" and gains on sale thereof is accounted for as Capital Gains. ii. Your appellant has duly reflected its intention of holding shared by consistently treating them as "investment" in books of account. iii. In the earlier assessments department assessed treating income from investment in Shares under the head Capital Gains and no fresh facts came to light on investigation.
1.c. erred to conclude appellant's intention based on the frequency, volume, period of holding of script as transacted by appellant. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.”
2. The brief facts of the case are that assessee filed her return of income for the A.Y. 2010-11 on 15.10.2010 declaring total income of Rs.47,48,944/-. The assessment was completed u/s 143(3) of the Act on 12.03.2013 determining total income at Rs.57,24,414/-. While completing the assessment, various disallowances such as disallowance u/s 14A of the Act amounting to Rs.84,648/-, disallowances of income from short term capital gain as business income amounting to Rs.32,82,775/- , disallowance of depreciation on motor car amounting to Rs.8,03,523/-, disallowance u/s 94(7) of Rs.40,500/- as well as addition of (A.Y. 2010-11) Usha K. Singhania vs. ACIT Rs.87,895/- on account of notional loss in respect of open positions in the F & O statement were made by the AO.
3. Aggrieved by the order of AO, assessee filed the appeal before CIT(A) and the CIT(A) after considering the case of the assessee partly allowed the appeal of the assessee but sustain the findings of the AO in treating the assessee as trader and not as an investor for the income in respect of STCG amounting to Rs.32,82,775/- vide order dated 10-10-2014.
4. Aggrieved by the order of CIT(A), the assessee filed the present appeal before us on the grounds mentioned herein above.
5. At the very outset, ld. AR appearing on behalf of assessee submitted that the assessee is an investor in shares and has been consistently following the same accounting principle over number of years. It was further submitted that assessee has duly reflected consistently the investment in shares as “investment” in books of account which shows that the intention of the assessee to hold that the investment is clear, fully and properly expressed. It was also submitted that the stand taken by the assessee of treating income from investment in shares under the head “capital gains” has been accepted by the department in the case of assessee and is duly reflected in the assessment order u/s 143(3) for AY 2008-09. Ld. AR further submitted that the revenue authorities have grossly erred in treating only the STCG as business income. It was submitted that if the gain arising from sale of shares
(A.Y. 2010-11) Usha K. Singhania vs. ACIT held by an assessee for any period less than a year were to be treated as business income, then the category of STCG and the entire scheme for taxation thereof would become otiose and meaningless, meaning thereby, the statutory provisions like sections 2(42A), 2(42B), 111A etc. would be rendered otiose. It was further submitted that in other words, an assessee can have only one class of capital gain and that is LTCG, because all the capital gain arising from holding shares for a period less than one year would be treated as business income and as per contention of ld. AR this could not be the intention of the lawmakers. Ld. AR submitted that the revenue authorities have misinterpreted the judgements and wrongly applied the same in the case of assessee. In order to support his arguments. Ld. AR drawn our attention at page no.2 wherein the computation of total income for the year under consideration has been shown. On this page it was pointed out that the assessee has categorically shown short term capital gains on sale of shares. Our attention was further drawn at page no.5 of paper book which is Balance Sheet as on 31st March, 2010 wherein also the amount invested in shares had been shown under the head “investments”. Ld. AR further drawn our attention to page no.29 to 35 of the paper book which contains details of short term capital gains and the details regarding date, quantity, amount of purchase and sale of shares. Ld. AR also drawn our attention at page no.7 which shows Profit and Loss A/c for the year ended 31st March 2010. Ld. AR further submitted that had the (A.Y. 2010-11) Usha K. Singhania vs. ACIT investment made in the shares was for business purpose then there ought to have been the relevant accounts showing opening stock and closing stock of shares but nothing of that sought is contain in the documents therefore by no stretch of imagination the revenue authorities could have treated income from short term capital gain (STCG) as business and there was no new material from which it can be gathered that the assessee is ‘trader’ and not an ‘investor’.
On the other hand, ld. DR relied upon the orders passed by the Revenue Authorities.
We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. We have noticed that ld. CIT(A) while dealing with the said issue has relied upon different judgments and has taken into consideration that the assessee has dealt in 38 scrips and entered into more than 58 transactions in the year. Therefore while relying upon the citation, the CIT(A) has come to the conclusion that the assessee be treated as a ‘trader’ and not as an ‘investor’ for the income in respect of Short Term Capital Gains (STCG). After hearing both the parties at length and after going through the various judgments cited by both the parties, we found that as per the facts of the present case, merely considering the volume, frequency, continuity and regularity of purchase and sale of shares, the revenue authorities cannot treat the assessee as a ‘trader’ and not ‘investor’. The (A.Y. 2010-11) Usha K. Singhania vs. ACIT revenue authorities have lost sight of the fact that even in previous years, the position was same and in this respect our attention was drawn to the assessment orders for AY 2008-09 at page no.36 of paper book and in the said assessment order which was passed u/s 143(3) of the Act, wherein also the assessee was considered as investor and no reasons have been mentioned by revenue authorities regarding the change in their stand and even not took any initiative to differentiate the facts of the present case from that of the facts of the previous year. Revenue authorities have to make out a case different than that of the previous year in order to reach to a different conclusion but in the present case nothing has been demonstrated in the orders passed by revenue authorities more particularly when there is no change in the facts. Even otherwise in a year comprising 365 days, the dealing in 38 scrips in 58 transactions cannot be the only criteria for terming the assessee as an ‘trader’. It is an admitted fact that none of the accounts of the assessee shows ‘opening stock’ or’ closing stock’ which is mandatory in the case of ‘trader’ and moreover nothing has been brought on record by the revenue to show that the assessee had invested by borrowing funds. We have also gone through the judgements in the case of CIT vs. Gopal Purohit rendered by Hon’ble Supreme Court as well as other citation relied upon by both the parties. Similar issue on almost identical facts was also decided by coordinate bench of ITAT ‘D’ Bench in the case of Shri Rajesh C Shah for AY 2008-
(A.Y. 2010-11) Usha K. Singhania vs. ACIT 09 wherein the assessee in that case had carried out 59 number of transaction during the year in 29 scrips and the operative para is as under:
“8. In the case in hand, the total number of transaction carried out by the assessee are 59 in 29 scrips out of which short term capital gain is earned only from 27 transactions. It is clear that as far as number of transactions and frequency of the transaction is concerned these are very less and would not indicate that the assessee is involved as a full time trader in the purchase and sale of shares. Further there is no denial of the fact that assessee is a partner in the two partnership firms and managing the affairs and business of the partnership firms. The assessee has used his own funds and funds of his family members and, therefore, no interest was paid on the funds used by the assessee for the purchase of shares and securities. Though in some of the transactions the holding period of the shares ranging from 6 to 8 days but keeping in view the total number of transactions and the number of transactions in which the holding period is less than 10 days, we are of the view that itself will not change the character of transaction if the assessee has treated the shares as investment in the books of accounts and has not claimed the benefit of STT paid on the purchase and sale of shares of the transactions. Under the provision of the Act the short term capital asset and long term capital asset is defined in case of shares and securities on the basis of holding period on one year. In other words if the holding period is more than 1 year then the asset in the nature of share and securities would be long term capital asset otherwise it will be short term capital asset. The gain from sale of capital asset would be treated depending upon the holding period less than 1 year or more than 1 year. Thus if the assessee has treated the transactions as investment then the entire transactions having holding period less than 1 year would be treated as short term capital gain and there is no scope of bifurcation of the short term capital gain on the basis of the holding period because under the provisions of the Act, the short term capital asset in case of shares is one which is held by the assessee for less than 1 year of time period. It will be from one day to 265 days. Therefore, the holding period ranging from 1 to 265 days does not affect the nature of capital asset, once it is held for 1 year or more it will be treated as long term capital asset. When there is no instance of repetitive transaction in the same scrips then in the fact and circumstances of the case, we do not see any justification in treating the investment as trading activity. Further when no change has been pointed out or brought on record in the facts and circumstances for the year under consideration in comparison to the facts and circumstances of the earlier years as well as in the subsequent year, therefore, the AO is not permitted
(A.Y. 2010-11) Usha K. Singhania vs. ACIT to take a different view on a particular issue in the absence of any change in the facts and circumstances. Thus when the claim of the assessee was accepted in the earlier years as well as in the subsequent year then to maintain the principle of consistency the claim of the assessee cannot be denied until and unless there is a material change in the facts and circumstances in the year under consideration. In view of the facts and circumstances, we hold that the surplus arising from purchase and sale of shares in the case of the assessee cannot be treated as business income. Accordingly, we allow the claim of the assessee, the extent of treating the capital gain as business income is set aside.”
Our attention was also drawn to the judgment passed by Hon’ble ITAT in the in the case of ACIT vs. Shri Jatin J Ashar for AY 2007-08 wherein also the identical question was in dispute and the operative para is as under:
“5. Having considered the rival submissions and carefully perusal of the record we note that the AO accepted the short term capital gain offered by the assessee on sale of shares for the assessment year 2004-05 to 2006-07. We further note that even for the assessment year 2008-09 the AO accepted the claim of the assessee regarding short term capital gain. Thus, it is clear that prior as well as subsequent assessment year to year under consideration, the AO has accepted the claim of the assessee regarding short term capital gain arising from sale of shares. It has not been brought out on record as how the facts are different for the assessment year under consideration so that the rule of consistency should not be followed. The Co-ordinate Bench of this Tribunal in case of Smt. Varsha J. Ashar (supra) (the wife of the assessee) has considered and decided an identical issue in para 3 as under:
"3. After considering the rival submissions and perusing the relevant material on record, it is observed that the learned CIT{A) has recorded a categorical finding on page 12 of the impugned order that in the earlier years such profit on short term capital asset was treated as short term capital gain. The learned AR has placed on record copy of the order passed by the Assessing Officer u/s 143(3) in respect of the immediately succeeding assessment year ie. 2008-2009 in which income from sale of shares under similar circumstances declared as short term capital gain has been accepted as such. A copy of such assessment order dated 31.12.2010
(A.Y. 2010-11) Usha K. Singhania vs. ACIT has been placed on record. The learned AR drew our attention to the fact that the number of shares dealt with in the instant year is less than those in the succeeding assessment year. We find that the Hon 'ble jurisdictional High Court in the case of CIT v. Gopal Purohit [(2011) 336 ITR 287 (80m.)] has emphasized on the principle of consistency. In this case the Hon'ble High Court, dealing with similar issue, held that: "there ought to be uniformity in treatment and consistency when the facts and circumstances are identical". As income from sale of shares has been consistently accepted as short term capital gain in preceding and succeeding years, we see no reason for observing departure for the current year. Respectfully following the precedent, we uphold the impugned order. "
After analyzing the judgements mentioned above we are also of the considered view that when the claim of the assessee was accepted by the revenue authorities in the earlier years as well as in the subsequent year, therefore AO was not permitted to take a different view on a particular issue in the absence of any change in the facts and circumstances of the case, even otherwise to maintain the principle of consistency, the claim of the assessee cannot be denied ‘until and unless’, there is a material change in the facts and circumstances of the case.
Therefore in view of the above facts and circumstances we hold that the amount received from the purchase and sale of shares in the case of assessee cannot be treated as ‘business’ income. Accordingly, we allow the claim of assessee and hence the order of CIT(A) of treating the short term capital gain as business income is set aside.
(A.Y. 2010-11) Usha K. Singhania vs. ACIT In the result, the assessee’s appeal is allowed. Order pronounced in the open court on 7th October, 2016.
Sd/- Sd/- (Jason P. Boaz) (Sandeep Gosain) लेखा सद�य / Accountant Member �या�यक सद�य / Judicial Member मुंबई Mumbai; �दनांक Dated : 07.10.2016 Ps. Ashwini आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT - concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,