USHA K. SINGHANIA,MUMBAI vs. ACIT 4(2), MUMBAI

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.

2 ITA No. 30/Mum/2015(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.”

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

3 ITA No. 30/Mum/2015(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.

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.

before us on the grounds mentioned herein above.

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

4 ITA No. 30/Mum/2015(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

5 ITA No. 30/Mum/2015(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’.

Authorities.

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

6 ITA No. 30/Mum/2015(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 ITA NO. 4135/Mum/2012 for AY 2008-

7 ITA No. 30/Mum/2015(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

8 ITA No. 30/Mum/2015(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.”

the ITA No. 959/Mum/2011 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

9 ITA No. 30/Mum/2015(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. "

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.

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.

10 ITA No. 30/Mum/2015(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,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai