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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Reepal Tralshawala Department by: Shri B.S.Bist सुनवाई क� तार�ख / Date of Hearing: 03.06.2016 घोषणा क� तार�ख /Date of Pronouncement: 23.09.2016 O R D E R PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 30.04.2014 filed by the assessee passed by Commissioner of Income Tax (Appeals) 29, Mumbai [hereinafter referred to as the “CIT(A)”], Mumbai relevant to A.Y. 2010-11. 2. The revenue has raised the following grounds:-
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding the income from share transactions as STCG as against ‘business income’ without appreciating the fact that the income from transaction of shares was earned from borrowed funds from surplus funds, A.Y.2010-11 transactions in shares were entirely off short term nature.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing setoff of brought forward STCL against STCG earned on sale of premises without considering the fact that the STCG is treated as business income 3. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.
The brief facts of the case are that the assessee filed the return of income on 23.07.2010 declaring total income to the tune of Rs.64,48,185/-. The return was processed u/s.143(1) of the Income Tax Act, 1961( in short “the Act”). The case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 26.08.2011 which was duly served upon the assessee. Further, notice u/s.142(1) of the Act was issued on 26.12.2011. Thereafter, the case was assigned by the CIT-17 Mumbai to Addl. CIT, Range 17(2), Mumbai for the purpose of completion of pending scrutiny assessment on 09.02.2012. Further, notice u/s.142(1) of the Act alongwith detailed questionnaire was issued on 29.02.2012 calling for various details which was duly served upon the assessee. The Assessing Officer noticed that during the A.Y.2008-09 and 2009-10, the Assessing Officer has treated the investment of Rs.6,91,29,214/- in share as on 31.03.2008 as stock in trade. The assessee has sold these shares through the broker / sub broker during the F.Y.2008-09 to earn the capital loss or gain. The transaction was assessed by the Assessing Officer in the nature of trade, therefore, on the basis of this observation the Assessing Officer under the year also treated capital gain to the tune of Rs.81,41,296/- as business income. The Assessing Officer also did not setoff carry forward Short Term Capital loss A.Y.2010-11 against Short Term Capital Gain on sale of premises. These findings were reverted by the CIT(A) in appeal filed by the assessee and treated the income from shares as the Short Term Capital Gain and also setoff the carry forward Short Term Capital Loss. Feeling aggrieved the revenue has filed the present appeal before us. ISSUE NO.1:- 4. Under this issue the revenue has challenged the finding of the CIT(A) in which the CIT(A) has treated the sale purchase of the shares for the assessment year under consideration 2010-2011 as Short Term Capital Gain. The Assessing Officer treated the investment in the shares as stock in trade on 31.03.2008 in view of the observations made in the A.Y.2008- 09 and 2009-10 and accordingly completed the assessment. The assessee for the A.Y.2008-09 and 2009-10 filed an appeal before the CIT(A) and the CIT(A) treated the said income as Long Term Capital Gain. Now coming to the matter of controversy for the A.Y.2010-11, the CIT(A) has placed reliance upon the observations made by the CIT(A) in the assessee’s own case for the A.Y.2008-09 and 2009-10 in which the income from shares was treated as Short Term Capital Gain / Long Term Capital Gain and accordingly the assessment was completed. None of the parties are in the appeal against the order passed by the CIT(A) for the A.Y.2008-09 and 2009-10. It is relevant to mentioned about the finding of the CIT(A) on record for ready reference:- “9. From the assessment order passed by the AO for the year under consideration i.e.2010-11, it can be observed that he has not brought any facts on record to conclude that the appellant is trader in shares. The AO has simply relied on the orders of the AO passed for the assessment years 2008-09 and 2009-10 for arriving at the conclusion that assessee is a trader in the A.Y.2010-11 shares and the short term capital gains earned by her amounting to Rs.81,41,296/- is business income. No concrete evidence has been placed on record that the appellant is a trader in shares except stating that she has borrowed the money from her husband Virender B. Gala for making investments in shares; the assessee has indulged in sale/purchase of shares at frequent intervals and the volume, frequency and regularity of these transactions indicate a systematic and organized activity with profit motive; the assessee has paid PMS charges for sale/purchase of shares, which indicates the business activity.
It may be pointed out that all the above reason given by the AO to treat the share transactions of the appellant as business income has been dealt in detail in the appellate order passed by me in the case of the appellant vide order no.CIT(A)- 29/RG.17/176/10-11 dated 18.02.2014 for the A.Y.2008-09, wherein the sale/purchase or shares has been treated as transactions out of the investments in the hands of the appellant and not in the nature of trade for the purpose of earning business profits. While deciding the issue in favour of the appellant, it was held as under:- There is no doubt about the fact that the appellant has her own capital of Rs.2,96,12,724/- and has further borrowed funds amounting to Rs.5,36,00,000/- during the period under consideration. It is also an admitted fact that the appellant has used the borrowed funds as well as her own capital for making purchases in the shares during the period. But the fact cannot be ignored A.Y.2010-11 that the appellant has made largely the purchases during the period and only 5 sales transactions have been effected during the period under consideration. In such a situation, it cannot be presumed that the appellant has the intention to carry on the trading in shares. Such a presumption at this stage, in my opinion, is far-fetched conclusion without any basis.
The appellant has borrowed as well as utilized her own funds to make investment in the shares mainly of three companies viz. M/s.Nicholas Piramal Health, Century Textiles and Reliance Industries Ltd. And shown these purchases as investments in the balance sheet as on 31.03.2008 and valued these stocks at cost. Such an action of the appellant clearly proves that the intention of the appellant is to make investments. The contention of the AO that the appellant has borrowed the funds proves the intentions that she wants to trade in shares, cannot be accepted. The funds can also be borrowed for making investments and it is worth noting that the appellant has purchased above referred three scrips worth Rs.4,97,70,325/- from borrowed funds and other shares worth Rs.1,93,58,889/- from her own funds and these shares have been kept as investment in the balance sheet as on 31.03.2008. In order to term the appellant as trade in shares, it would be necessary to establish that she has done speculation in shares or indulged in F&O transactions or indulged in non-delivery based purchase A.Y.2010-11 or sale of shares. The appellant has instead only purchased the shares without effecting any sale and kept the same as investments as reflected in the books of accounts. To call these as trading transactions would be negating all above mentioned facts in respect of these purchases of shares made by the appellant during the period. Merely because part of the shares are purchased out of the borrowed funds cannot lead to conclusion that the purchase of share is with the intention to trade in shares unless the same is proved by placing some evidence on record in this regard. The treatment given in the books of accounts to the purchase of these shares is one of the determinative factors to prove, as to whether the sale / purchase of shares is trading or investments. When we look at the treatment given in the books, it can be observed that the purchases made during the year by the appellant have been shown as investments in the balance sheet as on 31.03.2008 and further the purchases are not stock in trade but investments. This is a strong indicator that the appellant is an investor in the shares and not trade during the period under consideration. Even while looking at the total purchases and sales of shares during the period, it can be observed that the appellant has made about 35 share purchase transactions and the sale transactions are only 5 during the year. On the 5 sale transactions, the appellant has shown to have earned capital gains of Rs.1,97,491/- , which have been ITA No.4723/Mum/14 A.Y.2010-11 accepted by the AO and therefore it is admitted even by A.O. that the appellant is investor in the shares and not trader. In addition to that the total volume of share purchase / sale i.e.35 share purchase transactions and 5 sale transactions, is in no way indicate that the appellant is trader in shares. A trader would not hold the shares for longer periods as his aim is to earn the quick profits but in the case of the appellant there is clear indication that she wants to hold the share as only five share scrips have been sold out of 35 scrips purchased during the period. In view of the facts and circumstances explained above, it can be safely concluded that the appellant is an investor in shares and not the trader during the period under consideration. Therefore the action of the AO treating the closing stock of shares of Rs.6,91,29,214/- as the stock in trade and treating the appellant as trader for the purpose of taxation is not correct and such conclusion arrived at on presumption basis cannot be accepted. All the actions of the appellant during the period in respect of the sale / purchase of share is that of an investor and she cannot be termed as trader in shares in view of the above stated facts.
In view of the above decision in the case of the appellant for the A.Y.2008-09 on the issue and for the sake of consistency, this issue of sale / purchase of shares in the case of the appellant for the year under consideration i.e. A.Y.2010-11 is decided in favour of the appellant. It is held therefore that A.Y.2010-11 sale/ purchase of shares during the period under consideration is in the nature of investments and the income earned from such investments amounting to Rs.81,41,296/- are to be treated as short term capital gains and not profits from trading in shares. The AO is directed accordingly.”
No distinguishable facts have been placed on record to which it can be assumed that the finding of the CIT(A) is wrong against law and facts. The CIT(A) has duly considered the transactions of shares, the period of holding, sale of shares etc. to arrive at this conclusion that the nature of the investments of the assessee is a Short Term Capital Gain. Even to arrive at conclusion, the CIT(A) considered the nature of the transaction of earlier year which is not in dispute. Business is continuing as it is. There is no change of business. Therefore in the said circumstances we are of the view that the CIT(A) has decided the matter of controversy on this issue rightly and correctly which is not required to be interfere with at this appellate stage. Thus this issue is decided in favour of Assessee against the revenue. ISSUE NO.2:- 6. This issue is in connection with the setoff of brought forward Short Term Capital Loss to the tune of Rs.2,75,37,219/- for the A.Y.2009-10 against the Short Term Capital Gain of Rs.2,58,14,592/-. While deciding the issue no.1 we have arrived at this conclusion that the assessee had made investment in the shares just to gain the Short Term Capital Gain / Loss. Therefore, in view of the said circumstances no doubt accordingly, the setoff is required to be done in accidence with law. Since the Short Term Capital Loss to the tune of Rs.2,75,37,219/- for the A.Y.2009-10 was being carry farwarded, therefore, no doubt the said Short Term Capital Loss was liable to be adjusted against the Short Term Capital Gain for the next relevant assessment year against the account of Rs.2,58,14,592/-.In view of A.Y.2010-11 the said circumstances, it is apparent on record that the CIT(A) has decided this issue judiciously and correctly which does not require to be interfere with at this appellate stage. The Assessing Officer did not setoff the Short Term Capital Loss against the income being the same was treated as business income. However, after arriving at this conclusion that the income of the assessee is in Short Term Capital Gain in nature, therefore, the CIT(A) has allowed the set off the brought forward Short Term Capital Loss to the tune of Rs.2,75,37,219. Accordingly CIT(A) has decided this issue judiciously and correctly which does not require to be interfere with at this appellate stage.
In the result, the appeal filed by the revenue is hereby dismissed.
Order pronounced in the open court on 23rd September, 2016.