ITO 21(2)(2), MUMBAI vs. SHEKHAR J KOTHARI, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे सद�य राजे राजे�� राजे �� �� केकेकेके अनुसार �� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order,dated 02/08/2013 of the CIT (A)-32,Mumbai, the Assessing officer(AO) has filed the present appeal. Assessee,an individual, filed his return of income on 29/07/2010, declaring total income at Rs. 5,00,507/-.The AO completed the assessment, under section 143 (3) of the Act,on 21/11/ 2012,determining his income at Rs.68.08 lakhs. 2.The solitary ground of appeal is about treating the income from share trading business as Short-Term Capital Gains (STCG) and not under the head income from business.During the assessment proceedings, the AO found that the assessee had declared income from STCG at Rs. 62.36 lakhs and LTCG at Rs. 1.23 lakhs. He called for the details of the capital gains earned by the assessee. After considering the data submitted by the assessee, she held that income earned by the assessee was from business and not from the capital gains, that assessee treatment to the shares was to be considered for deciding the issue, that he had not held the shares as an asset.Applying the various parameters, she held that assessee was holding the shares as stock in trade, that 31 were bought and sold during the year under appeal, that he had bought shares amounting to Rs. 5.11 crores and had sold the shares of Rs. 4.52 crores, that he had earned dividend income of Rs. 2.35 lakhs, that he had an initial capital of Rs. 94.90 lakhs, that the major source of income for the assessee was from purchase and sale of shares. Finally, she made an addition of Rs. 62.60 lakhs towards the income and by the assessee from purchase and sale of the equity shares.

6408/M/13-Shekhar Kothari 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him it was argued that the AO had owed the detailed submission made by him and the cases relied upon, that all the shares dealt in by the assessee were listed on the stock exchange and STT had been paid, that once STT was paid the same was covered by concessional rate of 15% under section 115A of the Act that dealing with 79 scrips during the holy could not be the basis for taking the same as business income, that there was no bar for buying the shares again after selling, that there was no restriction on frequency of transaction, that share sale from one month to one year equally qualified for being STCG, that the assessee could have both activities i.e investment as well as speculation, that the AO had disregarded the Demat statement and photo copies of the bank accounts, that in the earlier year STCG on the similar facts was accepted by the then AO. The assessee relied upon several case laws. After considering the submission of the assessee and the assessment order, the FAA held that while deciding the head of income with regard to share transactions several parameters had to be looked into i.e. motive of the investor, delivery of shares, frequency of transactions, composition of portfolios and holding period of the shares, that assessee had not borrowed any funds were utilised the same for purchasing the shares, that in his books of accounts he had reflected the transaction is investment and not as stock in trade, that the assessee had no separate setup/admitted of office for dealing into shares, that he was involved into jewellery making business, that for the assessment year 2009 – 10 the income of the assessee was assessed under section 143 (3), that in that year STCL declared by the assessee had been allowed to be carry -forward for the subsequent years, that the rules of consistency, as pronounced by the honorable Bombay High Court in the case of Gopal Purohit (228 CTR 522) were squarely applicable to the facts of the case. Finally, he allowed the appeal filed by the assessee.

4.During the course of hearing before us, the Departmental Representative(DR) supported the order of the AO. The Authorised Representative (AR) relied upon the upon the order of the FAA.

5.We have heard the rival submissions. It is found that assessee had not borrowed any money for making investment in shares,that his own capital for the year under consideration was more than 90 lakhs,that in the earlier years share trading activity was considered by the then AO under the head capital gains, that for the year under consideration the facts were the 6408/M/13-Shekhar Kothari