DARSHANA B. DOSHI,MUMBAI vs. A.C.I.T. CIRCLE 13(3), MUMBAI

During hearing the crux of arguments advanced by Shri M.S. Mahuria, Ld. counsel for the assessee is that the income may be treated as income from short term capital gains by explaining that the intention of the assessee is merely investment of all surplus funds in equity shares of domestic companies and no interest bearing funds were invested by the assessee. It was also contended that none of the public limited company, where investment was made, is controlled by the assessee and all the shares are quoted at recognized stock exchange. The learned counsel further explained that all the shares were shown as investment in the balance sheet and the dividend income was shown by the assessee as income from other sources and claimed exempt u/s 10(34) of the Act. The shares were claimed to be routed through demat account and STT tax was paid on sale and purchases. The learned counsel also explained that there was a loss on the transaction for A.Y 2009-10 which was allowed to be carried forward by the department. On the rule of consistency reliance was placed upon the decisions in Gopal Purohit vs. JCIT (2009) 29 SOT 117 (Mum) (which was affirmed by Hon’ble Jurisdictional High Court in 336 ITR 287 (Bom) and SLP was dismissed by Hon’ble Apex Court in (2011) 334 ITR (St.) 308 (SC)), Shantilal Jain vs. ACIT (2011) 132 ITD 466 (Mum), Dharmesh R. Shah vs. JCIT (2013) 60 SOT 182 (Mum), Kunverji Nanji Kenia vs. Addl. CIT (2010) 131 TTJ 87 (Mum) and another decision from Hon’ble Jurisdictional High court in CIT vs. Naishadh V. Vachharajani (ITA No. 1042 of 2011), order dtd. 22.9.2011. On the other hand, the Ld. DR, Ms. Surbhi Sharma defended the conclusion drawn in the impugned order. In reply the learned counsel for the assessee placed reliance upon CBDT circular no. 6/2016 by claiming that in all earlier 5 years it was shown as investment. It was also claimed that the issue is covered by the decision of the Tribunal in the case of Alka K. Upadhaya vs. ACIT (ITA No. 3520/Mum/2010) dt. 17.3.2016.

We have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee in its return of income has claimed short term capital gain of Rs.45,86,071/- and long term capital gain of Rs.58,002/- and further income from other sources was shown at Rs.2,40,566/- and the same was claimed as exempt. However, the learned Assessing Officer treated the same as business income on the ground that the assessee is earning income by dealing in shares and is routinely involved in share transaction. In reply to the query raised by the learned Assessing Officer, the assessee claimed that she is a housewife and not having any professional knowledge of share market. It was also explained that no loans were taken by the assessee for making the investment in shares and further, the assessee is not indulged in any derivate transactions. The contention of the assessee was not accepted by the Assessing Officer on the reasons stated in the assessment order which broadly are that the assessee is regularly and frequently dealing in shares and is doing systematic and organized activity of trading. It was further observed that the volume of transaction is huge, therefore, the assessee is engaged in commercial activity and the intention of the assessee is to earn profit. On appeal before the learned CIT(A) the stand taken in the assessment order was affirmed against which the assessee is in appeal before this Tribunal. We note that the Assessing Officer has also analysed the holding period which as per the revenue is less than 90 days. We have also analysed the factual matrix of last 5 years of the assessee which has been provided in the paper book. It is noted that for A.Ys 2006-07 to 2010-11 the short term capital gain on sale of investment in shares of domestic companies was allowed by the Department and the assessee duly paid the STT on sale of such shares. The claim of the assessee in the present assessment year was denied by the Assessing Officer merely on the premise that the assessee is involved in systematic and organized trading activity and huge quantity of share was purchased. So far as the frequency and holding period is concerned, this issue has been duly deliberated upon by the Tribunal in the case of Gopal Purohit which was affirmed by the Hon’ble Jurisdictional High Court in 228 CTR 582 (Bom) and SLP of the Department was dismissed by Hon’ble Apex Court. The case of the assessee is further fortified by the decision of the Tribunal in the case of Ramesh Baburao vs. ACIT (ITA No. 3719, 4084, 5318 and 5319/Mum/2009, order dt. 13.4.2011), wherein it was held that large volume of share is not the only deciding factor to hold the assessee a trader. It is also noted that own funds were invested by the assessee and no borrowed funds were utilized, therefore, the decision in Nagindas P. Sheth (HUF) vs. ACIT (ITA No. 961 and 1836/Mum/2010, order dt. 5.4.2011) supports the case of the assessee. It is also noted that the assessee was holding the shares in its books as investment and did not have any office or administrative set up. There was not a single instance where the assessee had squared up the transaction on the same day without taking delivery of the shares. So far as the contention of the Assessing Officer as well as of the Ld. DR that there was large volume of purchase and sale of shares by the assessee is concerned, we are of the view that the large volume per se does not mean activity of business as the assessee has to maintain the distinction between shares held as stock and those held as investment in its books. Though volume of transaction is an important indicator of the intention of the assessee, but whether to deal in shares as trading asset or to hold the shares as investor is certainly not the sole criteria. A prudent investor always keeps a watch on the market trend, therefore, is not barred under the law from liquidating his investment in shares. The law itself has recognizes this fact by taxing these transactions under the head “short term capital gains” and if the reasoning of the Assessing Officer/Ld. DR is accepted, that would itself be against the legislative intent. The fact that the assessee did not borrow funds for making the investment in shares is also an important aspect which cannot be lost sight of while deciding the true intention of the assessee, more specifically when the Assessing Officer himself accepted identical claim of the assessee in earlier years. We are aware that principle of res judicata is strictly not applicable in income tax proceedings and each year is independent and further it is settled principle of law that consistency cannot be ignored. Uniformity in treatment and consistency under the same facts and circumstances is one of the fundamentals of the judicial principles which cannot be brushed aside without proper reasoning. In the earlier assessment year, the Assessing Officer accepted offering of LTCG and also accepted the claim of the assessee in the status of investor. Therefore, without bringing any contrary material/facts, the stand of the Assessing Officer is not permissible. As the modus operandi of the assessee remained the same with respect to other shares, the claim of the assessee cannot be negated only on the basis of frequency of transactions as was held by Hon’ble Jurisdictional High Court in Gopal Purohit (228 CTR 582 (Bom)). The ratio laid down in Smt. Geeta Devi Mahipal vs. ITO (2004) 1 SOT 468 (Jd) supports the case of the assessee. Identical ratio was laid down in Vinod K. Nevatia vs. ACIT (2011) 49 DTR (Mum) (Trib) 16 and Janak S. Rangwalla vs. ACIT (2007) 11 SOT 627 (Mum), Paresh D. Shah vs. JCIT (2010) 2 ITR (Trib) 311 (Mum), Suresh Kumar Seksaria vs. ACIT (2010) 1 ITR (Trib) 783 (Mum). Identical ratio was laid down in ACIT vs. Dinesh K. Mehta (HUF) (2010) 39 SOT 488 (Mum). Considering the totality of facts, we are of the view that where the assessee has shown investment in shares under the head “investment” in the Balance sheet for many years and same is accepted by the Assessing Officer in the past, there is no justification for treating the activity of assessee of purchase and sale of shares as business particularly when no money has been borrowed for making investment in shares. In such a situation the decision in CIT vs. Girish Mohan Ganeriwala (2003) 260 ITR 417 (P&H), CIT vs. S. Ramaamirtham (2008) 306 ITR 239 and CIT vs. Ess Jay Enterprises (P) Ltd. (2008) 173 Taxman 1 (Del) supports the case of the assessee. The ratio laid down in CIT vs. Rohit Anand (2010) 327 ITR 445 (Del) further supports the case of the assessee. In circular dt. 15th June, 2007 the CBDT has clarified that it is possible for a tax payer to have two portfolio, i.e., an investment portfolio and a trading portfolio and income under the head “capital gains” as well as “business income”. Though the main object is buying and selling of shares, but the nature of activity, intention and conduct has significant role to play in the entire transaction. Thus, the gain has to be assessed as short term capital gain/long term capital gain, as the case may be.

So far as the rule of consistency is concerned, we note that in the previous and subsequent assessment years, the Assessing Officer treated the assessee as an investor, therefore, we are of the view that unless and until contrary facts are brought on record by the Revenue, no U-turn is permissible. The learned Assessing Officer is bound by rule of consistency. The following cases support the case of the assessee :

i. Parshuram Pottery Works Ltd. vs ITO 106 ITR 1 (SC) ii. Security Printers 264 ITR 276(Del.) iii. CIT vs Neo Polypack Pvt. Ltd. 245 ITR 492 (Del.) iv. CWT vs Allied Finance Pvt. Ltd. 289 ITR 318 (Del.) v. Berger Paints India Ltd. vs CIT 266 ITR 99 (SC) vi. DCIT vs United Vanaspati (275 ITR 124) (AT)(Chandigarh ITAT) vii. Union of India vs Kumudini N. Dalal 249 ITR 219 (SC) viii. Union of India vs Satish Pannalal Shah 249 ITR 221 ix. B.F.Varghese vs State of Kerala 72 ITR 726 (Ker.) x. CIT vs Narendra Doshi 254 ITR 606 (SC) xi. CIT vs Shivsagar Estate 257 ITR 59 (SC) xii. Pradip Ramanlal Seth vs UOI 204 ITR 866 (Guj.) xiii. Radhaswamy Satsang vs CIT 193 ITR 321 (SC) xiv. Aggarwal warehousing & Leasing Ltd. 257 ITR 235 (MP)

The sum and substance of the aforesaid judicial pronouncements is that on the basis of principle of judicial discipline, consistency has to be followed and once in a particular year, if any view is taken, in the absence of any contrary material, no contrary view is to be taken as finality to the litigation is also a principle which has to be followed. Before us, no contrary facts or any adverse material was brought on record by the Revenue, therefore, on the principle of consistency also, the assessee is having a good case in her favour. Thus, considering the totality of facts and the judicial pronouncements discussed hereinabove, the appeal of the assessee is hereby allowed.