SAROSH BOMAN SHROFF,MUMBAI vs. ASST CIT 12(2), MUMBAI

The ground of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) reads as under:-

The brief facts of the case are that the assessee is an individual having business income , being proprietor of (i) M/s Movements,(ii) M/s International Ship Agency and (iii) M/s S.B. Shroff engaged in the business of Transporters, Hire charges and Cargo Handling Agents. The assessee also received salary from Silver Shield Energy Pvt. Ltd. . The assessee is also having receipt of share of profit from partnership firms (i) M/s Cargo Handlers & Stevedors , (ii) M/s Shroff & Co. (Cargo Handling Agent) and (iii) M/s Shroff and Company(CHA).

During the course of scrutiny assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the A.O. observed that the assessee has earned short term capital gains of Rs. 32,70,593/- on the sale of shares. Keeping in view the magnitude, frequency of the shares transactions , the assessee was asked to explain as to why the profit on sale of shares shown as short term capital gain should not be taxed as business income in view of Board’s Circular No. 4 of 2007.

Aggrieved by the assessment orders dated 27-12-2010 passed by the A.O. u/s. 143(3) of the Act, the assessee filed the first appeal before the learned CIT(A).

Before the learned CIT(A), the assessee submitted that merely because there were transactions in 65 different scrips will not have impact whether the shares are held as investment or otherwise. The average holding period of 98 days for short term capital gain shows that the assessee has not done transactions in shares frequently. The frequency of transactions cannot be a decisive factor to arrive that the shares were held as stock-in-trade. No borrowed funds were used for making the investment in stocks. The assessee submitted that there are no business expenses like office employee, computer or travel expenses. The money is paid and received from the broker for the sale and purchase of shares and the trading is not carried by the assessee himself but was done through professional. The investments were made with the objective to earn good returns in the form of dividend or capital gain. No single principle would be decisive and the total effect of all the principles should be considered to determine whether the shares are held by the assessee as investment or stock-in-trade. The assessee submitted that in the ITA 1271/Mum/2012 5 preceding year’s, the short term capital gains and long term capital gains declared by the assessee were accepted by the Revenue in the scrutiny assessment u/s 143(3) of the Act . The assessee submitted that he is consistently following the same principles as were adopted in earlier years whereby delivery based shares were treated as investment and gains arising there-from were treated as capital gains , the same principle should apply for the current year as the facts and circumstances are same and the short term capital gain of Rs.32,70,593/- on sale of shares declared by the assessee in the return of income filed with the Revenue should be accepted and brought to tax as short term capital gains.

The learned CIT(A) after considering the submissions of the assessee and the assessment order observed that the issue in hand depends upon the factual matrix of the case and each case has different facts which will determine whether the gains arising from shares on purchase and sale are to be classified as business income or capital gains under the provisions of the Act. Several factors such as intention of the tax-payer while purchasing the shares, whether borrowed funds were used, frequency of purchase and sale of shares, period of holding, declaration in the Balance Sheet etc. are to be considered for classifying the dealing in shares as business vis-à-vis investment. The learned CIT(A) observed that the AO pointed out the magnitude of the transaction and period of holding , while apart there-from the transactions in sale-purchase of shares are repetitive and the learned CIT(A) produced the following chart showing the repetitive transactions whereby the assessee is re-entering the market by purchasing the scrips after having sold the earlier holding in the same share:-

Aggrieved by the appellate orders dated 16-12-2011 of the learned CIT(A) , the assessee is in second appeal before the Tribunal.

The learned Counsel for the assessee submitted that the short term capital gain earned by the assessee on investments made in shares has been classified as business income by the Revenue authorities. The assessee is consistently following the same principle whereby delivery based buying and selling in the shares is classified as investment and gains arising there-from are classified as short-term and long-tem depending upon the period of holding of shares, and the same principles has been adopted in the earlier years which have been accepted by the Revenue even in the scrutiny proceedings. The assessment order’s u/s 143(3) of the Act for the assessment 2006-07 and 2007-08 whereby the Revenue has accepted the short term capital gain and long term capital gain earned by the assessee on shares vide order dated 30th December 2008 and 16th December, 2009 respectively are placed in paper book page 27-29 and 38-39 respectively. The ITA 1271/Mum/2012 8 learned Counsel for the assessee submitted that principle of consistency has to be followed. The learned Counsel for the assessee drew our attention to paper book page 65-66 whereby the details of holding of shares are there as at 31-03-2007 whereby the investments in shares have substantially increased as at 31-03-2008 indicating the indica of investment in the shares and the opening value of investment in shares at cost was accepted and taken by the Revenue and has not been disturbed. The learned Counsel submitted that no borrowings were made by the assessee for making investment in the shares . The learned Counsel also drew our attention to the detail of transactions carried by him for earning short term capital gains on sale of shares which is also placed at paper book page 57-62. The learned Counsel for the assessee has relied upon various case laws which are also placed separately in the form of paper book of case laws, in particular the decision of ITAT in the case of ACIT v. Naishadh V. Vachharajani in dated 25th February, 2011 which is affirmed by Hon’ble Bombay High Court in ITA(L) No.1042 of 2011 dated 22-09-2011 , and also the decision of Hon’ble Bombay High Court in the case of CIT v. Gopal Purohit (2010) 228 CTR 582(Bom.). The ld. Counsel for the assessee also relied upon the decision of ITAT in the case of Nagindas P. Sheth (HUF) v. ACIT in ITA No. 961/Mum/2010 dated 5th April, 2011 and in the case of Shri Ramesh Babu Rao v. ACIT in ITA No. 3719/Mum/2009 for the assessment year 2005-06 dated 13th April, 2011 and contended that the assessee has entered into delivery based transaction and earned short term capital gain of Rs.32,70,593/- which should be brought to tax as Short term capital gain and not income from business as has been done by the AO and confirmed by the learned CIT(A). In the earlier years also it was disclosed as short term capital gains which was accepted by the Revenue. There are no intraday transactions and there are no F & O transactions. The learned Counsel further relied upon the decision of ITAT in the case of Mr. Nehal V. Shah v. ACIT in ITA No. 2733/Mum/2009 for the assessment year 2005-06 dated 15th ITA 1271/Mum/2012 9 December, 2010 and also relied upon the decision in the case of Management Structure & Systems Pvt. Ltd. v. ITO in for the assessment year 2004-05 vide orders dated 30th April, 2010 . The learned Counsel submitted that the long term capital gain declared by the assessee is not disturbed by the Revenue and only short term capital gain on sale of shares has been brought to tax as business income. The learned counsel for the assessee submitted that there was dividend income earned of Rs. 2.57 lakhs on shares investment which reflect that shares are held as investment and objective is to earn return on investment and not merely profit on sale- purchase of shares. The learned counsel for the assessee submitted that , without prejudice, the shares in which holding of shares is more than 30 days be taken as short term capital gain up to the period of one year , while the period of holding up-to 30 days should be classified as business income. The learned counsel submitted that the assessee has invested in mutual funds also.

The learned D.R., on the other hand, submitted that there were repeated transactions of sale-purchase of shares. The assessee has re- entered the same shares again after selling the said share which is indica of trade . He drew our attention to the order of the learned CIT(A) where there is a chart reproduced by learned CIT(A) reflecting the shares whereby the assessee re-entered the same shares and purchased it after selling the same. The learned D.R. further relied upon the orders of the authorities below. He held that principles of res-judicata are not applicable to the income-tax proceeding. The assessee’s intention clearly indicates to earn profit by buying and selling of shares. The assessee is not having any infrastructure which is not material as these days trading is done through computers and internet.

The learned Counsel for the assessee, in the rejoinder, submitted that principle of consistency has to be followed although principles of res-judicata ITA 1271/Mum/2012 10 are not strictly applicable to income tax proceedings. The ld. Counsel relied upon the decision of Hon’ble Bombay High Court in the case of Gopal Purohit (supra).

We have considered the rival contentions and also perused the material available on record including the case laws relied upon by the assessee. We have observed that the assessee is engaged in business and is proprietor of M/s Movements, M/s International Ship Agency and M/s S.B. Shroff engaged in the business of transporters, hire charges and cargo handling agents. The assessee also received salary from Silver Shield Energy Pvt. Ltd. The assessee is also having share of profit from partnership firms M/s Cargo Handlers & Stevedors, M/s Shroff & Company(Cargo Handling Agent) and M/s Shroff & Co. (CHA).

In the result, the appeal filed by the assessee in ITA N0. 1271/Mum/2012 for the assessment year 2008-09 is partly allowed as indicated above. Order pronounced in the open court on 27th May , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 2705-2016. को क� गई ।