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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI J.S. REDDY & SHRI A.T. VARKEY
PER A.T. VARKEY, JUDICIAL MEMBER :
CO No.177/Del/2014 The appeal filed by the revenue and the cross objection filed by the assessee are against the order of the CIT (Appeals)-I, New Delhi dated 24.05.2013 for the assessment year 2009-10.
A search and seizure operation was conducted in the Jaksons Group of cases on 10.02.2010, consequent to which, notice u/s 153C was issued to the assessee and the income of the assessee was assessed vide order dated 16.12.2011 whereby the income earned from the investments made by the assessee was treated as business income. On appeal, the ld. CIT (A), relying upon various judgments in favour of the assessee as well as considering the CBDT circular dated 15.06.2007, has allowed the appeal of the assessee. Now, the revenue is in appeal before us by taking the solitary ground which read as under :-
“On the facts and circumstances of the case, the ld. CIT (A) has erred in directing to charge short Term Capital Loss of Rs.5,38,44,446/- and Long Term Capital Loss of Rs.1,60,57,407/- under the head ‘Capital Gain’ and not under the head ‘Income from business / profession’ as has been done by the AO.”
At the outset of the hearing, ld. AR for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of the ITAT in assessee’s own case in dated 27.04.2015 for the assessment year 2007-08. He further submitted that the facts of the relevant assessment year under consideration are identical to the facts of the aforesaid case relied upon. He also submitted that all the transactions are delivery based and the assessee has earned income of Rs.36,59,199/- and there are no borrowed funds as is evident from the balance sheet at page 4 of the paper book.
Therefore, he pleaded to uphold the order of the ld. CIT (A). At the same time, he did not press the cross objection.
Ld. DR could not controvert the aforesaid submissions of the ld. AR.
We have heard both the sides and perused the material on record. We find that this issue is covered by the aforesaid decision of the coordinate Bench of the Tribunal in assessee’s own case for AY 2007-08, in which one of us is a Member to the said decision. The relevant paras of the aforesaid decision are reproduced below :-
“18. We find that in the present case, all the transactions are delivery based transactions only. The assessee also earned dividend to the tune of Rs.42,77,597.73 thereon. It is also noted that the appellant had not claimed the amount of SIT paid by it as business expenditure.
Further, the courts have decided that a person can be a trader as well as an investor for same types of transactions done with different motives. (i) Ram Narain Sons (P) Ltd. v CIT as reported in 411TR 534 (SC), (ii) Dwarkadas Kesardev Morarka as reported in 44 ITR 625 (SC), (iii) CIT vs. Madan Gopal Radheylal as reported in 73 ITR 652 (SC) (iv) CIT v. Associated Development Co. Ltd. as reported in 82 ITR 586 (SC).
The above judgments clearly state that the same person can be a trader as well as investor in shares.
In a recent decision of Lucknow Bench of the Tribunal in the case of Sarmath Infrastructure (P) Ltd. as reported in 16 DTR (Lucknow) (Trib) 97, a view had been taken in favour of the assessee after fully considering the CBDT circular and the facts & circumstances of the case. The facts of the present case are more or less same as in that case, and therefore, the ratio of that decision is squarely applicable to the present case.
In view of the above and considering the intention of the parties, the fact that the mutual funds/shares have been shown as investment and not closing stock that the closing balance have been valued at cost and not at "cost or market value whichever is lower", that no borrowed funds have been used etc. the income from investment may be treated as income from capital gains and not as income from business.
Ld. CIT(A) has observed that the AO has wrongly stated that the assessee has traded in derivatives which cannot be treated as investment. On perusal of the records, it is noticed that the transactions in respect of derivatives are not part of the short term capital gain. These have been separately quantified as business transactions and on this aspect a letter dated 4th December, 2009, has also been filed with the assessing officer clarifying this position.
The Assessing Officer has reasoned that the assessee firm has earned incentive income and this incentive income has to be assessed as business income and the other income shall also become business income. We concur with the ld CIT(A) that this interpretation of the assessing officer is incorrect. The assessee having made investments and consequent to such investments some incentive is received. Treatment of that incentive income will not change the nature of the investments. On the contrary, this receipt of incentive itself confirms the fact that this assessee has earned incentive consequent to investments being made, which is normally given to the investor.
As regards the portfolio management, it is observed on examination of the facts and records and as explained above, that the assessee has made investments through portfolio management in five cases, and out of these five cases, the assessee has suffered losses in two cases to the extent of Rs.21,65,551/- and has made gain in three cases of Rs.36,04,177/- with the result that the net gain on account of portfolio management is only Rs.14,38,626/- out of the total capital gain of Rs.l,76,03,580/-. The investment in portfolio management is a common feature and cannot be held to be a business.
Another reason of the Assessing Officer is that assessee has prepared books of account, Profit and Loss Account and Balance Sheet and has got the same audited. There is nothing wrong in this. The assessee being a legal entity is required to maintain its books of account and get the same audited. This cannot be a ground for the assessing officer to hold that the assessee is carrying on business. The ld CIT(A) has rightly observed that if the contention of the assessing officer is accepted then probably in each and every case will be covered under the business income and there will be no case for investment. The assessing officer is wrong in assuming that for the purpose of investment, the books of account are not required to be maintained or are not required to be audited.
In view of the above discussion, and after careful consideration of various case laws and the Board's Circular on the subject referred above, Ld. CIT(A) has rightly held that the Assessing Officer was not justified in changing the treatment of income of appellant from Short term' capital gains
CO No.177/Del/2014 to Income from business. The Assessing Officer was accordingly, directed to treat the income of Rs.1,76,03,581/- declared by the assessee as Short term capital gains only and not as Business income. In the background of the aforesaid discussions, we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same and dismiss the issue in dispute raised by the Revenue.”
In the light of the co-ordinate Bench decision and the fact that the ld. DR could not controvert the facts of the earlier year vis-à-vis the relevant year under consideration; and Since the issues are identical and there is no change in the facts, we, respectfully following the aforesaid order of the earlier year in assessee’s own case, and dismiss the appeal of the revenue.
Since the ld. AR did not press the cross objection, the same is dismissed.
In the result, the appeal of the revenue and the cross objection of the assessee are dismissed. Order pronounced in open court on this day of 27th January,2016.