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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI JASON P BOAZ & SHRI AMIT SHUKLA
ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the revenue against impugned order dated 04.10.2013, passed by Ld. CIT(A)-25 Mumbai, for the quantum of assessment passed under section 143(3) r.w.s. 254 for the assessment year 2006-07, vide which following grounds have been raised: - “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not treating the whole amount of short term capital gains as business income in view of Hon’ble Lucknow Bench ITAT decision in the case of Sarnath Infrastructure Pvt Ltd vs ACIT 120 TTJ 216.
2. The ld.CIT(A) erred in accepting the suggestion of the assessee that income from shares held for 60 days be treated as business income and rest be treated as short term capital gains, this is not acceptable in view of the ground that income from one particular source cannot be bifurcated and treated differently and cannot be taxed under different heads in the same assessment year.
�ी हसमुख सी शाह 2 Shri Hasmukh C Shah
3. The ld. CIT(A) erred in not accepting the finding of the AO that the assessee’s main business is dealing in shares, the auditor’s report also reveals that the assessee is a trader and investor in shares . It is also clear that the major of borrowed funds has been utilized for share purchase and on the basis of value of shares, frequency and holding period, the AO has rightly assessed the income under the head ‘business income’.
4. For these and any other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that of the AO be restored”. 2. Brief background of the case, as stated in the impugned order are that, the assessee has filed his return of income on 31.10.2006 declaring total income of Rs.91,91,494/-. Thereafter, scrutiny assessment was completed under section 143(3) vide order dated 23.12.2008, accepting the return income. Later on, the income assessed was rectified under section 154, by the AO vide order dated 31.03.2010, whereby the income of the assessee was revised to Rs.92,06,244/-. Now while determining the assessee’s income, the AO has treated the short-term-capital-gain (STCG) of Rs.94,06,347/- offered by the assessee as business income whether, the AO could have done so under rectification proceedings or not, is not the subject matter of dispute before us. Against the said assessment, the assessee preferred an appeal before the CIT(A), whereby the Ld. CIT(A) directed the AO to treat the amount of Rs.94,06,347/- as STCG and not as “business income”. In the second appeal filed by the revenue before the Tribunal, the matter was set aside to the file of the AO vide order dated 29.07.2011 in with a direction to decide the issue afresh in view of the principle laid down by Lucknow Bench of the Tribunal in the case of Saranath Infrastructure Pvt Ltd vs ACIT, reported in 120 TTJ 216.
In the set aside proceedings, in response to the show cause notice, the assessee submitted that investment in shares and mutual funds were not treated as ‘stock-in-trade’ but were shown separately as investment in the books. Further, the loan taken by the assessee was shown at Rs.3.76 crores out of which Rs.1.03 �ी हसमुख सी शाह 3 Shri Hasmukh C Shah Rs.2.64 crores was payable to the brokers. The actual loan was only Rs.9 lakhs. The interest paid was only Rs.5.26 lakhs. Hence investment was not made from ‘interest bearing funds’. The frequency of purchase and sale of shares were shown in the following manner:-
Range Frequency No. of Days No. of Total No. of transactions Transactions (cumulative) 60-90 27 394 90-120 14 408 120-150 12 420 150-180 1 421 180-270 15 436 Above 270 1 437 Range Profit / Loss No. of days 0-30 53,42,017.40 30-60 -24,14,685.19 60-90 2,61,762.51 90-120 15,93,729.84 120-150 18,37,876.20 150-180 92,729.89 180-270 23,37,459.52 Above 270 3,61,853.35 Total 94,12,743.52 However, the AO held that, treatment given by the assessee in the books of account cannot be determinative factor and the investment in shares at the year-end was shown at Rs.4.44 crores and majority of shares have been purchased by the assessee during the year. The assessee has shown loan of Rs.3.76 crores in the Balance-sheet and in the normal trading business of assessee as dealer in surgical items, the total turnover was shows at Rs.17.34 lakhs. All this shows that assessee was involved more in shares. Secondly, there is huge frequency of purchase and sale of shares which is evident from the fact that total 437 transactions were undertaken and purchase was to the tune of Rs.29 crores �ी हसमुख सी शाह 4 Shri Hasmukh C Shah Rs.39.77 crores from which the assessee has earned profit of Rs.2.07 crores and loss of Rs.1.13 crores. The rotation of capital in purchase and sale of shares clearly shows that, assessee is involved in business of shares and is solely guided by the quick rotation of the fund to earn quick profit. Accordingly he held that gain from sale of shares is to be treated as business income.
Before the CIT(A) assessee gave point-wise rebuttal of the AO’s observation. The sum and substance of assessee’s contention were as under: - (i) Firstly, the investments in Shares and Mutual Funds were never treated as stock-in-trade and right from the beginning, the motive of investment was to earn income yielding investments for maximizing the gain. The investments have always been valued at cost and not lower of the market value or cost, which is generally done in the case of stock-in-trade; (ii) Secondly, out of the total borrowed fund of Rs.3.76 crores, interest paid was only Rs. 5.20 lakhs. The main borrowers were from the family members which was to the tune of Rs.1.03 crores and other major amount was payable to the brokers which was interest-free and the actual loan was only Rs. 9 lakhs; (iii) Thirdly, frequency of transaction depends on market condition and availability of fund and ultimately the sole guiding factor for the purchase and sale of shares and mutual funds have been made for making maximum gain; and (iv) Lastly, various other contentions were raised, which has been noted by the CIT(A) at pages 6 & 7 of the appellate order.
�ी हसमुख सी शाह 5 Shri Hasmukh C Shah
The Ld. CIT(A) after considering the entire facts, material and submissions of the assessee, held that income from share transaction which were held for less than 60 days should be treated as ‘business income’ and rest should be treated as ‘short-term-capital-gain’. Thus, gain of Rs.29,27,332/- was treated as ‘business income’ and balance amount of Rs.64,84,412/- was treated as short-term-capital-gain. The revised calculation of business income and short-term-capital-gain as given by the CIT(A) is as under:- Range Profit/Loss No. of days 0-30 53,42,017 30-60 -24,14,685 Sub-total(a): business Income (less Demat charges & service tax of 29,27,332 Rs. 6,396/- 60-90 2,61,763 90-120 15,93,730 120-150 18,37,876 150-180 92,730 180-270 23,37,460 Above 270 3,61,853 Sub-total (b: STCG) 64,85,412 Total (a+b) 94,12,744 6. After hearing both the parties and on perusal of the statement of short-term-capital gain, profit and loss account shown by the assessee and other material placed on record before us, it is seen that in the assessment year 2005-06 and 2007-08, similar gains arising from sale of shares has been shown under the head ‘short-term-capital-gain’ which has been accepted by the Department under section 143(3). Thus, in the earlier year and in subsequent year, income from transaction of shares have been assessed under the head Capital gain and to be under scrutiny proceedings. That apart, from the chart furnished before us, it is seen that, though many transactions have been undertaken, however if the script wise transactions are to be taken into consideration, then perhaps such transactions would be comparatively lesser. The assessee is having proprietary business �ी हसमुख सी शाह 6 Shri Hasmukh C Shah in surgical items and has shown purchase of shares under the head “investment” which has been valued at cost. Such a portfolio of investment in the Balance-sheet and in the books of account had been shown in the earlier years as well as in the subsequent years. This itself goes to show that, the shares were purchased with the intention of investment only. The maximum frequency in which the assessee had earned income were for the period less than 60 days which has already been taxed as business income by the CIT(A), for which assessee is not in appeal and hence such a finding of the CIT(A) cannot be interfered with. Regarding the main allegation of the AO that the investment were made through loan, it has already been clarified by the assessee before the CIT(A) as well as before us that, out of Rs.3.76 crores, Rs.2.64 crores was payable to the brokers and, therefore, it cannot be reckoned as a loan and secondly, Rs.1.03 crores was taken from family members without interest. Thus, it cannot be held that interest bearing fund have been diverted for making the purchase of shares. Under the facts and circumstances of the case, we hold that income of Rs.64,84,412/- which has been held to be assessable as short-term-capital-gain by the CIT(A), is after detailed reasoning is affirmed. We do not find any reason to interfere with the order of the CIT(A) and accordingly, grounds raised by the department stands dismissed.
In the result, appeal of the revenue stands dismissed. Order pronounced in the open court on 7th March, 2016.