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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
स्थधमी रेखध सं./जीआइआय सं./PAN. :AAKPK4859P अऩीरधथी ओय से / Revenue by Shri S K Mishra प्रत्मथी की ओय से/ Assessee by Shri Hiten Vasant सुनवधई की तधयीख / Date of Hearing : 29.12.2015 घोषणध की तधयीख /Date of Pronouncement: 12 . 2.2016 आदेश / O R D E R
Per B R Baskaran, AM:
The appeal filed by the Revenue and cross-objection by the assessee are directed against the order dated 21.12.2011 passed by the Ld. CIT(A)-27, Mumbai and they relate to the assessment year 2008-09.
CO.49/M/13 2. The revenue is aggrieved by the decision of ld CIT(A) in holding that (a) the gains arising on sale of shares, other than those related to repetitive transactions, are assessable under the head Capital gains. And (b) the business expenses and STT paid shall be allowable against the gains directed to be assessed as business income, since the same is against the decision of Hon’ble Supreme Court rendered in the case of Goetze (India) Ltd.
In the cross objection, the assessee has objected to the decision of Ld CIT(A) in holding that the gains arising on repetitive share transactions is assessable as business income. The assessee is also supporting the decision of Ld CIT(A) in respect of business expenses and STT paid.
We heard the parties and perused the record. The assessee declared the gains arising on sale of shares as Capital gain. The long term capital gain was declared to the extent of Rs.9,40,950/- and the Short term capital gain was declared to the tune of Rs.53,42,145/-. The AO assessed both the income as business income of the assessee. In the appellate proceedings, the Ld CIT(A) held that the gains arising in respective repetitive transactions of purchase and sale of shares is assessable as business income. In respect of the gains arising in respect of other shares, the Ld CIT(A) held that the same should be assessed under the head Capital gains. In respect of gains directed to be assessed as business income, the Ld CIT(A) held that the relevant business expenses and STT payment should be allowed as deduction.
We notice that the Ld CIT(A) has analysed the facts prevailing in the instant case and has passed a reasoned order while adjudicating the issues CO.49/M/13 urged before us. For the sake of convenience, we extract below the relevant observations made by Ld CIT(A). “5. I have carefully considered the contents of the assessment order and appellant's submissions made before me. From the paper book and other submissions filed by the appellant from time to time and from the analysis of the data presented above, in my considered opinion, the following facts emerge. 5.1. The appellant has been an investor in shares all along. Over the years he has consistently treated the entire investment in shares as an “investment” and not as "stock-in-trade". The income from transfer of shares was always offered to tax as capital gains. Shares held as investments were at cost and no mark to market loss was provided for. 5.2 The appellant has earned 50% of the total short term capital Gains with a holding period more than 3 months. In respect of sale of shares within a month of holding it was explained to be triggered by an unprecedented volatility in the market between Nov'07 to Jan'08, that the appellant sold off shares within a short period of holding with a view to protect the capital and to reduce the losses. 5.3. Appellant used his own surplus funds for investing in shares. She has neither borrowed any money from external sources nor paid interest thereon. 5.4. Appellant was engaged as director of Mls Arbi Exports ltd., and could not devote his time to share transactions so as to conduct them in a business like manner. Appellant has not engaged any staff, office or analysts for investing in shares. In the subsequent years, shares held as investments as on 31/3/2008 were liquidated and new purchases are not made. 5.5 The stand of the appellant as an investor has been accepted by the A.O in the earlier year under section 143(3). The assessment for A Y 2007- 08 was completed u/s. 143(3) by ACIT-16(2) and the capital gains on sale of shares and securities both long term and Short term amounting to Rs.4971792 were accepted and taxed accordingly. Besides, shares were accepted as Investments in the Balance Sheet. Apparently the facts of the case are similar in A.Y. 2007-2008 & 2008-2009 except as discussed at para 5.6 below, and no fresh material has been brought on record by the AO at present. In such circumstances, there is no reason for the A.O. to treat the investment in shares by the Appellant as trading in shares for A.Y.2008- 09. The uniformity in treatment and consistency under the same facts and circumstances is one of the fundamental judicial principles which cannot be CO.49/M/13 brushed aside without proper reason. 5.6 However, having regard to the key principle laid down in the Saranath Infrastructure (P) Ltd. v/s, ACIT 120 TTJ 216 (Luck) that habitual dealing in that particular item is indicative of the intention of trade, appellant was called to furnish the details of repetitive transactions/ churning if any during the year in response to which AR has filed the details as shown at table 3 above. Considering the quantity of shares transacted in the scrips listed therein vis a vis the profit/loss and the gap between the date of sale and re entry in the same scrips, I am of the opinion that transactions in these scrips were definitely carried out in a manner akin to the trading and not as an investor. Such transactions are not carried out with an intention to minimize the loss in volatile market conditions but to take advantage of such conditions. In fact the overall purchases are 3.5 times of the capital available which establishes the frequency and the churning with a profit motive. Similarly, the value of closing investments as % of opening value of investments and purchases made during the year is also on a lower side. Thus, the transactions conducted during the year appear partly to be in the nature of business and to that extent the principle of consistency needs to be varied. Strictly speaking, investment in each scrip is a capital asset by itself and if the situation demands it needs to be seen whether the transactions carried out in particular scrip categorize the same as capital asset or business asset. Therefore, considering the overall facts, and keeping in mind the amount of profit earned on churning vis a vis the total amount of short term capital gains earned, I am the opinion that in the interest of justice, the profit earned by the appellant on repetitive transactions/ churning needs to be considered as business income and rest of the activity need not be disturbed based on the consistency principle. Accordingly, AO is directed to consider only an amount of Rs.702339 as business income and the balance amount as capital gains. During the proceedings before me appellant has requested for allowing of business expenses and STT paid against the aforesaid income as claimed during the assessment proceedings. Appellant is directed to furnish relevant details in this regard before the AO within two weeks of receiving this order. AO is directed to verify the same and allow such expenses which are directly in relation to earning of this income. AO shall take sufficient care to exclude expenses relating to STCG and other exempted incomes while allowing the relevant expenditure. As regards the submission that AO be directed to allow set off of earlier years' losses from share trading against the aforesaid business income, I do not agree with the appellant for the reason that such losses were not determined as business losses in any of the earlier years. Apparently they were claimed as capital losses and were allowed to be carried forward accordingly. Hence appellant's plea is rejected in this regard. Appellant gets part relief.”
CO.49/M/13 6. On a careful consideration of the decision rendered by Ld CIT(A), we notice that the first appellate authority has taken all the relevant factors in adjudicating the issue. Though the assessee has taken a ground that the gains arising on repetitive transactions should also be assessed under the head Capital gains, yet we do not find any merit in the said contentions, as the Ld CIT(A) has given proper reasons in confirming the assessment order in respect of repetitive transactions. Before us, neither the assessee nor the revenue could not furnish any convincing reason to interfere with the decision taken by Ld CIT(A) on this issue. With regard to the direction given by Ld CIT(A) to allow deduction of business expenses and STT payment, we may state that the Hon’ble Supreme Court itself has stated that its decision shall not impinge the power of the Tribunal in giving such directions. Accordingly, we confirm the order of Ld CIT(A) on all the issues.
In the result the appeal filed by the revenue and the cross objection filed by the assessee are dismissed.