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Income Tax Appellate Tribunal, DIVISION BENCH, “B” CHANDIGARH
Before: SHRI SANJAY GARG & SHRI VIKRAM SINGH YADAV
आदेश/ORDER
Per Sanjay Garg, Judicial Member:
The captioned appeals has been preferred by the revenue against the separate orders dated 01.08.2022 & 02.08.2022 of the National Faceless Appeal Centre [hereinafter referred to as the ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’) respectively.
&640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 2 of 11
In this case, earlier the assessment was framed u/s 143(3) of the Act by the Assessing Officer vide order dated 17.12.2019, whereby, the addition of Rs.40,93,17,176/- was made by treating the income earned by the assessee on purchase and sale of shares as business income as against the claim of the assessee being capital gains. Thereafter, the assessment was reopened on the same issue u/s 147 r.w.s 148 of the Act and vide order dated 31.03.2022 passed u/s 143(3) r.w.s. 147 of the Act and an addition of Rs.7,03,60,233/- was made. The assessee preferred appeals against both the orders of the Assessing Officer i.e. the order dated 17.12.2019 passed u/s 143(3) of the Act and also against the order dated 31.03.2022 passed u/s 143(3) r.w.s. 147 of the Act. The ld. CIT(A) vide separate order dated 01.08.2022 accepted the appeal of the assessee against the assessment order dated 17.12.2019 passed u/s 143(3) of the Act and deleted the impugned additions. The ld. CIT(A) vide another order dated 02.08.2022 also accepted the appeal of the assessee against assessment order dated 31.03.2022 passed u/s 143(3) r.w.s. 147 of the Act by holding that the reopening of the assessment was bad in law. Being aggrieved by the aforesaid both orders of the CIT(A), the revenue has preferred the captioned appeals. 01.08.2022 in relation to the original assessment framed u/s 143(3) of the Act, whereas, is in respect of the order dated &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 3 of 11 02.08.2022 in relation to the subsequent assessment order dated 31.03.2022 passed u/s 143(3) r.w.s. 147 of the Act. We first take up the revenue’s appeal .
The brief facts as furnished by the assessee are that “M/s Preethi Himachal & Company ("Respondent assessee"), earlier engaged in production for distribution and sale of kitchen appliances, entered into a slump sale agreement in FY 2011-12, transferring its business on slump sale basis to Preeti Kitchen Appliances Private Limited. The purchase price for such slump sale was agreed at Rs.184,59,00,000/-, with Rs.161,51,62,500/- received in FY 2011-12 and the remaining amount was kept in escrow and received in FY 2012-13. The said amount was invested in securities (shares/mutual funds/bonds) and the assessee treated these investments as capital assets in its books of accounts and accordingly, treated the income from the sale of investment as long-term or short-term capital gains, as the case may be, in its return of income over the years. For AY 2012-13, AY 2013-14 and AY 2016-17, scrutiny assessments orders were passed u/s 143(3) of the Act with no adverse finding on treatment of investments. However, in AY 2017-18, the assessee sold certain investments comprised of those acquired in the year and the balance represented holdings from previous year(s) and income from such sale was offered to tax under capital gains. &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 4 of 11 However, the Assessing Officer vide order dated 17.12.2019 in the assessment proceedings disputed the same and held that the assessee was involved in repetitive and voluminous sale/purchase transactions of securities which had been made solely and exclusively with intention of resale at profit. That the transactions were very large in quantity and assessee had taken loan for purchasing of securities and has paid interest on such loans. Therefore, such transactions were to be treated as stock-in-trade as against capital assets and accordingly the income should be taxed under the head of 'profits and gains from business and profession'. Accordingly, an addition of Rs. 40,93,17,176/- was made by the Assessing Officer to the total income of the assessee.
However, in first appeal, the ld. CIT(A) vide impugned order dated 01.08.2022 decided the issue in favour of the assessee on merits, holding that volume/frequency/continuity, regularity of the transactions, holding period of securities, intention of assessee and treatment to securities in Books of Account should be cumulatively assessed to determine the nature of the transactions. He observed that in the instant case, volume, scale and number of transactions was quite small. Further, the average holding period of such securities was 60 days (STCG without STT), 215 days (STCG with STT) and 1141 days(LTCG without STT), which was not reflective of the sole intention to resale at a profit, in the earliest &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 5 of 11 opportunity. That none of the transactions were carried out on intra-day basis and there was no derivative transactions. He, therefore, held that the assessee had correctly treated such transactions as capital assets. The relevant part of the order of the CIT(A) is reproduced as under:
“30. With regard to the merits of the additional evidence, the date wise and transaction wise details of sale of shares and mutual fund units furnished by the appellant vide Annexures-1, 2 and 3 to the petition for admission of additional evidence dated 13.07.2022 have been carefully and thoroughly examined. The said Annexures-1, 2, and 3 contained the date wise and transaction wise details of sale of shares and mutual fund units, the income from which has been admitted in the return of income under the heads STCG (without STT), STCG (with STT) and LTCG (without STT) respectively. The CBDT Instruction No. 1827 dated 31.08.1989, CBDT Circular No.4/2007 dated 15.06.2007 and case laws relevant to the disputed issue of whether the transactions of purchase/sale of shares/mutual fund units carried out by an appellant are in the nature of business activity or investment activity viz decision of Hon'ble Bombay High Court in the case of Ramilaben D Jain Vs. ACIT [2018] 97 taxmann.com 217 (Bombay), decision of Hon'ble MP High Court in the case of Dr. Rajeev Choudhary Vs. ACIT [2019] 111 taxmann.com 438 (Madhya Pradesh) and decision of Hon'ble ITAT, Hyderabad in the case of P.Ramakrishna Vs. Addl CIT [2017] 88 taxmann.com 348 (Hyderabad-Trib) were carefully examined for identifying various parameters/tests laid down therein for deciding the issue in dispute. The parameters/tests so laid down are the volume of transactions, the frequency of transactions, the continuity and regularity of the transactions, the holding period of the securities, the intention of the appellant at the time of purchase and the treatment given in the books of account. No single parameter/test is determinative of the nature of the transactions and one needs to consider the cumulative effect of the said multiple parameters. The outcome of the &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 6 of 11 analysis of the transactions of the appellant on the basis of the said parameters/tests is summarized in the table furnished below: Particulars STCG STCG LTCG (without (with (without STT) STT) STT) No. of transactions during the year 30 10 06
No. of days on which sales were 20 04 05 made No. of days on which purchases 14 05 05 were made No. of scrips/mutual fund schemes, 04 03 05 which were subject matter of sale Average holding period (No. of days) 60 215 1141
As can be seen from the table above, the volume of transactions of sale of shares/mutual fund units by the appellant during the year is quite small as the total no. of transactions is 46 and the no. of transactions in respect of STCG (without STT), STCG (with STT) and LTCG (without STT) is 30, 10 and 6 respectively. It is evident from the number of transactions during the year that the said activity is not carried out on a large scale by the appellant. Further, it can be seen that the appellant effected the sales of shares/mutual fund units only on 20 days, 4 days and 5 days during the year in respect of the three categories of Capital Gain income admitted in the return of income respectively. Similar factual position is observed in respect of purchase of shares/ mutual fund units during the year. This clearly shows that the said activity is not carried out frequently, continuously and regularly throughout the year by the appellant. It is also seen that the appellant dealt in limited number of scrips/mutual fund schemes during the year i.e 4, 3 and 5 scrips/mutual fund schemes in respect of the three categories of Capital Gain income admitted in the return of income respectively. Further, it is noticed that the average holding period of shares/mutual fund units, before they were sold, amounted to 60 days and 215 days in respect of the transactions considered for computation of STCG (without STT) and STCG (with STT) respectively in the return of income. The said average holding period is not &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 7 of 11 reflective of any intention of the appellant at the time of purchase to resell them at a profit at the earliest opportunity. In respect of the transactions considered for computation under LTCG (without STT), the average holding period stands at 1141 days. Moreover, it is seen that none of the transactions carried out by the appellant during the year (except one solitary transaction) are intra-day transactions. It is also pertinent to observe that the appellant has not dealt with any derivative transactions (F&O) during the year.
Thus, it is evident from the analysis of the transactions of purchase and sale of shares and mutual fund units carried out by the appellant during the year that the volume of such transactions is insignificant, the frequency of such transactions is quite low and the holding period of the shares/units prior to the sale is large enough. The transactions carried out by the appellant do not include any derivative transactions. Moreover, it is an undisputed fact that the appellant has treated the shares/mutual fund units purchased by it as "investments" in its books of account. On applying the tests laid down in Instruction No. 1827, Circular No.4/2007 and the case laws cited supra, the above mentioned facts clearly and strongly establish that the appellant is holding the shares/mutual fund units as 'investment' and not buying them with the intention of selling them at a profit at the earliest opportunity.
As regards the observation by the AO that the appellant has taken a loan for the purpose of purchasing the shares/mutual fund units and paid interest on such loans, it is pertinent to state that the said observation is factually incorrect since the loan of Rs.30 crores, in respect of which the appellant incurred interest expenditure of Rs.48,82,192/-, was taken for the purpose of purchase of bonds which are held by the appellant as investment at the end of the previous year and no part of the said bonds were sold by the appellant during the year. Further, it is pertinent to state that the observation of the AO that the appellant has not carried on any other business during the year and all the activities of the appellant are focused towards the purchase and sale of shares and mutual fund units cannot be used as an indicator of the intention of the &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 8 of 11
appellant to purchase and sell the shares and mutual fund units as a systematic business activity. 34. In the grounds of appeal and the written submissions, the appellant has also contested the view adopted by the AO in the assessment order on the ground that the same is inconsistent with the assessment orders passed for the earlier assessment years 2012-13, 2013-14 and 2016-17 in the appellant's own case. The appellant contended that the revenue accepted the stand of the appellant that the income from purchase and sale of shares/mutual fund units is taxable under the head Capital Gains in the assessment orders passed for the said three assessment years and that the action of the AO in seeking to change the said accepted position for the instant assessment year is against the principle of consistency. The appellant contended that the assessment made by violation of the principle of consistency is not sustainable in law. In support of this contention, the appellant placed reliance on the decision of the Hon'ble Supreme Court in the case of Radha Soami Satsang Vs CIT (1992) 193 ITR 321 (SC), wherein it was held that though the doctrine of res judicata does not apply to Income Tax proceedings, it would not be appropriate to allow the position to be changed in a subsequent year, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order for the said years.
35. In this regard, it is noticed on perusal of the assessment orders passed u/s 143(3) for assessment years 2012-13, 2013-14 and 2016-17 on 27.02.2015, 17.02.2016 and 24.12.2018 in the appellant's own case that the income declared under the head Capital Gains in respect of the profits and gains derived from the transactions of purchase/sale of shares/mutual fund units has been accepted by the AO in the said assessment orders. On perusal of the financial statements of the appellant for the previous years relevant to the said assessment years, it is noticed that there is no change in the facts of the case from the said years to the previous year relevant to the instant assessment year. As there is no change in the facts and the stand of the appellant that the income from the purchase/sale of shares/mutual fund units is chargeable to &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 9 of 11 tax under the head Capital Gains has been accepted in the scrutiny assessments made for the earlier assessment years, the action of the AO in seeking to change the said accepted position in the assessment for the instant assessment year is against the principle of consistency and such an action has been disapproved by the Hon'ble Supreme Court in the case of Radha Soami Satsang (Supra).
In view of the aforesaid discussion, it is held that the transactions of purchase/sale of shares and mutual fund units by the appellant during the year constitute investment activity and the same cannot be construed as a business activity. Accordingly, it is held that the income admitted by the appellant under the heads Short Term Capital Gains and Long Term Capital Gains in respect of such transactions is in accordance with the provisions of the Act and the action of the AO in assessing the income derived from the said transactions under the head Profits and Gains of the Business is factually and legally unsustainable. Consequently, the Jurisdictional AO is directed to delete the addition of Rs.40,13,88,095/- made in the assessment order on account of re-characterization and re-computation of the income under the head Profits and Gains of Business instead of Income from Capital Gains. These grounds of appeal
are accordingly allowed.”
5. After hearing the ld. Representatives of the parties, we do not find any infirmity in the above observation of the CIT(A). The assessee in the earlier years i.e. in A.Y 2012- 13, 2013-14 & 2016-17 has been treated as investor even in scrutiny assessment carried out u/s 143(3) of the Act. There is no change of circumstances during the year under consideration. The ld. CIT(A) has thoroughly analyzed the transactions made by the assessee during the year and had come to the conclusion that the assessee, under these circumstances, is to be treated as investor in shares and &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 10 of 11 not as trader. We do not find any merit in the appeal of the revenue and the same is accordingly dismissed. appeal has been preferred by the revenue against the action of the CIT(A) in holding the reopening of the assessment as bad in law. A perusal of the impugned order of the Assessing Officer as well as of the CIT(A) would reveal that in the earlier assessment carried out u/s 143(3) of the Act, for the year under consideration, the Assessing Officer has treated the income from purchases and sales of shares as business income of the assessee. In this case, the assessment was reopened pointing out some computational error while computing the income of the assessee from transactions in purchases and sales of shares as business income. However, as observed above, the ld. CIT(A) has deleted the addition vide order dated 01.08.2022 made by the Assessing Officer.
7. In view of our above observation, we have upheld the order of the CIT(A) on this issue while adjudicating . The ld. CIT(A) though held the reopening of the assessment as bad in law on other grounds, but also held that since the additions made by the Assessing Officer treating the income of the assessee as business income had been deleted, therefore, the consequential order passed to rectify the computational error in relation to business income of the assessee was &640/CHANDI/2022 Assessment Year : 2017-18 M/s Preethi Himachal & Company Page 11 of 11 also not sustainable as the same becomes infructuous. Therefore, the ld. CIT(A) rightly allowed the appeal of the assessee. We do not find any infirmity in the order of the CIT(A) in this appeal also.
In the result, both the appeals of the revenue are hereby dismissed.
Order pronounced in the Open Court on April 1,2024.