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TMI Blog2011 (3) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as STCG has to be accepted is correct and calls for no interference. - Decided in favor of the assessee - IT APPEAL NO. 5662 (MUM.) OF 2009 - - - Dated:- 23-3-2011 - N.V. VASUDEVAN, AND RAJENDRA SINGH, JJ. P.N. Devdasan for the Appellant. Pradeep Sagar for the Respondent. ORDER N.V. Vasudevan, Judicial Member. ‑ This is an appeal by the revenue directed against the order dated 13/8/2009 of CIT(A) XXV, Mumbai relating to the assessment year 2006-07. The ground of appeal raised by the revenue reads as follows: "On the facts and in the circumstances of the case, the ld. CIT(A) erred in directing the AO to accept the claim of Short-Term Capital Gain on profit arriving from purchase of shares instead of business income treated by the AO without appreciating the fact the assessee is dealing in large volume of shares and most of the shares are bought and sold in a short period, thus indicating that the main intention was not to hold the shares as investment but rather the primary and main intent was to book profit." 2. The Assessee is an individual. The Assessee is a whole time director of M/S. CM Securities Private Limited. The business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STCG No. of scrips 38 No. of shares 3079124 Frequency (No. of transactions) 142 Purchase amount Rs. 31,51,52,676 Sale amount Rs. 37,89,50,349 Profit/gain RS. 6,37,97,673 Expense claimed Rs. 22,77,724 Net Profit Rs. 6,15,19,949 7. The assessee has borrowed money to the tune of Rs. 7.74 crores, as part of which has been utilized for the above share transactions. The assessee claimed expenses of Rs. 22,77,724 (including interest on borrowed funds of Rs. 13,54,091) against short-term capital gains. The assessee has maintained full office infrastructure for the purpose of carrying out business of share trading and had debited expenses of Rs. 86,992 in the income and expenditure account under various heads. In the cases of dealing in shares, shown as business income, by the assessee during the year, it was observed by the AO that all the shares were bought and sold on the same day. The assessee had divided the share transactions done into two categories i.e. first where shares were to be delivered to the assessee and second where no delivery was required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng period Profit on shares Rati Udyog Ltd. 175% 12 days 23 days 13049738.94 Talbros Auto 272% 212 days 269 days 17474416.32 Radha Madhav 155% 23 days 36 days 5299707.78 Khaitan Chemical 162% 58 days 66 days 172863.68 Kirloskar Ferrous 131% 21 days 21 days 57503.98 Sony Softech 193% 27 days 47 days 22112926.99 Reliance Industries 103% 12 days 13 days 2272680.88 The assessee also pointed out that he held shares of M/s. Talbros Auto Ltd. and got bonus shares of 110655 and rights issue of 10539 shares. The assessee thus submitted that the income on sale of shares has to be assessed as income under the head capital gain. 10. The AO however, did not accept the plea of the assessee. He after referring to several judicial pronouncements held that the question whether transaction relating to purchase and sale of shares would result into capital gain or business income is to be decided keeping in mind the ratio laid down in several decisions. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions done in organized manner indicate business activity CIT v. Motilal Hirabhai Spg. Wvg. Co. Ltd. [1978] 113 ITR 173 (Guj.)". 11. The A.O thereafter concluded that looking into the volume and period of holding of the shares, it was clear that the assessee had no intention to hold the shares as investment and earn dividend on the same. 12. The assessee also pointed out before the AO that in the earlier assessment year i.e. A.Y. 2005-06 the department, in the assessment of that year, considered identical transactions and the gain from such transactions capital gain. On this submission the AO held that the principle of rejudicata does not apply to the proceedings under the Income-tax Act. He also held that in A.Y. 2005-06 the volume and quantum of share transactions was less and the STCG earned by the assessee was only Rs. 51,53,873 and that in A.Y. 2005-06 the assessee had dealt in 33 scrips as against 38 scrips in A.Y. 2006-07. The AO also held that the assessee has been transacting in shares continuously since last many years and the quantum and number of scrips and frequency was increasing year to year and this indicated that the assessee was engaged in the business of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The CIT(A) also held that the treatment of shares as investment in the assessee's books of account is not conclusive but was indicative of the intention of the assessee at the time of purchase. He was of the view that in the case of the assessee the intention at the time of purchase was to hold the shares as investment and not stock in trade. The CIT(A) also held that the increase in the value of the shares and income was because of the unusual jump in the sensex. The CIT(A) also held that use of borrowed funds for purchase of shares should not be an adverse factor and that it is not correct to say that when shares are purchased through borrowed funds they cannot be claimed to be held as investments. The CIT(A) also held that the fact that the assessee held unlisted shares and shares of private limited companies also showed that he was not a trader in shares. The CIT(A) followed the decision of the ITAT in the case of Gopal Purohit v. Jt. CIT, [2009] 29 SOT 117 (Mum.), wherein it was held that the principle of consistency must be applied and if on same facts a particular stand has been accepted by the revenue in the past the revenue cannot be allowed to take contrary stand on a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of law and fact. CIT v. H. Holck Larsen, [1986] 160 ITR 67/26 Taxman 305 (SC). (b) It is possible for an assessee to be both an investor as well as a dealer in shares. Whether a particular holding is by way of investment or formed part of stock in trade is a matter which is within the knowledge of the assessee and it is for the assessee to produce evidence from his records as to whether he maintained any distinction between shares which were hold by him as investments and those hold as stock in trade. (CIT v. Associated Industrial Development Co. (P.) Ltd., [1971] 82 ITR 586 (SC). (c) Treatment in the books by an assessee will not be conclusive. If the volume, frequency and regularity with which transactions are carried out indicate systematic and organized activity with profit motive, then it would be a case of business profits and not capital gain. CIT v. Motilal Hirabhai Spg. Wvg. Co. Ltd., [1978] 113 ITR 173 (Guj.); Raja Bahadur Visheshwara Singh v. CIT [1961] 41 ITR 685 (SC) [1978]. (d) Purchase without an intention to resell where they are sold under changed circumstances would be capital gains. CIT v. P.K.N. Co. Ltd. [1966] 60 ITR 65 (SC). Purchase with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not business income. The facts as it prevailed in the earlier year were as follows: A.Y. 2005-06 A.Y. 2006-07 ( a ) No. of scripts dealt with by the Assessee 23 38 ( b ) No. of days on which transactions were Carried out 92 days 96 days ( c ) Volume No. of shares 6,18,984 30,79,124 ( d ) Purchase Value 4,29,24,768 31,51,52,676 ( e ) Sale Value 4,73,44,028 37,89,50,348 ( f ) Gain 44,19,260 6,37,97,673 ( g ) No. of transactions 128 148 2. The Assessee in A.Y. 2005-06 had used borrowed funds to make investment in shares. 3. The Assessee carried out transaction of purchase and sale of shares without delivery in A.Y. 2005-06 also. 4. The volume and frequency of the transactions are substantially the same as it was in A.Y. 2005-06 except for the value, which has gone up substantially and which has been explained by the Assessee as owing to raise in the Sensex which were about 800 in number where the holding period was between minimum of 1 day t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the knowledge which gained in the course of his service was used. 7. The shares sold and purchased are of listed companies. The Assessee also held shares of private limited companies and unlisted companies. 8. Composition of the dividend income is meager, which goes to show that the assessee never looked for returns from investments. As an investor one need not look only for returns in the form of dividend but also appreciation of capital. 19. In the light of the above circumstances prevailing in the case of the assessee, we are of the view that the conclusion of the CIT(A) that the income from sale of shares declared by the assessee as STCG has to be accepted is correct and calls for no interference. 20. In CIT v. Gopal Purohit [2010] 188 Taxman 140 (Bom.), the question of law raised was regarding whether STCG declared by the Assessee was to be assessed as business income or not. Question (b) considered by the Hon'ble Bombay High Court was as follows: "(b) Whether, on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified inholding that principle of consistency must be applied here as authorities did not treat the assessee as a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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