9911796707
TMI Blog2013 (9) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... per the revised return of income, STCG is Rs. 2,17,24,104/-; income from other sources is Rs.1,70,071/-; business income is Rs. 60,03,269/-. In addition, the dividend income declared is Rs. 9,68,732/- and the LTCG is Rs. 8,65,373/-. Assessee is admittedly engaged in the business of dealing in derivatives and F&O. During the assessment proceedings, AO raised the issue of treating the STCG as business income of the assessee. Assessee submitted the following reply which is as under: "(a) All investments have been made from own funds, no borrowed funds.... (b) She has earned dividend as well as LTCG, which show the intent....... (c) In the AY 2006-07 & 2007-08, the assessee has returned STCG as well as LTCG and classified her share holdings as "investment" and not as "Stock in Trade". An investment register is maintained on FIFO basis. It shows the intent of the assessee. (d) Following chart has been furnished, to establish her intention as investor: AY 2008-2009 AY 2007-2008 AY 2006-2007 Business income 59,30,192/- 5,82,866/- 86,178/- STCG 2,17,24,104/- 1,93,69,822/- 16,50,313/- LTCG 8,65,373/- 5,53,412/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of funds being own funds, re-entered transactions etc. Relying on Circular No.4/2007 of the CBDT, assessee submitted that 'assessee is empowered to do two portfolios in the capacity of the investor as well as jobber. For demonstrating the consistency of claim of STCG over the years, which is accepted by different AOs, assessee furnished the details of share holdings and particulars of scrips, transactions, turnover of purchase and sales, market value etc. Further, on being called to furnish certain details relating to scrips re-entered by the assessee, it was submitted that in 11 cases of scrips, assessee had the history of reentry in to the same scrips and the relatable profits works out to Rs. 21,50,410/-. Before the CIT(A), the question came up for debate on why should the assessee sell a particular scrip today and acquire the same subsequently if the intention is to hold the same as an investment?. Assessee could not answer the same with logic/evidence. Assessee quantified the attributable profits of such reentered share transactions and the same works to Rs. 21,50,410/-. After considering the submissions of the assessee and the data furnished, CIT (A) came to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the investment activity. Further, it was mentioned that there is no one to know that the investment was made out of own funds only. The "holding period" of the shares being mostly less than 100 days also indicates the business nature of the transactions. 6. Further, Ld DR is of the opinion that assessee's conduct in re-entering into the same scrips for trading indicates the intention of business activity which was appreciated by the CIT (A) and accepted by the assessee. The profit earned by the assessee relatable to such reentered transactions amounting to Rs. 21,50,410/- was held as trading profits of the assessee. In these factual circumstances where assessee accepted part of its impugned profits as business income and the balance of gains should also have been considered as business income of the assessee. Criticizing the book entries based argument on intention of the assessee, Ld DR contends that the reentered transactions though claimed to have been entered as investment register and not as stock in trade in the books of accounts, assessee accepted such rejection of books. When the assessee so accepts the decision of the CIT(A) to the extent of Rs 21,50,410/-, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -08) and ITA No.5711/Mum/2011(2008-09) dated 15.5.2013 for the proposition that the income arising in sale of shares has to be taxed as business income and relied on the contents of para 5 to 5.6 of the said Tribunal's order. In the said paras, Ld DR made out that the holding period varies from 1 to 244 days involving repetitive transactions. He also mentioned vide para 5.3, the principles of res judicata as well as estoppels are not applicable to matters of taxation because each unit is a separate unit and has to be taxed on the peculiar facts of the case in the said assessment year. The Hon'ble Supreme Court judgment in the case of Gopal Purohit was relied for the said proposition. Further, ld DR also relied on the decision of the ITAT, Rajkot Bench in the case of DCIT vs. Mukeshbhai Babulal Shah [2013] 32 taxmann.com 6 (Rajkot) for the proposition that 'whether dominant intention of the assessee behind purchase and sale of shares was to quickly realize profits by frequently turning over the stock of shares and not to earn dividend from the income would assessed as business income'. The said decision also relied for the proposition that the stock turnover ratio and capital turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the scrips as investments in the share register. As per the assessee's Counsel, the shares transactions involved only in listed companies involving independent companies. Relying on the CBDT Circular No.4/2007, dated 15.6.2007, Ld Counsel reasoned that the said Circular allows the individual to do business as well as investment. Regarding rule of consistency, Ld Counsel mentioned that the Department has consistently accepted the claim of the assessee and the claim is disturbed this year. He also mentioned that the volume and number of transactions are more or less the same and relied on the table containing details of share holdings for the 8 assessment years ie AY 2004-05 to 2011-2012. Ld Counsel also brought our attention that major STCG was earned out of 61 transactions with a period of holding of 3 months or less. He also admitted that the assessee is engaged in the repetitive transactions involving reentry into the same scrips and considering the business nature of the said transactions assessee did not file further appeal on the decision of the CIT (A). Otherwise, CIT (A) segregated the STCG relatable to such reentered transactions and confirmed the disallowance to the tun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities of the F&O qua the intention of the assessee and scrips traded by the assessee during the year. The transactions for the current year are factually distinguishable with that of the earlier and later years, therefore, the 'principle of consistency' qua the ratio of the Hon'ble Supreme Court judgment in the case of Commissioner of Income-tax Vs Gopal Purohit (Bom) has no application to the assessment year under consideration. Proper balance sheets were not prepared and furnished by the assessee for many years to read the intention of the assessee and the entries in the books of accounts. It is an accepted position that some of the so called STCG were agreed to be the business transaction as confirmed by the CIT (A). The stock turnover ratio and the capital turnover ratios indicates business incomes and decision of the ITAT, Rajkot in the case of DCIT vs. Mukeshbhai Babulal Shah [2013] 32 taxmann.com 6 (Rajkot) confirms the departmental views. Therefore, notwithstanding the claims of the assessee in the returns, the AY under consideration and the other AYs, the conclusions of the AO are required to be upheld. 11. Per contra, the case of the assessee is that in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Supreme Court in the case of New Jahangir Valkil Mills Ltd, 49 ITR 137 (SC). Further also, the rule of consistency should be followed so long as the facts are not different as held by the Hon'ble Supreme Court in the case of Commissioner of Income-tax Vs Gopal Purohit (Bom), 336 ITR 287. Regarding the intention of the assessee, the decision of ITAT, Rajkot in the case of DCIT vs. Mukeshbhai Babulal Shah and it is relevant for the proposition "where intention of the assessee behind purchase and sales of the shares was quickly to realize profits and not to earn dividend from them, the income would be assessable as business income". This proposition was drawn on the facts of the stock turnover ratio of 1:16 and capital turnover ratio of 1:14. Order of the Tribunal in the case of Hitesh S. Bhagat (supra) relied upon by the Ld DR is relevant for the proposition that the STCG claimed by the assessee were treated as business income on the facts that which involve 86 transactions on sale with the holding period of 1 to 44 days. In the said decision, the Tribunal held "acceptance of the claim for the earlier year would not operate res judicata or estoppels on the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent assessment years. The chart is prepared for comparing 13 parameters and most of them ie volumes/turnovers, number of scrips/transaction no, opening/closing stock position, ratios etc show distinctly increasing tendency for the AY 2008-09 aimed at making quick profits. The data for the year under consideration is clearly distinguishable from that of the other years. Therefore, the judgment in the case of Gopal Purohit (supra) will not help the assessee in matters of 'principle of consistency'. Therefore, the related arguments of Ld Counsel for the assessee are dismissed. As such it is a settle legal position that the principles of res judicata and the estoppels do not apply to the proceedings under the Act. 16. Regarding the intention of the assessee, normally entries originally made in the books of accounts soon after a purchase transaction is complete, becomes relevant factor or indicating factor for deciding the said intention. It is the case of the assessee that the relatable investments are made for short term gains purpose. Now the question is how to demonstrate the same if not with the help of the books of accounts and entries therein and of course, stand by the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in matters of the claims made in the return w r to STCG is unacceptable. Therefore, the views of the AO are sustainable and hence, the conclusion of the CIT(A) on the balance of the STCG is reversible. 17. Further, the intentions of assessee for realizing of the quick profits, a business trait, we find that it is an admitted fact that the assessee entered into common scrips for conducting the business of F & O on side and the investment in STCG on the other. In fact, there are common shares for the investment for STCG and LTCG too. Therefore, the allegation of quick profits and the issue of the business akinness, came up in the assessment proceedings. Assessee picked up the six common scrips for business of F&O as well as the STCG. This is the area of dispute between the parties and there is no issue on change of classification of STCG as LTCG or vice versa before us. There is no clarity on what basis certain transactions involving the same scrip are treated as business and others as STCG and the assessee has no explanation in this regard except relying on the book entries, which we rejected already for detailed reasons given above. In the process, the assessee got an unfair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs' single or double digits and find the said date helps the revenue. Further, we also reiterate that the with the Stock turnover ratio is 1:16, it is commonsense to infer that the assessee intention is to quickly to realize the profits and not to wait for the dividend or capital appreciation. In any case, the issue of establishing the real capital appreciation of the shares is difficult for the assessee in the capital market of rapid fluctuations of relevant indices. 19. To sum, the facts about the entries in the books of accounts are inconclusive. By not contesting the conclusion of the CIT(A) with regard to so called STCG Rs 21,50,410/-, the assessee forfeited the claims relating to the credibility of the books entries at least with reference to the transactions involving the re-entered scips. With this, with regard to claims of investment in other scrips, the onus shifts to assessee and assessee failed to discharge the same. The intention of acquiring the shares as investment for capital appreciation is not translated and instead the symptoms of going for quick profits are evident. The stock: turnover ratio at 1:16 does against the claims of the assessee. Other data relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
