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TMI Blog2014 (1) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... the average period of holding does not vary much as for the year under consideration it is 99 days when they are compared to A.Ys 2009-10 and 2010-11 which is 91 days and 118 days respectively - The number of transactions and number of scrips dealt by the assessee is on higher side but that alone cannot be said to be a factor to deviate from the view taken in earlier and subsequent years - amount of short term capital gain shown by the assessee cannot be assessed as business income. - Decided in favour of assessee. - ITA. No. 2329/MUM/2012 - - - Dated:- 8-11-2013 - SHRI I.P. BANSAL AND RAJENDRA, JJ. For the Appellant : Shri Vijay Mehta For the Respondent : Aarsi Prasad ORDER Per: I P Bansal: This appeal is filed by the assessee. It is directed against the order passed by CIT(A) dated 15.02.2012 for assessment year 2008-09. The ground of appeal reads as under :- "On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the short term capital gain of Rs.5,85,40,417/- assessed by the ld. Assessing Officer as income from non-speculative business. The appellant prays that short term capital gain should not be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to set off loss of F O against other heads which could have become ineligible if the loss is shown under the head "capital gain". According to AO, the assessee has chosen the head of income as per his convenience. The transactions entered into shares regarding non delivery which resulted into income from business itself is indicative that the assessee is engaged in the sale and purchase of shares as business activity. The AO also observed that the assessee has squared up several transactions within a short period of one day to 200 days which shows that these transactions have been done to earn business profit and quick gain. The AO also observed that the assessee has also borrowed money with or without interest from different parties, therefore, the activity of the assessee was in the nature of business. He observed that there are huge number of transactions in this manner. On these facts Ld. AO has arrived at a conclusion that the activity of sale and purchase of shares on which income has been shown as short term capital gain and long term capital gain is an activity giving rise to business income. In this manner the AO has assessed the said gain as business income. 3. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh court in the case of CIT vs. Gopal Purohit, 336 ITR 287(Bom). Similarly, it was pleaded that consistency has to be maintained. Following table was given as analysis showing the gain/loss with reference to period of holding of the shares: S. No. No of days holding Gain/(Loss) Rs. 1. From 0 to 10 days (1,43,88,534) 2. From 10 to 50 days 2,54,33,660 3. From 51 to 100 days 1,26,50,007 4. From 101 to 300 days 3,68,93,183 Total 6,05,88,315 From the above chart it was submitted that loss has been incurred by the assessee on the holding which are less than 10 days and gain was in respect of holding where period of holding was more than 100 days. 3.2 So far as it relates to allegation of the AO regarding user of borrowed funds reference was made to the following table showing the summarized balance sheet: (Rupees in crores) Liabilities Amount Assets Amount Capital A/c. of Rikeen Dalal 8.33 Fixed assets 0.21 Secured Loan-Car 0.16 Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has not been disproved by the assessee by way of any evidence. All the shares on which capital gain is claimed were bought during the present year and not in the earlier year. Therefore, these are not disclosed as investment as on 31/3/2007. The assessee devoted his entire time in sale and purchase of shares, therefore, this activity cannot be said to be occasionally independent activity but the assessee was engaged in real, substantial and systematic business activity. The shares were purchased with an intention to resale them on profit. Therefore, Ld. CIT(A) has arrived at a conclusion that AO was right in assessing the gain under the head "profits and gains of business or profession". It is in this manner Ld. CIT(A) has decided the issue against the assessee. 4. After narrating the facts it was submitted by Ld. AR that Ld. CIT(A) has erred in confirming the action of the AO. The main plank of arguments of Ld. AR is that in view of decision of Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit (supra) the transactions entered into by the assessee should have been held by Ld. CIT(A) to be assessable under the head capital gain. He submitted that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival submissions in the light of material placed before us. It has been demonstrated by Ld. AR that assessee has mainly dealt in only 10 scrips as in other 20 scrips the investment by the assessee is less than Rs.25,000/-. The main investment of the assessee was in the shares of Power Grid Corporation which was purchased by the assessee on 13/9/2007 and in the month of November they were sold on which the assessee has earned profit of Rs.1.18 crores. The period of holding such scrip is 69,71 and 74 days(average 71 days). Realized amount of such share was reinvested in Corramandal Fertilizers shares. It can be seen that assessee has not dealt in the shares of Power Grid Corporation on day to day basis or on trade basis. These shares were held by the assessee for a period of more than two months and such realised amount is mainly invested in Corramandal Fertilizers Shares. The assessee is not rotating the funds into the same scrip time and again. The main case of Ld. AR is that for the year under consideration the department has changed its stand without having brought on record any material change the in the facts of the case as compared to earlier years when similar transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for adopting divergent approach for the assessment year in question. Therefore, we hold the assessee's activity in sale and purchase of shares cannot not be held to be an activity giving rise to the income assessable under the head income from business or profession. The sole instance of IPO funding availed by the assessee with a view to get more allotment cannot also be said to have converted the activity of the assessee of sale and purchase of shares from "investment" to the activity of "business". (emphasis provided) 4.2 To substantiate the contention that in earlier year and subsequent years department has accepted these transaction giving rise to capital gain reference was made to the following documents placed in the paper book: S. No. Particulars Pages 1. Copy of Computation of Income for the year ending 31st March 2006(A.Y.2006-07) 1-5 2. Copy of Acknowledgement of return for A.Y 2006-07 6-7 3. Copy of Computation of income for the year ending 31/3/2007 (A.Y. 2007-08) 8-11 4. Copy of assessment order for A.Y.2007-2008 dated 16/122009 passed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares as Investment' and accordingly declared Capital Gain from their transfer as long term/short term capital gain depending upon the period of holding. The treatment of Long term capital gain has been accepted by the Assessing Officer. The only dispute is about the treatment of profit from sale of shares etc., other than long term capital assets, which the Assessing Officer treated it as Business income'. The assessee gave similar treatment to the shares by keeping it as Investment' on the lines as was done in the earlier years. For the immediately preceding assessment year i.e. 2004-05, the assessee showed Long term capital gain and Short term capital gain from the transfer of shares. The AO accepted profit from transfer of shares as short term/long term capital gain respectively in the assessment made u/s 143(3) of the Act for such earlier year. A copy of the assessment order for the A.Y. 2004-05 passed u/s 143(3) is available on page nos. 69 to 71 of the paper book. Similar is the position for the A.Y. 2003-04 in which the assessee again showed profit from the transfer of shares as Long term capital gain and Short term capital gain which was assessed by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on record. The learned AR drew our attention to the fact that the number of shares dealt with in the instant year is less than those in the succeeding assessment year. We find that the Hon'ble jurisdictional High Court in the case of CIT v. Gopal Purohit (supra) has emphasized on the principle of consistency. In this case the Hon'ble High Court, dealing with similar issue, held that : "there ought to be uniformity in treatment and consistency when the facts and circumstances are identical". As income from sale of shares has been consistently accepted as short term capital gain in preceding and succeeding years, we see no reason for observing departure for the current year. Respectfully following the precedent, we uphold the impugned order. In the result the appeal is dismissed. (emphasis provided) iii. Kunvarji Nanji Kenia vs. Addl. CIT, (2010) 131 TTJ Mumbai (UO) 87. Reference was invited to para 3 4 of the order which read as under: "3. We have considered the rival submissions and perused the relevant material on record. The assessee's balance sheet for the year under consideration has been placed at p. 44 of the paper book, on the perusal of which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own as short-term capital gain which was not disturbed by the Revenue, though the assessments were made under s. 143(1). 4. The Mumbai Bench of the Tribunal in Gopal Purohit vs. Jt. CIT in ITA No. 4854/Mum/2008 vide its order dt. 10th Feb., 2009 [reported at (2009)122 TTJ (Mumbai) 87: (2009) 20 DTR (Mumbai)(Trib) 99'Ed.], a copy of which has been provided by the learned Authorised Representative and is on record, has held that where the nature of activities, modus operandi of the assessee, manner of keeping records and presentation of shares as investment at the year end is same in all the years, there cannot be any reason as to why the claim made by the assessee for treating the profit on sale of shares held for lower period be not taken as taxable as head "short-term capital gain". It has further been held in this case that there should be unity in the treatment and the consistency under the same facts and circumstances. We find that in that case also the assessment year involved was 2005-06 and the Tribunal specifically observed that the character of income shall not undergo change due to amendments made through the Finance Act, 2004, by which the securities transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out of sale and purchase of shares has rightly been assessed under the head "profit and gains of business or profession" 6. We have carefully considered the rival submissions in the light of material placed before us. The first reason described by the AO to take divergent view during the year under consideration is that the assessee has already shown certain income from share transactions as income from business and rest as income from short term capital gain. According to AO such differentiation is only as per convenience of the assessee. This is because the AO has found that income from F O trading has been treated by the assessee as business income. During the course of arguments it was shown to us that similar income was earned by the assessee in preceding year as well as subsequent years. Therefore, such reason does not lead to difference in fact for the year under consideration. Moreover, as per decision of Hon'ble Bombay High Court in the case of Gopal Purohit (supra) the Tribunal has been held to be right in accepting the position that it is open to an assessee to maintain two separate portfolio, one relating to investment in shares and another relating to business ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Question (b), therefore, does not also raise any substantial question of law." (emphasis provided) 6.3 In the present case it has been shown to us that in assessment years 2007-08, 2009-10 and 2010-11 similar transactions have been accepted as giving rise to income assessable under the head capital gain and only during the year under consideration a different view has been taken which is not liable to be approved in view of aforementioned decision of Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit (supra). 6.4 Another objection raised by the AO is that volume of transactions, frequency and investment in the year under consideration are high and there are borrowed funds utilized by the assessee. We found that the facts of the case of the assessee for present year are no more different from the facts in the case of assessee for A.Y 2007-08, 2009-10 and 2010-11 as it will be clear from the chart produced by Ld. AR which is also reproduced para 4 of this order. From the above chart it can be noted that the average period of holding does not vary much as for the year under consideration it is 99 days when they are compared to A.Ys 2009-10 and 2010-11 which is 91 day ..... X X X X Extracts X X X X X X X X Extracts X X X X
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