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TMI Blog2015 (2) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains - Held that:- In the light of the various parameters and the decision of the Andhra Pradesh High Court in the case of P. V. S. Raju v. Addl. CIT [2011 (7) TMI 818 - Andhra Pradesh High Court ] and on perusal of the statements incorporated by the Assessing Officer in the assessment order, we find that the assessees have made several transactions of purchase of shares during the relevant year under consideration, and if there high volume, frequency and regularity of the activity carried on by the assessees in a systematic manner, it would partake of the character of business activities carried on by the assessee in shares, and it cannot be said that the assessees have merely made investments in shares. - Decided in favour of assessee Diminution in the value of shares - assessee made an alternative claim that in the event of the Tribunal confirming the action of the Assessing Officer, reduction in market value of shares has to be allowed as deduction - Held that:- Claim of the assessee is appropriate. However, we make it clear that the shares are to be valued at market price or cost, whichever is less. Accordingly, while passing a consequential order, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there existed no new material facts which came to the knowledge of the Assessing Officer so as to reopen the assessment as there is no reason to believe that the income has escaped assessment. 5. The learned Departmental representative relied on the order of the Commissioner of Income-tax (Appeals). The learned Departmental representative submitted that the reason to believe has been the matter of judicial scrutiny by the apex court in several cases. In the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), it was observed that it is the duty of the assessee to disclose all the primary facts which have a bearing on the liability of the income earned by the assessee being subjected to tax. It is for the Assessing Officer to draw inferences from the facts and apply the law determining the liability of the assessee. In the present case, the Assessing Officer had reopened the case as there was underassessment of income under section 143(3) with reference to the intimation under section 143(1), in the light of assessment made for the assessment year 2008-09, the pattern of purchases of shares and their high frequency was noticed, depreciation seemed to have been wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer that the income has escaped assessment. Therefore, merely because material lies embedded in the material or evidence produced by the assessee, which the Assessing Officer could have uncovered but did not uncover that is not a good ground to cancel the reassessment proceedings. The Assessing Officer could have found the truth, but he did not, does not preclude the Assessing Officer from exercising the power of re-assessment to bring to tax the escaped income. In the present case, as seen from the reasons recorded, there is a prima facie escapement of income. Hence, the Assessing Officer after recording the reasons, issued notice to the assessee under section 148 of the Act. We do not find any infirmity in the order of the lower authorities to reopen the assessment. This view of ours is fortified by the following judgments : (i) Ess Ess Kay Engineering Co. P. Ltd. v. CIT [2001] 247 ITR 818 (SC) ; (ii) Honda Siel Power Products Ltd. v. Deputy CIT [2012] 340 ITR 64 (SC) ; and (iii) Consolidated Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394 (Delhi). Accordingly, this ground is rejected. 8. The next ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative submitted that the assessee invested in Indian equities and all transactions were settled through actual delivery. The shares on being purchased were credited to the demat account of the company. The sale transactions are settled by actual delivery of shares from the demat account. This is the method of settlement of all investment based transactions. The learned authorised representative placed reliance on the decision of the Delhi High Court in the case of Radials International v. Asst. CIT in I. T. A. No. 485/2012, dated April 25, 2014 [2014] 367 ITR 1 (Delhi). 12. The learned authorised representative submitted that the number of transactions in each company was very small considering the amount of funds invested in the said assets and the total gains earned. The learned authorised representative further submitted that the assessee has been regularly treating the shares as investment since beginning and had always offered the profit/loss on sale of such investments rightly under the head Capital gains only. The learned authorised representative contended that the Department had for all past years accepted the treatment so given by the assessee. The learned authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in loss, there was no scrutiny assessment and hence the loss incurred in those years was computed under the head Capital gains . Hence, the learned authorised representative contended that such loss is not allowed to be set off against the business income of those years. 18. The learned authorised representative submitted that it is now well- settled that on the same set of facts and law the Department cannot adopt a pick and chose. 19. The learned authorised representative relied on the judgment of the Bombay High Court in the case of CIT v. Gopal Purohit [2011] 336 ITR 287 (Bom) wherein it was held that on an identical situation, rule of consistency has to be applied. According to the learned authorised representative special leave petition filed by the Department before the hon'ble Supreme Court (CIT v. Gopal Purohit [2011] 334 ITR (St.) 308 (SC)) against this decision has been dismissed and this decision is a landmark decision which applies to the facts of the case. 20. According to the learned authorised representative some of the companies in which the assessee have invested are of deep value though liquid in the stock market. Only long-term investors can buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 22. Narendra Gehlaut v. Joint CIT (I. T. A. No. 1648/Del/2010) ; 23. Asst. CIT v. Bulls and Bears Portfolios Ltd. [2011] 137 TTJ (Delhi) 741; 24. CIT v. S. Ramaamirtham [2008] 306 ITR 239 (Mad) ; 25. Trinetram Consultants P. Ltd. v. Deputy CIT [2013] 143 ITD 634 (Mum) ; 26. Joint CIT v. Mukesh D. Ambani (I. T. A. No. 7604/Mum/2007) [2011] 8 ITR (Trib) 353 (Mum) ; 27. Bharat Kunverji Kenia v. Addl. CIT [2010] 130 TTJ (Mumbai) 86 (UO) ; 28. Asst. CIT v. Chetan K. Mehta [2011] 46 SOT 25 (Mum) (URO) ; 29. Shri Jagrut P. Gandhi (I. T. A. No. 5291/Mum/2008) ; 30. Asst. CIT v. Jagdish Master, HUF [2011] 47 SOT 54 (Mum) (URO) ; 31. Asst. CIT v. Smt. Kavita Devi Agarwal [2011] 48 SOT 191 (Jaipur) ; 32. Deputy CIT v. S. K. Tekriwal [2011] 48 SOT 515 (Kolkata) ; 33. Bharati Shipyard Ltd. v. Deputy CIT [2011] 11 ITR (Trib) 599 (Mum) [SB] ; 34. Apollo Tyres Ltd. v. Deputy CIT [2013] 155 TTJ (Cochin) 470; and 35. CIT v. Varanasi Auto Sales P. Ltd. [2010] 326 ITR 182 (All). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee at the time of purchase was only to sell the shares immediately after purchase ; (m) Frequency of purchase and sale of shares showed that the assessee never intended to keep these shares as investment ; and (n) It is only for the purpose of claiming benefit of lower rate of tax, under section 111A of the Act, that they had claimed certain shares to be investment, though these transactions were only in the nature of trade. 24. The learned authorised representative placed much reliance on the judgment of the hon'ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips P. Ltd. v. CIT [2013] 354 ITR 35 (AP), the judgment to be applied. We have gone through the above judgment of the hon'ble High Court of Andhra Pradesh. We find that the judgment was delivered in the context of the order under section 263 of the Income-tax Act wherein the hon'ble High Court of Andhra Pradesh held that the Assessing Officer has taken one possible view. As such, revision under section 263 is not possible. However, in the present case, the assessment was completed under section 143(3) of the Act. Being so, the ratio laid down by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is holding, but it would be revenue if he deals with them as a trader. If the assessee is an ordinary investor, the income arising out of sale of shares is capital gains. On the other hand, if he trades in shares in regular manner, it is income from business. If an individual invests in shares for the purposes of earning dividend, he is not carrying on a business. If the assessee is holding shares as investment and sells them due to change of circumstances and earns profits, that profit is nothing but capital gains. Whether a purchase is made with an intention of resale and gain to earn profit, such income has to be treated as income from business. 26. Thus, in our opinion, the issue as to whether the assessee has carried out transactions in shares as trader or investor mainly depends on the intention of the assessee to purchase and hold the shares and such intention has to be gathered from the facts and circumstances involved in each case. There are several aspects which needs to be taken into consideration collectively in order to ascertain the intention of the assessee. In the various judicial pronouncements certain guidelines have been laid down which could be applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Rain Commodities 38,603 25,78,548 67 2 14. Atul Ltd. 47,599 31,08,737 65 2 15. Western India Shipyard 1,00,000 56,66,936 57 1 16. Balmer Lawrie 5,000 2,45,000 49 1 17. TVS Electronics 20,271 9,77,878 48 1 18. W.S. Industries 5,100 2,80,400 46 1 19. Ansal Housing 8,921 3,97,524 45 1 20. Selan 35,155 15,41,045 44 3 21. Granules 15,000 6,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,000 10 1 40. IFCI Ltd. 20,000 2,00,000 10 1 41. Rcom 10,000 1,00,000 10 1 42. Hind Oil Exploration 10,000 70,000 7 1 43. TV Today 10,000 70,000 7 1 44. Geojit Financial 55,000 3,40,000 6 1 45. Kitex Garments 30,000 87,425 3 1 27. As seen from the above table, the majority of shareholdings are held for short periods. However, the assessee has stated that the average holding period of the shares is 500 days for the assessment year 2008-09. (paper book page 26). However, we find that this is not borne out of records. For the assessment year 2010- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The directors are actually involved in the day to day management of the assessee-company and they have taken the decision and it cannot be a reason to say that the decision is only to make investment . Further, the assessee-company has all the infrastructure for buying and selling shares and the assessee has incurred establishment expenses and various establishment expenses have been charged to the profit and loss account which indicate that an organised and systematic activity was being carried on by the assessee. Income in the form of dividend was earned by the assessee only in respect of few scrips which gave a very low rate of return as compared to the value of shares held by the assessee-company which cannot be said to be transaction in shares as an investment activity. The assessee did not hold the shares for a long time. The assessee has also been consistently buying and selling shares which shows that the motive was to maximise the profit from the sale of shares and not to remain invested for a longer time. The involvement of the assessee in share transactions was not an occasional one but it was only the activity of the assessee which was carried on regularly in a systema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was accepted by the authorities as the same is not pending before us for adjudication. Reliance can be placed upon the decision pronounced by the hon'ble apex court in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) wherein the hon'ble apex court held that it is almost as important that the law should be settled permanently as that it should be settled correctly but there may be circumstances where public interest demands that the previous decision be reviewed and reconsidered. The doctrine of stare decisis should not deter the court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or proceeds upon a mistaken assumption in regard to the existence or continuance of a statutory provision or is contrary to another decision of the court . However, two views reasonably may be possible. Perpetuation of error is not a heroism. However, we make it clear that this observation of ours should not be treated to bear any effect in the case of other assessees. At the same time, order passed by a lower authority is not binding on the Tribunal. However, it may be a good arguable point by the parties. 35. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals is with regard to diminution in the value of shares. The assessee made an alternative claim that in the event of the Tribunal confirming the action of the Assessing Officer, reduction in market value of shares has to be allowed as deduction. According to the learned authorised representative, in the assessee's return filed, diminution was not claimed since the computation was under the head Capital gains . 39. The learned authorised representative submitted that the lower authorities treated the income from the share transactions as income from business. Consequently, the diminution in value of shares is to be allowed. We find the claim of the assessee is appropriate. However, we make it clear that the shares are to be valued at market price or cost, whichever is less. Accordingly, while passing a consequential order, the Assessing Officer shall consider the same and decide the issue accordingly. This ground in all the three years is partly allowed for statistical purposes. 40. The next common ground in all the three years is with regard to the expenses to be allowed under business. As discussed earlier, the Assessing Officer is required to consider what are the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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