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TMI Blog2016 (3) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The assessee in the return of income claimed income from the share transactions as capital gains and set off of the same against the brought forward capital losses of earlier years. The Assessing Officer (hereinafter referred to as the AO), however, observed from the details of share transactions that the assessee had done numerous sale and purchase transactions in shares and further that interest bearing funds also were used for the said purpose. He observed that the motive of the assessee for purchase of shares was not investment but trading in shares. The period of holding in case of many scrips was very short and there were voluminous transactions. He therefore held that the assessee could not be treated as investor in shares but a trader. He accordingly assessed the short term capital gains and long term capital gains claimed by the assessee as business income of the assessee. 4. In appeal, the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] considering the treatment given by the assessee to the shares in the earlier assessment years observed that the assessee had consistently been accepted as investor since A.Y. 1996-97 and that it was during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same date on which the order for A.Y.2005-06 have been passed by the ACIT-4(2), Mumbai. In the reassessment order also, the appellant has been held to be an investor in shares and not a trader in share. The order u/s. 143(3) r.w,s, 147 dated 26.12.2007, however contains finding of the A.O. that the long term capital gain declared by the appellant is a short term capital gain. But so far as the issue of assessee being trader or investor is concerned, the A.O. has not given any finding that the appellant is a trader but has accepted the position of the assessee that he is an investor. 6. A.Y.2001-02 - In the scrutiny assessment order u/s . 143(3) dated 27.2.2004 the A.O. holds the appellant as investor. 7. A.Y.2002-03 - Scrutiny assessment Order u/s. 143(3) r.w,s. 147 dated 16.9.2005 was passed by A.O., the assessee is treated to be an investor. The CIT- 4, Mumbai sets aside the order of A.O. vide order u/s.263 dated 28.12.2005 and ITAT quashes the order of CIT by order dated 31.10.2006. 8. A.Y.2003-04 -Scrutiny assessment Order u/s.143(3) dated 16.9.2005 was passed by A.O. accepting the assessee's position that he is an investor. The CIT-4, Mumbai vide order u/s.263 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.143(3) was passed vide order dated 19.12.2006 without going into the issue whether the assessee is an investor or trader and the A.O. accepted the short term capital gain and long term capital gain as disclosed by the assessee. Despite CIT-4, Mumbai's order u/s.263 dated 28.12.2005 for A.Y.2003-04, the A.O. vide order dated 19.12.2006 accepted the position of assessee being investor rather than trader. 1.3.8 It is obvious from the details as mentioned at Para 1.3.6 in case of Shri Suresh K. Jajoo and Para 1.3.7 in case of Smt. Vimla Jajoo that upto A.Y.2004-05, Shri Suresh K. Jajoo and Smt. Vimla Jajoo have been held to be an investor in share by all the Assessing Officers whenever they made scrutiny assessment order u/s.143(3). The CIT-4, Mumbai for A.Y.2002-03 and A.Y.2003-04 in case of Shri Suresh K. Jajoo and for A.Y.2003-04 in case of Vimla Jajoo did pass order u/s.263 setting aside the order of A.O. but as discussed above, those orders of A.O. were found to be not erroneous and the order of CIT-4 u/s.263 were quashed by the ITAT, Mumbai. 1.3.9 (1) As may be seen from Para 1.3.4. that Shri Suresh K. Jajoo has a short term capital loss of Rs. 130.69 Crores for A.Y.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Born). In terms of this decision, while it is true that a tax authority is entitled to go back upon an earlier finding, such entitlement is hedged with clear limitations. If a given case falls into the parameters of these limitations, the tax authority would not be entitled to unsettle the earlier finding. Thus, in the following circumstances, a tax authority would not be entitled to unsettle the earlier finding: (i) Where the earlier finding was not arbitrary or perverse. (ii) Where the earlier finding was arrived at after making due inquiries. (iii) Where no fresh facts were placed before the authority giving the later decision, Sardar Kehar Singh v. CIT (1992) 195 ITR 769 (Raj); CIT v. Murugappa Chettair (S) (1992) 197 ITR 575 (Ker); Godavarl Devi Sehgal v. ITO (1992) 198 ITR 108 (A T) (Del). (iv) Where the authority giving the earlier decision had taken into consideration all material evidence, CIT v. Kusum Bader (1990) 185 ITR 70 (Raj). (v) Where unsettling the earlier decision leads to injustice to the assessee. Without expressly stating that the above decision has been followed, the ratio of the above decision has percolated into a number of later decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate of 10% under section 111A. The traders were also compensated for the additional security transaction tax paid by way of rebate under section 88E. The Ld. A.R. has submitted that merely because the scheme of taxation was amended/changed during the mid of the year under consideration, the AO therefore ventured into the share transaction activity of the assessee and treated the assessee as trader, whereas, in the earlier assessment years, where such benefit of concessional rate of tax was not available to the assessee, the assessee's claim of investor in shares had continuously and consistently been accepted. The Ld. A.R. has further brought our attention to the assessment order passed under section 143(3) of the Act for A.Y. 2009-10 i.e. subsequent year to the assessment year under consideration, wherein, the claim of the assessee of short term capital loss had been accepted by the AO. The Ld. A.R. has further brought our attention to the assessment order passed under section 143(3) of the Act for the A.Y. 2010-11, wherein the claim of the assessee of short term capital loss long term capital loss had again been accepted. Similarly, in the scrutiny assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the observations made by the AO with regard to volume and frequency of transactions. He, therefore, has contended that the profits earned by the assessee from sale and purchase of shares were correctly taxed by the AO as business income. 8. We have considered the rival submissions. There is no dispute relating to the fact that the assessee in earlier years has been treated by the department as an investor. The assessee, as discussed above, has been continuously allowed the set off of short term capital loss and long term capital loss in the earlier assessment years. The assessee had been dealing in two types of transactions in securities. The assessee had shown investments and had claimed capital gains relating to the shares. It is also a fact on the file that by the amendment brought by Finance Act, 2004, by insertion of provisions of section 111A and section 10(38), the levy of tax has been reduced to 10% on short term capital gains and long term capital gains have been made exempt. Under the old provisions of the Act, profits or gains arising to an investor from the transfer of securities were charged depending on the period of holding of the said securities. Short term capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, lead to an assumption or presumption that the intention of the assessee at the time of purchase of shares was that of a trader and not of an investor. The treatment of the investment in the account books of the assessee was also a relevant guiding factor. The AO has also not pointed out as to in what manner the activity of the assessee for the year under consideration had been changed from investor to that of a trader especially when the department had consistently been treating him as an investor. It is also pertinent to mention here that as discussed above, in subsequent assessment years the department has again accepted the assessee as an investor. It is for the first time that in this year under consideration i.e. A.Y. 2005-06 the assessee had been treated as a trader because of certain tax benefits granted to an investor in securities by way of amendment in the relevant provisions of the Income Tax Act and subsequently for the A.Ys 2006-07 to 2008-09, the assessee was treated as trader. However, the Ld. CIT(A) following the principle of consistency has held the assessee for the impugned assessment years i.e. A.Y. 2005-06 to A.Y. 2008-09 as investor. Though the principle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving effect to CIT(A) passed on 15.12.08 in view of the decision of Jurisdictional High court as he believed that this order giving effect to CIT(A)'s order could be rectified u/s. 154 of the Act. The AO however rejected the rectification by passing an order dated 11.5.12. It was at this stage that the assessee realized that he ought to have filed an appeal against the order of CIT (A) dated 18.6.2008. The assessee has also filed his affidavit in this respect in support of the above contentions. The Ld. A.R. of the assessee has further submitted that the application of the assessee for rectification order was rejected on 11.05.12 and the assessee immediately on 26.06.12 i.e. within the period of one month preferred the appeal against the original order of the Ld. CIT(A) realizing its mistake that the proper course was to file the appeal against the order of the Ld. CIT(A) and not the rectification application before the AO. 12. We have considered the above submissions of the Ld. A.R. We find that on the date of filing of the present appeal by the assessee the appeal of the Revenue was pending before this Tribunal. The assessee under the mistaken belief instead of pursuing his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments made by the assessee for this purpose. Under such circumstances the different coordinate benches of this Tribunal have observed that in such cases certain percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09. The Hon'ble Bombay High Court in the case of CIT vs. 'Godrej Agrovet Ltd.' (ITA No.934/2011) decided on 08.01.13 has upheld the order of the Tribunal directing the AO to restrict the disallowance to the extent of 2% of the total exempt income earned by the assessee. Hence, considering the overall facts and circumstances of the case we restrict the disallowance u/s 14A in the case of the assessee @ 5% of the tax exempt income earned by the assessee during the year. This appeal of the assessee is thus treated as allowed. ITA Nos.4475/M/2012 (for A.Y. 2006-07) & 3053/M/2011 (for A.Y. 2007- 08) (Revenue's appeals) 15. The sole issue raised by the Revenue in these appeals is relating to the treatment of income earned by the assessee from share transactions whether to be treated as business income or capital gains. In view of our findings given above while deciding the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of deposit is to be treated on revenue account or as capital in nature. The deposit of Rs. 7,50,000/- given to Calcutta Stock Exchange in the year 2001 was written off by the assessee but the said claim was disallowed by the AO stating that the conditions of section 36(2) were not fulfilled. The assessee carried out the matter by way of appeal before the Ld. CIT(A). 22. However, the Ld. CIT(A) while deciding the appeal of the assessee vide order dated 18.06.08 failed to decide this issue under consideration. The assessee moved a rectification application under section 154 of the Act before the Ld. CIT(A) in this respect. The Ld. CIT(A) in the rectification application considered the issue and decided the same by observing as under: "3.2 The appellant submitted that the amount deposited to Calcutta Stock Exchange was forfeited/utilized for Settlement Guarantee Fund and Base Minimum Capital towards the payment crisis during 2001 and despite repeated perusal, the Calcutta Stock Exchange stated that it has retained the sum of Rs. 7,50,000/- as per the decision of the Committee of the Exchange taken at its meeting held on 12-03- 2001 read with that of 11-07-2003. 3.3. The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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