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TMI Blog2016 (5) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 13-5-2016 - Shri Shailendra K. Yadav, Judicial Member And Shri Anil Chaturvedi, Accountant Member For the Petitioner : Shri S. N. Soparkar, AR For the Respondent : Smt. Sonia Kumar, Sr-DR ORDER Per Shailendra K. Yadav, Judicial Member These appeals filed by the assessee are directed against the orders of the CIT(A) for Assessment Years 2008-09 and 2006-07. Both these appeals involve common issues, these were heard together and are being disposed of by this consolidated order for the sake of convenience. 2. The grounds raised by the assessee in his appeal for Assessment Year 2006-07 read as under:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that income of ₹ 2,00,41,453/- earned by way of short term capital gain and ₹ 70,64,982/- earned by way of long term capital gain is to be taxed under the head Profits and Gains from business and profession . 2. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or at the time of hearing of the appeal. 3. The assessee has raised following grounds of appeal for Assessment Year 2008-09:- 1. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions. In this background, the Officer observed from the perusal of trading account of the assessee that main intention of transactions in shares was not to hold them as investment since shares were invariably disposed of without waiting for the record date for distribution of dividends. Further observation of the Assessing Officer was that on total shares purchased of ₹ 38.66 crore during the year and opening stock of shares of ₹ 2.81 crore, the assessee earned dividend income of ₹ 6.63 lakh, which was only 0.16% of the shares held. The Assessing Officer observed that share transactions done by the assessee during the year ran into thousands and proportion of STCG (Rs. 2 crore) to LTCG (Rs.70.64 lakh), i.e., 3:1 also indicated this. The Assessing Officer also made a backward calculation from the interest on borrowings of ₹ 22,81,644/- to arrive at an estimate of borrowing of ₹ 2.8 crore. The Assessing Officer held that there was a paradigm shift in how the assessee played in the stock market in the relevant year by pledging his entire share portfolio to borrow equivalent funds. The Assessing Officer also observed from the ratio of purchases (Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the head Profits and Gains from Business and Profession . On the contrary, ld. Departmental Representative supported the orders of the lower authorities. 6. After going through the rival contentions and material on record, we find that the main issue before us is with regard to the addition of ₹ 2,00,41,453/- on account of STCG and ₹ 70,64,982/- on account of LTCG. In this regard, the assessee drew our attention to the CBDT Circular No.6/2016 dated 29.02.2016, which is placed at page Nos.52-53 of the compilation of orders and stated that in view of the said circular, the shares and securities held for a period of more than 12 months as referred to in paragraph 3(b) of the said circular, therefore, the LTCG of ₹ 70,64,982/- claimed by the assessee treated as business income by Assessing Officer is required to be treated as LTCG. Nothing contrary was brought to our knowledge in this regard, so concurring the contentions of the assessee, we hold that the LTCG of ₹ 70,64,982/- claimed by the assessee is required to be treated as LTCG. Assessing Officer is directed accordingly. 6.1 With regard to STCG of ₹ 2,00,41,453/- claimed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required not to be followed, as the criteria of cycle and its repetition for more than four times as well as the period of holding for 30 days or more to be considered as sale of shares, either investment or business profit. For the said purpose, he relied upon the following decisions compiled in the compilation of orders. a) Order of Hon'ble ITAT, Ahmedabad in case of Smruti Shreyans Shah ITA No. 3214, 3180, 3295 and 3296/A/2009 and C.O # 3/A/2010 [A.Y. 2004-05 to 2006-07) decision dt 26-6-2016 b) Order of Hon'ble ITAT, Ahmedabad in case of Shah Investor's Home Ltd. ITA No. 1424/A/2010 [A.Y. 2004-05 to 2006-07) decision dt 16-10-2015 c) Judgement of the Hon'ble High Court of Gujarat in case of Nita M Patel 42 Taxmann.com 125 d) Order of Hon'ble ITAT, Ahmedabad in case of Smruti Shreyans Shah ITA No. 170 2692/A/2011 and C.O #43/A/2011 [A.Y. 2007-08 2008-09) decision dt 30-9- 2015 e) Judgement of Hon'ble Bombay High court in case of Smt. Datta Mahendra Shah 378 ITR 304 - decision dated 9-9- 2015 f) CBDT circular No. 6/20 16 dt 29-2-20 16 6.3 We find that Hon'ble Bombay High court in the case of CIT vs. Smt. Datta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which separate books of account have been maintained. Income derived from such transactions have been offered to tax under the head Profits and Gains from Business and Profession . This indicates that the intention of the appellant was very clear from the inception that F O transactions shall be entered into in the course of its business whereas, it shall invest in shares of various companies with a view to earn dividend and capital appreciation on the amount invested. 6.6 The appellant during the preceding several years has been an investor in shares and the income derived on transfer of shares was always offered as either long term capital gain or short term capital gain which was accepted by the Department. Even though the principle of res judicata may not be strictly applicable to Income-tax proceedings but, at the same time, consistency in approach in similar facts and circumstances, is very important for the legal system as held by the Hon'ble Delhi High Court in the case of CIT vs. Dalmia Promoters Developers P. Ltd. 281 ITR 346 (Del). In this case, interest income was assessed as business income for earlier years and there was no material change in the facts in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y they engage in selling shares without trading as the share market runs on speculation. This has not taken place in case of appellant. Thus, assessee has mainly involved in delivery based transactions. 6.9 For determination as to whether any particular income arising on sale of shares is to be treated as business income or capital gain, all the relevant facts and circumstances have to be considered. This question came up before the Hon'ble Gujarat High Court in the case of CIT vs. Rewashanker A. Kothari (2006) 283 ITR 338 (Guj.), wherein certain guidelines were laid down. In order to determine whether profits arising on sale is business income, the following tests can be applied: (a) the first test is whether the initial acquisition of the subject matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline ; (b) the second test is why and how and for what purpose the sale was effected subsequently ; (c) the third test is as to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng conclusions emerged : (i) The facts of the year under consideration with regard to nature of income(s) earned by the assessee and the transactions were same in all those years, except transactions in F O segment in some of the years wherein this kind of activity was started by the stock exchange. (ii) Interest on borrowed capital had been allowed as business expenditure against the profit on jobbing activities shown by the assessee as business profit. (iii) The assessee had shown shares purchased on delivery basis as investment at the end of the year and no stock-in-trade existed on that date and the assessee had earned both long-term and short-term capital gains which meant the assessee had also held shares for the period of more than 12 months. Thus, the nature of activities, modus operandi of the assessee, manner of keeping records and presentation of shares as investment at the year end were same in all the years, and, hence, apparently, there appeared no reason as to why the claims made by the assessee should not be accepted. However, the revenue authorities had taken a different view in the year under consideration by holding that principle of res judicata was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not given any benefit to a class of transactions as a whole though it may result into an apparent benefit to individual(s) entering into those transactions. Thus, in the facts and circumstances of the instant case, on the basis of principle of consistency alone, the action of the revenue authorities was liable to be quashed. It was ordered accordingly and the Assessing Officer was directed to accept the claims of assessee in regard to short-term capital gain and long-term capital gain. The ratio laid down in Gopal Purohit vs. JCIT(supra) supports the case of assessee before us. 6.12 The Hon'ble Ahmedabad ITAT in case of ACIT vs. Gargi Shitalkumar Patel ITA 1911/Ahd/2009 wherein the assessee was involved in transactions of multiple scrips which were substantially high in number still the Tribunal stated that income derived from sale of shares shall be treated as capital gain as the same treatment had been accepted in the preceding year. 6.13 We find that the assessee is only an investor in shares. Merely because the volume of transactions had gone up, the character of the assessee as an investor does not change. Thus, addition made by the Assessing Officer treating th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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