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TMI Blog2016 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... xing the short-term capital gain under the head ‘profit and gains of business and profession’ - Held that:- As we have already upheld the findings of learned CIT(A) of taxing the transactions claimed under the head ‘short-term capital gain’ under the head ‘profit and gains of business and profession’, the assessee deserves for credit of Security Transaction Tax under the section 88E of the Act. Accordingly, we direct the Assessing Officer to allow that credit in accordance to law after verification of the security transaction tax paid. Penalty u/s 271(1)(c) - Held that:- we are in agreement with the submission of the learned Authorized Representative that all the factual information in respect of transaction of purchase and sale of shares was duly provided to the AO and no part of income was concealed, nor furnished any inaccurate particulars of income by the assessee. We find that in same set of information the income assessed under the head ‘profit and gains of business or profession’ rather than under the head ‘short-term capital gain’. The learned Commissioner of Income Tax(Appeals) relied on the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judice , the learned Commissioner of Income Tax(Appeals) erred in not allowing credit of Securities transaction tax under section 88E of Act in consequence of taxing the short term capital gain under the head income from business and profession. iv. That the appellant crave leave of this Hon ble Court to amend, alter the grounds of appeal before hearing. 3. The facts in brief are that the assessee filed return of income on 29/09/2007 declaring income of ₹ 2,09,85,420/-. The case of the assessee was selected for scrutiny under computerized assisted selection of scrutiny (CASS) and notice under section 143(2) of the Act was issued and served within the stipulated period. In the course of scrutiny proceedings, the AO observed that the part of income from activity of purchase and sales of the shares was shown as business income, whereas for balance shares, the income from activity of purchase and sales was shown as short-term capital gain (Rs. 2,07,53,989/-). According to Assessing Officer, the entire activity of purchase and sale of shares was in the nature of business activity and no investment activity was carried out by the assessee. The investment activity was shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated funds and capital and no money were borrowed for making investments. The learned AR also submitted that no credit of Security Transition Tax (STT) was claimed because of declaring the gain under the head capital gain . It was also submitted that besides disposing of investment made on long-term basis, the assessee also traded in some of the securities which resulted in business income and same was declared under the head profit and gains of business or profession . It was further submitted that in the notes to account appended to the audited balance sheet the inventory was valued at cost or market price whichever is less whereas the investment was valued at its cost only. The learned AR referred to the circular No. 4/2007 dated 15/06/2007 issued by the Central Board of Direct Taxes (CBDT) and submitted that the assessee satisfied all the conditions of having activity in the nature of investment. Further, learned AR submitted that the Assessing Officer has accepted the long-term capital gain on sale of securities held under the investment category, but not accepted short-term capital gain which arose on sale of securities held under the same category of investment. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that circular No. 6/2016 issued by the CBDT was specifically in respect of listed shares and securities held for more than 12 months and in all other cases the nature of transaction shall continue to be decided keeping in view the earlier circular No. 4/2007 of the CBDT. She also submitted that bifurcations of the securities in the investment in trading has been done by the assessee only artificially to have the benefit of the lower tax rates without being eligible for the same. The Ld. DR supported her contention with the judgment of the Hon ble Jurisdictional High Court in the case of CIT Vs. D M Components Ltd. in ITA 561/2012, pronounced on 21/04/ 2014. 8. We have heard the rival submissions and perused the material on record including the paper books submitted by the assessee. The only issue for determination before us is whether the income from sale of shares and securities shown by the assessee under the head short-term capital gain is liable for tax under the head profit and gains of business as claimed by the Revenue or short-term capital gain as claimed by the assessee. 9. In the case of DCIT Vs. Rajasthan Global Securities Ltd (supra), the assessee show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. (3) Volume and frequency of the purchases and sale/disposals. If purchase and sales are frequent, or there are substantial transactions in an item, that can indicate trade. Habitual dealing in a particular item is indicative of intention of trade. Likewise, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). Another related factor is the duration for which the shares are held. (4) Was the purchase and sale made for realizing profit, or for retention and appreciation in its value. The former indicates the purchases being part of trade; and the latter is indicative of the purchases being an investment. Furthermore, it would be relevant to ask whether the intention behind the purchase was to enjoy dividend, or merely to earn profit on sale of shares. Importantly, a commercial motive is an essential ingredient of trade in this context. (5) Whether the items in question were valued at cost. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness activity of the assessee and pattern of sale and purchase of transaction, especially since no books were separately maintained for the purpose held both the long-term capital gain as well as short-term capital gain as business income of the assessee. The ld. CIT(A) accepted the contention of the assessee with regard to long-term capital gain, however agreed with the Assessing Officer in taxing the income shown under the head short-term capital gain as business income . When the matter travelled to the Tribunal, both the income from shortterm and long-term capital gain shown by the assessee were accepted. On appeal, the Hon ble Delhi High Court allowed the claim of the assessee in respect of long-term capital gain, however, the claim of short-term capital gain was not accepted. The findings of the Hon ble High Court in this respect are as under: 7. As far as the Revenue's appeal with respect to long term capital gains is concerned, this Court is inclined to affirm the findings of the CIT (A) and those contained in the impugned order. Here, the record ITA 561/2012 ITA 566/2012 Page 6 disclosed that the transactions were few in number - 10 sale/purchases. Moreover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rishan Engineering 26.08.2005 06.09.2005 Krishan Engineering 26.08.2005 09.09.2005 Rajesh Exports 24.08.2005 16.09.2005 Rajesh Exports 24.08.2005 19.09.2005 Rajesh Exports 25.08.2005 19.09.2005 Rajesh Exports 16.09.2005 19.09.2005 P.B. Infra 28.11.2005 28.11.2005 P.B. Infra 28.11.2005 02.12.2005 9. Apart from the above significant aspect, the AO and the CIT (A) observed that the assessee had been purchasing and selling a large number of shares of a few companies. It was also held that the transactions involved large or substantial sums of money. The CIT (A) pertinently made the following observations: ...it is important to keep in mind that whenever any share is purchased with the intention of inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 9 extent. The said amount shall be treated as business income and not capital gains. The question of law is accordingly answered in favour of the Revenue in ITA No. 561/2012. The said appeal is allowed. ITA 566/2012 filed by the Revenue, in respect of the long term capital gain, has to fail and is accordingly dismissed. 12. In the light of above decisions, we are required to examine existence of various factors, which on considering in holistic manner determine whether the nature of transactions of purchase and sale of securities falls in the category of profit and gains of business or capital gain. 13. As regards to the argument of the learned AR that long-term capital gain transactions have been accepted by the AO, whereas short-term capital gain transactions have not been accepted, we find from page 102 of the assessee s paper book that in case of long term capital gain the assessee transacted in 5 scrips only and the holding period was approximately 400 days. These shares were purchased in the financial year 2005-06 for long-term holding. We find from the records that no borrowed funds have been utilized for investment in these shares. In the circumstances, the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares transactions on pages 100 to 101 of the paper book under the head short-term capital gain, which are reproduced as under: 17. We find from the above that the assessee has transacted in single scrip in multiple times during the year but sometimes even more than once in a day itself. For example, the scrip Era Construction has been transacted on 19/02/2007, 20/02/2007, 21/02/2007, 06/09/2006, 11/09/2006, 09/10/2006. Similarly, the scrip Karutri Company has also been transacted many times during the year. The quantity of scrip transacted in each transaction is in thousands. The sale volume transacted under the head short-term gain is more than ₹ 12 crores. The assessee has sold total shares quantity of ₹ 3.51 Lacs. All these figures establish existence of the factor of volume, frequency and consistency of transactions. 18. We find that whenever any shares is purchased with the intention of investment, it cannot be sold within a short period as the market fluctuate because of many national and international events. In the present case, the frequent purchase and sales of the shares indicates that the intention of the assessee was to earn profit over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take up appeal in ITA No. 4411/Del/2013, the sole ground of appeal raised by the revenue is in respect of deletion of penalty of ₹ 46,57,200/-under section 271(1)(c) of the Act levied by the Assessing Officer by learned CIT(A). 24. The facts in brief are that in the assessment was completed under section 143(3) of the Act on 10/12/2009. The Assessing Officer held the income of ₹ 2,07,53,989/- shown under the head short-term capital gain as income under the head profit and gains of business or profession . 25. In respect of the above additions, the Assessing Officer after allowing opportunity of hearing, levied penalty under section 271(1)(C) of the Act of ₹ 46,57,200/-. On appeal, the CIT(A) allowed the appeal of the assessee deleting the penalty levied by the Assessing Officer. Aggrieved, the Revenue is in appeal before the Tribunal. 26. The learned DR relying on the order of the Assessing Officer argued for sustenance of the penalty levied by the Assessing Officer, on the other hand, the learned Authorized Representative of the assessee, relying on the order of the learned Commissioner of Income-tax(Appeals) submitted that assessee has not concealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. The learned Counsel argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered_ by the provision, the penalty provision cannot be invoked. By any stretch of imagination making an incorrect claim in law cannot tantamo un t to furnishing inaccurate particulars. 2. BSEL INFRASTRUCTURE REALTY LTD VS. ASSISTANT COMMISSIONER OF INCOME TAX ITAT, MUMBAI B BENCH, ITA No. 6559/Mun/2011; Asstt Yr. 2007-08 (2012) 78 DTR (MUMBAI) (TRIB) 147 ...The assessment order is not a final word in the penalty proceedings upon the pleas which can be taken as the penalty stage and howsoever relevant and good the findings in the assessment proceedings may be they are not conclusive so far as penalty proceedings are concerned. The matter has to be examined afresh and the AO cannot be solely guided with the findings given on the quantum side. The assessee even though does not give any additional evidence or produce an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant has neither concealed income nor furnished inaccurate particulars for A.Y.2007-08. The entries have been passed in the books of account in a bonafide manner and as per the guidelines of the auditors and there no case for penalty. Further, Reliance is placed on the following casse CIT Vs. Amit Jain ( 2013 ) 351 ITR 0074 (DEL): ...It was held by the Hon ble Delhi High Court that amount in question which found the basis for the A.O. to levy penalty was in fact truthfully reported in the returns. In view of the circumstances that the A.O. chose to treat the income under some other head could not characterized that the particulars reported in the return were inaccurate particulars. Keeping in view of the above facts and case laws cited above, the minimum penalty of ₹ 46,57,200/- imposed by the Assessing Officer is hereby deleted. In the result, the appeal is allowed. 28. In view of above, we are in agreement with the submission of the learned Authorized Representative that all the factual information in respect of transaction of purchase and sale of shares was duly provided to the AO and no part of income was concealed, nor furnished any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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