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TMI Blog2021 (11) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act in a mechanical manner on the basis of the proposal of the Ld. AO. It has not been pointed out as to what error has been committed by the Ld. AO in accepting the explanation/evidences so furnished by the assessee in the process of verifying the nature of transactions. Even the CBDT's Circular cited by the Ld. PCIT in his order, in fact, comes to the support the assessee. As the assessee has duly explained that separate portfolios were maintained and trading and investments transactions were carried out in a separate d-mat accounts from the very beginning and that there was no bar for the assessee to carry out both the trading and investment activities. The impugned order passed u/s.263 of the Act by the Ld. PCIT, in this case, is, therefore, not sustainable and the same is accordingly quashed. - Decided in favour of assessee. - ITA Nos. 122 to 125/Kol/2021 - - - Dated:- 26-10-2021 - Sanjay Garg, Member (J) And Dr. M.L. Meena, Member (A) For the Appellant : Akkal Dudhwewala, AR For the Respondents : Manish Kanojia, CIT, DR ORDER Per Bench The captioned are four appeals preferred by the assessee against the orders dated 23-03-2021 and 19-03-202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the assessment proceedings of other years, it revealed that the assessee was engaged in certain malpractices with the sole motive to earn exempt income. The assessee had been maintaining total three different DEMAT accounts with CD Equisearch Pvt. Ltd., a sub-broker of Stock Exchange, in which the assessee himself was the chairman. The said three portfolios maintained by the assessee were marked as Trading , Investments short term and Investments long term . The Ld. AO observed that these nomenclatures were misleading and fraudulent in nature. That the assessee purchased, sold and/or settled everything (trades, investments) through a single bill. Later on, the profit-making shares were treated as investments to earn exempt long term capital gain and the loss-making ones were shown as trading loss for adjustments with other income. Thus, in this manner, the assessee earned huge exempt income against very little/nil taxable income. 6. Considering the above proposal of the Ld. AO, the Ld. 'PCIT' issued show cause notice to the assessee as to why the revision jurisdiction be not exercised in this case u/s. 263 of the Income Tax Act. The assessee in reply to the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... get satisfied with the above submissions of the assessee and, therefore, set aside the assessment order dated 27-12-2018 passed u/s. 147 read with section 143 of the Act and restored the issue to the file of the Ld. AO for assessment afresh observing as under:- The submission of the assessee is perused and placed on record. It was observed that the CBDT vide Circular No. 6 of 2016 has cleared the doubts in this regard. The text of the said circular is reproduced below for ready reference: Sub: Issue of taxability of surplus on sale of shares and securities -Capital Gains or Business Income - Instructions in order to reduce litigation reg. Sub-section (14) of Section 2 of the income-tax Act, 1961 ('Act') defines the term capital asset to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to be decided keeping in view the aforesaid Circulars issued by the CBDT 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. 7. It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 8. In my view, the above circular is clarificatory in nature and therefore, it shall have the retrospective effect. 9. From the above discussions, it is seen that the AO has not considered the above instruction while dealing with the issue in question. The assessee is engaged only in share trading business on regular basis for many years. From the assessment order of the AO and the office note attached with the order, it is clear that the AO has not exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly from the following: 1. Dividend: ₹ 17,89,318/- 2. Long term capital gain: ₹ 1,79,05,273/- (Exempted) and ₹ 31,33,141/- (not exempted) 3. Share trading: Rs. (-) 27,06,072/- 4. Income from Other sources: ₹ 3,52,898/- He has total exempt income of ₹ 1,96,98,166/- against taxable income ₹ 0/-. From the assessment proceedings of A.Y. 2015-16 it was revealed that the assessee is engaged in certain malpractices with the sole motive to earn exempt income. The assessee has. been maintaining total three different DEMAT accounts with CD Equisearch Pvt. Ltd., a sub-broker of Stock Exchange and in which the assessee himself is the chairman, for online purchase and sale of shares/mutual funds. They are marked as Trading ; Investments short term and Investments long term . But these nomenclature is misleading and the assessee purchases/sales/settles everything(trades, investments) through a single bill. Later on, the profit making shares are treated as investments to earn exempt long term capital gain and the loss making ones are thrown as trading loss for; adjustments with other income. Thus, in this manner, he earns hug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the show cause notice dt. 09-03-2020 issued u/s. 263 of the Act by the ld. PCIT. The contents of the same are reproduced as under:- Sub: Proceedings u/s. 263 of the I.T Act, 1961 in the case of Shri Chandravadan Desai for the A.Y 2011-12-Matter-Reg. Please refer to the above. From the examination of materials on record, it is seen that the assessment order u/s. 143(3) r.w.s 147 of the I.T Act dated 27/12/2018 passed by the AO for the A.Y 2011-12 is erroneous in so far as it is prejudicial to the interests of the revenue. During the course of assessment proceedings of the assessee, the AO had failed to examine following issues: 2. In the instant case the assessee filed Return of Income u/s. 139(1) for the AY 2011-12 on 26/09/2011 declaring 'NIL' and the same was processed u/s. 143(1) on 09/02/2012 of the Income-tax Act, 1961. Thereafter, the assessment was reopened u/s. 147 and reassessment was completed on 27.12.2018 determining the income as 'NIL'. 3. The assessee is in the business of share trading. He also makes investments in shares from which he derives dividends and long/short term capital gains on sale. He is also the chairman of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act. 6. For the purpose of hearing of your petition, the date fixed is 16/03/2021 at 1.30 p.m in my chamber at Income Tax Office, Room No. 30, 2nd Floor, 2 Gariahat Road (South), Kolkata-700 068. Please note that it is not possible to grant further adjournment in this case beyond the date of hearing fixed hereinabove. Therefore, you are requested to file your written submissions, either in person or through representative, duly authorized in writing or through Email ld. [[email protected]] or by post together with supporting documents on or before 16/03/2021 without fail. 13. The ld. Counsel has submitted that a perusal of the reasons recorded by the Ld. AO for re-opening of assessment u/s. 147 of the Act and show cause notice dt. 9-3-2020 issued by the Ld. PCIT u/s. 263 of the Act would reveal that the contents of the notice issued u/s. 263 of the Act have been taken verbatim from the reasons recorded by the Ld. AO for reopening of the assessment. He has further submitted that the Ld. AO while forwarding the proposal to the Ld. PCIT for exercising his revision jurisdiction, has just copied the reasons recorded for assessment u/s. 147 of the Act, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were carried out in the separate D-mat accounts respectively. Even delivery of the shares was given/taken in the respective separate accounts. 14. Considering the detailed submissions, evidences and explanations furnished by the assessee, the ld. AO assessed the income as per returned income. The ld. Counsel, therefore, has submitted that considering the reasoned order passed by the ld. AO, the exercise of revision jurisdiction by the Ld. PCIT on the same issue was not justified. 15. On the other hand, the Ld. DR has relied on the impugned order passed u/s. 263 of the Act by the Ld. PCIT. 16. We have considered the rival contentions. As noted above, we find that the show cause notice issued by the Ld. PCIT u/s. 263 of the Income Tax Act, 1961 is the verbatim copy of the reasons recorded by the Ld. AO u/s. 147 of the Act. It has also been established that during re-assessment proceedings u/s. 147 of the Act, the Ld. AO had done detailed enquiry and the assessee had duly explained that separate portfolios for trading and investments were maintained by the assessee. The transactions were carried out in separate D-mat accounts and shares were received in the separate d-mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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