TMI Blog2012 (12) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... o demonstrate that the tranactional frequency or number of transactions have to be bracketed as ‘high’ and therefore, the dominant intention of the assessee in purchase of the shares is to resell the same and not for investment - set aside the impugned orders to the files of the CIT(A) on this issue, and direct him define the high frequency with the help of the comparable cases on hand. Assessee is also directed to assist the CIT(A) in this regard. If needed, he may file any fresh documents before the CIT(A) that would help the CIT(A) to come to the correct conclusions. On the issue of applicability of the apex court’s judgment in the case of Gopal purohit [2009 (2) TMI 233 - ITAT BOMBAY-G] there is no adequate data before us at least in the case of assessee. CIT(A) is directed to examine the applicability of the said case after obtaining adequate and relevant data. CIT(A) is also directed to examine each of the criteria set by various courts in various cases including the criterion of ‘dominant intention’ - the assessees’ grounds on this issue are adjudicated pro-tanto. Depreciation on UPS and LCD – 60% v/s 15% - Held that:- Following the decision CIT V/s. Orient Ceramics & Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t issue is with regard to the head of income and application of tax rates u/s. 111A of the Act in respect of the sum of Rs.2,29,92,722 in the case of Smt. Sobha Rani and Rs.3,92,26,418 in the case of Shri. Tejasvi. The second relates to the applicable rate of depreciation on (a) projection device and (b) UPS, i.e. whether 15% as held by assessing officer or 60% acclaimed by the Revenue.. 3. Relevant facts of the first issue, as taken from the appeal of Smt. Sobha Rani are that the assessee filed return of income furnishing the sum of Rs.2,29,92,072 earned on purchase and sale of shares under the head short term capital gains , and accordingly computed and paid the tax at the rate applicable to short-term capital gains in terms of t6he provisions of S.111A of the Act. During the assessment proceedings, assessee was asked to substantiate with details to prove that the assessee was not a trader but an investor as claimed in the return. On examining details, the assessing officer came to the conclusion in respect of the shares held for period less than 12 months that the assessee is a trader and not investor and accordingly denied the benefits of the concessional rate specified u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and allowed depreciation thereon at the rate of 15% only. In the process, the assessing officer relied on the order passed in the case of her son, Shri N.Tejasvy for the same assessment year. The assessee submit that the since the assessee is engaged in the business of leasing of computers and computer peripherals, the computers include computer peripherals, computer software, LCD projectors, which are computer enabled peripherals only. Assessee relied on the Delhi Bench decision of the Tribunal in the case of ACIT V/c. Container Corporation of India Ltd.(280 ITR (AT) ). The assessing officer distinguished the above decision and restricted the depreciation both on LCD projectors and UPS to 15% only. 6. Aggrieved by the order of the assessing officer on the above two issues, relevant to the present appeal, assessee filed appeals before the CIT(A). 7. During the proceedings before the CIT(A), assessee reiterated the above submissions made before the assessing officer and filed further submissions to demonstrate that the period of holding ranged mostly from 250 to 400 days and as on 31.3.2007 and assessee holds on the closing stock of shares to the volume of Rs.1.04 crores involvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old that the assessee carried on trading activity only. In the said remand report, the fact of high volume involving huge number of scrips and transactions and the frequency and regularity at which transactions were highlighted, which led the assessing officer to assert that the profit motive is evident and therefore the provisions of S.111A are inapplicable to the facts of the case. The assessing officer also relied on the Bombay Bench decision of the Tribunal in the case of Sadhana Nabera V/s. ACIT (ITA No.2586/Mum/2009 dated 26.3.2010), wherein facts of the case of Gopal Purohit were distinguished in favour of the Revenue. 9. In response to the copy of the remand report furnished to the assessee for comments and it was submitted by the assessees that their cases are identical to the case of Gopal Purohit (supra). Further, it was mentioned that mere multiplicity of transactions does not alter the nature of transactions, relying on the Mumbai Bench decision of the Tribunal in the case of Janak S.Rangawala V/s. ACIT(11 SOT 627). 10. On considering the objections of the assessee as well as the remand report furnished by the assessing officer, the CIT(A) summed up in para 6 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opening stock of shares as on 1.4.2006 consisted of scripts of 11 companies only. However, even out of the same, shares of 9 companies were fully sold in the subsequent year. As at the year end therefore, the appellant continued with shares of Karur Vysya Bank Ltd. and Hifco Marble Ltd. only. At the same time, during the year, the appellant entered into a number of transactions in over 50 scrips and all the shares so acquired were sold of within the year itself. It can be further seen that out of the total 174 transactions, shares acquired in 131 transactions were sold of within 120 days of their purchase. Out of these, shares purchased in 54 transactions were resold within 60 days, whereas 35 within 330 days, and 10 within less than 10 days. It can also be seen that in respect of shares of Karur Vysya Bank Ltd., the appellant was holding 6000 shares as on 1.4.2006. She purchased 10000 shares of the said company additionally during the year. Out of the total 16000 shares however, only 8299 shares of the said company were retained as on 31.3.2007, while the remaining were sold off. The dealings in this manner indeed betray the claim of investment. The pattern of transactions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items. 12. Aggrieved by the orders of the CIT(A), assessee preferred the present appeal before us. 13. In the other appeal, ITA No.333/Hyd/2011 of Shri.Nandury Tejasvy, but for the amounts and other numbers on scrips, turnover, transaction etc involved, other facts of the case and the submissions are mutatis mutandis the same, and hence, the same need not be repeated over again. 14. During the proceedings before us, Learned counsel for the assessees, reiterated the contentions made before the lower authorities and also urged that the assessee has been consistently accounting the shares as investments in the books of accounting. He submitted that the books of account of the assessees clearly reflected the impugned scrips as investments and not as stock in trade. He further submitted that so far as long term capital gains are concerned, the assessing officer accepted the claim of the assessees in relation to the very same scrips and treated them as investments only, and it is only in relation to the short term capital gains, he adopted the stand that the scrips are held as stock in trade and not as investments. He submitted that there is no dispute with regard to the fact of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd ITA No 748/Hyd/2011 and PVS Raju 340 ITR 75 for the proposition that the short term capital gains disclosed must be assessable as business income. 16. We have heard both sides of the litigation and perused the orders of the lower authorities and other material available on record. Admittedly, there is no dispute on the factual aspects of the matter in this case. Therefore, the only dispute relates to the correct head of income under which the impugned profit earned by the assessee on the sale of shares held for period less than 12 months has to be assessed, viz. whether under the head business or under the head capital gains . The case of the assessee is that whether the transactions in question should be treated as business or investments is the question of fact or at the most a mixed question of law and fact and the same vary from case to case. Transactions of each case have to be decided independently based on material facts of that case. We have perused various citations placed by the parties before us. 17. The gist of the some of the citations quoted before are as follows. In the case of CIT V/s. PNB Finance Industries Ltd.(46 DTR 345), wherein shares were hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been explained by the assessee as distinguishable on facts from that of the assessee in view of the extremely high frequency of shares transaction. Assessee filed a chart showing the nine distinct differences from the facts of this case and we find that the scale of transactions and the volume is relatively more vis a vis the facts of the instant case. 18. The decision of the Tribunal in the case of Harsha Mehta dated 16.7.2010 in ITA No.1859/Mum/2009, was pronounced on the facts of 70 transactions involving 35 scrips with the turnover of nearly Rs.3- crores. Tribunal came to the conclusion that the gain on sale of the shares has to be treated as business income, when the holding period is one month to seven months. In the case of Harsha Mehta (supra), the Bombay Bench of the Tribunal has decided the issue based on the fact that the Assessing officer artificially categorized the transactions based on the holding period, by considering the gain on sale of shares held for more than 30 days as capital gain arising from investment, and on sale of shares held for less than 30 days as business income. However, the Tribunal has not approved such categorization made by the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the revenue approach in accepting the claim of the assessee despite the applicability of the principle of res judicata role of Judgment of the Apex Court in the case of Gopal Purohit (supra) 20. Let us examine hereunder, the above aspects in the light of the facts of the present cases. (a) Treatment given in the books of account: It is an undisputed fact that both the assessees under consideration have been consistently showing the impugned transactions as investments and consequently, the profits on sale of such investments have to be treated as capital gains. There is also no dispute so far as claim on long term capital gains is concerned, as the assessing officer accepted without disturbing the claim of the assessees. The dispute relates to the short term capital gains segment only. The assessing officer took the view that considering the holding period of the shares in question, the profit on the sale of the shares has to be treated as business income. The assessing officer analysed that in the case of Smt.Shobha Rani, out of 174 transactions, 43 transactions involved the shares held for a period longer than 4 months and rest of 131 transactions relate to shares were he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 months. Para 6.2 of the CIT(A) orders in both the cases provides numerical of the transactions and accordingly, the Rs 29.55 crores is the total turnover and it includes both purchases and sales in the case of Sobha Rani and in the case of Tejeswy, the purchases are to the tune of Rs 77 crores and sales of Rs 80 Crores. AO is of the view these figures denote huge and high frequency. Further, scrips transacted are only 138 in the case of Tejeswy and 54 in the case of Sobha Rani. AO described them as very high and the same was confirmed by the CIT(A). But neither of the orders contains the reasons for opining or describing it so. We have to examine the scale of frequency of share transactions and find that there is the term high frequency is undefined. However, it was held by the Mumbai Bench of eh Tribunal in the case of Nagindas P.Sheth (ITA No.961 1836/Mum/10), copy of which is filed at page 48 of the paper-book that merely because the assessee transacted in 158 shares, it should not be taken as sole criteria to come to the conclusion that the assessee is a trader in shares. Thus Para 7 of the said order is relevant in this regard, and relevant portion of the same is ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. The grounds of appeal raised by the assessee are allowed. Thus, merely 158 scrips were transacted as in the case of Nagindas P.Sheth (supra), the Tribunal came to the conclusion that the original intention which is displayed by the entries in the books should be given more weirtage over the frequency of transactions. As such, there are no standards to describe particular number of transactions should be described as low or average or high or very high. Low or high frequencies depend heavily on the extent of capital infused by the assessee and it vary from one person to the other. In this instant case, the frequency cannot be described high as on an average, the assessee entered in the purchase transaction not even once every active day. Same is the discussion with regard to other facets such as magnitude and regularity of the transactions. (c) original and dominant intention: This is another aspect the AP high court has considered in the case of P v s Raju supra while deciding that case. The Honble High court is of the view the purchases of shares made with a view to resell for profit frequently should be described as business transactions and not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court despite the settled position in law that the principle of res judicata does not apply to the income-tax proceedings. 21. We have examined the above legal principle to the facts relating to the case of Smt. Sobha Rani. In this case for the preceding AY, viz. 2006- 07, the assessee involved in purchase of shares to the tune of 73,000 and did not sell any shares during the year, whereas in the year under consideration, viz. assessment year 2007-08, assessee registered both purchases and sales. The claims of the assessee was accepted for the AY 2006-07 and rejected in respect of the STCG in the current year. Revenue authorities should have analysed these relevant material facts and the distinguishing facets before dismissing applicability of the judgment of the Apex Court in the case of Gopal Purohit (supra). We do not sufficient break up of figures pertaining to the case of Tejeswy. 22. To sum up, on the criterion of original intention and the making entries of the impugned transactions in the books of account at the time of effecting purchases, there assessees have undisputedly reflected them as investments and not as stock in trade. Therefore the original intention is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant to mention here that the mere high frequency does not decide the nature of the transaction as mere book entries does not do so. Regarding turnover, volume and frequency, in the case of ACIT V/s. Bright Star Investment (P)Ltd. (24 SOT 288), the Bombay Bench of the Tribunal has held that these parameters are not determinants and decisive. As per this judgment, the book entries and the intention of the assessee assumes very significant. Profit earning motive of the assessee is also held to be not a deciding factor. As for the principle of consistency and applicability of the decision of the Bombay in the case of Gopal Purohit (supra), we find that the same is not prima facie applicable to the facts of the present cases in view of the material differences on facts. Therefore, we are of the opinion, the issue has to be examined again by the CIT(A) to assess and evaluate if the transactional frequency in question fall in the category of high or middle or low. CIT(A) may attempt to collect requisite data for describing the impugned frequency as high and therefore give finding on the dominant intention as outlined by the jurisdictional High court in the case of BVS Raju supra. 26. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acets cumulatively of the impugned transaction and weigh the same before opining that the share held for less than 12 months constitutes stock in trade of the assessee and not the investment as claimed in the books by the assessee. 28. Therefore, the initial intention and consequential entries of transaction in the books of the assessee support the claim of the assessee with regard to the short term capital gains. Further, considering not even one share transaction per any working day of the capital market operations, on an average, the volume, frequency, magnitude and regularity is no so high and therefore the revenue has wrongly held that the frequency and volume is high. 29. Therefore, we are of the opinion that the view taken by the Revenue authorities cannot be outright when there are no finding on various aspect or criteria set by the jurisdictional high court in the case of BSV Raju supra. We accordingly set aside the impugned orders to the files of the CIT(A) on this issue, and direct him define the high frequency with the help of the comparable cases on hand. Assessee is also directed to assist the CIT(A) in this regard. If needed, he may file any fresh documents bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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