TMI Blog2015 (2) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... od which exceeded one year. Therefore there is no justification in not allowing the balance part of same investment as short term capital gain on the basis that holding period was less than an year. The Ld. CIT(A) has distinguished the facts of present case with earlier years on irrelevant considerations as none of the circumstances as explained by Ld. CIT(A) can be applied to hold the capital gains earned by assessee as business income. The pledging of shares held for investment purposes cannot alter the nature of investment as in that case, even land mortgaged by a person to secure credit facilities from a bank will change the nature of land to business purposes from investment purposes. Similarly, use of funds from business accounts for personal purposes or vice versa cannot alter the nature of investment. - Decided in favour of assessee. - ITA No. 3080/Del/2013 - - - Dated:- 12-12-2014 - Diva Singh, JM And T. S. Kapoor, AM,JJ. For the Appellant : Shri K Sampath, Shri Raja Kumar, Adv. For the Respondent : Shri Y Kakkar, DR ORDER Per T. S. Kapoor, AM. This is an appeal filed by the assessee against order of Ld. CIT(A) dated 28.02.2013. The sole ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pledged a part of shares to obtain margin limits. The A.O. also held that though assessee was maintaining separate accounts for investment and trading purpose yet he had transferred money frequently from current account maintained for business purposes to his other account maintained for investment purposes. Therefore, relying upon Bombay ITAT Bench decision in I.T.A. No. 4094, the A.O. held that assessee was indulging into transactions of sale and purchase and therefore he assessed the short term and long term capital gain declared by assessee as business income of the assessee. Aggrieved, the assessee filed appeal before Ld. CIT(A) and made various submissions. The detailed submissions of the assessee are contained from para 7 onwards reproduced by Ld. CIT(A) from page 11-24 of his order. Ld. CIT(A) however, did not fully accept the contentions of the assessee and partly upheld the order of A.O. by holding as under: 8. Decision 8.1 I have considered the Observations of the Assessing Officer and Submissions of the Appellant. It is seen that the Assessee has claimed, that the income from dealing in Shares is purely an investment activity and 'is separate and distinct f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble ITAT, Lucknow in the case of Samath Infrastructure (P) Ltd. vs. ACIT reported in 120 TTJ page 216 is very relevant. The Hon'ble ITAT, Lucknow has culled out broad principles which can be applied on the facts of the case to find out whether transactions of an Assessee claimed to be an investment is really an investment or a business transaction. The relevant observations of the Hon'ble ITA T, Lucknow, are as under :- The following principles can be applied on the facts of a case to find out whether transaction (s) in question are in the nature of trade or are merely for investment purposes :- What is the intention of the assessee at the time of purchase of the shares (or any other item). This can he found out from the treatment it gives to such purchase in its books of account. Whether it is treated as stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset. Whether assessee has borrowed money to purchase and paid interest thereon. Normally money is borrowed to purchase goods for the purposes of trade and not- for investing in an asset for retaining. What is the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item. Whether it had such an intention (to carryon illegal business in that item) since beginning or when purchases were made. 10) It is permissible as per CBOT's Circular No. 4/2007 of 15-6-2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each 'type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. 11) Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen. 8.5 Applying the tests propounded by the Hon'ble ITAT, Lucknow, it is seen that though the transactions on which the Assessee has disclosed Long Term Capital Gains of ₹ 8,88,153/- fall in the category of investment, but the transactions on which the Assessee has claimed Short Term Capital Gains of ₹ 9,12,478/- are in the nature of trade and definitely fall in the category of business and their income has to be taxed as Business Income. 8.6 It is seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed principle that same view should be adopted for the subsequent years, unless there is a material change in the facts. Similar transactions of sale and purchase in shares in the preceding years have been held to be income from capital gains both on long-term and short-term basis. Since the ld. DR appearing before us did not controvert the aforesaid findings of the ld. CIT(A) nor brought to our notice any material or contrary decision in order to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the Ld. CIT(A). Therefore, ground no. J in the appeal of the Revenue is dismissed. 8.8 Thus it is seen that though the Hon'ble ITAT have given the benefit of consistency to the Assessee, but they have given the clear finding that the principles of the res judicata do not apply to the Income Tax Proceedings as each year is an independent year of the .assessment. However, the Hon'ble ITAT also held that in order to maintain consistency; the same view should be adopted for the subsequent year, unless there is a material change in the facts. 8.9 It is seen that there is a material change in the facts in the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r factors to be considered for determining whether the transactions are in the nature of Business Income or Capital Gains. Further, the intermingling between the two portfolios is a fact which proves that there is material change of facts from the earlier years in the case of the Assessee. 8.12 The second issue which shows the material change of facts as compared to the preceding year is as under :- B. Funds transfer between the two Bank Accounts:- In the preceding year i.e. A.Y. 2007-08, the Ld. CIT(A) had given a clear finding of fact that there was no material regarding the transfer of Funds. However, in the year under consideration, from a perusal of the documents filed during Appeal it is seen that the funds have been transferred between the two portfolios. Further; the account of Sh. Anil Kumar Bajaj (Client 975) in the Books of M/s Composite Securities Ltd. shows that M/s Composite Securities Ltd. has been used as a conduit for transfer of Funds between the two Bank Accounts. Hence as diametrically opposed to the finding of the Ld. CIT(A) for Assessment Year 2007-08, it is hol,.1 that there has been transfer of Funds between the two Bank Accounts. This is again a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- have been claimed are to be taxed as Business Income and the transactions on which Long Term Capital Gains amounting to ₹ 8,88,153/- have been shown are to be taxed as such i.e. as Long Term Capital Gains. Accordingly, an amount of ₹ 8,88, 153/- out of the addition of ₹ 18,00,631/- made by the Assessing Officer is deleted and the addition of ₹ 9, 12,477/- as Business Income is hereby confirmed. (Confirmed: ₹ 9,12,477/-) (Deleted: ₹ 8,88,153/). 4. Aggrieved, the assessee is in appeal before us. 5. At the outset, Ld. A.R. submitted that the assessee was maintaining two separate accounts; one for trading and another for investment and similarly, he was maintaining two different Demat accounts one of which was being used for trading purposes and another was being used for investment purposes. It was submitted that there was a clear demarcation between investment and trading activities. In the earlier year also, the assessee was engaged into similar activities and Hon'ble ITAT under similar facts and circumstances had decided the issue in favour of the assessee. In this respect, our attention was invited to paper book pages 97-111 where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circular No.4 of 2007 and various decisions on this subject, had specifically held that if the holding period is too less and there are too many transactions, and there is no dividend income then the entire income necessarily is business income. Ld. D.R. further argued principle of resjudicata does not apply to income tax proceedings. Ld. A.R. in his rejoinder submitted that paper book page 58 referred to by Ld. D.R. is for the business activities of the assessee as investment activities were undertaken in his individual capacity and personal business activities do not find mention in the audit report. As regards reliance placed by Ld. D.R. in Hon'ble Delhi High Court order in I.T.A. No. 97 dated 12.03.2014, Ld. A.R. submitted that Hon'ble Court had decided on the basis of facts and circumstances of that case only and no legal principles were laid down, therefore, it was not applicable. Looking upon principle of res-judicata, Ld. A.R. submitted that though res-judicata does not apply to income tax proceedings but principle of consistency is a relevant factor which Hon'ble Supreme Court has held in various case laws to be of utmost importance. 8. We have heard rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed at Page 54 to 62) iv) Return of income for the Current asstt. Year 2008-09 as well previous Assessment Year 2007-08 are enclosed to show that the treatment of income under the Head Long Term/Short Term Capital Gain and Business income are identical in both the years (Copy of Return at page 72 to 77) v) The assessee has not borrowed any funds for investment purposes and has not paid any interest on any borrowings during the financial year 2007-08 relevant to the Assessment year 2008-09. Hence all investments have been made by the assessee out of his personnel capacity. And no investments in shares have been made from their personnel borrowings as would be clear from the return of income- vi) In the modern era of Stock Exchange sY3Y-m,-no single transactions can be entered into by the Member 'Stock Exchange on behalf of the clients for Sale/Purchase of any shares unless Client Code is entered in the computer system which is not alterable. The client contracts -are generated by the computer system give the date with time of all the transactions as done by any client in this case the Broker has certified that all the transactions have been entered into by Mr. Anil Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,88,153/- Particulars Shares held No. of days Cubex Tubing Ltd. 20 Since 1995 Nucent Estate Ltd. 138 Since 1995 Nemtach India Ltd. 500 Dec. 1999 Vikas WSP Ltd. 347 March 2001 Vatsa Corp. Ltd. 40000 April 1998 Tele data Ltd. 25 Since 2005 Ajay Paper Mills Ltd. 49 Since 2000 Oswal Agro Mills Ltd. 180 Since 2000 Modi Mirrors Black Ltd. 500 Since 2001 Key Leasing Ltd. 200 Since 2001 Chola DBS Finance 44 Since 2007 Uttam Sugar Ltd. 25 Since 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s related activities are carried out by him including trading in derivatives. Summary of such activities are as under; (i) M/s Bajaj Insurance Management are maintaining a separate Client Code. no. 880 with the Member National Stock Exchange M/s Composite Securities Limited in which all transactions are the Future Option (F O) segment with no delivery based transactions. (Copy of account in the books of M/s Composite Securities Ltd. (Member Broker) of the Firm M/s Bajaj insurance Management 65 to 71) (ii) M/s Bajaj insurance Management are maintain separate books of accounts for trading in F 0 Segment and getting their accounts audited under 44A B of Income Tax Act, 1961. (COP) of such Audited balance sheet as at 31st March 2007 enclosed I to 15) (iii) All income/loss in the derivative segments are shown under the head income from Business/profession by the assessee on the same basis as shown in the earlier assessment years. (iv) No delivery of shares allowed under F 0 segments, hence, assessee does not have any stock in trade on account F 0 segments as at 31 March 2008 as per Audited Balance Sheet. (v) No funds have been diverted by the assessee from Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings, The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The revenue did not furnish any justification for adopting a different approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question. In so far as Question (c) is concerned, again there cannot be any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature, of income. The Tribunal has applied the correct Principle in arriving at the decision in' the facts of the present case. The finding of fact does not call for interference in an appeal under section 260A. No substantial question of law is raised. The appeal is accordingly dismissed. And a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g term and short term gain are derived out as such. It is clarify that since F O Segment is derivative segment hence, there is no delivery transaction and all income or losses on sale purchase are part of business income/loss. C) The assessee has not borrowed any funds for investment in shares except family borrowing, however, no interest have been paid by the assessee on any borrowing. D) Treatment of short term and long term capital gain/loss or on similar basis as followed by the assessee in the previous years and such treatment has been accepted by the department in such earlier. E) The assessee is maintain separate client code and separate account for his dealing in cash segment which is delivery base in the name of Anil Kumar Baja] which code no. 975 with M/s Composite Securities Ltd. (Member broker), the assessee is maintaining his separate F O Segmenttrading account in the name of M/s Baja] Insurance Management with code no. 880 with M/s Composite Securities Ltd. (Member broker). There are the following judicial pronouncement in favour of the assessee cited as under Management Structure System vs. ITO (ITAT) Mumbai Hitesh Satish Chandra Doshi vs. JCIT (ITAT) M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and has simply ignored. Similarly, the assessee had explained regarding fund transfer between the two bank accounts. We do not find anything wrong if an assessee transfers his funds from business account to his personal account and from his personal accounts to his business accounts as the case may be unless assessee had borrowed funds but in the present case, it is not that the assessee was using borrowed funds. As regards the 3rd allegation of A.O. regarding holding period of shares, we find that this observation is also baseless as when assessee holds some shares for investment purposes and declares his intention of investment by classifying as investment then the income has to be assessed as capital gain either as long term capital gain or short term capital gain depending upon holding period of shares. Ld. CIT(A) on the one hand has arrived at the decision and has allowed part relief by treating a part of income as long term capital gain on the basis of holding period which exceeded one year. Therefore there is no justification in not allowing the balance part of same investment as short term capital gain on the basis that holding period was less than an year. The Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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