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TMI Blog2015 (2) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the head "Business" at Rs. 5,17,12,928. The Assessing Officer completed the assessment on December 23, 2008, at the total income of Rs. 5,17,12,928. Subsequently, the Assessing Officer reopened the assessment and completed the assessment under section 143(3) read with section 147 on December 15, 2011, at a total income of Rs. 5,17,12,928 making various additions and disallowances. Aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). 4. The assessee also challenged the reopening of the assessment for the assessment year 2006-07 on the reason that there existed no new material facts which came to the knowledge of the Assessing Officer so as to reopen the assessment as there is no reason to believe that the income has escaped assessment. 5. The learned Departmental representative relied on the order of the Commissioner of Income-tax (Appeals). The learned Departmental representative submitted that the reason to believe has been the matter of judicial scrutiny by the apex court in several cases. In the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), it was observed that it is the duty of the assessee to disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red at a later date by the Assessing Officer, the assessment would be validly reopened. In such a case, the assessee would have failed to disclose fully and truly all material facts necessary for the purpose of assessment and it cannot be said that there is a mere change of opinion. The assessment would be validly reopened under section 147(a) of the Act because in such a case, the assessee would have failed to disclose truly and fully all material facts necessary for the assessment and it would not be a case of mere change of opinion. A mere production of the books of account or documents or other evidences is not sufficient for making assessment. If the Assessing Officer is unable to examine those documents and to discover the understatement of income relying on the same documents, the Assessing Officer could reopen the assessment on the basis of fresh material which came to the knowledge of the Assessing Officer that the income has escaped assessment. Therefore, merely because material lies embedded in the material or evidence produced by the assessee, which the Assessing Officer could have uncovered but did not uncover that is not a good ground to cancel the reassessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciation by holding these shares and also to earn dividend from investments. The transactions were not undertaken with an objective of adventure in the nature of trade. There were no systematic business operation. The activities were confined to investing. The investments were made not of borrowed funds but out of own funds which is a major factor to determine whether the objective has been business or not. The learned authorised representative submitted that it is a normal business practice to borrow for its business purposes. The investments in shares are shown under the head "Investment" in the balance-sheet for the respective financial years. These investments were valued and accounted in accordance with the Accounting Standard 13 on "Accounting for Investments" issued by the Institute of Chartered Accountants of India. The intention of the assessee to hold these assets as investments is very clearly mentioned and disclosed in the accounts and audited financial statements filed with the Registrar of Companies and other regulators. 11. The learned authorised representative submitted that the assessee invested in Indian equities and all transactions were settled through actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to form an opinion whether transaction is in the nature of business of capital gain by following certain guidelines. Therefore, following the mandated requirement of the Central Board of Direct Taxes, the transactions ought to have been accepted under the head "Capital gains". 15. It was submitted by the learned authorised representative that when the assessee took a decision to sell a scrip, the entire shares were sold, though it may have been sold over a period of 3 to 4 days. Even in few cases of reentry, these are driven by specific reasons. 16. The learned authorised representative submitted that in the assessment years 2007-08 and 2009-10, the assessee had incurred loss on sale of shares. Such loss was not set off against income from other sources. Hence, it was clear that the assessee had always the intention to treat it as a capital investment. 17. The learned authorised representative submitted that the Department had selected for scrutiny only those years where the assessee had earned profit. In those years where the sale had resulted in loss, there was no scrutiny assessment and hence the loss incurred in those years was computed under the head "Capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal Purohit v. Joint CIT [2009] 122 TTJ (Mum) 87; 6. Spectra Shares and Scrips P. Ltd. v. CIT [2013] 354 ITR 35 (AP) ; 7. CIT v. Ess Jay Enterprises P. Ltd. [2008] 173 Taxman 1 (Delhi) ; 8. CIT v. Avinash Jain [2014] 362 ITR 441 (Delhi) ; 9. CIT v. Niraj Amidhar Surti [2012] 347 ITR 149 (Guj) ; 10. CIT v. Jubilant Securities P. Ltd. [2011] 333 ITR 445 (Delhi) ; 11. Asst. CIT v. Kethan Kumar A. Shah [2000] 242 ITR 83 (Ker) ; 12. Radials International v. Asst. CIT (I. T. A. No. 485/2012) [2014] 367 ITR 1 (Delhi) ; 13. Asst. CIT v. Sri ASL Finvest Ltd. [2014] 41 taxmann.com 460 (Hyd) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 31. Asst. CIT v. Smt. Kavita Devi Agarwal [2011] 48 SOT 191 (Jaipur) ; 32. Deputy CIT v. S. K. Tekriwal [2011] 48 SOT 515 (Kolkata) ; 33. Bharati Shipyard Ltd. v. Deputy CIT [2011] 11 ITR (Trib) 599 (Mum) [SB] ; 34. Apollo Tyres Ltd. v. Deputy CIT [2013] 155 TTJ (Cochin) 470; and 35. CIT v. Varanasi Auto Sales P. Ltd. [2010] 326 ITR 182 (All). 22. On the other hand, the learned Departmental representative relied on the order of the Commissioner of Income-tax (Appeals). The learned Departmental representative submitted that considering the volume of turnover and intention of the assessee, it is to be considered that the assessee carried on the business of dealing in shares to earn income out of the sale of shares rather than to earn dividend from the sales. Being so, the income earned from the sale of shares has to be treated under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (k) Mere classification of these share transactions as investment in the assessee's books of account was not conclusive ; (l) The intention of the assessee at the time of purchase was only to sell the shares immediately after purchase ; (m) Frequency of purchase and sale of shares showed that the assessee never intended to keep these shares as investment ; and (n) It is only for the purpose of claiming benefit of lower rate of tax, under section 111A of the Act, that they had claimed certain shares to be investment, though these transactions were only in the nature of trade. 24. The learned authorised representative placed much reliance on the judgment of the hon'ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips P. Ltd. v. CIT [2013] 354 ITR 35 (AP), the judgment to be applied. We have gone through the above judgment of the hon'ble High Court of Andhra Pradesh. We find that the judgment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transaction is in the ordinarily lien of the assessee's business, there would hardly be any difficulty in concluding it to be a trading transaction, but where it is not, the fact must be properly assessed to determine whether it is in the nature of trade. The surplus realised on the sale of shares would be capital, if the assessee is an ordinary investor realising his holding, but it would be revenue if he deals with them as a trader. If the assessee is an ordinary investor, the income arising out of sale of shares is capital gains. On the other hand, if he trades in shares in regular manner, it is income from business. If an individual invests in shares for the purposes of earning dividend, he is not carrying on a business. If the assessee is holding shares as investment and sells them due to change of circumstances and earns profits, that profit is nothing but capital gains. Whether a purchase is made with an intention of resale and gain to earn profit, such income has to be treated as income from business. 26. Thus, in our opinion, the issue as to whether the assessee has carried out transactions in shares as "trader" or "investor" mainly depends on the intention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 34. JB Chemical 20,000 3,40,000 17 1 35. VIP Industries 15,000 2,58,000 17 1 36. Ranbaxy 10,000 1,60,000 16 1 37. Futura Polyster 25,000 3,50,000 14 1 38. Videocon Ind 51,000 6,50,000 13 4 39. City Union Bank 5,000 50,000 10 1 40. IFCI Ltd. 20,000 2,00,000 10 1 41. Rcom 10,000 1,00,000 10 1 42. Hind Oil Exploration 10,000 70,000 7 1 43. TV Today 10,000 70,000 7 1 44. Geojit Financial 55,000 3,40,000 6 1 45. Kitex Garments 30,000 87,425 3 1 27. As seen from the above table, the majority of shareholdings are held for short periods. However, the assessee has stated that the average holding period of the shares is 500 days for the assessment year 2008-09. (paper book page 26). However, we find that this is not borne out of records. For the assessment year 2010-11, the average holding period of the shares is 99 days. Hence, this contention cannot be accepted by us. Same is the position for other assessment years. For the assessment year 2006-07, this is 69 days. 28. Another contention raised by learned counsel is that the assessee has not borrowed funds for buying the shares. In our opinion, the borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he form of dividend was earned by the assessee only in respect of few scrips which gave a very low rate of return as compared to the value of shares held by the assessee-company which cannot be said to be transaction in shares as an investment activity. The assessee did not hold the shares for a long time. The assessee has also been consistently buying and selling shares which shows that the motive was to maximise the profit from the sale of shares and not to remain invested for a longer time. The involvement of the assessee in share transactions was not an occasional one but it was only the activity of the assessee which was carried on regularly in a systematic and organised manner. The short period of holding of shares clearly revealed that there was no intention of the assessee to hold the shares for longer term to earn dividend income. Further, learned counsel for the assessee made a plea before us that in certain assessment years the Department accepted the income from sale of shares as capital gain. For the sake of clarity, we reproduce below the treatment given by the Department in various assessment years : A.Y. Net gain Net loss Comments 2004-05 1,54,559 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of other assessees. At the same time, order passed by a lower authority is not binding on the Tribunal. However, it may be a good arguable point by the parties. 35. Another argument of learned counsel for the assessee is that the assessee has treated the transaction in shares in his books of account as investment. In our opinion, the treatment given in the books of account is not conclusive or decisive and deduction depends upon the provisions of law as held by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). 36. In the light of the above parameters and the decision of the Andhra Pradesh High Court in the case of P. V. S. Raju v. Addl. CIT [2012] 340 ITR 75 (AP) and on perusal of the statements incorporated by the Assessing Officer in the assessment order, we find that the assessees have made several transactions of purchase of shares during the relevant year under consideration, and if there high volume, frequency and regularity of the activity carried on by the assessees in a systematic manner, it would partake of the character of business activities carried on by the assessee in shares, and it cannot be said that the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the three years is with regard to the expenses to be allowed under business. As discussed earlier, the Assessing Officer is required to consider what are the expenses relating to the sale transactions to be allowed while computing the income of the assessee, if it is not allowed already. Accordingly, this ground in all the three years is allowed for statistical purposes. 41. The next common ground is related to the disallowance under section 40(a)(ia) of the Act in all the three years. The learned authorised representative submitted that the Assessing Officer made a disallowance under section 40(a)(ia) of the Act for the reason that there is shortfall in deduction of tax at source. However, the assessee submitted that there was no shortfall in deduction of tax at source as the assessee had deducted tax at source at the then applicable rate. The learned authorised representative submitted that subsequent to the deduction of tax at source, the Finance Act was amended retrospectively by including surcharge. For this proposition, the learned authorised representative relied on the judgment of the Special Bench in the case of Bharati Shipyard Ltd. v. Deputy CIT [2011] 11 ITR (Trib) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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