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2015 (4) TMI 753 - ITAT DELHI

2015 (4) TMI 753 - ITAT DELHI - [2015] 39 ITR (Trib) 76 (ITAT [Del]) - Treatment of income from trading in shares - Business income or Capital gain - Principle of res judicata - Held that:- The AO has not brought out anything to controvert this fact that the sale and purchase of shares by the assessee was not a regular business activity and therefore profit derived by the assessee from the same cannot be treated to be business income from profit. From Paper book page no. 13 to 15, we note that t .....

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lakh was earned from 25 scrips only and the profit declared as capital gain was earned from delivery based purchase and sale of shares and delivery was taken after making full payment for such transaction. We also note that as per Paper Book page no. 3 and 5 of the assessee, short term capital gain was earned out of 3 scrips which only comes to 93.62% of the total profit from purchase and sale of shares and major part of the capital gain was earned from the shares held by the assessee for more t .....

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uent assessment yeas. As we have noted earlier that the assessee has shown shares in its balance sheet during the preceding assessment years as an investment and the same has been valued at cost of purchase.

We are inclined to hold that the AO was not justified in treating the income from purchase and sale of shares as business income ignoring the treatment given by the assessee in his books of accounts and financial statement filed along with the return of income and in the light of .....

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.1314/DEL/2012 - Dated:- 2-3-2015 - Shri G.D. Agrawal And Shri Chandramohan Garg JJ. For the Appellant : Shri Vikram Sahai DR For the Respondent : S/Shri Rohit Jain, Adv. , Sahil Mehta ORDER Per Chandramohan Garg, J.M. The above captioned appeals have been filed by the revenue against the order of the CIT(A)-XXVIII, New Delhi dated 15.12.2011 in Appeal No. 94/2009-10 and Appeal No.203/2010-11 for AY 2008-09. 2. The revenue has raised solitary similar ground in both the appeals which reads as und .....

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treating the income from trading in shares as business income instead of capital gains as claimed by the assessee. Ld. DR vehemently contended that the CIT(A) ignored the nature of transactions made by the assessee and the frequency and the volume of the transactions effected by the assssee during the financial year under consideration. Supporting the assessment order, ld. DR submitted that the AO rightly observed that while determining the amount under the head of investment and trading and co .....

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pital assets are defined in section 2(14) of the Income Tax Act, 1961, long term capital asset and gains are dealt u/s 2(29A) and section 2(29B) of the Act and short term capital asset and gains are dealt with u/s 2(42A) and 2(42B) of the Act and trading balance has been defined u/s 28 of the Act. Ld. DR has further drawn our attention towards CBDT Instruction No. 1827 dated 31.8.1989 and submitted that through this instruction to the AO, a distinction between shares held as investment (capital .....

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res is by way of investment or forms part of stockin- trade is a matter which is in the knowledge of the assessee who hold shares and it should, in normal circumstances, be in a position to produce evidence from its record as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. Ld. DR finally submitted that the AO went in detail to decide the issue of stock-in-trade and investment following all the principle .....

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s before selling the same. Ld. DR disputing the impugned order submitted that the CIT(A) was not justified in concluding that merely selling shares at profit or buying shares with profit motive would not amount to business activity. Ld. DR vehemently contended that looking into the frequency of transaction and period of holding, the main object of the assessee was to earn profit from sale and purchase of shares which is clearly business activity and income therefrom cannot be held as capital gai .....

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Counsel of the assessee submitted written synopsis/submissions to support the stand of the assessee which reads as under:- Assessee is a Chartered Accountant by profession and is partner in M/s. Sunil Gupta and Co, Chartered Accountants ; - Shares were held and classified as "investments" and not as "stock in trade" in the books of account [refer balance sheet for the year ended 31.03.2005, 31.03.2006, 31.03.2007 & l31.03.2008 - pages 13-15 of the paper book); - Shares h .....

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fer pages 3-6 of paper book]; - Transactions declared as "capital gains" were delivery based, i.e., where delivery was taken after making full payment for such investment; - Out of the total capital gain of Rs.l,43,75,949/-, 85.30% gain was out of four scrips (a) Gremach of amount 40,31,914/- and (b) Aluwalia co. of amount 61,90,598/- (c) IB realty of amount Rs.I0,15,2711- (d) Greaves cro.Rs.10,24,3811- (Refer pgs 3-5 of the PB) - Major part of the capital gain was earned in respect of .....

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ars 2004-05, 2005-06 and 2006-07 under section 143(1) of the Income Tax Act, 1961 ("the Act"); - Out of total gain of ₹ 1.43 crores, capital gain on shares held in the preceding year amounted to ₹ 33,46,480/- (refer pg 9 of PB); - Classification of shares and gains also accepted by the assessing officer in the succeeding assessment year 2009-10 vide order dated 25.11.2011 passed under section 143(3) of the Act [refer pages 37-39 of the paper book). 6. Ld. counsel lastly sub .....

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clared by the assessee. 7. On careful consideration of above submissions, we note that the CIT(A) granted relief for the assessee with following conclusion:- 47. I have also seen the chart filed by the Appellant to show that total purchase and sale carried out by the Appellant in the whole year comes to only 66 days. Total transactions done by him in 66 days comes to 101 averaging less than 2 transactions per day with reference to 66 days on which transactions were done and only 0.27 transaction .....

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business profit. Assessing Officer is therefore directed not to treat the profit from sale of shares declared by the Appellant as business profit. Authorized Representative of the Appellant has fairly conceded that once profit from sale of these shares is held as capital gain, deduction of STT paid at ₹ 83,377/- will not be allowable. In that event profit of ₹ 79,80,789 will become taxable as Short Term Capital Gain @10% and profit of ₹ 93,089/- will be fully exempt as Long Ter .....

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it derived by the assessee from the same cannot be treated to be business income from profit. From Paper book page no. 13 to 15, we note that the assessee has shown investment in shares as in AY 2005-06, 2006- 07 and 2007-08 and the same has been shown at cost and not as stock-intrade which is valued at cost or market price whichever is lower. From balance sheet page no. 13, we also note that in AY 2007-08, the capital brought forward by the assessee was ₹ 1,19,66,247 whereas investment in .....

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the total profit from purchase and sale of shares and major part of the capital gain was earned from the shares held by the assessee for more than 30 days. The AO has not brought out any fact or material to controvert or to demolish above facts supporting the case of the assessee. 9. Ld. counsel has also raised issue of consistency and submitted that similar classification of shares as investment and capital gains was accepted by the department in the preceding assessment years 2004-05, 2005-06 .....

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y and examine the issue in the succeeding years i.e. 2007-08 and 2008-09. However, ld. DR fairly accepted that similar classification of shares and treatment of profit submitted by the assessee was accepted by the AO in the succeeding AY i.e. 2009-10 vide order dated 25.11.2011 (supra) passed u/s 143(3) of the Ac t. 11. At the outset, we are in agreement with this legal contention of the ld. DR that principle of res judicata does not apply to the taxation proceedings but at the same time, we can .....

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