TMI Blog2015 (4) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... fter 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 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. 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 cannot ignore this legal proposition that the rule of consistency has to be followed in good conscience and bona fide until and unless changed facts and circumstances are found in the subsequent 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 give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4/2010 dated 16.05.2007 of the CBDT on this issue is amply clear which expresses the distinction between shares held as stock-in-trade and shares held as investment and also makes distinction between capital asset and trading asset. Ld. DR further submitted that capital 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 asset) and shares held as stock-in-trade (trading asset) has been carved out and in the light of a number of judicial decisions pronounced on the issue, it was proposed to update the above instruction for the information of the assessee as well as for the guidance of the AO. 4. Placing reliance on the decision of Hon ble Supreme Court in the case of CIT vs Associated Industrial Development Company (P) Ltd. [1971] 82 ITR 586 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 held as investments are consistently valued at costand not at cost or market price, whichever is lower; -. Assessee had no infrastructure/ staff/employee to undertake business activity of trading in shares. Investment transactions were undertaken by giving instructions on phone to the broker; - Entire investment was made out of own funds and not out of borrowed funds [refer balance sheet at page 13 of paper book]; - Short-term capital gain of ₹ 1.43 crores was earned from 39 scrips only [refer 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 shares held for more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phone calls takes hardly a few minutes. Total time devoted by the Appellant for the transaction of purchase and sale of shares does not take even few minutes. Thus I agree with the Appellant that sale and purchase of share was not the regular business activity of the Appellant and hence I hold that the profit derived by him from the same cannot be treated to be a 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 Term Capital Gain. Assessing Officer is accordingly directed to tax profit of ₹ 79,80,789 from sale of shares as Short Term Capital Gain @10% u/s 111A and grant full exemption to the profit of ₹ 93,089/- as Long Term Capital Gain. This ground is therefore allowed. 8. In view of above, we are of the considered opinion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot ignore this legal proposition that the rule of consistency has to be followed in good conscience and bona fide until and unless changed facts and circumstances are found in the subsequent 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. At the cost of repetition, we also take note of this fact that out of total capital goods, the assessee earned 93.62% from the transactions in three scrips of Lok Housing, Karutari, and OKplay. In this situation, similar classification of income has been accepted by the department in the preceding three consecutive assessment years u/s 143(1) of the Act and also same classification of shares and profit from purchase and sale of shares has been accepted by the AO in AY 2009-10 as capital gains in order dated 25.11.2012 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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