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2015 (7) TMI 249 - ITAT DELHI

2015 (7) TMI 249 - ITAT DELHI - TMI - Profits arising from purchase and sale of shares - Capital gain or business income - assessee is showing these shares in its investment portfolio in the books of accounts - Held that:- These shares have been valued at cost. At page 130 of the paper book, copy of Form No. 3CD-tax audit report is contained in which at Serial N. 8a in regard to nature of business or profession, it is stated that, assessee is in the business of share trading investments, financi .....

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years and, therefore, the decision of Tribunal in earlier years applies mutatis mutandis to the facts in the present assessment year, particularly because assessee has primarily sold the shares which have been treated as investments in earlier year. It is pertinent to observe that Assessing Officer has also followed the reasoning for A.Ys 2006 & 2007-08 in arriving at his conclusion that the shares were held as business asset and not as investment which has not been accepted by Tribunal as note .....

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se is squarely falls under speculative transactions as defined in sub section (5) of Section 73? - Held that:- It is evident from the balance sheet that loans and advances granted by assessee aggregated to ₹ 292,189,865/-on which assessee earned interest amounting to ₹ 40,56,653/- which is the main source of Assessee’s income. Thus, the principal business of the assessee was granting of loans and advances. Further, we find from the computation contained at pages 126 that the gross to .....

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dent : Sh. M. L. Dujari ORDER PER S.V. MEHROTRA, AM This is an appeal filed by the Department against the order of CIT(A) XXI,, New Delhi dated 23/09/2013 in Appeal No. 301/2011-12 for Assessment Year 2009-10. 2. The brief facts of the case are that assessee had filed its return of income declaring income of ₹ 64,85,372/-. The Assessing Officer noticed from the tax audit report that assessee had carried out share trading, investments, financing and power generation during the relevant prev .....

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11,80,66,597 7,49,865 16,68,17,319 Sales/Transfer 14,67,873 12,23,90,936 6,68,932 13,60,03,212 Closing Stock 1,16,013 93,22,732 99,933 1,70,67,889 Quantitative Details in respect of Derivatives: Securities(Derivatives 2008-09 2007-08 No. of Shares Amount (Rs.) No. of Shares Amount (Rs.) Opening Stock Nil Nil Nil Nil Purchases 25,99,340 2,80,51,384 23,48,650 1,67,46,431 Sales/Transfer 26,17,676 2,82,28,191 23,48,650 1,27,21,481 Closing Stock 18,336 2.89.553 Nil Nil 3. The Assessing Officer notic .....

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s claimed exempt u/s 10 (38) of the Income Tax Act. The assessee had received dividend income of ₹ 3,40,31,627/- which was also claimed exempt. The assesssee had also made addition to the income in respect of security transaction tax paid during the year amounting to ₹ 7,76,231/-, proportionate depository charges relating to taxable capital gain ₹ 21,126/- and disallowance u/s 14A of the Income Tax Act ₹ 73,43,636/- 4. In the back drop of these details, the assessing offi .....

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f the assessee from share trading. He further pointed out that the turnover of sale and purchase of shares was ₹ 229,72,94,768/- and ₹ 205,18,33,625/- respectively. He further observed that the assessee company was not maintaining stock register and in the absence of stock register it was very difficult to identify which script was held for investment and which script was held for trading. He, therefore, did not accept the assessee s explanation that it had two portfolios viz investm .....

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g the order of A.Y 2006-07, 2007-08 and 2008-09 allowed the assessee s appeal holding that there was no proper justification for treatment of the capital gain from the sale of share investment either as business income or as speculation income. Being aggrieved with the order of the CIT(A), the Department is in appeal before us. And has raised following grounds of appeal. 1. On the facts and circumstances of the case and in law, Ld. CIT erred in directing that out of the entire business income of .....

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, or forego any Ground(s) of appeal at any time before or during the hearing of this appeal. 6. At the outset, Ld. Counsel for the assessee submitted that this issue is covered in favour of assessee by the decision of Tribunal vide ITA Nos. 2558/Del/2011 (A.Y 2006-07), ITA No. 2894/Del/2011 (A.Y 2007-08) and ITA 2662/Del/2012 (A.Y 2008-09) vide consolidated order dated 6th April 2015, a copy of which has been filed in the paper book. 7. Ld. Dr. did not dispute that the issue under consideration .....

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e held as investment portfolio at the close of the previous year relevant to assessment year 2005-06. These investments were also reflected as investment at the beginning of previous year relevant to assessment year 2006-07. These investments have been reflected as investments in the books of accounts. It was also claimed that earlier Assessing Officer has accepted this position of investments in the books of accounts. Shares and securities held as investments were valued at cost subject to prov .....

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d of ₹ 3,51,49,900/-. The assessee submitted complete details towards each investment realized during the year under consideration. The Assessing Officer did not accept the contention of the assessee. The Assessing Officer held these transactions of purchase and sale of shares as business income and not as capital gain. Aggrieved by thisorder, the assessee filed an appeal before the CIT (A). The CIT (A) has granted the relief to the assessee by holding as under :- 4.4 I have gone through t .....

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High Court has held as under:- "There is no doubt that even a single transaction can be in the nature of trade but the assessee has demonstrated that his intention was never to trade in shares. The intention is manifested by treatment given to such investment that the investment is out of own fund and not borrowed that the investment is not rotated frequently, that the total number of transactions are very few, that all the shares purchased are not sold and rather held for quite number of d .....

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trade and profit from which is to be assessed as business income. In all such cases the intention is manifested by the assessee himself by his conduct and other relevant factors as considered by the learned Commissioner of Income Tax (Appeals). It is also seen that the shares were treated as investment in earlier year and which fact has been accepted by the Assessing Officer. The assessee has also earned huge dividend income from such shares. The Assessing Officer merely because of the total vo .....

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ice. Here the assessee has been holding the shares by taking delivery and making full payment for such investment. In such circumstances, the transactions are to be treated as giving rise to the capital gain and cannot be branded as trading of making investment so as to determine whether the transaction was for dealing in shares or making investment for earning dividend and appreciation from such investment. " As per Hon'ble Delhi High Court four basic elements to decide the issue are a .....

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n the principle that even a single transaction can be in the nature of trade. Taking into consideration the ratio of the above said judgment of the Hon'ble Delhi High Court, I had got the occasion to go through the judgment of the Hon'ble ITAT, Mumbai in the case of Management Structure & Systems Pvt. Ltd. Vs. ITO, Ward 6(3)(2), Mumbai, reported at 201OTIOL-254-ITAT-MUM, wherein, Hon'ble ITA T vide order dated 30-4-2010 has decided the issue vide para 15 of the order as under:- & .....

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e assessee and as per the books of account the assessee has treated the entire investment in the shares as an investment only and not as a stock in trade. Another important aspect to be considered here is the assessee is not a share broker nor he is having a registration with any Stock Exchange. Moreover, some scripts are held for more than five years and it is not a case of the AO that there were any derivative transactions by the assessee nor is it a case of the AO that there were transactions .....

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e is entitled to maintain two portfolios. In the case of the assessee, in the preceding years, the assessee is consistently declaring the gain/profit on the sale of the shares under the head 'Capital Gain' either Long Term and Short Term and the same has been accepted by the AO. It is true that the rule of res judicata is not applicable to the Income Tax Proceedings, but at the same time, it is also well settled principles that if there is no change in the facts, then, there should be co .....

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at 2011-TIOL-1 09-ITA TDEL, wherein in para 6 of the order Hon'ble Tribunal has held as under:- "We have heard the rival contentions in light of the material produced and decision relied upon. We notethat the assessee is a broker as well as investor. It has maintained the investment portfolio separately income for which was liable to be taxed as capital gains, as the intention in respect of this was to hold the investment as investment only and were shown as such in the books of accoun .....

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nces, we note that assessee has distinctly maintained investment account and trading account." 4.7 After analyzing the issue and considering the various case laws as relied upon by the Id. AR, I find that holding period is the most appropriate factor to decide the issue, whether it should be treated as stock in trade treating it as a business .income or investment so as to treat it as capital gain. My view gets strength from the order of Hon'ble Ahmedabad Tribunal in the case of Shri Sh .....

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purchases as investment but frequency of transaction in several cases is so large and holding period in many cases is so small - from 0 to a week or so that assessee is de facto selling and purchasing shares as trader. He is also holding shares for long period - indicating that they are held as investment. Therefore, a criteria has to be fixed for determining as to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as p .....

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more than a month, they should be treated as investment and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business." The criteria laid down by the Hon'ble Tribunal is very much appropriate so as to decide the issue in this regard. Accordingly, it is held that shares which were held for less than thirty days will be treated as trading income and remaining shares will automatically come un .....

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,34,881/- PMS Shares Loss. 16,54,669/- Total gain. 19,30,207/- Thus, the gain on shares held up to 30 days comes to ₹ 19,30,207/-, which will be treated as "Business Income". All the other gains which have been held by the AO in the Own shares (Others) PMS Shares body of order as "Business Income" is allowed as capital gain whether long term or short term. AO is directed to verify the claim of assessee with regard to holding period less than 30 days and gain out of it a .....

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the remaining ₹ 38,53,47,813/- would comprise capital gains. 5. Assessee has also filed cross objection by taking the following ground on this issue :- That the learned CIT (Appeals) has erred in holding that interest earned by the assessee company is income from other sources and not income from business. 6. While pleading on behalf of the revenue the ld. DR relied on the order of the Assessing Officer and submitted that whether a particular holding of shares is by way of investment or pa .....

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there was transfer of shares from investment to trading account. It was also pleaded that there was high volume of purchase and sales of shares. 7. On the other hand, ld. AR relied on the order of the CIT (A). Ld. AR has placed reliance on the decision of Hon ble Supreme Court in the case of CIT vs. Associated Industrial Development Company Pvt. Ltd. - 82 ITR 586. He has also placed reliance on the decision of Hon ble Supreme Court in the case of Raja Bahadur Visheshwar Singh vs. CIT - 41 ITR 68 .....

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ed by the assessee company and in the light of ratio laid down by Hon ble Supreme Court in the cases of CIT vs. Associated Industrial Development Company Pvt. Ltd. - 82 ITR 586 and Raja Bahadur Visheshwar Singh vs. CIT - 41 ITR 685, the investments were realized during the assessment year and the assessee has rightly considered the surplus as a long term capital gain. The ld. AR also pleaded that CIT (A) was even not justified for treating the short term capital gain arising from the shares sold .....

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k-in-trade which are to be treated as trading asset. The assessee was having two portfolios and has income under both the heads, i.e., capital gains as well as business income. The ld. AR also submitted that Hon ble Supreme Court in the case of Dalhausie Investment Trust Company Ltd. vs. CIT - 68 ITR 486 has held that principal consideration in determining whether income from sale of shares is revenue income or capital gain is to find out what was the purpose of purchase of these shares and, if .....

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re held as investment in the previous year as well as during the year and in the subsequent years. Secondly, these purchases were not made from the borrowed funds on which interest was to be payable. Normally, when the purchases are made from borrowed funds then such purchases are not for investment as nobody will invest by taking borrowed funds and pay interest. In assessee s case, the funds were not borrowed for making the investment. The third issue is the period of retention where the surplu .....

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rade. The ld. AR also submitted that CBDT has already clarified in its circular that assessee can have two portfolios of shares, one is trading and another is investment. It was also pleaded that none of the factor alone are sufficient to come on a definite conclusion but it is the cumulative effect of these factors which will determine the character of the holding of the shares. 8. We have heard both the sides on the issue and also considered the material available on record. We have also consi .....

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accounts of the assessee. It is also a fact that most of the investments realized during the year were held as investment for more than a year even, in some of the cases, these investments were held for more than 2 to 4 years. The assessee submitted details of these transactions before the Assessing Officer. It is also a fact that during the year, the assessee has earned substantial dividend income of ₹ 3,51,49,900/-. The CIT (A) has given the relief to the assessee relying on the judgment .....

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lf provides that when the shares are held for a period of more than a year or more will be treated as long term capital asset, contrary to the fact that other assets to be called as long term asset have to be held for more than 36 months. These shares were being treated as investment in earlier years and this fact has been accepted by the Assessing Officer. Substantial dividend income was being earned on these investments. All these facts show that facts of the assessee are similar to the facts .....

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cable to the income-tax proceedings, however, at the same time, it is also well settled principle that if there is no change in the facts, then, there should be consistency in the approach of Income-tax authorities while deciding the tax liabilities of the assessee. In this case, the assessee was consistently declaring gain on sale of investments of shares under the head long term capital gain or short term capital gain and this position was being accepted. The CIT (A) has also relied upon the d .....

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. At Page 194 of the paper book assessee s annual report for financial year 2008-09 is contained in which at internal page 23 to 26, the details of investments in equity shares is contained. These shares have been valued at cost. At page 130 of the paper book, copy of Form No. 3CD-tax audit report is contained in which at Serial N. 8a in regard to nature of business or profession, it is stated that, assessee is in the business of share trading investments, financing and power generation and in C .....

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r years and, therefore, the decision of Tribunal in earlier years applies mutatis mutandis to the facts in the present assessment year, particularly because assessee has primarily sold the shares which have been treated as investments in earlier year. It is pertinent to observe that Assessing Officer has also followed the reasoning for A.Ys 2006 & 2007-08 in arriving at his conclusion that the shares were held as business asset and not as investment which has not been accepted by Tribunal as .....

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ismissed. 9. Apropos Ground No. 2, the Assessing Officer has inter alia observed as under. Without prejudice to the above, the facts and circumstances of the assessee case is squarely falls under speculative transactions as defined in sub section (5) of Section 43. ON perusal of broker notes it suggests that transactions are speculative in nature. In this regard, a few samples of brokers notes are reproduced as under……………………… Needles .....

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d are without any substance as no supportive evidence has been adduced to treat share transactions as non-speculative. Therefore, I hold that assessee has indulged in speculative transactions and treated as such. 10. We find that Tribunal, in its order has observed from para 9 to para 11 as under: 9. The revenue has also taken a ground with regard to the holding that the provisions of Explanation to Section 73 of the Act are not applicable to the case of the assessee and income from transactions .....

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