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2015 (10) TMI 392 - ITAT MUMBAI

2015 (10) TMI 392 - ITAT MUMBAI - TMI - Income from sale of shares - income from business OR short term capital gains - Held that:- From the record we found that assessee has disclosed shares as investment in the balance sheet, there is no claim of any expenses while computing capital gains which demonstrates the intention of the assessee to treat the shares and securities as investment and not as stock-in-trade. No borrowed interest bearing funds was invested in shares except for making investm .....

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asset or investment; treatment given in the books is indicative of assessee's intention whether to hold the shares with a view to earn dividend & long term appreciation or with a view to carrying on as business. Even various Courts and Tribunals have approved that treatment given by the assessee in its books of account as a vital factor to decide whether the assessee is a trader or an investor. We also found that the assessee has regularly treated shares as investment in the earlier year and ha .....

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g assessee's claim for short term capital gains while accepting the long term capital gains on the similar investment made in earlier years. - Decided in favour of assessee. - ITA No. 129/Mum/2011 - Dated:- 7-8-2015 - R. C. Sharma, AM And Sanjay Garg, JM For the Petitioner : Shri Dharmesh Shah For the Respondent : Shri Neil Philip ORDER Per R C Sharma ( A. M. ) This is an appeal filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2006-07 in the matter of order pass .....

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usiness income is far too excessive and not warranted 3) The learned Commissioner of Income Tax has further erred in upholding the disallowance of 20% of the telephone expenses amounting to ₹ 33,256/-. The same are based on conjectures and surmises, and the same may be ordered to be deleted. In any case and without prejudice the said disallowance is far too excessive. 4) The learned Commissioner of Income Tax has further erred in upholding the disallowance of 20% of the fuel and car mainte .....

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6) Your Appellants crave leave to add, alter or amend or withdraw the above ground of appeal and to submit such statements, documents and papers as may be considered necessary either at or before hearing of the Appeal." 2. Rival contentions have been heard and record perused. Facts in brief are that assessee is engaged in the business of export and import of marbles, granite etc. The assessee was also investing in shares and was consistently offering long term and short term capital gains .....

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der, the CIT(A) confirmed the action of the AO with regard to treatment of short term capital gains against which the assessee is in further appeal before us. 4. It was argued by ld. AR that the assessee is carrying out his own business of import and export of marble and granite etc. Our attention was invited to trading, profit and loss account and balance sheet of earlier years, wherein the assessee was continuously carrying on the business of importer and exporter. He was also consistently inv .....

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ndicate that it was not sufficient for the AO to merely rely on the same and change the conclusion already drawn in the earlier year. Our attention was also invited to the method of volume of shares held as investment, which were always valued at "cost" and not at cost at market price, whichever is less. Attention was also invited to the dividend income regularly earned by the assessee on its investment and offered for tax as income from other sources and also accepted by the departmen .....

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uverji Kenia Vs. Add.CIT, 130 TTJ 86 (Mum), the Mumbai Bench of the Tribunal observed that, "There is no justification for treating the activity of purchase and sale of shares as 'business' merely on the reason of the' volume of transactions. As per well settled principles of law, the frequency of transactions cannot be per se decisive." ii) In the case of Mr. Nehal V. Shah vs, ACIT (ITA. No.2733/Mum/2009), the Mumbai Bench of the Tribunal held "that a single transacti .....

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iii) In case of DCIT vs. SMK Shares & Stock Broking (ITA No. 799/Mum/2009) the Hon'ble Mumbai tribunal held that "the fact that the AO accepted the appellant's claim in earlier years that it was an investor is material because though the principles of res judicata do not strictly apply to income tax proceedings it is well settled law that the principles of consistency should not be ignored. Uniformity in treatment and consistency under the same facts and circumstances is one of .....

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thout delivery), which puts assessee's case on a more strong footing. Hence, the delivery based transaction should be treated as of the nature of investment transactions and profit therefrom should be treated as short-term capital gain or long-term capital gain depending upon the period of holding". 5. Ld. AR further placed reliance on the following decisions :- i) CIT Vs. Gopal Purohit, 336 ITR 287; ii) Dr. Priyanka Doctor Vs. ACIT, ITA No.1454/Mum/2012, dated 22-4-2014; iii) Dr. Rahul .....

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come. 7. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements cited at bar by ld. AR and ld. DR in the context of factual matrix of the case. From the record we found that assessee is a proprietor carrying out business in the name and style of M/s Stone Age International and M/s Jai Maharashtra Battery Services. The main business of the assessee was import and export of marble and granite. The .....

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08-09 as placed on record. Perusal of assessment framed for assessment year 2003-04 & 2004-05 clearly indicate that the AO has accepted assessee as investor, thereby capital gain offered was accepted as long term or short term depending on period of holding. During the year under consideration, the long term capital gain offered by the assessee and claimed as exempt was accepted by the AO, however, he did not accept assessee's claim of short term capital gain and treated the same as busi .....

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d by department. In addition to the short term and long term capital gains, assessee was also earning dividend income on the sale of shares held as investment. There is no dispute to the well settled proposition that for deciding as to whether assessee is an investor in share or trader in share, so many factors are relevant which comprises of volume and frequency of transaction, intention of assessee while acquiring the shares which results into earning the dividend income, use of owned/borrowed .....

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the sole criteria. The intention of the assessee while purchasing the share, is the important and guiding factor as to whether the same was purchased with an intention of investment or for trading. The facts of the case as discussed above, clearly reveal that the assessee was investing in shares as investor. As discussed above, if during the mid of the relevant Financial Year, certain tax benefits have been given in respect of capital gains, that cannot, in any way, lead to an assumption or pres .....

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ially when in respect of very same shares which were held for more than 12 months, the AO has accepted the profit arising therefrom as long term capital gains. Thus, only during this year under consideration that the assessee has been treated as a trader because of certain tax benefits granted to an investor in securities by way of amendment in the relevant provisions of the Income Tax Act brought by Finance Act, 2004. By insertion of provisions of section 111A and section 10(38), the levy of ta .....

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ies, the tax payer had an option to pay tax on long term capital gains at the rate of 10% but without indexation. In case of trader in securities, however, the capital gains were taxed as any other normal business income. Thus, tax liability on the income for sale and purchase of shares as regards to short term capital gains and business income was at par. The issue of treatment of income from share transaction as short term capital gains or business income has in fact arisen after the amendment .....

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e provisions as discussed above, that itself, cannot be a ground for the AO to depart from its consistent stand of treating the assessee as an investor and thereby to charge the income earned by the assessee from share transactions as business income. 9. From the record we found that at the time of purchase and sales even during the period prior 1-10-2004, the assessee was not guided or influenced by lower tax rate in case of short term capital gains as the rate for business income and short ter .....

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l that the assessee had treated the delivery based share transactions as investments in his books of account. After the amendment by the Finance Act,2004, certain tax benefit have been given in respect of capital gains, that cannot, in any way, lead to an assumption or presumption that the intention of the assessee at the time of purchase of shares was that of a trader and not of an investor. Even the principle of res judicata is not applicable in income tax proceedings but the principle of cons .....

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and other factors like main business/profession of assessee, intention while purchasing shares, holding the same as investment, earning of dividend income thereon etc. are required to be seen for reaching to the conclusion regarding assessee being investor or trader in shares. 11. From the record we found that assessee has disclosed shares as investment in the balance sheet, there is no claim of any expenses while computing capital gains which demonstrates the intention of the assessee to treat .....

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