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2015 (10) TMI 2005 - ITAT MUMBAI

2015 (10) TMI 2005 - ITAT MUMBAI - TMI - Gain or loss earned on sale and purchase of shares and securities - capital gain v/s busniss income - Held that:- The Tribunal noted that so far as rule of consistency was concerned, even prior to assessment year 2004-05 assessee was showing the shares as investments and that the same should have been applied in assessment year 2004-05 also, where assessee had himself changed the method of accounting in comparison to earlier year as well as in the subsequ .....

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its own facts and circumstances. In fact, the Tribunal subsequently noticed that “since there are decisions on both sides on this point, therefore, each case has to be decided on its own facts” The aforesaid observation of the Tribunal itself suggests that each case is to be decided having regard to the totality of its facts and circumstances. Therefore, in our view the decision in the case of Shri Chhitubhai N Patel(supra) relied upon does not help the assessee in the present case.

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ppeals, pertaining to assessment years 2007-08 and 2009-10 relate to the same assessee and involve a common issue, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of brevity. 2. The only issue in the captioned appeals relates to the characterization of the transactions of purchase and sale of shares/securities undertaken by the assessee. The assessee reflected the gain or loss on purchase and sale of shares as assessable under the head c .....

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was concerned, the same was liable to be taxed under the head capital gains and the purchase and sales of shares resulting in short term capital gains was liable to be taxed as business income. Accordingly, in assessment year 2007-08, Revenue is in appeal challenging the order of the CIT(A) holding that the transaction giving rise to long term capital gains are assessable under the head capital gains, whereas the assessee has filed the Cross Objection assailing the order of the CIT(A) in treati .....

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gains were held liable to be assessed as business income . Accordingly, for assessment year 2009-10, the assessee is in appeal before us. 3. In the above background, a pertinent fact which is emerging is that in assessment years 2005-06 as well as 2006-07, the Mumbai Bench of the Tribunal, in the case of the assessee vide ITA Nos. 4384/Mum/2008 dated 29/10/2010 and 6045/Mum/2009 & 6110/Mum/2009 dated 22/12/2010 has considered a similar dispute and held that the profit or loss earned on trans .....

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the fact-position in assessment years under consideration is quite different from those considered by the Tribunal in assessment years 2005-06(supra) and 2006-07(supra). By adverting to the Paper Book filed for the assessment year 2007-08, it is contended that the details of the long term capital gain for the assessment year 2007-08 amounting to ₹ 22,86,675/- show that assessee has dealt with in only 5 Scrips and that there is no repetitive transactions. Similarly, reference has been invi .....

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ans in the Balance sheet shows that the same are raised from own group entities, and that no borrowings have been used for making any investment in shares/securities. Ld. Representative for the assessee also referred to Schedule-F of the Balance sheet, placed at pages 17 to 18 of the Paper Book to demonstrate that the relevant shares/securities have been classified as Investments and not stock- in- trade. Accordingly, on the basis of the aforesaid fact-situation, it was sought to be pointed out .....

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ence has also been made to an affidavit filed by the director of the assessee company, namely, Shri Charaneep Singh. In the said affidavit the assessee company has sought to explain the circumstances in which appropriate facts were not brought to the notice of the Tribunal. The relevant contents of the affidavit are as follows:- 3. I say that the Assessment Orders for the Assessment Year 1998- 99,Assessment Year 1999-2000 & Assessment Year 2003-04 along with the Balance Sheet for these years .....

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sment Year 2005-2006 the revenue had assessed the income declared by the Assessee from sale of shares as either Income from Capital Gain or Income from Business depending upon the treatment given to the shares in the Balance Sheet as Investments or Stock - in - Trade. 5. I say that the Income Tax matters were fully attended to under the personal guidance of Previous Director Shri. Late Darshanjit Singh. He had undergone an Angioplasty Operation of his heart on 17th February, 2008 and was thereaf .....

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-12-2010. Shri. Darshanjit Singh passed away on 12-11-2010. Hence, I say that the Assessee did not have the benefit of Shri. Darshanjit Singh s guidance when the cases for the Assessment Year 2005-2006 and Assessment Year 2006-2007 came up before the Honourable Tribunal. 7. I say that the consistent approach of the Assessing Officer in assessing the Income from the sale of shares as Capital Gain or Income from Business depending upon the treatment given in Balance Sheet prior to Assessment Year .....

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nt Year 2003-2004 to highlight the fact that the department had followed a consistent approach right upto Assessment Year 2003-04 when the Assessment Orders passed under section 143(3) of the Income Tax Act,1961. 5.1 In the above background Ld. Representative for the assessee sought to make out a case that even prior to A.Y. 2005-06 Revenue had assessed income declared by the assessee from sale of shares either under the head capital gains or business income as depicted by the assessee in its Ba .....

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as capital gain was upheld. The relevant papers have been placed in the Paper Book filed before us. What is sought to be highlighted by the Ld. Representative appearing for the assessee is the consistent approach of the Revenue in the assessments made under section 143(3) of the Act right upto assessment year 2003-04. 5.2 On the aforesaid basis it is sought to be made out that if principle of consistency was to be applied in A.Y 2005-06, it ought to have been held that income from purchase and s .....

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ital gains be upheld. In support of the aforesaid approach, reliance has been placed on the decision of Mumbai Bench of the Tribunal in the case of Shri Chhitubhai N Patel, ITA NO.5238/Mum/2009 dated 20/12/2012, wherein also under somewhat similar circumstances the Tribunal upheld the plea of the assessee of treating the gain on sale and purchase of shares as capital gains. 6. On the other hand, Ld. Departmental Representative appearing for the Revenue has defended the action of the Assessing Of .....

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nts for the various years placed in the Paper Book and pointed out the fact-situation as well as the manner of computation of the income from purchase and sales of shares continues to remain the same as was considered by the Tribunal in A.Y. 2006-07(supra). Therefore, he has strongly supported the stand of the Assessing Officer to point out that the same be upheld in view of the orders of the Tribunal in the assessee s own case for the assessment years 2005-06 & 2006-07(supra). Ld. Departmen .....

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was a case of trading in shares and not a case of sale of investments. The Ld. Departmental Representative also contended that there is no material to say that the fact-situation in the instant years is different from what was considered by the Tribunal in assessment years 2005-06 and 2006-07 7. We have carefully considered the rival submissions. The pertinent controversy in the present appeal, which we have already noted earlier, is the nature of the gain or loss earned by the assessee on sale .....

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terest receipt. In the computation of income, the profit on sale of long term/short term capital gains credited in the Profit & Loss Account has been re-worked as long term capital gains of ₹ 22,86,675/- and short term capital gains of ₹ 1,16,989/-, depending on the period of holding of the respective shares/securities. The entire income classified as long term capital gains has been claimed exempt under section 10(38) of the Act. 7.1 The case of the Assessing Officer is that the .....

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risen between the assessee and the Revenue and Tribunal vide its order dated 29/10/2010(supra) has upheld the stand of the Assessing Officer of treating the transaction of dealing in shares as a business activity. The relevant discussion in the order of the Tribunal dated 29/10/2010 reads as under:- 5. We have noted that as regards assessee s contention that investments were made to earn dividends, a factual proposition on which almost entire web of argument rests, the actual dividend earning du .....

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tomer advances, can be used for investments in shares to earn dividends. It is also important to bear in mind the fact that the entire garment exports during the relevant previous year was only to the tune of ₹ 10.97 lakhs, and investment in shares, which is said to have been made out of advances received for these exports, was ₹ 389.24 lakhs. The investments thus work out to over 35 times the annual export turnover, and yet it is funded out of advances received for exports. In this .....

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s. Undoubtedly, the accounting treatment is in important factor but this factor per se cannot be decisive of the question whether shares are held as stock in trade or investment. It is also useful to note that the audit report, at page 88 of the paper book, states that the assessee is dealing in shares and futures etc. It is only elementary that if a receipt is trading receipt the fact that it is not shown in the account of the assessee does ITA No. 4384/Mum/2008 Assessment year 2005-06 Page 6 o .....

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estments cannot be to simply earn dividend income. We have also noted, as evident from a perusal of statements of long term and short term capital gains at pages 14 to 17 of the paperbook, that there are several transactions of sale and purchase in respect of the same scrip, which reflects the systematic activity of sale and purchase for the purpose of realizing gains on profits. In some of the cases, holding period of shares is just a few days (such as 1, 5,6,8, and 9 days). There can not be in .....

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e only in the nature of deployment of funds to make profits by dealing in shares rather than investing in shares. All these factors taken together clearly show that the claim of the assessee to the effect that these shares were held as investments , for the purposes of earning dividends, cannot be accepted. On the contrary, these transactions are clearly in the nature of transactions aimed at earning from trading in shares. The CIT(A) has thus clearly erred in being guided by the accounting trea .....

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term, to be assessable as business income. The Tribunal essentially followed the earlier decision dated 29/10/2010(supra) on the ground that the earlier Bench in Assessment Year 2005-06 had reached to a factual finding that assessee had indulged in business transaction and not as investments. 7.4 In the above background the Ld. Departmental Representative appearing for the Revenue has canvassed the position that the impugned dispute be settled in favour of the Revenue following the precedents i .....

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reference has been invited to the assessment completed by the Assessing Officer under section 143(3) of the Act for Assessment Year 1998-99, 1999-2000 and 2003-04, wherein the nature of income from purchase and sale of shares has been accepted as returned. The plea set up by the assessee is that the adjudication by the Tribunal for Assessment Years 2005-06 and 2006-07 be ignored and the consistent position of years prior thereof ought to be accepted and that the same should govern the treatment .....

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red by the Tribunal in assessment year 2005-06(supra) after analysing the entire factual matrix with regard to the nature of activities of sale and purchase and sale of shares carried out by the assessee, and which has been further upheld in assessment year 2006-07(supra), can be revisited by a subsequent Bench without there being any cogent and compelling reasons for making a departure. Ostensibly, the plea of the assessee for making a departure from the orders of the Tribunal for assessment ye .....

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essed the income declared by the assessee from sale of shares as either income from capital gain or income from business, depending upon the treatment given to the shares in the respective Balance sheets as Investment or stock-in-trade . On the strength of the said arguments, it is sought to be contended that the rule of consistency supports the assessee, because upto assessment year 2003-04 Revenue had assessed the income declared by the assessee from sale of shares as either income from capita .....

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id consider the plea that prior to 31/3/2004 the shares were shown as investments. For this, we may refer to Para-2 of the order of the Tribunal dated 29/10/2010 (supra) for assessment year 2005-06, wherein operative portion of the order of the CIT(A) has been reproduced. Notably, in Assessment Year 2005-06 the CIT(A) had upheld the stand of the assessee that the gain earned on sale of shares was liable to be assessed under the head capital gains as against the stand of the Assessing Officer on .....

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trying to point out that in the course of determination of dispute in assessment year 2005-06(supra), the Tribunal was conscious of the position that in the earlier period such shares were being held as investments. Therefore, at this stage, this Bench cannot re-appreciate the whole issue all over again and depart from the findings of the Bench for Assessment Year 2005-06(supra), which has duly considered the fact position prevailing prior to the assessment year 2005-06. As a consequence, we, t .....

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Chhitubhai N Patel(supra). In the said case, Tribunal was deciding the head under which the income from purchase and sale of shares was liable to be assessed i.e. whether capital gains or business income, in relation to assessment year 2006-07. The Revenue had pointed out that in assessment year 2004-05 assessee had himself admitted the income from purchase and sale of shares as business income and therefore, it should be assessable as such in assessment year 2006-07 also. It was pointed out th .....

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-05 assessee was showing the shares as investments and that the same should have been applied in assessment year 2004-05 also, where assessee had himself changed the method of accounting in comparison to earlier year as well as in the subsequent years. This observation of the Bench is sought to be emphasized by the Ld. Representative for the assessee before us to support his plea that the orders of the Tribunal for assessment years 2005-06 and 2006-07 in assessee s own case be disregarded and in .....

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