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Shri Vishal Dipak Shah Versus Additional Commissioner of Income-tax Range 19 (2) , Mumbai.

2015 (10) TMI 2054 - ITAT MUMBAI

Share transactions - short term capital gain or trading profits - Held that:- It is clear that for the purpose of evaluating the nature of transaction and intention of the assessee, predominant facts are to be taken into account. It is pertinent to note that when the assessee has given a treatment of these shares held under the investment portfolio in the books of account as investment, then, in absence of any thing contrary brought on record to disprove the primary evidence to reflect the inten .....

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of assessee. - ITA No.6530/Mum/2010 - Dated:- 16-9-2015 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri Rashmikant D Kundalia. For The Respondent : Shri G.M.Doss, CIT(DR) and Shri Randhir Kumar Gupta ORDER Per VIJAY PAL RAO, JM: This appeal by the assessee is directed against the order dated 28/06/2010 of the CIT(A)-30, Mumbai, for the assessment year 2006-07. 2. The assessee has raised the following grounds: 1. The learned C.I.T (A) has er .....

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gis. 5. The learned CIT-A has erred in upholding ex-facie fallacious assessment. 3. The assessee filed its return of income on 30/10/2006 disclosing total income of ₹ 2,54,17,781/- including short-term capital gains (STCG) from purchase and sale of shares to the tune of ₹ 2,34,38,613/-. The assessee is a proprietor of M/s.V.J. Investments and also received income from future and options to the extent of ₹ 11,72,043/- as well as speculation profit on sale of shares to the extent .....

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of purchase and sale of shares and securities. The AO held that the assessee s main activity is dealing in shares by way of speculation future end option and trading in shares. Accordingly, STCG declared by the assessee on purchase and sale of shares was treated as income from business and assessed to tax accordingly. 4. The assessee challenged the action of the AO before the CIT(A) and contended that for the assessment year 2005-06, the claim of the assessee was allowed by the CIT(A) and, ther .....

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hase and sale of shares then the concessional tax levied on STCG stand compensated by the Securities Transaction Tax (STT) on purchase and sale of shares. The CIT(A) did not accept the contention of the assessee and observed that the principle of res judicata is not applicable in the taxation matter and facts of this assessment year are different from the facts for the assessment year 2005-06. Accordingly, the CIT(A) has confirmed the action of the AO in treating the STCG as business income. 5. .....

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s been brought into statute wherein no tax is provided on LTCG from listed securities. It has also reduced the rate of tax to10% on STCG from listed securities. The definition of shortterm capital asset being a share as per the provisions of sec.2(42A) remains unchanged despite the new scheme of tax on the capital gain from listed securities. The holding period for STCG and LTCG remains the same. As per the provisions of the IT Act subsequent to amendment in tax on capital gains from listed secu .....

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d as per sec.88E. Therefore, STCG enjoying concessional rate of tax has been denied the benefit of rebate under section 88E of the Act. The learned authorised representative of the assessee has referred to the Finance Minister s Budget speech in respect of the amendment brought into statute and introduction of STT which demonstrated the object and purpose of the new scheme of tax of capital gains on listed securities. Thus, after introduction of STT, it is easy to administer the tax and it has a .....

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and prior to that the transaction was subjected to tax rate provided under the unamended provisions of the Act whereas for the year under consideration, the transactions for the whole year are governed under the amended provisions of the Act. He has referred to the details of the transaction and submitted that for the year under consideration, major STCG earned from 11 scrips and the holding period of those 11 scrips is ranging from more than a week to 344 days and the average holding period of .....

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then submitted that the transactions carried out by the assessee have to be considered in the light of the substantial change in the stock market and the sensex during this year has enormously increased from 800 points to 1000 points. Therefore, in a highly bullion market during the year it was natural for carrying out the bulk transactions and earning more STCG. He has further submitted that the assessee s main activity is providing consultancy services and has entrusted his portfolio to the ma .....

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investment. The assessee is keeping separate account for trading as well as investment activity. He has relied upon the judgment of the Hon ble jurisdictional High Court in the case of CIT vs. Gopal Purohit (228 CTR 582). Learned authorised representative of the assessee has submitted that the assessee is a management graduate in finance and runs his independent financial consultancy practice for the last three years. The assessee depends on his consultancy practice for his livelihood and entrus .....

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e assessee is for the purchase of motor car and there is no other loan. Therefore, authorities below have assumed wrong facts regarding the use of borrowed funds though there may be outstanding dues to the portfolio manager/broker but there is no loan for the purpose of investment in shares. Thus, learned authorised representative of the assessee has submitted that the intention of the assessee was investment and not to earn the trading profit. The assessee used his own surplus fund and no borro .....

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has carried out repetitive transactions in number of scrips whereas the large quantity of one scrip purchased by the assessee on a single day has been considered by the AO has multiple transaction which is contrary to the actual fact that single purchase order is executed in the piece-meal as per the availability of shares from the seller side. In support of his contention, he has relied upon the judgment of the Hon ble Delhi High Court in the case of Radial International vs. ACIT (367 ITR 1). T .....

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shares by the assessee. Therefore, in the absence of any material change in the facts and circumstances of the case for the year under consideration, the issue is covered by the decision of this Tribunal for the assessment year 2005-06. He has also relied upon the orders of the authorities below. 7. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that an identical issue was considered by this Tribunal in assessee s own case for assessme .....

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nd that the said assessee has consistently been investing in shares and ratio of sales to investment was very less. In the above referred case, there was long term capital gain of ₹ 1.12 crores which was claimed exempt and long term capital gain taxable at 10% to the tune of ₹ 60 lakhs in addition to profit from trading in shares taxable at 10% and short term capital gain at 10% of 57.31 lakhs. In that case, the assessee was investing for a long period and offering the long term capi .....

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n the case of ACIT Vs Shri V. Nagesh in 1TA No. 3236 for A.Y. 2006-07, the Mumbai Bench while considering similar issue held as follows: Now the learned Counsel for the assessee before us albeit fairly conceded that the facts and circumstances of this year were similar to those of the preceding year but impressed upon the bench to either treat income from sale of share trams-action as short term capital gain or refer the matter for the constitution of Special Bench due to differing view taken by .....

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which has to be decided on the facts of each case distinctly for identifying whether income/loss from sale of share transactions is business income or capital gain. As the Tribunal in assessee s own case has examined the facts of the immediately preceding year, which are admittedly mutatis mutandis similar to those of the instant year, and has come to a positive conclusion that the share transactions were in the nature of business transactions, we are of the considered opinion that there is no .....

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or straightjacket formula can be devised for getting quick answer to such questions. It is pertinent to note that for the assessment year 2005-06, the CIT(A) has decided the issue in favour of the assessee and the assessee, while challenging the order of the AO for the assessment year under consideration contended before the CIT(A) that the case of the assessee is covered by the order of the CIT(A) for the assessment year 2005-06. However, the CIT(A) did not accept this contention of the assesse .....

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pellant that he should be allowed a relief on the same lines as he was allowed in the AY 2005-06 does not hold good. The submissions made by the appellant vide letter dt.20/08/2009 a reference of which has already been made in the preceding paras are not convincing and tenable. 8. Thus it is manifest from the impugned order that the CIT(A) did not accept the order for the assessment year 2005-06 as operating res judicata or precedent on the ground that the said order was in the backdrop of diffe .....

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stment or trading. Even otherwise, we find that the AO has reproduced the details of transactions in two scrips at page 6 of the assessment order and found that these transactions are repetitive in nature. For ready reference, we reproduce details of the transactions reproduced at page 6 of the assessment order as under: Name of the Scrips Quantity Date of purchase Date of sale Purchase Cost Sale proceeds Gain Loss No. of days held Agrotech Foods 900 15/4/05 25/04/05 65392 70466 5074 10 Agrotech .....

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oods there are only two transactions - one of the purchase of a large quantity on 15/4/2005 and another transaction of purchase of 1000 shares of the Agrotech Foods on 22/4/2005. These transactions are for purchase of the same scrip on two different dates and therefore, cannot be considered as repetitive transactions when there is no sale of the said scrip in between. The sale of shares of the said scrip was subsequent to the last purchase on 22/4/2005. Thus it is clear that the AO misunderstood .....

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has considered a single transaction of purchase or sale in one scrip on a single day as multiple transaction because the purchase or sale order of a large quantity of shares has been executed in the multiple small quantities and therefore, one single transaction is reflected as multiple transaction in the same scrip whereas the transaction of a large quantity of same scrip on a single day is one transaction though it may have been executed on the floor of the stock exchange in the multiple small .....

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mand and supply on the stock exchange. Thus, a single transaction of purchase and sale has been fragmented into different transactions, though totalquantity of purchase or sale remains same but the number of transactions are reflected as multiple. The AO s finding is influenced by this inflated number of transaction which is not correct number of transactions and are much less than the transaction appears so. We further note that the AO as well as the CIT(A) has also ignored the fact that the as .....

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t in dispute that all these transactions in the investment portfolio are delivery-based and routed through the DMAT account of the assessee. We further note that the assessee has not used any borrowed fund for the purpose of investment in shares and the authorities below again assumed wrong fact that the assessee has used the borrowed fund for the purpose of investment. It is manifest from record that almost the entire capital gain for the year under consideration has been earned by the assessee .....

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soft Ltd 81,78,341 89,03,274 24,03,557 199 7 Synergy Multi Ltd 2,83,51,976 3,05,37,187 19,72,058 344 8 Vivimed Labs Ltd 1,49,97,439 1,73,96,293 21,63,423 16 9 Bhagirath Engg Ltd 12,12,992 22,52,482 10,39,490 45 10 Ganesh Forge Ltd 58,00,538 71,16,479 13,15,941 16 11 Multi Arc Ltd 36,75,462 70,78,298 34,02,836 99 Total 11,20,59,536 13,88,51,099 2,67,28,942 1578 Brokerage, STT, etc not considered in P/S Average Holding Period 143 1 Avon Organic Ltd. 2,07,83,846 1,60,39,559 (50,70,553) 159 2 Kopran .....

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1 scrips is 143 days in comparison to 69 days for the assessment year 2005-06. This also demonstrates a major change in the fact and pattern of investment in shares by the assessee during the year under consideration. The assessee has incurred loss of ₹ 71,27,118/- on two scrips and the average holding period of the same is 200 days. Therefore, major revenue from the investment portfolio comes only from 13 scrips. Because of these substantial difference in the facts and circumstances for t .....

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support of his contention, learned authorised representative of the assessee has referred to the Finance Minister s speech on this point which reads as under: 1 1 1. Capital gains tax is another vexed issue. When applied to capital market transactions, the issue becomes more complex. Questions have been raised about the definitions of long-term and short-term, and the differential tax treatment meted to the two kinds of gains. There are no easy answers, but I have decided to make a beginning by .....

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8377; 100,000 will now bear a small tax of ₹ 150. The tax will be levied on the buyer. In the case of short-term capital gains from securities, I propose to reduce the rate of tax to a flat rate of 10 per cent. My calculation shows that the new tax regime will be a win-win situation for all concerned . By introduction of this new tax scheme for capital gain from listed securities, the Legislature has taken due care to get compensatory tax recovery by levying STT on sale and purchase of the .....

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that is to promote more and more transactions in the capital market and in the listed securities through stock exchange. Therefore, once the legislature has the object to promote more and more transactions in the capital market and particularly in the listed securities on the stock exchange by giving tax concession on the income arising from the said transaction and levying STT instead of levying full tax on the income, then volume of transactions in the listed securities has to be viewed in the .....

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cts and factors which emerge from record are summarized as under: i. The assessee has carried out the transactions through portfolio manager/agent and not by itself. ii. Assessee is a qualified financial consultant and earning his income by providing consultancy services. iii. The assessee has his own huge fund and had not utilized any borrowed fund for the purpose of purchase of shares in question. iv. The assessee is maintaining two separate portfolios - one for investment and another for trad .....

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shown in the books of account in respect of shares held in the investment portfolio. 12. Thus, all these abovementioned facts and factors are relevant for evaluating the nature of transaction and intention of the assessee at the time of purchase and sale of shares held in investment portfolio. Though the assessee has carried out the transactions in large volume and frequency, however, the volume itself is not a determining factor of the real nature of transaction. If huge money is invested in on .....

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eld in the investment portfolio. The Hon ble jurisdictional High Court in the case of CIT vs. Gopal Purohit (supra) has held that the assessee can have two portfolios - one in trading and another investment. Even otherwise, there is no bar on a trader or dealer of shares having investment in shares. Therefore, the trading carryied out by the assessee in a separate portfolio will not have any impact or bearing in determining the nature of transaction under the investment portfolio. We further not .....

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a, (1969)2SCC25 = (1969) 73 ITR 735 (SC) : ...it is not possible to evolve any single legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction.. 16. Therefore, it is legally untenable to focus singularly on the intent .....

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money. (c) Along with the intention of the assessee, other crucial factors like the substantial nature of the transactions, ITA No.485/2012 Page 12 frequency, volume etc. must be taken into account to evaluate whether the transactions are adventure in the nature of trade. 18. Therefore the block of transactions entered into by the portfolio manager must be tested against the principles laid down, in order to evaluate whether they are investments or adventures in the nature of trade. 19. Coming t .....

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