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2016 (2) TMI 161 - ITAT MUMBAI

2016 (2) TMI 161 - ITAT MUMBAI - TMI - Sale of shares - Short Term Capital Gain/Loss and Long Term Capital Gain /Loss - Held that:- Assessee is a regular investor and the assessee has shown the income of Short Term Capital Gain/Loss and Long Term Capital Gain /Loss from the sale of shares which is being shown consistently since preceding several year’s and the same was accepted in the preceding years by the Revenue.

We have observed that the assessee has also valued the investment in .....

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ia Export Corporation which is engaged in trading in diamond and assessee has made substantial investment in said partnership firm from which receivable as on 31-03-2010 stood at ₹ 6.74 crores and has substantial income from the said firm which stood at ₹ 32,88,053/- for the assessment year 2010-11 which again indicates that it must be occupying substantial time of the assessee as the assessee has also contended that he is working partner of the said firm M/s Dia Export Corporation . .....

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/gain from sale of shares is classified as STCG or LTCG and we do not find any infirmity in the well reasoned orders of the CIT(A) which we uphold. - Decided against revenue - I.T.A. No. 3347/Mum/2014 - Dated:- 1-1-2016 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Appellant : Shri Morya Pratap For The Respondent : Shri B. V. Jhaveri ORDER Per Ramit Kochar, Accountant Member: This is an Appeal filed by the Revenue directed against the Order by the learne .....

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, the Ld. CIT(A) has erred in not taking cognizance of Hon. Bombay High Court in the case of CIT v/s. Gopal Purohit ; 336 ITR 287 (Bom.) which clarifies that, A finding of fact has been arrived at by Tribunal as regards the existence of two distinct types of transactions namely, those by way of investment on one hand and those for the purposes of business on the other hand. unlike in the present case wherein assessee has not maintained separate books of accounts? 2. The brief facts of the case a .....

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explanation as under :- 1. The assessee is an individual deriving income from partnership firm and also deriving income from L.T.C.G. and S.T.C.G. and income from other sources 2. On perusal of the Balance Sheet of the assessee for the year ended 31st March 2010 your honour will found that the assessee has made investment in shares and the like as on 31.03.2009 which increases to ₹ 107619247/- as on 31st March 2010. The details of the said investment in shares as on 31st March, 2010 value .....

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accepted year after year as will be seen from the scrutiny assessment order made u/s. 143(3) of the Act for A.Ys. 2007-08, 2008-09 and 2009-10. Briefly the details are as under:- Sr. No. A.Y. L.T.C.G. S.T.C.G. Investment 1 2006-07 8751163 16098368 73754858 2 2007-08 23531677 5153600 86414090 3 2008-09 27296345 -(1380608) 110128712 4 2009-10 -(798021) -(29473795) 76229707 5. For the year ended 31st March 2010 relevant to A.Y. 2010-2011 the assessee s investment in shares had increased from ͅ .....

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d his portfolios of shares many times in earlier years and accordingly earned Short Term Capital Gains and Long term capital gains and he had also incurred short term capital loss and long term capital loss which are reflected in the Returns of Income of the assesssee for earlier years and the same are accepted. It is therefore , respectively submitted that it be observed that the assessee s past records show substantial income by way of capital Gains. 6. The assessee relied on the decision of t .....

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Hence, the contention of the assessee as investor cannot be accepted. The AO rejected the contentions of the assessee that the income from sale of shares was treated as STCG or Short Term Capital Loss(STCL) for assessment year 2007-08, 2008-09 and 2009-10 by holding that the principal of res judicata does not apply to income tax proceedings and each assessment year is separate and distinct. Hence, the assessee cannot take benefit of the argument that earlier such profit was treated as STCG/ STCL .....

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der the head STCG. The AO observed that the number of transactions and the quantum is quite huge i.e. the sale and purchase of shares stood at ₹ 9,22,58,412 and ₹ 10,50,53,364/- respectively with a total dealing in shares of several companies in various transactions. The AO observed that the assessee has indulged in trading activity in shares on regular basis with period of holding of these shares to as minimum as 2 days. 4. The AO observed that the assessee has entered into the repe .....

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f M/s. Dia Exports Corporation. The Assessee filed his return of income for A. Y. 2010-11 on 31st July, 2010 declaring total income of ₹ 11,07,808/-. In the aforesaid return of income the Assessee had declared the Long-term capital loss of ₹ 30,87,808/- after adjusting the Long-Term Capital Gain of ₹ 1,51,824/-. The said Long-Term Capital Loss is claimed to be carried forward. The Assessee had declared the net Short-Term Capital Gain of ₹ 1,15,58,156/- which was adjusted .....

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income at ₹ 1,10,46,310/-. The Assessing Officer while completing the assessment has treated the Short-Term Capital Gains of ₹ 99,24,357/- as business income and accordingly the same is not adjusted against the Short-Term Capital Loss of the earlier years. The Assessing Officer has also disallowed ₹ 14,750/- u/s.94(7) of the Act and accordingly added ₹ 1,02,43,032/- as business income for the year ended 31st March 2010. 3. The Assessing Officer while treating the short te .....

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(c) The Assessee has purchased shares worth ₹ 9,72,72,530/- and sold shares of ₹ 12,88,57,228/- and therefore, the Assessee cannot be termed as an investor. (d) The number of transactions and the quantum of the turnover in respect of shortterm capital gains is quite huge. (e) The Assessee has indulged in trading activity in shares on regular basis with period of holding of these shares as minimum as two days. 4. However the Assessing Officer held that while completing the assessment .....

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m Capital Gains of ₹ 99,24,367/- as business income and taxed accordingly. Against the aforesaid order of the Assessing Officer, the assessee is in appeal before your honour. 5. In this respect at the outset, your honour's attention is invited to page 23 of the Paper Book, wherein the assessee has given details of Short Term Capital Gain/Loss and Long Term Capital Gain/Loss, income from share trading and investment in shares in the A. Ys. 2001-02 to 2010-11. On perusal of the aforesaid .....

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31.3.2009 the assessee had investment in shares of ₹ 7.53 Crores. However in the year ended 31st March 2010 the Assessee had made substantial investment in shares, even after selling some of the shares for the purpose of booking appreciation, at ₹ 10.67 Crores as on 31.3.2010. Thirdly, on perusal of the aforesaid chart it is seen that every year from A. Y. 2001-02 the Assessee has earned Short Term Capital Gain/Loss and/or Long Term Capital Gain/Loss from A. Y.s 2001-02 to 2009-10 an .....

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ss income from the diamond business in the form of share of profit and the Assessee is full time occupied for carrying on the said business of dealing in diamonds. Fifthly, the Assessee has his own substantial capital which has increased from ₹ 8.84 Crores in A. Y. 2001-02 to ₹ 21.24 Crores in A. Y. 2010-11. The said capital has been used by the Assessee in making investment in shares for capital appreciation which has been achieved by the Assessee from year to year. Sixthly, the Ass .....

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ess income from share trading and it is offered for taxation accordingly. This fact is also apparent from the aforesaid chart which is enclosed at page 23 of the Paper Book. Eighthly. the Assessee has valued his shares always at cost as the shares are held by the Assessee as his investment and not stock in trade. Ninthly, the Assessee has always acted as an investor who would shuffle his portfolio by booking the expected appreciation which is apparent from the fact that on an average within a pe .....

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ch were held for more than 365 days and therefore, the Assessee has earned Long Term Capital Gains or Loss in each of the years. This fact also proves that the Assessee is making investment in shares for the purpose of capital appreciation for which the assessee held the shares for more than a year and therefore, he is not trading in shares. Holding of shares for a longer period has bare fruits to the Assessee in the Assessment Years 2005-06 to 2008-09 wherein the Assessee has earned the aggrega .....

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23 and offered the same as Short Term Capital Gains. However the same would not make the Assessee a trader in shares because the intention of the Assessee is always to invest in shares for capital appreciation as the Assessee has his own business of dealing in diamonds from which the Assessee earns substantial income and which keeps the Assessee occupied throughout the day and 365 days. Thirteenthly, on perusal of the chart on page 23 it will be seen that the assessee has substantial investment .....

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lio from time to time. Fifteenthly, the CBDT vide its Circular bearing No.4/2007 dated 15th June 2007 in para 10 has accepted that a tax payer can have two portfolios, viz., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock in trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads viz. capital gains as well as business income. Sixteent .....

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erm Capital Loss. The assessee has also declared income from speculation gains/loss which are on account of sale and purchase of shares without delivery of the shares. During the year under consideration, the assessee had also claimed Long Term Capital Loss of ₹ 1,02,31,691 on sale of shares which were hold by the assessee as investment and duly reflected in his Balance Sheet as investment. Similar transaction of sale and purchase of shares are being carried out by the assessee in precedin .....

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itude of the transaction does not alter the nature of transaction. Though the principle of res judicata does not apply to the Income-tax Proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years, unless there is a material change in the facts. ….. The Appellate Tribunal further observed as under: "7. In the facts of the present case, the assess .....

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on on account of sale and purchase of shares is same as in the preceding years and the same merits to be accepted as Short Term Capital Gains. There is no basis for treating the assessee as a Trader in shares, when his intention was to hold the shares in Indian companies as an investment and not as stock-in- trade. The mere magnitude of the transaction does not change the nature of transaction, which are being assessed as Income from Capital Gains in the past several years. " Seventeenthly, .....

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ell as investor and has offered income for taxation accordingly, which has been claimed to have been accepted by the Revenue authorities in earlier years. The assessee has also submitted details of shares purchased and taken delivery from asst. yr. 2001-02 till asst. Yr. 2005-06 to show the period of holding as well as to substantiate the claim that in respect of delivery transactions, the assessee always showed the profit there from either as long term capital gain and short term capital gain d .....

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inciple of res judicata is not applicable to the assessment proceedings. There cannot be, in our view, any dispute on this, aspect but there is also another judicial thought, that there should be uniformity in treatment and consistency under the same facts and circumstances and we have already found that facts and circumstances are identical, even though a different stand has been taken by the Revenue Authorities. This action of the Revenue Authorities has led us to ask ourselves that in this ye .....

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essional rate of tax i.e., 10 per cent has been levied subject to the condition that transactions resulting into this type of gain must have suffered securities transaction tax: This is the first year of such change and, having regard to the quantum of gains, this scheme of taxation only, in our view, has prompted the Revenue Authorities to take a different view on the same types of transactions entered into by the assessee in earlier years. At this stage, we consider it fit to state that there .....

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re end modus operandi of such share transactions, resulting into any advantage cannot be taken away by the Revenue Authorities in this manner and in these circumstances, we are of the view that, principle of consistency, though it is an exception to the principle of res judicata must be applied here. It is further so because the payment of securities transaction tax is mandatory i.e., whether an assessee earns the profit or not or suffers a loss and by imposition of such tax, the Legislature has .....

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aid decision of the Tribunal is affirmed by the Bombay High Court and accordingly the appeal of the Department u/s. 260A of the Act has been dismissed which is reported in 336 ITR 287. In the said judgment their Lordships held as under: ………The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate port folios, one relating to investment in shares and another relating to business activities involvi .....

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nd those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law. "In so far as question (b) is concerned, the Tribunal has observed in paragraph 8.1 . of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The Revenue submitted that a different view should be t .....

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did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question of law." Eighteenth, your honour's attention is invited to the decision of the Bombay High Court in the case of CIT vs. Darius Pandole (330 ITR 485) wherein their Lordships while deciding the issue whether the Assessee incurred loss on sale of shares as business loss or capital loss held as under: It is in this fac .....

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pecifically to the query raised by the Assessing Officer. In the circumstances, the Tribunal was, in our view, justified in following the decision of the Supreme Court in Radhasoami Satsang v. CIT [1992]193 ITR 321. While the principle of res judicata could not as an abstract principle apply to assessment proceedings since each year of assessment has to be considered separately, yet when a fundamental aspect was duly considered after a query was raised by the Assessing Officer and was answered b .....

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decision of the Hon. Appellate Tribunal in the case of ACIT vs. Shri Nailesh P. Dalal in ITA No. 3337/Mum/2009 and· C.O. NO.235/Mum/2009 dated 28-8-2013 wherein the Hon. Tribunal held as under: "10. We have considered the rival submissions and also perused the relevant material on record. The issue as to whether the profits on sale of shares constitutes business income of the assessee or long term capital gains depends on whether the said shares were purchased by the assessee as inve .....

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ia s which can be applied to the facts of the given case to ascertain whether transactions in shares are in the nature of trade or are merely for investment purpose. While laying down the said guidelines/principles, the Tribunal has taken into consideration the various judicial pronouncements on this issue as well as the Circular issued by the CBDT. The guidelines/principles laid down by the Tribunal are enumerated below: "(1) What is the intention of the assessee at the time of purchase of .....

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d disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment): (4) Whether purchase and sale is for r .....

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re valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee) is authorized in memorandum of association/article of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice versa. (7) It is for the assessee to adduce evidence to show t .....

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ch frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares for the items in question) for investment. (9) One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to carr .....

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ion but the cumulative effect of several factors has to be seen." "11. If the above principles/guidelines are applied to the facts of the present case, we find ourselves in agreement with the learned CIT(Appeals) that the transactions in shares were carried out by the assessee as an investor and not as a trader and the profit earned from the said transaction was chargeable to tax in its hands under the head "Capital Gains". It is observed in this regard that the shares were c .....

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8377; 4.23 crores while the total sale of shares was only to the extent of ₹ 1.63 crores showing a very low turnover which could happen only in the case of an investor and not in the case of trader in shares. The average period of holding of shares giving rise to long term capital gain was 1214 days while the same was 129 days in the case of shares giving rise of short term capital gain which again goes to show that the shares were held by the assessee for a considerably long period before .....

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Miss Dalal Broacha Stock Broking Pvt. Ltd. earning a remuneration of ₹ 52 lacs and although the said company was engaged in the business of trading in shares, the fact that he was in full employment of that company shows that he was not left with sufficient time to carry on the business of trading on shares on his personal account. In our opinion, if all these relevant facts of the assessee's case are taken into consideration in totality, it becomes abundantly clear that the transactio .....

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n of the Hon. Tribunal Delhi Bench in the case of Hero Motor Corp Ltd. vs. Addl. CIT in ITA No. 1980/Del/2012 dated 11th June, 2013 wherein the Hon. Tribunal has followed the aforesaid criteria to decide that the assessee company had earned short term capital gains and not business income. 6. The CIT(A) after considering the replies submitted by the assessee held that the assessee has been consistently showing the income from sale of shares as investment giving rise to long term capital gain or .....

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e CIT(A) held that the case of the assessee is squarely covered by the CBDT instruction No. 4/2007 dated 15.06.2007 on the subject. In this case, the ratio of Hon ble High Court in the case of Gopal Purohit (Supra) is squarely applicable that the assessee has both the long term capital gains(LTCG) and STCG, held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical. So the CIT(A) held that ₹ 8,03,880/- as per above chart where the hol .....

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el of assessee relied upon the orders of the CIT(A) and submitted that in earlier six years from assessment year 2004-05 to 2009-10 the case was scrutinized u/s. 143(3) of the Act , whereby, the Revenue has accepted the assessee as an investor. He also relied upon the orders in the case of ACIT v. Sanjay M. Jhaveri, ITAT, Mumbai A Bench ITA No. 4039/Mum/2011(Mum. Trib.) and also relied upon the orders of ITO v. Janardhan Prahaladrao Gupta in ITA No. 1030/PN/2011(Pune-Trib) to contend that the as .....

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years 2004-05 to 2009-10 processed the case of the assessee under scrutiny u/s 143(3) of the Act and accepted the assessee as an investor and brought to tax gains from shares as capital gains/loss.The assessment orders framed by the Revenue u/s 143(3) for the assessment year 2004-05 to 2009-10 are placed at paper book filed by the assessee.The principles of res-judicata are not applicable to income tax proceedings but principles of consistency has to be followed and the Revenue cannot take altog .....

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