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Shri Rajeshwar Raj Bajaaj, C/o Mangaldas D. Shah & Co. Versus Asstt. Commissioner of Income Tax – 12 (2)

2016 (4) TMI 737 - ITAT MUMBAI

Share transaction - Short term capital gains or business income - nature of transaction - Held that:- The principles of consistency has to be followed in the tax matters unless Revenue is able to demonstrate that there is a marked deviation in facts situation as existing in the relevant assessment year vis-à-vis earlier years which the revenue in the instant case is not able to demonstrate. The assessee has engaged the services of portfolio manager-Enam(copy of the agreement is also placed on re .....

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hus the finding of CIT(A) with respect there-to by holding that the assessee has made gains while buying and selling of shares by engaging services of portfolio manager’s is to that extent erroneous vis-à-vis the facts as emerging from the records.

Under these circumstances , we have no hesitation in holding that the assessee is not a trader in shares and the assessee is an investor in shares and the gain arising there-from shall be charged to tax as capital gains and not as business .....

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ountant Member For the Petitioner : Shri Dhirendra M. Shah For the Respondent : Shri Kailash Gaikward ( Sr. D.R. ) ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee, being ITA No. 3200/Mum/2012, is directed against the order dated 14-03-2012 passed by learned Commissioner of Income Tax (Appeals)- 23, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2008-09, the appellate proceedings before the CIT(A) arising from the assessment order dated 20-12-2010 pa .....

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, which is bad in law and contrary to the facts and evidence on record. (b) The learned CIT(A) erred in observing and held that, the appellant's intention is to trade in shares. (c) The learned CIT(A) erred in observing that the intention to hold the shares as investment in not brought out and erred in stating that such transactions are asking to trading in commodities. (d) On the facts and in the circumstances of the case, the learned CIT(A) erred in observing that, the portfolio Manager do .....

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e quashed. (b) The learned CIT(A) has not issued any such notice or letter before issuing such direction and hence such directions are bad in law contrary to the provisions it be quashed. 3. The brief facts of the case are that the assessee is an individual and derived pension, salary, director sitting fees and interest income during the impugned assessment year. During the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act, the A.O. observed that the assessee has s .....

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ent and to earn dividend and the assessee took delivery of all shares which are reflected in the demat account maintained by the assessee. The assessee submitted that gains on sale of such shares are incidental to the investment. As a prudent investor, he took advantage of selling his investment at a premium considering the market conditions. The transactions are not repeated and shares are held as investment. The assessee submitted that shares dealt by the assessee are considered as investments .....

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₹ 23,64,191/-. The AO held that on the shares, the assessee has received dividend of only ₹ 85,182/- whereas STCG is ₹ 23,64,191/- which clearly shows the intention of the assessee was to trade in shares and not to earn dividend. The A.O. held that the prime intention of the assessee was to trade in shares and maximize gains and not as investment. The entire activity of the assessee has to be considered as business in trading in shares and the same cannot be termed as investme .....

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cannot be treated as income/loss under the head capital gain keeping in view the substantial volume and frequency of transactions in shares, ratio between purchase and sale vis-a-vis holding of shares and motive of the assessee. The AO held that the assessee has carried the business of trading in shares and all the profits/loss on such trading activity is treated as business income of the assessee, vide assessment order dated 20-12-2010 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by th .....

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Management Co. Pvt, Ltd(hereinafter called Enam ). He has no-borrowings or paid any interest, investment was made out of own funds .The assessee submitted that he has been investing in shares since long. His investment in shares in the year ending 31/03/2007, closing balance was ₹ 8,49,02,223/- and in that year (assessment year 2007-08) he had earned long term gain of ₹ 29,07,511/-and incurred short term loss of Rs.(-) 3,76,1.39/-, which have been accepted by the Revenue. The assess .....

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al number of 21 scrips which was sold, out of this 17 scrips were sold on 02/07/2007 and 3 scrips were sold on 17/04/2007. Thus, there only two transactions of sale on two days out of 365 days. Similarly there was no frequency of purchase. The investment in shares was done most of it in 2006, the previous calendar year. The holding period in almost all the cases were 108 days to 358 days. Thus, the period of holding is long and not short. The assessee submitted that dividend earned on shares dur .....

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elivery basis, that the transactions have been shown as investment. The Portfolio Manager acts as agent of the assessee and has been trading on the latter s behalf. The PMS manager has been charging commission and / or expenses to act on behalf of his principal (the assessee) and will render the profit to the principal (assessee). Since the PMS manager acts in the capacity of an agent who has traded in shares on behalf of his principal, the profits arising there from will be treated as profits f .....

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ded by the PMS manager on behalf of the assessee. Merely because the purchase and sales are through a de-mat account will not change the nature of the transaction. The CIT(A) accordingly directed the A.O. to treat all gains from placing moneys with PMS whether declared as Short Term Capital Gains or Long Term Capital Gains as income from business. The provisions of section 10(38) and section 111-A of the Act would also not be applicable to profits derived from moneys placed with PMS, vide orders .....

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ps, the period of holding varies from 20 days to 9 months. There are no borrowed fund and the investment was made out of own funds and the same are reflected in the financial statements as investments from year to year. The assessee has placed his financial statements for the financial year 2007-08 in the paper book filed with the Tribunal which are placed at paper pages 1-7. The ld. Counsel submitted that the assessee is a pensioner. In the earlier year and in the subsequent assessment year, th .....

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urn of income filed by the assessee for assessment year 2005-06. The assessee has also placed computation of income for assessment year 2006-07 and also for assessment year 2007-08 on record in the paper book page 44-50 , whereby the assessee has declared long term and short term capital gains earned by the assessee on sale of shares which was stated to be accepted by the Revenue albeit without scrutiny .The ld. Counsel submitted that the assessee has entered into an PMS agreement with Enam on 1 .....

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Enam for which ledger account copy is placed in the paper book as evidence at page 53-54 . The investment in shares are accounted for and held as investment and also shown in the balance sheet as investment. The investments in shares were done most of it in 2006, the preceding year. The ld. Counsel relied upon the judgment of Hon ble Bombay High Court in the case of CIT v. Smt. Datta Mahendra Shah [2015] 378 ITR 304 (Bom.) and the judgment of Hon ble Delhi High Court in the case of CIT v. Devas .....

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hase of shares since earlier years and the shares have been held and shown as investment in the books of account and the gains arising there from have been offered for taxation as capital gain which has been accepted by the Revenue in the preceding assessment years and only in this impugned assessment year , the Revenue is treating the same as business income. We have observed that the assessee is holding shares for a period of 20 to 354 days before being sold on which short term capital gain ha .....

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es nor the volumes are too high. The assessee has also not invested any borrowed funds for making investments in the shares and owned funds were deployed in purchasing the shares. Keeping in view the market conditions , the assessee has sold the shares to earn gains knowingly well that markets are volatile, complex and dynamic which is a normal , rational and usual behavior of the investor who deals in the stock market and it is not expected from a rational and prudent investor under the normal .....

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that the assessee in the instant appeal is an investor. The revenue incidentally has also consistently held in the preceding assessment years in the case of the assessee itself , that the assessee is an investor and not trader in shares for which necessary evidences have been placed on the record by the assessee in the paper book filed with the Tribunal as detailed in preceding para s which has remained un-controverted by the ld. DR. The principles of consistency has to be followed in the tax ma .....

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