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2016 (10) TMI 6 - ITAT MUMBAI

2016 (10) TMI 6 - ITAT MUMBAI - TM - Sale of shares - business income or capital gain - Held that:- Gain arising from the sale of shares held by the assessee for not more than twelve months shall be held to be short term capital gain chargeable to tax under the head ‘Capital Gains’ and not as income from business chargeable to tax under the head ‘Profits and gains of Business or Profession’ as was held by the AO. - I .T.A. No.2617/Mum/2012 - Dated:- 17-8-2016 - SHRI MAHAVIR SINGH, JUDICIAL MEMBE .....

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ment order dated 10th December, 2010 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue before Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) in the memo of appeal filed with the Tribunal read as under:- 1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in directing the Assessing Officer to trea .....

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Purohit [ 122 TTJ (Mum)87] and in the assessee's own case have not been accepted by the Department. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate the guidelines laid down in CBDT Circular No. 4/2007 dated 15-06-2007. 4. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored. 3. The brief facts of the case are that assessee has filed her return of income declaring capital gain .....

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preceding assessment year 2007-08, the learned CIT (A) has passed appellate order in favour of the assessee by treating the capital gain on sale of shares as capital gains and not as business income as per the ratio of law laid down by Hon ble Bombay High Court in the case of CIT v. Gopal Purohit reported in (2011) 336 ITR 287(Bom.).It was submitted that investments have been made out of own funds and there were no borrowings. The assessee further submitted that the number of transactions were .....

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rchases were made for retentions and appreciation in its value. No borrowings have been made. The items were valued at cost in the balance sheet. The assessee also relied on the CBDT Circular No. 4 of 2007 dated 15th July, 2007 and submitted that the assessee s case is duly covered by the above cited circular and the gains arising from sale of assessee s investments should be treated as capital gain and not business income. The A.O. rejected the contention of the assessee and held that the entri .....

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proof to decide income and consequently its chargeability to tax. The A.O. by relying on several case laws observed that in assessee s case scale of activity is definitely substantial as quantum of transactions are substantial , there is very high regularity in the trading and the shares have been purchased and sold at regular intervals in an organized manner indicating business activity. The holding period is very short in all the transactions whereby most of the shares were held for less than .....

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g the year under consideration, the assessee has purchased shares to the tune of ₹ 90,36,251/- and sold the same during the current year. The assessee is thus actively engaged in the stock market operations directly and the assessee has also declared speculation/F&O income from shares which shows that the intention of the assessee is to indulge in share transactions on large scale, voluminous, periodic, repetitive and numerous transactions in shares and to earn profits. It was also hel .....

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0 passed by the AO u/s. 143(3) of the Act. 5. Aggrieved by the assessment order dated 10.12.2010 passed by the A.O. u/s 143(3) of the Act, the assessee filed her first appeal before the ld. CIT(A). 6. Before the ld. CIT(A) , the assessee submitted that the assessee has made investments in shares out of her own funds which are to the tune of ₹ 7.90 crores and no borrowings were made for making investments in shares which were made with long term horizon and prospects. The assessee submitted .....

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d as an investment activity and accepted by the Revenue. The assessee submitted that in the assessment years 2004-05 and 2005-06, the department has accepted the activity of the assessee as an investment activity whereby the gains/losses arising thereof were accepted as capital gains arising from sale of investments in the assessment orders framed u/s 143(3) of the Act . The copies of the assessment order passed u/s. 143(3) of the Act for the said assessment years were also produced before the l .....

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n the decision of Hon ble Bombay High Court in the case of CIT v. Gopal Purohit (supra). The ld. CIT (A) considered the submissions of the assessee and observed that the AO has brought to tax short term capital gains of ₹ 44,97,330/- earned by the assessee on sale of shares as income from business . It was observed by the learned CIT(A) that in the assessment year 2006-07 on similar set of facts and circumstances, the ld. CIT(A) in assessee s own case decided the issue in favour of the ass .....

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ins in the subsequent years and the principle of consistency should be followed and that there should not be any departure from the existing position time and again. The ld. CIT(A) also relied on the decision of the Tribunal in the case of ACIT v. Satpal Singh Sethi in ITA No. 3650/Mum/2010 for the assessment year 2006-07 wherein it was held that income from shares was capital gains and not business income. Accordingly the ld. CIT(A) directed the A.O. to treat the short term capital gain of S .....

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s own case in ITA No. 6227/Mum/2012 for the assessment year 2007-08 vide orders dated 17th March, 2016 whereby the appeal of the assessee was accepted by the Tribunal and it was held that assessee is an investor and the income so earned from sale of shares which are held for a period of not more than one years are to be brought to tax as short term capital gain and not as business income and the appeal of the assessee was allowed. It was further submitted that since the facts and circumstances o .....

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r a period of not more than one year from the date of purchase were held to be capital gains and gain arising was directed to be treated as short term capital gain. 9. The ld. D.R. relied on the order of the A.O., however, he fairly conceded that the issue is covered by the decision of the Tribunal for the assessment years 2006-07 and 2007-08 in ITA No. 3520/Mum/2010 vide orders dated 18-02-2015 and ITA No. 6227/Mum/2012 vide orders dated 17-03-2016 respectively in assessee favour. 10. We have c .....

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st . We have observed that the Tribunal in assessee s own case in ITA No. 6227/Mum/2012 for the assessment year 2007-08 vide orders dated 17th March, 2016 has decided the issue in favour of the assessee where it was held that the gains arising from the transaction of shares held for a period of not more than one year was held to be short term capital gain. The similar view has been taken by Tribunal in assessee s own case in ITA no.3520/Mum/2010 for assessment year 2006-07 vide orders dated 18-0 .....

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bunal order in ITA no. 6227/Mum/2012 for assessment year 2007-08 vide orders dated 17-03-2016 is reproduced below:- The assessee is aggrieved by the impugned order dated 03/08/2012 of the ld. First Appellate Authority, Mumbai. The only ground raised in this appeal pertains to assessing ₹ 29,64,051/-, being gain arising from sale of shares, under the head profession and gains arising from business or profession against the short term capital gains offered by the assessee under the head capi .....

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eclared income of ₹ 33,36,300/- in her return on 28/07/2007, which was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter the Act) assessing the total income at ₹ 33,36,300/- itself. During the year under consideration, the assessee claimed/showed short term capital gains amounting to ₹ 29,64,051/-, on sale of shares. Such shares were showed as investment and in earlier years were assessed under the head capital gains. The investment was made out of surplus funds ava .....

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ssee was to gain profit by dealing in shares, thus, the conclusion drawn in the assessment order was affirmed. The assessee is in further appeal before this Tribunal. 2.3. As asserted by the ld. counsel for the assessee, that the impugned issue on identical fact is covered by the decision of the Tribunal dated 18/02/2015, we are reproducing hereunder the factual matrix from the aforesaid order for ready reference and analysis:- This is an appeal filed by the Revenue against the order of CIT(A), .....

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arning profit of such funds and there was no intention of the assessee to appreciate the investment so made during the year. b) The assessee had no intention to hold her shares in order to earn regular income out of such purchases. 2. On the facts and in the circumstances of the case and in law, the Learned CIT(A) has failed to appreciate the in depth analysis made by the AO before treating the gains as business income and that circular no. 4 of 2007 has be taken into consideration to decide whe .....

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ival contentions have been heard and record perused. The short term capital gain declared by the assessee was treated by the AO as business income. By the impugned order, the CIT(A) directed the AO to treat the same as short term capital gain after having the following observations :- 3.3 I have carefully perused the assessment order, submissions made by the A.R on behalf of the appellant and the facts of the case. The issue involved is in respect of treatment of long term capital gains on sale .....

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p; redemption of mutual funds ₹ 1,65,193/-] as business income by the A.O instead of applying a special rate @ 10% as provided uls.111A of the Act. The A.R of the appellant vide his letter dtd. 20.12.09 contended that the short term capital gain of ₹ 15,25,348/- [13,60,155/- + 1,65,193] is not correct and in support of his claim he has contended that the correct figure of short term capital gain shall be ₹ 12,86,854/- [11,21,661+1,65,193]. The AO after relying on the CBDT's .....

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head capital gains and has been assessed as such. The A.R of the appellant has also produced copy of the assessment orders passed u/s.143(3) for earlier two years viz. A.Y. 2004-05 & 2005-06. The A.R of the appellant has relied on the Hon'ble Bombay High Court's judgement in the case of CIT vs. Gopal Purohit delivered on 6th January, 2010' and has prayed that income derived by the appellant from investment activity be treated as long term and short term capital gains respectively .....

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epartment has accepted the claim of the appellant of being an investor. During the year under consideration, the AO has treated the appellant as a trader without bringing on record any reason for deviating from the earlier stand of the Department. I have observed that the case of the appellant is squarely covered by the ratio laid down in the case of CIT vs. Gopal Purohit mentioned supra, therefore, the AO is directed to treat the long term capital gains on sale of shares and sale of mutual fund .....

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non-delivery speculative transactions will be treated as forming part of speculation business and will be taxed as such. The AO is directed to verify and quantify the profit/loss in non-delivery based transaction and charge it as business income/loss. The grounds of appeal are, accordingly, allowed. 4. Ground No.4 reads as under: "On the facts and circumstances of the case as well as in Iaw:- The learned ITO erred in considering shares & mutual funds as stock in trade instead held as i .....

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ief has been allowed to the appellant. Therefore, this ground of appeal has become infructuous and is dismissed. 3. Against the above order of CIT(A), the Revenue is in further appeal before us. 4. We have considered rival contentions, carefully gone through the orders of the authorities below and found from the record that the assessee was consistently investing in shares. Capital gains offered by the assessee either as long term or short term was accepted by the department in all the earlier a .....

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the same as giving rise to short term capital gains. The findings recorded by CIT(A) have not been controverted by ld. DR. Accordingly, we do not find any reason to interfere in the order of CIT(A) for allowing assessee s claim of long term and short term capital gains earned on sale of shares and mutual funds. 5. In the result, appeal of the Revenue is dismissed. 2.4. In the aforesaid order of the Tribunal, it is noted that there is categorical finding that the Department had been accepting th .....

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any contrary material, on the principle of consistency, the Department is not expected to take a U-turn and assess the income as business income. So far as the contention of the ld. DR and also the observation of the ld. Commissioner of Income Tax (Appeals) that there was a profit motive, we are not impressed by this submission, because, every investor invest the money for gain and not for loss. The issue of consistency and frequency of shares has been dealt with in detail by Hon ble jurisdicti .....

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ger Paints India Ltd. vs CIT 266 ITR 99 (SC) vi. DCIT vs United Vanaspati (275 ITR 124) (AT)(Chandigarh ITAT) vii. Union of India vs Kumudini N. Dalal 249 ITR 219 (SC) viii. Union of India vs Satish Pannalal Shah 249 ITR 221 ix. B.F.Varghese vs State of Kerala 72 ITR 726 (Ker.) x. CIT vs Narendra Doshi 254 ITR 606 (SC) xi. CIT vs Shivsagar Estate 257 ITR 59 (SC) xii. Pradip Ramanlal Seth vs UOI 204 ITR 866 (Guj.) xiii. Radhaswamy Satsang vs CIT 193 ITR 321 (SC) xiv. Aggarwal warehousing & Le .....

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