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Surya Prakash Toshniwal HUF, C/o. Narendra Goyal and Co. Versus Income Tax Officer, Ward-41 (3) , 3, Kolkata

2017 (1) TMI 776 - ITAT KOLKATA

Purchase-sale of securities - whether is a business profit or capital gain ? - Held that:-On perusal of final accounts of the assessee, for the assessment year under consideration and immediately preceding assessment year 2004-05 we find that the assessee has been showing all the securities as investment in its books of accounts. The corresponding income on sale and purchase of securities has been offered under the head of capital gain by the assessee for both the years. The AO has merely treate .....

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e we do not find any substance in the case before us. We are of the opinion that the income shown by the assessee under the head of capital gain is consistent with the accounting treatment made in the books of accounts. - Income from undisclosed source - Held that:- As there was no fault on the part of the assessee we are inclined to reverse the order of lower authorities. Hence this ground of appeal of the assessee is allowed. - Disallowance of dividend income from UTI master value fund .....

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ict the argument made by Ld. AR. Considering the facts and circumstances of the case, we reverse the order of Ld. CIT(A) and this ground of assessee is allowed. - ITA No.1213/Kol /2016 - Dated:- 11-1-2017 - Shri A.T.Varkey, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant Shri Subash Agarwal, Advocate For The Respnodent : Shri Pinaki Mukherjee, JCIT-SR-DR ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is arising out of order of Commissioner of I .....

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t Ld. CIT(A) erred in confirming the order of Assessing Officer by holding that the purchase-sale of securities is a business profit. 3. Briefly, the facts are that the assessee in the present case is a Hindu Un-divided Family (HUF) and derived his income from trading in shares and securities. The assessee is engaged in sales-purchase of securities and earned income thereon was offered to tax under the head capital gains . However, AO treated the income from the sale-purchase of securities as bu .....

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business income 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas it was submitted that assessee being Karta of HUF had no knowledge of share market. So the assessee being HUF cannot do business in shares. The assessee has consistently been offering the said income under the capital gains irrespective of the fact whether there is gain or loss. The assessee has shown all its securities under the head Investment and it has never shown its share under the head as closing stock . .....

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O. In the submission dated 15-02-2016 the appellant has taken ground of assessing the capital gain income as a business income. As these submission are not relevant with the findings of the AO because the AO has not treated it as business income. He has treated it as income from undisclosed sources which are being assessed under section 68. But these submission are made treating it assessed as business income, has no bearing over the findings of the AO who has assessed it as unexplained cash cre .....

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the business of sale/ purchase of shares. On the other hand, Ld. DR for the Revenue vehemently relied on the order of Authorities Below. 6. We have gone through the submissions made by both the sides and order of the lower authorities as well as judgments relied upon before us. In the present case the assessee has shown income from the sale purchase of the shares under the head capital gain but the AO treated the same as income from the business on account of the following reasons : 1. The amou .....

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peal of the assessee by confirming the order of AO by holding that the issue raised by the assessee is not arising out of the order of AO. At the outset we find that the learned CIT(A) has misunderstood the facts of case of the assessee as evident from the order of lower authorities. The issue raised by the assessee is very much arising out of the order of AO. On perusal of assessment order there was no issue for treating the income from share trading business as income from other sources as obs .....

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deration and immediately preceding assessment year 2004-05 which are placed on pages 3 to 8 of the paper book, we find that the assessee has been showing all the securities as investment in its books of accounts. The corresponding income on sale and purchase of securities has been offered under the head of capital gain by the assessee for both the years. The AO has merely treated the transaction of sale purchase of securities as an adventure in the nature of trade merely on the ground of magnitu .....

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had an occasion to consider the same in the case of Janak S. Rangawalla vs ACIT reported in (2007) 11 SOT 627 (Mum), wherein it was held that : "It is the intention of the assessee which is to be seen to determine the nature of transaction conducted by the assessee. Though the investment in shares is on a large magnitude but the same shall not decide the nature of transaction. Similar transactions of sale and purchase of shares in the preceding years have been held to be income from capital .....

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assessed as income from capital gains in the past several years. The Assessing officer is directed to set off the Long Term Capital Loss against the Short Term Capital Gain of the year under consideration. The grounds of appeal raised by the assessee are allowed." We also find that the Hon'ble Calcutta High Court in the case of CIT vs Merlin Holding P Ltd reported in (2015) 375 ITR 118 (Cal) for the Asst Years 2005- 06 and 2006-07 had held as below:- "The frequency of transactions .....

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ing financial concern. Its main activities were giving loans and taking loans and-investing in shares and securities. The Assessing Officer, for the assessment years 2005- 06 and 2006-07, opined that the activity which, according to the assessee, was on investment account amounted to business activity and, therefore, he treated the short- term capital gains of ₹ 1,01,00,000 as business income. The Commissioner (Appeals) held that the refusal on the part of the Assessing Officer to accept t .....

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ity of the income was from the share dealing or that the managing director of the assessee was also a managing director of a firm of share brokers could not have any decisive value. The Commissioner (Appeals) and the Tribunal had concurrently held against the views of the Assessing Officer. On the basis of the submissions made on behalf of the Revenue, it was not possible to say that the view entertained by the Commissioner (Appeals) or the Tribunal was not a possible view. Therefore, the decisi .....

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ng the order of AO by sustaining the addition of ₹ 14,97,500/- by treating the same as income from undisclosed source. 8. The assessee had purchased 5000 shares of M/s Rohon Financial and Securities Ltd. (RFSL for short) at a cost of ₹ 50,250/- in aggregate on 26.12.2003. The same shares were sold to M/s Ahilya Commercial Pvt. Ltd. (ACPL for short) by assessee for ₹ 14.97 lakhs on 14.01.2005 resulting capital gain of ₹ 14,46,750/-. The AO, during the course of assessment .....

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come of assessee from undisclosed source. 9. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the transactions for sale-purchase of share with RFSL was made through account payee cheques. The shares were sold after 13 months through on-line portal of Kolkata Stock Exchange without knowing details of buyer. Those transactions of purchase-sale are supported with the valid contract notes. The assessee further submitted that it cannot be penalized for non-fil .....

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ing and selling both activity has been operated by Sri Surya Prakash Toshniwal. The identity of M/s Ahilya Commercial Pvt. Ltd. was not proved. The creditworthiness of the buyer was not established, even net worth of the share s company was not established. It was the duty of the appellant to discharge his onus as the credit was made in his books of account but he failed to do so. Net worth of buying and selling company was also snot substantiated to the extent of price raised, and worth at whic .....

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of the aforesaid observation of the AO and as stated above about the observation of SEBI and investment of same person as karta of HUF being seller and as a broker being buyer from M/s Rohan International, I agree with the addition made by the AO is upheld and the appeal is dismissed on this ground. Being aggrieved by this, assessee has come up an appeal before us. 10. Before us Ld. AR for the assessee reiterated same submissions as made before Ld. CIT(A) and further stated that the shares were .....

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ng officer treated the same as income from other sources by holding such income as bogus and from undisclosed sources which was routed in the disguise of long term capital gain. The addition made by the AO was also upheld by the learned CIT(A). Now the issues before us arises for our adjudication so as to whether the long term capital gain income claimed by the assessee is bogus income in the aforesaid facts and circumstances. In the case on hand admittedly the shares were sold by the assessee a .....

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er book. However we find that in spite of having all the aforesaid information the lower authorities have held the long term capital gain as bogus and from undisclosed sources on the basis of certain facts as revealed under : 1. The assessee in the present case is a HUF and the transaction was routed for both purchase and sale of the shares through an individual broker who happened to be the Karta of assessee i.e. HUF. 2. The shares were sold to M/s Ahilaya Commercial Private Limited (for short .....

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ACPL to justify the amount of capital gain earned during the year. On the analysis of the above facts we find that the lower authorities have not brought on record any concrete evidence for disallowing the long term capital gain of the assessee. The AO should have issued notices and summons to M/s RFL and ACPL under section 133(6) and 131 of the Act for the production of the necessary financial information before rejecting the claim of the assessee. We find that all the necessary information wh .....

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en doubted by the lower authorities. In view of the above we hold that the lower authorities had not brought on record sufficient reasons for disallowing the claim of the assessee. In this connection we rely in the case of CIT versus Carbo Industrial Holdings Limited reported in 116taxman159 where the Hon ble jurisdictional High Court has held as under : If the share broker, even after issue of summons does not appear, for that reason, the claim of the assessee should not be denied, specially in .....

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oss on sale of shares-Details of purchase and sale of shares furnished-Payment and receipts were through account payee cheque-Identity of seller and purchaser not disputed-Claim for loss could not be disallowed on the mere ground that the assessee failed to produce the brokers for verification of the transaction-Finding of the Tribunal that the loss incurred by the assessee in the share dealings is genuine and is allowable was based on material and was not perverse-CIT vs. Carbo Industrial Holdi .....

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assessee is allowed. 12. Last issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by disallowing the dividend income for ₹ 24,983/- from UTI master value fund wherein the amount of ₹ 75,000/- was invested. 13. The AO observed that such investment was not reflecting in the previous year s balance-sheet ending on 31.03.2004. Therefore, the investment was made during the year. Accordingly, AO was of the view that period of holding of the inves .....

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sheet and the appellant claim dividend income of ₹ 24983/- from UTI master value fund of ₹ 75000/-. The AO further concluded that this cannot be possible as per the prevailing rate of dividend allowed by the UTI concerned. It was further observed by the AO that investment made during the financial year 2004-05 will make appellant eligible to earn dividend only at completion of one year that could be financial year 2004-05 and considering the aforesaid fact the AO added the same unde .....

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