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2017 (12) TMI 653

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..... al by the assessee directed against the Order by the Commissioner of Income Tax (Appeals)-34, Mumbai ( CIT(A) for short) dated 12.01.2016 and pertains to the assessment year (A.Y.) 2012-13. The grounds of appeal read as under: 1. Short Term Capital Gain of ₹ 3,51,66,426/- treated as Business Income 1. The Learned CIT(A) erred in treating the Short Term Capital Gain of ₹ 3,51,66,426/- as 'Business Income1 without appreciating the crucial facts that the assessee is a professional / consultant for exploration and drilling activities for Oil wells / Rigs etc. which is the principal source of income since 32 years, wherein he has to devote maximum time and the activity has been accepted by the department in all the prior years as well as in the relevant assessment year, therefore merely considering the value, volume and frequently of transaction, treating the assessee as trader is contrary to the facts on record. 2. The Learned CIT(A) failed to appreciate that the assessee is consistently showing the same as investment over number of years and no borrowed funds were utilised for purchase of shares. And the intention of assessee was also to treat the shar .....

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..... epartmental Representative submitted that the facts of the present case and the facts dealt with by the ITAT as above are similar. This finding has already been given by the ld. Commissioner of Income Tax (Appeals). Furthermore, she submitted that regarding the distinction being referred by the ld. Counsel of the assessee, the ld. Commissioner of Income Tax (Appeals) has already granted relief in-as-much as he has held that the long term capital gain shown by the assessee should be accepted. To this extent, the assessee has already been granted necessary relief. Hence, the ld. Departmental Representative submitted that there is no infirmity in the order of the ld. Commissioner of Income Tax (Appeals). 8. We have carefully considered the submissions and perused the records. The facts in respect of share transactions mentioned in the assessment order and emerging from the information on record are as follows: (1) The assessee has transacted in fifty three kinds of shares. (2) The number of shares transacted is more than 1,00,00,000. (3) The volume of turnover is also more than 70,00,00,000. (4) The details in respect of shares which were sold within a period of less th .....

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..... y one shares. Most of shares in which repetitive transactions of purchases and sales are not seen are the transactions which have yielded long term capital gains. Thus nearly all the transactions yielding short term capita! gains are such in which the appellant has repetitively purchased and sold same scrips in different transactions on various dates. (11) The total profit earned by the appellant from the transactions of purchase and sales of shares termed as capital gains by him is ₹ 5,17,38,427/- whereas the income earned from the activity which is depicted as the principle activity of the appellant is Rs,6,47,4077- (which is about 1.25% of the income earned from purchase and sale of shares). 9. In view of the above facts, the ld. Commissioner of Income Tax (Appeals) passed the following order: 5.2 In view of the plethora of conflicting judgments on the contentious, issue of treatment of the transaction of purchase and sale of shares either as capital gains or business income it is very important that the facts of the case are understood in totality. As explicitly laid out in the CBDT's Circular No.4/2007 dated 15/06/2007 on the matter and also in view of vario .....

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..... re furnished by the assessee from page 12 to 22 of his paper book. A perusal of these show that the assessee has purchased and sold shares at frequent intervals, sometimes with a small holding period as 2 to 3 days. In the cases like Bombay Dyeing, the assessee has purchased and sold shares on the same day i.e. 5-11-2005 and incurred a loss. Similarly in the case of Bharat Electronic the purchase and sale was made on the same day and the assessee incurred a toss. We observe that in many cases, the assessee has sold the shares the very next day. The average period of holding of shares as pointed out by the AO and as accepted by the assessee is only 26 days and there were repeated transactions in certain scrips. The assessee has also speculation loss in many transactions which he has returned as such. By doing so, the assessee himself agreed that he is not a investor in all cases of dealing in shares and at time he does it as a business, Entries in the books are not decisive. Not borrowing funds is also not decisive factor in this case. This is a case of the assessee doing very high volume of trade in shares and that too holding the shares for very short period. Investors do not sell .....

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..... s stock-in-trade. It is also held in the case of Motilal Hirabhai Spg. Svg. Co. Ltd. 113 ITR 173 (Guj.) and Raja Bahadur Visheshwara Sing 41 ITR 685 (SC) that treatment in the books by an assessee will not be conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive then it become business profit not capital gain. In the case of CIT vs. PKN Co. Ltd. 60 ITR 65 it was held that purchase with an intention to resale will also, under the changed circumstances, would be capita! gains. It is also held in the case of Saroj Kumar Mazumdar vs. CIT 37 ITR 242 by the Hon'ble Supreme Court that purchase with an intention to resale in order to gain profit will be business profit depending on the circumstances of the case tike nature quantity of purchase and nature operation involved. It was also held in the case of Janki Ram Bahadur Ram vs. CIT 57 ITR 21 (SC) that no single fact has any decisive significance and the question must be answered depending on the collective effect of all relevant material brought on record. 14. Keeping in view the above principles, the facts in the present cas .....

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..... resaid decision in appellant's case for A.Y. 2006-07. Therefore, it has to be concluded that the decisions relied upon by the appellant are not applicable in the present case because of peculiar and unique features of the transactions of shares and other such facts discussed in earlier paragraphs. 5.7 The appellant has argued that the department has treated the transactions of purchase and sale of shares as capital gains for A.Y.2007-08 to A.Y. 2011- 12 and has also raised the application of- principle of consistency. In this regard, it needs to be noted that this issue was properly examined by the department in A.Y, 2006-07 and the Assessing Officer had come to a conclusion that the nature of transactions is that of trading, which was confirmed by the ITAT, Mumbai to the extent of Short Term Capital Gain transactions. As far as A.Ys, 2007-08, 2010-11 and 2011-12 are concerned, the return was not at all scrutinized. Therefore, the statement that the department accepted appellant's method of treatment is completely false for these years. As far as A.Ys. 2008-09 2009-10 are concerned, the appellant has not shown any positive income under the head 'capital gains' .....

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