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Vidyasagar M.P. Sah Versus Dy. CIT-23 (3) , Mumbai

2017 (12) TMI 653 - ITAT MUMBAI

Treatment of the transaction of purchase and sale of shares - capital gains or business income - CIT(A) erred in treating the Short Term Capital Gain as Business Income - Held that:- We find that the ld. Commissioner of Income Tax (Appeals) has duly followed the ITAT decision in the assessee’s own case which is in appeal before the Hon'ble jurisdictional High Court. As rightly pointed out by the ld. Departmental Representative, the ld. Commissioner of Income Tax (Appeals) has correctly followed .....

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spondent : Ms. Aarjoo Garodia ORDER Per Shamim Yahya, A. M.: This appeal 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 withou .....

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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 shares as investments and considering the change in pattern of investment, the assessee is acting as a prudent investor, therefore the-addition of ₹ 3,51,66,426/- as Business Income as against Short Term Capital Gain, is not justified. 3. Withou .....

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lier years . 2. In the present case, the assessee is an individual doing the business of providing consultancy services for exploration and drilling activities for oil wells/rigs and also earning income from the activity of purchase and sale of shares. 3. In the assessment order, the Assessing Officer held that the share trading activity of the assessee is treated as business income and the entire capital gain, i.e., short term and long term is treated as business income of the assessee. 4. Upon .....

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facts to be identical. 5. Against this order, the assessee is in appeal before the ITAT. 6. We have heard the ld. counsels and perused the records. The ld. Counsel of the assessee submitted that the short term capital gain reflected by the assessee should not be treated as business income. He submitted that the decision of the ITAT relied upon by the ld. Commissioner of Income Tax (Appeals) is in appeal before the Hon'ble jurisdictional High Court. Furthermore, he sought to state that some o .....

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nted 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 in .....

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pital Gain earned, (5) The holding period for nearly all the shares in respect of which Short Term Capital Gain is shown was less than six months. (6) There were also instances of day-trading transactions. Total 2,99,829 number of shares were transacted within a day and the total sale value of such transactions was ₹ 5,25,30,000/-, (7) The total amount of dividend earned by the appellant in the F.Y.2011-12 was ₹ 2,91,627/- whereas the total investment in shares as on 31/03/2012 was & .....

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during the period compared to the investments. (9) The assessee has heavily traded in some scrip in a repetitive manner. Following are some illustrative examples: Name of the Scrip No. of purchases made on various dates No. of sales made on various dates Total quantity purchased Total quantity sold Sold value Cairn India Ltd. 22 18 602724 633624 19,84,31, 301 IFCL Ltd. 18 15 5782599 4482599 15,78,63, 870 GTL 11 14 3002852 3172355 4,05,54,5 63 Titan Industries Ltd. 9 8 13000 13000 55,25,703 (10) .....

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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 c .....

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all the parameters such as frequency of transactions, repetitive transactions in same scrip/ duration of the holding period, amount of dividend earned, volume of transactions, scale of income earned compared to the principle activity etc. are clearly indicating that the correct nature of such transactions is of trading in shares. 5.4 The Hon'ble ITAT, Mumbai in the appellant's own case has dealt in detail with this matter for A.Y. 2006-07. The facts in respect of all the parameters ment .....

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f purchase has been mentioned. From the details furnished, it can be noticed that certain shares, have been held, for a period of more than 24 months, as in the case of Daewoo Motors. In the case of Vikas 5.W.P. and Nirlon and Southern Herbals, shares were purchased in the years 2001, 2002, 2003. The shares of Infoquest Soft were purchased in 2003. Thus as per the statement of holding on 31-03-2006, except for the shares of Gujarat Alkalies of value of ₹ 1,58 lakhs and Indiabulls which is .....

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concerned with this category. The assessee has indulged in voluminous transaction of purchase and sale of shares. There were intraday transactions as well as purchase end sale of shares within a very short period. The details are 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 purcha .....

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actions 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 shares the same day or the next day for a loss. The fact that the asses .....

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s running into crores of rupees and when such trade results in a profit of ₹ 1.17 crorest it cannot be said that the assessee is not in the business of purchase and sale of shares as it is not his main occupation. The fact show that the main occupation of the assessee is to buy and sell shares. 11. It is well settled that each case has to be decided based on the facts and circumstances of the case. In the case of Bharat Kunverji Kenia (supra) the case is different on facts as the assessee .....

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ssee and at page 9 para 13 and 14, held as follows: '13. It is held that whether a transaction of sale and purchase of shares were trading transactions or they were in the nature of investment is a mixed question of law and facts as held by the Hon'ble Supreme Court in the case of CIT vs. H. Hoick Larsen 160 ITR 67. It is further held in the case of CIT vs. Associated Industrial Development Co. P. Ltd. 82 ITR 586 that it is possible that the assesses to be both an investor as well as dea .....

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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 Cou .....

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resent case of the assessee are examined. The assessee during the entire previous year had entered into transaction of purchases and sale of shares of about 32 companies totaling to Rs.l,87,83,440/- and these shares were sold for a value of Rs,2,69,71,368/-. The above transactions were effected by actual delivery of shares at the time of purchase and sale of shares except in the case of Hiran Orgo Chem, where there are 19 transactions of purchases and sale on the same day of various number of sh .....

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and 90 days to 180 days, i.e. ₹ 51.29 lakhs. In fact there were no shares which were held for more than 6 months period on which gains were earned. Thus the maximum holding period was from 1 day to a maximum of 180 u'ays.' At para 17 the Tribunal held that the frequency in short period does indicate that the assesses has purchased the shares with a motive to earn profit in short period. This decision applies to the case on hand, 12. In our opinion, the judgment of the Hon'ble .....

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y because all the facts in respect of all the parameters are occurring in this year at an accentuated degree. 5.6 The decisions quoted and relied upon by the appellant in his submissions are considered. However, as discussed above the facts of the case at hand are different from the cases dealt in these decisions. Some of these cases are also dealt by the Hon'ble ITAT, Mumbai in the aforesaid decision in appellant's case for A.Y. 2006-07. Therefore, it has to be concluded that the decisi .....

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he 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 conc .....

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Purohit has been defended on merits. 5.8 Though the issue in respect of treatment of Long Term Capital Gain was not before Hon'ble ITAT for A.Y. 2006-07, the ITAT has however commented about non-applicability of its treatment as trading income to the transactions of long term capital gains in its decision, The view formed by the ITAT in this regard is also required to be followed in this case for the A.Y,2012-13 mainly because of the facts of the case. 5.9 It is seen that the shares from the .....

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