TMI Blog2018 (2) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... ed appellate order passed by learned CIT(A). This ground raised by the Revenue is dismissed. Loss arising from the Future and Option ( F& O) segment - Held that:- The copy of reply received from NSE was duly handed over to the assessee by the AO but the assessee could not rebut the same as no evidences are brought on record by the assessee to prove that F & O transactions were genuine. Even before us no additional evidences are filed to contend that F & O losses were genuine. Thus the loss in F & O segment claimed to have been incurred were bogus/sham loss which was being allegedly incurred only with a view to set off the same against the income from short term capital gains on sale of shares/securities in order to reduce the tax liability. Thus, we disallow this loss by holding the same to be sham and the appeal of the assessee on this ground stood dismissed and we have no hesitation in confirming the well reasoned appellate order of learned CIT(A). - I.T.A. No.2826/Mum/2015 And I.T.A. No. 2781/Mum/2015 - - - Dated:- 31-1-2018 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. P. Murli Mohan Rao For The Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciating the submissions made by the Assessee. 3. The Ld CIT (A) ought to have appreciated that the transactions are genuine and that trades have been executed through the broker M/s.NKB Securities and that copies of a few contract notes have also been submitted along with the confirmation during the assessment proceedings. 4. The Ld CIT (A) ought to have appreciated that disallowance u/s 68 of the Act is not warranted in respect to trade creditors appearing in the books of account. 5. The Ld CIT (A) while upholding the disallowance of loss of ₹ 7,00,98,571/ -, has erred in disregarding that the amount payable to the broker, M/s.NKB Securities has been paid off in the subsequent year, the Return of Income of which has already been accepted by the Department. 6. The assessee may add, alter or modify or substitute any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal. 4. The assessee is an individual who is deriving income from sales and purchase of shares . During the year under consideration , the assessee showed income from long term capital gains of ₹ 3,95,24,398/- on sale of shares which was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharatl Shipyard Holding Period No. of Shares % of Total Gain/Loss % of Total Gain/ Loss Up to 1 Week 70022 100 173425.11 100 TOTAL 70022 173425.11 2 Cipla Ltd. Holding Period No. of Shares % of Total Gain/Loss % of Total Gain! Loss Up to 1 Week 10000 100 -70750.23 100 TOTAL 10000 -70750.23 3 Reliance Infra Projects Holding Period No. of Shares % of Total Gain/Loss % of Total Gain! Loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100 1046050567 100 DETAILS OF SHORT TERM CAPTIAL GAINS Name of the share Date of Purchase Rate Qty. Amount Date of Sale Rate Qty. Amount Capital gain Bharati Shiyard 11.03.10 268.2677 22 5901.89 11.03.10 268.0314 22 5896.69 -5.2 10.03.10 269.117 10000 2691170.2 10.03.10 269.2337 10000 2692336.6 1166.32 11.03.10 269.7415 20000 5394829.9 11.03.10 269.8923 20000 5397845 3015.15 23.02.10 268.2445 20000 536 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries 19.02.10 991.1002 10000 99110002 23.02.10 977..1538 10000 9771537.6 -139464.13 Total 10000 99110002 10000 9771537.6 -139464.13 Siemens Ltd. 16.02.10 665.2332 10000 6652331.8 17.2.10 664.9134 10000 6649133.9 -3197.93 Total 10000 6652331.8 10000 6649133.9 -3197.93 Core Project 02.4.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.12.08 42.655 6000 255930.96 28.4.09 95.81 6000 574840.31 318909.349 06.05.09 110.06 100000 11005600 04.12.08 42.655 19856 846960.86 05.12.08 43.511 80144 3487147.2 100000 4334108 100000 11005600 6671491.75 05.12.08 43.511 22586 994487.87 06.05.09 111.77 110100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BREAK UP OF PERIOD OF HOLDING NAME OF HOLDING NO.OF %OF % of total THE SCRIP PERIOD SHARES TOTAL CAPITAL GAIN/LOSS CORE UPT02 GAIN PROJECT YEARS 200295 100 39,524,398.12 100 Total S 200295 100 39,524,398.12 100 On the analysis of the above cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,539/- was shown as sundry creditors as at the end of the year in the name of NKB Securities . The assessee was asked to produce global report of the F O trade and contract notes issued by the said broker. On analysis of the details submitted , the AO observed that the assessee had incurred F O loss from NKB Securities on the transactions which were entered all through the year but the account with NKB Securities was not settled. The A.O observed that the usual market settlement period of the trade is T+2 i.e. all the payments of the trade are to be settled within stipulated two days from the date of trade wherein in the instant case the broker is allowing the assessee to trade in F O and incur losses without settling the account or without forfeiting the margin money of the assessee. Thus it was observed by the AO that the broker continued to allow assessee to trade in F O market without recovering its dues and the dues continued to accumulate losses all throughout the year and stood in Balance Sheet as at 31-03-2010. The AO issued notices u/s 133(6) to the broker namely NKB Securities at the following addresses mentioned in contract note and as provided by the assessee but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olio comprises of stock in trade which are to be treated as trading assets. Where an assessee has two portfolio the assessee may have income under both heads i.e. capital gain as well business income. It is also seen from the facts of the case that the appellant has been holding a large number of shares for more than a period of one year and there no borrowings made by the appellant. The appellant has also earned substantial dividend during the year. The Hon'ble Supreme Court in the case of CIT Vs Madan Gopal Radhyalal 73 ITR 62 has held that there cannot be a presumption that every acquisition by a dealer in a particular commodity is an acquisition for the purpose of his business. In each case the intention is to be seen from the facts of the case and also from the conduct of acquiring the commodity and its dealings in the same. The Hon'ble Supreme Court have further held in the case of CIT Vs Associate Industrial Development Company Ltd. 82 ITR 586 that whether any part of the holding of shares is by way of investment or forms part of the stock in trade, is a matter which is within the knowledge of assessee, therefore he should be in a position to produce evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO on this account is hereby upheld. On this ground, appeal is dismissed. 6. Now both the assessee as well as Revenue have filed an appeal before the tribunal . The assessee is aggrieved by the disallowance of F O loss while the Revenue is aggrieved by the treatment accorded by learned CIT(A) by holding that profit/loss from sale / purchase of shares are to be treated as capital gains and not as business income as was held by the A.O. in its assessment order. The Ld. CIT-DR open the argument and submitted that the assessee is an investment advisor and giving advises with respect to sales and purchase of shares to other parties/clients. The assessee is also doing investment and trading in shares. It was submitted by learned CIT-DR that the assessee has dealt in large number of shares of Core Projects Ltd. which is major dealing of the assessee and the assessee has a complete knowledge/information of the company Core Projects Ltd and timing of the market to maximise profits which itself leads to the conclusion that the assessee is trader and not an investor. It was submitted by learned CIT-DR that the assessee is dealing in shares with a view to make profits. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding amount to NKB Securities in the immediately succeeding year and there was nothing payable with respect to dues which was payable as at the year end as it stood duly paid in succeeding year . The assessee relied on the decision of ITAT-Lucknow Bench in the case of DCIT v. Verma Roadways (2012) 24 Taxman.com 304(Luck.) and also decision of ITAT-Mumbai in the case of Shri Pankaj K. Dharia v. ITO in ITA no. 5142/Mum/2013 vide orders dated 10-08-2016. It was submitted by learned counsel for the assessee that F O details were not recorded in NSE for which assessee cannot be faulted with and another opportunity be granted to the assessee to reconcile the same . Ld. CIT-DR on the other hand submitted that assessee is trying to set off artificial/sham losses in F O segments to the tune of ₹ 7.38 crore against the short term capital gains earned by the assessee on the sale of shares . Notices u/s 133(6) were issued by the AO to NKB Securities at its Mumbai as well Bhopal addresses to which said party never responded and the said notices returned un-served as the said party NKB Securities is not traceable. It was submitted by learned CIT-DR that the assessee also never pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into large number of transactions in shares which are reproduced here under:- DETAILS OF PERIOD OF HOLDING OF STCG 1 Bharatl Shipyard Holding Period No. of Shares % of Total Gain/Loss % of Total Gain! Loss Up to 1 Week 70022 100 173425.11 100 TOTAL 70022 173425.11 2 Cipla Ltd. Holding Period No. of Shares % of Total Gain/Loss % of Total Gain! Loss Up to 1 Week 10000 100 -70750.23 100 TOTAL 10000 -70750.23 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 742200 46.87 61855488.3 59.13 months Total 1583432 100 1046050567 100 DETAILS OF SHORT TERM CAPTIAL GAIN Date of sale NO.OF NO.OF LONG TERM SHARES DATE OF SHARES CAPITAL GAIN SOLD AMOUNT RATE PURCHASE PURCHASED AMOUNT RATE /LOSS 31.03.2010 200295 48,776,173.98 243.52 23.12.08 5706 278,852.22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100 Total 200295 100 39,524,398.12 ... 100 It is the claim of the assessee that all the shares were duly de-mated and dealings were undertaken on delivery basis wherein the assessee has taken physical delivery of shares in his demat account on purchase of shares while the assessee has given delivery of shares on the sale of shares . It is an undisputed position that on such shares capital gains were offered for taxation. The Revenue is , however, aggrieved with large volumes of trade and short period of holding which propelled AO to treat the said income as income under the head income from business or profession. The assessee has also offered income from F O under head income from business or profession. The assessee is treating the shares taken on delivery basis as Investments‟ in its books of accounts which are valued at cost while stocks/securities under F O dealings were valued at cost or market value whichever is lower and are sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind and if an opportunity exists for making money in a very volatile and complex market , every prudent person keeping in view principles of commercial expediency will exit from the stock which yielded good returns and it cannot be expected of prudent investor governed by the principles of commercial expediency to hold shares for a longer period in a volatile and complex stock market and then end up losing money on shares merely with the fear that Revenue will classify it as trader if he end up selling at shorter period wherein he had the opportunity to make money. Merely because the investor has earned money on shares , it cannot be concluded that he is trader in shares. There are several factors to be seen which depends upon facts and circumstances of each case before arriving at the decision whether the assessee is an investor and / or trader. In the instant case, the shares are fairly held for a period of 4 months upwards before being disposed of by the assessee on which short term capital gain was earned and very few shares were sold within a period of one month from the date of purchase. The shares on which long term capital gains were earned were held for period of 1 year 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such dealing of the assessee in F O segment during the relevant period through NKB Securities . The copy of reply received from NSE was duly handed over to the assessee by the AO but the assessee could not rebut the same as no evidences are brought on record by the assessee to prove that F O transactions were genuine. Even before us no additional evidences are filed to contend that F O losses were genuine. Keeping in view facts and circumstances of the case on the touchstone of the preponderance of probabilities , we are of the considered view that the loss in F O segment claimed to have been incurred were bogus/sham loss which was being allegedly incurred only with a view to set off the same against the income from short term capital gains on sale of shares/securities in order to reduce the tax liability. Thus, we disallow this loss by holding the same to be sham and the appeal of the assessee on this ground stood dismissed and we have no hesitation in confirming the well reasoned appellate order of learned CIT(A). We order accordingly. 8. In the result both the appeal of the assessee and the Revenue is dismissed . Order pronounced in the open court on 31.01.2018 - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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