Income Tax Appellate Tribunal - Mumbai
Ito 32(2)(3), Mumbai vs Mukund T Parmar, Mumbai on 31 January, 2018
आयकर अपीऱीय अधिकरण "C" न्यायपीठ मब
ुं ई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपीऱ सं./I.T.A. No.2826/Mum/2015
(नििाारण वर्ा / Assessment Year: 2010 -11)
ITO 32(2)(3) बिाम/ Shri Mukund T Parmar
R.No. 305-B, 3 r d fl oor, C- 13 Flat no. 903/A Wing ,
Pratyakshkar Bhavan, BKC Ajmera Pristine, Bui lding
v.
Bandra (E) , Mumbai 400051
No. 70, Yogi Nagar, Eksar
Road, Bo rivali(W),
Mumbai 400092
स्थायी ऱेखा सं ./ PAN : AAAPP9619E
(अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)
आयकर अपीऱ सं./I.T.A. No. 2781/ Mum/2015
(नििाारण वर्ा / Assessment Year:2010 -11)
Shri Mukund Trikmlal बिाम/ JCIT Range 25(1)
Parmar Mumbai
Flat no. 903/A Wing , v.
Ajmera Pristine,
Buidling No. 70, Yogi Nagar,
Eksar Road, Borivali(W),
Mumbai 400092
स्थायी ऱेखा सं ./ PAN : AAAPP9619E
(अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)
Assessee by: Shri. P. Murli Mohan Rao
Revenue by : Shri. H.N Singh,CIT-DR
सन
ु वाई की तारीख /Date of Hearin g : 17-01-2018
घोषणा की तारीख /Date of Pronouncement : 31 -01-2018
आदे श / ORDER
PER RAMIT KOCHAR, Accountant Member
I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 These are cross appeals, filed by the Revenue and the Assessee, being ITA No. 2826/Mum/2015 and 2781/Mum/2015 respectively for assessment year 2010-11, which are directed against the appellate order dated 25.02.2015 passed by learned Commissioner of Income Tax (Appeals)-44, Mumbai (hereinafter called "the CIT(A)"), for assessment year 2010-11, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 12-03-2013 passed by 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 in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 2826/Mum/2015 for assessment year 2010-11, read as under:-
" (i) "On the facts and in the circumstances of the case, and in law, the Ld CIT(A) erred in treating the business income as capital gain, whereas assessee had invested in shares to make profit and not to make investment."
(ii) .. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in not considering the volume of profits and nature and frequency of transactions is nothing but trading in shares with an intention to earn quick profits out of trading activity and not to earn dividend out of investment in shares."
(iii) "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in treating the profits from sale of shares as capital gains without taking note of sale pattern of shares which clearly establishes the intention of the assessee to earn profits and not to make investment."
(iv) "The appellant prays that the order of the Ld CIT(A) on the above grounds be set aside and that of the A.O. be restored."
(v) The appellant craves leave to amend or alter any ground or add a new ground."
3. The grounds of appeal raised by the Assessee in the memo of appeal filed with the tribunal in ITA No. 2781/Mum/2015 for assessment year 2010-11, read as under:-
"1. The order of the Ld. CIT (A) - 44, Mumbai is erroneous both on facts and in law.
2. The Ld. CIT (A) erred in upholding the disallowance of loss of Rs. 7,00,98,571/- from trading in Futures and Options of shares without appreciating the submissions made by the Assessee.2
I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015
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 Rs. 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 Rs.3,95,24,398/- on sale of shares which was claimed as an exempt income u/s. 10(38) . Similarly , the assessee had shown short term capital gains of Rs.10,45,90,433/- (STT paid) on sales of shares . Further , the assessee had shown loss of Rs. 7,38,18,591/- from the Future & Option (F&O) in trading of share . The assessee had in its computation of income filed along with return of income with the Revenue has set off the loss from F&O from the income earned from short term capital gains on sale of shares.
The AO during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) observed that assessee had traded in shares in huge volumes and in some cases shares purchased in lots were not even held for one day, before being sold. The assessee was asked by the AO to explain as to why the income from trading in shares be not brought to tax as income from business and claim of the assessee to long term capital gains and short term capital gains be not disallowed, to which the assessee submitted that assessee is an investor in shares . It was submitted by the assessee that the share purchased by the assessee were generally held for more than one year and shares were shown as investments in books of accounts under the head „Investments‟ . It was submitted by the assessee that the intention of the 3 I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 assessee is to hold the shares for investments on which dividend income was also earned . It was submitted that shares were not held as stock-in-trade and the shares were not reshuffled for long period . It was submitted by the assessee that the accounts of the assessee were audited u/s. 44AB by a chartered accountant. It was also submitted that assessee also dealt in Futures and Options(F&O) and the income from future & options was declared as business income (loss) under the head „Income from Business or Profession‟ . It was submitted that the Revenue had accepted the stand of the assessee in the preceding years as the same treatment was given by the assessee to the investments in the past which was accepted by Revenue in the earlier years. The A.O brought out the details of the sale and purchase of shares on which the income was offered for taxation under the head income from capital gain and period of holding vis-a-vis volume of trade in the assessment order , which is detailed as hereunder:
DETAILS OF PERIOD OF HOLDING OF STCG 1 Bharatl Shipyard Holding No. of % of Gain/Loss % of Total Gain/ Period Shares Total Loss Up to 1 70022 100 173425.11 100 Week TOTAL 70022 173425.11 2 Cipla Ltd. Holding No. of % of % of Total Gain! Gain/Loss Period Shares Total Loss Up to 1 10000 100 -70750.23 100 Week TOTAL 10000 -70750.23 3 Reliance Infra Holding No. of % of % of Total Gain! Period Gain/Loss Projects Shares Total Loss Up to 1 17742 88.71 26268.1065 65.44 Week Up to 1 2258 11.29 13875.6035 34.56 Month TOTAL 20000 100 40143.71 100 4 Punjab National Bank Holding No. of % of Gain/Loss % of Total Gain Period Shares Total Loss Up to 1 10000 100 -14789.96 100 Week TOTAL 10000 -14789.96 5 Reliance Industries Holding No. of % of Gain/Loss % of Total Gain Period Shares Total Loss Up to 1 10000 100 -139464.13 100 Week TOTAL 10000 -139464.13 6 Siemens Ltd.
Holding No. of % of
Gain/Loss
% of Total Gain
Period Shares Total Loss
4
I.T.A. No.2826/Mum/2015
I.T.A No. 2781/Mum/2015
Up to 1
10000 100 -3197.93 100
Week
10000 -3197.93
7 Core Projects
Up to 6
841232 53.13 42749578.4 40.87
Months
Above 6
742200 46.87 61855488.3 59.13
months
Total 1583432 100 1046050567 100
DETAILS OF SHORT TERM CAPTIAL GAINS
S.no Name of the share Date of Rate Qty. Amount Date of Sale Rate Qty. Amount Capital gain
Purchase
1 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 5364890.1 02.03.10 273.6426 20000 5472491 107600.91
18.02.10 2678.2116 20000 5364231.5 19.02.10 271.294 2000 5425879.4 61647.93
Total 70022 18821024 70022 18994449 173425.11
2 Cipla Ltd. 319.516
17.02.10 326.5914 10000 3265913.7 18.02.10 10000 3195163.5
4
Total 10000 3265913.7 10000 3195163.5 -70750.23
3 Reliance Infra
03.03.10 258.5993 20000 5171985.4 08.03.10 17742 4614336 -557649.44
Projects
2258 597792.71 597792.71
Total 20000 5171985.4 20000 5212128.7 40143.27
4 Punjab National
02.03.10 922.0935 5000 4610467.7 0 -4610467.7
Bank
03.03.10 931.1285 5000 4655642.3 03.03.10 925.132 10000 9251320 4595677.7
Total 10000 9266110 10000 9251320 -14789.96
5 Reliance
19.02.10 991.1002 10000 99110002 23.02.10 977..1538 10000 9771537.6 -139464.13
Industries
Total 10000 99110002 10000 9771537.6 -139464.13
6 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
7 Core Project
02.4.2009 60.13 220132 13236051
03.12.08 42.311 87373 3696857.9
03.12.08 42.724 130365 5510993.6
04.12.08 42.763 2394 102374.92
220132 9310226.4 220132 1326051 3925824.64
04.12.08 42.76 61000 2608550.5 24.04.09 42.763 61000 5950189.9 3341639.41
27.04.09 100.35 41000 4114464.2
04.12.08 42.763 17456 746473.08
04.12.08 42.655 23544 1004273.1
41000 1750746.2 41000 4114464.2 2363717.98
04.12.08 42.66 15000 639827.4 28.04.09 95.304 15000 1429563.6 789736.199
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 12305635
5
I.T.A. No.2826/Mum/2015
I.T.A No. 2781/Mum/2015
3. Name of Date of Date of
No. the share purchase Rate Qty. Amount Sale Rate Qty. Amount Capital Gain
05.12.08 43.419 80700 3503936.9
08.12.08 44.316 6544 290005.01
110100 4788429.8 110100 12305635 7517205.39
08.12.08 44.316 22000 974955.71 07.05.09 106.88 22000 2351452.3 l3 76496.63
08.12.08 44.316 72956 3233130.4 07.05.09 106.81 122000 13030463
08.12.08 44.337 49044 2174480.7
122000 5407611.1 122000 13030463 7622851.92
08.12.08 44.337 35656 1580892.3 08.05.09 105.93 100000 10593277
08.12.08 44.951 55610 2499704.3
10.12.08 45.065 8734 393599.38
100000 4474196 100000 10593277 6119081.03
10.12.08 45.065 44000. 1982868.4 08.05.09 106.49 44000 4685492.5· 2702624.11
10.12.08 45.065 24616 1109324.7 06.07.09 131.07 250000 32767504
11.12.08 45.713 74300 3396508.5
11.12.08 45.701 65800 3007118.1
12.12.08 47.433 84380 4002430.7
12.12.08 46.864 904 42364.961
250000 11557747 250000 32767504 21209756.7
12.12.08 46.864 57796 2708545.6 -
15.12.08 51.255 83850 4297736.1
15.12.08 -
51.367 73100 3754957.2
16.12.08 54.039 35254 1905102
250000 12666341 250000 32792633 20126292.7
16.12.08 54.039 1346 72736.916
16.12.08 53.896 48654 2622268.2
50000 2695005.2
16.12.08 53.896 1346 72544.355 30.07.09 136.85 102200 13986490
17.12.08 53.035 54500 2890408.3
17.12.08 52.686 46354 2442186.7
102200 5405139.4 102200 13986490 8581350.83
17.12.08 52.686 1106 58270.236 31.07.09 141.82 90000 12763833
19.12.08 50.973 24350 1241203.4
19.12.08 51.003 19650 1002205.2
22.12.08 50.365 20400 1027437.5
22.12.08 52.121 9600 500361.1
23.12.08 47.109 10600 499351.65
23.12.08 48.87 4294 209847378
90000 4538676.8 90000 12763833 8225156.21
73,390,36 17799542 104,605,06
TOTAL 1,583,432 0 1583432 6 7
GRAND TOTAL SHORT TERM CAPITAL GAIN 104590432
DETAILS OF LONG TERM CAPITAL GAIN
Date of sale NO.OF NO.OF LONG TERM
SHARES DATE OF SHARES CAPITAL GAIN
6
I.T.A. No.2826/Mum/2015
I.T.A No. 2781/Mum/2015
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 48.87
24.12.08 6000 273,847.85 45.64
24.12.08 16000 732,039.61 45.75
26.12.08 54370 2,474,466.95 45.51
26.12.08 38500 1,748,197.68 45.41
29.12.08 63981 3,006,259.12 46.99
29.12.08 15738 738,112.43 46.9
200295 48,776,173.98 200295 9,251,775.86 39,524,398.12
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 charts, the A.O reached the conclusion that the assessee is trader in shares and not an investor and it was also observed by the AO that assessee has mainly dealt in the share of the company named Core Projects Ltd. from which the income from short term capital gains and long term capital gains had arisen. The AO observed that the magnitude of dealing in shares of Core Projects Limited clearly reveals that the assessee was dealing in the said shares with complete knowledge and timing of the market and hence the assessee was treated by the AO as trader of shares . The income and expenditure account of the assessee was re-drawn by the A.O as under to arrive at the income of the assessee:
Expenditure Amount Income Amount
To account writing charge 18,000.00 By professional fees 3,00,000.00
To salary 20,000.00 By consultancy fees 2,38,950.00
To audit fees 14,000.00 By income from shares 14,41,14,830.00
To locker charges 2,660.00 (STCG- 10,45,90,432.00
To telephone expense 22,542.00 LTCG- 3,95,24,398.00)
To interest 41,81,800.00
To loss on F & 0 7,00,98,539.00
Net Profit 7,02,96,239.00
-
Total 14,46,53,780.00 Total 14,46,53,780.00
The AO assessed income of Rs. 7,02,69,2369/- which was brought to tax as income under the head Income from business and profession vide assessment order dated 12-03-2013 passed by the AO u/s 143(3).7
I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 With respect to the F&O transactions wherein the assessee had claimed loss of Rs.7,38,18,591/- which was claimed to be set off against short term capital gains of Rs. 10,48,18,685/- , the A.O observed that Rs. 7,00,98,539/- 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 which notices were returned un-served with the remarks "not available at the address-left" , as under:
1. Mumbai Address 130-132 Great Western Bldg, Apollo Street, Mumbai-
400023
2. Bhopal Address 250 Sagar Plaza, Zone-II, M.P. Nagar, Near Sargam Cinema, Bhopal 462003 The A.O in order to verify transaction also sent notice u/s. 133(6) to National Stock Exchange to confirm the transaction of the assessee in F&O segment through NKB Securities to which National Stock Exchange replied that the said transactions in F & O segment to have not taken place during the said period. The AO show caused the assessee to explain as to why these transactions in F & O segment be not treated as non genuine to which the assessee submitted that the transactions in F & O segment with NKB Securities was genuine and secondly it was submitted that the payments to NKB Securities was made in the subsequent year i.e. in the financial year 2010-11.8
I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 The A.O treated the said transactions in F & O segment to be non-genuine and additions were made of Rs. 7,00,98,571/- being F&O loss from NKB Securities which was disallowed by the AO vide assessment order dated 12.03.2013 passed by the A.O u/s. 143(3).
5. The assessee carried the matter in appeal before the learned CIT-A who allowed the appeal of the assessee vide appellate order dated 25-2-2015 , by holding as under:-
" I have considered the contention of the AO and the submissions of the appellant and I have also gone through the facts of the case. It is an undisputed fact that the assessee was dealing in shares and was holding shares for the purpose of F&O trading. The investment was valued at cost and it is shown in the balance sheet whereas the stock in trade was valued at cost or market price which ever was lower and the loss was accordingly claimed in the P&L account. The CBDT circular No.4 of 2007 dated 15-06-2007 in fact also provides for a situation wherein tax payer may hold both portfolios, trading in investment in shares at the same time. Para 10 of CBDT circular No 4 which reads as under:
"CBDT also wishes to emphasis that it is possible for a tax payer to have two portfolio i.e. an investment portfolio comprising of securities which are to be treated as capital assets and trading portfolio 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 evidence to establish the distinction between the shares held as stock-in-trade and by way of investment. The system of accounting has remained the same for the investment portfolio and the business portfolio. Therefore, what emerges in the present case is that definitely the appellant was trading in F&O shares, however, part of the shares have been held as investment and there appears to be no reason to treat the same as business income. Merely making profit cannot be held as adventure in 9 I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 the nature of trade since investment portfolios are created and held with the spirit of earning/ multiplying the value of the money. Therefore, in light of the above, the ground of appeal is allowed. The income from shares is to be treated as capital gains and taxed as such."
With respect to the second issue of the disallowance of the loss incurred in F&O trade , the learned CIT-A vide appellate order dated 25-2-2015 held as under:-
" I have gone through the findings of the AO and the submissions of the appellant. From the facts as elucidated by the AO, it is clearly evident that the appellant has failed to provide any credible evidence for his claim of the loss. The finding of the AO that the creditor, M/s NKB Securities was not found available at both the given addresses, even if explained by the fact that the said broker may have shutshop from the given addresses, cannot be accepted as even being plausible in light of the reply given by the National Stock Exchange that no such transaction that no records are available with the Exchange for the client, Mr. Mukund T. Parmar. Interestingly, there is no information available regarding any client code change also which could have been used by the appellant to explain as to how and why the said claim of loss may not have been found in the records of the Stock Exchange. It is also not the case of the appellant that he was trading through a different broker and was therefore, his records would not have been or could have been found with another broker's account. In this background, where the appellant has not been able to produce any evidence whatsoever for the said claim of the loss, I am of the considered opinion that the AO has rightfully, held the said F&O trade to be sham transaction. In light of this finding, the question of allowing set off as income from short term capital gain does not arise. The action of the 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 10 I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 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 submitted by learned CIT-DR that since the assessee is also rendering consultancy services in the investment field which must be taken into account to hold that the assessee is a trader . Our attention was drawn to paper book filed by the assessee where assessee‟s financial statements are placed. It was submitted that in the Balance Sheet of the assessee there are no loans but owned funds are only to tune of Rs. 4.05 crores and it is the credits extended by creditors mainly the share brokers which has enabled assessee to make investments to the tune of Rs.15 crores in shares which itself lead to the conclusion that the assessee is doing business in shares with funds belonging to others as unusual high credit is extended to the assessee by creditors . It was submitted by learned CIT-DR that dividend income was received only to the tune of Rs. 7.42 lacs on investment of more than Rs. 15 crores and it clearly reflect that the assessee is a trader in shares and securities. Our attention was drawn to the appellate order of learned CIT(A) .
The learned counsel for the assessee submitted that the dealing in the share are investment with an view to earn long term and short term capital gains wherein STT was duly paid on the sales/purchase of shares . It was submitted that shares of Core Projects Limited were held for a period of more than 1 year 3 months before being sold and the income of Rs.3.95 crores earned on the same was offered as long term capital gain and since STT was paid on such sale/purchase of shares, no income-tax was payable on long term capital gains, as income was exempt u/s. 10(38) . It was submitted that with respect to share purchases on which long term capital gains was earned, delivery of shares was taken and those shares were de- mated in assessee‟s favour before being sold . It was submitted that thereafter these shares were sold after taking physical delivery on purchase of shares and delivery of shares were also given while selling the shares. Similarly, with respect to the short term capital gain of Rs. 10.45 crore earned by the assessee, it was submitted that these gains were earned on delivery based shares and these shares were duly de-mated in assessee‟s favour and STT was also paid on the sale/purchase of these shares . With respect of F&O loss , it was submitted that assessee had duly paid the 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.
11I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 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 Rs. 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 produced said broker NKB Securities before the authorities below. It was submitted by learned CIT-DR that NSE also has stated in response to notice u/s. 133(6) that assessee has not dealt with F&O segment during the impugned period and no such records of the assessee in F & O segment dealt with the broker NKB Securities exists in NSE data base . It was submitted that NSE reply was forwarded to the assessee but the assessee was not able to rebut this finding given by NSE despite opportunities being granted at AO as well learned CIT(A) level. It was submitted that even before tribunal no such cogent evidences are brought on record to prove that the F & O losses are genuine. It was submitted by learned CIT-DR that the assessee is unnecessarily adopting the tactics to get the matter set aside to have fresh round of litigation to drag litigation indefinitely while there is no material on record to justify set aside of the issue back to the file of the authorities below.
The assessee in its rejoinder submitted that NKB Securities is now available and matter can be set aside and restored to the file of the A.O and the assessee will produce said NKB Securities before the AO
7. We have considered rival contentions and have perused the material on record including the case laws relied upon and the orders of the authorities below. We have observed that the assessee is dealing in shares and securities and deriving income from sale and purchase of shares. it is also observed that assessee is also dealing in the past in the securities wherein the Revenue has accepted income earned from sale and purchase of shares on delivery basis to be capital gains(losses) while income(loss) from F & O transactions was assessed as income 12 I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 under the head income from business or profession. It is now settled law that principle of Res-judicata is not applicable to the income-tax proceedings while principles of consistency has to be followed. Reference is drawn to the decision of Hon‟ble Supreme Court in the case of Radhasoami Satsang v. CIT(1992) 193 ITR 321(SC) . We are also aware of the decision of Hon‟ble Bombay High Court in the case of CIT v. Gopal Purohit(2010) 188 Taxman 140(Bom. HC) and recent decision of Hon‟ble Bombay High Court in the case of Jaya Chheda v. ACIT reported in (2018) 89 taxmann.com 152(Bom) which are w.r.t. . We have observed that the assessee entered into large number of transactions in shares which are reproduced here under:-
DETAILS OF PERIOD OF HOLDING OF STCG 1 Bharatl Shipyard Holding No. of % of Gain/Loss % of Total Gain! Period Shares Total Loss Up to 1 70022 100 173425.11 100 Week TOTAL 70022 173425.11 2 Cipla Ltd. Holding No. of % of % of Total Gain! Gain/Loss Period Shares Total Loss Up to 1 10000 100 -70750.23 100 Week TOTAL 10000 -70750.23 3 Relaince Infra Holding No. of % of % of Total Gain! Period Gain/Loss Projects Shares Total Loss Up to 1 17742 88.71 26268.1065 65.44 Week Up to 1 2258 11.29 13875.6035 34.56 Month TOTAL 20000 100 40143.71 100 4 Punjab National Bank Holding No. of % of Gain/Loss % of Total Gain Period Shares Total Loss Up to 1 10000 100 -14789.96 100 Week TOTAL 10000 -14789.96 5 Reliance Industries Holding No. of % of Gain/Loss % of Total Gain Period Shares Total Loss Up to 1 10000 100 -139464.13 100 Week TOTAL 10000 -139464.13 6 Siemens Ltd.
Holding No. of % of
Gain/Loss
% of Total Gain
Period Shares Total Loss
Up to 1
10000 100 -3197.93 100
Week
10000 -3197.93
7 Core Projects
Up to 6
841232 53.13 42749578.4 40.81
Months
Above 6 742200 46.87 61855488.3 59.13
13
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I.T.A No. 2781/Mum/2015
months
Total 1583432 100 1046050567 100
DETAILS OF SHORT TERM CAPTIAL GAIN
S.no Name of the share Date of Rate Qty. Amount Date of Sale Rate Qty. Amount Capital gain
Purchase
1 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 5364890.1 02.03.10 273.6426 20000 5472491 107600.91
18.02.10 2678.2116 20000 5364231.5 19.02.10 271.294 2000 5425879.4 61647.93
Total 70022 18821024 70022 18994449 173425.11
2 Cipla Ltd. 319.516
17.02.10 326.5914 10000 3265913.7 18.02.10 10000 3195163.5
4
Total 10000 3265913.7 10000 3195163.5 -70750.23
3 Reliance Infra
03.03.10 258.5993 20000 5171985.4 08.03.10 17742 4614336 -557649.44
Projects
2258 597792.71 597792.71
Total 20000 5171985.4 20000 5212128.7 40143.27
4 Punjab National
02.03.10 922.0935 5000 4610467.7 0 -4610467.7
Bank
03.03.10 931.1285 5000 4655642.3 03.03.10 925.132 10000 9251320 4595677.7
Total 10000 9266110 10000 9251320 -14789.96
5 Reliance
19.02.10 991.1002 10000 99110002 23.02.10 911.1538 10000 9771537.6 -139464.13
Industries
Total 10000 99110002 10000 9771537.6 -139464.13
6 Siemens Ltd. 16.02.10 655.2332 10000 6652331.8 17.2.10 664.9134 10000 6649133.9 -3197.93
Total 10000 6652331.8 10000 6649133.9 -3197.93
7 Core Project
02.4.2009 60.13 220132 13236051
03.12.08 42.311 87373 3696857.9
03.12.08 42.724 130365 5510993.6
04.12.08 42.763 2394 102374.92
220132 9310226.4 220132 1326051 3925824.64
04.12.08 42.76 61000 2608550.5 24.04.09 42.763 61000 5950189.9 3341639.41
27.04.09 100.35 41000 4114464.2
04.12.08 42.763 17456 746473.08
04.12.08 42.655 23544 1004273.1
41000 1750746.2 41000 4114464.2 2363717.98
04.12.08 42.66 15000 639827.4 28.04.09 95.304 15000 1429563.6 789736.199
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 12305635
3. Name of Date of Date of
No. the share purchase Rate Qty. Amount Sale Rate Qty. Amount Capital Gain
05.12.08 43.419 80700 3503936.9
08.12.08 44.316 6544 290005.01
110100 4788429.8 110100 12305635 7517205.39
08.12.08 44.316 22000 974955.71 07.05.09 106.88 22000 2351452.3 l3 7649iY.'Gi
08.12.08 44.316 72956 3233130.4 07.05.09 106.81 122000 13030463
08.12.08 44.337 49044 2174480.7
122000 5407611.1 122000 13030463 7622851.92
14
I.T.A. No.2826/Mum/2015
I.T.A No. 2781/Mum/2015
08.12.08 44.337 35656 1580892.3 08.05.09 105.93 100000 10593277
08.12.08 44.951 55610 2499704.3
10.12.08 45.065 8734 393599.38
100000 4474196 100000 10593277 6119081.03
10.12.08 45.065 44000. 1982868.4 08.05.09 106.49 44000 4685492.5· 2702624.11
10.12.08 45.065 24616 1109324.7 06.07.09 131.07 250000 32767504
11.12.08 45.713 74300 3396508.5
11.12.08 45.701 65800 3007118.1
12.12.08 47.433 84380 4002430.7
12.12.08 46.864 904 42364.961
250000 11557747 250000 32767504 21209756.7
12.12.08 46.864 57796 2708545.6 -
15.12.08 51.255 83850 4297736.1
15.12.08 -
51.367 73100 3754957.2
16.12.08 54.039 35254 1905102
250000 12666341 250000 32792633 20126292.7
16.12.08 54.039 1346 72736.916
16.12.08 53.896 48654 2622268.2
50000 2695005.2
16.12.08 53.896 1346 72544.355 30.07.09 136.85 102200 13986490
17.12.08 53.035 54500 2890408.3
17.12.08 52.686 46354 2442186.7
102200 5405139.4 102200 13986490 8581350.83
17.12.08 52.686 1106 58270.236 31.07.09 141.82 90000 12763833
19.12.08 50.973 24350 1241203.4
19.12.08 51.003 19650 1002205.2
22.12.08 50.365 20400 1027437.5
22.12.08 52.121 9600 500361.1
23.12.08 47.109 10600 499351.65
23.12.08 48.87 4294 209847378
90000 4538676.8 90000 12763833 8225156.21
73,390,36 17799542 104,605,06
TOTAL 1,583,432 0 1583432 6 7
GRAND TOTAl- SHORT TERM CAPITAL GAIN 104590432
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 48.87
24.12.08 6000 273,847.85 45.64
24.12.08 16000 732,039.61 45.75
26.12.08 54370 2,474,466.95 45.51
26.12.08 38500 1,748,197.68 45.41
29.12.08 63981 3,006,259.12 46.99
29.12.08 15738 738,112.43 46.9
200295 48,776,173.98 200295 9,251,775.86 39,524,398.12
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I.T.A No. 2781/Mum/2015
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
~ ..
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 shown as stock-in-trade in its books of accounts. There is no bar on maintaining two portfolios of shares i.e. one for investment purposes and second for trading purposes. The assessee has not borrowed interest bearing money to invest in shares which were dealt on delivery basis and were treated as „Investment‟ in its books of accounts which is evident from the financial statements as no interest is debited with respect to such shares, however some credit is extended by creditors which also majorly constitute payable on F & O transaction wherein interest is found debited for the transactions in F & O segment. The period of holding in case of majority of shares on which short term capital gains has arisen is ranging from 4 months upwards and insignificant amount of capital gain /loss has arisen on sale of shares within 1 months of its acquisition . The said statement which was filed by the assessee before authorities below and which remained uncontroverted by Revenue is as under:-
Statement showing period of holding and percentage of gain for FY 2010-11 S.No. Period Gain/(loss) % of Total Gain (In Rs.) 16 I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015
1. Upto 1 week -28507 -0.027
2. Upto 1 Month 13875 0.0133
3. Above 4 Months 10739828 10.268
4. Above 5 Months 32009750 30.605
5. Above 6 Months 61855488 59.141 104590434 100.00 On the perusal of the frequency of the transactions which has led to earning of short term capital gains as is depicted in above charts, we are of the considered view that that assessee has made investments in shares and it could not be categorised that the assessee is trader in shares even though majorly the assessee earned capital gains on one share namely Core Projects Limited and quantitatively large number of shares were purchased and sold.
Every prudent person who make investments in share-market do so for earning money on its investment with commercial expediency in 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 months. The assessee has not borrowed interest bearing funds for making investments on which STCG/LTCG was earned as no interest has been debited vis-a-vis investments portfolio of the assessee. The Revenue has accepted in preceding years gains arising from the dealing in the share as 17 I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 capital gains wherein the assessee was held to be an investor and principle of consistency has to be followed . Thus we are of the view that income earned by the assessee from dealing in shares is to be assessed as income from capital gains and we have no hesitation in confirming the well reasoned appellate order passed by learned CIT(A). This ground raised by the Revenue is dismissed. We order accordingly.
Now coming to the issue of loss arising from the Future and Option ( F& O) segment to the tune Rs.7.38 crores, the assessee has offered the said loss as business loss under the head income from business or profession which has been set off against short term capital gain earned by the assessee. The assessee claimed to have made F&O purchases from NKB Securities on which loss of Rs. 7.38 crores was incurred. The assessee has outstanding of more than Rs. 7 crores payable to NKB Securities as at the year end i.e. 31- 03-2010. The assessee dealt with said NKB Securities in F&O segment through out the year but the said broker party namely NKB Securities did not ask for the payments nor recovered the amount from margin money to recoup its losses and allowed losses to accumulate which is against the normal conduct of business at stock exchange which stipulate T+2 settlement period i.e. trade is to be settled with payment within two days from the date of trade . The business conducted at stock exchanges is highly regulated and controlled business by SEBI as well by stock exchanges. The business conduct of the assessee with NKB Securities in F & O segment is against the normal conduct of business at stock exchange and the onus is heavy on the assessee to prove that the said transactions are genuine. The Revenue made due inquires with NKB Securities by issuing notices u/s. 133(6) at their Bhopal and Mumbai addresses but the said notices returned un-served . The assessee also could not produce the said broker party namely NKB Securities before the authorities below. The A.O send the notices to National Stock Exchange u/s. 133(6) wherein the NSE replied that there were no 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 18 I.T.A. No.2826/Mum/2015 I.T.A No. 2781/Mum/2015 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 आदे श की घोषणा खुऱे न्यायाऱय में ददनांकः 31.01.2018 को की गई ।
Sd/- Sd/-
(MAHAVIR SINGH ) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated: 31.01.2018
Nishant Verma
Sr. Private Secretary
copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - Concerned, Mumbai
4. The CIT- Concerned, Mumbai
5. The DR Bench, C
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
19