Income Tax Appellate Tribunal - Mumbai
Satischandra S. Doshi, Mumbai vs Assessee
Shri Satishchandra S Doshi
ITA No.6496/Mum/2009(Asst Year 2004-05)
ITA No. 6604/Mum/2009(Asst Year 2006-07)
ITA No.151/Mum/2010(Asst Year 2004-05)
ITA No. 811/Mum/2009(Asst Year 2006-07)
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'H' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI VIJAY PAL RAO, JM & SHRI RAJENDRA, AM
ITA No.6496/Mum/2009(Asst Year 2004-05)
ITA No. 6604/Mum/2009(Asst Year 2006-07)
Shri Satishchandra S Doshi Vs The Jt Commr of Income Tax
ETERNIA 21(3), Mumbai
A/1602 Hiranandani Garden
Main Street, Powai
Mumbai 76
(Appellant ) (Respondent)
ITA No.151/Mum/2010(Asst Year 2004-05)
ITA No. 811/Mum/2009(Asst Year 2006-07)
The Jt Commr of Income Tax Vs Shri Satishchandra S Doshi
21(3), Mumbai ETERNIA
A/1602 Hiranandani Garden
Main Street, Powai
Mumbai 76
(Appellant ) (Respondent)
PAN No. AACPD7600F
Assessee by Sh Deepak Shah/Tej Shah
Revenue by Smt Kusum Ingale
Dt.of hearing 21st May 2012
Dt of pronouncement 30th,March 2012
ORDER
PER BENCH These two sets of cross appeals are directed against separate orders dated 21.10.2009 and 24.11.2009 of the CIT(A) for the AYs 2004-05 and 2006-07 respectively.
2Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) 2 The assessee is an individual and engaged in the business of share trading and investment. The assessee declared his income in the return of income filed for these assessment years under consideration as under:
For AY 2003-04:
i) Short Term Capital Gain Rs. 1,23,79,416/-
ii) Long Term Capital Gain (Loss) Rs. 2,52,133/-
iii) Other sources Rs. 2,376/-
For AY 2006-07:
i) Business income Rs.9,34,91,493/-
ii) Short Term Capital Gain Rs. 74,56,654/-
iii) Long Term Capital Gain Rs.1,82,28,482/-
iv) Other sources Rs. 8,011/-
2.1 The Assessing Officer did not accept the short the capital gains as well as long capital gains claimed by the assessee on purchase and sale of shares. Accordingly, the Assessing Officer held that the assessee is engaged in the activity of earning profit from dealing in shares and treated the short term and long term capital gains declared by the assessee as business income.
2.2 On appeal, the CIT(A) held that the assessee can be a investor as well as trader and can have both portfolios. However, he has bifurcated the surplus on sale and purchase of share held for less than 30 days by treating as business income and for those shares holding more than 30 days as short term capital gain. The long term capital gain was accepted by the CIT(A). Thus, the assessee as well as the revenue are in appeal before us against the impugned orders of the CIT(A). There is no dispute before us regarding long term capital gains accepted by the CIT(A) because the revenue has not challenged the appeal on long term capital gains.
3 The assessee has raised the first common issue in these appeals is as under:3
Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) "Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in treating the surplus/loss of shares held for less than 30 days in respect of purchase and sale of shares as business income.
3.1 Whereas the revenue has raised the only common issue in these appeal is as under:
"On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in treating the business income on account of trading in shares as short term capital gain by applying the share holding period for short term capital gain as more than 30 days but less than 1 year."
4 It is clear that the first issue raised in assessee's appeal as well as in revenue's appeal is connected and related to the assessment of income on sale and purchase of shares claimed by the assessee as short term capital gains.
5 We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material on record. The ld AR of the assessee has submitted that an identical issue has been considered and decided by the Tribunal in the case of the assessee's son Shri Hitesh Satishchandra Doshi In ITA No. 6497/Mum/2009 vide order dated 15.6.2011. The ld AR has further submitted that the Assessing Officer as well as the CIT(A) has passed the identical orders in the case of the assessee as well as in the case of the son of the assessee. Therefore, when the facts of both cases are identical, the issue is covered by the order of the Tribunal in assessee's son case (supra).
5.1 On the other hand, the ld DR has submitted that the assessee has claimed the expenditure in the nature of bank changes, interest, de-mat charges, depreciation, computer, professional fee and other miscellaneous expenses including telephone expenditure against short term capital gains which shows that the assessee was in the activity of trading and claiming the expenses against the said income derived from the trading activity. She has further submitted that in form 4 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) 3CD, the assessee has shown its business in para 8(a) as derivative operations and share trading. Therefore, the activity of the assessee is nothing but share trading and the AO is justified in treating the income as business income. While relying the order of the AO, the ld DR relied upon the following decisions:
i)PVS Raju Vs AACIT 18 Taxman.com 3(Andhra Pradesh)
ii)Mafatlal Fabrics P Ltd vs DCIT, 49 SOPT 303(Mum)
iii)Immortal Financial Services P Ltd vs DCIT 44 SOT 88(Mum)
6 After considering the rival contentions as well as careful perusal of the relevant material on record, we note that in the similar facts and circumstances, an identical issue came before the Tribunal in the case of the assesee's son shri Hitech Satishchandra Doshi, which has been considered and adjudicated by the Tribunal in ITA No. vide order dated 15.6.2011 in paras 9 to 16 as under:
"9 We have considered the rival contentions and perused the relevant records. The Assessing Officer took the ratio of purchase and sale to the opening and closing balance to support his view of treatment of the transaction including the transaction resulting long term capital gains as trading activity and consequently assessed income has business income. The CIT(A), though, admitted long term capital gains and the transaction of purchase and sale resulting long term capital gains as investment; however, he has bifurcated the transactions of sale and purchase resulting short term capital gains on the basis of holding period on the criteria of more than 30 days and less than 30 days. It is pertinent to note that there is a criteria provided u/s 2(42A) which defines the shorter capital asset as capital asset held by an assessee for not more than 12 months in the case of shares and other securities. Section 2(42B) further defines the short term capital gain means capital gain arising from the transfer of short term capital asset. Thus, statute prescribed criteria for treating the capital asset either as long term capital asset or short term capital asset on the basis of the holding period but no such criteria of treating the short term capital asset and treating the asset has been prescribed under the statute. Even, there is no indication of holding period of 30 days find place either in the statute or in the circular/instructions as well as judicial pronouncements on the issue. Even otherwise, holding period is one of the various criteria and principles to determine the nature of the transaction i.e. trading or investment, no single formula or principle can be the determinative factor for deciding the nature of the transaction i.e. as 'trading transaction' or 'investment'. A bundle of criteria/ factors/principles are to be taken into account in order to determine the nature of transaction.
10 The Hon'ble Supreme Court in the case of CIT vs Associated Industrial Development Co P Ltd reported in 82 ITR 586 as well as in the case of CIT vs H 5 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) Holsck Larzen reportd in 160 ITR 67 has laid down various principles, which has been considered by the CBDT for issuing the circular no.4/2007 dated 15.6.2007. In short, the principles laid down in those cases for deciding the question of nature of the transaction as trading or investment, mainly/broadly are;- what is the intention of the assessee at the time of purchase of shares; whether the assessee has borrowed money to purchase and paid interest thereon; what is the frequency of such purchase and disposal in that particular item; whether the purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value; how the value of items has been taken in the balance sheet. Thus, no single factor can be said to be decisive factor and no single principle can be laid down to determine the nature of the transaction i.e. trading activity or investment. Each case has to be decided based on the particular facts of the said case. Therefore, there cannot be any precedent in the matter of adjudication of the issue of nature of transaction with regard to purchase and sale of shares and securities. The issue can be determined only by taking into account all the relevant facts and principles as laid down by the Hon'ble Supreme Court and other High Courts. Thus, principles are taken as guidelines to be applied in the facts of each case and cannot be taken as strict jacket/formula. Therefore, the bifurcation of the short term capital gain and treating the transaction as investment in the cases where the holding period of more than 30 days and as business transaction in the case where the holding period is less than 30day, in our considered opinion, is not justified on the part of the CIT(A). Since there cannot be a single criteria for judging the transaction as capital asset or trading asset; the CIT(A) adopted only holding period as a sole criteria for bifurcating the transactions relating to the short term capital gain, which is neither proper and nor justified.
10.1 Moreover, when the assessee has treated the investment transaction in the books of account, which includes the long term capital gains as well as short term capital gains, then after accepting the long term capital gains, the transaction representing short term capital gains as claimed by the assessee can be neither treated as an investment or trading in nature. There cannot be a sub-division of transaction relating to short term capital gain. Hence, in our considered opinion, in the case in hand, the CIT(A) has committed an error in bifurcating the transactions of purchase and sale of shares on the basis of holding period of 30 days and the income arising from the same claimed by the assessee as short term capital gain has been sub-divided as short term capital gains and business income.
11 Now, we will analysis the fact of the present case in the light of the principles laid down by the judicial pronouncements for determining the nature of the transaction of sale and purchase of shares.
Intention of the assessee at the time of purchase of shares:
12 Undisputedly, the assessee has treated the transaction as investment by recording in the books of account being investment and not as stock-in-
trade. The assessee has shown investment in shares in the beginning and closing of the year only an investment and not as stock-in-trade. Further, the 6 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) assessee has been maintaining separate portfolios for investment and trading transactions. It is now settled proposition of law that an assessee can have two separate portfolios one for investment and other for trading transactions and the income from these two portfolios is assessable under the different heads i.e. 'capital gain' and ' business'. The claim of the assessee is further strengthen by the fact that even prior to the differential tax effect w.e.f 1.10.2004, the assessee has been treating the investment separately and admitting capital gain as well as capital loss. This consistent treatment of the assessee has not been disputed rather has been accepted by the revenue prior to the Assessment Year under consideration. Thus, from the facts and materials on records, it is clearly established that the intention of the assessee, at the time of acquiring the shares, which are claimed as investment was for investment and not for trading so far as representing the long term capital gains and short term capitals gains.
Own funds or borrowed funds used for purchase of shares and payment of interest:
13 As per the balance sheet of the assessee at page 22 of the paper book, for the Assessment Year 2003-04, the assessee is having its own funds of Rs. 3.71 crores and investment of Rs. 3.91 crores, which clearly shows that the assessee was having its own funds to the extent of 95% of the investment.
Therefore, we do not find any substance in the contention of the ld DR that the assessee has used borrowed funds for the purpose of investment. The position is almost the same in the subsequent years. Moreover, the CIT(A) in para 4.3.1 (a) has recorded the finding that the source of acquisition are out of own funds and family funds.
Frequency of purchase and sale of shares:
13.1 As regards the frequency of purchase and sale of shares, the assessee has transacted all transactions of sales and purchases; through D-mat account in the electronic system of Stock Exchange. A single order placed by the purchaser may be completed by way of various small quantities of shares available for sale to meet out the demand of the purchaser. Therefore, a single order is not necessary be completed by a single transaction of the entire quantity of shares.
13.2 Similarly in the case of sale, the same may be divided as per the requirement of the purchaser and in this way; single transaction is reflected as number of transactions. For instance, the shares of Jindal Scrip purchased by the assessee on 3.6.2002, the order was for 10000 shares, which was completed by 4 different lots of shares of 4000, 2500, 2500 and 1000.
Therefore, the said order of purchase of Jindhal scrips on 3.6.2002 has been reported as four transactions of purchases, which is otherwise one transaction. Thus, it appears that the numbers of transactions are taken as per the different lots available for execution of the one order and accordingly, it gives unrealistic figure of the number of transactions.
Motive of purchase and sale of share:
7Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) 13.3 From the details of the short term capital gains, we find that the total short term capital gains arising from the shares sold within 30 days of purchase is Rs.15,19,938/- and a total amount of short term capital gains from the shares sold after 30 days but before one year is Rs. 37,76,143/-, which shows that the assessee's intention was to hold the shares for a longer period and to earn income of appreciation of the value of the shares and not earn the profit in the short period change in the price of the shares. Apart from the above, the assessee has been regularly earning dividend income. Profit motive is inherently embedded in the transaction of purchase and sale. The important aspect is the intention to earn profit from appreciation of value of capita asset or by way of transfer of trading asset.
Valuation of items in balance sheet:
14 Undisputedly, the assessee valued the shares under investment portfolio at cost and never valued the balance at the beginning as well as at the end of the year of market price or realization value.
15 In the case of Associated Industrial Development Co P Ltd reported in 82 ITR 586, the Hon'ble Supreme Court has observed as under:
" Whether a particular 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 the assessee who holds the share and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment."
15.1 In the case in hand, the assessee has treated the shares as investment in the books of account and values the same at cost in the balance sheet and not at the market value or realizable value. Therefore, when the assessee is maintaining the distinction between the shares, which are held as investment from the shares, which are held as stock-in-trade then, keeping in view of the other facts and applying the principles as discussed above, we have no hesitation to say that the assessee has been maintaining two separate distinct portfolios right from the beginning and the revenue has failed to brought out any material to show that any change in the practice of accounting method of the assessee as well as in the activity of the assessee in purchase and shares of sharers under two separate and distinct portfolio. It is an accepted fact and practice that in order to reduce the risk of loss of capital or income, the investor may try to diversify the investment; therefore, there may be a case of reshuffling portfolios by selling of some scrips and buying of some other scrips to mitigate the scope of loss of capital or income. Therefore, the reshuffling in a short period is not necessary be taken as an activity of trading when the intention was to reduce the risk of loss of capital.
8Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) 15.2 There are various decisions of the Tribunal on this point and each has been decided on the facts of each case. Some of the decisions are in favour of the assessee where some other cases are in favour of the revenue. In the latest decision of the Tribunal in the case of Shri Mahendra C Shah vs ACIT in ITA No.6289/Mum/208 dated 18 May 2011 has held in paras 14 to 21 as under: "14 We have carefully considered the rival contentions. The question whether the surplus on the sale of shares is to be assessed as capital gains (short term or long term) as claimed by the assessee or as business income as claimed by the Assessing Officer is a question of fact to be decided according to the cumulative effect of several facts and circumstances of the case. The intention of the assessee, the nature of the commodity sold, whether the assessee has used his own funds or borrowed funds, the treatment given to the asset in the books of account, the consistent stand taken by the revenue authorities in respect of the sale proceeds of the asset in the earlier years, the frequency and volume of the transactions, the period of holding the shares, whether the assessee took or gave delivery of the shares, are all questions which have to be considered before a decision is taken as to whether the assessee held the shares as capital assets (investment) or as stock-in-trade. It is also recognized by the revenue that the same assessee can hold the shares in two different portfolios - one portfolio for stock-in-trade and another portfolio as investment. This position has been recognized by the CBDT in its Circular No: 665 dated 05.10.1992.
15 In the present case the commodity in question is shares which are generally traded. But that is not conclusive because it is common knowledge that shares are also held as investment particularly shares of blue chip companies which may yield consistent dividend and may also appreciate in value over a period of years, the appreciation being similar to the appreciation in the value of other investments such as fixed deposits with banks, real estate, gold and other precious metals, etc. It is a fact that in the present case the assessee has shown the shares as investment in his Balance Sheets. The relevant details are given in para 2.2(c) of the order of the CIT(A) for the assessment year 2006-07. The same is set out below: -
F.Y. ending on No.ofCompanies No. of shares Value
31.03.2003 147 143323 98,22,424/-
31.03.2004 159 302243 1,69,96,403/-
31.03.2005 149 490237 3,24,59,391/-
31.03.2006 131 541377 3,32,72,973/-
One aspect which is thrown up by the above table is that though the investment value increased substantially from year to year, the number of companies whose shares were held by the assessee remained more 9 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) or less constant and in fact as on 31.03.2006 it actually fell to 131 from the earlier high of 159. It appears to us that basically the number of shares of a particular company purchased by the assessee had increased which substantially contributed to the increase in the value of the investment. The above analysis prima facie shows that the assessee is basically an investor more than a share dealer. The stand of the assessee has been accepted by the revenue authorities in the assessment years 2001-02 and 2004-05 in assessment orders passed under section 143(3) of the Act. The assessment order for the assessment year 2001-02 is at page 34 - 35 of the paper book. It is seen therefrom that the Assessing Officer has accepted the short term capital loss and the long term capital gains shown by the assessee on sale of shares. The assessment order for the assessment year 2004-05 is at pages 61 & 62 of the paper book. In this year also the short term capital gains of Rs.13,94,013/- has been accepted by the Assessing Officer. There is also no dispute that the assessee has been declaring the cost of the shares as investment in his balance sheets in all the years.
16. For the assessment year 2005-06, the assessee has furnished the details of the sale of shares for two periods i.e. from 01.04.2004 to 30.09.2004 and from 01.10.2004 to 31.03.2005. It is seen that in respect of the first period the shares sold are those of Bharat Earth Movers Ltd., Balaji Telefilm Ltd., Century Textiles India Ltd., Cipla Ltd., Gail India Ltd., Pennar Aluminium Co.Ltd., Reliance Capital Ltd., Tata Steel Ltd. and Visual Software Ltd. The holding period in respect of these shares ranges from 533 days to 3981 days. The details of sale of shares in respect of the second period show shares of Avery India Ltd., Ballarpur Industries Ltd., Colgate Palmolive (India) Ltd., HDFC Bank Ltd., ICICI Bank Ltd., Larsen & Toubro Ltd., CEAT Ltd., Tata Steel, Voltas Ltd. The holding period ranges from 387 days to 9016 days. It is seen thus that the assessee has held the shares for quite a long period. For example, the shares of Greaves Cotton Ltd. were held for almost 27 years (9016 days). The shares of Avery India Ltd. were held for 7493 days. The shares of PCS Industries Ltd. were held for 5674 days. Many of the shares were held for 3000 to 4000 days (9 years to 12 years). Similar details have been filed for the assessment year 2006-07 also. For this year in respect of substantial number of sale of shares the holding period was more than one month and in respect of shares which were held for less than a period of twelve months, the surplus was shown as short term capital gains. In respect of the surplus shown as long term capital gains, the period of holding in all the share transactions was several years. It is significant that the revenue has not filed any appeal against the finding of the CIT(A) that the long term capital gains declared by the assessee for the assessment year 2006-07 should be assessed as such and not under the head "business".
17. It is further seen that even in respect of the assessment year 2007-08 in which year an assessment was completed under section 10 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) 143(3) of the Act by order dated 13.11.2009, the Assessing Officer has accepted the short term capital loss of Rs.69,43,821/- on sale of the shares and the same has not been considered as business.
18. It would thus appear that prima-facie there is enough evidence to show that the assessee is an investor in shares and therefore the surplus arising on the sale of shares should be assessed as short term or long term capital gains, depending on the period of holding and not as business income.
19. But then the contention of the department is that the assessee is also carrying on F & O transactions as speculation business in shares and that the investment in F & O transaction as per the balance sheet as on 31.03.2005 is Rs.1,03,01,657/- as against the investment in the shares of Rs.3,24,59,391/-. The point made is that almost 1/4th of the total investment of the assessee is in speculation and F & O business and with this kind of background it would be difficult to believe that the assessee can also be treated as investor in shares. We find it difficult to accept the contention because the circular issued by the CBDT referred to supra has itself recognized that a person can have two portfolios, one for investment and the other as stock-in-trade. The Hon'ble Bombay High Court has also accepted this position in its judgement in the case of CIT Vs. Gopal Purohit (34 DTR 52) delivered on 6th January, 2010. It is then pointed out that the assessee has borrowed from India Bulls for the purpose of buying shares and this is a strong indication that the assessee intended to do business in shares and not merely invest in them. The learned counsel for the assessee has drawn our attention to an order of the Pune Bench of the Tribunal in the case of S.Balan @ Shanmugam Balkrishnan Chettiar Vs. DCIT., (2009) 120 ITD 469, to submit that there is no thumb rule that a person cannot borrow money for the purpose of making investment. We have examined the position with reference to the order of the Pune Bench to which one of us (the Accountant Member) was party. In this case the assessee had borrowed monies for acquiring shares. The surplus on the sale of shares was declared under the head capital gains and for the purpose of computing the gains, the interest cost was also capitalized and reduced from the sale price. The interest has never been claimed as revenue deduction. On these facts it was held that there was no rule that interest cost cannot be capitalized and especially on the facts of the case of the assessee before the Pune Bench it was held that the right course would be to capitalize the interest cost and deduct the whole cost from the sale price while computing the capital gains. It was observed that the interest cost cannot be segregated from the cost of acquisition and for this purpose reliance was placed on the judgement of the Delhi High Court in CIT Vs. Mithlesh Kumari (1973) 92 ITR 9 where it was held that interest paid by the assessee on monies borrowed for the purchase of an open plot of land would form part of the actual cost of the assessee for the purpose of determining the capital gains derived from the sale of the 11 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) plot. This decision certainly lends support to the contention of the assessee before us. Even in the present case the department has no objection to the capitalization of the interest. The alternative submission of the assessee however was that in any case the balance in his capital account as on 31.03.2005 was Rs.4,19,60,788/- which is more than the investment in the shares as on that date which stood at Rs.3,24,59,391/- and therefore it can be presumed the borrowed monies were utilized only for the purpose of carrying on the F & O business. In fact this contention has been accepted by the CIT(A) in his order for the assessment year 2006-07. Reference may be made in this connection to para 2.3(i) of the order of the CIT(A) for the assessment year 2006-07. In that year the assessee had paid interest of Rs.15.73 lakhs and that was put as one of the points against the assessee's contention that he was an investor in the shares. The CIT(A) held that the assessee 's own capital was Rs.5.15 crores in that year out of which the investment of Rs.3.32 crores in shares could have come and thus it cannot be said that the assessee was depending totally on borrowed funds. In the light of this finding also it cannot be said that the fact that the assessee paid interest on borrowings should be held against him, particularly when there are other predominating features in the case which give clear impression that the assessee intended only to invest in shares and not hold them as stock-in-trade.
20. It thus appears to us that the CIT(A) took an incorrect view of the matter in the assessment year 2005-06 and that the CIT(A) who dealt with the appeal for the assessment year 2006-07 has taken the correct view of the matter and applied the appropriate principles correctly in holding that the assessee was an investor in shares.
21. For the above reasons, we allow the first ground taken by the assessee in his appeal. The grounds taken by the department in its appeal for the assessment year 2006-07 are rejected. "
15.3 In the above said case, the Tribunal observed that the investment value increased substantially from year to year. The number of companies whose shares were held by the assessee remained more or less constant, which prima facie show that the assessee is basically an investor more than a share dealer. In the case in hand also, the investment value has increased substantially from year to year but the number of companies remain almost the same. As we have already discussed in the foregoing para that in the top ten scrips, the investment of the assessee has been increasing from year to year and goes upto 87% to the total investment from 45% in the assessment year 2000-01. The value of the investment also increased from Rs. 81,59,140/- in the year 2000-01 to Rs. 1,66,32,000/- in the Assessment Year 2006-07. Therefore, having regard to the facts and circumstances of the case and applying the various principles and guidelines laid down by the Hon'ble Supreme Court, the surplus of sale and purchase of the shares held by the assessee as investment in the books of account cannot be treated as 12 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) business income. Even otherwise, when in the immediate preceding year right from Assessment Year 1999-00 to Assessment Year 2002-03 and subsequent year 2007-08, the claim of the assessee regarding capital gain and investment shown under the head 'investment' in the balance sheet has been accepted by the revenue and when there is no substantial change in the assessment year under consideration with respect to the treatment of the shares by the assessee and the pattern of the purchase and sale as well as availability of assesse's own funds then there should be unity in the treatment and consistency in the same fact and circumstances and the Assessing Officer cannot treat the same income under different character and had only because of change in the provision of Income Tax Act and allowed differential tax on the capital gain in comparison to business income. The department cannot be allowed to change treatment to be given to the surplus or loss of sales of the shares from short term capital gain to profit or gain of business or profession when there is consistency in fact and circumstances relating to the transaction. The principle of res judicata is not attracted since each assessment year is separate unit in itself; however, when the facts and circumstances are identical then uniformity in treatment and consistency has to be maintained.
15.4 Similar view was taken by the Tribunal in the case of Gopal Purohit reported in 29 SOT 117 which is in conformity with the decision of the Hon'ble Bombay High Court reported in 228 /CTR 582 wherein the Hon'ble High Court has observed in paras 2 & 3 as under:
2. The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in para 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in the present case, should be treated as those in the nature of investment transactions and the profit received therefrom should be treated either as short-term or, as the case may be, long-term capital gain, depending upon the period of the holding. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transactions namely, those by way of investment on one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law.
3. Insofar as Question (b) is concerned, the Tribunal has observed in para 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of 13 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) keeping records and the presentation of shares as investment at the end of the year, in all the years. The Revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings.
The Tribunal correctly accepted the position that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question.
16 In view of the facts and circumstances of the case and decisions of the Tribunal as well as the jurisdictional High Court, we hold that the income arising from purchase and sale of share held by the assessee as investment cannot be treated as business income."
7 As far as the decision relied upon by the ld DR is concerned, the Tribunal in the impugned order has taken a view that each case has to be decided based on the particular facts of the said case. Therefore, there cannot be any precedent on the point of nature of transaction with regard to purchase and sale of shares and securities. We further note that while deciding the case of the assessee's son, the Tribunal has already taken into consideration the various decisions relied upon by the ld DR as well as the ld AR but except one aspect that the assessee can have two portfolios simultaneously being an investor and a trader in shares as held in the case of Gopal Purohit by the Hon'ble jurisdictional High Court.
7.1 As far as the expenditure which cannot be claimed against the capital gains as contended by the ld DR is concerned, it is to be noted that merely because the expenditure which is not allowable against the capital gain will not change the nature of transaction and income. Further, when the assessee is admittedly in the 14 Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) business of share trading, then the said expenditure may be related to the trading activity and not to the investment.
7.2 Therefore, in view of the detailed order of the Tribunal, in the case of the son of the assessee (supra), we decide this issue in favour of the assessee and against the revenue.
8 The second issue raised by the assessee in these appeals regarding claim of deduction u/s 54F.
8.1 We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material on record. Since the Assessing Officer has treated the entire income as business income; therefore, the assessee's claim u/s 54F is disallowed at the threshold without examining the same on merit. In view of our finding on the issue of capital gain, we remit this issue to the record of the Assessing Officer for deciding the claim of sec. 54F as per law.
9 Next issue raised by the assessee is carry forward of short term capital loss to be set off against the current short term capital gains.
9.1 We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material on record. We find that this issue is consequential to the issue of capital gains. Since we have allowed the assessee's claim of short term capital gains; therefore, the claim of setting off of short term capital loss against short term capital gains is consequential and accordingly, we direct the Assessing Officer to consider and decide the same as per law.
15Shri Satishchandra S Doshi ITA No.6496/Mum/2009(Asst Year 2004-05) ITA No. 6604/Mum/2009(Asst Year 2006-07) ITA No.151/Mum/2010(Asst Year 2004-05) ITA No. 811/Mum/2009(Asst Year 2006-07) 10 In the result, the appeals of the assessee are partly allowed whereas the appeals of the revenue are dismissed.
Order pronounced on this 30th, day of Mar 2012
Sd/ Sd/
( RAJENDRA ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 30th, Mar 2012
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai