Income Tax Appellate Tribunal - Mumbai
Manish Kumar Jajoo, Mumbai vs Acit 21(2), Mumbai on 20 August, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND
SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
ITA No.951/M/2019
Assessment Year: 2015-16
M/s. Manish Kumar ACIT 21(2),
Jajoo, Room No.115,
405, Satayanarayan 1st Floor,
Vs.
Bhavan, Piramal Chambers,
R.G. Thadani Marg, Lal Baug,
Worli, Mumbai - 400 018 Mumbai - 400012
PAN: ACJPJ2985J
(Appellant) (Respondent)
Present for:
Assessee by : Shri J.P. Bairagra, A.R.
Revenue by : Shri D.G. Pansari, D.R.
Date of Hearing : 12.06.2019
Date of Pronouncement : 20.08.2019
ORDER
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 26.12.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2015-16.
2. The grounds raised by the assessee are as under:
"1. The Ld. CIT (A) erred in confirming the action of the Ld. Assessing Officer in treating a sum of Rs.7,63,08,004/- as business income as against short term capital gains declared by the appellant.
2. The Ld, CIT (A) further erred in not holding that the appellant is maintaining two portfolios of shares i.e. one for business and the other for investment. In the shares held for business the appellant has already declared business income of Rs.7,63,83,847/- which has been accepted as business income by the Ld. Assessing Officer.2 ITA No.951/M/2019
M/s. Manish Kumar Jajoo
3. The Ld. CIT (A) further erred in not holding that the rule of res -judicata is not applicable in income tax proceedings but the consistency should be maintained as the appellant is maintaining two portfolios, one for business and other for investment since A.Y.2013-14 and onwards and the same has been accepted by the department.
4. The Ld. CIT(A) further erred in not accepting the argument of the appellant that the appellant has made investment in shares out of his own funds and he has not borrowed any funds for the same.
5. The Ld. CIT(A) further erred in not admitting the application of the appellant under rule 46A of the Income Tax Rules, where in the appellant has filed its personal balance sheet to prove that the appellant is doing the business and investment in shares out of his own capital fund.
6. The Ld. CIT (A) further erred in not following the circular issued by CBDT and merely relying on the volume, number of scripts and frequency of investment in shares and upheld the action of the Ld, Assessing Officer in treating and computing the business income of the appellant of Rs.7,63,08,004/- as against the same being declared as short term capital gains by the appellant.
7. The Ld. CIT (A) further erred in not accepting the submission of the appellant that the appellant is valuing the investment in shares at cost while preparing the balance sheet at the yearend since last number of years and closing stock of one year becomes the opening stock of next year."
3. The only common issue raised in various grounds of appeal is against the order of Ld. CIT(A) confirming the action of the AO in treating Rs.7,63,08,004/- as business income as against Short Term Capital Gain declared by the assessee.
4. The facts in brief are that assessee is engaged in the business of dealing in textile materials/art silk cloths in the proprietorship concern under the name of Bansi Silk Mills. Besides, the assessee is also deriving income from trading in shares, Futures and Options and also earned income from Short Term Capital and Long Term Capital Gain through investments in shares. During the year, the assessee has declared income from business of trading in shares and from investment portfolio as under:
3 ITA No.951/M/2019M/s. Manish Kumar Jajoo Future & Options Rs.6,95,61,782/-
Intra Day Trading Rs.61,20,536/-
Short Term Capital Gain Rs.7,63,08,004/-
Long Term Capital Gain (46,146)
Less: Exempt 46,146
The assessee declared a total income of Rs.15,11,05,200/-
comprising Rs.7,62,83,947/- from business and profession which comprised of income from proprietary concern, Future and Options and Intra Day Trading and also Short Term Capital Gain on sale of investments in shares of Rs.7,63,08,004/-. The Long Term Capital Gain on sale of shares of Rs.46,146/- was claimed as exempt. The AO treated the income from Short Term Capital Gain of Rs.7,63,08,004/- as income of the business by holding that the said capital gain has resulted from sales and purchases of shares of listed companies through stock exchange. The AO also did a quantitative analysis as is reproduced in para 5.2 of the assessment order and came to the conclusion that the assessee has dealt in the shares as stock in trade and accordingly has earned income not as Short Term Capital Gain but from dealing in shares. The AO while coming to this conclusion analised the number of shares and scrips brought and sold during the year, total number of trades, , period of holding as given in para 5.2.5 , dividend earned vis-à- vis investments etc. and finally came to the conclusion that assessee is not doing any investments but doing trading in shares. Consequently the income whereof is liable to be taxed under the head "Income from business and accordingly treated the Short Term Capital Gain of Rs.7,63,08,004/- as income from business as against the income from Short Term Capital Gain 4 ITA No.951/M/2019 M/s. Manish Kumar Jajoo shown by the assessee by framing assessment vide order dated 28.12.2017 under section 143(3) of the Act.
5. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by holding that income from sale and purchase of shares of Rs.7,63,08,004/- has correctly been assessed as income from business and profession instead of Short Term Capital Gain by citing various reasons. The Ld. CIT(A) noted that in A.Y. 2014-15 the income shown by the assessee was merely Rs.66.77 lakhs comprising Rs.39.23 lakhs from Future and Options, Rs.24.22 lakhs from Short Term Capital Gain and Rs.5.37 Lakhs from Bansi Silk Mills. The Ld. CIT(A) noted that the activities during the current year has increased many fold in the share transactions and the capital market and thus Short Term Capital Gain became the largest item of the income in the current year. Finally, the Ld. CIT(A) observed and holding as under:
"6.5 The appellant had a portfolio and dealing sin 376 scrips. Almost all the scrips were bought and sold during the year itself. The purchase and sales are taking place regularly on every day. Repetitive trades of several times in 190 scrips are observed which constitute around 51% of the portfolio. The assessee had entered into around 4000 transactions during the year on daily basis. The assessee has not held 70% of total share transactions for more than 30 Days which amounts to 79% of quantity of shares transacted and 81 % of sale transactions in value term. During the year under consideration, the assessee had earned a dividend of merely Rs.20,74,287/- which comes to 1 % of total income out of a huge investments in shares running in ten of crores. Capital churning ratio works to be 15.2 times. The main source of income was from securities transactions. The assessee had substantial speculation income and income from future and option market Hence, assessee was deeply involved in the share market on daily basis. The assessee had paid interest charges to broker. In view of aforesaid facts and circumstance of the case, it is held that the appellant is a trader in shares and the income of Rs. 7,63,08,004/- from purchase and sale of shares has been correctly assessed by the AO as income from business and profession instead of short term capital gain. The ground is rejected."
5 ITA No.951/M/2019M/s. Manish Kumar Jajoo
6. The Ld. A.R. vehemently submitted before us that the assessee has been maintaining separate portfolio for the business in which Future and Options, Intra Day Trading were done and are shown as income from business whereas the investment portfolio was separately maintained and the return therefrom was shown as Short Term Capital Gain and Long Term Capital Gain respectively as the case may be. The assessee has been doing these activities for the last so many years and the Revenue has accepted the business income and also the capital gain as declared by the assessee from these respective portfolios over the years. The ld AR argued that the finding of Ld. CIT(A) that rule of resjudicata was not applicable to the income tax proceedings was wrong and against the provisions of law and also the ratio laid down by the jurisdictional High Court in the case of CIT vs. Gopal Purohit (2011) 336 ITR 287 (Bom.) wherein it has been held that consistency should be maintained unless there is a change in the facts of the case. Therefore ,the Ld. A.R. submitted that since the department has been accepting the said treatment from A.Y. 2013-14 up to assessment year 2018-19 , it should be accepted during the year under consideration also. The Ld. A.R. submitted that the said fact can be verified from the comperative chart filed on page No.489 of the paper book No.3 showing the yearwise income from Long Term Capital Gain, trading in Future and Options, Intra Day Trading, closing capital balances at the end of the year and also closing investments in shares in the respective years. The Ld. A.R. submitted that the assessee has made investments in shares out of own funds and has not used any borrowed funds at all for the said purpose investment in 6 ITA No.951/M/2019 M/s. Manish Kumar Jajoo shares and securities. The Ld. A.R. repeatedly referred to the page No.489 to prove his point. The Ld. A.R. also submitted that Ld. CIT(A) has also erred in not admitting the application under rule 46A of the Income Tax Rules where the assessee sought to file the personal balance sheet to prove that assessee is doing business and investments in shares out of own funds. The Ld. A.R. contended that even the CBDT circular was not followed by the authorities below and Ld. CIT(A) relied merely on volume, number of scripts and frequency of investment in shares thereby erroneously upholding the order of AO by treating the Short Term Capital Gain of Rs.7,63,08,004/- as business income. The Ld. A.R. submitted that the case of the assessee is squarely covered by circular No.4/2007 dated 15.06.2007 as has been held by the co-ordinate bench of the Tribunal in the case of Smt. Sujata Kapadia vs. Jt. CIT (2015) 68 SOT 224(Mum Tri) wherein it has been held that profit from sale of shares is taxable under the head short term capital gain where the assessee made the investments in shares with the intention to earn divided income, merely because the assessee sold the investments within the short span of time which had given better overall earning to her, it could not be concluded that assessee was doing business in shares. and not taxable as business income. The case of the assessee is also covered by the circular No.6/2016 dated 29.06.2016. The assessee also relied on the decision of co-ordinate bench of the Tribunal in the case of Satish Mawanlal Gupta vs. ACIT (2018) 173 ITD 169 wherein it has been held that where the assessee has been showing its holdings of shares as investments in hand and making declaration in this regard in the balance sheets prepared from 7 ITA No.951/M/2019 M/s. Manish Kumar Jajoo year to year, then such position should not be disturbed. The co-ordinate bench of the Tribunal held that CBDT has guided the officers that the position shall not be put to dispute by the AO once the stand has been taken by the assessee in all assessment years, then the same shall remain applicable in the subsequent years also. In the case of DCIT vs. Mahendra Kumar Batra (2016) 48 ITR 596 (Tri.-Jaipur), it has been held that circular No.6/2016 issued by CBDT to direct the Revenue Authorities not to take a contrary view where the assessee has treated the securities as investments and not as stock in trade in all the years and thus allowed the appeal of the assessee by dismissing the contentions of the Revenue. The assessee further stated that the Ld. CIT(A) has erred in not accepting the investments at cost as shown from year to year. The Ld. A.R. in defence of his arguments relied on a series of other decisions as under:
1. Decision of Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax vs. Bhanuprasad D. Trivedi, [2018] 256 Taxman 66 (SC)
2. Decision of Hon'ble Bombay High Court in the case of Jaya Chhcda Vs. Assistant Commissioner of Income-tax, Circle-lS(l), [2018] 89 taxmann.com 152 (Bombay)
3. Decision of Hon'ble Bombay High Court in the case of Commissioner of Income-tax-16 v. Smt Datta Mahendra Shah, [2015] 235 Taxman 1 (Bombay)
4. Decision of Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. Om Prakash Arora, [2014] 225 Taxman 73 XDelhi)(MAG.)
5. Decision of Hon'ble Bombay High Court in the case of Commissioner of Income-tax v. Gopal Purohit, [201 1] 336 ITR 287 (Bombay)
6. Decision of Hon'ble Gujarat High Court in the case of Commissioner of Income-tax-1 v. Tejas Securities, [2017] 393 ITR 132 (Gujarat)
7. Decision of Hon'ble Gujarat High Court in the case of Principal Commissioner of Income-tax v. Bhanuprasad D Trivedi (HUF), [2017] 87 taxmann.com 137 (Gujarat)
8. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Shantilal M Jain v. Assistant Commissioner of Income tax, Cir. 12(3), [2011] 132 ITD 466 (Mumbai) 8 ITA No.951/M/2019 M/s. Manish Kumar Jajoo
9. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Smt. Sujata Kapadia v. Joint Commissioner of Income-tax, Range- 16 (3) , [2015] 68 SOT 224, (Mumbai - Trib.)
10. Decision of Hon'ble Income Tax Appellate Tribunal Pune in the case of Satish Madanlal Gupta v. Additional Commissioner of Income-tax, Range-3, [2018] 173 ITD 169 , (Pune - Trib.)
11. Decision of Hon'ble Income Tax Appellate Tribunal Jaipur in the case of Deputy Commissioner of Income-tax, Circle-2 v. Mahender Kumar Badcr, [2016] 48 ITR(T) 596 (Jaipur - Trib.)
12. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Smt . Anju P. Saraf v. The ACIT, Circle 12(2), I.T.A. No.4216/Mum/2012 dated 23-07- 2014
13. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Sunil Kumar Ganeriwal v. Deputy Commissioner of Income-tax, Cir. 14(2), [2011] 16 taxmann.com 311 (Mumbai)
14. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case ACIT 21(1) v. Shri Narayan Prasad lyer, I.T.A. No. 5014/Mum/2012 dated 04-03-2016
15. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of ACIT 25(3) v. Naishadh V. Vachharajani, I.T.A. No. 6429/Mum/2009 dated 25-02- 2011
16. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Deputy Commissioner of Income-tax-4(2) v. SMK Shares & Stock Broking (P.) Ltd., [2010] 8 taxmann.com 120 (Mumbai)
17. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Mr. Nehal V. Shah v. ACIT 21 (1), I.T.A. No. 2733/Mum/2009 dated 15-12-2010
18. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Shri Vinod K Nevada v. ACIT , 201 l-TIOL-65-ITAT-MUM
19. Decision of Hon'ble Income Tax Appellate Tribunal Mumbai in the case of Hitesh Satishchandra Doshi v. JCIT 21(3), [2011] 46 SOT 336 (Mumbai)
20. Decision of Hon'ble Delhi High Court in the case of Rakesh Kumar Gupta v. Commissioner of Income-tax-XIII, [2018] 92 taxmann.com 101 (Delhi)
21. Decision of Hon'ble Bombay High Court in the case of Ramilaben D. Jain v.
Assistant Commissioner of Income Tax, Range 14(2), [2018] 97 taxmann.com 217 (Bombay)
7. The Ld. D.R., on the other hand, relied on the orders of authorities below by submitting that the assessee has clearly been doing the business of share trading and has been treating the same as investments in order to circumvent the tax liability by paying tax @ 15% on the surplus resulting from the purchase and sale of shares whereas there was a systematic activity carried out by the assessee of buying and selling of shares frequently in large volumes and thereby making profits and 9 ITA No.951/M/2019 M/s. Manish Kumar Jajoo treating the same as business income. The Ld. D.R. contended that though the assessee's income has been assessed as gain from sale of shares in the earlier years and the subsequent years yet it is not a bar on treating the income from shares as business income in the current year as the principle of res- judicata is not applicable to the income tax assessments. herefore the Ld. D.R. prayed before the Bench that the order of Ld. CIT(A) may kindly be upheld as the same is very reasoned order and speaking one different lining the justifications and reference for upholding the order of AO.
8. After hearing both the parties and perusing the material on record, we observe that in this case the assessee has been doing the business of trading in Futures and Options and Intra Day Trading which were treated as business whereas the portfolio of share investments was maintained separately. We also note that the assessee has been maintaining the separate trading and investment portfolios right from the beginning which continued o in the subsequent years also. The Revenue has also accepted this practice in the past as well as in the subsequent years as is apparent from the chart submitted by the assessee during the course of hearing which shows that even the assessment framed under section 143(3) of the Act, the said treatment of business and investment portfolio was accepted. We find merit in the contentions of the assessee that where the assessee has been following the said practice consistently, the same can not be rejected in the current year when there is no change of facts and circumstances. The case is squarely covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit (2011) 336 ITR 287 (Bom.) wherein it has been held that 10 ITA No.951/M/2019 M/s. Manish Kumar Jajoo consistency should be maintained and since the Department is accepting both business income and capital gain since 2013-14 up to 2018-19 the same needs to be accepted in the current year also. We further find that the assessee has made investments in shares out of own funds and no borrowed fund was used for the purpose of investments as is clear from the records before us at page No.489 of the paper book. The case of the assessee is squarely covered by the 2 circulars by CBDT namely circular No.4/2007 dated 15.06.2007 and Circular No.6/2016 dated 29.02.2016. In the circular No.4/2007 the CBDT recognized the possibility of two portfolios one is investment portfolio comprising securities which are treated as capital assets and other trading portfolio comprising of stock in trade which are treated as trading assets and thus profit arisen from the sale of shares in the delivery based transactions are to be treated as capital gain and not business income. In the Circular No.6/2016 dated 29.02.2016 the CBDT further instructed the AOs that in deciding whether the surplus generated from the sale of shares or other securities would be treated as capital gain or business income three things should be considered namely;
(a) Whether assessee itself treated the securities and shares irrespective of period of holding as stock in trade, income arising from transfer of such share of securities would be treated as business income.
(b) Securities held for a period of more than 12 months immediately preceding the date of transfer, if the assessee desires to treat the income arising from transfer thereof as capital gain, the same shall not be put to dispute by the AO. However, the stand once taken in particular 11 ITA No.951/M/2019 M/s. Manish Kumar Jajoo assessment year shall remain applicable in the assessment years and the tax payer shall not be allowed to take a distinct and contrary stand in the subsequent year.
(c) In all other cases, the nature of transaction whether the same is in the nature of capital gain or business income shall continue to be decided keeping in view the aforesaid circular issued by the CBDT.
In the present case, before us, the assessee has clearly maintained two portfolios one trading and second investment and has been treating the income there from these two segments on consistent basis in the earlier and subsequent years which has been accepted by the department even in the assessment proceedings culminated u/s 143(3) of the Act. We are, therefore, not in agreement with the conclusion drawn by the Ld. CIT(A) that the Short Term Capital Gain arising from the sale and purchase of shares is to be treated as business income when the assessee has treated them as investment portfolio. The case of the assessee is squarely covered by the various decisions as referred to by the Ld. A.R. in the case of CIT vs. Gopal Purohit (supra) the Hon'ble Bombay High Court has held that consistency should be maintained and since the department is accepting both the business income and the capital gain since 2013-14 up to 2018-19, the same should be accepted by the AO in the current year also. In the case of DCIT vs. Mahendra Kumar Batra (supra) the co-ordinate bench of the Tribunal has held that if assessee has treated the securities as investments and not as stock in trade in all the years, in view of the CBDT circular No.6/2016, the Revenue is not permitted to take a contrary view in the present year and treat the securities as 12 ITA No.951/M/2019 M/s. Manish Kumar Jajoo stock in trade. The Hon'ble Apex Court in the case of Pr. CIT vs. Bhanuprasad D. Trivedi (supra) while confirming the order of Hon'ble Bombay High Court has held that intention of the assessee at the time of purchase of shares is paramount. If the assessee had clear intention of being an investor and held the shares by way of investment then assessee is an investor and any gain arising from transfer of share should be treated as capital gain and not as business income. Finally, after taking into consideration the facts of the assessee's case in the light of the ratio laid down in the various co-ordinate bench of the Tribunal, High Court and Hon'ble Supreme Court, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to treat the profit arising from sale and purchase of shares of Rs.7,63,08,004/- as Short Term Capital Gain and not as business income.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 20.08.2019.
Sd/- Sd/-
(C.N. Prasad) (Rajesh Kumar)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 20.08.2019.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
13 ITA No.951/M/2019
M/s. Manish Kumar Jajoo
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.