Income Tax Appellate Tribunal - Agra
Suresh Chand Agarwal Prop. M/S B.S.& Co, ... vs Department Of Income Tax on 5 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No.56/Agr/2011
Assessment Year : 2006-07
Asstt. Commissioner of Income Tax-3, vs. Shri Suresh Chand Agarwal,
Mathura. Prop. M/s. B.S. & Co.,
143, Sewa Kunj, Vrindavan,
Mathura.
(PAN: AEHPA 7462 D)
(Appellant) (Respondent)
Appellant by : Shri R.K. Jain, Jr. D.R.
Respondent by : Shri Pankaj Garg, Advocate
Date of Hearing : 05.06.2012
Date of Pronouncement of order : 22.06.2012
ORDER
PER A.L. GEHLOT, ACCOUNTANT MEMBER:
This is an appeal filed by the Revenue against the order dated 22.11.2010 passed by the ld. CIT(A)-I, Agra for the Assessment Year 2006-07 on the following grounds :-
1(a) That the CIT(Appeals)-I, Agra has erred in law and on facts in deleing the addition of Rs.33,90,286/- made by treating the profit on sale of shares as business profit as against Short Term 2 ITA No.56/Agr/2011 A.Y. 2006-07 .
Capital Gains and Long Term Capital Gains declared by the assessee without appreciating the facts of the case properly.
(b) In doing so, the CIT(A)-I, Agra has erred in law and on facts by ignoring the detailed facts put together by the Assessing Officer within the true spirit of CBDT's Circular No.4 of 2007 dated 15.06.2007.
2. That the appellant craves leave to add or delete or alter or modify any one or more ground(s) of appeal during the appellate proceedings.
3. That the order of the CIT(Appeals)-I, Agra being erroneous in law and on facts be set aside and that the order of the Assessing Officer be restored."
2. The brief facts of the case are that the assessee derives income from purchase and sale of Biri and match box etc. in the name of proprietary concern M/s. B.S & Co. as well as from business of share trading. The assessee has also shown Long Term Capital Gain (LTCG) on sale of shares. During the assessment proceedings, the Assessing Officer examined the issue whether the income from share of sale is assessable under the head "capital gain" or under the head "income from business". The Assessing Officer noted the fact that detailed discussion in this regard has been made in Assessment Year 2005-06 that the transactions of sale and purchase of shares were clearly in the nature of trade and assessed the profit earned under the head income from business. The Assessing Officer followed his discussion in Assessment Year 2005-06 and assessed share trading income of the assessee under the head business and made addition of Rs.33,90,286/-.
3 ITA No.56/Agr/2011A.Y. 2006-07 .
3. The CIT(A) after considering the assesse's submission, decided the issue in favour of the assess as under :- (CIT(A) page nos.5 to 7) "3.4 I have gone through the written submissions of the Ld. AR and also perused the assessment order as well as assessment record. The AO has considered the capital gain income of Rs.76,053/- from Long Term Capital Gain (LTCG) and Rs.33,14,233/- from Short Term Capital Gain (STCG) totaling to Rs.33,90,286/- as business income. The AO has mainly relied upon the Board circular no.4/07 dated 15.6.2007 where certain principles have been laid down to differentiate between the assessment of profit on sale of shares as business income or under the head of capital gain. On following these principles the AO has concluded that share transactions done by the appellant is very frequent and hence it cannot be said that these transactions have been done to earn dividend. He has also referred to the share investment account maintained by the appellant where debiting of opening balance, purchase, expenses or interest/brokerage etc. and crediting the sales and closing balance have been shown and hence he equated the share investment account as trading account. Further, he has argued that the volume of transactions carried but by the appellant in shares is very high. He has given the figure of purchase of shares as Rs.2,97,57,212/- and sale of shares as 3,85,93,247/-. Giving the details of volume of sale and purchase of shares, he has concluded that on this score also the income from purchase and sale of shares cannot be considered as capital gain. Further, in para 4.5 of his order the AO has discussed that this issue was discussed in length during the assessment year 2005-06 by the then AO and assessed the share trading income of the assessee (appellant) under the head business. He has further discuss that such transactions are adventure in the nature of trade and, therefore, he held ha the total profit earned by the appellant on the sale of shares at Rs.33,90,286/- is income from business of the assessee and not the capital gain.
3.5 Considering the discussion of the AO in the assessment order and examining with the details available in the record and also examining the submissions of the appellant presented before me by the 4 ITA No.56/Agr/2011 A.Y. 2006-07 .
Ld. AR, I find that nowhere the AO has brought anything on record whether on purchase and sale of shares, the appellant has taken and given the delivery of these shares or not i.e. whether these transactions are delivery based or not. Just because of frequent purchase and sale of shares, it cannot be said that these sale and purchases have been done with a view to earn profit and not earn dividend. The deciding factor is that whether on purchase of the shares, delivery has been taken or not. If delivery of the shares is taken, the intention of the assessee would be to earn dividend. In the present case, the assessee has earned a dividend of Rs.4,84,017/- as compared to last year dividend of Rs.1,64,919/-. This dividend income has been earned by the assessee (appellant) on the shares purchased by him and these shares are booked by him in his share investment account. Before me also the Ld. AR on test check basis has shown that the appellant has taken delivery of those shares after purchase, which are booked in share investment account. In fact as per the details submitted by the Ld. AR, the appellant has been earning dividend on the shares booked under the share investment account since the Ay 2001-02 as reproduced in para 3.2 (vi).
3.6 In support of his argument that delivery based share transactions should be taken as capital gain transactions, the Ld., AR of the appellant has cited a recent judgement of Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit (2010) 228 CTR (Bom) 582. In this case law, the Hon'ble Bombay High Court has held that the delivery based transactions are to be treated as investment transactions and the profit received therefrom is to be treated as short term or along term capital gain, depending on the period of holding of shares. It is also held that in this transaction, the Tribunal has correctly held that though the principal of resjudicata is not attracted since each assessment is separate in itself, there ought to be uniformity in treatment and consistency when the facts and circumstances are identical. In this case, the assessee was engaged in two different types of shares transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purpose of business. In this case one sale of 7,59,003 shares for Rs.5,00,12,879 as an income from short-term capital gain and sale of 3,88,797 shares for Rs.6,65,02,340/- as long term capital gain was shown. On such a high volume of share transactions, the principal laid down in this case 5 ITA No.56/Agr/2011 A.Y. 2006-07 .
by the Hon'ble Bombay High Court is that for delivery based share transaction, profit earned would be taxed under the head capital gain and for the non delivery based share transactions the profit earned on share transactions would be considered as business income. Compared to the volume of transactions in the case cited, volume of transaction in the case of appellant is much less.
3.7 In the assessment order, the AO has also relied on the assessment order for 2005-06 in which the department has treated the profit earned on share transaction as business income. This particular order was adjudicated upon by my predecessor CIT(A)-I, Agra and vide her order No.365/CIT(A)-I/Agra/ACIT-3(1)/MTR/2007- 08 dated 18.02.2009, she has held after considering all the fact and circumstances of the case of the appellant that the profit earned by the appellant on the sale and purchase of shares would be treated as long term and short term capital gain depending on the period.
3.8 The main ground for treating the profit shown by the appellant under the head capital gain on purchase and sale of shares to be taken as business income in the assessment order is based on the assessment order of 2005-06. As it is discussed in sub para 3.7 above, my predecessor CIT(A)-I, Agra has already held for the AY 2005-06 that these transactions are in the nature of capital gain. The facts of the case remain same in this year also. Besides, the decision of CIT(A)-I, Agra for the AY 2005-06, it has also been held by Bombay High Court in the case of CIT vs. Gpal Purohit (supra) that delivery based transactions are to be treated as investment transaction and profit received therefrom is to be assessed under the head capital gain and there ought to be uniformity in treatment and consistency when the facts and circumstances are identical. It has been shown by the appellant that in share investment account he is booking only those shares for which he is taking delivery on purchase and there is no change in facts and circumstances of this case compared to last year i.e. AY 2005-06. Therefore, following the decision of my predecessor for AY 2005-06 and the Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit (supra) and also taking into account the facts that the appellant has taken delivery of the shares which are booked in share investment account, I hold that profit earned by the appellant from this share investment account would be treated s income under the head capital gain. Therefore, the AO is directed to treat 6 ITA No.56/Agr/2011 A.Y. 2006-07 .
Rs.33,14,230/- as STCG and Rs.76,053/-as LTCG as shown by the appellant in the return of income. Since on sale of shares for LTCG, the appellant has paid STT, it will be exempt under section 10(38) as claimed by the appellant. In view of the above decision the ground no.1 to 10 are allowed."
4. The Learned Departmental Representative relied upon the order of Assessing Officer whereas the Ld. Authorised Representative relied upon the order of CIT(A) and submitted that in Assessment Year 2005-06 the issue has been decided in favour of the assessee by CIT(A). The Revenue filed appeal before the I.T.A.T. and I.T.A.T. has dismissed the Revenue's appeal in ITA No.191/Agr/2009 order dated 06.04.2011. Ld. Authorised Representative further submitted that the assessee maintained two separate set of books of account, one is pertaining to business of Biri and Match Box etc. and another set is personal set of account wherein the assessee has shown shares as investment and profit on sale of shares as business income separately. The shares and investment has been regularly shown as assets in the balance sheet. The profit on sale of shares trading which is on non-delivery basis have been accounted for in Profit & Loss Account in personal set of books of accounts. Ld. Authorised Representative submitted that the assessee has bifurcated investment in shares as investment and investment as trade at the time of transaction itself and accordingly accounted for in the books of account. The Ld. Authorised Representative submitted that in this way the assessee has clearly indicated the intention of the transaction. The Ld. Authorised 7 ITA No.56/Agr/2011 A.Y. 2006-07 .
Representative further submitted that the system of accounting has been followed by the assessee in past as well as in future also. Ld. Authorized Representative in support of his contention relied upon the judgement of Hon'ble Supreme Court of India in the case of CIT vs. Sutlej Cotton Mills Supply Agency Limited, 100 ITR 706 (SC). Ld. Authorised Representative also relied upon the judgement of Hon'ble High Court of Bombay in the case of CIT vs. Gopal Purohit, 228 CTR 582 (Bom).
5. We have heard the ld. Representatives of the parties and records perused.
We notice that the assessee declared Long Term Capital Gain on sale of shares on delivery basis and the intention of the assessee was to earn dividend. It has been noted from the order of the CIT(A) that the assessee has earned dividend of Rs.4,84,017/-. This dividend has been earned by the assessee in respect of investment in shares. Thus, the related shares were shown in investment account in books of account as noted by the CIT(A). This fact was noted by the CIT(A) after verifying the relevant books and records. The assessee is following such practice since A.Y. 2001-02. The assessee has recorded the share transaction in books of account in first set of transaction as investment in shares and second set of transaction investment in shares for the purpose of business. The bifurcation of shares as investment and as business have been recorded in the books of account 8 ITA No.56/Agr/2011 A.Y. 2006-07 .
on day today basis. It has also been noted from the order of CIT(A) that in A.Y. 2005-06 the CIT(A) accepted the assessee's claim and set aside the order of A.O. In the year under consideration, the CIT(A) also followed his predecessor's order for A.Y. 2005-06. It has also been noted that in A.Y. 2005-06 the Revenue filed appeal before the I.T.A.T. and the I.T.A.T. ahs dismissed the appeal of the Revenue on account of law tax effect as submitted by the ld. Authorised Representative. The Revenue has failed to point out any contrary fact to the facts noted by the CIT(A). Therefore, to maintain consistency, we find that the CIT(A) has rightly set aside the order of A.O. and allowed the claim of the assessee in respect of shares for which the assessee has shown Capital Gain. We, therefore, do not find any infirmity in the order of CIT(A). Order of the CIT(A) on the issue is confirmed.
6. In the result, appeal filed by the Revenue is dismissed.
(Order pronounced in the open Court)
Sd/- Sd/-
(BHAVNESH SAINI) (A.L. GEHLOT)
Judicial Member Accountant Member
PBN/*
9 ITA No.56/Agr/2011
A.Y. 2006-07
.
Copy of the order forwarded to:
1. Appellant
2. Respondent
3. CIT (Appeals) concerned
4. CIT concerned
5. D.R., ITAT, Agra Bench, Agra
6. Guard File.
By Order
Sr. Private Secretary
Income-tax Appellate Tribunal, Agra
True Copy