Income Tax Appellate Tribunal - Mumbai
Khirmin D. Bharucha, Mumbai vs Dcit (Osd)-12, Mumbai on 7 December, 2016
आयकर अपील
य अ धकरण "A" यायपीठ मब
ंु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI
BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 3757/ Mum/2012
( नधा रण वष / Assessment Year : 2008-09)
Mrs. Khirmin D. Bharucha, बनाम/ Dy. Commissioner of
4, 1st floor, Income Tax (OSD) -12,
v.
Jehangir Mansion, Mumbai.
Ist Mari ne Stree t,
Fort,
Mumbai -40 0036 .
थायी ले खा सं . /PAN : AAEPB 8187B
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by Shri Vispi T. Patel
Revenue by : Shri A. Ramachandran
ु वाई क तार ख / Date of Hearing
सन : 19-10-2016
घोषणा क तार ख /Date of Pronouncement : 07-12-2016
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being ITA No. 3757/Mum/2012, is directed against the appellate order dated 5th March, 2012 passed by the learned Commissioner of Income Tax (Appeals)- 23, Mumbai (hereinafter called "the CIT(A)"), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the assessment order 16th December, 2010 passed by the learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income-tax Act,1961 (Hereinafter called "the Act").
2 ITA 3757/Mum/2012
2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:-
"The Appellant objects to the order passed by the learned Commissioner of Income Tax (Appeals) - 23, Mumbai [CIT (A)] dated 05 March 2012 on the following amongst other grounds:
1. The learned CIT(A) erred in confirming the Assessing Officer's (AO's) action of treating the short-term capital gains of INR 2,47,33,233 as business income.
2. The learned CIT(A) erred in observing that purchases have been made with the clear intention of resale to earn profits.
3. The learned CIT(A) erred in holding that the appellant has indulged in business activity in view of the magnitude and frequency of transactions and low period of holding.
4. Without prejudice to the above, the learned CIT(A) erred in not directing the AO to allow expenditure which was incurred wholly and exclusively for carrying out the business of trading in shares (in relation to re-characterisation of short-term capital gains as business income)."
3. The brief facts of the case are that the A.O. observed that during the year the assessee has made investments in shares and mutual funds. The assessee has also declared income from short term capital gain as well exempted long term capital gain from shares and mutual fund , apart from dividend from mutual funds and shares. During the course of assessment proceedings u/s/ 143(3) r.w.s. 143(2) of the Act, it was observed by the A.O. that the assessee has shown an amount of Rs. 2,47,33,233/- as short term capital gains. The A.O. accordingly asked the assessee to furnish details of such short term capital gains , and from the details of these capital gains submitted by the assessee it was noticed by the AO that during the relevant assessment year the assessee carried out huge volumes of transactions for 3 ITA 3757/Mum/2012 buying and selling of shares and securities with high frequency. It was observed by the AO that the assessee has dealt in 341 transactions of sale of shares of numerous companies including purchases and sales. During the relevant assessment year , the assessee has purchased shares of Rs. 32,67,31,843/- and total sales amounted to Rs.35,14,65,076/-. The assessee was asked as to why the short term capital gain shown should not be treated as business income. In reply, the assessee submitted before the AO that the assessee is assessed to tax for the last more than 20 years and the source of income is share of profit and salary receivable from two firms in which the assessee is a partner. Besides this the assessee submitted that she has income from dividends, capital gains and interest from bank and debentures. It was submitted that as on 31st March, 2007 , the assessee's capital was Rs.15.84 crores whereas it increased to Rs.26.06 crores at the end of the financial year 2007-08. It was submitted that the assessee has not taken any loans except a car loan of Rs.5.34 lakhs as on 31st March, 2008. It was submitted that the assessee has invested idle capital in shares and securities as reflected in Balance Sheet. The assessee invested in the shares amounting to Rs. 24.82 crores as on 31st March, 2008 as against Rs.14.92 crores as on 31st March, 2007. The assessee submitted that the shares were purchased in order to gain more income by way of dividends and appreciation in the value of shares , and to sell shares as and when there was substantial appreciation in the value of shares. The assessee used to sell shares and to book profit and similarly used to purchase shares when market conditions were favourable by reinvesting the sale proceeds. It was submitted that the assessee has not borrowed any funds for making investments in shares and all the investments in shares were her own capital. The assessee has taken delivery of the shares purchased and similarly she has given delivery in respect of shares sold and the profit/loss resulting from such transactions in shares were declared short term capital gains or long term capital gains depending upon the period of holding of the shares. It was submitted that the assessee has not entered into 4 ITA 3757/Mum/2012 any day to day trading or settlement of any transactions without delivery of shares or any futures or options transactions in shares and the assessee has not claimed any expenses such as S.T.T., interest, etc. or portfolio management fees from the profit made on sale of shares. It was submitted that the assessee has shown substantial profit as capital gains in earlier years and the same were accepted by the Revenue. It was submitted that the assessments for assessment years 2004-05 and 2007- 08 were completed u/s 143(3) of the Act wherein the A.O. taxed the said profit as capital gains as declared by the assessee in her return of income filed with Revenue. It was submitted that regular books of account were maintained by the assessee and all the shares purchased were shown as investments in the books of account and the assessee has not shown any shares as stock in trade in her balance sheet nor had she shown any profit on sale of shares, and hence it was submitted that the assessee is an investor in shares and not a trader in shares.
The A.O. rejected the contentions of the assessee and observed that the assessee is engaged in the activity of dealing in share transactions. The intention of the assessee is to earn profit. The motive of the investor was to earn returns on these investments by means of dividend and earn capital appreciation in the long run and the only intention would be to earn profit by taking advantage of stock market fluctuations. The A.O. observed that assessee is not a small scale retail investor and details submitted shows that it has dealt with about 341 transactions in sales of shares only. Majority of shares transactions wherein the assessee has entered purchase and sale of shares in the assessment year 2008-09 itself. During the relevant assessment year , the assessee has carried out huge volumes of transactions for buying and selling of securities. It was observed by the AO that during the relevant assessment year the assessee has purchased and sold more than 5,12,399 number of shares and earned short term capital gain/loss, hence, the 5 ITA 3757/Mum/2012 assessee was not an investor but was a dealer in shares. Thus, the assessee is engaged in the activities of trading in shares and earned huge profit which has been offered under the head capital gains in order to lower its tax liability Hence, keeping in view the facts and circumstances of the case, the A.O held that the assessee's income arising from share transactions is business income. In support , the A.O. relied on the CBDT Circular No. 4 of 2007 dated 15th June, 2007. The motive of the assessee is to earn profit from the sale of shares and in many scrips multiple purchases and sales of shares of the same scrip was undertaken by the assessee showing high frequency of dealings. The AO relied upon decision of Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594(SC) wherein the hon'ble Apex Court has held that where purchase has been made solely and exclusively with intention to resell at profit and the purchaser has no intention of holding property or enjoying or using it, presence of such an intention is a relevant factor and unless it is offset by presence of other factors, would raise a strong presumption that transaction is in the nature of trade. The volume of frequency in the case of the assessee while dealing in shares is huge. The short term gain of Rs. 2,47,33,233/- has been derived from about 341 transactions and for this the assessee had sold shares to the tune of Rs. 35,14,65,076/- and the cost of their purchase was Rs. 32,67,31,843/- , whereby the period of holding was 1 to 30 days wherein number of transactions were 75 , while wherein period of holding was from 31 to 100 days the number of transactions were 126 , which showed that the maximum number of shares were sold within 3 to 4 months which clearly shows that shares were purchased to earn profit and not dividend. It was also observed by the AO that the shares of the same company were purchased and sold repeatedly by the assessee . It was further observed that the principle of res-judicata is not applicable in the income-tax proceedings , relying on decision of New Jehangir Vakil Mills Limited v. CIT (1963) 49 ITR 137(SC). The AO , therefore, held that the assessee is a trader in shares and the gains 6 ITA 3757/Mum/2012 earned on shares transaction amounting to Rs. 2,47,33,233/- are to be brought to tax as business income and not as capital gains, vide assessment orders dated 16.12.2010 passed by the AO u/s 143(3) of the Act.
4. Aggrieved by the assessment order dated 16.12.2010 passed by the A.O. u/s. 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A).
5. Before the ld. CIT(A) , the assessee reiterated the submissions as were made before the AO during the course of assessment proceedings. The ld. CIT(A) after considering the submissions of the assessee and relying upon various case laws held that the magnitude and frequency of transactions, the low period of holding and repetitive transactions in the same scrip clearly shows that the assessee has indulged in business activity and the A.O. is quite right in treating the profits on sale of shares/securities under the head 'Profits and gains from business or Profession' and accordingly learned CIT(A) upheld the assessment order of the A.O., vide appellate orders dated 05-03- 2012 passed by the learned CIT(A).
6. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before the Tribunal.
7. Before the Tribunal, the ld. Counsel for the assessee submitted that the assessee is a senior citizen and has been assessed to tax for the last more than two decades. The ld. Counsel relied upon the decision of the Hon'ble Bombay High Court in the case of CIT v. Gopal Purohit (2010) 336 ITR 287(Bom.) to contend that gains arising from sale of shares and mutual fund is chargeable to tax as capital gains. It was submitted that the short term capital gain earned by the assessee on sale of shares is treated as business income by the authorities below. It was submitted that the assessee has been assessed to tax u/s 143(3) of the Act for assessment years 2003-04, 7 ITA 3757/Mum/2012 2004-05 and 2007-08 and the department has accepted the profits earned on sale of shares as capital gains in the scrutiny assessments . The copies of the assessment orders are placed in paper book / page 32-37. It was submitted that even for the assessment year 2012-13 , the Revenue has framed the assessment u/s 143(3) of the Act and accepted the gains on sale of shares as capital gains . Thus it was submitted that the Revenue has accepted in all the years , that the assessee is an investor and the income has been accepted as capital gains and it has never assessed as business income except during the impugned assessment year. The said assessment order is placed in the file as submitted by the assessees' counsel during the course of hearing before the tribunal. The assessee counsel also submitted that the assessee has also not availed any loan for the purposes of investing in shares/mutual funds.
8. The ld. D.R. relied upon the order of the ld. CIT(A).
9. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has been regularly assessed to tax in the past years and scrutiny assessments have been framed against the assessee for assessment years 2003-04, 2004-05, 2007-08 and 2012-13 u/s 143(3) of the Act wherein Revenue has accepted that the gains earned by the assessee on share transactions are to be assessed to tax as capital gains. The assessee has earned profit on sale/purchase of shares which was assessed to tax under the head 'Profit and gains from business or profession' by the AO in the relevant assessment year, instead of gains being offered to tax as short term capital gain by the assessee for the impugned assessment year in the return of income filed with the Revenue. We have observed that it is only for this impugned assessment year , whereby the short term capital gain earned by the assessee on share transactions were assessed to tax as business income. The assessee has relied upon the 8 ITA 3757/Mum/2012 decision of Hon'ble Bombay High Court in the case of Gopal Purohit(supra) . We have observed that no borrowed funds were utilized by the assessee for acquiring shares. We have however also observed that huge transactions in shares have been entered into by the assessee during the impugned assessment year, wherein the shares are bought and sold repeatedly of the same companies with a small period of holding, which reflect indica of trade when the transactions are squared of within a short period of time . Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594(SC) held that where purchase has been made solely and exclusively with intention to resell at profit and the purchaser has no intention of holding property or enjoying or using it, presence of such an intention is a relevant factor and unless it is offset by presence of other factors, would raise a strong presumption that transaction is in the nature of trade. The volume of frequency in the case of the assessee while dealing in shares is huge. The short term gain of Rs. 2,47,33,233/- has been derived from about 341 transactions and for this the assessee had sold shares to the tune of Rs. 35,14,65,076/- and the cost of their purchase was Rs. 32,67,31,843/- , whereby the period of holding was 1 to 30 days wherein number of transactions were 75 , while wherein period of holding was from 31 to 100 days the number of transactions were 126 , which showed that the maximum number of shares were sold within 3 to 4 months from the date of puchase. We are also conscious of the fact that principle of res-judicata is not applicable to the income-tax proceedings but principle of consistency is to be applied , reference decision of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC). In our considered view, interest of justice will be best served if the gain arising from the sale/purchase of shares which are held for a period of up-to 30 days from the date of purchase is to be treated as business income, while wherein the period of holding of shares is more than 30 days, the gains arising there-from would be treated as short term capital gain/long capital gain depending upon 9 ITA 3757/Mum/2012 the period of holding as stipulated in the Act. Our above view is supported by several decision of the tribunal , recent decision being ACIT v. Dimension Consulting Private Limited orders dated 20-09-2016(Delhi Tribunal decision in ITA Nos. 2321/Del/2010 and 1834/Del/2012, CO Nos. 224/ Del/2010 and 217/Del/2012 for assessment years 2006-07 & 2008-09). We order accordingly.
10. In the result, the appeal filed by the assessee in ITA No. 3757/Mum/2012 for the assessment year 2008-09 is partly allowed as indicated above.
Order pronounced in the open court on 7th December, 2016. आदे श क घोषणा खल ु े #यायालय म% &दनांकः 07-12-2016 को क गई ।
Sd/- sd/-
(MAHAVIR SINGH) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मंब
ु ई Mumbai; &दनांक Dated 07-12-2016
[
व.9न.स./ R.K., Ex. Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु:त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आयु:त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मंब ु ई / DR, ITAT, Mumbai "A" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai