Income Tax Appellate Tribunal - Mumbai
Chhitubhai N. Patel , Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C", MUMBAI
BEFORE SHRI DINESH KUMAR AGARWAL (J.M.)
AND SHRI N.K. BILLAIYA (A.M.)
ITA No. 4050/Mum/2010
Assessment Year : 2007-08
Asstt. Commissioner of Income Shri Chhitubhai N. Patel,
Tax - 25(3), B/1302, Veena Vihar CHS Ltd.,
C-11, R. No. 308, Sector - 8, Charkop,
Pratyaksh Kar Bhavan, Vs. Kandivli (W),
Bandra-Kurla Complex, Mumbai- 400067.
Bandra (East), PAN : AAYPP4083A
Mumbai. 400 051.
(Appellant) (Respondent)
Revenue by : Shri C.G.K. Nair
Assessee by : Shri Deepak Tralshawala
Date of hearing 28-5-2012
Date of pronouncement 06-6-2012
ORDER
PER DINESH KUMAR AGARWAL, J.M.
This appeal preferred by the Revenue is directed against the order dated 23-02-2010 passed by the Ld. CIT(A) for the A.Y. 2007-08.
2. Briefly stated facts of the case are that the assessee an individual engaged in trading in shares. During the course of assessment proceedings, the A.O. noted that the assessee has shown capital gain and income from dividend, claimed as exempted. The A.O. further noted that all the receipts in the capital account are arising out of transactions in shares and securities but in the computation of income, the assessee 2 ITA No. 4050/MUM/2010 bifurcated the credit entries and offered the profits/loss on the sale of shares as short term/long term capital gains. The A.O. summarised the share transactions pertaining to short term capital gain and long tem capital gain as under:-
No. of shares bought and sold 100930
Purchase amount Rs. 1,75,27,090/-
Sales amount Rs. 3,36,92,261/-
Gain Rs. 1,61,65,171/-
Long term capital gains
No. of shares bought and sold 9000
Purchase amount Rs. 35,11,490.26
Sales amount Rs. 44,01,604.41
Gain Rs. 8,90,114/-
Total Transactions
No. of shares bought and sold 109930
Purchase amount Rs. 2,10,38,580.26
Sales amount Rs. 3,80,93,865.41
Apart from the above, from the profit and loss account for the year ending 31.03.2004 and capital account for the year ending 31.3.2005, the A.O. observed that for A.Y. 2004-05 the assessee had treated the income received from trading as business income whereas for the subsequent assessment years i.e A.Y. 2005-06, 2006-07 & 2007-08 the assessee had classified his income/loss from share trading as short term 3 ITA No. 4050/MUM/2010 capital gain and long term capital gain. The A.O. held that though the nature and type of expenses were same as those of A.Y. 2004-05, the assessee debited all the expenses in the capital account for the A.Ys. 2005-06, 2006-07 & 2007-08. The A.O. concluded that the expenses were debited to capital account with a view to reduce tax. He further held that the assessee maintained full office cum residence in order to carry out the business of share trading and has debited various expenses such as telephone expenses, professional fees, bank charges fees, bank charges etc. Having regard to the frequency of transactions, quantity of shares purchased and sold and the number of transactions, the A.O. was of the opinion that it was an organised activity of purchase and sale of shares with profit motive and accordingly the A.O. assessed the short term capital gain/long term capital gain Rs. 67,93,487/- under the head income from business.
3. On appeal, the ld. CIT(A) following the decision of Mumbai Bench of the Tribunal in the case of Gopal Purohit vs. JCIT, 29 SOT 117 confirmed by the Hon'ble jurisdictional High Court vide judgment dtd. 6-1-2010 and factual findings, directed the A.O. to accept the claim of the appellant by accepting the short term/long term capital gain as admitted by the appellant.
4. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us taking the following grounds of appeal:- 4 ITA No. 4050/MUM/2010
"1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the A.O. to accept the claim of Short Term Capital Gain and Long Term Capital Gains on profit arriving from purchase & sale of shares instead of business income treated by the A.O. without appreciating the fact that the assessee is dealing in large volume of shares, most of the shares are bought and sold within short period, while some are not sold due to market conditions and their holding with assessee remains beyond few days., it will not change the nature of transactions and the assessee is very well engaged in the business of share trading, which denote that the motive of the assessee is to carry on business in shares to book profit rather than investment in shares.
2. The appellant prays that the order of the ld. CIT(A) on the above grounds be set aside and that of the A.O. be restored."
5. At the time of hearing the ld. D.R. supports the order of the A.O.
6. On the other hand, the ld. Counsel for the assessee, at the outset, submits that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for the A.Y. 2006-07 in ITA No. 5238/Mum/2009 dtd. 20-12-2010, upheld by the Hon'ble jurisdictional High Court in CIT vs. Shri Chhitubhai N. Patel in Income Tax Appeal (LOD) No. 686 of 2011 dtd. 5th August, 2011 and in Revenue's appeal in ITA No. 3361/Mum/2011 for A.Y. 2008-09 dtd. 16- 5-2012. He also placed on record a copy of the said orders/judgments.
7. We have carefully heard the submissions of the rival parties and perused the relevant material available on record. We find that the ld. CIT(A) vide finding recorded in para 5.1 of his order observed and held as under:-
"....It is true that the appellant has earned business income on non delivery based transactions for A.Y.2004-2005 but that 5 ITA No. 4050/MUM/2010 does not mean that income earned on sale of shares held as investment can be taxed as business income in the subsequent years. The appellant has made clear distinction between delivery based and non delivery based transactions and admitted income accordingly and except for A.Y.2004-2005, the appellant did not indulge in any non delivery based share transactions. As contended by the representative, even shares purchased as investment had to be sold within a short time depending on the market conditions. Thus, the sale of shares was only with a view to protect the amount invested by the appellant which would not convert the investment into stock-in- trade. The appellant transferred all the shares in his name before sale as evidenced by the demat account and paid STT at a high rate as applicable to the investor. It is found from the balance sheet filed that the appellant held shares as investment and after transferring the shares in the name of the appellant the shares were sold as evidenced by the demat account and the STT was paid at a higher rate application to the investor. It is true that the A.O. did not accept the claim of the appellant for A.Y.2005-2006 which was confirmed by C1T(A) but the C1T(A) decided the issue before the Hon'ble Mumbai Tribunal rendered its decision in the case of Gopal Purohit (29 SOT 117) and subsequent to the above decision, the same CIT(A) decided the same issue in the case of Gopal Purohit for A.Y.2006- 2007 otherwise by order dated 18.06.2009 in ITA No.534/08-09. Thus the stand of the A.O. is no longer valid in the light of the decision of Hon'ble Mumbai Tribunal in the case of Gopal Purohit. In the circumstances, there is no justification for assessing the short term capital gain admitted by the appellant under the head business."
8. We further find that the A.O. while treating the short term capital gain/long term capital gain as business income relied on the order of the ld. CIT(A) for A.Y. 2006-07 wherein the ld. CIT(A) upheld the action of the A.O. for assessing the assessee's income from shares under the head 'income from business'. However, on second appeal filed by the assessee, the Tribunal in ITA No. 5238/Mum/2009 for A.Y. 2006-07 dtd. 20-12- 2010, after considering the totality of the facts and circumstances of the case held that the transactions of sale and purchase of the shares by the 6 ITA No. 4050/MUM/2010 assessee was in the nature of investment in shares and not trading in shares. The said order of the Tribunal has been upheld by the Hon'ble jurisdictional High Court (supra). We also find that in subsequent assessment year i.e. in 2008-09, the Tribunal following the above decisions dismissed the Revenue's appeal on the same issue. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the consistent view of the Tribunal upheld by the Hon'ble jurisdictional High Court hold that the transaction of purchase and sale of shares are in the nature of investment in shares and not trading in shares, therefore, the ld. CIT(A) was fully justified in accepting the claim of the assessee and accordingly the grounds taken by the Revenue are rejected.
9. In the result, Revenue's appeal stands dismissed.
Order pronounced in the open court on 6th June, 2012.
Sd/- Sd/-
(N.K. BILLAIYA) (DINESH KUMAR AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 6th June, 2012.
RK
7 ITA No. 4050/MUM/2010
Copy to:
1. The Appellant
2. The Respondent
3. The CIT (A) -35, Mumbai
4. Commissioner of Income Tax- 25, Mumbai
5. Departmental Representative, Bench 'C', Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI