Income Tax Appellate Tribunal - Hyderabad
Smt. Sobha Rani Nanduri, Hyderabad vs Department Of Income Tax on 20 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA.No.1112/Hyd/2013
Assessment Year 2007-2008
Nanduri Tejaswy ACIT, Circle 6(1)
Hyderabad vs. Hyderabad.
PAN ACNPN3831F
(Appellant) (Respondent)
ITA.No.1110 & 1111/Hyd/2013
Assessment Years 2007-2008 & 2008-2009
Smt. Nanduri Sobha
Rani, Hyderabad. vs. The DCIT, Circle 6(1)
PAN ABEPN6221B Hyderabad
(Appellant) (Respondent)
ITA.No.1240/Hyd/2013
Assessment Year 2010-2011
The DCIT, Circle 6(1) Smt. Sobha Rani Nanduri
Hyderabad. vs. Hyderabad - 500 082
PAN ABEPN6221B
(Appellant) (Respondent)
For Revenue : Mr. Rajat Mitra
For Assessee : Mr. Samuel Nagadesi
Date of Hearing : 16.02.2015
Date of Pronouncement : 20.03.2015
ORDER
PER P.M. JAGTAP, A.M.
These four appeals, one filed in the case of Sri Nanduri Tejaswy and three filed in the case of Smt. Nanduri Sobharani, involve a common issue and the same therefore, 2 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
have been heard together and are being disposed of by a single consolidated order for the sake of convenience.
2. The appeal filed in the case of Sri Nanduri Tejaswy is the appeal of the assessee for A.Y. 2007-08 being ITA.No.1112/Hyd/2013 which is directed against the Order of Ld. CIT(A)-IV, Hyderabad dated 27.05.2013. Out of the three appeals filed in the case of Smt. Nanduri Sobharani, two appeals being ITA.No.1110/Hyd/2013 and 1111/Hyd/2013 are the appeals of the assessee which are directed against the orders of the Ld. CIT(A)-IV, Hyderabad dated 27.05.2013 for A.Ys. 2007-08 and 2008-09 while the remaining third appeal being ITA.No.1240/Hyd/2013 is the appeal of the Revenue for A.Y. 2010-2011 which is directed against the Order of Ld. CIT(A)-IV, Hyderabad dated 28.06.2013.
3. The solitary common issue involved in these four appeals is whether the profit arising to the assessees from share transactions is chargeable to tax under the head "Short Term Capital Gains" as claimed by the assessee or under the head "Profits and gains of Business or Profession" as held by the Assessing Officer. In A.Ys. 2007-08 and 2008-09, the Ld. CIT(A) has upheld the action of the A.O. in treating such profit as business income of the assessees while in A.Y. 2010-2011, the Ld. CIT(A) has accepted the claim of the assessee that the same is chargeable to tax as short term capital gain.
3.1. The material facts relevant to the issue involved in these appeals in so far as the case of Smt. Nanduri Sobharani for A.Y. 2007-08 is concerned are as follows. The assessee is an individual who is engaged in the business of advertising agency under the name and style of her proprietary concern 3 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
M/s. Sobha Advertising Service. The return of income for A.Y. 2007-08 was filed by her on 31.10.2007 declaring total income of Rs.16,16,35,317. In the said return, the profit of Rs.2,29,92,072 arising from the sale of shares amounting to Rs.29,55,40,930 was declared by the assessee under the head "Short Term Capital Gain". During the course of assessment proceedings, this claim of the assessee was examined by the A.O. On such examination, he found that the frequency of buying and selling of shares of the assessee was very high, the period of holding of many shares was very less and the high volume of turnover was on account of frequency of transactions involving huge volumes. He also found that although the mode of trade was delivery based, the period of holding in some scrips was a few days only and there were multiple transactions in the same scrips. He also noted that the assessee in some of the scrips had re-entered the market for taking the advantage of market fluctuations and it was the case of repetitive transactions entered into by the assessee in the same scrips. Having regard to all these findings recorded by him, the A.O. held that the assessee was a trader in shares and not investor and the profit arising from the transactions of purchase and sale of shares was brought to tax by him in her hands under the head "Profits and Gains of Business or Profession" in the assessment completed under section 143(3) vide order dated 15.12.2009.
4. Against the order passed by the A.O. under section 143(3) for A.Y. 2007-08 treating the profit arising from the transactions in shares as her business income, the assessee preferred appeal before the Ld. CIT(A) who upheld the action of the A.O. after having found that the huge turnover in shares 4 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
was achieved by the assessee only on account of frequent buying and selling of a large number of scrips in large volumes and that the intention of the assessee as judged from the volumes, frequency and regularity of the transactions undertaken in the systematic and organized manner was to trade in the shares and not invest in shares. Accordingly, the appeal of the assessee on this issue was dismissed by the Ld. CIT(A) in the first round vide his appeal order dated 13.01.2011.
4. Against the order of the Ld. CIT(A), appeal was preferred by the assessee before the Tribunal and after examining the relevant aspects of the case in the light of various judicial pronouncements, the Tribunal vide its order dated 02.07.2012 in ITA.No.332/Hyd/2011 remitted the matter back to the Ld. CIT(A) with the following directions :
"29. Therefore, we are of the opinion that the view taken by the Revenue authorities cannot be outright when there are no finding on various aspect or criteria set by the jurisdictional high court in the case of BSV Raju (sic) supra. We accordingly set aside the impugned orders to the files of the CIT(A) on this issue, and direct him define the high frequency with the help of the comparable cases on hand. Assessee is also directed to assist the CIT(A) in this regard. If needed, he may file any fresh documents before the CIT(A) that would help the CIT(A) to come to the correct conclusions. On the issue of applicability of the apex court's judgment in the case of Gopal purohit supra, there is no adequate data before us at least in the case of assessee-Tejeswy. CIT(A) is directed to examine the. applicability of the said case after obtaining adequate and relevant data. CIT(A) is a/so directed to examine each of the criteria set by various courts in various cases including the criterion of 'dominant intention'. It goes without saying that the CIT(A) shall grant reasonable opportunity of being heard to the 5 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
assessees without fail. Accordingly, the assessees' grounds on this issue are adjudicated pro-tanto."
4.1. As per the directions of the Tribunal, the Ld. CIT(A) re-examined the issue in the light of decision of the Hon'ble A.P. High Court in the case of PVS. Raju vs. Addl. CIT 340 ITR 75 and in the case of Spectra Shares and Scrips Ltd., vs. CIT ITTA.No.512 of 2011 and ITTA.No.17 of 2012 dated 21.02.2013. On such examination, he summarized various factors enumerated by the Hon'ble A.P. High Court in the case of PVS Raju (supra) which weighed with the lower authorities in coming to the conclusion that the shares in question constituted stock-in-trade and not investment as under :
a) "The frequency of buying and selling of shares by the appellants were high;
b) The period of holding was less;
c) The high turnover was on account of frequency of transactions and not because of huge investment;
d) The assessees had dealt in delivery trading purely with the intention of making quick profits on a huge turnover;
e) The period of holding of a majority of the stock was between one to seven days;
f) In most of the transactions, the assessees did not even hold on to at least some part of the huge purchases and had engaged in the same scrips frequently ;
g) The intention of the assessees in buying shares was not to derive income by way of dividend on such shares but to earn profits on the sale of the shares;
h) The assessees had indulged in multiple transactions of large quantities with very high periodicity. These periodic transactions selecting the time of entry and exit in each scrip called for regular direction and management which would indicate that it was in the 6 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
nature of trade;
i) Repeated transactions, coupled with the subsequent conduct of the assessees to re-enter the market, in order to take advantage of market fluctuations lent the favour of trade to such transactions;
j) The assessees were purchasing and selling the same scrips repeatedly and were switching from one scrip to another;
k) The dominant impression left on the mind was that the assessees had not invested in shares;
l) Mere classification of these share transactions as investment in the assessee's books of account was not conclusive;
m) The intention of the assessees at the time of purchase was only to sell the shares immediately after purchase;
n) Frequency of purchase and sale of shares showed that the assessees never intended to keep these shares as investment; and
o) It is only for the purpose of claiming benefit of lower rate of tax under section 111A of the Act that they had claimed certain shares to be investment though these transactions were only in the nature of trade.
18. The court noted thereafter as follows :
"It is evident from the order of the Income-tax Appellate Tribunal that the voluminous share transactions were in the ordinary line of the appellants' business; purchase of shares by them was not for the purpose of earning dividend but with the dominant intention of resale in order to earn profits; the profit made by them is not of mere enhancement of value of the shares, but is a profit made in the carrying on of a business scheme of profit making; huge volume of share transactions, the repetition and continuity of the transactions, give them a flavour of "trade" ; the magnitude, frequency 7 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
and the ratio of sales to purchases on the total holdings is evidence that the appellants had not purchased the shares as an investment, but with the intention to trade in such scrips."
4.2. The Ld. CIT(A) then analysed the decision of Hon'ble A.P. High Court in the case of Spectra Shares & Scrips P. Ltd., (supra) and found that the transactions of purchase and sale of shares in that case were held to be giving rise to capital gains and not business income on the basis of the following factors :
a. "The assessee had not borrowed any funds and had invested in shares with its own funds b. Closing stock was valued at cost, not at 'cost or market value, whichever is lower' c. The assessee had earned substantial dividend d. 99% of gains returned by the assessee was long term and only 1% was short term.
e. The assessee had never dealt in futures, derivatives and options.
f. The transactions were all delivery based, except for- transactions in one scrip for which the assessee furnished a reasonable explanation.
g. The assessee was registered as NBFC with RBI.
h. The assessee had never claimed set off of losses from sale of investments.
i. The large turnover of the assessee could not be held against it without considering the period of holding of the shares.
j. The mere fact that the assessee was monitoring the stock market and having an administrative set up was not a factor against the assessee.8
ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
k. The principles of res judicata was applied to the assessee.
In view of the above facts, the High Court held that the high turnover and frequency of transactions in the case of Spectra Shares was not a relevant factor.
4.3. After having analysed the decision of Hon'ble A.P. High Court in the case of PVS Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra), the Ld. CIT(A) narrated relevant facts and figures involved in the case of the assessee as under :
"37. Judged by this parameter, the figures in the appellant's case are as follows :
Opening Turnover No. of Closing stock
Stock transactions
2,24,13,531 29,55,40,930 174 1,04,17,569
Both the opening and closing stock are at relatively modest figures vis-a-vis the turnover. The appellant's capital, as reflected in the opening stock, is a mere 7.6% of the turnover. In other words, the portfolio had been churned more than 13 times during the year. This shows that the turnover is attributable to the high frequency of transaction and not to the capital of the assessee.
38. In para 26 of its order, the ITAT had also noted that the appellant had earned Rs.2,38,408 as dividend and it was not known as to what part of it was related tot eh impugned short term capital assets. The ITAT directed that information be obtained on this issue. Accordingly, the AR submitted the following details of the dividend received by the appellant:
Dividend on short term shares Rs.1,29,150
Dividend on long term shares Rs.1,09,250
Total Rs.2,38,408
39. The AR submitted that dividends are subject to recommendations by the Board of directors and that it 9 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
was not necessary that all the companies whose scrips were held by the appellant earned dividend, and that the investors could realize the same from the market by selling the scrips periodically.
40. What is relevant in this context is that the appellant has received dividend income of a mere Rs.1,29,158 from a turnover of Rs.29,55,40,930 and an investment of Rs. 2,24,13,531. The ratio of dividend to turnover shows that this income was not the aim and motive of the appellant in making this 'investment'. It follows that the appellant intended to earn profit from her investment by 'selling the scrips periodically', as the AR himself has put it.
41. The intention of the appellant can also be discerned from a comparison of the long term investments and gains on the one hand with the short term 'investments' and gains on the other. The appellant entered into sales in 3 scrips with 7 transactions with a sales figure of Rs.34,06,020/- to make a long term capital loss of Rs.11,52,164. The number of scrips, transactions and the turnover, all are much less as compared to the short term transactions. The intention of the appellant as revealed from, the ratio of long term to short term holdings and transactions shows a heavily distinct bias towards selling the shares in the short term rather than holding on to them as long term investments.
Turnover No. of No. of
transactions scrips
Short term 29,55,40,930 174 50
Long term 34,06,020 7 3
4.4. Having regard to the facts and figures as involved in the case of the assessee and keeping in view the various guidelines laid down by the Hon'ble A.P. High Court in the case of PVS Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra), the Ld. CIT(A) identified the factors which weighed in favour of the assessee and against the assessee as under :10
ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
"42. To sum up, the factors which weigh in favour of the appellant are as follows:
a) The shares were classified as investment in the books of account.
b) The transactions were actively delivery based and the assessee had not dealt in further derivatives and options.
c) The assessee had not used borrowed funds for the purpose of investment.
43. On the other hand, the factors which lead to be conclusion that the appellant had done trading in the shares are as follows :
a) The frequency of buying and selling of shares was high.
b) The period of holding was less in a large number of scrips.
c) The high turnover was on account of frequency of transactions and not because of huge investment.
d) The intention of the assessees in buying shares was not to derive income by way of dividend on such shares but to earn profits on the sale of the shares
e) The assessees had indulged in multiple transactions of large quantities with very high periodicity. These periodic transactions selecting the time of entry and exit in each scrip called for regular repeated transactions, coupled with the subsequent conduct of the assessees to re-enter the market, in order to take advantage of market fluctuations lent the favour of trade to such transactions.
f) Frequency of purchase and sale of shares showed that the assessees never intended to keep these shares as investment ; and
h) 99% of the transactions were short term and only 1 % were long term. Similarly, 90% of the gain was short term and only 10% was long term (taking the figures in absolute terms and ignoring the profit/loss nature.11
ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
4.5. After taking into consideration all the above factors involved in the case of the assessee for A.Y. 2007- 2008 in the light of decision of Hon'ble A.P. High Court in the case of PVS Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra), the Ld. CIT(A) held that the assessee was engaged in trading in shares and the profit arising therefrom was chargeable to tax in her hands as business income as rightly held by the Assessing Officer.
4.6. For A.Y. 2008-2009, a similar issue was involved in the case of the assessee namely Smt. Nanduri Sobharani and while deciding the same on similar line as for A.Y. 2007-08 in the light of relevant decisions of the Hon'ble A.P. High Court in the case of PVS Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra), the Ld. CIT(A) summarised the factors which weighed, in favour of the assessee and against the assessee vide paras 38 and 39 of the impugned order as under :
"38. To sum-up, the factors which weigh in favour of the appellant are as follows :
a) The shares were classified as investment in the books of account.
b) The appellant had not dealt in further derivatives and options.
c) The assessee had not used borrowed funds for the purpose of investment.
39. On the other hand, the factors which lead to be conclusion that the appellant had done trading in the shares are as follows :
a) The frequency of buying and selling of shares was high.12
ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
b) The period of holding was less in a large number of scrips.
c) The high turnover was on account of frequency of transactions and not because of huge investment.
d) The intention of the assessee in buying shares was not to derive income by way of dividend on such shares but to earn profits on the sale of the shares.
e) The assessee had indulged in multiple transactions of large quantities with very high periodicity. These periodic transactions selecting the time of entry and exit in each scrip called for regular repeated transactions, coupled with the subsequent conduct of the assessees to re-enter the market, in order to take advantage of market fluctuations lent the favour of trade to such transactions.
d) Frequency of purchase and sale of shares showed that the assessees never intended to keep these shares as investment; and
e) 99.7% of the transactions were short term and only 0.3% were long term. Similarly, 99% of the gain was short term and only 1% was long term (taking the figures in absolute terms and ignoring the profit/loss nature).
f) The appellant had entered into several intra- day transactions."
4.7. After taking into consideration all the above factors in the case of the assessee for A.Y. 2008-09 in the light of decisions of A.P. High Court in the case of PVS Raju and Spectra Shares & Scrips P. Ltd., (supra), the Ld. CIT(A) held that the assessee namely Sri Nanduri Tejaswy was also engaged in trading in shares and the profit arising therefrom was chargeable to tax in his hands as business income as rightly held by the Assessing Officer.
13ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
5. A similar issue arose also in the case of other assessee's namely Sri Nanduri Tejaswy and when the same was remitted back by the Tribunal to the file of Ld. CIT(A) with a similar direction as given in the case of Smt. Nanduri Sobharani, the Ld. CIT(A) re-examined the issue as per the directions of the Tribunal in the light of decision of Hon'ble A.P. High Court in the case of PVS. Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra). On such re-examination, he identified the factors which weighed in favour of the assessee and against the assessee in paras 4.2 and 4.3 of his impugned order passed in the case of Shri Nanduri Tejaswi as under :
"42. To sum up, the factors which weigh in favour of the appellant are as follows:
a. The above were classified as investment in the books of account.
b. The assessee had not used borrowed funds for the purpose of investment.
43. On the other hand, the factors which lead to be conclusion that the appellant had done trading in the shares are as follows :
a. The frequency of buying and selling of shares was high.
b. The period of holding was less in a large number of scrips.
c. The high turnover was on account of frequency of transactions and not because of huge investment. d. The intention of the assessees in buying shares was not to derive income by way of dividend on such shares but to earn profits on the sale of the shares e. The assessees had indulged in multiple transactions of large quantities with very high periodicity. These periodic transactions selecting the time of entry and exit in each scrip called for 14 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
regular Repeated transactions, coupled with the subsequent conduct of the assessees to re-enter the market, in order to take advantage of market fluctuations lent the favour of trade to such transactions.
f. Frequency of purchase and sale of shares showed that the assessees never intended to keep these shares as investment; and 99% of the transactions were short term and only 1% were long term. Similarly, 90% of the gain was short term and only 10% was long term (taking the figures in absolute terms and ignoring the profit/loss nature). g. The appellant had engaged in trading in commodities, futures and derivatives. h. The appellant had re-entered the market to take advantage of market fluctuations.
5.1. After taking into consideration all the above factors of the case of the assessee in the light of decisions of A.P. High Court in the case of PVS Raju (supra) and Spectra Shares & Scrips P. Ltd. (supra), the Ld. CIT(A) held that the assessee namely Sri Nanduri Tejaswy was also engaged in trading in shares and the profit arising therefrom was chargeable to tax in his hands as business income as rightly held by the Assessing Officer.
5.2. In the case of Smt. Nanduri Sobharani, a similar issue again arose in A.Y. 2010-2011 when the A.O. treated the assessee as trader in shares and brought to tax profit arising from share transactions amounting to Rs.5,95,78,652 as business income of the assessee as against short term capital gain claimed by the assessee.
When the matter reached to the Ld. CIT(A), he decided the same in favour of the assessee accepting the claim of the assessee that the profit arising from share transactions was chargeable to tax as short term capital gain. While doing so, the Ld. CIT(A) did not take into account the 15 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
decision of his predecessor in assessee's own case for A.Ys. 2007-08 and 2008-09 wherein a similar issue was decided against the assessee. For the conclusion drawn in favour of the assessee in A.Y. 2010-2011, the Ld. CIT(A) took note of the following factors which, according to him, were in favour of the assessee and sufficiently demonstrated that the assessee was an investor in shares and not the trader.
a. The assessee had not borrowed any funds and made investments with her own funds.
b. Closing stock is valued at cost, not at 'cost or market value whichever is lower'.
c. Regarding the frequency of purchase and sale of shares, the assessee had only one purchase during the entire year relating to short term capital gains and the sales were made in only 24 days during the entire period, based on the facts it is evident that when there is only one purchase transaction during the period, we cannot finalise that the frequency of purchase and sale of shares is high.
d. The intention of the appellant is very clear from the fact that the sales were disclosed as investments in the books of account which were audited by Chartered Accountant u/s 44AB of the I.T.Act, 1961 and also based on the fact that the shares were held on an average for 275 days in respect of short term capital gains.
e. The assessee made the sales only in 24 days during the entire period relating to the short term shares. f. The assessee earned dividend income. g. The transactions were all delivery based. h. The shares were classified as investments in the books of accounts.
i. The period of holding in the case of short term capital gains was 275 days on average j. The assessee entered into only one purchase transaction throughout the year.
k. The appellant had never entered into intra-day transactions.
16ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
6. The issue relating to the determination of head of income under which profit arising from the share transactions is to be taxed in the hands of the assessee thus was decided by the Ld. CIT(A) against the assessee in the case of Smt. Nanduri Sobharani for A.Ys. 2007-08 and 2008-09 as well as in the case of Sri Nanduri Tejaswy for A.Y. 2007-08. Aggrieved by the same, both the assessees have preferred the present appeals before the Tribunal. In A.Y. 2010-2011, a similar issue however was decided by the Ld. CIT(A) in favour of the assessee in the case of Smt. Nanduri Sobha Rani. Aggrieved by the same, the Revenue has filed the present appeal before the Tribunal.
7. At the time of hearing before us, Ld. Counsel for the assessee raised various contentions in support of assessee's case that the profit arising from the share transactions is chargeable to tax in their hands as short term capital gain and not business income. In this regard, he referred to the relevant case laws as well as the provisions of the Act and put-forth the following propositions :
1. "In Gopal Purohit the Bombay High Court held that the Jobbing transactions not delivery based are the transactions in shares constituting business. In that context the proposition that the assessee can have investment portfolio and also a trading portfolio was laid down.
2. In PVS Raju the assessee's in the past holding shares as stock in trade and the same is an admitted position and they started treating the same as investment to enable to apply the lower rate of tax under Section 111A after the amendment. Earlier it is an admitted position that the assessee's wanted to compute business income taking the benefit of all 17 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
expenses under Section 28 to 44AD including depreciation if any, and also circumvent the restriction on the benefit of set off and carry forward of short term capital loss. Now the assessee's cannot take U turn and say a different story.
3. The issue of frequency, volume, magnitude or the valuation at cost or net realizable value or at cost and treatment in the books is relevant if it is first time the assessee dealing in shares if so, the intention, treatment given in the books and valuation is relevant to be considered. Where as if assessee has already deal in shares and securities whether they are capital assets are stock in trade in to be manifested by the facts in the books, conversion or treatment by him as stock in trade as contemplated in the definition of 'transfer' in definition of Section 2(47) and the mode of computation as specified in Section 45(2). Given the behaviour in the past accepted by the revenue no adverse inference can be drawn when all other things remains constant and the volume, frequency and magnitude is in the process of mitigation of the "investment risk" falling on the investments. As the assessee continuously demonstrating its intention and treatment as investor in such a case the principle of res judicata applies.
4. The propositions laid down in Spectra Shares & Scrips applies in the instant case.
5. Kind attention is drawn to the provisions of Income Tax Act, 1961 in treating shares as "capital assets", Short-term Capital Assets and Long-term Capital Assets and treatment or restrictions imposed on set off and carry forward of losses in respect of the same. Also, the provisions of Explanation to Section 73A treats that in the case of a company other than a company whose total income mainly consisting of interest on securities, income from house property, capital gains and income from other sources (these words are substituted for "investment company") that part of the business of the company consisting purchase and sale of shares is a speculation business. Thus, in case of a company other than specified company the loss arising from purchase and 18 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
sale of shares is a speculation loss and shall be allowed to set off against the profits arising from the speculation business.
6. The individual who can claim and demonstrate that he is not an investor but a trader in shares can only get the benefit of deduction under Section Part IV of Chapter III including depreciation while computing income under the head "profits and gains of business or profession" and also can get the loss labelled as business loss to overcome the restrictions applicable to set off and carry forward of short term capital losses arising out of transfer of shares and securities in a period less than 12 months the rate to tax being same in case of business income and short term capital gains i.e., 30%.
7. Provisions of section 111A was amended to provide a lower rate of tax for the short term capital gains only and not business profits that to only the transactions on which SIT (Securities Transaction Tax) is paid. In the instant case the assessee consistently even prior to amendments to Section 111A was demonstrating that he was an investor and never changed the same only for the purpose of taking the benefit of lower rate of tax assessee claimed in the impugned years as investor unlike in the past that he is trader. In fact it is revenue whimsically attributing contrasts to the real and apparent position of the assessee as an investor and colouring him as a trader which is not correct.
8. If the assessee is holding a position established as investor or trader the same cannot be altered by the revenue, but if the assessee alters his position the revenue can apply various tests as pronounced to place the assessee in real position. In such case of alteration, assessee who is holding capital assets can alter his position by converting the capital asset into stock in trade or by treatment of capital asset into stock in trade in such case it is the duty of the revenue to tax him as prescribed in provisions of Section 45(2) i.e., taxing him in the year in which the stock in trade was sold or otherwise transferred by him the income is chargeable to tax taking the fair market value as on the date of conversion or 19 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
treatment as stock in trade as the full value of consideration received or accruing as a result of transfer of the capital asset.
9. In view of the wide spread diversity in the facts of the cases decided and relied upon transposing one proposition on the other it is submitted that one should remember the Supreme Court's observations:
Sushil Suri Vs. CBI & Anr (2011) 8 SCR 1 - the Supreme Court repeatedly held that while applying a ratio, the court may not pick out a word or sentence from the judgment divorced from the context in which the said question arose for consideration. Even one additional or different fact may make a world of difference between the conclusions in two cases and blindly placing reliance on a decision is never proper. The Supreme Court quoted the words of Lord Denning in Haryana Financial Corporation Vs. Jagadamba Oil Mills & Anr (2002) 3 SCC 496 " each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid temptation to decide cases (as said by Cardozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of a line a case falls, the broad resemblance to another case is not all decisive." See also CIT Vs. Sun Engineering (P) l.td., 198 ITR 297 (SC).
10. In the instant case also it is to be seen that the test laid down in Gopal Purohit is applicable to the extent of treating the share transaction of the nature of jobbing transactions not involving delivery, the PVS Raju is applicable in cases where the assessee previously claimed as trader in shares, and other cases has their own peculiar facts and circumstances. In the Schedular System of Taxation what statute says and how statute taxes is the sole criteria as long as the words of the statute admits no ambiguity judges or judicial authorities should refrain from developing a parallel law by adding words and sentences to the law that admits no ambiguity and also mixing up the propositions rendered in different facts and circumstances in divorced facts and also matching the colour of the cases by reverse 20 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
engineering the facts is not permissible."
7.1. The Ld. Counsel for the assessee further contended that the issue relating to the head of income under which profit from share transactions is chargeable to tax is required to be decided considering the facts and circumstances involved in each case and an overall view is required to be taken considering the relevant facts in totality in the light of criterias laid down in various judicial pronouncements including the decision of Hon'ble A.P. High Court in the case of PVS. Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra). In this regard, he highlighted the relevant facts involved in the case of the assessee as under :
a) Assessee is not carrying on any business in shares and securities or not set up any such business in the impugned previous years. There is no conversion of shares in to stock in trade or such treatment given by the assessee. Consistently assessee maintaining a portfolio on investment account and the transactions are also on the same account.
b) The treatment by the assessee is in consistent with earlier years and there is no change either in the intention or treatment given in the books.
c) Always valued investment at cost and not cost or net realizable value whichever is less as applicable to stock in trade.
d) The period of holding 12 months is a restriction to treat the capital asset being shares and securities as long term capital asset covers an open ended period of one day also.
e) Changes in investment portfolio to prevent capital depreciation and taking occasional appreciation cannot change the asset into stock in trade, absence a business, conversion or treatment as such.21
ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
f) Where the assessee is in the business of Shares and Securities, even the valuation of stock in trade of shares and securities held for more than 12 months has also to be valued at cost or net realizable value whichever is less. Absence the application of said valuation principle where the investments are consistently valued at cost there is no room for revenue to push the assessee as assessee trading in shares.
g) More the investment risk in the market created by volatility in the market that arises out of the systematic or unsystematic factors even the investor is also required to manipulate his portfolio by alterations through buying for taking profit and selling for profit taking or stopping the loss may happen in high frequency in more volatile market like BSE, then that frequency with which investments are altered regularly in the portfolio and resultant gain taken on realizing the appreciation in the capital cost of the asset shall not be treated as business profit, absence business or intention of the assessee to carry on business and demonstrated as such.
h) Shares and securities if acquired for the purpose earning dividend constitutes "investment" is a wrong notion. Any asset is acquired for earning income and appreciation of its value. Like that Shares and securities are acquired to get return by way of dividend or securities for earning fixed income or variable income. The moment they fail to earn such income there is a threat to capital appreciation and investor may face depreciation in the value of investments. Substitution by alteration of shares and securities or transferring them to another more risk bearing investor in the market is common attributes of dealings in shares by the investors.
i) In the instant case all the fundamental factors such as capital assets, with own funds, demonstrating them as investments year after year consistently in the books of accounts of the assessee, consistently valuing the portfolio at cost only not resorting valuation principle of cost or market value whichever is less the principle applicable to the valuation of 22 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
trading assets and not charging the decrease/ increase in the value of stock in the profit and loss account and the purchase and sale or the frequency of purchase and sale of shares and securities as capital assets cannot determine or draw an imputation that assessee is doing business in shares and securities. When all other things remains constant the test of frequency, volume or magnitude is a redundant factor between trader and investor while dealing with shares and securities except the intention, treatment given in the books and valuation principle applied are the deciding factors.
j) All the decisions rendered so far are to be considered in their peculiar facts and to be harmonized and not to be reverse engineered.
7.2. Keeping in view of the above facts involved in the case of the assessee, Ld. Counsel for the assessee contended that the factors are heavily in favour of the assessees clearly demonstrating that they are investors in shares and not the traders. He contended that if all these facts are taken into consideration in the light of criteria laid down in the relevant judicial pronouncements, it becomes clear that the transactions in shares were entered into by both the assessees as investors and the profit arising from such transactions was chargeable to tax in their hands as short term capital gain and not business income.
8. Learned D.R. on the other hand strongly relied on the impugned orders of the Ld. CIT(A) for A.Ys. 2007- 08 and 2008-09 in support of the Revenue's case on this issue and submitted that the findings/observations recorded by the Ld. CIT(A) in his impugned order are sufficient to show that both the assessees were indulging into the share transactions as traders and not as 23 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
investors. He submitted that the well considered and well reasoned decision rendered by the Ld. CIT(A) in assessee's case for A.Ys. 2007-08 and 2008-09 however, has not been taken into consideration by his successor while deciding a similar issue in favour of the assessee in A.Y. 2010-2011. Learned D.R. vehemently challenged the order of the Ld. CIT(A) for A.Y. 2010-2011 by raising the following arguments :
"1. The first principle that emerges from a perusal of the CBDT Instruction No.1827 dated 31.8.1989 and Circular No.4 of 2007 dated 15.6.2007 as well as the various judicial decisions on the issue that there can be no hard and fast rule for arriving at a conclusion in a situation of this kind and that each case turns on its own facts. In the case of CIT v Sutlej Cotton Mills Agency Ltd. 100 ITR 706 (SC), the Court held "The principles underlying the distinction between a capital sale and an adventure in the nature of trade were examined by this court in G. Venkataswami Naidu & Co. vs. Commissioner: of Income- tax, where this court said that the character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case. Ultimately, it is a matter of first impression with the court whether a particular transaction is in the nature of trade or not. It has been said that a single plunge may be enough provided it is shown to the satisfaction of the court that the plunge is made in the waters of the trade; but mere purchase/ sale of shares - if that is all that is involved in the plunge - may fall short of anything in the nature of trade. Whether it is in the nature of trade will depend on the facts and circumstances."24
ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
2. Although in the case of Spectra Shares & Scrips Pvt. Ltd v CIT (ITTA No. 512 of 2011 & ITTA No. 177 of 2012 (AP) dtd.21.2.2013), relied upon by the assessee, the High Court held that the transactions of purchase and sales of shares had resulted in capital gains and not business income, but the high turnover and frequency of transactions was not a relevant factor in the said case.
3. In the case of CIT v Gopal Purohit [2011] 336 ITR 287 (Bom), relied upon by the assessee, both of the ITAT and the High Court recognize the basic proposition that entries in the books alone are not conclusive in determining the nature of income. Following this view, it can be held that the fact that the assessee has treated the transactions as an 'investment' in her books is indicative of its nature but not conclusive.
4. In the case of PVS Raju v AddL CIT [2012J 340 ITR 75 (AP), the High Court observed that the factors which weighed with the lower authorities in coming to the conclusion that the shares in question constituted "stock-in-trade" and not "investment" were as follows :
a) The frequency of buying and selling of shares by the assessees were high;
b) The period of holding was less;
c) The high turnover was on account of frequency of transactions and not because of huge investment;
d) The assessee had dealt in delivery trading purely with the intention of making quick profits on a huge turnover;
e) The period of holding of a majority of the stock was between one to seven days;25
ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
f) In most of the transactions, the assessees did not even hold on to at least some part of the huge purchases and had engaged in the same scrips frequently;
g) The intention of the assessees in buying shares was not to derive income by way of dividend on such shares but to earn profits on the sale of the shares;
h) The assessees indulged in multiple transactions of large quantities with very high periodicity. These periodic transactions selecting the time of entry and exit in each scrip called for regular direction and management which would indicate that it was in the nature of trade;
i) Repeated transactions, coupled with the subsequent conduct of the assessees to re-enter the market, in order to take advantage of market fluctuations lent the flavour of trade to such transactions;
j) The assessees were purchasing and selling the same scrips repeatedly and were switching from one scrip to another;
k) The dominant impression left on the mind was that the assessees had not invested in shares;
l) Mere classification of these share
transactions as investment in the
assessee's books of account was not
conclusive;
m) The intention of the assessees at the time of purchase was only to sell the shares immediately after purchase;
n) Frequency of purchase and sale of shares showed that the assessees never intended to keep these shares as investment; and 26 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
o) It is only for the purpose of claiming benefit of lower rate of tax under section 111A of the Act that they had claimed certain shares to be investment though these transactions were only in the nature of trade.
In the case of the assessee, most of the above factors are present as observed by the Assessing Officer in his order.
5. In the case of PVS Raju vs. Addl. CIT (2012), the High Court also noted "It is evident from the order of the Income-tax Appellate Tribunal that the voluminous share transactions were in the ordinary line of the appellants' business; purchase of shares by them was not for the purpose of earning dividend but with the dominant intention of resale in order to earn profits; the profit made by them is not of mere enhancement of value of the shares, but is a profit made in the carrying on of a business scheme of profit making; huge volume of share transactions, the repetition and continuity of the transactions, give them a flavour of "trade"; the magnitude, frequency and the ratio of sales to purchases on the total holdings is evidence that the appellant had not purchased the shares as an investment, but with the intention to trade in such scrips."
6. In the case of ACIT vs. Manoj Kumar Samdaria 54 SOT 331 (Del), the ITAT held that most important test is the intention of the assessee. In this case, shares of Rs. 4.9 cr were purchased and of Rs. 4.10 cr sold whereas the opening investment was Rs. 1 cr. A meagre amount of dividend had been earned. The ITAT held that magnitude, frequency and ratio of sales and purchase showed intention to trade.
27ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
7. In the case of CIT vs. Associated Industrial Development Co. (P.) Ltd. 82 ITR 586 (SC), it was held "the multiplicity of the transactions occurring successively over the years supported the departmental stand that the assessee had ceased to be an investor and had become a dealer."
8. In the case of CIT vs. Sutlej Cotton Mills Agency Ltd. 100 ITR 706 (SC), the Court also held "It is not necessary to constitute trade that there should be series of transactions, both of purchase and of sale. A single transaction of purchase and sale outside the assessee's line of business may constitute an adventure in the nature of trade. Neither repetition nor continuity of similar transactions is necessary to constitute a transaction an adventure in the nature of trade. If there is repetition and continuity, the assessee would be carrying on a business and the question whether the activity is an adventure in the nature of trade can hardly arise.".
9. In the case of Harsha Mehta (ITA 859/Mum/ 2009 dtd.16.7.2010), there were 70 transactions, in 35 scrips, with a turnover of Rs.3 crores. The profit from the sales was held to be business income.
10. In the case of the assessee, the dividend income was of a mere Rs.10,62,160 from a turnover of Rs.139 crores and an investment of Rs.20,45,90,334. The ratio of dividend to turnover shows that this income was not the aim and motive of the appellant in making this 'investment'. It follows that the appellant intended to earn profit from her investment by 'selling the scrips periodically', as the AR, of the assessee himself has put it."
28ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
8.1. In the light of the above submissions, learned D.R. contended that the relief given by the Ld. CIT(A) to the assessee in A.Y. 2010-2011 accepting the treatment given to the profit arising from share transactions as short term capital gain thus is not well founded and the same is liable to be set aside.
9. We have considered the rival submissions and perused the relevant material on record. The common issue involved in these four appeals is whether the profit earned by the two assessees in the relevant years under consideration is chargeable to tax in their hands as business income as held by the A.O. or as short term capital gain as claimed by the assessees. In this context, Ld. Counsel for the assessee in the first place has pressed into service the rule of consistency and contended relying on the decision of Hon'ble Supreme Court in the case of Gopal Purohit (supra) that the assessee having treated as investor in shares in the earlier years and the profit on sale of shares having been accepted as capital gain in their hands in the earlier years, there was no reason for the authorities below to take a different stand in the years under consideration. In order to consider this contention of the Ld. Counsel for the assessee, he was required by us to clarify as to whether any of the assessments for the earlier years in the cases of the assessees was completed on scrutiny under section 143(3) and if so, he was required to file the copies of such orders. In this regard, he has filed a copy of one order dated 28.12.2007 passed under section 143(3) in the case of Smt. Nanduri Sobha Rani for A.Y. 2005-2006. A perusal of the same, however, 29 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
shows that there is no discussion whatsoever in the said order about the treatment given by the assessee to the profit arising from the transactions in shares or the acceptance of the same by the A.O. after examination of the issue. In the computation of total income given at page-5 of the said order, the total income of the assessee was determined by the A.O. at Rs.1,16,96,373 after making additions to the income of Rs.63,67,290 returned by the assessee which inter alia, included the main addition of Rs.50 lakhs made on account of key man insurance. It is not even clear from the assessment order as to whether the income returned by the assessee was inclusive of any profit arising from the share transactions and what exactly was the treatment given by the assessee to such profit. The working of tax payable given by the A.O. further reveals that the income as determined by the A.O. did not include any short term capital gain which incidentally was chargeable at low rate of tax. The solitary order passed in the case of Smt. N. Sobha Rani for assessment year 2005-06 thus does not show that the profit from share transactions, if any, was declared by the assessee as short term capital gain and if so, the same was accepted by the A.O. after due examination.
10. In so far as the case of Smt. Nanduri Tejaswy is concerned, the Ld. Counsel for the assessee has filed a copy of order dated 28.11.2008 passed by A.O. under section 143(3) for assessment year 2006-07 and although the computation of total income given on page No.3 of the said order shows that short term capital gain of Rs.54,76,642 as declared by the assessee was accepted by 30 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
the Assessing Officer, there is no discussion whatsoever in the order to show under what circumstances and on what basis the same was accepted. There is nothing in the order of the A.O. to show that all the relevant aspects of the issue were examined by him and on such examination, the claim of the assessee for short term capital gain was accepted. The Ld. Counsel for the assessee also has not filed the relevant details to show that the facts involved in the case of Smt. Nanduri Tejaswy in assessment year 2006-07 are materially similar to the facts involved in the year under consideration. Having regard to all these facts of the case, we are of the view that it cannot be said that the treatment given by the assessee to the profit on sale of shares as capital gain was accepted by the department in the earlier years in similar facts and circumstances on merit and the issue involved in the years under consideration, therefore, cannot be decided by pressing into service the rule of consistency as sought to be contended by the Ld. Counsel for the assessee relying on the decision of Hon'ble Supreme Court in the case of Gopal Purohit (supra). Moreover, as held by the Hon'ble Supreme Court in the case of New Jehangir Vakil Mills Co. Ltd., vs. CIT (1963) 49 ITR 137 (SC) the circumstances that in the earlier assessment year assessee was treated as an investor could not stop the assessing authority from considering for the purpose of computation of profits for the succeeding year as to when the trading activities of the assessee began.
31ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
10. It is now well settled that the issue as to whether profit on sale of shares constitutes business income of the assessee or capital gains depends on whether the said shares were purchased by the assessee as investment or stock in trade. In order to ascertain as to whether the shares are purchased by the assessee as investment or stock in trade, the most relevant aspect which is to be seen is the intention of the assessee behind purchase of shares and such intention has to be gathered from the relevant facts of the case including the conduct of the assessee. In this regard, certain guidelines have been laid down in the various judicial pronouncements including the decision rendered by the Hon'ble A.P. High Court in the cases of Mr. PVS Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra). In his impugned orders passed in the case of Smt. Nanduri Sobharani for assessment years 2007-2008 and 2008-2009 and in the case of Nanduri Tejaswy for assessment year 2007-2008, the Ld. CIT(A) has considered such guidelines laid down by the Hon'ble A.P. High Court and identified the factors in favour of the assessee and against the assessee relating to the issue under consideration. After giving due weightage to all these factors in the light of decision of Hon'ble A.P. High Court in the cases of Mr. PVS Raju (supra) and Spectra Shares & Scrips P. Ltd. (supra), he arrived at the conclusion that both the assessees in the relevant years were engaged in trading in shares and profit arising therefrom was chargeable to tax in their hands as business income as rightly held by the Assessing Officer.
32ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
11. After having considered all the factors identified and highlighted by the Ld. CIT(A) in his impugned order for assessment years 2007-08 and 2008- 09 in the light of guidelines laid down by the Hon'ble A.P. High Court in the cases of Mr. PVS Raju (supra) and Spectra Shares & Scrips P. Ltd. (supra), we find ourselves in agreement with the Ld. CIT(A) that the transactions in shares were carried on by the assessees as traders in shares and not as investors and profit arising from the said transactions, therefore, was chargeable to tax in their hands as the business income and not capital gains. For instance, the assessee Smt. Nanduri Sobharani entered into 174 transactions in as many as 50 scrips in assessment year 2007-08 and 282 transactions in as many as 81 scrips in assessment year 2008-09. The other assessee namely Smt. Nanduri Tejaswy also transacted in as many as 128 scrips in assessment year 2007-08. The frequency of buying and selling of shares in the case of both these assessees was also very high and even the period of holding was less in a large number of scrips. Both the assessees were found to have purchased, sold and again re-purchased the same scrips showing repetitive transactions of the same scrips, a common feature generally attributable to the trader. The dividend income earned by the assessee on shares was very low as compared to the investment made which again goes to show that the intention of the assessees was never to hold the shares as long term investment in order to earn dividend income. Even the turnover of share transactions during the year under consideration was manifold of the value of shares held by the assessee which by itself is 33 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
sufficient to show that the assessees were regularly trading in shares and it was not the case of investors. There were hardly any transactions entered into by the assessee giving rise to long term capital gain or loss which again proves that the shares were not held by the assessee as long term investment but the same were sold invariably after short period to book or realise the profit. If all these material facts as involved in the cases of the assessees for assessment years 2007-08 and 2008-09 are considered in the light of guidelines laid down by the Hon'ble A.P. High Court in the cases of Mr. PVS Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra), we find ourselves in agreement with the Ld. CIT(A) that the transactions in shares were entered into by the assessees as traders in the relevant years and not as an investors and the profit arising from these transactions was chargeable to tax as business income in the hands of the assessees and not capital gains. We, therefore, uphold the impugned orders of the Ld. CIT(A) confirming the action of the A.O. in treating the profits from the sale of shares as business income in the case of Smt. Nanduri Sobharani for assessment yeas 2007-08, 2008-09 and in the case of Smt. Nanduri Tejaswy for assessment year 2007-08. The corresponding appeals of the assessee are accordingly dismissed.
12. As regards the case of Smt. Nanduri Sobharani for assessment year 2010-2011, it is observed that the Ld. CIT(A) has decided a similar issue in favour of the assessee without taking into consideration the decision rendered by his learned predecessor in assessee's own 34 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
case for assessment years 2007-08 and 2008-09. The impugned order passed by him also shows that he has not examined the relevant facts of the case in the light of guide lines laid down by the Hon'ble A.P. High Court in the case of Mr. PVS Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra). He has not identified the relevant factors in favour of the assessee and against the assessee and weighed the same in the light of Hon'ble A.P. High Court in the case of Mr. PVS Raju (supra) and Spectra Shares & Scrips P. Ltd. (supra) as done by his predecessor in assessee's own case for assessment years 2007-08 and 2008-09. The impugned order passed by the Ld. CIT(A) in the case of Smt. Nanduri Sobharani for assessment year 2010-2011 also cannot be considered as well discussed and well reasoned on the issue. He appears to have considered only the facts which are in favour of the assessee on selective basis and as pointed out by the learned D.R. from the relevant details, available on page No. 51 of assessee's paper book, the finding recorded by the Ld. CIT(A) in this regard that the assessee had only one purchase during the entire year relating to short term capital gain was factually incorrect. Keeping in view all these facts and circumstances of the case, we consider it fair and proper and in the interest of justice to set aside the impugned order of the Ld. CIT(A) passed in the case of Smt. Nanduri Sobharani for assessment year 2010-2011 and remit the matter back to him for deciding the same afresh after analysing the fact situation involved in that year in the light of the guidelines laid down by the jurisdictional High Court in the case of Mr. P.V.S. Raju (supra) and Spectra Shares & Scrips P. Ltd., (supra) as 35 ITA.No.1110 & 1111/Hyd/2013, 1112/Hyd/2013 & 1240/Hyd/2013 Smt. Nanduri Shobha Rani & Shri Nanduri Tejaswy, Hyderabad.
done by his learned predecessor in assessee's own case for assessment years 2007-08 and 2008-09.
12. In the result, appeals filed in the case of Smt. Nanduri Sobha Rani for assessment years 2007-2008 and 2008-09 and in the case of Smt. Nanduri Tejaswy for assessment year 2007-08 are dismissed while appeal filed by the Revenue in the case of Smt. Nanduri Sobharani for assessment year 2010-2011 is treated as allowed for statistical purposes.
Order pronounced in the open Court on 20.03.2015.
Sd/- Sd/-
(SAKTIJIT DEY) (P.M. JAGTAP)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 20th March, 2015
VBP/-
Copy to
1. The Deputy Commissioner of Income Tax, Circle 6(1), 7th Floor, 'D' Block, I.T. Towers, Masab Tank, Hyderabad.
2. Asst. Commissioner of Income Tax, Circle 6(1), Hyderabad.
3. Smt. Sobha Rani Nanduri, Flat No. 104, Nirmal Towers, Dwarakapuri Colony, Punjagutta, Hyderabad-500 082.
4. Sri Nanduri Tejaswy, Hyderabad. C/o. Mr. Samuel Nagadesi, Chartered Accountant, 408, Sri Ramakrishna Towers, Besides Image Hospitals, Ameerpet, Hyderabad-073.
5. CIT(A)-IV, Hyderabad
6. CIT-III, Hyderabad.
7. D.R. I.T.A.T. "B" Bench, Hyderabad.
8. Guard file