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Income Tax Officer, Ward-37(1), Room No.409, Vikas Bhavan, New Delhi. Vs Ashok Kumar, 99, Ambica Vihar, I.P.Estate, Paschim Vihar, New Delhi-110087
March, 03rd 2015
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

               IN THE INCOME TAX APPELLATE TRIBUNAL
                    DELHI BENCHES `A' NEW DELHI

       BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
                          AND
       SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER

                       ITA NO.1046/DEL/2012
                       ASSTT.YEAR: 2007-08

                       ITA NO.1314/DEL/2012
                       ASSTT.YEAR: 2008-09

Income Tax Officer,             vs   Ashok Kumar,
Ward-37(1), Room No.409,             99, Ambica Vihar,
Vikas Bhavan, I.P.Estate,            Paschim Vihar,
New Delhi.                           New Delhi-110087
                                    (PAN: AAJPK2672B)
(Appellant)                         (Respondent)
            Appellant by: Shri Vikram Sahai DR
        Respondent by: S/Shri Rohit Jain, Adv. , Sahil Mehta
            Date of hearing:28.1.2015 Date of pronouncement:2.3.2015
                        O R D E R

PER CHANDRAMOHAN GARG, J.M.

       The above captioned appeals have been filed by the revenue against

the order of the CIT(A)-XXVIII, New Delhi dated 15.12.2011 in Appeal No.

94/2009-10 and Appeal No.203/2010-11 for AY 2008-09.


2.     The revenue has raised solitary similar ground in both the appeals

which reads as under:-



                                      1
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

              "1. Whether the CIT(A) was justified in rejecting the
         AO's contention of treating the trading in shares as business
         income instead of capital gains despite the nature of
         transactions made by the assessee and the frequency and the
         volume of transactions."
3.     We have heard arguments of both the sides and carefully perused the

relevant material placed on record before us. Apropos aforesaid ground of

the revenue, ld/ DR submitted that the CIT(A) was not justified in rejecting

the action of the AO treating the income from trading in shares as business

income instead of capital gains as claimed by the assessee.              Ld. DR

vehemently contended that the CIT(A) ignored the nature of transactions

made by the assessee and the frequency and the volume of the transactions

effected by the assssee during the financial year under consideration.

Supporting the assessment order, ld. DR submitted that the AO rightly

observed that while determining the amount under the head of investment

and trading and consequently income from these sources are to be filed

under the head of capital gains and business income respectively, but one

has to look into the facts and circumstances of the case. Ld. DR pointed out

that as per Board Circular No. 4/2010 dated 16.05.2007 of the CBDT on

this issue is amply clear which expresses the distinction between shares

held as stock-in-trade and shares held as investment and also makes

distinction between capital asset and trading asset.          Ld. DR further

submitted that capital assets are defined in section 2(14) of the Income Tax


                                        2
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

Act, 1961, long term capital asset and gains are dealt u/s 2(29A) and

section 2(29B) of the Act and short term capital asset and gains are dealt

with u/s 2(42A) and 2(42B) of the Act and trading balance has been

defined u/s 28 of the Act. Ld. DR has further drawn our attention towards

CBDT Instruction No. 1827 dated 31.8.1989 and submitted that through

this instruction to the AO, a distinction between shares held as investment

(capital asset) and shares held as stock-in-trade (trading asset) has been

carved out and in the light of a number of judicial decisions pronounced on

the issue, it was proposed to update the above instruction for the

information of the assessee as well as for the guidance of the AO.


4.     Placing reliance on the decision of Hon'ble Supreme Court in the

case of CIT vs Associated Industrial Development Company (P) Ltd.

[1971] 82 ITR 586 (SC), ld. DR vehemently contended that where a

particular holding of shares is by way of investment or forms part of stock-

in-trade is a matter which is in the knowledge of the assessee who hold

shares and it should, in normal circumstances, be in a position to produce

evidence from its record as to whether it has maintained any distinction

between those shares which are its stock-in-trade and those which are held

by way of investment. Ld. DR finally submitted that the AO went in detail

to decide the issue of stock-in-trade and investment following all the

principles as per CBDT Circular and various judicial pronouncements. Ld.




                                      3
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

DR has further drawn our attention towards assessment order and

submitted that the AO went in detail to consider all relevant points with

regard to purchase/sales of shares and the treatment given by the assessee

in his books of accounts, magnitude of purchase and sales and frequency of

transaction and ratio of sales to purchases as shown on account of

investment, period of holding of shares and dividend actually earned on the

shares before selling the same. Ld. DR disputing the impugned order

submitted that the CIT(A) was not justified in concluding that merely

selling shares at profit or buying shares with profit motive would not

amount to business activity. Ld. DR vehemently contended that looking

into the frequency of transaction and period of holding, the main object of

the assessee was to earn profit from sale and purchase of shares which is

clearly business activity and income therefrom cannot be held as capital

gain. Ld. DR finally submitted that the impugned order may be set aside by

restoring that of the AO in both the assessment years.


5.     Replying to the above, ld. counsel of the assessee submitted that

following facts would amply demonstrate that the shares held by the

assessee were in the nature of investment and not stock-in-trade, therefore,

income arising on transfer of shares/sale of shares were rightly offered for

taxation by the assessee under the head of capital gains.        During the

argument,        ld.    Counsel   of   the   assessee    submitted   written

                                        4
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

synopsis/submissions to support the stand of the assessee which reads as

under:-


                "Assessee is a Chartered Accountant by profession and
         is partner in M/s. Sunil Gupta and Co, Chartered Accountants
         ;
         - Shares were held and classified as "investments" and not as
         "stock in trade" in the books of account [refer balance sheet
         for the year ended 31.03.2005, 31.03.2006, 31.03.2007 &
         l31.03.2008 - pages 13-15 of the paper book);
         - Shares held as investments are consistently valued at costand
         not at cost or market price, whichever is lower;
         -. Assessee had no infrastructure/ staff/employee to undertake
         business activity of trading in shares. Investment transactions
         were undertaken by giving instructions on phone to the broker;
         - Entire investment was made out of own funds and not out of
         borrowed funds [refer balance sheet at page 13 of paper
         book];
         - Short-term capital gain of RS.1.43 crores was earned from
         39 scrips only [refer pages 3-6 of paper book];
         - Transactions declared as "capital gains" were delivery
         based, i.e., where delivery was taken after making full payment
         for such investment;
         - Out of the total capital gain of Rs.l,43,75,949/-, 85.30% gain
         was out of four scrips
         (a) Gremach of amount 40,31,914/- and (b) Aluwalia co. of
         amount 61,90,598/- (c) IB realty of amount Rs.I0,15,2711- (d)
         Greaves cro.Rs.10,24,3811- (Refer pgs 3-5 of the PB)
         - Major part of the capital gain was earned in respect of
         shares held for more than 30 days as is evident from the
         following chart (refer pg. 3-12 of the PB):




                                         5
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

Capital Gain                   % of total gain      Period of holding
1,306,190                      16.18%               10 days or less
  789,354                      9.,78%               11 days to 30 days
5,978,334                      74.05%               More than 30 days
8,073,878
     -    Out of 365 days in an year, share transactions were
          undertaken in 99 days only (refer pg
          10-15 0f PB);
     -  Similar classification of shares as 'investment' and capital
       gains accepted by the Department in the preceding assessment
       years 2004-05, 2005-06 and 2006-07 under section 143(1) of
       the Income Tax Act, 1961 ("the Act");
     - Out of total gain of RS.1.43 crores, capital gain on shares
       held in the preceding year amounted to Rs.33,46,480/- (refer
       pg 9 of PB);
     - Classification of shares and gains also accepted by the
       assessing officer in the succeeding assessment year 2009-10
       vide order dated 25.11.2011 passed under section 143(3) of
       the Act [refer pages 37-39 of the paper book)."



6.       Ld.   counsel lastly submitted that aforementioned facts clearly

establish beyond any doubt that the investment made by the assessee in

shares/securities were part of the investment on capital account and the

same was not stock-in-trade and, therefore, the AO was not justified in

holding that the income arising from transfer of such shares was business

income and the CIT(A) was right in concluding that the income arose from

transfer of shares which was kept as investment was clearly in the nature

of capital gains as declared by the assessee.




                                           6
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

7.     On careful consideration of above submissions, we note that the

CIT(A) granted relief for the assessee with following conclusion:-


         "47. I have also seen the chart filed by the Appellant to
       show that total purchase and sale carried out by the
       Appellant in the whole year comes to only 66 days. Total
       transactions done by him in 66 days comes to 101 averaging
       less than 2 transactions per day with reference to 66 days on
       which transactions were done and only 0.27 transactions per
       day with reference to the whole year. Purchase and sale of
       shares are done just by making telephone calls to the broker.
       Making phone calls takes hardly a few minutes. Total time
       devoted by the Appellant for the transaction of purchase and
       sale of shares does not take even few minutes. Thus I agree
       with the Appellant that sale and purchase of share was not
       the regular business activity of the Appellant and hence I
       hold that the profit derived by him from the same cannot be
       treated to be a business profit. Assessing Officer is therefore
       directed not to treat the profit from sale of shares declared
       by the Appellant as business profit. Authorized
       Representative of the Appellant has fairly conceded that
       once profit from sale of these shares is held as capital gain,
       deduction of STT paid at Rs. 83,377/- will not be allowable.
       In that event profit of Rs. 79,80,789 will become taxable as
       Short Term Capital Gain @10% and profit of Rs. 93,089/-
       will be fully exempt as Long Term Capital Gain. Assessing
       Officer is accordingly directed to tax profit of Rs.79,80,789
       from sale of shares as Short Term Capital Gain @10% u/s
       111A and grant full exemption to the profit of Rs. 93,089/- as
       Long Term Capital Gain. This ground is therefore allowed. "



8.     In view of above, we are of the considered opinion that the AO has

not brought out anything to controvert this fact that the sale and purchase

of shares by the assessee was not a regular business activity and therefore

profit derived by the assessee from the same cannot be treated to be

                                        7
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

business income from profit. From Paper book page no. 13 to 15, we note

that the assessee has shown investment in shares as in AY 2005-06, 2006-

07 and 2007-08 and the same has been shown at cost and not as stock-in-

trade which is valued at cost or market price whichever is lower. From

balance sheet page no. 13, we also note that in AY 2007-08, the capital

brought forward by the assessee was Rs.1,19,66,247 whereas investment

in shares was of Rs.59,94,734. At the same time from Paper book page no.

3 to 6, we also observe that short term capital gain of Rs. 79 lakh was

earned from 25 scrips only and the profit declared as capital gain was

earned from delivery based purchase and sale of shares and delivery was

taken after making full payment for such transaction. We also note that as

per Paper Book page no. 3 and 5 of the assessee, short term capital gain

was earned out of 3 scrips which only comes to 93.62% of the total profit

from purchase and sale of shares and major part of the capital gain was

earned from the shares held by the assessee for more than 30 days. The AO

has not brought out any fact or material to controvert or to demolish above

facts supporting the case of the assessee.


9.     Ld. counsel has also raised issue of consistency and submitted that

similar classification of shares as investment and capital gains was

accepted by the department in the preceding assessment years 2004-05,

2005-06 and 2006-07 u/s 143(1) of the Act. Ld. Counsel also submitted

                                      8
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

that classification of shares and gains was also accepted by the AO in the

succeeding assessment year 2009-10 vide order dated 25.11.2011 passed

u/s 143(3) of the Act (PB page 89-90).





10.    Ld. DR replied that the principle of res judicata does not apply to the

taxation matter and hence if claim of the assessee was allowed in the

preceding years in the assessment finalised u/s 143(1) of the Act, then

department is not prevented to verify and examine the issue in the

succeeding years i.e. 2007-08 and 2008-09. However, ld. DR fairly accepted

that similar classification of shares and treatment of profit submitted by

the assessee was accepted by the AO in the succeeding AY i.e. 2009-10 vide

order dated 25.11.2011 (supra) passed u/s 143(3) of the Ac t.


11.    At the outset, we are in agreement with this legal contention of the ld.

DR that principle of res judicata does not apply to the taxation proceedings

but at the same time, we cannot ignore this legal proposition that the rule

of consistency has to be followed in good conscience and bona fide until

and unless changed facts and circumstances are found in the subsequent

assessment yeas. As we have noted earlier that the assessee has shown

shares in its balance sheet during the preceding assessment years as an

investment and the same has been valued at cost of purchase. At the cost of

repetition, we also take note of this fact that out of total capital goods, the

assessee earned 93.62% from the transactions in three scrips of Lok
                                       9
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

Housing, Karutari, and OKplay.      In this situation, similar classification of

income has been accepted by the department in the preceding three

consecutive assessment years u/s 143(1) of the Act and also same

classification of shares and profit from purchase and sale of shares has

been accepted by the AO in AY 2009-10 as capital gains in order dated

25.11.2012 passed u/s 143(3) of the Act, then for the assessment years

under consideration, the revenue cannot treat the same income as business

income in absence of any substantially changed facts and circumstances.

Therefore, we are inclined to hold that the AO was not justified in treating

the income from purchase and sale of shares as business income ignoring

the treatment given by the assessee in his books of accounts and financial

statement filed along with the return of income and in the light of above

noted facts, the CIT(A) was right in following the principle of consistency

and reach to a logical conclusion that the income accrued to the assessee

from purchase and sale of shares was capital gains. We are unable to see

any ambiguity, perversity or any other valid reason to interfere with the

impugned order and we uphold the same. Accordingly, sole ground in both

the appeals of the revenue being devoid of merits is dismissed.


12.    In the result, the appeals of the revenue are dismissed.




                                      10
ITA No. 1046 & 1314/D/2012
Asstt.Year: 2007-08, 2008-09

        Order pronounced in the open court on 02.03.2015.

         Sd/-                                         Sd/-

  (G.D. AGRAWAL)                              (CHANDRAMOHAN GARG)
  VICE PRESIDENT                                  JUDICIAL MEMBER

DT. 2nd March, 2015
`GS'


Copy forwarded to:-

   1.   Appellant
   2.   Respondent
   3.   C.I.T.(A)
   4.   C.I.T. 5. DR
                                                By Order



                                            Asstt. Registrar




                                     11

 
 
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