, `'
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH, MUMBAI
. . , , ,
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
. / ITA no.8969/Mum./2010
( / Assessment Year : 200607)
M/s. Siddhalchal Enterprises Pvt. Ltd.
113, Balaji Arcade, CTS no.68
................. /
S.V. Road, Opp. Central Bank
Kandivali (W), Mumbai 400 067 Appellant
PAN AACCS7297L
v/s
Income Tax Officer ................... /
Ward9(3)(2), Mumbai Respondent
/ Assessee by : Shri Vimal Punmiya
/ Revenue by : Shri Neil Philip
/ /
Date of Hearing 24.03.2015 Date of Order 28.05.2015
/ ORDER
, /
PER SANJAY GARG, JUDICIAL MEMBER
The present appeal preferred by the assessee is directed against
the impugned order dated 20th October 2010, passed by the learned
Commissioner (Appeals)-20, Mumbai, relevant to the assessment year
200607. The assessee has taken following grounds:
M/s. Siddhalchal Enterprises Pvt. Ltd.
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"1. The learned CIT(A) erred in confirming and treating `
17,48,604 as income from business and profession as against
short term capital gain as claimed by the assessee.
2. The learned CIT(A) has grossly erred in treating the loss
suffered by assessee on account of purchase and sale of shares
as dividend stripping activity u/s 94(7) and thereby enhanced
the business income to the extent of ` 2,983.
3. The learned CIT(A) has grossly erred in restricting the claim of
the preliminary expenses to ` 500 only as against ` 3,204
debited to Profit & Loss account by the assessee and
subsequently claimed as a deduction under section 35D of the
Act.
4. The learned CIT(A) erred in confirming penalty u/s 271(1)(c)
of the Act.
5. The learned CIT(A) also erred in confirming the interest u/s
234B and 234C of the Act."
2. Ground no.1 is relating to the issue of treatment of income
earned from sale and purchase of shares whether as short term capital
gains as claimed by the assessee or is to be treated as business
income, as assessed by the Assessing Officer.
3. The assessee is engaged in the business of export of garments
and trading of dyes and chemicals. The Assessing Officer noted that
during the years, the assessee had shown to have earned short term
capital gain of ` 17,48,604. The Assessing Officer, taking into
consideration the volume and frequency of transactions, held that the
assessee had been systematically engaged in the share transactions
with profit motive. He, therefore, treated the income claimed as short
term capital gain by the assessee as business income.
M/s. Siddhalchal Enterprises Pvt. Ltd.
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4. The learned CIT(A) also upheld the findings of the Assessing
Officer. The assessee is thus in appeal before us.
5. Learned A.R. for the assessee has submitted that the assessee
company has been engaged in the business of export garment as well
as trading in dyes and chemicals. Its Memorandum and Article of
Association does not allow it to trade in shares and securities and,
hence, from the very beginning, the assessee company was neither
allowed nor had any intention to trade in shares and securities. The
assessee company had been investing its surplus business profit in
shares since 1997 and has always been treated as an investor. Earlier
the share income from purchase and sale of shares and business
income were taxable at the same rate. However, from the year 2004
05, the charging rate for short term capital gains have been decreased
giving benefit to the investors in share and securities. The assessee
company, during the year, has also earned long term capital gains
some of which have been in relation to shares which were acquired
from the year 1999 onwards. The assessee has never been treated as
trader in earlier assessment years. No borrowed funds have been used
for the purchase and sale of shares as the assessee used to invest its
surplus profits only in the purchase of shares and securities. The
assessee, during the year, has declared long term capital gain of `
3,54,470, which has been accepted by the lower authorities. He has
M/s. Siddhalchal Enterprises Pvt. Ltd.
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further submitted that considering the investment of the assessee in
shares to the tune of `70,00,000, the quantum of purchase and sale of
shares during the year was very small. The assessee, during the year,
has also earned dividend of ` 1,24,125. He has further stated that
even in the immediately preceding assessment year, the assessee had
earned dividend income of ` 2,09,687. He has stated that merely
because this year the dividend income as compared to the last year
has somewhat decreased that does not mean that the assessee has
ceased to be an investor.
6. On the other hand, the learned Departmental Representative
relied upon the findings of the lower authorities and has vehemently
stressed that taking into consideration the large volume of
transactions, the assessee cannot be treated as an investor but only as
a trader in shares.
7. We have considered the rival contentions. There is no denial by
the Revenue to the fact that the assessee has been investing the
surplus business profits in purchase of shares since 1997 and it has
always been accepted as an investor. For the year under
consideration, the assessee has also been treated as investor in
respect of income from share transactions claimed by the assessee as
long term capital gains. The Assessing Officer has treated the assessee
as trader in respect of only short term capital gains claimed by the
M/s. Siddhalchal Enterprises Pvt. Ltd.
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assessee. In our view, the Revenue cannot adopt double yardstick
while treating the assessee as an investor in respect of long term
capital gain and as a trader in respect of short term capital gain. If
such yardstick is allowed to be adopted, then the provisions of short
term capital gain will become redundant. When the assessee has been
consistently been treated and accepted as investor since so many
years and there is not much change in the investing pattern or in the
facts and circumstances of the case, then applying the rule of
consistency, the assessee is to be treated as investor only. Moreover,
as explained by the learned A.R., the Memorandum and Articles of
Association of the assessee company does not allow it to trade in
shares and it has been consistently investing its money as an investor
in shares. No borrowed funds have been used for making the share
transactions. The assessee has also earned substantial income from
long term capital gain and also dividend income. All these facts prove
beyond doubt that the intention of the assessee has always been to
invest the money in shares and not the trading in shares. High
frequency of the transactions cannot be the sole factor in holding the
assessee as a trader. Even there is no minimum holding period of
shares is prescribed under the statute for treatment of the same as
short term capital gain. Keeping in view the overall facts and
circumstances of the case and in view of the principle of consistency,
in our view, the assessee has to be treated as an investor and the
M/s. Siddhalchal Enterprises Pvt. Ltd.
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income earned from purchase and sale of shares is to be treated as
short term capital gain. Thus, this issue is decided in favour of the
assessee.
8. Ground no.2 is relating to dividend stripping.
9. The Assessing Officer noted that the assessee had purchased and
sold shares of three companies within the time prohibited under
section 94(7) of the Act which had resulted in loss. The Assessing
Officer, therefore, reduced the loss suffered by the assessee to the
extent of dividend earned which was computed at ` 2,983, and added
back the same to the income of the assessee. The learned CIT(A)
upheld the addition.
10. We do not find any infirmity in the impugned order on this issue
and this addition is accordingly confirmed.
11. Ground no.3, relates to disallowance of deduction under section
35D.
12. The assessee debited ` 3,204 to the Profit & Loss account as
preliminary expenses. The Assessing Officer noted that the capital
employed was ` 2,00,000 and deduction of preliminary expenses was
allowable only to the extent of ` 500. He, therefore, disallowed the
M/s. Siddhalchal Enterprises Pvt. Ltd.
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deduction of balance of ` 2,704. The learned A.R. for the assessee has
not advanced any arguments on this issue.
13. We do not find any infirmity in the order of the learned CIT(A)
while upholding the disallowance on this issue. Thus, the ground raised
by the assessee is dismissed.
14.
14. In the result, assessee's appeal is partly allowed.
Order pronounced in the open Court on 28.05.2015
Sd/- Sd/-
. .
R.C. SHARMA SANJAY GARG
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 28.05.2015
Copy of the order forwarded to:
(1) The Assessee;
(2) The Revenue;
(3) The CIT(A);
(4) The CIT, Mumbai City concerned;
(5) The DR, ITAT, Mumbai;
(6) Guard file.
True Copy
By Order
Pradeep J. Chowdhury
Sr. Private Secretary
Assistant Registrar
ITAT, Mumbai
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