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INCOME TAX APPELLATE TRIBUNAL,MUMBAI "E" BENCH
. ., , ,
Before S/Sh. A.D. Jain,Judicial Member & Rajendra,Accountant Member
/.ITA No.7654/Mum/2010, /Assessment Year-2006-07
ACIT-Range-19(3) Shri Shyam Khatri
Room No.305, 3rd Floor 214 Nanadeep
Piramal Chambers, Parel Vs Behind P.F.Office Roop Nagar,
Mumbai-400 012. Bandra(E),Mumbai-400 051
PAN: AAACB 3282 G
( /Appellant) ( / Respondent)
/Assessee by : Dr. K. Shivaram
/ Revenue by : Shri S.S. Rana-AR
/ Date of Hearing
: 28 -07-2015
/ Date of Pronouncement : -07-2015
, 1961 254(1)
Order u/s.254(1)of the Inco me-tax Act,1961(Act)
PER RAJENDRA, AM-
Challenging the order dated 27.09.2012 of the CIT-34,Mumbai,the Assessing Officer(AO)has
filed following Grounds of Appeal:
"(1)On the fact and in the circumstances of the case and in law, the Learned CIT(A) has erred in
restricting in directing to treat the Short Term Capital Gain of Rs. 16,38,532/- as a Short Term Capital
Gain and Long Term Capital Gain of Rs. 83,05,459/- as Long Term Capital Gain instead of business
income made by AO in his assessment order, ignoring the fact that-
(a)The assessee has deployed his fund with an intention of earning profit of such funds and there was
no intention of the assessee to appreciate the investment so made during the year.
(b)The assessee had no intention to hold her shares in order to earn regular income out of such
purchases.
(2)On the fact and in the circumstances of the case and in law, the Learned CIT(A) has failed to
appreciate the in depth analysis made by the AO before treating the gains as Business Income and that
circular No. 4 of 2007 has been taken into consideration to decide whether the Gain are to be treated as
such or as Business.
(3)On the cats and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the
fact that the transaction is shown whether by himself or through his agent has to be treated as assessee's
own transaction and the motive behind such transaction as to earn maximum profit and not investment
(4)The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO
be restored.
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
Assessee,an individual,filed his return on 29.03.2007,declaring income of Rs.16.38 lakhs.The
AO completed the assessment on 24.12.2008,u/s.143(3) of the Act,determining the income of the
assessee at Rs.99.43 lakhs.
2.Effective ground of appeal is about treatment to be given to the share transaction entered in to
by the assessee.During the assessment proceedings the AO found the assessee had shown the
shown income under the heads Long Term Capital Gains(LTCG) of Rs.83,05,459/-, Short Term
Capital Gains (STCG) of Rs. 16,38,532/-,Income from other sources of 25,437/-,that he had
ITA/7654/M/10,AY.06-07 Shyam Kkatri
claimed exempt income of Rs.4.29 lakhs u/s.10(33)of the Act.He held that the assessee had
entered voluminous transactions in order to earn the LTCG and STCG,that his intention was not
to make investment in shares for a long run benefit but to earn quick profit by frequently buying
and selling the shares with an eagerness to account for as much gains as possible.He further
observed that considering the volume of transactions, number of scrips involved the short period
of its holdings and the regularity of trading of shares done, the profit motive was clearly patent
in the transactions undertaken by the assessee.Accordingly,he held that the profit on sale of
shares could not be treated as capital profit but same was to be assessed under the head profits
and gains of business or profession.Finally,he treated the STCG of Rs.16.38 lakhs and LTCG of
Rs.83.05 lakhs as assessee's business income.
3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate
Authority(FAA).Before him it was argued that the assessee was a long time investor in shares
since 1979 with twin objectives of earning dividend income and having long term appreciation
which would take care of expenses on retirement,that the dividend income has increased from
Rs.2.47 lakhs in AY.2004-05 to Rs.8.37 lakhs in AY.2009-10, that no borrowed funds were
utilised for share trading activities,that the gain from intra-day transactions was merely Rs.26,
773/- which is 1/400th of total capital gains, that the assessee never had the intention to make
intra-day trading without taking delivery,that the broker was told to sell a particular scrip but by
mistake he purchases the scrip,that Broker reversed the transaction by selling the purchased
quantity.The assessee relied upon the case laws of Gopal Purohit (ITA No.4854/Mum/2008)and
Janak S.Rangwalla(11 SOT 627)and other case laws. The main contention of the assessee was
that the LTCG was much more i.e. Rs.83,05,458/- as compared to the short term capital gain of
Rs.16,38,532/-,that the AO had treated even the GTCG as business income.He furnished a chart
wherein he tried to demonstrate that his holding was more than even 12 months and in some
cases even more than 120 months.It was claimed that he was a genuine investor and not a trader.
the LTCG was much more than the STCG,that the AO had treated even the LTCG as business
income of the assessee,that the dividend had grown over the years,the assessee had submitted
that no borrowed funds were utilized for share trading activities in his case,that there was no
business expenditure such as salary to office employees, travelling etc.,that all purchases were
intended as an investment and recorded as such, that the assessee had sold some stocks which
were held by in1990s,that STCG itself was about 17% of capital gain.Referring to the case of
Gopal Purohit,the FAA held that the assessee cannot be said to be a trader with reference to the
share transaction carried out by him,that the question whether the assessee was a trader or an
investor in shares was complex one as the distinguishing line between the two was very thin,that
the assessee has not utilized any borrowed funds,that the AO had not pointed out anything about
the repetitive transactions,that bulk of the gain of the assessee is from LTCG,that the intra-day
trading was of a very small sum (Rs.26,773/-),that the said sum would fall under the head
'Business Income' being speculative profit,that the as per the CBDT Circular,dated 15.6.2007,an
assessee could have 2 portfolios.He directed the AO to tax the LTCG and STCG as such,which
were delivery based and on which security transaction tax had been paid,as per the rates
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ITA/7654/M/10,AY.06-07 Shyam Kkatri
applicable to such capital gains.He further held that the other transactions involving non-delivery
speculative transactions had to treated as part of speculation business.Finally,he directed the AO
to verify and quantify the profit/loss in non delivery based transaction and to charge the same to
tax accordingly.
4.Before us,the Departmental Representative(DR)argued that the assessee had entered in to intra-
day transactions,that in some cases holding period was less than seven days,that the entries in the
books were not decisive factor.Authorised Representative(AR)stated that in the earlier and
subsequent years the assessee was treated an investor by the department,that as compared to the
capital gains the intra-day transactions were meager,that LTCG could not be treated business
income, that in some cases shares were held for more than 120 months.
5.We have heard the rival submissions and perused the material before us.We find that the AO
had treated the LTCG and STCG as business income of the assessee for the year under
appeal,that the assessee had carried out a few intra-day transactions,that he had used his own
funds,that he had not claimed any expenditure towards earning the share business,that in the
books of accounts he had treated his shares as capital asset,that only a few cases holding period
was less than one month, that sufficient dividend income had been shown by the assessee.We
would like to reproduce the chart submitted by the assessee showing the details of holding
period,LTCG STCG etc.
Holding period Purchase Price Sales amount(Rs.) LTCG(Rs.)
12 to 18 months 1,467,682/- 3,099,633 1,631,951
18 to 24 months 901,978/- 5,170,168 4,268,190
24 to 36 months 497,161/- 2,106,124 1,608,963
36 to 60 months 635,477/- 1,152,155 516,678
60 to 120 months 110,266/- 387,998 277,732
120 months and above 1,620/- 3,564 1,944
Total LTCG 3,614,184 11,919,642 8,305,458
If all the above surrounding circumstances are considered it becomes clear that the intention of
the assessee was to earn long term appreciation of the capital and therefore he has to be treated
as an investor and not a trader.We find that the FAA has directed the AO to treat the speculative
transactions differently from the capital gains transaction.In our,opinion his order does not suffer
from any legal or factual infirmity.Therefore,confirming his order,we decide the effective ground
of appeal against the AO.
As a result,appeal filed by the AO stands dismissed.
.
Order pronounced in the open court on 31st July,2015.
31 ,2015
Sd/- Sd/-
(. . /A. D. Jain) ( / RAJENDRA)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
/Mumbai, /Date: 31.07.2015
. ..Jv.Sr.PS.
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ITA/7654/M/10,AY.06-07 Shyam Kkatri
/Copy of the Order forwarded to :
1.Appellant / 2. Respondent /
3.The concerned CIT(A)/ , 4.The concerned CIT /
5.DR E Bench, ITAT, Mumbai / , ,.. .
6.Guard File/
//True Copy//
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai.
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