IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "E" NEW DELHI
BEFORE SHRI J.SUDHAKAR REDDY,A.M.
AND SHRI A.T.VARKEY, JM
ITA no. 1369/Del/2012
Assessment Year : 2008-09
ACIT, Circle 36(1) vs. Sh. Naveen Shrivastava
New Delhi 147, Ankur Apartment
I.P.Extension
New Delhi 110 092
PAN: AZLPS 2304 M
(Appellant) (Respondent)
Appellant by:- Sh O.P.Sapra, Adv.
Respondent by:- Shri Kayur Patel, Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, AM
This is an appeal filed by the Revenue directed against the order of the
Ld.Commissioner of Income Tax (Appeals)-XXVII, New Delhi dt. 9.12.2011 for
the Assessment Year 2008-09.
2. Facts of the case are brought out at para 2, 3 and 4 of the assessment
order, which is extracted for ready reference.
"2. The assessee is drawing salary income from M/s Infoline Ltd. which is a
shares and derivatives broking concern. The assessee has shown long term
capital gains amounting to Rs.30,64,964/- which have been claimed exempt
from taxation by virtue of section 10(38). In addition the assessee has also
shown short term gains of Rs.29,86,836/-.
3. The issue to be resolved in this case is whether the short term gains from
sale of shares should be treated as capital gains (as treated by the assessee) or
a business gain. The AR of the assessee vide order sheet entry dt. 10.12.2010
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was asked to file complete details of short term capital gains in a tabular form
indicating date of purchase, date of sale, period of holding and profit/loss
booked on each scrip. Further the assessee was given a show cause as to why
capital gain from sale of shares be not treated as business income.
4. In response to this, assessee filed reply dt. 15.12.2010 the relevant portion
of which reproduced here under:
`The assessee is an employee with India Infoline Ltd. (Brokerage Company).
The assessee undertook single kinds of transaction in the capital market, that
which consisted in taking delivery of or investing in shares. The income from
investment activity was offered as capital gains. This position was accepted by
the Assessing Officer in the earlier years.
Capital gains on sale of shares treat as investment income in earlier years
can't be treated as business income in subsequent years as per case CIT vs.
assessee Gopal Purohit.
Legal volume trading of shares does not per se mean activity is business.'
3. The AO rejected the contentions of the assessee. He recorded the
complete stock summary, script wise, at para 7 of his order and for the various
reasons given in his order held that the income from purchase and sale of
shares, is to be assessed under the head "profits and gains of business" instead
of short term capital gains shown by the assessee. Aggrieved the assessee
carried the matter in appeal. The First Appellate Authority granted relief.
Aggrieved, the Revenue is in appeal before us.
4. Ld.D.R. Mr.Keyur Patel relied on the order of the AO and submitted that
the assessee had huge turnover of more than Rs.30 crores and most of the
scrips have been disposed off, either on the same day or within two to three
days, which demonstrates that the assessee was in fact trading in shares
regularly in an organized and systematic manner, employing the facilities
provided by the broker firm, in which the assessee was employed and hence the
income in question was assessable under the head `income from business' and
not under the head `income from other sources'. He took this Bench to the
order of the AO and submitted that (a) the assessee cannot deny that his motive
in buying and selling shares and to earn profit; (b) that the assessee has
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purchased shares not with a view to invest or earn dividend but only to earn
immediate profits; (c ) the assessee was engaged in numerous transactions of
purchasing and selling a large quantity of shares in a systematic and organized
manner; (d) that the assessee during the entire PY has entered into transaction
of purchase and sale of shares of about 51 companies totaling to
Rs.15,70,60,989/- and these shares were sold over a value of Rs.16,01,54,267/-
and that most of the shares were not affected by actual delivery of shares, and
the holding period was less than 1 day in most of the cases.
(e) That the assessee's claim that he treats the shares as investments in the
books of accounts, but this classification in books of accounts does not reflect
the manifest intention of the assessee to deal in shares and to earn profit. He
referred to the order of the Ld.CIT(A) at page 15 and disputed the findings
thereof.
5. The Ld.Counsel for the assessee Mr.O.P.Sapra, Advocate, on the other
hand relied on the order of the Ld.CIT(A) and submitted that
(a) the assessee is an individual, earning salary income, as well as long term
capital gains of Rs.30,64,968/- and short term capital gain of Rs.29,86,836/- in
addition to interest from bank;
(b) being an employee, the assessee has personal investments in shares
amounting to Rs.55,64,604/- as on 31.3.2008 and dividend was earned on them;
(c ) the shares were never held as stock-in-trade and were being held and
disclosed as investments, in the statement of affairs;
(d) the intention of the assessee while purchasing shares on delivery basis,
was to hold them as capital assets;
(f) there were no borrowed funds which were utilized for investment in shares;
(g) there was no frequency in purchasing and selling shares. The assessee was
engaged in buying shares for 92 days and for selling the shares on 85 days and
on 107 days, he was involved in both buying and selling of shares, which
demonstrates that he was active for less than one third of the whole year;
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(h) closing value of investments in shares was taken at cost in the statement of
affairs;
(i) sale proceeds of shares were never reflected as turnover;
(j) shares were held as investments with an intention of earning dividend
income.
Reliance was placed on the following judgements.
· CIT vs. Rohit Anand (Del) 327 ITR 445
· ACIT vs. Naishadh V.Vachharajani ITA No. 6429/Mum/2009 page 3 of
the paper book
· SM Amit Jain vs. ACIT in ITA 309/Del/2010 order dt. 30.6.2011
6. Rival contentions heard. On a careful consideration of the facts and
circumstances of the case and on a perusal of the papers on record as well as
the orders of the authorities below and case laws cited, we hold as follows.
7. The assessee is an employee. He works with M/s Infoline Ltd. which is
a share broking concern. The fact that the assessee is an investor is not
disputed by the Assessing Officer, as he has assessed the transaction of shares,
which were held for more than one year, under the head `long term capital
gains'. The issue for adjudication is whether the assessee should be considered
as an investor or as a trader, where shares are held for less than one year.
6.1. We now consider the propositions laid down by various Courts and
Tribunals on this issue.
The Hon'ble Delhi High Court in the case of CIT vs. Rohit Anand (2010) reported
in 327 ITR 445 held as under:
"Where the Tribunal had found that the assessee was not a trader in stock but
only an investor and that the assessee had demonstrated that his intenstion was
never to trade in shares because the investment was out of his own funds, the
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investment was not rotated frequently, the total number of transactions was
few, the treatment of the shares as investment in earlier years had been
accepted by the Assessing Officer, the assessee had taken delivery and made full
payment for such investment and that therefore the transactions were to be
treated as giving rise to capital gains and not profits and gains of business, on
appeal: Held, dismissing the appeal, that the factual findings of the final fact
finding authority were neither perverse nor contrary to record. No substantial
question of law arose."
6.2. Applying the propositions laid down in these case laws to the facts of
the case, we hold as under.
6.3. The AO has recorded the following facts:
a. The assesee carried out numerous and frequent transactions in the purchase
and sale of shares with high volume of Rs. 31.72 crores.
b. The holding period for most of the shares has been 1 to 3 days and some of
they shares have been sold on the same day.
c. The asssessee is engaged profusely and frequently in a systematic and
organized manner in the business of buying and selling of shares and is engaged
in the share trading on a regular basis.
d. The assessee is an employee of India Infoline Ltd. which is a share broking
concern and constantly kept himself abreast of the changes that were taking
place in the stock market and was accordingly buying and disposing off shares
using the infrastructure of the company.
e. The assesee during the entire Previous Year had entered into a transaction
of purchase and sale of shares of a about 30 to 50 companies totaling to Rs.
15,70,60,989/- and these shares were sold for a value of Rs. 16,01,54,267/-.
f. Most of the transactions were not affected by actual delivery of shares and
the holding period was less than 1 day in most of the case. Res judicata does
not strictly apply to the Income Tax proceedings.
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6.4. The Ld.CIT(A) has not given any factual finding on the contrary
claims made by both the parties. The findings of the First Appellate Authority
can be summerised as follows:
a. The intention of the assessee could be inferred from the fact that the unsold
shares are shown as investments at the end of the year,
b. The investments are valued at cost or cost at market value whichever is less,
c. Investment was made in the shares out of own funds and not out of borrowed
funds,
d. In the immediately preceding year i.e., AY 2007-08, the assesee has shown
short term capital gain on sale of shares at Rs. 4,69,372/-,
e. During the current year the assesee had shown income from long term
capital gain which also shows that the assessee has held these stocks for a
period of more than 1 year,
f. The assessee has stated that all the transactions were delivery based,
g. The assesee has filed details of holding period of all the shares and it is true
that in majority of the shares the holding period has been shown to be less than
30 days that all the shares have been posted through d-mat account.
6.5. With these observations the First Appellate Authority has decided
the issue in favour of the assesee.
6.6. The First Appellate Authority has not considered the fact that the
assessee's investment was amounting to Rs.55.64 lakhs, whereas the turnover in
purchase and sale of shares was Rs.31,72,15,256/-. Such huge turnovers
definitely gives an indication that the assessee has done trading in shares. This
is a case where the assessee was well equipped being an employee of a stock
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broking firm, having the entire infrastructure readily available for him, having
knowledge, information and acumen for carrying on share trading. By no
stretch of imagination an investor holding an investment of approximately Rs.56
lakhs would have a trading volume of approximately Rs.31 crores. Before us
the assessee has not filed any paper book, to come to a factual finding as to
the number of transactions and the values, where the assessee has purchased
and sold shares on the same day or within two or three days. The AO records
that most of the transactions have been done in this manner. The First
Appellate Authority has not given any facts or figures to controvert this finding
of the AO. Merely because the assessee also is an investor in shares, it does
not mean that he would not have done trading in shares this year. For this
proposition we rely on the decision of Hon'ble Bombay High Court in the case of
Gopal Goel. Even the argument that in the Previous Year the short term capital
gain amounting to Rs.4,69,272/- was declared and accepted, hence the short
term capital gain declared in this year of Rs.29,86,836/- has to be accepted as
such also does not carry any force for the reason that we do not know as to
what is the turnover for the previous Assessment Year and as to what are the
facts and figures of that year and whether a considered view has been taken
by the department in this year. If the assessee had an intention of holding the
shares as investment, then purchase and sale of shares in such volumes and at
such high frequency is contradictory to such intention. Classification in the
Balance Sheet is an indication but not a conclusive proof that the assessee is
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only an investor. The figures that are available before us does demonstrate that
the assessee has traded in shares, in addition to him being an investor in shares.
6.7. This does not rule out that the claim of the assessee that certain
transactions in shares can be classified as investments which are taxable as
short term capital gain. For example if a share is held for more than two or
three months and then sold, the transaction cannot be properly classified as
trading in shares. This segregation of profits between short term capital gain
and business income requires a further analysis of the transactions in question.
As the facts and figures have not been submitted before the Tribunal, we set
aside the matter to the file of AO for fresh adjudication in accordance with law
after affording the assessee an opportunity of being heard.
7. In the result the appeal of the Revenue is allowed for statistical
purposes.
Order pronounced in the Open Court on 25th September, 2014.
Sd/- Sd/-
(A.T. VARKEY) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 25th September, 2014
*manga
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Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File
By Order
Asst. Registrar
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