Shri Sunilkumar Somitrasingh Dangi, Surat V. The Dy. CIT, Circle-2, Surat

ITA 3311/AHD/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2175 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 30-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Assessee Lawyers: ANIL K SHAH
• Keywords: Business income; Rule of consistency; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM ./ITA NO.3311/AHD/2015 ( [ [ / ASSESSMENT YEAR: (2010-11) (VIRTUAL COURT HEARING) SUNILKUMAR SOMITRA SINGH DANGI, D-612, INTERNATIONAL TRADE CENTRE, MAJURA GATE, SURAT 395002. VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, SURAT. ./ ./ PAN/GIR NO.: AAZPD2714P (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI ANIL K SHAH AR RESPONDENT BY : MS ANUPAMA SINGLA SR. DR / DATE OF HEARING : 27/10/2020 /DATE OF PRONOUNCEMENT : 27/11/2020 / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAINING TO THE ASSESSMENT YEAR (AY) 2010-11, IS DIRECTED AGAINST THE ORDER PASSED BY THE LD.. COMMISSIONER OF INCOME TAX (APPEALS)-II, SURAT [IN SHORT THE CIT(A)] IN APPEALS NOS. CAS/II/176/2012-13 DATED 24.09.2015, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S.143(3) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFER TO AS THE ACT]. THE GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS:- 1. THE ID. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN TREATING THE SHORT TERM CAPITAL GAIN [STCG] OF RS.30,57,137/- AS BUSINESS INCOME OUT OF TOTAL STCG OF RS.41,55,817/- TREATED BY THE AO AS BUSINESS INCOME MERELY ON SURMISES AND ASSUMPTIONS AS WELL AS WITHOUT PROPER CONSIDERATION AND APPRECIATION OF THE FACTS OF THE CASE AND EVIDENCES AVAILABLE ON RECORD. IN VIEW OF THE FACTS AND ELABORATE SUBMISSIONS FILED COUPLED WITH LEGAL POSITION AS LAID DOWN BY THE JURISDICTIONAL COURT OF LAW APART FROM OTHER COURTS, THE IMPUGNED ACTION ON PART OF THE AO REQUIRES TO BE QUASHED AND THE SAID AMOUNT OF RS.30,57,137/- REQUIRES TO BE TAXED AS STCG AS OFFERED BY THE ASSESSEE. PAGE | 2 ITA 3311/AHD/2015 ASSESSMENT YEAR. 2010-11 SUNILKUMAR SOMITRA SINGH DANGI 2. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE SHARES PURCHASED ARE SHOWN AS INVESTMENT IN THE BALANCE SHEET AND THE ASSESSEE HAS ALSO EARNED DIVIDEND INCOME ON THE SAID INVESTMENT APART FROM THE FACT THAT NO ADVERSE INFERENCE IS DRAWN IN EARLIER YEARS ON IDENTICAL FACTS. 3. THE LD. CIT(A) HAS FURTHER ERRED IN NOT PROPERLY APPRECIATING THE PARAMETERS LAID DOWN BY CBDT IN CIRCULAR NO. 4/2007 DATED 15/06/2007 VIS-A-VIS FACTS OF THE ASSESSEE'S CASE AND THE DECISIONS RENDERED BY VARIOUS-COURTS OF LAW. 4. THE LD. CIT(A) HAS FURTHER ERRED IN NOT APPRECIATING OR CONSIDERING THE ALTERNATIVE FACTS AND ARGUMENTS OF THE ASSESSEE THAT IF THE CAPITAL GAINS ARE TREATED AS BUSINESS INCOME THEN THE CLOSING STOCK WOULD HAVE TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER AND IF THIS EXERCISE IS DONE IN EACH OF THE PREVIOUS YEAR, THE ASSESSEE WOULD. BE AT AN ADVANTAGE IN VIEW OF MARKET VALUE OF SHARES BEING LESS THAN COST. THE ID. C1T(A) THUS WHILE TREATING PART OF THE STCG AS BUSINESS INCOME HAS ERRED IN FAILING TO DIRECT THE AO TO GIVE EFFECT OF THE SAME IN THE CLOSING STOCK, WHICH IN TURN DOES NOT GIVE TRUE AND FAIR VIEW OF THE ACCOUNTS. 2. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF RS.41,55,817/- FROM TRADING OF SHARES EVEN THOUGH THE SAME IS HELD AS INVESTMENTS IN THE ASSESSEES BALANCE SHEET. IT WAS ALSO OBSERVED THAT DURING THE YEAR, SIMULTANEOUSLY THE ASSESSEE HAD SHOWN BUSINESS INCOME OF RS.13,43,609/- FROM SHARE TRADING AND SEPARATE TRADING AND PROFIT & LOSS ACCOUNT WAS MAINTAINED BY THE ASSESSEE FOR SHARE TRADING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE SHORT TERM CAPITAL GAIN OF RS.41,55,817/- SHOULD NOT BE TREATED AS BUSINESS INCOME OF THE ASSESSEE LOOKING TO THE FREQUENCY OF TRANSACTION INVOLVED. 3. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE ASSESSING OFFICER THAT ON PURCHASE OR SALE, IF DELIVERY IS MADE THEN THE PROFIT OF THE SAME IS TREATED AS SHORT TERM CAPITAL GAIN IRRESPECTIVE OF THE NUMBER OF DAYS HELD 4. THE ASSESSING OFFICER HAD GONE THROUGH THE SUBMISSION OF THE ASSESSEE AND HELD THAT ASSESSEE IS ENGAGED IN FREQUENT TRADING OF SHARES AND HAS SEPARATELY MAINTAINED TRADING AND PROFITS AND LOSS ACCOUNT FOR TRADING OF SHARES APART FROM SHOWING SHORT TERM CAPITAL GAIN FROM SHARES HELD AS INVESTMENTS. THE ASSESSING OFFICER NOTICED THAT THE PERIOD OF HOLDING OF SHARES AND ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT SOLELY DETERMINATIVE TO CONTEND THAT THE SHARES ARE HELD AS INVESTMENTS AND SIMPLY BECAUSE PAGE | 3 ITA 3311/AHD/2015 ASSESSMENT YEAR. 2010-11 SUNILKUMAR SOMITRA SINGH DANGI DELIVERY OF THE SHARES IS TAKEN OR SUBSTANTIAL AMOUNT OF DIVIDEND IS RECEIVED, THE TRANSACTIONS WOULD NOT CONSTITUTE INVESTMENTS. WHERE THE TAXPAYER HAS ABNORMAL SHORT- TERM CAPITAL GAINS AS COMPARED TO THE LONG-TERM CAPITAL GAINS, THE TRANSACTIONS IN SHARES CANNOT BE CONSIDERED AS INVESTMENTS. IN THIS CASE, THE FREQUENCY OF TRANSACTIONS IS MORE AND THE ASSESSEE HAS DEPLOYED INFRASTRUCTURE IN SALE AND PURCHASE OF SHARES. ASSESSING OFFICER RELIED ON THE CBDT (CENTRAL BOARD OF DIRECT TAXES) CIRCULAR WHICH HAS LAID DOWN THAT THE PURCHASE AND SALE OF SHARES WITH THE MOTIVE OF EARNING A PROFIT WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE OR ADVENTURE IN THE NATURE OF TRADE, BUT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE IN SUCH INVESTMENT WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. THE ASSESSING OFFICER NOTICED THAT IN THE CASE OF THE ASSESSEE, THE AMOUNT OF DIVIDEND RECEIVED DURING THE YEAR CAME TO RS.77,413/-, WHICH IS VERY NOMINAL AS COMPARED TO THE SHORT TERM CAPITAL GAIN OF RS.41,55,817/-WHICH SHOWS THAT THE MOTIVE OF THE ASSESSEE IS TO EARN PROFIT FROM THE SHARE TRADING. FURTHER, THE PORTFOLIO STATEMENT OF THE TRADING OF SHARES REVEALS THAT THE HOLDING PERIOD IN THESE SHARES WERE VERY SHORT PERIOD STARTING FROM ONE DAY TO LESS THAN 30 DAYS. ON CAREFUL ANALYSIS OF THE WORKING GIVEN BY THE ASSESSEE IT WAS NOTICED BY ASSESSING OFFICER THAT SHORT TERM CAPITAL GAIN OF RS.30,57,137/- WAS GAINED FROM SCRIPS HELD BY THE ASSESSEE FOR LESS THAN 30DAYS AND THE BALANCE AMOUNT OF SHORT TERM CAPITAL GAIN OF RS.10,98,679/- WAS EARNED FROM 30 DAYS TO ONE YEAR. FROM THIS STATEMENT OF TRANSACTIONS AND THE SHORT TERM CAPITAL GAIN EARNED, THE ASSESSING OFFICER NOTED THAT THE MOTIVE OF THE ASSESSEE IS NOT INVESTMENT BUT TO EARN PROFIT. THUS, THE ASSESSEE IS NOT AN INVESTOR. IN VIEW OF THE ABOVE FACTS, AND CIRCUMSTANCES OF THE CASE, THE SHORT TERM CAPITAL GAIN OF RS.41,55,817/- EARNED BY THE ASSESSEE WAS TREATED AS BUSINESS INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO TREAT THE 'CAPITAL GAIN FROM SALE OF SHARES HELD BY THE ASSESSEE FOR A PERIOD OF ONE MONTH OR MORE, BUT LESS THAN ONE YEAR I.E. RS.10,98,679/- SHOULD BE TREATED AS INVESTMENT AND PAGE | 4 ITA 3311/AHD/2015 ASSESSMENT YEAR. 2010-11 SUNILKUMAR SOMITRA SINGH DANGI PROFIT EARNED FROM SALE OF THE SAME SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAIN; WHILE THE SHARES HELD FOR LESS THAN A MONTH I.E.RS.30,57,137/- SHOULD BE TREATED AS TRADING PURCHASES OF THE ASSESSEE AND PROFITS FROM THE SAME SHOULD BE ASSESSED UNDER THE HEAD 'BUSINESS INCOME'. THIS WAY, LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE PARTLY. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 7. SHRI ANIL K. SHAH, LEARNED COUNSEL FOR THE ASSESSEE, SUBMITS BEFORE US THAT ASSESSING OFFICER HAS ACCEPTED THE ACTIVITY OF THE ASSESSEE AS AN INVESTMENT ACTIVITY IN PAST YEARS THEREFORE BASED ON THE PRINCIPLE OF CONSISTENCY THE APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. THE LD. COUNSEL ALSO SUBMITTED BEFORE THE BENCH WRITTEN SUBMISSIONS. IN HIS WRITTEN SUBMISSIONS, HE TRIED TO DISTINGUISH THE JUDGMENT OF THE COORDINATE BENCH OF ITAT IN THE CASE OF SHRI SUGAMCHAND C SHAH, VIDE ITAT, AHMEDABAD BENCH 'D' ORDER DATED 29.01.2010 IN ITA NO. 3554/AHD/2008 AND 1932/AHD/2008 AND FINALLY HE PRAYED THE BENCH THAT ACTIVITY OF SALE/PURCHASE OF SHARES OF THE ASSESSEE MAY BE TREATED AS INVESTMENT ACTIVITY. 8. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD. CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD. LEARNED COUNSEL ARGUED BEFORE US STATING THAT ASSESSING OFFICER HAS ACCEPTED THE ACTIVITY OF THE ASSESSEE AS AN INVESTMENT ACTIVITY IN PAST YEARS THEREFORE BASED ON THE PRINCIPLE OF CONSISTENCY THE APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. WE NOTE THAT LD. COUNSEL HAS NOT SUBMITTED ANY EVIDENCE/DOCUMENTS BEFORE THE BENCH WHICH SHOWS THAT REVENUE HAD ACCEPTED THE ASSESSEE`S PORTFOLIO AS AN INVESTMENT ACTIVITY THEREFORE THE APPEAL OF THE ASSESSEE CANNOT BE ALLOWED BASED ON THE PRINCIPLE OF CONSISTENCY. WE NOTE THAT THE ISSUE REGARDING THE CHARGING OF THE PAGE | 5 ITA 3311/AHD/2015 ASSESSMENT YEAR. 2010-11 SUNILKUMAR SOMITRA SINGH DANGI INVESTMENTS VIS-A-VIS BUSINESS INCOME HAS BEEN DECIDED BY THE COORDINATE BENCH OF ITAT, AHMEDABAD, ORDER DATED 29.01.2010 IN ITA NO. 3554/AHD/2008 AND 1932/AHD/208, WHEREIN THE BENCH HELD THAT FOR THE PURPOSE OF DETERMINING THE SHORT TERM CAPITAL GAIN, I.E. THE SHARES WHICH ARE HELD FOR A MONTH AND MORE BUT LESS THAN ONE YEAR SHOULD BE TREATED AS 'INVESTMENT' AND ON THEIR SALE, PROFIT SHALL, BE CHARGEABLE UNDER THE HEAD SHORT TERM CAPITAL GAIN, AND WHERE SHARES ARE HELD FOR LESS THAN MONTH, GAIN FROM SALE OF THESE SHARES SHOULD BE TREATED AS 'PROFIT FROM BUSINESS' . WE NOTE THAT ASSESSEE HAS CLAIMED INVESTMENT AND TRADING ACCOUNT TO BE SEPARATELY MAINTAINED BUT THE FREQUENCY OF TRANSACTIONS, REVEALS THAT THE ASSESSEE'S HOLDING PERIOD IS LESS THAT 30 DAYS IN LARGE NUMBER CASES WHICH SHOWS THAT THE ASSESSEE IS DE-FACTO SELLING AND PURCHASING SHARES AS TRADER IN COMPARISON TO SHARES HELD FOR MORE THAN 30 DAYS. THE FOLLOWING TABLE, AS REFERRED BY LD. CIT(A) SHOWS THE FREQUENCY OF TRANSACTIONS: PERIOD OF HOLDING PURCHASES (IN QUANTITY) PURCHASES (IN VALUE) SALES (IN QUANTITY) SALES(IN VALUE) TOTAL AMOUNT (IN VALUE) WITHIN 30 DAYS 435544 RS.3,35,83,570 435544 RS.3,66,40,708 RS.30,57,137 MORE THAN 30 DAYS 156273 RS.74,87,688 156273 RS 85,86,368 RS, 10,98,679 GRAND TOTAL 591817 RS.4 1071 259 591817 RS.4,52,27,076 RS.41,55,817 AT THE ASSESSMENT STAGE THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE HAS SHOWN STCG OF RS.41,55,817/- FROM TRADING OF SHARES EVEN THOUGH THE SAME IS HELD AS INVESTMENTS IN THE BALANCE SHEET. THE AO ALSO NOTICED THAT THE ASSESSEE HAS SHOWN BUSINESS INCOME OF RS.13,43,609/- FROM SHARE TRADING AND SEPARATE TRADING AND P&L ACCOUNT IS MAINTAINED BY THE ASSESSEE FOR SHARE TRADING. THE AO HELD THAT THE ASSESSEE IS ENGAGED IS FREQUENT TRADING OF SHARES FOR WHICH HE HAS MAINTAINED SEPARATELY TRADING AND P&L ACCOUNT WHICH SHOWS THAT HE WAS REGULARLY BUYING AND SELLING SHARES AND HAD PROFESSIONAL KNOWLEDGE OF THE CAPITAL MARKET. THE AO FOUND THAT TAKING INTO CONSIDERATION THE FREQUENCY OF THE TRANSACTIONS, LENGTH OF PERIOD OF OWNERSHIP, PAGE | 6 ITA 3311/AHD/2015 ASSESSMENT YEAR. 2010-11 SUNILKUMAR SOMITRA SINGH DANGI INFRASTRUCTURE EMPLOYEE FOR SHARE TRANSACTION, ETC. SHOW THAT THE VARIOUS TRANSACTIONS MADE IN THE SALE OF SHARES, HAS BEEN DONE WITH THE MOTIVE OF PROFIT AND IS A BUSINESS INCOME AND THEREFORE AN ADDITION OF RS.41,55,817/- WAS MADE AS INCOME FROM BUSINESS. ON APPEAL, LD. CIT(A) TAKING INTO ACCOUNT ALL FACTS OF ASSESSEE`S CASE HAS DIRECTED THE ASSESSING OFFICER TO TREAT THE 'CAPITAL GAIN FROM SALE OF SHARES HELD BY THE ASSESSEE FOR A PERIOD OF ONE MONTH OR MORE, BUT LESS THAN ONE YEAR I.E. RS.10,98,679/- SHOULD BE TREATED AS INVESTMENT AND PROFIT EARNED FROM SALE OF THE SAME SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAIN ; WHILE THE SHARES HELD FOR LESS THAN A MONTH I.E.RS.30,57,137/- SHOULD BE TREATED AS TRADING PURCHASES OF THE ASSESSEE AND PROFITS FROM THE SAME SHOULD BE ASSESSED UNDER THE HEAD 'BUSINESS INCOME'. HAVING GONE THROUGH THE ORDER OF LD. CIT(A), WE NOTICED THAT THERE IS NO ANY INFIRMITY IN THE ORDER AND REASONING GIVEN BY THE LD. CIT(A). THAT BEING SO, WE DECLINE TO INTERFERE WITH THE ORDER OF LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER, HIS ORDER THEREFORE, UPHELD AND THE GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED ORDER IS PRONOUNCED ON 27/11/2020, AS PER RULE 34 OF INCOME TAX APPELLATE TRIBUNAL, RULE 1963. (PAWAN SINGH) (DR. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER LWJR /SURAT / DATE: /11/2020 SAMANTA, PS COPY OF THE ORDER FORWARDED TO 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) 4. PR.CIT 5. DR/AR, ITAT, SURAT 6. GUARD FILE // TRUE COPY // BY ORDER ASSISTANT REGISTRAR/SR. PS/PS ITAT, SURAT