Shri Naman Jayeshbhai Shah, Ahmedabad V. The ACIT Circle-1(3), Ahmedabad

ITA 420/AHD/2020

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1753 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-05-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 20-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HISHIKESHEMENTPATKI
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 420/Ahd/2020 ( नधा रण वष / Assess ment Ye ars: 2016-17) Na ma nJ ay es hb ha i Sh ah 27 50, A ji tn at h Ni Kh ad ki Sh ek h No P ad o, O pp . Za v er i Va d, A h me da ba d- 38 00 01 बनाम/ V s . Th e AC IT C ir cle -1 (3) , Ah me da ba d थायी लेखा सं./जीआइआर सं./P A N / G IR N o . : BH U P S 4 2 0 3 H (Appellant) . . (Respondent) अपीलाथ ओर से/Appellant by : Shri Tushar Hemani, Sr. Adv. & Shri Parimalsinh B. Parmar, A.R. यथ क ओर से/Respondentby: Shri HishikesHementPatki Sr. DR D a t e o f H e a r i n g 09/05/2024 D a t e o f P r o n o u n c e m e n t 07/06/2024 O R D E R PER SHRINARENDRA PRASAD SINHA, AM: This appeal is filed by the assessee against the order of the Co mmissioner of Inco me Tax ( Appeals)-10, Ah me dabad, (in short ‘the CIT(A)’)dated 27.02.2020 for the Assessment Year 2016-17. The appeal is delayed by 84 days which was explained due to Covid pandemic. Hence the delay is condoned. ITA No.420/Ahd/2020 (ShriNamanJayeshbhai Shah vs. ACIT) A.Y.– 2016-17- 2 – 2. The brief facts of the case are that the assessee filed his return of income f or A.Y. 2016-17 on 19.10.2016 showing total income of Rs.1 ,43,31,550/-. The a ssessment was co mpleted on the income as per return but Short-Ter m Capital Gain (STCG) of Rs.1,37,46,867/- in respect of shares purchased through IPO was treated as business income b y t he A.O. Aggrieved with the order of ld. A.O., the assessee filed an appeal before Ld. CIT( A) who vide the impugned order has upheld the treat ment as given by the A.O. The assessee is in appeal before us. 3. The assessee has r aised the following Grounds of Appeal: 1 . T h e l e a r n e d C I T ( A ) h a s e r r e d i n l a w a n d o n f a c t s i n c o n f i r m i n g t h e a c t i o n o f A O o f t r e a t i n g S h o r t T e r m C a p i t a l G a i n o f R s . 1 , 37 , 4 6 , 8 6 7 / - a s b u s i n e s s i n c o m e o f t h e a s s e s s e e . 2 . B o t h t h e l o w e r a u t h o r i t i e s h a v e p a s s e d t h e o r d e rs w i t h o u t p r o p e r l y a p p r e c i a t i n g t h e f a c t s a n d t h e y f u r t h e r e r r e d i n g ro s s l y i g n o r i n g v a r i o u s s u b m i s s i o n s , e x p l a n a t i o n s a n d i n f o r m a t i o n s u b m i t t e d b y t h e a p p e l l a n t f r o m t i m e t o t i m e w h i c h o u g h t t o h a v e b e e n c o n s i d e r e d b ef o r e p a s s i n g t h e i m p u g n e d o r d e r . T h i s a c t i o n o f t h e l o w e r a u t h o r i t i es i s i n c l e a r b r e a c h o f l a w a n d P r i n c i p l e s o f N a t u r a l J u s t i c e a n d t h e r e f o r e d e se r v e s t o b e q u a s h e d . 3 . T h e l e a r n e d C I T ( A ) h a s e r r e d i n l a w a n d o n f a c t s o f t h e c a s e i n c o n f i r m i n g a c t i o n o f t h e l d . A O i n l e v y i n g i n t e r e s t u / s . 2 3 4 A / B/ C o f t h e A c t . 4 . T h e l e a r n e d C I T ( A ) h a s e r r e d i n l a w a n d o n f a c t s o f t h e c a s e i n c o n f i r m i n g a c t i o n o f t h e I d . A O i n i n i t i a t i n g p e n a l t y u / s . 2 7 1 (1 ) ( c ) o f t h e A c t . 5 . T h e a p p e l l a n t c r a v e s l e a v e t o a d d , a m e n d , a l t e r , e d i t , d e l e t e , m o d i f y o r c h a n g e a l l o r a n y o f t h e g r o u n d s o f a p p e a l a t t h e ti m e o f o r b e f o r e t h e h e a r i n g o f t h e a p p e a l . 4. Shri Tushar He mani, Ld. Senior Advocate appearing for the assessee submitted that the assessee had sold certain shares allotted in IPO p rocess which had resulted into capital gain. This gain was disclosed as STCG in the return of income but the A.O. had treated the STC G as b usiness income which was upheld by the Ld . CIT(A) . He submitted that the shares were ITA No.420/Ahd/2020 (ShriNamanJayeshbhai Shah vs. ACIT) A.Y.– 2016-17- 3 – held as ‘Investme nt’ b y the assessee and not as ‘stock-in-trade’. Further all the transactions were delivery-based transactions. Though the assessee had also derived gain on certain “intra-da y activity”, such gain was not shown as STCG. The Ld. A.R . pointed out that the assessee was consistently showing income derived on sale of shares as STCG which was accepted by the depart ment in the earlier Assessme nt Years i.e. A.Ys. 2014-15 & 2015-16. Further that the case for A.Y. 2015-16 was selected for scrutiny wher ein this issue was exa mined and the A.O. had accepted the STCG disclosed by the assessee in that year . According to the Ld. Senior Counsel, the revenue was not correct in changing the nature of inco me f ro m S TCG to business income in the current year . He su b mitted that following the principle of consistency, the gain on sale of shares as disclosed by the assessee should be treated as STCG and not business income . In this regard, he also placed reliance on the following decisions: (i) DeepabenAmit bhai Shah Vs. DCI T 397 ITR 687 (Guj) (ii) Dhruv H. Patel Vs. DC IT 80 tax mann.com 390 (Mum) 5. Shri Hishikes Hement Patki, Ld. Sr . D.R . appearing for the revenue submitted that the intention of the assessee was to apply in IPO, sale the shares allotted in IPO and max i mize the profit which was an adventure in the nature of trade. He submitted that the principle of consistency cannot be applied as the transaction was clearl y in the nature of business inco me and not STCG. He str ongly supported the order of the A.O. the Ld. CIT( A). ITA No.420/Ahd/2020 (ShriNamanJayeshbhai Shah vs. ACIT) A.Y.– 2016-17- 4 – 6. We have carefull y considered the facts of the case and the materials brought on record. The only dispute involved in this appeal is the nature of gain arising on sale of shares allotted to the assessee in IPO i.e . whether it is STC G or business income . It is found from th e balance sheet of the assessee that the shares were disclosed as ‘invest ment ’. It i s also found that the shares were allotted to the assessee in IPO and after allot ment the shares were sold mostl y within a period of one month. As the holding period of all the shares was less than 12 months, the gain arising on sale of these shares was disclosed as STCG b y the assessee. In the preceding A.Y. 2015-16 also, the assessee had disclosed STCG of Rs.23,42,561/- on sale of such shares which was accepted by the Department in the order u/s 143(3) of the Act dated 28.11.2017. In the current yea r, ho wever, the Depart ment has taken a different view and treated this gain as business income . 7. The contention of the Revenue is that the intention of the assessee was to earn profit and not long-ter m appreciation or earning of dividend. It is precisely f or the reason that there was no intention for long-ter m appreciation that the shares were sold within 12 months and gain was shown as S TC G. The earning of profit is always the intention whether the gain is treated as business income or capital gain. When the Act provides for a mechanis m for disclosure of Short-Ter m Capital Ga in, where the holding period is less than 12 months; the Revenue cannot take a plea that the intention was not long-term appr eciation or earning of dividend. It is the intention of the assessee that ITA No.420/Ahd/2020 (ShriNamanJayeshbhai Shah vs. ACIT) A.Y.– 2016-17- 5 – matters. Though the principle of res judicata is not applicable to Inco me Tax proceedings, still the treat ment given by the Depart ment to similar gains in the preceding year has to be taken into consideration. 8. The CBDT vide Circular No. 6/2016 dated 29.02.2016 has stipulated that “where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat the m as stock-in-trade, the inco me a rising from transfer of such shares/securities would be treated as its business inco me” . As a corollary to this guideline where the assessee has treated the holding of shares as invest ment and not stock-in-trade, the income derived fro m transfer of such shares has to be considered as capital gain, either long-ter m or short-term depending upon the period of holding. The CBDT has also directed in the said Circular that for listed shares and securities held for a period of more than 12 months, the stand once taken by the assessee in a particular yea r shall re main applicable in subsequent assessment years also. Therefore, the principle of consistency was acknowledged by the CBDT in this Circular. Further this Circular was issued with a view to reduce litigation and uncertainty. Therefore, the principle of consistency has to be followed in the case of shares held for less than 12 months as well. The assessee had shown the sale of shares held for less than 12 months as STCG in the past year which was accepted by the Depart ment i n the scrutiny assessment. As the facts were identical, the Revenue was not correct in changing its stand without any valid reason to treat the STC G disclosed by the ITA No.420/Ahd/2020 (ShriNamanJayeshbhai Shah vs. ACIT) A.Y.– 2016-17- 6 – assessee as business income in the current year . F urther, no reason has been given by the Depar t ment for changing its stand for the treatment of the gain arising fro m sale of shares. The principle of consistency has be applied in respect of listed shares and securities held for a peri od of less than 12 months as well so as to redu ce litigation and uncertainty. 9. Hon’ble Gu jarat High court has held in the case of Deepaben Amitbhai Shah (supra) that when the assessee had made invest ment in shares as investor, income arising to assessee on sale of those shares would be assessable as ‘capital gains’ and not as business profit. It was also held in the case of Dhruv H. Patel (supra) that the intention of the assessee to apply in shares to IPO was to get higher allotment of shares and there was no repetitive purchase and sale of the same script. Under the circumstances merel y because assessee had used borrowed capital to apply for such shares, it cannot be a ground to treat the gain arising on sale of shares allotted through IPO as business income. 10. Following the ratio of the above decisions as well as the facts as discussed above, we are of the considered opinion that the Revenue was not correct in treating the gain arising on sale of shares allotted through IPO as business income . Following the principle of consistency, the sa me should be treated as STC G. ITA No.420/Ahd/2020 (ShriNamanJayeshbhai Shah vs. ACIT) A.Y.– 2016-17- 7 – 11. In the result, the a ppeal filed by the assessee is allowed. This Order pronounced on 07/06/2024 Sd/- Sd/- (T.R. SENTHIL KUMAR) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 07/06/2024 Rajesh आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. "वभागीय &त&न ध, आयकर अपील)य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड/ फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad