Arun Dhanji Shah, Mumbai vs Assessee

ITA/3563/Mum/2013,AY.2008-09,ADS

आयकर अपील य अ धकरण, ए खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH सव ी आई पी बंसल , या यक सद य एवं राजे , लेखा सद य Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.3563/Mum/2013, नधारण वष/Assessment Year-2008-09 Arun Dhanji Shah, ITO 25(3)(3), A-1, 3rd Floor, Navrang Building, C-11, 3rd Floor, Pratyakshakar Parekh lane, kandivali (West), Vs Bhavan, Bandra Kurla Complex, Mumbai-400067 Bandra(E), Mumbai-400051 PAN: AAPPS3157D (अपीलाथ /Assessee) ( यथ / Respondent) नधा रती ओर से/Assessee by :Shri Vipul J. Shah राज व क ओर से/ Revenue by :Shri Neil Philip-DR सुनवाई क तार ख/ Date of Hearing : 31- 03 -2015 घोषणा क तार ख / Date of Pronouncement : 10-04-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) Per Rajendra, A.M.लेखा सद य राजे के अनस

ु ार:

Challenging the order dt.22.02.2013 of the CIT(A)-35,Mumbai,assessee has raised following Grounds of Appeal:

1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the action of the Assessing Officer in treating Long Term Capital Gains of Rs.

1,92,906/- as Business Income without appreciating the fact that that the Appellant is an Investor. The Appellant prays that the Income should be treated as Long Term Capital Gains only and not as Business Income.

2. On the facts and circumstances of the case and in law the learned CIT (A) erred in confirming the action of the Assessing Officer in treating Short Term should be treated as Short Term Capital Gains only and not as Business Capital Gains of Rs. 52,506/- as Business Income without appreciating the fact that the Appellant is an Investor. The Appellant prays that the Income should be treated as Short Term Capital Gains only and not as Business Income.

3. The Appellant craves leave to add, amend, alter, modify, substitute or delete any or all the above ground(s) of appeal.

During the assessment proceedings,the AO found that the assessee had sold certain shares during the year and the profit of Rs.1,92,906/- had been shown as Long Term Capital Gain(LTCG),that he had also shown Short Term Capital Gains(STCG)of Rs. 69,299/-,that he had claimed that the profit arising out of sale of shares was exempt u/s.10(38)of the Act.He held that the claim of the assessee was not substantiated by any documentary evidences. He directed the assessee to submit the Demat accounts statement for the period 1.4.2007 to 31.3.2008 and from 1.4.2006 to 31.3.2007 alongwith relevant contract note to support the claim of LTCG.After considering the submissions of the assessee,he held that the assessee's principal activity was dealing in shares,that he offered the income out of the dealing in share STCG/LTCG depending upon the period of holding,that the assessee had dealt in over 17 scrips and more than 87 purchase/sale transactions,that he had purchased 4145 shares and sold 4147 shares during the previous year relating to the assessment year under appeal,that the 1 ITA/3563/Mum/2013,AY.2008-09,ADS

source of fund utilised for acquisition of fund were both borrowed as well as interest income of the assessee,that there was large volume of transactions in shares with considerable frequency,that in majority of the transactions, the settlement had taken place otherwise than by actual delivery or transfer of the scrips,that considerable time was spent in marketing, dealing operations.The AO prepared following tabular chart of the shares where settlement had taken place otherwise than by actual delivery-

SN. Name of the Date of Sale Date of Purchase Difference of transaction Scrip (Rs.) 1 IVRCL Infra 02.08.2007 02.08.2007 196.97 2 IVRCL Infra 03.08.2007 03.08.2007 474.63 3 DLF Ltd. 04.09.2007 04.09.2007 529.60 4 IVRCL Infra 05.09.2007 05.09.2007 67.24 5 IVRCL Infra 10.09.2007 10.09.2007 -211.65 6 IVRCL Infra 03.10.2007 03.10.2007 -1182.72 7 IVRCL Infra 22.10.2007 22.10.2007 -1549.11 8 IVRCL Infra 29.10.2007 29.10.2007 52.62 9 Manali Petro 13.11.2007 13.11.2007 54.28 10 Naveli Lingnite 13.11.2007 13.11.2007 425.22 11 Naveli Lingnite 14.11.2007 14.11.2007 -412.35 12 Orbit Co. 24.12.2007 24.12.2007 18313.84 13 Gujarat Alkalies 24.12.2007 24.12.2007 31.54 16793.11 He held that above transactions,in view of section 43(5) of the Act,were speculative transactions. The AO relied upon the case of Sutlej Cottons Mills Supply Agencies Ltd.(116 ITR1). He also held that a particular treatment in Books of accounts would not alter the real position and referred to the matter of Kedarnath Jute Manufacturing Co. Ltd. (82 ITR 363). Considering the factors like frequency of and volume of transactions,source of purchase or sale and regularity of dealing in shares over a period of time,the AO held that the assessee's dealing in shares was a business transaction and the income so accrued on it was to be treated as business income for the year under consideration.In short the AO held that the STCG(Rs.52,506/-) and LTCG(1,92,906/-) claimed by the assessee was to be treated as business income of the assessee along with speculative transactions.

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 AO neither gave any opportunity to the assessee to file any explanation for treatment of sale of shares nor issued any show cause notice to treat the LTCG of STCG as business income,that the shares were purchased by him for investment purpose only,that same werre also not reflected in the accounts as Stock in Trade,that profit arising out of such transaction had to be assessed as LTCG/ STCG and not the Business Income,that the assessee had dealt in only 17 scrips.

After considering the submission of the assessee and the assessment order the FAA held that the AO had passed speaking order on the issue speculative business,that his order of treating speculative business as business income was to be upheld.With regard to the STCG and LTCG,the FAA held that the assessee entered into voluminous transaction of purchase and sale of shares during the previous year,that he had been purchasing and selling shares,that the volume and ratio of purchase/sale of shares was substantially high compared to volume and ratio of other receipts in the hand of the assessee,that looking into the his present and past conduct it was clear that he had no intention of keeping the 2 ITA/3563/Mum/2013,AY.2008-09,ADS

shares to earn dividend or capital appreciation that shares of numerous companies had been bought and sold by the assessee during the previous year,that the volume of purchase and sale of the assessee during the previous year substantially high,that the purchase and sale of shares was the main activity of the assessee,that the scale of activity was substantial,that the transactions were continuous and regular besides being systematic,that considerable time devoted by the assessee to the activity of purchase and sale,that the only source of income in the profit and loss account was from share business, that the holding period of the shares transacted showed that intention was only to book profit and not to make investment.Finally,the FAA made a reference to the Board Circular Circular No.4/2007 of 15.06.2007 and dismissed the appeal filed by the assessee.

4.Before us,Authorised Representative(AR)argued that speculative transaction were not substantial,that the shares were part of investment,that the assessee had not treated the shares as stock in trade,that he had dealt in only a few scrips.AR relied upon the cases of . Departmental Representative(DR)supported the order of the FAA and stated that the assessee was engaged in speculative transactions,that he was in the business of selling and purchasing shares,that the assessee had no other source of inocme.

5.We have heard the rival submissions and perused the material before us.The only issue to be decided by us is as to whether the AO had rightly assessed the profits arising out of share transactions under the head income from business or profession.In our opinion, there is no clear cut criteria or demarcation that could segregate the transactions related with the shares under the head business transaction/ STCG LTCG transction.Even after series of cases decided by the Tribunal and the Hon'ble Courts,it can be said with certainty that a particular assessee,undertaking share transactions,could be assessed as investor or trader.Courts are of the view that intention of the assessee has to looked in to.Intention at best can be decided from the surrounding circumstances. Broadly,an investor purchase a share with a view to earning income in the form of dividend and for appreciation in value over a long period of time and is not motivated to sell shares on each and every rise in the value of shares which are, in fact, the attributes of a trader.To purchase shares and then wait for appreciation in their value in the long term is the classic example of an investor.There may be criteria and parameters,but individual parameters would not be decisive and it is only the cumulative effect of all those criteria which would be important to decide whether the assessee was an investor or a trader.In short,totality of facts and parameters,as laid down by the Hon'ble Courts as well as CBDT have to be taken into consideration in deciding the question.In the matter of Sonia Uppal the Hon'ble P & H High Court has(367ITR70)held as under:

"There is a no straitjacket formula for concluding whether a transaction would fall within the domain of profits derived from an adventure in the nature of trade or outside its ambit. The facts and circumstances of each case would be determinative of the character of the receipt. The primary consideration in such cases relates to examining the nature of the transaction. Where a person invests money in an asset with intention to hold it, enjoys its usufruct for some time and then sells it at an enhanced price, it would be a case of capital accretion outside the scope of profits resulting from an adventure in the nature of trade. On the other hand, where income accrues on realisation of investments consisting of purchase and resale, income accruing could be treated as from an adventure in the nature of trade. The cardinal question which would require to be answered would be whether the purchaser was a trader and had purchased the commodity with the clear understanding that it was his usual trade or business or incidental to it."

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We find that the FAA has given categorical finding of facts about the intention of the assessee after considering the factors like period of holding,volume and frequency of shares,time devoted by the assessee for share trading activities.We find that the assessee had furnished any details of the dividend earned by him during the year under consideration before any of the authority including us.In our opinion,it is also one of the parameters of deciding the trader/investor issue.It is also a fact that the assessee was involved in speculative transaction.Generally,the investors earns handsome dividend as they hold the shares for a long period for appreciation.We hold that the purchase and sale of shares was not an occasional independent activity, but the assessee was engaged in real,substantial and systematic business activity.As he had purchased the shares with the intention of reselling them at a profit,so,the AO and the FAA have rightly him a trader and not an investor.While dismissing the appeal of the assessee, the FAA has narrated the facts for rejecting the claim made by him.We are of the opinion that there is no legal or factual infirmity in the order of the FAA.If the Cardinal Question,as suggested by the Hon' - ble P & H High Court in the matter of Sonia Uppal(supra),is to be answered after considering the facts of the case under appeal,then it becomes clear that the assessee was a trader and had purchased the commodity with the clear understanding that it was his usual trade or business.In other words it was not incidental to his trade. As far as the cases relied upon by the assessee are concerned,we find that they deal with single parameter or deal with the facts arising in that appeal-they are not similar or identical to the facts of the case.There is no similarity of facts between the cases relied upon by the assessee and the facts of the case under appeal. So,considering the peculiar facts and circumstances of the case and confirming the order of the FAA,we decide effective ground of appeal(GAO1-2)against the assessee.

As a result,appeal filed by the assessee stands dismissed.

फलतः नधा रती वारा दा खल क गई अपील नामंजूर क जाती है . Order pronounced in the open court on 10th,April,2015. आदे श क घोषणा खल ु े यायालय म दनांक 10 अ ैल,2015 को क गई । th

Sd/- Sd/- (आई पी बंसल/I P Bansal) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मब ुं ई/Mumbai, दनांक/Date: 10.04.2015 SK/Jv. आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR "A" Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मब ुं ई

6.Guard File/गाड फाईल

4 ITA/3563/Mum/2013,AY.2008-09,ADS

स या पत त //True Copy//

आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मब ुं ई /ITAT, Mumbai.

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