Sanjay Marwah, Thane vs Assessee

अिधकरण, मुंबई Ûयायपीठ 'ई', मुंबई ।

आयकर अपीलीय अिधकरण, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "E", MUMBAI सव[ौी ǒवजय पाल राव,Ûयाियक सदःय एवं ौी बी.आर. भाःकरन लेखा सदःय , के सम¢ ।

BEFORE SHRI VIJAY PAL RAO, JM & SHRI B R BASKARAN, AM

ITA No.3299/Mum/2012: Asst.Year 2006-2007 Shri Sanjay Marwah, DCIT CIR 3 M/s. Ashok Exhibitors, Ashok Talkies, बनाम/ Thane Station Road, Thane (West); 400 601 Vs. PAN : AHLPM2447D (अपीलाथȸ /Appellant) (ू×यथȸ/Respondent)

अपीलाथȸ कȧ ओर से /Appellant by : Shri S.M. Agrawal (AR) ू×यथȸ कȧ ओर से /Respondent by : Shri Love Kumar (DR)

सुनवाई कȧ तारȣख / घोषणा कȧ तारȣख / Date of Hearing : 20.11.2014 Date of Pronouncement : 02.01.2015

आदे श / O R D E R

Shri Vijay Pal Rao ( JM) :

This appeal by the assessee is directed against the order dated 24.01.2012 of the CIT(A) for the assessment year 2006-07.

2. The assessee has raised various grounds in this appeal, however, the only issue arises for our consideration and adjudication is "whether in the facts and circumstances of the case the CIT(A) has error in confirming the treatment of short term capital gain of Rs.1702952/- offered by the assessee as business income."

3. In the return of income for assessment year under consideration the assessee has shown the income from house property, income from business, income from short term capital gain and income from other sources. During the course of assessment proceedings the AO asked the assessee to submit the details. From the details filed by the assessee regarding earning capital gain the AO noted that in majority of 2 ITA No.3299/Mum/2012 .

transactions holding period was less than one months. Even the maximum period of holding was four months. The assessee also carried out 1409 transactions in derivative trade having trade amount of Rs.3,25,43,062/-. The assessee has shown the purchase and sale of shares 74 transactions giving rise to short term capital gain. After considering the nature of transactions, holding period as well as other facts and circumstances of the case the AO held that the intention of assessee was entering into an adventure of purchase and sale of shares as trade. The magnitude of transactions of purchase and sales of shares is very high. The nature of purchase and sale transactions carried out by the assessee is clearly incidental to the trade of purchase and sale of shares. The assessee challenged action of the AO before the CIT(A) but could not succeed.

4. Before us, the assessee has submitted that the assessee is maintaining two portfolios one is for investment and other for trading activities. The assesse is keeping separate account for investment activity. The department has accepted the capital gain in the earlier years even the department has also accepted activity of the assessee as investment in the subsequent year. It was further contended that the Trading in Shares & Securities on non- delivery bases is business activity from derivative and offered the Profit or Loss of the same as business income whereas the activity of purchase and sale of shares as investor has been carried on under the investment portfolio. The assessee has borrowed fund and claimed payment of interest and other expenses as deduction against the business income. The activity of delivery based purchase and sale in the shares indicated intention of the assessee as investment in shares and therefore the income from the said activity was offered as capital gain as opposed to be non- delivery bases purchase and sale of shares as business income. It is vehemently contended that assessee has two portfolios and income from investment portfolio should be treated as capital gain. In support of his contention the assessee has relied upon the CBDT circular no. 4/2007 dated 15th June 2007 as well as decision by this Tribunal in case of Gopal Purohit v. Jt. CIT (2009) 29 SOT 117 (Mumbai) which has been upheld by the Jurisdictional High Court 336 ITR 287. The concepts of two separate portfolios have been repeatedly upheld of this tribunal in various decisions. It 3 ITA No.3299/Mum/2012 .

is further contended that the assessee has taken loan from ICICI Bank for trading in shares as overdraft account and not used borrowed fund for the purpose of investment activity. The assessee has maintained demat account for investment portfolio and the transactions based on delivery or through demat account of assessee. Since the AO has accepted the investment portfolio as well as capital gain for assessment year 2005-06 therefore, as per rule of consistency the AO cannot take a different view in the year under consideration. In support of his contention he has relied upon the judgment of Hon'ble High Court in the case of Gopal Purohit v. Jt. CIT (supra) as well as judgment of Hon'ble Supreme Court in the case of Radhasomi Satsang v. CIT (1992) 193 ITR 321 (SC). Thus, the assessee has submitted that the action of the authorities below is not justified in treating the short term capital gain as business income.

5. On the other hand, the Ld. DR has submitted that the volume of transaction and frequency of the transactions is very high. The assessee used borrowed fund by taking overdraft facility from ICICI Bank. Otherwise normal activities of assessee is business of large scale trading in derivatives therefore, the purchase and share on delivery based is nothing but arising from the same trade activity of the assessee. He has relied upon the orders of the authorities below as well as judgment of Hon'ble Delhi High Court in the case of CIT vs. M/s. D&M Components Ltd. dated 21.04.2014 in ITA No.561 & 566/2012.

6. We have considered the rival submissions as well as relevant material on record. The question of nature of transactions of purchase and sale of share whether investment or trading is purely factual one. Therefore, each case involving the question of fact has to be decided on the basis of the peculiar facts of the said case and not on the basis of the finding of facts in another case. The principle of precedent is not strictly applicable on the finding of facts. There are various test and criteria relevant for determining the question of nature of activity of purchase and sale as trading or investment. All the tests have only one object of ascertain the intention of the assessee while carrying out such transactions. Book entries cannot be the sole criteria of judging, the intention of the assessee if the real activity reflects otherwise. During the year under 4 ITA No.3299/Mum/2012 .

consideration the assessee has carried out derivative transaction on large scale and also carried out 74 transactions of purchase and sale of shares on delivery basis. The assessee claimed the surplus from purchase and sale on delivery based transactions as short term capital gain on the reasoning that the assessee is maintaining two portfolios one for investment and other for derivatives business. There is no quarrel on the point that the assessee can have two separate portfolios but maintaining separate portfolios would not epso facto establish the fact that the transactions shown in the investment portfolios are in fact in the nature of investments and not trading. The purpose and intention of investment is to own the property for longer period so as to get the value appreciation. The motive of investment is primarily appreciation in value of the property in due course of time and not to earn profit at the earliest possible opportunity.

7. In the case in hand the details of period furnished by the assessee as under;

Period of Holdings Number of Transaction 1-30 42 31-90 25 91-180 8 Total 75

The above details clearly show that the holding period of more than 50% of the transactions is less than 30 days. Which shows the intention of the assessee is not to retain the shares for appreciation in value but sell them as early as possible to earn profit. The CIT(A) after considering the relevant facts has concluded in para 4 as under:

" I have carefully considered the facts brought on record by the A.O. and also submission of the appellant. I find that the appellant has been doing business of derivatives on very large scale as is evident from the turnover which is Rs.111.39 crores during the year under consideration. The stock in hand of derivative is also at Rs.23.29 crores. In respect of shares, I find that the appellant has carried out purchase and sales of shares through about 74 transactions. The holding period of the shares ranges from 4 days to 4 months. The volume of purchase of shares is Rs.3,25,43,062/- and that of sales is Rs.3,08,57,293/-. There is closing stock of shares also at Rs.1,62,28,899/-. The closing stock of shares has been shown in the balance sheet as shares and there is no mention therein as to whether the same is investment of stock-in-trade. It has been claimed by the appellant that a sum of Rs.25,00,000/- received as deposit from the tenant had been temporarily used for the investment in the shares and securities for a short period of time. However, this claim is not found to be correct because a sum of Rs.25,00,000/- would not be sufficient for carrying out the activity of purchase and 5 ITA No.3299/Mum/2012 .

sale of shares of such as large scale particularly when the stock of shares was Rs.1,26,29,899/- as on 31.3.2006. The appellant has ICICI bank OD account and ICICI future and option A/c. showing huge liability to the extent of Rs.2.59 corres. In view of these factual observations, it is clear that the appellant has not intention to retain the shares for reaping out the appreciation in their value or earning dividend because in such a short period of time, there cannot be appreciation in the value of shares. Thus, I conclude as under:-

(i)that the appellant is in the line of business of trading in the shares and derivatives and therefore, purchase and sales of the shares has been made with a clear cut motive of earning profit on account of market fluctuation and not on account of appreciation in the value of shares and dividend.

(ii)that the funds of Rs.25,00,000/- received as deposit from tenant claimed by the appellant to have been used for the purchase of shares, are not sufficient for carrying out the activity of purchase and sales of the shares to such extent.

(iii) That the frequency and volume of the transaction is very huge in the case of the appellant.

(iv) That the appellant has carried out an organized activity of purchase and sales of the shares with a clear cut intention to earn profit from the market fluctuation."

8. Thus, it is clear that the overall holding period of the shares ranges from 4days to 4 months. The volume of purchase and sale is almost equal which shows that the intention of the assessee is not to retain the shares but disposed off at the earliest possible time. Further the assessee is having OD facility with ICICI Bank. The outstanding liability at the end of the year in the OD account is Rs.2.59 crores. The own fund claimed by the assessee is nothing but deposit received from the tenant therefore it was not his own fund but was to be refunded to the tenant. One more important feature of the transactions is repetitive purchases and sale in the same script and also in some cases same day transactions of purchase and sales. From the details of purchase and sale shown in the investment portfolios we find that the assessee has carried out repetitive transactions of same share as under;

Security Quality Purchases on Sold On Holding Sale Purchase Gain/loss Period Proceeds Cost

Bajaj 2,000 05-Sep-05 19-Oct-05 44 410221 426326 -16105 Hindustan Bajaj 3,000 25-Nov-05 21-mar-06 116 1433795 658471 775324 Hindustan Beml 800 22-Apr-05 27-Apr-05 5 492429 524521 -32093

Beml 400 03-Aug-05 13-Oct-05 71 335290 270402 64888 6 ITA No.3299/Mum/2012 .

Beml 600 03-Aug-05 13-Oct-05 71 501507 405603 95905

Beml 400 19-Sep-05 13-Oct-05 24 334338 356311 -21973

Biocon 1,500 12-Jul-05 08-Aug-05 27 658005 669033 -11028

Biocon 1,500 22-Aug-05 22-Sep-05 31 895154 912304 -17150

Glenmark 364 25-Jan-05 11-Apr-05 76 101157 89165 11992 Pharma Glenmark 636 25-Jan-05 27-Apr-05 76 176747 155868 20879 Pharma Glenmark 1,000 25-Jan-05 21-Apr-05 92 279197 245076 34121 Pharma Glenmark 2,000 05-Sep-05 21-Sep-05 16 610361 592912 17449 Pharma Helios&Math 750 19-Sep-05 22-Sep-05 3 288073 330963 -42890

Helios&Math 2,500 08-Nov-05 22-Mar-06 134 465981 498956 -32974

Hind Oil 3,000 21-Apr-05 27-Apr-05 6 426402 426924 -522 Exploration Co. Hind Oil 3,000 22-Apr-05 27-Apr-05 5 426402 451000 -24599 Exploration Co. Hind Oil 3,000 14-Nov-05 21-Mar-06 127 439863 457389 -17526 Exploration Co. Sesa Goa 300 21-Apr-05 27-Apr-05 6 212992 218440 -5448

Sesa Goa 300 22-Apr-05 27-Apr-05 5 212992 223044 -10052

Sesa Goa 400 09-Nov-05 18-Jan-06 70 374686 409518 -34832

Sesa Goa 400 24-Nov-05 18-Jan-06 55 374686 405007 -30321

Shringar 2,500 31-Aug-05 21-Sep-05 21 198774 213540 -14766 Cinemas Shringar 2,500 31-Aug-05 21-Sep-05 21 198774 212408 -13634 Cinemas Shringar 5,000 08-Sep-05 21-Sep-05 13 397549 474813 -77264 Cinemas Shringar 4,000 21-Sep-05 21-Sep-05 0 324945 368619 -43675 Cinemas Shringar 1,000 21-Sep-05 21-Sep-05 0 81236 91853 -10617 Cinemas

9. The Activity of repetitive purchase and sale of same script manifest the intention of the assessee to book the profit on every swing of the stock market and then again entered into the same script to re-book the profit on the next swing. Thus the assessee is running with the movement of the stock market.

10. Therefore, the facts and circumstances of the case clearly show that assessee was doing the transactions of trading in shares. The assessee contended that the AO 7 ITA No.3299/Mum/2012 .

accepted the investment in the earlier, therefore, cannot take a different view for the year under consideration. It is pertinent to note that rule of consistency is applied only when the facts are identical and not distinguishable. In the year under consideration the assessee has carried out repetitive transactions in the same script as well as same day transactions of purchase and sale therefore, the earlier orders would not operate as res-judicata or applied as rule of consistency. Hence, we do not find any error or illegality in the impugned order of the CIT(A) and the same is uphold.

11. In the result, the appeal of the assessee is dismissed.

Order pronounced on this 2nd day of January, 2015.

आदे श कȧ घोषणा Ǒदनांकः 02.01.2015 को कȧ गई ।

Sd/ Sd/- (B.R. BASKARAN) (Vijay Pal Rao,) लेखा सदःय / ACCOUNTANT MEMBER Ûयाियक सदःय / JUDICIAL MEMBER

मुंबई Mumbai; Ǒदनांक Dated : 2nd January, 2015. Patel* आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. ू×यथȸ / The Respondent. 3. आयकर आयुƠ(अपील) / The CIT, Mumbai. 4. आयकर आयुƠ / CIT(A)-9, Mumbai

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड[ फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स×याǒपत ूित //True Copy// उप/सहायक पंजीकार (Dy./Asstt.

उप/ Registrar) आयकर अपीलीय अिधकरण, अिधकरण, मुंबई / ITAT, Mumbai