Siddhalchal Enterprises P.Ltd, Mumbai vs Assessee

श्री आर. सी. शर्मा, ऱेखा सदस्य, एवुं श्री संजय गगा, न्याययक सदस्य के समक्ष

BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER

आयकर अऩीऱ सं. / ITA no.8969/Mum./2010 (ननधधारण वषा / Assessment Year : 2006-07)

M/s. Siddhalchal Enterprises Pvt. Ltd. 113, Balaji Arcade, CTS no.68 ................. अऩीऱधथी / S.V. Road, Opp. Central Bank Kandivali (W), Mumbai 400 067 Appellant PAN - AACCS7297L

बनधम v/s

Income Tax Officer ................... प्रत्यथी / Ward-9(3)(2), Mumbai Respondent

ननधधाररती की ओर से / Assessee by : Shri Vimal Punmiya रधजस्व की ओर से / Revenue by : Shri Neil Philip

सन ु वधई की तधरीख / आदे श घोषणध की तधरीख / Date of Hearing - 24.03.2015 Date of Order - 28.05.2015

आदे श / ORDER

संजय गगा, न्याययक सदस्य के द्वारा / PER SANJAY GARG, JUDICIAL MEMBER

The present appeal preferred by the assessee is directed against

the impugned order dated 20th October 2010, passed by the learned

Commissioner (Appeals)-20, Mumbai, relevant to the assessment year

2006-07. The assessee has taken following grounds:-

M/s. Siddhalchal Enterprises Pvt. Ltd.

2 "1. The learned CIT(A) erred in confirming and treating ` 17,48,604 as income from business and profession as against short term capital gain as claimed by the assessee.

2. The learned CIT(A) has grossly erred in treating the loss suffered by assessee on account of purchase and sale of shares as dividend stripping activity u/s 94(7) and thereby enhanced the business income to the extent of ` 2,983.

3. The learned CIT(A) has grossly erred in restricting the claim of the preliminary expenses to ` 500 only as against ` 3,204 debited to Profit & Loss account by the assessee and subsequently claimed as a deduction under section 35D of the Act.

4. The learned CIT(A) erred in confirming penalty u/s 271(1)(c) of the Act.

5. The learned CIT(A) also erred in confirming the interest u/s 234B and 234C of the Act."

2. Ground no.1 is relating to the issue of treatment of income

earned from sale and purchase of shares whether as short term capital

gains as claimed by the assessee or is to be treated as business

income, as assessed by the Assessing Officer.

3. The assessee is engaged in the business of export of garments

and trading of dyes and chemicals. The Assessing Officer noted that

during the years, the assessee had shown to have earned short term

capital gain of ` 17,48,604. The Assessing Officer, taking into

consideration the volume and frequency of transactions, held that the

assessee had been systematically engaged in the share transactions

with profit motive. He, therefore, treated the income claimed as short

term capital gain by the assessee as business income.

M/s. Siddhalchal Enterprises Pvt. Ltd.

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4. The learned CIT(A) also upheld the findings of the Assessing

Officer. The assessee is thus in appeal before us.

5. Learned A.R. for the assessee has submitted that the assessee

company has been engaged in the business of export garment as well

as trading in dyes and chemicals. Its Memorandum and Article of

Association does not allow it to trade in shares and securities and,

hence, from the very beginning, the assessee company was neither

allowed nor had any intention to trade in shares and securities. The

assessee company had been investing its surplus business profit in

shares since 1997 and has always been treated as an investor. Earlier

the share income from purchase and sale of shares and business

income were taxable at the same rate. However, from the year 2004-

05, the charging rate for short term capital gains have been decreased

giving benefit to the investors in share and securities. The assessee

company, during the year, has also earned long term capital gains

some of which have been in relation to shares which were acquired

from the year 1999 onwards. The assessee has never been treated as

trader in earlier assessment years. No borrowed funds have been used

for the purchase and sale of shares as the assessee used to invest its

surplus profits only in the purchase of shares and securities. The

assessee, during the year, has declared long term capital gain of `

3,54,470, which has been accepted by the lower authorities. He has M/s. Siddhalchal Enterprises Pvt. Ltd.

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further submitted that considering the investment of the assessee in

shares to the tune of `70,00,000, the quantum of purchase and sale of

shares during the year was very small. The assessee, during the year,

has also earned dividend of ` 1,24,125. He has further stated that

even in the immediately preceding assessment year, the assessee had

earned dividend income of ` 2,09,687. He has stated that merely

because this year the dividend income as compared to the last year

has somewhat decreased that does not mean that the assessee has

ceased to be an investor.

6. On the other hand, the learned Departmental Representative

relied upon the findings of the lower authorities and has vehemently

stressed that taking into consideration the large volume of

transactions, the assessee cannot be treated as an investor but only as

a trader in shares.

7. We have considered the rival contentions. There is no denial by

the Revenue to the fact that the assessee has been investing the

surplus business profits in purchase of shares since 1997 and it has

always been accepted as an investor. For the year under

consideration, the assessee has also been treated as investor in

respect of income from share transactions claimed by the assessee as

long term capital gains. The Assessing Officer has treated the assessee

as trader in respect of only short term capital gains claimed by the M/s. Siddhalchal Enterprises Pvt. Ltd.

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assessee. In our view, the Revenue cannot adopt double yardstick

while treating the assessee as an investor in respect of long term

capital gain and as a trader in respect of short term capital gain. If

such yardstick is allowed to be adopted, then the provisions of short

term capital gain will become redundant. When the assessee has been

consistently been treated and accepted as investor since so many

years and there is not much change in the investing pattern or in the

facts and circumstances of the case, then applying the rule of

consistency, the assessee is to be treated as investor only. Moreover,

as explained by the learned A.R., the Memorandum and Articles of

Association of the assessee company does not allow it to trade in

shares and it has been consistently investing its money as an investor

in shares. No borrowed funds have been used for making the share

transactions. The assessee has also earned substantial income from

long term capital gain and also dividend income. All these facts prove

beyond doubt that the intention of the assessee has always been to

invest the money in shares and not the trading in shares. High

frequency of the transactions cannot be the sole factor in holding the

assessee as a trader. Even there is no minimum holding period of

shares is prescribed under the statute for treatment of the same as

short term capital gain. Keeping in view the overall facts and

circumstances of the case and in view of the principle of consistency,

in our view, the assessee has to be treated as an investor and the M/s. Siddhalchal Enterprises Pvt. Ltd.

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income earned from purchase and sale of shares is to be treated as

short term capital gain. Thus, this issue is decided in favour of the

assessee.

8. Ground no.2 is relating to dividend stripping.

9. The Assessing Officer noted that the assessee had purchased and

sold shares of three companies within the time prohibited under

section 94(7) of the Act which had resulted in loss. The Assessing

Officer, therefore, reduced the loss suffered by the assessee to the

extent of dividend earned which was computed at ` 2,983, and added

back the same to the income of the assessee. The learned CIT(A)

upheld the addition.

10. We do not find any infirmity in the impugned order on this issue

and this addition is accordingly confirmed.

11. Ground no.3, relates to disallowance of deduction under section

35D.

12. The assessee debited ` 3,204 to the Profit & Loss account as

preliminary expenses. The Assessing Officer noted that the capital

employed was ` 2,00,000 and deduction of preliminary expenses was

allowable only to the extent of ` 500. He, therefore, disallowed the M/s. Siddhalchal Enterprises Pvt. Ltd.

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deduction of balance of ` 2,704. The learned A.R. for the assessee has

not advanced any arguments on this issue.

13. We do not find any infirmity in the order of the learned CIT(A)

while upholding the disallowance on this issue. Thus, the ground raised

by the assessee is dismissed.

14. ऩररणधमतः ननधधाररती की अऩीऱ आंशशक स्वीकृत की जधती है ।

14. In the result, assessee's appeal is partly allowed.

Order pronounced in the open Court on 28.05.2015

Sd/- Sd/-

आर. सी. शर्मा संजय गगा ऱेखा सदस्य न्याययक सदस्य R.C. SHARMA SANJAY GARG ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, DATED: 28.05.2015

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

Assistant Registrar ITAT, Mumbai