IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI
I.T.A. No. 1249/Mum/2012 ;  Assessment Year: 2008-09

Shri Sandip Y. Shah(HUF) (Appellant) vs DCIT (Respondent)
Date of Order: 09-09-2015

PER N.K. BILLAIYA, AM:

This appeal by the assessee is preferred against the order of the Ld. CIT(A)-23, Mumbai dt. 8.12.2011 pertaining to Assessment year 2008-09.

2. The sole grievance of the assessee is that the Ld. CIT(A) erred in treating Short Term Capital gain earned on investments in shares and mutual funds as business income.

3. The assessee is a HUF. Return for the year filed on 31.7.2008 declaring total income at Rs. 25,34,850/-. The return was selected for scrutiny assessment under CASS and accordingly statutory notices were issued and served upon the assessee.

3.1. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has shown income from speculation, capital gains and income from other sources. The assessee was asked to furnish reasons as to why the income from Short Term Capital Gain of Rs. 24,86,318/- be not treated as income from business. The assessee explained that it was showing investment in shares consistently and offering the same as Short Term Capital Gain/ Long Term Capital Gains as applicable. It was further explained that the assessee has no borrowings, all the investments have been made out of own funds, thus transaction in shares is routed through Demat accounts. The demat statements were also filed.

3.2. After considering the facts, the AO was of the opinion that the assessee is trading in shares. The AO was of the firm belief that the assessee is actively engaged in the business of share trading and share speculation and accordingly treated Rs. 24,86,318/- as business income of the assessee.

4. The assessee carried the matter before the Ld. CIT(A) and reiterated what has been stated during the course of the assessment proceedings but the Ld. CIT(A) did not accept the claim of the assessee and confirmed the assessment order. The entire decision of the Ld. CIT(A) is based on the fact that the assessee is heavily engaged in intra-day trading in shares.

5. Aggrieved by this, the assessee is before us.

6. The Ld. Counsel for the assessee once again stated that the investments have been made out of own funds and the assessee is an investor. It is the say of the Ld. Counsel that in earlier assessment years and also in the subsequent assessment year the capital gains shown by the assessee from the sale of shares have been accepted by the department. The Ld. Counsel heavily relied upon the decision of the Hon’ble Bombay High Court in the case of CIT Vs Gopal Purohit 336 ITR 287.

7. Per contra, the Ld. Departmental Representative strongly supported the findings of the Ld. CIT(A).

8. We have given a thoughtful consideration to the orders of the authorities below. The issue whether the income from sale and purchase of shares in a particular case should be treated as capital gain or as business income has been a debatable issue and there are conflicting decisions of the Tribunal on this issue. Each case is, therefore, to be based on its own factual situation. The Hon’ble Supreme Court in the case of CIT Associated Industrial Development Co Pvt. Ltd. 82 ITR 586, which decision has also been considered by the CBDT in its Circular No. 4/2007 dt. 15.6.2007, has observed that :

“Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment”

The CBDT has also mentioned in its circular that it is possible for a tax payer to have two portfolios i.e. an investment portfolio and trading portfolio. This view has also been fortified by the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs Gopal Purohit- 336 ITR 287(2010) 188 Taxman 140 (Bom).

9. The allegation of the AO is that the assessee has indulged in high frequency transactions. This in itself could not mean that trading activities have been carried out. A prudent investor always keep a watch on the volatility of the market and made sound investment decision in accordance with such market fluctuation and has the liberty to liquidate the investments in shares as and when necessary. The law itself has recognized this fact by treating the same as Short Term Capital gain for shares held less than 12 months and Long Term Capital gains when the shares are held for more than 12 months. Had this been not the case, all the gains on shares would be considered as business income only. Thus, the assessee’s claim cannot be negated on the basis of frequency of transaction. The AO cannot replace his opinion for that of the assessee in holding that the shares are held as stock-in-trade and profit from which is to be assessed as business income. In all cases, the intention is manifested by the assessee himself by his conduct and other relevant facts.

10. As mentioned elsewhere, the assessment for A.Y. 2004-05, 2005- 06, 2006-07 and 2009-10 have been made u/s. 143(3) of the Act. In all these scrutiny assessments, we find that the assessee’s main source of income is from speculation income, Short Term Capital gains and income from other sources. Rule of consistency says that on same set of facts, the Revenue authorities should not take a different view. There has to be uniformity in treatment and consistency when the facts and circumstances are identical particularly in the case of the assessee. Our view is fortified by the decision of the Hon’ble Bombay High Court in the case of Gopal Purohit (supra). We also find that the findings of the Ld. CIT(A) is heavily based on the fact that the assessee is indulged in intra-day trading of shares. We find that the assessee has shown the same as business income. Therefore, there is no merit in the findings of Ld. CIT(A). Respectfully following the orders of the earlier years and the subsequent years, in the light of the decision of the Hon’ble Bombay High Court in the case of Gopal Purohit (supra), we set aside the findings of the Ld. CIT(A) and direct the AO to treat the Short term Capital Gain as Short term capital gain.

11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 9th September, 2015.

 Sd/-                                                    Sd/-
(RAM LAL NEGI )                  (N.K. BILLAIYA)
JUDICIAL MEMBER              ACCOUNTANT MEMBER