Vidyasagar M.P. Sah Vs DCIT (ITAT Mumbai)
In this case Though activity of purchase and sale of shares was not the main occupation of assessee, however, high volume of trade in shares, and very short holding period showed that assessee was using his knowledge, skill and resources to deal in shares, and gains arising on sale of shares were, therefore, to be assessed as business income, and not as short term capital gains.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee directed against the Order by the Commissioner of Income Tax (Appeals)-34, Mumbai (‘CIT(A)’ for short) dated 12.01.2016 and pertains to the assessment year (A.Y.) 2012-13. The grounds of appeal read as under:
1. Short Term Capital Gain of Rs. 3,51,66,426/- treated as Business Income
The Learned CIT(A) erred in treating the Short Term Capital Gain of Rs.3,51,66,426/- as ‘Business Income1without appreciating the crucial facts that the assessee is a professional / consultant for exploration and drilling activities for Oil wells / Rigs etc. which is the principal source of income since 32 years, wherein he has to devote maximum time and the activity has been accepted by the department in all the prior years as well as in the relevant assessment year, therefore merely considering the value, volume and frequently of transaction, treating the assessee as trader is contrary to the facts on record.
2. The Learned CIT(A) failed to appreciate that the assessee is consistently showing the same as investment over number of years and no borrowed funds were utilised for purchase of shares. And the intention of assessee was also to treat the shares as investments and considering the change in pattern of investment, the assessee is acting as a prudent investor, therefore the-addition of Rs.3,5 1,66,426/- as Business Income as against Short Term Capital Gain, is not justified.
3. Without prejudice to above the shares treated / assessed as investment in earlier years cannot be assessed as ‘business income’ in subsequent years, thus action of department is contrary to its own action taken in earlier years. Further the department is inconsistent in its stands in different years . Therefore, the addition made of Rs.3,51,66,426/- may be deleted.
4. The learned CIT(A) erred in confirming the order of the Assessing officer for not allowing the set-off b/f loss of the earlier years .
2. In the present case, the assessee is an individual doing the business of providing consultancy services for exploration and drilling activities for oil wells/rigs and also earning income from the activity of purchase and sale of shares.
3. In the assessment order, the Assessing Officer held that the share trading activity of the assessee is treated as ‘business income’ and the entire capital gain, i.e., short term and long term is treated as ‘business income’ of the assessee.
4. Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer in treating the short term capital gain as ‘business income’ of the assessee. However, the ld. Commissioner of Income Tax (Appeals) granted relief with respect to the long term capital gain earned by the assessee. In his appellate order, the ld. Commissioner of Income Tax (Appeals) relied upon this order of the ITAT in assessee’s own case for assessment year 2006-07 and has found the facts to be identical.
5. Against this order, the assessee is in appeal before the ITAT.
6. We have heard the ld. counsels and perused the records. The ld. Counsel of the assessee submitted that the short term capital gain reflected by the assessee should not be treated as business income. He submitted that the decision of the ITAT relied upon by the ld. Commissioner of Income Tax (Appeals) is in appeal before the Hon’ble jurisdictional High Court. Furthermore, he sought to state that some of the facts in the present assessment year are different from that dealt with by the ITAT.
7. Per contra, the ld. Departmental Representative submitted that the facts of the present case and the facts dealt with by the ITAT as above are similar. This finding has already been given by the ld. Commissioner of Income Tax (Appeals). Furthermore, she submitted that regarding the distinction being referred by the ld. Counsel of the assessee, the ld. Commissioner of Income Tax (Appeals) has already granted relief in-as-much as he has held that the long term capital gain shown by the assessee should be accepted. To this extent, the assessee has already been granted necessary relief. Hence, the ld. Departmental Representative submitted that there is no infirmity in the order of the ld. Commissioner of Income Tax (Appeals).
8. We have carefully considered the submissions and perused the records. The facts in respect of share transactions mentioned in the assessment order and emerging from the information on record are as follows:
(1) The assessee has transacted in fifty three kinds of shares.
(2) The number of shares transacted is more than 1,00,00,000.
(3) The volume of turnover is also more than 70,00,00,000.
(4) The details in respect of shares which were sold within a period of less than fifteen days were as follows:
(a) Total type of shares – 23.
(b) Total number of shares transacted – 91,68,615.
(c) Total amount of profit earned – 94,17,857 which is 27% of the total Short Term Capital Gain earned,
(5) The holding period for nearly all the shares in respect of which Short Term Capital Gain is shown was less than six months.
(6) There were also instances of day-trading transactions. Total 2,99,829 number of shares were transacted within a day and the total sale value of such transactions was Rs.5,25,30,000/-,
(7) The total amount of dividend earned by the appellant in the F.Y.2011-12 was Rs.2,91,627/- whereas the total investment in shares as on 31/03/2012 was 11,20,67,592/-. Thus the dividend earned was mere 0.26% of the total investment which also included such shares which are being held by the assessee for more than one year.
(8) The ratio of the turnover (total sale of shares) to the total investments is also telling in this case. The total value of sales which is about Rs.70 Crores is about seven times of the total value of investments which is about Rs. 11.20 This shows that the assessee has rotated huge volume of shares during the period compared to the investments.
(9) The assessee has heavily traded in some scrip in a repetitive manner. Following are some illustrative examples:
