This appeal has been filed by the Revenue for challenging the order of CIT(A) for treating the profit earned by the Assessee from the sale of shares under the head of capital gains.
As per the facts, the Assessing Officer, after analyzing the transactions made by the Assessee of purchase and sale of shares, observed that the period of holding of shares indicate that the motive of the transaction is to earn profit and not capital appreciation. Thus, the profit earned from the transaction is liable to be treated as business income. However, on appeal, CIT(A) decided the matter in the favour of the Assessee and allowed the amount of profit to be treated as capital gain. Being aggrieved, Revenue approached the present Tribunal.
The present bench found that the CIT(A) after applying proposition of law laid down by Bombay High Court in the case of Gopal Purohit and applying CBDT Circular No.4/2007 dated 15/06/2007 held that profits on sale of shares were liable to taxed under the head capital gains and dismissed the appeal after ruling that profit declared by the Assessee was correctly treated by CIT (A) as capital gain liable to be taxed under the head Capital Gains.
Judgment synopsis is as under:
IN THE ITAT, MUMBAI BENCH, MUMBAI
ITA No. 519/Mum/2016
Assessment Year: 2011-2012
Decided On: 27.11.2017
Appellants: ITO 20(3)(5)
Respondent: Vanaja Sunder Iyer
R.C. Sharma, Member (A) and Amarjit Singh
R.C. Sharma, Member (A)
- This is an appeal filed by the Revenue against the order of CIT(A)-32, Mumbai dated 13/11/2015 for A.Y.2011-12 in the matter of order passed u/s. 143(3)of the IT Act.
- In this appeal, revenue is aggrieved by the action of CIT(A) for treating the business income as capital gains.
- We have considered rival contentions and found from record that capital gain so offered by the assessee on sale of shares was treated by AO as business income.
- By the impugned order, CIT(A) agreed with the assessee’s contention that profit so arose on sale of shares were liable to tax under the head capital gains after having the following observation:-
- DECISION: I have considered the facts of the case, grounds of appeal and written submissions made before me. After a careful consideration of the same as well as the assessment order, I proceed to rule as under.
5.1 The AO examined the transactions done by the appellant of purchase and sale of shares. The AO has noted in his assessment order that the period of holding of shares indicate that the motive is to earn profit and not capital appreciation. The AO held that issues such as, motive for purchase of shares, the time period of holding, frequency of transactions, motive for selling the shares purchased, manner of acquisitions and marketability of shares, are all relevant to determine whether the gains from sale transactions are to be assessed as capital gains or business income. In fact the AO has made an annexure to the assessment order, wherein he has listed out the share which was traded, the volume and the duration of holding. Based on all these points, the AO opined that the transactions of purchase and sale of shares is a business activity. He therefore held the gains to be taxable under head business & profession.
I observe from the annexure that the appellant has dealt in a total of 29 scrips. The period, of holding of only 9 scrips is below 20 days. For the other 20 scrips the period of holding varies from 24 days to 174 days. I also find that in the preceding as well as the subsequent AYs, the appellant has returned gains from share transactions as capital gains and the same has been accepted by the AO. Only for this year, the AO has held the gains to be a business activity. To mind once the AO has accepted the return of the appellant in the earlier years, it would be very unfair to the appellant to disturb the head of income only in 1 year. What is surprising also, is that in the subsequent year, the AO has accepted the claim of the appellant that gains from share transactions are capital gains. Be that as it may, the judicial wisdom in the decisions cited by the appellant is also in his favor. More particularly, the decision of the Hon’ble Bombay High Court in the case of Gopal Purohit squarely applies to the appellant. The CBDT Circular cited by the appellant also allows the appellant to maintain 2 portfolios of shares, one for investment and the other for trading. In the instant case, the appellant has all along maintained that he is only investing in the stock market and the resultant gains/losses should also be capital gains/loss. This position has been accepted by the AO in the case of the appellant under scrutiny proceedings in both the preceding as well as the subsequent AYs. Apart from this, the primary condition of period of holding is also against the AO. As pointed out, only scrips are held for less than 20 days while 20 scrips are held for periods ranging from 25 to 174 days. It is clear on facts also that the appellant is investing in shares. The Hon’ble Bombay High Court in the case of Gopal Purohit has also held similarly. I therefore hold that the gains from share transactions in the case of the appellant is to be assessed as STCG as returned and not business income. The AO is directed accordingly.
- In the result, the appeal is allowed.
- Revenue is in further appeal before us.
- We have considered rival contentions and carefully gone through the orders of the authorities below and found that the CIT(A) after applying proposition of law laid down by Bombay High Court in the case of Gopal Purohit and applying CBDT Circular No. 4/2007 : MANU/DTCR/0006/2007 dated 15/06/2007 held that profit on sale of shares were liable to tax under the head Capital gains. We also found that in the subsequent year, 2009-10, 2010-11 and 2012-13, the AO himself has accepted the profit offered by the assessee under the head Capital Gain while framing scrutiny assessment u/s. 143(3)of the IT Act. The detailed finding so recorded by CIT(A) at para 5 has not been controverted by learned DR by bringing any positive material on record.
- In view of the above, we are inclined to agree with the learned AR Shri Subhash Shetty that profit declared by the assessee was correctly treated by CIT(A) as capital gain liable to be taxed under the head Capital Gains.
- In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on this 27/11/2017.