TaxTMI 
TaxTMI 
2018 (2) TMI 181
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....unal, Mumbai (hereinafter called "the tribunal") in ITA no. 2826/Mum/2015 for assessment year 2010-11, read as under:- " (i) "On the facts and in the circumstances of the case, and in law, the Ld CIT(A) erred in treating the business income as capital gain, whereas assessee had invested in shares to make profit and not to make investment." (ii) .. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in not considering the volume of profits and nature and frequency of transactions is nothing but trading in shares with an intention to earn quick profits out of trading activity and not to earn dividend out of investment in shares." (iii) "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in treating the profits from sale of shares as capital gains without taking note of sale pattern of shares which clearly establishes the intention of the assessee to earn profits and not to make investment." (iv) "The appellant prays that the order of the Ld CIT(A) on the above grounds be set aside and that of the A.O. be restored." (v) The appellant craves leave to amend or alter any ground ....
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.... from trading in shares be not brought to tax as income from business and claim of the assessee to long term capital gains and short term capital gains be not disallowed, to which the assessee submitted that assessee is an investor in shares . It was submitted by the assessee that the share purchased by the assessee were generally held for more than one year and shares were shown as investments in books of accounts under the head „Investments‟ . It was submitted by the assessee that the intention of the assessee is to hold the shares for investments on which dividend income was also earned . It was submitted that shares were not held as stock-in-trade and the shares were not reshuffled for long period . It was submitted by the assessee that the accounts of the assessee were audited u/s. 44AB by a chartered accountant. It was also submitted that assessee also dealt in Futures and Options(F&O) and the income from future & options was declared as business income (loss) under the head „Income from Business or Profession‟ . It was submitted that the Revenue had accepted the stand of the assessee in the preceding years as the same treatment was given by the assess....
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....Capital gain Bharati Shiyard 11.03.10 268.2677 22 5901.89 11.03.10 268.0314 22 5896.69 -5.2 10.03.10 269.117 10000 2691170.2 10.03.10 269.2337 10000 2692336.6 1166.32 11.03.10 269.7415 20000 5394829.9 11.03.10 269.8923 20000 5397845 3015.15 23.02.10 268.2445 20000 5364890.1 02.03.10 273.6426 20000 5472491 107600.91 18.02.10 2678.2116 20000 5364231.5 19.02.10 271.294 2000 5425879.4 61647.93 Total 70022 18821024 70022 18994449 173425.11 Cipla Ltd. 17.02.10 326.5914 10000 3265913.7 18.02.10 319.516 4 10000 3195163.5 Total 10000 3265913.7 10000 3195163.5 -70750.23 Reliance Infra Projects 03.03.10 258.5993 20000 5171985.4 08.03.10 17742 4614336 -557649.44 2258 597792.71 597792.71 Total 20000 5171985.4  ....
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.... 04.12.08 42.655 19856 846960.86 05.12.08 43.511 80144 3487147.2 100000 4334108 100000 11005600 6671491.75 05.12.08 43.511 22586 994487.87 06.05.09 111.77 110100 12305635 DETAILS OF LONG TERM CAPITAL GAIN Date of sale NO.OF NO.OF LONG TERM SHARES DATE OF SHARES CAPITAL GAIN SOLD AMOUNT RATE PURCHASE PURCHASED AMOUNT RATE /LOSS 31.03.2010 200295 48,776,173.98 243.52 23.12.08 5706 278,852.22 48.87 24.12.08 6000 273,847.85 45.64 24.12.08 16000 732,039.61 45.75 26.12.08 54370 ....
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.... To loss on F & 0 7,00,98,539.00 Net Profit 7,02,96,239.00 Total 14,46,53,780.00 Total Total 14,46,53,780.00 The AO assessed income of Rs. 7,02,69,2369/- which was brought to tax as income under the head Income from business and profession vide assessment order dated 12-03-2013 passed by the AO u/s 143(3). With respect to the F&O transactions wherein the assessee had claimed loss of Rs. 7,38,18,591/- which was claimed to be set off against short term capital gains of Rs. 10,48,18,685/- , the A.O observed that Rs. 7,00,98,539/- was shown as sundry creditors as at the end of the year in the name of NKB Securities . The assessee was asked to produce global report of the F&O trade and contract notes issued by the said broker. On analysis of the details submitted , the AO observed that the assessee had incurred F & O loss from NKB Securities on the transactions which were entered all through the year but the account with NKB Securities was not settled. The A.O observed that the usual market settlement period of the trade is T+2 i.e. all the payments of the trade are to be settled within st....
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....r market price which ever was lower and the loss was accordingly claimed in the P&L account. The CBDT circular No.4 of 2007 dated 15-06-2007 in fact also provides for a situation wherein tax payer may hold both portfolios, trading in investment in shares at the same time. Para 10 of CBDT circular No 4 which reads as under: "CBDT also wishes to emphasis that it is possible for a tax payer to have two portfolio i.e. an investment portfolio comprising of securities which are to be treated as capital assets and trading portfolio comprises of stock in trade which are to be treated as trading assets. Where an assessee has two portfolio the assessee may have income under both heads i.e. capital gain as well business income." It is also seen from the facts of the case that the appellant has been holding a large number of shares for more than a period of one year and there no borrowings made by the appellant. The appellant has also earned substantial dividend during the year. The Hon'ble Supreme Court in the case of CIT Vs Madan Gopal Radhyalal 73 ITR 62 has held that there cannot be a presumption that every acquisition by a dealer in a particular commodity is....
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....e case of the appellant that he was trading through a different broker and was therefore, his records would not have been or could have been found with another broker's account. In this background, where the appellant has not been able to produce any evidence whatsoever for the said claim of the loss, I am of the considered opinion that the AO has rightfully, held the said F&O trade to be sham transaction. In light of this finding, the question of allowing set off as income from short term capital gain does not arise. The action of the AO on this account is hereby upheld. On this ground, appeal is dismissed." 6. Now both the assessee as well as Revenue have filed an appeal before the tribunal . The assessee is aggrieved by the disallowance of F&O loss while the Revenue is aggrieved by the treatment accorded by learned CIT(A) by holding that profit/loss from sale / purchase of shares are to be treated as capital gains and not as business income as was held by the A.O. in its assessment order. The Ld. CIT-DR open the argument and submitted that the assessee is an investment advisor and giving advises with respect to sales and purchase of shares to other parties/clients. The....
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....reafter these shares were sold after taking physical delivery on purchase of shares and delivery of shares were also given while selling the shares. Similarly, with respect to the short term capital gain of Rs. 10.45 crore earned by the assessee, it was submitted that these gains were earned on delivery based shares and these shares were duly de-mated in assessee‟s favour and STT was also paid on the sale/purchase of these shares . With respect of F&O loss , it was submitted that assessee had duly paid the outstanding amount to NKB Securities in the immediately succeeding year and there was nothing payable with respect to dues which was payable as at the year end as it stood duly paid in succeeding year . The assessee relied on the decision of ITAT-Lucknow Bench in the case of DCIT v. Verma Roadways (2012) 24 Taxman.com 304(Luck.) and also decision of ITAT-Mumbai in the case of Shri Pankaj K. Dharia v. ITO in ITA no. 5142/Mum/2013 vide orders dated 10-08-2016. It was submitted by learned counsel for the assessee that F&O details were not recorded in NSE for which assessee cannot be faulted with and another opportunity be granted to the assessee to reconcile the same . Ld. ....
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....ceedings while principles of consistency has to be followed. Reference is drawn to the decision of Hon‟ble Supreme Court in the case of Radhasoami Satsang v. CIT(1992) 193 ITR 321(SC) . We are also aware of the decision of Hon‟ble Bombay High Court in the case of CIT v. Gopal Purohit(2010) 188 Taxman 140(Bom. HC) and recent decision of Hon‟ble Bombay High Court in the case of Jaya Chheda v. ACIT reported in (2018) 89 taxmann.com 152(Bom) which are w.r.t. . We have observed that the assessee entered into large number of transactions in shares which are reproduced here under:- DETAILS OF PERIOD OF HOLDING OF STCG 1 Bharatl Shipyard Holding Period No. of Shares % of Total Gain/Loss % of Total Gain! Loss Up to 1 Week 70022 100 173425.11 100 TOTAL 70022 173425.11 2 Cipla Ltd. Holding Period No. of Shares % of Total Gain/Loss % of Total Gain! Loss Up to 1 Week 10000 100 -70750.23 100 TOTAL 10000 -70750.23 3 Relaince Infra Projects ....
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....p; 29.12.08 15738 738,112.43 46.9 200295 48,776,173.98 200295 9,251,775.86 39,524,398.12 BREAK UP OF PERIOD OF HOLDING NAME OF HOLDING NO.OF %OF % of total THE SCRIP PERIOD SHARES TOTAL CAPITAL GAIN/LOSS CORE UPT02 GAIN PROJECT YEARS 200295 100 39,524,398.12 100 Total ^ 200295 100 39,524,398.12 ... 100 It is the claim of the assessee that all the shares were duly de-mated and dealings were undertaken on delivery basis wherein the assessee has taken physical delivery of shares in his demat account....
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....is trader in shares even though majorly the assessee earned capital gains on one share namely Core Projects Limited and quantitatively large number of shares were purchased and sold. Every prudent person who make investments in share-market do so for earning money on its investment with commercial expediency in mind and if an opportunity exists for making money in a very volatile and complex market , every prudent person keeping in view principles of commercial expediency will exit from the stock which yielded good returns and it cannot be expected of prudent investor governed by the principles of commercial expediency to hold shares for a longer period in a volatile and complex stock market and then end up losing money on shares merely with the fear that Revenue will classify it as trader if he end up selling at shorter period wherein he had the opportunity to make money. Merely because the investor has earned money on shares , it cannot be concluded that he is trader in shares. There are several factors to be seen which depends upon facts and circumstances of each case before arriving at the decision whether the assessee is an investor and / or trader. In the instant case, the sh....
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....133(6) at their Bhopal and Mumbai addresses but the said notices returned un-served . The assessee also could not produce the said broker party namely NKB Securities before the authorities below. The A.O send the notices to National Stock Exchange u/s. 133(6) wherein the NSE replied that there were no such dealing of the assessee in F&O segment during the relevant period through NKB Securities . The copy of reply received from NSE was duly handed over to the assessee by the AO but the assessee could not rebut the same as no evidences are brought on record by the assessee to prove that F & O transactions were genuine. Even before us no additional evidences are filed to contend that F & O losses were genuine. Keeping in view facts and circumstances of the case on the touchstone of the preponderance of probabilities , we are of the considered view that the loss in F & O segment claimed to have been incurred were bogus/sham loss which was being allegedly incurred only with a view to set off the same against the income from short term capital gains on sale of shares/securities in order to reduce the tax liability. Thus, we disallow this loss by holding the same to be sham and the appeal....
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.... 17799542 104,605,06 TOTAL GRAND TOTAL SHORT TERM CAPITAL GAIN 1,583,432 ì´ 1583432 6 7 104590432 Document 2 S.no Name of the share Date of Rate Qty. Amount Date of Sale Rate Qty. Amount Capital gain Purchase 1 Bharati Shiyard 11.03.10 268.2677 22 5901.89 11.03.10 10.03.10 269.117 10000 2691170.2 10.03.10 268.0314 269.2337 22 5896.69 -5.2 10000 2692336.6 11.03.10 269.7415 20000 5394829.9 11.03.10 269.8923 20000 23.02.10 268.2445 20000 5364890.1 02.03.10 273.6426 18.02.10 2678.2116 Total 20000 70022 5364231.5 18821024 19.02.10 271.294 20000 2000 70022 5397845 5472491 5425879.4 1166.32 3015.15 107600.91 61647.93 18994449 173425.11 2 Cipla Ltd. 319.516 17.02.10 326.5914 10000 3265913.7 18.02.10 10000 3195163.5 Total 10000 3265913.7 4 10000 3195163.5 -70750.23 3 Reliance Infra 03.03.10 258.5993 20000 5171985.4 08.03.10 17742 4614336 -557649.44 Projects Total 20000 517....