IN INCOME TAX APPELLATE TRIBUNAL BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAMIT KOCHAR, AM ITA No.5897/Mum/2013 (A.Y:2010-11) Dy. Commissioner of Income Vs. Shri Abhinay B. Kapoor, Tax-25 (3), 308, C-11, Bandra-Kurla Badri Nath Ram Nath Kapoor, Complex, Bandra (East), Mumbai G-105, Nisarg Heaven CHS, 400 51 Mahavir Nagar, Kandivali (W), Mumbai-400 067 PAN:AJYPK 9456B Appellant .. Respondent Appellant by .. Sri A. Ramachandran, Sr. DR Respondent by .. Ms. Aarti Sathe, AR Date of hearing .. 19-10-2016 Date of pronouncement .. 19- 10- 2016 ORDER PER MAHAVIR SINGH, JM: This appeal by Revenue is arising out of order of CIT-(A)-35, Mumbai in appeal No.CIT(A)35/DCIT.25(3)/ITA.178/2012-13 dated 24th July, 2013. Assessment was framed by DCIT-25(3), Mumbai for assessment year 2010-11 vide his order dated 28-12-2010 u/s 143(3) of Income Tax Act, 1961 (hereinafter Act ). 2. only issue in this appeal of Revenue is against order of CIT (A), Mumbai in deleting addition made by AO on profit on purchase and sale of shares treating same as business income. 3. Briefly stated facts are that assessee is individual earning income from salary, income from business and profession, profits and gains of speculation business, capital gains and income from other sources. assessee is also engaged in trading of shares. During course of assessment proceedings AO required assessee to explain as to why income declared under head short term capital gain i.e. profit arising out of sale and purchase of shares, be not treated as trading in shares and consequently business income amounting to Rs.44,59,731/-. assessee before AO claimed that assessee has declared three types of income shown from purchase and sale of securities i.e. first is speculative profit, second is futures and options profit and third i.e. 2 ITA No.5897/Mum/2013 investment in shares shown as short term capital gain. It was explained by assessee that during relevant year, he was employed in full time employment with Pradip Metals Ltd. learned Counsel for assessee stated that shares wherein assessee s indulgence in purchase and sale and kept in investment in balance sheet by taking delivery of shares is only declared as short term capital gain or long term capital gain as case may be. learned Counsel for assessee before AO stated that in past also assessee is treated as investor and returns were processed u/s 143(1) of Act for assessment years 2008-09 and 2009-10, wherein status of assessee as investor was accepted by Department. AO brought out details of pattern of earning from share trading and noted following facts:- Sr. Period of trading No. of shares No. of shares Net short term No. Purchased Sold Capital gains / loss (Rs.) 1 01.04.2009 to 15.09.2009 330801 330801 4,76,846 2 16.09.2009 to 15.12.2009 266460 266460 15,44,255 3 16.12.2009 to 15.03.2010 158000 158000 3,04,811 4 16.03.2010 to 31.03.2010 110000 110000 21,38,819 44,59,731 It is seen that assessee had earned nearly 48% of his shares trading income during period 15.03.2009 to 31.03.2010 and in that period he had earned Rs.17,62,369/- from trading in one scrip of M/s. FCH in which he had purchased 60000shares @ Rs.165 per share on 29.03.2010 and sold 60000 shares @Rs.195/- per share on 31.03.2010. assessee had held majority of shares for very short duration ranging from 1 day to one month. assessee had held share for more than 6 months only in respect of one scrip namely M/s. NUTEK. He has also submitted that he had not taken physical delivery in any of scrips. Accordingly, AO treated profit arising out of purchase and sale of shares as income from business. Aggrieved, assessee preferred appeal before CIT (A) who, after considering submissions of assessee and considering decision of Hon ble Bombay High Court in case of CIT Vs Gopal Purohit (2011) 336 ITR 287 treated assessee as investor and profit arising out of sale of shares was treated as short term capital gain by observing as under:- I have gone through contentions of A O and submissions of appellant. Facts have been examined in light of relevant 3 ITA No.5897/Mum/2013 judicial decisions referred to by both parties. With regard to principle of res judicata I am in agreement with A O that in case of income tax proceedings principle may not apply where facts ma merit re-examination. In this case neither has scrutiny assessment been undertaken in last two years in which appellant started reflecting income from capital gains through share trading and in any case facts would need to be seen for particular year. Their lordships of Hon ble Supreme Court in Radhaswami Satsang v CIT (A) 193 ITR 521 have categorically held as under: .. Strictly speaking, resjudicata does not apply to income tax proceedings. Though each assessment year being unit, what was decided in one year might not apply in following year, where fundamental aspect permeating through different assessment years has been found or fact one way of other and parties have allowed that position to be sustained by no challenging order, it would not be at all appropriate to allow position to be changed in subsequent year. Coming to facts of this year it is seen that appellant has purchase cost of Rs.5,27,58,652/- and sale value of Rs.5,72,18,383 resulting in net gain of Rs.44,59,731/-. number of scrips held for period of less than 7 days is 84 and number of scrips held for more than 30 days is 100 out of total scrip holding of 184. From this it can be seen that major part of short term capital gains was earned by holding shares for period more than 30 days. contention of A.O. is not found backed by fact that majority of shares were held for than month. contention of appellant that maximum profit has been trading of one of scrip cannot be held against appellant since even for investment purpose it for appellant to invest in manner so as to maximize his gain. It is seen that appellant has shown holdings as investment in his balance sheet. appellant has not borrowed any funds for investment in shares and has used his own funds generated through other source of income including salary to invest in dealing in shares. Aggrieved, Revenue is in appeal before Tribunal. 4. Now before us, there is no dispute that assessee has invested his own funds for purchase and sale of shares. Admittedly, in balance sheet as declared these shares are investment, but only disputed point remains even before us is that whether assessee has taken physical delivery or not, because AO has categorically recorded finding that assessee has not taken delivery in any of scrips. learned Counsel for assessee before us now stated that this is contradictory statement of AO and for this he stated that once that assessee is holding shares for one day to one month and next, he says that assessee has not taken physical delivery of any shares. She explained that assessee has taken delivery of all 4 ITA No.5897/Mum/2013 shares in Client Pool Account of Broker. She also explained that this Client Pool Account is facility provided by share brokers who held shares on behalf of client and shares remain in custody of brokers as per instructions of client. We are not convinced with argument of learned Counsel for assessee for reason that she has not filed any proof that delivery of these shares were taken in Demat account because assessee could not file statement of Demat account. In absence of same and in interest of justice, whether assessee has taken physical delivery of these shares and kept same in Demat Account, needs verification and hence, we remand matter back to file of AO for limited purposes for verification of same. Resultantly, Revenue s appeal stands allowed for statistical purposes. 5. In result, appeal of Revenue is allowed for statistical purposes. Order pronounced in open court on 19-10-2016. Sd/- Sd/- (RAMIT KOCHAR) (MAHAVIR SINGH) ACCONTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 19-10-2016 Lakshmikanta Deka/Sr.PS 5 ITA No.5897/Mum/2013 Copy of Order forwarded to: 1. Appellant 2. Respondent. 3. CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER, Assistant Registrar ITAT, MUMBAI Sr. Particulars Date Initials Member No. Concerned 1 Dictation given on 20/10/16 LK Deka JM 2 Draft placed before author 21/10/16/ 26/10/16 3 Draft proposed/placed before second Member 4 Draft discussed/approved by Second member 5 Approved Draft comes to Sr.PS 6 Kept for pronouncement on 7 File sent to Bench Clerk 8 Date on which file goes to Head Clerk 9 Date of dispatch of Order Dy. Commissioner of Income Tax-25 (3), Mumbai v. Abhinay B. Kapoor