ACIT, Central circle 1(3), Ahmedabad v. Akash R Kasat
[Citation -2016-LL-1020-46]

Citation 2016-LL-1020-46
Appellant Name ACIT, Central circle 1(3), Ahmedabad
Respondent Name Akash R Kasat
Court ITAT-Ahmedabad
Relevant Act Income-tax
Date of Order 20/10/2016
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags unaccounted investment • stamp duty valuation • search and seizure • valuation report • debatable issue • comparable sale • stock-in-trade • capital asset • capital gain • capital loss
Bot Summary: During the course of the scrutiny assessment proceedings, the A.O. found that the assessees have shown profit under the head short term capital gains/long terms capital gains from the purchases and sales of shares. A perusal of the order of the First Appellate Authority shows that the Appellate Authority after considering the facts and the submissions was of the opinion that the assessees were holding shares as investment and the same were shown as investment in the balance sheet also and accordingly directed the A.O. to treat the surplus under the head capital gains. The dispute is regarding the nature of income on sale and purchase of shares by the assessee. In the balance sheet, the assessee has shown shares under the head 'investment'. 2005-06 2006-07 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 7. If the assessee has clear intention of being an investor and showing the shares as investment, we do not find any reason to disturb the intention of the assessee. The assessee under consideration is investor and any gain arising out the transfer of shares should be treated as capital gains be it short term or long term.


IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) IT(SS)A. Nos: 386 & 390/AHD/2010 (Assessment Year: 2006-07) ACIT, Central circle 1(3), V/S Shri Akash R Kasat 804, Ahmedabad Avdhesh House, Opp:: Gurudwara, S.G. Road, Thaltej, Ahmedabad PAN No. AJNPK5481B ACIT, Central circle 1(3), V/S Ahmedabad Miss. Kunjan R Kasat 804, Avdhesh House, Opp:: Gurudwara, S.G. Road, Thaltej, Ahmedabad PAN No. AIBPK6773F (Appellant) (Respondent) IT(SS)A. Nos: 392 & 393/AHD/2010 (Assessment Years: 2005-06 & 2006-07) ACIT, Central circle 1(3), V/S Smt. Basantidevi R Kasat Ahmedabad 804, Avdhesh House, Opp:: Gurudwara, S.G. Road, Thaltej, Ahmedabad PAN No. ACYPK5533G (Appellant) (Respondent) Appellant by : Shri Shiva Sewak, Sr. D.R. Respondent by : Shri M.K. Patel, A.R. 2 IT(SS)A Nos. 386 & 390/Ahd/10 & IT(SS)A Nos. 393 & 393/Ahd/10 . A.Ys. 2005-06 & 2006-07 ( )/ORDER Date of hearing : 17 -10-2016 Date of Pronouncement : 20 -10-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. above captioned appeals by Revenue are preferred against separate orders of ld. CIT(A) pertaining to three different assessees. In all these appeals common issues are involved, therefore they were heard together and are disposed of by this common order for sake of convenience. 2. common grievance in all these appeals relates to treatment of short term capital gains/long term capital gains as business income by Assessing Officer which have been treated by First Appellate Authority as capital gains. 3. During course of scrutiny assessment proceedings, A.O. found that assessees have shown profit under head short term capital gains/long terms capital gains from purchases and sales of shares. A.O. found that transactions were voluminous and sources appear to be from loans. main reasons for treating capital gains as business income by A.O. (i) length of period of ownership (ii) frequency /number of transactions. 3 IT(SS)A Nos. 386 & 390/Ahd/10 & IT(SS)A Nos. 393 & 393/Ahd/10 . A.Ys. 2005-06 & 2006-07 (iii) Utilization of borrowed funds. 4. We have heard rival contentions at length and with assistance of ld. counsel. We have carefully perused related documentary evidences brought on record and referred to during course of proceedings in light of Rule 18(6) of Appellate Tribunal Rules. 5. perusal of order of First Appellate Authority shows that Appellate Authority after considering facts and submissions was of opinion that assessees were holding shares as investment and same were shown as investment in balance sheet also and accordingly directed A.O. to treat surplus under head capital gains . 6. dispute is regarding nature of income on sale and purchase of shares by assessee. issue, whether income from sale and purchase of shares in particular case should be treated as capital gain or as business income has been debatable issue and there are conflicting decisions of Tribunal on this issue. Each case is therefore, to be based on its own factual situation. In balance sheet, assessee has shown shares under head 'investment'. These investment shares have been valued at cost. Hon'ble Supreme Court in case of CIT Associated Industrial Development Co Pvt. Ltd. 82 ITR 586, which decision has also been considered by CBDT in its Circular No. 4/2007 dt. 15.6.2007, has observed that: 4 IT(SS)A Nos. 386 & 390/Ahd/10 & IT(SS)A Nos. 393 & 393/Ahd/10 . A.Ys. 2005-06 & 2006-07 "Whether particular holding of shares is by way of investment or forms part of stock-in-trade is matter which is -within knowledge of assessee who holds shares and it should, in normal circumstances, be in 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" 7. CBDT has further thrown light on this controversial issue in its Circular No. 6/2016 dated 29.02.2016 and same reads as under:- Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of income-tax Act, 1961 ('Act') defines term "capital asset" to include property of any kind held by assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, same can be held either as capital assets or stock-in-trade/trading assets or both. Determination of character of particular investment in shares or other securities, whether same is in nature of capital asset or stock-in-trade, is essentially fact-specific determination and has led to lot ol uncertainty and litigation in past. 2. Over years, courts have laid down different parameters to distinguish shares held as investments from shares held as stock-in-trade. Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized said principles for guidance of field formations. 3. Disputes, however, continue to exist on application of these principles to facts of individual case since taxpayers find it difficult to prove intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide character of income from sale of shares and securities (i.e. whether 5 IT(SS)A Nos. 386 & 390/Ahd/10 & IT(SS)A Nos. 393 & 393/Ahd/10 . A.Ys. 2005-06 & 2006-07 same is in nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of listed ones and with view to reduce litigation and uncertainty in matter, in partial modification to aforesaid Circulars, further instructs that Assessing Officers in holding whether surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account following- a) Where assessee itself, irrespective of period of holding listed shares and securities, opts to treat them as stock-in-trade, income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for period of more than 12 months immediately preceding date of its transfer, if assessee desires to treat income arising from transfer thereof as Capital Gain, same shall not be put to dispute by Assessing Officer. However, this stand, once taken by assessee in particular Assessment Year, shall remain applicable in subsequent Assessment Years also and taxpayers shall not be allowed to adopt different/contrary stand in this regard in subsequent years; c) In all other cases, nature of transaction (i.e. whether same is in nature of capital gain or business income) shall continue to be decided keeping in view aforesaid Circulars issued by CBDT. 4. It is, however, clarified that above shall not apply in respect of such transactions in shares/securities where genuineness of transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. 5. It is reiterated that above principles have been formulated with sole objective of reducing litigation and maintaining consistency in approach on issue of treatment of income derived from transfer of shares and securities. All relevant provisions of Act shall continue to apply on transactions involving transfer of shares and securities. 6 IT(SS)A Nos. 386 & 390/Ahd/10 & IT(SS)A Nos. 393 & 393/Ahd/10 . A.Ys. 2005-06 & 2006-07 8. Considering facts in hand, in light of aforementioned circular of Board, in our considered opinion, intention of assessee at time of purchase of shares is paramount. If assessee has clear intention of being investor and showing shares as investment, we do not find any reason to disturb intention of assessee. assessee under consideration is investor and, therefore, any gain arising out transfer of shares should be treated as capital gains be it short term or long term. 9. In light of aforementioned discussion qua factual matrix of case in hand, we have no hesitation in upholding findings of ld. CIT(A). Common grievance by Revenue is accordingly dismissed. In IT(SS)A No. 392/Ahd/2010 pertaining to A.Y. 2005-06 10.The other grievance of revenue relates to deletion of addition made u/s. 69B on account of unaccounted investment of Rs. 3,96,280/-. 11.While scrutinizing return of income, A.O. noticed that assessee has purchased plot of land at Sunrise Park, Drive-in-Road, Ahmedabad on 16.07.2004 for consideration of Rs. 20,82,539/- + Rs. 48,825/-. total investment in plot was shown at Rs. 21,31,354/-. A.O. was of opinion that value shown by assessee is not according to prevailing market rates. A.O. made reference u/s. 142A to DVO for determination of cost of investment in said piece of land. DVO 7 IT(SS)A Nos. 386 & 390/Ahd/10 & IT(SS)A Nos. 393 & 393/Ahd/10 . A.Ys. 2005-06 & 2006-07 submitted his valuation report dated 05.12.2008 determining cost of impugned land at Rs. 25,27,634/- . On basis of valuation report of DVO, A.O. asked assessee to show cause why addition of Rs. 3,96,280/- should not be made u/s. 69B of Act. Assessee filed detailed reply questioning validity of valuation report. A.O. was also pointed out that D.V.O has not taken care of comparable sale instances. comparable sale instances considered by DVO are from commercial/residential complexes of plots situated on wider roads. They are situated in altogether different areas. detailed submissions by assessee did not find any favour with A.O. who proceeded by making addition of Rs. 3,96,280/- u/s. 69B of Act. 12.The assessee carried matter before ld. CIT(A) and reiterated what has been stated before Assessing Officer. 13.After considering facts and submissions, ld.CIT(A) was of opinion that neither A.O. nor DVO has brought out any concrete documents or issues on record to hold that appellant s declaration of purchase price is not at market value. First Appellate Authority further found that there is no evidence on record to hold that assessee had paid more than what is appellant s consideration recorded by purchase/conveyance deed. ld. CIT(A) concluded by holding that A.O. was not justified in making addition of Rs. 3,96,280/- and directed A.O. to delete same. 8 IT(SS)A Nos. 386 & 390/Ahd/10 & IT(SS)A Nos. 393 & 393/Ahd/10 . A.Ys. 2005-06 & 2006-07 14.Aggrieved by this, revenue is before us. ld. D.R. strongly supported findings of A.O. Per contra, ld. counsel for assessee relied upon order of First Appellate Authority. 15.We have given thoughtful consideration to orders of authorities below. undisputed fact is that no incriminating material was found during course of search and seizure proceedings. It is also undisputed fact that Stamp Duty Value of impugned piece of land is same as shown by assessee in balance sheet. We do not find any reason/logic for referring matter to DVO. assessee is purchaser and not seller. Therefore, provisions of Section 50C are not applicable on facts of case. Moreover, Stamp Duty Valuation is same. Considering all these facts in totality, we do not find any error or infirmity in findings of ld. CIT(A). This ground of revenue is accordingly dismissed. 16.In result, all appeals by Revenue are dismissed. Order pronounced in Open Court on 20 - 10- 2016. Sd/- Sd/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: True Copy Rajesh Copy of Order forwarded to:- ACIT, Central circle 1(3), Ahmedabad v. Akash R Kasat
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