Principal Commissioner Of Income Tax-20 v. Hiren M. Shah

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.40 OF 2017 Principal Commissioner of Income Tax-20 .... Appellant versus Hiren M. Shah... Respondent ….... Mr.A.K. Saxena, Advocate for Appellant.Mr.A.K. Saxena, Advocate for Appellant. Mr.H.R. Shah, Advocate for Respondent.Mr.H.R. Shah, Advocate for Respondent. CORAM : AKIL KURESHI & SARANG V. KOTWAL, JJ.: 01[st] APRIL, 2019. DATE P.C. : 1. The Revenue is in Appeal against the judgment of Income Tax Appellate Tribunal. Following question waspresented for consideration; “Whether on the facts and circumstances of the caseand in law, the Hon'ble Tribunal ITAT erred inholding the gain of Rs.13,047,76,692/- on accountof sale of shares as Long Term Capital Gain?” 2 / 5 10-ITXA-40-17.odtThe Respondent-Assessee is an individual. Assesseehad filed return for the assessment year 2008-2009, in which theassessee had shown a gain of Rs.13.04 Crores, by way of sale ofshares as long term capital gain. The Assessment Officer rejectedthe claim holding that the same was assessee’s business income.The Appeal filed by the assessee was dismissed by the Appellateauthority, upon which the issue reached the Income TaxTribunal. Tribunal allowed the Appeal making followingobservations; 2. “5.We have heard the rival contentions and also perusedthe relevant material placed on record. Here in thiscase, the assessee had shown long-term-capital-gainmostly on 3 scripts and particularly from the sale ofscript of M/S Pyramid Saimira. The assessee hasbought these shares through IPO for sumsaggregating Rs.1,20,00,000/- in the month of May &November, 2006. This stock had a lock-in-period of12 months from the year of launch of the saidcompany in Bombay Stock Exchange. These shareshave been sold during the month of March, 2008 fora consideration of Rs.14,16,86,117/-, therebyearning a gain of Rs.12.97 crores. The AO at page 11the relevant material placed on record. Here in thiscase, the assessee had shown long-term-capital-gainmostly on 3 scripts and particularly from the sale ofscript of M/S Pyramid Saimira. The assessee hasbought these shares through IPO for sumsaggregating Rs.1,20,00,000/- in the month of May &November, 2006. This stock had a lock-in-period of12 months from the year of launch of the saidcompany in Bombay Stock Exchange. These shareshave been sold during the month of March, 2008 fora consideration of Rs.14,16,86,117/-, therebyearning a gain of Rs.12.97 crores. The AO at page 11 3 / 5 10-ITXA-40-17.odt of the order had noted the order of SEBI wherein ithas been found that the promoter of “PyramidSaimira” had forged letter for rigging the share price.From the perusal of the SEBI order, it is seen that thesaid order is dated 16.04.2009 and the allegedrigging of the sale price has been done in the monthof December, 2008, whereas the assessee had alreadysold its shares before the month of March, 208, henceno adverse inference of such an event can be drawn.In any case, the AO and CIT(A) have based theirorder on the issue of treatment of long-term-capital-gain as 'business income'. As pointed out earlier, theassessee had purchased the lot of shares of “PyramidSaimira” through IPO and once that is so, then thenormal presumption is that it is mostly done by aninvestor for the purpose of investment as there is lessrisk of loss and also it fortifies the intention that it isfor the purpose of treating it as an investment andnot as a stock-in-trade. Here in this case as pointedout by ld. Counsel the average period of holding ofmost of these shares is 628 days which is fairly a longperiod. In certain scripts assessee had also incurredloss. On these facts and circumstances, it can be verywell held that the assessee's intention for purchasingthe shares was purely for investment and to earn gain 4 / 5 10-ITXA-40-17.odt 4 / 5 10-ITXA-40-17.odt on a long term investment. Not only this, in earlieryears also the assessee's investment in shares havebeen held to be assessed under the head “capitalgain”, because consistently assessee has been showinginvestment in shares in his personal Balance sheetpurchased out of his own surplus fund. As pointedout by Ld. Counsel, the Ld. AO has misled himself bytaking the Balance sheet of the Proprietary concernwherein the assessee had shown certain loan, whereasthe investment have been made through personalaccount which is reflected in the personal Balancesheet, wherein there are sufficient own fund formaking the investment. Thus, on these facts andcircumstances, we hold that the shares which havebeen held as “investment” in the Balance sheet are tobe treated as assessable under the head “capital gain”and not as 'business income'. Accordingly, groundno.1 & 2 are treated as allowed.” 3. Perusal of the documents on record would show thatthe Tribunal took into account relevant factors to come to theconclusion that the sale proceeds were in the nature of capitalgain. These relevant factors were that the assessee had received 5 / 5 10-ITXA-40-17.odt such amounts upon sale of three scripts and in particular one ofM/s Pyramid Saimira. The assessee had purchased such sharesand held them for over 12 months. Against the locking period ofone year, the assessee had held shares for 17 months beforesale. The assessee had not utilized any borrowed funds for suchpurchase and that in the earlier yeras, the Assessing Officer hadaccepted the sale of shares giving rise to capital gain. We do notfind that the Tribunal has committed any error. 4. Learned Counsel for the assessee also relied on theCBDT Circular dated 29/02/2016, which also supports Tribunal’sdecision. In the circular the CBDT had clarified that in relationto shares held for more than 12 months, which are listed shares,if the assessee wishes to treat them as investments giving rise tocapital gain upon sale, the department would not dispute thesame as long as the assessee follows the same pattern subsequently. 5. In the result, the Income Tax Appeal is dismissed. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)