MR.JUSTICE AKIL KURESHI J-These appeals concern the same assessee and involve similar questions in similar factual background. They have been heard together and are being disposed of by this common order.
2. We may record facts from Tax Appeal No. 307 of 2017. The appeal is filed by the Revenue challenging the judgement of Income Tax Appellate Tribunal dated 31.5.2016. Following questions are raised for our consideration.
“(A)Whether on the facts and in the circumstances of the case and in law, the decision of ITAT in deleting the addition of Rs. 86,15,001/- made u/s 68 of the Act is not perverse to the facts of the case as during assessment proceeding it was established that assessee was not registered as a member with the broker through whom the assessee had claimed to carry out share transactions and thus ignoring that through these fictitious and sham transaction the assessee has taken entries of exempt income?
(B) Whether on the facts and in the circumstances of the case and in law, the ITAT is justified in confirming the decision of the CIT(A) in holding the share transaction as investments despite the fact that motive of transactions admittedly was earning the profit (maximization of wealth in words of assessee) coupled with huge number of transactions with very less holding period, many were less than a month, transaction to stock ration was very high?
(C) Whether on the facts and in the circumstances of the case and in law, the ITAT is justified in directing the Assessing Officer to treat the sum of Rs. 3,27,96,032/- as Short Term/Long Term Capital Gain and not business income?”
3. Though three questions are framed, only two issues arise. First question pertains to the addition made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 (“the Act” for short) on the premise that for the Assessment Year 2006-2007 during the period relevant to Assessment Year 2005-2006, the assessee had sold certain shares, the very purchasers were found to be bogus. The Assessing Officer having ruled against the assessee, the issue was carried in appeal. The CIT dismissed the appeal. The question therefore travelled at the hands of the assessee before the Tribunal. The Tribunal noted that the purchase of the relevant shares were made during the month of April, 2004 and sold in the months of May, June and July, 2005. The purchases thus made during the Financial Year 2004-2005 have been accepted in the relevant Assessment Year 2005-2006. The Tribunal noted that the return of the assessee in the Assessing Year 2005-2006 was taken in scrutiny and assessment under Section 143(3) read with Section 147 of the Act was made. During this assessment, none of the purchases of the shares were disturbed. In other words, the revenue has accepted the purchases of the assessee of the shares in question as genuine. The Tribunal therefore was of the opinion that no additions can be made with the aid of Section 68 of the Act when such shares were in the later years sold.
4. Having heard learned counsel for the Revenue on this issue, we are in agreement with the Tribunal. As facts recorded by the Tribunal would suggest, the shares were purchased by the assessee during the period relevant to the Assessment Year 2005-2006. The return for the said year was scrutinized by the Revenue. The Assessing Officer did not disturb the investment. It would therefore later on not be open to the Assessing Officer to make addition with the aid of Section 68 of the Act when such shares were sold on the premise that the purchasers themselves were bogus. No question of law therefore arise on this issue.
5. The second issue pertains to the treatment to the income earned by the assessee on sale of shares. The assessee contended that the shares were in the nature of his investment and the income earned should be treated as long term capital gain. The Revenue contends that looking to the pattern of holding the shares, the frequency of transactions and other relevant considerations, the assessee was dealing in the business of buying and selling the shares and the income should be taxed as a business income and the Tribunal took the relevant facts into consideration and referred to the circular of the CBDT dated 29.2.2016 and held that the return should be taxed as capital gain, be it long term or short term, as the case may be, and not as a business income.
6. Whether to tax the income generated from the sale of shares as capital gain or business income is an issue of frequent dispute between the revenue and the assessees. The Courts in the past have had occasions to consider such issue and through judicial pronouncement various parameters have been laid down to check whether the sale of shares would lead to business income or capital gain. Despite several judicial pronouncements, the controversy did not subside. Each case would have to be considered individually leading to long drawn litigations. The CBTD therefore in order to reduce the litigations, issued the said circular dated 29.2.2016, relevant portion which reads as under:
“2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The 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 the said principles for guidance of the field formations.
3. Disputes, however, continue to exist on the application of these principles to the facts of an individual casesince the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following-
(a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the 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 a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years;
(c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.
5. It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities.”
7. Two things emerge from this circular. One is that the CBDT desires to obviate the difficulties of the assessees and simultaneously to reduce the litigation. In paragraph 3 of the circular, certain parameters have been laid down. Clause (b) thereof in particular provides that in respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. In other words, the Revenue would not pursue this issue if the necessary ingredients are satisfied, only rider being the stand taken by the assessee in a particular year would be followed in the subsequent years also and the assessee would not be allowed to adopt a contrary stand in such subsequent years.
8. The circular applies with full force in the present case. The Tribunal therefore correctly accepted the assessee’s stand.
9. In solely different forms the second issue arises in other appeals. All these appeals are therefore dismissed.