Principal Commissioner of Income-Tax-8 v. M/S Spacepower Controls Pvt. Ltd

1. The Revenue is aggrieved by the direction ofthe Income Tax Appellate Tribunal (in short TTAT')to delete the penalty imposed upon the assessee for assessment years 2006-07 and 2007-08. The assessee had claimed a/za higher capital gains in respect of several transactions in shares. The Assessing Officer('AO')rejected 2016:DHC:8399-DB these claims holding that the transactions were not in the normal course of business. In doing so, the AO considered the volume of investments, their period of holding, whether the assessee had deployed its own funds and whether separate books ofaccounts were kept and the manner in which the shares were held-either as stockin-trade or as investment assets. The Commissioner of Income Tax (Appeals)[CIT(A)]affirmed the addition but directed that the penalty could not be imposed. Aggrieved by the CIT(A)'s order the Revenue appealed unsuccessfully to the ITAT.

2. The ITAT highlighted that in accord with explanation (b) to Section 271(1)the argument ofthe assessee with respect to its claim as a short-term capital gain was not benefited and, therefore, in the circumstances ofthe case penalty was not justified. We notice that ITAT ill its order in para 16 has presented the facts in a tabular form. Its reasons are contained in following terms: " 17. Wefindfrom the above that the assessee has transacted in single scrip in multiple times during the year butsometimes even more than once in a day itself. For example, the scrip 'Era Construction' has been transacted on 19/02/2007, 20/02/2007, 21/02/2007, 06/09/2006, 11/09/2006,. 09/10/2006. Similarly, the scrip 'Karuti Company'has also been transacted many times during the year. The quantity ofscrip transacted in each transaction is in thousands. The sale volume transacted under the head short-term gain is more than Rs. 12 cores. The assessee has sold total shares quantity ofRs. 3.51 Lacs. All these figures, establish existence of the factor of volume, frequency and consistency oftransactions.

18. Wefind that whenever any shares ispurchased with the intention ofinvestment, it cannot be sold within a short period as the marketfluctuate because of many national and international events. In the present case, thefrequentpurchase and sales ofthe shares indicates that the intention ofthe assessee was to earn profit over a shortperiod on the money meansfor manufacturing of power equipments, parked temporarily in the share market.

19. In the case ofM/s D & M Components Ltd. (supra), the Hon'ble Court has referred to the Supreme Court decision in the case ofP. Mohammed Meerakhan Vs. Commissioner ofIncome Tax, Kerala, 73ITR 735(SC), wherein it is held that there is no single test orformula which could be applied in determining whether the transaction was an adventure in the nature oftrade or not and the question depends in each case on total impression and effect of all relevant factors and circumstances proved therein which determine the character ofthe transaction.

20. In thefacts ofthe case, wefind that mere not using interest bearing borrowed funds is not sufficient to conclude that transaction ofshare sales are not business income. Having regard to the volume andfrequency of the transactions, no separate books of accounts or demat accounts and otherfacts and circumstances, we are ofthe opinion that overall effect ofall thefactors revealed that the activity ofsale andpurchase ofshares claimed under the head 'short-term capital gain'cannot be sustained and it is held as the activity in the nature of business and assessable under the head'profit andgains ofthe business'. Accordingly, we uphold thefinding of the learned Commissioner ofIncome-Tax (Appeals) on the issue in dispute and the ground of the appeal is dismissed....."

3. Having regard to the concurrent nature offinding and the fact that the ITAT carried out an elaborate exercise offact discussion, we are ofthe opinion that no interference is called for with the impugned order. We may also notice that the ITAT had relied upon the Ruling of the Supreme Court in Commissioner ofIncome-tax v. Reliance Petroproducts(P)Ltd,(20 10)322 ITR 15,[8] (SC). No substantial question oflaw arises. The appeal is,accordingly,dismissed.

S.RAVINDRA BHAT,J NAJMI WAZIRI,J