Shri Bharatkumar K. Sheth, RAJKOT-GUJARAT V. The Income Tax Officer, Ward-5(2), RAJKOT-GUJARAT

CO 17/RJT/2010

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8584 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-05-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 05-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C MA THEWS D R IEH
• Assessee Lawyers: CHETAN AGARWAL CA H T
• Keywords: Business income
• Section: 143(3)

Judgement Text

T N , IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . . 1 . . 1 1 BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM ITA NO. 06/RJT/2010 I I / ASSESSMENT YEAR 200 6 - 07 INCOME - TAX OFFICER, WARD 5(2), RAJKO T . ( . / APPELLANT) SHRI BHARATKUMAR KHIMCHAND SHETH, C/O. M/S. EXCEL INDUSTRIES, NEAR RAILWAY CROSSING, GONDAL ROAD, RAJKOT. PAN NO. A G BP S7236D H. / RESPONDENT C H / REVENUE BY SHRI K. C. MA THEWS, D R. IEH / ASSESSEE BY SHRI CHETAN AGARWAL, CA. H T / DATE OF HEARING 2 8 - 05 - 2013 H T / DATE OF PRONOUNCEMENT 30 - 05 - 2013 C.O. N O. 17/RJT/2010 I I / ASSESSMENT YEAR 2006 - 07 SHRI BHARATKUMAR KHIMCHAND SHETH, C/O. M/S. EXCEL INDUSTRIES, NEAR RAILWAY CROSSING, GONDAL ROAD, RAJKOT. PAN NO. A G BP S7236D ( . / APPELLANT) INCOME - TAX OFFICER, WARD 5(2), RA JKOT. H. / RESPONDENT IEH / ASSESSEE BY SHRI CHETAN AGARWAL, CA. C H / REVENUE BY SHRI K. C. M A THEWS, DR. H T / DATE OF HEARING 28 - 05 - 2013 H T / DATE OF PRONOUNCEMENT 30 - 05 - 2013 / OR DER . . , 1 / T. K. SHARMA, J. M. : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE AGAINST THE ORDER DATED 30 - 10 - 2009 OF CIT - IV, RAJKOT FOR THE ASSESSMENT YEAR 2006 - 07. 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APPEAL IS AS UNDER: - ITA 06 - 2010 & CO 17 - 2010 2 THE LD. CIT (A) - IV, RAJKOT ERRED IN LAW AS WELL AS ON FACT IN DIRECTING TO RECOMPUTED THE INCOME CONSIDERING THE BUSINESS INCOME FROM CAPITAL GAIN AMOUNTING TO RS.30,96,582/ - . 3. THE BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE AFORESAID GROUND OF APPEAL ARE THAT THE ASSESSEE IS AN INDIVIDUAL. HE IS A PARTNER IN THE FIRM M/S. EXCEL INDUSTRIES. APART FROM THIS, ASSESSEE IS MAKING INVESTMENT IN SHARES. FOR THE ASSESSMENT YEAR UNDER APPEAL, HE FILED RETURN OF INCOME DECLAR ING INCOME OF RS.96,775/ - ACCOMPANIES, INTER - ALIA, BY PROFIT & LOSS ACCOUNT, CAPITAL ACCOUNT AND BALANCE SHEET. A.O. FRAMED THE ASSESSMENT U/S. 143(3) ON 26 - 12 - 2008 WHEREIN, HE TAXED CAPITAL GAIN OF RS.30,96,582/ - AS BUSINESS INCOME ON APPEAL BEFORE THE LD. CIT (A), ASSESSEE PLEADED THAT HE IS A VERY OLD INVESTOR SINCE MORE THAN 20 YEARS. IN THE ASSESSMENT UNDER APPEAL, ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN THROUGH 23 TRANSACTIONS WHICH SHOW THAT THE CONDUCT OF THE ASSESSE E AS AN INVESTOR AND NOT TRADING. THE ASSESSEE HAD NEVER DONE TRANSACTION IN F & O (DERIVATIVE) OR INTRADAY, WHICH NORMALLY A TRADER DOES FOR QUICK GAIN AND THERE IS NO REPETITIVE TRANSACTION IN A SINGLE SCRIPT. THE SHARES ARE HELD FOR MORE THAN 15 YEARS . WITH REGARD TO SHORT TERM CAPITAL GAIN, BEFORE THE LD. CIT (A) IT WAS PLEADED THAT PARTICULAR SCRIPTS WERE SOLD AS SAME WERE NOT FOUND SUITABLE FOR LONG TERM INVESTMENT. 4. AFTER CONSIDERING THE VARIOUS SUBMISSIONS, IN THE IMPUGNED ORDER, THE LD. CIT ( A) DELETED THE ADDITION FOR THE DETAILED REASONS GIVEN IN PARA - 3.2 WHICH READ AS UNDER: - 3.2 I HAVE CAREFULLY CONSIDERED THE FINDINGS GIVEN BY THE ASSESSING OFFICER AND THE SUBMISSION OF THE AR OF THE APPELLANT. IT IS FOUND THAT THE APPELLANT IS A VERY O LD INVESTOR SINCE MORE THAN 20 YEARS. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS SHOWN SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN THROUGH 23 TRANSACTIONS, WHICH SHOWS THAT THE CONDUCT OF THE APPELLANT AS INVESTOR AND NOT TRADING. FURT HER, THE APPELLANT HAD NEVER DONE TRANSACTION IN F. & O. (DERIVATIVE) OR INTRADAY WHICH NORMALLY A TRADER DOES FOR QUICK GAIN, THERE IS NO REPETITIVE TRANSACTION IN SINGLE SCRIPT. THE SHARES HAVE BEEN HELD FOR MORE THAN 15 YEARS. AS FAR AS THE SHORT TERM CAPITAL GAIN IS CONCERNED, THE PARTICULAR SCRIPT IS SOLD AS THE SAME WAS NOT FOUND SUITABLE FOR LONG INVESTMENT. MANY OF INVESTMENT WERE HELD FOR MORE THAN 10 YEARS, WHICH FURTHER SUPPORTS THE APPELLANT AS INVESTOR. THE APPELLANT WAS ALSO TREATED AS INV ESTOR SINCE LAST 4 - 5 YEARS, AS IS EVIDENT FROM THE ASSESSMENT ORDER FOR THE A.Y. 2005 - 06 AND THE ORDER OF THE CIT(A) - IV, RAJKOT DATED 30 - 1 - 2006 FOR THE A.Y. 2001 - 02, 2002 - 03 & 2003 - 04. APPELLANT ALSO FILED D - MAT ITA 06 - 2010 & CO 17 - 2010 3 ACCOUNTS. THE DETAILS FILED ALSO SHOWS THA T APPELLANT HAS DULY ACCOUNTED FOR GAIN IN SALE OF SBI SHARES IN BOOKS OF ACCOUNTS, WHICH WERE HELD AS AN INVESTOR SINCE 1993 - 94. FURTHER, CIRCULAR NO.4/2007 DATED 15 - 6 - 2007 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXED, WHO HAD ISSUED GUIDELINES TO ASSESSI NG OFFICERS TO TREAT SUCH AN EVENT. THOUGH THERE ARE NO CLEAR CUT DISTINCTIONS EARMARKED THEREIN, HOWEVER, THE FOLLOWING BROAD PERSPECTIVES SHOULD BE BORNE IN MIND WHILE TREATING A VENTURE AS TRADE OR INVESTMENT . THE AUTHORITY OF ADVANCED RULING (AA R), REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HAS CHARTERED OUT THE FOLLOWING PRINCIPLES. ( I ) THE SUBSTANTIAL NATURE OF TRANSACTIONS, MANNER OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDES OF PURCHASE AND SALES AND THE RATIO BETWEEN P URCHASES AND SALES AND THE HOLDING WOULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS ( II ) ORDINARILY PURCHASE AND SALE OF SHARES WITH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE/ADVENTURE, BUT WHERE THE OBJECTIVE OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE IN SUCH INVESTMENT WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. IN THE CASE OF THE APPELLANT, THERE ARE SUBSTA NTIAL TRANSACTIONS (IT BEING ONLY 23 THROUGHOUT THE YEAR), THE BOOKS OF ACCOUNTS ARE MAINTAINED KEEPING IN MIND THE PRACTICE OF THE APPELLANT AND THE INVESTMENTS ARE SHOWN AS STOCK IN TRADE, THE PURCHASES ARE MADE NOT WITH THE INTENTION OF EARNING PROFIT BUT ONLY TO GAIN APPRECIATION ON THE SAID INVESTMENTS AND THAT THE INVESTMENTS WERE MADE FROM AVAILABLE SURPLUS FUNDS AND NOT FROM BORROWED FUNDS. ALL THESE GO TO PROVE THAT THE APPELLANT DID NOT ENGAGED IN PROFITEERING BY MAKING INVESTMENTS IN SHARES. THE CBDT, UNDER THE ABOVE CIRCULAR HAS ADVISED THE ASSESSING OFFICERS THAT, NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHERE IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INV ESTMENT OR STOCK IN TRADE. RELIANCE IS PLACED ON THE DECISION RENDERED BY THE HONBLE ITAT BENCH, RAJKOT IN THE CASE OF SMT. PUSHPABEN H. KOTECHA VS. DCIT (2004) 88 TTJ (RAJKOT) 384 AND ALSO AFFIRMED LATER BY THE CIT(A) - IV, RAJKOT IN THE CASE OF SHRI CHAN DRAKANT KOTECHA IN APPEAL NO.014/01/05 - 06, WHICH HAS ALSO BEEN UPHELD BY THE HONBLE ITAT, RAJKOT BENCH, RAJKOT IN ITA NO. 121/RJT/06, DATED 25 - 7 - 2008. CONSIDERING THE ABOVE FACTS OF THE APPELLANTS CASE, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE APP ELLANT AS INVESTOR INSTEAD OF TRADER, AND TAX THE INCOME OF THE APPELLANT AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. AGGRIEVED WITH THE ORDER OF LD. CIT(A) DELETING THE ADDITION OF RS.30,96,582/ - , THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT T HE TIME OF HEARING BEFORE US, ON BEHALF OF REVENUE, SHRI K. C. M A THEWS, DR APPEARED AND PLEADED THAT BEFORE THE AO, DESPITE AMPLE OPPORTUNITIES ALLOWED, ASSESSEE HAS NOT FURNISHED THE VARIOUS DETAILS CALLED FOR. THEREFORE, AO HAS RIGHTLY TREATED THE PROFIT EARNED ON SALE OF SHARES AS BUSINESS INCOME. AS AGAINST THIS, THE COUNSEL OF THE ASSESSEE DREW OUR ATTENTION TO PARA - ITA 06 - 2010 & CO 17 - 2010 4 7 OF THE ASSESSMENT ORDER WHICH CONTAINS WRITTEN SUBMISSIONS DATED 12 - 12 - 2008 FILED BY THE ASSESSEE. COUNSEL OF THE ASSESSEE FURTHER SUB MITTED THAT ASSESSEE IS A PARTNER IN THE FIRM. THE SHORT TERM PROFIT EARNED IS ONLY RS.1,67,783/ - AND REMAINING IS L ONG T ERM C APITAL GAIN ON SALE OF SHARE S . THE SHARE ON WHICH LONG TERM CAPITAL GAIN IS EARNED W AS SHOWN BY THE ASSESSEE AS INVESTMENT IN TH E BALANCE - SHEET AS ON 31 - 03 - 2005. HE FURTHER PLEADED THAT FOR MAKING THE INVESTMENT IN SHARE S , ASSESSEE HAS NOT TAKEN ANY LOAN. ONLY SURPLUS MONEY IS INVESTED IN SHARES OVER A PERIOD OF 20 YEARS. COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT ASSESSEE IS NOT ENGAGED IN PROFITEERING BY MAKING INVESTMENTS IN SHARES. HE FURTHER DREW OUR ATTENTION TO THE DETAILS OF LONG TERM CAPITAL GAIN FROM WHICH IT IS VISIBLE THAT MOST OF THE SHARES SOLD DURING THE YEAR WERE PURCHASE IN THE YEAR PRIOR TO THE YEAR 2000. TO SUM - UP, COUNSEL OF THE ASSESSEE PLEADED THAT THE LD. CIT (A) AFTER APPRECIATING THE FACTUAL MATRIX OF THE CASE, DIRECTED THE AO TO TAX THE INCOME EARNED ON SALE OF SHARES AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME , T HEREFORE, VIEW TAKEN BY THE CIT (A ) BE UPHELD. 6. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DATE OF PURCHASE AND SALE IS AVAILABLE IN DEMATE ACCOUNT. AS A MATTER OF FACT, FROM DEMATE ACCOUNT, AO WORKED OUT THE ADDITION OF RS.30,96,582/ - . DETAILS OF THE PURCHASE AND SALE INDICATE THAT MOST OF THE SHARES WERE PURCHASED PRIOR TO THE YEAR 2000. THE SHORT TERM CAPITAL GAIN EARNED BY THE ASSESSEE IN PURCHASES AND SALES MADE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IS ONLY RS.1,67 ,783/ - AND REMAINING IS L ONG T ERM C APITAL G AIN (LTCG) IN RESPECT OF SHARES WHICH WERE SHOWN BY THE ASSESSEE AS INVESTMENT IN BALANCE - SHEET AS ON 31 - 03 - 2005. THE LD. CIT (A) IN THE IMPUGNED ORDER AFTER APPRECIATING THE HISTORY OF THE CASE AND OBSERVING THA T ASSESSEE IS A VERY OLD INVESTOR SINCE MORE THAN 20 YEARS, DIRECTED THE AO TO TAX THE INCOME OF THE ASSESSEE UNDER THE HEAD OF CAPITAL GAIN INSTEAD OF BUSINESS. THE VIEW TAKEN BY THE CIT (A), LOOKING TO THE CONSPICUOUS FACTS OF THE CASE IS FAIR AND RE ASONABLE. WE THEREFORE, INCLINED TO UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ITA 06 - 2010 & CO 17 - 2010 5 C.O. NO. 17/RJT/2010, A.Y. 2006 - 07 : - 8. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE LD. CIT (A). IN VIEW OF OUR DECISION IN REVENUES APPEAL, CROSS OBJECTION FILED BY THE ASSESSEE IS INFRUCTUOUS THEREFORE, THE SAME IS DISMISSED. 9. IN THE RESULT, APPEAL OF REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. 10. THIS ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTI ONED HEREINABOVE. SD/ - SD/ - ( . . C D. K. SRIVASTAVA ) ( T . . I / T. K. SHARMA) / ACCOUNTANT MEMBER C / JUDICIAL MEMBER / ORDER DATE 30 - 0 5 - 2013. /RAJKOT NVA/ - 0 JO O / COPY OF ORDER FORWARDED TO: - 1 . . / APPELLANT - INCOME - TAX OFFICER, WARD 5(2), RAJKOT. 2 . H. / RESPONDENT - SHRI BHARATKUMAR KHIMCHAND SHETH,RAJKOT. 3 . N A / CONCERNE D CIT - III, RAJKOT. 4 . A - / CIT (A) - IV, RAJKOT. 5 . N , T N , / DR, ITAT, RAJKOT 6 . I / GUARD FILE. / BY ORDER , TRUE COPY. A S STT. REGISTRAR T N , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.