Shri Tushar Anantrai Mehta, JAMNAGAR V. The Assistant Commissioner Of Income Tax, Circle 3, JAMNAGAR

CO 27/RJT/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9141 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR JAYANT B JHAVERI
• Assessee Lawyers: P M MAHARISHI CA
• Keywords: Business income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT .. .. BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. S RIVASTAVA AM ITA NO. 1073/RJT/2010 / ASSESSMENT YEAR : 2006-07 THE ACIT, CIRCLE-3, JAMNAGAR ( / APPELLANT) SHRI TUSHAR ANANTRAI MEHTA, C/O. MEHTA PRODUCTS, 103-B, MAHAVIR C SOCIETY, PALACE ROAD, JAMNAGAR PAN : ACHPM 5913 D / RESPONDENT C.O. NO. 27/RJT/2011 / ASSESSMENT YEAR 2006-07 SHRI TUSHAR ANANTRAI MEHTA, PAN : ACHPM 5913 D ( / APPELLANT) THE ACIT, CIRCLE-3, JAMNAGAR / RESPONDENT ! '# / REVENUE BY DR JAYANT B JHAVERI, DR $% ! '# / ASSESSEE BY SHRI P M MAHARISHI, CA ' & ' %( / DATE OF HEARING 04.10.2013 ) %( / DATE OF PRONOUNCEMENT 15.10.2013 / ORDER .. , / T. K. SHARMA, J. M. : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE AGAINST THE ORDER DATED 18.05.2010 OF CIT(A) JAMNAGAR FOR THE ASSESSMENT YEAR 2006-07. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF BRASS PART S. FOR THE ASSESSMENT YEAR UNDER APPEAL, HE FILED THE RETURN OF INCOME ON 20.0 3.2007 DECLARING TOTAL INCOME AT RS.27,52,010/- ALONG WITH AUDIT REPORT U/S 44AB IN FORM NO.3CB & 3CD TOGETHER WITH COPIES OF BALANCE SHEET, PROFIT AND L OSS ACCOUNT. THE ASSESSING OFFICER FRAMED ASSESSMENT U/S 143(3) OF THE INCOME- TAX ACT ON 31.12.2008 WHEREIN THE ASSESSING OFFICER TREATED THE SHORT TER M CAPITAL GAIN AT RS.4,01,010/- AND EARNING OF RS.7,90,204/- ON SALE OF SHARES AND MUTUAL FUND WHICH ARE CLAIMED BY THE ASSESSEE AS LONG TERM CAPI TAL GAIN AS BUSINESS INCOME. ON APPEAL, IN THE IMPUGNED ORDER, THE LD C IT(A) HELD THAT LONG TERM 11073-RJT-2010 & CO 27-RJT-2011 - SHRI TUSHAR ANANTRAI MEHTA 2 CAPITAL GAIN OF RS.7,90,204/- EARNED BY THE ASSESSE E OUT OF ACTUAL BASED TRANSACTIONS OF SHARES AND MUTUAL FUNDS, WHICH ARE HELD FOR MORE THAN 365 DAYS, IS NOT BUSINESS INCOME OF THE ASSESSEE BUT IS LONG TERM CAPITAL GAIN EXEMPT U/S 10(38) OF THE ACT, 1961. THE LD CIT(A) FURTHER, FOL LOWING THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT V. GOPAL PUROH IT, HELD THAT THE PORTFOLIO OF SHARES WHERE PROFIT TO THE TUNE OF RS.3,65,506/-EAR NED IS INCOME OF THE ASSESSEE CHARGEABLE TO TAX UNDER THE HEAD BUSINESS INCOME AND NOT CAPITAL GAIN BY THE ASSESSEE AS CLAIMED. FINALLY, THE LD CIT(A) HELD T HAT INCOME OF RS.35,504/- BEING PROFIT ON SALE OF MUTUAL FUND HELD FOR MORE T HAN A MONTH IS CHARGEABLE TO TAX UNDER THE HEAD SHORT TERM CAPITAL GAIN AND THE BALANCE INCOME OF RS.3,65,506/- ON SALE OF SHARES IS INCOME CHARGEABL E TO TAX UNDER THE HEAD BUSINESS INCOME OF THE ASSESSEE. THE DETAILED REA SONING GIVEN BY THE LD CIT(A) IN THIS REGARD IS CONTAINED IN PARAGRAPHS 7, 8 & 9 OF THE IMPUGNED ORDER WHICH READ AS UNDER:- 7. I HAVE CAREFULLY CONSIDERED THE ISSUE. DURING THE YEAR APPELLANT HAS EARNED TOTAL CAPITAL GAIN OF RS.11,91,214/- BIF URCATED IN TO SHORT TERM CAPITAL GAIN OF RS.4,01,010/- AND LONG-TERM CAPITAL GAIN OF RS.7,90,204/-. LONG TERM CAPITAL GAIN ON SHARES OF RS.3,32,707/- I S ON SALE OF SHARES OF 21 COMPANIES WHERE THE PERIOD OF HOLDING IS RANGING FROM 4098 DAYS TO 375 DAYS. SIMILARLY, LONG TERM CAPITAL GAIN OF MUTU AL FUND OF RS.4,57,497/- IS EARNED OUT OF 26 MUTUAL FUND SCHEMES WHERE PERIO D OF HOLDING OF UNITS OF MUTUAL FUND ARE 1745 DAYS TO 480 DAYS. SHORT-TER M CAPITAL GAIN ON SALE OF SHARES IS IN NUMEROUS COMPANIES AND PROFIT THERE FROM IS RS.3,65,506/- WHERE HOLDING PERIOD IS RANGING FROM 300 DAYS TO 1 DAY. SIMILARLY, SHORT- TERM CAPITAL GAIN ON UNITS OF MUTUAL FUND IS EARNED AMOUNTING TO RS.35,504/- IN FIVE FUNDS WHERE THE HOLDING PERIOD IS RANGING FROM 77 DAYS TO 360 DAYS. LONG-TERM CAPITAL GAIN ARISES ON SALE OF SHARES OR UNITS OF MUTUAL FUNDS WHERE THEY ARE HELD FOR MORE THAN 12 M ONTHS. IN THE CASE OF APPELLANT OUT OF TOTAL CAPITAL GAIN ON SALE OF SHAR ES AND MUTUAL FUND OF RS.11,91,214/-, LONG TERM CAPITAL GAIN IS RS.7,90,2 04/- WHICH IS APPROXIMATELY 66% OF TOTAL GAIN. ALL TRANSACTIONS R ELATED TO LONG TERM CAPITAL GAIN ARE THROUGH DEMAT ACCOUNTS OF THE APPE LLANT AND IN EARLIER YEARS THESE SCRIP ARE DISCLOSED IN THE BALANCE SHEE T OF THE APPELLANT AS INVESTMENT. HON MUMBAI HIGH COURT IN CASE OF CIT V. GOPAL PUROHIT HAS HELD THAT IS OPEN FOR THE ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS ONE RELATING TO INVESTMENTS IN SHARES AND OTHER RELATIN G TO BUSINESS ACTIVITY OF INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT DELIVERY BASED TRANSACTION IN THE PRESENT CASE SHOULD BE TREATED A S THOSE IN NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT DERIVED THER E FROM SHOULD BE TREATED AS EITHER SHORT TERM OR LONG TERM DEPENDING UPON THE PERIOD OF HOLDING. SAME VIEW HAS ALSO BEEN REITERATED IN TWO DECISION OF HON TRIBUNAL IN CASE OF SHRI PARESH D SHAH V. JCIT 2 IT R (TRIB) 311 (MUM) AND SHRI SUGAMCHAND C SHAH V. ACIT 37 DTR 345 (AHD). T HEREFORE LOOKING TO THE FACTS OF THE CASE, SUCH AS NUMBER OF TRANSAC TIONS, PERIOD OF HOLDING OF SHARES, TREATMENTS OF SOLD SHARES AND UNITS IN B ALANCE SHEETS OF THE APPELLANT AND APPLYING RATIO OF THE ABOVE STATED DE CISION TO THESE FACTS, I HOLD THAT LONG TERM CAPITAL GAIN OF RS.7,90,204/- E ARNED BY THE APPELLANT 11073-RJT-2010 & CO 27-RJT-2011 - SHRI TUSHAR ANANTRAI MEHTA 3 OUT OF ACTUAL DELIVERY BASED TRANSACTIONS OF SHARES AND MUTUAL FUNDS WHICH ARE HELD FOR MORE THAN 365 DAYS IS NOT BUSINE SS INCOME OF THE APPELLANT BUT IS LONG TERM CAPITAL GAIN EXEMPT U/S 10(38) OF THE ACT. 8. REGARDING SHORT-TERM CAPITAL GAIN APPELLANT HAS SUBMITTED A CHART SHOWING NAME OF SCRIPS, DATE OF PURCHASE, PURCHASE VALUE, DATE OF SALE, SALES VALUE, AND RESPECTIVE SHORT-TERM CAPITAL GAIN S EARNED. HOWEVER, APPELLANT COULD NOT DEMONSTRATE THAT WHETHER THESE SHARES ARE ACTUAL DELIVERY BASED TRANSACTIONS OR NOT. TOTAL AMOUNT OF PROFIT EARNED ON THESE TRANSACTIONS IS RS.3,65,506/- IN SHARES IN MORE THA N 670 TRANSACTIONS. THEREFORE, REGARDING THESE TRANSACTIONS IT IS AMPLY DEMONSTRATED THAT APPELLANT HAS INTENTION TO TRADE IN THOSE SHARES AN D THERE WAS NO INTENTION OF HOLDING THIS SHARES AS INVESTOR. AS HELD BY HON. MUMBAI HIGH COURT IN CASE OF CIT V. GOPAL PUROHIT THAT ASSESSEE MAY HAVE TWO SEPARATE PORTFOLIOS ONE AS AN INVESTOR AND OTHER AS TRADER, I HOLD THAT THE PORTFOLIO OF SHARES WHERE PROFIT TO THE TUNE OF RS.3,65,506/- IS EARNED IS INCOME OF THE APPELLANT CHARGEABLE TO TAX UNDER THE HEAD BUSINESS INCOME AND NOT CAPITAL GAIN EARNED BY THE APPELLANT AS CLAIMED. 9. APPELLANT HAS ALSO EARNED A SHORT-TERM CAPITAL G AIN OF RS.35,504/- IN CASE OF 5 MUTUAL FUNDS, WHERE PERIOD OF HOLDING OF THOSE UNITS ARE 77 DAYS TO 360 DAYS. HON ITAT IN SUGAMCHAND C SHAH V. ACIT 37 345 (AHD) HAS HELD THAT IN RESPECT OF GAIN ON SALE OF SHARES HELD FOR MORE THAN 365 DAYS WHEN IN THE PAST DEPARTMENT HAS ACCEPTED THE S ALE OF SHARES OF HOLDING OR MORE THAN A YEAR AS INVESTMENT AND PROFI T THEREON HAS BEEN ASSESSED UNDER THE HEAD CAPITAL GAIN, THE GAIN SHOU LD BE ASSESSED AS LONG TERM CAPITAL GAIN, HOWEVER IN RESPECT OF OTHER SHARES WITH FREQUENT TRANSACTIONS, WHERE SHARES ARE HELD FOR MORE THAN A MONTH, THEY SHOULD BE TREATED AS INVESTMENTS AND ON THEIR SALE SHORT T ERM CAPITAL GAINS SHOULD BE CHARGED BUT WHEN THE SHARES ARE HELD FOR LESS TH AN A MONTH, GAIN ON THEM SHOULD BE TREATED AS PROFIT FROM BUSINESS. AS THESE TRANSACTIONS ARE DELIVERY BASED AND UNITS ARE HELD FOR LONG TIME, CE RTAINLY FOR MORE THAN A MONTH, I HOLD THAT PROFIT OF RS.35,504/- IN CASE OF MUTUAL FUND IS SHORT-TERM CAPITAL GAIN OF THE APPELLANT AND NOT BUSINESS INCO ME. GROUND NO. 3 AND 4 ARE DISPOSED ACCORDINGLY HOLDING THAT PROFIT OF RS. 7,90,204/- EARNED ON SALE OF SHARES AND MUTUAL FUND HELD FOR MORE THAN 3 65 DAYS IS GAIN ARISING OUT OF SALE OF LONG TERM ASSETS OF THE APPELLANT AN D IS THEREFORE EXEMPT U/S 10(38) OF THE ACT, INCOME OF RS.35504/- BEING PROFI T ON SALE OF MUTUAL FUND HELD FOR MORE THAN A MONTH IS CHARGEABLE TO TAX UND ER THE HEAD SHORT TERM CAPITAL GAIN AND BALANCE INCOME OF RS.3,65,506/- ON SALE OF SHARES IS INCOME CHARGEABLE TO TAX UNDER THE HEAD BUSINESS IN COME OF THE APPELLANT. 3. AGGRIEVED WITH THE ORDER OF LD CIT(A), THE REVEN UE IS NOW IN APPEAL BEFORE THIS TRIBUNAL, ON THE FOLLOWING GROUNDS:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO HOLD THE ADDITION OF RS.7,90,204/- MADE ON ACCOUNT OF TREATI NG THE SAME AS BUSINESS INCOME AS LONG TERM CAPITAL GAIN AND TO GR ANT EXEMPTION U/S 10(38) OF THE ACT. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRE CTING TO HOLD THE ADDITION OF RS.35,504/- MADE ON ACCOUNT OF TREATING THE SAME AS BUSINESS INCOME AS SHORT TERM CAPITAL GAIN. 3. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT CO NSIDERING THE MAGNITUDE OF TRANSACTION, HOLDING PERIOD OF TRANSAC TION, NATURE OF TRANSACTION AND THE INTENTION OF THE ASSESSEE TO EA RN PROFIT OUT OF EACH TRANSACTION PROVED BEYOND DOUBT THAT THEY WERE BUSI NESS INCOME OF THE ASSESSEE. 11073-RJT-2010 & CO 27-RJT-2011 - SHRI TUSHAR ANANTRAI MEHTA 4 4. THE ASSESSEE HAS FILED CROSS-OBJECTION WHICH REA DS AS UNDER:- LEARNED AO & CIT(A) ERRED IN LAW AS WELL AS ON FAC TS IN TREATING SHORT TERM CAPITAL GAINS OF RS.3,65,506/- ON SALE OF SHAR ES AS BUSINESS INCOME AND SHARES AND SECURITIES WERE HELD FOR LESS THAN 30 DAYS. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE, DR. JAYANT B. JHAVERI, DR APPEARED AND POINTED OUT THAT THE ASSES SEE HAS MADE 724 TRANSACTIONS OF SHARES OF DIFFERENT COMPANIES AND D IFFERENT MUTUAL FUNDS; THEREFORE LOOKING TO THE MAGNITUDE AND FREQUENCY, T HE ASSESSING OFFICER RIGHTLY TAXED THE INCOME EARNED ON SALE OF SHARES AS BUSINE SS INCOME. HE SUBMITTED THAT KEEPING IN VIEW THE HOLDING PERIOD OF SHARES, THE INTENTION OF THE ASSESSEE WAS CLEARLY TO EARN PROFIT OUT OF THESE TRANSACTION S AND THEREFORE THE LD CIT(A) IS NOT LEGALLY AND FACTUALLY CORRECT IN HOLDING THAT T HE PROFITS EARNED ON SALE OF SHARES AMOUNTING TO RS.7,90,204/- IS EXEMPT U/S 10( 38) AND FURTHER DIRECTING THE ASSESSING OFFICER TO TREAT RS.35,504/- AS SHORT TER M CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY ASSESSING OFFICER. AS A GAINST THIS, THE LD COUNSEL OF THE ASSESSEE POINTED OUT THAT IN ORDER TO GENERATE MONEY FOR PAYMENT OF TAXES, THE ASSESSEE REDEEMED THE MUTUAL FUNDS. HE FURTHER POINTED OUT THAT THE PERIOD OF HOLDING OF SHARES RANGES FROM 1994-2004. HE SUBM ITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BRASS PARTS AND CARRYING ON BUSINESS UNDER THE NAME AND STYLE OF MEHTA EXPORTS AND ALSO OWNS HIS O WN PROPRIETARY FIRM WHERE HIS IS FULL TIME ENGAGED AND THEREFORE, THESE ACTIV ITIES ARE NOT AT ALL ALLIED OR INCIDENTAL TO HIS NORMAL BUSINESS ACTIVITIES BUT AR E OCCASIONAL AND ISOLATED ACTIVITIES. HIS INTENTION IS TO EARN APPRECIATION IN CAPITAL AND DIVIDEND WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE IS EARNED T HE DIVIDEND INCOME AS UNDER:- ASSESSMENT YEAR ASSESSEE MINOR SON 2006-07 RS.3,27,823.00 RS.44,148.00 2005-06 RS.1,29,857.00 RS.23,051.00 2004-05 RS.1,75,880.00 - CONTINUING HIS ARGUMENTS, THE LD COUNSEL OF THE AS SESSEE POINTED OUT THAT IN PAST ALSO THE ASSESSEE HAD EARNED SUBSTANTIAL DI VIDEND WHICH SHOWS HIS INTENTION THAT THE ASSESSEE IS ALWAYS TO EARN DIVID END INCOME AND NEVER TO EARN PROFIT ON SALE OF SHARES. THE LD COUNSEL OF THE AS SESSEE FURTHER POINTED OUT THAT 11073-RJT-2010 & CO 27-RJT-2011 - SHRI TUSHAR ANANTRAI MEHTA 5 IN THE MONTH OF MARCH 2006, AFTER SURVEY, HE HAS TO PAY TAX OF RS.12,00,000/- APPROXIMATELY AND FOR THIS FINANCIAL CRUNCH HE HAD SOLD MOST OF THE SHARES IN ORDER TO PAY THE INCOME-TAX. IN THE SUBSEQUENT YEAR I.E. AY 2008-09, THE ASSESSEE ALSO SOLD SHARES AND THE ASSESSING OFFICER HIMSELF ALLOWED THE BENEFIT OF LONG TERM AND SHORT TERM CAPITAL GAIN IN THE ASS ESSMENT FRAMED U/S 143(3) OF THE INCOME-TAX ACT, 1961. A COPY OF THE ASSESSMENT ORDER WHICH IS FRAMED U/S 143(3) OF THE INCOME-TAX ACT, 1961 ON 25.02.2010 FO R THE ASSESSMENT YEAR 2008- 09 IS PLACED IN THE PAPER BOOK. 6. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. LOOKING TO THE CONSPICUOUS F ACTS OF THE CASE, WE ARE CONVINCED THAT THE LD CIT(A) HAS GIVEN COGENT REASO N IN HOLDING THAT THE RS.7,90,204/-, MADE ON ACCOUNT OF TREATING THE SAME AS BUSINESS INCOME, AS LONG TERM CAPITAL GAIN AND TO GRANT EXEMPTION U/S 1 0(38) OF THE INCOME-TAX ACT, 1961 AND DIRECTING THE ASSESSING OFFICER TO TREAT R S.35,504/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. ON ACCOUN T OF SURVEY, THE ASSESSEE HAS TO PAY RS.12,00,000/- APPROXIMATELY TO THE INCO ME-TAX DEPARTMENT AND FOR THIS PURPOSE HE EFFECTED THE SALE OF MOST OF HIS SH ARES. UNDER THESE CIRCUMSTANCES, WE ARE INCLINED TO UPHELD THE VIEW T AKEN BY THE LD CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 7. THE CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE N OT PRESSED AT THE TIME OF HEARING AND THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A ND THE CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON THE DATE MEN TIONED HEREINABOVE. SD/- SD/- ( *.#. , % D. K. SRIVASTAVA ) ( .#. -. / T. K. SHARMA) #( '/ / ACCOUNTANT MEMBER '/ /JUDICIAL MEMBER /#- 0/1/ ORDER DATE 15.10.2013. /RAJKOT *BT 11073-RJT-2010 & CO 27-RJT-2011 - SHRI TUSHAR ANANTRAI MEHTA 6 !'# $%'& / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT- THE ACIT, CIRCLE-3, JAMNAGAR 2. / RESPONDENT- SHRI TUSHAR ANANTRAI MEHTA, C/O. MEH TA PRODUCTS, 103-B, MAHAVIR C SOCIETY, PALACE ROAD, JAM NAGAR 3. '151 % & 6% / CONCERNED CIT, JAMNAGAR 4. & 6%- / CIT (A)-JAMNAGAR 5. :;< % , , / DR, ITAT, RAJKOT 6. <* >? / GUARD FILE /#- '# / BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT