Bela K.Jhaveri, Ahmedabad V. The Dy.CIT.,Cent.Circle-1(3), Ahmedabad

CO 273/AHD/2010

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1356 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-10-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 09-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Search and seizure; Cost of acquisition
• Section: 143(3); 153A

Judgement Text

IT(SS) A NOS.643, 644, 645, 683 & 684 /AHD/201 0 C.O. NOS.271, 272 & 273/AHD/2010 A SSESSMENT Y EAR S : 2000 - 01, 200 1 - 02 , 2002 - 03, 2004 - 05 & 2005 - 06 PAGE 1 O F 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH , AHMEDABAD [CORAM: PRAMOD KUMAR AM AND KUL BHARAT JM ] IT(SS)A NOS . 643, 644 & 645/ AHD/201 0 A SS ESS MENT YEAR S : 2000 - 01, 200 1 - 02 & 2002 - 03 DEPUTY COMMISSIONER OF INCOME TAX ....... .. .. . .... . APPELLANT CENTRAL CIRCLE 1(3), AHMEDABAD. VS. BELA K. JHAVERI .... ........ .... .. .. .. .... .. RESPONDENT A/3, EMBASSY APARTMENT, DR. V.S. ROAD, AMBAVADI, AHMEDABAD. [PAN: A A PPJ 8305 C ] C.O. NOS.271, 272 & 273/AHD/2010 (IN IT(SS)A NOS.643, 644 & 645 /AHD/2010) ASSESSMENT YEARS: 2000 - 01, 2001 - 02 & 2002 - 03 BELA K. JHAVERI ....... . .. . . .....APPELLANT A/3, EMBASSY APARTMENT, DR. V.S. ROAD, AMBAVADI, AHMEDABAD. [PAN: A APPJ 8305 C ] VS. DEPUTY COMMISSIONER OF INCOME TAX .... ................ .. .... .. RESPONDENT CENTRAL CIRCLE 1(3), AHMEDABAD. I T(SS)A NOS.683 & 684/AHD/2010) ASSESSMENT YEARS: 2004 - 05 & 2005 - 06 BELA K. JHAVERI ....... .. .. . .....APPELLANT A/3, EMBASSY APARTMENT, DR. V.S. ROAD, AMBAVADI, AHMEDABAD. [PAN: A APPJ 830 5 C ] VS. DEPUTY COMMISSIONER OF INCOME TAX .... .................. .... .. RESPONDENT CENTRAL CIRCLE 1(3), AHMEDABAD. IT(SS) A NOS.643, 644, 645, 683 & 684 /AHD/201 0 C.O. NOS.271, 272 & 273/AHD/2010 A SSESSMENT Y EAR S : 2000 - 01, 200 1 - 02 , 2002 - 03, 2004 - 05 & 2005 - 06 PAGE 2 O F 6 APPEARANCES BY: VIBHA BHALLA , FOR THE REVENUE S.N. SOPARKAR, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : OCTOBER 23 RD , 201 5 D ATE OF PRONOUNCING THE ORDER : OCTOBER 23 RD , 2015 O R D E R PER BENCH : 1. THESE FIVE APPEALS AND THREE CROSS OBJECTIONS PERTAIN TO THE SAME ASSESSEE, INVOLVE SOME COMMON ISSUES AND ARE DIRECTED AGAINST LEARNED CIT(A) S CONSOLIDATED ORDER DATED 7 TH JUNE, 2 010, IN THE MATTER OF ASSESSMENTS UNDER SECTION 153A R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT FOR SHORT), FOR THE ASSESSMENT YEARS 2000 - 01, 2001 - 02, 2002 - 03, 2004 - 05 AND 2005 - 06. AS A MATTER OF CONVENIENCE, THEREFORE, ALL THE FIVE APPEALS AND THREE CROSS OBJECTIONS ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE WAS SUBJECTED TO A SEARCH AND SEIZURE OPERATION ON 10 TH FEBRUARY, 2006. IN RESPONSE TO SUBSEQUENT NOTICES, THE ASSESSEE FILED THE INCOME TAX RETURNS UNDER SECTION 153A OF THE ACT DISCLOSING THE SAME INCOME AS WAS DISCLOSED IN THE RETURNS FILED UNDER SECTION 139(1). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE HAD DECLARED LONG TERM AND SHORT TERM CAPITAL GAINS ON SALE OF SHARES AND MUTUAL FUNDS AS FOLLOWS : - ASST. YEAR DECLARED CAPITAL GAIN REMARKS 2000 - 01 (LTCG) LONG TERM CAPITAL GAIN ( - ) RS.39,23,876/ - (STCG) SHORT TERM CAPITAL GAIN RS.44,64,218/ - IT(SS) A NOS.643, 644, 645, 683 & 684 /AHD/201 0 C.O. NOS.271, 272 & 273/AHD/2010 A SSESSMENT Y EAR S : 2000 - 01, 200 1 - 02 , 2002 - 03, 2004 - 05 & 2005 - 06 PAGE 3 O F 6 2001 - 002 LTCG ON SHARES ( - ) RS.14,25,348/ - STCG ON SHARES RS. 1,46,531/ - STCG ON MUTUAL FUND ( - ) RS.6,04,828/ - 2002 - 03 LTCG ON SHARES RS.72,395/ - STCG ON SHARES RS.37,867/ - STCG ON MF RS. 6,416/ - 2004 - 05 LTCG ON SHARES RS.4,63,843/ - STCG ON SHARES ( - ) RS.3,82,902/ - STCG ON MF RS.28,333/ - 2005 - 06 LTCG ON SHARES WITHOUT STT ( - ) RS.9,05,908/ - LTCG ON SHARES WITH STT RS.2,57,671/ - STCG ON SHARES WITHOUT STT RS.4,2 01/ - STCG ON SHARES WITH STT RS.3,09,094/ - IT IS ACTUALLY RS. ( - ) 3,09,094/ - 3. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND USING THE IPO AS AN ADVENTURE IN THE NATURE OF TRADE B Y ORGANISING SYSTEMATIC AND MULTIPLE FILING OF IPO APPLICATIONS AND SELLING THE SHARES SO OBTAINED UNDER IPO ALLOTMENTS. IT WAS ON THIS BASIS THAT THE ASSESSING OFFICER HELD THAT THE SHORT TERM CAPITAL GAINS DISCLOSED BY THE ASSESSEE ARE REQUIRED TO BE TR EATED AS BUSINESS INCOME. HOWEVER, SO FAR AS ASSESSMENT YEARS 2004 - 05 AND 2005 - 06 ARE CONCERNED, THE ASSESSING OFFICER ADOPTED THE QUANTUM DISCLOSED BY THE ASSESSEE AS IT WAS HIGHER. THE ASSESSING OFFICER DISCUSSED AT LENGTH THE MODUS OPERANDI OF THE ASS ESSEE, IN CORNERING IPO SHARE ALLOTMENTS MEANT FOR RETAIL INVESTORS AND SELLING THE SHARES SO OBTAINED TO MAKE PROFITS IN THE PROCESS. IT WAS ALSO NOTED THAT THE BORROWED FUNDS WERE ALSO USED FOR THIS PURPOSE. ACCORDING TO THE ASSESSING OFFICER, IT WAS A SYSTEMATIC AND ORGANISED ACTIVITY AND THE PROFITS DERIVED FROM THIS ACTIVITY SHOULD BE TAXED AS BUSINESS INCOME. ON THE OTHER HAND, STAND OF THE ASSESSEE WAS THAT SHE WAS ALL ALONG AN INVESTOR, SOME OF THE SHARES WERE HELD AS INVESTMENTS FOR DECADES AND THAT MERE USE OF BORROWED FUNDS OR FREQUENCY OF TRANSACTIONS COULD NOT BE HELD AGAINST THE TRUE CHARACTER OF HER OPERATIONS. NONE OF THESE IT(SS) A NOS.643, 644, 645, 683 & 684 /AHD/201 0 C.O. NOS.271, 272 & 273/AHD/2010 A SSESSMENT Y EAR S : 2000 - 01, 200 1 - 02 , 2002 - 03, 2004 - 05 & 2005 - 06 PAGE 4 O F 6 SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. FOR THE DETAILED REASONS SET OUT IN THE ASSESSMENT ORDER, WH ICH, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE, NEED NOT BE REPRODUCED AT THIS STAGE, THE ASSESSING OFFICER PROCEEDED TO TREAT THESE GAINS AS BUSINESS INCOME. THE MATTER TRAVELLED IN APPEAL BEFORE THE LD. CIT(A) AND ELABORATE ARGUMENTS WERE AGAIN A DVANCED BEFORE HIM AS WELL. LEARNED CIT(A)DISPOSED OF THE GRIEVANCE OF THE ASSESSEE BY, INTER ALIA, OBSERVING AS FOLLOWS: - 9. THE CONTENTIONS/DETAILS ON RECORDS IN RESPECT OF THESE ASSESSMENT YEARS, AS RELEVANT TO THE APPELLANT, WAS CAREFULLY PERUSED. THE APPELLANT HAS DIFFERENTIATED THE NATURE OF MULTIPLE ACCOUNTS IN THESE YEARS, BEING PRIMARILY PERMUTATION AND COMBINATION, OF NAMES OF FAMILY MEMBERS AS AGAINST THE MULTIPLE ACCOUNTS OPENED IN FICTITIOUS NAMES/BENAMI. THE DIFFERENTIATION WAS FURTHER E XEMPLIFIED, BY REFERRING TO THE FACT THAT IN THESE ASSESSMENT YEARS, THE DP ACCOUNT AND THE BANK ACCOUNT UTILISED FOR MAKING THESE APPLICATIONS WERE OF THE HDFC. THE BANK ACCOUNT IN HDFC WAS IN THE NAME OF THE ASSESSEE ONLY. THIS WAS IN CONTRAST TO THE M ULTIPLE ACCOUNTS, WHICH FEATURE IN THE ASSESSMENT YEAR 2006 - 07ONWARDS IN WHICH THE DP UTILISED WAS M/S. KAARVY STOCK BROKING LTD. AND THE BANK BEING VIJAYA BANK LTD. THE STATED RATIONALE FOR MAKING APPLICATIONS IN THIS MANNER IS FOR MAXIMISING SHARE HOLDI NG, FOR INVESTMENT PURPOSE. THE AMOUNTS INVESTED HAD NEVER EXCEEDED THE AVAILABLE OWN CAPITAL OF THE APPELLANT. THE APPELLANT HAS SOLD PART OF SHARES IN SHORT TERM PERIOD AND OTHER PARTS WERE HELD FOR LONG TERM. SOME SHARE SOLD WERE PURCHASED A YEAR OR EARLIER. THE AO HAS ALSO NOT DISPROVED THE EXPLANATION THAT THE SHARES WERE SOLD TO MAXIMISE GAINS IN THE RISING MARKET. AS HELD IN THE DECISION OF THE ITAT, AHMEDABAD (37 DTR 345) IT IS FOR THE ASSESSEE TO DECIDE WHEN TO DISPOSE THE SHARE AND NOT NECESS ARILY ONLY AT TIME OF NEED OR IN EMERGENCY. THE NATURE OF ACTIVITIES, MANNER OF KEEPING RECORDS IN THE IMPUGNED ASSESSMENT YEARS HAS BEEN CONSISTENT AND THIS CONSISTENCY COULD HAVE BEEN UPSET ONLY IF VALID REASONS HAD BEEN PUT FORTH BY THE AO. THE APPELL ANT HAS BEEN INVESTING SINCE LONG AND HAS HELD SHARES IN PHYSICAL FORM AS WELL AND HAS TAKEN/GIVEN DELIVERIES ALONG WITH NECESSARY REGISTRATION. THE NUMBER OF TRANSACTIONS WAS NOT OF MUCH CONSEQUENCE IN RELATION TO THE NUMBER OF WORKING DAYS/SCRIPTS HELD/ AMOUNT INVESTED. THE APPELLANT HAD ENJOYED AND SHOWN SUBSTANTIAL DIVIDENDS IN THE RETURNS OF INCOME. THE RETURNS FILED U/S. 139(1) HAD DISCLOSED INCOME FROM CAPITAL GAINS AND THESE HAD BEEN ACCEPTED. THE A.O. HAS NOT BROUGHT ANY COGENT REASONS SPECIFIC TO THE APPELLANT, TO COME TO A DIFFERENT CONCLUSION, POST SEARCH. THE AO, WHILE ACCEPTING THE LONG TERM CAPITAL GAIN IN THE SAME CIRCUMSTANCES, HAS ACCEPTED THE VALUE OF THE COST OF ACQUISITION AS SHOWN AND HAS NOT DETERMINED THE VALUATION AS PER THE COST OR MARKET VALUE, WHICHEVER IS LOWER, IF IT WAS TO BE RATED AS STOCK - IN - TRADE. AS POINTED OUT BY THE APPELLANT, THE ACCOUNT HAS ALSO BEEN ATTACHED WHICH WOULD HAVE BEEN IN CONTRAVENTION OF THE STATUTORY PROVISION, IF THE SHARES WERE CONSIDERED AS STOCK - IN - TRADE. AT THE SAME TIME, IT IS ALSO TRUE THAT THE APPELLANT HAD ACTED IN THE DUAL IT(SS) A NOS.643, 644, 645, 683 & 684 /AHD/201 0 C.O. NOS.271, 272 & 273/AHD/2010 A SSESSMENT Y EAR S : 2000 - 01, 200 1 - 02 , 2002 - 03, 2004 - 05 & 2005 - 06 PAGE 5 O F 6 CAPACITY OF INVESTOR AND AS A TRADER, PARTICULARLY IN RESPECT OF SHARES ACQUIRED FROM IPO ISSUES AS THESE SHARES WERE HELD FOR VERY BRIEF PERIOD AND THE CONNECTED ACTIVITY IN ACQUIRING/DISPOSAL OF THESE SHARES OF IPO ISSUES WERE AKIN TO AN ADVENTURE IN THE NATURE OF TRADE. IN THESE FACTS, THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF SUGAMCHAND C. SHAH VS. ACIT (2010) 37 DR (AHD.) 345 IS RELEVANT. THE JURISDICTION AL ITAT HAS HELD THAT WHERE SHARES HAVE BEEN HELD FOR LESS THAN ONE MONTH, GAINS ARISING ON THEIR SALE, SHOULD BE TREATED PROFITS FROM BUSINESS. ON THE BASIS OF THIS GUIDELINE, THE APPELLANT HAS ALSO, IN THE ALTERNATIVE, WORKED OUT THE BUSINESS INCOME FOR SHARES SOLD WITHIN ONE MONTH OF THEIR ACQUISITION, AS DETAILED IN PARA 8 OF THIS ORDER. ON THE BASIS OF THIS GUIDELINE OF THE ITAT, THE BUSINESS INCOME OF THE APPELLANT AS HELD BY THE AO, IN THE DIFFERENT ASSESSMENT YEARS IS MODIFIED AS UNDER: A.Y. ( 1) STCG (AS PER RETURN) (2) BUSINESS INCOME AS CONSIDERED BY THE AO (3) BUSINESS INCOME AS PER THE RATIO OF THE DECISION (37 DTR 345) AHD (4) 2000 - 01 44,64,218/ - 44,64,218/ - 6,61,032/ - 2001 - 02 1,46,522/ - 1,60,850/ - ( - ) 95,100/ - 2002 - 03 37,867/ - 49,373/ - NIL 2004 - 05 ( - ) 3,82,902/ - ( - ) 3,82,902/ - 5,12,321/ - 2005 - 06 3,13,295/ - 3,80,613/ - 1,24,227/ - ACCORDINGLY THE BUSINESS INCOME COMPUTED BY THE AO IS THEREFORE RESTRICTED IN THE IMPUGNED ASSESSMENT YEARS, TO THE EXTENT MENTIONED IN COL.4 OF THE ABOVE P ARA. THE RELATED GROUNDS OF APPEAL ARE THEREFORE PARTLY ALLOWED ACCORDINGLY. 4. NONE OF THE PARTIES IS SATISFIED. WHILE THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF GRANTED BY THE LD . CIT ( A ) IN TREATING THE GAINS ON S A LE OF SHARES A S CAPITAL GAINS IN CASES WHERE SHARES WERE HELD FOR MORE THAN ONE MONTH, THE ASSESSEE IS AGGRIEVED OF UPHOLDING THE TREATMENT AS BUSINESS INCOME EVEN IN RESPECT OF THE SHARES WHICH WERE HELD FOR LESS THAN ONE MONTH. BOTH THE PARTIES ARE IN APPEAL BEFORE US. 5. WE HAVE H E ARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. IT(SS) A NOS.643, 644, 645, 683 & 684 /AHD/201 0 C.O. NOS.271, 272 & 273/AHD/2010 A SSESSMENT Y EAR S : 2000 - 01, 200 1 - 02 , 2002 - 03, 2004 - 05 & 2005 - 06 PAGE 6 O F 6 6. WE HAVE NOTED THAT IN THE IMPUGNED ORDER, LEARNED CIT ( A ) HAS MERELY FOLLOWED DECISION OF A CO - ORDINATE BENCH IN THE CA S E OF SUGAMCHAND C . SHAH VS. ACIT (SUPRA), WHICH, AS LEARNED REPRESENTATIVES FAIRLY AGREE, IS NO LONGER GOOD LAW. THERE IS NO ADJUDICATION ON THE CORE ISSUE IN THE APPEALS I.E. WHETHER OR NOT THE ACTIVITY PURSED BY THE ASSESSEE , ON THE FACTS OF THIS CASE, CONSTITUTES AN ADVENTURE IN THE NATURE OF TRADE. AS A MATTER OF FACT, THERE IS NO FINDING OR ADJUDICATION ON THE NATURE OF ACTIVITIES PURSUED BY THE ASSESSEE EITHER. LD. CIT(A) HAS BEEN S OMEWHAT SUPERFLUOUS IN HIS APPROACH. WHEN THIS WAS PUT TO THE LEARNED REPRESENTATIVES , BOTH THE PARTIES AGREED FOR THE MATTER BEING REMITTED T O THE FILE OF THE LD . CIT ( A ) FOR FR E SH ADJUDICATION IN ACCORDANCE WITH THE LAW, BY WAY OF A SPE A KING O RD ER AND AFTER GIVING YET ANOTHER OPPORTUNITY OF HEARING TO T HE AS S ESSE E . WE, THEREFOR E , REMIT THE MATTER TO THE FILE OF THE LD . C IT(A) IN THE ABOVE T ERMS. 7. IN THE RESULT, ALL T HE APP E ALS AND CRO SS OBJECTIONS ARE AL LOWED IN THE TERMS INDICATED ABOVE. IT WAS SO PRONOUNCED IN TH E OPEN C OURT IMMEDIATELY UPON CONCLUSION OF HE A RING TODAY ON 23 RD DAY OF OCTOBER, 2015. SD/ - SD/ - KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD , 23 RD DAY OF OCTOBER , 2015 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD