Elsie Mathew, CHENNAI V. ITO, CHENNAI

CO 37/CHNY/2017

• Counselvise Citation: [2017] 119 COUNSELVISE.COM (IT) 3420 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 24-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KARUNAKARAN
• Assessee Lawyers: SUPRIYO PAL
• Keywords: Capital asset; Business income; Wrong claim; Assessment record; Sham transactions

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC B BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO. 40/MDS/2017 ( / ASSESSMENT YEAR: 2009-10) & C.O. NO. 37/MDS/2017 (IN ITA NO.40/MDS/2017) THE INCOME TAX OFFICER, NON-CORPORATE CIRCLE 3(3), CHENNAI 34. VS SMT. ELSIE MATHEW, NO.59/29, COLLEGE ROAD, NUNGAMBAKKAM, CHENNAI 600 006. PAN: AAGPM5999J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SUPRIYO PAL, JCIT /RESPONDENT BY : SHRI KARUNAKARAN, ADVOCATE /DATE OF HEARING : 15.06.2017 !' /DATE OF PRONOUNCEMENT : 17.08.2017 / O R D E R THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARE ARISING OUT OF THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-4, CHENNAI DAT ED 18.10.2016 IN ITA NO.133/2015-16/A.Y 2009-10/CIT(A) -4 FOR THE ASSESSMENT YEAR 2009-10, PASSED U/S.250(6) R.W.S.14 3(3) & 147 OF THE ACT. 2 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE INCOME EARNED OUT OF TRADING IN SHARES BY THE ASSESSEE THR OUGH ITS PORTFOLIO MANAGER M/S. RELIANCE CAPITAL ASSET MANA GEMENT WILL FALL UNDER THE HEAD CAPITAL GAIN / LOSS AND NOT U NDER THE HEAD BUSINESS INCOME/LOSS AS HELD BY THE LD.AO. 3. IN THE CROSS OBJECTION THE ASSESSEE HAS CHALLENG ED THE REOPENING OF THE ASSESSMENT U/S.147 OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF IMPARTING SOF T SKILLS AND TRADING IN SHARES, FILED HER RETURN OF INCOME FOR T HE ASSESSMENT YEAR 2009-10 ON ELECTRONICALLY ON 30.09.2009 ADMITT ING TOTAL INCOME OF RS.11,64,970/-. THE CASE WAS SELECTED FO R SCRUTINY AND FINAL ASSESSMENT ORDER WAS PASSED U/S.143(3) R. W.S 147 OF THE ACT ON 29.01.2016, WHEREIN THE LD.AO RECOMPUTED THE INCOME OF THE ASSESSEE AT RS.35,20,284/- BY TREATIN G THE BUSINESS LOSS CLAIMED BY THE ASSESSEE AS CAPITAL LOSS. 3 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 5. DURING THE COURSE OF SCRUTINY ASSESSMENT IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD TRADED IN SHARES BY ENTRUSTING THE ASSIGNMENT OF BUYING AND SELLING SHA RES WITH M/S. RELIANCE CAPITAL ASSETS MANAGEMENT AS PORTFOLIO MAN AGER. THE LD.AO OPINED THAT SUCH ACTIVITY OF THE ASSESSEE IS IN THE NATURE OF INVESTMENT AND NOT EXPANSION OF HER BUSINESS ACT IVITIES. SINCE THE ASSESSEE HAD MADE INVESTMENTS IN THE FORM OF DEPOSITS WITH VARIOUS BANKS AND POST OFFICE AGGREGA TING TO RS.55 LAKHS AND RS.63.4 LAKHS IN MUTUAL FUNDS, THE LD.AO FURTHER STRENGTHENED HIS VIEW BECAUSE THE ASSESSEE WAS IN T HE HABIT OF MAKING INVESTMENTS. ACCORDINGLY, THE LD.AO TREATED THE TRADING LOSS OF RS.23,55,314/- SUFFERED BY THE ASSESSEE AS CAPITAL LOSS AND ALLOWED IT TO BE CARRIED FORWARD AS PER THE PRO VISIONS OF SECTION 70 OF THE ACT AND THEREBY DISALLOWED THE CL AIM OF BUSINESS LOSS. ON APPEAL THE LD.CIT(A) RELYING O N THE CIRCULAR ISSUED BY THE CBDT NO.4/2007 DATED 15.06.2007 HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPLIC ATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE 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 B E LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHAR ES AND 4 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 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 RESPE CT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AN D UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORE SAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFF ICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPI TAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOW ING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERI OD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO T REAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRA NSFER 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 T O 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 AL SO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUE NT YEARS. C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINE SS INCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIE W THE AFORESAID CIRCULARS ISSUED BY THE CBDT. IT IS HOWEVER, CLARIFIED THAT THE ABOVE SHALL NOT A PPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES W HERE THE GENUINENESS OF THE TRANSACTION ITSELF IS QUESTIONAB LE, SUCH AS 5 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 BOGUS CLAIMS OF LONG TERM CAPITAL GAIN/SHORT TERM C APITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEE N FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT O F INCOME DERIVED FROM TRANSFER OF SHARES AND SECURITIES. AL L THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON TH E TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECUR ITIES. 17. AFTER CONSIDERING THE ABOVE CIRCULARS OF THE BO ARD, THE FOLLOWING RELEVANT ISSUES ARE NOTICED WHICH SHOULD DECIDE WHETHER THE TRANSACTION CARRIED OUT BY THE PRESENT APPELLANT WAS IN THE NATURE OF BUSINESS OR INVESTMENT. FIRST LY, WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMEN T OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WIT HIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES. IN THE PRESENT CASE OF THE APPELLANT, THE RELEVANT TRANSAC TIONS IN SHARES WHICH AMOUNTED TO LOSS HAVE BEEN TREATED AS BUSINESS ACTIVITY. SECONDLY, IT IS POSSIBLE FOR A TAXPAYER TO HAVE PORTFOLIOS ONE FOR THE BUSINESS AND THE OTHER FOR I NVESTMENT. THE PRESENT APPELLANT HAS ALSO MAINTAINED TWO DIFFE RENT PORTFOLIOS, THE ONE AS INVESTMENT AND OTHER AS VENT URE. THIRDLY, NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED T O DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY TH E ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. LASTLY, WHERE THE AS SESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SH ARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK-IN-TRADE. LASTLY, 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. IN THE PRESENT CASE OF THE APPELLANT, THE RELEVANT TRA NSACTIONS HAVE BEEN OPTED AS BUSINESS TRANSACTIONS ONLY. 6 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 18. FROM THE ABOVE, IT IS EVIDENT THAT IT IS PRERO GATIVE OF THE ASSESSEE TO DECIDE WHETHER HE INTENDS TO TREAT THE TRANSACTION AS BUSINESS OR INVESTMENT. AT THE SAME TIME, THERE HAS TO BE COHERENCE IN WHAT THE ASSESSEE HAS OPTED FOR. THE ASSESSING OFFICER CANNOT DISPUTE THIS INTENTION OF THE ASSESS EE. EVEN THE ASSESSEE CAN HAVE TWO DIFFERENT PORTFOLIOS, THE ONE FOR THE PURPOSES OF BUSINESS AND THE OTHER AS INVESTMENT. HOWEVER, IN SUCH CASES, THE ASSESSEE HAS TO MAINTAIN COMPLETE A ND DISTINCT SET OF ACCOUNTS TO SUBSTANTIATE THE SAME. IT MEANS , UNDER THE CIRCUMSTANCES, THE ONUS IS ON THE ASSESSING OFFICER TO PROVE THAT THE ASSESSEE HAS NOT MAINTAINED ANY SUCH DISTI NCT AND COMPLETE ACCOUNTS PERTAINING TO THE RESPECTIVE PORT FOLIOS. WITHOUT PROVING THE SAME, THE AO IS SUPPOSED TO ACC EPT THE VERSION OF THE ASSESSEE. 19. IN THE PRESENT CASE OF THE APPELLANT, AFTER RE- OPENING OF THE EARLIER ASSESSMENT, THE ASSESSING OFFICER HAS NOT G IVEN ANY DETAILED OR SPECIFIC FINDING TO SUBSTANTIATE THE CO NCLUSION DRAWN BY HIM. I HAVE PERUSED THE ENTIRE RELEVANT AS SESSMENT RECORD AND ALSO THE RE-ASSESSMENT RECORD AND COULD NOT LAY HAND ON ANYTHING SUBSTANTIVE TO REVEAL THAT THE AO HAD CARRIED OUT ANY EXAMINATION OR INVESTIGATION OF THE ACCOUNTS OF THE APPELLANT TO PROVE THE APPELLANT WRONG. HE HAS SIMPLY RELIED ON THE METHODOLOGY ADOPTED BY THE APPELLANT IN TRANSACTING IN SHARES, I.E. THROUGH THE PORTFOLIO M ANAGEMENT SERVICES SCHEME OF RELIANCE CAPITAL ASSET MANAGEMEN T LTD. AND ERRONEOUSLY HELD THAT THE PURCHASE AND SALE OF SHARES WAS IN THE NATURE OF INVESTMENT RATHER THAN TRADING. 20. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRC UMSTANCES OF THE CASE AND ALSO CONSIDERING THE RELEVANT CIRCULAR S OF THE BOARD, I DO NOT FIND ANY LOGIC IN SUSTAINING THE FI NDINGS OF THE AO IN THIS REGARD. HENCE, THE LOSS OF RS.23,55,314/ - IS TREATED AS BUSINESS LOSS AND NOT AS CAPITAL LOSS. THE A.O IS DIRECTED TO 7 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 ALLOW THE CREDIT OF THE SAME IN CALCULATING THE TAX ABLE BUSINESS INCOME OF THE APPELLANT FOR THE RELEVANT YEAR UNDER CONSIDERATION. 6. BEFORE US, THE LD.DR ARGUED IN SUPPORT OF THE OR DERS OF THE LD.AO WHILE AS THE LD.AR RELIED ON THE ORDERS OF TH E LD.CIT(A) AND PLEADED FOR CONFIRMING THE SAME. 7.1 I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ASSESSEE HAD ENTRUSTED HER FUN DS WITH M/S. RELIANCE CAPITAL ASSET MANAGEMENT LTD., UNDER THE PORTFOLIO MANAGEMENT SERVICE. THUS IT IS APPARENT T HAT M/S. RELIANCE CAPITAL ASSET MANAGEMENT LTD., IS ONLY ACT ING AS AN AGENT OF THE ASSESSEE FOR HER TRADING ACTIVITIES. THE ACTIONS OF M/S. RELIANCE CAPITAL ASSET MANAGEMENT LTD ARE THUS BINDING ON THE ASSESSEE. IN THIS SITUATION, WHEN THE AGENT OF THE ASSESSEE HAD TRADED IN PURCHASE AND SALE OF SHARES WHICH IS IN THE NATURE OF BUSINESS ACTIVITY, THE PROFIT DERIVED THEREON BY THE ASSESSEE, HAS TO BE NECESSARILY TREATED AS THE BUSINESS INCOM E/LOSS OF THE ASSESSEE, AND NOT PROFIT/LOSS ON INVESTMENT. THE LD .AO WITHOUT VERIFYING THE ACTUAL ACTIVITY CARRIED ON BY M/S. RE LIANCE CAPITAL 8 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 ASSETS MANAGEMENT LIMITED ON BEHALF OF THE ASSESSEE , HAD SIMPLY TREATED THE TRANSACTION AS INVESTMENTS IN TH E HANDS OF THE ASSESSEE, AND ACCORDINGLY ASSESSED THE LOSS AS CAP ITAL LOSS. THEREFORE THE TREATMENT OF THE LD.AO WITH RESPECT T O THE LOSS INCURRED BY THE ASSESSEE TOWARDS TRADING IN SHARE D OES NOT HAVE ANY MERIT. THE LD.CIT(A) AFTER EXAMINING THE CIRCUL AR ISSUED BY THE CBDT AND AFTER EXAMINING THE NATURE OF TRANSACT ION HAS HELD THAT THE LOSS INCURRED BY THE ASSESSEE IS IN THE NA TURE OF BUSINESS LOSS AND NOT CAPITAL LOSS. IN THIS SI TUATION, I DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF TH E LD.CIT(A) ON THIS ISSUE. THEREFORE THE APPEAL OF THE REVENUE DOE S NOT HAVE ANY MERIT. 7.2 AS FAR AS THE CROSS OBJECTION OF THE ASSESSE E IS CONCERNED, SINCE I HAVE DECIDED THE ISSUE ON MERIT, WITH RESPE CT TO THE NATURE OF LOSS INCURRED BY THE ASSESSEE ON TRADING IN SHARES THROUGH M/S. RELIANCE CAPITAL ASSETS MANAGEMENT LIM ITED, IN FAVOUR OF THE ASSESSEE, I DO NOT FIND IT NECESSARY TO ADDRESS THE GROUND RAISED BY THE ASSESSEE WITH RESPECT TO REOPE NING AS IT WOULD BE ONLY ACADEMIC. 9 ITA NO. 40 /MDS/2017 & CO NO.37/MDS/2017 8 IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED IN-LIM INE. ORDER PRONOUNCED ON THE 17 TH AUGUST, 2017 AT CHENNAI. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER #$ /CHENNAI, %& /DATED 17 TH AUGUST, 2017 JR & () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF