KIRTIKUMAR L. UPADHYAYA, MUMBAI V. ACIT 11(2), MUMBAI

ITA 1003/MUM/2011

• Counselvise Citation: 100319914 RSA 2011
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 11-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P K SHUKLA
• Keywords: Business income
• Section: 143(3); 142(1); 263

Judgement Text

I IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI .. , !'# $ $ $ $ ! %, & !'# !' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M !./ I.T.A. NO. 1003 /MUM/2011 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2006-07) KIRTIKUMAR L. UPADHYAYA, ALKA, 15 TH ROAD, SOUTH AVENUE, SANTACRUZ (W), MUMBAI 400 054. ) ) ) ) / VS. COMMISSIONER OF INCOME TAX 11, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. #+ !./ PAN : AAAPU 0289 R ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) +, / 0 ! / APPELLANT BY : SHRI VIPUL JOSHI & SHRI NISHIT GANDHI -.+, / 0 ! / RESPONDENT BY : SHRI P.K. SHUKLA !)$ / / // / DATE OF HEARING : 11-07-2013 12* / / DATE OF PRONOUNCEMENT :14-08-2013 '3 / O R D E R PER P.M. JAGTAP, A.M . : .. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. DY. CIT 11, MUMBAI DTD. 29-12-2010 PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDU AL WHO IS PRACTICING AS A DOCTOR WITH SPECIALIZATION IN NEPHROLOGISTS. THE RE TURN OF INCOME FOR THE YEAR ITA 1003/MUM/2011 2 UNDER CONSIDERATION WAS FILED BY HIM ON 18-10-2006 DECLARING TOTAL INCOME OF RS. 54,80,739/-. IN THE SAID RETURN, PROFIT FROM SA LE OF SHARES AMOUNTING TO RS. 36,51,898/- WAS SHOWN BY THE ASSESSEE UNDER THE HEAD SHORT TERM CAPITAL GAINS. IN THE ASSESSMENT COMPLETED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT) VIDE AN ORDER DTD. 17-10-2008, THE S HORT TERM CAPITAL GAIN AS DECLARED BY THE ASSESSEE WAS ACCEPTED BY THE A.O. T HEREAFTER, ON THE BASIS OF PROPOSAL SENT BY THE SUCCESSOR A.O., THE LD. CIT WA S OF THE VIEW THAT THE PROFIT FROM SALE OF SHARES WAS REQUIRED TO BE TREATED AS B USINESS INCOME IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE AND THE TR EATMENT GIVEN BY THE A.O. TO THE SAID PROFIT AS SHORT TERM CAPITAL GAIN HAD RESULTED IN A SHORT LEVY OF TAX OF RS. 10,75,522/-. HE, THEREFORE, INITIATED THE P ROCEEDINGS U/S 263 OF THE ACT AND ISSUED A NOTICE TO THE ASSESSEE TO SHOW CAU SE AS TO WHY THE ORDER OF THE A.O. PASSED U/S 143(3) OF THE ACT SHOULD NOT BE SET ASIDE TREATING THE SAME AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST O F THE REVENUE BY EXERCISING THE POWERS CONFERRED UPON HIM U/S 263 OF THE ACT. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE SAID ORDER PASSE D BY THE A.O. WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE RE VENUE BECAUSE THE ENTIRE INFORMATION WAS CALLED FOR BY THE A.O. AND TAKING T HE SAME INTO CONSIDERATION, A PARTICULAR VIEW WAS TAKEN BY THE A .O. WHILE ACCEPTING THE TREATMENT GIVEN BY THE ASSESSEE TO THE PROFIT FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN. IT WAS ALSO CONTENDED ON BEHALF OF TH E ASSESSEE THAT THE SAID VIEW TAKEN BY THE A.O. WAS A POSSIBLE VIEW AND IT W AS NOT PERMISSIBLE FOR THE LD. CIT U/S 263 OF THE ACT TO SUBSTITUTE THE SAME W ITH HIS OWN VIEW. 3. THE ASSESSEE ALSO MADE ELABORATE SUBMISSIONS ON THE MERIT OF THE ISSUE RELATING TO ITS CLAIM FOR SHORT TERM CAPITAL GAIN W HICH, AS SUMMARIZED BY THE LD. CIT IN HIS IMPUGNED ORDER, WERE AS UNDER:- 4. ON MERITS IT WAS STATED THAT THE ASSESSEE IS A RENOWNED NEPHROLOGISTS AGED 62 YEARS AND ATTACHED WITH 4-5 R EPUTED HOSPITAL LIKE LILAVATI HOSPITAL, H.N. HOSPITAL ETC. HIS PROFESSIO N DEMANDS TIGHT SCHEDULE AND REQUIRES FULL CONCENTRATION AND THERE IS NO SCOPE FOR ITA 1003/MUM/2011 3 INDULGING INTO ANY OTHER ECONOMIC ACTIVITY, MUCH LE SS SHARE TRADING ACTIVITY. IT WAS STATED THAT THE MAIN OBJECT OF THE ASSESSEE IS TO INVEST HIS SAVINGS AND CAPITAL IN SHARES AND SECURITIES AN D OTHER FINANCIAL INSTRUMENTS ON A FAIRLY LONG TERM BASIS TO GET BETT ER RETURNS AND THE ASSESSEE HAS BEEN DOING SUCH INVESTMENTS FOR MANY Y EARS. IT WAS STATED THAT IN THE ASSESSEES CASE THERE ARE ON AN AVERAGE JUST 8-10 PURCHASES/SALE TRANSACTIONS IN A MONTH AND IN FACT IN FEW MONTHS THERE WAS NO SINGLE SALE/PURCHASE INSTANCE. HOWEVER DUE TO CHANGE IN MARKET SCENARIO SOMETIME HE HAS TO OFFLOAD THE INVE STMENTS TO MINIMIZE THE RISK OF VALUES GETTING ERODED CONSIDER ABLY OR THE REALIZE INVESTMENT OPPORTUNITIES WHEN THE TARGET IS SURPASS ED. FURTHER IN ORDER TO DISTRIBUTE THE RISK THE ASSESSEE MADE INVE STMENTS IN DIFFERENT STOCKS AND DIFFERENT COMPANIES WITH THE SOLE INTENT ION OF THE ASSESSEE TO EARN GOOD RETURNS IN THE FORM OF DIVIDEND AND BO NUS ON INVESTMENTS. IT IS FURTHER STATED THAT ON AN AVERAGE, HOLDING PE RIOD FOR THE SHARES IS MORE THAN 2 MONTHS AND IN SOME CASES OVER A YEAR AL SO. ATTENTION IS ALSO DRAWN TO THE FACT THAT ASSESSEE HAS HUGE CAPIT AL OF RS.3.29 CRORES AND THERE IS NO BORROWING. THE ONLY LOAN TAKEN DURI NG THE YEAR WAS FROM HIS WIFE THAT TOO INTEREST FREE. IT WAS ARGUED THAT THE HIGH VOLUMES IN ITSELF WILL NOT BE DECISIVE FACTOR AND THAT THE ASSESSEE NEITHER HAS THE TIME NOR IS CONDUCTING THE AFFAIRS IN A BUSINESS MA NNER AND THEREFORE THERE IS NO GROUND TO NOT TREAT THE PROFITS ON SHAR E TRANSACTIONS AS CAPITAL GAINS. 4. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE, THE LD. CIT WAS OF THE VIEW THAT NOTWITHSTANDING THE DE TAILED SUBMISSIONS MADE BY THE ASSESSEE, THE FACT OF THE MATTER REMAINED TH AT THE ASSESSEE HAD BEEN INDULGING IN SHARE TRANSACTION ON LARGE SCALE WHICH INVOLVED TRADING ON DAY- TO-DAY BASIS AND ALSO INVOLVED INTRADAY TRADING, SP ECULATIVE TRADING AND BORROWING OF FUNDS. ACCORDING TO HIM, THE DETAIL S CRUTINY THAT WAS NEEDED TO COME TO THE CONCLUSION THAT THE A.O. HAD ARRIVED AT ON THIS ISSUE REALLY DID NOT TAKE PLACE. FOR EXAMPLE, HE POINTED OUT THAT T HE ASSESSEES ASSERTIONS THAT THE DESCRIPTION ABOUT INTRA-DAY DEALINGS WAS A N INCORRECT ENTRY OR THE MONEY FROM THE WIFE HAD NOT BEEN UTILIZED FOR SHARE PURCHASES OR THAT THE ASSESSEE HAD NO TIME IN ORGANIZING HIS AFFAIRS WERE HAVING THEIR OWN IMPLICATIONS, INDIVIDUALLY AND JOINTLY ON THE ULTIM ATE DECISION ON THE ISSUE BUT THE SAME REMAINED UN-VERIFIED BY THE A.O. IN THIS REGARD, HE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. GOPAL PUROHIT 34 DTR 53 WHEREIN IT WAS HELD THAT ONE HAS TO HAVE A HOLISTIC AND OVER ALL ITA 1003/MUM/2011 4 VIEW, CONSIDERING SO MANY FACTORS ASSOCIATED WITH T HE SHARE TRADING ACTIVITY, TO COME TO THE CONCLUSION WHETHER IT IS AN INVESTME NT OR A BUSINESS VENTURE. HE HELD THAT THE ASSESSMENT ORDER PASSED BY THE A.O . U/S 143(3) OF THE ACT, HOWEVER, WAS LACKING ON THIS ACCOUNT AND ACCORDINGL Y HE SET ASIDE THE SAID ORDER TREATING THE SAME AS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE WITH A DIRECTION TO THE A.O. TO REFRAME THE SAME DENOVO. AGGRIEVED BY THE ORDER OF THE LD. CIT PASSED U/S 263 OF THE A CT, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT IN THE PRE SENT CASE HAS BEEN SET ASIDE BY THE LD. CIT TREATING THE SAME AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE GROUND THAT THE TREA TMENT GIVEN BY THE ASSESSEE TO THE PROFIT ARISING FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN WAS ACCEPTED BY THE A.O. WITHOUT MAKING PROPER AND ADEQUATE ENQUIRY. IN THIS REGARD, HE INVITED OUR ATTENTION TO THE NOTICE DATED 26-9-2008 ISSUED BY THE A.O. U/S 142(1) OF THE ACT ALONG WITH ANNEXURE THERETO PLACED AT PAGE 30 AND 31 OF HIS PAPER BOOK AND SUBMITTED THAT THE COP IES OF BROKERS NOTES IN RESPECT OF PURCHASE AND SALE OF SHARES/UNITS AS WEL L AS COPY OF THE D-MAT ACCOUNT OF THE ASSESSEE WERE REQUIRED TO BE FURNISH ED BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HE POINTED OUT T HAT EVEN THE DETAILS OF SHORT TERM CAPITAL GAIN GIVING DATE-WISE PURCHASE/S ALE WITH COPIES OF BROKERS BILLS WERE CALLED FOR BY THE A.O. HE THEN INVITED OUR ATTENTION TO THE REPLY DATED 14 TH OCTOBER, 2008 GIVEN BY THE ASSESSEE TO THE NOTICE ISSUED BY THE A.O. U/S 143(3) OF THE ACT PLACED AT PAGE 32 TO 33 OF HIS PAPER BOOK ALONG WITH ANNEXURE THERETO PLACED AT PAGE 35 TO 59-C OF HIS PAPER BOOK TO SHOW THAT ALL THE RELEVANT DETAILS AND DOCUMENTS REQUIRE D BY THE A.O. WERE DULY FURNISHED BY THE ASSESSEE IN ORDER TO SUBSTANTIATE THE TREATMENT GIVEN TO PROFIT ARISING FROM SALE OF SHARES AS SHORT TERM CA PITAL GAIN. HE CONTENDED THAT ON THE BASIS OF THES DETAILS AND DOCUMENTS FUR NISHED BY THE ASSESSEE, ITA 1003/MUM/2011 5 THE TREATMENT GIVEN BY HIM TO THE PROFIT ARISING FR OM SHARES AS SHORT TERM CAPITAL GAIN WAS ACCEPTED BY THE A.O. AND ALTHOUGH THERE IS NO DISCUSSION MADE ON THIS ISSUE SPECIFICALLY IN THE ASSESSMENT O RDER, THERE WAS NO CASE OF ACCEPTING THE CLAIM OF THE ASSESSEE AS SHORT TERM C APITAL GAIN BY THE A.O. WITHOUT MAKING PROPER AND ADEQUATE ENQUIRY AS ALLEG ED BY THE LD. CIT. HE INVITED OUR ATTENTION TO THE COPY OF NOTICE ISSUED BY THE LD. CIT U/S 263 OF THE ACT PLACED AT PAGE 61 AND 62 OF HIS PAPER BOOK AND SUBMITTED THAT THE ALLEGED ERROR IN THE ORDER OF THE A.O. IN TREATING THE PROFIT FROM SALE OF SHARE AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCO ME WAS POINTED OUT BY THE LD. CIT ON THE BASIS OF THE FACTS AND FIGURES ALREA DY AVAILABLE ON RECORD WHICH CLEARLY SHOWS THAT THE RELEVANT DETAILS WERE BROUGH T ON RECORD BY THE A.O. AFTER MAKING PROPER AND ADEQUATE ENQUIRY ON THE ISS UE. HE CONTENDED THAT THERE IS THUS NO ERROR IN THE ORDER OF THE A.O. PAS SED U/S 143(3) OF THE ACT AS ALLEGED BY THE LD. CIT IN HIS IMPUGNED ORDER U/S 26 3 OF THE ACT AND THE SAID ORDER PASSED BY THE LD. CIT IS LIABLE TO BE SET ASI DE. 6. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE FAILURE ON THE PART OF THE A.O. TO MAKE SUFFICIENT ENQUIRY AS REQUIRED IN THE FACTS OF THE CASE IS AN ERROR GIVING THE LD. CITS JURISDICTION TO REVISE T HE ASSESSMENT U/S 263 OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. COMMISSIONER OF INCOME-TAX (2000) 243 ITR 83 (SC). HE SUBMITTED THA T IN THE CIRCULAR ISSUED BY THE CBDT, CERTAIN GUIDELINES HAVE BEEN PRESCRIBE D TO DECIDE THE ISSUE AS TO WHETHER THE PROFIT ARISING FROM SALE OF SHARES I S CHARGEABLE TO TAX AS CAPITAL GAIN OR BUSINESS INCOME AND SINCE THE SAID CRITERIA WERE NOT APPLIED BY THE A.O. IN THE ASSESSMENT ORDER PASSED IN THE PRESENT CASE, THE ASSESSMENT WAS CLEARLY MADE BY THE A.O. WITHOUT PROPER AND SUFFICI ENT ENQUIRY GIVING JURISDICTION TO THE LD. CIT TO REVISE THE SAME U/S 263 OF THE ACT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS A SETTLED POSIT ION OF LAW THAT THE ORDER ITA 1003/MUM/2011 6 PASSED BY THE A.O. U/S 143(3) OF THE ACT WITHOUT MA KING PROPER AND ADEQUATE ENQUIRY, AS REQUIRED IN THE FACTS OF THE GIVEN CASE , IS ONE WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE LD. CIT HAS THE POWER TO REVISE THE SAME U/S 263 OF THE ACT. THE MOOT QUEST ION, HOWEVER, IS WHETHER IT CAN BE SAID IN THE FACTS AND CIRCUMSTANCES OF THE P RESENT CASE THAT THE TREATMENT GIVEN BY THE ASSESSEE TO THE PROFITS ARIS ING FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN WAS ACCEPTED BY THE A.O. WI THOUT MAKING PROPER AND ADEQUATE ENQUIRY AS ALLEGED BY THE LD. CIT IN HIS I MPUGNED ORDER. IN THIS REGARD, IT IS OBSERVED THAT A NOTICE U/S 142(1) OF THE ACT WAS ISSUED BY THE A.O. ON 26-9-2008 TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS REQUIRING THE ASSESSEE TO FURNISH CERTA IN DETAILS AND DOCUMENTS AS REQUIRED FOR THE PURPOSE OF ASSESSMENT FOR THE Y EAR UNDER CONSIDERATION. THE DETAILS AND DOCUMENTS SO REQUIRED WERE LISTED I N THE ANNEXURE TO THE SAID NOTICE AND A PERUSAL OF THE COPY OF THE SAID ANNEXU RE PLACED AT PAGE 31 OF THE ASSESSEES PAPER BOOK SHOWS THAT THE DETAILS OF COM PUTATION OF SHORT TERM CAPITAL GAIN GIVING DATE-WISE PURCHASES/SALE WERE C ALLED FOR BY THE A.O. ALONG WITH CORRESPONDING COPIES OF BROKERS BILL. THE AS SESSEE WAS ALSO REQUIRED BY THE A.O. TO FURNISH THE COPY OF HIS D-MAT ACCOUNT. IN REPLY TO THE SAID NOTICE FILED VIDE LETTER DTD. 14 TH OCTOBER, 2008, THE ASSESSEE HAD FURNISHED THE DETAILS AND DOCUMENTS REQUIRED BY THE A.O. WHICH WE RE INCLUSIVE OF THE DETAILS OF SHORT TERM CAPITAL GAIN ARISING FROM THE SHARES SOLD AFTER 1-10-2004 LIABLE TO TAX AT SPECIAL RATE. THE SAID DETAILS ARE GIVEN ON PAGE 59A, 59B & 59C OF THE PAPER BOOK AND A PERUSAL OF THE SAME SHO WS THAT ALL THE RELEVANT DETAILS OF PURCHASE AND SALE OF SHARES GIVING THE N AME OF COMPANY, QUANTITY OF SHARES SOLD, DATE OF SALE, RATE AT WHICH THE SHA RES WERE SOLD AND THE AMOUNT OF SALE PROCEEDS WERE FURNISHED BY THE ASSES SEE ALONG WITH SIMILAR DETAILS OF THE CORRESPONDING PURCHASES. IN OUR OPI NION, THE SAID DETAILS WERE SUFFICIENT TO ASCERTAIN THE NUMBER OF TRANSACTIONS, FREQUENCY OF TRANSACTION, THE PERIOD OF HOLDING, THE VOLUME OF TRANSACTIONS E TC. FOR THE PURPOSE OF DECIDING WHETHER THE TREATMENT GIVEN BY THE ASSESSE E TO THE PROFIT ARISING ITA 1003/MUM/2011 7 FROM PURCHASE AND SALE OF SHARES WAS BUSINESS INCOM E OR SHORT TERM CAPITAL GAIN. AS A MATTER OF FACT, IN HIS NOTICE ISSUED U/ S 263 OF THE ACT ON 23 RD SEPTEMBER, 2010 (COPY PLACED AT PAGE 61 & 62 OF THE PAPER BOOK) A PRIMA FACIE CONCLUSION WAS REACHED BY THE LD. CIT HIMSEL F ON THE BASIS OF THE SAID DETAILS FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE PROFIT FROM SALE OF SHARES WAS LIABLE TO BE TREATED AS THE BUSINESS INCOME OF THE ASSESSEE INSTEAD OF CAPITAL GAIN. THE LD. CIT THUS HAD COME TO A PRIMA FACIE CONCLUSION ON THE MERIT OF TH IS ISSUE ON THE BASIS OF THE DETAILS ALREADY BROUGHT ON RECORD BY THE A.O. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS AND THIS FACT BY ITSELF SHOWS THAT PROP ER AND SUFFICIENT ENQUIRY ON THIS ISSUE WAS DULY MADE BY THE A.O. BEFORE ACCEPTI NG THE TREATMENT GIVEN BY THE ASSESSEE TO THE PROFITS ARISING FROM SALE OF SH ARES AS SHORT TERM CAPITAL GAIN. HAVING REGARD TO ALL THESE FACTS OF THE CASE , WE ARE OF THE VIEW THAT THERE WAS NO ERROR IN THE ORDER OF THE A.O. PASSED U/S 143(3) OF THE ACT AS ALLEGED BY THE LD. CIT CALLING FOR REVISION U/S 263 OF THE ACT. IN THAT VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. CIT U/S 263 OF THE ACT AND RESTORE THAT OF THE A.O.S ORDER PASSED U/S 143(3) OF THE ACT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . 4 5 &) %4 / #$ 6 / 78 ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2013. . '3 / 12* 9')5 14-08-2013 2 / SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) & !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 9') DATED 14-08-2013 $.&).!./ RK , SR. PS ITA 1003/MUM/2011 8 '3 / -&:; <;* '3 / -&:; <;* '3 / -&:; <;* '3 / -&:; <;*/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. = () / THE CIT(A)- 35, MUMBAI 4. = / CIT 25, MUMBAI 5. ;$@ -&&) , , / DR, ITAT, MUMBAI E BENCH 6. A% B / GUARD FILE. '3)! '3)! '3)! '3)! / BY ORDER, !.; -& //TRUE COPY// C C C C/ // /!7 !7 !7 !7 ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI