ACIT 22(2), NAVI MUMBAI V. RAJESH N SANGHVI (HUF), MUMBAI

ITA 1025/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1933 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2014
• Court: TRIBUNAL
• Department Lawyers: DR DARSI SUMAN RATNAM
• Keywords: Business income
• Section: 143(3)

Judgement Text

, , D , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1025/MUM/2014 ASSESSMENT YEAR: 2008-09 ASST. CIT 2 2( 2 ) R.NO.417 4TH FLOOR, TOWER NO.6, VASHI RLY STN COMPLEX, VASHI MUMBAI -400705 / VS. RAJESH N. SANGHVI (HUF), 610-B, PIRAMAL BLDG., 60 FEET, RD, GHATKOPAR (E) MUMBAI-400 077 (REVENUE ) (RESPONDENT) P.A. NO. AADHSO644B REVENUE BY DR. DARSI SUMAN RATNAM (DR) RESPONDENT BY SHRI PARESH SHAPARIA (AR) / DATE OF HEARING : 23/11/2015 / DATE OF ORDER: 18/12/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL S)-7, MUMBAI {(IN SHORT CIT(A)}, DATED 25.11.2013 FOR T HE RAJESH N. SANGHAVI (HUF) 2 ASSESSMENT YEAR 2008-09, PASSED AGAINST THE ASSESSM ENT ORDER OF THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT, ON THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AND DIRECTING THE AO TO TREAT THE SHORT TE RM CAPITAL GAIN OF RS.26,76,451/- ON SALE OF SHARES TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT AS BU SINESS INCOME. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI PARESH SHAPARIA, AUTHORISED REPRESENTATIVE (AR ) ON BEHALF OF THE ASSESSEE AND BY DARSI SUMAN RATNAM, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE R EVENUE. 3. THE SOLITARY GROUND RAISED BY THE REVENUE IS THAT L D. CIT(A) ERRED IN ACCEPTING THE CLAIM OF THE ASSESSEE TO TRE AT THE SHORT TERM CAPITAL GAIN OF RS.26,76,451/- ON SALE OF SHAR ES TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT AS BU SINESS INCOME . DURING THE COURSE OF HEARING LD. DR HAS RELIED UPON THE ORDER OF THE AO WHEREAS THE ASSESSEE RELIED UPO N THE ORDER OF LD. CIT(A). 3.1. WE HAVE GONE THROUGH THE SUBMISSION MADE BEFORE US AS WELL AS ORDERS OF LOWER AUTHORITIES AND ALSO THE JU DGMENT RELIED UPON BY THE PARTIES BEFORE US. RAJESH N. SANGHAVI (HUF) 3 3.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND BY THE AO THAT THE ASSESSEE HAS INDULGED IN NUMEROUS SHARES TRANSACTIONS (NUMBER OF PURCHASE TRANSACTIONS-286 AND NUMBER OF SALES TRANSACTIONS - 286). HE ALSO NOTED THAT THE VOLUME OF TRANSACTIONS IS VE RY HIGH (PURCHASES RS.1.87 CRORE AND SALES RS.2.15 CRORE). HE CAME TO A FINDING THAT THE FREQUENCY OF TRANSACTION S IS VERY HIGH AND THE PERIOD OF HOLDING IS VERY LOW. TH ERE IS A RAPID TURNOVER IN SHARES AND THE SAME IS DONE WITH A PROF IT MOTIVE AND NOT FOR CAPITAL APPRECIATION. THE TRANSACTIONS ARE DONE WITH A PROFIT MOTIVE AND NOT FOR 'DIVIDEND'. T HE DIVIDEND EARNED BY THE ASSESSEE DURING THE YEAR WAS A MEAGER AMOUNT OF RS.1,12,608/- WHEREAS THE PROFIT IN SHARE TRANSACTION IS RS.27,19,293/-. THE ASSESSEE HAS BORROWED FUNDS AND HENCE IT IS NOT A CASE WHERE ONL Y 'SURPLUS FUNDS' WERE INVESTED TO EARN DIVIDEND OR F OR CAPITAL APPRECIATION. THEREFORE, HE TREATED THE PRO FITS TO RS.26,76,451/- ON ACCOUNT OF SHARE DEALINGS (OFFERE D BY ASSESSEE AS SHORT TERM CAPITAL GAINS) AS PROFITS ON ACCOUNT OF TRADING IN SHARES. 3.3. BEING AGGRIEVED, THE ASSESSEE CONTESTED THE MATTER BEFORE THE LD. CIT(A) WHEREIN DETAILED SUBMISSIONS WERE MA DE TO COUNTER THE ALLEGATIONS OF THE LD. AO. 3.4. LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS AND EVIDENCES OF THE ASSESSEE, HELD THAT THE AO WAS WRO NG IN RAJESH N. SANGHAVI (HUF) 4 TREATING SHORT TERM CAPITAL GAIN AS INCOME FROM BUS INESS. DETAILED FINDINGS GIVEN IN HIS ORDER ARE REPRODUCED BELOW: 5. I FIND THAT THE OPENING PORTFOLIO OF THE APPELL ANT WAS RS.88.20 LACS AND THE CLOSING PORTFOLIO RS.90.3 4 LACS AND THUS, THE NUMBER OF TRANSACTIONS ARE REASONABLE IN VIEW OF THE SIZE OF THE PORTFOLIO AND THE PERIOD OF HOLDING. NO BORROWED FUNDS WERE USED FOR THE PURCHASE OF SHARES, ONLY OWN SAVING AND FAMILY INTE REST FREE FUNDS WERE USED. THE APPE1LANT HAD ALSO KEPT T HE SHARES FOR A LONGER PERIOD AS PER THE DETAILS GIVEN BELOW: PERIOD SHORT TERM CAPITAL GAINS NO. OF SCRIPTS BETWEEN 0-30 DAYS 9,75,389 41 BETWEEN 31-60 DAYS 1,70,856 39 BETWEEN 61-90 DAYS 1,51,470 21 BETWEEN 91-180 DAYS 10,85,703 45 BETWEEN181-270 DAYS 4,59,380 26 MORE THAN 270 DAYS (1,23,505) 18 27,19,293 THE APPELLANT HAD INVESTED SURPLUS FUNDS FOR EARNIN G DIVIDEND AND CAPITAL APPRECIATION. THE PURCHASES OF SHARES HAVE BEEN ENTERED WITH A SOLE INTENTION OF INVESTMENT, THE TOTAL DIVIDEND EARNED DURING THE YEAR WAS RS.1,12,608/-. THE TOTAL PORTFOLIO OF THE ASSESSEE WAS RS.90.34 LACS HAVING ABOUT 93 SCRIPTS. DURING THE YEAR, THE SHORT TERM CAPITAL GAIN WAS IN RESPECT OF ONLY 124 SCRIPTS. TRANSACTIONS ARE LINEA R IN NATURE. IN THE CASE OF THE APPELLANT, THE HOLDING P ERIOD OF SHARES SOLD IN SHORT TERM RANGES TO A MAXIMUM OF 34 9 RAJESH N. SANGHAVI (HUF) 5 DAYS AND LONG TERM RANGES FROM 366 TO 1082 DAYS. TH E SHARES AND SECURITIES HAVE BEEN CLASSIFIED AS INVESTMENTS BY THE APPELLANT IN ITS BOOKS OF ACCOUN TS. THE INVESTMENTS ARE REFLECTED IN THE DEMAT OF THE APPELLANT. THE AO HAS FAILED TO BRING OUT ANY SPECIFIC MATERIA L IN RESPECT OF HIS POINT OF VIEW THAT THE TRANSACTIONS SHOULD BE TREATED AS 'ADVENTURE IN THE NATURE OF TRADE'. HIS FINDINGS ARE NOT BASED ON MATERIAL EVIDENCE. TH E CASE LAWS RELIED ON BY THE LD. A/R HAS A DIRECT BEARING ON THE CASE OF THE APPELLANT. THE ASSESSEE HAS SHOWN THE SAME PATTERN OF SHORT TERM CAPITAL GAINS AND LONG TERM CAPITAL GAINS IN HIS RETURN OF INCOME FOR THE AY. 2004-05, 2005-06 A ND 2006-07. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . GOPAL PUROHIT (2010) 188 TAXMAN 140 (BORN) HAS UPHELD THE ORDER OF THE TRIBUNAL APPLYING THE PRINC IPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO TH E ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS ONE RELATING TO INVESTMENT, IN SHARES AND THE ANOTHER RELATING TO T HE BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES AND THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENTS TRANSACTIONS AND PROFIT RECEIVED THERE FROM SHOULD BE TREATED EITHER AS SHORT TERM OR AS THE CASE MAY BE, LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. IT ALSO HELD THAT THE PRINCIPLE OF RES-JUDICATA IS NOT APPLICABLE TO ASSE SSMENT PROCEEDINGS YET, THERE OUGHT TO BE UNIFORMITY IN TR EATMENT AND CONSISTENCY WHEN FACTS AND CIRCUMSTANCES ARE IDENTICAL. RAJESH N. SANGHAVI (HUF) 6 IN VIEW OF THE ABOVE FACTUAL POSITION, THE SHORT TE RM CAPITAL GAINS OF RS.26,76,451/- ON SALE OF SHARES I S TO BE TAXED UNDER THE HEAD 'CAPITAL GAINS' AND NOT AS BUSINESS INCOME. THE AO IS DIRECTED TO MODIFY HIS ORDER ACCORDINGLY. 3.5. DURING THE COURSE OF HEARING BEFORE US LD. COUNSEL HAS PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: 1. CIT VS. GOPAL PUROHIT (2010) 228 CTR 582 (BOM HC ) ORDER DATED 6.1.2010 2. A. CIT VS. NAISHADH VS. VACHHARAJANI (BOM HC) 20 11- TIOL-663 ORDER DATED 22.09.2011 B. NAISHADH VS. VACHHARIAJANI VS. ACIT 6429/MUM/200 9 ORDER DATED 25.02.2011 3. RAJESH S. SANGHVI VS. ACIT 1609/M/2011 & 2012/M/2011 ORDER DATED 24.9.2014 4. SIDDHALCHAL ENTERPRISES PVT. LTD. VS. ITO 8969/M /2010 ORDER DATED 28.5.2015 5. TIKUCHAND D. JOGANI VS. DCIT 7710/M/2011 ORDER DATED 30.10.2015 6. TIKUCHAND D. JOGANI VS. DCIT 2285/M/2010 ORDER DATED 21.8.2013 7. POOJA MANU GOEL VS. ACIT 5007/M/2013 & 5416/M/2013 ORDER DATED 17.9.2014 8. ACIT VS. NEMICHAND P. JAIN HUF 7159/M/2013 ORDER DATED 13.11.2015 RAJESH N. SANGHAVI (HUF) 7 3.6. IT IS NOTED BY US THAT THE BASIS OF DECISION GIVEN BY LD. CIT(A) ARE CORRECT AS PER LAW AND FACTS. HE HAS COR RECTLY TAKEN NOTE OF THE MATERIAL FACT THAT NO BORROWED FUNDS WE RE USED FOR PURCHASE OF SHARES, AND ONLY SAVINGS AND FAMILYS I NTEREST FREE FUNDS WERE USED. IT HAS ALSO BEEN CORRECTLY NOTED B Y LD. CIT(A) THAT THE ASSESSEE HAS KEPT THE SHARES FOR A LONGER PERIOD. THE OTHER PROMINENT FACTS TAKEN INTO ACCOUNT WHILE GIVI NG DECISION WERE THAT THESE SHARES AND SECURITIES WERE CLASSIFI ED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AS INVESTMENTS. I T IS FURTHER NOTED BY US THAT WHILE GIVING DECISION, LD. CIT(A) RELIED UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT FOR TAKIN G REQUISITE GUIDANCE TO DECIDE IMPUGNED ISSUE IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA). IT MAY BE NOTED THAT DEP ARTMENT CARRIED THIS MATTER BEFORE HONBLE SUPREME COURT, W HEREIN S.L.P FILED BY THE DEPARTMENT HAS BEEN REJECTED BY HONBLE SUPREME COURT. THUS, REASONING GIVEN BY THE HONBLE BOMBAY HIGH COURT AND ADOPTED BY LD. CIT(A) FOR ADJUDICATI NG THE APPEAL BEFORE HIM, HAS BEEN APPROVED BY HONBLE SUP REME COURT. IT IS FURTHER WORTH NOTING THAT LD. CIT(A) H AS TAKEN NOTE OF ANOTHER MATERIAL FACT THAT THE ASSESSEE HAS SHOW N THE SAME PATTERN OF SHORT TERM CAPITAL GAIN AND LONG TERM CA PITAL GAINS IN THE RETURN OF INCOME FOR ALL THE PREVIOUS ASSESS MENT YEARS AND THESE HAVE BEEN ACCEPTED AS SUCH BY THE DEPARTM ENT. IT IS FURTHER BROUGHT TO OUR NOTICE THAT THE SIMILAR KIND OF INCOME HAS BEEN SHOWN BY THE ASSESSEE IN THE RETURN OF INC OME AS SHORT TERM CAPITAL GAIN, EVEN WHEN THE RATE OF TAX WAS AS HIGH AS 30%. IN THOSE YEARS, THE CLAIM OF THE ASSESSEE W AS ACCEPTED. UNDER THESE CIRCUMSTANCES, SIMILAR CLAIM SHOULD NOT RAJESH N. SANGHAVI (HUF) 8 BE REJECTED IN THE IMPUGNED YEAR MERELY BECAUSE RAT E OF TAX HAS COME DOWN. OUR VIEW FIND SEPARATE FROM THE JUDG MENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 , RELEVANT OBSERVATIONS ARE REPRODUCED BELOW: 29. IN RADHASOAMI SATSANG SAOMI BAGH V. CIT [1992] 193 ITR 321/60 TAXMAN 248 (SC) THIS COURT DID NOT THINK IT APPROPRIATE TO ALLOW THE RECONSIDERATION OF AN ISSU E FOR A SUBSEQUENT ASSESSMENT YEAR IF THE SAME 'FUNDAMENTAL ASPECT' PERMEATES IN DIFFERENT ASSESSMENT YEARS. IN ARRIVING AT THIS CONCLUSION, THIS COURT REFERRED TO AN INTER ESTING PASSAGE FROM HOYSTEAD V. COMMISSIONER OF TAXATION, 1926 AC 155 (PC) WHEREIN IT WAS SAID: 'PARTIES ARE NOT PERMITTED TO BEGIN FRESH LITIGATIO N BECAUSE OF NEW VIEWS THEY MAY ENTERTAIN OF THE LAW OF THE CASE , OR NEW VERSIONS WHICH THEY PRESENT AS TO WHAT SHOULD BE A PROPER APPREHENSION BY THE COURT OF THE LEGAL RESULT EITHE R OF THE CONSTRUCTION OF THE DOCUMENTS OR THE WEIGHT OF CERT AIN CIRCUMSTANCES. IF THIS WERE PERMITTED, LITIGATION W OULD HAVE NO END, EXCEPT WHEN LEGAL INGENUITY IS EXHAUSTED. I T IS A PRINCIPLE OF LAW THAT THIS CANNOT BE PERMITTED AND THERE IS ABUNDANT AUTHORITY REITERATING THAT PRINCIPLE. THIR DLY, THE SAME PRINCIPLE, NAMELY, THAT OF SETTING TO REST RIG HTS OF LITIGANTS, APPLIES TO THE CASE WHERE A POINT, FUNDA MENTAL TO THE DECISION, TAKEN OR ASSUMED BY THE PLAINTIFF AND TRAVERSABLE BY THE DEFENDANT, HAS NOT BEEN TRAVERSE D. IN THAT CASE ALSO A DEFENDANT IS BOUND BY THE JUDGMENT , ALTHOUGH IT MAY BE TRUE ENOUGH THAT SUBSEQUENT LIGH T OR INGENUITY MIGHT SUGGEST SOME TRAVERSE WHICH HAD NOT BEEN TAKEN.' 30. REFERENCE WAS ALSO MADE TO PARASHURAM POTTERY W ORKS LTD. V. ITO [1977] 106 ITR 1 (SC) AND THEN IT WAS HELD: 'WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RES JU DICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH AS SESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPEC T PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HA VE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLE NGING THE RAJESH N. SANGHAVI (HUF) 9 ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ON THESE REASON INGS IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE R EVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER - AND IF THERE WAS NO CHANGE IT WAS IN SUPPORT OF THE ASSESSEE - WE DO NO T THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER OF INCOME TAX IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRAD ICTORY STAND SHOULD HAVE BEEN TAKEN.' 31. IT APPEARS FROM THE RECORD THAT IN SEVERAL ASSE SSMENT YEARS, THE REVENUE ACCEPTED THE ORDER OF THE TRIBUN AL IN FAVOUR OF THE ASSESSEE AND DID NOT PURSUE THE MATTE R ANY FURTHER BUT IN RESPECT OF SOME ASSESSMENT YEARS THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE BOMBAY HIGH COURT BUT WITHOUT ANY SUCCESS. THAT BEING SO, THE REVENUE CAN NOT BE ALLOWED TO FLIP-FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RATHER THAN SPEND THE TAX PAYERS' MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT. 3.7. THUS, TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUM STANCES OF THIS CASE AND LEGAL POSITION AS DISCUSSED ABOVE, WE FIND THAT THE ORDER OF LD. CIT(A) IS IN ACCORDANCE WITH LAW A ND FACTS, AND, THEREFORE THE SAME IS UPHELD AND GROUND RAISED BY THE REVENUE IS DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2015. SD/- (SANJAY GARG ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; ' DATED :18/12/2015 CTX? P.S/. .. RAJESH N. SANGHAVI (HUF) 10 #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. $ %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * ( $ ) / THE CIT, MUMBAI. 4. ) ) * / CIT(A)- , MUMBAI 5. -. ' /0 , ) $ /01 , / DR, ITAT, MUMBAI 6. 2 3 / GUARD FILE. / BY ORDER, ( -$ ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI