Income-tax Officer, Aurangabad V. Shri Janardhan Pralhadrao Gupta, Aurangabad

ITA 1030/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9711 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH SHRI RAJIV JAIN
• Assessee Lawyers: R D OMKAR
• Keywords: Business income; Salary income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K.PANDA, ACCOUNTANT MEMBER. ITA.NO.1030/PN/2011 (ASSTT. YEAR : 2008-09) ITO, WARD-1(1), AURANGABAD. .. APPELLANT VS. SHRI JANARDHAN PRALHADRAO GUPTA, COSMO FILMS LTD., B-14/9, MIDC, WALUJ, AURANGABAD. .. RESPONDENT PAN: ABPPG7509Q ASSESSEE BY : SHRI R.D.OMKAR DEPARTMENT BY : SHRI S.K.SINGH/ SHRI RAJIV JAIN DATE OF HEARING : 23.08.2012 DATE OF PRONOUNCEMENT : 28.08.2012 ORDER PER SHAILENDRA KUMAR YADAV, JM : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON THE FOLLOWING GROUNDS: (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONOURABLE CIT(A), AURANGABAD, ERRED IN TREATING TH E SHARE TRADING BUSINESS OF THE ASSESSEE AS SHORT TER M CAPITAL GAINS AT RS.28,25,954/-. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONOURABLE CIT(A), AURANGABAD, ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY TRADING IN SHARES W ITH A VIEW TO EARN AN INCOME WHICH AMOUNTS TO INCOME FROM BUSINESS OR PROFESSION AND NOT SHORT TERM CAPITAL G AINS. (3) THE HONOURABLE CIT(A), AURANGABAD, ERRED IN NOT APPRECIATING THE FACT THAT WHILE DETERMINING THE NA TURE AND CHARACTER OF ASSESSEE'S TRANSACTIONS IN SHARES PRINCIPLES AND ASPECTS OF SUBSTANTIAL NATURE OF TRANSACTION, MAGNITUDE OF PURCHASE AND SALE, RATIO 2 BETWEEN PURCHASES AND SALES WITH ITS HOLDING AS PER CIRCULAR NO.4/2007 WAS DULY CONSIDERED IN ASSESSEE' S CASE. (4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS TO WHETHER THE CASE IN WHICH NO SCRUTINY WAS MADE IN EARLIER Y EARS WILL FALL WITHIN THE AMBIT OF PRINCIPLES OF CONSIST ENCY WHILE DETERMINING THE ASSESSEE'S HEADS OF INCOME O N THE BASIS OF FACTS. (5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS TO WHETHER TERMS AND CONDITIONS OF THE EMPLOYER OF THE ASSESSE E WILL CHANGE THE NATURE, CHARACTER OF TRANSACTIONS AND HE ADS OF INCOME OF THE ASSESSEE. (6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE ORDER OF THE CIT(A), AURANGABAD, MAY BE VACATED AND THAT OF THE A.O. BE RESTORED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL WORKING WITH A LIMITED COMPANY IN THE CAPACITY OF G ENERAL MANAGER AND DERIVED INCOME FROM SALARY RS.21,72,874/- AND I NCOME FROM SHORT TERM CAPITAL GAIN RS.28,25,954/- FROM SHARES OF VARIOUS COMPANIES. THE ASSESSEE FILED RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.48,19,610/-. THE ASSESSING OFFICER TR EATED THE SHORT TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE AT RS.28, 25,954/- AS INCOME FROM BUSINESS OR PROFESSION. MATTER WAS CAR RIED BEFORE THE FIRST APPELLATE AUTHORITY, WHO HAS DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND RIVAL CONTENTIONS OF THE A.O. AND THE APPELLANT. THE A.O . HAS TREATED THE SURPLUS ON SALE OF SHARES CLAIMED BY TH E APPELLANT AS SHORT TERM CAPITAL GAIN, AS BUSINESS INCOME AS T HE APPELLANT HAS INDULGED IN BULK TURNOVER BY ENTERING INTO FREQUENT TRANSACTIONS AND HAS EARNED SUBSTANTIAL IN COME. THE A.O. HAS ALSO RELIED ON INSTRUCTIONS NO. 1827 AND C IRCULAR NO. 4/2007 DATED 15/6/2007. THE A.O. HAS ALSO RELIED O N VARIOUS DECISIONS IN SUPPORT OF HIS CONTENTION. AS REGARDS THE FIRST CONTENTION OF THE A.O. ABOUT SUBSTANTIAL TURNOVER A ND FREQUENT TRANSACTIONS, IT HAS BEEN HELD IN THE CASE OF JANAK S. RANGWALA VS. ACIT 11 SOT 627 (MUM) THAT MAGNITUDE O F TRANSACTION DOES NOT ALTER CHARACTER OF TRANSACTION . SIMILAR RATIO HAS BEEN LAID DOWN IN THE CASE OF SURESHKUMAR SEKSARIA VS. ACIT (2010) 1 ITR 783 (TRIB)(MUM). THE RELIANCE PLACED BY THE A.O. ON INSTRUCTION NO. 1827 AND CIRCULAR NO. 4 /2007 IS ALSO MISPLACED AS IN THESE INSTRUCTION AND CIRCULAR , IT HAS BEEN STATED THAT VARIOUS FACTORS TOGETHER SHALL DETERMIN ED THE NATURE OF TRANSACTION. THE SAID INSTRUCTION AND CIR CULAR HAVE BEEN CONSIDERED IN VARIOUS DECISIONS AND IT HAS BEE N LAID 3 DOWN THAT ALL THE FACTS TOGETHER SHALL DETERMINE TH E NATURE OF TRANSACTION AND WHETHER THE SAME SHALL RESULT INTO BUSINESS INCOME OR CAPITAL GAIN. THE BULK TURNOVER AND INCOM E IS ONLY ONE FACTOR AND THE SAME IS NOT DECISIVE FACTOR. IN THE CASES WHERE THE FUND INVESTED IS SUBSTANTIAL, THE TURNOVE R AND TRANSACTIONS ARE BOUND TO BE SUBSTANTIAL. THE DECIS IONS RELIED ON BY THE A.O. ARE ON DISTINGUISHABLE FACTS AS CORR ECTLY POINTED OUT BY THE APPELLANT AS STATED IN PRECEDING PARA. 7.1 IN THE CASE OF THE APPELLANT THE APPELLANT IS FULL TIME EMPLOYEE OF COSMO FILMS LTD. AND HAS EARNED SUBSTAN TIAL SALARY SINCE LAST MANY YEARS. ALL THE TRANSACTIONS OF PURCHASE AND SALES OF SHARES CARRIED OUT BY THE APPELLANT AR E DELIVERY BASED TRANSACTIONS. THE APPELLANT HAS USED HIS OWN FUNDS OUT OF SALARY SAVINGS AND CAPITAL GAINS EARNED DURING V ARIOUS YEARS FOR INVESTMENTS IN SHARES AND HAVE NOT BORROW ED ANY AMOUNT FOR THE INVESTMENT. THE APPELLANT HAS ALWAYS CONSIDERED THE INVESTMENT IN SHARES AS 'INVESTMENT' AND NOT 'STOCK IN TRADE' AND VALUED THE INVESTMENT 'AT COST ' AND NOT 'AT COST OR MARKET VALUE WHICHEVER LESS'. THE APPELLANT HAS ALSO EARNED LONG TERM CAPITAL GAIN RS.5,12,198/- IN RESP ECT OF SHARES SOLD AFTER HOLDING THE SAME FOR MORE THAN 12 MONTHS WHICH HAS BEEN ASSESSED BY THE A.D. AS LONG TERM CA PITAL GAIN AND NOT AS BUSINESS INCOME. FURTHER THE APPELLANT H AS EARNED SUBSTANTIAL SHORT TERM AND LONG TERM CAPITAL GAIN I N THE PRECEDING ASSESSMENT YEAR LE. A.YRS. 2005-06, 2006- 07 AND 2007-08 AND THE SAME HAS BEEN ACCEPTED AND ASSESSED BY THE A.O. AS CAPITAL GAIN. IN VIEW OF THE ABOVE FACTS, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE APPELLANT THAT HE HAS EARNED CAPITAL GAIN AND NOT BUSINESS INCOME. 7.2(I) FURTHER THE ISSUE HAS BEEN ANALYZED IN VARIO US DECISIONS. THE HON'BLE ITAT 'G' BENCH MUMBAI HAS LA ID DOWN IN THE CASES OF NAGINDAS P. SHETH-HUF VS. ACIT 21(3 ), MUMBAI-51, ITA NO. 961 AND 1836/MUM/2010. (2011) - TIOL - 228 ITAT, MUMBAI A.Y. 2006-07 THAT WHERE THE TRANSACTIONS IN SHARES ARE DELIVERY BASED, THE APPE LLANT HAS USED OWN FUNDS FOR PURCHASE OF SHARES AND WHERE THE ASSESSEE DID NOT HAVE ANY OFFICE OR ADMINISTRATIVE SETUP OF BUSINESS, THE TRANSACTIONS IN SHARES SHALL RESULT I NTO CAPITAL GAIN NOTWITHSTANDING THE FACT THAT THE ASSESSEE HAS ENTERED INTO BULK TURNOVER AND FREQUENT TRANSACTIONS. (II) FURTHER IT HAS BEEN LAID DOWN BY HON'BLE BOMBA Y HIGH COURT, IN THE CASE OF CIT VS. GOPAL PUROHIT (2010) 34 DTR 52 (BOM) THAT THE DELIVERY BASED TRANSACTIONS ARE TO B E TREATED AS INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THE RE FROM IS TO BE TREATED AS SHORT TERM OR LONG TERM CAPITAL GA IN DEPENDING UPON THE PERIOD OF HOLDING SHARES. IT HAS ALSO BEEN LAID DOWN THAT IF ON IDENTICAL FACTS IT HAS BEEN ACCEPTED IN THE EARLIER YEARS THAT THE TRANSACTIONS HAVE RESULTED IN SHORT TERM CAPITAL 4 GAIN, THE SAME RATIO SHOULD BE ACCEPTED IN THE SUBS EQUENT YEAR IN VIEW OF PRINCIPLE OF UNIFORMITY AND CONSIST ENCY. (III) THE SIMILAR RATIO HAS BEEN LAID DOWN BY HON'B LE ITAT MUMBAI 'E' BENCH IN THE CASE OF SHANTILAL M. JAIN V S. ACIT CIRCLE-12(3), MUMBAI- ITA NO. 2690/MUM/2010 AY. 200 6-07. IN THIS CASE THE ASSESSEE WAS DERIVING INCOME FROM SALARY, HOUSE PROPERTY ETC. IN ADDITION TO INCOME FROM DEAL ING IN SHARES. IN THE EARLIER YEARS THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN DECLARED BY THE APPELLANT ON IDENTICAL FACTS HAS BEEN ACCEPTED AND ASSESSED BY THE DEPARTM ENT. THE APPELLANT HAS DECLARED SUBSTANTIAL SHORT TERM CAPIT AL GAIN OF RS.1,54,03,274/- AND LONG TERM CAPITAL GAIN RS.2,91 ,37,201/- FROM SUBSTANTIAL DELIVERY BASED TRANSACTIONS. THE A .O. HAS ACCEPTED THE LONG TERM CAPITAL GAIN, HOWEVER HAS TR EATED SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. THE CIT(A) HA S ALSO CONFIRMED THE ORDER OF THE AO. RELYING ON THE CBDT INSTRUCTION NO. 1827 AND STATING THAT THE PRINCIPLE OF RES JUDICATE IS NOT APPLICABLE TO THE INCOME-TAX PROCEE DINGS. ON THE ABOVE FACTS THE HON'BLE ITAT, MUMBAI HAS HELD T HAT THE RULE OF CONSISTENCY AS PROPOUNDED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (2010) 3 4 DTR 52 (BOM) WILL SQUARELY BE APPLICABLE TO THE FACT OF TH E PRESENT CASE. IT HAS BEEN HELD THAT THE A.O. AND CIT(A) HAV E ERRED IN TREATING THE SHORT TERM CAPITAL GAIN OF RS.1,54,03, 274/- AS BUSINESS INCOME. 7.3 IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND R ESPECTFULLY FOLLOWING RATIO LAID DOWN BY VARIOUS DECISIONS RELI ED ON BY THE APPELLANT, I AM OF THE CONSIDERED VIEW THAT THE A.O . IS NOT JUSTIFIED IN TREATING THE SHORT TERM CAPITAL GAIN O F RS.28,25,954/- AS BUSINESS INCOME. THE A.O. IS THER EFORE DIRECTED TO TREAT THE SURPLUS ON SALE OF SHARES OF RS.28,25,954/- AS SHORT TERM CAPITAL GAIN AS CLAIME D BY THE APPELLANT. 8. IN THE RESULT THE APPEAL IS ALLOWED. 3. SAME HAS BEEN OPPOSED BEFORE US. THE LD. DEPART MENTAL REPRESENTATIVE SUBMITTED THAT THE CIT(A) ERRED IN T REATING THE SHARE TRADING BUSINESS OF ASSESSEE AS SHORT TERM CAPITAL GAINS OF RS.28,25,954/-. THE CIT(A) ERRED IN NOT APPRECIATI NG THE FACT THAT ASSESSEE HAD CARRIED ON CONTINUOUSLY AND SYSTEMATIC ALLY TRADING IN SHARES WITH A VIEW TO EARN AN INCOME WHICH AMOUNTS TO INCOME FROM BUSINESS OR PROFESSION AND NOT SHORT TERM CAPI TAL GAINS. THE CIT(A) HAS NOT APPRECIATED THE FACT THAT WHILE DETE RMINING THE NATURE AND CHARACTER OF ASSESSEES TRANSACTIONS IN SHARES PRINCIPLES 5 AND ASPECTS OF SUBSTANTIAL NATURE OF TRANSACTION, M AGNITUDE OF PURCHASE AND SALE, RATIO BETWEEN PURCHASES AND SALE S WITH ITS HOLDING AS PER CIRCULAR NO.4/2007 WAS DULY CONSIDER ED IN ASSESSEES CASE. ACCORDINGLY, THE ORDER OF THE CIT (A) BE VACATED AND ORDER OF THE ASSESSING OFFICER BE RESTORED. ON T HE OTHER HAND, LD. AUTHORISED REPRESENTATIVE RELIED ON THE DECISION OF THE CIT(A). 4. AFTER GOING THROUGH THE ABOVE SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS TREA TED THE SURPLUS ON SALE OF SHARES CLAIMED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS, AS BUSINESS INCOME AS THE ASSESSEE HAS INDUL GED IN BULK TURNOVER BY ENTERING INTO FREQUENT TRANSACTIONS AND HAS EARNED SUBSTANTIAL INCOME. THE ASSESSING OFFICER ALSO REL IED ON INSTRUCTION NO.1827 AND CIRCULAR NO.4/2007 DATED 15.06.2007. T HE ASSESSING OFFICER ALSO RELIED ON VARIOUS DECISIONS IN SUPPORT OF HIS CONTENTION. WITH REGARD TO SUBSTANTIAL TURNOVER AND FREQUENT TR ANSACTIONS, IT HAS BEEN HELD IN THE CASE OF JANAK S.RANGWALA VS. A CIT 11 SOT 627 (MUM) THAT MAGNITUDE OF TRANSACTION DOES NOT AL TER CHARACTER OF TRANSACTION. INSTRUCTION NO.1827 AND CIRCULAR N O.4/2007 WAS FOUND MISPLACED AS IN THESE INSTRUCTION AND CIRCULA R, IT HAS BEEN STATED THAT VARIOUS FACTORS TOGETHER SHALL DETERMIN E THE NATURE OF TRANSACTION. THE SAID INSTRUCTION AND CIRCULAR HAV E BEEN CONSIDERED IN VARIOUS DECISIONS AND IT HAS BEEN LAI D DOWN THAT ALL THE FACTS TOGETHER SHALL DETERMINE THE NATURE OF TR ANSACTION AND WHETHER THE SAME SHALL RESULT INTO BUSINESS INCOME OR CAPITAL GAIN. THE BULK TURNOVER AND INCOME IS ONLY THE FACTOR AND THE SAME IS NOT DECISIVE FACTOR. IN THE CASES WHERE THE FUND INVES TED IS SUBSTANTIAL, THE TURNOVER AND TRANSACTIONS ARE BOUND TO BE SUBST ANTIAL. IT IS UNDISPUTED THAT ASSESSEE IS A FULL TIME EMPLOYEE OF COSMO FILMS LTD., AND HAS EARNED SUBSTANTIAL SALARY SINCE MANY YEARS. ALL THE TRANSACTIONS OF PURCHASE AND SALES OF SHARES CARRIE D OUT BY THE ASSESSEE ARE DELIVERY BASED TRANSACTIONS. THE ASSE SSEE HAS USED HIS OWN FUNDS OUT OF SALARY SAVINGS AND CAPITAL GAI NS EARNED DURING VARIOUS YEARS FOR INVESTMENTS IN SHARES AND HAS NOT BORROWED ANY AMOUNT FOR THE INVESTMENT. THE ASSESSEE HAS ALWAYS CONSIDERED 6 THE INVESTMENT IN SHARES AS INVESTMENT AND NOT STOC K IN TRADE AND VALUED THE INVESTMENT AT COST AND NOT AT COST OR MA RKET VALUE WHICHEVER IS LESS. THE ASSESSEE HAS ALSO EARNED LO NG TERM CAPITAL GAINS OF RS.5,12,198/- IN RESPECT OF SHARES SOLD AF TER HOLDING THE SAME FOR MORE THAN 12 MONTHS WHICH HAS BEEN ASSESSE D BY THE ASSESSING OFFICER AS LONG TERM CAPITAL GAINS AND NO T AS BUSINESS INCOME. THE ASSESSEE HAS EARNED SUBSTANTIAL SHORT TERM AND LONG TERM CAPITAL GAINS IN THE PRECEDING ASSESSMENT YEAR S I.E., A.YS. 2005-06, 2006-07 AND 2007-08 AND SAME HAVE BEEN ACC EPTED AND ASSESSED BY THE ASSESSING OFFICER AS CAPITAL GAINS. IN VIEW OF THE ABOVE, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS EARNED CAPITAL GAINS AND NOT BUSINESS INCOME. THIS VIEW IS FORTIFIED BY DECISIONS DISCUSSED ABOVE. ACCORDINGLY, THE CIT (A) RIGHTLY HELD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATIN G CAPITAL GAINS OF RS.28,25,954/- AS BUSINESS INCOME. SAME NEEDS NO I NTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF AUGUST, 2012. SD/- SD/- ( R.K.PANDA ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 28 TH AUGUST, 2012. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ITO, WARD-1(1), AURANGABAD. 3. THE CIT(A), AURANGABAD. 4. THE CIT, AURANGABAD. 5. THE DR B BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.