ITO 22(3)(1), NAVI MUMBAI V. ANIL P THAKKAR, MUMBAI

ITA 1066/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1774 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DILIP T WORAH
• Keywords: Unexplained investment; Business income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . , / BEFORE SHRI D. MANMOHAN, VICE PRESIDENT /AND !'# , ! . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 1066/MUM/2012 $ $ $ $ / ASSESSMENT YEAR 2008-09 I.T.O. 22(3)(1), TOWER NO. 6, 3 RD FLOOR, VASHI RLY. STATION BUILDING, ROOM NO. 306, VASHI, NAVI MUMBAI. VS. SHRI ANIL P. THAKKAR, FLAT NO.5, GANADEV APARTMENTS, PLOT NO. 283, 5 TH ROAD, NEAR DIAMOND GAR, CHEMBUR, MUMBAI 400 071. PAN: AAAPT 1951 E ( %& / APPELLANT ) ( '(%& / RESPONDENT ) REVENUE BY : SHRI MANOJ KUMAR ASSESSEE BY : SHRI DILIP T. WORAH * +, / DATE OF HEARING : 14-02-2013 -$ * +, / DATE OF PRONOUNCEMENT : 22-02-2013 .!/ / O R D E R PER RAJENDRA, A.M. FOLLOWING GROUNDS OF APPEAL HAVE BEEN FILED ASSESSI NG OFFICER (AO) AGAINST THE ORDER DT. 05-12-2011 OF THE CIT(A)-33, MUMBAI : 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), ERRED IN DELETING THE ADDITION OF RS. 14,65,878/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN MUTUAL FUNDS WITHOUT VERIFYING THE CLAIM OF THE ASS ESSEE THAT THE AMOUNT IN INVESTIGATED BELONGED TO FAMILY MEMBERS. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF RS. 14,65,878/- IN THE HANDS OF THE ASSESSEE AND DIRECTING THE ASSESSING OFFICER TO LOOK INTO THE DETAILS OF INVESTMENT MADE BY FAMILY MEMBERS. ITA NO. 1066/MUM/2012 SHRI ANIL P. THAKKAR 2 3.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), HAS ERRED IN GIVING THE ABOVE RELIEF WITHOUT CALLING FOR THE REM AND REPORT FROM THE ASSESSING OFFICER. 4.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), HAS ERRED IN ALLOWING THE CLAIM OF LONG TERM CAPITAL GAINS OF RS . 39,89,687/- AND SHORT TERM CAPITAL GAINS OF RS. 1,92,743/- WITHOUT APPRECIATIN G THE FACT THAT THE VOLUME AND FREQUENCY OF TRANSACTIONS ARE INVOLVED ARE HIGH TO TREAT THE SAME AS BUSINESS PROFIT. 5.WITHOUT PREJUDICE TO THE GROUND OF APPEAL TAKEN I N FOUR ABOVE, THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW BY NOT TAKING INTO COGNIZ ANCE THE REVISED COMPUTATION OF LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAIN S OF RS. 16,94,726/- (RS. 10,33,489/- CLAIMED AS EXEMPT U/S. 10(38) + RS. 6,6 1,237/- OFFERED AT SPECIAL RATE U/S. 112 @ 10%) AND RS. 7,71,548/- RESPECTIVELY FILED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS WHILE ADJUDICATING THE ISSUE OF CAPITAL GAIN V/S BUSINESS PROFITS. 6. THE APPELLANT RAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. ASSESSEE, AN INDIVIDUAL, CARRYING THE BUSINESS OF C ERTIFIED INVESTMENT & INSURANCE ADVISOR, FILED HIS RETURN OF INCOME ON 16 -07-2009 DECLARING TOTAL INCOME AT RS. 6.23 LAKHS AND THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER (AO) U/S. 143(3) OF THE INCOME TAX ACT, 1961 (ACT) ON 24-12-2 010. 3. GROUNDS OF APPEAL NOS. 1 TO 3 FILED BY THE AO DEAL WITH ADDITION OF RS. 14.65 LAKHS MADE BY THE AO AND DELETED BY THE FIRST APPEL LATE AUTHORITY (FAA). 3.1 AS PER AIR INFORMATION, THE ASSESSEE HAD PURCHASED MUTUAL FUNDS AMOUNTING TO RS. 4,32,66,674/-. AO DIRECTED TO EXPLAIN THE S OURCES OF FUNDS IN RESPECT OF THESE PURCHASES. HE FILED RECONCILIATION STATEMENT OF IN VESTMENTS BEFORE THE AO AND EXPLAINED THAT THE MUTUAL FUNDS WERE PURCHASED JOIN TLY WITH THE FAMILY MEMBERS WHOSE ACCOUNTS WERE VERIFIED. AS PER THE AO, THE A SSESSEE COULD NOT LOCATE THE SOURCES OF FUNDS IN RESPECT OF SIX INVESTMENTS MADE IN MUTUAL FUNDS AMOUNTING TO RS. 14.65 LAKHS. AO HELD THAT THE TRANSACTIONS-IN-QUEST ION WERE NOT REFLECTED IN THE BANK ACCOUNTS OF THE ASSESSEE OR EVEN IN THE ACCOUNT OF THE FAMILY MEMBERS, THAT INVESTMENTS WAS MADE OUT OF ASSESSEES UN-DISCLOSED INCOME. AS A RESULT, AN ADDITION OF RS. 14.65 LAKHS WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, FAA HELD THAT THE ACCOUNT STATEMENT OF THE PORTFOLIO ISSUED BY CONCERNED MUTU AL FUNDS PROVED THAT THESE INVESTMENTS WERE DULY REFLECTED IN THE BOOKS OF ACC OUNTS, THAT SAME COULD NOT BE TREATED AS UN-DISCLOSED INVESTMENT, THAT INVESTME NTS MADE BY MEMBERS OF THE FAMILY WERE PROPERLY EXPLAINED BY THE ASSESSEE. AFTER VER IFYING THE ITEM-WISE INVESTMENT MADE BY THE ASSESSEE AND MEMBERS OF HIS FAMILY, FAA DIRECTED THE AO TO LOOK INTO THE DETAILS AND INVESTMENTS MADE BY THE FAMILY MEMB ERS WHICH ALL WERE CLAIMED TO HAD BEEN ALREADY DECLARED IN THEIR RESPECTIVE RETUR NS. FAA FURTHER DIRECTED THE AO TO DELETE THE ADDITION MADE OF RS. 14,65,878/- IN THE HANDS OF THE APPELLANT. HOWEVER, ITA NO. 1066/MUM/2012 SHRI ANIL P. THAKKAR 3 GROUNDS OF APPEAL, IN THIS REGARD, WERE ALLOWED FOR THE STATISTICAL PURPOSE BY THE FAA. 5. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUBMITT ED THAT FAA DECIDED THE ISSUE UNDER CONSIDERATION WITHOUT CALLING FOR A REM AND REPORT FROM THE AO, THAT CLAIM MADE BY THE ASSESSEE REMAINED UNVERIFIED AT T HE LEVEL OF THE AO. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT OUT OF 82 TRANSA CTIONS, 76 TRANSACTIONS WERE RECONCILED DURING THE ASSESSEE PROCEEDINGS, THAT DE TAILS ABOUT BALANCE SIX TRANSACTIONS WAS ALSO SUBMITTED BEFORE THE FAA, THAT FOR FAILURE OF FAA TO CALL FOR A REMAND REPORT FROM THE AO, ASSESSEE COULD NOT BE PENALIZED . 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PUT BEFORE US. THERE IS NO DOUBT THAT FAA HAS CHECKED ALL THE ENTR IES REGARDING INVESTMENT MADE BY THE ASSESSEE AND MEMBERS OF HIS FAMILY AND ARRIVED AT A FACTUAL CONCLUSION THAT IT WAS NOT A CASE OF UNDISCLOSED INVESTMENT. WE ARE OF TH E OPINION THAT DIRECTING THE AO TO DELETE THE ADDITION, WITHOUT CALLING FOR A REMAND R EPORT, WAS NOT AS PER THE PROVISIONS OF THE ACT. SO, IN THE INTEREST OF JUST ICE, MATTER IS RESTORED BACK TO THE FILE OF THE AO TO VERIFY SIX TRANSACTIONS MENTIONED AT P G. 8 OF THE ORDER OF THE AO. AO SHOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE BEFORE DECIDING THE ISSUE. GROUNDS OF APPEAL NOS. 1 TO 3 ARE PARTLY DECIDED I N FAVOUR OF THE AO. 7. NEXT GROUND OF APPEALS IS ABOUT TREATING BUSINESS INCOME UNDER THE HEAD CAPITAL GAINS BY THE FAA. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN (LTCG) OF RS. 10,33,489/- IN PART B- T1 OF THE RETURN OF INCOME. HE FURTHER FOUND THAT BESIDES THE LTCG OF RS. 10.33 LAKHS, ASSESSEE DECLARED SHORT TERM CAPITAL GAIN (S TCG) OF RS. 7.62 LAKHS. FROM THE INFORMATION AVAILABLE ON RECORD, AO FOUND THAT TRANSACTION IN SHARES/MUTUAL FUNDS AMOUNTING TO RS. 4,40,15,878/- WERE ENTERED INTO BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. AO VERIFIED THESE TRANSACTION S WITH REFERENCE TO THE BANK ACCOUNT OF ASSESSEE AND HIS WIFE. AFTER CONSIDERING THE MATERIAL AVAILABLE ON THE FI LE, AO HELD THAT THE ASSESSEE WAS ENGAGED IN LARGE SCALE SHARE TRADING BUSINESS S INCE LAST SEVERAL YEARS. VIDE ORDER SHEET ENTRY DT. 13-12-2010, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE ENTIRE INCOME FROM SHARE TRADING SHOULD NOT BE TREATED AS BUSINESS INCOME CONSIDERING THE VOLUME OF SHARE TRADING BUSINESS CARRIED OUT BY THE ASSESSEE. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, AO HELD THAT VOLUME OF TRANS ACTION ENTERED INTO IN SHARES AND SECURITIES BY THE ASSESSEE, WAS IN LARGE SCALE, TH AT AMOUNT OF DIVIDEND EARNED FROM THE SHARES WAS CONSIDERABLY LOW COMPARING TO THE VOLUME OF INVESTMENT, THAT THE ASSESSEES MAIN SOURCE OF INCOME WAS FROM BUSINESS OF TRADING IN SHARES/STOCKS. FINALLY, HE HELD THAT THE ENTIRE PROFIT DERIVED FRO M SALE OF SHARES BY THE ASSESSEE DURING THE PREVIOUS YEAR WAS INCOME FROM BUSINESS . 8. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTE R CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, FAA HELD THAT THE APPE LLANT HIMSELF WAS CARRYING ON THE BUSINESS OF INVESTMENT ADVISORS IN THE NAME AND STY LE OF M/S. SATYAM INVESTMENTS WHEREIN HE ADVISED CLIENTS ON INVESTMENTS IN SHARES , MUTUAL FUNDS AND SECURITIES, THAT HE EARNED COMMISSION AND BROKERAGE BY CARRYING OUT THIS ACTIVITY WHICH WAS SHOWN ITA NO. 1066/MUM/2012 SHRI ANIL P. THAKKAR 4 AS BUSINESS INCOME, THAT BESIDES THIS HE ALSO ACTED AS AN INDIVIDUAL INVESTOR IN MUTUAL FUNDS WHEREBY HE INVESTED HIS OWN MONEY, THAT THERE WAS NO FINDING MADE BY THE AO THAT ANY BORROWED FUNDS HAD BEEN UTILISED FOR PURCH ASE OF SHARES AND SECURITIES HELD IN HIS INDIVIDUAL NAME AS INVESTMENT, THAT BOTH THESE ACTIVITIES WERE CONSISTENTLY DONE SINCE MANY YEARS UNDER THE HEAD BUSINESS INCOME A ND CAPITAL GAINS RESPECTIVELY, THAT THE APPELLANT WAS CARRYING BUSINESS ACTIVITY F ROM CURRENT BANK ACCOUNT AND INVESTMENT ACTIVITY THROUGH HIS SAVINGS BANK ACCOUN T, THAT ASSESSEE WAS MAINTAINING DETAILS FOR BOTH THE ACTIVITIES SEPARATELY AND THE CAPITAL GAINS WORKED OUT ON BASIS OF HOLDINGS WERE DECLARED ACCORDINGLY, THAT IT WAS PER FECT TO MAINTAIN TWO DIFFERENT PORTFOLIOS ONE FOR THE INVESTMENT AND OTHER FOR TRA DING, THAT IN THIS CASE THE APPELLANT WAS HAVING ONLY INVESTMENT IN MUTUAL FUNDS AND THE BUSINESS INCOME WAS COMMISSION FOR CONSULTANCY-PROVIDED TO OTHERS FOR SHARE TRANSA CTIONS, THAT INVESTMENTS WERE MADE OUT OF HIS OWN FUNDS ONLY, THAT MAJORITY OF THE INV ESTMENTS WERE HELD FOR CONSIDERABLY LONG PERIOD, THAT CAPITAL GAINS OFFERED ON LONG TER M TRANSACTIONS WAS HIGHEST I.E., RS. 39,89,687/- WHEREAS SHORT TERM CAPITAL GAINS WAS ON LY OF RS. 1,92,743/- MEANING THEREBY THAT MAJORITY OF SHARES WERE HELD FOR AT LE AST MORE THAN A YEAR WHEREAS THOSE HELD FOR LESS THAN ONE YEAR WERE FAR LESS AND TO BE PRECISE, GAIN WISE THEY WERE 4.8% (RS. 1,92,743/- RS. 39,89,687/-) OF THOSE HELD FOR AT LEAST AND/OR MORE THAN ONE YEAR. FINALLY, FAA HELD THAT INCOME OFFERED BY THE APPELL ANT UNDER THE HEAD CAPITAL GAINS COULD NOT BE TAKEN AS BUSINESS INCOME ONLY FOR THE REASON THAT THE VOLUME OF THE TRANSACTIONS IS HIGH, THAT TREATMENT OF CAPITAL GAI N AS BUSINESS INCOME WAS NOT SUSTAINABLE. 9. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUBMITT ED THAT VOLUMES OF TRANSACTED SHARES WAS MORE THAN RS. 4 CRORES, THAT ASSESSEE WAS CARRYING OUT SYSTEMATIC AND ORGANIZED BUSINESS ACTIVITIES, THAT AO HAD RIGHTLY TAXED THE INCOME FROM SHARE TRANSACTION UNDER THE HEAD BUSINESS. AU THORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSESSEE WAS CARRYING OUT TWO ACTIVI TIES ONE OF ADVISER AND OTHER OF INVESTOR, THAT HE WAS MAINTAINING SEPARATE ACCOUNTS FOR BOTH THE ACTIVITIES, THAT INCOME ARISING OUT OF INVESTMENT MADE WAS OFFERED FOR TAXA TION UNDER THE HEAD LTCG/STCG THAT MOST OF THE INVESTMENTS WERE HELD FOR MORE THAN ONE YEAR, THAT AO HAD ACCEPTED THE THEORY OF BUSINESS INCOME/LTCG IN EARLIER AYS ON SIMILAR FACTS, THAT ASSESSEE HAD USED HIS OWN MONEY FOR INVESTMENT . 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. FAA HAS GIVE N FINDING OF FACTS WITH REGARD TO BUSINESS INCOME/STCG WHILE DECIDING THE A PPEAL FILED BY THE ASSESSEE. AFTER ANALYSING THE ACCOUNTS OF THE ASSESSEE, PATTE RN OF INVESTMENT, MANAGEMENT OF FUND, VOLUME OF TRANSACTIONS, PERIOD OF HOLDING, FA A HAS GIVEN A CATEGORICAL FINDING THAT INVESTMENT ACTIVITY HAD NO CONNECTION WITH THE BUSINESS OF THE ASSESSEE. WE DO NOT FIND ANY LEGAL OR FACTUAL INFIRMITY IN THE ORDE R OF THE FAA. IT WAS THE VOLUME OF THE TRANSACTION WHICH LED THE AO TO CONCLUDE THAT T RANSACTION SHOULD BE TREATED AS BUSINESS. IN OUR OPINION, VOLUME OF TRANSACTIONS I S NOT THE SOLE CRITERIA TO DECIDE THE HEADS OF INCOME OR TO CHANGE THE HEADS OF INCOME. ASSESSEE WAS INVESTING THE MUTUAL FUNDS/SHARES AND MOST OF THE INVESTMENTS WERE (95% APP.) MADE FOR A PERIOD OF A YEAR OR MORE. ASSESSEE WAS CARRYING OUT THESE TRANSACTI ONS THROUGH HIS PERSONAL SAVINGS BANK A/C., WHEREAS BUSINESS ACTIVITIES WERE CARRIE D OUT THROUGH HIS CURRENT A/C. IT IS ALSO FOUND MAJORITY OF THE TRANSACTIONS WERE RELATE D TO MUTUAL FUNDS. AO HAS NOT BROUGHT ON RECORD ANYTHING TO SHOW THAT ASSESSEE HA D UTILIZED BORROWED FUNDS FOR INVESTING IN MUTUAL FUNDS. CONSIDERING THE FACTS A ND CIRCUMSTANCES OF THE MATTER UNDER CONSIDERATION, WE ARE OF THE OPINION THAT FAA HAD RIGHTLY ALLOWED THE APPEAL ITA NO. 1066/MUM/2012 SHRI ANIL P. THAKKAR 5 FILED BY THE ASSESSEE TREATING INVESTMENT AS BUSINE SS ACTIVITY FOR TREATING TRANSACTION COVERED UNDER THE HEAD CAPITAL GAINS AS BUSINESS ACTIVITIES. AO HAS TO BRING ON RECORD MATERIAL FACTS, BUT IN THE PRESENT CASE, SAM E ARE MISSING. HE HAS DRAWN SAME INFERENCE WITHOUT ANY REASONABLE BASIS. SO, GROUND S OF APPEAL NOS. 4 AND 5 ARE DECIDED AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STAND S PARTLY ALLOWED. 0 12 - 4 .56 * 7 / 2 ! 89 * + :. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2013 .!/ * -$ , ! ' < =. 22 > , 2013 * 7 ? SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !, .1 / ACCOUNTANT MEMBER / MUMBAI, =./ DATE: 22 - 02-2013 TNMM .!/ .!/ .!/ .!/ * ** * '+A '+A '+A '+A B!A$+ B!A$+ B!A$+ B!A$+ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR A BENCH, ITAT, MUMBAI 6. GUARD FILE (A+ '+ //TRUE COPY// .!/ .!/ .!/ .!/ / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI