Dr. Haresh Padmakant Dave, Baroda V. The Income Tax Officer, Ward-2(2), Baroda

ITA 1072/AHD/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4221 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Business income; Rule of consistency; Tax effect
• Section: 143(3)

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 1072/AHD/2014 & 130/AHD/2016 ( ASSESSMENT YEAR : 2010-11) DR. HARESH PADMAKANT DAVE S-9, NATIONAL PLAZA, R.C.DUTT ROAD, VADODARA - 390007 / VS. ITO WARD -2(2), VADODARA ./ ./ PAN/GIR NO. : ABNPD5702E ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI KAMLESH BHATT, A.R. / RESPONDENT BY : SHRI S. K. DEV, SR.D.R. DATE OF HEARING 10/10/2018 !'# / DATE OF PRONOUNCEMENT 01/11/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE ASSESSEE HAS FILED TWO APPEALS FOR AY 2010-11. THE ISSUES INVOLVED ARE SOMEWHAT COMMON AND INTERCONNEC TED. THEREFORE, BOTH THE APPEALS HAVE BEEN HEARD TOGETHE R. 2. WE SHALL FIRST TAKE UP ITA NO.1072/AHD/2014 F OR ADJUDICATION. ITA NO. 1072/AHD/14 & 130/AHD/16 [DR. HARESH P. DAVE VS. ITO] A.Y. 2010-11 - 2 - 3. THE CAPTIONED APPEAL HAS BEEN FILED AT THE INST ANCE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 06.1 2.2013 ARISING IN THE ASSESSMENT ORDER DATED 11.02.2013 PASSED BY THE ASSESSING OFFICER (AO) U/S. 143(3) OF THE INCOME TAX ACT, 196 1; (THE ACT) CONCERNING ASSESSMENT YEAR 2010-11. 4. THE GROUNDS OF APPEAL RAISED BY ASSESSEE READS A S UNDER: 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE LD. A.O. TO ALLOW THE SET OFF OF THE STCG LOSSES OF RS.39,27,238/- BROUGHT FORWARD E ARLIER YEAR BEFORE CHANGING THE CHARACTER OF THE STCG PROFIT OF THE YEAR UNDER APPEAL AND HENCE THE APPELLANT PRAYS THAT THE LD.A. O. BE DIRECTED TO ALLOW THAT BROUGHT FORWARD LOSS AND THEREAFTER ONLY THE NET AMOUNT BE SHIFTED TO THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. 5. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED AR FOR THE ASSESSEE MR. KAMLESH BHATT SUBMITTED AT THE OUTSET THAT SOLITARY GRIEVANCE IS ON ACCOUNT OF RE-ALIGNMENT OF INCOME A RISING ON SALE OF SHARES FROM CAPITAL GAINS TO BUSINESS INCOME. THE LEARNED AR POINTED OUT THAT THE ASSESSEE DURING FY 2009-10 REL EVANT TO AY 2010-11 IN QUESTION HAS REPORTED SHORT TERM CAPITAL GAINS OF RS.40,67,563/- FROM PURCHASE AND SALE OF SHARES. T HE AFORESAID GAIN WAS REPORTED UNDER THE HEAD CAPITAL GAINS BY THE ASSESSEE. HOWEVER, THE AO HAS HELD THAT PURCHASE AND SALE ACT IVITY OF SHARES TANTAMOUNTS TO BUSINESS ACTIVITY AS MOTIVE TO EARN REGULAR PROCEED FROM TRADING CAN BE DEDUCED FROM SUCH ACTIVITIES. THE AO ACCORDINGLY RE-CHARACTERIZED THE GAINS ARISING ON S ALE OF SHARES AS BUSINESS INCOME OF THE ASSESSEE INSTEAD OF CAPITAL GAINS REPORTED BY THE ASSESSEE. THE LEARNED AR THEREAFTER REFERRED T O THE ORDER OF THE ITA NO. 1072/AHD/14 & 130/AHD/16 [DR. HARESH P. DAVE VS. ITO] A.Y. 2010-11 - 3 - CIT(A) AND SUBMITTED THAT THE ASSESSEE COULD NOT GE T ANY RELIEF FROM THE FIRST APPELLATE AUTHORITY EITHER. 6. DELVING FURTHER, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS HARDLY EXECUTED TRANSACTIONS IN 32 SCRIPS DURING THE FY 2010-11 WHICH RESULTED IN THE AFORESAID PROFITS OF RS. 40,67,563/-. THE LEARNED AR SUBMITTED THAT THE ASS ESSEE WAS ENGAGED IN SIMILAR PURCHASE AND SALE IN THE PAST AL SO. IN THE IMMEDIATELY PRECEDING FY 2008-09 (AY 2009-10), THE ENGAGEMENT IN SUCH ACTIVITY OF SIMILAR NATURE GAVE RISE TO LOS S OF RS.39,27,238/- WHICH WAS REPORTED UNDER THE HEAD SHORT TERM CAPIT AL LOSS AND THUS CARRIED OUT FORWARD. THE SET OFF OF AFORESAID LOSS OF RS.39.27 LAKHS CARRIED OUT FORWARD TO THIS ASSESSMENT YEAR (AY 201 0-11) IS SOUGHT TO BE DENIED BY SUCH ACTION OF THE AO. THE LEARNED AR SUBMITTED THAT EITHER CAPITAL GAINS OF THIS YEAR SHOULD BE UP HELD AS SUCH OR ALTERNATIVELY THE LOSS ARISING IN THE PRECEDING FIN ANCIAL YEAR SHOULD ALSO BE TREATED ALIKE AND LOSS RESULTING FROM PURCH ASE AND SALE OF SHARES IN AY 2009-10 SHOULD ALSO BE TREATED AS BUSI NESS LOSS. THE LEARNED AR ALSO REFERRED TO LEDGER ACCOUNT PERTAINI NG TO SHARE TRANSACTIONS TO SUPPORT ITS CONTENTIONS THAT THE GA INS ARISING ON SALE OF SHARES HAVE BEEN RIGHTLY TREATED AS CAPITAL GAIN S BY THE ASSESSEE. 7. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AO AND THE CIT(A) AND SUBMITTED THAT THE ASSESS EE WAS NOT ONLY ENGAGED IN FREQUENT ACTIVITY OF PURCHASE AND SALE O F SHARES, THE ASSESSEE WAS SIMULTANEOUSLY ALSO ENGAGED IN FUTURE AND OPTIONS. THIS APART, THE VOLUME, FREQUENCY AND MAGNITUDE OF PURCHASE AND SALE WOULD CLEARLY SUGGESTS THAT THE ASSESSEE WAS E NGAGED IN BUSINESS ACTIVITY. IT WAS THUS CONTENDED THAT NO INTERFERENCE WITH ITA NO. 1072/AHD/14 & 130/AHD/16 [DR. HARESH P. DAVE VS. ITO] A.Y. 2010-11 - 4 - THE ORDER OF THE CIT(A) IS CALLED FOR WHEREIN SUCH ACTIVITIES HAVE BEEN REGARDED AS BUSINESS ACTIVITIES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE ESSENTIAL CONTROVERSY IN THE CAPTIONED APPEAL RELAT ES TO CHARACTERIZATION OF INCOME ARISING FROM DELIVERY BA SED PURCHASE AND SALE TRANSACTIONS IN SHARES. WHILE IT IS THE CASE OF THE ASSESSEE THAT THE GAIN ARISING ON SALE OF SHARES IS CHARGEABLE UN DER THE HEAD CAPITAL GAINS IN CONSONANCE WITH THE EARLIER ASSE SSMENT YEARS, THE REVENUE, ON THE OTHER HAND, SEEKS TO HOLD THAT SUCH ACTIVITY OF PURCHASE AND SALE OF SHARES GIVE RISE TO BUSINESS I NCOME. THE ISSUE IS ESSENTIALLY FACTUAL IN NATURE. ON PERUSAL OF FA CTS RECORDED IN THE ORDERS OF THE AUTHORITIES BELOW, IT IS SEEN THAT TH E ASSESSEE HAS ENTERED INTO PURCHASE AND SALE ACTIVITIES IN 32 SCR IPS INVOLVING 398 NUMBER OF TRANSACTIONS. ALMOST SIMILAR NUMBER OF T RANSACTIONS (307 NUMBERS INVOLVING 18 SCRIPS) WERE CARRIED OUT IN TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR THE LOSS FROM WHICH WAS C ARRIED FORWARD AS SHORT TERM CAPITAL LOSS. THE DATA FOR AY 2008 -09 WAS ALSO PROVIDED ON BEHALF OF THE ASSESSEE WHICH SHOWS THAT THE NUMBER OF SCRIP IS 30 AND NUMBER OF TRANSACTIONS IS 346 IN TH AT YEAR WHICH HAS GIVEN RISE TO PROFITS OF RS.4.79 LAKHS WHICH IS REP ORTED UNDER THE HEAD CAPITAL GAINS. THUS, FOR SIMILAR VOLUME, FR EQUENCY AND MAGNITUDE OF TRANSACTIONS, THE ASSESSEE HAS SUFFERE D TAXATION UNDER THE HEAD CAPITAL GAINS IN THE ASSESSMENT YEARS 20 08-09 & 2009-10. THE REVENUE IN AY 2010-11 IN QUESTION SEEKS TO DEPA RT FROM SUCH POSITION AND HAS ATTEMPTED TO HOLD SUCH ACTIVITY AS BUSINESS ACTIVITY. WE DO NOT SEE MUCH RATIONALE IN SUCH ACTION OF THE REVENUE. IN A SIMILARLY PLACED SITUATION, THE ACTION OF THE ASSES SEE CANNOT BE TREATED DIFFERENTLY IN TWO DIFFERENT ASSESSMENT YEA RS. THIS WILL BREACH THE GOLDEN RULE OF CONSISTENCY IN A SIMILARL Y PLACED SITUATION. ITA NO. 1072/AHD/14 & 130/AHD/16 [DR. HARESH P. DAVE VS. ITO] A.Y. 2010-11 - 5 - WE ALSO SIMULTANEOUSLY NOTICE FROM THE TABULATED ST ATEMENT FORMING PART OF THE SUBMISSIONS OF THE ASSESSEE AT PAGE NO. 9 OF THE ORDER OF THE CIT(A) WHICH PROVIDES THE COMBINED TAX EFFECT O VER VARIOUS ASSESSMENT YEARS. THE TABULATED STATEMENT IS REPRO DUCED HEREUNDER FOR THE SAKE OF READY REFERENCE: A.Y. INCOME IF SHARE PROFIT AS STCG TAXES PAID INCOME IF SHARE PROFIT IS BUSINESS TAXES PAYABLE 2008-09 901510 219453 901510 219453 2009-10 487310 54036 NIL NIL 2010-11 640802 79921 1035260 221015 2011-12 492650 34263 525505 40275 2012-13 799250 94606 227480 4890 TOTAL 482279 485633 A BARE PERUSAL OF THE TABULATED STATEMENTS SPANNING OVER FIVE ASSESSMENT YEARS SHOWS THAT THE ACTION OF THE ASSE SSEE CANNOT BE REGARDED AS DETRIMENTAL TO THE INTEREST OF THE REVE NUE. THE ASSESSEE HAS DEMONSTRATED THAT BY DECLARING THE INCOME UNDER THE HEAD CAPITAL GAINS; THE TAX LIABILITY HAS BEEN INCURR ED OF SIMILAR AMOUNT WHICH HE WOULD BE OTHERWISE ASKED TO PAY IF THE INC OME IS TREATED UNDER THE HEAD BUSINESS INCOME. THUS, WHEN SEEN HOLISTICALLY THE ACTION OF THE ASSESSEE APPEARS TO RESONATE WITH THE CONSISTENT POSITION TAKEN IN PAST AND IN SUBSEQUENT ASSESSMENT YEARS. WHILE SOME CIRCUMSTANCES DO INDICATE THE REGULARITY IN TR ANSACTIONS AND TRAPPING OF BUSINESS, OTHER OVERWHELMING CIRCUMSTAN CES NEGATE THE SAME. THUS, BENEFIT OF DOUBT DESERVES TO GO TO ASS ESSEE. THEREFORE, THE ACTION OF THE REVENUE TO TREAT THE GAINS ARISIN G ON SALE OF SHARES (RS.40.67 LAKHS) AS BUSINESS INCOME CANNOT BE APPRO VED AS IT DENIES THE SET OFF OF LOSS OF SHORT TERM CAPITAL LO SS (RS.39.27 LAKHS) ITA NO. 1072/AHD/14 & 130/AHD/16 [DR. HARESH P. DAVE VS. ITO] A.Y. 2010-11 - 6 - AROSE FROM THE SIMILARITY OF TRANSACTIONS IN THE PR ECEDING ASSESSMENT YEAR. THUS, WE ARE DISPOSED TO HOLD THAT THE ACTIO N OF THE CIT(A) IN CONFIRMING THE ORDER OF THE AO IS MISPLACED. WE AC CORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO TREAT THE INCOME ARISING FROM DELIVERY BASED TRANSACTIONS IN SHARES UNDER THE HEARD CAPITAL GAINS AS CLAIMED BY THE ASSESSEE. WE MAY HASTEN TO ADD THAT THE FINDINGS IN THIS YEAR ARE PURELY FACTUAL A ND WILL NOT OPERATE AS RES-JUDICATA IN THE SUCCEEDING ASSESSMENT YEAR. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1072/AHD/2014 IS ALLOWED. 10. WE NOW ADVERT TO APPEAL OF THE ASSESSEE IN ITA NO.130/AHD/2016 FOR AY 2010-11. 11. THE CAPTIONED APPEAL ARISES FROM THE ORDER OF T HE CIT(A) DATED 13.10.2015 EMANATING FROM THE RECTIFICATION O RDER PASSED BY THE AO UNDER S.154 OF THE ACT CONCERNING AY 2010-11 . 12. THE ASSESSEE IN THE CAPTIONED APPEAL HAS CHALLE NGED THE ACTION OF THE CIT(A) FOR DENYING THE SET OFF OF SHORT TERM CAPITAL LOSSES OF RS.39,27,238/- BROUGHT FORWARD FROM AY 2009-10 AS D ISCUSSED IN THE EARLIER APPEAL IN PRECEDING PARAGRAPHS IN AN AP PEAL AGAINST THE ORDER PASSED BY AO UNDER S.154 OF THE ACT. 13. HAVING REGARD TO THE OBSERVATIONS MADE IN ITA NO.1072/AHD/2014 (SUPRA) WHEREIN THE ACTION OF THE AO TREATING THE CAPITAL GAINS AS BUSINESS INCOME HAS BEEN SET ASIDE , THE GRIEVANCE OF THE ASSESSEE FOR DENIAL OF SET OFF OF CAPITAL LOSSE S DOES NOT PERSIST ANY MORE. THE AO IS DIRECTED TO ALLOW THE SET OFF OF LOSSES OF THE ITA NO. 1072/AHD/14 & 130/AHD/16 [DR. HARESH P. DAVE VS. ITO] A.Y. 2010-11 - 7 - PRECEDING AY 2009-10 WHILE COMPUTING THE TAXABLE IN COME OF AY 2010-11 IN ACCORDANCE WITH LAW. 14. SUBJECT TO AFORESAID OBSERVATIONS, APPEAL OF TH E ASSESSEE IS DISMISSED AS INFRUCTUOUS. 15. IN THE COMBINED RESULT, ITA NO.1072/AHD/2014 IS ALLOWED AND ITA NO.130/AHD/2016 IS DISMISSED AS INFRUCTUOUS. SD/- SD/- (RAJPAL YADAV) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 01/11/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 01/11/201 8