ADDL CIT RG 13(3), MUMBAI V. KIRIT LAXMICHAND LAPSIA, MUMBAI

ITA 113/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55401 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 06-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D. MANMOHAN, (VICE PRESIDENT [MZ]) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.113/MUM/2010 ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX -13(3) ROOM NO.430, 4 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD NEW MARINE LINES MUMBAI-400 020. ..( APPELLANT ) VS. SHRI KIRIT LAXMICHAND LAPSIA 334, MULRATNA BUILDING NARSI NATHA STREET MUMBAI-400 009. ..( RESPONDENT ) P.A. NO. (AAAPL 7289 E) APPELLANT BY : SHRI PKB MENON RESPONDENT BY : NONE DATE OF HEARING : 13.9.2011 DATE OF PRONOUNCEMENT : 30 TH SEPTEMBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29.10.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-0 7. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REGARDING T HE NATURE OF INCOME EARNED BY THE ASSESSEE FROM SALE AND PURCHASE OF SHARES. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE WHO WAS A PARTNER IN THE FIRM M/S. U.M. KHONA & CO. HAD DECLA RED LONG TERM CAPITAL ITA NO.113/M/10 A.Y:06-07 2 GAIN OF RS.19,52,972/- AND SHORT TERM CAPITAL GAIN OF RS.35,11,010/- FROM SALE OF SHARES IN ADDITION TO INCOME FROM OTHER SO URCES AMOUNTING TO RS.10,89,408/-. THE AO ON EXAMINATION OF RECORDS O BSERVED THAT THE ASSESSEE HAD ENTERED INTO NUMEROUS AND FREQUENT TRA NSACTIONS IN PURCHASE AND SALE OF SHARES IN LARGE QUANTITIES. WE, THEREF ORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY CAPITAL GAIN DECLARED FROM SALE O F SHARES SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE EXPLAINED THAT HE WAS AN INVESTOR IN SHARES WHICH HAD BEEN SHOWN IN THE BOOKS OF ACCO UNT AS INVESTMENT. THE INVESTMENTS HAD BEEN MADE FROM OWN FUNDS FOR EARNIN G DIVIDEND INCOME. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD NO SKILL O R INFRASTRUCTURE FOR DOING BUSINESS. THE AO, HOWEVER, DID NOT ACCEPT THE EXPL ANATION GIVEN. IT WAS OBSERVED BY HIM THAT THE SHARE TRADING BUSINESS COU LD BE DONE WITHOUT MUCH SKILL OR INFRASTRUCTURE AND THAT BUSINESS COULD BE DONE FROM OWN FUNDS ALSO. IT WAS ALSO OBSERVED BY HIM THAT THE DIVIDEND INCOM E EARNED BY THE ASSESSEE OF RS.2,52,407/- WAS ONLY NOMINAL COMPARED TO INCOME FROM PURCHASE AND SALE OF SHARES WHICH AMOUNTED TO RS .54,63,982/-. THE DIVIDEND INCOME WAS THUS INCIDENTAL RECEIVED FROM T RADING SHARES WHICH REMAINED IN THE STOCK ON THE RECORD DAY. THE AO AL SO OBSERVED THAT THE ASSESSEE WAS FREQUENTLY PURCHASING AND SELLING SHAR ES AND MOST OF THE SHARES WERE SOLD WITHIN ONE YEAR AND IN SEVERAL CAS ES WITHIN A SHORT SPAN. THE ENTRY IN THE BOOKS OF ACCOUNT WAS NOT CONCLUSIV E. CONSIDERING THE FREQUENCY AND VOLUME AND SYSTEMATIC PURCHASE AND SA LE OF SHARES, AO CONCLUDED THAT THE ASSESSEE WAS A BROKER AND ACCORD INGLY TREATED CAPITAL GAIN DECLARED AS BUSINESS INCOME. ITA NO.113/M/10 A.Y:06-07 3 2.1 THE ASSESSEE DISPUTED THE DECISION OF THE AO AN D REITERATED THE SUBMISSIONS MADE EARLIER BEFORE CIT(A) THAT THE ASS ESSEE WAS ONLY AN INVESTOR. THE TRANSACTIONS WERE SHOWN AS INVESTMEN TS IN THE BOOKS OF ACCOUNT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE W AS MANAGING HIS INVESTMENTS THROUGH A DISCREET PORTFOLIO MANAGER AN D HE WAS CONCERNED WITH THE RATE OF RETURN ON THE FUNDS EMPLOYED. HE ALSO R ELIED ON SEVERAL DECISIONS OF THE TRIBUNAL INCLUDING THE CASE OF GOPAL PUROHIT VS. JCIT (29 SOT 117). CIT(A) WAS SATISFIED BY THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT FREQUENCY AND VOLUME WERE NOT CONCLUSIVE AND THAT I N A VOLATILE MARKET, THE ASSESSEE COULD SELL THE INVESTMENT AFTER SHORT HOLD ING IN ORDER TO MINIMIZE LOSSES. HE THEREFORE, CONCLUDED THAT THE ASSESSEE W AS INVESTOR AND ACCORDINGLY ACCEPTED THE CLAIM OF CAPITAL GAIN DECL ARED BY THE ASSESSEE, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL. 3. BEFORE US, NO ONE APPEARED ON BEHALF OF THE ASSE SSEE THOUGH THE NOTICE OF HEARING HAD BEEN SENT WELL IN ADVANCE. N O ADJOURNMENT APPLICATION HAS ALSO BEEN RECEIVED. WE, THEREFORE, PROCEED TO DECIDE THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEA RING THE LD. DR. THE LD. DR ASSAILED THE ORDER OF CIT(A) AND SUBMITTED THAT ON THE FACTS OF THE CASE TREATMENT GIVEN BY AO AS TRADING TRANSACTION SHOULD BE UPHELD. HE ALSO PLACED RELIANCE ON CERTAIN DECISION OF THE TRIBUNAL SUCH AS THE CASE OF SMT. SADHANA NABERA VS. ACIT (ITA NO.2586/M/09) IN WHIC H INCOME FROM SHARE TRANSACTIONS HAS BEEN ASSESSED AS BUSINESS INCOME. ITA NO.113/M/10 A.Y:06-07 4 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCO ME FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSUE WHETHER TH E SHARE TRANSACTION IN A PARTICULAR CASE SHOULD BE TREATED AS INVESTMENT ACT IVITY OR TRADING ACTIVITY HAS BEEN HIGHLY DEBATABLE ISSUE. THERE ARE DECISIO NS OF THE TRIBUNAL ON BOTH THE SIDES. EACH CASE WILL DEPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS SUCH AS FREQUENCY, VOLUME, ENTR Y IN THE BOOKS OF ACCOUNT; NATURE OF FUNDS USED, HOLDING PERIOD ETC. WHICH ARE RELEVANT IN DECIDING THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE A T THE TIME OF PURCHASE WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY O N THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNT. AN INVESTOR MAKES PURCHASES WITH LONG TERM GOAL OF EARNING INCOME FROM THE INVESTMENT AND HE IS NOT TE MPTED TO SELL THE SHARES ON EVERY RISE AND FALL IN THE MARKET WHICH ARE THE ATTRIBUTES OF A TRADER. SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FORM OF DIVIDEND IS RECEIVED ANNUALLY, NORMALLY AN INVESTOR IS EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. HOWEVER THERE MAY BE SITUATIONS W HEN THE INVESTOR MAY ALSO SELL THE SHARES AFTER SHORT HOLDING IN ORDER T O RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO ENCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGENCIES. EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE, THE AO HAS MENTIONED THA T THE ASSESSEE WAS MAKING SHARE TRANSACTIONS IN REGULAR AND SYSTEMATIC MANNER WITH HIGH FREQUENCY BUT HE HAS NOT PLACED ON RECORD DETAILS OF TRANSACTIONS HOLDING ITA NO.113/M/10 A.Y:06-07 5 PERIOD-WISE TO HELP US UNDERSTAND TRUE NATURE OF TR ANSACTION CIT(A) HAS ALSO MADE NO DETAILED EXAMINATION AND HAS RUSHED TO THE CONCLUSION WITHOUT PLACING THE RELEVANT FACTS ON RECORD. MOREOVER WE A LSO NOTE THAT BEFORE CIT(A) THE ASSESSEE MADE A CLAIM THAT HE WAS MANAGI NG INVESTMENT THROUGH A DISCREET PORTFOLIO MANAGER ON WHICH CIT(A) HAS NO T GIVEN ANY FINDING WHICH WAS REQUIRED TO BE DONE AS NO SUCH CLAIM WAS MADE B EFORE AO. THERE ARE SEVERAL DECISIONS OF TRIBUNAL IN WHICH IT HAS BEEN HELD THAT IN CASE OF PORTFOLIO INVESTMENT THROUGH PORTFOLIO MANAGER, THE TRANSACT IONS HAS TO BE CONSIDERED AS INVESTMENT AS PORTFOLIO MANAGEMENT SCHEME IS FOR ACCRETION TO THE FUNDS EMPLOYED AND NOT FOR TRADING. IN THE ABSENCE OF NE CESSARY DETAILS AND EVIDENCE, WE ARE UNABLE TO REACH ANY CONCLUSION AND , THEREFORE, IN OUR VIEW THE ISSUE REQUIRES FRESH EXAMINATION. WE THEREFORE , SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO AO FOR NECESS ARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30.09.2011 SD/- SD/- (D. MANMOHAN) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH SEPT. 2011. JV. ITA NO.113/M/10 A.Y:06-07 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.113/M/10 A.Y:06-07 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 22.9.11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 23.9.11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER