Lakshmikant Inani, Hyd, Hyderabad V. ACIT, Circle-7(1), Hyd, Hyderabad

ITA 1136/HYD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7464 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 14-11-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 26-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILANJAN DEY
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Capital asset; Business income; Wrong claim; Sham transactions; Futures and options
• Section: 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 1136 / HYD/201 6 ASSESSMENT YEAR S : 20 12 - 13 L AKSHMIKANT INANI , HYDERABAD. PAN AAAPI 9456N VS. ASST. COMMISSIONER OF INCOME - TAX, HYDERABAD. APPELLANT RESPONDENT A SSESSEE BY: S HRI LAXMINIWAS SHARMA RE VENUE BY: SHRI NILANJAN DEY DATE OF HEARING: 14 / 1 1 / 201 8 DATE OF PRONOUNCEMENT: 1 1 / 01 /201 9 O R D E R PER S. RIFAUR RAHMAN , AM: T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) 3 , HYDERABAD, DATED, 2 6 /0 5 /201 6 FOR AY 20 12 - 13 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE DERIVES INCOME FR O M SALARY, HOUSE PROPERTY, SHORT TERM CAPITAL GAINS AND FROM OTHER SOURCES, FILED HIS RETURN OF INCOME FOR AY 2012 - 13 ON 31/12/2012 ADMITTING INCOME OF RS. 75,27,900/ - WHICH INCLUDES SHORT TERM CAPITAL GAINS OF RS. 71,62,459/ - . IN THE SCRUTINY ASSESSMENT ORDER DATED 12/03/2015, THE AO TREATED THE INCOME FROM PURCHASE AND SALE OF SHARES AS INCOME FROM BUSINESS AGAINST TREATMENT GIVEN BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN BY RECORDING THE FOLLOWING R EASONS: (A) THE VOLUME OF SHARE TRADING WAS RS. 13,23, 00 ,977 / - FROM WHICH THE ASSESSEE DERIVED PROFIT OF RS. 72, 01,068/ - . THEREFORE KEEPING IN VIEW THE VOLUME AND I.T.A. NO. 1136 /HYD/1 6 LAKSHMIKANT INANI, HYD. 2 FREQUENCY OF SHARE TRANSACTIONS, THE INCOME SHOULD BE TREATED AS BUSINESS INCOME AND NOT INCOME FROM CAPITAL GAINS. (B) THAT THE INTENTION TO RESELL THE SHARES WAS THERE FROM THE VERY BEGINNING . THE SHARES WHIC H WERE ACQUIRED BY THE ASSESSEE IN IPO ( INITIAL PUBLIC OFFERING) WERE SOLD IMMEDIATELY AFTER ALLOTMENT. THE ASSESSEE HAD NO INTENTION OF HOLDING SHARES. (C) THE ASSESSEE CARRIED OUT TRADIN G IN FUTURES AND OPTIONS. THE VOLUME OF TRADING IN FUTURES AND OP TIONS WAS RS. 13,23,00,977/ - THE LOSS OF RS. 4, ,76,332/ - OUT OF TRADING IN FUTURES AND OPTIONS WERE ALSO SHOWN BY THE ASSESSEE AS CAPITAL GAINS. (D) THOUGH THE ASSESSEE IS HOLDING THE SHARES UNDER THE HEAD INVESTMENTS IN THE BALANCE SHEET , THE VOLUME OF TRANSACTIONS , THE FREQUENCY OF TRANSACTIONS , MOTIVE TO EARN PROFITS, THE PERIOD OF HOLDING CL EARLY INDICATE THAT THE ASSESSEE WAS CARRYING ON REGULAR AND SYSTEMATIC TRADING IN SHARES. (E) AS A MATTER OF FACT! THE MAJOR PROFIT WAS DERIVED THROUGH SHARE TR ANSACTIONS WHERE PURCHASE AND SALE HAD TAKEN PLACE WITHIN A PERIOD OF 10 DAYS. (F) MORE THAN 95% OF INCOME WAS DERIVED FROM PURCHASE AND SALE OF SHARES WITHIN A PERIOD OF 10 DAYS AND 100% OF SHARE TRANSACTIONS WERE COMPLETED WITHIN ONE MONTH. THEREFORE I T IS BEYOND DOUBT THAT THE ASSESSEE DID NOT HAVE ANY INTENTION TO HOLD THE SHARES. (G) ASSESSEE WAS ENGAGED IN SHARE TRADING ON ALMOST ALL DAYS WHEN STOCK EXCHANGE WAS FUNCTIONING. IN THE CASE OF DALHOUSIE INVESTMENT TRUST CO. LTD. (1968) 68 ITR 486(SC) IT WAS HELD THAT: 'THE FACT THAT THE DEPARTMENT IN EARLIER YEARS TREATED THE TRANSACTION IN THE NATURE OF INVESTMENTS WAS NOT BINDING IN THE PROCEEDINGS FOR ASSESSMENT DURING THE SU BSEQUENT YEARS', (H) FURTHER THE ASSESSEE IS A EMPLOYEE OF INANI SECURITIES LTD. THIS CONCERN WAS DEALING WITH SHARE MARKET ACTIVITIES. THE ASSESSEE HAS DONE SHARE TRADING THROUGH THIS CONCERN ONLY. I.T.A. NO. 1136 /HYD/1 6 LAKSHMIKANT INANI, HYD. 3 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFER RED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED AS UNDER: (A) THAT DURING THE YEAR THERE WERE PURCHASE AND SALE ONLY IN 11 SCRIPS, OUT OF 11,4 WERE ALLOTTED IN IPO. (B) ALL THE PURCHASES WERE THROUGH RECOGNIZED STOCK BROKER OR IN THE IPO MARKET. (C) TH E INTENTION WAS TO INVEST FOR SUBSTANTIAL PERIOD AND TO EARN DIVIDEND . HOWEVER, SOMETIMES SALE S WERE MADE IF THE PRICE OF STOCKS MOVED UP. (D) IN ALL THE CASES, DELIVERY OF SHARES WERE TAKEN AND SAME ARE REFLECTED IN D - MAT ACCOUNT. (E) IT HAS BEEN A CO NSISTENT PRACTICE TO SHOW THE SHARES UNDER HEAD INVESTMENT. (F) THEREFORE THE PROFIT FROM THE ACTIVITY OF DEALING IN SHARES SHOULD BE TREATED AS INCOME FROM STCG AND NOT BUSINESS INCOME. (I) THE VALUE OF SHARES WAS ALWAYS TAKEN AT COST VALUE 'AND NOT M ARKET PRICE. THIS PROCEDURE WAS ADOPTED AS THE STOCKS WERE SHOWN UNDER THE HEAD INVESTMENT AND NOT AS STOCK IN TRADE. (G) IN PRECEDING YEARS, THE PROFITS AND SALE WAS SHOWN AS CAPITAL GAINS. COPIES OF RETURN OF INCOME / BALANCE SHEET FOR A.Y. 2009 - 10, 2010 - 11 AND 2011 - 12 ARE ENCLOSED. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: 1.HEMA HIREN DAND VS J CIT 17(1), MUMBAI/ITA NO.3469/MUM/2012 2.SMT.SHIKHA GUPTA VS THE DCIT CIRCLE II, LUDHIANA / ITA NO.906/CHD/2013 3. S HRI SANDIP Y SHAH(HUF) VS DCIT / ITA NO. 1249/MUM/2012. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS REF ERRING TO THE CBDT CIRCULAR NO. 4, DATED 15/06/2007, THE CIT(A) CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: I.T.A. NO. 1136 /HYD/1 6 LAKSHMIKANT INANI, HYD. 4 I HAVE GONE THROUGH D - M A T ACCOUNT OF APPELLANT, THERE ARE MULTIPLE TRANSACTIONS ON DAILY BASIS. KEEPING IN VIEW THE QUANTUM, FREQUENCY OF TRANSACTIONS AND SYSTEMIC AND REGULAR SHARE TRADING ACTIVITY CARRIED OUT B Y APPELLANT, THE INCOME SHOULD BE TREATED AS BUSINESS INCOME. FURTHER THE FACT THAT APPELLANT SHOWN THE SHARES UNDER THE HEAD 'INVESTMENT' IS NOT RELEVANT. IT IS FAIRLY SETTLED PRINCIPLE THAT, TAXABILITY OF A PARTICULAR ITEM DEPENDS ON PROVISIONS OF LAW AND NOT THE ACCOUNTING TREATMENT GIVEN BY ASSESSEE. THEREFORE ALL THE FIRST 5 GROUNDS ARE TREATED AS DISMISSED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS: 1. THE CIT (A) ERRED IN FACTS AND LAW WHILE PASSING ASSESSMENT ORDER. 2. THE CIT (A) ERRED IN TREATING THE PROFIT ARRIVED FROM PURCHASE AND SALE OF SHARES OF RS. 71,62,459/ - AS BUSINESS INCOME AND SPECULATIVE INCOME WHICH WAS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN. 3. THE CIT (A) ERRED IN NOT CONSIDERING THE CBDT CIRCULAR NO.6/2016 DATED 29.02.2016 RELATING TO THE ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHARES AND SECURITIES. 4. THE LEARNED CIT (A) HAS ERRED IN NOT FOLLOWING THE PRINCIPLE OF CONS ISTENCY IN ACCOUNTING TREATMENT GIVEN SINCE IN EARLIER YEARS INCOME FROM SHARES WAS ASSESSED AS CAPITAL GAINS AND NOT BUSINESS/ SPECULATION INCOME. 5. THE CIT(A) ERRED IN TREATING THE INVESTMENT/ PURCHASE/ SALE TRANSACTION AS SPECULATIVE PROFIT TO THE TU NE OF RS. 15,162/ - 6. FOR THESE & OTHER GROUND WHICH MAY BE RAISED DURING OR BEFORE THE APPEAL IS HEARD. IT IS PRAYED THAT THE RELIEF BE GRANTED. 6. LD. AR SUBMITTED THAT THE ASSESSEE HAS CONSISTENTLY DECLARING THE INVESTMENT IN SHARES AS INVESTMENT A ND DECLARING THE INCOME DERIVED FROM THESE INVESTMENTS AS INCOME FROM CAPITAL GAINS. FURTHER, HE SUBMITTED THAT THE ASSESSEE IS CONSISTENTLY FILED RETURN OF INCOME ON THE ABOVE I.T.A. NO. 1136 /HYD/1 6 LAKSHMIKANT INANI, HYD. 5 SAID METHOD AND ALSO IN THE SUBSEQUENT AYS WHICH IS ACCEPTED BY THE DEPARTMENT. HE SUBMITTED THAT THE JAIPUR BENCH HAS DECIDED IN THE CASE OF SHRI MAHENDER KUMAR BADER IN ITA NO. 605/JP/2013 BY FOLLOWING THE CIRCULAR NO. 6/2016 BY CBDT. THEREFORE, HE SUBMITTED THAT THE AO HAS FAILED TO FOLLOW THE CBDT CIRCULAR NO. 6/2016. 7. LD. DR , ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT ASSESSEE HAS DECLARED INCOME FROM SALARIES, BUSINESS AND SHORT TERM CAPITAL GAINS (STCG) . THE MAJORITY OF THE INCOME IS DE RIVED FROM STC G . FURTHER , THE A.O . TREATED THE STC G AS BUSINESS INCOME WITH THE OBSERVATION THAT THE ASSESSEE HAS DEALT IN THE SHARE MARKET REGULARLY AND THE VOLUME OF TRANSACTION DENOTES THAT THE ASSESSEE IS IN THE BUSINESS OF SHARE TRADING. FURTHER, HE OBSERVED THAT MAJORITY OF THE PROFITS EARNED ARE THROUGH BUYING AND SELLING OF SHARES WHICH TAKEN PLACE WITHIN A PERIOD OF 10 DAYS AND 100% SHARE TRANSACTIONS WERE COMPLETED WITHIN ONE MONTH. IN OUR CONSIDERED VIEW, THE INTENTION TO HOLD THE INVESTMENT FOR LONG PERIOD OR TRANSFER WITHIN THAT PERIOD TO EARN ADDITIONAL PROFIT IS DEPEND ING UPON THE ACTION OF THE ASSESSEE BUT CANNOT BE DEMONSTRATED. THIS IS THE ONE ISSUE ALWAYS LEAD TO LITIGATION. FOR THIS PURPOSE AND TO REDUCE THE LITIG ATION, THE CBDT HAS ISSUED A CIRCULAR NO. 06 / 2016. IN THE SIMILAR FACTS, THE COORDINATE BENCH OF JAIPUR IN THE CASE OF MAHENDER KUMAR BADER (SUPRA) HAS COME TO CONCLUSION BY OBSERVING AS UNDER: 5.3. BEFORE US THE MOOT QUESTION WHICH IS REQUIRED TO BE DE CIDED IS WHETHER THE INCOME EARNED BY THE ASSESSEE ON ACCOUNT OF SHARE IS REQUIRED TO BE TREATED AS BUSINESS INCOME OR REQUIRED TO BE TREATED AS I.T.A. NO. 1136 /HYD/1 6 LAKSHMIKANT INANI, HYD. 6 SHORT TERM CAPITAL GAIN. AFTER THE MATTER WAS HEARD ON 11.02.2016, THE CBDT CAME OUT WITH THE CIRCULAR NO. 6/20 16 DATED 29.02.2016 IN THE FOLLOWING MANNER : - SUB - SECTION (14) OF SECTION 2 OF THE INCOME - TAX ACT, 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSI ON, BUT DOES NOT INCLUDE ANY STOCK - IN - TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AND OTHER SECURITIES, THE SAME CAN BE HELD EITHER AS CAPITAL ASSETS OR STOCK - INTRADE/ TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK - IN - TRADE, IS ESSENTIALLY A FACT - SPECIFIC DETERMINATION AND HAS LED TO A LOT OF UNCERTAINTY AND LITIGATION IN THE PAST. HTTP://WWW.ITATONLI NE.ORG 9 ITA NO. 605/JP/2013 DCIT VS. SHRI MAHENDER KUMAR BADER OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFERENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK - IN - TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT') HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIRCULAR NO. 4 OF 2007 DATED JUNE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPLICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT N O UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES T RANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENER ATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOWING A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TR EAT THEM AS STOCK - IN - TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS T RANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR I.T.A. NO. 1136 /HYD/1 6 LAKSHMIKANT INANI, HYD. 7 ASSESSMENT YEAR, SHALL RE MAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 4. IT IS HOWEVER CLARIFIED THAT THE ABOVE SHALL NOT APPLY TO SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINENESS OF THE TR ANSACTION IS ITSELF QUESTIONABLE SUCH AS BOGUS CLAIMS OF LONG TERM CAPITAL/SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECT OF REDUCING THE LITIGATION AND MAIN TAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. IN VIEW O F THE CIRCULAR, WE HAVE CLEARLY NOTICED THAT THE ISSUE RAISED IN THIS APPEAL STANDS FULLY COVERED BY THE CIRCULAR ISSUED BY THE CBDT. SINCE THE ASSESSEE HAS TREATED THE SECURITIES AS INVESTMENT AND NOT AS STOCK IN TRADE IN ALL THE YEARS, THEREFORE, IN VIEW OF THE CBDT CIRCULAR, THE REVENUE IS NOT PERMITTED TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR AND CLAIMED THAT THE SECURITY IS STOCK IN TRADE AND, THEREFORE, THE PROFIT/GAIN CAUSED TO THE ASSESSEE BE TREATED AS BUSINESS INCOME. IN OUR VIEW, THERE IS NO M ERIT IN THE CONTENTION OF THE REVENUE AND IS DESERVES TO BE DISMISSED IN VIEW OF THE CIRCULAR. WE, THEREFORE, CONFIRM THE IMPUGNED ORDER OF LD. CIT (A) IN THIS REGARD AND DISMISS THE GROUND RAISED IN THIS APPEAL. SINCE, THE FACTS ARE SIMILAR, WE ARE INCL INED TO FOLLOW THE ABOVE DECISION AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE OF IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 1 1 TH JANUARY , 201 9. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 11 TH JANUARY, 201 9. I.T.A. NO. 1136 /HYD/1 6 LAKSHMIKANT INANI, HYD. 8 KV COPY FORWARDED TO: 1. MR. LAKSHMIKANT INANI , 15 - 9 - 56, MAHARAJGUNJ, HYDERABAD 2 . ACIT, CIRCLE 791), HYDERABAD . 3 . CIT (A) - 3 , HYDERABAD 4. PR. CIT 3 , HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE