ACIT 16(3), MUMBAI V. SHRENIK N ZAVERI, MUMBAI

ITA 1138/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88687 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: B V JHAVERI
• Keywords: Business income

Judgement Text

, E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , ! '# $ %, & ' BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI AMIT SHUK LA, JM . / ITA NO. 1138/MUM/2012 ( / ASSESSMENT YEAR : 2008-09 ) ACIT 16 (3) MATRU MANDIR, 2 ND FLOOR, R. NO.206, TARDEO RD. MUMBA-400007 .. / APPELLANT V/S SHRI SHRENIK N. ZAVERI 5 TH FL., 54 DREAMLAND BLG., MAMA PARMAND MARG, OPERA HOUSE MUMBAI 400004 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAAPZ1721B REVENUE BY : SHRI NEIL PHILIP (DR) RESPONDENT BY : SHRI B.V. JHAVERI (AR) ! ' # $% / DATE OF HEARING 10.03.2015 &' () # $% / DATE OF ORDER 31 .03.2015 $ / ORDER '# $ %, & (! / PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE A GAINST ORDER DATED 29 TH NOVEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS)27, MUMBAI, FOR THE QUANTUM OF ASSESSMENT P ASSED UNDER SHRI SHRENIK N. ZAVERI 2 SECTION 143(3), FOR THE ASSESSMENT YEAR 2007-08, ON THE FOLLOWING GROUNDS OF APPEAL:- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE TRANSACTION OF PURCHASE AND SALE OF SHARES OF SHORT TERM CAPITAL GAIN. 2. ON THE FACTS & CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) ERRED IN RELYING ON THE DECISION IN THE CASES OF M/S. ARA TR ADING AND INVESTMENT PVT. LTD. AND RADHA BIRJU PATEL AS THE F ACTS IN THOSE CASES ARE DIFFERENT FROM THE CASE OF THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE L D. CIT(A) ERRED IN NOT FOLLOWING THE DECISION OF THE HONBLE ITAT, DEL HI IN THE CASE OF M/S. RADIAL INTERNATIONAL (ITA NO.1368/DEL/2010) WHICH I S SQUARELY APPLICABLE TO THIS CASE. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS AN INDIVIDUAL HAVING INCOME FROM TRADING IN SHARES AND COMMISSION INCOME FROM EXPORT SERVICE CHARGES. DURING THE COURSE OF THE ASSE SSMENT PROCEEDINGS, ON PERUSAL OF DETAILS OF INCOME FROM S HORT TERM CAPITAL GAINS FROM SALE OF SHARES, THE AO REQUIRED THE ASSE SSEE AS WHY THE SAME SHOULD NOT BE TREATED AS BUSINESS INCOME. IN RES PONSE, THE ASSESSEE SUBMITTED THAT ASSESSEE DEALT PRIMARILY THROUGH PMS MOTILAL OSWAL AND MIV INVESTMENT SERVICE PVT. LTD.. THE AO ON THE PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE NOTED THAT THE ASSESSE E HAS BORROWED FUNDS TO THE TUNE OF RS.2.15 CRORE AND THE S AME HAS BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT MADE IN SHARES . SUCH FUNDS TO SHRI SHRENIK N. ZAVERI 3 THE EXTENT OF RS.25 LACS WAS GIVEN TO MOTILAL OSWAL FRO M WHERE THE ASSESSEE EARNED INTEREST AMOUNTING TO RS.1,56,531/- . THE ASSESSEE CONTENDED THAT HE IS FULLTIME PARTNER IN M/S. AADIT GEMS AND M/S. AADIT DIAMONDS AND WAS DEALING IN SHARES IN A VERY LIMITED MANNER AND THE INCOME FROM SUCH DEALING HAS BEEN SHOWN UND ER THE HEAD BUSINESS INCOME. THE INVESTMENT ACTIVITIES WERE CARRIE D THROUGH PMS ONLY. HOWEVER, LD. ASSESSING OFFICER AFTER DETAIL D ISCUSSION HELD THAT THE SHORT TERM CAPITAL GAINS EARNED BY THE ASSESSEE HA S TO BE TREATED AS BUSINESS INCOME. 3. BEFORE THE CIT(A) THE ASSESSEE MADE DETAILS SUB MISSIONS THAT SHORT TERM CAPITAL GAIN CANNOT BE TREATED AS BUSINESS I NCOME; HE ALSO SUBMITTED DETAILS OF BORROWED FUNDS AND ITS UTILIZATI ON AND SUBMITTED THAT MOST OF THE INVESTMENT IN SHARES WERE MADE OUT OF HIS OWN FUNDS. THE ASSESSEES DETAIL SUBMISSIONS HAVE BEEN INCORPOR ATED AND DEALT BY THE CIT(A) FROM PAGES 5 TO 10 OF THE APPELLATE ORDER. THE LD. CIT(A) AFTER CONSIDERING ENTIRE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE ORDER OF THE AO NOTED THAT THE ASSESSEE IS MAINLY A PART NER IN TWO FIRMS WHICH IS ENGAGED IN THE BUSINESS OF TRADING I N POLISHED DIAMOND AND DIAMOND STUDDED JEWELLERY. THE ASSESSEE HAD MAD E SUBSTANTIAL INVESTMENT IN THE CAPITAL OF THESE FIRMS AND IS A FUL L TIME WORKING PARTNER. THE CAPITAL GAINS ON SALE OF SHARES MAINLY ACCRUED THROUGH SHRI SHRENIK N. ZAVERI 4 PORTFULIO MANAGER I.E., PMS. TO SUBSTANTIATE THE PM S ACTIVITY, HE PLACED ON RECORD THE COPY OF PMS AGREEMENT WHICH PROV IDED THAT THE DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE WAS TO MAX IMIZE THE ASSESSEES CAPITAL. THE PMS WAS GIVEN POWER OF ATTOR NEY TO DO ALL THE ACTS ON BEHALF OF THE ASSESSEE. SUM AND SUBSTANCE OF SUCH AN AGREEMENT WAS TO ALLOW THE PMS TO PURCHASE AND SELL THE SHARES ON ASSESSEES BEHALF WITH UNRESTRICTED DISCRETION. HE FUR THER NOTED THAT THIS WAS FIRST TIME THAT THE ASSESSEE HAS MADE INVESTMEN T THROUGH PMS AS THE ASSESSEE HAS BEEN UTILIZING THE PMS, SINC E A.Y. 2005-06. FROM THE A.Y. 2006-07, THE ASSESSEES CASE HAVE BEE N COMPLETED UNDER SCRUTINY PROCEEDINGS AND THE ASSESSMENTS HAVE BEEN PASSED U/S.143(3), WHEREIN IT HAS BEEN HELD THAT GAIN FROM S ALE OF SHARES THROUGH PMS IS TO BE TAXED UNDER THE HEAD CAPITAL GAI NS. THEREAFTER, HE RELIED UPON THE DECISION OF ITAT PUNE BENCH ARA TRADING & INVESTMENT PVT. LTD., AND DIRECTED THE AO TO TAX THE INC OME EARNED THROUGH PMS, AS SHORT TERM CAPITAL GAIN. 4. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEARS 2006-07 & 2007-08 AND IN SUBSEQUEN T YEAR 2009- 10, THE ASSESSEES CASE HAS BEEN COMPLETED UNDER SC RUTINY PROCEEDINGS U/S.143(3), WHEREIN ON SIMILAR ISSUE IT HAS BEEN ACCEPTED BY THE AO THAT THE INCOME FROM SALE OF SHARES THROUGH PMS IS TO BE SHRI SHRENIK N. ZAVERI 5 TAXED UNDER THE HEAD OF CAPITAL GAINS. HE FURTHER POIN TED OUT THAT THE DECISION OF ITAT DELHI BENCH IN THE CASE OF M/S. RA DIAL INTERNATIONAL, WHICH HAS BEEN RELIED UPON BY THE DEPARTMENT IN THEIR GROUNDS OF APPEAL AS NOW BEEN REVERSED BY THE DELHI HIGH COURT. HE FURTHER FILED VARIOUS DECISION IN SUPPORT OF HIS CONTENTION THAT T HE INVESTMENT IN SHARES MADE THROUGH PMS AND THE INCOME EARNED THEIR FORM IS TO BE TAXED UNDER THE HEAD OF CAPITAL GAINS. THE LISTS OF SU CH DECISIONS ARE AS UNDER:- SR. NO. PARTICULARS 1. VIMAL PRAVIN SHAH VS. AC IT A.Y. 2008 - 09 IN ITA NO.7714/MUM/2011 DATED 5 TH JUNE, 2013. 2. ANUSUYA SUREN MIRCHANDANI VS. ACIT A.Y. 2008 - 09 IN ITAT NO.3159/M/2012 DATED 13 TH NOVEMBER, 2013 3. PRADEEP MALLICK VS. DCIT A.Y. 2008 - 09 IN ITA NO.2811/M/2012 DATED 17 TH MAY 2013. 4. SALI L SHAH FAMILY PVT. TRUST VS. ACIT A.Y. 2008 - 09 IN ITA NO.2446/M/2012 DATED 1 ST FEBRUARY, 2013. 5. VIMAL P. SHAH VS. DCIT A.Y.S 2004 - 05 TO 2006 - 07 IN ITA NOS.2123, 4123 AND 5638/M/2012 6. MANAN NALIN SHAH VS. DCIT A.YS. 2003 - 04 TO 2005 - 06 IN ITA NOS.6166, 2125 AND 4126/M/2008 DATED 6 TH JULY, 2012 7. NALIN NAVIN BHAGWATI VS. ITO A.Y. 2006 - 07 IN ITA NO.53/M/ 2010 DATED 5 TH AUGUST, 2011. 8. ITO VS. RADHA BIRJU PATEL [(20110 11 TAXMANN.COM 293 (MUM)]. 9. ARA TRADING & INVESTMENT PVT. LTD. VS. DCIT [(2011) 47 SOT 172 (POONA)]. 10. RADIAL INTERNATIONAL VS. ACIT (DECISION OF THE DELHI HIGH COURT DATED 25 TH APRIL, 2014). 5. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO. SHRI SHRENIK N. ZAVERI 6 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FACTS GIVEN IN THE IMPUGNED ORDER. FIRST OF ALL, WHETHER THE TRANSACTION OF SALE OF SHARES RESULTS INTO BUSINESS I NCOME OR IS TO BE TAXED UNDER THE HEAD OF CAPITAL GAINS, HAS TO BE SEEN FROM THE POINT OUT INTENTION OF THE ASSESSEE, CIRCUMSTANCES OF THE T RANSACTIONS AND ALSO THE CONDUCT OF THE ASSESSEE. HERE IN THIS CASE, THE ASSESSEE HAS ESTABLISHED THAT INVESTMENT MADE IN THE SHARES THROUGH PM S WAS FROM HIS OWN SURPLUS FUNDS. THE INTENTION OF THE ASSESSEE IS ALSO BORNE OUT FORM THE FACT THAT THE ASSESSEE HAS SEGREGATED ITS INVE STMENT MADE IN THE INDIVIDUAL CAPACITY AND THE INVESTMENT MADE THROUGH P MS. IT HAS ALSO BEEN BROUGHT ON RECORD THAT ON SIMILAR NATURE OF TRANSACTION, THE DEPARTMENT HAS ACCEPTED THE ASSESEES STANDS THAT THE IN COME FROM SALE OF SHARES THROUGH PMS IS TO BE TAXED UNDER THE H EAD CAPITAL GAIN AND NOT BUSINESS INCOME. THIS POSITION HAS BEEN ACCEP TED IN THE SUBSEQUENT YEAR ALSO THEREFORE, IF ON THE SAME FACTS AND CIRCUMSTANCES THE REVENUE HAS BEEN TAKING CONSISTENT VIEW THAT THEN WITHOUT ASSIGNING ANY DISTINGUISHING FEATURE IN THIS YE AR, NO DIFFERENT CONCLUSION CAN WITHDRAWN. ACCORDINGLY, THE FINDING O F THE CIT(A) ON THIS SCORE IS AFFIRMED AND THE APPEAL OF THE REVENUE IS DISMISSED. SHRI SHRENIK N. ZAVERI 7 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF MARCH 2015. SD/- SD/- SD/ - . D. KRUNAKARA RAO ACCOUNTANT MEMBER SD/ - '# $ % & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, )* DATED: 31 .03.2015 PATEL &' # $*+ ,+$ / COPY OF THE ORDER FORWARDED TO : (1) -$ / THE ASSESSEE; (2) . / THE REVENUE; (3) ! /$( ) / THE CIT(A); (4) ! /$ / THE CIT, MUMBAI CITY CONCERNED; (5) +23 $4, % 4, ! ' / THE DR, ITAT, MUMBAI; (6) 3 6' / GUARD FILE. + $ $ / TRUE COPY &' ! / BY ORDER 7 / 8 . / (DY./ASSTT. REGISTRAR) % 4, ! ' / ITAT, MUMBAI