DCIT, New Delhi V. M/s. M.B. Finmart Pvt. Ltd., New Delhi

ITA 1145/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7611 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Capital asset; Business income; Rule of consistency
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E, NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO.1145/DEL/2014 (ASSESSMENT YEAR 2010-11) DCIT, CIRCLE 6(1), VS. M/S. M B FINMART PVT. LTD. NEW DELHI 4 TH FLOOR, PUNJABI BHAWAN, 10 ROUSE AVENUE, NEW DELHI. GIR / PAN : AAACM5551D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P DAM KANUNJNA, SR. DR RESPONDENT BY : SHRI M P RASTOGI, ADV. DATE OF HEARING: 01.06.2016 DATE OF PRONOUNCEMENT: 09/06/2016 ORDER PER BEENA A. PILLAI, JM: THE PRESENT APPEAL FILED BY THE REVENUE, ARISES FR OM THE ORDER DATED 13.12.2013 PASSED BY LD. CIT(A) IX, NEW DELHI FOR THE ASSESSMENT YEAR 2010-11 ON THE FOLLOW ING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT (A) ERRED IN DIRECTING T HE A.O TO TREAT THE INCOME OF RS.55,80,788/ AND RS.1,59,15,398/, DISCLOSED AS LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN, RESPECTIVELY, BY THE ASSESSEE BUT HELD AS BUSINESS INCOME BY THE A.O., A S LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN WITHOUT APPRECIATING THE FACTS MENTIONED BY THE A.O ? 2 I.T.A.NO.1145/DEL/2014 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE A.O HAS NOT APPLIED THE PRINCIPLES LAID DOWN BY THE CBDT IN CIRCULAR NO. 4/2007 ? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE MAGNITUDE OF TRANSACTION IS NOT RELEVANT FOR DETERMINING THE PROFIT FROM SALE OF SHARES/ MF AS BUSINESS INCOME OR L TCG/STCG? 4. WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE PRIN CIPLE OF CONSISTENCY IS TO BE FOLLOWED BY COMPLETELY IGNO RING THE FACT THAT THE PRINCIPLE OF RES-JUDICATA IS NOT APPLICABLE IN THE ASSESSMENT PROCEEDING AS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF KRISHAK BHARATI COOPERATIVE LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX, [2012] 23 TAXMANN.COM 265 (DELHI) THAT RULE OF CONSISTENCY SHOULD NOT CREATE ANOMALY? 5. THAT THE ORDER OF THE LD. CIT (A) IS ERRONEOUS A ND IS NOT TENABLE ON FACTS AND IN LAW. 6. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE D TO EACH OTHER. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: 2.1 THE ASSESSEE IS A NON BANKING FINANCIAL COMPANY REGISTERED WITH RESERVE BANK OF INDIA (RBI) AND IS ENGAGED IN THE BUSINESS OF TRADING IN UNITS OF MUTUAL FUNDS AND INVESTMENT IN SHARES AND DEBENTURES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON ON 21 ST OCTOBER, 2010 DECLARING TOTAL INCOME OF RS.2,91,48,395/- AND THE SAME WAS PROCESSED U/S 143 (1) OF THE I.T. ACT, 1961. THE CASE OF THE ASSESSEE WA S SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S 143 (2) / 142(1) WERE ISSUED. 3 I.T.A.NO.1145/DEL/2014 2.2 DURING THE ASSESSMENT PROCEEDINGS, LD. ASSESSIN G OFFICER OBSERVED THE ASSESSEE HAD PURCHASED AND SOL D MUTUAL FUNDS AND SHARES. APART FROM SHOWING AN AMOU NT OF RS.1,27,76,828/- AS NET PROFIT, ASSESSEE CLAIMED LONG TERM CAPITAL GAIN (RS.55,80,788/-) AND SHORT TERM CAPITAL GAIN (RS.1,59,15,398/-). SINCE THE TRADING INCOME IS LOWER THAN CAPITAL GAIN, THE AO PROPOSED TO TREA T TRANSACTION IN ALL THE SHARES AS INCOME FROM BUSINE SS AND PROFESSION KEEPING THE VOLUME OF BUSINESS AND PERCE NTGE OF INCOME FROM TRADING IN SHARES AND MUTUAL FUND TO THE TOTAL INCOME AS BASIS. THE LD. AO HELD THAT THE MAI N ACTIVITY OF THE ASSESSEE IS TRADING IN SHARES, AND DURING THE YEAR, 60 TRANSACTIONS IN SHARES WERE SHOWN AS C APITAL GAIN. THE VOLUME OF BUSINESS, THE VOLUME OF INCOME FROM CAPITAL GAIN AND THE VOLUME OF INVESTMENT INDICATES THAT TRADING IN SHARES AND MUTUAL FUND IS THE CORE ACTIV ITY OF THE ASSESSEE. THE AO ALSO NOTED THAT THE TIME GAP BETWEEN PURCHASE AND SALE OF SHARES IS VERY THIN. T HE PRINCIPLE OF CONSISTENCY AS ARGUED BY THE ASSESSEE IS NOT ACCEPTABLE IN VIEW OF THE FACT THAT, BY PAYING CAPI TAL GAIN AND NOT BUSINESS INCOME FOR THE SAME SHARE TRANSACT ION, THE ASSESSEE FALLS UNDER LOWER SLAB OF TAXATION OR UNDER THE EXEMPT CATEGORY. THE AO OBSERVED THAT HUMONGOUS EXPENSE ON PORTFOLIO MANAGEMENT IS AN INDICATION TO WARDS TRADING IN SHARES AS CORE BUSINESS. ACCORDINGLY, TH E AO TREATED ENTIRE STCG AND LTCG AS INCOME FROM BUSINES S. THE AO RELIED UPON CIRCULAR NO.4 OF 2007 DATED 15.6.2007 ISSUED BY CBDT, WHICH COVERS THE VARIOUS PARAMETERS TO BE CONSIDERED IN DETERMINING WHETHER THE 4 I.T.A.NO.1145/DEL/2014 ACTIVITY OF TRADING OF SHARES IS TO BE TAXED UNDER THE HEAD 'INCOME FROM BUSINESS & PROFESSION' OR 'SHORT TERM CAPITAL GAINS'. 5.3 THE LD. ASSESSING OFFICER MADE FOLLOWING ADDITI ONS TO THE INCOME OF THE ASSESSEE: LONG TERM CAPITAL GAIN TREATED AS BUSINESS INCOME RS.55,80,788/- SHORT TERM CAPITAL GAIN TREATED AS BUSINESS INCOME RS.1,59,15,398/- 5.4 AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER , THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 6. LD. CIT(A) DELETED THE ADDITION MADE BY FOLLOWIN G THE RATIO LAID DOWN BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT (2010) 336 ITR 387. 6.1 AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVEN UE IS IN APPEAL BEFORE US NOW. 6.2 BEFORE US, LD. D.R. SUBMITTED THAT EVERY YEAR B EING A SEPARATE YEAR, THE PRINCIPLE OF RES JUDICATA WILL NOT APPLY TO THE INCOME TAX PROCEEDINGS. HE SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO A LARGE NUMBER OF TRANSAC TIONS OF SALE & PURCHASE OF UNITS AND, THEREFORE, THE INC OME EARNED FROM SUCH TRANSACTION SHOULD BE TREATED AS BUSINESS INCOME. 6.3 ON THE CONTRARY, LD. A.R. SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SOLD ONL Y SHARES RELATING TO HINDUSTAN CONSTRUCTION AND GMR INFRASTRUCTURE. THE REMAINING HAS BEEN CONTINUED T O BE HELD AS INVESTMENT IN THE BOOKS OF ACCOUNTS, MAINTA INED BY THE ASSESSEE. LD. A.R. SUBMITTED THAT THE ASSES SEE IS 5 I.T.A.NO.1145/DEL/2014 DERIVING INCOME FROM BUSINESS FROM CAPITAL GAIN AND INCOME FROM OTHER SOURCES WHICH ARE AS FOLLOWS: PARTICULARS ASSET TYPE AMOUNT INCOME FROM BUSINESS TRADING IN UNITS OF MUTUAL FUNDS INCOME FROM INTEREST INCENTIVE AND MISCELLANEOUS INCOME 13232997/- INCOME FROM CAPITAL GAINS INCOME FROM CAPITAL ASSETS INVESTMENT IN EQUITIES LTSCL (STT PAID 5580788/- EXEMPT U/S 10(38) STCG-15915398/- 15915398/- INCOME FROM OTHER SOURCES DIVIDEND EARNED FORM INVESTMENT IN EQUITIES 26180567/- 7. LD. A.R. SUBMITTED THAT THE INCOME FROM THE ABOV E THREE SOURCES ARE BASED ON ACCOUNTING PRINCIPLES AN D STANDARDS AND THE ASSESSEE HAS CONSISTENTLY BEEN FOLLOWING THE SAME ACCOUNTING PRINCIPLE EVERY YEAR. HE SUBMITTED THAT THE ASSESSEE HELD THE SHARES AS INVE STMENT AND NOT AS STOCK IN TRADE. LD. A.R. HAS SUBMITTED A LIST OF SHARES HELD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. LD. A.R. HAS ALSO PLACED RELIANCE U PON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF A SISTER CONCERN OF THE ASSESSEE BEING CIT VS CH OWDARY ASSOCIATES IN I.T.A. NO. 544/2013. HE SUBMITTED TH AT HON'BLE HIGH COURT IN THE CASE OF ITS SISTER CONCER N, UPHELD THE FINDINGS OF THE TRIBUNAL BY HOLDING THAT THE INCOME DERIVED BY THE ASSESSEE FROM THE ABOVE PURCH ASE & SALE OF SHARES ARE TO BE CONSIDERED UNDER THE HEA D INCOME FROM CAPITAL GAIN. HE HAS ALSO PLACED REL IANCE UPON THE DECISION OF HON'BLE SUPREME COURT IN THE C ASE OF 6 I.T.A.NO.1145/DEL/2014 CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT CO. P. LTD . REPORTED IN 82 ITR 586. 8. WE HAVE PERUSED THE ARGUMENTS ADVANCED BY BOTH THE PARTIES, ORDERS PASSED BY AUTHORITIES BELOW AS WELL AS THE JUDGEMENTS RELIED UPON BY THE LD. A.R. IT IS O BSERVED THATS THE ASSESSEE HAS MAINTAINED ITSELF THROUGHOU T AS INVESTOR. LD. ASSESSING OFFICER HAD NEGATED THE AS SESSEES CONTENTION MERELY BECAUSE OF THE DEALING IN SHARES BY THE ASSESSEE. THERE IS NO DOUBT THAT THE BULK OF SHARES HELD BY THE ASSESSEE WERE FORM SUBSTANTIAL PERIOD. THE OBJECTIVE OF THE ASSESSEE IS TO GET SUBSTANTIAL CAP ITAL GAIN AND NOT EARNING PROFITS WHICH WOULD RESULT IN TRANS ACTION BEING IN NATURE OF TRADE. FURTHER IT IS OBSERVED T HAT THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE IS AT C OST PRICE ON A PERMANENT BASIS AND NOT ON AD-HOC BASIS. FROM THE LIST OF SHARES SUBMITTED BEFORE US, IT IS OBSERVED THAT THE ASSESSEE HAS BEEN HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. THE TREATMENT GIVEN TO THE TRANSACTION IN THE BOOKS OF ACCOUNTS IS OF IMPORTAN CE, AND THE ASSESSEE HAS TREATED THESE SHARES AND SALE THER EOF AS INVESTMENT. IT IS OBSERVED THAT THE ASSESSEE HAS B EEN MAINTAINING THE CLEAR DISTINCTION AMONG ITS HOLDING S, AS UNITS OF MUTUAL FUNDS ARE HELD AS STOCK IN TRADE AN D SHARES ARE HELD AS INVESTMENTS. SIMILAR WERE THE F ACTS BEFORE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOP AL PUROHIT (SUPRA). HONBLE COURT HAS HELD THAT THE P RINCIPLE OF CONSISTENCY IS A BASIC FACTOR TO BE CONSIDERED W HILE DECIDING THE NATURE OF INCOME. THE HON'BLE BOMBAY HIGH COURT HAS ALSO HELD THAT THE UNIFORMITY IN MAINTAIN ING THE 7 I.T.A.NO.1145/DEL/2014 BOOKS OF ACCOUNTS IS THE MOST CRUCIAL SOURCE OF GET TING TO KNOW INTENTION OF THE ASSESSEE AS REGARD TO THE NAT URE OF TRANSACTION. IT IS OBSERVED FROM THE DETAILS PLACE D IN THE PAPER BOOK THAT THE ASSESSEE HAS MADE INVESTMENTS I N THE MUTUAL FUNDS AND SHARES WHICH HAS BEEN SHOWN BY THE SAID COMPANY UNDER THE HEAD STOCK IN TRADE / 'INVESTMENTS' IN THEIR BALANCE SHEET CONSISTENTLY. THERE IS ALSO NO CHANGE IN THE YEAR UNDER CONSIDERATION AS W ELL, AS COMPARED TO THE PRECEDING YEARS, WHERE THE INCOME F ROM SALE / PURCHASE OF SHARES HAS BEEN ASSESSED AS SHOR T TERM CAPITAL GAIN. IT IS AN ACCEPTED FACT THAT THE ASSESSEE HAD SHOWN THE STOCKS IN HIS BOOKS OF ACCOUNTS AS INVESTMENTS AND NOT AS STOCK-IN-TRADE AND THIS IMPO RTANT TREATMENT FROM THE ACCOUNTING ANGLE HAS A BEARING O N THE ISSUE. THERE IS NO STOCK IN TRADE OF SHARES IN THE BALANCE SHEET OF THE ASSESSEE, RATHER THESE ARE CONSISTENTL Y SHOWN BY THE ASSESSEE UNDER THE HEAD INVESTMENTS. THE ASSESSEE COMPANY HAD SHOWN THE GAINS IN EARLIER YEA RS ALSO UNDER THE HEAD CAPITAL GAIN, WHICH HAS BEEN AC CEPTED AS SUCH. 9. FROM THE DETAILS OF PURCHASE AND SALE AND PERIOD OF HOLDING OF SHARES, IT IS OBSERVED THAT THE ASSESSEE HAS HELD 11 TRANSACTIONS OF SHARES FOR MORE THAN 50 DAY S AND THE BALANCE WERE HELD FOR MORE THAN 100 DAYS IN TOT AL NUMBER OF 30 TRANSACTIONS. IN THE PREVIOUS YEAR AN D THE SUBSEQUENT YEARS RELEVANT TO THE ASSESSMENT YEAR UN DER CONSIDERATION THE DEPARTMENT HAS BEEN CONSISTENTLY ACCEPTING THE INVESTMENT IN SHARES HELD BY THE ASSE SSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS 8 I.T.A.NO.1145/DEL/2014 SOLD SHARES OF TWO COMPANIES BEING HINDUSTAN CONSTRUCTION AND GMR INFRA STRUCTURE. THE REMAININ G SHARES RELATE TO PURCHASES MADE IN THE PREVIOUS YEA RS. 10. THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE CLE ARLY INDICATES THAT; (I) WHETHER PARTICULAR TRADING IS FROM 'INVESTMENT ON CAPITAL ASSET' OR FROM 'STOCK IN TRADE' IS A QUE STION OF FACT. (II) THE FACT DEPENDS ON HOW IT IS RECORDED IN THE BOOKS OF ACCOUNTS OF ASSESSEE AND WHAT IS THE ACCOUNTING TREATMENT GIVEN TO IT. (III) MAGNITUDE OF TRANSACTION IS NOT RELEVANT TO THE ISSUE. (IV) PRINCIPLE OF CONSISTENCY IS TO BE FOLLOWED ON THIS ISSUE. 11. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENTS OF T HE HIGHER COURTS, AND AFTER CONSIDERING THE FACTS OF T HE CASE AS DISCUSSED ABOVE, WE DO NOT FIND ANY REASON TO HO LD THAT THE SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GA IN AS DECLARED BY THE ASSESSEE SHOULD NOT BE ASSESSED UND ER THESE HEADS OF INCOME. 12. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE STAN D DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE, 2016. SD./- SD./- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 09.06.2016 SP. 9 I.T.A.NO.1145/DEL/2014 COPY FORWARDED TO:- THE APPELLANT THE RESPONDENT THE CIT THE CIT (A)-, NEW DELHI. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER: AR (ITAT, NEW DELHI) S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 3/6/16 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 9/6/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 9/6 SR. PS/PS 7 FILE SENT TO BENCH CLERK 9/6 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER