DCIT, V. Sri. H.S. Mani,

ITA 1165/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0192 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 19-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA J
• Assessee Lawyers: L BHARATH
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE S HRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 803 /BANG/2 014 (ASSESSMENT YEAR: 20 05 - 06 ) AND ITA NO. 1165 /BANG/2 013 (ASSESSMENT YEAR: 20 06 - 07 ) ASST. COMMISSIONER OF INCOME - TAX, DEPUTY COMMISSIONER OF INCOME - TAX/ CIRCLE 7(1), BANGALORE. VS. APPELLANT SHRI GAUTAM MAINI & MS. GEETHA MAINI L/R OF LATE SHRI H.S.MAINI, 2B, GLENDALE APARTMENTS, BENSON CROSS ROAD, BENSON TOWN , BANGALORE - 560046. PA NO.ABXPM 8940 P RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWALA, JCIT(DR). RESPONDENT BY : SHRI L.BHARATH, CA. DATE OF HEARING : 13/06/2016 DATE OF PRONOUNCEMENT : 27 /07/2016 O R D E R PER I NTURI RAMA RAO, AM : THESE ARE THE APPEALS FILED BY THE REVENUE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A), MYSORE, DATED 22/10/2013 FOR THE ASSESSMENT YEAR 2005 - 06 AND THE CIT(A),LTU, BANGALORE, DATED 19/04/2013 FOR THE ASSESSMENT YEAR 2006 - 07. SINCE COMMON ITA NO S . 1165/2013 & 803 BANG/201 4 PAGE 2 OF 7 ISSUE S ARE INVOLVED IN BOTH THE APPEALS, WE PROCEED TO DISPOSE OF THE SAME BY THIS CONSOLIDATED ORDER. 2. BRIEFLY FACTS OF THE CASE ARE THAT THE RESPONDENT - ASSESSEE IS AN INDIVIDUAL. HE IS MAINLY ENGAGED IN DEALING WITH SHARE TRANSACTIONS. HE WAS MAINT AINING BOTH TRADING PORTFOLIO AS WELL AS INVESTMENT PORTFOLIO. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2005 - 06, ASSESSEE HAS SHOWN SHARES HELD AS STOCK - IN - TRADE IN EARLIER YEAR I.E. OCTOBER 2004 AS INVESTMENT AND OFFERED THE GAINS ARISING OUT OF SALE OF THOSE SCRIPS UNDER THE HEAD SHORT - TERM CAPITAL GAINS. THE ASSESSING OFFICER (AO) HELD THAT THOUGH SHORT - TERM CAPITAL GAINS SHOULD BE ASSESSED AS BUSINESS INCOME, AS ACCORDING TO THE AO, ASSESSEE HAD FAILED TO ESTABLISH DISTINCTION BETWEEN INVES TMENTS AND THE BUSINESS PORTFOLIO. HE FURTHER CONCLUDED THAT IN VIEW OF THE FREQUENCY AND HIGH VOLUME OF TRANSACTIONS, THE ASSESSEE IS ENGAGED IN THE BUSINESS ACTIVITY OF TRADING IN SHARES. 3. BEING AGGRIEVED BY THE ABOVE DECISION, AN APPEAL WAS PREFE RRED BEFORE THE CIT(A). THE CIT(A) HELD THAT THE FREQUENCY AND VOLUME OF TRANSACTIONS ALONE CANNOT BE CONCLUSIVE EVIDENCE TO SAY THAT THE ASSESSEE IS A TRADER AND THEREFORE, ACCEPTED THE CONTENTION OF THE RESPONDENT - ASSESSEE THAT HE IS ONLY AN INVESTOR. ITA NO S . 1165/2013 & 803 BANG/201 4 PAGE 3 OF 7 4. BEING AGGRIEVED BY THIS ORDER OF THE CIT(A), THE REVENUE IS BEFORE US IN THE PRESENT APPEALS. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO.803/BANG/2014 FOR THE ASSESSMENT YEAR 2005 - 06: 1. THE ORDER OF THE LEARNED C1T(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROFITS ON SECURITIES TRANSACTIONS BY THE ASSESSEE SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. 3. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) FAILED :0 APPRECIATE THE FACT THAT THE ASSESSEE WAS INDULGING IN REGULAR PURCHASE AND SALE O SHARES AND DERIVING THE PROFITS WHICH IS CLEARLY IN THE NATURE OF TRADING BUSINESS IN SHARES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN IGNORING THE FACT THAT DURING EARLIER YEARS, THE ASSESSEE HIMSELF WAS TREATING THE INCOME FROM SHARE TRADING AS BUSINESS INCOME AND ONLY FROM AY 2005 - 06 ONWARDS, I.E AFTER INTRODUCT ION OF SECURITIES TRANSACTION TAX, THE ASSESSEE HAS SWITCHED TO CLAIM THE SAME E S SHORT TERM CAPITAL GAINS TO AVAIL THE TAXATION BENEFIT OF 10%. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT HE ORDER OF THE C[T(A ) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 5. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO.1165/BANG/2013 FOR THE ASSESSMENT YEAR 2006 - 07: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. ITA NO S . 1165/2013 & 803 BANG/201 4 PAGE 4 OF 7 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROFITS O N SECURITIES TRANSACTIONS BY THE ASSESSEE SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE WAS INDULGING IN REGU LAR PURCHASE AND SALE OF SHARES AND DERIVING THE PROFITS WHICH IS CLEARLY IN THE NATURE OF TRADING BUSINESS IN SHARES. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED THAT THE C IT(A) HAD NOT CONSIDERED ANY MATERIAL FACTS TO COME TO CONCLUSION THAT THE ASSESSEE IS ONLY AN INVESTOR IN SHARES. THE CIT(A) MERELY CONCLUDED THAT THE ASSESSEE IS AN INVESTOR CONSIDERING THE FACT OF THE VOLUME AND FREQUENCY OF THE TRA N SACTION ALO NE CANNOT BE THE CRITERIA TO DECIDE WHETHER ONE IS AN INVESTOR OR A TRADER IN SHARES. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSEE RELIED ON THE ORDERS OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE IS ENTITLED TO MAINTAIN TWO PORTFOLIOS I.E. TRADING AS WELL AS INVESTMENT PORTFOLIO AND HE HAS REFERRED TO CIRCULAR NO.4/2007 DATED 15 TH JUNE 2007 ISSUED BY THE CBDT. ITA NO S . 1165/2013 & 803 BANG/201 4 PAGE 5 OF 7 WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE ISSUE IN PRESENT APPEAL IS REGARDING THE NATURE OF INCOME FROM SHARE TRANSACTIONS E NTERED INTO BY THE RESPONDENT - ASSESSEE. THE ISSUE, WHETHER THE SHARE TRANSACTION IN A PARTICULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY IS HIGHLY DEBATABLE ISSUE, NEEDLESS TO MENTION THAT EACH CASE DEPENDS ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS WHICH ARE TO BE TAKEN INTO CONSIDERATION FOR DECIDING THE PARTICULAR ISSUE SUCH AS FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNT, NATURE OF FUNDS, HOLDING PERIOD AND INTENTION AT THE TIME OF PURCHASE OF SHARES A RE RELEVANT IN DECIDING TRUE NATURE OF TRANSACTION AND NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE WHICH HAS TO BE GATHERED FROM THE CONDUCT OF THE ASSESSEE. THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZING THE HOLDING PERIOD ETC. AN INVESTOR MAKES PURCHASES WITH A LONG TERM GOAL OF EARNING INCOME FROM INVESTMENT AND HE IS NOT TEMPTED TO SELL THE SHARES ON EVERY RISE AND FALL IN THE MARKET WHICH ARE THE ATTRIBUTES OF A TRADER. THE HON BLE APEX COURT IN THE CASE OF G.VENKATA SWAMI NAIDU & CO. VS. CIT (35 ITR 594) HELD THAT IN DECIDING THE CHARACTER OF TRUE NATURE OF SUCH TRANSACTION, FOLLOWING FACTORS SHOULD BE TAKEN INTO CONSIDERATION: I. WHETHER THE PURCHASER WAS A TRADER AND THE PUR CHASE OF THE COMMODITY AND ITS RESALE WERE ALLIED TO HIS USUAL TRADE OR BUSINESS OR WERE INCIDENTAL TO IT. II. THE NATURE AND QUANTITY OF THE COMMODITY PURCHASED AND RESOLD IF THE COMMODITY PURCHASED IS IN VERY LARGE ITA NO S . 1165/2013 & 803 BANG/201 4 PAGE 6 OF 7 QUANTITY, IT COULD TEND TO ELIMINATE THE POSSIBILITY OF INVESTMENT FOR PERSONAL USE, PROFESSION OR ENJOYMENT. III. THE REPETITION OF THE TRANSACTION. THE HON BLE SUPREME COURT ALSO HELD THAT THE INTENTION AT THE TIME OF PURCHASE OF SHARES IS AN IMPORTANT CRITERION TO DETERMINE THE TRUE NATURE OF SU CH TRANSACTI O NS. APPLYING THE ABOVE POSITION TO THE FACTS OF THE PRESENT CASE, THE AO HELD THAT THE RESPONDENT - ASSESSEE IS A TRADER IN SHARES ON THE CONSIDERATION OF VOLUME AND FREQUENCY OF THE TRANSACTIONS AND IN THE IMMEDIATELY PRECEDING YEAR, THEY WERE SHOWN AS A TRADING ACTIVITY. THE ASSESSEE HAS FAILED TO SUBSTANTIATE CHANGE IN THE METHOD OF TREATMENT I.E. FROM TRADING TO INVESTMENT PORTFOLIO. THUS, THE QUESTION IS ESSENTIALLY A MATTER OF FACT AND THE RESPONDENT - ASSESSEE HAD FAILED TO SUBSTANTIATE I TS CLAIM BY PRODUCING RELEVANT EVIDENCE BEFORE THE AO. THE CIT(A) HAD MERELY ALLOWED THE APPEAL BY HOLDING THAT THE VOLUME AND FREQUENCY OF TRANSACTION CANNOT BE CONCLUSIVE EVIDENCE AGAINST RESPONDENT - ASSESSEE. NO DOUBT, AS PER CBDT CIRCULAR NO.4/2007, T HE ASSESSEE IS PERMITTED TO MAINTAIN TWO PORTFOLIOS I.E. TRADING AS WELL AS INVESTMENT PORTFOLIO BUT THE ASSESSEE IS DUTY BOUND TO PRODUCE EVIDENCE THAT CERTAIN TRANSACTIONS WERE INTENDED TO BE BY WAY OF INVESTMENT AND SOME ARE BY WAY OF BUSINESS TRANSACT IONS. AS THE ISSUE HAS TO BE DECIDED BASED ON THE FACTS OF THE CASE, IN THE ABSENCE OF ANY EVIDENCE ON RECORD THAT THE ASSESSEE INTENDED TO HOLD CERTAIN SHARES AS INVESTMENTS AND THE FACT THAT IN EARLIER YEARS THIS WAS SHOWN AS A TRADING PORTFOLIO GOES TO PROVE THAT THE CLAIM FO THE ITA NO S . 1165/2013 & 803 BANG/201 4 PAGE 7 OF 7 ASSESSEE IS MERELY BALD. THERE WAS NO EVIDENCE ADDUCED BY THE ASSESSEE TO SHOW THAT SOME OF THE TRANSACTIONS WERE HELD AS INVESTMENT OR TO ESTABLISH INTENTION AT THE TIME OF PURCHASING SHARES THAT THE TRANSACTIONS WERE UNDERTAKEN WITH A MOTIVE OF INVESTMENT. THEREFORE, IN THE CIRCUMSTANCES, THE CIT(A) IS NOT JUSTIFIED TO COME TO CONCLUSION THAT THE ASSESSEE IS AN INVESTOR WITHOUT REFERRING TO ANY MATERIAL OR EVIDENCE. THEREFORE, WE HOLD THAT THE RESPONDENT - ASSESS EE IS MERELY A TRADER IN SHARES AND PROFIT ARISING ON SALE OF SUCH TRANSACTION SHOULD BE ASSESSED AS BUSINESS INCOME. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY , 2016 S D/ - S D/ - ( SUNI L KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BANGALORE D A T E D : 27 /0 7 /2016 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUAR D FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE