DCIT, JODHPUR V. Shri Mangla Ram Solanki, JODHPUR

ITA 120/JODH/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9462 (ITAT-JODHPUR)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K BISSA
• Keywords: Capital asset; Business income; Revised return; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI V.D. RAO, JUDICIAL MEMBER ITA NO. 120/JU/2010 ASSTT. YEAR : 2007-08 D.C.I.T., CIRCLE 2, VS. SHRI MANGLA RAM SOLANK I, JODHPUR. G-53,,SHASTRI NAGAR, JODHPUR. (PAN ADQPS 6155 F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AVADHESH KUMAR, D.R. RESPONDENT BY : SHRI S.K. BISSA, A.R. O R D E R PER S.V. MEHROTRA, A.M : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER DATED 02.02.2010 OF LEARNED CIT(A), JODHPUR FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS AN EMPLOYEE OF INDIAN OIL CORPOR ATION. HE HAD FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.7,80,210/- FROM SALARY, HOUSE PROPERTY AND INTEREST FROM BANK, WHICH WAS REVISED BY DECLARING TOTAL INC OME OF RS.9,85,190/-. IN THE REVISED RETURN THE ASSESSEE DECLARED FURTHER INCOME OF RS.1 ,90,193/- FROM SHORT-TERM CAPITAL GAIN AND RS.14,781/- FROM OTHER SOURCES. THE ASSESSING O FFICER WHILE COMPLETING THE ASSESSMENT, DID NOT ACCEPT THE ASSESSEES CONTENTIO N REGARDING SHORT-TERM CAPITAL GAINS OF RS.1,90,193/- AND LONG-TERM CAPITAL GAIN OF RS.2,53 ,421/- ON PURCHASE AND SALE OF SHARES AND TREATED THE SAME AS INCOME FROM BUSINESS. THE A SSESSING OFFICER ALSO MADE AN ADDITION OF RS.29,89,000/- ON THE BASIS OF CASH IN HAND APPEARING IN THE BALANCE SHEET FILED ALONGWITH COMPUTATION OF INCOME. BEING AGGRIE VED, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO WHILE PARTLY ALLOWING TH E ASSESSEES APPEAL ACCEPTED THE 2 ASSESSEES CONTENTION IN REGARD TO SHORT-TERM AND L ONG-TERM CAPITAL GAINS WITH REFERENCE TO SHARES AND ALSO DELETED THE ADDITION OF RS.29,89,00 0/-. THE REVENUE, BEING AGGRIEVED BY THE ORDER OF LEARNED CIT(A), IS IN APPEAL BEFORE US . 3. GROUND NO. 1 & 2 RAISED IN APPEAL BY REVENUE REA D AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)- I, JODHPUR HAS ERRED IN : 1. HOLDING THAT THE SHARE TRANSACTIONS UNDERTAKEN BY T HE ASSESSEE HAVE TO BE TREATED AS INVESTMENT, THE PROFIT FROM WHICH IS ASSESSABLE AS CAPITAL GAIN AND THE AO WAS NOT CORRECT IN TREATING THE SHA RE TRANSACTIONS AS BUSINESS TRANSACTIONS OF THE ASSESSEE AND THEREBY A LLOWING RELIEF OF RS.4,43,614/- BEING ADDITION MADE BY THE AO, IGNORI NG THE FACTS MENTIONED BY THE AO IN THE ASSESSMENT ORDER. 2. ALLOWING RELIEF OF RS.4,43,614/- BEING ADDITION MAD E BY THE AO, DESPITE THE FACT THAT THE AO MADE ADDITION ON THE B ASIS OF CBDT CIRCULAR NO.4/2007 AND THE DECISION DATED 26.06.200 9 OF THE HONBLE ITAT, JODHPUR BENCH IN APPEAL ITA NO. 499/JU/2008 I N THE CASE OF ACIT V/S DEVENDER MITTAL FOR THE A.Y. 2005-06. 4. THE BRIEF FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSING OFFICER EXAMINED THE PURCHASE AND SALE OF SHARES AND NOTED THAT THE ASSE SSEE HAD DEALT WITH THE SHARES OF ABOUT 27 COMPANIES DURING THE YEAR. THE HOLDING OF SHARES RANGED FROM TWO MONTHS TO TWO AND HALF YEARS. HE FURTHER NOTICED THAT THE ASSESSEE DI D NOT ACQUIRE SHARES THROUGH ALLOTMENT, BUT PURCHASES THEM FROM THE MARKET. FURTHER HE NOTE D THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.13,431/- WHEREAS HE HAS EARNE D PROFIT OF RS.4,43,614/- ON SALE OF SHARES. FROM THIS HE CONCLUDED THAT THE ASSESSEE HA D NO INTENTION TO EARN DIVIDEND INCOME OF THE SHARES BUT TO EARN INCOME FROM THE TRADING O F THE SHARES. HE, THEREFORE, TREATED THE PROFIT ON SHARES AS INCOME FROM TRADING BUSINESS OF SHARES AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. 3 5. THE LEARNED CIT(A) AFTER EXAMINING THE VOLUME AN D FREQUENCY OF TRANSACTIONS HELD THAT THE ASSESSEE DID NOT ENGAGE HIMSELF IN SH ARE TRANSACTIONS ON SUCH REGULAR BASIS AND IN SUCH SYSTEMATIC MANNER SO AS TO LEAD TO CONC LUSION THAT HE WAS TRADING IN SHARES. HE, ACCORDINGLY, HELD THAT THE ASSESSEE WAS ONLY MA KING INVESTMENT IN SHARES, THE PROFIT FROM WHICH WAS TAXABLE AS CAPITAL GAIN. 6. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESS ING OFFICER. 7. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIE S AND HAVE PERUSED THE RECORD OF THE CASE. IT IS PRIMARILY THE INTENTION OF THE ASSE SSEE, WHICH IS RELEVANT AND THE SAME CAN BE JUDGED ONLY WITH REFERENCE TO VARIOUS ASPECTS IN CLUDING THE FREQUENCY AND REGULARITY OF TRANSACTIONS. NO HARD AND FAST RULE CAN BE LAID DOW N IN THIS REGARD AND IT DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE WHETHER THE AS SESSEE IS CARRYING ON SHARE TRADING ACTIVITIES IN A SYSTEMATIC MANNER SO AS TO CONCLUDE THAT THE INCOME EARNED IS ASSESSABLE AS BUSINESS INCOME OR HOLDING THE SHARES AS INVESTOR. THE LEANED CIT(A) ON EXAMINATION OF THE DETAILS FURNISHED BY ASSESSEE OBSERVED AS UNDER : FROM THE DETAILS FURNISHED BY THE ASSESSEE OF SHAR E TRANSACTION AS PER WRITTEN SUBMISSIONS DATED 19.1.2010, I FIND THA T THE FREQUENCY AS WELL AS THE VOLUME OF THE TRANSACTION IS NOT SUCH WHICH CAN BE TREATED AS REGULAR ACTIVITY OF TRADING. THE DETAILS OF THE TRA NSACTIONS FOR THE YEAR ENDED 31.03.2007 FURNISHED BY THE APPELLANT REVEALS TWO TRANSACTIONS OF PURCHASE IN THE MONTH OF MAY, 2006 ONE TRANSACTION OF PURCHASE IN THE MONTH OF JUNE, 2006, ONE TRANSACTION IN THE JULY, 2 006, TWO TRANSACTIONS OF PURCHASE IN THE MONTH OF AUGUST, 2006, ONE TRANSACT ION OF PURCHASE IN THE MONTH OF SEPTEMBER, 2006, TWO TRANSACTION OF PURCHA SE IN THE MONTH OF OCT. 2006, ONE TRANSACTION OF PURCHASE IN THE MONTH OF NOV. 2006 AND ONE TRANSACTION OF PURCHASE IN JANUARY, 2007. AS REGARD S THE SALE FOR AY 2007-08, THERE ARE TRANSACTIONS IN MONTHS OF MAY, N OVEMBER AND DECEMBER, 2006. FURTHER, THE VOLUME OF THE TRANSACT IONS IS ALSO NOT MUCH; ON MOST OF THE OCCASIONS 100 OR LESS SHARES HAVE BE EN TRANSACTED EXCEPT ON FEW OCCASIONS WHEN THE NUMBER OF SHARES EXCEEDED 1000. 8. THE ABOVE FACTS ARE NOT DISPUTED. THE ASSESSEE I S A SALARIED EMPLOYEE AND, THEREFORE, COULD NOT DEVOTE MUCH TIME TO SHARE TRAD ING ACTIVITY. THEREFORE, THERE WAS NO 4 QUESTION OF ANY SYSTEMATIC ACTIVITY BEING CARRIED O N BY ASSESSEE. FURTHER, THE FREQUENCY OF TRANSACTIONS WAS SO LOW THAT IT COULD NOT BE BRANDE D AS TRADING ACTIVITY. IT IS PERTINENT TO NOTE THAT LEGISLATURE IN ITS WISDOM HAS ALSO MADE P ROVISION FOR TAXING THE SALE OF SHARES HELD FOR LESS THAN A YEAR AS SHORT-TERM CAPITAL GAI N, TREATING THE SHARE HELD BY ASSESSEE AS CAPITAL ASSET ONLY. WITH THE INVENT OF ON-LINE TRAD ING, EVEN AN INVESTOR CAN ROTATE HIS INVESTMENT VERY FAST KEEPING IN VIEW THE MARKET CON DITIONS. THEREFORE, IN THESE FACTS, IN OUR OPINION, THE CONCLUSION DRAWN BY THE LD. CIT(A) REGARDING ASSESSEES INTENTION FOR HOLDING THE SHARES AS INVESTOR, NEEDS NO INTERFEREN CE. WE, THEREFORE, CONFIRM THE ORDER OF LEARNED CIT(A) ON THIS COUNT. 9. GROUNDS NOS. 3 & 4 READ AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I, JODHPUR HAS ERRED IN : 3. HOLDING THAT THE AO WAS NOT JUSTIFIED IN MAKING ADD ITION OF RS.29,89,000/- ON THE BASIS OF NOTIONAL FIGURE OF C ASH BALANCE AND THEREBY ALLOWING RELIEF BY SIMPLY ACCEPTING ASSESSE ES PLEA, IGNORING THE FACTS MENTIONED BY THE AO IN THE ASSESSMENT ORD ER. 4. ALLOWING RELIEF OF RS.29,89,000/- BEING ADDITION MA DE BY THE AO ON ACCOUNT OF UNEXPLAINED CASH BALANCE, IGNORING THE F ACT THAT THE FIGURES DECLARED IN THE RETURN OF INCOME BY THE ASSESSEE CA NNOT BE LEGALLY HELD AS FICTITIOUS AND UNREALISTIC. 10. THE BRIEF FACTS APROPOS THIS ISSUE ARE THAT AS PER COMPUTATION OF INCOME, CAPITAL ACCOUNT AND BALANCE SHEET FILED BY THE ASSESSEE, TH E ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD SHOWN CASH BALANCE IN HAND OF RS.29,89 ,869/- AS ON 31.03.2007. IN ORDER TO EXAMINE THE SOURCE OF CASH BALANCE, HE REQUIRED THE ASSESSEE TO PRODUCE COMPLETE BOOKS OF ACCOUNT AND VOUCHERS, IF ANY, MAINTAINED BY HIM. HE RECORDED THE ASSESSEES STATEMENTS IN WHICH HE POINTED OUT THAT HE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT AND SENT THE DETAILS OF TRANSACTIONS TO HIS CONSULTANT TO PR EPARE THE STATEMENT OF AFFAIRS AND CAPITAL ACCOUNT AND BALANCE SHEET. THE ASSESSEE STATED THAT HIS CONSULTANT PREPARED THE CAPITAL 5 ACCOUNT AND BALANCE SHEET AND WRONGLY DECLARED THE CASH BALANCE, WHICH WAS NOT TRUE AND THE CORRECT CASH BALANCE WAS RS.10,241/-. IT WAS PO INTED OUT THAT IN THEIR CALCULATIONS, THERE WERE MAJOR ERRORS. THE ASSESSING OFFICER, AFT ER EXAMINING THE BANK ACCOUNT OF THE ASSESSEE AND AFTER CONSIDERING HIS EXPLANATION, HEL D THAT THE ASSESSEE FAILED TO DISCHARGE HIS ONUS TO EXPLAIN THE CASH BALANCE. HE TREATED RS .9,869/- AS EXPLAINED CASH BALANCE AND THE BALANCE AMOUNT OF RS.29,89,000 WAS TREATED AS I NCOME FROM UNEXPLAINED SOURCES AND ADDED TO THE TOTAL INCOME. 11. BEFORE THE LEARNED CIT(A), THE ASSESSEE SUBMITT ED THAT THE AMOUNT OF RS.29,89,869/- WAS PROJECTED CASH IN HAND AND IN SU PPORT OF THIS, IT WAS POINTED OUT THAT THE BALANCE SHEET CONTAINED PROJECTED HDFC BANK LOA N FOR HOUSE AT MUMBAI OF RS.14,19,000/-. THE LEARNED CIT(A) ACCEPTED THE ASS ESSEES CONTENTION TAKING NOTE OF THE FACT THAT AS PER HDFC LETTER DATED 28.04.2007, ADDR ESSED TO THE ASSESSEE, THE ASSESSEE HAD BEEN INTIMATED ABOUT IN PRINCIPLE APPROVAL OF THE H OUSING LOAN OF RS.14,18,040/- WHICH ESTABLISHED THAT THE LOAN WAS SANCTIONED IN F.Y. 20 07-08 AND NOT IN F.Y. 2006-07 ENDING ON 31.03.2007. THUS, THE AMOUNT SHOWN AS LOAN IN TH E BALANCE SHEET WAS TO BE RECEIVED IN FUTURE AND, THEREFORE, THE BALANCE SHEET ITSELF WAS A PROJECTED BALANCE SHEET. HE, ACCORDINGLY, HELD THAT THE FINANCIAL STATEMENT WAS NOT RELIABLE AND THE ENTRIES WERE ONLY FICTIONAL. ACCORDINGLY, HE FOUND NO BASIS FOR ADDIT ION IN THIS YEAR. 12. THE LEARNED DR RELIED ON THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HIMSELF HAD DISCLOSED THE CASH BALANCE IN THE BALANCE SHEET AND, THEREFORE, THE SAME COULD NOT BE DENIED. 13. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED T O PAGE 30A OF THE PAPER BOOK WHEREIN THE DETAILED STATEMENT IS CONTAINED EXPLAIN ING ALL THE RELEVANT DETAILS AS PER 6 WHICH THE ACTUAL CASH IN HAND IS RS.11,241/-. HE SU BMITTED THAT IT WAS PURELY A MEMORANDUM BALANCE SHEET AND ON THAT BASIS, ADDITIO N COULD NOT BE MADE. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PE RUSED THE RECORD OF THE CASE. WE FIND CONSIDERABLE FORCE IN THE SUBMISSIONS OF THE L EARNED COUNSEL FOR ASSESSEE. IT IS NOT DISPUTED THAT THE LOAN SANCTIONED BY HDFC WAS NOT R ECEIVED DURING THE YEAR AND THE SAME HAD BEEN TAKEN NOTE OF, ON THE BASIS OF WHICH PROJECTED CASH BALANCE WAS APPEARING IN THE BALANCE SHEET. FURTHER, FROM THE DETAILS FU RNISHED AT PAGE NO. 30A OF PAPER BOOK, IT IS EVIDENT THAT THE DIFFERENCE IN BALANCE SHEET PRIMARILY CREPT IN BECAUSE OF VARIOUS INVESTMENTS/EXPENSES NOT CORRECTLY BEING INCORPORAT ED IN THE SAME. THIS RESULTED IN OPENING CAPITAL A/C DIFFERENCE. THE DETAILS AS FURN ISHED AT PAGE 30A ARE NOT DISPUTED. AFTER CONSIDERING THESE FACTS, WE DO NOT FIND ANY R EASON FOR INTERFERENCE IN THE ORDER OF LD. CIT(A) BECAUSE THE ADDITION COULD NOT BE MADE ON TH E BASIS OF MISTAKE, WHICH HAD CREPT IN THE PREPARATION OF FINANCIAL STATEMENT. WE ACCOR DINGLY, CONFIRM THE ORDER OF LEARNED CIT(A). 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.02.11. SD/- SD/- (V.D. RAO) (S.V. MEHROTRA) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED : 9 TH FEBRUARY, 2011 *AKS/- COPY FORWARDED TO:- 1. APPELLANT, 2. RESPONDENT, 3. INCOME-TAX OFFICER, 4. CIT, 5. D/R 6. GUARD FILE