Nathulal Pannalal Lavti, JAMNAGAR V. The Additional Commissioner of Income Tax, Circle-1, JAMNAGAR

ITA 1259/RJT/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1249 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: MJ RANPURA
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] , !'#$#.#.,' '() BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER $./ I.T.A. NO.1259/RJT/2010 ( / ASSESSMENT YEAR : 2006-07) NATHULAL PANNALAL LAVTI MAHALAXMI METAL CORPORATION SPL. SHED NO.431, GIDC UDYOGNAGAR JAMNAGAR / VS. THE ADDL. CIT CIRCLE-1 JAMNAGAR '+ !$ ./ $ ./ PAN/GIR NO. AAIPL 4963 H ( +- / APPELLANT ) .. ( ./+- / RESPONDENT ) +-0 / APPELLANT BY : SHRI M.J. RANPURA, C.A. ./+-10 / RESPONDENT BY : SHRI AVINASH KUMAR, SR.DR 21! / DATE OF HEARING 14/06/2016 34 1! / DATE OF PRONOUNCEMENT 21/07/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-JAMNAGAR [CIT(A) IN SHORT] DATED 07/09/2010 PERTAINING TO ASSESSMENT YEAR (AY) 2006-07. ITA NO.1259/RJT /2010 SHRI NATHULAL PANNALAL LAVTI VS. ADDL.CIT ASST.YEAR 2006-07 - 2 - 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- 2.1. ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF MA HALAXMI METAL CORPORATION WHICH IS ENGAGED IN THE BUSINESS OF NO N-FERROUS METAL AND IN THE BUSINESS OF FINANCING IN THE NAME AND STYLE OF M/S.MAHALAXMI METAL CORPORATION. ASSESSEE FILED HIS RETURN OF IN COME FOR AY 2006-07 ON 27/12/2016 DECLARING TOTAL INCOME OF RS.30,46,74 0/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S 'THE ACT') VIDE ORDER DATED 05/12/2008 AND THE TOTAL INCOME WAS DE TERMINED AT RS. 31,46,740/-. AGGRIEVED BY THE ORDER OF ASSESSING O FFICER(AO), ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE O RDER DATED 07/09/2010 (IN APPEAL NO.CIT(A)/JAM/258/08-09/716) DISMISSED T HE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. LD.CIT(A) JAMNAGAR ERRED IN LAW AS WELL AS FACT TO CONFIRM THE ORDER OF AO MADE ARBITRARY ADDITION OF RS.1 LAC IN THE ALLEGED SALE OF URD PURCHASED WITHOUT ANY BASIS OR ANY LAWFUL SU PPORTING OR EVEN GIVING ANY COMPARATIVE CASES HENCE ARBITRARY A DDITION OF RS.1 LAC MADE WITHOUT ANY BASIS MAY BE DELETED. 2. LD.AO ERRED IN LAW AS WELL AS ON FACT TO TREAT YOUR APPELLANT AS TRADER IN SHARES IN SPITE OF THE FACT THAT YOURE A PPELLANT IS INVESTOR HENCE CAPITAL GAIN OF RS.1029118.00 MAY BE CONSIDER ED ACCORDINGLY AND DELETE THE SAME FROM THE BUSINESS I NCOME HEAD. ITA NO.1259/RJT /2010 SHRI NATHULAL PANNALAL LAVTI VS. ADDL.CIT ASST.YEAR 2006-07 - 3 - 3. LD.AO ERRED ON LAW TO NEGLECT PROVISION AND AMEN DMENT MADE BY FINANCE ACT 2006 OF SECTION 10(38) AND 111A AND HAVE PREJUDICIALLY RELIED ON THE JUDGMENTS OF ADVANCE RU LINGS HENCE ADDITION MADE ON THE BASIS OF SUCH WRONG NORMS MAY BE DELETED BY CONSIDERING THE POSITION OF LAW. 4. LD.AO ERRED ON FACT AS YOUR APPELLANT IS NOT TR ADER IN SHARES BUT IS PURELY AND INVESTOR HENCE THE SAME MAY BE CO NSIDERED AS PER FACT OF THE CASE. 5. LD.AO ERRED IN LAW AS WELL AS ON FACT TO CHARGE INTEREST U/S.234B HENCE THE SAME MAY BE DELETED. 6. LD.AO ERRED IN LAW AS WELL AS ON FACT TO INITIA TE PENALTY PROCEEDINGS U/S.271(C) HENCE THE SAME MAY BE DIRECT ED TO DROP FROM THE ASSESSMENT ORDER. 3. BEFORE US, LD.AR SUBMITTED THAT HE DID NOT WISH TO PRESS GROUND NO.1 AND THEREFORE THE SAME IS DISMISSED AS NOT PRE SSED. HE FURTHER SUBMITTED THAT THE SOLITARY ISSUE WHICH IS TO BE DE CIDED IS THE TREATMENT TO PROFITS EARNED ON SALE OF SHARES I.E. WHETHER IT IS TO BE TREATED AS CAPITAL GAINS AS CONSIDERED BY THE ASSESSEE OR AS BUSINES S INCOME AS CONSIDERED BY THE AO. 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A O NOTICED THAT ASSESSEE HAD EARNED RS.10,29,118/- AS PROFIT ON SAL E OF SHARES (THE DETAILS OF WHICH ARE LISTED AT PAGE 3 OF THE ASSESSMENT ORD ER) AND WHICH WERE ITA NO.1259/RJT /2010 SHRI NATHULAL PANNALAL LAVTI VS. ADDL.CIT ASST.YEAR 2006-07 - 4 - CONSIDERED BY ASSESSEE AS SHORT TERM CAPITAL GAINS (STCGS). HE ALSO NOTICED THAT ASSESSEE HAD PURCHASED AND SOLD T HE SHARES IN AS MANY AS 32 COMPANIES AND THE TIME GAP BETWEEN THE PURCHA SE AND SALE OF SCRIPS WAS VERY SHORT. CONSIDERING THE MAGNITUDE AND FREQ UENCY OF THE TRANSACTIONS, HE WAS OF THE VIEW THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF SHARES. HE ACCORDINGLY CONS IDERED THE PROFIT EARNED FROM SALE OF SHARES AS BUSINESS INCOME AS AG AINST STCGS TREATED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASS ESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO UPHELD THE ORDER O F THE AO BY HOLDING AS UNDER:- 8. I HAVE CONSIDERED THE ISSUE CAREFULLY. IT IS TO BE POINTED OUT THAT WHILE DECIDING THE ISSUE WHETHER INCOME IS OF CAPIT AL GAINS OR IS IN THE NATURE OF TRADE, MANY FACTORS ARE TO BE SEEN. MEREL Y PAYMENT OF SECURITIES TRANSACTION TAX WOULD NOT MAKE INCOME FR OM DEALING IN SECURITIES AS CAPITAL GAINS. IF THE LIST OF SHARES TRADED IS SEEN, IT IS TO BE POINTED OUT THAT EXCEPT FOR TWO SHARES, I.E. OF SUJ ANA IND. LTD. AND LAXMI ELECTRIC, ALL THE SHARES HAVE BEEN PURCHASED DURING THE YEAR AND ALSO SOLD DURING THE YEAR WITHIN A SHORT SPAN OF TI ME. THUS, EXCEPT FOR THESE TWO SHARES, NONE OF THEM WILL EVER APPEAR IN THE BALANCE-SHEET OF THE APPELLANT AS INVESTMENTS, BECAUSE THEY WERE PUR CHASED AND SOLD IN THE YEAR ITSELF. IT IS ALSO NOTICED THAT MANY OF TH E SHARES HAVE BEEN PURCHASED AND SOLD WITHIN A VERY SHORT TIME, WHICH GOES TO SHOW THAT INTENTION OF THE APPELLANT WAS PURELY OF TRADING IN SHARES. THE TOTAL SHARES TRADED BY THE APPELLANT ARE OF 32 COMPANIES AND TOTAL TRANSACTIONS ARE 37. BUT DETAILS OF SHARE TRANSACTI ONS IN NO WAY SUPPORT THE CONTENTION OF THE APPELLANT THAT THESE WERE INV ESTMENTS FOR THE PURPOSE OF EARNING DIVIDEND AND, AS DISCUSSED EARLI ER, THESE SHARES EXCEPT FOR THE TWO NEVER APPEARED AS INVESTMENT IN THE BALANCE-SHEET OF THE APPELLANT, AS THEY HAVE BEEN PURCHASED AND SOLD DURING THE SAME ITA NO.1259/RJT /2010 SHRI NATHULAL PANNALAL LAVTI VS. ADDL.CIT ASST.YEAR 2006-07 - 5 - YEAR. THE APPELLANT WAS ALSO ASKED TO FURNISH HIS D E-MAT ACCOUNT DURING THE APPELLATE PROCEEDINGS, BUT THE APPELLANT HAS NOT FURNISHED THE SAME. IT HAS ALWAYS BEEN HELD BY THE JUDICIAL A UTHORITIES THAT EVEN OTHERWISE ANY ENTRIES IN BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE ABOUT REAL NATURE OF TRANSACTION AND THE SAME HAS TO BE J UDGED AS PER THE FACTUAL POSITION. THE VERY FACT THAT SHARES HAVE BE EN PURCHASED AND SOLD WITHIN A VERY SHORT SPAN OF TIME AND THERE ARE NUME ROUS TRANSACTIONS DURING THE YEAR PROVES THAT THE APPELLANT WAS PURCH ASING SHARES WITH THE INTENTION OF SELLING THEM WITH A VIEW TO EARN I MMEDIATE PROFITS AND THE BASIC MOTIVE WAS TO TRADE IN SHARES. IN VIEW O F THE ABOVE, THE AOS ACTION IN TREATING SUCH PROFITS AS TRADING INCOME I S AS PER LAW AND IS UPHELD. 3.2. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 4. BEFORE US, LD.AR REITERATED THE SUBMISSIONS OF A O AND LD.CIT(A) AND FURTHER SUBMITTED THAT IN THE IMMEDIATE PRECEDI NG YEAR AND SUBSEQUENT ASSESSMENT YEARS, THE REVENUE HAS ACCEPT ED THE CONTENTIONS OF THE ASSESSEE THAT PROFITS EARNED TO BE CAPITAL GAINS AND NOT AS BUSINESS INCOME. HE FURTHER SUBMITTED THAT THE I NTENTION OF THE ASSESSEE WAS TO HOLD THE SHARES AS INVESTMENTS AND ASSESSEE HAD ENTERED INTO ONLY 37 TRANSACTIONS OF PURCHASE AND SALE OF S ECURITIES AND THE INTENTION OF THE ASSESSEE WAS NOT TO TRADE IN THE S HARES. HE FURTHER SUBMITTED THAT ASSESSEE HAS NOT INDULGED IN FREQUEN T TRADING OF PURCHASE AND SALE IN SAME SCRIPS THROUGHOUT THE YEAR AND THE TRANSACTIONS ARE DELIVERY BASED TRANSACTIONS. HE THEREFORE RELYING ON THE VARIOUS DECISIONS OF BOMBAY AND AHMEDABAD TRIBUNAL SUBMITTE D THAT THE PROFITS EARNED TO BE CONSIDERED AS CAPITAL GAINS AND NOT BUSINESS INCOME. ITA NO.1259/RJT /2010 SHRI NATHULAL PANNALAL LAVTI VS. ADDL.CIT ASST.YEAR 2006-07 - 6 - 4.1. THE LD.DR, ON THE OTHER HAND, SUPPORTED THE OR DER OF AO & LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO TH E TREATMENT TO BE GIVEN TO THE PROFIT EARNED ON SALE OF SHARES, I.E. WHETHE R IT IS TO BE TREATED AS CAPITAL GAINS, AS CONSIDERED BY ASSESSEE OR AS BUSI NESS INCOME AS CONSIDERED BY REVENUE. 5.1. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD DON E TRANSACTIONS IN 32 SCRIPS AND THAT THERE ARE ONLY 37 TRANSACTIONS DURI NG THE YEAR. IT IS NOT THE CASE OF REVENUE THAT ASSESSEE HAS INDULGED IN FREQU ENT TRANSACTIONS OF PURCHASE AND SALE OF SOME SHARES THROUGHOUT THE YEA R NOR IT IS THE CASE OF REVENUE THAT THE TRANSACTIONS ARE NOT DELIVERY BASE D OR THAT THE ASSESSEE HAS RESORTED TO CHURNING OF SHARES OF THE SAME COMP ANY. IT IS A SETTLED LAW THAT WHETHER THE PROFITS EARNED FROM A CERTAIN SET OF TRANSACTIONS IS ASSESSABLE AS BUSINESS INCOME OR CAPITAL GAINS IS T O BE DECIDED AFTER TAKING INTO CONSIDERATION THE INTENTION OF THE ASSE SSEE AT THE TIME OF ACQUIRING OF SHARES, WHETHER THE INTENTION WAS TO E NJOY THE FRUITS OF SHARES OR THE INTENTION WAS TO DEAL IN SHARES. IF THE INTENTION WAS TO ENJOY THE DIVIDEND EARNED ON SHARES, THEN THE PROFIT ON S ALE OF SHARES IS TO BE ASSESSED AS A CAPITAL GAINS AND IF THE INTENTION WA S TO DEAL IN SHARES, THEN THE PROFIT IS TO BE ASSESSED AS BUSINESS INCOME. T HE INTENTION OF THE ITA NO.1259/RJT /2010 SHRI NATHULAL PANNALAL LAVTI VS. ADDL.CIT ASST.YEAR 2006-07 - 7 - ASSESSEE IS TO BE GATHERED FROM THE CUMULATIVE CONS IDERATION OF ALL THE RELEVANT FACTORS LIKE HOW THE TRANSACTIONS WERE REC ORDED AND REFLECTED IN THE BALANCE-SHEET, THE VOLUME OF TRANSACTIONS, PERI OD OF HOLDING, USE OF BORROWED FUNDS, RATIO BETWEEN PURCHASE AND SALES AN D HOLDING, PERIODICITY OF TRANSACTIONS, REPEATED TRANSACTIONS AS SOME SCRIPS, ETC. A SINGLE OR TWO FACTORS ALONE CANNOT BE DETERMINATIVE TEST TO INFER THE INTENTION OF THE ASSESSEE. FURTHER, THE SUBMISSION OF THE ASSESSEE IS THAT IN EARLIER YEARS AND SUBSEQUENT YEAR, THE TREATMENT GIVEN TO PROFIT ON SALE OF SHARES AS CAPITAL GAINS HAVE BEEN ACCEPTED BY RE VENUE HAS NOT BEEN CONTROVERTED BY REVENUE. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, IN THE LIGHT OF THE AFORESAID PRINCIPLES, WE ARE OF THE VIEW THAT IN THE RESENT CASE THE INCOME EARNED BY THE ASSESSEE FROM SALE OF SHARES CANNOT BE CONSIDERED TO BE BUSINESS INCOME OF THE ASSESSEE BUT HAS TO BE CONSIDERED AS CAPITAL GAINS. THUS, THIS GROUND OF ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 21/07/20 16 AT AHMEDABAD. SD/- SD/- #.#. (') ( !') ( S.S. GODARA ) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD ; DATED 21/ 07 /2016 ..,.../ T.C. NAIR, SR. PS ITA NO.1259/RJT /2010 SHRI NATHULAL PANNALAL LAVTI VS. ADDL.CIT ASST.YEAR 2006-07 - 8 - / COPY OF THE ORDER FORWARDED TO : 1. +- / THE APPELLANT 2. ./+- / THE RESPONDENT. 3. $8$ 9 / CONCERNED CIT 4. 9 ( ) / THE CIT(A)-JAMNAGAR 5. ;<. , , /DR,ITAT,RAJKOT 6. GH2 / GUARD FILE. / BY ORDER, /;. //TRUE COPY// / ( DY./ASSTT.REGISTRAR) %&, / ITAT, RAJKOT 1. DATE OF DICTATION .. 14.6.16 (DICTATION-PAD 7+ PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 22.6.16 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 21.7.2016 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 22.7.2016 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER