ACIT 14(3), MUMBAI V. BINITA R. KAPADIA, MUMBAI

ITA 1332/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6297 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAVA
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1332/MUM/2010 (ASSESSMENT YEAR: 2006-07) ACIT - 14(3) MS. BINITA R. KAPADIA 6TH FLOOR, EARNEST HOUSE BLOCK NO. 8, DEVKARAN MANS ION NARIMAN POINT, MUMBAI 400021 VS. 2ND FLOOR , 32, VITTALDAS ROAD MUMBAI 400002 PAN - AGOPK 0901 A APPELLANT RESPONDENT APPELLANT BY: SHRI R.S. SRIVASTAVA RESPONDENT BY: SHRI BIREN GABHAWALA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-XV, MUMBAI DATED 19.11.2009. 2. REVENUE HAS RAISED THE FOLLOWING THREE GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) IS ERRED IN HOLING THAT INCOME DERIVED BY TH E ASSESSEE FROM SHARE TRANSACTIONS IS A STCG INSTEAD OF BUSINESS IN COME ASSESSED BY A.O. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THE SHARE TRANSACTIONS OF THE ASSESSEE AS INVESTMENT ACTIVITY IGNORING THE VOLUME, FREQUENCY AND MAGNITUDE OF TRANSACTIONS? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) IS CORRECT IN LAW IN RELYING ON THE JUDG EMENT IN THE CASE OF GOPAL PUROHIT VS. DCIT IN ITA NO. 4854/M/08 DATED 1 0.02.2009. 3. BRIEFLY STATED, THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF PURCHASE AND SALE OF SHARES. THE ASSESSEE HAS FILED ITS RETU RN OF INCOME ON 22.11.2006 DECLARING A TOTAL INCOME OF ` 77,57,200/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) AND WAS SELECTED FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECTION 143(2). THE ASSESSMENT WAS FIN ALLY COMPLETED ON ITA NO. 1332/MUM/2010 MS. BINITA R. KAPADIA 2 25.11.2008 BY DETERMINING THE TOTAL INCOME AT ` 77,20,400/-. WHILE DETERMINING THIS INCOME, THE A.O. HAD CHANGED THE H EAD OF INCOME. AGGRIEVED BY THIS ORDER THE ASSESSEE WENT IN APPEAL TO THE FIRST APPELLATE AUTHORITY. BEFORE THE CIT(A) IT HAS BEEN CONTENDED THAT THE ASSESSEE IS A HOUSEWIFE WHO HAS MADE SOME INVESTMENTS OUT OF HER SURPLUS FUNDS AND EARNED DIVIDEND INCOME, CAPITAL GAINS ON TRANSFER O F SHARES, APART FROM BANK INTEREST. HOWEVER, THE STCG SHOWN BY THE ASSESSEE W AS TREATED AS BUSINESS INCOME AND WAS SUBJECTED TO HIGHER RATE OF TAX. IT WAS THE CONTENTION THAT THE A.O. WITHOUT CONSIDERING THE DETAILED SUBMISSIO N MADE BY THE ASSESSEE VIDE LETTER DATED 11.06.2008 TREATED THE SHORT TERM CAPITAL GAIN DECLARED AS BUSINESS INCOME. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN MAKING INVESTMENTS IN SHARES OUT OF HER SURPLUS FUN DS AVAILABLE WITH HER FOR THE PAST MANY YEARS AND ASSESSMENTS FOR ASSESSM ENT YEARS 2004-05 AND 2005-06 WERE COMPLETED UNDER SECTION 143(3) WHEREIN THE STCG ON SALE OF SHARES WAS ACCEPTED BY THE A.O. IN A.Y. 2004-05, TH E ASSESSEE HAD EARNED STCG OF ` 19,12,814/-. SIMILARLY, IN A.Y. 2005-06 THE ASSESSE E EARNED STCG OF ` 17,46,130/-. IT WAS SUBMITTED THAT DESPITE THESE AC CEPTED FACTS, THE A.O., DURING THE YEAR UNDER APPEAL HAS CHANGED THE HEAD ARBITRARILY MERELY ON THE GROUND THAT THERE WAS A MOTIVE OF REALIZING PROFIT AND NOT TO DERIVE INCOME BY WAY OF DIVIDEND AND ALSO THE HOLDING PERI OD OF SHARES WAS FEW DAYS, WITHOUT APPRECIATING THE FACT THAT AVERAGE HO LDING PERIOD OF SHARES BY THE ASSESSEE WERE FOR 127 DAYS. IT HAS, THUS, VEHEM ENTLY BEEN CONTENDED THAT THE A.O. CANNOT CHANGE THE HEAD OF INCOME, WHI CH HAS CONSISTENTLY AND REGULARLY BEEN DECLARED BY THE ASSESSEE AND ACCEPTE D BY THE DEPARTMENT TILL A.Y. 2005-06. THE CIT(A) AFTER CONSIDERING THE SUBM ISSIONS DIRECTED THE AO TO TREAT THE INCOME AS CAPITAL GAINS ONLY BY THE FO LLOWING FINDINGS, IN PARA 6 OF HIS ORDER.. 6. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMISSI ONS OF THE APPELLANT AND ALSO GONE THROUGH THE MATERIAL BROUGH T ON RECORD AND ALSO THE ASSESSMENT ORDER. I FIND THAT THE APPELLAN T HAS BEEN AN INVESTOR IN SHARES FOR LAST MANY YEARS AND HAS HELD THESE SHARES ONLY AS AN INVESTMENT. I ALSO FIND THAT THE APPELLANT IS A HOUSEWIFE AND INVESTMENTS IN SHARES WERE MADE OUT OF THE SURPLUS FUNDS AVAILABLE WITH HER. FURTHER, FROM THE STATEMENT OF AFFAIRS AN D DETAILS AVAILABLE IN THE PAPER BOOK, I FIND THAT IN FACT THERE WERE ONLY 34 TRANSACTIONS, ITA NO. 1332/MUM/2010 MS. BINITA R. KAPADIA 3 DURING THE YEAR, OF PURCHASE AND SALE OF SHARES OF WHICH 11 TRANSACTIONS WERE PERTAINING TO THE SHARES HELD DUR ING THE EARLIER YEARS. AS PER THIS STATEMENT, THE AVERAGE HOLDING P ERIOD OF SHARES IS OF 127 DAYS BY THE APPELLANT, WHEREAS THE ASSESSING OF FICER HAS GIVEN A TABULATED FORMAT IN RESPECT OF SHAREHOLDING PERIOD AS 4 DAYS TO 35 DAYS IN RESPECT OF SIX SCRIPTS, WHICH THE APPELLANT HAS CLAIMED TO BE FACTUALLY INCORRECT, SO FAR AS HOLDING OF 4 DAYS IS CONCERNED WHICH WAS ARRIVED AT WITHOUT APPRECIATING THE FACT THAT SAID TRANSACTION HAD ARISEN DUE TO STOCK EXCHANGE UNABLE TO GIVE DELIVER Y IN TIME OF SHARES PURCHASED AND HENCE FORCED THE TRANSACTIONS TO BE C LOSED AT A CLOSING RATE OF THE DAY WHICH LED TO DIFFERENCE BETWEEN ITS COST PRICE AND AUCTION PRICE AT WHICH IT WAS SOLD, FOR NO ACTION O N THE PART OF THE ASSESSEE. THIS EXPLANATION IS HAVING SOME FORCE AND MERITS FOR ACCEPTANCE. FURTHER, I ALSO FIND THAT FOR THE EARLI ER ASSESSMENT YEARS, THE ASSESSMENTS OF WHICH WERE COMPLETED U/S. 143(3) , THE TRANSACTIONS OF SHARES WERE TREATED AS INVESTMENTS AND THE PROCE EDS AS SHORT TERM CAPITAL GAINS OR LTCG DEPENDING UPON THE PERIOD OF HOLDING. THEREFORE, THERE IS NO REASON WHATSOEVER WITH THE A .O. TO CHANGE THE OPINION WITHOUT BRINGING OUT ANY NEW AND SUBSTANTIA L FACTS. MOREOVER, THE HONBLE ITAT, A BENCH, MUMBAI IN THE CASE OF SHRI ASHWINKUMAR K. KAPADIA VS. ITO 14(3)-3, VIDE ITA NO. 7053/M/200 7 DATED 10-08- 2009, ON SIMILAR FACT AND ISSUE HAVE ALSO HELD THAT ONCE HAVING ACCEPTED THE TRANSACTIONS ARE PART OF INVESTMENT AC TIVITY IN THE EARLIER YEARS, REVENUE IS NOT ENTITLED TO TAKE A DIFFERENT VIEW IN THE SUBSEQUENT YEAR WHEN THE NATURE OF TRANSACTION IS THE SAME. T HERE IS ALSO SUBSTANTIAL FORCE IN THE ARGUMENT OF THE APPELLANT THAT THE MAGNITUDE OF INVESTMENT CANNOT BE DECISIVE FACTOR ABOUT THE NATU RE OF TRANSACTION. MOREOVER, JUST BECAUSE SOME INVESTMENTS ARE MADE FO R A SHORT PERIOD, THE SAME WILL NOT LOOSE ITS BASIC CHARACTER OF INVE STMENT. FURTHER, AS PER THE I.T. ACT, ONE YEAR IS CONSIDERED AS LONG PE RIOD FOR EQUITY INVESTMENTS. IN CASE OF ASSETS OTHER THAN SHARES, I F HELD FOR A PERIOD LESS THAN 36 MONTHS, THE SAME IS CONSIDERED A SHORT TERM ASSET BUT IN THE CASE OF SHARES THIS LIMIT IS SUBSTANTIALLY LOWE R I.E. ONLY ONE YEAR. THUS, INVESTMENTS IN SHARES MADE BY AN ASSESSEE, IF IT IS TRANSFERRED OR SOLD EVEN WITHIN 4 TO 10 DAYS THE TRANSFER OF SH ARES WILL NOT CHANGE THE CHARACTER OF INVESTMENTS. FURTHER, AS THE HONB LE ITAT, MUMBAI G BENCH IN THE CASE OF JCIT VS. GOPAL PUROHIT HAVE HE LD THAT DELIVERY BASED TRANSACTIONS SHOULD BE TREATED AS OF THE NATU RE OF INVESTMENT TRANSACTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS STCG OR LTCG DEPENDING UPON THE PERIOD OF HOLDING, EMPLOYMENT OF AN INFRASTRUCTURE, SO AS TO KEEP A TRACK OF DEVELOPMENTS IN THE SHARE MARKET CANNOT TERM AS AN INVESTMENT ACTIVITY INTO A BUSINESS ACTIVITY. IN THE CASE OF APPELLANT ALSO, THERE WAS A DELIVERY BASED TRANSACT IONS IN RESPECT OF SHARES, THEREFORE, THE PROFIT THERE FROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN AS AGAINST THE TREATMENT GIVEN BY THE A.O. AS BUSINESS INCOME. THEREFORE, I FIND THAT THE A.O. WAS NOT JUS TIFIED IN CHANGING THE HEADS OF INCOME IN THE CASE OF THE APPELLANT. ACCOR DINGLY, THE A.O. IS DIRECTED TO TREAT THE AMOUNT OF RS.77,57,875/- AS CAPITAL GAINS AND ITA NO. 1332/MUM/2010 MS. BINITA R. KAPADIA 4 NOT AS BUSINESS INCOME. THIS GROUND IS, THEREFORE , DECIDED IN FAVOUR OF THE APPELLANT. THE REVENUE IS AGGRIEVED. 4. WE HAVE HEARD THE LEARNED D.R. AND THE LEARNED A.R. 5. THE LEARNED A.R. PLACED ON RECORD THE DETAILS OF SH ORT TERM CAPITAL GAINS WHICH WAS TREATED AS BUSINESS INCOME, WHILE A CCEPTING THE LONG TERM CAPITAL GAINS OFFERED BY THE ASSESSEE AS SUCH. AS S EEN FROM THE FACTS THE ASSESSEE HAS BEEN CONSISTENTLY INVESTING AND HAS OF FERED LONG TERM CAPITAL GAINS AS WELL AS SHORT TERM CAPITAL GAINS. AS RIGHT LY HELD BY THE CIT(A), THE INTENTION OF THE ASSESSEE IS ONLY OF INVESTMENT AND HE HAS CAME TO A CORRECT CONCLUSION TREATING THE SHORT TERM CAPITAL GAIN DEC LARED BY ASSESSEE AS SUCH AFTER ANALYSING THE FACTS AND LAW. IN VIEW OF THIS, IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY PLACED ON RECORD BY THE RE VENUE, WE UPHOLD THE ORDER OF THE CIT(A). MOREOVER THE ORDER OF ITAT IN THE CASE OF GOPAL PUROHIT WAS UPHELD BY THE HONBLE BOMBAY HIGH COURT 188 TAX MAN140(BOM). ACCORDINGLY THE GROUNDS ARE REJECTED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER 2010. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH NOVEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.