ACIT 14(3), MUMBAI V. ASHWINKUMAR K. KAPADIA, MUMBAI

ITA 1333/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6182 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: SHRIMANDAR VAIDYA
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 1333/MUM/2010 ASSESSMENT YEAR- 2006-07 THE ACIT-14(3), EARNEST HOUSE, 6 TH FLOOR, NARIMAN POINT, MUMBAI-400 021 SHRI ASHWINKUMAR K. KAPADIA, BLOCK NO. 8, DEVKARAN MANSION, 2 ND FLOOR, 32, VITTALDAS ROAD, MUMBAI-400 002 PAN-AADPK 1116A (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI A.K. NAYAK RESPONDENT BY: SHRIMANDAR VAIDYA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 23.11.2009 PASSED BY THE LD. CIT(A)-25 FOR T HE ASSESSMENT YEAR 2006-07 2. THE GROUND RAISED BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) HOLDING THAT INCOME DERIVED BY THE ASSESSEE FROM SH ARE TRANSACTIONS IS A SHORT TERM CAPITAL GAINS INSTEAD OF BUSINESS INCOME ASSESSED BY A.O. 3. THE BRIEFLY STATED FACTS ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. THE ASSESS EE HAS FILED ITS RETURN OF INCOME ON 10.01.2007 DECLARING A TOTAL INCOME OF RS 61,74,578/- THE RETURN WAS PROCESSED U/S 143(1) AND WAS SELECTED FO R SCRUTINY BY ISSUE OF NOTICE U/S 143(2). THE ASSESSMENT WAS FINALLY CO MPLETED ON 25.11.2008 BY DETERMINING THE TOTAL INCOME AT RS. 6 1,74,575/-. WHILE DETERMINING THIS INCOME THE AO HAD TREATED THE SHO RT TERM CAPITAL ITA NO. 1333/MUM/2010 2 GAINS OF RS. 59,46,686/- DECLARED BY THE ASSESSEE ON THE SALE OF SHARES OF QUOTED COMPANIES, AS BUSINESS INCOME. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). IN THE APPELLATE PROCEEDINGS, THE ASSESSEE HAS CONTENDED T HAT THE ASSESSEES MAIN BUSINESS IS THAT OF A BROKER FOR MAFATLAL INDU STRIES LTD. THE BROKERAGE RECEIVED IS TREATED AS BUSINESS INCOME AN D BUSINESS IS CARRIED OUT IN THE NAME OF M/S ASHWINKUMAR RAMNIKLAL (PROP) SINCE LAST MANY YEARS. THE ASSESSEE IS BEING REGULARLY ASSESSED TO TAX AND IN ALL ASSESSMENT YEARS. THE ASSESSEES INCOME UNDER THE H EAD SHORT TERM CAPITAL GAINS HAS BEEN ACCEPTED BY THE DEPARTMENT. DURING AY 2004- 05 THE ASSESSEE CLAIMED SHORT TERM CAPITAL GAINS OF RS. 20,50,339/- IN HIS RETURN OF INCOME. THE ADDL. CIT WHILE PASSIN G ORDER U/S 143(3) FOR AY 2004-05 HAS ACCEPTED THE CLAIM OF THE ASSESSEE. THE DEPARTMENT IN ALL PREVIOUS YEARS HAS ACCEPTED SALE OF INVESTMENTS AS CAPITAL GAINS. HOWEVER FROM AY 2005-06 ONWARDS BASED ON THE MAGNIT UDE OF INVESTMENTS AS STATED BY THE AO. THE SHORT TERM CA PITAL GAINS WERE TREATED AS BUSINESS INCOME. ON IDENTICAL GROUNDS, A S FOR THE AY 2005-06, THE HONBLE ITAT HAS DECIDED THE APPEAL IN FAVOUR O F THE ASSESSEE AND TREATED THE INCOME OF SHARE TRANSACTION AS CAPITAL GAINS COPY OF ORDER IS ENCLOSED. THE ASSESSEE IS AN INVESTOR AND HOLDING INVESTMENTS SINCE LAST SEVERAL YEARS. THE ASSESSEE HAS NEVER CONVERTED T HESE INVESTMENTS INTO STOCK IN TRADE IN ANY EARLIER YEARS. THE ASSESSEE HAS ALSO TAKEN ACTUAL DELIVERY OF SHARES AND HAS NOT DONE ANY ONLINE TRAD ING OR INTRA DAY TRADING. ALL TRANSACTIONS WERE CARRIED OUT THROUGH A SPECIFIC BROKER ONLY. THE ASSESSEE HAS NEVER UTILIZED ANY BORROWED FUNDS FOR THE PURPOSE OF SHARES. THE ASSESSEE HAS NO SPECIAL KNOWLEDGE OF S HARES. THE ASSESSEE INVESTED IN FUNDAMENTALLY GOOD LISTED COMPANIES IN WHICH THE SHARES OF THOSE COMPANIES WERE PURCHASED ON THE ADVICE OF ASS ESSEES FRIENDS AND RELATIVES. NO EXPENSES WERE INCURRED BY THE ASSESS EE TO EARN SUCH INCOME. THE ASSESSEE HAD NOT PAID ANY FEES TO ANY E XPERT TO EARN SUCH ITA NO. 1333/MUM/2010 3 INCOME NOR DID HE CLAIM ANY SUCH EXPENSES AGAINST I NCOME UNDER THE HEAD CAPITAL GAINS. ON THE BASIS OF ALL THESE FACTS THE HONBLE ITAT, MUMBAI A BENCH VIDE THEIR ORDER ITA NO. 7053/M/20 07 FOR AY 2005-06 DATED 10.08.2009 HAD ALLOWED THE APPEAL OF THE ASSE SSEE IN ITS FAVOUR. THEREFORE, THE ORDER OF THE HONBLE ITAT HAVING A BINDING FORCE ON THE AUTHORITIES BELOW IT IS PRAYED THAT THE AO MAY BE DIRECTED TO TREAT THE TRANSACTIONS OF SALE OF SHARES AS SHORT TERM CAPIT AL GAINS AND NOT AS BUSINESS INCOME. 5. THE LD. CIT(A) ALLOWED THE APPEAL OBSERVING AS U NDER: I HAVE CAREFULLY CONSIDERED THE ABOVE STATED FACTS AND CONTENTIONS OF THE APPELLANT AND ALSO GONE THROUGH THE ORDER OF HONBLE ITAT IN THE APPELLANTS OWN CASE FOR AY 2005-06 AS WELL AS AOS ORDER. ADMITTEDLY AND EVIDENTLY THE AO ON THE GROUND THAT THE VOLUME AND FREQUENCY OF TRANSACTIO N ENTERED INTO IN PURCHASE AND SALE OF SHARES BY THE ASSESSEE AND THE PERIOD OF HOLDING OF SHARES FOR FEW DAYS SELLING TH EM AND THE SHARES WERE PURCHASED AND SOLD WITH A MOTIVE OF REA LIZING PROFIT AND NOT TO DERIVE INCOME BY WAY OF DIVIDEND CONCLUDED THAT THE TRANSACTIONS IN SHARES WERE OF A BUSINESS NATURE AND NOT OF SHORT TERM CAPITAL GAINS AS CLAIMED BY THE APPELLANT AND HE ALSO PLACING RELIANCE ON THE ORDER OF THE CI T(A) DATED 8.10.2007 FOR AY 2005-06 OF THE APPELLANTS OWN CAS E WHEREIN THE FINDING OF THE AO WAS CONFIRMED AND HEL D THAT ASSESSEE IS A TRADER IN SHARES AND INCOME ARISING O N PURCHASE AND SALE OF SHARES IS BUSINESS INCOME. HOW EVER WITH THE DECISION OF THE HONBLE ITAT A BENCH MUM BAI IN APPELLANTS OWN CASE FOR AY 2005-06 HAVING BEEN DEC IDED THE ISSUE IN FAVOUR OF THE APPELLANT AND ON FINDING THA T THE FACTS AND ISSUE ARE IDENTICAL FOR THE YEAR UNDER APPEAL A S WELL. I DO NOT HAVE ANY REASON FOR NOT FOLLOWING THE DECISION OF THE HONBLE ITAT (SUPRA). I FIND IT APPROPRIATE TO REPR ODUCE THE RELEVANT OPERATIVE PORTION OF THE ORDER OF THE HON BLE ITAT IN APPELLANTS OWN CASE FOR AY 2005-06 AS UNDER: WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE REGARDING NATURE OF I NCOME FROM SHARE TRANSACTIONS. THE ASSESSEE HAD DECLARED THE INCOME AS CAPITAL GAIN ON THE GROUND THAT THE SAID TRANSACTIONS WERE INVESTMENT ACTIVITIES OF THE ASSE SSEE SINCE LAST MANY YEARS. THE AUTHORITIES BELOW HOWEV ER ITA NO. 1333/MUM/2010 4 CONSIDERING THE FREQUENCY OF THE TRANSACTION AS WEL L AS THE FACT THAT THE ASSESSEE HAD NOT EANED ANY DIVIDE ND INCOME HAVE TAKEN THE VIEW THAT INCOME FROM SHARE TRANSACTIONS WAS BUSINESS INCOME. THE CASE OF THE ASSESSEE IS THAT IT HAS BEEN BUYING AND SELLING SH ARES AS PART OF INVESTMENT ACTIVITY FOR THE LAST MANY YE ARS FROM OWN SURPLUS FUNDS. IN THE EARLIER YEARS, THE INCOME FROM TRANSACTIONS DECLARED AS CAPITAL GAIN WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THE ASSESSEE HAS BEEN SELLING THE SHARES ON SOME APPRECIATION AND THE INCOME WAS DECLARED AS LONG TE RM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. WE FIND THE ARGUMENT OF THE ASSESSEE CONVINCING. THE ASSESSEE HAD BEEN SHOWING CONSISTENTLY THE INCOME FROM SHARE TRANSACTIONS AS CAPITAL GAIN MAKING IT CLEAR THE INTENTION OF THE A SSESSEE TO HOLD THE SHARES AS INVESTMENT ACTIVITY. THIS HA S BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEAR S IN THE SCRUTINY ASSESSMENT MADE. THE PATTERN THIS YE AR IS THE SAME. IN FACT AS HAS BEEN RIGHTLY POINTED OU T BY THE LEARNED AR SOME OF THE SHARES SOLD THIS YEAR HA D BEEN PURCHASED LAST YEAR WHEN IT HAS BEEN ALREADY ACCEPTED BY THE DEPARTMENT AS INVESTMENT ACTIVITY. ONCE HAVING ACCEPTED THE TRANSACTIONS ARE PART OF INVESTMENT ACTIVITY REVENUE IS NOT ENTITLED TO TAKE A DIFFERENT VIEW IN THE SUBSEQUENT YEAR WHEN THE NATU RE OF THE TRANSACTION IS THE SAME. MORE VOLUME MAGNITU DE OF THE TRANSACTIONS DOES NOT ESTABLISH THE NATURE O R TRANSACTION AS HELD BY THE TRIBUNAL IN CASE OF JANA K S. RANGWALA (11 SOT 627) THE DECISION OF TRIBUNAL IN C ASE OF GOPAL PUROHIT (20 DTR 99) AND IN CASE OF ASSESSE ES WIFE IN ITA NO. 7054/M/2003 ALSO SUPPORT THE CASE O F THE ASSESSEE. IN CASE OF THE WIFE OF THE ASSESSEE M RS. AMITA A. KAPADIA, THE PATTERN OF SHARE TRANSACTION WERE IDENTICAL. IN THAT CASE ALSO THE ASSESSEE HAD BEE N MAKING TRANSACTIONS OUT OF SURPLUS FUND AND BEEN TAKING DELIVERY OF SHARES. THE ASSESSEE HAD ALSO SHOWN THE TRANSACTION AS INVESTMENT ACTIVITY FOR LA ST SEVERAL YEARS AND THE CLAIM HAS BEEN ACCEPTED IN TH E EARLIER YEAR. THE AO HAD REJECTED THE CLAIM AND HAD TREATED THE TRANSACTIONS AS BUSINESS ACTIVITY. HOW EVER THE SAME WAS NOT UPHELD BY THE TRIBUNAL. THE SITUA TION IN THE CASE OF THE ASSESSEE IS IDENTICAL. CONSIDER ING THE ENTIRETY OF FACTS AND CIRCUMSTANCES AND THE DECISIO N OF THE COORDINATE BENCH (SUPRA) WE ARE UNABLE TO SUSTA IN ITA NO. 1333/MUM/2010 5 THE ORDER OF CIT(A). THE SAME IS THEREFORE SET ASID E AND THE CLAIM OF THE ASSESSEE IS ALLOWED. IN VIEW OF THE ABOVE FINDING OF THE HONBLE ITAT IN APPELLANTS OWN CASE FOR AY 2005-06 AND ON NOT FINDING ANY SUBS TANTIAL CHANGE IN THE FACTS AND ISSUE FOR THE YEAR UNDER APPEAL AS WELL AND CONVERSELY ON FINDING THAT THE AO BY FOLL OWING CIT(A)S ORDER FOR AY 2005-06 HAS TREATED THE STCG AS BUSINESS INCOME AND NOW THE CIT(A)S DECISION HAV ING BEEN REVERSED BY THE HON;BLE ITAT, RESPECTFULLY FOLLOWIN G THE ORDER OF THE HONBLE ITAT FOR THE YEAR UNDER APPEAL AS W ELL THE AO IS DIRECTED TO TREAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AS STCG AND NOT AS BUSINESS INCOME. THE GROU ND RAISED THEREFORE IS ALLOWED IN FAVOUR OF THE APPELL ANT. IN THE RESULT APPEAL IS ALLOWED. 6. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 7. WE HEARD BOTH THE PARTIES. THE ITAT IN ASSESSEE S OWN CASE HAS ACCEPTED THE PLEA OF THE ASSESSEE THAT THE PROFIT O N SALE OF SHARES SHOULD BE ASSESSED AS CAPITAL GAINS AS THE ASSESSEE HAS TR EATED THE SHARES AS INVESTMENTS AND THE POSITIONS HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS. THERE IS NO CHANGE IN THE CIRCUM STANCES FOR THE CURRENT YEAR FOR US TAKE A DIFFERENT VIEW. THEREFORE RESPEC TFULLY FOLLOWING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE IN ITA NO. 7053/MUM/2007 DATED 10.08.2009 FOR A.Y 2005-06, WE UPHOLD THE ORD ER OF THE LD.CIT(A) HOLDING THE PROFIT ON SALE OF SHARES AS CAPITAL GAI NS AND NOT BUSINESS INCOME. 8. IN THE RESULT THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2010 SD/- SD/- (S.V. MEHROTRA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH NOVEMBER, 2010 RJ ITA NO. 1333/MUM/2010 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1333/MUM/2010 7 DATE INITIALS 1 DRAFT DICTATED ON: 22.11.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 23.11.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______