DCIT, Bangalore V. Sri. Jawarilal Chauhan, Bangalore

ITA 1335/BANG/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57477 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: K Y NINGOJI RAO
• Keywords: Capital asset; Business income
• Section: 80C; 143(3); 2(14)

Judgement Text

PAGE 1 OF 9 ITA NO.133 5/BANG/2010 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NO.1335/BANG/2010 (ASST. YEAR 2006-07) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5(1), BANGALORE-27. PA NO.AAZPC3374Q VS SHRI JAWARILAL CHAUHAN, PROP.M/S DEEPAK CABLES, NO.02, BVK IYENGAR ROAD, BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING 07.02.2012 DATE OF PRONOUNCEMENT 10.02.2012 APPELLANT BY : SMT. SUSAN THOMAS JOS E, JCIT RESPONDENT BY : SHRI K Y NINGOJI RAO, C .A. O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, BANGALORE DATED 15.07.2010. THE RELEVANT ASSESSMENT YEAR IS 2006-07. 2. THE SOLITARY ISSUE THAT ARISES FOR OUR CONSIDERA TION IS WHETHER THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SUM OF RS.25,10,116/- AS INCOME FROM SHORT TERM CAPITAL GAINS AS AGAINST INCOME FROM BUSINESS DETERMINED BY THE ASSESSING OFFICER. PAGE 2 OF 9 ITA NO.133 5/BANG/2010 2 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS AN INDIVIDUAL. HE IS ENGAGED IN THE BUSINESS OF DEALING IN CABLES. FOR THE CONCERNED ASST. YEAR, RE TURN OF INCOME WAS FILED ON 19/6/2006 DECLARING A TOTAL INCOME OF RS.30,69,2 44/-. THE TOTAL INCOME INCLUDED A SUM OF RS.29,74,447/- WHICH ACCORDING TO THE ASSESSEE/APPELLANT WAS SHORT TERM CAPITAL GAINS, EARNED ON SALE OF SHA RES IN LISTED SECURITIES. IN RESPECT OF SHORT TERM CAPITAL GAINS, THE ASSESSEE H AD OFFERED THE SAME TO BE TAXED UNDER SECTION 111A OF THE ACT. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. LATER, SCRUTINY ASSESSME NT WAS INITIATED BY ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE ACT AND THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED VIDE ORDER DATED 15/10 /2008. IN THE SCRUTINY ASSESSMENT COMPLETED, THE ASSESSING OFFICER TREATED THE SHORT TERM CAPITAL GAINS TO THE EXTENT OF RS. 25,10,116/- AS INCOME FR OM BUSINESS AND BROUGHT THE SAME TO TAX AT NORMAL RATE OF TAX AND DEMANDED A TOTAL SUM OF RS.7,21,578/-. THE DETAILS OF THE INCOME DECLARED BY THE ASSESSEE/APPELLANT AND THE ASSESSMENT MADE BY THE ASSESSING OFFICER ARE AS FOLLOWS:- PARTICULARS DECLARED BY THE APPELLANT ASSESSED BY THE RESPONDENT BUSINESS INCOME: (A) DEEPAK CABLES (B) SHARE BUSINESS TOTAL BUSINESS INCOME 99,149 NIL 99,149 99,149 25,10,116 26,09,265 SHORT TERM CAPITAL GAINS: ON SALE OF SHARES IN LISTED SECURITIES 29,74,447 4,64,331 GROSS TOTAL INCOME 30,73,596 30,84,889 LESS : DEDUCTION UNDER SECTION 80C 15,627 15,627 TOTAL 30,69,244 30,69,262 PAGE 3 OF 9 ITA NO.133 5/BANG/2010 3 3.1 THE REASONING OF THE ASSESSING OFFICER IN TREA TING A SUM OF RS.25,10,116/- AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAINS IS REPRODUCED BELOW:- IN RESPECT OF TRANSACTION CARRIED ON THROUGH PANDYA SHARE BROKING LIMITED, THE ASSESSEE HAS DERIVED PRO FIT OF RS.25,10,116/-. THE ASSESSEE INITIALLY DEPOSITED RS.2,50,000/- WITH A BROKER AND THE BROKER MADE PURCHASES FOR THE ASSESSEE IN THE MONTH OF SEPTEMBE R, 2005 AND SOLD ALL THE SHARES IN THE MONTH OF OCTOBE R 2005 AND THE NET PROFIT DERIVED THERE UPON IS RS.25,10,115/-. A PERUSAL OF THE ASSESSEES BANK A CCOUNT SHOWS THE MONEY OF RS.2.50 LAKHS SENT TO THE BROKER AND THE RECEIPT OF PROFIT OF RS.25,10,116/-. THIS TRAN SACTION HAS NOT BEEN ROUTED THROUGH ASSESSEES DEMAT A/C. AFTER DISCUSSION, THE ASSESSEE AGREED THAT HIS INTE NTION IN CARRYING OUT THIS TRANSACTION WAS ONLY TO TRADE AN D EARN AND THEREFORE THIS TRANSACTION IS A BUSINESS TRANSACTION LIABLE FOR TAXATION UNDER THE HEAD INC OME FROM BUSINESS BEING TRADING IN SHARES. THE ASSESS EE AND HIS AUTHORIZED REPRESENTATIVE HAVE AGREED THAT INCO ME IS TAXABLE AS BUSINESS INCOME AND IN TAKEN OF THEIR ACCEPTANCE, THEY HAVE SIGNED THE ORDER SHEET. ACCORDINGLY, A SUM OF RS.25,10,116/- IS TAXED AS BUS INESS INCOME ON TRADING IN SHARES. 4. THE ASSESSEE BEING AGGRIEVED CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. THE FIRST APPELLATE AUTHORITY, AFTER ELABORATEL Y CONSIDERING THE ISSUE IN QUESTION, DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS:- PAGE 4 OF 9 ITA NO.133 5/BANG/2010 4 4.3 AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT THE AP PELLANT INVESTED IN CERTAIN SHARES AND TOOK DELIVERY OF THE SAME AND THEN SOLD ALL OF THEM AND THE DEALINGS WERE THR OUGH THE APPELLANTS DEMAT ACCOUNT AND THE GAIN MADE WAS RS.4,64,331/-. THE ASSESSING OFFICER ALSO ACCEPTED THE SAME AS SHORT TERM CAPITAL GAINS. THE APPELLANT AL SO PURCHASED THE SHARES IN SEPTEMBER, 2005 THROUGH M/S G R PANDYA SHARE BROKING LTD. OF MUMBAI AND THE DELIVE RY WAS RECEIVED AND SOLD IN OCTOBER, 2005 BY THE SAID BROKER THROUGH THEIR COMMON POOL DEMAT ACCOUNT. IN MY VIEW, THE INFERENCE DRAWN BY THE ASSESSING OFFICER W AS NOT CORRECT BECAUSE THE SHARES PURCHASED AND SOLD B Y THE APPELLANT THROUGH THE BROKERS COMMON POOL DEMA ND ACCOUNT HAS THE SAME EFFECT AS IF THE SAME WAS HELD BY THE APPELLANT IN HIS DEMAT ACCOUNT AND DELIVERIES T HEREOF WERE TAKEN AND GIVEN BY THE APPELLANT. EVEN ACCORDI NG TO THE BOARDS CIRCULAR NO.4/2007 DATED 15/6/2007, IT HAS BEEN CLARIFIED THAT THE TAX PAYER MAY PURCHASE SHARES FOR INVESTMENT PURPOSE AS WELL AS TRADING PURPOSE A ND NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EF FECT OF ALL THE PRINCIPLE SHOULD BE CONSIDERED AS ENVISAGED IN PARAS 10 AND 11 OF THE AFORESAID CIRCULAR. THE REA SON ASSIGNED BY THE ASSESSING OFFICER IS NOT THAT THE IN COME SHOWN BY THE APPELLANT CAN BE ASSESSED UNDER THE HEA D BUSINESS INCOME. IT IS ALSO OBSERVED THAT THE SH ARES PURCHASED IN THE MONTH OF SEPTEMBER, 2005 WERE SOLD IN OCTOBER, 2005. IT CANNOT BE SAID THAT THERE WAS FREQUENT PURCHASE AND SALE OF SHARES. 6. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 7. THE LEARNED DR SUBMITTED THAT THE CIT(A) HAS FA ILED TO APPRECIATE THE FACT THAT THE ASSESSEES REPRESENTAT IVE VIDE HIS ORDER SHEET NOTING DATED 15.10.2008 HAS SPECIFICALLY RECORDED AN D ACCEPTED TO TREAT THE INCOME OF RS.25,10,116/- AS INCOME FROM BUSINESS AN D NOT INCOME FROM SHORT PAGE 5 OF 9 ITA NO.133 5/BANG/2010 5 TERM CAPITAL GAINS. SHE FURTHER SUBMITTED THAT THE CIT(A) FAILED TO NOTICE THE ORDER SHEET RECORDED THAT THE SHARES WERE PURCH ASED FOR TO DELIVER THE SAME (SELLING) AS EARLY AS POSSIBLE AND TO EARN PROF ITS AND NOT INCLINED TO HOLD THEM AS INVESTMENTS. SHE SUBMITTED THAT THE CIT(A ) HAS FAILED TO NOTICE THE CBDTS INSTRUCTIONS DATED 15 TH JUNE, 2007 (F.NO.149/287/2005-TPL) WHICH HAS CLEARLY BROUGHT OUT THE SCENARIO UNDER WHI CH THE TREATMENT OF INCOME IN BUSINESS/TRADING OF SHARE HAS TO BE DEALT IN. THE LEARNED DR ALSO RELIED ON THE JUDGEMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT V ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P) LTD. (82 ITR 586). 8. THE LEARNED AR ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE IS A DEALER IN CABLES. IT WAS SUBMITTED THAT THE S HARES WERE PURCHASED AS INVESTMENTS AND TO THE EXTENT OF GAINS TO THE TUNE OF RS.4,64,331/-, THE ASSESSING OFFICER HAD TREATED THE SAME AS SHORT TER M CAPITAL GAINS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER ERRED IN TREAT ING THE GAINS OF RS.25,10,116/- AS INCOME FROM BUSINESS WITHOUT PROP ER APPRECIATION OF THE FACTS. IT WAS SUBMITTED THAT THESE SHARES WERE PUR CHASED THROUGH BROKER M/S G R PANDYA SHARE BROKING LTD., MUMBAI. IT WAS S UBMITTED THAT BEFORE THE SHARES COULD BE TRANSFERRED TO THE ASSESSEES D EMAT ACCOUNT, THEY WERE SOLD AND HENCE, THE DELIVERY IN RESPECT OF SHARES SO LD WAS MADE BY THE ASSESSEES BROKER ON BEHALF OF THE ASSESSEE AND THE GAINS MADE ON THAT ACCOUNT WAS RS.25,10,116/-. THE ASSESSEE ALSO PLAC ED ON RECORD A COPY OF THE BALANCE SHEET FOR THE YEAR ENDING 31/3/2006 AND CONTENDED THAT THE PURCHASE OF SHARES ARE HELD AS INVESTMENTS. AS REG ARDS THE NOTING OF THE ASSESSING OFFICER THAT THE ASSESSEE AND THE LEARNED AR HAD AGREED TO TREAT THE GAINS OF RS.25,10,116/- AS INCOME FROM BUSINESS , THE LEARNED COUNSEL PAGE 6 OF 9 ITA NO.133 5/BANG/2010 6 REITERATED THE SUBMISSIONS, WHICH ARE EXTRACTED AT PAGE 4 OF THE IMPUGNED ORDER OF THE CIT(A) (PARA 3.0). THE LEARNED COUNSE L ALSO FILED AN AFFIDAVIT OF THE ASSESSEE STATING THAT THE ASSESSEE HAD NOT A GREED FOR TREATING THE GAINS AS INCOME FROM BUSINESS. IT WAS CONTENDED TH AT THE TRANSACTIONS HAVE TO BE EXAMINED IN THE CORRECT PERSPECTIVE AND IT HA S TO BE DETERMINED WHETHER THE INCOME ARISING SHOULD BE ASSESSED AS IN COME FROM BUSINESS OR INCOME FROM SHORT TERM CAPITAL GAINS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IN THE INSTANT CASE, THE PROFIT OF RS. 25,10,116/- WAS TREATED AS INCOME FROM BUSINESS BY THE ASSESSING OFFICER PRIMAR ILY FOR THE REASON THAT THE SAID TRANSACTION WAS NOT ROUTED THROUGH ASSESSE ES DEMAT ACCOUNT AND ALSO COUPLED WITH THE FACT THAT THE ASSESSEE HAS AG REED TO TREAT THIS TRANSACTION AS A BUSINESS TRANSACTION LIABLE FOR TA XATION UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSEE ON RECEIPT OF THE ASSESSMENT ORDER, CONTESTED THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD AGREED TO TREAT THE TRANSACTION AS A BUSINESS TRANS ACTION AND FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY STATING THAT TH E TRANSACTION IN QUESTION IS NOT A TRADING TRANSACTION BUT AN INVESTMENT LIAB LE FOR TAXATION UNDER THE HEAD SHORT TERM CAPITAL GAINS. SINCE THE ASSESSE E HAD CONTESTED THE OBSERVATION OF THE ASSESSING OFFICER, WE ARE DUTY BO UND TO DECIDE THE TRUE NATURE OF THE TRANSACTION, AS WHETHER IT IS A BUSIN ESS TRANSACTION OR AN INVESTMENT AND THE GAINS OF THE SAME, WHETHER IT IS LIABLE FOR COMPUTATION UNDER THE HEADS INCOME FROM BUSINESS OR CAPITAL GAINS. AN AFFIDAVIT HAS BEEN FILED REITERATING THE SUBMISSIONS MADE BEFORE THE CIT(A). THE PAGE 7 OF 9 ITA NO.133 5/BANG/2010 7 SUBMISSION HAS BEEN EXTRACTED AT PARA 3.1, PAGE 4 O F THE IMPUGNED ORDER OF THE CIT(A). 8.1 SECTION 2(14) OF THE INCOME-TAX ACT, 1961 DEFI NES CAPITAL ASSET TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSE E, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION. THE DEF INITION OF CAPITAL ASSET DOES NOT, HOWEVER, INCLUDE STOCK-IN-TRADE HELD FOR THE PURPOSE OF BUSINESS. SECTION 111A INSERTED BY THE FINANCE ACT, 2004, RELA TES TO TAX ON SHORT- TERM CAPITAL GAINS IN CERTAIN CASES. SECTION 111A( 1) STATES WHEN THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS, ARISING FROM THE TRANSFER OF A SHORT-TERM C APITAL ASSET BEING AN EQUITY SHARE IN A COMPANY AND SUCH TRANSACTION IS CHA RGEABLE TO SECURITIES TRANSACTION TAX, THE TAX PAYABLE ON SUCH SHORT TERM CAPITAL GAINS SHALL BE AT THE RATE OF FIFTEEN PER CENT (PRIOR TO 1/4/2009 IT WAS 10%). 8.2. IN JUDGING THE CHARACTER OF SUCH TRANSACTION S SEVERAL FACTORS ARE SIGNIFICANT. IF A TRANSACTION IS RELATED TO TH E BUSINESS WHICH IS NORMALLY CARRIED ON BY THE ASSESSEE, THOUGH NOT DIRECTLY PART OF IT, AN INTENTION TO CARRY ON TRADE MAY READILY BE INFERRED. THE MAGNITUD E, THE FREQUENCY AND THE RATIO OF SALES TO PURCHASES AND THE TOTAL HOLDI NGS IS EVIDENCE FROM WHICH ONE CAN COME TO A CONCLUSION AS TO THE TRUE NATURE OF THE ACTIVITIES OF THE ASSESSEE. 8.3. IN THIS CASE, THE ASSESSEE IS NOT TRADER IN S HARES. HE IS A DEALER IN CABLES. THE PURCHASE OF SHARES IS SHOWN IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS INVESTMENTS AND NOT AS PART OF S TOCK-IN-TRADE. WE ALSO PAGE 8 OF 9 ITA NO.133 5/BANG/2010 8 NOTICED THAT PURCHASE OF SHARES BY THE ASSESSEE IS V ERY LIMITED AND THE TRANSACTIONS ARE NOT FREQUENT/REPETITIVE. AS STAT ED EARLIER, THE BALANCE SHEET FOR THE YEAR ENDING 31/3/2006 WHICH IS PLACED ON RECORD, CLEARLY MENTIONED THE PURCHASE OF SHARES AS INVESTMENTS. T HOUGH THE SHARES ARE NOT HELD BY THE ASSESSEE FOR A LONG PERIOD, IT DOES NOT CHANGE THE TRUE CHARACTER OR NATURE OF THE TRANSACTION AS ONE FROM INVESTMENT TO THAT OF BUSINESS. THE OBSERVATION OF THE ASSESSING OFFICER THAT THE PURCHASE OF SHARES THROUGH M/S G R PANDYA SHARE BROKING LTD. IS NOT INVESTED THROUGH THE ASSESSEES DEMAT ACCOUNT IS WITHOUT MUCH RELEVA NCE. THE CIT(A) HAD CATEGORICALLY FOUND THAT THE ASSESSEE HAD PURCHASED AND SOLD THE SHARES THROUGH THE BROKERS COMMON POOL DEMAT ACCOUNT. THE SHARES ARE PURCHASED AS INVESTMENTS AND THE ASSESSING OFFICER HIMSELF HA S TREATED THE GAINS MADE TO THE EXTENT OF RS.4,64,331/- AS ASSESSABLE A S SHORT TERM CAPITAL GAINS. THEREFORE, LOOKING AT THE VOLUME OF SHARE T RANSACTION, THE CONTINUITY OF THE TRANSACTION AND THE RATIO OF THE SHARES PURC HASED, IT IS EVIDENT THAT THE INTENTION OF THE ASSESSEE WAS TO MAKE AN INVEST MENT TO EARN PROFIT THEREON, THOUGH THE HOLDING OF THE SHARES IN RESPEC T OF GAINS OF RS.25,10,116/- WAS ONLY FOR A SHORT PERIOD. IN CASE THE SAID TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE TO BE THE ASSES SEES BUSINESS TRANSACTIONS AS HELD BY THE ASSESSING OFFICER, THEN THE SAID PURCHASE (RS.1,33,67,017.11) AND SALE (RS.1,61,25,133.66) OF SHARES WOULD HAVE BECOME THE PURCHASES AND SALE OF THE ASSESSEES BUSINESS A ND IN WHICH CASE THE PROVISIONS OF SECTION 44AB OF THE IT ACT WOULD HAVE BEEN APPLICABLE. IN THE INSTANT CASE, NO AUDIT UNDER SECTION 44AB OF TH E ACT WAS UNDERTAKEN. THE DEPARTMENT HAS NOT RAISED ANY OBJECTION WITH REF ERENCE TO NON- OBTAINING OF AUDIT REPORT UNDER SECTION 44AB OF THE IT ACT. PAGE 9 OF 9 ITA NO.133 5/BANG/2010 9 8.4 IN THE LIGHT OF THE AFORESAID REASONS, WE ARE OF THE VIEW THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE GAINS OF RS.25,10,116/- AS SHORT TERM CAPITAL GAINS INSTE AD OF BUSINESS TRANSACTION AS DETERMINED BY THE ASSESSING OFFICER. HENCE, WE H OLD THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DAY OF FEBRUARY, 2012. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.