DCIT, CIR-7(1), KOLKATA, Kolkata V. M/s Jet Age Securities Pvt. Ltd., Kolkata

ITA 1352/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0719 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH CIT LD
• Assessee Lawyers: MANOJ KHATARUKA LD
• Keywords: Business income; Rule of consistency
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BE NCH, KOLKATA BEFORE : SHRI P.M. JAGTAP,ACCOUNTANT MEMBE R AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 1352/KOL/2015 A.Y 2010-11 D.C.I.T, CIR-7(1), KOLKATA VS. M/S. JET AGE S ECURITIES PVT. LTD. PAN: AABCJ0993R [APPELLANT ] [RESPONDENT ] APPELLANT BY : SHRI KALYAN NATH, ADDL.CIT, LD. DR RESPONDENT BY : SHRI MANOJ KHATARUKA, ADVOCATE , LD.AR DATE OF HEARING : 14-09-2017 DATE OF PRONOUNCEMENT : 13-12-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DT. 20-08-2015 OF THE CIT-A, 11, KOLKATA FOR THE A.Y 2010-11. 2. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER TH E CIT-A WAS JUSTIFIED IN TREATING THE NET PROFIT ON PURCHASE A ND SALE OF SHARES AS SHORT TERM CAPITAL GAIN IN THE FACTS AND CIRCUMSTAN CES OF THE CASE. 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSEE IS A COMPANY AND ENGAGED IN THE BUSINESS OF STOCK BROKIN G, INVESTMENTS AND TRADING IN SHARES & SECURITIES. THE ASSESSEE FI LED ITS E- RETURN OF INCOME ON 14-10-2010 SHOWING TOTAL INCOME OF RS.2,0 6,85,242/-. THE ASSESSEE IS A REGISTERED MEMBER OF NATIONAL STO CK EXCHANGE (NS) & BOMBAY STOCK EXCHANGE(BSE). NOTICES U/S. 14 3(2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO WHIC H, REPRESENTING THE ASSESSEE, SHRI SUSHIL KUMAR BHARTIA, ACCOUNTANT OF THE ASSESSEE COMPANY APPEARED FROM TIME TO TIME. THE ASSESSEE CL AIMED AN AMOUNT OF RS.1,93,46,646/- AS SHORT TERM CAPITAL GA IN (STCG), DURING THE COURSE OF EXAMINATION AND VERIFICATION OF SHORT TERM CAPITAL GAIN ITA NO. 1352/KOL/2015 M/S. JET AGE SECURITIES PVT. LTD 2 THE AO ASKED THE ASSESSEE TO FURNISH THE VARIOUS DE TAILS OF SHARE TRANSACTIONS. ON PERUSAL OF THE SAME, THE AO FORMED AN OPINION THAT THE ASSESSEE PURCHASED AND SOLD VARIOUS SHARES AND ITS MAIN OBJECT IS TO MAXIMIZE ITS PROFIT BY TAKING ADVANTAGE OF THE M ARKET AND ASKED THE ASSESSEE TO EXPLAIN WHY THE SAID NET PROFIT ON SALE OF SHARES SHOULD NOT BE TREAD AS INCOME FROM TRADING ACTIVITI ES. IN REPLY, THE ASSESSEE STATED BEFORE THE AO THAT IT HAS TWO SEPAR ATE PORTFOLIOS I) INVESTMENTS PORTFOLIO AND II) OTHER IS STOCK PORTFO LIO. THE ASSESSEE WILL DECIDE AT THE TIME OF PURCHASE OF SECURITIES T O WHICH PORTFOLIO THAT WERE BROUGHT FOR. THE ASSESSEE ALSO SUBMITTED THAT IT FOLLOWED THESE TWO METHODS OF PORTFOLIO SINCE PAST SEVERAL YEARS. THE REVENUE ALSO ACCEPTED THE SAME AS SHORT TERM CAPITAL GAIN IN THE EARLIER YEARS. BUT, THE AO DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSES SEE AND HELD THAT NET PROFIT ON PURCHASE AND SALE OF SHARES OF RS. 1, 93,46,646/-AS INCOME FROM BUSINESS AND ADDED AN AMOUNT OF RS.1,93 ,46,646/- TO THE TOTAL INCOME OF THE ASSESSEE BY HIS ORDER PASSE D U/S. 143(3) OF THE ACT ON 15-03-2013. 4. BEFORE THE CIT-A, THE ASSESSEE REITERATED THE SA ME SUBMISSIONS MADE BEFORE THE AO. IN SUPPORT OF THE CONTENTION, T HE ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAWS FOR SUCH PROPO SITION THAT THE REVENUE SHALL FOLLOW THE RULE OF CONSISTENCY. 5. THE CIT-A EXAMINING THE BOOKS OF ACCOUNT AND BAL ANCE SHEET FOUND THAT THE ASSESSEE MAINTAINED TWO ACCOUNTS FOR INVESTMENTS AS WELL AS TRADING. THE ASSESSEE ALSO DISCLOSED THE IN COME DERIVED FROM BOTH PORTFOLIOS SEPARATELY. THIS METHOD HAS BEEN FO LLOWED FOR THE PAST SEVERAL YEARS OF ASSESSMENT AND, THEREFORE, ALLOWED THE GROUNDS OF APPEAL OF ASSESSEE AND TREATED THE INCOME DERIVED F ROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN. RELEVANT FINDING OF THE CIT-A IN THIS REGARD IS REPRODUCED HEREIN BELOW:- 4.4. IN THE PRESENT CASE THE APPELLANT HAS CONSIST ENTLY DISCLOSED SHARES IN ITS BALANCE SHEET BY WAY OF INVESTMENTS. THESE INVESTMENTS WERE ACCOUNTED IN THE APPELLANT'S BOOKS AS ALSO IN THE BALANCE SHEET 'AT COST' AND NO T BY FOLLOWING THE 'LOWER OF THE COST ITA NO. 1352/KOL/2015 M/S. JET AGE SECURITIES PVT. LTD 3 OR MARKET VALUE' PRINCIPLE WHICH IS APPLICABLE TO S TOCK-IN-TRADE. I FURTHER FIND THAT IN THE PAST ASSESSMENT ALSO THE ASSESSEE HAD DISCLOSED THE SHARES BY WAY OF INVESTMENTS AND INCOME DERIVED FROM TRANSFER OF SHARES WAS ALWAYS D ISCLOSED UNDER THE HEAD CAPITAL GAINS. THE APPELLANT'S DISCLOSURE OF SHARES IN ITS BOOKS BY WAY OF INVESTMENT WAS NOT DISPUTED BY THE REVENUE IN ANY OF THE PAST ASSESSME NTS. INCOME FROM TRANSFER OF SHARES COMPUTED BY THE APPELLANT AS CAPITAL GAINS WAS NEVE R ASSESSED UNDER THE HEAD BUSINESS. IN VIEW OF THIS FACTUAL BACKGROUND I FIND NO REASON ABLE BASIS FOR THE AO TO ADOPT AN ENTIRELY CONTRARY STAND IN AY 2010-2011 WHEN THERE WAS NO MATERIAL CHANGE IN FACTUAL MATRIX. 4.5. ALTHOUGH PRINCIPLE OF RES JUDICATA DOES NOT ST RICTLY APPLY TO THE TAX PROCEEDINGS; YET THE PRINCIPLE OF CONSISTENCY IS ONE OF THE JUDICIAL PRINCIPLE WHICH IS REQUIRED TO BE FOLLOWED WHEN FUNDAMENTAL FACTS PERMEATING THROUGH VARIOUS YEARS ARE SAME AND IDENTICAL. THE BOMBAY ITAT AND LATER ON THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT ( 336 ITR 28) HAVE HELD THAT WHERE IN THE PAST INCOME TAX ASSESSMENTS ASSESSEE'S DELIVERY BASED TRANSACTIONS IN SHARES WE RE CONSIDERED TO BE INVESTMENT TRANSACTIONS THEN INCOME ARISING FROM DELIVERY BASE D TRANSACTIONS WAS REQUIRED TO BE ASSESSED AS 'CAPITAL GAINS' AND NOT 'BUSINESS PROFI TS' IN AY 2005-06. IN THE CASE OF SHRI AMITABH SONTHALIA BY FOLLOWING THE PRINCIPLE OF CON SISTENCY IT WAS HELD THAT THE INCOME FROM TRANSFER OF SHARES WAS REQUIRED TO BE ASSESSED AS CAPITAL GAINS. IN THAT CASE THE ASSESSEE CARRIED SUBSTANTIAL QUANTITIES OF SHARES B Y WAY OF INVESTMENT. DESPITE LARGE VOLUME OF TRANSACTIONS IT WAS HAD HELD THAT THE ASS ESSEE WAS INVESTOR IN SHARES AND NOT DEALER IN SHARES AND THEREFORE INCOME WAS ASSESSABL E UNDER THE HEAD CAPITAL GAINS. IT WAS HELD THAT THE ACT OF PERSONAL CAPITAL BEING INV ESTED IN ACQUISITION OF SHARE AMOUNTED TO INVESTMENT ACTIVITY AND THEREFORE INCOME ON SALE OF SHARES WAS ASSESSABLE UNDER THE HEAD CAPITAL GAINS AND NOT BUSINESS PROFITS. ON FUR THER APPEAL; THE REVENUE'S APPEAL WAS DISMISSED BY THE TRIBUNAL. IN THE CASE OF SHRI AMIT ABH SONTHALIA THE DECISION OF THE IT AT WAS ALSO CONFIRMED BY THE JURISDICTIONAL CALCUTT A HIGH COURT. FACTS INVOLVED IN THE PRESENT CASE ARE PARI MATERIA WITH THESE DECIDED CA SES. RESPECTFULLY FOLLOWING THE COURT DECISIONS I DIRECT THE AO TO ASSESS THE GAIN OF RS. 1,93,46,646/- UNDER THE HEAD 'CAPITAL GAINS'. I ALSO DIRECT THE AO TO GRANT EXEMPTION TO WHICH THE ASSESSEE MAY BE ELIGIBLE IN LAW OR TO LEVY TAX AT THE CONCESSIONAL RATE AS PROV IDED IN LAW. THE APPELLANT'S APPEAL IS ACCORDINGLY TREATED AS ALLOWED. AS A RESULT GROUND NOS. 1 TO 3 OF THE APPELLANT ARE ALLOWED. 6. BEFORE US THE LD.DR RELIED ON THE ORDER OF THE A O. ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE FILED BEFORE US TWO SETS OF PAPER BOOK-NO.1 CONSISTING OF PAGES 1-44 AND PAPER BOOK NO. 2 CONSISTING OF PAGES 1-76. THE LD.AR FURTHER SUBMITS THAT THE R EVENUE HAS BEEN ACCEPTED THE SAME TREATMENT OF THE LAST SEVERAL YEA RS OF ASSESSMENT. IT WAS ALSO SUBMITTED, THE ASSESSEE EXPLAINED BY A LETTER DT. 25-02- 2013 WHY THE NET PROFIT ON SHARES SHOULD NOT BE TRE ATED AS SHORT TERM CAPITAL GAIN. BUT, THE AO WITHOUT FOLLOWING TH E PRINCIPLE OF CONSISTENCY TREATED THE INCOME ON SHARES AS BUSINE SS INCOME, WHICH IS BAD IN LAW. FOR SUCH PROPOSITION OF RULE OF CONS ISTENCY, THE LD.AR OF THE ASSESSEE REFERRED TO ASSESSMENT OF PAST YEARS F OR THE A.Y 2007- 08, 08-09 AND 2009-10, WHICH ARE AVAILABLE AT PAGES 65-76 OF THE PAPER BOOK-NO. 2 AND ARGUED THAT THE ASSESSEE HAS F OLLOWED THE SAME METHOD AND THERE WAS NO DEVIATION OF METHOD I N THE YEAR UNDER CONSIDERATION. IN SUPPORT OF THE CONTENTION, HE PLACED RELIANCE ON AN ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y 2006- 07, PLACED ON RECORD AT PAGES 62-64 OF THE PAPER BO OK NO.2 AND ITA NO. 1352/KOL/2015 M/S. JET AGE SECURITIES PVT. LTD 4 ARGUED THAT THIS TRIBUNAL DECIDED THE SAME ISSUE FO R THE A.Y 2006-07, WHEREIN IT HELD THE UNITS OF MUTUAL FUNDS SHOWN AS INVESTMENT SINCE INCEPTION ARE TO BE TREATED AS SHORT TERM CAPITAL GAIN AND REFERRED TO PARA 8 OF THE SAID ORDER, PLACED AT PAGE 62 OF THE PAPER BOOK NO. 2. THE LD. AR SUBMITS THAT THE ASSESSEE FOLLOWED CONS ISTENTLY THE SAME IN THE LAST SEVERAL YEARS AND THE SAME SHOULD BE A CCEPTED BY THE REVENUE FOR THE A.Y UNDER CONSIDERATION ALSO. THE L D.AR OF THE ASSESSEE PLACED HIS RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AMITABH SONTHALIA IN GA NO. 2877 OF 2013, PLACED AT PAGES 3-4 OF THE PAPER BOOK NO.1. 7. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT DISPUTED THAT TREATMENT OF INCOME FROM SALE OF SHARES FROM INVESTMENT PORTFOLIO IS SHORT TERM CAPI TAL GAIN FROM A.Y 2006-07 TO 2009-10. WE FIND THAT IN THE A.Y 2006-07 THIS TRIBUNAL HELD THAT THE SAID INCOME IS NOT BUSINESS INCOME, D IRECTED THE AO TO TREAT THE SAME AS SHORT TERM CAPITAL GAIN. THEREBY THE REVENUE HAS BEEN FOLLOWING THE SAME FROM A.Y 2007-08 TO 2009-10 , WHICH ARE EVIDENT FROM PAGES 65-75 OF THE PAPER BOOK-NO. 2. W E FURTHER FIND THAT THE SIMILAR ISSUE WAS DISPOSED BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AMITABH SONTHALIA SUPRA, WHEREIN IT WAS HELD THAT THERE IS DISTINCTION BETWEEN THE INVESTMENT A ND STOCK IN TRADE. THE INCOME ARISES OUT OF INVESTMENT HAS TO BE TREA TED AS INCOME FROM CAPITAL GAIN. IN THIS REGARD, WE MAY REFER TO THE FOLLOWING OBSERVATION OF THE HONBLE HIGH COURT OF CALCUTTA, AS BELOW:- WE HAVE HEARD BOTH THE PARTIES AND ARE OF THE OPIN ION THAT NO INTERFERENCE IS CALLED FOR. THE TRIBUNAL IN ITS ORDER UNDER CHALLENGE HELD, INT ER ALIA, AS FOLLOWS: ' ONCE THIS IS AN ESTABLISHED POSITION, THAT ASSESS EE MAINTAINED THE DISTINCTION IN BOOKS OF ACCOUNTS BETWEEN HIS INVESTMENTS AND STOCK IN TR ADE AND ALSO MAINTAINED DISTINCTION OF SHORT TERM INVESTMENTS AS WELL AS LONG TERM INVE STMENT AND SUCH INVESTMENT WERE ACCEPTED BY REVENUE IN EARLIER YEARS ALL LONG, NOW THEY CANNOT TAKE U-TURN AND CHANGE THE HEAD OF INCOME WITHOUT ANY BASIS'. MR. BHOWMICK, LEARNED ADVOCATE APPEARING IN SUPPORT OF THE APPEAL SUBMITTED THAT THE APPEAL PREFERRED BY THE REVENUE WAS DISMISSED BY TH E TRIBUNAL MERELY BECAUSE THE INCOME IN THE PAST HAD BEEN TREATED TO HAVE ARISEN OUT OF INVESTMENT RATHER THAN A BUSINESS INCOME. MR. MURARKA, LEARNED ADVOCATE APPE ARING FOR THE ASSESSEE SUBMITTED THAT ONE OF THE REASONS ASSIGNED BY THE TRIBUNAL IS THAT THE INCOME HAD EARLIER BEEN TREATED TO HAVE ARISEN OUT OF INVESTMENTS BUT THE O THER REASON GIVEN BY THE TRIBUNAL IS THAT THE ASSESSEE HAS ALWAYS MAINTAINED A DISTINCTI ON IN ITS BOOKS OF ACCOUNTS BETWEEN ITA NO. 1352/KOL/2015 M/S. JET AGE SECURITIES PVT. LTD 5 THE INVESTMENTS AND STOCK IN TRADE AND HAS, THEREFO RE, LED APPROPRIATE EVIDENCE TO SHOW WHICH PART OF THE INCOME AROSE OUT OF INVESTMENTS A ND WHICH PART OF THE INCOME AROSE OUT OF THE BUSINESS. HE DREW OUR ATTENTION TO THE J UDGMENT IN THE CASE OF COMMISSIONER OF INCOME TAX, CALCUTTA VS. ASSOCIATED INDUSTRIAL D EVELOPMENT PVT. LTD. REPORTED IN 82 ITR 586 WHEREIN THE APEX COURT HELD AS FOLLOWS: ' WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOW LEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE I N A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DIS TINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT'. MR. MURARKA SUBMITTED THAT THE ASSESSEE HAS DULY DI SCHARGED HIS BURDEN BY PROVING THAT IT HAS ALWAYS MAINTAINED A DISTINCTION BETWEEN THE INVESTMENT AND THE STOCK-IN-TRADE. THE REVENUE WAS NOT IN A POSITION TO FIND ANY FAULT WITH THE EVIDENCE ADDUCED BY THE ASSESSEE. HE SUBMITTED THAT THE TRIBUNAL IN THE CIR CUMSTANCES HAD NO OPTION, BUT TO DISMISS THE APPEAL. 8. FURTHER, WE MAY REFER TO THE FINDING OF THE TRIB UNAL IN ASSESSEES ON CASE FOR THE A.Y 2006-07 AND RELEVANT PORTION AT PARA NO. 8, WHICH IS REPRODUCED HEREIN BELOW:- 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAR EFUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT TH AT THE ASSESSEE HAS SHOWN THE SHARES AS WELL AS THE UNITS OF THE MUTUAL FUND AS INVESTME NTS SINCE FROM THE INCEPTION AND FURTHER DECLARED THE INCOME FROM SALE OF SUCH SHARE S EITHER LONG- TERM CAPITAL GAINS OR SHORT-TERM CAPITAL GAINS DEPENDING UPON THE PERIOD OF HOLDING, WE FIND NO JUSTIFICATION ON THE PART OF THE AO TO TREAT THE SHORT-TERM CAPITAL GAINS ARISING TO THE ASSESSEE AS BUSINESS INCOME, THOUGH THE SAID SHARES OF UNITS OF THE MUTUAL FUNDS ARE SHOWN BY THE ASSESSEE AS INVESTMENT. THEREFORE, WE FIND NO INFIR MITY IN THE ORDERS OF THE LD. CIT(A) IN DIRECTING THE AO TO TREAT THE SHORT-TERM CAPITAL GA INS INSTEAD OF BUSINESS INCOME. 9. IN VIEW OF OUR ABOVE DISCUSSION AND THE FINDINGS OF THE HONBLE HIGH COURT IN THE CASE OF SUPRA AND THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y 2006-07, WE FIND THAT THE CIT-A WAS JUSTIFIED IN TREATING THE NET PROFIT ON PURCHASE AND SALE OF SHA RES AS SHORT TERM CAPITAL GAIN. THEREFORE, THE GROUND RAISED BY THE R EVENUE ON THIS ISSUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 3-12-2017 SD/- SD/- P.M. JAGTAP S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :13 -12-2017 ITA NO. 1352/KOL/2015 M/S. JET AGE SECURITIES PVT. LTD 6 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/DEPARTMENT: THE DCIT, CIR-7(1), KOLKATA P-7 CHOWRINGHEE SQUARE, 5 TH FLOOR, ROOM NO. 15, KOLKATA-69. 2 RESPONDENT/ASSESSEE: M/S. JET AGE SECURITIES PVT. L TD 804, SUBHAM, 1, SAROJINI NAIDU SARANI, KOLKATA 17 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER SR.P.S, HEAD OF OFFICE ITAT KOLKATA