DCIT 14(2), MUMBAI V. BANARASILAL HANUMANDAS, HUF, MUMBAI

ITA 1372/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8482 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 12-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI R S SYAL, AM & SHRI VIJAY PAL RAO, JM ITA NO.1372/MUM/2010 (ASST YEAR 2006-07) THE ASST COMMR OF INCOME TAX 14(2), MUMBAI VS M/S BANARASILAL HANUMANDAS HUF UDYOG BHAVAN, 1 ST FLOOR ROOM NO.110, GOREGAON (E) MUMBAI63 (APPELLANT) (RESPONDENT) PAN NO. AAAHB0597B ASSESSEE BY SHRI HARIOM TULSYAN REVENUE BY SHRI RAJNISH BURMAN DT.OF HEARING 12 TH NOV 2012 DT OF PRONOUNCEMENT 14 TH .NOV 2012 PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20.11.2009 OF THE COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASS ESSMENT YEAR 2006-07. 2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN T HIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN HOLDING THAT INCOME DERIVED BY THE ASSESSEE FROM SHARE TRANSACTIONS IS STCG & LTCG INSTEAD OF BUSINESS INCOME ASSESSED BY ASSES SING OFFICER . 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) WAS JUSTIFIED IN HOLDING THE SHARE TRANSACTIONS OF THE A SSESSEE AS INVESTMENT ACTIVITY IGNORING THE VOLUME, FREQUENCY AND MAGNITUDE OF TRAN SACTIONS? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A) IS CORRECT IN LAW IN RELYING ON THE JUDGEMENT IN THE CASE OF GOPAL PUROHIT VS. DCIT IN ITA NO.4854/M/08 DATED 10/2/09. 4. FOR THESE AND OTHER REASONS THAT MAY BE URGED AT T HE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER OF CIT(A) BE QUASHED AND THA T OF THE ASSESSING OFFICER RESTORED. ITA NO. 1372/MUM/2010 BANARASILAL HANUMANDAS HUF . 2 3 THE ONLY ISSUE ARISES IN THE APPEAL OF THE REVENU E IS WHETHER THE SURPLUS ON PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS IS TO BE TREATED AS LONG TERM/SHORT TERM CAPITAL GAINS AS CLAIMED BY THE ASSESSEE OR BU SINESS INCOME AS ASSESSED BY THE ASSESSING OFFICER. 3.1 THE ASSESSEE HAS SHOWN A LOSS FROM BUSINESS OF ` 3,55,202/-; SHORT TERM CAPITAL GAIN OF ` 10,08,925, LONG TERM CAPITAL GAIN OF ` 51,79,578/-; OTHER CAPITAL GAIN OF ` 9,17,987/- AND INCOME FROM OTHER SOURCES OF ` 3,465/-. THE ASSESSING OFFICER OBSERVED IN THE ASSESSMENT ORDER THAT; (I) THE HUGE VOLUME OF SHARES HAVE BEEN PURCHASED AND SOLD BY THE ASSESSEE HIMSELF; (II) T HE FREQUENCY OF TRANSACTION IS HIGH; (III) THE HOLDING PERIOD OF SHARES IN SOME OF THE TRANSACTION IS ONLY ONE MONTH AND (IV) THERE IS REGULARITY IN THESE TRANSACTIONS AS THE ASSESSEE HAS BEEN CARRIED SUCH TRANSACTIONS IN THE EARLIER YEARS AS WELL AS IN S UBSEQUENT YEARS. THEREFORE, AFTER CONSIDERING THE VOLUME, FREQUENCY, CONTINUITY AND R EGULARITY OF THE TRANSACTIONS OF PURCHASE AND SALE IN SHARES AND MUTUAL FUNDS, THE A SSESSING OFFICER HELD THAT THE ACTIVITY OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS IN REALITY REPRESENTS TRADE OR BUSINESS AND ACCORDINGLY, THE PROFIT FROM WHICH ARE ASSESSABLE UNDER THE HEAD BUSINESS INCOME. 3.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) ALLOWED THE CLAIM OF THE ASSESSEE AFTER TAKING NOTE OF THE FACT THAT THE ASSESSEE IS PURCHASING AND SELLING SHARES AS PART OF INVESTMENT ACTIVITY FOR LAST MANY YEARS FROM ITS OWN SURPLUS FUNDS AND THE INVESTMENT MADE IN SHARES ARE ACCEPTED BY T HE ASSESSING OFFICER IN THE EARLIER YEARS AS CAPITAL GAIN. THE ASSESSEE HAS SH OWN THE INVESTMENT AT THE END OF THE YEAR AT COST PRICE AND NOT TREATED THE SAME AS STOCK-IN-TRADE. ITA NO. 1372/MUM/2010 BANARASILAL HANUMANDAS HUF . 3 4 BEFORE US, THE LD DR HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE HUGE VOLUME OF SHARES PURCHASED AND SOLD BY THE ASSESSEE, THE FREQUENCY OF TRANSACTIONS AS WELL AS REGULARITY IN THE TRANSACTIONS CLEARLY SHOWS THAT THE ASSESSEE IS DOING THE ACTIVITY OF PURCHASE AND SALE WITH THE INTENTION TO EARN THE PROFIT AND NOT FOR ENHANCEMENT OF THE VALUE OF THE INVESTMENT. 4.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE H AS SUBMITTED THAT FOR THE ASSESSMENT YEAR S 2004-05 AND 2005-06, THE ASSESSIN G OFFICER HAS ACCEPTED THE CAPITAL GAIN ARISING FROM PURCHASE AND SALE OF SHAR ES AND MUTUAL FUND WHILE FRAMING THE SCRUTINY ASSESSMENT U/S 143(3). HE HAS ALSO RE FERRED THE ASSESSMENT ORDER FOR THE AY 2009-10 AND SUBMITTED THAT IN THE SCRUTINY ASSES SMENT U/S 143(3), THE ASSESSING OFFICER HAS ALSO ACCEPTED THE CLAIM OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10. HE HAS SUPPORTED THE ORDER OF THE COMMISSIONER OF I NCOME TAX(APPEALS) AND SUBMITTED THAT WHEN THERE IS NO MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION AS COMPARED TO THE EAR LIER YEARS AND SUBSEQUENT YEAR, THEN THE CLAIM OF THE ASSESSEE CANNOT BE DENI ED BY TAKING CONTRARY VIEW BY THE ASSESSING OFFICER. THE LD AR HAS POINTED OUT THAT THE ASSESSEE HAS USED ITS OWN SURPLUS FUNDS FOR THE PURPOSE OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS AND NOT USED ANY BORROWED FUNDS. THE HOLDING PERIOD OF THE SHARES RESULTING STCG AS NOTED BY THE COMMISSIONER OF INCOME TAX(APPEALS) IS 50 TO 300 DAYS WHICH SUGGEST THAT THE INTENTION OF THE ASSESSEE IS NOT TO EARN P ROFIT BUT THE INVESTMENT FOR ITS APPRECIATION IN THE VALUE. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FACT THAT FOR T HE ASSESSMENT YEARS 2004-05 AND 2005-06 AS WELL AS ASSESSMENT YEAR 2009-10, THE ASS ESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE REGARDING CAPITAL GAIN ARISIN G FROM THE PURCHASE AND SALE OF ITA NO. 1372/MUM/2010 BANARASILAL HANUMANDAS HUF . 4 SHARES AND MUTUAL FUNDS. IT IS ALSO NOT DISPUTED T HAT THE ASSESSEE HAS UTILISED ITS OWN SURPLUS FOR THE PURCHASE AND SALE OF SHARES AND MUT UAL FUND TRANSACTIONS. THEREFORE, THERE IS NO MATERIAL CHANGE IN THE FACTS AND CIRCUM STANCES OF THE CASE AND PARTICULARLY ON THIS ISSUE IN THE YEAR UNDER CONSID ERATION FROM THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEARS. THE COMMISSIONER OF IN COME TAX(APPEALS) HAS CONSIDERED THE RELEVANT FACTS AND DECIDED THE ISSUE IN PARA 6 AS UNDER: 6. I HAVE CAREFULLY CONSIDERED FACTS AND SUBMISSIONS AND ALSO GONE THROUGH THE MATERIAL BROUGHT ON RECORD AS WELL AS ORDER OF THE AO. ADMITTEDLY AND EVIDENTLY, THE APPELLANT DURING THE YEAR UNDER APPEAL , DECLARED SHORT TERM CAPITAL GAIN (STCG) OF RS. 10,08,925/- AND LONG T ERM CAPITAL GAIN (LTCG) OF RS. 51,79,578/- FROM SALE OF SHARES AND MUTUAL FUN DS ETC. THE ASSESSING OFFICER, ON- THE GROUND THAT SHARES HAVE BEEN PURCHAS ED AND SOLD IN HUGE VOLUME AND THE FREQUENCY OF TRANSACTION IS ALSO HIGH , HELD THE INCOME FROM THE TRANSACTION OF PURCHASE AND SALES OF SHARES AS TRA DING ACTIVITY AND BUSINESS INCOME AGAINST THE CLAIM OF THE APPELLANT TO BE OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN. THE APP ELLANT IN THE ABOVE SUBMISSION HAS VEHEMENTLY CONTENDED THAT IT HAS BEE N PURCHASING AND SELLING SHARES AS PART OF INVESTMENT ACTIVITY FOR TH E LAST MANY YEARS FROM ITS OWN SURPLUS FUNDS AND THE INVESTMENT MADE IN SHARES ARE NO T OUT OF ANY BORROWED FUNDS. IN THE EARLIER YEARS, SUCH TRANSACTIONS HAD B EEN DECLARED AS CAPITAL GAIN WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT EVE N WHEN THE ASSESSMENTS WERE COMPLETED U/S. 143(3). THE APPELLA NT HAS BEEN SELLING THE SHARES ON SOME APPRECIATION AND INCOME WAS DECLARED AS LTCG OR STCG DEPENDING UPON THE PERIOD OF HOLDING AND THE PERIOD OF HOLDING DURING YEAR UNDER APPEAL IS ALSO APPROXIMATELY OF 50,-300 DAYS. IT HAS FURTHER BEEN CLAIMED THAT THE VOLUME AND FREQUENCY OF TRANSACTION DURING THE YEAR IS ALSO NOT HUGE AND HIGH AS MADE OUT BY THE ASSESSING OFFI CER. THE INVESTMENTS LYING WITH THE APPELLANT AT THE END OF THE YEAR HAD UNDISPUTEDLY BEEN RECORDED AT COST PRICE. EVEN THE ASSESSING OFFICER , WHO TREATED THE INVESTMENTS AS TRADING BUT HAS NOT TREATED, THE INVE STMENTS LYING AT THE END OF THE YEAR, AS STOCK IN TRADE AND VALUED THE SAME AT C OST AS INVESTMENT. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN CONVERTING THE INCOME FROM CAPITAL GAINS TO BUSINESS INCOME. I FIND CONSIDERABL E FORCE IN THESE CONTENTIONS OF THE APPELLANT WHICH ARE BASED ON FACT S OF THE APPELLANTS CASE. THE APPELLANT HAD BEEN SHOWING CONSISTENTLY T HE INCOME FROM SHARE TRANSACTIONS AS CAPITAL GAIN MAKING IT CLEAR THE INT ENTION OF THE APPELLANT TO HOLD THE SHARES AS INVESTMENT ACTIVITY. THIS HAS BEE N ACCEPTED BY THE ASSESSING OFFICER IN THE EARLIER YEARS WHILE COMPLETIN G THE SCRUTINY ASSESSMENTS. THE PATTERN THIS YEAR IS THE SAME AND TH ERE IS NO SUBSTANTIAL CHANGE IN THE FACTS. IN FACT, IT HAS ALSO BEEN POIN TED OUT BY THE AR OF THE APPELLANT THAT MOST OF THE SHARES SOLD THIS YEAR HAS BEEN PURCHASED LAST YEAR WHEN IT HAS BEEN ALREADY ACCEPTED BY THE DEPARTMENT AS INVESTMENT ACTIVITY. ONCE HAVING ACCEPTED THE TRANSACTIONS AS P ART OF INVESTMENT ACTIVITY, THE ASSESSING OFFICER IS NOT ENTITLED TO T AKE A DIFFERENT VIEW IN THE ITA NO. 1372/MUM/2010 BANARASILAL HANUMANDAS HUF . 5 SUBSEQUENT YEAR, WHEN THE NATURE OF TRANSACTION IS T HE SAME. MERELY VOLUME /MAGNITUDE OF THE TRANSACTION DOES NOT ESTABLISH TH E NATURE OF TRANSACTION AS HELD BY THE HONBLE ITAT IN THE CASE OF JANAK S. RA NGWALA (11 SOT 627). FURTHER, THE RELIANCE PLACED BY THE APPELLANT ON THE DECISION OF HONBLE ITAT MUMBAL IN THE CASE OF GOPAL PUROHIT ( 20 DTR 99) ALS O SUPPORT THE CASE OF THE APPELLANT. CONSIDERING THE ENTIRETY OF FACTS AND CIRC UMSTANCES AND THE DECISION OF THE HONBLE ITAT, MUMBAI (SUPRA), I FIN D THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE STCG AND LTCG AS I NCOME FROM BUSINESS. ACCORDINGLY, HE IS DIRECTED TO TREAT THE SAME AS SHO RT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS DECLARED BY THE APPELLANT . THIS GROUND IS THEREFORE, DECIDED IN FAVOUR OF THE APPELLANT. 5.1 AS IT IS CLEAR FROM THE RECORDS THAT THE ASSESS ING OFFICER HAS TREATED THE LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAI N AS BUSINESS INCOME ON THE GROUND THAT THE VOLUME IS HUGE, FREQUENCY IS HIGH A ND THERE IS A REGULARITY IN THE TRANSACTIONS AS THE ASSESSEE IS DOING THIS ACTIVITY OF PURCHASE AND SALE FROM EARLIER YEARS AND ALSO CONTINUED IN THE SUBSEQUENT YEAR. BU T THIS OBSERVATIONS OF THE ASSESSING OFFICER ITSELF SHOWS THAT THE ASSESSEE HA S BEEN CARRIED ON THE ACTIVITY OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS IN SIM ILAR MANNER IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEARS. 5.2 THUS, IN VIEW OF THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. GOPAL PUROHIT REPORTED IN 336 ITR 287. WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, THEN THE ASSESSING OFFICER CANNOT TAKE A CONTRARY VIEW WHEN THE CLAIM OF THE ASSESSEE HAS BE EN ACCEPTED IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEAR. THEREFOR E, AS PER THE RULE OF CONSISTENCY AND UNIFORMITY ONCE THE ASSESSING OFFICER HAS ACCEP TED THE CLAIM OF THE ASSESSEE IN THE SCRUTINY ASSESSMENT ON THE SAME FACTS AND CI RCUMSTANCES THEN THE SAME CANNOT BE DENIED IN THE SUBSEQUENT YEAR UNTIL AND U NLESS THERE IS A MATERIAL CHANGE WHICH WARRANTS A CONTRARY VIEW. ITA NO. 1372/MUM/2010 BANARASILAL HANUMANDAS HUF . 6 5.3 EVEN OTHERWISE ON MERITS, WHEN THE ASSESSEE US ING ITS OWN FUNDS, THE HOLDING PERIOD REGARDING STCG IS FROM 50 TO 300 DAYS AS NO TED BY THE LD COMMISSIONER OF INCOME TAX(APPEALS), THE SHARES SHOWN AS AN INVEST MENT AND VALUED AT COST AT THE END OF THE YEAR IN THE BALANCE SHEET AND SOME OF TH E SHARES SOLD DURING THE YEAR GIVING RISE TO THE CAPITAL GAIN PURCHASED IN THE E ARLIER YEARS SHOWN AS INVESTMENT AND ACCEPTED BY THE ASSESSING OFFICER IN THE SAID Y EAR, THEN THE SAME CANNOT BE TREATED AS STOCK IN TRADE. MERELY BECAUSE THE VOLU ME IS HIGH AND THE ASSESSEE IS DOING THE PURCHASE AND SALE OF SHARES ACTIVITY IN T HE EARLIER YEAR AND IN THE SUBSEQUENT YEAR, DOES NOT LEAD TO A CONCLUSION THAT THE ACTIVITY OF THE ASSESSEE IS TRADING IN SHARES AND NOT INVESTMENT. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE COMMISSIONER OF INCO ME TAX(APPEALS) IN ACCEPTING THE CLAIM OF THE ASSESSEE AND HELD THAT THE SURPLUS ARI SEN FROM THE SALE AND PURCHASE OF SHARES AND MUTUAL FUNDS IS CAPITAL GAIN AND NOT BUS INESS INCOME. 6 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 TH , DAY OF NOV 2012 SD/- SD/- ( R S SYAL ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 14 TH , NOV 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI