M/s. Geeta Devi Gaggar, Hyderabad V. The JCIT, Range - 10, Hyderabad

ITA 1380/HYD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69984 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Capital asset; Business income
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1380/HYD/2010 ASSESSMENT YEAR : 2006-07 M/S. GEETA DEVI GAGGAR SECUNDERABAD PANAEYPG0863M JCIT, RANGE-10 HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI CP RAMASWAMY REVENUE BY SHRI B. YADAGIRI DATE OF HEARING 24-12-2013 DATE OF PRONOUNCEMENT 27-12-2013 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS APPEAL BY ASSESSEE AGAINST THE ORDER OF THE CIT(A)-VI, HYDERABAD DATED 24.08.2010. THE ASSESSEE IS CONTESTING THE ISSUE OF TREATING THE SHORT TERM CAP ITAL GAIN RECEIVED BY THE ASSESSEE AS BUSINESS INCOME. THE ASSESSEE HAS RAISED THREE MAIN GROUNDS ON THE ISSUE WHICH ARE AS UNDER : 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TREATING THE SHORT-TERM CAPITAL GAIN AS BUSINESS INCOME. SHE OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO TAX THE SHORT-TERM CAPITAL GAINS EARNED ON PURCHASE AND SALE OF SHARES ONLY IN TERMS OF SECTION 111A. 2 ITA.NO.1380/HYD/2010 MS. GEETA DEVI GAGGAR, SECUNDERABAD 3. THE LEARNED CIT(A) GROSSLY ERRED IN OBSERVING THAT FOR AN INVESTMENT NO RISK IS SEEN AND IGNORED THE SPEECH OF THE FINANCE MINISTER WHILE MOVING THE AMENDMENT FOR INSERTION OF SECTION 111A BY FINANCE (NO.2) ACT, 2004 AND CONSEQUENTLY ERRED IN CONFIRMING THE CONCLUSION OF THE ASSESSING OFFICER. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT WAS IN THE BUSINESS OF STEEL TRADE ON A FULL TIME BASIS AND CONSEQUENTLY WAS NOT IN A POSITION TO CARRY ON THE BUSINESS OF DEALING IN SHARES. SHE FURTHER FAILED TO APPRECIATE THAT THE APPELLANT WAS ONLY INVESTOR IN SHARES EITHER LONG TERM OR SHORT TERM. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILE D HER RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-0 7 ON 23.10.2006 ADMITTING A TOTAL INCOME OF RS.49,57,580 /-. THE ASSESSEE IS A PROPRIETOR AND ENGAGED IN THE BUS INESS OF TRADING IN IRON & STEEL. THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.35,35,263/- AS SHORT TERM CAPITAL GAIN S ON SALE OF SHARES ON THE TRANSACTIONS OF FUTURES AND OPTIONS AND EQUITY SHARES. 3. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE AS SHORT TERM CAPITAL GAINS UNDER SECTION 111A OF THE I.T. ACT AND NOTED THAT THE ASSESSEE IS A T RADER AND NOT AN INVESTOR IN SHARES ON THE FACT THAT TH E ASSESSEE PURCHASED THE SHORT TERM CAPITAL ASSET NOT WITH AN INTENTION TO HOLD FOR A LONG PERIOD WITH A MOTIV E TO DERIVE A DIVIDEND. THE ASSESSING OFFICER ALSO LAID EMPHASIS WHILE DECIDING THE CASE OF THE ASSESSEE AS A TRADER ON BOARDS CIRCULAR 4/2007 DATED 15.06.2007 3 ITA.NO.1380/HYD/2010 MS. GEETA DEVI GAGGAR, SECUNDERABAD STATING THAT BENEFIT U/S. 111A IS TO BE DETERMINED ON THE BASIS OF THE SHORT TERM CAPITAL ASSET WHETHER IS BE ING PURCHASED FOR INVESTMENT OR FOR TRADING PURPOSES. O N THE BASIS OF THIS OBSERVATION, THE ASSESSING OFFICER RE JECTED THE CLAIM OF THE ASSESSEE U/S.111A AND TREATED THE SHORT TERM CAPITAL GAINS ON SHARES AND PROFIT ON FUTURES AND OPTIONS AS BUSINESS INCOME. 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT SHE IS PROPRIETOR OF M/S HYDERABAD STEEL TRADERS AN D HAS NOT TRADED IN THE SHARES BUT CONSIDERED AS INVESTME NTS ONLY AND SHE RELIED ON THE VARIOUS PRINCIPLES TO SU BMIT THAT HER INTENTION WAS ONLY TO INCREASE THE GAINS B Y REINVESTING IN THE SHARES AND THAT SHE HAS NOT BORR OWED FUNDS AND HAS NOT PAID ANY INTEREST AND THE CONDITI ONS FOR TRADING AS TRADER DOES NOT APPLY TO HER. THE LE ARNED CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTIONS AND DISMISSED THE APPEAL BY HOLDING AS UNDER : 6.0 I HAVE GONE THROUGH THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE APPELLANT. THE MAIN REASON THAT THE ASSESSING OFFICER DELVED UPON FOR CONCLUDING THE CAPITAL GAINS AS BUSINESS INCOME IS BASED ON FREQUENCY OR PERIOD OF HOLDING AND VOLUME OF SHARES. IT IS OBSERVED THAT THE APPELLANT FOR THE FIRST TIME HAS SHOWN SHORT TERM CAPITAL GAINS FROM TRADING 'FUTURES & OPTIONS (F & 0)' WHICH ARE DERIVATIVE IN NATURE. SECTION LLLA DESCRIBES THE SHORT TERM CAPITAL ASSET AS BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND. THE APPELLANT SUBMITTED THAT THE TRANSACTIONS IN INVESTMENT OF SHARES YIELDING GAINS WAS DONE IN THE CHARACTER OF AN INVESTOR. HOWEVER, ON PERUSAL OF EVIDENCE ON RECORD SHOWS THAT THE APPELLANT FOR THE FIRST TIME HAS DECLARED CAPITAL GAINS WHICH ARE SHORT TERM AND THIS FEATURE IS NOT THERE IN THE EARLIER YEARS. A TRADER IS ONE WHO 4 ITA.NO.1380/HYD/2010 MS. GEETA DEVI GAGGAR, SECUNDERABAD WOULD INDULGE IN QUICK TRANSACTIONS WITH A MOTIVE TO EARN PROFITS WITHIN A SHORT TIME. IT IS ALSO SEE N THAT THE ASSESSING OFFICER HAS CATEGORICALLY MENTIONED IN HIS ORDER THAT THE APPELLANT DID NOT HOLD ON TO HUGE PURCHASES MADE AND INSTEAD RE- ENTERED INTO THE SAME SCRIPTS. THIS CONTENTION OF T HE ASSESSING OFFICER HAS BEEN CLEARED IN THE SUBMISSIONS OF THE APPELLANT WHEREIN IT WAS STATED THAT THE GAINS WERE REINVESTED AS THE APPELLANT DID NOT HAVE A CAPITAL AND IT WAS DONE, FOR CAPITAL APPRECIATION. IT IS ALSO SEEN THAT THE APPELLANT DE ALT IN FUTURES & OPTIONS (F & 0) AND EARNED RS.5,97,412/- FROM THEM AND THE APPELLANT IN HIS SUBMISSIONS STATED THAT SUCH A TRANSACTION HAS ALREADY BEEN DISCLOSED AND IS TAXABLE UNDER THE HEAD 'BUSINESS INCOME'. THE ASSESSING OFFICER HAS MAINLY BASED THE ASSESSMENT ORDER ON THE FACT THAT THE APPELLANT SOLD THE SHORT TERM CAPITAL ASSET IN A VERY SHORT SPAN OF TIME WITH A MARGINAL PROFIT AND FREQUENT PURCHASE AND SALE OF SHARES. FURTHER, THE ASSESSING OFFICER HAS DRAWN FORCE FOR MAKING SUCH AN ADDITION ON THE BASIS OF CIRCULAR NO.4/2007 DT.15-6-2007 WHEREIN FOR CLAIMING BENEFIT U/S.LLLA THE ISSUED HAS TO BE DETERMINED WHETHER A SHORT TERM CAPITAL IS PURCHASED WITH AN INTENTION OF HOLDING AS AN INVESTMENT OR FOR TRADING PURPOSES. HE THEREFORE CONCLUDED THAT IT IS NOT AN INVESTMENT BUT AN INTENTIONAL ACTIVITY IN THE FORM OF BUSINESS ADVENTURE. AN INTENTION IS AN ANTICIPATED OUTCOME I.E. GUIDED THROUGH A PROCESS AND A PURPOSE TO OBTAIN THE END RESULT. WHAT IS IMPORTANT IS THE INTENTION OF THE APPELLANT AND TREATMENT GIVEN BY I N HER BOOKS OF A/C. FROM THE RECORDS, IT IS SEEN THAT THE APPELLANT FAILED TO PRESS UPON THE ASSESSING OFFICER WITH SATISFACTION THAT THE ACTIVITY OF BUYI NG AND SELLING OF SHARES IS AN INVESTMENT WITH AN INTENTION TO DERIVE AN ENDURING PROFIT. THE CIRCULA R DESCRIBES TWO PORTFOLIOS, ONE AS INVESTMENT COMPRISING OF SECURITIES TREATED AS CAPITAL ASSET AND ANOTHER AS A TRADING ONE COMPRISING OF STOCK IN TRADE TO BE TREATED AS TRADING ASSET. THE APPELLANT HAS CATEGORICALLY IN HIS SUBMISSIONS STATED THAT TH E PROFIT ON SALE OF SHARES WERE REUTILIZED FOR CAPITA L CIRCULATION AS SHE DID NOT HAVE CAPITAL AND ON ACCOUNT OF VOLATILITY OF THE MARKET. THIS CLEARLY INDICATES THAT THE APPELLANT IS MONITORING THE 5 ITA.NO.1380/HYD/2010 MS. GEETA DEVI GAGGAR, SECUNDERABAD MARKET FLUCTUATIONS AND PUMPING IN THE CAPITAL ACCORDINGLY. IF IT WAS AN INVESTMENT AND IF PROFITS WERE EXPECTED OUT OF THE SAID INVESTMENT THE APPELLANT WOULD HAVE HELD HER SECURITIES FOR A LONG PERIOD BECAUSE SHE WAS ALWAYS DEALING IN SALE AND PURCHASE OF LISTED COMPANIES. THERE IS ALWAYS A BETTER RETURNS IF SHE HAD HELD ON THE SHARES OF SUC H LISTED COMPANIES FOR LONGER PERIODS RATHER THAN MONITORING THE PRICE FLUCTUATIONS OF SUCH LISTED SHARES AND MADE SMALL AND MUCH PROFIT. THIS PROFIT IS CIRCULATED FOR TURNOVER, WHETHER IT IS SMALL OR HUGE. SUCH A TRANSACTION WITH CONSTANT MONITORING ALSO INVOLVES A RISK FACTOR WHEREAS FOR AN INVESTMENT NO SUCH RISK IS SEEN BECAUSE THERE WOULD BE MONETARY GAIN IN THE FORM OF DIVIDENDS. THEREFORE, ON THE BASIS OF THE CIRCUMSTANCES AND AND EVIDENCES ON RECORD, AND FROM SUBMISSIONS MADE BY THE APPELLANT IT IS SEEN THAT THE APPELLANT IS MOSTLY A TRADER DOING THE BUSINESS OF SALE / PURCHASE OF SHARES WHICH ARE ALSO SPECULATIVE WITH AN INTENTION TO EARN EARLY AND QUICK PROFITS. THEREFORE, THE APPELLANT'S CONTENTION THAT SHE SHOULD BE TAXED @ 10% HAS BEEN REJECTED AND UPHELD THE DECISION OF ASSESSING OFFICER AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO TREAT T HE TRANSACTION AS BUSINESS INCOME. 5. BEFORE US, THE LEARNED COUNSEL TOOK US TO THE PAPER BOOK FILED IN THIS REGARD WITH DETAILS OF SHA RE TRANSACTIONS. IT WAS THE CONTENTION THAT ASSESSEE F OR THE FIRST TIME HAS OFFERED THE INCOME MADE FOR THE ASSE SSMENT YEAR 2005-2006 AS CAPITAL GAIN WHICH WAS ACCEPTED U NDER SECTION 143(1) AND IN THE LATER YEARS ALSO ASSESSEE HAS SHORT TERM CAPITAL GAIN WHICH WAS ALSO ACCEPTED BY THE ASSESSING OFFICER. HOWEVER, IN THIS YEAR, IT WAS TR EATED AS BUSINESS INCOME. WHILE THERE IS NO OBJECTION IN TRE ATING THE INCOME OF RS.5,97,412/- EARNED ON FUTURES AND OPTIONS AS BUSINESS INCOME, WHICH WAS ALSO ADMITTE D BEFORE THE CIT(A), IT WAS THE CONTENTION OF THE LEA RNED COUNSEL THAT THE OTHER TRANSACTIONS ARE NOTHING BUT SALE 6 ITA.NO.1380/HYD/2010 MS. GEETA DEVI GAGGAR, SECUNDERABAD OF INVESTMENTS. WHEN IT WAS POINTED THAT 24,900 SH ARES OF CYBER MEDIA ON 14.07.2005 WERE SOLD ON THE SAME DAY WITHOUT TAKING DELIVERY, THE LEARNED COUNSEL HAS NO OBJECTION TO TREAT THE SAME AS BUSINESS. HE REFERRE D TO THE DE-MAT STATEMENT TO SUBMIT THAT ASSESSEE HAS ONLY INVESTED TAKING DELIVERY AND CORRECTLY OFFERED THE INCOME AS SHORT TERM CAPITAL GAIN. 6. THE LEARNED D.R. HOWEVER, RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND EXPLAINED T HE TRANSACTIONS POINTING OUT THAT ASSESSEE HAS ENTERED THE SAME SCRIP AGAIN AND AGAIN. THEREFORE, THE TRANSACT IONS CANNOT BE CONSIDERED AS INVESTMENT BUT ONLY AS TRAD ING ACTIVITY. 7. WE HAVE CONSIDERED THE ISSUE. EVEN THOUGH THE DEPARTMENT HAS ACCEPTED THE ASSESSEES INCOMES ON T HE GAINS FROM THE SHARES AS SHORT TERM CAPITAL GAIN IN EARLIER YEAR AND ALSO IN LATER YEAR, THE FACTS IN THE IMPUG NED YEAR DO INDICATE THAT THE TRANSACTION CANNOT BE CONSIDER ED AS INVESTMENT IN SHARES. THE ASSESSEE HAS OFFERED THE ENTIRE INCOME EARNED ON SHORT TERM CAPITAL GAINS TO THE EX TENT OF RS.35,35,263/- UNDER THE HEAD INCOME FROM CAPITAL GAIN AND SUB-HEAD SHORT-TERM CAPITAL GAIN. HOWEV ER, WHEN POINTED OUT ABOUT THE TRANSACTIONS OF F & O, T HE ASSESSEE ADMITTED THAT THE AMOUNT OF RS.5,97,412/- CAN BE CONSIDERED AS BUSINESS, AS THERE IS NO DELIVERY OF THE SHARES. IT WAS FURTHER POINTED OUT THAT 24,900 SHAR ES OF CYBERMEDIA WERE PURCHASED AND SOLD ON THE SAME DAY. THE LEARNED COUNSEL ALSO ADMITTED TO THAT EXTENT TH AT THIS WAS ALSO CAN BE TREATED AS BUSINESS. HENCE, CAPITAL GAIN OF RS.3,75,107/- ALSO HAS BE TREATED AS BUSINESS I NCOME. 7 ITA.NO.1380/HYD/2010 MS. GEETA DEVI GAGGAR, SECUNDERABAD CONSIDERING THESE FACTS, WE ARE OF THE OPINION THAT REST OF THE TRANSACTIONS ALSO DO COME IN TRADING TRANSACTIO NS. THERE CAN NOT A SITUATION WHERE PART OF TRANSACTION CAN BE TREATED AS BUSINESS AND OTHER AS INVESTMENT. AS CAN BE SEEN FROM THE DETAILS, ASSESSEE HAS INVESTED IN THE MONTHS OF JULY STARTING FROM 14.07.2005 TO 25.07.20 05 IN VARIOUS SHARES AND SOLD THEM IMMEDIATELY IN THE NEX T 2-3 MONTHS. THE PERIOD OF HOLDING HAS NEVER EXCEEDED 15 0 DAYS. SO, IT CANNOT BE CONSIDERED THAT ASSESSEES I NTENTION IS TO INVEST IN SHARES AS THERE IS LARGE TURNOVER W ITHIN A SHORT PERIOD. NOT ONLY THAT THE ASSESSEE HAS EXITED THE SHARES OF INDUST METE ON 01.09.2005 AND AGAIN PURCHASED SOME OF SHARES ON 05.09.2005 WHICH HAVE B EEN SOLD IMMEDIATELY IN THE SAME MONTH PARTLY AND LATER THE BALANCE. NOT ONLY IN THE ABOVE SHARE, EVEN IN THE C ASE OF MULTI-ARC IN ASSESSEE HAS PURCHASED LARGE NUMBER OF SHARES IN THE MONTH OF JULY,05 BETWEEN 19 TH AND 25 TH, AND SOLD THEM BY MONTH OF AUGUST AND NOVEMBER 05 IN A SPAN OF 130 DAYS AND AGAIN PURCHASED LARGE NUMBER O F SHARES ON 10.02.2006 TO BE SOLD AGAIN ON 21.03.2006 . AS SEEN FROM THE DE-MAT STATEMENT, EXCEPT IN THE CASE OF SAKSOFT LIMITED (200 SHARES) THERE IS NO CLOSING BA LANCE IN ANY OF THE SHARES PURCHASED. THESE INDICATE THAT THE INTENTION IS NOT TO MAKE INVESTMENTS FOR LONG PERIO DS. IN THESE CIRCUMSTANCES, WE AGREE WITH THE FINDINGS OF THE ASSESSING OFFICER AND CIT(A) THAT ASSESSEES TRANSA CTIONS ARE IN THE NATURE OF TRADE AND ACCORDINGLY, THE ORD ERS OF THE AUTHORITIES ARE UPHELD. CONSEQUENTLY, ASSESSEE S GROUNDS ARE REJECTED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. 8 ITA.NO.1380/HYD/2010 MS. GEETA DEVI GAGGAR, SECUNDERABAD ORDER PRONOUNCED IN THE OPEN COURT ON 27.12.20 13. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER HYDERABAD, DATED 27 TH DECEMBER, 2013. VBP/- COPY TO:- 1) M/S. GEETA DEVI GAGGAR, 5-4-42 TO 50, KANHAIYALA L ESTATE, DISTILLERY ROAD, RANIGUNJ, SECUNDERABAD . C/O.DR.C.P.RAMASWAMI, ADVOCATE, FLAT NO.303, GITANJALI APTS., PLOT NO.108, SRINAGAR COLONY, HYDERABAD 073. 2) JCIT, RANGE-10, HYDERABAD. 3) CIT(A)-VI, 6A, I.T. TOWERS, A.C. GUARDS, HYDERAB AD. 4) CIT-V, HYDERABAD 5) THE D.R. A BENCH, I.T.A.T., HYDERABAD.