KUSHNUMA ARZAN KHAMBATTA, MUMBAI V. DCIT 17(2), MUMBAI

ITA 1393/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79287 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 26-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I B ENCH, MUMBAI , !', % % % % &' . % . () . % . , !' * BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR.S.T.M. PAVALAN, JUDICIAL MEMBER ./ I.T.A. NO.1393/MUM/2011 ( + + + + / ASSESSMENT YEAR :2007-08 MRS. KUSHNUMA ARZAN KHAMBATTA, 626, ADENWALLA BLDG., HOMAVAZIR ROAD,PARSI COLONY, DADAR, MUMBAI-400 014 / VS. THE DCIT-17(2), MUMBAI ', ./ -. ./ PAN/GIR NO. : AAFPK 7875A ( ,/ / APPELLANT ) .. ( 01,/ / RESPONDENT ) ,/ 2 / APPELLANT BY: SHRI SHEKHAR GUPTA 01,/ 3 2 / RESPONDENT BY: SHRI RAVINDER SINDHU 3 4) / DATE OF HEARING :26.06.2014 56+ 3 4) / DATE OF PRONOUNCEMENT :30.06.2014 !7 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-2915, MUMBAI DT.30.11.2010 PERTAINING TO A. Y. 2007-08. 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE SUM OF RS. 51,36,747/- BEING SHORT TERM CAPITAL GAINS ARISING ON ITA NO. 1393/M/2011 2 PURCHASE AND SALE OF SHARES BY THE APPELLANT AS BUSINESS INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS LEGALLY ERRED IN HOLDING THAT RATIO OF T HE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF SUGAM CHAND C SHAH VS ACIT (37 DTR 345) AS APPLICABLE TO THE FACTS OF THE APPELLANT. 3. THE ASSESSEE IS AN INDIVIDUAL DEALING IN THE BUS INESS OF MAKING ARTISTIC & DECORATIVE ITEMS LIKE SCULPTURES, SPECIA L GRILLS, HANDLES AND LIGHT FITTING FROM METAL GLASS AND WOOD. RETURN FOR THE YEAR WAS FILED ON 1.11.2007 DECLARING TOTAL INCOME OF RS. 1,09,47,445 /-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTI CES WERE ISSUED ACCORDINGLY. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, ON PERUSING THE STATEMENT OF SHORT TERM CAPITAL GAIN F ILED BY THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN INCOME FROM SHORT TERM CAPITAL GAIN ON SALE OF SHARES. THE AO FURTHER NOTICED THAT THE HOLDING OF THE SHARES WAS LESS THAN ONE YEAR. THE AO OBSERVED THAT THE INTENTION OF THE ASSESSEE WAS TO BOOK PROFIT IN QUICK DISPOSAL OF SHARES AT FREQUENT INTERVALS. THE ASSESSEE WAS ASKED TO E XPLAIN AS TO WHY THE INCOME SHOWN AS PER STATEMENT AS SHORT TERM CAPITAL GAIN SHOULD NOT BE TREATED AS BUSINESS INCOME IN TRADING IN SHARES. T HE ASSESSEE FILED A DETAILED REPLY WHICH IS INCORPORATED BY THE AO AT P AGES 3 TO 5 OF HIS ORDER. 3.2. THE DETAILED SUBMISSION OF THE ASSESSEE DID NO T FIND FAVOUR FROM THE AO. THE AO WAS OF THE OPINION THAT THE ASSESSE E HAS PURCHASED AND SOLD SHARES OF MORE THAN 62 COMPANIES WHICH IS QUIT E A LARGE NUMBER AND REQUIRES TIME AND RESOURCES TO MONITOR THEREFORE IT IS A BUSINESS ACTIVITY. ITA NO. 1393/M/2011 3 THE AO FURTHER OBSERVED THAT THERE ARE NUMEROUS PUR CHASE TRANSACTIONS MADE DURING THE YEAR ON REGULAR BASIS. THE HOLDING PERIOD WAS LESS THAN ONE YEAR AND IN SOME CASES, THE SHARES HAVE BEEN SO LD WITHIN FEW DAYS OF PURCHASE. DRAWING SUPPORTS FROM THE CIRCULAR OF CB DT NO. 1827 DT. 31.8.1989, THE AO FINALLY CONCLUDED BY TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) OBS ERVED THAT THE ASSESSEE HAS MADE SUBSTANTIAL SHORT TERM CAPITAL GA IN FROM TWO SCRIPS NAMELY (1) SHRAYANS REPORTS & (2) ASIAN STAR, TOGET HER THESE SCRIPS HAVE CONTRIBUTED RS. 47.75 LAKHS OF THE TOTAL SHORT TERM CAPITAL GAIN. DRAWING SUPPORT FROM THE DECISION OF THE TRIBUNAL A HMEDABAD BENCH IN THE CASE OF SUGAM CHAND C SHAH VS CIT 37 DTR 345, THE LD. CIT(A) CONFIRMED THE FINDINGS OF THE AO. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE IS AN ARTIST ENGAGED IN THE BUSINESS OF MAKING ARTISTIC AND DECO RATIVE ITEMS. DURING THE YEAR, THE ASSESSEE HAS MADE INVESTMENTS OUT OF THE FUND LYING IN THE BANK. IT IS THE SAY OF THE LD. COUNSEL THAT THE AS SESSEE TOOK HELP OF HER SHARE BROKER FRIEND WHO ADVISED HER TO INVEST IN SH ARES INSTEAD OF KEEPING THE AMOUNT IN BANK. THE LD. COUNSEL FURTHER STATED THAT THE ASSESSEE HAS TAKEN DELIVERIES OF ALL THE SHARES AND THE TRANSACT IONS HAVE BEEN ROUTED THROUGH HER DEMAT ACCOUNT. THE LD. COUNSEL FURTHER POINTED OUT THAT THE ASSESSEE IS STILL HOLDING INVESTMENT AS ON 31.3.200 7 AND ALL THE SHARES HAVE BEEN CLASSIFIED UNDER THE HEAD INVESTMENT. THEREFORE, THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN TREATING THE SHAR E TRANSACTION AS A BUSINESS ACTIVITY. ITA NO. 1393/M/2011 4 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE AO. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SALE A ND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CA PITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CON FLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFOR E, TO BE BASED ON ITS OWN FACTUAL SITUATION. THE HONBLE SUPREME COURT IN TH E CASE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 I TR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN IT S CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THAT : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE E VIDENCE 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 THE CBDT HAS ALSO MENTIONED IN ITS CIRCULAR THAT I T IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTME NT PORTFOLIO AND TRADING PORTFOLIO. THIS VIEW HAS ALSO BEEN FORTIFIED BY TH E DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT 336 ITR 287(2010) 188 TAXMAN 140 (BOM). 8.1. THE ALLEGATION OF THE AO IS THAT THE ASSESSEE HAS INDULGED IN HIGH FREQUENCY TRANSACTIONS. THIS IN ITSELF COULD NOT M EAN THAT TRADING ACTIVITIES HAVE BEEN CARRIED OUT. A PRUDENT INVEST OR ALWAYS KEEP A WATCH ON THE VOLATILITY OF THE MARKET AND MADE SOUND INVE STMENT DECISION IN ACCORDANCE WITH SUCH MARKET FLUCTUATION AND HAS THE LIBERTY TO LIQUIDATE ITA NO. 1393/M/2011 5 THE INVESTMENTS IN SHARES AS AND WHEN NECESSARY. T HE LAW ITSELF HAS RECOGNIZED THIS FACT BY TREATING THE SAME AS SHORT TERM CAPITAL GAIN FOR SHARES HELD LESS THAN 12 MONTHS AND LONG TERM CAPIT AL GAINS WHEN THE SHARES ARE HELD FOR MORE THAN 12 MONTHS. HAD THIS BEEN NOT THE CASE, ALL THE GAINS ON SHARES WOULD BE CONSIDERED AS BUSINESS INCOME ONLY. THUS, THE ASSESSEES CLAIM CANNOT BE NEGATED ON THE BASIS OF FREQUENCY OF TRANSACTION. WE FURTHER FIND THAT THE ENTIRE INVES TMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UT ILIZED BY THE ASSESSEE. THE AO CANNOT REPLACE HIS OPINION FOR TH AT OF THE ASSESSEE IN HOLDING THAT THE SHARES ARE HELD AS STOCK-IN-TRADE AND PROFIT FROM WHICH IS TO BE ASSESSED AS BUSINESS INCOME. IN ALL CASES, T HE INTENTION IS MANIFESTED BY THE ASSESSEE HERSELF BY HER CONDUCT A ND OTHER RELEVANT FACTS. CONSIDERING THE ENTIRE FACTS IN TOTALITY, W E FIND THAT THE ASSESSEE HAS SHOWN SHARES AS INVESTMENT RIGHT FROM THE DATE OF PURCHASE AND THE SAME HAS BEEN SHOWN AS SUCH IN THE BALANCE SHEET. IN OUR HUMBLE OPINION, THE SHARES HAVE TO BE TREATED AS AN INVEST MENT AND THEREFORE ANY PROFIT EARNED ON THE SALE THEREOF IS TO BE TREATED AS CAPITAL GAIN. FINDINGS OF THE LD. CIT(A) ARE REVERSED. THE AO IS DIRECTED TO TREAT THE PROFITS ON SALE OF SHARES AS CAPITAL GAIN, SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2014 SD/- SD/- (DR. S.T.M. PAVALAN) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 8! DATED 30 TH JUNE, 2014 . . ./ RJ , SR. PS ITA NO. 1393/M/2011 6 !7 !7 !7 !7 3 33 3 04 04 04 04 9+4 9+4 9+4 9+4 / COPY OF THE ORDER FORWARDED TO : 1. ,/ / THE APPELLANT 2. 01,/ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. ;< 04 , , / DR, ITAT, MUMBAI 6. <& = / GUARD FILE. !7 !7 !7 !7 / BY ORDER, 14 04 //TRUE COPY// > >> > / ? ? ? ? - - - - (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI