ACIT, Aurangabad V. SHRI Nitin Anraj Mutha M/S Mangal Tdg. Co., Jalna

ITA 1427/PUN/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5281 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 25-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: P D KUDWA
• Keywords: Business income; Transactions in derivatives

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1427/PN/2012 (ASSTT.YEAR : 2008-09) ACIT, CIRCLE-1, AURANGABAD .. APPELLANT VS. NITIN ANRAJ MUTHA, M/S. MANGAL TRADING COMPANY, NEW MARKET YARD, JALNA. PAN NO. AEGPM 7297D .. RESPONDENT APPELLANT BY : SHRI P.L. PATHADE RESPONDENT BY : SHRI P.D. KUDWA DATE OF HEARING : 17-10-2013 DATE OF PRONOUNCEMENT : 23-10-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 16-04-2012 OF THE CIT(A), AURANGABAD RELATING TO AS SESSMENT YEAR 2008- 09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL HAVING INCOME FROM BUSINESS AND PROFESSION AND CAPI TAL GAIN. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF COMMODITIES AND SHARE TRADING IN F&O UNDER THE NAME AND STYLE OF MANGALA TRADING CO MPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IS ENGAGED IN SHARE TRADING BUSINESS A ND SHOWN INCOME FROM SHORT TERM CAPITAL GAIN AND SHARE TRADING BUSINESS. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE HE NOTED THAT WHE N THE ASSESSEE SOLDS THE SHARES ON THE SAME DAY, HE TREATS THE SAME AS S HARE TRADING. 2 HOWEVER, WHEN THE SHARES ARE SOLD ON SUBSEQUENT DA Y IT WAS TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN A S THE CASE MAY BE. HE, THEREFORE, ASKED THE ASSESSEE TO SUBSTANTIATE HIS C LAIM THAT HE IS NOT ENGAGED IN THE BUSINESS OF SHARE TRADING. IN RESPO NSE TO THE SAME THE ASSESSEE FILED DETAILS SHOWING SHORT TERM CAPITAL G AIN AND LONG TERM CAPITAL GAINS ALONG WITH DATE OF PURCHASE AND SALE OF SHARES. VARIOUS DECISIONS WERE BROUGHT TO THE NOTICE OF THE ASSESSI NG OFFICER TO SUBSTANTIATE THAT THE SHORT TERM CAPITAL GAIN AND L ONG TERM CAPITAL GAIN ON SALE OF SHARES AS RETURNED BY THE ASSESSEE IS JUSTI FIED. IT WAS SUBMITTED THAT THE ASSESSEE HAS RETURNED LONG TERM CAPITAL GA IN ON SALE OF SHARES AT RS.1,37,116/- AND SHORT TERM CAPITAL GAIN AT RS.10, 13,006/-. IT WAS SUBMITTED THAT THE MAIN SOURCE OF INCOME OF THE ASS ESSEE IS BUSINESS, I.E. SHARE INCOME FROM FIRM AND OTHER SOURCES. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE VALUE OF TRANSACTION IN SHARES AS PER AUDIT REPORT IS AS UNDER : PARTICULARS QUANTUM QUANTITY OPENING STOCK 49.1 LAKHS 65046 PURCHASES 5.02 CRORES 156225 SALES 5.37 CRORES 142265 CLOSING STOCK 44.50 LAKHS 79006 3.1 HE OBSERVED FROM THE DETAILS THAT MOST OF THE G AIN WAS EARNED IN SHARES HELD FOR A PERIOD FOR SHORT PERIODS AND HOLD ING PERIOD WAS LESS THAN SIX MONTHS. IN THE PRECEDING YEAR THE ASSESSE E HAS NIL OR SMALL LONG TERM CAPITAL GAIN WHICH INDICATES THAT HOLDING INVESTMENTS FOR A LONGER PERIOD IS NOT THE MAIN INTENTION. CONSIDERI NG THE MAGNITUDE, VOLUME, FREQUENCY AND REPETITION OF THE SHARE TRANS ACTIONS THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS ENGAGED IN SHARE TRADING BUSINESS IN A 3 SYSTEMATIC MANNER. DISTINGUISHING THE DECISIONS CI TED BEFORE HIM AND RELYING ON VARIOUS DECISIONS THE ASSESSING OFFICER TREATED THE INCOME FROM SHORT TERM CAPITAL GAIN OF RS.26,67,053/- AS BUSINESS INCOME. 4. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSE SSEE HAS CORRECTLY SHOWN INTRADAY SHARE TRANSACTIONS AS BUSINESS INCOM E (SPECULATIVE). HOWEVER, IN CASE OF DELIVERY BASED TRANSACTIONS, WH ERE THE SHARES ARE HELD FOR LESS THAN 1 YEAR, THE PROFIT FROM SAME WAS TREATED AS SHORT TERM CAPITAL GAIN AND WHERE THE SHARES ARE HELD FOR MORE THAN 1 YEAR THE PROFIT FROM SAME WAS TAKEN AS LONG TERM CAPITAL GAIN. REF ERRING TO CBDT CIRCULAR NO.4/2007 DATED 15-06-2007 IT WAS SUBMITTE D THAT THE ASSESSEE CAN HAVE 2 PORTFOLIOS, I.E. AS STOCK IN TRADE AND A S INVESTMENT. THE VARIOUS FACTORS LAID DOWN IN CBDT CIRCULAR TO DECID E THE ISSUE AS TO WHETHER THE TRANSACTIONS IN SHARES ARE TO BE TREATE D AS BUSINESS INCOME OR CAPITAL GAIN WAS BROUGHT TO THE NOTICE OF THE CIT(A ). 4.1 IT WAS SUBMITTED THAT THE ASSESSEE DOES NOT OWN SEPARATE OFFICE OR OWN BOLT FOR ENTERING INTO SHARE TRANSACTIONS. THE ASSESSEE HAS NOT BORROWED ANY INTEREST BEARING FUNDS FOR MAKING INVE STMENT IN SHARES BUT HAS UTILISED HIS OWN INTEREST FREE FUNDS. THE ASSE SSEE HAS CONSISTENTLY DECLARED SURPLUS ON SALE OF SHARES AS CAPITAL GAIN IN THE PRECEDING ASSESSMENT YEARS WHICH HAVE BEEN ACCEPTED BY THE DE PARTMENT. IT WAS SUBMITTED THAT FREQUENCY OF TRANSACTIONS AND VOLUME OF TRANSACTIONS PERSE ARE NOT DECISIVE FACTORS WHICH HAVE BEEN LAID DOWN BY VARIOUS JUDICIAL PRONOUNCEMENTS. THE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT REPORTED IN 22 8 CTR 582 WAS ALSO BROUGHT TO THE NOTICE OF THE CIT(A) WHEREIN IT HAS BEEN HELD THAT DELIVERY BASED TRANSACTIONS OF SHARES ARE TO BE TREATED AS I NVESTMENT TRANSACTIONS 4 AND PROFIT THERE FROM HAS TO BE TREATED AS SHORT TE RM/LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING OF THE SH ARES. IT HAS FURTHER BEEN HELD THAT ALTHOUGH THE PRINCIPLES OF RESJUDICA TA IS NOT ATTRACTED UNDER THE PROVISIONS OF INCOME TAX ACT AS EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF, THERE OUGHT TO BE UNIFORMITY IN TREATMENT O F PROFIT ON SHARE TRANSACTIONS WHEN THE FACTS AND CIRCUMSTANCES ARE I DENTICAL IN EACH YEAR. VARIOUS OTHER DECISIONS WERE ALSO BROUGHT TO THE NO TICE OF THE CIT(A). 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND RELYING ON VARIOUS DECISIONS CITED BEFORE HIM THE LEARNED CIT( A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY ACCEPTING THE PROFIT F ROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN AS T HE CASE MAY BE. WHILE DOING SO, HE REFERRED TO CBDT CIRCULAR NO.4/2007 DA TED 15-06-2007 ACCORDING TO WHICH THE ASSESSEE CAN HAVE 2 PORTFOLI OS, I.E. ONE AS STOCK IN TRADE AND THE OTHER AS INVESTMENT. THEREFORE, THE SAME PERSON CAN ACT AS A TRADER IN RESPECT OF SOME TRANSACTIONS IN SHARES SUCH AS INTRADAY TRANSACTIONS AND CAN ACT AS AN INVESTOR IN THE CASE OF DELIVERY BASED TRANSACTIONS WHERE SHARES WERE PURCHASED WITH THE I NTENTION OF HOLDING FOR SOME DAYS AND EARNING CAPITAL GAIN. HE NOTED F ROM THE BALANCE SHEET FILED BY THE ASSESSEE THAT THE ASSESSEE HAS SHOWN H OLDING OF THE SHARES AT THE END OF YEAR UNDER THE HEAD INVESTMENT AND THE SAME HAS BEEN VALUED AT COST AND NOT AT COST OR MARKET VALUE WHI CHEVER IS LOWER. FURTHER, HE NOTED THAT THE ASSESSEE HAS UTILISED OW N INTEREST FREE FUNDS FOR INVESTMENT IN SHARES AND HAS NOT BORROWED FUNDS FOR INVESTING IN SHARES. RELYING ON VARIOUS DECISIONS HE HELD THAT THE ASSES SING OFFICER WAS NOT JUSTIFIED IN RELYING SIMPLY ON THE VOLUME AND FREQU ENCY OF THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE. 5 5.1 HE NOTED THAT THE TRANSACTIONS IN SHARES CLAIME D BY THE ASSESSEE RESULTING INTO SHORT TERM CAPITAL GAIN ARE DELIVERY BASED TRANSACTION OF SHARES. FURTHER, THE ASSESSEE HAS CONSISTENTLY SHO WN THE HOLDING OF SHARES AS INVESTMENT AND SURPLUS OR DEFICIT OF SALE OF SHARES HAS BEEN SHOWN AS CAPITAL GAIN OR CAPITAL LOSS. SINCE THE S HORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE IS ON ACCOUNT OF DELIVERY BASED SHARE TRANSACTIONS AND SINCE THE ASS ESSEE IS CONSISTENTLY SHOWING SUCH INCOME FROM PURCHASE AND SALE OF SHARE S AS SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN IN THE PAST WHI CH HAS BEEN ACCEPTED BY THE DEPARTMENT, THEREFORE, FOLLOWING THE RULE OF CO NSISTENCY IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA) THE LEARNED CIT(A) HELD T HAT THE ASSESSEE HAS CORRECTLY SHOWN THE LONG TERM CAPITAL GAIN AND SHOR T TERM CAPITAL LOSS. HE ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE HONBLE CIT(A) AURANGABAD ERRED IN TREATING THE SHARE TRADING BUSINESS OF THE ASSESSEE AS SHORT TERM CAPITAL GAIN S. 2. THE HONBLE CIT(A) AURANGABAD ERRED IN NOT APPRE CIATING THE FACT THAT THE ASSESSEE HAD CARRIED ON CONTINUOUSLY AND S YSTEMATICALLY TRADING IN SHARES WITH A VIEW TO EARN AN INCOME WHICH AMOUNTS TO INCOME FROM BUSINESS OR PROFESSION AND NOT SHORT TERM CAPITAL GAINS. 3. THE HONBLE CIT(A) AURANGABAD ERRED IN NOT APPRE CIATING THE FACT THAT WHILE DETERMINING THE NATURE AND CHARACTER OF ASSESSEES TRANSACTIONS IN SHARES PRINCIPLES AND ASPECTS OF SUBSTANTIAL NATURE OF TRANSACTION, MAGNITUDE OF PURCHASE AND SALE, RATIO BETWEEN PURCHASES AND S ALES WITH ITS HOLDING AS PER CIRCULAR NO.4/2007 WAS DULY CONSIDERED IN ASSES SEES CASE. 4. THE ORDER OF THE ASSESSING OFFICER BE RESTORED A ND THAT OF THE CIT(A) BE VACATED. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY GROUNDS OF APPEAL. 6 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER. 8. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF KEDAR RAMKISHAN MUNDADA AND MAMTA RAJESH MUNDADA VIDE ITA NO.1355/PN/2011 AND OTHER CONNECTED APPEALS VIDE OR DER DATED 25-02- 2013 FOR A.Y. 2007-08 SUBMITTED THAT UNDER IDENTICA L FACTS AND CIRCUMSTANCES THE APPEAL FILED BY THE REVENUE HAS B EEN DISMISSED AND THE ORDER OF THE CIT(A) ACCEPTING THE CLAIM OF LONG TER M CAPITAL GAIN AND SHORT TERM CAPITAL GAIN HAS BEEN UPHELD. HE ACCORD INGLY SUBMITTED THAT THIS BEING A COVERED MATTER THE GROUNDS RAISED BY T HE REVENUE SHOULD BE DISMISSED. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND UNDE R IDENTICAL FACTS AND CIRCUMSTANCES THE TRIBUNAL IN THE CASE OF KEDAR RAM KISHAN MUNDADA (SUPRA) HAS DISMISSED THE APPEALS FILED BY THE REVE NUE AND UPHELD THE ORDERS OF THE LD.CIT(A) ACCEPTING THE PROFIT FROM S HARE TRADING BUSINESS OF THE ASSESSEE AS SHORT TERM CAPITAL GAIN. THE RE LEVANT OBSERVATION OF THE TRIBUNAL AT PARA 9 AND 10 OF THE ORDER READ AS UNDE R : 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A ) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSI DERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE IMP UGNED APPEAL IS REGARDING TREATMENT OF PROFIT FROM PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE OR BUSINESS INCOME AS HELD BY THE ASSESSING OFFICER. THE TREA TMENT OF SUCH INCOME AS BUSINESS INCOME OR AS CAPITAL GAIN DEPENDS ON THE FACTS OF EACH CASE. IN THE INSTANT CASE, THE LEARNED CIT(A) HAS FOU ND THAT THE ASSESSEE HAS SHOWN THE HOLDING OF SUCH SHARES UNDER THE HEAD INV ESTMENT WHICH 7 ARE VALUED AT COST. FURTHER, THE SHARES ARE DELIVERY BASED. THE PROFIT FROM SUCH SALE OF SHARES WHICH WERE DECLARED AS SHORT TER M CAPITAL GAIN/LONG TERM CAPITAL GAIN AS THE CASE MAY BE HAVE B EEN ACCEPTED IN THE PAST AND NO BORROWED FUNDS HAVE BEEN UTILISED FOR INV ESTMENT IN SUCH SHARES. THE ABOVE FACTUAL FINDINGS GIVEN BY THE LEAR NED CIT(A) COULD NOT BE CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESEN TATIVE. 10. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) HAS UPHELD THE DECISION OF THE TRIBUNAL THAT DELIVERY BASED TRANSACTIONS SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND PROFIT RECEIVED THERE FROM SHOULD BE TREATED AS EITHER SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DE PENDING UPON THE PERIOD OF HOLDING AND PROFIT FROM OTHER TRANSACTION S MAY BE TREATED AS BUSINESS INCOME. SIMILARLY, IT HAS FURTHER BEEN HELD T HAT THOUGH PRINCIPLES OF RESJUDICATA IS NOT APPLICABLE TO INCOME TAX ASSESSMENT PROCEEDINGS AS EACH YEAR IS A SEPARATE ASSESSMENT YEAR YET THERE OUGHT TO BE UNIFORMITY IN TREATMENT OF PROFIT ON SHARE TRANSAC TIONS WHEN FACTS AND CIRCUMSTANCES ARE IDENTICAL IN EACH YEAR. SINCE IN T HE INSTANT CASE THE INCOME FROM PURCHASE AND SALE OF SHARES AS SHORT TERM OR LONG TERM CAPITAL GAIN HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE PAST, A FACT BROUGHT ON RECORD BY THE LEARNED CIT(A) AND NOT CON TROVERTED BY THE REVENUE AND SINCE THE ASSESSEE HAS DECLARED THE PROFIT FR OM PURCHASE AND SALE OF SHARES WHICH ARE DELIVERY BASED AS SHORT TERM CAP ITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY BE, THEREFORE, REL YING ON THE DECISION OF THE JURISDICTIONAL HIGH COURT CITED (SUPRA) AND IN V IEW OF THE DETAILED REASONING GIVEN BY THE LEARNED CIT(A) BY RELYING ON VARIOUS DECISIONS WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY, THE SAM E IS UPHELD. THE DECISION OF THE TRIBUNAL RELIED ON BY THE LEARNED DE PARTMENTAL REPRESENTATIVE IN THE CASE OF AJINKYA ELECTROMELT PVT . LTD. IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE IN VIEW OF THE LATER DECISION OF THE JURISDICTIONAL HIGH COURT. WE ACCORDINGLY UPHOL D THE ORDER OF THE CIT(A) AND THE GROUNDS RAISED BY THE REVENUE ARE DISM ISSED. 9.1 FACTS OF THE INSTANT APPEAL BY THE REVENUE BEIN G SIMILAR TO THE FACTS OF THE CASE CITED (SUPRA), THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL AND IN ABSENC E OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE UPHOLD THE ORDER OF THE CIT(A). THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMI SSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 23 RD DAY OF OCTOBER, 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PA NDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 23 RD OCTOBER, 2013 SATISH 8 COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE