ADDL CIT RG 1, THANE V. AVINASH ATCHUT KAMAT, MUMBAI

ITA 1429/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0710 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 18-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACCHIDANAND DUBEY
• Assessee Lawyers: RAVI MULCHANDANI
• Keywords: Business income; Transactions in derivatives
• Section: 143(3)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI I BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 1429 /MUM/201 1 , / ASSESSMENT YEAR - 200 7 - 08 A DDL. CIT - CIRCLE - 1 VARDAAN BLDG. LOWERGROUND FLOOR WAGLE INDL. ESTATE, MIDC THANE - 400 604. VS SHRI AVINASH ATCHUT KAMAT 7, NEELKAMAL, S.V. ROA D, BHASKAR COLONY, NAUPADA , THANE (W) PAN: AA T PK 2797 B ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI RAVI MULCHANDANI / REVENUE BY :SHRI SACCHIDANAND DUBEY - DR / DATE OF HEARING : 28 - 05 - 2015 / DATE OF PRONOUNCEMENT : 28 - 05 - 2015 , 1 961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 20/09/2010 OF THE CIT(A) - II , THANE , THE ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF LONG TERM CAPITAL GAIN ON SALE OF SHARES AMOUNTING TO RS. 63,45,847/ - . THE CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE IS DEALER IN SHARES AND IS ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF SHARES. THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE SETS OF BOOKS OF ACCOUNTS FOR ASSESSEE'S CLAIM OF INVESTMENT AND SALE / PURCHASE OF SHARES. MERELY CLAIMING THAT THE DIVIDEND INCOME HAS BEEN OFFERED FOR TAXATION FOR THE EARLIER ASSESSMENT YEARS DO NOT PROVE THAT THE ASSESSEE HAS NOT EARNED PROFIT FROM THE SHARE DEALINGS. FURTHER, THE CIT(A) HAS ALSO ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE THAT DUE TO SHA RP REDUCTION IN THE PRICES OF SHARES, WHICH RESULTED IN HEAVY LOSSES TO THE ASSESSEE AND THE SALE REALIZATION OF SUCH SHARES HAS BEEN UTILIZED FOR MAKING PAYMENTS TO THE CREDITORS OF THE ASSESSEE. THE CIT(A) HAS ERRED IN HOLDING THAT THE INTENTION OF THE ASSESSEE WAS NOT TO EARN PROFIT IS INCORRECT. THUS, THE INCOME EARNED FROM SALE OF SHARES IS THE BUSINESS INCOME AND NOT THE LONG TERM CAPITAL GAIN. 2. THE ASSESSING OFFICER CRAVES LEAVE TO ADD, AMEND A LTER OR DELETE ANY GROUND OF APPEAL. ASSESSEE,AN INDIVIDUAL, FILED HIS RETURN OF INCOME ON 29/10/2007 DECLARI NG TOTAL LOSS OF RS.77.96 LACS. THE AO COMPLETED THE ASSESSMENT ON 22.10.200, U/S. 143(3) OF THE ACT, DETERMINING INCOME OF ASSESSEE AT RS.( - ) 14.50 LACS. 2. E FFECTIVE GROUND OF APPEAL IS ABOUT TREATING THE INCOME ARISING OUT OF SHARE TRANSACTIONS. DU RING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD SHOWN INCOME UNDER THE ITA NO. 1429 /MUM/201 1 ,AY. 07 - 08 - AVINASH 2 HEAD LONG TERM CAPITAL GAINS (LTCG ) ON SALE OF SHARES, AMO UNTING TO RS.47.34 LACS, THAT HE HAD CLAIMED EXEMPTION ABOUT THE SHARES SOLD. THE AO WAS OF THE OPINION THAT ONLY BUSINESS OF THE ASSESSEE WAS TO TRADE IN THE SHARES AND THEREFORE INCOME ARISING ON SALE OF SHARES HAS TO BE TREATED AS BUSINESS INCOME. VIDE ORDER SHEET NOTING,DT.14.12.14, HE ASKED THE ASSESSEE AS TO WHY THE LTCG SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE , VIDE HIS LETTER DT.21.12.2009 , FILED A DETAILED EXPLANATION IN THAT REGARD. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE , THE AO HELD THAT THE ASSESSEE WAS ACTIVE IN F&O SEGMENTS OF SHARE TRADING, THAT THE TOTAL VALUE OF TRANSACTIONS ENTERED DURING THE YEAR UNDER CONSIDERATION WAS RS. 75.33 CR ORES , THAT THE SHARES WHICH HAD BEEN SOLD BY THE ASSESSEE TO COVER THE LOSS IN F&O SEGME NTS HAD BEEN PLEDGED WITH THE SHARE BROKER, THAT ON THE STRENGTH OF THOSE SHARES THE ASSESSEE WAS ALLOWED MARGIN TRADING IN THE F&O SEGMENTS BY THE STOCK BROKER, THAT I F THE TRANSACTIONS LEADING TO F&O SEGMENTS WERE CONSIDERED A BUSINESS ACTIVITY THE SHARE S ON THE BASIS OF WHICH THE ASSESSEE WAS CARRYIN G OUT THE BUSINESS ACTIVITIES WOULD HAVE TO BE CONSIDERED BUSINESS ASSETS , THAT MOST OF THE SHARES WERE SOLD AFTER INTERVAL OF TWELVE MONTHS.FINALLY, HE HELD THAT THE ASSESSEE WAS A TRADER IN SHARES, THAT WHAT EVER INCOME W AS ARISING IN DEALING IN THE SH ARES HAD TO BE CONSIDERED AS BUSINESS INCOME. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM, THE ASSESSEE CONTENDED THAT THE INTENTION OF THE ASSESSEE IN SELLING HIS LONG TERM SHARE HOLDINGS WAS NOT TO MAKE PROFIT BUT WAS TO PAY TO THE BROKER FOR THE LOSS INCURRED BY HIM IN THE F&O SEGMENTS, THAT ON 25/5/2006 THE ASSESSEE HAD INCURRED LOSS OF AROUND RS.72.00 LACS ON A SINGLE DAY, THAT HE HA D TO SELL HIS SHARES, HELD BY HIM AS LONG TERM INVESTMENT, THAT THE ASSESSEE WAS HOLDING THOSE SHARES TO EARN INCOME BY WAY OF DIVIDEND, THAT THE DIVIDEND INCOME FROM THE AY 2004 - 05 WAS INCREASING STEADILY , THAT THE ASSESSEE HAD NEVER TREATED THE SHARES AS HIS BUSINESS ASSETS, THAT IN THE EARLIER YEARS THE INCOME ARISING OUT OF LTCG HAD NEVER BEEN TREATED AS BUSINESS INCOME BY THE AO, THAT THE ASSESSEE WAS INVOLVED IN TWO TYPE OF TRANSACTIONS,THAT HE WAS AN INVESTOR IN THE SHARES BESIDES BEING A TRADER , THAT HE WAS DEALING IN F&O SEGMENTS AS A TRADER, THAT HE COULD MAINTAIN TWO SEPARATE PORTFOLIOS. HE REFERRED TO THE JUDGMENT OF H ONBLE B OMBAY H IGH C OURT DELIVERED IN THE CASE OF GOPAL PUROHIT. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND ASSESSMENT OR DER THE FAA HELD THAT THE ASSESSEE HAD SHOWN INCOME FROM INVESTMENT IN SHARES AND SECURIT I ES, THAT HE WAS ENGAGED IN BUSINESS OF DERIVATI V ES, THAT THE INCOME FROM F&O SEGMENTS WAS OFFERED FOR TAXATION UNDER THE HEAD BUSINESS IN COME, THAT THE INCOME ARISING ON LTCG WAS OFFERED UNDER TH E HEAD CAPITAL GAINS , THAT FOR DECIDING THE ISSUE OF INVESTMENT / BUSINESS OF SHARES THE INTENTION OF THE ASSESSEE HAD TO BE LOOKED INTO, THAT THE ASSESSEE HAD SUFFERED A HUGE LOSS ON A SINGLE DAY, THAT HE WAS FORCED TO SELL TH E SHARES THAT WERE HELD BY HIM AS INVESTMENTS, THE INTENTION OF THE ASSESSEE IN HOLDING THE INVESTMENT WAS TO EARN INCOME BY WAY OF DIVIDENDS, THAT THE SHARES SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE ACQUIRED LONG BACK AND IN SOME CASE S EVEN BEFORE 1998. REFERRING TO THE DIVIDEND WARRANTS OF SOME OF THE SHARES PLA C ED BY THE ASSESSEE ON RECORD THE FAA OBSERVED THAT SAME PERTAINED TO THE PERIOD OF HOLDING OF EARLIER YEARS I.E., FY 2002 - 03 , THAT THE ASSESSEE HAD BEEN SHOWING CAPITAL GAINS BY SELLING HIS INVESTMENTS, THAT THE DEPARTMENT HAD BEEN ACCEPTING THE SAME, THAT THE AO HAD NOT ASSESSED THE INCOME ARISING OUT OF SHARE TRADING AS BUSINESS INCOME, THAT THERE WAS NO JUSTIFICATION FOR TAKING A DIFFERENT VIEW IN ABSENCE OF ANY EVIDENCE THA T THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER APPEAL WERE DIFFERENT FROM THE EARLIER YEARS.FINALLY, HE HELD THAT THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENTS AND FOR PERSONAL USE, POSSESSION AND ENJOYMENT, THAT THOSE SHARES COULD NOT BE TREATED AS TRADING ASSETS. ITA NO. 1429 /MUM/201 1 ,AY. 07 - 08 - AVINASH 3 THE FAA REFERRED TO THE CBDT CIR. NO.4/2003 DT.15/6/07 AND CASES OF JAN A K S. R ANGWALA AND KUNVERJI KENIA, SUNDER IYER DELIVERED BY THE MUMBAI TRIBUNAL . RELYING UPON THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT, HE ALLOWED THE APPEAL OF THE ASSESSEE . 4. DURING THE COURSE OF HEARING B EFORE US, DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO.AUTHORISED REPRESENTATIVE(AR)ARGUED THAT THE ASSESSEE WAS MAINTAINING TWO PORTFOLIOS,THAT HE HAD TO SELL HIS INVESTMEN TS TO SETTLE THE ACCOUNT WITH THE BROKER,THAT THE ASSESSEE HAD NEVER TREATED THE SHARES AS HIS BUSINESS ASSETS,THAT FAA HAD RIGHTLY ALLOWED THE APPEAL FILED BY THE ASSESSE. 5. WE HAVE PERUSED THE MATERIAL BEFORE US. WE HAVE HEARD THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD SUFFERED A LOSS OF RS.80 LAKHS DURING THE YEAR UNDER APPEAL IN SHARE TRADING ,THAT OUT OF IT LOSS OF RS.72.11 LAKHS OCCURRED ON SINGLE DAY,THAT THE ASSESSEE HAD TO PAY THE BROKER FOR THE LOSSES IN CURRED TO HIM IN F & O SEGMENTS,THAT HE WAS COMPELLED TO SELL THE INVESTMENTS WHICH WERE HELD BY HIM FOR A VERY LONG PERIOD,THAT THE INTENTION OF THE ASSESSEE WAS TO THE HOLD THE INVESTMENTS.HAD THERE NOT BEEN A SUDDEN CRASH IN THE MARKET,HE WOULD NOT HAVE SOLD THE SHARES WHICH HE WAS HOLDING FOR LAST SO MANY YEARS.WE FIND THAT THERE IS INCREASE IN DIVIDEND INCOME OF THE ASSESSEE - THAT FROM RS.72,378/ - IN THE YEAR 2001 - 02 IT HAS GONE UP TO 2,18,361/ - IN THE YEAR 2006 - 07.WE FIND THAT THE FAA HAS GIVEN A CAT EGORICAL FINDING OF FACT THAT THE SHARES SOLD BY THE ASSESSEE DURING THE YEAR UNDER APPEAL WERE HELD BY HIM FOR A MUCH EARLIER PERIOD THAN AS STATED BY THE AO.THERE IS NO EVIDENCE ON RECORD THAT COULD PROVE THAT THE FINDING OF FACTS RECORDED BY THE FAA IS INCORRECT.HERE,WE WOULD LIKE TO REPRODUCE THE JUDGMENT OF GOPAL PUROHIT(336ITR 287)DELIVERED BY THE HONBLE J URISDICTIONAL HIGH COURT,AS IT DEALS WITH THE ISSUE THAT HAS BEEN RAISED BEFORE US. IT WAS OPEN TO THE ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIO S, ONE RELATING TO INVESTMENT AND ANOTHER RELATING TO BUSINESS OF DEALING IN SHARES, THAT A FINDING OF FACT HAD BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE TWO DISTINCT TYPES OF TRANSACTIONS,NAMELY, THOSE BY WAY OF INVESTMENT AND THOSE FOR THE PURPOSES OF BUSINESS, AND THIS WARRANTED NO INTERFERENCE. (II) THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN FACTS AND CIRCUMSTANCES FOR DIFFERENT YEARS WERE IDENTICAL PARTICULARLY IN THE CASE OF THE SAME ASSESSEE. (III) THAT ENTRIES IN THE BOO KS OF ACCOUNT ALONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME. CONSIDERING THE ABOVE JUDGMENT AND THE FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT THE FAA HAS RIGHTLY HELD THAT THE INCOME EARNED BY THE ASSESSEE ON SALE OF SH ARES HAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS AND NOT AS BUSINESS INCOME.WE DO NOT FIND ANY INFIRMITY IN HIS ORDER.CONFIRMING HIS ORDER WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FI LED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 28TH ,MAY,2015. 28 , 2015 ITA NO. 1429 /MUM/201 1 ,AY. 07 - 08 - AVINASH 4 SD/ - SD/ - ( /I . P . BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 28.05. 2015 . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.