ACIT 25(2), MUMBAI V. SUGANBAI BATHIA, MUMBAI

ITA 1450/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49688 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 11-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CHETAN A KARIA
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

1 ITA NO. 1450/MUM/2009 (ASST YEAR 2005-06) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR , AM & SHRI VIJAY PAL RA O, JM ITA NO. 1450/MUM/2009 (ASST YEAR 2005-06) THE ASST COMMR OF INCOME TAX 25(2), MUMBAI VS SMT SUGANBAI BATHIA 505-C PALM HOUSE 16 MOGL LANE MAHIM (W), MUMBAI 16 (APPELLANT) (RESPONDENT) PAN NO. AEOPB4920J ASSESSEE BY SHRI CHETAN A KARIA REVENUE BY SHRI G TRIVEDI DT OF HEARING 11 TH JULY 2011 DT OF PRONOUNCEMENT 29 TH JULY 2011 PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 16.12.2008 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2005-06. 2 THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE I N THIS APPEAL IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ASSES S THE INCOME FROM SHARE INVESTMENT ACTIVITIES AS INCOME FROM SHORT TERM CAPI TAL GAIN INSTEAD OF BUSINESS INCOME WITHOUT APPRECIATING THE FACTS THAT ASSESSEE HAS SUSTAINABLE VOLUME AND HUGE NUMBER OF SHARE TRANSACTIONS AND REPE ATED TRANSACTIONS IN SINGLE SCRIPTS, WHICH DENOTE THAT THE MOTIVE OF THE ASSESSEE IS TO CARRY ON BUSINESS IN SHARES RATHER THAN INVESTMENT IN SHARES TO EARN DIVIDEND . 3 THE ASSESSEE HAS SHOWN INCOME FROM SHORT TERM CA PITAL GAINS AT RS. 33,28,459/- AND SHORT TERM CAPITAL LOSS OF RS. 1,35 ,205/- ON SALE OF SHARES. THE ASSESSEE HAS ALSO SHOWN SPECULATION PROFIT OF RS. 1 ,72,169/-AND INCOME FROM OTHER SOURCES AT RS. 1,799/-. SHORT TERM CAPITAL GAIN AND SPECULATION PROFIT HAVE MAINLY ARISEN FROM SHARES/SECURITIES TRANSACTIONS DONE BY THE ASSESSEE DURING THE YEAR. THE 2 ITA NO. 1450/MUM/2009 (ASST YEAR 2005-06) ASSESSEE ADMITTED THE INCOME FROM CAPITAL GAIN IN R ESPECT OF THE TRANSACTIONS OF SHARES WHERE DELIVERY WAS TAKEN AND SPECULATION PRO FIT WHERE NO DELIVERY WAS REQUIRED TO BE TAKEN. THE ASSESSING OFFICER TREATE D THE CAPITAL GAIN AS BUSINESS INCOME ON THE GROUND THAT THE VOLUME AND MAGNITUDE OF THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE YEAR IS VERY HIGH. THE ASSESSING OFFICER RELIED UP ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICAL AND FERTILIZERS LTD VS CIT REPORTED IN 227 ITR 172 AS WELL AS CBDT CIRCULAR NO.4/2007. THE ASSESSING OFFICER HAS ALSO NOTED THA T THE ASSESSEE TOOK LOAN OF RS 19.75,000/- FROM FOUR FAMILY MEMBERS AND ALSO RS. 7 LACS FROM OUTSIDERS TO DO THE BUSINESS IN SHARES AND SECURITIES. 3.1 THE ASSESSEE CHALLENGED THE ACTION OF THE ASSES SING OFFICER BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE IS INVESTING IN PR OPERTIES AND EQUITY SHARES SINCE MANY YEAR. THE ASSESSEE IS INVESTING OUT OF HER OWN FUNDS. IT WAS SPECIFICALLY POINTED OUT BEFORE THE CIT(A) THAT INSTEAD OF TAKING LOAN, THE ASSESSEE HAS ADVANCED MONEY TO THE FAMILY MEMBERS AND OUTSIDERS WHICH IS RECEIVED BACK IN THIS YEAR. THUS, THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE ASSESSING OFFICER HAS TAKEN WRONG VIEW OF THE FACT THAT THE ASSESSEE HAS TAKEN LOAN WHEREAS THE ASSESSEE HAS ADVANCED THE LOANS AND RECEIVED BACK DURING THE YEA R UNDER CONSIDERATION. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND DIRECT ED THE ASSESSING OFFICER TO ASSESSEE THE INCOME FROM SHARE INVESTMENT ACTIVITIE S AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. 3.2 BEFORE US, THE LD DR HAS SUBMITTED THAT THE ASS ESSEE HAS CARRIED OUT HUGE TRANSACTIONS ON SALE AND PURCHASE OF SHARES. THE F REQUENCY IS VERY HIGH AND THE RETENTION PERIOD IS VERY LOW. HE HAS REFERRED THE DETAILS OF THE SALE AND PURCHASE TRANSACTIONS AND SUBMITTED THAT THE ASSESSEE HAS CA RRIED OUT THE SALE AND PURCHASE 3 ITA NO. 1450/MUM/2009 (ASST YEAR 2005-06) SYSTEMATICALLY AND ORGANIZED MANNER AND THEREFORE, THE NATURE OF THE ACTIVITY OF THE ASSESSEE IS TRADING AND NOT INVESTMENT. HE HAS FUR THER CONTENDED THAT THE ASSESSEE HAS HELD MAJORITY OF THE SHARES ONLY FOR FEW DAYS. THE FREQUENCY AND VOLUME OF THE TRANSACTIONS ARE VERY HIGH. KEEPING IN VIEW THE VO LUME OF MORE THAN RS. 4.78 CRORES AND SHORT TERM CAPITAL GAIN AT RS. 33,91,391/-, THE DIVIDEND EARNED BY THE ASSESSEE IS MERELY RS. 1,55,425/- WHICH CLEARLY SHOWS THAT THE DIVIDEND EARNED BY THE ASSESSEE IS ONLY INCIDENTAL AND NOT THE MOTTO OF THE ASSES SEE. THE FACTS OF THE CASE DEMONSTRATED THAT THE ASSESSEE S INDULGING IN THE A CTIVITY AS EXPLAINED TO EARN QUICK PROFIT FROM SHARE TRADING AND NOT TO INVEST IN THE SHARES FOR EARNING THE DIVIDEND AND APPRECIATION OF THE INVESTMENT. HE HAS RELIED UPON THE ORDER OF THIS TRIBUNAL IN THE CASE OF SMT RAKHA KHANDELWAL VS ACIT IN ITA NO.785/ MUM/2009 ORDER DATED 17.3.2010 AND IN THE CASE OF MR RAKESH J SANGHVI V S DCIT IN ITA NO.4607/MUM/2008 ORDER DATED 31.8.2010. 3.4 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE CO NTENDED THAT THE ASSESSEE IS AN INVESTOR. SHE IS INVESTING IN PROPERTIES AND EQ UITY SHARES SINCE MANY YEARS. SHE IS DOING THE ABOVE ACTIVITIES OUT OF HER OWN FUNDS. SH E IN FACT SOLD TWO PROPERTIES IN THIS YEAR WHICH WERE KEPT IN THE BALANCE SHEET AS CAPITA L ASSET AND OFFERED SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON SALE OF IT. IN THE SIMILAR FASHION, SHE KEPT SHARES IN HER BALANCE SHEET AS CAPITAL ASSET AND WH ENEVER SOLD, GAIN IS OFFERED AS SHORT TERM CAPITAL GAIN. IT IS ALSO SUBMITTED THAT THE ACTIVITIES OF THE ASSESSEE CANNOT BE TERMED AS BUSINESS BECAUSE ASSESSEE HAS NO OFFIC E ESTABLISHMENT. SHE DOES THE INVESTMENT OUT OF HER OWN FUNDS. SHE HAS VALUED SHA RES AT THE END OF ACCOUNTING YEAR AT LAST AND HAS GIVEN TREATMENT TO HARE HOLDIN G AS INVESTMENT IN BALANCE SHEET. HE HAS RELIED UPON THE CIRCULAR ISSUED BY THE CBDT NO.4/2007 DT 15.6.2007. IT WAS POINTED OUT THAT THE ASSESSING OFFICER WAS WRONG IN STATING IN THE ASSESSMENT ORDER 4 ITA NO. 1450/MUM/2009 (ASST YEAR 2005-06) THAT THE ASSESSEE HAS OBTAINED LOANS OF RS. 19,75,0 00/ FROM FAMILY MEMBER AND RS. 7 LACS FROM AN OUTSIDER. HE POINTED OUT THAT INSTEAD OF TAKING LOAN, ASSESSEE HAS ADVANCED MONEY TO THE FAMILY MEMBERS AND OUTSIDERS WHICH IS RECEIVED BACK IN THIS YEAR. THE ASSESSING OFFICER HAS MISUNDERSTOOD THE LEDGER ACCOUNT AS IF ASSESSEE HAS BORROWED FUNDS. TO SUPPORT HER CLAIM, THE LD AR FILED COPIES OF THE LEDGER ACCOUNTS OF ALL SUCH PARTIES. IT WAS POINTED OUT TH AT THE ASSESSING OFFICER IS ERRONEOUS IN OBSERVING THAT THE ASSESSEE HAS NO OTHER ACTIVIT Y. IT WAS SUBMITTED THAT THE ASSESSEE IS MAKING INVESTMENT IN PROPERTIES ALSO AN D EARNING APPRECIATION ON IT. IT WAS ALSO SUBMITTED THAT IN JUST PRECEDING YEAR I.E. ASSESSMENT YEAR 2004-05, THE ASSESSMENT WAS COMPLETED U/S 143(3) AND IN SIMILAR CIRCUMSTANCES, INCOME FROM SHARES HAS BEEN TAXED AS SHORT TERM CAPITAL GAIN. HE HAS FILED A COPY OF THE ASSESSMENT ORDER PASSED U/S 143(3) FOR ASSESSMENT Y EAR 2004-05. HE HAS REFERRED THE BALANCE SHEET AND SUBMITTED THAT THE ASSESSEE C ARRIED ONLY 49 TRANSACTIONS OF SALE AND PURCHASE OF SHARES DURING THE YEAR. HE HAS ALSO CONTENDED THAT FOR THE ASSESSMENT YEAR 2004-05 THE ASSESSING OFFICER HAS A CCEPTED THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAIN ON SALE OF SHA RES THEN IN SIMILAR CIRCUMSTANCES THE IDENTICAL INCOME CANNOT BE TREATED AS BUSINESS INCOME. 4 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER ARRIVED AT THE C ONCLUSION THAT THE NATURE OF TRANSACTION IS TRADING IN SHARES AND NOT INVESTMEN T ON THE BASIS THAT FREQUENCY OF PURCHASE AND SALE OF SHARES IS VERY HIGH, LARGE VOL UME OF TRANSACTION AND HOLDING PERIOD IS VERY LESS. IT IS TO BE NOTED THAT THE AS SESSEE HAS MAINTAINED TWO PORTFOLIOS IN THE BOOKS OF ACCOUNT I.E. DELIVERY BASED TRANSACTIO NS, WHICH ARE KEPT IN THE INVESTMENT PORTFOLIO WHEREAS NON DELIVERY BASED TRA NSACTIONS WHICH ARE TREATED AS TRADING ACTIVITY. AS POINTED OUT BY THE LD AR OF T HE ASSESSEE AND CLEARLY ESTABLISHED 5 ITA NO. 1450/MUM/2009 (ASST YEAR 2005-06) FROM THE RECORDS, PARTICULARLY THE LEDGER ACCOUNT O F THE CONCERNED PARTIES THAT THE ASSESSEE DID NOT TAKE ANY LOAN AND NO BORROWED FUND WAS USED FOR PURCHASE AND SALE OF SHARES KEPT AS INVESTMENT. RATHER THE ASSES SEEHAS GIVEN THE ADVANCES TO THE VARIOUS PARTIES AND DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAS RECEIVED BACK THE LOANS, WHICH WERE MISUNDERSTOOD AND MISTAK EN BY THE ASSESSING OFFICER AS LOAN TAKEN BY THE ASSESSEE. THEREFORE, WHEN THE ASS ESSEE USED HER OWN FUNDS AND CARRIED OUT ONLY 49 TRANSACTIONS OF SALE AND PURCHA SE DURING THE YEAR AND SURPLUS OF THE SAME WAS ADMITTED BY THE ASSESSEE AS STCG, THEN , MERELY BECAUSE THE VOLUME IS LARGE AND FREQUENCY OF TRANSACTIONS IS HIGH WO ULD NOT LEAD TO THE CONCLUSION THAT THE NATURE OF THE TRANSACTION IS TRADING AND NOT IN VESTMENT. NO SINGLE FORMULA OR PRINCIPLE CAN BE A DETERMINATIVE FACTOR FOR DECIDIN G THE NATURE OF THE TRANSACTION I.E. TRADING OR INVESTMENT. THERE ARE VARIOUS FACT ORS TO BE TAKEN INTO ACCOUNT IN ORDER TO DECIDE THE NATURE OF THE TRANSACTION. 5 CBDT, IN THE CIRCULAR NO.4 OF 2007 DATED 15.6.200 7, AFTER TAKING NOTE OF THE DECISION OF THE HONBLE SUPREME COURT HAS FORMULATE D VARIOUS GUIDELINES FOR AUTHORITIES FOR DECIDING THE QUESTION OF NATURE OF TRANSACTION AS TRADING OR INVESTMENT. THE PRINCIPLES, AS EMERGED OUT FROM THE VARIOUS PRECEDENTS AS WELL AS FROM THE CBDT CIRCULAR, CITED ABOVE, ARE THE INTEN TION OF THE ASSESSEE, AT THE TIME OF PURCHASE AND SALE OF SHARES WHETHER THE ASSESSEE HA S BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON. THE FREQUENCY OF SUCH P URCHASE AND DISPOSAL IN THAT PARTICULAR ITEM, WHETHER THE PURCHASE AND SALE FOR REALIZING THE PROFIT OR PURCHASE IS MADE FOR RETENTION AND APPRECIATION IN ITS VALUE A ND HOW THE VALUE OF THE ITEM HAS BEEN TAKEN IN THE BALANCE SHEET. THEREFORE, THE ISS UE OF DETERMINATION OF THE NATURE OF THE TRANSACTION CAN BE DECIDED ONLY BY TAKING IN TO CONSIDERATION THESE RELEVANT 6 ITA NO. 1450/MUM/2009 (ASST YEAR 2005-06) FACTS AND PRINCIPLE AS SET OUT BY THE HONBLE SUPRE ME COURT AND HIGH COURTS AS WELL AS IN THE CBDT CIRCULAR. 6 IN THE CASE IN HAND, THE NUMBER OF TRANSACTIONS A RE VERY FEW I.E. 49 ONLY AND THE ASSESSEE HAS USED HER OWN FUNDS. FURTHER, THE A SSESSEE HAS TREATED THE PURCHASE OF SHARES AS INVESTMENT IN THE BOOKS OF ACCOUNT AND THE ITEM HAS BEEN TAKEN AT COST IN THE BALANCE SHEET AND NOT AS A STOCK IN TRADE AT COST OR REALIZATION VALUE. 7 HAVING REGARD TO THE TOTALITY OF THE FACTS AND CI RCUMSTANCES OF THE CASE, IT CANNOT BE SAID THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE ARE IN THE NATURE OF TRADING AND NOT INVESTMENT MERELY ON THE GROUND THA T VOLUME IS LARGE. ACCORDINGLY, WE DO NOT SEE ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A), QUA, THIS ISSUE AND THE SAME IS UPHELD. 8 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 29 TH , DAY OF JULY 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 29 TH ,JULY 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI