ACIT 20(3), MUMBAI V. USHA J KOTICHA, MUMBAI

ITA 1502/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9285 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 06-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 24-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J D MISTRY; SANJIV M SHAH
• Keywords: Business income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . !'#$ , % &' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO.1502/MUM/2010 ( ( ( ( ( / ASSESSMENT YEAR : 2006-07 THE DCIT-20(3), PIRAMAL CHAMBERS, PAREL, MUMBAI-400 012 / VS. SMT. USHA J. KOTICHA, 701/703, NISARG. 1340-41, PALI HILL, BANDRA (W), MUMBAI-400 050 ') % ./ *+ ./PAN/GIR NO. : AFRPK 5229D ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY: SHRI MANOJ KUMAR -.), 0 / / RESPONDENT BY : SHRI J.D. MISTRY & SHRI SANJIV M. SHAH 0 12% / DATE OF HEARING : 6.12.2012 34( 0 12% /DATE OF PRONOUNCEMENT :12.12.2012 &5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-31, MUMBAI DT.4.12.2009 PERTAINING TO A.Y. 2006-07. 2. THE REVENUE HAS RAISED SEVEN GROUNDS OF APPEAL. THE SUM AND SUBSTANCE OF THE GRIEVANCE RAISED BY THE REVENUE IS THAT THE LD. CIT(A) ITA NO. 1502/MUM/2010 2 OUGHT NOT TO HAVE DIRECTED THE AO TO TREAT SHORT TE RM CAPITAL GAIN/LONG TERM CAPITAL GAIN AS SUCH, AS AGAINST BUSINESS INCO ME TREATED BY THE AO. 3. FACTS AT THE TIME OF THE ASSESSMENT SHOW THAT DU RING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DERIVES INCOME FROM CAPITAL GAIN IN RE SPECT OF SHARE TRANSACTION AND HAS DECLARED SHORT TERM CAPITAL GAI N (STCG) AT RS. 77,18,653 AND LONG TERM CAPITAL GAIN(LTCG) AT RS. 7 5,80,703/-. THEREAFTER, THE AO WENT ON TO DISCUSS THE STCG AND LTCG AS DECLARED BY THE ASSESSEE. THE AO WAS OF THE FIRM BELIEF THA T THE ASSESSEE IS NOT AN INVESTOR BUT A TRADER IN SHARES AND AFTER CONSIDERI NG THE TRANSACTIONS , AND JUDICIAL DECISIONS , OF THE ASSESSEE, THE AO FINALL Y CAME TO A FINDING AS UNDER: HAVING CONSIDERED THE FACTS OF THE ASSESSEES CASE VIS--VIS THE ABOVE RELEVANT GUIDELINES, IT IS EVIDENTLY CLEA R THAT THE ACTIVITY OF INVESTMENT IN SHARES CLAIMED TO BE THE BASIS FOR DISCLOSING THE PROFIT UNDER THE HEAD CAPITAL GAIN I N RESPECT OF SHARE TRANSACTIONS IN WHICH DELIVERY HAS BEEN TA KEN AND GIVEN ON PURCHASE AND SALE OF SHARES IS NOT ACTUALL Y THE CORRECT STAND TAKEN BY THE ASSESSEE. THE VOLUME AN D THE NATURE OF TRANSACTIONS AS DISCUSSED HEREINABOVE CLE ARLY INDICATES AND ESTABLISHES THAT THE DELIVERY BASED T RANSACTIONS OF SHARES IS NOTHING BUT THE TRADING ACTIVITY OF TH E ASSESSEE AND THE INCOME DECLARED UNDER THE HEAD CAPITAL GAIN IN RESPECT OF TRANSACTIONS OF SHARES NEEDS TO BE TERME D AS TRADING IN SHARES LIABLE TO BE TAXED AS BUSINESS IN COME AND NOT INCOME UNDER THE HEAD CAPITAL GAINS. THE SHORT TERM CAPITAL GAIN OF RS. 77,18,653/- DECLARED BY THE ASS ESSEE AND LONG TERM CAPITAL GAIN OF RS. 75,80,702/- IS TAXED AS INCOME FROM BUSINESS OR PROFESSION. 4. THE ASSESSEE STRONGLY AGITATED THIS MATTER BEFOR E THE LD. CIT(A) AND CONTENDED THAT THE ASSESSEE IS AN INVESTOR AND NOT A TRADER. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS MADE BY T HE ASSESSEE, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS TAKEN DELIVER Y OF SHARES AT THE ITA NO. 1502/MUM/2010 3 TIME OF PURCHASE AND GIVEN DELIVERY OF THESE SHARES AT THE TIME OF ITS SALE. THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESS EE HAS MAINTAINED SEPARATE ACCOUNTS OF THE RESPECTIVE SHARE TRANSACTI ONS IN HER BOOKS OF ACCOUNT. THE SHARES HAVE BEEN HELD AS INVESTMENT A ND VALUED AT COST PRICE. THE LD. CIT(A) ALSO FOUND THAT THE ASSESSEE HAS SHOWN THE SAME PATTERN OF INCOME IN HER PRECEDING ASSESSMENT YEARS WHICH IS DULY ACCEPTED AND ASSESSED, AS SUCH BY THE AO, STRONGLY OBJECTING TO THE VIEW OF THE AO THAT THE ASSESSEE HAS UTILIZED BORROWED F UNDS, IT WAS CONTENDED THAT THERE IS NO OUTSIDE BORROWINGS AND A S AND WHEN THE ASSESSEE NEEDED FUNDS, SHE HAS BORROWED FROM HER HU SBAND. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S OF THE ASSESSEE, THE LD. CIT(A) GAVE A CATEGORICAL FINDING THAT IN THE SHARES WHERE THE ASSESSEE HAS PERSISTENTLY AND REPEATEDLY PURCHASED AND SOLD THE SAME SHARES FOR MORE THAN FOUR TIMES , DURING THE RELEV ANT ASSESSMENT YEAR, TO THAT EXTENT, THE ASSESSEE MAY BE TREATED AS A TRADE R OF THESE SHARES AS EXHIBITED AS PER ANNEXUREA TO THE APPELLATE ORDE R, THE LD. CIT(A) DIRECTED THE AO TO TREAT THE STCG AS BUSINESS INCOM E OF THE ASSESSEE AND THE BALANCE AS CAPITAL GAINS TO BE ASSESSED AS STCG/LTCG DEPENDING UPON THE PERIOD OF HOLDING. 5. THE ASSESSEE HAS ACCEPTED THIS FINDING OF THE LD . CIT(A). HOWEVER, THE REVENUE BEING AGGRIEVED IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY CON TENDED THAT LOOKING TO THE NATURE OF TRANSACTIONS DONE BY THE A SSESSEE DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS TO BE TREATED AS A TRADER AND NOT AN INVESTOR. TO SUBSTANTIATE HIS CLAIM, THE LD. DR RE LIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF SMT. SADHANA NABERA VS ACIT IN ITA NO. ITA NO. 1502/MUM/2010 4 2586/MUM/2009 AND IN THE CASE OF RAKESH J. SANGHVI VS DCIT IN ITA NOS 4607 OF 2008 AND 5710 OF 2009 RESPECTIVELY. 7. PER CONTRA, THE LD. SENIOR COUNSEL FOR THE ASSES SEE SUPPORTING THE FINDINGS OF THE LD. CIT(A) GAVE A COMPILATION OF CA SE LAWS EXHIBITED AT PAGE-1 TO 103 OF THE PAPER BOOK SUBMITTED BEFORE US . 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE DECISIONS SUBMITTED BY THE RIVAL PARTIES. THE DISPUTE IS REGARDING THE NATURE OF INCOME FROM SALE AND PURCHASE OF SHAR ES BY THE ASSESSEE. THE ISSUE, WHETHER THE INCOME FROM SALE A ND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CA PITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THER E ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE PRESENT CASE, THE ASSESSEE HAD HELD THE MAJORITY OF SHARES FOR A VERY LONG TIM E. IT IS POSSIBLE FOR THE INVESTOR TO SELL SHARES AFTER HOLDING FOR LESS THAN A YEAR IN ORDER TO RESHUFFLE PORTFOLIO. EVEN THE CBDT IN ITS INSTRUCT ION DT. 16.5.2006 HAS SAID THAT THE ASSESSEE CAN MAINTAIN TWO PORTFOL IOS ONE AS AN INVESTOR AND OTHER AS A TRADER. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF CIT VS GOPAL PUROHIT REPORTED IN 228 CTR 5 82 WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT CONFIRMED THE FIN DINGS OF THE TRIBUNAL THAT THE ASSESSEE IS ENGAGED IN TWO DIFFE RENT TYPES OF TRANSACTIONS NAMELY INVESTMENT IN SHARES AND DEALIN G IN SHARES FOR THE PURPOSE OF BUSINESS. THE HONBLE SUPREME COURT DISMISSED S.L.P. FILED BY THE REVENUE AGAINST THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUP RA). THE MAIN ALLEGATION OF THE AO WHILE TREATING STCG/LTCG AS BUSINESS INCOME IS THAT THE ASSESSEE WAS ENGAGED IN HIGH FREQUENC Y OF TRANSACTION. SIMILAR ISSUE CAME UP FOR HEARING BEFORE THE TRIBUN AL IN THE CASE OF DCIT VS SMK SHARES & STOCK BROKING PVT. LTD. IN ITA NO. 799/M/09 ITA NO. 1502/MUM/2010 5 WHEREIN THE TRIBUNAL AT PAGE-9 PARA-13 OF ITS ORDER AFTER CONSIDERING THE CIRCULAR OF CBDT HELD AS UNDER: IT IS TRUE THAT VOLUME OF TRANSACTION IS AN IMPORT ANT INDICATOR OF THE INTENTION OF THE ASSESSEE WHETHER TO DEAL IN SHARES AS TRADING ASSET OR TO HOLD THE SHARES AS IN VESTOR BUT CERTAINLY NOT THE SOLE CRITERION. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICERS CONCLUSION THAT SINCE SALE AND PURCHASE HAD BEEN DETERMINED BY THE VOLATILITY IN THE MARKET, TH E SAME IS AGAINST THE BASIC FEATURE OF INVESTOR, IS NOT BASED ON SOUND RATIONAL REASONING. A PRUDENT INVESTOR ALWAYS KEEPS A WATCH ON THE MARKET TRENDS AND, THEREFORE, IS NOT BARRED U NDER LAW FROM LIQUIDATING HIS INVESTMENTS IN SHARES. THE LAW ITSE LF HAS RECOGNISED THIS FACT BY TAXING THESE TRANSACTIONS U NDER THE HEAD SHORT TERM CAPITAL GAINS. IF THE ASSESSING OFFICE RS REASONING IS ACCEPTED, THEN IT WOULD BE AGAINST THE LEGISLATIVE INTENT ITSELF. IT IS ALWAYS A VEXED QUESTION TO FIND OUT AS TO WHETHER T HE ASSESSEE WAS HOLDING THE SHARES AS STOCK IN TRADE OR UNDER A N INVESTMENT PORTFOLIO PARTICULARLY BECAUSE ONE HAS TO INFER THE INTENTION OF THE ASSESSEE WHICH IS PRIMARILY WITHIN HIS OWN KNOWLEDG E. THE CONDUCT OF THE ASSESSEE ASSUMES SIGNIFICANCE IN THI S REGARD. IT HAS BEEN LAID DOWN IN VARIOUS JUDICIAL PRONOUNCEMEN TS THAT THERE IS NO ACID TEST TO DECIDE THIS ISSUE. IN THE PRESEN T CASE, WE FIND THAT THE ASSESSING OFFICER WHILE PASSING ASSESSMENT ORDER UNDER SECTION 143(3) FOR ASSESSMENT YEARS 2001-02 AND 200 4-05, DID NOT DISPUTE THE ASSESSEES CLAIM REGARDING PROFIT O N SALE OF INVESTMENT. ONE MORE IMPORTANT ASPECT IS THAT THE ASSESSEE HAD NOT BORROWED ANY FUND FOR INVESTMENT IN SHARES AND THIS FACT CANNOT BE LOST SIGHT OFF WHILE DECIDING T HE TRUE INTENTION OF THE ASSESSEE. 9. IT WOULD NOT BE OUT OF PLACE TO MENTION THAT THE TRIBUNAL WHILE DECIDING THE APPEAL HAS CONSIDERED THE DECISION OF SMT. SADHANA NABERA VS ACIT IN ITA NO. 2586/MUM/2009 (SUPRA) RE LIED UPON BY THE LD. DR. THE LD. CIT(A) HAS POINTED OUT THAT IN EAR LIER YEARS, THE REVENUE HAS ACCEPTED SIMILAR TRANSACTIONS DONE BY T HE ASSESSEE. HOWEVER, AT THE SAME TIME, THE LD. CIT(A) FOUND THA T THERE WAS A DISTINGUISHING FEATURE DURING THE YEAR UNDER CONSID ERATION IN RESPECT OF CERTAIN TRANSACTIONS IN CERTAIN SHARES FOR WHICH TH E LD. CIT(A) HIMSELF HAS DIRECTED THE AO TO TREAT THE INCOME UNDER THE H EAD BUSINESS INCOME ON PROFITS OF THOSE SHARES. THUS THE MATERIAL CHAN GE IN ACTIVITY OF THE ITA NO. 1502/MUM/2010 6 ASSESSEE FROM EARLIER ASSESSMENT YEAR HAS BEEN PROP ERLY TAKEN CARE OF BY THE LD. CIT(A). AS NO OTHER DISTINGUISHING FEATURE HAS BEEN BROUGHT ON RECORD, WE HAVE NO HESITATION IN CONFIRMING THE FIN DINGS OF THE LD. CIT(A). ACCORDINGLY THE REVENUES APPEAL IS DISMIS SED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6 17 *' 0 8 %6* 0 *1 9# ORDER PRONOUNCED IN THE OPEN COURT ON 12.12.2012 . &5 0 4( % 8 :&7 12.12.2012 4 0 ; SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA) /PRESIDENT % &' / ACCOUNTANT MEMBER MUMBAI; :& DATED 12/12/2012 . . ./ RJ , SR. PS &5 0 -1! ; -1 , , / DR, ITAT, MUMBAI 6. ;? / GUARD FILE. &5 / BY ORDER, .!1 -1 //TRUE COPY// @ / 9 * DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI