UPENDRABHAI M. PATEL, MUMBAI V. ASST CIT 12(2), MUMBAI

ITA 1557/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78889 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 18-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Salary income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI . . , , . . !' # , $ BEFORE SHRII P BANSAL, JUDICIAL MEMBER & SHRI N K B ILLAIYA, AM ./ ITA NO.1557/MUM/2012 % &% / ASSESSMENT YEAR 2008-09 SHRI UPENDRABHAI M PATEL 102, SHARDA CHAMBERS, NEW MARINE LINES, MUMBAI- 400 020 PAN ABPPP2245J VS. THE ACIT 12(2) MUMBAI ( '( /APPELLANT) ( )*'( /RESPONDENT) APPELLANTS BY : SHRI SUNIL TALATI RESPONDENT BY : SHRI RAVI PRAKASH + ,-# / DATE OF HEARING :12.05.2014. ./& + ,-# / DATE OF PRONOUNCEMENT : 16.05.2014 0 0 0 0 / O R D E R PER N K BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-23, MUMBAI, DATED 02.12.2011 PERTAINING TO A.Y. 2008-09 . THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE AO ERRED IN TREATING THE INCOM E FROM SALE OF SHARES AS BUSINESS INCOME AND THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE AO. 2. THE ASSESSEE IS CHAIRMAN OF M/S. DINESH MILLS LT D. AND DERIVES SALARY INCOME. HE ALSO DERIVES SHARE OF PROFIT FROM M/S. YUBI INVE STMENT AND PATEL INVESTMENT. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, THE AO NOTICED THAT THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAINS AT RS.1 9,67,450/-. THE AO WAS OF THE ITA NO.1557/MUM/2012 2 STRONG BELIEF THAT THE ASSESSEE WAS ACTUALLY DOING BUSINESS IN TRADING IN SHARES. THE AO ACCORDINGLY ISSUED NOTICE TO THE ASSESSEE TO EXPLAIN WHY THE PROFIT ON SALE OF SHARES SHOWN AS SHORT TERM CAPITAL GAINS SHOULD NOT BE TAXED AS BUSINESS INCOME IN VIEW OF THE BOARDS CIRCULAR NO.4/2007. THE ASS ESSEE FILED A DETAILED REPLY DATED 01.12.2010. IT WAS EXPLAINED THAT THE ASSESSEE IS DRAWING SALARY OF RS.44,85,225 FROM M/S. DINESH MILLS LTD. IT WAS EXPLAINED THAT THE ASSESSEE HAS ALSO INVESTED IN SHARES, MUTUAL FUNDS FROM WHICH HE EARNED SHORT TER M CAPITAL GAINS OF RS.19,67,450/-. THE ASSESSEE STRONGLY SUBMITTED TH AT HE IS AN INVESTOR AND IN SUPPORT OF HIS SUBMISSIONS RELIANCE WAS PLACED ON T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT. 3. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND FAV OUR FROM THE AO. CONSIDERING THE VOLUME AND FREQUENCY OF TRANSACTION S IN SHARES THE ASSESSEE HAS CARRIED OUT, THE AO WAS OF THE OPINION THAT THE ASS ESSEE IS IN THE BUSINESS OF TRADING IN SHARES AND ALL PROFITS ON SUCH TRADING ACTIVITY WAS TREATED AS BUSINESS INCOME OF THE ASSESSEE. THE ASSESSEE CARRIED THE MATTER BEFO RE THE CIT(A) BUT WITHOUT ANY SUCCESS. AGGRIEVED, THE ASSESSEE IS BEFORE US. 4. THE COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT BOTH THE LOWER AUTHORITIES HAVE GROSSLY ERRED IN TREATING THE ASSE SSEE AS TRADER IN SHARES. THE COUNSEL ARGUED THAT THE ASSESSEE IS A CHAIRMAN AND MD OF DINESH MILLS LTD., DEVOTING FULL TIME OF HIS SERVICES TO THE COMPANY A ND, THEREFORE, THE ASSESSEE IS LEFT WITH NO TIME TO DO TRADING IN SHARES. THE MOTIVE B EHIND THE PURCHASE OF SHARES AND MUTUAL FUNDS IS INVESTMENT AND, THEREFORE, GAINS AR ISING OUT OF SHARE TRANSACTIONS DESERVE TO BE TAXED UNDER THE HEAD SHORT TERM CAPI TAL GAINS. THE DR STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA S DONE 71 TRANSACTIONS IN 37 SHARES, WHICH MEANS 6 TRANSACTIONS PER MONTH. BY A NY STRETCH OF IMAGINATION THIS CANNOT BE CONSIDERED AS HIGH FREQUENCY TRANSACTIONS . WE FURTHER FIND THAT THE ASSESSEE HAS A CAPITAL OF RS.9.60 CRORES. THE ASSE SSEE DOES NOT HAVE ANY BORROWINGS. THE ASSESSEE HAS BEEN SHOWING BONDS, D EBENTURES, FIXED DEPOSITS, ITA NO.1557/MUM/2012 3 MUTUAL FUNDS AND SHARES UNDER THE HEAD INVESTMENT . IN CIT V/S MADAN GOPAL RADHEY LAL, [1969] 73 ITR 652 (SC), THE HON'BLE SUP REME COURT HAS DEALT WITH THE ISSUE AND DISCUSSED THE QUESTION: A TRADER MAY ACQUIRE A COMMODITY IN WHICH HE IS DE ALING, FOR, HIS OWN PURPOSES, AND HOLD IT APART FROM THE STOCK-IN-TRADE OF HIS BUSINESS. THERE IS NO PRESUMPTION THAT SUCH AN ACQUISITION, E VEN IF IT IS AN ACCRETION TO THE STOCK-IN-TRADE OF THE BUSINESS, IS AN ACQUISITION FOR THE PURPOSE OF HIS BUSINESS: IN EACH CASE THE QUESTION IS ONE OF INTENTION TO BE GATHERED FROM THE EVIDENCE OF CONDUCT AND DEA LINGS BY THE ACQUIRER WITH THE COMMODITY. IN ASSOCIATED INDUSTRIAL DEVELOPMENT (SUPRA), THE SUPREME COURT OBSERVED AS FOLLOWS: .IT WAS OPEN TO THE ASSESSEE TO CONTEND THAT EVE N ON THE ASSUMPTION THAT IT HAD BECOME A DEALER AND WAS NO L ONGER AN INVESTOR IN SHARES THE PARTICULAR HOLDINGS WHICH HAD BEEN CL EARED AND THE SALES OF WHICH HAD RESULTED IN THE PROFIT IN QUESTION HAD ALWAYS BEEN TREATED BY IT AS AN INVESTMENT. IT CAN HARDLY BE DISPUTED T HAT THERE WAS NO BAR TO A DEALER INVESTING IN SHARES. BUT THEN THE MATTE R DOES NOT REST PURELY ON THE TECHNICAL QUESTION OF ONUS WHICH UNDO UBTEDLY IS INITIALLY ON THE REVENUE TO PROVE THAT A PARTICULAR ITEM OF R ECEIPT IS TAXABLE. WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF 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 DISTINC TION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. 6. THE HON'BLE SUPREME COURT IN ANOTHER CASE IN P.M . MOHAMMED MEERAKHAN (P.M.) V/S CIT, [1969] 073 ITR 735 (SC), REITERATED THAT IT WAS NOT POSSIBLE TO EVOLVE ANY SINGLE TEST OR FORMULA WHICH COULD BE AP PLIED IN DETERMINING THE TRANSACTION AS ADVENTURE IN NATURE OF TRADE OR NOT. THE DISTINCTION BETWEEN THE TWO TYPES OF TRANSACTION IS NOT ALWAYS EASY TO MAKE. WH ETHER THE TRANSACTION IS OF ONE KIND OR THE OTHER DEPENDS ON THE QUESTION WHETHER T HE EXCESS IS AN ENHANCEMENT OF ITA NO.1557/MUM/2012 4 THE VALUE BY REALIZING THE SECURITY OR A GAIN IN AN OPERATION OF PROFIT MAKING. THE ASSESSEE MIGHT HAVE INVESTED CAPITAL IN SHARES WITH AN INTENTION TO RESALE THESE IF IN FUTURE THEIR SALE BRINGS IN A HIGHER PRICE. SUCH AN INVESTMENT THOUGH MOTIVATED BY A POSSIBILITY OF ENHANCEMENT VALUE, DID NOT NECESSARI LY RENDER THE INVESTMENT A TRANSACTION IN THE NATURE OF TRADE. 7. IT IS ALSO TO BE NOTED THAT THE LONG TERM CAPITA L GAIN HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. IF THE ASSESSING OFFICER IS OF THE FIRM BELIEF THAT THE ASSESSEE IS ENGAGED IN TRADING ACTIVITIES IN THE SHARES, THE N IT DOES NOT MAKE ANY DIFFERENCE WHETHER THE SHARES ARE HELD FOR MORE THAN 12 MONTHS OR LESS THAN 12 MONTHS. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS ACCEPTE D THAT THE ASSESSEE AS AN INVESTOR INSOFAR AS THE LONG TERM CAPITAL GAIN IS C ONCERNED. CONSIDERING THE VOLUME AND FREQUENCY OF THE TRANSACTIONS, WE DO NOT FIND A NY REASON AS TO WHY THE PROFIT SHOULD NOT BE TAXED UNDER THE HEAD SHORT TERM CAPI TAL GAIN AS RETURNED BY THE ASSESSEE. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE CIT(A) AND DIRECT THE AO TO TAX THE GAINS ARISING FROM THE SHARE TRANSACTIONS U NDER THE HEAD SHORT TERM CAPITAL GAIN AS RETURNED BY THE ASSESSEE. THUS THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF MAY, 2014. SD/- SD/- (I P BANSAL) (N K BILLAIYA) /JUDICIAL MEMBER # # # # / ACCOUNTANT MEMBER MUMBAI; 1 DATED : 16 TH MAY, 2014. SA 0 0 0 0 + ++ + ), ), ), ), 2 &, 2 &, 2 &, 2 &, / COPY OF THE ORDER FORWARDED TO : 1. '( /THE APPELLANTS. 2. )*'( / THE RESPONDENT. 3. 3 ( ) / THE CIT(A), MUMBAI. ITA NO.1557/MUM/2012 5 4. 3 / CIT 5. 45 ), , , / DR, F BENCH, ITAT, MUMBAI 0 / BY ORDER, * , ), //TRUE COPY// / 6 7 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI