DCIT, Pune V. Atul Jagdish Khanna, Pune

ITA 1567/PUN/2012

• Counselvise Citation: 156724514 RSA 2012
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 19-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJEEM SHARMA
• Assessee Lawyers: C B DOSHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'#$ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1567/PN/2012 #% & '& / ASSESSMENT YEAR : 2005-06 DY. COMMISSIONER OF INCOME TAX, CIRCLE 2, PUNE . / APPELLANT (% V/S. ATUL JAGDISH KHANNA, 11, FLORIANA ESTATES, OPP. BOAT CLUB ROAD., PUNE 411001 PAN : ADQPK9690K . / RESPONDENT / APPELLANT BY : SHRI JAYESH DADIA & SHRI C.B. DOSHI / DEPARTMENT BY : SHRI AJEEM SHARMA ) DATE OF HEARING :26-05-2015 / DATE OF PRONOUNCEMENT :27-07-2015 *) ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE DATED 30-03 -2012 FOR THE ASSESSMENT YEAR 2005-06. THE ONLY ISSUE RAISED IN THE APPEAL IS WHETHER THE PROFITS FROM SALE OF SHARES THROUGH PORTFOLIO MANAGEMEN T SERVICES 2 ITA NO. 1567/PN/2012, A.Y. 2005-06 (PMS) TO BE TREATED AS INCOME FROM CAPITAL GAINS OR TO BE TAXED UNDER THE HEAD PROFITS FROM BUSINESS. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE : THE ASSESSEE IS AN INDIVIDUAL. THE ASSESSEE FILED HIS RETURN OF IN COME FOR THE ASSESSMENT YEAR 2005-06 ON 31-03-2006 DECLARING TOTAL INCOME OF RS.2,24,85,110/-. IN HIS RETURN OF INCOME, THE ASSESSEE DIS CLOSED INCOME FROM HOUSE PROPERTY AND SHORT/LONG TERM CAPITAL GAINS A RISING FROM SALE OF SHARES. THE ASSESSEE IS HOLDING SHARES OF VARIOUS COMPANIES AS INVESTMENT. DURING THE YEAR, THE ASSESSEE SOLD SHARES AND INCOME ARISING THERE FROM WAS DISCLOSED AS LONG/SHORT TERM CAPITAL GA INS. THE ASSESSEE HAD TRANSACTED IN SHARES THROUGH BROKERS AS WELL AS PMS. DURING THE COURSE OF SCRUTINY ASSESSMENT THE ASSESSING OFFICER HELD THAT THE PROFITS EARNED BY THE ASSESSEE ON INVESTMENT MADE THROUGH PMS PROVIDERS AMOUNTS TO INCOME UNDER THE HEAD BUSINESS A ND PROFESSION. THE ASSESSING OFFICER THUS TREATED RS.1,09,69,186/- AS IN COME FROM BUSINESS AND PROFESSION AS AGAINST THE INCOME FROM CAPIT AL GAIN SHOWN BY THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 27-12-2010, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) INTER ALIA CHALLENGING THE AFORESAID ADDITION. THE COMMISSIONER OF INCO ME TAX (APPEALS) OBSERVED THAT IN THE ASSESSMENT YEARS 200 6-07 AND 2007-08, THE ISSUE RELATING TO THE GAINS ARISING OUT OF INVE STMENT THROUGH PMS WAS HELD TO BE ASSESSABLE UNDER THE HEAD CAPITAL GA INS. THERE HAS BEEN NO CHANGE IN THE METHOD OF ACCOUNTING OR IN OTHER MATERIAL FACTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. FOLLOWING THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PU ROHIT REPORTED AS 336 ITR 287, THE COMMISSIONER OF INCOME TAX (APPEALS) D ECIDED THE 3 ITA NO. 1567/PN/2012, A.Y. 2005-06 ISSUE IN FAVOUR OF THE ASSESSEE. AGAINST THESE FINDINGS OF T HE COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL. 3. SHRI AJEEM SHARMA REPRESENTING THE DEPARTMENT SUBM ITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRE D IN HOLDING THAT THE GAIN OF RS.1,92,63,109/- FROM SALE OF SHARES IS ASS ESSABLE UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD PROFITS OR GAINS OF BUSINESS OR PROFESSION. THE ASSESSEE CARRIED OUT TRANS ACTION IN HIGH VOLUME AND FREQUENCY, IN AN ORGANIZED MANNER WHICH WOULD C LEARLY ESTABLISH THAT THE NATURE OF ACTIVITY CARRIED OUT BY THE ASSESSEE IS BUSINESS AND NOT INVESTMENT. THE LD. DR FURTHER CONTEND ED THAT THE ASSESSEE HAS TRANSACTED THROUGH BROKERS AS WELL AS TH ROUGH PMS. THE ASSESSEES AGREEMENT WITH PMS CLEARLY STATES THAT THE ASSESSEE HAS APPOINTED PMS AS HIS AGENTS TO CARRY ALL THE TRANSACTIO NS ON HIS BEHALF. THEREFORE, THE NATURE OF ACTIVITY CARRIED OUT THROUGH THE PMS IS CLEARLY BUSINESS AND NOT INVESTMENT. THE LD. DR CONTENDED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN COMING T O THE CONCLUSION THAT OUT OF TOTAL CAPITAL GAINS OF RS.1,92,63,109/- ONLY RS.4,44,132/- RELATES TO PMS AND THE REMAINING RS.1,88,18,977 /- RELATES TO SHARE TRADING DONE BY THE ASSESSEE HIMSELF. THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF ASSESSING OFFICER AND PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 4. ON THE OTHER HAND SHRI JAYESH DADIA AND SHRI C.B. DO SHI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IN APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDE R OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 633 & 634/PN/2011 FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 DECIDED ON 20-11-2012, WHER EIN IDENTICAL ISSUE WAS RAISED. THE TRIBUNAL HELD THAT THE GAIN ARISING FR OM SALE OF 4 ITA NO. 1567/PN/2012, A.Y. 2005-06 SHARES THROUGH PMS IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. THE LD. AR PLACED RECORD A COPY OF THE ORDER OF THE TRIBUNAL IN ITA NOS. 633 & 634/PN/2011. THE LD. AR OF THE ASSESSEE FURTHER SUBMITTE D THAT DURING THE ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 TH E ASSESSEE HAD PURCHASED AND SOLD SHARES AND MUTUAL FUNDS THROUGH SH ARE BROKERS ON DELIVERY BASIS. IN ALL THESE ASSESSMENT YEARS THE ASSESS ING OFFICER HAS ACCEPTED THE GAIN ON SUCH TRANSACTION AS INCOME FROM CA PITAL GAINS IN SCRUTINY ASSESSMENT PROCEEDINGS. IN THE IMPUGNED ASSES SMENT YEAR, ALL THE TRANSACTIONS ARE MADE ON DELIVERY BASIS; INVESTMENT IN SHARES AND MUTUAL FUNDS HAVE BEEN MADE OUT OF OWN FUNDS; THE ASSESS EE HAD NOT CLAIMED EXPENDITURE ON ACCOUNT OF SECURITIES TRANSACTION T AX PAID ON SALE OR PURCHASE OF SHARES AS WELL AS MUTUAL FUNDS; THE AS SESSEE HAD NEVER SHOWN THE SHARES AS STOCK-IN-TRADE IN HIS BOOKS OF ACCOUNT; AND THERE IS NO MATERIAL CHANGE IN THE ACCOUNTING POLICY ADOP TED BY THE ASSESSEE. THE LD. AR CONTENDED THAT MERE HIGH VOLUME O F TRANSACTION WILL NOT ALTER THE NATURE OF TRANSACTIONS. REFERRING TO THE B ALANCE SHEET AT PAGES 15 TO 24 OF THE PAPER BOOK, THE LD. AR POINTED OUT THAT ALL THE SHARES ARE HELD AS INVESTMENTS AND HAVE BEEN SHOWN IN THE BALANCE SHEET AS INVESTMENT. IN ORDER TO BUTTRESS HIS SUBMISSIONS, TH E LD. AR PLACED RELIANCE ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. GOPAL PUROHIT (SUPRA) AND THE ORDER OF DELHI BENCH OF T RIBUNAL IN THE CASE OF NARENDRA GEHLAUT VS. JCIT REPORTED AS 52 SOT 255 (DELHI). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR HAS PLACED RELIANCE. THE REVENUE IN APPEAL HAS RAISED AS MANY AS T WELVE GROUNDS. THE CRUX OF THE GROUNDS RAISED BY THE REVENUE IN APPEA L IS THAT THE INCOME EARNED BY THE ASSESSEE FROM SALE OF SHARES HAS B EEN WRONGLY 5 ITA NO. 1567/PN/2012, A.Y. 2005-06 ASSESSED AS SHORT/LONG TERM CAPITAL GAINS, INSTEAD THE S AME SHOULD BE ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS O R PROFESSION. THE ASSESSEE DURING THE YEAR HAS EARNED INCOME OF RS.1,9 2,63,109/- FROM PURCHASE AND SALE OF SHARES. THE ASSESSEE HAD TRANSAC TED IN SHARES THROUGH BROKERS AS WELL AS PMS. IT IS AN UNDISPUTED FAC T THAT ALL THE SHARES WERE PURCHASED AND SOLD ON DELIVERY BASIS. IT H AS ALSO NOT BEEN DISPUTED THAT THE SHARES HELD BY THE ASSESSEE ARE SHO WN AS INVESTMENT IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER DURING THE S CRUTINY ASSESSMENT PROCEEDINGS HELD THAT THE PROFITS EARNED BY THE ASSESSEE ON INVESTMENT MADE THROUGH PMS AMOUNTS TO INCOME FROM BU SINESS OR PROFESSION. WE OBSERVE THAT SIMILAR ISSUE HAD COME UP BE FORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR S 2006-07 AND 2007-08 IN ITA NOS. 633 AND 634/PN/2011. THE TRIBUNAL HELD THAT THE GAIN FROM SALE OF SHARES THROUGH PMS WAS LIABLE TO BE ASS ESSED UNDER THE HEAD CAPITAL GAINS. THE CO-ORDINATE BENCH WHILE HOLDING SO RELIED ON THE DECISION RENDERED IN THE CASE OF APPORVA PATNI VS. AD DITIONAL CIT REPORTED AS 24 TAXMANN.COM 223 (PUNE)(TRIB.), WHEREIN IDENT ICAL ISSUE WAS DECIDED. THE LD. DR HAS NOT BEEN ABLE TO CONTROVER T THE FINDINGS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE. 6. THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE PRAC TICE OF RECORDING THE SHARE TRANSACTIONS AS INVESTMENT. IN THE IMPUGNED ASSESSMENT YEAR AS WELL AS IN SUBSEQUENT ASSESSMENT YE ARS THERE HAS BEEN NO CHANGE IN ACCOUNTING METHOD. THE LD. DR HAS NO T BEEN ABLE TO REFUTE THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE. TH EREFORE, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE VIEW ALREADY TAKE N BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR SUBSEQUENT ASSESSMENT YEARS. ACCORDINGLY, IN THE FACTS OF THE CAS E, WE HOLD THAT, THE INCOME ARISING FROM THE SALE OF SHARES AND MUTUAL FUNDS IRRE SPECT OF THE 6 ITA NO. 1567/PN/2012, A.Y. 2005-06 FACT WHETHER THEY ARE TRANSACTED THROUGH BROKERS OR PMS IS TAXABLE UNDER THE HEAD CAPITAL GAINS. THE ORDER OF COMMISSIONER OF INC OME TAX (APPEALS) IS UPHELD AND THE APPEAL OF THE REVENUE IS DISMISS ED BEING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON MONDAY, THE 27 TH DAY OF JULY, 2015 AT PUNE SD/- SD/- ( / R.K. PANDA) ( ! ' / VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER # PUNE; $% /DATED : 27 TH JULY, 2015 RK/PS *+,#-. / '- # COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & ' ( / THE CIT(A)-II, PUNE 4. & /THE CIT-II, PUNE 5. !)* ++,- , ,- , ./0 , # DR, ITAT, A BENCH, PUNE 6. * 1 2 # GUARD FILE. ! + //TRUE COPY// *% / BY ORDER, #%0 1) PRIVATE SECRETARY, ' /ITAT, PUNE