Shri Hashmukhbhai Nyalchand Vora(HUF), Ahmedabad V. The Dy.CIT.,Cent.Circle-1(1), Ahmedabad

ITA 1590/AHD/2010

• Counselvise Citation: 159020514 RSA 2010
• Duration Of Justice: 5 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: SN SOPARKARAR
• Keywords: Capital asset; Business income; Initiation of penalty proceedings

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ././ ./ ITA NO. 1390/AHD/2010 / ASSESSMENT YEAR: 2006-07 ACIT, CENTRAL CIRCLE 1 (3) AHMEDABAD V/S. HASMUKH N. VORA, HUF, 1 ST FLOOR, H.N. HOUSE, NR. OLD HIGH COURT, NAVRANGPURA, AHMEDABAD PAN : AAAHV 9375 F ./ ././ ./ ITA NO. 1590/AHD/2010 / ASSESSMENT YEAR: 2006-07 HASMUKH N. VORA, HUF, 1 ST FLOOR, H.N. HOUSE, NR. OLD HIGH COURT, NAVRANGPURA, AHMEDABAD PAN : AAAHV 9375 F V/S. ACIT, CENTRAL CIRCLE 1 (3) AHMEDABAD / // / (APPELLANT) / // / (RESPONDENT) REVENUE BY : SHRI NARENDRA SINGH, SR. DR ASSESSEE(S) BY : SHRI S.N. SOPARKAR, AR !' # $%&/ // / DATE OF HEARING : 30/07/2015 '( # $%& / // / DATE OF PRONOUNCEMENT: 07/08/2015 )* )* )* )*/ // / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AN D THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, AHMEDABAD DATED 12.03.2010 FOR ASSESSMENT YEAR 2006 -07. 2. THE ONLY GROUND RAISED IN THE REVENUES APPEAL READS AS UNDER:- ITA NOS.1590 & 1390/AHD/2010 HASMUKH N VORA HUF VS. ACIT AYS 2006-07 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN TREA TING RS.34,12,218/- ARISING OUT OF SHARE TRANSACTION AS SHORT TERM CAPI TAL GAIN AND DIRECTING THE ASSESSING OFFICER TO TAX SURPLUS OF RS.34,12,218/- A S PER PROVISION OF SECTION 111A. 3. IN THE ASSESSEES APPEAL, AS PER THE CONCISE GRO UNDS OF APPEAL, FOLLOWING GROUNDS ARE RAISED:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING GROUN D NO.1 OF THE APPELLANT'S APPEAL BEFORE HIM CHALLENGING THE VALID ITY OF THE ASSESSMENT ORDER IMPUGNED BEFORE HIM, AS BEING GENERAL IN NATURE AND NOT REQUIRING ANY ADJUDICATION. 2. WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AND I N THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REFUSING TO ORDER FOR THE EXCLUSION OF RS.2,20,76,8 42 OUT OF SHORT TERM CAPITAL GAINS OF RS.2,54,93,059 SHOWN IN THE APPELL ANT'S RETURN (WHICH HAD BEEN ASSESSED AS BUSINESS INCOME IN THE ASSESSMENT ORDER IMPUGNED BEFORE HIM). 3. WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AND I N THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING ASSESSMENT OF RS. 2,20,76, 842 (OUT OF SH ORT TERM CAPITAL GAINS OF RS. 2, 54, 93,060 SHOWN IN THE APPELLANT'S RETUR N) AS BUSINESS INCOME INSTEAD OF AS SHORT TERM CAPITAL GAINS ELIGIBLE TO CONCESSIONAL TAX TREATMENT U/S.111A. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REFUSING TO ENTE RTAIN GROUND NO.4 OF THE APPELLANT'S APPEAL BEFORE HIM AFTER OBSERVING THAT THE ISSUE OF LEVY OF INTEREST U/S.234A, 234B, 234C AND 234D WAS ONLY CONSEQUENTIA L IN NATURE. 5. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN ORDERING FOR THE DISMISSAL OF GROUND NO.5 OF THE APPELLANT'S APPEAL BEFORE HIM BY OBSERV ING THAT MERE INITIATION OF PENALTY PROCEEDINGS IS NOT APPEALABLE. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND/OR WITHDRAW THE GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. ITA NOS.1590 & 1390/AHD/2010 HASMUKH N VORA HUF VS. ACIT AYS 2006-07 3 4. GROUND NO.1 OF THE ASSESSEES APPEAL, WHICH IS W ITH REGARD TO VALIDITY OF THE ASSESSMENT ORDER, WAS NOT PRESSED AT THE TIM E OF HEARING BEFORE US; ACCORDINGLY, THE SAME IS REJECTED. 5. GROUND NOS. 2 & 3 OF THE ASSESSEES APPEAL AND T HE ONLY GROUND IN THE REVENUES APPEAL ARE INTERRELATED AND THEREFORE, TH EY ARE BEING CONSIDERED TOGETHER AND ARE BEING ADJUDICATED AS UNDER. 6. THE FACTS OF THE CASE ARE THAT, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DECLARED INCOME OF RS.2,54,93,059/- AS SHO RT TERM CAPITAL GAIN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE CLAIMED THAT OUT OF THE SHORT TERM CAPITAL GAIN OF RS.2,54,93,059/-, A SUM OF RS.2,20,76,842/- IS RECOVERED BY SEBI AS DISGORGEMENT OF THE CAPITAL GA IN EARNED BY THE ASSESSEE. THEREFORE, HE CLAIMED BEFORE THE ASSESSI NG OFFICER THAT THE SHORT TERM CAPITAL GAIN SHOULD BE REDUCED BY SUM OF RS.2, 20,76,842/- WHICH IS DISGORGED BY SEBI. THE ASSESSING OFFICER DID NOT A CCEPT THE ABOVE CLAIM OF REDUCTION FROM THE SHORT TERM CAPITAL GAIN ON ACCOU NT OF DISGORGEMENT. HE ALSO OPINED THAT THE SUM OF RS.2,54,93,059/- OFFERE D AS CAPITAL GAIN IS LIABLE TO BE ASSESSED AS BUSINESS INCOME. ACCORDINGLY, HE ASSESSED THE SUM OF RS.2,54,93,059/- AS BUSINESS INCOME. ON APPEAL, TH E CIT(A) REJECTED THE ASSESSEES CLAIM OF REDUCTION IN THE GAIN ON ACCOUN T OF DISGORGEMENT. HE DIVIDED THE CAPITAL GAIN IN TWO PORTION; (I) THE FI RST PORTION OF THE CAPITAL GAIN, I.E., RS.2,20,76,842/- WAS CONCERNED, THE CIT (A) HELD IT TO BE BUSINESS INCOME. HE WAS OF THE OPINION THAT THIS INCOME WAS EARNED BY THE ASSESSEE BY ILLEGAL ACQUISITION OF CERTAIN SHARES IN IPOS BY FRAUDULENT METHODS. HE, THEREFORE, HELD THAT THE SUM OF RS.2,20,76,842/- SH OULD BE ASSESSED AS BUSINESS INCOME. (II) IN RESPECT OF REMAINING SUM OF RS.34,12,218/-, THE CIT(A) ACCEPTED THE ASSESSEES CONTENTION AND HELD THE SAME TO BE INCOME FROM CAPITAL GAIN. AGAINST THIS FINDING OF THE CIT (A), THE REVENUE IS IN APPEAL. THE ASSESSEE IS IN APPEAL AGAINST THE NON- ALLOWANCE OF REDUCTION ON ITA NOS.1590 & 1390/AHD/2010 HASMUKH N VORA HUF VS. ACIT AYS 2006-07 4 ACCOUNT OF DISGORGEMENT; AND AS AN ALTERNATE CLAIM, IT WAS CONTENDED THAT THE ENTIRE SUM OF RS.2,54,93,059/- SHOULD HAVE BEEN ASSESSED AS SHORT TERM CAPITAL GAIN. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE GROUND NOS. 2 & 3 OF TH E ASSESSEES APPEAL ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, AHMEDABAD BENCH IN THE CASE OF SHRI MONAL Y. THAKKAR AND SMT. REETABEN R. THAKKAR VIDE ITA NOS. 573 AND 574/AHD/2010. IN THE SAID CA SE, THE ITAT HELD AS UNDER:- 16. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS, AND GONE THROUGH THE RECORD CAREFULLY. FROM THE FINDINGS OF THE SEBI, IT IS IMP LICIT CLEAR THAT BOTH THE ASSESSEES HAVE INDULGED IN VIOLATION OF SEBI REGULA TIONS, WHILE MAKING INVESTMENTS IN IPOS. WHATEVER AMOUNTS THEY HAVE ILL EGALLY EARNED, WHICH COULD BE ASSESSED AS THEIR INCOME, HAS BEEN TAKEN A WAY FROM THEM. THEY HAVE ALREADY DISGORGED THE AMOUNT, THOUGH, THE PAYMENT W AS MADE AFTER THE CLOSE OF ACCOUNTING YEAR, AND EVEN AFTER PASSING OF THE A SSESSMENT ORDER. BUT THESE PAYMENTS RELATED TO SAME SHARE TRANSACTIONS, WHICH HAVE GIVEN RISE TO THE ALLEGED INCOME IN THE HANDS OF THE ASSESSEE. THE AP PEAL BEFORE THE CIT(A) IS A CONTINUATION OF THE ORIGINAL PROCEEDINGS. BEFORE TH E CIT(A), THE ASSESSEE HAVE ALREADY TAKEN ADDITIONAL GROUNDS OF APPEAL ON THE S TRENGTH OF THE SEBI ORDER. THEREFORE, WE FIND FORCE IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT ULTIMATELY NO INCOME HAS RESULTED TO THE ASSES SEES, OUT OF THESE SHARE TRANSACTIONS. THE INCOME OF RS.30,98,785/- AND RS.2 9,17,331/- IS TO BE EXCLUDED FROM THE HANDS OF SMT.REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR RESPECTIVELY IN THE ASSTT.YEAR 2006- 07. 8. ADMITTEDLY, THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO THE CASE BEFORE THE ITAT IN THE CASE OF SHRI MONAL Y. THAKKA R (SUPRA). IN THE CASE UNDER APPEAL BEFORE US ALSO THE ASSESSEE HAS INDULG ED IN VIOLATION OF SEBI REGULATION WHILE MAKING INVESTMENT IN IPOS. HOWEVE R, WHATEVER AMOUNTS THE ASSESSEE HAD ILLEGALLY EARNED, WHICH COULD HAVE BEEN ASSESSED AS THEIR INCOME, HAS BEEN TAKEN AWAY BY SEBI FROM THEM. ONC E THE ACTUAL AMOUNTS OF INCOME EARNED THROUGH THE VIOLATION OF SEBI REGU LATION HAVE BEEN ITA NOS.1590 & 1390/AHD/2010 HASMUKH N VORA HUF VS. ACIT AYS 2006-07 5 DISGORGED BY SEBI, ULTIMATELY NO INCOME HAS RESULTE D TO THE ASSESSEE. THUS, APPLYING THE THEORY OF REAL INCOME AND ALSO RELYING UPON THE ABOVE DECISION OF ITAT, AHMEDABAD BENCH, WE ARE OF THE OPINION THA T THE SUM OF RS.2,20,76,842/- IS TO BE EXCLUDED FROM THE ASSESSE ES INCOME. WE ORDER ACCORDINGLY AND HOLD THAT ONLY THE SUM OF RS.34,12, 218/- IS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE IN THE YEAR UNDER CONSIDE RATION. 9. NOW, WE COME TO THE ASSESSABILITY OF THE HEAD UN DER WHICH THE SUM OF RS.34,12,218/- IS TO BE ASSESSED. WE EXPRESS NO OPINION ABOUT THE FINDING OF THE CIT(A) THAT THE SUM OF RS.2,20,76,842/- IS T O BE ASSESSED AS BUSINESS INCOME BECAUSE SINCE WE HAVE HELD THAT ON ACCOUNT O F DISGORGEMENT THE SUM OF RS.2,20,76,842/- IS NOT TO BE ASSESSED IN TH E HANDS OF THE ASSESSEE. ONCE THE AMOUNT IS NOT TO BE TAXED BECAUSE IT HAS A LREADY BEEN RECOVERED BY THE SEBI AND THERE IS NO REAL INCOME IN THE HANDS O F THE ASSESSEE, THE QUESTION OF THE HEAD UNDER WHICH IT IS TO BE ASSESS ED COULD NOT ARISE. NOW, WE REVERT BACK TO THE QUESTION WITH REGARD TO THE H EAD UNDER WHICH THE SUM OF RS.34,12,218/- IS TO BE ASSESSED. THE CIT(A) HEL D THIS SUM TO BE INCOME FROM CAPITAL GAIN WITH THE FOLLOWING FINDING:- 7.4 AS REGARDS TO BALANCE SURPLUS AMOUNT OF RS.34, 12,218/-, THIS SURPLUS HAS ARISEN AS THE APPELLANT HAD INVESTED IN SHARES. IT IS ALSO NOTICED THAT INVESTMENT IN SHARES IS SHOWN BY THE APPELLANT IN T HE ACCOUNT UNDER THE HEAD INVESTMENT AND NOT STOCK IN TRADE. THUS, THE APPELL ANT'S INTENTION OF MAKING INVESTMENT WAS CLEAR. THERE IS NO MOTIVE OF TRADING IN SHARES ESTABLISHED BY THE ASSESSING OFFICER EXCEPT REFERRING TO THE VOLUME AND NUMBER OF TRANSACTIONS. I ALSO APPRECIATE THE ARGUMENTS THAT THE ASSESSING OFFICER'S CONTENTION ABOUT PERIOD OF HOLDING ARE NOT CORRECT PARTICULARLY IN VIEW OF THE FACT THAT DEFINITION OF SHORT TERM CAPITAL ASSET IN RESPECT OF SHARES AND SECURITIES ITSELF SPECIFICALLY PROVIDES THAT THE PE RIOD OF HOLDING WOULD BE LESS THAN ONE YEAR. THIS ITSELF SUGGEST THAT THE SHORT P ERIOD OF HOLDING IS NOT THE CRITERIA TO BE CONSIDERED AS TRADING TRANSACTIONS. APART FROM THIS, THE SECTION 111A ALSO PROVIDES FOR SPECIFIC TREATMENT OF TAX IN RESPECT OF SHORT, TERM CAPITAL ASSET, PARTICULARLY WHEN STT HAS BEEN PAID. IN APPELLANT'S CASE, THE TRANSACTIONS ARE SUBJECTED TO STT AND SUCH STT HAS NOT BEEN CLAIMED OR ITA NOS.1590 & 1390/AHD/2010 HASMUKH N VORA HUF VS. ACIT AYS 2006-07 6 ALLOWED IN THE COMPUTATION OF INCOME. I ALSO APPREC IATE THE REFERENCE MADE TO THE BOMBAY ITAT DECISION IN THE CASE OF GOPAL PUROHI T 29 SOT 117, WHICH SUPPORTS THE APPELLANT'S EXPLANATION. THE OTHER JUD ICIAL DECISIONS RELIED UPON BY THE A.R. ARE ALSO SUPPORTING ITS EXPLANATION. IN THE CIRCUMSTANCES, MERELY BECAUSE THE APPELLANT HAS SOLD THE SHARES WHICH WER E PURCHASED IN THE BOOMING PERIOD AND IT EARNED SURPLUS BY WAY OF CAPI TAL GAIN, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING IT AS A BUSINE SS PROFIT. HE IS DIRECTED TO TAX SUCH SURPLUS OF RS,34,12,218/-AS SHORT TERM CAP ITAL GAIN AS PER PROVISIONS OF SECTION 111 A. 10. AFTER CONSIDERING THE FACTS OF THE CASE AND ARG UMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ABOVE CO NCLUSION OF THE CIT(A). AT THE TIME OF HEARING BEFORE US, THE LD. DEPARTMEN TAL REPRESENTATIVE DID NOT POINT OUT ANY MATERIAL WHICH MAY JUSTIFY TAKING A VIEW DIFFERENT THAN THE VIEW TAKEN BY THE CIT(A) IN THIS REGARD. ON TH E OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ENTI RE GAIN HAD ARISEN FROM THE PURCHASE AND SALES OF ONE SHARE, I.E., FCS SHAR E WHICH WAS PURCHASED ONCE AND WAS ALSO SOLD ONCE. THUS, THERE WAS A PUR CHASE AND SALE OF SINGLE SCRIPT AT ONE TIME DURING THE YEAR UNDER CONSIDERAT ION THAT TOO WITH ASSESSEES OWN FUND. THIS STATEMENT OF THE LD. COU NSEL HAS NOT BEEN CONTROVERTED. IN VIEW OF ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE FINDING OF THE CIT(A) IN THIS REGARD. ACC ORDINGLY, THE REVENUES APPEAL IS REJECTED AND GROUND NO.2 OF THE ASSESSEE S APPEAL IS ALLOWED. 11. GROUND NO.3 OF THE ASSESSEES APPEAL NEEDS NO SEPARATE ADJUDICATION. 12. GROUND NO. 4 OF THE ASSESSEES APPEAL IS WITH R EGARD TO CHARGING OF INTEREST WHICH IS ADMITTED TO BE CONSEQUENTIAL BY T HE LD. COUNSEL. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO RE-WORK OUT THE INTEREST, IF ANY, UNDER SECTION 234A/B/C OF THE ACT IN ACCORDANCE WIT H LAW AFTER GIVING EFFECT TO THIS ORDER. ITA NOS.1590 & 1390/AHD/2010 HASMUKH N VORA HUF VS. ACIT AYS 2006-07 7 13. GROUND NOS. 5 & 6 OF THE ASSESSEES APPEAL ARE OF GENERAL NATURE FOR WHICH NO SPECIFIC ARGUMENTS WERE ADVANCED; ACCORDIN GLY, THE SAME ARE REJECTED. 14. IN THE RESULT, REVENUES APPEAL IS DISMISSED WH ILE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 7 TH AUGUST, 2015 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 07/08/2015 BIJU T., PS )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ !- / CONCERNED CIT 4. !- ( ) / THE CIT(A) 5. +01 $ , , / DR, ITAT, AHMEDABAD 6. 13 4' / GUARD FILE . )*! )*! )*! )*! / BY ORDER, TRUE COPY 5 55 5/ // / 6 6 6 6 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD