ACIT 19(1), MUMBAI V. AVNISH S. BAJAJ, MUMBAI

ITA 1670/MUM/2014

• Counselvise Citation: 167019914 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: KISHOR PATEL
• Keywords: Business income; Salary income

Judgement Text

, , INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A , BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PARTHAS ARATHY CHOUDHURY,JUDICIAL MEMBER /. ITA NO. 1670 /MUM/20 1 4 , / ASSESSMENT YEAR - 20 10 - 11 A CIT - 19(1) ,ROOM NO.322, PIRAMAL CHAMBERS , 3RD FLOOR, PAREL MUMBAI - 400 012. VS SHRI AVNISH S. BAJAJ SANGHI HOUSE, FLAT NO.4 94, NAPEAN SEA ROAD MUMBAI - 6. PAN:AEJPB 8731 N ( / ASSESSEE ) ( / RESPONDENT ) /ASSESSEE BY :SHRI KISHOR PATEL / REVENUE BY :SHRI S.P. WALIMBE / DATE OF HEARING : 31 - 0 8 - 2015 / DATE OF PRONOUNCEMENT : 04 - 0 9 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT. 16.12.2013 OF CIT(A) - 30, MUMBAI , THE ASSESSING OFFICER( AO ) HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT PROFIT ARISING ON SALE OF SHARES OF RS.1,73,86,377/ - WAS LIABLE TO BE ASSESSED AS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. 2. THE APPELLANT PRAYS THAT THE ORDER OF T HE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE,AN INDIVIDUAL, DERIVING INCOME FROM SALARY , DIVIDE N D AND CAPITAL GAIN FILED HIS RETURN OF INCOME ON 28.7.201 ,DECLARING TOTAL INCOME OF RS. 1.26 CRORES.T HE AO COMPLETED ASS ESSMENT U/ S . 143 (3) OF THE ACT, ON 22.2. 2013 DETERMINING INCOME OF THE ASSESSEE AT RS. 2,14,47,590 / - . 2. EFFECTIVE GROUND OF APPEAL IS ABOUT TREATING PROF IT ARISING FROM SALE OF SHARES AS SHORT TERM CAPITAL GAINS( STCG ). DURING THE ASS ESSMENT P ROCEEDING THE ASSESSEE HAD SHOWN STCG ON SALE OF SHARES OF RS.1.73 CR ORES A ND LTCG AT R S.43.45 LACS, THAT THE PURCHASE/SALE OF SHARES AND UNIT OF MUTUAL FUNDS WAS MANAG ED BY PORTFOLIO MANAGERS. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AND ASKED HIM AS TO WHY PROFIT ON SALE OF SHARES/UNITS NOT BE TREATED AS BUSINESS INCOME. IN RESPO NSE TO IT THE ASSESSEE ,VIDE ITS LETTER DT.17.12.2012, SUBMITTED THAT HE WAS AN EMPL OYEE OF MATRIX P ARTNERS INDIA PVT. LTD., THAT APART FROM EARNING SALARY HE HAD RECEIVED INCOME/LOSSES FROM FUNDS GIVEN TO PORTFOLIO MANAG EMENT SERVICES (PMS) PROVIDERS, THAT HE HAD RECEIVED INTEREST AND DIVIDEND INCOME DURING THE YEAR, THAT HE HAD SOLD PART OF HIS EQUITY INVESTMEN T AND HAD EARNED STCG AND LTCG, THAT SAME WERE DISCLOSED UNDER THE HEAD CAPITAL GAINS, THAT THE PMS PROVIDERS HAD HAND LED HIS PORTFOLIOS, THAT TRANSACTIONS CARRIED OUT THROUGH THEM WERE REALLY TRANSACTIONS MEANT FOR MAXIMIS ATION OF WEA LTH RATHER THAN ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF SHARES , THAT HE WAS I NVESTING HIS OWN SURPLUS FUNDS, THAT THE SERVICES OF PMS PROVIDERS WERE TAKEN TO MAXIMIS E THE RETURNS.HE REFERRED TO THE CASES OF RADH A BIRJU PATEL (ITA/ 5382/ ITA/1670/MUM/2014,AY.2010 - 11 - ASBAJAJ 2 MUM/2009 A. Y.06 - 07, APOORV A P ATNI ( ITA 192 AN 193 AND OTHER/PN/2011 ) . A FTER CONSIDERING T H E SUBMISSION OF THE ASSESSEE THE A O HELD THAT THE PMS PROVIDERS DONE THE TRADING ON BEHALF OF THE ASSESSEE , THAT THE SALE AND PURCHASE OF SHARES WAS DONE SYSTEMATICALLY, THAT TH E I NT E NTION WAS TO MAKE QUICK PROFIT ,TH A T THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE CONSTITUTED BUSINESS AC T IVITY. REFERRING TO THE DECISION OF THE DELHI BENCH DELIVERED IN THE CASE OF RADIAL INTL. (49 SOT 23) HE HELD THAT TRANSACTIONS DONE THROUGH PMS PROV IDERS WAS IN THE NATURE OF BUSINESS.HE R ELIED UPON THE CASES OF MEENAL RAMESH CHANDRE( 167ITR 507 ) DEEPABEN AMITBHAI SHAH ( 99 ITP219 ),SUTLUJ COTTON MILLS S UPPLY A GEN CY ( 100 ITR 706),BIRENDR A P. RAY( 129 ITR 295 )AND HELD THAT STCG ON S A L E OF SHARES AM OUNTING TO RS.1,73,86,377/ - HAD TO BE TREATED AS INCOME FROM BUSINESS. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM, THE ASSESSEE ARGUED THAT HE HAD EARNED D IVIDEND INCOME RS. 1 , 00 , 33 , 559/ - DURING THE YEAR UNDER APPEAL THAT THE VOLUME OF TRANSACTION WAS NOT LARGE, THE AV ERA G E HOLDING PERIOD WAS 319 DAYS, THERE WERE NUMBER OF TRANSACTIONS IN RESPECT OF SAHES HELD FOR 100 DAYS WAS 153, THAT NUMBER OF TRANSACTION IN RESPECT OF TRANSACTION EXCEED ING 100 DAYS WAS 209, THAT IN SOME CASE THE HOLDING PERIOD EXCEEDED 300 DAYS TO 700 DAYS .HE RELIED UPON THE CASES OF RADHA BIRJU PATEL (SUPRA),HITESH S DOSHI(46SOT336),ARA TRADING & INVESTMENT PVT.LTD.(47SOT172),SADHANA NABERA(41DTR393).AFTER CONSIDERING T HE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE THE FAA REFERRED TO THE CASES OF SALIL SHAH FAMILY TRUST (ITA/2466/MUM/2012 - AY.2010 - 11)AND AUNSUYA SUREN MIRCHANDANI(ITA/3159/MUM/2012 - DTD. 13.11.2013)AND HELD THAT INCOME ARISING OUT OF THE SALE OF S HARES THROUGH PMS PROVIDERS WAS TO BE ASSESSED AS INCOME FROM STCG AND NOT AS BUSINESS INCOME. 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO. AUTHORISED REPRESENTATIVE( A R)CONTENDED THAT THE ASSESSEE HAD INVESTED HIS OWN MONE Y AND NOT BORROWED FUNDS FOR INVESTING IN SHARES,THAT THE HOLDING PERIOD WAS SUBSTANTIAL,THAT IN THE EARLIER AND SUBSEQUENT YEARS THE PROFIT ARISING FROM SHARE TRANSACTION WAS ASSESSED AS STCG AND NOT AS BUSINESS INCOME BY THE AO.S.WHILE COMPLETING THE ASS ESSMENT U/S.143(3)OF THE ACT,THAT THE ORDER OF THE RADIALS INTERNATIONAL WAS REVERSED BY THE ORDER OF THE HONBLE DELHI HIGH COURT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD HELD THAT PROFIT ARISING O UT OF THE SHARES SOLD THROUGH PMS PROVIDERS WAS TO BE TREATED AS BUSINESS INCOME,THAT HE HAD RELIED UPON THE CASE OF RADIALS INTERNATIONAL,THAT THE ABOVE DECISION OF THE TRIBUNAL HAS BEEN REVERSED BY THE HONBLE DELHI HIGH COURT ON 25.04.2014(ITA/485/ 2012 ). WE FURTHER FIND THAT THE HONBLE KARNATAKA HIGH COURT HAS IN THE MATTER OF KAPUR INVESTMENTS(P ) LTD.(ITA/158 - 59OF 2014,DATED 20.04.2014) HAS HELD AS UNDER: FUNDS WHICH LIE WITH THE ASSESSEE CAN ALWAYS BE INVESTED (FOR EARNING HIGHER RETURNS)IN THE SHARE S EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGED PORTFOLIO MANAGEMENT SCHEME AND BY DOING SO,IT WOULD NOT MEAN THAT THE ASSESSEE IS CARRYING ON BUSINESS OF INVESTMENT IN SHARES.PROFIT FROM SUCH INVESTMENT,EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGE D FIRM,WOULD STILL REMAIN AS PROFITS TO BE TAXED AS CAPITAL GAINS AS SAME WILL NOT CHANGE THE NATURE OF INVESTMENT,WHICH IS IN SHARES AND THE LAW PERMITS IT TO BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. WE FIND THAT IN THE PRECEDING AND SUCCEE DING YEARS THE AO HAD TAXED THE INCOME FROM SALE OF SHARES AS STCG WHILE SCRUTINIZING THE MATTERS,THAT IN THE YEAR UNDER APPEAL HE HAS NOT GIVEN ANY REASON AS TO WHY HE WAS NOT FOLLOWING THE ORDERS FOR THE EARLIER YEARS,THAT THE HOLDING PERIOD OF ITA/1670/MUM/2014,AY.2010 - 11 - ASBAJAJ 3 THE MOST OF THE SHARES IS MORE THAN SIX MONTHS AND THE ASSESSEE HAS NOT MADE INVESTMENT BY BORROWING FUNDS.CONSIDERING ALL THESE FACTS AND FOLLOWING THE ABOVE TWO JUDGMENTS,W E DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER ,2015 . 4 , 2015 SD/ - SD/ - ( / PARTHASARATHY CHOUDHURY) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 04.09 .2015 JV / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCER NED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE CO PY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.