ACIT CIR 16(2), MUMBAI V. BHARAT BHOGILAL KOTHARY, MUMBAI

ITA 1674/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4013 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Business expenditure; Rule of consistency
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN, AM AND AMARJIT SINGH, JM ./ I.T.A. NO . 1674 / MUM/ 201 2 ( / ASSESSMENT YEA R : 20 08 - 09 ) ASSTT. COMMI SSIONER OF INCOME TAX CIRCLE - 16 (2), MATRU MANDIR, TARDEO ROAD, MUMBAI - 4000 07 / VS. SHRI BHARAT BHOGILAL KOTHARY, RUBY MANSION, 10, DARABSHA LANE, OFF NEPEAN SEA ROAD MUMBAI - 400026 ( / APPELLANT ) .. ( / RESPONDENT ) CROS S - OBJECTION NO.4 9 /MUM/20 1 3 ARISING OUT OF I.T.A. NO . 1674/ MUM/ 201 2 ( / ASSESSMENT YEA R : 20 08 - 09 ) SHRI BHARAT BHOGILAL KOTHARY, RUBY MANSION, 10, DARABSHA LANE, OFF NEPEAN SEA ROAD MUMBAI - 400026 / VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 16(2), MATRU MANDIR, TARDEO ROAD, MUMBAI - 400007 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAKPK4859P / REVENUE BY SHRI S K MISHRA / ASSESSEE BY SHRI H ITEN VASANT / DATE OF HEARING : 29.12. 201 5 / DATE OF PRONOUNCEMENT: 12 . 2 . 201 6 / O R D E R P ER B R BASKARAN, AM : THE APPEAL FILED BY THE REVENUE AND CROSS - OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 21.1 2 .201 1 PASSED BY THE L D. CIT(A) - 2 7 , MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 20 08 - 09 . I.T.A. NO. 1674 / MUM/ 201 2 AND CO.4 9 /M/1 3 2 2. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN HOLDING THAT (A) THE GAINS ARISING ON SALE OF SH ARES, OTHER THAN THOSE RELATED TO REPETITIVE TRANSACTIONS, ARE ASSESSABLE UNDER THE HEAD CAPITAL GAINS. AND (B) THE BUSINESS EXPENSES AND STT PAID SHALL BE ALLOWABLE AGAINST THE GAINS DIRECTED TO BE ASSESSED AS BUSINESS INCOME, SINCE THE SAME IS AGAINST THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF GOETZE (INDIA) LTD. 3. IN THE CROSS OBJECTION, THE ASSESSEE HAS OBJECTED TO THE DECISION OF LD CIT(A) IN HOLDING THAT THE GAINS ARISING ON REPETITIVE SHARE TRANSACTIONS IS ASSESSABLE AS BUS INESS INCOME. THE ASSESSEE IS ALSO SUPPORTING THE DECISION OF LD CIT(A) IN RESPECT OF BUSINESS EXPENSES AND STT PAID. 4. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE DECLARED THE GAINS ARISING ON SALE OF SHARES AS CAPITAL GAIN. THE LON G TERM CAPITAL GAIN WAS DECLARED TO THE EXTENT OF RS.9,40,950/ - AND THE SHORT TERM CAPITAL GAIN WAS DECLARED TO THE TUNE OF RS.53,42,145/ - . THE AO ASSESSED BOTH THE INCOME AS BUSINESS INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) HEL D THAT THE GAINS ARISING IN RESPECTIVE REPETITIVE TRANSACTIONS OF PURCHASE AND SALE OF SHARES IS ASSESSABLE AS BUSINESS INCOME. IN RESPECT OF THE GAINS ARISING IN RESPECT OF OTHER SHARES, THE LD CIT(A) HELD THAT THE SAME SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS. IN RESPECT OF GAINS DIRECTED TO BE ASSESSED AS BUSINESS INCOME, THE LD CIT(A) HELD THAT THE RELEVANT BUSINESS EXPENSES AND STT PAYMENT SHOULD BE ALLOWED AS DEDUCTION. 5. WE NOTICE THAT THE LD CIT(A) HAS ANALYSED THE FACTS PREVAILING I N THE INSTANT CASE AND HAS PASSED A REASONED ORDER WHILE ADJUDICATING THE ISSUES I.T.A. NO. 1674 / MUM/ 201 2 AND CO.4 9 /M/1 3 3 URGED BEFORE US. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY LD CIT(A). 5. I HAVE CAREFULLY CONSIDERED THE CONTENTS OF THE ASSESSMENT ORD ER AND APPELLANT'S SUBMISSIONS MADE BEFORE ME. FROM THE PAPER BOOK AND OTHER SUBMISSIONS F ILED BY THE APPELLANT FROM TIME TO TIME AND FROM THE ANALYSIS OF THE DATA PRESENTED ABOVE, IN MY CONSIDERED OPINION, THE FOLLOWING FACTS EMERGE. 5.1. THE APPELLANT HAS BEEN AN INVESTOR IN SHARES ALL ALONG. OVER THE YEARS HE HAS CONSISTENTLY TREATED THE ENTIRE INVESTMENT IN SHARES AS AN INVESTMENT AND NOT AS 'STOCK - IN - TRADE'. THE INCOME FROM TRANSFER OF SHARES WAS ALWAYS OFFERED TO TAX AS CAPITAL GAINS. SHARES HELD AS INVESTMENTS WERE AT COST AND NO MARK TO MARKET LOSS WAS PROVIDED FOR. 5.2 THE APPELLANT HAS EARNED 50% OF THE TOTAL SHORT TERM CAPITAL GAINS WITH A HOLDING PERIOD MORE THAN 3 MONTHS. IN RESPECT OF SALE OF SHARES WITHIN A MONTH OF HOLDING IT WAS EXPLA INED TO BE TRIGGERED BY AN UNPRECEDENTE D VOLATILITY IN THE MARKET BETWEEN NOV'07 TO JAN'08, THAT THE APPELLANT SOLD OFF SHARES WITHIN A SHORT PERIOD OF HOLDING WITH A VIEW TO PROTECT THE CAPITAL AND TO REDUCE THE LOSSES. 5.3. APPELLANT USED HIS OWN SURPL US FUNDS FOR INVESTING IN SHARES. SHE HAS NEITHER BORROWED ANY MONEY FROM EXTERNAL SOURCES NOR PAID INTEREST THEREON. 5.4. APPELLANT WAS ENGAGED AS DIRECTOR OF MLS ARBI EXPORTS LTD., AND COULD NOT DE VOTE HIS TIME TO SHARE TRANSACTIONS SO AS TO CONDUCT THEM IN A BUSINESS LIKE MANNER. APPELLANT HAS NOT ENGAGED ANY STAFF, OFFICE OR ANALYSTS FOR INVESTING IN SHARES. IN THE SUBSEQUENT YEARS, SHARES HELD AS INVESTMENTS AS ON 31 / 3/2008 WERE LIQUIDATED AND NEW PURCHASES ARE NOT MADE. 5.5 THE STAND OF THE AP PELLANT AS A N INVESTOR HAS BEEN ACCEPTED BY THE A.O IN THE EARLIER YEAR UNDER SECTION 143(3). THE ASSESSMENT FOR A Y 2007 - 08 WAS COMPLETED U/S. 143(3) BY ACIT - 16(2) AND THE CAPITAL GAINS ON SALE OF SHARES AND SECURITIES BOTH LONG TERM AND SH ORT TERM AMOU NTING TO RS.4971792 WERE ACCEPTED AND TAXED ACCORDINGLY. BESIDES, SHARES WERE ACCEPTED AS INVESTMENTS IN THE BALANCE SHEET. APPARENTLY THE FACTS OF THE CASE ARE SIMILAR IN A.Y. 2007 - 2008 & 2008 - 2009 EXCEPT AS DISCUSSED AT PARA 5.6 BELOW, AND NO FRESH MA TERIAL HAS BEEN BROUGHT ON RECORD BY THE AO AT PRESENT. IN SUCH CIRCUMSTANCES, THERE IS NO REASON FOR THE A.O. TO TREAT THE INVESTMENT IN SHARES BY THE APPELLANT AS TRADING IN SHARES FOR A.Y.2008 - 09. THE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE S AME FACTS AND CIRCUMSTANCES IS ONE OF THE FUNDAMENTAL JUDICIAL PRINCIPLES WHICH CANNOT BE I.T.A. NO. 1674 / MUM/ 201 2 AND CO.4 9 /M/1 3 4 BRUSHED ASIDE WITHOUT PROPER REASON. 5.6 HOWEVER, HAVING REGARD TO THE KEY PRINCIPLE LAID DOWN IN THE SARANATH INFRASTRUCTURE (P) LTD. V / S, ACIT 120 TTJ 216 (LUCK) THAT HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF THE INTENTION OF TRADE, APPELLANT WAS CALLED TO FURNISH THE DETAILS OF REPETITIVE TRANSACTIONS / CHURNING IF ANY DURING THE YEAR IN RESPONSE TO WHICH AR HAS FILED THE DETAILS AS SHOWN AT TABLE 3 ABOVE. CONSIDERING THE QUANTITY OF SHARES TRANSACTED IN THE SCRIPS LISTED THEREIN VIS A VIS THE PROFIT/LOSS AND THE GAP BETWEEN THE DATE OF SALE AND RE ENTRY IN THE SAME SCRIPS, I AM OF THE OPINION THAT TRANSACTIONS IN THESE SCRIPS WERE DEFINITELY CARRIED OUT IN A MANNER AKIN TO THE TRADING AND NOT AS AN INVESTOR. SUCH TRANSACTIONS ARE NOT CARRIED OUT WITH AN INTENTION TO MINIMIZE THE LOSS IN VOLATILE MARKET CONDITIONS BUT TO TAKE ADVANTAGE OF SUCH CONDITIONS. IN FACT THE OVERALL PURCHASES ARE 3.5 TIMES O F THE CAPITAL AVAILABLE WHICH ESTABLISHES THE FREQUENCY AND THE CHURNING WITH A PROFIT MOTIVE. SIMILARLY, THE VALUE OF CLOSING INVESTMENTS AS % OF OPENING VALUE OF INVESTMENTS AND PURCHASES MADE DURING THE YEAR IS ALSO ON A LOWER SIDE. THUS, THE TRANSACTI ONS CONDUCTED DURING THE YEAR APPEAR PARTLY TO BE IN THE NATURE OF BUSINESS AND TO THAT EXTENT THE PRINCIPLE OF CONSISTENCY NEEDS TO BE VARIED. STRICTLY SPEAKING, INVESTMENT IN EACH SCRIP IS A CAPITAL ASSET BY ITSELF AND IF THE SITUATION DEMANDS IT NEEDS T O BE SEEN WHETHER THE TRANSACTIONS CARRIED OUT IN PARTICULAR SCRIP CATEGORIZE THE SAME AS CAPITAL ASSET OR BUSINESS ASSET. THEREFORE, CONSIDERING THE OVERALL FACTS, AND KEEPING IN MIND THE AMOUNT OF PROFIT EARNED ON CHURNING VIS A VIS THE TOTAL AMOUNT OF S HORT TERM CAPITAL GAINS EARNED, I AM THE OPINION THAT IN THE INTEREST OF JUSTICE, THE PROFIT EARNED BY THE APPELLANT ON REPETITIVE TRANSACTIONS/ CHURNING NEEDS TO BE CONSIDERED AS BUSINESS INCOME AND REST OF THE ACTIVITY NEED NOT BE DISTURBED BASED ON THE CONSISTENCY PRINCIPLE. ACCORDINGLY, AO IS DIRECTED TO CONSIDER ONLY AN AMOUNT OF R S .702339 AS BUSINESS INCOME AND THE BALANCE AMOUNT AS CAPITAL GAINS. DURING THE PROCEEDINGS BEFORE ME APPELLANT HAS REQUESTED FOR ALLOWING OF BUSINESS EXPENSES AND STT PAID AGAINST THE AFORESAID INCOME AS CLAIMED DURING THE ASSESSMENT PROCEEDINGS. APPELLANT IS DIRECTED TO FURNISH RELEVANT DETAILS IN THIS REGARD BEFORE THE AO WITHIN TWO WEEKS OF RECEIVING THIS ORDER. AO IS DIRECTED TO VERIFY THE SAME AND ALLOW SUCH EXPENSES WH ICH ARE DIRECTLY IN RELATION TO EARNING OF THIS INCOME. AO SHALL TAKE SUFFICIENT CARE TO EXCLUDE EXPENSES RELATING TO STCG AND OTHER EXEMPTED INCOMES WHILE ALLOWING THE RELEVANT EXPENDITURE. AS REGARDS THE SUBMISSION THAT AO BE DIRECTED TO ALLOW SET OFF O F EARLIER YEARS' LOSSES FROM SHARE TRADING AGAINST THE AFORESAID BUSINESS INCOME, I DO NOT AGREE WITH THE APPELLANT FOR THE REASON THAT SUCH LOSSES WERE NOT DETERMINED AS BUSINESS LOSSES IN ANY OF THE EARLIER YEARS. APPARENTLY THEY WERE CLAIMED AS CAPITAL LOSSES AND WERE ALLOWED TO BE CARRIED FORWARD ACCORDINGLY. HENCE APPELLANT'S PLEA IS REJECTED IN THIS REGARD. APPELLANT GETS PART RELIEF . I.T.A. NO. 1674 / MUM/ 201 2 AND CO.4 9 /M/1 3 5 6. ON A CAREFUL CONSIDERATION OF THE DECISION RENDERED BY LD CIT(A), WE NOTICE THAT THE FIRST APPELLATE AUTHORITY HAS TAKEN ALL THE RELEVANT FACTORS IN ADJUDICATING THE ISSUE. THOUGH THE ASSESSEE HAS TAKEN A GROUND THAT THE GAINS ARISING ON REPETITIVE TRANSACTIONS SHOULD ALSO BE ASSESSED UNDER THE HEAD CAPITAL GAINS, YET WE DO NOT FIND ANY MERIT IN THE SAID CONTENTI ONS, AS THE LD CIT(A) HAS GIVEN PROPER REASONS IN CONFIRMING THE ASSESSMENT ORDER IN RESPECT OF REPETITIVE TRANSACTIONS. BEFORE US, NEITHER THE ASSESSEE NOR THE REVENUE COULD NOT FURNISH ANY CONVINCING REASON TO INTERFERE WITH THE DECISION TAKEN BY LD CIT (A) ON THIS ISSUE. WITH REGARD TO THE DIRECTION GIVEN BY LD CIT(A) TO ALLOW DEDUCTION OF BUSINESS EXPENSES AND STT PAYMENT, WE MAY STATE THAT THE HONBLE SUPREME COURT ITSELF HAS STATED THAT ITS DECISION SHALL NOT IMPINGE THE POWER OF THE TRIBUNAL IN GIV ING SUCH DIRECTIONS. ACCORDINGLY, WE CONFIRM THE ORDER OF LD CIT(A) ON ALL THE ISSUES. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 12TH FEB , 2 01 6 . 12TH FEB 2 01 6 SD SD (AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 12TH FEB , 2 01 6 . . . ./ SRL , SR. PS I.T.A. NO. 1674 / MUM/ 201 2 AND CO.4 9 /M/1 3 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI