ACIT, Circle - 31, Kolkata, Kolkata V. Amitabh Sonthalia, Kolkata

ITA 1750/KOL/2010

• Counselvise Citation: [2013] 119 COUNSELVISE.COM (IT) 2937 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2013
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 08-09-2010
• Court: TRIBUNAL
• Assessee Lawyers: D S DAMLE
• Keywords: Business income; Salary income; Advance ruling; Question of law
• Section: 143(3); 14A; 263; 28

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE . . . . . . . . , /AND ! '! , ) [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM] # # # # / I.T.A NO. 1750/KOL/2010 '$% &' '$% &' '$% &' '$% &'/ // / ASSESSMENT YEAR: 200 7- 0 8 ASSISTANT COMMISSIONER OF INCOME-TAX, VS. AMITABH SONTHALIA CIRCLE-31, KOLKATA. ((PAN:ALWPS4432K) ()* /APPELLANT ) (+,)*/ RESPONDENT ) & # # # # / I.T.A NO. 1181/KOL/2011 '$% &' '$% &' '$% &' '$% &'/ // / ASSESSMENT YEAR: 200 8- 0 9 INCOME-TAX OFFICER, WD-31(3), KOLKATA. VS. AMITAB H SONTHALIA CIRCLE-31, KOLKATA. ((PAN:ALWPS4432K) ()* /APPELLANT ) (+,)*/ RESPONDENT ) DATE OF HEARING: 20.03.2013 DATE OF PRONOUNCEMENT: 20.03.2013 FOR THE APPELLANT: SHRI SANJAY MUKHERJEE, SR . DR FOR THE RESPONDENT: SHRI D. S. DAMLE, FCA - / ORDER PER BENCH: BOTH THESE APPEALS BY REVENUE ARE ARISING OUT OF SE PARATE ORDERS OF CIT(A) - XIX, KOLKATA IN APPEAL NO. 49/CIT(A)-XIX/ACIT,CIR-31/KOL /09-10 AND 67/CIT(A)-XIX/ACIT,CIR- 31/KOL/10-11 DATED 14.06.2010 AND 27.06 2011 RESPEC TIVELY. ASSESSMENTS WERE FRAMED BY ACIT, CIRCLE-31, KOLKATA U/S. 143(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 2007-08 AND 2008-09 VIDE HIS SEPARATE ORDERS DATED 17.12.2009 AND 06.12.2010 RESPECTIVELY. 2. THE ONLY COMMON ISSUE IN BOTH THE APPEALS OF RE VENUE IS AGAINST THE ORDER OF CIT(A) DIRECTING THE AO TO TREAT THE PROFIT FROM SHARE TRA NSACTION AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. FOR THIS, REVENUE HAS RAISED FOLLOWING GRO UND IN AY 2008-09: 1.THAT THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO TREAT THE PROFIT FROM SHARE TRANSACTIONS AS CAPITAL GAIN INSTEAD OF BUSINESS IN COME BY FAILING TO TAKE COGNIZANCE OF THE MAGNITUDE & FREQUENCY OF TRANSACTIONS, PURCHASE TO SALE RATIO, MULTIPLICITY OF TRANSACTIONS IN PARTICULAR SCRIPS AND NEGLIGIBLE DI VIDEND INCOME COMPARED TO THE MONEY INVESTED. 2 ITA NO.1750/K/2010 & ITA NO.1181/K/2011 AMITABH SONTHALIA AY. 2007-08 & 2008-09 IN AY 2007-08, REVENUE HAS ALSO RAISED FOLLOWING GR OUND: STCG VS SHARE TRADING: THE LD. CIT(A) HAS ERRED B OTH IN LAW AS WELL AS IN FACT AS HE HAS NOT TAKEN INTO COGNIZANCE , AT ALL, THE ACTUALI TY THAT THE ASSESSEE HAD UTILIZED BORROWED FUNDS FOR HIS ACTIVITY IN THE SHARE MARKET . HE HAS ALSO FAILED TO APPRECIATE THAT THIS FACT COUPLED WITH THE FREQUENCY OF TRANSACTION S AND THE ASSESSEES PURCHASE TO SALE RATIO GIVES A DEFINITE COLOR OF TRADE TO HIS ACTIVI TIES IN THE SHARE MARKET. 3. THE FACTS AND CIRCUMSTANCES IN BOTH THE ASSESSME NT YEARS ARE EXACTLY IDENTICAL AND THE ISSUE RAISED BY THE REVENUE IS ALSO SIMILAR. HENCE , WE DECIDE THE ISSUE FROM THE BASE YEAR I.E. AY 2007-08 WHERE THE AO AS WELL AS THE CIT(A) HAS D ISCUSSED THE FACTS IN DETAIL. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS DERIVING INCO ME FROM THE FOLLOWING SOURCES: I) INCOME FROM BUSINESS WHICH COMPRISES OF INTERES T INCOME AND DERIVATIVES TRADING. II) SPECULATION INCOME (SHARE DIFFERENCE) III) INCOME FROM SALARY IV) LONG AND SHORT TERM CAPITAL GAIN ON SHARES AND V) DIVIDEND AND INTEREST FROM PPF. THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDING S NOTICED THAT THE ASSESSEE HAS EARNED LONG TERM AND SHORT CAPITAL GAINS ON SALE OF SHARES AND INCOME FROM OTHER SOURCES IN THE FORM OF DIVIDEND. ACCORDING TO AO, THE ASSESSEE HA S RETURNED RS.40,22,546/- AS SHORT TERM CAPITAL GAINS U/S. 111A OF THE ACT AND RS.6193/- AS SHORT TERM CAPITAL GAIN WITHOUT STT. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS ENTERED I NTO TRANSACTIONS IN SCRIPS OF 60 COMPANIES HAVING ABOUT 260 TRADE TRANSACTIONS AND THE PERIOD OF HOLDING OF SCRIPS RANGES FROM 1 DAY TO 315 DAYS. ACCORDING TO AO, THE OPENING STOCK OF SH ARES STOOD AS 111838 SHARES, PURCHASES MADE DURING THE YEAR STOOD AT 898860 SHARES AND SAL ES DURING THE YEAR WAS OF 915698 SHARES. ACCORDING TO AO, THE ASSESSEE HAS INVESTED BORROWED FUNDS TO THE EXTENT OF RS.6,74,195/- FOR BUYING AND SELLING OF SHARES ON WHICH SHORT TERM CA PITAL GAIN WAS DECLARED. ACCORDING TO AO, IN VIEW OF THE ABOVE ACTIVITIES, THE ASSESSEE IS EN GAGED IN THE BUSINESS ACTIVITY OF SHARE TRADING AND HAS NOT MADE ANY INVESTMENT FOR THE PURPOSE OF CAPITAL APPRECIATION OR FOR EARNING OF DIVIDEND INCOME. THE AO ISSUED SHOW CAUSE NOTICE A S TO WHY SHORT TERM CAPITAL GAIN OF RS.40,22,546/- SHOULD NOT BE TREATED AS BUSINESS IN COME EARNED BY TRADING IN SHARES KEEPING IN VIEW THE FREQUENCY OF TRANSACTION, MAGNITUDE OF TRA NSACTION, PERIOD OF HOLDING OF SCRIPS AND UTILISATION OF BORROWED FUNDS FOR SUCH TRANSACTIONS . THE ASSESSEE FILED DETAILED REPLY STATING THAT THE ASSESSEE HAS DISCLOSED SHARES UNDER THE HE AD INVESTMENTS AND THESE ARE REALLY INVESTMENTS. ACCORDING TO ASSESSEE, THE INVESTMENT PORT FOLIO HAS BEEN MAINTAINED BY THE ASSESSEE CONSISTENTLY IN ALL ALONG THE PAST YEARS A S WELL AS IN THE CURRENT YEAR. AS AGAINST THE INVESTMENT PORT FOLIO, THE ASSESSEE ALSO IS ENGAGED IN STOCK IN TRADE IN SHARES WHICH IS VALUED ON THE PRINCIPLE OF LOWER OF COST OR MARKET VALUE WHER EAS INVESTMENTS ARE ALWAYS VALUED AT COST. ACCORDING TO ASSESSEE, THIS CAN BE VERIFIED FROM TH E BOOKS OF ACCOUNT OF THE ASSESSEE AND HE 3 ITA NO.1750/K/2010 & ITA NO.1181/K/2011 AMITABH SONTHALIA AY. 2007-08 & 2008-09 PRODUCED COMPLETE BOOKS OF ACCOUNT ALONG WITH EVIDE NCES. THE AO NOT CONVINCED BY THE SUBMISSIONS OF THE ASSESSEE NOTED THE HOLDING PERIO D OF SCRIPS AND POSITION OF STOCK OF SHARES AS UNDER: I. THE ASSESSEE TRANSACTED IN SCRIPS OF 60 COMPANIES D URING THE FINANCIAL YEAR 2006-07 II. THE NUMBER OF TRADES MADE IN THE AFOREMENTIONED SCR IPS STOOD AT 26 III. THE PERIOD OF HOLDING OF THE SCRIPS RANGES FROM 01 DAY TO 315 DAYS IV. THE HOLDING PERIOD VIS--VIS LOT/QUANTITY IS ANALYZ ED FURTHER INFRA: A. 01 TO 05 DAYS - 17 B. 06 TO 10 DAYS - 09 C. 11 TO 20 DAYS - 13 D. 21 TO 30 DAYS - 15 E. 31 TO 60 DAYS - 22 F. 61 TO 90 DAYS - 18 G. 91 TO 120 DAYS - 05 H. 121 TO 150 DAYS - 07 I. 151 TO 180 DAYS - 05 J. 181 TO 210 DAYS - 03 K. 211 TO 240 DAYS - 02 L. 241 TO 27 DAYS - 03 M. 271 TO 300 DAYS - 01 N. 301 TO 315 DAYS - 02 V. OPENING STOCK OF SHARES STOOD AT 111,838 SHARES; PU RCHASES MADE DURING THE YEAR STOOD AT 898,860 SHARES; SALES DURING THE YEAR 915,698 SH ARES; CLOSING STOCK AT THE END OF THE YEAR STOOD AT 95,000 SHARES. VI. IF PORTION OF STOCK SOLD IS ELIMINATED FROM THE TOT AL SALES THE RATIO BETWEEN PURCHASE AND SALES DURING THE YEAR STANDS AT 1.12:1. IN VIEW OF THE ABOVE, THE AO AFTER DISCUSSING AT LE NGTH TREATED THE SHORT TERM CAPITAL GAIN AS TRADING INCOME OF SHARES AT RS.40,22,546/-. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A), WHO RELIED ON THE FOLLOWING DECISIONS: I. CIT VS. MADAN GOPAL RADHEY LAL (1969) 73 ITR 652 (S C), II. CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P) L TD. (1971) 82 ITR 586 (SC), III. AUTHORITY FOR ADVANCE RULINGS (INCOME TAX) FIDELITY NORTHSTAR FUND & ORS. (2007) 288 ITR 641 (AAR), IV. DCIT VS. RELIANCE TRADING ENTERPRISES LTD. IN ITA N O. 944/KOL/2008 DATED 03.10.2008, V. CIT VS. RAMAAMIRTHAM (2008) 217 CTR 206, VI. JCIT VS. DINESH KUMAR GUPTA (2005) 2 SOT 126 (DEL.) , VII. GOPAL PUROHIT VS. JCIT 29 SOT 117 (MUM.), VIII. CIT VS. GOPAL PUROHIT (2010) 188 TAXMAN 140 (BOM.) AND FINALLY, THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA), WHEREIN HONBLE BOMBAY HIGH COURT HAS FOR MULATED THE FOLLOWING QUESTION OF LAW AND ANSWERED VIDE JUDGMENT DATED 10.02.2009 WHICH IS AS UNDER: 4 ITA NO.1750/K/2010 & ITA NO.1181/K/2011 AMITABH SONTHALIA AY. 2007-08 & 2008-09 (I) (A) WHETHER, ON THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN LAW, THE HONBLE ITAT WAS JUSTIFIED IN TREATING THE INCOME FROM SALE OF 7,59, 003 SHARES FOR RS.5,00,12,879 AS AN INCOME FROM SHORT TERM CAPITAL GAIN AND SALE OF 3,88,797 S HARES FOR RS.6,65,02,340 AS LONG TERM CAPITAL GAIN AS AGAINST THE INCOME FROM BUSINESS ASSESSED BY THE ASSESSING OFFICER?... 5. IN VIEW OF THE ABOVE, CIT(A) FINALLY RECORDED TH E FACTS IN PARA 6.1 AS UNDER: 6.1. ON PERUSAL OF DETAILS OF CAPITAL GAINS IT IS OBSERVED THAT THERE WERE ONLY 10 INSTANCES WHERE SHARES WERE PURCHASED AND HELD WITH IN 1 TO 3 DAYS. IN THESE 10 TRANSACTIONS, THE APPELLANT HAS INCURRED NET LOSS O F RS.58,014/- AS AGAINST THE OVERALL PROFIT OF RS.40.22 LAKHS DISCLOSED UNDER THE HEAD S HORT-TERM CAPITAL GAIN. IF THE HOLDING PERIOD IS CONSIDERED FROM 1 TO 10 DAYS, TOTAL TRANS ACTIONS WERE 26 AND FOR THE PERIOD 1 TO 20 DAYS, THE TRANSACTIONS WERE 40 IN WHICH THE P ROFIT OF RS.5,80,952/- AND RS.1,65,883/- WAS EARNED RESPECTIVELY. THUS, IN THE TRANSACTIONS OF PERIOD OF HOLDING 1 TO 20 DAYS THE NET INCOME OF THE APPELLANT WAS RS.1 ,65,883/- AS AGAINST THE TOTAL SHORT- TERM CAPITAL GAIN OF RS.40,22,546/-. IT MEANS THAT MORE THAN 95% OF THE PROFIT BY WAY OF SHORT-TERM CAPITAL GAIN WAS DERIVED BY THE APPELLAN T FROM THE TRANSACTIONS WHERE THE HOLDING PERIOD EXCEEDED 20 DAYS AND UPTO 315 DAYS. THEREFORE, IT IS NOT CORRECT TO SAY THAT THE APPELLANT HAS EARNED SUBSTANTIAL AMOUNT OF CAPITAL GAIN BY HOLDING SHARES FOR VERY FEW DAYS AS OPINED BY THE A.O. IN MY OPINION, IT IS ALSO NOT CORRECT TO SAY THAT THE APPELLANT WAS NOT IN THE MARKET FOR CAPITAL APPRECI ATION OR EARNING DIVIDENDS AS OBSERVED BY THE A.O., BECAUSE DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS EARNED SUBSTANTIAL AMOUNT OF DIVIDEND OF RS.11,33,1 21/- AND THE A.O. HIMSELF HAS MADE DISALLOWANCE U/S. 14A OF THE ACT. AND DECIDED THE ISSUE IN PARA 6.12 AS UNDER: 6.12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY THE APPELLANT THAT IN THE CASE OF SHRI SANT KUMAR SONTHALIA, FATHER OF THE APPELLANT, SIMILAR ISSUE WAS INVOLVED AND FOR A .Y. 2006-07, HE HAS DECLARED SHORT- TERM CAPITAL GAIN OF RS.95,45,072/-. THE HONBLE CI T, KOLKATA-XI WAS OF THE OPINION THAT THE SHORT TERM CAPITAL GAIN DECLARED BY THE AS SESSEE SHOULD HAVE BEEN TAXED AS BUSINESS INCOME U/S. 28 OF THE ACT. THEREFORE, HE H AS INITIATED THE PROCEEDINGS U/S. 263 OF THE ACT. HOWEVER, ON CONSIDERATION OF SUBMISSION OF THE APPELLANT AND THE FACTS OF THE CASE, THE PROCEEDINGS U/S. 263 WERE DROPPED BY THE HONBLE C.I.T., KOLKATA-XI, KOL, VIDE HIS ORDER DT. 1/8/2009. SUBSEQUENTLY, IN THE C ASE OF APPELLANTS FATHER, THE ASSESSMENT FOR A.Y. 2007-08 WAS COMPLETED U/S. 143( 3) OF THE ACT ON 31.12.2009 BY THE ADDL. CIT, RANGE-31, KOL. AND THE CAPITAL GAIN DECL ARED BY THE ASSESSEE WAS ACCEPTED U/S. 143(3) OF THE ACT. HOWEVER, THIS CONTENTION OF THE APPELLANT WAS NOT ACCEPTED BY THE A.O. FOR THE REASON THAT THE FACTS IN THE CASE OF A PPELLANTS FATHER WERE DIFFERENT THAN THE FACTS IN THE CASE OF THE APPELLANT. HOWEVER, ON PER USAL OF NOTICE ISSUED U/S. 263 AND ORDER PASSED BY THE HONBLE CIT, KOL-XI, KOL., IT I S OBSERVED THAT THE OBSERVATIONS OF THE A.O. IS NOT CORRECT, BECAUSE THE FACTS IN THE CASE OF APPELLANTS FATHER FOR A.Y. 2006-07 ARE EXACTLY SIMILAR TO THE FACTS IN THE CASE OF THE APPELLANT DURING THE YEAR UNDER CONSIDERATION AS WELL AS IN EARLIER YEARS. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAS DISCLOSED INCOME FROM SHORT TERM C APITAL GAINS AT RS.1,03,78,826/- DERIVED FROM TRANSFER OF SHARES ON WHICH STT WAS PAID, FURT HER, A SUM OF RS.38,577/- WAS DISCLOSED AS SHORT TERM CAPITAL GAINS ON TRANSFER OF UNITS ON WH ICH NO STT WAS PAID. APART FROM THIS, LONG TERM CAPITAL GAINS WAS DISCLOSED AT RS.4,36,66,128/ -, WHICH WAS DERIVED FROM TRANSFER OF 5 ITA NO.1750/K/2010 & ITA NO.1181/K/2011 AMITABH SONTHALIA AY. 2007-08 & 2008-09 SHARES ON PAYMENT OF STT AND THIS LONG TERM CAPITAL GAINS WAS CLAIMED EXEMPT U/S. 10(38) OF THE ACT. THE AO ASSESSED THIS INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS THEREBY DENYING BENEFIT OF CONCESSIONAL RATES PRESCRIBED U/ S. 111A OF THE ACT. THE ASSESSEE BEFORE US CONTENDED THAT IT ASSESSMENT OF PAST YEARS, THE AO ACCEPTED THE ASSESSEE TO BE INVESTOR IN SHARES AS PER PAST YEARS AUDITED ACCOUNTS, WHERE S HARES WERE DISCLOSED UNDER THE HEAD INVESTMENTS. THE ASSESSEES BOOKS OF ACCOUNT MAINT AINED ALWAYS DISCLOSED FUND DEPLOYED IN SHARES UNDER THE HEAD INVESTMENTS AND INCOME DERIVE D FROM VARIATIONS MADE IN INVESTMENT PORTFOLIO WAS DISCLOSED UNDER THE HEAD CAPITAL GAIN S. THIS FACT WAS NARRATED BY ASSESSEE BEFORE US THAT THIS POSITION WAS NEVER DISPUTED BY REVENUE AUTHORITIES IN THE ASSESSMENT ORDERS PASSED FOR EARLIER YEARS. THE ASSESSEE HAS ADOPTED THE ME THOD AND BASIS FOR RECORDING TRANSACTIONS IN INVESTMENT IN ACCOUNTING SHARES IN THE BOOKS OF ACC OUNT CONSISTENTLY AND IN ALL PAST ASSESSMENTS INCOME DERIVED FROM INVESTMENT IN SHARES WAS ASSESS ED UNDER THE HEAD CAPITAL GAINS EITHER AS SHORT TERM OR LONG TERM DEPENDING UPON THE PERIOD O F HOLDING. THE ASSESSEE BEFORE US FILED COMPLETE DETAILS OF ASSESSMENTS AND ACCOUNTS I.E. C OPIES OF ASSESSMENT ORDERS FOR AY 2004-05 TO 2006-07 IN ITS PAPER BOOK WHICH CLEARLY REVEALS THAT THE VARIATION IN INVESTMENT IS ACCEPTED BY THE REVENUE AS INCOME FROM CAPITAL GAINS. ONCE THIS IS AN ESTABLISHED POSITION, THAT ASSESSEE MAINTAINED THE DISTINCTION IN BOOKS OF ACCOUNT BETW EEN ITS INVESTMENTS AND STOCK IN TRADE AND ALSO MAINTAINED DISTINCTION OF SHORT TERM INVESTMEN T AS WELL AS LONG TERM INVESTMENT AND SUCH INVESTMENTS WERE ACCEPTED BY REVENUE IN EARLIER YEA RS ALL ALONG, NOW THEY CANNOT TAKE U-TURN AND CHANGE THE HEAD OF INCOME WITHOUT ANY BASIS. A CCORDINGLY, WE ARE OF THE VIEW THAT CIT(A) HAS RIGHTLY UPHELD THE CLAIM OF THE ASSESSEE IN ACC EPTING THE SALE OF INVESTMENTS AS SHORT TERM CAPITAL GAINS OR LONG TERM CAPITAL GAINS, AS THE CA SE MAY BE. BOTH THE APPEALS OF REVENUE ARE DISMISSED. 7. IN THE RESULT, APPEALS OF REVENUE ARE DISMISSED. 8. PRONOUNCED IN THE OPEN COURT. SD/- SD/- . . . . . . . . , ! ! ! ! '! '! '! '! , (P. K. BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( . . . .) )) ) DATED : 20TH MARCH, 2013 /0 '$12 '3 JD.(SR.P.S.) 6 ITA NO.1750/K/2010 & ITA NO.1181/K/2011 AMITABH SONTHALIA AY. 2007-08 & 2008-09 - 4 +''5 65&7- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT ACIT, CIRCLE-31, KOLKATA /ITO, WARD-31( 3), KOLKATA. 2 +,)* / RESPONDENT SHRI AMITABH SONTHALIA,SUIT NO.218, IDEAL PLAZA, 11/1, SARAT BOSE ROAD, KOLKATA-700 020. 3 . '-$ ( )/ THE CIT(A), KOLKATA 4. 5. '-$ / CIT KOLKATA 5 <'= +'$ / DR, KOLKATA BENCHES, KOLKATA ,5 +'/ TRUE COPY, -$>/ BY ORDER, ! 2 /ASSTT. REGISTRAR .