ACIT 25(3), MUMBAI V. DILIP VARIYA, MUMBAI

ITA 1768/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3750 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 05-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS R M MADHAVI
• Assessee Lawyers: N M PORWAL
• Keywords: Business income; Question of law
• Section: 260A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . , . ! , '# ' $ BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 1768/MUM/2010 ( % % % % & & & & / ASSESSMENT YEARS : 2006-07 THE ACIT 25(3), C-11,R.NO.308, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 051. % % % % / VS. SHRI DILIP VARIYA, C-403, SHRI RAM APARTMENTS, BEHIND MILAP THEATRE, S.V.ROAD, KANDIVLI(WEST), MUMBAI - 400 067. ' '# ./ ( ./ PAN/GIR NO. : AABPV 4260A ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ./ I.T.A. NO. 1769/MUM/2010 ( % % % % & & & & / ASSESSMENT YEARS : 2006-07 THE ACIT 25(3), C-11,R.NO.308, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 051. % % % % / VS. SMT. NEENA D. VARIYA C-403, SHRI RAM APARTMENTS, BEHIND MILAP THEATRE, S.V.ROAD, KANDIVLI(WEST), MUMBAI - 400 067. ' '# ./ ( ./ PAN/GIR NO. : AABPV 4260A ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ./ I.T.A. NO. 1839/MUM/2009 ( % % % % & & & & / ASSESSMENT YEARS : 2005-06 SMT. NEENA D. VARIYA C-403, SHRI RAM APARTMENTS, BEHIND MILAP THEATRE, S.V.ROAD, KANDIVLI(WEST), MUMBAI - 400 067. % % % % / VS. THE ACIT 25(3), C-11,R.NO.308, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 051. ' '# ./ ( ./ PAN/GIR NO. : AABPV 4260A ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ./ I.T.A. NO. 1768 &1769/M/2010 ./ I.T.A. NO. 1839/M/2009 2 ') , ' / APPELLANT BY: MRS. R.M.MADHAVI *+') - , ' / RESPONDENT BY : SHRI N.M.PORWAL % - .# / DATE OF HEARING : 15/05/2013 / & - .# / DATE OF PRONOUNCEMENT : 15/05/2013 '0 / O R D E R PER I.P.BANSAL,J.M: ITA NO.1768/MUM/2010 & ITA NO.1769/MUM/2010 ARE A PPEALS FILED BY THE REVENUE. THEY ARE DIRECTED AGAINST TWO SEPARAT E ORDERS PASSED BY LD. CIT(A) -35, MUMBAI DATED 14/12/2009 IN RESPECT OF ASSESSME NT YEAR 2006-07 IN THE CASE OF THE RESPECTIVE ASSESSEES. ITA NO.1839/MUM/ 2009 IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST ORDER PASS ED BY LD. CIT(A)-XXV, MUMBAI DATED 16/1/2009 IN RESPECT OF ASSESSMENT YEAR 2005- 06. GROUNDS OF APPEAL IN ITA NO.1768 & 1769/MUM/2010 ARE IDENTICAL AND READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ACCEPT THE CLAIM OF LONG TERM CAPITAL GAIN & SHORT TERM CAPITAL GAIN ON PROFIT ARRIVING FROM PURCHASE & SALE OF SHARES INSTEAD OF BUSINESS INCOME TREATED BY THE A.O. WITHOUT APPRECI ATING THE FACT THAT THE ASSESSEE IS DEALING IN LARGE VOLUME OF SHARES, MOST OF THE S HARES ARE BOUGHT AND SOLD WITHIN SHORT PERIOD, WHILE SOME ARE NOT SOLD DUE TO MARKET CONDITIONS AND THEIR HOLDING WITH ASSESSEE REMAINS BEYOND FEW DAYS, IT WILL NOT CHANGE THE NATURE OF TRANSACTIONS AND THE ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SHARE TRADING, WHICH DENOTE THAT THE MOTIVE OF THE ASSESS EE IS TO CARRY ON BUSINESS IN SHARES TO BOOK PROFIT RATHER THAN INVESTMENT IN SHA RES. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 2. GROUNDS OF APPEAL IN ITA NO.1839/MUM/2009 READ A S UNDER: THAT EACH GROUND OF APPEAL IS AN INDEPENDENT ONE AND WITHOUT PREJUDICE TO ANY OTHER GROUND OF APPEAL 1) A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA L) ERRED IN TREATING THE CAPITAL GAIN INCOME AS BUSINESS INCOME RS. 22,44,557/- B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) FAILED TO APPRECIATE THAT APPELLANT IS A INVESTOR AND NOT A TRADER AS PER LET TER DATED 16/08/2007 SUBMITTED DURING THE COURSE OF ASSESSMENT. ./ I.T.A. NO. 1768 &1769/M/2010 ./ I.T.A. NO. 1839/M/2009 3 C) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) FAILED TO APPRECIATE THAT APPELLANT HAS SHOWN SHARES INVESTMENT UNDER THE HEA D INVESTMENT SINCE 25 YEARS AND ASSESSED AS CAPITAL GAIN. 3. AT THE OUTSET IT WAS POINTED OUT BY THE LD. AR T HAT ASSESSEES BEING INDIVIDUALS IN THE PRESENT CASE WERE ASSESSED BY THE AO IN RESPECT OF INCOME EARNED BY THEM ON SALE AND PURCHASE OF SHARES UNDER THE HEAD BUSINESS INCOME AS AGAINST THE CLAIM OF THE ASSESSEE THAT THE SAME IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN. IN THE CASE OF SHRI DILI P VARIYA THE TRIBUNAL VIDE ITS ORDER DATED 24/3/2010 HAD ADMITTED THE CLAIM OF THE ASSESSEE THAT INCOME ARISING TO THE ASSESSEE OUT OF SALE AND PURCHASE OF SHARES WAS ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND THE SAID ORDER OF THE T RIBUNAL WAS CHALLENGED BY THE REVENUE BEFORE HONBLE BOMBAY HIGH COURT AND THE SA ID APPEAL OF THE REVENUE HAS BEEN DECIDED BY HONBLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 9/1/2013 IN INCOME TAX APPEAL NO.1088 OF 2011 AND DEPARTMEN TAL APPEAL WAS DISMISSED WITH THE FOLLOWING OBSERVATION: THIS APPEAL BY THE REVENUE UNDER SECTION 260A OF T HE INCOME TAX ACT, 1961 CHALLENGES THE ORDER DATED 24/3/2010 OF THE INCOME TAX APPELLATE TRIBUNAL RELATING TO ASSESSMENT YEAR 2005-06. 2) THE REVENUE HAS FORMULATED THE FOLLOWING QUESTIO NS OF LAW FOR CONSIDERATION BY THIS COURT. A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE TRIBUNAL IS RIGHT IN LAW IN UPHOLDING THE ORDER OF CIT(A) WHEREBY DIRECTING THE A.O. TO ASSESS INCOME FROM SHARE INVESTMENT ACTIVIT IES AS SHORT TERM AND LONG TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME W ITHOUT APPRECIATING THAT THE ASSESSEE HAS SUBSTANTIAL VOLUME AND HUGE NUMBER OF SHARE TRANSACTIONS AND REPEATED TRANSACTIONS IN SINGLE SCRIPS, WHICH D ENOTE THAT THE MOTIVE OF THE ASSESSEE IS TO CARRY ON BUSINESS IN SHARES RATH ER THAN INVESTMENT IN SHARES TO EARN DIVIDEND? B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE TRIBUNAL IS IN LAW IN UPHOLDING THE CIT(A)S ORDER THAT THE ASSESSEE INDULGED IN INVESTMENT IN SHARES WITHOUT CONSIDERING THAT TH E ASSESSEE HAS DEVOTED MOST OF HIS TIME IN ONLY ONE ACTIVITY I.E. ACTIVITY OF EARNING PROFIT THROUGH SALES AND PURCHASE OF SHARES, BE IT DERIVATIVES, IN TRA DAY TRADING OR PURCHASE AND SALE WITHIN SHORT PERIOD OR LONG PERIO D? C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE TRIBUNAL IN HOLDING THAT THE ENTIRE PROFITS ARISING OUT PURCHASE AND SALE OF ALL SHARES ASSESSED UNDER THE HEAD INCOME FROM BUSINES S AND PROFESSION BY THE AO BE TREATED AS INVESTM3ENT AND THE BENEFIT OF INDEXATION AND ./ I.T.A. NO. 1768 &1769/M/2010 ./ I.T.A. NO. 1839/M/2009 4 EXEMPTIONS ON THE SHARE INVESTMENTS CLAIMED AS LONG TERMS INVESTMENTS BE ALLOWED? 3) THE DISPUTE IN THE PRESENT CASE IS WHETHER THE I NCOME EARNED FROM THE SALE OF SHARES IS ADMISSIBLE AS BUSINESS INCOME UNDER THE H EAD CAPITAL GAIN. IT IS THE CASE OF THE REVENUE THAT THE ASSESSING OFFICER TAKING IN TO ACCOUNT THE VOLUME AND TURN OVER COUPLED WITH PERIOD OF SHARE HOLDING AND THE V ALUE OF TRANSACTION IN SHARES CONCLUDED THAT THE RESPONDENT ASSESSEE WAS CARRYING ON SHARE TRADING BUSINESS. THUS, THE INCOME WAS LIABLE TO TAX UNDER THE HEAD P ROFIT AND GAINS OF BUSINESS. 4) HOWEVER, BOTH THE COMMISSIONER OF INCOME TAX (AP PEALS) AS WELL AS TRIBUNAL HAVE RECORDED A FINDING OF FACT THAT THE RESPONDENT ASSESSEE WAS CARRYING BUSINESS OF INVESTMENT IN SHARES FOR LAST 30 YEARS AND FOR T HE LAST 25 YEARS WAS ASSESSED TO TAX UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD OF PROFIT AND GAINS OF BUSINESS BY THE REVENUE. THE REVENUE NEVER TREATED THE SHARES AS STOCK IN TRADE OF THE RESPONDENT ASSESSEE. THIS FINDING THAT THE RESP ONDENT ASSESSEE IS NOT CARRYING ON BUSINESS OF SHARES TRADING IS A CONCURRENT FINDI NG OF FACT ARRIVED AT AND BOTH BY THE CIT (APPEALS) AND THE TRIBUNAL. THE APPELLANT R EVENUE HAS NOT BEEN ABLE TO SHOW THAT THIS FINDING OF FACT IS PERVERSE. IN THE CIRCUMSTANCES, NO QUESTION OF LAW ARISES. 4) IN VIEW OF THE ABOVE, THE APPEAL IS DISMISSED WI TH NO ORDER AS TO COSTS. LD. A.R HAS PLACED BEFORE US A COPY OF THE AFOREME NTIONED ORDER OF BOMBAY HIGH COURT AND A COPY WAS ALSO GIVEN TO LD. DR. IT WAS SUBMITTED THAT IN ALL THE PAST YEARS THE REVENUE HAD ADMITTED THE CLAIM OF TH E ASSESSEE AND THE STAND WAS SUDDENLY CHANGED BY THE REVENUE IN RESPECT OF A.Y 2 005-06. IN VIEW OF THESE FACTS, THE TRIBUNAL HAD ADMITTED THE CLAIM OF THE A SSESSEE AND THE ORDER OF THE TRIBUNAL HAD BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT. 3.1 IT WAS FURTHER SUBMITTED THAT IN THE CASE OF SM T. NEENA D. VARIYA ALSO SIMILAR IS THE POSITION AND IF THE RATIO OF AFORE MENTIONED DECISIONS OF TRIBUNAL AND HONBLE BOMBAY HIGH COURT ARE APPLIED TO THE F ACTS, THEN THE INCOME HAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN ONLY AS S MT. NEENA D. VARIYA IS ALSO ENGAGED IN SIMILAR ACTIVITY FOR THE PAST SO MANY YE ARS. HE IN THIS REGARD REFERRED TO THE SUBMISSIONS OF THE ASSESSEE RECORDED BY LD. CIT(A) IN THE CASE OF SMT. NEENA VARIYA IN RESPECT OF ASSESSMENT YEAR 2006-0 7 AS UNDER: (I) THE APPELLANT IS ASSESSED TO INCOME-TAX SINCE 25 YEARS AND THE PROFIT ON SHARES HAS BEEN SHOWN AS CAPITAL GAIN I.E. LONG TERM OR SH ORT TERM IN THE PAST. (II) THE NUMBER OF TRANSACTION INCREASED DUE TO MA RKET TREND. (III) THE SHARES WERE SHOWN AS INVESTMENT AND NOT A S STOCK-IN-TRADE IN THE BALANCE SHEET. MOREOVER THE INVESTMENT WAS PURELY OUT OF A PPELLANTS OWN FUNDS AND NOT OUT OF BORROWALS. ./ I.T.A. NO. 1768 &1769/M/2010 ./ I.T.A. NO. 1839/M/2009 5 (IV) THE APPELLANT RELIED ON THE CBDT CIRCULAR NO.4 /2007 DATED 15.06.2007 WHEREIN IT IS HELD THAT IT IS POSSIBLE FOR A TAX PAYER TO H AVE TWO PORTFOLIO I.E. INVESTMENT PORTFOLIO AND TRADING PORTFOLIO. THUS IT WAS PLEADED BY LD. AR THAT THE DEPARTMENTAL APPEALS SHOULD BE DISMISSED AND ITA NO.1839/MUM/2009 FILED BY THE ASSESSEE SHOULD BE ALLOWED. 4. ON THE OTHER HAND, LD. DR IN RESPECT OF ITA NO. 1768 & 1769/MUM/2010 HAS RELIED UPON THE ORDERS PASSED BY A.O AND IN RES PECT OF ITA NO.1839/MUM/ 2010 SHE RELIED UPON THE ORDER PASSED BY LD. CIT( A). 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IN THE CASE OF SHRI DILIP VARIYA THE T RIBUNAL AFTER TAKING INTO CONSIDERATION THE FACT THAT ASSESSEE IS ENGAGED IN SIMILAR ACTIVITY FOR THE LAST 30 YEARS AND FOR THE LAST 25 YEARS THE ASSESSEE WAS AS SESSED TO TAX UNDER THE HEAD CAPITAL GAIN ON SIMILAR ACTIVITY. THE REVENUE NEVE R TREATED THE SHARES AS STOCK-IN- TRADE IN THE HANDS OF THE ASSESSEE, THEREFORE, THE ASSESSEE WAS NOT CARRYING ON THE BUSINESS OF SHARES. THESE FINDINGS OF THE TRI BUNAL HAVE BEEN UPHELD, THEREFORE, THE MATTER IS SQUARELY COVERED BY THE A FOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF A SSESSEE ITSELF, NAMELY SHRI DILIP V. VARIYA. THEREFORE, ITA NO.1768/MUM/2010 I S DISMISSED. 5.1 SO FAR AS IT RELATES TO APPEAL FILED IN THE CAS E OF SMT. NEENA D. VARIYA SIMILAR WERE THE SUBMISSIONS OF THE ASSESSEE BEFORE LD. CIT(A) IN WHICH IT WAS STATED THAT THE ASSESSEE IS ASSESSED TO INCOME TAX SINCE LAST 25 YEARS AND THE PROFIT ON SHARES HAS BEEN SHOWN AS CAPITAL GAIN. THE INCREASE IN THE TRANSACTION IS ONLY DUE TO MARKET TREND. THE SHARE S WERE SHOWN AS INVESTMENT AND NOT AS STOCK-IN-TRADE IN THE BALANCE SHEET. TH E INVESTMENT WAS PURELY OUT OF ASSESSEES OWN FUNDS. THESE SUBMISSIONS OF THE AS SESSEE HAVE NOT BEEN CONTROVERTED BY THE REVENUE. IF THE SAME IS TAKEN INTO ACCOUNT THEN THE RATIO OF AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COUR T WILL ALSO BE APPLICABLE TO THE CASE OF SMT. NEENA D.VARIYA. THEREFORE, APPLY ING THE SAME RATIO WE HOLD ./ I.T.A. NO. 1768 &1769/M/2010 ./ I.T.A. NO. 1839/M/2009 6 THIS ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE DE PARTMENT AND ITA NO.1769/MUM/2010 IS DISMISSED AND ITA NO.1839/MUM/2 009 IS ALLOWED. 6. IN THE RESULT, ITA NO.1768 & 1769/MUM/2010 ARE D ISMISSED AND ITA NO.1839/MUM/2009 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/05/2013 . '0 - & #' 1 2%3 15/05/2013 - 4 SD/- SD/- ( SANJAY ARORA) (I.P.BANSAL) /ACCOUNTANT MEMBER '# /JUDICIAL MEMBER MUMBAI; 2% DATED 15/05/2013 . % . .VM , SR. PS '0 '0 '0 '0 - -- - *.56 *.56 *.56 *.56 7'6&. 7'6&. 7'6&. 7'6&. / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- 4. 8 / CIT 5. 694 *.% , , / DR, ITAT, MUMBAI 6. 4: ; / GUARD FILE. '0% '0% '0% '0% / BY ORDER, +6. *. //TRUE COPY// < << < / = = = = (DY./ASSTT. REGISTRAR) , / ITAT, MUM BAI