NARENDRA M SHAH, MUMBAI V. ITO WD 13(3)(2), MUMBAI

ITA 1789/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75247 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAVI PRAKASH
• Assessee Lawyers: HARDIK MISTRY
• Keywords: Business income
• Section: 143(3); 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K CH [KAMIHB EQACBZ VK;DJ VIHYH; VF/KDJ.K CH [KAMIHB EQACBZ VK;DJ VIHYH; VF/KDJ.K CH [KAMIHB EQACBZ VK;DJ VIHYH; VF/KDJ.K CH [KAMIHB EQACBZ INCOME TAX APPELLATE TRIBUNAL MUMBAI - B BENCH MUMBAI . , , BEFORE S/SH.D.MANMOHAN, VICE-PRESIDEN T & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 1789/MUM/2012, ! '# ! '# ! '# ! '# $ $ $ $ / ASSESSMENT YEAR 2008-09 NARENDRA M.SHAH, 61 ASHOK CHAMBERS, 86, DEVJI RATANSEY MARG MUMBAI-400009 VS. ITO WD 13(3)(2) R.NO. 428, 4 TH FLOOR, AAYAKAR BHAVAN MUMBAI-400020 PAN: AAFPS2221Q ( %& / ASSESSEE ) ( '(%& / RESPONDENT) %& %& %& %& ) )) ) * * * * / ASSESSEE BY :SHRI HARDIK MISTRY '(%& ) * / RESPONDENT BY :SHRI RAVI PRAKASH + , + , + , + , ) )) ) - - - - / DATE OF HEARING : 19 . 12 .2013 .$# ) - / DATE OF PRONOUNCEMENT : 08 . 01 .201 4 !'! !'! !'! !'! , 1961 ) )) ) ' ' ' ' 254 )1( -/- -/- -/- -/- 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DATED 03.01.2012 OF THE CIT(A )-24,MUMBAI ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1.THE ASSESSING OFFICER{INCOME TAX OFFICER,13(3)(2) , MUMBAI} HAS ERRED IN TREATING SHORT TERM CAPITAL GAINS OF RS.1,02,595/- AS INCOME FROM BUSINESS AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-24 HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 2.THE ASSESSING OFFICER HAS ERRED IN DISREGARDING T HE FACT THAT THE APPELLANT HAS ALWAYS CARRIED ON SEPARATE TRADING AND SPECULATION ACTIVIT IES IN SHARES AS ALSO HAD A SEPARATE INVESTMENT PORTFOLIO OF SHARES WHICH HAD NO BEARING WITH HIS STOCK OF SHARES IN HIS TRADING ACTIVITY AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-24 HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER. 3.THE ASSESSING OFFICER HAS ERRED IN HOLDING THAT T HE SHORT TERM CAPITAL GAINS AMOUNTING TO RS.1, 02,595/- EARNED BY YOUR APPELLANT ON SALE OF HIS SHARES/SECURITIES HELD BY HIM AS INVESTMENT, AS HIS INCOME FROM BUSINESS AND ASSESSI NG IT AS BUSINESS INCOME AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) -24 HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4.THE ASSESSING OFFICER HAS ERRED IN CONCLUDING THA T ASSESSEE HAS EXCEEDED THE LIMIT OF RS 40 LACS PRESCRIBED U/S44AB AND INITIATING THE PENAL TY U/S 274 RWS 271B AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) -24 HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 2 ITA NO. 1789/MUM/2012 NARENDRA M.SHAH 5.THE ASSESSING OFFICER HAS ERRED IN DISALLOWING TH E INTEREST OF RS 2,09,498/-OUT OF TOTAL INTEREST OF RS 1,98,385/-PAID U/S 14A AND RS 11,113 /-AS PER RULE 8D OF SECTION 14A AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 24 HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 6.THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND O R WITHDRAW ANY OF THE GROUND/S, IF NECESSARY. DURING THE COURSE OF HEARING BEFORE US,AUTHORISED R EPRESENTATIVE(AR)DID NOT PRESS GROUND NO.4 AND 5.THEREFORE,SAME STAND DISMISSED AS NOT PRESSED .EFFECTIVE GROUND OF APPEAL IS ABOUT TREATING SALE PROCEED OF SHARES AS BUSINESS INCOME BY THE AO . 2. ASSESSEE,AN INDIVIDUAL,ENGAGED IN THE BUSINESS OF C OMMISSION AGENCY AND LOAN FINANCING FILED ITS RETURN OF INCOME ON 05.08.2008 DECLARING TOTAL INCOME OF RS.3,96,291/-.ASSESSMENT WAS FINALISED BY THE ASSESSING OFFICER(AO) U/S 143(3) O F THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 6.05 LACS.DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD DECLARED SHORT TERM CAPITAL GAIN (STCG) OF RS.1 .02 LACS. HE DIRECTED THE ASSESSEE TO FILE DETAILS IN THIS REGARD AFTER VERIFYING THE DETAILS FILED AO HELD THAT ASSESSEE HAD MADE FREQUENT TRANSACTIONS OF PURCHASE AND SALE OF SHARES, THAT S OME OF THE SHARES WERE SOLD EVEN BEFORE THEY WERE ENTERED INTO THE ASSESSEES DEMAT ACCOUNT.ANAL YSING THE SHARES OF SIX COMPANIES, AO HELD THAT ASSESSEE HAD ENTERED INTO SHARE TRANSACTION WI TH AN INTENTION TO EARN PROFITS AT FREQUENT INTERVALS,THAT HE WAS NOT AN INVESTOR, THAT STCG DE CLARED BY THE ASSESSEE HAD TO BE TREATED AS BUSINESS INCOME. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT THE INTENTION AT THE TIME OF PURCHASES WAS THE MOST IMPORTANT FACTOR TO DECIDE WHETHER THE PURCHASES WERE MADE AS A TRADER OR WHETHER THE SAME WERE MADE AS AN INVESTOR,THAT THE INTENTION COULD TO BE GATHERED FROM SUBSEQUENT CONDUCT OF THE ASSESSEE IN DEALING WITH THE SHARES,THAT THE OTHER PARAMETERS TO DECIDE THE ISSUE WERE FREQUENCY OF TRANSACTION,CONTINUOUS VOLUME,HOLDING PERIOD,TREATMENT IN THE BOOKS OF ACCOUNT,USE OF BOR ROWED/OWN FUNDS AND DEVOTION OF TIME TO THE ACTIVITY,THAT THE ASSESSEE HAD CARRIED OUT THE ACTI VITIES OF PURCHASE AND SALE OF SHARES DURING THE YEAR, INCLUDING TRADING IN SHARES AND TRADING IN FU TURES AND OPTIONS,THAT THE ASSESSEE HAS INDULGED IN PURCHASE AND SALE OF SUCH SHARES WITH THE INTENT ION OF MAKING QUICK PROFIT,THAT A LARGE NUMBER OF SHARES OUT OF THE SHARE PURCHASED WERE EITHER SO LD ON THE SAME DATE OR WITHIN A FEW DAYS, THEREBY EARNING EITHER A SMALL GAIN OR MAKING LOSSE S,THAT THE AO HAD INCORPORATED SOME OF THE TRANSACTIONS IN THE ASSESSMENT ORDER, THAT THE ASSE SSEE HAS PURCHASED THE SHARES AND THEN SOLD THE SHARES OF SPICE JET ALMOST IMMEDIATELY WITHIN A FEW DAYS OF PURCHASE AND IN SOME CASES EVEN ON THE SAME DAY,THAT HE HAD BOUGHT THE SCRIPS,SOLD THE M WITHIN JUST A FEW DAYS AND THEN RE-ENTERED THE SCRIPS BY AGAIN PURCHASING THEM,THAT THOSE WERE ATTRIBUTES OF A TRADER,THAT THE ASSESSEE HAD NOT PURCHASED THE SHARES FOR CAPITAL APPRECIATION,THAT THE SHARE-TRANSACTIONS ENTERED INTO BY THE ASSESSEE COULD NOT BE SEEN IN ISOLATION AND INDEPEN DENT OF HIS SHARE TRADING ACTIVITY AS WELL AS HIS ACTIVITY IN FUTURES AND OPTIONS.HE REFERRED TO THE CASES OF H.HOLCK LARSEN,(160 ITR67),P.M. MOHD.MEERAKHAN(73ITR735)AND TRISHUL INVESTMENTS LTD .(305ITR434).FINALLY,HE UPHELD THE ACT ION OF THE AO. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT THERE WERE ONLY 51 TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION, THAT BECAUSE O F THE MISTAKES OF THE ACCOUNTANT, THERE WAS SOME CONFUSION IN THE BOOKS OF ACCOUNTS, ASSESSEE W AS SHOWING THE PROFIT FROM F & O SEGMENT UNDER THE HEAD BUSINESS INCOME.DEPARTMENTAL REPRE SENTATIVE (DR) SUBMITTED THAT THE INTENTION OF THE ASSESSEE WAS TO MAXIMIZE THE PROFIT, THAT TH E IMPORTANT ISSUE IN SUCH CASES TO BE DECIDED WAS THE INTENTION OF THE ASSESSEE AND NOT VOLUME, T HAT THE AO AND FAA HAD CLEARLY INDICATED THAT ASSESSEE WAS NOT AN INVESTOR. 3 ITA NO. 1789/MUM/2012 NARENDRA M.SHAH 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. IT IS WELL SETTLED LAW THAT THE ISSUE REGARDING INVESTOR/TRADER OF SHARES HAS TO BE DECIDED ON THE FACTS OF THE CASE FOR THE PARTICULAR YEAR.EARLIER/SUBSEQUENT YEARS ASSESSMEN TS CAN BE OF SOME HELP,BUT SAME ARE NOT THE SOLE DECIDING FACTORS.IT IS SAID THAT AN INVESTOR P URCHASES A SHARE WITH A VIEW TO EARN INCOME IN THE FORM OF DIVIDEND AND FOR APPRECIATION IN VALUE OVER A LONG PERIOD OF TIME AND IS NOT MOTIVATED TO SELL SHARES ON EACH AND EVERY RISE IN THE VALUE OF SHARES WHICH ARE,IN FACT,THE ATTRIBUTES OF A TRADER,THAT FOR DECIDING THE QUESTION WHETHER THE P ROFIT FROM SALE OF SHARE IS CAPITAL GAIN OR BUSINESS INCOME, NO SINGLE THUMB RULE CAN BE APPLIE D AS HELD BY THE DIFFERENT HONBLE COURTS. CBDT IN ITS CIRCULAR NO.4/2007 HAVE LAID DOWN PARAM ETERS/CRITERIA FOR JUDGING WHETHER THE ACTIVITIES OF THE ASSESSEE WAS IN THE NATURE OF AN INVESTMENT ACTIVITY OR A TRADING ACTIVITY. IT IS AL SO PERTINENT TO MENTION THAT THE VARIOUS COURTS AND TR IBUNALS AS WELL AS THE CBDT HAVE LAID DOWN THAT AN ASSESSEE CAN HAVE TWO PORTFOLIOS OF SHARES - ONE FOR TRADING AND ONE FOR INVESTMENT PURPOSES. THEREFORE, THE ASSESSEE CAN BE BOTH A DEA LER IN SHARES AS WELL AS AN INVESTOR IN SHARES AT THE SAME TIME.KEEPING IN MIND THE ABOVE MENTIONED G ENERAL RULES,WE WILL LIKE TO CONCENTRATE THE FACTS OF THE PRESENT CASE.IT IS FOUND THAT THE SHAR ES OF SPICE JET,TECH MAHINDRA AND HIND TIN WORKS WERE HELD FOR A VERY SHORT DURATION,THAT MAJO R SHARE OF THE PROFIT UNDER THE HEAD CAPITAL GAINS IS FROM SUCH SHARES THAT WERE HELD FOR LESS T HAN THIRTY DAYS.IN OUR OPINION CONSIDERING THE FACTS OF THE CASE INTENTION OF THE ASSESSEE,FOR THE YEAR UNDER CONSIDERATION,WAS TO MAKE PROFIT AND NOT TO INVEST IN SHARES.THEREFORE,UPHOLDING THE ORD ER OF THE FAA,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ! '1- 2 3 ) /, 4 ) - 5 . ORDER PRONOUNCED IN THE OP EN COURT ON 8 TH DAY OF JANUARY,2014. 0 0 0 0 ) )) ) .$# .$# .$# .$# + + + + 6 66 6 8 ,2014 ) )) ) /, /,/, /, . SD/- SD/- ( . / D.MANMOHAN) ( / RAJENDRA) / VICE-PRESIDENT / ACCOUNTANT MEMBER +7, / MUMBAI, 8 /DATE: 08.01 . 2014. SK 0 0 0 0 ) )) ) '!-!9 '!-!9 '!-!9 '!-!9 :9$- :9$- :9$- :9$- / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT (A)/ 7; +< , 4. THE CONCERNED CIT / 7; +< 5. DR B BENCH, ITAT, MUMBAI / 9=/ '!-! !' CH CHCH CH > , . . . +7, 6. GUARD FILE/ / ?, (9- (9- (9- (9- '!- '!-'!- '!- //TRUE COPY// 0 + / BY ORDER, / DY./ASST. REGISTRAR !'# , +7, /ITAT, MUMBAI