DCIT 14(2), MUMBAI V. SITARAM PODDAR, MUMBAI

ITA 1816/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48918 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Business income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 1816/MUM/2010 (ASSESSMENT YEAR: 2006-07) A C I T - 14(2) SHRI SITARAM PODDAR EARNEST HOUSE, 3RD FLOOR 312, KALBADEVI ROAD NARIMAN POINT, MUMBAI 400021 VS. MUMBAI 400002 PAN - AABPP 8023 D APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI HARIDAS BHAT O R D E R PER T.R. SOOD, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE CIT(A) XXV, MUMBAI DATED 03.12.2009 IN RELATION TO A.Y. 2006-07. 2. IN THIS APPEAL REVENUE HAS RAISED VARIOUS GROUND OF APPEAL BUT THE ONLY DISPUTE INVOLVED IS REGARDING WHETHER THE PROF IT GENERATED ON THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES SHOULD BE TREATED AS BUSINESS INCOME OR SHOULD BE CONSIDERED UNDER THE HEAD CAPIT AL GAINS. 3. DURING THE ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT ASSESSEE HAS DECLARED LOSS ON BUSINESS AND IT ALSO OFFERED SOME INCOME UNDER THE HEAD CAPITAL GAINS, WHICH WAS GENERATED FROM SALE AND PU RCHASE OF SHARES. HE FURTHER NOTED THAT THERE WAS A VERY HIGH AND FREQUE NT VOLUME OF TRANSACTIONS AND IN MORE THAN 60% CASES SHARES WERE HELD FOR LEAS THAN 30 DAYS. ON ENQUIRY IT WAS SUBMITTED THAT ASSESSEE HAD PURCHASED AND TAKEN DELIVERY OF SHARES FROM THE RECOGNISED STOCK EXCHAN GES, WHICH WERE ALSO TRANSFERRED TO ASSESSEES DEMAT ACCOUNT AND THOSE S HARES WERE TRANSACTED ON DELIVERY BASIS. ASSESSEE HAS ALSO DONE BUSINESS IN FUTURES & OPTIONS, WHICH WAS ALSO SHOWN AS BUSINESS INCOME. THE A.O. D ISCUSSED VARIOUS CASE LAWS AND CONCLUDED IN PARA 6 AS UNDER: - ITA NO. 1816/MUM/2010 SHRI SITARAM PODDAR 2 6 .. A. THE HUGE VOLUME OF SHARES HAVE BEEN PURCHASED AND S OLD BY THE ASSESSEE HIMSELF; B. THE HIGH FREQUENCY OF SUCH TRANSACTIONS AS WELL AS THE LOW HOLDING PERIOD AS BROUGHT OUT BY THE FACT THAT MORE THAN 60% OF THE TOTAL NUMBER OF SHARES WERE SOLD WITHIN 30 D AYS. C. THE FACT THAT THE ASSESSEE HAS ALSO TREATED THE PRO FIT/LOSS FROM THE TRANSACTIONS WHERE THE SHARES WERE HELD FO R ONLY 2-3 DAYS CLEARLY BRINGS OUT THE HOLLOWNESS IN THE ASSES SEES CONTENTION THAT THE TRANSACTIONS HAD NO PROFIT MOTI VE; D. THE TRANSACTIONS IN QUESTION ARE NOT ISOLATED ONES. RATHER THERE IS A REGULARITY IN THESE TRANSACTIONS AS THE ASSESSEE HAS BEEN CARRYING ON SUCH TRANSACTIONS DURING EARLIER Y EARS AND AN INTENTION TO CONTINUE THESE TRANSACTIONS IN FUTU RE IS ALSO DISCERNIBLE; 4. IN THE ABOVE BACKGROUND THE PROFIT FROM SALE AND PU RCHASE OF SHARES WAS TREATED AS BUSINESS INCOME. BEFORE THE CIT(A) I T WAS MAINLY SUBMITTED THAT SHARES HAVE BEEN PURCHASED ON DELIVERY BASIS A ND ONLY IN VERY FEW CASES THE SAME WERE HELD FOR SHORTER DURATION OF TI ME. IT WAS ALSO POINTED OUT THAT ASSESSEE HAS BEEN HOLDING SHARES AS INVEST MENT FOR MANY YEARS. IT WAS CONTENDED THAT ASSESSEE COULD HAVE DIFFERENT TY PES OF INVESTMENT AT THE SAME TIME. MERELY VOLUME AND FREQUENCY OF TRANSACTI ONS IN SOME SCRIPS CANNOT BE USED AS A YARDSTICK TO HOLD THE SHARE TRA NSACTIONS AS TRADING TRANSACTIONS. RELIANCE WAS ALSO PLACED IN THE CASE OF GOPAL PUROHIT VS. JCIT 122 TTJ (MUM) 87 AND SOME OTHER DECISIONS. AFTER CO NSIDERING THE SUBMISSIONS THE LEARNED CIT(A) OBSERVED THAT ASSESS EE HAS BEEN INVESTING IN SHARES FOR LAST MANY YEARS AND THE SHARES WERE HELD ON INVESTMENT BASIS. SHARES WERE NOT HELD AS STOCK-IN-TRADE IN THE BOOKS OF ACCOUNT FOR LAST MANY YEARS. ASSESSEE HAS NOT USED ANY BORROWED FUNDS. IT IS NOT CORRECT THAT IN 95% CASES SHARES WERE HELD FOR HARDLY 2-3 DAYS. IT WAS ALSO OBSERVED THAT IN EARLIER YEARS SUCH TRANSACTIONS WERE HELD TO BE ARI SING OUT OF SHORT TERM CAPITAL GAINS AND WITHOUT BRINGING ANY FRESH MATERI AL ON RECORD THE A.O. HAS HELD THAT THE TRANSACTIONS ARE RESULTED INTO BUSINE SS PROFITS, WHICH IS NOT CORRECT. THEREAFTER, RELYING ON THE DECISION IN THE CASE OF JCIT VS. GOPAL PUROHIT HE HELD THAT SHARE TRANSACTIONS ARE RESULTE D ONLY IN CAPITAL GAINS. ITA NO. 1816/MUM/2010 SHRI SITARAM PODDAR 3 5. BEFORE US THE LEARNED D.R. SUBMITTED THAT ASSESSEE HAS NOT FILED ITS BALANCE SHEET TO SHOW THAT ASSESSEE HAS NOT USED AN Y BORROWED FUNDS OR HAS SHOWN THE SHARES AS STOCK-IN-TRADE. HE ALSO SUB MITTED THAT ASSESSEE HAS NO OTHER BUSINESS EXCEPT FOR DEALING IN SHARES AND HAS ALSO INDULGED IN FUTURE AND OPTIONS TRANSACTIONS, WHICH ONLY SHOWS T HAT THE INTENTION OF THE ASSESSEE WAS TO ENGAGE IN SHARE BUSINESS. HE ALSO R EFERRED TO THE LIST OF SHARE TRANSACTIONS FURNISHED BY THE ASSESSEE AND PO INTED OUT THAT IN MANY CASES SHARES HAVE BEEN PURCHASED AND SOLD ON THE SA ME DAY AND IN MANY OTHER CASES SHARES HAVE BEEN SOLD WITHIN 2-3 DAYS O F INVESTMENT, WHICH CLEARLY SHOWS THAT THE INTENTION OF THE ASSESSEE WA S TO DO BUSINESS IN SHARES. 6. HE STRONGLY RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF SHAILESH L. SHAH, HUF IN ITA NOS. 3991 & 3992/MUM/2008 DATED 13 TH JANUARY 2010 WHEREIN AFTER DISCUSSING THE DECISION OF GOPAL PURO HIT VS. JCIT IT WAS OBSERVED THAT IN VIEW OF THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF NEW JEHANGIR VAKIL MILLS LTD. VS. CIT 49 IT R 137 IT WAS DIFFICULT TO ACCEPT THE RULE OF CONSISTENCY. IN THAT CASE IT WAS VERY CLEARLY HELD THAT IN VIEW OF THE HIGH VOLUME AND FREQUENT TRANSACTIONS T HE INTENTION WAS ONLY TO DEAL IN SHARES. SIMILAR VIEW HAS BEEN TAKEN IN ANOT HER DECISION IN THE CASE OF SMT. SADHANA NABERA IN ITA NO. 2586/MUM/2009 DATED 26 TH MARCH 2010. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT IN EARLIER YEARS ASSESSEE HAS BEEN EARNING SOM E SHARE PROFITS, WHICH WAS ALWAYS TREATED AS LONG TERM AND SHORT TERM CAPI TAL GAINS AND IN THIS REGARD HE FILED A CHART. HE ALSO STRONGLY RELIED ON THE DECISION OF GOPAL PUROHIT. WHEN THE LEARNED COUNSEL FOR THE ASSESSEE WAS CONFRONTED WHETHER HE CAN FILE THE DETAILS OF TRANSACTIONS TO SHOW THA T THE PATTERN WAS THE SAME IN EARLIER YEARS HE ADMITTED THAT IT WAS NOT POSSIB LE TO SUPPLY THE DETAILED NATURE OF TRANSACTIONS FOR EARLIER YEARS. HE ALSO A DMITTED THAT IN ALL THE EARLIER YEARS INCOME TAX RETURNS WERE PROCESSED UND ER SECTION 143(1) AND NEVER PUT TO SCRUTINY. HE FURTHER ARGUED THAT ONLY IN VERY FEW CASES SHARES HAVE BEEN SOLD ON THE SAME DAY AND THAT HAS BEEN DO NE ONLY WHEN ASSESSEE WAS OF THE OPINION THAT HE HAS INDULGED IN WRONG TR ADE. THE INTENTION WAS ITA NO. 1816/MUM/2010 SHRI SITARAM PODDAR 4 ALWAYS TO INVEST IN SHARES. HE ALSO SUBMITTED THAT ASSESSEE HAS NEVER BORROWED ANY FUNDS. THEREFORE HIS INTENTION SHOULD BE TREATED AS TRANSACTIONS UNDER THE HEAD CAPITAL GAINS. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. THE ISSUE WHETHER THE SHARE TRANSACTIONS SHOULD BE TREATED AS BUSINES S INCOME OR INCOME FROM CAPITAL GAINS WOULD ALWAYS DEPEND ON THE PECULIAR F ACTS OF EACH CASE AND IN FACT THE TRIBUNAL SEEMS TO HAVE DECIDED IN VARIOUS CASES THE ISSUE ONE WAY OR THE OTHER. NO DOUBT, IN THE CASE OF GOPAL PUROHI T (SUPRA) IT WAS HELD THAT RULE OF CONSISTENCY SHOULD BE FOLLOWED BUT FOR APPL ICATION OF THAT THE FACTS IN THE CURRENT YEAR HAVE TO BE SAME WITH THE FACTS OF THE EARLIER YEAR. IN THE CASE BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE ADMITTED THAT ASSESSEE WAS NOT IN A POSITION TO SUPPLY THE DETAILS OF EARL IER YEARS, THEREFORE, RULE OF CONSISTENCY IS NOT APPLICABLE AS IT IS NOT KNOWN WH AT WERE THE FACTS IN THE PREVIOUS YEAR. IN ANY CASE, AS OBSERVED IN THE CASE OF SHAILESH L. SHAH, HUF (SUPRA) RULE OF CONSISTENCY MAY BE DIFFICULT TO ACC EPT, PARTICULARLY IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF NEW JEHANGIR VAKIL MILLS LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE CIR CUMSTANCES THAT IN THE EARLIER ASSESSMENT YEAR ASSESSEE WAS TREATED AS AN INVESTOR DID NOT ESTOP THE ASSESSING AUTHORITIES FROM CONSIDERING, FOR THE PURPOSE OF COMPUTATION OF PROFIT FOR THE SUCCEEDING YEAR, AS TO WHEN THE T RADING ACTIVITY BY THE ASSESSEE BEGAN. THEREFORE IN OUR HUMBLE VIEW, IN TH IS CASE RULE OF CONSISTENCY, IN THE ABSENCE OF FACTS OF EARLIER YEA R, ARE NOT APPLICABLE. MOREOVER, THE EARLIER RETURNS HAVE BEEN PROCESSED U NDER SECTION 143(1) WITHOUT PUTTING TO ANY SCRUTINY UNDER SECTION 143(3 ), AS ADMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE. 9. COMING TO THE TRANSACTIONS OF SHARES IT IS NOTED TH AT IN THE FOLLOWING CASES SHARES HAVE BEEN SOLD ON THE SAME DAY: - SCRIPS QTY. DATE OF PURCHASE DATE OF SALE BHARATI TELE-VENTURES LTD. 90000 10.08.05 10.08.05 BHARATI TELE-VENTURES LTD. 50000 12.08.05 12.08.05 GUJARAT AMBUJA CEMENTS LTD. 60221 05.08.05 05.08.05 ITA NO. 1816/MUM/2010 SHRI SITARAM PODDAR 5 SESA GOA LTD. 5000 11.08.05 11.08.05 RELIANCE INDUSTRIES LTD. 5000 26.08.05 26.08.05 RELIANCE INDUSTRIES 1000 12.08.05 12.08.05 LAXMI MACHINES WORKS LTD. 50 11.07.2005 11.07.2005 THE ABOVE CLEARLY SAYS THAT SHARES WERE PURCHASED A ND SOLD ON SAME DAY. IF ASSESSEE WAS INVESTOR NO SUCH TRANSACTION WOULD HAV E BEEN INDULGED. WE DO NOT ACCEPT THE CONTENTION THAT THESE TRANSACTIONS W ERE MERELY A WRONG TRADE BECAUSE NOBODY WOULD INDULGE IN WRONG TRADE INVOLVI NG 90000 SHARES AS HAS BEEN DONE BY THE ASSESSEE IN THE CASE OF BHARAT I TELE-VENTURES LTD. ON 10.08.2005. FURTHER, ASSESSEE HAS NOT FILED ANY BAL ANCE SHEET BEFORE THE A.O., AS POINTED OUT BY THE LEARNED D.R. AND NO SUC H BALANCE SHEET HAS BEEN FILED EVEN BEFORE US. WE WONDER HOW INVESTMENT OF ` 2.70 CRORES WAS ARRANGED FOR BUYING THE SHARES OF BHARATI TELE-VENT URES LTD. FURTHER, IN MANY CASES SHARES HAVE BEEN SOLD WITHIN A VERY SHOR T DURATION AND ALL THESE FACTORS ONLY LEADS TO THE CONCLUSION THAT ASSESSEE WAS INDULGING ONLY IN TRADING TRANSACTIONS. FOR EXAMPLE, IF ASSESSEE EVER HAD INTENTION OF MAKING INVESTMENT THEN AFTER HAVING PURCHASED AND SOLD BHA RATI TELE-VENTURES LTD. ON 10.08.2005 WHY HE HAS AGAIN PURCHASED 50000 SHAR ES OF BHARATI TELE- VENTURES ON 12.08.2005 AND SOLD AGAIN. ALL THESE FA CTORS CLEARLY PROVE THAT ASSESSEE IS A TRADER IN SHARES. MOREOVER, ASSESSEE DOES NOT HAVE ANY OTHER BUSINESS AND WAS ALSO INDULGING IN FUTURES AND OPTI ONS TRANSACTIONS, WHICH HAS ALREADY BEEN DECLARED AS BUSINESS TRANSAC TIONS. CONSIDERING ALL THESE FACTS WE ARE OF THE VIEW THAT ASSESSEE WAS DO ING ONLY BUSINESS TRANSACTIONS IN SHARES AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THAT OF THE A.O. 10. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY 2011. SD/- SD/- (D. MANMOHAN) (T.R. SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 31 ST MAY 2011 ITA NO. 1816/MUM/2010 SHRI SITARAM PODDAR 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.