SAURABH KOTHARI, MUMBAI V. ITO WD 21(3)(2), MUMBAI

ITA 1823/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0087 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 28-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR A K NAYAK
• Keywords: Capital asset; Business income; Transactions in derivatives

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E, MU MBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 1823/MUM/2013 (ASSESSMENT YEAR- 2008-09) SAURABH KOTHARI J/108, ANSA INDUSTRIAL ESTATE, SAKI VIHAR ROAD, SAKI NAKA, MUMBAI-400072 PAN: AAJPK7714J VS. ITO WARD- 21(3)(2), PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. DINKLE HARIYA (AR) REVENUE BY : DR. A.K. NAYAK (DR) DATE OF HEARING : 19.06.2017 DATE OF PRONOUNCEMENT : 21.06.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY ASSESSEE U/S. 253 OF THE INCOME-TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-32 [THE CIT(A)], MUMBAI DATED 27.03.2012 FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACTS AND IN LAW BY UPHOLDING THE ASSESSING OFFICERS ASSESSMENT OF SHO RT TERM CAPITAL GAIN OF RS. 5,59,604/- AS INCOME FROM PROFIT AND GAINS FROM BUS INESS AND PROFESSION. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHE R ERRED IN FACTS AND IN LAW BY NOT CONSIDERING THE GROUND OF RESTRICTING THE DISAL LOWANCE OF CHAPTER VI-A DEDUCTION TO RS. 69,177 AS AGAINST CLAIM OF RS. 1,14,628/-. ITA NO.1823/M/2013- SAURABH KOTHARI 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MANUFACTURING OF PAINTS, FILED RETURN OF INCOME FOR RELEVANT AY ON 30.09.2008. IN THE RETURN OF INCOME, THE ASSESSEE H AS SHOWN A PROFIT OF RS. 5,59,604/- AS SHORT TERM CAPITAL GAIN (STCG) DECLAR ING TOTAL INCOME AT RS. 2,30,500/-. THE ASSESSMENT WAS COMPLETED ON 23.12.2 010. THE ASSESSING OFFICER (AO) WHILE FRAMING THE ASSESSMENT ORDER BES IDES THE OTHER ADDITION/DISALLOWANCE TREATED THE STCG EARNED ON SH ARE TRANSACTION OF RS. 55,960/- AS BUSINESS INCOME. ON APPEAL BEFORE THE L D. CIT(A) THE ACTION OF AO WAS CONFIRMED. FURTHER, AGGRIEVED BY THE ORDER O F LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. FIRST GROUND OF APPEAL RELATES TO THE TREATMENT OF SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. WE HAVE HEARD THE LD. AUTHORIZED R EPRESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. A R OF THE ASSESSEE ARGUED THAT THE AO ERRED IN TREATING THE STCG AS BUSINESS INCOME OF THE ASSESSEE. THE LD. AR OF THE ASSESSEE FILED THE SUMMARY OF STA TEMENT OF CAPITAL GAIN SHOWING THE DATE OF ACQUISITION, NUMBER OF SHARE AN D PERIOD OF HOLDING (PAGE NO. 80-81 OF PB). IT WAS ARGUED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION DEALT WITH ONLY 12 SCRIPTS. IT WAS FU RTHER ARGUED THAT INTENTION OF ASSESSEE WAS TO TREAT THE SHARE AS INVESTMENT; H OWEVER WHEN THE ASSESSEE GOT THE BETTER PRICE COMPARING TO HOLDING FOR THE D IVIDEND SOLD THE SAME. THE ITA NO.1823/M/2013- SAURABH KOTHARI 3 ASSESSEE MADE ONLY 27 TRANSACTION OF PURCHASE AND 4 3 TRANSACTION OF SALE INVOLVING 12 SCRIPTS. THE AVERAGE PERIOD OF HOLDING OF THE SHARES IS 83 DAYS. THE ASSESSEE HAS NOT INVESTED THE BORROWED FUND; TH E BORROWED FUND WAS USED IN THE BUSINESS OF MANUFACTURING PAINTS OR HOU SING LOAN. IN SUPPORT OF HER SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED U PON THE DECISION OF HONBLE DELHI HIGH COURT IN CIT VS. AMIT JAIN [2015 ] 374 ITR 550. ON THE OTHER HAND, LD. DR FOR THE REVENUE SUPPORTED THE OR DER OF AUTHORITIES BELOW. IT WAS ARGUED THAT THE ASSESSEE WAS DEALING IN SPEC ULATIVE AND NON- SPECULATIVE TRANSACTION AND WAS ENGAGED REGULARLY I N SALE AND PURCHASE OF SHARE. IT WAS FURTHER ARGUED THAT FROM THE ACTIVITI ES OF THE ASSESSEE, IT CAN EASILY BE INFERRED THAT ASSESSEE WAS ENGAGED IN BUS INESS ACTIVITIES OF SALE AND PURCHASE OF SHARES. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE AO PREP ARED THE FOLLOWING SUMMARY FOR ABOUT NAME OF SHARES, NUMBER OF TRANSAC TION, AND PERIOD OF HOLDING , A) MARUTI - 2 TIMES HOLDING PERIOD 6 DAYS B) ASIAN PAINT - 23 TIME - HOLDING PERIOD 6 TO 71 D AYS C) OMAXE - 5 TIME - HOLDING PERIOD 100 TO 120 D AYS D) PNB - 1 TIME - HOLDING PERIOD 14 DAYS E) K.S.OIL - 3 TIME - HOLDING PERIOD 50 TO 110 DAY S F) TATA TELE - 1 TIME - HOLDING PERIOD 26 DAYS G) R.POWER - 1 TIME - HOLDING PERIOD 3 DAYS H) INDIA INFO - 1 TIME - HOLDING PERIOD 8 DAYS I) RNPL - 1 TIME - HOLDING PERIOD 2 DAYS J) INFOSYS - 2 TIME- HOLDING PERIOD 6 TO 8 DAYS K) RELIANCE - 1 TIME- HOLDING PERIOD 2 DAYS L) R.N.P.L. - 1 TIME - HOLDING PERIOD 3 DAYS ITA NO.1823/M/2013- SAURABH KOTHARI 4 5. THE AO FURTHER OBSERVED THAT FROM THE TRANSACTION O F SALE AND PURCHASE OF SHARES ARE FREQUENT AND PERIOD OF HOLDING IS LESS E VEN IN SOME CASES, IT IS ONLY 2 DAYS. FROM THE BALANCE-SHEET, IT IS SEEN THA T ASSESSEE IS HAVING INVESTMENT OF RS.4,00,382/- AS ON 01.04.2007 AND IN VESTMENT OF RS. 2 ,79,877/-AS ON 31.03.2008. DURING THE RELEVANT PERI OD, THE ASSESSEE HAS PURCHASED THE SHARE OF RS. 57,04,043/- AND SALES OF SHARE IS OF RS. 62,63,648/- ON THE BASIS OF HIS OBSERVATION THAT SH ARE TRADING IS BUSINESS ACTIVITY OF THE ASSESSEE. THE LD. CIT(A) WHILE CONS IDERING THE GROUND OF APPEAL HOLD THAT 43 TRANSACTION OF SALE OF SHARE IN VOLVING ONLY 12 SCRIPTS CANNOT BE SAID TO BE VOLUMINOUS ITSELF. HOWEVER, TH E ASSESSEE HAS ALSO CARRIED OUT ACTIVITY OF F&O WHICH IS BUSINESS ACTIV ITY AND TURNOVER OF ASSESSEE IS IN CRORE. THE ASSESSEE IS ALSO INDULGED HIMSELF IN SPECULATIVE ACTIVITIES IN TRADING IN SHARE WHEREIN HIS TURNOVER IS RS. 96,00,000/-. SOME OF THE SHARE HAVE BEEN REPEATEDLY PURCHASED AND SOLD. THUS, THE INTENTION OF ASSESSEE IS NOT HOLD THE SHARE AS INVESTMENT. NO DI VIDEND HAS BEEN EARNED BY THE ASSESSEE DURING THE YEAR. NO LONG TERM CAPITAL GAIN (LTCG) HAS BEEN SHOWN DURING THIS YEAR AND EVEN IN TWO EARLIER YEAR S WHICH CLEARLY SUGGESTED THAT ASSESSEE NEVER ACTED AS AN INVESTOR BY HOLDING SHARE FOR LONG PERIOD AND CONFIRMED THE ACTION OF AO. THE HONBLE DELHI HIGH COURT IN CIT VS AMIT JAIN [2015] 374 ITR 550(DELHI) ALSO HELD WHEN THAT THE VALUE AND THE FREQUENCY OF TRANSACTIONS ARE NOT CONCLUSIVE FACTOR . THE HONBLE HIGH COURT ITA NO.1823/M/2013- SAURABH KOTHARI 5 FURTHER HELD THAT THAT FOR DETERMINING WHETHER INCO ME GAINED THE PARTICULAR PERIOD IS INCOME THROUGH PURCHASE AND SALE OF SHARE OR OTHER TRADABLE CAPITAL ASSET OR A CAPITAL GAIN ON ACCOUNT OF SUCH ASSET NA MELY; (1) THE INTENTION OF THE ASSESSEE AT THE TIME OF PU RCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE TREATMENT GIVEN TO THE PURCHA SE IN THE ASSESSEE'S BOOKS OF ACCOUNT. (2) DID THE ASSESSEE BORROW MONEY TO PURCHASE THE S HARES, AND PAID INTEREST FOR IT. MONEY IS GENERALLY BORROWED TO PURCHASE GOODS F OR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) VOLUME AND FREQUENCY OF THE PURCHASES AND SALE/ DISPOSALS. IF PURCHASE AND SALES ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSA CTIONS IN AN ITEM, THAT CAN INDICATE TRADE. HABITUAL DEALING IN A PARTICULAR IT EM IS INDICATIVE OF INTENTION OF TRADE. LIKEWISE, THE RATIO BETWEEN THE PURCHASES AN D SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AN D HIGH HOLDINGS INDICATE INVESTMENT). ANOTHER RELATED FACTOR IS THE DURATION FOR WHICH THE SHARES ARE HELD. (4) WAS THE PURCHASE AND SALE MADE FOR REALISING PR OFIT, OR FOR RETENTION AND APPRECIATION IN ITS VALUE. THE FORMER INDICATES THE PURCHASES BEING PART OF TRADE; AND THE LATTER IS INDICATIVE OF THE PURCHASES BEING AN INVESTMENT. FURTHERMORE, IT WOULD BE RELEVANT TO ASK WHETHER THE INTENTION BEHI ND THE PURCHASE WAS TO ENJOY DIVIDEND, OR MERELY TO EARN PROFIT ON SALE OF SHARE S. IMPORTANTLY, A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE IN THIS CONTEXT. (5) WHETHER THE ITEMS IN QUESTION WERE VALUED AT CO ST. IF SO, IT WOULD INDICATE THAT THEY WERE INVESTMENTS. WHERE THEY WERE VALUED AT COST OR MARKET VALUE OR NET REALISABLE VALUE, WHICHEVER IS LESS, IT WILL IN DICATE THAT ITEMS WERE TREATED AS STOCK-IN-TRADE. (6) FINALLY, IT WOULD BE RELEVANT TO CONSIDER HOW T HE ASSESSEE IS AUTHORISED IN ITS MEMORANDUM/ARTICLES. 6. IN THE PRESENT CASE, THE ASSESSEE TRANSACTED ONLY I N 12 SCRIPTS. THERE IS ONLY 27 TRANSACTION OF PURCHASE AND 43 TRANSACTION OF SA LE DURING THE RELEVANT AY. THE ASSESSEE HAS NOT UTILIZED BORROWED FUND. MERELY THE ASSESSEE WAS INDULGED IN SPECULATIVE TRANSACTION IN SHARE OF RNR L AND INDIA INFO OR NO LTCG WAS SHOWN, THE ASSESSEE CANNOT BE DENIED THE B ENEFIT OF STCG. ITA NO.1823/M/2013- SAURABH KOTHARI 6 7. AS PER OUR CONSIDERED, THE ASSESSEE IS NOT INDULGED IN DAY TO DAY ACTIVITY OF SALE AND PURCHASE OF SHARE AS SHOWN IN THE STATEMEN T OF CAPITAL GAIN. WITH THESE OBSERVATIONS, THE GROUND NO.1 OF THE APPEAL R AISED BY ASSESSEE IS ALLOWED. THOUGH, THE ASSESSEE HAS RAISED THE GROUND NO.2 WHICH RELATES TO CERTAIN DEDUCTION UNDER CHAPTER VI-A. THE LD. AR OF THE ASSESSEE HAS NOT ARGUED ANYTHING. HENCE, THIS GROUND OF APPEAL IS TR EATED AS NOT PRESSED AND THE SAME IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF JUNE 2017. SD/- SD/- (G.S. PANNU) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 21/06/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/