Income-tax Officer, V. Smt. Anju Suresh Parakh, Pune

ITA 1824/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1278 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 07-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Business income
• Section: 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, J UDICIAL M EMBER . / ITA NO. 1 824 /PN/201 4 / ASSESSMENT YEAR : 200 9 - 1 0 THE INCOME TAX OFFICER, WARD 2(1), PUNE . / APPELLANT / VS. SMT. ANJU SURESH PARAKH, 584/1, SALISBURY PARK, PUNE 411037 . / RESPONDENT PAN: AFBPP0819E . / ITA NO. 182 5 /PN/ 201 4 / ASSESSMENT YEAR : 200 9 - 1 0 / ASSESSMENT YEAR : 200 9 - 1 0 THE INCOME TAX OFFICER, WARD 2(1), PUNE . / APPELLANT VS. SMT. A SHA PRAKASH PARAKH, 584/1, SALISBURY PARK, PUNE 411037 . / RESPONDENT PAN: AFBPP081 8F / APPELLANT BY : SHRI B.C. MALAKAR / RESPOND ENT BY : SHRI NIKHIL PATHAK / DATE OF HEARING : 1 6 .07.2015 / DATE OF PRONOUNCEMENT: 12 .0 8 .2015 ITA NO S . 1 824 & 1825 /PN/20 1 4 SMT. ANJU SURESH PARAKH & ANR. 2 / ORDER PER SUSHMA CHOWLA, J M : BOTH THE APPEAL S FILED BY THE REVENUE ARE AGAINST THE RESPECTIVE ORDER S OF CIT(A) - I I , PUNE , EVEN DATED 09 . 0 6 .20 1 4 REL ATING TO ASSESSMENT YEAR 200 9 - 1 0 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT , 1961 . 2. BOTH THE APPEALS RELATIN G TO RELATED PARTY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE IS BEING MADE TO THE FACTS AND ISSUES IN ITA NO.1824/PN/2014 TO ADJUDICATE THE ISSUE. 3. IN ITA NO.1824/PN/2014, T HE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . THE ORDER OF THE LEARNED COMMISSIONER OF I NCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCE S OF THE CASE. LAW AND TO THE FACTS AND CIRCUMSTANCE S OF THE CASE. 2 . THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN ALL OWING THE ASSESSEE'S APPEAL INSTEAD OF CONFIRMING THE ASSESSING OFFICER'S ORDER . 3 . THE LEARNED COMMISSIONER : OF INCOME - TAX (APPEALS) GROSSLY ERRED IN NOT APPRECIATING THAT THE LOSS OF RS . 42,37,312/ - ARISING ON SALE OF SHARES TH R OUGH PORTFOLIO MANAGEMENT SC HEME SHOWN UNDER THE HEAD 'CAPITAL GAIN' WAS EARNED FROM TRADING IN SHARES , AND , THEREFORE, H A D BEEN R IG HTLY ASSESSED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS O R P R OFESSION. ' 4 . THE LEARNED COMMISSIONER . OF INCOME - TAX (APPEALS) GROSSLY ERRED IN NOT AP PRECIATING THAT THE ASSESSEE HAD CARRIE D OUT TRANSACTIONS IN HIGH VOLUMES, FREQUENCY AND IN AN ORGANIZED MANNER WHICH WOULD CLEARLY ESTAB L ISH THAT THE FREQUENCY AND IN AN ORGANIZED MANNER WHICH WOULD CLEARLY ESTAB L ISH THAT THE IMPUGNED ACTIVITY WAS IN THE NATURE OF ' BUSINESS' AND NOT ' I NVESTMENT' AS CLAIMED BY THE ASSESSEE; AND, T HEREFORE , THE PROFITS DERIVED FROM SUCH TRANSACTIONS WERE TAXABLE UNDER THE HEAD ' INCOME FROM 'BUSINESS' . 5 . THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN HOLDING THAT THE TRANSACTIONS IN QUESTION WERE NOT IN THE NATURE OF THE ASSESSEE'S BUSINESS, MERELY FOR THE REASON THAT T H E SAME HAD BEEN CARRIED OUT THROUGH A DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE AND ALSO IN HOLDING THAT AT THE MOST, THE TRANSACTIONS COULD BE CONSIDERED AS THE BUSINESS OF THE PMS PROVIDER . 6 . THE LEARNED COMMISSIO NER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN COMING TO THE ABOVE ERRONEOUS CONCLUSION WITHOUT APPRECIATING THAT THE ASSESSEE'S THE ABOVE ERRONEOUS CONCLUSION WITHOUT APPRECIATING THAT THE ASSESSEE'S AGREEMENT WITH THE PMS PROVIDER PROVIDED FOR PROF I T - SHARING BETWEEN THE ASSESSEE AND THE PMS PROVIDER IN ADDIT I ON TO PAYMENT OF F EES. SUCH ARRANGEMENTS OF AGENCY AND PROFIT - SHARING ARE ALIEN TO A TRANSACTION IN THE NATURE OF INVESTMENT . ITA NO S . 1 824 & 1825 /PN/20 1 4 SMT. ANJU SURESH PARAKH & ANR. 3 7 . THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY E R RED IN FAILING TO APPRECIATE THAT EVEN IF IT I S ASSUMED, WITHOUT CONCEDING, THAT THE ASS ESSEE D I D NOT PARTICIPATE IN THE DAY TO DAY AFFAIRS OF TRANSACTIONS WHICH WERE ALLEGEDLY TAKEN CARE OF BY THE PMS PROV I DER , THE SAME BY ITSELF WOULD ' NOT MAKE THE ASSESSEE IN I NVESTOR VIS - A - VIS THE IMPUGNED TRANSACTIONS IN AS MUCH AS : THE ASSESSEE IN I NVESTOR VIS - A - VIS THE IMPUGNED TRANSACTIONS IN AS MUCH AS : THE ASSESSEE HAD CONS CIOUSLY DEPLOYED FUNDS WITH THE PMS PROVIDER FOR MAXIMIZING PROFIT AND HAD ALSO CONSCIOUSLY DELEGATED THE FUNCTION OF CHURNING THE SAID FUNDS TO THE PMS PROVIDER MUCH AS A CONTRACTOR DELEGATES A PART OF HIS WORK TO A SUB - CONTRACTOR. IN THE LATTER INSTANCE , IT CANNOT BE SAID THAT THE DELEGATOR CEASED TO BE IN BUSINESS VIS - A - VIS THE PORTION OF WORK SO DELEGATED . 8 . THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN FAIL I NG TO APPRECIATE THAT IF THE MOTIVE OF THE ASSESSEE WERE TO INVEST AND NOT TO TRADE IN SHARES , HE WOULD NOT HAVE G I VEN A BLANKET MAN D ATE TO THE PMS PROVIDER FOR BUYING AND SELLING SHARES AND, INSTEAD , WOULD HAVE RESERVED THE RIGHT OF DECISION IN RESPECT OF SUCH SHARES TO HIMSELF. THE ABSENCE OF SUCH RESERVATION OF RIGHT CLEARLY P ROVES THE INTENT OF THE ASSESSEE TO TRANSACT IN SHARES WITH A OF RIGHT CLEARLY P ROVES THE INTENT OF THE ASSESSEE TO TRANSACT IN SHARES WITH A VIEW TO BOOKING PROFITS . 9 . FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING , THE ORDER OF THE LEARNED CIT (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RES TORED . 10 . THE APPELLANT CRAVES LEAVE TO ADD , ALTER OR AMEND ANY OR ALL THE GROUNDS OF APPEA L . 4. THE ISSUE RAISED IN BOTH THE APPEALS IS AGAINST THE ASSESSABILITY OF LOSS ARISING ON SALE OF SHARES THROUGH PORTFOLIO MANAGEMENT SCHEME. ARISING ON SALE OF SHARES THROUGH PORTFOLIO MANAGEMENT SCHEME. 5. THE LEARNED AUTHORI ZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09 , WHEREIN SIMILAR ISSUE HAD ARISEN. 6. THE LEA RNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER . 7. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD DECLARED LOSS ON SALE OF SHARES IN HER RETURN OF INCOME. HOWEVER, SINCE SIMILAR LOSS FROM SHARE TRADING PERTAINING TO PORTFOLIO MANAGEMENT SERVICES WAS ASSESSED AS BUSINESS INCOME, WHILE COMPLETING ASSESSMENT FOR ASSESSMENT YEAR 2008 - 09 UNDER SECTION 143(3) WHILE COMPLETING ASSESSMENT FOR ASSESSMENT YEAR 2008 - 09 UNDER SECTION 143(3) OF THE ACT, THE ASSESSING OFFICER IN ORDER TO SAFEGUARD THE INTERESTS OF REVEN UE ITA NO S . 1 824 & 1825 /PN/20 1 4 SMT. ANJU SURESH PARAKH & ANR. 4 ASSESSED THE LOSS FROM SHARE TRADING PERTAINING T HROUGH PORTFOLIO MANAGEMENT SERVICES AS BUSINESS LOSS ON PROTECTIVE BASIS. 8. THE CIT(A) IN TURN, RELYING ON THE ORDER OF TRIBUNAL RELATING TO ASSESSMENT YEAR 2008 - 09 IN ITA NOS.1395 & 1396/PN/2011 AND CO NOS.103 & 104/PN/2011 , ORDER DATED 26.11.2012 HELD THAT SINCE THE FACTS AND CIRCUMSTANCES OF THE ISSUE INVOLVED WERE SAME FOR THE YEAR UNDER CONSI DERATION, FOLLOWING THE SAID DECISION OF THE TRIBUNAL, THE ASSESSING OFFICER WAS DIRECTED TO TREAT THE LOS S FROM PURCHASE AND SALE OF SHARES AS CAPITAL LOSS. 9. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) . 10. ON THE PERUSAL OF RECORD, IT IS NOTED THAT T HE ASSESSEE IS AN INDIVIDUAL AND DURING THE YEAR UNDER CONSIDERATION HAD ENTERED INTO PORTFOLIO M ANAGEMENT SERVICES AGREEMENT WITH ENAM ASSET MANAGEMENT CO. LTD. (ENAM) , TO WHOM THE ASSESSEE HAD ENTRUSTED THE FUNDS TO BE INVESTED IN STOCK MARKET. THE SAID INVESTMENT MADE BY THE ASSESSEE RESULTED IN CAPITAL LOSS BOTH UNDER THE HEAD SHORT TERM AS WEL L AS LONG TERM CAPITAL LOSS OF RS. 42,37,312/ - . THE ASSESSEE HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 9,31,437/ - WHICH WAS COMPLETED BY THE ASSESSING OFFICER ON PROTECTIVE BASIS TREATING THE CAPITAL LOSS DECLARED BY THE ASSESSEE AS BUSINESS LOSS. DURING THE YEAR UNDER CONSIDERATION, THERE WERE IN TOTAL 84 TRANSACTIONS IN RESPECT OF SALE OF SHARE S OF DIFFERENT COMPANIES. I DENTICAL ISSUE OF ASSESSABILITY OF LOSS ARISING THROUGH PORTFOLIO MANAGEMENT SERVICES AROSE BEFORE THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09. THE TRIBUNAL VIDE ORDER DATED 26.11.2012 HELD AS UNDER: - 7. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBMITS THAT ON THE IDENTICAL SET OF FACTS IN THE CASE OF ANOTHER FAMILY MEMBER, N AMELY SMT. ASHA PRAKASH PARAKH, THE TRIBUNAL HAS CONFIRMED THE ORDER OF THE LD CIT(A), IN WHICH ALSO, THE SHARE TRANSACTIONS WERE ENTERED INTO BY ENGAGING THE PMS. THE LD. COUNSEL FILED THE COPY OF THE TRIBUNAL ORDER IN THE CASE OF DY CIT VS. ASHA PARAKH I N ITA NO.630/PN/2011 AND C.O. NO.13/PN/2011, ORDER DATED 31/8/2012 (ANOTHER APPEAL IN THIS BATCH). WE HAVE ALSO HEARD THE LD. D.R. WE FIND THAT IN THE CASE OF ASHA PARAKH (SUPRA), THERE WAS AN IDENTICAL CONTROVERSY ON THE IDENTICAL SET OF FACTS. THE SAID ASSESSEE DECLARED THE PROFITS/GAIN ON THE SHARE TRANSACTIONS ITA NO S . 1 824 & 1825 /PN/20 1 4 SMT. ANJU SURESH PARAKH & ANR. 5 ENTERED THROUGH THE PMS UNDER THE HEAD CAPITAL GAIN BUT THE A.O TREATED THE SAME AS A BUSINESS INCOME. THE LD CIT(A) REVERSED THE ORDER OF THE A.O AND ACCEPTED THE PLEA OF THE ASSESSEE AND HELD THAT THE TRANSACTIONS ROUTED THROUGH THE PMS CANNOT BE TREATED AS A BUSINESS INCOME. THE REVENUE CHALLENGED THE ORDER OF THE LD CIT(A) BEFORE THE TRIBUNAL AND THE TRIBUNAL CONFIRMED THE ORDER OF THE LD CIT(A) BY FOLLOWING THE DECISION OF THE ITAT, PUNE BE NCH, IN THE CASE OF DCIT VS. KRA HOLDING AND TRADING PVT. LTD., ITA NO. 356/PN/2011, ORDER DATED 25TH JULY, 2012. THE OPERATIVE PART OF THE SAID ORDER IS AS UNDER : 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF T HE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND UNDER IDENTICAL FACTS & CIRCUMSTANCES THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. KRA HOLDING AND TRA DING PVT. LTD. (WHEREIN BOTH OF US ARE PARTIES) VIDE ITA NO. 356/PN/2011 ORDER DATED 25 - 07 - 2012 FOR ASSESSMENT YEAR 2007 - 08 HAS UPHELD THE ORDER OF THE CIT(A) WHEREIN GAIN ON SALE OF SHARES AND MUTUAL FUNDS WAS HELD AS SHORT TERM AND LONG TERM CAPITAL GAI N BY THE CIT(A). THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 5 OF THE ORDER READS AS UNDER : 5. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSE E. WE HAVE ALSO GONE THROUGH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. BOTH THE PARTIES FAIRLY CONCEDED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004 - 05. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004 - 05 VIDE ITA NO. 500/PN/08 ORDER DATED 31 - 08 - 2009 ALLOWED THE CLAIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON SALE OF SHARES AND REDEMPTION OF MUTUAL FUNDS. WE FIND FOLLOWING THE SAID DECISION THE TRIBUNAL VIDE ITA NO. 1320/2008 AND ITA NO. 434/2009 ALLOWED THE CLAIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN FOR A.Y. 2005 - 06 AND 2006 - 07. AND LONG TERM CAPITAL GAIN FOR A.Y. 2005 - 06 AND 2006 - 07. ALTHOUGH THE DEPARTMENT HAS CHALLENGED THE ORDER OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT ON TH IS ISSUE AND THE HONBLE HIGH COURT HAS ONLY ADMITTED THE APPEAL, HOWEVER NO DECISION REVERSING THE DECISION OF THE TRIBUNAL WAS FILED BEFORE US. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY C ONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIBUNAL WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 6.1 DESPITE HIGH VOLUME, FREQUENCY AND ORGANISED ACTIVITY IN PURCHA SE & SALE OF SHARES, PROFIT FROM SUCH PURCHASE & SALE OF SHARES IS BEING TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY BE BY THE COORDINATE BENCHES OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT. 5 ITA NOS. 1395, 1396/PN/2011 & C.O. NOS. 103 & 104/PN/2011,SMT. ANJU SURESH PARAKH ETC., A.Y.2008 - 09 LTD. (SUPRA) AS WELL AS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) WE UPHOLD THE ORDER OF THE CIT(A) IN TREATING SUCH PROFIT FROM PURCHASE AND SALE OF SHARES AS CAPITAL GAIN. THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE ACCORDINGLY DISMISSED. WE FIND THAT THE FACTS IN THE CASE OF ASHA PARAK ARE IDENTICAL AS IN THE CASE OF PRESENT CASE. WE, THEREFORE, FOLLOWING THE ORDER IN THE CASE OF ASHA PARAKH (SUPRA) CONFIRM THE ORDER OF THE CIT(A) AND RELEVANT GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. ITA NO S . 1 824 & 1825 /PN/20 1 4 SMT. ANJU SURESH PARAKH & ANR. 6 1 1 . THE FACTS AND ISSUES ARISING IN THE PRESENT APPEAL ARE IDEN TICAL TO THE FACTS AND ISSUES BEFORE THE TRIBUNAL IN THE PRECEDING YEAR AND FOLLOWING THE SAME PARITY OF REASONING, I HOLD THAT THE LOSS DECLARED BY THE ASSESSEE IS ASSESSABLE AS CAPITAL LOSS IN THE HANDS OF THE ASSESSEE. FOLLOWING THE ORDER OF TRIBUNAL, I UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 12. THE FACTS AND ISSUES IN ITA NO. 1825 /PN/201 4 ARE IDENTICAL TO THE FACTS AND ISSUES IN ITA NO. 1824 /PN/201 4 AND DECISION IN ITA NO. 1824 /PN/201 4 SHALL APPLY MUTATIS MUTA NDIS TO ITA NO. 1825 /PN/201 4 . 13. IN THE RESULT, BOTH THE APPEAL S OF THE REVENUE ARE DISMISSED. ORDER P RONOUNCED ON THIS 12 TH DAY OF AUGUST , 201 5 . SD/ - ( SUSHMA CHOWLA ) ( SUSHMA CHOWLA ) / JUDICIAL MEMBER / PUNE ; DATED : 12 TH AUGUST , 2015 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESP ONDENT; 3. ( ) / THE CIT(A) - I I , PUNE ; 4. / THE CIT - I I , PUNE ; 5. , , - / DR SMC , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY / / / SR. PRIVATE SECRETARY , / ITAT, PUNE