D, V. Shri Prakash H. Parakh, Pune

ITA 1844/PUN/2013

• Counselvise Citation: 184424514 RSA 2013
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Keywords: Business income

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1844/PN/2013 (ASSESSMENT YEAR : 2009-10) ACIT, CIRCLE-2, PUNE .. APPELLANT VS. SHRI PRAKASH H. PARAKH, 584/1, SALISBURY PARK, PUNE 411037 PAN NO.AAXPP9219R .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK/ SHRI SANKET JOSHI DEPARTMENT BY : SHRI P.S. NAIK DATE OF HEARING : 17-09-2014 DATE OF PRONOUNCEMENT : 17-09-2014 ORDER PER R.S. PADVEKAR, JM : THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD.CIT(A)-II, PUNE FOR THE A.Y. 2009-1 0. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS : (1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN HOLDING THAT THE ACTIVITY OF TRANSACTION IN SHARES/ MUTUAL FUND BY ENGAGING PMS WAS AN INVESTMENT ACTIVITY AND RESULTA NT GAIN/LOSS WAS ASSESSABLE UNDER THE HEAD 'CAPITAL GAINS'. (2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD CARRIED OUT BUSINESS OF TRADING IN SHARES/MUTUAL FUNDS IN A SYSTEMATIC AND ORGANIZED MANNER BY UTILIZING THE SERVICES OF PORTFOLIO MANAGEMENT S ERVICE PROVIDERS TO ACT AS AN AGENT. (3) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN NOT APPRECIATING THAT MOST OF THE TRANSACTIONS EFFECTED WERE OF SHORT TERM NATURE, CLEARLY INDICATIVE OF THE MOTIVE OF THE ASS ESSEE TO EARN PROFITS BY RESORTING TO FREQUENT TRADING RATHER THAN TO EAR N DIVIDEND BY HOLDING SHARES FOR LONG DURATIONS. (4) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN NOT APPRECIATING THAT THE ASSESSEE HAD CARRIED OUT TRAN SACTIONS IN HIGH VOLUME AND IN AN ORGANIZED MANNER WHICH CONSTITUTE THE ACTIVITY AS BUSINESS AND NOT INVESTMENT AS CLAIMED BY THE ASSESSEE AND AS SUCH THE PROFITS DERIVED FROM SUCH TRANSACTIONS WAS TAXABLE UNDER THE HEAD 'INCOME FROM BUSINESS & PROFESSION. 2 (5) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY OR ALL THE GROUNDS OF APPEAL. 2. FACTS WHICH ARE REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS AN INDIVIDUAL AND IS A DIRECTOR IN PARA KH AGRO INDUSTRIES LTD. THE ASSESSEE HAS DERIVED SALARY FROM THE COMPANY DU RING THE YEAR. DURING THE YEAR, THE ASSESSEE HAD ENTERED INTO PORT FOLIO MANAGEMENT SERVICES (PMS) AGREEMENT WITH ENAM ASSET MANAGEMENT CO. LTD. (ENAM) AND TO WHOM THE ASSESSEE HAD ENTRUSTED CERTA IN FUNDS. AS PER THE PMS AGREEMENTS, THE FUNDS OF THE ASSESSEE WERE INVESTED IN STOCK MARKET BY THIS PARTY AND THE ASSESSEE HAD EARNED SHORT-TERM AS WEL L AS LONG TERM CAPITAL LOSS ON SALE OF SHARES. THE DETAILS ARE AS UNDER : PMS PROVIDER SHORT TERM CAPITAL GAIN/LOSS LONG TERM CAPITAL GAIN/LOSS (RS.) TOTAL (RS.) ENAM ASSET MANAGEMENT CO. PVT. LTD. ( - ) 49,02,172/ - ( - ) 40,080/ - ( - ) 49,42,252/ - TOTAL ( - ) 49,02,172/ - ( - ) 40,080/ - ( - ) 49,42,252/ - THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLARI NG TOTAL INCOME OF RS.30,03,588/- AND THE ASSESSMENT WAS COMPLETED BY THE A.O. DETERMINING THE TOTAL INCOME AT RS. 30,03,589/-. TH E A.O. DETERMINED THE LOSS OF RS.49,42,252/- ARISING ON SALE OF SHARE S THROUGH PMS AS BUSINESS LOSS AS AGAINST THE SAME CLAIMED AS LOSS A SSESSABLE UNDER CAPITAL GAIN BY THE ASSESSEE. DURING THE YEAR THE A SSESSEE HAD SHOWN THE INCOME/LOSS EARNED AS CAPITAL GAIN ON SALE OF SHARES WHICH HAD BEEN THROUGH THE PMS WITH ENAM, TO WHOM CERTAIN FUNDS WERE 'GIVEN BY THE ASSESSEE WHO IN TURN HAD INVESTED THE SAID FUNDS IN THE STOCK MARKET RESULTING IN THE LOSS REALIZED AS INDICATED IN THE TABLE ABOVE. 2.1 THE A.O. FOLLOWING THE STAND TAKEN AND THE REASONING GIVEN IN THIS REGARD IN ASSESSEE'S CASE FOR A.Y. 2006-07, A.Y . 2007- 08 AND A.Y. 2008-09, HELD THE GAINS IN RESPECT OF INVESTME NTS THROUGH PMS 3 TAXED AS BUSINESS INCOME AND ALLOWED THE RELATED EX PENDITURE VIZ. PMS FEES AS DEDUCTION FOR THE YEAR UNDER CONSIDERATION. THE A.O. DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THA T THE ASSESSEE HAD FREQUENTLY ENTERED INTO TRANSACTIONS OF PURCHASE A ND SALE OF SHARES AND THAT INDICATED THE INTENTION OF THE ASSESSEE TO TRADE IN SHARES. THE A.O. ALSO TOOK INTO ACCOUNT OTHER FACTS SUCH AS OUT SOURCING OF CERTAIN ACTIVITY OF SHARE TRADING TO THE PMS PROVIDERS, PAY MENT OF FEES TO PMS PROVIDERS ETC. IT WAS HELD BY THE A.O. THAT THE TRA NSACTIONS ENTERED INTO BY THE ASSESSEE WERE TYPICAL OF A BUSINESS ACT IVITY. THUS, THE GAIN ARRIVING OUT OF THE SALE OF SHARES THROUGH PMS WAS HELD TO BE TAXABLE AS BUSINESS INCOME BY THE A.O. 2.2 THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD.CI T(A) WHO ACCEPTED THE CONTENTION OF THE ASSESSEE AND GAVE RE LIEF. NOW THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE ITAT, PUNE A BEN CH IN ASSESSEES OWN CASE FOR A.Y. 2007-08 BEING ITA NO.632/PN/2011 AND CO NO.14/PN/2011 ORDER DATED 30-08-2012 WHICH IS PLACE D ON RECORD. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS SUBMITTED BY TH E LD. COUNSEL FOR THE ASSESSEE. WE FIND IN THE A.Y. 2007-08, AN IDENTICAL ISSUE HAS COME FOR THE CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND IT IS HELD AS UNDER : 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE 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 I DENTICAL FACTS & CIRCUMSTANCES THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. KRA HOLDING AND TRADING PVT. LTD. (WHEREIN BOTH OF US ARE PARTIES) VIDE ITA NO. 356/PN/2011 ORDER DATED 25-0 7-2012 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 4 TERM AND LONG TERM CAPITAL GAIN 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 ASSESSEE. WE HAVE ALSO GONE THROUGH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE . BOTH THE PARTIES FAIRLY CONCEDED THAT THE ISSUE STANDS COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR A.Y. 2004-05. WE FIND THE TRIBUNAL IN ASSESSEE S 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 LO NG TERM CAPITAL GAIN ON SALE OF SHARES AND REDEMPTION OF MUTUAL FUN DS. WE FIND FOLLOWING THE SAID DECISION THE TRIBUNAL VIDE ITA N O. 1320/2008 AND ITA NO. 434/2009 ALLOWED THE CLAIM OF SHORT TER M CAPITAL GAIN AND LONG TERM CAPITAL GAIN FOR A.Y. 2005-06 AND 200 6-07. ALTHOUGH THE DEPARTMENT HAS CHALLENGED THE ORDER OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT ON THIS ISSUE AND THE HONBLE HIGH COURT HAS ONLY ADMITTED THE APPEAL, HOWEVER NO DECI SION REVERSING THE DECISION OF THE TRIBUNAL WAS FILED BEFORE US. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNA L IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BR OUGHT 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 AC TIVITY IN PURCHASE & SALE OF SHARES, PROFIT FROM SUCH PURCHAS E & SALE OF SHARES IS BEING TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY BE BY THE COORDINATE B ENCHES OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AN D TRADING PVT. LTD. (SUPRA) AS WELL AS THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) WE UPHOLD THE ORDER OF THE CIT(A) IN TREATING SUCH PROFIT FROM PURCHASE AND SA LE OF SHARES AS CAPITAL GAIN. THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE ACCORDINGLY DISMISSED. 3.1 AS THE FACTS ARE IDENTICAL, THERE IS NO NEED TO TAKE A DIFFERENT VIEW. WE ACCORDINGLY FOLLOWING THE DECISION OF THE TRIBUNAL ASSESSEES OWN CASE IN THE A.Y. 2007-08, CONFIRM TH E ORDER OF THE LD.CIT(A) AND DISMISS THE GROUNDS TAKEN BY THE REVE NUE. 4. IN THE RESULT, REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 17-09-2014. SD/- SD/- (G.S.PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED:17 TH SEPTEMBER 2014 SATISH 5 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-II, PUNE 4. CIT-II, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER //TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE