Satellite Mercantiles Limited., Kolkata V. D.C.I.T Cir - 5,kolkata., Kolkata

ITA 1895/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78365 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2012
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: T K S BISWAS
• Keywords: Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B , KOLKATA [BEFORE HONBLE SRI MAHAVIR SINGH, JM & HONBLE S RI SHAMIM YAHYA, AM ] ITA NO.1895/KOL/2012 ASSESSMENT YEAR : 2009-10 ( APPELLANT ) (RESPONDENT) SATELLITE MERCANTILES LTD. -VS- D.C.I.T., CIRCLE -5, KOLKATA KOLKATA (PAN:AAECS 2025 A) FOR THE APPELLANT SHRI T.K.S.BISWAS FOR THE RESPONDENT SMT.RANU BISWAS, JCIT, SR.DR DATE OF HEARING : 24.06.2014 DATE OF PRONOUNCEMENT : ORDER PER SHRI SHAMIM YAHYA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER OF LD. C.I.T.(A)- VI, KOLKATA DATED 23.10.2012 AND PERTAINS TO ASSESSMEN T YEAR 2009-10. 2. THE GROUNDS OF APPEAL READ AS UNDER :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE COMMISSIONER OF INCOME- TAX (APPEALS) WAS JUSTIFIED IN CONFIRMING THAT ASSE SSMENT OF SHORT TERM CAPITAL GAIN AS INCOME FROM BUSINESS IS IN ORDER. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, WAS IT APPROPRIATE FOR THE COMMISSIONER OF INCOME-TAX (APPEALS) TO DRAW INFERE NCE THAT THE PERIOD OF HOLDING OF SHARES IS THE BASIC YARDSTICK FOR DETERMINATION OF EITHER INVESTMENT OR DEALING IN SHARES. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A ND OR PREFER ADDITIONAL GROUNDS AND OT SUBMIT RELEVANT PAPERS AT THE TIME OF HEARING OF AP PEAL. 3. THE ASSESSEE IS A NON BANKING FINANCIAL COMPANY AND ALSO DEALS IN SHARES. THE ASSESSEE CARRIED ON BUSINESS IN SHARE TRADING A ND ALSO MAKES INVESTMENTS IN VARIOUS COMPANIES. THE ASSESSEE IS NOT MAINTAINING ANY SEPARATE BANK ACCOUNT/DEMAT ACCOUNT FOR SHARE TRADING AND INVESTMENTS. THE AO I N THIS CASE OBSERVED THAT THE ASSESSEE HAS CLAIMED SHORT TERM CAPITAL GAIN OF RS. 66,02,920/-. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, IT APPEARED THAT THE SHA RES OF M/S.GUJARAT NRE COKE LTD. WAS PURCHASED ON 31.03.2008 AND SOLD ON 07.04.2008. THAT FROM THE CONTRACT NOTES ITA.NO.1895/KOL/2012 SATELLI TE MERCANTILES LTD. A.YR.2009-10 2 SUBMITTED BY THE ASSESSEE, IT APPEARED THAT THE ASS ESSEE HAS ALSO SHOWN THE SALES OF M/S.ARVIND CHEMICALS LTD WHICH HAS BEEN SHOWN AS SH ARE TRADING INCOME. THAT FROM THE DETAILS SUBMITTED DURING THE COURSE OF ASSESSME NT PROCEEDINGS, IT APPEARED THAT THE ASSESSEE HAS SHOWN INCOME FROM PURCHASE AND SALE OF SHARES OF M/S. GUJARAT COKE LTD AS SHORT TERM CAPITAL GAIN SINCE THE PROFIT MARGIN WAS VERY HIGH AND AT THE SAME THE PURCHASE AND SALE OF SHARES OF M/S.ARVIND CHEMICALS LIMITED HAS BEEN SHOWN AS SHARE TRADING INCOME SINCE THERE WAS A MARGINAL PRO FIT/LOSS. THAT FROM THE ABOVE FACTS, IT IS OBVIOUS THAT THE ASSESSEE HAS WRONGLY CLAIMED THE INCOME ON SALE AND PURCHASE OF SHARES OF M/S.GUJARAT NRE COKE LIMITED WHICH IS ACT UALLY A NORMAL SHARE TRADING TRANSACTIONS DONE BY THE ASSESSEE. THEREFORE, THE A O HELD THAT INCOME FROM SALE OF SHARES OF M/S. GUJARAT NRE COKE LIMITED HAS BEEN C ONSIDERED AS BUSINESS INCOME. 4. UPON ASSESSEES APPEAL THE LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. HE ANALYSED IN DETAIL THE TRANSACTIONS OF THE COMPANY PERTAINING TO SHARE TRANSACTIONS. THE LD. CIT(A)OBSERVED THAT THE ASSES SEE HAS BOUGHT A LARGE NUMBER OF SHARES IN THE ASSESSMENT YEAR 2008-09 AND SOLD AT R EGULAR INTERVALS OF M/S. GUJARAT NRE COKE ONLY THE ASSESSEE HAS BEEN SHOWING THIS AS INVESTMENTS DURING THE CURRENT YEAR. THE ASSESSEE HAS BEEN MAKING INVESTMENTS IN M /S. SAL STEEL AND M/S. SHAW ALLOYS LTD. WITHOUT ANY SALE. THE INVESTMENTS HAVE INCREASED FORM RS.9,12,168/- TO RS.10,39,61,058/- OUT OF WHICH THE ASSESSEE HAS BOU GHT SHARES OF M./S. SHAW ALLOYS AMOUNTING TO RS.82,13,669/-. THE ASSESSEE HAS START ED BUYING SHARES OF M/S. SHAW ALLOYS SINCE 05.03.2008. THE INVESTMENTS HAVE INCRE ASED FROM RS.5,53,59,458/- TO RS.21,04,61,058/-. THE ASSESSEE HAS INVESTMENTS OF UNQUOTED SHARES AMOUNTING TO RS.7,45,00,000/- ALL PURCHASED ON FACE VALUE OF RS. 10 EACH. THE VALUE OF INVESTMENTS IS MUCH HIGHER THAN THE VALUE OF STOCK IN TRADE HEL D BY THE ASSESSEE. THERE IS ONLY ONE SHARE IN THE NAME OF M/S. ARVIND CHEMICALS LTD. IN THE TRADING ACCOUNT OF QUOTED SHARES HELD AS STOCK IN TRADE AS ON 31.03.2009 WHIL E THERE ARE UNQUOTED SHARES FOR AN AMOUNT OF RS.2,58,00,000/- IN THE TRADING ACCOUNT. ITA.NO.1895/KOL/2012 SATELLI TE MERCANTILES LTD. A.YR.2009-10 3 5. THEREAFTER THE LD. CIT(A) MADE FURTHER ANALYSIS OF THE ASSESSEES TRANSACTIONS AND REFERRED TO SEVERAL CASE LAWS. THE LD.CIT(A) CO NCLUDED AS UNDER :- 21. THE FREQUENCY OF BUYING AND SELLING OF SHARES BY THE APPELLANT IN THE INVESTMENT PORTFOLIO IN THE EARLIER YEAR WAS REASON ABLY HIGH; ONLY ONE DEMAT ACCOUNT; THE PERIOD OF HOLDING WAS LESS; THE HIGH TURNOVER W AS ON ACCOUNT OF FREQUENCY OF TRANSACTIONS; THE ASSESSES HAD DEALT IN DELIVERY TR ADING PURELY WITH THE INTENTION OF MAKING QUICK PROFITS ON A HUGE TURNOVER; THE PERIOD OF HOLDING OF A MAJORITY OF THE STOCK WAS FEW DAYS IN CASE OF QUOTED SHARES; THERE IS NO LONG TERM CAPITAL GAIN IN THIS YEAR OR EARLIER YEAR. THE ASSESSES DID NOT EVEN HOLD ON TO AT LEAST SOME PART OF THE HUGE PURCHASES AND HAD ENGAGED IN THE SAME SCRIPS FREQUE NTLY; THE INTENTION OF THE ASSESEES IN BUYING SHARES WAS NOT TO DERIVE INCOME BY WAY OF DI VIDEND ON SUCH SHARES AS THERE IS NIL INCOME FROM DIVIDENDS, BUT TO EARN PROFITS ON T HE SALE OF THE SHARES; THE ASSESSES HAD INDULGED IN MULTIPLE TRANSACTIONS OF QUANTITIES WITH HIGH PERIODICITY DEPENDING UPON THE INVESTMENTS IN THE STOCK IN THE EARLIER YEARS. 22. THESE PERIODIC TRANSACTIONS, SELECTING THE TIME OF ENTRY AND EXIT IN EACH SCRIP, CALLED FOR REGULAR DIRECTION AND MANAGEMENT WHICH W OULD INDICATE THAT IT WAS IN THRE NATURE OF TRADE; REPEATED TRANSACTIONS, COUPLED WIT H THE SUBSEQUENT CONDUCT OF THE ASSESSES TO RE-ENTER THE SAME SCRIP OR SOME OTHER S CRIPT, IN ORDER TO TAKE ADVANTAGE OF MARKET FLUCTUATIONS LENT THE FLAVOUR OF TRADE TO SU CH TRANSACTIONS; THE ASSESSEE WAS PURCHASING AND SELLING THE SAME SCRIPS REPEATEDLY; THE DOMINANT IMPRESSION LEFT ON THE MIND WAS THAT THE ASSESSEE HAD NOT INVESTED IN SHAR ES; MERE CLASSIFICATION OF THESE SHARE TRANSACTIONS AS INVESTMENTS IN THE ASSESSEES BOOKS OF ACCOUNTS IS NOT CONCLUSIVE; THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE W AS ONLY TO SELL THE SHARES IMMEDIATELY AFTER PURCHASE; FREQUENCY OF PURCHASE AND SALE OF S HARES SHOWED THT THE ASSESSES NEVER INTENDED TO KEEP THESE SHARES AS INVESTMENT AND IT IS ONLY FOR THE PURPOSE OF CLAIMING BENEFIT OF LOWER RATE OF TAX, UNDER SECTION 111A OF THE ACT, THAT IT HAD CLAIMED CERTAIN SHARES TO BE INVESTMENT, THOUGH THESE TRANSACTIONS WERE ONLY IN THE NATURE OF TRADE. THE CHARACTER OF A TRANSACTION CANNOT BE DETERMINED SOL ELY ON THE APPLICATION OF ANY ABSTRACT RULE, PRINCIPLE OR TEST BUT MUST DEPEND UPON ALL TH E FACTS AND CIRCUMSTANCES OF THE CASE. 23. THE HONBLE ITAT JAIPUR BENCH B IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-6, JAIPUR V. SMT. KAVITA DEVI AG ARWAL (SUPRA) HAS HELD THAT IN CASE THE SHARES HAVE BEEN PURCHASED OR SOLD WITHIN 30 DA YS THEN THE PROFIT OR LOSS ARISING FROM SUCH PURCHASE AND SALES OF SHARES IS TO BE CON SIDERED AS BUSINESS INCOME;. AS PER THE VARIOUS FACTS & CIRCUMSTANCES MENTIONED IN PARA 7 AND AFTER CONSIDERING THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER AND SUBMISSIONS OF THE APPELLANT, VARIOUS CASE LAWS AND AFORESAID DISCUSSI ON ON THIS ISSUE IN DETAIL, THE CAPITAL GAINS ON SALE OF SHARES AMOUNTING TO RS.66,02,970/- IS BEING HELD TO BE BUSINESS INCOME. THESE GROUNDS OF APPEAL ARE DISMISSED. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL B EFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE SHORT PERIOD FOR WHICH SHARES HAVE BEEN HELD, WOULD LEAD TO INFERENC E THAT THESE ARE TRADING TRANSACTIONS. HE SUBMITTED THAT THERE IS NO SUCH PR OVISION IN THE ACT OR ANY CIRCULAR ITA.NO.1895/KOL/2012 SATELLI TE MERCANTILES LTD. A.YR.2009-10 4 ISSUED BY THE CBDT WHICH PRESCRIBE MINIMUM HOLDING PERIOD OF SHARES IN ORDER TO QUALIFY THEM AS INVESTMENTS. HE FURTHER SUBMITTED T HAT FOR MAKING THE INVESTMENT THE ASSESSEE COMPANIES BOARD HAS DULY PASSED A RESOLUTI ON. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CAREFULLY HEARD BOTH THE COUNSEL AND PER USED THE RECORDS. BEFORE PROCEEDING FURTHER WE MAY GAINFULLY REFER TO SOME O F THE GERMANE CASE LAWS IN THIS REGARD. (A)WHETHER A TRANSACTION OF SALE AND PURCHASE OF S HARES WERE TRADING TRANSACTIONS OR WHETHER THEY WERE IN THE NATURE OF INVESTMENTS IS M IXED QUESTION OF LAW AND FACT. LEARNED CIT(A) V. H.HOLCK LARSEN, [1986] 60 ITR 67/ 26 TAXMAN 305 (SC) (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN IN VESTOR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMEN T OR FORMED PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSES SEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WERE HOLD BY HIM AS INVESTMENTS AND TH OSE HOLD AS STOCK IN TRADE. (CIT V. ASSOCIATED INDUSTRIAL DEVELOPMENT CO.LTD. [1971] 82 ITR 586 (SC). (E) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AN D THE QUESTION MUST DEPEND UPON THE COLLECTIVE EFFECT OF ALL THE RELEVANT MATERIALS BRO UGHT ON RECORD. JANK RAM BAHADUR RAM V. CIT [1965] 57 ITR 21 (SC). THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, BANGALORE V.ARAVIND PRAKASH MALPANI IN IT APPEAL NO.1131 OF 2006 DATED JANUARY 4, 2011, REPORTED IN [2011] 11 TAXMAN N.COM 360 (KAR.) HAS HELD THAT THE PRINCIPLES OF ACCOUNTANCY DO NOT OVER-RIDE THE PROV ISIONS OF THE INCOME-TAX LAWS. THE QUESTION WHETHER THE ASSESSEE IS CARRYING ON A BUSI NESS OR NOT IS TO BE ASCERTAINED FROM THE MATERIAL PLACED BEFORE THE ASSESSING OFFICER AN D NOT BY A MERE ENTRY IN THE BALANCE SHEET. THE HONBLE ITAT BENCH G OF MUMBAI IN THE CASE O F WALLFLORT FINANCIAL SERVICES LTD. VS. ADDITIONAL COMMISSIONER OF INCOME-TAX RANG E 4(2), MUMBAI IN IT APPEAL NO.IT APPEAL NOS. 847 AND 2468(MUM) OF 2009 FOR ASSESSMEN T YEAR 2005-06 REPORTED IN [2010] 41 SOT 200 (MUMBAI) HAS OBSERVED THAT THE VA RIOUS FACTORS WHICH NEED TO BE CONSIDERED IN UNDERSTANDING THE INTENTION OR THE NA TURE OF TRANSACTION ARE FREQUENCY AND VOLUME OF TRANSACTIONS, NATURE OF ENTRY IN THE BOOKS OF ACCOUNT, THE OBJECT CLAUSE IN THE MEMORANDUM OF ASSOCIATION AUTHORIZING SUCH TRAN SACTION, CIRCUMSTANCES SUCH AS ORGANIZED EFFORTS MADE TO EARN INCOME AS WELL AS LO ANS AND BORROWINGS WHICH ARE NORMALLY ASSOCIATED WITH A BUSINESS ACTIVITY, PROFI T MOTIVE ETC. HOWEVER, NO SINGLE FACTOR IS CONCLUSIVE AND THE TOTALITY OF THE FACTS AND CIRCUMSTANCES HAVE TO BE CONSIDERED AT A FAIR CONCLUSION IN THE MATTER. ITA.NO.1895/KOL/2012 SATELLI TE MERCANTILES LTD. A.YR.2009-10 5 7.1. NOW WE EXAMINE THE PRESENT CASE ON THE TOUCHST ONE OF THE ABOVE DECISIONS. WE FIND THAT IN THE PRESENT CASE THE ASSESSEE IS DEALI NG IN SHARES AS TRADER AND INVESTOR. THE SHARES IN M/S.GUJARAT NRE COKE LTD. ARE SAID TO BE PURCHASED ON 31.03.2008. HOWEVER, IN THE BALANCE SHEET FOR FINANCIAL YEAR 20 07-08 THIS PURCHASE HAS NOT BEEN ACCOUNTED FOR. HENCE THERE IS NO CLASSIFICATION OF THESE SHARES AS INVESTMENT IN THE ASSESSEES ACCOUNTS IN THE YEAR OF PURCHASE. SUBSEQ UENTLY ON 07.04.2008 THE SHARES WERE SOLD AND THE ASSESSEE CLAIMED SHORT TERM CAPIT AL GAIN OF RS.66,20,920/- . HENCE IT IS EVIDENT THAT THE PURCHASE AND SALE TRANSACTION I N THE SHARES HAVE BEEN COMPLETED IN A PERIOD OF ONE WEEKS TIME. THE PURCHASES MADE IN TH E EARLIER PERIOD HAS NOT BEEN ACCOUNTED FOR IN THE EARLIER PERIOD AND CONSEQUENTL Y THE SAME WERE NOT CLASSIFIED AS INVESTMENT. NOW WHEN THE SHARES HAVE BEEN SOLD IN S UCH A SHORT PERIOD AND THE SHARES ARE BEING DEALT WITH BY THE ASSESEE BOTH TRADING AN D INVESTMENT ACCOUNT THE ONUS IS ON THE ASSESSEE TO PROVE THAT THESE SHARES HAVE BEEN D EALT WITH ON INVESTMENT ACCOUNT. WE FIND THAT THERE IS NO EVIDENCE WHATSOEVER IN THI S REGARD SUBMITTED BY THE ASSESEE EXCEPT THE CLAIM THAT THE INVESTMENT IN THE SHARES WERE AUTHORISED BY THE BOARD RESOLUTION. AS HELD BY THE HONBLE APEX COURT IN TH E CASE OF ASSOCIATED INDUSTRIAL DEVELOPMENT CO.LTD. (SUPRA), WHETHER A PARTICULAR H OLDING IS BY WAY OF INVESTMENT OR FORMED PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WER E HOLD BY HIM AS INVESTMENTS AND THOSE HOLD AS STOCK IN TRADE. IN THIS CASE THE ASSE SSEE HAS NOT PRODUCED ANY SUCH EVIDENCE. THE FACT REMAINS THAT THE ASSESEE HAS PUR CHASED AND SOLD THESE SHARES WITHIN A PERIOD OF ONE WEEKS TIME AND GAINED RS.66,20,920 /-. THOUGH PURCHASED IN PREVIOUS YEAR THEY WERE NOT ACCOUNTED FOR OR CLASSIFIED AS I NVESTMENT. THIS COUPLED WITH THE FACT THAT THE ENTIRE PURCHASE HAS BEEN SOLD SHOWS T HAT THE ASSESSEE HAS NEVER INTENDED TO KEEP THESE SHARES AS INVESTMENT. IN THESE CIRCUM STANCES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND ACCORD INGLY WE UPHOLD THE SAME. ITA.NO.1895/KOL/2012 SATELLI TE MERCANTILES LTD. A.YR.2009-10 6 8. IN THE RESULT THIS APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 30.06.2014. SD/ SD/- [ MAHAVIR SINGH ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 30.06.2014. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. SATELLITE MERCANTILES LTD., 15, GANESH CHANDRA AVEN UE, 2 ND FLOOR, KOLKATA- 700013. 2 D.C.I.T., CIRCLE-5, KOLKATA 3 . CIT(A)-VI, KOLKATA 4. CIT - KOLKATA. 5. CIT-DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES