Shri Ashwani Kumar Bhat, Indore V. The Addl. CIT Range-4, Indore

ITA 19/IND/2014

• Counselvise Citation: 1922714 RSA 2014
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 07-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S MAHAJAN
• Keywords: Capital asset; Business income; Rule of consistency; Transactions in derivatives; Earning of tax free income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BE NCH INDORE , . ., BEFORE : SHRI JOGINDER SINGH, JM & SHRI R.C.SHARMA, AM ! ./ ITA NO.19/IND/2014 ( '#$ % /ASSESSMENT YEAR : 2008-09) ASHWANI KUMAR BHAT, FH- 199, SCHEME NO.54, VIJAY NAGAR, INDORE (M.P.)-452 010. VS. ADCIT, RANGE- 4, INDORE (M.P.) & ./ ' ./PAN/GIR NO. : ABFPB 5232 P ( ! &( /APPELLANT ) .. ( )*&( / RESPONDENT ) '#+, /ASSESSEE BY : SHRI S.MAHAJAN /REVENUE BY : SHRI R.A. VERMA - ' . ,/ / DATE OF HEARING : 30 TH APRIL, 2014 0 %$ . ,/ /DATE OF PRONOUNCEMENT : 21.5.2014 / O R D E R PER R.C.SHARMA (A.M.) : THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE ORDE R OF CIT(A)-II, INDORE FOR THE ASSESSMENT YEAR 2008-09, IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES DECLI NE OF ASSESSEES CLAIM OF SHORT TERM CAPITAL GAIN OF RS.4 0,272/- AND TREATING THE SAME AS BUSINESS INCOME. 2.1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND TH AT THE ASSESSEE IS A SALARIED EMPLOYEE. DURING THE YEAR UN DER CONSIDERATION THE ASSESSEE HAS EARNED INCOME FROM S ALARY, SHORT TERM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. D URING THE YEAR ITA NO.19/IND/2014 2 UNDER CONSIDERATION, THE ASSESSEE OFFERED THE TAXAB LE SALARY OF RS.56.18 LAKHS. THE ASSESSEE HAS ALSO OFFERED LONG TERM CAPITAL GAINS OF RS.32,14,230/- AND SHORT TERM CAPITAL GAIN S OF RS.40,272/-. THE AO ACCEPTED ASSESSEES CLAIM OF LONG TERM CAPIT AL GAINS BUT DECLINED TO ACCEPT ASSESSEES CONTENTION REGARDING SHORT TERM CAPITAL GAINS OF RS.40,272/- AND TREATED THE SAME A S BUSINESS INCOME. FROM THE RECORD, WE FOUND THAT THE CAPITAL GAIN WAS EARNED IN RESPECT OF DELIVERY BASED TRANSACTIONS. THE ASS ESSEE HAS PURCHASED THE SHARE WITH INTENTION OF INVESTMENT AN D NOT FOR TRADING THEREIN. IN RESPECT OF SIMILAR SHARES WHICH WERE SO LD AFTER HOLDING OF ONE YEAR OR MORE, THE AO ACCEPTED ASSESSEES CLAIM FOR LONG TERM CAPITAL GAINS OF RS.32,14,230/-, HOWEVER, HE DECLIN ED SHORT TERM CAPITAL GAINS OF RS.40,272/-. WE DO NOT FIND ANY ME RIT IN THE AOS ACTION INSOFAR AS ASSESSEE HAS NOT UNDERTAKEN ANY T RADING IN SHARES AND SHARES WERE ACQUIRED WITH INTENTION OF INVESTME NT. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF OM PRAKASH SURI, REPORTED IN (2012) 19 ITJ 326 (M.P ) , WHEREIN IT WAS HELD THAT THE PROFIT EARNED ON DELIV ERY BASED TRANSACTION OF SHARES WAS LIABLE TO BE TAXED AS CAP ITAL GAIN. EVEN THE FREQUENCY OF TRANSACTION AND NUMBER OF SCRIPTS, THE ASSESSEE HAS DEALT WITH, NOTHING ADVERSE IS FOUND TO TREAT T HE CAPITAL GAINS SO EARNED AS BUSINESS INCOME. 2.2 THE INDORE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS OM PRAKASH SURI , HELD AS UNDER:- ITA NO.19/IND/2014 3 3. WE HAVE CONSIDERED THE SUBMISSIONS PUT FORTH BY THE LEARNED SENIOR DR AND ALSO PERUSED THE MATERIAL AVA ILABLE ON RECORD. BRIEF FACTS ARE THAT IN THE PAST THE ASS ESSEE WAS ENGAGED IN ROAD BUILDING CONTRACTOR AND WAS DERIVIN G INCOME FROM CONTRACT RECEIPTS AS WELL AS FROM SALE OF GITTI AND DURING THE IMPUGNED YEAR, VENTURED INTO INVESTM ENT IN SHARE MARKET. THE INCOME ARISING FROM F&O TRANSACT IONS AND DAILY TRADING IN SHARES (WITHOUT PHYSICAL DELIV ERY) REFLECTED AS SPECULATIVE BUSINESS WHEREAS THE INCOM E ON DELIVERY BASED TRANSACTIONS OF SALE AND PURCHASE O F SHARES, INCOME WAS SHOWN FROM CAPITAL GAINS. THE LEARNED A O CONSIDERED THE INCOME WHICH WAS BASED ON PURCHASE A ND SALE OF SHARES AS BUSINESS INCOME ON THE GROUNDS AS NARRATED IN THE ASSESSMENT ORDER AS WELL AS AT PAGE S 3 AND 4 OF THE APPELLATE ORDER. BROADLY, THE LEARNED AO WAS OF THE VIEW THAT THE INTENTION OF THE ASSESSEE SINCE BEGIN NING WAS SALE OF SHARES AS TRADING ACTIVITIES, AS EVIDENT FR OM AUDITED PROFIT AND LOSS ACCOUNT BY NOT SHOWING THE SAME AS SHORT TERM CAPITAL GAIN AND ALSO IN FORM 3CD THE ASSESSEE HAS MENTIONED THE NATURE OF BUSINESS AS TRADING/DEALING IN SHARES/SECURITIES AND MUTUAL FUNDS. THE FREQUENCY OF TRANSACTIONS WAS ALSO CONSIDERED, CONSEQUENTLY HE T REATED THE AMOUNT OF RS.49,81,915/- AS BUSINESS INCOME FRO M SHARE TRADING. HOWEVER, BEFORE THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) THE BASIS OF ADDITIONS WAS EXPLAINED AS EVIDENT FROM PARA 3.1.1 ONWARDS. THE CRUX OF CLAIM OF THE ASSESSEE IS THAT IN THE AUDITED ACCOUN TS, THE SALE OF SHARES AMOUNTING TO RS. 9.43 CRORES IN WHIC H DELIVERY HAD BEEN TAKEN, STT WAS PAID AND THE SHARE S WERE SOLD AFTER HOLDING FOR A FEW DAYS/FEW WEEKS. THE M UTUAL FUNDS OF RS. 2.91 LACS WERE SOLD AND WERE TREATED A S INCOME FROM SHORT TERM CAPITAL GAINS. BEFORE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE A LSO FILED A DETAILED NOTE ON THE PURCHASE PROCESS FOR D ELIVERY BASE SHARES, DETAILS OF DIVIDEND RECEIVED ON THE BA SIS OF RELEVANT STATEMENTS BY PLACING RELIANCE ON THE DECI SION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JM SHARES & STOCK BROKERS V. JCIT DATED JANUARY, 2009. BRIEFL Y, THE CLAIM OF THE ASSESSEE BEFORE THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) WAS THAT THE DELIVERY BASED TRANSACTIONS WERE MADE WITH AN INVESTMENT MOTIVE AN D AS SUCH THE INCOME THEREFROM WAS IN THE NATURE OF SHOR T TERM CAPITAL GAINS WHEREAS THE INCOME AROSE FROM F&O TRANSACTIONS AND DAILY TRADING IN SHARES WERE WITH THE BUSINESS MOTIVE WHICH WERE SHOWED AS BUSINESS INCOM E ONLY WHICH WAS MAINLY THROUGH STOCK BROKER, ARIHANT CAPITAL MARKETS LIMITED, REGISTERED WITH NSC, NSE AND BSE. IT IS ALSO SEEN THAT IN THE IMPUGNED ORDER THE BOARD CIRC ULAR NO. 4/2007 DATED 15.6.2007 WHEREIN IT WAS EMPHASIZED TH AT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORT FOLIOS I. E. AN INVESTMENT PORT FOLIO COMPRISING OF SECURITIES WHIC H ARE TO BE TREATED AS CAPITAL ASSET AND TRADING PORT FOLIO COM PRISING ITA NO.19/IND/2014 4 STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING A SSET, WAS CONSIDERED. THE BOARD FURTHER CLARIFIES THAT NO SIN GLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL PROPOSITI ON NEEDS TO BE CONSIDERED. THE ASSESSEE HAS MAINTAINED ONLY ONE PORT FOLIO AND CLAIMED THAT TO BE AN INVESTMENT FOL IO. UNDISPUTEDLY, THE PERIOD OF HOLDING IS LESS THAN ON E YEAR, CONSEQUENTLY, THERE IS NO INFIRMITY IN HOLDING THAT THESE TRANSACTIONS WOULD BE TREATED AS SHORT TERM CAPITAL GAIN ON WHICH THE APPLICABLE TAX IS @ 10% ONLY. IN VIEW OF THIS UNCONTROVERTED FACT, THERE IS NO MERIT IN THE APPEA L OF THE REVENUE AND THE SAME IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH AUGUST, 2010. 2.3 THE AFORESAID DECISION WAS AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT REPORTED IN (2012) 19 ITJ 326 (M.P). THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHANTIL AL M JAIN VS ACIT VIDE ORDER DATED 27-04-2011 (ITA NO. 269/MUM/2 010) HELD THAT DESPITE LARGE VOLUME OF SHARES TRANSACTIONS, T HE ASSESSING OFFICER CANNOT IGNORE THE RULE OF CONSISTENCY TO TR EAT THE GAINS ON SALE OF SHARES AS STCG. IN THAT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF INVESTMENT IN SHARES AND SECURITIES OFFERED RS. 1.54 CRORES AS SHORT TERM CAPITAL GAIN AND RS. 2.91 CRORES FROM LONG TERM CAPITAL GAIN. THE LONG TERM C APITAL GAIN WAS ACCEPTED WHEREAS SHORT TERM CAPITAL GAIN WAS HELD TO BE BUSINESS PROFIT. SINCE IN EARLIER ASSESSMENT YEARS THE CLAIM OF THE ASSESSEE WAS CONSISTENTLY ACCEPTED AS SHORT TERM CAPITAL GA IN, IT WAS HELD THAT THE RULE OF CONSISTENCY AS PROPOUNDED BY HON'B LE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA), IT IS F AIRLY APPLICABLE AND THE INCOME HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. IDENTICALLY IN THE CASE OF NAGINDAS P SETH (ITA NO.961/MUM/2 010) IT WAS HELD THAT DESPITE LARGE NUMBER OF TRANSACTIONS IN S HARES, THE PROFIT ITA NO.19/IND/2014 5 CAN BE ASSESSED AS CAPITAL GAINS UNDER THE FACTS O F THE CASE. THE CASE OF THE ASSESSEE IS FURTHER FORTIFIED BY THESE DECISIONS MORE SPECIFICALLY WHEN THE ASSESSEE WAS HOLD THE SHARE S IN HIS BOOKS AS INVESTOR, WAS NOT HAVING OFFICE OR ADMINISTRATIVE SET UP, NO INTEREST WAS PAID ON THE FUNDS AND THERE WAS NOT A SINGLE IN STANCE WHERE THE ASSESSEE SQUARED UP THE TRANSACTIONS ON THE SA ME WITHOUT TAKING THE DELIVERY OF SHARES. THE DECISION IN THE CASE OF JANAK S RANAWALA, 11 SOT 627 (MUM.) FURTHER SUPPORTS THE CA SE OF THE ASSESSEE. LIKEWISE, THE DECISION FROM HON'BLE MADRA S HIGH COURT IN CIT VS N.S.S. INVESTMENT PVT LTD. 227 ITR 149 (MAD) , CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY, 82 ITR 5 26 (SC) SUPPORTS THE CASE OF THE ASSESSEE. IN THE PRESENT APPEAL, WE NOTE THAT THE ASSESSEE MADE INVESTMENT IN SHARES WITH I NTENTION TO EARN DIVIDEND INCOME ON APPRECIATION OF PRICE OF SHARES. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS DOING BUSINES S. 2.4 IN VIEW OF ABOVE DISCUSSION, WE REVERSE THE ORDER OF THE LOWER AUTHORITIES AND DIRECT THE AO TO TREAT THE INCOME OF RS.40,272/- ON SALE OF SHARES AS SHORT TERM CAPITAL GAINS RATHER T HAN BUSINESS INCOME. 3 . THE AO HAS ALSO MADE AN ADDITION OF RS.39,858/- B Y INVOKING RULE 8D. 3.1 FROM THE RECORD, WE FOUND THAT THE ASSESSEE HAS NO T CLAIMED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. UNDE R SUCH CIRCUMSTANCES, THERE IS NO QUESTION OF DISALLOWANCE OF ANY OF THE ITA NO.19/IND/2014 6 EXPENDITURE. RULE 8D CAN BE INVOKED ONLY WHEN IT IS FOUND THAT ASSESSEE HAD CLAIMED EXPENDITURE AGAINST THE EXEMPT INCOME. SINCE NO EXPENDITURE WAS CLAIMED BY THE ASSESSEE AG AINST THE EXEMPT INCOME, ACCORDINGLY, WE DO NOT FIND ANY MERI T IN THE DISALLOWANCE MADE BY THE AO BY INVOKING RULE 8D. 3.2 THE QUESTION OF APPLICABILITY OF RULE 8D ARISES, O NCE IT IS FOUND THAT THE ASSESSEE HAS CLAIMED ANY EXPENDITURE AGAINST EXEMPT INCOME. WITHOUT RECORDING ANY FINDING AS TO THE EXPENDITURE HAVING BEEN CLAIMED AGAINST EXEMPT INCOME, NO DISAL LOWANCE IS WARRANTED. ACCORDINGLY, THE AO IS DIRECTED TO DELET E THE DISALLOWANCE OF RS.39,858/- MADE UNDER RULE 8D READ WITH SECTION 14A. 4 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. !+$,1 '#+, . ! 2 , . , 3 4 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21/5/201 4. . 0 %$ - 5 6'1 21/5/2014 . 4 SD/- SD/- ( ) (JOGINDER SINGH) ( . . ) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER INDORE; 6' DATED 21/5/2014 ). - ./PKM , ' . / PS !' #'$ / COPY OF THE ORDER FORWARDED TO : 1. ! &( / THE APPELLANT 2. )*&( / THE RESPONDENT. 3. - ;, ( ! ) / THE CIT(A), INDORE 4. - ;, / CIT, INDORE 5. <= ),'># , ! / >#$ , / DR, ITAT, INDORE 6. ? @ / GUARD FILE. ITA NO.19/IND/2014 7 % & / BY ORDER, ' / ( ) ( ASSTT. REGISTRAR) , / ITAT INDORE *