The ACIT,B.K.Circle, Palanpur V. Kamlesh Babalal Shah, Mumbai

ITA 1903/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1032 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Transactions in derivatives; Earning of tax free income; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I S. S. GODARA , JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER THE ACIT, B.K. CIRCLE, PALANPUR (APPELLANT) VS KAMLESH BABALAL SHAH, H.O. BHILDI TALUKA DEESA PAN: AFXPS4908R (RESPONDENT) REVENUE BY : S H RI SANJEEV KUMAR DEV , SR. D . R. ASSESSEE BY: S H RI M.K. PATEL , A.R. DATE OF HEARING : 14 - 07 - 2 016 DATE OF PRONOUNCEMENT : 27 - 07 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 200 7 - 08 , AR IS ES FROM ORDER OF THE CIT(A) - XX, AHMEDABAD DATED 06 - 06 - 2012 IN APPEAL NO. CIT(A) - I T A NO . 1903 / A HD/20 12 A SSESSMENT YEAR 200 7 - 08 I.T.A NO. 1903 /AHD/20 12 A.Y. 2007 - 08 PAGE NO ACIT VS. KAMLESH BABALAL SHAH 2 XX/286/11 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE RAISES TWO SUBSTANTIVE GROUNDS IN THE I NSTANT APPEAL IN CHALLENGING THE LOWER APPELLATE ORDER INTER ALIA QUASHING THE REOPENING IN QUESTION AND ALSO REVERSING THE ASSESSING OFFICER S FINDINGS ON MERITS TREATING ASSESSEE S SHARE PROFIT AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS AS DECLARED AT T HE FIRST INSTANCE. 3. WE COM E TO RELEVANT FACTS FIRST. THE ASSESSEE FILED HIS RETURN ON 29 - 10 - 2007 DECLARING INCOME OF RS. 95,70,980/ - . THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 09 - 03 - 2009 ACCEPTING THE ABOVE STATED DECLARED INCOME. HE T HEREAFTER FORMED REASONS TO BELIEVE THAT ASSESSEE S INCOME LIABLE TO BE ASSESSED HAD ESCAPED ASSESSMENT IN VIEW OF THE FACTS SET OUT HEREUNDER. THE ASSESSEE S TOTAL INCOME H E REINABOVE COMPRISED OF BUSINESS INCOME OF RS. 28,43,455/ - , SHORT TERM CAPITAL GAI NS OF R S. 67,55,489/ - ALONG WITH A CLAIM OF EXEMPT INCOME OF RS. 2,94,98,496/ - . THE ASSESSING OFFICER WENT THROUGH ASSESSEE S CERTIFICATE IN FORM NO. 10DB INDICATING VALUE OF TRANSACTION IN RELATION TO FOUR SCRIP S TO OBSERVE THAT HE WAS ENGAGED IN SPECULA TIVE BUSINESS IN SHARES AND HE RESORTED TO THE IMPUGNED SHORT TERM CAPITAL GAINS DECLA RA TIONS SO AS TO GET BENEFIT OF CONCESSIONAL RATE OF TAX THEREUPON. THE ASSESSING OFFICER SOUGHT TO CHANGE HEAD OF ABOVE STATED SHORT TERM CA P ITAL GAINS TO BUSINESS INCO ME. HE ISSUED SECTION 148 NOTICE DATED 26 - 04 - 2010. THE ASSESSEE FILED A LETTER IN RESPONSE THERETO DATED 29 - 05 - 2010 I.T.A NO. 1903 /AHD/20 12 A.Y. 2007 - 08 PAGE NO ACIT VS. KAMLESH BABALAL SHAH 3 REITERATING THE INCOME ALREADY RETUNED . THE ASSESSING OFFICER THEREAFTER FRAMED REASSESSMENT ON 19 - 12 - 2011 REITERATING REOPENING REASONS TO CONCLUDE THAT ASSESSEE S PROFITS ON SALE OF SHARES AMOUNTING TO RS. 67,55,489/ - DESERVED TO BE TREATED AS BUSINESS INCOME. HE ACTED ACCORDINGLY. 4. THE ASSESSEE PREFERRED APPEAL. HE CHALLENGED THE ABOVE STATED REASSESSMENT ON VALIDITY OF REOPENING AS WELL AS ON MERITS. THE CIT(A) ANNULS THE IMPUGNED REOPENING AS UNDER: - 2.2. IN THE ASSESSMENT ORDER, AO OBSERVED THAT APPELLANT FILED RETURN OF INCOME A DMITTING INCOME OF RS.95,70,980/ - ; ORDER U/S.143(3) WAS PASSED ON 09.03.2009 ASSES SING THE INCOME AT RS.95,75,900/ - ; A PERUSAL OF THE RETURN OF INCOME SHOWED THAT APPELLANT INCLUDED PROFIT MADE FROM SPECULATIVE BUSINESS IN THE INCOME SHOWN UNDER THE HEAD SHORT TERM CAPITAL GAINS; CONSIDERING THE NATURE OF TRANSACTIONS AND VOLUME OF TRANSACTIONS, THE INCO ME SHOULD HAVE BEEN ASSESSED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR SPECULATION BUSINESS AND NOT AS SHORT TERM CAPITAL GAIN; THEREFORE THERE WAS REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND ACCORDINGLY NOTICE U/S . 148 DTD. 26.04.2010 WAS BEING , ISSUED. THE CONTENTIONS OF THE ID. A.R. AGAINST THE RE - OPENING OF THE ASSESSMENT IN BRIEF ARE THAT IN THE RETURN OF INCOME APPELLANT DISCLOSED TRULY AND FULLY ALL THE MATERIAL FACTS RELEVANT FOR THE PURPOSE OF ASSESSMENT OF H IS INCOME; DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) IN RESPONSE TO THE NOTICES ISSUED ALL THE DETAILS IN RESPECT OF SPECULATION PROFIT, DERIVATIVE TRANSACTION, SHORT TERM CAPITAL GAIN, LONG TERM CAPITAL GAIN ETC. WERE FURNISHED 'TO THE AO; A FTER EXAMINING THE DETAILS FURNISHED, ORDER U/S. 143(3) WAS PASSED; THE RE - OPENING WAS DONE ON THE BASIS OF MERE CHANGE OF OPINION AND THEREFORE IN VIEW OF THE VARIOUS CASE LAWS RELIED UPON, THE REOPENING IS BAD IN LAW. 2.3. 1 HAVE CONSIDERED THE FACTS O F THE MATTER. IN THE INSTANT CASE, ORDER U/S. 143(3) WAS PASSED BEFORE RE - OPENING THE ASSESSMENT. DURING THE SAID PROCEEDINGS U/S. 143(3), VIDE THE QUESTIONNAIRE DTD. I.T.A NO. 1903 /AHD/20 12 A.Y. 2007 - 08 PAGE NO ACIT VS. KAMLESH BABALAL SHAH 4 12.12.2008, AO SPECIFICALLY CALLED FOR THE DETAILS OF CONTRACT NOTES WITH REGARD TO SPECU LATION PROFIT, COPIES OF BILLS OF DERIVATIVE TRANSACTION AND COPY OF BILLS OF SHORT TERM CAPITAL GAIN AND LONG \ TERM CAPITAL GAIN IN RESPECT OF SHARES. VIDE THE LETTER DTD. 01:01.2009, THE DETAILS CALLED FOR WERE FURNISHED BY THE APPELLANT. IN THE ASSESSMEN T ORDER U/S. 143(3) DTD. 09.03.2009, AO AT PARA - 2 OBSERVED THAT VARIOUS DETAILS CALLED IF OR HAD BEEN FURNISHED BY THE APPELLAN T AND WERE KEPT ON RECORD. IN OTHER WORDS, THE ASSESSABILITY OF THE INCOME FROM TRANSACTIONS IN SHARES UNDER SHORT TERM CAPITAL G AIN AND LONG TERM CAPITAL GAIN WAS CONSIDERED AND 1 ACCEPTED THE AO. AS SEEN FROM THE IMPUGNED ORDER U/S. 143(3) R.W.S.147, AO MERELY STATED THAT THE INCOME ASSESSED UNDER SHORT TERM CAPITAL GAIN SHOULD HAVE BEEN ASSESSED UNDER THE HEAD BUSINESS INCOME. APP ARENTLY, AO DID NOT HAVE ANY FRESH INFORMATION. NOR DID HE ARRIVE AT A FINDING THAT THE APPELLANT FAILED TO FURNISH THE NECESSARY PARTICULARS TRULY AND FULLY IN THE RETURN IOF INCOME FILED. THEREFORE, THE CONTENTION OF THE ID. A.R. THAT THE RE - OPENING WAS MERELY ON THE BASIS OF CHANGE OF OPINION STANDS TO REASON. IN THE CASE OF C1T VS. KELVINATOR OF INDIA LTD.,(320 ITR 561) (SC), RELIED ON BY THE A.R., IT WAS HELD THAT 'A.O. CANNOT RE - OPEN THE ASSESSMENT EVEN WITHIN 4 YEARS ON MERE CHANGE OF OPINION, WHICH IS AN IN - BUILT TEST TO CHECK ABUSE OF POWER. THERE MUST BE TANGIBLE MATERIAL FOR THE FORMATION OF BELIEF.' KEEPING IN VIEW THE RATIO LAID DOWN IN THE ABOVE DECISION, I HOLD THAT THE REOPENING IS BAD IN LAW. ACCORDINGLY, IMPUGNED ORDER IS ANNULLED. T HE CIT(A) S FINDINGS ON MERITS READ AS FOLLOWS: - 4.4. IN THE ASSESSMENT ORDER, AO OBSERVED THAT THE EXPLANATION FURNISHED BY THE APPELLANT WAS NOT CONVINCING; CONSIDERING THE NATURE OF TRANSACTIO NS AND THE VOLUME, THE INCOME S HOULD HAVE BEEN ASSESSED UND ER THE HEAD BUSINESS INCOME OR SPECULATION BUSINESS AND NOT AS SHORT TERM CAPITAL GAIN; IN VIEW OF THE BOARD'S CIRCULAR NO.4/2007 AND AHMEDABAD TRIBUNAL'S DECISIONS DATED 25.07.2005 AND 05.10.2007, THE SHORT TERM CAPITAL GAINS ADMITTED BY THE APPELLANT OF RS.67,55,489/ - WAS BEING ASSESSED AS BUSINESS I.T.A NO. 1903 /AHD/20 12 A.Y. 2007 - 08 PAGE NO ACIT VS. KAMLESH BABALAL SHAH 5 INCOME. THE CONTENTIONS OF THE ID. A.R. IN THIS REGARD ARE THAT THE ID. A.O. ERRED IN NOT ACCEPTING THE EXPLANATION FURNISHED BY THE APPELLANT; IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF CI T VS. GOPAL PUROHIT (334 ITR 30 8) AND VARIOUS OTHER DECISION RELIED UPON, THE ACTION OF THE AO IS NOT IN ACCORDANCE WITH LAW. 4.5. I HAVE CONSIDERED THE FACTS OF THE MATTER. IN THE EXPLANATION FURNISHED TO THE AO (REPRODUCED AT PARA - 4 OF THE ASSESSMENT ORDER), APPEL LANT CONTENDED THAT HE MAINTAINED INDEPENDENT PORTFOLIO FOR INVESTMENT MADE IN SHARES. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, IT WAS CONTENDED BY THE ID. A.R. THAT THE INVESTMENT IN SHARES WAS MADE OUT OF OWN FUNDS; NO INTEREST BEARING FUNDS WERE INVESTED IN THE SHARES; APPELLANT HAS BEEN, CONSISTENTLY SHOWING THE INVESTMENT IN SHARES SEPARATELY ALL THE YEARS, HE HAS BEEN CONSISTENTLY ADMITTING INCOME FROM SHARE TRANSACTIONS EITHER UNDER LONG TERM CAPITAL GAIN OR UNDER, SHORT TERM CAPITAL GAIN; SAI D TREATMENT WAS ACCEPTED IN THE ASSESSMENT ORDERS PASSED U/S.143(3) FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO IN TH E IMMEDIATELY TWO SUCCEEDING A YRS.2008 - 09 AND 2009 - 10; AND AO DID NOT CONTROVERT THE EXPLANATION OFFERED BY THE APPELLANT; INSTEA D HE SUMMARILY DISMISSED THE EXPLANATION BY OBSERVING TH AT KEEPING IN VIEW THE NATURE AN D VOLUME OF TRANSACTION AND THE BOARD'S CIRCULAR, THE INCOME SHOULD HAVE BEEN ASSESSED AS BUSINESS INCOME. HAVING CON SIDERED THE FACTS OF THE MATTER. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE ID. A.R. NO INTEREST IS DEBITED TO THE P & L ACCOUNT, MEANING THEREBY THAT THE SHARES WERE PURCHASED BUT OF OWN FUNDS AND NOT OUT OF B ORROWED FUNDS. APPELLANT IS IN RECEIPT OF DIVIDEND INCOME OF RS.4,19,418/ - . IN THE SCRUT INY ORDERS PASSED FOR THE TWO SUCCEEDING ASSESSMENT YEARS, APPELLANT'S CLAIM WAS ACCEPTED. A.O'S OBSERVATIONS IN THE ASSESSMENT ORDER ARE GENERA L, VAGUE AND WITHOUT ANY BASIS AHMEDABAD TRIBUNAL'S LA TEST DECISIONS, MENTIONED AT PARA - 4.3 ABOVE (AS AGAINST THE CASES DECIDED IN 200 5 AND 2007 WHICH WERE RELIED ON BY THE A.O.) BUTTRESS THE CASE OF THE APPELLANT. KEEPING IN VIEW THE VARIOUS CASE LAWS RELIED UPON BY THE ID. A.R., I HOLD THAT AO 'S ACTION IN A SSESSING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME IS NOT IN ACCORDANCE WITH LAW. HE IS DIRECTED TO ASSESS IMPUGNED INCOM E AS SHORT TERM CAPITAL GAINS ( AS ADMITTED BY THE APPELLANT IN THE RETURN OF INCOME). THESE GROUNDS OF APPEAL ARE ALLOWED. I.T.A NO. 1903 /AHD/20 12 A.Y. 2007 - 08 PAGE NO ACIT VS. KAMLESH BABALAL SHAH 6 5. WE HAVE HEARD BOTH THE PARTIES. WE COME TO THE REVENUE S ARGUMENTS ON LEGAL ASPECTS FIRST. IT IS MADE CLEAR THAT THERE IS NO PAPER BOOK ATTACHED WITH THE INSTANT APPEAL SO AS TO REBUT THE CIT(A) S FINDINGS THAT THE ASSESSING OFFICER HAD SPECIFICALLY CALL ED FOR DETAILS OF CONTRACT NOTES WITH REGARD TO SPECULATIVE PROFITS, DERIVATIVES TRANSACTIONS, SHORT AND LONG TERM CAPITAL GAINS IN QUESTION. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO CONTROVERT THIS CLINCHING ASPECT. WE CONCLUDE IN THESE FACTS THAT THE ASSESSING OFFICER HAD MADE ALL DUE QUERIES IN THE COURSE OF SCRUTIN Y ON THE ASPECT AS TO WHETHER THE ASSESSEE S SHARE PROFITS ARE TO BE TREATED AS CAPITAL GAINS OR BUSINESS INCOME. HON BLE APEX COURT IN CIT VS. KELVINATOR OF INDIA LTD. (SUPRA) HAS ALR EADY HELD AGAINST SUCH A REOPENING W HEREIN THE ASSESSING OFFICER HA D EXAMINED ALL RECORDS PERTAINING TO THE ISSUE IN QUESTION IN THE COURSE OF SCRUTINY. WE DRAW SUPPORT FROM THE SAME TO APPROVE CIT(A) S REASONING ON LEGALITY ASPECT. 6. WE NOW COME TO MERITS OF THE ISSUE. THERE IS HARDLY ANY ISSUE THAT RIGHT FROM ASSESSMENT YEAR 2004 - 05 TO 2010 - 11, THIS ASSESSEE HAS ALREADY BEEN TREATED AS AN INVESTOR. IT HAS COME ON RECORD THAT HE HAD BEEN MAINTAINING SEPARATE PORTFOLIO BY TREATING SHARES IN QUESTION AS INVESTMENTS IN STOCK IN TRADE. THE REVENUE FAILS TO MAKE OUT ANY CASE OF BORROWED FUNDS BEING UTILIZED IN THE IMPUGNED INVESTMENTS OR TO PLACE ANY OTHER MATERIAL ON RECORD LEADING US TO A CONCLUSION THAT THESE SHARE PROFITS HAVE ARISEN FROM AD VENTURE IN THE NATURE OF TRADE THEREIN. WE FIND NO REASON TO INTERFERE IN THE LOWER APPELLATE FINDINGS EXTRACTED HEREINABOVE. I.T.A NO. 1903 /AHD/20 12 A.Y. 2007 - 08 PAGE NO ACIT VS. KAMLESH BABALAL SHAH 7 7. THIS REVENUE S APPEAL IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 27 - 07 - 201 6 SD/ - SD/ - ( MANISH BORAD ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 2 7 /07 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,