PALLAVI PRVIN MEHTA, MUMBAI V. ACIT 25(3), MUMBAI

ITA 1978/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6581 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PARMINDER
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , , , BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER . / ITA NO. 1976 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 6 07 ) MR. PRAVIN D. MEHTA (HUF) 4 TH FLOOR, OM PLAZA VASANJI LALJI ROAD KANDIVALI (W), MUMBAI 400 067 .. / APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 25(3), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAAHM0056N . / ITA NO. 1978 / MUM./ 2012 ( / ASSESSMENT YEAR : 2006 07 ) MR S . PALLAVI PRAVIN MEHTA 4 TH FL OOR, OM PLAZA VASANJI LALJI ROAD KANDIVALI (W), MUMBAI 400 067 .. / APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 25(3), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBE R AHMPM1134C / REV ENUE BY : MRS. PARMINDER / ASSESSEE BY : MR. DHARMESH SHAH MR. PRAVIN D. MEHTA (HU F) MRS. PALLAVI PRAVIN MEHTA 2 / DATE OF HEARING 0 5 . 0 5 .201 4 / DATE OF ORDER 07.05.2014 / ORDER . . , / PER N.K. BILLAIYA , A .M. THESE APPEALS PREFERRED BY THE TWO DIFFERENT ASSESSEES AGAINST TWO SEPARATE ORDERS DATED 21 ST DECEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXXV, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2006 07 . SINCE THE SOLE ISSUE INVOLVED IN THESE TWO APPEALS IS COMMON WHICH IS ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDA TED ORDER. 2 . WE FIRST TAKE UP ASSESSEES APPEAL IN RESPECT OF MR. PALLAVI PRAVIN MEHTA IN ITA NO.197 8 /MUM./ 2012, FOR THE ASSESSMENT YEAR 2006 07, VIDE WHICH, THE SOLE GROUND GRIEVANCE OF THE ASSESSEE IS THAT, THE LEARNED COMMISSIONER (APPEALS) ERRED IN L AW AND ON THE FACTS IN NOT APPRECIATING THAT THE INCOME OF ` 19,70,785, ON ACCOUNT OF SALE OF SHARES REPRESENTED INCOME FROM CAPITAL GAIN AND NOT INCOME FROM BUSINESS . 3 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNER IN MEHTA INVESTMENTS. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH JULY 2006, DECLARING TOTAL INCOME AT ` 19,70,785. DURING THE YEAR, THE ASSESSEE HAS SHOWN INCOME UNDER THE HEAD S INCOME FROM SHORT TERM CAPITAL GAIN , LONG TERM CAPITAL GAIN , MR. PRAVIN D. MEHTA (HU F) MRS. PALLAVI PRAVIN MEHTA 3 INCOME FROM MEHTA INVESTMENTS , SHARE PROFIT FROM MEHTA INVESTMENTS AND INCOME FROM COMMISSION . THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY ASSESSMENT. STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF SCRUTINY ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN AT ` 19,70,785 AND LONG TERM CAPITAL GAIN AT ` 9,55,054. THE ASSESSING OFFICER WAS OF THE OPINION THAT SHORT TERM CAPITAL GAIN OFFERED BY THE ASSESSEE FALL S INTO THE CATEGORY OF BUSINESS INCOME CONSIDERING THE FREQUENCY AND VOLUME OF SHARE TRANSACTION. THE ASSESSING OFFICER FURTHER NOTICED THA T THE ASSESSEE HAS BOUGHT AND SOLD 4,20,270 NUMBER OF SHARES WHICH INVOLVED PURCHASE AMOUNT AT ` 2,90,80,557 AND SALE AMOUNT AT ` 3,10,51,342 IN 60 TRANSACTIONS GIVING RISE TO GAIN OF ` 19,70,785. THE ASSESSING OFFICER PROCEEDED TO DISCUSS CERTAIN JUDICIAL DECISIONS IN THE LIGHT OF THE CBDT CIRCULAR NO.4/2007 DATED 15 TH JUNE 2007, CAME TO THE CONCLUSION THAT THE ASSESSEE IS ENGAGED ONLY IN ONE ACTIVITY I.E., ACTIVITY OF EARNING PROFIT THROUGH SALE AND PURCHASE OF SHARES WITHIN SHORT PERIOD OR LONG PERIOD. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT THE ENTIRE PROFITS ARISING OUT OF THE PURCHASE AND SALE OF SHARES HA S TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION . 4 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED COMMISSIONER (APPEALS) BUT WITHOUT ANY SUCCESS. THE LEARNED COMMISSIONER (APPEALS) OBSERVED THAT LOOKING INTO THE VOLUME, F REQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION OF PURCHASE AND SALE IN SHARES, IT CAN BE INFERRED THAT THESE TRANSACTIONS MUST HAVE BEEN ENTERED INTO BY THE ASSESSEE WITH A PROFIT MOTIVE. THE LEARNED MR. PRAVIN D. MEHTA (HU F) MRS. PALLAVI PRAVIN MEHTA 4 COMMISSIONER (APPEALS) WAS CONVINCED THAT THE ASSESS EE IS ENGAGED IN ADVENTURE IN NATURE OF TRADE ON FULL SCALE AND IT HAS SHOWN PURCHASE AND SALE AS INVESTMENTS AND GAINS AS SHORT TERM CAPITAL GAIN WITH A VIEW TO AVOID TAX. AGGRIEVED BY THIS, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5 . THE LEARNED COUNSE L FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE AUTHORITIES BELOW. IT IS THE SAY OF THE LEARNED COUNSEL THAT DURING THE YEAR UNDER CONSIDERATION AND ALSO IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR, THE ASSESSEE HAS BEEN SHOWING SHARES AS INVESTMENTS WHICH WAS THE PRIMARY MOTIVE OF THE ASSESSEE WHEN SHE PURCHASE THE SHARE. THE LEARNED COUNSEL DREW OUR ATTENTION TO THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004 05 AND STATED THAT ON IDENTICAL FACTS, THE ASSESSING OFFICER HAD ACCEPTED THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES AFTER THOROUGHLY SCRUTINIZING THE RETURN OF INCOME. THE LEARNED COUNSEL FURTHER POINTED OUT THAT MOST OF THE SHARES SOLD DURING THE YEAR WERE WITH THE ASSESSEE AT THE START OF THE YEAR I.E., AS ON 1 ST APRIL 2005. THE LEARNED COUNSEL STRONGLY SUBMITTED THAT THE ACTION OF THE AUTHORITIES BELOW IS AGAINST THE FACTS OF THE CASE. THE ASSESSEE IS AN INVESTOR AND GAINS ARISING FROM PURCHASE AND SALE TRANSACTION DESERVE TO BE TAXED UNDER THE HEAD SHORT TERM CAPITAL GAIN . 6 . PER CONTRA , THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE AUTHORITIES BELOW. 7 . WE HAVE CARE FULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. T HE UNDISPUTED FACTS ARE THAT DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE HAS ENTERED INTO 60 MR. PRAVIN D. MEHTA (HU F) MRS. PALLAVI PRAVIN MEHTA 5 TRANSACTIONS WHICH MEANS ONE TRANSACTION IN EVERY SIX DAY S OR FIVE TRANSACTIONS PER MONTH. BY ANY STRETCH OF IMAGINATION, THIS CANNOT BE CONSIDERED TO BE THAT THE ASSESSEE WAS ENGAGED IN HIGH FREQUE NCY TRANSACTIONS . FURTHER, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE WAS CHURNING THE SHARES, BUYING AND SELLING THE SAME SHARES AGAIN AND AGAIN. IN CIT V/S MADAN GOPAL RADHEY LAL, [1969] 73 ITR 652 (SC), THE HON'BLE SUPREME COURT HAS D EALT WITH THE ISSUE AND DISCUSSED THE QUESTION: A TRADER MAY ACQUIRE A COMMODITY IN WHICH HE IS DEALING, FOR, HIS OWN PURPOSES, AND HOLD IT APART FROM THE STOCK - IN - TRADE OF HIS BUSINESS. THERE IS NO PRESUMPTION THAT SUCH AN .ACQUISITION, EVEN IF IT IS A N ACCRETION TO THE STOCK - IN - TRADE OF THE BUSINESS, IS AN ACQUISITION FOR THE PURPOSE OF HIS BUSINESS: IN EACH CASE THE QUESTION IS ONE OF INTENTION TO BE GATHERED FROM THE EVIDENCE OF CONDUCT AND DEALINGS BY THE ACQUIRER WITH THE COMMODITY. IN ASSOCIATED INDUSTRIAL DEVELOPMENT (SUPRA), THE SUPREME COURT OBSERVED AS FOLLOWS: . IT WAS OPEN TO THE ASSESSEE TO CONTEND THAT EVEN ON THE ASSUMPTION THAT IT HAD BECOME A DEALER AND WAS NO LONGER AN INVESTOR IN SHARES THE PARTICULAR HOLDINGS WHICH HAD BEEN CLEAR ED AND THE SALES OF WHICH HAD RESULTED IN THE PROFIT IN QUESTION HAD ALWAYS BEEN TREATED BY IT AS AN INVESTMENT. IT CAN HARDLY BE DISPUTED THAT THERE WAS NO BAR TO A DEALER INVESTING IN SHARES. BUT THEN THE MATTER DOES NOT REST PURELY ON THE TECHNICAL QUES TION OF ONUS WHICH UNDOUBTEDLY IS INITIALLY ON THE REVENUE TO PROVE THAT A PARTICULAR ITEM OF RECEIPT IS TAXABLE. WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK - IN - TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE O F THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. MR. PRAVIN D. MEHTA (HU F) MRS. PALLAVI PRAVIN MEHTA 6 8 . THE HON'BLE SUPREME COURT IN ANOTHER CASE IN P.M. MOHAMMED MEERAKHAN (P.M.) V/S CIT, [ 1969] 073 ITR 735 (SC) , REITERATED THAT IT WAS NOT POSSIBLE TO EVOLVE ANY SINGLE TEST OR FORMULA WHICH COULD BE APPLIED IN DETERMINING THE TRANSACTIO N AS ADVENTURE IN NATURE OF TRADE OR NOT. THE DISTINCTION BETWEEN THE TWO TYPES OF TRANSACTION IS NOT ALWAYS EASY TO MAKE. WHETHER THE TRANSACTION IS OF ONE KIND OR THE OTHER DEPENDS ON THE QUESTION WHETHER THE EXCESS IS AN ENHANCEMENT OF THE VALUE BY REAL IZING THE SECURITY OR A GAIN IN AN OPERATION OF PROFIT MAKING. THE ASSESSEE MIGHT HAVE INVESTED CAPITAL IN SHARES WITH AN INTENTION TO RESALE THESE IF IN FUTURE THEIR SALE BRINGS IN A HIGHER PRICE. SUCH AN INVESTMENT THOUGH MOTIVATED BY A POSSIBILITY OF EN HANCEMENT VALUE, DID NOT NECESSARILY RENDER THE INVESTMENT A TRANSACTION IN THE NATURE OF TRADE. 9 . IT IS ALSO AN ADMITTED FACT THAT IN THE ASSESSMENT YEAR 2004 05, IN THE ASSESSMENT UNDER SECTION 143(3), THE SHARE TRANSACTIONS HAVE BEEN CONSIDERED UNDER THE HEAD SHORT TERM CAPITAL GAIN . IT IS ALSO TO BE NOTED THAT THE LONG TERM CAPITAL GAIN HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. IF THE ASSESSING OFFICER IS OF THE FIRM BELIEF THAT THE ASSESSEE IS ENGAGED IN TRADING ACTIVITIES IN THE SHARES, THEN IT DOE S NOT MAKE ANY DIFFERENCE WHETHER THE SHARES ARE HELD FOR MORE THAN 12 MONTHS OR LESS THAN 12 MONTHS. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS ACCEPTED THAT THE ASSESSEE IS AN INVESTOR INSOFAR AS THE LONG TERM CAPITAL GAIN IS CONCERNED. CONSIDERING T HE VOLUME AND FREQUENCY OF THE TRANSACTIONS, WE DO NOT FIND ANY REASON AS TO WHY THE PROFIT SHOULD NOT BE TAXED UNDER THE HEAD SHORT TERM CAPITAL GAIN AS RETURNED BY THE ASSESSEE. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS ) AND DIRECT THE ASSESSING OFFICER TO TAX MR. PRAVIN D. MEHTA (HU F) MRS. PALLAVI PRAVIN MEHTA 7 THE GAINS ARISING FROM THE SHARE TRANSACTIONS UNDER THE HEAD SHORT TERM CAPITAL GAIN AS RETURNED BY THE ASSESSEE. THUS THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 10 . . 1978 /MUM. /2012 10. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.197 8 /MUM./2012 IS ALLOWED. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO. 197 6 /MUM./2012 , FOR THE ASSESSMENT YEAR 200 6 07 . 11 . BEFORE US, T HE LEARNED DEPARTMENTAL REPRESENTATIVE, FAIRLY CONCEDED THAT THE ISSUE INVOLVED AND THE FACT & CIRCUMSTANCES OF THE PRESENT APPEAL ARE IDENTICAL TO THE AFORESAID APPEAL. 12 . AFTER HEARING BOTH THE PARTIES, WE FIND THAT I N THIS APPEAL ALSO, THE ISSUE INVOLVED IS SIMILAR TO THE ISSUE RAISED BY THE ASSESSEE IN APPEAL IN ITA NO.1976/MUM./2012, CITED SUPRA, WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE FOR THE REASONS STATED THEREIN . CONSEQUENTLY, CONSISTENT WITH THE VIEW TAKEN BY US IN THE AFORESAID APPEAL, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND ALLOW THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL. 13 . . 197 6 /MUM./2012 13 . IN THE RESULT, ASSESSEES APPEAL IN ITA NO.197 6 /MUM./2012 IS ALLOWED. MR. PRAVIN D. MEHTA (HU F) MRS. PALLAVI PRAVIN MEHTA 8 14 . , 10. TO SUM UP , ASSESSEES APPEALS ARE ALLOWED. 7 TH MAY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MAY 2014 SD / - SANJAY GARG JUDICIAL MEMBER SD / - . . N.K. BILLAIYA ACCOUNTANT MEMBER MUMBAI, DATED : 7 TH MAY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI