Smt. Bhavnaben Yogeshbhai Shah, Ahmedabad V. The Income tax Officer,Ward-7(4), Ahmedabad

ITA 20/AHD/2010

• Counselvise Citation: 2020514 RSA 2010
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 01-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Assessee Lawyers: M G PATEL
• Keywords: Business income; Cost of acquisition; Reasonable cause
• Section: 143(3); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO. 20/AHD/2010 A. Y.: 2004-05 SMT. BHAVNABEN YOGESHBHAI SHAH, STHANAKWASI JAIN SOCIETY, NARANPURA RAILWAY CROSSING, NARANPURA, AHMEDABAD P. A. NO. ADFPS 0616 L VS THE INCOME TAX OFFICER, WARD 7 (4), AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. G. PATEL, AR RESPONDENT BY SHRI D. K. SINGH, SR. DR DATE OF HEARING: 30-10-2012 DATE OF PRONOUNCEMENT: 07-12-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED CIT( A)-XI, AHMEDABAD DATED 01-06-2009 IN APPEAL NO. CIT(A)-XI/163/07-08, FOR THE ASSESSMENT YEAR 2004-05 PASSED U/S 250 READ WITH SECTION 143(3 ) OF THE I. T. ACT. 2. THE APPEAL WAS EARLIER DISMISSED BY THE TRIBUNAL FOR NON APPEARANCE, HOWEVER THE ORDER WAS RECALLED BY ALLOW ING THE MISC. APPLICATION NO.01/AHD/2012 IN ITA NO.20/AHD/2010 FO R AY 2004-05 FILED BY THE ASSESSEE VIDE ORDER OF THE TRIBUNAL DATED 30 TH MARCH, 2012, SINCE THE ASSESSEE HAD REASONABLE CAUSE FOR NON APPEARANC E. ITA NO.20/AHD/2010 (AY: 2004-05) SMT. BHAVNABEN YOGESHBHAI SHAH VS ITO, W-7(4), AHME DABAD 2 3. THE ASSESSEE IN HER APPEAL HAS RAISED FOUR GROUN DS WHEREIN GROUND NO.4 IS GENERAL IN NATURE AND DOES NOT SURVIVE FOR ADJUDICATION. THE EFFECTIVE GROUNDS NO.1, 2 AND 3 OF THE APPEAL ARE R EPRODUCED HEREIN UNDER FOR REFERENCE: 1. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) -XI, AHMEDABAD HAS ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE BY CONFIRMING THE TREATMENT BY ASSESSING OFFIC ER OF SHORT TERM CAPITAL GAIN OF RS.8,51,638/- EARNED BY THE AP PELLANT AS WELL AS SHORT TERM CAPITAL GAIN OF RS.2,99,335/- EA RNED BY MINOR SON AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -XI, AHMEDABAD HAS ERRED IN LAW S WELL AS ON FACTS OF TH E CASE IN CONFIRMING DISALLOWANCE BY ASSESSING OFFICER OF LON G TERM CAPITAL LOSS OF RS.1,55,100/- AND INSTEAD WORKING O UT THE SAME AS BUSINESS LOSS OF RS.29,690/-. 3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)- XI, AHMEDABAD HAS ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE BY CONFIRMING THE TREATMENT BY ASSESSING OFFIC ER OF LONG TERM CAPITAL GAIN OF RS.25,494/- AS BUSINESS PROFIT AND THEREBY HE HAS ERRED IN CONFIRMING ADDITION OF RS.53,310/- AS BUSINESS PROFIT. 3. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUS INESS OF MANUFACTURING OF ELECTRONIC GOODS AND HOME APPLIANC ES FILED HER RETURN OF INCOME ON 27-02-2005 FOR THE ASSESSMENT YEAR 2004-0 5 DECLARING TOTAL INCOME OF RS.9,41,185/-. THE CASE WAS PROCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY SELECTED FOR SCRUTINY U/S 143 OF T HE ACT. FINALLY, THE ASSESSMENT WAS FINALIZED VIDE ORDER DATED 29-12-200 6 U/S 143(3) OF THE ACT BY THE LEARNED AO BY DETERMINING NET TAXABLE IN COME AT RS.11,73,733/- WHEREIN CERTAIN ADDITIONS WERE MADE BY TREATING THE CLAIM OF CAPITAL GAINS ARISING OUT OF PURCHASE AND SALE OF SHARES AS BUSINESS INCOME. ITA NO.20/AHD/2010 (AY: 2004-05) SMT. BHAVNABEN YOGESHBHAI SHAH VS ITO, W-7(4), AHME DABAD 3 3.1 IT WAS NOTICED BY THE LEARNED AO THAT DURING TH E ASSESSMENT YEAR THE ASSESSEE DECLARED SHORT TERM CAPITAL GAIN OF RS .8,51,638/-. IN THE BOOKS OF ACCOUNT, THE ASSESSEE HAD SHOWN PURCHASE O F SHARES AT RS.52,75,498/- AND SALE OF THE SHARES AT RS.61,27,1 86/- AND SHORT TERM CAPITAL GAIN OF RS.8,51,638/- IT WAS FURTHER NOTI CED BY THE LEARNED AO THAT IN AY 2001-02 AND 2002-03 THE ASSESSEE TREATED THE PROFIT EARNED FROM PURCHASE AND SALE OF SHARES AS PROFIT FROM SPECULA TION. THE ASSESSEE HAD ALSO TAKEN A LOAN OF RS.23,08,492/- FOR THE PURPOSE OF SHARES. CONSIDERING THESE FACTS, THE LEARNED AO REQUIRED TO EXPLAIN THE ASSESSEE WHY THE PROFIT OF RS.8,51,638/- SHOULD NOT BE TREATED AS BUSINESS PROFIT AND THE LOSS SHOWN UNDER LONG TERM CAPITAL GAIN SHOULD NOT BE TR EATED AS BUSINESS LOSS. THE LEARNED AO ALSO ASKED THE ASSESSEE TO PRODUCE N ECESSARY EVIDENCE REGARDING DELIVERY OF SHARES BY THE ASSESSEE. FROM THE SUBMISSIONS/EXPLANATIONS OF THE ASSESSEE DATED 18-1 2-2008, THE LEARNED AO, OBSERVED THE FOLLOWING FACTS: (I) THE SOURCE OF INCOME SHOWN UNDER VARIOUS HEADS BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT FOR AY 2001-0 2 AND 2002-2003 POINTS OUT TO THE FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES. (II) BILLS ISSUED BY THE STOCK BROKER ROOPALI A. CH OKSHI SIGNIFY THAT DELIVERY OF SHARES WAS EFFECTED EITHER AT THE TIME OF PURCHASE OR AT THE TIME OF SALE WHICH REVEALS THAT ONLY ENTRY WAS MADE WITHOUT AFFECTING ACTUAL DELIVERY OF SHAR ES. (III) ON VERIFICATION OF DETAILS OF PURCHASE AND SA LES IT WAS FOUND THAT SOME OF THE SHARES WERE SOLD ON THE SAME DATE AND SOME WERE SOLD WITHIN THE WEEK OF PURCHASE. 700 SHARES O F DABUR INDIA WAS PURCHASE ON 25-03-2004 AND SOLD ON 23-03- 2004 ITA NO.20/AHD/2010 (AY: 2004-05) SMT. BHAVNABEN YOGESHBHAI SHAH VS ITO, W-7(4), AHME DABAD 4 I.E. BEFORE TAKING DELIVERY WHICH ESTABLISHED THAT THE ASSESSEE WAS TRADING IN SHARES. (IV) THE ASSESSEES VOLUME OF BUSINESS BY TRADING I N SHARES WAS MORE THAN RS.61 LACKS AND THE ASSESSEE HAD ALSO OBT AINED LOAN FOR THAT PURPOSE. THESE FACTS PROVE THAT THE A SSESSEE WAS CONTINUOUSLY INVOLVED IN THE ACTIVITY OF BUSINE SS BY PURCHASING AND SELLING OF SHARES THROUGHOUT THE YEA R. (V) THE ASSESSEE WAS ALSO DOING SHARE TRADING BUSIN ESS IN THE NAME OF HER MINOR AMOUNTING TO RS.15 LACS. (VI) THE FREQUENCY AND VOLUME OF SHARE TRANSACTION OF THE ASSESSEE WAS OF LARGER MAGNITUDE AND IT CLEARLY IND ICATES THAT THE ASSESSEES INTENTION WAS TO EARN PROFIT BY PURC HASING AND SELLING OF SHARES. 3.1.1 BASED ON THE ABOVE FACTS, THE LEARNED AO TREATED RS.8,51,638/- AS BUSINESS INCOME IN HER NAME AND RS.2,99,335/- IN THE NAME OF HER MINOR CHILD AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 3.2 THE LEARNED AO FURTHER OBSERVED THAT THE ASSESS EE HAD DECLARED LONG TERM CAPITAL LOSS OF RS.1,55,100/- ON SALE OF SHARES FOR RS.9,18,261/- AND CONSIDERING COST OF ACQUISITION BY INDEXED COS T OF RS.10,73,361/-. THE LEARNED AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR INDEXATION OF THE COST OF THE ASSET SINCE THE ASSESSEE WAS TREATED AS A TRADER IN SHARES. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARN ED CIT(A). THE LEARNED CIT(A) CONFIRMED ORDER OF THE LEARNED AO O N. RELEVANT PORTION OF HIS FINDING ARE REPRODUCED HEREIN BELOW FOR REFEREN CE: 3.1 THE SUBMISSIONS MADE BY THE A. R. OF THE APPE LLANT HAVE BEEN PERUSED. THE DECISIONS, REFERRED AS ABOVE , WHICH ARE ITA NO.20/AHD/2010 (AY: 2004-05) SMT. BHAVNABEN YOGESHBHAI SHAH VS ITO, W-7(4), AHME DABAD 5 RELIED UPON BY THE A. R. OF THE APPELLANT AND THE O BSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAVE ALSO BEEN EXAMINED. 3.1.2 IT IS SEEN FROM THE OBSERVATION OF THE A. O. THAT THE APPELLANT APPEARS TO HAVE MADE PURCHASES AND SALES ON SAME DAY OR WITHIN A SHORT PERIOD. THE APPELLANTS BUSINESS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION RUNS INTO RS.61 LAKHS. IN SOME CASES THE APPELLANT HAS NOT EVEN RECEIVED DELIVERY OF SHARES. THE A. O. HAS ALSO OBSERVED THAT THE APPELLANT HAD TAKEN SOME LOA NS FOR THE PURPOSE OF THE BUSINESS. 3.1.3 APART FROM THE ABOVE OBSERVATIONS OF THE A. O., I AM OF THE OPINION THAT THE APPELLANT IS REQUIRED TO EXPLA IN WHETHER THE APPELLANT HAD KEPT ANY SHARES FOR SHORT TERM OR FOR LONG TERM INVESTMENT PURPOSES. THE APPELLANT SHOULD HAVE MAIN TAINED BOOKS FOR INVESTMENT PURPOSE SEPARATELY AND FOR TRADING P URPOSE SEPARATELY. THE APPELLANT APPEARS TO HAVE DECLARED HERSELF AS A TRADER AND ALSO IN PROFIT AND LOSS ACCOUNT, THE APP ELLANT HAS ADMITTED PROFITS FROM DEALING STOCK. THEREFORE, CONSIDERING THE FACTS OF THE CASE I AM OF THE OPINION THAT THE A. O. HAS RIGHTLY TREATED RS.8,51,638/- WHICH IS CLAIMED AS SHORT TERM CAPITA L GAINS AND RS.1,44,430/- SHORT TERM CAPITAL GAINS IN THE NAME OF MINOR AS A BUSINESS INCOME. THEREFORE, THESE GROUNDS OF APPEAL S ARE DISMISSED. THE DECISIONS OF A. O. ARE CONFIRMED. 3.1.4 AS DISCUSSED ABOVE, THE APPELLANT HAS NOT GI VEN ANY DETAILS WITH REGARD TO LONG TERM CAPITAL LOSS CLAIM OF RS.1,55,100/-. THE A. O. HAS ALLOWED BUSINESS LOSS OF RS.29,690/- AFTER CONSIDERING THE COST OF ACQUISITION OF SHARES AT RS.9,47,950/- AND SALE VALUE OF SHARES AT RS.9,18,261/- AND TREATED THE SAME AS NOR MAL TRADING BUSINESS. SINCE THE DETAILS WITH REGARD TO PERIOD O F HOLDING OF SHARES NOT AVAILABLE, I AM OF THE OPINION, THE BUSINESS LO SS DETERMINED BY THE A. O. IS CONFIRMED. 3.1.5 WITH REGARD TO TREATING OF RS.52,310/- WHICH WAS CLAIMED BY THE APPELLANT AS LONG TERM CAPITAL GAINS I AM OF THE OPINION THAT THERE ARE NO SUPPORTING DETAILS AVAILA BLE WITH REGARD TO CLAIM OF LONG TERM CAPITAL GAIN OF RS.52,310/-. THE REFORE, THE A.OS DECISION TO TREAT THE SAME AS A BUSINESS INCOME IS CONFIRMED. 5. THE LEARNED AR REITERATED HIS SUBMISSIONS MADE BEFORE THE AUTHORITIES. ITA NO.20/AHD/2010 (AY: 2004-05) SMT. BHAVNABEN YOGESHBHAI SHAH VS ITO, W-7(4), AHME DABAD 6 6. THE LEARNED DR RELIED ON THE ORDERS OF THE AUTH ORITIES BELOW AND SUBMITTED THAT THE DECISIONS RELIED UPON BY THE ASS ESSEE HAVE NO RELEVANCE WITH THE ISSUE INVOLVED IN THE PRESENT CA SE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD OBTAINED LOAN FOR A SHORT PER IOD FOR PURCHASE OF SHARES WHICH ESTABLISHED THE INTENTION OF THE ASSES SEE TO TRADE IN SHARES AND THEREFORE, PRAYED THAT THE ORDERS OF THE LEARNE D CIT(A) MAY BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD INCLUDING THE PAPER BOOK SUBMIT TED BY THE ASSESSEE RUNNING FROM 1 TO 258 PAGES AND DECISIONS OF VARIOU S HIGHER JUDICIARIES RUNNING FROM 1 TO 95 PAGES. FROM THE FACTS OF THE CASE IT IS APPARENT THAT THE ASSESSEE WAS CONSISTENTLY PURCHASING AND SELLIN G SHARES. THE FREQUENCY OF SUCH PURCHASES AND SALES ARE ALSO OF S HORT DURATION. SHARES OF THE SAME COMPANIES WERE PURCHASED DURING DIFFERE NT DATES AND SIMILARLY THE SAME WERE TRADED ON DIFFERENT DATES. THUS, THE PURCHASE AND TRADING ACTIVITIES OF THE ASSESSEE WAS OF REPEATING NATURE. FURTHER, AS POINTED OUT BY THE LEARNED DR THE ASSESSEE HAD BORR OWED FUNDS FROM RELATIVES FOR THE YEAR ENDED 31 ST MARCH, 2005 FOR AN AMOUNT OF RS.26,00,707/-, WHICH WAS UTILIZED FOR PURCHASE OF SHARES THOUGH DURING THE SUBSEQUENT YEAR IT WAS RETURNED. THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT CITED BY THE ASSESSEE HAS HEAVILY RELIED ON THE DECISION OF THE CASE CIT VS REWASHANKER A. KOTHARI (2006) 283 ITR 338 (GUJ.) WHEREIN CERTAIN TESTS WERE LAID DOWN TO DETE RMINE WHETHER IN SIMILAR CIRCUMSTANCES THE ACTIVITY COULD BE HELD AS BUSINES S ACTIVITY AND THE SAME IS REPRODUCED HEREUNDER FOR REFERENCE: [A] THE FIRST TEST IS WHETHER THE INITIAL ACQUISIT ION OF THE SUBJECT MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEA LING IN THE ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSA CTION, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACT ER OF A ITA NO.20/AHD/2010 (AY: 2004-05) SMT. BHAVNABEN YOGESHBHAI SHAH VS ITO, W-7(4), AHME DABAD 7 COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. [B] THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY . [C] THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT MATTER OF TRANSACTI ON DURING THE TIME THE ASSET WAS WITH THE ASSESSEE. HAS IT BEEN TREATE D AS STOCK-IN- TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS INQUIRY, THOUGH RELEVA NT, IS NOT CONCLUSIVE. [D] THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSE LF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTM ENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEE DING ASSESSMENT ASSESSMENTS. THIS FACTOR, THOUGH NOT CON CLUSIVE, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDER ED IN ABSENCE OF ANY SATISFACTORY EXPLANATION. [E] THE FIFTH TEST, NORMALLY APPLIED IN CASES OF PA RTNERSHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP O R THE MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTH ORIZES SUCH AN ACTIVITY. [F] THE LAST BUT NOT THE LEAST, RATHER THE MOST IMP ORTANT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITU DE OF THE TRANSACTION, BEARING REASONABLE PROPORTION TO THE S TRENGTH OF HOLDING, THEN AN INTERFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. 8. ON VERIFYING THE FACTS OF THE CASE, WE ARE OF TH E OPINION THAT THE TESTS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE REFERRED TO HEREIN ABOVE DO NOT SUPPORT THE STAND OF THE ASSESS EE, FURTHER WE ARE OF THE HUMBLE VIEW THAT THE VARIOUS DECISIONS RELIED U PON BY THE ASSESSEE DO NOT SUPPORT HER CLAIM. THE ASSESSEE HAS ALSO NOT BR OUGHT OUT ANY MATERIALS TO SUBSTANTIATE THAT THE SHARES WERE PURC HASED WITH THE INTENTION ITA NO.20/AHD/2010 (AY: 2004-05) SMT. BHAVNABEN YOGESHBHAI SHAH VS ITO, W-7(4), AHME DABAD 8 FOR INVESTMENT. FURTHER FROM THE FACTS OF THE CASE IT IS EVIDENT THAT THE ASSESSEE HABITUALLY PURCHASED AND SOLD SHARES AND O FTEN OF THE SAME COMPANIES DURING A SHORT PERIOD OF TIME WHICH CLEAR LY ESTABLISHES THAT THE TRANSACTIONS ARE THE NATURE OF BUSINESS. WE FULLY S UBSCRIBED THE VIEW OF THE LEARNED AO AND THE LEARNED CIT(A) ON THIS ISSUE AND THEREFORE WE HEREBY UPHOLD THE DECISION OF THE LEARNED CIT(A). 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07-12-2012. SD/- SD/- (G. C. GUPTA) VICE PRESIDENT (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA DEKA / DEKA / DEKA / DEKA / COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 29-11-12 - DIRECT ON COMPUT ER 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 03-12-2012/06-12-12 OTHER MEMBER : 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./ P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: