SANGAM FISCAL & HOLDING P. LTD, MUMBAI V. DCIT 9(3), MUMBAI

ITA 2011/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100880 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 15-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH ( JM ) , AND B.R.BASKARAN (AM) , . . , ./ I.T .A. NO. 201 1 /MUM/ 2 011 ( / ASSESSMENT YEAR : 2006 - 07 ) M/S SANGAM FISCAL AND HOLDING PVT LTD., 303, THE CHAMBER, NEAR SWAN CITY CLUB, OF HANUMAN MANDIR, W . E . HIGHWAY, VILE PARLE (E), MUMBAI - 400057 / VS. DY. COMMISSIONER OF INCOME TAX - RANGE 9(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN : AAECS D 7729P / APPELLANT BY SHRI RAJIV KHANDELWAL/ HETAL PANCHAL / RSPON DENT BY SHRI JITENDRA KUMAR / DATE OF HEARING : 9.7. 201 5 / DATE OF PRONOUNCEMENT: 26. 8 . 201 5 / O R D E R PER B.R. BASKARAN (AM) THE ASSESSEE HAS FILED THIS APPEAL CHALLENG ING THE ORDER DATED 13 - 05 - 2010 PASSED BY LD CIT(A) - 20, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2006 - 07. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN UPHOLDING THAT THE ORDER OF THE ASSESSING OFFICER IN ASSESSING THE SHORT TERM CAPITAL GA IN ARISING ON SALE OF SHARES AS BUSINESS INCOME. 2. THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DATA PROCESSING DURING THE YEAR UNDER CONSIDERATION. BESIDES THE INCOME FROM BUSINESS, THE ASSESSEE ALSO DECLARED I NCOME OF RS.32,86,792/ - UNDER THE HEAD SHORT TERM CAPITAL GAIN ARISING ON SALE OF I.T.A. NO . 2011/M/2011 2 SHARES. IT ALSO DECLARED INCOME OF RS.2,04,790/ - AS SPECULATION INCOME. THE AO ASSESSED THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE AND THE LD CIT(A) ALSO CONFIRMED THE SAME. HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE QUESTION AS TO WHETHER THE PROFITS AND GAINS ARISING ON SALE OF SHARES IS ASSESSABLE AS BUSINESS INCOME OR CAPITAL GAIN WOULD DEPEND UPON THE FACTS PREVAILING IN EACH CASE. IT IS WELL SETTLED THAT THERE CANNOT BE ANY HARD AND FAST RULE IN THIS REGARD. HOWEVER, THE COURTS AS WELL AS THE CBDT HAVE PRESCRIBED VARIOUS CRITERIA, WHICH CAN BE CONSIDERED TO DECIDE ABOUT THE NAT URE OF TRANSACTIONS. ONE OF THE MAIN CRITERIA IS THE INTENTION OF THE PARTY AT THE TIME OF PURCHASING SHARES. 4. WE SHALL EXAMINE THE FACTS PREVAILING IN THE INSTANT CASE. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSESSING OFFICER HAS CONSIDE RED FOLLOWING CRITERIA IN ORDER TO HOLD THAT THE AINS ARISING ON SALE OF SHARES IS ASSESSABLE AS BUSINESS INCOME: - (A) THE RATIO OF SALES TO PURCHASE WAS 1.06. (B) THE ASSESSEE IS POSSESSING BORROWED FUNDS TO THE EXTENT OF RS.1.47 CRORES. (C) T HE AVERAGE PERIOD OF HOLDING WAS FEW DAYS OR MONTHS. THUS, WE NOTICE THAT THE ASSESSING OFFICER HAS APPLIED THE ABOVE SAID CRITERIA ONLY TO DECIDE THE ISSUE AGAINST THE ASSESSEE. 5. THE LD CIT(A) HAS CONSIDERED FOLLOWING POINTS IN ORDER TO CONFIRM TH E ORDER OF THE ASSESSING OFFICER: - (A) THE ASSESSEE HAS NOT SHOWN THAT THE SHARES HELD AS INVESTMENT WERE PHYSICALLY DELIVERED BEFORE BEING SOLD. (B) THE ASSESSEE HAS GOT HUGE BORROWINGS. (C) THERE IS MULTIPLICITY OF TRANSACTIONS WITH SUBSTANTIAL VOLU ME. I.T.A. NO . 2011/M/2011 3 THE ASSESSEE HAS STRONGLY DISPUTED THE OBSERVATION MADE BY THE LD CIT(A) THAT THE ASSESSEE HAS NOT TAKEN PHYSICAL DELIVERY OF SHARES. 6. THUS, WE NOTICE THAT BOTH THE TAX AUTHORITIES HAVE NOT CONSIDERED THE SHARE TRANSACTIONS IN PROPER PERSPECTIVE . THE LD A.R SUBMITTED THE FOLLOWING POINTS: - (A) THE MAIN BUSINESS OF THE ASSESSEE IS DATA PROCESSING. (B) THE ASSESSEE HAS ACCOUNTED THE PURCHASE OF SHARES AS INVESTMENT IN ITS BOOKS. (C) THE BORROWINGS ARE INTEREST FREE BORROWINGS TAKEN FROM SISTER C ONCERNS. (D) THE ASSESSEE HAD DECLARED CAPITAL GAINS ON SALE OF SHARES IN AY 2005 - 06 AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT. (E) THE AVERAGE HOLDING PERIOD OF MAJORITY OF THE SHARES W AS MORE THAN 30 DAYS. (F) THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASING OF SHARES WAS TO HOLD THEM AS INVESTMENT ONLY. THE ASSESSEE HAS DECIDED TO SELL THE SHARES WHENEVER THERE WAS ABNORMAL MOVEMENT IN THE PRICES OF SHARES WITH THE INTENT ION EITHER TO REDUCE THE LOSS OR TO REALIZE GAIN ON ACHIEVING EXPECTED PROFIT. (G) THE ASSESSEE HAS TAKEN DELIVERY OF SHARES AND HENCE THE LD CIT(A) HAS NOT PROPERLY APPRECIATED THE FACTS. (H) THE REPETITION OF TRANSACTIONS IS MINIMAL. THE LD A.R MAINL Y PLACED RELIANCE ON THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIG (ITA NO.1121 OF 2009 DATED 06.01 - 2010) IN SUPPORT OF HIS VARIOUS CONTENTIONS. HE ALSO RELIED UPON VARIOUS CASE LAWS GIVEN IN THE PAPER BOOK. I.T.A. NO . 2011/M/2011 4 7. ON THE CONTRARY, THE LD D.R PLACED STRONG RELIANCE ON THE DECISION RENDERED BY LD CIT(A). 8. THE ASSESSEE HAS FURNISHED THE DETAILS OF SHARES DEALT WITH BY IT DURING THE YEAR UNDER CONSIDERATION. WE NOTICE THAT THE ASSESSEE HAS DEALT IN 49 SCRIPS DU RING THIS YEAR. AS SUBMITTED BY THE ASSESSEE, THE REPETITIVE TRANSACTIONS ARE VERY MINIMAL. WE HAVE EARLIER NOTICED THAT THE LD CIT(A) HAS TAKEN THE VIEW THAT THE ASSESSEE HAS NOT TAKEN PHYSICAL DELIVERY OF SHARES. HOWEVER, THE ANALYSIS OF DETAILS OF S HARE TRANSACTIONS WOULD SHOW THAT THE MAJORITY OF SHARES HAVE BEEN HELD FOR MORE THAN 30 DAYS. IT IS IN THE COMMON KNOWLEDGE OF EVERYONE THAT THE ASSESSEE CANNOT HOLD THE SHARES FOR A CERTAIN PERIOD WITHOUT TAKING DELIVERY OF THE SAME. HENCE, WE AGREE WI TH THE CONTENTIONS OF THE LD A.R THAT THE LD CIT(A) HAS APPROACHED THE ISSUE UNDER WRONG NOTIONS. 9. WE HAVE ALSO EXAMINED THE FINANCIAL STATEMENTS FURNISHED IN THE PAPER BOOK. WE NOTICE THAT THE ASSESSEE HAS TAKEN INTEREST FREE UNSECURED LOANS AN D ACCORDING TO THE ASSESSEE, THEY HAVE BEEN TAKEN FROM ASSOCIATE CONCERNS ONLY. HENCE THERE IS NO INTEREST BURDEN UPON THE ASSESSEE. THE ASSESSEE HAS SHOWN THE SHARES AS ITS INVESTMENT IN ITS BOOKS OF ACCOUNT. THE ASSESSEE HAS ALSO FURNISHED A COPY OF A SSESSMENT ORDER FOR AY 2005 - 06 U/S 143(3) OF THE ACT. IT IS NOTICED THAT THE CAPITAL GAIN ARISING ON SALE OF SHARES HAS BEEN ACCEPTED BY THE AO IN THAT YEAR. WE FURTHER NOTICE THAT THE ASSESSEE HAS ALSO DECLARED SPECULATION PROFIT IN SHARES, MEANING TH EREBY, THE ASSESSEE SEGREGATES ITS ACTIVITY OF TRADING AND INVESTMENTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS ENGAGED IN DATA PROCESSING ACTIVITIES, MEANING THEREBY, TRADING IN SHARES WAS NOT THE MAIN ACTIVITY OF THE ASSESSEE. 10. IN V IEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE ASSESSEE WAS JUSTIFIED IN CLAIMING THE GAINS ARISING ON SALE OF SHARES AS I.T.A. NO . 2011/M/2011 5 SHORT TERM CAPITAL GAINS. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE ASSESSING OFFICER TO ASSESS T HE GAINS ARISING ON SALE OF SHARES UNDER THE HEAD CAPITAL GAINS ONLY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 26TH AUGUST , 2015. 26TH AUGUST , 2015 SD SD ( / JOGINDER SINGH ) ( . . , / B.R. BASKARAN ) / JU DICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 26TH AUGUST , 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI