Shri Amit V.Mehta, Surat V. The ACIT.,Circle-6, Surat

ITA 2045/AHD/2008

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9436 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-01-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 29-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Capital asset; Business income; Wrong claim; Sham transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2044 & 2045/AHD/2008 (ASSESSMENT YEAR: 2005-06) DHIREM V. MEHTA 6/1247, BHUT SHERI, MAHIDHARPURA, SURAT V/S ACIT,CIRCLE-6, SURAT (APPELLANT) (RESPONDENT) ITA. NO: 62 & 63/AHD/2010 (ASSESSMENT YEAR: 2006-07) DHIREM V. MEHTA 6/1247, BHUT SHERI, MAHIDHARPURA, SURAT AMIT VANUBHAI MEHTA MEHTA 6/1247, BHUT SHERI, MAHIDHARPURA, SURAT V/S V/S ACIT,CIRCLE-6, SURAT ACIT,CIRCLE-6, SURAT (APPELLANT) (RESPONDENT) ITA. NO: 3309 & 3310/AHD/2011 (ASSESSMENT YEAR: 2008-09) DHIREM V. MEHTA 6/1247, BHUT SHERI, MAHIDHARPURA, SURAT AMIT VANUBHAI MEHTA V/S ACIT,CIRCLE-6, SURAT ITA NOS.2044 & 2045/AHD/2008 & ORS. . A.YS. 2005-0 6, 2006-07 & 2008-09 2 MEHTA 6/1247, BHUT SHERI, MAHIDHARPURA, SURAT V/S ACIT, CIRCLE-6, SURAT (APPELLANT) (RESPONDENT) PAN: ABJPM9269R APPELLANT BY : SHRI M.K. PATEL, AR RESPONDENT BY : SHRI DHARMVIR D. YADAV, SR. D.R. ( )/ ORDER DATE OF HEARING : 11 -01-201 7 DATE OF PRONOUNCEMENT : 13 -01-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THE CAPTIONED APPEALS BY THE ASSESSEE INVOLVE IDENT ICAL FACTS AND ISSUES; THEREFORE, ALL THESE APPEALS WERE HEARD TOGETHER AN D ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. REPRESENTATIVES OF BOTH SIDES AGREED THAT THE FACTS OF ITA NO. 2044/AHD/2008 MAY BE CONSIDERED FOR DISPOSING OF TH E CAPTIONED APPEALS. ON SUCH CONCESSION, WE HEARD THE SUBMISSIONS MADE B Y THE REPRESENTATIVES OF BOTH SIDES AT LENGTH. 3. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW AND HAVE CAREFULLY GONE THROUGH THE RELEVANT DOCUMENTARY EVI DENCES BROUGHT ON ITA NOS.2044 & 2045/AHD/2008 & ORS. . A.YS. 2005-0 6, 2006-07 & 2008-09 3 RECORD IN THE FORM OF A PAPER BOOK IN THE LIGHT OF RULE 18(6) OF THE ITAT RULES. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON THE SALE OF SHARES. CONSIDERING THE NUMBER OF TRANSACTIONS, FREQUENCY THEREOF AND THE VOLUME, THE A.O. WAS OF T HE FIRM BELIEF THAT THE ASSESSEE WAS IN FACT TRADING IN SHARES. THE A.O. I SSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE CAPITAL GAINS BE NOT TREATED AS BUSINESS INCOME OF THE ASSESSEE. 5. ASSESSEE FILED A DETAILED REPLY JUSTIFYING ITS CLAI M OF CAPITAL GAINS. IT WAS EXPLAINED THAT THE ASSESSEE IS MAINTAINING TWO PORT FOLIOS. THE ASSESSEE DECLARED BUSINESS INCOME FROM FUTURE AND OPTION TRA NSACTIONS AND CAPITAL GAINS FROM THE SHARES HELD AS INVESTMENTS. THE DETA ILED SUBMISSIONS OF THE ASSESSEE COULD NOT IMPRESS THE ASSESSING OFFICER WH O WAS OF THE FIRM BELIEF THAT THE ASSESSEE WAS IN FACT TRADING IN SHARES. TA KING A LEAF OUT OF THE CBDT CIRCULAR, THE A.O. CONCLUDED BY TREATING THE CAPITA L GAINS RETURNED BY THE ASSESSEE AS BUSINESS INCOME OF THE ASSESSEE. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. PER CONTRA, THE LD. D .R. STRONGLY SUPPORTED THE ASSESSMENT ORDER. ITA NOS.2044 & 2045/AHD/2008 & ORS. . A.YS. 2005-0 6, 2006-07 & 2008-09 4 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE DISPUTE IS REGARDING THE NATURE OF INCOM E ON SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHETHER THE I NCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE T REATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND T HERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD 'INVESTMENT'. THESE INVESTMEN T SHARES HAVE BEEN VALUED AT COST. THE HON'BLE SUPREME COURT IN THE CA SE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHI CH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2 007 DT. 15.6.2007, HAS OBSERVED THAT: '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 OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTA NCES, 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 A ND THOSE WHICH ARE HELD BY WAY OF INVESTMENT' 9. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONTROVER SIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.2016 AND THE SAME READS AS UNDER:- SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS IN ORDER TO REDUC E LITIGATION - REG.- SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT , 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN- TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTI ONS. AS REGARDS SHARES AND ITA NOS.2044 & 2045/AHD/2008 & ORS. . A.YS. 2005-0 6, 2006-07 & 2008-09 5 OTHER SECURITIES, THE SAME CAN BE HELD EITHER AS CA PITAL ASSETS OR STOCK-IN- TRADE/TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER T HE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN-TRADE, IS ESSENTIALLY A F ACT-SPECIFIC DETERMINATION AND HAS LED TO A LOT OF UNCERTAINTY AND LITIGATION IN THE P AST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK-IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT') HAS ALSO, TH ROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIRCULAR NO. 4 OF 2007 DA TED JUNE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN T HIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINE SS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCER TAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER IN STRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED F ROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN O R BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOWING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK- IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TR EATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSF ER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOW EVER, THIS STAND, ONCE TAKEN BY ITA NOS.2044 & 2045/AHD/2008 & ORS. . A.YS. 2005-0 6, 2006-07 & 2008-09 6 THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CO NTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINE NESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINING CO NSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE T O APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. 10. CONSIDERING THE FACTS IN HAND, IN THE LIGHT OF THE AFOREMENTIONED CIRCULAR OF THE BOARD AND THE CHART EXHIBITED HEREINABOVE, IN O UR CONSIDERED OPINION, THE INTENTION OF THE ASSESSEE AT THE TIME OF THE PU RCHASE OF SHARES IS PARAMOUNT. IF THE ASSESSEE HAS CLEAR INTENTION OF B EING AN INVESTOR AND SHOWING THE SHARES AS INVESTMENT, WE DO NOT FIND AN Y REASON TO DISTURB THE INTENTION OF THE ASSESSEE. THE ASSESSEE UNDER CONSI DERATION IS INVESTOR AND, THEREFORE, ANY GAIN ARISING OUT THE TRANSFER OF SHA RES SHOULD BE TREATED AS CAPITAL GAINS BE IT SHORT TERM OR LONG TERM. ITA NOS.2044 & 2045/AHD/2008 & ORS. . A.YS. 2005-0 6, 2006-07 & 2008-09 7 11. IN THE LIGHT OF THE AFOREMENTIONED DISCUSSION QUA T HE FACTUAL MATRIX OF THE CASE IN HAND, WE HAVE NO HESITATION IN SETTING ASID E THE FINDINGS OF THE LD. CIT(A). APPEALS FILED BY THE ASSESSEE ARE ACCORDING LY ALLOWED. 12. THE A.O. IS DIRECTED TO TREAT THE CAPITAL GAINS AS SUCH RETURNED BY THE ASSESSEE. 13. AS MENTIONED ELSEWHERE, IN ALL THE CAPTIONED APPEAL S THE FACTS IN ISSUES ARE IDENTICAL AS AGREED BY THE RIVAL PARTIES. ALL THE A PPEALS ARE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ORDER PRONOUNCED IN OPEN COURT ON 13 - 01- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 13 /01/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD