The ITO, Ward-1(2), Ahmedabad V. M/s. Bar Magnet Investment Pvt. Ltd., Ahmedabad

ITA 207/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9241 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Wrong claim; Sham transactions; Set aside; Capital Gains
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 201; 207; 73; 22

Judgement Text

ITA NO. 207 / AHD/201 4 ASSESSMENT Y EAR: 20 09 - 10 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM] ITA NO. 207 /AHD/201 4 ASSESSMENT Y EAR : 20 09 - 10 INCOME TAX OFFICER, WARD 1 (2), AHMEDABAD. .... ........... APPELLANT VS. BAR MAGNET INVESTMENT PVT. LTD., .... ............ RESPONDENT MANGALAM, B/H. APAN G MANAV MANDAL, DR. V.S. ROAD, AHMEDABAD. [PAN: A ABCB 9105 E ] APPEARANCES BY JAMES KURIAN FOR THE APPELLANT TUSHAR P. HEMANI FOR THE RE SPONDENT H EARING CONCLUDED ON: 07 / 12 / 20 1 6 ORDER PRONOUNCED ON : 09 / 0 2 / 20 1 7 O R D E R PER PRAMOD KUMAR , AM: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF LEARNED CIT(A) S ORDER DATED 8 TH NOVEMBER, 2013, FOR THE ASSESSM ENT YEA R 2009 - 10, ON THE FOLLOWING GROUNDS : - 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN TREATING THE INCOME/LOSS ON SALE OF SHARES HELD FOR MORE THAN 30 DAYS AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. 2. THE CIT(A) HAS APPRECIATED THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WHEREBY IT WAS EVIDENT THAT ACTIVITY OF BUYING AND SELLING OF SHARES WAS A BUSINESS ACTIVITY IN THIS CASE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE CIT(A) OUGHT TO HAVE UPHELD THE OR DER OF THE ASSESSING O FFICER TO THE EXTENT MENTIONED ITA NO. 207 / AHD/201 4 ASSESSMENT Y EAR: 20 09 - 10 PAGE 2 OF 6 ABOVE SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS RUE INCOME/BOOK PROFIT . 4. THE APPELLANT PRAYS THAT THE ORDER OF CIT( A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING O FFICER BE RES TORED TO THE ABOVE EXTENT 2. LEARNED REPRESENTATIVES AGREE THAT THE QUESTION AS TO WHETHER THE ASSESSEE SHOULD BE TREATED AS AN INVESTOR OR TRADER, IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO - ORDINATE BENCH DECISION DATED 22 ND JU L Y, 2016 IN ASSESSE E S OWN CASE FOR THE ASSESSMENT YEAS 2006 - 07 AND 2008 - 09. VIDE THE AFORESAID O R DER, THE CO - ORDINATE BENCH HAS HELD THAT THE ASSESSEE IS AN INVESTOR AND, ACCORDINGLY , GAINS ON SALE OF SHARES ARE REQUIRED TO BE TAXED AS CAPITAL GAINS, AND OBSERVED AS FOLLOW S : - 14. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE 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 INVESTMENT SHARES HA VE BEEN VALUED AT COST. THE HON'BLE SUPREME COURT IN THE CASE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THAT: 'WHETHER A PAR TICULAR 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 CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECO RDS 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' 15. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONTROVERSIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.20 16 AND THE SAME READS AS UNDER: - SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHARES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS IN ORDER TO REDUCE 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 ITA NO. 207 / AHD/201 4 ASSESSMENT Y EAR: 20 09 - 10 PAGE 3 OF 6 DOES NOT INCLUDE ANY STOCK - IN - TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AN D OTHER SECURITIES, THE SAME CAN BE HELD EITHER AS CAPITA! ASSETS OR STOCK - IN - TRADE/ TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR ST OCK - IN - TRADE, IS ESSENTIALLY A FACT - SPECIFIC DETERMINATION AND HAS LED TO A LOT OL UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFERENT 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, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIRCULAR NO. 4 OF 2007 DATED JUNE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HO WEVER, CONTINUE TO EXIST ON THE APPLICATION 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 THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRI NCIPAL 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 BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAK ES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR 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 S TOCK - IN - TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TREATED 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 TRANSFER, IF TH E 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. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABL E 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 CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL NOT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINENESS OF THE TRANSAC TION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. ITA NO. 207 / AHD/201 4 ASSESSMENT Y EAR: 20 09 - 10 PAGE 4 OF 6 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINT AINING CONSISTENCY 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 TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. 16. CONSIDER ING THE FACTS IN HAND, IN THE LIGHT OF THE AFOREMENTIONED CIRCULAR OF THE BOARD, IN OUR CONSIDERED OPINION, THE INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHASE OF SHARES IS PARAMOUNT. IF THE ASSESSEE HAS CLEAR INTENTION OF BEING AN INVESTOR AND SHOWI NG THE SHARES AS INVESTMENT, WE DO NOT FIND ANY REASON TO DISTURB THE INTENTION OF THE ASSESSEE. THE ASSESSEE UNDER CONSIDERATION IS INVESTOR AND, THEREFORE, ANY GAIN ARISING OUT THE TRANSFER OF SHARES SHOULD BE TREATED AS CAPITAL GAINS BE IT SHORT TERM OR LONG TERM. 17. WE ALSO FIND THAT THE ASSESSEE HAS NOT UTILIZED ANY BORROWED FUNDS FOR MAKING PURCHASES OF SHARES. THE AVERAGE HOLDING PERIOD IS AROUND 172 DAYS. FURTHER, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE WAS CHURNING THE SHAR ES, 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 DEALT WITH THE ISSUE AND DISCUSSED THE QUESTION: - 'A TRADER MAY ACQUIRE A COMMODITY IN WHICH HE IS DEALING, FO R, 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 AN 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 C ONTEND 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 CLEARED AND THE SALES OF WHICH HAD RESULTED IN THE PROFIT IN QUESTION HAD ALWAYS BEEN TREATED BY IT AS AN INVESTME NT. 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 QUESTION OF ONUS WHICH UNDOUBTEDLY IS INITIALLY ON THE REVENUE TO PROVE THAT A PARTICULAR ITEM OF RECEIPT IS TAXA BLE. 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 CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDE NCE 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.' 18. 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 ITA NO. 207 / AHD/201 4 ASSESSMENT Y EAR: 20 09 - 10 PAGE 5 OF 6 DETERMINING THE TRANSACTION AS ADVENTURE IN NATURE OF TRADE OR NOT. THE DISTINCTION BETWEEN THE TWO TYPES OF TRANSACTION IS NOT ALWA YS 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 REALIZING 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 ENHANCEMENT VALUE, DID NOT NECESSARILY RENDER THE INVESTMENT A TRANSACTION IN THE NATURE OF TRADE. 19. IT I S ALSO AN ADMITTED FACT THAT IN THE PRECEDING YEARS, THE SHARE TRANSACTIONS HAVE BEEN CONSIDERED UNDER THE HEAD CAPITAL GAINS. 20. CONSIDERING THE FACTS IN TOTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSED. 3. LEARNED DEPARTMENTAL R EPRESENTATIVE, HOWEVER, RELIES UPON THE STAND OF THE ASSESSING O FFICER AND SUBMITS THAT THE ACTIVITY OF BUYING AND SELLING SHARES WAS A BUSINESS ACTIVITY. ACCORDINGLY, IN HIS SUBMISSION, THE GAINS SH O ULD BE TAXED AS BUSINESS PROFITS. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW TAKEN BY THE CO - ORDINATE BENCH FOR ASSESSMENT YEAR 2006 - 07 AND 2008 - 09 . RESPECTFULLY FOLLOWING THE SAME , W E HOLD THAT THE GAIN ON SALE OF SHARES SHOULD BE TREATED AS CAPITAL GAINS. GROUND NO.1 , IN VIEW OF THESE FINDINGS , IS THUS ACADEMIC AND IS DISMISSED. GROUND NO.2 IS DISMISSED ON MERITS. 5 . IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF FEBRUARY, 2017 . SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 9 TH DAY OF FEBRUARY , 201 7 . PBN/* ITA NO. 207 / AHD/201 4 ASSESSMENT Y EAR: 20 09 - 10 PAGE 6 OF 6 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD