The ACIT, Circle-3, Surat V. M/s. Vowel Securities, Surat

ITA 2078/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9186 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Business income; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NO. 2078/AHD/2014 (ASSESSMENT YEAR: 2010-2011) ACIT, CIRCLE-3, SURAT APPELLANT VS. M/S. VOWEL SECURITIES, B-502, NOVA APEX APT., B/H. SNEH SANKOOL HALL, ANAND MAHAL ROAD, ADAJAN, SURAT RESPONDENT PAN: AADFV8808Q /BY REVENUE : SHRI PRASOON KABRA, SR. D.R. /BY ASSESSEE : SHRI P. M. MEHTA, A.R. /DATE OF HEARING : 10.02.2017 /DATE OF PRONOUNCEMENT : 15.02.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2010-11 A RISES AGAINST THE CIT(A)-IV, SURATS ORDER DATED 11.04.2014 PASSED IN APPEAL NO. CAS- IV/45/13-14, IN PROCEEDINGS U/S.143(3) OF THE INCOM E TAX ACT, 1961; IN SHORT THE ACT. 2. THE REVENUES SOLE SUBSTANTIVE GROUND PLEADS THA T THE LD. CIT(A) HAS ERRED IN TREATING ASSESSEES INCOME FROM SALE OF SH ARES AND MUTUAL FUND UNITS ITA NO.2078/AHD/2014 (ACIT VS. M/S. VOWEL SECURITIE S) A.Y. 2010-11 - 2 - OF RS.91,09,727/- AS CAPITAL GAINS INSTEAD OF BUSIN ESS INCOME AS ADOPTED BY THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 21. 03.2013. WE NOTICE AT THIS STAGE THAT THE CIT(A)S FINDINGS ELABORATELY D ISCUSS RELEVANT FACTS, ASSESSEES CLARIFICATION AND ASSESSING OFFICERS OP INION AS FOLLOWS: 3. GROUND NO.2 IS AGAINST THE A.O. TREATING SHORT TERM CAPITAL GAIN ON SALE OF SHARES AND UNITS OF MUTUAL FUNDS AMOUNTING TO RS.91 .09,727/- AS BUSINESS INCOME. THE ASSESSEE HAD SHOWN COMMODITY DERIVATIVE LOSS OF RS.16,97,138/- AND PROFITS FROM DERIVATIVE OPERATIONS OF RS.3,64,16,434/- AS BUSINESS INCOME. IT HAD CLAIMED SHORT TERM CAPITAL GAIN OF RS.91,09,727/- ON SALE O F SHARES/MUTUAL FUND UNITS. THE A.O. OBSERVED THAT THE ASSESSEE HAD ENTERED INTO FR EQUENT TRANSACTIONS OF PURCHASE/SALE OF SHARES AND MUTUAL FUND UNITS AND T HAT THE MAGNITUDE OF TRANSACTIONS WAS LARGE. IN RESPONSE TO THE SHOW CA USE ISSUED IT WAS SUBMITTED BY THE APPELLANT THAT WHETHER PROFIT ON SALE OF SHARES /MUTUAL: FUNDS WERE REQUIRED TO BE TAXED AS BUSINESS INCOME OR CAPITAL GAIN WAS REQ UIRED TO BE DECIDED CONSIDERING THE TOTALITY OF FACTS AND NOT ONE SINGL E CRITERIA. IT WAS POINTED OUT THAT THESE INCLUDED INTENTION OF THE PARTNERS AT THE TIM E OF FORMATION OF THE PARTNERSHIP, TREATMENT IN BOOKS OF ACCOUNTS, GUIDELINE PRESCRIBE D BY THE CBDT DECISIONS OF THE COURT, ETC. IT WAS SUBMITTED THAT THE PARTNERSHIP D EED SPECIFICALLY PROHIBITED TRADING IN EQUITY SHARE AND UNITS OF MUTUAL FUNDS. IT WAS ALSO SUBMITTED THAT THE ACTIVITIES .OF THE FIRM COULD.BE SEGREGATED INTO BU SINESS DIVISION AND INVESTMENT DIVISION. SHARES/MUTUAL FUND UNITS WERE REFLECTED A S INVESTMENT IN THE BOOKS. THERE WAS LONG TERM CAPITAL LOSS ON SHARES. IT WAS ALSO S UBMITTED THAT THE BUSINESS DIVISION OF THE ASSESSEE CONSTITUTES ON AN AVERAGE OVER THE YEARS NEARLY 95% OF THE GROSS VOLUMES OF THE TOTAL BUSINESS AND THE INVESTM ENT DIVISION HARDLY CONTRIBUTES 5% OF THE GROSS TRANSACTIONS: IT WAS ARGUED THAT TH IS JUSTIFIES THE CONTENTION THAT SHARES WERE ACQUIRED BY THE ASSESSEE FOR INVESTMENT AND NOT TRADING PURPOSES. IT WAS SUBMITTED THAT GUIDELINES WERE PRESCRIBED BY T HE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF REVA SHANKER KOTHARI, 283 ITR 338 WHICH COMPARE FAVOURABLY WITH THE FACTS OF THE ASSESSEE. IT WAS A LSO SUBMITTED THAT THE ASSESSEE'S CASE COMPARES FAVOURABLY WITH THE INSTRUCTIONS DATE D 01.06.2006 ISSUED BY THE CBDT IN THIS REGARD. THE ASSESSEE ALSO RELIED ON SE VERAL DECISIONS INCLUDING NSS INVESTMENTS PVT. LTD. (MAD) 277 ITR 149, GOPAL PU ROHIT 29 SOT 117 (MUM), ESS JAY ENTERPRISES PVT. LTD. 173 TAXMANN 1. IT WAS AL SO SUBMITTED THAT THE CIT(A) IN THEIR OWN CASE FOR EARLIER YEARS HAVE DECIDED THE A PPEAL ON SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. THE SAID EXPLANATIONS WERE NOT ACC EPTED BY THE A.O. AS DIVIDEND TO PROFIT RATIO WAS 1:33; TOTAL 35 TRANSACTIONS OF TRA DING OF SHARES/UNITS OF MUTUAL FUNDS IN 19 SCRIPTS/PLANS HAD BEEN ENTERED DURING T HE YEAR: THE MAGNITUDE WAS LARGE AND SALE/PURCHASES WERE IN LACS OF RUPEES; BO OKS OF ACCOUNTS HAD BEEN AUDITED U/S.44AB; IN 80% OF SCRIPTS HOLDING PERIOD WAS LESS THAN 90 DAYS SHOWING INTENTION OF PROFITS; INFRASTRUCTURE EMPLOYED (ADMI NISTRATIVE EXPENSE OF RS.26.30 LAKHS APPROX.) SHOWS BUSINESS TRANSACTIONS. AGGRIEV ED, THE ASSESSEE IS IN APPEAL. 3.2 DURING THE COURSE OF APPEAL PROCEEDINGS THE APP ELLANT MADE SIMILAR ARGUMENTS AS IN ASSESSMENT. IT ALSO RELIED ON THE D ETAILED STATEMENT OF FACTS FILED ALONG WITH THE APPEAL. FINANCIAL STATEMENT, COMPUTA TION AND DETAIL OF CAPITAL GAINS WERE SUBMITTED. IT WAS SUBMITTED THAT UNDER S IMILAR CIRCUMSTANCES THE ASSESSEE'S APPEAL ON SIMILAR ISSUE HAD BEEN ALLOWED FOR AY 2009-10 AND AY 2007- ITA NO.2078/AHD/2014 (ACIT VS. M/S. VOWEL SECURITIE S) A.Y. 2010-11 - 3 - 08 BY THE CIT(A)-II, AHMEDABAD VIDE THEIR ORDERS DA TED 17.08.2011 AND.01.07.2011. RESPECTIVELY. 3.3 I HAVE GONE THROUGH THE FACTS OF THE CASE, SUBM ISSION OF THE APPELLANT AND THE ASSESSMENT ORDER. THE FACTS OF THE CURRENT YEAR ARE SIMILAR TO AY 2007-08 AND AY 2009-10. IN THE APPELLATE ORDER FOR AY 2007-08 A ND AY 2009-10 IT WAS HELD THAT GAINS FROM SALE OF SHARES/MUTUAL FUNDS HAVE TO BE ASSESSED AS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. IT WAS OBSERV ED BY THE APPELLATE AUTHORITY THAT EVEN IN YEARS, IN WHICH THE APPELLANT HAS INCU RRED LOSS IT HAD OFFERED THE INCOME AS CAPITAL LOSS AND NOT BUSINESS LOSS WHICH SHOWS THAT THE INTENTION OF THE APPELLANT WAS INVESTMENT IN SHARES AND NOT TRADING. FOR THE REASON THAT THE FACTS IN THE CURRENT YEAR ARE SIMILAR TO FACTS IN AY 2007-08 AND AY 2009-10, FOLLOWING THE DETAILED REASONS IN THE APPELLATE ORDER FOR AY 2007 -08, THE A.O. IS DIRECTED TO TREAT THE INCOME FROM SALE OF SHARES AS SHORT TERM CAPITA L GAIN. THIS GROUND OF APPEAL IS ALLOWED. 3. HEARD BOTH SIDES VEHEMENTLY REITERATING THEIR RE SPECTIVE STANDS. IT EMERGES THAT THE CIT(A) HAS FOLLOWED HIS FINDINGS I N PRECEDING ASSESSMENT YEAR ON THE VERY ISSUE IN ASSESSEES CASE ITSELF. LEARNED DEPARTMENTAL REPRESENTATIVE IS VERY FAIR IN NOT DRAWING ANY DIST INCTION ON THE RELEVANT FACTS INVOLVED IN THE IMPUGNED ASSESSMENT YEAR VIS--VIS THOSE IN THE PRECEDING ASSESSMENT YEAR. SHRI MEHTA PRODUCES BEFORE US COP Y OF THIS TRIBUNALS ORDER IN REVENUES APPEALS IT(SS)A NOS. 529 & 530/AHD/201 1 IN ASSESSMENT YEARS 2006-07 AND 2007-08 AS RELIED UPON IN THE LOW ER APPELLATE ORDER UPHOLDING THE SAID CIT(A)S FINDINGS AS FOLLOWS: 9. THERE IS FURTHER NO ISSUE THAT THE ASSESSEE FIR M HAS BEEN SET UP VIDE ITS PARTNERSHIP DEED AT PAGES 49 TO 50 OF THE PAPER BOO K. THIS DEED CONTAINS A SPECIFIC CLAUSE BARRING IT FROM TRADING IN EQUITY SHARES AND UNITS ISSUED BY MUTUAL FUNDS. THE REVENUE DOES NOT DISPUTE IN THE COURSE OF HEARI NG BEFORE US THAT THE ASSESSEE HAS VALUED ITS INVESTMENTS AT COST PRICE, MAINTAIN SEPARATE PORTFOLIO FOR THE IMPUGNED INVESTMENTS AS FOLLOWED BY THE FACT THAT I T HAS TRANSACTED ON 92 DAYS AND 59 DAYS FOR SALE AND PURCHASE OF SHARES. 10. WE HAVE ALREADY NARRATED THAT THE RELEVANT HOLD ING PERIOD OF ASSESSEE'S INVESTMENTS IN ANY CASE MORE THAN 30 DAYS ON MOST O F THE OCCASIONS. THE ASSESSING OFFICER NOWHERE DOUBTS ASSESSEE'S SPECIFIC PLEA THA T THERE HAS BEEN NO USAGE OF BORROWED FUNDS. WE FURTHER FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S GROUP CONCERN CASES IT(SS)A NO 531 AND 5 32/AHD/2011 DECIDED ON 22- 03-2016 DCIT VS. M/S TEJAS SECURITIES HAS ALREADY C ONSIDERED IDENTICAL FACTS TO DECIDE THE VERY ISSUE AGAINST THE REVENUE. LEANED D EPARTMENTAL REPRESENTATIVE FAILS TO POINT ANY DISTINCTION ON FACTS OR LAW. WE FURTHER NOTICE THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN TAX APPEAL 77 TO 81/20 10 CIT VS. VAIBHAV SHAH DECIDED ON 27-06-2012 HOLDS THIS ISSUE AS PURELY A FACTUAL ONE TO BE ADJUDICATED IN ITA NO.2078/AHD/2014 (ACIT VS. M/S. VOWEL SECURITIE S) A.Y. 2010-11 - 4 - VIEW OF VARIOUS RELEVANT PARAMETERS I.E. NATURE AND INTENTION OF AN ASSESSEE AT THE TIME OF INVESTMENT, ACCOUNTS TREATMENT, FREQUENCY A ND MAGNITUDE OF TRANSACTIONS, SOURCE OF FUNDS, HOLDING PERIOD, TO NAME A FEW. WE MAKE IT CLEAR THAT THE REVENUE'S ARGUMENTS DO NOT SATISFY EVEN A SINGLE PARAMETER IN ORDER TO CONCLUDE THAT ASSESSEE'S SHORT TERM CAPITAL GAINS ARE IN FACT ITS BUSINESS INCOME. WE ACCORDINGLY FIND NO REASON TO INTERFERE IN THE LOWER APPELLATE FINDINGS ON CONSISTENCY PRINCIPLE AS WELL AS MERITS. THE REVENUE'S SOLE SUBSTANTIVE G ROUND FAILS. SO IS ITS APPEAL ITA 529/AHD/2011. WE ACCORDINGLY FIND NO REASON TO ADOPT A DIFFERENT APPROACH IN THE IMPUGNED ASSESSMENT YEAR SINCE THERE IS NO DISTINCT ION ON FACTS BEING POINTED OUT AT REVENUES BEHEST. THE CIT(A)S ORDER UNDER CHALLENGE IS ACCORDINGLY UPHELD. 4. THIS REVENUES APPEAL IS DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 15 TH DAY OF FEBRUARY, 2017.] SD/- SD/- ( N. K. BILLAIYA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 15/02/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0