ACIT 19(2), MUMBAI V. PHEROZ R. MODY, MUMBAI

ITA 2084/MUM/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9755 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR PADMAPANI BORA
• Assessee Lawyers: PRADEEP SHARMA
• Keywords: Business income; Capital Gains
• Section: 143(3); 142(1); 201; 143(2); 208; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C , MUMBAI BEFORE S HRI S. RIFAUR RAHMAN (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 2084 /MUM/2018 ASSESSMENT Y EAR: 2009 - 10 THE ACIT - 19(2), ROOM NO. 207, MATRU MANDIR, MUMBAI - 400007 VS. MR. PHEROZ RUSTOM MODY, 404, DAISYLEA, PLEASNT ROAD, MALABAR HILL, NEPEAN SEA ROAD, MUMBAI - 400006 PAN: AAEPM3855D (APPELLANT) (RESPONDENT) REVENUE BY : SHRI KUMAR PADMAPANI BORA (D R) ASSESSEE BY : SHRI PRADEEP SHARMA ( A R ) DATE OF HEARING: 18 /09 /201 9 DATE OF PRONOUNCEMENT: 31/ 10 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 22.01.2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 6 (FOR SHORT THE CIT(A) , MUMBAI , FOR THE ASSESSMENT YEAR 2009 - 10 , WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED T HE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. THE ASSESSEE ENGAGED IN THE BUSINESS OF TRADING IN DERIVATIVES AND EMPLOYED WITH BOMBAY REAL ESTATE DEVELOPMENT CO. LTD. FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME OF RS. 71,61,030/ - SINCE THE CASE WAS SELECTED FOR SCR UTINY, THE AO ISSUED NOTICE U/S 143(2) AND 142(1) OF THE ACT. IN RESPONSE THEREOF, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO, FURNISHED THE DETAILS AND DISCUSSED THE CASE. THE AO AFTER HEARING THE REPRESENTATIVE OF THE ASSESSEE D ETERMINED THE TOTAL INCOME OF THE ASSESSEE AT 71,61,031/ - , HOWEVER, MADE DISALLOWANCE OF RS.56,10,337/ - CLAIMED BY THE ASSESSEE AS PMS FEES AGAINST SHORT TERM CAPITAL LOSS, MADE ADDITION OF RS. 78,783/ - BY APPLYING SECTION 94(7) 2 ITA NO. 208 4 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 OF THE ACT. THE ASSESSEE CHA LLENGED THE ASSESSMENT ORDER BEFORE THE CIT(A). THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE REVENUE IS IN APPEAL AGAINST THE FINDINGS OF THE LD. CIT(A). 3 . THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ON THE FOL LOWING EFFECTIVE GROUND S : - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ACCEPTING THE CONTENTION OF THE ASSESSEE IN TREATING THE CAPITAL GAINS/LOSS INCURRED ON SALE OF SECURITIES OF RS. 6,65,44,965/ - AS LTCG/STCG AS AGAINST BUSINESS INCOME AS HELD BY THE ASSESSING OFFICER. 2.WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS JUSTIFIED IN ALLOWING THE ASSESSEES APPEAL FOR THE SAKE OF PRINCIPAL OF CONSISTENCY AND P RINCIPLES OF JUDICIAL DISCIPLINE IN SPITE OF THE FACT THAT THE ASSESSING OFFICER HAS CLEARLY ELABORATED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS BEEN TRADING IN SHARES AND NOT ONLY INVESTING AS CAN BE OBSERVED FROM THE FACTORS SUCH AS HOLDING PERIOD O F SHARES, FREQUENCY OF TRANSACTIONS OF SHARES, MOTIVE OF THE ASSESSEE TO EARN QUICK PROFIT . 4. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE RAISED BY THE REVENUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERV OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08. THE LD. COUNSEL FURTHER SUBMITTED THAT SINCE, THE LD. CIT(A) HAS DECIDED THE IDENTICAL ISSUE IN THE PRESENT CASE BY FOLLOWING THE DECISION OF THE TRIBUNAL, THERE IS NO INFIRMITY IN THE ORDER OF THE LD CIT(A) TO INTERFERE WITH THE SAME. 5. THE LD. DR ON THE OTHER HAND , ADMITTED THAT THE ITAT HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08 , HOWEVER, SUPPORTING THE ASSESS MENT ORDER PASSED BY THE AO, SUBMITTED THAT SINCE THE PRINCIPLE OF ESTOPPEL IS NOT APPLICABLE IN THE PROCEEDINGS UNDER THE INCOME TAX ACT, THE ASSESSEE CANNOT TAKE BENEFIT OF THE ORDERS PERTAINING TO THE EARLIER ASSESSMENT YEARS. 3 ITA NO. 208 4 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 6. WE HAVE HEARD THE RIVA L SUBMISSIONS AND CAREFULLY GONE THROUGH THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE AUTHORITIES BELOW, IN THE LIGHT OF THE RIVAL CONTENTIONS OF THE PARTIES. AS POINTED OUT BY THE LD COUNSEL, THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DWCISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN APPEAL ITA NO. 4572/MUM/2040. THE FINDINGS OF THE LD. CIT(A) READ AS UNDER : 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, DISCUSSION OF THE AO IN THE ASSESS MENT ORDER, ORAL CONTENTIONS AND WRITTEN SUBMISSION OF THE APPELLANT AND MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT IDENTICAL ISSUE ON SIMILAR FACTS WAS THERE IN THE CASE OF THE ASSESSEE FOR A. Y.2007 - 08 WHICH WAS DECIDED BY LD. CIT(A) - 27/AC . 16(1)/136/13 - 14 DATED 28.04.2014 WHEREIN THE LD. CIT (A) AT PARA 2.4.25 AND PARA 2.4.26 HAVE OBSERVED AS UNDER: - '2.4 25 I ALSO FIND THAT THIS ISSUE HAS TO BE DECIDED IN VIEW OF THE INVESTMENT OBJECTIVE MANDATED BY THE APPELLANT WHILE ENGAGING THE PMS PROVIDER WHICH IS IN THE NATURE OF DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE WHERE THE PMS SERVICE PROVIDER HAS GOT ABSOLUTE DISCRETION IN TAKING DAY TO DAY DECISIONS IN SO FAR AS SHARES ARE CONCERNED AND HE MAKES THE INVESTMENTS AS PER HIS OWN AND ON THE BASIS OF OW N PERSONAL EXPERTISE WITHOUT ANY RECOURSE TO THE OPINION OF HIS CLIENT. IT IS ALSO EVIDENT THAT SUCH DECISIONS TAKEN BY THE PMS PROVIDER ARE TAKEN FOR A WHOLE RANGE OF CLIENTS IN HIS PORTFOLIO AS! THE DECISIONS REGARDING INVESTMENTS, ITS LIMING ETC., ARE M ADE BY PMS PROVIDER AND NOT BY THE INVESTOR PER SE AND THEREFORE, THE DOMINANT INTENTION OF THE APPELLANT AT THE TIME OF MAKING INVESTM ENTS WITH PMS PROVIDER COULD ONL Y BE SAID TO BE WITH A VIEW OF GROWTH PROSPECTS AND NOT WITH THE INTENTION OF MAKING PROF ITS. THIS ISSUE WAS ALSO DEALT WITH BY THE HON'BLE PANE BENCH OF ITAT IN THE CASE APPROVA PATNI (2012) 24 TAXMANN.COM 223 (PUNE) WHERE TAKING COGNIZANCE OF A HOST OF DECISIONS INCLUDING THAT OF THE MUMBAI BENCH OF ITAT IN THE CASE OF RADHA BIRJU PATEL & JA NAK S. RANGWALA, IT WAS HELD THAT SUCH INCOME WAS TO BE TAXED AS CAPITAL GAINS RATHER THAN BUSINESS INCOME. 4 ITA NO. 208 4 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 2.4.26 AS THE ISSUE AT HAND I S SQUARELY COVERED IN FAVOUR OF THE APPELLANT BY THE ABOVE SAID DECISION, INCLUDING THE TWO DECISIONS IN THE CASE OF RADHA BIRJU PATEL AND ANUSUYA SUREN (SUPRA) RESPECTFULLY FOLLOWING THE SAME, I HAVE NO HESITATION IN REVERSING THE DECISION OF THE ID. A.O. AS FAR AS MERITS OF THE DECISION IS CONCERNED. ACCORDINGLY, GROUND NO.3 IS ALLOWED. AGAINST SUCH DECISION OF LD. C IT(A), THE DEPARTMENT CARRIED THE APPEAL TO THE HON'BLE ITAT IN ASSE SSEE'S OWN CASE FOR AT.2007 - 08 WHEREIN THE HON'BLE ITAT IN ITA NO 4572/MUM/20L4 DATED 30.06 . 2016 HAVE DECIDED THE ISSUE OBSERVING AS UNDER AT. PARA 6, PAGE 3 AND 4 OF THEIR ORDER - ' '6. WE HAVE VALUED THE MATERIAL AVAILABLE ON RECORD. WE FIND THE AO HAD REOPENED THE SCRUTINY ASSESSMENT AND HAD HELD THAT INCOME OF THE ASSESSES ARISING OUT OF SATE OF SHARES HAD TO BE FAXED UNDER T HE HEAD BUSINESS I NCOME AND NOT UNDER THE HEADS STCG OR LTCG, THAT THE FAA REVERSED THE DECISION OF THE AO CONSIDERING THE FACT THAT THE ASSESSEE HAD AVAILED THE SERVICES OF A PMS PROVIDER. IN OUR OPINION, ONCE AN ASSESSES APPROACHES A PMS PROVIDER, HE LOSES CONTROL OVER TH E DECISION - MAKING PROCESS FOR MAK ING INVESTMENT IN THE SHARES, I IS THE PMS PROVIDER WHO DECIDES AS TO HOW MUCH MONEY IS TO BE INVESTED AND IN WHICH SCRIPS - ALL THE DECISIONS RELATED WITH SAL E AND PURCHASE OF SHARES ARE TAKE N BY THE PMS PROVIDER. WE FIND THAT IN THE CASE OF RADHA BIRJU PA TE! (SUP RA), THE TRIBUNAL HAS DECIDED THE ISSUE AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD OF THE CASE. WE HAVE NOTED THAT SO FAR AS THE PRESENT TRANSACTIONS ARE CONCERNED, THESE TRANSACTIONS ARE UNDISPUTEDLY CARRIED OUT BY THE TRANSACTIONS MEANT FOR MAXIMIZATION OF WEALTH RATHER ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF - SHARES. THE VERY NATURE OF PORTFOLIO MANAGEMENT SCHEME IS SUCH THAT SHE INVESTMENTS MADE BY THE ASSESSES ARE PROTEC TED AND ENHANCED AND IN SUCH A CIRCUMSTANCE, IT CANNOT BE SAID THAT PORTFOLIO MANAGEMENT SCHEME OF TRADING IN SHARES AND STOCK . WHETHER, THE ASSESSES IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES OR INVESTMENT IN SHARES IS ESSENTIALLY A QUESTION OF FACT AND IT HAS TO BE DETERMINED W ITH REGARD TO THE ENTIRETY OF THE, CIRCUMSTANCES. IN OUR 5 ITA NO. 208 4 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 CONSIDERATION VIEW, IN CIRCUMSTANCE, IN WHICH THE ASSESSES IS ENGAGED IN SYSTEMATIC ACTIVITIES OF HOLDING PORTFOLIO THROUGH A PMS MANAGER, IT CANNOT, BY ANY STRETCH OF IM AGINATION, BE SAID THAT THE MAIN OBJECT OF HOLDING THE PORTFOLIO IS TO MAKE PROFIT BY SATE OF SHARES DURING THE COURSE OF MAINTAINING THE PORTFOLIO INVESTMENT OVER THE PERIOD. AS REGARDS THE HIGH NUMBER OF TRANSACTIONS, WHICH HAVE BEEN RE/ERRED TO BY THE A SSESSING OFFICER, WE HAVE NOTED, ON A PERUSAL OF STATEMENT FILED BEFORE US, THAT THE NUMBER OF TRANSACTION REFLECTED IF THE STATEMENT DO NOT CONSTITUTE INDEPENDENT / TRANSACTION IN AS MUCH AS WHEN, IN A COMPUTER BASED TRADING SYSTEM, LET US SAY THE ASSESSE S BUYS 1000 SHARES AND THIS PURCHASE IS SPLIT OVER 10 TRANSACTIONS FROM DIFFERENT PERSONS WHILE OVER ALL TRANSACTIONS IS OF ONLY ONE PURCHASE 100 SHARES , THE STATEMENT REFLECT OF THE INDIVIDUAL COMPONENT OF THE TRANSACTION AND WILL THUS SHOW A MISLEADING HIGH FIGURE. KEEPING IT IN MIND ALL THESE FACTORS AS ALSO THE ENTIRETY OF THE CASE, WE ARE IN CONSIDERED AGREEMENT WITH THE CONCLUSIONS ARRIVED BY THE CIT (A ) WHICH NEEDS NO INTERFERENCE. GRIEVANCES RAISED BY THE ASSESSING OFFICER ARE THUS REJECTED. CON SIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION AND RESPECTFULLY FOLLOWING THE ABOVE REFERRED ORDER OF THE TRIBUNAL, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. IT IS SEEN THAT THE ISSUE IS IDENTICAL AND FACTS ARE SIM ILAR AND ARE COVERED IN FAVOUR OF THE APPELLANT BY THE DECISION OF THE LD. CIT(A) - 27, MUMBAI IN THE A PPELLANT'S OWN CASE FOR A. Y.2007 - 0 8 AND BY THE HON'BLE ITAT IN APPELLANT'S OWN CASE IN 1TA NO. 4572/MUM/ 2014 FOR AY.2007 - 08 . KEEPING IN VIEW THE PRINCIPLE S OF CONSISTENCY AND PRINCIPLES OF JUDICIAL DISCIPLINE, THE ACTION OF THE ASSESSING OFFICER IN TREATING THE INCOME SHOWN BY THE ASSESSEE UNDER THE HEAD 'LONG - TERM AND SHORT - TERM CAPITAL GAIN/LOSS' AS BUSINESS INCOME IS NOT FOUND TO BE JUSTIFIABLE AND ACCOR DINGLY, THE GROUND OF APPEAL RAISED BY THE ASSESSES IS ALLOWED. 7. WE NOTICE THAT THE AO MADE SIMILAR ADDITION IN ASSESSMENT ORDER PERTAINING TO THE ASSESSMENT YEAR 2007 - 08 ASSESSEES CASE. IN THE FIRST APPEAL 6 ITA NO. 208 4 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 THE LD. CIT(A) GRANTED RELIEF TO THE ASSES SEE TREATING THE PROFIT ON SALE OF SHARES AS CAPITAL GAIN. THE REVENUE CHALLENGED THE ACTION OF THE LD. CIT(A) IN APPEAL IAT NO 4572/MUM/2014 BEFORE THE ITAT. THE COORDINATE BENCH AFTER HEARING THE PARTIES UPHELD THE FINDINGS OF THE LD. CIT(A) AND DISMISSE D THE APPEAL OF THE REVENUE. THE LD. CIT(A) HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL. THE REVENUE HAS NOT POINTED OUT ANY CHANGE OF FACTS IN THE PRESENT CASE. UNDER THESE CIRCUMSTANCES, WE DO NOT F IND ANY REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD CIT(A). WE THEREFORE, UPHOLD THE FINDING OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2009 - 2010 IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON 31 ST . OCTOBER , 2019 . SD/ - SD/ - ( S. RIFAUR RAHMAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 31 / 10 / 201 9 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI