ASHISH RANWALA, MUMBAI V. ACIT 19(1), MUMBAI

ITA 21/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1019 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 02-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

P A G E | 1 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S.PANNU , AM AND SHRI RAVISH SOOD, JM ./ I.T.A. NO.21/MUM/2015 ( / ASSESSMENT YEAR: 2010 - 11) ASHISH RANWALA 602, SYMPHONY, PLOT NO. 269, JUNCTION OF 8 TH AND 12 TH ROAD, KHAR(WEST), MUMBAI 400052 / VS. ACIT - 19(1), ROOM NO. 322, PIRAMAL CHAMBERS, LALBAUG, MUMBAI - 400012 ./ ./ PAN/GIR NO. ADMPR0613D ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI JITENDRA JAIN, A.R / RESPONDENT BY : SHRI RAJESH YADAV, D .R / DATE OF HEARING : 06/10 /2017 / DATE OF PRONOUNCEMENT : 03 / 01 /201 8 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER PAS SED BY THE CIT(A) - 30, MUMBAI, DATED 28.10.2014 , WHICH IN ITSELF IS DIRECTED AGAINST THE ORDER PASSED BY THE A.O UNDER SEC. 143(3) OF THE INCOME TAX ACT, 1961 P A G E | 2 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) (FOR SHORT ACT), DATED 01.03.2013. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. TH E LEARN ED CIT(A) ERRED IN UPHOLDING THE ASSESSABILITY OF SHORT TERM CAPITA L GAINS AMOUNTING TO RS. 1.15 CR. FROM SALE OF SHARES AS BUSINESS INCOME WITHOUT GIVING ANY FINDINGS ON THE SUBMISSIONS MADE AND BY WRONG APPLICATION OF THE CASE LAWS TO THE FACTS OF THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,15,676/ - UNDER SECTION 14A OF THE ACT ALTHOUGH NO EXPENDITURE HAS BEEN CLAIMED AS DEDUCTION UNDER THE ACT TO EARN EXEMPT INCOME. THE APPELLANT PRAYS FOR FOLLOWING RELIEFS: (A) THE HONBLE TRIBUNAL BE PLEASED TO DIRECT THE ASSESSING OFFICER TO ASSESS RS.1.15 CR. BEING GAIN ON SALE OF SHARES AS SHORT TERM CAPITAL GAINS; (B) THE HONBLE TRIBUNAL BE PLEASED TO DIRECT THE ASSESSING OFFICER TO DELETE THE NOTIONAL ADDITION OF RS.1,15,676/ - MADE UNDER SECTION 14A OF THE ACT. T HE APPELLANT CRAVES TO LEAVE TO ALTER, AMEND OR MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL BEFORE THE DATE OF HEARING. 2 . BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED HIS RETURN OF INCOME FOR AY 2010 - 11, DECLARING TOTAL INCOME OF RS.1,20,09,500/ - ON 15.10.2010. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED UNDER SEC. 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS THEREAFTER TAKEN UP FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). 3. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS A PARTNER IN A CONCERN, VIZ. M/S KASHVI ENTERPRISES WHICH WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARE S AND FUTURE & OPTIONS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE A.O OBSERVED THAT THE ASSESSEE WAS MAINLY ENGAGED IN PURCHASE AND SALE OF SHARES AND UNITS OF MUTUAL FUNDS. THE ASSESSEE HAD IN HIS RETURN OF INCOME OFFERED THE GAIN FROM THE SALE OF SHARES UNDER THE HEAD CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING. THE P A G E | 3 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) A. O OBSERVED THAT THE ASSESSEE HAD SHOWN S HORT TERM CAPITAL GAIN (FOR SHORT STCG ) OF RS.1,15,29,161/ - AND L ONG TERM CAPITAL LOSS ( FOR SHORT LTCL ) OF RS.14,88,880/ - ON SALE OF SHARES. THE ASSESSEE FURNISHED WITH THE A.O T HE SCRIP WISE DETAILS OF PURCHASE A ND SALE TRANSACTIONS ALONG WITH THE SOURCE OF ACQUISITION OF THE SHARES FOR THE YEAR UNDER CONSIDERATION AND FOR THE PREVIOUS YEARS . THE A.O AFTER DELIBERATING ON THE DETAILS PLACED ON RECORD BY THE ASSESSEE TOOK COGNIZANCE OF CERTAIN MATERIAL FACTS AS HA D EMERGED THEREFROM, VIZ. (I) THE PRINCIP A L SOURCE OF INCOME OF THE ASSESSEE WAS FROM DEALING IN SHARES; (II) THE ASSESSEE WAS INVOLVED IN THE PURCHASE AND SALE OF SHARES FOR SEVERAL YEARS; (III) THE ASSESSEE WAS ALSO THE MANAGING PARTNER OF M/S KASHVI ENT ERPRISES WHICH WAS ENGAGED IN SPECULATIVE TRANSACTIONS ; (IV) THE ASSESSEE DEVOTED HIS ENTIRE TIME IN STOCK MARKET OPERATIONS; (V) THE ASSESSEE HAD DURING THE YEAR PURCHASED 6,40,880 SHARES WHICH WERE SOLD IN THE SAME YEAR; (VI) THE INVESTMENT IN THE SHARES DURING THE YEAR WAS RS.9.72 CRORE WHEREAS THE DIVIDEND INCOME RECEIVED WAS ONLY RS.2.33 LAC WHICH WAS 0.2% OF THE INVESTMENT; (VII) THE SALE PROCEEDS OF THE SHARES WERE IN A REGULAR AND A SYSTEMATIC MANNER RE - INVESTED BY THE ASSESSEE IN ACQUISITION OF SHA RES/UNITS TO MAXIMISE THE PROFITS; AND (VIII) THE BOOKS OF ACCOUNT OF THE ASSESSEE REVEALED THAT HE HAD UTILIZED BORROWED INTEREST BEARING FUNDS FOR ACQUISITION OF SHARES. THE A.O AFTER DELIBERATING ON THE AFORESAID MATERIAL FACTS , CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY HIS ACTIVITIES OF PURCHASE AND SALE OF SHARES MAY NOT BE TREATED AS A BUSINESS AND NOT JUST AN INVESTMENT. THE ASSESSEE IN HIS REPLY SUBMITTED BEFORE THE A.O THAT HE WAS A PARTNER IN M/S KASHVI ENTERPRISES WHERE THE TRADING IN SHARES AND FUTURE & OPTIONS BUSINESS WAS CARRIED ON AND THE INCOME ARISING FROM THE SAME WAS OFFERED FOR TAX BY THE FIRM AS BUSINESS IN COME. THAT AS REGARDS THE INCOME FROM THE SALE OF SHARES WHICH WAS SHOWN BY HIM UNDER THE HEAD CAPITAL GAINS, IT WAS SUBMITTED THAT THE SAID SHARES WERE PURCHASED AND HELD BY HIM AS AN INVESTMENT . THE ASSESSEE IN ORDER TO BUTTRESS HIS AFORESAID CLAIM P A G E | 4 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) SUBMI TTED THAT THE SHARES WHICH WERE PURCHASED AND HELD BY HIM AS AN INVESTMENT WERE VALUED AT COST , UNLIKE THE SHARES HELD AS STOCK IN TRADE , WHICH WERE VALUED AT COST OR M ARKET PRICE . IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE AFORE SAID SHARES WERE RE FLECTED IN HIS BALANCE SHEET AS AN INVESTMENT FOR THE LAST MANY YEARS. THE ASSESSEE IN ORDER TO DRIVE HOME HIS AFORESAID CLAIM FURTHER TOOK SUPPORT OF THE FACT THAT IN THE PRECEDING YEARS THE INCOME FROM THE SALE OF SHARES WHICH WERE HELD AS AN INVESTMENT WAS BEING REFLECTED UNDER THE HEAD CAPITAL GAIN AND WAS ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENT S . IT WAS FURTHER THE CLAIM OF THE ASSESSEE THAT THE SHARES WHICH WERE PURCHASE D BY HIM AS AN INVESTMENT WITH THE INTENT OF EARNING DIVIDEND INCOME WER E TRANSFERRED TO DEMAT A CCOUNT AND HELD AS AN INVESTMENT. HOWEVER, THE AFORESAID EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE A.O, WHO TAKING SUPPORT OF THE C BDT INSTRUCTION NO. 1827, DATED 31.08.1989 AND THE CBDT CIRCULAR NO. 4/2017, DATED 15.06.2007 , CONCLUDED THAT THE PROFIT FROM SALE OF SHARES OF RS.1,15,29,160/ - WAS LIABLE TO BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE AS HIS BUSINESS INCOME . THE A.O ON THE BASIS OF HIS AFORESAID DELIBERATIONS COMPUTED THE BUSINESS INCOME OF THE ASSES SEE ON SALE OF SHARE S AFTER ADJUSTING THE LOSS OF RS.14,88,880/ - AT RS.1,00,40,281/ - . 4. THE A.O FURTHER OBSERVED THAT THE ASSESSEE HAD DURING THE YEAR RECEIVED DIVIDEND INCOME AT RS.2,33,117/ - , WHICH WAS CLAIMED AS EXEMPT. IT WAS OBSERVED BY THE A.O THA T THE ASSESSEE HAD NOT OFFERED ANY DISALLOWANCE UNDER SEC. 14A R.W. RULE 8D IN RELATION TO EARNING OF THE AFORESAID EXEMPT INCOME. TH AT IN THE ABSENCE OF ANY EXPLANATION BY THE ASSESSEE AS TO WHY A DISALLOWANCE IN RESPECT OF THE EXPENSES INCURRED FOR EARNI NG OF THE EXEMPT DIVIDEND INCOME MAY NOT BE MADE IN HIS HANDS, THE A.O PROCEEDED WITH AND CARRIED OUT A DISALLOWANCE OF RS.1,15,676/ - UNDER SEC. 14A OF THE ACT. P A G E | 5 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) 5. AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING AT LENGTH ON THE CONTENTION S OF THE ASSESSEE , OBSERVED , THAT THE ASSESSEE ALONG WITH HIS WIFE SMT. SHEETAL A. RANWALA WERE PARTNERS IN THE FIRM M/S KASHVI ENTERPRISES, WHICH WAS CARRYING ON THE BUSINESS OF TRADING IN SHARES AND FUTURE & OPTIONS . THE CIT(A) DELIBERATED ON CERTAIN FACTS WHICH HAD A STRONG BEARIN G ON THE ADJUDICATION OF THE ISSUE UNDER CONSIDERATION, VIZ. (I) THE TOTAL INVESTMENT IN SHARES BY THE ASSESSEE WAS RS.3.43 CRORE; (II) THE ASSESSEE HAD DURING THE YEAR PURCHASED 6,40,880 SHARES AT A COST OF RS.9.72 CRORE WHICH WERE SOLD DURING THE YEAR IT SELF FOR A CONSIDERATION OF RS.10 . 81 CRORE; (III) THAT THE ASSESSEE HAD BORROWED AN AMOUNT OF RS.37.06 LACS FOR PURCHASE OF SHARES, WHICH INCLUDED A N INTEREST BEARING LOAN OF RS.29,50,000/ - FROM A CLOSE RELATIVE, VIZ. MRS. NIRUPA RANWALA; (IV) THE ASSESSEE HAD SHOWN STCG OF RS.1,15,29,161/ - FROM THE PURCHASE AND SALE OF SHARES DURING THE YEAR; (V) TH E ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.2,33,000/ - ON AN INVESTMENT OF RS.9.72 CRORE IN SHARES WHICH WAS 0.2% OF THE INVESTMENT; AND (VI). THE ENTIRE STCG O F RS.1.15 CRORE DECLARED DURING THE YEAR WAS FROM SALE OF SHARES WHICH WERE HELD FOR A PERIOD OF NOT MORE THAN 3 MONTHS. THE CIT(A) AFTER DELIBERATING ON THE AFORESAID MATERIAL FACTS CONCLUDED THAT THE ASSESSEE BY BORROWING FUNDS FROM HIS CLOSE RELATIVES A ND OTHER CLOSE ASSOCIATES HAD AS A MATTER OF FACT EXTENDED THE BUSINESS ACTIVITY OF THE FIRM IN WHICH HE WAS A PARTNER. IT WAS FURTHER OBSERVED BY THE CIT(A) THAT THE DIVIDEND INCOME EARNED BY THE ASSESSEE WAS SO MEAGRE THAT IT DID NOT SUPPORT THE CLAIM OF THE ASSESSEE THAT IT HAD HELD THE SHARES AS AN INVESTMENT, BUT RATHER , ON THE CONTRARY PROVED THAT THE SAME WERE HELD WITH THE INTENT TO MAKE PROFIT BY TRAD ING IN THE SAME . THE CIT(A) OBSERV ED THAT THE A.O WHILE CONCLUDING THAT THE PROFIT FROM THE PURCHAS E AND SALE OF SHARES BY THE ASSESSEE WAS LIABLE TO BE BROUGHT TO TAX AS HIS P A G E | 6 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) BUSINESS INCOME HAD RELIED ON THE CBDT CIRCULAR NO. 4 OF 2007, DATED 15.06.2007. THE CIT(A) BEING OF THE VIEW THAT THE CBDT CIRCULAR NO. 4 OF 2007 (SUPRA) WAS DELIBERATED UPON BY T HE HONBLE HIGH COURT OF DELHI IN TWO OF ITS DECISIONS, VIZ. (I) CIT VS. SAHARA INDIA HOUSING CORPORATION LTD ( 2012) 81 CCH 0063 (DEL) AND (II) CIT VS. VINAY MITTAL (2012) 208 TAXMAN 106 (DEL) , WHERE IN IN BOTH OF THE CASES THE HIGH COURT TAKING COGNIZANCE OF THE PARAMETERS/OBJECTIVE TEST LAID DOWN BY THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. RE W ASHANKER A. KOTHARI (2006) 283 ITR 338 (GUJ) HAD REMANDED THE MATTER TO THE TRIBUNAL TO ADJUDICATE THE ISSUE A S TO WHETHER THE INCOME SHOWN BY THE ASSESSEE WAS LIABLE TO BE ASSESSED AS BUSINESS PROFITS OR C APITAL GAIN IN TERMS OF THE PARAMETERS LAID DOWN BY THE HIGH COURT AND THE CBDT CIRCULAR NO. 4/2007 , DATED 15.06.2007 . THE CIT(A) ON THE BASIS OF HIS AFORESAID OBSERVATIONS PROCEEDED WITH AND EXAMINE D THE PURCHASE AND SALE TRANSACTIONS OF SHARES CARRIED OUT BY THE ASSESSEE DURING THE YEAR IN THE BACKDROP OF THE AFORESAID OBJECTIVE TEST /PARAMETERS LAID DOWN BY THE HIG H COU RT, AND OBSERVED AS UNDER: - (A) WHETHER THE INITIAL ACQUISITION OF THE SUBJECT MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM OR WITH A VIEW OF FINDING AN INVESTMENT . ? THE APPELLANT IS AN INDIVIDUAL AND A PARTNER IN A FIRM TRADIN G IN SHARES AND FUTURE & OPTIONS, AND HAS SHARE OF PROFIT FROM THE FIRM, M/S KASHVI ENTERPRISES. HE HAS ALSO DRAWN SALARY OF RS.14,89,567/ - FROM THE FIRM. FURTHER, THE VOLUME OF TRANSACTIONS, THAT IS, TURNOVER OF THE APPELLANT IS 10.81 CR TO EARN STCG OF RS. 1.15 CR. AND DIVIDEND INCOME IS RS. 2.23 LAC ONLY ON THE SO CALLED INVESTMENT OF RS. 9.72 C R, AND THE SAME ESTABLISH THAT THE ACQUISITION OF SHARES HAS NOT BEEN FOR THE PURPOSE OF INVESTMENT. IN OTHER WORDS, INSTEAD OF DECLAR ING THE INCOME OF RS. 1.15 CR. LAC AS BUSINESS INCOME , APPELLANT HAS DECLARED IT AS SHORT TERM CAPITAL GAIN . THE TRANSACTIONS IN SHARES ON WHICH SHORT TERM CAPITAL GAIN HAS BEEN SHOWN, ARE, THEREFORE, NOTHING, BUT PURELY BUSINESS TRANSACTION, WHICH IS ALSO EVIDENT FROM THE FACTS OF THE TRANSACTIONS ANALYZED ABOVE (B) WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY? THE FACTS DISCUSSED ABOVE, SHOW THAT THE PRIME CONSIDERATION FOR PURCHASE OF SHARES WAS TO MAKE PROFIT AND NOT INVESTMENT. P A G E | 7 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) (C) HOW THE ASSESSEE DEALT WITH THE SUBJECT MATTER OF TRANSACTION DURING THE TIME OF ASSET WAS WITH THE ASSESSEE. HAS IT BEEN TREATED AS STOCK IN TRADE OR AS AN INVESTMENT IN THE BALANCE SHEET? THOUGH THE SHARES WERE HELD AS CAPITAL ASSETS AND SHOWN A S INVESTMENT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT, BUT THE TRUE NATURE OF THESE ASSETS WAS STOCK IN TRADE. (D) HOW THE AS SESSEE RETURNED THE INCOME FROM SUCH AC TIV ITIES AND HOW THE DEPARTMENT DEALT WITH THE SAME IN THE PRECEDING AND SUCCEEDING ASSESSMENTS? THOUGH IN A.Y 2007 - 08 VIDE ORDER DTD. 10.11.2009 U/S 143(3) OF THE ACT, THE APP ELLANT'S INCOME DECLARED AT RS. 46,43,434/ - , HAS BEEN ASSESSED AT R S. 49,82,880/ - , IN THE SAID YEAR, THERE WAS SHORT TERM CAPITAL GAIN OF RS. 1 6,17,151/ - ONLY. (E). WHETHER THE DEED OF PARTNERSHIP OR MEMORANDUM OF ASSOCIATION, IF THE ASSESSEE IS A FIRM OR A COMPANY, AUTHORIZES SUCH AN ACTIVITY? THIS IS NOT APPLICABLE IN THE CASE OF THE APPELLANT, BUT HE HAS DECLARED INCOME FROM SALAR Y, HOUSE PR OP ERTY, REMUNERATION FROM THE FIRM, SHORT TERM CAPITAL GAIN ON SALE OF PROPERTY AND OTHER SOURCES. (F). MOST IMPORTANTLY, WHAT ARE THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIO NS OF PURCHASE AND SALE OF THE GOODS CONCERNED? THE FACTS RELATI NG TO VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TR ANSACTIONS OF PURCHASE AND SALE OF THE SHARES CLEARLY SHOW THAT THE SAME WERE CARRIED OUT WITH A MOTIVE TO EARN PROFIT AND NOT CAPITAL GAIN. THE FREQUENCY, CONTINUITY AND REGULARITY - OF SHARE TRANSACTIONS CAN ALSO BE GAUGED BY THE FACT THAT DURING THE YEAR IT IS AS HIGH AS TO EARN 83.13 % OF T HE GROSS TOTAL INCOME DECLARED IN THE RETURN OF INCOME. 6. THE CIT(A) THUS DELIBERATING ON THE FACTS OF THE CASE IN THE BACKDROP OF THE AFORESA ID PARAMETERS, VIZ. VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES, OBSERVED THAT THE SAME WERE PURCHASED BY THE ASSESSEE WITH THE MOTIVE TO EARN PROFIT AND NOT HELD AS AN INVESTMENT. THE CIT(A) OBSERVED THAT TH E FREQUENCY, CONTINUITY AND REGULARITY OF SHARE TRANSACTIONS C OULD ALSO BE GAUGED FROM THE FACT THAT DURING THE YEAR IT WAS AS HIGH AS TO EARN 83.13% OF THE GROSS TOTAL INCOME DECLARED BY THE ASSESSEE IN HIS RETURN OF INCOME. THUS, THE CIT(A) IN THE BACKDR OP OF HIS AFORESAID OBSERVATIONS WAS NOT PERSUADED TO SUBSCRIBE TO THE CLAIM OF THE ASSESSEE AND CONCLUDED THAT PROFIT FROM PURCHASE AND SALE OF SHARES DECLARED BY THE ASSESSEE UNDER THE HEAD P A G E | 8 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) STCG WAS RIGHTLY BROUGHT TO TAX BY THE A.O AS ITS BUSINESS INCO ME. HOWEVER, AS REGARDS THE CLAIM OF THE ASSESSEE THAT THE A.O HAD WRONGLY TREATED THE LONG TERM CAPITAL LOSS OF RS.14,88,880/ - UNDER THE HEAD BUSINESS, THE CIT(A) OBSERVED THAT AS THE SHARES ON WHICH THE LTCG WAS SHOWN BY THE ASSESSEE WERE HELD FOR A PERIOD OF MORE THAN 12 MONTHS, THEREFORE, THE GAIN/LOSS ARISING FROM THE SALE OF SUCH SHARES WAS RIGHTLY REFLECTED BY THE ASSESSEE UNDER THE HEAD LONG TERM CAPITAL GAIN OR LOSS. THUS , THE CIT(A) DIRECTED THE A.O TO TREAT THE LTCL OF RS.14,88,880/ - AS CLAIMED BY THE ASSESSEE AND ALLOW CARRY FORWARD OF THE LOSS AS PER THE PROVISION S OF THE ACT. 7. THE CIT(A) FURTHER DELIBERATING ON THE DISALLOWANCE OF RS.1,15,676/ - MADE B Y THE A.O UNDER SEC. 14A OF THE ACT, OBSERVED THAT THE A.O BY CARRYING OUT A DISALLOWANCE @ 0.5% OF THE AVERAGE INVESTMENT HAD MADE AN ADDITION OF RS.83,852/ - ON THE SAID COUNT TO THE INCOME OF THE ASSESSEE. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT AS THE DISALLOWANCE CONTEMPLATED UNDER SEC. 14A OF THE ACT COULD BE VALIDLY MADE ONLY IF THE ASSESSEE HAD CLAIMED ANY EXPENDITURE , THEREFORE, NOW WHEN IT HAD NOT CLAIMED ANY EXPENDITURE, THE QUESTION OF ANY DISALLOWANCE DID NOT ARISE AT ALL. ALTERNATIVELY, I T WAS SUBMITTED BY THE ASSESSEE THAT EVEN IF DISALLOWANCE @ 0.5% ON AVERAGE INVESTMENT WAS TO BE MADE, THE SAME WAS LIABLE TO BE RESTRICTED ONLY IN RESPECT OF THOSE SHARES ON WHICH DIVIDEND WAS EARNED BY THE ASSESSEE. IT WAS THUS SUBMITTED BY THE ASSESSEE THAT EITHER THE ADDITION BE DELETED OR IN THE ALTERNATIVE THE SAME BE RESTRICTED TO RS. 27,912/ - . THE CIT(A) OBSERVED THAT THE A.O HAD MADE THE DISALLOWANCE UNDER RULE 8D(2)(III) TOWARDS DEEMED EXPENSES. THE CIT(A) THOUGH DID NOT REBUT THE CLAIM OF THE A SSESSEE THAT HE HAD NOT CLAIMED ANY EXPENDITURE, THEREFORE, THE DISALLOWANCE UNDER SEC.14A COULD NOT HAVE BEEN MADE, BUT HOWEVE , OBSERVED THAT AS THE DISALLOWANCE IN RULE 8D(2)(III) P A G E | 9 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) WAS ON A DEEMED BASIS AND NOT ACTUAL BASIS, THEREFORE, THE SAME AS WORKE D OUT BY THE A.O WAS WELL IN ORDER. 8. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAD CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R.) DURING THE COURSE OF HEARING OF THE APPEAL PLACED ON RECORD HIS B RIEF SUBMISSIONS AS REGARDS THE IS SUE S UNDER CONSIDERATION AND RELIED ON THE SAME. IT WAS SUBMITTED BY THE LD. A.R THAT THE LOWER AUTHORITIES HAD ERRED IN ASSESSING THE INCOME SHOWN BY THE ASSESSEE ON SALE OF SHARES HELD BY HIM AS AN INVESTMENT , AS HIS BUSINESS INCOME. THE LD. A.R FURTHER SUBMITTED THAT THE LOWER AUTHORITIES HAD FAILED TO APPRECIATE THAT NOW WHEN NO EXPENSE WAS CLAIMED BY THE ASSESSEE, THEREFORE, THERE REMAIN ED NO OCCASION TO MAKE ANY DISALLOWANCE UNDER SEC. 14A. IT WAS SUBMITTED BY THE ASSESSEE THAT THE ISSUE UNDER CONSIDERATION INVOLVING THE SAME FACTS HAD BEEN ADJUDICATED BY A COORDINATE BENCH OF THE TRIBUNAL, VIZ. ITAT E, MUMBAI IN THE CASE OF HIS WIFE, VIZ. SHEETAL RANWALA VS. ACIT 19(1), MUMBAI (ITA NO. 20/MUM/2015, DATED 20.10.2016) FOR AY 2010 - 11. (COPY PLACED ON RECORD). PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R ) RELIED ON THE ORDER OF A COORDINATE BENCH OF THE TRIBUNAL, VIZ. ITAT E, MUMBAI, IN THE CASE OF SHRI SANJAY MARWAH VS. DCIT, CIRCLE 3, T HANE (ITA NO. 3299/MUM/2012, DATED 20.11.2014). IT WAS SUBMITTED BY THE LD. D.R THAT THE TRIBUNAL IN ITS AFORESAID ORDER HAD DELIBERATED ON THE VARIOUS PARAMETERS FOR CONCLUDING AS TO WHETHER THE GAIN FROM SALE OF SHARES WAS LIABLE TO BE BROUGHT TO TAX AS THE INCOME OF THE ASSESSEE UNDER THE HEAD CAPITAL GAIN OR BUSINESS INCOME. IT WAS THUS SUBMITTED BY THE LD. D.R THAT AS THE APPEAL OF THE ASSESSEE WAS DEVOID OF ANY MERIT, THEREFORE , THE SAME MAY BE DISMISSED. 9. WE HAVE HEARD THE A UTHORIZED R EPRESENTATIV E S FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON P A G E | 10 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) RECORD. WE FIND THAT IT REMAINS AS A MATTER OF FACT THAT THE ASSESSEE ALONG WITH HIS WIFE SMT. SHEETAL RANWALA DURING THE YEAR UNDER CONSIDERATION WAS A PART NER IN A FIRM M/S KASHVI ENTERPRISES , WHICH WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND FUTURE & OPTIONS. WE FIND THAT THOUGH THE A.O WHILE FRAMING THE ASSESSMENT HAD REFERRED TO THE VARIOUS PARAMETERS WHICH HAVE A MATERIAL BEARING ON ADJUDICATING AS TO WHETHER THE PROFIT ON THE SALE OF SHARES BY THE ASSESSEE WAS LIABLE TO BE BROUGHT TO TAX UNDER THE HEAD CAPITAL GAIN OR BUSINESS INCOME , BUT WE FIND THAT THE PRIMARY ISSUE WHICH HAD WEIGHED IN THE MIND OF THE A.O WHILE CONCLUDING THAT THE GAIN ON THE SALE OF SHARES WAS LIABLE TO BE ASSESSED AS THE BUSINESS INCOME OF THE ASSESSEE , WAS THE FACT THAT THE ASSESSEE HAPPENED TO BE A PARTNER IN THE FIRM M/S KASHVI ENTERPRISES WHICH WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND FUTURE & OPTIONS. WE FURTHER FIND THAT BOTH OF THE LOWER AUTHORITIES HAD OBSERVED THAT THE ASSESSEE HAD BORROWED INTEREST BEARING FUNDS FOR MAKING INVESTMENT IN THE SHARES DURING THE YEAR UNDER CONSIDERATION, WHICH AS OBSERVED BY THEM INCLUDED AN AMOUNT OF RS.29,50,000/ - B ORROWED FROM A FAMILY MEMBER MRS. NIRUPA RANWALA. WE HOWEVER FIND THAT THE LOWER AUTHORITIES HAD MISCONCEIVED THE FACTS AS REGARDS THE LOAN WHICH WAS RAISED BY THE ASSESSEE FROM MRS. NIRUPA RANWALA , ON TWO GROUNDS, VIZ. (I). THAT IT WAS NOT AN INTEREST BEA RING LOAN, BUT RATHER, AN INTEREST FREE UNSECURED LOAN ; (II). THE LOAN WAS RAISED BY THE ASSESSEE IN THE PRECEDING YEAR AND NOT DURING THE YEAR UNDER CONSIDERATION . WE FIND THAT THE AFORESAID CLAIM OF THE ASSESSEE THAT THE LOAN WAS RAISED FROM MRS. NIRUPA RANWALA IN THE PRECEDING YEAR CAN SAFELY BE GATHERED FROM A PERUSAL OF THE OUTSTANDING LIABILITY OF THE ASSESSEE ON 31.03.2009 AND 31.03.2010 . SIMILARLY, THE FACT THAT THE AFORESAID LOAN WAS FREE OF INTEREST IS PROVED BEYOND DOUBT ON A PERUSAL OF THE C API TAL ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION , WHICH REVEALS THAT INTEREST WAS PAID BY THE ASSESSEE DURING THE YEAR ONLY ON HIS HOUSING LOAN , AND NO INTEREST WAS PAID ON THE OUTSTANDING LOAN OF MRS. NIRUPA RANWALA. P A G E | 11 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) THUS, THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT THE ASSESSEE HAD MADE INVESTMENT TOWARDS PURCHASE OF SHARES BY RAISING INTEREST BEARING FUNDS , BEING BASED ON MISCONCEIVED FACTS, THUS FALLS TO GROUND. WE FURTHER FIND THAT AS THE ASSESSES OWN FUNDS WE RE TO THE EXTENT OF RS.7.21 CRORE , WHICH WERE M ORE THAN THE INVESTMENT OF RS.3.47 CRORE MADE FOR THE PURCHASE OF SHARES, THEREFORE, IT CAN SAFELY BE CONCLUDED THAT THE ASSESSEE HAD PURCHASE D THE SHARES FROM HIS OWN SELF OWNED FUNDS. THAT AS REGARDS THE OBSERVATIONS OF THE CIT(A) THA T THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION TRADED IN 6,40,880 NUMBER OF SHARES, IT WAS SUBMITTED BY THE ASSESSEE THAT HE HAD EARNED CAPITAL GAIN BY MAKING INVESTMENT IN ONLY 27 SCRIPS OUT OF WHICH 5 SCRIPS WERE OF THE EARLIER YEARS ( P AGE 22 OF APB). WE THUS ARE OF THE CONSIDERED VIEW THAT AS THE ASSESSEE HAD PURCHASED AND SOLD HIGHER NUMBER OF SHARES IN RESPECT OF 27 SCRIPS ONLY , THEREFORE, THE VOLUME OF THE SHARE TRANSACTIONS CANNOT BE CONSIDERED TO BE HIGH . WE HAVE FURTHER DELIBERATED ON T HE PERIOD OF HOLDING OF THE SHARES, THE PROFIT ON SALE OF WHICH WAS SHOWN BY THE ASSESSEE UNDER THE HEAD STCG. WE HAVE PERUSED THE DETAILS PLACED ON RECORD BY THE ASSESSEE AND FIND THAT OUT OF STCG OF RS.1.15 CRORE 70% OF THE PROFIT WAS ON ACCOUNT OF SHARE S WHICH WERE HELD FOR A PERIOD OF MORE THAN O NE MONTH AND LESS THAN 3 MONTHS WHILE FOR ONLY 22% OF THE STCG WAS RELATABLE TO SHARES WHICH WERE HELD FOR A PERIOD OF LESS THAN 1 MONTH. WE THUS KEEPING IN VIEW THE PERIOD OF HOLDING OF THE SHARES BY THE ASSESS EE FIND THE SAME TO BE REASONABLE AND ARE NOT PERSUADED ON THE SAID COUNT TO CONCLUDE THAT THE SAME WERE HELD BY HIM FOR THE PURPOSE AND INTENT OF MAKING PROFIT BY TRADING IN THE SAME. WE FURTHER FIND THAT THE A.O WHILE FRAMING THE ASSESSMENT IN THE HANDS OF THE ASSESSEE UNDER SEC.143(3) FOR A . Y 2007 - 08 AND A . Y 2013 - 14 , HAD AFTER NECESSARY DELIBERATION S AND SEEKING DETAILS AS REGARDS THE DATE OF ACQUISITION, NUMBER OF SHARES AND AMOUNTS , THEREIN ACCEPTED THE CLAIM OF THE ASSESSEE AND ASSESSED THE GAIN FROM THE SALE OF THE SHARES UNDER THE HEAD CAPITAL GAIN. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE P A G E | 12 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) BEFORE US AND ARE OF THE CONSIDERED VIEW THAT AS IT IS PERMISSIBLE FOR AN ASSESSEE TO HOLD THE SHARES BOTH AS A TRADER AND AS AN INVESTOR , THEREFORE, WE ARE UNABLE TO PERSUADE OURSELVES TO BE IN AGREEMENT WITH THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT AS THE ASSESSEE WAS A PARTNER IN A FIRM, VIZ. KASHVI ENTERPRISES WHICH WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND FUTURE & OPTIONS, THE PRO FIT ARISING FROM THE SHARES WHICH AS CLAIMED BY THE ASSESSEE WERE HELD AS AN INVESTMENT , WERE TO BE CONSTRUED AS AN EXTENSION OF THE BUSINESS OF THE FIRM BY THE ASSESSEE. 10. WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDER CONSIDERATION BEFORE US AND AFTER GIVING A THOUGHTFUL CONSIDERATION ARE O F THE CONSIDERED VIEW THAT AS THE ASSESSEE HAD PURCHASED AND HELD THE SHARES AS AN INVESTMENT, THEREFORE, KEEPING IN VIEW THE VARIOUS FACTORS WHICH HAVE A MATERIAL BEARING ON ADJUDICATING AS TO WHETHER THE INCOM E FROM THE PURCHASE AND SALE OF SHARES IS LIABLE TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN OR BUSINESS INCOME , FIND OURSELVES TO BE IN AGREEMENT WITH THE CLAIM OF THE ASSESSEE THAT THE GAIN ON THE SALE OF THE SHARES WAS LIABLE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS , AS CLAIMED BY HIM. WE MAY HEREIN OBSERVE THAT NOT ONLY THE ASSESSEE FAIRLY SATISFIES THE PARAMETERS CONTEMPLATED FOR BRINGING THE PURCHASE AND SALE TRANSACTIONS OF THE SHARES HELD BY HIM AS AN INVESTMENT UNDER THE HEAD CAPITAL GAIN, BU T RATHER , FIND THAT THE DEPARTMENT HAD ITSELF IN THE PRECEDING AS WELL AS THE SUCCEEDING YEARS, VIZ. AY: 2007 - 08 AND AY 2013 - 14 , RESPECTIVELY, HAD DULY ACCEPTED THE SAID CLAIM OF THE ASSESSEE AND HAD ASSESSED THE INCOME ARISING FROM THE SALE OF THE SHARES UNDER THE HEAD CAPITAL GAIN, AS CLAIMED BY THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT AS PER THE RULE OF CONSISTENCY THE DEPARTMENT CANNOT BE ALLOWED TO TAKE AN INCONSISTENT APPROACH AND RESORT TO SHIFTING STANDS IN RESPECT OF AN ISSUE INVOLVING THE SAME FACTS. WE FIND THAT OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE P A G E | 13 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (19920 192 ITR 321 ( SC ), WHEREIN IT WAS HELD AS UNDER: - 9. WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO IT PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH TH E DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. WE THUS IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS , BEING OF THE CONSIDERED VIEW THAT THE ASSESSEE HAD RIGHTLY REFLECTED THE GAIN ON THE SALE OF THE SHARES UNDER THE HEAD CAPITAL GAIN, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O TO ASSESS THE INCOME FROM THE SALE OF SHARES, AS CLAIMED BY THE ASSESSEE UNDER THE HEAD CAPITAL GAIN. 11. WE HAVE FURTHER DELIBERATED ON THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W. RULE 8D IN THE HANDS OF THE ASSESSEE. WE HAVE PERUSED THE STAT EMENT OF TOTAL INCOME OF THE ASSESSEE AND FIND THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST ANY INCOME. WE ARE OF THE CONSIDERED VIEW THAT DISALLOWANCE OF ANY PART OF THE EXPENSES BY RELATING THE SAME TO EARNING OF INCOME NOT FORMING PART OF T HE TOTAL INCOME O F THE ASSESSEE , WOULD ARISE ONLY IF ANY EXPENDITURE IS CLAIMED BY THE ASSESSEE. IT IS FURTHER THE SETTLED POSITION OF LAW THAT THE A.O CAN RESORT TO AND MAKE A DISALLOWANCE UNDER SEC. 14A R.W R. 8D , ONLY WHERE HE IS NOT SATISFIE D WITH THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT AS IN THE PRESENT CASE THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE, THEREFORE, THERE WAS NO OCCASION FOR THE A.O TO HAVE CARR IED OUT ANY DISALLOWANCE UNDER SEC. 14A. WE THUS IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS SET ASIDE THE ORDER P A G E | 14 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1) PASSED BY THE CIT(A) ON THIS ISSUE AND DELETE TH E DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A . 12. THE APPEAL OF THE ASSESSEE IS ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT ON 03. 01 .201 8 SD/ SD/ - ( G.S. PANNU ) (RAV ISH SOOD ) ( ACCOUNTANT MEMBER ) JUDICIAL MEMBER MUMBAI ; 03 . 01 .201 8 PS. ROHIT KUMAR / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 15 ITA NO. 21/MUM/2015 AY: 2010 - 11 ASHISH RANWALA VS. ACIT - 19(1)