Disha Uttam Shah, Baroda V. The Income tax Officer,Ward-2(4), Baroda

ITA 213/AHD/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6402 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y C SURTI
• Assessee Lawyers: SUNIL H LAHATI
• Keywords: Capital asset; Business income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER I.T.A. NO.213 / AHD/2011 (ASSESSMENT YEAR 2006-07 ) DISHA UTTAM SHAH SWETAMBER, BN/H, GEB SUBSTATION, OPP. GOTRI COOP. HOUSING SOCIETY, BARODA VS. ITO,WARD 2(4), BARODA PAN/GIR NO. : AJHPS8492A (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI SUNIL H LAHATI, AR RESPONDENT BY: SHRI Y. C. SURTI, DR O R D E R THIS IS ASSESSEES APPEAL PREFERRED AGAINST THE OR DER DATED 20.09.2010 OF CIT(A) II, BARODA FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL-II), BARODA DATE D 20.09.2010 PRESENTS THIS APPEAL AGAINST THE SAID ORDER ON THE FOLLOWING GROUNDS : THE ORDER PASSED BY THE LEARNED CIT (APPEAL-II) PAR TLY DENIAL OF CLAIM OF SHORT TERM CAPITAL GAIN IS BAD IN LAW. THE SAME IS PASSED WITHOUT CONSIDERING FACTS AND DETAILS SUBMITTED BY YOUR APP ELLANT AND HENCE SAME BE QUASHED. THE LEARNED CIT (APPEAL-II) HAD ERRED IN TREATING S HORT TERM CAPITAL GAIN OF RS. 736677- AS BUSINESS PROFIT. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF YOUR APPELLANTS CASE, DENIAL OF CL AIM OF SHORT TERM CAPITAL GAIN IS NOT JUSTIFIED. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAS CARRIED OUT FRE QUENT SHARE TRADING BUSINESS/TRANSACTION. THE ASSESSEE ALSO OBTAINED U NSECURED LOANS OF RS.4,94,900/-` FROM VARIOUS PARTIES. THE A.O. THER EFORE, WAS OF THE VIEW THAT I.T.A.NO. 213/AHD/2011 2 THE ASSESSEE HAS CARRIED OUT THE SHARE TRADING BUSI NESS TO EARN PROFIT OUT OF THIS BUSINESS. THEREFORE, THE ASSESSEE WAS ASKED AS TO WHY SHORT TERM CAPITAL GAIN OF RS.2,11,114/- SHOULD NOT BE TAXED UNDER THE HEAD I NCOME FROM BUSINESS AND PROFESSION. IN RESPONSE, THE ASSESSEE PLACED RELI ANCE UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF G. VENKATASWAMI N AIDU & CO. VS CIT AND RAJ BAHADUR KAMAKHYA NARAIN SINGHH VS. CIT. THE A. O. WAS OF THE VIEW THAT THE CASES RELIED UPON BY THE ASSESSEE WERE ON DIFFE RENT FACTS AND HE DID NOT ACCEPT THE EXPLANATION OFFERED B Y THE ASSESSEE. TH E A.O. ALSO NOTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY REGULAR BOOKS OF AC COUNTS BEFORE FILING HER RETURN OF INCOME. THE A.O., THEREFORE, ADDED THIS AMOUNT OF RS.2,11,114/- TREATING IT AS BUSINESS INCOME, TO THE INCOME OF TH E ASSESSEE ON THE FOLLOWING GROUNDS: I) THE ASSESSEE IS FREQUENTLY INVESTING IN SHARES F OR MAKING PROFIT ON SUCH TRANSACTIONS; II) THE ASSESSEE IS INVESTING IN SHARES NOT FOR GET TING DIVIDEND BUT PROFIT BOOKING THEREON. III) THE ASSESSEE IS TRADING IN SHARES TRADING OF FUTURE / OPTION AND HAS SHOWN BUSINESS INCOME THEREFROM; IV) THE ASSESSEE IS MAKING INVESTMENT FREQUENTLY AND RE GULARLY FOR GETTING PROFIT FORM SUCH TRANSACTIONS. V) THE ASSESSEE HAS BORROWED THE MONEY AND INVESTED IN SHARES TRADING BUSINESS. 3. BEFORE CIT(A), FOLLOWING SUBMISSIONS WERE MADE: THE APPELLANT HAD SUBMITTED SCRIP WISE DETAILS OF PURCHASE AND SALE OF SHARES AFFECTED IN FINANCIAL YEAR 2005-06 I N HER DEMAT A/C. FROM THE SAME ONE CAN ASCERTAIN THAT NO, OF TRANSACTION THROUGHOUT THE YEAR ARE VERY NOMINAL. THE APPELLANT HAD REFLECTED THE INCOME FROM INVESTM ENT I.E. SAVINGS BANK INTEREST, INTEREST ON LOAN GIVEN TO FIRMS AS INCOME FROM OTHER SOURCES, THE DIVIDEND FROM SHARES/MUTUAL FUND WHICH IS EXEMPT U/ S. 10(34&35) AS TAX FREE INCOME. THE LONG TERM CAPITAL GAIN WHICH ARISE FROM SALE OF SHARES ARE REFLECTED AS LTCG EXEMPT U/S. 10(38) OF INCOME- TAX ACT. THE SHORT TERM CAPITAL GAIN WHICH ARISE IN SALE OF SHARES IS SHOWN AS TAXABLE AT CONCESSIONAL RATE OF 10% U/S. 111A OF THE INCOME-TA X ACT. THE APPELLANT HAD SUBMITTED DURING ASSESSMENT PROCE EDINGS AND RELIED UPON CERTAIN GENERA! PRINCIPLE LAID DOWN BY THE SUP REME COURT IN THE I.T.A.NO. 213/AHD/2011 3 CASE OF G. VENKOTA SWAMI NAYDA & CO. VS. CIT (1959) 35 ITR 594. THE ASSESSEE HAD ALSO RELIED ON THE DECISION OF H M OHAMMAD & CO. (1977) 107 ITR 637. 'THE GUJARAT HIGH COURT OBSERVE D THAT STOCK TRADE IS SOMETHING IN WHICH A TRADER OR A BUSINESSMAN DEA LS. WHEREAS HIS CAPITAL ASSET IS SOMETHING WITH HE DEALS.' THIS GEN ERAL PRINCIPLE HELD IN RESPECT OF SHARES ALSO. HOWEVER, CERTAIN SPECIFIC I SSUES RELEVANT FOR DETERMINING THIS QUESTION WITH REFERENCE TO SHARES HAD ALSO BEEN DECIDED BY THE COURTS. REFER SARDAR INDARSINGH & SONS LTD. VS. CIT (1953) 24 ITR 445. THE ASSESSEE IS DOING INVESTMENT OUT OF HER OWN FUN DS., SHE HAD NOT TAKEN ANY BANK LOAN/LOAN FROM FINANCIAL INSTITUTION FOR THE PURPOSE OF MAKING INVESTMENTS IN SHARE/MUTUAL FUNDS AND OTHER INVESTMENTS. THE UNSECURED LOAN RECEIVED BY HER IS FORM FAMILY MEMBE RS AND A FAMILY FRIEND. SHE IS NOT PAYING ANY INTEREST ON THIS LOAN . SO FROM THE ABOVE ONE CAN ASCERTAIN THAT APPELLANT IS AN INVESTOR AND NOT A DEALER OF SHARES AND SECURITIES AND INCOME AS DECLA RED BY HER IN RESPECT OF STCG CANNOT BE ASSESSED INCOME FROM BUSINESS'. 4. AFTER TAKING INTO CONSIDERATION THESE SUBMISSION S OF THE ASSESSEE, LD. CIT(A) HELD AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZE D REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. FROM THE RECORDS IT IS SEEN THAT THE APPELLANT HAS KEPT SOME SHARES FOR A LONGER PERIOD AND SOME SHARES HAVE BEEN TRADED FREQ UENTLY. THERE IS POSSIBILITY OF A PERSON HAVING TWO DIFFERENT PORTFO LIOS. HOWEVER, IT IS FOR THE PERSON TO SEGREGATE THE TWO. IF THE PERSON TRIES TO PASS ON THE TRADING TRANSACTION AS LONG TERM INVESTMENT THE N THERE IS LIKELIHOOD OF EVEN INVESTMENT HELD AS TRADING TRANS ACTIONS. APPARENTLY, THE APPELLANT HAS DONE THE SAME THING A ND TRIED TO PASS EVEN TRADING TRANSACTION AS INVESTMENT. THE APPELLANT MA Y BIFURCATE THE TWO AND FOR THIS PURPOSE SALE/PURCHASE COMPUTED AS WITH IN ONE MONTHS MAY BE CONSIDERED AS TRADING TRANSACTION. THE ASSESSING OFFICER MAY RE-WORK THE BUSINESS INCOME ACCORDINGLY. THIS GROUND IS PAR TLY ALLOWED. 5. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE WAS ASKED AS TO WHY THE RATIO OF DECISION OF ITAT AHMEDABAD BENCH IN I. T.A.NO. 2554/AHD/2008 IN THE CASE OF SHRI SUGAMCHAND C. SHAH SHOULD NOT BE A PPLIED IN THIS CASE AS IN THAT CASE ALSO SHARE TRADING DONE WITHIN ONE MONTH WAS TREATED AS BUSINESS I.T.A.NO. 213/AHD/2011 4 INCOME. THE LD. COUNSEL FOR THE ASSESSEE VIDE HIS WRITTEN SUBMISSION DISTINGUISHED THE FACTS OF THIS CASE FROM THE CASE OF SHRI SUGAMCHAND C. SHAH AND PLACED RELIANCE ON THE FOLLOWING OTHER DECISION S OF VARIOUS BENCHES OF ITAT; I) NAGINDAS P. SHETH (HUF) VS ACIT (ITAT MUMBAI) I.T.A.NO. 961/MUM/2010 II) ACIT VS. NAISHADH V. VACHHARAJANI (ITAT MUMBAI ) I.T.A.NO. 6429/MUM/2009 III) SHANTILAL M. JAIN VS ACIT (ITAT MUMBAI) I.T.A.NO. 2690/MUM/2010 IV) RAMESH BABU RAO VS ACIT (ITAT MUMBAI) I.T.A.NO. 3719/MUM/2009 V) ACIT VS. VINOD K. NEVATIA (ITAT MUMBAI) I.T.A.NO. 6556/MUM/2009 VI) DCIT VS. SMK SHARES & STOCK BROKING (ITAT MUMB AI) I.T.A.NO. 799/MUM/2009 WHERE IN IT HAS BEEN HELD THAT EVEN IF THERE ARE LA RGE NUMBER OF PURCHASE AND SALE OF SHARES AND EVEN IF THERE IS A SHORT PERIOD OF HOLDING OF SHARES, PURCHASED AND SOLD AND EVEN IF THERE IS HIGH VOLUME OF SUCH A CTIVITY, SUCH INVESTMENT MADE ON SALE CANNOT BE TREATED AS BUSINESS INCOME A ND BY RULE OF CONSISTENCY SUCH PURCHASE AND SALE OF SHARE HAS TO BE TAXED AS SHORT TERM CAPITAL GAIN. 7. LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER O F LD. CIT(A). 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORDS, I FIND THAT THE A.O. HAS MADE THE ADDITION ON THE GROUND THAT THE A SSESSEE IS FREQUENTLY INVESTING IN SHARES FOR MAKING PROFIT AND MADE TRAN SACTION NOT FOR GETTING DIVIDEND, HAS BEEN TRADING IN SHARES AND TRADING OF FUTURE/OPTIONS AND HAS BORROWED MONEY AND INVESTED THE SAME IN SHARE TRADI NG BUSINESS. LD. CIT(A) HAS NOT GIVEN ANY REASON FOR HIS FINDING THAT SHARE TRADING WITHIN ONE MONTH SHOULD BE TREATED AS BUSINESS INCOME AND THE OTHER TRANSACTION SHOULD BE TREATED AS SHORTS TERM CAPITAL GAIN. THOUGH THE LD. CIT(A) HAS GIVEN SUBSTANTIAL RELIEF TO THE ASSESSEE BY GIVING THIS FINDING BUT THE REVE NUE HAS NOT FILED ANY APPEAL. I FURTHER FIND THAT THERE IS NO DISPUTE ABOUT THE FAC T THAT ASSESSEE IS A MEDICAL STUDENT AND SHE HAS INVESTED HER OWN CAPITAL IN SHA RES AND HAD NOT BORROWED FUNDS EXCEPT RS.4.94 LACS THAT TOO FROM FAMILY MEMB ERS ONLY ON THIS AMOUNT NO I.T.A.NO. 213/AHD/2011 5 INTEREST WAS PAID BY HER. THERE WERE ONLY 40 TRANS ACTIONS I.E. JUST AROUND 3 TRANSACTIONS / MONTH AND THE SCRIPTS IN WHICH SHE T RANSACTED WERE ONLY 16 DURING THE WHOLE YEAR UNDER APPEAL. FROM ALL THESE FACT S, IT IS CLEAR THAT INTENTION OF THE ASSESSEE WAS ONLY TO INVEST IN SHARES AND SELL THEM AS AND WHEN THE PRICE INCREASES. MOREOVER, THERE IS NO FINDING OF THE A. O. THAT IN THE ACCOUNTS SHOWN BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, SHARES HAVE BEEN TREATED AS STOCK IN TRADE AND NOT AS INVESTMENT. IN THE BALAN CE SHEET ALSO, ASSESSEE HAS REFLECTED THIS INVESTMENT IN SHARES AT COST AND NOT AT MARKET OR COST WHICHEVER IS LESSER, WHICH CLEARLY SHOWS THAT THEY WERE NOT TREA TED AS STOCK IN TRADE BY THE ASSESSEE. THESE FACTS ALSO SUGGEST THAT HER HOLDIN G OF SHARES WAS FOR INVESTMENT ONLY. I FURTHER FIND THAT LONG TERM CAPITAL GAIN S HOWN BY THE ASSESSEE OF RS.65,670/- HAS ALSO BEEN ACCEPTED BY THE REVENUE A UTHORITIES. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED OPINION THAT THE RATI O IN THE CASE OF SHRI SUGAMCHAND C. SHAN (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THIS CASE AS IN THAT CASE, PROFIT ON SALE OF SHARES WAS RS.96.76 LACS. UNSECURED LOANS OBTAINED WERE OF RS.41.02 LACS. ASSESSEE HAD DEPLOYED INFRA STRUCTURE FOR SALE AND PURCHASE OF SHARES AND HAD INCURRED EXPENSES FOR ST AFF SALARY, TELEPHONE AND OTHER EXPENSES TO EARN SUCH INCOME. IN THAT CASE, ASSESSEE ENTERED INTO 1833 TRANSACTIONS DURING THE YEAR IN RESPECT OF 205 SCRI PTS. THEREFORE, THE FACTS WERE TOTALLY DIFFERENT IN THAT CASE FROM THE CASE IN HAN D. 9. ON THE OTHER HAND THE CASE LAW RELIED BY THE LD. COUNSEL FOR THE ASSESSEE (GIVEN IN PARA 6 ABOVE) SUPPORT THE CASE OF THE ASS ESSEE. IN VIEW OF ABOVE, THE A.O. IS DIRECTED TO ACCEPT THE ASSESSEES CLAIM OF SHORT TERM CAPITAL GAIN. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE 2011. SD./- (D.K.TYAGI) JUDICIAL MEMBER AHMEDABAD; DATED :17 TH JUNE, 2011 SP I.T.A.NO. 213/AHD/2011 6 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 15/6/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16/6/11. OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 16/6/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 17/6/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 17/6/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/6/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..