YAMINI KAUSHIK VORA, MUMBAI V. ITO WD 13(3)(2), MUMBAI

ITA 213/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71682 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 28-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 10-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR MANJUNATH KARKIHALLI
• Assessee Lawyers: MATHURIA
• Keywords: Business income; Rule of consistency; Source of fund
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 213/MUM/2012 (ASSESSMENT YEAR:2008-09) MS. YAMINI KAUSHIK VORA 101, BROACH SADAN 84-A, BROACH STREET MASJID BUNDER MUMBAI-400 009. VS. THE INCOME TAX OFFICER WARD 13(3)(2) 428 AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. (APPELLANT) (RESPONDENT) P.A. NUMBER : AAAPV 3530 E ASSESSEE BY : SHRI M .S. MATHURIA REVENUE BY : DR. MANJUNATH KARKIHALLI DATE OF HEARING : 28/10/2013 DATE OF PRONOUNCEMENT : 08/11/2013 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.11.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-0 9. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN LAW, LD. ASSESSING OFFICER HAS ERRED IN TREATING ONE TRANSACTION OF SALE OF SHARES AS INCO ME FROM BUSINESS OR PROFESSION ON TREATING OTHER TRANSACTIONS OF SA LE OF SHARES AS CAPITAL GAINS VIDE IMPUGNED ASSESSMENT ORDER PASS ED U/S. 143(3) BY AO AND LD. CIT(A) ALSO HAS ERRED IN SUSTENANCE OF IMPUGNED PRESUMPTION OF AO WHICH ACTIONS ARE BAD IN LAW AB-I NITIO AND ARE REQUIRED TO BE QUASHED. ITA NO.213/M/12 A.Y.08-09 2 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAD INTERALIA SUBSCRIBED TO INITIAL PUBLIC OFFERING (IPO) OF POWER GRID CORPORATION BY TAKING LOAN FROM L&T FINA NCE AND CLAIMED THE INTEREST PAID THEREON AS COST OF SHARES. THE AO NOTED THAT THE ASSESSEE APPLIED IN THE IPO OF POWER GRID CORPORATI ON FOR 15,04,500 SHARES @ RS.52/- PER SHARE ON 13.09.2007. THE TOTAL AMOUNT PAYABLE ALONG WITH APPLICATION WAS RS.7,82,34,000/- OUT OF WHICH THE ASSESSEE USED THE BORROWED FUND OF RS.7,58,86,980/-. ON ALL OTMENT, THE ASSESSEE GOT 38298 SHARES FOR RS.19,91,496/-. ACCORDINGLY TH E ASSESSEE GOT REFUND OF RS.7,62,42,504/- WHICH WAS REPAID TO THE L&T FINANCE ALONG WITH INTEREST. IMMEDIATELY AFTER THE ALLOTMENT AND LISTING OF THE SHARES THE ASSESSEE SOLD THE SHARES OF POWER GRID CORPORAT ION IN TWO LOTS I.E., OF 23000 ON 5.10.2007 AND 15398 ON 08.10.2007. THE ASS ESSEE SHOWED SHORT TERM CAPITAL GAIN OF RS.14,07,879/- ARISING F ROM THE SALE OF SHARES OF POWER GRID CORPORATION. THIS CAPITAL GAIN HAS BE EN COMPUTED BY THE ASSESSEE AFTER THE INTEREST OF RS.4,08,010/- TREATE D AS PART OF COST OF SHARES. THE AO TREATED THE SAID SURPLUS OF RS.14,0 7,879/- AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN OFFERED B Y THE ASSESSEE. ON APPEAL THE LD. CIT(A) HAS CONFIRMED THE ACTION OF T HE AO. 2.1 BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMI TTED THAT THE ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN /LOSS I N 27 SCRIPS. HOWEVER, THE AO HAS ASSESSED ONLY SHORT TERM CAPITAL GAIN ON SALE OF POWER GRID CORPORATION LTD. AS BUSINESS INCOME AND SHORT TERM CAPITAL GAIN /LOSS ARISING FROM THE REMAINING 26 SCRIPS HAS BEEN ACCEP TED BY THE AO. HE HAS FURTHER SUBMITTED THAT THOUGH THE ASSESSEE HAS USED BORROWED FUNDS TO THE EXTENT OF RS.7,58,00,000/- FOR APPLYIN G IN THE IPO OF POWER GRID CORPORATION, HOWEVER, IN AN IDENTICAL TRANSACT ION, IN THE CASE OF RELIANCE POWER THE AO ACCEPTED THE TRANSACTION AS I NVESTMENT. THUS THE LD. AR HAS SUBMITTED THAT WHEN THE AO HAS ACCEPTED THE TRANSACTION OF PURCHASE AND SALE OF SHARES OF RELIANCE POWER AS IN VESTMENT, THEN, A ITA NO.213/M/12 A.Y.08-09 3 SIMILAR TRANSACTION CANNOT BE TREATED DIFFERENTLY. HE HAS POINTED OUT THAT A SIMILAR FINANCE WAS AVAILED BY THE ASSESSEE FROM L&T FINANCE FOR FUNDING IPO FACILITY OF RELIANCE POWER LTD. THE ASS ESSEE WAS ALLOTTED 2725 SHARES OF RELIANCE POWER LTD. IN THE IPO WHICH WERE SOLD BY THE ASSESSEE ON LOSS. THE LOSS OFFERED BY THE ASSESSEE AS SHORT TERM CAPITAL LOSS ON SALE OF SHARES OF RELIANCE POWER HAS BEEN A CCEPTED BY AO APART FROM OTHER 25 SCRIPS. THE LD. AR HAS FORCEFULLY CON TENDED THAT OUT OF 27 SCRIPS THE AO HAS ACCEPTED 26 SCRIPS AS INVESTMENT AND ONLY ONE WAS PICKED UP BY AO AND TREATED AS BUSINESS TRANSACTION . IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON VARIOUS DECISIONS OF THIS TRIBUNAL AS WELL AS DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GOPAL PUROHIT (336 ITR 287) , AND THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DARIUS PANDOLE (330 ITR 485) AND SUBMITTED THAT THE AO IS BOUND BY THE PRINCIPLE OF CONSISTENC Y. 2.2 ON THE OTHER HAND THE LD. DR HAS RELIED UPON TH E ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS APPLIED FOR A HUGE QUANTITY I.E. 1504500 SHARES BY TAKING BORROWED FUN D OF RS.7.58 CRORES AND PAID INTEREST ON THE SAME AT RS.4,08,010/- FOR A VERY SHORT PERIOD OF 20 TO 22 DAYS. THE SHARES OF POWER GRID CORPORATION WERE LISTED ON BSE, NSE ON 5 TH OCTOBER, 2007 AND ASSESSEE SOLD 23,000 SHARES ON T HE DATE OF LISTING ITSELF AND BALANCE SHARES OF 15938/- ON 08/ 10/2007 WHICH IS THE NEXT WORKING DAY, BECAUSE 6 TH AND 7 TH OCTOBER, 2007 BEING SATURDAY AND SUNDAY. THUS, THE LD. DR SUBMITTED THAT THE HUGE QU ANTITY OF SHARES APPLIED IN IPO BY USING BORROWED FUND AND THEREAFTE R SALE OF SHARES IMMEDIATELY AFTER LISTING ON THE STOCK EXCHANGE CLE ARLY SHOWS THE INTENTION OF THE ASSESSEE AS TRADING AND NOT INVEST MENT. THE INTENTION FROM THE ENTIRE SEQUENCE OF EVENTS OF BORROWING FUN DS AND IMMEDIATELY AFTER LISTING SELLING THE SHARES, ESTABLISHED THE F ACT, THAT THE ASSESSEE HAS PURCHASED AND SOLD THE SHARES TO EARN QUICK PROFIT WHICH IS A COMMERCIAL TRANSACTION AND NOT AN INVESTMENT. ITA NO.213/M/12 A.Y.08-09 4 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE ARE VARIOUS CRITERIA AND PRINCIPLE TO DETERMINE THE NATURE OF TRANSACTIONS WHETHER TRADING OR INVES TMENT. IN ORDER TO DECIDE THE NATURE OF TRANSACTION, VARIOUS FACTORS A RE TO BE TAKEN INTO CONSIDERATION WHICH INCLUDES WHETHER ASSESSEE HAS B ORROWED MONEY TO PURCHASE THE SHARES AND PAID INTEREST THEREUPON, FR EQUENCY OF PURCHASE AND SALE IN A PARTICULAR ITEM/SCRIP, WHETHER PURCHA SE AND SALE IS FOR REALIZING PROFIT OR PURCHASE ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE, TREATMENT OF THE ITEM/SHARES PURCHASED BY TH E ASSESSEE IN THE BOOKS OF ACCOUNT. THEREFORE, TO DETERMINE THE NATUR E OF TRANSACTION WHETHER TRADING OR INVESTMENT EACH CASE HAS TO BE D ECIDED ON THE BASIS OF PECULIAR FACT OF THE SAID CASE. IN THE CASE OF T HE ASSESSEE THOUGH THE ASSESSEE HAS CARRIED OUT TRANSACTIONS ONLY IN 27 SC RIPS, HOWEVER, IT HAS TO BE TAKEN INTO ACCOUNT WHETHER THE ASSESSEE HAS P URCHASED THE SHARES FOR INVESTMENT OF HIS FUND AND WITH INTENTION TO RE TAIN THE SAME FOR APPRECIATION IN THE VALUE. 3.1 THE ASSESSEE WAS HAVING ONLY RS.27,55,460/- OF HER OWN FUNDS. BUT THE ASSESSEE APPLIED FOR 1504500 SHARES @ RS.52 PER SHARE OF POWER GRID CORPORATION. THUS, TOTAL PAYABLE AMOUNT WAS RS .7,82,34,000/-. THE ASSESSEE HAS AVAILED FINANCE FROM L&T FINANCE OF RS .7,58,86,980/- FOR THE PURPOSE OF APPLYING FOR SHARES OF POWER GRID CO RPORATION IN THE IPO. THUS, IT IS AMPLY CLEAR THAT THE ASSESSEE WAS NOT H AVING SUFFICIENT FUNDS AND RATHER MORE THAN 90% OF THE FUNDS REQUIRED FOR THE SUBSCRIPTION OF SHARES WAS BORROWED BY THE ASSESSEE. SINCE THE ASSE SSEE HAS AVAILED THE BORROWED FUND, THEREFORE, IMMEDIATELY AFTER ALLOTME NT AND LISTING OF THE SHARES, THE ASSESSEE SOLD THE SHARES OF POWER GRID CORPORATION ON THE DATE OF LISTING ITSELF IN PART AND THE REMAINING SH ARES ON THE NEXT WORKING DAY. THE FACT OF THE HUGE QUANTITY OF SHARES APPLIE D FOR BY THE ASSESSEE BY USING BORROWED FUNDS ON WHICH THE ASSESSEE PAID INTEREST AND OTHER ITA NO.213/M/12 A.Y.08-09 5 CHARGES OF RS.4,08,010/- , CLEARLY SHOWS THE INTENT ION OF THE ASSESSEE, THAT THE ASSESSEE APPLIED FOR THE SHARES OF POWER G RID CORPORATION TO SELL THE SAME AS SOON AS POSSIBLE TO DISCHARGE THE LIAB ILITY OF REPAYMENT OF BORROWED FUND AND INTEREST . SINCE THE ASSESSEE WAS NOT HAVING ANY OTHER MEANS OR SOURCE OF FUND TO REPAY THE AMOUNT O F RS.7,58,86,980/- ALONGWITH INTEREST OF RS.4,08,010/-, THEREFORE, THE ASSESSEE OTHERWISE COULD NOT HAVE AFFORDED RETENTION OF THESE SHARES. THEREFORE, FROM THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT TH E TRANSACTION OF PURCHASE AND SALE OF SHARES OF POWER GRID CORPORATI ON WAS SOLELY IN THE NATURE OF TRADING AS THE ONLY INTENTION OF THE ASSE SSEE WAS TO EARN THE PROFIT AT THE EARLIEST OCCASION AND ACCORDINGLY THE ASSESSEE DID SO. THE LD. CIT(A) HAS CONSIDERED THIS ISSUE IN PARA 3.3.3 TO 3 .3.6 AS UNDER :- 3.3.3 COMING TO THE FACTS OF THE PRESENT CASE, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD APPLIED FOR PURCHASE OF A LARGE NUMBER OF SHARES (15,04,500) FOR WHICH THE TOTAL AMOUNT PAYAB LE WAS RS. 7.82 CRORES. OUT OF THIS, THE ASSESSEE BORROWED LOAN OF RS. 7.58 CRORES FROM L&T FINANCE LTD. FOR WHICH IT PAID INTEREST OF RS. 4,08,010/- FOR A VERY SHORT PERIOD OF AROUND 20-22 DAYS. HENCE, TH E VOLUME OF PURCHASES IN THE SHARES OF THE COMPANY IS, WITHOUT DOUBT, HUGE. THE ASSESSEE HAS ALSO BORROWED FUNDS FOR THE PURCHASE O F THE SHARES ON WHICH INTEREST HAD BEEN PAID. 3.3.4 AS REGARDS THE INTENTION OF THE ASSESSEE, THE ASSESSEE HAD APPLIED FOR PURCHASE OF A LARGE NUMBER OF SHARES (1 5,04,500) OUT OF WHICH IT RECEIVED ALLOTMENT OF 38,298 SHARES. NORMA LLY, AN INVESTOR PURCHASES SHARES WITH THE INTENTION TO HOLD ON TO T HEM SO AS TO ENJOY APPRECIATION IN THEIR VALUE. THEY HAVE A PRIDE OF P OSSESSION IN THE ASSET THEY HAVE PURCHASED. AN INVESTOR, WHETHER SHO RT-TERM OR LONG TERM WAITS FOR APPRECIATION IN THE VALUE AFTER HOLD ING THE SHARES FOR SOME TIME. HOWEVER, IN THE CASE OF THE ASSESSEE, TH E FACTS UNEQUIVOCALLY SHOW THAT THE INTENTION WAS ONLY TO M AKE A QUICK PROFIT RATHER THAN TO ENJOY THE FRUITS OF APPRECIAT ION IN THE VALUE OF THE SHARES OVER A LONGER PERIOD OF TIME. THE SHARES WERE ALLOTTED TO THE ASSESSEE ON 03/10/2007, THE SHARES WERE LISTED ON THE STOCK EXCHANGE ON 05/10/2007 AND THE ASSESSEE SOLD OFF 23 ,000 SHARES ON 05/10/2007, I.E., ON THE SAME DAY WHEN THE SHARE S OF THE COMPANY WERE LISTED, AND THE BALANCE SHARES WERE SO LD OFF ITA NO.213/M/12 A.Y.08-09 6 IMMEDIATELY THEREAFTER ON 08/10/2007. THIS ONLY SHO WS THAT THE ASSESSEE WAS WANTING FOR AN OPPORTUNITY TO TRADE IN THE SHARES AT THE VERY FIRST INSTANCE, MAKE A QUICK PROFIT AND EX IT FROM THE SHARES. IT IS, THEREFORE, CLEAR FROM THE TOTALITY OF FACTS AND CIRCUMSTANCES THAT THE INTENTION OF THE ASSESSEE WAS ONLY TO TRADE IN THE SHARES AND NOT TO INVEST IN THEM. IN VIEW OF THE PRINCIPLES LAID D OWN BY THE VARIOUS HONBLE HIGH COURTS AND HONBLE SUPREME COURT, THE FACTS PRESENT IN THE CASE OF THE ASSESSEE CLEARLY SHOW THAT THE T RANSACTIONS ENTERED INTO BY THE ASSESSEE RELATING TO THE PURCHA SE AND SALE OF SHARES OF POWER GRID CORPORATION LTD. WERE IN THE N ATURE OF TRADING TRANSACTIONS AND CANNOT BE REGARDED AS INVESTMENT A CTIVITY. THE ACTION OF THE AO IS AS PER LAW AND CORRECT AND, THE REFORE, UPHELD. 3.3.5 THE ASSESSEE HAS TRIED TO CONTEND THAT THE AO HAS TREATED THE PURCHASE AND SALE OF SHARES OF RELIANCE POWER LTD. AS INVESTMENT WHEN IN THE SAID CASE ALSO THE PURCHASE WAS MADE BY AVAILING OF LOANS/FINANCE. HENCE, THE AO HAD TAKEN CONTRADICTOR Y STANDS. THE AO SHOULD HAVE FOLLOWED THE PRINCIPLES OF CONSISTE NTLY AND SHOULD HAVE HELD THAT PROFITS IN RESPECT OF POWER GRID COR PORATION ALSO WAS ASSESSABLE AS CAPITAL GAINS. IN MY OPINION, THIS CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED. THERE IS A BASIC DIFFE RENCE IN THE FACTS OF THE TWO CASES WHICH MAY HAVE WEIGHED IN THE MIND OF THE AO AT THE TIME OF PASSING THE ORDER (ALTHOUGH THIS HAS NO T BEEN DISCUSSED IN THE ASSESSMENT ORDER). IN THE CASE OF RELIANCE P OWER LTD., THE SCRIPS WERE ALLOTTED TO THE ASSESSEE ON 01/02/2008 (2725 SHARES) WHILE THE SAME WERE SOLD IN TWO LOTS ON 26/03/2008 AND 27/03/2008, I.E., HOLDING ON TO THEM FOR CLOSE TO 2 MONTHS. HENCE, WHILE IN THE CASE OF POWER GRID, SHARES WERE SOLD O N THE DATE OF LISTING AND WITHIN TWO TO THREE DAYS THEREAFTER, IN THE CASE OF RELIANCE POWER LTD., THE SHARES WERE SOLD OFF AFTER HOLDING THEM FOR CLOSE TO 2 MONTHS. 3.3.6 THE ASSESSEE HAS PLACED RELIANCE ON CERTAIN C ASE LAWS IN SUPPORT OF ITS CONTENTIONS. IN THE CASE OF SUN ENGI NEERING WORKS (P) LTD. REPORTED IN 198 ITR 297, IT HAS BEEN HELD THAT A DECISION IS AN AUTHORITY FOR WHAT IT ACTUALLY DECIDES AND NOT FOR WHAT FOLLOWS FROM OBSERVATIONS MADE WHILE DECIDING THE CASE. THE DECI SIONS IN THE CASE LAWS RELIED UPON BY THE ASSESSEE HAVE BEEN MAD E CONSIDERING THEIR OWN FACTS AND AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES IN THOSE INDIVIDUAL CASES. THE ASSESS EE HAS ALSO NOT SHOWN THAT IDENTICAL FACTS AS IN THE CASE LAWS RELI ED UPON BY IT WERE EXISTING IN HER CASE TOO. HENCE, THE RELIANCE OF TH E ASSESSEE ON THE SAID CASE LAWS IS MISPLACED. ITA NO.213/M/12 A.Y.08-09 7 IN VIEW OF THE AFORESAID REASONS, THE ACTION OF THE ASSESSING OFFICER IS UPHELD AND THIS GROUND OF APPEAL FILED BY THE AS SESSEE IS DISMISSED. 3.2 IT HAS BEEN BROUGHT OUT BY THE LD. CIT(A) THAT THE ASSESSEE WAS ALLOTTED THE SHARES ON 03.10.2007 WHICH WERE LISTED ON THE STOCK EXCHANGE ON 05.10.2007 AND THE ASSESSEE SOLD 23000 SHARES ON THE DATE OF LISTING ITSELF AND THE REMAINING ON THE NEXT WOR KING DAY I.E. 08.10.2007. WHEN THE TRANSACTION IN QUESTION ITSELF IS WITH THE INTENTION AND MOTIVE TO EARN PROFIT ON THE EARLIEST OCCASION, THEN THE PRINCIPLE OF CONSISTENCY AS RELIED UPON BY THE LD. AR IS NOT APP LICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN VIEW OF THE ABOVE DIS CUSSION WE DO NOT FIND ANY ERROR OR ILLEGALITY OF THE ORDERS OF AUTHORITIE S BELOW. THE IMPUGNED ORDER OF CIT(A) IS UPHELD. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH NOVEMBER, 2013. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI, DATED: 08/11/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.