VINODINI N. PAREKH, MUMBAI V. ACIT 12(1), MUMBAI

ITA 2133/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8168 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 12-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA
• Assessee Lawyers: NILKHANT KHANDELWAL
• Keywords: Business income
• Section: 143(3); 234B; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.2133/MUM/2010 ( / ASSESSMENT YEAR :2006-07) MRS.VINODINI N PAREKH, FORTUNE BUILDING, 3 RD FLOOR, 568, L J ROAD, FIVE GARDENS, MATUNGA (E), MUMBAI-400019 / VS. ASSTT. COMMISSIONER OF INCOME TAX 12(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( ! / APPELLANT) .. ( '# ! / RESPONDENT) ./ $ ./ PAN/GIRNO.:AACPP6300L ! % / APPELLANT BY : SHRI NILKHANT KHANDELWAL '# ! & % /RESPONDENT BY: SHRI SAMBIT MISHRA ' ( & ) * / DATE OF HEARING : 28.7.2014 +, & ) * /DATE OF PRONOUNCEMENT : 19. 9.2014. / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 09- 02-2010 PASSED BY LD CIT(A)-23, MUMBAI AND IT RELAT ES TO THE ASSESSMENT YEAR 2006-07. 2. FOLLOWING THREE ISSUES ARE CONTESTED IN THIS APP EAL:- (A) DISALLOWANCE MADE U/S 14A OF THE ACT (B) ASSESSMENT OF SHORT TERM CAPITAL GAIN AS BUSI NESS INCOME (C) CHARGING OF INTEREST U/S 234A, 234B AND 234C . 3. THE FACTS RELATING TO THE CASE ARE DISCUSSED IN BRIEF. AS PER THE RETURN OF INCOME, THE ASSESSEE HEREIN IS A SENIOR CITIZEN. T HE ASSESSEE DECLARED SHORT TERM CAPITAL GAINS (STCG) FROM DEALING IN SHARES AN D ALSO DECLARED EXEMPTED DIVIDEND INCOME. DURING THE COURSE OF ASSESSMENT PR OCEEDING, THE AO MADE I.T.A. NO. 2133/MUM/2010 2 DISALLOWANCE U/S 14A OF THE ACT BY INVOKING THE PRO VISIONS OF RULE 8D. THE AO ALSO TOOK THE VIEW THAT THE ASSESSEE HAS PURCHASED AND SOLD SHARES IN THE FORM OF BUSINESS ACTIVITY AND ACCORDINGLY ASSESSED THE S HORT TERM CAPITAL GAINS AS BUSINESS INCOME. THE AO ALSO CHARGED INTEREST U/ S 234A, 234B AND 234C OF THE ACT. ALL THE ABOVE SAID THREE GROUNDS WERE DEC IDED AGAINST THE ASSESSEE BY LD CIT(A). HENCE THE ASSESSEE HAS FILED THIS APPEA L BEFORE US. 4. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE DECLARED DIVIDEND INCOME AT RS.62,134/-. T HE AO COMPUTED DISALLOWANCE U/S 14A AT RS.71,642/-, BY APPLYING RU LE 8D(2)(III) OF THE INCOME TAX RULES, 1962 (THE RULES), I.E., AT 0.5% OF THE A VERAGE VALUE OF INVESTMENTS, BUT RESTRICTED THE SAME EQUAL TO THE AMOUNT OF DIVI DEND INCOME REFERRED ABOVE. THE LD CIT(A) ALSO CONFIRMED THE SAME BY FOLLOWING THE SPECIAL BENCH DECISION RENDERED IN THE CASE OF DAGA CAPITAL MANAGEMENT (11 7 ITD 169). 5. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E. THE PRESENT ASSESSMENT YEAR BEING AY 2006-07, THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE AS PER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF GODREJ BOYCE MFG. CO. LTD (328 ITR 81). ACCORDING TO THE SAID DECISION THE PROVISIONS OF RULE 8D SHALL HAVE PROSPECTIVE EFFECT ONLY. HOWEVER, IT HAS BEEN HELD THAT THE AO HAS TO COMPUTE THE DISALLOWANCE ON A REASONABLE BASIS. IN THE INSTANT CASE, THE CLAIM OF THE ASSESSEE IS THAT SHE DID NOT INCUR ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. REFERRING TO THE PROFIT AND LOSS ACCOUNT PLACED AT PAGE 7 OF THE PAPER BOOK, THE LD A.R SUBMITTED T HAT THE EXPENSES CLAIMED BY THE ASSESSEE ARE ALL RELATED TO THE SPECULATION GAI NS ONLY. ACCORDINGLY, IT WAS CONTENDED BY LD A.R THAT NO DISALLOWANCE U/S 14A IS CALLED FOR. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE PROVISIONS OF SEC. 14 A SHALL APPLY EVEN IF THE ASSESSEE CLAIMS THAT SHE DID NOT INCUR ANY EXPENDIT URE. IT IS NOW SETTLED PROPOSITION THAT THE DISALLOWANCE U/S 14A HAS TO BE DETERMINED BY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IN THE INSTANT CA SE, THE AO DID NOT MAKE ANY REFERENCE TO THE ACCOUNTS IN ORDER TO EXAMINE THE C ORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. THE DIVIDEND INCOME EARNED BY THE ASSESSEE IS ALSO RS.62,134/- ONLY. THE DISALLOWANCE COMPUTED BY TH E AO SHOW THAT HE HAS PROPOSED TO DISALLOW ONLY GENERAL EXPENSES ONLY. HE NCE, UNDER THESE I.T.A. NO. 2133/MUM/2010 3 CIRCUMSTANCES, IN ORDER TO PUT THIS ISSUE AT REST, WE ESTIMATE THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT AT RS.1,000/- BY CONSIDE RING THE PROFIT AND LOSS ACCOUNT PLACED AT PAGE 7 OF THE PAPER BOOK. ACCORD INGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RES TRICT THE DISALLOWANCE U/S 14A AT RS.1,000/-. 6. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF SHORT TERM CAPITAL GAINS AS BUSINESS INCOME OF THE ASSESSEE. BOTH THE PARTIES HAVE RELIED UPON VARIOUS CASE LAWS TO SUPPORT THEIR RESPECTIVE CONTENTIONS. THE TAX AUTHORITIES HAVE ALSO PLACED RELIANCE ON THE CIRCULAR NO.4 OF 2007 DATED 15.6.2007, WHEREIN CERTAIN GUIDING FACTORS THAT ARE NEEDED TO BE CONSIDERED TO DECIDE ABOUT THE NATURE OF TRANSACTIONS HAS BEEN STATED. ALL THE CASE LAWS RE VEAL ONLY ONE POINT THAT THERE IS NO STRAIGHT JACKET FORMULA TO DECIDE ABOUT THE N ATURE OF SHARE TRANSACTIONS VIZ., WHETHER IT WAS CARRIED AS BUSINESS ACTIVITY O R INVESTMENT ACTIVITY. THE FACTS PREVAILING IN EACH CASE HAS TO BE JUDGED INDEPENDEN TLY IN ORDER TO RESOLVE THE SAID QUESTION. 7. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AO HAS HELD THAT THE ASSESSEE HAS CARRIED ON SHARE TRANSACTIONS ON DAY T O DAY BASIS AND IT HAS BEEN CARRIED IN A VERY WELL PLANNED, SYSTEMATIC AND ORGA NIZED MANNER. THE AO HAS ALSO POINTED OUT THAT THE ASSESSEE HAS INDULGED IN REPETITIVE TRANSACTIONS. ACCORDINGLY, THE AO HAS ARRIVED AT THE CONCLUSION T HAT THE ASSESSEE WAS CARRYING ON SHARE TRANSACTIONS AS BUSINESS ACTIVITY ONLY. T HE LD CIT(A) HAS ALSO ENDORSED THE VIEW TAKEN BY THE ASSESSING OFFICER. HOWEVER, A CAREFUL PERUSAL OF THE ORDERS OF BOTH THE AUTHORITIES WOULD SHOW THAT THEY DID NO T EXAMINE THE FACTS PREVAILING IN THE INSTANT CASE, BUT HAVE PROCEEDED TO DECIDE T HE SAME ON THE BELIEF THAT THE VARIOUS GUIDE LINES PRESCRIBED BY THE CBDT IN ITS C IRCULAR ARE AUTOMATICALLY APPLICABLE TO THE INSTANT CASE. 8. WE NOTICE THAT THE SHORT TERM CAPITAL GAIN DEC LARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS RS.39,50,929/-. T HE DETAILS OF THE SAME ARE PLACED AT PAGE 19 OF THE PAPER BOOK. A CAREFUL ANA LYSIS OF THE SAME WOULD SHOW THAT THE ASSESSEE HAS EARNED MORE THAN 90% OF THE A BOVE SAID GAIN IN JUST FOUR SCRIPS AS DETAILED BELOW:- I.T.A. NO. 2133/MUM/2010 4 (A) AFTEK 4,46,317 (B) AHMEDNAGAR FORGING 3,68,368 (C) AMTEK INDIA LTD 3,03,605 (D) WEBELS ENGG LTD 21,84,485 IN FACT, THE ASSESSEE HAS MADE MORE THAN 50% OF GAI N IN JUST ONE SCRIP, VIZ., WEBELS ENGG LTD. THOUGH IT IS A FACT THAT THE ASSE SSEE HAS DEALT IN 41 TYPES OF SCRIPS DURING THE YEAR UNDER CONSIDERATION, THE FAC TS DISCUSSED ABOVE SHOW THAT THE ASSESSEE HAS MADE MORE GAINS IN FOUR SCRIPS ONL Y. IN THE CASE OF WEBELS ENGG LTD, THE ASSESSEE HAD PURCHASED 14,399 SHARES IN JULY 2005 AND 601 SHARES ON AUGUST 10, 2005 AND OFF LOADED THEM IN IN STALLMENTS DURING THE LAST WEEK OF AUGUST, 2005 AND MADE A PROFIT OF RS.21.84 LAKHS. IT IS A WELL SETTLED PROPOSITION THAT THE INTENTION OF THE INVESTOR AT T HE TIME OF PURCHASE IS MORE RELEVANT TO DETERMINE THE CHARACTER OF THE ASSET. IN THE ABOVE SAID CASE, THE ASSESSEE HAS PURCHASED THE SHARES OF WEBELS ENGG LT D AT AN AVERAGE RATE OF RS.150/- PER SHARE. BUT THE PRICE OF THE ABOVE SAI D COMPANY HAS APPRECIATED FAST AND IT HAS ALMOST DOUBLED BY THE END OF AUGUST , 2005. IN A VOLATILE SHARE MARKET, AN INVESTOR ALSO SOMETIMES SELL THE SHARES IF ABNORMAL GAIN IS ACHIEVED IN SHORT PERIOD AND HENCE THE SAID ACTION, IN OUR V IEW, SHOULD NOT BE TAKEN AS THE CRITERIA TO CHANGE THE CHARACTER OF THE SHARE TRANS ACTION. 9. THE AO HAS POINTED OUT THAT THE ASSESSEE HAS INDULGED IN REPETITIVE TRANSACTIONS. THE ANALYSIS OF THE SHARE TRANSACTIO NS FURNISHED BY THE ASSESSEE WOULD SHOW THAT THE ASSESSEE HAS REPURCHASED THE SH ARES ONLY IN CASE OF FEW SCRIPS. THE AO HAS ALSO POINTED OUT THAT THE ASSES SEE HAS BORROWED FUNDS FOR THE PURPOSE OF PURCHASING THE SHARES. TO COUNTER THE SAID PRESUMPTION, THE LD A.R INVITED OUR ATTENTION TO THE BALANCE SHEET OF T HE ASSESSEE PLACED AT PAGE 6 OF THE PAPER BOOK. THE ASSESSEE HAS BORROWED FUNDS TO THE TUNE OF RS.40.26 LAKHS. THE DETAILS OF THE SAID LOAN WOULD SHOW THA T THE ASSESSEE HAS TAKEN THOSE LOANS FROM HER RELATIVES ONLY. THE LD A.R SUBMITTE D THAT THE SAID LOANS ARE INTEREST FREE LOANS. A PERUSAL OF THE PROFIT AND L OSS ACCOUNT AND CAPITAL ACCOUNT SHOWS THAT THE ASSESSEE DID NOT PAY INTEREST ON THO SE LOANS. THE LD A.R ALSO POINTED THAT THE ASSESSEES OWN CAPITAL STAND AT RS .150.86 LAKHS, WHERE AS THE INVESTMENT IN SHARES STAND AT RS.142.61 LAKHS AND A CCORDINGLY SUBMITTED THAT THE OWN CAPITAL SUFFICIENTLY EXPLAIN THE SOURCES FO R MAKING THE INVESTMENTS. IN I.T.A. NO. 2133/MUM/2010 5 THIS REGARD, THE LD A.R PLACED RELIANCE ON THE DECI SION RENDERED BY THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF REL IANCE UTILITIES LTD (313 ITR 340). SO THE INFERENCE DRAWN BY THE AO IN THIS REG ARD IS ALSO FOUND TO BE MISCONCEIVED. 10. THE LD A.R ALSO SUBMITTED THAT THE ASSESSME NT OF THE ASSESSEE RELATING TO THE ASSESSMENT YEARS 2003-04 AND 2004-05 WERE COMPL ETED U/S 143(3) OF THE ACT. THE RELEVANT ASSESSMENT ORDERS ARE PLACED AT P AGES 38 TO 42 OF THE PAPER BOOK. A PERUSAL OF THE SAME WOULD SHOW THAT THE AS SESSEE INCURRED SHORT TERM CAPITAL LOSS OF RS.9,37,931/- IN AY 2003-04 AND EAR NED SHORT TERM CAPITAL GAIN OF RS.6,17,892/- IN AY 2004-05. IN BOTH THE ASSESSMEN TS, THE ASSESSING OFFICER HAS ACCEPTED THE SHORT TERM CAPITAL LOSS/GAINS DECLARED BY THE ASSESSEE. ACCORDING TO THE ASSESSEE, THERE IS NO CHANGE IN THE FACTS RE LATING TO HER SHARE TRANSACTIONS. IN AY 2005-06, THE RETURN FILED BY T HE ASSESSEE WAS ACCEPTED U/S 143(1) OF THE ACT. 11. THE LD D.R, DURING THE COURSE OF ARGUMENTS, SUBMITTED THAT THE ASSESSEE DID NOT ENGAGE HERSELF IN ANY OTHER ACTIVITY AND HE NCE DEALING IN SHARES IS THE FULL TIME ACTIVITY OF THE ASSESSEE. BUT, IT APPEARS THA T THE LD D.R DID NOTICE THE FACT THAT THE ASSESSEE IS A SENIOR CITIZEN AND HENCE WE DO NOT FIND MERIT IN THE SAID CONTENTIONS. 12. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THERE IS NO REASON TO SUSPECT THE NATURE OF ACTIVITY CARRIED ON BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE ARE UNAB LE TO AGREE WITH THE VIEW TAKEN BY THE TAX AUTHORITIES. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ASSE SS THE IMPUGNED GAIN AS SHORT TERM CAPITAL GAIN ONLY. 13. NEXT ISSUE RELATES TO THE CHARGEABILITY OF INT EREST U/S 234A, 234B AND 234C OF THE ACT. THOUGH THE CHARGING OF INTEREST UNDER THE ABOVE SECTIONS IS CONSEQUENTIAL IN NATURE, THE LD A.R POINTED OUT THA T THE INTEREST U/S 234C IS CHARGEABLE ON THE RETURNED INCOME AND NOT ON ASSESS ED INCOME. THE ASSESSING OFFICER, WHILE PASSING CONSEQUENTIAL ORDER, IS DIRE CTED TO COMPUTE THE INTEREST UNDER THE ABOVE SAID SECTIONS IN ACCORDANCE WITH TH E LAW. I.T.A. NO. 2133/MUM/2010 6 14. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COU RT ON 19TH SEPT, 2014 . +, ' - . / 19 TH SEP , 2014 , & ( 0 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' ( MUMBAI: 19TH SEPT ,2014. . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. ' 1) ( ) / THE CIT(A)- CONCERNED 4. ' 1) / CIT CONCERNED 5. 6. 23 ')4 , * 4 , ' ( / DR, ITAT, MUMBAI CONCERNED 5 ( / GUARD FILE. 6 ' / BY ORDER, TRUE COPY 7 (ASSTT. REGISTRAR) * 4 , ' ( /ITAT, MUMBAI