SHRI PRAVIN P. SHAH, MUMBAI V. DCIT CIR 14(1), MUMBAI

ITA 2133/MUM/2011

• Counselvise Citation: 213319914 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 01-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NITESH JOSHI
• Keywords: Business income; Speculation loss
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J BENCH BEFORE SHRI B.R. MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.5643/MUM/2009: ASSESSMENT YEAR: 2005-06 ITA NO.5637/MUM/2009: ASSESSMENT YEAR: 2006-07 ITA NO.2133/MUM/2011: ASSESSMENT YEAR: 2007-08 PRAVIN POPATLAL SHAH FLAT NO.95B, MEGTHDOOT CHS LTD., 1 ST FLOOR, N.S.ROAD, MARINE DRIVE, MUMBAI- 400 002 PA NO. AAHPS 8273 Q VS. DCIT 14(1), 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI-21 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY: SHRI D.S.SUNDER SINGH/SMT. KUSU M INGALE DATE OF HEARING: 01.6.2012 DATE OF PRONOUNCEMENT: 11.7.2012 ORDER PER BENCH: THE ASSESSEE HAS FILED THESE THREE APPEALS FOR THE ASSESSMENT YEARS 2005-06, 2006- 07 AND 2007-08 AGAINST ORDER OF LD CIT(A) DATED 03. 08.2009, 03.08.2009 & 13.01.2011, RESPECTIVELY. 2. SINCE IN ALL THESE THREE APPEALS, MOST OF THE IS SUES (EXCEPT GROUND NO.2 OF THE APPEAL FOR AY 2005-06) ARE IDENTICAL AND HAVE IDENT ICAL FACTS, WE HEARD THESE APPEALS TOGETHER AND DECIDE THE SAME BY A COMMON ORDER AS H EREUNDER. 3. WE TAKE UP APPEAL FOR A.Y. 2005-06 I.E. ITA NO.5 643/MUM/2009 AS A LEAD APPEAL AND, THEREFORE, DISCUSS THE FACTS AND SAME WILL APP LY MUTATIS-MUTANDIS FOR OTHER TWO APPEALS AS FAR AS APPLICABILITY OF THE PROPOSITION AND LAW ARE CONCERNED. 2 I.T.A NO. 5643/MUM/2009, 5637/MUM/2009 & 2133/MUM/2011 PRAVIN POPATLAL SHAH 4. IN THE APPEAL FOR THE ASSESSMENT YEAR 2005-06, T HE ISSUE INVOLVED IS AS TO WHETHER CAPITAL GAIN OF RS.31,90,223/- ARISING OUT OF SALE OF SHARES AND UNITS OF MUTUAL FUNDS THROUGH PORTFOLIO MANAGEMENT SERVICES(PMS) IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR BUSINESS INCOME. THE GROUND OF APPEAL TAKEN BY ASSESSEE READS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITION CAPITAL GAINS (ARISING OUT OF SALE OF SHARES, UNITS AND SEC URITIES THROUGH PORTFOLIO MANAGEMENT SERVICES) OF RS.31,90,223/- AS PROFIT AND GAINS OF BUSINESS OR PROFESSION. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT A SUM OF RS.32,04,154/- AS SHORT TERM CAPITAL GAIN. THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) FURTHER ERRED IN CONFIRMING ADDITION OF SPECULATION LOSS OF RS.23,679 /- AS BUSINESS INCOME. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE I NCOME FROM PMS OUGHT TO HAVE BEEN COMPUTED AS CAPITAL GAINS AND DIVIDEND. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF ITP FEES AMOUNTING TO RS.26,250/-. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING TH E INTEREST CHARGED U/S.234A, 234B & 234C OF THE I.T. ACT. THE ASSESSEE FURTHER PRAYS THAT INTEREST CHARGED U/ S. 234A, 234B & 234C BE DELETED. 5. THE ASSESSEE IS AN INDIVIDUAL. HE WAS PART OF THE PROMOTER/ SHAREHOLDER GROUP OF BIDDLE SAWYER GROUP. DURING THE ASSESSMENT YEAR UN DER CONSIDERATION ASSESSEE PLACED RS.1.5 CRORES WITH M/S. KOTAK SECURITIES AND PRUDEN TIAL ICICI ASSET MANAGEMENT COMPANY LTD. FOR PURCHASE AND SALE OF SHARES. THE ASSESSEE DERIVED INCOME FROM PMS ACCOUNT AMOUNTING TO RS.32,36,137 AND OFFERED THE S AME UNDER THE HEAD CAPITAL GAIN. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E AND TREATED THE INCOME/EARNING ON PMS ACCOUNT AS BUSINESS INCOME OF THE ASSESSEE. TH E ASSESSEE FILED APPEAL BEFORE LD CIT(A). HOWEVER, LD CIT(A) DID NOT ACCEPT THE CONTE NTION OF THE ASSESSEE AND CONFIRMED THE ACTION OF THE AO.LD CIT(A) HELD THAT THE ASSESS EE HAD APPOINTED A PORTFOLIO MANAGERS 3 I.T.A NO. 5643/MUM/2009, 5637/MUM/2009 & 2133/MUM/2011 PRAVIN POPATLAL SHAH ON HIS BEHALF FOR DOING BUSINESS OF SHARES AND SECU RITIES WITH AN INTENTION FOR PURCHASE AND SALE OF SHARES. 6. BEFORE US, AUTHRORISED REPRESENTATIVE AND THE DE PARTMENTAL REPRESENTATIVE MADE THE SAME SUBMISSIONS THAT WERE MADE IN THE CASE OF MANAN NALIN SHAH (ITA NOS. 6166/MUM/2008, 2125/ MUM/2008 AND 4126/MUM/2008 AY. 2003 -04 ,2004-05,2005-06). AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE MATERIAL PRODUCED BEFORE US, WE HAVE DECIDED IN THOSE APPEALS THAT INCOME EARNED BY THE ASSESSEE THROUGH PMS HAS TO ASSESSED UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION(PARAGRAPHS 15-16 OF THE ORDER DTD.06.07. 2012). 7. LD. AR SUBMITTED THAT HE DOES NOT DISPUTE THE SP ECULATION LOSS TO BE ASSESSED AS BUSINESS INCOME. 8. IN VIEW OF THE ABOVE, GROUND NO.1 IS DECIDED IN PART IN FAVOUR OF THE ASSESSEE. 9. GROUND NO.2 IS ABOUT DISALLOWANCE OF ITP FEES AM OUNTING TO RS.26,250/-. AO AND THE CIT(A) HAD DISALLOWED THE CLAIM OF THE ASSESSEE AS HE HAS NOT PROVED THE NEXUS BETWEEN THE EXPENSE INCURRED AND INCOME EARNED. BEF ORE US, THE AR SUBMITTED THAT EXPENDITURE WAS INCURRED FOR EARNING INCOME. DR RE LIED UPON THE ORDERS OF THE AO AND THE CIT(A).AFTER CONSIDERING THE RIVAL SUBMISSION WE AR E OF THE OPINION THAT ASSESSEE HAS FAILED TO ESTABLISH THAT EXPENDITURE INCURRED WAS W HOLLY AND EXCLUSIVELY FOR EARNING THE INCOME TAXED UNDER THE HEAD INCOME FROM OTHER SOUR CES. THE ASSESSEE HAD AVAILED SERVICES OF TWO PORTFOLIO MANAGERS DURING THE ASSE SSMENT YEAR CONSIDERATION. AS THE ASSESSEE NOT SHOWN HOW THE SERVICES OF THE ITP WERE RELATED TO INCOME EARNED BY HIM, SO, CLAIM MADE BY HIM HAS TO REJECTED. 10. HENCE, GROUND NO 2 IS DECIDED AGAINST THE ASSES SEE. 11. GROUND NO.3 OF APPEAL IS IN RESPECT OF INTEREST U/S.234A, 234B AND 234C OF THE ACT, WHICH IS CONSEQUENTIAL AND DOES NOT REQUIRE ANY SPE CIFIC ADJUDICATION. 4 I.T.A NO. 5643/MUM/2009, 5637/MUM/2009 & 2133/MUM/2011 PRAVIN POPATLAL SHAH 12. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2006- 07 BEING I.T.A. NO.5637/MUM/2009. 13. GROUNDS OF APPEAL ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITION CAPITAL GAINS (ARISING OUT OF SALE OF SHARES, UNITS AND SEC URITIES THROUGH PORTFOLIO MANAGEMENT SERVICES) OF RS.22,87,087/- AS PROFIT AND GAINS OF BUSINESS OR PROFESSION. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT A SUM OF RS.10,70,617/- AS SHORT TERM CAPITAL GAIN & RS.12,45,401/- AS LONG TERM CAPITAL GAIN. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING ADDITION OF SPECULATION LOSS OF RS.1,91,572 /- AS BUSINESS INCOME. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE I NCOME FROM PMS OUGHT TO HAVE BEEN COMPUTED AS CAPITAL GAINS AND DIVIDEND. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE INTERE ST CHARGED U/S.234B & 234C OF THE I.T. ACT. THE ASSESSEE FURTHER PRAYS THAT INTEREST CHARGED U/ S. 234B & 234C BE DELETED. 14. IN RESPECT OF GROUND NO.1 OF APPEAL, LD A. R. SUBMITTED THAT ASSESSEE HAD APPOINTED KOTAK SECURITIES, PRUDENTIAL ICICI ASSET MANAGEMENT COMPANY LTD., AS HIS PORTFOLIO MANAGERS AND PLACED RS.1.5 CRORES WITH THEM AND HAD ALSO ENTERED INTO AN AGREEMENTS WITH THEM. HE REFERRED TO THE COPY OF THE SAID AGR EEMENTS PLACED AT PAGES 105 TO 135 OF PB. LD A.R. SUBMITTED THAT AGREEMENT ENTERED INTO W ITH PRUDENTIAL ICICI ASSET MANAGEMENT COMPANY LTD., IS SUBSTANTIALLY SIMILAR A GREEMENT ENTERED INTO WITH KOTAK SECURITIES. LD A.R. FURTHER SUBMITTED THAT IN THE RETURN OF INCOME FOR A.Y. 2006-07, ASSESSEE HAD SHOWN INCOME FROM PMS UNDER THE HEAD CAPITAL GAIN. HE FURTHER SUBMITTED THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION ASSESSEE HAD MADE DIRECT INVESTMENT FOR PURCHASE AND SALE OF SHARES/UNITS AND HAD EARNE D CAPITAL GAINS AND THE DEPARTMENT HAD ACCEPTED THE SAME AS CAPITAL GAIN. THUS, THE DISPU TE IS ONLY WITH REGARD TO CAPITAL GAINS IN RESPECT OF TRANSACTIONS THROUGH PMS. LD D.R. DID NO T DISPUTE THE ABOVE FACTS. 5 I.T.A NO. 5643/MUM/2009, 5637/MUM/2009 & 2133/MUM/2011 PRAVIN POPATLAL SHAH 15. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES. FOLLOWING THE REASONING GIVEN BY US WHILE DECIDING THE APPEAL OF (PARA 15-16 OF ITA NO. 6166/MUM/2008, 2125/MUM/2008 AND 4126/MUM/2008 AY.2 003 -04,2004-05,2005-06) WE HOLD THAT THE PROFIT TO THE ASSESSEE IN RESPECT OF TRANSACTIONS THROUGH PMS IS AN INVESTMENT AND IS TO BE ASSESSED UNDER THE HEAD CA PITAL GAIN. 16. LD. AR SUBMITTED THAT HE DOES NOT DISPUTE THE S PECULATION LOSS TO BE ASSESSED AS BUSINESS INCOME. 17. IN VIEW OF THE ABOVE, GROUND NO.1 IS DECIDED IN PART IN FAVOUR OF THE ASSESSEE 18. GROUND NO.2 OF APPEAL IS IN RESPECT OF INTEREST U/S.234B AND 234C OF THE ACT, WHICH IS CONSEQUENTIAL AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 19. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2007- 08 BEING I .T.A. NO.2133/MUM/2011. 20. GROUNDS OF APPEAL ARE AS UNDER: 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) (C IT(A)) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN TREAT ING LONG TERM CAPITAL GAINS OF RS.10,05,491/- (WRONGLY MENTIONED AS RS.2,78,252/- IN THE APPELLATE ORDER) ARISING OUT OF TRANSACTIONS CARRIED OUT UNDER PORTFOLIO MAN AGEMENT SERVICES OF KOTAK SECURITIES, AS BUSINESS INCOME. ON THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW, THE SAID RS.10,05,491/- OUGHT TO BE TREATED AS INCOME FROM LONG TERM CAPITAL GAIN EXEMPT U/S.10(38) AND NOT AS BUSINESS INCOME. 2. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN TREATING SHORT TERM CAPITAL GAINS OF RS.7,17,661/- (WRONGLY MENTIONED AS RS.13,95,702/- IN THE APPELLA TE ORDER) ARISING OUT OF TRANSACTIONS CARRIED OUT UNDER PORTFOLIO MANAGEMENT SERVICES OF KOTAL SECURITIES AS BUSINESS INCOME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE SAID RS.7,17,661/- OUGHT TO BE TREATED AS INCOME FR OM SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. 21. IN RESPECT OF GROUND NOS.1 AND 2 OF APPEAL FOR THE YEAR UNDER CONSIDERATION, LD A.R. MADE THE SAME SUBMISSION AS MADE FOR THE LAST ASSES SMENT YEAR. HE FURTHER SUBMITTED THAT FOR A.Y. 2007-08 ASSESSEE ALSO MADE DIRECT INVESTME NT FOR PURCHASE AND SALE OF SHARES/UNITS 6 I.T.A NO. 5643/MUM/2009, 5637/MUM/2009 & 2133/MUM/2011 PRAVIN POPATLAL SHAH AND HAD SHORT TERM CAPITAL GAIN OF RS.13.57 LAKHS A ND LONG TERM CAPITAL GAIN OF RS.2,78,252/-, THAT THE DEPARTMENT ACCEPTED THE SAM E AS CAPITAL GAIN, THAT THE DISPUTE IS ONLY IN RESPECT OF CAPITAL GAIN TO THE ASSESSEE IN RESP ECT OF TRANSACTIONS THROUGH PORTFOLIO MANAGER. LD D.R. DID NOT DISPUTE THE ABOVE FACTS. 22. FOLLOWING THE ORDERS FOR THE EARLIER ASSESSMENT YEARS AS MENTIONED HEREINABOVE GROUND NOS.1 & 2 ARE FOR THE ASSESSMENT YEAR CONSI DERATION ARE ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 23. BEFORE WE PART WITH, WE MAY STATE THAT AT THE T IME OF HEARING, IT WAS POINTED OUT THAT THE AMOUNT OF INCOME THROUGH PMS AS MENTIONED IN TH E GROUNDS OF APPEAL, ARE NOT CORRECTLY STATE AND, ACCORDINGLY, THE AO WHILE GIVI NG EFFECT TO OUR AFORESAID ORDER, WILL TAKE THE CORRECT AMOUNT OF INCOME ARISING FROM PMS AS PE R EVIDENCES/DETAILS AS MAY BE FURNISHED BY THE ASSESSEE. 24. IN THE RESULT, THE APPEALS FOR THE AYS 2005-06 AND 2006-07 ARE ALLOWED IN PART AS INDICATED ABOVE AND WHEREAS APPEAL FOR THE A.Y. 200 7-08 IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11 TH JULY , 2012 SD/- (B.R. MITTAL) JUDICIAL MEMBER SD/- (RAJENDRA) ACCOUNTANT MEMBER MUMBAI, DATED : 11 TH JULY, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XIV, MUMBA I 4. COMMISSIONER OF INCOME TAX, 14 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH J MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI