DCIT, Circle - 49, Kolkata, Kolkata V. Shri Deo Kumar Saraf, Kolkata

ITA 2158/KOL/2010

• Counselvise Citation: 215823514 RSA 2010
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2011
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-12-2010
• Court: TRIBUNAL
• Department Lawyers: R SALARPURIA
• Assessee Lawyers: NIRAJ KUMAR
• Keywords: Deemed owner of house property; Business income
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE . .. . . .. . , , , , , SHRI B.R.MITTAL, JUDICIAL MEMBER. /AND . .. .!' !'!' !'. .. . , #$ SHRI C.D.RAO, ACCOUNTANT MEMBER %& %& %& %& ' ' ' ' / ITA NO.1987/KOL/2010 () *+/ ASSESSMENT YEAR : 2007-08 (-. / APPELLANT ) SHRI DEO KUMAR SARAF (PAN: ALCPS 1036 P) - ( - - VERSUS - . (01-./ RESPONDENT ) D.C.I.T., CIRCLE-49, KOLKATA %& ' %& ' %& ' %& ' / ITA NO.2158/KOL/2010 () *+/ ASSESSMENT YEAR : 2007-08 (-. / APPELLANT ) D.C.I.T., CIRCLE-49, KOLKATA - ( - - VERSUS - . (01-./ RESPONDENT ) SHRI DEO KUMAR SARAF (PAN: ALCPS 1036 P) -. 2 3 #/ FOR THE APPELLANT: SHRI R.SALARPURIA 01-. 2 3 #/ FOR THE RESPONDENT: SHRI NIRAJ KUMAR #4 / ORDER ( (( ( . .. .!' !'!' !'. .. . ) )) ), , , , #$ PER SHRI C.D.RAO, AM THE ABOVE APPEALS ONE FILED BY ASSESSEE AND ANOTHE R FILED BY THE REVENUE ARE AGAINST SEPARATE ORDERS DATED 27.07.2010 OF THE CI T(A)-XXXII, KOLKATA PERTAINING TO A.Y. 2007-08. 2. THE ASSESSEE IN ITA NO.1987/KOL/2010 HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL:- 2 1. THAT ON THE FACTS AND ON THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.28,79,230/- MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT, READ WITH RULE 8D OF THE INCOME TAX RULES. EVEN OTHERWISE THE DISALLOWANCE MADE WAS HIG HLY EXCESSIVE AND WHOLLY UNREASONABLE. 2. THAT ON THE FACTS AND ON THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING THE INCOME EARNED FROM SHORT TERM CAPITAL GAINS AMOUNTING TO RS.38,79,365/- AS BUSINESS INCOME. 3. THAT ON THE FACTS AND ON THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.42,000/- MADE BY T HE AO ALLEGEDLY AS DEEMED LET OUT OF A HOUSE PROPERTY SITUATED AT PURI. EVEN OTHERWISE THE DISALLOWANCE MADE WAS HIGHLY EXCESSIVE AND WHOLLY UNREASONABLE. 3. REGARDING GROUND NO.3 AT THE TIME OF HEARI NG THE LD. COUNSEL FOR ASSESSEE HAS NOT PRESSED FOR THE SAME. THE SAME IS DISMISSED AS NOT BEING PRESSED. 4. AS REGARDING GROUND NO.1 THE ISSUE IS RELAT ING TO APPLICATION OF RULE 8D OF IT RULES AND INVOKING PROVISIONS OF SECTION 14A OF THE IT ACT. 5. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, SINCE ASSESSMENT YEAR INVOLVED IN THIS A PPEAL IS 2007-08 IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT JUDGEMENT THE PROVISION OF SECTION 14A OF THE IT ACT AND APPLICATION OF RULE 8D OF IT RULES I S NOT APPLICABLE TO THE PRESENT CASE. HOWEVER, SINCE THE TRIBUNAL HAS CONSISTENTLY APPLYI NG 1% OF THE DIVIDEND INCOME AS PER THE PROVISION OF SECTION 14A OF THE IT ACT WE D IRECT AO TO DISALLOW 1% OF THE DIVIDEND INCOME U/S 14A OF THE IT ACT. 6. IN THE RESULT GROUND NO.1 OF THE ASSESSEE IS ALLOWED IN PART. 7. THE FACT IN RESPECT OF GROUND NO.2 OF THE ASSES SEE AND THE REVENUES APPEAL ARE RELATING TO THE INCOME EARNED FROM SHORT TERM CAPIT AL GAINS AMOUNTING TO RS.38,79,365/- AS BUSINESS INCOME. 8. THE BRIEF FACTS OF THIS ISSUE ARE THAT WHILE DO ING THE SCRUTINY ASSESSMENT AO HAS TREATED THE LONG TERM CAPITAL GAIN OF RS.97,18, 300/- AND SHORT TERM CAPITAL GAIN OF RS.38,97,365/- AS BUSINESS INCOME OF ASSESS EE BY OBSERVING AS UNDER :- DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSEE WAS ASKED TO PRODUCE THE CONTRACT NOTES IN ORDER TO CLAIM OF LTCG AND STCG. BUT THE ASSESSEE FAILED TO 3 PRODUCE THE SAME. AS SUCH THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE CLAIM OF LTCG AND STCG WILL NOT BE DISALLOWED AND THE INC OME THERE FROM WILL BE TREATED AS INCOME FROM BUSINESS AND TAXED AT NORMAL RATE. I N REPLY TO SHOW CAUSE NOTICE THE ASSESSEE FURNISHED SOME COPIES OF CONTRACT NOTICES. ON GOING THROUGH THE SAID CONTRACT NOTES IT IS SEEN THAT THE PURCHASE AND SALE OF SHAR ES WERE MADE ON FREQUENT DATES. THE A/R THEREAFTER ASKED TO EXPLAIN AS TO WHY THE INCOM E ARISING FROM PURCHASE AND SALE OF SHARES ON FREQUENT DATES WILL NOT BE TREATED AS INCOME FROM BUSINESS. IN REPLY THE ASSESSEE FURNISHED COPY OF LEDGER FOR PURCHASE AND SALE OF SHARES OF BALRAMPUR CHINI MILLS LTD. ONLY. ON GOING THROUGH THE SAID LEDGER I T IS SEEN THAT THE PURCHASE AND SALE OF SHARES WERE MADE ALMOST ON EVERY DATES OF EVERY MONTH. WHEN THE A/R OF THE ASSESEE WAS BROUGHT TO THE NOTICE O THIS FACT AND A SKED AS TO WHY THE INCOME ARISING FROM THE PURCHASE AND SALE OF SHARES AS MENTIONED A BOVE WILL NOT BE TREATED AS BUSINESS INCOME, THE A/R REMAINING SILENT AND FAILE D TO FURNISH ANY FURTHER EXPLANATION. THE A/R OF THE ASSESSEE ALSO FAILED TO PRODUCE ANY OTHER LEDGER COPY FOR THE PURCHASE AND SALE OF OTHER SHARES. IT IS THEREFORE PROVED THAT THE ASSESSEE HELD ITS SHARES AS STOCK IN TRADE AND NOT AS INVESTMENT. 8.1. IN ADDITION TO THE ABOVE, HE REFERRED TO THE B OARD CIRCULAR INSTRUCTION NO.1827, DATED 31.08.1989 AND AFTER ANALYZING THE FACTS AND FREQUENCY OF TRANSACTIONS HE FINALLY CONCLUDED THAT ASSESSEE IS IN A BUSINESS OF TRADING SHARES. THEREFORE, HE TREATED BOTH LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AS INCOME FROM BUSINESS. 8.2. ON APPEAL, LD. CIT(A) HAS AGREED THE CONTENTIO N OF ASSESSEE THAT LONG TERM CAPITAL GAINS ARE TO BE TREATED AS LONG TERM CAPITA L GAIN SINCE ASSESEE HAS SHOWN THE SAID SHARES IN THE INVESTMENT PORTFOLIO IN THE BALANCE SHEET. HOWEVER, AS REGARDING THE SHORT TERM CAPITAL GAIN LD. CIT(A) HAS CONFIRME D THE ACTION OF AO AS THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. 8.3. AGGRIEVED BY THIS BOTH ASSESSEE AS WELL AS THE REVENUE IS IN APPEAL BEFORE US. 9. AT THE TIME OF HEARING THE LD. COUNSEL APPEARING ON BEHALF OF ASSESSEE SUBMITTED THAT ASSESSEE IS AN INDIVIDUAL AND DERIVE S INCOME FROM HOUSE PROPERTY AND HAVING NO BUSINESS AND ASSESSEE HAS ALWAYS KEEPING THE SHARES PURCHASED IN THE INVESTMENT PORTFOLIO ONLY. HE FURTHER SUBMITTED THA T BASED ON THESE FACTS FOR THE IMMEDIATE PRECEDING TWO ASSESSMENT YEARS 2005-06 AN D 2006-07 HAS CONSISTENTLY TREATED THE LONG TERM CAPITAL GAIN UNDER THE HEAD L ONG TERM CAPITAL GAIN AS AGAINST THE REVENUES CONTENTION THAT IT IS TO BE TREATED A S INCOME FROM BUSINESS. IN THE YEAR 4 UNDER DISPUTE ALSO BY REFERRING TO PAGES NOS. 33 TO 38 OF THE PAPER BOOK WHEREIN THE DETAILS OF SHORT TERM CAPITAL GAIN HAS BEEN GIVEN. HE SUBMITTED THAT IN MOST OF THE CASES ASSESSEE IS HOLDING THE SHARES AS OPENING BAL ANCE AND BROUGHT FORWARD FROM THE PREVIOUS YEAR AND HAVE SOLD DURING THE PREVIOUS YEA R RELEVANT TO ASSESSMENT YEAR IN DISPUTE. ONLY IN FEW CASES, ASSESSEE HAS PURCHASED THE SHARES AND SOLD IN THE SAME YEAR RELEVANT TO PREVIOUS ASSESSMENT YEAR. THEREFO RE, HE CONTENDED THAT WHEN LD. CIT(A) HAS ACCEPTED THAT LONG TERM CAPITAL GAIN IS TO BE TREATED AS LONG TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME OF ASSESSEE HE IS N OT JUSTIFIED TO TREAT THE ENTIRE SHORT TERM CAPITAL GAIN AS INCOME FROM THE BUSINESS OF AS SESSEE. 10. ON THE OTHER HAND, THE LD. DR APPEARING ON BEHA LF OF THE REVENUE HAS CONTENDED THAT AO HAS CATEGORICALLY MENTIONED THAT IN THE BUSINESS OF CONTRACT NOTES AND OTHER RELEVANT DETAILS AO IS JUSTIFIED TO TREAT THE ENTIRE INCOME AS INCOME FROM THE BUSINESS IN THE HANDS OF ASSESSEE. HE FURTHER SUBMI TTED THAT IN THE IMMEDIATE PREVIOUS TWO ASSESSMENT YEARS THE TRIBUNAL HAS DECIDED ONLY THE LONG TERM CAPITAL GAIN TO BE TREATED UNDER THE HEAD LONG TERM CAPITAL GAIN INSTE AD OF BUSINESS INCOME AND THERE IS NO ISSUE BEFORE THE TRIBUNAL ON ACCOUNT OF SHORT TERM CAPITAL GAIN. THEREFORE THE FACTS INVOLVED IN THIS ASSESSMENT YEAR ARE DIFFEREN T FROM THAT OF THE EARLIER YEARS, THE TRIBUNAL ORDERS CANNOT BE FOLLOWED. THUS HE REQUEST ED TO UPHOLD THE ACTION OF AO. 11. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, IT IS OBSERVED THAT IN THE IMM EDIATE TWO PRECEDING ASSESSMENT YEARS, THE TRIBUNAL HAS CONFIRMED THE ACTION OF LD. CIT(A) AND DISMISSED THE REVENUES APPEAL ON THE ISSUE THAT THE LONG TERM CA PITAL GAIN EARNED BY ASSESSEE IS TO BE TREATED AS INCOME UNDER THE HEAD LONG TERM CA PITAL GAIN INSTEAD OF THE INCOME FROM BUSINESS. THIS IMPLIES THAT ASSESSEE IS NOT AT ALL CARRYING ON ANY BUSINESS ACTIVITY IN THE SHARES, THOUGH THERE MAY NOT BE SHORT TERM C APITAL GAIN IN THE PRECEDING ASSESSMENT YEARS. HOWEVER, THE PRINCIPLE THAT ASSES SEE IS NOT IN THE BUSINESS OF THE TRADING OF SHARES HAS BEEN ALREADY CONSIDERED BY TH IS TRIBUNAL. IT IS FURTHER OBSERVED THAT FOR SHORT TERM CAPITAL GAIN MORE THAN 90% OF T HE SHARES ARE SHOWN AS OPENING BALANCE AND ASSESSEE HAS DECLARED THE SAME IN THE I NVESTMENT PORTFOLIO WHICH WERE 5 ACCEPTED BY THE REVENUE. KEEPING IN VIEW OF THE FAC TS WE FIND NO JUSTIFICATION ON THE PART OF THE REVENUE TO CONSIDER THAT ASSESSEE IS IN THE BUSINESS OF TRADING SHARES AND TREAT THE SAME AS INCOME FROM THE BUSINESS. WE DISM ISS THE APPEAL OF THE REVENUE AND ALLOW THE APPEAL OF ASSESSEE ON THIS ISSUE. 12. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED AND THE APPEAL OF ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE COURT ON 06.09.2011. SD/- SD/- . .. . . .. . , , , , B.R.MITTAL, JUDICIAL MEMBER . .. .!' !'!' !'. .. . , ,, , #$ #$ #$ #$ , C.D.RAO, ACCOUNTANT MEMBER. ( (( ('$ '$ '$ '$) )) ) DATE: 06.09.2011. #4 2 0& 5#&*6- COPY OF THE ORDER FORWARDED TO: 1. SHRI DEO KUMAR SARAF, C/O SALARPURIA JAJODIA & CO., 7, C.R.AVENUE, KOLKATA-700072.. 2 THE D.C.I.T., CIRCLE-49, KOLKATA 3. THE CIT, 4. THE CIT(A)-XXXII, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA 1& 0/ TRUE COPY, #4(;/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.)