The ITO, Ward-7(4), Ahmedabad V. Shri Bankim Jayantilal Shah, Ahmedabad

ITA 2228/AHD/2010

• Counselvise Citation: 222820514 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P TALATI
• Assessee Lawyers: P M MEHTA
• Keywords: Capital asset; Business income; Salary income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND A. MOHAN ALANKAMON Y, AM) ITA NO.2228/AHD/2010 A. Y.: 2007-08 THE INCOME TAX OFFICER, WARD -7(4), 2 ND FLOOR, NAVJIVAN TRUST BUILDING, NR. NAVJIVAN POST OFFICE, AHMEDABAD -14 VS SHRI BANKIM JAYNTILAL SHAH, PREMJYOT BUNGLOW 7/B, JIVAN SMRUTI SOCIETY, MIRAMBIKA SCHOOL ROAD, NARANPURA, AHMEDABAD PA NO. ACIPS 6574 R (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. P. TALATI, SR. DR RESPONDENT BY SHRI P. M. MEHTA, AR DATE OF HEARING: 21 -05-2012 DATE OF PRONOUNCEMENT: 25-05-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A )-XI, AHMEDABAD IN APPEAL NO. CIT(A)-XI/1105/2009-10 DATED 23-04-20 10, FOR ASSESSMENT YEAR 2007-08. 2. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APPE AL WHEREIN GROUNDS NO.2 AND 3 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. GROUND NO.1 OF THE APPEAL IS REPRODUC ED HEREIN BELOW: 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITIONS OF RS.61,11,931/- MADE BY THE AO ON ACCOUNT OF TREATIN G ITA NO.2228/AHD/2010 (AY: 2007-08) ITO WARD -7 (4), AHMEDABAD VS SHIR BANKIM JAYNTILAL SHAH 2 THESE SUMS AS BEING INCOME FROM BUSINESS INSTEAD OF INCOME FROM CAPITAL GAINS AS SHOWN BY THE ASSESSEE. 3. FACTS: - THE ASSESSEE IS AN INDIVIDUAL FILED HIS RE TURN OF INCOME ON 30-07-2007 DECLARING TOTAL INCOME OF RS.1,30,680 /- FOR ASSESSMENT YEAR 2007-08. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ORDER WAS PASSED U/S 143(3) OF THE IT ACT ON 30 -12-2009 WHEREIN THE LEARNED AO TREATED THE GAIN FROM SALE OF SHARES AS INCOME FROM BUSINESS AGAINST SHORT TERM CAPITAL GAIN OF RS.672/ - AND LONG TERM CAPITAL GAIN OF RS.61,11,931/- DECLARED BY THE ASSE SSEE FOR CLAIMING EXEMPTION U/S 10(38) OF THE ACT. THE LEARNED AO CIT ED THE FOLLOWING REASONS FOR TREATING THE GAIN FROM SALE OF SHARES U NDER THE HEAD INCOME FROM BUSINESS AND PROFESSION:- A) THE ASSESSEE IS DOING THIS ACTIVITY OF SALE A ND PURCHASE IN SHARES AND SECURITIES SINCE LONG TIME. HE IS DOING THIS ACTIVITY REGULARLY AND CONTINUOUSLY WHICH DECLARES THE NATUR E OF HIS ACTIVITY AS TRADING WITH A MOTIVE TO EARN PROFIT FR OM THE SAME. THE ACTIVITY WHICH IS CONTINUOUS/REGULAR - YEAR TO YEAR WITH A PROFIT EARNING MOTIVE IS CALLED AS 'BUSINESS'. THE ASSESSEE HAS DECLARED LAST YEAR ALSO STCG OF RS.3088938/- AND LT CG OF RS.1818402/- OUT OF 3 SCRIPTS AND 4 TRANSACTIONS WH ICH WAS ALSO ASSESSED AS BUSINESS INCOME. B) THE MAIN SOURCE OF INCOME OF THE ASSESSEE IS E ARNED OUT OF SALE & PURCHASE OF SHARES AND SECURITIES AS LIKE A TRADER. HE IS EARNING THE INCOME DURING THE YEAR FROM THE LIMI TED NUMBER OF TRANSACTIONS AND SCRIPT BUT IT IS IN HIGH VOLUME AND HE CLAIMS THE INCOME EXEMPTED AS LTCG OR PAYS LOWER RATE OF T AX AT THE RATE OF 10% ON STCG AS THE CASE MAY BE. C) THE ASSESSEE HAS PURCHASED AND SOLD MANY SCRIP TS AMOUNTING TO HUGE VOLUME, WHICH DECLARES THE TRADIN G ADVENTURES TO EARN HIGH PROFIT. ITA NO.2228/AHD/2010 (AY: 2007-08) ITO WARD -7 (4), AHMEDABAD VS SHIR BANKIM JAYNTILAL SHAH 3 D) THE ASSESSEE HAS EMPLOYED, THE BORROWED FUNDS W HICH REVEAL THE TRADING INTENTION. THE INVESTMENT WITH B ORROWED FUND WHETHER INTEREST BEARING OR INTEREST FREE CANNOT BE JUSTIFIED AS INVESTMENT OF THE ASSESSEE AS CAPITAL ASSET WHICH Q UALIFIES FOR CAPITAL GAINS. E) HE HAS ALSO SOLD SOME SHARES RESULTING IN NEGL IGIBLE PROFIT OR EVEN IN LOSS WITHOUT EARNING ANY DIVIDENDS. THE DIVIDEND INCOME IS VERY LOW IN COMPARISON TO LTCG & STCG, IF THE ASSESSEE IS AN INVESTOR, THEN HIS DIVIDEND INCOME W ILL BE HIGHER. F) IT IS SEEN THAT THE ASSESSEE HAS HELD THE SHA RES FOR SHORT PERIODS INCLUDING SOME TRANSACTIONS ON VERY SAME DA Y AS PURCHASED AND SOLD. MORE OVER HE HAS ALSO DONE INTR A-DAY TRADING ACTIVITY OF SHARES WHICH CONFIRMS HIS BUSIN ESS ACTIVITIES WITH MOTIVE OF EARNING PROFIT. 2. IN VIEW OF THE ABOVE THE ACTIVITIES OF THE ASSESSEE WHICH ARE IN THE NATURE OF TRADING IN SHARES AND SECURITI ES AND IT IS TO BE CONSIDERED THAT THE INCOME DECLARED UNDER THE HE AD OF CAPITAL GAINS IS REQUIRED TO BE ASSESSED AS INCOME FROM BUSINESS IN TRADING OF SHARES. 3. IN THIS CIRCUMSTANCES THE INCOME DECLARED UNDER THE HEAD OF STCG AND LTCG IS TREATED/DETERMINED AS INCO ME FROM BUSINESS AMOUNTING ATRS.672/- AND RS.6111931/- TOTA LING AT RS.61,12 ; 603/- AND THE SAME IS ASSESSED UNDER THE HEAD OF INCOME FROM BUSINESS. 4. THE ASSESSEE CARRIED THE MATER BEFORE THE LEARNE D CIT(A) WHO AFTER ELABORATE CONSIDERATION ARRIVED AT THE FOLLOW ING DECISION: 7. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT AND THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. IT IS SEEN THAT THE APPELLANT IS EARNING SALARY INCOME. THE STCG DURING THE YEAR IS MEAGER R S.672/-. AS REGARDS LTCG OF RS.61,11,931/-, IT IS SEEN THAT THE SHARES ARE HELD FOR FAIRLY LONG PERIOD. THE FACTS OF THE C ASE ARE SIMILAR TO THOSE IN THE IMMEDIATELY PRECEDING A.Y. 2006-07. ITA NO.2228/AHD/2010 (AY: 2007-08) ITO WARD -7 (4), AHMEDABAD VS SHIR BANKIM JAYNTILAL SHAH 4 7.1 KEEPING IN VIEW THE FACTS OF THE CASE, CIT(A)S DECISION IN APPELLANTS OWN CASE FOR A. Y. 2006-07 AND THE TRIB UNALS DECISION, REFERRED TO ABOVE, FOR EARLIER YEARS IN T HE CASES OF FAMILY MEMBERS OF THE APPELLANT, I HOLD THAT THE AP PELLANT CANNOT BE SAID TO HAVE BEEN TRADING IN SHARES. A. O . IS DIRECTED TO ACCEPT AND ASSESS THE IMPUGNED AMOUNT AS RETURNE D BY THE APPELLANT UNDER THE HEADS LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS. THIS GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), TH E REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND ARGUED THAT THE ASSESSEE HAD BEEN CARRYING ON THE ACTIVITY OF PURCHASE AND SALE OF SHARES FOR A LONG PERIOD EARNING INCOME WHE REBY IT IS EVIDENT TO BE AN ACTIVITY IN THE NATURE OF BUSINESS OR PROF ESSION. FURTHER, RELYING UPON THE ORDER OF THE LEARNED AO THE LEARNE D DR PRAYED THAT THE ORDER OF THE LEARNED AO MAY BE SUSTAINED. 7. THE LEARNED AR RELIED ON THE ORDER OF THE LEARNE D CIT(A) AND ALSO ON THE ORDER OF ITAT AHMEDABAD B BENCH DATED 02-07-2010 IN ASSESSEES OWN CASE FOR AY 2000-01 TO 2004-05 IN I TA NOS. 2866 TO 2872/AHD/2009 AND IN ITA NO.2873 & 2874/AHD/2008 FO R AY 2005- 06AND 2006-07 AND ARGUED THAT THE ASSESSEE WAS PRED OMINANTLY HOLDING THE SHARES FOR LONG PERIOD AS INVESTMENT AN D THEREFORE PROFIT ON SALE OF THE SHARES WILL AMOUNT TO LONG TERM CAPI TAL GAIN AND SHORT TERM CAPITAL GAIN AS PROVIDED UNDER THE ACT. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIALS BEFORE US CAREFULLY. FROM THE ORDER OF THE LEARNED CIT(A) AT PAGE 7 IT IS APPARENT THAT THE ASSESSEE HAD HELD THREE ITA NO.2228/AHD/2010 (AY: 2007-08) ITO WARD -7 (4), AHMEDABAD VS SHIR BANKIM JAYNTILAL SHAH 5 SCRIPTS FOR THE PERIOD OF 1380 DAYS AND THESE SCRIP TS WERE SOLD FOR A GAIN OF RS.61,11,931/- WHICH CLEARLY EST ABLISHES THAT THE ASSESSEE WAS HOLDING THESE THREE SCRIPTS A S INVESTMENT AND GAINS DERIVED ON SALE OF THE SAME WI LL RESULT INTO INCOME CHARGEABLE UNDER THE HEAD LONG T ERM CAPITAL GAIN. FURTHER, DURING THE ASSESSMENT YEAR THERE WERE ONLY FIVE TRANSACTIONS RELATING TO SUCH SALE. THE OTHER LONE TRANSACTION OF SALE OF ONE SCRIPT VALUED AT RS.672/- WHICH WAS HELD FOR ONE DAY CANNOT ALTER TH E POSITION OF THE ASSESSEE TO HOLD THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES. IN DETERMINING W HETHER THE ASSESSEE IS HOLDING THE SCRIPTS FOR INVESTMENT OR TRADING, THE INTENTION OF SUCH TRANSACTIONS SHOULD BE SEEN. SUCH INTENTIONS CAN BE CONSTRUED BY THE PATTERN OF PURCHASE AND SALE OF THE SCRIPTS AND PERIOD OF HOLD ING. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD THREE SCRIPTS IN FIVE TRANSACTIONS WHICH HE HAD HEL D FOR AS LONG AS 1380 DAYS. THE ONLY OTHER TRANSACTION RELAT ES TO SALE OF ONE SCRIPT AMOUNTING TO RS.672/- WHICH HE H AD HELD FOR A DAY. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT HAVE ANY HESIT ATION TO HOLD THAT THE TRANSACTIONS EFFECTED BY THE ASSES SEE FOR THE ASSESSMENT YEAR 2007-08 RESULTING IN GAIN OF RS.61,11,931/- AND RS.672/- TO BE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN RESPECTIVELY AND NOT IN COME CHARGEABLE UNDER THE HEAD BUSINESS AND PROFESSION. IT IS ORDERED ACCORDINGLY. ITA NO.2228/AHD/2010 (AY: 2007-08) ITO WARD -7 (4), AHMEDABAD VS SHIR BANKIM JAYNTILAL SHAH 6 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25-05-2012 SD/- SD/- (D. K. TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 21-05-12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 22-05-12 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR.P.S ./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: