DCIT, CHENNAI V. M/s. Badrashyam H. Kothari, CHENNAI

ITA 2248/CHNY/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4872 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 05-04-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 23-12-2013
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income
• Section: 143(3); 43(5)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NOS.2247 TO 2250/MDS/2013 ( / ASSESSMENT YEARS: 2003-04 TO 2005-06 & 2007-08) THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE WARD 4(2), CHENNAI -34. VS SMT. NINA B KOTHARI LEGAL REPRESENTATIVE OF LATE SHRI BHADRASHYAM HARSHAD KOTHARI, NO.18, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 34. PAN: AGJPK7393K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT /RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 05.04.2017 ! /DATE OF PRONOUNCEMENT : 17.04.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE ORDERS PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNAI ALL DATED 19.08.2013 IN ITA N OS.1659 TO 1661/2013-14 FOR THE ASSESSMENT YEARS 2003-04, 2004 -05 AND 2007-08 PASSED U/S.250(6) R.W.S 143(3) & 147 OF THE ACT AND ITA NO.1662/2013-14 FOR THE ASSESSMENT YEAR 2005-06 PASSED U/S.250(6) R.W.S.143(3) OF THE ACT. 2 ITA NOS.2247 TO 2250 /MDS/2013 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEALS, HOWEVER THE CRUX OF THE ISSUE IN ALL THE APPEALS IS THAT THE LD. CIT(A) HAS ERRED BY DECIDING THAT LOSS ON SALE OF SHARES TO THE EXTENT OF, RS.60.11 LAKHS SIC RS.27,52,796/- FO R THE ASSESSMENT YEAR 2003-04, RS.1.42 CRORES SIC RS.1,36 ,83,951/- FOR THE ASSESSMENT YEAR 2004-05, RS.21,42,154/- FOR THE ASSESSMENT YEAR 2005-06 AND RS.1.93 CRORES SIC RS.7 1,55,486/- FOR THE ASSESSMENT YEAR 2007-08, ARE TO BE TREATED AS BUSINESS LOSS AS AGAINST CAPITAL LOSS HELD BY THE LD.AO. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN SH ARES AND UNITS OF MUTUAL FUNDS. DURING THE RELEVANT ASSESSMENT YEA RS THE ASSESSEE HAD CLAIMED LOSS DUE TO DEPLETION IN THE V ALUE OF CLOSING STOCK OF SHARES AND UNITS IN MUTUAL FUNDS A MOUNTING TO RS.27,52,796/- FOR THE AY 2003-04, RS.1,36,83,951/ - FOR THE AY 2004-05, RS.21,42,154/- FOR THE AY 2005-06 AND RS.7 1,55,486/- FOR THE AY 2007-08 IN HIS RETURN OF INCOME. THE ASS ESSEE HAD EXPLAINED BEFORE THE LD.A.O THAT HE IS CARRYING ON THE BUSINESS OF TRADING IN SHARES AND UNITS OF MUTUAL FUNDS AS O NE OF HIS BUSINESS ACTIVITY. ALL THE SHARES AND UNITS OF MUT UAL FUNDS ARE 3 ITA NOS.2247 TO 2250 /MDS/2013 PURCHASED AND SOLD AS PER THE CONTRACT NOTE BACKED BY ACTUAL DELIVERY. IT WAS THEREFORE EXPLAINED THAT TRADING A CTIVITY OF THE ASSESSEE OF SHARES AND UNITS OF MUTUAL FUNDS WILL N OT FALL WITHIN THE AMBIT OF SECTION 43(5) OF THE ACT VIZ., SPECUL ATIVE TRANSACTION. THE ASSESSEE FURTHER EXPLAINED BEFOR E THE LD.A.O THAT SINCE HE WAS TRADING IN SHARES AND UNITS OF MU TUAL FUNDS AS HIS BUSINESS ACTIVITY, PROFIT OR LOSS ARISING OUT O F THE SAME CANNOT BE TREATED AS CAPITAL GAIN / LOSS. HOWEVER, THE LD .AO REJECTED THE CONTENTIONS OF THE ASSESSEE BY OBSERVING AS UND ER:- 1. THE ASSESSEE HAS TWO PROPRIETARY CONCERNS VIZ., KO THARI & KOTHARI FOR BROKERAGE INCOME & TRANSWORLD INDIA ENT ERPRISES FOR PROFESSIONAL INCOME. THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET OF BOTH THESE CONCERNS DOES NOT SHOW ANY INVE NTORY OF SHARES AND CLOSING STOCK VALUE. 2. IF THE INTENTION OF THE ASSESSEE IS TO KEEP THE SHA RES AS STOCK IN TRADE, THE ASSESSEE SHOULD HAVE FILED AUDIT REPORT U/S 44AB OF THESE TRANSACTIONS. THE ASSESSEE CLAIMS THAT THE T REATMENT OF SHARES AS STOCK IN TRADE HAS BECOME A FINALITY IN 1 989 ITSELF (AY 81-82 TO 84-85) BUT THE ASSESSEE HAS NOT DRAWN ANY P&L A/C AND BALANCE SHEET OR FILED 44AB REPORT FROM 1989. 3. THE ASSESSEE HAS TO MAINTAIN THE DISTINCTION BETWEE N SHARES HELD AS STOCK AND THOSE HELD AS INVESTMENTS IN ITS RECOR DS; THEREAFTER THE LD.AO REJECTED THE AUDIT REPORT FILED U/S. 44AB OF THE ACT, BECAUSE IT WAS BELATED AND DISALLOWED T HE CLAIM OF LOSS ON ACCOUNT OF DEPLETION IN THE VALUE OF HIS CL OSING STOCK CONSISTING OF SHARES AND UNITS OF MUTUAL FUNDS . 4 ITA NOS.2247 TO 2250 /MDS/2013 4. ON APPEAL THE LD. CIT AFTER DELIBERATING ISSUE IN DETAIL HELD THE MATTER IN FAVOUR OF THE ASSESSEE FOR ALL T HE ABOVE ASSESSMENT YEARS BECAUSE OF THE FOLLOWING REASONS:- I. THE ASSESSEE HAD PURCHASED AND SOLD SHARES DURIN G THE FINANCIAL YEAR 2002-03 TO 2006-07. HENCE IT WA S PURELY TRADING ACTIVITY. II. THE ASSESSEE IN HIS COMPUTATION STATEMENT HAS S HOWN INCOME FROM STOCK-IN-TRADE UNDER THE HEAD BUSINESS INCOME. III. THE AFFAIRS OF THE OTHER TWO PROPRIETARY CONCE RNS OF THE ASSESSEE VIZ., M/S. KOTHARI & KOTHARI AND M/S. TRANSWORLD INDIA ENTERPRISES ARE INDEPENDENT FROM EACH OTHER AS WELL AS THE OTHER TRADING ACTIVITY OF THE ASSESSEE IN SHARES AND UNITS OF MUTUAL FUNDS. THEREFORE NO ADVERSE INFERENCE CAN BE DRAWN FROM TH E BALANCE SHEET/STATEMENT OF AFFAIRS OF THE OTHER PROPRIETARY CONCERNS AND OTHER BUSINESS ACTIVITIES OF THE ASSESSEE. 5 ITA NOS.2247 TO 2250 /MDS/2013 IV. THE STATEMENT OF AFFAIRS OF THE ASSESSEE CLEARL Y INDICATED THAT THE ASSESSEE WAS HOLDING STOCK-IN-TR ADE WITH RESPECT TO SHARES AND UNITS OF MUTUAL FUNDS. V. NON-FILING OF AUDIT REPORT U/S.44AB OF THE ACT A LONG WITH THE RETURN OF INCOME CANNOT ALTER THE CHARACTERISTICS OF THE TRANSACTIONS MADE BY THE ASSESSEE. VI. ONCE THE SHARES AND UNITS OF MUTUAL FUNDS ARE T REATED AS STOCK-IN-TRADE BY THE ASSESSEE THE SAME CANNOT B E TREATED OTHERWISE BY THE REVENUE. VII. THE ASSESSEE IN ALL THE ABOVE ASSESSMENT YEARS HAD ENCLOSED HIS P&L ACCOUNT ALONG WITH THE RETURN OF INCOME IN SOME COMPREHENSIBLE MANNER. VIII. THE ASSESSEE HAD FURNISHED THE DETAILS OF SHA RES AND UNITS OF MUTUAL FUNDS PURCHASED/SOLD AND HELD BY HI M AS CLOSING STOCK, TRANSACTION WISE. IX. THE ASSESSEE HAS BEEN PURCHASING AND SELLING SH ARES AND UNITS OF MUTUAL FUNDS IN DIFFERENT COUNTERS (SC RIPTS) IN LARGE VOLUMES AT REGULAR INTERVALS, WHICH SHOW T HAT THESE TRANSACTIONS ARE TRADING IN NATURE AND NOT INVESTMENTS. 6 ITA NOS.2247 TO 2250 /MDS/2013 X. ALL THE PURCHASES AND SALES OF SHARES ARE MADE O N DELIVERY BASIS AND HENCE THESE TRANSACTIONS CANNOT BE TREATED AS SPECULATIVE IN NATURE. 5. BEFORE US THE LD.DR ARGUED IN SUPPORT OF THE ORD ER OF THE LD.AO WHILE AS THE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A) AND ARGUED IN SUPPORT OF THE SAME WITH A PRAYER TO SUSTAIN HIS ORDER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. FROM THE ORDER OF THE LD.C IT(A) IT IS CRYSTAL CLEAR THAT THE LOSS ON ACCOUNT OF DEPLETION IN THE VALUE OF THE CLOSING STOCK OF SHARES AND UNITS OF MUTUAL FUN DS HELD BY THE ASSESSEE HAS TO BE TREATED AS BUSINESS LOSS BECAUSE THE ENTIRE TRANSACTIONS WITH RESPECT TO PURCHASE/SALE OF SHARE S AND UNITS OF MUTUAL FUNDS IS NOTHING BUT TRADING IN NATURE AND N OT INVESTMENTS AND THESE FINDINGS OF THE LD.CIT(A) COULD NOT BE SU CCESSFULLY CONTROVERT BY THE LD.DR. FURTHER THE LD.CIT(A) HAS MADE A CATEGORICAL FINDING THAT THE PURCHASE AND SALE OF S HARES WAS ONLY ON ACTUAL DELIVERY BASIS WHICH COULD ALSO NOT BE CO NTROVERTED BY THE LD.D.R. HENCE THOSE TRANSACTIONS CANNOT BE TREA TED AS 7 ITA NOS.2247 TO 2250 /MDS/2013 SPECULATIVE IN NATURE AS PER SECTION 43(5) OF THE A CT. THEREFORE WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE O RDER OF THE LD.CIT(A) AND ACCORDINGLY WE DO NOT FIND ANY MERIT IN THE APPEALS OF THE REVENUE. 7. IN THE RESULT ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON THE 17 TH APRIL, 2017. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) ' #$ /JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER %' /CHENNAI, &# /DATED 17 TH APRIL, 2017 JR # () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF