SHRIRAM KAPUR, MUMBAI V. ADDL CIT RG 12(3), MUMBAI

ITA 2412/MUM/2009

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9392 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 10-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACCHIDANAND DUBEY
• Keywords: Business income; Rule of consistency
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI . . , , , BEFORE SHRI N.K.BILLAIYA , A M AND SHRI AMIT SHUKLA , J M ITA NO. 2412 /MUM/20 09 : ASST.YEAR 200 5 - 200 6 ITA NO.4534 /MUM/20 11 : ASST.YEAR 2007 - 2008 SHRI SRIRAM KAPUR 5, JAMSHEDJI TATA ROAD CHURCHGAGE MUMBAI 400 0 20 . PAN : AAIPK3526B. . / VS. THE ASST.COMMISSIONER OF INCOME - TAX CIRCLE 12(3) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI MADHUR AGR A WAL /RESPONDENT BY : SHRI SACCHIDANAND DUBEY / DATE OF HEARING : 1 0.02.2015 / DATE OF PRONOUNCEMENT : 25 .02.2015. / O R D E R PER AMIT SHUKLA (JM) : THE AFORESAID APPEAL S HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE COMMI SSIONER OF INCOME - TAX (APPEALS) - 23 , MUMBAI, DATED 27.01.2009 AND 29.03.2011 FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR S 2005 - 2006 AND 2007 - 2008, RESPECTIVELY . SINCE THE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, ARISING OUT OF IDENTICAL SET OF FACTS, THEREFORE, THEY ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 2 2. TO UNDERSTAND THE IMPLICATION OF THE FACTS AND THE ISSUES INVOLVED, WE WILL FIRST TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 2005 - 2006 (ITA NO.2412/MUM/2009). IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS MAINLY CHALLENGED THE TAXING OF INCOME BY THE REVENUE FROM TRANSACTION OF SHARES AS `BUSINESS INCOME INSTEAD OF `CAPITAL GAIN , SHOWN BY THE ASSESSEE. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL, HAVING INCOME FROM HOUSE PROPERTY, SHORT TERM AND LONG TERM CAPITAL GAIN AND INCOME FROM OTHER SOURCES. THE ASSESSEE IS DIRECTOR IN VARIOUS COMPANIES, LOOKING AFTER THE AFFAIRS OF THE BUSINESS CARRIED OUT BY SUCH COMPANIES. THE ASSESSING OFFICER (AO) NOTED THAT, SINCE FINANCIAL YEAR 2002 - 2003, 2003 - 2004, THE ASSESSEE HAD BEEN PURCHASING AND SELLING SHARES THROUGH PORTFOLIO MANAGEMENT SERVICES. HE HAS ALSO NOTED DOWN THE FIGURES OF THE SHARES PURCHASED, SOL D AND NUMBER OF TRANSACTIONS UNDERTAKEN IN THESE YEARS . LIKEWISE, IN THE FINANCIAL YEAR 2004 - 2005, ALSO RELEVANT TO THE ASSESSMENT YEAR 2005 - 2006, THE ASSESSEE HAD PURCHASED 275796 SHARES OF WHICH 62462 SHARES WERE SOLD DIRECTLY AND 213334 SHARES WERE PURC HASED THROUGH PMS AND WERE ALSO SOLD THROUGH PMS. THE ASSESSEE HAD ALSO PURCHASED MUTUAL FUNDS THROUGH PMS AND ALSO SOLD DURING THE YEAR. THE FIGURES OF VARIOUS PURCHASES AND SALES MADE DURING THE PREVIOUS THREE ASSESSMENT YEARS HAVE BEEN NOTED BY HIM IN P ARA 4 TO 4.8 OF THE ASSESSMENT ORDER. AFTER NOTING DOWN THE FIGURES, HE ANALYZED THE LEGAL POSITION WITH REGARD TO THE CONCEPT OF BUSINESS AFTER RELYING UPON VARIOUS DECISIONS AND HELD THAT THE TRANSACTION OF THE ASSESSEE IN BUYING AND SELLING OF SHARES IS NOTHING BUT SYSTEMATIC BUSINESS OF SHARES CARRIED OUT BY THE ASSESSEE. THE ASSESSEE S SUBMISSION BEFORE THE AO WAS THAT THE ASSESSEE IS MAINLY OCCUPIED AS DIRECTOR IN VARIOUS COMPANIES AND ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 3 DOES NOT HAVE TIME TO DO TRADING IN SHARES AS BUSINESS. THE SHARES WERE ACQUIRED BY THE ASSESSEE AS INVESTMENT, WHICH HE HAS BEEN DOING SINCE LAST SEVERAL YEARS. THE TRANSACTIONS OF INVESTMENT IN SHARES HAVE BEEN DONE THROUGH PMS AND FUND MANAGERS. THE DEPARTMENT TOO HAS BEEN ACCEPTING THE ASSESSEE S STAND THAT THE TRANS ACTION IN SHARES UNDERTAKEN BY THE ASSESSEE IS AN INVESTMENT ACTIVITY AND THE PROFIT / GAIN FROM THE SHARES HAVE BEEN ASSESSED UNDER THE HEAD `CAPITAL GAIN . LASTLY, THE INVESTMENTS HAVE BEEN MADE OUT OF OWN SURPLUS FUNDS AND NO BORROWED FUNDS WERE TAKEN F OR THE PURPOSE OF MAKING THE INVESTMENT IN SHARES. THE AO REJECTED THE ASSESSEE S CONTENTION AND AFTER DETAILED REASONING, HELD THAT THE ASSESSEE IS TRADER IN SHARES, AND THEREFORE, THE INCOME CLAIMED UNDER THE HEAD `CAPITAL GAINS IS CHARGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION . ACCORDINGLY, HE TREATED THE AMOUNT OF CAPITAL GAIN OF RS.2,02,35,932 AS INCOME FROM BUSINESS. 4. BEFORE THE CIT(A), THE ASSESSEE REBUTTED THE REASONING GIVEN BY THE AO AND ALSO REITERATED THE SAME SUBMISSIONS, WHICH WERE MADE BEFORE THE AO. ONCE OF THE OTHER MAIN CONTENTIONS RAISED BY THE ASSESSEE WAS THAT THE EARNING OF THE ASSESSEE FROM PMS HAD BEEN PLOUGHED BACK FOR FURTHER INVESTMENT AND THE ASSESSEE HAS NOT DRAWN ANY AMOUNT FOR PERSONAL USE OR DIVERSION OF FUND INTO OTHER ACTIVITIES. THE MAJORITY OF THE INVESTMENTS HAVE BEEN MADE IN DEBT FUNDS WHERE THERE IS A LESS RISK AS COMPARED TO EQUITY FUNDS. THE ASSESSEE S SUBMISSIONS HAVE BEEN NOTED BY THE CIT(A) FROM PAGES 6 TO 9 OF THE PAPER BOOK. THE LEARNED CIT(A) TOO REJECTED THE ASSESSEE S CONTENTION AND UPHELD THE ACTION OF THE AO. THE SUM AND SUBSTANCE OF HIS CO NCLUSION WERE AS UNDER : ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 4 (I) THE PRINCIPLE OF RES JUDICAT A DOES NOT APPLY IN THE INSTANT CASE , BECAUSE THE ASSESSEE IS NOT MAINTAINING THE BOOKS OF ACCOUNT AND HAS NOT FILED ANY CAPITAL ACCOUNT OR BALANCE SHEET TO CO - RELATE HIS LIABILITIES WITH HIS ASS ETS. IN THE ABSENCE OF ANY MATERIAL, THE AO HAS RIGHTLY CONCLUDED THAT THE ASSESSEE WAS NOT INTO INVESTMENT ACTIVITY; (II) HIS SUBSTANTIAL INCOME IS FROM SALE OF SHARES, WHICH IS MORE THAN RS.2.25 CRORE AS COMPARED TO PERQUISITES AND REMUNERATION RECEIV ED BY THE ASSESSEE AS A DIRECTOR FROM TWO COMPANIES; (III) IT DOES NOT MAKE ANY DIFFERENCE W H ETHER THE TRANSACTIONS HAVE BEEN UNDERTAKEN THROUGH PMS OR OWN ACCOUNT , BECAUSE THE TRANSACTION S THROUGH PMS ARE MERELY A DELEGATION AS THE BUSINESS CAN BE DONE THROUGH OUTSOURCING ALSO. FURTHER PLACEMENT OF FUNDS BEFORE THE PMS DOES NOT MAKE THE PERSON AS INVESTOR; AND (IV) T HE FINDING OF THE AO REGARDING VOLUME, FREQUENCY AND CONTINUITY OF THE TRANSACTION INDICATES THAT THE ASSESSEE IS A TRADER IN SHARES. 4.1 ACCORDINGLY, HE CONCLUDED THAT THE AO IS JUSTIFIED IN TREATING THE AMOUNT OF RS.2,02,35,932 AS BUSINESS INCOME. 5. BEFORE US, THE LEARNED COUNSEL , SHRI MADHUR AGARWAL, SUBMITTED THAT THE MAIN ALLEGATION OF THE AO THAT THE TRANSACT IONS OF SHARES ARE VOLUMINOUS OR NUMEROUS IS NOT CORRECT. THE ASSESSEE HAS BEEN HOLDING THE SHARES FROM ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 5 LAST SEVERAL YEARS, WHICH HE HAS BEEN SELLING FROM TIME TO TIME. IN SUPPORT OF HIS CONTENTION, HE DREW OUR ATTENTION TO STATEMENT GIVEN AT PAGES 38 TO 4 3 OF THE PAPER BOOK TO POINT OUT THAT SOME OF SHARES HAVE BEEN PURCHASED IN YEARS 1970S, 1980S, 1990S AND IN EARLY DECADE OF 2000. SOME OF THE QUANTITIES OF SHARES HAVE BEEN SOLD IN THIS YEAR AND BALANCES HAVE BEEN KEPT IN THE INVESTMENT PORTFOLIO. SIMILAR LY, THE PURCHASES MADE DURING THE YEAR HAVE ALSO BEEN KEPT IN THE INVESTMENT PORTFOLIO AND THERE IS NO REPETITIVE TRANSACTION. BESIDES THIS, THE ASSESSEE S INVESTMENT IN MUTUAL FUNDS AND DEBT SHARES ARE MORE THAN 72%, WHEREAS THE INVESTMENTS IN EQUITY SHARES ARE AROUND 27%. THIS ITSELF GOES TO SHOW THAT THE INTENTION OF THE ASSESSEE WAS TO KEPT THE SHARES AS INVESTMENT AND NOT FOR TRADING PURPOSE. NOT ONLY THAT, THE ASSESSEE S MAJORITY OF TRANSACTIONS ARE THROUGH PORTFOLIO MANAGEMENT SERVICES, WHICH GOE S TO SHOW THAT THE ASSESSEE IS DEPENDING UPON THE F UND MANAGERS TO AUGMENT ITS WEALTH . HE ALSO POINTED OUT THAT THE AO HAS MADE AN OBSERVATION THAT THE DIVIDEND INCOME EARNED BY THE ASSESSEE IS ONLY 3,52,500, WHICH FACT IS COMPLETELY ERRONEOUS , BECAUSE TH E DIVIDEND INCOME EARNED BY THE ASSESSEE IS RS.3,87,14,046 . THIS IS EVIDENT FROM SUMMARY OF DIVIDEND RECEIVED GIVEN AT PAGE 36 OF THE PAPER BOOK. HE FURTHER POINTED OUT THAT THE MAJOR GAIN IS FROM THE SHARES HELD FOR LONG TIME AND THE SHORT TERM CAPITAL GA INS IS ONLY RS.43 LAKH. THUS, ON THESE FACTS , IT CANNOT BE HELD THAT THE ASSESSEE WAS ENGAGED IN TRADING OF SHARES. REGARDING THE NUMBER OF TRANSACTIONS, AS NOTED BY TH E AO, HE SUBMITTED THAT THE ACTUAL TRANSACTIONS ARE LESS BECAUSE PARTICULAR CONTRACTS OF SCRIPTS HAVE BEEN BROKEN INTO SEVERAL TRANSACTIONS EXECUTED ON CONSECUTIVE DAYS. THE ACTUAL SCRIP - WISE TRANSACTIONS WOULD BE LESS. LASTLY, HE SUBMITTED THAT IN THE EARLIER YEARS, IN THE SCRUTINY ASSESSMENTS, THE ASSESSEE S TRANSACTIONS IN ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 6 SHARES HAVE BEEN HELD TO BE ASSESSABLE UNDER THE HEAD `CAPITAL GAINS AND THEREFORE, THE PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE, STRONGLY RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSES SEE HAS BEEN REGULARLY PURCHASING AND S ELLING THE SHARES, WHICH FACT HAVE BEEN NOTED BY THE AO IN DETAIL. IF THE VOLUME OF TRANSACTIONS ARE TAKEN INTO CONSIDERATION ALONG WITH THE OTHER ATTENDANT FACTS AS NOTED IN DETAIL BY THE AO AS WELL AS CIT(A), THEN, THE ONLY CONCLUSION WHICH CAN BE DRAWN IS THAT THE ASSESSEE IS DOING SYSTEMATIC ACTIVITY OF SELLING AND PURCHASING OF SHARES, WHICH IS NOTHING BUT TRADING IN SHARES. ACCORDINGLY, THE ORDER OF THE CIT(A) SHOULD BE AFFIRMED. 7. WE HAVE HEARD THE RIVAL SUBM ISSIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE MATERIAL PLACED ON RECORD. FROM THE PERUSAL OF DETAILS OF TRANSACTIONS OF THE SHARES INCLUDING THE DATE OF ACQUISITION, IT IS SEEN THAT THE ASSESSEE IS MOSTLY HAVING SHARES OF BLUE CHIP COMPANIES, WHICH HAVE BEEN HELD SINCE LAST 20 TO 40 YEARS. SOME OF THE SHARES ARE BEING REGULARLY SOLD AND THE BALANCE SHARES HAVE BEEN KEPT BACK IN THE INVESTMENT PORTFOLIO. THE AO S MAIN GROUND IS THAT THE ASSESSEE HAS UNDERTAKEN PURCHASE OF SHARES AND MUTUAL FUNDS WORTH IN SEVERAL CRORE S AND ALSO HAS SOLD SHARE S IN MUTUAL FUNDS FOR MORE THAN RS.16 CRORE. HOWEVER, HE HAS NOT GIVEN OR ANALYZE D THE TRANSACTION, AS TO WHETHER THE SAME SHARES, WHICH HAVE BEEN PURCHASED, HAVE BEEN IMMEDIATELY SOLD WITHIN A SHORT PERIOD OR THERE IS ANY REPETITION OF TRANSACTION IN PART ICULAR SCRIP S. SIMPLY NOTING DOWN THE FIGURES OF PURCHASE AND SALES DOES NOT ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 7 CONVERT THE ACTIVITY INTO TRADING ACTIVITY. IF THE PATTERN OF INVESTMENT IN SHARES OF THE ASSESSEE IS TO BE GAUGED, THEN IT WOULD BE SEEN THAT THE ASSESSEE HAS MADE INVESTMENTS MO STLY IN DEBT FUNDS AND DEBT SHARES. THE INVESTMENT IN DEBT FUNDS / SHARES ARE MOSTLY FOR LONG TERM INVESTMENTS AS YIELD OF GAIN IS MINUSCULE IF THE SAME ARE SOLD WITHIN A SHORT PERIOD. FROM THE BREAK UP OF SUMMARY OF CAPITAL GAIN, IT IS SEEN THAT THE ASSES SEE S INVESTMENT IN DEBT MUTUAL FUNDS IS AROUND 73% AND ALSO THERE IS INVESTMENT IN VENTURE FUNDS. THE INVESTMENT IN EQUITY SHARES IS APPROXIMATELY 27%. FROM THIS, IT CAN BE VERY WELL INFERRED THAT THE ASSESSEE IS MOSTLY INTO LONG TERM INVESTMENT ACTIVITY. THIS IS ALSO COUPLED WITH OTHER FACTORS LIKE , ASSESSEE HAS MADE INVESTMENT SOLELY FROM HIS OWN FUNDS AND NOT FROM ANY BORROWED FUNDS ; HE HAS MANAGED HIS ENTIRE INVESTMENT ACTIVITY, THROUGH FUND MANAGERS / PMS. ALL THESE FACTORS GOES TO SHOW THE INTENTION OF THE ASSESSEE , WHICH WAS TO BUY THE SHARES FOR INVESTMENT PURPOSE AND TO S E L L THE SAME TO MAXIMIZE THE GAIN FROM SUCH INVESTMENTS. BESIDES THIS, ANOTHER VERY VITAL FACTOR RELEVANT IN THE ASSESSEE S CASE IS THAT , ON SIMILAR NATURE OF TRANSACTIONS, WHICH FACT HAS BEEN NOTED BY THE AO IN THE ASSESSMENT ORDER ITSELF THAT IN THE EARLIER YEARS THE DEPARTMENT HAS ACCEPTED THE GAIN FROM SALE OF SHARES TO BE ASSESSED UNDER THE HEAD `CAPITAL GAINS AND SUCH A VIEW HAS BEEN ACCEPTED UNDER SCRUTINY PROCEEDINGS PASSE D U/S 143(3). THUS, ON THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE S CASE, WE HOLD THAT THE GAIN FROM TRANSACTION OF SHARES BY THE ASSESSEE IS TO BE ASSESSED UNDER THE HEAD `CAPITAL GAINS AND NOT AS `BUSINESS INCOME . ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 8 8. REGARDING THE ALTERNATE CLAIM AS RAISED IN GROUND NO.7 , THAT EXPENSES SHOULD BE ALLOWED IF THE TRANSACTION IN SHARES IS TO BE ASSESSED UNDER THE HEAD `PROFITS AND GAINS FROM BUS INESS OR PROFESSION , THE SAME HAS BECOME INFRUCTUOUS IN VIEW OF OUR FINDING GIVEN ABOVE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 10. IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT THE FACTS AND ISSUES FOR THE APPEAL FOR THE ASSESSMENT YEAR 2007 - 200 8 ARE SAME AND EVEN THE FINDING AND THE REASONING OF THE ASSESSING OFFICER AS WELL AS CIT(A) ARE IDENTICAL TO THE FINDING GIVEN IN THE ASSESSMENT YEAR 2005 - 2006, AND THEREFORE, OUR CONCLUSION GIVEN IN THE APPEAL FOR THE ASSESSMENT YEAR 2005 - 20 06 WILL APPLY MUTATIS MUTANDIS IN THIS YEAR ALSO. ACCORDINGLY, GROUNDS RELATING TO TAXABILITY OF CAPITAL GAIN UNDER THE HEAD `BUSINESS INCOME IS TREATED AS ALLOWED. 11. THE ASSESSEE, VIDE GROUND NO.2, IN THE APPEAL FOR ASSESSMENT YEAR 2007 - 2008 HAS RAISED A LEGAL ISSUE OF NON - SERVICE OF NOTICE WITHIN THE TIME LIMIT PRESCRIBED U/S 143(2). N O ARGUMENTS HAVE BEEN ADVANCED BY THE LEARNED COUNSEL ON THIS SCORE, AND THEREFORE, THE SAME IS TREATED AS DISMISSED AS NOT PRESSED. MOREOVER, IN VIEW OF THE FINDIN G ON MERITS, THIS LEGAL GROUND HAS BECOME ACADEMIC. ACCORDINGLY, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT 2007 - 2008 IS TREATED AS PARTLY ALLOWED. ITA NO S . 2412/MUM/2009 & 4534/MUM/2011 SHRI SRIRAM KAPUR. 9 12 . IN THE RESULT, ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2005 - 2006 IS ALLOWED , WHEREAS THE APPEAL FOR ASSESSMENT YEAR 2007 - 2008 IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY, 2015 . SD/ - SD/ - ( N.K.BILLAIYA ) ( AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 25 TH FEBRUARY, 2015 . DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT , MUMBAI. 4. / CIT(A) - XI , MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE.