TARACHAND HIRJI SHAH, MUMBAI V. JOINT COMMISSIONER OF INCOME TAX, MUMBAI

ITA 242/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3386 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 09-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: D S SUKHIJA
• Keywords: Business income; Salary income; Source of fund; Speculation loss; Futures and options; Set aside; Capital Gains
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER AND ITA NO.242/MUM/2018 ASSESSMENT YEAR-2011-12 SH RI TARACHAND HIRJI SHAH, 220/802, WEST VIEW HEIGHTS, SIR BHALCHANDRA ROAD, MATUNGA (EAST), MUMBAI-400019 / VS. JCIT, RANGE-13(2), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 PAN NO. AAIPS8998K ( / ASSESSEE) ( / REVENUE) / ASSESSEE BY SHRI D.S. SUKHIJA / REVENUE BY SHRI CHAUDHARY ARUN KUMAR SINGH -DR / DATE OF HEARING : 14/02/2019 / DATE OF ORDER: 25/04/2019 / O R D E R PER SHAMIM YAHYA (ACCOUNTANT MEMBER) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER OF THE LD. CIT(A)-28, MUMBAI, DATED 29/09/2017 AND PERTAINS TO ASSESSMENT YEAR 2011-12. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER:- ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 2 1. THE COMMISSIONER OF INCOME-TAX [APPEALS](HEREIN AFTER REFERRED TO AS THE CIT[A] ERRED IN CONFIRMING THE AMOUNT OF RS.22,38,004/- CLAIMED UNDER SHORT TERM CAPITAL GAI N AS BUSINESS INCOME. 2. THE CIT[A] ERRED IN CONFIRMING THE AMOUNT OF RS.1,10,915/- U/S 14A OF THE I.T. ACT, 1961. 2. THE BRIEF, FACTS OF THE CASE ARE THAT THE ASSESS EE IS HAVING INCOME FROM SALARY INCOME, CAPITAL GAIN AND OTHER SOURCES. THE CASE WAS SELECTED FOR SCRUTINY UNDER C CIT SELECTION. RELEVANT DETAILS RELATING TO THE ABOVE S OURCE OF INCOME AND COPIES OF CONTRACT NOTES, BANK STATEMENT S, ETC, WERE CALLED FOR, EXAMINED BY THE AO. THE AO NOTED T HAT ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAINS AT RS.22,38,005/- FOR THE PREVIOUS YEAR RELEVANT TO A. Y. 2011- 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS VID E LETTER DATED 14/02/2014, THE ASSESSEE WAS ASKED TO EXPLAIN WHY STCG IN SHARES SHOULD NOT BE TREATED AS BUSINESS IN COME INSTEAD OF SHORT TERM CAPITAL GAINS AS THE ASSESSEE HAD DEALT IN NUMEROUS AND MULTIPLE SHARE TRANSACTIONS. THE ASSESSEE SUBMITTED AS UNDER:- 4.1 THE ASSESSEE HAS SUBMITTED LETTER DATED 1 1.02.2014 AND 25.02.2014. IN LETTER DATED 11.02.2014, ASSESSEE HAS STATED AS UNDER:- 'THIS IS IN CONTINUATION OF DISCUSSION OUR REPRESENTATIVE MR. ASHOK SHAH HAD WITH YOU: ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 3 1. MY SOURCES OF INCOME IS AS UNDER: A. SALARY INCOME. B. INCOME FROM BUSINESS AND PROFESSION, WHICH INTER ALIA INCLUDES FOLLOWING :- I. FUTURES AND OPTIONS. II. SPECULATION LOSS. III. COMMISSION. IV. SHARE OF PROFIT FROM PARTNERSHIP FIRM. C. CAPITAL GAINS. D. INCOME FROM OTHER SOURCES, INTER ALIA INCLUDES I. DIVIDENDS FROM COMPANIES AND FROM MUTUAL FUND. II. INTEREST INCOME FROM LOANS AND ADVANCES, LEASE RENT, SERVICE CHARGES ETC. 2. THE ABOVE FACTS SHOW THAT I AM HAVING MULTIPLE ACTIVITIES HAVING INCOME IN VARIOUS HEADS. THIS SHO WS THAT INVESTMENT IN SHARES IS NOT BUSINESS AT ALL AS I AM OCCUPIED WITH VARIOUS ACTIVITIES AS MENTIONED ABOVE. EVEN IN SHARES AND SECURITIES I HAVE FOLLOWING INCO ME :- I. FUTURE & OPTIONS. II. SPECULATION. III. CAPITAL GAINS. THIS CLEARLY SHOWS THAT I HAVE DIFFERENT PORTFOLIO FOR TRADING AND INVESTMENT. I HAVE OFFERED THE PROFIT F ROM FUTURE & OPTIONS & SPECULATION AS A BUSINESS INCOME. 3. FURTHER STATE THAT CAPITAL GAIN FROM SHARES ARE AS UNDER:- ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 4 I. SHORT TERM CAPITAL GAIN ON SALE OF SHARES, PURCHASED AND SOLD ON RECOGNIZED STOCK EXCHANGE. II. LONG TERM CAPITAL GAIN ON SALE OF SHARES, MAINL Y OF UNIVERSAL CONTAINER FREIGHT STATION PUT. LTD. 4. SHORT TERM CAPITAL GAIN I. THE DETAIL WORKING OF SHORT TERM CAPITAL GAIN IS ENCLOSE HEREWITH :- II. YOURGOOD SELF WILL OBSERVE FROM THE ABOVE DETAI LS THAT DURING THE YEAR I HAVE DONE ONLY 30 TRANSACTIO NS OF PURCHASE & SALES. III. THE FULL CONSIDERATION FOR PURCHASE OF THE SHA RES IS PAID THROUGH MY BANK ACCOUNT. IV. THE TRANSACTIONS ARE SPREAD OVER NINE MONTHS OF THE YEAR. V. I HAVE MADE MAJOR PROFIT FROM SALE OF SHARES OF SUPREME INDUSTRY WHICH IS IN B GROUP OF STOCK EXCHANGE AND SAME SCRIPTS WAS HELD MY ME FOR ABOUT FIVE MONTHS. VI. I HAVE EARNED TOTAL DIVIDEND OF RS. 1,65,951/-F ROM THE SHARES. FROM ABOVE FACT IT IS CLEAR THAT PROFIT ON SALE OF SHARES DETAILS OF WHICH IS SUBMITTED AS ABO VE IS A SHORT TERM CAPITAL GAIN'. THE SUBMISSIONS MADE BY THE ASSESSEE IS CAREFULLY PERUSED AND CONSIDERED BUT IS NOT ACCEPTABLE. 3. THE LD. AO WAS NOT CONVINCED WITH THE REPLY OF T HE ASSESSEE. HE REFERRED TO THE CBDT CIRCULAR AND VARI OUS CASE LAWS. HE MADE GENERAL OBSERVATION ABOUT VOLUME , FREQUENCY OF TRANSACTION AND OBSERVED THAT THE SOME SHARES ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 5 HAVE BEEN SOLD IN A MATTER OF FEW DAYS. HE CONCLUDE D AS UNDER:- 4.13. ANOTHER IMPORTANT POINT TO MENTION HERE IS TH AT ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN OF JUST RS.3,53,674/-. IT CLEARLY SHOWS THAT ASSESSEE DO NO T HOLD SHARES FOR LONG TERM AS INVESTMENT. 4.14. IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT THE ASSESSEE IS CARRYING OUT TRADING ACTIVITY IN RESPEC T OF SALE AND PURCHASE OF SHARES. ACCORDINGLY, THE INCOME FRO M SHORT TERM CAPITAL GAIN OF RS.22,38,004/- IS TREATE D AS INCOME FROM BUSINESS AND TAXED AS NORMAL RATES. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) REFERRED TO SEVERAL CASE LAW S AND WITHOUT ADVERTING TO THE APPLICATION OF THOSE CASE LAWS TO THE FACTS OF THE PRESENT CASE HE HELD THAT APPEAL I S DISMISSED. 5. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT O N IDENTICAL FACTS IN ASSESSEE'S OWN CASE FOR ASSESSME NT YEAR 2010-11, THE LEARNED CIT(A) HAS HELD THAT THE GAIN SHOULD BE TREATED AS SHORT-TERM CAPITAL GAINS. LEARNED COU NSEL SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER W AS OF THE SIMILAR NATURE. HE SUBMITTED THAT THESE FACTS WERE SUBMITTED BEFORE THE LEARNED CIT(A) IN THE PRESENT ASSESSMENT YEAR. HOWEVER HE SUBMITTED THAT WITHOUT POINTING OUT ANY DISTINGUISHING FEATURE LEARNED CIT (A) HELD ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 6 THAT THE SAID ORDER CANNOT BE APPLIED. LEARNED COUN SEL ALSO PLACED RELIANCE UPON THE DECISION OF HONOURABLE HIG H COURT IN THE CASE OF CIT VS DATA MAHENDRA SHAH IN ITA NO. 1601 OF 2013 DATED 09/11/2015. HE FURTHER SUBMITTED TH AT THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF PRINCI PLE CIT VS VIKSIT ENGINEERING LTD. IN ITA NO.485 OF 2016, O RDER DATED 26/11/2018 IS ALSO APPLICABLE. IN THIS REGARD HE REFERRED TO PAR 7 OF THE HONOURABLE HIGH COURT ORDE R AS UNDER:- WE NOTE THE FACT, THAT THE ISSUE OF CLASSIFICATION OF INCOME ON SALE OF SHARES AS BUSINESS INCOME OR AS SHORT TERM CAPIT AL GAINS IS TO BE DECIDED THE FACTS OF EACH CASE. THE TESTS TO BE APP LIED FOR SUCH DETERMINATION IS PROVIDED IN CBDT CIRCULAR NO.4 OF 2007. WE NOTE THAT THE TRIBUNAL KEPT IN MIND THE TESTS AS PROVIDE D IN THE ABOVE CIRCULAR IN THE CONTEXT OF THE FACTS AND FOUND IS T HAT THESE INVESTMENTS WERE OUT OF ITS OWN FUNDS AND NOT BORRO WED FUNDS, FURTHER IT MAINTAINED A DISTINCTION BETWEEN TRADING IN SHARES AND INVESTMENTS. THUS, TWO PORTFOLIOS ONE FOR 'INVESTME NT' AND OTHER FOR 'TRADING'. BESIDES FOR THE EARLIER YEARS THE REVENU E ACCEPTED THE CLAIM OF SHORT TERM CAPITAL GAIN. WE ARE OF THE VIE W THAT RESPONDENT HOLDING THE SHARES FOR A SHORT PERIOD, WILL NOT CON VERT THE CAPITAL GAIN INTO BUSINESS INCOME. THIS WOULD BE CONTRARY T O BE LEGISLATIVE MANDATE WHICH ITSELF PROVIDES THAT WHEN THE INVESTM ENT IS HELD FOR LESS THAN 12 MONTHS, IT IS TO BE TERMED AS SHORT TE RM CAPITAL GAIN. MOREOVER, THE IMPUGNED ORDER OF THE TRIBUNAL ALSO I N THE PRESENT FACTS CORRECTLY PLACED RELIANCE, UPON THE DECISION OF THIS COURT IN THE CASE OF CIT VS. GOPAL PUROHIT.' 6. HENCE LEARNED COUNSEL SUBMITTED THAT THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 7. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED UPON THE ORDER'S OF THE AUTHORITIES BELOW. ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 7 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AND PERUSED THE RECORDS WE FIND THAT IT IS THE SUBMISSI ON OF THE LEARNED COUNSEL OF THE ASSESSEE THAT ON IDENTICAL F ACTS IN THE EARLIER YEAR, THE LEARNED CIT(A) HAS DECIDED TH E ISSUE IN FAVOUR OF ASSESSEE. WE ARE IN AGREEMENT WITH THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE T HAT WITHOUT POINTING OUT ANY DISTINGUISHING FEATURE AS COMPARED TO LAST YEAR LEARNED CIT(A) HAS REFUSED TO FOLLOW THE SAME. WE FURTHER FIND THAT ASSESSEE SUBMISSIONS IN DETAIL BEFORE THE ASSESSING OFFICER HAS NOT BEEN PR OPERLY CONSIDERED. BY GENERALLY OBSERVING THAT IN SOME CAS ES SHARES HAS BEEN TRANSACTED IN A MATTER OF A FEW DAY S THE ASSESSING OFFICER HAS MADE A SWEEPING COMMENT THAT ASSESSEE IS A TRADER IN SHARES. THE ASSESSING OFFIC ER HAS TOTALLY IGNORED THE SUBMISSION OF THE ASSESSEE WHER E THE ASSESSEE MENTIONS THAT IT HAS RECEIVED MAJOR SHARE OF GAIN FROM SHARE, WHERE THE ASSESSEE HAS HELD THAT SHARE FOR LONGER PERIODS. FURTHERMORE ON THE SAME FATS HONOUR ABLE BOMBAY HIGH COURT IN SIMILAR CONDITIONS HAS UPHELD THE ITAT ORDER HOLDING THAT THE ASSESSEES TRANSACTION CANNOT ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 8 BE TREATED AS TRADING IN SHARES, INASMUCH AS, ASSES SEE HAS USED OWN FUNDS AND IT HAS MAINTAINED PROPER DISTINC TION BETWEEN TRADING IN SHARES AND INVESTMENT. THE AUTHO RITIES BELOW HAVE NOT BROUGHT OUT PROPERLY ANY DISTINGUISH ING FEATURES. HENCE IN OUR CONSIDERED OPINION WITHOUT C OGENT REASONING AUTHORITIES BELOW HAVE REJECTED THE ASSES SEES CONTENTION THAT IT IS NOT ENGAGED IN TRADING OF SHA RES RATHER IT IS MAKING INVESTMENT IN SHARES. IN THESE CIRCUMS TANCES ON THE TOUCHSTONE OF HONOURABLE BOMBAY HIGH COURT DECISION REFERRED ABOVE, WE SET ASIDE THE ORDER'S O F AUTHORITIES BELOW AND DECIDE THE ISSUE FAVOUR OF AS SESSEE. 9. IN THE RESULT, APPEAL BY THE ASSESSEE STANDS ALL OWED ORDER PRONOUNCED IN THE OPEN COURT ON 25/04/2019 SD/- S D/- (PAWAN SINGH) (SHAMIM YAHYA) ! / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER MUMBAI; DATED : 25/04/2019 F{X~{T? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT (RESPECTIVE ASSESSEE) 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI, ITA NO.881MUM/2018, M/S TEJASKIRAN PHARMACHEM PVT. LTD. 9 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI