ACIT 25(3), MUMBAI V. UMADEVI CHOUDHARY, MUMBAI

ITA 244/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55336 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 27-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHANTAM BOSE
• Keywords: Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN (J.M) ITA NO.244/MUM/2010(A.Y. 2006-07) THE ACIT 25(3), C-11, R.NO.308, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 51. (APPELLANT) VS. SMT. UMADEVI CHOUDHARY, 2601, OBEROI GARDEN II, THAKUR VILLAGE, KANDIVILI (EAST) MUMBAI 400 101. PAN:AEVPC 6275N (RESPONDENT) APPELLANT BY : SHRI SHANTAM BOSE RESPONDENT BY : SHRI S.L.JAIN DATE OF HEARING : 27/09/2011 DATE OF PRONOUNCEMENT : 05/10/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 28/10/2009 OF CIT(A)-35, MUMBAI RELATING TO THE ASSESSMENT YEA R 2006-07. 2. THE ASSESSEE IS AN INDIVIDUAL. SHE DERIVES INCO ME IN THE FORM OF SALARY FROM M/S. RANISATI FABRIC MILLS PVT. LTD., C APITAL GAINS AND INCOME FROM HOUSE PROPERTY. ON PERUSAL OF THE RETURN OF I NCOME AND IN PARTICULAR THE INCOME DECLARED UNDER THE HEAD CAPITAL GAINS, T HE AO NOTICED THAT THE ASSESSEE HAD CLAIMED SHORT TERM CAPITAL GAIN(STCG) ON SALE OF SHARES AT RS.17,93,505/- AND LONG TERM CAPITAL GAIN (LTCG ) O N SALE OF SHARES AT RS.28,375/-. THE ASSESSEE HAD ENTERED INTO A PORTF OLIO MANAGEMENT SCHME(PMS) OF BONANZA PORTFOLIO LTD. AND GIVEN FUN DS FOR INVESTMENT IN SHARE MARKET. ON SUCH INVESTMENT THE ASSESSEE EAR NED STCG OF RS. 17,20,202.44. APART FROM THE ABOVE THE ASSESSEE HA D DONE TRANSACTIONS ON ITA NO.244/MUM/2010(A.Y. 2006-07) 2 HER OWN ACCOUNT AND IN RESPECT OF SUCH TRANSACTION THE ASSESSEE DERIVED STCG OF RS.73,303.29 AND LTCG OF RS.28,375.50. T HE DETAILS OF THE OWN TRADING DONE BY THE ASSESSEE ARE AS FOLLOWS: STATEMENT OF STCG/(LOSS) FOR THE PERIOD FROM 1/4/20 05 TO 31/3/2006. S.NO. SCRIPT QTY. DATE OF PURCHASE COST OF ACQUISITION DATE OF SALE SALE PRICE (AMT RS.) CAPITAL GAIN /LOSS (AMT. RS) 1. APTECH TRANS 1000 15/06/05 60,963 11/08/05 89800 28837 2. TWIN STAR SOFTWARE 5000 24/12/04 8,708 15/06/05 24500 15792 3. TWIN STAR SOFTWARE 1120 16/12/04 1,691 15/06/05 5488 3797 4. TAMILNADU PETRO PRODUCTS 1000 10/12/04 24,173 18/07/05 29550 5377 5. SHRI KRISHNA POLY 10000 25/07/05 19,000 02/09/05 38500 19500 TOTAL 73,303.29 STATEMENT OF LTCG/(LOSS) FOR THE PERIOD FROM 1/4/20 05 TO 31/3/2006. S.NO. SCRIPT QTY. DATE OF PURCHASE COST OF ACQUISITION DATE OF SALE SALE PRICE (AMT RS.) CAPITAL GAIN /LOSS (AMT. RS) 1. DEEPAK FERTILIZERS 200 BEFORE 1996-97 10,450 14/02/06 22,090 11,640.00 2. AUTOMOTIVE AXILES LTD. 14 28/01/06 3,658 09/03/06 8263.42 4630.22 3. BAJAJ TEMPO LTD. 15 24/02/05 4966.95 09/03/06 8014.80 3047.85 4. BILCARE LTD. 13 18/01/05 4281.42 27/01/06 7521.67 3240.25 5. BILCARE LTD. 22 18/01/05 7245.48 09/03/06 11361.02 4115.54 6. CG IGARASHI MOTORS LTD. 38 02/02/05 4960.52 09/03/06 6662.16 1701.64 TOTAL 28,375.50 THE ASSESSEE SUBMITTED BEFORE THE AO THAT AS PER TH E PMS THE PORTFOLIO MANAGER HAD FULL DISCRETION OF BUYING AND SELLING O F SHARES AND WAS ENTITLED TO 15% SHARE OF THE PROFITS EARNED ON TRANSACTIONS ENTERED INTO ON BEHALF OF THE CLIENT. THE ASSESSEE SUBMITTED THAT SHE WAS HA NDING OVER HER MONEY TO PORTFOLIO MANAGER SOLELY FOR EARNING HIGH RETURNS A ND WAS NOT CONCERNED WITH THE NATURE OF TRANSACTION CARRIED OUT WITH THE PORTFOLIO MANAGER. THE ITA NO.244/MUM/2010(A.Y. 2006-07) 3 ASSESSEE THUS SUBMITTED THAT GIVING OF FUNDS TO POR TFOLIO MANAGER WAS NOTHING BUT AN INVESTMENT AND JUST BECAUSE PORTFOLI O MANAGER CARRIES OUT NUMEROUS TRANSACTIONS THAT WILL NOT RENDER THE STCG INCOME FROM BUSINESS. 3. THE AO HOWEVER DID NOT ACCEPT THE STAND OF THE A SSESSEE AND AFTER REFERRING TO BOARD CIRCULAR NO.4 OF 2007 DATED 15/6 /2007 AS WELL AS SEVERAL DECIDED CASES LAYING DOWN PRINCIPLES FOR DECIDING THE QUESTION AS TO WHEN A PERSON CAN BE SAID TO BE ENGAGED IN BUSINESS CAME T O THE CONCLUSION THAT THE ASSESSEE IN THE MATTER OF PURCHASE OF SALE OF S HARES INDULGED IN CARRYING ON A BUSINESS, THEREFORE, THE STCG AND LTCG DECLAR ED BY THE ASSESSEE HAD TO BE ASSESSED AS INCOME FROM BUSINESS. 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A). THE ASSESSEE REITERATED THE SUB MISSIONS AS WERE MADE BEFORE THE AO. THE ASSESSEE ALSO POINTED OUT THAT EVEN IN RESPECT OF STCG EARNED BY THE ASSESSEE THE PERIOD OF HOLDING WAS HI GH AND GAVE THE FOLLOWING CHART IN THIS REGARD : PERIOD IN DAYS CAPITAL GAIN EARNED (RS.) 90-180 4,78,716 180-270 2,72,979 271-363 4,76,728 60-90 4,02,122 1-60 89,657 TOTAL 17,20,202 IT WAS POINTED OUT THAT NO LOANS WERE TAKEN FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES. ALTERNATIVELY IT WAS PLEADED THAT INCOME THE INCOME IS CONSIDERED AS INCOME FROM BUSINESS THE ASSESSEE SHO ULD GET DEDUCTION ON ACCOUNT OF PMS CHARGES PAID TO PORTFOLIO MANAGER, STT AND VALUATION OF CLOSING STOCK OF SHARES. ITA NO.244/MUM/2010(A.Y. 2006-07) 4 5. THE CIT(A) WAS OF THE VIEW THAT THE HOLDING PER IOD OF THE SHARES WERE SUBSTANTIAL. HE ALSO FOUND THAT THE SHARES WERE SH OWN CONSISTENTLY AS INVESTMENT BY THE ASSESSEE IN ITS BALANCE SHEET. H E ALSO FOUND THAT THERE WAS NO BORROWING OF LOANS FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES. IN VIEW OF THE ABOVE CIRCUMSTANCES THE CIT(A) TOOK THE VIEW THAT THE CAPITAL GAIN DECLARED BY THE ASSESSEE HAS TO BE ACCEPTED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NOT ICE THAT THE TRIBUNAL IN THE CASE OF ITO VS. RADHA BIRJU PATEL IN ITA NO.53 82/M/09 FOR A.Y 2006-07 HAS TAKEN THE VIEW THAT MAKING INVESTMENT THROUGH P MS CANNOT BE CONSIDERED AS DERIVING INCOME FROM BUSINESS. THE LD. D.R HOWEVER, SUBMITTED THAT THE ASSESSEE HAD TRADED ON HER OWN A CCOUNT ALSO, THEREFORE, THE AFORESAID DECISION OF THE TRIBUNAL WILL NOT BE APPLICABLE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE T RIBUNAL IN THE CASE OF ITO VS. RADHA BIRJU PATEL (SUPRA) HELD AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD OF THE CASE. WE HAVE NOTED THAT SO FAR AS THE PRESENT TRAN SACTIONS ARE CONCERNED, THESE TRANSACTIONS ARE UNDISPUTEDLY CARR IED OUT BY THE ASSESSEES PORTFOLIO MANAGER AND, THEREFORE, THESE ITEMS ARE CLEARLY IN THE NATURE OF TRANSACTIONS MEANT FOR MAXIMIZATION O F WEALTH RATHER ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF S HARES. THE VERY NATURE OF PORTFOLIO MANAGEMENT SCHEME IS SUCH THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE PROTECTED AND ENHANCED AND IN SUCH A CIRCUMSTANCE, IT CANNOT BE SAID THAT PORTFOLIO MANA GEMENT IS SCHEME OF TRADING IN SHARES AND STOCK. WHETHER, THE ASSES SEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES OR INVESTMENT IN SHARES IS ESSENTIALLY A QUESTION OF FACT AND IT HAS TO BE DETERMINED WITH REGARD TO THE ENTIRETY OF THE CIRCUMSTANCES. IN OUR CONSIDERATION VIEW, IN CIRCUMSTANCE, IN WHICH THE ASSESSEE IS ENGAGED IN A SYSTEMATIC ITA NO.244/MUM/2010(A.Y. 2006-07) 5 ACTIVITIES OF HOLDING PORTFOLIO THROUGH A PMS MANAG ER, IT CANNOT, BY ANY STRETCH OF IMAGINATION, BE SAID THAT THE MAIN O BJECT OF HOLDING THE PORTFOLIO IS TO MAKE PROFIT BY SALE OF SHARES DURIN G THE COURSE OF MAINTAINING THE PORTFOLIO INVESTMENT OVER THE PERIO D. AS REGARDS THE HIGH NUMBER OF TRANSACTIONS, WHICH HAVE BEEN REFERR ED TO BY THE ASSESSING OFFICER, WE HAVE NOTED, ON A PERUSAL OF S TATEMENT FILED BEFORE US, THAT THE NUMBER OF TRANSACTION REFLECTED IN THE STATEMENT DO NOT CONSTITUTE INDEPENDENT TRANSACTION INASMUCH AS WHEN , IN A COMPUTER BASED TRADING SYSTEM, LET US SAY THE ASSESSEE BUY 1 000 SHARES AND THIS PURCHASE IS SPLIT OVER 10 TRANSACTIONS FROM DI FFERENT PERSONS, WHILE OVER ALL TRANSACTIONS IS OF ONLY ONE PURCHASE 100 SHARES, THE STATEMENT REFLECT OF THE INDIVIDUAL COMPONENT OF TH E TRANSACTION AND WILL THUS SHOW A MISLEADING HIGH FIGURE. KEEPING IT IN MIND ALL THESE FACTORS AS ALSO THE ENTIRETY OF THE CASE, WE ARE IN CONSIDERED AGREEMENT WITH THE CONCLUSIONS ARRIVED BY THE CIT (A) WHICH N EEDS NO INTERFERENCE. GRIEVANCES RAISED BY THE ASSESSING OF FICER ARE THUS REJECTED WE ARE OF THE VIEW THAT THE AFORESAID DECISION REND ERED BY A CO-ORDINATE BENCH WILL APPLY TO THE FACTS OF THE PRESENT CASE. WE ARE ALSO OF THE VIEW THAT THE QUANTUM OF OWN TRADING DONE BY THE ASSESSEE IS NEGLIGIBLE CALLING FOR NO ADVERSE INFERENCE CONSIDERING THE PERIOD OF HOLDING , THE NUMBER OF TRANSACTIONS AND THE VOLUME OF TRANSACTION. ON THE GIVEN FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WE ARE OF THE VIE W THAT THE DECISION IN THE CASE OF RADHA BIRJU PATEL(SUPRA) WILL SQUARELY APPL Y TO THE FACTS OF THE PRESENT CASE. RESPECTFULLY FOLLOWING THE SAID DECI SION OF THE TRIBUNAL WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEAL B Y THE REVENUE. 9. IN THE RESULT THE APPEAL BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 5TH DAY OF OCT. 2011. SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 5 TH OCT. 2011 ITA NO.244/MUM/2010(A.Y. 2006-07) 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.244/MUM/2010(A.Y. 2006-07) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 28/9/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 29/9/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER