ACIT 25(3), MUMBAI V. REKHA P. PKHRANA, MUMBAI

ITA 247/MUM/2010

• Counselvise Citation: 24719914 RSA 2010
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: RAKESH JOSHI
• Keywords: Business income; Transactions in derivatives
• Section: 43(5)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL MUMBAI - D BENCH MUMBAI . . , / !' !' !' !' , ! ! ! ! BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 247/MUM/2010, # # # # $ $ $ $ / ASSESSMENT YEAR 2006-07 ACIT 25(3) C-11, R.NO. 308, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI-400051 VS. REKHA P. POKHRANA, 1001-02, RIVIERA TOWER, A WING, LOKHANDWALA COMPLEX, AKURLI ROAD, KANDIVLI(EAST) MUMBAI-400101 PAN: AHKPP9468L ( %& / APPELLANT ) ( '(%& / RESPONDENT) %& %& %& %& ) )) ) * * * * ! !! ! / REVENUE BY : SHRI SANJEEV JAIN '(%& ) * ! / ASSESSEE BY : SHRI RAKESH JOSHI # # # # ) )) ) + + + + / DATE OF HEARING : 13 . 01 .201 4 ,-$ ) + / DATE OF PRONOUNCEMENT : 05 . 02 .201 4 # # # # , 1961 ) )) ) 254 )1( ! !! ! +.+ +.+ +.+ +.+ !/ !/ !/ !/ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED.28.10.2009 OF THE CIT(A )-35,MUMBAI,ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL : (1)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THAT PROFITS ON SALE OF SHARES BE TREATED AS CAPITAL GAIN. (2)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THAT F & O BEFORE 25.01.2006 BE TREATED A S NON SPECULATIVE TRANSACTIONS. (3)THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT (A) ON THE ABOVE GROUNDS TO BE SET ASIDE AND THAT OF THE BE RESTORED. (4)THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND. 2. ASSESSEE,AN INDIVIDUAL,FILED HER RETURN OF INCOME O N 11.07.2006 DECLARING TOTAL INCOME OF RS. 22,47,634/-.ASSESSING OFFICER(AO)FINALISED THE ASSE SSMENT ORDER U/S.143(3) OF THE ACT,ON 26.12. 2008,DETERMINING THE TOTAL INCOME AT RS. 34,86,780/ -. FIRST GROUND OF APPEAL PERTAINS TO THE TREATMENT TO BE GIVEN TO SHARE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE.DURING THE ASSESSMENT PROCEEDINGS AO F OUND THAT THE ASSESSEE HAD DECLARED INCOME FROM SHORT TERM CAPITAL GAINS(STCG)AT RS.24,00,684/ -AND LONG TERM CAPITAL GAINS(LTCG)AT RS.9,44,740/-. AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE,AO HELD THAT THE ASSESSEE WAS FREQUENTLY BUYING AND SELLING SHARES,THAT IN EARLIE R YEARS ALSO SAME TREND WAS NOTICED,THAT THE 2 ITA NO. 247/MUM/2010 REKHA P. POKHRANA . ASSESSEE SHOWING THE INCOME UNDER THE HEADS STCG/LT CG AS WELL AS UNDER THE HEAD INCOME FROM BUSINESS,THAT THERE WAS NO OPENING STOCK OR CL OSING STOCK OF SHARES,THAT ASSESSEE HAD SOLD ALL THE SHARES THAT WERE PURCHASED DURING THE YEAR UNDE R APPEAL,THAT ANALYSIS OF THE STATEMENT OF STCG FILED BY THE ASSESSEE SHOWED THAT FOR MOST OF THE SCRIPS WERE HELD FOR A PERIOD OF A FEW DAYS ONLY,THAT IN VERY FEW CASES SHARES WERE HELD FOR MORE THAN A MONTH,THAT SHARES WERE NOT FOR EARNING DIVIDEND INCOME.HE RELIED UPON THE DECISION DELIVERED BY THE AHMEDABAD BENCH IN THE CASE OF DEEPA SHAH(99ITD219). 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT THE APPELLANT HAD GIVEN DETAILED REPLY BEFORE THE A O AS TO WHY THE PROFIT ON SALE OF SHARES SHOULD NOT BE ASSESSED UNDER THE HEAD BUSINESS BUT SHOUL D BE ASSESSED UNDER THE HEAD CAPITAL GAIN,THAT THE SHARES WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET WHICH INDICATED THE INTENTION OF THE APPELLANT TO HOLD THEM AS INVESTMENT,THAT THE ASSES SEE TRANSFERRED ALL THE SHARES IN HER NAME AS EVIDENCED BY THE DEMAT ACCOUNT AND SUBSEQUENTLY SOL D THEM,THAT MERELY BECAUSE THE ASSESSEE HAD INCURRED LOSS FROM SPECULATIVE TRANSACTION, IT COUL D NOT BE CONCLUDED THAT ALL THE SHARES PURCHASED AND TRANSFERRED IN HER NAME THROUGH DEMAT ACCOUNT S HOULD ALSO BE TREATED STOCK IN TRADE,THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE A ND THE METHOD OF DISCLOSING THE SAME IN THE BALANCE SHEET WAS VERY IMPORTANT, THAT THE ASSESSEE NOT BORROWED ANY FUNDS FOR THE PURPOSE OF INVESTMENT IN SHARES,THAT MAJOR PORTION OF STCG WAS ARRIVED AT BY THE SHARES WHICH WERE HELD FOR MORE THAN 30 DAYS.THAT SHARES CLAIMED TO HAVE BEEN SOLD UNDER THE HEAD LTCG WERE HELD FOR VERY LONG PERIOD,THAT THERE WAS NO INTENTION OF EARNING PROFIT WHILE BUYING SHARES,THAT SHARES WERE SHOWN IN THE BALANCE-SHEET UNDER THE HEAD INVESTMEN T.RELYING UPON THE CASES OF JANAK S. RANGWALLA (11 SOT 627)AND GOPAL PUROHIT(29 SOT 117) ,HE DIRECTED THE AO TO ACCEPT HER CLAIM BY ASSESSING THE IMPUGNED AMOUNT UNDER THE HEADS ST CG/ LTCG. 2.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTE D THAT SHARES WERE HELD FOR VERY SHORT PERIOD,THAT INTENTION OF THE ASSESSEE WAS TO EARN P ROFIT,THAT DIVIDEND EARNED WAS VERY LESS,THAT VOLUME AND FREQUENCY OF SHARES TRADED PROVED THAT T HE ASSESSEE WAS NOT AN INVESTOR.AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT THE ASSESSEE TOOK DELIVERY OF ALL THE SHARES ON WHICH CAPITAL GAIN WAS ADMITTED AND FOR THIS PURPOSE DEMAT ACCOUN T WAS PRODUCED BEFORE THE AO,THAT MERELY BECAUSE THE ASSESSEEWAS ENGAGED IN SPECULATIVE TRAN SACTIONS, IT COULD NOT BE CONCLUDED THAT ALL THE SHARES PURCHASED BY HER SHOULD BE TAKEN AS STOCK IN TRADE.HE FUTHER REFERRED TO THE LETTER DATED 13.01.2014 WHEREIN IT WAS STATED THAT CLAIM OF LTCG SHOULD BE ACCEPTED AS IT IS AND GAIN OF RS. 24,00,684 /- COULD BE TAXED UNDER THE HEAD BUSINESS INCOME. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD DEALT IN ABOUT 200 SCRIPS DURING THE Y EAR UNDER APPEAL BUT ONLY 30 SCRIPS WERE HELD BY HER FOR A PERIOD MORE THAN 30 DAYS,MANY A SHARES WERE SOLD ON THE SAME DAY,THERE IS LARGE VOLUME AND FREQUENCY OF SHARES DEALT BY THE ASSESSE E FOR THE PERIOD UNDER CONSIDERATION. THEREFORE,WE ARE INCLINED TO AGREE WITH THE PROPOSA L OF THE ASSESSEE THAT STCG OF RS.24,00,684/- SHOULD BE TREATED AS INCOME FROM BUSINESS.AS FAR AS LTCG IS CONCERNED IN OUR OPINION THERE IS NO NEED TO DISTURB THE FINDING OF THE FAA.SHARES WE RE HELD BY THE ASSESSEE FOR MORE THAN ONE YEAR AND WERE HELD AS INVESTMENT.AS PER THE ESTABLISHED PRINCIPLES AN ASSESSEE CAN HOLD SHARES UNDER THE HEAD STOCK IN TRADE AND INVESTMENT.SO CONSIDERI NG THE TOTALITY OF THE FACTS OF THE CASE AND LETTER OF THE AR OF THE ASSESSEE ,DATED 13.01.2014 WE REV ERSE THE ORDER OF THE FAA IN PART. 3 ITA NO. 247/MUM/2010 REKHA P. POKHRANA . GROUND NO.1 IS PARTLY ALLOWED IN FAVOUR OF THE AO. 3. NEXT GROUND OF APPEAL IS ABOUT DIRECTING THE AO TO TREAT SHARES SOLD IN F & O SEGMENT AS NON SPECULATIVE TRANSACTIONS.DURING THE ASSESSMENT PROC EEDINGS AO FOUND THAT THE ASSESSEE HAD INCURRED A LOSS OF RS.1,67,952/- IN F&O TRANSACTION S WHICH WERE SET OFF AGAINST BUSINESS INCOME. REFERRING TO THE PROVISO TO SECTION 43(5) AND NOTIF ICATION DATED 25.01.2006 HE HELD THAT AS PER NOTIFICATION TRANSACTIONS CARRIED OUT TILL JAN.25 TH ,2006 WERE TO BE TREATED AS SPECULATIVE BUSINESS.ACCORDINGLY HE DID NOT ALLOW SET OFF OF R S.3,44,422/-AGAINST OTHER INCOME. 3.1. IN THE APPELLATE PROCEEDINGS FAA HELD THAT AMENDMEN T WAS APPLICABLE FROM THE AY.2006-07, THAT DELAY IN ISSUING NOTIFICATION WOULD NOT MEAN T HAT TRANSACTIONS UP TO 25.1.2006 SHOULD BE TREATED AS SPECULATIVE TRASACTIONS,THAT THE NOTIFIC ATION WAS CLARIFICATORY AND WAS APPLICABLE FOR ALL TRANSACTIONS CARRIED OUT FROM 01.04.2006 ONWARDS.HE RELIED UPON THE DECISION OF THE KOLKATTA SPECIAL BENCH DELIVERED IN THE CASE OF SHREE CAPITA L SERVICES LTD.(124 TTJ 740) AND DIRECTED THE AO NOT TO TREAT RS.3.44 LAKHS AS SPECULATIVE INCOME AND TO ALLOW THE SET OFF OF THE SAME AGAINST OTHER INCOME. 3.2. BEFORE US,AR SUBMITTED THAT W.E.F.01.04.2006 PROVIS O(D) WAS INSERTED TO SECTION 43(5) OF THE ACT BY WHICH ANY DERIVATIVE TRADING TRANSACTION CAR RIED OUT AT ANY RECOGNIZED STOCK EXCHANGE COULD NOT BE TREATED AS SPECULATIVE TRANSACTION,TH AT AS PER THE NOTIFICATION NO.2/2006 DATED 25. 01.2006,NSE & BSE WERE CATEGORISED AS RECOGNIZED ST OCK EXCHANGES,THAT FACT THAT AMENDMENT WAS EFFECTIVE FROM 01.04.2006 PROVED THAT IT WAS AP PLICABLE FOR ALL ASSESSMENT YEARS COMMENC- ING FROM A.Y.2006-2007,THAT BECAUSE OF DELAY IN NO TIFICATION PROVISO COULD NOT BE APPLIED WITH EFFECT FROM THE DATE OF NOTIFICATION,THAT THE AO WA S NOT CORRECT IN TREATING THE TRANSACTIONS UPTO 25.01.2006 AS SPECULATIVE IN NATURE,THAT THE CLAIM OF LOSS IN F&O SEGMENT AMOUNTING TO RS.3,44, 422/-SHOULD BE ALLOWED TO BE SET OFF AGAINST OTHER INCOME.HE RELIED ON THE DECISION OF KOLKATA SPECIAL BENCH IN THE CASE OF SHREE CAPITAL SERVICES LTD.(SUPRA). 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE CASE OF SHREE CAPITAL SERVICES LTD.(SUPRA)IT WAS HE LD THAT THE CLAUSE (D) OF SEC.43(5) IS EFFECTIVE FROM THE DATE ON WHICH THE LEGISLATURE MADE IT EFFE CTIVE I.E.1.4.2006 AND PROVISIONS WOULD BE APPLICABLE TO ASSESSMENT YEAR 2006-07 ONWARDS,THAT THE TRANSACTIONS CARRIED OUT THROUGHOUT THE YEAR IN F&O SEGMENT WERE TO BE TREATED BUSINESS TRA NSACTION AND SAME COULD NOT BE TREATED AS SPECULATION INCOME.HERE,WE WOULD LIKE TO REPRODUCE THE FINDING GIVEN BY THE SPECIAL BENCH IN THE CASE OF SHREE CAPITAL SERVICES LTD.(SUPRA) AND SAME READS AS UNDER: IT IS A NECESSARY IMPLICATION FROM THE LANGUAGE EMPLOYED THAT THE LEGISLATURE INTENDED A PARTICULAR SECTION TO HAVE RETROSPECTIVE OPERATIO N, THE COURT WILL GIVE IT SUCH AN OPERATION. BUT IN THE CASE BEFORE US, AS STATED ABO VE, THE LEGISLATURE MADE THE AMENDMENT BECAUSE OF THE TECHNOLOGICAL ADVANCEMENT INTRODUCED BY THE STOCK MARKETS RESULTING IN MORE TRANSPARENCY IN THE DEALINGS. THEREFORE, THE C IRCUMSTANCES UNDER WHICH AMENDMENT WAS BROUGHT INTO EXISTENCE DO NOT LEAD TO THE INFER ENCE THAT IT WAS RETROSPECTIVE. THEREFORE, THE RATIO OF THE AFORESAID DECISION IS N OT APPLICABLE TO THE CASE OF THE ASSESSEE. 7. IN VIEW OF THE ABOVE, WE HOLD THAT CLAUSE (D) OF SECTION 43(5) IS PROSPECTIVE IN NATURE AND WILL BE EFFECTIVE FROM THE DATE FROM WHICH THE LEGISLATURE MADE IT EFFECTIVE, I.E., 1-4- 2006 AND WILL BE APPLICABLE TO ASSESSMENT YEAR 2006 -07 ONWARDS. RESPECTFULLY,FOLLOWING THE DECISION OF THE SPECIAL BENCH,WE DECIDE GROUND NO.2 AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS ALLOWED IN PART. 4 ITA NO. 247/MUM/2010 REKHA P. POKHRANA . 0 1 #0+ VF/KDKJH VF/KDKJH VF/KDKJH VF/KDKJH 2 3 VAKR% VAKR% VAKR% VAKR% 4+ ) + 56 . ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH FEBRUARY, 2014. !/ ) ,-$ ! 7 5 QJOJH QJOJH QJOJH QJOJH , 2014 - ) . . SD/- SD/- ( . . . B.R.MITTAL) ( !' !' !' !' / RAJENDRA) / JUDICIAL MEMBER ! ! ! ! /ACCOUNTANT MEMBER / MUMBAI, 8# /DATE: 05.02.2014 SK !/ !/ !/ !/ ) )) ) '+9 '+9 '+9 '+9 :!9$+ :!9$+ :!9$+ :!9$+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT(A)/ ; < , 4. THE CONCERNED CIT / ; < 5. DR D BENCH, ITAT, MUMBAI / 9=. '+# , . . . 6. GUARD FILE/ . > . (9+ '+ //TRUE COPY// !/# / BY ORDER, ? / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI.