The DCIT, Circle-7, Ahmedabad V. Shri Ravindra M.Agrawal, Ahmedabad

ITA 2485/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50784 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHYAM PRASAD
• Keywords: Business income; Salary income; Rule of consistency

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , . ! !,'# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A. NO.2485/AHD/2009 WITH CO NO.226/AHD/2009 ( ! & ! & ! & ! & / / / / ASSESSMENT YEAR : 2006-07) THE DCIT CIR-7 AHMEDABAD ! ! ! ! / VS. RAVINDRA M.AGARWAL 70, VASANT BAHAR COLONY BOPAL AHMEDABAD-380 054 ' '# ./() ./ PAN/GIR NO. : ACIPA 6398 M ( '* / // / APPELLANT ) .. ( +,'*/ RESPONDENT ) REVENUE BY : DR. K.SHYAM PRASAD, SR.D.R. ASSESSEE BY : SHRI S.N. SOPARKAR, A.R. !- . /#/ // / DATE OF HEARING : 12/10/2011 0 & . /# / DATE OF PRONOUNCEMENT : 21/10/2011 '1/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-III, AHMEDAB AD DATED 20/05/2009 PASSED FOR A.Y. 2006-07. THE RESPONDENT -ASSESSEE IS IN CROSS OBJECTION. 2. REVENUE HAS RAISED THE FOLLOWING GROUND: - ITA NO.2485/AHD/2009 (BY REVENUE) & CO NO.226/AHD/2009 M/S.DCIT VS. RAVINDRA MAGARWAL ASST.YEAR 2006-07 - 2 - 1. THE LD. COMMISSIONER OF INCOME-TAX (A)-III, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN CONSIDERING THE RESULT OF SHARE TRANSACTION OF RS.1,82,14,479/- AS CAPITAL GAIN BY DELETING THE ADDITION MADE BY THE AO WHO HAD TAXED IT AS BUSINESS. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 29/ 12/2008 WERE THAT THE ASSESSEE IN INDIVIDUAL CAPACITY HAS EARNED SALARY I NCOME AND ALSO TRADED IN SHARES. IN PARAGRAPH NO.4, THE ASSESSING OFFI CER HAS CATEGORICALLY STATED THAT THE ACTIVITIES CARRIED OUT DURING THE Y EAR UNDER CONSIDERATION WERE ALMOST SIMILAR AND IN CONTINUATION OF THE ACTI VITIES CARRIED OUT IN EARLIER YEARS. RATHER, THE ASSESSING OFFICER HAS Q UOTED THAT FOR THE SAKE OF CONVENIENCE THOSE FINDINGS OF EARLIER YEARS WERE NOT REPEATED IN THE IMPUGNED ORDER. AS FAR AS THE ISSUE WHETHER THE GA IN ON TRADING WAS A CAPITAL GAIN OR A BUSINESS INCOME IS CONCERNED, THE SAME HAD AGAIN BEEN RAISED BY THE ASSESSING OFFICER AND AFTER A DETAILE D DISCUSSION HE HAS HELD THAT THE TRADING IN SHARES WAS IN THE NATURE OF BUSINESS INCOME. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY , THE LEARNED CIT(APPEALS) HAS AGAIN REITERATED THE S AID FACT THAT THE ACTIVITIES OF THE EARLIER YEARS WERE CARRIED OUT FO R THE YEAR UNDER CONSIDERATION AND IN THE EARLIER YEARS THE ASSESSEE WAS HELD AS AN INVESTOR OF SHARES VIDE AN ORDER OF LEARNED CIT(APPEALS) FOR A.Y. 2005-06 DATED 29/02/2008. THE LEARNED CIT(APPEALS) HAS CONCLUDED AS FOLLOWS:- 9.4. IN CASE OF THE APPELLANT, THE A.O. ALSO HAS N OTED THAT NLY THE SURPLUS FUNDS, REALIZED ON DISINVESTMENT/SALE, WERE INVESTED IN ITA NO.2485/AHD/2009 (BY REVENUE) & CO NO.226/AHD/2009 M/S.DCIT VS. RAVINDRA MAGARWAL ASST.YEAR 2006-07 - 3 - PURCHASE OF SHARES. THE APPELLANT/FAMILY MEMBERS H AVE BEEN ASSESSED TO CAPITAL GAINS IN THE PAST. WHEN SEEN I N TERMS OF THE NUMBER OF SCRIPTS, THE NUMBER OF INDEPENDENTLY ASSE SSED ENTITIES, THE PERIOD INVOLVED, THE NUMBER OF DAYS ON WHICH TR ANSACTIONS TOOK PLACE, THE NUMBER OF YEAR-WISE DETAILS OF BILLS RAI SED BY SUB- BROKER(S) ETC. THE VOLUME OF TRANSACTION BY ITSELF, WOULD NOT RENDER THE APPELLANT, AS A TRADER. THE DETAILS/EXPLANATIO N/REBUTTAL FURNISHED BY THE APPELLANT IN RESPECT OF THE PREMIS ES OF THE A.O., (THE GIST OF WHICH IS NARRATED IN PARA 7.1 OF THIS ORDER) ANSWERS THE DOUBTS OF THE A.O. THE SALE/PURCHASE OF SECURITIES WAS APPARENTLY AN INDEPENDENT ACTIVITY AND DID NOT FORM THE ONLY S OURCE OF SHARE TRADING. THE LOW RATIO BETWEEN PURCHASES AND SALES AND HOLDING, THE PURCHASE OF LISTED SECURITIES OF INDEPENDENT CO MPANIES AND NOT AS PROMOTERS, THE DELIVERY BASED TRANSACTIONS AND T HE ACTUAL PAYMENTS/RECEIPTS AND NOT MERE BOOK ENTRIES, ABSENC E OF LACK OF INTRA DAY TRADING AND OF REPEATED TRANSACTIONS OF S AME SCRIPTS, ETC. ARE FACTORS, THE HOLISTIC CONSIDERATION OF WHICH LE ADS TO THE CONCLUSION THAT THE APPELLANT WAS AN INVESTOR. THU S CONSIDERING THE DETAILS, SUBMISSIONS FACTS ON RECORD, THE BOARD S CIRCULAR, ETC., THE A.O. WAS NOT JUSTIFIED IN HOLDING THE APPELLANT AS A TRADER AND ASSESSING HIS INCOME, SHOWN FROM CAPITAL GAINS, AS BEING INCOME FROM BUSINESS. THE ACTION OF THE A.O. IS THEREFORE NOT SUSTAINABLE. THE A.O. IS DIRECTED TO TREAT THE APPELLANT AS AN I NVESTOR AND THEREBY COMPUTE THE INCOME FROM CAPITAL GAINS IN RE SPECT OF THE TRANSACTIONS ENTERED INTO THROUGH SUB-BROKERS. THE RELATED GROUND OF APPEAL IS ALLOWED. 4. WITH THIS FACTUAL BACKGROUND, PARTIES WERE HEARD . AT THE OUTSET, A CONSOLIDATED ORDER OF THE ITAT A BRANCH AHMEDABA D IS PLACED ON RECORD DATED 28/01/2011 PASSED IN THE GROUP OF 30 C ASES WHEREIN AS PER SL.NO.1 BEARING ITA NO.1725/AHD/2008 (A.Y. 2005-06) TITLED AS DCIT VS. SHRI RAVINDRA M.AGRAWAL THE IDENTICAL ISSUE HAD ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE FOLLOWING MANNER:- ITA NO.2485/AHD/2009 (BY REVENUE) & CO NO.226/AHD/2009 M/S.DCIT VS. RAVINDRA MAGARWAL ASST.YEAR 2006-07 - 4 - 10. THE ONLY DISPUTE IN THIS APPEAL BY THE REVENUE IS WHETHER THE PROFIT FROM SALE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME OR AS INCOME FROM CAPITAL GAIN. TO DETERMINE THIS, THE MOST IMPORTANT TEST IS WHETHER THE INITIAL ACQUISITION O F THE SHARES WAS WITH THE INTENTION OF DEALING IN THE SHARES OR IT W AS MADE AS AN INVESTMENT. THE INTENTION OF THE ASSESSEE IS BEST KNOWN TO HIM AND THE DISPUTE COMES TO THE APPELLATE AUTHORITIES ONLY WHEN THE REVENUE AUTHORITIES DO NOT ACCEPT THE CLAIM OF THE ASSESSEE. THE APPELLATE AUTHORITIES HAVE LAID DOWN CERTAIN GUIDEL INES ON THE BASIS OF WHICH THE INTENTION OF THE ASSESSEE CAN BE INFERRED. IN THE CASE OF SARNATH INFRASTRUCTURE PVT.LTD. (SUPRA), TH E LUCKNOW BENCH OF THE ITAT HAS LAID VARIOUS PRINCIPLES WHICH MAY BE APPLIED TO DETERMINE WHETHER THE TRANSACTION OF PUR CHASE AND SALE OF SHARE IS IN THE NATURE OF TRADE OR INVESTMENT. THE RELEVANT FINDINGS OF THE ITAT READ AS UNDER: 11. 12. . 13. . . EVEN FOR FREQUENCY, IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ASSESSEE WAS MOSTLY MAKING THE INVESTMENT IN B-GROUP SCRIPTS AND TO AVOID RISK HE MADE INVESTMENT IN SEVERAL SCRIPTS INSTEAD OF INVESTING IN ONE SCRIPT. FOR EXAMPLE, IF THE ASSESSEE HAD TO INVEST RS.10 LAKHS INSTEAD OF INVESTMENT IN ONE SCRIPT, HE USED TO INVESTMENT IN TEN DIFFERENT SCRIPTS. HE MADE A STATEMENT THAT THE ASSESSEE NEV ER PURCHASED AND SOLD THE SAME SCRIPTS FREQUENTLY. HE ALSO STAT ED THAT SHARES WERE KEPT FOR LONG PERIOD AND THERE IS NO FREQUENT PURCHASE/SALE OF SAME SCRIPTS. THIS CONTENTION OF THE LEARNED COU NSEL APPEARS REASONABLE AND HAS NOT BEEN FACTUALLY CONTROVERTED BY THE REVENUE. THERE IS A SAYING THAT 'NEVER PUT ALL YOUR EGGS IN ONE BASKET' AND IF THE ASSESSEE AS A PRUDENT PERSON MAD E INVESTMENT IN NUMBER OF SCRIPTS INSTEAD OF ONE SCRIPTS, IT CANNOT BE SAID THAT HE WAS CARRYING ON THE BUSINESS OF PURCHASE AND SALE O F SHARES. THERE WERE SUBSTANTIAL INCOME FROM THE DIVIDEND. IN THE C ASE OF SHRI RAVINDRA M. AGARWAL FOR A.Y.2001-2002, AS PER THE R EVISED RETURN, THE DIVIDEND INCOME WAS AS HIGH AS RS.19,33 ,425/-. IT IS A ITA NO.2485/AHD/2009 (BY REVENUE) & CO NO.226/AHD/2009 M/S.DCIT VS. RAVINDRA MAGARWAL ASST.YEAR 2006-07 - 5 - SETTLED LAW THAT, TO DETERMINE WHETHER THE ASSESSEE IS A TRADER OR INVESTOR IN SHARES, NO SINGLE TEST IS CONCLUSIVE BU T CUMULATIVE EFFECT OF ALL THE FACTS ARE TO BE SEEN. IN THE CASE OF THE ASSESSEE, ONE FACT I.E. FREQUENT PURCHASE/SALE OF SHARES CAN BE SAID T O BE AGAINST THE ASSESSEE BUT ALL OTHER FACTS WHICH CAN BE SUMMARISE D AS UNDER ARE IN FAVOUR OF THE ASSESSEE: I) SHRI RAVINDRA AGRAWAL IS A QUALIFIE D PROFESSIONAL BEING CHARTERED ACCOUNTANT, COMPANY SECRETARY AND COST ACCOUNTANT; II) SHRI AGRAWAL WAS FULL TIME DIRECTOR OF A PUBL IC LIMITED COMPANY AT THE RELEVANT TIME, POSTED AT PORBANDER; III) SHARES WERE ACQUIRED WITH OWN MONEY AN D THERE WAS NO BORROWING BY SHRI RAVINDRA AGRAWAL OR ANY OTHER FAMILY MEMBER; IV) NO OFFICE OR ANY STAFF WAS MAINTAINED FOR LO OKING AFTER PURCHASE AND SALE OF SHARES; V) THERE WAS SUBSTANTIAL DIVIDEND INCOME; VI) HIS SOURCE OF INCOME WAS INCOME FROM SALARY, CAPITAL GAIN, DIVIDEND AND INTEREST AND HE WAS NOT HAVING ANY BU SINESS INCOME; VII) IN THE ORIGINAL RETURN OF INCOME FURNISHED FR OM TIME TO TIME, INCOME FROM SALE OF SHARES WAS DISCLOSED UNDER THE HEAD 'CAPITAL GAIN' AND WAS ACCEPTED BY REVENUE AS SUCH UNDER SEC TION 143(1). WHEN TOTALITY OF ALL THE ABOVE FACTS ARE CONSIDERED , THE INFERENCE DRAWN BY THE CIT(A) THAT THE ASSESSEE IS AN INVESTO R IN SHARES, APPEARS TO BE CORRECT. APART FROM THE ABOVE, ON THE PRINCIPLE OF CONSISTENCY ALSO ORDER OF THE CIT(A) ON THIS POINT DESERVES TO BE UPHELD BECAUSE IN THE ORIGINAL RETURNS INCOME FROM SALE OF SHARES WAS DISCLOSED UNDER THE HEAD 'CAPITAL GAIN' AND THE SAME WAS ACCEPTED BY THE REVENUE. ITAT, MUMBAI BENCH IN THE CASE OF GOPTAL PURROHIT (SUPRA) HELD THAT THOUGH IN INCOME TAX PRO CEEDINGS THE RULE OF RES JUDICATA DOES NOT APPLY BUT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES. ITA NO.2485/AHD/2009 (BY REVENUE) & CO NO.226/AHD/2009 M/S.DCIT VS. RAVINDRA MAGARWAL ASST.YEAR 2006-07 - 6 - THIS DECISION IS UPHELD BY THE HON'BLE MUMBAI HIGH COURT IN CIT VS. GOPTAL PUROHIT, 228 CTR 582 (BOM). THESE DECISI ONS WOULD BE SQUARELY APPLICABLE TO THE CASES OF THE ASSESSEE UN DER APPEAL BECAUSE IN THESE CASES NOT ONLY IN EARLIER YEAR BUT IN THE YEARS UNDER APPEAL ALSO IN ORIGINAL PROCEEDINGS TRANSACTION OF PURCHASE AND SALE OF SHARES SHOWN AS CAPITAL GAIN WAS ACCEPTED BY THE REVENUE. MERELY BECAUSE, THERE WAS SEARCH AT THE ASSESSEE'S PREMISE S, THE NATURE OF TRANSACTION WOULD NOT CHANGE. IN VIEW OF THE ABOVE, AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND VARIOUS JUDICIAL PRONOUNCEMENT REFERRED ABOVE, WE FIND NO J USTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS POIN T. THE SAME IS UPHELD AND THE REVENUE'S APPEALS ARE DISMISSED. 5. SINCE A VIEW HAS ALREADY BEEN TAKEN BY A R ESPECTED CO-ORDINATE BENCH AND HELD THAT THE ASSESSEE IS AN INVESTOR AND THAT THE PURCHASE AND SALES OF SHARES WAS SUBJECT TO CAPITAL GAIN, THEREF ORE, RESPECTFULLY FOLLOWING THE SAID VIEW WE HEREBY AFFIRM THE FINDIN GS OF THE LEARNED CIT(APPEALS) AND DISMISS THIS GROUND OF THE REVENUE. 6. VIDE CROSS OBJECTION OF THE ASSESSEE, THE FOLLOWING THREE GROUNDS HAVE BEEN RAISED:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF AO IN CHARGING INTEREST UNDER SECTION 23 4 A/B/C/D OF THE ACT ON THE WHOLE OF THE ASSESSED INCOME WITHOUT RED UCING THEREFROM TAXES PAID WHILE FILING RETURN OF INCOME. IN ANY C ASE, LEVY OF INTEREST U/S.234AB/C OF THE ACT IS NOT AT ALL JUSTIFIED. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE ACTION OF AO IN INITIATING PENALTY UNDER SECTION 271(1)(C) OF THE ACT WITHOUT RECORDING MANDATORY SA TISFACTION AS CONTEMPLATED UNDER THE ACT. ITA NO.2485/AHD/2009 (BY REVENUE) & CO NO.226/AHD/2009 M/S.DCIT VS. RAVINDRA MAGARWAL ASST.YEAR 2006-07 - 7 - 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN INITIATING PENALTY UNDER SECTI ON 271B OF THE ACT. 7. ALL THE ABOVE THREE GROUNDS ARE MERELY CONSEQUENTIAL IN NATURE AND NO ADJUDICATION IS REQUIRED AT THIS STAGE AS A CCEPTED BY THE LD.AR, THEREFORE DISMISSED BEING NOT PRESSED. 8. IN THE RESULT, REVENUES APPEAL AS WELL AS CRO SS OBJECTION FILED BY THE ASSESSEE BOTH ARE DISMISSED. SD/- SD/- (A. MOHAN ALANKAMONY) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 21/ 10 /2011 2/..!, .!../ T.C. NAIR, SR. PS '1 . +3 '1 . +3 '1 . +3 '1 . +3 4'3& 4'3& 4'3& 4'3&/ COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. 5 / CONCERNED CIT 4. 5() / THE CIT(A)-III, AHMEDABAD 5. 389 +! , , / DR, ITAT, AHMEDABAD 6. 9: ;- / GUARD FILE. '1! '1! '1! '1! / BY ORDER, ,3 + //TRUE COPY// < <<