MIHIR INVESTMENTS AND FINANCIAL CONSULTANTS, MUMBAI V. ACIT CIR 3, MUMBAI

ITA 2575/MUM/2011

• Counselvise Citation: 257519914 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 01-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FINANCIAL CONSULT
• Assessee Lawyers: SANJEEV G BRAHME
• Keywords: Business income; Speculation loss
• Section: 143(3); 43(5)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.2575/MUM/2011 ASSESSMENT YEAR: 2007-08 MIHIR INVESTMENTS AND FINANCIAL CONSULTANTS, 2 ND FLOOR, SUCHAK CHEMBERS, NEAR MAHAVIR SHOPPING CENTER AGRA ROAD, KALYAN WEST, / VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3 INCOME TAX OFFICE, 2 ND FLOOR, RANI MANSION, MURBAD ROAD, KALYAN. ( ! ' /ASSESSEE) ( # / REVENUE) P.A. NO. AAFFM8696M ITA NO.5884/MUM/2011 ASSESSMENT YEAR: 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3 INCOME TAX OFFICE, 2 ND FLOOR, RANI MANSION, MURBAD ROAD, KALYAN. / VS. MIHIR INVESTMENTS AND FINANCIAL CONSULTANTS, 2 ND FLOOR, SUCHAK CHEMBERS, NEAR MAHAVIR SHOPPING CENTER AGRA ROAD, KALYAN WEST, ( # / REVENUE) ( ! ' /ASSESSEE) P.A. NO.AAFFM8696M ! ' / ASSESSEE BY SHRI SANJEEV G. BRAHME AND SHRI JAYANT BHATT # / REVENUE BY SHRI YOGESH KAMAT-DR MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 2 $ #% & ' ' / DATE OF HEARING : 01/07/2015 & ' ' / DATE OF ORDER: 24/07/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE ARE IN CROSS APPEAL FOR ASSESSMENT YEAR 2007-08 AGAINST THE IMPU GNED ORDER DATED 31/12/2010 OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI. 2. FIRST, WE SHALL TAKE UP APPEAL OF THE ASSESSEE, WHEREIN, ONLY GROUND RAISED BY THE ASSESSEE PERTAIN S TO TREATING SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN AS BUSINESS INCOME. THE CRUX OF ARGUMENT ADVANCED BY SHRI SANJEEV G. RRAHME ALONG WITH SHRI JAYANT BHATT, LD. COUNSEL FOR THE ASSESSEE, IS IDENTICAL TO THE GROUN D RAISED BY CONTENDING THAT THE LD. ASSESSING OFFICER AS WEL L AS THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN T REATING THE INCOME FROM SALE OF SHARES AS BUSINESS INCOME A ND THUS THE ADDITION SO MADE MAY BE DELETED. IT WAS EX PLAINED THAT ALL THE INVESTMENT WERE SHOWN AS INVESTMENT IN BOOKS OF ACCOUNTS AND AT THE YEAR END, THE INVESTMENT WAS SHOWN AT COST AND NOT AT THE MARKET PRICE, EVEN WHERE THE MARKET PRICE IS LOWER THAN COST, THE PERIOD OF HOLDING OF SHARES WAS CLAIMED TO BE MORE THAN 125 DAYS FOR SHORT TERM CAP ITAL GAIN AND AVERAGE HOLDING OF LONG TERM CAPITAL GAIN WAS MORE THAN THREE YEARS. THE LD. COUNSEL EXPLAINED T HAT ALL THE TRANSACTIONS WERE DELIVERY BASED AND THERE WAS NO MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 3 INTRADAY TRANSACTIONS AND SECURITY TRANSACTION TAX WAS PAID. IT WAS EXPLAINED THAT IN ALL THE EARLIER YEA RS PRIOR TO IMPUGNED YEAR STCG AND LTCG WERE ALLOWED BY THE DEPARTMENT INCLUDING ORDER PASSED U/S 143(3) OF THE ACT. RELIANCE WAS PLACED UPON THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GOPAL PURO HIT (228 CTR 582)(BOM.) AND THE CASE OF S.K. FINANCE (ITA NO.773/MUM/2010) WHERE THE PERIOD OF HOLDING WAS 10 8 DAYS WHERE SUCH GAIN WAS HELD AS STCG. ON THE OTHE R HAND, THE LD. DR, SHRI YOGESH KAMAT, DEFENDED THE CONCLUSION ARRIVED AT IN THE ASSESSMENT ORDER AS WE LL AS BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WITH THE OBJECT OF INVESTING IN SHARES AND ALSO DEALS IN DER IVATIVES. THE ASSESSEE IS HAVING ONLY INVESTMENT PORTFOLIOS. DURING THE YEAR UNDER CONSIDERATION, DECLARED BUSINESS LOS S OF RS.1,66,38,959/- FROM DERIVATIVES AND LONG TERM GAI N OF RS.2,54,640/- AS EXEMPT U/S 10(38) OF THE ACT ALONG WITH SHORT TERM CAPITAL GAIN OF RS.38,93,740/- AND DIVID END INCOME OF RS.4,10,317/-. THE ASSESSEE OFFERED THE S HORT TERM CAPITAL GAIN AT THE RATE OF 10% (PLUS SURCHARG E AND ED CES.). THE ASSESSEE DULY FURNISHED THE AUDITED STATEMENT OF ACCOUNTS ALONGWITH THE DETAILED STATEM ENT OF SHORT TERM AND LONG TERM CAPITAL GAIN. THE LD. ASSE SSING MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 4 OFFICER TREATED THE SHORT TERM GAIN/LONG TERM GAIN AS BUSINESS INCOME AND ALLOWED THE CARRIED FORWARD LOS S. 2.2. THE ASSESSEE CARRIED THE ASSESSMENT ORDER IN APPEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY, WH EREIN, THE STAND OF THE LD. ASSESSING OFFICER WAS AFFIRMED, AG AINST THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 2.3. ON THE BASIS OF FACTS, AVAILABLE ON RECORD, W E NOTE THAT THERE IS NO DISPUTE TO THE FACT THAT THE ASSES SEE WAS HAVING INVESTMENT FOLIO WHICH WAS REFLECTED IN THE BALANCE SHEET IN YEAR AFTER YEAR. THE LD. FIRST APPELLATE A UTHORITY DENIED RELIEF TO THE ASSESSEE ON THE PLEA THAT THE ASSESSEE RAISED LOANS FROM CERTAIN PARTIES AS MENTIONED IN P ARA 5.2. OF THE IMPUGNED ORDER, ASSESSEE IS A SUB-BROKER, TH E ASSESSEE ENTERED IN MORE THAN 3000 TRANSACTIONS WIT H M/S GEOJIT BNP PARIBAS LTD., ENTER MORE THAN 1000 TRANSACTIONS WITH PORECHA GLOBAL SECURITIES PVT. LT D. AND THE INVESTMENT STOOD IN THE NAME OF PARTNERSHIP FIR M. THE LD. COUNSEL EXPLAINED THAT THE ASSESSEE WAS NEVER A SUB- BROKER OR BROKER OF ANYBODY RIGHT FROM INCEPTION. S O FAR AS, THE ISSUE OF BORROWING OF LOAN IS CONCERNED, IT WAS EXPLAINED THAT THE ASSESSEE WAS HAVING CURRENT ACCO UNT WITH PARTIES AND NO INTEREST AND NO INTEREST OF ANY SORT WAS PAID TO THE CREDITORS ONLY THE AMOUNT USED FOR DERI VATIVES WAS TAKEN FROM VARIOUS PERSONS AND STATUTE ITSELF P ERMITS TWO ACTIVITIES (I) LONG TERM AND SHORT TERM CAPITAL GAINS AND (II) BUSINESS INCOME IF THE SHARES ARE TREATED AS S TOCK IN MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 5 TRADE. THERE IS NO DISPUTE TO THE FACT THAT ALL THE PURCHASES AND SALE OF SHARES WHICH HAS BEEN CONSIDERED FOR LO NG TERM AND SHORT TERM ARE DELIVERY BASED ON WHICH SECURITY TRANSACTION TAX WAS PAID AND THE ASSESSEE EARNED DI VIDEND OF RS.4,10,317/- FOR THE YEAR UNDER APPEAL. IN SUCH CASES, EVEN AS PER CBDT GUIDELINES, THE AVERAGE HOLDING OF SHARE HAS TO BE LOOKED INTO TO DECIDE WHETHER THE SHARES ARE HELD AS INVESTMENT OR STOCK IN TRADE. IN THE CASE OF AS SESSEE, THE AVERAGE HOLDING FOR LONG TERM CAPITAL GAIN IS U P TO THREE YEARS AND ALMOST 125 DAYS FOR SHORT TERM CAPITAL GA IN. THE ANOTHER REASON FOR DENYING THE CLAIMED DEDUCTION TO THE ASSESSEE BY THE LD. COMMISSIONER OF INCOME TAX (APP EALS) IS THAT THE ASSESSEE ENTERED INTO NUMBER OF TRANSAC TION WITH AFOREMENTIONED TWO BROKERS. THE LD. COUNSEL EX PLAINED THAT THE TRANSACTION WITH PORECHA AND M/S GEOGIT BN P PARIBAS ARE NOT MORE THAN 300 AND THE INVESTMENT PO RTFOLIO ARE DELIVERY BASED. ADMITTEDLY, THE STATUTE ITSELF RECOGNIZE TWO PORTFOLIOS ONE INVESTMENT AND OTHER ONE TRADING WHICH HAS BEEN IGNORED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THUS, WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. 2.4. IF THE FACTS OF THE ASSESSEE ARE ANALYZED BY KEEPING THEM IN JUXTAPOSITION WITH OTHER DECIDED CA SES, WE FIND THAT IN THE CASE OF JANAK RANGWALA VS ACIT, IT WAS HELD THAT THE MAGNITUDE OF TRANSACTION HAS NO RELEV ANCE WITH RESPECT TO LONG TERM AND SHORT TERM GAINS BY H OLDING THAT BORROWING OR NO BORROWING IS NOT THE ONLY MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 6 CONSIDERATION FOR DECIDING THE CHARACTER OF INVESTM ENT. IN THE CASE OF THE ASSESSEE, AS ON 31/03/2007, THE CAP ITAL STOOD AT RS.207 LAKH AS AGAINST THE INVESTMENT OF S HARES AMOUNTING AT RS.183 LAKHS. AS REGARDS THE LONG TER M CAPITAL GAIN, THE AVERAGE PERIOD OF HOLDING IS MORE THAN THREE YEARS, THUS, THERE IS MERIT IN THE ARGUMENT O F THE ASSESSEE, CONSEQUENTLY, IT HAS TO BE ALLOWED AS LON G TERM CAPITAL GAIN/DIVIDEND INCOME, AS THE ASSESSEE HAS F ULFILLED THE CONDITIONS FOR CLAIMING EXEMPTION IN THE CASE O F LONG TERM CAPITAL GAIN. 2.5. THE HONBLE JURISDICTIONAL HIGH COURT HAS DELIBERATED UPON THE ISSUE IN THE CASE OF GOPAL PUR OHIT (228 CTR 582) (BOM.), THE ASSESSEE TREATED THE INVE STMENT IN ITS BOOKS OF ACCOUNTS AND ALL THE TRANSACTIONS A RE DELIVERY BASED ON WHICH STT WAS PAID, THUS, THE ASS ESSEE GETS SHELTER FROM THE DECISION FROM THE HONBLE JURISDICTIONAL HIGH COURT. IDENTICAL RATIO WAS LAI D DOWN IN S.K. FINANCE (ITA NO.773/MUM/2010). IN THE CASE OF S.K. FINANCE, THE PERIOD OF HOLDING WAS 106 DAYS, IN THE CASE OF LAXMICHAND KENIA, IT WAS 134 DAYS, IN RAMJI KENIA, IT WAS 86 DAYS, IN DHEERAJ KENIA, IT WAS 107 DAYS, WHEREAS , IN THE CASE OF ASSESSEE, PERIOD OF HOLDING IS 125 DAYS. I F THIS ISSUE IS ANALYZED WITH NUMBER OF SCRIPTS PURCHASE I N THE CASE OF S.K.FINANCE, IT IS 51, IN LAXMICHAND KENIA 106, IN RAMJI KENIA 144, IN BHARAT KENIA 142, WHEREAS, IN T HE CASE OF ASSESSEE, IT IS ONLY 57. IDENTICAL IS THE SITUATION, FOR NUMBER OF SCRIPTS SOLD. THUS, FROM THIS ANGLE, THE ASSESSEE MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 7 HAVE A GOOD CASE AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IGNORED ALL THESE FACTS. 2.6. SO FAR AS, THE POSITION OF SHORT TERM CAPITAL GAIN IS CONCERNED, THE ASSESSEE FIND SHELTER FROM THE DECIS ION FROM HONBLE DELHI HIGH COURT IN CIT VS ROHIT ANAND (201 0) 327 ITR 445 (DEL.)WHERE THE ASSESSEE WAS DOING BOTH TYP E OF ACTIVITIES I.E. TRADING IN SHARES/INVESTMENT IN SHA RES. THE ASSESSEE TRANSFERRED STOCK DURING THE YEAR DEMONSTR ATING TO BE FROM THE INVESTMENT ACCOUNT. THE PROFIT WAS RIGHTLY HELD TO BE OFFERED AS SHORT TERM CAPITAL GAIN AND T HE ASSESSING OFFICER WAS HELD NOT TO BE JUSTIFIED IN A SSESSING THE SAME AS BUSINESS INCOME. THE ASSESSEE ALSO GET SUPPORTS FROM THE DECISION IN BHARAT KUNVERJI KENAI VS ADCIT (2010) 130 TTJ 86, CIT VS ESS JAY ENTERPRISES P. LTD. AND CIT VS KUNVARJI NANJI KENIA VS ADCIT (2008) 165 TAXMAN 465. THE INTENTION OF THE ASSESSE E IS ALSO RELEVANT FOR DETERMINING WHETHER THE ASSESSEE IS CARRYING ON BUSINESS IN SHARES OR INVESTMENT. THE R ATIO LAID DOWN IN CIT VS S.RAMAAMIRTHA (2008) 306 ITR 23 9 SUPPORTS THE CASE OF THE ASSESSEE. IDENTICAL RATIO WAS LAID DOWN IN SARNATH INFRASTRUCTURE (P.) LTD. VS ACIT (2 009) 120 TTJ 216 (LUCK.). EVEN IN PARA 4 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS ITSELF MENTIONED THAT THE ASSESSEE IS DOING INVESTMENT IN SHARE TRADING ALONG WITH CONSULTANCY BUT FINALLY CONCLUDED AS BUSINESS INCOM E. IN VIEW OF THESE FACTS AND THE JUDICIAL PRONOUNCEMENTS , DISCUSSED HEREINABOVE, THE ADDITION ON ACCOUNT OF L ONG MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 8 TERM CAPITAL GAIN/SHORT TERM CAPITAL GAIN ARE NOT T HE BUSINESS INCOME OF THE ASSESSEE, CONSEQUENTLY, THE ADDITION ON ACCOUNT OF LONG TERM CAPITAL GAIN, BEIN G EXEMPT, IS DELETED AND SHORT TERM CAPITAL GAIN ARE TO BE TAXED AT THE RATES PRESCRIBED UNDER THE ACT, THUS, THIS APPEAL OF THE ASSESSEE IS ALLOWED. 3. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.5884/MUM/2011. THE GROUND RAISED PERTAIN S TO ALLOWING SET OFF OF DERIVATIVE LOSSES OF RS.1,66,38 ,959/- AGAINST THE BUSINESS INCOME OF RS.51,69,590/- AND F URTHER ACCEPTING THE CONTENTION THAT SECTION 43(5) IS APPL ICABLE IN THIS CASE. 3.1. THE CRUX OF ARGUMENT ADVANCED BY LD. DR, IS IDENTICAL TO THE GROUND RAISED BY CONTENDING THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT PASSED A SPEAKING ORDER AND MERELY ACCEPTED THE CONTENTION O F THE ASSESSEE. ON THE OTHER HAND, THE LD. COUNSEL FOR TH E ASSESSEE, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. 3.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, DECLAR ED SPECULATION LOSS AT RS.1,66,38,959/-. THE ASSESSEE CARRIED FORWARD THE LOSS. THE LD. COMMISSIONER OF INCOME TA X (APPEALS) HAS NOT GONE INTO THE FACTS AND MERELY DE CIDED THE APPEAL ON THE BASIS OF CONTENTION OF THE ASSESS EE AND MIHIR INVESTMENTS & FINANCIAL CONSULTANTS ITA NOS.2575 & 5884/MUM/2011 9 DID NOT DELIBERATE IN A JUDICIOUS MANNER IGNORING T HE FACTS, THUS, WITHOUT COMMENTING FURTHER, WE DIRECT THE LD. FIRST APPELLATE AUTHORITY, TO PASS A SPEAKING ORDER INCOR PORATING THE FACTS. THE ASSESSEE BE GIVEN OPPORTUNITY OF BEI NG HEARD WITH FURTHER LIBERTY TO FURNISH EVIDENCE, IF ANY, I N SUPPORT OF ITS CLAIM. THUS, THE APPEAL OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES ONLY. FINALLY, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 01/07/2015. SD/ - (RAJENDRA) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ( DATED : 24/07/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 $ 1' ( *+ ) / THE CIT, MUMBAI. 4. 0 0 $ 1' / CIT(A)- , MUMBAI 5. 3#4 .' , 0 *+' * 5 , $ % / DR, ITAT, MUMBAI 6. 6 7% / GUARD FILE. / BY ORDER, /3+' .' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI