Srinivasan Narayanasamy, CHENNAI V. ACIT, CHENNAI

ITA 2635/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4304 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S N DIVATIA; KDS SHAH S
• Keywords: Capital asset; Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER . / ITA NO. 2635/MDS/2016 / ASSESSMENT YEAR : 2009-10 SHRI SRINIVASAN NARAYANASAMY , NO.4 / 234B, MGR ROAD, PALAVAKKAM, CHENNAI - 600 041. PAN AAAPN9661Q ( /APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, NON - CORPORATE CIRCLE-15(1), CHENNAI. RESPONDENT) / APPELLANT BY : S/SHRI S.N.DIVATIA & KDS SHAH, ADVOC ATES / RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT ! / DATE OF HEARING : 01.03.2017 '# ! / DATE OF PRONOUNCEMENT: 29.05.2017 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) DATED 1 8.8.2016. 2. THE ONLY ISSUE IN THIS APPEAL IS WITH REGARD TO THE ORDER PASSED BY THE CIT(APPEALS) U/S.250 OF THE ACT UPHOL DING THE PROFIT ON SALE OF SHARES OF 1,08,53,182/- AS BUSINESS INCOME - - ITA 2635/16 2 FROM SHARE TRADING INSTEAD OF SHORT TERM CAPITAL GA IN AS MADE BY THE AO. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A N INDIVIDUAL ENGAGED IN CONSULTANCY SERVICES. THE RE TURN OF INCOME FOR THE ASST. YEAR 2009-10 WAS FILED ON 30.9 .2009 DISCLOSING A TOTAL INCOME OF 1,13,85,760/-. THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 28.12.2011 A CCEPTING THE RETURN OF INCOME. THEREAFTER, PROCEEDINGS U/ S.263 OF THE ACT WAS INITIATED BY THE CIT-X, CHENNAI. THE CIT O BSERVED THAT IN THE ASSESSMENT PROCEEDINGS, THE AO HAD FAILED TO APPLY HIS MIND INTO THE NATURE OF NUMEROUS SHARE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AND BY ACCEPTING THE PROFIT ON SHAR E TRANSACTION AS SHORT-TERM CAPITAL GAINS. ACCORDINGLY, THE LD. C IT DIRECTED THE AO TO TREAT THE ABOVE INCOME AS BUSINESS INCOME FRO M SHARE TRANSACTIONS INSTEAD OF SHORT-TERM CAPITAL GAIN. THE ASSESSMENT ORDER U/S.143(3) R.W.SEC.263 OF THE ACT WAS COMPLET ED ON 02.03.2015 HOLDING THAT THE PROFIT ON SHARE TRANSAC TIONS UNDERTAKEN BY THE ASSESSEE IS TO BE ASSESSED AS BUS INESS INCOME. AGGRIEVED BY THIS ORDER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). - - ITA 2635/16 3 4. THE CIT(APPEALS) OBSERVED THAT THE CENTRAL BOARD OF DIRECT TAXES IN ITS CIRCULAR NO.4 OF 2007 DATED 15. 6.2007, HAS AMPLIFIED ON THE DISTINCTION BETWEEN SHARES HELD AS STOCK-IN- TRADE AND SHARES HELD AS INVESTMENT. ACCORDING TO THE CIT(APPEALS), THE MOST IMPORTANT CRITERIA TO BE APP LIED IS TO ASCERTAIN THE INTENTION OF THE ASSESSEE. WHERE THE PURCHASE HAS BEEN MADE WITH THE SOLE INTENTION OF RESALE AT A PROFIT AND THE PURCHASER DOES NOT HAVE ANY INTENTION TO HOLD T HE PROPERTY FOR HIMSELF OR OTHERWISE FOR AN APPRECIATION IN FUT URE, IT WOULD RAISE A STRONG PRESUMPTION THAT THE TRANSACTION IS IN THE NATURE OF TRADE AND PROFITS FROM SALE IS LIABLE TO BE TREATED AS BUSINESS INCOME. HOWEVER, THE CIT(APPEALS) OBSERVED THAT IN CASE, THE INVESTMENT IN SECURITIES IS FOR THE SOLE PURPOSE OF EARNING DIVIDENDS / INTEREST OVER THE YEARS, THE SAME CANNO T BE TREATED AS STOCK-IN-TRADE AND ANY PROFIT ON SALE OF SUCH AS SET WILL HAVE TO BE TREATED AS CAPITAL GAINS. SIMILARLY, THE VOLUME OF TRANSACTIONS IN SHARES WILL ALSO BE AN INDICATOR TOWARDS IT BEIN G IN THE NATURE OF THE TRADE. SO, IN CASE, A TAXPAYER HAS ENGAGED IN TRANSACTIONS SPORADICALLY, THE PRESUMPTION OF IT BE ING A CAPITAL ASSET IS ALMOST CERTAIN. THE CIT(APPEALS), FURTHER OBSERVED THAT - - ITA 2635/16 4 IN ADDITION TO THE NATURE OF BUSINESS, VOLUME OF TR ANSACTION AND INTENTION, THE TREATMENT OF THE SHARES IN THE BOOKS OF ACCOUNT IS ALSO AN IMPORTANT FACTOR TO BE CONSIDERED IN ORDER TO ARRIVE AT A FINDING WHETHER THE PROFITS ARE FROM BUSINESS OR CH ARGEABLE UNDER THE HEAD CAPITAL GAINS. ACCORDING TO THE CIT(APPEALS), IN THE ASSESSEES CASE, THE TRANSACTIONS ARE NUMERO US AND FREQUENT AND A TOTAL OVER 2200 TRANSACTIONS DURING THE YEARS MAKES AN AVERAGE OF OVER 42 TRANSACTIONS PER WEEK, AND IF IT FACTOR IN 5 WORKING DAYS A WEEK, WHEN THE STOCK MAR KETS FUNCTION, AN AVERAGE OF 8-10 TRANSACTIONS EVERY WOR KING DAY. THE PERIOD OF HOLDING OF SHARES IS VERY SHORT AND M OST OF THE SHARES PURCHASED / SOLD ARE SQUARED OFF EITHER DURI NG THE SAME DAY OR IMMEDIATELY THEREAFTER, WHICH GIVES THE STRO NG INDICATION OF THE INTENTION OF THE ASSESSEE THAT THE TRANSACTI ONS ARE NEITHER FOR THE PURPOSES OF EARNING DIVIDEND INCOME, NOR FO R THE PURPOSES OF CAPITAL APPRECIATION. FURTHER, THE CIT (APPEALS) OBSERVED THAT THE ASSESSEE NEED NOT BE A BROKER OR AN EXPERT TO UNDERTAKE REGULAR TRANSACTION IN THE STOCK MARKET. THEREFORE, THE CIT(APPEALS) OBSERVED THAT THE EXTENT OF THE TR ANSACTIONS, THE FREQUENCY AND THE HUGE SUMS OF MONEY INVOLVED G IVE A CLEAR - - ITA 2635/16 5 INDICATION OF SYSTEMATIC, ORGANIZED BUSINESS ACTIVI TY AND THE SHARES ARE ALSO BEING CLASSIFIED AS STOCK-IN-TRADE IN THE BALANCE SHEET OF THE ASSESSEE. ACCORDINGLY, THE CIT(APPEAL S) HELD THAT THE ACTION OF THE AO IS JUSTIFIED IN TREATING THE P ROFITS FROM THE SHARE TRANSACTIONS TAXABLE UNDER THE HEAD BUSINESS . AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR, SUBMITTED THAT THE ASSESSEE IS A CHA RTERED ACCOUNTANT AND HIS MAIN SOURCE OF LIVELIHOOD AND AC TIVITY IS CONSULTANCY. THERE WAS NO INFRASTRUCTURE FOR SHARE TRADING. HE HAD NOT INDULGED INTO SHARES PURCHASE AND SALE IN A NY OF THE EARLIER YEARS OR LATER YEARS. THE LD. AR FURTHER S UBMITTED THAT THE ASSESSEE HAD PURCHASED AND SOLD ONLY TEN SCRIPTS DU RING THE YEAR WHEREIN THERE WAS LOSS AS WELL AS PROFIT. HE ALSO SUBMITTED THAT THE CONTENTION OF THE AO IS THAT THERE WERE MO RE THAN 2200 SHARES WHICH MAKES AVERAGE OVER 42 TRANSACTIONS PER WEEK. ACCORDING TO THE LD. AR, THE AO HAS FAILED TO APPRE CIATE THAT THE ASSESSEE HAD PURCHASED AND SOLD ONLY TEN SCRIPTS OU T OF MORE THAN 2559 SCRIPTS TRADED IN BSE AND 1277 COMPANIES AT NSE FOR 2008-09 AND AROUND 11,00,074/- CRORES. AVERAGE DAILY TURNOVER AT BSE AND THAT OF 11,325 CRORES AND NSE AS PER - - ITA 2635/16 6 SEBI ANNUAL REPORTS. IT IS SUBMITTED THAT THE VOLU ME OF TRANSACTIONS MAY BE AN IMPORTANT INDICATOR OF THE I NTENTION OF THE ASSESSEE BUT CERTAINLY NOT THE SOLE OR DETERMINATIV E CRITERION. THE LD. AR, RELIED ON THE DECISION OF THE SUPREME C OURT IN THE CASE OF RAMESHWER PRASAD BANGLA (87 ITR 421) AND CO NTENDED THAT THE VOLUME OF THE SHARES PURCHASED AND SOLD CA NNOT BE THE REASON FOR TREATING THE TRANSACTION AS ADVENTURE IN TRADE. 5.1 THE LD. AR FURTHER SUBMITTED THAT THE CONTENTIO N OF THE AO IS THAT THE SHARES WERE CLASSIFIED AS STOCK-IN-TRAD E IN THE BALANCE SHEET. THE SUBMITTED THAT THE SHARES IN QUESTION W ERE NEVER TREATED BY THE ASSESSEE AS STOCK-IN-TRADE AND THEY WERE HELD FOR EARNING DIVIDEND INCOME ONLY. THE AUDITED BALANCE SHEET AS ON 31.3.2009 SHOWS IT AS INVESTMENT IN SHARES AND THE FORM 3CD AS BUSINESS OF CONSULTANCY. HOWEVER, THE AO STATED IN THE ASSESSMENT ORDER, HIS BUSINESS AS CONSULTANCY SERVI CES. HE ALSO RELIED ON THE FOLLOWING DECISIONS: I) DCIT V. M/S. SMK SHARES & STOCK BROKING PVT. LTD . (ITA NO.799/MUM/2009 DATED 24.11.2010) II) HEMA HIREN DAND (ITA NO.3469/MUM/2012 DATED 18. 2.2015) III) NAGINDAS P. SHETH (ITA NO.961/MUM/2010) - - ITA 2635/16 7 IV) JANAK S. RANGWALA VS. ACIT (11 SOT 627)[MUM.] V) BOMBAY GYMKHANA LTD. VS. ITO (115 TTJ 639)[MUM.] VI) CIT V. AVINASH JAIN (362 ITR 461)[DELHI] VII) CIT VS. N.S.S.INVESTMENTS (P) LTD. (277 ITR 14 9)[MAD.] VIII) MANISH AJMERA (ITA NO.5700/MUM/2013 DATED 26. 8.2016 IX) DEEPABEN AMITBHAI SHAHA VS. DCIT(57 TAXMANN.COM )[GUJ.] X) SWARNIM MULTIVENTURES (P) LTD. V. DCIT (54 SOT 3 47) XI) SHANTILAL M. JAIN (ITA NO. 269/MUM/2010 DATED 2 7.4.2011) XII) SHRI SACHIN R.TENDULKAR IN I.T.A NO.3217/MUM./ 14 & INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') NO.1411/MUM./15 FOR A.YS 2010-11 & 2011-12 DATED 25/01/2017 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. A CAREFUL ANALYSIS OF THE LEDGER ACCOUN T FROM THE BOOKS OF M/S.SHRIRAM INSIGHT SHARE BROKERS LTD., SH OWS THAT THE ASSESSEE IS BUYING AND SELLING SHARES IN THE SAME Y EAR VERY FREQUENTLY. THE ASSESSEE MADE TOTAL TRANSACTIONS OF ` 89.83 CRORES INVOLVED IN 2,200 NUMBER OF TRANSACTIONS. M AJOR PORTION OF SHARES HAS BEEN TRADED ON A DAY TO DAY BASIS OF ` 42.83 CRORES AND SALE OF ` 4.60 CRORES WAS CARRIED OUT BY THE ASSESSEE - - ITA 2635/16 8 DURING THE YEAR. SUCH CORRELATION OF BUYING AND SEL LING DAY AFTER DAY CAN BE SEEN FROM THE ABOVE LEDGER ACCOUNT. THE INCOME FROM CONSULTANCY WAS ` 8.82 CRORES AS AGAINST PROFIT OF ` 1,08,53,182/- FROM SHARE TRADING. 8. LOOKING INTO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF THE TRANSACTIONS OF PURCHASE AND SALE S IN SHARES, IT CAN BE INFERRED THAT THESE TRANSACTIONS MUST HAVE B EEN ENTERED INTO BY THE ASSESSEE WITH A PROFIT MOTIVE. THE ASSE SSEE MIGHT HAVE INTENTION THEREBY TO CARRY ON BUSINESS. IT CAN NOT BE SAID THAT THESE TRANSACTIONS WERE ENTERED INTO ONLY FOR THE PURPOSE OF INVESTMENT AND THERE WAS NO MOTIVE OF THE ASSESSEE TO EARN PROFIT. THOUGH THE WORD 'BUSINESS' HAS NOT BEEN DEF INED IN THE TAXING STATUTE AT IT POSTULATES THE EXISTENCE OF CE RTAIN ELEMENTS IN THE ACTIVITY OF AN ASSESSEE WHICH WOULD INVEST IT W ITH THE CHARACTER OF BUSINESS. ACCORDING TO WELL ESTABLISHE D INTERPRETATION OF WORD 'BUSINESS' AS FOUND IN TAXIN G STATUTES IT IS THE SENSE OF AN OCCUPATION OR PROFESSION WHICH OCCU PIES THE TIME, ATTENTION AND LABOUR OF A PERSON NORMALLY WIT H THE OBJECT OF MAKING PROFIT. TO RECORD AN ACTIVITY AS BUSINESS TH ERE MUST BE OF - - ITA 2635/16 9 COURSE DEALING EITHER ACTUALLY CONTINUED OR CONTEMP LATED TO BE CONTINUED WITH A PROFIT MOTIVE AND NOT FOR SUPPORT OR PLIER. 9. IN OUR OPINION, WHETHER OR NOT A PERSON CARRIE D ON BUSINESS IN A PARTICULAR COMMODITY MUST DEPEND UPON VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE IN A CLASS OF GOODS AND THE TRANSACTION MU ST ORDINARILY BE ENTERED INTO WITH A PROFIT MOTIVE. SUCH MOTIVE M UST PERVADE THE WHOLE SERIES OF TRANSACTIONS EFFECTED BY THE PE RSON IN THE COURSE OF HIS ACTIVITY. TO INFER FROM A COURSE OF T RANSACTIONS THAT IS INTENDED THEREBY TO CARRY ON BUSINESS ORDINARILY THE CHARACTERISTICS OF VOLUME, FREQUENCY AND REGULARITY INDICATING AN INTENTION TO CONTINUE THE ACTIVITY OF CARRYING ON T HE TRANSACTION MUST EXIST. LOOKING INTO THE VOLUME, FREQUENCY, CON TINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE IN SHARES BY THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE ENTER ED INTO THIS ACTIVITY NOT WITH A PROFIT MOTIVE. THEREFORE, ONLY INFERENCE WHICH CAN BE DRAWN IS THAT THE INCOME EARNED BY THE ASSES SEE OUT OF SALE AND PURCHASE OF THESE SHARES WAS AN INCOME UND ER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. WE SEE NO JUSTIFICATION IN LENGTHY ARGUMENT OF THE ASSESSEE'S COUNSEL THAT - - ITA 2635/16 10 THE PROFIT ARISING TO ASSESSEE ON SALE OF SHARES AC QUIRED BY IT WAS ASSESSABLE AS INCOME FROM 'CAPITAL GAIN'. IN OU R CONSIDERED OPINION, AFTER CONSIDERING THE CUMULATIVE EFFECT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS JUSTIFIED IN TREATING THE PROFIT ARISING OUT OF SALE OF SHARES ACQUIRED BY TH E ASSESSEE AS INCOME FROM BUSINESS. FURTHER, THE AO PASSED ORDER IN CONSEQUENT OF ORDER OF CIT U/S.263 OF THE ACT. THE ASSESSEE HAS NOT PREFERRED ANY APPEAL AGAINST THE ORDER OF CIT U /S.263 OF THE ACT. AS SUCH, THAT REVISION ORDER HAS REACHED FINAL ITY. HENCE, NOW THE ASSESSEE CANNOT CHALLENGE THE ASSESSMENT OR DER GIVING EFFECT TO ORDER PASSED U/S.263 OF THE ACT. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMI SSED. ORDER PRONOUNCED ON 29 TH MAY, 2017 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY -./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 29 TH MAY, 2017. K S SUNDARAM 9D EFGF / COPY TO: 1 . / APPELLANT 3. H- / CIT(A) 5. FIJ K / DR 2. / RESPONDENT 4. H / CIT 6. J(L / GF