M/s. Matangi Industries, Ahmedabad V. The ACIT., Circle-6, Ahmedabad

ITA 2718/AHD/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1237 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 20-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Rule of consistency; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 2718/AHD/2010 (ASSESSMENT YEAR: 2007-08) M/S. MATANGI INDUSTRIES PLOT NO. 28, PHASE I, GIDC ESTATE VATVA, AHMEDABAD V/S ACIT, RANGE-6, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAEFM6021B APPELLANT BY : MS. URVASHI SHODHAN, A.R. RESPONDENT BY : SHRI PRASOON KABRA, SR. D.R . ( )/ ORDER DATE OF HEARING : 14 -06-20 16 DATE OF PRONOUNCEMENT : 20 -06-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-XVI, AHMEDABAD DATED 29.06.2010 PERTAINING T O A.Y. 2007-08. ITA NO. 2718 /AHD/2010 . A.Y. 2007 -08 2 2. THE SOLE GRIEVANCE OF THE ASSESSEE RELATES TO THE T REATMENT OF CAPITAL GAINS ON SALE OF SHARES AS BUSINESS INCOME. 3. ASSESSEE IS IN THE BUSINESS OF MANUFACTURING TRADIN G & JOB WORK. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. NOTICED THAT THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN ON SALE OF SHA RES. THE A.O. WAS ASKED THE ASSESSEE TO SHOW CAUSE WHY THE SAID INCOM E SHOULD NOT BE TREATED AS BUSINESS INCOME. ASSESSEE FILED A DETAI LED REPLY JUSTIFYING ITS CLAIM OF SHORT TERM CAPITAL GAIN. IT WAS EXPLAI NED THAT THE ASSESSEE HAS MADE INVESTMENT THROUGH HDFC PORT FOLIO MANAGEM ENT FUND. IT WAS FURTHER EXPLAINED THAT ALL THE SHARES WERE PURC HASED IN THE PREVIOUS YEAR 2005-06 RELEVANT TO ASSESSMENT YEAR 2 006-07. 4. THE CONTENTION OF THE ASSESSEE DID NOT FIND ANY FAV OUR WITH THE A.O. WHO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS DO NE TRANSACTIONS IN THE SHARES OF 35 COMPANIES FOR WHICH IT HAS USED BO RROWED FUNDS. SINCE, THE A.O., WAS OF THE OPINION THAT THE MAGNIT UDE OF TRANSACTIONS IS VERY LARGE, HE COMPUTED THE SHORT TERM CAPITAL G AIN UNDER THE HEAD BUSINESS INCOME FROM TRADING IN SHARES. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE EMPHATI CALLY STATED THAT THE ENTIRE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEEN MADE THROUGH PORTFOLIO MANAGER. THEREFORE, IT IS INCORR ECT TO SAY THAT THE ASSESSEE HAS TRADED IN SHARES. IT IS THE SAY OF THE LD. COUNSEL THAT SINCE THE TRANSACTIONS HAVE BEEN DONE THROUGH PORTF OLIO MANAGEMENT SERVICE PROVIDER; THE ISSUE IS SQUARELY COVERED IN THE FAVOUR OF THE ITA NO. 2718 /AHD/2010 . A.Y. 2007 -08 3 ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF KAPUR INVESTMENTS (P.) LTD. 61 TAXMANN.COM 91. 7. PER CONTRA THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE REVENUE AUTHORITIES. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CAREFULLY PERUSED T HE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA (SUPRA). THE UNDISP UTED FACT IS THAT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND MUT UAL FUNDS THROUGH HDFC PORTFOLIO MANAGEMENT FUND. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS DONE TRADING IN SHARES. THE P AST HISTORY OF THE ASSESSEE IS ALSO VERY RELEVANT AND WHICH IS AS UNDE R:- A.Y. SALE OF SHARES RS. NATURE OF CAPITAL GAIN A MOUNT RS. 2003-04 21825371 SHORT TERM CAPITAL GAIN 122541 2004-05 37618896 SHORT TERM CAPITAL GAIN 2414183 2005-06 29065572 SHORT TERM CAPITAL GAIN 135302 9. THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG 193 ITR 321 HAS HELD THAT WHEN THE FACTS ARE SIMILAR AN D THE LAW HAS NOT CHANGED THEN RULE OF CONSISTENCY SAYS THAT SIMILAR DECISION SHOULD BE TAKEN AS TAKEN IN THE PAST. THUS, FOLLOWING THE AFO REMENTIONED OBSERVATIONS OF THE HONBLE SUPREME COURT, THE RULE OF CONSISTENCY ITSELF SHOWS THAT THE A.O CANNOT TAKE A DIFFERENT V IEW FOR THE YEAR UNDER CONSIDERATION. THE HONBLE HIGH COURT OF KARN ATAKA IN THE CASE OF KAPUR INVESTMENTS (P.) LTD. (SUPRA) HAD THE OCCA SION TO CONSIDER THE FOLLOWING QUESTION OF LAW:- ITA NO. 2718 /AHD/2010 . A.Y. 2007 -08 4 1. WHETHER THE TRIBUNAL WAS JUSTIFIED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE COMMISSIONE R OF INCOME TAX (A) THAT THE PROFIT ON SALE OF SHARES WAS ASSESSABLE AS CAPITAL GAIN WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD EMPLOYE D A PORTFOLIO MANAGER AND THE EMPLOYMENT OF THE PORTFOLIO MANAGER IMPLIES THAT THE ASSESSEE WAS SERIOUS IN EARNING INCOME THROUGH STRATEGIC/PLA NNED TRANSACTIONS OF SPECIFIC SHARES AND THUS INDULGED IN BUSINESS. 10. AND THE HONBLE COURT HELD AS UNDER:- 10. AS REGARDS THE FIRST QUESTION THAT MERELY BECA USE OF EMPLOYMENT OF PORTFOLIO MANAGEMENT SERVICE FOR INVE STMENT IN SHARES, THE SAME WOULD BECOME BUSINESS INCOME, WE ARE OF TH E OPINION THAT THE SAID ISSUE HAS BEEN DEALT WITH AT LENGTH BY THE DEL HI HIGH COURT IN THE CASE OF RADIALS INTERNATIONAL (SUPRA), WHEREIN, IN SIMILAR FACTS, THE QUESTION HAS BEEN ANSWERED IN FAVOUR OF THE ASSESSE E AND AGAINST THE REVENUE. DETAILED REASONS FOR THE SAME HAVE BEEN GI VEN IN THE SAID JUDGMENT WITH WHICH WE CONCUR. EVEN OTHERWISE, IT I S ADMITTEDLY NOT A CASE WHERE THE ASSESSEE HAD ENGAGED ITS OWN PERSONS OR HAD A SEPARATE BUSINESS INFRASTRUCTURE TO CARRY OUT ITS SHARE TRAN SACTIONS FOR THE PURPOSE OF BUSINESS. IT IS MERELY A CASE WHERE THE ASSESSEE HAS INVESTED FUNDS THROUGH THE PORTFOLIO MANAGEMENT SERVICE. 11. IN OUR OPINION, INVESTMENT THROUGH PORTFOLIO M ANAGEMENT SERVICE, WHICH MAY DEAL WITH THE SHARES OF THE ASSESSEE SO A S TO DERIVE MAXIMUM PROFITS CANNOT BE TERMED AS BUSINESS OF THE ASSESSE E BUT WOULD ONLY BE A CASE OF A MORE CAREFUL AND PRUDENT MODE OF INVESTME NT, WHICH HAS BEEN DONE BY THE ASSESSEE. FUNDS WHICH LIE WITH THE ASSE SSEE CAN ALWAYS BE INVESTED (FOR EARNING HIGHER RETURNS) IN THE SHARES EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGED PORTFOLIO MANAGEMENT SCHEME AND BY DOING SO, IT WOULD NOT MEAN THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF ITA NO. 2718 /AHD/2010 . A.Y. 2007 -08 5 INVESTMENT IN SHARES. PROFITS FROM SUCH INVESTMENT, EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGED FIRM, WOULD STILL RE MAIN AS PROFITS TO BE TAXED AS CAPITAL GAINS AS THE SAME WILL NOT CHANGE THE NATURE OF INVESTMENT, WHICH IS IN SHARES, AND THE LAW PERMITS IT TO BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 12. AS REGARDS THE SECOND QUESTION OF THE ASSESSEE HAVING TAKEN LOAN AND HAVING INVESTED BORROWED FUNDS IN PURCHASE OF S HARES, WE ARE OF THE VIEW THAT THE INCOME TAX ACT DOES NOT PROHIBIT THE ASSESSEE FROM MAKING INVESTMENTS IN CAPITAL ASSETS AFTER USING BORROWED FUNDS. THE TRIBUNAL HAS ALSO CONSIDERED THIS ASPECT OF THE MATTER AND DECID ED IN FAVOUR OF THE ASSESSEE AND WE SEE NO REASON TO DIFFER WITH SUCH O PINION OF THE TRIBUNAL. 13. WE HAVE ALSO GONE THROUGH THE CIRCULAR OF THE CBDT DATED 15.06.2007 AND ARC OF THE OPINION THAT THE FINDINGS ARRIVED AT BY THE TRIBUNAL ARE IN CONFORMITY WITH THE GUIDELINES ISSU ED BY THE SAID CIRCULAR. 14. IN VIEW OF THE AFORESAID, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR DETERMINATION OF THIS CO URT. 15. THIS APPEALS ARE ACCORDINGLY DISMISSED. 11. FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACT S BEFORE THE HONBLE KARNATAKA HIGH COURT THEREFORE, RESPECTFULL Y FOLLOWING THE SAME. WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) A ND DIRECT THE A.O. TO TREAT THE PROFIT ON SALE OF SHARES UNDER THE HEAD C APITAL GAINS, LONG TERM OR SHORT TERM AS THE CASE MAY BE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 20 - 06 - 201 6. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY