NAINESH SANGHAVI, MUMBAI V. DCIT 21(3), MUMBAI

ITA 2730/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3056 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 20-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2012
• Court: TRIBUNAL
• Keywords: Business income; Depreciation
• Section: 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI RAJENDRA , ACCOUNTAN T MEMBER AND SHRI SAKTIJIT DEY , JUDICIAL MEMBER . / ITA NO . 2730 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 08 0 9 ) SHRI NAINESH SANGHVI B 606, AMIT APARTMENTS DADABHAI CROSS ROAD NO.3 VILE PARLE (WEST) MUMBAI 400 56 PAN AFXPS8627R .. / APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 21(3), MUMBAI .... / RESPONDENT / ASSESSEE BY : SHRI MADHUR AGARWAL / REVENUE BY : SHRI SAMIR TEKRIWAL / DATE OF HEA RING 06 . 10 .2015 / DATE OF ORDER 16.10.2015 / ORDER , / PER SAKTIJIT DEY, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 16 TH JANUARY 2012, PASSED BY THE LEARNED COMMISSIO NER (APPEALS) 32, MUMBAI, FOR THE ASSESSMENT YEAR 2008 09. SHRI NAINESH SANGHVI 2 2. GROUNDS NO.1 AND 2, ARE ON THE ISSUE WHETHER INCOME FROM SHARE TRANSACTION SHOULD BE TREATED AS BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAIN. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE AN INDIVIDUAL, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 29 TH SEPTEMBER 2008, DECLARING TOTAL INCOME OF ` 1,14,89,970. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INDULGED IN PURCHASE AND SALE OF SHARES DURING THE RELEVANT PREVIOUS YEAR AND THE PROFIT DERIVED THEREFROM HAS BEEN SHOWN AS SHORT TERM CAPITAL GAIN. FROM THE DETAILS SUBMITTED, IT WAS FOUND THAT THE ASSESSEE HAS MADE TRANSACTIONS OF PURCHASE AND SALE IN 37 SCRIPS. THE ASSESSEE HAS MADE T OTAL PURCHASES OF 45,164 SHARES AT ` 1,76,39,072 AND SOLD THESE SHARES AT ` 1,82,87,461, THEREBY DERIVING SHORT TERM CAPITAL GAIN OF ` 6,48,389. FROM THE DETAILS SUBMITTED, HE FOUND THAT PERIOD OF HOLDING OF SHARES INCASE OF 34 SCRIPS IS LESS THAN ONE MONT H AND IN CASE OF ONLY THREE SCRIPS, THE PERIOD OF HOLDING IS BEYOND ONE MONTH BUT LESS THAN TWO MONTHS. HE FURTHER NOTICED, THE PERIOD OF HOLDING OF SHARES IN CASE OF 23 TRANSACTIONS IS EVEN LESS THAN 10 DAYS. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXP LAIN WHY THE GAIN DERIVED FROM SALE OF SHARES SHOULD NOT BE TREATED AS BUSINESS INCOME. THOUGH , ASSESSEE IN HIS REPLY DATED 23 RD NOVEMBER 2010, STATED THAT DUE TO SOME INVESTMENT SHRI NAINESH SANGHVI 3 OPPORTUNITY HE HAS INVESTED IN SHARES AND HAS DERIVED SHORT TERM CAPITAL GAIN IT CANNOT BE TREATED AS BUSINESS INCOME. THE ASSESSING OFFICER WAS, HOWEVER, OF THE VIEW THAT THE ASSESSEE HAS UTILISED ITS OFFICE INFRASTRUCTURE FOR CARRYING OUT SHARE TRADING ACTIVITIES. HE OBSERVED THAT THE ASSESSEE HAS DEVOTED HIS AT TENTION IN DAY TO DAY SHARE TRADING ACTIVITY AS WELL AS UTILISED LOAN FUND FOR THESE TRANSACTIONS WHICH REVEALED PROFIT MOTIVE OF THE ASSESSEE. RELYING UPON CERTAIN JUDICIAL PRECEDENT, THE ASSESSING OFFICER FINALLY CONCLUDED THAT THE INCOME DERIVED FROM SALE OF SHARES AMOUN TING TO ` 6,48,389 SHOULD BE TREATED AS INCOME FROM BUSINESS AND PROFESSION. BEING AGGRIEVED OF SUCH DECISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED COMMISSIONER (APPEALS). 4. THE LEARNED COMMISSIONER (APPEALS) AGAIN RELY ING UPON SOME MORE DECISIONS, OBSERVED THAT OUT OF 37 TRANSACTIONS OF SALE OF SHARES, ON FIVE OCCASIONS SHARES HAVE BEEN SOLD WITHOUT DELIVERY AND ON 18 OCCASIONS WITH HOLDING PERIOD OF LESS THAN 10 DAYS. HE NOTED THAT ON 11 OCCASIONS HOLDING PERIOD WAS 10 TO 30 DAYS AND ONLY ON THREE OCCASIONS HOLDING PERIOD WAS BETWEEN 30 TO 50 DAYS. HE OBSERVED THAT AS THE ASSESSEE HAS INDULGED IN SPECULATIVE TRADING IN SOME OCCASIONS WITHOUT DELIVER Y , I NTENTION OF THE ASSESSEE TO INDULGE IN SUCH ACTIVITY WITH A PROFIT M OTIVE IS DEMONSTRATED. HE FURTHER OBSERVED THAT THE ASSESSEE HAS BORROWED FUNDS OF ` 82,30,000 FROM LIC AND UNSECURED SHRI NAINESH SANGHVI 4 LOAN OF ` 83,00,000 ON WHICH INTEREST OF ` 6,92,012 WAS DEBITED TO PROFIT & LOSS ACCOUNT. THEREFORE, THE POSSIBILITY OF UTILISATION OF BOR ROWED FUNDS IN PURCHASE OF SHARES CANNOT BE RULED OUT. ON THE BASIS OF THE AFORESAID FACTS LEARNED COMMISSIONER (APPEALS) UPH E LD THE DECISION OF THE ASSESSING OFFICER IN ASSESSING THE GAIN FROM SALE OF SHARES AS BUSINESS INCOME. 5. THE LEARNED COUNSEL FOR TH E ASSESSEE AGREEING WITH THE PERIOD OF HOLDING OF SHARES AS MENTIONED BY THE LEARNED COMMISSIONER (APPEALS) IN PARA 3.4 OF HIS ORDER SUBMITTED THAT THE ASSESSEE IS BASICALLY IN CONSULTANCY BUSINESS AND HAS SHOWN INCOME OF ` 1,09,00,000 FROM SUCH BUSINESS. HE SUBMITTED, THAT BEING THE CASE, IT CANNOT BE SAID THAT THE ASSESSEE WAS CARRYING ON SHARE TRANSACTIONS AS HIS MAIN BUSINESS ACTIVITY. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, WHEN THE DEPARTMENTAL AUTHORITIES ARE ACCEPTING THE LONG TERM CAPITAL G AIN SHOWN BY THE ASSESSEE FROM SALE OF SHARES / MUTUAL FUND THEY CANNOT DISPUTE ASSESSEES CLAIM OF SHARE TRANSACTIONS AS INVESTMENT ACTIVITY BY TREATING THE SHORT TERM CAPITAL GAIN ALONE AS THE BUSINESS INCOME OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRING TO THE PERIOD OF HOLDING OF SHARES , DETAILS OF WHICH ARE AT PAGE 5 OF THE PAPER BOOK SUBMITTED THAT SOME OF THE SHARES WERE HELD FOR LONGER PERIOD. HE SUBMITTED THAT THERE IS NO REPETITIVE PURCHASE OF SHARES BY THE ASSESSEE. AS FAR AS TH E ALLEGATION OF LEARNED SHRI NAINESH SANGHVI 5 COMMISSIONER (APPEALS) THAT THE ASSESSEE HAS UTILISED BORROWED FUNDS FOR SHARE TRANSACTION, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF, THE ASSESSEE HAS SUBMITTED DOCUMENTARY E VIDENCE TO SHOW THAT BORROWED FUNDS WERE UTILISED FOR PURCHASE OF HOUSE PROPERTY. IN THIS CONTEXT, HE DREW OUR ATTENTION TO PARA 6 OF THE ASSESSMENT ORDER. THUS, IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SHORT TERM CAPITAL GAIN SHOW N BY THE ASSESSEE FROM SALE OF SHARES SHOULD BE ACCEPTED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, RELYING UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE THAT BORROWED FUNDS WERE NOT UTILISED FO R PURCHASE OF SHARES. FURTHER, HE SUBMITTED THAT UTILISATION OF BORROWED FUNDS IS ONE OF THE FACTORS APART FROM WHICH OTHER FACTORS LIKE FREQUENCY OF TRANSACTION , PERIOD OF HOLDING ALSO HAVE TO BE SEEN. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. AS CAN BE SEEN FROM THE DETAILS, THE ASSESSEE DURING THE YEAR HAS TRANSACTED IN 37 SCRIPS AND THE TOTAL VOLUME OF TRANSACTIONS IS NOT SO HUGE SO AS TO TR EAT THE SHARE TRANSACTIONS AS A TRADING ACTIVITY. ONE MORE FACTOR WHICH MERITS CONSIDERATION IS DEPARTMENTAL AUTHORITIES HAVE ACCEPTED THE LONG TERM CAPITAL GAIN DERIVED BY THE ASSESSEE FROM THE SHARE TRANSACTIONS. THEREFORE, ONLY ON THE BASIS OF PERIOD OF HOLDING, IT CANNOT BE SAID THAT SHRI NAINESH SANGHVI 6 THE SHORT TERM CAPITAL GAI N IS ACTUALLY THE BUSINESS INCOME OF THE ASSESSEE . ONE MORE ASPECT WHICH, IN OUR VIEW, HAS GREATLY INFLUENCED, THE LEARNED COMMISSIONER (APPEALS) IN COMING TO HIS CONCLUSION IS, THE FACT THAT ASSESSEE HAS UTILISED BORROWED FUNDS FOR PURCHASING SHARES. HOWE VER, AS COULD BE SEEN FROM THE OBSERVATIONS OF THE ASSESSING OFFICER IN PARA 6 OF THE ASSESSMENT ORDER DURING THE ASSESSMENT PROCEEDING ITSELF THE ASSESSEE HAD DEMONSTRATED BEFORE THE ASSESSING OFFICER THAT LOAN TAKEN FROM BANK AND PRIVATE PARTIES WERE FOR PURCHASE OF HO USE PROPERTY AND IN FACT THE ASSESSING OFFICER ALSO ACCEPTED SUCH CLAIM OF THE ASSESSEE. FURTHER, ON A PERUSAL OF THE STATEMENT OF LOAN TRANSACTIONS SUBMITTED IN THE PAPER BOOK , CLAIM OF THE ASSESSEE THAT THE LOANS WERE UTILISED FOR PURCHASE OF HOUSE PROPERTY APPEARS TO BE CORRECT. THEREFORE, WHEN THE ASSESSEE HAS NOT USED BORROWED FUNDS AND THE FREQUENCY OF THE TRANSACTIONS NOT BEING REPETITIVE AND VOLUME OF SHARE TRANSACTION NOT BEING H U F E, IN OUR VIEW, SHARE TRANSACTIONS CARRIED ON BY THE ASSESSEE CANNOT BE TREATED AS A TRADING ACTIVITY FOR ASSESSING THE INCOME DERIVED THEREFROM AS BUSINESS INCOME. MORE SO, WHEN THE DEPARTMENT HAS ACCEPTED LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE FROM SUCH TRANSACTION. IN VIEW OF THE ABOVE, WE REVERSE THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE BY DIRECTING THE ASSESSING OFFICER TO TREAT THE INCOME DERIVED FROM SALE OF SHARES AMOUNTING TO ` 6,48,389 AS SHORT TERM CAPITAL GAIN. SHRI NAINESH SANGHVI 7 8. THE NEXT ISSUE AS RAISED IN GROUND NO.3, RELATES TO AD HOC DISALLOWANCE OF 10% OUT OF THE EXPENDITURE CLAIMED ON MOTOR CAR DEPRECIATION AND TELEPHONE EXPENSES. 9. BRIEFLY THE FACTS ARE DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED CERTAIN EXPENDITURE TOWARDS TELEPHON E EXPENSES, OFFICE EXPENSES, MISCELLANEOUS EXPENSES, CONVEYANCE EXPENSES, STAFF WELFARE EXPENSES. FINDING THAT MOST OF THESE EXPENSES WERE SUPPORTED BY SELF MADE VOUCHERS AS A RESULT OF WHICH GENUINENESS AND REASONABLENESS OF SUCH EXPENSES COULD NOT BE VER IFIED FULLY, HE DISALLOWED 10% OUT OF THESE EXPENSES AMOUNTING TO ` 21,831. FURTHER, HE NOTICED THAT THE ASSESSEE HAS DEBITED MOTOR CAR EXPENSES OF ` 32,252 AND DEPRECIATION ON MOTOR CAR AT ` 2,27,706. THE ASSESSING OFFICER BEING OF THE VIEW THAT THE MOTOR CAR COULD HAVE BEEN USED FOR PERSONAL PURPOSES, DISALLOWED 20% OUT OF THE MOTOR CAR EXPENSES AND DEPRECIATION CLAIMED THEREON WHICH WORKS OUT TO ` 50,592. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS). C ONSIDERING THE SUBM ISSIONS OF THE ASSESSEE LEARNED COMMISSIONER (APPEALS) RESTRICTED THE DISALLOWANCE TO 10% OF THE EXPENSES CLAIMED ON MOTOR CAR DEPRECIATION ON CAR AND TELEPHONE EXPENSES AS A RESULT OF WHICH THE ADDITION MADE WAS REDUCED TO ` 23,280. SHRI NAINESH SANGHVI 8 10. WE HAVE CONSIDERED TH E SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THE REASONING OF THE LEARNED COMMISSIONER (APPEALS) JUST AND PROPER . AS COULD BE SEEN, THE LEARNED COMMISSIONER (APPEALS) HAS RESTRICTED THE DISALLOWANCE TO 10% OF THE EXPEN DITURE CLAIMED ON MOTOR CAR, DEPRECIATION ON CAR AND TELEPHONE EXPENSES A S THE ASSESSEE W AS NOT ABLE TO PROVE THAT THE MOTOR CAR AND TELEPHONE WERE NOT USED FOR PERSONAL PUR POSES TO CERTAIN EXTENT. THAT BEING THE CASE, THE DISALLOWANCE SUSTAINED BY THE LEA RNED CIT(A) IS JUSTIFIED. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 11. GROUND NO.4 , RELATES TO LEVY OF INTEREST UNDER SECTION 234B AND 234C AND INITIATI ON OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE ISSUES RAISED IN THIS GROUND BEING CONSEQUENTIAL IN NATURE , THERE IS NO NEED TO ADJUDICATE AT THIS STAGE. THIS GROUND IS DISMISSED. 12. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOU NCED IN THE OPEN COURT O N 16.10.2015 SD/ - RAJENDRA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED : 16.10.2015 SHRI NAINESH SANGHVI 9 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE; (2) / THE REVENUE; (3) ( ) / THE CIT(A); (4) / THE CIT, MUMBAI CITY CONCERNED; (5) , , / THE DR, ITAT, MUMBAI; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI