Baiju Trading & Investment Pvt.Ltd., Mumbai V. The Dy.CIT.,Valsad Circle, Valsad

ITA 2810/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0695 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIV SEWAK
• Keywords: Business income; Search and seizure

Judgement Text

I TA NO . 2810 / AHD/20 1 1 A.Y. 200 8 - 09 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER I TA NO. 2810 / AHD /201 1 ASSESSMENT YEAR : 20 0 8 - 09 BAIJU TRADING & INVESTMENT PVT. LTD. VS. DY. COMMISSI ONER OF INCOME TAX, GALA NO.308, VALSAD CIRCLE, VALS A D. BHAKTANI ENCLAVE, SONAPUR LANE, OFF. LBS MARG, BHANDUP WEST MUMBAI 400 078. [PAN A ACCB 4915 G ] A PPELLANT BY : URVASHI SHODHAN, A.R. RE SPONDENT BY : SHRI SHIV SEWAK, SR. D.R. DATE OF HEARING : 2 8 .0 6 . 20 16 DATE OF PRONOUNCEMENT : 23 . 0 8 .2016 O R D E R PER S.S. GODARA , J.M. : TH IS ASSESSEE S APPEAL FOR A SSESSMENT Y EAR 200 8 - 09 , ARISE S FROM ORDER OF THE CIT(A), VA LSAD DATED 23.08.2011 PASSED IN CASE NO. CIT (A)/VLS/275/10 - 11 IN PROCEEDINGS UNDER SECTION 1 43 (3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE S SOLE SUBSTANTIVE GROUND RAISED IN THE INSTANT APPEAL CHALLENGES THE CIT(A) S ORDER UPHOLDING ASSESSING OFFICER S ACTION IN TREATING T HE SHORT TERM CAPITAL GAINS OF RS.29,07,962/ - AS BUSINESS INCOME AND ALSO IN FURTHER ENHANCING THE SAME TO THE TUNE OF RS.40,26,576/ - . I TA NO . 2810 / AHD/20 1 1 A.Y. 200 8 - 09 PAGE 2 OF 6 3. WE COME TO THE RELEVANT FACTS FIRST. THE ASSESSEE IS A SHARE TRADER. HE FILED RETURN ON 20.09.2008. THE ASSESSEE H AD DECLARED CAPITAL GAIN OF RS.47,45,954/ - ARISING FROM SALE OF SHARES DURING SCRUTINY. THE ASSESSING OFFICER APPLIED THIS TRIBUNAL S DECISION IN CASE OF SU GAMCHAND C. SHAH VS. ACIT TO HOLD THAT THE SAME PROFITS ARISING FROM SHARES HAVING HOLDING PERIOD O F LESS THAN A MONTH WOULD BE TREATED AS BUSINESS INCOME AND MORE THAN THAT RESULTED IN SHORT TERM CAPITAL GAINS. HE ACCORDINGLY COMPUTED A SUM OF RS.29,07,962/ - ARISING FROM SALE OF SHARES HELD FOR LESS THAN A MONTH AS ASSESSEE S BUSINESS INCOME. CONSEQ UENTIAL REGULAR ASSESSMENT STOOD ACCORDINGLY FRAMED ON 27.12.2010. 4. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) DIRECTS THE ASSESSING AUTHORITY TO TREAT ENTIRE SHORT TERM CAPITAL GAIN OF RS.40,26,576/ - AS BUSINESS INCOME AS FOLLOWS : - 6. 3.5 (A) DURIN G THE APPELLATE PROCEEDING THE APPELLANT FURNISHED INTER - ALIA TWO PAGES OF SHARE PURCHASE - SALES DETAILS CONSISTING OF HOLDING PERIOD LESS THAN 30 DAYS AND LESS THAN A YEAR. THE QUANTITY OF SHARES PURCHASE AND SALES AFFECTED BY THE APPELLANT WAS SUBSTANTIAL IN THESE TWO CATEGORY. THE PROFITS EARNED FROM THE SHARES HOLDING LESS THAN 30 DAYS WAS RS. 29,07,962 / - AND THE PROFITS FROM THE SHARE HELD FOR LESS THAN A YEAR WAS RS. 11,18,614 / - . THE APPELLANT CLAIMED STCG ON THE ENTIRE PROFIT EARNED FROM THE SALE OF SH ARE. THEREFORE, THE DISPUTE WAS THAT WHEREAS THE APPELLANT CONSIDERED THE PROFITS AS STCG BUT THE AO TREATED THE PROFITS FROM THE SALE OF SHARE HOLDING FOR LESS THAN 30 DAYS WAS BUSINESS INCOME. BEFORE ME THE ID. AR SUBMITTED 3 SETS OF B/S AND P&L A/C. FO R THE PERIOD 2006 - 07, 2007 - 08 & 2008 - 09. THE YEAR - WISE SUMMARY OF THE B/S & P&L A/C. IS AS UNDER; SL.NO PARTICULARS F.Y.2 006 - 07 A.Y. 2007 - 08 ( RS. I N LAKHS) F.Y. 2007 - 08 A.Y.2008 - 09 ( RS. I N LAKHS) F.Y.20 08 - 09 A.Y.2 009 - 10 ( RS. I N LAKHS) 1 INVESTMENT IN MUTUAL FUNDS/SHARES 96.62/1.47 209.76/237.03 220.19/101.24 2 STOCK IN TRADE (SHARES) 252 . 68 26.55 2.51 3 LOAN 0.25 52.50 0.30 4 INCOME/PROFITS 8 . 57 30 . 76 10.61 I TA NO . 2810 / AHD/20 1 1 A.Y. 200 8 - 09 PAGE 3 OF 6 5 CAPITAL GAINS BOTH STCG & LTCG. 15 . 03 47 . 53 ( - ) 110.67 6 SALES FIGURE NOT PROVIDED NOT PROVIDED NOT PROVIDED FROM THE TABLE ABOVE, IT IS VERY CLEAR THAT THE APPELLANT HAS BEEN SUBSTANTIALLY TRADING IN SHARES AND ALSO INVESTING IN THE MUTUAL FUNDS AND SHARES. IT IS ALSO CLEAR THAT THE INVES TMENT IN SHARES WAS LESS THAN INVESTMENT IN MUTUAL FUNDS. PRECEDING TO THE CURRENT YEAR (I.E.2006 - 07), THE APPELLANT HAD ACCUMULATED S - I - T OF SHARES OF 252.68 LAKHS WHICH WAS DISPOSED OF DURING THE CURRENT YEAR LEAVING ONLY 26.55 LAKHS AS S - I - T, AT THE SAM E TIME, THE INVESTMENT IN MUTUAL FUNDS & SHARES JUMPED FROM 96.62/1.47 LAKHS TO 209.76/237.03 LAKHS. THIS STRONGLY INDICATES THAT THE APPELLANT HAS ACCUMULATED INVESTMENTS AND DISPOSED OF THE SHARES IN TRADING ACTIVITIES. IN THIS BACKGROUND THE SALE OF SHA RES WITHIN 30 DAYS OR WITHIN A YEAR IS IMPORTANT TO DETERMINE THE NATURE OF PROFITS/GAINS. IF THE FREQUENCY OF TRANSACTIONS IS MORE, THEN IT CAN BE SAFELY SAID THAT THE PROFITS/GAINS IS BUSINESS INCOME. THE APPELLANT HAD CONCEDED THAT IT IS NOT A SHARE BRO KER AND THE APPELLANT HAS BEEN INTO BOTH TRADING IN SHARES AND MAKING INVESTMENTS IN MUTUAL FUNDS & SHARES. DURING THE YEAR, ABOUT 100% OF THE SHARES HELD FOR LESS THAN I YEAR WAS SOLD. THUS, THE INTENTION OF THE APPELLANT WAS CLEAR FROM THE BEGINNING OF P URCHASE OF SHARES. IN FACT, THE LIST OF SHARES SOLD FURNISHED BEFORE ME AMPLY PROVES THAT THE PROFITS AND GAINS IS BUSINESS I NCOME. 6. 3.6 AGAINST THESE FINDINGS, THE DEFENCE OF THE ID. AR ARE SUMMARIZED AS UNDER ; SHARES WERE SHOWN AS AN INVESTMENT IN THE BALANCE SHEET. MAIN INTENTION OF INVESTMENT IS TO EARN DIVIDEND AND LONG TERM APPRECIATION. THE JURISDICTIONAL CASE LAW SUGAM CHAND SHAH VS. ACIT (2 010) 37 DTR 345 (AHM.) APPLIED BY THE AO IS NOT APPLICABLE AND THE CASE OF MAHENDRA C SHAH VS. ADDL. CIT (ITAT, MUM.) SHOULD BE APPLIED. 6.3.7 IN CASE OF NVESTMENT, THE INVESTOR BEFORE PUTTING HIS MONEY ANALYSES THE PERFORMANCE VIS - A - VIS THE POTENTIAL GROWTH OF THE COMPANY IN WHICH THE INVESTMENT IS TO BE MADE. HE ALSO BASES HIS DECISIONS ON THE MARKET NEWS. IN CASE OF A TRADING, THE DAY TO DAY POSITION OF THE STOCK VIS - A - VIS THE SENS E X DETERMINE THE PURCHASE AND SALES OF SHARES. THE NORMAL TREND IS THAT WHEN THE MARKET IS BULLISH GO AND SELL AND WHEN THE MARKET IS BEARISH GO FOR BUY. THE T REND OF MARKET IS WATCHED AND DECISIONS ARE TAKEN ACCORDINGLY. MOST OF THE TIME THE ADVICE OF THE BROKERS PLAY IMPORTANT ROLE IN SELECTING THE PICK OF THE SCRIPTS. IN THE INSTANT CASE A LARGE NUMBER OF SHARES WERE BOUGHT AND SOLD WIT H IN 30 DAYS OF PURCHASE S MADE. IN FACT FURTHER LARGE QUANTITY OF SHARES! BOUGHT AND SOLD WITHIN LESS THAN A YEAR OF PURCHASE. THE TRANSACTIONS ARE SO HECTIC THAT THE APPELLANT HAD ALSO SUFFERED LOSSES IN SOME SCRIPTS. THIS, IN A NUTSHELL, SPEAKS OF THE FREQUENCY OF PURCHASES AND SALES OF SHARES DONE BY THE APPELLANT DURING THE YEAR. I MAY QUOTE HERE WHAT THE HON'BLE SUPREM E COURT IN THE CASE OF CIT VS. H. HO L CK LARSEN (1986) 58 CTR (SC) 53, OBSERVED THA T THE REAL QUESTION AS LORD RAID SAID WAS NOT WHETHER THE TRANSACTION OF BUYIN G AND SELLING THE SHARES LACKS THE ELEMENT OF TRADING BUT WHETHER THE LATER STAGES OF THE WHOLE OPERATION SHOW THAT THE FIRST STEP THE I TA NO . 2810 / AHD/20 1 1 A.Y. 200 8 - 09 PAGE 4 OF 6 PURCHASE OF THE SHARES - WAS NOT TAKEN AS, OR IN TH E, COURSE OF, A TRADING TRANSACTION. IN THE INSTANT CASE WHAT IS SEEN IS THE WHOLE OPERATION FROM THE FIRST STEP THE PURCHASE OF SHARES WAS SEEMS TO HAVE TAKEN AS A TRADING TRANSACTION. 6.3.8 NOW LET ME APPLY THE GUIDING PRINCIPLES SET OUT BY VARIOUS COURTS / TRIBUNALS TO THE FOLLOWING FACTS EMERGING FROM THE CASE OF THE APPELLANT: (A) THERE IS NO DISPUTE THAT THE APPELLANT HAS BEEN DOING TRADING OF SHARES AND ALSO MAKING INVESTMENT IN THE MUTUAL FUNDS & SHARES. THERE IS ALSO NO DISPUTE THAT THE LIST OF SHARES SUBMITTED BEFORE ME WERE SOLD WITHIN A YEAR OF PURCHASE. THE HOLDING OF SHARES WERE BETWEEN 1 DAY TO 192 DAYS. EXCEPT COUPLE OF SCRIPS, THE HOLDING PERIOD OF SHARES WAS LESS THAN 6 MONTHS. MOST OF THE GAIN WAS EARNED IN SHARES HELD FOR A PERIOD FOR SHORT PERIODS. (B) THE AO HAS NOT DISTURBED THE INVESTMENTS RECORD ED IN THE B/S. THE ONLY CONTENTION RAISED BY THE AO WAS THAT THOSE SHARES WHICH HAS HOLDING PERIOD OF LESS THAN 30 DAYS, THE PROFITS FROM THE SALE OF SUCH SHARES WAS TREATED BY THE HIM AS BUSINESS INCOME. HIS VIEW WAS STRENGTHEN BY THE DECISION OF THE HON' BLE ITAT, AHMEDABAD. (C) PURCHASE AND SALE OF SHARES IN SHORT PERIOD INDICATES THAT THE ASSESSEE PURCHASED THE SHARES WITH A MOTIVE TO EARN PROFIT IN SHORT PERIOD; (D) THE ASSESSEE UNDERTOOK TRANSACTIONS WITHOUT DELIVERY IN A FEW SELECT SCRIP; (E) THE A SSESSEE BORROWED FUNDS TO PURCHASE SHARES; (F) THE DIVIDEND RECEIVED WAS MEAGER; (G) THOUGH IN THE PRECEDING YEARS, THE ASSESSEE CONSISTENTLY DECLARED THE GAIN/PROFIT ON THE SALE OF THE SHARES AS 'CAPITAL GAINS' AND THE SAME HAS BEEN ACCEPTED BY THE A.O. BUT RATIO OF CONSISTENCY CANNOT BE APPLIED IN THIS CASE THAT THE FINDINGS OF THE AO AND MY OBSERVATIONS CLEARLY PIERCE THE VEIL OF INTENTION THE ASSESSEE HAD TO GAIN PROFITS BY DEALING IN SHORT TERM PERIOD ONLY. MOREOVER, THE RULE OF RES - JUDICATA IS NOT A PPLICABLE TO INCOME - TAX PROCEEDINGS. (H) THESE FACTS INDICATE THAT THE INTENTION OF THE ASSESSEE WAS TO GAIN PROFITS BY DEALING IN SHORT TERM PERIOD ONLY. CONSEQUENTLY, THE INCOME FROM SALE OF SHARES WAS ASSESSABLE AS 'INCOME FROM BUSINESS' AND NOT ''SHOR T - TERM CAPITAL GAINS'; (III) THE DECISION IN GOPAL PUROHIT 122 TTJ 97 (AFFIRMED IN 228 CTR 582 (BOM)) IS DISTINGUISHABLE BECAUSE THERE THE ASSESSEE HAD CONSISTENTLY BEEN INVESTING IN SHARES AND THE RATIO OF SALES TO INVESTMENT WAS VERY LESS AND THE LTCG W AS MORE THAN THE STCG. SIMILARLY JA N IAK S. RANGWALLA 11 SOT 627 (MUM) IS ALSO DISTINGUISHABLE ON FACTS. 6.3.9 IN VIEW OF THE ABOVE AND CONSIDERING THE FACTS AND CIRCUMSTANCE, THERE CAN BE NO SECOND OPINION THAT THE INTENTION OF THE ASSESSEE WAS TO GAIN PROFITS BY DEALING IN SHORT TERM PERIOD ONLY. CONSEQUENTLY, THE INCOME FROM SALE OF SHARES I TA NO . 2810 / AHD/20 1 1 A.Y. 200 8 - 09 PAGE 5 OF 6 WAS ASSESSABLE AS 'INCOME FROM BUSINESS' AND NOT 'SHORT - TERM CAPITAL GAINS'. LET ME EXAMINE THE DECISION IN THE CASE OF MAH ENDRA C SHAH VS. ADDL. CIT, MUM (ITAT, MU M.) RELIED UPON BY THE APPELLANT. IN THAT CASE THE ASSESSEE WAS DERIVING INCOME FROM FUTURES & OPTIONS, SPECULATION IN SHARES, COMMISSION AGENCY AND FROM PARTNERSHIP IN TRADING FIRMS, SHARE DEALINGS ETC. THE ISSUES BEFORE THE HON'BLE ITAT, MUMBAI WAS THAT WHETHER THE AO/CIT(A) ERRED IN TREATING THE LTCG & STCG AS BUSINESS INCOME? THE APPEAL WAS FOR TWO YEARS AND TWO CIT(A) HAVE TAKEN DIVERGENT VIEWS FOR TWO YEARS. THE DEPARTMENT HAD NOT CONTESTED THE DECISION OF THE CI T(A) TAKEN AGAINST THE REVENUE FOR ONE YEAR. FACTUALLY, THE HON'BLE ITAT ALSO RECORDED THAT THE SHARE HOLDING PERIODS VARIED FROM 533 DAYS TO 3981 DAYS. ALSO IN SOME CASES, THE HOLDING PERIOD VARIED FROM 387 DAYS TO 90 1 6 DAYS AS NOTED IN PARA 16 OF THE ORDER. AFTER ANALYZING THE PARAMETERS, THE ITAT, HELD IN FAVOUR OF THE APPELLANT. THIS CASE IS COMPLETELY DISTINGUISHABLE WITH THE INSTANT CASE. BECAUSE, HERE WE ARE DEALING WITH THE SHARES WHICH ARE HELD FOR AT BEST 192 DAYS ONLY. THE AO HAD NOT DISTURBED THE PROFITS AND GAINS FROM THE SALE OF IN VESTMENTS IN THE FORM OF MUTUAL FUNDS AND SHARES. ON THE OTHER HAND THE AO HAS CORRECTLY APPLIED THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF SUGAM CHAND SHAH. AS I HAVE NOTICED FROM THE LIST OF TRADED SHARES SUBMITTED BEFORE ME THE MAXIMUM HOLDI NG PERIOD WAS ONLY 192 DAYS AND MINIMUM WAS I DAY. IN VIEW OF THE ABOVE FINDINGS, MY CONSIDERED OPINION IS THAT THE PROFITS/GAINS FROM THE SHARES HELD FOR LESS THAN ONE YEAR SHOULD BE TREATED AS BUSINESS INCOME. THIS POSITION IS FURTHER STRENGTHEN BY THE F ACT A S REFERRED IN THE TABLE OF PARA. 6.3.5 ABOVE THAT DURING THE CURRENT YEAR TH E APPELLANT HAD ACCUMULATED SHARES INVESTMENT FROM 1.47 LAKHS IN MARCH ENDING 2007 TO 237.03 LAKHS IN MARCH ENDING 2008. SIMILARLY, THE S - I - T O F SHARES IN 2007 WAS 252.68 LAKH S REDUCED TO ONLY 26.55 LAKHS IN MARCH 2 008. IN THIS CIRCUMSTANCES, I CANNOT DISAGREE WITH THE FINDINGS OF THE AO THAT THE INCOME FROM SALE OF SHARES WAS ASSESSABLE AS 'INCOME FROM BUSINESS' AND NOT 'SHORT - TERM CAPITAL GAINS'. THE AO IS DIRECTED TO TREAT THE ENTIRE AMOUN T (29,07,962 + 11,18,614 = 40,26,576) OF GAINS/PROFITS DERIVED FROM THE SALE SHARES WHOSE HOLDING PERIOD IS LESS THAN A YEAR AS PER THE LIST ANNEXED TO THIS ORDER. THUS THIS GROUND OF APPEAL IS DISMISSED. 5. WE HAVE HEARD BOTH THE PARTIES . LEARNED REPRESENTATIVES REITERATE THEIR RESPECTIVE STAND AGAINST AND IN SUPPORT OF THE LOWER APPELLATE ORDER TREATING ENTIRE SUM OF SHORT TERM CAPITAL GAIN TO BE ASSESSEE S BUSINESS INCOME. FIRST WE COME TO ASSESSING OFFICER S REASONING THAT PROFITS ARI SING FROM SALE OF SHARES HAVING LESS THAN A MONTH HOLDING PERIOD ARE TO BE TREATED AS BUSINESS INCOME AS PER THIS TRIBUNAL DECISION (SUPRA). IT IS EVIDENT TO US THAT YET ANOTHER CO - ORDINATE BENCH IN CASE OF SMRUTI SHREYANS SHAH - ITA NO .3295/AHD/2010 HAS ALREADY EXPRESSED DISAGREEMENT WITH THE EARLIER TRIBUNAL S DECISION. THE ASSESSING OFFICER S VIEW IS HELD AS TO BE NOT SUSTAINABLE IN THIS FACTUAL AND LEGAL BACKDROP. WE COME TO THE CIT(A) S ORDER TO NOTICE THAT HE HAS ENHANCED ASSESSING I TA NO . 2810 / AHD/20 1 1 A.Y. 200 8 - 09 PAGE 6 OF 6 OFFICER S ACTION IN TREATING SHORT TERM CAPITAL GAIN AS BUSINESS INCOME FROM RS.29,07,962 TO RS. 40,26,576/ - (SUPRA). WE DO NOT FIND ANY SUCH ENHANCE NOTICE UNDER SECTION 251(2) OF THE ACT TO HAVE BEEN ISSUED TO THE ASSESSEE AT THE INSTANCE OF THE LOWER APPELLATE AUTHORITY. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO REBUT THIS FACTUAL POSITION. WE OBSERVE IN THESE PECULIAR FACTS AND CIRCUMSTANCES THAT THIS ISSUE REQUIRED TO BE EXAMINED AFRESH BY THE ASSESSING OFFICER AS PER LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO T HE ASSESSEE. ORDERED ACCORDINGLY. THE ASSESSEE S SOLE SUBSTANTIVE GROUND IS ACCEPTED FOR STATISTICAL PURPOSES. 6. THIS ASSESSEE S APPEAL SUCCEEDS FOR STATISTICAL PURPOSES. P RONOUNCED IN THE OPEN COURT TODAY ON THE 23 RD DAY OF AUGUST 2016. SD/ - SD/ - MANISH BORAD S.S. GODARA (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 23 RD DAY OF AUGUST , 2016 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRES ENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD