ACIT, New Delhi V. Dr. Sanjeev Mittal, New Delhi

ITA 2853/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74330 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 11-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA
• Assessee Lawyers: VIRENDER CHAUHAN
• Keywords: Business income; Opportunity of being heard; Additional evidence

Judgement Text

ITA NO. 2853/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2853/DEL/2011 A.Y. : 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 37(1), NEW DELHI ROOM NO. 401, N- BLOCK, VIKAS BHAVAN, IP ESTATE, NEW DELHI VS. DR. SANJEEV MITTAL, 436, DDA MIG FLATS, PKT. C-8, SECTOR-8, ROHINI, NEW DELHI (PAN: AAIPM7332D) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) DEPARTMENT BY : SMT. RENUKA JAIN GUPTA, SR. D.R. ASSESSEE BY : SH. VIRENDER CHAUHAN, CA ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS-XXVVIII), N EW DELHI DATED 25.3.2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE ISSUE RAISED BY THE REVENUE IS THAT LD. CIT( A) ERRED IN DELETING THE ADDITION OF RS. 2,77,96,322/- BY HOLDI NG THIS INCOME AS INCOME FROM STCG/LTCG AND NOT AS BUSINESS INCOME. 3. IN THIS CASE AO OBSERVED THAT THE ASSESSEE IS A DOCTOR BY PROFESSION AND HAS BEEN ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF SHARES. THE PROFESSIONAL RECEIPTS OF THE APPELLANT AMOUNT TO MERELY RS.7,49,500/-. UPON INQUIRY ABOUT THE REA SONS OF LOW PROFESSIONAL INCOME, THE APPELLANT EXPLAINED THAT T HE NATURE OF HIS SPECIALIZATION DOES NOT CALL FOR MUCH OF OPD PRACTI CE. THE A.O. HAS ITA NO. 2853/DEL/2011 2 OBSERVED THAT THE APPELLANT DOES NOT HAVE MUCH OF A PRACTICE AND CONSEQUENTLY HE IS ENGAGED IN SHARE TRADING ON A RE GULAR BASIS. THE A.O. HAS OBSERVED THAT DURING THE YEAR, THE ASSESSE E HAD CARRIED ON IN A SYSTEMATIC AND ORGANIZED MANNER, NUMEROUS TRAN SACTIONS OF BUYING AND SALE OF SHARES, WHICH CONSTITUTES HIS BU SINESS ACTIVITIES. THE A.O. HAS REFERRED TO THE CHART CONTAINING THE C APITAL GAIN STATEMENT SUBMITTED BY THE ASSESSEE DURING ASSESSME NT PROCEEDINGS AND HAS OBSERVED THAT THIS CLEARLY INDI CATES THAT THE ASSESSEE CARRIED OUT A LARGE NUMBER OF TRANSACTIONS WITH HUGE VOLUMES AND SOME OF THE TRANSACTIONS ARE COMPLETED IN A VERY SHORT PERIOD. THE A.O. OBSERVED THAT THIS CLEARLY INDICAT ES THAT THE MOTIVE OF THE ASSESSEE WHILE BUYING AND SELLING THESE SHAR ES WAS TO EARN PROFIT. THE A.O. HELD THAT THESE FREQUENT TRANSACTI ONS CARRIED OUT BY THE ASSESSEE ARE IN THE NATURE OF BUSINESS ACTIVITI ES AND NOT CAPITAL INVESTMENT AS CLAIMED BY HIM. ACCORDINGLY, THE PROF ITS ARISING FROM PURCHASE AND SALE OF SHARES WERE TREATED AS PROFIT FROM BUSINESS AND NOT AS CAPITAL GAINS. 3.1 THE A.O. FURTHER OBSERVED THAT LARGE UNSECURED LOANS AND SECURED LOANS AND SUNDRY CREDITORS WERE NOTICED IN THE BALANCE SHEET OF THE ASSESSEE. ON INQUIRY FROM THE ASSESSEE , IT WAS FOUND THAT THE LOANS WERE TAKEN IN THE NAMES OF CLOSE FAM ILY MEMBERS AGAINST EQUITY SHARES PLEDGED WITH THE BANKERS OF T HE ASSESSEE, FOR THE PURPOSES OF MAKING INVESTMENT IN SHARES. THE BA NKER ALSO INFORMED THAT THE PURPOSE FOR WHICH THESE LOANS WER E TAKEN WAS TO INVEST IN THE CAPITAL MARKET. THE A.O. OBSERVED THA T APART FROM HIS MEDICAL PROFESSION, 'THE ASSESSEE CLAIMS TO HAVE INVESTED IN SHARES AND TREATS SHARES AS INVESTMENT IN HIS BOOKS OF ACC OUNT. HOWEVER, THIS ITSELF DOES NOT MANIFEST THE INTENTION OF THE ASSESSEE AS TO WHETHER HE PROPOSED INTO DEALING IN SHARES OR EARN DIVIDEND AND PROFIT OUT OF SUCH INVESTMENT. IT IS FACTUALLY FOUN D THAT TOTAL AMOUNT ITA NO. 2853/DEL/2011 3 INVOLVED, THE ACTUAL INTENTION OF THE ASSESSEE AND THE WAY OF CARRYING ON THE SHARE TRANSACTION ALL CUMULATIVELY TILT THE BALANCE HEAVILY TOWARDS TRADING CHARACTER IN THE CASE OF AS SESSEE. THERE IS NO DOUBT THAT EVEN SINGLE TRANSACTION CAN BE IN THE NATURE OF TRADE BUT THE ASSESSEE HAS NOT DEMONSTRATED CONCLUSIVELY THAT HIS INTENTION WAS TO INVEST IN SHARES AND EARN DIVIDEND AND CAPITAL APPRECIATION'. THE A.O. CONCLUDED THAT 'THE ASSESSE E IS INTO THE BUSINESS OF TRADING IN SHARES / MUTUAL FUNDS AND HE NCE ALL PROFIT/ LOSS ARISING OUT OF SHARE TRANSACTION ARE ASSESSED UNDER THE HEAD 'PROFITS FROM BUSINESS & PROFESSION', THE QUANTUM OF THE SAM E IS RS. 2,77,96,322/- AS IS EVINCED FROM THE SUBMISSION OF THE ASSESSEE'. 4. UPON ASSESSEES APPEAL LD. CIT(A) CONSIDERED THE ELABORATE SUBMISSIONS OF THE ASSESSEE. HE FOUND CONSIDERABL E COGENCY IN THE SUBMISSIONS OF THE ASSESSEE. LD. CIT(A) HELD AS UN DER:- IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE INCOME FROM SHARES IS TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE BUSINESS HEAD. THE APPELLANT HAS CONSISTENT1Y SHOWN THE SHARES AS HIS INVESTMENT AND NOT AS STOCK IN TRADE. THE PROFIT FROM SHARES HAS BEEN CONSISTENT1Y SHOWN AS CAPITAL GAINS AND NOT UNDER T HE BUSINESS HEAD. HIS TREATMENT OF SHARES AS INVESTMEN T, IN EARLIER YEARS HAS BEEN CONSISTENTLY ACCEPTED BY THE DEPARTMENT. THE A.O. HAS NOT BROUGHT ANY NEW MATERI AL ON RECORD TO JUSTIFY A DIFFERENT TREATMENT THIS YEA R AT THE COST OF MAINTAINING CONSISTENCY. THE APPELLANT HAS POINTED OUT THAT THERE IS NO INTRA DAY TRADING OR TRANSACTIONS IN FUTURES & OPTIONS, AND ALL TRANSACT IONS ARE DELIVERY BASED. IT IS SIGNIFICANT THAT MOST OF THE GAIN FROM INVESTMENT IN SHARES CONSISTS OF LONG TERM CAP ITAL GAIN. IN FACT, 71 % OF THE CAPITAL GAIN IS LONG TER M AND ONLY 29% IS SHORT TERM. IN CASE OF LONG TERM CAPITA L GAIN, ABOUT HALF THE LTCG WAS FROM SHARES HELD FOR MORE T HAN 2 YEARS AND 11 % WAS FROM SHARES HELD FOR MORE THAN 3 YEARS. FURTHER, ABOUT 60% OF THE LTCG WAS DUE TO SA LE OF BONUS AND STOCK SPLIT SHARES. REGARDING NUMBER OF TRANSACTIONS, THE APPELLANT HAS POINTED OUT THAT TH E NUMBER OF TRANSACTIONS APPEARS LARGE BECAUSE THE ITA NO. 2853/DEL/2011 4 APPELLANT HAS MADE HIS PURCHASES AND SALES IN A STAGGERED MANNER. HE STATED THAT THIS IS A RECOMMEN DED PRACTICE FOR AVERAGING OUT THE COST AND REDUCING RI SK. THE APPELLANT STATED THAT THE EXCEPTIONAL MARKET VOLATI LITY DURING THIS YEAR NECESSITATED CHURNING OF HIS PORTF OLIO. THE APPELLANT FURTHER STATED THAT THE INVESTMENTS W ERE FINANCED ALMOST ENTIRELY FROM INTERNAL ACCRUALS AND EVEN IF CERTAIN BORROWED FUNDS HAVE BEEN UTILIZED, WHAT IS SIGNIFICANT IS THAT THE INVESTMENT IN SHARES IS OVERWHELMINGLY OUT OF INTERNAL ACCRUAL OF FUNDS. TH E APPELLANT ARGUED THAT PURCHASE OF AN ASSET THROUGH BORROWINGS E.G. A HOUSE, OR CAR, DOES NOT MEAN THAT ONE IS TRADING IN THAT ASSET. BY THE SAME ANALOGY, BORR OWINGS CANNOT ALTER THE CHARACTER OF SHARES BEING INVESTME NT AND NOT STOCK-IN-TRADE. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE ABOVE CLAIMS. 5. LD. CIT(A) FURTHER FOUND THAT CASE LAW RELIED UP ON BY THE AO HAS BEEN RIGHTLY DISTINGUISHED BY THE ASSESSEE. LD . CIT(A) CONCLUDED AS UNDER:- IN VIEW OF THE ABOVE, THE INCOME FROM SHARES IS TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE BUSINESS HEAD. THE APPELLANTS CLAIM OF LTCG BEING EXEMPT U/S. 10(38) AND STCG BEING TAXABLE AT A LOWE R RATE U/S. 111A IS JUSTIFIED. CONSIDERING THE FACTS , THE ADDITION OF RS. 2,77,96,322/- TOWARDS INCOME FROM BUSINESS IS NOT LEGALLY TENABLE AND IS DELETED. THE GROUND IS ALLOWED. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. 8. WE FIND THAT ONE OF THE BASIS ON WHICH LD. CIT( A) HAS DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE IS THAT IN THE P RECEDING ASSESSMENT YEARS, DEPARTMENT HAS ACCEPTED THE ASSES SEES RETURN WHEREIN THE INCOME WERE HELD AS INCOME FROM STCG/ LTCG AND NOT AS BUSINESS INCOME. IN THIS REGARD, WE NOTE THAT R ES JUDICATA DOES NOT APPLY TO THE INCOME TAX CASES. IT HAS BEEN HELD BY THE HIGHER COURTS THAT THERE IS NO REASON THAT IF THERE IS AN ERROR, THE SAME ITA NO. 2853/DEL/2011 5 SHOULD BE PERPETUATED ON THE GROUND OF CONSISTENCY. MOREOVER, AO HAS MADE AN ELABORATE CASE AND HE NOTED THAT LIST O F SHARES AND THE GAINS EARNED BY THE ASSESSEE RUN INTO 20 PAGES. IN THESE CIRCUMSTANCES, JUST BECAUSE IN THE EARLIER YEARS, T HE ISSUE WAS DECIDED IN FAVOR OF THE ASSESSEE, IT CANNOT BE HELD THAT DEPARTMENT HAS NO CASE IN THIS YEAR. 8.1 AS REGARDS THE MERITS OF THE CASE, WE FIND THAT BEFORE THE LD. CIT(A), ASSESSEE HAS MADE ELABORATE SUBMISSIONS RUN NING FROM PAGES 4 OF THE LD. CIT(A)S ORDER TO PAGES 36 OUT O F THE TOTAL 44 PAGES CIT(A)S ORDER. IN THESE SUBMISSIONS, THERE A RE VARIOUS CHARTS ALSO SUBMITTED. IN THIS REGARD, WE NOTE THAT FROM THE READING OF THE AOS ORDER AND THE APPELLATE ORDER, IT IS NOT CLEAR WHETHER THE DETAILED SUBMISSIONS AND CHARTS PRODUCED BEFORE THE LD. CIT(A) WERE ALSO SUBMITTED BEFORE THE AO. IN THIS REGARD, LD. CIT(A) HIMSELF HAS DOUBTED IN PARA 2.10 OF HIS ORDER. LD. CIT(A) HAS NOTED THAT ASSESSEE WAS ASKED TO CLARIFY WHETHER ANY ADDITIONA L EVIDENCE HAS BEEN FILED DURING APPELLATE PROCEEDINGS. LD. CIT(A ) ACCEPTED THE ASSESSEES SUBMISSIONS THAT NO ADDITIONAL EVIDENCE WERE FILED. THUS LD. CIT(A) WITHOUT VERIFYING FROM THE AO, HAS ACCEP TED THAT NO ADDITIONAL EVIDENCE WERE FURNISHED DURING THE APPEL LATE PROCEEDINGS. IN OUR CONSIDERED OPINION ON THE FACT S AND CIRCUMSTANCES OF THE CASE, AO SHOULD HAVE BEEN GIV EN AN OPPORTUNITY TO GO THROUGH THE SUBMISSIONS BEFORE TH E LD. CIT(A) AND GIVEN A REPORT. 8.2 AS REGARDS, THE MERITS OF THE CASE, WE NOTE THA T LD. CIT(A) HAS PRODUCED THE ASSESSEES SUBMISSION IN HIS WHOLE ORD ER AND THEN IN FEW PAGES HE HAS NOTED DOWN BRIEFLY THE ASSESSEES SUBMISSION IN HIS OWN ORDER. THEREAFTER, LD. CIT(A) HAS ALLOWED ASSESSEES APPEAL. LD. CIT(A) HAS NOT GIVEN ANY FINDING HIMSELF ON THE SUBMISSIONS OF THE ASSESSEE. IN THESE CIRCUMSTANCES, THE LD. CIT( A)S ORDER CANNOT ITA NO. 2853/DEL/2011 6 BE SAID TO BE A SPEAKING ORDER SHOWING PROPER APPLI CATION. IN OUR CONSIDERED OPINION, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, INTEREST OF JUSTICE WILL BE SERVED IF THE MATTER IS REMITTED TO THE FILE OF THE AO. THE AO IS DIRECTED TO CONSIDER THE ISSU E AFRESH. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14/3/2014. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 14/3/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1.APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5 . DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 2853/DEL/2011 7