ACIT, New Delhi V. Sh. Pawan Katyal, New Delhi

ITA 286/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61670 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 09-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 17-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `F : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.286/DEL /2011 (ASSESSMENT YEAR : 2007-08) ACIT, CIRCLE 31(1), VS. SHRI PAWAN KATYAL, NEW DELHI. P/O RAJDA CHEMICALS, 904, ANSAL BHAWAN, K.G. MARG, NEW DELHI. (PAN/GIR NO.AAGPK4009Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : DR. B.R.R. KUMAR , SR.DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)- XXVI, NEW DELHI, DATED 27.10.2010, RELEVANT TO ASSE SSMENT YEAR 2007-08, WHEREBY ACTION OF THE CIT(A) IN NOT TREATING RS.35,73,530/- OF SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS INCOME HAS BEEN CHALLENGED. 2. FACTS INDICATE THAT THE ASSESSEE IS A PARTNER IN THE FIRM M/S RAZDA CHEMICALS. IN ADDITION TO SHARE OF PROFITS FORM THE PARTNERSHIP C ONCERN, HE HAS SHOWN INCOME FROM HOUSE PROPERTY, DIVIDEND AND INTEREST INCOME, AND A LSO LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS ON SALE OF SHARES. WHILE THE AS SESSEES LONG TERM CAPITAL GAINS OF RS.1422842 ON SALE OF SHARES HAS BEEN ACCEPTED BY T HE ASSESSING OFFICER, THE SHORT TERM CAPITAL GAINS OF RS.3573530 HAS BEEN CONSIDERED AS INCOME FROM BUSINESS ACTIVITY. I.T.A. NO.286/DEL./2011 (A.Y. : 2007-08) 2 3. ASSESSEE IN THIS CASE HAS PURCHASED SHARES WORTH RS.7.8 CRORES AND SOLD SHARES OF RS.8 CRORES AFTER HOLDING FOR A PERIOD OF LESS THAN 12 MONTHS. AFTER REDUCING THE INTEREST EXPENDITURE OF RS.1,23,859/-, THE ASSESSEE HAS WORK ED OUT SHORT TERM CAPITAL GAIN OF RS.35,73,530/-, BUT ASSESSING OFFICER WAS OF THE OP INION THAT TRANSACTIONS ARE IN THE NATURE OF BUSINESS ACTIVITY AND FOR ARRIVING AT THI S CONCLUSION, ASSESSING OFFICER HAS GIVEN FOLLOWING REASONS: I) THAT THE ASSESSEE HAS TRADED IN VARIOUS SHARES O N A REGULAR BASIS THROUGHOUT THE PERIOD. II) THE MAJOR PORTION OF HIS INCOME IS FROM THIS AC TIVITY AS DECLARED INCOME IS RS.3760114 ONLY OUT OF WHICH PROFIT ON SA LE OF SHARES IS RS.35,73,530/-. III) ON APPLYING THE GUIDING PRINCIPLES AS LAID DOW N IN CBDT INSTRUCTION NO.1827 DATED 31.8.09 AND NO.4/07 THE ASSESSEES CA SE IS THAT OF A BUSINESS TRADER AND NOT INVESTOR. ON THE YARDSTICK OF MAGNITUDE OF TRANSACTIONS, THE ASSESSING OFFICER OBSERVED THAT T HE ASSESSEE HAS ENGAGED IN LARGER TRANSACTIONS ON A SINGLE DAY, TRA NSACTED IN SEVERAL SCRIPS DURING THE YEAR AND THE PURCHASES WERE OF RS .7.8 CRORES AND SALES OF RS.8 CRORES SUBSTANTIAL AMOUNTS. IV) HE FURTHER OBSERVED THAT THE TURNOVER WAS FREQU ENT AND IN A NUMBER OF CASES THE SHARES WERE SOLD WITHIN A WEEK, A CHARACT ERISTIC INDICATION OF TRANSACTIONS BEING IN THE NATURE OF BUSINESS. V) FINALLY, HE HELD THAT THE MOTIVE BEHIND THE ACTI VITY WAS NOT SO MUCH TO EARN DIVIDEND BUT OF MAXIMIZING PROFITS A FACT AM PLY PROVED BY DIVIDEND RECEIPTS OF ONLY 231678 AS AGAINST PROFIT OF RS.35,73,530/-. 4. ASSESSEE TOOK UP THE MATTER IN APPEAL AND WHILE DRAWING ATTENTION OF FIRST APPELLATE AUTHORITY TO THE FACT THAT ASSESSEE IS A PARTNER IN M/S RAJINDER CHEMICALS ENGAGED FULLY IN THE BUSINESS OF FIRM WHICH IS A FU LL TIME ACTIVITY OF THE ASSESSEE. HE HAS, AS IN THE PAST, CONTINUED TO INVEST IN SHARES THE P ROFIT ON SHARES SOLD BY HIM AFTER A LOCK IN I.T.A. NO.286/DEL./2011 (A.Y. : 2007-08) 3 PERIOD OF 1 YEAR HAS BEEN OFFERED AS LONG TERM CAPI TAL GAINS AND PROFIT ON THOSE SOLD WITHIN LESS THAN 12 MONTHS HAS BEEN SHOWN AS NET SH ORT TERM CAPITAL GAIN AND FOR THESE TRANSACTIONS, HE HAS ENGAGED THE SERVICES OF THE TW O BROKERS. IT WAS FURTHER SUBMITTED BEFORE FIRST APPELLATE AUTHORITY THAT SHARE HAVE NO T BEEN HELD BY THE ASSESSEE AS STOCK IN TRADE. COPIES OF BALANCE SHEET AS ON 31.03.07 WERE FILED TO SHOW THAT THE SHARES HAVE BEEN VALUED AT COST I.E. PURCHASE PRICE EVEN, IF TH E VALUE OF THE SHARES IS LESS AT THE END OF THE YEAR AS COMPARED TO THE VALUE AT WHICH THEY ARE PURCHASED. IN THE CASE OF BUSINESS, THE SHARES WOULD HAVE BEEN APPEARED IN THE CLOSING STOCK AS STOCK-IN-TRADE AND THEN AS PER THE ACCOUNTING STANDARDS, THE STOCK WOULD HAVE BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. THE ASSESSEE HAS VALUED THEM A T COST ONLY WHICH SHOWS THAT HE IS AN INVESTOR. HE FURTHER CONTENDED THAT THE AMOUNT OF INVESTMENT HAS NO RELEVANCE TO DETERMINE WHETHER THE SHARES ARE HELD AS INVESTMENT OR AS STOCK-IN-TRADE. THOUGH, THE VALUE OF THE TRANSACTIONS RUNS INTO FEW CRORES THE TOTAL NUMBER OF TRANSACTIONS ONLY IN 42 SCRIPS. FURTHER, LOOKING AT THE VALUE OF THE INVES TMENTS DONE BY THE ASSESSEE IN SHARES I.E. RS.1.6 CRORES AS ON 32.3.2006, THE VALUE OF SHARES COMES TO SWAPPING OF PORTFOLIO 4-5 TIMES IN A YEAR. MUTUAL FUNDS IN THE MARKET ALLOW 12 FREE SWAPS BY THE INVESTOR IN A YEAR, YET ALL SUCH INVESTMENT IN MUTUAL FUNDS ARE TAXED U NDER CAPITAL GAINS. LD.AR OF THE ASSESSEE SUBMITTED THAT BECAUSE OF STRONG MOVEMENTS /FLUCTUATIONS IN THE STOCK MARKET, THE CAPITAL CAN GET WASHED OFF, IF IT IS NOT TAKEN OUT IN TIME. CONSEQUENTLY, IN ORDER TO ENSURE THAT THE INVESTMENT DOES NOT DETERIORATE IN TERMS O F MONEY IN VIEW OF CHANGING SCENARIOS IN THE MARKET, THE CHANGING OF PORTFOLIO CAN BE FRE QUENT AND AT REGULAR INTERVALS IN CASE OF INVESTMENT IN SHARES ALSO. SO, REPLYING TO VARIOUS OBSERVATIONS OF THE ASSESSING OFFICER AND RELYING UPON BOMBAY HIGH COURT DECISION IN THE CASE OF GOPAL PUROHIT, 228 CTR I.T.A. NO.286/DEL./2011 (A.Y. : 2007-08) 4 582, IT WAS CONTENDED THAT THERE HAS TO BE UNIFORMI TY IN TREATMENT WHERE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. 5. LD.CIT(A) WHILE CONSIDERING AND ACCEPTING THE PL EA OF THE ASSESSEE AS CONTAINED IN PARAS. 6, 6.2, 6.3, 6.4, 6.5, 6.6 & 6.7 HAS CONC LUDED AS PER PARA. 7 OF HIS ORDER WHILE TAKING SUPPORT FROM THE FOLLOWING JUDGMENTS: 1) CIT VS. ESSJAY ENTERPRISES PRIVATE LTD., 173 TAX MAN 1 (DELHI HIGH COURT) 2) ITO VS. ROHIT ANAND 34 SOT PAGE 42 (DEL.) ITAT. 6. AGGRIEVED BY THE ORDER OF CIT(A), DEPARTMENT HAS COME UP IN APPEAL AND WHILE RELYING UPON THE ASSESSING OFFICERS ORDER, IT WAS PLEADED FOR SETTING ASIDE THE ORDER OF CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER BECAUSE ASSESSING OFFICER HAS GIVEN VALID REASON NOT TO ACCEPT THE PLEA OF THE ASSESSEE . THEREFORE, ORDER OF THE CIT(A) NEEDS TO BE REVERSED WHICH SHOULD BE REVERSED. 7. DESPITE SENDING NOTICE OF HEARING SUFFICIENTLY I N ADVANCE, ASSESSEE DID NOT APPEAR. THEREFORE, WE PROCEED TO DECIDE THIS CASE EX-PARTE QUA-THE-ASSESSEE AFTER CONSIDERING THE ARGUMENTS OF THE LD.DR, WHO HAS MAINLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 8. AFTER HEARING LD.DR AND CONSIDERING THE MATERIAL ON RECORD, WE FIND THAT CIT(A) HAS GIVEN CONVINCING REASONS IN THE LIGHT OF DOCUME NTARY EVIDENCE FURNISHED BY THE ASSESSEE BEFORE ASSESSING OFFICER AND COPIES PLEADE D IN THE PAPER BOOK FILED BEFORE CIT(A) AND BEFORE THIS BENCH. THE DEPARTMENT HAS N OT BEEN ABLE TO EITHER PLACE ANY CONTRARY MATERIAL OR BEEN ABLE TO POINT OUT ANY INF IRMITY OR FLAW IN THE ORDER OF CIT(A). SINCE JUST AND APPROPRIATE VIEW HAS BEEN TAKEN BY T HE CIT(A) IN THE LIGHT OF MATERIAL AVAILABLE ON RECORD, THEREFORE, WE DO NOT FIND ANY APPROPRIATE REASON TO INTERFERE IN THE I.T.A. NO.286/DEL./2011 (A.Y. : 2007-08) 5 ORDER PASSED BY THE CIT(A), WHICH IS UPHELD AND APP EAL OF THE REVENUE BEING DE VOID OF ANY MERIT IS DISMISSED. 9. AS A RESULT, APPEAL OF THE DEPARTMENT GETS DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON 11.05.2012. SD/- SD/- (A.N. PAHUJA) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : MAY 11, 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXVI, NEW DELHI. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT