DHAIRESH K SANGHVI, MUMBAI V. DCIT 12(3), MUMBAI

ITA 2933/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3053 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMCHANDRAN
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 2933 / MUM/20 1 3 ( / ASSESSMENT YEA R : 20 0 8 - 09 ) SHRI D HAIRESH K SANGVI, 3 RD FLOOR, UNION CO - OP.INS E BUILDING, P M ROAD, FORT, MUMBAI - 400001 / VS. THE DY . COMMISSIONER OF INCOME TAX, 12(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAF PS2488B / APPELLANT BY SHRI PARESH SHAPARIA / R ESPONDENT BY SHRI A RAMCHANDRA N / DATE OF HEARING : 14 .9 . 201 5 / DATE OF PRONOUNCEMENT: 16. 10. 201 5 / O R D E R P ER B R BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 4.2. 201 3 PASSED BY THE LD.CIT(A) - 24, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 200 8 - 09 . 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN ASSESSING THE SHORT TERM CAPITAL GAINS (STCG) OF RS.1.13 CRORES ARISING ON SALE OF SHARES AS BUSINESS INCOME OF THE ASSESSEE . 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING , IMPO RT AND EXPORT OF CHEMICALS AND ALSO EARNED INDENTING COMMISSION FROM FOREIGN ITA NO. 2933 /MUM/201 3 2 SUPPLIERS. THE ASSESSEE ALSO EARNED CAPITAL GAINS ON PURCHASE AND SALE OF SHARES . IN THE RETURN OF INCOME FILED, THE ASSESSEE DECLARED STCG ARISING ON SALE OF SHARES OF RS.1.13 CRORES AND LONG TERM CAPITAL GAINS (LTCG) ARISING ON SALE OF SHARES OF RS.1.70 CRORES . THOUGH THE AO OBSERVED THAT THE ASSESSEE IS CARRYING ON PURCHASE AND SALE OF SHARES AS A TRADING ACTIVITY, YET HE ACCEPTED THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE . HOWEVER, THE AO TOOK THE VIEW THAT THE INCOME FROM STCG IS TO BE TREATED AS INCOME FROM BUSINESS . THE AO NOTICED THAT THE DETAILS OF STCG FURNISHED BY THE ASSESSEE CONSISTED OF 250 ENTRIES SPREAD OVER IN 8 PAGES, MEANING THEREBY , THE ASSESSEE WAS TRADING IN SHARES FREQUENTLY ON DAY - TO - DAY BASIS AND SHARE S HAVE BEEN HELD FOR VERY SHORT PERIOD. THE AO ALSO NOTICED THAT THE ASSESSEE HAS BORROWED FUNDS FROM DIFFERENT PARTIES. ACCORDINGLY, HE ASSE SSED STCG OF RS.1.13 CRORES AS INCOME FROM BUSINESS . THE LD. CIT(A) ALSO CONFIRM ED THE ORDER OF THE AO. AGGRIEVED, THE ASSESSEE HAS F LED THIS APPEAL BEFORE US. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE IS HAVING OTHER BUSINESS ACTIVITIES ALSO AND HENCE DEALING IN SHARES CANNOT BE CONSIDERED AS THE BUSINESS OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.46.25 LAKHS AND FURTHER HE HAS NOT BORROWED ANY FUNDS FOR THE PURPOSE OF INVESTMENT IN SHARES. HE SUBMITTED THAT THE ASSESSEE HAS GOT SUFFICIENT CAPITAL BAL ANCE MORE THAN THE INVESTMENTS MADE IN THE SHAERS. HE FURTHER SUBMITTED THAT THE CAPITAL GAINS ARISING ON SALE OF SHARES HAVE BEEN ACCEPTED BY THE DEPARTMENT FOR THE PAST SEVERAL YEARS. HE ALSO SUBMITTED THAT THE THERE IS HIGH VOLUME OF TRANSACTIONS ONLY IN RESPECT OF FEW SHARES ONLY AND THE SAID TRANSACTIONS ARE ALSO VERY FEW. ACCORDINGLY HE SUBMITTED THAT THE CONSISTENCY IN THE TREATMENT OF THE GAINS ARISING ON SALE OF SHARES SHOULD BE MAINTAINED AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (228 CTR 582). ITA NO. 2933 /MUM/201 3 3 HE FURTHER SUBMITTED THAT THE ASSESSEE HAD DECLARED THE SHARES AS HIS INVESTMENT IN THE IMMEDIATELY PRECEDING YEAR, I.E., ON 31.3.2007 AND THE AO HAS ALSO ACCEPTED THE SAME. HENCE THE GAINS ARISING ON SALE OF SUCH SHARES SHOUL D BE ASSESSED AS CAPITAL GAINS ONLY. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS BEEN PURCHASING AND SELLING SHARES CONTINUOUSLY AND HENCE THE VOLUME AND FREQUENCY OF TRANSACTIONS WERE VERY HIGH. HE FURTHER SUBMITTED THAT THE PERIOD OF HOLDING WAS AS LOW AS ZERO DAYS AND THE AVERAGE PERIOD OF HOLDING WAS LESS THAN 16 DAYS. THE ANALYSIS OF THE TRANSACTIONS OF THE ASSESSEE SHOWS THAT THE ASSESSEE HAS SOLD 40% OF THE SHARES WITHIN 30 DAYS OF PURCHASES. THE LD D.R FURTHER SUBMITTED THA T THE ACTIVITY OF THE ASSESSEE SHOULD BE EXAMINED EVERY YEAR. HE FURTHER SUBMITTED THAT THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT SHALL NOT APPLY, SINCE THE PARITY OF FACTS HAS NOT BEEN ESTABLISHED BY THE ASSESSEE . THE LD D.R PLACED HIS RELIANCE ON THE FOLLOWING CASE LAW: - (A) JAYASHREE PRADEEP SHAH (131 ITD 326) (B) KARAMCHAND THAPAR (176 ITR 535)(SC) (C) NEW ERA AGENCY (68 ITR 585)(SC) 6. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE DISPUTE IS WIT H REGARD TO THE NATURE OF RECEIPT OF PROFIT ARISING ON SALE OF SHARES. THE ASSESSEE CLAIMS THE SAME TO BE CAPITAL GAIN, WHEREAS THE AO HAS ASSESSED THE SAME AS BUSINESS INCOME OF THE ASSESSEE. IT IS WELL SETTLED THAT THE TRUE NATURE OF THE TRANSACTIONS H AS TO BE DETERMINED BY CONSIDERING VARIOUS FACTORS. IN THIS REGARD, THE HONBLE COURTS AS WELL AS THE CBDT HAS PRESCRIBED VARIOUS CRITERIA ON THE BASIS OF WHICH THE TRUE NATURE OF TRANSACTIONS COULD BE ASCERTAINED. HENCE, THE NATURE OF TRANSACTIONS ITA NO. 2933 /MUM/201 3 4 WOULD BE DEPENDENT UPON THE FACTS PREVAILING IN EACH CASE. THOUGH THE PRACTICE ADOPTED IN THE PAST YEARS MAY BE A GUIDING FACTOR IN DETERMINING THE TRUE NATURE OF TRANSACTIONS, YET IT IS NOT NECESSARY THAT THE NATURE OF TRANSACTIONS SHALL ALWAYS REMAIN CONSTAN T. ONE OF THE MOST IMPORTANT CRITERIA IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES. IF THE ASSESSEE HAD PURCHASED THE SHARES AS A DEALER, THEN THE PROFIT SHOULD BE ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. ON THE CONTRARY, IF THE INTENTION WAS TO HOLD THE SHARES AS INVESTMENT, THEN THE PROFIT SHALL BE ASSESSED AS CAPITAL GAINS. THE INTENTION OF THE ASSESSEE SHOULD BE ASCERTAINED BY HIS CONDUCT AND OTHER CRITERIA PRESCRIBED BY THE COURTS AND CBDT. 7. WE NOTICE FROM THE BALAN CE SHEET FILED BY THE ASSESSEE THAT HE IS POSSESSING CAPITAL BALANCE OF RS.23.79 CRORES AND HIS INVESTMENT IN SHARES AND MUTUAL FUNDS STAND AT RS.13.65 CRORES. THE BALANCE SHEET DOES NOT SHOW ANY BORROWINGS. WE FURTHER NOTICE THAT THE ASSESSEE IS RUNNING A PROPRIETARY CONCERN IN THE NAME M/S KANTILAL SANGHVI & CO AND IT HAD A TURNOVER OF RS.12.29 CRORES AND ALSO DECLARED NET PROFIT OF RS.1.83 CRORES. HENCE, IT IS SEEN THAT THE ASSESSEE IS HAVING OTHER BUSINESS ACTIVITIES ALSO. DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE HAS DEALT IN 68 SCRIPTS. BUT THE REPETITIVE TRANSACTIONS ARE FEW IN NUMBERS. THE PERIOD OF HOLDING WAS LESS THAN 30 DAYS IN RESPECT OF 49 SCRIPTS AND THE SAME MAY ACTUALLY GO AGAINST THE CLAIM OF THE ASSESSEE. HOWEVER, WE NOTICE THAT THE ASSESSEES CLAIM OF LONG TERM CAPITAL GAINS HAS BEEN ACCEPTED BY THE AO. HENCE, IN OUR VIEW, THE LOW PERIOD OF HOLDING IN RESPECT OF CERTAIN SCRIPTS MAY NOT BE CONSIDERED TO BE THE SOLE DETERMINING FACTOR. THE ASSESSEE HA S FURNISHED DETAILS OF T HE DAYS SPENT BY THE ASSESSEE ON STOCK MARKET AT PAGE 23 OF THE PAPER BOOK. A PERUSAL OF THE SAME WOULD SHOW THAT THE ITA NO. 2933 /MUM/201 3 5 ASSESSEE HAS SPENT ON AN AVERAGE ONLY 6 DAYS IN A MONTH ON SHARE TRADING ACTIVITY. THE ASSESSEE HAS ALSO EARNED DIVIDEND INCOME OF RS.46 .25 LAKHS. 8. ALL THE FACTORS DISCUSSED ABOVE, IN OUR VIEW, SHOWS THAT THE INTENTION OF THE ASSESSEE WAS MAINLY TO ACT AS INVESTOR ONLY. ACCORDINGLY, WE ARE OF THE VIEW THAT THE GAINS ARISING ON SALE OF SHARES SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS ONLY. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO ASSESS THE PROFITS ARISING ON SALE OF SHARES AS CAPITAL GAINS ONLY. 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 16TH OCT , 2015. 16TH OCT , 2015 SD SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 16TH OCT , 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APP ELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TR UE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI