ACIT CIR 1, THANE V. ASHOK H. RAMCHANDANI, THANE

ITA 2950/MUM/2010

• Counselvise Citation: 295019914 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K MAHAJAN
• Keywords: Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D.K. AGARWAL, ( JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.2950/MUM/2010 ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-1 VARDAAN BLDG. LOWER GROUND FLOOR, WAGLE INDL. ESTATE MIDC, THANE. ..( APPELLANT ) VS. SHRI ASHOK H. RAMCHANDANI SHOP NO.2, VAIDYA MANDIR SOCIETY, OPP. SIDDHARTH TOWER THANE. ..( RESPONDENT ) P.A. NO. (AAPPR 5979 Q) APPELLANT BY : SHRI K.K. MAHAJAN RESPONDENT BY : NONE DATE OF HEARING : 31.10.2011 DATE OF PRONOUNCEMENT : 31 ST OCTOBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 17.12.2009 FOR THE ASSESSMENT YEAR 2006-07. THE ONLY D ISPUTE IS REGARDING NATURE OF INCOME FROM SHARE TRANSACTIONS. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD SHOWN INCOM E FROM BUSINESS WHICH ALSO INCLUDED INCOME OF RS .23,81,483/- AS SHORT ITA NO.2950/M/10 A.Y:06-07 2 TERM CAPITAL GAIN FROM SALE OF SHARES. AO NOTED THAT THERE WERE 9174 TRANSACTIONS IN PURCHASE AND SALE OF SHARES RESULTING INTO SAID INCOME WHICH HAS BEEN SHOWN BY THE ASSESSEE AS CAPITAL GAIN. CONSID ERING THE VOLUME AND FREQUENCY OF TRANSACTIONS AND ALSO THE FA CT THAT THE ASSESSEE HAD TAKEN LOAN FOR THE PURPOSE OF SHARE TRANSACTIO NS AO TREATED THE INCOME FROM SHARE TRANSACTIONS AS BUSINESS INCOM E IN PLACE OF CAPITAL GAIN RETURNED BY THE ASSESSEE. 2.1 IN APPEAL THE CIT(A) OBSERVED THAT THE ASSESSEE HAD MAINTAINED SEPARATE ACCOUNT OF TRANSACTIONS FROM WHICH SHORT TERM CAPI TAL GAIN HAD BEEN SHOWN AND THESE PURCHASES HAD ALSO BEEN ENTERED AS INVESTMENT IN THE BOOKS OF ACCOUNT. IT WAS ALSO OBSERVED BY HIM THAT THE FREQUENCY AND VOLUME IS NOT CONCLUSIVE IN DECIDING TH E TRUE NATURE OF TRANSACTIONS. CIT(A) ALSO HELD THAT THE ASSESSEE HAD M ADE THE TRANSACTIONS OUT OF OWN CAPITAL. HE REFERRED TO THE DECI SION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT (ITA NO.4854/M/2008 DATED 10.2.2009 [20 DTR (MUM.)(TRIB. )99]) IN WHICH THE TRIBUNAL FOLLOWING THE IDENTICAL CASE OF LUCKNOW B ENCH OF THE TRIBUNAL IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD . VS. ASSTT. COMMISSIONER OF INCOME TAX(16 DTR 97) HELD THAT INCOME FROM DELIVERY BASED SHARE TRANSACTIONS HAD BEEN RIGHTLY TREAT ED BY THE ASSESSEE AS CAPITAL GAIN. CIT(A) FOLLOWING THE SAID DECISI ON DIRECTED THE AO TO TREAT THE SHORT TERM CAPITAL GAIN AS BUSINES S INCOME AS ITA NO.2950/M/10 A.Y:06-07 3 DECLARED BY THE ASSESSEE. AGGRIEVED BY THE SAID DECISION REVENUE IS IN APPEAL. 2.2 BEFORE US NO ONE APPEARED ON BEHALF OF THE ASSESSEE TO REPRESENT THE CASE. THE PERUSAL OF RECORD SHOWS THAT ON EARLIER OCCASIONS ON 31.3.2011, THE ASSESSEE HAD ONLY SOUGHT ADJOURN MENT WHICH HAD BEEN ALLOWED. THEREAFTER CASE HAD BEEN AGAIN FIXED, NOTICE FOR WHICH WAS SENT BY RPAD BUT NEITHER SOMEONE APPEARE D NOR ANY ADJOURNMENT APPLICATION HAS BEEN RECEIVED. WE, THERE FORE, PROCEED TO DECIDE THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIVE WHO SUPPO RTED THE ORDER OF THE AO. 3. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE O F INCOME FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSUE WH ETHER THE SHARE TRANSACTIONS IN A PARTICULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY HAS BEEN HIGHLY A DEBATAB LE ISSUE. THERE ARE DECISIONS OF THE TRIBUNAL ON BOTH THE SIDES. EACH CASE WILL DEPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS SUCH AS FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATUR E OF FUNDS USED, HOLDING PERIOD ETC. WHICH ARE RELEVANT IN DECIDIN G THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT ITA NO.2950/M/10 A.Y:06-07 4 FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF P URCHASE WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSE E WHILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON T HE BASIS OF ENTRY IN THE BOOKS OF ACCOUNT OR THE OBJECTS IN THE MEMO RANDUM OF ASSOCIATION. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADANGOPAL RADHE YLAL (73 ITR 642). THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZ ING OF THE HOLDING PERIOD ETC. AN INVESTOR MAKES PURCHASES WITH LON G TERM GOAL OF EARNING INCOME FROM THE INVESTMENT AND HE IS NOT T EMPTED TO SELL THE SHARES ON EVERY RISE AND FALL IN THE MARKET WHICH A RE THE ATTRIBUTES OF A TRADER. SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FORM OF DIVIDEND IS RECEIVED ANNUALLY, NORMALLY AN IN VESTOR IS EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. HOWEVER THER E MAY BE SITUATIONS WHEN THE INVESTOR MAY ALSO SELL THE SHARES AFTE R SHORT HOLDING IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES A RE FALLING OR TO ENCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGENCIES. EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. 3.1 THE CIT(A) RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (29 SOT 171) TO ARGUE THAT INCOME FROM ALL DELIVERY BASED TRANSACTIONS HAS TO BE ASSESSED AS INCOME AS HELD BY T HE TRIBUNAL IN THE SAID CASE. WE HAVE CAREFULLY PERUSED TH E ORDER OF THE ITA NO.2950/M/10 A.Y:06-07 5 TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA), BUT WE FIND THAT THERE IS NO UNIVERSAL FINDING IN THAT CASE THAT ALL DELIVERY BA SED TRANSACTIONS HAVE TO BE TREATED AS INVESTMENT. IT IS PERTINENT TO NOTE THAT THE TRIBUNAL IN CASE OF GOPAL PUROHIT (SUPRA), HAD DECIDE D THE CASE FOLLOWING THE DECISION OF TRIBUNAL IN CASE OF SARNATH I NFRASTRUCTURE PVT. LTD VS. ACIT (2009) 120 TTJ 216 HOLDING THAT FACTS IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD (SUPRA), WERE IDENTIC AL. HOWEVER, IT IS NOTED THAT IN SARNATH INFRASTRUCTURE PVT. LTD (SUPRA) , THE SHARES SOLD OUT OF INVESTMENT ACCOUNT HAD BEEN HELD THAT 2-3 YEARS AND REVENUE COULD NOT SHOW ANY SHARES SOLD WHICH HAD BEEN PURCHASED DUR ING THE YEAR OR IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE , ONLY IN RESPECT OF SUCH CASES, THE DECISION IN CASE OF GOPAL PUROHIT (SUPRA), COULD BE APPLIED. THE HONBLE HIGH COURT OF DELHI HAD UPHELD T HE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA), ON THE GROUND THAT THERE WAS NO SUBSTANTIAL QUESTION OF LAW INVOLVED. EV EN BEFORE HONBLE HIGH COURT THERE WAS NO QUESTION RAISED THAT ALL DELIVERY BASED TRANSACTIONS SHOULD ALWAYS TO BE TREATED AS INVESTMENT ACTI VITY. THUS THE DECISION OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT IN CASE OF GOPAL PUROHIT (SUPRA), CANNOT BE CONSIDERED AS A PRECEDEN T FOR THE PROPOSITION THAT ALL DELIVERY BASED SHARES HAVE TO BE TREATED AS INVESTMENT ACTIVITY. THE ASSESSEE CAN ALSO BE A TRADER IN CASE OF DELIVERY BASED PURCHASES AND SALES, WHICH IS A NORMAL FEAT URE OF ANY ITA NO.2950/M/10 A.Y:06-07 6 TRADING ACTIVITY. THEREFORE, IN OUR VIEW RELIANCE P LACED BY THE CIT(A) ON THE DECISION IN THE CASE OF GOPAL PUROHIT IS MISPLACE D. EACH CASE HAS TO BE DECIDED BASED ON ITS OWN FACTS. THE ORDER OF C IT(A) CAN NOT THEREFORE, BE SUSTAINED. THE VOLUME AND NUMBER OF TRA NSACTIONS ARE QUITE HIGH. EVEN IF NO BORROWED FUNDS WERE USED, THE RE IS NO BAR ON DOING BUSINESS WITH OWN FUNDS. THE ISSUE IN OUR VIEW REQ UIRES DETAILED EXAMINATION OF THE TRANSACTIONS AFTER OBTAINING THE HO LDING PERIOD-WISE DETAILS OF PURCHASE AND SALE OF SHARES. NEITHER THE AO NO R THE CIT(A) HAD MADE DETAILED EXAMINATION OF THE HOLDING PERIOD OF SHARES PURCHASED AND SOLD BY THE ASSESSEE WHICH IS A CRUCIAL FACTOR IN DECIDING THE TRUE NATURE OF TRANSACTIONS. THEREFORE, I N OUR VIEW, THE ISSUE REQUIRES FRESH CONSIDERATION. WE, ACCORDINGLY, SET A SIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO AO FOR PASSING FRESH ORDER FOR NECESSARY EXAMINATION IN THE LIGHT OF THE OB SERVATIONS MADE IN THIS ORDER AND AFTER GIVING OPPORTUNITY OF HEARIN G TO THE ASSESSEE. 4. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31.10.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31.10.2011. JV. ITA NO.2950/M/10 A.Y:06-07 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.