JT CIT 16(3), MUMBAI V. SHIRISH POONGALIA, MUMBAI

ITA 3072/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0374 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 15-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR SINGH
• Keywords: Capital asset; Business income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 2340 / MUM/20 1 2 ( ASSESSMENT YEAR : 2008 - 09 ) SHRI SHIRISH POONGLIA C/O. KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR 192, DR. D.N.ROAD M UMBAI 400 001 VS. THE JT. CIT RG 16(3), MUMBAI PAN/GIR NO. ADHPP2310C APPELLANT ) .. RESPONDENT ) ITA NO. 3072/ MUM/20 12 ( ASSESSMENT YEAR : 2008 - 09 THE JT. CIT RG 16(3), MUMBAI - 400007 VS. SHRI SHIRISH POONGLIA C/O. KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR 192, DR. D.N.ROAD MUMBAI 400 001 PAN/GIR NO. ADHPP2310C APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI VIJAY MEHTA REVENUE BY SHRI PRADEEP KUMAR SINGH DATE OF HEARING 19 / 05 /201 7 DATE OF PRONOUNCEME NT 20 / 06 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) 27, MUMBAI DATED 24/02/2012 FOR THE A.Y.2008 - 09 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE FOLLOWING GR OUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 2 1. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ERRED IN UPHOLDING THAT THE SHORT TERM CAPITAL GAIN OF RS. 1 ,45,52,997/ - IS TAXABLE UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS'. UNDER THE FACTS AND CIRCUMSTANCES OF TH E MATTER, HE OUGHT TO HAVE HELD THAT THE SAID SUM OF RS. 1 ,45,52,997/ - SHOULD BE ASSESSED UNDER THE HEAD 'SHORT TERM CAPITAL GAIN'. 2. ON FACTS AND IN LAW, THE LEARNED CI T(A) HAD ERRED IN UPHOLDING THE DISALLOWANCE OF RS.5,82,93 1/ - U /S.14A. UNDER THE FACT S AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE HELD THAT A SUM OF RS.27,935/ - SHOULD BE CONSIDERED AS DISALLOWABLE U/S.14A AND THE EXCESS DISALLOWANCE OF RS.5,44,996/ - OUGHT TO HAVE BEEN DELETED. 3. THE GROUNDS TAKEN BY REVENUE ARE AS UNDER: - 1. ON T HE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE TRANSACTION OF PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY 4. RIVA L CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 5. FACTS IN BRIEF ARE THAT ASSESSEE IS AN INDIVIDUAL HAVING BUSINESS INCOME BY TRADING IN DERIVATIVES/SPECULATION AND CAPITAL GAINS INCOME ON SALE OF SHARES. AO IN HIS ASSESSMENT ORDER U/S 143(3) OF THE ACT TREATED THE SHORT CAPITAL GAINS OF RS.7,43,94,045/ - AS ASSESSEES BUSINESS INCOME AND FURTHER DISALLOWED AN AMOUNT OF RS.5,82,931/ - U/S 14A OF THE ACT. 6. BY THE IMPUGNED ORDER, CIT(A) TREATED SHORT TERM CAPITAL GAIN OF RS.1, 45,52,997 / - AS PROFIT AND GAI NS OF BUSINESS. THUS, THE BALANCE AMOUNT OF RS.5.98 CRORES WAS ACCEPTED BY CIT(A) AS INCOME FROM CAPITAL GAINS. HOWEVER, THE CIT(A) HAS UPHELD THE DISALLOWANCE OF RS.5,82,931/ - U/S.14A. 7. PRECISE OBSERVATION OF CIT(A) FOR ACCEPTING CAPITAL GAIN OF RS.5.98 CRORES AND TREATING THE BALANCE OF RS.1.45 CRORES AS BUSINESS INCOME WAS ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 3 AS UNDER: - 8 . I HAVE CAREFULLY CONSIDERED THE CONTENTS OF THE ASSESSMENT ORDER AND THE APPELLANTS SUBMISSIONS. FROM THE PAPER BOOK AND OTHER SUBMISSIONS FILED BEFORE ME BY THE APPEL LANT FROM TIME TO TIME AND FROM THE ANALYSIS OF THE DATA PRESENTED ABOVE, IN MY CONSIDERED OPINION, THE FOLLOWING FACTS EMERGE. 8.1 APPELLANT IS A PARTNER IN EIGHT DIFFERENT PARTNERSHIP FIRMS AND SHARE TRADING IS NOT THE SOLE ACTIVITY OF THE APPELLANT. APPAREN TLY, AO WAS INFLUENCED BY THE FACT THAT THE APPELLANT IS ALSO TRADING IN DERIVATIVES TO CONCLUDE THAT HE IS KNOWLEDGEABLE IN STOCK MARKET OPERATIONS IN DEPTH AND ALL THE ACTIVITIES CARRIED ON BY HIM ARE IN THE NATURE OF BUSINESS. IT IS NOT OUT OF PLACE TO MENTION THAT LAW ALLOWS THE APPELLANT TO CARRY OUT THE DUAL ACTIVITIES OF BUSINESS AS WELL AS AN INVESTOR AND THEREFORE WHAT NEED TO BE SEEN IS THE MANNER IN WHICH THE INVESTMENT ACTIVITIES ARE CARRIED OUT, AND THE MERE FACT THAT APPELLANT DEALS IN DERIVAT IVES, CANNOT BE HELD AGAINST HIM. HONBLE ITAT IN THE CASES OF J.M. SHARES & STOCK BROKERS V. DCIT (2007) AND DCIT VS. SMK SHARES & STOCK BROKING (2010) W HERE THE ASSESSEE WAS A STOCK BROKER BUT IT WAS CONSISTENTLY FOLLOWING THE PRACTICE OF HOLDING SOME SH ARES AS STOCK IN TRADE AND OTHER SHARES AS INVESTMENTS AND THE QUESTION AROSE WHETHER THE PROFITS ON THE SALE OF SHARES HELD AS INVESTMENTS CONSTITUTED A CAPITAL GAIN OR BUSINESS PROFITS, HELD THAT: (I) THE ASSESSEE HAD BEEN CONSISTENT IN ITS PRACTICE OF T REATING SOME SHARES AS STOCK AND OTHERS AS A CAPITAL ASSET. WHILE THE SHARES HELD AS CAPITAL ASSET WERE VALUED AT COST IN THE ACCOUNTS, THE SHARES HELD AS STOCK - IN - TRADE WERE VALUED AT THE LOWER OF COST OR MARKET VALUE; (II) THERE IS NO BAR ON A STOCK BROKER HO LDING SHARES AS AN INVESTMENT. THE MERE FACT THAT THE ASSESSEE IS AN EXPERT IN SHARE TRADING DOES NOT MEAN THAT HE CANNOT HOLD SHARES AS A CAPITAL ASSET. THE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF THE TRANSACTION. IT IS NO MORE RES INTE GRA THAT A PERSON CAN BE BOTH INVESTOR AS WELL AS TRADER IN SHARES . (DRAFT INSTRUCTION NO. 2005, INSTRUCTION NO. 1827 D ATED 31.8.1989 & CI R CUL AR NO. 4/2007 DATED 15.6.2007 REFERRED). THE ASSESSEE HAS TO MAINTAIN THE DISTINCTION BETWEEN SHARES HELD AS S TOCK AND THOSE HELD AS INVESTMENTS IN ITS RECORDS; 8.2 THE APPELLANT HAS BEEN AN INVESTOR IN SHARES ALL ALONG. OVER THE YEARS HE HAS CONSISTENTLY TREATED THE ENTIRE INVESTMENT IN SHARES AS AN INVESTMENT AND NOT AS STOCK - IN - TRADE. THE INCOME FROM TRANSFER O F SHARES WAS ALWAYS OFFERED TO TAX AS CAPITAL GAIN AND THE PROFIT FROM DERIVATIVES/SPECULATION IN SHARES WAS SHOWN AS BUSINESS INCOME. SHARES HELD AS INVESTMENTS WERE VALUED AT COST AND NO MARK TO MARKET LOSS WAS PROVIDED FOR. THE PORTFOLIO HELD BY THE APP ELLANT OVER THE YEARS WHEN CONSIDERED IN THE LIGHT OF NO. OF SCRIPS HELD/PURCHASED/SOLD AND THE CORRESPONDING NO. OF TRANSACTIONS, THE VALUE OF CLOSING INVESTMENTS AS % OF VALUE OF OPENING INVESTMENTS PLUS PURCHASES DURING THE YEAR AND THE FACT OF RECEIVIN G DIVIDEND OVER THE YEARS WOULD UNDOUBTEDLY ESTABLISH THE APPELLANT AS AN INVESTOR. IT IS WORTHWHILE TO NOTE THAT EVEN IN THE SUBSEQUENT YEARS DESPITE REGISTERING LOSSES FROM ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 4 SALE OF SHARES, THE APPELLANT HAS CONSISTENTLY FOLLOWED THE PRACTICE OF TREATING THEM AS CAPITAL GAINS. 8.3 COMING TO THE YEAR UNDER CONSIDERATION, AT THE OUTSET, THE A.O. HAS A PPARENTLY ARRIVED AT THE CONCLUSION OF HIGH VOLUME AND FREQUENCY OF TRANSACTIONS WITHOUT GOING INTO THE DETAILS. AS NOTED FROM THE DATA PRESENTED IN THE ABOVE TABLE NO.1, DURING THE YEAR APPELLANT HAS PURCHASED 100 SCRIPS AND SOLD 111 SCRIPS INVOLVING 378 TRANSACTIONS. APPELLANT HAS CLARIFIED THAT THE AO HAS CONSIDERED THE SPLIT TRANSACTIONS OF SINGLE ORDER OF PURCHASE/SALE AS D IFFERENT TRANSACTIONS, THUS COMING TO T HE CONCLUSION OF 600 TRANSACTIONS DURING THE YEAR. BY NO STRETCH OF IMAGINATION, DEALING IN 211 SCRIPS, INVOLVING 378 TRANSACTIONS FOR THE ENTIRE YEAR CAN BE CONSIDERED AS HIGH VOLUME WHEN VIEWED IN THE BACKGROUND OF THE DAILY TRANSACTIONS CARRIED OUT IN B SE/NSE. 8.4. AS CAN BE SEEN FROM THE DATA AT ABOVE TABLE NO.3, TRANSACTIONS WERE NOT ENTERED INTO CONTINUOUSLY AND REGULARLY THROUGHOUT THE YEAR. THE APPELLANT HAS REPORTED 378 TRANSACTIONS ON 225 WORKING DAYS WHICH GOES TO SHOW THAT AVERAGE NUMBER OF TRAN SACTIONS ARE LESS THAN TWO PER DAY. THIS CLEARLY HIGHLIGHTS THAT THE TRANSACTIONS WERE NOT ENTERED INTO FREQUENTLY, CONTINUOUSLY AND REGULARLY BY THE APPELLANT. 8.5 AS CAN BE NOTED FROM TABLE NO.2 APPELLANT HAS EARNED 27% OF THE TOTAL SHORT TERM CAPITAL GA INS WITH A HOLDING PERIOD MORE THAN 9 MONTHS AND 91% OF CAPITAL GAINS WITH A HOLDING PERIOD BETWEEN THREE TO TWELVE MONTHS. IT WAS HARDLY 2.66% OF THE OVERALL CAPITAL GAIN FOR THE APPELLANT HAS ACCRUED FROM STOCKS WHERE THE WEIGHTED AVERAGE HOLDING DURATIO N FOR SCRIPTS WAS UP TO 1 MONTH. INSTEAD OF ANALYZING THE GAINS EARNED DURING THE YEAR, AO HAS MADE AN ATTEMPT TO ANALYZE THE HOLDING PERIOD VIS - A - VIS NUMBER OF TRANSACTIONS/ NO.OF SHARES SOLD/SALE VALUE. EVEN THIS EXERCISE BY THE AO SHOWS THE MAJORITY OF TRANSACTIONS AND OTHER INDICES WITH A HOLDING PERIOD OF MORE THAN TWO MONTHS. 8.6 HOWEVER, HAVING REGARD THE THE KEY PRINCIPLE LAID DOWN IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. VS ASSTT. CIT 120 TTJ 216 (LUCK.) THAT HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE THE APPELLANT WAS ASKED DURING THE APPEAL PROCEEDINGS TO FURNISH THE DETAILS OF SCRIPS IN WHICH REPETITIVE TRANSACTIONS/CHURNING WAS CARRIED OUT THAT THE APPELLANT REENTERED IN THE SHARES WHICH WERE ONCE SOLD. AR H AS FURNISHED SUCH DETAILS AS SHOWN AT TABLE NO.4 ABOVE. WHEN ANALYSED SCRIP WISE, NUMBER OF TRANSACTIONS CONDUCTED IN THESE SCRIPS ARE HIGH COMPARED TO OTHER SCRIPS, AND THE TIME GAP BETWEEN THE SALE & REPURCHASE AND THE SUBSEQUENT SALE IS ALSO VERY SHORT THAT THE FREQUENCY IS ALSO HIGH. FURTHER APPELLANTS DECISION TO INVOLVE IN THESE TRANSACTIONS APPEARS TO BE DOMINATED BY TAKING ADVANTAGE OF THE MARKET THAN RESHUFFLING THE PORTFOLIO AS EVIDENCED BY THE FACT THAT INITIAL GAINS IN THESE SCRIPS WERE REINVES TED IN THE SAME SCRIPS RESULTING IN SUBSTANTIAL PROFIT. IT IS NOT THE CASE THAT THESE TRANSACTIONS OF CHURNING WERE UNDE RTAKEN TO MINIMIZE THE LOSSES IN BAD MARKET CONDITIONS AND WITH A VIEW TO SHUFFLE PORTFOLIO. FURTHER, IT IS NOTED THAT EVENTHOUGH A LARG E PORTION OF THE SHORT TERM GAINS FROM THE ; SCRIP, - JAJC ORP, WAS AVAILABLE ON SALE OF BONUS SHARES, NEVERTHELESS, EXCEPT THE BONUS SHARE SALES, ALL OTHER TRANSACTIONS IN THIS SCRIP WERE IN THE NATURE OF REPETITIVE TRANSACTIONS, WHICH FACT IS NOT ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 5 DISPUTED BY THE AR WHILE FURNISHING THE STATEMENT AT TABLE NO.4. THEREFORE, THE AVAILABILITY OF BONUS SHARES IS INCIDENTAL TO THE APPELLANTS BUSINESS ACTIVITIES IN THIS SCRIP AND IT WAS NOT AVAILABLE OUT OF LONG TERM INVESTMENT. THUS, THE IMPUGNED TRANSACTIONS IN SC RIPS LISTED IN TABLE NO.4 ARE UNDERTAKEN DEFINITELY WITH MORE OF PROFIT MOTIVE THAN THE INTENT OF INVESTMENT. HOWEVER, CONSIDERING THE FACT THAT APPELLANT HAS REENTERED ONLY IN 24 SCRIPS OUT OF 111 SCRIPS SOLD DURING THE YEAR AND THE PROFIT EARNED THERE FR OM IS RS.14552997, WHICH CONSTITUTES 20% OF THE STCG, I HOLD THAT THE ENTIRE STCG CANNOT BE HELD TO BE BUSINESS INCOME BASED ON THIS ISOLATED FACT, AND THE AFORESAID AMOUNT OF RS. 14552997 CAN ALONE BE CONSIDERED AS BUSINESS INCOME. AO IS ACCORDINGLY DIREC TED AND NOT BEING PREJUDICIAL TO THIS DIRECTION REMAINING FACTS OF THE CASE ARE DISCUSSED AS UNDER. 8.7. THE APPELLANT USED HIS OWN SURPLUS FUNDS FOR INVESTING IN SHARES. HE HAS NEITHER BORROWED ANY MONEY FROM EXTERNAL SOURCES NOR PAID INTEREST THEREON EXCE PT FOR A SMALL INTEREST AMOUNT OF RS.5.2 LAKHS AGAINST WHICH INTEREST OF RS.7.92 LAKHS WAS ALSO RECEIVED AND OFFERED TO TAX. CURRENT LIABILITIES APPEARING IN THE BALANCE SHEET OF THE APPELLANT ARE EXPLAINED TO BE IN THE NATURE OF TEMPORARY PERSONAL FAMILY TRANSFERS AND DO NOT CARRY ANY INTEREST. FURTHER, THE ANALYSIS OF BALANCE SHEET SHOWS APPELLANT HAS ENOUGH CAPITAL TO COVER HIS INVESTMENTS IN SHARES AND SUCH INVESTMENT CANNOT STRICTLY BE ATTRIBUTED TO THE AFORESAID UNSECURED LOANS/CURRENT LIABILITIES. IN VESTMENT IN SHARES AS PERCENTAGE OF CAPITAL ALWAYS SHOWED THE SUFFICIENCY OF CAPITAL OVER THE YEARS. THEREFORE, THERE IS NO TRUTH IN AOS OBSERVATION THAT INVESTMENT IN SHARES WAS OUT OF BORROWED FUNDS. 8.8. THE STAND OF THE APPELLANT AS AN INVESTOR HAS BEEN AC CEPTED BY THE A.O. IN THE EARLIER YEAR UNDER SECTION 143(3). THE ASSESSMENTS FOR A YS 2006 - 07 & 2009 - 10 WERE COMPLETED U/S. 143(3) BY ACIT - CIRCLE 16(3)(3) MUMBAI AND THE CAPITAL GAINS ON SALE OF SHARES AND SECURITIES WERE ACCEPTED AND TAXED AS SHORT TERM A ND LONG TERM CAPITAL GA INS. BESIDES, SHARES WERE ACCEPTED AS INVESTMENTS IN THE BALANCE SHEET. APPARENTLY , THE FACTS, OF THE CASE ARE SIMILAR EXCEPT AS DISCUSSED AT PARA 8.6. SECONDLY, APPELLANTS CLAIM. REGARDING LONG TERM CAPITAL GAINS HAS NOT BEEN DIST URBED BY THE A.O. FOR THE YEAR UNDER C ONSIDERATION AND THUS, THE A.O. HIMSELF HAS ACCEPTED THAT THE APPELLANT WAS INVESTOR IN SHARES ALSO. FURTHER, OUT OF THE TOTAL STCG OF RS.7.18 CRS, GAINS EARNED BY APPELLANT ON SALE OF BONUS SHARES OF TWO COMPANIES ALO NE CONSTITUTE RS.5.37 CRS I.E., STCG OF RS.49246728 IS ATTRIBUTABLE TO THE SALE OF BONUS SHARES OF UNITECH AND RS.451539 TO THE SALE OF BONUS SHARES OF SATYAM COMPUTERS. IN FACT, AO HIMSELF ACCEPTED THE LTCG FROM SALE OF SHARES OF THESE TWO COMPANIES, THUS HOLDING THESE SCRIPS AS INVESTMENTS, AND THERE CANNOT BE ANY REASON TO HOLD THE STCG FROM THE SAME SCRIPS AS BUSINESS INCOME. SHARES OF THE SAME COMPANY CANNOT BE TREATED AS - INV ESTMENTS AT ONE PLACE AND STOCK - IN - TRADE AT OTHER PLACE. THEREFORE, I AM OF T HE CONSIDERED OPINION THAT IN THE GIVEN FACTS AND CIRCUMSTANCES, THERE IS NO REASON FOR THE A.O. TO TREAT THE INVESTMENT IN SHARES BY THE APPELLANT AS STOCK - IN - TRADE FOR A.Y.2008 - 09, EXCEPT AS DISCUSSED PARA 8.6. THE UNIFORMITY IN TREATMENT AND CONSISTENC Y UNDER THE SAME FACTS AND CIRCUMSTANCES IS ONE OF THE ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 6 FUNDAMENTAL JUDICIAL PRINCIPLES WHICH CANNOT BE BRUSHED ASIDE WITHOUT PROPER REASON. 9. THAT APART THERE ARE A PLETHORA OF DECISIONS BY THE VARIOUS BENCHES OF HON. HIGH COURTS AND ITAT HOLDING THE ISSUE IN FAVOUR OF APPELLANT INVOLVING SIMILAR FACTS, AND FOR THE SAKE OF BREVITY, EVEN IF THEY ARE TAKEN INTO CONSIDERATION FOR ARRIVING AT THE CONCLUSION THAT THE APPELLANT IS AN INVESTOR THE SAME ARE NOT REPRODUCED. HOWEVER TO NAME A FEW JANAK S. RANGWALLA V S. ACIT (11 SOT 627), CIT VS. GOPAL PUROHIT 228 CTR 582 (BOM.)(2010), CIT VS. ROHIT ANAND (2010) 327 ITR 445(DEL),DCIT VS. SMK SHARES & STOCK BROKING PVT. LTD. ITA NO. 799/MUM/2009,VINOD K. NEVATIA ITA NO. 6556/MUM/2009 & 181/MUM/2010 AND NAISHADH V. VACHH ARAJANI ITA NO. 6429/MUM/2009. 10. IN VIEW OF THE DETAILED DISCUSSION OF THE FACTS AND THE LEGAL POSITION AND THE BACK GROUND OF THE AMENDED PROVISIONS ON TAXATION OF CAPITAL GAINS ON SALE OF SHARES W.E.F. 1/10/2004, I AM OF THE CONSIDERED OPINION THAT THE INC OME F ROM SHORT TERM CAPITAL GAINS OFFERED TO TAX REQUIRE NO DISTURBANCE EXCEPT FOR AN AMOUNT OF R S.14552997 AND THE ENTIRE AMOUNT CANNOT BE TREATED AS B USINESS INCOME. ACCORDINGL Y, AO IS DIRECTED TO TREAT THE AFORESAID AMOUNT OF RS. 14552997 ONLY AS APPELL ANTS BUSINESS INCOME ON SALE OF SHARES AND THE APPEAL IS PARTLY ALLOWED ON THIS ISSUE . 8. AGAINST THE ABOVE ORDER OF CIT(A), BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, WE FOUND THAT DURING THE YEAR, ASSESSEE HAS SHORT TERM CAPITAL GAINS ON SALE OF SHARES AMOUNTING TO RS.7.04 CRORES, SHORT TERM CAPITAL GAINS ON SALE OF UNITS RS.8.59 LAKHS AND SHORT TERM CAPITAL GAINS ON SALE THRO UGH PMS RS.30.86 LAKHS. THUS, A TOTAL SHORT TERM CAPITAL GAIN OF RS.7.43 CRORES WAS THERE. ENTIRE AMOUNT OF SHORT TERM CAPITAL GAINS WAS TREATED BY AO AS BUSINESS INCOME. 10. BY THE IMPUGNED ORDER AFTER GIVING DETAILED FINDING, THE CIT(A) HAS ACCEPTED SHOR T TERM CAPITAL GAIN ON SALE OF SHARES AMOUNTING OF RS.7.04 CRORES AND GAIN ON SALE OF UNITS AMOUNTING TO RS.8.59 LAKHS. OUT OF SHORT TERM CAPITAL GAIN ON SALE THROUGH PMS AMOUNTING TO RS. 30.86 LAKHS, THE ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 7 CIT(A) HAS ACCEPTED RS. 5.13 LACS AS SHORT TERM C API TAL GAIN ON SALE THROUGH PMS. HOWEVER, THE CIT(A) HAS IDENTIFIED REPEATED TRANSACTION OF SALE OF SHARES AMOUNTING TO RS.1.45 CRORES WHICH WAS TREATED BY HIM AS INCOME FROM BUSINESS. 11. FROM THE RECORD WE FOUND THAT THE SHARES HELD FOR GENERATING DIVIDEND HAVE BEEN SHOWN AS INVESTMENTS. THIS MANNER OF ACCOUNTING WAS CONSISTENTLY FOLLOWED IN EARLIER YEARS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. WE ALSO FOUND THAT THE SHARES HAVE ALWAYS BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS. TH E ASSESSEE HAS RECEIVED SUBSTANTIAL DIVIDEND INCOME OVER A PERIOD OF TIME. AS PER CHART PLACED ON RECORD, THE AVERAGE PERIOD OF HOLDING OF SHARES BY THE ASSESSEE IS 85 DAYS. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IS A PARTNER IN FOUR FIRMS AND H AS RECEIVED SHARE OF PROFIT IN ALL THE YEARS. THE ASSESSEE HAS ALWAYS OFFERED THE GAIN FROM INVESTMENTS TO TAX UNDER THE HEAD CAPITAL GAINS WHICH HAS BEEN ACCEPTED BY DEPARTMENT IN ALL OTHER YEARS EITHER U/S.143(1) OR 143(3) OF THE IT ACT. FURTHERMORE, A LL THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE SHOWN UNDER THE HEAD SHORT TERM CAPITAL GAIN ARE DELIVERY BASED AND ARE THROUGH THE DEMAT ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAS ALSO NOT UTILIZED ANY BORROWED FUNDS FOR INVESTING IN SHARES DURING THE YEA R . H OWEVER, WHILE TREATING SHORT TERM CAPITAL GAIN AS BUSINESS INCOME, THE ASSESSING OFFICER HAS ALSO TREATED CERTAIN SALES OUT OF OPENING INVESTMENT AS TRADING SHARES, WHICH IS NOT PERMISSIBLE. 1 2 . IN VIEW OF THE ABOVE, WE CONFIRM THE ACTION OF THE CIT(A) FOR ACCEPTING ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 8 ASSESSEES CONTENTION OF SHORT TERM CAPITAL GAIN OF RS.5.98 CRORES. HOWEVER, IN VIEW OF THE FACT THAT THE CIT(A) HAS ALSO TREATED CERTAIN SALES OF SHARES OUT OF OPENING STOCK OF SHARES HELD AS INVESTMENT , AS TRADING SHARES, THE SAME IS NOT P ERMISSIBLE . ACCORDI NGLY, WE MODIFY THE ORDER OF CIT(A) AND DIRECT THE AO TO TREAT CAPITAL GAIN ON SALE OF SHARES DURING THE YEAR UNDER CONSIDERATION WHICH IS OUT OF OPENING STOCK OF SHARES HELD AS INVESTMENT, AS SHORT TERM CAPITAL GAIN RATHER THAN BUSINES S INCOME. WE DIRECT ACCORDINGLY. 1 3 . WITH REGARD TO DISALLOWANCE U/S.14A, WE FOUND THAT EXPENDITURE OF RS.3,75,641/ - IN RESPECT OF SERVICE TAX, TRANSACTION TAX PERTAINS TO TAXABLE RECEIPTS OF RS.49,95,316/ - AND RS.28,94,406/ - FROM DERIVATIVE AND SPECULATIV E TRANSACTIONS IN SHARES RESPECT IVELY . WE FURTHER FOU ND THAT DE MAT CHARGES OF RS.60,562/ - AND MUTUAL FUND MANAGEMENT FEE OF RS.9,61,623/ - HA VE ALREADY BEEN DEBITED BY ASS ESSEE TO CAPITAL ACCOUNT AND HAVE NOT BEEN CLAIMED AS DEDUCTION. WE FURTHER FOUND THAT EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT PERTAINS TO THE TAXABLE INCOME CREDITED TO P & L ACCOUNT AMOUNTING TO RS.87,50,520/ - . WE FURTHER FOUND THAT DURING THE YEAR ASSESSEE HAS INVESTMENT OF RS.11.15 CRORES AND SHORT TERM CAPITAL GAIN OF RS. 7.43 C RORES. LOOKING TO THE AMOUNT OF INVESTMENT, THE DISALLOWANCE OF RS.5,82,931/ - IS JUSTIFIED. ACCORDINGLY, THE ORDER OF CIT(A) ON THIS GROUND IS UPHELD. ITA NO. 2340/MUM/2012 & 3072/MUM/2012 SHRI SHIRISH POONGLIA 9 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED WHEREAS APPEAL OF ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 20 / 06 /2017 SD/ - ( SANDEEP GOSAIN ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 20 / 06 /201 7 K ARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//