JUMANA VAHANVATI, MUMBAI V. ADDL CIT RG 12(2), MUMBAI

ITA 308/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1000 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 19-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Assessee Lawyers: YOGESH A THAR; IKSHU SHAH
• Keywords: Business income; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A; 145

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SH. R. C. SHARMA , AM & SH. SANDEEP GOSAIN, JM ./ I.T.A. NO . 308/MUM/2016 ( / ASSESSMENT YEAR: 2010 - 11 ) JUMANA VAHANVATI BUCKLEY COURT, 21 ST AND 22 ND DUPLEX, NO. 6, NATHALAL PAREKH MARG, COLABA, MUMBAI - 39 / VS. ACIT RG 12(2) R. NO. 123A, AAYAKAR BHAVAN , MUMBAI ./ ./ PAN/GIR NO. A BUPV1085D ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI YOGESH A THAR & MS. IKSHU SHAH / RESPONDENTBY : MS. ARJU GARODIA / DATE OF HEARING : 27/11 /201 7 / DATE OF PRONOUNCEMENT : 03/01/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. COMMISSI ONER OF INCOME TAX (APPEAL) 28 , 2 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI MUMBAI DATED 28.10.15 F OR AY 2010 - 11 ON THE GROUNDS MENTIONED HEREIN BELOW: - GROUND I : TREATING THE GAIN ON SALE OF SHARES AS PROFITS & GAINS FROM BUSINESS & PROF ESSION. AS AGAINST SHORT - TERM CAPITAL GAIN 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ('THE CIT(A)') ERRED IN UPHOLDING THE ORDER OF THE ADDITIONAL COMMISSIONER OF INCOME - TAX, 12(2) , MUMBAI (' THE AO') IN TREATING THE GAIN ON SALE OF SHARES AS PROFITS AND GAINS FROM BUSINESS & PROFESSIONAL, AS AGAINST SHORT TERM CAPITAL GAINS OFFERED BY THE APPELLANT ON THE ALLEGED GROUND THAT THE APPELLANT HAS SUBSTANTIAL NUMBER OF TRANSACTIONS IN SHARES WITH H IGH FREQUENCY AND SHORT PERIOD OF HOLDING AND ALSO THAT THE APPELLANT'S ONLY BUSINESS IS TO DEAL IN SHARES. 2. THE APPELLANT PRAYS THAT THE AFORESAID GAIN BE TREATED AS SHORT TERM CAPITAL GAIN AS OFFERED BY THE APPELLANT. 3 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI GROUND II: DISALLOWANCE U/S. 14A OF THE ACT CAN BE MADE ON INVESTMENTS AND NOT ON STOCK - IN - TRADE 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN MAKING DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 81)(II) OF THE RU LES ON THE INVESTMENTS WHICH WERE TREATED AS STOCK - IN - TRADE BY THE AO AS WELL AS THE LEARNED CIT(A). 2. THEREFORE, THE APPELLANT PRAYS THAT DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D(II) OF THE RULES BE DELETED/ APPROPRIATELY REDUCED. GROUND III: D ISALLOWANCE U/S. 14A OF THE ACT 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE TO THE EXTENT OF RS. 17,97,134/ - U/S. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ('THE RULE S' ) AS EXPENSES INCURRED TOWARDS EARNING THE EXEMPT INCOME, WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS CLAIMED INTEREST AS DEDUCTION ONLY TO THE EXTENT OF RS. 16,56,781/ - . 4 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF THE EXPENDITURE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES SHOULD BE DELETED/ APPROPRIATELY REDUCED. 2. THE B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ASSESSED AS AN INDIVIDUAL AS SHE IS ENGAGED IN PROVIDING PROFESSIONAL SERVICES IN THE FIELD OF INTERIOR DESIGNING. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 15.10.10 DECLARING TOTAL INCOME OF RS. 13,90,69,355/ - WHICH COMPRISES SHORT TERM CAPITAL GAINS OF RS. 32,80,252. THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT. THE CASE WAS SELECTED FOR SCRUITINY AN D AFTER SERVING STATUTORY NOTICES AND SEEKING REPLY, ORDER OF ASSESSEMENT U/S 143(3) OF THE I.T. ACT WAS PASSED ON 31.03.13 THEREBY ASSESSING THE TOTAL INCOME AT RS. 14,32,21,590/ - AFTER MAKING THE ADDITIONS ON ACCOUNT OF TREATING THE GAIN ON SALE OF SHARE S AS PROFIT AND GAINS FROM BUSINESS AND PROFESSION, AS AGAINST SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE AT RS. 32,80,252/ - . APART FROM ABOVE, DISALLOWANCE U/S 14A R.W.R 8D WAS ALSO MADE. 5 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFO RE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. HOWEVER, LD. CIT(A) UPHELD THE ORDER OF AO IN TREATING THE GAIN ON SALE OF SHARES AS PROFITS AND GAINS FROM BUSINESS AND PROFESSION, AS A GAINST SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE. NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. I 3. THIS GROUND RAISED BY THE ASSESSEE RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN UPHOLDING THE ORDER OF THE ADDITIONAL CO MMISSIONER OF INCOME - TAX, 12(2) , MUMBAI ('THE AO') IN TREATING THE GAIN ON SALE OF SHARES AS PROFITS AND GAINS FROM BUSINESS & PROFESSIONAL, AS AGAINST SHORT TERM CAPITAL GAINS OFFERED BY THE APPELLANT ON THE ALLEGED GROUND THAT THE APPELLANT HAS SUBSTANTIAL NUMBER OF TRANSACTIONS IN SHARES WITH HIGH FREQUENCY AND SHORT PERIOD OF HOLDING 6 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI AND ALSO THAT THE APPELLANT'S ONLY BUSINESS IS TO DEAL IN SHARES. LD. AR SUBMITTED THAT THE ASSESSEE IS BOTH, A TRADER AS WELL AS A N INVESTOR IN STOCK MARKETS. THE TRADING ACTIVITY OF THE ASSESSEE IS LIMITED TO THE FUTURES AND OPTIONS SEGMENT OF THE MARKET WHEREAS THE ASSESSEE HOLDS A LARGE PORTFOLIO OF INVESTMENT IN SHARES AND PROPERTIES. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HA D SOLD CERTAIN SHARES DURING THE YEAR AND BASED ON THE PERIOD OF HOLDING, THE GAINS WERE OFFERED AS SHORT TERM CAPITAL OR LONG TERM CAPITAL GAINS. THE LD. AR SUBMITTED THAT A SUM OF RS. 32,80,252/ - WAS OFFERED AS STCG BUT THE AO HAS TREATED THE SAME AS PRO FIT AND GAINS FROM BUSINESS AND PROFESSION, ON THE GROUND THAT THE ASSESSEE HAS SUBSTANTIAL NUMBER OF TRANSACTIONS WITH HIGH FREQUENCY AND SHORT PERIOD OF HOLDING BY RELYING UPON THE FEW CASE LAWS AS WELL AS AFTER QUOTING CIRCULAR NO. 4 OF 2007 DATED JUNE 15, 2007. LD. AR FURTHER DRAWN OUR ATTENTION TO PAGE NO. 46 OF THE PAPER BOOK WHICH IS A CHART SHOWING YEARWISE TREATMENT IN CASE OF SALE OF SHARES IN A PERIOD OF 12 MONTHS BY THE DEPARTMENT AND THE SAME IS REPRODUCED BELOW: - 7 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI PARTICULARS AY 2008 - 09 AY 2 009 - 10 AY 2010 - 11 AY 2011 - 12 AY 2012 - 13 AY 2013 - 14 AY 2014 - 15 WHETHER ASSESSED U/S 143(3) OR INTIMATION U/S 143(1) 143(1) 143(3) 143(3) 143(3) 143(3) 143(3) 143(3) TREATMENT OF INCOME ON SALE OF SHARES ACCEPTED BY THE DEPARTMENT STCG STCG BUSINESS INCOME STCG NA NA NA APART FROM ABOVE, LD. AR ALSO RELIED UPON THE JUDGMENT TITLED CIT VRS. GOPAL PUROHIT (188 TAXMANN 140) (BOM HC), SANJAY KUMAR J. PODDAR VRS. ACIT (68 SOT 43) (MUM TRIB), SMT SUJATA KAPAID VRS. JCIT (68 SOT 224) (MUM TRIB ), DCIT VRS. E CAP PARTNER (64 SOT 194) (MUM TRIB), ACIT VRS. SACHIN TENDULKAR (77 TAXMANN.COM 305) (MUM TRIB), ACIT VRS. CHETAN K. MEHTA (46 SOT 25) (MUM TRIB) AND SHANTILAL M. JAIN VRS. ACIT (132 SOT 466) (MUM TRIB) . LD. AR REITERATED THE SAME ARGUMENTS AS THE SAME WERE RAISED BEFORE REVENUE AUTHORITIES. 8 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS PASSED BY REVENUE AUTHORITIES. 4. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL A S THE ORDERS PASSED BY REVENUE AUTHORITIES. THE AO HAS TREATED THE STCG AS PROFITS AND GAIN FROM BUSINESS AND PROFESSION ONLY ON THE GROUND THAT THE ASSESSEE HAS SUBSTANTIAL NUMBER OF TRANSACTION WITH HIGH FREQUENCY AND SHORT PERIOD OF HOLDING BY RELYING UPON CIRCULAR NO. 4 OF 2007 DATED 15.06.07. HOWEVER, BEFORE US LD. AR DRAWN OUR ATTENTION TOWARDS PAGE NO. 46 OF THE PAPER BOOK WHEREIN TREATEMENT OF INCOME FROM SALE OF SHARES AS CAPITAL GAIN BY THE AO FROM YEAR TO YEAR HAS BEEN DEMONSTRATED. FURTHER AS PER BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION, THE SHARES ON WHICH STCG HAS BEEN EARNED ARE TREATED AS INVESTMENT BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. EVEN THE PRINCIPLE OF CONSISTENCY REQUIRES THAT IF IN THE PREVIOUS AND THE SUBSEQUENT YEARS, T HE TREATMENT OF SHARES HAS BEEN ACCEPTED BY THE DEPARTMENT AS CAPITAL GAIN, THEN THE SAME CANNOT BE TREATED AS BUSINESS INCOME. IN THIS RESPECT RELIANCE WAS 9 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI PLACE BY THE ASSESSEE ON TWO CIRCULARS ISSUED BY CBDT I.E. CIRCULAR NO. 6/2016 DATED 29.02.16 AND C IRCULAR NO. 225/12/16/ITA.II DATED 02.05.15. WE HAVE GONE THROUGH THE CIRCULARS AS WELL AS JUDGMENTS CITED BY THE PARTIES AND WE FOUND THAT IF IN THE PREVIOUS AND SUBSEQUENT YEARS TREATMENT OF SALE OF SHARES AS SHORT TERM CAPITAL GAIN HAS BEEN ACCEPTED, THEN THE SAME CANNOT BE TREATED AS BUSINESS INCOME IN THE CURRENT YEAR. IN THIS RESPECT, WE DRAW STRENGTH FROM THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VRS. GOPAL PUROHIT (2010) 188 TAXMAN 140 (BOM) WHEREIN THE HONBLE HIGH COURT CLEARL Y SUPPORTS THE PRINCIPLE OF CONSISTENCY IN THE MATTER OF TREATMENT OF PROFIT ON SALE OF SHARES BY HOLDING AS UNDER: - SECTION 143 OF THE INCOME - TAX ACT, 1961 - ASSESSMENT - GENERAL - WHETHER THOUGH PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS, YET THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN FACTS AND CIRCUMSTANCES ARE IDENTICAL - HELD, YES SECTION 4, READ WITH SECTION 145 OF THE INCOME - TAX ACT, 1961 - INCOME - CHARGEABLE AS - WHETH ER THOUGH 10 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI ENTRIES IN BOOKS OF ACCOUNT ALONE ARE NOT CONCLUSIVE PROOF TO DECIDE INCOME, YET PRESENTATION IN BOOKS OF ACCOUNT IS MOST CRUCIAL SOURCE OF GATHERING INTENTION OF ASSESSEE AS REGARDS NATURE OF TRANSACTION - HELD, YES AGAINST THE ABOVE ORDER PAS SED BY HONBLE BOMBAY HIGH COURT, THE REVENUE HAD FILED THE SPECIAL LEAVE PETITION WHICH WAS ALSO DISMISSED BY THE HONBLE SUPREME COURT VIDE ORDER NOV 15, 2010. KEEPING IN VIEW OUR ABOVE DISCUSSION AND ALSO CONSIDERING THE LATEST CIRCULARS AND JUDGMENTS CITED ABOVE, WE HAVE NO HESITATION TO SET ASIDE THE ORDER PASSED BY AO IN TREATING THE GAIN ON SALE OF SHARES AS PROFITS AND GAINS FROM BUSINESS AND PROFESSION, AS AGAINST STCG. HENCE WE ORDER ACCORDINGLY. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. G ROUND NO. II 5. SINCE WE HAVE ALREADY DECIDED GROUND NO. 1 IN FAVOUR OF ASSESSEE, THEREFORE THIS GROUND IS NOT BEING PRESSED BY THE ASSESSEE. HENCE THE SAME STANDS DISMISSED AS NOT PRESSED. 11 I.T.A. NO. 308 /MUM/201 6 JUMANA VAHANVATI GROUND NO. III 6. THIS GROUND IS CONSEQUENTIAL IN NATURE, THUS REQUIRES NO ADJUDICATION IN VIEW OF OUR FINDING IN GROUND NO. 1. 7 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JAN 2018 SD/ - SD/ - ( R. C. SHARMA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 03 . 01 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI