DCIT, Bangalore V. Sri. Uttam Chand, Bangalore

ITA 314/BANG/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63787 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 02-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SUNDAR RAJAN
• Assessee Lawyers: NAGIN KHINCHA
• Keywords: Capital asset; Business income; Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 314 /BANG/20 1 2 (ASSESSMENT YEAR : 2007-08) DY. COMMISSIONER OF INCOME TAX , CIR. 9(1), BANGALORE. VS. SHRI UTTAM CHAND KEWALCHAND, NO.206, R.T. STREET, BANGALORE-560 053 PAN ACXPD 4681P APPELLANT RESPONDENT. APPELLANT BY : SHRI P. SUNDAR RAJAN. RESPONDENT BY : SHRI NAGIN KHINCHA. DATE OF HEARING : 30.10.2012. DATE OF PRONOUNCEMENT : 22.11.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, BANGALORE DT.20.12.2011 FOR ASSESSMENT YEAR 2007-08. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE FILED HIS RETURN OF INCOME FOR ASS ESSMENT YEAR 2007-08 ON 31.7.2007 DECLARING INCOME INCOME OF RS.54,25,047 COMPRISING INCOME FROM SHORT TERM CAPITAL GAINS (STCG) AND OTHER SOURCES. THE CASE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT ') AND WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT. T HE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 16.11.2009 WHEREIN THE INCOME WAS DETERMINED AS RETURNED, 2 ITA NO.314/BANG/12 BUT THE INCOME DECLARED BY THE ASSESSEE AS STCG WAS TREATED AS INCOME FROM BUSINESS AND TAXED ACCORDINGLY. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESS MENT YEAR 2007-08 DT.16.11.2009, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS) . THE CIT(APPEALS) ALLOWED THE ASSESSEE'S APPEAL IN HIS ORDER DT.20.12.2011 WHEREI N THE ASSESSING OFFICER WAS DIRECTED TO TREAT THE PROFIT ON SALE OF SHARES AS STCG AND NOT AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. 3.0 AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(APP EALS) DT.20.12.2011, REVENUE IS NOW IN APPEAL BEFORE US. IN THE GROUNDS OF APPEAL ISSUED IT HAS BEEN SUBMITTED THAT - 1. THE ORDER OF THE CIT (APPEALS) IS OPPOSED TO FACTS OF THE CASE. 2. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE ON REGULAR BASIS IS PURCHASING AND SELLING SHARES IN L ARGE SCALE. FOR THE EARLIER ASSESSMENT YEAR ALSO, THE MAJOR SOURCE OF INCOME WA S SALE OF SHARES. 3. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE DURING THE YEAR HAD PURCHASED 2,62,081 SHARES AND SOLD 2,50,427 SHARES WITHIN A SPAN OF THREE MONTHS. THE RATIO BETWEEN P URCHASES AND SALES THUS WORKS OUT TO 95.55%. 4. THE CIT (APPEALS) ERRED IN TREATING THE PROFIT ON SALE OF SHARES AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME AS TH E ASSESSEE WAS APPLYING FOR SHARES AS AND WHEN THERE WAS A PUBLIC ISSUE BY THE COMPANIES AND WAS NOT BUYING SHARES FROM THE MARKET. 5. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED TH E FACT THAT JUST BECAUSE THE ASSESSEE IS PURCHASING SHARES AS AND WHEN THERE WAS A PUBLIC ISSUE BY THE COMPANIES WILL NOT DEVIATE THE NATURE AND INTENTION OF THE TRANSACTION. 6. THE APPELLANT CRAVES FOR PERMISSION TO ADD OR TO DELETE THE GROUNDS OF APPEAL AT THE TIME OF HEARING THE CASE. 4.0 THE GROUNDS OF APPEAL RAISED AT S.NOS.1 & 6 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE SOLE ISSUE OF DISPUTE IN THIS APPEAL AS R AISED IN THE GROUNDS AT S.NOS.2 TO 5 , IS AS TO WHETHER THE PROFIT ON SALE OF SHARES IS TO BE TAXED AS STCG OR AS BUSINESS INCOME. 3 ITA NO.314/BANG/12 5.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTICED THAT THE MAJOR SOURCE OF INCOME FOR THE ASSESSEE WAS FROM DE ALING IN SHARES ON A REGULAR BASIS. ON EXAMINATION OF THE DEALING IN SHARES, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAD DECLARED THE INCOME ARISING THERE FROM AS CAPITAL GAINS AND NOT AS BUSINESS INCOME IN ORDER TO AVOID OR REDUCE THE PAYMENT OF T AXES. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE PURCHASE AND SALE OF SHARES ON A REGULAR BASIS WAS AN ORGANIZED BUSINESS ACTIVITY AND WAS NOT A MERE INVESTMENT OF MONEY FOR HOLDING OF CAPITAL ASSETS AND THEREFORE THE PROFIT DERIVED FROM SUCH PURCHASE AND SALE OF SHARES WAS BUSINESS INCOME. THE PROPOSITION OF THE ASSESSING OFFICER WAS OBJECT ED TO BY THE ASSESSEE WHO SUBMITTED THAT HE WAS NOT PURCHASING SHARES FROM THE MARKET B UT WAS APPLYING FOR SHARES AS AN INVESTOR ONLY THROUGH PUBLIC ISSUES BY VARIOUS COMP ANIES, WHICH WERE HELD AS INVESTMENTS AND THE PROFIT ARISING FROM PURCHASE AND SALE THER EOF WERE EXIGIBLE TO TAX AS STCG. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEE'S EXP LANATION. HE WAS OF THE VIEW THAT DUE TO THE FREQUENCY IN PURCHASE AND SALE OF SHARES ON A CONTINUOUS BASIS, THE ASSESSEE'S INTENTION WAS TO EARN PROFITS THEREFROM RATHER THAN HOLD THEM AS INVESTMENTS; TREATED THE INCOME EARNED THEREFROM AS SPECULATIVE TRANSACT IONS AND BROUGHT THE SAME TO TAX AS BUSINESS INCOME RELYING ON A NUMBER OF JUDICIAL DEC ISIONS. 5.4 IN APPEAL, THE LEARNED CIT(APPEALS) AFTER CONSI DERATION OF THE FACTS OF THE CASE AND THE MATERIAL ON RECORD, HELD THAT THE PROFIT ON SALE OF SHARES WERE EXIGIBLE TO TAX AS STCG AND NOT AS BUSINESS INCOME FOR THE REASON THAT THE ASSESSEE WAS NOT PURCHASING THE SHARES FROM THE MARKET BUT WAS INVESTING IN THEM BY APPLYING FOR SHARES AS AND WHEN THERE WAS A PUBLIC ISSUE BY THE COMPANIES. 4 ITA NO.314/BANG/12 5.5 THE LEARNED DEPARTMENTAL REPRESENTATIVE REITERA TED THE SUBMISSIONS AS PER THE GROUNDS RAISED. IT WAS SUBMITTED THAT THE ASSESSEE WAS PURCHASING AND SELLING SHARES ON A LARGE SCALE ON A REGULAR BASIS VIZ., IN THE RELEVAN T PERIOD THE ASSESSEE PURCHASED 2,62,081 SHARES AND SOLD 2,50,427 SHARES WITHIN A PERIOD OF 3 MONTHS. IT WAS FURTHER CONTENDED THAT JUST BECAUSE THE ASSESSEE WAS PURCHASING SHARE S ONLY FROM PUBLIC PUBLIC ISSUES OF VARIOUS COMPANIES, THE LEARNED CIT(APPEALS) OUGHT N OT TO HAVE ALLOWED THE ASSESSEE'S CLAIM THAT THE INCOME WAS TO BE TAXED AS STCG AS TH EY WERE IN THE NATURE OF SPECULATIVE TRANSACTIONS AND THEREFORE WERE RIGHTLY BROUGHT TO TAX AS BUSINESS INCOME BY THE ASSESSING OFFICER. IN VIEW OF THIS, THE LEARNED DE PARTMENTAL REPRESENTATIVE PRAYED THAT THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE BE REVERSED AND THE INCOME RESULTING FROM PURCHASE AND SALE OF SHARES BY THE ASSESSEE IN THE RELEVANT PERIOD BE TREATED AS BUSINESS INCOME AND TAXED ACCORDINGLY AS HELD BY TH E ASSESSING OFFICER IN THE ORDER OF ASSESSMENT. 5.6 THE LEARNED COUNSEL FOR THE ASSESSEE FILED A PA PER BOOK (PAGES 1 TO 46) ON 19.10.2012 CONTAINING INTER ALIA WRITTEN SUBMISSION S MADE BEFORE THE LEARNED CIT(APPEALS). THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REITERAT ING THE CONTENTIONS PUT FORTH BEFORE THE LEARNED CIT(APPEALS) SUBMITTED THAT IN THE RELE VANT PERIOD THE DETAILS OF PURCHASES AND SALES OF SHARES BY THE ASSESSEE WAS ONLY FROM O UT OF PUBLIC ISSUES OFFERED BY ELEVEN COMPANIES. THE LEARNED COUNSEL FOR THE ASSESSEE IN TER ALIA SUBMITTED THAT THE ASSESSING OFFICER IN THE ASSESSEE'S OWN CASE, FOR ASSESSMENT YEARS 2005-06 AND 2006-07 BOTH ASSESSED UNDER SECTION 143(3) OF THE ACT, HAVE NOTE D THAT THE ASSESSEE INVESTED ONLY IN PUBLIC ISSUES OF COMPANIES AND AFTER EXAMINATION AC CEPTED HIS DECLARATION THAT THEY BE 5 ITA NO.314/BANG/12 TAXED AS INCOME FROM STCG. IN SUPPORT OF THIS PROP OSITION THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (2011) 336 ITR 287 (BOM). TH E LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN THE CITED DECISION (SUPRA ), THE HON'BLE HIGH COURT WHILE AFFIRMING THE DECISION OF THE ITAT, MUMBAI IN THE A SSESSEE'S CASE REPORTED IN (2009) 122 TTJ 0087 HAS HELD THAT THE GENERAL PRINCIPLES OF CO NSISTENCY IN PRACTICE OF TREATING TRANSACTIONS AS INVESTMENT BY THE ASSESSEE SHOULD N OT BE DISTURBED AND THEREFORE REVENUE SHOULD NOT ADOPT A DIVERGENT APPROACH FOR THE YEAR UNDER CONSIDERATION. IN VIEW OF THIS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INCOME ON PURCHASE AND SALE OF SHARES IN THE RELEVANT PERIOD WERE INVESTMENTS AND EXIGIBLE TO TAX AS STCG AS HELD BY THE LEARNED CIT(APPEALS) IN HIS ORDER. 5.7.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERU SED AND CONSIDERED THE SUBMISSIONS MADE, JUDICIAL DECISIONS CITED AND THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT IN THE RELEVANT PERIOD THE ASSESSEE PURCHASED AND SOLD SHA RES OF 11 COMPANIES AND THAT THESE PURCHASES WERE INVESTMENTS MADE IN PUBLIC ISSUES OF SHARES OFFERED BY ELEVEN COMPANIES AS LISTED IN PAGE 2 OF THE ORDER OF ASSESSMENT AND PAGE 3 OF THE ORDER OF THE LEARNED CIT(APPEALS). WE ALSO FIND FROM THE DETAILS FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THE COURSE OF APPELLATE PROCEEDINGS THAT FOR BOT H ASSESSMENT YEARS 2005-06 AND 2006- 07, THE ASSESSMENTS WERE COMPLETED UNDER SECTION 1 43(3) OF THE ACT WHEREIN AFTER DUE SCRUTINY THE ASSESSING OFFICER ACCEPTED THAT THE IN COME FROM PURCHASE AND SALE OF SHARES WAS EXIGIBLE TO TAX AS STCG AS HAD BEEN DECLARED BY THE ASSESSEE IN THE RETURNS OF INCOME. IN FACT, IN THE ORDER OF ASSESSMENT PASSED U/S. 143(3) OF THE ACT DT.28.11.2008 6 ITA NO.314/BANG/12 FOR ASSESSMENT YEAR 2006-07 THAT THE ASSESSING OFFI CER NOTED THAT DURING THE YEAR OF ACCOUNT THE ASSESSEE HAS APPLIED FOR EQUITY SHARES ON ACCOUNT OF INITIAL PUBLIC OFFERINGS MADE BY THE COMPANIES DILUTING THEIR SHARES. DETAI LS OF INVESTMENTS IN PUBLIC ISSUES OF EQUITY SHARES AND CONTRACT NOTES FOR SHARES WERE CA LLED FOR .. THESE FACTS GO TO SHOW THAT AS IN THE PAST YEARS, IN THE PERIOD RELEVANT T O ASSESSMENT YEAR 2007-08 ALSO, THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGA RD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS ETC. IN RESPECT TO HIS OR GANIZED ACTIVITY OF PURCHASE AND SALE OF SHARES FROM PUBLIC ISSUES OF EQUITY SHARES BY VARIO US COMPANIES. 5.7.2 IN THE LIGHT OF THE FACTS OF THE CASE, ON THIS ISSUE AS DISCUSSED ABOVE, WE FIND ON PERUSAL OF CITED JUDICIAL DECISIONS THAT THE QUESTI ON (B) BEFORE THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA) WAS : (B) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE HON'BLE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE PRINCIPLE OF CONSISTENCY MUST BE APPLIED HERE AS TH E AUTHORITIES DID NOT TREAT THE ASSESSEE AS A SHARE TRADER N THE PRECEDING YEAR , IN SPITE OF EXISTENCE OF SIMILAR TRANSACTION, WHICH CANNOT N ANY WAY OPERATE AS RES JUDICATA TO PRECLUDE THE AUTHORITIES FROM HOLDING SUCH TRANSACTIONS AS B USINESS ACTIVITIES IN THE CURRENT YEAR ? THEIR LORDSHIPS ANSWERED THIS QUESTION AS UNDER : IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBU NAL HAS OBSERVE D IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RES JUD ICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACC EPTED THE POSITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINC E EACH ASSESSMENT FORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUM STANCES ARE IDENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE. THE APPR OACH OF THE TRIBUNAL CANNOT 7 ITA NO.314/BANG/12 BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIF ICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUEST ION. 5.7.3 AFTER CAREFUL CONSIDERATION OF THE FACTS OF T HE CASE, WE FIND THAT THE ASSESSEE WAS PURCHASING AND SELLING SHARES FROM OUT OF PUBLIC IS SUE OF EQUITY SHARES OF COMPANIES, CONSISTENTLY OVER A NUMBER OF ASSESSMENT YEARS. TH E FACTS ON RECORD ARE THAT THIS METHOD OF ORGANIZING THE ACTIVITIES CONSISTENTLY, M AINTENANCE OF RECORDS AND OFFERING THE INCOME RESULTING THEREFROM AS STCG WAS EXAMINED BY THE ASSESSING OFFICER IN SCRUTINY ASSESSMENT PROCEEDINGS AND FOUND TO BE IN ORDER FOR THE TWO ASSESSMENT YEARS (IE. ASSESSMENT YEARS 2005-06 AND 2006-07) WHICH WERE TH E IMMEDIATELY PRECEDING THE CURRENT PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08. W E ARE, THEREFORE, OF THE CONSIDERED OPINION THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED FAVOURABLY BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT AS EXTRAC TED AND REPRODUCED IN PARA 5.7.2 OF THIS ORDER. IN THE INSTANT CASE, THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, MANNER OF KEEPING RECORDS ETC IN ALL THE YEARS FROM 2005- 06 TO 2007-08. THE STAND OF THE ASSESSEE THAT THE INCOME FROM THE PURCHASE AND SALE OF SHARES WAS STCG WAS ALSO ACCEPTED BY REVENUE FOR AS SESSMENT YEARS 2005-06 AND 2006- 07 AFTER DUE SCRUTINY. WE, THEREFORE, HOLD THERE O UGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE ID ENTICAL, AS IN THE CASE OF THE ASSESSEE IN THE INSTANT CASE AS REVENUE HAS NO JUSTIFICATION TO ADOPT A DIVERGENT APPROACH FOR THIS ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE DECISIO N OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA), WE CONFI RM THE FINDING OF THE LEARNED CIT(APPEALS) THAT THE PROFIT / INCOME ON PURCHASE A ND SALE OF SHARES IN THE RELEVANT 8 ITA NO.314/BANG/12 PERIOD BE TREATED AS STCG AND NOT BUSINESS INCOME O F THE ASSESSEE. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED. 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOV., 2012. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - C BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE