ANUSUYA SUREN MIRCHANDANI, MUMBAI V. ASST CIT 12(2), MUMBAI

ITA 3159/MUM/2012

• Counselvise Citation: 315919914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: SANJAY VORA
• Keywords: Business income; Principle of natural justice
• Section: 10; 234B

Judgement Text

, , ,, , INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH. . .. . . .. . , ,, , / !'# !'# !'# !'# , ' ' ' ' BEFORE S/SH. B.R. MITTAL, JUDICIAL MEMBER & RAJENDR A, ACCOUNTANT MEMBER /. ITA NO.3159/MUM/2012, $ $ $ $ % % % % / ASSESSMENT YEAR-2008-09 ANUSUYA SUREN MIRCHANDANI 203 DALAMAL CHAMBERS, NEW MARINE LINES MUMBAI-400020 VS ASST CIT 12(2) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020 PAN: AAGPM7899D ( &' / APPELLANT) ( ()&' / RESPONDENT) $*+ $*+ $*+ $*+ , , , , ' '' ' / APPELLANT BY : SHRI SANJAY VORA ! - , ' / REVENUE BY : SHRI SURENDRA KUMAR $ $ $ $ - -- - +. +. +. +. / DATE OF HEARING : 04-11-2013 /0% - +. / DATE OF PRONOUNCEMENT : 13-11-2013 $ $ $ $ , 1961 - -- - 254 )1( ' '' ' +1+ +1+ +1+ +1+ '2 '2 '2 '2 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM: CHALLENGING THE ORDER DATED 14.03.2012 OF CIT(A)-23 ,MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION CAPITAL GAINS (ARISING OUT OF SALE OF EQUITY SHARES THROUGH PORTFOLIO MANAGEMENT SERVICES) OF RS. 9,56, 718/0 AS PROFIT AND GAINS OF BUSINESS OR PROFESSION. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT A SUM OF RS. 9,56,718/- AS SHORT TERM CAPITAL GAIN. 2.ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE COM MISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE INTEREST CHARGED U/S. 234B & 234C OF THE I.T.ACT. THE ASSESSEE FURTHER PRAYS THAT INTEREST CHARGED U/ S. 234B & 234C BE DELETED. 3.THE ASSESSEE CRAVES LEAVE TO ADD, ALTER AND DELET E ANY OF THE ABOVE GROUNDS. ASSESSEE HAD ALSO FILED ADDITIONAL GROUNDS OF APPEA L VIDE HER LETTER DATED 21.05.2012 AND SAME READ AS UNDER: 1) ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW , THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFI CER TO TREAT ALL CAPITAL GAINS FROM PLACING MONEY WITH PMS, WHETHER DECLARED AS STCG OF LTCG, A S INCOME FROM BUSINESS. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT TO HAVE DIRECTED TO TREAT THE L ONG TERM CAPITAL GAINS FROM PMS AS ASSESSING OFFICER HAS ALLOWED THE CLAIM OF LTCG AS EXEMPT. SUCH ENHANCEMENT IS UNJUST AND BAD IN LAW AS NO OPPORTUNITY WAS GIVEN BEFORE PASSI NG SUCH ORDER. APPELLANT PRAYS THAT SUCH ENHANCEMENT BE DELETED. 2) THE ASSESSEE CRAVES LEAVE TO ADD, ALTER AND DELETE ANY OF THE ABOVE GROUNDS. 2 ITA NO.3159/MUM/2012 ANUSUYA SUREN MIRCHANDANI . 2 .ASSESSEE,AN INDIVIDUAL,FILED HER RETURN OF INCOME ON 29.07.2008 DECLARING TOTAL INCOME 29.19 LACS. ASSESSMENT WAS FINALISED ON 23.12.2010 DETERM INING THE TOTAL INCOME OF THE ASSESSEE AT RS. 29,19,820/-.DURING THE COURSE OF ASSESSMENT PROCEED INGS, ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE HAD SHOWN STCG OF RS. 9,56,718/- ON THE SA LE OF SHARES. CONSIDERING THE MAGNITUDE AND FREQUENCY OF THE SHARE TRANSACTIONS,AO DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROFIT ON SALE OF SHARES SHOWN AS STCG SHOULD NOT BE TAXED AS BUSINESS INCOME IN VIEW OF THE BOARDS CIRCULAR NO.4 OF 2007.AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE, AO HELD THAT ASSESSEE HAD ENGAGED THE SERVICES OF PORTFOLIO MANAGEMENT SE RVICES (PMS) OF KOTAK BEP SHORT TERM EQUITY, KOTAK FEP 4 SHORT TERM EQUITY, KOTAK FEP 5 SHORT TERM EQUITY, RELIANCE SHORT TERM EQUITY AND SHORT TERM KRSNA FUNDS @ 10%, THAT ASSE SSEE HAD DEALT IN NUMBER OF SHARES, THAT THE PERIOD OF HOLDING SHOWED THAT INTENTION OF THE ASSE SSEE WAS TO TRADE IN SHARES, THAT THE PRIME INTENTION OF THE ASSESSEE WAS TO TRADE IN SHARES, A ND NOT MAKE ANY INVESTMENT, THAT WHENEVER THERE WAS AN OPPORTUNITY TO EARN PROFIT ASSESSEE HAD SOLD HER SHARES, HER MOTIVE WAS TO EARN MAXIMUM PROFIT, THAT THE ENTIRE ACTIVITY OF THE ASSESSEE HA D TO BE CONSIDERED AS BUSINESS IN TRADING IN SHARES , THAT BY NO STRETCH OF IMAGINATION SAME COULD BE TER MED AS INVESTMENT.FINALLY, HE HELD THAT SHE HAD CARRIED OUT THE BUSINESS OF TRADING IN SHARES AND T HAT PROFIT/LOSS ON SUCH ACTIVITY HAD TO BE TREATED AS HER BUSINESS INCOME. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). IT WAS SUBMITTED THAT ASSESSEE HAD EARNED STCG AND PMS SCHEMES,THAT SHE HAD PUT HER SURPLUS FUND TO PORTFOLIO MANAGERS UNDER DISCRETIONARY PMS WITH OBJECTION OF EARNED INCOME FROM LONG TERM CAPITAL APPREC -IATION,THAT UNDER THESE SCHEMES INVESTMENT ACTIVIT IES WERE DONE BY THE PORTFOLIO MANAGERS,THAT INVESTMENT THROUGH PMS AND THROUGH MUTUAL FUNDS WER E SIMILAR, THAT PMS FUND COULD NOT BE TREATED AS BUSINESS INCOME.ASSESSEE ALSO ENCLOSED T HE AGREEMENT ENTERED BY HER WITH THE PMS MANAGERS AND RELIED UPON THE DECISION OF ITAT,MUMBA I DELIVERED IN THE CASE OF RADHA BIRJU PATEL (ITA NO. 5382/MUM/2009 AY 2006-07 DATED 30.11 .2010 AND SMT NALINI NAVIN BHAGWATI (ITA NO.53/MUM/2010 AY 2006-07 DATED 05.08.2011.IT WAS FURTHER ARGUED THAT IN THE EARLIER ORDERS PMS INCOME HAD BEEN TREATED AS CAPITAL GAINS , THAT SHE HAD EARNED LTCG AMOUNTING TO RS. 10.89 LACS THAT WERE EXEMPT U/S 10 OF THE ACT, THAT ASSESSEE HAD NOT USED ANY BORROWED FUNDS,THAT TRANSACTIONS HAD BEEN ENTERED IN HER BOOKS OF ACCOU NTS AS INVESTMENT AND WERE REFLECTED IN THE BALANCE-SHEET AT COST,THAT ALL TRANSACTIONS WERE BY DELIVERY OF SHARES. 2.2. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER, FAA HELD THAT TRIBUNAL WHILE DECIDING THE ABOVE REFERRED TWO CASE S HAD NOT CONSIDERED CERTAIN RELEVANT FACTS THAT SUCH TRANSACTIONS WERE AKIN TO TRADING IN COMMODITI ES OR REAL ESTATE THROUGH A PROPERTY DEALER. FAARELIED UPON THE ORDER OF THE DELHI ITAT DELIVERE D IN THE CASE OF RADIALS INTERNATIONAL (ITA NO.1368/DEL/2010- AY 2006-07 DATED 16.12.2011.SHE H ELD THAT TRANSACTION CARRIED OUT BY THE ASSESSEE WERE NOT INVESTMENTS. FAA FURTHER HELD THA T PRINCIPALS OF RES JUDICATA WOULD NOT APPLY TO THE CASE UNDER CONSIDERATION,THAT THE PORTFOLIO MAN AGER ACTED AS AGENT OF THE APPELLANT AND HAD BEEN TRADING ON THE LATTERS BEHALF,THAT THE PMS MA NAGER HAD BEEN CHARGING COMMISSION AND OR EXPENSES TO ACT ON BEHALF OF THE ASSESSEE AND WOULD RENDER THE PROFIT TO THE ASSESSEE,THAT SINCE THE PMS MANAGER ACTED IN THE CAPACITY OF AN AGENT WHO H AD TRADED IN SHARES ON BEHALF OF THE ASSESSEE THE PROFITS ARISING THEREFROM HAD TO BE TREATED AS PROFITS FROM BUSINESS,THAT THERE WAS NO DIFFERENCE BETWEEN SIMILAR TRANSACTIONS CARRIED OUT BY AN INDI VIDUAL IN SHARES AND SUCH TRANSACTIONS CARRIED OUT BY THE PMS MANAGE,THAT AT THE TIME OF DEPOSIT O F MONEYS WITH THE PMS MANAGER THE INTENTION OF THE ASSESSEE WAS TO MAXIMISE PROFITS THAT IT CO ULD NOT BE SAID THAT THE INTENTION WAS TO HOLD SHARES AS INVESTMENT.FINALLY,SHE UPHELD THE ORDER O F THE AO.SHE FURTHER DIRECTED THE AO TO TREAT ALL GAINS FROM STCG OR LTCG AS BUSINESS INCOME.SHE ALSO HELD THAT PROVISIONS OF SECTIONS 10 (38)AND 111-A WERE NOT BE APPLICABLE TO PROFITS DER IVED FROM MONEYS PLACED WITH PMS. 2.3. BEFORE US,AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT INVESTMENT WAS MADE THROUGH THE PORTFOLIO MANAGERS,THAT ASSESSEE HAD NO CONTROL OVE R THE ACTIVITIES CARRIED OUT BY THE PORTFOLIO 3 ITA NO.3159/MUM/2012 ANUSUYA SUREN MIRCHANDANI . MANAGERS,THAT BASIC INGREDIENTS OF BUSINESS WERE MI SSING IN THE TRANSACTIONS UNDER CONSIDERATION. HE REFERRED TO THE CASES OF MANAN NALIN SHAH(ITA NO .6166/MUM/2008 AY-2003-04DATED 06. 07. 2012),RADHA BIRJU PATEL(ITA NO.5382/MUM/2009,AY-200 6-07 DATED 30.11.2010),VINOD K. NEVATTA (ITA NO. 6556/MUM/2009,AY-2005-06 DATED 03. 12.2010). HE ALSO REFERRED TO THE ORDERS DELIVERED BY THE PUNE TRIBUNAL IN THE CASE OF ARA T RADING & INVESTMENT PVT. LTD.(ITA NO. 499/ PN/2008 AY-2004-05 DATED 31.08.2009) AND APOORVA PA TEL(ITA NO.192/PN/2011,AY-2006-07 DATED 21.06.2012.).DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE FAA. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT SIMILAR ISSUE WAS DECIDED BY US IN THE CASE OF MANAN NALIN SHAH (SUPRA) IN THAT MATTER THE ONLY ISSUE WAS AS WHETHER THE PROFIT ARISING TO THE ASSESSEE THROU GH THE TRANSACTION CARRIED OUT FOR PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS THROUGH PMS WAS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME OR CAPITAL GAINS.AFTER CONSIDERING THE DECISION DEL IVERED BY THE PUNE BENCH OF THE TRIBUNAL ARA TRADING & INVESTMENT PVT. LTD.(SUPRA) IT WAS HELD T HAT IN THE PMS THERE WAS NO ASSURED GUARANTEE AGAINST THE LOSS OR DEGENERATION OF CAPITAL, AS PER THE SEBI GUIDELINES THE PORTFOLIO MANAGER WAS AUTHORISED TO PURCHASE AND SALE OF SHARES ON BEHALF OF THE CLIENT AGAINST THE SECURITIES AFTER OBTAINING THE WRITTEN PERMISSION,THAT THE PORTFOLIO MANAGERS WERE NOT AUTHORISED TO UNDERTAKE PURC -HASE/SALE OF SECURITIES THAT WERE SETTLED OTHERWIS E THEN BY ACTUAL DELIVERY OF TRANSFER OF SECURITIES , THAT THEY COULD MAKE INVESTMENT AT THEIR OWN DISCRE TION, THAT THE INVESTMENT MADE BY THE ASSESSEE THROUGH PMS WAS MEANT FOR MAXIMISATION OF WEALTH AN D NOT WITH A VIEW TO PURCHASE/SALE OF SHARES, THAT DEPARTMENT HAD NOT DISPUTED THE FACT T HAT PORTFOLIO MANAGERS HAD THE SALE AND ABSOLUTE DISCRETION TO MAKE INVESTMENT FOR AND ON BEHALF OF THE ASSESSEE, THAT ASSESSEE HAD NO ROLE TO PLAY WITH REGARD TO MAKING OF INVESTMENT,THAT THE VERY N ATURE OF PMS WAS THAT THE INVESTMENT MADE BY THE ASSESSEE COULD NOT BE SAID TO BE SCHEME OF TRAD ING OF SHARES AND STOCK, THAT THE PROFIT WAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS.WHILE PASSING THE ORDER, WE HAVE TAKEN INTO CONSIDERATION THE ORDER OF THE DELHI TRIBUNAL REFERRED ABOVE AS W ELL AS THE ORDERS OF THE PUNE TRIBUNAL. CONSIDERING THE ABOVE,WE ARE OF THE OPINION THAT FA A WAS NOT JUSTIFIED IN HOLDING THAT SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE THROUGH PM S WAS TAXABLE UNDER THE HEAD BUSINESS. GROUND NO.2 IS ABOUT CHARGING OF INTEREST U/S.234B &234 C OF THE ACT.IN OUR OPINION THE GROUND IS OF CONSEQUENTIAL NATURE,HENCE SAME IS ALLOWED FO R STATISTICAL PURPOSE. 2.5. IN THE ADDITIONAL GROUNDS FILE BY THE ASSESSEE A LE GAL ISSUE HAVE BEEN RAISED BY HER.AS STATED EARLIER,FAA HAD HELD THAT ASSESSEE WAS NOT ENTITLED TO CLAIM STCG OR LTCG UNDER THE PROVISIONS OF SECTION 10(38) OF THE ACT.SETTLED LAW OF TAXATIO N JURISPRUDENCE REQUIRED THE FAA TO ISSUE A NOTICE TO THE ASSESSEE BEFORE ENHANCING HIS INCOME. SECTION 251(2) CLEARLY MANDATE THAT WITHOUT HEARING AN ASSESSEE HIS INCOME CANNOT BE ENHANCED B Y THE FAA.WE FIND THAT BECAUSE OF THE DIRECTIONS ISSUED BY THE FAA TO THE AO FOR NOT ALLO WING EXEMPTIONS TO THE ASSESSEE INCOME IS BOUND TO INCREASE.IN OUR OPINION,THERE IS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE.SO WE HOLD THAT DIRECTION GIVEN BY THE FAA WERE NOT PROPER AND ASSE SSEE IS ENTITLED TO GET THE RELIEF. DECIDING THE ADDITIONAL GROUNDS IN FAVOUR OF THE ASSESSEE, WE AR E REVERSING THE ORDER OF THE FAA TO THAT EXTENT. ADDITIONAL GROUNDS FILED BY THE ASSESSEE IS DECIDED IN HER FAVOUR. AS A RESULT, APPEAL FIL ED BY THE ASSESSEE STANDS ALLOWED. * +3 $*+ 4 5 - 1 !6 - !+ 78 . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER,2013 . '2 - /0% ' 9 :$ 13 UOECJ UOECJ UOECJ UOECJ , 2013 0 - 1 ; SD/- SD/- ( . < < < < . . B.R.MITTAL) ( !'# !'# !'# !'# / RAJENDRA) / JUDICIAL MEMBER ' ' ' ' /ACCOUNTANT MEMBER 4 ITA NO.3159/MUM/2012 ANUSUYA SUREN MIRCHANDANI . / MUMBAI, :$ /DATE: 13 TH NOVEMBER,2013 SK '2 '2 '2 '2 - -- - (+= (+= (+= (+= >'=%+ >'=%+ >'=%+ >'=%+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / &' 2. RESPONDENT / ()&' 3. THE CONCERNED CIT (A) / ? @ , 4. THE CONCERNED CIT / ? @ 5. DR A BENCH, ITAT, MUMBAI / =A1 (+$ , ,, , , . . . 6. GUARD FILE/ 1 B )=+ )=+ )=+ )=+ (+ (+(+ (+ //TRUE COPY// '2$ / BY ORDER, C / 7 ! DY./ASST. REGISTRAR , /ITAT, MUMBAI