SEEMA R BAJAJ, MUMBAI V. ASST CIT 12(1), MUMBAI

ITA 3168/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6638 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 20-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Keywords: Capital asset; Business income; Salary income; Earning of tax free income
• Section: 143(3); 14A; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 3168 / MUM./ 2012 ( / ASSESSMENT YEAR : 2008 09 ) MS. SEEMA R. BAJAJ 24 B, RAJABAHADUR COMPOUND 1 ST FLOOR, HAMAM STREET, FORT MUMBAI 400 023 .. / APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 1 2(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACPB0364N / ASSESSEE BY : MR. VIJAY MEHTA / REV ENUE BY : MR. ASHOK SURI / DATE OF HEARING 2 7 . 0 3 .201 4 / DATE OF ORDER 23.04.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED B Y THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 13 TH MARCH 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XX III , MUMBAI, FOR THE QUANTUM OF MS. SEEMA R. BAJAJ 2 ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) . : 1.0 GROUND NO. 1: TREATING GAINS FROM SALE OF SHARES AS 'INCOME FROM BUSINESS' INSTEAD ON 'CAPITAL GAINS'. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEANED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX OFFICER 12(1) (' THE AO') OF A SSESSING THE GAINS FROM SALE OF SHARES AMOUNTING TO RS.2,72721/ - AS 'INCOME FROM BUSINESS' INSTEAD OF SHORT TERM CAPITAL GAINS OF RS. 2,72, 721/ - . THE APPELLANT PRAYS THAT IT BE HELD THAT THE GAINS ON SALE OF SHARES BE ASSESSED UNDER THE HEAD 'CAPITAL GAINS' AS RETURNED BY THE APPELLANT. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN HOLDING THAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE FACT OF THE CASE. 2.0 GROUND NO.2: DISALLOWANCE U/S. 14A OF T HE ACT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO OF MAKING DISALLOWANCE U/S. 14A AND THEREBY DISALLOWING EXPENDITURE AMOUNTING TO RS.64,349/ - ON THE ALLEGED GROUND THAT THE SAID EXP ENDITURE IS INCURRED FOR EARNING TAX - FREE DIVIDEND INCOME, WHEREAS THE TOTAL EXPENSE INCURRED AND CLAIMED BY THE APPELLANT IS RS. 2,170/ - . THE LD. CIT(A) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT WHERE NO DIRECT EXPENDITURE HAS BEEN ACTUALLY INCUR RED, NO ESTIMATION CAN BE MADE TO DISALLOW EXPENDITURE FOR EARNING THE EXEMPT INCOME. FURTHER, THE DISALLOWANCE IF ANY SHOULD NOT IN ANY CASE EXCEED THE AMOUNT OF EXPENSE CLAIMED BY THE APPELLANT IN RETURN OF INCOME . 2 . BRIEF FACTS, QUA THE GROUND NO.1, A RE THAT THE ASSESSEE IS AN INDIVIDUAL HAVING INCOME FROM SALARY, CAPITAL GAIN, ETC. SHE IS ALSO A DIRECTOR IN M/S. BAJAJ CONSULTANTS PVT. LTD. A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF SHARE BROKING. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SH OWN SHORT TERM CAPITAL GAIN ON SALE OF SHARES MS. SEEMA R. BAJAJ 3 AT ` 2,72,721. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD CARRIED OUT 34 TRANSACTIONS IN 33 SCRIPS AND THE TOTAL NUMBER OF SCRIPS PURCHASED WAS 3310 AND TOTAL NUMBER OF SCRIPS SOLD WAS ALSO 3310. THE AVERAGE HOLDING PERIOD WAS QUITE LESS . THESE FACTS HAVE BEEN NOTED BY THE ASSESSING OFFICER AT PAGE 4 OF THE ASSESSMENT ORDER. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE SHARES WERE NOT PURCHASED FROM SECONDARY MARKET BUT WAS ALLOTT ED THROUGH IPO , WHICH WAS MOSTLY HELD AS CAPITAL ASSET. AT THE TIME OF MAKING THE APPLICATION IN IPO, THE SHARES WERE NOT LISTED IN EXCHANGE AND, THEREFORE, ARE NOT TRADABLE AT THE TIME OF APPLICATION BEING MADE. THE FUNDS ARE BLOCKED FOR 30 45 DAYS AFTER WHICH THE SHARES ARE ALLOTTED AND THERE IS NO CERTAINTY TO THE QUANTITY OF SHARES THAT MAY FINALLY BE ALLOTTED TO THE ASSESSEE . THESE SHARES, AFTER ALLOTMENT, CANNOT BE SOLD BEFORE THEY ARE LISTED IN STOCK EXCHANGE AND, THEREFORE, THEY CANNOT BE TREATED AS SHARE TRADING ACTIVITY. IN THE EARLIER YEARS, THE DEPARTMENT HAS ASSESSED THE TRANSACTION OF IOP SHARES AS CAPITAL GAINS. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND HELD THAT THE NATURE OF TRANSACTIONS HAS TO BE SEEN FROM THE IN TENTION BEHIND AND, HENCE, CANNOT BE DETERMINED FROM THE NATURE OF ASSETS BEING TRADED. ONCE THESE IPO SHARES ARE LISTED, THEY BECAME FREELY TRADABLE AND, THEREFORE, THEY ARE TRADABLE ASSETS. AFTER DETAIL DISCUSSION, HE TREATED THE INCOME FROM SHORT TERM C APITAL GAIN AT ` 2,74,187 AS BUSINESS INCOME. 3 . THE LEARNED COMMISSIONER (APPEALS) HAS CONFIRMED THE FINDING OF THE ASSESSING OFFICER MAINLY ON THE GROUND THAT THE MAGNITUDE AND THE FREQUENCY OF THE TRANSACTION IS QUITE HIGH AND THERE IS A VERY LOW HOLDING PERIOD I.E., THEY ARE LESS THAN 20 DAYS WHICH REFLECTS INTENTION OF THE ASSESSEE THAT IT WAS NOT FOR THE PURPOSE OF INVESTMENT BUT FOR GETTING INDULGED IN THE ADVENTURE OF TRADE. MS. SEEMA R. BAJAJ 4 4 . BEFORE US, THE LEARNED COUNSEL, MR. VIJAY MEHTA, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT FIRST OF ALL, THE ASSESSEE HAD PURCHASED SHARES OF 32 COMPANIES IN THE IPO OUT OF 34 SCRIPS . OTHER THAN THE IPO ONLY TWO SALE TRANSACTIONS WERE THROUGH SECONDARY MARKET. IN THE IPO, ONLY SERIOUS INVESTORS WILL MAKE INVESTMENT , BECAUSE THIS I S THE BEST POSSIBLE MODE OF ACQUIRING SHARES AT A LOWEST PRICE AND SOLD THE SAME AT AN INITIALLY LISTING PERIOD WHICH GIVES THE BEST POSSIBILITY OF GETTING GOOD SALE PRICE. ALL T HROUGH OUT THE VARIOUS ASSESSMENT YEAR S , THE ASSESSEE HAS BEEN MOSTLY ENGAGED IN MAKING INVESTMENT IN IPO SHARES ONLY AND SURPLUS ARISING OUT OF SALE OF SUCH IPO SHARES HAVE BEEN OFFERED AS CAPITAL GAIN WHICH HAS BEEN ASSESSED BY THE DEPARTMENT MOSTLY UNDER SECTION 143(3) NOT ONLY IN THE EARLIER YEARS BUT ALSO IN THE SUBSEQUENT YEA RS. THE COPY OF ASSESSMENT ORDERS HAVE ALSO BEEN PLACED IN THE PAPER BOOK. IN THE CASE OF A BUSINESS VENTURE, HUGE RISK IS UNDERTAKEN , WHEREAS IN THE CASE OF IPO, THERE IS VERY LESS RISK INVOLVED. MOREOVER, THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR THE P URPOSE OF INVESTMENT AND INVESTMENTS HAS BEEN MADE OUT OF HER OWN FUNDS. IN THE BOOKS ALSO, THE PURCHASE OF SHARES IN IPO HAS BEEN SHOWN AS INVESTMENT. FURTHER, THE ASSESSEE HAS NO EMPLOYEE OR SALARY COST AND THE TOTAL EXPENDITURE IS ONLY ` 2,170 OUT OF WH ICH ` 1,780 IS ON ACCOUNT OF ACCOUNTING CHARGES AND ` 420 AS BANK CHARGES. ALL THE SHARES ARE DELIVERY BASED AND THERE IS NO REPETITIVE TRANSACTION. ALL THESE FACTS CAN ONLY LEAD TO A CONCLUSION THAT THE ASSESSEES I NTENTION WAS NOT TO DO ANY TRADING IN SH ARES BUT ONLY TO BUY THE SHARES AS INVESTOR. THUS, AS A MATTER OF CONSISTENCY AND ALSO ON THE FACTS OF THE CASE, THE GAINS SHOWN FROM THE SALE OF SHARES SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAIN AND NOT AS A BUSINESS INCOME. MS. SEEMA R. BAJAJ 5 5 . THE LEARNED DEPARTMENTAL R EPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE AVERAGE PERIOD OF HOLDING IS VERY LESS AND EVEN THE TRANSACTIONS ARE ONLY 34 , THEN ALSO IT HAS TO BE SEEN THAT THE ASSESSEE HAD BROUGHT 3,310 SCRIPS WHICH HAS BEEN SOLD ALSO WITHIN FEW DAYS. THUS, THERE IS FREQUENCY AND VOLUME OF TRANSACTION ALSO. ALL THESE FACTORS CAN ONLY LEAD TO A CONCLUSION THAT THE ASSESSEES INTENTION WAS TO EARN PROFIT FROM BUSINESS OF BUYING AND SELLING OF SHARES. HE FURTHER STRONGLY RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 6 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. FROM THE RECORDS, IT IS SEEN THAT THE ASSESSEE HAS PURCHASED SHARES OF 34 COMPANIES OU T OF WHICH SHARES OF 32 COMPANIES WERE IN IPO. THE ASSESSEE HAS PURCHASED AGGREGATE SHARES OF ` 7,71,415, AND HAS SOLD THE SAME AT ` 10,45,602. THE ASSESSEES CASE HAS BEEN THAT AT THE TIME OF MAKING APPLICATION IN THE IPO, THE SHARES WERE NOT LISTED IN TH E STOCK EXCHANGE AND, THEREFORE, THE SAME ARE N O T IMMEDIATE TRADABLE ITEMS. IN THE IPO, THE FUNDS ARE BLOCKED FOR 30 4 5 DAYS AFTER WHICH THE SHARES ARE ALLOTTED AND THAT TOO THE QUANTITY OF SHARES IS NOT CERTAIN. IT IS ONLY WHEN THE SHARES ARE ALLOTTED, TH EY ARE LISTED IN STOCK EXCHANGE AND WHEREVER THERE IS SOME RISE IN VALUE OF THE SHARES, THE ASSESSEE IMMEDIATELY USED TO SELL THE SAME TO BOOK THE GAIN . THIS PRACTICE OF INVESTMENT IN IPO HAS BEEN CONSISTENT SINCE LAST SEVERAL YEARS AND ALSO IN THE SUBSEQU ENT YEARS , WHEREIN THE INCOME HAS BEEN OFFERED AS CAPITAL GAIN AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT UNDER SCRUTINY PROCEEDINGS UNDER SECTION 143(3). FURTHER, THE INVESTMENTS HAVE BEEN MADE THROUGH OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILI ZED. THUS, THE INTENTION OF THE ASSESSEE WAS ONLY FOR THE INVESTMENT AND NOT FOR TRADING OF SHARES. MOREOVER, THERE IS NO MS. SEEMA R. BAJAJ 6 REPETITIVE TRANSACTION AND ALL ARE DELIVERY BASED, HENCE, ANY GAIN ARISING OUT OF SUCH TRANSACTION IS TO BE ASSESSED AS CAPITAL GAIN. ON THE OTHER HAND, REVENUES CASE IS THAT THE PERIOD OF HOLDINGS IS QUITE LESS AND NUMBER OF TRANSACTIONS IS ALSO HUGE, THEREFORE, IT SHOULD BE ASSESSED AS BUSINESS INCOME. WHILE ADJUDICATING SUCH KIND OF CASES, THE PRIMARY PARAMETER IS TO GAUGE THE INTENT ION OF THE ASSESSEE. THE PERIOD OF HOLDING MAY NOT BE ALL RELEVANT I N THE GIVEN FACTS OF THE CASE. IN THE PRESENT CASE, MOST OF THE INVESTMENTS HAVE BEEN MADE IN IPO , WHICH IS ONLY REFLECTS THE INTENTION OF INVESTMENT FOR GETTING QUICK GAIN FROM SALES IMME DIATELY AS AND WHEN THE SHARES ARE LISTED IN THE STOCK EXCHANGE. TH E PURCHASE OF IPO IS MOSTLY DONE BY THE INVESTORS AS THERE IS LESS RISK OF LOSS. FURTHER, THE OTHER ATTENDANT FACTS LIKE ; THE ASSESSEE HAS UTILIZED ITS OWN FUNDS AND HAS SHOWN THE SHARES UN DER THE HEAD INVESTMENT AND MOST IMPORTANT THAT EXACTLY SIMILAR NATURE OF TRANSACTIONS HAVE BEEN HELD BY THE DEPARTMENT TO BE CAPITAL GAIN NOT ONLY IN THE EARLIER ASSESSMENT YEARS BUT ALSO IN THE SUBSEQUENT ASSESSMENT YEAR. THUS, THERE HAS BEEN CONSISTENCY WHICH HAS BEEN ACCEPTED. THIS GOES TO SHOW THAT THE INTENTION OF THE ASSESSEE WAS ONLY FOR THE PURPOSE OF MAKING INVESTMENT AND NOT FOR ENTERING INTO ANY VENTURE OF TRADE. UNDER THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT THE GAIN ARISING OUT OF SALE OF S HARES SHOULD BE ASSESSED AS CAPITAL GAIN AND NOT AS A BUSINESS INCOME. THE FUNDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) ARE BASED ON VARIOUS DECISIONS WHICH CANNOT BE HELD TO BE APPLICABLE UNIVERSALLY IN ALL THE CASES , BECAUSE I N SUCH KIND OF TRANSACTION, EACH FACT OF THE CASE HAS TO BE ANALYSED , DEPENDING UPON THE INTENTION OF THE ASSESSEE AND ALSO THE OTHER ATTENDANT CIRCUMSTANCES. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND AL LOW THE GROUND NO.1, RAISED BY THE ASSESSEE. MS. SEEMA R. BAJAJ 7 7 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 64,349 UNDER SECTION 14A. 8 . THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DERIVED DIVIDEND INCOME OF ` 479, WHICH WAS CLAIMED AS EXEMPT. AG AINST THIS THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE AND, ACCORDINGLY, HE WORKED OUT THE DISALLOWANCE OF ` 64,349 AFTER TAKING 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT. 9 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEES CASE HAS BEEN THAT T HE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE AND ONLY AMOUNT OF ` 2,170 HAS BEEN DEBITED WHICH IS ON ACCOUNT OF ACCOUNTANTS FEES AND BANK CHARGES. THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 14A. HOWEVER, THE LEARNED COMMISSIONER (APPEALS ) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT ONCE THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE IN THE PROFIT & LOSS ACCOUNT, THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 14A. 11 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). 12 . AFTER HEARING BOTH THE PARTIES AND ALSO ON A PERUSAL OF THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT THE ASSESSEE HAS ONLY DEBITED SUM OF ` 2,1 70 AS EXPENDITURE WHICH IS ON ACCOUNT OF BANK CHARGES AND ACCOUNTANT FEES. THESE EXPENDITURES CANNOT BE, IN ANY MANNER, SAID TO BE ATTRIBUTABLE FOR EARNING OF THE EXEMPT INCOME. THUS, WHEN THERE IS NO T MUCH EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT, THEN THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 14A.