Shri Ketan Ramniklal Mehta, Ahmedabad V. The Income Tax Officer, Ward-7(2), Ahmedabad

ITA 3216/AHD/2014

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6033 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 04-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V.K. SINGH
• Keywords: Business income; Opportunity of being heard; Transactions in derivatives; Set aside; Capital Gains
• Section: 263; 143(3); 44AB

Judgement Text

आयकर य कर , हमदाबाद याय ‘‘स ’’ हमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD (through web-based video conferencing platform) ] ] BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 3216/Ahd/2014 Assessment Years : 2010-11 Shri Ketan Ramniklal Mehta, 10, Nishant Bungalows, Part-1, Nr. Shyamal Char Rasta, Satellite Road, Ahmedabad – 380015 PAN : AEVPM 2649 Q Vs Income-Tax Officer, Ward 7(2), Ahmedabad ा / (Appellant) य / (Respondent) Assessee by : Shri D.K. Parikh, AR Revenue by : Shri V.K. Singh, Sr DR /Date of Hearing : 02/03/2022 /Date of Pronouncement: 25/03/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : This appeal filed by the assessee is directed against the order of learned Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad (“CIT(A)” in short) dated 16.09.2014. 2. Although as many as 10 grounds are raised by the assessee in this appeal, the learned Counsel for the assessee has not pressed Ground Nos. 5, 6 and 7 while Ground Nos. 8, 9 and 10 are general in nature as submitted by him. Grounds which survive for our consideration are only Ground Nos. 1 to 4 which involve a common issue relating to the treatment to be given to the profit arising to the assessee from the transactions in shares whether capital gain or business income. 3. The material facts of the case which are relevant to this issue are that the assessee is an individual who is mainly engaged in the business of ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 2 manufacturing of tin containers of various sizes in the name and style of proprietary concern M/s. Times Tin Containers. The return of income for the year under consideration was filed by him on 14.10.2010 declaring total income at Rs.16,44,980/-. During the year under consideration, the assessee had undertaken activities in the shares and derivatives trading in individual capacity and the income from the said activities was declared as under:- i) Profit on sale of shares held as investment = Rs.24,74,201/- (Short Term Capital Gains) ii) Profit on sale of shares held as investment = Rs.13,47,806/- (Long Term Capital Gains) iii) Profit from trading in shares = Rs. 98,590/- (Speculation activity) iv) Loss on trading in derivatives =(-) Rs.8,62,256/- 4. During the course of assessment proceedings, the assessee was called upon by the Assessing Officer to furnish the relevant details in respect of all the share transactions. Although the assessee furnished the said details in piecemeal manner at different stages, the full details as required by the Assessing Officer were not furnished by him. From the perusal of the details furnished by the assessee, the Assessing Officer recorded his observations and findings as under:- “The assertion of the assessee that he is into the business of derivatives trading only and the shares taken on delivery basis were held as investment on which STCG and LTCG is claimed to have been earned does not bear any intrinsic value, even if the assessee has categorized the physical stock of shares under any particular class of asset. • It needs a mention that the assessee himself declared that he is into the business of "Trading in shares and derivatives" vide written submission and also confirmed the same in the col. 8(a) of the form no. 3CD (Rule 6G(2)) wherein the assessee has specifically and with conscious mind has discussed ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 3 the nature of business as being the "Futures & Options in shares in the name of Ketan R. Mehta”. • As such, it can be safely inferred that the assessee has deliberately classified the closing stock of shares as being his ‘investment’ with an intent to take benefit of the taxation at lower rate and claiming the LTCG as exempt income. • The word “Intention” cannot be gauged by any calibration. The intention of the assessee lies primarily within his own knowledge. As there is no way to find out as to what is running into the mind and soul of any assessee. This needs to be proved by the assessee himself; as to why he considers any particular thing running in his mind as any particular type i.e. in the instant case the assessee need to prove as to why he considers his closing stock of shares held as being his ‘investment’. • Despite given several opportunities, the assessee failed to furnish complete details in the prescribed format and/or the share trading activity in the form of P&L account wherein transactions have been undertaken on delivery basis. • The assessee's action / treatment given to such transactions in earlier years do not affect current proceedings and whatever, the assessee was disclosing in the earner years is binding upon the department. There is always an option left to protect the interest of revenue, by invoking provisions of Sec. 148 and for Sec. 263 of the Act as applicable. Here it gains importance that the principles of res judicata do not strictly apply to the Income-tax proceedings. • The assessee vide its own submission has contradicted his own disclosure by submitting that he held the share only as investment. As the assessee himself has disclosed the share trading activity j derivatives trading as its business activity for which separate account are maintained and the separate finals accounts are prepared and audited. • Just by classifying any holding of shares as 'Investment' does not partake characteristics of the investment as the same can also be classified as trading stock which is also a sort of Investment of the assessee and is thus classified in the Balance Sheet on the 'ASSET' side. This implies that every closing stock held is off course an 'Investment' but all investment does not necessarily includes the closing stock. As such, mere wrong classification made by the assessee does not change the characteristics of the transactions. It gains importance that during the assessment proceedings, disclosure by the assessee were often changed every now and then. ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 4 • The term "Business" as defined by Sec. 2(13) of the Act is clearly applicable in the instant case as the assessee was involved in the organized, systematic and continuous activity of purchase and sale of shares /derivatives which includes the nature of transactions, its frequency, classification as 'Business Activity' by the assessee himself, which is dealt separately by application of the guidelines/circular issued by the Board. • Nowadays in the modern era, engagement of any employee is not at all necessary to carry out any business activity and that too in the field of Shares/Derivatives trading as the transactions in this business can be accomplished on the computer through 'ONLINE' trading platform, with just a click of a mouse, which is craze at present. Even the funds, Margin payments etc. can be completed online without stepping out of the office/home from wherever these so called transactions are carried on. With the help of the LAPTOP/Mobile phones though 'SMS’, the transactions can be affected, even while on move, which does not require any help of nay persons/employee. Even to make any decision lot of information/ articles/programs are available live on the TV and magazines which does not even requires any help of nay expert. Even otherwise the trading decision needs to be taken by the assessee himself and for that purpose also no employee is required. In case, even if the assessee is not well conversant with the ONLINE system, the transactions in the stock market does not requires any help of the employees as the same can be accomplished through any 'BROKER' which is always just a phone call away. • In his individual books of accounts also the assessee has obtained un-secured loans disclosed outstanding at Rs.33,40,698/- as on 31/03/2010. Further, the fresh capital added in the capital account stands at Rs.86,18,878/- which are mostly form the books of the M/s Time Tin Containers and the entries were affected through OD account. This implies that almost full sum invested in share purchase transactions were made through interest bearing funds. Even otherwise, the assessee has taken heavy loans in the books of M/s. Time tin and the same was later diverted for purchase of share etc. This also gives strength to this fact.” 5. On the basis of the above findings and observations recorded by him as well as by relying on CBDT Circular No.4/2007 dated 15.07.2007, the Assessing Officer treated the entire profit arising to the assessee from the transactions in shares claimed as Short Term Capital Gains, Long Term Capital Gains and Speculation Profit as the business income of the assessee. He also treated the dividend income of Rs.2,63,040/- received by the ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 5 assessee during the year under consideration as the business income of the assessee and brought to tax the total amount of Rs.41,83,637/- in the hands of the assessee under the head “profits and gains of business or profession” in the assessment completed under Section 143(3) of the Act vide order dated 28.03.2013. 6. Against the order passed by the Assessing Officer under Section 143(3) of the Act, an appeal was preferred by the assessee before the learned CIT(A) challenging the action of the Assessing Officer in treating the profits arising from the share transactions claimed as Long Term Capital Gain, Short Term Capital Gain, Speculation Profit and Dividend Income as business income; and, after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) decided this issue vide paragraph No.5.1 of his impugned under as under:- 5.1 Ground No. 1 to 4 are interlinked and against the A.O's treatment to long term capital gain of Rs.1347806, Short term capital gain of Rs. 2474201 and dividend of Rs. 263040 as appellant's business income. The appellant mainly contended that (a) The appellant kept a separate portfolio for investment and over the years department had accepted the same as investment. (b) The appellant invested in shares to earn dividend and consistently followed the practice of investment. (c) The addition of dividend being incidental to appellant's business income by treating LTCG and STCG as business is not justified in view of clear provision of section 10(35), 10(38) of the Act. The A.O. in the impugned order at para 4 accepted that share trading and derivative trading activities for which se para: accounts are maintained. The appellant on the basis of total turnover such separate accounts audited. The A.O. at para 5 of impugned order admitted that tax audit report as required ids 44AB of the Act in Form 3CB & 3CD was separately submitted for share trading activities and derivative trading activities being done in individual capacity while tax audit report for tin manufacturing submitted separately. The A.O. on the basis of tax audit report at para 5 of impunged order recorded the appellant's income/loss from share investment & share trading ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 6 activities in 'net' i.e. internal profit & loss adjusted white working out net STCG, net LTCG, net speculation profit, net derivative loss (being business income). The AO called for details in various Performa's to which appellant submitted details viz demat account, contract note, bills, bank account. The A.O. considered such submission at para 5.6 of the impunged order already discussed at para 4A above). The A.O. thereafter at para 5.7 brought out various test f criteria to examine ascertain about whether assessee is engaged into the business of share trading or not. At para 5.8 of the impunged order the A.O. examined the details & explanation from appellant with these tests criteria alongwith applicability of CBDT cir. no. 4/2007 dt. 15/0712007, Instruction No. 1827 dt. 31/08/89 and relied on various judicial pronouncement. It is undisputed as evidenced from the copy of asstt. order dt. 29/03/2011 for A.Y. 09-10 and order dt. 26/11/2010 for A.Y. 08-09 that brief asstt. order does not discussed or dealt with this issue. Details furnished with copies of these asstt. order in the form of statement of total income reflect that for the previous year relevant to AN. 08-09 appellant reflected short term capital gain of Rs. 1,63,823/- but there is no details about on which share or shares which were purchased on 02/04/07 and sold on 25/03/08 these gains were reflected. Further appellant reflected Rs. 17325/- as long term capital gain for sale of Prism Cement. No details about shareholding as investment were filed. The appellant also reflected speculation income of Rs. 13156 from share but no details were filed. In reference to previous year relevant to A.Y. 09-10, appellant reflected shod term capital loss of Rs. 2,13,428/- in reference to 99 transactions. These transactions are repetitive in respect of following share (on sample / illustration basis) (1) Elecon Engg. Name of Share No. of Shares Date of purchase No. of shares Dt. of sale (i) Elecon Engg. 100 22.09.08 100 07.10.08 100 06.10.08 100 07.10.08 100 06.10.08 100 06.11.08 400 03.11.08 40 06.11.08 100 03.11.08 100 06.11.08 400 06.11.08 400 06.11.08 100 06.11.08 100 07.11.08 400 06.11.08 400 11.11.08 200 12.11.08 200 24.12.08 (ii) Premier Ltd 200 22.09.08 200 07.11.08 950 03.11.08 950 07.11.08 ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 7 The appellant also reflected long term capital loss of Rs. 336585/- in shares which reflect some of the share considered in short term capital loss. This reflect that the brief asstt.order passed by A.O. and relied on by appellant that in earlier year department accepted appellant's investment activities cannot be held/accepted on face of it. I am inclined with A.O. that principle of Resjudicate is not applicable in the income tax Proceedings and each & every asstt. year is distinct and different. Now coming to impunged previous year, the appellant reflected short term capital gain of Rs. 24,74,201/-. The details in the table along with computation of income reflect transaction in 112 Nos. of share scripts. Out of these 112 different share scripts, only in seven scripts, the purchase were made earlier to impunged previous year i.e. before 01/04/09. It is therefore appellant in 105 share script made Transactions in previous year. In term of value, it is phenomenal i.e. in aggregate Rs. 3,50,31,568/- for purchases. At the same time the nos. of share script particularly of the listed company which are not having record of good dividend, these nos. are exceptionally very high. Some of the examples are as follows: (i) CALSREF 36000 (ii) KAVVERITEL 35661 (iii) UGBROS 75294 (iv) ARVIND 79600 (v) NAVNEET PUBLCATION 125R2 (vi) PRISM CEMENT 45500 (vii) VIKAS WSP 18600 (viii) WOCKHARDT 12908 Besides these observations, as per details in this table, for such huge nos. of shares in single script, only single date of purchase and single date of sale is submitted. On being asked, appellant submitted copies of following DEMAT account (i) DEMAT A/C with Action Financial Services (India) Ltd. (IN 300271) (IN 300271) reflecting transaction report as on 16/03/2013 showing statement of transaction from 01/04/2009 to 31/03/2010. (ii) DEMAT A/C with National Securities Depository Ltd. maintained with Shah Investor's home Ltd. (IN 300343) with print date 16.03.13 for statement from 01/04/09 to 31/03/10. These two demat account does not reflect many of the transaction shown by appellant for short terms capital gain. Similarly the transaction reflected in ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 8 these demat account are not reflected in the table for working out short term capital gain. It is therefore, appellant's claim that delivery of shares are taken, investment of shares are supported by holding period and its treatment in books of account as investment cannot be accepted being not duly supported by evidences. Some of the example (on illustrative basis) reflect as follows: (a) The table reflecting short term capital gain reflect gain in reference to 'WOCKHARDT’ in which 12908 shares were purchased on 22/04/09 and sold on 25/11109 but this transaction is not recorded in any of these demat account. On the other hand in the Demat a/c with Action financial services (India) Ltd. there are transfer in and out entries of this scripts with demat a/c with Shah Investor home Ltd. In Shah Investor's home Ltd. demat a/c out of 2000 shares on 23/04/09, 500 share on 05/05/09 purchased, 1000 shares on 23/05/09 and 700 shares on 25/05/09 were sold through C M Oswal shares and securities ltd. as Rolling Market lot. Again 2890 nos. of shares purchased on 06.11.09 and sold 377 on 27/11/09, 1713 on 27.11.09 and 800 on 06.11.10. Again on 29.5.10, 700 shares were purchased. These transactions are not reflected in the table for computation of short term capital gain. Further there are repetitive purchase & sale transaction in a single script which clearly reflect the intention of appellant that said purchase & sale so frequently cannot be for investment or to earn dividend or long term appreciation. It clearly reflect quick profit booking. The appellant during previous year reflected long term capital gain of Rs.1347806/- in 24 share transactions where some of the share scripts like Honey well, TCS are having more than one transactions. Importantly there are transaction of these share scripts in short term capital gain transaction also. For example, TCS shares in 7850 were purchased on 27/05/09 and sold on 23/06/09 while in LTCG. transactions of purchase of 200, 100, 265 i.e. total 565 were purchased on 31/03/06 and sold on 21/04/09, 04/05/09 and 03/07/09 respectively. It is therefore there are repetitive purchasing and sale. The shares purchased on 31/03/06 were sold on 27/04/09 & 04/05/09 but again purchased on 27/05/09 (7850 Nos.) while again these were sold on 27/06/09, thereafter sale of long term capital gain sale on 03/07/09. As against these transactions, only in Demat a/c with Shah Investor's home Ltd. purchase of 800 shares on 05/05/09 is reflected. This further reflect that appellant's transactions are not with the intention of investment but to earn quick profit and transactions are not supported by evidences of delivery, surprisingly, the long term investment are also not reflected in demat account. It is also undisputed that appellant in separate tax audit report reflected business of share trading and trading in derivatives. Further as per ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 9 provisions related to derivatives, appellant was asked to submit all the contract note & bill for derivative transactions. The details in ledger under head F&O Profit & loss a/c reflect daily purchase & sale transaction in the month of April & May of the impunged previous year. This reflect the time devoted by appellant with frequency of transaction in share market. It is therefore, I am inclined with A.O. that intention of appellant as evidenced by transaction, volume, repetition transactions, no supporting evidences for delivery of shares, time & energy devoted to this activities etc. clearly reflect that appellant carried out share transaction in the nature of adventure in the nature of business & trade. I am also inclined with A.O. that circular no. 4/2007 dt. 15/03/07 and Instruction No. 1827 dt. 31/08/89 are applicable to the facts of appellant to a large extent. The ratio of Hon'ble Supreme Court in the case of G. Venkata Swami naidu & co. (supra) as elaborated by A.O. emphasizing repetitive transaction is applicable in the facts of appellant's case. I am also inclined with A.O. that appellant's claim of LTCG cannot be allowed on certain scrip as the same were claimed to be off market transaction without evidences of payment of security transaction Tax (STT). I am inclined with contention of appellant that as per circulars & instructions of board and ratio of various case laws, an assessee is permitted to maintain two portfolio, one for business and other for investment. But, appellant failed to demonstrate that it maintained such two different & distinct portfolio. As discussed above, the Demat account reflect different picture than transaction reflected in statement of income. In reference to principle of consistency has to be given preference, it has already been demonstrated that in earlier year no such specific view of investment was examined or accepted. In earlier year also, there are discrepancies as discussed for previous year. Appellant contended that there is no systematic activities in share transactions but as discussed in earlier para, appellant on day to day basis transacted in huge nos. of shares of various scripts both on recognized stock exchange as well as off market. The appellant's contention that A.O. without any specific finding that appellant indulged in off market transactions, not paid STT, cost of acquisition not proved etc. are on the basis of presumption are not acceptable on the basis of some of the example discussed in earlier para in this regard. With due regards, ratio of various case laws relied by appellant are not applicable to the facts of appellant. It is therefore, treatment of Rs. 1347806 STCG and Rs. 2474201 LTCG as business income by A.O. is justified and upheld. The appellant contended that A.O. without proper verification of STT held that in off market transaction no evidence are there for STT. Once I have upheld the A.O's treatment of LTCG & STCG as business income then A.O. ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 10 is directed to give credit for STT after verification from original evidences. It is in this regard, the tax auditor in 3CD report dt. 30/09/10 at cl. 17(f) in reference to "Amount inadmissible u/s 40(a) of the Act mentioned about Rs. 189422.82 STT & service tax in the books of K.R. Mehta is to be considered. It is therefore grounds related to treatment of STCG & LTCG as business income are treated as partly allowed i.e. the A.O's treatment for business transaction is upheld but A.O. is directed to give credit for STT payment on such transactions. In reference to addition of Rs. 263040/- being dividend as incidental to business income. I am not inclined with A.O. who totally overlooked the provisions of section 10(38) & 10(35) of the Act where such dividend from shares, securities and mutual funds are exempt. It is therefore such additions is neither justified nor sustainable. The ground in this regard is treated as allowed. In conclusion for grounds no. 1 to 4, these are partly allowed with part relief in respect of addition related to dividend of Rs. 263040/- and credit to be given for security transaction tax paid.” 7. The learned CIT(A) thus deleted the addition of Rs.2,63,040/- made by the Assessing Officer by treating the dividend income as business income but upheld the action of the Assessing Officer in treating the profit arising to the assessee from share transactions claimed as Long Term Capital Gain, Short Term Capital Gain and Speculation Profit as business income of the assessee subject to the credit on account of Security Transaction Tax paid. Still aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal. 8. We have heard the arguments of both the sides and also perused the relevant material available on record. The learned Counsel for the assessee has mainly relied on Circular No.6/2016 dated 29.02.2016 issued by the CBDT in which the guidelines have been provided for dealing with the issue as to whether the profit arising from the transactions in shares is to be assessed as business income or capital gain. He has contended that the Hon’ble Gujarat High Court in the case of PCIT vs. Ramniwas Ramjivan ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 11 Kasat, [2019] 410 ITR 540 (Guj.) as well as in the case of PCIT vs. Bhanuprasad D. Trivedi, [2017] 87 taxmann.com 137 (Guj.) has relied upon the CBDT Circular No.6/2016 dated 29.02.2016 to give relief to the assessee on a similar issue. However, as rightly pointed out by the learned DR, the benefit of impugned order having been passed by the learned CIT(A) on 16.09.2014, Circular issued by the CBDT on 29.02.2016 (supra) and the judgments rendered by the Hon’ble jurisdictional High Court subsequently in the two cases cited by the learned Counsel for the assessee by relying on the said circular was not available either to the Assessing Officer or to the learned CIT(A). Since the applicability of the said circular as well as the decisions of the Hon’ble jurisdictional High Court in the two cases cited by the learned Counsel for the assessee to the facts of the present case is required to be verified/examined as rightly contended by the learned DR, we set aside the impugned order of the learned CIT(A) on this issue and restore the matter back to the file of the Assessing Officer for fresh consideration in the light of CBDT Circular No. 6/2016 dated 29.02.2016 and the decisions of the Hon’ble jurisdictional High Court in the case of PCIT vs. Ramniwas Ramjivan Kasat (supra) and PCIT vs. Bhanuprasad D. Trivedi (supra). The Assessing Officer is directed to verify the relevant facts of the case and decide the issue afresh in accordance with law after giving the assessee proper and sufficient opportunity of being heard. 8. In the result, the appeal of the assessee is treated as partly allowed for statistical purposes. Order pronounced in the Court on 25 th March, 2022 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 25/03/2022 ITA No. 3216/Ahd/2014 Ketan Ramniklal Mehta Vs. ITO AY : 2010-11 12 *Bt /Copy of the Order forwarded to : 1. ! / The Appellant 2. "# ! / The Respondent. 3. $%$&' # # ( / Concerned CIT 4. # # ( ) (/ The CIT(A)- 5. + , # &' , # # &' /DR,ITAT, Ahmedabad, 6. , ./ 0 /Guard file. / BY ORDER, TRUE COPY ह # $ज (Asstt. Registrar) # # &' ITAT, Ahmedabad 1. Date of dictation- ...17.03.2022...... 2. Date on which the typed draft is placed before the Dictating Member ...21.03.2022 ............ Other member.... 23.03.2022.......... 3. Date on which the approved draft comes to the Sr.P.S./P.S. - ......23.03.2022............ 4. Date on which the fair order is placed before the Dictating Member for Pronouncement ...25.03.2022. 5. Date on which the file goes to the Bench Clerk....... 25.03.2022............ 6. Date on which the file goes to the Head Clerk.................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order..................... 8. Date of Despatch of the Order..................