POONAM ISHWARDAS KIRPALANI, MUMBAI V. ACIT 12(2), MUMBAI

ITA 3225/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71258 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 03-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Business income; Rule of consistency; Transactions in derivatives; Period of limitation
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL I II I BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . . . ! ! ! ! , ' ' ' ' #$ #$ #$ #$ BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA, AM , AM , AM , AM ./ I.T I.TI.T I.T.A. NO. .A. NO. .A. NO. .A. NO.3225 3225 3225 3225/MUM/2012 /MUM/2012 /MUM/2012 /MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR :2008-09) SMT. POONAM ISHWARDAS KIRPALANI, 121, MAKER TOWER-1, CUFFE PARADE, COLABA, MUMBAI-400005 / VS. ASSISTANT COMMISSIONER OF INCOME TAX-12(2), MUMBAI $' ' ./ ( ./ PAN/GIR NO. :AERPK0849N ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.3226/MUM/2012 3226/MUM/2012 3226/MUM/2012 3226/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR :2008-09) SHRI ISHWARDAS N. KIRPALANI, 121, MAKER TOWER-1, CUFFE PARADE, COLABA, MUMBAI-400005 / VS. ASSISTANT COMMISSIONER OF INCOME TAX-12(2), MUMBAI $' ' ./ ( ./ PAN/GIR NO. :AABPK8189R ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ') ') ') ') , , , , / APPELLANT BY : SHRI HARI S. RAHEJA *+') *+') *+') *+') - -- - , , , , /RESPONDENT BY : SHRI O. P. SINGH - -- - .' .' .' .' / DATE OF HEARING : 4 TH SEPTEMBER 2013 /0& /0& /0& /0& - -- -.' .' .' .' /DATE OF PRONOUNCEMENT: 27 TH SEPTEMBER 2013 #1 / O R D E R PER : , . . / VIJAY PAL RAO, JM THESE TWO APPEALS BY TWO ASSESSEES BEING HUSBAND AN D WIFE ARE DIRECTED AGAINST RESPECTIVE ORDERS OF COMMISSIONER OF INCOME TAX(APPEALS) BOTH DATED 1.3.2012 FOR THE ASSESSMENT YEAR 2008-09. ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 2 2. SINCE THE COMMON ISSUE HAS BEEN RAISED IN BOTH T HE APPEALS AND THE FACTS AND CIRCUMSTANCES ARE ALSO SIMILAR THEREF ORE, THESE APPEALS ARE HEARD TOGETHER AND BEING DISPOSED OFF BY THIS C OMPOSITE ORDER. 3. WE NOTE THAT THE REGISTRY ISSUED A DEFECT MEMO P OINTING OUT THE DELAY OF 9 DAYS IN FILING THE APPEAL WHICH HAS BEEN RECTIFIED BY THE ASSESSEE BY EXPLAINING THAT THERE WAS A MISTAKE IN THE FORM 36 WITH RESPECT TO THE DATE OF COMMUNICATION OF ORDER. THE ASSESSEE MENTIONED THE DATE OF COMMUNICATION AS THE DATE OF ORDERS ITSELF WHEREAS DATE OF COMMUNICATION OF THE IMPUGNED ORDER IS 17.4.2012. THE ASSESSEE HAS FILED A COPY OF THE POSTAL ENVELOP BY WHICH ORDER WAS DELIVERED TO THE ASSESSEE. THUS, THE ASSESSEE SUBMI TTED THAT THE APPEALS OF THE ASSESSEE ARE WITHIN THE PERIOD OF LI MITATION. WE HAVE VERIFIED THE RECORD AND FOUND THAT THE DATE OF COMM UNICATION OF THE ORDERS IS 17.4.2012 AS IT IS EVIDENT FROM THE POSTA L ENVELOP FILED BY THE ASSESSEE. THEREFORE, THE APPEALS OF THE ASSESSEE AR E WITHIN THE PERIOD OF LIMITATION. THE APPEAL AS IN CASE OF ISHWARDAS N . KIRPALANI (HUSBAND) IS TAKEN AS LEAD MATTER FOR THE PURPOSE OF FACTS. 4. THE ASSESSEE HAS RAISED THE COMMON GROUND AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME-TAX (APPEALS)-23 , MUMBAI (CIT(A)) ERRED IN CONFIRMING THE ACTION OF THE ACIT- 12(2), MUMBAI (A.O.) IN TREATING THE SHORT TERM C APITAL GAINS OF ` 39,04,133 AS BUSINESS INCOME. THE APPELLANT PR AYS THAT THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE CIT(A) MAY PLEASE BE DELETED, AND THE AMOUNT OF ` 39,04,13 3/- BE TREATED AS SHORT TERM CAPITAL GAINS. ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 3 5. THE ASSESSEE IS AN INDIVIDUAL CARRYING ON THE BU SINESS OF TRADING THROUGH F&O FUTURE AND OPTIONS AND ALSO INVESTS IN SHARES AND SECURITIES. THE ASSESSEE HAS DECLARED 53.5 LACS LON G TERM CAPITAL GAIN AND ` 26 LACS AS SHORT TERM CAPITAL GAIN FROM SALE OF SHARES. FURTHER THE ASSESSEE HAS ALSO SHOWN DIVIDEND INCOME OF ` 9. 16 LAKHS DURING THE YEAR. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF SHORT TERM CAPITAL GAIN ON SALE OF SHARES AND HELD THAT THE AS SESSEE HAS CARRIED THE BUSINESS OF TRADING IN SHARES AND THE PROFIT AR ISING FROM SALE OF SHARES TO THE TUNE OF ` 25,99,025/- OFFERED AS SHOR T TERM CAPITAL GAIN WAS TREATED AS BUSINESS INCOME OF THE ASSESSEE. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO ON THE GROUND TH AT THE ASSESSEE HIMSELF DEALS IN FUTURE AND OPTIONS WHICH IS AKIN T O TRADING IN SHARES AND SECURITIES. FURTHER THE MAGNITUDE OF TRANSACTIO N COUPLED IN REPETITIVE NATURE OF TRANSACTIONS IN SEVERAL SHARES CLEARLY INDICATE THE INTENTION OF THE ASSESSEE TO INDULGE IN THE NATURE OF TRADE/ADVENTURE. 6. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT THE ASSESSEE HAS TRANSACTED ONLY IN 30 SCRIPS DURING TH E YEAR UNDER CONSIDERATION AND TOTAL NUMBER OF TRANSACTION ARE 7 9. HE HAS FURTHER SUBMITTED THAT THE HOLDING PERIOD OF TRANSACTIONS I N MAJORITY OF THE CASES IS FROM 4 MONTHS TO 364 DAYS WHICH RESULTED I N SHORT TERM CAPITAL GAIN. THE LD. AR HAS FURTHER SUBMITTED THAT THE CIT(A) HAS MISUNDERSTOOD THE FACT AND THEREBY TOOK THE NUMBER OF TRANSACTIONS AS ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 4 525 WHEREAS THE ACTUAL TRANSACTIONS ARE ONLY 79. HE HAS FURTHER CONTENDED THAT IN THE EARLIER YEARS RIGHT FROM ASSE SSMENT YEAR 2004-05 THE AO ACCEPTED THE CLAIM OF THE SHORT TERM CAPITAL GAIN IN THE ORDER PASSED U/S 143(3) THEREFORE, THE CLAIM OF THE ASSES SEE CANNOT BE DENIED IN THE YEAR UNDER CONSIDERATION. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTIO N HIGH COURT IN CASE OF CIT VS GOPAL PUROHIT 228 CTR 582. THE LD. AR HAS POINTED OUT THAT THE HOLDING PERIOD OF THE SHARES ON WHICH SHORT TER M CAPITAL GAIN WAS EARNED VARIED FROM ONE MONTH TO 11 MONTHS WHICH PER IOD OF HOLING SHOWS THE INTENTION OF THE ASSESSEE. FURTHER THE AS SESSEE ACQUIRED SHARES TO HOLD AS AN INVESTMENT AND ACCORDINGLY THE SAME WERE ACCOUNTED UNDER THE HEAD INVESTMENT. THE ASSESSEE H AS EARNED THE DIVIDEND OF ` 9,17,000/- WHICH ALSO INDICATES THE I NTENTION OF THE ASSESSEE IN ACQUIRING AND HOLDING THE SHARES AS INV ESTMENT. THE ASSESSEE NEVER TREATED THE SHARES AS ITS STOCK IN T RADE AND VALUED THE SAME AT COST AND NOT AS STOCK IN TRADE. THUS, THE L D. AR HAS SUBMITTED THAT WHEN THE HOLDING PERIOD IN MAJORITY OF CASES V ARIED FROM 4 MONTHS TO 11 MONTHS THEN MERELY BECAUSE THE ASSESSEE IS CA RRYING OUT THE ACTIVITY IN THE FNO SEGMENT WOULD NOT CHANGE THE NA TURE OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES ON DELI VERY BASIS AND RETAINED BY THE ASSESSEE AS INVESTMENT. AS REGARDS THE REPETITIVE NATURE OF TRANSACTIONS THE LD. AR HAS EXPLAINED THA T IN SOME OF THE SCRIPS THE ASSESSEE HAS RE-ENTER BECAUSE AFTER A LO NG TIME THE ASSESSEE EXISTED FROM THE PARTICULAR SCRIPS AND THE N AGAIN PURCHASE ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 5 BUT THE PURCHASED AND SALE OF THE SHARES ARE ONLY W ITH THE INTENTION OF INVESTMENT AND NOT TRADING. WHEN THE ASSESSEE HAS E ARNED SUBSTANTIAL LONG TERM CAPITAL GAIN IN COMPARISON TO THE SHORT T ERM CAPITAL GAIN THEN THE RE-ENTERING IN THE SAME SCRIP ITSELF IS NO T A DECIDING FACTOR. HE HAS RELIED UPON THE VARIOUS DECISIONS OF THIS TRIBU NAL AND SUBMITTED THAT WHEN THE ASSESSEE IS MAINTAINING TWO SEPARATE PORT FOLIO ONE IS FOR INVESTMENT AND ANOTHER FOR OTHER ACTIVITY INCLUDING FUTURE AND OPTIONS THEN WHILE DECIDING THE ISSUE OF SHORT TERM CAPITAL GAIN THE ACTIVITY IN FUTURE AND OPTIONS CANNOT BE CONSIDERED. THE LD. AR HAS FURTHER CONTENDED THAT THE ASSESSEE HAS USED HIS OWN FUND A ND NOT BORROWED FUND. FURTHER THE ASSESSEE HAS ALSO NOT ESTABLISHED ANY OFFICE FOR THE PURPOSE OF THESE TRANSACTIONS OF INVESTMENT WHICH S HOWS THE INTENTION OF THE ASSESSEE IS ONLY TO INVEST. 7. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE MAGNITUDE OF THE TRANSACTION AND THE PERIOD OF THE HOLDING OF SHARES ARE RELEVANT TO DECIDE THE ISSUE. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTION IN A HUGE MAGNITUDE AND THERE ARE REPEATED PURCHASES AFTER SALE OF THE SAME SCRIPS WH ICH SHOWS THE INTENTION OF THE ASSESSEE TO EARN THE PROFIT AND NO T TO HOLD THE SHARES AS INVESTMENT. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CIT(A) HAS POINTED OUT VARIO US SCRIPS IN WHICH THE ASSESSEE HAS CARRIED OUT REPEATED TRANSACTIONS. ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 6 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. IN THIS CASE THE ASSESSEE HAS E ARNED LONG TERM CAPITAL GAIN OF ` 53.5 LAKHS AND SHORT TERM CAPITAL GAIN OF ` 25,99,025/. THE ASSESSEE HAS CARRIED OUT THE TOTAL 79 TRANSACTIONS WHICH GIVE SHORT TERM CAPITAL GAIN. FROM THE FACTS OF THE CASE IT IS CLEAR THAT THE MOST OF THE TRANSACTIONS RESULTED LO NG TERM CAPITAL GAIN OF ` 53.5 LAKHS IN COMPARISON TO THE SHORT TERM CAP ITAL GAIN OF ` 25,99,025/-. FURTHER THE ASSESSEE HAS EARNED THE DI VIDEND INCOME OF ` 9.1 LAKHS HOWEVER, THE AO HAS MENTIONED THE DIVIDEN D INCOME OF ` 12.5 LAKHS. BOTH THE AO AND CIT(A) HAVE TAKEN THE N UMBER OF TRANSACTIONS AS 525 WHICH WE FIND IS NOT CORRECT BE CAUSE THE ORDER OF PURCHASE AND SALE OF A SINGLE TRANSACTION ON SAME D AY HAS BEEN EXECUTED IN VARIOUS SMALL LOTS AS PER THE AVAILABIL ITY OF THE NUMBER OF SHARES TO MEET OUT THE ORDER. THEREFORE, A SINGLE O RDER IS BIFURCATED INTO A NUMBER OF TRANSACTIONS BUT IN FACT IT REMAIN S A SINGLE TRANSACTION AS FAR AS THE TRANSACTIONS OF PURCHASE AND SALE OF SINGLE SCRIPS IS CONCERNED. IT IS EVIDENT FROM THE DETAILS THAT A SI NGLE ORDER IS EXECUTED AS PER THE AVAILABILITY OF THE SHARES ON THE ELECTR ONIC PLATFORM OF THE STOCK EXCHANGE AND THEREFORE A SINGLE TRANSACTION H AS BEEN SHOWN AS 5 TO 10 TRANSACTIONS AND CONSEQUENTLY WHICH HAS BEEN MISUNDERSTOOD BY THE AUTHORITIES BELOW AS 525 TRANSACTIONS. THEREFOR E, THE NUMBER OF TRANSACTIONS AS POINTED OUT BY THE ASSESSEE ARE 79 AND THE TOTAL NUMBER OF SCRIPS IN WHICH THE ASSESSEE HAS CARRIED OUT THESE TRANSACTIONS ARE 30. THE NUMBER OF TRANSACTIONS AND SCRIPS DOES NOT ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 7 INDICATE THAT THE FREQUENCY OF TRANSACTIONS IS HUGE . THOUGH THE ASSESSEE HAS INVESTED IN THE HUGE AMOUNTS AND EARNE D THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN OF SUBSTAN TIAL AMOUNT. 9. IT IS PERTINENT TO NOTE THAT VARIOUS FACTORS HAV E TO BE TAKEN INTO CONSIDERATION FOR DECIDING THE ISSUE WHETHER THE TR ANSACTIONS CARRIED OUT BY THE ASSESSEE ARE IN THE NATURE OF INVESTMENT OR TRADING. IN THE CASE IN HAND IN THE MAJORITY OF THE TRANSACTIONS TH E ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN WHICH SHOWS THAT THE HOLDING PERIOD OF THE SHARES WAS MORE THAN ONE YEAR. EVEN THE SHARES WHICH HAS RESULTED SHORT TERM CAPITAL GAIN THE HOLDING PERIOD IS RANGING FROM 4 MONTHS TO 364 DAYS WHICH ALSO SHOWS THAT THE HOLDIN G PERIOD IS LONG AND THE INTENTION WAS NOT TO REALISED THE PROFIT AT THE EARLIEST POSSIBLE OCCASION OF RISE IN PRICES OF THE SHARES. THE ANOTH ER IMPORTANT ASPECT IS THAT THE ASSESSEE HAS NOT USED ANY BORROWED FUND FO R THE PURPOSE OF PURCHASE OF SHARES AND BUT THE ASSESSEE HAS USED HI S OWN FUND FOR PURCHASING THE SHARES. THE TREATMENT OF THE SHARES IN THE BOOKS OF ACCOUNT HAS BEEN SHOWN AS INVESTMENT THEREFORE, THE VALUATION OF THE SHARES BY THE ASSESSEE WAS SHOWN AS COST BEING INVE STMENT AND NOT AS STOCK IN TRADE. THERE IS NO QUARREL ON THE POINT TH AT THE ASSESSEE CAN HAVE TWO PORT FOLIOS AS HELD BY THE HONBLE JURISDI CTION HIGH COURT IN CASE OF CIT VS GOPAL PUROHIT (SUPRA). IT IS TO BE N OTED THAT THE SCRIPS WHICH WERE HELD BY THE ASSESSEE FOR MORE THAN ONE Y EAR BEFORE EXIST FROM THE SAME THEN THE RE-PURCHASE OF THE SAME SCRI PS WOULD NOT IPSO- ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 8 FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS CARRIED OUT THE TRADING ACTIVITY IN THE SHARES. IT IS IRREFUTABLE F ACT THAT THE INVESTMENT IN THE SHARES IS NOT MADE FOR INDEFINITE PERIOD. TH E ULTIMATE MOTIVE OF INVESTMENT IS TO EARN THE GAIN DUE TO APPRECIATION OF THE VALUE. IF THERE IS ENOUGH APPRECIATION OVER A LONG PERIOD OF TIME T HEN THE DECISION OF EXISTING FROM A SCRIPT AFTER A LONG PERIOD AND THER EAFTER RE-INVESTMENT IN THE SAME SCRIPS WOULD NOT CHANGE THE NATURE OF T RANSACTION WHEN THE OTHER FACTORS I.E. HOLDING PERIOD, TREATMENT IN THE BOOKS AND FREQUENCY OF TRANSACTION ETC. ARE IN FAVOUR OF THE ASSESSEE. MOREOVER, THE CLAIM OF SHORT TERM CAPITAL GAIN HAS BEEN ACCEP TED BY THE AO IN THE EARLIER YEARS WHILE PASSING THE ASSESSMENT U/S 143(3). THE ASSESSEE HAS FILED A COPY OF ORDER FOR THE ASSESSME NT YEAR 2004-05 WHEREIN THE AO ACCEPTED THE CLAIM OF SHORT TERM CAP ITAL GAIN OF ` 33.80 LAKHS WHICH SHOWS THAT THE SHORT TERM CAPITAL GAIN OF MORE THAN THE YEAR UNDER CONSIDERATION HAS BEEN ACCEPTED BY T HE AO. IN VIEW OF THE FACTS OF THE CASE WE FIND THAT THE NUMBER OF SC RIPS AND TRANSACTIONS GIVING RISE TO SHORT TERM CAPITAL GAIN ARE NOT VERY HUGE SO AS TO INDICATE THAT THE INTENTION OF PURCHASE AND SALE WA S NOT THE INVESTMENT BUT TRADING. FURTHER WHEN THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE SHORT TERM CAPITAL GAIN IN THE EARLIER YEAR THEN IN THE SAME FACTS AND CIRCUMSTANCES THE RULE OF CONSISTENCY HAS TO BE MAINTAINED AS HELD BY THE HONBLE HIGH COURT IN CASE OF CIT VS GOPAL PUROHIT (SUPRA). ACCORDINGLY, WE SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND ALLOWED THE CLAIM OF THE ASSESSEE. ITA NO. 3225 & 3226/M/2012 SMT. POONAM ISHWARDAS KIRPALANI 9 IN APPEAL ITA NO. 3225 IN APPEAL ITA NO. 3225 IN APPEAL ITA NO. 3225 IN APPEAL ITA NO. 3225 10. IN THE CASE OF WIFE THE FACTS ARE IDENTICAL EXC EPT THE NUMBER OF SCRIPS BEING 29, LONG TERM CAPITAL GAIN OF ` 92 LAK HS, SHORT TERM CAPITAL GAIN OF ` 39 LAKHS AND DIVIDEND INCOME OF ` 12.5 LAKHS. ALL OTHER FACTS AND CIRCUMSTANCES ARE IDENTICAL AS IN THE CAS E OF THE HUSBAND SHRI ISHWARDAS KIRPALANI. ACCORDINGLY, IN VIEW OF O UR FINDING IN CASE OF THE HUSBAND THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE CLAIM OF SHORT TERM CAPITAL GAIN IS ALLOWED. 11. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF SEPTEMBER 2013 SD/- SD/- ( . . ! ) ' #$ (N. K. BILLAIYA) ACCOUNTANT MEMBER ( ) % #$ (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 27 TH SEPTEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI