ACIT-25(3), MUMBAI V. PARESH C. JAIN, MUMBAI

ITA 3360/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9241 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJARSHGI DWIVEDY
• Keywords: Business income; Rule of consistency
• Section: 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . !'# , $ %& BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO.3360/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR : 2008-09 THE ACIT-25(3), PRATYAKSH KAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. SHRI PARESH C. JAIN, C-501, SHUBH SHANTI COMPLEX, DHANUKARWADI, KANDIVALI (W), MUMBAI-400 067 &( $ ./ )* ./PAN/GIR NO. : AAZPJ 4277K ( (+ /APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY: SHRI RAJARSHGI DWIVEDY ,-(+ / . / RESPONDENT BY SHRI PRAKASH PANDIT / 01$ / DATE OF HEARING : 17.12.2012 23' / 01$ /DATE OF PRONOUNCEMENT : 19.12.2012 %4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-35, MUMBAI DT.8.3.2011 PERTAINING TO A.Y. 20 08-09. 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD . CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ACCEPT THE CLAIM OF SHORT TERM CAPITAL GAIN OF RS. 1,43,40,508/- WHICH HAS BEEN TREATED BY THE AO AS BUSINESS INCOME. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING FILED ITS RETURN O F INCOME ON 29.9.2008 ITA NO. 3360/MUM/2011 2 DECLARING TOTAL INCOME AT RS. 1,06,10,597/-. THE R ETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTIC ES U/S. 143(2) AND 142(1) ALONG WITH QUESTIONNAIRE WERE ISSUED AND SER VED ON THE ASSESSEE. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAS DECLARED INCOME FROM BUSINESS AT RS. 2,93,892/-, SHORT TERM CAPITAL GAIN (STCG) AT RS. 1,04,04,193/- , INCOME FROM OTHER SOURCES AT RS. 12,512/- AND SPECULATION PROFIT AT R S. 2,51,473/-. THE AO QUESTIONED THE ASSESSEE REGARDING THE SHORT TERM CA PITAL GAINS EARNED ON SALE OF SHARES DIRECTING THE ASSESSEE TO EXPLAIN WH Y THE SAME SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE FILED A DETAILED REPLY EXPLAINING THAT HE IS MAINTAINING TWO PORTFOLIOS ON E IN RESPECT OF BUSINESS INCOME AND THE OTHER AS INVESTMENT IN SHARES. IT W AS EXPLAINED THAT THE ASSESSEE HAD INVESTMENT IN SHARES TO THE TUNE OF RS . 240 LAKHS AS ON 31.3.2006 AND RS. 69.68 LAKHS AS ON 31.3.2007. IT WAS ALSO EXPLAINED THAT IN RESPECT OF TRANSACTION IN SHARES WHERE NO DELIVE RY WAS TAKEN, THE ASSESSEE HAS TREATED THE SAME AS BUSINESS TRANSACTI ON AND ANY PROFIT DERIVED FROM SUCH TRANSACTIONS HAVE BEEN SHOWN AS B USINESS INCOME AND ONLY IN RESPECT OF THE SHARES HELD AS INVESTMENT , THE ASSESSEE HAS SHOWN PROFITS UNDER THE HEAD SHORT TERM CAPITAL GAINS. 4. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS MADE BY THE ASSESSEE, THE AO CAME TO THE CONCLUSION THAT THE AS SESSEE IS ENGAGED IN ONLY ONE ACTIVITY I.E. ACTIVITY OF EARNING PROFIT T HROUGH PURCHASE AND SALE OF SHARES, BE IT INTRA-DAY TRADING OR PURCHASE AND SALE WITHIN SHORT PERIOD OR LONG PERIOD AND ACCORDINGLY TREATED THE STCG SHO WN AT RS. 1,43,40,508/- AS INCOME FROM BUSINESS AND PROFESSIO N. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND EXPLAINED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SOLD ALL THE SHARES HELD BY HIM AS INVESTMENT AND IN SUB SEQUENT YEAR I.E. 2009- ITA NO. 3360/MUM/2011 3 10, THE ASSESSEE DID NOT CARRY OUT ANY SHARE TRANS ACTION. IT WAS FURTHER EXPLAINED TO THE LD. CIT(A) THAT THE ASSESSEE CARRI ED OUT ONLY 123 TRANSACTIONS DURING THE YEAR WHICH CANNOT BE SAID T O BE VOLUMINOUS. THE ASSESSEE ALSO POINTED OUT IN THE IMMEDIATE PRECEDIN G ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS RETURNED SHORT TERM CAPITAL LOSS WHICH HAS BEEN ACCEPTED BY THE OFFICER U/S. 1 43(3) OF THE ACT VIDE ORDER DT. 30.11.2009. THE ASSESSEE PLEADED THAT THE PRINCIPLE OF CONSISTENCY OUGHT TO BE FOLLOWED. 6. AFTER CONSIDERING THE FACTS AND THE DETAILS PROV IDED BY THE ASSESSEE, THE LD. CIT(A) CAME TO THE CONCLUSION THAT ONCE THE SHORT TERM CAPITAL LOSS FOR A.Y. 2007-08 HAS BEEN ACCEPTED BY THE AO, IT WOULD NOT BE JUSTIFIED IN TAXING THE STCG AS BUSINESS INCOME FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) ALSO ADMITTED THAT T HE RULE OF CONSISTENCY SHOULD BE FOLLOWED UNLESS THERE ARE VALID REASONS F OR MAKING DEVIATIONS. THE LD. CIT(A) ALSO OBSERVED THAT IN THE EARLIER A SSESSMENT YEARS THE ASSESSEE HAS SHOWN ALL THE SHARES PURCHASED AS INV ESTMENT. THEREAFTER THE LD. CIT(A) RELIED UPON THE DECISION OF THE TRIB UNAL IN THE CASE OF DCIT VS SMK SHARES AND STOCK BROKING PVT. LTD. IN ITA NO. 799/M/09 DT. 24.11.2010 AND CONCLUDED THAT THE GAIN FROM SHA RES SHOULD BE TREATED AS STCG AS RETURNED BY THE ASSESSEE. 7. AGGRIEVED BY THIS FINDING OF LD. CIT(A), REVENUE IS BEFORE US. 8. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY REL IED UPON THE FINDINGS OF AO AND SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADING AND, THEREFORE, THE GAINS ARISING OUT OF SHARE TRANSACTION HAVE BEEN RIGHTLY TREATED AS BUSINESS INCOME BY THE AO. 9. PER CONTRA, LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE FINDING OF LD. CIT(A) AND SUBMITTED THAT IN THE LIGHT OF THE C IRCULAR OF THE CBDT ITA NO. 3360/MUM/2011 4 NO. 4/2007 DT. 15.6.2007 THE ASSESSEE IS ENTITLED T O MAINTAIN DIFFERENT PORTFOLIOS FOR DEALING IN SHARES AS BUSINESS AND AL SO AN INVESTMENT. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES. THE DISPUTE IS REGARDING THE NATURE OF INCOME FROM SALE AND PURCHASE OF SHARES OF THE ASSESSEE. THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTIC ULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS B EEN A DEBATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEE HAS BEEN SH OWING THE SALE AND PURCHASE UNDER THE HEAD INVESTMENT. IT IS ALSO NOT IN DISPUTE THAT WHEREVER THE ASSESSEE HAS DONE TRADING WITHOUT TAKING ANY DELIVERY, HE HAS SHOWN THE PROFIT AS BUSINESS INCOM E. IT IS ALSO NOT IN DISPUTE THAT IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR, THE AO HAS ACCEPTED THE SHORT TERM CAPITAL LOSS UNDER SCRUTINY ASSESSMENT AS IT IS EVIDENT FROM THE ASSESSMENT ORDER EXHIBITED AT P AGE 13 TO 15 OF THE PAPER BOOK. WE AGREE WITH THE FINDING OF THE LD. C IT(A) THAT THE RULE OF CONSISTENCY SHOULD BE FOLLOWED AS NO NEW MATERI AL FACT HAS BEEN BROUGHT ON RECORD BY THE AO. WE ALSO FIND THAT THE RE IS NO BORROWED CAPITAL WHICH COULD LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS MADE INVESTMENTS OUT OF BORROWED FUNDS. 13. IN THE CASE OF CIT VS GOPAL PUROHIT REPORTED IN 228 CTR 582 WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHERE THE ASSESSEE HAS ENTERED INTO TWO DIFFERENT TYPES O F TRANSACTIONS ONE ACTIVITY BEING OF INVESTMENT IN NATURE ON THE BASIS OF DELIVERY AND SECOND ACTIVITY WITHOUT DELIVERY IT HAS BEEN HELD T HAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS IN NATURE OF INVESTMENT TRANSACTION AND PROFIT THERE FROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. THE RATIO OF THIS CASE ALSO SUPPORTS THE FACTS OF THE PRESENT CASE. CONSIDERING THE FACTS ON RECORD, WE HAVE NO H ESITATION TO HOLD ITA NO. 3360/MUM/2011 5 THAT THE LD. CIT(A) HAS RIGHTLY DIRECTED THE AO TO TREAT THE GAINS AS SHORT TERM CAPITAL GAINS. ACCORDINGLY, WE DO NOT F IND ANY INFIRMITY OR ERROR IN THE FINDINGS OF THE LD. CIT(A) WHICH WE CO NFIRM. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 5 06 )& / 7 $5) / )0 8' ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2012 %4 / 3' $ 7 9%6 19,12,2012 3 / : SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA) /PRESIDENT $ %& / ACCOUNTANT MEMBER MUMBAI; 9% DATED 19.12.2012 . . ./ RJ , SR. PS %4 / ,0 ; '0 / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. < ( ) / THE CIT(A)- 4. < / CIT 5. =: ,0 , , / DR, ITAT, MUMBAI 6. :> ? / GUARD FILE. %4 / BY ORDER, - 0 ,0 //TRUE COPY// @ / 8 ) DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI