Ankit Gupta, New Delhi V. ACIT, New Delhi

ITA 3365/DEL/2011

• Counselvise Citation: 336520114 RSA 2011
• Duration Of Justice: 3 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 29-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Business income; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A , NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.3365 /DEL/2011 ASSESSMENT YEAR : 2007-08 ANKIT GUPTA, VS. ACIT, CIRCLE 28(1), 521, 1 ST FLOOR, NEW DELHI LAHORI GATE, NAYA BAZAR, DELHI 110 006 GIR / PAN:AIRPG6511H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANOOP SHARMA, ADV. RESPONDENT BY : SHRI Y KAKKAR, DR ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 29.04.2011. THE ONLY GROUND TAKEN BY THE ASS ESSEE IS THAT LD. CIT(A) HAS WRONGLY CONFIRMED THE INCOME FROM LONG TERM CAP ITAL GAIN AND SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS PROPRIETOR OF M/S. ANKIT OVERSEAS, WHICH IS IN THE BUSINESS OF TRADING OF FOOD GRAINS AND IS ALSO INVOLVED IN SHARE TRADING. DURING THE YEAR UNDER C ONSIDERATION THE ASSESSEE HAD DECLARED INCOME FROM BUSINESS OF SHARES AS BUSI NESS INCOME EXCEPT FORM THE SHARES OF M/S. AHMEDNAGAR FORGE LTD. WHICH WERE DECLARED UNDER THE HEAD CAPITAL GAINS AS LONG TERM CAPITAL GAIN. THE A.O. OBSERVED THAT OUT OF 40 SCRIPTS DEALT BY ASSESSEE INCOME FROM ONLY ON E SCRIPT WAS DECLARED AS ITA NO.3365/DEL/2011 2 LONG TERM CAPITAL GAIN AND THEREFORE, THE ASSESSEE WAS CONFRONTED REGARDING CLAIM OF LONG TERM CAPITAL GAIN AS THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAD HELD THESE SHARES FOR BUSINESS PURPOSE S ONLY AND, THEREFORE, PERIOD FOR HOLDING WILL NOT CHANGE THE NATURE OF TA XABILITY. IN VIEW OF THIS QUERY, THE LD. A.R. OF THE ASSESSEE FILED A REVISED COMPUTATION OF INCOME WHEREIN HE CLAIMED A PART OF BUSINESS INCOME ALREAD Y DECLARED AS BUSINESS INCOME FROM SOME SHARES OF AHMEDNAGAR FORGE LTD. AS SHORT TERM CAPITAL GAIN & CONTINUED TO CLAIM ANOTHER INCOME FROM SALE OF SUCH SHARES AS LONG TERM CAPITAL GAIN. HOWEVER, THE A.O. WAS NOT SATIS FIED AND HE DISALLOWED THE CLAIM OF THE ASSESSEE FOR SHORT TERM/LONG TERM CAPITAL GAIN ON THESE SHARES AND HELD THE INCOME TO BE AS BUSINESS INCOME BY HOLDING AS UNDER: 3.5 THE MOTIVE OF THE ASSESSEE WAS TO EVADE TAXES THAT IS WHY OUT OF THE SHARES OF 40 DIFFERENT COMPANIES, THE SHARES OF ONLY AHMEDNAGAR FORGE LTD. WAS TREATED AS INVESTMENTS. MOREOVER, IT SEEMS AN AFTERTHOUGHT BECAUSE AS PER THE ORIGINAL COMPUTATIO N FILED, ACCORDING TO WHICH THE TAX LIABILITY WAS CALCULATED AND RETUR N WAS FILED, THE ASSESSEE WAS CLAIMING THE PROFITS OF SALES ON SHARE S OF AHMEDNAGAR FORGE LTD. WHICH WERE HELD FOR LESS THAN 365 DAYS A S BUSINESS INCOME ONLY. THE PROFITS OF SHARES WHICH WERE HELD FOR MOR E THAN 365 DAYS WERE CLAIMED EXEMPT AS LONG TERM CAPITAL GAINS. WHE N THE AR WAS TOLD THAT THIS CLAIM OF LTCG WAS WRONG AS THE SHARE S ARE HELD FOR BUSINESS PURPOSES ONLY AND THE PERIOD OF HOLDING WI LL NOT 'CHANGE THE PATTERN OF TAXABILITY, THE AR FILED REVISED COMPUTA TION AS ON 30.12.2009 CLAIMING THE GAINS FROM SALE OF SHARES O F AHMEDNAGAR FORGE LTD. AS CAPITAL GAINS. 3. AGGRIEVED, THE ASSESSEE FIELD APPEAL BEFORE LD. CIT(A) AND REITERATED HIS SUBMISSIONS. HOWEVER, LD. CIT(A) WAS ALSO NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE. HE UPHELD THE ORDER O F THE A.O. BY HOLDING AS UNDER: ITA NO.3365/DEL/2011 3 5. I HAVE CONSIDERED THE ORDER OF THE AO AND THE SUBMISSION OF THE ASSESSEE AND I DO NOT FIND ANY MERIT IN THE SUB MISSION OF THE ASSESSEE. THE ASSESSEE IS IN APPEAL AGAINST THE ORD ER OF THE AO AND IT IS NOT DISPUTED THAT ASSESSEE IS INVOLVED IN TRADIN G OF SHARES WHICH IS OF HUGE QUANTITY AND OF HUGE AMOUNT AS DISCUSSED IN PARA 4.2 AND A COPY OF THE P & L ACCOUNT OF THE SHARE TRADING IS M ARKED AS ANNEXURE-E. IT IS SEEN THAT THE ASSESSEE IS IN THE BUSINESS EVEN THE ORIGINAL SHARES OF AHMEDNAGAR FORGE LTD HAS NOT BEE N HELD AS INVESTMENT AS THE ASSESSEE HAS INDULGED IN FREQUENT PURCHASE ON SALE OF SHARES AND IT IS ONLY INCIDENTAL THAT OF SHARE T RADING AND HAS NOT BEEN HOLDING ANY SHARE AS INVESTMENT IN THE BALANCE SHEET. SOME SHARES WERE REMAINING WITH THE ASSESSEE WHICH WAS J UST FOR A PERIOD OF MORE THAN 12 MONTHS. THERE HAS BEEN NO INTENTION ON THE PART OF THE ASSESSEE TO MAKE ANY INVESTMENT IN THE SHARES O F AHMEDNAGAR FORGE LTD AS THE ORIGINAL SHARES WERE SOLD AND THER E HAS BEEN FREQUENT PURCHASE AND SALE OF THE SHARES OF THIS CO MPANY. NOT ONLY THAT, THE ASSESSEE HAS ALSO INDULGED IN PURCHASE AN D SALE OF THIS STOCK IN THE CURRENT A.Y. ALSO VIDE THE CHART PARA 4.3 AN D AS DISCUSSED IN PARA 4.5. 5.1 AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANC ES OF THE CASE. I AM OF THE VIEW THAT THERE HAS BEEN NO INTENTION ON THE PART OF THE ASSESSEE TO HOLD THE SHARES OF ANY COMPANY FOR A LONG TERM P ERSPECTIVE AND THE ASSESSEE HAS EVIDENTLY INDULGED IN FREQUENT PURCHAS E AND SALE OF SHARES. IT MAY ALSO BE NOTED THAT THE ASSESSEE DID NOT EVEN DECLARE THE ALLEGED LONG TERM INVESTMENT AND LONG TERM CAPITAL GAIN ON THE 6,900 SHARES ON WHICH THE EXEMPTION OF RS.17,82,568/- HAS BEEN CLAIMED. IT IS ONLY DURING THE COURSE OF ASSESSMENT PROCEEDING THAT THE FACTS CAME TO LIGHT. IT MAY ALSO BE NOTED THAT THE ASSESSEE HI MSELF HAS SOLD 5,405 SHARES WHICH WAS HELD FOR JUST LESS THAN 12 MONTHS AND THE SAME WAS SOLD. IF' THE INTENTION OF THE ASSESSEE WAS TO TREA T THE SHARES AS LONG TERM INVESTMENT, THE ASSESSEE WOULD NOT HAVE SOLD 5 ,405 SHARES JUST BEFORE WHEN THE HOLDING PERIOD WOULD HAVE BEEN 12 M ONTHS. IT MAY ALSO BE NOTED THAT THE ASSESSEE HAS ALSO INDULGED I N PURCHASE AND SALE OF 3,000 SHARES IN THIS YEAR ITSELF AS PART OF SHAR E TRADING WHICH HAS NOT BEEN HIGHLIGHTED BY THE ASSESSEE OR THE AO AND ACCORDINGLY I DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE ASSESSE E AND THE ADDITION MADE BY THE AO IS CONFIRMED. ITA NO.3365/DEL/2011 4 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, THE LD. A. R. SUBMITTED THAT 20,0 00 SHARES OF M/S. AHMEDNAGAR FORGE LTD. WERE RECEIVED AS BONUS SHARES OUT OF WHICH A PART WAS SOLD AND INCOME WAS DECLARED AS BUSINESS INCOME AND FOR THE REST OF SHARES THE ASSESSEE HAD DECIDED TO TREAT THESE AS I NVESTMENT. IT WAS ARGUED THAT THE PROFIT EARNED ON THESE INVESTMENTS WAS A C APITAL GAIN AND DEPENDING UPON THE PERIOD OF HOLDING, IT WAS SEGREGATED INTO LONG TERM AND SHORT TERM CAPITAL GAIN. HE FURTHER ARGUED THAT THE ASSESSEE HAD A RIGHT TO DECIDE AS TO WHICH SHARES HE WOULD BE HOLDING AS INVESTMENT AND WHICH HE WOULD BE HOLDING FOR TRADING PURPOSES AND THEREFORE, REASONI NG OF A.O. THAT WHY ASSESSEE HAD HELD ONLY ONE STOCK OUT OF 40 STOCKS A S INVESTMENT DOES NOT CARRY ANY FORCE. THE LD. A. R. ALSO INVITED OUR AT TENTION TO A COPY OF BALANCE SHEET AS ON 31.03.2006 AND SUBMITTED THAT I NVESTMENT IN THE PARTICULAR SHARES OF M/S. AHMEDNAGAR FORGE LTD. WAS CLASSIFIED AS INVESTMENT IN THE PRECEDING YEAR. 6. LD. D. R. ON THE OTHER HAND SUB MITTED THAT EARL IER, THE ASSESSEE HAD DECLARED THE SHORT TERM CAPITAL GAIN ON THE ABOVE S CRIPT AS BUSINESS INCOME AND ONLY WHEN THE A.O. CORNERED THE ASSESSEE AND SH OW CAUSED TO HIM FOR TREATING LONG TERM CAPITAL GAIN ALSO AS BUSINESS IN COME, THE ASSESSEE FILED REVISED RETURN AND CLASSIFIED A PART OF BUSINESS IN COME AS SHORT TERM CAPITAL GAIN. THEREFORE, HE ARGUED THAT IT WAS AN AFTERTHO UGHT WHICH WAS ONLY MADE TO EVADE TAXES. IT WAS FURTHER SUBMITTED THAT OUT OF STOCK OF 12305 SHARES AS ON 31.03.2006, THE ASSESSEE HAD SOLD 3305 SHARES ON 18.09.2006 AND 20.09.2006 AND HAD FURTHER PURCHASED 3000 SHARES ON 21.09.2006 AND HAD FURTHER SOLD ON 11.10.2006, 12.10.2006, 16.10.2006, 17.10.2006 AND ITA NO.3365/DEL/2011 5 23.10.2006 WHICH CLEARLY SUGGESTS THAT THE INTENTIO N OF THE ASSESSEE WAS NOT TO HOLD THE SHARE AS INVESTMENT BUT TO HOLD THEM AS STOCK IN TRADE AS ASSESSEE WAS INDULGING INTO PURCHASE AND SALES ACTIVITIES CO NTINUOUSLY. 7. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND FROM THE COPY OF BALANCE SHEET AS ON 31.03.2006 AND THE FINDINGS OF A.O. ON PAGE 3, THAT ASSESSEE HAD CLASS IFIED THESE SHARES AS INVESTMENT. THEREFORE, THE INTENTION OF ASSESSEE B ECOMES APPARENT FROM HIS ACTION OF CLASSIFYING THESE SHARES AS INVESTMENT. THIS DECISION CANNOT BE SAID TO BE AFTERTHOUGHT AS ARGUED BY LD. D.R. BECAU SE THIS FACT IS COMING OUT OF ASSESSMENT ORDER ITSELF. WE FIND THAT OUT OF SU CH 12305 SHARES, THE ASSESSEE HAD SOLD 3000 SHARES ON 18.09.2006 AND FUR THER IT HAD SOLD 305 SHARES ON 20.09.2006 LEAVING A BALANCE OF 9000 SHAR ES. THE ASSESSEE THEN AGAIN PURCHASED 3000 SHARES ON 21.09.2006. OUT OF FIRST SET OF 9000 SHARES LEFT OUT FROM BONUS SHARES, THE ASSESSEE AGAIN SOLD 5100 SHARES IN THE MONTH OF OCTOBER 2006 LEAVING BEHIND A BALANCE OF 3900 SH ARES. THESE 3900 SHARES WERE SOLD ON 30.11.2006 LEAVING THE BALANCE OF SHARES AT 3000. THESE 3000 SHARES REPRESENT THE SHARES WHICH WERE PURCHAS ED BY ASSESSEE ON 21.09.2006 WHICH WERE FINALLY SOLD ON 08.12.2006 AN D 19.12.2006. THEREFORE, FROM THE ABOVE FACTS AND CIRCUMSTANCES O F PURCHASE AND SALE OF SHARES, THE FOLLOWING FACTS EMERGE: I) THAT THE ASSESSEE WAS ALLOTTED 20,000 EQUITY SHA RES AS BONUS SHARES WHICH WERE RECEIVED IN HIS DE MAT ACCOUNT ON 22.11. 2005. II) THAT AFTER SELLING A PART OF THESE STOCKS, THE ASSESSEE DISCLOSED BALANCE 12305 SHARES IN HIS BALANCE SHEET AS INVESTMENT DIS TINGUISHING FROM STOCK IN TRADE WHICH WAS DECLARED SEPARATELY. ITA NO.3365/DEL/2011 6 III) THAT THE INCOME FROM SALE OF SUCH SHARES CAN O NLY BE CLASSIFIED UNDER THE HEAD CAPITAL GAINS AND LONG TERM CAPITAL GAIN A ND SHORT TERM CAPITAL GAIN CAN BE CALCULATED ON THE BASIS OF PERIOD OF HO LDING OF SUCH SHARES. 8. THE A.O. CANNOT QUESTION THE WISDOM OF ASSESSEE FOR TREATING ONLY ONE SCRIPT AS INVESTMENT INSTEAD OF ALL 40 SCRIPTS. NEITHER A.O. CAN QUESTION THE TIMING OF PURCHASE AND SALE OF SHARES. THEREFO RE, IN OUR CONSIDERED OPINION, THE CLOSING BALANCE OF 12805 SHARES AS ON 31.03.2006 NECESSARILY REPRESENTED INVESTMENT AND ASSESSEE IS ENTITLED TO BE TAXED ON INCOME FROM SALE OF SUCH SHARES AS CAPITAL GAIN. THEREFORE, WE PRINCIPALLY HOLD THAT INCOME FROM SALE OF THESE SHARES IS TO BE TAXED AS CAPITAL GAINS. HOWEVER, WE ARE NOT IN AGREEMENT WITH THE ASSESSEE AS FAR AS THE CALCULATION OF CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPIT AL GAIN IS CONCERNED. THE ASSESSEE HAS CLAIMED PROFIT ON 6900 SHARES AS LONG TERM CAPITAL GAIN WHICH IS NOT CORRECT AS THE ASSESSEE IS ENTITLED TO LONG TER M CAPITAL GAIN ONLY FOR 3900 SHARES AS THE ASSESSEE HAD PURCHASED 3000 SHARES ON LY ON 21.09.2006 WHICH ARE NOT ENTITLED FOR LONG TERM CAPITAL GAIN AS THES E WERE SOLD ON 08.12.2006 AND 19.12.2006. THE ASSESSEES CLAIM THAT THESE 30 00 SHARES WERE ONLY FOR TRADING PURPOSES DOES NOT HOLD ANY GROUND AS BEFORE PURCHASE OF THOSE SHARES, THE ASSESSEE HAD SOLD AN EQUAL QUANTITY OF 3000 SHARES ON 18.09.2006 WHICH WERE OUT OF BONUS SHARES. THEREFORE, THESE 3 000 SHARES PURCHASED ON 21.09.2006 HAVE TO BE TAXED AS SHORT TERM CAPITAL G AIN AS AGAINST CLAIM OF LONG TERM CAPITAL GAIN. 9. IN VIEW OF THE ABOVE, WE REMIT THIS CASE TO THE FILE OF A.O. TO DETERMINE THE PROFITS OF THE ASSESSEE AS SHORT TERM AND LONG TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME WITH A DIRECTION TO CALC ULATE LONG TERM CAPITAL ITA NO.3365/DEL/2011 7 GAIN ONLY ON 3900 SHARES WHICH WERE SOLD ON 30.11.2 006 AND PROFIT ON REST OF 8405 SHARES IS TO BE ASSESSED AS SHORT TERM CAPI TAL GAIN. NEEDLESS TO SAY THAT ASSESSEE WILL BE PROVIDED NECESSARY OPPORTUNIT Y OF BEING HEARD. 10. IN VIEW OF ABOVE, APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCT., 2014. SD./- SD./- ( DIVA SINGH ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 21 ST OCT., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER