DCIT 25(2), MUMBAI V. PRITIN R . NANDU, MUMBAI

ITA 3385/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92415 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 30-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: NEELKANTH KHANDELVAL
• Keywords: Unexplained cash credit; Business income; Share purchase agreement; Additional evidence
• Section: 54F; 14A; 68; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T .A. NO . 4330 / MUM/20 09 ( / ASSESSMENT YEAR : 20 0 6 - 07 ) ASSTT.COMMISSIONER OF INCOME TAX 25( 2 ), 1 ST FLOOR, BLD. NO.C - 11, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E ) , MUMBAI - 400051 / VS. SHRI RAJESH D NANDU C - 109, SHAILESH APA RTMENTS, S V P ROAD, BORIVALI (W), MUMBAI - 400 103 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AABPN3386R ./ I.T.A. NO .3384 /MUM/20 10 ( / ASSESSMENT YEAR : 20 07 - 08 ) DY .COMMISSIO NER OF INCOME TAX 25(2), 1 ST FLOOR, BLD. NO.C - 11, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E),MUMBAI - 400051 / VS. SHRI RAJESH D NANDU C - 109, SHAILESH APARTMENTS, S V P ROAD, BORIVALI (W), MUMBAI - 400103 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AABPN3386R CROSS - OBJECTION NO.16/MUM/2011 ARISING OUT OF I.T.A. NO.3384/MUM/2010 ( / ASSESSMENT YEAR : 2007 - 08) SHRI RAJESH D NANDU C - 109, SHAILESH APARTMENTS, S V P ROAD, B ORIVALI (W), MUMBAI - 400103 / VS. DY. COMMISSIONER OF INCOME TAX 25(2), 1 ST FLOOR, BLD. NO.C - 11, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400051 ( / APPELLANT ) .. ( / RESPONDENT ) ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 2 ./ ./PAN/GIR NO. : AABPN3386R ./ I.T.A. NO .3385 /MUM/20 10 ( / ASSESSMENT YEAR : 20 07 - 08 ) DY.COMMISSIONER OF INCOME TAX 25(2), C - 11, 1 ST FLOOR, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400051 / VS . MS.PRITIN R. NANDU 103, ADITYA TOWER, CHANDAVARKAR LANE, BORIVALI (W), MUMBAI - 400092 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : ABGPN7930B ./ I.T.A. NO .4956 /MUM/20 09 AND ITA NO.3522/ MUM/2010 ( / ASSESSMENT YEA RS : 20 06 - 07 AND 2007 - 08 ) ASSTT.COMMISSIONER OF INCOME TAX 25(3), R.NO.308, C - 11,PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400051 / VS. SHRI RASHMIKANT D VISHARIA FLAT NO.904 A & B, 9 TH FLOOR, A WING, VRINDAVAN, SAIBABA NAGAR, KANDIVALI (W), MUMBAI - 400067 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AABPV5821D / REVENUE BY SHRI AKHILENDRA YADAV / ASSESSEES BY S/S HRI RAJEEV KHANDELWAL AND NEELKANTH KHANDELVAL / DATE OF HEARING : 24.3.2015 / DATE OF PRONOUNCEMENT : 17. 4 . 2015 ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 3 / O R D E R PER B.R.BASKARAN, ACCOUNT ANT MEMBER: ALL THESE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY ONE OF THE ASSESSEES ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) IN THEIR RESPECTIVE HANDS AND THEY RELATE TO THE ASSESSMENT YEARS MENTIONED AGAINST THEIR RES PECTIVE NAME IN THE CAPTION. ALL THESE APPEALS WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE COMMON ISSUE INVOLVED IN ALL THESE APPEALS IS ABOUT THE NATURE OF SHARE TRANSACTIONS CAR RIED ON BY THESE ASSESSEES. WHILE THESE ASSESSEES CLAIM THAT THEY HAVE CARRIED ON THE SHARE TRANSACTIONS AS THEIR RESPECTIVE INVESTMENT ACTIVITY AND CONSEQUENTLY THE GAINS ARISING THERE FROM SHOULD BE ASSESSED AS CAPITAL GAINS, THE ASSESSING OFFICER HAS T AKEN THE VIEW THAT THESE ASSESSEES HAVE CARRIED ON SHARE TRANSACTIONS AS THEIR RESPECTIVE TRADING ACTIVITY AND HENCE THE GAINS ARISING THERE FROM IS ASSESSABLE AS BUSINESS INCOME. 3. WE SHALL FIRST DEAL WITH THE CASE OF SHRI RAJESH D NANDU FOR ASSESSM ENT YEAR 2006 - 07. SHRI RAJESH D NANDU IS A TAX CONSULTANT DOING PRACTICE IN INCOME TAX AND SALES TAX MATTERS. BESIDES THAT, HE IS ALSO A PARTNER IN M/S DIMPLE CREATION, WHICH IS ENGAGED IN CONSTRUCTION ACTIVITY. DURING THE AY 2006 - 07, THE ASSESSEE DECLA RED THE PROFITS ARISING ON SALES, WHERE NO DELIVERY WAS TAKEN AS SPECULATION PROFIT. WHEREVER DELIVERY WAS TAKEN THE GAINS WERE DECLARED AS CAPITAL GAINS. 4. THE ASSESSING OFFICER HELD THAT THE GAINS ARISING ON SALE OF SHARE TRANSACTIONS, WHERE DELIVER Y WAS TAKEN, SHOULD ALSO BE ASSESSED AS BUSINESS PROFITS FOR THE FOLLOWING REASONS: - (A) THE ASSESSEE HAS MAINTAINED HIS BOOKS OF ACCOUNTS IN BUSINESS LIKE MANNER. ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 4 (B) THE ASSESSEE HAS PURCHASED 2819670 SHARES FOR A VALUE OF RS.29.74 CRORES AND SOLD 27 37670 SHARES FOR A VALUE OF RS.34.25 CRORES. THUS THE MAGNITUDE OF PURCHASE AND SALE IS VERY HIGH. (C) THE RATIO OF PURCHASE IS LESS THAN ONE (0.95%), WHICH MEANS THAT THE ASSESSEE IS SELLING SHARES QUICKLY. THE HOLDING PERIOD FOR MOST OF THE SCRIPS RA NGES FROM A FEW DAYS TO FEW MONTHS. THUS THE INTENTION OF THE ASSESSEE IS NOT TO HOLD BUT TO SELL QUICKLY TO EARN PROFIT. (D) THERE IS REPETITION OF TRANSACTIONS. ON AN AVERAGE, THE ASSESSEE HAS CARRIED OUT THREE TRANSACTIONS IN A DAY. THOUGH THE ASS ESSEE HAS INDULGED IN 25 SCRIPS, THE NUMBER OF TRANSACTIONS IS VERY HIGH. (E) THE ASSESSEE HAS UTILIZED FUNDS TO THE TUNE OF RS.46.03 LAKHS FROM KOTAK SECURITIES, THE SHARE BROKER AND M/S KOTAK MAHINDRA INVESTMENTS LTD. THE ASSESSEE HAS PAID INTEREST OF RS.46.25 LAKHS AS INTEREST. (F) THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.11,37,550/ - ONLY. FURTHER, THE ASSESSING OFFICER REFERRED TO CERTAIN DECISIONS AND ALSO THE CIRCULAR ISSUED BY CBDT AND TOOK THE VIEW THAT THE GAINS ARISING ON SALE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME. ACCORDINGLY, HE ASSESSED THE SAME AS BUSINESS INCOME OF THE ASSESSEE. 5. THE LD CIT(A) HAS, HOWEVER, NOTICED FOLLOWING FACTS RELATING TO AY 2006 - 07. (A) THE ASSESSEES MAIN OCCUPATION IS PROVIDING INCOME TAX AN D SALES TAX CONSULTANCY UNDER THE PROPRIETARY CONCERN M/S R.D. NANDU & CO. BESIDES HE IS A PARTNER IN A FIRM NAMED M/S DIMPLE CREATION, WHICH IS ENGAGED IN REAL ESTATE BUSINESS. HE IS ALSO A DIRECTOR IN M/S NANDU FINANCIAL SERVICES PVT. LTD CARRYING ON F INANCING BUSINESS. THUS, THE ASSESSEE CANNOT BE CONSIDERED TO BE EXCLUSIVELY ENGAGED IN SHARE TRADING ACTIVITY. ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 5 (B) THE ASSESSEE HAS DECLARED CAPITAL GAINS ONLY IN AY 1995 - 96, 1996 - 97 AND 1999 - 00. HE HAS DECLARED CAPITAL LOSS IN AY 1997 - 98. AFTER THAT, THE ASSESSEE HAS DECLARED CAPITAL GAIN ONLY DURING THE YEAR UNDER CONSIDERATION, I.E., AY 2006 - 07. IN ALL OTHER YEARS, THE CAPITAL GAIN DECLARED BY THE ASSESSEE HAS BEEN ACCEPTED. (C) THE ASSESSEE HAS NOT AVAILED ANY LOAN AS ASSERTED BY THE ASSESSING OF FICER. ACCOUNT MAINTAINED BY THE ASSESSEE WITH SHARE BROKER WAS OVERDRAWN AND IT WAS SETTLED WITH INTEREST. (D) THE ASSESSEE HAS NOT EMPLOYED ANY EMPLOYEES NOR DID HE CLAIM ANY ESTABLISHMENT EXPENSES. (E) THOUGH THE MAGNITUDE OF PURCHASE AND SALE IS VER Y HIGH, YET THE ASSESSEE HAS DEALT WITH 25 SCRIPS ONLY. (F) IN THE CASE OF GOPAL PUROHIT, THE HONBLE G BENCH OF ITAT CONSIDERED AN IDENTICAL ISSUE AND ACCEPTED THE CLAIM OF CAPITAL GAINS PUT FORTH BY THE ASSESSEE THEREIN, EVEN THOUGH THE ASSESSEE THEREIN WAS ENGAGED IN MORE ORGANIZED ACTIVITY IN SHARES AND HAD HIGHER MAGNITUDE. HOWEVER, THE FACTS PREVAILING IN THE INSTANT CASE IS BETTER THAN THE FACTS THAT PREVAILED IN THE CASE OF GOPAL PUROHIT. CONSIDERING THESE FACTS, THE LD CIT(A) SET ASIDE THE ASSES SMENT ORDER AND DIRECTED THE AO TO ASSESS THE GAIN ARISING ON SALE OF SHARES AS CAPITAL GAINS. 6. BEFORE US, THE LD D.R PLACED STRONG RELIANCE ON THE ASSESSMENT ORDER. HOWEVER, THE LD A.R, BESIDES PLACING RELIANCE ON THE ORDER PASSED BY LD CIT(A), MADE FOLLOWING FURTHER SUBMISSIONS: - (A) THE ASSESSEE HAS NOT BORROWED ANY LOANS FOR THE PURPOSE OF PURCHASING SHARES. THE INTEREST WAS PAID ONLY FOR LATE SETTLEMENT OF BROKERS ACCOUNT. (B) THOUGH THE ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN OF 5.56 CRORE S, ABOUT 85% OF THE PROFIT WAS EARNED IN THREE SCRIPS ONLY, VIZ., ELECON ENGG LTD (3.18 CRORES), RAJASTHAN SPG. MILLS (0.94 CRORE) AND ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 6 ZENITH INFO LTD (0.57 CRORES). THE SHARES OF ELECON ENGG LTD WAS HELD BY THE ASSESSEE FOR 225 DAYS AND THE SHARES OF M/S ZENITH INFO LTD WAS HELD BY THE ASSESSEE FOR 45 DAYS. (C) THE ASSESSING OFFICER WAS NOT CORRECT IN STATING THAT THE ASSESSEE HAS INDULGED IN REPETITIVE TRANSACTIONS. THE SINGLE LOT OF ORDER OF PURCHASE AND SALE OF SHARES WAS EXECUTED BY THE SHARE BROKER IN MORE THAN ONE TRANSACTION AND HENCE THE SAME CANNOT BE CONSIDERED AS REPETITIVE TRANSACTIONS. THE LD A.R FURTHER SUBMITTED THAT THE CBDT HAS LISTED OUT VARIOUS CRITERIA FOR DETERMINING THE NATURE OF TRANSACTIONS AND THE APPLICATION OF THOSE CRITERIA WOU LD PROVE THAT THE ASSESSEE WAS INDULGING IN SHARE TRANSACTIONS AS INVESTMENT ACTIVITY ONLY. IN PARTICULAR, HE SUBMITTED THE FOLLOWING: - (A) THE ASSESSEE HAS DISCLOSED SHARE TRANSACTIONS ARE INVESTMENT ONLY IN HIS BOOKS OF ACCOUNT. (B) THE ASSESSEE HAS VALUED THE SHARES AT COST ONLY. (C) THE ASSESSEE HAS ALSO INCURRED LOSS IN SOME OF THE SCRIPS. (D) IN SUCCEEDING YEAR, THE ASSESSEE HAS INCURRED LOSS ON SALE OF SHARES, BUT THE ASSESSING OFFICER DID NOT DISTURB THE SAME. (E) THE AVERAGE NUMBER OF TRANSACTION OF PURCHASE AND SAL E WAS ONLY 3 TRANSACTIONS PER DAY. THE ASSESSEES MAIN ACTIVITIES ARE DIFFERENT. HENCE THE ASSESSEE HAS SPENT ONLY LITTLE TIME IN SHARE TRANSACTIONS 7. A PERUSAL OF THE CONTENTIONS PUT FORTH BY THE LD A.R, THE FACTS BROUGHT OUT BY LD CIT(A), WE NOTICE THAT THE ASSESSING OFFICER WAS PROVOKED BY THE AMOUNT OF SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. HOWEVER, A CLOSER ANALYSIS OF THE TRANSACTIONS WOULD SHOW THAT THE ASSESSEE HAS EARNED ABOUT 85% OF THE CAPITAL GAINS ONLY IN THREE SCRIPS. THE LD A.R SUBMITTED THAT THERE WAS NO REPETITIVE TRANSACTION, I.E., THE SINGLE ORDER OF PURCHASE OR SALE WAS EXECUTED IN MORE THAN ONE TRANSACTIONS. THE LD CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAS NOT BORROWED MONEY FOR INVESTING IN SHARES. ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 7 ACCORDING TO LD A.R, THE ASSESSEE HAS DELAYED THE SETTLEMENT OF ACCOUNTS AND HENCE HE WAS CONSTRAINED TO PAY INTEREST ON THE OVERDRAWN AMOUNT. THE CONDUCT OF THE ASSESSEE IN THE EARLIER YEARS WOULD SHOW THAT THE ASSESSEE WAS NOT REGULAR IN PURCHASE AND S ALE OF SHARES. FURTHER THE ASSESSEE HAS HELD CERTAIN SHARES, ON WHICH MAJOR PROFIT WAS MADE, FOR 225 DAYS. ALL THESE FACTORS CUMULATIVELY SHOW THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY THE SHARE TRANSACTIONS AS INVESTMENT ACTIVITY ONLY. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A) ON THIS ISSUE. 8. NOW, WE SHALL TAKE UP THE APPEAL FILED BY THE REVENUE FOR AY 2007 - 08. IN THIS YEAR, THE ASSESSEE HAS DECLARED LONG TERM CAPITAL GAINS OF RS.22.45 LAKHS AND SHORT TERM CAPITAL GAIN S OF RS.33.72 LAKHS ON SALE OF SHARES. THE ASSESSING OFFICER, FOR IDENTICAL REASONING GIVEN BY HIM IN AY 2006 - 07, HELD THAT THE GAINS ARISING ON SALE OF SHARES ARE ASSESSABLE AS BUSINESS INCOME OF THE ASSESSEE. THE LD CIT(A) HOWEVER HELD THE ASSESSEE TO BE AN INVESTOR AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO ASSESSEE THE GAINS ARISING ON SALE OF SHARES AS CAPITAL GAINS ONLY. 9. WE HEARD THE PARTIES AND PERUSED THE RECORD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS TRANSACTED IN 19 SCRIPS WHICH RESULTED IN SHORT TERM CAPITAL GAINS OF RS.33.77 LAKHS. THE LONG TERM CAPITAL GAIN WAS EARNED ON SALE OF ONLY ONE SCRIP NAMED M/S ABHINAV HOME & RESORT LTD. IN THIS YEAR ALSO, THE SINGLE ORDER OF PURCHASE/SALE WAS EXECUTED IN MORE THAN ON E TRANSACTION. THUS, IT IS SEEN THAT THE FACTS PREVAILING IN THIS YEAR IS IDENTICAL TO THAT PREVAILED IN THE IMMEDIATELY PRECEDING YEAR. ACCORDINGLY, BY FOLLOWING OUR DECISION RENDERED IN AY 2006 - 07 ABOVE, WE UPHOLD THE ORDER OF LD CIT(A) ON THIS ISSUE. 10. THE ASSESSEE HAS FILED CROSS OBJECTION CHALLENGING THE ORDER PASSED BY LD CIT(A) IN RESPECT OF DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT. WE NOTICE THAT THE ASSESSING OFFICER HAS FOLLOWED THE PROVISIONS OF RULE 8D FOR ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 8 COMPUTING THE DISALLOWA NCE U/S 14A OF THE ACT. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING COMPANY LTD (328 ITR 81) HAS HELD THAT THE PROVISIONS OF RULE 8D SHALL APPLY FROM AY 2008 - 09 ONWARDS AND FOR EARLIER YEARS, THE DISALLOWANCE SHOULD BE COMPUTED ON REASONABLE BASIS. HENCE, THE ASSESSMENT YEAR UNDER CONSIDERATION, BEING AY 2007 - 08, THE TAX AUTHORITIES ARE NOT CORRECT IN APPLYING THE PROVISIONS OF RULE 8D FOR COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT. 11. THE ASSESSEE HAS EARNED D IVIDEND INCOME OF RS.87,500/ - , WHERE AS THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT AT RS.5,55, 397/ - . THE ONLY EXPENDITURE INCURRED BY THE ASSESSEE WAS THE INTEREST OF RS.6,99,479/ - PAID TO THE BROKER ON LATE SETTLEMENT O F ACCOUNTS. THERE SHOULD NOT BE MADE THAT THE ABOVE SAID INTEREST AMOUNT CAN BE LINKED TO PARTICULAR SCRIPS AS PER THE SETTLEMENT PERIOD OF SHARE TRANSACTIONS. HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THIS ISSUE WOULD MEET THE ENDS O F JUSTICE, IF THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT IS ESTIMATED AT RS.50,000/ - . WE ORDER ACCORDINGLY. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 12. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE IN THE CASE OF SMT. PRITIN R NANDU FOR AY 2007 - 08. IN THIS YEAR, THIS ASSESSEE DECLARED SHORT TERM CAPITAL GAIN OF RS.16.95 LAKHS AND LONG TERM CAPITAL GAIN OF RS.22.44 LAKHS. BESIDES THE ABOVE, THE ASSESSEE SOLD SPECULATION PROFIT OF RS.1.09 LAKHS AS BUSINESS INCOME. THE AO TOOK THE VIEW THAT THE MAGNITUDE OF TRANSACTIONS WAS HIGH, THE ASSESSEE HAS ALSO USED BORROWED FUNDS, THERE WAS REPETITION OF TRANSACTIONS ETC. ACCORDINGLY HE ASSESSED BOTH SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE. THE LD CIT(A) HOWEVER HELD THAT THE ASSESSEE WAS AN INVESTOR IN SHARES AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO ASSESS THE GAINS ARISING ON SALE OF SHARES AS CAPITAL GAINS ONLY. ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 9 13. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT TH E ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN OF RS.22.44 LAKHS ON SALE OF ONLY ONE SCRIP NAMED M/S ABHINAV HOME & RESORT LTD. THE AO HAS NOT FURNISHED ANY REASON AS TO HOW THIS TRANSACTION CAN BE CONSIDERED AS BUSINESS TRANSACTION. THE SHORT TERM CAPITAL GAIN WAS EARNED ON DEALING WITH 9 SCRIPS ONLY. OUT OF AGGREGATE AMOUNT OF SHORT TERM CAPITAL GAIN OF RS.16.94 LAKHS, THE ASSESSEE HAS EARNED GAIN OF RS.13.83 LAKHS IN ONLY ONE SCRIP NAMED M/S CAMLIN LTD. THE BALANCE SHEET FILED BY THE ASSESSEE SHOWS THA T THE ASSESSEE IS HAVING CAPITAL BALANCE OF RS.94.37 LAKHS. THE LOANS WERE TAKEN FROM FINANCIAL INSTITUTIONS FOR HOUSING PURPOSES. THOUGH THE ASSESSEE HAS TAKEN LOANS FROM FAMILY MEMBERS, THERE IS NO MATERIAL TO SHOW THAT THE SAME WAS USED FOR PURCHASING SHARES. THE ASSESSEE IS A DIRECTOR IN NANDU FINANCIAL SERVICES P LTD AND DRAWING SALARY. HENCE IT CANNOT BE SAID THAT THE ASSESSEES MAIN ACTIVITY WAS INDULGING IN SHARES. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS ACTED AS AN INVESTOR ONLY. ACCORDINGLY, WE ARE OF THE VIEW THAT THE FIRST APPELLATE AUTHORITY WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ASSESS THE GAINS ARISING ON SALE OF SHARES AS CAPITAL GAINS ONLY. 14. WE SH ALL TAKE UP THE APPEAL FILED BY THE REVENUE IN THE CASE OF SHRI RASHMIKANT D VISHARIA FOR AY 2006 - 07. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN GRANTING RELIEF IN RESPECT OF THE FOLLOWING ISSUES: - (A) ASSESSMENT OF CAPITAL GAINS ARISING ON SALE OF SHARES AS BUSINESS INCOME. (B) ADDITION MADE U/S 68 OF THE ACT. 15. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HEREIN DECLARED SHORT TERM CAPITAL GAIN OF RS.2.66 CRORES. THE AO ASSESSED THE SAME AS BUSINESS INCOME OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: - ASSESSEE IS UNDOUBTEDLY DEALING IN LARGE VOLUME OF SHARES. MOST OF THE SHARES ARE BOUGHT AND SOLD IN FEW DAYS. WHILE SOME ARE NOT SOLD DUE TO ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 10 MARKET CONDITION AN D THEIR HOLDING WITH THE APPELLANT REMAINS BEYOND FEW DAYS, THIS WILL NOT CHANGE THE NATURE OF TRANSACTIONS. ASSESSEE HAS TAKEN LOANS TO DO SHARE BUSINESS. ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SHARE TRADING. MOREOVER YEAR AFTER YEAR DEALING IN SHARES IN LARGE VOLUME ITSELF PROVE THAT THE APPELLANT IS ENGAGED IN SHARE BUSINESS ON FULL SCALE BASIS. HE CANNOT TREAT PROFIT AS SHORT TERM CAPITAL GAIN WHEN SHARES ARE SOLD WITHIN FEW DAYS AND LONG TERM CAPITAL GAIN WHEN SHARES ARE SOLD AFTER ONE YE AR IN EFFECT, THE OBSERVATIONS OF THE AO ARE: - (A) VOLUME OF SHARES IS HIGH AND THEY HAVE BEEN SOLD WITHIN FEW DAYS. (B) ASSESSEE HAS TAKEN LOANS. (C) ASSESSEE IS FULLY ENGAGED IN SHARE BUSINESS. (D) ASSESSEE IS DEALING IN SHARES IN LARGE VOLUME YEAR AFTER YEAR ON FULL SCALE BASIS. 16. THE ABOVE SAID CONTENTIONS OF THE ASSESSEE WERE FOUND TO BE INCORRECT BY THE LD CIT(A) AS UNDER: - (A) THE LD CIT(A) NOTICED THAT THE ASSESSEE HAS DEALT ONLY IN 35 SCRIPS DURING THIS YEAR. (B) THE ASSESSEE ALONG WITH TWO OTHER CO - OWNERS HAS HELD A PROPERTY UNDER THE NAME SHRI RASHMIKANT D VISHARIA & OTHERS. ALL THE CO - OWNERS HAD AGREED TO SELL THE PROPERTY TO M/S LADAK DEVELOPERS AND ACCORDINGLY RECEIVED ADVANCE OF RS.2.35 CRORES. THE SAID ADVANCE AMOUNT WAS USED BY THE ASS ESSEE FOR MAKING INVESTMENTS IN SHARES. UNDER THESE SET OF FACTS, THE LD CIT(A) HELD THAT THE ASSESSEE CANNOT BE CONSIDERED TO HAVE TAKEN LOAN. (C) THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SPECTACLES ON JOB WORK BASIS. THUS THE LD CIT(A) N OTICED THAT THE ASSESSEE IS NOT DEPENDENT UPON THE GAIN FROM SHARE TRADING FOR HIS LIVELIHOOD. (D) THE LD CIT(A) FURTHER NOTICED THAT THE ASSESSEE HAS NOT EARNED ANY CAPITAL GAIN FROM SHARES IN ANY OF THE EARLIER YEARS, I.E., ONLY DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE HAS INDULGED IN SHARE TRANSACTIONS. ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 11 17. THE LD CIT(A) FURTHER NOTICED THAT THE ASSESSEE DID NOT MAINTAIN ANY INFRASTRUCTURE FOR SHARE DEALING AND DID NOT INCUR ANY OTHER TYPE OF EXPENSES. THE ASSESSEE HAS SHOWN SHARE PURCHASES AS HIS INVESTMENT IN HIS BOOKS OF ACCOUNT AND THE SHARES LYING ON HAND AT THE YEAREND WAS VALUED AT COST. ACCORDINGLY HE HELD THAT THE ASSESSEE HAS INDULGED IN SHARE TRANSACTIONS AS INVESTOR ONLY AND HENCE THE GAINS ARISING ON SALE OF SHARES IS ASSESSABL E AS CAPITAL GAINS. 18. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS EARNED THE MAJOR PORTION OF SHORT TERM CAPITAL GAIN ON DEALING IN TWO SHARES ONLY VIZ., MAN INDUSTRIES LTD (RS.1.92 CRORES) AND ELECON ENGINEERING LTD (RS.0.63 CRORE). IN OTHER SHARES, T HE ASSESSEE MADE PROFIT AS WELL AS LOSS, FINALLY RESULTING IN NET SHORT TERM CAPITAL GAIN OF RS.2.66 CRORES. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS, ON AN AVERAGE, CARRIED ON ONLY TWO TRANSACTIONS IN A DAY. HE FURTHER SUBMITTED THAT THE ASSESSING OF FICER HAS STATED THAT THE HOLDING PERIOD WAS LESS IN A VAGUE MANNER. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS STARTED INVESTING IN SHARES ONLY IN THIS YEAR AND HENCE THE ASSESSING OFFICER WAS NOT CORRECT IN TREATING THE ASSESSEE AS A TRADER, WHEN THE IN TENTION OF THE ASSESSEE WAS TO ACT AS INVESTOR ONLY. 19. A PERUSAL OF THE CONTENTIONS PUT FORTH BY THE LD A.R, THE FACTS BROUGHT OUT BY LD CIT(A), WE NOTICE THAT THE ASSESSING OFFICER WAS PROVOKED BY THE AMOUNT OF SHORT TERM CAPITAL GAIN DECLARED BY TH E ASSESSEE. HOWEVER, A CLOSER ANALYSIS OF THE TRANSACTIONS WOULD SHOW THAT THE ASSESSEE HAS EARNED ABOUT 90% OF THE CAPITAL GAINS ONLY IN TWO SCRIPS. FURTHER THE FACTS CONSIDERED BY THE ASSESSING OFFICER WERE PROVED TO BE FALSE BY LD CIT(A). THUS, IT CA N BE NOTICED THAT THE ASSESSING OFFICER HAS PROCEEDED TO ASSESS THE GAINS ARISING ON SALE OF SHARES AS BUSINESS INCOME ON WRONG APPRECIATION OF FACTS. HOWEVER, WE NOTICE THAT THE LD CIT(A) HAS CONSIDERED THE PREVAILING FACTS IN PROPER PERSPECTIVE. HENCE, UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 12 CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS AN INVESTOR. ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE. 20. THE NEXT ISSUE RELATES TO THE DELETION OF CASH CREDIT ASSESSED U/S 68 OF TH E ACT. THE ASSESSING OFFICER ASSESSED A SUM OF RS.1.85 CRORES SHOWN AS LOAN RECEIVED BY THE ASSESSEE FROM SHRI RASHMIKANT D VISHERIA & OTHERS. AS DISCUSSED EARLIER, THE ASSESSEE CLAIMED TO HAVE RECEIVED ADVANCE IN CONNECTION WITH THE SALE OF PROPERTY O WNED BY THE ASSESSEE AND OTHERS AND THE SAME WAS SHOWN AS CREDITOR IN HIS BOOKS OF ACCOUNT. SINCE THE ASSESSEE DID NOT FURNISH NECESSARY DETAILS, THE ASSESSING OFFICER ASSESSED RS.1.85 CRORES AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. BEFORE LD CIT(A) , THE ASSESSEE FURNISHED ALL THE DETAILS RELATING TO RECEIPT OF ADVANCE AND ACCORDINGLY, THE LD CIT(A) DELETED THE ASSESSMENT MADE U/S 68 OF THE ACT. 21. BEFORE US, THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS ACCEPTED ADDITIONAL EVIDENCES AND DID NOT CON FRONT THEM TO THE ASSESSING OFFICER. ACCORDINGLY, THE LD D.R PRAYED THAT THIS ISSUE REQUIRES TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION OF THE ADDITIONAL EVIDENCES. THOUGH THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS CO - TERMINUS POWERS TO EXAMINE THE EVIDENCES, YET WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THIS ISSUE AFRESH BY DULY CONSIDERING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE. ACCORDINGLY, WE SET A SIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY DULY CONSIDERING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDAN CE WITH THE LAW. 22. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE IN THE CASE OF SHRI RASHMIKANT D VISHARIA FOR ASSESSMENT YEAR 2007 - 08. FOLLOWING TWO ISSUES ARE URGED IN THIS APPEAL: - (A) ASSESSMENT OF CAPITAL GAINS AS BUSINESS INCOME. ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 13 (B) REJECTION OF CLAIM FOR EXEMPTION U/S 54F OF THE ACT IN RESPECT OF TWO FLATS. 23. THE FIRST ISSUE RELATES TO ASSESSMENT OF SHORT TERM AS WELL AS LONG TERM CAPITAL GAINS AS BUSINESS INCOME OF THE ASSESSEE. THE ASSESSING OFFICER, ON IDENTICAL REASONS, ASSE SSED THE SHORT TERM CAPITAL GAIN OF RS.69.00 LAKHS AND LONG TERM CAPITAL GAIN OF RS.33.55 LAKHS AS BUSINESS INCOME OF THE ASSESSEE. THE LD CIT(A) HELD THAT THE ASSESSEE SHOULD BE CONSIDERED AS INVESTOR AND ACCORDINGLY REVERSED THE ORDER OF THE AO ON THIS ISSUE. 24. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE FACTS RELATING TO LOANS ARE SAME AS IN LAST YEAR. THE MAJOR PORTION OF GAIN HAS BEEN EARNED IN ONLY ONE SHARES VIZ., FAG BEARINGS LTD. THOUGH THE NUMBER OF TRANSACTIONS WAS 175, THE LD A .R SUBMITTED THAT A SINGLE ORDER OF PURCHASE/SALE WAS CARRIED OUT BY THE BROKER IN MORE THAN ONE TRANSACTION. HENCE THE MAGNITUDE APPEARS TO BE ON THE HIGHER SIDE. IN THE IMMEDIATELY PRECEDING YEAR, WE HAVE NOTICED THAT THE ASSESSEE HAS STARTED INVESTING IN SHARES IN THAT YEAR ONLY. HENCE, THIS IS SECOND YEAR OF OPERATION. THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL IN THIS YEAR ALSO. IN THE PRECEDING YEAR, WE HAVE UPHELD THE VIEW TAKEN BY THE LD CIT(A) THAT THE ASSESSEE WAS ACTING AS INVESTO R ONLY. IN THIS YEAR ALSO, THE FIRST APPELLATE AUTHORITY HAS HELD THAT THE ASSESSEE WAS ACTING AS INVESTOR ONLY. SINCE THIS IS SECOND YEAR OF OPERATION AND SINCE THE FACTS REMAINED THE SAME, WE DO NOT FIND IT NECESSARY TO TAKE A DIFFERENT VIEW IN THIS YE AR. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) ON THIS ISSUE IN THIS YEAR ALSO. 25. THE NEXT ISSUE RELATES TO THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 54F OF THE ACT. THE FACTS RELATING THERETO ARE THAT THE ASSESSEE ALONG WITH OTHER CO - OWNERS SOLD ONE PLOT AND HIS SHARE OF CAPITAL GAIN, AFTER INDEXATION, WORKED OUT TO RS.81.05 LAKHS. THE ASSESSEE INVESTED A SUM OF RS.47.50 LAKHS FOR ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 14 PURCHASE OF A FLAT FROM M/S VADHWA BUILDERS AND ACCORDINGLY CLAIMED EXEMPTION U/S 54F OF THE ACT. 26. THE AO NOTICE D THAT THE ASSESSEE HAD PURCHASED TWO FLATS, VIZ., FLAT NO.904A AND 904B EARLIER IN VRINDAWAN BUILDING, KNADIVALI (W). THOUGH THE ASSESSEE CONTENDED THAT BOTH THE FLATS WERE JOINED TOGETHER AND HE WAS USING AS SINGLE FLAT WITH COMMON ENTRANCE AND COMMON K ITCHEN AND HENCE IT SHOULD BE CONSIDERED AS SINGLE FLAT, YET THE ASSESSING OFFICER DID NOT ACCEPT THE SAME. ACCORDINGLY HE CONSIDERED ONE FLAT AS DEEMED TO HAVE BEEN LET OUT AND ACCORDINGLY HAD ASSESSED THE PROPERTY INCOME. SINCE THE ASSESSING OFFICER HA D TAKEN THE VIEW THAT THE ASSESSEE WAS OWNING TWO FLATS VIZ., 904A AND 904B, HE HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION U/S 54F OF THE ACT, SINCE ON THE DATE OF SALE OF PLOT, THE ASSESSEE HAD ALREADY HEAD TWO FLATS CITED ABOVE. IT IS PERTINE NT TO NOTE THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S 54F OF THE ACT, IF HE HAD ALREADY HELD TWO RESIDENTIAL HOUSES ON THE DATE OF SALE OF PLOT. 27. BEFORE LD CIT(A), THE ASSESSEE CONTENDED THAT THE FLAT NO.904A AND 904B PURCHASED BY HIM HAVE BEE N CONVERTED INTO A SINGLE FLAT WITH DOOR NO. 904 WITH COMMON ENTRANCE AND COMMON KITCHEN. IN SUPPORT OF THE SAME, THE ASSESSEE FURNISHED COPIES OF ALLOTMENT LETTER, MAINTENANCE BILLS OF SOCIETY, SHARE CERTIFICATE OF THE SOCIETY, ELECTRICITY BILLS, TELEPHO NE BILLS AND LPG CONNECTION. ACCORDINGLY IT WAS CONTENDED THAT THE ASSESSEE HAS PURCHASED ONLY ONE FLAT IN VRINDAVAN SOCIETY BY ATTACHING TWO FLATS. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF SUSH ILA M JHAVERI (107 ITD 327). ACCORDINGLY THE ASSESSEE CONTENDED THAT HE HELD ONLY ONE RESIDENTIAL HOUSE ON THE DATE OF SALE OF PLOT. THE LD CIT(A) ACCEPTED THE SAME AND A CCORDINGLY HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 54F OF THE ACT IN RESPECT OF PURCHASE OF NEW FLAT FROM M/S VADHWA BUILDERS. ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 15 28. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE FACT THAT THE ASSESSEE HAS CONVERTED FLAT NO.904 A AND 904B INTO A SINGLE RESIDENTIAL UNIT BEARING DOOR NO. 904 WAS NOT PROVED TO BE WRONG BY THE REVENUE. IN THAT CASE, THE SAME HAS TO BE CONSIDERED TO BE A SINGLE RESIDENTIAL UNIT AS PER THE DECISION OF THE SPECIAL BENCH RENDERED IN THE CASE OF SUSHILA M JHAVERI (SUPRA). RECENTLY THE HONBLE BOMBAY HIGH COURT HAS EXPRESSED IDENTICAL VIEW IN THE CASE OF CIT VS. DEVDAS NAICK (INCOME TAX APPEAL NO.2483 OF 2011 DATED 10 - 06 - 2014). HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT TH E FLAT NOS. 904A AND 904B MODIFIED INTO A SINGLE FLAT SHOULD BE CONSIDERED AS A SINGLE RESIDENTIAL UNIT ONLY. ACCORDINGLY, THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S 54F OF THE ACT. 29. IN THE RESULT, T HE APPEAL FILED BY THE REVENUE (A) IN THE CASE OF SHRI RAJESH D NANDU FOR AY 2006 - 07 AND 2007 - 08 ARE DISMISSED. THE CROSS OBJECTION FILED BY RAJESH D NANDU FOR AT 2007 - 08 IS PARTLY ALLOWED. (B) IN THE CASE OF MS. PRITIN R NANDU IS DISMISSED. (C) IN THE CASE OF SHRI RASHMIKANT D VISHARIA FOR AY 2006 - 07 IS TREATED AS PARTLY ALLOWED AND FOR AY 2007 - 08 IS DISMISSED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 17TH APRIL , 2015. 17TH APRIL, 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 17TH APRIL , 201 5 . . . ./ SRL , SR. PS ITA. NO . 4330 / M UM/ 20 09 AND OTHER F OUR APPEALS 16 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI