ACIT 19(3), MUMBAI V. LATE SMT. MANJULA S. BADANI BY L.H SHASHIKANT G BADANI, MUMBAI

ITA 3432/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100848 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 19-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 15-05-2012
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Rule of consistency; Source of fund
• Section: 6; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R.C . SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 3432 / MUM ./ 2012 ( ASSESSMENT YEAR : 20 08 09 ) ASSTT . COMMISSIONER OF INCOME TAX CIRCLE 19 ( 3 ), PIRAMAL CHAMBERS PAR EL, MUMBAI 400 012 .. APPELLANT V/S LATE SMT. MANJULA S. BADANI BY L/H SHASHIKANT G. BADANI 2 ND FLOOR, CLASSIQUE CORNER HILL ROAD, BANDRA (WEST) MUMBAI 400 050 PAN AABPB7645R .... RESPONDENT ASSESSEE BY : SH RI P.K. BIR LA REVENUE BY : SHRI SANJAY R. PARIKH DATE OF HEARING 19 .0 5 .2015 DATE OF PRONOUNCEMENT 19 .05.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER THIS APPEAL IS FILED BY R EVENUE AGAINST THE ORDER OF CIT (A) - 30, MUMBAI DATED 13.12.2010. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND IS HAVING INCOME FROM HOUSE PROPERTY AND OTHER INCOME. DURING THE YEAR, ASSESSEE HAD EARNED LONG TERM CAPITAL GAIN OF RS LATE SMT. MANJULA S. BADANI 2 1,28,18,747/ - AS WELL AS SHORT TERM CAPITAL GAIN OF RS 43,09,99 0/ - FROM SALE OF SHARES. HOWEVER, AO TREATED THESE LONG TERMS AND SHORT - TERM CAPITAL GAIN DISCLOSED BY THE ASSESSEE AS HER BUSINESS INCOME. FOR THIS , FIRSTLY AO ANALYSED THE INSTRUCTION NO 1827 DATED 31.08.1989, CIRCULAR NO. 4/2007 DATED 15/6/2007 AND THEN TESTED THE FACTS OF THE CASE OF THE ASSESSEE ON TEN TEST SUCH AS USUAL TRADE OR BUSINESS OF THE ASSESSEE; NATURE, QUANTITY, SCALE OF THE PURCHASES AND SALES; MOTIVE TEST, CHARACTERI S ATION IN BOOKS OF ACCOUNTS; TIME DEVOTED BY ASSESSEE; HOLDING PERIOD OF SECURITIES ETC. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ON THESE TESTS, THE AO HELD THAT THE INCOME FROM PURCHASE AND SALE OF SHARES WAS LIABLE TO BE ASSESSED AS BUSINESS INCOME. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED APPEAL BE FORE CIT (A). THE LD. CITA(A), HOWEVER, AFTER CONSIDERING ALL THE TESTS ENUMERATED BY AO CAME TO THE CONCLUSION THAT LONG TERM CAPITAL GAIN OF RS 1,28,18,747/ - AS WELL AS SHORT TERM CAPITAL GAIN OF RS 43,09,990/ - ARE CHARGEABLE TO TAX AS SUCH AND NOT AS BUSINESS INCOME. AGGRIEVED BY THIS ORDER, REVENUE HAS FILED THIS APPEAL ON FOLLOWING GROUNDS: - A) ON THE FACTS AND IN THE CIRCUMSTANCE OF THE AND IN LAW THE LD CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE LONG TERM CAPITAL GAIN OF RS 1,28,18,747/ - AS WELL AS SHORT TERM CAPITAL GAIN OF RS LATE SMT. MANJULA S. BADANI 3 43,09,990/ - AS SUCH AND NOT AS BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE MAGNITUDE OF TRANSACTIONS ARE VOLUMINOUS IN VERY FREQUENT INTERVAL WHICH CLEARLY ESTABLISHES THA T THE MOTIVE FOR TRANSACTIONS WAS TO EARN PROFIT BY PURSUING AN ADVENTURE IN THE NATURE OF TRADE. B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD CIT (A) HAS FAILED DOT APPRECIATE THE FACTS THAT THE DECISION IN THE CASE OF GOPAL PUROHIT 122 TTJ MUM 87 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS FAILED TO APPRECIATE THE GUIDELINES LAID DOWN IN CBDT CIRCULAR NO 4/2007 DATED 15/6/2007. D) ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW , THE LD CIT (A) ERRED IN HOLDING THAT THIS YEAR ALSO THE GAIN SHOULD BE TREATED AS CAPITAL GAIN IN VIEW OF THE FACT THAT IN PAST THE DEPARTMENT HAS ACCEPTED THE GAINS AS CAPITAL GAIN WITHOUT EXAMIN ING WHETHER THE FACTS WERE SIMILAR OR WHETHER THE DEPARTMENTS STAND IN EARLIER YEAR WAS CORRECT. 4. THE LEARNED DR SUBMITTED THAT THERE ARE NUMEROUS TRANSACTIONS IN VARIOUS COMPANIES AND AT FREQUENT INTERVALS THAT HAS RESULTED IN THE LONG TERM AND SHORT - TERM CAPITAL GAIN. FURTHER HOLDING PERIOD IN SOME OF THE TRANSACTIONS IS ALSO VERY SHORT. INVESTMENTS MADE BY THE ASSESSEE ARE ALSO IN NUMBER OF COMPANIES. THE 25 % OF THE INCOME OF THE ASSESSEE IS UNDER OTHER HEADS OTHER THAN CAPITAL GAINS MEANING LATE SMT. MANJULA S. BADANI 4 THERE BY THAT 75% OF THE INCOME OF THE ASSESSEE IS FROM SHARE TRADING ACTIVITIES. ASSESSEE HAS DEALT WITH IN MORE THAN 40 COMPANIES FOR HAVING CAPITAL GAINS. HE ALSO SUBMITTED THAT SOME OF THE TRANSACTIONS HAVE RESULTED IN TO VERY NOMINAL PROFITS. IT WAS ALSO SUBMITTED THAT CHARACTERISATION OF SUCH HOLDING IN THE BOOKS OF ASSESSEE AS INVESTMENTS IS ALSO AGAINST THE MOTIVE OF THE PROFIT AND CONDUCT OF THE ASSESSEE THEREFORE INVESTMENTS IN SHARES CANNOT BE OF CAPITAL ASSETS BUT IS STOCK IN TRADE OF THE ASSESSE E. HE FURTHER RELIED ON THE DECISION OF SMT. SADHNA NABERA V ACIT 25(3) (ITA NO 2586/MUM/2009) DATED 26.03.2010 AND SAID THAT IN CASE OF THE ORDERS OF EARLIER YEARS OF THE ASSESSEE CANNOT BE FOLLOWED WITHOUT APPRECIATING THE FACTS OF THE YEAR UNDER APPE AL. THEREFORE, HE VEHEMENTLY SUBMITTED THAT SHORT TERM AND LONG - TERM CAPITAL GAINS DISCLOSED BY THE ASSESSEE IN HER RETURN OF INCOME IS IN FACT CHARGEABLE TO TAX AS BUSINESS INCOME. 5. LD AR OF THE ASSESSEE ON OTHER HAND VEHEMENTLY CONTROVERTED THE ARGU MENTS OF THE LD DR AND SUBMITTED THAT MAIN SOURCES OF INCOME OF THE ASSESSEE IS INCOME FROM HOUSE PROPERTY WHERE RENTAL INCOME IS GENERATED FROM PROPERTIES. HE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF ITAT IN HER OWN CASE FOR AY 2006 - 07 IN ITA NO 5438/MUM/2009 DATED 06/10/2010. HE SUBMITTED THAT THE FACTS OF THE CASE FOR THIS YEAR ARE FAR BETTER AND SUGGEST THAT THE INCOME OFFERED BY ASSESSEE IS SHORT TERM AND LONG - LATE SMT. MANJULA S. BADANI 5 TERM CAPITAL GAINS ONLY. TO SUPPORT HIS CONTENTION HE SUBM ITTED A CHART SHOWING 16 PARAMETERS OF THE TRANSACTIONS ENTERED IN TO BY THE ASSESSEE TO SUPPORT THAT THE CASE OF THE ASSESSEE IS ON STRONGER FOOTING THAN COMPARED TO AY 2006 - 07 WHERE THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE SUBMITT ED IN PAPER BOOK DETAILS OF CAPITAL GAIN EARNED BY THE ASSESSEE SHOWING THE NAME OF THE SCRIPTS AND GAIN EARNED ON THAT DAY WISE HOLDING OF THE SHARES SOLD AND QUANTITY OF SHARES SOLD. HE FURTHER SUBMITTED THAT DIVIDEND EARNED IN AY 2008 - 09 IS RS 40.16 L AKHS COMPARED TO RS 19.48 LAKHS IN A Y 2006 - 07. AVERAGE PERIOD OF HOLDING IN THE CURRENT YEAR IS 547 DAYS COMPARED TO 229 DAYS IN AY 2006 - 07. HE ALSO SUBMITTED THAT MAXIMUM PERIOD OF HOLDING HAS ALSO INCREASED AND THERE IS NO BORROWINGS MADE BY THE ASSESSE E FOR INVESTMENTS IN SHARES. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD EARNED SUBSTANTIAL DIVIDEND INCOME NOT ONLY IN THIS YEAR BUT FOR THE EARLIER ASSESSMENT YEAR ALSO. HE POINTED OUT THAT ALL THE TRANSACTIONS ARE DELIVER - BASED TRANSACTIONS. HE SUBMITT ED THAT THE ASSESSEE HAS NOT CLAIMED ANY ADMINISTRATIVE EXPENDITURE NOR SHE HAD ANY INFRASTRUCTURE TO DO TRADING. HE POINTED OUT THAT TRADING MEANS HIGH TURNOVERS AND LOW PROFITS. HE FURTHER SUBMITTED ANOTHER CHART OF PERIOD OF HOLDING COMPARED WITH PERIOD OF HOLDING FOR AY 2006 - 07 TO DEMONSTRATE ABOUT THE FACTS FOR THIS YEAR COMPARED TO AY 2006 - 07. LATE SMT. MANJULA S. BADANI 6 6. LD AR FURTHER RELIED ON THE FOLLOWING DECISION TO BUTTRESS HIS CONTENTION A) CIT V GOPAL PUROHIT 3336 ITR 287 ( BOM) B) RADHASOMI SAT SANG V UOI 193 ITR 321 ( SC) C) BHARAT SANCHAR NIGAM LIMITED V UOI 282 ITR 273 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS MADE AND VARIOUS JUDICIAL PRONOUNCEMENTS POINTED OUT BY THE PARTIES AND THE PAPER BOOK SUBMITTED. FOR AY 2006 - 07, THE IDENTICAL QUESTION IN THE CASE OF THE ASSESSEE WAS DECIDED IN ITA NO. 5438/MUM/ 2009 WHERE IN THE CO ORDINATE BENCH OF THIS TRIBUNAL HAS DELETED THIS ISSUE AS UNDER AND HELD THAT THE SHORT TERM AND LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE FROM SALE OF SHARES IS NOT BUSINESS INC OME OF THE ASSESSEE BUT CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. THE RELEVANT PART OF THE SAID ORDER IS REPRODUCED AS UNDER: 10. THE BREAKUP OF GAINS ON DIVESTMENT AS GIVEN BY THE ASSESSEE ARE EXTRACTED BELOW FOR READY REFERENCE: HOLDING PERIOD. GAINS 0 - 30 DAYS 3,888,101 31 - 90 DAYS 3,841,807 91 - 180 DAYS 1,191,155 181 - 365 DAYS 3,907,610 ABOVE 365 DAYS 29,682,268 TOTAL 4,15,10,141 THE AVERAGE PERIOD OF HOLDING OF SHARES, WHICH WAS SOLD, IS 229 DAYS. 71% OF THE PROFITS ARE AS SHARES HELD FOR MORE LATE SMT. MANJULA S. BADANI 7 THAN 365 DAYS. 81% OF THE PROFITS ARE ON SHARES HELD FOR THAN 6 MONTHS. A PERUSAL OF ANNEXURE A - 1 TO THE ASSESSMENT ORDER SHOWS THAT IN VERY FEW CASES THE TRANSACTIONS HAVE TAKEN PLACE ON A SINGLE DAY. THE ASSESSEE CLAIMED THAT THIS WAS DUE TO A MISTAKE COMMITTED WHILE PURCHASING SHARES. OTHERWISE, A PERUSAL OF ANNEXURE A - 1 SHOWS THAT THE ASSESSEE IN NUMBER OF CASES, WHICH ARE LISTED IN THE LAST FOUR PAGES OF THE ANNEXURE, HAS HELD SHARES FOR MORE THAN 300 DAYS. IN FACT THE SHARES OF LIC HOUSING FINANCE WERE HELD F OR MORE THAN 1000 DAYS. IN CERTAIN CASES THE HOLDING PERIOD WAS 1400 DAYS. THE ASSESSEE HAS NOT PURCHASED AND SOLD SHARES IN THE SAME COMPANY MORE THAN ONCE. THE ASSESSEE EARNED DIVIDEND INCOME OF RS.19.48 LAKHS DURING THE YEAR. FOR THE PREVIOUS TWO YEARS THE DIVIDEND INCOME EARNED BY THE ASSESSEE IS RS.31.97 LAKHS AND RS.18.49 LAKHS RESPECTIVELY. THE CONSISTENT RECEIPT OF DIVIDEND INCOME FOR THE PAST FEW YEARS POINTS TO THE MOTO OF THE ASSESSEE. IT IS ALSO SEEN THAT THE ASSESSEE HAS NOT BORROWED MONEY FOR MAKING INVESTMENTS. THE ENTIRE INVESTMENTS WERE MADE OUT OF OWN FUNDS. THE ASSESSEE HAD WELL DIVERSIFIED PORT FOLIO AND HAS INVESTED IN OVER 40 COMPANIES. AN AMOUNT OF RS.300.74 LAKHS, OUT OF A TOTAL INVESTMENT OF RS.667.48 LAKHS WAS MADE IN MUTUAL FUNDS W HICH WORKS OUT TO 45% OF THE INVESTMENT. OUT OF 300.74 LAKHS INVESTED IN MUTUAL FUNDS, RS.274 LAKHS WERE INVESTED IN LIQUID MUTUAL FUNDS I.E. ABOUT 90%. NO TRADER INVESTS IN SUCH A MANNER. IN OUR CONSIDERED VIEW, NO TRADER IN SHARES WOULD MAKE SUBSTANTIAL INVESTMENTS IN MUTUAL FUNDS. THE ASSESSEE HAD NO INFRASTRUCTURE FOR DOING BUSINESS IN SHARES, NOR HAS SHE INCURRED ANY EXPENDITURE EITHER ADMINISTRATIVE OR OTHERWISE FOR INVESTING AND DIVESTING IN SHARES. THE ASSESSEE HAS BEEN CONSISTENTLY DECLARING CAPITA L GAINS FROM THESE INVESTMENTS AND THE AO IN ORDERS PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 2005 - 06 AS WELL AS FOR THE ASSESSMENT YEAR 2004 - 05 HAVE ACCEPTED THE CLAIM OF THE ASSESSEE. WHILE SO, EVEN ON THE PRINCIPLE OF CONSISTENCY THE AO SHOULD NOT HAVE TAKEN DIVERGENT VIEW. 11. THOUGH A NUMBER OF DECISIONS HAVE BEEN RELIED UPON BY THE PARTIES IN THIS CASE, THE SETTLED LAW IS THAT THERE CAN BE NO SINGLE TEST WHICH CAN BE APPLIED TO FIND OUT WHETHER A PERSON HAS INVESTMENT IN SHARES OR DOING BUSINESS IN SH ARES. EACH CASE DEPENDS ON THE FACTS OF EACH CASE. THE INTENTION OF THE PERSON HAS TO BE GATHERED FROM THE FACTS LATE SMT. MANJULA S. BADANI 8 AND CIRCUMSTANCES OF THE CASE AND IF THE INTENTION IS TO TRADE OR DO BUSINESS IN SHARES, THE INCOME IS ASSESSABLE UNDER THE HEAD 'PROFITS AND G AINS' FROM BUSINESS AND IF THE INTENTION IS TO INVEST IN SHARES, THE INCOME OR GAINS IS ASSESSABLE UNDER THE HEAD 'CAPITAL GAINS'. 12. IN THE CASE ON HAND, WE UPHOLD THE FINDING OF FACT GIVEN BY THE FIRST APPELLATE AUTHORITY, BASED ON THE PERIOD OF HOLDING , THE INCOME DERIVED BY THE ASSESSEE BY WAY OF DIVIDENDS, THE FACT THAT THERE ARE NO BORROWINGS FOR INVESTMENT IN SHARES, THE VOLUME OF TRANSACTIONS WHICH AS PER THE LEARNED CIT(APPEALS) WAS NOT HIGH AND THE FACT THAT THE ASSESSEE HAS DIVERSIFIED PORTFOLIO AND HAS NOT INDULGED IN REPETITIVE PURCHASE AND SALE OF SHARES OF THE SAME COMPANY AND THE ORDER U/S 143(3) OF THE AO IN THE ASSESSEE'S OWN CASE FOR THE EARLIER TWO ASSESSMENT YEARS, THE FACT THAT THE ASSESSEE HAS INVESTED SUBSTANTIAL AMOUNTS IN MUTUAL FU NDS ETC., HELD THAT THE ASSESSEE IS AN INVESTOR IN SHARES AND NOT A TRADER. THUS, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THE APPEAL OF THE REVENUE. 8. NOW THE FACTS OF THE PRESENT CASE NEEDS TO TESTED WHETHER THE ISSUE IS IN THIS A PPEAL COVERED BY THE ORDER OF HON ITAT IN CASE OF ASSESSEE FOR AY 2006.07. THEREFORE SAME IS TESTED ON FOLLOWING LINES AND SAME ARE NOT CONTROVERTED BY LD. DR: - A) THE NUMBER OF SCRIPS IN BOTH THE YEARS IS MORE OR LESS SIMILAR. B) DIVIDEND INCOME EARNED DURING T HE YEAR IS 40.16 LAKHS COMPARED TO RS 19.48 LAKHS IN THAT YEAR. C) AVERAGE PERIOD OF HOLDING IN THIS YEAR IS 547 DAYS COMPARED TO 229 DAYS IN THAT YEAR. D) THERE WAS NO BORROWING OF FUNDS IN BOTH THE YEARS. E) THERE IS NO DAY TRADING DURING THE YEAR COMPARED TO FEW CASES OF DAY TRADING IN THAT YEAR. F) IN THIS YEAR, 75 % OF PROFIT IS DERIVED FROM SALES OF SHARES TO TOTAL INCOME COMPARED TO 92.68 % IN THAT YEAR. G) THE BREAKUP OF GAINS ON DIVESTMENT AS GIVEN BY THE ASSESSEE ARE EXTRACTED BELOW FOR READY REFERENCE: LATE SMT. MANJULA S. BADANI 9 HOLD ING PERIOD IN DAYS A Y 2006 - 07 A Y 2008 - 09 0 - 30 3888101 77508 31 - 90 3841807 1058724 91 - 180 1191155 887173 181 - 365 3907610 2286582 ABOVE 365 DAYS 29682268 12818782 THIS ALSO SHOWS THAT COMPARED TO AY 2006 - 07 OUT OF TOTAL CAPITAL GAIN OF RS 171287 29/ - ASSESSEE HAS EARNED RS 12817782/ - AS LONG - TERM CAPITAL GAIN, WHICH IS ALMOST 75 %, COMPARED TO THE TOTAL GAIN EARNED BY ASSESSEE IN AY 2006 - 07 OF 71%. 9. THE DECISION OF ITAT IN CASE OF GOPAL PUROHIT IN 122 TTJ 87( MUM) HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT REPORTED IN 34 DTR (BOM) 52 HOLDI N G THAT THERE SHOULD BE CONSISTENCY IN THE STAND FOR SUBSEQUENT YEARS UNLESS THE FACTS OF THE OTHER YEAR ARE DIFFERENT. 10. THEREFORE, ON THE ABOVE ANALYSIS IT IS APPARENT THAT FACTS OF THE CASE OF THE APP ELLANT ARE BETTER THAN ISSUE DECIDED IN FAVOUR OF THE ASSESSEE BY HON. ITAT FOR YA 2006 - 07. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH IN CASE OF ASSESSEE HERSELF FOR AY 2006 - 07 IN ITA NO 5438/MUM/2009, IT IS HELD THAT LONG TERM CAPITAL GAIN OF RS.1,28,18,782/ - AND SHORT TERM CAPITAL GAIN OF RS. LATE SMT. MANJULA S. BADANI 10 43,09,990/ - IS NOT THE BUSINESS INCOME OF THE APPELLANT BUT IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. 11. THEREFORE, THE APPEAL OF THE R EVENUE IS DISMISSED. ORDER PRONOUNCED IN T HE OPEN COURT O N 19.05.2015 SD/ - R.C. SHARMA ACCOUNTANT MEMBER SD/ - SANJAY GARG JUDICIAL MEMBER MUMBAI, DATED : 1 4 .0 8 .2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITA T, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI