ARTI R KATHOTIA, MUMBAI V. DCIT 12(3), MUMBAI

ITA 3491/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83977 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: B V JHAVERI
• Keywords: Business income; Transactions in derivatives
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./I.T.A. NO.3491/MUM/2012 ( / ASSESSMENT YEAR : 2008-09) SMT. ARTI R KATHOTIA, THE INTERNATIONAL HOUSE, 4 TH FLOOR, NEW MARINE LINES, CROSS ROAD NO.1, NO.16, MAHARSHI KARVE ROAD, CHURCHGATE, MUMBAI-400020 / VS. DY. COMMISSIONER OF INCOME TAX - 12(3), 5 TH FLOOR, AYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./PAN/GIR NO. :AGSPK0722H ' / APPELLANT BY SHRI B V JHAVERI # ' /RESPONDENT BY SHRI PITAMBAR DAS $ % # &' / DATE OF HEARING : 7.8.2014 () # &' /DATE OF PRONOUNCEMENT : 29.10.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 9.3.2012 PASSED BY LD CIT(A)-23, MUMBAI AND IT RELA TES TO THE ASSESSMENT YEAR 2008-09. 2. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO.3 RELATING TO DISALLOWANCE MADE U/S 14A O F THE INCOME TAX ACT, 1961 (THE ACT). ACCORDINGLY, THE SAID GROUND IS DISMIS SED AS NOT PRESSED. 3. THE REMAINING GROUNDS RELATE TO TREATMENT OF INC OME EARNED FROM SALE OF SHARES. I.T.A. NO.3491/MUM/2012 2 4. THE FACTS RELATING TO THE ABOVE SAID ISSUES ARE STATED IN BRIEF. THE ASSESSEE FILED HER RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,57,91,626/- WHICH INCLUDED SHORT TERM CAPITAL GAIN ON SALE O F SHARES (STCG) OF RS.1,59,20,245/-. THE ASSESSEE HAD ALSO DECLARED L ONG TERM CAPITAL GAINS ON SALE OF SHARES (LTCG) AND CLAIMED THE SAME AS EXEMP T U/S 10(38) OF THE ACT. THE ASSESSEE HAD ALSO EARNED INCOME FROM FUTURES & OPTIONS TRADING AND INTRA- DAY TRADING AND THE SAME WAS OFFERED AS BUSINESS INCOME, MEANING THEREBY THE ASSESSEE HAD CATEGORIZED PURCHASE AND SALE OF SHARES AS INVESTMENT, WHENEVER SHE TOOK DELIVERY THEREOF. THE AO TOOK TH E VIEW THAT STCG DECLARED BY THE ASSESSEE SHOULD BE ASSESSED AS BUSINESS INCO ME FOR THE FOLLOWING REASONS : A) THE ASSESSEE HAS SEGREGATED THE SHARES AS INVEST MENT AND STOCK-IN-TRADE TO SUIT HER CONVENIENCE. B) THE ASSESSEE HAS BORROWED FUNDS FOR MAKING INVES TMENT IN SHARES; C) THE VOLUME AND FREQUENCY OF THE TRANSACTIONS WE RE HIGH; D) THE ASSESSEE HAS INDULGED IN THE REPETITIVE TRAN SACTIONS; E) THE ASSESSEE HAS OFFERED THE SHARE INCOME UNDER THE HEAD INCOME FROM BUSINESS IN THE EARLIER YEARS; F) THE ASSESSEE HAS OFFERED THE INCOME ARISING FRO M INTRA-DAY TRANSACTIONS AND F&O TRANSACTIONS AS BUSINESS INCOME, WHICH SHOWS TH AT THE ASSESSEE IS A TRADER IN SHARES; G) THE ASSESSEE DOES NOT HAVE ANY OTHER ACTIVITY EX CEPT TRADING IN SHARES. ACCORDINGLY, THE AO ASSESSED THE SHORT TERM CAPITAL GAIN ARISING ON SALE OF SHARES UNDER THE HEAD INCOME FROM BUSINESS. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) CON FIRMED THE VIEW TAKEN BY THE AO. BESIDES THE ABOVE, THE LD. CIT(A) ALSO DI RECTED THE AO TO ASSESS THE LTCG ALSO AS THE BUSINESS INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6. THE LD.COUNSEL APPEARING FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSEE HAS EARNED LTCG OF RS.16.35 CRORES ON SALE OF A SIN GLE SHARE NAMED M/S SUBHKAM CAPITAL LTD AND THE SAID SHARES WERE PURCHA SED PRIOR TO 1.4.2003. HOWEVER, THE ASSESSEE SUFFERED LONG TERM CAPITAL LO SS OF ABOUT RS.13.85 LAKHS I.T.A. NO.3491/MUM/2012 3 ON SALE OF SHARES OF M/S ROHAN FINANCE AND M/S SWAS TIK. THE SHARES OF BOTH THESE COMPANIES WERE PURCHASED PRIOR TO 1.4.2005. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE HAS HELD THE ABOVE SAID SHARES FO R QUITE A LONG TIME AND THE LD CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE AO TO TREAT THE LTCG AS BUSINESS INCOME. THE LD A.R FURTHER SUBMITTED THAT THE ASSE SSEE HAS EARNED STCG OF RS.1.39 CRORES ALSO ON SALE OF A SINGLE SHARE NAMED M/S GULF OIL CORPORATION LTD. BESIDES THE ABOVE THE ASSESSEE HAS ALSO EARNED STCG OF RS.19.84 LAKHS THROUGH PMS SCHEME OPERATED BY NETWORTH STOCK BROKI NG LTD. ELABORATING FURTHER, THE LD. AR FURTHER SUBMITTED THAT THE ASSE SSEE HAD PURCHASED 1,25,000/- SHARES OF M/S GULF OIL CORPORATION LTD HAVING FAC E VALUE OF RS.10/- EACH IN THE MONTH OF AUGUST 2007. THE SAID SHARES WERE SPLITT ED BY THE COMPANY FROM THE FACE VALUE OF RS.10/-EACH TO THE FACE VALUE OF RS.2 /- EACH. AS A RESULT THEREOF THE ASSESSEES SHAREHOLDING IN THE ABOVE SAID COMPA NY HAS INCREASED FROM 1,25,000 SHARES TO 6,25,000 SHARES. OUT OF THE ABO VE, THE ASSESSEE HAS SOLD 1,25,000 SHARES DURING THE YEAR UNDER CONSIDERATION AND HAS EARNED CAPITAL GAIN OF RS.1.39 CR.. HOWEVER, IN THE SUBSEQUENT YEAR, T HE ASSESSEE HAS SOLD THE BALANCE QUANTITY OF 5,00,000 SHARES AND HAS SUFFERE D LONG TERM CAPITAL LOSS OF RS.8.58 CRORES AND THE SAME HAS BEEN ACCEPTED BY TH E AO. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN DECLARING CAP ITAL GAINS IN THE EARLIER AS WELL AS IN THE SUBSEQUENT YEARS AND THEY HAVE BEEN ACCEPTED BY THE AO. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT USED ANY BORROWED FUNDS FOR MAKING INVESTMENT NOR INDULGED IN REPETITIVE TRANSA CTIONS. WITH REGARD TO THE GAIN EARNED IN PMS SCHEME, THE LD. AR SUBMITTED THA T THE ASSESSEE DOES NOT HAVE CONTROL OVER THE OPERATIONS CARRIED OUT IN PMS SCHEME AND OBJECTIVE OF THE ASSESSEE TO INVEST FUNDS IN PMS SCHEME WAS TO MAKE GAIN OUT OF THE CAPITAL APPRECIATION OF SHARES. THE LD. AR FURTHER SUBMITT ED THAT THE ASSESSEE CAME OUT OF PMS SCHEME DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE LD. AR SUBMITTED THAT THE TAXING AUTHORITIES ARE NOT RIGHT IN LAW PRESUMING THAT THE ASSESSEE IS A TRADER IN SHARES. 7. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE A SSESSEE DOES NOT CARRY ON ANY OTHER ACTIVITY AND SHE WAS ENGAGED FULL TIME IN TRADING IN SHARES. THE ASSESSEE HAS ALSO INDULGED IN INTRA-DAY TRANSACTION S AND F&O TRANSACTIONS AND OFFERED GAIN ARISING THERE FROM AS BUSINESS INCOME. THIS FACT CLEARLY SHOWS THAT THE INTENTION OF THE ASSESSEE WAS TO TRADE IN SHARE S AND NOT TO ACT AS INVESTOR. I.T.A. NO.3491/MUM/2012 4 ACCORDINGLY, THE LD. DR SUBMITTED THAT THE LD. CIT( A) WAS JUSTIFIED IN DIRECTING THE AO TO ASSESS STCG AS WELL AS LTCG AS BUSINESS INC OME OF THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTI ES AND CAREFULLY PERUSED THE RECORD. WE HAVE ALSO GONE THROUGH THE BALANCE SHEET FILED BY THE ASSESSEE. WE NOTICE THAT THE ASSESSEE WAS HAVING CAPITAL BALA NCE OF RS.27.74 CRORES AS ON 31.3.2008 AND INVESTMENT MADE IN SHARES AND DEBE NTURES AS ON THAT DATE WAS SHOWN AT RS.15.48 CRORES. THE ASSESSEE HAS DI SCLOSED LIABILITY OF MERE RS.3.96 LAKHS, THAT TOO FROM HER RELATIVES. THESE F ACTS SHOW THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING INVESTME NTS AND THERE WAS NO NECESSITY TO UTILIZE ANY BORROWED FUNDS FOR MAKING INVESTMENT. HENCE WE DO NOT FIND MERIT IN THE OBSERVATION OF THE AO THAT THE AS SESSEE HAS UTILIZED BORROWED FUNDS FOR MAKING INVESTMENTS IN SHARES. FURTHER, W E NOTICE THAT THE MAJOR AMOUNT OF LTCG EARNED ON SALE OF SHARES OF M/S SUBH KAM CAPITA LTD AND THE SAID SHARES HAVE BEEN SOLD AFTER HOLDING THEM FOR M ORE THAN 4 YEARS. FURTHER WE NOTICE THAT THE ASSESSEE HAS EARNED STCG TO THE EXT ENT OF RS.1.39 CRS ALSO ON SALE OF SHARES OF M/S GULF OIL CORPORATION LTD. THE SE TRANSACTIONS SHOW THAT THE AO WAS NOT CORRECT IN OBSERVING THAT THE ASSESSEE W AS INDULGING IN REPETITIVE TRANSACTIONS. 9. HOWEVER, WE NOTICE THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAIL RELATING TO THE SHARES TRANSACTIONS CARRIED OUT UNDER THE PM S SCHEME OPERATED BY NETWORTH STOCK BROKING LTD. THE OBSERVATIONS MADE BY THE AO WITH REGARD TO THE REPETITIVE TRANSACTIONS MAY BE APPLICABLE TO TH E TRANSACTIONS ENTERED UNDER PMS SCHEME. THOUGH THE ASSESSEE CLAIMED THAT SHE D OES NOT HAVE CONTROL OVER THE PMS SCHEME, YET WE FEEL THAT THE ASSESSEE HAS F AILED TO SHOW THAT THE OBJECT OF PARTICIPATING IN PMS SCHEME OPERATED BY M/S NETW ORTH STOCK BROKING LTD WAS TO MAKE INVESTMENT ACTIVITY AND NOT TO ACT AS T RADER. 10. IN VIEW OF THE ABOVE SAID FACTS, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT CORRECT IN DIRECTING THE AO TO ASSESS THE LTCG AS BUSINESS INCOME OF THE ASSESSEE. WITH REGARD TO THE STCG ALSO, WE NOTICE THAT THE ASSESSEE HAS EARNED MAJOR PORTION OF STCG ON SALE OF SINGLE SHA RE, VIZ., M/S GULF OIL CORPORATION AND HENCE WE ARE OF THE VIEW THAT THE L D. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF AO IN ASSESSING THE GAIN REALIZED ON SALE OF SHARES OF I.T.A. NO.3491/MUM/2012 5 M/S GULF OIL CORPORATION LTD AS A BUSINESS INCOME OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) I N RESPECT OF LTCG AND ALSO THE STCG RELATING TO M/S GULF OIL CORPORATION. ACCORDI NGLY WE DIRECT THE AO TO ASSESS THE ABOVE SAID INCOME UNDER THE HEAD CAPITAL GAINS. 11 WITH REGARD TO PMS SCHEME, WE HAVE ALREADY NOTI CED THAT NO DETAIL HAS BEEN FILED BY THE ASSESSEE BEFORE US ALSO. FURTHER THE ASSESSEE HAS NOT SHOWN THAT THE OBJECTIVE OF PARTICIPATING IN PMS SCHEME W AS ONLY TO MAKE INVESTMENT. NORMALLY, UNDER PMS SCHEME, THE FREQUENCY AND REPET ITIVENESS OF TRANSACTIONS WOULD BE HIGH. HENCE, IN THE ABSENCE OF ANY DETAIL , WE HAVE NO OTHER OPTION BUT TO TAKE ADVERSE VIEW AGAINST THE ASSESSEE. ACCORDI NGLY WE UPHOLD THE VIEW TAKEN BY TAXING AUTHORITIES WITH REGARD TO PMS SCHE ME. WE ORDER ACCORDINGLY. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29.10. 2014. () $ * +, 29TH OCT, 2014 ) # -% . SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER $ % MUMBAI: 29TH OCT,2014. . . ./ SRL , SR. PS !'# $#%! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ /& ( ) / THE CIT(A)- CONCERNED 4. $ /& / CIT CONCERNED 5. 0- &1 , ' 1 , $ % / DR, ITAT, MUMBAI CONCERNED 6. -2 3% / GUARD FILE. 4 $ / BY ORDER, TRUE COPY 5 (ASSTT. REGISTRAR) ' 1 , $ % /ITAT, MUMBAI