DARSHAK DADBHAWALA, MUMBAI V. ACIT 16(2), MUMBAI

ITA 3522/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84398 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Business income; Rule of consistency
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BE NCH, MUMBAI , !' #$% , !& ! ' BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 3522/MUM/2012 ( ( ( ( ( / ASSESSMENT YEAR :2008-09 DARSHAK DADBHAWALA, 601, VIJAY APARTMENT, BHULABHAI DESAI ROAD, WARDEN ROAD, MUMBAI-400 036 / VS. THE ACIT 16(2), MANTRU MANDIR, 2 ND FLOOR, GRANT ROAD (W), MUMBAI-400 007 ) !& ./ * ./ PAN/GIR NO. : AAAPD 6322J ./I .T.A. NO. 4411/MUM/2012 ( ( ( ( ( / ASSESSMENT YEAR :2008-09 THE ACIT 16(2), MANTRU MANDIR, 2 ND FLOOR, GRANT ROAD (W), MUMBAI-400 007 / VS. DARSHAK DADBHAWALA, 601, VIJAY APARTMENT, BHULABHAI DESAI ROAD, WARDEN ROAD, MUMBAI-400 036 ) !& ./ * ./ PAN/GIR NO. : AAAPD 6322J ( )+ / APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . ! / ASSESSEE BY: SHRI DHARMESH SHAH ,-)+ / . ! / REVENUE BY: SHRI JEETENDRA KUMAR / 0& / DATE OF HEARING :26.11.2014 12( / 0& / DATE OF PRONOUNCEMENT :5.12.2014 !3 / O R D E R ITA NO. 3522 & 4411/M/12 2 PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPARTM ENT ARE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-27, MUMBAI DT . 3.4.2012 PERTAINING TO A.Y.2008-09. 2. THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. C IT(A) ERRED IN TREATING INCOME FROM SHORT TERM CAPITAL GAINS FOR RS. 6,23,695/- AS BUSINESS INCOME AND THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN TREATING THE BUSINESS INCOME OF RS. 18,58, 332/- AS SHORT TERM CAPITAL GAIN. AS GRIEVANCE OF THE ASSESSEE AND THE REVENUE RELATE TO THE SAME SET OF FACTS, BOTH THE APPEALS WERE HEARD TOGE THER AND ARE DISPOSED OF BY THE COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE RETURN FOR THE YEAR WAS FILED ON 22.7.2008 D ECLARING TOTAL INCOME AT RS.29,39,900/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. DURING THE COURSE OF THE SCRUTINY ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA S SHOWN SHORT TERM CAPITAL GAINS AT RS. 24,82,027/-, LONG TERM CAPITAL GAIN OF RS. 10,11,024/-, SPECULATION PROFIT OF RS. 5,12,135/- A ND INCOME FROM OTHER SOURCES OF RS. 51,817/-. 3.1. THE AO SOUGHT EXPLANATION FROM THE ASSESSEE T O EXPLAIN WHY THE SHARE TRANSACTION ACTIVITY SHOULD NOT BE TREATED A S BUSINESS ACTIVITY. THE ASSESSEE FILED A DETAILED REPLY. THE AO WAS OF THE OPINION THAT THE REPLY FILED BY THE ASSESSEE IS OF GENERAL IN NATURE. THE AO WAS OF THE FIRM BELIEF THAT THERE IS A CLEAR PROFIT MOTIVE IN TH E TRANSACTIONS TAKEN UP BY THE ASSESSEE WHICH IS EVIDENT FROM THE QUANTITY OF SHARES TRANSACTED AND THE QUANTUM OF AMOUNTS INVOLVED. THE AO ALSO OBSE RVED THAT THE HOLDING PERIOD OF SHARES ARE ALSO VERY LESS. AFTER CONSIDERING VARIOUS ITA NO. 3522 & 4411/M/12 3 JUDICIAL DECISIONS, THE AO FINALLY CAME TO THE CONC LUSION THAT THE ASSESSEE WAS DOING BUSINESS AND TREATED THE SHORT TERM CAPIT AL GAINS AS BUSINESS INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND CLAIMED THAT HE IS ONLY AN INVESTOR AND NOT A TRADER. IT W AS EXPLAINED THAT THE ASSESSEE HAS BEEN INVESTING IN SHARES RIGHT FROM AS SESSMENT YEAR 2000-01 AND THE SAME HAS BEEN ACCEPTED AS SUCH. IT WAS FUR THER EXPLAINED THAT THE ASSESSEE HAS NO ADMINISTRATIVE SET UP NOR THERE IS ANY ORGANIZED EFFORT BY THE ASSESSEE TO EARN PROFIT EXCEPT THAT THE SHAR ES WERE PURCHASED AND THEY WERE SOLD PROMPTLY AFTER THE SAID SHARES HAS R ECEIVED THE EXPECTED APPRECIATION. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S OF THE ASSESSEE, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS BEEN INVE STING IN SHARES SINCE THE YEAR 2000 AND HAS BEEN CONSISTENTLY SHOWING TH E SHORT TERM AND THE LONG TERM GAINS SINCE THE YEAR 2000. THE LD. CIT(A ) FURTHER OBSERVED THAT THE INCOME OFFERED FROM CAPITAL GAINS ON SALE OF SHARES WAS ACCEPTED IN THE EARLIER YEARS IN THE ASSESSMENT ORDERS MADE U/S. 143(3) OF THE ACT. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE W AS HOLDING 147 SCRIPS AS INVESTMENT SINCE 1.4.2003. FURTHER, THE NUMBER OF SCRIPS HELD/PURCHASED/SOLD DURING THE YEARS 2004-05 TO 201 0-11 REMAINED AROUND 100 TO 150 WHICH MEANS THAT A SUBSTANTIAL PORTION OF THE PURCHASES WAS ALWAYS RETAINED AT THE END OF THE Y EAR. THE LD. CIT(A) FINALLY CONCLUDED BY HOLDING THAT SHORT TERM CAP ITAL GAIN EARNED DURING A VERY SHORT HOLDING PERIOD OF 1 TO 7 DAYS S HOULD BE TREATED AS BUSINESS INCOME AND ACCORDINGLY DIRECTED THE AO TO TREAT THE SUM OF RS. 6,23,695/- ONLY AS BUSINESS INCOME AND THE BALANCE TO BE TREATED AS SHORT TERM CAPITAL GAIN. ITA NO. 3522 & 4411/M/12 4 5. BOTH THE PARTIES ARE IN APPEAL AGAINST THIS FI NDINGS OF THE LD. CIT(A). 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE AO. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCE BROUGHT ON RECORD BEFORE US. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS BEEN SHOWING CAPITAL GAINS, SHORT TERM OR LONG TERM FROM A.Y. 2000-01 UPTO ASSESSMENT YEAR UNDER CONSIDERATION. IT IS ALSO AN ADMITTED FACT THAT IN EARLIER YEARS THE AO HAS ACCEPTED THE CAPITAL GAINS AS DECLARED BY THE ASSES SEE. INTERESTINGLY, IT IS NOTICED THAT DURING THE YEAR UNDER CONSIDERATION IT SELF THE AO HAS ACCEPTED LONG TERM CAPITAL GAINS AS DECLARED BY THE ASSESSEE. THE HONBLE SUPREME COURT IN THE CASE OF ASSOCIATED IND USTRIAL DEVELOPMENT CO. (P). LTD. 82 ITR 586 HAS OBSERVED AS UNDER WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION T O PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAIN TAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. ITA NO. 3522 & 4411/M/12 5 8.1. IT IS NOT IN DISPUTE THAT ALL THE TRANSACTIONS UNDER REFERENCE ENTERED INTO BY THE ASSESSEE HAS BEEN SETTLED BY ACTUAL DEL IVERY OF SHARES AND THE MONEY IS ACTUALLY PAID AND RECEIVED IN EACH AND EVE RY CASE, WHEREAS IN CASE OF A TRADER, ORDINARILY THE TRANSACTIONS ARE S ETTLED WITHOUT ACTUAL DELIVERY. THE PURCHASE AND SALE TRANSACTIONS ARE S ETTLED ONLY BY WAY OF RECEIPT/PAYMENT OF NET DIFFERENCE. THIS IS NOT TH E CASE OF THE ASSESSEE AS NO SUCH FINDINGS HAVE BEEN GIVEN BY THE AO. THE L ONG TERM CAPITAL GAINS HAVE BEEN ACCEPTED BY THE AO. IF THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE IS ENGAGED IN TRADING ACTIVITY IN THE SHARES, THEN IT SHOULD NOT MAKE ANY DIFFERENCE IF THE SHARES ARE HELD FOR MORE THAN 12 MONTHS OR LESS THAN 12 MONTHS, BUT HERE IS A CASE WHERE T HE AO HAS ACCEPTED THE ASSESSEE IS AN INVESTOR SO FAR AS LONG TERM CAPITAL GAINS ARE CONCERNED. IT IS ALSO SEEN FROM THE BALANCE SHEET THAT THERE A RE NO BORROWED FUNDS FOR INVESTMENT IN SHARES. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE HAS HUGE LOSS OF RS. 1.03 CRORES AS ON 31.3.2008 DUE TO DIMINUTION IN VALUE OF INVESTMENT YET THE ASSESSEE HAS MAINTAINED ITS STAT US AS INVESTORS WITHOUT TAKING THE BENEFIT OF SET OFF OF LOSS WHICH IS AVA ILABLE TO A TRADER. 8.2. CONSIDERING ALL THESE FACTS IN TOTALITY, IN OU R CONSIDERED VIEW, THE ASSESSEE IS AN INVESTOR WHO HAS BEEN ASSESSED AS IN VESTOR SINCE A.Y 2000- 01 ONWARDS. WE, THEREFORE DO NOT FIND ANY REASON T O DEVIATE FROM THE RULE OF CONSISTENCY. WE, THEREFORE, DO NOT FIND AN Y REASON IN THE FINDINGS OF THE LD. CIT(A) TO TREAT THE ASSESSEE AS AN INVES TOR WHERE THE HOLDING PERIOD WAS LESS THAN 7 DAYS. WE, ACCORDINGLY SET A SIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO TREAT THE ENTIRE SH ORT TERM CAPITAL GAINS AS SUCH. 8.3. BEFORE PARTING, THE ASSESSEE HAS RAISED AN ADD ITIONAL GROUND WHICH BECOMES OTIOSE. ITA NO. 3522 & 4411/M/12 6 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DEC.2014 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER !& / ACCOUNTANT MEMBER MUMBAI; 4 DATED : 05/12/2014 . . ./ RJ , SR. PS !3 !3 !3 !3 / // / ,0 ,0 ,0 ,0 5!(0 5!(0 5!(0 5!(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 ,0 , , / DR, ITAT, MUMBAI 6. 8 9 / GUARD FILE. !3 !3 !3 !3 / BY ORDER, -0 ,0 //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI