ACIT 25(1), MUMBAI V. SUNIL G RAHEJA, MUMBAI

ITA 3539/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8105 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHENDR
• Assessee Lawyers: NEHA PARANJAPE; K GOPALAR
• Keywords: Capital asset; Business income

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -HBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./3539/MUM/2015 , /ASSESSMENT YEAR: 2010-11 ACIT-25(1) 711, PRATYAKSHAKAR BHAVAN BANDRA (E) MUMBAI-400 051. VS. SHRI SUNIL G. RAHEJA A-34/35, PARK PLAZA NEW YARI ROAD,VERSOVA, ANDHERI(W) MUMBAI-400 061. PAN:AAEPR 4712 N ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI M.C. OMI NINGSHEN-DR ASSESSEE BY: MS. NEHA PARANJAPE & SHRI K. GOPAL-AR / DATE OF HEARING: 13.02.2017 / DATE OF PRONOUNCEMENT: 08.03.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 26/03/2015 OF THE CIT ( A)-37,MUMBAI, THE ASSESSING OFFICER (AO)HAS FILED THE PRESENT APPEAL.ASSESSEE,AN INDIVI DUAL, FILED HIS RETURN OF INCOME ON 30/07/2010, DECLARING TOTAL INCOME OF RS. 1.91 CROR ES. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143 (3) OF THE ACT, ON 26/03/2013, DE TERMINING HIS INCOME AT RS.1.69 CRORES . 2. EFFECTIVE GROUND OF APPEAL IS ABOUT TREATING AND A MOUNT OF RS. 1.87 CRORES UNDER THE HEAD SHORT-TERM CAPITAL GAINS (STC G) AGAINST BUSINESS I NCOME AS HELD BY THE AO. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSES SEE HAD DECLARED STCG OF RS.1.87 CRORES IN ADDITION TO THE INCOME FROM HOUSE PROPERTY, INCO ME FROM OTHER SOURCES AND PROFIT AND GIVES FROM BUSINESS AND PROFESSION, THAT THE ASSESS EE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, THAT THERE WERE LARGE NUMBER OF TRANSACTIONS OF SECURITIES, THAT IN SOME OF THE CASES THE HOLDING PERIOD WAS LESS THAN ONE YEAR . HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE STCG SHOULD NOT BE TREATED AS BUSINESS INCO ME. AFTER CONSIDERING HIS REPLY, THE AO HELD THAT MERE CLASSIFICATION OF THE SHARES IS INVE STMENT IN THE FINANCIAL STATEMENT WOULD NOT PROVE THAT SHARES MUST ALWAYS BE HELD AS INVESTMENT , THAT SIMPLY THE VALUATION OF INVESTMENT AT COST WOULD NOT CHANGE THE REAL NATURE OF THE ACT IVITY, THAT THE ASSESSEE WAS TOTALLY EMPLOYED FOR STOCK MARKET OPERATIONS, THAT TRADING IN SHARES AND SPECULATION WAS THE MAIN ACTIVITY OF THE ASSESSEE, THAT HE WAS IN THE MARKET FOR MAXIMIZ ING THE PROFIT, THAT HE HAD HELD SHARES FOR A PERIOD OF LESS THAN 30 DAYS FOR CERTAIN TRANSACTION S (49 SCRIPS), THAT THERE WAS A VERY HIGH IRREGULARITY IN TRADING PATTERN AND THE TRANSACTION S WERE CARRIED OUT AT A SUBSTANTIAL FREQUENCY, 3539/M/15(10-11) SUNIL G. RAHEJA 2 THAT THE ASSESSEE COULD NOT BE TREATED AN INVESTOR, THAT THE PRINCIPLES OF RES JUDICATA WOULD NOT APPLY TO INCOME TAX PROCEEDINGS. FINALLY HE HELD TH AT NET AMOUNT OF RS. 1.62 CRORES (AFTER ALLOWING FOR DEDUCTION OF STT AND INTEREST) WAS TO BE TAXED AS BUSINESS INCOME. THE AO ALSO REFERRED TO THE CIRCULAR NO. 4/2007, ISSUED BY THE CBDT. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HER, IT WAS ARGUE D THAT THE SHARES PURCHASED BY HIM FELL WITHIN THE DEFINITION OF SHORT-TERM CAPITAL ASSET A S DEFINED IN SECTION 2 (42 A) OF THE ACT, THAT AFTER PAYMENT OF STT IT WAS FAIR AND UNJUST TO EXPE CT THAT THE ASSESSEE WOULD PAY ADDITIONAL TAX, THAT THE SHARES IN QUESTION HAD ALL ALONG BEEN VALUED AT COST AND TREATED AS INVESTMENT, THAT HE HAD INCURRED LOSSES ON SIMILAR TRANSACTIONS AND HAD NOT CLAIMED SUCH LOSSES AS BUSINESS LOSS. HE RELIED UPON THE CASES OF GOPAL PU ROHIT (228 CTR 582), KETHA KUMAR A.SHAH (242 ITR 83) AND S. RAMAATHIRTHAM (306 ITR 2 39) AND ARGUED THAT ENTIRE AMOUNT OF RS.1.87 CRORES WAS TO BE TREATED AS STCG. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THE REASONS GIVEN BY THE AO TO TREAT THE STCG AS BU SINESS INCOME WERE GENERIC IN NATURE, THAT STCG INCOME HAD ARISEN FROM THE TRANSACTION IN ONLY 25 SCRIPS AS AGAINST 49 STATED BY THE AO, THAT THE AO HAD OBSERVED THAT TRANSACTIONS RAN INTO SEVERAL PAGES, THAT SHARE TRANSACTIONS WERE CARRIED OUT ELECTRONICALLY, THAT IN ORDER FOR PURCHASE/SALE FOR A GIVEN QUANTITY OF ANY ONE SCRIP WOULD BE GENERALLY SPLIT INTO MULTIPLE TRANSACTIONS, THAT THE NUMBER OF TRANSACTIONS HAS TO BE SEEN IN CONJUNCTION WITH OTHER FACTORS, THAT THE ASSESSEE HAD ENGAGED IN TRANSACTION OF SHARES OF ONLY 25 COMPANIES WHICH BY ITSELF COULD NOT BE HELD TO BE UNUSUAL FOR AN INVESTOR, THAT THE LOSSES INCURRED ON SUCH T RANSACTION WERE NOT CLAIMED AS BUSINESS LOSS BY THE ASSESSEE, THAT THE AMOUNT OF CAPITAL GAIN FR OM SHARES WHICH HAD BEEN TRANSACTED IN WITHIN LESS THAN 30 DAYS WAS ONLY TO THE TUNE OF RS .2.73 LAKHS, THAT TEST CHECK OF THE SHARE TRANSACTIONS FROM THE DEMAT ACCOUNT SHOWED THAT SAM E WERE DELIVERY-BASED, THAT THERE WAS AN ESTABLISHED PATTERN BEARING THE CHARACTERISTIC O F TRADE OR BUSINESS. THE FAA REFERRED TO THE CASES OF HITESH DOSHI (46 SOT 336), KORADIA CONSTRU CTIONS PVT. LTD.(146ITD251),E CAP PARTNERS (ITA/4785/MUM/2009, DATED 15/01/2014) MAHI NDRA C. SHAH (ITA/6289/ MUM/2008 & ITA/4932/MUM/2009, DATED 18/05/2011) AND OBSERVED THAT INVESTMENT OF THE ASSESSEE WAS SUBSTANTIALLY IN BLUE-CHIP COMPANIES, THAT MERE FRE QUENCY OR VOLUME OF SHARE TRANSACTIONS COULD NOT BE HELD SUFFICIENT TO CLASSIFY THE INCOME AS BEING BUSINESS INCOME, THAT THE ASSESSEE WAS DERIVING INCOME FROM BUSINESS, HOUSE PROPERTY A ND OTHER SOURCES, THAT AN ASSESSEE CAN 3539/M/15(10-11) SUNIL G. RAHEJA 3 CARRY ON BUSINESS IN SHARES AND SIMULTANEOUSLY MAIN TAIN AN INVESTMENT PORTFOLIO. FINALLY, SHE HELD THAT ENTIRE AMOUNT OF RS. 1.87 CRORES WAS TO B E TAXED UNDER THE HEAD STCG. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO AND STATED THAT THE HOLDING PER IOD WAS LESS THAN 30 DAYS, THAT THE ASSESSEE HAD ENTERED INTO FREQUENT BUYING AND SELLING OF SHA RES.THE AUTHORISED REPRESENTATIVE (AR) RELIED UPON THE ORDER OF THE FAA AND STATED THAT TH E ASSESSEE WAS TREATING THE SHARES AS INVESTMENT,THAT LOSS ARISING OUT OF SHARE TRANSACTI ONS WAS NOT CLAIMED AS BUSINESS LOSS BY HIM. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DETERMINING THE HEAD OF INCOME,THE AO HAD REFERRED TO CIRCULAR OF THE CBDT AND HAD,IN HIS 17 PAGES ORDER,NARRATED THE PRINCIPLES THAT GOVERNI NG THE TREATMENT TO BE GIVEN TO THE SHARE TRANSACTIONS FOR TREATING THEM STOCK IN TRADE /INVE STMENT.WHILE WRITING THE THEORY HE FORGOT TO MENTION THE BASIC FACTS THAT WOULD DECIDE THE ISSUE I.E.,AS TO WHETHER THE TRANSACTIONS ENTERED IN TO BY THE ASSESSEE WERE PART OF HIS BUSINESS ACT IVITIES OR INVESTMENT.THEORIES HAVE TO BE APPLIED TO THE FACTS OF THE CASE TO MAKE AN ITEM OF INCOME TAXABLE.IN THE CIRCULAR, THE CBDT HAS LAID DOWN CERTAIN PARAMETERS AS TO HOW THE SHAR E TRANSACTIONS SHOULD BE TREATED.THE AO HAS TO APPLY THOSE PRINCIPLES ON THE GIVEN FACTS.IN THE CASE UNDER CONSIDERATION THE ASSESSEE WAS TREATING THE SHARES AS HIS INVESTMENT IN ITS BO OKS OF ACCOUNT, BESIDES HE IS VALUING IT AT COST.THESE TWO PARAMETERS ARE,TO A GREAT EXTENT,DEC ISIVE TO HOLD AN ASSESSEE A TRADER/ INVESTOR.THE AO HAS NOT FURNISHED ANY DETAILS ABOUT THE TOTAL INVESTMENTS, FREQUENCY OF THE TRANSACTIONS, UTILISATION OF BORROWED FUNDS.THESE F ACTORS ALSO HAVE TO BE CONSIDERED TO DEAL WITH THE ISSUE OF TREATING THE SHARE TRANSACTION AS BUSINESS INCOME /INCOME FROM CAPITAL GAINS.THE FAA HAS GIVEN A FINDING OF FACT THAT HOLD ING PERIOD OF 25 SCRIPS WAS LESS THAN A PERIOD OF ONE MONTH .THE AO HAD MENTIONED THAT THE NUMBER OF SUCH SCRIPS WAS 49.THUS, THE FINDING GIVEN BY THE AO IS FACTUALLY INCORRECT.IF T HE GAINS ARISING OUT OF SUCH TRANSACTIONS ARE CONSIDERED IT BECOMES CLEAR THAT IT IS MINISCULE OF THE INCOME OFFERED BY THE ASSESSEE.THE FAA HAS MENTIONED THAT TOTAL GAINS FROM SUCH TRANSA CTION WAS RS.2.98 LAKHS ONLY AS AGAINST THE TOTAL INCOME OF RS.1.89 CRORES OFFERED UNDER TH E HEAD OF STCG. IT IS ALSO A FACT THAT ASSESSEE HAD NOT CLAIMED ANY LOSS AGAINST THE INVES TMENT PORTFOLIO.CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY FACTUAL INFIRMITY.SO, CONFIRMIN G THE SAME WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. 3539/M/15(10-11) SUNIL G. RAHEJA 4 AS A RESULT , APPEAL FILED BY THE AO STANDS DISMISS ED. . ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH MARCH, 2017. ! ' 8 # , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( $ % / RAJENDRA ) &' / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 08.03.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.