ARUN DHANJI SHAH, MUMBAI V. ITO ITO 25(3)(3), MUMBAI

ITA 3563/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92267 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: VIPUL J SHAH
• Keywords: Business income; Source of fund
• Section: 43(5)

Judgement Text

ITA/35 6 3/MUM/2013,AY.2008 - 09,ADS 1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 3563/MUM/2013 , / ASSESSMENT YEAR - 2008 - 09 ARUN DHANJI SHAH , A - 1, 3RD FLOOR, NAVRANG BUILDING, PAREKH LANE, KANDIVALI (WEST), MUMBAI - 400067 PAN: AAPPS3157D VS ITO 25(3)(3 ), C - 11, 3RD FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, B ANDRA(E), MUMBAI - 400051 ( / ASSESSEE ) ( / RESPONDENT ) /ASSESSEE BY :SHRI VIPUL J. SHAH / REVENUE BY :SHRI NEIL PHILIP - DR / DATE OF HEARING : 31 - 03 - 2015 / DATE OF PRONOUNCEMENT : 10 - 04 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, A.M. : CHALLENGING THE ORDER DT. 22.02.2013 OF THE CIT(A) - 35 ,MUMBAI,ASSESSEE HAS RAISED FO LLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING LONG TERM CAPITAL GAINS OF RS. 1,92,906/ - AS BUSINESS INCOME WITHOUT APPRECIATING TH E FACT THAT THAT THE APPELLANT IS AN INVESTOR. THE APPELLANT PRAYS THAT THE INCOME SHOULD BE TREATED AS LONG TERM CAPITAL GAINS ONLY AND NOT AS BUSINESS INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN TREATING SHORT TERM SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS ONLY AND NOT AS BUSINESS CAPITAL GAINS OF RS. 52,506/ - AS BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE APPELLANT IS AN INVESTOR. THE APPEL LANT PRAYS THAT THE INCOME SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS ONLY AND NOT AS BUSINESS INCOME. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MODIFY, SUBSTITUTE OR DELETE ANY OR ALL THE ABOVE GROUND(S) OF APPEAL. DURING THE ASSESSMENT PRO CEEDINGS,THE AO FOUND THAT THE A SSESSEE HAD SOL D CERTAIN SHARES DURING THE YEAR AND THE PROFIT OF RS.1,92,906/ - HAD BEEN SHOWN AS LONG TERM CAPITAL GAIN (LTCG),THAT HE HAD ALSO SHOWN SHORT TERM CAPITAL GAINS (STCG)OF RS. 69,299/ - ,THAT HE HAD CLAIMED THAT TH E PROFIT ARISING OUT OF SALE OF SHARES WAS EXEMPT U/S.10(38)OF THE ACT.HE HELD THAT THE CLAIM OF THE ASSESSEE WAS NOT SUBSTANTIATED BY ANY DOCUMENTARY EVIDENCES. HE DIRECTED THE ASSESSEE TO SUBMIT THE DEMAT ACCOUNTS STATEMENT FOR THE PERIOD 1.4.2007 TO 31 .3.2008 AND FROM 1.4.2006 TO 31.3.2007 ALONGWITH RELEVANT CONTRACT NOTE TO SU PPORT THE CLAIM OF LTCG . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ,HE HELD THAT THE ASSESSEE'S PRINCIPAL ACTIVITY WA S DEALING IN SHARES ,THAT HE OFFER ED THE INCOME OUT OF TH E DEALING IN SHARE STCG/LTCG DEPENDING UPON THE PERIOD OF HOLDING ,THAT THE ASSESSEE HAD DEALT IN OVER 17 SCRIPS AND MORE THAN 87 PURCHASE/ SALE TRANSACTIONS ,THAT HE HAD PURCHASE D 4145 SHARES AND SOLD 4147 SHARES DURING THE PREVIOUS YEAR RELATING TO THE ASS E SSMENT YEAR UNDER APPEAL,THAT THE ITA/35 6 3/MUM/2013,AY.2008 - 09,ADS 2 SOURCE OF FUND UTILISED FOR ACQUISITION OF FUND WE RE BOTH BORROWED AS WELL AS INTEREST INCOME OF THE ASSESSEE ,THAT THERE WA S LARGE VOLUME OF TRANSACTIONS IN SHARES WITH CONSIDERABLE FREQUENCY , THAT IN MAJORITY OF THE TRANSA CTIONS, THE SETTLEMENT HAD TAKEN PLACE OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER OF THE SCRIPS ,THAT CONSIDERABLE TIME WAS SPENT IN MARKETING, DEALING OPERATIONS. THE AO PREPARED FOLLOWING TABULAR CHART OF THE SHARES WHERE SETTLEMENT HAD TAKEN PLACE OTHE RWISE THAN BY ACTUAL DELIVERY - S N . NAME OF THE SCRIP DATE OF SALE DATE OF PURCHASE DIFFERENCE OF TRANSACTION (RS.) 1 IVRCL INFRA 02.08.2007 02.08.2007 196.97 2 IVRCL INFRA 03.08.2007 03.08.2007 474.63 3 DLF LTD. 04.09.2007 0 4.09.2007 529.60 4 IVRCL INFRA 05.09.2007 05.09.2007 67.24 5 IVRCL INFRA 10.09.2007 10.09.2007 - 211.65 6 IVRCL INFRA 03.10.2007 03.10.2007 - 1182.72 7 IVRCL INFRA 22.10.2007 22.10.2007 - 1549.11 8 IVRCL INFRA 29.10.2007 29.10.2007 52.62 9 MANALI PETRO 13.11.2007 13.11.2007 54.28 10 NAVELI LINGNITE 13.11.2007 13.11.2007 425.22 11 NAVELI LINGNITE 14.11.2007 14.11.2007 - 412.35 12 ORBIT CO. 24.12.2007 24.12.2007 18313.84 13 GUJARAT ALKALIES 24.12.2007 24.12.2007 31.54 16793.11 HE HELD THAT ABOVE TRANSACTIONS, IN VIEW OF SECTION 43(5) OF THE A CT, WERE SPECULATIVE TRANSACTIONS. THE AO RELIED UPON THE CASE OF SUTLEJ COTTONS MILLS SUPPLY AGENCIES LTD. (116 ITR1 ) . HE ALSO HELD THAT A PARTICULAR TREATMENT IN BOOKS OF ACCOUNTS W OULD NOT ALTE R THE REAL POSITION AND REFERRED TO THE MATTER OF KEDARN ATH JUTE MANUFACTURING CO. LTD. (82 ITR 363 ) . CONSIDERING THE FACTORS LIKE FREQUENCY OF AND VOLUME OF TRANSACTION S, SOURCE OF PURCHASE OR SALE AND REGULARITY OF DEALING IN SHARES OVER A PERIOD OF TIME, THE AO HELD THAT TH E ASSESSEE'S DEALING IN SHARES WA S A BUSINESS TRANSACTION AND THE INCOME SO ACCRUED ON IT WA S TO BE TREATED AS BUSINESS INCOME FOR THE YEAR UNDER CONSIDERATION.IN SHORT THE AO HELD THAT THE STCG(RS.52,506/ - ) AND LTCG(1,92,906/ - ) CLAIMED BY THE ASSESSEE WAS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE ALONG WITH SPECULATIVE TRANSACTIONS. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) .BEFORE HIM IT WAS ARGUED THAT THE AO NE ITHER GAVE ANY OPPORTUNITY TO THE A SSESSEE TO FILE ANY EXPLANATION FOR TREATMENT OF SALE OF SHARES NOR ISSUED ANY SHOW CAUSE NOTICE TO TREAT THE LTCG OF STCG AS BUSINESS INCOME ,THAT THE SHA RES WERE PURCHASE D BY HIM FOR INVESTMENT PURPOSE ONLY ,THAT SAME WER RE ALSO NOT REFLECTED IN THE ACCOUNTS AS STOCK IN TRADE ,THAT PROFIT ARISING OUT OF SUCH TRANSACTION HAD TO BE ASSESSED AS LTCG/ STCG AND NOT THE BUSINESS INCOME ,THAT THE ASSESSEE HAD DEALT IN ONLY 17 SCRIPS . AFTER CONSIDERING THE SUBMISSION OF THE ASSESSE E AND THE ASSESSMENT ORDER THE FAA HELD THAT THE AO HAD PASSED SPEAKING ORDER ON THE ISSUE SPECULATIVE BUSINESS,THAT HIS ORDER OF TREAT ING SPECULATIVE BUSINESS AS BUSINESS INCOME WA S TO BE UPHELD.WITH REGARD TO THE STCG AND LTCG,THE FAA HELD THAT THE ASS ESSEE ENTERED INTO VOLUMINOUS TRANSACTION OF PURCHASE AND SALE OF S HARES DURING THE PREVIOUS YEAR ,THAT HE HAD BEEN PURC HAS ING AND SELLING SHARES ,THAT T HE VOLUME AND RATIO OF PURCHASE /SALE OF SHARES WAS SUBSTANTIALLY HIGH COMPARED TO VOLUME AND RATIO OF OTH ER RECEIPTS IN THE HAND OF THE ASSESSEE , THAT L OOKING INTO THE HIS PRESENT AND PAST CONDUCT IT WA S CLEAR THAT HE HAD NO INTENTION OF KEEPING THE ITA/35 6 3/MUM/2013,AY.2008 - 09,ADS 3 SHARES TO EARN DIVIDEND OR CAPITAL APPRECIATION THAT S HARES OF NUMEROUS COMPANIES HAD BEEN BOUGHT AND SOLD BY TH E ASSESSEE DURING THE PREVIOUS YEAR ,THAT THE VOLUME OF PURCHASE AND SALE OF THE ASSESSEE DURING THE PREVIOUS YEAR SUBSTANTIALLY HIGH,THAT THE PURCHASE AND SALE OF SHARES WAS THE MAIN ACTIVITY OF THE ASSESSEE ,THAT THE SCALE OF ACTIVITY WAS SUBSTANTIAL ,THA T THE TRANSACTIONS WERE CONTINUOUS AND REGULAR BESIDES BEING SYSTEMATIC , THAT CONSIDERABLE TIME DEVOTED BY THE ASSESSEE TO THE ACTIVITY OF PURCHASE AND SALE ,THAT THE ONLY SOURCE OF INCOME IN THE PROFIT AND LOSS ACCOUNT WA S FROM SHARE BUSINESS , THAT THE HOLD ING PERIOD OF THE SHARES TRANSACTED SHOWED THAT INTENTION WAS ONLY TO BOOK PROFIT AND NOT TO MAKE INVESTMENT. FINALLY, THE FAA MADE A REFERENCE TO THE BOARD CIRCULAR CIRCULAR NO .4 /2007 OF 15.06.2007 AND DISMISSED THE APPEAL FILED BY THE ASSESSEE . 4. BEFORE U S,AUTHORISED REPRESENTATIVE(AR)ARGUED THAT SPECULATIVE TRANSACTION WERE NOT SUBSTANTIAL,THAT THE SHARES WERE PART OF INVESTMENT,THAT THE ASSESSEE HAD NOT TREATED THE SHARES AS STOCK IN TRADE,THAT HE HAD DEALT IN ONLY A FEW SCRIPS.AR RELIED UPON THE CASES O F . DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE FAA AND STATED THAT THE ASSESSEE WAS ENGAGED IN SPECULATIVE TRANSAC TIONS,THAT HE WAS IN THE BUSINESS OF SELLING AND PURCHASING SHARES,THAT THE ASSESSEE HAD NO OTHER SOURCE OF INOCME . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. THE ONLY ISSUE TO BE DECIDED BY US IS AS TO WHETHER THE AO HAD RIGHTLY ASSESSED THE PROFITS ARISING OUT OF SHARE TRANSACTIONS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION.IN OUR OPINION, T HERE IS NO CLEAR CUT CRITERIA OR DEMARCATION THAT COULD SEGREGATE THE TRANSACTIONS RELATED WITH THE SHARES UNDER THE HEAD BUSINESS TRANSACTION/ STCG LTCG TRANSCTION.EVEN AFTER SERIES OF CASES DECIDED BY THE TRIBUNAL AND THE HONBLE COURTS,IT CAN BE SAID W ITH CERTAINTY THAT A PARTICULAR ASSESSEE,UNDERTAKING SHARE TRANSACTIONS,COULD BE ASSESSED AS INVESTOR OR TRADER.COURTS ARE OF THE VIEW THAT INTENTION OF THE ASSESSEE HAS TO LOOKED IN TO.INTENTION AT BEST CAN BE DECIDED FROM THE SURROUNDING CIRCUMSTANCES. B ROADLY, AN INVESTOR PURCHASE A SHARE WITH A VIEW TO EARNING INCOME IN THE FORM OF DIVIDEND AND FOR APPRECIATION IN VALUE OVER A LONG PERIOD OF TIME AND IS NOT MOTIVATED TO SELL SHARES ON EACH AND EVERY RISE IN THE VALUE OF SHARES WHICH ARE, IN FACT, THE ATT RIBUTES OF A TRADER. TO PURCHASE SHARES AND THEN WAIT FOR APPRECIATION IN THEIR VALUE IN THE LONG TERM IS THE CLASSIC EXAMPLE OF AN INVESTOR. THERE MAY BE CRITERIA AND PARAMETERS,BUT INDIVIDUAL PARAMETERS WOULD NOT BE DECISIVE AND IT IS ONLY THE CUMULATIVE E FFECT OF ALL THOSE CRITERIA WHICH WOULD BE IMPORTANT TO DECIDE WHETHER THE ASSESSEE WAS AN INVESTOR OR A TRADER.IN SHORT,T OTALITY OF FACTS AND PARAMETERS,AS LAID DOWN BY THE HON'BLE COURTS AS WELL AS CBDT HAVE TO BE TAKEN INTO CONSIDERATION IN DECIDING THE QUESTION.IN THE MATTER OF SONIA UPPAL THE HONBLE P & H HIGH COURT HAS(367ITR70)HELD AS UNDER: THERE IS A NO STRAITJACKET FORMULA FOR CONCLUDING WHETHER A TRANSACTION WOULD FALL WITHIN THE DOMAIN OF PROFITS DERIVED FROM AN ADVENTURE IN THE NATURE OF TRA DE OR OUTSIDE ITS AMBIT. THE FACTS AND CIRCUMSTANCES OF EACH CASE WOULD BE DETERMINATIVE OF THE CHARACTER OF THE RECEIPT. THE PRIMARY CONSIDERATION IN SUCH CASES RELATES TO EXAMINING THE NATURE OF THE TRANSACTION. WHERE A PERSON INVESTS MONEY IN AN ASSET W ITH INTENTION TO HOLD IT, ENJOYS ITS USUFRUCT FOR SOME TIME AND THEN SELLS IT AT AN ENHANCED PRICE, IT WOULD BE A CASE OF CAPITAL ACCRETION OUTSIDE THE SCOPE OF PROFITS RESULTING FROM AN ADVENTURE IN THE NATURE OF TRADE. ON THE OTHER HAND, WHERE INCOME ACC RUES ON REALISATION OF INVESTMENTS CONSISTING OF PURCHASE AND RESALE, INCOME ACCRUING COULD BE TREATED AS FROM AN ADVENTURE IN THE NATURE OF TRADE. THE CARDINAL QUESTION WHICH WOULD REQUIRE TO BE ANSWERED WOULD BE WHETHER THE PURCHASER WAS A TRADER AND HAD PURCHASED THE COMMODITY WITH THE CLEAR UNDERSTANDING THAT IT WAS HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT. ITA/35 6 3/MUM/2013,AY.2008 - 09,ADS 4 WE FIND THAT THE FAA HAS GIVEN CATEGORICAL FINDING OF FACTS ABOUT THE INTENTION OF THE ASSESSEE AFTER CONSIDERING THE FACTORS LIKE PERIOD OF HOLDING,VOLUME AND FREQUENCY OF SHARES,TIME DEVOTED BY THE ASSESSEE FOR SHARE TRADING ACTI VITIES.WE FIND THAT THE ASSESSEE HAD FURNISHED ANY DETAILS OF THE DIVIDEND EARNED BY HIM DURING THE YEAR UNDER CONSIDERATION BEFORE ANY OF THE AUTHORITY INCLUDING US.IN OUR OPINION,IT IS ALSO ONE OF THE PARAMETERS OF DECIDING THE TRADER/INVESTOR ISSUE.IT IS ALSO A FACT THAT THE ASSESSEE WAS INVOLVED IN SPECULATIVE TRANSACTION.GENERALLY,THE INVESTORS EARNS HANDSOME DIVIDEND AS THEY HOLD THE SHARES FOR A LONG PERIOD FOR APPRECIATION.WE HOLD THAT T HE PURCHASE AND SALE OF SHARES WAS NOT AN OCCASIONAL INDEPENDENT ACTIVITY, BUT THE ASSESSEE WAS ENGAGED IN REAL,SUBSTANTIAL AND S YSTEMATIC BUSINESS ACTIVITY.AS HE HAD PURCHASED THE SHARES WITH THE INTENTION OF RESELLING THEM AT A PROFIT,SO, THE AO AND THE FAA HAVE RIGHTLY HIM A TRADER AND NOT A N INVESTOR.WHILE DISMISSING THE APPEAL OF THE ASSESSEE , THE FAA HAS NARRATED THE FACTS FOR REJECTING THE CLAIM MADE BY HIM.WE ARE OF THE OPINION THAT THERE IS NO LEGAL OR FACTUAL INFIRMIT Y IN THE ORDER OF THE FAA.IF THE CARDINAL QUESTION ,AS SUGGESTED BY THE HON - BLE P & H HIGH COURT IN THE MATTER OF SONIA UPPAL(SUPRA),IS TO BE ANSWERED AFTER CONSIDERING THE FACTS OF THE CASE UNDER APPEAL,THEN IT BECOMES CLEAR THAT THE ASSESSEE WAS A TRADE R AND HAD PURCHASED THE COMMODITY WITH THE CLEAR UNDERSTANDING THAT IT WAS HIS USUAL TRADE OR BUSINESS.IN OTHER WORDS IT WAS NOT INCIDENTAL TO HIS TRADE. AS FAR AS THE CASES RELIED UPON BY THE ASSESSEE ARE CONCERNED,WE FIND THAT THEY DEAL WITH SINGLE PARAM ETER OR DEAL WITH THE FACTS ARISING IN THAT APPEAL - THEY ARE NOT SIMILAR OR IDENTICAL TO THE FACTS OF THE CASE. T HERE IS NO SIMILARITY OF FACTS BETWEEN THE CASES RELIED UPON BY THE ASSESSEE AND THE FACTS OF THE CASE UNDER APPEAL. SO,CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AND C ONFIRMING THE ORDER OF THE FAA,WE DECIDE EFFECTIVE GROUND OF APPEAL(GAO1 - 2)AGAINST THE ASSESSEE . AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS DISMISS ED. . ORDER PRO NOUNCED IN THE OPEN COURT ON 10 TH , APRIL ,2015. 10 TH , 2015 SD/ - SD/ - ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 10 .04 .2015 SK /JV. / 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/ ITA/35 6 3/MUM/2013,AY.2008 - 09,ADS 5 //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.