ASST CIT 24(1), MUMBAI V. BHAGWANDAS B RANGANI, MUMBAI

ITA 3660/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0262 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 15-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GORADIA
• Keywords: Capital asset; Business income; Transactions in derivatives

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL J , BENCH, MUMBAI , , , BEFORE SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM ./ ITA NO. 3660 / MUM/ 201 5 ( / ASSESSMENT YEAR: 2010 - 11 ) THE ASSTT. COMMISSIONER OF IT - 24 (1), ROOM NO. 604, 6 TH FLOOR, PIRAMAL CHAMBER, PAREL, MUMBAI - 400012 VS. SH. BHAGWANDAS B. RANGNANI, 3 - B/114 GREEN ACRE, LOKHANDWALA COMPLEX, ANDHERI ( W), MUMBAI - 400058 ./ ./ PAN/GIR NO. : ADUPR 0835 M ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : NONE /REVENUE BY : MS. ARJU GORADIA (DR) / DATE OF HEARING : 06/04 /2017 / DATE OF PRONOUNCEMENT : 04 /07 /2017 / O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY TH E REVENUE AGAINST ORDER DATE D 25/03/2015 PASSED BY THE LD. CIT (A), 3 6 , MUMBA I PERTAI NING TO THE ASSESSMENT YEAR 2010 - 11 , WHEREBY THE LD. CIT (A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT , 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F I L ED HIS RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 1,23,64,298/ - . THE RETURN HAD ALREADY BEEN PROCESSED U/S 143 (1) OF THE ACT. THE CASE WAS TAKEN FOR SCRUTINY AND AC CORDINGLY NOTICE U/S 142 (1) ALONG WITH QUESTIONNAIRE WAS ISSUED. IN RESPONSE THEREOF THE AUTHORIZED REPRESENTATIVE ATTENDED AND FURNISHED THE 2 ITA NO. 3660/MUM/2015 ASSESSMENT YEAR: 2010 - 1 1 DETAILS CALLED FOR . SINCE, T HE ASSESSEE HAD SHOWN SHORT TERM CAP ITAL GAIN OF RS. 1,13,24, 087/ - , THE AO ASKED THE ASSESSEE TO SUBMIT DETAIL OF THE ENTIRE PORTFOLIO TAKING INTO CONSIDERATION VARIOUS PARAMETERS SUCH AS NUMBERS OF SCRIPS, VOLUME, FREQUENCY OF TRANSACTIONS AND THEIR SYSTEMATIC AND PERIODIC NATURE. FROM THE PERUSAL OF DETAILS IT REVEALED THAT THE TRANSACT IONS ENTERED INTO BY THE ASSESSEE ARE NUMEROUS PERIODIC, REPETITIVE WITH A GREAT AMOUNT OF REGULARITY AND PERIODICITY . THE ASSESSEE WAS ASKED TO EXPLAIN THE PERIODICAL BREAK UP OF SHARE TRANSACTIONS WITH RESPECT TO SHORT TERM CAPITAL GAIN AND FURTHER TO EX PLAIN AS TO WHY INCOME UNDER THE HEAD CAPITAL GAINS SHOULD NOT BE TREATED AS BUSINESS INCOME IN VIEW OF THE CBDT INSTRUCTION NO. 1827 DATED 03.08.1989 AND CIRCULAR NO. 4/2007 DATED 15.06.2007. IN RESPONSE TO THE SAME, THE ASSESSEE SUBMITTED HIS EXPLANATI ON . THE AO AFTER GOING THROUGH THE EXPLANATION TREATED THE AMOUNT OF RS. 1,13,24,087/ - AS BUSINESS INCOME KEEPING IN VIEW INTENTION OF THE ASSESSEE, SOURCE OF ACQUISITION OF FUNDS PERIOD OF HOLDING, FREQUENCY OF TRANSACTION, NUMBER OF STOCKS INVESTED IN TR EATMENT IN BOOKS OF ACCOUNTS ETC. AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 1,23,64,300/ - . 3. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BY FILING FIRST APPEAL BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE ALLOWED THE A PPEAL OF THE ASSESSEE RELYING ON THE VARIOUS DECISIONS RENDERED BY THE MUMBAI TRIBUNAL. 4 . AGGRIEVED BY THE ORDER OF LD. CIT (APPEAL), THE REVENUE PREFERRED THIS APPEAL BEFORE US ON THE FOLLOWING EFFECTIVE GROUNDS: - 1. ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN ALLOWING BUSINESS INCOME OF RS. 1,13,24,087/ - AS SHORT TERM CAPITAL GAIN AND IGNORING THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. MOTILAL HIRABHAI SPG. & WVG. CO. LTD. [ 1978]113 ITR 17 3 (GUJ) AND RAJA BAHADUR VISHESHWAR SINGH VS. CIT [1961] 41 ITR 3 ITA NO. 3660/MUM/2015 ASSESSMENT YEAR: 2010 - 1 1 685 (SC) WHEREIN IT IS STATED THAT WHEN THE ASSESSEE HAS HUGE QUANTUM PERIODIC, REPETITIVE AND VOLUMINOUS WITH SUBSTANTIAL REGULARITY OF TRANSACTIONS THEN IT INDICATE SYSTEMATIC AND ORGANIZED ACTIVITY WITH PROFIT MOTIVE. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR TO SUBMIT ADDITIONAL NEW GROUND WHICH MAY BE NECESSARY. 5 . THIS CASE WAS FIXED FOR HEARING ON 29.03.2017, HOWEVER, AT THE REQUEST OF THE DEPARTMENTAL REPRESENTATIVE (DR) THIS CASE WAS ADJOURNED TO 06.04.2017 AND THE ASSESSEE WAS ACCORDINGLY INFORMED. O N 06.04.2017 NONE APPEARED ON BEHALF OF THE A SSESSEE . NO APPLICATION FOR ADJOURNMENT ON BEHALF OF THE RESPONDENT/ASSESSEE WAS RECEIVED . IT WAS ACCORDINGLY DECIDED TO PROCEED WITH THE CASE ON THE BASIS OF MATERIAL ON RECORD AFTER HEARING THE LD. DR. 6 . THE LD. DR RELYING ON THE ASSESSMENT ORDER SUBM ITTED THAT THE LD. CIT (A) HAS WRONGLY ALLOWED THE APPEAL OF THE ASSESSEE AND HELD THE BUSINESS INCOME OF RS. 1,13,24,087/ - AS SHORT TERM CAPITAL GAIN IGNORING THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN RAJA BAHADUR VISHESHWAR SINGH VS. CIT 1961 41 ITR 685 ( SC ) AND HONBLE GUJARAT HIGH COURT IN CIT VS. MOTI LAL HIRABHAI AND WVG. COMPANY LTD. 1878 113 ITR 173 . THE LD. DR FURTHER SUBMITTED THAT SINCE THE IMPUGNED ORDER IS CONTRARY TO THE SETTLED PRINCIPLES OF THE LAW THE SAME IS LIABLE TO BE SET ASIDE. 7. WE HAVE PERUSED THE MATERIAL ON RECORD INCLUDING THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE CASES RELIED UPON BY THE PARTIES. THE ONLY ISSUE INVOLVED IN THIS CASE IS WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) H AS ERRED IN ALLOWING THE INCOME IN QUESTION AS SHORT TERM 4 ITA NO. 3660/MUM/2015 ASSESSMENT YEAR: 2010 - 1 1 CAPITAL GAIN? THE LD. CIT(A) HAS DECIDED THE ISSUE INVOLVED IN THIS CASE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER: 5.7 IN THE INSTANT CASE, THE BALANCE SHEET OF THE APPELLANT MAKES IT CLEAR THAT THERE ARE NO BORROWINGS UTILISED FOR INVESTMENT IN SHARES. A TEST CHECK OF THE DEMAT ACCOUNT SHOWS THAT THE TRANSACTIONS FROM WHICH THE STCG HAS BEEN SHOWN ARE DELIVERY BASED. THE INVESTMENTS OF THE APPELLANT ARE SUBSTANTIALLY IN BLUE CHIP COMPANIES. THE INVESTMENT OF THE APPELLANT HAS REMAINED ALMOST AT THE SAME QUANTUM BETWEEN A.Y. 2008 - 09 AND 2009 - 10 AT RS. 83,09,722.66 AND RS. 83,61,635.91 RESPECTIVELY. THE AO HAS NOT BROUGHT ON RECORD DETAILS FOR ANY PARTICULAR SCRIP, TO ESTABLISH THAT THE TRANSACTION S ENGAGED IN ARE OF THE NATURE OF BUSINESS ACTIVITY. IN THE YEAR UNDER CONSIDERATION THE APPELLANT HAS NOT SHOWN ANY F&O INCOME. AS HAS BEEN HELD BY VARIOUS COURTS AND TRIBUNALS, MERE FREQUENCY OF VOLUME OF SHARE TRANSACTIONS CANNOT BE HELD SUFFICIENT TO C LASSIFY THE INCOME AS BEING BUSINESS INCOME. THUS IN VIEW OF THE FACTS OF THE STATE CASE, WHEN CONSIDERED IN THE BACKDROP OF THE JUDICIAL PRONOUNCEMENTS CITED ABOVE, THE INCOME OF RS. 1,13,24,087/ - CANNOT BE CONSIDERED AS BUSINESS INCOME AND IS HELD TO BE I NCOME FROM STCG. ACCORDINGLY, THE GROUNDS RAISED BY THE APPELLANT ARE ALLOWED. 8. THE LD. CIT(A) HAS BASED HIS FINDINGS ON THE DECISIONS RENDERED BY THE COORDINATE BENCH OF ITAT IN THE CASE OF HITESH DOSHI V. JCIT (46 SOT 336), KORADIA CONSTRUCTION PVT. LTD. V DCIT (146 ITD 251), DCIT V E CAP PARTNERS (ITA NO.4857/MUM/2009) AND MAHINDRA SHAH V ADDL. CIT(ITA NO 6289/MUM/2008) AND ITA NO. 4932/MUM/2009 DATED 18/05/2011 . 9. IN MAHINDRA SHAH V . ADDL. CIT , THE COORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER: 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE QUESTION WHETHER THE SURPLUS ON THE SALE OF SHARES IS TO BE ASSESSED IS CAPITAL GAINS (SHORT - TERM OR LONG - TERM) HAS CLAIMED BY 5 ITA NO. 3660/MUM/2015 ASSESSMENT YEAR: 2010 - 1 1 THE ASSESSEE OF AS BUSI NESS INCOME AS CLAIMED BY THE ASSESSING OFFICER IS A QUESTION OF FACT TO BE DECIDED ACCORDING TO THE CUMULATIVE EFFECT OF SEVERAL FACTS AND CIRCUMSTANCES OF THE CASE. THE INTENTION OF THE ASSESSEE , THE NATURE OF COMMODITY SOLD, WHETHER THE ASSESSEE HAS USE D ITS OWN FUNDS OR BORROWED FUNDS, THE TREATMENT GIVEN TO THE ASSET IN THE BOOKS OF ACCOUNT, THE CONSISTENT STAND TAKEN BY THE REVENUE AUTHORITIES IN RESPECT OF THE SALE PROCEEDS OF THE ASSET IN THE EARLIER YEARS, THE FREQUENCY AND VOLUME OF THE TRANSACTIO NS, THE PERIOD OF HOLDING THE SHARES, WHETHER THE ASSESSEE TOOK OR GAVE DELIVERY OF SHARES, ARE ALL QUESTIONS WHICH HAVE BEFORE A DECISION IS TAKEN AS TO WHETHER THE ASSESSEE HELD THE SHARES AS CAPITAL ASSETS (INVESTMENT) OR AS STOCK - IN - TRADE. IT IS ALSO R ECOGNIZED BY THE REVENUE THAT THE SAME ASSESSEE CAN HOLD THE SHARES IN TWO DIFFERENT PORTFOLIO - ONE PORTFOLIO FOR STOCK IN TRADE AND ANOTHER PORTFOLIO AS INVESTMENT. THIS PROPOSITION HAS BEEN RECOGNIZED BY THE CBDT IN ITS CIRCULAR NO. 665 DATED 05.10.1992. 15. IN THE PRESENT CASE THE COMMODITY IN QUESTION IS SHARES WHICH ARE GENERALLY TRADED. BUT THAT IS NOT CONCLUSIVE BECAUSE IT IS COMMON KNOWLEDGE THAT SHARES ARE ALSO HELD AS INVESTMENT PARTICULARLY SHARES OF BLUE - CHIP COMPANIES WHICH MAY YIELD CONSISTEN T DIVIDEND AND MAY ALSO APPRECIATE IN VALUE OVER A PERIOD OF YEARS, THE APPRECIATION BEING SIMILAR TO THE APPRECIATION IN THE VALUE OF THE OTHER INVESTMENTS SUCH AS FIXED DEPOSITS WITH BANKS, REAL ESTATE, GOLD AND OTHER PRECIOUS METALS, ETC. IT IS A FACT T HAT IN THE PRESENT CASE THE ASSESSEE HAS SHOWN THE SHARES AS INVESTMENT IN HIS BALANCE SHEETS 10. THE FACTS AND ISSUE INVOLVED IN THE PRESENT CASE ARE SIMILAR TO THE FACTS AND ISSUE INVOLVED IN THE CASE OF MAHINDRA SHAH V . ADDL. CIT (SUPRA) AND THE COORDI NATE BENCH HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. SINCE, THE LD. CIT(A) HAS DECIDED THE ISSUE IN THIS CASE BY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE DO NOT FIND ANY LEGAL OR FACTUAL INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A). ON THE OTHER HAND THE FACTS OF THE CAS E RELIED UPON BY THE DEPARTMENT ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. 6 ITA NO. 3660/MUM/2015 ASSESSMENT YEAR: 2010 - 1 1 HENCE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER AND DISMISS THE SOLE GROUND OF APPEAL FILED BY THE DEPARTMENT. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2010 - 2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JULY , 2017 . SD/ - SD/ - ( RAJENDRA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 04 / 0 7 / 2017 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT( A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MU MBAI