ACIT 14(3), MUMBAI V. MANISH D. DESAI, MUMBAI

ITA 3661/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48954 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V SAMPATHKUMAR
• Assessee Lawyers: B V JHAVERI
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 3661/MUM/2010 (ASSESSMENT YEAR: 2006-07) A C I T 14(3) SHRI MANISH D. DESAI 6TH FLOOR, EARNEST HOUSE C/O M/S. DHIRAJLAL BROS NARIMAN POINT, MUMBAI 400021 VS. 121, GHADIAL GALLY, M.K. MARKET , MUMBAI 40002 PAN - AABPD 0501 A APPELLANT RESPONDENT APPELLANT BY: SHRI K.V. SAMPATH KUMAR RESPONDENT BY: SHRI B.V. JHAVERI O R D E R PER R.S. SYAL, A.M. THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 18.02.2010 IN RELATION TO A.Y. 2006-07. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE HOLDING BY THE LEARNED CIT(A) THAT PROFIT FROM SALE TRANSACTION IN SHARES BE TREATED AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME ASSESSED BY THE A.O. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSES SEE, AT THE MATERIAL TIME, WAS PARTNER IN VARIOUS PARTNERSHIP FIRMS FROM WHICH HE EARNED SHARE IN PROFIT AND REMUNERATION. BESIDES THAT, SHORT TE RM CAPITAL GAIN ON SALE OF SHARES WAS DECLARED AT ` 13,86,769/- (AFTER ADJUSTING SHORT TERM LOSS ON SAL E OF SHARES AT ` 1,11,287/-). ON BEING CALLED UPON TO EXPLAIN AS TO WHY SHORT TERM CAPITAL GAIN BE NOT TREATED AS BUSINESS INCOME , ASSESSEE REPLIED THAT HE WAS INVESTING IN SHARES AND SECURITIES SINCE LON G AND HAD NEVER INTENDED TO TRADE IN SHARES. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS PURCHASED SHARES WORTH ` 75.1 LAKHS IN THE YEAR AND THERE WAS SALE OF ` 88.67 LAKHS. APART FROM THAT THE CLOSING STOCK OF S HARES WAS FOUND AT ` 60.87 LAKHS. THE ASSESSING OFFICER NOTED THAT ASSES SEE HAD EARNED DIVIDEND OF ` 54,143/- AND IF THE INTENTION HAD BEEN TO INVEST IN SHARES THEN SUCH ITA NO. 3661/MUM/2010 SHRI MANISH D. DESAI 2 SHARES SHOULD HAVE BEEN HELD FOR A LONGER PERIOD EA RNING REGULAR DIVIDEND. HE, THEREFORE, TREATED THE SHORT TERM CAPITAL GAIN OF ` 13.86 LAKHS AS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSION. THE LEARNED CIT(A) OVERTURNED THE IMPU GNED ORDER ON THIS ISSUE. 4. AFTER CONSIDERING THE RIVAL SUBMISSION AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS NOTICED THAT THE ASSESSEE WAS PARTNER IN CERTAIN FIRMS FROM WHICH HE WAS EARNING SHARE IN PROFIT AS WELL AS REMUNERATION. IT IS FURTHER SEEN THAT THE ASSESSEE WAS CONTINUOUSLY MAKING INVESTMENT IN SHARES OVER THE YEARS, WHICH WAS DEPICTED AS SUCH I N THE RETURNS FILED FOR EARLIER YEARS. COPIES OF THE BALANCE SHEET, DETAILS OF INVESTMENT IN SHARES AND COMPUTATION OF INCOME FOR ASSESSMENT YEARS 2001 -02 TO 2005-06 HAVE BEEN PLACED ON RECORD. ON PERUSAL OF SUCH DETAILS I T IS SEEN THAT THE ASSESSEE HAD DECLARED INVESTMENT IN SHARES AS INVE STMENT AND NOT STOCK- IN-TRADE IN HIS BALANCE SHEET OVER THE YEARS. PROF IT ARISING FROM SALE OF SUCH SHARES HELD AS INVESTMENT WAS DULY OFFERED FOR TAXA TION UNDER THE HEAD CAPITAL GAINS, WHICH HAS NOT BEEN DISTURBED BY TH E A.O. IT IS FURTHER OBSERVED THAT SAME TREATMENT WAS GIVEN BY THE ASSES SEE TO PROFIT ARISING FROM SALE AND PURCHASE OF SHARES IN ASSESSMENT YEAR S 2007-08 AND 2008-09 AS WELL. COPIES OF THE BALANCE SHEET ALONGWITH COMP UTATION OF INCOME, ETC. HAVE BEEN PLACED ON RECORD. ASSESSEES CASE FOR A.Y . 2008-09 WAS TAKEN UP FOR SCRUTINY ASSESSMENT UNDER SECTION 143(3) AND TH E INCOME FROM SHARES HAS BEEN ACCEPTED AS CHARGEABLE TO TAX UNDER THE HE AD CAPITAL GAINS. COPY OF THE ASSESSMENT ORDER FOR A.Y. 2008-09 IS AVAILAB LE ON PAGE 62 ONWARDS OF THE PAPER BOOK. IT IS FURTHER OBSERVED FROM THE IMP UGNED ORDER, WHICH HAS REMAINED UNCONTROVERTED, THAT THE INVESTMENT IN SHA RES WERE MADE BY THE ASSESSEE OUT OF HIS OWN FUNDS AND NO FUNDS WERE BOR ROWED FOR THIS PURPOSE. WE HAVE ALSO PERUSED THE STATEMENT OF PURCHASES AND SALES OF SHARES DURING THE YEAR, COPY OF WHICH IS AVAILABLE ON PAGE 10 ONW ARDS OF THE PAPER BOOK. IT IS SEEN FROM SUCH STATEMENT THAT EVEN THOUGH THERE WAS NUMBER OF TRANSACTIONS AND THE PERIOD OF HOLDING OF SUCH SHAR ES RANGED FROM 2 DAYS TO 249 DAYS, BUT THE PATTERN OF PURCHASES AND SALES OF SHARES INDICATES THAT ONCE ASSESSEE HAS SOLD THE SHARES OF A PARTICULAR C OMPANY, HE HAS NOT RE- ITA NO. 3661/MUM/2010 SHRI MANISH D. DESAI 3 ENTERED INTO THE SHARES OF THAT COMPANY OVER AND OV ER AGAIN. THESE FACTS INDICATE THAT THE ASSESSEE WAS HOLDING THE SHARES A S INVESTMENT AND NO STOCK-IN-TRADE. RECENTLY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. DARIUS PANDOLE (2011) 330 ITR 485 HAS HELD THAT ONC E INCOME FROM SALE OF SHARES HAS BEEN TREATED AS BUSINESS INCOME IN AN EA RLIER YEAR BY WAY OF ASSESSMENT UNDER SECTION 143(3), IN THE NEXT YEAR I T CANNOT BE TAKEN AS CAPITAL GAIN. THE FACTS OF OUR CASE ARE IN CONVERSE POSITION IN AS MUCH AS THE INCOME FROM SALE AND PURCHASE OF SHARES WAS ALWAYS DECLARED AND ACCEPTED BY THE ASSESSEE IN THE PAST AS WELL AS FUTURE AS RE SULTING INTO `CAPITAL GAINS, WHICH FACT HAS BEEN ACCEPTED BY THE REVENUE AUTHORI TIES. ALL OF A SUDDEN IN THIS YEAR ALONE IT CANNOT BE HELD THAT ASSESSEE WAS TRADER IN SHARES. TAKING THE ENTIRE FACTUAL SITUATION UNDER CONSIDERATION, W E FIND THAT THE LEARNED CIT(A) WAS RIGHT IN HOLDING THAT THE INCOME FROM SA LE OF SHARES IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AND NOT BUSI NESS INCOME. WE, THEREFORE, UPHOLD THE ORDER. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH MAY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.