DCIT 14(2)., MUMBAI V. SUDHIR BANARSILAL TULSIYAN, MUMBAI

ITA 3936/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8941 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 16-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 19-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Business income; Rule of consistency; Question of law; Futures and options
• Section: 143(3); 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J , MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A. NO.3936/M/2009 (AY: 2005-2006) I.T.A. NO.4141/M/2009 (AY: 2006-2007) DCIT 14(2), EARNEST HOUSE, 3 RD FLOOR, NARIMAN POINT, MUMBAI 400 021. VS. SUDHIR B. TULSYAN, UDYOG BHAVAN, 1 ST FLOOR, R.NO. 110, GOREGAON (E), MUMBAI 400 063. PAN:AAAPT2538E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K. NAYAK, DR RESPONDENT BY : SHRI HARIOM TULSYAN DATE OF HEARING: 16.07 .2012 DA TE OF ORDER: 05.09.2012 O R D E R PER VIJAY PAL RAO, JM: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE CIT (A) DATED 9.4.2009 AND 21.4.2009 FOR THE AS SESSMENT YEARS 2005-2006 AND 2006-2007 RESPECTIVELY. 2. THE REVENUE HAS RAISED COMMON GROUNDS IN BOTH TH E APPEALS. THE ONLY EFFECTIVE GROUND RAISED FOR THE ASSESSMENT YEAR 200 5-2006 IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CI T (A) ERRED IN DIRECTING THE AO TO ACCEPT THE CLAIM OF THE ASSESSE E WITH REGARD TO THE SHORT TERM CAPITAL GAIN WITHOUT APPRECIATING THE FA CT THAT ASSESSEE HAS DONE PURCHASE AND SALE OF SHARES IN LARGE SCALE AND AT HIGH FREQUENCY AND PERIOD OF HOLDING IS ALSO NOT VERY LONG. 2 I.T.A. NO.3936 & 4141/M/2009 3. FOR THE ASSESSMENT YEAR 2006-2007, THE ONLY GROU ND RAISED IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE C IT (A) ERRED IN DIRECTING THE AO TO ACCEPT THE CLAIM OF THE ASSESSE E WITH REGARD TO THE SHORT TERM CAPITAL GAIN WITHOUT APPRECIATING THE FA CT THAT ASSESSEE HAS DONE PURCHASES AND SALE OF SHARES IN LARGE SCALE AN D HIGH FREQUENCY & PERIOD OF HOLDING IS ALSO NOT VERY LONG. 4. THE ASSESSEE IS AN INDIVIDUAL AND SHOWN INCOME F ROM SALARY, INCOME FROM HOUSE PROPERTY, INCOME FROM BUSINESS / PROFESSION, CAPITAL GAIN AND INCOME FROM OTHER SOURCES. THE ASSESSEE HAS SHOWN SHORT TERM C APITAL GAIN ARISING FROM PURCHASE AND SALE OF SHARES. THE AO NOTED THAT THE ASSESSEE HAS DONE PURCHASE AND SALE OF SHARES IN LARGE SCALE AND AT HIGH FREQU ENCY AND ALSO THE PERIOD OF HOLDING IS NOT VERY LONG. THEREFORE, THE AO HELD T HE ASSESSEE WAS INVOLVED IN THE SHARE TRADING AND HENCE, THE INCOME SHOWN BY THE AS SESSEE UNDER THE HEAD SHORT TERM CAPITAL GAIN IS TAXED AS BUSINESS INCOME. ON APPEAL, THE LEARNED CIT (A) OBSERVED THAT FOR THE ASSESSMENT YEAR 2004-2005, TH E AO ACCEPTED THE SHORT TERM CAPITAL GAIN WHILE COMPUTING THE ASSESSMENT UNDER S ECTION 143(3). IT WAS FURTHER NOTED BY THE CIT (A) THAT THE AO ALSO ALLOWED SET O FF U/S 74 AND EXEMPTION U/S 54F RESPECTIVELY FOR THE ASSESSMENT YEAR 2004-2005. SI NCE, THERE IS NO CHANGE IN THE PATTERN OF INVESTMENT AND TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN THE SHARES DURING THE YEAR UNDER CONSIDERATION, THE CIT (A) HA S HELD THAT THE AO WAS NOT JUSTIFIED IN TREATING THE SHORT TERM CAPITAL GAIN D ECLARED BY THE ASSESSEE AS BUSINESS INCOME. ACCORDINGLY, BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN 3 I.T.A. NO.3936 & 4141/M/2009 THE CASE OF GOPAL PUROHIT, THE CIT (A) HAS DIRECTED THE AO TO ACCEPT THE CLAIM OF ASSESSEE IN REGARD TO SHORT TERM CAPITAL GAIN. 5. BEFORE US, THE LEARNED DR HAS SUBMITTED THAT THE AO HAS POINTED OUT THE FACT THAT THE ASSESSEE HAS DONE PURCHASE AND SALE OF SHA RES IN LARGE SCALE AND HIGH FREQUENCY AND PERIOD OF HOLDING IS ALSO VERY LONG. HE FURTHER SUBMITTED THAT THE CIT (A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERV ING THAT FOR THE ASSESSMENT YEAR 2004-2005 THE SHORT TERM CAPITAL GAIN DECLARED BY T HE ASSESSEE WAS ACCEPTED BY THE AO WHEREAS, THE TRANSACTIONS IN BOTH THE YEARS ARE DIFFERENT AS THE VOLUME OF THE TRANSACTION IS VERY LARGE IN THE ASSESSMENT YEARS U NDER CONSIDERATION. HE HAS FURTHER SUBMITTED THAT EVERY ASSESSMENT YEAR IS A S EPARATE UNIT AND, THEREFORE, THE RES JUDICATA IS NOT APPLICABLE IN THE MATTER OF TAXATION. HE HA S REFERRED THE DETAILS OF TRANSACTIONS OF PURCHASE AND SALE GIVING RAISE TO T HE SHORT TERM CAPITAL GAIN AND SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT LARGE N UMBER OF TRANSACTIONS AND THE FREQUENCY IS ALSO VERY HIGH. THEREFORE, THE FACTS ARE DIFFERENT FROM THE FACTS FOR THE ASSESSMENT YEAR 2004-2005. THE LEARNED DR HAS FURT HER POINTED OUT THAT IN THE MONTH OF DECEMBER 2004, THE ASSESSEE HAS CARRIED OU T TRANSACTION AS MANY AS ON 18 DAYS WHICH SHOWS THE INTENTION OF THE ASSESSEE I N PURCHASE AND SALE OF THE SHARES SO TO EARN THE PROFIT BY A SYSTEMATIC AND RE GULAR TRANSACTION. THE LEARNED DR HAS FURTHER SUBMITTED THAT THE ASSESSEE IS ALSO A T RADER IN FUTURES AND OPTIONS (F & O) AND REGULARLY CARRYING OUT THE TRANSACTIONS IN T HE FEATURES AND OPTIONS SEGMENT. THUS, THE LEARNED DR HAS SUBMITTED THAT KEEPING IN VIEW THE VOLUME, FREQUENCY AND HOLDING PERIOD OF TRANSACTION AS WELL AS REGULAR AN D SYSTEMATIC ACTIVITY OF PURCHASE 4 I.T.A. NO.3936 & 4141/M/2009 AND SALE, IT CANNOT BE SAID THAT THE ASSESSEE IS AN INVESTOR AND NOT TRADER. HE RELIED UPON THE ORDER OF THE AO. 6. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSE E HAS SUBMITTED THAT MERELY BECAUSE OF LARGE NUMBER OF TRANSACTIONS, IT CANNOT BE HELD THAT THE ASSESSEE IS A TRADER AND NOT THE INVESTOR. HE HAS REFERRED VARIO US DECISIONS OF THIS TRIBUNAL ON THIS POINT AND SUBMITTED THAT IN THE CASE OF CIT VS. SURESH R SHAH, THE HONBLE HIGH COURT HAS HELD IN THE DECISION DATED 20.6.2012 THAT THERE IS NO BAR IN MAINTAINING TWO SEPARATE PORTFOLIOS I.E. ONE IN REL ATION TO INVESTMENT IN SHARES AND ANOTHER IN RELATION TO BUSINESS ACTIVITIES DEALING IN SHARES. THE LEARNED AR HAS, THUS, SUBMITTED THAT THE PRINCIPLE OF CONSISTENCY HAS TO BE FOLLOWED WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL FOR THE EARLIER ASS ESSMENT YEARS AND WHEN THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE. HE HAS FUR THER POINTED OUT THAT FOR THE ASSESSMENT YEARS 2008-2009 AND 2009-2010 THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE. THE LEARNED AR HAS FURTHER SUBMITTED THA T FOR THE ASSESSMENT YEAR 2007- 2008 THE CIT (A) HAS ALLOWED THE CLAIM OF THE ASSES SEE AND THE ASSESSEE HAS NOT RECEIVED ANY NOTICE OF APPEAL IF FILED BY THE DEPAR TMENT. THE LEARNED AR HAS FILED THE CHART SHOWING THE COMPARATIVE DETAILS FOR THE V ARIOUS ASSESSMENT YEARS AND SUBMITTED THAT THE PURCHASE AND SALE PATTERN FOR AL L THE ASSESSMENT YEARS RIGHT FROM 2003-2004 TO ASSESSMENT YEAR 2009-2010 ARE IDENTICA L EXCEPT SOME VARIATION OF AMOUNT, THEREFORE, THE AO CANNOT TAKE A DIFFERENT V IEW FOR CERTAIN YEARS WHEN THE CLAIM OF THE ASSESSEE WAS ACCEPTED FOR THE OTHER YE ARS. LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAS USED HIS OWN FUNDS AND NO BORROWED FUNDS WERE 5 I.T.A. NO.3936 & 4141/M/2009 USED FOR THE PURPOSE OF INVESTMENT IN SHARES. THE ASSESSEE HAS ALSO RECEIVED A SUBSTANTIAL AMOUNT OF DIVIDEND INCOME. AS REGARDS T HE SHORT PERIOD OF HOLDING IN SOME OF THE TRANSACTIONS, THE LEARNED AR OF THE ASS ESSEE HAS FILED THE DETAILS IN RESPECT OF SIX SCRIPS NAMELY INDIA GLYCOL, BIO CON LDTD., ETEMIT EVEREST, CHEMPLAST SANMA, NELCO LTD AND IDBI AND SUBMITTED THAT IT WAS HAPPENED BECAUSE OF PUNCHING ERROR ON THE PART OF THE BROKER AND, THERE FORE, THEY WERE IMMEDIATELY REVERSED. AS REGARDS THE ASSESSMENT YEAR 2006-2007 , THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT INVESTMENT IN THE SHARE S WERE DONE THROUGH THE PORTFOLIO MANAGER AS THE ASSESSEE HAS AVAILED THE S ERVICES OF PMS AND IN VIEW OF THE VARIOUS DECISIONS OF THIS TRIBUNAL, THE SALE AND PU RCHASE OF SHARES THROUGH PMS CANNOT BE TREATED AS TRADING. HE HAS RELIED UPON T HE DECISION OF PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF ARA TRADING & INVESTMENTS (P) LTD. VS. DCIT [2011] 47 SOT 172 AS WELL AS DECISION OF COORDINATE BENCH OF THIS TRI BUNAL IN CASE OF ITO VS. RADHA BIRJU PATEL , DATED 30.11.2010 IN ITA NO. 5382/M/2009. THE LEAR NED DR IN REBUTTAL HAS SUBMITTED THAT THE ASSESSEE BROUGHT OUT NEW FACT REGARDING THE PUNCHING ERROR ON THE PART OF THE STOCK BROKER IN R ESPECT OF FEW TRANSACTIONS WHERE THE HOLDING PERIOD IS VERY LESS OR ZERO. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WHEN THE ASSESSEE IS MAINTAINING A SEPARAT E PORTFOLIO AS REGARDS THE INVESTMENT IN SHARES AND TRADING SHARES IN THE BOOK S OF ACCOUNT, VALUING THE SHARES AT COST, USING ITS OWN FUNDS AND NOT BORROWED FUNDS AND CLAIM OF ASSESSEE HAS BEEN ACCEPTED BY THE AO IN THE EARLIER YEAR AS WELL AS I N THE SUBSEQUENT YEAR AS 6 I.T.A. NO.3936 & 4141/M/2009 INVESTMENT AND CAPITAL GAIN ARISING OUT OF THE PURC HASE AND SALE OF THE SHARES THEN, THE AO CANNOT TAKE A DIFFERENT VIEW FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION IN THE ABSENCE OF ANY MATERIAL OR SUBSTANTIAL CHANGE I N THE FACTS AND CIRCUMSTANCES DURING THE YEARS UNDER CONSIDERATION. THE DETAILS O F THE PURCHASE AND SALE SHOWN AS INVESTMENT GIVING RAISE TO SHORT TERM CAPITAL GAIN, LONG TERM CAPITAL GAIN AND DIVIDEND INCOME ARE GIVEN IN THE CHART AS UNDER: AY CAPITAL RS INVESTM ENT RS DIVIDE ND RS. STCG RS LTCG RS ACCEPTE D BY DEP 143(3) ACCEPT ED BY CIT (A) TOTAL PURCHA SE VALUE. RS. TOTAL SALE VALUE . RS. 2003 - 04 80824 146 37490729 568058 (772201) 1453343 STC & LTCG ALLOWED 29933360 29656602 2 004 - 05 107609317 53052549 7588423 694331 4457838 STC & LTCG ALLOWED 92911594 85878540 2005 - 06 139390369 63756584 7756438 3467674 5220920 STCG TREATED AS BUSINES INCOME STCG ALLOWED 54156581 50454382 2006 - 07 185156263 85159721 4979807 11474143 17440384 S TCG & LTCG TREATED AS BUSINESS INCOME STCG & LTCG ALLOWED 11526881 0 126568524 2007 - 08 207417175 87908594 6025745 4520148 2090884 STCG & LTCG TREATED AS BUSINESS INCOME STCG & LTCG ALLOWED 62117945 67271070 2008 - 09 229238277 12572964 7 2061905 1007951 1341 1382 STCG & LTCG ALLOWED LOSS DURING YEAR 80926801 92583986 2009 - 10 285221803 12362351 6 1382913 (5699618) (1197781) STCG & LTCG ALLOWED LOSS DURING YEAR 69478313 63788741 8. AS EVIDENT FROM THE ABOVE MENTIONED DETAILS, THE AO ACCEPTED THE CLAM OF THE ASSESSEE REGARDING SHORT TERM AND LONG TERM CAP ITAL GAIN FOR THE ASSESSMENT 7 I.T.A. NO.3936 & 4141/M/2009 YEAR 2003-2004 AND 2004-2005. FOR THE ASSESSMENT Y EAR 2005-2006 THE AO ACCEPTED THE CLAIM OF LONG TERM CAPITAL GAIN BUT TH E CLAIM OF SHORT TERM CAPITAL GAIN WAS TREATED AS THE BUSINESS INCOME WHEREAS FOR THE ASSESSMENT YEARS 2006-2007 AND 2007-2008, THE AO HAS TREATED BOTH THE SHORT TE RM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME. FURTHER, FOR THE ASSESSMENT YEARS 2008-2009 AND 2009-2010, THE CAPITAL LOSS DECLARED BY THE ASSESSE E HAS BEEN ACCEPTED BY THE AO. IT IS APPARENT AND MANIFEST FROM THE RECORD THAT THE AO HAS TAKEN DIVERGENT VIEWS FOR DIFFERENT ASSESSMENT YEARS WHEN THE TRANSACTION S ARE IDENTICAL AND THE FACTS AND CIRCUMSTANCES ARE ALSO SIMILAR. THEREFORE, THIS AC T OF THE AO IS CONTRARY TO THE PRINCIPLE OF CONSISTENCY. THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF GOPAL PUROHIT HAS HELD AS UNDER: THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRA NSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PUR POSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUS INESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RE CEIVED THERE FROM SHOULD BE TREATED EITHER AS SHORT-TERM OR, AS THE CASE MAY BE, LONG- TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF TH E HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REG ARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS, NAMELY, THOSE BY WAY OF INVESTMENT 8 I.T.A. NO.3936 & 4141/M/2009 ON THE ONE HAND AND THOSE FOR THE PURPOSES OF BUSI NESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBST ANTIAL QUESTION OF LAW. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NAT URE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEAR S. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCE PTED THE POSITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FA CTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE C ASE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. TH E REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFOR E, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION OF LAW. 9. AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT , THE AO CANNOT TAKE A DIFFERENT VIEW WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL FOR ALL THE ASSESSMENT YEARS. FOR THE ASSESSMENT YEAR 2006-2007, THE ASSE SSEE HAS APPOINTED PORTFOLIO MANAGER FOR ITS FUNDS TO BE INVESTED IN THE SHARES, THEREFORE, IN VIEW OF THE DECISION IN CASE OF ARA TRADING & INVESTMENTS (P) LTD. VS. DC IT (SUPRA) AS WELL AS IN THE CASE OF ITO VS. RADHA BIRJU PATEL OF THIS TRIBUNAL, THE INVESTMENT MADE IN THE SHARES THROUGH PORTFOLIO MANAGER CANNOT BE HELD AS TRADING WHEN THE OTHER FACTORS ARE ALSO 9 I.T.A. NO.3936 & 4141/M/2009 IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE FACTS AN D CIRCUMSTANCES OF THE CASE AS WELL AS THE DECISIONS OF HONBLE JURISDICTIONAL HIGH COU RT AND THIS TRIBUNAL, WE FIND NO ERROR OR ILLEGALITY IN THE ORDER OF THE CIT (A). 10. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (G.E. VEERABHADRAPPA) (VIJAY PAL RAO) PRESIDENT JUDICIAL MEMBER DATE : 5.9.2012 AT :MUMBAI OKK COPY TO : 1. SUDHIR B. TULSYAN, MUMBAI. 2. DCIT-14(2), MUMBAI. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR J, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI