ACIT RG 25(3), MUMBAI V. CHHITUBHAI N. PATEL, MUMBAI

ITA 4050/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62526 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 4050/MUM/2010 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX 25(3), C-11, R. NO. 308, PRATYAKSH KAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (EAST), MUMBAI. 400 051. VS. SHRI CHHITUBHAI N. PATEL, B/1302, VEENA VIHAR CHS LTD., SECTOR 8, CHARKOP, KANDIVLI (W), MUMBAI- 400067. PAN : AAYPP4083A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI C.G.K. NAIR ASSESSEE BY : SHRI DEEPAK TRALSHAWALA DATE OF HEARING 28-5-2012 DATE OF PRONOUNCEMENT 06-6-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DATED 23-02-2010 PASSED BY THE LD. CIT(A) FOR THE A .Y. 2007-08. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE AN INDIVIDUAL ENGAGED IN TRADING IN SHARES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS S HOWN CAPITAL GAIN AND INCOME FROM DIVIDEND, CLAIMED AS EXEMPTED. THE A.O. FURTHER NOTED THAT ALL THE RECEIPTS IN THE CAPITAL ACCOUNT ARE AR ISING OUT OF TRANSACTIONS IN SHARES AND SECURITIES BUT IN THE COMPUTATION OF INCOME, THE ASSESSEE ITA NO. 4050/MUM/2010 2 BIFURCATED THE CREDIT ENTRIES AND OFFERED THE PROFI TS/LOSS ON THE SALE OF SHARES AS SHORT TERM/LONG TERM CAPITAL GAINS. THE A.O. SUMMARISED THE SHARE TRANSACTIONS PERTAINING TO SHORT TERM CAPITAL GAIN AND LONG TEM CAPITAL GAIN AS UNDER:- NO. OF SHARES BOUGHT AND SOLD 100930 PURCHASE AMOUNT RS. 1,75,27,090/- SALES AMOUNT RS. 3,36,92,261/- GAIN RS. 1,61,65,171/- LONG TERM CAPITAL GAINS NO. OF SHARES BOUGHT AND SOLD 9000 PURCHASE AMOUNT RS. 35,11,490.26 SALES AMOUNT RS. 44,01,604.41 GAIN RS. 8,90,114/- TOTAL TRANSACTIONS NO. OF SHARES BOUGHT AND SOLD 109930 PURCHASE AMOUNT RS. 2,10,38,580.26 SALES AMOUNT RS. 3,80,93,865.41 APART FROM THE ABOVE, FROM THE PROFIT AND LOSS ACCO UNT FOR THE YEAR ENDING 31.03.2004 AND CAPITAL ACCOUNT FOR THE YEAR ENDING 31.3.2005, THE A.O. OBSERVED THAT FOR A.Y. 2004-05 THE ASSESSE E HAD TREATED THE INCOME RECEIVED FROM TRADING AS BUSINESS INCOME WHE REAS FOR THE SUBSEQUENT ASSESSMENT YEARS I.E A.Y. 2005-06, 2006- 07 & 2007-08 THE ASSESSEE HAD CLASSIFIED HIS INCOME/LOSS FROM SHARE TRADING AS SHORT TERM ITA NO. 4050/MUM/2010 3 CAPITAL GAIN AND LONG TERM CAPITAL GAIN. THE A.O. HELD THAT THOUGH THE NATURE AND TYPE OF EXPENSES WERE SAME AS THOSE OF A .Y. 2004-05, THE ASSESSEE DEBITED ALL THE EXPENSES IN THE CAPITAL AC COUNT FOR THE A.YS. 2005-06, 2006-07 & 2007-08. THE A.O. CONCLUDED THA T THE EXPENSES WERE DEBITED TO CAPITAL ACCOUNT WITH A VIEW TO REDU CE TAX. HE FURTHER HELD THAT THE ASSESSEE MAINTAINED FULL OFFICE CUM R ESIDENCE IN ORDER TO CARRY OUT THE BUSINESS OF SHARE TRADING AND HAS DEB ITED VARIOUS EXPENSES SUCH AS TELEPHONE EXPENSES, PROFESSIONAL FEES, BANK CHARGES FEES, BANK CHARGES ETC. HAVING REGARD TO THE FREQUENCY OF TRA NSACTIONS, QUANTITY OF SHARES PURCHASED AND SOLD AND THE NUMBER OF TRANSAC TIONS, THE A.O. WAS OF THE OPINION THAT IT WAS AN ORGANISED ACTIVITY OF PURCHASE AND SALE OF SHARES WITH PROFIT MOTIVE AND ACCORDINGLY THE A.O. ASSESSED THE SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN RS. 67,93, 487/- UNDER THE HEAD INCOME FROM BUSINESS. 3. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JC IT, 29 SOT 117 CONFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE JUDGMENT DTD. 6-1-2010 AND FACTUAL FINDINGS, DIRECTED THE A.O. TO ACCEPT THE CLAIM OF THE APPELLANT BY ACCEPTING THE SHORT TERM/LONG TERM CAPITAL GAIN AS ADMITTED BY THE APPELLANT. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS OF AP PEAL:- ITA NO. 4050/MUM/2010 4 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ACCEPT TH E CLAIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAINS ON PROFIT ARRIVING FROM PURCHASE & SALE OF SHARES INSTEAD OF BUSINESS INCOM E TREATED BY THE A.O. WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS DEALING IN LARGE VOLUME OF SHARES, MOST OF THE SHARES ARE BOUGHT AND SOLD W ITHIN SHORT PERIOD, WHILE SOME ARE NOT SOLD DUE TO MARKET CONDITIONS AN D THEIR HOLDING WITH ASSESSEE REMAINS BEYOND FEW DAYS., IT WILL NOT CHAN GE THE NATURE OF TRANSACTIONS AND THE ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SHARE TRADING, WHICH DENOTE THAT THE MOTIVE OF THE ASSESSEE IS TO CARRY ON BUSINESS IN SHARES TO BOOK PROFIT RATHER THAN INVES TMENT IN SHARES. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTOR ED. 5. AT THE TIME OF HEARING THE LD. D.R. SUPPORTS THE ORDER OF THE A.O. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, AT THE OUTSET, SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07 IN ITA NO. 5238/MUM/2009 DTD. 20-12-2010, UPHELD BY TH E HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. SHRI CHHITUBHA I N. PATEL IN INCOME TAX APPEAL (LOD) NO. 686 OF 2011 DTD. 5 TH AUGUST, 2011 AND IN REVENUES APPEAL IN ITA NO. 3361/MUM/2011 FOR A.Y. 2008-09 DTD. 16- 5-2012. HE ALSO PLACED ON RECORD A COPY OF THE SAID ORDERS/JUDGMENTS. 7. WE HAVE CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) VIDE FINDING RECORDED IN PARA 5.1 OF HIS ORD ER OBSERVED AND HELD AS UNDER:- .IT IS TRUE THAT THE APPELLANT HAS EARNED BUSINES S INCOME ON NON DELIVERY BASED TRANSACTIONS FOR A.Y.2004-2005 B UT THAT ITA NO. 4050/MUM/2010 5 DOES NOT MEAN THAT INCOME EARNED ON SALE OF SHARES HELD AS INVESTMENT CAN BE TAXED AS BUSINESS INCOME IN THE S UBSEQUENT YEARS. THE APPELLANT HAS MADE CLEAR DISTINCTION BET WEEN DELIVERY BASED AND NON DELIVERY BASED TRANSACTIONS AND ADMITTED INCOME ACCORDINGLY AND EXCEPT FOR A.Y.2004 -2005, THE APPELLANT DID NOT INDULGE IN ANY NON DELIVERY BASED SHARE TRANSACTIONS. AS CONTENDED BY THE REPRESENTATIVE, E VEN SHARES PURCHASED AS INVESTMENT HAD TO BE SOLD WITHIN A SHO RT TIME DEPENDING ON THE MARKET CONDITIONS. THUS, THE SALE OF SHARES WAS ONLY WITH A VIEW TO PROTECT THE AMOUNT INVESTED BY THE APPELLANT WHICH WOULD NOT CONVERT THE INVESTMENT IN TO STOCK-IN- TRADE. THE APPELLANT TRANSFERRED ALL THE SHARES IN HIS NAME BEFORE SALE AS EVIDENCED BY THE DEMAT ACCOUNT AND P AID STT AT A HIGH RATE AS APPLICABLE TO THE INVESTOR. IT IS FO UND FROM THE BALANCE SHEET FILED THAT THE APPELLANT HELD SHARES AS INVESTMENT AND AFTER TRANSFERRING THE SHARES IN THE NAME OF TH E APPELLANT THE SHARES WERE SOLD AS EVIDENCED BY THE DEMAT ACCO UNT AND THE STT WAS PAID AT A HIGHER RATE APPLICATION TO TH E INVESTOR. IT IS TRUE THAT THE A.O. DID NOT ACCEPT THE CLAIM OF T HE APPELLANT FOR A.Y.2005-2006 WHICH WAS CONFIRMED BY C1T(A) BUT THE C1T(A) DECIDED THE ISSUE BEFORE THE HONBLE MUMBAI TRIBUNAL RENDERED ITS DECISION IN THE CASE OF GOPAL PUROHIT (29 SOT 117) AND SUBSEQUENT TO THE ABOVE DECISION, THE SAME CIT( A) DECIDED THE SAME ISSUE IN THE CASE OF GOPAL PUROHIT FOR A.Y .2006- 2007 OTHERWISE BY ORDER DATED 18.06.2009 IN ITA NO.534/0 8-09. THUS THE STAND OF THE A.O. IS NO LONGER VALID IN TH E LIGHT OF THE DECISION OF HONBLE MUMBAI TRIBUNAL IN THE CASE OF GOPAL PUROHIT. IN THE CIRCUMSTANCES, THERE IS NO JUSTIFIC ATION FOR ASSESSING THE SHORT TERM CAPITAL GAIN ADMITTED BY T HE APPELLANT UNDER THE HEAD BUSINESS. 8. WE FURTHER FIND THAT THE A.O. WHILE TREATING THE SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN AS BUSINESS INCOME RELI ED ON THE ORDER OF THE LD. CIT(A) FOR A.Y. 2006-07 WHEREIN THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. FOR ASSESSING THE ASSESSEES INCOME FROM SHARE S UNDER THE HEAD INCOME FROM BUSINESS. HOWEVER, ON SECOND APPEAL F ILED BY THE ASSESSEE, THE TRIBUNAL IN ITA NO. 5238/MUM/2009 FOR A.Y. 2006 -07 DTD. 20-12- 2010, AFTER CONSIDERING THE TOTALITY OF THE FACTS A ND CIRCUMSTANCES OF THE CASE HELD THAT THE TRANSACTIONS OF SALE AND PURCHAS E OF THE SHARES BY THE ITA NO. 4050/MUM/2010 6 ASSESSEE WAS IN THE NATURE OF INVESTMENT IN SHARES AND NOT TRADING IN SHARES. THE SAID ORDER OF THE TRIBUNAL HAS BEEN UP HELD BY THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA). WE ALSO FIND TH AT IN SUBSEQUENT ASSESSMENT YEAR I.E. IN 2008-09, THE TRIBUNAL FOLLO WING THE ABOVE DECISIONS DISMISSED THE REVENUES APPEAL ON THE SAM E ISSUE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RE CORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF TH E TRIBUNAL UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT HOLD THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES ARE IN THE NATURE OF IN VESTMENT IN SHARES AND NOT TRADING IN SHARES, THEREFORE, THE LD. CIT(A ) WAS FULLY JUSTIFIED IN ACCEPTING THE CLAIM OF THE ASSESSEE AND ACCORDINGLY THE GROUNDS TAKEN BY THE REVENUE ARE REJECTED. 9. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JUNE, 2012. SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 6 TH JUNE, 2012. RK ITA NO. 4050/MUM/2010 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A) -35, MUMBAI 4. COMMISSIONER OF INCOME TAX- 25, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH C, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI