VINODKUMAR R BAJAJ, MUMBAI V. ACIT RG 12(1), MUMBAI

ITA 4139/MUM/2012

• Counselvise Citation: 413919914 RSA 2012
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 18-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI , ,, , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 4139/MUM/2012 (ASSESSMENT YEAR: 2008-09) MR. VINODKUMAR R. BAJAJ, 24-B, RAJABAHADUR COMPOUND, 1 ST FLOOR, HAMAM STREET, FORT, MUMBAI -400 023 .: PAN: AACPB 0038 P VS THE ASSISTANT COMMISSIONER OF INCOME TAX RANGE- 12(1), AAYAKAR BHAVAN, M K MARG, MUMBAI -400 020 (APPELLANT) !' (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI PAVANKUMAR BEERLA #$ % &' /DATE OF HEARING : 14-01-2015 ()* % &' / DATE OF PRONOUNCEMENT : 18-02-2015 , - , - , - , - O R D E R , , , , : :: : PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 23, MUMBAI, DATED 04.04.2012, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN TAKEN: 1.0 GROUND NO.1: TREATING GAINS FROM SALE OF SHARE S AS 'INCOME FROM BUSINESS' INSTEAD ON 'CAPITAL GAINS'. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEANED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX RANGE-12(L) ('THE AO') OF ASSESSING THE GAINS FROM TRANSFER OF SHARES AMOUNTING TO RS. 1,35,54,599/- AS 'INCOME FROM BUSINESS' INSTEAD OF STCG OF RS. 1,35,54,599/- THE APPELLANT PRAYS THAT IT BE HELD THAT THE GAINS ON TRANSFER OF SHARES BE ASSESSED UNDER THE HEAD 'CAPITAL GAINS' AS RETURNED BY THE APPELLANT. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS MR. VINODKUMAR R. BAJAJ ITA 4139/M/2012 2 AND IN CIRCUMSTANCES OF THE CASE IN HOLDING THAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE FACT OF THE CASE. 2.0 GROUND NO. 2: DISALLOWANCE U/S. 14A OF THE ACT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AO OF MAKING DISALLOWANCE U/S. 14A AND THEREBY DISALLOWING EXPENDITURE AMOUNTING TO RS. 4,31,427/- ON THE ALLEGED GROUND THAT THE SAID EXPENDITURE IS INCURRED FOR EARNING TAX-FREE DIVIDEND INCOME, WHEREAS THE TOTAL EXPENSE INCURRED AND CLAIMED BY THE APPELLANT IS RS. 50,881/-. THE LD. CIT(A) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT WHERE NO DIRECT EXPENDITURE HAS BEEN ACTUALLY INCURRED, NO ESTIMATION CAN BE MADE TO DISALLOW EXPENDITURE FOR EARNING THE EXEMPT INCOME. FURTHER, THE DISALLOWANCE IF ANY SHOULD NOT IN ANY CASE EXCEED THE AMOUNT OF EXPENSE CLAIMED BY THE APPELLANT IN RETURN OF INCOME. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL HEREIN AND TO SUBMIT STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE HEARING OF APPEAL. 2. THE FACTS ARE THAT ASSESSEE IS A DIRECTOR IN M/S BAJA J SHARE & STOCK BROKER PVT. LTD. AND ALSO M/S BAJAJ CONSULTANTS PVT. LTD. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O NOTICED THAT THE ASSESSEE HAD LARGE VOLUMES AND FREQUEN CY OF TRANSACTIONS IN SHARES, WHICH ACCORDINGLY AVERAGED AT 1 6.86 DAYS OF HOLDING PERIOD. THE AO, THUS OPINED THAT THE ASSES SEE WAS WRONG TO TREAT THE TRANSACTION IN SHARES AS SHORT TERM CAPITAL GAINS AND HELD THE SAME TO BE BUSINESS INCOME. 3. THE ASSESSEE APPROACHED THE CIT(A), WHO SUSTAINED TH E VIEW OF THE AO, PRIMARILY ON THE FACT THAT PRINCIPLES OF RES JUDICATA DID NOT APPLY TO THE INCOME TAX PROCEEDINGS AND EACH YEAR IN ITSELF IS SELF CONTAINED UNIT TO DETERMINE THE INCOME OF THE YEAR/PERIOD. 4. AGAINST THIS DECISION OF THE CIT(A), THE ASSESSEE APPROACHED THE ITAT. MR. VINODKUMAR R. BAJAJ ITA 4139/M/2012 3 5. BEFORE US, AT THE OUTSET, THE AR POINTED OUT THAT INIT IAL ADDITION WAS MADE BY THE SAME AO AND SUSTAINED BY THE SAME CIT(A), IN THE HANDS OF ASSESSEES WIFE, MRS. SEEMA BAJAJ. TH E CASE OF SEEMA BAJAJ ALSO CAME UPTO THE ITAT, WHEREIN, ON IDENTICAL FACTS, THE COORDINATE BENCH IN ITA NO. 3168/MUM/2012, HELD, WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MA TERIAL AVAILABLE ON RECORD. FROM THE RECORDS, IT IS SEEN T HAT THE ASSESSEE HAS PURCHASED SHARES OF 34 COMPANIES OUT O F WHICH SHARES OF 32 COMPANIES WERE IN IPO. THE ASSESSEE HAS PURCHASED AGGREGATE SHARES OF RS. 7,71,415, AND HAS SOLD THE SAME AT RS.10,45,602. TH E ASSESSEE'S CASE HAS BEEN THAT AT THE TIME OF MAKING APPLICATION IN THE IPO, THE SHARES WERE NOT LISTED IN THE STOCK EXCHANGE AND, THEREFORE, THE SAME ARE NOT IMMEDIATE TRADABLE ITEMS. IN THE IPO, THE FUNDS ARE BLOCKED FOR 30-45 DAYS AFTER WHICH THE SHARES ARE ALLOTTED AND THAT TOO THE QUANTITY OF SHARES IS NOT CERTAIN. IT IS ONLY WHEN THE SHARES ARE ALLOTTED, THEY ARE L ISTED IN STOCK EXCHANGE AND WHEREVER THERE IS SOME RISE IN V ALUE OF THE SHARES, THE ASSESSEE IMMEDIATELY USED TO SEL L THE SAME TO BOOK THE GAIN. THIS PRACTICE OF INVESTMENT IN IPO HAS BEEN CONSISTENT SINCE LAST SEVERAL YEARS AND AL SO IN THE SUBSEQUENT YEARS, WHEREIN THE INCOME HAS BEEN OFFERED AS CAPITAL GAIN AND THE SAME HAS BEEN ACCEP TED BY THE DEPARTMENT UNDER SCRUTINY PROCEEDINGS UNDER SECTION 143(3). FURTHER, THE INVESTMENTS HAVE BEEN MADE THROUGH OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED. THUS, THE INTENTION OF THE ASSESSEE WAS O NLY FOR THE INVESTMENT AND NOT FOR TRADING OF SHARES. MOREO VER, THERE IS NO REPETITIVE TRANSACTION AND ALL ARE DELI VERY BASED, HENCE, ANY GAIN ARISING OUT OF SUCH TRANSACT ION IS TO BE ASSESSED AS CAPITAL GAIN. ON THE OTHER HAND, REVENUE'S CASE IS THAT THE PERIOD OF HOLDINGS IS QU ITE LESS AND NUMBER OF TRANSACTIONS IS ALSO HUGE, THEREFORE, IT SHOULD BE ASSESSED AS BUSINESS INCOME. WHILE ADJUDICATING SUCH KIND OF CASES, THE PRIMARY PARAME TER IS TO GAUGE THE INTENTION OF THE ASSESSEE. THE PERI OD OF HOLDING MAY NOT BE ALL RELEVANT IN THE GIVEN FACTS OF THE CASE. IN THE PRESENT CASE, MOST OF THE INVESTMENTS HAVE BEEN MADE IN IPO, WHICH IS ONLY REFLECTS THE INTENT ION OF INVESTMENT FOR GETTING QUICK GAIN FROM SALES IMMEDI ATELY AS AND WHEN THE SHARES ARE LISTED IN THE STOCK EXCHANGE. THE PURCHASE OF IPO IS MOSTLY DONE BY THE INVESTORS AS THERE IS LESS RISK OF LOSS. FURTHER, T HE OTHER ATTENDANT FACTS LIKE; THE ASSESSEE HAS UTILIZED ITS OWN FUNDS AND HAS SHOWN THE SHARES UNDER THE HEAD INVESTMENT AND MOST IMPORTANT THAT EXACTLY SIMILAR NATURE OF TRANSACTIONS HAVE BEEN HELD BY THE DEPART MENT TO BE CAPITAL GAIN NOT ONLY IN THE EARLIER ASSESSME NT YEARS BUT ALSO IN THE SUBSEQUENT ASSESSMENT YEAR. T HUS, MR. VINODKUMAR R. BAJAJ ITA 4139/M/2012 4 THERE HAS BEEN CONSISTENCY WHICH HAS BEEN ACCEPTED. THIS GOES TO SHOW THAT THE INTENTION OF THE ASSESSE E WAS ONLY FOR THE PURPOSE OF MAKING INVESTMENT AND NOT F OR ENTERING INTO ANY VENTURE OF TRADE. UNDER THESE FAC TS AND CIRCUMSTANCES, WE HOLD THAT THE GAIN ARISING OUT OF SALE OF SHARES SHOULD BE ASSESSED AS CAPITAL GAIN AND NO T AS A BUSINESS INCOME. THE FUNDING OF THE ASSESSING OFF ICER AND THE LEARNED COMMISSIONER (APPEALS) ARE BASED ON VARIOUS DECISIONS WHICH CANNOT BE HELD TO BE APPLIC ABLE UNIVERSALLY IN ALL THE CASES, BECAUSE IN SUCH KIND OF TRANSACTION, EACH FACT OF THE CASE HAS TO BE ANALYZ ED, DEPENDING UPON THE INTENTION OF THE ASSESSEE AND AL SO THE OTHER ATTENDANT CIRCUMSTANCES. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND ALLOW THE GROUND NO.1, RAISED BY THE ASSESSEE. 6. THE AR, THUS SUBMITTED THAT SINCE ON SAME AND IDEN TICAL FACTS, THE COORDINATE BENCH HAS ALLOWED THE APPEAL OF THE ASSESSEE BY ACCEPTING THE TREATMENT OF GAINS ON SALE OF SHARES AS STCG, THE SAME INFERENCE NEEDS TO BE TAKEN IN THE CASE OF THE ASSESSEE. 7. THE DR THOUGH SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES, BUT ACCEPTED THAT ON IDENTICAL GROUNDS, THE IT AT HAS GIVEN RELIEF TO THE OTHER DIRECTOR OF THE COMPANIES. 8. AFTER HEARING THE CONTENTIONS FROM EITHER SIDE, WE ARE OF THE VIEW THAT NO DIVERSE VIEW NEEDS TO BE TAKEN IN THE CASE OF THE ASSESSEE SINCE ON IDENTICAL FACTS, THE ITAT HAS ALREADY G IVEN A FINDING ON FACTS AND RESTORED THE TREATMENT GIVEN BY THE ASSESSEE AS STCG. THE AR ALSO POINTED OUT THAT IDENTICAL VIEW HAS BEEN TAKEN IN THE CASE OF RAJKUMAR R BAJAJ, ITA NO. 4138/MUM/2012. 9. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE TREATMENT OF PROFIT O N SALE OF SHARES/SECURITIES AS STCG. 10. GROUND NO. 1 IS THEREFORE ALLOWED. MR. VINODKUMAR R. BAJAJ ITA 4139/M/2012 5 11. GROUND NO. 2 PERTAINS TO DISALLOWANCE OF RS. 4,31,427/- U/S 14A ON DIVIDEND. 12. IN THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 21,25,940/-, AGAINST WHICH, THE ASSESSEE HAD NOT CLAIMED ANY EXPENDIT URE. THE AO WAS OF THE VIEW THAT THE ASSESSEE MUST HAVE INC URRED SOME EXPENDITURE TO EARN THIS MUCH DIVIDEND, HE, THEREFORE , INVOKED SECTION 14A AND APPLYING RULE 8D, COMPUTED THE DISALLOWANCE OF RS. 4,31,427/-. IT WAS POINTED OUT TO THE AO THAT THE ASSESSEE HAD INCURRED EXPENSES ON BANK CHARGE, OFFIC E RENT, GENERAL EXPENSES AND DEPRECIATION AND ACCOUNTANT FEE WH ICH AGGREGATED TO RS. 50,881/-, AND WHICH DID NOT HAVE ANY N EXUS TOWARDS THE EARNING OF THE DIVIDEND. THE ASSESSEE FURTHE R SUBMITTED THAT IF THE DISALLOWANCE HAS TO BE MADE THEN PROPORTIONATE DISALLOWANCE MAY BE MADE, WHICH WOULD HAVE T O BE COMPUTED AS DIVIDEND INCOME COMPARED TO TOTAL INCOME, WHICH IN THAT CASE, WOULD BE RS. 35,579/-. 13. THE AR ONCE AGAIN SUBMITTED THAT THE IDENTICAL ISSUE WAS DENIED BY THE ITAT IN THE CASE OF SEEM R BAJAJ, WHEREIN AGAINST THE DIVIDEND INCOME OF RS. 479/-, THE REVENUE AUTHORITIES H AD MADE A DISALLOWANCE OF RS. 64,349/-, WHICH WAS DELETED BY TH E ITAT. 14. THE AR SUBMITTED THAT SINCE THE ISSUE IS THE SAME, S AME INFERENCE MAY BE DRAWN IN THE CASE OF THE ASSESSEE AS WELL. 15. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 16. WE HAVE HEARD THE ARGUMENTS AND HAVE PURSUED TH E ORDER OF THE ITAT IN THE CASE OF SMT. SEEMA R BAJAJ. WE FIND THA T THE FACTS ARE RAZOR THIN DIFFERENT, I.E. THE DIVIDEND IN THE CASE O F THE ASSESSEE WAS RS. 21,25,940/-, AGAINST WHICH, THE DISALLOWANCE WAS COMPUTED AT RS. 4,31,427/-, WHEREAS IN THE CASE OF MR S. MR. VINODKUMAR R. BAJAJ ITA 4139/M/2012 6 SEEMA R BAJAJ THE DIVIDEND INCOME WAS RS. 479/- AGAINST WHICH THE AO HAD COMPUTED RS. 64,349/-. 17. ON EXAMINATION OF THE DETAILS, WE FIND THAT THE AO DID N OT COMPUTE THE DISALLOWANCE BY GOING INTO ACCOUNT OF THE ASS ESSEE, WHICH IS A MANDATORY CONDITION. COMPUTING THE DISALLOWANCE MECHANICALLY IS NOT ALLOWED, AS PER THE PROVISIONS OF SECTION 14A(2) OR 14A(3). 18. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT T HE ISSUE BE RESTORED TO THE AO FOR ADJUDICATION ON THE ISSUE. 19. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND R ESTORE THE ISSUE OF DISALLOWANCE TO THE AO, WHO IS DIRECTED TO CO MPUTE THE DISALLOWANCE AS PER LAW AND IN ACCORDANCE WITH THE VA RIOUS JUDICIAL PRONOUNCEMENTS BY THE ITAT AND THE VARIOUS HON BLE HIGH COURTS. 20. GROUND NO. 2 IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY, 2015. SD/- SD/- ( ) ( ) , , , , , , , , (R C SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 18 TH FEBRUARY, 2015 !&/ COPY TO:- 1) / THE APPELLANT. 2) !' / THE RESPONDENT. 3) THE CIT(A) -23, MUMBAI. 4) THE CIT-12, MUMBAI/CIT -12, MUMBAI. 5) 0$12 !&# , , / THE D.R. F BENCH, MUMBAI. MR. VINODKUMAR R. BAJAJ ITA 4139/M/2012 7 6) 234 5 COPY TO GUARD FILE. ,-# / BY ORDER / / TRUE COPY / / 6 / 7 8 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS