ACIT 14(2), MUMBAI V. SUDHIR B. TULSUAM, MUMBAI

ITA 4166/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4297 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 22-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S N RAJU
• Keywords: Business income; Rule of consistency; Transactions in derivatives; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI- E,BENCH , ,, , , ,, , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANJAY GARG,JUDICIAL MEMBER /.ITA NO.4166/MUM/2011 , /ASSESSMENT YEAR- 2007-08 ACIT 14(2) EARNEST HOUSE 3 RD FLOORNARIMAN POINT MUMBAI-400 021. VS. SHRI SUDHIR B. TULSYAN 384, DABHOLKAR WADI 14 TH FLOOR, R.NO. 70 KALBADEVI ROAD,MUMBAI-2. PAN: AAAPT2538F ( / ASSESSEE ) ( / RESPONDENT) /ASSESSEE BY :SHRI HARIOM TULSYAN (AR) / REVENUE BY :SH.B.S.N. RAJU (DR) / DATE OF HEARING :12 - 11 -2015 / DATE OF PRONOUNCEMENT : 01.01.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 15.3.2011 OF THE CIT(A) -25,MUMBAI THE ASSESSING OFFICER(AO) HAS FILED THE PRESENT APPEAL. ASSESSEE,AN INDIVIDUAL, ENGAGED IN BUSINESS OF DISC OUNTING FINANCE AND INVESTMENT IN SHARES, FILED HIS RETURN OF INCOME ON 31.10.2007,DECLARING TOTAL INCOME OF RS. 44.84 LAKHS.THE AO COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT, ON 30.12.2009, DETERMINING HIS INCOME AT RS.69,16,190/-. 2. FIRST GROUND OF APPEAL IS ABOUT TREATING THE SHORT TERM CAPITAL GAINS(STCG) AND LONG TERM CAPITAL GAINS(LTCG)UNDER THE HEAD BUSINESS IN COME.DURING THE COURSE OF ASSESSME - NT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD C LAIMED STCG OF RS. 44.20 LAKHS AND LTCG OF RS. 20.90 LAKHS. HAVING REGARD TO THE VOLUM E OF TRANSACTIONS OF SHARES, PERIOD OF HOLDING AND FREQUENCY OF TRANSACTIONS,HE HELD THAT THE INTENTION OF THE ASSESSEE WAS TO TRADE IN SHARES AND NOT TO MAKE INVESTMENTS.AS A RESULT,HE T REATED LTCG AND STCG AS BUSINESS INCOME. 3. AGGRIEVED BY THE ORDER THE AO,THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS STATED THAT THE AS SESSEE HAD RECEIVED DIVIDEND INCOME OF RS.60.25 LAKHS, THAT THE ASSESSEE HAD INTENTIONS OF MAKING INVESTMENT IN SHARES,THAT HE HAD NOT BORROWED FUNDS FROM OUTSIDE,THAT MORE THAN 50% OF STCG WAS DERIVED FROM THE SHARES THAT WERE HELD FOR A PERIOD OF MORE THAN 108 DAYS,T HAT IN THE SUBSEQUENT YEAR THE AO HAD TREATED STCG AND LTCG UNDER THE HEAD CAPITAL GAINS , THAT THE ASSESSEE HAD NOT ENTERED INTO INTRA-DAY TRANSACTIONS/SPECULATIVE TRANSACTIONS/F&O SEGMENT,THAT THE DIVIDEND INCOME WAS MERE TO EQUIVALENT OF AGGREGATE OF STCG AND LTCG, T HAT IN THE EARLIER A.YS. 2005-06 AND 2006-07THE FAA HAD DECIDED THE ISSUE OF TRADER/INVE STOR IN FAVOUR OF THE ASSESSEE. AFTER THE CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT HIS PREDECESSORS HAVE DECIDED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE, THAT THE AO HIMSELF IN AY.2008-09 HAD ACCEPTED THE CLAIM OF THE ASSESSEE F OR STCG AND STCG.ACCORDINGLY,HE DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE AS STCG AND LTCG INSTEAD OF BUSINESS INCOME. 2 4166/11-SHRI SUDHIR B. TULSYAN 4. DURING THE COURSE OF HEARING BEFORE US DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF AO.THE AUTHORISED REPRESENTATIVE(AR)STATED THAT THE SIMILAR ISSUE HAS ARISEN IN THE EARLIER A.YS.,THAT THE TRIBUNAL HAD DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE (ITA 3936/ MUM/2009- AY.2005-06 AND ITA 4141/MUM/2009-A.Y. 200 6-07, DTD 5.9.2012). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE TRIBUNAL HAS IN PARAGARAPH 7-9, HAS DEALT THE ISSUE AS UNDER :- 7-9 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WHEN THE ASSESSEE IS MAINTAINING A SEPARATE 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 CLAI M OF ASSESSEE HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN EARLIER YEAR AS WELL AS IN THE SUBSEQUENT YEAR AS INVESTMENT AND CAPITAL GAIN ARISING OUT OF THE PURCHASE AND SALE OF THE SH ARES THEN, THE AO CANNOT TAKE A DIFFERENT VIEW FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN THE ABSENCE OF ANY MATERIAL OR SUBSTANTIAL CHANGE IN THE FACTS AND CIRCUMSTANCES D URING THE YEARS UNDER CONSIDERATION. THE DETAILS OF THE PURCHASE AND SALE SHOWN AS INVES TMENT GIVING RAISE TO SHORT TERM CAPITAL GAIN, LONG TERM CAPITAL GAIN AND DIVIDEND I NCOME ARE GIVEN IN THE CHART AS UNDER: 8.AS EVIDENT FROM THE ABOVE MENTIONED DETAILS, THE AO ACCEPTED THE CLAM OF THE ASSESSEE REGARDING SHORT TERM AND LONG TERM CAPITAL GAIN FOR THE ASSESSMENT YEAR 2003-2004 AND 2004- 2005. FOR THE ASSESSMENT YEAR 2005-2006 THE ASSESSI NG OFFICER ACCEPTED THE CLAIM OF LONG TERM CAPITAL GAIN BUT THE CLAIM OF SHORT TERM CAPIT AL GAIN WAS TREATED AS THE BUSINESS INCOME WHEREAS FOR THE ASSESSMENT YEARS 2006-2007 AND 2007 -2008, THE AO HAS TREATED BOTH THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME. FURTHER, FOR THE ASSESSMENT YEARS 2008-2009 AND 2009-2010, THE CAPIT AL LOSS DECLARED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE AO. IT IS APPARENT AND MANIFES T FROM THE RECORD THAT THE AO HAS TAKEN DIVERGENT VIEWS FOR DIFFERENT ASSESSMENT YEARS WHEN THE TRANSACTIONS ARE IDENTICAL AND THE FACTS AND CIRCUMSTANCES ARE ALSO SIMILAR. THEREFORE , THIS ACT OF THE AO IS CONTRA6/ TO THE PRINCIPLE OF CONSISTENCY.THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF GOPAL PUROHIT HAS HELD AS UNDER: 3 4166/11-SHRI SUDHIR B. TULSYAN THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THA T THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF T RANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED DEA LING IN SHARES FOR THE PURPOSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMEN T OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL H AS 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 A ND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNA L HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THERE FROM SHO ULD BE TREATED AS EITHER AS SHORT TERM OR, AS THE CASE MAY BE, LONG- TERM CAPITAL GAI N, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY T HE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS, NAMELY, THOS E BY WAY OF INVESTMENT ON THE ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNA L HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSI STENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING REC ORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YE ARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER C ONSIDERATION, SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEE DINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JU DICATA 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 CASE OF THE ASSESSE E. IS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFI CATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUEST ION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION OF LAW.' 9.AS HELD BY THE HON'BLE 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 ASSESSEE HAS APPOINT ED 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. DCIT (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 IN FAVOU R OF THE ASSESSEE. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT AND THIS TRIBUNAL, WE FIND NO ERROR OR ILLEGALITY IN TH E ORDER OF LEARNED CIT(A). WE FIND THAT THE FACTS AND CIRCUMSTANCES OF THE CAS E UNDER APPEAL ARE IDENTICAL TO THE FACTS OF THE EARLIER YEARS AND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE.SO, RESPECTFULLY,FOLLOWING THE ORDER OF THE TRIBUNAL FO R THE EARLIER TWO AYS., WE DECIDE GROUND NO. 1 AGAINST THE AO. 5 .NEXT GROUND OF APPEAL IS ABOUT THE DISALLOWANCE MA DE U/S. 14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD RECEIVED DIVIDEND INCOME OF RS. 60.25 LAKHS AND THAT HAD MADE A DISALLOWANCE OF RS. 95,653/- ONLY. INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RUL E, 1962 (RULE), HE RE-WORKED THE DISALLOWANCE AND MADE AN ADDITION OF RS. 3.41 LAKHS . 4 4166/11-SHRI SUDHIR B. TULSYAN 6 .IN THE APPELLATE PROCEEDINGS BEFORE THE FAA,THE AS SESSEE CONTENDED THAT RULE 8D OF THE RULES WAS NOT APPLICABLE FOR THE YEAR UNDER APPEAL IN VIEW OF THE DECISION OF THE HOBLE BOMBAY HIGH COURT DELIVERED IN CASE OF GODREJ & BOY CE MFG. LTD. (I94 TAXMAN 203), THAT THE AO HIMSELF HAD MENTIONED THAT DIRECT EXPENDITUR E TO EARN EXEMPT INCOME WAS RS. NIL, THAT THE AO HAD ALSO ADMITTED THAT ASSESSEE HAD NOT INCURRED ANY INTEREST EXPENDITURE, THAT THE INVESTMENT WAS MADE BY THE ASSESSEE FROM HIS OWN/SU RPLUS FUNDS, THAT THE ASSESSEE HIMSELF HAD DISALLOWED EXPENSES OF RS. 95,653/-.AFTER CONSI DERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT IT WOULD BE JUST AND PROPER TO RESTRICT THE DISALLOW - ANCE U/S. 14A TO 50% OF THE DISALLOWANCE MADE BY TH E AO, THAT THE ASSESSEE WAS ENTITLED FOR 50% RELIEF OUT OF TOTAL ADDITION OF RS. 3.41 LAKHS, THAT THE REASONABLE DISALLOWANCE HAD TO BE CONFIRMED. 7 .BEFORE US THE DR RELIED UPON THE ORDER OF THE AO.T HE AR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. WE PERUSED THE MATERIAL ON RECORD. WE ARE OF THE OP INION THAT THE PROVISION OF RULE 8D OF THE RULES CANNOT BE INVOKED FOR THE YEAR UNDER APPEAL,T HAT REASONABLE DISALLOWANCE COULD BE MADE UNDER SECTION 14A OF THE ACT, THAT THE ASSESSE E ITSELF HAD MADE DISALLOWANCE WHILE FILING RETURN OF INCOME, THAT THE FAA HAD RESTRICTE D THE DISALLOWANCE TO 50%, THAT THE ASSESSEE HAD NOT UTILISED BORROWED FUNDS FOR EARNING EXEMPT INCOME,THAT THE AO HIMSELF HAD ADMITTED THAT THE ASSESSEE HAD NOT INCURRED ADMINISTRATIVE E XPENSES. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT THE ORDER OF THE FAA DOES NOT SUFFER FOR ANY LEGAL INFIRMITY.THEREFORE CONFERRING THE SAME, WE DECIDE GROUND NO. 2 AGAINST THE AO. AS A RESULT, APPEA L FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016. ! 1 , 2016 SD/- SD/- ( /SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 01.01.2016 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / !' , , . . . 6. GUARD FILE/ & ! ! //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.