DCIT 24(2), MUMBAI V. KETAN S. SHAH (HUF), MUMBAI

ITA 4198/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79535 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: NIRAV VORA
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A B ENCH, MUMBAI . , !' , #$ %&'( , #) *+ # ' BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ I.T.A. NO.4198/MUM/2011 ( , , , , / ASSESSMENT YEAR : 2008-09 THE DCIT-24(2), PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. M/S. KETAN S. SHAH (HUF), 6, PUSHPA NIWAS, PODDAR ROAD, MALAD (E), MUMBAI-400 097 +- #) ./ ./ ./ PAN/GIR NO. :AACHK 9421R ( -0 / APPELLANT ) .. ( 12-0 / RESPONDENT ) -0 3 # / APPELLANT BY: SHRI R.K. SAHU 12-0 4 3 # / RESPONDENT BY: SHRI NIRAV VORA 4 5) / DATE OF HEARING :09.07.2014 6, 4 5) / DATE OF PRONOUNCEMENT :23.07.2014 *#7 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-34, MUMBAI DT.23.03.2011 PERTAINING TO A.Y. 2008-09. 2. THE SOLE GRIEVANCE OF THE REVENUE READS AS UNDER : ITA NO. 4198/M/2011 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THE INCOME OF RS. 1,29,46,878/- AS SHORT TERM CAPITAL AND RS. 10,48,7 48/- AS LONG TERM CAPITAL GAIN INSTEAD OF INCOME FROM BUSIN ESS BY IGNORING THE DECISION OF HONBLE MUMBAI ITAT IN THE CASE OF ACIT-21(3) VS V. NAGESH ITA NO. 5410/M/2008 DT. 24.9.2009, JAYSHREE PRADEEP SHAH VS ACIT 25(2) ITA NO. 3608/M/07 DT. 24.2.2010 AND SMT. SAHANA NAVERA VS A CIT 25(3) ITA NO. 2586/M/09 DT. 26.3.2010. 3. RETURN FOR THE YEAR WAS FILED ON 2.10.2008 DECLA RING INCOME AT RS. 1,30,92,306/-. THE RETURN WAS SELECTED FOR SCRUTIN Y ASSESSMENT AND STATUTORY NOTICES WERE ACCORDINGLY ISSUED AND SERVE D UPON THE ASSESSEE. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHO WN TOTAL INCOME OF RS. 1,30,92,306/- WHICH INCLUDED SHORT TERM CAPITAL GAI N (STCG) FROM SALE OF SHARES RS. 1,29,45,753/- AND LONG TERM CAPITAL GAIN(LTCG) ON SALE OF SHARES RS. 10,48,748/- AND INCOME FROM OTHER SOU RCES RS. 2,46,553/-. LTCG ON SALE OF SHARES WAS CLAIMED TO BE EXEMPT FRO M TAX. 3.2. THE ASSESSEE WAS ASKED TO EXPLAIN WHY STCG AND LTCG AS CLAIMED BE NOT TREATED AS BUSINESS INCOME OF THE AS SESSEE. THE ASSESSEE FILED A DETAILED REPLY CLAIMING THAT IT IS ONLY AN INVESTOR AND THE SHARES HAVE BEEN SHOWN AS INVESTMENT ACCORDINGLY IT WAS EX PLAINED THAT SHARES WERE PURCHASED TO TREAT THEM AS INVESTMENT AND NOT TO DO TRADING IN SUCH SHARES. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE HAD TAKEN DELIVERIES OF ALL THE SHARES PURCHASED AND THE TRANSACTIONS OF PU RCHASE AND SALES HAVE BEEN ROUTED THROUGH DEMAT ACCOUNT. THE ASSESSEE CLA IMED THAT THE GAINS MAY BE TREATED AS STCG AND LTCG AS DECLARED BY THE ASSESSEE. ITA NO. 4198/M/2011 3 3.3. THIS SUBMISSION OF THE ASSESSEE WAS DISMISSED BY THE AO. THE AO OBSERVED THAT THE ASSESSEE HAS TRANSACTED IN110 SHA RES DURING THE YEAR WHICH CLEARLY SHOW THAT WHATEVER WAS PURCHASED IS S OLD IMMEDIATELY. THE MOTIVE OF THE ASSESSEE WAS TO EARN PROFIT. THE PERIOD OF HOLDING OF THE SCRIPS WAS LESS THAN A MONTH IN MAJORITY OF THE SCRIPS AND THE ASSESSEE HAS EARNED DIVIDEND OF ONLY RS. 44,600/-. THE AO W ENT ON TO TREAT THE STCG AND LTCG AS BUSINESS INCOME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFOR E THE LD. CIT(A) AND REITERATED ITS CLAIM. AFTER CONSIDERING THE FA CTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS BEEN SHOWING THE SHARES AS INVESTMENT AND NOT AS STOCK-IN-TRADE. FURTHER, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE THAT CAN BE ATTRIBUTED TO ANY KIND OF BUSINESS. ACCORDING TO THE LD. CIT(A), IT IS DIFFICULT TO CON CEIVE A BUSINESS TO THE MAGNITUDE OF RECEIVING OF RS. 1,39,95,626/- AS BUS INESS PROFIT IN THE TRADING OF SHARES WITHOUT ANY EXPENDITURE ATTRIBUTA BLE TO THE IMPUGNED BUSINESS. THE LD. CIT(A) FURTHER OBSERVED THAT THE RE IS NO ADVERSE MATERIAL ON RECORD TO SUGGEST THAT AT ANY POINT OF TIME THE ASSESSEE HAD TRANSFERRED SHARES FROM THE INVESTMENT PORTFOLIO TO THE BUSINESS STOCK. THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE HAD NO INTENTION TO INDULGE IN THE BUSINESS OF SHARE TRADING. THE LD. CIT(A) ACCORDINGLY DIRECTED THE AO TO ACCEPT THE LTCG AND STCG AS DISC LOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUB MITTED THAT THE ASSESSEE HAS BEEN PURCHASING AND SELLING THE SAME S CRIPS AGAIN AND AGAIN. THE LD. DR FURTHER POINTED OUT THAT THE ASSESSEE HA S UNSECURED LOANS IN ITA NO. 4198/M/2011 4 ITS BALANCE SHEET WHICH SHOW THAT THE ASSESSEE HAS PURCHASED SHARES FROM BORROWED CAPITAL. IT IS THE SAY OF THE LD. DR THAT THE DIVIDEND INCOME EARNED FROM THE SO CALLED INVESTMENT IS A VERY MEAG ER AMOUNT OF RS. 44,600/-. THE DR FURTHER SUBMITTED THAT THE PERIOD OF HOLDING IN MOST OF THE SHARES IS LESS THAN ONE MONTH. THE LD. DR FINA LLY CONCLUDED BY STATING THAT THE AO HAD RIGHTLY TREATED THE CAPITAL GAINS FROM THE SALE OF SHARES AS BUSINESS INCOME OF THE ASSESSEE. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD. T HE UNDISPUTED FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE HAS ENTERED INTO 85 TRANSACTIONS WHICH MEANS ROUGHLY 1.16 TRANSACTIO NS IN EVERY 5 DAYS OR 6.98 TRANSACTIONS PER MONTH. BY ANY STRETCH OF IMAG INATION, THIS CANNOT BE CONSIDERED TO BE THAT THE ASSESSEE WAS ENGAGED IN H IGH FREQUENCY TRANSACTIONS. IN CIT V/S MADAN GOPAL RADHEY LAL, [1 969] 73 ITR 652 (SC), THE HON'BLE SUPREME COURT HAS DEALT WITH THE ISSUE AND DISCUSSED THE QUESTION: A TRADER MAY ACQUIRE A COMMODITY IN WHICH HE IS DE ALING, FOR, HIS OWN PURPOSES, AND HOLD IT APART FROM THE S TOCK-IN- TRADE OF HIS BUSINESS. THERE IS NO PRESUMPTION THAT SUCH AN ACQUISITION, EVEN IF IT IS AN ACCRETION TO THE STOC K-IN-TRADE OF THE BUSINESS, IS AN ACQUISITION FOR THE PURPOSE OF HIS BUSINESS: IN EACH CASE THE QUESTION IS ONE OF INTEN TION TO BE GATHERED FROM THE EVIDENCE OF CONDUCT AND DEALINGS BY THE ACQUIRER WITH THE COMMODITY. ITA NO. 4198/M/2011 5 9. IN ASSOCIATED INDUSTRIAL DEVELOPMENT (SUPRA), TH E SUPREME COURT OBSERVED AS FOLLOWS: .IT WAS OPEN TO THE ASSESSEE TO CONTEND THAT EVEN ON THE ASSUMPTION THAT IT HAD BECOME A DEALER AND WAS NO L ONGER AN INVESTOR IN SHARES THE PARTICULAR HOLDINGS WHICH HA D BEEN CLEARED AND THE SALES OF WHICH HAD RESULTED IN THE PROFIT IN QUESTION HAD ALWAYS BEEN TREATED BY IT AS AN INVEST MENT. IT CAN HARDLY BE DISPUTED THAT THERE WAS NO BAR TO A D EALER INVESTING IN SHARES. BUT THEN THE MATTER DOES NOT R EST PURELY ON THE TECHNICAL QUESTION OF ONUS WHICH UNDOUBTEDLY IS INITIALLY ON THE REVENUE TO PROVE THAT A PARTICULAR ITEM OF RECEIPT IS TAXABLE. WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN- TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSE E WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTA NCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN T HOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. 10. THE HON'BLE SUPREME COURT IN ANOTHER CASE IN P. M. MOHAMMED MEERAKHAN (P.M.) V/S CIT, [1969] 073 ITR 735 (SC), REITERATED THAT IT WAS NOT POSSIBLE TO EVOLVE ANY SINGLE TEST OR FORMU LA WHICH COULD BE APPLIED IN DETERMINING THE TRANSACTION AS ADVENTURE IN NATURE OF TRADE OR NOT. THE DISTINCTION BETWEEN THE TWO TYPES OF TR ANSACTION IS NOT ALWAYS EASY TO MAKE. WHETHER THE TRANSACTION IS OF ONE KIN D OR THE OTHER DEPENDS ON THE QUESTION WHETHER THE EXCESS IS AN ENHANCEMEN T OF THE VALUE BY ITA NO. 4198/M/2011 6 REALIZING THE SECURITY OR A GAIN IN AN OPERATION OF PROFIT MAKING. THE ASSESSEE MIGHT HAVE INVESTED CAPITAL IN SHARES WITH AN INTENTION TO RESALE THESE IF IN FUTURE THEIR SALE BRINGS IN A HIGHER PR ICE. SUCH AN INVESTMENT THOUGH MOTIVATED BY A POSSIBILITY OF ENHANCEMENT VA LUE, DID NOT NECESSARILY RENDER THE INVESTMENT A TRANSACTION IN THE NATURE OF TRADE. 11. FURTHER, WE FIND THAT THERE IS NO REFERENCE TO THE UTILIZATION OF BORROWED CAPITAL FOR THE PURCHASE OF SHARES. THE C LAIM OF THE REVENUE THAT THE HOLDING PERIOD IS LESS THAN A MONTH DOES N OT HOLD ANY WATER BECAUSE THE LEGISLATURE ITSELF HAS MADE DISTINCTION BETWEEN THE STCG AND LTCG HOLDING. IF THE SHARES ARE HELD FOR LESS THAN 12 MONTHS, THE GAINS WILL BE TREATED AS STCG. E XCEPT IN ONE SCRIP, WHI CH IS MASTER TRUST, THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE ASS ESSEE HAS BEEN CHURNING SAME SHARES. CONSIDERING ALL THESE FACTS IN TOTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF T HE LD. CIT(A). 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY, 2014 . *#7 4 , ) # 8 9*: 23.7.2014 4 ; SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !' /VICE PRESIDENT #) *+ / ACCOUNTANT MEMBER MUMBAI; 9* DATED : 23.07.2014 . . ./ RJ , SR. PS ITA NO. 4198/M/2011 7 *#7 *#7 *#7 *#7 4 44 4 15% 15% 15% 15% <#%,5 <#%,5 <#%,5 <#%,5 / COPY OF THE ORDER FORWARDED TO : 1. -0 / THE APPELLANT 2. 12-0 / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. %>; 15 , , / DR, ITAT, MUMBAI 6. ; ? / GUARD FILE. *#7 *#7 *#7 *#7 / BY ORDER, 2%5 15 //TRUE COPY// / . . . . (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI