ANJU P. SARAF, MUMBAI V. ASST CIT CIR 12(2), MUMBAI

ITA 4216/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79530 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives
• Section: 143(3)

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.4216/MUM/2012 ( , , , , / ASSESSMENT YEAR :2008-09 SMT. ANJU P. SARAF, 32, APOLLO STREET, FORT, MUMBAI-400 023 / VS. THE ACIT, CIRCLE 12(2), 114, 1 ST FLOOR, AAYAKAR BHAVAN, MUMBAI-400 020 +- #) ./ ./ ./ PAN/GIR NO. : AANPS 7431G ( -0 / APPELLANT ) .. ( 12-0 / RESPONDENT ) -0 3 # / APPELLANT BY: SHRI J.P. BAIRAGRA 12-0 4 3 # / RESPONDENT BY: SHRI MAURYA PRATAP 4 5) / DATE OF HEARING :15.07.2014 6, 4 5) / DATE OF PRONOUNCEMENT :23.07.2014 *#7 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE LD. CIT(A)-23, MUMBAI DT.6.03.2012 PERTAINING TO A .Y. 2008-09. 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN TREATING THE SHORT TERM CAPITAL GAIN ON SALE OF SHA RES AND ITA NO. 4216/M/2012 2 MUTUAL FUNDS OF RS. 59,37,106/- AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN HOLDING THAT THE LONG TERM CAPITAL GAIN ON SALE OF SHARES OF RS.10,36,654/- WHICH IS EXEMPTED U/S. 10(38) OF THE I. T. ACT, 1961, BE TREATED AS BUSINE SS INCOME. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE LONG TERM CAPITAL GAIN ON SALE OF SHARES OF RS.10,3 6,654/- WHICH IS EXEMPTED U/S. 10(38) OF THE I.T. ACT, 1961 , AS BUSINESS INCOME WITHOUT ISSUE OF NOTICE OF ENHANCEM ENT AS REQUIRED UNDER SUB-SECTION (2) OF SECTION 251 OF TH E I. T. ACT, 1961. 3. THE ASSESSEE IS A PARTNER IN (I) M/S. BINDAL ENT ERPRISES (II) ANURAG BUILDERS, (III) SARAF DEVELOPERS, (IV) SARAF EXPORT S AND (V) VIKAS BUILDERS. THE RETURN FOR THE YEAR WAS FILED ON 28. 7.2008 DECLARING TOTAL INCOME OF RS. 52,18,763/-. THE RETURN WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ACCORDINGLY ISSUED AND SERVE D ON THE ASSESSEE. THE AO FOUND THAT THE ASSESSEE HAS SHOWN INCOME FROM SP ECULATION BUSINESS ON SALE OF SHARES, SHORT TERM CAPITAL GAINS ON SALE OF SHARES AND INTEREST INCOME AND DIVIDEND INCOME. THE ASSESSEE HAS ALSO SHOWN LOSS FROM FUTURE TRADING (F&O). 3.1. THE AO ASKED THE ASSESSEE TO EXPLAIN WHY THE I NCOME FROM SHORT TERM CAPITAL GAIN (STCG) SHOULD NOT BE TREATED AS I NCOME FROM BUSINESS. THE ASSESSEE FILED A DETAILED REPLY CONT ENTING THAT SHE IS SHOWING INVESTMENT IN SHARES FROM PAST MANY YEARS. IT WAS FURTHER EXPLAINED THAT SHE HAS EARNED SUBSTANTIAL DIVIDEND AND THERE ARE NO BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT. THE PURCHASE AND SALE OF SHARES ARE ROUTED THROUGH DEMAT ACCOUNT. THE ASSES SEE IS NOT HAVING ANY INFRASTRUCTURE. ITA NO. 4216/M/2012 3 3.2. THE EXPLANATION OF THE ASSESSEE DID NOT FIND A NY FAVOUR FROM THE AO. THE AO OBSERVED THAT THE ASSESSEE HERSELF IS C LAIMING BUSINESS OF F&O IN SHARES WHICH HAS BEEN DECLARED UNDER THE HEA D INCOME FROM BUSINESS. THE AO FURTHER NOTICED THAT THE ASSESSE E IS EXTENSIVELY BUYING AND SELLING SHARES WHICH CLEARLY SHOW THAT THE ASSE SSEE IS DOING TRANSACTIONS IN SHARES FOR BUSINESS PROFITS AND QUI CK GAINS. THE AO FINALLY CONCLUDED THAT THE ASSESSEE IS ACTIVELY ENG AGED IN THE BUSINESS OF SHARE TRADING WHICH IS WRONGLY OFFERED AS STCG AND LTCG. THE AO WENT ON TO TREAT THE GAINS UNDER THE HEAD INCOME F ROM BUSINESS. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). THE ASSESSEE REITERATED HER CLAIM BEFORE T HE LD. CIT(A). AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT MOST OF THE TRANSACTIONS DONE BY THE ASSESSEE WERE THROUGH PORTFOLIO MANAGEMENT SERVICE MANAGER . THE LD. CIT(A) WAS OF THE OPINION THAT THE PMS MANAGER ACTS IN THE CAPACITY OF AN AGENT W HO HAS TRADED IN SHARES ON BEHALF OF HIS PRINCIPAL THEREFORE THE PRO FITS ARISING THEREFROM SHOULD BE TREATED AS PROFITS FROM BUSINESS. THE LD. CIT(A) CONFIRMED THE TREATMENT OF THE AO. 5. AGGRIEVED, THE ASSESSEE IS BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE FACTS AND THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE LOWER AUTHORITIES. ITA NO. 4216/M/2012 4 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD BE FORE US. WE FIND THAT THE ASSESSEE IS MAINTAINING SEPARATE PORTFOLIOS FOR SHARES HELD AS INVESTMENT AND FOR SHARES IN F&O SEGMENT. THE DISP UTE IS REGARDING THE NATURE OF INCOME ON SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINE SS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. THE HONBLE SUPREME COURT IN THE CASE OF CIT ASSOC IATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THAT : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE E VIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DIS TINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT THE CBDT HAS ALSO MENTIONED IN ITS CIRCULAR THAT I T IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTME NT PORTFOLIO AND TRADING PORTFOLIO. THIS VIEW HAS ALSO BEEN FORTIFIED BY TH E DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT 336 ITR 287(2010) 188 TAXMAN 140 (BOM). 8.1. THE ALLEGATION OF THE AO IS THAT THE ASSESSEE HAS INDULGED IN HIGH FREQUENCY TRANSACTIONS. WE FIND THAT THE ASSESSEE HAS TRANSACTED IN 65 SCRIPS DURING THE YEAR UNDER CONSIDERATION WHICH IS APPROXIMATELY 5 SCRIPS IN A MONTH. BY ANY STRETCH OF IMAGINATION, THIS CANNOT BE CONSIDERED AS HIGH FREQUENCY TRANSACTION. ITA NO. 4216/M/2012 5 8.2. A PRUDENT INVESTOR ALWAYS KEEP A WATCH ON THE VOLATILITY OF THE MARKET AND MADE SOUND INVESTMENT DECISION IN ACCORD ANCE WITH SUCH MARKET FLUCTUATION AND HAS THE LIBERTY TO LIQUIDATE THE INVESTMENTS IN SHARES AS AND WHEN NECESSARY. THE LAW ITSELF HAS R ECOGNIZED THIS FACT BY TREATING THE SAME AS SHORT TERM CAPITAL GAIN FOR SH ARES HELD LESS THAN 12 MONTHS AND LONG TERM CAPITAL GAINS WHEN THE SHARES ARE HELD FOR MORE THAN 12 MONTHS. HAD THIS BEEN NOT THE CASE, ALL TH E GAINS ON SHARES WOULD BE CONSIDERED AS BUSINESS INCOME ONLY. THUS, THE A SSESSEES CLAIM CANNOT BE NEGATED ON THE BASIS OF FREQUENCY OF TRANSACTION . WE FURTHER FIND THAT THE ENTIRE INVESTMENTS HAVE BEEN MADE OUT OF OWN FU NDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE. THE AO C ANNOT REPLACE HIS OPINION FOR THAT OF THE ASSESSEE IN HOLDING THAT TH E SHARES ARE HELD AS STOCK-IN-TRADE AND PROFIT FROM WHICH IS TO BE ASSES SED AS BUSINESS INCOME. IN ALL CASES, THE INTENTION IS MANIFESTED BY THE AS SESSEE HERSELF BY HER CONDUCT AND OTHER RELEVANT FACTS. 8.3. THERE IS NOTHING ON RECORD TO SHOW THAT WHICH OF THE PARAMETERS LAID DOWN BY THE CBDT ARE IN FAVOUR OF THE REVENUE. WE ALSO FIND THAT IN A.Y. 2007-08, THE AO HAS ACCEPTED SIMILAR TRANSA CTIONS RESULTING IN STCG/LTCG VIDE HIS ORDER DT. 19.11.2009 U/S. 143(3) OF THE ACT. IN A.Y. 2009-2010 ALSO CAPITAL GAINS OFFERED BY THE AS SESSEE HAVE BEEN ACCEPTED BY THE AO VIDE HIS ORDER DT. 18.11.2011 U/ S. 143(3) OF THE ACT. MOST IMPORTANTLY, THE ASSESSEE HAS EARNED DIVIDEND OF 12.09 LAKHS DURING THE YEAR UNDER CONSIDERATION WHICH SHOW THAT THE AS SESSEE HAS MADE INVESTMENTS FOR THE PURPOSE OF EARNING DIVIDEND. 8.4. CONSIDERING THE ENTIRE FACTS IN TOTALITY, WE F IND THAT THE ASSESSEE HAS SHOWN SHARES AS INVESTMENT RIGHT FROM THE DATE OF P URCHASE AND THE SAME HAS BEEN SHOWN AS SUCH IN THE BALANCE SHEET. IN OU R HUMBLE OPINION, THE ITA NO. 4216/M/2012 6 SHARES HAVE TO BE TREATED AS AN INVESTMENT AND THER EFORE ANY PROFIT EARNED ON THE SALE THEREOF IS TO BE TREATED AS CAPITAL GAI N. FINDINGS OF THE LD. CIT(A) ARE SET ASIDE. THE AO IS DIRECTED TO TREAT THE PROFITS ON SALE OF SHARES AS CAPITAL GAIN, SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY BE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 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 : 23.7.2014 . . ./ RJ , SR. PS *#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