PREMAL N PARIKH, MUMBAI V. ITO 19(2)(2), MUMBAI

ITA 4267/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88091 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Assessee Lawyers: S C TIWARI MS PRIYANKA MARU
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BE NCH, MUMBAI , !' #$%& , '' ' ( BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NOS 4267 & 3762/MUM/2012. ( ! ! ! ! ) ) ) ) / ASSESSMENT YEARS : 2006-07 &2008-09 SHRI PREMAL N. PARIKH, 202, PARAS APARTMENTS, 4,DATTATRAY ROAD, SANTACRUZ (W), MUMBAI-400 054 ! ! ! ! / VS. THE ITO -19(2)(2), PIRAMAL CHAMBERS, MUMBAI-400 012 * '' ./ + ./ PAN/GIR NO. : AAJPP 2248Q ( *, / APPELLANT ) .. ( -.*, / RESPONDENT ) *, / ' / APPELLANT BY: SHRI S.C. TIWARI MS PRIYANKA MARU -.*, 0 / ' / RESPONDENT BY: SHRI R.N. DSOUZA ! 0 12' / DATE OF HEARING :27.01.2015 3) 0 12' / DATE OF PRONOUNCEMENT :30.01.2015 '4 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AG AINST TWO SEPARATE ORDERS OF THE LD. CIT(A) FOR ASSESSMENT YE ARS 2006-07 & 2008- 09. SINCE ISSUES INVOLVED IN BOTH THESE APPEALS AR E SIMILAR IN NATURE, THEY WERE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 4267/MUM/2012 A.Y. 2006-07 I .T.A. NOS 4267 & 3762/MUM/2012. 2 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING SHOR T TERM CAPITAL GAINS (STCG) FROM SALE OF SHARES AMOUNTING TO RS. 33,71, 870/- AS BUSINESS INCOME OF THE ASSESSEE. IN THE GROUNDS OF APPEAL FI LED WITH FORM NO. 36, THE ASSESSEE HAS SHOWN THE FIGURE AS 1,45,61,975/-. HOWEVER, AT THE TIME OF HEARING, THE ASSESSEE FILED AN APPLICATION TO MO DIFY THE QUANTUM IN DISPUTE WHICH IS RS. 33,71,870/-. 3. THE ASSESSEE IS AN INDIVIDUAL. THE RETURN FOR T HE YEAR WAS FILED ON 31.10.2006 DECLARING TOTAL INCOME OF RS. 78,89,926/ -. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTI CES WERE ISSUED AND SERVED UPON THE ASSESSEE. WHILE SCRUTINIZING THE R ETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEC LARED STCG OF RS. 33,71,870/- FROM SALE OF SHARES. THE ASSESSEE WAS ASKED TO FURNISH AN EXPLANATION AS TO WHY THE PROFITS OUT OF SUCH TRANS ACTIONS OF PURCHASES AND SALE OF SHARES AND UNITS SHOULD NOT BE TREATED AS BUSINESS INCOME. 3.1. THE ASSESSEE FILED A DETAILED REPLY VIDE LETTE R DT. 27.11.2008. IT WAS EXPLAINED THAT THE ASSESSEE HAS MADE INVESTMENT S FROM TIME TO TIME WITH ITS OWN FUNDS. THE TRANSACTIONS MADE BY THE A SSESSEE WERE DELIVERY BASED ON WHICH SECURITY TRANSACTION TAX WAS DULY PA ID. THE ASSESSEE CONTENDED THAT SINCE HE IS AN INVESTOR, THE PROFIT SHOULD BE TAXED UNDER THE HEAD CAPITAL GAINS AS RETURNED BY THE ASSESSEE. TH E CONTENTIONS OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE AO WHO HE AVILY RELIED UPON THE CIRCULAR NO. 4/2007 DT. 15.6.2007 ISSUED BY THE CBD T. THE AO OBSERVED THAT THE VOLUME AND FREQUENCY OF THE TRANS ACTION IS VERY HIGH AND THERE WAS NO INTENTION TO DERIVE INCOME BY WAY OF DIVIDEND FROM SHARES. THE AO TREATED THE STCG AT RS. 33,71,870/- AS BUSINESS INCOME OF THE ASSESSEE. I .T.A. NOS 4267 & 3762/MUM/2012. 3 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. 5. AGGRIEVED, THE ASSESSEE IS BEFORE US 6. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE IS AN INVESTOR FROM PAST MANY YEARS. THE INVESTMENTS HAV E BEEN MADE OUT OF OWN FUNDS. IT IS THE SAY OF THE LD. COUNSEL THAT T HE ASSESSEE HAS BEEN SHOWING PROFIT UNDER THE HEAD CAPITAL GAINS SINCE A .Y. 2002-03 AND NO ADVERSE INFERENCE HAVE BEEN DRAWN. TO SUBSTANTIATE , THE ASSESSEE HAS FILED COPIES OF THE COMPUTATION OF INCOME FOR EARLI ER ASSESSMENT YEARS. THE LD. COUNSEL FURTHER POINTED OUT THAT THE INVEST MENTS HAVE BEEN MADE OUT OF OWN FUNDS. THE ONLY LOANS TAKEN ARE FROM FA MILY MEMBERS ON WHICH THE ASSESSEE HAS NOT PAID ANY INTEREST. THE LD. COUNSEL FURTHER STATED THAT THE REVENUE AUTHORITIES HAVE GROSSLY ER RED IN NOT ACCEPTING THE RETURNED INCOME OF THE ASSESSEE. THE LD. COUNSEL P RAYED THAT THE STCG RETURNED BY THE ASSESSEE SHOULD BE ASSESSED AS SUCH . 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE REVENUE AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT MATERIAL BROUGHT ON RECORD BEFORE US. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE WAS CHURNING THE SHARES, BUYIN G AND SELLING THE SAME SHARES AGAIN AND AGAIN. IN CIT V/S MADAN GOPAL RADHEY LAL, [1969] 73 ITR 652 (SC), THE HON'BLE SUPREME COURT H AS DEALT WITH THE ISSUE AND DISCUSSED THE QUESTION: A TRADER MAY AC QUIRE A COMMODITY IN WHICH HE IS DEALING, FOR, HIS OWN PURPOSES, AND HOL D IT APART FROM THE STOCK-IN-TRADE OF HIS BUSINESS. THERE IS NO PRESUMP TION THAT SUCH AN I .T.A. NOS 4267 & 3762/MUM/2012. 4 .ACQUISITION, EVEN IF IT IS AN ACCRETION TO THE STO CK-IN-TRADE OF THE BUSINESS, IS AN ACQUISITION FOR THE PURPOSE OF HIS BUSINESS: IN EACH CASE THE QUESTION IS ONE OF INTENTION TO BE GATHERED FROM THE EVIDENC E OF CONDUCT AND DEALINGS BY THE ACQUIRER WITH THE COMMODITY. IN AS SOCIATED INDUSTRIAL DEVELOPMENT (SUPRA), THE SUPREME COURT OBSERVED AS FOLLOWS: .IT WAS OPEN TO THE ASSESSEE TO CONTEND THAT EVEN ON TH E ASSUMPTION THAT IT HAD BECOME A DEALER AND WAS NO LONGER AN INVESTOR I N SHARES THE PARTICULAR HOLDINGS WHICH HAD BEEN CLEARED AND THE SALES OF WHICH HAD RESULTED IN THE PROFIT IN QUESTION HAD ALWAYS BEEN TREATED BY IT AS AN INVESTMENT. IT CAN HARDLY BE DISPUTED THAT THERE WA S NO BAR TO A DEALER INVESTING IN SHARES. BUT THEN THE MATTER DOES NOT R EST PURELY ON THE TECHNICAL QUESTION OF ONUS WHICH UNDOUBTEDLY IS INI TIALLY ON THE REVENUE TO PROVE THAT A PARTICULAR ITEM OF RECEIPT IS TAXAB LE. 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 ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT.MR. PRAVIN D. MEHTA (HUF) MRS. PALLAVI PRAVIN MEHTA 6 8. 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 S INGLE TEST OR FORMULA WHICH COULD BE APPLIED IN DETERMINING THE TRANSACTI ON AS ADVENTURE IN NATURE OF TRADE OR NOT. THE DISTINCTION BETWEEN THE TWO TYPES OF TRANSACTION IS NOT ALWAYS EASY TO MAKE. WHETHER THE TRANSACTION IS OF ONE KIND OR THE OTHER DEPENDS ON THE QUESTION WHETHER T HE EXCESS IS AN ENHANCEMENT OF THE VALUE BY 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 FUTU RE THEIR SALE BRINGS IN A I .T.A. NOS 4267 & 3762/MUM/2012. 5 HIGHER PRICE. SUCH AN INVESTMENT THOUGH MOTIVATED B Y A POSSIBILITY OF ENHANCEMENT VALUE, DID NOT NECESSARILY RENDER THE I NVESTMENT A TRANSACTION IN THE NATURE OF TRADE. 8.1. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN SHOWING CAPITAL GAINS FROM THE SALE OF SHARES SINCE ASSESSM ENT YEAR 2002-03. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, WE D O NOT FIND ANY REASON WHY THE STCG OFFERED BY THE ASSESSEE SHOULD NOT BE ASSESSED AS SUCH. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A ) AND DIRECT THE AO TO ACCEPT THE STCG SHOWN BY THE ASSESSEE FROM SALE OF SHARES UNDER THE HEAD STCG. THE APPEAL FILED BY THE ASSESSEE IS ACC ORDINGLY ALLOWED. ITA NO. 3762/M/2012- A.Y. 2008-09 9. THE GRIEVANCE OF THE ASSESSEE IS SIMILAR TO THE GRIEVANCE RAISED IN A.Y. 2006-07 QUA ITA NO. 4267/M/2012, ALTHOUGH THE QUANTUM MAY DIFFER. ON FINDING THE FACTS AND ISSUES BEING IDEN TICAL, FOLLOWING OUR OWN DECISION IN A.Y. 2006-07, WE DIRECT THE AO TO TREAT THE STCG FROM SALE OF SHARES AS SUCH. 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2015 SD/- SD/- (JOGINDER SINGH ) (N.K. BILLAIYA) /JUDICIAL MEMBER '' / ACCOUNTANT MEMBER MUMBAI; 5! DATED :30/01/2015 . ! . ./ RJ , SR. PS I .T.A. NOS 4267 & 3762/MUM/2012. 6 '4 '4 '4 '4 0 00 0 -1# -1# -1# -1# 6'#)1 6'#)1 6'#)1 6'#)1 / COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. #8 -1! , , / DR, ITAT, MUMBAI 6. 9 : / GUARD FILE. '4! '4! '4! '4! / BY ORDER, .#1 -1 //TRUE COPY// ; ;; ; / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI