KIULDEEP SINGH NANDA, MUMBAI V. ACIT 11(1), MUMBAI

ITA 4303/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83653 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 27-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Business income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI ! , ' #$ % % % % , &' . % . () . % . #$ * BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUICIAL MEMBER ./I .T.A. NO.4303/MUM/2011 ./I .T.A. NO.6617/MUM/2012 ( + + + + / ASSESSMENT YEARS : 2008-09 & 2009-10 SHRI KULDEEP SINGH NANDA, 16, VASANT PEDDAR ROAD, MUMBAI-400 026 / VS. THE ACIT 11(1), AAYAKAR BHAVAN, MUMBAI-400 020 $, ' ./ - ./ PAN/GIR NO. : AABPN 3364K ( ,. / APPELLANT ) .. ( /0,. / RESPONDENT ) ,. 1 / APPELLANT BY: SHRI HIRO RAI /0,. 2 1 / RESPONDENT BY: SHRI S.P. WALIMBE 2 3)' / DATE OF HEARING :27.08.2014 45+ 2 3)' / DATE OF PRONOUNCEMENT :28.08.2014 #6 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AGAINST TWO SEPARATE ORDERS OF THE LD. CIT(A)-3, MUMBAI DT. 28. 4.2011 PERTAINING TO A.YRS. 2008-09 AND 2009-10 RESPECTIVELY. AS BOTH TH ESE APPEALS HAVE COMMON ISSUES, THEY WERE HEARD TOGETHER AND DISPOSE OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 4303/M/2011 ITA NO. 6617/M/12 2 2. THE COMMON GRIEVANCE IN BOTH THE YEARS IS THAT T HE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO OF ASSESSIN G THE LONG TERM AND SHORT TERM CAPITAL GAINS AS INCOME FROM BUSINESS A ND PROFESSION. THE OTHER GRIEVANCE RELATES TO DISALLOWANCE U/S. 14A R. W. R. 8D. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT HE IS NOT PRESSING THE SECOND GRIEVANCE RELATING TO THE DISAL LOWANCE U/S. 14A FOR BOTH THE YEARS. ACCORDINGLY, THIS GROUND FOR BOTH THE YEARS UNDER CONSIDERATION IS DISMISSED AS NOT PRESSED. 3. COMING TO THE COMMON GRIEVANCE, WE FIND THAT THE ASSESSEE HAS SHOWN CAPITAL GAINS SHORT TERM AS WELL AS LONG TERM IN BOTH THE YEARS. THE AO WAS OF THE OPINION THAT ASSESSEE IS ACTUALLY TRADING IN SHARES AND THEREFORE INCOME ARISING OUT OF THE SHARE TRANSACTI ON HAVE TO BE TREATED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE STATEMENTS OF SHORT TERM CAPITAL GAINS AND LONG TERM CAPITAL GAINS AS WELL AS TO THE BALANCE SHEET OF THE ASSESSEE. IT I S THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE HAS BEEN SHOWING PURCHASE OF SHARES UNDER THE HEAD INVESTMENTS SINCE PAST MANY YEARS AND THE SA ME HAS BEEN ACCEPTED AS SUCH IN A.Y. 2006-07 VIDE ORDER DT. 23.9.2008 WH ICH WAS MADE U/S. 143(3) OF THE ACT AND ALSO IN A.Y. 2001-02 VIDE ORD ER DT. 25.3. 2004. THE LD. COUNSEL FURTHER STATED THAT CONSIDERING THE NATURE OF TRANSACTION, THE CAPITAL GAINS ARISING OUT OF THE SHARE TRANSACT ION OUGHT TO BE TAXED AS CAPITAL GAINS LONG TERM OR SHORT TERM. ITA NO. 4303/M/2011 ITA NO. 6617/M/12 3 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD BE FORE US. THE ISSUE WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS IN COME 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. THE ALLEGATION OF THE AO IS THAT THE ASSESSEE HA S INDULGED IN HIGH FREQUENCY TRANSACTIONS. THIS IN ITSELF COULD NOT M EAN THAT TRADING ACTIVITIES HAVE BEEN CARRIED OUT. A PRUDENT INVEST OR ALWAYS KEEP A WATCH ON THE VOLATILITY OF THE MARKET AND MADE SOUND INVE STMENT DECISION IN ACCORDANCE WITH SUCH MARKET FLUCTUATION AND HAS THE LIBERTY TO LIQUIDATE ITA NO. 4303/M/2011 ITA NO. 6617/M/12 4 THE INVESTMENTS IN SHARES AS AND WHEN NECESSARY. T HE LAW ITSELF HAS RECOGNIZED THIS FACT BY TREATING THE SAME AS SHORT TERM CAPITAL GAIN FOR SHARES HELD LESS THAN 12 MONTHS AND LONG TERM CAPIT AL GAINS WHEN THE SHARES ARE HELD FOR MORE THAN 12 MONTHS. HAD THIS BEEN NOT THE CASE, ALL THE GAINS ON SHARES WOULD BE CONSIDERED AS BUSINESS INCOME ONLY. THUS, THE ASSESSEES CLAIM CANNOT BE NEGATED ON THE BASIS OF FREQUENCY OF TRANSACTION. THE AO CANNOT REPLACE HIS OPINION FOR THAT OF THE ASSESSEE IN HOLDING THAT THE SHARES ARE HELD AS STOCK-IN-TRADE AND PROFIT FROM WHICH IS TO BE ASSESSED AS BUSINESS INCOME. IN ALL CASES, T HE INTENTION IS MANIFESTED BY THE ASSESSEE HIMSELF BY HIS CONDUCT A ND OTHER RELEVANT FACTS. 9. A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE S HOWS THAT THE ASSESSEE HAD SHARES IN COMPANIES AS ON 31.3.2007 AT RS. 89,61,206/-, THE SAME IS SHOWN AS ON 31.3.2008 AT RS. 3,70,00,413/- WHICH SHOWS THAT THERE IS A SUBSTANTIAL INCREASE IN THE SHARES. HOW EVER, AT THE SAME TIME, WE FIND THAT LOANS AND AMOUNTS PAYABLE AS ON 31.3.2 007 WAS AT RS. 45,49,495/- WHICH CAME DOWN TO RS. 4,051/- ON 31.3. 2008. FURTHER, BANK LOANS WHICH WERE AT RS. 1,64,36,295/- AS ON 31.3.20 07 HAS COME DOWN TO RS. 49,64,638/- ON 31.3.2008. THIS SHOWS THAT THER E WAS NO FRESH BORROWING IN F.Y. 2007-08. SIMILARLY, BANK LOANS A S ON 31.3.2005 WERE AT RS. 4.15 CRORES WHICH HAS COME DOWN TO RS. 3.06 CRORES AS ON 31.3.2006. WE FURTHER FIND THAT SOME OF THE SHARES WERE PURCHASED IN THE YEAR 2000 WHICH WERE SOLD IN THE YEAR 2007. THERE IS NOT MUCH CHURNING IN THE SHARES. CONSIDERING THE ENTIRE FACTS IN TOT ALITY, WE FIND THAT THE ASSESSEE HAS SHOWN SHARES AS INVESTMENT RIGHT FROM THE DATE OF PURCHASE AND THE SAME HAS BEEN SHOWN AS SUCH IN THE BALANCE SHEET. IN OUR ITA NO. 4303/M/2011 ITA NO. 6617/M/12 5 CONSIDERED OPINION, THE SHARES HAVE TO BE TREATED A S AN INVESTMENT AND THEREFORE ANY PROFIT EARNED ON THE SALE THEREOF IS TO BE TREATED AS CAPITAL GAIN. WE, ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A). 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. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E FOR BOTH THE YEARS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014 SD/- SD/- (S.T.M. PAVALAN ) (N.K. BILLAIYA) #$ / JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 7# DATED : 28 TH AUGUST, 20140. # ## #6 66 6 2 22 2 /3 /3 /3 /3 8+3 8+3 8+3 8+3 / COPY OF THE ORDER FORWARDED TO : 1. ,. / THE APPELLANT 2. /0,. / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :; /3 , , / DR, ITAT, MUMBAI 6. ;& < / GUARD FILE. #6 #6 #6 #6 / BY ORDER, 03 /3 //TRUE COPY// = == = / > > > > (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI