Income-tax Officer, V. Shri Rajendra baburao Shinde, Ahmednagar

ITA 432/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0864 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAVE
• Keywords: Business income; Rule of consistency; Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NOS.432 & 433/PN/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 INCOME TAX OFFICER, WARD 2, AAYAKAR BHAVAN, BEHIND NATRAJ HOTEL, AURANGABAD ROAD, AHMEDNAGAR . APPELLANT VS. SHRI RAJENDRA BABURAO SHINDE KOPARGAON INDUSTRIAL ESTATE, KOPARGAON, DISTT.-AHMEDNAGAR PAN : AEYPS5912H . RESPONDENT / APPELLANT BY : SHRI HITENDRA NINAVE / RESPONDENT BY : SHRI PRAMOD SHINGTE / DATE OF HEARING : 10.11.2015 / DATE OF PRONOUNCEMENT: 30.11.2015 & / ORDER PER SUSHMA CHOWLA, JM : THESE APPEALS FILED BY THE REVENUE ARE AGAINST THE CONSOLIDATED ORDER OF CIT(A)-IT/TP, PUNE RELATING TO ASSESSMENT YEARS 200 7-08 AND 2008-09 DATED 02.12.2013 AGAINST ORDER PASSED UNDER SECTION 143(3 ) OF THE OF THE ACT, 1961. 2. THE REVENUE HAS RAISED IDENTICAL GROUNDS IN BOTH THE APPEALS AND THESE GROUNDS OF APPEALS READ AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN FAILING TO APPRECIATE THAT THE FREQUENCY AND MAGNITUDE OF THE TRANSACTION S IN SHARES CARRIED OUT BY THE 2 ITA NOS. 432 & 433/PN/2014 ASSESSEE DURING THE RELEVANT YEAR, THAT TOO IN A SY STEMATIC, CONTINUOUS AND ORGANIZED MANNER, AMPLY INDICATED THAT THE SET PURP OSE AND CONDUCT OF THE ASSESSEE IN DEALING IN SHARES WAS TO MAKE PROFIT RA THER THAN TO MAXIMIZE WEALTH AND, IN THE CIRCUMSTANCES, AS PER THE RATIO OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAZGAON DOCK LTD. (34 ITR 368) , THE ACTIVITIES REPRESENTED BY SUCH TRANSACTIONS COULD ONLY PARTAKE OF THE NATURE OF BUSINESS, AND, COULD BY NO MEANS BE TREATED AS DISPOSAL OF INVESTMENTS. II. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN FAILING TO CONSIDER THAT THE ASSESSEE PURCHASED AS WELL AS SOLD SEVERAL SHARES IN THE SAME YEAR, AND THAT TOO IN A SPAN OF A FEW DAYS, WHICH WOULD IN IT SELF INDICATE THAT THE DOMINANT INTENTION OF THE ASSESSEE WAS TO MAKE PROFIT AND NO T TO EARN DIVIDEND OR TO MAKE ACCRETION TO CAPITAL. III THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN RELYING UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF COMMISSIONER OF INCOME TAX VS. GOPAL PUROHIT [(2011) 336 ITR 287(BOM)] NOT WITHSTANDING THAT THE FACTS OBTAINING IN THE GOPAL PUROHIT CASE WERE TOTALLY DI FFERENT AND, THEREFORE, THE RATIO OF THE CITED DECISION WOULD NOT APPLY TO THE PRESENT A SSESSEE'S CASE. IV. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APPELLAT E PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL. 3. THE LD. AR FOR THE ASSESSEE AT THE OUTSET POINTE D OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1545/PN/2011 RELATING TO ASSESSM ENT YEAR 2006-07, ORDER DATED 23-05-2013. BOTH THE APPEALS RELATING TO THE SAME ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE IS BEING MADE TO T HE FACTS IN ITA NO.432/PN/2014 TO ADJUDICATE THE ISSUE. 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE A SSESSEE WAS ENGAGED IN MANUFACTURING OF MACHINERY USED FOR THE SUGAR INDUS TRIES. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE IN ADDITION TO THE BUSIN ESS INCOME HAD ALSO DECLARED INCOME FROM SHORT TERM AND LONG TERM CAPITAL GAINS OF RS.11,61,230/- AND RS.10,00,786/- AND ALSO SPECULATION LOSS FROM FUTUR E AND OPTIONS OF RS.1,77,53,489/-. THE ASSESSING OFFICER SHOW CAUSE D THE ASSESSEE AS TO WHY THE INCOME SHOWN UNDER THE HEAD SHORT TERM AND LONG TER M CAPITAL GAINS SHOULD NOT BE TREATED AS INCOME FROM BUSINESS. THE ASSESSING OFF ICER ALSO REFERRED TO THE 3 ITA NOS. 432 & 433/PN/2014 ASSESSMENT COMPLETED FOR THE PREVIOUS ASSESSMENT YE ARS WHERE CAPITAL GAINS WAS TREATED AS BUSINESS INCOME. THE EXPLANATION OF THE ASSESSEE IS REPRODUCED AT PAGES 3 AND 4 OF THE ASSESSMENT ORDER. HOWEVER, TH E ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE AND HELD THAT AS IN THE P REVIOUS YEARS, THE SHORT TERM CAPITAL GAIN WAS TO BE HELD AS INCOME FROM BUSINESS OR STOCK IN TRADE. ACCORDINGLY, THE SHORT TERM CAPITAL GAIN OF RS.11,61,230/- WAS T AXED AS BUSINESS INCOME. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) NOTED T HAT THE ASSESSING OFFICER AFTER CONSIDERING THE FACT THAT THERE WERE ENORMOUS NUMBERS OF SHARE TRANSACTIONS WAS OF THE VIEW THAT THE ASSESSEE WAS NOT AN INVEST OR BUT WAS A TRADER. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER CONSID ERED THAT THE TRIBUNAL HAD REVERSED THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS) FOR ASSESSMENT YEAR 2006-07 IN ASSESSEES OWN CASE IN ITA NO.1545/ PN/2011 (SUPRA). THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO NOTED THA T IN THE EARLIER YEAR, THE COMMISSIONER OF INCOME TAX (APPEALS) HAD FOLLOWED T HE RATIO LAID DOWN IN ABBOTT HOTELS FOR ASSESSMENT YEAR 2005-06, WHICH HAS ALSO BEEN REVERSED BY THE TRIBUNAL. ACCORDINGLY, HE HELD THAT THE SHORT TERM CAPITAL GA IN OF RS.11,61,230/- FOR ASSESSMENT YEAR 2007-08 AND LONG TERM CAPITAL GAIN OF RS.45,38,540/- AND SHORT TERM CAPITAL GAIN OF RS.46,83,414/- RELATING TO ASS ESSMENT YEAR 2008-09 SHOULD BE ASSESSED AS INCOME FROM CAPITAL GAINS. 6. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CO MMISSIONER OF INCOME TAX (APPEALS) RELATING TO ASSESSMENT YEARS 2007-08 AND 2008-09. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN BOTH THE APPEALS BEFORE US IS IDENTICAL I.E. THE TREATMENT OF GAINS ARISING ON SALE OF SHARES, WHETHER SHORT TERM OR LONG TERM IS TO BE ASSESSED AS INCOME FROM BUSINESS OR AS INCOME FROM CAPITAL GAINS. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT IN THE HANDS OF THE ASSES SEE HAD APPLIED THE RATIO LAID 4 ITA NOS. 432 & 433/PN/2014 DOWN IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2006-07 AND HELD THAT THE SHORT TERM CAPITAL GAIN OF RS.11,61,230/- ARISING I N ASSESSMENT YEAR 2007-08 IS TO BE ASSESSED AS BUSINESS INCOME. SIMILARLY, IN ASSE SSMENT YEAR 2008-09 THE ASSESSING OFFICER TREATED THE LONG TERM CAPITAL GAI N OF RS.45,38,540/- AND SHORT TERM CAPITAL GAIN OF RS.46,83,414/- AS BUSINESS INC OME. WE FIND THAT SIMILAR ISSUE OF ASSESSABILITY OF GAIN ARISING ON SALE OF SHARES AND UNITS, WHETHER ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR INCOME FROM CAPITAL GAINS AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT Y EAR 2006-07 (SUPRA). THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT I N BOTH THE YEARS UNDER APPEAL I.E. ASSESSMENT YEARS 2007-08 AND 2008-09 HAD FOLLO WED THE RATIO LAID DOWN BY THE THEN ASSESSING OFFICER IN ASSESSMENT YEAR 2006-07 W HICH IN TURN WAS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS). HOWEVER, THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 25.03.2013 WAS OF THE VIE W THAT SINCE IN THE EARLIER YEARS THE ASSESSEE HAD CARRIED OUT SIMILAR TRANSACT IONS AND THEIR CHARACTERIZATION AS INVESTMENT ACTIVITY GIVING RISE TO THE INCOME UN DER THE HEAD CAPITAL GAINS, HAD BEEN ACCEPTED BY THE ASSESSING OFFICER IN ASSESSMEN TS COMPLETED U/S. 143(3) OF THE ACT, THEREFORE, APPLYING THE PRINCIPLE OF CONSI STENCY, THE INCOME FROM SALE OF SHARES WAS LIABLE TO BE TREATED AS INCOME FROM CAPI TAL GAINS. THE TRIBUNAL ALSO NOTED THE FACT THAT THE DEPARTMENT HAD NOT SHOWN AN Y CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE IN THE SAID YEAR. THE RE LEVANT FINDINGS OF THE TRIBUNAL VIDE PARAS 11 AND 12 ARE AS UNDER: 11. THE SECOND GROUND RAISED BY THE ASSESSEE IS WIT H REGARD TO THE LONG TERM CAPITAL GAIN OF RS.2,11,884/- AND SHORT T ERM CAPITAL GAIN OF RS. 72,60,675/- ON SALE OF SHARES AND UNITS WHICH HAVE BEEN TREATED BY THE ASSESSING OFFICER AS AN INCOME ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS AND NOT AS CAPITAL GAINS. THE CIT(A) HAS A LSO UPHELD THE STAND OF THE ASSESSEE AND THE ASSESSEE IS IN FURTHER APPE AL BEFORE US. 12. ON THIS ASPECT, THE PRELIMINARY POINT MADE OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT THE LOWER AUTHORIT IES HAVE ERRED IN TREATING THE GAIN ON SALE OF SHARES AS BUSINESS INC OME IN THIS YEAR, WHICH IS INCONSISTENT WITH THE STAND ACCEPTED BY TH E DEPARTMENT FOR THE PRECEDING ASSESSMENT YEARS 2004-05 AND 2005-06. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO TH E PAPER BOOK IN WHICH THE COPY OF THE INCOME TAX RETURN ALONG WITH THE FINANCIAL STATEMENTS FOR THE ASSESSMENT YEARS 2004-05 AND 200 5-06 HAVE BEEN PLACED AT PAGES 36 TO 26 AND 16 TO 31 RESPECTIVELY TO POINT OUT THAT THE 5 ITA NOS. 432 & 433/PN/2014 GAIN/LOSS ON SALE OF SHARES/UNITS WAS ACCEPTED AS A SSESSABLE UNDER THE HEAD CAPITAL GAINS. THE ASSESSMENT ORDERS PASSED UN DER SECTION 143(3) DATED 10.10.2006 AND 26.12.2007 FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY HAVE ALSO BEEN PLACED IN THE P APER BOOK IN THIS REGARD. IT IS POINTED OUT THAT EVEN IN THE INSTANT ASSESSMENT YEAR, THE GAIN ON THE SALE OF SHARES/UNITS IS LIABLE TO BE CO NSIDERED IN THE SAME LIGHT AS IN THE TWO PRECEDING ASSESSMENT YEARS AND THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES. IN SUPPORT, THE LEARNED CO UNSEL HAS RELIED UPON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. GOPAL PUROHIT (2011) 336 ITR 287 (BOM.). THE HONBL E BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) WAS CONS IDERING AN ISSUE AS TO WHETHER THE INCOME FROM TRADING IN SHARES WAS TO BE CONSTRUED AS BUSINESS INCOME OR CAPITAL GAINS. IN THE CASE BEFOR E THE HONBLE BOMBAY HIGH COURT, IN THE PRECEDING YEARS THE ACTIVITY FRO M THE TRADING IN SHARES WAS CONSIDERED AS AN INVESTMENT ACTIVITY LIABLE FOR CAPITAL GAINS. THE HONBLE HIGH COURT UPHELD THE VIEW OF THE TRIBUNAL HOLDING THAT THE PRINCIPLE OF CONSISTENCY MUST BE APPLIED AND DID NO T APPROVE OF TREATING THE TRADING IN SHARES AS BUSINESS INCOME ACTIVITY. IN VIEW OF THE PROPOSITION LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT, THE PRELIMINARY PLEA OF THE ASSESSEE IS RELEVANT. IN TH IS BACKGROUND, THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS REQUIRED TO EXPLAIN THE POSITION IN THE LIGHT OF THE MATERIAL REFERRED TO B Y THE ASSESSEE, WHICH IS PLACED ON RECORD. OSTENSIBLY, IN THE EARLIER ASSESS MENT YEARS ASSESSEE HAS CARRIED OUT SIMILAR TRANSACTIONS AND THEIR CHAR ACTERIZATION AS INVESTMENT ACTIVITY GIVING RISE TO THE INCOME UNDER THE HEAD CAPITAL GAINS, HAS BEEN ACCEPTED THE ASSESSING OFFICER IN A SSESSMENTS MADE UNDER SECTION 143(3) OF THE ACT. THEREFORE, IN THE LIGHT OF THE PRINCIPLE OF CONSISTENCY, IN THIS YEAR ALSO, THE INCOME FROM THE SALE OF SHARES IS LIABLE TO BE TREATED AS INCOME FROM CAPITAL GAINS A S DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. NOTABLY, THE DEPA RTMENT HAS NOT SHOWN ANY CHANGE IN FACTS AND CIRCUMSTANCES IN THIS YEAR, SO AS TO WARRANT ANY DEPARTURE FROM THE POSITION ACCEPTED IN THE PAST YE ARS. CONSEQUENTLY, ON THIS PRELIMINARY ISSUE, THE ORDER OF THE CIT(A) IS SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO TREAT THE INCOME F ROM THE SALE OF SHARES AND UNITS AS ASSESSABLE UNDER THE HEAD CAPITAL GAI NS AND NOT AS BUSINESS INCOME. THE ASSESSEE SUCCEEDS ON THIS GROU ND. 8. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 AND THE DEPARTMENT HAS FAIL ED TO BRING ON RECORD ANY FACTS AND CIRCUMSTANCES WHICH WARRANTS ANY DEPARTUR E FROM THE POSITION ACCEPTED IN THE EARLIER YEARS AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE INCOME DECLARED BY THE ASSESSEE ON SALE OF SHARES I S TO BE ASSESSED UNDER THE HEAD INCOME FROM CAPITAL GAINS. UPHOLDING THE ORDE RS OF COMMISSIONER OF INCOME TAX (APPEALS) IN BOTH THE YEARS WE HOLD THAT THE SH ORT TERM CAPITAL GAIN OF RS.11,61,230/- IN ASSESSMENT YEAR 2007-08 IS TO BE ASSESSED AS INCOME FROM SHORT TERM CAPITAL GAIN. SIMILARLY, THE LONG TERM CAPITA L GAIN OF RS.45,38,540/- AND SHORT 6 ITA NOS. 432 & 433/PN/2014 TERM CAPITAL GAIN OF RS.46,83,414/- DECLARED IN ASS ESSMENT YEAR 2008-09 IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. THE GROUNDS OF APPEALS RAISED BY THE REVENUE ARE THUS, DISMISSED. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2015. SD/- SD/- ( PRADIP KUMAR KEDIA ) ( SUSHMA CHOWLA ) $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER PUNE ; DATED : 30 TH NOVEMBER, 2015. RK & ' ()* +*( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-IT/TP, PUNE; 4) THE CIT-I, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , ! ' //TRUE COPY// '# $% / PRIVATE SECRETARY & $' , / ITAT, PUNE