ACIT RG 19(3), MUMBAI V. VINEET SETHI, MUMBAI

ITA 4324/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75307 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 05-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: DR P DANIAL AW MR S S MAKHIJA
• Keywords: Business income; Earning of tax free income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 4324 /MUM./ 2010 ( / ASSESSMENT YEAR : 20 06 07 ) ASSTT. COMMISSIONER OF INCOME TAX 9(3) PIRAMAL CHAMBERS, PAREL MUMBAI 400 012 .. / APP ELLANT V/S MRS. VINEET SETHI JEWEL AR CADE, WATERFIELD ROAD BANDRA (W), MUMBAI 400 050 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER ABEPS6411Q / RE VENUE BY : MR. O.P. SINGH / ASSESSEE BY: DR. P. DANIAL A/W MR. S.S. MAKHIJA / DATE OF HEARING 2 1 .0 1 .201 4 / DATE OF ORDE R 24.01.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESEN T APPEAL HA S BEEN PREFERRED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER 15 TH MARCH 2010 , PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX XXI, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT ) FOR THE ASSESSMENT YEAR 20 06 07. THE ONLY ISSUE MRS. VINEET SETHI 2 INVOLVED IN THIS APPEAL IS, WHETHER OR NOT THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON TRANSFER OF SHARES AMOUNT TO BUSINESS INCOME. THE ASSESSING OFFICER HAS TREATED THE SALE OF SHARES WHI CH WERE SHOWN UNDER THE HEAD S SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME . 2 . FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL HAVING INCOME FROM BUSINESS AS PARTNER IN VARIOUS FIRMS, INCOME FROM CAPITAL GAIN ON TRANSFER OF SHAR ES & SECURITIES AND INCOME FROM OTHER SOURCES. AS PER THE COMPUTATION OF INCOME, FOLLOWING INCOME WERE DECLARED BY THE ASSESSEE. INCOME CLAIMED AS EXEMPT INCOME OFFERED FOR TAX BUSINESS INCOME ` 6,18,316 LONG TERM CAPITAL GAIN ON TRANSFER OF SHARES AN D CLAIMED AS EXEMPT U/S 10(38) OF THE ACT ` 16,36,053 SHORT TERM CAPITAL GAIN ON TRANSFER OF SHARES ` 56,53,869 SPECULATION PROFIT ON SHARES ` 2,96,560 INCOME FROM OTHER SOURCES ` 5,04,376 INCOME ON TRANSFER OF UNIT TRUST OF INDIA CLAIMED AS EXEM PT U/S 10(33) OF THE ACT. ` 38,15,133 TOTAL: ` 72,73,121 3 . THE ASSESSING OFFICER, ON THE BASIS OF DETAILS FILED BY THE ASSESSEE, NOTED THAT FOR THE PURPOSE OF EARNING LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN, THE ASSESSEE HAD ENTERED INTO LARG E NUMBER OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES OF VARIOUS COMPANIES. THE TRANSACTIONS OF SHARES SHOWN AS SHORT TERM CAPITAL GAIN MRS. VINEET SETHI 3 IS RUNNING INTO 371 PAGES WHEREIN THERE ARE LOT OF PURCHASES AND SALES. THE VOLUME OF TRANSACTIONS OF THE ASSESSEE IS VERY HIGH. ON FURTHER ANALYSIS OF THE TRANSACTIONS, HE NOTED THAT IN SOME OF THE SCRIPS, TRANSACTIONS HAVE BEEN UNDER TAKEN FOR A VERY SHORT PERIOD. THESE HAVE BEEN HIGHLIGHTED AT PAGE 6 OF THE ASSESSMENT ORDER. FROM VARIOUS TRANSACTIONS, HE FURTHER NOTED T HAT THE ASSESSEE IS CONTINUOUSLY PURCHASING AND SELLING SHARES FOR EARNING NOMINAL PROFIT WHICH GOES TO SHOW THAT THE ASSESSEE IS NOT AN INVESTOR BUT IS ONLY INTERESTED FOR MAKING QUICK PROFIT. IF THE ASSESSEE WAS A GENUINE INVESTOR, THEN HE WOULD HAVE WEI GHTED FOR SOME TIME FOR HAVING THE PROFIT. HE FURTHER OBSERVED THAT, IN THE TRANSACTIONS WHERE NO DELIVERY WAS TAKEN, HAS BEEN SHOWN AS BUSINESS INCOME AND IN RESPECT OF THE SHARES WHERE DELIVERY HAS BEEN TAKEN, THE ASSESSEE HAD SHOWN SHORT TERM CAPITAL GA IN. THUS, THE ASSESSEE WAS A TRADER AND NOT AN INVESTOR IN SHARES. FROM THE RECORDS, HE FURTHER OBSERVED THAT IN THE EARLIER YEARS ALSO, THE TREND OF THE ASSESSEE WAS THE SAME. HE CALLED FOR ASSESSEES EXPLANATION WITH REGARD TO THE TRANSACTION OF SHARES I N RESPECT TO WHICH THE ASSESSEE HAS FILED DETAILED EXPLANATION VIDE LETTER DATED 20 TH OCTOBER 2008 AND 28 TH NOVEMBER 2008. THE ASSESSEES REPLY HAS BEEN INCORPORATED BY THE ASSESSEE IN DETAIL. THE ASSESSING OFFICER REJECTED THE ASSESSEES EXPLANATION AND A FTER DETAIL REASONING AND RELYING UPON VARIOUS CASE LAWS, HAS TREATED THE SHORT TERM CAPITAL GAIN OF ` 56,53,869 AND LONG TERM CAPITAL GAIN OF ` 16,36,053 AS BUSINESS INCOME. 4 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE FILED A VERY DETAIL EXPL ANATION WHICH HAS BEEN DEALT BY THE LEARNED COMMISSIONER (APPEALS) FROM PAGE 5 TO 11 OF THE APPELLATE ORDER. THE SUM AND SUBSTANCE OF THE SUBMISSION ARE THAT THE SHARE TRANSACTIONS UNDER THE HEAD LONG TERM CAPITAL GAIN , WERE HELD FOR A PERIOD OF MORE THA N FIVE TO TEN YEARS AND THE GAIN FROM THE SHARE S SHOWN UNDER MRS. VINEET SETHI 4 THE HEAD SHORT TERM CAPITAL GAIN , THE AVERAGE PERIOD OF HOLDING IS MORE THAN NINE MONTHS. THE PERIOD OF HOLDING AND RESULTANT GAIN EARNED UNDER THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN, WERE AS UNDER: CHART SHOWING EARNING OF LONG TERM CAPITAL GAIN PERIOD PURCHASE VALUE ( ` ) SALE VALUE ( ` ) GAIN ( ` ) 10 YEARS AND ABOVE 1,46,70 3,23,104 1,76,634 ABOVE 5 YEARS BUT BELOW 10 YEARS 1,29,650 2,28,449 98,798 ABOVE 3 YEARS BUT BELOW 5 YEARS 47,060 2,09,106 1,62,046 ABOVE 15 MONTHS BUT BELOW 3 YEARS 4,01,571 10,23,218 6,21,646 ABOVE 12 MONTHS BUT LESS THAN 15 MONTHS 5,07,805 11,43,150 6,35,344 LESS: LOSS ON SALE OF MUTUAL FUND 58,417 TOTAL: 16,36,053 CHART SHOWING EARNING OF SHORT TERM CAPITAL GAIN PERIOD PURCHASE VALUE ( ` ) SALE VALUE ( ` ) GAIN ( ` ) ABOVE 9 MONTHS BUT LESS THAN 12 MONTHS 14,28,097 22,67,515 8,39,417 ABOVE 6 MONTHS BUT LESS THAN 5 MONTHS 33,37,301 46,07,787 12,70,485 ABOVE 3 MONTHS BUT LESS THAN 6 MONTHS 87, 97,655 1,08,55,691 20,58,036 ABOVE 1 DAY BUT LESS THAN 3 MONTHS 2,78,48,607 2,93,66,948 15,18,340 LESS: MISC. EXPENSES 32,410 TOTAL: 56,53,869 MRS. VINEET SETHI 5 5 . IT WAS FURTHER SUBMITTED THAT THERE WERE ONLY FEW SHARES WHICH WERE TRANSFERRED WITHIN A PERIOD OF ONE W EEK O N WHICH THE ASSESSEE HAD EARNED ` 3,04,440. THUS, EVEN UNDER THE HEAD SHORT TERM CAPITAL GAIN , SHARES WERE HELD FOR SUBSTANTIAL PERIOD. AS REGARDS THE FREQUENCY OF THE TRANSACTIONS, IT WAS SUBMITTED THAT THE FREQUENCY HAD TO BE SEEN FROM SCRIPWISE A ND NOT ON THE BASIS OF VARIOUS COMP ANIES. I F THAT IS TAKEN INTO CONSIDERATION, THEN THERE IS A VERY LESS FREQUENCY IN THE TRANSACTIONS OF PURCHASE AND SALE. AS REGARDS THE VOLUME, IT WAS SUBMITTED THAT DUE TOO LARGE NUMBER OF COMPANIES LISTED IN THE STOCK EXCHANGE AND VOLATILITY OF THE MARKET IN THIS ASSESSMENT YEAR, PRACTICALLY, EVERY INVESTOR FREQUENTLY SHUFFLE HIS PORTFOLIO. THIS DOES NOT LEAD TO AN INFERENCE THAT THE ASSESSEE IS A TRADER. BESIDES THIS, THE ASSESSEE HAS MAINTAINED SEPARATE RECORDS AND PO RTFOLIO IN RESPECT OF TRANSACTIONS OF INVESTMENT AND THE SHARES IN RESPECT OF WHICH TRADING WAS SHOWN DONE AND SPECULATION PROFIT WAS SHOWN . RELIANCE WAS ALSO PLACED ON SEVERAL DECISIONS INCLUDING THAT OF THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT V/ S GOPAL PUROHIT, [2011] 336 ITR 287 (BOM.) . 6 . THE LEARNED COMMISSIONER (APPEALS) ACCEPTED THE ASSESSEES CONTENTION AND DIRECTED THE ASSESSING OFFICER IN THE FOLLOWING MANNER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTA TIVE. HAVE PERUSED THE ASSESSMENT ORDER AND AFTER GOING THROUGH THE RELEVANT CASE LAWS REFERRED TO BOTH BY THE ASSESSING OFFICER AS WELL AUTHORIZED REPRESENTATIVE FIND THAT APPELLANT'S CASE STANDS SQUARELY COVERED BY THE RATIO LAID DOWN IN THE CASE OF GOPA L PUROHIT OF. THE ITAT 'G' BENCH MUMBAI WHICH ORDER HAS SINCE BEEN.APPROVED BY HON'BLE BOMBAY HIGH COURT. EVEN ON FACTS AND LAW I FIND THAT THOUGH IN APPELLANT'S CASE THE VOLUME OF TRANSACTION IS QUITE SUBSTANTIAL BUT AS HELD BY JUDICIAL AUTHORITIES ON TH E BASIS OF THIS ALONE APPELLANT CANNOT BE HELD TO BE A TRADER WHEN ALL OTHER FACTORS SUCH AS MAKING INVESTMENT OUT OF OWN FUNDS WITHOUT UTILIZING ANY BORROWED FUNDS, NOT CLAIMING ANY EXPENDITURE FOR CARRYING. OUT THE ACTIVITY OF INVESTMENT IN SHARES, MAIN TAINING SEPARATE RECORDS FOR TRADING IN SHARES AND INVESTMENT, REFLECTING THE AMOUNT OF INVESTMENT IN SHARES IN THE BALANCE SHEET AT COST AND DIVIDEND EARNINGS COUPLED WITH THE FACT THAT APPELLANT'S CLAIM OF EARNING OF CAPITAL GAIN HAS BEEN ACCEPTED IN EA RLIER YEARS PROVES APPELLANT'S CASE. THEREFORE, THE APPELLANT CANNOT BE HELD TO BE A TRADER IN SHARES WITH RESPECT TO DELIVERY BASED MRS. VINEET SETHI 6 TRANSACTIONS. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ACCEPT APPELLANT'S CLAIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON SHARE TRANSACTIONS WHERE THE DELIVERY HAS BEEN TAKEN OR GIVEN AND SECURITY TRANSACTION TAX HAS BEEN PAID. LTCG WILL CONTINUE TO BE EXEMPTED U/S.10(38) OF THE ACT AND ON STCG CONCESSIONAL RATE @ 10% U/S.111A OF THE ACT WILL BE APPLICAB LE. THE OTHER TRANSACTIONS INVOLVING NON - DELIVERY SPECULATIVE TRANSACTIONS WILL BE TREATED AS FORMING PART OF SPECULATION BUSINESS AND WILL BE TAXED AS SUCH. THE AO IS DIRECTED TO VERIFY AND QUANTIFY THE PROFIT/LOSS IN NON - DELIVERY BASED TRANSACTION AND C HARGE IT TO TAX ACCORDINGLY. THE APPELLANT SUCCEEDS ON THESE GROUNDS . 7 . BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAS GIVEN A VERY DETAIL REASONING FOR THE NATURE OF TRANSACTION UNDERTAKE N BY THE ASSESSEE AND THE SAME HA S BEEN TREATED AS PROFITS FROM SALE TRANSACTIONS UNDER THE HEAD BUSINESS INCOME . HE ALSO DREW OUR ATTENTION TO THE VARIOUS CHARTS OF THE SHARES SCRIPS HIGHLIGHTED BY THE ASSESSING OFFICER. HE THUS, VERY STRONGLY RELIED UPON THE REASONING AND T HE CONCLUSION DRAWN BY THE ASSESSING OFFICER. 8 . ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL GIVEN IN ASSESSEES FAMILY MEMBERS WHEREIN IDENTICAL FACTS AND ISSUES WERE INVOLVED AND SIMILAR REASONING WAS GIVEN BY THE ASSESSING OFFICER. THE TRIBUNAL IN ALL THESE CASES HAS HELD THAT THE TRANSACTIONS OF SALE OF SHARES IN ASSESSEES CASE ARE TO BE TAXED UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS INCOME . B ESIDES THIS, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO REBUTTED VARIOUS REASONING GIVEN BY THE ASSESSING OFFICER AND REFERRED TO THE SUBMISSIONS WHICH WERE MADE BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER (APPEALS) AND ALSO THE FINDINGS GIVEN BY THE LE ARNED COMMISSIONER (APPEALS). 9 . WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, IT IS SEEN THAT THE TRIBUNAL IN THE CASE OF A SSESSEES HUSBAND OTHER AND FAMILY MEMBERS MRS. VINEET SETHI 7 HA S DECIDED THIS ISSUE IN FAVOUR OF THE RESPECTIVE ASSESSEE , WHEREIN IDENTICAL FACTS WERE INVOLVED. A LIST OF SUCH CASES ARE AS UNDER: I ) SHRI SATPAL SINGH SETHI, ITA NO.3650/MUM./2010 DTD. 30.09.2011 ; II ) SHRI RA JPAL SETHI, ITA NO.4325/MUM./2010 DTD. 18.01.2012 ; AND III ) SMT. HARINDER SETHI, ITA NO.3649/MUM./2010 DTD. 25.04.2012 . 10 . IN ALL THESE CASES, THE TRIBUNAL HAS HELD THAT THE TRANSACTION OF SHARES WHICH HAVE BEEN ASSESSED AS SHORT TERM CAPITAL GAIN AND LONG TE RM CAPITAL GAIN ARE TO BE TREATED AS BUSINESS INCOME. IN ASSESSEES CASE, IT IS EVIDENT FROM THE PERIOD OF HOLDING OF THE SHARES UNDER THE HEAD LONG TERM CAPITAL GAIN THAT THEY REMAIN FOR SUBSTANTIAL PERIOD AND MAXIMUM PERIOD BEING MORE THAN TEN YEARS . IN THE CASE OF SHORT TERM CAPITAL GAIN , THE MAXIMUM GAIN HAS BEEN RECEIVED FROM THE TRANSACTIONS OF SHARES , WHICH WERE HELD BETWEEN THREE MONTHS TO TWELVE MONTHS. THUS, THE PERIOD OF HOLDING ARE ALSO SUBSTANTIAT E . THE MOTIVE OF PROFIT CANNOT BE THE CRI TERIA FOR JUDGING A TRANSACTION , AS EVEN WHILE MAKING AN INVESTMENT IN AN ASSET, THE PROFIT MOTIVE OR THE GAIN IS THE PRIMARY GOAL. AS POINTED OUT BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER (APPEALS), WHICH HAS BEEN ACCEPTED BY HIM ALSO, THAT IF SCRIP WISE FREQUENCY IS TO BE SEEN, THEN THEY ARE NOT VERY HUGE. ALL THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED. BESIDES THIS, THE ASSESSEE IS ALSO MAINTAINING SEPARATE RECORDS AND PORTFOLIO FOR THE INVESTMENT PURPOS E AND SECURITY TRANSACTION TAX (FOR SHORT STT ) HAS BEEN PAID IN RESPECT OF THE SHARES , ON TRANSFER OF WHICH , CAPITAL GAIN HAS BEEN EARNED. THE FACTS AND CIRCUMSTANCES OF THE CASE ARE QUITE SIMILAR TO THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN GOPAL ( SUPRA), WHICH HAS BEEN AFFIRMED BY THE JURISDICTIONAL HIGH COURT IN GOPAL PUROHIT (SUPRA). THUS, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE DECISION OF THE HON'BLE MRS. VINEET SETHI 8 JURISDICTIONAL HIGH COURT AND ALSO THE AFORESAID DECISIONS OF THE TRIBUNAL GIVEN IN T HE ASSESSEES FAMILY MEMBERS CASE, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDINGS RECORDED BY THE LEARNED COMMISSIONER (APPEALS) AND DECLINE TO INTERFERE IN HIS ORDER AS SUCH. CONSEQUENTLY, THE GROUND RAISED BY THE REVENUE IS TREATED AS DISMISSED. 11 . 11. IN THE RESULT, REVENUES APPEAL IS TREATED AS DISMISSED. 24 TH JANUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 24 TH JANUARY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / T HE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI