The DCIT, 5(1), V. Shri Nirmal Kumar Patodi HUF, Indore

ITA 45/IND/2013

• Counselvise Citation: 4522714 RSA 2013
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 29-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S GAUTAM
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 45/IND/2013 A.Y. 2008-09 DCIT 5(1), INDORE :: APPELLANT VS NIRMAL KUMAR PATODI HUF INDORE PAN AAHHP 0684G :: RESPONDENT APPELLANT BY SHRI G.S. GAUTAM RESPONDENT BY SHRI AJAY TULSIYAN DATE OF HEARING 21.8.2013 DATE OF PRONOUNCEMENT 21.8.2013 O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 30.11.2012 OF THE LEARNED FIRST APPELLATE AUTHORITY , INDORE, IN HOLDING THAT THE PROFIT FROM SHARE TRANSACTION IS SHORT TERM CAPITAL GAIN AGAINST BUSINESS INCOME HELD BY THE ASSESSING 2 OFFICER. THE CRUX OF ARGUMENTS ON BEHALF OF THE RE VENUE IS THAT THE FREQUENCY OF TRANSACTIONS IS IN LARGE NUMBER, T HEREFORE, IT IS CLEARLY A BUSINESS INCOME. ON THE OTHER HAND, THE L EARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE TRANSAC TIONS THROUGH-OUT THE YEAR ARE MERELY SIX, THEREFORE, IT CANNOT BE TERMED AS BUSINESS INCOME AND IS MERELY SHORT TERM CAPITAL GAIN. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE HUF DID SHARE TRADING AND SHO WN INCOME FROM SHORT TERM CAPITAL GAIN AMOUNTING TO RS.54,27,425/-. ON PERUSAL OF DETAILS, IT WAS OBSE RVED BY THE ASSESSING OFFICER THAT THE SHARES WERE HELD FOR VERY SHORT PERIOD, THEREFORE, THE MOTIVE WAS ONLY TO EAR N PROFIT AND NOT TO MAKE INVESTMENT FOR EARNING DIVIDEND. T HE LEARNED ASSESSING OFFICER HELD THAT THE INCOME OF RS.54,27,425/- CLAIMED AS SHORT TERM CAPITAL GAIN I S A BUSINESS INCOME, THEREFORE, HE MADE THE ADDITION. O N APPEAL, THE LEARNED CIT(A) CONSIDERED THE SUBMISSIO NS OF THE ASSESSEE AND HELD THAT THE TRANSACTION IS IN TH E NATURE OF INVESTMENT, THEREFORE, THE PROFIT EARNED THEREFR OM IS TO BE 3 ASSESSED AS SHORT TERM CAPITAL GAIN AND NOT AS A BU SINESS INCOME. THE RELEVANT PORTION OF THE CONCLUSION DRA WN IN THE IMPUGNED ORDER IS REPRODUCED HEREUNDER :- I HAVE SEEN THE ASSESSMENT ORDER AND ALSO SEEN THE VARIOUS SUBMISSIONS OF APPELLANT. IT IS A FACT THAT APPELLANT HAS TRANSACTED IN SHARES OF ONLY THREE LI STED COMPANIES AND TWO MUTUAL FUNDS. THERE ARE TOTAL SIX TRANSACTIONS OF PURCHASE AND EIGHT TRANSACTIONS OF SALE IN THE ENTIRE YEAR. MAJOR GAIN OF RS.53,56,150 /- IS EARNED ONLY ON TRANSACTION OF SHARES OF ORISSA SPONGE IRON LTD. WHICH WERE HELD FOR 3.5 MONTHS. SUCH TRANSACTIONS ARE CARRIED OUT WITH OWN FUNDS. A S PER SUBMISSION DATED 30.11.2012 OF APPELLANT, THE INVESTMENT IN MUTUAL FUNDS WERE LIQUIDATED AND USED FOR INVESTING IN SHARES. NO PART OF INVESTMENT IS MADE FROM BORROWED FUNDS. IT WAS FURTHER CONTENDED THAT SUCH INVESTMENT IN SHARES WERE MADE IN EARLIER YEAR S ALSO AND INCOME ON SALE OF SUCH SHARES WAS ACCEPTED AS CAPITAL GAINS IN EARLIER YEARS. IN TOTALITY OF ALL THESE FACTS, I HAVE NO HESITATION IN HOLDING THESE TRANSACTIONS AS BEING IN THE NATURE OF INVESTMENTS 4 AND PROFIT THEREFROM OF RS.54,27,825/- IS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. AS A RESULT GROUND NO. 1 OF APPEAL IS ALLOWED. 2.1 IF THE TOTALITY OF FACTS AVAILABLE ON RECORD, OBSERVATION MADE IN THE ASSESSMENT ORDER, CONCLUSION DRAWN IN T HE IMPUGNED ORDER AND THE ASSERTION MADE BY THE LEARNE D RESPECTIVE COUNSEL, ARE KEPT IN JUXTAPOSITION AND ANALYSED, WE FIND THAT THE ASSESSEE TRANSACTED IN SHARES OF 3 LISTED COMPANIES AND 2 MUTUAL FUNDS. WE NOTE THAT THE MAJOR GAIN AMOUNTING TO RS .53,56,150/- IS EARNED ON TRANSACTION OF SHARES OF ORISSA SPONGE IRON LIMITED WHICH WERE HELD FOR MORE THAN THREE MONTHS. UNDISPU TEDLY THE TRANSACTIONS WERE CARRIED OUT FROM OWN FUNDS. THE LEARNED CIT(A) HAS FOUND THAT THE INVESTMENT IN MUTUAL FUND S WAS LIQUIDATED AND USED FOR MAKING THE INVESTMENT IN SH ARES. IT IS ALSO OBSERVED THAT NO PART OF INVESTMENT WAS MADE O UT OF BORROWED FUNDS. IT IS ALSO NOTED, AS CANVASSED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THAT IDENTICALLY FOR EARL IER YEAR (A.Y. 2006-07) THE CLAIM OF THE ASSESSEE WAS ACCEPTED BY THE DEPARTMENT WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT (PAGE 45 TO 46 OF THE PAPER BOOK). SO FAR AS THE C ONTENTION OF THE 5 LEARNED SENIOR DR THAT THERE ARE FREQUENT TRANSACTI ONS IN SHARES IS ALSO NOT SUBSTANTIATED WITH EVIDENCE AS MERELY 6 TRANSACTIONS WERE CARRIED OUT DURING THE YEAR BY THE ASSESSEE. T HE WRITTEN SUBMISSIONS ALONG WITH CASE LAWS, PREFERRED BEFORE THE LEARNED CIT(A), HAVE BEEN DULY CONSIDERED IN THE IMPUGNED O RDER. THE NATURE OF TRANSACTION DURING THE YEAR UNDER CONSIDE RATION IS SIMILAR TO THE TRANSACTION OF EARLIER YEAR, THEREFO RE, THE ASSESSING OFFICER IS NOT EXPECTED TO CHANGE THE NATURE OF TRA NSACTION UNLESS AND UNTIL CONTRARY MATERIAL IS BROUGHT ON RECORD. S O FAR AS THE CONTENTION OF THE LEARNED SENIOR DR THAT THE INVEST MENT WAS MADE SIMPLY TO EARN PROFIT IS ALSO NOT HAVING MUCH SUBSTANCE BECAUSE FOR MAKING THE INVESTMENT, THE INTENTION OF GROWTH IN VALUE IS NORMALLY PARAMOUNT AND INHERENT. NO PRUDEN T PERSON WILL MAKE INVESTMENT WHICH IS LIKELY TO RESULT INTO LOSS. MAKING AN INVESTMENT WITH THE INTENTION OF PROFIT IS A NOR MAL HUMAN TENDENCY, THEREFORE, IT MERELY CANNOT CHANGE THE NA TURE OF TRANSACTION. THE NATURE OF TRANSACTION IS DETERMINE D ON THE BASIS OF SO MANY FACTORS INCLUDING SUBSEQUENT EVENT AND CIRCUMSTANCES. THE CBDT CIRCULAR NO. 4 OF 2007 DATE D 15 TH JUNE, 2007 SAYS SO WHICH IS REPRODUCED FOR READY RE FERENCE :- 6 CBDT ALSO WISHES TO EMPHASIZE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORT-FOLIOS I.E. AN INVESTMEN T PORT- FOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREA TED AS CAPITAL ASSET AND A TRADING PORT-FOLIO COMPRISING O F STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSET. WHERE AN ASSESSEE HAS TWO PORT FOLIOS, THE ASSESSEE MAY H AVE INCOME BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUS INESS INCOME. THE ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRINCIPLE SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE A S INVESTMENT (AND, THEREFORE, GIVING RISE TO CAPITAL GAINS) OR AS STOCK IN TRADE (AND, THEREFORE, GIVING RISE TO B USINESS PROFIT). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETER MINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY TH E ASSESSEE AS INVESTMENT OR STOCK IN TRADE. IF THIS CIRCULAR OF THE CBDT IS ANALYSED WITH THE F ACTS OF THE PRESENT CASE, IT FAVOURS THE ASSESSEE. HONBLE APEX COURT IN RAMKUMAR AGRAWAL; 205 ITR 251 HELD THAT WHEN THE AS SESSEE HAS TREATED THE SHARES AS CAPITAL ASSET ALL ALONG , IT IS NOT PERMISSIBLE EITHER FOR THE ASSESSEE OR FOR THE ASSE SSING OFFICER TO TREAT THE SAME AS STOCK IN TRADE. ONCE THE INTENTI ON OF THE ASSESSEE IS CLEAR FROM RECORD, THE ASSESSING OFFICE R CANNOT SUBSTITUTE THE SAME. THE ASSESSEE HAS GIVEN A PARTI CULAR TREATMENT I.E. INVESTMENT OF SHARES, THE ASSESSING OFFICER CANNOT CHANGE THE NATURE OF ASSET. UNCONTROVERTEDLY FOR EA RLIER ASSESSMENT YEAR THE ASSESSING OFFICER HIMSELF TREAT ED THE SAME AFTER DUE EXAMINATION OF RECORD AS CAPITAL GAIN, TH EREFORE, WE ARE 7 OF THE CONSIDERED OPINION THAT THE TRANSACTIONS CAR RIED OUT BY THE ASSESSEE ARE NOT SUBSTANTIAL CONSEQUENTLY THESE ARE IN THE NATURE OF INVESTMENT, THEREFORE, THE PROFIT EARNED THEREFR OM IS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN AND NOT AS A BU SINESS INCOME, WE FIND NO INFIRMITY IN THE CONCLUSION DRAW N IN THE IMPUGNED ORDER. IT IS AFFIRMED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 21.8.2013. SD SD (R.C.SHARMA) (JOGINDER SINGH ) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 23.8.2013 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-2121 2323 8