DCIT 8(2), MUMBAI V. LUCKY SECURITIES P. LTD, MUMBAI

ITA 4536/MUM/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79175 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 18-06-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 03-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CAPT PRADEEP ARYA
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI . , !'# $ $ $ $ , %& '()* , %+ ,- % # BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ I.T.A. NO.4536/MUM/2009 ( . . . . / ASSESSMENT YEAR :2005-06 THE DCIT-8(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. LUCKY SECURITIES PVT. LTD., A-32, KALPITA ENCLAVE, ANDHERI(E), MUMBAI-400 069 -/ %+ ./ 0 ./ PAN/GIR NO. : AAACL 2028C ( /1 / APPELLANT ) .. ( 23/1 / RESPONDENT ) /1 4 % / APPELLANT BY: CAPT PRADEEP ARYA 23/1 5 4 % / RESPONDENT BY: DR. K. SHIVARAM SHRI RAHUL HAKANI 5 6+ / DATE OF HEARING :18.06.2014 7. 5 6+ / DATE OF PRONOUNCEMENT :18.06.2014 ,%8 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-VIII, MUMBAI DT.27.5.2009 PERTAINING TO A.Y . 2005-06. 2. THE SHORT GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) ERRED IN TREATING INCOME FROM SHARES AS SHORT TERM CAPITAL G AIN (STCG)/LONG TERM CAPITAL GAIN /LTCG AS AGAINST BUSINESS INCOME TREATED BY THE AO. ITA NO. 4536/M/2009 2 THE LD. CIT(A) FURTHER ERRED IN ALLOWING THE SET OF F OF BROUGHT FORWARD LTC LOSS AGAINST LTCG AS THE INCOME FROM SHARES WAS TREATED AS BUSINESS INCOME BY THE AO. 3. THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.10 .2005 DECLARING TOTAL INCOME OF RS. 23.02,373/-. THE RETURN WAS S ELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSUED AND SE RVED UPON THE ASSESSEE. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN PROFIT ON SALE OF INVESTMENT AS CAPITAL GAINS. AS REGARDS CAPITAL GAINS, THE ASS ESSEE COMPUTED THE SAME AS UNDER: SHORT TERM CAPITAL LOSS (WITHOUT STT) (47,501) SHORT TERM CAPITAL GAIN (WITH STT) 7,90,026 LONG TERM CAPITAL GAINS (WITH STT)(EXEMPT U/S. 10(38) 96,46,516 LONG TERM CAPITAL GAINS (WITH OUT STT)(WITHOUT INDEXATION 31,60,178 1,35,49,219 4. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM FOR TREATING PROFIT ON SALE OF SHARES AS LTCG AND STCG AND NOT AS BUSINESS INCOME. THE ASSESSEE FILED A DETAILED REPLY. DRAWING SUPPORT F ROM THE CIRCULAR NO. 4/2007 DT. 15.6.2007, THE ASSESSEE STATED THAT IT I S POSSIBLE FOR A TAXPAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO AND A TRADING PORTFOLIO. IT WAS FURTHER STATED THAT WHERE AN ASSESSEE HAS TW O PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS, I.E. CAP ITAL GAINS AS WELL AS BUSINESS INCOME. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE IS AN ITA NO. 4536/M/2009 3 INVESTMENT COMPANY SINCE 1994 AND HAVING TWO SEPARA TE PORTFOLIOS. IT WAS FURTHER EXPLAINED THAT ALL THE SHARES WERE CLAS SIFIED UNDER THE HEAD INVESTMENT. THE ASSESSEE IS FOLLOWING THIS PRACT ICE SINCE EARLIER ASSESSMENT YEARS, NO BORROWED FUNDS WERE USED FOR T HE PURCHASE OF SHARES. INVESTMENTS HAVE BEEN MADE OUT OF OWN SURP LUS FUNDS. ALL THE INVESTMENTS ARE DELIVERY BASED THEREFORE, THERE IS NO INTENTION TO TRADE THEM. TOTAL NO. OF SCRIPS DEALT DURING THE YEAR AR E ONLY 10.90% OF THE GAINS ARE FROM LONG TERM INVESTMENTS. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S, THE AO WAS OF THE OPINION THAT THE ASSESSEE IS TRADING SHARES IN AN ORGANIZED WAY AND THE NATURE OF BUSINESS OF THE ASSESSEE IS DEALING IN SH ARES AND NOT INVESTMENT. THE ASSESSEES CLAIM FOR CONVERSION OF STOCK-IN-TRA DE OF SHARES INTO INVESTMENT AND CHANGE OF BUSINESS FROM TRADING IN S HARES TO INVESTMENT IN SHARES IN THE YEAR UNDER CONSIDERATION WAS DISALLOW ED BY THE AO AND THE ENTIRE CAPITAL GAINS, STCG AND LTCG WERE TREATED AS BUSINESS INCOME. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). IT WAS CONTENDED BEFORE THE LD. CIT(A) THA T THE ASSESSEE IS ENGAGED IN INVESTMENT AS WELL AS TRADING BUSINESS I N SHARES. THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS. IT WAS FURTHER CONTENDED THAT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE SHARES ARE HELD AS INVESTMENTS AND TH EY WERE CLASSIFIED AS INVESTMENT AND THE SHARES WHICH ARE HELD AS STOCK-I N-TRADE ARE CLASSIFIED AS STOCK OF SHARES. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE IS HAVING TWO PORTFOLIOS. THE ASSESSEE STRONGLY DENIED THAT THERE EXIST A REGULAR FREQUENCY SHOWING SOME REAL, SUBSTANTIAL, SYSTEMATI C AND ORGANIZED COURSE OF ACTIVITY. THE VOLUME AND THE FREQUENCY OF TRANSACTION IS NOT VERY HIGH. ITA NO. 4536/M/2009 4 5.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSIO N OF THE ASSESSEE, THE LD. CIT(A) RELYING UPON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF SHRI GOPAL PUROHIT IN ITA NO. 4854/M/08 DT. 10.2.2009, THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS RIGHTLY CLAIM LTCG AND STCG ON THE INVESTMENT SHOWN IN THE BALANCE SHEET A ND ACCORDINGLY DELETED THE ACTION TAKEN BY THE AO. HAVING ACCEPTE D THE PROFIT AS CAPITAL GAINS, THE LD. CIT(A) DIRECTED THE AO TO AL LOW THE SET OFF OF BROUGHT FORWARD CAPITAL LOSS AGAINST LTCG AS PER TH E PROVISIONS OF LAW. 6. THE REVENUE IS BEFORE US AGAINST THIS FINDING OF THE LD. CIT(A). 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY REL IED UPON THE FINDINGS OF THE AO. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 9. A PERUSAL OF THE STATEMENT OF LTCG WITH STT SHOW S THAT THE ASSESSEE HAS DEALT ONLY IN TWO SCRIPS NAMELY BAKRA PRATISTHAN LTD. AND DIVIS LABORATORIES LTD. STATEMENT OF LTCG WITHOUT S TT SHOWS THAT THE ASSESSEE HAS DEALT ONLY IN ONE SCRIP I.E. DIVIS LAB ORATORIES LTD. IN SO FAR AS STCG WITH STT IS CONCERNED, WE FIND THAT THE ASS ESSEE HAS DEALT IN SHARES OF ONLY 5 COMPANIES AND IN CASE OF STCG WITH OUT STT, THE ASSESSEE HAS DEALT IN SHARES OF TWO COMPANIES ONLY. BY ANY STRETCH OF IMAGINATION, THIS CANNOT BE CONSIDERED TO BE THAT T HE ASSESSEE WAS ENGAGED IN HIGH FREQUENCY TRANSACTION. FURTHER IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE WAS CHURNING THE SHARES BUYING AND SELLING THE SHARES AGAIN AND AGAIN. THERE IS NO DENYING THAT T HE ASSESSEE IS MAINTAINING TWO PORTFOLIOS. FURTHER THE ASSESSEE H AS NOT BORROWED FUNDS ITA NO. 4536/M/2009 5 FOR MAKING INVESTMENTS. THE TOTAL NO. OF TRANSACTI ONS FOR STCG IS 9 AND FOR LTCG IS 8 TOTALING TO 17 TRANSACTIONS IN THE YE AR WHICH IS ABOUT 1.5 TRANSACTIONS PER MONTH. CONSIDERING ALL THESE FACT S IN TOTALITY, WE HAVE NO HESITATION IN CONFIRMING THE FINDINGS OF THE LD. CI T(A). 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 18.6.2014. . ,%8 5 . +% 9 :, ; 18.6.2014 5 < SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# /VICE PRESIDENT %+ ,- / ACCOUNTANT MEMBER MUMBAI; :, DATED 18 TH JUNE, 2014 . . ./ RJ , SR. PS ,%8 ,%8 ,%8 ,%8 5 55 5 26' 26' 26' 26' =%'.6 =%'.6 =%'.6 =%'.6 / COPY OF THE ORDER FORWARDED TO : 1. /1 / THE APPELLANT 2. 23/1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. '?< 26 , , / DR, ITAT, MUMBAI 6. < @ / GUARD FILE. ,%8 ,%8 ,%8 ,%8 / BY ORDER, 3'6 26 //TRUE COPY// ! !! ! / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI