Mr. Ratanshi D. Patel, Raigad V. ACIT, Panvel Circle, Panvel

ITA 454/PUN/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7173 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 25-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S N DOSHI; P P BAFNA
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , ! , # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NOS.829 & 454/PUN/2010 & & / ASSESSMENT YEARS : 2005-06 AND 2006-07 M R. RATANSHI D. PATEL, KRISHNA NIWAS, NEAR VIRESHWAR TEMPLE, MAHAD, DIST. RAIGAD. PAN NO.AAEFS6617C. . / APPELLANT V/S A SSST. COMMISSIONER OF INCOME TAX, PANVEL CIRCLE, PANVEL. . / RESPONDENT / APPELLANT BY : SHRI S.N. DOSHI & SHRI P.P. BAFNA. / RESPONDENT BY : SHRI SUHAS KULKARNI ' / ORDER PER ANIL CHATURVEDI, AM : THESE TWO APPEALS FILED BY THE ASSESSEE ARE EMANATING OUT OF THE TWO SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) I, THANE FOR THE ASSESSMENT YEARS 2005- 06 & 2006-07 DATED 29.01.2010 AND 30.01.2009 RESPECTIVELY. / DATE OF HEARING : 12.01.2017 / DATE OF PRONOUNCEMENT: 02.02.2017 2 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 2. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUGH THE 2 APPEALS OF THE ASSESSEE ARE AGAINST THE ORDER OF LD. CIT(A) FOR TWO DIFFERENT ASSESSMENT YEARS BUT SINCE THE ISSUES ARE SIMILAR IN BOTH THE YEARS, HIS ARGUMENTS WILL AL SO BE COMMON AND THEREFORE BOTH THE APPEALS CAN BE HEARD AND DISPOSED OF TOGETHER. LD. D.R. DID NOT OBJECT TO THE AFOR ESAID SUBMISSION OF LD.A.R. WE THEREFORE FOR THE SAKE OF CONVENIENCE PROCEED TO DISPOSE OF BOTH THE APPEALS TOGE THER BY A CONSOLIDATED ORDER. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD A RE AS UNDER: 3.1 ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAGED IN SAL E AND PURCHASE OF SHARES. ASSESSEE FILED HIS RETURN OF INCO ME FOR A.Y. 2005-06 ON 30.10.2005 DECLARING TOTAL INCOME AT RS.4,70,770/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DT.23.02.2007 AND THE TOTAL INCOME WAS DETERMINED AT RS.22,81,060/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DT.29.01.2010 IN (APPEAL NO.THN/ITO W-2/PNVL/581/2006- 07) DISMISSED THE APPEAL OF THE ASSESSE. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE CARRIED THE MATTER BEFORE TRIBUNAL. THE CO-ORDINATE BENCH OF THE TRIBUNAL VIDE CONSOLIDATED ORDER DT.31.10.2012 IN ITA NO.829 AND 454/PN/2010 FOR A.YS. 2005-06 AND 2006-07 DISMISSED THE APPEAL OF THE ASSESSE. 3 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 4. AGGRIEVED WITH THE ORDER OF TRIBUNAL, ASSESSEE FILED MISCELLANEOUS APPLICATION NOS.10 AND 11/PN/2014 WHEREIN IT WAS INTER-ALIA CONTENDED THAT THERE WAS AN APPARENT MISTAKE WITH REGARD TO THE FINDING OF THE TRIBUNAL THAT THE RE WAS NO PHYSICAL DELIVERY OF SHARES. ACCORDING TO ASSESSEE THE SALE AND PURCHASE OF SHARES WAS DELIVERY BASED AND NON CONSIDERATION OF THIS FACTUAL ASPECTS AMOUNTS TO MISTAKE APPARENT FROM RECORD. AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE, THE ORDER PASSED IN ITA NO.829/PN/2014 AND ITA NO.454/PN/2014 FOR A.Y.2005-06 AND 2006-07 WERE RECALLED BY THE CO-ORDINATE BENCH VIDE ORDER DT.02.04.2014 AND THUS THE ASSESSEE IS NOW IN 2 ND ROUND BEFORE US. 5. WE NOW FIRST PROCEED TO DISPOSE OF THE APPEAL OF THE ASSESSEE FOR A.Y. 2005-06 IN I.T.A.NO.829/PUN/2010. 5.1. AO WHILE FINALIZING THE ORDER NOTED THAT ASSESSEE HAD CLAIMED THE PROFITS EARNED ON SALE OF SHARES AS LONG TERM CAPITAL GAINS AND CLAIMED IT AS EXEMPT U/S 10(38) OF THE A CT. THE SUBMISSION OF ASSESSEE THAT THE GAINS EARNED ARE CA PITAL GAINS AND NOT BUSINESS INCOME WAS NOT FOUND ACCEPTABLE T O AO AS HE NOTED THAT ASSESSEE WAS ENGAGED IN THE BUS INESS OF SHARE TRADING, THE SHARES ON WHICH LONG TERM CAPITAL GAINS WAS CLAIMED WAS SHOWN AS TRADING STOCK IN THE BOOKS OF ASSESSEE, ASSESSEE HAD NOT MAINTAINED SEPARATE D-MA T ACCOUNT AND BANK ACCOUNT FOR BIFURCATING THE BUSINESS AN D PERSONAL SHAREHOLDINGS. HE ALSO NOTED THAT ASSESSEE HA D NOT 4 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 MAINTAINED ANY DISTINCTION BETWEEN THE SHARES WHICH ARE TREATED AS STOCK-IN-TRADE AND THE SHARES WHICH ARE T REATED AS INVESTMENTS AND THAT ALL THE SHARES WERE HELD IN THE SAME D-MAT ACCOUNT. HE ALSO NOTED THAT ON THE SHARES THAT THE ASSESSEE HAS CLAIMED LONG TERM CAPITAL GAINS WERE IN THE EARLIER YEARS TREATED AS STOCK-IN-TRADE. HE, THEREFORE, H ELD THE PROFITS OF RS.17,91,595/- EARNED BY THE ASSESSEE ON SALE OF SHARES AS BUSINESS INCOME AS AGAINST THE CLAIM OF LONG TERM CAPITAL GAINS BY THE ASSESSEE. 6. WITH RESPECT TO DISALLOWANCE OF INTEREST, AO ON PERUSAL OF BALANCE-SHEET NOTICED THAT ASSESSEE HAD TAKEN LOAN O F RS.58,65,675/- WHICH WAS USED FOR PURCHASE OF SHARES. OF THE SHARES PURCHASED, SOME SHARES WERE SOLD BY ASSESS EE AND ON SOME SHARES ASSESSEE HAD RECEIVED DIVIDENDS. ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF INTEREST PA ID ON LOAN TAKEN FOR PURCHASE OF SHARES ON WHICH DIVIDEND WAS RECEIVED. ASSESSEE EXPRESSED HIS INABILITY TO FURNISH THE DETAILS. AO THEREAFTER, ON THE BASIS OF THE DIVIDENDS RECEIV ED AND THE PURCHASES OF SHARES SHOWN BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT, WORKED OUT THE INTEREST OF RS.18,693/- AND HELD IT TO HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME AND DISALLOWED THE SAME. THE ORDER OF AO WAS UPHOLD BY LD. CIT(A) VIDE ORDER DT. 29.01.2010 BY HOLDIN G AS UNDER : 5.3 FOR THE FOLLOWING REASONS, I HOLD THAT INCOME THAT HAS ARISEN FROM SALE OF SHARES AND CLAIMED AS LONG TERM CAPITAL GAIN IS NOTHING BUT BUSINESS INCOME. 5 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 I. THERE ARE NO SEPARATE BANK ACCOUNTS MAINTAINED FOR INVESTMENTS AND TRADING SHARES. II. THERE ARE NO SEPARATE BOOKS OF ACCOUNT MAINTAINED. III. THE APPELLANT HAS BORROWED FUNDS AND UTILIZED THE SAME IN SHARE TRANSACTIONS AND INTEREST IS PAID. IV. THERE IS NO PHYSICAL DELIVERY OF SHARES. V. THERE IS MULTIPLICITY OF TRANSACTIONS. IT IS SEEN THAT WHENEVER THERE IS POSITIVE TREND IN THE SHARE MARKET, THE APPELLANT MAKES SALES AND HARVESTS THE PROFIT. HE HAS SELECTED THE PROFIT ON SALES THAT HAS TAKEN PLACE AFTER 12 MONTHS OF PURCHASE FOR LONG TERM CAPITAL GAIN PURPOSE WITH THE SOLE MOTIVE OF CLAIMING EXEMPTION. THE DECISION RELIED UPON BY THE APPELLANT OF GOPAL PUROHIT VS JCIT, ITAT G BENCH, MUMBAI IS DISTINGUISHABLE. IN THE CASE OF GOPAL PUROHIT, INC OME ARISING FROM DELIVERY BASED TRANSACTIONS HAVE BEEN TREATED AS INCOME FROM CAPITAL GAINS. WHEREAS IN T HE INSTANT CASE, ALL THE TRANSACTIONS ARE OTHERWISE TH AN DELIVERY BASED TRANSACTIONS. 5.4 IN VIEW OF THE ABOVE AND ALSO IN VIEW OF THE DECISIONS RELIED UPON BY THE AO, I HOLD THAT THE CA PITAL GAINS ARISING OUT OF SHARE TRANSACTIONS ARE TO BE TREATED AS INCOME ARISING FROM BUSINESS ACTIVITIES. ACCORDINGLY, I DISMISS THE GROUND OF APPEAL. ON THE ISSUE OF DISALLOWANCE OF INTEREST, LD. CIT(A) UPHELD TH E ORDER OF AO BY HOLDING AS UNDER : - 6.1 THE APPELLANT, IN THE SUBMISSION FURNISHED TO ME, HAS STATED THAT THE INVESTMENT IN SHARES WHICH HAS YIELDED DIVIDEND INCOME WAS MADE OUT OF OWN CAPITAL FUNDS AND NOT THE BORROWED FUNDS. HE HAS FURTHER STATED THAT, THERE WAS NO OPPORTUNITY GIVEN TO EXPLAIN HIS STAND ON THIS ISSUE. THE SUBMISSION IS CONSIDERED. FIRST OF ALL, THE ASSESSEE HAS NOT COOPERATED WITH THE AO AND HENCE THE SUBMISSION THAT NO OPPORTUNITY WAS GIVEN IS IRRELEVANT AND THE CONTENTION IS UNTENABLE. REGARDING THE INTEREST PAYMENT, LOAN USED IN MAKING INVESTMENT, WHICH HAVE YIELDED DIVIDEND INCOME, I DO NOT AGREE WITH THE VIEW OF AR. THE APPELLANT HAS MADE SUBSTANTIAL INVESTMENTS IN PURCHASE OF SHARES AND THE OWN 6 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 FUNDS IS NOT ADEQUATE ENOUGH FOR THAT PURPOSE. THERE ARE NO DETAILS FURNISHED LIKE THE QUANTUM OF OWN FUNDS INVESTED IN PURCHASE OF SHARES. I, THEREFORE, HOLD THAT THE GROUND IS UNTENABLE AND NEEDS TO BE REJECTED. THE GROUND FAILS. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US AND HAS RAISED THE FOLLOWING CONCISE GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE LONG TERM GAIN OF RS.17,91,595/- AROSE ON SALE OF SHARES WAS TAXABLE AS BUSINESS INCOME AND THEREBY DENYING THE LEGITIMATE CLAIM OF EXEMPTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.18,396/- U/S 14A OF THE ACT WITHOUT APPRECIATING THE CORRECT FACT OF THE CASE. FROM THE GROUNDS RAISED, IT IS SEEN THAT BOTH THE ISSUES ARE INTER-CONNECTED AND THEREFORE THEY ARE CONSIDERED TOGETHER. 7. BEFORE US, AT THE OUTSET, LD. AR SUBMITTED THAT THE ASSESSEE IS NOT TRACEABLE SINCE AROUND TWO YEARS AND H E IS NOT IN A POSITION TO RECONCILE AND SUBMIT THE DETAILS OF SHA RES FROM THE D-MAT ACCOUNT AS TO WHICH OF THE SHARES THE ASSESSEE HAD TREATED INVESTMENTS / STOCK-IN-TRADE AND ON WHICH ASSESSEE HAS CLAIMED THE INCOME AS EXEMPT. HE HOWEVER SUBMITTED THAT HE IS FILING THE D-MAT ACCOUNT AND THEREFORE THE MATTER BE CONSIDERED ACCORDINGLY. WITH R ESPECT TO DISALLOWANCE U/S 14A, HE REITERATED THE SUBMISSIONS MAD E BEFORE LOWER AUTHORITIES. LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD. CIT(A) AND FURTHER 7 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 SUBMITTED THAT ASSESSEE HAS NEITHER IDENTIFIED AND FILED THE DETAILS OF SHARES FROM WHICH IT WAS EARNED CAPITAL GAINS EITHER BEFORE THE AO OR BEFORE LD. CIT(A) NOR THE DETAILS A RE FILED BEFORE THE TRIBUNAL. HE FURTHER SUBMITTED THAT BY ME RE FILING THE D-MAT ACCOUNT, IT CANNOT BE SAID THAT ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS. HE THUS SUPPORTED THE OR DER OF AO AND LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON ISSUE ABOUT THE TREATMENT TO THE PROFITS EARNED ON SALE OF SHARES I.E., WHETHER IT IS TO BE TREATED AS CAPITAL GAINS AS CLAIMED BY THE ASSESSEE OR BUSINESS INCOME AS CONSIDERED BY THE REVENUE, WE FIND TH AT AO HAS NOTED THAT ASSESSEE WAS ENGAGED IN THE BUSINES S OF SHARE TRADING AND HAS NOT MAINTAINED SEPARATE D-MAT ACCOUNT FOR THE SHARES HELD FOR BUSINESS AND THAT HELD FO R PERSONAL INVESTMENTS. AO HAS ALSO NOTED THAT ASSESSEE WAS MAINTAINING A COMMON D-MAT ACCOUNT FOR THE SHARES THAT WERE HELD AS BUSINESS AND INVESTMENTS. IT WAS ALSO NOTE D BY HIM THAT ASSESSEE DID NOT SUBMIT ANY D-MAT ACCOUNT BEFO RE HIM AND THAT ASSESSEE DID NOT FILE ANY EVIDENCE TO SHOW THAT THE INVESTMENT ON WHICH LONG TERM CAPITAL GAINS EXEMPTION WAS CLAIMED WAS PERSONAL INVESTMENT OR THE SHARES THAT WERE SOLD WAS EQUITY SHARES OR UNITS OF EQUITY ORIENTED SHARE OF FUNDS. BEFORE US ALSO THE ASSESSEE HAD NOT FILED ANY DET AILS. LD. AR HAS FURNISHED JUST A COPY OF D-MAT ACCOUNT AND H AS NOT POINTED FROM THE D-MAT ACCOUNT AS TO WHICH OF THE SHARES ARE STOCK-IN-TRADE AND WHICH OF THE SHARES ARE HELD AS 8 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 TREATED AS INVESTMENTS. WE ARE OF THE VIEW THAT MERELY BY FILING THE D-MAT ACCOUNT AND WITHOUT GIVING THE DETAILS OF TH E DATE OF PURCHASE / SALE OF SHARES, THE AMOUNT AND OTHER NECESSARY DETAILS, THE CLAIM OF ASSESSEE OF THE INCOME BEI NG EXEMPTED CAPITAL GAINS CANNOT BE ACCEPTED. WE FURTHER FIN D THAT LD. CIT(A) WHILE UPHOLDING THE ACTION OF AO HAD GIVEN A FINDING THAT THE TRANSACTIONS FROM WHICH THE ASSESSEE HAS EARNED PROFITS ARE NOT DELIVERY BASED TRANSACTIONS. FUR THER BEFORE US ASSESSEE HAS NOT PLACED ANY MATERIAL TO CONTR OVERT THE FINDINGS OF LOWER AUTHORITIES. WE FURTHER FIND BEFORE CO-ORDINATE BENCH AT THE TIME OF HEARING OF MISCELLANEOUS APPLICATION ALSO IT WAS SUBMITTED THAT THE PURCHASE AND S ALE OF SHARES WERE DELIVERY BASED AND BASED ON THAT SUBMISS ION THE ORIGINAL ORDER DT.31.10.2012 WAS RECALLED. HOWEVER EVEN IN THE 2 ND ROUND NOW, NO DETAILS OF THE SAME HAVE BEEN FURNISHED BY ASSESSEE. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT LD. CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE ORDER OF AO. AS FAR AS THE ISSUE OF DISALLOWANCE OF INTEREST IS CONCERNED, NO DETAILS HAVE BEEN FURNISHED BEFORE US TO J USTIFY THAT THE INTEREST EXPENSE HAS NOT BEEN INCURRED FOR EA RNING EXEMPT INCOME. WE THEREFORE FIND NO REASON TO INTERFERE W ITH THE ORDER OF LD. CIT(A) AND THUS BOTH THE GROUNDS OF ASSESSEE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A.Y. 2005-06 IS DISMISSED. 10. AS FAR AS APPEAL FOR A.Y. 2006-07 IS CONCERNED, SINCE BOTH THE PARTIES BEFORE US HAVE SUBMITTED THAT THE FAC TS OF 9 ITA NOS.829 & 454/PUN/2010 AY : 2005-06 & 2006-07 THE CASE FOR THE ASSESSMENT YEAR 2005-06 AND 2006-07 ARE IDENTICAL, WE THEREFORE FOR THE REASONS STATED HEREINABOV E WHILE DISPOSING OF THE APPEAL FOR A.Y. 2005-06 AND FOR SIMILAR REASONS, DISMISS THE GROUNDS OF THE ASSESSEE. THUS, THE APPEAL OF THE ASSESSEE FOR A.Y. 2006-07 IS ALSO DIS MISSED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THE 2 ND DAY OF FEBRUARY, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE; ! DATED : 2 ND FEBRUARY, 2017. YAMINI ' ( ) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. THE CIT (APPEALS) - I, THANE. THE CIT-II, THANE. 5 . 6. #$% &&'( , * '( , A / DR, ITAT, A, PUNE; %+, - / GUARD FILE. ' / BY ORDER, // //// // TRUE COPY // T // // // TRUE COPY // . /012 / ASSISTANT REGISTRAR, * '( , / ITAT, PUNE.