ACIT 16(1), MUMBAI V. PHEROZ R. MODY, MUMBAI

ITA 4572/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2784 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 03-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RADHA KATYAL NARANGDR
• Keywords: Business income; Salary income; Difference of opinion; Change of opinion; Reassessment proceedings

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL CBENCH MUMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PAWAN SI NGH, JUDICIAL MEMBER ./I.T.A./4572/MUM/2014 , /ASSESSMENT YEAR: 2007-08 ACIT-16(1) 2 ND FLOOR, MATRU MANDIR TARDEO ROAD MUMBAI-400 007. VS. PHEROZ R. MODY DAISYLEA MOUNT PLEASANT RD. MUMBAI-400 006. PAN:AAEPM 3855 D ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: MS. RADHA KATYAL NARANG-DR AS SESSEE BY: NONE / DATE OF HEARING: 30.06.2016 / DATE OF PRONOUNCEMENT: 30.06.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 28/04/2014 OF THE CIT ( A)-27, MUMBAI, THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE -AN INDIVIDUA L, DERIVES INCOME FROM SALARY,CAPITAL GAINS AND OTHER SOURCES. HE FILED HIS RETURN OF INCOME ON 30/ 07/2007,DECLARING TOTAL INCOME OF RS.11.54 CRORES.SCRUTINY ASSESSMENT U/S.143 (3) OF THE ACT W AS COMPLETED ON 24/12/2009,DETERMINING HIS INCOME OF THE ASSESSEE AT RS.11.82 CRORES.LATER ON, A NOTICE U/S.148 OF THE ACT WAS ISSUED TO THE ASSESSEE. THE AO FINALISED THE ASSESSMENT U/S.143 ( 3) R.W.S.147 OF THE ACT ON 28/03/2013 DETERMINING THE INCOME OF THE ASSESSEE AT RS. 11.55 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT TREATING THE IN COME FROM SALE OF SHARES IS INCOME FROM SHORT-TERM CAPITAL GAINS (STCG) OF RS. 2.99 CRORES AND LONG-TERM CAPITAL GAINS (LTCG) OF RS. 87,471/- AS AGAINST THE BUSINESS INCOME ASSESSE D BY THE AO. ON VERIFICATION OF THE RECORDS, AFTER THE COMPLETION OF SCRUTINY ASSESSMENT, HE FOU ND THAT THE ASSESSEE HAD INDULGED IN LARGE- SCALE TRANSACTION IN SHARES. HE HELD THAT THE INTEN TION OF THE ASSESSEE WAS TO MAKE PROFIT AND THE INCOME TAX UNDER THE HEAD CAPITAL GAINS SHOULD BE T AXED AS BUSINESS INCOME. HE FOUND THAT THE NUMBER OF SHARES SOLD INVOLVING LTCG WAS ONLY 98,20 0, THAT THE TOTAL TRANSACTIONS IN SHARES WERE 15,68,871 DURING THE YEAR UNDER APPEAL. HE HEL D THAT THE ASSESSEE WAS A TRADER OF SHARES AND SECURITIES AS WELL AS IN FUTURE MARKETS, THAT TO SA VE TAXES HE HAD CONVENIENTLY DIVIDED HIS SHARE 4572-MODYPR 2 TRANSACTION INTO BUSINESS AND/OR SPECULATION WHERE DELIVERY WAS NOT TAKEN OR IN CASES OF DERIVATIVES AND WERE DELIVERY WAS TAKEN AND FUTURE SALES WERE MADE WITHIN 365 DAYS AS STCG/LOSS AND WHEREVER THE SHARES HAD BEEN HELD FOR MORE THAN 365 DAYS THE SAME WAS SHOWN AS LTCG. ACCORDINGLY,THE AO TREATED THE PROFITS FRO M ALL THE SHARE TRANSACTIONS AS BUSINESS INCOME. 3 .AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM, THE ASSESSEE CHALLENGED THE VALIDITY OF REASSESSMENT PROCEEDINGS. IT WAS ARGUED THAT THE OPENING WAS RESULT OF CHANGE OF OPINION,THAT REOPENING WAS BAD IN LAW AND ILLEGAL, THAT THE AO HAD NOT OBSERVED THE PROCEDURE LAID DOWN BY THE APEX COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD.(259 ITR 19),THAT THE A O HAD FURNISHED THE REGIONS RECORDED FOR THE REOPENING ONLY AFTER A PERIOD OF SEVEN MONTHS F ROM THE DATE OF ASSESSEE ASKING HIM TO SUPPLY THE REASONS, THAT THE AO HAD NOT DISPOSED THE OBJEC TIONS FILED BY THE ASSESSEE BY WAY OF A SPEAKING ORDER, THAT THE AO HAD NOT RECORDED THE RE ASONS IN TIME, THAT THE PERMISSION FROM THE SUPERIOR AUTHORITY WAS NOT TAKEN AS PER THE REQUIRE MENT OF SECTION 151 (1) OF THE ACT.HOWEVER, THE FAA REFERRING TO VARIOUS CASE LAWS HELD THAT TH E AO HAD DULY RECORDED THE REASONS WHICH HAD A LIVE LINK WITH THE FACTS OF THE CASE,THAT AT THE STAGE OF INITIATION OF REASSESSMENT PROCEEDINGS IT WAS NOT OBLIGE -TORY FOR HIM TO CONCLUDE WITH EVIDE NCE AS TO HOW MUCH OF INCOME HAD ESCAPED ASSESSMENT,THAT IT WAS NOT A CASE OF CHANGE OF OPIN ION.FINALLY UPHELD THE REOPENING. 4. BEFORE THE FAA,THE ASSESSEE FURTHER ARGUED THAT INC OME FROM INVESTMENT HELD UNDER PORTFOLIO MANAGEMENT SCHEME (PMS) WAS LIABLE TO BE TAXED AS I NCOME FROM CAPITAL GAINS, THAT THE ASSESSEE HAD INVESTED UNDER THE PMS FOR THE PURPOSE OF MAXIMISATION OF WEALTH,THAT THE TRANSACTIONS ENTERED INTO WERE DELIVERY-BASED TRANS ACTIONS,THAT HE HAD NO CONTROL OVER INVESTMENT GIVEN UNDER PMS, THAT THE PORTFOLIO MANAGER WAS NOT AN AS AN AND WAS ACTING ON HIS OWN DISCRETION. THE ASSESSEE RELIED UPON THE CASES OF S ALIL SHAH FAMILY (P.) TRUST (144 ITD 390), ANUSUYA SUREN MIRCHANDANI (ITA/3159/M/2012) AND RAD HA BIRJU PATEL (46 SOT 23). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,THE FAA HELD THAT THE ISSUE OF AVAILING THE SERVICES OF PORTFOLIO MANAGER AND TREATMENT TO BE GIVEN TO THE SHARE TRANSACTION WAS NO MORE RES-INTEGRA.HE REFERRED TO THE CASES OF RADHA BIRJU PATEL (SUPRA) AND ANUSUYA SUREN MIRCHANDANI (SUPRA). HE HELD THAT THE ISSUE HAD TO BE DECIDED IN VIEW OF THE INVESTMENT OBJECTIVE MANDATED BY THE ASSESSEE WHILE ENGAGING THE PMS PROVIDER WHICH WAS IN 4572-MODYPR 3 THE NATURE OF DISCRETIONARY PMS, THAT THE PMS SERVI CE PROVIDER HAD ABSOLUTE DISCRETION IN TAKING DAY-TO-DAY DECISION IN SO FAR AS SHARES WERE CONCER NED, THAT SHE WOULD MAKE THE INVESTMENT AS PER HIS OWN JUDGMENT AND ON THE BASIS OF OWN PERSON AL EXPERTISE WITHOUT ANY RECOURSE TO THE OPINION OF ITS CLIENT, THAT SUCH DECISIONS TAKEN BY THE PMS PROVIDER ARE TAKEN FOR A WHOLE RANGE OF CLIENTS IN ITS PORTFOLIO, THAT ALL THE DECISIONS REGARDING INVESTMENTS ITS TIMING ARE MADE BY THE PMS PROVIDER AND NOT BY THE INVESTOR PER SE, THAT T HE DOMINANT INTENTION OF THE ASSESSEE AT THE TIME OF MAKING INVESTMENT WITH PMS PROVIDER COULD O NLY BE SAID TO BE WITH A VIEW OF GROWTH PROSPECTS AND NOT WITH INTENTION OF MAKING PROFITS. RELYING UPON ABOVE-MENTIONED TWO ORDERS OF THE TRIBUNAL,THE FAA HELD THAT THE AO WAS NOT JUSTI FIED AND TAXING THE GAINS ARISING OUT OF SALE OF SHARES UNDER THE HEAD BUSINESS INCOME. 5. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO AND STATED THAT ASSESSEE HAD ENTERE D INTO LARGE NUMBER OF SHARE TRANSACTIONS,THAT HIS INTENTION WAS TO EARN MAXIMUM PROFIT, THAT THE AO HAD RIGHTLY TREATED HIM A TRADER WHO HAD INVESTED MONEY TO CARRY OUT A SYSTEMATIC BUSINESS A CTIVITY.AS STATED EARLIER,NONE APPEARED ON BEHALF OF THE ASSESSEE. 6. WE HAVE VALUES THE MATERIAL AVAILABLE ON RECORD. WE FIND THE AO HAD REOPENED THE SCRUTINY ASSESSMENT AND HAD HELD THAT THE INCOME OF THE ASSE SSEE ARISING OUT OF SALE OF SHARES HAD TO BE TAXED UNDER THE HEAD BUSINESS INCOME AND NOT UNDER THE HEADS STCG OR LTCG, THAT THE FAA REVERSED THE DECISION OF THE AO CONSIDERING THE FAC T THAT THE ASSESSEE HAD AVAILED THE SERVICES OF A PMS PROVIDER.IN OUR OPINION,ONCE AN ASSESSEE APPR OACHES A PMS PROVIDER,HE LOSES CONTROL OVER THE DECISION-MAKING PROCESS FOR MAKING INVESTM ENT IN THE SHARES. IT IS THE PMS PROVIDER WHO DECIDES AS TO HOW MUCH MONEY IS TO BE INVESTED AND IN WHICH SCRIPTS- ALL THE DECISIONS RELATED WITH SALE AND PURCHASE OF SHARES ARE TAKEN BY THE PMS PROVIDER.WE FIND THAT THE CASE OF RADHA BIRJU PATEL(SUPRA)THE TRIBUNAL HAS DECIDED TH E ISSUE AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD OF THE CASE. WE HAVE NOTED THAT SO FAR AS THE PRESENT TRANSACTIONS ARE CONCERNED, THES E TRANSACTIONS ARE UNDISPUTEDLY CARRIED OUT BY THE ASSESSEE'S PORTFOLIO MANAGER AND, THEREFORE, TH ESE ITEMS ARE CLEARLY IN THE NATURE OF TRANSACTIONS MEANT FOR MAXIMIZATION OF WEALTH RATHE R ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF SHARES. THE VERY NATURE OF PORTFOLIO MANAG EMENT SCHEME IS SUCH THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE PROTECTED AND ENHANCED AND IN SUCH A CIRCUMSTANCE, IT CANNOT BE SAID THAT PORTFOLIO MANAGEMENT IS SCHEME OF TRADING IN S HARES AND STOCK. WHETHER, THE ASSESSEE IS 4572-MODYPR 4 ENGAGED IN THE BUSINESS OF DEALING IN SHARES OR INV ESTMENT IN SHARES IS ESSENTIALLY A QUESTION OF FACT AND IT HAS TO BE DETERMINED WITH REGARD TO THE ENTIRETY OF THE CIRCUMSTANCES. IN OUR CONSIDERATION VIEW, IN CIRCUMSTANCE, IN WHICH THE A SSESSEE IS ENGAGED IN A SYSTEMATIC ACTIVITIES OF HOLDING PORTFOLIO THROUGH A PMS MANAGER, IT CANNOT, BY ANY STRETCH OF IMAGINATION, BE SAID THAT THE MAIN OBJECT OF HOLDING THE PORTFOLIO IS TO MAKE PROFIT BY SALE OF SHARES DURING THE COURSE OF MAINTAINING THE PORTFOLIO INVESTMENT OVER THE PERIO D. AS REGARDS THE HIGH NUMBER OF TRANSACTIONS, WHICH HAVE BEEN REFERRED TO BY THE ASSESSING OFFICE R, WE HAVE NOTED, ON A PERUSAL OF STATEMENT FILED BEFORE US, THAT THE NUMBER OF TRANSACTION REF LECTED IN THE STATEMENT DO NOT CONSTITUTE INDEPENDENT TRANSACTION INASMUCH AS WHEN, IN A COMP UTER BASED TRADING SYSTEM, LET US SAY THE ASSESSEE BUY 1000 SHARES AND THIS PURCHASE IS SPLIT OVER 10 TRANSACTIONS FROM DIFFERENT PERSONS, WHILE OVER ALL TRANSACTIONS IS OF ONLY ONE PURCHASE 100 SHARES, THE STATEMENT REFLECT OF THE INDIVIDUAL COMPONENT OF THE TRANSACTION AND WILL TH US SHOW A MISLEADING HIGH FIGURE. KEEPING IT IN MIND ALL THESE FACTORS AS ALSO THE ENTIRETY OF T HE CASE, WE ARE IN CONSIDERED AGREEMENT WITH THE CONCLUSIONS ARRIVED BY THE CIT(A) WHICH NEEDS NO IN TERFERENCE. GRIEVANCES RAISED BY THE ASSESSING OFFICER ARE THUS REJECTED. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION AND RESPECTFULLY FOLLOWING THE ABOVE REFERRED ORDER OF THE TRIBUNAL, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2016. 30 TH , 2016 SD/- SD/- /PAWAN SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 30.06.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 4572-MODYPR 5 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.