The ACIT, Circle-7, Ahmedabad V. Nirali Atulbhai Mehta, Ahmedabad

ITA 470/AHD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6057 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VILAS SHINDE
• Keywords: Capital asset; Business income; Transactions in derivatives; Cost of acquisition
• Section: 11A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.470/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) THE ACIT CIRCLE-7 AHMEDABAD / VS. NIRALI ATULBHAI MEHTA 301, ABHISHIP COMPLEX NR.KESHAV BAUG PARTY PLOT AHMEDABAD # ./ ./ PAN/GIR NO. : ABCPM 3545 K ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #%' / APPELLANT BY : SHRI VILAS SHINDE, SR.DR &#%(' / RESPONDENT BY : SHRI KALPESH SHAH, AR )*(+ / DATE OF HEARING 18/12/2017 ,-./(+ / DATE OF PRONOUNCEMENT 21/02/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTA NCE OF THE REVENUE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD [CIT(A) IN SHORT] DATED 15/11/2013 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 13/06/2012 RELEVANT TO ASSESSMENT YEAR (AY) 2010-11. ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE R EAD AS UNDER:- I) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING THE ASSESSING OFFICER TO ASSESS THE LONG TERM CAPITAL G AIN OF RS.28,36,127 AND THE SHORT TERM CAPITAL GAIN OF RS.1,19,30,730/- AS DECLARED BY THE ASSESSEE AS AGA INST THE A.O. SANCTION TO TREAT THE AGGREGATED GAINS OF RS.1,17,66,857/- AS BUSINESS INCOME BEING TRADING P ROFITS OF THE SHARES. II) THE LD.CIT(A) HAS FURTHER ERRED IN LAW AND ON FACT S IN IGNORING VARIOUS FACTS OF THE CASE SUGGESTING THAT THE ASSESSEE WAS DOING BUSINESS IN TRADING OF SHARES AN D NOT A MERELY INVESTOR ENTITLING HER TO OFFER CAPITAL GAIN S ON SALE OF SUCH SHARES. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPH ELD THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICE R. 3. THE RELEVANT FACTS, IN SHORT, ARE THAT THE ASSES SEE FILED ITS RETURN OF INCOME FOR AY 2010-11 DECLARING TOTAL INCOME AT RS. 1,14,84,180/-. THE RETURN OF THE ASSESSEE WAS SUBJECTED TO SCRUTINY AS SESSMENT. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R (AO) NOTICED FROM HER RETURN OF INCOME THAT THE ASSESSEE HAS INTER-ALIA SHOWN LONG TERM CAPITAL GAINS (LTCG) OF RS.28,36,127/- FROM SHARES WHICH IS CLAIMED TO BE EXEMPTED FROM TAX UNDER S.10(38) OF THE ACT AND ALSO SHORT TERM CAPITAL GAINS (STCG) AMOUNTING TO RS.1,19,30,730/- WHICH IS SUSCEPTIBLE TO CONCESSIONAL TAX TREATMENT UNDER S.1 11A OF THE ACT. THE AO OBSERVED THAT HAVING REGARD TO THE DETAILS OF TH E CAPITAL GAINS, THE ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 3 - ASSESSEE IS SUBSTANTIALLY DEALING IN SHARES. THE A O ACCORDINGLY ALLEGED THAT THE ASSESSEE HAS WRONGLY CLAIMED FAVOURABLE TA X TREATMENT AVAILABLE ON SALE OF SHARES AS CAPITAL ASSETS. IN THE OPI NION OF THE AO, THE PROFITS/LOSS ARISING ON SALE OF SHARES WERE ORDINAR Y BUSINESS INCOME OF THE ASSESSEE TAXABLE UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND NOT CHARGEABLE UNDER THE HEAD CAPITAL GAINS AS CLAIM ED. THE AO TESTED THE NATURE OF IMPUGNED TRANSACTIONS ON THE TOUCHSTO NE OF FREQUENCY, HOLDING PERIOD, RATIO OF SALES TO PURCHASE ETC. AND FOUND THAT THE FOCUS OF THE ASSESSEE WAS NOT TO EARN ACCRETION BY WAY OF DI VIDEND ON INVESTMENTS BUT RATHER THE INTENTION WAS TO BE REAP PROFITS OUT OF VOLATILITY OF THE MARKET AND THUS THERE WAS COMMERCIAL MOTIVE INVOLVE D IN EXECUTION OF SUCH TRANSACTIONS. FROM THE STATISTICS AVAILABLE ON RECORD, THE AO ANALYZED THAT FREQUENCY OF TRANSACTIONS, MAGNITUDE OF TRANSACTIONS AND PERCENTAGE OF GAINS CLEARLY POINTED OUT THE INTENTI ON OF ENTERING INTO THESE TRANSACTIONS FOR PROFIT MOTIVE THROUGH TRADING ACTI VITY. THE AO FURTHER NOTED THAT SUCH A SHORT SPAN OF HOLDING PERIOD DOES NOT JUSTIFY ABNORMAL GAINS IN A CAPITAL INVESTMENT. THE AO ALSO FOUND T HAT APART FROM SUBSTANTIAL DEALING IN SHARES, THE ASSESSEE IS ALSO ENGAGED IN TRADING OF SHARES IN FUTURES AND OPTION (F&O) SEGMENT OF THE S TOCK EXCHANGE AND ALSO IN SPECULATIVE TRANSACTIONS WHERE TRANSACTION FROM DAY TRADING BUSINESS WERE SQUARED UP WITHOUT DELIVERY. THE AO WHILE DENYING THE LTCG BENEFITS NOTED THAT MOST OF THE SHARES HAVE BE EN HELD FOR THE PERIOD RANGING FROM 13 MONTHS TO 2 YEARS ONLY. THE SHARES WERE TREATED ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 4 - IN A VERY ODD QUANTITIES WHICH ALSO GIVES AN INDICA TION OF INTENTION OF TRADE RATHER THAN INTENTION TO INVEST. THE AO ALSO NOTED THAT THE LTCG AMOUNTING TO RS.28,36,127/- IS SHOWN AT ABOUT 67% O F THE PURCHASE COST WHICH IS STAGGERING HAVING REGARD TO THE AMOUNT EMP LOYED IN PURCHASE OF SHARES. THIS KIND OF PROFIT FURTHER INDICATES THAT GREAT RISK INVOLVED FOR MAKING SUCH HUGE PROFITS AND THUS INDICATE INTENTIO N OF TRADING. AS REGARDS STCG OF RS.1,19,30,730/-, THE AO NOTED THAT THERE WERE ABOUT 197 SALE TRANSACTIONS GIVING RISE TO SUCH PROFITS. THE AO OBSERVED THAT THE HOLDING PERIOD RANGE BETWEEN JUST TWO DAYS TO A FEW MONTHS AT MOST. THE FREQUENCY, MAGNITUDE AND PERCENTAGE OF GAINS WE RE FOUND TO CONTRADICT THE CLAIM OF THE ASSESSEE THAT THE GAIN ARISING SALE OF SHARES ARE IN THE NATURE OF CAPITAL GAINS. THE AO ALSO TO OK NOTE OF THE FACT THAT SUCH REGULAR TRANSACTIONS OF PURCHASE AND SALES OF SHARES ARE ALLIED TO USUAL TRADE BUSINESS IN SHARES DECLARED BY THE ASSE SSEE. THE AO ACCORDINGLY REFUSED TO ACCEPT THE PROFITS ARISING ON SALE OF SHARES AS LTCGS AND STCGS UNDER THE HEAD CAPITAL GAINS AND TREATED THEM AS BUSINESS INCOME OF THE ASSESSEE. CONSEQUENTLY, THE TAX BENEFITS AVAILABLE TO THE ASSESSEE UNDER THE HEAD CAPITAL GAINS WERE D ENIED BY THE AO. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(A). ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 5 - 5. THE CIT(A) REVISITED THE FACTS CONCERNING THE IS SUE OF TAXABILITY UNDER THE HEAD BUSINESS INCOME OR CAPITAL GAIN. THE CIT(A) RELIED UPON VARIOUS ASSERTIONS MADE BY THE ASSESSEE BEFORE HIM AND HELD THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE IMPUGNED TRAN SACTIONS OF PURCHASE AND SALES OF SHARES GIVING RISE TO GAIN DECLARED UN DER THE HEAD LTCG/STCG AS BUSINESS TRANSACTIONS WITH PROFIT MOTI VE. THE CIT(A) ACCORDINGLY REVERSED THE AFORESAID ACTION OF THE AO IN TREATING SUCH GAINS AS BUSINESS INCOME INSTEAD OF LTCG/STCG AS DECLARED BY THE ASSESSEE. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT (A) IS REPRODUCED HEREUNDER FOR READY REFERENCE. 5. I HAVE PERUSED THE FACTS OF THE CASE AS ENUMER ATED BY A.O. AND AS SUBMITTED BY APPELLANT. I HAVE PERUSED THE CASE LAW S RELIED ON BY A.O. AS WELL AS APPELLANT. AFTER CAREFUL CONSIDERATION OF FACTS, SUBMISSION AND CONTENTION OF BOTH A.O. AS WELL AS OF APPELLANT, GROUND WISE ADJU DICATION IS AS FOLLOWS: 5.1 A. THE APPELLANT THROUGH GROUND NO. 1 TO 8 RAIS ED OBJECTION BOTH ON TECHNICAL AS WELL AS ON MERIT AGAINST THE A.O'S REA SONS TO TREAT APPELLANT'S ACTIVITY OF SHARE INVESTMENT AS SHARE TRADING ACTIV ITIES AND TRANSACTIONS RESULTING INTO LONG TERM CAPITAL GAIN / SHORT TERM CAPITAL GAIN AS SHARE TRADING TRANSACTION RESULTING INTO BUSINESS-INCOME. THE A.O . IN THE IMPUNGED ASSTT.ORDER GIVEN VARIOUS REASONS FOR HIS FINDING A ND CONCLUSION. THE APPELLANT THOUGH EXPLAINED BEFORE A.O. DURING ASSTT.PROCEEDIN GS WHEN SHOW CAUSED WITH COMPLETE DETAILS BUT ONCE AGAIN IN DETAIL (AS DISCU SSED AT PARA 4B) THAT SHE IS AN INVESTOR AS FAR AS SHARES / SECURITY TRANSACTION S ARE CONCERNED. SHE FURTHER EMPHASIZED THAT IT IS THE 'FUTURE & OPTION' TRANSAC TIONS WHICH AS PER PROVISIONS OF ACT TREATED AS BUSINESS INCOME. ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 6 - B. THE APPELLANT THROUGH GROUNDS RAISED FOLLOWING I SSUES (IN BRIEF) TO EMPHASIZE HER CONTENTION: (I) THE APPELLANT INVESTED HER OWN FUND AND NOT BORROWED THE MONEY. (II) THERE IS NO REPEATED BUYING OF SHARES. THE APP ELLANT PURCHASES / INVESTED IN A SCRIPT OVER A BRIEF PERIOD, HELD IT FOR SOME T IME (MOSTLY LONGER TIME) AND THEN SALES IT. IT IS NOT THAT APPELLANT FREQUENTLY PURCHASE & SALE THE SAME SCRIPT. (III) APPELLANT'S RETURNS OF 67% FOR LONG TERM CAPI TA! GAIN AND 35% FOR SHORT TERM CAPITAL GAIN CANNOT BE TREATED AS TRADING ACTI VITIES PROFIT MARGINS AND THEREFORE THEY ARE ESSENTIALLY BE INVESTMENT. (IV) EACH & EVERY SCRIPT OF INVESTMENT HAS DECLARED AND PAID DIVIDEND AND THEREFORE THE MOTIVE OF APPELLANT WAS FOR INVESTMEN T TO EARN DIVIDEND. (V) AS FAR AS LONG TERM CAPITAL GAIN, THE HOLDING P ERIOD AND RETURNS ARE MUCH HIGHER THAN WHAT A.O. HAS TAKEN. FURTHER THE PURCHA SE & SALE OF SHARES IN ODD NUMBERS IS BECAUSE AT STOCK EXCHANGE FOR PURCHASE & SALE IN BIG NOS., THE TRANSACTION DOES NOT COME AT A TIME. THE A.O. MISCO NSTRUED THE PREVAILING MARKET TRENDS AND FOR A SINGLE PURCHASE IN ONE SCRI PT OR SALE OF ONE SCRIPT THROUGH VARIOUS TRANSACTIONS ON A SINGLE DATE AT DI FFERENT TIME ON THE BASIS OF OFFER & ACCEPT ABILITY AS HIGH FREQUENCY. (VI) THE APPELLANT WAS NOT PROVIDED ENOUGH/PROPER O PPORTUNITY AND IMPUNGED ORDER IS PASSED IN HASTE WITHOUT PROPER INQUIRES. C. THE APPELLANT'S EXPLANATION IN RESPECT OF SHOW C AUSE VIDE ORDER SHEET ENTRY DT. 09/04/12 (AS DISCUSSED AT PARA 4A ABOVE) HAS FO LLOWING IMPORTANT FACTS IN REFERENCE TO APPELLANT'S ACTIVITIES: (I) THE APPELLANT IS DOING BUSINESS OF SHARE AN D SECURITIES AND ALSO INVESTMENT IN SHARES AND SECURITIES SINCE MANY YEAR S AND DISCLOSING THE RESPECTIVE INCOME I.E. BUSINESS INCOME/CAPITAL GAIN ACCORDINGLY TO THE DEPARTMENT IN RETURN OF INCOME WHICH HAS BEEN ACCEP TED EVEN UNDER SCRUTINY. ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 7 - (II) THE APPELLANT KEEPS SEPARATE ACCOUNTS FOR T RADING OF SHARES AND SECURITIES AND INCOME FROM INVESTMENT. (III) THE APPELLANT CLEARLY DISTINGUISHED INCOME FROM TRADING OF SHARES IN FUTURE & OPTIONS SEGMENT OF STOCK EXCHANGE AND I NCOME FROM SQUARED UP TRANSACTIONS FROM THE DAY TRADING BUSINE SS OF SHARE AND SECURITIES. D. THE A.O. AFTER CONSIDERING THE DETAILS FURNISHED BY APPELLANT OBSERVED / CONCLUDED (IN BRIEF) THE FOLLOWINGS : (I) IN RESPECT OF LONG TERM CAPITAL GAIN WITH 35 INSTAN CES OF SALE WITH RETURNS OF 67% OF PURCHASE COST I.E. LTCG OF RS. 28 36127/- FOR PURCHASE PRICE OF RS. 4273024/- AND SALE CONSIDERAT ION OF RS. 7109151/- . THE WITHHOLDING PERIOD FOR MOST OF THE SHARES WAS BETWEEN 13 MONTHS TO 18 MONTHS. THAT SUCH RETURNS A RE POSSIBLE ONLY IN BUSINESS ACTIVITY WITH PROFIT MOTIVE. (II) IN RESPECT OF SHORT TERM CAPITAL GAIN WITH 197 SALE TRANSACTION FOR 4,99,471/- SHARES FOR STCG OF RS. 1,19,30,730/- AND HOLDING PERIOD FROM TWO DAYS TO FEW MONTH CAN ONLY BE HELD AS ADVE NTURE IN THE NATURE OF TRADE. THE FREQUENCY OF TRANSACTIONS, MAG NITUDE AND PERCENTAGE OF GAIN CLEARLY REFLECT THE INTENTION FO R PROFIT MOTIVE. (III) THE A.O. EXAMINED APPELLANT'S CONTENTIONS IN RESPEC T OF VARIOUS QUESTIONS AS DISCUSSED IN IMPUNGED ASSTT.ORDER AT P ARA 4A ABOVE. (IV) THE A.O. REJECTED APPELLANT'S CONTENTION THA T IN EARLIER YEARS SUCH ACTIVITIES WERE ACCEPTED (CONSISTENCY POINT) RELYIN G ON VARIOUS CASE LAWS. (V) HE CONSIDERED VARIOUS CASE LAWS AND BOARD C IRCULAR NO. 4 OF 2007. ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 8 - (VI) THE A.O. REJECTED APPELLANT'S ALTERNATIVE S UBMISSION TO APPLY THE RATIO OF HON'BLE IT AT AHMEDABAD ORDER IN THE CASE OF SUGAMCHAND C. SHAH. E. THE APPELLANT ON THE OTHER HAND THROUGH GROUND W ISE EXPLANATION (ALREADY DISCUSSED ABOVE) FOR EACH SUCH REASONS OF A.O. GIVE N THE REBUTTAL BASED ON FACTS AS WELL AS ON LEGAL PROPOSITION. THESE ARGUME NTS CAN BE SUMMARIZED AS FOLLOWS (IN BRIEF): (I) THE APPELLANT IS HOLDING THE SHARES / SECU RITIES SINCE MANY YEARS AS INVESTMENT BESIDES HAVING BUSINESS INCOME ON ACCOUN T OF TRANSACTION IN FUTURE & OPTIONS. BUT SEPARATE RECORDS ARE MAINTAINED AND DULY ACCEPTED BY DEPARTMENT OVER THE YEARS. THERE IS NO CHANGE OR SH IFT IN THE ACTIVITIES OF APPELLANT DURING PREVIOUS YEARS. ALL THE DETAILS OF EACH & EVERY TRANSACTION WERE FILED BY APPELLANT WHICH HAS BEEN INTERPRETED BY A.O. ON HIS OWN ASSUMPTION AND PRESUMPTION WHICH IS AGAINST THE EST ABLISHED LEGAL PROPOSITION. (II) WITH DETAILS AND ANALYSIS IN RESPECT OF LO NG TERM CAPITAL GAIN TRANSACTION, THE SHARES RESULTING INTO 95.39% OF TO TAL LONG TERM CAPITAL GAIN REFLECT HOLDING PERIOD OF MORE THAN 60 MONTHS I.E. A.O'S REASON THAT AVERAGE HOLDING PERIOD IS ABOUT 'ONE AND HALF MONTH IS INCO RRECT ON THE FACTS. IN THE SCRIPT AS STEEL AUTHORITY OF INDIA (SAIL), TRIVENI ENGG. LTD., J. K. LAXMI CEMENT LTD. AND TAJ GVK LTD., THE QUANTITY OF SHARE S , HOLDING PERIOD OF MORE THAN 3 YEARS, SUBSTANTIAL GAIN ETC., IT LEAVE ONLY OTHER FOUR SCRIPT AS ESSAR SHIPPING, KNR CONSTRUCTION, RUCHI SOYA INDUSTRIES A ND SONATA SOFTWARE WITH HOLDING PERIOD OF 12 MONTHS TO 18 MONTHS WITH LESS THAN 1% OF TOTAL LONG TERM CAPITAL GAIN. BOTH HIGHER HOLDING PERIODS WITH HIGH RETURN CLEARLY REFLECT THE INTENTION OF APPELLANT AS THAT OF INVESTMENT. (III) THE PURCHASE & SALE OF SHARES AND SECURITI ES IN ODD NUMBERS WILL BE ON ACCOUNT OF PREVAILING STOCK EXCHANGE PROCESS THROUG H COMPUTER AND IT CANNOT LEAD TO INTERPRET THE* NATURE OF TRANSACTION AS THA T OF BUSINESS OR OF INVESTMENT. THE ENTIRETY OF TRANSACTION IN A DAY I.E. PURCHASES OR SALE OF HIGHER NUMBERS OF SHARES THROUGH VARIOUS SUCH TRANSACTIONS FOR A SING LE TRANSACTION OF EITHER PURCHASE OR SALE JUSTIFIED THE APPELLANT'S CONTENTI ON OF INVESTMENT. THESE ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 9 - TRANSACTIONS ARE NOT REPETITION I.E. THE APPELLANT IN A DAY FREQUENTLY PURCHASE AND SALE WITH REPURCHASES SUBSEQUENTLY AND RESALE. (IV) THE INTENTION OF INVESTMENT IS FURTHER JUST IFIED ON THE FACTS THAT THE APPELLANT HAS INVESTMENT OF RS.3,92,60,302 AS ON 31 .3.2010 WHOSE MARKET VALUE WAS 6,61,62,323. HAD THERE BEEN BE ANY BUSINESS INTENTI ON OR PROFIT MOTIVE, THE APPELLANT COULD HAVE BOOKED THIS DIFFER ENCE AS PROFIT OF 2,69,02,021 (66162323 -39260302) I.E. 66% OF THE CO ST. (V) THE APPELLANT HAS NOT EVEN A SINGLE TRANSACT ION OF ROTATION OF ANY SCRIPT WHICH IS ONE OF THE PRIME INDICATIONS OF TRADING. T HE APPELLANT PURCHASES A SCRIPT OVER A PERIOD OF TIME OR IN ONE INSTANCE, KE EP IT FOR A CONSIDERABLE TIME AND THEN SALE IT ON SINGLE INSTANCE OR OVER A PERIO D OF TIME. THERE IS NO REPURCHASE OR RESALE OF ANY OF THE SCRIPT. (VI) THE A.O. COMPUTED RATIO LIKE SHORT TERM CAP ITAL GAIN OVER LONG TERM CAPITAL GAIN AT 4.20 WHICH CANNOT BE HELD AS ANY OF INDICATION OF NATURE OF TRANSACTION AS BUSINESS OR INVESTMENT. (VII) THE APPELLANT RELIED ON FOLLOWING CASE LAWS AND DEMONSTRATED THAT HOW THE RATIO OF THESE CASE LAWS ARE APPLICABLE TO APPE LLANT: GOPAL PUROHIT VS. JCIT 29 SOT 117 SHRI HITESH SATISHCHANDRA DOSHI VS. JCIT (ITA NO.6497/MUM/2009) JANAK S KAGWALA VS. ACIT 11 SOT 627 CIT VS. NEO POLY PACK PVT.LTD. (2000) 245 ITR 4 92 (VIII) IN REFERENCE TO SHORT TERM CAPITAL GAIN, TH E APPELLANT HAS BOOKED GAIN OF 619122 (5.19%) ON SHARES HELD FOR PERIOD OF LESS T HAN 30 DAYS AND HAS BOOKED 5821164 (48.79%) PROFIT ON SHARES HELD FOR PERIOD E XCEEDING 90 DAYS, WITHOUT CONSIDERING LONG TERM CAPITAL GAIN. THE IMP ORTANCE TO 48.79% IS TO BE GIVEN AND NOT TO 5.19% TO DECIDE THE NATURE OF TRAN SACTIONS. (IX) THE APPELLANT OVER PAST THREE YEARS UTILISE D HER OWN FUND FOR INVESTMENT AND HAS NOT BORROWED MONEY. (X) FOR EACH AND EVERY TRANSACTION DELIVERY IS T AKEN AS WELL AS GIVEN BY THE APPELLANT. ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 10 - (XI) THE APPELLANT HAS NOT DEALT IN PENNY STOCK I.E. LOW VALUE STOCK WITH VOLATILITY. SHE MOSTLY DEALT IN BLUE CHIP COMPANY S TOCK WITH GOOD DIVIDEND PAYMENT HISTORY. (XII) THE APPELLANT HAS NO OFFICE, STAFF OR OTHER ADMINISTRATIVE FACILITIES TO CARRY OUT ANY BUSINESS ACTIVITY FOR SUCH VOLUME AS ALLEGED BY AO. (XIII) DIVIDEND IS EARNED ON ALMOST EACH & EVERY SC RIPT. THE APPELLANT PROVIDED THE STATEMENT OF SUCH DIVIDEND RECEIVED OF 778077 DURING PREVIOUS YEAR. THE RETURN OF DIVIDEND ON COST OF INVESTMENT COMES TO 3.97% WHICH IS RETURNED INDICATING THE CASE OF INVESTOR BECAUSE FO R TRADER THE SAME IS MOSTLY BELOW 1%. (XIV) THE A.O. PROVIDED ONLY ONE EFFECTIVE HEARING ON 09.04.2012 AND THE IMPUGNED ORDER WAS MADE IN A HURRY WITHOUT PROPER OPPORTUNITY TO APPELLANT AND WITHOUT APPRECIATION OF FACTS SO SUBMITTED BY APPELLANT. F. ON THE BASIS OF ABOVE REBUTTAL BY APPELLANT WH ICH ARE DULY SUPPORTED BY FACTS, EVIDENCES AND LEGAL PROPOSITION, I AM INCLIN ED WITH THE CONTENTION OF APPELLANT THAT A.O. WITHOUT GIVING SUFFICIENT OPPOR TUNITIES TO APPELLANT, WITHOUT APPRECIATING THE FACTS AND RATIO OF LEGAL PROPOSITI ON, ON HIS OWN ASSUMPTION / PRESUMPTION/ INTERPRETATIONS AND REJECTING THE CONS ISTENCY PRINCIPLE IN A HURRY MADE SUCH IMPUGNED ORDER. THE A.O. IS THEREFORE NOT JUSTIFIED ON ANY ACCOUNT I.E. ON MERIT OF FACTS & CIRCUMSTANCES OF THE APPEL LANT'S CASE AS WELL AS ON LEGAL PROPOSITION TO HELD THE LONG TERM CAPITAL GAI N AND SHORT TERM CAPITAL GAIN AS SHOWN BY APPELLANT AS BUSINESS TRANSACTION WITH PROFIT MOTIVE AND REQUIRED TO BE CONSIDERED UNDER THE HEAD 'INCOME FROM BUSINE SS AND PROFESSION'. THE A.O. FURTHER NOT APPLIED ITS MIND TO SET OFF THE BR OUGHT FORWARD BUSINESS LOSS FROM THE BUSINESS INCOME, THEREBY HAS NOT APPLIED T HE PROVISIONS PROPERLY. THE A.O. IS DIRECTED TO TREAT THE APPELLANT'S LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAIN AGGREGATING TO 1,47, 66,857/- AS GAIN SHOWN BY APPELLANT IN RETURN OF INCOME AND NOT THE TRADING PROFIT FROM SH ARES. ALL THE EIGHT GROUNDS ARE THEREFORE TREATED AS ALLOWED. ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 11 - 6. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), T HE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD.DR FOR THE REVENUE REFERRED TO AND RELIED UPON THE ORDER OF THE AO AND CONTENDED THAT IT IS A GLARING CASE OF W RONG REPORTING OF GAINS AS STCG/LTCG IN PLACE OF BUSINESS PROFITS. THE LD. DR NOTED THAT THE PROFITS ON SALE OF SHARES IN QUESTION IS APPARENTLY A BUSINESS ACTIVITY AND THUS LIABLE TO BE TAXED UNDER THE HEAD BUSINESS I NCOME. THE LD.DR SUBMITTED THAT THE ASSESSEE HAS DECLARED THE PROFIT S ARISING A SALE OF SHARES UNDER THE HEAD CAPITAL GAINS MERELY TO AVA IL THE CONCESSIONAL TAX TREATMENT. THE LD.DR NEXT SUBMITTED THAT THE AO HA S OBJECTIVELY DEMONSTRATED THAT THE INTENTION OF THE ASSESSEE WAS NEVER TO HOLD THE SHARES FOR ENJOYMENT AND TO EARN REGULAR YIELD THER EON WHICH IS ORDINARILY A CHARACTERISTIC OF A CAPITAL TRANSACTION. THE LD .DR ACCORDINGLY SUBMITTED THAT THE CIT(A) MISDIRECTED ITSELF IN LAW AND ON FACTS IN MAINLY ACCEPTING THE VARIOUS CONTENTIONS OF THE ASSESSEE I N TOTO AND GRANTING RELIEF WITHOUT COUNTER EXAMINING THE PECULIAR FACTS BORNE OUT IN THE CASE OF THE ASSESSEE. THE LD.DR FURTHER POINTED OUT THA T CIT(A) HAS NOT ANALYZED THE FACT IN PERSPECTIVE AND HAS NOT GIVEN ANY FINDING OF ITS OWN AND HAS MERELY ACCEPTED VARIOUS CONTENTIONS OF THE ASSESSEE SUMMARILY WHILE GRANTING UNJUST RELIEF TO THE ASSESSEE. ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 12 - 8. THE LD.AR, ON THE OTHER HAND, SUPPORTED THE ORDE R OF THE CIT(A) AND SUBMITTED THAT THE CIT(A) HAS RIGHTLY CONCLUDED IN FAVOUR OF ASSESSEE AFTER OBJECTIVE EXAMINATION OF FACTS. IT WAS SUBMI TTED THAT THE ASSESSEE MAINTAINS SEPARATE RECORDS FOR ITS INVESTMENT ACTIV ITY VIS-A-VIS TRADING ACTIVITY OF SHARES. THE ASSESSEE IS CONSISTENT IN MAINTAINING THE BOOKS OF ACCOUNTS IN THIS FASHION TO SEGREGATE THE TRANSACTI ONS OF TWO TYPES. THE SHARES ACQUIRED WITH THE MOTIVE OF CAPITAL INVESTME NTS HAVE BEEN DECLARED AS CAPITAL ASSET IN ITS BOOKS. THEREFORE, THE OTHER TRANSACTIONS IN SHARES OF BUSINESS NATURE HAS NO ADVERSE BEARING ON THE GAINS ARISING ON SALE OF SUCH CAPITAL ASSETS. THE LD.AR FURTHER POI NTED OUT THAT THE AO HAS ACCEPTED SIMILAR FACTS SITUATION IN THE PAST IN AY 2006-07 WHERE THE PROFIT ARISING ON SALE PROCEEDS HAVE BEEN ACCEPTED AS CAPITAL GAINS. IT WAS CONTENDED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME ON SUCH SHARES WHICH JUSTIFIES THE INTENTION TO HOLD THE SH ARE FOR REGULAR YIELD AND THUS THE GAINS FROM HOLDING SUCH SHARES WERE IN THE NATURE OF CAPITAL ACCRETION. THE LD.AR NEXT SUBMITTED THAT THE PERIO D OF HOLDING OF SHARES ARE REASONABLY GOOD. A SUBSTANTIAL INCOME HAS ARI SEN ON SALE OF SHARES WHICH ARE HELD FOR MORE THAN 30 DAYS AND ONLY RS.6, 19,122/- OUT OF RS.1,19,30,739/- REPORTED ON STCG REPRESENTS SHARES HELD FOR LESS THAN 30 DAYS. SIMILARLY, NEARLY RS.27.05 LAKHS OUT OF R S.28.36 LAKHS REPORTED UNDER LTCG HAS ARISEN FROM SHARES HELD FOR 5 TO 6 Y EARS. THE SCRIPS SOLD HAS NOT BEEN REPEATED FOR INVESTMENT. COUPLED WITH THESE FACTS, THE ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 13 - ASSESSEE HOLDS OWN CAPITAL WHICH IS IN EXCESS OF TH E CORRESPONDING INVESTMENTS HELD AND THEREFORE NO BORROWED FUNDS HA VE BEEN UTILIZED FOR HOLDING INVESTMENTS. THE LD.AR NEXT SUBMITTED THAT MERELY 27 SALE TRANSACTIONS HAVE GIVEN RISE TO THE LTCG OF RS.28.3 6 LAKHS. LIKEWISE, MERELY 59 CRIPS HAVE CONTRIBUTED TO THE STCG OF RS. 119.30 LAKHS. THESE FACTS UNDERLINE A VERY LOW FREQUENCY. THE LD.AR TH US SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAS ENTERED INTO DERIVA TIVE TRANSACTIONS ALSO AND MERELY BECAUSE THE ASSESSEE SIMULTANEOUSLY CARR IES TRADING ACTIVITY IN SHARE CANNOT BE THE JUSTIFIABLE REASON TO DENY THE BENFIT AVAILABLE UNDER THE STATUTE TOWARDS THE LTCGS/STCGS. THE LD.AR REF ERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. GOPAL PUROHIT 228 CTR 582 (BOM) AND SUBMITTED THAT PRINCI PLES OF CONSISTENCY MUST BE APPLIED FOR DETERMINATION OF ISSUE AND OTHE R SET OF TRADING TRANSACTIONS SHOWING THE DEALING IN SHARES FOR THE PURPOSES OF BUSINESS CANNOT OPERATE AS ANY ESTOPPEL FOR HOLDING CERTAIN SHARES AS SEPARATE CLASS REPRESENTING CAPITAL TRANSACTIONS. THE LD.AR ACCOR DINGLY SUBMITTED THAT THE CIT(A) HAS RIGHTLY CONCLUDED THE ISSUE IN FAVOU R OF ASSESSEE AND NO INTERFERENCE THEREWITH IS CALLED FOR. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE CIT(A) APPEALED AGAINST AND ALSO VARIOUS DOCUMENTS REFERRED TO AT THE TIME OF H EARING AND CASE LAW CITED. THE SOLITARY ISSUE FOR ADJUDICATION IS WHET HER GAINS ARISING ON SALE ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 14 - OF CERTAIN SHARES BY THE ASSESSEE IN THE RELEVANT A SSESSMENT YEAR IS REQUIRED TO BE TAXED UNDER THE HEAD ON CAPITAL GAI NS AS OFFERED BY THE ASSESSEE OR IS TO BE TREATED AS BUSINESS INCOME O F THE ASSESSEE. THE ISSUE INVOLVED IS ESSENTIALLY FACTUAL IN NATURE. A S REGARDS THE JUSTIFICATION ON CLAIM OF LTCG, IT IS THE CASE OF THE ASSESSEE TH AT THE SHARES WERE ACQUIRED/PURCHASED OVER SEVERAL YEARS AND HELD AS CAPITAL ASSET IN THE NATURE OF INVESTMENT. FROM WRITTEN SUBMISSIONS OF THE ASSESSEE AS EXTRACTED BY THE CIT(A) IN HIS ORDER, WE NOTE THAT THERE IS A CONSIDERABLE TIME LAG BETWEEN THE PURCHASE AND THE SALE OF SHARE S. SIMULTANEOUSLY, THE SHARES SO HELD WERE DECLARED AS CAPITAL INVESTM ENT BY THE ASSESSEE ALL ALONG. WE ALSO TAKE NOTE OF THE CLAIM OF THE ASSES SEE THAT ALMOST EVERY SHARE HAS YIELDED SOME DIVIDEND INCOME. COUPLED W ITH THIS, WE ALSO TAKE NOTE OF THE FACT THAT ASSESSEE HAS SUFFICIENT CAPITAL OF ITS OWN AT ITS DISPOSAL WHICH IS IN EXCESS OF THE CORRESPONDING IN VESTMENTS MADE IN SHARES OVER YEARS. THE CHARACTER OF SHARES DECLARE D AS CAPITAL INVESTMENT IN THE EARLIER YEARS HAS BEEN SOUGHT TO BE ALTERED IN THIS YEAR BY THE AO WITHOUT SUFFICIENT BASIS. AS REGARDS STCG REPORTED , WE FIND THAT THE TRANSACTIONS OF THE PURCHASE AND SALE CANNOT BE TAK EN AS SUBSTANTIAL AS ONLY LIMITED SCRIPS (59 SCRIPS) HAVE CONTRIBUTED TO THE IMPUGNED STCG. THE SEPARATION OF TRANSACTIONS IN BOOKS OF ACCOUNT S, THE MAGNITUDE OF PURCHASE AND SALES ALSO FURNISHES A GOOD GUIDE TO D ETERMINE THE NATURE IMPUGNED TRANSACTIONS. IN VIEW OF THE DIVIDEND INC OME GENERATED ON INVESTMENTS PRIOR TO ITS SALE, THE OBJECT OF HOLDIN G SHARES AS CAPITAL ASSET ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 15 - TO ENJOY ACCRETION CANNOT BE TOTALLY BRUSHED ASIDE. IT IS TRUE THAT INTENTIONS TO HOLD ASSETS AS TRADING ASSET OR A CAP ITAL ASSET ARE INCAPABLE OF ANY COGENT PROOF. INTENTION CAN AT BEST BE INFERRE D ON THE BASIS OF FACTS AND THE CIRCUMSTANCES OF EACH CASE. ALL THE RELEVA NT FACTS WERE PLACED BEFORE CIT(A). THE CIT(A) ON THESE FACTS HAVE CONC LUDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE DO NOT SEE ANY PERCEPTI BLE REASON TO DISLODGE THE CONCLUSION ARRIVED BY THE CIT(A) IN THE GIVEN F ACTS. WE ACCORDINGLY DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A). WE MAY HOWEVER, HASTEN TO NOTE THAT WE HAVE REACHED THE AFORESAID C ONCLUSION BASED ON THE FACTS EMANATING FROM RECORD CONCERNING THE ASSESSME NT YEAR IN QUESTION. THUS, THE CONCLUSION DRAWN BEING ENTIRELY FACTUAL, WILL NOT OPERATE AS STARE DECISIS FOR OTHER ASSESSMENT YEARS. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 21/ 02/2018 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 21/ 02 /2018 3..),.)../ T.C. NAIR, SR. PS ITA NO.470/AHD/ 2014 ACIT VS. NIRALI ATULBHAI MEHTA ASST.YEAR 2010-11 - 16 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-XIV, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 19.2.18 (DICTATION-PAD 30- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19/20.2.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.21.2.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.2.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER