ACIT 25(2), MUMBAI V. MEENAL D SHAH, MUMBAI

ITA 4713/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8169 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 29-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-06-2011
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Rule of consistency
• Section: 2

Judgement Text

1 , ,H, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER, AND SHRI ASHWANITANEJA, ACCOUNTANT MEMBER ITA NO.4713/MUM/2011 ASSESSMENT YEAR: 2008-09 ACIT 25(2) BLDG. NO. C-11, 1 ST FLOOR, R.NO. 108, PRATYAKASHKARBHAVAN, BANDRA-KURLA COMPLEX, BANDRA(E), MUMBAI 400051 / VS. SMT. MEENAL D. SHAH B-201, VICTORY PARK, CHANDARVARKAR LANE, BORIVALI(W), MUMBAI-400092. PAN: ANQPS7458F APPELLANT (RESPONDENT ) P.A. NO.AAATN0093Q APPELLANT BY SHRI MC OMI NINGSHEN, DR RESPONDENT BY SHRI RAHUL K. HAKANI, AR / DATE OF HEARING: 07/02/2017 / DATE OF ORDER: 15/02/2017 / O R D E R PER ASHWANITANEJA, AM: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX (HEREINAFTER REFERRED AS LD. CIT(A))MUMBAI-35, DATED 23/03/2011 PASSED AGAINST THE ASSESSMENT ORDER OF THE ASSESSING OFFICER (IN SHORT AO) U/S 143 2 MEENAL D. SHAH (3) OF THE INCOME TAX ACT 1961, DATED 14/12/2010 FO R AY 2008- 09 ON THE FOLLOWING GROUNDS: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) IS ERRED IN DIRECTING THE ASSESSING OFFICER TO ACCEPT THE CLAIM OF THE ASSESSEE SHOWN AS SHORT TER M CAPITAL GAIN AT RS.1,61,37,023/- AND LONG TERM CAPITAL GAIN (EXEMPT) AT RS.72,355/- OUT OF PURCHASE AND SALE OF SHARES, INSTEAD OF INCOME FROM BUSINESS OR PROFESSION TREATED BY THE ASSESSING OFFICER, WITHOUT APPRECIATING THE FACT THAT THE ASS ESSEE HAS INDULGED IN HUGE VOLUME OF SHARE TRANSACTIONS AND H AS DEVOTED MOST OF HIS TIME FOR THIS ACTIVITY. 2.THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE R ESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND. 2. DURING THE COURSE OF HEARING, IT HAS BEEN ARGUED BY THE LD. DR APPEARING ON BEHALF OF THE REVENUE THAT THE ASSESSE E HAS BEEN REGULARLY DOING TRANSACTION IN SHARES WHICH SHOWS T HAT INTENTION OF THE ASSESSEE WAS TO MAKE PROFIT BY DOING TRADING IN THE SHARES OF VARIOUS COMPANIES. THEREFORE, THE AO HAD RIGHTLY TREATED THE INCOME ARISING ON SALE PURCHASE OF SHARES AS ASSESS ABLE UNDER THE HEAD INCOME FROM BUSINESS. HE SUBMITTED THAT LD. CIT(A) HAS WRONGLY REVERSED THE ORDER OF AO, THEREFORE, OR DER OF LD. CIT(A) SHOULD BE REVERSED AND THAT ORDER OF AO SHOU LD BE RESTORED. 3. PER CONTRA LD. COUNSEL OF THE ASSESSEE VEHEMENTLY S UPPORTED THE ORDER OF LD. CIT(A). IT WAS SUBMITTED THAT ASSE SSEE HAS BEEN MAKING INVESTMENT INTO SHARES SINCE LAST MANY YEARS . THE AMOUNT INVESTED IN SHARES HAS ALWAYS BEEN SHOWNAS P ART OF INVESTMENT IN THE BALANCE SHEET. THE RESULTANT GA IN ARISING FROM THE SHARES HAS ALWAYS BEEN OFFERED AS ASSESSABLE UN DER HEAD 3 MEENAL D. SHAH INCOME FROM CAPITAL GAINS AND THE SAME HAS BEEN A CCEPTED AS SUCH BY THE AO. IT IS FOR THE FIRST TIME THAT IN TH IS YEAR THE AO HAS TREATED AS INCOME FROM BUSINESS. HE RELIED UP ON THE DETAILED AND WELL-REASONED FINDING OF LD. CIT(A) AN D REQUESTED FOR UPHOLDING THE SAME. HE ALSO PLACED BEFORE US COPIES OF INCOME TAX RETURNS AND BALANCE SHEETS FILED ALONG WITH RET URN OF INCOME SINCE AY 2006-07 SHOWING THAT SHARES HAVE AL WAYS BEEN SHOWN AS PART OF INVESTMENTS, AND HAVE NEVER BEEN SHOWN AS PART OF CLOSING STOCK. FURTHER, THE RESULTANT GAI N HAS ALWAYS BEEN DISCLOSED IN THE RETURN AS INCOME FROM CAPITA L GAIN I.E. AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAI N DEPENDING UPON THE PERIOD OF HOLDING OF THE SHARES. 4. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES. THE ONLY ISSUE TO BE DECIDED BY US IS WHETHER THE AMOUNT OF GAIN EARNED BY THE ASSESSEE OF SALE BY SH ARES WOULD BE ASSESSABLE UNDER HEAD INCOME OF CAPITAL GAINS AS WAS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME OR ASINCOM E FROM BUSINESS AS WAS DONE BY THE AO IN THE ASSESSMENT O RDER. THE BRIEF BACKGROUND IS THAT ASSESSEES INCOME MAINLY C OMPRISES FROM INCOME FROM HOUSE PROPERTY, SHORT TERM CAPITAL GAINS& LONG TERM CAPITAL GAIN ON SALE OF SHARES AND INCOME FROM OTHER SOURCES. THE ASSESSEE WAS NOT ENGAGED IN ANY OTHER BUSINESS. THE AO HELD THAT THE TRANSACTIONS OF SALE AND PURCH ASE OF SHARES DONE BY THE ASSESSEE AMOUNTED TO SHARE TRADING BUSI NESS. IN THE APPEAL BEFORE LD. CIT(A), THE ASSESSEE DEMONSTRATED WITH THE HELPOF DETAILS AND EVIDENCES THAT ASSESSEE HAD NEVE R BEEN ENGAGED IN THE BUSINESS OF SHARE TRADING. THE ASSES SEE HAD ALWAYS ACTED LIKE AN INVESTOR. THE SHARES HAVE BEEN SOLD 4 MEENAL D. SHAH ADMITTEDLY TO MAXIMISE THE GAIN AND MINIMISE THE LO SSES. LD. CIT(A) EXAMINED ALL THE DETAILS AND HELD THAT THE A SSESSEE ALWAYS ACTED LIKE AN INVESTOR AND THEREFORE, RESULTANT GAI N WAS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN . THE RELEVANT PART OF ORDER OF LD. CIT(A) REPRODUCED HER EINABOVE: DECISION WITH REASONING: I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTA TIVE AND THE STAND TAKEN BY THE A.O. ADMITTEDLY, THE APPELLA NT UNDERTOOK SHARE TRANSACTIONS ONLY BETWEEN NOVEMBER, 2007 TO MARCH, 2008 AND IN THE BEGINNING OF THE YEAR THE RE WERE VERY FEW TRANSACTIONS UPTO SEPTEMBER, 2007 WHEREAS THE A.O. HELD THAT THE APPELLANT UNDERTOOK SHARE TRANSA CTIONS ON REGULAR BASIS THROUGHOUT THE YEAR. FURTHER, THE SHA RE TRANSACTIONS UNDERTAKEN BY THE APPELLANT IN THE EAR LIER YEARS IN NEGLIGIBLE, CONSIDERING THE FACT THAT THE APPELL ANT ADMITTED ONLY SHORT TERM CAPITAL GAIN OF RS.43,914/- AND LON G TERM CAPITAL GAIN OF RS.26,610/- FOR A.Y.2007-08 AND THE CLOSING VALUE OF INVESTMENT AS ON 31.03.2006 AND AS ON 31.0 3.2007 WAS ONLY RS.15,18,219/- AND RS.15,36,215/- RESPECTI VELY WHEN COMPARED TO THE VALUE OF CLOSING INVESTMENT AS ON 31.03.2008 AT RS.44,17,548/-. FROM THE ABOVE AND TH E STATEMENT OF THE CAPITAL GAIN WORKING FILED BY THE APPELLANT BEFORE THE A.O., IT IS SEEN THAT THE APPELLANT UNDE RTOOK SHARE TRANSACTIONS ONLY BETWEEN NOVEMBER 2007 TO MARCH 20 08. IN VIEW OF THE ABOVE PECULIAR FACTS OF THE CASE, IT CA NNOT BE SAID THAT THE APPELLANT WAS A REGULAR TRADER IN SHARES. THE A.O. HELD IN PAGE 13 &14 OF THE ASSESSMENT ORDER THAT TH E APPELLANT USED BORROWED FUNDS OF RS.1,30,000/- FOR PURCHASE OF SHARES WHEREAS THE APPELLANT CLAIMED BEFORE THE A.O. IN THE LETTER SUBMITTED BEFORE THE A.O. THAT THE APPEL LANT MADE INVESTMENT FROM OWN FUNDS AND THE BORROWED FUNDS WE RE NOT USED AS REMARKED BY THE A.O. AT THE END OF PAGE 5 O F THE ASSESSMENT ORDER A PERUSAL OF THE BALANCE SHEET FIL ED ALONG WITH THE RETURN OF INCOME SHOWS THAT THE APPELLANT HAS ADEQUATE OWN CAPITAL FOR PURCHASE OF SHARES. THE CAPITAL AS PER BALANCE SHEET WAS RS.2,51,28,490/- W HEREAS THE INVESTMENT IN SHARES AT COST WAS ONLY RS.44,17, 548/-. AS PER THE BALANCE SHEET A SUM OF RS.6,50,000/- WAS SH OWN AS 5 MEENAL D. SHAH DEPOSIT WHICH WAS ON ACCOUNT OF SECURITY DEPOSIT FO R LEASE OF PREMISES GIVEN BY THE APPELLANT. APART FROM THE ABO VE LEASE DEPOSIT OF RS.1,30,000/- IS SHOWN AS BORROWING AND THE SAME WAS EXPLAINED AS UTILISED FOR MAKING LOANS AND ADVANCES WHICH IS MUCH HIGHER AT RS.80 LAKHS. THUS, THE A.O. ERRED IN GIVING A FINDING IN THE ASSESSMENT OR DER THAT THE APPELLANT UTILIZED BORROWED FUNDS CONTRARY TO THE M ATERIAL AVAILABLE ON RECORD. FURTHER, IT IS NOTICED THAT TH E APPELLANT CONSISTENTLY VALUED CLOSING INVESTMENT IN SHARES AT COST IN THE EARLIER YEARS AND THE LOSS ON ACCOUNT OF DECLINE IN THE VALUE OF THE SHARES WAS NOT CLAIMED FOR A.YRS. 2006-07 & 200 7-08. IN FACT, THE APPELLANT HAS CONSISTENTLY OFFERED THE PR OFIT ON SALE OF SHARES UNDER THE HEAD SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING F OR A.Y. 2006-07 AND 2007-08. FURTHER, THE APPELLANT DEALT W ITH ONLY 42 SCRIPS IN RESPECT OF SHORT TERM CAPITAL GAIN AND 7 SCRIPS IN RESPECT OF LONG TERM CAPITAL GAIN DURING THE PERIOD OF 4 TO 5 MONTHS IN THIS YEAR WHICH CANNOT BE TREATED AS BUSI NESS INCOME ON THE GROUND THAT THE APPELLANT WAS A REGUL AR TRADER IN SHARES. FURTHER AS CONTENDED BY THE REPRESENTATI VE, THE MAJOR PORTION OF CAPITAL GAIN WAS MADE ONLY IN 10 S CRIPS WHICH INDICATED THAT THE APPELLANT WAS ONLY AN INVE STOR WHICH THE A.O. COMPLETELY OVERLOOKED. BASED ON THE PRINCIPLE OF CONSISTENCY, THE APPELLANT IS TO BE TREATED AS I NVESTOR AS HELD BY THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF GOPAL PUROHIT (29 SOT 117) AND IT WAS FURTHER HELD IN THE ABOVE CASE THAT ALL THE DELIVERY BASED TRANSACTIONS SHOUL D BE TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAP ITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. THE ABOVE DEC ISION OF THE HONBLE TRIBUNAL WAS UPHELD BY THE HONBLE BOMB AY HIGH COURT (228 CTR 582). FURTHER, THERE IS NO DISP UTE THAT THE APPELLANT TOOK DELIVERY OF ALL THE RATE APPLICA BLE TO THE INVESTMENT. IN VIEW OF THE ABOVE, I HOLD THAT THE P ROFIT ON SALE OF SHARES IS LIABLE TO BE ASSESSED UNDER THE HEAD S HORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UP ON THE PERIOD OF HOLDING. IT IS TRUE THAT IN MANY CASES TH E APPELLANT HELD THE SHARES FOR FEW DAYS BUT AT THE SAME TIME T HE APPELLANT HELD SOME OF THE SHARES FOR 117 DAYS, 300 DAYS, 344 DAYS AND 144 DAYS. FURTHER, AS CONTENDED BY THE REPRESENTATIVE EVEN THOUGH THE SHARES WERE PURCHASE D AS INVESTMENT, THE SUBSEQUENT DEVELOPMENTS LIKE CHANGE IN GOVERNMENT POLICY, CHANGE IN MANAGEMENT AND CHANGE IN 6 MEENAL D. SHAH SHARE MARKET TREND FORCED THE APPELLANT TO SELL THE SHARES WITHIN SHORT TIME TO SAFE GUARD INVESTMENT WHICH WO ULD NOT ALTER THE INVESTMENT INTO STOCK-IN-TRADE. AS HELD BY THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT (29 SOT 117) THE PRINCIPLE OF CONS ISTENCY SHOULD BE FOLLOWED AND THE VERY FACT THAT THE APPEL LANT ADMITTED PROFIT ON SALE OF SHARES UNDER THE HEAD CA PITAL GAINS IN THE EARLIER YEARS SHOWN THAT THE SAME CANNOT BE CHANGED IN THE SUBSEQUENT YEARS. 5. WE HAVE GONE THROUGH THE DETAILED AND WELL REASONED FINDINGS OF LD. CIT(A). THIS FACT IS NOT DISPUTED THAT ASSES SEE HAS ALWAYS DISCLOSED THE AMOUNT OF SHARES AS PART OF INVESTME NTS AND THE RESULTANT GAIN ON SALE OF SHARES WAS ASSESSEDASINC OME FROM CAPITAL GAINS. THE CLAIM OF ASSESSEE HAS ALWAYS BE EN ACCEPTED AS SUCH EXCEPT IN THIS YEAR. FURTHER, LD. CIT(A) HAS H ELD THAT THE HOLDING PERIOD OF THE SHARES EVEN IN THOSE CASES WH ERE SHORT TERM CAPITAL GAIN HAS BEEN EARNED WAS LIKE 117 DAYS, 300 DAYS, 344 DAYS AND 144 DAYSETC. THE AO HAS DISCUSSED IN THE A SSESSMENT ORDER AT PAGE 12 ABOUT ONLY PART OF THE TRANSACTION S WHEREIN SHARES WERE HELD FOR ONLY FEW DAYS. IT WAS SHOWN TH AT THE GAINS/LOSS INCURRED ON SUCH SHARES CONSTITUTED FOR NOT MORE THAN ONE-THIRD OF THE TOTAL AMOUNT OF SHORT TERM CAPITAL GAIN DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. IN OUR VIE W,TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE INDICATE THAT T HE GAIN EARNED BY THE ASSESSEE HAS RIGHTLY BEEN SHOWN AS INCOME F ROM CAPITAL GAINS.THE FINDINGS RECORDED BY LD. CIT(A) ARE WELL REASONED AND CORRECT IN VIEW OF THE FACTS OF THIS CASE AS WELL A S UNDER THE LAW. NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. C IT(A), THEREFORE, SAME IS UPHELD. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. 7 MEENAL D. SHAH ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF HEARING. SD/- (D.T. GARASIA) SD/- (ASHWANI TANEJA) /JUDICIALMEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 15 /02/2017 EAF FA CAFA ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI