DCIT 8(3), MUMBAI V. VANGUARD CAPITAL P. LTD, MUMBAI

ITA 4735/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75815 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 26-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 08-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 4735/MUM/2010 (ASSESSMENT YEAR: 2006-07) D C I T - 8(3) M/S. VANGUARD CAPITAL P. LTD. ROOM NO. 217, AAYAKAR BHAVAN 32, DHEERAJ, JUHU VERS OVA LINK M.K. ROAD, MUMBAI 400020 VS. ROAD, JUHU, MUMBAI 400053 PAN - AAACV2215Q APPELLANT RESPONDENT APPELLANT BY: SHRI RAVI PRAKASH RESPONDENT BY: NONE DATE OF HEARING: 26.02.2014 DATE OF PRONOUNCEMENT: 26.02.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-18, MUMBAI AND IT PERTAINS TO A.Y. 2006-07. 2. THE FOLLOWING GROUNDS WERE URGED BEFORE US: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,23,90 ,087/- [STCG RS.87,26,357/- + LTCG RS.36,63,730/-] MADE BY THE A .O. BY WAY OF TREATING THE SHARE TRADING TRANSACTION AS INCOME F ROM BUSINESS & PROFESSION AS AGAINST THE CLAIM OF ASSESSEE AS CA PITAL GAIN. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT T HE ASSESSEES BUSINESS ACTIVITY IS TRADING IN SHARES AND AS PER C BDT CIRCULAR NO. 4/2007 DT. 15.06.2007 AS WELL AS THE DECISION O F THE HON'BLE ITAT, MUMBAI IN THE CASE OF ACIT VS. NAGESH (ITA NO . 5410/MUM/2008), STATING THAT WHEREVER THE ASSESSEE IS TRADING IN SHARES, THE INCOME SHOULD BE TAXED AS BUSINESS INCOME. 3. THOUGH NOTICE WAS SENT THROUGH THE REVENUE (THE DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT THE NOTICE WAS SERVED UPON THE ASSESSEE) NONE APPEARED ON BEHALF OF THE ASSESSEE. WE, THEREF ORE, PROCEED TO DISPOSE OF THE APPEAL EXPARTE, QUA ASSESSEE. ITA NO. 4735/MUM/2010 M/S. VANGUARD CAPITAL P. LTD. 2 4. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVE STMENT AND FINANCIAL SERVICES. FOR THE YEAR UNDER CONSIDERATION IT DECLA RED TOTAL INCOME OF ` 87,35,753/- WHICH INCLUDES INCOME ARISING FROM SALE OF SHARES DECLARED AS LONG TERM AND SHORT TERM CAPITAL GAINS. THE CASE WA S SELECTED FOR SCRUTINY. IN THE OPINION OF THE AO THE INCOME EARNED FROM SAL E OF SHARES IS ASSESSABLE TO TAX AS BUSINESS INCOME, SINCE THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE SPEAKS OF DEALING IN SH ARES. ON THE OTHER HAND, THE CASE OF THE ASSESSEE IS THAT AS PER THE MAIN OB JECT THE COMPANY CAN INVEST AND HOLD SHARES, STOCKS, BONDS, DEBENTURES, ETC. IN FACT, THE SHARES IN WHICH THE ASSESSEE DEALT WITH WERE CLASSIFIED AS IN VESTMENT AND WHENEVER IT WAS HELD AS STOCK IN TRADE, ACCORDING TO THE DECISI ON TAKEN BY THE COMPANY, THEY WERE ACCORDINGLY SHOWN. THE AO WAS, HOWEVER, O F THE OPINION THAT THE ASSESSEE HAS NOT FOLLOWED ANY LOGICAL CRITERIA FOR CLASSIFICATION OF SHARES INTO INVESTMENT OR TRADING ACTIVITY AND WHENEVER IT FIND S AN OPPORTUNITY TO SELL THE SHARES FOR PROFITS IT WAS SHOWN AS INVESTMENT. WHILE DISCUSSING THE ISSUE IN DETAIL THE AO OBSERVED THAT THE ASSESSEE H AD SHOWN LONG TERM CAPITAL GAINS OF ` 36,63,730/- AND SHORT TERM CAPITAL GAINS OF ` 87,26,357/- DURING THE YEAR WHEREAS IT HAS OFFERED ` 23,59,754/- AS INCOME FROM SHARE TRADING IN 19 SCRIPS. THE COMPANY DOES NOT PURCHASE AND SELL SHARES THROUGH ONE BROKER AND NO SEPARATE D-MAT ACCOUNT WA S MAINTAINED TO DIFFERENTIATE BETWEEN TRADING AND INVESTMENT ACTIVI TIES. HE HAS ALSO TAKEN INTO CONSIDERATION THE HOLDING PERIOD OF SHARES AND OTHER FACTORS TO COME TO THE CONCLUSION THAT THE ASSESSEE, DURING THE YEAR U NDER CONSIDERATION, PURCHASED AND SOLD SHARES ONLY WITH A VIEW TO MAKE PROFIT OUT OF SUCH TRANSACTIONS AND, THEREFORE, THE INCOME EARNED THER EFROM IS ASSESSABLE AS BUSINESS INCOME. HE CONCLUDED ACCORDINGLY. 5. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T IT HAS PURCHASED SHARES AND HELD THEM AS INVESTMENT; THEREFORE UPON SALE OF SUCH SHARES THE INCOME EARNED THEREON IS ATTRIBUTABLE TO EITHER LON G TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS, DEPENDING ON THE PERIOD O F HOLDING. AUDITED ACCOUNTS AND BALANCE SHEETS OF THE ASSESSEE SHOW TH AT THE ASSESSEE HAD BEEN HOLDING THE SHARES AS INVESTMENT. IT WAS ALSO CONTENDED THAT THE ITA NO. 4735/MUM/2010 M/S. VANGUARD CAPITAL P. LTD. 3 VOLUME AND TURNOVER OF THE TRANSACTIONS WAS VERY LO W. THE APPELLANT HELD THE SHARES AS INVESTMENT FOR MORE THAN TWO TO THREE YEARS AND THERE AFTER SOLD THE SAME, WHICH WERE RETURNED AS LONG TERM CAP ITAL GAINS AND THE SHARES HELD IN THIS YEAR WERE SOLD IN THE CURRENT Y EAR ON WHICH IT EARNED SHORT TERM CAPITAL GAINS AND IT WAS ACCORDINGLY OFF ERED TO TAX. THEREFORE, THE AO WAS NOT JUSTIFIED IN TREATING THE INCOME THEREFR OM AS BUSINESS INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE FILED A LIST O F TOTAL SCRIPS, DATES OF PURCHASE AND DATES OF SALE TO INDICATE THAT THE ASS ESSEE HAS BEEN CONSISTENTLY FOLLOWING THIS METHOD, WHICH WAS ACCEP TED BY THE AO IN THE EARLIER YEARS AND THUS THE AO WAS NOT JUSTIFIED IN COMING TO AN ABRUPT CONCLUSION THAT THE INCOME EARNED ON SALE OF SHARES HAS GIVEN RISE TO BUSINESS INCOME. HE ALSO REFERRED TO THE BALANCE SH EETS OF THE IMMEDIATELY PRECEDING YEARS TO HIGHLIGHT THAT THE SHARES OF CRA NCES SOFT, VLMTA LAB AND YUKEN INDIA WERE HELD AS INVESTMENT FOR MORE THAN T WO YEARS AND THE SAME WERE SOLD IN THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR UNDER CONSIDERATION. AS REGARDS THE TRANSACTIONS WHICH GI VE RISE TO SHORT TERM CAPITAL GAINS, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT SKP BEARINGS DETACHABLE WARRANTS AS ON 31.12.2001 WERE CONVERTED AS EQUITY SHARES AND THUS OBTAINED EQUITY SHARES NUMBERING 48 600 WHICH WAS ALSO REFLECTED IN THE BALANCE SHEET OF A.Y. 2005-06. FUR THER, THE ASSESSEE HAD NEITHER BORROWED ANY FUNDS NOR WAS ENGAGED IN SPECU LATIVE TRADING. UNDER THESES CIRCUMSTANCES THE AO WAS NOT JUSTIFIED IN CO MING TO THE CONCLUSION THAT THE SAID TRANSACTIONS ARE OF TRADING NATURE. I T WAS ALSO SUBMITTED THAT THESE ARE OF DELIVERY BASED TRANSACTIONS AND PROPER LY REFLECTED IN THE BOOKS AS INVESTMENTS. 6. HAVING REGARD TO THE UNDISPUTED FACTS THE LEARNED C IT(A) SET ASIDE THE ORDER OF THE AO ON THIS ISSUE AND HELD THAT THE INC OME FROM SALE OF SHARES HELD AS INVESTMENT GIVES RISE TO LONG TERM CAPITAL GAINS/SHORT TERM CAPITAL GAINS AND THE SAME SHOULD NOT BE TREATED AS INCOME FROM BUSINESS. 7. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. THOUGH T HE LEARNED D.R. SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN TRADING ACTIVITY, NO MATERIAL, WHATSOEVER, WAS PLACED BEFORE US TO CONTROVERT THE FINDINGS OF THE LEARNED ITA NO. 4735/MUM/2010 M/S. VANGUARD CAPITAL P. LTD. 4 CIT(A). IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS RECORDED THE IMPUGNED PURCHASES AS STOCK-IN-TRADE IN THE BOOKS. IT IS ALSO NOT SHOWN THAT ANY BORROWED FUNDS WERE UTILISED FOR PURCHASE OF SHARES. REPETITIVE NATURE OF TRANSACTIONS, I.E. SALE OF SHARES AND AGA IN REPURCHASE ON THE NEXT DAY, WAS NOT PROVED. IT IS ALSO NOTICED THAT THE AS SESSEE DEALT WITH LIMITED NUMBER OF STOCKS AND MOST OF THE TRANSACTIONS HAVE TAKEN PLACE IN APRIL, MAY AND JUNE, 2005. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HELD SHARES OF CRANCE SOFT, VLMTA LAB AND YUKEN INDIA FOR MORE THAN TWO YEARS AND THEY WERE SHOWN IN THE BOOKS AS INVESTMENTS. UNDER THESE CIRCUMSTANCES WE ARE OF THE FIRM VIEW THAT THE GROSS RECEIPTS SHOULD NOT BE TAKEN AS THE SOLE CRITERION TO COME TO THE CONCLUSION THAT THE ASSESS EE CARRIED ON TRADING ACTIVITY. SINCE THE LEARNED D.R. WAS NOT ABLE TO CO NTROVERT THE FINDINGS OF THE LEARNED CIT(A) WE HOLD THAT THE ORDER PASSED BY THE LEARNED CIT(A) DOES NOT CALL FOR ANY INTERFERENCE AND WE ORDER ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2014. SD/- SD/- (N.K. BILLAIYA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 26 TH FEBRUARY, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 18, MUMBAI 4. THE CIT 8, MUMBAI CITY 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.