ASHA P. JAIN, MUMBAI V. DCIT (OSD) CIR 12, MUMBAI

ITA 4748/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8085 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 17-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAJAN
• Keywords: Business income; Transactions in derivatives

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./I.T.A. NO.4748/MUM/2012 ( / ASSESSMENT YEAR : 2008-09) SMT.ASHA P JAIN, FLAT NO.4, 11 TH FLOOR, ATUR TERRACE, CUFFE PARADE, MUMBAI-400005 / VS. DY. COMMISSIONER OF INCOME TAX (OSD), CIRCLE-12, MUMBAI ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./PAN/GIR NO. :AASPJ3344C ' / APPELLANT BY SHRI RAKESH JOSHI # ' /RESPONDENT BY SHRI M RAJAN $ % # &' / DATE OF HEARING : 13.08.2014 () # &' /DATE OF PRONOUNCEMENT : 17.10.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 8.5.2012 PASSED BY LD CIT(A)-23, MUMBAI AND IT RELA TES TO THE ASSESSMENT YEAR 2008-09. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN TREATING SHO RT TERM CAPITAL GAIN (STCG) ARISING ON SALE OF SHARES AS BUSINESS INCOME. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ASSESSEE FILED HER RETURN OF INCOME FOR THE YEAR UN DER CONSIDERATION DECLARING TOTAL INCOME AT RS.1,58,89,599/-. DURING THE COUR SE OF SCRUTINY PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS DECLARED STCG ARIS ING ON SALE OF SHARES AT RS.1,67,99,562/-. THE AO NOTICED THAT THE ASSESSEE HAD DEALT IN 27 SCRIP, WHICH INVOLVED 160 TRANSACTIONS RESULTING IN PURCHASE AN D SALE OF 5,70,616 SHARES IN VOLUME. THE AGGREGATE VALUE OF PURCHASES WAS RS.6, 43,76,922/- AND THE 2 AGGREGATE VALUE OF SALES WAS RS.8,11,76,574/-. ACC ORDINGLY THE AO TOOK THE VIEW THAT THE FREQUENCY AND VOLUME OF TRANSACTIONS ARE HIGH. THE ASSESSEE HAD DECLARED DIVIDEND INCOME OF RS.3,96,658/-, WHICH WA S CONSIDERED BY THE AO TO BE LOW VIS--VIS THE VALUE OF INVESTMENTS. FURTHER, IT WAS ALSO NOTICED THAT THE ASSESSEE HAD AVAILED UNSECURED LOANS AND THE OUTST ANDING BALANCE THEREOF STOOD AT RS.68,23,494/- AND RS.37,69,140/- RESPE CTIVELY AS ON 1.4.2007 AND 31.3.2008. ACCORDINGLY, THE AO TOOK THE VIEW THAT T HE ASSESSEE HAS USED BORROWED FUNDS FOR PURCHASE OF SHARES. IN VIEW OF THE FOREGOING, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS INTENDED TO CA RRY ON SHARE TRANSACTIONS AS A BUSINESS ACTIVITY. ACCORDINGLY, THE AO ASSESSED STCG DECLARED BY THE ASSESSEE AS HER BUSINESS INCOME. THE LD. CIT(A) CONFIRMED THE VIEW TAKEN BY AO. HENCE THE ASSESSEE HAS FILED THIS APPEAL B EFORE US. 3. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.3.96 LAKHS, WHICH C LEARLY SHOWS THAT THE ASSESSEE HAD INTENDED TO HOLD SHARES AS HER INVES TMENT. THE LD. AR SUBMITTED THAT ASSESSEE USUALLY HELD THE SHARES FOR MORE THAN 12 MONTHS. HOWEVER, THE ASSESSEE TOOK THE DECISION TO SELL THE SHARES IN A SHORT PERIOD, WHENEVER THERE WAS CONSIDERABLE APPRECIATION IN THE PRICES OF SHAR ES. HE FURTHER SUBMITTED THAT STCG HAS BEEN EARNED DURING THE YEAR BY DEALING IN 27 SCRIPS ONLY AND THE AVERAGE PERIOD OF HOLDING WAS MORE THAN 45 DAYS. I N FLUCTUATING MARKET, IT IS ALWAYS POSSIBLE FOR ANY INVESTOR TO TAKE DECISION T O SELL THE SHARES WITHIN A SHORT PERIOD AND THE SAID ACTION OF THE ASSESSEE SHOULD N OT BE USED TO DRAW ADVERSE INFERENCE AGAINST THE ASSESSEE. THE LD. COUNSEL S UBMITTED THAT THE ASSESSEE HERSELF HAS OFFERED INTRA-DAY TRANSACTIONS AND F&O TRANSACTIONS AS BUSINESS INCOME, MEANING THEREBY THERE IS CLARITY IN THE MI ND OF THE ASSESSEE WITH REGARD TO HER INVESTMENT /TRADING ACTIVITY. THE LD. COUNS EL FURTHER SUBMITTED THAT THE ASSESSEE HAS GAINED STCG IN THE EARLIER YEARS ALSO AND THE SAME HAS BEEN ACCEPTED. IN ASSESSMENT YEAR 2006-07, THE ASSESSEE HAD DEALT IN 60 SCRIPS AND AVERAGE HOLDING PERIOD WAS LESS THAN 30 DAYS. THE S TCG DECLARED BY THE ASSESSEE IN THAT YEAR WAS ACCEPTED BY AO. HENCE TH E AO WAS NOT JUSTIFIED IN TAKING THE DIFFERENT STAND IN THE YEAR UNDER CONSID ERATION, SINCE THERE IS NO CHANGE IN THE FACTS AND FURTHER CONSISTENCY IN ASSE SSING A PARTICULAR SOURCE OF INCOME IS TO BE MAINTAINED. THE LD. COUNSEL FURTH ER SUBMITTED THAT THE FUNDS BORROWED BY THE ASSESSEE WERE NOT USED FOR PURCHASE OF SALES. HE FURTHER 3 SUBMITTED THAT THE ASSESSEE HAS BEEN TAKING THE DE CISION TO SALE SHARES ONLY DUE TO FLUCTUATION IN THE PRICE OF SHARES AND IT IS QUITE COMMON TO TAKE SUCH KIND OF DECISION IN FLUCTUATING MARKET. IN SUPPORT OF H IS CONTENTIONS, THE LD. AR PLACED RELIANCE ON THE FOLLOWING CASE LAW: A) RADHASAOMI SATSANG V/S CIT (1992) 193 ITR 321 ( SC); B) GOPAL PUROHIT (2011) 336 ITR 287 ( BOM ) .; C) CIT VS. S.B. PROPERTIES AND ENTERPRISES 362 IT R 483 (BOM); D) BULDHANA DT MAIN CLOTH IMPORTERS 30 ITR 61 (BOM) ; 4. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE I NTENTION OF THE ASSESSEE HAS TO BE JUDGED FROM VARIOUS ANGLES LIKE FREQUENCY AND VOLUMES OF TRANSACTIONS, BORROWED FUNDS, ENTRIES MADE IN BOOKS, DIVIDEND INC OME ETC. HE SUBMITTED THAT THE TAX AUTHORITIES HAVE CONSIDERED THE IMPUGNED FR OM ALL THE ANGLES. FURTHER THE ASSESSEE HAS BEEN DECLARING SHORT TERM CAPITAL GAINS EVERY YEAR, WHICH SHOWS THAT SHE INTENDED TO CARRY ON THE SAME AS A B USINESS ACTIVITY. THE LD D.R PLACED RELIANCE ON THE DECISION RENDERED BY THE HON BLE SUPREME COURT REPORTED IN 35 ITR 594. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. BOTH THE PARTIES HAVE RELIED UPON VARIOUS CASE LAWS TO SUPPO RT THEIR RESPECTIVE CONTENTIONS. THE CBDT IN ITS CIRCULAR NO.4 OF 2007 DATED 15.6.2007 HAS LISTED OUT CERTAIN GUIDING FACTORS THAT ARE NEED TO BE CON SIDERED TO DECIDE ABOUT THE NATURE OF TRANSACTIONS HAS BEEN STATED. ALL THE CA SE LAWS REVEAL ONLY ONE POINT THAT THERE IS NO STRAIGHT JACKET FORMULA TO DECIDE ABOUT THE NATURE OF SHARE TRANSACTIONS VIZ., WHETHER IT WAS CARRIED AS BUSINE SS ACTIVITY OR INVESTMENT ACTIVITY. THE FACTS PREVAILING IN EACH CASE HAS TO BE JUDGED INDEPENDENTLY IN ORDER TO RESOLVE THE SAID QUESTION. 6. IN THE INSTANT CASE, WE NOTICE THAT THE ASSE SSEE HAS DEALT WITH ONLY 27 SCRIPS AS AGAINST 60 SCRIPS IN THE IMMEDIATELY PREC EDING YEAR. THE AVERAGE HOLDING PERIOD WAS 45 DAYS IN THE INSTANT YEAR AS A GAINST 30 DAYS IN THE IMMEDIATELY PRECEDING YEAR. THE MOST IMPORTANT FAC TOR IS THAT THERE IS NO REPETITIVE TRANSACTION, I.E., THERE IS NO REPURCHAS E OF SAME SHARES AFTER ITS SALE. A PERUSAL OF THE STATEMENT OF CAPITAL GAINS WOULD SHO W THAT THE ASSESSEE HAS ACTUALLY EARNED LONG TERM CAPITAL GAIN IN RESPECT O F GEC ALSTHOM (ABOUT RS.31.50 LAKHS); RELIANCE ENERGY (ABOUT RS.6.50 LAK HS); RELIANCE PETROLEUM 4 (RS.12,680/-). WE FURTHER NOTICE THAT THE HOLDING PERIOD OF EACH SCRIP IS GENERALLY MORE THAN TWO MONTHS EXCEPT FEW SCRIPS LIKE AKRUTI NIRMAN, CAIRN INDIA, GARWARE WALL, GARWARE POLYESTER, GUJARAT SIDHDHI CHEM, HIND ALCO, MANGALORE REFINERY, MCDOWELL, NG VENTURES, POWER GRID AND PURVANKARA PR OJECT. A CAREFUL ANALYSIS OF THESE SCRIPS ALSO SHOW THAT THE ASSESSEE HAS TAK EN DECISION TO SELL SHARES IN VIEW OF HUGE GAIN OR HUGE LOSS, THE PURPOSE APPEARS TO BE TO PROTECT THE CAPITAL OF THE ASSESSEE. 7. THE LD A.R HAS POINTED OUT THAT THE BORROWED F UNDS HAVE NOT BEEN USED FOR MAKING INVESTMENTS IN SHARES AND THIS STATEMENT HAS NOT BEEN DISPROVED. FURTHER, THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.3.96 LAKHS. IN THE IMMEDIATELY PRECEDING YEAR, THE SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE HAS BEEN ACCEPTED. THE ASSESSEE HAS HELD CERTAIN SHARES LIKE GUJARAT MINERAL DEV. CORPORATION, PREMIER EXPLOSIVES, SHAH ALLOYS, SUBHASH PROJECTS FOR ABOUT NINE MONTHS. ALL THESE FACTORS, IN OUR VIEW , SHOW THAT THE INTENTION OF THE ASSESSEE WAS TO DEAL IN SHARES AS INVESTMENT ACTIVI TY ONLY. HENCE, WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY THE TAX AUTH ORITIES. 8. IN VIEW OF THE FOREGOING, WE SET ASIDE THE ORDE R OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO TREAT THE ASSES SEE AS INVESTOR AND ASSESS THE GAINS ARISING IN PURCHASE AND SALE OF SHARES UNDER THE HEAD CAPITAL GAIN. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17TH OCT , 2014. () $ * +, 17TH OCT, 2014 ) # -% . SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER $ % MUMBAI: 17TH OCT,2014. . . ./ SRL , SR. PS 5 !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ /& ( ) / THE CIT(A)- CONCERNED 4. $ /& / CIT CONCERNED 5. 0- &1 , ' 1 , $ % / DR, ITAT, MUMBAI CONCERNED 6. -2 3% / GUARD FILE. 4 $ / BY ORDER, TRUE COPY 5 (ASSTT. REGISTRAR) ' 1 , $ % /ITAT, MUMBAI