KARSANDAS L. DANANI, MUMBAI V. DCIT 23(2), MUMBAI

ITA 4788/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0165 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: H S RAHEJA
• Keywords: Business income

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SH. R. C. SHARMA , AM & SH. SANDEEP GOSAIN, JM ./ I.T.A. NO . 4788/MUM/2012 ( / ASSESSMENT YEAR: 2007 - 08 ) KARSANDAS L. DANANI 603, C - 9, NEELAM NAGAR, PHASE - II, GAVANPADA , MULUND (E) , M UMBAI - 400081 / VS. DCIT 23 (2) PRATYAKSHAKR BHAVAN, BANDRA KURLA COMPLEX, MUMBAI - 400051 . ./ ./ PAN NO. AA CPD0514G ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI H. S. RAHEJA / RESPONDENTBY : SHRI M. C. O MI NINGSHEN / DATE OF HEARING : 08.02 .1 8 / DATE OF PRONOUNCEMENT : 26/02/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 11, MUMBAI DATED 25.05.12 F OR AY 20 07 - 08 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE & IN THE LAW THE CIT(A) ERRED IN HOLDING INCOME EARNED BY THE APPELLANT OF THE NATURE O F SHORT TERM CAPITAL GAIN AS BU S I NES S INCOME DISREGARDING THE FACT THAT THE SHARES WHICH WERE SOLD WERE OF THE NATURE OF INVESTMENT & WERE NOT STOCK IN TRADE. 2. ON THE FACTS & CI RCUMSTANCES OF THE CASE & IN THE LAW LD. CIT(A) ERRED IN HOLDING THAT THETRANSA CTION OF THE APPELLANT WERE IN THE NATURE OF TRADING IN SHARE EVEN THOUGH THE SAME WERE NOT HELD AS BUSINESS ASSET OR STOCK IN TRADE AND INFLICT THE SAME WERE SHOWN UNDER THE HEAD INVESTMENT IN OPENING AND CLOSING BALANCE SHEET AND THEREFORE THE INCOME EAR NED WAS NOT BUSINESS INCOME 3. THE APPELLANT CRAVES LEAVE TO, AND TO. ALTER OR VARY THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL 2. FIRSTLY, IT IS BROUGHT TO OUR NOTICE THAT DURING THE PENDENCY OF THE PRESENT APPEAL, SHRI KARSANDAS L. DANA NI EXPIRED ON 02.03.13 AND HIS SON SHRI CHHAGANLAL KARSANDAS DANANI HAD MADE A REQUEST TO BE IMPLEADED AS LEGAL HEIR IN PLACE OF LATE SH. KARSANDAS L. DANANI. IN THIS RESPECT, LD. DR STATED AT BAR THAT 3 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI REVENUE HAS NO OBJECTION IN ALLOWING THE REQUEST OF TH E L.R. OF LATE SH. KARSANDAS L. DANANI TO BE SUBSTI TUTED IN PLACE OF THE DECEASED SH. KARSANDAS L. DANANAI. CONSIDERING THE NO OBJECTION FROM THE SIDE OF REVENUE, WE ORDER ACCORDINGLY AND ALLOW SHRI CHHAGANLAL KARSANDAS DANANI TO BE IMPLEADED AS LEGAL HEI R IN PLACE OF LATE SH. KARSANDAS L. DANANI. 3 . NOW COMING TO THE FACTS OF THE PRESENT CASE, T HE B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN SHARE TRADING BUSINESS AND THE P & L ACCOUNT, ASSESSEE HAS SHOWN A PURCHASE AND SALE OF RS. 39,00,247/ - AND RS. 36,90,985/ - RESPECTIVELY AND GROSS PROFIT AND NET PROFIT OF RS. 50,947 AND 15,423 RESPECTIVELY WERE ALSO DISCLOSED. THE ASSESSEE HAD DECLARED STCG OF RS. 22,09,453. FROM TH E DETA ILS OF THE STCG FURNISHED, IT WAS NOTICED BY THE AO THAT DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE WAS FOUND TO BE FREQUENT PURCHASER AND SELLER OF THREE SCRIPTS I.E. ASIAN CERC INF. , LUMAX INDS AND PHOENIX AND STERLING TEA LTD. IT WAS ALSO FOUND BY AO THAT THERE WERE NUMEROUS PURCHASES AND SALES DURING THE YEAR UNDER 4 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI CONSIDERATION. HENCE ON THE BASIS OF THESE, ASSESSEE WAS TREATED TO BE INDULGED IN SHARE TRADING AS SHARE TRADING PROFIT AND NOT SHORT TERM CAPITAL GAIN AS SHOWN BY THE ASSESSEE IN THE RET URN EXCEPT THE PROFIT EARNED ON 22,000/ - SHARES OF M/S ASIAN CERC INF, WHICH WAS SHOWN BY THE ASSESSEE AS INVESTMENT IN THE BALANCE SHEET FOR THE YEAR ENDED 31.03.2006. AGGRIE VED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A ) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES, DISMISSED THE APPEAL OF THE ASSESSEE. NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. 1 & 2 . 4 . THESE GROUND S RAISED BY THE ASSESSEE ARE INTER CONNECTED AND INTER RELATED AND RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN HOLDING I NCOME EARNED BY THE APPELLANT IN THE NATURE OF SHORT TERM CAPITAL GAIN AS BUSINESS INCOME , DISREGARDING THE FACT THAT THE SHARES WHICH WERE SOLD WERE OF THE NATURE OF 5 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI INVESTMENT & WERE NOT STOCK IN TRADE . T HEREFORE , WE THOUGHT IT FIT TO DISPOSE OF BOTH THE GROUNDS BY THIS COMMON ORDER. 5 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD , JUDGMENT CITED BY THE PARTIES AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUNDS RAISED BY THE REVENU E IN PARA NO. 2 & 2.1 TO 2.5 OF ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 2.1 TO 2.5 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 2.1 DURING APPEAL, THE LD. AR HAS FILED A PAPER BOOK SHOWING DETAILS OF TRANSA CTIONS. FROM THE DETAILS OF TRANSACTIONS IN ASIAN CERC, IT IS SEEN THAT SALES HAVE BEEN MADE ON 05.04.2006, 25.04.2006, 12.05.2006, 18.05.2006, 22.05.2006, 30.05.2006, 05.06.2006, 12.06.2006, 14.06.2006, 11.08.2006, 14.08.2006, 16.08.2006 & 06.09.2006 AND PURCHASES HAVE BEEN MADE ON 26.04.2006, 03.05.2006, 04.05.2006, 6 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI 11.05.2006, 16.05.2006, 23.05.2006, 02.06.2006, 09.06.2006, 17.07.2006, 18.07.2006, 21.07.2006, 24.07.2006 & 09.08.2006. FROM THE DETAILS OF DARES OF PURCHASE AND SALE DURING THE YEAR, IT IS E VIDENT THAT AVERAGE PERIOD OF HOLDING OF SHARES IS VERY SMALL OF 1 DAY, 2 DAYS, 3 DAYS ETC. THE LD. AR HAS NOT GIVEN DETAILS OF PURCHASE IN RESPECT OF OPENING STOCK OF SHARES, BUT FROM THE NATURE OF TRANSACTIONS DURING THE YEAR IT APPEARS THAT OPENING STOC K WAS ACQUIRED ONLY DURING THE FAG END OF THE YEAR. THOUGH THE APPELLANT HAS SHOWN THE OPENING STOCK OF SHARES AS INVESTMENT IN BALANCE - SHEET BUT IT IS IRRELEVANT TO DETERMINE THE EXACT NATURE OF ACTIVITY AND THE TAXABILITY OF THE RESULTANT INCOME. IT IS S ETTLED LAW THAT BOOK ENTRIES ARE IRRELEVANT TO DETERMINE THE TAXABILITY OF GIVEN TRANSACTION. 2.2 THE PROFIT MARGIN ALSO IN THE TRANSACTIONS FOR WHICH THEY HAVE BEEN SOLD AFTERPURCHASE IS VERY SMALL SUCH AS, ON 25.04.2006 SHARES HAVE BEEN SOLD @ RS.51.83 P ER SHARE WHEREAS ON 26.04.2006 IT HAS BEEN PURCHASED @ RS.1.10 PER SHARE. IFSERVICE TAX/ BROKERAGE ETC. ARE CONSIDERED INCLUDED IN THIS PRICE, STILL THE MARGINIS ONLY ABOUT 70 PAISE PER SHARE IN A TRANSACTION RS.51 PER SHARE. SIMILAR IS THE CASE IN OTHER T HREE SHARES ALSO. 7 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI 2.3 IT IS ALSO FOUND THAT SHARES HAVE BEEN PURCHASED AND SOLD - REGULARLY ANDALTERNATIVELY AND IT IS NOT A CASE THAT SHARES HAVE ONLY BEEN PURCHASED DURING A PURCHASE CYCLE AND HAVE ONLY BEEN SOLD DURING SALE CYCLE. PURCHASES AND SALESTRAN SACTIONS ARE VERY FREQUENT AND ALTERNATE TO EACH OTHER. THEREFORE, THESE TRANSACTIONS CANNOT BE REGARDED AS INVESTMENT TRANSACTIONS. IN CASE OF SHARES OF LUMAX INDUSTRIES ALSO, SHARES HAVE BEEN PURCHASED ON 10TH &LLTH JULY 2006 AND SOLD ON 241H JULY 2006 A ND AGAIN PURCHASED ON 2V4 & 22ND AUGUST 2006 AND SOLD ON 251H AUGUST 2006 AND AGAIN PURCHASED ON 281H AUGUST 2006 AND SOLD ON 61H SEPTEMBER 2006. PROFIT MARGINS ARE ALSO SIMILAR. 2.4 THEREFORE, ALL THESE TRANSACTIONS, IN WHICH SHARES HAVE BEEN HELD FOR ONE DAY ORTWO DAYS AND ALTERNATELY PURCHASE AND SALE TRANSACTIONS HAVE BEEN MADE, CANNOT BE REGARDED AS INVESTMENT ACTIVITIES OF THE APPELLANT AND THEREFORE, INCOME OF THE APPELLANT CANN OT BE HELD TO BE SHORT TERM CAPITAL GAIN. THE TRANSACTIONS OF THEAPPELLANT ARE OF THE SHARES AND, THEREFORE, INCOME HAS RIGHTLYBEEN TAXED BY THE AO AS BUSINESS INCOME. RELIANCE IN THIS REGARD IS PLACED ON THE ORDER OF HON'BLE DELHI HIGH COURT IN THE CASE O F SAHARA INDIA HOUSING CORPORATION LTD., IN 1TA NO.740/2009, 762/2009 AND 847/2009. IN THIS CASE, 8 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI HIGH COURT HAS LAID DOWN TESTS FOR DETERMINATION OF TAXABILITY OF TRANSACTIONS IN SHARES AS SHORT TERM CAPITAL GAINS OR BUSINESS INCOME AND, INTER - ALIA, TILE CONDITION LAID DOWN BY HON'BLE HIGH COURT AS UNDER: '(F ) THE LAST BUT NOT THE LEAST, R ATHER THE MOST IMPORTANT TEST, IS AS TO THEVOLUME, CONTINUITYAND REGULARITY OF TRANSACTI ONS OF PURCHASE AND SALEOF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITIO N AND CONTINUITY, COUPLED WITH THE MAGNITUDE OF THE TRANSACTION, BEARING REASONABLE PROPORTION TO THE STRENGTH OF HOLDING, THEN AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS.' 2.5 CONSIDERING THE TESTS AND THE ACT IN THIS CASE, THE INCOME OF THE APPELLANT IN THIS CASE IS HEID4O BE ASSESSABL E UNDER THE HEAD BUSINESS INCOME. THE ORDER OF THE AU IS, THEREFORE, UPHELD AND THE APPEAL IS HEREBY DISMISSED. LD. AR APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS WERE RAISED BEFORE THE REVENUE AUTHORITIES. ON THE CONTRARY LD. DR RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CAS E AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND 9 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI SUBMISSIONS MADE BY BOTH THE PARTIES AND JUDGMENTS RELIED UPON BY BOTH THE PARTIES , WE FIND THAT LD. CIT(A) HAS CONSIDERED ALL THE FACTS OF THE PRESENT CASE AND HAS CORRECTLY NOTICED THA T AS PER THE DETAILS OF DATES OF PURCHASES AND SALES MADE DURING THE YEAR THE AVERAGE PERIOD OF HOLDING OF SHARES IS VERY SMALL I.E. OF 1 DAY, 2 DAYS, 3 DAYS, ETC. WE FURTHER NOTICED THAT, LD CIT(A) DETERMINED THE EXACT NATURE OF ACTIVIT IES AND THE TAXABIL ITY OF THE RESULTANT INCOME ON THE BASIS OF DETAILS FILED BY THE ASSESSEE. EVEN BEFORE US, LD. AR APPEARING ON BEHALF OF THE ASSESSEE COULD NOT POINT OUT ANY GLARING OR DEFINITE ERROR IN THE FATUAL FINDINGS RECORDED BY THE REVENUE AUTHORITIES. WE ALSO NOTICED THA T THE SHARES HAVE BEEN PURCHASED AND SOLD BY THE ASSESSEE REGULARLY AND ALTERNATIVE LY AND AS PER THE FACTS, IT IS NOT A CASE THAT SHARES HAVE ONLY BEEN PURCHASED DURING A PURCHASE CYCLE AND HAVE ONLY BEEN SOLD DURING SALE CYCLE. IN THIS CASE, P URCHASES AND SALES TRANSACTIONS ARE VERY FREQUENT AND ALTERNATE TO EACH OTHER. LD. CIT(A) HAS ALSO GIVEN THE DETAILS IN RESPECT OF SEPARATE SCRIPTS, THEREFORE LD. CIT(A) HAS CORRECTLY HELD THAT THE TRAN SACTIONS CARRIED OUT BY THE ASSESSEE ARE OF THE NATURE OF TRADING IN SHARE , HENCE INCOME WAS RIGHTLY TAXED BY THE RE VENUE 10 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI AUTHORITIES AS BUSINESS INCOME . WHILE DOING SO, THE REVENUE AUTHORITIES HAD CORRECTLY RELIED UPON THE ORDERS PASSED BY HONBLE DEL HI HIGH COURT IN THE CASE OF SAHARA INDIA HOUSING CORPORATION LTD. , IN 1TA NO.740/2009, 762 /2009 AND 847/2009, WHICH HAS ALSO BEEN EXPLAINED IN PARA NO. 2.4 OF THE ORDER OF LD. CIT(A). THE HONBLE HIGH COURT IN THE ABOVE CASE HAS LAID DOWN TESTS FOR DETERM INATION OF TAXABILITY OF TRANSACTIONS IN SHARES AS STCG OR BUSINESS INCOME AND INTER ALIA, THE CONDITION (F) LAID DOWN BY HONBLE HIGH COURT AS UNDER: - (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTANT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINU ITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITUDE OF THE TRANSACTION, BEARING REASONABLE PROPORTION TO THE STRENGTH OF HOLDING, THEN AN INFERENCE C AN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. APART FROM ABOVE, LD. DR ALSO RELIED UPON THE ORDERS PASSED BY THE COORDINATE BENCH OF HONBLE ITAT IN ITA NO. 2 586/MUM/2009 FOR AY 2005 - 06 WHEREIN UNDER THE SIMILAR 11 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI CIRCUMSTANCES, THE FINDINGS OF THE REVENUE AUTHORITIES WERE UPHELD. FROM THE TOTALITY OF THE FACTS, WE ARE ALSO OF THE VIEW THAT ALTHOUGH THE ASSESSEE HAS SHOWN THE OPENING STOCK OF SHARES AS INVESTMENT IN BALANCE SHEET, BUT NO DETAILS OF PURCHASE IN RESPECT OF OPENING STOCK OF SHARES HAS BEEN FILED. FROM THE NATURE OF TRANSACTIONS DURING THE YEAR, IT APPEARS THAT OPENING STOCK WAS ACQUIRED ONLY DURING THE FAG END OF THE YEAR. THEREFORE, IT IS RELEVANT TO CONSIDER THE OPENING STOCK OF SHARES AS INVESTMENT IN BALANCE S HEET TO DETERMINE THE EXACT NATURE OF ACTIVITY AND THE TAXABILITY OF THE RESULTANT INCOME. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS RECORDED BY LD . CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THESE GROUND S RAIS ED BY THE ASSESSEE STANDS DISMISSED . 12 I.T.A. NO. 4788 /MUM/201 2 KARSANDAS L. DANANI GROUND NO. 3 6 . THIS GROUND IS GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 7 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEB , 2018 SD/ - SD/ - ( R. C. SHARMA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 26 . 02 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI