DCIT 24(2), MUMBAI V. DEEPAK H. SHAH, MUMBAI

ITA 482/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4472 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: B J JHAVERI
• Keywords: Business income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.482/MUM/2010 : ASST.YEAR 2006-2007 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 24(3) MUMBAI. VS. SHRI DEEPAK H.SHAH NANDOLIA NIKETAN, 2 ND FLOOR NEAR CANARA BANK, 95 J.P.ROAD GOREGAON (EAST), MUMBAI 400 063. PA NO.AAGPS2851K. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDRAYADAV RESPONDENT BY : SHRI B.J.JHAVERI O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 04.11.2009 IN RELATION TO THE ASSESSMENT YEAR 2006-2007. 2. THE ONLY GROUND RAISED BY THE DEPARTMENT IS AGAI NST THE DIRECTION GIVEN BY THE LEARNED CIT(A) FOR TREATING PROFIT FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. BRIEFLY STATED THE FACT S OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AN D SECURITIES UNDER THE NAME OF M/S.DEEPAK SHAH & CO. APART FROM THE BUSINESS INCOM E SHOWN BY THE ASSESSEE FROM TRADING OF SHARES, SOME AMOUNT OF SHORT TERM/L ONG TERM CAPITAL GAIN ON SALE AND PURCHASE OF SHARES WAS ALSO DEPICTED. THE ASSES SING OFFICER NOTED THAT THE NATURE OF BUSINESS SHOWN BY THE ASSESSEE IN TAX AUD IT REPORT WAS TRADING BUSINESS OF SHARES AND SECURITIES. FROM THE STATEMENT OF T RADING IN SHARES FILED ALONG WITH THE RETURN OF INCOME IT WAS OBSERVED THAT THE ASSES SEE HAD PURCHASED 285108 NUMBER OF SHARES FOR RS.21.79 CRORES AND SOLD THE S AME FOR RS.22.23 CRORES THEREBY EARNING PROFIT OF RS.12.32 LAKHS AFTER DEBITING CER TAIN EXPENSES. IN ADDITION TO THAT STATEMENT OF SHORT TERM CAPITAL GAIN ALSO DIVULGED THE ASSESSEE HAVING PURCHASED SOME SHARES FOR A CONSIDERATION OF RS.1.25 CRORE WH ICH WERE SOLD FOR RS.2.05 CRORES ITA NO.482/MUM/2010 SHRI DEEPAK H.SHAH. 2 THEREBY EARNING PROFIT OF RS.79.77 LAKHS BY WAY OF SHORT TERM CAPITAL GAIN. THE ASSESSING OFFICER NOTED THAT THESE SCRIPS PERTAINED TO 16 COMPANIES AND TOTAL NUMBER OF TRANSACTIONS DONE BY THE ASSESSEE WERE 62 . THE A.O. FURTHER NOTED THAT THE PERIOD OF HOLDING IN MOST OF THE CASES WAS OF A FEW DAYS ONLY. ON BEING SHOW CAUSED THE ASSESSEE SUBMITTED THAT HE WAS DOING INV ESTMENT ACTIVITY IN HIS PERSONAL NAME FOR WHICH SEPARATE BANK ACCOUNT, BOOKS OF ACCO UNT AND DEMAT ACCOUNT WERE MAINTAINED AND INSOFAR AS THE SHARE TRADING WAS CON CERNED, THAT WAS REFLECTED IN SEPARATE BOOKS OF ACCOUNT FROM A DIFFERENT BANK ACC OUNT AND FROM A DIFFERENT DEMAT ACCOUNT. IT WAS ALSO SUBMITTED THAT PROFIT FR OM THE SALE OF SHARES WAS SHOWN AS SHORT TERM / LONG TERM PROFIT AND HAD BEEN OFFER ED FOR TAXATION IN THE EARLIER YEARS I.E. ASSESSMENT YEAR 1996-97 TO 2005-2006 WHICH POS ITION WAS NEVER DISPUTED BY THE A.O. THE FURTHER ALLEGATION OF THE ASSESSING OF FICER THAT THE ASSESSEE HAD BORROWED FUNDS FOR PURCHASE OF SHARES CLAIMED AS IN VESTMENT WAS ALSO REFUTED BY THE ASSESSEE STATING THAT THE INVESTMENT IN SHARES WERE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS. YEAR-WISE BREAK UP OF INVESTMENT IN SHARES FROM ASSESSMENT YEAR 1997-98 TO 2005-2006 WAS FILED TO SHOW THAT TH E INVESTMENT WAS ALWAYS DISCLOSED SEPARATELY IN THE BALANCE SHEET DIFFERENT FROM STOCK-IN-TRADE. THE ASSESSEE ALSO RELIED ON CIRCULAR NO.4/2007 DATED 15.06.2007 TO CONTEND THAT A PERSON COULD BE BOTH A TRADER AS WELL AS INVESTOR IN SHARES. THE ASSESSING OFFICER DID NOT ACCEPT THESE CONTENTIONS AND HELD THAT THE SHORT TERM CAPI TAL GAIN SHOWN BY THE ASSESSEE WAS LIABLE TO BE CONSIDERED AS BUSINESS INCOME. HOW EVER, THE LEARNED CIT(A) OVERTURNED THE ASSESSMENT ORDER ON THIS ISSUE. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE ASSESSEE SHOWED BUSINES S INCOME FROM SALE AND PURCHASE OF SHARES, AS WELL AS BOTH SHORT AND LONG TERM CAP ITAL GAIN FROM THE SHARES HELD BY HIM AS INVESTMENT. IT IS AN UNCONTROVERTED POSITION THAT SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED BY THE ASSESSEE IN RESPECT OF THE S HARES WHICH WERE PURCHASED AS INVESTMENT AND THOSE PURCHASED AS STOCK-IN-TRADE. N OT ONLY THAT THE PURCHASES WERE ITA NO.482/MUM/2010 SHRI DEEPAK H.SHAH. 3 MADE FROM SEPARATE BANK ACCOUNTS AND SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED IN RESPECT OF BOTH THE STREAMS. APART FROM THAT THE ASSESSEE HAD ALSO MAINTAINED SEPARATE DEMAT ACCOUNTS IN RESPECT OF SHARES HELD AS INVESTMENT OR STOCK-IN-TRADE. IT INDICATES THAT FROM DAY ONE THE INTENTION OF THE ASSESSEE WAS CLEAR TO PURCHASE THE SHARES AS STOCK-IN-TRADE OR INVESTMENT, AS THE CASE MAY BE. WE APPRECIATE THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE THAT THE WAY IN WHICH THE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNT I S NOT CONCLUSIVE FOR DETERMINATION OF THE REAL NATURE OF TRANSACTIONS. IT IS OF COURSE NOT CONCLUSIVE TO BE GUIDED BY THE WAY IN WHICH SUCH TRANSACTIONS REFLEC TED IN THE BOOKS OF ACCOUNT BUT WHEN THIS ASPECT IS CONSIDERED ALONG WITH OTHER REL ATED ASPECTS, IT MAY THROW SOME LIGHT ON THE INTENTION OF THE ASSESSEE TO TREAT THE SHARES AS STOCK-IN-TRADE OR INVESTMENT. 4. WE HAVE PERUSED PAGES 134 AND 135 OF T HE PAPER BOOK, WHICH IS A STATEMENT SHOWING THE DETAILS OF THE ASSESSEE CLA IMING SHORT TERM PROFIT OR LOSS ON SALE OF SHARES. FIRST TRANSACTION IS THAT OF BALAJI AMINE. 2000 SHARES WERE PURCHASED IN THE PRECEDING YEAR ON 3.3.2005 AND WERE SOLD IN THIS YEAR ON 6 TH APRIL, 2005. ANOTHER SET OF 3000 SHARES OF THE SAME COMPANY WAS PURCHASED ON 7 TH MARCH AND SOLD ON 6 TH APRIL, 2005. NEXT SHARES OF SHIV VANI UNIVERSAL WH ICH WERE PURCHASED IN THE PRECEDING YEAR ON 9/16.02.2005 AND WERE SOLD AFTER A GAP OF AROUND TWO MONTHS ON 6/7/8.04.2005. THE NEXT ARE 30000 SHARES OF PUNJAB ALKALIES WHICH WERE PURCHASED IN JANUARY 2005 AND SOLD IN APRIL / MAY 2005. THE NEXT MAJOR LOT IS OF FAZE THREE, SHARES WHICH WERE PURCHASED IN MA Y/JUNE/JULY AND SOLD IN AUGUST/SEPTEMBER/OCTOBER, 2005 AND MARCH 2006. THE SHARES OF KITEX GARMENTS WERE ALSO SOLD AT A GAP OF AROUND FOUR MONTHS AND S O ON. THESE FACTS INDICATE THAT THE PERIOD OF SHAREHOLDING IS NOT A FEW NUMBERS OF DAYS AS WAS ALLEGED BY THE ASSESSING OFFICER. ON OTHER HAND IT IS RANGING FROM ONE MONTH TO 4-5 MONTHS. IT IS FURTHER A MATTER OF RECORD THAT THE SHAREHOLDINGS C ONTINUING FROM THE EARLIER YEAR ITA NO.482/MUM/2010 SHRI DEEPAK H.SHAH. 4 WERE REFLECTED AS INVESTMENT IN THE PRECEDING YEAR, WHICH HAS NOT BEEN DISPUTED BY THE A.O. 5. WE HAVE ALSO GONE THROUGH THE BALANC E SHEET OF THE ASSESSEE, COPY OF WHICH IS AVAILABLE AT PAGES 20 ONWARDS OF THE PAPER BOOK. THIS BALANCE SHEET IS IN TWO PARTS VIZ., OF INDIVIDUAL AND THAT OF PROPRIETO RSHIP CONCERN, INDICATING THE INVESTMENT AND ACTIVITY OF TRADING IN SHARES. INS OFAR AS THE INDIVIDUALS BALANCE SHEET SHOWING INVESTMENT PART IS CONCERNED IT IS SE EN THAT THE ASSESSEE HAS REFLECTED BUSINESS INVESTMENT AT RS.1.27 CRORE AS AGAINST THA T HIS OWN CAPITAL OF RS.2.59 CRORES. THERE ARE SOME SMALL LOANS OF RS.17.71 LAK HS WHICH ARE FROM RELATIVES ONLY. BY NO STANDARD CAN IT BE SAID THAT THE SOUR CE OF INVESTMENT IN SHARES HELD AS INVESTMENT IS NOT THE ASSESSEES OWN CAPITAL BUT TH E BORROWED FUNDS. IT IS ONLY IN THE BALANCE SHEET OF PROPRIETORSHIP CONCERN, IN WHI CH THE SHARES ARE TRADED, THAT SOME LOAN IS APPEARING, HAVING BEEN UTILIZED FOR TH E PURCHASE OF SHARES. HOW SUCH LOAN IS DECISIVE IN THE ASCERTAINMENT OF SHARES WHI CH WERE CLAIMED AS INVESTMENT IS ANYBODYS GUESS. 6. APART FROM THAT THERE IS ONE MORE INTERESTING ASPECT THAT THE ASSESSEE CONTINUED TO MAKE INVESTMENT IN SHARES PRIOR TO 31 ST MARCH, 1997 WHICH WERE REFLECTED AS SUCH IN THE PERSONAL BALANCE SHEET UND ER THE HEAD `INVESTMENT, WHICH WERE VALUED AT COST OR MARKET PRICE WHICHEVER IS LE SS. EVERY YEAR THE ASSESSEE EARNED SHORT TERM / LONG TERM CAPITAL GAIN ON SALE OF SHARES, APART FROM TRADING IN SHARES, WHICH WERE SEPARATELY REFLECTED AS BUSINESS INCOME. SUCH POSITION HAS BEEN ACCEPTED EVEN IN SCRUTINY ASSESSMENT DONE FOR ASSES SMENT YEARS 2002-2003, 2003- 2004 AND 2004-2005. THE POSITION AS INDICATED BY TH E ASSESSEE AS SHORT TERM AND LONG TERM CAPITAL GAIN FROM THE SHARES HELD AS INVE STMENT AND BUSINESS INCOME FROM THE SHARES HELD IN STOCK-IN-TRADE WAS NOT DISP UTED BY THE AUTHORITIES BELOW. IT IS TRUE THAT THE PRINCIPLE OF CONSISTENCY CANNOT BE APPLIED IN THE INSTANT CASE BECAUSE IT IS A QUESTION OF TAKING DECISION ON THE FACTS OF EACH YEAR, STILL THE PATTERN ITA NO.482/MUM/2010 SHRI DEEPAK H.SHAH. 5 OF SOME OF THE SHARES ACCEPTED AS INVESTMENT IN THE EARLIER YEAR, WHICH WERE SOLD IN THE CURRENT YEAR CANNOT BE PUT TO SCRUTINY TIME AND AGAIN. 7. WE FEEL THAT THE QUESTION OF DETERM INING WHETHER THE SHARES WERE STOCK- IN-TRADE OR INVESTMENT, IS A FACTUAL MATTER WHICH D OES NOT REMAIN CONSISTENT FROM CASE TO CASE OR YEAR TO YEAR. BOTH THE SIDES HAVE P LACED ON RECORD COPIES OF SOME TRIBUNAL ORDERS PASSED IN FAVOUR OR AGAINST THE ASS ESSEE. IT IS SEEN THAT IN EVERY CASE THE FACTS JUSTIFY THE CONCLUSION DRAWN BY THE TRIBU NAL AND THERE CANNOT BE ANY STRAITJACKET FORMULA TO APPLY ON FACTS OF ALL CASES ON A UNIVERSAL BASIS. ACTUALLY IT IS QUESTION OF FACT IN EACH AND EVERY CASE AND THE DEC ISION HAS TO BE TAKEN CONSIDERING THE CUMULATIVE EFFECT OF THE RELEVANT FACTORS. WHE N WE CONSIDER THE FACTS OF THE INSTANT CASE IN THE LIGHT OF OUR ABOVE DISCUSSION T HERE REMAINS NO DOUBT WHATSOEVER IN MIND THAT THAT THE LEARNED CIT(A) RIGHTLY APPREC IATED THE FACTS IN COMING TO THE CONCLUSION THAT THE INCOME FROM SHORT TERM CAPITAL GAIN WAS CORRECTLY REFLECTED BY THE ASSESSEE AND THE AO WAS NOT JUSTIFIED IN TREATI NG IT AS BUSINESS INCOME. WE, THEREFORE, APPROVE THE VIEW TAKEN IN THE IMPUGNED O RDER ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 15 TH DAY OF OCTOBER, 2010. SD/- SD/- ( VIJAY PAL RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 15 TH OCTOBER, 2010. DEVDAS* ITA NO.482/MUM/2010 SHRI DEEPAK H.SHAH. 6 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XXIV, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.