ACIT 14(1), MUMBAI V. PARAG S. KOTHARI, MUMBAI

ITA 4988/MUM/2010

• Counselvise Citation: 498819914 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH S KOTHARI
• Assessee Lawyers: I D SINGH
• Keywords: Business income; Speculative transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4988/MUM/2010 (ASSESSMENT YEAR: 2007-08) ACIT 14(1), 201, 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT MUMBAI -400 021 ...... APPELLANT VS SHRI PARAG S. KOTHARI, 8, SINDHU BLDG., 87, NETAJI SUBHASH ROAD, G ROAD, MARINE DRIVE, MUMBAI -400 002 ..... RESPONDENT PAN: AAEPK 2549 Q APPELLANT BY: SHRI I.D. SINGH RESPONDENT-REVENUE BY: SHRI RAJESH S. KOTHARI DATE OF HEARING: 23.02.2012 DATE OF PRONOUNCEMENT: ___.04.2012 O R D E R PER R.S. PADVEKAR, JM : IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A)-25, MUMBAI DATED 22.03.2010 FOR THE A.Y. 2007-08. THE REVENUE HAS TAKEN THE MULTIPLE GROUNDS BUT THE SOLITARY ISSUE IS WHETHER THE LD. CIT (A) IS JUSTIFIED BY HOLDING THA T THE PROFIT EARNED ON THE SHARE TRANSACTIONS IS TO BE TREATED AS SHORT-TE RM CAPITAL GAIN AND NOT AS THE BUSINESS INCOME. 2. BRIEFLY STATED THE FACTS ARE AS UNDER. AS OBSER VED BY THE A.O. THE ASSESSEE IS A TRADER IN SPECULATIVES AND COMMOD ITIES DERIVATIVE IN MCX AND ALSO DEALING IN SHARES AND SECURITIES. THE ASSESSEE HAS DECLARED THE SHORT-TERM CAPITAL GAIN OF RS.1,05,12, 764/-. THE A.O. HAS OBSERVED THAT THE ASSESSEE IS INVOLVED IN FREQU ENT PURCHASE AND SALE OF THE SHARES DURING THE YEAR INCLUDING THE SP ECULATIVE IT A 4988/M/2010 SHRI PARAG S. KOTHARI 2 TRANSACTIONS. IN THE OPINION OF THE A.O. THE SAID FREQUENCY OF THE TRANSACTIONS INDICATES INTENTION TO SALE AT PROFIT AND IT CANNOT BE SAID THAT THE ASSESSEE WAS INVOLVED IN INVESTMENT. TH E A.O. HAS ALSO GIVEN THE REFERENCE OF THE DEMAT ACCOUNT BY STATING THAT THE SAID ACCOUNT SHOWED FREQUENT TRANSACTIONS AS ALMOST ONE EVERY DAY. THE A.O. HAS ALSO OBSERVED THAT OUT OF THE TOTAL SALES MADE DURING THE YEAR, 75% SALES OF THE SHARES ARE IN RESPECT OF PUR CHASES MADE DURING THE YEAR. AS PER THE BREAK-UP OF PURCHASES AND SAL ES GIVEN BY THE A.O. THE FIGURES ARE WORKED OUT AS UNDER: SR NO. PARTICULARS AMOUNT PERCENTAGE 1 SALES MADE OUT OF PURCHASES AFTER 1.4.2006 9,72,97,036 74.45 2 SALES MADE OUT OF PURCHASES (BEFORE) AFTER 1.4.2006 (STCG) 2,44,23,479 18.69 3 SALES MADE OUT OF PURCHASES BEFORE 1.4.2006 (LTCG) 18,10,521 1.38 TOTAL SALES 13,66,74,472 100 3. THE A.O. HAS FURTHER OBSERVED THAT THE CAPITAL A CCOUNT OF THE ASSESSEE AS ON 31.03.2006 SHOWS THAT THE ASSESSEE H AS SHARES WORTH RS.2,55,54,626/- AND CASH AT BANK RS.5,96,114/-. H E FURTHER OBSERVES THAT OUT OF THE ABOVE SHAREHOLDINGS THE AS SESSEE HAS SOLD SHARES WORTH RS.2,27,19,189/- FOR RS.2,62,34,100/- AND FUND GENERATED OUT OF SALE PROCEEDS ARE UTILISED TO BUY THE SHARES AT THE COST OF RS.1,00,72,506/-, WHICH HE CONTINUED TO HOL D AS ON 31.03.2007. IN SUM AND SUBSTANCE, AS OBSERVED BY T HE A.O., FUNDS GENERATED FROM SELLING OF THE SHARES ARE UTILISED F OR THE PURCHASE OF THE SHARES. THE A.O. SOUGHT THE EXPLANATION OF THE ASSESSEE, AS IN THE OPINION OF THE A.O. THE ASSESSEE HAS CIRCULATING ST OCK OF THE SHARES. IN THE OPINION OF THE A.O. THE SHORT-TERM CAPITAL G AIN CANNOT BE ACCEPTED AS THE ASSESSEE IS ALSO INDULGED INTO SPEC ULATIVE TRANSACTIONS. THE A.O. SOUGHT THE EXPLANATION OF T HE ASSESSEE ON THE ISSUE WHY SHORT-TERM CAPITAL GAIN DECLARED BY THE ASSESSEE SHOULD NOT BE TREATED AS BUSINESS PROFIT?. THE ASSESSEE C ONTENDED THAT IN THE IMMEDIATE PRECEDING YEAR I.E. A.Y. 2006-07 HIS ASSE SSMENT HAS BEEN COMPLETED U/S.143(3) AND THE PROFIT FROM THE SHARE TRANSACTIONS, WHICH WAS DECLARED BY THE ASSESSEE AS SHORT-TERM CA PITAL GAIN HAS IT A 4988/M/2010 SHRI PARAG S. KOTHARI 3 BEEN ACCEPTED BY THE A.O. AND, HENCE, ON THE PRINCI PLES OF THE CONSISTENCY NO SEPARATE APPROACH CAN BE ADOPTED. T HE A.O. REJECTED THE EXPLANATION OF THE ASSESSEE AND BROUGHT TO TAX THE SHORT-TERM CAPITAL GAIN AS A BUSINESS PROFIT. SO FAR AS CO NTENTION OF THE ASSESSEE THAT IN THE A.Y. 2006-07 IN THE ASSESSMENT COMPLETED U/S.143(3) THE A.O. HAS ACCEPTED THE SHORT-TERM CAP ITAL GAIN DECLARED BY THE ASSESSEE, THE A.O. OBSERVES THAT THE ASSESSM ENT ORDER PASSED IN THE A.Y. 2006-07 BY THE A.O. WHO IS JUNIOR IN TH E RANK OF THE PRESENT ASSESSING OFFICER. FINALLY, THE A.O. COMPL ETED THE ASSESSMENT BRINGING TO TAX THE ENTIRE STCG AS THE BUSINESS IN COME. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A) W HO ACCEPTED THE CLAIM OF THE ASSESSEE AND DIRECTED THE A.O. NOT TO TREAT THE STCG AS A BUSINESS INCOME. THE OPERATIVE PART OF THE LD. C IT (A) ARE AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMI SSIONS AND GONE THROUGH THE MATERIAL BROUGHT ON RECORD AND ALS O THE ORDER OF THE AO. I FIND THAT THE AO ON NOTICING THAT THERE IS FREQUENT PURCHASE AND SALE OF SHARES DURING THE YEAR INCLUDI NG SPECULATIVE TRANSACTIONS AND VOLUME OF TRANSACTION ARE ALSO HIGH REQUIRED THE APPELLANT TO EXPLAIN AS TO WHY THE STC G DECLARED SHOULD NOT BE TREATED AS BUSINESS INCOME AND NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE APPELLANT, AND FOR T HE REASON THAT ASSESSEE HAS FREQUENTLY INDULGED IN DEALING OF SHAR ES AND THE INTENTION TO RESALE AT PROFIT IS EVIDENT, HAS UTILI SED CONSIDERABLE AMOUNT OF TIME AND SHOWN PROPER APPLICATION OF MIND , TAKEN CONSIDERABLE RISK AS EVIDENT FROM SPECULATIVE TRANS ACTION, TREATED THE APPELLANT AS A TRADER BY REJECTING THE APPELLAN TS CLAIM THAT HE IS AN INVESTOR AND EARNED STCG. IN THE ABOVE SU BMISSIONS, THE APPELLANT HAS VEHEMENTLY CONTENDED THAT THE AO ON ERRONEOUS AND FACTUALLY INCORRECT OBSERVATIONS HAS CONCLUDED THAT THE APPELLANT IS ENGAGED IN THE SHARE TRADING ACTIV ITY AND NOT AN INVESTOR BY IGNORING VARIOUS ESTABLISHED FACTS AS P ER THE PAST RECORDS. I FIND CONSIDERABLE FORCE IN THE SUBMISSI ONS OF THE APPELLANT IN VIEW OF THE FACT THAT THE APPELLANT HA D BEEN MAKING INVESTMENTS IN SHARES FOR LAST MANY YEARS AND FOR T HE A.Y. 2006- IT A 4988/M/2010 SHRI PARAG S. KOTHARI 4 07, THIS POSITION WAS ACCEPTED BY THE AO WHILE COMP LETING ASSESSMENT U/S.143(3) AND THERE IS NO MATERIALLY FA CTUAL DIFFERENCES BROUGHT OUT BY THE AO FOR THE YEAR UNDE R APPEAL RELATING TO THE APPELLANT BEING AN INVESTOR IN SHAR ES EXCEPT CERTAIN FACTUALLY INCORRECT OBSERVATIONS AS POINTED OUT BY THE APPELLANT IN THE ABOVE SUBMISSIONS. EVEN THE HOLDI NG PERIOD OF SHARES FOR LESS THAN 30 DAY IS FOUND TO BE FOR AN A MOUNT OF RS.11,85,564/- AGAINST THE TOTAL SALES OF RS.1,05,1 2,765/- AND HOLDING PERIOD FOR MORE THAN 90 DAYS ARE FOUND TO B E FOR THE SALE AMOUNT OF RS.4,67,108/-. THE CLAIM OF THE APPELLAN T THAT THE INVESTMENT IN SHARES WERE NOT MADE OUT OF ANY BORRO WED FUNDS IS ALSO FOUND TO BE FACTUALLY CORRECT. IN RESPECT OF INTRA DAY TRANSACTIONS, THE APPELLANT ITSELF HAD DECLARED THE SAME AS SPECULATION PROFIT / LOSS. THE AOS OBSERVATION TH AT 5 TO 6 ITEMS TRADED WITHOUT TAKING DELIVERY IS ALSO FOUND TO BE INCORRECT AS THE SAME WERE PERTAINING TO INTRADAY TRANSACTIONS ALREA DY SHOWN BY THE APPELLANT AS SPECULATIVE TRANSACTION. THE AOS OBSERVATION THAT TOTAL VOLUME OF SALE OF 6.5 TIME THE CAPITAL A VAILABLE IS ALSO FOUND TO BE INCORRECT SINCE AS PER BALANCE SHEET AS ON 31 ST MARCH, 2007 THE TOTAL CAPITAL OF THE APPELLANT IS AT RS.10 4,563,545 AS AGAINST TOTAL TURNOVER OF RS.130,674,472/- WHICH A PPROX IS 1.03 TIMES TO SALES. THE TREATMENT OF SHARES HAS ALWAYS BEEN GIVEN BY THE APPELLANT AS INVESTMENT AND NOT STOCK IN TRA DE AND ALSO THE AO AFTER TREATING THE TRANSACTIONS AS TRADING H AS NOT TREATED THE SHARES AT HAND AS STOCK IN TRADE. ALL THE SHAR ES PURCHASED AND SOLD DURING THE YEAR ARE ALSO INCLUSIVE OF THE SHARES PURCHASED IN EARLIER YEARS. THEREFORE, IN VIEW OF THE ABOVE STATED FACTS AND SUBMISSIONS OF THE APPELLANT AND ALSO REL IANCE PLACED BY THE APPELLANT ON THE DECISION OF THE HONBLE HIG H COURT OF MUMBAI AS WELL, THE AO IS NOT JUSTIFIED IN TREATING THE SHARE INVESTMENT TRANSACTIONS AS TRADING ACTIVITY AND GAI NS THEREOF NOT AS STCG. ACCORDINGLY, THE AO IS DIRECTED TO TREAT THE PROFIT EARNED ON THE SHARE TRANSACTIONS BY THE APPELLANT A S STCG. THIS GROUND IS, THEREFORE, DECIDED IN FAVOUR OF THE APPE LLANT. IT A 4988/M/2010 SHRI PARAG S. KOTHARI 5 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. WE FIND THAT IN THE A.Y. 2006-07 THE ASSESSEES ASSESSMENT HAS BEEN COMPLETED U/S.143(3) EVEN IF TH ERE IS NO CHANGE IN THE FACTS IN RESPECT OF THE CLAIM OF THE ASSESSE E AND SHORT-TERM CAPITAL GAIN ON THE SHARE TRANSACTIONS HAS BEEN ACC EPTED. IT IS SOMETHING STRANGE THAT THE PRESENT AO OBSERVES THAT AS HE IS SENIOR IN THE RANK TO THE A.O. WHO COMPLETED THE ASSESSMENT F OR THE A.Y. 2006- 07 HE CANNOT CONSIDER THE SAME WHEN ADMITTEDLY HE I S ONLY A.O. FOR PURPOSE OF SEC. 143(3). THE PRINCIPLES OF THE CONS ISTENCY HAS BEEN REITERATED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT 336 ITR 287(BOM). 5. APART FROM THAT WE FIND THAT THE ASSESSEE HAS NO T BORROWED ANY MONEY AND THE FREQUENCY OF THE TRANSACTION CANNOT B E SAID TO BE VERY HIGH. IN OUR OPINION, VALUE OF THE TRANSACTIONS RE FERRED TO BY THE A.O. CANNOT BE DECISIVE TO REJECT THE CLAIM OF THE ASSES SEE IN RESPECT OF THE SHORT-TERM CAPITAL GAIN. MOREOVER, ON THE PRINCIPL ES OF CONSISTENCY, IN OUR OPINION, THE LD. CIT (A) HAS RIGHTLY ACCEPTED T HE CLAIM OF THE ASSESSEE. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A), ACCORDINGLY, THE SAME IS CONFIRMED. 6. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 7TH APRIL, 2012. SD/- ( J. SUDHAKAR REDDY ) ACCOUTANT MEMBER SD/- ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 27TH APRIL, 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-25, MUMBAI. 4) THE CIT -14, MUMBAI. 5) THE D.R. C BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN