M/s. D.D. Merchant Bankers Ltd., New Delhi V. ACIT,

ITA 4995/DEL/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6531 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-11-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 09-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR SHARMA SENIOR
• Assessee Lawyers: PREM NATH MONGA
• Keywords: Business income; Opportunity of being heard; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH B BB B : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 4995/DEL/2011 4995/DEL/2011 4995/DEL/2011 4995/DEL/2011 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2006 2006 2006 2006 - -- - 07 0707 07 M/S D.D. MERCHANT BANKERS M/S D.D. MERCHANT BANKERS M/S D.D. MERCHANT BANKERS M/S D.D. MERCHANT BANKERS LIMITED, LIMITED, LIMITED, LIMITED, F FF F- -- -1/9, OKHLA I 1/9, OKHLA I 1/9, OKHLA I 1/9, OKHLA INDUSTRIAL AREA, NDUSTRIAL AREA, NDUSTRIAL AREA, NDUSTRIAL AREA, PHASE PHASE PHASE PHASE- -- -1, 1,1, 1, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN : AAACD9790R. PAN : AAACD9790R. PAN : AAACD9790R. PAN : AAACD9790R. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -10(1), 10(1), 10(1), 10(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PREM NATH MONGA, ADVOCATE. RESPONDENT BY : SHRI ANIL KUMAR SHARMA, SENI OR DR. DATE OF HEARING : 30.11.2016 30.11.2016 30.11.2016 30.11.2016 DATE OF PRONOUNCEMENT : 09.12.2016 09.12.2016 09.12.2016 09.12.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEA R 2006-07 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XIII, NEW DELHI DATED 1 ST SEPTEMBER, 2011. 2. THE ONLY GROUND RAISED BY THE ASSESSEE READS AS UNDER :- 1(A). THAT THE LD.CIT(A) HAS ERRED IN LAW IN CONFI RMING THE ERRONEOUS ORDER PASSED BY THE LD. AO BY UPHOLDING T HAT SHORT TERM CAPITAL GAIN TRANSACTIONS/LONG TERM CAPI TAL GAIN TRANSACTIONS SHOWN BY THE APPELLANT FROM ITS INVEST MENTS THROUGH KOTAK SECURITIES LIMITED REPRESENTED THE TR ADING TRANSACTIONS OF THE ASSESSEE, TREATING THE SAME AS BUSINESS INCOME. 1(B). THAT THE REASONING OF THE LD.CIT(A) GIVEN IN THE IMPUGNED ORDER IS BASED ON ERRONEOUS AND INSUFFICIE NT GROUNDS AND ALSO CONTRARY TO THE STATUTORY PROVISIO NS OF ITA-4995/DEL/2011 2 LAW, LEADING TO WRONG CONCLUSION WHICH NEEDS TO BE SET ASIDE BY ACCEPTING THE ASSESSEES APPEAL. 3. THE OTHER GROUNDS RAISED BY THE ASSESSEE ARE ONL Y ARGUMENTS IN SUPPORT OF THIS GROUND. 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE STATED THAT THIS APPEAL WAS KEPT PENDING B ECAUSE THE SIMILAR ISSUE WAS PENDING BEFORE THE SPECIAL BENCH IN THE C ASE OF SURAJ OVERSEAS VIDE ITA NO.3827/DEL/2009. IN THE AFORESA ID CASE, THE SPECIAL BENCH DECLINED TO ANSWER THE QUESTION BECAU SE THE ISSUE IS NOW SQUARELY COVERED BY THE DECISION OF HON'BLE JUR ISDICTIONAL HIGH COURT. THAT THE DIVISION BENCH OF THE ITAT, AFTER CONSIDERING THE DECISION OF SPECIAL BENCH AS WELL AS HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. 347 ITR 272 (D EL), SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. HE AL SO POINTED OUT THAT THE ISSUE IS ALSO COVERED BY THE DECISION OF HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF RADIALS INTERNATIONAL VS. ACIT [2014] 367 ITR 1 (DELHI). HE STATED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO BE RE-EXAMINED IN THE LIGHT OF THE ABOVE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT. 5. LEARNED DR HAS NO OBJECTION TO THE ABOVE SUGGEST ION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE S IDES AND HAVE PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RADIALS IN TERNATIONAL (SUPRA) HAS ACCEPTED THAT THE PROFIT FROM SALE OF SHARES WAS AS SESSABLE AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. THE RELEVANT FIN DING OF THEIR LORDSHIPS READS AS UNDER:- HELD, ALLOWING THE APPEAL, (I) THAT FROM THE TERMS OF THE AGREEMENT IT DID NOT EMERGE THAT THE INTENTION OF T HE ITA-4995/DEL/2011 3 INVESTORS WAS TO MAKE PROFITS. THE TERMS, ON THE O THER HAND, INDICATED THAT REGARDLESS OF THE LEVEL OF DIS CRETION HANDED OVER TO THE PORTFOLIO MANAGER, THERE WAS NEI THER ANY GUARANTEE THAT THE SECURITIES INVESTED IN WOULD APPRECIATE NOR WAS THE PORTFOLIO MANAGER RESPONSIBL E TO THE CLIENT FOR ANY LOSS FROM THE DEFICIENCY OF VALU E OF THE SECURITIES. THUS, THE PORTFOLIO MANAGEMENT SCHEME AGREEMENT AT BEST, EMBODIED THE INTENTION TO APPOIN T AN AGENT WITH LIMITED LIABILITY, WHO WOULD INVEST ON B EHALF OF THE INVESTOR AND NOTHING MORE. WHILE A TRANSACTION MAY BE MOTIVATED BY THE INTENTION TO RESELL AT AN ENHANCED VALUE, IT WOULD NOT BE POSSIBLE TO EVALUATE WHETHER THE TRANSACTION WAS ACTUALLY IN THE NATURE OF TRADE, UN TIL THE SECURITIES ARE ACTUALLY RESOLD. MOREOVER, IN A DIS CRETIONARY PORTFOLIO MANAGEMENT SCHEME, IT BECOMES ALL THE MOR E RELEVANT AND NECESSARY TO EVALUATE THE INTENTION OF THE ASSESSEE IN CONJUNCTION WITH HIS CONDUCT AND OTHER CIRCUMSTANCES SINCE THE INTENTION OF THE ASSESSEE C OULD NOT BE ASCERTAINED AT THE TIME OF DEPOSITING THE MONEY IN THE INVESTMENT BECAUSE THE ACTUAL SALE AND PURCHASE OF SECURITIES HAPPENS AT THE HANDS OF THE PORTFOLIO MA NAGER, A MERE AGENT. SECOND, SINCE THE INTENTION OF THE ASS ESSEE COULD NOT BE ASCERTAINED, AND THE INVESTMENTS WERE MADE BY THE PORTFOLIO MANAGER WITHOUT THE KNOWLEDGE OF T HE ASSESSEE IN A DISCRETIONARY PORTFOLIO MANAGEMENT SC HEME, THE MANNER IN WHICH THE SECURITIES HAVE BEEN TREATE D BY THE ASSESSEE CAN AND OUGHT TO BE EVALUATED ONLY POS T THE FACT OF INVESTMENT AND NOT AT THE TIME OF DEPOSITIN G THE MONEY. THE PORTFOLIO MANAGEMENT SCHEME AGREEMENT I N THIS CASE WAS A MERE AGREEMENT OF AGENCY AND COULD NOT BE USED TO INFER ANY INTENTION TO MAKE PROFIT. THE INTENTION OF AN ASSESSEE MUST BE INFERRED HOLISTICALLY, FROM THE CONDUCT OF THE ASSESSEE, THE CIRCUMSTANCES OF THE TRANSACTIONS AND NOT JUST FROM THE SEEMING MOTIVE A T THE TIME OF DEPOSITING THE MONEY. ALONG WITH THE INTEN TION OF THE ASSESSEE, OTHER CRUCIAL FACTORS LIKE THE SUBSTA NTIAL NATURE OF THE TRANSACTIONS, FREQUENCY, VOLUME, ETC. , MUST BE TAKEN INTO ACCOUNT TO EVALUATE WHETHER THE TRANS ACTION ARE ADVENTURE IN THE NATURE OF TRADE. IN THE INSTA NT CASE THE SOURCE OF FUNDS OF THE ASSESSEE WERE ITS OWN SU RPLUS FUNDS AND NOT BORROWED FUNDS. (II) THAT IT WAS CLEAR THAT ABOUT 71 PER CENT OF TH E TOTAL SHARES HAD BEEN HELD FOR A PERIOD LONGER THAN 6 MON THS AND HAD RESULTED IN AN ACCRUAL OF ABOUT 81 PER CENT OF THE TOTAL GAINS TO THE ASSESSEE. ONLY 18 PER CENT OF T HE TOTAL SHARES WERE HELD FOR A PERIOD LESS THAN 90 DAYS, RE SULTING IN THE ACCRUAL OF ONLY 4 PER CENT OF THE TOTAL PROF ITS. THIS SHOWED THAT A LARGE VOLUME OF THE SHARES PURCHASED WERE, ITA-4995/DEL/2011 4 AS REFLECTED FROM THE HOLDING PERIOD, INTENDED TOWA RDS THE END OF INVESTMENT. THE PROFIT FROM SALE OF SHARES WAS NOT ASSESSABLE AS BUSINESS INCOME. 7. THUS, CONSIDERING THE FACTS OF THE AFORESAID CAS E I.E., 71% OF THE TOTAL SHARES HAVE BEEN HELD FOR A PERIOD LARGER THA N SIX MONTHS WHICH HAS RESULTED IN ACCRUAL OF ABOUT 81% OF TOTAL GAINS AND ONLY 18% OF THE SHARES WERE HELD FOR A PERIOD OF LESS THAN 90 DAYS. HOWEVER, IN THE CASE OF THE ASSESSEE, NO SUCH WORKING IS AVAILABLE WITH REGARD TO AVERAGE HOLDING OF THE SHARES. IN VIEW OF THE ABOV E, WE DEEM IT PROPER TO SET ASIDE THE ORDERS OF AUTHORITIES BELOW ON THI S POINT AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. T HE ASSESSING OFFICER WILL RE-EXAMINE THE FACTS OF THE CASE AND ADJUDICAT E THE ISSUE IN THE LIGHT OF THE DECISIONS OF HON'BLE JURISDICTIONAL HI GH COURT. NEEDLESS TO MENTION THAT HE WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE READJUDICATING THE ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DEE MED TO BE ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 09.12.2016 . SD/- SD/- ( (( ( SUDHANSHU SRIVASTAVA SUDHANSHU SRIVASTAVA SUDHANSHU SRIVASTAVA SUDHANSHU SRIVASTAVA ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. COPY FORWARDED TO: - 1. APPELLANT : M/S D.D. MER M/S D.D. MER M/S D.D. MER M/S D.D. MERCHANT BANKERS LIMITED, CHANT BANKERS LIMITED, CHANT BANKERS LIMITED, CHANT BANKERS LIMITED, F FF F- -- -1/9, OKHLA INDUSTRIAL AREA, 1/9, OKHLA INDUSTRIAL AREA, 1/9, OKHLA INDUSTRIAL AREA, 1/9, OKHLA INDUSTRIAL AREA, PHASE PHASE PHASE PHASE- -- -1, NEW DELHI. 1, NEW DELHI. 1, NEW DELHI. 1, NEW DELHI. 2. RESPONDENT : ASSISTANT COMMISSIONER OF INCOME TA X, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -10(1), NEW DELHI. 10(1), NEW DELHI. 10(1), NEW DELHI. 10(1), NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR