ADDL CIT RG 25(3), MUMBAI V. JAGRUT P. GANDHI, MUMBAI

ITA 5070/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71194 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 05-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: K SHIVARAMSANJAY PARIKH
• Keywords: Capital asset; Gift; Business income; Rule of consistency
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 5070/MUM/10 ASSESSMENT YEAR: 2007 - 08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 25 ( 3 ), C - 11, R.NO.308, PRATYAKSH KAR BHAVAN, BANDRA - KURLA COMPLEX, BANDRA (EAST), MUMBAI - 4000 51 VS. SHRI JAGRUT P. GANDHI, 1603, CHALLENGER TOWER 1, THAKUR VILLAGE, KANDIVLI (EAST) MUMBAI - 400 101 PAN: AAC PG3599A (APPELLANT) (RESPONDENT) ASSESSEE BY : S/ SHRI K. SHIVARAM/SANJAY PARIKH REVENUE BY : SHRI O.P. SINGH, D.R. DATE OF HEARING : 15.07.13 DATE OF PRONOUNCEMENT : 18.09.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) DATED 22.03.10 RELEVANT TO ASSESSMENT YEAR 2007 - 08. THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) MAINLY ON THREE GROUNDS: GROUND NO. 1 2 . IN GROUND NO.1 THE REVENUE HAS CHALLENGED T HE ACTION OF THE LD. CIT(A) IN DIRECTING THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE ON PROFITS ARRIVING FROM PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN S AND LONG TERM CAPITAL GAIN S INSTEAD OF BUSINESS INCOME TREATED BY THE AO. ITA NO. 5070.M.10 SHRI JAGRUT P. GANDHI 2 3. THE ASSE SSEE , AN INDIVIDUAL , DERIVING INCOME FROM HOUSE PROPERTY BUSINESS, CAPITAL GAIN AND OTHER SOURCES , FILED HIS RETURN OF INCOME ADMITTING THE TOTAL INCOME AT RS. 1,47,63,719/ - . HOWEVER, DURING THE ASSESSMENT PROCEEDING UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, THE AO , AS PER THE REVISED WORKING SUBMITTED BEFORE HIM , FOUND THAT THE ASSESSEE HAD ADMITTED TO HAVE GOT THE INCOME FROM SHARE TRADING , WHICH IS MENTIONED AS BELOW: 1 . SHARE TRADING PROFIT : RS.4,09,916/ - 2 . SHORT TERM CAPITAL GAIN : RS.1,43 ,34,911/ - 3 . LONG TERM CAPITAL GAIN : RS.2,50,65,236/ - 4. THE AO FURTHER NOTICED THAT THE ASSESSEE WAS A MEMBER OF M/S. JAGRUT GANDHI, AOP WHICH WAS ENGAGED IN THE FULLTIME BUSINESS OF SHARE TRADING. THE AO SOUGHT EXPLANATION FROM THE ASSESSEE AS T O WHY THE SHORT TERM CAPITAL GAIN S AND LONG TERM CAPITAL GAIN S CLAIMED BY THE ASSESSEE SHOULD NOT BE TAXED AS BUSINESS INCOME. THE ASSESSEE BEFORE THE AO SUBMITTED THAT HE WAS MAINTAINING TWO TYPES OF PORTFOLIOS I.E. TRADING AND INVESTMENT. WHERE THE DEL IVERY OF THE SHARES WAS TAKEN , THE SAME WAS ENTERED INTO INVESTMENT ACCOUNT AND WHERE NO DELIVERY OF THE SHARES WAS TAKEN , THE TRANSACTIONS WERE ENTERED INTO TRADING ACCOUNT. THE ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING THIS METHOD . WHERE DELIVERY OF THE SHARES HAD BEEN TAKEN , THE SAME WAS TAKEN FOR THE PURPOSE OF HOLDING THE SHARES AS INVESTMENTS AND THERE FROM THE PROFIT WAS CLAIMED AS CAPITAL GAINS . H OLDING PERIOD OF LONG TERM CAPITAL ASSETS WAS MORE THAN 12 MONTHS AND IN CASE OF SHORT TERM CAPITAL ASS ET THE HOLDING PERIOD WAS AN AVERAGE OF THREE MONTHS. THE DELIVERY BASED SHARES WERE SHOWN AS INVESTMENTS IN THE BOOKS OF ACCOUNTS ALSO. ASSESSEE EARNED SUBSTANTIAL DIVIDEND ON SHARES WHICH HAD BEEN CONSIDERABLY INCREASING FROM YEAR TO YEAR . ITA NO. 5070.M.10 SHRI JAGRUT P. GANDHI 3 ASSESSEE ALS O HAS GIVEN THE FIGURES OF THE DIVIDEND EARNED FOR LAST FOUR YEARS AS BELOW: YEAR ENDED AMOUNT (RS.) 31 ST MARCH 2004 3,62,03,948/ - 31 ST MARCH 2005 5,15,03,893/ - 31 ST MARCH 2006 8,48,18,367/ - 31 ST MARCH 2007 11 ,6 5,30 , 536 / - IT WAS FUR THER SUBMITTED THAT THE ASSESSEE HAD UTILIZED HIS OWN FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS. NO NEW LOAN WAS TAKEN BY THE ASSESSEE DURING THE YEAR EXCEPT RS.1.25 CRORES FROM ONE MR. MANISH GANDHI WHICH WAS INVESTED IN FIXED DEPOSIT WITH THE BANK. T HE BORROWED FUND WAS NOT USED FOR THE PURPOSE OF MAKING PURCHASE AND SALE TRANSACTIONS IN SHARES. 5. HOWEVER, THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS MADE BY THE ASSESSEE OBSERVING THAT MERE ENTRIES IN THE BOOKS OF ACCOUNTS SHOWING SHARES AS INVES TMENT WAS NOT SUFFICIENT TO DETERMINE THE NATURE OF TRANSACTION. THERE W ERE VOLUMINOUS NUMBER OF TRANSACTIONS AND THE ASSESSEE WAS DEVOTING FULLTIME IN THE BUSINESS OF SHARE TRADING. THE DIVIDEND EARNED WAS ONLY INCIDENTAL AND WAS VERY LESS WHEN COMPARED TO EARNING S FROM THE PURCHASE AND SALE OF SHARES. THE AO THUS ASSESSED BOTH SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME . THE AO HOWEVER ALLOWED REBATE UNDER SECTION 88E OF THE INCOME TAX AC T, 1961. 6. IN APPEAL, THE LD. CIT(A) ACCEPTED THE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED THAT THERE WAS NO BAR FOR THE ASSESSEE TO DO BUSINESS IN SHARES AND ALSO TO HOLD SOME SHARES AS INVESTMENT S . THE ENTRIES IN THE BOOKS OF ACCOUNTS AS INVESTMENT S WERE INDICATIVE OF THE INTENTION OF THE ASSESSEE TO HOLD THOSE SHARES AS INVESTMENTS. THE ASSESSEE HAD NOT UTILIZED ANY BORROWED FUNDS FOR ITA NO. 5070.M.10 SHRI JAGRUT P. GANDHI 4 THE PURPOSE OF SHARE INVESTMENTS. EVEN IN THE EARLIER YEARS I.E. FOR THE ASSESSMENT YEAR 2004 - 05 , THE SHORT TERM CAPITAL GAIN S AND LONG TERM CAPITAL GAIN S WERE ACCEPTED AS SUCH IN THE ASSESSMENT PROCEEDINGS CARRIED OUT UNDER SECTION 143(3) OF THE ACT. EVEN FOR THE ASSESSMENT YEAR 2005 - 06 , THE TRIBUNAL HAS DECIDED THE ISSUE ON IDENTICAL FACTS IN FAVOUR OF THE ASSESSEE . A FTER CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF VARIOUS AUTHORITIES , T HE LD. CIT(A) SET ASIDE THE ACTION OF THE AO IN TREATING THE CAPITAL GAINS AS BUSINESS INCOME AND DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE FOR TREATING THE INCOME UNDER THE HEAD LONG TERM AND SHORT TERM CAPITAL GAINS . REVENUE IS THUS IN APPEAL BEFORE US. 7 . WE HAVE HEARD THE LD. REPRESENTATIVES OF THE AUTHORITIES AND HAVE ALSO GONE THROUGH THE FILE. 8 . IT MAY BE OBSERVED THAT ALMOS T SIMILAR ISSUE INVOLVING IDENTICAL FACTS HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 AND THE SAME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 9 . THE LD. D.R. COULD NOT BRING OUT AS TO HOW THE ISSUE UNDER CONSIDERATION FOR THIS YEAR CAN BE DIFFERENTIATED FROM THAT OF EARLIER YEARS. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO FURNISHED A STATEMENT GIVING COMPARATIVE ANALYSIS OF THE RELEVANT FACTS TO SHOW THAT THE MATERIAL FACTS RELEVANT TO THE IS SUE UNDER CONSIDERATION FOR ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 ARE ALMOST SIMILAR WITH THAT OF ASSESSMENT YEAR IN QUESTION. 10 . THOUGH THE PRINCIPLE OF RESJUDICATA IS NOT APPLICABLE IN INCOME TAX PROCEEDINGS BUT T HE PRINCIPLE OF CONSISTENCY REQUIRES THA T THE VIEW TAKEN IN ONE YEAR SHOULD BE FOLLOWED IN SUBSEQUENT YEARS UNLESS THE FACTS OR THE LEGAL ITA NO. 5070.M.10 SHRI JAGRUT P. GANDHI 5 POSITION JUSTIFY DEPARTURE THERE FROM R ELIANCE CAN BE PLACED ON THE RECENT AUTHORITIES OF T HE HONBLE BOMBAY HIGH COURT IN CIT VS. DARIUS PANDOLE [(2011) 330 ITR 485 (BOM.)] AND IN CIT V S . GOPAL PUROHIT (2011) 336 ITR 287 (BOM) . THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. GROUND NO.2 11 . VIDE GROUND NO.2 THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN RESTR ICTING THE DISALLOWANCE UNDER SECTION 14(A) FROM RS.4,25,002/ - TO RS.34,061/ - . IT MAY BE OBSERVED THAT THE ISSUE CAME INTO CONSIDERATION BEFORE THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR THE IMMEDIATE PR E CEDING ASSESSMENT Y EAR 2006 - 07 . T HE TRIBUNAL , VIDE ORDER DATED 23.10.12 IN ITA NO.6432/M/ WHILE DECIDING THE SAID ISSUE, HAS OBSERVED AS UNDER: 14. DURING THE YEAR UNDER CONSIDERATION, A SUM OF RS.20 LAKHS WAS GIFTED BY THE ASSESSEE TO HIS WIFE ON 26 - 07 - 2005 WHICH WAS INV ESTED BY HER IN 8% GOI BONDS. INVOKING THE PROVISIONS OF SECTION 64(1)(IV), THE AO HELD THAT INTEREST ON THE SAID BONDS WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, HE WORKED OUT SUCH INTEREST AT THE RATE OF 8% FOR THE PERIOD FROM 26 - 07 - 2005 TO 31 - 03 - 2006 AT RS.1,09,151/ - AND ADDITION TO THAT EXTENT WAS MADE BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LEARNED CIT(APPEALS) FOUND THAT INTEREST ON GOI BONDS WAS DUE TWICE IN THE YEAR ON 30 TH JUNE AND 31 ST DECEMBER. HE, THEREFO RE, HELD THAT INTEREST ACCRUED ON SUCH BONDS OF RS.20 LAKHS DURING THE YEAR UNDER CONSIDERATION WAS ONLY TO THE EXTENT OF RS.80,000/ - AND ACCORDINGLY THE ADDITION MADE BY THE AO ON THIS ISSUE WAS RESTRICTED BY HIM TO RS.80,000/ - . 15. AFTER CONSIDE RING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE. AS PER THE TERMS OF THE ISSUE OF GOI BONDS, INTEREST WAS TO BE ACCRUED HALF YEARLY ON 30 TH JUNE AND 31 ST DECEMBER EVERY YEAR. IN THE YEAR UNDER CONSIDERATION, SUCH INTEREST ON THE BONDS PURCHASED ON 26 - 07 - 2005 HAD ACCRUED AT THE RATE OF 8% ONLY ONCE I.E. ON 31 ST DECEMBER, 2005 AND THE SAME BEING TO THE EXTENT OF RS.80,000/ - , ADDITION MADE BY THE AO, IN OUR OPINION, WAS RIGHTLY RESTRICTED BY THE LEARNED CIT(APPEALS) TO RS.80,000/ - . WE, THEREFORE, UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND DISMISS GROUND NO.3 OF THE REVENUES APPEAL. ITA NO. 5070.M.10 SHRI JAGRUT P. GANDHI 6 1 2 . THIS ISSUE BEFORE US IS SQUARELY COVERED BY THE FINDING OF THE TRIBUNAL GIVEN IN THE OWN CASE OF THE ASSESSEE FOR THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2006 - 07 . FOLLOWING THE DECISION OF THE TRIBUNAL AS MENTIONED ABOVE WE UPH O LD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. GROUND NO.3 1 3 . IN THE THIRD GROUND OF APPEAL , THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF DEEMED HOUSE INCOME FROM PROPERTY . THE AO NOTICED FROM THE BALANCE SHEET THAT THE ASSE SSEE WAS OWNING THREE FLATS, NAMELY, FLAT BEARING NOS.1603 & 1604 AT CHALLENGER TOWER (KANDIVALI) AND A FLAT AT PUNE AND THE ASSESSEE WAS LIVING IN 1603 CHALLENGER TOWER FLAT. HE FURTHER NOTICED THAT IN THE STATEMENT OF TOTAL INCOME, THE ASSESSEE HAD OFFE RED ONLY HOUSE PROPERTY INCOME IN RESPECT OF FLAT AT PUNE AT RS.50,000 / - , NET OF DEDUCTION U/S. 24 AS PER ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005 - 06. THUS, THE AO FOUND THAT THE ASSESSEE DID NOT OFFER ANY NOTIONAL INCOME IN RESPECT OF FLAT NO.1604, CHAL LENGER TOWER. HE FURTHER FOUND THAT FOR ASSESSMENT YEAR 2005 - 06, THE NOTIONAL INCOME FROM THE ABOVE HOUSE PROPERTY WAS ESTIMATED AT RS. 1 LAKH AFTER DEDUCTION U/S 24 AND THE SAME WAS CONFIRMED ON APPEAL BY CIT(A). HE, THEREFORE, ASSESSED NOTIONAL RENT OF RS.1,20,000/ - FROM 1604 CHALLENGER TOWER AND FURTHER ASSESSED RS.85,000/ - IN RESPECT OF PUNE FLAT CONSIDERING THE RISE IN THE RENTAL VALUE. 14 . IN APPEAL THE LD. CIT(A) OBSERVED THAT THE AO HAS NOT EXAMINED THE CONTENTION OF THE ASSESSEE TO THE EFFECT THAT BOTH THE FLATS AT KANDIVALI HAVE BEEN USED BY THE ASSESSEE AS A SINGLE UNIT. HE THEREFORE DIRECTED THE AO TO VERIFY AS TO WHETHER, BOTH THE FLATS ARE ADJAC ENT TO EACH OTHER AND WHETHER THE ITA NO. 5070.M.10 SHRI JAGRUT P. GANDHI 7 SAME ARE USED BY THE ASSESSEE FOR SELF OCCUPATION , IF FOUND SO, THE N NO NOTIONAL INCOME BE BROUGHT TO TAX FOR SELF OCCUPIED PROPERTY. 1 5 . IT MAY BE OBSERVED THAT THE SAME ISSUE CAME INTO CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 2005 - 06 AS WELL AS 2006 - 07 AND THE TRIBUN AL HAS RESTORED THE MATTER TO THE FILE OF THE AO DIRECTING HIM TO VERIFY WHETHER BOTH THE FLATS ARE ADJACENT TO EACH OTHER AND WHET H ER THE SAME ARE USED BY THE ASSESSEE FOR SELF OCCUPATION AND DECIDE THE ISSUE ACCORDINGLY ON THE BASIS OF SUCH VERIFICATION. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 06 & 2006 - 07 , WE RESTORE TH IS ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AS PER THE DIRECTION S AS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEARS 2005 - 06 AND 2006 - 07. 16. SO FAR THE ISSUE RELATING TO PUNE PROPERTY IS CONCERNED , THE LD. CIT(A) WHILE DELETING THE DISALLOWANCE ON THIS ACCOUNT HAS OBSERVED AS UNDER: REGARDING THE PUNE PROPERTY, I ACC EPT THE PLEA OF THE REPRESENTATIVE THAT NOTIONAL RENT IS TO BE DETERMINED ON THE BASIS OF MUNICIPAL VALUATION AND IT CANNOT BE ENHANCED BASED ON THE GENERAL INCREASE IN THE MARKET VALUE. AS CONTENDED BY THE REPRESENTATIVE, IF THE MUNICIPAL VALUATION IS AD OPTED, THE NOTIONAL RENT MIGHT BE LESS THAN RS.50,000/ - AND THE ASSESSEE HAS ALREADY OFFERED RS.50,000/ - ON ESTIMATE BASIS AND, THEREFORE, THERE IS NO NECESSITY TO DISTURB THE SAME. I, THEREFORE, DIRECT THE AO TO ACCEPT THE NOTIONAL RENT OF RS.50,000/ - AF TER DEDUCTION U/S 24 AS ADMITTED BY THE APPELLANT. 17 . THE REASONING GIVEN BY THE LD. CIT(A), IN OUR VIEW IS WELL JUSTIFIED AND WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO. HENCE, THE FINDING OF THE LD. CIT(A) ON THIS ISSUE IS ALSO UPHELD. ITA NO. 5070.M.10 SHRI JAGRUT P. GANDHI 8 18 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.09. 2013. SD/ - SD/ - ( P.M. JAGTAP ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18.09. 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCER NED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.