DEEPIKA DHARIA, MUMBAI V. ITO 16(1)(1), MUMBAI

ITA 5084/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9348 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: G P MEHTA
• Keywords: Business income

Judgement Text

1 ITA NO.5084/MUM/2013 , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, ( JM) . . , , ./I.T.A.NO.5084/MUM/2013 ( / ASSESSMENT YEAR : 2008-09) MRS. DEEPIKA DHARIA, 10C, SETT MINAR, 16A, DR G DESHMUKH MARG, PEDDER ROAD, MUMBAI-400026 / VS. INCOME TAX OFFICER, 16(1)(1), 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007. ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./PAN/GIR NO. :AABPD6643D ' / APPELLANT BY SHRI G P MEHTA # ' / RESPONDENT BY SHRI LOVE KUMAR $ % # &' / DATE OF HEARING : 5.3.2015 () # &' /DATE OF PRONOUNCEMENT :13.3.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 4.3.2013 PASSED BY LD CIT(A)-27, MUMBAI AND I T RELATES TO THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN RESPECT OF THE FOLLOWING TWO ISSUES:- 2 ITA NO.5084/MUM/2013 (A) ASSESSMENT OF CAPITAL GAINS ARISING ON SALE OF SHARES AS BUSINESS INCOME. (B) DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED B Y THE ASSESSEE. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E FACTS RELATING TO THE ABOVE SAID TWO ISSUES HAVE BEEN DIS CUSSED BY LD CIT(A) AS UNDER:- 3. THE AO. IN HIS ASSESSMENT ORDER NOTED THAT APPE LLANT HAS CARRIED ON TRADING IN SHARES IN A BUSINESS LIKE MANNER THAT APPELLANT'S CLAIM TO TREAT HER AS INVESTOR CANNOT B E ACCEPTED. THE A.O OBSERVED THAT DURING THE YEAR UNDER CONSIDE RATION, APPELLANT HAS PURCHASED SHARES WORTH RS.40.91 LAKHS AND SOLD SHARES WORTHRS.41.98 LAKHS. THE HOLDING PERIOD OF S HARES VARIED FROM 1 DAY TO LESS THAN 6 MONTHS. THE NUMBER OF PURCHASE TRANSACTIONS WAS 150 AND SALE TRANSACTIONS WERE OF 120. THE A.O. ALSO NOTED THAT THE APPELLANT HAS IND ULGED IN FREQUENT PURCHASES AND SALE OF SHARES AND INDULGED IN CHURNING OF SHARES. IT IS ALSO OBSERVED THAT APPELL ANT HAS TAKEN OVERDRAFT FACILITY FROM THE BANK AND PAID INT EREST OF RS.69,112/-. THUS, FROM OVERALL APPRECIATION OF THE FACTS, THE A.O. CONCLUDED THAT THE APPELLANT HAS CARRIED ON BU SINESS OF SHARE TRADING AND THEREFORE, THE IMPUGNED INCOME OF RS.69,627/- SHOULD BE ASSESSED AS INCOME FROM BUSINESS AND NOT AS SHORT TERM CAPITAL GAINS. 4. SECONDLY, APPELLANT WAS IN RECEIPT OF FDR INTERE ST OF RS.2,37,310/-, BOND INTEREST OF RS.1,24,132/-, SB A CCOUNT INTEREST OF RS.792/- AND INTEREST FROM SHRI PANKAJ DHARIA OF RS.2,27,312/-, TOTALING TO RS.5,89,546/- AGAINST TH E SAID INCOME FROM OTHER SOURCES, APPELLANT HAS PAID INTER EST OF RS.1,055/- TO SHRI FAROOQ HAWA, RS.99,152/- TO SHRI SHAISHAV DHARIA AND INTEREST OF RS.69,112/- TOWARDS THE OVER DRAFT FACILITY AVAILED FROM STATE BANK OF INDIA. THE A.O. NOTED THAT THE APPELLANT WAS UNABLE TO ESTABLISH THE NEXUS BET WEEN THE LOANS TAKEN AND THE INVESTMENT IN FDRS/BONDS AND TH E LOANS GIVEN TO SHRI PANKAJ DHARIA. ACCORDINGLY, THE A.O. REJECTED THE APPELLANT'S CLAIM FOR DEDUCTION OF INTEREST PAID OF 3 ITA NO.5084/MUM/2013 RS.1,69,319/- AGAINST THE AFORESAID INCOME FROM OTH ER SOURCES OF RS.5,89,546/-. 4. THE FIRST ISSUE RELATES TO THE ASSESSMENT OF CAPITAL GAINS ARISING ON SALE OF SHARES AS BUSINESS INCOME OF THE ASSESSEE. THE AO, ON CONSIDERING THE FREQUENCY AND VOLUME OF SHAR E TRANSACTIONS AND ALSO BY CONSIDERING OTHER FACTORS, HELD THAT TH E ASSESSEE HAS ACTUALLY ACTED AS A TRADER IN SHARES AND NOT AS AN INVESTOR. ACCORDINGLY HE ASSESSED THE CAPITAL GAINS AS BUSINE SS INCOME OF THE ASSESSEE. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) UPH ELD THE ORDER OF THE AO BY MAKING FOLLOWING OBSERVATIONS: 7. I HAVE CAREFULLY CONSIDERED THE CONTENTS OF THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. ON BEING CALLED UPON, THE AR HAS PLACED ON RECORD VARIOUS DE TAILS OF THE SHORT TERM CAPITAL GAINS EARNED BY THE APPELLANT. A S NOTED THERE FROM, DURING THE YEAR UNDER CONSIDERATION, AP PELLANT EARNED SHORT TERM CAPITAL GAINS OF RS.4,75,062/- AN D INCURRED SHORT TERM CAPITAL LOSS OF RS.3,99,018/-, RESULTING IN NET GAIN OF RS.76,044/- AND AFTER CLAIMING DEMAT AND OTHER C HARGES OF RS.6,4171-, APPELLANT HAS OFFERED TO TAX NET SHORT TERM CAPITAL GAINS OF RS.69,627 -. SECONDLY, APPELLANT HAS PURCHASED 62 SCRIPS AND SOLD 60 SCRIPS INVOLVING 170 PURCHASE TR ANSACTIONS AND 134 SALE TRANSACTIONS. APPELLANT INDULGED IN PU RCHASES WORTH RS.48.59 LAKHS AND SALES WORTH RS.53.07/-LAKH S. ON SUCH TRANSACTIONS, APPELLANT EARNED LONG TERM CAPIT AL GAINS OF RS.75,902/- AND SHORT TERM CAPITAL GAINS OF RS.76 ,045/- FURTHER, APPELLANT RECEIVED DIVIDEND OF RS.10,699/- . FROM THE ANALYSIS OF MATERIALS PLACED ON RECORD, IT IS NOTE D THAT THE APPELLANT HAS EARNED THE AFORESAID SHORT TERM CAPIT AL GAINS OF RS.76,045/-, ON COST OF INVESTMENTS SOLD OF RS.40,9 1,994/-, THUS GIVING A PROFIT RATIO OF 1.85%. IT IS ALSO NOT ED THAT APPELLANT HAS ENTERED INTO 136 TRANSACTIONS WITH A HOLDING PERIOD OF 1 DAY TO LESS THAN ONE MONTH ON WHICH EAR NED A GAIN OF RS.1,61,762/- AND ENTERED INTO 84 TRANSACTI ONS WITH A HOLDING PERIOD OF 1 MONTH TO LESS THAN THREE MONT HS ON 4 ITA NO.5084/MUM/2013 WHICH INCURRED A LOSS OF RS.1,31,089/-. THUS, THE M AJORITY OF THE TRANSACTIONS ARE FOR A VERY SHORT HOLDING PERIO D. IT IS ALSO NOTED THAT EXCEPT FOR THE MONTHS OF MAY, JUNE AND SEPTEMBER, 2007, APPELLANT HAS BEEN REGULARLY TRADI NG IN STOCK EXCHANGE IN ALL THE MONTHS. FROM THE SCRIP WI SE DETAILS OF SHORT TERM CAPITAL GAINS PLACED ON RECORD, IT IS EV IDENT THAT APPELLANT HAS INDULGED IN CHURNING OF SHARES IN 20 SCRIPS OUT OF THE 60 SCRIPS SOLD DURING THE YEAR, YIELDING A N ET SHORT TERM CAPITAL GAINS OF RS.2,68,616/-. IT IS ALSO NOT ED THAT FOUR OF THE SCRIPS FALLING IN THE CATEGORY OF CHURNING WERE ALSO PART OF THE SCRIPS RESULTING IN SPECULATION INCOME OFFERED TO TAX. THUS, THE OVERALL FACTS OF THE CASE WOULD GO T O SHOW THAT THE APPELLANT HAS THE DOMINANT INTENTION OF TRADING IN SHARES RATHER THAN HOLDING THEM AS INVESTMENT. THE PROFIT MARGINS OF SHORT TERM CAPITAL GAINS REPORTED ARE AKIN TO THE B USINESS RESULTS RATHER THAN THE CAPITAL APPRECIATION EXPECT ED ON INVESTMENT. APPARENTLY, THE APPELLANT HAS LOT OF AP PETITE FOR RISK TAKING. FURTHER, THE FACT THAT APPELLANT IS IN VOLVED IN CHURNING IN SAME SCRIPS I.E. BUYING, SELLING AND RE PURCHASING THE SAME SCRIPS IN A SHORTER DURATION THAT SHE HAS BEEN HABITUALLY TRADING IN SHARES AND MAKING PROFITS AND NOT IN RESHUFFLING OF THE PORTFOLIO BY DISCARDING A SCRIP AND INVESTING IN A DIFFERENT SCRIP WITH AN INTENTION TO MAXIMIZE THE VALUE OF PORTFOLIO. HAVING REGARD TO THE KEY PRINCIPLE LAID DOWN IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. VS. ACIT 1 20 TTJ 216 (LUCKNOW) THAT HABITUAL DEALING IN A PARTICULAR ITE M IS INDICATIVE OF INTENTION OF TRADE, PROFIT EARNED BY THE APPELLANT IN THE GIVEN FACTS AND CIRCUMSTANCES HAS TO BE ASSE SSED AS TRADING PROFIT. FURTHER, THE FACTS OF THE APPELLANT S CASE ARE NOT SIMILAR TO THAT OF THE FACTS OF THE CASES CITED BY THE APPELLANTS AR. SECONDLY, IT IS A SETTLED LAW THAT THE PRINCIPA L OF RES- JUDICATA IS NOT APPLICABLE FOR INCOME-TAX PROCEEDIN GS AS OBSERVED BY THE HON'BLE ITAT, DELHI BENCH IN THE CA SE OF M/S. RADIALS INTERNATIONAL VS. ACIT, THAT THE MISTAKE CO MMITTED EARLIER SHOULD NOT BE PERPETUATED. THEREFORE, IN TH E GIVEN FACTS AND CIRCUMSTANCES, THE PRINCIPAL OF CONSISTEN CY IS OF NO AVAIL TO THE APPELLANT. THUS, CONSIDERING THE OVERA LL FACTS OF THE CASE, I HOLD THAT THE A.O. IS JUSTIFIED IN TREA TING THE SHORT TERM CAPITAL GAINS OFFERED TO TAX AS APPELLANTS BU SINESS INCOME. THE APPELLANT FAILS ON THIS GROUND. 5 ITA NO.5084/MUM/2013 6. BEFORE US, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY THE CO-ORDINATE BENCHES IN THE CASE OF KORADIA C ONSTRUCTION PVT LTD VS. DCIT (146 ITD 251) AND RIKEEN P DALAL VS. D CIT (62 SOT 94 URO/41 IN ORDER TO CONTEND THAT THE FREQUENCY OF TR ANSACTIONS IN SHARES CANNOT BE THE SOLE FACTOR TO HOLD THAT THE G AINS ARISING ON SALE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME . HOWEVER, WE NOTICE THAT THE LD CIT(A) HAS CONSIDERED THE VARIOU S FACTORS, INTER ALIA THE FREQUENCY OF TRANSACTIONS, AND ACCORDINGLY HELD THAT THE DOMINANT INTENTION OF THE ASSESSEE WAS TO INDULGE I N SHARE TRANSACTIONS AS A TRADER ONLY. HE HAS FURTHER RECO RDED A FINDING THAT THE ASSESSEE HAS INDULGED IN CHURNING OF SHARES IN 20 SCRIPS OUT OF 60 SCRIPS SOLD DURING THE YEAR, MEANING THEREBY THE ASSESSEE HAS CARRIED OUT REPETITIVE TRANSACTIONS. THE LD D.R HA S POINTED OUT THAT THE ASSESSEE HAS ALSO AVAILED OVERDRAFT FACILITY FR OM BANKS. WE FURTHER NOTICE THAT MAJORITY OF SHARES HAVE BEEN HE LD FOR LESS THAN 10 DAYS ONLY. ALL THESE FACTORS CUMULATIVELY SHOW THAT THE ASSESSEE HAS ACTED AS A TRADE ONLY IN SHARE TRANSACTIONS. H ENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F INTEREST CLAIMED ON BANK OVERDRAFT FACILITY AVAILED ON THE PLEDGE OF FIXED DEPOSITS. THE LD A.R SUBMITTED THAT THE ASSESSEE, INSTEAD OF CLOSING THE FIXED DEPOSITS, HAS AVAILED OVERDRAFT FACILITY ON THE PLE DGE OF FIXED DEPOSIT CERTIFICATES. ACCORDINGLY HE SUBMITTED THAT THE IN TENTION OF AVAILING OVERDRAFT FACILITY WAS TO KEEP THE FIXED DEPOSITS I N TACT. ACCORDINGLY HE SUBMITTED THAT THE INTEREST PAYABLE ON THE OVERD RAFT FACILITY SHOULD BE SET OFF AGAINST THE INTEREST INCOME EARNE D FORM THE FIXED DEPOSITS. IN SUPPORT OF THIS PROPOSITION, THE LD A .R PLACED RELIANCE ON THE DECISION OF AGRA BENCH OF TRIBUNAL RENDERED IN THE CAES OF 6 ITA NO.5084/MUM/2013 RAJ KUMARI AGARWAL (150 ITD 597). HOWEVER, THE LD A.R COULD NOT FURNISH THE DETAILS ABOUT THE UTILIZATION OF LOAN T AKEN BY WAY OF OVERDRAFT FACILITY. 8. WE NOTICE THAT THIS ISSUE IS SQUARED COVERED AGAINST THE ASSESSEE BY THE DECISION RENDERED BY HONBLE SUPREM E COURT IN THE CASE OF CIT VS. V.P.GOPINATHAN (248 ITR 449)(SC). A CCORDINGLY, WE HOLD THE ORDER OF LD CIT(A) ON THIS ISSUE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 13 TH MARCH, 2015. () $ * + ,- 13TH MARCH, 2015 ) # % . SD SD ( /SANJAY GARG ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER * $ % MUMBAI: 13TH MARCH,2015. . . ./ SRL , SR. PS !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ 0& ( ) / THE CIT(A)- CONCERNED 4. $ 0& / CIT CONCERNED 5. 12 &3 , ' 3 , * $ % / DR, ITAT, MUMBAI CONCERNED 6. 4% / GUARD FILE. 5 $ / BY ORDER, TRUE COPY 6 (ASSTT. REGISTRAR) ' 3 , * $ % /ITAT, MUMBAI