SOBHAGYA MAL SINGHVI, MUMBAI V. DCIT 12(3), MUMBAI

ITA 5085/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4306 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 16-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S N RAJUDR
• Assessee Lawyers: N JAYENDRA
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency; Transactions in derivatives; Tax effect
• Section: 143(3)

Judgement Text

, ' INCOME TAX APPELLATE TRIBUNAL,MUMBAI- E,BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT ME MBER & SANJAY GARG,JUDICIAL MEMBER /.ITA NO.5085/MUM/2012, /ASSESSMENT YEAR-2008-09 SHRI SOBHAGYA MAL SINGHVI 2 ND FLOOR, JEEVAN SAHAKAR BLDG. SIR P.M. ROAD, FORT,MUMBAI-1. PAN:AAJPS 5136 N VS. THE DCIT-12(3) AAYAKAR BHAVAN, M.E. ROAD MUMBAI-400 020. /ASSESSEE BY : SHRI N. JAYENDRA (AR) / REVENUE BY : SHRI B.S.N. RAJU-(DR) / DATE OF HEARING : 09 - 11 -2015 / DATE OF PRONOUNCEMENT : 01.01.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.7.5.2012 OF CIT(A)-23,MUMB AI THE ASSESSEE HAS FILED THE PRESENT APPEAL.DURING THE COURSE OF HEARING BEFORE US THE A UTHORISED REPRESENTATIVE (AR) STATED THAT ASSESSEE WAS NOT INTERESTED IN PURSUING GROUND NO.2 CONSIDERING THE SMALLNESS OF TAX EFFECT. HENCE,SAME STANDS DISMISSED. 2. ASSESSEE,AN INDIVIDUAL,ENGAGED IN THE BUSINESS OF R UNNING AN ADVERTISING AGENCY,FILED HIS RETURN OF INCOME ON 30.3.2009,DECLARING INCOME OF R S.3.20CRORES.THE AO COMPLETED THE ASSESSMENT ON 20.12.2010 U/S. 143(3) OF THE ACT DET ERMINING THE INCOME OF THE ASSESSEE AT RS.3. 29 CRORES. THE FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT TAXIN G A SUM OF RS.1.73 CRORES AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN(STCG).DURING THE ASSESSMENT PROCEEDINGS,THE AO ASKED THE ASSESSEE TO FURNISH REASONS AS TO WHY INCOME FROM S TCG SHOULD NOT BE TREATED AS INCOME FROM BUSINESS.VIDE HIS LETTER,DT.16.12.10,THE ASSESSEE C ONTENDED THAT HE WAS SHOWING INVESTMENT IN SHARES FOR THE LAST FEW YEARS AND WAS OFFERING STCG THEREON, THAT HE HAD EARNED SUBSTANTIAL DIVIDEND AND HAD NOT BORROWED ANY FUNDS FOR THE PUR POSE OF INVESTMENT,THAT THE BOOKS OF ACCOUNT MAINTAINED BY HIM SHOWED SHARES AS INVESTMENT.THE A SSESSEE FURNISHED DMAT STATEMENT IN HIS SUPPORT TO PROVE THAT DELIVERY OF SHARES AND UNITS OF MUTUAL FUND TAKEN AND GIVEN. HOWEVER, THE AO DID NOT AGREE WITH THE ASSESSEE AND HELD THAT TH E ASSESSEE HAD SHOWN CERTAIN INCOME FROM F&O TRANSACTIONS AS INCOME FROM BUSINESS,THAT REST OF THE INCOME WAS SHOWN UNDER THE HEAD STCG,THAT THE DIFFERENTIATION WAS ONLY AS PER THE C ONVENIENCE OF THE ASSESSEE, THAT TREATMENT GIVEN TO A TRANSACTION IN THE BOOKS OF ACCOUNT OF T HE ASSESSEE WAS NOT DETERMINATIVE WITH REGARD TO HEAD OF INCOME OR TAXABILITY OF SUCH INCOME, THA T PRINCIPLE OF RES JUDICATA DID NOT APPLY TO PROCEEDINGS UNDER THE ACT,THAT LIST OF STCG RAN INT O FIVE PAGES AND HAD 100 ENTRIES APPROXIMATELY,THAT THE ASSESSEE WAS ACTIVE IN FREQ UENT TRADING OF SHARES ON DAY TO DAY BASIS,THAT HE HAD SQUARED UP SEVERAL TRANSACTIONS WITHIN A PER IOD OF FEW DAYS -200 DAYS, THAT THE ASSESSEE HAD BORROWED MONEY AND HAD INVESTED IN MAKING INVES TMENT, THAT HE HAD BORROWED RS.42.70 LACS FROM DIFFERENT PARTIES.FINALLY, HE HELD THAT THE AS SESSEE WAS ACTIVELY ENGAGED IN THE BUSINESS OF SHARE TRADING WHICH WAS WRONGLY OFFERED AS STCG/LTC G, THAT THE SUM OF RS.1.73CRORES WAS TO BE TREATED AS INCOME FROM NON-SPECULATIVE BUSINESS. 5085/12SOBHAGYA 2 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,THE ASSES SEE PLACED RELIANCE UPON THE DECISIONS OF ITAT MUMBAI,WHEREIN SIMILAR TRANSACTIONS WERE TAXED UNDER THE HEAD CAPITAL GAINS.THE ASSESSEE ALSO REFERRED TO ASSESSMENTS MADE U/S. 14 3(3) IN THE AY.S.2006-07,07-08 AND 2009-10. THE FAA,AFTER CONSIDERING THE SUBMISSIONS MADE BEFO RE HIM,REFERRED TO THE CASE OF ASSOCIATED INDUSTRIAL DEVELOPMENT CO.LTD. (82ITR586) AND HOLCK & LARSEN (160ITR67) AND CBDT CIR. NO.4/2007,DATED 15.6.2007 AND HELD THAT EACH CASE H AD TO BE DECIDED BASED ON PARTICULAR FACTS OF THE SAID CASE,THAT THERE COULD NOT BE ANY PRECEDENT IN THE MATTER OF ADJUDICATION OF THE ISSUE OF NATURE OF TRANSACTION WITH REGARD TO PURCHASE AND S ALE OF SHARES AND SECURITIES.HE REFERRED TO THE CASE OF HARSHA & MEHTA( ITA1859/MUM/2009)-DT.16.7.2 010 AND SADHANA NABERA,IMMORTAL FINANCIAL SERVICES P.LTD.(8TAXMANN32)AND OBSERVED T HAT ASSESSEE HAD DEALT IN 33 SCRIPS INVOLVING 122 TRANSACTIONS UNDER THE HEAD CAPITAL G AINS,THAT IN CASE OF CERTAIN SCRIPS IT WAS FOUND THAT THERE HAD BEEN REPEATED PURCHASE AND SALE.HE F URTHER HELD THAT ASSESSEE HAD ALSO DEALT IN F&O SEGMENT,THAT THE ASSESSEE HAD USED BORROWED FU NDS, THAT THE PRINCIPLES OF RES JUDICATA WERE NOT APPLICABLE TO INCOME TAX PROCEEDINGS.FINALLY, H E HELD THAT THE AO WAS JUSTIFIED IN TREATING THE SHARE TRANSACTION AS BUSINESS ACTIVITY. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) STATED THAT THE ASSESSEE HAD RS.26 CRORES IN HIS CAPITAL ACCOUNT,THAT NO NEW FUNDS WERE BORROWED DUR ING THE YEAR UNDER CONSIDERATION,THAT TRANSACTIONS OF F&O SEGMENT WERE SHOWN UNDER THE HE AD BUSINESS INCOME,THAT ALL THE SHARES OF STCG CATEGORY WERE DELIVERY BASED,THAT THE ASSESSEE HAD NOT ENTERED INTO DAY TODAY TRADING,THAT IN CASE OF TWO SCRIPTS THERE WERE REPETITIVE TRANSA CTIONS AND THAT THE INVESTMENT WAS NOT SUBSTANTIAL,THAT THE AO HAD ACCEPTED THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO THE CAPITAL GAINS IN SUBSEQUENT AND EARLIER YEARS.HE REFERRED T O THE PAGE NO.2,3,31,50 AND 53 OF THE PAPER BOOK AND RELIED UPON THE CASES OF VANGUARD CAPITAL LTD . (ITA/4735/MUM/2010), NAGINDAS P. SHETH(HUF)(ITA/961/MUM/2010), BMW HOLDINGS P. LTD.( ITA/3187/DEL/2010), MRS. ANURADHA R.BHAGWAT(ITA/1583/MUM/2010),VINEET SETHI(ITA/4324/ MUM/2009),HITESH SATISHCHANDRA DOSHI(ITA/6497/MUM/2009) AND GOPAL PUROHIT(INCOME T AX APPEAL NO.1121 OF 2009 DATED JANUARY 6, 2010).DEPARTMENTAL REPRESENTATIVE (DR) S UPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE AO HAD HAD TAXED THE PROFIT ARISING OUT OF SHARE TRANS ACTIONS UNDER THE HEAD BUSINESS INCOME, THAT THE ASSESSEE HAD SHOWN F&O SEGMENT TRANSACTIONS SEPARAT ELY,THAT INCOME ARISING OUT OF SUCH TRANSACTIONS WAS OFFERED AS BUSINESS INCOME,THAT HE HAD EARNED SUBSTANTIAL DIVIDEND DURING THE YEAR AND HAD NOT BORROWED ANY FUNDS FOR INVESTMENT. E FIND THAT MOST OF THE SHARES,UNDER THE CATEGORY SHORT TERM CAPITAL ASSETS WERE HELD FOR A PERIOD OF MORE THAN ONE MONTH,THAT ASSESSEE HAD NOT ENTERED INTO FREQUENT PURCHASE AND SALE OF SAME SCRIPS,THAT THERE ARE ONLY TWO OR THREE EXCEPTIONS.BUT,SUCH TRANSACTION ARE NOT SUBSTANTIAL IN NATURE.NUMBER OF TRANSACTION IS ALSO NOT VERY HIGH.IN OUR OPINION,THE ISSUE TO TREAT THE SHA RE TRANSACTIONS UNDER THE HEAD BUSINESS INCOME OR CAPITAL GAINS HAS TO BE DECIDED AFTER CONSIDERIN G VARIOUS FACTORS.FREQUENCY OF THE TRANSACTIONS, VOLUME OF THE SHARES TRADED,BORROWINGS FOR INVESTME NT PURPOSE AND DIVIDEND EARNING ARE SOME OF THE FACTORS THAT CUMULATIVELY DECIDE THE ISSUE CONC LUSIVELY.COURTS ARE OF THE OPINION THAT NO SINGLE FACTOR CAN DECIDE THE ISSUE.IN THE CASE UNDE R CONSIDERATION THE AO/FAA HAD NOT PROVED THAT BORROWED FUNDS WERE UTILISED FOR MAKING INVEST MENT IN SHARES. IT IS ALSO A FACT THAT INCOME 5085/12SOBHAGYA 3 OFFERED UNDER THE HEAD STCG/LTCG HAS BEEN ACCEPTED BY THE AO IN THE SUBSEQUENT AND EARLIER YEARS.WE ARE AWARE THAT PRINCIPLE OF RES-JUDICATA I S NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. BUT,RULE OF CONSISTENCY HAS TO BE FOLLOWED UNTIL AN D UNLESS THE AO BRINGS DISTINGUISHING FACTS ON RECORD FOR DEVIATING FROM THE PATH FOLLOWED IN THE EARLIER YEARS.IN THE CASE OF GOPAL PUROHIT (SUPRA),THE HON'BLE BOMBAY HIGH COURT HAS APPROVED THE ABOVE PRINCIPLE.CONSIDERING THESE FACTS,WE ARE OF THE OPINION, THAT DELIVERY BASED SH ARES TRADED BY THE ASSESSEE HAVE BEEN RIGHTLY SHOWED UNDER THE HEAD CAPITAL GAINS.THE CASES RELIE D UPON BY THE AR SUPPORT THE VIEW TAKEN BY THE ASSESSEE . CONSIDERING THE PECULIAR FACTS AND C IRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT ORDER OF THE FAA CANNOT BE ENDORSED.THEREFORE, REVERSING HIS ORDER WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 6. GROUND NO.3 IS ABOUT ADHOC DISALLOWANCE OF RS.5,62, 158/- OUT OF THE EXPENSES SUCH AS TELEPHONE,MOTOR CAR AND DEPRECIATION ON MOTOR CAR I NCURRED IN MUMBAI OFFICE AND BRANCHES. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE PERSONAL USE OF TELEPHONE AND MOTOR CAR WAS NOT RECORDED BY THE ASSESSEE, THAT PERSONAL USES COULD NOT BE RULED OUT IN ABSENCE OF LOG BOOK,THAT IN THE EARLIER YEAR SIMILAR DISALLOWANCE WAS MADE.OUT OF TOTAL EXPENDITURE OF RS.56.21 LACS,HE DISALLOWED 10% OUT OF MOTOR VEHICLE,MOTOR C AR DEPRECIATION AND TELEPHONE EXPENSES. 7. BEFORE THE FAA, THE ASSESSEE ARGUED THAT HE WAS BA SED IN MUMBAI, THAT THE EXPENSES INCURRED AT VARIOUS BRANCHES OF ASSESSEES BUSINESS COULD NO T BE SUBJECT TO PERSONAL USE.THE FAA HELD THAT IN THE AY 2006-07 DISALLOWANCE OF 15% OF MOTOR CAR EXPENSES AND MOTOR CAR DEPRECIATION WAS MADE, THAT 10% OF TELEPHONE EXPENSES WERE ALSO DISALLOWED IN THAT YEAR, THAT IN THE EARLIER YEAR 10% OF ALL SUCH EXPENSES WERE DISALLOWED,THAT THE ASSESSEE HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW BIFURCATION OF EXPENSES OR THAT EXPE NSES WERE WITHOUT ANY PERSONAL ELEMENT, THAT HE HAD NOT PLACED ANY RECORD BEFORE THE AO TO SHOW THAT DISALLOWANCE WAS MADE IN EARLIER YEAR WAS DELETED, THAT THE FACTS AND CIRCUMSTANCES OF TH E YEAR UNDER APPEAL WERE SIMILAR TO THE FACTS OF THE PRECEDING AY.S. FINALLY, HE UPHELD THE ORDER OF THE AO. 8. BEFORE US, THE AR STATED THAT THE BENCH COULD DECID E THE MATTER ON MERITS. DR RELIED UPON THE ORDER OF THE FAA. WE FIND THAT IDENTICAL DISALLOWANCES WERE MADE IN T HE EARLIER AY.S, THAT THE ASSESSEE HAD NOT PROVED THAT PERSONAL ELEMENT WAS ABSENT IN THE EXPE NDITURE IN DISPUTE,THAT THE AO HAD MADE DISALLOWANCE OF 10% OF THE EXPENDITURE ONLY UNDER T HREE HEADS.CONSIDERING THESE PECULIAR FACTS, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOE S NOT SUFFER FROM ANY INFIRMITY.SO,CONFIRMING HIS ORDER WE ARE DECIDING GROUND NO.3 AGAINST THE A SSESSEE. AS A RESULT,APPEAL FILED B Y THE ASSESSEE STANDS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016. 01 , 2016 SD/- SD/- ( / SANJAY GARG ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 01.01.2016 . . . JV.SR.PS. 5085/12SOBHAGYA 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.