HARESH MADHAVJI HINDOCHA, MUMBAI V. DCIT 22(1), NAVI MUMBAI

ITA 5108/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3941 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 07-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAYDR
• Assessee Lawyers: VIMAL PUNMIYAAR
• Keywords: Business income; Salary income

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI H BENCH . . , , BEFORE S/SH.B.R. BASKARAN,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /. ITA NO.5108/MUM/2014, / ASSESSMENT YEAR-2010-11 HARESH MADHAVJI HINDOCHA 8, RISHABHDEV VALLABH BAUG LANE EXIM GHATKOPAR (E) MUMBAI-400 077. PAN: AAWPH 1212 M VS DY. CIT-22(1) 4 TH FLOOR, TOWER 6 VASHI RLY STATION, STATION BLDG. VASHI, NAVI MUMBAI-400 703. ( /APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI VIMAL PUNMIYA-AR / REVENUE BY : SHRI CHANDRA VIJAY-DR / DATE OF HEARING : 23.02.2016 / DATE OF PRONOUNCEMENT : 23 -02-2016 O R D E R .. / PER B.R. BASKARAN, AM: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 1.5.2014 PASSED BY THE LD.CIT(A)-33, MUMBAI AND IT RELATES TO THE ASSESSM ENT YEAR 2010-11. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN ASSESSING THE SHORT TERM CAPITAL GAIN S (STCG) OF RS.1.13 CRORES ARISING ON SALE OF SHARES AS BUSINESS INCOME OF THE ASSESSEE. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG IN SHARES AND F & O TRANSACTIONS. BESIDES DECLARING BUSINESS INCOME FROM THE ABOVE SA ID OPERATIONS, THE ASSESSEE ALSO DECLARED GAINS ARISING ON PURCHASE AND SALE OF SHARES AS CAP ITAL GAINS, I.E., THE ASSESSEE DECLARED STCG ON SALE OF SHARES AT RS.1.13 CRORES AND LONG TERM CAPITAL LOSS ON SALE OF SHARES AT RS.0.46 CRORES. THOUGH THE AO OBSERVED THAT THE ASSESSEE I S CARRYING ON PURCHASE AND SALE OF SHARES AS A TRADING ACTIVITY, YET HE ACCEPTED THE LONG TER M CAPITAL LOSS DECLARED BY THE ASSESSEE. HOWEVER, THE AO TOOK THE VIEW THAT THE INCOME FROM STCG IS TO BE TREATED AS INCOME FROM 5108/M/14-HARESH MADHAVJI 2 BUSINESS, SINCE THE VOLUME AND FREQUENCY OF TRANSAC TIONS WERE HIGH. THE AO NOTICED THAT THE DETAILS OF STCG FURNISHED BY THE ASSESSEE HAS CARR IED OUT TRANSACTIONS IN ABOUT 200 DIFFERENT SCRIPTS AND THE HOLDING PERIOD WAS LESS. THE AO ALS O NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.7,12,830/- ONLY AS AGAINST TH E STCG OF RS.1.13 CRORES AND FURTHER ABOUT 60% OF THE CAPITAL AMOUNT HAS BEEN INVESTED I N SHARES. ACCORDINGLY, HE ASSESSED STCG OF RS.1.13 CRORES AS INCOME FROM BUSINESS. THE LD. CIT(A) ALSO CONFIRMED THE ORDER OF THE AO. AGGRIEVED, THE ASSESSEE HAS FLED THIS APP EAL BEFORE US. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE IS DE RIVING SALARY INCOME FROM A COMPANY AND IS ALSO DEALING IN SHARES. HE SUBMITTED THAT THE ASSE SSEE HAS CLEARLY EARMARKED THE SHARE TRANSACTIONS INTO BUSINESS TRANSACTIONS AND INVESTM ENT ACTIVITY. HE SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF GOPAL PUR OHIT THAT AN ASSESSEE CAN ACT BOTH AS TRADER AND INVESTOR. HE SUBMITTED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME ALSO AND HAS NOT BORROWED ANY FUNDS FOR THE PURPOSE OF MAKING IN VESTMENT IN SHARES. HE SUBMITTED THAT THE ASSESSEE HAS INVESTED OWN FUNDS ONLY IN SHARES. HE FURTHER SUBMITTED THAT THE CAPITAL GAINS ARISING ON SALE OF SHARES HAVE BEEN HELD TO BE CAPI TAL GAINS BY LD CIT(A) IN AY 2008-09 AND 2009-10 AND THE REVENUE HAS ACCEPTED THE SAID ORDER S OF LD CIT(A). HE ALSO SUBMITTED THAT THE ASSESSEE HAS DEALT IN ONLY 76 SCRIPS AND THE TO TAL NUMBER OF TRANSACTIONS WAS ONLY 113 ONLY. HE SUBMITTED THAT THE ORDERS PLACED BY THE A SSESSEE WITH THE BROKER WERE EXECUTED IN MORE THAN ONE INSTALMENT AND HENCE THE VOLUME LOOKS HIGH. ACCORDINGLY HE SUBMITTED THAT THE CONSISTENCY IN THE TREATMENT OF THE GAINS ARISI NG ON SALE OF SHARES SHOULD BE MAINTAINED AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F GOPAL PUROHIT (228 CTR 582) AND HENCE THE GAINS ARISING ON SALE OF SUCH SHARES SHOU LD BE ASSESSED AS CAPITAL GAINS ONLY. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT TH E ASSESSEE HAS BEEN PURCHASING AND SELLING SHARES CONTINUOUSLY AND HENCE THE VOLUME AND FREQUE NCY OF TRANSACTIONS WERE VERY HIGH. HE FURTHER SUBMITTED THAT THE PERIOD OF HOLDING WAS AS LOW AS ONE DAY AND 44% OF THE SHARES HAVE BEEN HELD FOR LESS THAN 30 DAYS. THE LD D.R FU RTHER SUBMITTED THAT THE ACTIVITY OF THE ASSESSEE SHOULD BE EXAMINED EVERY YEAR AND PRINCIPL ES OF RESJUDICATA SHALL NOT APPLY TO INCOME TAX PROCEEDINGS. 6. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE DISPUTE IS WITH REGARD TO THE NATURE OF RECEIPT OF PROFIT ARISING ON SALE OF SHARES. THE A SSESSEE CLAIMS THE SAME TO BE CAPITAL GAIN, WHEREAS THE AO HAS ASSESSED THE SAME AS BUSINESS IN COME OF THE ASSESSEE. IT IS WELL SETTLED 5108/M/14-HARESH MADHAVJI 3 THAT THE TRUE NATURE OF THE TRANSACTIONS HAS TO BE DETERMINED BY CONSIDERING VARIOUS FACTORS. IN THIS REGARD, THE HONBLE COURTS AS WELL AS THE CBDT HAS PRESCRIBED VARIOUS CRITERIA ON THE BASIS OF WHICH THE TRUE NATURE OF TRANSACTIONS COUL D BE ASCERTAINED. HENCE, THE NATURE OF TRANSACTIONS WOULD BE DEPENDENT UPON THE FACTS PREV AILING IN EACH CASE. THOUGH THE PRACTICE ADOPTED IN THE PAST YEARS MAY BE A GUIDING FACTOR I N DETERMINING THE TRUE NATURE OF TRANSACTIONS, YET IT IS NOT NECESSARY THAT THE NATU RE OF TRANSACTIONS SHALL ALWAYS REMAIN CONSTANT. ONE OF THE MOST IMPORTANT CRITERIA IS TH E INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES. IF THE ASSESSEE HAD PURCHASED THE SHARES AS A DEALER, THEN THE PROFIT SHOULD BE ASSESSED AS BUSINESS INCOME OF THE ASSESS EE. ON THE CONTRARY, IF THE INTENTION WAS TO HOLD THE SHARES AS INVESTMENT, THEN THE PROFIT SHAL L BE ASSESSED AS CAPITAL GAINS. THE INTENTION OF THE ASSESSEE SHOULD BE ASCERTAINED BY HIS CONDUC T AND OTHER CRITERIA PRESCRIBED BY THE COURTS AND CBDT. 7. WE NOTICE THAT THE ASSESSEE HAS MADE INVESTM ENT IN SHARES FROM OUT OF HIS CAPITAL BALANCE ONLY, I.E., THE ASSESSEE HAS NOT BORROWED A NY MONEY FOR THE PURPOSE OF INVESTMENTS IN SHARES. WE FURTHER NOTICE THAT THE ASSESSEE IS ALS O A DIRECTOR IN A COMPANY AND DRAWING SALARY THEREFROM. HENCE, IT IS SEEN THAT THE ASSESSEE IS H AVING OTHER ACTIVITIES ALSO. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DEALT IN 76 S CRIPS AND THE REPETITIVE TRANSACTIONS WERE NOT AVAILABLE. ACCORDINGLY TO LD A.R, THE BROKER H AS EXECUTED SINGLE ORDER IN MORE THAN ONE INSTALMENT. WE FURTHER NOTICE THAT THE LD CIT(A) H IMSELF HAS POINTED OUT THAT MORE THAN 56% OF SHARES HAVE BEEN HELD FOR MORE THAN 30 DAYS. WE ALSO NOTICE THAT THE ASSESSEES CLAIM OF LONG TERM CAPITAL LOSS HAS BEEN ACCEPTED BY THE AO, MEANING THEREBY THE ASSESSING OFFICER HAS PARTIALLY ACCEPTED THE FACT THAT THE ASSESSEE I S ALSO ACTING AS INVESTOR. HENCE, IN OUR VIEW, THE LOW PERIOD OF HOLDING IN RESPECT OF CERTAIN SCR IPS MAY NOT BE CONSIDERED TO BE THE SOLE DETERMINING FACTOR. THE NUMBER OF TRANSACTIONS HAS BEEN CLAIMED TO BE 113 AND THE SAME SHOWS THAT THE ASSESSEE HAS NOT CARRIED ON SHARE TR ADING ACTIVITY ON FULL TIME BASIS. THE ASSESSEE HAS ALSO EARNED DIVIDEND INCOME OF RS.7.12 LAKHS. 8. ALL THE FACTORS DISCUSSED ABOVE, IN OUR VIEW, SHOWS THAT THE INTENTION OF THE ASSESSEE WAS MAINLY TO ACT AS INVESTOR ONLY. ACCORDINGLY, WE AR E OF THE VIEW THAT THE GAINS ARISING ON SALE OF SHARES SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS ONLY. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO ASSESS THE PROFITS ARISING ON SALE OF SHARES AS CAPITAL GAINS ONLY. 5108/M/14-HARESH MADHAVJI 4 9. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD , FEBRUARY, 2016 ! 23 , 2015 SD/- SD/- ( / RAM LAL NEGI) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, ! /DATE: 23.02.2016 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ !'# $ %& , 4. THE CONCERNED CIT / !'# $ %& 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ ' ( //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.