PANKAJ K. DHARIA, MUMBAI V. ITO 16(1)(1), MUMBAI

ITA 5142/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3837 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 16-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARTI SINGH
• Assessee Lawyers: G P MEHTA
• Keywords: Business income
• Section: 143(3); 54

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C , MUMBAI BEFORE SHRI MAHAVIR SINGH ( JUDICIAL M EMBER ) AND SHRI MANOJ KUMAR AGARWAL (ACCOUNTANT M EMBER ) ITA NO. 5142 /MUM/201 3 ASSESSMENT YEAR: 200 8 - 0 9 SHRI. PANKAJ K. DHARIA VS. ITO 16(1)(1) 10 C SETT MINAR 2 ND FLOOR, MATRU MANDIR 16 A.G. DESHMUKH MARG TARDEO ROAD MUMBAI - 400026 MUMBAI - 400007 PAN NO. AABPD6642C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. G.P. MEHTA RESPONDENT BY : MS. BHARTI SINGH DATE OF HEARING : 28/07/2016 DATE OF PRONOUNCEMENT : 10 /0 8 /2016 O R D ER PER MAHAVIR SINGH , JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDER OF LD. CIT(A) - 27, MUM B AI IN APPEAL NO. CIT(A) - 27/16(1)(1)/259/2010 - 11, ORDER DT. 04/03/2013. ASSESSMENT WAS FRAMED BY ITO, WARD 16(1)(1), MUMBAI UNDER SECTION 143(3) OF THE ACT, 1961 ( HEREINAFTER THE ACT) FOR THE AY 2008 - 09, VIDE HIS ORDER DT. 01/12/2010. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER O F LD. CIT(A) CONFIRMIN G THE ACTION OF THE AO IN TREATING THE PROFIT ARISING OUT OF SALE & PURCHASE OF SHARES AS BUSINESS INCOME AS AGAINST DECLARED BY ASSESSEE AS SHORT TERM CAPITAL GAIN . 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE CLAIMED THE INCOME AR ISING OUT OF SALE AND PURCHASE OF SHARES AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY BE . BUT THE ASSESSING OFFICER TREATED THE PROFIT ARISING OUT OF SALE AND PURCHASE OF SHARES AS INCOME FROM 2 BUSINESS FOR THE REASON THAT THE ASSESS EE CANNOT BE TREATED AS INVESTOR AS THE PATTERN OF THE ASSESSEE FOR PURCHASE AND SALE OF SHARES IS THAT OF A TRADER DUE TO VOLUME OF TRANSACTION AND HOLDING PATTERN OF SHARES . A CCORDING TO ASSESSING OFFICER THE HOLDING PERIOD OF SHARES VARIED FROM 1 DAY TO 6 MONTHS, AND HE NOTED THE DETAIL S OF TRANSACTION IN HIS ASSESSMENT ORDER. FINALLY IN VIEW OF THE ABOVE , THE ASSESSING OFFICER TREATED THE PROFIT ARISING OUT OF SALE AND PURCHA SE OF SHARES AS BUSINESS INCOME. AGGRIEVED, ASSESSEE PREFERRED THE APPEAL BEFORE LD. CIT(A). 4. THE LD. CIT ALSO CONFIRM ED THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE CLAIM OF THE ASSESSEE THAT THE PROFIT ARISING OUT OF PURCHASE AND SALE OF SHAR E AS SHORT TERM / LONG TERM CAPITAL GAIN OR LOSS. THE FACT IS THAT THE ASSESSEE HAD ENTERED INTO VOLUME OF TRANSACTION WIT H A HOLDING PERIOD OF 1 DAY TO 6 MONTH, WHICH EARNED SHORT TERM CAPITAL GAIN OF RS. 1,75 ,966/ - AND LONG TERM CAPITAL GAIN FROM OTHER T RANSACTIONS AT RS. 61,659/ - . LD. CIT(A) ALSO CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT THE ASSESSEE HAD ENTERED INTO 144 TRANSACTIONS WITH A HOLDING PERIOD OF 1 DAY TO 1 MONTH , ON WHICH EARNED A CAPITAL GAIN OF RS. 1, 47,367/ - . HE FURTHER NOTED THAT ASSESSEE ENTERED INTO 84 TRANSACTION WITH A PERIOD OF 1 MONTH TO 3 MONTHS ON WHICH ASSESSEE INCURRED LOSS OF RS. 9,557/ - . IN VIEW OF THESE FACTS THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO TREATING THE PROFIT ARISING OUT OF TRANS ACTION S OF SALE PURCHASE OF SHARES AS BUSINESS INCOME. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5 . WE HAVE HEARD THE RIVAL CONTENTION AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE BEFORE US FILED A PAPER BOOK CONTAINING VARIOUS DETAILS OF TRANSACTION OF SALE AND PURCHASE OF SHARES. THE ASSESSEE IS A PARTNER IN PARTNERSHIP FIRM FROM WHERE HE IS DERIVING INCOME FROM BUSINESS. THE ASSESSING OFFICER DURING THE CO URSE OF ASSESSMENT PROCEEDING NOTED THE NATURE OF BUSINESS OF THE ASSESSEE IS SHARE TRADING BUT THIS WAS CONTESTED BY THE ASSESSEE BEFORE US THAT ACTUALLY HE IS INVESTOR AND NOT A TRADER IN SHARES. THE LD. COUNSEL FOR THE ASSESSEE BEFORE US STATED THAT THE ENTIRE SALES AND PURCHASE OF SHARES ARE THROUGH BROKERS AND HOLDING PERIOD IS FROM 1 DAY TO 180 DAYS . H E DESCRIBED THAT THERE ARE 67 TRANSACTIONS WHEREIN THE HOLDING PERIOD IS LESS THAN 15 DAYS, THE HOLDING PERIOD OF 15 TRANSACTION IS LESS THAN 30 DAYS, T HE HOLDING PERIOD OF 11 TRANSACTIONS 3 IS LESS THAN 45 DAYS, THE HOLDING PERIOD OF 19 TRANSACTION IS LESS THAN 60 DAYS, THE HOLDING PERIOD OF 18 DAYS IS LESS THAN 90 DAYS, HOLDING PERIOD FOR 26 TRANSACTION IS LESS THAN 180 DAYS. THE R E ARE 7 TRANSACTIONS WHER E THE ASSESSEE ON DIFFERENT DATES ENTERED INTO TRANSACTIONS OF SALE AND PURCHASE , WHERE HOLDING PERIOD IS MORE THAN 180 DAYS. IN VIEW OF THIS HOLDING PERIOD MENTIONED , THE ASSESSE E CLAIM THAT THERE IS NO TRADING IN SALES AND PURCHASE OF SHARE S RATHER THE A SSESSEE FIRST INVESTED THE AMOUNT IN SHARES AND HOLD THE SAME AS INVESTMENT IN ITS INVESTMENT PORTFOLIO AND THE TRANSACTION S ROUTED THROUGH D E MAT ACCOUNT. THIS FACT IS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE CONSISTENTLY IS HOLDING THE INVESTMENT AND HE HAS GIVEN THE FOLLOWING IN HIS ASSESSMENT ORDER: INVESTMENT HELD AS ON 31/03/2006 RS. 2238908/ - INVESTMENT HELD AS ON 31/03/2007 RS. 2414864/ - INVESTMENT HELD AS ON 31/03/2008 RS. 2368360/ - THE ASSESSING OFFICER HAS ALSO NOTED THAT THE ASSESSEE IS MAINTAINING D EMAT ACCOUNT AND D E MAT CHARGES AS WELL AS TRANSFER CHARGES RELATED TO SHARES HELD BY THE ASSESSEE DURING DIFFERENT PERIOD WERE NOT DEBITED TO THE TRADING ACCOUNT OF THE ASSESSEE BUT DEBITED FROM THE PROFIT OF SHARES AS AN INVESTOR . IN VIEW OF THESE FACTS LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE HAS INVESTED IN SHARES OUT OF OWN FUNDS AND ALSO INVESTED IN B ANK FDRS. THE ASSESSEE PURCHASE D SHARE S FOR THE PURPOSE OF APPRECIATION IN VALUE AND BOOK PROFIT S ACCORDINGLY. ASSE SSEE ALSO MADE PURCHASES OF THE SE SHARES THROUGH 163 TRANSACTIONS AND SOLD THE SAME THROUGH 126 TRANSACTION S DURING THE YEAR. IN VIEW OF THESE FACTS, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE IS COVERED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT [2011] 336 ITR 287 (BOM) . 6 . ON THE OTHER HAND LD. DR SUPPORTED THE ORDER OF LOWER AUTHORITIES. 7 . GOING THROUGH THE FACTS OF THE CASE AND ARGUMENTS OF BOTH THE SIDES , WE FIND THAT THE ASSESSEE HAS MAINTAINED THE INVEST MENT PORTFOLIO AND ALL THE SALES AND PURCHASE OF SHARES ARE ROUTED THROUGH THE SAME PORTFOLIO AS NOTED ABOVE. T HE ASSESSEE HAS KEPT THE ENTIRE INVESTMENT OF SHARES AS AN INVESTMENT AND NOT IN THE TRADING ACCOUNT. THE ASSESSEE IS NOT IN THE BUSINESS OF SHAR E TRADING 4 RATHER HE IS PARTNER IN FIRM AND DOING SHARE TRANSACTION S AS PART TIME. WE FIND THAT THE AO CONSIDERING THE VOLUME AND FREQUENCY AND CONSIDERING THAT THE ASSESSEE HAS APPLIED FOR BORROWED FUNDS FOR MAKING INVESTMENT IN SHARES , TREATED THE ACTIVITY OF PURCHASE AND SALE OF SHARES AS BUSINESS ACTIVITY AND ASSESSED THE PROFITS ARISING THERE FROM AS BUSINESS INCOME AS AGAINST DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN. WE FIND THAT THE ALLEGATION OF REVENUE THAT THE ASSESSEE IS INDULG IN G INTO HIGH FREQUENCY TRANSACTION S BUT TH IS ITSELF COULD NOT MEAN THAT THE TRADING ACTIVITY HAS BEEN CARRIED OUT BY THE ASSESSEE BECAUSE THE ASSESSEE HAS KEPT THE ENTIRE INVESTMENT IN SHARES IN INVESTMENT PORTFOLIO AND HIS INTENTION IS CLEAR THAT HE HAS TO EARN CAPITAL APPRECIATION ON THE SAME. THE ASSESSEE ACTED ACCORDINGLY. THE ASSESSEE HAS ALSO KEPT THESE SHARES IN D E MAT AFTER TAKING DELIVERY OF THE SAME. EVEN OTHERWISE IN EARLIER YEA RS AND FUTURE YEARS THE ASSESSES TRANSACTION OF SALE AND PURCHASE OF S HARES WAS TREATED BY REVENUE AS INVESTMENT AND PROFIT OR LOSS ARISING OUT OF THE SAME WAS ASSESSED AS CAPITAL GAIN I.E; EITHER LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN AS THE CASE MAY BE. WE FIND THAT THIS CASE IS COVERED BY THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) WHEREIN IT IS HELD AS UNDER: 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTION INVOLVED INVESTMENT IN SHARE S. THE SECOND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF L AW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATION TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSAC TIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD TREATED EITHER AS SHORT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING O F FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. IN VIEW OF THE ABOVE FACTS OF THE PRESENT CASE AND PRECEDENT CITED BY LD. COUNSEL IN THE CASE OF GOPAL PUROHIT(SUPRA), WE ALLOW THE CLAIM OF THE ASSESSEE HOLDING THAT THE INCOME / PROFIT ARISING OUT OF SALE PURCHASE OF SHARES IS CAPITAL GAINS AND NOT BUSINESS INCOME. THIS GROUND OF ASSESSE ES APPEAL IS ALLOWED. 8 . THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT(A) CONFIRMING THE ACTION OF THE AO IN DISALLOWING INTEREST EXPENDITURE OF RS. 2,93,652/ - . 5 9 . WE HAVE HEARD THE RIVAL CONTENTION AND GOING THROUGH THE FAC TS AND CIRCUMSTANCES OF THE CASE. THE ASSESSING OFFICER NOTICED FROM THE ACCOUNT OF THE ASSESSEE THAT IT HAS DECLARED INCOME OF RS. 8,90,546/ - ON FIXED DEPOSIT, RBI BONDS AND OTHER SECURITIES . THE ASSESSEE CLAIMED DEDUCTION OF INTEREST PAYMENT OF RS. 2,94,707/ - ON LOANS AND BANK OVER DRAFT. THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE SAME FROM THE DETAILS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS TAKEN LOAN ON WHICH IT IS PAYING INTER EST AND CLAIMED DEDUCTION OF RS. 2,94,707/ - . ACCORDING TO AO , THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO HIS SON SHAISHAV DHARIA AFTER TAKING INTEREST BEARING LOAN FROM HIS WIFE DEEPIKA DHARIA . A CCORDINGLY HE DISALLOWED THE INTEREST EXPENDITURE OF RS. 2, 93,652/ - RELATED TO HIS WIFE AND ALSO INTEREST PAID TO SHRI. FAROOQ HAWA AMOUNTING TO RS. 1005/ - . AGGRIEVED, ASSESSEE PREFERRED THE APPEAL BEFORE THE LD. CIT(A) , WHO ALSO CONFIRM ED THE ACTION OF THE AO IN RESPECT TO DISALLOWANCE OF INTEREST EXPENDITURE REL ATING TO PAYMENT MADE TO HIS WIFE DEEPIKA DHARIA. ASSESSEE CAME IN SECOND APPEAL BEFORE THE TRIBUNAL. 10. NOW BEFORE US LD. COUNSEL FOR THE ASSESSEE STATED THAT THE LOAN TAKEN FROM WIFE DEEPIKA DHARIA ON 13/07/2016 AMOUNTED TO RS. 5,00,000/ - HAS NO NEXUS WITH ADVANCE OF INTEREST FREE LOAN BECAUSE THE SAME WAS INVESTED BY ASSESSEE IN THE FDRS MAINTAINED WITH BANK OF INDIA AND ON WHICH INTEREST INCOME WAS EARNED AND DISCLOSED TO THE DEPARTMENT. LD. COUNSEL FOR THE ASSESSEE FILED COPY OF BANK ACCOUNT OF DEE PIKA DHARIA AND COPY OF BANK FDRS IN ITS PAPER BOOK AT PAGE S 5 4 & 5 5 . SIMILARLY THE ASSESSES RECEIVED LOAN FROM DEEPIKA DHARIA AMOUNTING TO RS. 4,00,000/ - ON 10/11/2006 , WHICH WAS INVESTED IN FDR FROM WHERE ASSESSEE HAS EARNED INTEREST INCOME. COPY OF RE LEVANT BANK ACCOUNT OF DEEPIKA DHARIA AND COPY OF FDR RECEIPT IS INCLUDED IN ASSESSEES PAPER BOOK AT PAGE NO. 56 & 57. IN VIEW OF THIS LD. COUNSEL FOR THE ASSESSEE BEFORE US ARGUED THAT THE DIRECT NEXUS OF LOAN TAKEN HAS BEEN PROVED AND NO DISALLOWANCE O N THIS ACCOUNT CAN BE MADE. 1 1 . WE HAVE GONE THROUGH THE DOCUMENTS AND NOTICED THAT ASSESSEE HAS EARNED INTEREST INCOME ON THE FDRS, WHICH WERE MADE OUT OF LOAN TAKEN FROM DEEPIKA DHARIA . THERE IS A DIRECT NEXUS BETWEEN THE LOAN TAKEN AND AMOUNT I NVESTED IN FDR S AND IT HAS NOT GONE INTO INTEREST FREE ADVANCES . O NCE IT IS A CASE, THE DISALLOWANCE MADE BY AO CANNOT BE SUSTAINED . ACCORDINGLY, WE ARE 6 OF THE VIEW THAT THE ASSESSEE HAS EXPLAINED THE NEXUS OF INTEREST BEARING LOANS INVESTED IN INCOME EAR NING INSTRUMENTS AND NOT IN THE INTEREST FREE ADVANCES. IN VIEW OF THIS FACT, WE DELETE THE DISALLOWANCE AND ALLOW THIS ISSUE OF ASSESSEES APPEAL. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2016. SD/ - SD/ - (MANOJ KUMAR AGARWAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 10 /08/2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI AG (ON TOUR) 7