SANJAY MANOHAR VAZIRANI, MUMBAI V. ASST CIT CIR 15(2), MUMBAI

ITA 5178/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1857 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 21-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 14-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Keywords: Capital asset; Business income; Salary income; Question of law; Cost of acquisition; Speculation loss; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER ITA NO. 5178/MUM/12 (A.Y.2009-10) SANJAY MANOHAR VAZIRANI, 301, 3 RD FLOOR, SAFAL PRIDE, CTS NO.396/A/2 OPP. SARAS BAUG, PANJAB WADI, SION TROBAY ROAD, MUMBAI 400 088. PAN:ACVPV 7946D (APPELLANT) VS. THE ACIT,CIR. 15(2), MUMBAI. (RESPODNENT) APPELLANT BY : SHRI JAYESH DADIA RESPONDENT BY : SHRI GIRIJA DAYAL DATE OF HEARING : 22/01/2013 DATE OF PRONOUNCEMENT : 3 0/01/2013 ORDER PER I.P.BANSAL, J.M THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIR ECTED AGAINST ORDER PASSED BY LD.CIT(A)-26 MUMBAI DATED 1/6/2012 FOR AS SESSMENT YEAR 2009-10. THE GROUNDS OF APPEAL READ AS UNDER: (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FAC TS OF THE CASE IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN N OT CONSIDERING THE SHARE TRADING LOSS AS BUSINESS LOSS. THE ACTION IS UNJUST IFIED. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF THE ASSESSING IN TREATING YOUR PETITIONER AS INVESTOR INSTEAD OF CARRYING THE BUSINESS OF SHARE TRADING. THE ACTION IS UNJUSTIFIED. (3) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ISALLOWING RS.28,47,311 OUT OF INTEREST EXPENSES. THE ACTION IS UNJUSTIFIED AND UNWARRANTED AS THE ENTIRE EXPENSES HAVE BEEN WHOLLY AND EXCLUSIVELY IN CURRED FOR THE PURPOSE OF PETITIONERS BUSINESS ACTIVITIES. ITA NO. 5178/MUM/12 (A.Y.2009-10)) 2 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L. A RETURN OF INCOME WAS FILED AT RS.26,67,570/- AND CARRY FORWARD SHORT TERM LOSS OF RS.1,17,70,414/-, WAS CLAIMED IN RESPECT OF SALE A ND PURCHASE OF SHARES. THE ASSESSEE WAS REQUIRED TO FILE DETAILS IN RESPECT O F SHARE TRANSACTIONS AND IT WAS NOTICED THAT THERE WERE CERTAIN NON-DELIVERY TRANSA CTION WHICH WERE TO BE TREATED AS SPECULATIVE TRANSACTION. HOWEVER, DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE VIDE LETTER DATED 17/10/20 11 CLAIMED THAT THE ACTIVITY OF THE ASSESSEE REGARDING SALE AND PURCHAS E OF SHARES SHOULD BE CONSIDERED TO BE IN THE NATURE OF BUSINESS ACTIVITY . IT WAS PLEADED THAT LOSS ARISING OUT OF SALE AND PURCHASE OF SHARES SHOULD BE ALLOWED AS LOSS ARISING OUT OF BUSINESS OF SALE AND PURCHASE OF SHARES. A LOSS OF RS.5,40,98,454/- WAS COMPUTED BY THE ASSESSEE IN RESPECT OF SALE AND PUR CHASE OF SHARES WHICH HAS ALSO BEEN DESCRIBED AT PAGE-3 OF THE ASSESSMENT ORD ER IN THE FOLLOWING TABLE: III INCOME FROM BUSINESS/PROFESSION SPECULATION PROFIT SHARES SPECULATION GAIN (NON-DELIVERY BASIS) 2,35,77,5 30 SPECULATION LOSS (DELIVERY BASIS) (21,22,474) 2,14,55,056 BUSINESS LOSS BUSINESS LOSS (DELIVERY BASIS) (3,54,12,746) BUSINESS GAIN (DELIVERY BASIS) 21,87,276 (3,32,25,470) LOSS ON F &O AS ORIGINAL COMPUTATION (46 ,45,323) LOSS ON ACCOUNT OF CLOSING STOCK OF SHARES VALUED AT LOWER OF COST OR MARKET VALUE (5,84,71,659 - 2,07,88,942) (3,76,82,717) TOTAL INCOME FROM BUSINESS / PROFESSION (5,40 ,98,454) IT WAS SUBMITTED THAT THE ACTIVITY OF SALE AND PURC HASE OF SHARES SHOULD BE CONSIDERED TO BE BUSINESS ACTIVITY AS ALL THE NECES SARY INGREDIENTS WHICH ARE REQUIRED TO HOLD AN ACTIVITY AS BUSINESS ACTIVITY HAVE BEEN FULFILLED VIZ. (I) THERE IS A HIGH FREQUENCY OF PURCHASE AND SALE OF SHARES ; (II) THE TRANSACTIONS ARE SUBSTANTIAL ; (III) THERE IS A VOLUMINOUS TRADE AS THE TOTAL PURCHASE ARE TO THE TUNE OF RS.51.24 CRORES AND SALES ARE OF RS.49.00 C RORES; (IV) THE HOLDING PERIOD OF SHARES IS VERY LOW; (V) THE ASSESSEE HAS UTILIZE D BORROWED FUNDS FOR PURCHASING AND HOLDING THE SHARES. THE AO DID NOT ACCEPT SUCH CONTENTIONS OF THE ASSESSEE ON THE GROUNDS VIZ. (I) ASSESSEE IS AN INDIVIDUAL, NOT A BROKER OR ITA NO. 5178/MUM/12 (A.Y.2009-10)) 3 SUB-BROKER; (II)ASSESSEE HIMSELF HAS DECLARED THE PROFIT UNDER THE HEAD SHORT TERM CAPITAL GAIN IN THE ORIGINAL RETURN AND (III) ASSESSEE HOLDS SHARES IN HAND AS INVESTMENT AND NOT AS INVENTORY. THE AO ALSO RE JECTED THE CLAIM OF THE ASSESSEE REGARDING INTEREST ON LOANS WHICH WAS CLAI MED TO THE TUNE OF RS.71,18,278/- AS ACCORDING TO AO ONLY A PORTION OF THE SAID INTEREST COULD BE CONSIDERED FOR THE PURPOSE OF PURCHASE AND SALE OF SHARES. AO HELD THAT 40% OF SUCH INTEREST IS DISALLOWABLE. ACCORDINGLY, HE MADE DISALLOWANCE OF RS.28,47,311/- AND COMPUTED THE INCOME OF THE ASSE SSEE AS UNDER: RS. RS. A) INCOME FROM HOUSE PROPERTY: (AS PER RETURN OF INCOME) (87,000) B) SALARY INCOME: (AS PER RETURN OF INCOME) 23,87,900 C) INCOME FROM BUSINESS/PROFESSION: (AS PER RETURN OF INCOME) ADD: DISALLOWANCE AS DISCUSSED IN PARA 5 ABOVE (46,45,323) 28,47,311 (17,98,011) D) SPECULATION BUSINESS (AS DISCUSSED IN PARA 4 ABOVE) 2,14,55,056 E CAPITAL GAINS: SHORT TERM LOSS (AS DISCUSSED IN PARAS 4 ABOVE) C/F (3,53,47,944) F INCOME FROM OTHER SOURCES: (AS PER RETURN OF INCOME) 51,18,490 GROSS TOTAL INCOME 2,70,76,435 LESS: DEDUCTION UNDER CHAPTER VI-A (AS PER RETURN OF INCOME) 1,06,500 TOTAL INCOME 2,69,69,935 ROUNDED OFF TO 2,69,69,940 3. AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE LD. CI T(A). THE CONTENTIONS RAISED BEFORE AO WERE REITERATED. IT WAS SUBMITTED THAT IN EARLIER YEARS THE ASSESSEE HAD NEVER TRADED IN SHARES WITH LARGE VOLU MES AND FREQUENCY, THEREFORE, THE SHARES WERE TREATED AS INVESTMENT. IT WAS SUBMITTED THAT BOOK ENTRIES DO NOT REFLECT THE CORRECT NATURE OF TRANSA CTION. IT IS THE CONDUCT AND SUBSTANCE WHICH IS TO BE SEEN TO ARRIVE AT THE CONC LUSION ABOUT THE NATURE AND CHARACTER OF ACTIVITY. THEREFORE, IT WAS PLEADED THAT MERE SHOWING THE SHARE ITA NO. 5178/MUM/12 (A.Y.2009-10)) 4 TRADING ACTIVITY AS INVESTMENT IN THE RETURN CANNOT LEAD TO A CONCLUSION THAT ASSESSEE WAS NEVER IN THE BUSINESS OF SHARE TRADING . REFERENCE WAS MADE TO THE FOLLOWING DECISIONS OF THE TRIBUNAL TO CONTEN D THAT THE ACTIVITY CARRIED ON BY THE ASSESSEE WAS IN THE NATURE OF BUSINESS ACTIV ITY: (1) HARSHA N. MEHTA VS. DCIT, 43 SOT 332(BOM). (2) JAYSHREE PRADEEP SHAH, 131 ITD 326(BOM). (3) TARUN AMARCHAND JAIN, 21 TAXMAN.COM 319 (MUM), IT WAS HELD THAT IN VIEW OF FREQUENCY AND VOLUMINOUS TRANSACTION THE A SSESSEE WAS A DEALER IN SHARES AND THUS CARRYING OUT BUSINESS ACTIVITY. 4. REFERENCE WAS ALSO MADE TO THE CIRCULAR NO.4 OF 2007 DATED 15/6/2007, WHEREIN IT WAS OBSERVED BY CBDT THAT ASSESSEE CAN H AVE TWO PORTFOLIOS SIMULTANEOUSLY AS INVESTMENT PORTFOLIO COMPRISING OF SECURITIES, WHICH TO BE TREATED AS CAPITAL ASSET AND TRADING PORTFOLIO COMP RISING OF STOCK-IN-TRADE WHICH ARE TRADING OF ASSETS AND IT IS FOR THE ASSES SEE TO CLAIM THAT A PARTICULAR HOLDING IS BY WAY INVESTMENT OR STOCK-IN-TRADE AS T HE SAME IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSESSEE. LD. CIT(A) DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HIMSEL F, IN THE RETURN OF INCOME, HAS DISCLOSED THE INCOME ARISING OUT OF SHARE TRANS ACTIONS UNDER THE HEAD CAPITAL GAIN; IN THE BALANCE SHEET, THE STOCK HAV E BEEN SHOWN UNDER THE HEAD INVESTMENT; THE CLAIM MADE BY THE ASSESSEE DURING T HE COURSE OF ASSESSMENT PROCEEDINGS IS AN AFTER THOUGHT CLAIM; THE ASSESS EE CANNOT BE ALLOWED TO CHANGE THE STAND JUST TO TAKE ADVANTAGE OF SOME PRO VISIONS OF THE ACT; THE ASSESSEE IS NOT A TRADER OF SHARES AND PURCHASE AND SALE OF SHARES BY HIM IS ONLY A PART TIME ACTIVITY BECAUSE THE ASSESSEE IS G ETTING REGULAR SALARY INCOME FROM THE COMPANY; MERE FREQUENCY OF TRANSACTIONS C ANNOT BE AN EXCLUSIVE PROOF OF TRADING ACTIVITY. THEREFORE, HE HELD THAT AO WAS RIGHT IN TREATING SUCH INCOME UNDER THE HEAD CAPITAL GAIN AND IN THIS MA NNER LD. CIT(A) HAS ITA NO. 5178/MUM/12 (A.Y.2009-10)) 5 CONFIRMED THE ACTION OF THE AO. LD. CIT(A) HAS ALS O CONFIRMED THE DISALLOWANCE MADE BY THE AO IN RESPECT OF INTEREST. 5. THE ASSESSEE IS AGGRIEVED WITH SUCH ORDER OF LD . CIT(A) AND HENCE, RAISED THE AFOREMENTIONED GROUNDS OF APPEAL. 6. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY L D. AR THAT DETAILS OF SALES AND PURCHASES WERE FILED ALONGWITH ORIGINAL RETURN. HE IN THIS REGARD INVITED OUR ATTENTION TOWARDS PAGE 1 TO 9 OF THE PAPER BOOK ON WHICH COPY OF ORIGINAL COMPUTATION HAS BEEN FILED. FROM PAGE 3 TO 7 THE D ETAILS REGARDING SALE AND PURCHASES OF SHARES AND SECURITIES HAVE BEEN LISTE D. HE SUBMITTED THAT THE VOLUME OF SALE AND PURCHASE IS TO THE TUNE OF RS.4 9.00 CRORES AND RS.51.26 CRORES RESPECTIVELY. REFERRING TO THE DETAILS, HE SUBMITTED THAT MANY OF THE TRANSACTIONS OF SALE AND PURCHASE HAVE BEEN DONE ON THE SAME DATE IN ONE SCRIP IN WHICH ASSESSEE HAS INCURRED HUGE PROFIT AS WELL AS LOSS. HE SUBMITTED THAT FREQUENCY OF THE TRANSACTION, TURNOVER OF THE ASSESSEE AND AVERAGE HOLDING PERIOD OF VARIOUS SCRIPS CLEARLY INDICATE THAT MOTI VE OF THE ASSESSEE TO CARRY OUT THE ACTIVITY OF SALE AND PURCHASE OF SHARES WAS TO CARRY OUT SUCH AN ACTIVITY AS BUSINESS ACTIVITY. HE SUBMITTED THAT ASSESSEE U NDER WRONG IMPRESSION HAD CLAIMED THE SAME AS AN ACTIVITY GIVING RISE TO INCO ME UNDER THE HEAD CAPITAL GAIN. HE SUBMITTED THAT THE MANNER AND MODE IN W HICH THE ACCOUNTS ARE MAINTAINED BY THE ASSESSEE CANNOT DETERMINE THE CHA RACTER OF INCOME AND TO ASCERTAIN THE REAL CHARACTER OF INCOME ONE HAS TO C ONSIDER THE FACTS AND CIRCUMSTANCES OF THE CASE. HE SUBMITTED THAT FACT S AND CIRCUMSTANCES OF THE CASE CLEARLY DESCRIBE THAT THE ACTIVITY OF SALE A ND PURCHASE OF SHARE CARRIED OUT BY THE ASSESSEE WAS IN THE NATURE OF BUSINESS A CTIVITY. HE SUBMITTED THAT IN THE PAST ASSESSEE DID NOT CARRY OUT SUCH ACTIVIT Y AT SUCH HUGE LEVEL AND ONLY ISOLATED TRANSACTIONS OF SALE AND PURCHASES WE RE DONE. HE ALSO SUBMITTED THAT ASSESSEE IS NOT DEBARRED FROM PUTTING THIS CLA IM DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS ACCORDING TO WELL ESTABLI SHED LAW WHAT IS TO BE ASSESSED IS THE INCOME ASSESSABLE UNDER THE ACT AND IT DOES NOT DEPEND UPON ITA NO. 5178/MUM/12 (A.Y.2009-10)) 6 THE MANNER IN WHICH IT HAS BEEN SHOWN BY THE ASSESS EE. RELYING ON THE SUBMISSIONS MADE BEFORE LD. CIT(A) WHICH HAVE BEEN DISCUSSED IN EARLIER PART OF THIS ORDER LD. AR SUBMITTED THAT THE ACTIVITY OF SALE AND PURCHASE OF SHARES ENTERED INTO BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION SHOULD BE CONSIDERED TO BE AN ACTIVITY GIVING RISE TO INCOME ASSESSABLE UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION. H E ALSO INVITED OUR ATTENTION TOWARDS THE FOLLOWING DECISIONS: (1) SMT. HARSHAD N. MEHTA VS. DCIT 43 SOT 332(MUM) , WHEREIN THE ASSESSEE HAD SHOWN THE INCOME FROM SALE AND PURCHAS E OF SHARES UNDER THE HEAD SHORT TERM CAPITAL GAIN AND IT WAS FOUND THAT THE ASSESSEE DEALT WITH SHARES OF 35 COMPANIES FOR A TOTAL CONSIDERATION OF RS. 2.99 CRORES AS AGAINST PURCHASE COST OF RS.2.70 CRORES. THE AO HELD THAT THE NATURE OF ACTIVITY, FREQUENCY AND MAGNITUDE SUGGEST THAT THE PROFIT DEC LARED BY THE ASSESSEE ON ACCOUNT OF TRANSACTIONS IN PURCHASE AND SALE OF S HARE WAS BUSINESS INCOME. LD. CIT(A) HELD THAT SALE OF SHARES WHERE PERIOD O F HOLDING WAS LESS THAN ONE MONTH SHOULD BE TREATED AS BUSINESS INCOME. IN C ASE WHERE HOLDING WAS MORE THAN ONE MONTH THEN THE SAME SHOULD BE TREATED AS CAPITAL GAIN. ON THESE FACTS IT WAS HELD BY THE TRIBUNAL THAT LEGAL PRINCIPLES LAID DOWN BY THE COURTS ON ACCOUNT OF TREATMENT OF AN INCOME AS BUS INESS INCOME OR CAPITAL GAIN CAN BE SUMMARIZED AS FOLLOWS: (A) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN I NVESTOR AS WELL AS DEALER IN SHARES. (B) WHETHER A TRANSACTION OF SALE AND PURCHASE OF S HARES IS A TRADING OR INVESTMENT TRANSACTION IS A MIXED QUESTION OF LAW A ND FACT. (C)WHETHER A PARTICULAR HOLDING IS BY WAY OF INVEST MENT OR OF STOCK-IN- TRADE IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSES SEE AND II IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM THE RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES HELD AS I NVESTMENTS AND THOSE HELD AS STOCK-IN-TRADE. (D) THE TREATMENT IN THE BOOKS OF AN ASSESSEE IS NO T CONCLUSIVE AND IF THE VOLUME, FREQUENCY AND REGULARITY AT WHICH TRANSACTI ONS ARE CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIVITY WITH PROFIT MOTIVE, THEN IT BECOMES BUSINESS PROFIT AND NOT CAPITAL GAIN. ITA NO. 5178/MUM/12 (A.Y.2009-10)) 7 (E) PURCHASE WITH INTENTION TO RESELL CAN CONSTITUT E CAPITAL GAIN OR BUSINESS PROFIT DEPENDING ON CIRCUMSTANCES LIKE QUANTITY OF PURCHASE AND NATURE OF ACTIVITY. (F) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AN D THE QUESTION MUST BE ANSWERED DEPENDING UPON SELECTIVE EFFECT OF ALL REL EVANT MATERIALS BROUGHT ON RECORD. [PARA 12] ON THESE FACTS IT WAS HELD BY THE TRIBUNAL THAT ENT IRE PROFIT ON SALE OF SHARES WAS TO BE CONSIDERED AS BUSINESS INCOME BEING IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE. (2) JAYSHREE PRADEEP SHAH, 131 ITD 326(BOM), WHE REIN ASSESSEE WAS FOUND TO ENTERED INTO VOLUMINOUS TRANSACTIONS OF PURCHASE AND SALE OF SHARES. IT WAS ALSO FOUND THAT ON CERTAIN SHARES ASSESSEE DID NOT TAKE DELIVERY OF SHARES PURCHASED OR SOLD. THE INCOME IN RESPECT TO THOSE WERE OFFERED AS BUSINESS INCOME. IN RESPECT OF REMAINING TRANSACTIONS OF SH ARES, WHERE ASSESSEE ACTUALLY TOOK DELIVERY, THE SHARES WERE SHOWN AS IN VESTMENT IN THE BOOKS OF ACCOUNT. SINCE THOSE SHARES WERE HELD FOR A PERIO D LESS THAN ONE MONTH, THOSE SHARES WERE CONSIDERED AS SHORT TERM CAPITAL GAIN. THE AO OBSERVED THAT HAVING REGARD TO NUMBER, VOLUME AND FREQUENCY OF TRANSACTION OF PURCHASE AND SALE OF SHARES WHERE ACTUAL DELIVERY WAS INVOLV ED, THE ACTUAL GAIN DECLARED BY ASSESSEE WAS TO BE CONSIDERED AS INCOME FROM BUS INESS. LD. CIT(A) UPHELD THE ORDER OF AO. FROM THE FACTS IT WAS FOUND BY TH E TRIBUNAL THAT THERE WERE 800 TRANSACTIONS FOR WHICH THE HOLDING PERIOD WAS BETWEEN ONE DAY TO SIX MONTHS. THE ASSESSEE BOUGHT AND SOLD THE SHARES OF MORE THAN 200 COMPANIES. THE PURCHASE AND SALE OF SHARES WERE T O THE TUNE OF RS. 1.01 CORES AND RS.1.10 CRORES RESPECTIVELY. SALE AND P URCHASE OF SHARES WAS THE ONLY ACTIVITY OF THE ASSESSEE AND ON THESE CIRCUMST ANCES ASSESSEES APPEAL WAS DISMISSED AND IT WAS HELD THAT THE ACTIVITY OF SALE AND PURCHASE OF SHARES WAS BUSINESS ACTIVITY. ITA NO. 5178/MUM/12 (A.Y.2009-10)) 8 (3)IMMPORTAL FINANCE SERVICES PVT. LTD. VS. DCIT, 4 4 SOT 88. IN THIS CASE ASSESSEE HAD DEALT IN SHARES OF 13 DIFFERENT COMPAN IES. THE ASSESSEE FILED ITS RETURN, WHEREIN A PART OF INCOME ARISING FROM SALE OF SHARES WAS SHOWN AS SHORT TERM CAPITAL GAIN. THE AO NOTED THAT TRANSAC TIONS IN RELATION TO SCRIPS WERE AMOUNTING TO MORE THAN 450 IN NUMBERS DURING T HE YEAR. THE AVERAGE PERIOD OF HOLDING RANGED FROM A FEW DAYS TO FEW MON THS. THE AO NOTED THAT THE VOLUME OF PURCHASE AND SALE OF SHARES, FREQUENCY W ITH WHICH IT WAS DONE, THE ORGANIZED /ORCHESTRAL MANNER IN WHICH TRANSACTIONS WERE CARRIED OUT AND THE FACT THAT ALL THESE TRANSACTIONS HAD BEEN CONDUCTED WITH A MEAGER CAPITAL OF RS. 1.00 LAC AND MAINLY WITH THE HELP OF BORROWED FUNDS INDICATED THAT ACTIVITY OF PURCHASE AND SALE OF SHARES WAS WITH THE INTENTI ON TO MAKE INSTANT PROFIT AND HE CONSIDERED THE SAME AS INCOME FROM BUSINESS. THE STAND OF AO WAS CONFIRMED BY LD.CIT(A) AND THE ORDER OF LD. CIT(A) WAS UPHELD BY THE TRIBUNAL. (4) SHRI NAROTTAM SOMANI (HUF) VS. ACIT, 47 SOT 37 . IN THIS CASE IT WAS NOTED BY THE TRIBUNAL THAT THE FREQUENCY OF THE TR ANSACTION WAS VERY HIGH AND SHARES WERE HELD FOR A VERY SHORT TIME AS THEY WERE SOLD IMMEDIATELY AFTER SHORT PERIOD OF PURCHASE, THEREFORE, IT CLEARLY INDICATE THAT ASSESSEES INTENTION WAS TO TRADE IN SHARES AND IT WAS HELD THAT THE ACTIVITY O F SALE AND PURCHASE ENTERED INTO BY THE ASSESSEE WAS IN THE NATURE OF BUSINESS. (5) ACIT VS. TARUN AMARCHND JAIN (2012) 21 TAXMANN .COM 319 (MUM) : ON THE FACTS THAT (I) ASSESSEE WAS REGULARLY PURCHASIN G AND SELLING SHARES IN MORE THAN 50 SCRIPTS; (II) MOST OF THE SHARES WERE SOLD WITHIN THREE MONTHS AND IN MANY CASES WITHIN A MONTH AND IN SOME CASES WITHIN FEW DAYS; (III) ASSESSEE HAD ALSO DONE REPETITIVE TRANSACTION IN THE SAME SC RIP; (IV) TOTAL PURCHASES OF SHARES WERE FOR RS.2.61 CRORES AND DIVIDEND INCOME WAS ONLY RS.65,675/- AND (V) HAD USED BORROWED FUNDS FOR THE PURCHASE OF SHA RES, THEREFORE, ASSESSEE WAS HELD TO HAVE EARNED THE INCOME FROM SALE OF SHA RES AS BUSINESS INCOME. ITA NO. 5178/MUM/12 (A.Y.2009-10)) 9 7. REFERRING TO ABOVE DECISIONS IT WAS SUBMITTED B Y LD. AR THAT ALL THE REQUIREMENTS TO CHARACTERIZE THE ACTIVITY OF THE A SSESSEE AS BUSINESS ARE FULFILLED, THEREFORE, ASSESSEE SHOULD BE HELD TO HA VE EARNED THE INCOME FROM SALE AND PURCHASE OF SHARES AS BUSINESS INCOME. 8. SO FAR AS IT RELATES TO GROUND NO.2, IT WAS SUBM ITTED BY LD. AR THAT IF THE CASE OF THE ASSESSEE IS ACCEPTED THAT THE INCOM E FROM SALE AND PURCHASE OF SHARES IS A BUSINESS INCOME THEN ALLOWABILITY OF IN TEREST WILL BECOME CONSEQUENTIAL. 9. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR TH AT ASSESSEE HIMSELF HAS SHOWN THE INCOME AS INCOME GIVING RISE TO CAPITAL G AIN. THE SHARES WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET. THEREFOR E, HE SUBMITTED THAT AO WAS RIGHT IN TREATING THE INCOME FROM SALE AND PURC HASE OF SHARES AS INCOME FROM CAPITAL GAIN. HE SUBMITTED THAT AS THE TREAT MENT OF THE SAID INCOME AS BUSINESS INCOME IS BENEFICIAL TO THE ASSESSEE, THE ASSESSEE CHANGED HIS STAND WHICH IS NOT PERMISSIBLE IN LAW. HE ALSO SUBMITTED THAT WITHOUT FILING THE REVISED RETURN THE ASSESSEE CANNOT MAKE A FRESH CLA IM AND IN THIS REGARD HE REFERRED TO THE DECISION OF HONBLE SUPEME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT , 284 ITR 323 (SC). THUS LD. DR SUBMI TTED THAT THE CLAIM OF THE ASSESSEE HAS RIGHTLY BEEN REJECTED BY AO AND LD. CI T(A) AND THE ORDER OF LD. CIT(A) SHOULD BE CONFIRMED. 10. IN THE REJOINDER, LD. AR SUBMITTED THAT THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) IS NOT APPLICABLE AS AFTER CONSIDERING THE SAME HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. PRUTHVI BROKERS AND SHARESHOLDERS PVT. LTD., 349 I TR 336(BOM) HAVE HELD THAT ASSESSEE CAN AMEND THE RETURN FILED BY HIM FOR MAK ING ADDITIONAL CLAIM OTHER THAN BY FILING A REVISED RETURN. ITA NO. 5178/MUM/12 (A.Y.2009-10)) 10 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. IT IS ALREADY MENTION ED THAT THE DETAILS OF SALE AND PURCHASES OF SHARES HAS BEEN SUBMITTED BY THE ASSES SE ALONGWITH ORIGINAL COMPUTATION OF INCOME, COPY OF WHICH HAS BEEN FILED AT PAGES 3 TO 7 OF THE PAPER BOOK. WE HAVE GONE THROUGH THE SAID DETAILS AND TO BRING CLARITY ON FACTS FEW INSTANCES ARE REQUIRED TO BE MENTIONED. FIRST SCRIP MENTIONED IN THE DETAIL IS ABN OFFSHORE COMPANY, IN WHICH ASSESSEE HAS PURC HASED THE SHARES OF THE SAID COMPANY AT SIX OCCASIONS I.E. 3/11/2008, 4/11/ 2008, 1/1/2009, 15/1/2009, 23/1/2009 AND 22/8/2008. THE SHARES P URCHASED ON 3/11/2008 WERE FOR A CONSIDERATION OF RS.40,11,968/ -. THESE WERE SOLD ON THE SAME DATE I.E. FOR A SUM OF RS.44,19,316/- GIVING R ISE TO INCOME AT RS.4,07,354/-. SIMILARLY SHARES PURCHASED ON 4/11/ 2008 FOR A SUM OF RS.42,65,162/- WERE SOLD ON THE SAME DATE FOR A CON SIDERATION OF RS.49,66,280/- GIVING RISE TO PROFIT OF RS.7,01,118 /-. THE SHARE PURCHASED ON 1/1/2009 AMOUNTING TO RS.33,86,491/- WERE ALSO SOLD ON THE SAME DATE FOR A SUM OF RS.37,42,852/- GIVING RISE TO INCOME OF RS.3 ,56,361/-. THE SHARES PURCHASED ON 15/1/2009 AMOUNTING TO RS.29,27,286/- WERE ALSO SOLD ON THE SAME DATE FOR A SUM OF RS.31,71,621/- GIVING RISE T O INCOME OF RS.2,44,335/-. THE SHARE PURCHASED ON 31/1/2009 AMOUNTING TO RS.11 ,26,071/- WERE ALSO SOLD ON THE SAME DATE FOR A SUM OF RS.12,47,234/- G IVING RISE TO AN INCOME OF RS.1,21,163/-. THE SHARE PURCHASED ON 22/8/2008 WE RE SOLD ON 18/9/2008 I.E. WITHIN A SHORT SPAN OF 27 DAYS. 12. THE NEXT SCRIP WHICH CAN BE MENTIONED IS EDU C OMP. THIS SCRIP HAS ALSO BEEN PURCHASED AND SOLD ON THE SAME DATE AND T HE DETAILS ARE AS UNDER: ACQ. DT. RATE ACQ.COST SALE DATE SALES CONSIDERATION NET SALE CONSIDERATION CAPITAL GAINS STT PAID 19/11/08 0850066 49643212 19/11/08 55219592 5521959 2 5576380 YES 23/12/08 0000076 26009576 23/12/08 27691261 2769126 1 1681685 YES 27/1/09 0500566 8339650 27/01/09 9058878 9058878 71 9228 YES 05/02/09 8000388 2721078 05/02/09 2889159 2889159 1 68081 YES 10/02/09 1500718 2417658 10/02/09 2938092 2938092 5 20434 YES 11/02/09 8006767 1782677 11/02/09 1948816 1948816 1 66139 YES ITA NO. 5178/MUM/12 (A.Y.2009-10)) 11 12/02/09 9807551 897878 12/02/09 989283 989283 9140 5 YES 13/02/09 4808538 1945854 13/02/09 2134433 2134433 1 88579 YES 16/02/09 1000779 2030779 16/02/09 2158253 2158253 1 27474 YES 17/02/09 1806529 1915653 17/02/09 2049470 2049470 1 33817 YES 02/03/09 2500933 3788733 02/03/09 4098930 4098930 3 10197 YES 06/03/09 5500853 2362280 06/03/09 2212646 2212646 - 149634 YES 12/03/09 2008143 3141029 12/03/09 3049730 3049730 - 91299 YES SIMILAR IS THE CASE WITH RANBAXY SCRIP, THE DETAIL S ARE AS UNDER: ACQ. DT. RATE ACQ.COST SALE DATE SALES CONSIDERATION NET SALE CONSIDERATION CAPITAL GAINS STT PAID 16/07/08 204000.37 880740 16/7/08 948471 948471 677 31 YES 18/07/08 2600348 2607348 23/07/08 932603 932603 591 33 YES 29/07/08 8000974 1440592 01/08/08 1524220 1524220 8 3628 YES 26/02/09 2800276 506819 26/02/09 426315 426315 -805 04 YES 13. IN SUM AND SUBSTANCE THE ASSESSEE HAS DEALT IN SHARES OF VARIOUS COMPANIES OF WHICH PURCHASES WERE TO THE TUNE OF RS .50,24,10,763/- AND SALES WERE TO THE TUNE OF RS.49,06,40,349/- AND ASSESSEE HAS INCURRED A LOSS OF RS. 1,17,70,414/-. LOOKING INTO VOLUME AND FREQUENCY OF SALE AND PURCHASE OF SHARES IN THE SAME SCRIP ON DAY-TO-DAY BASIS WILL CLEARLY INDICATE THAT THOSE SHARES WERE NOT PURCHASED BY THE ASSESSEE FOR EARNI NG CAPITAL GAIN BUT FOR MAKING PROFITS ON DAY TO DAY BASIS. THE PERIOD OF HOLDING IS VERY SMALL. THEREFORE, IT CANNOT BE SAID THAT THE SALE AND PURC HASE DONE BY THE ASSESSEE WAS NOT WITH AN INTENTION TO TRADE THEREIN FOR E ARNING PROFIT. NOW THE QUESTION REMAINS THAT WHETHER SUCH ACTIVITY OF THE ASSESSEE CAN BE HELD TO BE GIVING RISE TO CAPITAL GAIN SIMPLY ON THE BASIS THA T ASSESSEE IN HIS RETURN OF INCOME HAS TREATED SUCH INCOME AS GIVING RISE TO CA PITAL GAIN. AS PER WELL ESTABLISHED LAW DESCRIBED BY HONBLE SUPRE COURT I N THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LTD. VS. CIT, 82 ITR 363 , THEIR LORDSHIP HAVE OBSERVED THAT IT IS UNABLE TO APPRECIATE THAT IF A N ASSESSEE UNDER SOME MISAPPREHENSION OR MISTAKE FAILS TO MAKE AN ENTRY I N THE BOOKS OF ACCOUNTS AND ALL THOUGH, UNDER THE LAW, A DEDUCTION MUST BE ALLOWED BY THE ITO, THE ASSESSEE WILL LOSS THE RIGHT OF CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THAT DEDUCTION. WHETHER THE ASSESSEE IS ENTITLED T O A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING T HERETO AND NOT ON THE VIEW ITA NO. 5178/MUM/12 (A.Y.2009-10)) 12 WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CA N THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNTS BE DECISIVE OR CONCLUSIVE IN THE MATTER. THEREFORE, SIMPLY FOR THE REASON THAT ASSESSEE HAD CLAIMED THE SAID INCOME AS GIVING RISE TO CAPITAL GAIN, WHICH CLAIM WAS LATER ON REVISED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT CANNOT BE HELD THAT THE ACTIVITY OF SALE AND PURCHASE OF SHARES ENTERED INTO BY THE ASSESSEE HAS GIVEN RISE TO CAPITAL GAIN. IT IS REQUIRED TO ASCERTAIN THAT WHETHER ACTIVITY O F SALE AND PURCHASE OF SHARES CARRIED OUT BY THE ASSESSEE IS IN THE NATURE OF BU SINESS OR CAPITAL GAIN. IT HAS ALREADY BEEN MENTIONED THAT THE MANNER IN WHIC H THE ASSESSEE HAS CARRIED OUT THIS ACTIVITY CLEARLY INDICATE THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY OUT SUCH ACTIVITY AS TRADE AND THE MOTIVE OF THE ASSESSEE WAS TO EARN PROFIT. THE ACTIVITY OF SALE AND PURCHASE OF SHARE WAS REGULAR ACTIVITY. THE ASSESSEE HAS DEALT WITH IN THE SCRIP OF ONE COMPANY ON VARIOUS DATES. THEY HAVE BEEN PURCHASED AND SOLD ON THE SAME DATE FOR W HICH HUGE PURCHASE PRICE IS PAID AND HUGE INCOME IS EARNED ON THE SAME DATE. THE CRITERIA ON WHICH IT HAS TO BE DETERMINED THAT WHETHER OR NOT ASSESSEE IS ENGAGED IN THE ACTIVITY OF BUSINESS OF SALE AND PURCHASE OF SHARES HAVE BEEN D ESCRIBED IN THE AFOREMENTIONED DECISION RELIED UPON BY THE LD. AR I N WHICH IT HAS BEEN HELD THAT THIS QUESTION IS A MIXED QUESTION OF LAW AND F ACT; WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMENT OR STOCK IN TRADE W ITHIN KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVID ENCE FROM THE RECORD AS TO WHETHER HE MAINTAIN ANY DISTINCTION BETWEEN SHARES HELD AS INVESTMENT AND THOSE HELD AS STOCK IN TRADE; THE TREATMENT IN THE BOOKS OF AN ASSESSEE IS NOT CONCLUSIVE AND IF VOLUME, FREQUENCY AND REGULARITY AT WHICH SUCH TRANSACTIONS ARE CARRIED OUT INDICATES SYSTEMATIC AND ORGANIZED ACTIVITY WITH PROFIT MOTIVE, THEN IT BECOMES BUSINESS PROFIT AND NOT CAPITAL GA IN; PURCHASE WITH THE INTENTION TO RESELL CAN CONSTITUTE CAPITAL GAIN OR BUSINESS PROFIT DEPENDING ON CIRCUMSTANCES LIKE QUANTITY OF PURCHASE AND NATURE OF ACTIVITY; AND NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND THE QUESTION MUST BE ANSWERED DEPENDING UPON SELECTIVE EFFECT OF ALL RELEVANT MAT ERIAL BROUGHT ON RECORD. ITA NO. 5178/MUM/12 (A.Y.2009-10)) 13 14. SEEING THE FACT OF THE PRESENT CASE IN THE AFOR EMENTIONED CRITERIA IT IS TO BE HELD THAT TREATMENT IN THE BOOKS OF ASSESSEE IS NOT CONCLUSIVE. THE VOLUME, FREQUENCY AND REGULARITY AT WHICH SUCH TRAN SACTIONS ARE CARRIED SHOW THAT THE ASSESSEE HAS CARRIED OUT THIS ACTIVITY IN A SYSTEMATIC AND ORGANIZED MANNER WITH A MOTIVE TO EARN PROFIT. THE QUANTIT Y OF PURCHASE AND SALE IS VERY HIGH. THE SAME SCRIP HAS BEEN DEALT WITH BY T HE ASSESSEE ON VARIOUS DATES ON DAY TO DAY BASIS. THE PERIOD OF HOLDING I S ALSO VERY LOW. IF ALL THESE CHARACTERISTICS ARE APPLIED TO THE CASE OF THE ASSE SSEE THEN AN INESCAPABLE CONCLUSION CAN BE ARRIVED THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE IN THE NATURE OF BUSINESS ACTIVITY AND IT IS TO BE HELD S O. 15. NOW COMING TO THE CONTENTION OF LD. DR THAT WIT HOUT RESORTING TO REVISED RETURN THE ASSESSEE COULD NOT REVISE HIS CLAIM. IN THE REJOINDER LD. AR REFERRED TO THE DECISION OF HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD. (SUPRA). T HE QUESTIONS BEFORE THEIR LORDSHIP OF BOMBAY HIGH COURT WERE AS UNDER: ( A) WHETHER AN ASSESSEE CAN AMEND A RETURN FILED BY HIM FOR MAKING ADDITIONAL CLAIM FOR DEDUCTION OTHER THAN FILING A REVISED RET URN ? (B) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE INCOME-TAX APPELLATE TRIBUNAL, IN LAW, WAS RIGHT IN HOLDING T HAT A CLAIM OF DEDUCTION NOT MADE IN THE ORIGINAL RETURN AND NOT SUPPORTED BY A REVISED RETURN, IS ADMISSIBLE ? (C) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE TRIBUNAL, IN LAW, WAS RIGHT IN NOT APPRECIATING THE FACT THAT THE ASSESSING OFFICER HAS NO POWER TO ENTERTAIN A CLAIM MADE BY AN ASSESS EE AFTER FILING A ORIGINAL RETURN OTHERWISE THAN BY FILING A REVISED RETURN ? THEIR LORDSHIP IN THAT CASE REFERRED TO THE DECISI ON OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAI PARABOLIC 306 ITR 42(D EL), WHEREIN IT HAS BEEN HELD THAT HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT(SUPRA) HAD DISMISSED THE APPEAL MAKING IT CLEAR THAT THE D ECISION WAS LIMITED TO THE POWER OF ASSESSING AUTHORITY TO ENTERTAIN A CLAIM OF DEDUCTION OTHERWISE THAN ITA NO. 5178/MUM/12 (A.Y.2009-10)) 14 BY WAY OF REVISED RETURN AND DID NOT IMPINGE ON THE POWERS OF THE TRIBUNAL. IN THE SAID CASE THEIR LORDSHIP OF HONBLE JURISDICTIO NAL HIGH COURT FOUND THAT THERE WERE TWO IMPORTANT THINGS. FIRSTLY, THE ASSE SSEE WAS ENTITLED TO THE DEDUCTION CLAIMED. SECONDLY, THE ASSESSEE MADE THE CLAIM NOT ONLY BEFORE THE AO BUT ALSO INDEPENDENTLY BEFORE LD. CIT(A) AND THE TRIBUNAL. ON THESE FACTS HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE CLAIM OF THE ASSESSEE WAS TO BE CONSIDERED ON MERITS AND NON-FILING OF REVISE D RETURN CANNOT DEBAR THE ASSESSEE TO MAKE A CLAIM FOR WHICH HE HAS LEGALLY ENTITLED. THEREFORE, RELIANCE BY THE LD. DR ON THE DECISION OF GOETZE (INDIA) LTD .(SUPRA) IS MISPLACED AND ON THE BASIS THIS CONTENTION OF THE REVENUE, THE REL IEF CANNOT BE DENIED TO THE ASSESSEE. 16. IN VIEW OF THE ABOVE DISCUSSIONS WE ARE OF THE OPINION THAT INCOME EARNED BY THE ASSESSEE FROM THE ACTIVITY OF SALE AN D PURCHASE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME, THEREFORE, WE ALLOW GR OUND NO.1 & 2 OF THE APPEAL. 17. SO FAR AS IT RELATES TO GROUND NO.3, SINCE IT H AS BEEN HELD THAT ACTIVITY OF SALE AND PURCHASE ENTERED INTO BY THE ASSESSEE IS I N THE NATURE OF BUSINESS, AS IT HAS NOT BEEN DISPUTED BY THE REVENUE THAT BORRO WED FUNDS ON WHICH INTEREST HAS BEEN PAID BY THE ASSESSEE WERE UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES, THE SAME BECOME CONSEQUENTIAL AND ALLOWAB LE OUT OF INCOME EARNED BY THE ASSESSEE FROM THE ACTIVITY OF SALE AND PURCH ASE OF SHARES. 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH DAY OF JAN.2013 SD/- SD/- (N.K.BILLAIYA ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH JAN.2013 ITA NO. 5178/MUM/12 (A.Y.2009-10)) 15 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R E BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.