ACIT RG 25(3), MUMBAI V. GAURISHANKAR JHALANI, MUMBAI

ITA 5271/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88355 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: VIJAY MEHTA; SUNIL HIRAVAT
• Keywords: Business income; Transactions in derivatives

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA (J M) . . , , ./I.T.A. NO.2644/MUM/2009 AND 5271/MUM/2010 ( / ASSESSMENT YEARS : 2005-06 AND 2007-08) ASSTT. COMMISSIONER OF INCOME TAX--25(3), C-11, ROOM NO.308, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400051. / VS. SHRI GAURISHANKAR JHALANI, 1805,1806, OBEROI WOOD, B WING, GOREGAON (E), MUMBAI-400063 ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN/GIR NO. :AAIPJ3872F ! / APPELLANT BY SHRI PAVAN KUMAR BEERLA ' ! / RESPONDENT BY SHRI VIJAY MEHTA AND SHRI SUNIL HIRAVAT # $ ' %& / DATE OF HEARING : 10.2.2015 '( ' %& /DATE OF PRONOUNCEMENT : 20. 2. 2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-XXVI, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2005-06 AND 2007-08. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN REVERSING THE DECISION OF THE AO IN AS SESSING THE CAPITAL GAINS DECLARED BY THE ASSESSEE AS BUSINESS INCOME IN BOTH THE YEARS. ACCORDINGLY, BOTH THE APPEALS WERE HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENC E. ITA. NO.2644/MUM/2009 AND 5271/MUM/2010 2 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. T HE ASSESSEE HEREIN IS AN INDIVIDUAL AND IS A DIRECTOR OF M/S MUDRA COM MODITY & DERIVATIRES P LTD. THE ABOVE SAID COMPANY IS DEALING IN SHARES A ND SECURITIES. THE ASSESSEE HEREIN WAS ALSO INDULGING IN SHARE TRANSAC TIONS AND DECLARED SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITA L GAIN. THE AO ASSESSED BOTH OF THEM AS BUSINESS INCOME OF THE ASS ESSEE IN BOTH THE YEARS UNDER CONSIDERATION. WE NOTICE THAT THE ASSE SSING OFFICER HAS PLACED RELIANCE ON THE CIRCULAR NO.4 OF 2007 DATED 15.6.20 07 ISSUED BY CBDT, WHEREIN CERTAIN GUIDING FACTORS THAT ARE NEED TO BE CONSIDERED TO DECIDE ABOUT THE NATURE OF TRANSACTIONS HAVE BEEN PRESCRIB ED. THE CASE LAWS RELATING TO THIS ISSUE AS WELL AS THE CBDT CIRCULAR REFERRED ABOVE, REVEAL ONLY ONE POINT THAT THERE IS NO STRAIGHT JACKET FOR MULA TO DECIDE ABOUT THE NATURE OF SHARE TRANSACTIONS VIZ., WHETHER IT WAS C ARRIED AS BUSINESS ACTIVITY OR INVESTMENT ACTIVITY. THE FACTS PREVAIL ING IN EACH CASE HAS TO BE JUDGED INDEPENDENTLY IN ORDER TO RESOLVE THE SAID Q UESTION. 3. WE NOTICE FROM THE ASSESSMENT ORDER THAT THE AO HAS CONSIDERED FOLLOWING FACTS IN THIS REGARD:- (A) THE FREQUENCY OF THE SHARE TRANSACTIONS IS VE RY HIGH (B) THE VOLUME OF TRANSACTION IS ALSO VERY HIGH. (C) THE ASSESSEE HAS USED LOAN FUNDS FOR INVESTIN G IN SHARES. (D) THE ASSESSEE HAS MAINTAINED FULL FLEDGED OFFI CER FOR CARRYING ON THE BUSINESS OF SHARE TRADING. (E) THE PERIOD OF HOLDING WAS FEW DAYS ONLY IN MO ST OF THE SCRIPS. BASED ON THESE FACTS, THE AO HAS COME TO THE CONCLU SION THAT THE INTENTION OF THE ASSESSEE WAS NOT TO HOLD THE SHARES AS HIS I NVESTMENT. THOUGH THE ASSESSEE OFFERED EXTENSIVE ARGUMENTS TO SUPPORT HIS CASE, THE SAME DID NOT FIND FAVOUR WITH THE AO. ACCORDINGLY HE ASSESSE D THE CAPITAL GAINS OFFERED BY THE ASSESSEE AS BUSINESS INCOME. HOWEVER , THE LD CIT WAS CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND ACCORDINGLY REVERSED ITA. NO.2644/MUM/2009 AND 5271/MUM/2010 3 THE ORDER OF THE AO. AGGRIEVED, THE REVENUE HAS FI LED THESE APPEALS BEFORE US. 4. THE LD D.R SUBMITTED THAT THE ASSESSEE, BEING AN EMPLOYEE OF A SHARE TRADING COMPANY, COULD NOT HAVE THE INTENTION TO MAKE INVESTMENTS. HE SUBMITTED THAT THE INTENTION OF THE ASSESSEE WAS DEMONSTRATED BY THE FACTS PREVAILING IN THIS CASE AND THE SAME HAVE BEE N CLEARLY BROUGHT OUT BY THE AO. HE SUBMITTED THAT THE ASSESSEE HAS USED LO AN FUNDS FOR MAKING INVESTMENT, WHICH FACT PROVES THAT THE INTENTION OF THE ASSESSEE WAS TO TRADE IN SHARES. 5. THE LD A.R SUBMITTED, ON THE CONTRARY, SUBMITT ED THAT THE ASSESSING OFFICER HAS MADE ONLY GENERAL OBSERVATIONS WITHOUT ACTUALLY ANALYZING THE FACTS PREVAILING IN THESE CASES. HE SUBMITTED THAT THE ASSESSEE HAD BORROWED FUNDS FROM HIS FAMILY MEMBERS ONLY AND HE DID NOT PAY ANY INTEREST TO THEM. ACCORDINGLY HE SUBMITTED THAT TH E SAME CANNOT BE CONSIDERED AS AN EFFECTIVE BORROWING. HE SUBMITTED THAT HE HAS DEALT IN 47 SCRIPS ONLY IN AY 2005-06 AND IN 45 SCRIPS IN AY 2007-08. THE AVERAGE PERIOD OF HOLDING WAS AS UNDER:- DESCRIPTION AY 2005-06 AY 2007-08 LONG TERM CAPITAL GAIN SHARES 748 DAYS 685 DAYS SHORT TERM CAPITAL GAIN SHARES 54 DAYS 133 DAYS HE FURTHER SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT REPETITIVE TRANSACTIONS ONLY IN FEW SCRIPS MOSTLY ONLY ONCE. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS A FULL TIME EMPLOYEE IN A COMPANY AND WAS OTHERWISE ENGAGED, THUS PROVING THAT THE SHARE TRANSACTION WA S NOT HIS PRINCIPAL ACTIVITY. HE FURTHER SUBMITTED THAT THE ASSESSEE H AS ACCOUNTED THE SHARES AS INVESTMENT ONLY IN THE BOOKS OF ACCOUNTS. HE ALSO SUBMITTED THAT THE ASSESSEE HAS VALUED THE SHARES AT COST IN CONSONA NCE WITH HIS INTENTION TO HOLD THEM AS INVESTMENT. HE FURTHER SUBMITTED T HAT THE ASSESSING OFFICER WAS NOT CORRECT IN STATING THAT THE ASSESSE E HAS MAINTAINED FULL ITA. NO.2644/MUM/2009 AND 5271/MUM/2010 4 FLEDGED INFRASTRUCTURE FOR TRANSACTING IN SHARES. HE SUBMITTED THAT THE AO HAS MADE THIS OBSERVATION WITHOUT VERIFYING THE FAC TS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS SHOWN THE INCOME AR ISING FROM DERIVATIVES TRANSACTION AS HIS BUSINESS INCOME. HE ALSO SUBMIT TED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME IN BOTH THE YEARS. 6. THE LD A.R THEN INVITED OUR ATTENTION TO THE FOL LOWING DECISIONS RENDERED CO-ORDINATE BENCHES OF TRIBUNAL AND SUBMIT TED THAT THE TRIBUNAL HAS DECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE IN IDENTICAL SET OF FACTS:- (A) ACIT VS. NAISHADH V VACHHARAJANI IN ITA NO.642 9/MUM/2009 DATED 25.02.11 (B) SHRI MOHAN K JAIN VS. ADCIT (ITA NO.1033/MUM/2 010 DATED 21.02.2014) (C) BIPIN RAM CHAINANI VS. ADCIT (ITA NO.802/MUM/2 012 DATED 18-09-2013) HE FURTHER SUBMITTED THAT THE ORDER OF THE TRIBUNAL PASSED IN THE CASE OF NAISHADH V VACHHARAJANI HAS SINCE BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT IN ITA NO.1042 OF 2011. HE FURTHER SUBM ITTED THAT THE ASSESSING OFFICER HAS ACCEPTED THE CAPITAL GAINS DE CLARED BY THE ASSESSEE IN THE PRIOR AND SUBSEQUENT YEARS, THOUGH THE RETUR NS OF INCOME WERE PROCESSED U/S 143(1) OF THE ACT. 7. IN THE REJOINDER, THE LD D.R SUBMITTED THAT THERE WAS NO APPLICATION OF MIND OF THE ASSESSING OFFICER, IF THE RETURN OF INCOME IS PROCESSED U/S 143(1) OF THE ACT. ACCORDINGLY HE SUBMITTED THAT TH E ASSESSING OFFICER CANNOT BE CONSIDERED TO HAVE BEEN ACCEPTED THE CAPI TAL GAINS DECLARED BY THE ASSESSEE IN OTHER YEARS. 8. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. AS ALREA DY NOTICED THAT THE ASSESSING OFFICER HAS MADE GENERAL OBSERVATIONS AND ACCORDINGLY ASSESSED THE CAPITAL GAINS AS THE BUSINESS INCOME OF THE ASS ESSEE. HOWEVER, THE ITA. NO.2644/MUM/2009 AND 5271/MUM/2010 5 SPECIFIC DETAILS FURNISHED BY THE LD A.R IN THE COU RSE OF HIS SUBMISSIONS SHOW THAT THE INTENTION OF THE ASSESSEE WAS TO HOLD THE SHARES AS HIS INVESTMENT. IT WAS ALSO SHOWN TO US THAT THE ASSES SEE HAS DECLARED THE INCOME ARISING FROM DERIVATIVES TRANSACTIONS AS HIS BUSINESS INCOME, MEANING THEREBY THE ASSESSEE WAS CLEAR IN HIS MIND IN HOLDING THE TWO PORTFOLIOS, VIZ., ONE FOR INVESTMENT ACTIVITY AND A NOTHER FOR TRADING ACTIVITY. IN RESPECT OF BORROWINGS, IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT PAID INTEREST, SINCE THEY WERE TAKEN FROM RELATIVES. HE NCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS BORROWED INTEREST BEARING FUN DS FOR MAKING INVESTMENTS, WHICH CHARACTERISTICS IS ATTACHED WITH THE RISK APPETITE OF BUSINESS ACTIVITY. FURTHER, IT WAS SEEN THAT THE A SSESSEE HAS DEALT IN FEW SCRIPS ONLY IN BOTH THE YEARS UNDER CONSIDERATION. THE REPETITIVE TRANSACTIONS WERE ALMOST ONLY ONE TIME. FURTHER TH E ASSESSEE WAS THE DIRECTOR OF A COMPANY AND HE WAS DRAWING SALARY THE RE FROM. ALL THESE FACTS GO TO SHOW THAT THERE IS MERIT IN THE CONTENT ION OF THE ASSESSEE THAT HE HAS PURCHASED AND SOLD SHARES WITH THE INTENTION TO HOLD THEM AS HIS INVESTMENT ASSET ONLY. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) RENDERED ON THIS ISSUE IN BOT H THE YEARS. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVEN UE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20TH FEB, 2015 . '( # ) *+ 20TH FEB, 2015 ( ' ,$ - SD SD ( / VIVEK VARMA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER # $ MUMBAI: 20TH FEB ,2015. . . ./ SRL , SR. PS ITA. NO.2644/MUM/2009 AND 5271/MUM/2010 6 !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. # /% ( ) / THE CIT(A)- CONCERNED 4. # /% / CIT CONCERNED 5. 0, %1 , & 1 , # $ / DR, ITAT, MUMBAI CONCERNED 6. ,2 3$ / GUARD FILE. 4 # / BY ORDER, TRUE COPY 5 (ASSTT. REGISTRAR) & 1 , # $ /ITAT, MUMBAI