MEENA KOTHARI, MUMBAI V. ADDL CIT CIR 16(1), MUMBAI

ITA 5350/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3304 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-02-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 14-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINITA MENON
• Keywords: Business income; Question of law
• Section: 143(3); 11

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL, MUMBAI B BENCH . . , BEFORE S/SH. MAHAVIR SINGH,JM & B.R. BASKARAN,AM ./ ITA NO./5350/MUM/2011, / ASSESSMENT YEARS: 2005-06 MEENA KOTHARI GOLD CORNET, FLAT NO.4, 1 ST FLOOR, 11 NAWROJEE GAMADIA ROAD MUMBAI-400 026. PAN:AABPK 6030 D VS. ADDL CIT-CIRCLE-16(1) MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: MS. VINITA MENON ASSESSEE BY: SHRI VIJAY MEHTA / DATE OF HEARING: 29.08.2016 / DATE OF PRONOUNCEMENT: 29.08.2016 ,1961 254(1) ORDER U/S 254(1) OF THE INCOME-TAX ACT, 1961(THE AC T) O R D E R PER MAHAVIR SINGH,JM : THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE O RDER OF CIT(A)-27, MUMBAI IN APPEAL NO.CIT(A)27/ADDL.CIT16(1)/220/07-08 ORDER D ATED 03.03.2011. ASSESSMENT WAS FRAMED BY ACIT,CIR.16(1) UNDER SECTION 143(3) O F THE INCOME TAX ACT, 1961(HEREAFTER THE ACT) FOR THE ASSESSMENT YEAR 2 005-06 VIDE HIS ORDER DATED 30.11.2007. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE ASSESSING OFFICER (AO) IN TREATING THE SHORT TERM CAPITAL 5350/M/11 MEENA KOTHARI 2 GAINS (STCG) ARISING OUT OF SALE AND PURCHASE OF SH ARES AS BUSINESS INCOME. FOR THIS THE ASSESSEE HAS RAISED FOLLOWING GROUND NO.1:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN CONFIRMING THE DECISION OF LD. ASSESSING O FFICER IN TREATING THE SHORT TERM CAPITAL GAIN OF RS.18,41,755/- AS APPELLANTS BUSINE SS INCOME. THE APPELLANT PRAYS THAT GAINS OF RS.18,41,755/- SHOULD BE TREATED AS S HORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. 3. BRIEFLY STATED, FACTS ARE THAT THE ASSESSEE IS I N THE BUSINESS OF DEALING IN SHARES AND EARNED INCOME FROM BUSINESS, LONG TERM CAPITAL GAINS (LTCG) ON SALE AND PURCHASE OF SHARES, SHORT TERM CAPITAL GAINS (STCG) ON MUTUAL FUNDS, STCG ON SALE OF SHARES AND INCOME FROM OTHER SOURCES. THE ASSESS EE DECLARED INCOME FROM LTCG AND STCG ON SALE AND PURCHASE OF SHARES. THE AO DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD BIFURCATE D THE STCG UPTO 30.09.2004 AT RS.18,41,755/- AND BALANCE AFTER 01.10.2004. ACCOR DING TO THE AO THE ASSESSEE HAS BORROWED A SUM OF RS.1,01,44,225/- FROM ROHIT FINAN CIAL SERVICES AND USED THESE FUNDS FOR PURCHASE OF SHARES AND AFTER SELLING THE SAME, CLAIMED THE SAME AS STCG . THE AO WAS ALSO OF THE VIEW THAT BUYING AND SELLING OF SHARES IN SHORT PERIOD AND GAIN ARISING OUT OF THE SAME, THAT ALSO BY USING BORROWE D FUNDS DEFINITELY INVOLVES RISK AND IT IS ORGANIZED ACTIVITY, HENCE, SAME IS BUSINESS. ACCORDING TO AO, THE ASSESSEE HAS ALSO TAKEN HELP FROM PROFESSIONALS AND PAID PROFESS IONAL FEE FOR SALE AND PURCHASE OF SHARES. ACCORDINGLY, HE TREATED THIS STCG DECLARED BY THE ASSESSEE AT RS.18,41,755/- AS INCOME FROM TRADING IN SHARES I.E. THE BUSINESS INCOME. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE AO EXACTLY ON THE BASIS OF ABOVE FINDINGS VIDE PARA 7 OF HIS ORDER WHICH IS AS UNDER:- 5350/M/11 MEENA KOTHARI 3 7.I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE APPELLANT AND ALSO THE VARIOUS DETAILS PLACED ON RECORD. THE APPELLANT TRI ED TO EXPLAIN THAT THE HOLDING PERIOD MORE THAN 3 MONTHS IN RESPECT OF THE STCG EA RNED DURING THE YEAR AND THE NO. OF SHARES DEALT IN ARE THREE SHARES INVOLVING 6 PU RCHASE TRANSACTIONS AND 11 SALE TRANSACTIONS AND NO CHURNING IS INVOLVED. NEVERTHEL ESS THE APPELLANT HAS NOT FURNISHED ANY EXPLANATION WHATSOEVER TO CONTROVERT THE FACT RECORDED BY THE A.O. THAT THE APPELLANT HAS BORROWED AN AMOUNT OF RS.1,01,44, 225/- FROM ROHIT FINANCIAL SERVICES WHICH HAS BEEN USED IN PURCHASE AND SALE O F SHARES DURING THE YEAR. IT IS AN ACCEPTED PRINCIPLE THAT AN INVESTOR DOES NOT INVOLV E IN BORROWING OF FUNDS FOR THE PURPOSE OF INVESTMENT. FURTHER THE APPELLANT HERSEL F SUBMITTED BEFORE THE A.O. THAT THE BORROWED FUNDS WERE UTILIZED FOR INVESTING IN S HARES AND PAYMENT OF MARGIN MONEY FOR DEALING IN SHARES DURING THE YEAR. HAVING REGARD TO THE FACT THAT THE ENTIRE ACTIVITY OF THE APPELLANT IN BUYING AND SELLING OF THE SHARES DURING THE YEAR IS CARRIED OUT OF BORROWED CAPITAL, I AM OF THE CONSIDERED OPI NION THAT THE APPELLANTS ACTIVITY FALLS IN THE CATEGORY OF BUSINESS AND NOT THAT OF T HE INVESTOR. IN VIEW OF THE ABOVE, I UPHOLD THE ACTION OF THE A.O. IN TREATING THE STCG RETURNED BY THE APPELLANT AS APPELLANTS BUSINESS INCOME. THE APPELLANT FAILS ON THIS GROUND. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL . 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE APAR T FROM TAKING US THROUGH THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A), DREW OUR ATTENTION TO THE LEDGER ACCOUNT OF ROHIT FINANCIAL SERVICES AND STATED THAT THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT LOAN FUNDS WERE USED FOR PURCHASE AND SALE OF SHARES IS TOTALLY WRONG. HE NARRATED THAT THE CORRECT FACTS THAT THERE IS OU TSTANDING BALANCE AS ON 01.04.2004 OF AN AMOUNT OF RS.66,56,623/- IN THE ASSESSEES ACCOU NT ON BEHALF OF ROHIT FINANCIAL SERVICES AND DURING THE YEAR THE ASSESSEE HAS RECEI VED AMOUNT AND REPAID ALSO AND FINAL BALANCE OUTSTANDING AMOUNT WAS RS.2,21,708/-. LD. COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTION TO ENTRIES DATED 2 & 3.8.2004, W HEREIN AN AMOUNT OF RS.20.00 LAKHS AND RS.7.00 LAKHS OF LOAN WAS TAKEN BY ASSESSEE FRO M ROHIT FINANCIAL SERVICES FOR PURCHASE OF SHARES IS DEPICTED. ACCORDING TO LD. CO UNSEL FOR THE ASSESSEE THIS AMOUNT IS LOAN TAKEN FOR PURCHASE OF SHARES, BUT WAS REPAI D SUBSEQUENTLY AND FOR THIS HE PRODUCED COPY OF LEDGER ACCOUNT OF ROHIT FINANCIAL SERVICES. LD. COUNSEL FOR THE ASSESSEE ALSO STATED THAT THIS LEDGER ACCOUNT OF RO HIT FINANCIAL SERVICES CLARIFIES 5350/M/11 MEENA KOTHARI 4 PURPOSE OF TAKING LOANS FROM ROHIT FINANCIAL SERVIC ES, WHICH IS NOT FOR INVESTMENT IN THE SCRIPS OF MUNJAL AUTO OF RS.32,52,662/- IN THE MONTH OF JULY. THE ASSESSEE HAD REPAID THE SUM OF RS.53,45,848/- TO ROHIT FINANCIAL SERVICES. ACCORDING TO HIM, THIS OBSERVATION OF THE LOWER AUTHORITIES IS TOTALLY WRO NG THAT BORROWED FUNDS WERE UTILIZED FOR INVESTMENT IN THESE SHARES, WHEREAS THE ASSESSE E TAKEN THIS LOAN AFTER THE TRANSACTION AND THAT ALSO IN AUGUST. THE LD. COUNSE L FOR THE ASSESSEE NARRATED THE FACT RELATING TO STCG THAT IT HAS DEALT ONLY IN THREE SC RIPS DURING THE YEAR I.E., MUNJAL AUTO, NTPC AND JAIPRAKASH INDUSTRIES. FURTHER, PERI OD OF HOLDING OF SHARES IS 5-6 MONTHS. LD. COUNSEL FOR THE ASSESSEE ALSO HAD TAKEN US THROUGH THE STATEMENT OF ACCOUNTS, THE BALANCE SHEET AND SCHEDULES APPENDED THERETO TO SHOW THAT THESE SHARES WERE HELD AS AN INVESTMENT. FURTHER, LD. COUNSEL FO R THE ASSESSEE ALSO EXPLAINED THAT THE ASSESSEE HAS USED THIS SCRIP AS INVESTMENT AND REVENUE HAS ACCEPTED THE SAME AS INVESTMENT AND ALSO THE INCOME DECLARED BY ASSESSEE IS LTCG IN FUTURE YEARS. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAGE 5 AND 6 OF ASSESSEES PAPER BOOK WHEREIN COMPUTATION OF INCOME IS ATTACHED. LD. COUN SEL FOR THE ASSESSEE ALSO TOOK US THROUGH PAGE-7 AND 8 OF ASSESSEES PAPER BOOK WHERE IN THE DETAILS OF STCG ON SALE OF SHARES ARE NOTED INCLUDING THE HOLDING PERIOD WHICH VARIES FROM 111 DAYS TO 211 DAYS. HE ALSO DREW OUR ATTENTION TO THE STATEMENT OF STCG EARNED FROM SALE OF UNITS OF MUTUAL FUNDS, WHICH IS ENCLOSED AT PAGE -8 OF ASSES SEES PAPER BOOK. IN TERMS OF ABOVE FACTS AND CIRCUMSTANCES, LD. COUNSEL FOR THE ASSESS EE ARGUED THAT NONE OF THE AUTHORITIES BELOW HAS EXAMINED THESE FACTS IN PROPE R PERSPECTIVE AND JUST BY RECORDING WRONG FACTS DECIDED THE ISSUE. ON THE OTHER HAND LD . CIT-DR HEAVILY RELIED ON THE ASSESSMENT ORDER AND THAT OF THE ORDER OF CIT(A). 5350/M/11 MEENA KOTHARI 5 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE STATEME NT OF LEDGER ACCOUNT OF ROHIT FINANCIAL SERVICES THAT THERE IS OUTSTANDING BALANC E AS ON 01.04.2004 AT RS.66,56,623/- AND CLOSING BALANCE AS ON 31.03.2005 IS AT RS.2,21,708/-. DURING THE YEAR I.E., PRECISELY ON 2 ND AND 3 RD MARCH, 2004, THE ASSESSEE HAS TAKEN LOAN FOR PURCHASE OF SHARES OF RS.20.00 LAKHS AND RS.7.00 LA KHS RESPECTIVELY FROM ROHIT FINANCIAL SERVICES. BUT BEFORE THAT IT HAD REPAID A SUM OF RS.53,45,848/- . THIS MEANS THAT THE BASIC CHARGE OF THE REVENUE REGARDING INVE STMENT OF LOAN FUNDS INTO THESE PURCHASES OF SHARES OF MUNJAL AUTO IS TOTALLY BASEL ESS. EVEN OTHERWISE THESE AMOUNTS WERE TAKEN BY THE ASSESSEE AFTER THE PURCHASE OF SH ARES ON 29.07.2004. IT IS ALSO A FACT THAT THE ASSESSEE HAS KEPT THESE SHARES AS INVESTME NT IN ITS ACCOUNTS AND HOLDING PERIOD IS ALMOST 4 TO 8 MONTHS. ADMITTEDLY, THE ASSESSEE H AS KEPT THESE INVESTMENTS FOR THE PURPOSE OF LONG TERM AND SHORT TERM GAINS BUT NOT F OR THE PURPOSE OF BUSINESS. REVENUE IN EARLIER YEARS I.E. 2004-05 HAS TREATED T HESE TRANSACTION AS INVESTMENT AND FOR THIS ASSESSEE HAS ENCLOSED THE DETAILS OF ACCOU NTS. ASSESSEE HAS ALSO FILED COPIES OF ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-10, WHEREIN ASSESSMENT WAS MADE BY REVENUE UNDER SECTION 143(3) OF THE ACT AND THE STCG DECLARED BY THE ASSESSEE OUT OF THE SAME SCRIP I.E. MUNJAL AUTO WAS ACCEPTED AS IT IS. ON SIMILAR FACTS, THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (2010) 336 ITR 287 (BOM) HAS 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 TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED DEA LING IN SHARES FOR THE PURPOSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGM ENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL H AS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE 5350/M/11 MEENA KOTHARI 6 PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES A ND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUN AL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOU LD BE TREATED EITHER AS SHORT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEP ENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY T HE 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. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 3. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIB UNAL HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CO NSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING REC ORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YE ARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER C ONSIDERATION, SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEE DINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JU DICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FA CTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE . THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUEST ION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 5. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT MERE VOLUME OR MAGNITUDE DOES NOT ALTER THE NATURE OF TR ANSACTION, WHICH ARE CONSISTENTLY ASSESSED AS INCOME FROM CAPITAL GAINS FROM PAST YEA RS AND EVEN IN FUTURE YEARS BY REVENUE. WHERE THE ASSESSEE WAS HOLDING LARGE MAGNI TUDE OF SHARES AS INVESTMENT FROM YEAR TO YEAR AND TRANSACTION OF SHARES IN PREC EDING YEARS AS WELL FOR THE FUTURE YEARS HAD BEEN HELD AS INCOME FROM CAPITAL GAINS BO TH ON LONG TERM AND SHORT TERM BASIS, THERE WAS NO BASIS FOR HOLDING ASSESSEE AS T RADER IN SHARES FOR THE YEAR UNDER CONSIDERATION WHEN HIS INTENTION IS CLEAR THAT HE W ANT TO HOLD THE SHARES AS INVESTMENT ANS NOT STOCK IN TRADE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE REVENUE HAS WRONGLY TREATED THE TRANSACTION OF SALE AND PURCHASE OF SHA RES OF MUNJAL AUTO AS BUSINESS INCOME, WHEREAS ACTUALLY IT IS AN INVESTMENT AND IN COME ARISING OUT OF THE SAME IS CAPITAL GAINS. WE DIRECT THE ASSESSING OFFICER TO A SSESS THE SAME AS SHORT TERM CAPITAL GAIN. 5350/M/11 MEENA KOTHARI 7 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH AUGUST, 2016 29 , 2016 SD/- SD/- ( . . / B.R. BASKARAN) ( / MAHAVIR SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER /MUMBAI, /DATE: 29.08.2016 . . . 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 / $ , B , . . . 6. GUARD FILE/ % //TRUE COPY// / BY ORDER, DY./ASST. REGISTRAR , /ITAT, MUMBAI.