ACIT 15(2), MUMBAI V. PARAS C. SHAH (HUF), MUMBAI

ITA 5648/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5766 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Business income
• Section: 43(5)

Judgement Text

, LH LH LH LH INCOME TAX APPELLATE TRIBUNAL MUMBAI - C BENCH MUMBAI , , / , BEFORE S/SH. VIJAY PAL RAO, JUDICIAL MEMB ER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 5648/M/2010, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2007-08 A.C.I.T. 15(2) MATRU MANDIR, R.NO.113, TARDEO, MUMBAI-400008 VS. PARAS C. SHAH (HUF) 15/7, NAVJEEVAN SOCIETY, LAMINGTON ROAD, MUMBAI-400008 PAN: AAEF P9835L ( #$ / REVENUE ) ( %&#$ / RESPONDENT) #$ #$ #$ #$ ' ' ' ' / REVENUE BY : SMT. PARMINDER %&#$ ( ' / RESPONDENT BY : SHRI M.SUBRAMANIAN ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING : 08-01-2014 +,' ( )* / DATE OF PRONOUNCEMENT : 17- 01- 2014 ! ! ! ! , 1961 ( (( ( 254 )1( )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED 05.05.2010 OF THE CIT(A )-26,MUMBAI,ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT DELIVERY TO AND FROM THE MAIN BROKER I N THE INSTANT CASE, TAKES THE PRESENT CASE OUT OF PURVIEW OF SEC. 43(5) OF THE I. T ACT, 1961, AS THE MAIN BROKER BEING AGENT OF THE ASSESSEE IGNORING THE FACT THAT NO DEMAT ACCOUNT OF ANY PERS ON THAT IS THE ASSESSEE OR THE BROKER WAS PRODUCED BEFORE THE ASSESSING OFFICER OR DURING APP ELLATE PROCEEDINGS BY THE ASSESSEE TO PROVE THAT DELIVERY WAS TAKEN BY THE BROKER ON BEHALF OF THE ASSESSEE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE PROFIT OF RS. 90,83,810/- EARNED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN AND NOT AS SPECULATION INCO ME OR BUSINESS INCOME OVERLOOKING THE FACT THAT NO DEMAT ACCOUNT OF ANY PERSON WAS PRODUCED BY THE ASSESSEE IN SUPPORT OF DELIVERY OF SHARES AND ALSO IGNORING THE FACTS THAT WHERE THERE IS NO DELIVERY OF SHARES INCOME CAN ONLY BE TAXED OUT OF SALE AND PURCHASE OF SHARES AS SPECULA TION OR BUSINESS INCOME. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AM END AND TO MODIFY ANY OF THE GROUND OF 2 ITA NO. 5648/MUM/2010 PARAS C. SHAH (HUF) APPEAL. 2 . ASSESSEE-HUF, ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES, FILED ITS RETURN OF INCOME ON 31.08.2007 DECLARING TOTAL INCOME AT RS. 91.42 LACS. AO FINALISED THE ASSESSMENT ON 20.11.2009 DETERMINING THE TOTAL INCOME OF THE ASSE SSEE AT RS. 90.66 LACS. 2.1 EFFECTIVE GROUND OF APPEAL IS ABOUT NATURE OF INCO ME FROM PURCHASE AND SALE OF SHARES. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD CLAIMED TO HAVE EARNED SHORT TERM CAPITAL GAIN (STCG) OF RS. 90.83 LACS ON SALE AND P URCHASE OF SHARES. IN ORDER TO VERIFY AND EXAMINE THE GENUINENESS OF THE TRANSACTIONS, HE DIR ECTED THE ASSESSEE-HUF TO FURNISH NECESSARY DETAILS IN THIS REGARDING SOURCE AND PROOF OF PAYME NT MADE TOWARDS PURCHASE OF SHARES AND TO FURNISH COPY OF DMAT ACCOUNT HIGHLIGHTING THE TRANS ACTIONS OF SHARES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE BROKER OF THE A SSESSEE AO HELD THAT THE DELIVERY OF SHARES WERE NOT TAKEN BY THE BROKER ON BEHALF OF THE ASSES SEE-HUF, THAT TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE IN THE NATURE OF TRADING, THAT THE AS SESSEE WAS NOT JUSTIFYING IN CLAIMING STCG ON SALE AND PURCHASE OF SHARES, THAT THE INCOME EARNED ON THE SAID TRANSACTIONS COULD BE TAXED AS INCOME FROM BUSINESS/SPECULATIVE INCOME, THAT ALL T HE TRANSACTIONS WERE MADE WITHOUT ACTUAL DELIVERY/TRANSFER SHARES, THAT THE ASSESSEE HAD NOT DENYING THE FACT THAT THE TRANSACTIONS OF SHARES WERE MADE WITHOUT TAKING ACTUAL DELIVERY OF THE SHA RES, THAT ASSESSEE-HUF HAD NOT ISSUED ANY INSTRUCTIONS TO THE BROKER ABOUT TAKING DELIVERY OF THE SHARES, THAT THE ASSESSEE DELIBERATELY CLAIMED STCG INSTEAD OF SHOWING A RECEIPT OF BUSINE SS/SPECULATIVE INCOME. INVOKING THE PROVISIONS OF SECTION 43(5) OF THE ACT, HE HELD THA T PROFIT AMOUNTING TO RS. 90.83 LACS HAD TO BE TREATED AS SPECULATIVE INCOME. 3 . ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R, HE HELD THAT ASSESSEE HAD DEALT IN SCRIPT IN NORMAL SEGMENT AND NOT IN DERIVATIVE SEGMENT, THAT AS PER THE SYSTEM OF STOCK EXCHANGE TRADES IN THE NORMAL SEGMENT WERE SETTLED IN DEMATERIALISED M ODE, THAT THE TRANSACTIONS WERE DULY CONFIRMED AS PER BILLS/LEDGER ACCOUNT WITH THE SUB- BROKER, THAT ALL PAYMENTS WERE DULY RECORDED, THAT SUB-BROKERS HAD CONFIRMED THE DELIVERY OF SHAR ES, THAT AS PER THE SUB-BROKERS DELIVERY WAS NOT GIVEN TO THE ASSESSEE, THAT THE REASONS FOR RETAINI NG THE DELIVERY WITH THE MAIN BROKER WAS EXPLAINED, THAT THERE WAS NO DISPUTE ABOUT THE DELI VERY OF THE SHARES TO THE DMAT ACCOUNT OF THE BROKER OF THE ASSESSEE. 4 . FINALLY, HE HELD THAT DELIVERY OF SHARES TO AND F ROM THE MAIN BROKER IN THE CASE UNDER CONSIDERATION PROOF THAT PROVISIONS OF SECTION 43(5 ) OF THE ACT WERE NOT APPLICABLE, THAT THE PROFIT 3 ITA NO. 5648/MUM/2010 PARAS C. SHAH (HUF) ARISING OUT OF SALE AND PURCHASE OF SHARES IN QUEST ION AMOUNTING TO RS. 90,83,810/- WAS NOT TO BE TREATED AS SPECULATION PROFIT, THAT SAME HAD TO BE TREATED AS STCG. 5. DURING THE COURSE OF HEARING BEFORE US, IT WAS BRO UGHT TO OUR NOTICE THAT IN THE CASE OF THE OTHER MEMBERS OF THE HUF F BENCH OF THE MUMBAI TRIBUNAL , VIDE ITS ORDER DATED 15.03.2013 (ITA NOS. 5645/MUM/2010, ITA NO. 5647/MUM/2010 AND 5649/ MUM/2010- AY- 2007-08), HAD RESTORED BACK THE MATTER TO THE FILE OF THE FAA FOR FRESH ADJUDICATION. 6 . DEPARTMENTAL REPRESENTATIVE(DR) AS WELL AS AUTHOR ISED REPRESENTATIVE(AR) AGREED THAT MATTER SHOULD BE REMITTED BACK TO THE FILE OF THE FAA. WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE, MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE F AA. HERE,WE WOULD LIKE TO REPRODUCE THE PARA-5 OF THE ORDER OF THE F BENCH OF MUMBAI TRIBUNAL PR ONOUNCED IN THE CASES OF VIPUL C. SHAH, VIMAL C. SHAH AND VAISHALI V. SHAH. 5.WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY.THE DISPUTE IS REGARDING NATURE OF INCOME FROM PURCHASE AND SALE O F SHARES BY THE ASSESSEES WHO BELONGED TO THE SAME GROUP.THE ASSESSEES HAD PURCHASED SHARES FROM THE SAME SUB-BROKER WHO IN TURN HAD PURCHASED THE SHARES FROM THE MAIN BROKER. THE ENQU IRY FROM THE SUB-BROKER REVEALED THAT IT HAD NOT TAKEN DELIVERY ON BEHALF OF THE ASSESSEES. THE SUB-BROKER HAD ONLY STATED THAT THE SHARES REMAINED WITH MAIN BROKER AS THERE WERE NO INSTRUCT IONS FOR THE CLIENTS TO TAKE DELIVERY. IT WAS ALSO SUBMITTED BY SUB-BROKER THAT IT HAD NOT MAINTA INED ANY DEMAT ACCOUNT OF THE CLIENTS. AFTER CONSIDERING THE MATERIAL ON RECORD, THE AO OBSERVED THAT THE INCOME FROM SHARE TRANSACTION HAD TO BE CONSIDERED EITHER AS SPECULATION OR NORMAL BU SINESS INCOME BUT SINCE THERE WAS NO EVIDENCE OF DELIVERY, THE AO TREATED THE INCOME AS SPECULATI ON INCOME. IN APPEAL CIT(A) OBSERVED THAT SUB- BROKER HAD STATED THAT THE SHARES REMAINED WITH MAI N BROKER AND FROM THIS HE CONCLUDED THAT DELIVERY HAD BEEN TAKEN BY THE MAIN BROKER WHICH HA S TO BE CONSIDERED AS DELIVERY BY THE ASSESSEE. CIT(A) ALSO OBSERVED THAT THERE WAS NO DISPUTE THAT DELIVERY HAD BEEN TAKEN BY MAIN BROKER. HOWEVER WE NOTE THAT THERE IS NO EVIDENCE THAT THE DELIVERY HAD BEEN TAKEN BY MAIN BROKER. SINCE THE ISSUE OF DELIVERY WAS STILL IN DISPUTE WE AGREE WITH THE SUBMISSION OF LD.DR THAT FINDING OF CIT(A) THAT THERE WAS NO DISPUTE OF DELIVERY WAS NO T CORRECT. NO ENQUIRY HAS BEEN MADE FROM THE MAIN BROKER CONFIRMING THAT IT HAD TAKEN DELIVERY O N BEHALF OF THE ASSESSEE. MOREOVER EVEN IF DELIVERY HAD BEEN TAKEN CIT(A) WAS REQUIRED TO EXAM INE THE OTHER ASPECT AS TO WHETHER INCOME FROM SHARE TRANSACTION COULD BE CONSIDERED AS BUSIN ESS INCOME OR NOT AS AO CLEARLY INDICATED AS IT COULD BE CONSIDERED AS SPECULATIVE INCOME OR NORMAL BUSINESS INCOME. DETAILS OF SHARE TRANSACTIONS PLACED IN PAPER BOOK REVEAL THAT SHARE S HAVE BEEN SOLD AFTER HOLDING FOR A SHORT PERIOD IN SOME CASES THERE ARE REPEATED PURCHASES A ND SALE OF SHARES IN SAME SCRIPS WHICH APPARENTLY ARE NOT ATTRIBUTES OF AN INVESTOR.CONSID ERING THE FACTS AND CIRCUMSTANCES OF THE CASE THE MATTER REQUIRES FRESH EXAMINATION AT THE LEVEL OF CIT(A).WE, THEREFORE SET ASIDE THE ORDER OF 4 ITA NO. 5648/MUM/2010 PARAS C. SHAH (HUF) CIT(A) AND RESTORE THE MATTER TO HIM FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE AND AFTER ALLO WING OPPORTUNITY OF HEARING TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH WE ALLOW THE APPEAL FILED BY THE AO FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY THE AO ALLOWED F OR STATISTICAL PURPOSES. / 0 / 0 / 0 / 0 !/) !/) !/) !/) VF/KDKJH VF/KDKJH VF/KDKJH VF/KDKJH 1 1 1 1 2 2 2 2 ( (( ( - -- - 3( 567 3( 567 3( 567 3( 567 89 89 89 89 ( (( ( ) ) ) ) :; :;:; :; . ORDER PRONOUNCED IN THE O PEN COURT ON 17 TH JANUARY, 2014 . . . . ( (( ( +, +,+, +,' ' ' ' < << < =! =! =! =! 17 TUOJH TUOJH TUOJH TUOJH 2014 , ,, , ( (( ( - -- - > >> > SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, =! /DATE: 17 TH JANUARY,2014 SK . . . . ( (( ( %) %) %) %) ?') ?') ?') ?') / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / @ A , 4. THE CONCERNED CIT / @ A 5. DR C BENCH, ITAT, MUMBAI / B- %)! LH LHLH LH , . . . 6. GUARD FILE/ - C &) &) &) &) %) %)%) %) //TRUE COPY// .! / BY ORDER, 5 / : DY./ASST. REGISTRAR , /ITAT, MUMBAI