ASST CIT 19(1), MUMBAI V. DILIPKUMAR V. LAKHI, MUMBAI

ITA 57/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7483 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 06-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAM TIW ARI SR DR SHRI SUBHASH
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE; SALE OF
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Revised return
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 57 / MUM/ 20 1 6 ( / ASSESSMENT YEAR: 201 1 - 12 ) ACIT - 19(1) 2 ND FLOOR, MATRU MANDIR, TARD EO ROAD, MUMBAI - 400007 / VS. M/S. DILIPKUMBAR V. LAKHI CC - 8011 - 8012 - 8013 BHARAT DIAMOND BOURSE, BANDRA, MUMBAI - 400051 ./ ./ PAN/GIR NO. : AABPL 9618 G ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 22 .0 1 .201 8 / DATE OF PRONOUNCEMENT : 19. 0 4 . 2018 / O R D E R PER AMARJIT SINGH, J M: THE REVENU E HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 29 . 10 .20 1 5 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 30 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE AY.20 11 - 12 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. WHET HER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. 2. WHETHER ON THE FACTS & CIRCUMSTANCES AND IN LAW, TH E LD. CIT(A) ERRED IN TREATING THE TRANSACTION OF PURCHASE AND SALE OF REVENUE BY: SHRI RAM TIW ARI ( SR. DR ) ASSESSEE BY : SHRI SUBHASH S. SHETTY ITA. NO. 57 M/20 16 A.Y. 2011 - 12 2 SHARES A SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME IGNORING THE LANDMARK JUDGMENT OF HONBLE MUMBAI IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI IN THE CASE OF VEENNA S . KALRA MUMBAI VS. DEPARTMENT OF INCOME TAX ACIT 19(1), MUMBAI DELIVERED ON 10.07.2013 BEARING ITA. NO.2403/M/2012 (AY 2008 - 09) 3. THE APPELLANT PRAYS THAT ORDER OF THE LD. CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3 . THE BR IEF FACTS OF THE CASE ARE THAT THE ASSESSE E F ILED HIS R ETURN OF INCOME ON 28 .09.2011 DECLARING TOTAL INCOME T O THE TUNE OF RS.62,65,65,111 / - . THE ASSESSEE ALSO FILED THE REVISED RETURN OF INCOME ON 23.11.2011 DECLARING TOTAL INCOME TO THE TUNE OF RS.64,18 ,54,404/ - . THE CASE WAS SELECTED FOR SCRUTINY, THEREFORE, NOTICE U/S 143(2) OF THE ACT DATED 21.09.2012 WAS ISSUED AND SERVED UPON THE ASSESSEE. THEREAFTER ANOTHER NOTICE S U/S 142(1) OF THE ACT ALONG WITH QUESTIONNAIRE DATED 12.03.2013 AND 02.09.2013 WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE IS AN INDIVIDUAL AND WAS ENGAGED IN THE PURCHASE AND SALE IN SHARE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS ALSO SHOWED HIS INCOME FROM CAPITAL GAIN. THE ASSESSEE HAS SHOWN THE CAPITAL GAIN ON SHARES AMOUNTING TO RS.4,31,50,067/ - . THE ISSUE WAS ALSO EXAMINED IN THE YEAR OF 2007 - 08, 2008 - 09 AND 2009 - 10 IN WHICH THE INCOME OF THE ASSESSEE WAS TREATED AS BUSINESS INCOME. THEREFORE, IN VIEW OF THE SAID CIRCUMSTANCES, THE INCOME SHOWN BY THE ASSESSEE WAS TREATED AS BUSINESS INCOME AND THE INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. 64,18,54,400/ - . THE ASSESSEE WAS NOT SATISFIED, THEREFORE, FILED AN APPEAL BEFORE THE CIT(A) WHO TREATED THE INCOME OF THE ASSESSEE AS SHORT TERM CAPITAL ITA. NO. 57 M/20 16 A.Y. 2011 - 12 3 GAIN. FE ELING AGGRIEVED, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO 1 & 2 : - 4. UNDER THESE ISSUES THE R EVENUE HAS CHALLENGED THE TREATMENT OF THE INCOME OF THE ASSESSEE AS SHORT TERM CAPITAL GAIN BY THE CIT(A). THE LD. REPRESENTATIVE OF THE DEPAR TMENT HAS ARGUED THAT THE ASSESSEE WAS DOING FREQUENTLY BUSINESS OF SALE AND PURCHASE OF THE SHARES , T HEREFORE, HIS INCOME IS LIABLE TO BE ASSESSED AS BUSINESS INCOME WHEREAS, THE LD. CIT(A) HAS WRONGLY ADJUDICATED THE MATTER OF CONTROVERSY IN WHICH THE HO NBLE APPELLATE AUTHORITY HAS DECIDED THAT THE INCOME ACCRUE D BY SALE AND PURCHASE OF THE SHARE IS LIABLE TO BE TREATED AS SHORT/LONG TERM CAPITAL GAIN . I N SUPPORT OF THIS CONTENTIONS , T HE LD. REPRESENTATIVE OF THE DEPARTMENT HAS PLACED RELIANCE UPON THE LAW SETTLED BY THE HONBLE ITAT IN THE CASE OF TITLE AS VEENA S. KALRA, MUMBAI VS. DEPARTMENT OF INCOME TAX ACIT 19(1), MUMBAI DATED 10.07.2013 IN ITA. NO. 2403/MUM/2012 FOR THE A.Y. 2008 - 09. ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS RE FUTED THE SAID CONTENTION AND ARGUED THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY ON THE BASIS OF THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE BY VIRTUE OF ORDER DATED 28.09.2016 FOR THE A.Y. 2007 - 08, 2008 - 09 & 2009 - 10 THEREFORE, T HE CASE OF THE ASSESSEE HAS DULY BEEN COVERED HENCE THE APPEAL OF THE REVENUE IS LIABLE TO BE DISMISSED . WE HAVE HEARD THE ARGUMENT AND ITA. NO. 57 M/20 16 A.Y. 2011 - 12 4 ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD CAREFULLY. WE NOTICED THAT THE ASSESSMENT ORDE R DATED 20.03.2014 IN QUESTION WAS PASSED BY THE ASSESSING OFFICER ON THE BASIS OF THE ORDER OF THE A.Y. 2007 - 08, 2008 - 09 & 2009 - 10 IN WHICH THE INCOME OF THE ASSESSEE WAS TREATED AS BUSINESS INCOME. UNDOUBTEDLY, THEREAFTER THE CIT(A) UPHELD TH IS ORDER. TH E ORDER FOR THE A.Y. 2007 - 08, 2008 - 9 & 2009 - 10 W AS UNDER CHALLENGED BEFORE THE ITAT BY VIRTUE OF ITA. NO. 8417/M/2011 & 8273/M/2011 DATED 27.04.2016 AND ITA. NO.6339/M/2013 DATED 28.09.2016 IN WHICH THE TRANSACTION OF SALE OF PURCHASE OF THE SHARES BELOW 30 DAYS WAS TREATED AS BUSINESS INCOME AND THE TRANSACTION OF SALE PURCHASE OF SHARES MORE THAN 30 DAYS WAS TREATED AS SHORT TERM CAPITAL GAIN. THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE REVENUE IS NOT A CASE OF THE ASSESSEE . HOWEVER, THE ITAT HAS PASSE D THE ORDER ON SEEING THE BUSINESS OF THE ASSESSEE IN THE ASSESSEES OWN CASE (SUPRA) WHICH ARE MORE APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE RELEVANT FINDING IN ITA. NO. 8417/M/2011 & 8273/M/2011 DATED 27.04.2016 IN THE ASSESSEE S OWN CASE IS HEREBY REPRODUCED BELOW AS UNDER: - 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND EXPORTS OF DIAMONDS AND THE TURNOVER OF THE ASSESSEE IS R S. 329.70 CRORES WITH NET PROFIT OF RS. 31.73 CRORES. THE ASSESSEE HAS OWN CAPITAL OF RS. 671 CRORES WHILE THE TOTAL INVESTMENTS ARE RS.427 CRORES , AS PER AUDITED FINANCIAL STATEMENTS PLACED IN PAPER BOOK . THE INVESTMENTS IN SECURITIES ARE ITA. NO. 57 M/20 16 A.Y. 2011 - 12 5 CONSISTENTLY R EFLECTED AS INVESTMENTS IN BOOKS OF ACCOUNTS AND NOT AS STOCK IN TRADE. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 1.27 CRORES. THE ASSESSEE HAS STATED TO HAVE DULY DISCLOSED THE SPECULATIVE INCOME ON 11 ITA 8417/M/11 & ITA 8273/MUM/2011 SECURITIES W HERE THE DELIVERY WERE NOT TAKEN BY THE ASSESSEE, AS SPECULATIVE PROFIT/LOSS IN THE RETURN OF INCOME FILED WITH THE REVENUE WHICH IS UNDISPUTEDLY ACCEPTED BY THE REVENUE. THE REVENUE HAS STATED TO HAVE ACCEPTED THE GAINS ON DELIVERY BASED SHARES AS LONG TE RM OR SHORT TERM DEPENDING UPON PERIOD OF HOLDING IN THE EARLIER YEARS , WHICH CONTENTION OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BEFORE US BY THE LD. DR. IN THIS YEAR ONLY THE A.O. HAS ASSESSED THE STCG OF RS.3.31 CRORES AS BUSINESS INCOME OF THE ASSESS EE. THE ASSESSEE HAS MAINLY INVESTED IN MUTUAL FUNDS AND IN SHARES. WE HAVE OBSERVED THAT THE LONG TERM CAPITAL GAIN EARNED WAS ACCEPTED IN THIS YEAR ALSO AS CAPITAL GAINS BY THE REVENUE WHILE THE ENTIRE STCG OF RS.3,31,10581/ - HAS BEEN TREATED AS BUSINESS INCOME BY THE AO, WHILE THE CIT(A) HAS CONSIDERED STCG OF RS.1,46,75,514/ - AS BUSINESS INCOME KEEPING IN VIEW THE REPETITIVE TRANSACTIONS IN THE SAME SHARES. WE HAVE ALSO REVIEWED THE DETAILS , VOLUMES, FREQUENCY , NATURE AND SCALES OF TRANSACTIONS CARRIE D OUT BY THE ASSESSEE IN THE SHARES AND ALSO KEEPING IN VIEW THE SCALE OF ACTIVITY CARRIED ON BY THE ASSESSEE IN THE BUSINESS OF DIAMONDS , BASED ON PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE GAINS EARNED BY THE AS SESSEE IN THE CASE WHERE THE PERIOD OF HOLDING OF SHARES BEFORE SELLING IS MORE THAN 30 DAYS AND UP - TO ONE YEAR SHOULD BE TREATED AS STCG AND GAINS ARISING FROM TRANSACTIONS OF SALE AND PURCHASE OF SHARES WHERE THE PERIOD OF HOLDING OF SHARES BEFORE SELLIN G IS LESS THAN 30 DAYS BE TREATED AS BUSINESS INCOME. WE ORDER ACCORDINGLY. THE ASSESSEES COUNSEL HAS SUBMITTED BEFORE US THAT AN ERROR/MISTAKES ARE COMMITTED BY THE CIT(A) WHILE COMPUTING THE GAINS ON SALE AND PURCHASE OF SHARES WHEREBY THE FIGURES OF GA IN AND PERIOD OF HOLDING IN CERTAIN SHARES WERE COMPUTED WRONGLY WHICH NEED RECTIFICATION ON MERITS AS SET OUT IN PRECEDING PARAS. WE DIRECT THE A.O. TO VERIFY THE SAME ON MERITS BASED ON EVIDENCES AND EXPLANATIONS TO BE SUBMITTED BY THE ASSESSEE BEFORE T HE AO 12 ITA 8417/M/11 & ITA 8273/MUM/2011 AND THE AO IS DIRECTED TO MAKE NECESSARY CORRECTION AND THEN COMPUTE THE INCOME AS PER THE TERMS INDICATED ABOVE BY US IN THIS ORDER. THE ASSESSEE IS DIRECTED TO PRODUCE AND NECESSARY EVIDENCES/EXPLANATION WITH RE SPECT THERETO BEFORE THE ITA. NO. 57 M/20 16 A.Y. 2011 - 12 6 AO . NEEDLESS TO SAY THAT THE AO SHALL PROVIDE PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE. WE DIRECT ACCORDINGLY. WE HAVE ALSO OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCO ME OF RS. 1.27 CRORES WHICH IS CLAIMED TO BE EXEMPT FROM TAX. THE ASSESSEE HAS ALSO EARNED EXEMPT INCOME OF RS.7.86 CRORES ON ACCOUNT OF LONG TERM CAPITAL GAINS EARNED BY THE ASSESSEE ON SALE AND PURCHASE OF SECURITIES. WE HAVE OBSERVED THAT IN THE ASSESSM ENT YEAR 2007 - 08, RULE 8 - D OF THE INCOME TAX RULES, 1962 WAS NOT APPLICABLE. THE ASSESSEE HAS NOT BORROWED ANY MONEY AS PER THE RECORDS FOR MAKING INVESTMENTS IN SECURITIES. WE ARE OF THE CONSIDERED VIEW THAT A REASONABLE DISALLOWANCE NEED BE MADE FOR EXPE NSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME AS PER PROVISIONS OF SECTION 14A OF THE ACT. WE HAVE OBSERVED THAT THE AO HAS MADE DISALLOWANCE OF RS.5,00,000/ - TOWARDS EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME IN ACCORDANCE WITH PROVISIONS OF SEC TION 14A OF THE ACT, WHICH WAS AFFIRMED BY THE CIT(A) . IN OUR CONSIDERED VIEW, THE SAID DISALLOWANCE OF RS.5,00,000/ - IS QUITE REASONABLE KEEPING IN VIEW EXEMPT INCOME EARNED BY THE ASSESSEE AND WE AFFIRM THE SAME. WE ORDER ACCORDINGLY. THE RELEVANT FIND ING OF THE ASSESSEES OWN CASE IN ITA NO. 6339/M/2013 DATED 28.09.2016 IS ALSO HEREBY REPRODUCED BELOW AS UNDER: - 4. AT THE OUTSET, THE ID.AR OF THE ASSESSEE HAS STATED THAT THE FACTS THAT THE CASE FOR THE YEAR UNDER CONS IDER ATION ARE ALMOST IDENTICAL TO THAT OF ASSESSMENT YEAR 2007 - 08. HE HAS FURTHER BROUGHT TO OUR ATTENTION TO THE IMPUGNED ORDER OF LD.CIT(A) AND SUBMITTED THAT FACTS BEING IDENTICAL, THE LD, CJT(A) HAS EVEN FOLLOWED HIS PREDECESSOR'S ORDER IN THE CASE OF ASSESSES FOR THE ASSESSMENT YEAR 2 007 - 08. THE ID. AR HAS FURTHER SUBMITTED THAT BOTH THE ASSESSEE AND THE REVENUE PREFERRED APPEALS AGAINST THE ORDER OF LD,CIT(A) FOR THE ASSESSMENT YEAR 2007 - 08 AND THE TRIBUNAL ON THE IDENTICAL FACTS AFTER CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES O F THE CASE HAS OBSERVED THAT THE LTCG EARNED BY THE ASSESSEE WAS ACCEPTED AS SUCH BY THE AO, HOWEVER, THE ENTIRE STCG GAM OFFERED BY THE ASSESSEE HAD BEEN TREATED AS 'BUSINESS INCOME' BY THE AO - , HOWEVER, HAD RESTRICTED THE TREATMENT OF INCOME AS ME'' IN R ELATION TO THE SCRIPT WHERE THERE WAS REPETITIVE 4FENSDGFI FFLLS. ITA. NO. 57 M/20 16 A.Y. 2011 - 12 7 THE TRIBUNAL, AFTER CONSIDERING THE RELEVANT FACTS VIZ. THE FREQUENCY AND NATURE AND SCALE OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE AND ALSO IN KEEPING IN VIEW THE OTHER BUSINESS ACTIVITI ES OF THE ASSESSEE IN DIAMONDS, HAS HELD THAT THE INCOME EARNED BY THE ASSESSEE WHERE THE PERIOD OF HOLDING OF SHARE BEFORE SELLING WAS MORE THAN 30 DAYS AND UP TO ONE YEAR THAT MAY BE TREATED AS STCG. WHEREAS GAINS ARISING FROM TRANSACTION FROM THE SALE A ND PURCHASE OF SHARES WHERE THE PERIOD OF HOLDING WAS LESS THAN 30 DAYS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. BOTH THE COUNSEL HAVE FAIRLY AGREED THAT THE FACTS FOR THIS YEAR BEING IDENTICAL OF THE SAID DECISION OF THE TRIBUNAL PASSED IN ITA NO . 8417/M/2011 (AY 2007 - 08) & ITA. NO. 8273/M/2011 (AY 2007 - 08) DATED 27.04.2016 IS APPLICABLE TO THE YEAR UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN THE IN THE TRIBUNALS DECISION FOR EARLIER ASSESSMENT YEAR IN THE OWN CASE OF THE ASSES SEE, WE DIRECT THAT THE INCOME EARNED BY THE ASSESSEE IN RELATION TO SHARE TRANSACTION, WHERE HOLDING PERIOD IS LESS THAN 30 DAYS TO BE TREATED AS BUSINESS INCOME AND THE REMAINING INCOME EARNED BY THE ASSESSEE FROM SALE AND PURCHASE OF SHARES BE TREATED A S CAPITAL GAINS. 5 . ON APPRAI SA L OF THE ABOVE MENTIONED ORDER , WE NOTICED THAT THERE IS NO CHANGE IN THE BUSINESS OF THE ASSESSEE. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE. R ELYING UPON THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE ( SUPRA) . WE DIRECT THAT WHERE THE PERIOD O F HOLDING OF SHARES IS LESS THAN 30 DAYS, THE SAME IS LIABLE TO BE TREATED AS BUSINESS INCOME AND WHERE THE PERIOD OF HOLDING IS MORE THAN 30 DAYS UPTO THE ONE YEAR , THE SAME IS LIABLE TO BE TREATED AS SHORT TERM CA PITAL GAIN . ACCORDINGLY, WE DECIDE THIS ISSUE IN TERMS OF ABOVE. 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HERE BY ORDERED TO BE ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON 19 .04 . 2018 . ITA. NO. 57 M/20 16 A.Y. 2011 - 12 8 SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI; DATED : 19 .04 . 2018 VIJAY / 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