ITO 13(3)(2), MUMBAI V. RAVI MNAIRAM ARYA, MUMBAI

ITA 5815/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3755 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-04-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHUTOSH RAJHANS
• Assessee Lawyers: DHIRENDRA M SHAH
• Keywords: Business income

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENC H, MUMBAI ! . '# , % &'( & BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, AM & ./I.T.A. NO.5815/M/2010 ( ) * +* / ASSESSMENT YEAR :2007-2008) ITO - 13(3)(2), MUMBAI. / VS. SHRI RAVI MANIRAM ARYA, 212-A, STEEL CHAMBERS, BROACH STREET, MUMBAI400 009. (, % & ./PAN :ADDPA 7751 M ( ,- /APPELLANT) .. ( ./,- / RESPONDENT) ,- 0 1 & / APPELLANT BY : SHRI ASHUTOSH RAJHANS, DR ./,- 0 1 & / RESPONDENT BY : SHRI DHIRENDRA M. SHAH & 0 2% /DATE OF HEARING : 9.4.2013 3+ 0 2% /DATE OF PRONOUNCEMENT : 15.5.2013 '4 '4 '4 '4 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 19.7.2010 IS A GAINST THE ORDER OF THE CIT (A)-24, MUMBAI DATED 21.5.2010 FOR THE ASSESSMENT Y EAR 2007-2008. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS WHICH READ AS UNDER: 1.(A) THE LD CIT (A) ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW, ERRED IN DIRECTING TO TREAT THE CAPITAL GAIN NOT AS BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE VOLUME, QUAN TUM AND ORGANIZED ACTIVITY IN SHARE TRADING IS A BUSINESS ACTIVITY. (B) THE LD CIT (A) ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE AND IN LAW, ERRED IN NOT APPRECIATING THE FACT THAT THE TAX AUD ITOR HAS CERTIFIED THE NATURE OF BUSINESS AS SHARE TRADING. ASSESSEE CHANGED D IRECTING TO TREAT THE CAPITAL GAIN NOT AS BUSINESS INCOME WITHOUT APPRECI ATING THE FACT THAT THE VOLUME, QUANTUM AND ORGANIZED ACTIVITY IN SHARE TRA DING IS A BUSINESS ACTIVITY. (C) THE LD CIT (A) ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW, ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSE E CHANGED THE METHOD OF ACCOUNTING IN THIS YEAR WHICH IS DIFFERENT FROM THA T FOLLOWED IN THE EARLIER YEAR. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSMENT ORDER BE RESTORED. 2 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE HAS SHARE INCOME FROM M/S. GOYAL TRADERS AND ALSO SALARY INCO ME FROM A COUPLE OF COMPANIES NAMELY M/S. ARYA SHIP BREAKING CO. PVT. LTD AND M/S . M.P. RECYCLING CO. PVT. LTD. FOR THE AY 2007-2008, ASSESSEE FILED THE RETURN OF INCOME CLAIMING LONG TERM CAPITAL GAINS OF RS. 12,86,996/-. IT IS THE CLAIM OF THE AS SESSEE THAT HE IS ENGAGED IN PURCHASING AND TRADING IN SHARES AND THE INCOME EAR NED IS TREATED AS BUSINESS INCOME IN THE BOOKS OF ACCOUNTS AND UNSOLD SHARES A RE SHOWN AS CLOSING STOCK IN THE BOOKS OF ACCOUNT. DURING THE YEAR UNDER CONSIDERAT ION, ASSESSEE REFLECTED OPENING STOCK OF SHARES OF RS. 4.8 CRS (ROUNDED OFF), PURCH ASED SHARES WORTH RS. 14,56,720/- AND SOLD THE SHARES WORTH RS. 44,87,429/-. SIMILAR METHOD WAS FOLLOWED FOR THE AY 2006-07 ALSO. HOWEVER, IN FILING THE RETURN OF INC OME FOR THE YEAR, IN THE COMPUTATION OF INCOME, ASSESSEE REFLECTED THE INCOM E EARNED ON THE SALE OF THE SHARES AS LONG TERM CAPITAL GAINS AND THEREFORE DEV IATED FROM THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. AT THE END OF THE SCRUTINY ASSESSMENT, AO HELD THAT THE INCOME EARNED ON TRADING OF THE SHARES AS BUSINESS INCOME HOLDING THAT THE ASSESSEE DEVIATED FROM THE METHOD OF ACCOUNTING FOLLOWED IN THE BOOKS OF ACCOUNT. AGGRIEVED WITH TH E SAME, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY QUESTIONING TH E TREATMENT GIVEN BY THE ASSESSING OFFICER. 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, ASSESSEE SUBMITTED THAT THE SHARES ARE BEING REGULARLY PURCH ASED AND SOLD SINCE MANY YEARS AND HOLD THEM AS INVESTMENT. ASSESSEE ALSO SUBMITT ED THE DETAILS OF DIVIDEND EARNED BY THE ASSESSEE. ASSESSEE ALSO AVAILED THE SERVICES OF PORT FOLIO MANAGEMENT AND INCURRED THE EXPENDITURE IN LIEU OF THE SERVICES RENDERED BY ASK RAYMOND GEMS SECURITIES INDIA PVT. LTD. ASSESSEE ME NTIONED THAT THE SHARES WERE PURCHASED WITH THE INTENTION OF HOLDING FOR A LONGE R PERIOD AND THE TRANSACTIONS INVOLVED ARE VERY FEW, WHICH IS A SYMPTOM OF INVEST MENT ACTIVITY. AS PER ASSESSEE, HE WAS NOT ENGAGED IN THE BUSINESS OF TRADING OF SH ARES. HOWEVER, THERE IS NO DISCUSSION WITH REGARD TO THE REASONS LEADING TO MA INTAIN THE BOOKS OF ACCOUNTS IN THE MANNER OF BUSINESS ACTIVITY, DEVIATING FROM THE SAID MANNER AT THE TIME OF 3 MAKING OF THE COMPUTATION O THE TOTAL INCOME FOR TH E PURPOSE OF FILING THE RETURN. CIT (A) CONSIDERED THE ABOVE SUBMISSIONS OF THE ASS ESSEE AND ALLOWED THE APPEAL OF THE ASSESSEE. FOR THESE CONCLUSIONS, THE CIT(A) CON SIDERED THE FACTS RELATING TO THE LOW VOLUME OF TRANSACTIONS AND ALSO CERTAIN DECISIO NS DISCUSSED IN PARA 2.2 OF THE IMPUGNED ORDER. 4. AGGRIEVED WITH THE DECISION OF THE CIT (A), REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE SAID GROUNDS. DURING THE P ROCEEDINGS BEFORE US, LD DR BROUGHT OUR ATTENTION TO THE PROFIT & LOSS ACCOUNT PLACED AT PAGE 39 & 40 OF THE PAPER BOOK AND STATED THAT ASSESSEE TREATED THE PRO FIT EARNED ON SALE OF THE SHARES AS BUSINESS INCOME. FURTHER, HE ALSO BROUGHT OUR A TTENTION TO THE PROFIT & LOSS ACCOUNT FOR THE ASSESSMENT YEAR AND MENTIONED THAT THE ASSESSEE TREATED THE SHARE TRADING ACTIVITY AS A BUSINESS ACTIVITY (PLACED AT PAGE 14 OF THE PAPER BOOK). HE MENTIONED THAT ASSESSEE WAS CONSISTENTLY TREATING T HE TRADING ACTIVITY AS BUSINESS TRANSACTIONS AND THEREFORE, THE VIEW TAKEN BY THE A O MUST NOT BE DISTURBED. FURTHER, LD DR BROUGHT OUR ATTENTION TO AUDIT REPOR T, WHICH IS PLACED AT PAGE 2 OF THE PAPER BOOK FOR THE AY 2005-06; AT PAGE 17 FOR T HE AY 2006-07 AND AT PAGE 31 FOR AY 2007-08, AND MENTIONED THAT FOR THE AY 2007- 08 ASSESSEE CHANGED THE METHOD OF ACCOUNTING AND THE SAME CONSTITUTES A MAL A FIDE, WHICH IS AIMED AT REDUCING THE INCOME RETURNED BY THE ASSESSEE. 5. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE H EAVILY RELIED ON THE ORDER OF THE CIT (A). IN THIS REGARD, LD COUNSEL MENTIONED T HAT IN THE BOOKS OF ACCOUNTS ASSESSEE QUALIFIED THE PURCHASES AS INVESTMENTS FOR ALL THESE YEARS AND THEREFORE, THERE IS NOTHING WRONG IN THE BOOKS OF ACCOUNTS WIT H REGARD TO THE ACCOUNTING OF THE PURCHASED SHARES. OF COURSE, LD COUNSEL AGREED WIT H MISTAKES IN THE BOOKS RELATING TO PRESENTATION OF THE TABLES WHICH ARE IN THE FORM ATE MEANT FOR P & L ACCOUNT AND NOT IN THE FORMATE OF COMPUTATION OF CAPITAL GAINS. AT THE END OF THE YEAR FOR THE PURPOSE OF INCOME TAX, THE INCOME EARNED ON THE SAL E OF THE SHARES HELD AS INVESTMENT WERE SHOWN UNDER HEAD CAPITAL GAINS, W HICH MUST BE APPROVED. FURTHER, HE MENTIONED THAT THERE ARE ONLY EIGHT PURCHASE TRANSACTIONS AND 20 SALE 4 TRANSACTIONS AND THE SCRIPS INVOLVED ARE ONLY 8 SCR IPS. THE VOLUME REGISTERED DURING THE YEAR IS NOT VERY SIGNIFICANT. IN THESE CIRCUMST ANCES, THE DECISION GIVEN BY THE CIT (A) SHOULD NOT BE DISTURBED. FURTHER, HE MENTIO NED THAT THE VIEW TAKEN BY THE APEX COURT IN THE CASE OF CIT VS. GOPAL PUROHIT 228 CTR 582 (BOM), THE CLAIM OF THE ASSESSEE MUST BE ALLOWED. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDE RS OF THE REVENUE AUTHORITIES AS WELL AS THE PAPER BOOK FILED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE CONSISTENTLY PREPARING THE P & L A/C F OR THE AY 2005-06, 2006-07 AND 2007-08 TREATING THE INCOME EARNED ON SALE OF SHARE S AS BUSINESS INCOME. IN FACT, ASSESSEE HAS ADJUSTED THE SAID INCOME WITH CERTAIN EXPENSES INCURRED SUCH AS PORT FOLIO MANAGEMENT CHARGES, LEGAL CHARGES, DEPOSITARY CHARGES ETC FOR WORKING OUT THE PROFITS OF THE ASSESSEE. IT IS ALSO NOTICED THA T THE ASSESSEE TREATING THE SALARY IS ALSO A PROFIT OF THE ASSESSEE FOR THE YEAR UNDER CO NSIDERATION. FURTHER, IT IS ALSO EVIDENT THAT WHEREVER SALES AND PURCHASES ARE ENTER ED, THEY ARE QUALIFIED BY THE EXPRESSION INVESTMENT. THUS, IT IS AN UNDISPUTED FACT THAT ASSESSEE MAINTAINS A CONSOLIDATED PROFIT STATEMENT ON CONSIDERING ALL AC COUNTS OF INCOME IE SALARY, CAPITAL GAINS ETC AND THE SAME ARE SORTED BOUT HEAD-WISE AT THE TIME OF MAKING PREPARATION FOR COMPUTATION OF INCOME. FURTHER, IT IS ALSO NOT ICED THAT THE AUDITORS HAVE CERTIFIED IN THE EARLIER YEARS AND THE SIMILAR ACTIVITY WAS CONSIDERED AS A TRADING ACTIVITY IN THE PAST AND THEY HAVE DIFFERED COMMENT FOR THE AY UNDER CONSIDERATION AS EVIDENT FROM THE ENTRIES COLUMN-9 OF THE 3CB REPORT. IT IS STATED AT BAR THAT THE ASSESSEE NEVER BORROWED FUNDS FOR DOING ITS ACTIVITY OF PURCHASE AND SALE OF THE SHARES. THE TURNOVER OF THE SALES AND PURCHASES IS BELOW RS . 50 LACS EACH. THEREFORE, THE FACTS OF THIS CASE INDICATE BUSINESS NATURE ON ONE SIDE AND CAPITAL GAINS NATURE ON THE OTHER. THE CONSOLIDATED INCOME STATEMENT WITH T HE QUALIFICATIONS OF INVESTMENT NATURE OF SHARE TRADING BUSINESS ONLY SUGGESTS THE ASSESSEES INTENTION OF BUSINESS ACTIVITIES. ABSENCE OF BORROWED CAPITAL, LOW VOLUME OF TURNOVER, TRANSACTIONS ETC ALSO WEIGH IN FAVOUR OF THE ASSESSEE. THE CONSISTENCY IS SUES ALSO GOES IN FAVOUR OF THE ASSESSEE. THEREFORE, IN OUR CONSIDERATE OPINION, TH E CONCLUSIONS OF THE CIT(A) ARE 5 PROPER AND THEY DO NOT CALL FOR ANY INTERFERENCE. A CCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED . 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 15/5/2013 . '4 0 3+ % 5'6 15/5/2013 0 7 SD/- SD/- (D. MANMOHAN) (D. KARUNAKARA RAO) /VICE PRESIDENT % &'( / ACCOUNTANT MEMBER MUMBAI; 5' 15/5/2013 . ) . & ./ OKK , SR. PS '4 0 .)289 :9+2 /COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. 9 <7 .)2) , , / DR, ITAT, MUMBAI 6. 7!* = / GUARD FILE. &/92 .)2 //TRUE COPY// '4 & '4 & '4 & '4 & / BY ORDER, / & & & & > > > > (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI