SMT TRUPTI D. BHANSALI, MUMBAI V. THE ACIT 25(2), MUMBAI

ITA 5925/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55242 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 30-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 17-09-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: PARAS SAVLA; DR K SHIVARAM
• Keywords: Business income
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI D.K. AGRWAL, (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO. 5925/MUM/2007 ASSESSMENT YEAR : 2004-05 SMT. TRUPTI D. BHANSALI DARSHAN NO.2 BLOCK NO.3 CHANDAVARKAR LANE BORIVALI(W) MUMBAI-400 092. ..( APPELLANT ) P.A. NO. (AADPB 8566 D) VS. ASSTT. COMMISSIONER OF INCOME TAX- 25(2) C-11 BLDG. 1 ST FLOOR PRATYAKSHAKAR BHAVAN KURLA COMPLEX, BANDRA (E) MUMBAI-400 021. ..( RESPONDENT ) APPELLANT BY : DR. K . SHIVARAM AND SHRI PARAS SAVLA RESPONDENT BY : SHRI S. K. SINGH DATE OF HEARING : 30.8.2011 DATE OF PRONOUNCEMENT : 9 TH SEPTEMBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 11.7.2007 OF CIT(A) FOR THE ASSESSMENT YEAR 2004-05 . THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING NATURE OF INCOME FROM TRANSACTIONS IN SALE AND PURCHASE OF SHARES AND UNITS OF MUTUAL FUNDS AN D DISALLOWANCE OF EXEMPTION UNDER SECTION 54F CLAIMED BY THE ASSESSEE . ITA NO.5925/M/07 A.Y:04-05 2 2. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE A SSESSEE WHO WAS A PARTNER IN A FIRM, WAS ALSO ENTERING INTO REGULAR T RANSACTIONS IN SHARES OF LISTED COMPANIES AND IN THE UNITS OF MUTUAL FUNDS. THE ASSESSEE FOR THE RELEVANT YEAR HAD DECLARED THE TRANSACTIONS IN SHAR ES AND UNITS AS INVESTMENT ACTIVITY. SHE HAD DECLARED LONG TERM CA PITAL GAIN (LTCG) OF RS.61,18,427/- ON SALE OF SHARES AND MUTUAL FUND UN ITS; SHORT TERM CAPITAL GAIN (STCG) ON SALE OF SHARES OF RS.46,95,200/-; SH ORT TERM CAPITAL LOSS OF RS.65,12,080/- ON SALE OF MUTUAL FUND UNITS. THE A SSESSEE HAD ALSO DECLARED DIVIDEND INCOME OF RS.27,65,433/- WHICH HAD BEEN CL AIMED AS EXEMPT. THE AO NOTED THAT THE ASSESSEE WAS HAVING REGULAR TRANS ACTIONS IN PURCHASE AND SALE OF SHARES AND UNITS WITH HIGH FREQUENCY AND SU BSTANTIAL VOLUMES. THE PURCHASES AND SALES IN SHARES WERE TO THE TUNE OF R S.3.60 CRORES AND RS.4.07 CRORES RESPECTIVELY. SIMILARLY THE ASSESSEE HAD AL SO PURCHASES AND SALES IN UNITS OF RS.4.50 CRORES AND RS.3.85 CRORES RESPECTI VELY. THE ASSESSEE HAD ALSO TAKEN UNSECURED LOANS FOR THIS PURPOSE. THE A SSESSEE HAD ENGAGED THREE BROKERAGE FIRMS FOR UNDERTAKING THE TRANSACTI ONS. EVEN IN CASE OF UNITS THE TRANSACTIONS WERE FREQUENT. MOST OF THE UNITS HAD BEEN SOLD AFTER RECEIVING DIVIDEND AND AFTER COMPLETING THE STATUTO RY PERIOD OF THREE MONTHS TO AVOID DISALLOWANCE OF LOSS. CONSIDERING THE HIG H FREQUENCY, VOLUMES AND REGULARITY OF TRANSACTIONS, THE AO CONCLUDED THAT T HE TRANSACTIONS WERE OF THE NATURE OF BUSINESS AND NOT INVESTMENT ACTIVITY. HE, THEREFORE, ASSESSED THE INCOME FROM TRANSACTIONS IN PURCHASE AND SALE OF SH ARES AND UNITS AS BUSINESS INCOME AND DID NOT ALLOW CLAIM OF EXEMPTIO N UNDER SECTION 54F. ITA NO.5925/M/07 A.Y:04-05 3 2.1 IN APPEAL CIT(A) OBSERVED THAT MAGNITUDE AND FR EQUENCY OF PURCHASES AND SALES, RATIO BETWEEN PURCHASES AND SALES, HOLDI NG PERIOD ETC. WERE THE GOOD GUIDE IN DETERMINING THE TRUE NATURE OF TRANSA CTIONS. THOUGH ENTRY IN THE BOOKS OF ACCOUNT WERE RELEVANT THE SAME WERE NO T CONCLUSIVE IN DETERMINING THE NATURE OF TRANSACTIONS. THEREFORE M ERELY BECAUSE THE ASSESSEE HAD ENTERED THE TRANSACTIONS AS INVESTMENT IN THE BOOKS, THE SAME COULD NOT BE CONSIDERED AS INVESTMENT. CONSIDERING THE VOLUME, FREQUENCY AND REGULARITY OF TRANSACTIONS WHICH HAD BEEN UNDER TAKEN ON DAY TO DAY BASIS, THE CIT(A) AGREED WITH THE AO THAT THE TRANS ACTION HAD CHARACTERISTICS OF BUSINESS ACTIVITIES. HE ACCORDINGLY CONFIRMED TH E ORDER OF AO ASSESSING THE INCOME AS BUSINESS INCOME, AGGRIEVED BY WHICH T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO TRANSACTIONS IN SHARES AND MUTUAL FUND UNITS AS A PORTFOLIO INVESTMENT FOR WHICH SHE HAD ENTERED INTO AGREEMENT WITH PORTFOLIO MANAGERS. HE REFERRED TO PORTFOLIO INVESTMENT AGREE MENT ENTERED INTO BY THE ASSESSEE WITH ASK-RAYMOND JAMES SECURITIES INDI A LTD. AT PAGE 104 TO 109 OF THE PAPER BOOK AND PORTFOLIO INVESTMENT AGRE EMENT ENTERED WITH KOTAK SECURITIES LTD. AT PAGE 110 -113 OF THE PAPER BOOK. IT WAS ARGUED THAT PORTFOLIO INVESTMENT THROUGH PORTFOLIO MANAGERS COU LD NOT BE CONSIDERED AS TRADING ACTIVITY. HE PLACED RELIANCE ON THE DECISIO N OF THE TRIBUNAL DATED 30.11.2010 IN THE CASE OF ITO VS. RADHA BIRJU PATEL IN ITA NO.5382/MUM/2009 AND THE DECISION OF THE TRIBUNAL D ATED 31.8.2009 IN THE CASE OF ARA TRADING & INVESTMENTS PVT. LTD. IN ITA NO.499/PN/2008 IN ITA NO.5925/M/07 A.Y:04-05 4 SUPPORT OF THE PLEA. IT WAS SUBMITTED THAT THESE A SPECTS HAD NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW. IT WAS ALSO S UBMITTED THAT THE ASSESSEE HAD NO OBJECTION IF THE MATTER WAS REFERRED BACK TO AO FOR FRESH EXAMINATION OF THESE ASPECTS. THE LD. DR ON THE OTHER HAND PLA CED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW AND EXPRESSED NO OBJECTION IF THE MATTER WAS RESTORED TO THE FILE OF AO FOR FRESH EXAMINATION. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE NATURE OF INCOME FROM THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN PURCHA SE AND SALE OF SHARES OF COMPANIES AND MUTUAL FUND UNITS. THERE IS NO DISPU TE THAT THE ASSESSEE HAD REGULAR TRANSACTIONS IN PURCHASE AND SALE OF SHARES AND UNITS AND THAT THE VOLUME OF TRANSACTIONS WAS ALSO HEAVY. THE DETAILS OF TRANSACTIONS ARE PLACED AT PAGE- 114 ONWARDS OF THE PAPER BOOK SHOWI NG THAT MOST OF THE SHARES PURCHASED HAD BEEN SOLD WITHIN A MONTH. IN UNDERSTANDING THE TRUE NATURE OF TRANSACTIONS THE VARIOUS FACTORS SUCH AS ENTRY IN THE BOOKS OF ACCOUNT, FREQUENCY AND VOLUME OF TRANSACTIONS, HOLD ING PERIOD, USE OF BORROWED FUNDS ETC. ARE RELEVANT FACTORS BUT NO SI NGLE FACTOR IS CONCLUSIVE AND CUMULATIVE EFFECT OF ALL FACTORS HAS TO BE SHOW N. THE ENTRY IN THE BOOKS OF ACCOUNT IS NOT CONCLUSIVE AND IT IS THE INTENTIO N OF THE ASSESSEE AT THE TIME OF MAKING PURCHASES WHICH IS RELEVANT AND WHICH IS TO BE JUDGED BY THE SUBSEQUENT CONDUCT OF THE ASSESSEE IN DEALING WITH THOSE SHARES. HOWEVER THE CASE OF THE ASSESSEE IS THAT IT HAD MADE PORTFO LIO INVESTMENT THROUGH PORTFOLIO MANAGERS WITH A VIEW TO MAXIMIZE THE WEAL TH AND THEREFORE IN SUCH CASES IT COULD NOT BE SAID THAT THE ASSESSEE WAS TR ADING IN SHARES. RELIANCE ITA NO.5925/M/07 A.Y:04-05 5 HAS BEEN PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. RADHA BIRJU PATEL (SUPRA) AND IN THE CASE OF ARA TRADING & INVESTMENTS PVT. LTD. (SUPRA), IN WHICH IT HAS BEEN HELD THAT PORTFOLIO M ANAGEMENT SERVICES ARE MEANT FOR MAXIMIZATION OF WEALTH AND FOR ENHANCING THE INVESTMENT VALUE AND THEREFORE COULD NOT BE CONSIDERED AS TRADING AC TIVITY. THE ASSESSEE HAS PLACED COPY OF PORTFOLIO MANAGEMENT AGREEMENTS IN C ASE OF ASK-RAYMOND JAMES SECURITIES INDIA LTD. AND IN CASE OF KOTAK SE CURITIES LTD. ON RECORD. THEREFORE, IN OUR VIEW THE MATTER REQUIRES FRESH EX AMINATION FROM THE ANGLE OF PORTFOLIO MANAGEMENT IN VIEW OF THE DECISION OF THE TRIBUNAL CITED BY THE ASSESSEE (SUPRA). IN CASE THERE ARE TRANSACTIONS WH ICH ARE OTHER THAN BY WAY OF PORTFOLIO MANAGEMENT, THOSE HAVE TO BE ASSESSED SEPARATELY. BOTH PARTIES HAD NO OBJECTION IF THE MATTER WAS RESTORED TO AO F OR FRESH EXAMINATION IN THE LIGHT OF THE SAID DECISIONS. WE, THEREFORE, SE T ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF AO FOR P ASSING FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9.9.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 9.9.2011. JV. ITA NO.5925/M/07 A.Y:04-05 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.