Komal Ajaykumar Sheth, RAJKOT-GUJARAT V. The Asstt. Commr. Income Tax, Circle-1, RAJKOT-GUJARAT

ITA 595/RJT/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6714 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 20-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C P BHATIA SR DR
• Assessee Lawyers: G C DOMADIA
• Keywords: Capital asset; Business income; Opportunity of being heard; Transactions in derivatives
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.595/RJT/2014 ( / ASSESSMENT YEAR : 2010-11) KOMAL AJAYKUMAR SHETH R. DAMODIA & CO. TAX CONSULTANT 601, EVEREST COMPLEX OPP.SHASHTRI MAIDAN NR.LIMDA CHOWN, RAJKOT 360001 / VS. THE CIT-I AYKAR BHAWAN RACE COURT RING ROAD RAJKOT ./ ./ PAN/GIR NO. AGYPS 0848 N ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI G.C. DOMADIA, A.R. ! / RESPONDENT BY : SHRI C.P. BHATIA, SR.DR ' #$% ! & / DATE OF HEARING 09/02/2017 '( ! & / DATE OF PRONOUNCEMENT 20/02/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX-I, RAJKOT CIT(A) IN SHORT] DATED 20/08/2014 PERTAINING TO ASSESSMENT YEAR (AY) 2010- 11. ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 2 - 2. BRIEFLY STATED, THE ASSESSEE FILED RETURN OF IN COME DECLARING TOTAL INCOME OF RS.37,12,120/-. THE CASE WAS SELECTED FO R SCRUTINY ASSESSMENT. THE ASSESSING OFFICER (AO) IN THE COUR SE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE HAS SHOWN I NCOME OF RS.25,18,724/- FROM SHORT TERM CAPITAL GAINS (STCGS ) CHARGEABLE UNDER S.111A OF THE ACT. THE ASSESSMENT WAS COMPLE TED AND STCG NOTED ABOVE WAS TAKEN COGNIZANCE OF AND CONCESSIONA L TAX OFFERED @ 15% AS SPECIFIED UNDER S.111A OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') WAS TAKEN NOTE OF BY THE AO. SUBSEQUENT TO THE ASSESSMENT, THE CIT(A) CALLED FOR THE ASSESSMENT RE CORDS AND OBSERVED THAT MOST OF THE TRANSACTIONS IN SHARES ON WHICH THE ASSESSEE HAS RETURNED STCGS WAS IN THE NATURE OF TRADING AND NO T INVESTMENT PER SE. IT WAS OBSERVED BY THE CIT THAT ASSESSEE HAS WRONGL Y PAID CONCESSIONAL TAX OF STCGS OF RS.25,18,724/- BY RESORTING SECTION 111A OF THE ACT WHEREAS RATE OF TAX APPLICABLE ON MOST OF THE TRANS ACTIONS CONSTITUTING THIS GAIN ARE IN THE NATURE OF BUSINESS INCOME AND THUS SUSCEPTIBLE TO NORMAL RATE OF TAXATION OF 30%. THE CIT THEREFORE OBSERVED THAT THE ORDER PASSED BY THE AO UNDER S.143(3) DATED 20/12/2 012 IS ERRONEOUS IN SO FAR AS PRE-JUDICIAL TO THE INTEREST OF REVENUE. CONSEQUENTLY, SHOW CAUSE NOTICE DATED 23/05/2014 WAS ISSUED TO THE AS SESSEE WHICH READS AS UNDER:- UPON PERUSAL OF RECORDS OF AY 2010-11, IT IS SEEN THAT AN ORDER U/S.143(3) OF THE ACT WAS PASSED BY THE AO ON 20-12-2012 AND THE ASSESSMENT HAS BEEN ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 3 - COMPLETED ACCEPTING THE RETURNED INCOME AS INCOME A SSESSED TO RS.37,72,120/-. 2. THE ASSESSING OFFICER WAS PRIMARILY REQUIRED TO VERIFY THE NATURE OF TRANSACTIONS IN SHARES WHICH RESULTED INTO SHORT TE RM CAPITAL GAINS TAXABLE U/S.111A OF THE I.T. ACT. I FIND THAT THE ASSESSING OFFICER HAS ACCEPTED THE TAXABILITY OF GAIN OF RS.25,23,011/- U /S.111A OF THE I.T.ACT WITHOUT PROPERLY ANALYZING THESE TRANSACTIONS. A C LOSURE SCRUTINY OF THE TRANSACTIONS RESULTING INTO GAIN OF RS.25,32,011/- SHOWS THAT GAIN OF ABOUT RS.21-22 LAKH WAS MADE BY THE ASSESSEE IN ONL Y THREE SCRIPS, NAMELY JINDAL COTEX (RS.3.72 LAKH). KIRIDYES (RS.1 0.64 LAKH) AND VITL INFO (RS.7.43 LAKH). IN ALMOST ALL THE THREE INSTA NCES ASSESSEE PURCHASED SHARES WORK RS.25-30 LAKH AND SOLD WITHIN 20-40 DAYS. THE VITL INFO SHARES WERE PURCHASED IN MAY AND SOLD IN JUNE, JINDAL COTEX SHARES WERE PURCHASED IN SEPTEMBER AND SOLD IN OCTO BER, KIRIDYES WERE PURCHASED IN NOVEMBER AND SOLD IN DECEMBER. A VERY SHORT DURATION OF POSSESSION OF SHARES WORTH RS.25-30 LAKHS WITH SUCH REGULARITY OF SALE AND PURCHASE DURING THE YEAR WITH A SINGULAR MOTIVE TO MAKE HANDSOME PROFIT CLEARLY SHOWS THE INTENTION OF APPELLANT AS ADVENTURE IN THE NATURE OF TRADE RATHER THAN INVESTMENT IN THESE SHARES. E XCEPT FOR SHARES OF 3 AND 4 COMPANIES, ALL THE OTHER SHARES WERE SOLD BY ASSESSEE WITHIN 1-2 MONTHS OF THEIR PURCHASES AND IN MOST CASES IN LESS THAN 15 DAYS. IT IS NOT A CASE WHERE ASSESSEE HAS APPLIED THE PROFIT OF RS.38.58 LAKH EARNED FROM F&O SEGMENT OF SHARE MARKET IN ANY INVESTMENT. IT IS A CASE WHERE ASSESSEE HAS EARNED PROFIT OF RS.25.32 LAKH F ROM CASH SEGMENT OF SHARE MARKET ALONG WITH F&O SEGMENT OF SHARE MARKET . THE AUDITORS REPORT SHOWS THAT THE APPELLANT TOOK LOAN OF FOR SH RT DURATION FROM SHETH BROTHERS ETC. DURING THE YEAR WHICH WAS SQUAR ED UP DURING THE YEAR ITSELF. IT SHOWS THAT APPELLANT HAS USED OTHE R PERSONS FUNDS (BORROWED FUNDS) TO EARN PROFIT FROM SHARE MARKET R ATHER THAN INVESTING AS INVESTMENT IN SHARES HER OWN SURPLUS FUNDS EARNE D FROM ANY OTHER BUSINESS ASSESSEE IS A DIRECTOR IN ANS PVT LTD. WHI CH IS A BROKING CONCERN IN NSC AND BSC. ASSESSEE RECEIVES REMUNERA TION FOR RUNNING THIS CONCERN. MAJORITY OF SHORT TERM CASH SHARES P ROFIT OR F&O PROFIT HAS BEEN EARNED BY ASSESSEE BY TRANSACTING THROUGH THE BROKING CONCERN IN WHICH SHE HERSELF IS A DIRECTION. THE Q UALIFICATION AND ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 4 - EXPERTISE OF THE ASSESSEE IN SHARE MARKET ALSO SHOW THAT THE ASSESSEE IS CAPABLE OF TRADING IN SHARES. 3. THE ABOVE FACTS SHOW THAT THE ASSESSMENT ORDE R PASSED BY THE ASSESSING OFFICER IN RESPECT OF A.Y. 2010-11 APPEAR S TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. TH EREFORE, I INTEND TO INITIATE PROCEEDINGS U/S.263 OF THE ACT AND PASS A SUITABLE ORDER. BEFORE PASSING SUCH ORDER, YOU ARE HEREBY GIVEN AN OPPORTUNITY OF BEING HEARD IN THE MATTER. PLEASE STATE AS TO WHY THE ORDER PASSED BY THE ASSESSING OFFICER IN YOUR CASE SHOULD NOT BE RE VISED AFTER MAKING NECESSARY INQUIRY. IN THIS CONNECTION, YOU ARE REQ UESTED TO ATTEND THIS OFFICE ON 18/06/2014 AT 4:00 P.M. 3. THE ASSESSEE IN RESPONSE THERETO, REBUTTED THE A LLEGATION OF THE CIT AND SUBMITTED THAT THE SURPLUS OF RS.25,18,724/- AR ISING ON SALE OF SHARES HAVE BEEN RIGHTLY ASSESSED AS STCGS. THE DETAILED REPLY WAS FILED WHICH IS REPRODUCED BY THE CIT IN PARA-3.1 OF ITS ORDER. THE CIT HOWEVER WAS NOT IMPRESSED BY THE SUBMISSIONS ON BEHALF OF THE A SSESSEE AND ACCORDINGLY PROCEEDED TO ASSESS THE AFORESAID INCOM E AS PROFITS AND GAINS OF THE BUSINESS, AS AGAINST STCG CLAIMED IN EXERCI SE OF POWER VESTED UNDER S.263 OF THE ACT. 4. AGGRIEVED BY THE ACTION OF THE CIT, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD.AR FOR THE ASSESSEE MR.G.C. DOMADIA HEAVI LY RELIED UPON THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT AND CO NTENDED THAT THE ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 5 - STCG OFFERED BY THE ASSESSEE HAS BEEN ACCEPTED BY T HE AO UNDER S.143(3) AFTER COLLECTING REQUISITE DETAILS AND AFT ER APPLICATION OF MIND THEREON. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS SEPARATELY MAINTAINED THE RECORDS TOWARDS ITS INVESTMENT PORTF OLIO VIS--VIS TRADING PORTFOLIO. THE ASSESSEE HAS ALSO MAINTAINED SEPARA TE RECORDS FOR TRANSACTIONS ENTERED IN DERIVATIVE SEGMENT. IT WAS ASSERTED THAT SHARES HAVE BEEN PURCHASED ON DELIVERY BASIS AND SURPLUS A RISING THEREON AS PER THE SEPARATE RECORDS HAVE BEEN OFFERED FOR TAXATION AS LONG TERM CAPITAL GAINS (LTCGS) OR THE STCGS, AS THE CASE MAY BE. IT WAS SUBMITTED THAT THE DIVIDEND HAS BEEN EARNED ON THE INVESTMENTS WHI CH WAS DULY REFLECTED IN THE BOOKS OF ACCOUNTS AND THE RETURN O F INCOME. THE ASSESSEE IS CONSISTENTLY FOLLOWING THE AFORESAID PRACTICE. IT WAS VEHEMENTLY EMPHASIZED THAT OUT OF TOTAL 33 SCRIPS GIVING RISE TO THE CAPITAL GAINS, CAPITAL GAINS ARISING IN AS MANY AS 26 SCRIPS ARE B Y WAY OF ACQUISITION IN INITIAL PUBLIC OFFERINGS (IPOS) BY THE COMPANIES, S ALE WHEREOF HAS RESULTED IN SOME CAPITAL GAINS. THE LD.AR FURTHER RELIED UPON CIRCULAR NO.4 OF 2007 OF CBDT TO EXHORT THAT THE ASSESSEE IS ENTITLED TO MAINTAIN BOTH TYPES OF PORTFOLIOS; ONE TOWARDS INVESTMENT AN D OTHER TOWARDS TRADING. THERE IS NO BAR FOR HOLDING CERTAIN SHARE S AS INVESTMENTS WHILE SIMULTANEOUSLY HOLDING CERTAIN OTHER SHARES AS TRAD ING STOCKS. THE LD.AR NEXT SUBMITTED THAT THE ASSESSEE DID OBTAIN C ERTAIN AMOUNT OF LOAN FOR A VERY SHORT DURATION, A PART OF WHICH HAS TRAV ELLED IN ACQUISITION OF SHARES WHICH HAS GIVEN RISE TO CAPITAL GAINS ON ITS SALE. HOWEVER, IT WAS ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 6 - SIMULTANEOUSLY SUBMITTED THAT THE LOAN WAS TAKEN FR OM ITS RELATIVES AND SISTER-CONCERNS WITHOUT INTEREST. IT WAS ALSO PRO POUNDED THAT THE INVESTMENT HOLDINGS AT THE END OF THE YEAR HAS ALSO BEEN VALUED AT COSTS AS AGAINST THE ORDINARY PRACTICE OF VALUING TRADING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER. IN THE BACKDROP OF THESE FACTUAL ASPECTS, IT WAS CONTENDED THAT THE VIEW OF THE CIT CANNOT BE SUBSTITUTED BY THE VIEW OF THE AO IN THE PROCEEDINGS UNDER S.26 3 OF THE ACT. FOR THIS PROPOSITION, THE LD.AR RELIED UPON THE JUDGEME NT OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT REPORTED AT (2000) 243 ITR 83 (SC) AND JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIAL INDIA LTD. REP ORTED AT (1993) 203 ITR 108 (BOM.). 6. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF THE COMMISSIONER APPEALED AGAINST AND SUBMITTED IN FURT HERANCE THAT THE AO WHILE ACCEPTING THE STCGS, THE AO DID NOT MAKE PO INTED ENQUIRY INTO THE ASPECT AS TO WHETHER THE PROFITS ARISING ON SAL E OF SHARES IS IN THE NATURE OF TRADING ACTIVITY OR A CAPITAL TRANSACTION . THEREFORE, THE ORDER OF THE AO HAS CAUSED PREJUDICE TO THE INTERESTS OF THE REVENUE OWING TO ERROR ON THE PART OF THE AO. HE THUS SUBMITTED THA T THE CIT HAS RIGHTLY INVOKED JURISDICTION ARISEN UNDER S.263 OF THE ACT. ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 7 - 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE SOLITARY ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER THE ORDER OF THE AO PASSED UNDER S.143(3) IS OPEN TO ATTACK AS ERRONEOU S IN SO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE IN TERM S OF SECTION 263 OF THE ACT WHEN THE STCGS RETURNED BY THE ASSESSEE HAS BE EN ACCEPTED BY THE AO IN THE GIVEN FACTS. IN THIS REGARD, WE OBSERVE FROM PARA-2 OF THE ORDER OF THE CIT PASSED UNDER SE.263 OF THE ACT WHE REIN THE CIT HIMSELF HAS ADMITTED THE FACT THAT THE AO HAS COLLECTED THE REQUISITE DETAILS DURING ASSESSMENT PROCEEDINGS WHICH INCLUDED DETAIL S OF PURCHASE AND SALES OF SHARES WHICH RESULTED IN CAPITAL GAINS DUR ING THE RELEVANT PERIOD. WE SIMULTANEOUSLY NOTE THAT THE AO HAS MADE CONSPIC UOUS AVERMENTS TOWARDS DECLARATION OF STCGS AT RS.25,32,011/- AND ALSO SPECIFICALLY NOTED CONCESSIONAL RATE OF TAX APPLICABLE THEREON. WE FURTHER OBSERVE THAT THE AO HAS NOTED THAT NECESSARY DETAILS AND EV IDENCES THEREOF HAVE BEEN FURNISHED BY THE ASSESSEE. IN THE CIRCUMSTANC ES, IT IS DIFFICULT TO ACCEPT THE ALLEGATION THAT THE ACTION OF THE AO WAS WITHOUT REQUISITE ENQUIRY AND APPLICATION OF MIND ON FACTS. POSSIBLY , THE CIT IS NOT HAPPY WITH THE QUALITY OF THE OUTCOME ON THE ENQUIRY. HO WEVER, THIS BY ITSELF WOULD NOT GIVE OCCASION TO THE CIT TO PASS ORDER UN DER S.263 OF THE ACT. ON FACTS, WE NOTE FROM THE ORDER OF THE CIT ITSELF THAT THE ASSESSEE HAS MAINTAINED SEPARATE RECORDS WHEREBY INTENTION TO HO LD CERTAIN SHARES AS CAPITAL ASSETS AS COMPARED TO OTHER CLASS OF TRADIN G ASSETS OF SIMILAR NATURE CAN BE DECIPHERED. THIS ACT OF THE ASSESSE E BY ITSELF IS A STRONG ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 8 - INDICATOR OF THE DECLARATION OF THE UNDERLYING INTE NTION OF THE ASSESSEE. WE ALSO TAKE NOTE OF THE FACT THAT CIRCULAR NO.4 OF 2007 DATED 15/06/2007 ISSUED BY THE CBDT CLEARLY LAYS DOWN THAT IT IS POS SIBLE FOR A TAXPAYER TO HAVE TWO TYPES OF PORTFOLIOS SIMULTANEOUSLY, I.E. A N INVESTMENT AND TRADING PORTFOLIO. WE SIMULTANEOUSLY NOTE THAT SUBS TANTIAL MAJORITY OF THE TRANSACTIONS GIVING RISE TO THE CAPITAL GAINS ARE M ERE RESALE OF SHARES ACQUIRED IN THE INITIAL PUBLIC OFFER FOR ALLOTMENT OF SHARES BY COMPANIES. THUS, SHARES WERE ACQUIRED IN THE PRIMARY MARKET AN D SOLD IN THE SECONDARY MARKET AFTER OBTAINING DELIVERY THEREOF. THE TRANSACTIONS INVOLVING PURCHASE AND SALES ARE LIMITED IN NUMBER AND DOES NOT INDICATE ANY CONTINUOUS AND SYSTEMATIC COURSE OF ACTIVITY OR CONDUCT WITH SET PURPOSE. WE OBSERVE THAT THE MANNER IN WHICH THE B OOKS OF ACCOUNTS ARE KEPT IS AN IMPORTANT PIECE OF EVIDENCE FOR DETERMIN ATION OF THE FACTUAL ISSUE IN HAND. THE SHARES HELD AT THE END OF THE Y EAR TOWARDS INVESTMENT HAS ALSO NOT BEEN SHOWN TO BE VALUED AT COST OR MAR KET PRICE WHICHEVER IS LOWER. WE ALSO NOTICE THAT THE INVESTMENTS GIVIN G RISE TO THE CAPITAL GAINS ARE NOT DRIVEN PRIMARILY BY THE BORROWED FUND S WHICH WERE CLAIMED TO BE NOT OBTAINED ON COMMERCIAL BASIS. IN THESE F ACTS, THE ACTION OF THE AO ACCEPTING THE CAPITAL GAIN DECLARED BY THE ASSES SEE AS SUCH CANNOT BE FAULTED PER SE . THE VIEW OF THE AO ON THE ISSUE IS CLEARLY A PLA USIBLE VIEW WHICH IN OUR VIEW CANNOT BE TOPPLED AND SUBSTI TUTED BY THE OPINION OF THE CIT IN THIS REGARD. ACCORDINGLY, ON OBJECTI VE CONSIDERATION OF THE FACTS AVAILABLE ON RECORD BEFORE THE COMMISSIONER, IT IS DIFFICULT TO HOLD ITA NO.595 /RJT /2014 KOMAL AJAYKUMAR SHETH VS. CIT ASST.YEAR 2010-11 - 9 - THAT THE ACTION OF THE AO WAS ERRONEOUS PER SE AND HOSTILE TO THE INTEREST OF THE REVENUE. THUS, SOURCE OF POWER TO CANCEL TH E ASSESSMENT ORDER AND MODIFY THE SAME IS NOT TRACEABLE TO SECTION 263 OF THE ACT. IN OUR CONSIDERED VIEW, NO ERROR CAN BE INFERRED IN THE AS SESSMENT ORDER PER SE . RESULTANTLY, WE FIND MERIT IN THE PLEA OF THE ASSES SEE ON THE ISSUE AND HENCE THE ORDER OF THE COMMISSIONER PASSED UNDER SE .263 OF THE ACT DATED 20/08/2014 IS SET ASIDE AND QUASHED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 20/02/2 017 AT AHMEDABAD. SD/- SD/- ( RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD ; DATED 20/02/2017 ..#, $.,#../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. - & ' .& / CONCERNED CIT 4. ' .& ( ) / THE CIT(A)-CONCERNED 5. 2$34 ,&,# , , /DR,ITAT, RAJKOT 6. 4?@ A% / GUARD FILE. / BY ORDER, 2& ,& //TRUE COPY// / ( DY./ASSTT.REGISTRAR) %&, / ITAT, RAJKOT