AMADHI INVESTMENTS LTD, AHEMEDABAD V. ITO WD 1(1)(1), MUMBAI

ITA 5972/MUM/2010

• Counselvise Citation: 597219914 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 07-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Business income; Search and seizure; Tax effect
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI D. MANMOHAN (V.P.) AND SHRI RAJENDRA S INGH, A.M. ITA NO. 5972/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. AMADHI INVESTMENTS LTD. 1 ST FLOOR, SHOP NO.2, 163 PATEL VAS, OPP. PETROL PUMP, MEMNAGAR AHMEDABAD-52. PAN NO. AAACA 7300 E INCOME TAX OFFICER WARD-1(1)(1) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI SAMEER DALAL RESPONDENT BY : SHRI V.V. SHASTRI DATE OF HEARING : 7.6.2012 DATE OF PRONOUNCEMENT : 15.6.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 27.4.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. T HE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING NATURE OF INCOME FROM SALE AND PURCHASE OF SHARES. 2. FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT P ROCEEDINGS NOTED THAT A SEARCH AND SEIZURE ACTION UNDER SECTION 132 HAD BEEN ITA NO.5972/M/10 A.Y.06-07 2 CONDUCTED IN THE CASE OF SMT. ROOPAL NARESH PANCHAL AND M /S. SUGANDH ESTATE AND INVESTMENTS P. LTD. ON 10.2.2006. IT WAS FOUND THAT THE GROUP WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND ALSO AS A SHARE BROKER. IT WAS ALSO FOUND TH AT THE GROUP ENTITIES HAD CORNERED IPO SHARES RESERVED FOR SMALL INVEST ORS BY MAKING THOUSANDS OF MULTIPLE APPLICATIONS IN THE RETAIL SEGMENT. THE APPLICATIONS HAD BEEN MADE IN THOUSANDS OF FICTITIOUS/B ENAMI NAMES. ON RECEIPT OF IPO ALLOTMENT, THESE ALLOTTEES TRANSFERR ED THE SHARES TO THE DEMAT ACCOUNTS OF SMT. ROOPAL N. PANCHAL AND M/S. S UGANDH ESTATE AND INVESTMENTS P. LTD. WHO IN TURN TRANSFERRED SHARES AT COST PRICE OR WITH NOMINAL MARGIN OF PROFIT THROUGH OFF M ARKET TRANSACTIONS TO THE FINANCIERS WHO HAD GIVEN FINANCE. THE FINANCIERS IN TURN HAD SOLD MOST OF THE SHARES IN THE MARKET ON THE DAY OF LISTING OR IMMEDIATELY THEREAFTER IN THE STOCK EXCHANGE AND THEREBY MADE SUBSTA NTIAL PROFIT. INVESTIGATION REVEALED THAT THE FINANCIERS WHO HAD AD VANCED FINANCE TO THE GROUP WERE ULTIMATELY BENEFICIARIES IN THE ENTIRE SCHEME OF THINGS. THE ASSESSEE WAS ONE OF THE FINANCIERS. 2.1 THE AO OBTAINED DETAILS REGARDING PURCHASE/SALE OF SHARES BY THE ASSESSEE AND NOTED THAT THE ASSESSEE DURING THE RELEVAN T YEAR HAD MADE PURCHASES OF SHARES TO THE TUNE OF RS.42,20,02,360/- AND UNITS OF MUTUAL FUND TO THE TUNE OF RS.15,51,00,000/-. THE DETAILS OF PURCHASES AND SALES WERE AS UNDER :- ITA NO.5972/M/10 A.Y.06-07 3 SR. NO. NAME OF SCRIP NO. OF SCRIPS DATE OF ALLOTMENT DATE OF SALE 1 JAIPRAKASH HYDRO 171400 13.04.2005 18.04.2005 20.04.2005 2 NANDAN EXIM LTD. 12604 07.06.2005 13.06.2005 3 IDFC LTD. (OFF MARKET) 141514 265734 06.08.2005 09.08.2005 12.08.2005 26.09.2005 26.09.2005 11.08.2005 4 RENUKA SUGAR LTD. 1770 27.10.2005 14.11.2005 5 SUZLON ENERGY LTD. 2191 14.10.2005 19.10.2005 7 FCS LTD. (OFF MARKET) 12971 38200 16.09.2005 16.09.2005 17.09.2005 17.09.2005 8 SYNDICATE BANK 12963 27.07.2005 29.07.2005 9 ALLAHABAD BANK 1 OPENING 02.01.2006 10 BANK OF BARODA 1 OPENING 02.01.2006 11 BANK OF INDIA 1 18.04.2005 02.01.2006 12 HINDUJA TMT 9250 OPENING 02.01.2006 13 J P HOTELS LTD. 1 OPENING 23.05.2005 30.05.2005 14 SASKEN COMMUNICATION LTD. (OFF MARKET) 4700 02.09.2005 12.09.2005 13.09.2005 15 SYNDICATE BANK 1 20.04.2005 12.09.2005 13.09.2005 16 ZODIAC CLOTHING 2000 OPENING 25.05.2005 30.05.2005 17 SOUTH INDIA CORPORATION LTD. 14 OPENING 31.01.2006 18 J N HIGH LIQUIDITY FUND GROWTH 5415.035 298140.14 8 173978.47 8 13.04.2005 18.05.2005 27.05.2005 22.08.2005 19 J N HIGH LIQUIDITY SUPER INST GROWTH FUND 6335767.5 20 26.08.2005 15.09.2005 20 J N FLOATER FUND 4166176.8 18 20.07.2005 10.08.2005 11.08.2005 11.08.2005 ITA NO.5972/M/10 A.Y.06-07 4 2.2 THE ASSESSEE IN THE RETURN OF INCOME DECLARED THE INCO ME FROM SALE AND PURCHASE OF SHARES AND UNITS AS INCOME FROM SHORT TERM CAPITAL GAIN AND PAID TAX @ 10% ALTHOUGH AT THE TIME OF INVESTIGATION THE ASSESSEE HAD AGREED FOR THE ASSESSMENT OF INCOME AS BUSIN ESS INCOME. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY INCOME SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE SUBMITTED THAT IT WAS A LIMITED COMPANY, THE MAIN OBJE CT OF WHICH WAS TO CARRY ON BUSINESS OF PROVIDING FINANCIAL CONSULTANCY AN D MAKING INVESTMENT IN PURCHASE OF SHARES AND DEBENTURES. AS STOCK MARKET WAS BOOMING, ASSESSEE STARTED MAKING INVESTMENT IN SHARES A ND DEBENTURES FROM THE FUNDS RAISED FROM SHAREHOLDERS AND O THER INTER- CORPORATE DEPOSITS. THE COMPANY HAD TAKEN DELIVERY OF SHARES IN THE DEMAT ACCOUNT AND DECLARED SHARES AS INVESTMENT. IT WAS ALSO SUBMITTED THAT THOUGH ASSESSEE HAD PURCHASED SHARES IN BIG Q UANTITIES NUMBER OF TRANSACTIONS WAS NOT LARGE AND FREQUENCY WAS T HUS LOW. THE ASSESSEE HAD SOLD SHARES AS AND WHEN THERE WAS APPRECIATION DEPENDING UPON MARKET CONDITIONS. THE AO HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT THE SHARES HAD BEEN PURCHASED FROM SCAMSTERS THROUGH OFF MARKET TRANSACTIONS AN D THERE WERE REGULAR AND SUBSTANTIAL TRANSACTIONS AND PURCHASES HAD BEEN MADE MOSTLY FROM BORROWED FUNDS. THE HOLDING PERIOD O F SHARES WAS VERY SHORT WHICH SHOWED THAT THE CLEAR INTENTION OF THE ASSESSEE WAS ITA NO.5972/M/10 A.Y.06-07 5 TO MAKE PROFIT FROM RESALE OF SHARES. THE AO THEREFORE , CONCLUDED THAT THE ASSESSEE WAS TRADING IN SHARES AND ACCORDINGLY TREATED I NCOME AS BUSINESS INCOME. 2.3 IN APPEAL, CIT(A) OBSERVED THAT THE ASSESSEE HAD BEE N PURCHASING AND SELLING SHARES AS AN INVESTOR. THE ACTIVITIE S OF THE ASSESSEE WERE PART OF THE SCAM DETECTED AS A RESULT OF SEARCH IN CASE OF SMT. ROOPAL N. PANCHAL AND M/S. SUGANDH ESTATE AND INVESTMENTS P. LTD. THE ASSESSEE HAD MADE ORGANIZED EFFORTS FOR MAX IMIZING PROFIT WHICH CAME TO THE KNOWLEDGE OF THE DEPARTMENT ONLY TH ROUGH SEARCH OPERATIONS. CIT(A) THEREFORE, UPHELD THE VIEW TAKEN BY THE AO TO ASSESS THE INCOME AS BUSINESS INCOME AGGRIEVED BY WHICH, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR FOR ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE WAS A N INVESTOR IN SHARES AND SHARES HAD BEEN DECLARED AS INVESTMENT IN THE B OOKS OF ACCOUNT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD MADE IN VESTMENT IN SHARES OF ONLY 16 COMPANIES AND THUS HAD ONLY LIMITED TRANSACTIONS. THOUGH THE QUANTUM INVOLVED IN THE TRANSACTION WAS HIG H, THIS COULD NOT BE CONSIDERED AS BUSINESS ACTIVITY CONSIDERING THE LI MITED NUMBER OF TRANSACTIONS. THE LD. AR FOR THE ASSESSEE HOWEVER ADMI TTED THAT IN THE EARLIER YEAR THE INCOME HAD BEEN ASSESSED AS BUSINESS IN COME AND ITA NO.5972/M/10 A.Y.06-07 6 ASSESSEE HAD NOT CONTESTED THE MATTER IN APPEAL. IT WAS FU RTHER SUBMITTED THAT THE ASSESSEE HAD NOT FILED APPEAL BECAUSE T HE TAX EFFECT WAS SMALL. IT WAS ALSO SUBMITTED THAT IN CASE THE PL EA OF THE ASSESSEE WAS NOT ACCEPTED TO ASSESS INCOME AS CAPITAL GAIN, ASSESSEE SHOULD BE ALLOWED DEDUCTION ON ACCOUNT OF SECURITY TRAN SACTION TAX (STT) A CLAIM FOR WHICH HAD BEEN MADE BEFORE CIT(A) A S WAS CLEAR FROM STATEMENT OF FACTS PLACED ON RECORD. 3.1 THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAD PUR CHASED SHARES OUT OF BORROWED FUNDS AND SOLD THEM WITHIN A SHO RT PERIOD, SOMETIMES WITHIN A FEW DAYS TO EARN PROFIT. THE ASSESSEE T HEREFORE, COULD NOT BE CONSIDERED AS AN INVESTOR. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCOME EARNED BY THE ASSESSEE FROM PURCHASE AND SALE OF SHARES. THE DETAILS OF PURCHASE AND SALE OF SHARES HAS BEEN REPRODUCED IN PAR A- 2.1 EARLIER. AS SEARCH AND SEIZURE ACTION TAKEN IN CASE OF SMT . ROOPAL NARESH PANCHAL AND M/S. SUGANDH ESTATE AND INVESTMENTS P. LTD. HAD SHOWN INVOLVEMENT OF THE ASSESSEE IN A SCAM OF GETTING ALL OTMENT OF SHARES RESERVED FOR SMALL INVESTORS BY MAKING MULTIPLE A PPLICATIONS IN FICTICIOUS /BENAMI NAMES. THE ASSESSEE WAS FINANCING SUCH ACT IVITIES. ITA NO.5972/M/10 A.Y.06-07 7 SHARES ALLOTTED WERE TRANSFERRED BY SMT. ROOPAL N. PA NCHAL AND M/S. SUGANDH ESTATE AND INVESTMENTS P. LTD. TO THE ASSESSEE AN D OTHER FINANCIERS WHO SOLD SHARES IN THE MARKET ON THE DAY OF LISTING OR IMMEDIATELY THEREAFTER FOR MAKING PROFITS. IT IS THER EFORE CLEAR THAT THE ASSESSEE WAS ENGAGED IN AN ORGANIZED ACTIVITY OF PURCHASE O F SHARES ALMOST AT ALLOTMENT PRICE, THROUGH IRREGULAR AND ILLE GAL MANNER AND SELLING THEM ON PROFIT SOON AFTER SHARES WERE LISTED ON STOCK EXCHANGE. THE DETAILS OF TRANSACTIONS REPRODUCED EARLIER ALSO TO SH OW THAT SHARES HAVE BEEN SOLD IN A SHORT PERIOD OF TIME MOSTLY WITHIN A MONTH AND IN MANY CASES WITHIN A FEW DAYS. THESE ARE NOT ATTRIBUTES OF AN INVESTOR WHO PURCHASES SHARES WITH A VIEW TO EARN DIVIDEND AND FO R HOLDING FOR LONG PERIOD. 4.1 IT IS A SETTLED LEGAL POSITION THAT ENTRY IN THE B OOKS OF ACCOUNT IS NOT CONCLUSIVE IN DECIDING THE TRUE NATURE OF TRANSACTION . WHETHER ASSESSEE IS AN INVESTOR OR TRADER HAD TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALING WITH THE SHARES SUBSEQ UENTLY. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF HON'BLE SUPRE ME COURT IN THE CASE OF CIT VS. MADAN GOPAL RADHEY LAL (73 ITR 652 ). THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZING THE HOLDING P ERIOD ETC. AS MENTIONED EARLIER THE ASSESSEE HAD ACQUIRED SHARES IN PUBL IC ISSUES FROM BORROWED FUNDS THROUGH AN ORGANIZED EFFORT AND HAD SOLD THEM SOON AFTER LISTING OF SHARES FOR PROFIT. THE INCOME FRO M SHARE ITA NO.5972/M/10 A.Y.06-07 8 TRANSACTIONS HAS, THEREFORE, BEEN RIGHTLY ASSESSED AS BUSINE SS INCOME. IN THE EARLIER YEAR ALSO, INCOME FROM SIMILAR TRANSACTI ONS WAS ASSESSED AS BUSINESS INCOME WHICH HAS BEEN ACCEPTED BY THE ASSESSEE. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) H OLDING THAT THE INCOME HAS TO BE ASSESSED AS BUSINESS INCOME. HOWEVER, SINCE INCO ME IS BEING ASSESSED AS BUSINESS INCOME, THE SECURITY TRANSACTION TAX (STT) HAS TO BE ALLOWED AS A DEDUCTION. THE AO WILL AL LOW DEDUCTION IN ACCORDANCE WITH LAW AFTER NECESSARY VERIFICATION. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.6.2012. SD/- SD/- (D. MANMOHAN ) VICE PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 15.6.2012. JV. 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.