ACIT 4(2), MUMBAI V. PRASHANT J. PATEL, MUMBAI

ITA 6033/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78764 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 04-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: V G GINDE
• Keywords: Business income; Non-deduction of tax
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H MUMBAI .. , ! ' ' ' ' #.'.$%.' & , ! BEFORE SHRI R.C.SHARMA, AM & DR.STM PAVLAN, JM ./ ITA NO.6033/MUM/2012 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2009-10) ACIT, 4(2), MUMBAI-400 020 VS. MR. PRASHANT J. PAT EL, DEV NEO VIKRAM SAHAKAR NAGAR, CHS, 2 ND FLOOR, NEW LINK ROAD, ABOVE AUDI SHOWROOM, ANDHERI(WEST), MUMBAI- 400 053 !( ./ )* ./ PAN/GIR NO. : AABPP 2156 M ( (+ / APPELLANT ) .. ( ,-(+ / RESPONDENT ) )! . .. . / / / / /REVENUE BY : MR. M.L.PERUMAL &01 . .. . / / / / /ASSESSEE BY : MR. V.G.GINDE & . 1% / DATE OF HEARING : 13 TH MARCH, 2014 23' . 1% / DATE OF PRONOUNCEMENT : 22 ND APRIL, 2014 / O R D E R PER R.C.SHARMA (A.M.) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 11-7-2012 FOR THE ASSESSMENT YEAR 2009 -10, IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. AC T. 2 . THIS APPEAL OF REVENUE WAS HEARD ALONG WITH THE A PPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2008-09. THE GR OUNDS RAISED BY THE REVENUE IN THE PRESENT APPEAL ARE SAME AS WAS T AKEN BY THE REVENUE FOR THE ASSESSMENT YEAR 2008-09, WHICH HAS BEEN DECIDED BY THE TRIBUNAL VIDE ORDER DATED 28 TH MARCH, 2014, PASSED IN ITA NO.3546/MUM/2012. ITA NO.6033/12 2 3. THE FIRST ISSUE IS WITH REGARD TO TREATMENT OF PRO FIT OFFERED ON SALE OF SHARES WHICH HAS BEEN ACCEPTED BY CIT(A) AS CAPI TAL GAINS AFTER RECORDING FOLLOWING OBSERVATIONS :- 3.10 I HAVE CONSIDERED THE CONTENTION OF THE AO AS WELL AS THE LD. AR. I FIND THAT THERE IS MERIT IN THE ARGUM ENTS AND THE FACTS OF THE CASE BEFORE ME. THE BRIEF SUMMARY OF T HE ARGUMENTS OF THE LD. AR ARE AS UNDER: 1. THE APPELLANT CONSISTENTLY MAINTAINED TWO SEPARA TE PORTFOLIOS - ONE FOR TRADING AND OTHER FOR INVESTME NT, WHICH IS ACCORDINGLY REFLECTED IN THE ACCOUNTS. 2. IN THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE APPELLANT, CONSISTENTLY THE SHARES FORMING PART OF TRADING PORTFOLIO ARE REFLECTED AS STOCK-IN-TRADE A ND THOSE FORMING PART OF INVESTMENT PORTFOLIO ARE REFL ECTED AS INVESTMENTS. 3. . THE SHARES HELD IN TRADING PORTFOLIO ARE CONSI STENTLY VALUED AT COST OR MARKET PNCE, WHICHEVER IS LOWER, WHEREAS, SHARES HELD IN INVESTMENT PORTFOLIO ARE CONSISTENTLY VALUED AT COST. 4. THE PAST TAX RECORD OF THE APPELLANT WOULD ALSO REVEAL THAT WHEN SHARES HELD IN INVESTMENT PORTFOLI O WERE SOLD, THE SURPLUS/INCOME IS ALWAYS ASSESSED AN D TAXED AS CAPITAL GAINS EITHER SHALL TERM OR LONG TE RM, AS THE CASE MAY BE, AT THE APPLICABLE RATE OF TAX. 5. THE APPELLANT HAS EARNED SUBSTANTIAL DIVIDEND ON THE INVESTMENTS HELD BY HIM. 6. THE APPELLANT HAS NOT UTILIZED BORROWED FUND FOR PURCHASE OR ACQUISITION OF INVESTMENTS. THE FREQUENCY OF TRANSACTIONS IN THE CASE OF THE APPELLANT ARE NOT HIGH. DURING THE PREVIOUS YEAR, THE APPELLANT HAS EXECUTED IN AGGREGATE 17 SALE TRANSAC TION. IN ONLY 10 SCRIPS RESULTING IN SHORT TERM CAPITAL GAIN S. IT IS VERY EVIDENT FROM THE STATEMENT OF CAPITAL GAINS SUBMITT ED BEFORE ME THAT THE APPELLANT HAS NOT ENTERED INTO HUGE NUM BER OF TRANSACTIONS WHICH HAS RESULTED INTO SHORT TERM CAP ITAL GAINS. 3.11 [HAVE CONSIDERED THE CONTENTION OF THE AO AS W ELL AS OF THE LD. AR, WHERE THE RELIANCE IS PLACED ON THE DEC ISION OF ITA NO.6033/12 3 HON'BLE MUMBAI TRIBUNAL IN CASE OF GOPAL PUROHIT RE PORTED IN 122 IT] 87(MUM) (AFFIRMED IN 228 CTR 582 (BORN)) , SARANATH INFRASTRUCTURE 120 TT] 216 (LUCK) AND OTHE R DECISIONS. I AM IN AGREEMENT WITH THE LD. AR SUBMIS SIONS THAT FACTS OF THE APPELLANT'S CASE ARE SIMILAR TO C ASE OF GOPAL PUROHIT ARE ADHERED TO BY THE APPELLANT. 3.12 THE APPELLANT'S STATUS AS AN INVESTOR IS VALID BECAUSE: I. THE APPELLANT IS CONSISTENTLY MAINTAINING TWO SEPARATE PORTFOLIOS - ONE FOR INVESTMENTS AND OTHER FOR TRADING. 2. THE DEPARTMENTS IN PAST YEARS HAS ASSESSED THE APPELLANT AS INVESTOR, AND THERE IS NO CHANGE IN TH E MODUS OF OPERANDI OF SHARE TRANSACTIONS FROM YEAR T O YEAR. 3. THE INTENTION OF THE APPELLANT IS CLEARLY REFLEC TED IN THE MANNER IN WHICH THE ACCOUNTS ARE MAINTAINED. 4. THE APPELLANT HAS EARNED SUBSTANTIAL DIVIDEND ON INVESTMENTS. 5.THE APPELLANT HAS NOT UTILIZED BORROWED FUNDS FOR PURCHASE OF INVESTMENT. 6. THE AO HAS ALSO ACCEPTED THE STATUS OF APPELLANT AS INVESTOR BY ACCEPTING THE LONG TERM CAPITAL GAINS A S CAPITAL GAINS. 3.13 THE APPELLANT FURTHER SUBMITS THAT IN HIS OWN CASE FOR THE ASSESSMENT YEAR 2008-09, AFTER CONSIDERING THE FACTS OF THE CASE IN DETAIL, IN TERMS OF MY APPEAL ORDER DAT ED 2151 MARCH, 2012, I HAVE GIVEN A FINDING THAT THE ASSESS EE IS AN INVESTOR AND THE INCOME FROM SALE OF SHORT TERM CAP ITAL ASSET BE TAXED AS SHORT TERM CAPITAL GAINS AS PROVIDED U/ S. 111 A OF THE ACT, CONSIDERING THE FACTS OF THE CASE, I HA VE NO HESITATION TO ALLOW THE GROUND TO ASSESS THE GAI NS ON WHICH STT IS PAID, COMPUTED ON FIFO BASIS, AS SHORT TERM CAPITAL GAINS. 3.14 IN LIGHT OF THE ABOVE DISCUSSION, THE AO IS DI RECTED TO TREAT THE SAID GAIN OF THE APPELLANT ON SALE OF SHA RES ON WHICH STT IS PAID AS SHORT TERM CAPITAL GAIN AND NO T AS BUSINESS INCOME. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. ITA NO.6033/12 4 4. WE HAVE CONSIDERED RIVAL CONTENTIONS. EXACTLY SIMI LAR ISSUE HAS BEEN DISCUSSED BY TRIBUNAL IN GREAT DETAIL IN ASSES SEES OWN CASE IN THE ASSESSMENT YEAR 2008-09, WHEREIN THE OBSERVATIO NS OF THE TRIBUNAL ARE AS UNDER :- 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FR OM THE RECORD THAT ASSESSEE WAS CONSISTENTLY MAINTAINI NG TWO SEPARATE PORTFOLIO-ONE FOR TRADING AND OTHER FOR IN VESTMENT. SHARES HELD IN TRADING PORTFOLIO WERE REFLECTED AS STOCK-IN- TRADE AND THOSE FORMING PART OF INVESTMENT PORTFOLI O WERE REFLECTED AS INVESTMENT. STOCK OF SHARES HELD IN TR ADING PORTFOLIO WERE CONSISTENTLY VALUED AT COST OR MARKE T PRICE, WHICHEVER IS LOWER, WHEREAS SHARES HELD AS INVESTME NT PORTFOLIO WERE CONSISTENTLY VALUED AT COST. WE FOUN D THAT ASSESSEE HAS EARNED SUBSTANTIAL DIVIDEND INCOME ON INVESTMENT AND PAST TAX RECORD OF THE ASSESSEE REVE ALED THAT ASSESSEE HELD SHARES AS INVESTMENT PORTFOLIO. THE INCOME SO OFFERED ON SHARES WERE ALWAYS ASSESSED A ND TAXED AS CAPITAL GAINS EITHER SHORT TERM OR LONG T ERM DEPENDING UPON THE PERIOD OF HOLDING. THE CIT(A) AF TER APPLYING THE PROPOSITION OF LAW LAID DOWN IN THE CA SE OF DHANALAXMI COTEX LTD. (SUPRA) AND GOPAL PUROHIT, 29 SOT 117 , WHICH WAS CONFIRMED BY THE HONBLE BOMBAY HIGH COURT REPORTED IN 336 ITR 287, TO THE FACTS OF THE INSTANT CASE AND CAME TO THE CONCLUSION THAT PROFIT EARNED BY ON DELIVERY BASED TRANSACTION IN RESPECT OF SHARES HEL D AS INVESTMENT ARE LIABLE TO CAPITAL GAIN TAX. DETAILED FINDINGS RECORDED BY THE CIT(A) AT PARA 4.5, 4.6 & 4.7 HAVE NOT BEEN CONTROVERTED BY REVENUE BY BRINGING ANY POSITIVE MA TERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON T O INTERFERE IN THE FINDINGS OF CIT(A) FOR TREATING TH E PROFIT ON SALE OF SHARES AS CAPITAL GAINS. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROU GH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO GONE THR OUGH THE ORDER OF TRIBUNAL DATED 28.03.14. IN THIS CASE THE FINDINGS RECORDED BY CIT(A) HAVE NOT BEEN CONTROVERTED BY REVENUE BY BRINGING A NY POSITIVE MATERIAL ON RECORD. ITA NO.6033/12 5 AS FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CO NSIDERATION ARE PARIMATERIA WITH THE FACTS DISCUSSED BY THE TRIBUNA L FOR THE ASSESSMENT YEAR 2008-09 AS REPRODUCED ABOVE, RESPECTFULLY FOLL OWING THE ORDER OF THE TRIBUNAL IN ITA NO.3546/MUM/2012, DATED 28-3-20 14, WE DISMISS THE GROUNDS RAISED BY THE REVENUE. 5. THE REVENUE IS ALSO AGGRIEVED FOR DELETION OF AD DITION MADE FOR NON-DEDUCTION OF TAX IN RESPECT OF REFERRAL FEES. E XACTLY THIS ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 208-09. THE PRECISE OBSERVATION OF THE TRIBUNA L FOR THE A.Y.2008- 09 ARE AS UNDER :- 6. THE CIT(A) ALSO DELETED THE ADDITION MADE ON ACCOU NT OF REFERRAL FEE FOR NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 40(A)(IA) OF THE I.T. ACT. THE PRECISE OBSE RVATION OF THE CIT(A) ARE AS UNDER :- 5.3 1 HAVE CONSIDERED THE CONTENTION OF THE AO AS WELL AS THE LD. AR. THE PROVISIONS OF SECTIONS194H AND PARTICULARLY THE EXPLANATION (I) TO SECTION 194H OF THE ACT, WHICH READS AS FOLLOWS: COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELL ING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES; 5.4 THE CLIENT REFERRAL FEES CANNOT TERMED AS COMMI SSION OR BROKERAGE AS IT IS OUT OF THE PURVIEW OF DEFINIT ION OF COMMISSION OR BROKERAGE. FURTHER, IT IS CAN BE OBSE RVED FROM THE AFORESAID EXPLANATION THAT ANY PAYMENT IN RELATION TO ANY TRANSACTIONS RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING WHICH IS SECURITY IS SPECIFICALLY EXCLUDED FR OM THE DEFINITION OF COMMISSION OR BROKERAGE. THE DEPARTME NT HAS ALSO CONSISTENTLY ACCEPTED THE SAID STAND OF TH E APPELLANT IN THE PAST. ACCORDINGLY, THE CLIENT REFE RRAL FEES DO NOT FALL WITHIN THE PURVIEW OF SECTION 194H OF THE ACT AS SPECIFICALLY EXCLUDED. ACCORDINGLY, THE PROVISIONS OF ITA NO.6033/12 6 DEDUCTION OF TAX AT SOURCE THEREOF DO NOT APPLY. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS. THE AO HAD DISALLOWED PAYMENT OF REFERRAL FEES ON THE PLEA OF NON- DEDUCTION OF TAX AT SOURCE ON SUCH PAYMENT. WHETHER SUCH REFERRAL FEES COMES UNDER MEANING OF COMMISSION OR BROKERAGE SO AS TO MAKE IT LIABLE TO DEDUCTION OF T AX AT SOURCE IS GOVERNED BY PROVISIONS OF SECTION 194H. A S PER PROVISIONS OF SECTION 194H, EXPLANATION (I), COMMIS SION OR BROKERAGE DO NOT INCLUDE THE PAYMENT RECEIVED FOR A NY SERVICES IN THE COURSE OF BUYING AND SELLING OF SEC URITIES. IN THE INSTANT CASE BEFORE US, THE REFERRAL FEE WAS PA ID TO SUB- BROKER IN RESPECT OF TRANSACTION OF PURCHASE AND SA LE OF SECURITIES THERE, IT IS NOT COVERED BY THE EXPLANAT ION (I) TO SECTION 194H. ACCORDINGLY, CLIENT REFERRAL FEE CAN NOT BE TERMED AS COMMISSION OR BROKERAGE AS IT IS OUTSIDE THE DEFINITION OF COMMISSION OR BROKERAGE. WE ALSO FOUN D THAT DEPARTMENT HAS ALSO CONSISTENTLY ACCEPTED THE STAND OF THE ASSESSEE IN THE PAST. WE, THEREFORE, DO NOT FIND AN Y REASON TO INTERFERE IN THE FINDINGS RECORDED BY THE CIT(A) IN PARA 5.3 & 5.4 RESULTING INTO DELETION OF DISALLOWANCE MADE UNDER SECTION 40(A)(IA) AMOUNTING TO RS.71,86,398/-. AS THE FACTS AND CIRCUMSTANCES OF THE CASE DURING T HE YEAR UNDER CONSIDERATION ARE PARIMATERIA, RESPECTFULLY FOLLOWI NG THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.2008-09 , WE DISMISS THE GROUND RAISED BY THE REVENUE. 6. REVENUE IS ALSO AGGRIEVED BY THE ACTION OF CIT(A ) IN DIRECTING THE AO TO COMPUTE THE CAPITAL GAINS AS PER THE PRESCRIB ED FIFO METHOD AS PRESCRIBED IN THE LIGHT OF MANDATORY PROVISIONS OF SECTION 45(2A) OF THE ACT. 7. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE RELEVANT FACTS APPEARING FROM THE ASSESSMENT ORDER ARE THAT THE ASSESSEE HAD IN TERMS OF THE RETURN OF INCOME INADV ERTENTLY COMPUTED ITA NO.6033/12 7 SHORT TERM CAPITAL GAINS OF RS.36,94,456/- IN RESPE CT OF SHARES HELD IN DEMATERIALIZED FORMAT ON WEIGHTED AVERAGE BASIS. T HE SAID INADVERTENCE WAS NOTICED BY THE ASSESSEE IN THE COU RSE OF THE ASSESSMENT PROCEEDINGS. IN LIGHT OF THE MANDATORY PROVISIONS OF SECTION 45(2A) OF THE ACT, THE COMPUTATION OF SHORT TERM CAPITAL GAINS WERE RE-COMPUTED BASED ON MANDATORY AND FIFO METHOD IN THE COURSE OF THE ASSESSMENT PROCEEDINGS TO ARRIVE AT CORRECT QUANTUM OF CAPITAL GAINS BASED ON MANDATORY FIFO METHOD WERE FURNISHED REFLECTING SHORT TERM CAPITAL GAINS AT RS.6,49,060/-. THE AO R EJECTED ASSESSEES CONTENTION AND ASSESSED THE CAPITAL GAINS ON WEIGHT ED AVERAGE BASIS AS AGAINST THE MANDATORY PROVISIONS OF SECTION 45(2 A) OF THE ACT, ON THE GROUND THAT IT IS NOT OPEN AT THE STAGE OF ASSE SSMENT TO CONSIDER REVISED WORKING ON FIFO METHOD. 8. BY THE IMPUGNED ORDER CIT(A) DIRECTED THE AO TO COMPUTE CAPITAL GAINS AS PER THE PRESCRIBED FIFO METHOD IN THE LIGH T OF MANDATORY PROVISIONS OF SECTION 45(2A) OF THE ACT, AFTER HAVI NG THE FOLLOWING PRECISE OBSERVATION. 2.5 I HAVE CONSIDERED THE CONTENTION OF THE AO AS WELL AS OF THE LD. AR. I FIND THAT THE AO HAS FAILED TO APPRE CIATE THE FACT THAT THE CAPITAL GAINS NEED TO BE COMPUTED AS PER FIFO BASIS IN THE LIGHT OF THE MANDATORY PROVISIONS OF SECTION 45 (2A) OF THE ACT. THE AO HAS MERELY REJECTED THE METHOD ADOPTED FOR C OMPUTATION OF CAPITAL GAINS ON THE GROUND THAT THE SAME AMOUNT S TO REVISION IN METHOD OF VALUATION WITHOUT APPRECIATING THE FAC T THAT THAT THE SAID RE-COMPUTATION WAS TO CORRECT THE INCORRECT ME THOD ADOPTED AT THE TIME OF MAKING THE RETURN. I FIND THAT ASSE SSEE HAD ALSO FURNISHED A DETAILED EXPLANATION AS TO WHY THE QUAN TUM OF CAPITAL GAINS COMPUTED ON FIFO BASIS IS LESS THAN COMPUTED AS PER WEIGHTED AVERAGE BASIS. IN VIEW OF ABOVE DISCUSSIO N AND THE MANDATORY METHOD IN TERMS OF PROVISION OF SECTION 4 5(2A) OF THE ITA NO.6033/12 8 ACT, THE AO IS DIRECTED TO COMPUTE THE CAPITAL GAIN S AS PER THE PRESCRIBED FIFO METHOD AS FURNISHED IN LIGHT OF THE MANDATORY PROVISIONS OF SECTION 45(2A) OF THE ACT. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT ASSESSEE HAS ORIGINALLY APPLIED THE METHOD OF WEIGHTED AVERAGE F OR VALUATION OF STOCK/INVESTMENT, BUT LATER ON RECOMPUTED THE CAPIT AL GAINS AS PER MANDATORY METHOD PROVIDED UNDER PROVISIONS OF SECTI ON 45(2A) OF THE ACT. NO FAULT WAS FOUND BY AO IN THE REVISED COMPU TATION SO OFFERED AS PER THE FIFO METHOD. FURTHER, THE DETAILED FIND ING RECORDED BY CIT(A) AT PARA 2.5 AS REPRODUCED HEREINABOVE HAS NO T BEEN CONTROVERTED BY DR BY BRINGING ANY POSITIVE MATERIA L ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A) IN DIRECTING THE AO TO COMPUTE THE VALUATION OF THE ST OCK AS PER FIFO METHOD AS PROVIDED UNDER PROVISIONS OF SECTION 45(2 A) OF THE ACT. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND APRIL.2014. . 23' 4 5 &6 22 ND APRIL,2014 3 . 7 SD/- SD/- ( ' . $% . ' & ) (S.T.M.PAVLAN) ( . . ) (R.C.SHARMA) ! ! ! ! / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI ; 5 & DATED 22/04/2014 ,. . /PKM , & . / PS ITA NO.6033/12 9 . .. . ,18 ,18 ,18 ,18 98'1 98'1 98'1 98'1 / COPY OF THE ORDER FORWARDED TO : & & & & / BY ORDER, : :: : / ; ; ; ; ) ) ) ) ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. < ( ) / THE CIT(A), MUMBAI. 4. < / CIT 5. 8=7 ,1& , , / DR, ITAT, MUMBAI 6. 7# > / GUARD FILE. -81 ,1 //TRUE COPY//