ACIT, New Delhi V. M/s. Shri Finance, New Delhi

ITA 6064/DEL/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5273 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K TIWARI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI N.K.SAINI, HONBLE VICE PRESID ENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.6064DEL/2014 ASSESSMENT YEAR: 2010-11 ACIT CIRCLE-31(1) NEW DELHI VS. SHRI FINANCE 4, SCINDIA HOUSE NEW DELHI PAN : AACFS9120K APPELLANT RESPONDENT REVENUE BY : SHRI K. TIWARI, SR. DR ASSESSEE BY : SHRI U.N.MARWAH, C A DATE OF HEARING : 25.07. 2018 DATE OF PRONOUNCEMENT : 23.10.2018 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT AGAINST ORDER DATED 14.08.2014 PASSED BY THE LD. COMMISSION ER OF INCOME TAX (APPEALS) -XXVI, NEW DELHI FOR ASSESSME NT YEAR 2010-11 AND THE SOLE ISSUE IN DISPUTE IS WHETHER TH E GAIN OF RS. 2,14,75,356/- FROM THE SALE OF SHARES WAS TO BE ASS ESSED UNDER CAPITAL GAINS OR UNDER BUSINESS INCOME . 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM AND DERIVES INCOME FROM INVESTMENT ACTIVITIES. THE RETURN OF ITA NO. 6064/DEL/2014 (SHRI FINANCE) 2 INCOME WAS FILED DECLARING INCOME OF RS. 19,96,804/ - WHICH INCLUDED SHORT TERM CAPITAL GAINS OF RS. 19,22,796/ - AND INTEREST OF RS. 74,008/-. THE SHORT TERM CAPITAL GA INS WERE ARRIVED AT AFTER CLAIMING SET OFF OF BROUGHT FORWAR D SHORT TERM CAPITAL LOSS OF RS. 19,53,229/- PERTAINING TO ASSES SMENT YEAR 2007-08. THE ASSESSEE HAD ALSO CLAIMED INCOME OF RS . 1,75,54,960/- EXEMPT UNDER SECTION 10(38) OF THE IN COME TAX ACT, 1961 (HEREIN AFTER CALLED AS THE ACT) AND DI VIDEND INCOME OF RS. 26,36,252/- CLAIMED AS EXEMPT U/S 10(34)/(35) O F THE ACT. THE ASSESSEE ALSO CLAIMED CARRY FORWARD OF LONG TER M CAPITAL LOSS AMOUNTING TO RS. 41,247/-. THE CASE WAS SELECTED FO R SCRUTINY AND DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE AO FORMED THE OPINION THAT THE SHARE TRANSACTIONS E NTERED INTO BY THE ASSESSEE WERE IN THE NATURE OF BUSINESS OPER ATIONS AND NOT IN THE NATURE OF INVESTMENT AS CLAIMED BY THE A SSESSEE. ACCORDINGLY, THE AO PROCEEDED TO ASSESS THE GAINS D ERIVED FROM THE SHARE TRADING AS BUSINESS INCOME AS AGAINST CAPITAL GAINS AS CLAIMED BY THE ASSESSEE. THE ASSESSMENT WAS COMP LETED AT AN INCOME OF RS. 2,15,49,360/- WHEREIN THE LONG TERM CAPITAL GAIN OF RS. 1,75,54,960/- CLAIMED AS EXEMPT U/S 10(38) A ND SHORT TERM CAPITAL GAINS OF RS. 19,22,796/- WERE ASSESSED AS BUSINESS ITA NO. 6064/DEL/2014 (SHRI FINANCE) 3 INCOME. THE CONSEQUENTIAL EFFECT WAS THAT THE SET O FF OF SHORT TERM CAPITAL LOSS OF RS. 19,53,229/- WAS ALSO NOT A LLOWED. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. CIT (A) CHALLENGING THE TREATMENT OF CAPITAL GAINS AS BUSIN ESS INCOME. THE LD. CIT (A) DIRECTED THE AO TO ASSESS THE GAINS OF RS. 2,14,75,356/- FROM SALE OF SHARES UNDER THE HEAD C APITAL GAIN INSTEAD OF BUSINESS INCOME AND THUS ALLOWED RELIE F TO THE ASSESSEE. 2.2 NOW THE DEPARTMENT IS BEFORE THE ITAT AND HAS C HALLENGED THE ORDER OF THE LD. CIT (A) BY RAISING THE FOLLOWI NG GROUNDS OF APPEAL:- (I) THE LD. CIT (A) HAS ERRED IN DIRECTING THE AO TO AS SESS PROFIT OF RS. 2,14,75,356/- FROM SALE OF SHARES UND ER THE HEAD CAPITAL GAIN INSTEAD OF BUSINESS INCOME DESPITE THE FACT THAT THE ASSESSEE WAS ENGAGED IN T HE BUSINESS OF TRADING IN SHARES AND IT WAS THE SOLE ACTIVITY OF THE ASSESSEE WHICH IS ALSO AN ADMITTED OBJECT OF ASSESSEE FIRM AS PER PARTNERSHIP DEED. (II) THE CIT (A) HAS ERRED IN NOT CORRECTLY APPRECIATING THE FACTS OF THE CASE THAT THE STATEMENT OF PURCHASE AN D SALE AND ALSO ACTIVITY OF THE ASSESSEE PROVED THAT HE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SECURITIES IN AN ORGANIZED AND REGULAR MANNER AND SHOWING INCOME THEREFROM UNDER THE DIFFERENT HEAD I S JUST A STRATEGY TO AVOID TAX. (III) THE CIT(A) HAS NOT APPRECIATED THAT THE TURNOVER OF THE ASSESSEE WAS RS. 27.5 CRORES AND IN THE LIGHT O F GUIDELINES PROVIDED BY CBDT CIRCULAR NO. 4/2007 DATED 15.06.2007, THE SUBSTANTIAL NATURE OF ITA NO. 6064/DEL/2014 (SHRI FINANCE) 4 TRANSACTIONS ENTERED INTO BY THE ASSESSEE CAN BE CLASSIFIED AS BUSINESS ACTIVITY ONLY. 3.0 THE LD. SR. DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE ASSESSEE FIRM HAD USED A COLOURABLE DEVICE TO AVOID TAX OR PAY TAX AT A LOWER RATE BY CLAIMING BUSINESS INCOME AS INCOME FROM CAPITAL GAINS. IT WAS SUBMITTED THAT TH E ASSESSEE FIRM CONSISTED OF SIX PARTNERS WHO HAD COME TOGETHE R TO PUT THEIR FUNDS IN A COLLECTIVE MANNER FOR BETTER UTILI SATION AND, THEREFORE, THE ACTIVITY WAS PURELY OF BUSINESS AND NOT OF INVESTMENT. HE REFERRED TO THE OBJECTS, AS MENTIONE D IN THE PARTNERSHIP DEED, AND SUBMITTED THAT EVEN THE OBJEC TS OF THE PARTNERSHIP FIRM MENTIONED THAT THE OBJECT OF THE F IRM WAS TO CARRY ON BUSINESS OF FUNDING AND INVESTMENTS AND, T HEREFORE, IT WAS VERY MUCH CLEAR THAT THE PARTNERSHIP HAD BEEN C ONSTITUTED TO CARRY ON BUSINESS. THE LD. SR. DEPARTMENTAL REPR ESENTATIVE ALSO SUBMITTED THAT THE TRANSACTIONS WERE HUGE AND, THEREFORE, IT WAS EVIDENT THAT THE NATURE OF ACTIVITY WAS IN T HE NATURE OF BUSINESS AND NOT INVESTMENT. THE LD. SR. DEPARTMENT AL REPRESENTATIVE ALSO PLACED RELIANCE ON THE FOLLOWIN G JUDICIAL PRECEDENCE IN SUPPORT OF HIS CONTENTION THAT THE NA TURE OF ACTIVITY OF THE ASSESSEE FIRM WAS IN FACT IN THE NA TURE OF BUSINESS ACTIVITY --: ITA NO. 6064/DEL/2014 (SHRI FINANCE) 5 1. MANOJ KUMAR SAMDARIA VS. CIT [2014] 45 TAXMANN.C OM 394 (DELHI) / [2014] 223 TAXMAN 245 (DELHI)(MAG) 2. MANOJ KUMAR SAMDARIA VS. CIT [2014] 52 TAXMANN. COM 247 (SC) /[2015] 228 TAXMAN 63 (SC) 3. SADHANA NABERA VS. ACIT (ITA NO. 2586/MUM/2009) 4. CIT VS. GOPAL PUROHIT ([2010] 188 TAXMAN 140 (BOMBAY)/[2011] 336 ITR 287 (BOMBAY)/[2010] 228 CTR 582 (BOMBAY) 5. DALHOUSIE INVESTMENT TRUST CO. LTD. VS. CIT [19 68] 68 ITR 486 (SC) 4.0 IN RESPONSE, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT PRESENCE OF COMMERCIAL MOTIVE IS A PRIMARY LEG AL REQUIREMENT FOR TRADE WHEREAS IN THE CASE OF THE AS SESSEE THE PERIOD OF HOLDING OF THE INVESTMENTS AND EARNING OF SUBSTANTIAL DIVIDEND INCOME SUBSTANTIATE THE ASSESSEES CLAIM T HAT THE SHARES WERE NOT ACQUIRED WITH THE INTENTION OF TRAD ING BUT WERE HELD FOR INVESTMENT PURPOSES. IT WAS SUBMITTED THAT THE HOLDINGS SHARES WHICH WERE SOLD DURING THE YEAR UNDER CONSID ERATION WERE HELD BY THE ASSESSEE FIRM BETWEEN A PERIOD OF ONE Y EAR TO FIVE YEARS AND, THEREFORE, IT COULD NOT BE SAID THAT THE ACTIVITY WAS IN THE NATURE OF BUSINESS OR TRADE. IT WAS ALSO SUBMIT TED THAT THE ASSESSEE FIRM HAS BEEN MAINTAINING TWO PORTFOLIOS V IZ. INVESTMENT AND TRADE AND THIS HAS BEEN ACCEPTE D BY THE ITA NO. 6064/DEL/2014 (SHRI FINANCE) 6 DEPARTMENT SINCE ASSESSMENT YEAR 2002-03 ONWARDS. I T WAS ALSO SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION OR IN EARLIER YEARS, THE PORTFOLIOS OF THE SHARES HAVE NOT BEEN I NTER-CHANGED. IT WAS FURTHER SUBMITTED THAT ONCE THE SEGREGATION OF SHARES UNDER TWO DIFFERENT PORTFOLIOS HAS BEEN MADE AND ACCEPTED , THE MERE QUANTUM OF TURNOVER AND FREQUENCY OF THE TRANSACTIO NS WILL NOT DECIDE THE NATURE OF TRANSACTIONS. RELIANCE WAS PLA CED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF P R. COMMISSIONER OF INCOME TAX VS. BHANUPRASAD D. TRIVE DI (HUF) REPORTED IN (2018) 95 TAXMANN.COM (SC) WHEREIN THE HONBLE APEX COURT HAD DISMISSED THE DEPARTMENTS SPECIAL L EAVE PETITION AGAINST THE ORDER OF THE HONBLE HIGH COUR T WHEREIN THE HONBLE HIGH COURT, BY THE IMPUGNED ORDER, HAD HELD THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE O F SHARES IS PARAMOUNT AND WHERE THE ASSESSEE HAD CLEAR INTENTIO N OF BEING A INVESTOR AND HAD HELD SHARES BY WAY OF INVESTMENT, THE ASSESSEE WAS TO BE TREATED AS INVESTOR AND ANY GAIN ARISING OUT OF TRANSFER OF SHARES WAS TO BE TREATED AS CAPITAL GAINS AND NOT BUSINESS INCOME. THE LD. AUTHORISED REPRESENTATIVE ALSO PL ACED RELIANCE ON CBDT CIRCULAR NO. 6 DATED 29.02.2016 WHEREIN IT HAS BEEN STATED IN PARA 3(B) THAT WHERE IN RESPECT OF LISTED SHARES AND ITA NO. 6064/DEL/2014 (SHRI FINANCE) 7 SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF TRANSFER, THE ASSESSEE DESIRE S TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICE R. THE LD. AUTHORISED REPRESENTATIVE ALSO SUPPORTED THE ORDER OF THE LD. CIT (A) AND SUBMITTED THAT DEPARTMENTS APPEAL DESERVED TO BE DISMISSED. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS UNDISPUTED THAT 7 SCRIPS UNDER 10 SEPARATE TRANSACTIONS WERE SOLD WHICH HAD HOLDING PERIODS RANGING BETWEEN 370 DAYS TO 1738 DAYS. THUS , ALL THE SCRIPS WERE HELD FOR MORE THAN 1 YEAR AND UP TO APP ROXIMATELY 5 YEARS. IT IS ALSO UNDISPUTED THAT THE SHARES SOLD B Y THE ASSESSEE AND TREATED AS LONG TERM CAPITAL GAINS WERE DULY DI SCLOSED IN THE ASSESSEES BALANCE SHEET UNDER THE HEAD INVESTMENT . APART FROM THIS, THE ASSESSEE ALSO UNDERTOOK 20 TRANSACTIONS O F PURCHASE AND 13 TRANSACTIONS OF SALE OF SHARES WHICH HAVE BE EN DULY DISCLOSED UNDER SHORT TERM CAPITAL GAINS TAXABLE AT THE NORMAL TAX RATE OF 30%. IT IS ALSO NOT ESTABLISHED BY THE DEPARTMENT THAT THE ASSESSEE HAS MADE REPETITIVE TRANSACTIONS OF PU RCHASE AND SALES OF SHARES. IT IS ALSO UNDISPUTED THAT THE ASS ESSEE HAS ITA NO. 6064/DEL/2014 (SHRI FINANCE) 8 EARNED SUBSTANTIAL DIVIDEND INCOME BY HOLDING INVES TMENTS AND THE DIVIDEND INCOME DURING THE YEAR AMOUNTED TO RS. 26,36,252/-. IT IS ALSO TO BE NOTED THAT THE ASSESS EES TWO PORTFOLIOS HAVE BEEN ACCEPTED BY THE DEPARTMENT SIN CE ASSESSMENT YEAR 2002-03. THE LD. CIT (A) HAS GIVEN DUE CREDENCE TO ALL THESE FACTS AND THE LD. SR. DEPARTMENTAL REP RESENTATIVE HAS NOT BEEN ABLE TO POINT OUT ANY FACTUAL ERROR IN THE FINDINGS SO RECORDED BY THE LD. CIT (A). WE ALSO NOTE THAT THE JUDICIAL PRECEDENTS RELIED UPON BY THE LD. SR. DEPARTMENTAL REPRESENTATIVE ARE DISTINGUISHABLE ON FACTS. IT IS OUR CONSIDERED OPINION THAT ON THE FACTS OF THE CASE, THE ADJUDICA TION BY THE LD. CIT (A) CANNOT BE INTERFERED WITH. WE FIND SUPPORT FROM THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. VINAY MITTAL REPORTED IN (2012) 22 TAXMAN.COM 151 ( DELHI) WHEREIN THE HONBLE DELHI HIGH COURT HAD DISMISSED THE DEPARTMENTS APPEAL AGAINST THE ORDER OF THE TRIBUN AL ON AN IDENTICAL ISSUE AFTER DULY NOTING THAT IN THE EARLI ER ASSESSMENT YEARS TRANSACTIONS IN THE INVESTMENT PORTFOLIO BY T HE ASSESSEE WERE ACCEPTED BY THE ASSESSING OFFICER. WHILE DISMI SSING THE DEPARTMENTS APPEAL, THE HONBLE DELHI HIGH COURT A LSO DULY NOTED THE FACT THAT THE ASSESSEE HAD BEEN MAINTAINI NG TWO ITA NO. 6064/DEL/2014 (SHRI FINANCE) 9 SEPARATE PORTFOLIOS VIZ. INVESTMENT PORTFOLIO AND T RADING PORTFOLIO. THE HONBLE DELHI HIGH COURT ALSO OBSERVED THAT THE QUANTUM OR TOTAL NUMBER OF TRANSACTIONS MAY NOT BE DETERMINATI VE BUT IN A GIVEN CASE, KEEPING IN VIEW THE PERIOD OF HOLDING M AY INDICATE INTENTION TO MAKE INVESTMENT. WE ALSO FIND THAT CBD T CIRCULAR NO. 6 DATED 29.02.2016 ALSO COMES TO THE AID OF THE ASSESSEE WHEREIN IT HAS BEEN CLARIFIED BY THE CBDT THAT WHER E THE ASSESSEE TREATS THE SECURITIES AS INVESTMENT AND NO T HAS STOCK- IN-TRADE IN EARLIER YEARS, THE REVENUE IS NOT PERMI TTED A CONTRARY VIEW. IT IS EVIDENT FROM THIS CIRCULAR THAT CBDT HA S GIVEN INSTRUCTIONS TO THE ASSESSING OFFICERS TO TREAT CAP ITAL GAINS ON LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF M ORE THAN 12 MONTHS AS INCOME FROM CAPITAL GAINS IF THE ASSESSEE SO DESIRES. THE DISMISSAL OF THE SPECIAL LEAVE PETITION OF THE DEPARTMENT BY THE HONBLE APEX COURT IN THE CASE OF PR. COMMISSIO NER OF INCOME TAX VS. BHANUPRASAD D. TRIVEDY (HUF) (SC) AL SO COMES TO THE AID OF THE ASSESSEE WHEREIN THE HONBLE APEX CO URT UPHELD THE HONBLE HIGH COURTS IMPUGNED ORDER THAT INTENT ION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES IS PARAM OUNT. ACCORDINGLY, IN VIEW OF OUR ABOVE OBSERVATIONS, WE FIND NO REASON ITA NO. 6064/DEL/2014 (SHRI FINANCE) 10 TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) F ROM THIS ISSUE AND WE DISMISS THE GROUNDS RAISED BY THE DEPARTMENT . 6. IN THE FINAL RESULT, THE APPEAL OF THE DEPARTMEN T STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2018. SD/- SD/- (N.K.SAINI) (SUDHANSHU SR IVASTAVA) VICE PRESIDENT JUDICIAL MEMBER *BR* DATED: 23 RD OCTOBER, 2018 COPY FORWARDED TO: - 1) APPELLANT 2) RESPONDENT 3) CIT(A) 4) CIT 5) DR TRUE COPY BY ORDER ASSTT. REGISTRAR ITA NO. 6064/DEL/2014 (SHRI FINANCE) 11 DATE OF DICTATION 22.10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23.10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 23.10.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 23.10.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 23.10.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS .10.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT .10.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER