JYOTI HARISH SHAH, MUMBAI V. ACIT 13(1), MUMBAI

ITA 6150/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100659 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2008-2009
• Appeal Filed On: 21-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: GOVIND JHAVERI
• Keywords: Business income; Principle of natural justice
• Section: 143(3); 54; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J , MUMBAI BEFORE SHRI G.S. PANNU , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 6150/M/2013 ASSESSMENT YEAR: 2008 - 09 SMT. JYOTI HARISH SHAH, 212/216 SHERIFF DEVJI STREET, DECOR HOUSE , MUMBAI 400 003 PAN: ASHPS 7744Q VS. ACIT - 13(1), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIJAY MEHTA, A.R. & SHRI GOVIND JHAVERI, A.R. REVENUE BY : SHRI AKHILENDRA Y AD AV, D.R. DATE OF HEARING : 05.08 .201 5 DATE OF PRONOUNCEMENT : 05.08. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 30.08.2013 OF THE COMMISSIONER OF INCOME TAX (APPE ALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2008 - 09 . 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN PASSING THE IMPUGNED ORDER IN VIOLATION OF THE PRINCIPL ES OF THE NATURAL JUSTICE. 2. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) OF THE ACT. 3. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSING OFFICER WAS JU STIFIED IN TREATING THE SHORT - TERM AND LONG - TERM CAPITAL GAINS IN THE SHARE TRANSACTIONS AS BUSINESS INCOME. 4. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT HOLDING THAT GAINS ARISING OUT THE SALE OF SHARES IN THE PREVIOUS YEAR RELEVANT TO A.Y . 2008 - 09 BUT PURCHASED AND ACCEPTED BY THE ASSESSING OFFICER AS 'INVESTMENT' IN EARLIER YEAR/S SHOULD BE ASSESSED AS 'CAPITAL GAINS'. ITA NO.6150/M/2013 SMT. JYOTI HARISH SHAH 2 5. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND, ALTER OR DELETE ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. 3. THE O NLY ISSUE RAISED BY THE ASSESSEE BY THE ABOVE GROUNDS OF APPEAL IS AS TO WHETHER THE INCOME EARNED BY THE ASSESSEE FROM SALE OF SHARES IS TO BE ASSESSED AS CAPITAL GAINS OR BUSINESS INCOME. AT THE OUTSET, THE LD. A.R. OF THE ASSESSEE HAS FURNIS HED A FACTSHEET BEFORE US NARRATING THE NATURE OF SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED AS UNDER: FACT SHEET I) VOLUME OF TRANSACTIONS THE ASSESSEE HAS SOLD SHARES OF 82 COMPANIES AND ENTERED INTO TOTAL 395 SALE TRANSACTIONS. (SHARES SOLD IN DIFFERENT LOTS ON SAME DAY ARE CONSIDERED AS MORE THAN ONE TRANSACTION) ALL THESE SHARES SOLD DURING THE YEAR HAVE BEEN ACQUIRED BY THE ASSESSEE OR BY HER HUSBAND LATE SHRI HAR ISH SHAH (INHERITED SHARES) IN THE EARLIER YEARS WHEN IT WAS SHOWN AND ACCEPTED AS 'INVESTMENT'. II) FREQUENCY OF TRANSACTIONS: - AVERAGE HOLDING PERIOD IS 469 DAYS. THE ASSESSEE HAS NOT CARRIED OUT ANY REPETITIVE TRANSACTIONS. OUT OF 395 TRANSACTIONS, NUMBE R OF TRANSACTIONS HAVING HOLDING PERIOD OF 0 TO 15 DAYS ARE ZERO, 16 TO 30 DAYS ARE 2 AND 31 TO 60 DAYS ARE 4. FURTHER, 266 (I.E.67%) TRANSACTIONS ARE HAVING HOLDING PERIOD OF MORE THAN 365 DAYS. (PAGE 3 OF THE PAPER BOOK). III) CONSISTENCY THE GAINS ARI SING ON SALE OF SHARES HAVE BEEN ALWAYS OFFERED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT UNDER THE HEAD CAPITAL GAIN. THE SUMMARY OF GAINS ARISING ON SALE OF SHARES FOR OTHER ASSESSMENT YEARS IS AS UNDER: - SR. NO. A.Y. STCG LTCG REMARKS PAPER BOOK P AGE NO. 1. 1993 - 94 66,754 (60,700) ASSESSED U/S. 143(3). 42 2. 1994 - 95 (1,68,598) ASSESSED U/S. 44 ITA NO.6150/M/2013 SMT. JYOTI HARISH SHAH 3 143(3). 3. 1995 - 96 ASSESSED U/S. 143(1). 50 4. 1996 - 97 10,570 ASSESSED U/S. 143(3). 46 5. 1998 - 99 (5,95,065) ASSESSED U/S. 143(3). 48 6. 1999 - 00 ASSESSED U/S. 143(1). 51 7. 2000 - 01 ASSESSED U/S. 143(1). 52 8 2003 - 04 (27,626) ASSESSED U/S.143(1). 53 9 2004 - 05 (4,32,509) (27,626) ASSESSED U/S.143(1). 10 2005 - 06 (21,52,663) ASSESSED U/S.143(1). 54 11 2006 - 07 7,62,208 (2,04,915) ASSESSED U /S.143(3). 26 12 2007 - 08 61, 75, 732 (1,45,697) ASSESSED U/S.143(3). 34 13 2008 - 09 68,65,616 38,23,027 YEAR UNDER CONSIDERATION. 14 2009 - 10 NIL 1,14,048 ASSESSED U/S.143(1) STCG ARRIVED AT AFTER CLAIMING LOSS ON SHARE TRANSACTION RS.97,553/ - FOR CURRENT YEAR AND SET OFF OF BROUGHT FORWARD LOSS OF RS. 4,32,509/ - OF A.Y.2004 - 05. 15 2010 - 11 20,36,400 12,04,284 ASSESSED U/S.143(1). THE ASSESSEE HAD ALSO SHOWN RS.8,85,840/ AS 'BUSINESS INCOME' FOR PROFIT EARNED ON SHARE TRANSACTIONS. 16 2011 - 12 (8,717) A SSESSED U/S.143(1). THE ASSESSEE HAD ALSO ITA NO.6150/M/2013 SMT. JYOTI HARISH SHAH 4 SHOWN RS..2,81,811/ - - AS 'BUSINESS INCOME' FOR PROFIT EARNED ON F & 0 TRANSACTIONS. 17 2012 - 13 (5,45,864) 3,46,671 ASSESSED U/S.143(1) THE ASSESSEE HAD ALSO SHOWN RS..( - ) 76,477/ - AS 'BUSINESS INCOME' AND CARRI ED FORWARD LOSS OF RS.30,60,599/ ON F & 0 TRANSACTIONS. 18 2013 - 14 - - ASSESSED U/S.143(1) THE ASSESSEE HAD ALSO SHOWN RS. . NIL AS BUSINESS INCOME' AFTER CLAIMING SET OFF OF CARRIED FORWARD F & O L O S S O F RS. 21,63,798/ - OF OF A.Y.2012 - 13. 19 2014 - 15 NIL 8,45,363 ASSESSED U/S.143(1). THE ASSESSEE HAD STCG RS.NIL AFTER CLAIMING SET OFF OF CARRIED FORWARD L O S S O F R S .4 , 1 7 , 3 6 5 / - O F OF A.Y.2012 - 13. RELIANCE IS PLACED UPON THE DECISION IN THE CASE OF GOPAL PUROHIT (228 CTR 582 (BOM). [SLP DISMISSED 334 ITR (S T.)308]. SHARES WORTH RS.3,28,37,298/ - WERE ACQUIRED BY THE ASSESSEE FROM HER DECEASED HUSBAND LATE SHRI HARISH SHAH AND DULY SHOWN ACCORDINGLY IN ITA NO.6150/M/2013 SMT. JYOTI HARISH SHAH 5 FINANCIAL STATEMENT OF F.Y.2005 - 06 (PAGE 33 OF PAPER BOOK). 'THESE SHARES WERE ALWAYS SHOWN AND ACCEPTED AS A N 'INVESTMENT' IN THE HANDS OF DECEASED HUSBAND LATE HARISH SHAH (PAGE 61 - 73 OF THE PAPER BOOK). IV) TWO PORTFOLIO THE ASSESSEE HAS MAINTAINED TWO SEPARATE PORTFOLIO FOR TRADING AND INVESTMENT IN SHARES. THIS HAS BEEN ALWAYS ACCEPTED BY DEPARTMENT IN ALL OTHER ASSESSMENT YEARS AS TABULATED ABOVE. THIS IS ALSO IN CONSONANCE WITH CIRCULAR NO 4 OF CBDT DATED 15 - 06 - 2007 [210 C TR (ST.) 29] 291 ITR (ST.) 384. V) MANNER OF ACCOUNTING THE SHARES AND UNITS HAD BEEN SHOWN AS 'INVESTMENTS' IN THE FINANCIAL STATEMENT S. THIS IS CONSISTENTLY FOLLOWED IN ALL YEARS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. VI) BORROWED FUND AND INTEREST THE ASSESSEE HAS NOT INCURRED ANY INTEREST COST. THE ASSESSEE HAS OWN CAPITAL OF RS.16.44 CRORES AND HAS MADE INVESTMENT IN SHAR ES OF RS. 1.20 CRORES ONLY. VII) METHOD OF VALUATION THE SHARES HAVE ALWAYS BEEN VALUED AT 'COST' AND NOT AT 'COST OR MARKET PRICE WHICHEVER IS LESS'. VIII) MAINTENANCE OF ESTABLISHMENT THE ASSESSEE IS NOT MAINTAINING ANY ORGANISATION, STAFF, ETC. FOR THE PURPOSE OF TRANSACTIONS IN SHARES. IX) DELIVERY BASED TRANSACTIONS ALL THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE DELIVERY BASED. X) DIVIDEND INCOME THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.6,76,636/ - ON INVESTMENTS MADE IN SHARES. THE S HARES HAVING ACCEPTED AS 'INVESTMENT' IN EARLIER YEARS CANNOT BE TREATED AS 'STOCK IN TRADE' IN THE CURRENT YEAR. [CIT V. DARIUS PANDOLE [330 ITR 485(BOM) FOLLOWED IN THE CASE OF CRYSTAL IMPEX LTD (ITA NO.237/M/2010 ORDER DATED 15.07.2011); MANISH D. DESAI (ITA NO. 3661/M/2010 ORDER DATED 27.05.2011)]. WHILE HOLDING STCG AS BUSINESS INCOME, THE ASSESSING OFFICER HAS TREATED SALE OUT OF OPENING INVESTMENT AS TRADING TRANSACTION, WHICH IS NOT PERMISSIBLE. ITA NO.6150/M/2013 SMT. JYOTI HARISH SHAH 6 SIMILARLY, THE LONG TERM CAPITAL GAINS ARISING OUT OF SHARES ACQUIRED AND HELD AS INVESTMENT' IN EARLIER YEAR/S, CANNOT BE TREATED AS 'BUSINESS INCOME' IN THE CURRENT YEAR. 4. THE ABOVE NARRATED FACTS HAVE NOT BEEN DENIED OR REBUTTED BY THE LD. D.R. A PERUSAL OF THE ENTIRE FACTS RELIED UPON BY THE ASSESSE E REVEALS THAT NO PURCHASE TRANSACTIONS WERE DONE BY THE ASSESSEE DURING THE YEAR. THE INCOME HAS BEEN EARNED FROM THE SALE OF SHARES WHICH WERE PURCHASED IN EARLIER YEARS. THE AVERAGE HOLDING PERIOD OF THE SHARES IN QUESTION IS 469 DAYS. THERE ARE NO R EPETITIVE TRANSACTIONS. THE ASSESSEE RIGHT FROM THE YEAR 1993 - 94 HAS BEEN CONSISTENTLY ASSESSED AS INVESTOR. THE ASSESSEE HAS BEEN MAINTAINING TWO PORTFOLIOS SEPARATING THE SHARES HELD AS STOCK IN TRADE AND SHARES HELD AS INVESTMENTS. THE SAID METHOD HA S CONSISTENTLY BEEN ACCEPTED BY THE DEPARTMENT IN EARLIER ASSESSMENT YEARS AS WELL AS SUBSEQUENT ASSESSMENT YEARS. THE ASSESSEE HAS NOT INCURRED ANY INTEREST COST FOR THE PURCHASE OF SHARES. THE ASSESSEE HAS EARNED SUFFICIENT DIVIDEND INCOME ON THE INVES TMENTS MADE IN SHARES. THE INCOME FROM THE SHARES HAS BEEN ASSESSED AS CAPITAL GAINS NOT ONLY IN THE EARLIER ASSESSMENT YEARS BUT ALSO THE SUBSEQUENT YEARS. HENCE, IN THE LIGHT OF THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GOPAL PUROHIT 336 ITR 287 , D IFFERENT VIEW CANNOT BE TAKEN FOR THE YEAR UNDER CONSIDERATION. MOREOVER, THE SHARES IN QUESTION WHICH WERE SOLD DURING THE YEAR HAD ALREADY BEEN ACCEPTED AS INVESTMENTS IN EARLIER YEARS. UNDER SUCH CIRCUMSTANCES, THERE IS N O JUSTIFICATION ON THE PART OF LOWER AUTHORITIES IN TREATING THE INCOME FROM SALE OF SHARES FOR THE YEAR UNDER CONSIDERATION AS BUSINESS INCOME. WE , THEREFORE , SET ASIDE THE IMPUGNED ORDER OF THE LOWER AUTHORITIES AND HOLD THAT THE INCOME EARNED BY THE AS SESSEE FROM SALE OF SHARES FOR THE YEAR UNDER CONSIDERATION IS TO BE TREATED AS CAPITAL GAINS. ITA NO.6150/M/2013 SMT. JYOTI HARISH SHAH 7 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.08. 201 5 . SD / SD/ ( G.S. PANNU ) (SANJAY GAR G) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 05.08.2015 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) C ONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASST T. REGISTRAR, ITAT, MUMBAI.