ITO 25(2)(4), MUMBAI V. RENU GUPTA, MUMBAI

ITA 6218/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2079 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 08-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI SAKTIJIT DEY(JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6218/MUM/2014 ASSESSMENT YEAR: 2010 - 11 ITO 25(2)(4) C - 11, R. NO. 103, PRATYAKSH K AR BHAVAN BANDRA KURLA COMPLEX (E) MUMBAI - 400051 VS. RENU GUPTA 110 - C LANCELOT ,S.V. ROAD, BORIVALI (W), MUMBAI - 400092 PAN NO. AACPG9852G APPELLANT .. RESPONDENT DATE OF HEARING : 18/08/2016 DATE OF PRONOUNCEMENT: 11 / 11 /2016 ORDER PER N.K. PRADHAN, A.M . THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 20 10 - 11 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) - 35 , MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, ( T HE ACT ). 2. THE SOLE GROUND OF APPEAL RAISED BY THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE VOLUM E OF PROFITS AND NATURE AND FREQUENCY OF TRANSACTIONS IS NOTHING BUT TRADING IN SHARES WITH AN INTENTION TO EARN QUICK PROFITS OUT OF TRADING ACTIVITY AND NOT TO EARN DIVIDEND OUT OF INVESTMENT IN SHARES. ALSO IT IS RAISED THAT THE LD. CIT(A) HAS ERRED I N NOT APPRECIATING THAT THE FACTS IN THE INSTANT CASE IS SIMILAR TO THE FACTS IN THE CASE OF JAYSREE PRADIP REVENUE BY SHRI B. S. BIST, SR. DR ASSESSEE BY SHRI S. L . JAIN, AR ITA NO. 6218/MUM/2014 2 SHAH V S. ACIT (131 ITD 326) WHEREIN IT WAS HELD THAT HIGH FREQUENCY OF TRANSACTION OF PURCHASE AND SALE OF SHARES SHALL BE CONSIDERED A BUSINESS ACT IVITY OF THE ASSESSEE IF TRANSACTIONS ARE CONTINUOUS, REGULAR AND SYSTEMATIC AND USE OF BORROWED FUNDS FOR PURCHASE OF SUCH SHARES WITH SHORT PERIOD OF HOLDING. FURTHER TO IT, IT IS STATED THAT THE LD. CIT(A) FAILED TO NOTICE THE FACT THAT THE EARLIER A. YS. WERE NEVER SCRUTINIZED BY THE DEPARTMENT TO ACCEPT THE INCOME EARNED ON SHARE TRANSACTION AS INCOME FROM CAPITAL GAINS. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAINS OF RS.88,41,354/ - AND LONG TERM CAPITAL LOSS OF RS.30,16,928/ - ON PURCHASE AND SALE OF SHARES. THE SHORT TERM CAPITAL GAINS IS COMPUTED AFTER DEDUCTING EXPENDITURE SUCH AS DEMAT CHARGES OF RS.12,615/ - , STT OF RS.13,08,431/ - AND INTEREST ON BORROWED FUNDS OF RS.24,13,300/ - . THE ASSESSING OFFICER (AO) ASKED THE ASSESSEE TO EXPLAIN AS TO WHY TRANSACTIONS IN SHARES SHOULD NOT BE TREATED AS BUSINESS ACTIVITY. THE ASSESSEE FILED A SUBMISSION BEFORE THE AO ON 23 .02. 2013 WHICH HAS BEEN EXTRACTED AT PAGE 2 - 4 OF THE ASSESSMENT ORDER. THE AO CAME TO A FINDING THAT THE MAIN ACTIVITY CARRIED OUT BY THE ASSESSEE CAN BE TERMED AS CARRYING ON BUSINESS IN SHARES. HE ALSO ARRIVED AT A FINDING THAT DURING THE YEAR UNDER CONSIDERATION MORE THAN 62% OF SHARES WAS SOLD WITHIN ONE MONTH OF PURCHASE AN D MORE THAN 53% OF CAPITAL GAINS WAS EARNED ON SHARES WHICH WERE HELD FOR LESS THAN ONE MONTH. O NLY 14% OF SHARES WAS HELD FOR MORE THAN THREE MONTHS. THE AO NOTED THAT THE ASSESSEE HAS EARNED DIVIDEND OF RS.2,06,399/ - ON 43.65 LAKH SHARES WHICH WERE PURCH ASED FOR RS.31.66 CRORES. THE ASSESSEE HAD OPENING INVESTMENTS OF RS.2,11,82,727/ - AND CLOSING INVESTMENT OF RS.3,14,60,092/ - . IN THE SHORT TERM CAPITAL GAIN STATEMENT, THE ASSESSEE HAS SOLD SHARES OF RS.32.62 CRORES AND PURCHASED SHARES OF RS.31.66 CRORES . THE SALES ARE 12.39 TIMES THE AVERAGE STOCK OF RS.2.63 CRORE . THE AO ALSO NOTED THAT THE ASSESSEE ITA NO. 6218/MUM/2014 3 IS INVOLVED IN INTRA - DAY TRANSACTION AND FUTURE AND OPTION TRADING ACTIVITY ALSO. THE PURCHASES OF SHARES IS MOSTLY OUT OF BORROWINGS FROM NADI FINANCE AND INVESTMENT PVT. LTD. PERSONAL LOANS FROM DBS CHOLOMANGALAM, RELIANCE, BARCLAYS BANK, HSBC AND ING VASYA BANK ON WHICH THE ASSESSEE HAS PAID INTEREST TO THE TUNE OF RS.21,34,607/ - . THE AO THUS CAME TO A FINDING THE MOTIVE OF THE ASSESSEE WAS TO TRADE AND EA RN PROFIT. THE AO TH EN BROUGHT TO TAX RS.58,24,428/ - UNDER THE HEAD INCOME FROM BUSINESS. 4. THE LD. CIT(A) RELIED ON THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF KORADIA CONSTRUCTION PVT. LTD 39 T AXMAN N .COM 20 (PG. 43 - 47) WHEREIN IT IS HELD: THE ALLEGATION OF THE REVENUE AUTHORITIES IS THAT THE ASSESSEE HAS INDULGED IN TO HIGH FREQUENCY TRANSACTION. THIS IN ITSELF COULD NOT MEAN THAT TRADING ACTIVITIES HAVE BEEN CARRIED OUT. A PRUDENT INVESTOR ALWAYS KEEP A WATCH ON THE VOLATILITY OF THE MARKET AN D MAKES SOUND INVESTMENT DECISION IN ACCORDANCE WITH SUCH MARKET FLUCTUATION AND HAS THE LIBERTY TO LIQUIDATE ITS INVESTMENTS IN SHARES AS AND WHEN NECESSARY. THE LAW ITSELF HAS RECOGNISED THIS FACT BY TREATING THE SAME AS SHORT - TERM CAPITAL GAINS FOR SHAR ES HELD LESS THAN 12 MONTHS AND LONG - TERM CAPITAL GAINS WHERE THE SHARES ARE HELD FOR MORE THAN 12 MONTHS. 4.1 THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAS INCOME FROM OTHER HEADS OVER THE YEARS AND AS FAR AS SHARE TRADING INCOME OR LOSS IS CONCERN E D , SHE HAS CONSISTENTLY BOOKED IT AS CAPITAL GAINS FROM THE TIME SHE STARTED THE PORTFOLIO. THE DEPARTMENT HAS BEEN ACCEPTING HER LOSSES AND GAINS UNDER THE HEADS CAPITAL GAINS. THEREFORE, THE LD. CIT(A) HELD THE ACTIVITY OF DEALING SHARES BY THE ASSESSEE AS CAPITAL GAINS. 5. BEFORE US, THE LD. DR SUPPORT S THE ASSESSMENT ORDER PASSED BY THE AO. HE ALSO RELIE S ON THE ORDER OF THE ITAT , MUMBAI IN THE CASE OF SHRI SANJAY ITA NO. 6218/MUM/2014 4 MARWAH V S. DCIT , CIR 3, THANE IN ITA NO. 3299/MUM/2012 FOR A.Y. 2006 - 07. HE ALSO MENTION S THAT THE ASSESSEE HAS CLAIMED STT OF RS.13,08,431/ - . 6. BEFORE US, THE LD. C OUNSEL OF THE ASSESSEE REFER S TO THE BALANCE SHEET OF THE ASSESSEE AND STATE S THAT THE INVESTMENT IN SHARES AS ON 31 ST MARCH 2009 WAS RS.2,11,82,727/ - AND AS ON 31 ST MARCH 2010 IT WAS RS.3,14,60,011/ - . HE STATE S THAT THE SHORT TERM GAINS ON SALE OF SHARES OF RS.88,41,354/ - HAS BEEN SHOWN IN THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED 1 ST MARCH 2010. ALSO IT I S STATED THAT THE SHORT TERM CAPIT AL GAINS ON SALE OF SHARES OF RS.31,41,209/ - AND LONG TERM CAPITAL GAIN ON SALE OF SHARES OF RS.3,70,475/ - HAS BEEN SHOWN IN THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER 31 ST MARCH 2011 AND THE ASSESSMENT HAS BEEN MADE U/S 143(1) O F THE ACT. FURTHER IT I S STATED THAT ASSESSMENT U/S 143(3) HAS BEEN MADE BY THE AO FOR THE A.Y. 201 2 - 1 3 AND A.Y. 2013 - 14 WITHOUT DISTURBING THE CAPITAL GAINS SHOWN BY THE ASSESSEE. RELIANCE I S PLACED BY HIM ON THE DECISION IN THE CASE OF CIT VS. AMIT JAIN (2015) 374 ITR 550 (DELHI) , CIT VS. DA TTA MAHENDRA SHAH (2015) 378 ITR 0304 (BOM ), DCIT VS. SHRI MAHENDER KUMAR BADER (ITA NO. 605/JP/2013) FOR A.Y. 2008 - 09 AND TARUJYOT INVESTMENT LTD. V S. ACIT (2016) 48 ITR (TRIB) 33 (AHMEDABAD) . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE BEGIN WITH THE DECISION RELIED ON BY THE LD. DR IN THE CASE OF SHRI SANJAY MARWAH (SUPRA) . IN THAT CASE , THE AO NOTED THAT IN MAJORITY OF TRANSACTIONS HOLDING PERIOD WAS LE SS THAN ONE MONTHS. EVEN THE MAXIMUM PERIOD OF HOLDING WAS FOUR MONTHS. THE ASSESSEE ALSO CARRIED OUT 1409 TRANSACTIONS IN DERIVATIVE TRADE HAVING TRADE AMOUNT OF RS.3,25,43,062/ - . THE ASSESSEE HA S SHOWN THE PURCHASE AND SALE OF SHARES 74 TRANSACTIONS GIVI NG RISE TO SHORT TERM CAPITAL GAIN. AFTER CONSIDERING THE NATURE OF TRANSACTIONS, HOLDING PERIOD AS WELL AS OTHER FACTS AND CIRCUMSTANCES OF THE CASE , THE AO ITA NO. 6218/MUM/2014 5 HELD THAT THE INTENTION OF ASSESSEE WAS ENTERING INTO A N ADVENTURE OF PURCHASE AND SALE OF SHARES AS TRADE. THE MAGNITUDE OF TRANSACTIONS OF PURCHASE AND SALES OF SHARES WA S VERY HIGH. THE NATURE OF PURCHASE AND SALE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WAS CLEARLY INCIDENTAL TO THE TRADE OF PURCHASE AND SALE OF SHARES. 7 . 1 NOW WE TURN TO THE DECIS IONS RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE. IN THE CASE OF AMIT JAIN (SUPRA) , THE HONBLE HIGH COURT HELD AS UNDER: WHAT APPEARS TO HAVE WEIGHED ALMOST CONCLUSIVELY WITH THE TAX AUTHORITIES IN THE FIRST AND SECOND INSTANCE IS THE VALUE AND FREQUENCY OF THE TRANSACTIONS. AS UNDERLINED BY US, THAT FACTOR ALONE CANNOT BE CONCLUSIVE AND WOULD HAVE TO BE WEIGHED ALONG WITH THE TOTALITY OF FACTS. AN IMPORTANT DETAIL WHICH CANNOT BE OVERLOOKED BY HIGH COURT IS THAT IN ALL PAST PERIODS AND EVEN SUBSEQUENT PERIODS, SIMILAR INCOME REPORTED BY THE ASSESSEE WAS ACCEPTED BY THE REVENUE AS SHORT TERM CAPITAL GAIN. IN FACT FOR A.Y. 20 05 - 06, THE SCRUTINY ASSESSMENT UNDER SECTION 143 (3) ACCEPTED THE SUM OF RS.1.02 CRORES AS SHORT TERM CAPITAL GAIN. IN THE CIRCUMSTANCES, IT WAS ALL THE MORE NECESSARY FOR THE REVENUE TO POINT TO SOME UNIQUE FEATURE OR DISTINCTIVE MATERIAL TO DIFFERENTIATE THE ASSESSEES ACTIVITIES FOR THE SUBJECT ASSESSMENT YEAR, SINCE THEY FUNDAMENTALLY REMAINED THE SAME AND UNCHANGED. 7.2 IN THE CASE OF SMT. DATTA MAHENDRA SHAH (SUPRA), THE REASONS FOR CONSIDERING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME BY THE AO WERE THE FOLLOWING: A) THE ASSESSEE DEALT WITH MORE THAN 60 COMPANIES DURING THE YEAR. B) HOLDING PERIOD OF SHARES IS LESS THAN 30 DAYS IN MORE THAN 30% CASES. C) OF THE TRANSACTIONS INVOLVING 1/5TH OF THE TURNOVER WAS DONE IN ONE MONTH ONLY. D) THERE ARE FIVE SPECULATIVE TRANSACTIONS AND THE ASSESSEE FILED 3CD REPORT ACCEPTING THE NATURE OF TRANSACTIONS AS TRADING IN SHARES. E) THE ASSESSEE IS A DIRECTOR IN M/S JAYANAND SECURITIES LTD. WHICH IS ENGAGED IN SHARE BUSINESS. F) DIVIDEND INCOME IS V ERY SMALL COMPARED TO GAINS EARNED. THE TRIBUNAL UPHELD THE ORDER OF THE LD. CIT(A) IN HOLDING THE GAINS ARISING FROM SALE PURCHASE OF SHARES AS CAPITAL GAINS. THE LD. AR SUBMIT S DURING THE COURSE OF HEARING THAT THE FACTS IN THE INSTANT APPEAL ARE SAME AS DELINEATED IN ITA NO. 6218/MUM/2014 6 THE ABOVE CASE. THE APPEAL FILED BY THE REVENUE AGAINST THE ABOVE ORDER OF THE TRIBUNAL WAS DISMISSED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. DATTA MAHENDRA SHAH (2015) 378 ITR 304 (BOM.) 7.3 IN THE CASE OF MAHENDRA KUMAR BADER ( SUPRA) , THE ITAT EXAMINED THE CASE IN THE LIGHT OF CBDT CIRCULAR NO. 6/2016 DATED 29.2.2016 AND HELD THAT SINCE THE ASSESSEE HAS TREATED THE SECURITIES AS INVESTMENT AND NOT AS STOCK - IN - TRADE IN ALL THE YEARS, THEREFORE, THE REVENUE IS NOT PERMITTED TO TAK E A CONTRARY VIEW IN THE PRESENT YEAR AND THEREFORE, THE PROFIT/GAIN OF THE ASSESSEE IS TO BE TREATED AS BUSINESS INCOME. 7.4 IN THE CASE OF TARUJYOT INVESTMENT LTD. (SUPRA) , THE ASSESSEE WAS INCORPORATED TO CARRY ON THE BUSINESS OF AN INVESTMENT COMPANY AND TO INVEST IN AND ACQUIRE AND HOLD SHARES, STOCKS, DEBENTURES, ETC. THE AO HELD THAT SINCE THE ASSESSEE HAD UNDERTAKEN A LARGE NUMBER OF TRANSACTIONS, ITS ACTIVITIES WERE TO BE TREATED AS IN THE NATURE OF BUSINESS INSTEAD OF INVESTMENT. THIS WAS CONFIRMED BY THE LD. CIT(A) HOLDING THAT THE GAINS ARISING TO THE ASSESSEE ON SALE OF SHARES WERE TO BE TREATED AS BUSINESS INCOME. THE T RIBUNAL HELD THAT THE ASSESSEE PAID SECURITIES TRANSACTION TAX. THEREFORE, ITS TRANSACTIONS SHOULD BE TREATED AS THOSE OF AN INVESTOR. THOUGH IT IS NOT A DIRECT CIRCUMSTANCE, IT COULD BE ONE OF THE CUMULATIVE FACTORS, AMONG OTHERS TO GIVE A POINTER TO THE NATURE OF TRANSACTIONS. THE ASSESSEE TOOK DELIVERY OF SHARES AND, THEREAFTER, SOLD THEM. THE ONLY CIRCUMSTANCE WHICH W AS AGAINST THE ASSESSEE WAS THE NUMBER OF TRANSACTIONS. BUT THAT WAS ONLY ONE CIRCUMSTANCE, AMONGST OTHERS, REQUIRED TO BE APPRECIATED BY THE ADJUDICATING AUTHORITY TO COLLECT THE INTENTION OF THE ASSESSEE WHILE MAKING INVESTMENT. THE DEPARTMENT HAD NOT AP PRECIATED THE TRANSACTIONS IN THE RIGHT PERSPECTIVE. EVEN IN SUBSEQUENT YEARS, THE TRANSACTIONS OF INVESTMENT BY THE ASSESSEE HAD NOT BEEN DISTURBED. THEREFORE, THE ASSESSING OFFICER WAS TO TREAT THE ASSESSEE ITA NO. 6218/MUM/2014 7 AS INVESTOR AND THE GAINS ARISING TO THE ASSESS EE ON TRANSFER OF SHARES WERE TO BE TREATED UNDER THE HEAD CAPITAL GAINS . 7.5 WE FIND THAT THE FACTS IN THE INSTANT CASE ARE DISTINGUISHABLE FROM THE CASE OF SHRI SANJAY MARWAH (SUPRA) RELIED ON BY THE LD. DR AS IN THE LATTER CASE THE ASSESSEE CARRIED OUT 1409 TRANSACTIONS IN DERIVATIVE TRADE HAVING TRADE AMOUNT OF RS. 3,25,43,062/ - WHICH IS ABSENT IN THE PRESENT CASE. ALSO I N THE INSTANT CASE, T HE AO HAS NOT COME TO A FINDING WHETHER THE ASSESSEE HAS CARRIED OUT REPETITIVE TRANSACTIONS OF SAME SHARE AS FOUND OUT IN SHRI SANJAY MARWAH (SUPRA) 7.6 THE INSTANT CASE IS ALSO DISTINGUISHABLE FROM JAYSREE PRADIP SHAH (SUPRA) MENTIONED IN THE GROUNDS OF APPEAL IN VIEW OF THE FACT THAT INVESTMENT IN SHARES AS ON 31 ST MARCH 2010 WAS RS.3,14,60,011/ - IN THE P RESENT CASE. ALSO IN THE INSTANT CASE, THE AO HAS NOT ESTABLISHED WHETHER THE TRANSACTIONS WERE CONTINUOUS AND R EGULAR BESIDES BEING SYSTEMATIC AS FOUND OUT IN JAYSREE PRADIP SHAH (SUPRA) 7. 7 WE OBSERVE THAT THE AO HAS MADE SCRUTINY ASSESSMENT OF THE ASSE SSEE U/S 143(3) OF THE ACT FOR THE A.Y. 2012 - 13 AND 2013 - 14. THE TREATMENT GIVEN BY THE ASSESSEE TO ITS CAPITAL GAINS HAS NOT BEEN DISTURBED BY THE AO FOR THE ABOVE TWO ASSESSMENT YEARS . 7. 8 DETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK - IN - TRADE, EACH ESSENTIALLY A FACT SPECIFIC DETERMINATION. THE AO HAS NOT COME TO FINDING WHETHER THE ASS ESSEE HAS CARRIED OUT REPETITIVE TRANSACTIONS OF SAME SHARE. THE AO HAS ALSO NOT ESTABLISHED WHETHER THE TRANSACTIONS WERE CONTINUOUS AND REGULAR BESIDES BEING SYSTEMATIC. WE FOLLOW THE DECISION IN ITA NO. 6218/MUM/2014 8 CIT VS. AMIT JAIN (2015) 374 ITR 550 (DELHI), CIT VS. DATT A MAHENDRA SHAH (2015) 378 ITR 0304 (BOM ) AND CONFIRM THE ORDER PASSED BY THE LD. CIT(A). 8 . IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 11 / 11 /2016 SD/ SD/ - (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 11 / 11 /2016 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI