ACIT 25(3), MUMBAI V. LEENA R. DHANKI, MUMBAI

ITA 6261/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55194 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 03-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SHRI VIJAY PAL R AO (JM) ITA NO. 6261/M/2009 ASSESSMENT YEAR:2006-2007 THE ASSISTANT COMMISSIONER OF INCOME TAX 25(3), C-11, R.NO. 308, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. SMT. LEENA R. DHANKI, 3, RAJNI KUNJ, M.G. ROAD, KANDIVLI (W), MUMBAI 400 067. PAN: AAEPD7665A (APPELLANT) (RESPONDENT) ASSESSEE BY: REVENUE BY: SHRI SUBASH S. SHETTY SHRI C.G.K. NAIR DATE OF HEARING: DATE OF PRONOUNCEMENT: 03-08-2011 07-09-2011 O R D E R PER VIJAY PAL RAO (JM): THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29-09-2009 OF CIT (A) FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED THE ONLY GROUND IN THIS A PPEAL IS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN DIRECTING THE AO TO ACCEPT THE CLA IM OF LONG TERM CAPITAL GAIN & SHORT TERM CAPITAL GAIN ON PROFIT ARRIVING F ROM PURCHASE & SALE OF SHARES INSTEAD OF BUSINESS INCOME TREATED BY THE AO WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS DEALING IN LARGE VOLU ME OF SHARES, MOST OF THE SHARES ARE BOUGHT AND SOLD WITHIN SHORT PERIOD, WHI LE SOME ARE NOT SOLE DUE TO MARKET CONDITIONS AND THEIR HOLDING WITH ASSESSE E REMAINS BEYOND FEW DAYS, IT WILL NOT CHANGE THE NATURE OF TRANSACTIONS AND THE ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SHARE TRADING, WHIC H DENOTE THAT THE MOTIVE OF THE ASSESSEE IS TO CARRY ON BUSINESS IN SHARES T O BOOK PROFIT RATHER THAN INVESTMENT IN SHARES. ITA NO. 6261/M/2009 SMT. LEENA RAJESH DHANKI 2 3. THE ASSESSEE IS AN INDIVIDUAL AND IS REGULARLY T RADING IN SHARES. THE ASSESSEE FILED HER RETURN OF INCOME ALONG WITH AUDI T REPORT IN FORM 3CD. THE ASSESSEE DECLARED INCOME FROM SHORT TERM CAPITAL GA INS AT RS. 40,12,924/-, LONG TERM CAPITAL GAINS AT RS. 72,82,182/- AND INCOME FR OM OTHER SOURCES AT RS. 78/-. THE DIVIDEND INCOME OF THE ASSESSEE WAS RS. 2,50,88 2/- AND SHARE TRADING PROFIT WAS LOSS OF RS. 94,504/-. THE ASSESSING OFFICER NO TICED THAT IN THE AUDIT REPORT THE NATURE OF BUSINESS OR PROFESSION OF THE ASSESSEE IS RECORDED AND STATED AS DEALER IN SHARES AND SECURITIES. AFTER ANALYZING THE DETA ILS FILED BY THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT THE FREQUENCY OF TH E TRANSACTIONS CARRIED BY THE ASSESSEE IS VERY HIGH WITH LARGE VOLUME OF SHARES I NVOLVED. THE ASSESSING OFFICER POINTED OUT THAT IN VIEW OF THE HIGH VOLUME OF SHAR ES, QUANTITY OF SHARES PURCHASED DURING THE YEAR, QUANTUM OF SALES, NUMBER OF TRANSACTIONS AND PURCHASE AND SALE OF SHARES CUMULATIVELY SHOW THAT THE ASSESSEE ENGAGED IN THE SHARE TRADING WHICH INCLUDES SPECULATION AND SINCE THE ASSESSEE IS NOT DOING ANY OTHER ACTIVITY TO EARN THE INCOME OTHER THAN THE IN COME OF PURCHASE AND SALE OF SHARES. THE ASSESSEE IS ENGAGED IN ONLY ONE ACTIVI TY OF EARNING PROFIT THROUGH PURCHASE AND SALE OF SHARE AND THEREFORE, THE ENTIR E PROFIT ARISING OUT OF PURCHASE AND SALE OF SHARES WERE ASSESSED UNDER THE HEAD INC OME FROM BUSINESS AND PROFESSION. ON APPEAL, THE LD. CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE REGARDING LONG TERM CAPITAL GAINS AS WELL AS SHORT TERM CAPIT AL GAINS BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN CASE OF GOPAL PUROHIT VS. JCIT, 29 SOT 117 . BEFORE US, THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE UNDOUBTE DLY DEALING IN LARGE VOLUME OF SHARES. MOST OF THE SHARES WERE BOUGHT AND SOLD IN FEW DAYS AND ONLY SOME OF THE SHARES WERE SOLD DUE TO MARKET CONDITIONS AND T HEIR HOLDING WITH THE ASSESSEE REMAINS FOR SOME TIME BUT WOULD NOT CHANGE THE NATU RE OF TRANSACTION. THE ASSESSEE TOOK LOAN TO DO SHARE BUSINESS. HE HAS FU RTHER CONTENDED THAT THE ITA NO. 6261/M/2009 SMT. LEENA RAJESH DHANKI 3 ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SH ARE TRADING WHICH INCLUDES SPECULATION. HE HAS REFERRED THE ORDER OF THE ASSE SSING OFFICER AND SUBMITTED THAT THE ASSESSEE IS DOING ONLY ACTIVITY OF PURCHASE AND SALE OF SHARES AND NO OTHER BUSINESS TO EARN THE INCOME. THEREFORE, THE ASSESS EE IS ENGAGED IN WHOLE TIME BUSINESS OF SHARE TRADING. HE HAS FURTHER POINTED OUT THAT THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF PURCHASE OF SHARES CLE ARLY SHOW THAT THESE TRANSACTIONS HAVE BEEN ENTERED INTO BY ASSESSEE WIT H A PROFIT MOTIVE AND THEREFORE, IT CANNOT BE SAID THAT THESE TRANSACTION S WERE ENTERED INTO ONLY FOR PURPOSE OF INVESTMENT. HE HAS RELIED UPON THE ORDE R OF THE ASSESSING OFFICER. 4. ON THE OTHER HAND, THE LEARNED AR HAS REITERATED THE CONTENTIONS RAISED BEFORE THE LD. CIT (A) IN PARA 4.1 AND 4.2 AS UNDER : 4.1 AT THE TIME OF HEARING, THE REPRESENTATIVE SUBMITTE D THAT THE APPELLANT DID NOT ADMIT ANY CAPITAL GAIN UP TO A.Y. 2005-2006 AND, THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE IS R EGULARLY TRADING IN SHARES AS HELD BY THE AO. HE FURTHER SUBMITTED THAT IN TH E SUBSEQUENT YEARS THE ASSESSEE ADMITTED VERY LESS AMOUNT UNDER THE HEAD C APITAL GAIN ON SALE OF SHARES. HE SUBMITTED THAT EVEN THOUGH THE ASSESSEE IS TRADING IN SHARES AND ADMITTED BUSINESS INCOME UP TO A.Y. 2005 2006 , THE ASSESSEE MAINTAINED STOCK IN TRADE AND INVESTMENT SEPARATELY IN BOOKS OF ACCOUNT AND WHEREVER THE SHARES HELD AS INVESTMENT WERE SOL D, CAPITAL GAINS WERE ADMITTED. HE SUBMITTED THE DETAILS OF INCOME OFFE RED FOR THE EARLIER AND SUBSEQUENT THREE YEARS AS UNDER.. 4.2 HE FURTHER POINTED OUT THAT FOR THE A.YRS. UP T O 2005-2006 THERE WAS NO SALE OF SHARES HELD AS INVESTMENT BUT ONLY DURIN G THIS YEAR THERE WAS SALE OF SHARES AND SUCH INVESTMENT WAS MADE EVEN IN EARLIER YEARS PARTLY. HE FURTHER ARGUED THAT AS SEEN FROM THE LONG TERM C APITAL GAIN WORKING, THERE IS NO PURCHASE OF SHARES DURING THIS YEAR BUT THE SHARES WERE SOLD WHICH WERE PURCHASED 15 MONTHS EARLIER AND THIS IS THE FIRST YEAR IN WHICH THERE WS SALE OF SHARES HELD AS INVESTMENT AND THE LONG TERM CAPITAL GAIN AROSE. HE FURTHER ARGUED THAT THE ASSESSEE TOOK DE LIVERY OF ALL THE SHARES AND TRANSFERRED THE SAME TO THE NAME OF THE ASSESSE E THROUGH THE DEMAT ACCOUNT AND PAID STT AT THE RATE OF APPLICABLE TO I NVESTMENT. REGARDING SHORT TERM CAPITAL GAIN, HE SUBMITTED THAT APPROXIM ATELY 75% TO 80% OF THE SHARES WERE HELD FOR MORE THAN 120 DAYS AND IN ALL THERE WERE 69 TRANSACTIONS DURING THE WHOLE YEAR AND IT CANNOT BE SAID THAT THE ASSESSEE WAS A TRADER. HE CONTENDED THAT THE MAGNITUDE OF T RANSACTIONS WOULD NOT ALTER THE NATURE OF TRANSACTIONS. HE RELIED ON THE DECISION OF THE HONBLE HYDERABAD TRIBUNAL IN THE CASE OF SHAH-LA INVESTMEN TS AND FINANCIAL CONSULTANTS PVT. LTD. VS. DY. CIT (2 SOT 371) FOR T HE PROPOSITION THAT THERE IS NO BAR FOR THE SAME ASSESSEE TO DO BUSINESS IN S HARES AND HELD SOME ITA NO. 6261/M/2009 SMT. LEENA RAJESH DHANKI 4 SHARES AS INVESTMENT. HE FURTHER RELIED ON THE DEC ISION OF HONBLE MUMBAI TRIBUNAL I N THE CASE OF J.M. SHARE & STOCK BROKERS LTD. VS. JCIT (FEB 2008) ITA NO. 2801/MUM/2000 DATED 30-11-2007 FOR THE PROP OSITION THAT THE PROFIT EARNED ON SALE OF SHARES WHICH WERE HELD AS INVESTMENT IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS. FURTHER HE RELIED ON THE DECISION OF HONBLE MUMBAI ITAT IN TH E CASE OF GOPAL PUROHIT (29 SOT 117) IN WHICH IT WAS HELD THAT THE DELIVERY BASED TRANSACTIONS SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RELEVANT RECORD. AS REGARDS THE LONG TERM CAPITAL GAIN IS C ONCERNED WE FIND THAT WHEN THE HOLDING PERIOD OF THE SHARES IS MORE THAN ONE YEAR AND THE SHARES REPRESENTING LONG TERM CAPITAL GAINS WERE PURCHASED IN THE EARLI ER YEAR AND NOT THIS YEAR. THEREFORE, THESE TRANSACTIONS UNDER NO CIRCUMSTANCE S CAN BE TREATED AS BUSINESS OR TRADING ACTIVITY. MOREOVER, THERE IS NO BAR FOR HAVING TWO SEPARATE PORTFOLIOS AS CAPITAL ASSET AND TRADING ASSET. IT IS PERTINENT T O NOTE THAT THE CAPITAL ASSET SHOWN BY THE ASSESSEE IN THE EARLIER YEARS HAS BEEN ACCEP TED BY THE ASSESSING OFFICER THEN THE SAME CANNOT BE TREATED AS TRADING ASSET OF THE SALE IN THIS YEAR. THEREFORE, WE DO NOT APPROVE THE ACTION OF THE ASSE SSING OFFICER TO THE EXTENT OF LONG TERM CAPITAL GAINS TREATED AS BUSINESS INCOME AND ACCORDINGLY THE ORDER OF THE CIT (A) QUA TO THIS EXTENT IS UPHELD. 6. AS REGARDS THE TRANSACTIONS REPRESENTING THE SHO RT TERM CAPITAL GAINS ARE CONCERNED, ON CAREFUL ANALYSIS OF THE DETAILS OF TH E PURCHASE AND SALES OF THE SHARES WE FIND THAT THE ASSESSEE IS CARRIED OUT REP ETITIVE MULTIPLE TRANSACTIONS IN THE SHARES OF SAME SCRIP. MORE IMPORTANTLY THESE R EPETITIVE TRANSACTIONS ARE CARRIED OUT BY THE ASSESSEE IN A REGULAR MANNER AND NOT AS INCIDENTAL OR OCCASIONAL WHICH CLEARLY SHOW THE MOTIVE AND INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES OF THESE PARTICULAR SCRIPS. FOR INSTANCE, THE ASSESSEE PURCHASED SHARES OF KOTAK MAHINDRA BANK ON 3.9.2004 , 3.9.2005 WHICH WERE SHOWN UP TO 25.11.2005 AND, THEREAFTER, AGAIN PURCH ASED THE SHARES OF KOTAK MAHINDRA ON 30.01.2006 WHICH CLEARLY SHOWS THAT THE ASSESSEE IN THE SAME ITA NO. 6261/M/2009 SMT. LEENA RAJESH DHANKI 5 FINANCIAL YEAR PURCHASED AND SOLD THEN AGAIN PURCHA SED THE SHARES OF SAME SCRIPS OF KODAK MAHINDRA BANK. SIMILARLY, IN CASE OF GAL AXY ENTERT CORPORATION LTD. THE ASSESSEE CARRIED OUT REPETITIVE TRANSACTIONS OF PURCHASE AND SALE AGAIN IN THE SHARES OF SPEL SEMICONDUCTOR THEN SHARES OF GRANULE S INDIA, SURYA PHARMA, CHEMFAB ALKALI, INDSWIFT LABORATORY, INDIA INFOLINE LTD, IQ INFOTECH AND SPENCO TELE SYSTEMS. THIS PRACTICE OF REPETITIVE TRANSACT IONS IS CLEARLY VISIBLE FROM VARIOUS PURCHASE AND SALE TRANSACTIONS OF SHARES IN SOME SCRIPS. THUS, IT IS MANIFEST FROM THE PATTERN OF PURCHASE AND SALE SHOW N UNDER SHORT TERM CAPITAL GAIN THAT THE PRIMARY MOTIVE AND INTENT OF THE ASSE SSEE TO EARN THE PROFIT AT THE EARLIEST OCCASION AND ON EACH POINT UP AND DOWN IN THE MARKET PRICE OF THE SHARES. THEREFORE, THE ACTIVITY OF THE ASSESSEE UNDOUBTEDLY REGULATED BY EACH AND EVERY MOMENT OF THE MARKET FLUCTUATION AND HENCE IN THE I NTEREST OF ADVENTURES MAXIMUM PROFIT MOTIVE AT THE SHORTEST POSSIBLE PERI OD. EVEN OTHERWISE WHEN THE ASSESSEE IS IN THE BUSINESS OF SHARE TRADING WITHIN THE ACCOUNTING TREATMENT OF TRANSACTION CANNOT BE A DECISIVE FACTOR TO DETERMIN E THE TRUE NATURE OF THE TRANSACTION AND MOTIVE OF THE TRANSACTION. THE DEC ISIONS RELIED UPON BY THE ASSESSEE, IN OUR VIEW, ARE NOT APPLICABLE IN THE FA CTS OF THE PRESENT CASE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AS DISCUSSED A BOVE, WE ARE OF THE CONSIDERED OPINION THAT THE PURCHASE AND SALE TRANSACTIONS REP RESENTING THE SHORT TERM CAPITAL GAIN ARE IN THE NATURE OF THE BUSINESS ACTIVITY. A CCORDINGLY, WE MODIFY THE ORDER OF THE LD. CIT (A) TO THIS EXTENT. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 7 TH SEPTEMBER, 2011 SD/- SD/- (PRAMOD KUMAR) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE : 07-09-2011 AT :MUMBAI ITA NO. 6261/M/2009 SMT. LEENA RAJESH DHANKI 6 OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR A BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI