BHARTAN M. GHIA, MUMBAI V. DCIT RG 14(3), MUMBAI

ITA 6319/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75399 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 24-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURESH KUMAR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO.6319/M/2010 ( / ASSESSMENT YEAR: 2006 - 2007 ) MR. BHARTAN M. GHIA, 33, GANESHWADI M. J. MARKET, MUMBAI 400 002. / VS. THE DCIT, RANGE 14(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020. ./ PAN : AACPG 3202 A ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI RAJAN VORA / RESPONDENT BY : SHRI SURESH KUMAR, DR / DATE OF HEARING : 9.1.2014 / DATE OF PRONOUNCEMENT :15 .1.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 24.08.2010 IS AGAINST THE ORDER OF THE CIT (A) - 25, MUMBAI DATED 16.6.2010 FOR THE ASSESSMENT YEAR 2006 - 2007. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE LD CIT (A) ERRED IN CONFIRMING ASSESSMENT OF TOTAL INCOME OF RS. 30,89,750/ - AS AGAINST RETURNED INCOME OF RS. 30,83,448/ - . 2. THE CIT (A) ERRED IN OBSERVING THAT THE ACTIVITY OF PURCHASE AND SALE OF SHARES / UNITS IS ADVENTURE IN THE NATURE OF TRADE AND THE INCOME FROM THE SAME IS BUS INESS INCOME AS AGAINST CAPITAL GAIN OFFERED BY THE APPELLANT, WITHOUT APPRECIATING THAT IT IS THE INTENTION TO CARRY OUT A TRANSACTIONS IS DETERMINATIVE OF THE CHARACTER OF THE INCOME. 3. THE CIT (A) ERRED IN CONCLUDING THAT THE APPELLANT IS ENGAGED IN TRADING IN SHARES / UNITS, WITHOUT APPRECIATING THAT THE SHARES WERE ACQUIRED AND HELD AS INVESTMENTS AND NOT AS STOCK - IN - TRADE AND THE DELIVERY OF THE SHARES IS DULY TAKEN. 4. THE CIT (A) FAILED TO APPRECIATE THAT MERELY BECAUSE THE APPELLANT IS MAIN TAINING A DIVERSIFIED PORTFOLIO OF EQUITY, MUTUAL 2 FUNDS ETC., DOES NOT LEAD TO THE CONCLUSION THAT THE ACTIVITY IS IN THE COURSE OF BUSINESS . 3. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE GROUNDS RAISED IN THE APPEAL BY THE ASSESSEE A RE AGAINST THE DECISION OF THE REVENUE AUTHORITIES IN TREATING THE SALE CONSIDERATION OF SHARES AND MUTUAL FUNDS AS INCOME OF BUSINESS NATURE AND NOT THE CAPITAL GAINS AS REPORTED BY THE ASSESSEE IN THE RETURN OF INCOME. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION AND MENTIONED THAT THE ASSESSEE EARNED SHORT TERM CAPITAL GAINS AMOUNTING TO RS. 1,49,222/ - ON SALE OF SHA RES AND ALSO RS. 17,22,470/ - ON SALE OF MUTUAL FUNDS. ASSESSEE ALSO REPORTED LONG TERM CAPITAL GAINS ON SALE OF MUTUAL FUNDS AS WELL AS SHARES ABOUT WHICH THERE IS NO DISPUTE. THE DISPUTE IS ONLY WITH REGARD TO THE SHORT TERM CAPITAL GAINS ON SALE OF SHA RES / MUTUAL FUNDS. 3.1. IN CONNECTION WITH THE LONG TERM CAPITAL GAINS EARNED ON SALE OF MUTUAL FUNDS, LD COUNSEL BROUGHT OUR ATTENTION TO THE PAGE 25 OF THE PA PER BOOK AND MENTIONED THAT THE MUTUAL FUNDS WERE SOLD TO THE FUND MANAGERS BY WAY OF SURRENDE R AFTER HOLDING THEM FOR A PERIOD EXCE EDING 60 DAYS TO ONE YEAR. DISTINGUISHING BETWEEN THE SALE OF SHARES AND THE SURRENDER OF MUTUAL FUND UNITS TO THE FUND MANAGERS, LD COUNSEL BROUGHT OUR ATTENTION TO VARIOUS DECISIONS TO DEMONSTRATE THAT THE SALE OF MUTUAL FUNDS CANNOT BE TREATED AS BUSINESS TRANSACTIONS UNLIKE THE SALE OF SHARES. HE ALSO MENTIONED THAT THE UNITS OF A FUND PURCHASED BY THE ASSESSEE MAY BE SOLD IN DIFFERENT LOTS AT DIF FERENT DATES. HOWEVER, THERE ARE NO RE - ENTERED TRANSACTIONS IN SA M E OF THE MUTUAL FUNDS. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO VARIOUS DECISIONS TO SUPPORT THAT THE SURRENDER OF MUTUAL FUNDS UNITS CANNOT CONSTITUTE A BUSINESS ACTIVITY CONSIDERING THE FACT THAT THE SALE CONSIDERATION REALISED ON THE SALE OF MUTUAL FUNDS ARE RE - INVESTED IN OTHER MUTUAL FUNDS AND THEREFORE, THE INVESTMENT ACTIVITY THUS CONTINUES. SUCH TRANSACTIONS SHOULD NOT BE DEEMED AS A BUSINESS TRANSACTIONS AND THE SURRENDER OF UNITS TO THE FUND MANAGERS CANNOT BE EQUATED WITH THE SALE TR ANSACTIONS. IN THIS REGARD, LD COUNSEL HEAVILY RELIED ON THE DECISION OF THE COORDINATE BENCH OF THE T RIBUNAL IN THE CASE OF BOMBAY GY MKHANA LTD. VS. ITO [2008] 115 TTJ (MUM)J 639 WHICH IS RELEVANT FOR THE PROPOSITION THAT THE INVESTMENT IN THE MUTUAL FUN DS IN AN INVESTMENT ACTIVITY AND THE GAINS ON TRANSFER OF MUTUAL FUNDS SHOULD BE HELD AS 3 CAPITAL GAINS, NOT AS BUSINESS INCOME. BRINGING OUR ATTENTION TO PAGE 93 OF THE PAPER BOOK, WHICH IS A COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF MR. CHETAN R. PARIKH VS. ITO VIDE ITA NO. 1569/M/2010 (AY 2006 - 2007) DATED 25.5.2011. HE READ OUT THE TERMINAL OPERATION OF PARA 4 OF THE SAID ORDER OF THE TRIBUNAL WHICH READ AS UNDER: 4............HOWEVER, THE UNITS OF MUTUAL FUNDS ARE NOT GENERALLY TRADING INSTRUM ENT BECAUSE OF COMPARATIVELY LOW FLUCTUATION AND NUMBER OF TRANSACTIONS IN UNITS ARE ALSO AT LARGE. THEREFORE, IN OUR VIEW THE PURCHASE AND SALE OF UNITS HAS TO BE CONSIDERED AS INVESTMENT ACTIVITY. EVEN THE CIT (A) HAS TREATED THE SALE AND PURCHASE OF O NLY SHARES AS TRADING ACTIVITIES. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES, WE CONFIRM THE ORDER OF THE CIT (A) HOLDING THE PURCHASES AND SALES OF SHARES AS BUSINESS ACTIVITY. 4. CONSIDERING THE ABOVE AND FOLLOWING THE BINDING DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL (SUPRA), WE ARE OF THE OPINION THAT THE MUTUAL FUNDS ACTIVITY FALLS IN A ZONE OF INVESTMENT ACTIVITY AND NOT IN THE TRADING ACTIVITY. ACCORDINGLY, THE ASSESSEE IS GRANTED RELIEF ON ACCOUNT OF MUTUAL FUNDS AND THE RELEVANT GROUNDS ARE ALLOWED. 5. THE SECOND ISSUE RAISED BY THE ASSESSEE RELATES TO THE SHORT TERM CAPITAL GAINS AS SALE ON SHARES WHICH IS HELD BY THE AO AS BUSINESS INCOME. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 25 OF THE PAPER BOOK AND MENTIO NED THAT ASSESSEE HAS DOMINANT OBJECT OF INVESTMENT ACTIVITY IN BUYING THE IMPUGNED SHARES. THE FACT THAT THE SAID SHARES WERE PURCHASED OUT OF OWN FUNDS WAS ALSO DEMONSTRATED BY BRINGING OUR ATTENTION TO THE COPY OF THE RELEVANT BALANCE SHEET PLACED AT P AGE 1 OF THE PAPER BOOK. FURTHER, HE ALSO MENTIONED THAT THE ASSESSEES CLAIM IN SUCH TRANSACTIONS IN THE PAST WAS ACCEPTED BY THE REVENUE WITHOUT ANY CHANGE. THEREFORE, CONSIDERING THE PRINCIPLES OF CONSISTENCY AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF GOPAL PUROHIT, THE ASSESSEES CLAIM IN THIS YEAR ALSO SHOULD NOT BE DISTURBED. FURTHER, REFERRING TO THE DETAILED TRANSACTIONS PROVIDED CHRONOLOGICALLY (PLACED AT PAGE 29 - 31 OF THE PAPER BOOK), LD COUNSEL MENTIONED THAT THE ASSESSEE HAS RECORD OF SELLING OF SOME SCRIPS ON A DATE, WHICH ARE P URCHASED IN DIFFERENT LOT S ON DIFFERENT DATES. LD AR MENTIONED THAT, T HERE IS NO RECORD OF RE - ENTRY INTO THE TRANSACTIONS. EVEN IF IT RE - ENTERED, THE FREQUENCY OF SUCH RE - ENTERED TRANSACTIONS IS M I NIMAL AN D CERTAINLY NOT A PREDOMINANT E. AT THE END, LD COUNSEL SUBMITTED THAT THE CLAIM OF THE ASSESSEE 4 SHOULD NOT BE DISTURBED CONSIDERING THE INVESTMENT CONDUCT OF THE ASSESSEE TOGETHER WITH NUMBER OF SCRIPS, TRANSACTIONS AND THE TURNOVER PARTICULARS FURNISHED AT PAGE 25 OF THE PAPER BOOK. 6. ON THE OTHER HAND, LD DR RELIED HEAVILY ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES ON THIS LIMITED ISSUE RELATING TO THE SHORT TERM CAPITAL GAINS EARNED ON SALE OF SHARES. IT IS AN ADMITTED FACT THAT THE CLAIM OF THE ASSESSEE WAS ACCEPTED IN THE EARLIER YEARS. THE SAID ASSESSMENTS WERE NOT REOPENED OR REVIEWED CONSEQUENT TO THE DECISION OF THE AO IN THIS YEAR. IT IS NOT MADE OUT THAT IT IS A CASE OF RE - ENTERED TRANSACTIONS PREDOMINANTLY BY THE REVENUE AUTHORITIES. THERE IS NO ALLEGATION IN THE ORDERS OF THE REVENUE AUTHORITIES THAT THE IMPUGNED SHARES SOLD BY THE ASSESSEE ARE TAKEN OUT OF THE LOTS HELD AS STOCK - IN - TRADE. CONSIDERING THE ABOVE FACTUAL MATRIX ON THIS CASE AS WEL L AS TRANSACT IONAL DATA OF 61 SCRIPS, 69 TRANSACTIONS, PURCHASE TURNOVER OF RS. 37.69 , SALES TURNOVER OF RS. 39.19 , WE ARE OF THE OPINION THAT THE CLAIM OF THE ASSESSEE SHOULD BE ACCEPTED. AS SUCH THE HOLDING PERIOD ALONE IS NOT A CONCLUSIVE TO DECIDE IF A TRANSACTIO N IS OF INVESTMENT OR TRADIN G TRANSACTION. I NTENTION OF THE ASSESSEE IS RELEVANT AND THERE IS NO REASON MADE OUT BY THE AO TO CONCLUSIVELY TO DETERMINE THAT THE IMPUGNED TRANSACTIONS ARE OF THE TRADING NATURE. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED. ACCORDINGLY, THE GROUNDS ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 5 T H JANUARY, 2014. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 15 .1 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 5 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI