ACIT 13(1), MUMBAI V. DEEPANKAR M.K. MOGHA, MUMBAI

ITA 644/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4980 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Assessee Lawyers: S N KANKARIA
• Keywords: Business income

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . .. . , !' !' !' !' # # # # $%&' $%&' $%&' $%&' , % % % % () () () () BEFORE S/SH.D.MANMOHAN,VICE-PRESIDENT & RAJENDR A,ACCOUNTANT MEMBER ./ ././ ./ ITA NO.644/MUM/2012 , + + + +/ // / ASSESSMENT YEAR-2008-09 ASST. COMMISSIONER OF INCOME TAX- 16(3),MATRU MANDIR, 2 ND FLOOR, R.NO. 206 TARDEO ROAD, MUMBAI- 400007. VS. DEEPANKAR M.K.MOGHA, 802, PANCHRATNA, OPERA HOUSE, MUMBAI- 400004 PAN: ADBPM4247R ( ,- / // / APPELLANT ) ( ./,- / RESPONDENT ) ,- ,- ,- ,- 0 0 0 0 % %% % / APPELLANT BY : SHRI HARIGOVIND SINGH. ./,- 1 0 % / RESPONDENT BY : S.N.KANKARIA 1 11 1 2 2 2 2 / DATE OF HEARING : 04/09/2013 3+ 1 2 / DATE OF PRONOUNCEMENT : 13/09/2013 , 1961 1 11 1 254(1) % %% % &242 &242 &242 &242 (%5 (%5 (%5 (%5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M: CHALLENGING THE ORDER DT.11-11-2011 OF THE CIT(A)-2 7,MUMBAI ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE TRANSACTION OF PURCHASE AND SALE OF SHARES AS S .T.C.G. 2. WHETHER ON THE FACTS & CIRCUMSTANCES AND IN LAW, TH E LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO GIVE CONSEQUENTIAL EFFECT TO UNABSORBED BROUGHT FOR WARD S.T.C.L. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD GROUND(S) WHICH MAY BE NECESSARY. THE APPELLANT PRAYS THAT THE ORDER OF THE CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. ASSESSEE,AN INDIVIDUAL,FILED HIS RETURN OF INCOME O N 30.9.2008 DECLARING TOTAL INCOME AT RS. 15. 86 LACS,ASSESSMENT WAS FINALISED ON 22.10.2010DETER MINING THE INCOME AT RS. 37,86,300/-.DURING THE COURSE OF ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE HAD FILED DETAILS OF SHORT TERM CAPITAL GAIN(STCG) AMOUNTING TO RS. 41.95 LACS EARN ED FROM SALE OF SHARES.HE DIRECTED THE ASSESSEE TO SHOW CAUSE THE REASON AS WHY THE STCG S HOULD NOT BE TREATED AS BUSINESS INCOME AS THE BORROWED FUNDS HAD NOT BEEN UTILISED FOR THE PU RPOSE OF INVESTMENT.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,AO HELD THAT THE SHARE H OLDING PERIOD IN THE CASE OF ASSESSEE WAS THREE DAYS TO 180 DAYS,THAT RATIO LAID DOWN BY THE DECISI ON OF GOPAL PUROHIT BY THE ITAT,MUMBAI WAS NOT APPLICABLE IN THE CASE UNDER CONSIDERATION.FINA LLY,HE HELD THAT STCG TO THE TUNE OF RS.41,95, 921/-WAS TO BE TREATED AS BUSINESS INCOME. 2.1 .ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPE LLATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R,HE HELD THAT ASSESSEE WAS AN INVESTOR IN SHARES FROM THE ASSESSMENT YEAR 2004-05 ONWARDS, TH AT THE PORTFOLIO HELD BY THE ASSESSEE WERE FOR PERIOD MORE THAN ONE YEAR,THAT INVESTMENT IN PURCHA SING SHARES WAS MADE FROM HIS OWN FUNDS, THAT HE WAS RECEIVING DIVIDENDS FROM THE INVESTMENT S, THAT THE INCOME FROM TRANSFER OF SHARES WAS ALWAYS OFFERED TO TAX AS CAPITAL GAIN,THAT SHARES H ELD AS INVESTMENTS WERE VALUED AT COST AND NO MARK TO MARKET LOSSES WERE PROVIDED, THAT DURING TH E YEAR THE ASSESSEE HAD PURCHASED 90 SCRIPS AND SOLD 65 SOUPS, INVOLVING 175 SALE TRANSACTIONS, THAT PURCHASES WERE AFFECTED ON 45 WORKING DAYS AND SALES WERE AFFECTED ON 92 WORKING DAYS,THA T BY NO STRETCH OF IMAGINATION DEALING IN 65 2 ITA NO. 644/MUM/2012(AY-2008-09) DEEPANKAR M.K.MOGH A SCRIPS INVOLVING 175 TRANSACTIONS FOR THE ENTIRE YE AR COULD BE CONSIDERED AS HIGH VOLUME,THAT THE TRANSACTIONS WERE NOT ENTERED INTO CONTINUOUSLY AND REGULARLY THROUGHOUT THE YEAR,THAT THE ASSESSEE HAD NOT TRANSACTED DURING 63% OF TOTAL WORKING DAYS FOR THE YEAR UNDER CONSIDERATION,THAT THE ABSENCE OF REGULAR TRANSACTIONS IN SHARE HIGHLIGHTE D THAT THE TRANSACTIONS ARE NOT ENTERED INTO FREQUENTLY,CONTINUOUSLY AND REGULARLY BY THE ASSESS EE,THAT INVESTMENT IN SHARES WAS MADE OUT OF THE ASSESSEES OWN CAPITAL AND THE FUNDS WERE WITHD RAWN FROM CAPITAL ACCOUNT OF THE ASSESSEE IN THE FIRM M/S.ARIHANT DIAMONDS,THAT THERE WERE NO BO RROWALS FROM ANY OUTSIDE PARTIES,THAT THE ASSESSEE HAD NOT PAID ANY INTEREST TO THE FIRM ON W ITHDRAWAL FROM THE CAPITAL ACCOUNT NOR THE SAID FIRM PAID ANY INTEREST TO ANY PARTY,THAT THE ASSESS EE HAD INVESTED HIS OWN FUNDS, WHICH IS ESSENTIALLY A FEATURE OF THE INVESTOR AND NOT THE T RADER,THAT THE ASSESSEE WAS ENGAGED FULL TIME AS A WORKING PARTNER IN M/S.ARIHANT DIAMONDS, THAT HE DI D NOT EMPLOY ANY PEOPLE TO ASSIST HIM IN SHARE ACTIVITIES AND INVESTED IN SHARES THROUGH A D ISCRETIONARY SHARE BROKER WOULD ALSO GO TO SHOW THAT THE ASSESSEE WAS AN INVESTOR, THAT THE ASSESSE E HAS UNREALISED CAPITAL GAIN IN HIS PORTFOLIO AS A T THE END OF THE YEAR,THAT THE ASSESSEE HAS EARNED 10 % PROFIT ON THE COST OF INVESTMENT SOLD DURING THE YEAR, WHICH WAS FAIRLY A REASONABLE PROFIT TO H OLD THE ASSESSEE AS AN INVESTOR, WHEN CONSIDERED ALONG WITH THE UNREALISED CAPITAL GAINS INCLUDED IN THE INVESTMENTS AT THE END OF THE YEAR,THAT THE AO HAD PASSED A VERY SHORT ORDER WITHOUT GOING INTO ANY OF THESE DETAILS. FINALLY,HE HELD THAT IN THE LIGHT OF NUMBER OF SCRIPS HELD/PURCHASE/SOLD AN D THE CORRESPONDING NUMBER OF TRANSACTIONS, NUMBER OF DAYS TRANSACTED ON THE STOCK EXCHANGE, IN VESTMENT BEING MADE FROM OWN FUNDS AND THE FACT THAT DIVIDEND WAS RECEIVED OVER THE YEARS ETC. WOULD ESTABLISH THE ASSESSEE WAS AN INVESTOR AND NOT AS A TRADER. 2.3 .BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR) RELIED U PON THE ORDER OF THE AO.AUTHORISED REPRESENTATIVE(AR)SUBMITTED THAT THE ASSESSEE HAD N OT BORROWED ANY FUNDS FOR MAKING INVEST- MENTS IN SHARES,THAT SHARES WERE HELD AS INVESTMENT FROM THE VERY BEGINNING, THAT FREQUENCY OF TRANSACTIONS AND HOLDING PERIOD OF SHARES REVEALED THAT ASSESSEE WAS AN INVESTOR. 2.4 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US.WE FIND THAT AO HAS NOT DISCUSSED ANYTHING AS WHY THE ASSESSEE SHOULD B E TREATED A TRADER AND NOT AN INVESTOR. IT IS A WELL-SETTLED PRINCIPLE OF TAXATION JURISPRUDENCE TH AT A SINGLE FACTOR CANNOT DECIDE THE NATURE OF TRANSACTION. THOUGH THE AO HAS MENTIONED THAT ASSES SEE HAD USED BORROWED FUNDS,BUT HE HAS NOT GIVEN ANY DETAILS OF THE SO-CALLED BORROWED FUNDS I NVESTED IN THE SHARES. SECONDLY,ONLY ON THE BASIS OF BORROWING OF FUNDS A PERSON CANNOT BE TREA TED A TRADER/INVESTOR OF SHARES.CENTRAL BOARD OF DIRECT TAXES(CBDT)HAS ISSUED SOME GUIDELINES IN THI S REGARD,BUT WHILE FINALISING THE ASSESSMENT, AO HAS NOT APPLIED THOSE PARAMETERS.VOLUME OF THE S HARES,FREQUENCY OF THE TRANSACTIONS,HOLDING PERIOD OF THE SCRIPS,TREATMENT GIVEN TO THE SHARES IN THE BOOKS OF ACCOUNTS,PATTERN OF FINANCING OF THE SHARES AND THE PAST HISTORY OF THE TRANSACTIONS ARE SOME OF THE CRITERIAS THAT DECIDE AS WHETHER THE ASSESSEE IS THE TRADER OR AN INVESTOR OF SHARES .WE FIND THAT FAA HAS TAKEN NOTICE OF SHARE HOLDING PATTERNS,AMOUNT OF DIVIDEND RECEIVED,INVEST MENT MADE IN SHARES,SALE CONSIDERATION RECEIVED ON SALE OF SHARES FOR THE PERIOD 2004-05 T O 2008-09,COST OF INVESTMENTS,HOLDING PERIOD OF THE SHARES (PAGE NO. 5-6 OF THE ORDER OF THE FAA).A FTER ANALYSING RELEVANT FACTORS,HE HAD ARRIVED AT THE FINDING OF FACT THAT ASSESSEE WAS AN INVESTOR A ND NOT A TRADER DEALING IN SHARES.IN OUR OPINION HIS ORDER DOES NOT SUFFER FROM ANY LEGAL INFIRMITY. AS THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT ASSESSEE WAS CARRYING OUT BUSINESS OF SHARES IN SYSTEMATIC MANNER,SO,CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.1 AGAINST HIM( AO). 3. THE SECOND GROUND IS ABOUT GIVING CONSEQUENTIAL EFFECT TO THE UNABSORBED BROUGHT FORWARD SHORT TERM CAPITAL LOSS (STCL). WHILE FINALISING TH E ASSESSMENT, AO HAD NOT ALLOWED SET OFF OF BROUGHT FORWARD UNABSORBED STCL FOR THE ASSESSMENT YEAR 2007-08. ASSESSEE CHALLENGED HIS ORDER BEFORE THE FAA,WHO FO UND THAT AO HAD NOT ALLOWED THE SET OFF BECAUSE HE HAD ASSESSED THE INCOME FROM SALE OF SHA RES UNDER THE HEAD BUSINESS INCOME. HE DIRECTED THE AO TO TREAT INCOME EARNED BY THE ASSES SEE FROM SALE OF SHARES AS INCOME FROM STCG 3 ITA NO. 644/MUM/2012(AY-2008-09) DEEPANKAR M.K.MOGH A AND TO ALLOW SET OFF OF UNABSORBED BROUGHT FORWARD STCL. HE FURTHER DIRECTED THE AO TO VERIFY THE AMOUNT OF UNABSORBED BROUGHT FORWARD STCL FROM THE RECORDS. BEFORE US,DR SUPPORTED THE ORDER OF THE AO.AR RELIED UPON THE ORDER OF THE FAA . WE HAVE,IN PARA 2.4.,ALREADY UPHELD THE ORDER OF TH E FAA AND HAVE ENDORSED HIS VIES THAT ASSESSEE HAS TO BE TREATED AN INVESTOR AND NOT A TRADER.THUS ,WE HAVE HELD THAT INCOME OF THE ASSESSEE FROM SALE OF SHARES SHOULD NOT BE TREATED AS BUSINESS IN COME.THEREFORE,IN OUR OPINION DIRECTION ISSUED BY THE FAA TO THE AO TO ALLOW SET OFF OF BROUGHT FO RWARD STCL,IS AS PER LAW.CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.2 AGAINST THE AO. AS A RESULT APPEAL FILED BY THE AO STAND DISMISSED. 6 )7 62 8 ( 9 6$ 1 $ 2 :. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH SEPTEMBER, 2013 (%5 1 3+ % & ; <( 13 , 2 2013 1 4 = SD/- SD/- ( . / D. MANMOHAN ) ( $%&' $%&' $%&' $%&' / RAJENDRA) !' !' !' !' / VICE-PRESIDENT % % % % () () () () /ACCOUNTANT MEMBER / MUMBAI, <( /DATE: 13.09 . 2013 SK (%5 (%5 (%5 (%5 1 11 1 .2> .2> .2> .2> ?%>+2 ?%>+2 ?%>+2 ?%>+2 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / ,- 2. RESPONDENT / ./,- 3. THE CONCERNED CIT(A)/ @ A , 4. THE CONCERNED CIT / @ A 5. DR D BENCH, ITAT, MUMBAI / >B 4 .2 , . . & . 6. GUARD FILE/ 4 C / >2 .2 //TRUE COPY// (%5 / BY ORDER, / $ DY./ASST. REGISTRAR , /ITAT, MUMBAI