DCIT CIR 20(3), MUMBAI V. UMESH P. SHAH, MUMBAI

ITA 6486/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75270 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH, MUMBAI , BEFORE SHRI VIJAY PAL RAO , JM & SHRI N.K.BILLAIYA , AM IT A NO. 6486 / MUM/ 20 1 0 ( ASSESSMENT YEAR : 20 06 - 20 07 ) DCIT - 20(3), MUMBAI VS. SHRI UMESH P. SHAH, 5023, KRISHNA KAVERI , BHARDWADI ROAD, OPP. S.V.ROAD, ANDHERI(W), MUMBAI - 400 058 PAN/GIR NO. : AA OPS 8705 N ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. RAVI PRAKASH /ASSESSEE BY : MR. HARIOM TULSYAN DATE OF HEARING : DATE OF PRONOUNCEMENT : O R D E R PER VIJAY PAL RAO , J M : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 1 0 - 6 - 2010, PASSED BY THE LEARNED CIT(A) - 31 , MUMBAI , PERTAINING TO ASSESSMENT YEAR 20 06 - 20 07 . 2 . THE REVENUE IN ITS APPEAL HAS RA ISED THE FOLLOWING GROUNDS : - 1. THE L EARNED CIT(A) HAS ERRED IN DIRECTING THE AO TO ASSESS THE INCOME OF RS. 48,41,344/ - AS SHORT TERM CAPITAL GAIN AS AGAINST ASSESSED BY THE AO AS BUSINESS INCOME. ITA NO. 6486 /1 0 2 3 . SUCCINCTLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE IS AN INDIVIDUAL AND DERIVING INCOME MAINLY BY WAY OF INVESTMENT AND TRADING IN SHARES AND SECURITIES. THE ASSESSEE HAS OFFERED SPECULATION PROFIT FROM THE INTRA - DAY SPECULATIVE TRANSACTIONS AS WELL AS DERIVATIVE TRANSACTIONS AND ALSO OFFERED SHOR T TERM CAPITAL GAIN FROM THE PURCHASE AND S ALE OF SHARES ON DELIVERY BASE. THE AO OBSERVED THAT THE ASSESSEE HAS CARRIED OUT SUBSTANTIAL ACTIVITY OF SHARE TRANSACTIONS UTILIZING BORROWED FUNDS FOR INVESTMENT IN SHARES AND VOLUME OF TRANSACTIONS IS SUBSTANT IALLY HIGH. THEREFORE, ON THE BASIS OF THESE FACTS, THE AO OBSERVED THAT THE ASSESSEE HAS UNDERTAKEN ALL THESE TRANSACTIONS IN A VERY SYSTEMATIC AND CONSISTENCY MANNER, WHICH CANNOT BE TREATED AS INVESTMENT ACTIVITY. FURTHER, THE AO FOUND THAT THE ASSESSEE IS NOT HAVING HIS OWN DEMAT ACCOUNT BUT THE SHARES ARE KEPT IN THE DEMAT ACCOUNT OF THE BROKER. ACCORDINGLY, THE AO TREATED THE SHORT TERM CAPITAL GAIN OFFERED BY THE ASSESSEE AS BUSINESS INCOME. 4 . IN APPEAL , THE CIT(A) HAS NOTED THE FACT THAT THE ASSES SEE IS ENGAGED IN THE ACTIVITY OF SALE AND PURCHASE OF SHARES FOR A LONG PERIOD OF TIME. THE SURPLUS ARISING FROM THE SHARE TRANSACTION ON DELIVERY BASIS HAS BEEN TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOL DING, WHEREAS ALL THE NON - DELIVERY TRANSACTIONS ARE TREATED AS HIS BUSINESS TRANSACTIONS. THE CIT(A) FURTHER NOTED THAT THE NATURE OF THE TRANSACTIONS AND THE INCOME EARNED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR ARE SAME AS FOUND IN HIS EARLIER A SSESSMENT YEARS. SINCE THE CLAIM OF THE ASSESSEE ITA NO. 6486 /1 0 3 REGARDING CAPITAL GAIN HAS BEEN ACCEPTED BY THE AO IN THE EARLIER ASSESSMENT YEAR, THEREFORE, FOLLOWING THE DECISION OF THIS TRIBUNAL AS WELL AS THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE C ASE OF CIT VS. GOPAL PUROHIT , (2010) 228 CTR 582 , THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES THAT THE ASSESSEE HAS PURCHASED 19 SHARES OUT OF THE TOTAL 34 SHARE TRANSACTIONS. THE CIT(A) HAS FURTHER NOTE D THAT THERE IS NO REPETITIVE TRANSACTION IN THE SAME SCRIPTS AND IN THE TOTALITY OF THESE FACTS OF THE CASE IT DOES NOT SHOW THAT THE ASSESSEE IS TRADING IN THE SCRIPTS SO FAR AS GIVING RISE TO THE CAPITAL GAIN. 6. BEFORE US, THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE IS A FULLTIME TRADER AS THERE IS NO OTHER BUSINESS. HE HAS HEAVILY R ELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE AO HAS RECORDED THE FACTS AND FOUND THAT THE ASSESSEE DOES NOT HAVE A SEPARATE DEMAT ACCOUNT FOR THE TRADING ACTIVI TY AND FOR INVESTMENT ACTIVITY IN SHARE . I N FACT, THE TRANSACTION OF SHARES IN RESPECT OF WHICH CAPITAL GAIN HAS BEEN DECLARED BY THE ASSESSEE HAVE NOT BEEN ROUTED THROUGH THE DEMAT ACCOUNT OF THE ASSESSEE BUT THROUGH THE DEMAT ACCOUNT OF THE BROKER. HE HA S FURTHER SUBMITTED THAT THE ACTIVITY OF SHARE TRANSACTION IS THE SOLE BUSINESS OF THE ASSESSEE FOR EARNING THE LIVELIHOOD, THEREFORE, WHEN THE ASSESSEE HAS ALSO CARRIED OUT SPECULATIVE TRANSACTIONS, THEN SPARING FEW TRANSACTIONS FOR THE PURPOSE OF CAPITAL GAIN IS NOT ACCEPTABLE. THE PURCHASE IS MADE SOLELY WITH INTENTION TO RESALE AT PROFIT AND NOT FOR LONG TERM APPRECIATION FOR EARNING DIVIDEND OR INTEREST. THE PERIOD OF ITA NO. 6486 /1 0 4 HOLDING IS ALSO VERY SHORT, WHICH ESTABLISHES THE INTENTION OF THE ASSESSEE THAT THE TRANSACTIONS ARE CARRIED OUT FOR EARNING THE PROFIT IN THE SHORT PERIOD. THUS, THE LEARNED DR HAS CONTENDED THAT THE ASSESSEE USED THE BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN SHARES AND ALSO KEPT HUGE AMOUNT OUTSTANDING WITH THE BROKER FOR TRANSACT IONS IN SHARES WHICH GOES TO PROVE THAT THE ACTIVITY OF THE ASSESSEE ARE TRADING IN NATURE. 7. L EARNED AR APPEARING FOR THE ASSESSEE , IN OPPUGNATION TO THE AFORESAID PROPONEMENTS , HAS SUBMITTED THAT THERE IS NO REQUIREMENT OF KEEPING A SEPARATE DEMAT ACC OUNT BY THE ASSESSEE WHEN THE ASSESSEE IS HAVING TWO SEPARATE PORTFOLIOS ONE FOR TRADING AND OTHER FOR INVESTMENT, THE SHARES ARE KEPT IN THE DEMAT ACCOUNT OF THE BROKER THROUGH WHOM THE TRANSACTIONS ARE CARRIED OUT. IT IS HIS FURTHER SUBMISSION THAT THE NUMBER OF TRANSACTIONS AND SCRIPTS ARE VERY FEW OUT OF WHICH THE ASSESSEE HAS DECLARED THE SHORT TERM CAPITAL GAIN. THEREFORE, IT IS FACTUALLY INCORRECT THAT THE FREQUENCY AND NUMBER OF TRANSACTIONS ARE HIGH. HE HAS FILED THE DETAILS OF THE TRANSACTIONS O F PURCHASE AND SALE OF SHARES AND SUBMITTED THAT THE AO HAS TREATED ONE TRANSACTION, WHICH HAS BEEN EXECUTED ON THE ELECTRONIC SYSTEM OF THE STOCK EXCHANGE IN VARIOUS SEGMENTS AS PER THE AVAILABILITY AND DEMAND AS SEVERAL TRANSACTIONS, WHEREAS IT IS ONLY O NE TRANSACTION OF A SCRIPT. THUS, LEARNED AR HAS SUBMITTED THAT THE FINDING OF THE AO IS BASED ON INCORRECT ASSUMPTION OF FACT. HE HAS REFERRED TO THE BALANCESHEET OF THE ASSESSEE AND SUBMITTED THAT THE SHARES SHOWN IN THE INVESTMENT AS ON ITA NO. 6486 /1 0 5 31 - 3 - 2006 ARE TO THE TUNE OF RS. 69,85,976/ - . HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS SEPARATELY SHOWN STOCK - IN - TRADE OF SHARES AT RS. 1,51,00,000/ - . THEREFORE, THE OUTSTANDING TO THE BROKER AND OTHER LOAN AMOUNT IS LESS THAN THE STOCK - IN - TRADE OF THE ASSESSEE AS ON 31 - 3 - 2006 . LEARNED AR HAS FURTHER POINTED OUT THAT EVEN IN THE SUBSEQUENT ASSESSMENT YEARS FOR 2007 - 08 & 2008 - 09 , THE CLAIM OF THE ASSESSEE OF CAPITAL GAIN HAS BEEN ACCEPTED BY THE AO IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) . 7.1 AS REGARDS TH E OBJECTION OF THE LEARNED DR THAT THE ASSESSEE IS NOT HAVING HIS OWN DEMAT ACCOUNT, THE LEARNED AR RELIED UPON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NIRAJ AMIDHAR SURTI, REPORTED IN (2012) 347 ITR 149 (GUJ.) . FURTHER, ON TH E POINT OF BORROWED FUND, LEARNED AR HAS ALSO RELIED UPON THE FOLLOWING DECISIONS : - I) MAHENDRA C. SHAH VS. ADCIT, REPORTED IN (2011) 140 TTJ 16 (MUM) ; AND II) NARENDRA GEHLAUT VS. JCIT , REPORTED IN (2012) 52 SOT 255 (DELHI) . AND SUBMITTED THAT THE TRIB UNAL IN THESE DECISIONS HAS HELD THAT EVEN BORROWED FUNDS CAN BE USED FOR THE PURPOSE OF INVESTMENT AND THE CLAIM OF THE ASSESSEE CANNOT BE DENIED ONLY BECAUSE THE ASSESSEE HAS USED THE BORROWED FUNDS. LEARNED AR HAS ALSO POINTED OUT THAT THE AO HAS RELIED UPON A CIRCULAR DATED 16 TH MAY, 2006, WHICH IS NOT A CIRCULAR ISSUED BY THE CBDT BUT ONLY A DRAFT INSTRUCTION FOR INVITING SUGGESTION, OBJECTION OF THE STAKE HOLDERS AND SUBSEQUENTLY, A CIRCULAR ITA NO. 6486 /1 0 6 WAS ISSUED WHICH IS IN FAVOUR OF THE ASSESSEE. THUS, LEARNED AR HAS SUPPORTED THE FINDING S RECORDED IN THE ORDER OF THE CIT(A) . 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS PERUSED THE RELEVANT MATERIAL ON RECORD. THE AO HAS DENIED THE CLAIM OF THE SHORT TERM CAPITAL GAIN MAINLY ON THE REASON THAT THE A SSESSEE IS NOT HAVING HIS OWN DEMAT ACCOUNT AND THE ASSESSEES ONLY BUSINESS IS DEALING IN SHARES. FURTHER, THE AO HAS NOTED THAT THE ASSESSEE HAS ALSO USED BORROWED FUNDS FOR PURCHASE AND SALE OF SHARES. AS REGARDS, THE OWN DEMAT ACCOUNT, WE DO NOT FIND A NY JUSTIFICATION IN DENYING THE CLAIM OF THE SHORT TERM CAPITAL GAIN ON THE GROUND THAT THE ASSESSE IS NOT HAVING HIS OWN DEMAT ACCOUNT BUT HIS SHARES ARE KEPT IN DEMAT ACCOUNT OF THE BROKER. IT IS THE NATURE OF TRANSACTION, WHICH IS MATERIAL FOR DECIDING THE ISSUE AND NOT THE DEMAT ACCOUNT AS TO WHETHER I T BELONGS TO ASSESSEE OR BROKER. THE HON BLE GUJARAT HIGH COURT IN THE CASE OF NIRAJ AMIDHAR SURTI (SUPRA) HAS DEALT WITH THE SITUATION WHETHER THE SHARES WERE HELD BY THE CONSULTANT AS SECURITY TOWARDS LOA N ADVANCE TO THE ASSESSEE AND HELD THAT THIS IS NOT RELEVANT FACTOR FOR DECIDING THE CHARACTER OF THE TRANSACTION TO BE CAPITAL GAIN OR AN ADVENTURE IN NATURE OF BUSINESS OR TRADE. FURTHER, THE TRIBUNAL IN THE CASE OF MAHENDRA C. SHAH (SUPRA) AND IN THE CA SE OF NARENDRA GEHLAUT (SUPRA) HAS CONSIDERED THE ISSUE OF BORROWED CAPITAL FOR THE PURPOSE OF INVESTMENT IN FAVOUR OF THE ASSESSEE. 8.1 WITHOUT GOING INTO THESE CONTROVERSIES, THE MATTER CAN BE DECIDED ON THE SHORT POINT THAT WHEN THERE IS NO CHANGE IN T HE FACTS AND ITA NO. 6486 /1 0 7 CIRCUMSTANCES OF THE CASE AND, PARTICULARLY, THE DEMAT ACCOUNT WITH THE BROKER AS WELL AS BORROWED FUND, THE REVENUE HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN THE EARLIER THREE YEARS AS WELL AS IN THE SUBSEQUENT TWO YEARS I.E. 2007 - 08 & 2008 - 0 9, WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 143(3). WHEN THE DEPARTMENT HAS ACCEPTED THE CLAIM OF THE ASSESSEE WITHOUT ANY CHANGE IN THE FACT, PARTICULARLY, WITH REGARD TO THE DEMAT ACCOUNT AND BORROWED FUND AND NATURE OF TRANSACTIONS, THEN THE RUL E OF CONSISTENCY DEMANDS THAT THE AO CANNOT TAKE A DIVERGENT VIEW IN A PARTICULAR ASSESSMENT YEAR WITHOUT JUSTIFYING THE REASONS BEING SUBSTANTIAL CHANGE IN THE FACTS AND CIRCUMSTANCES IN THAT YEAR . ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A) AND THE SAME IS UPHELD. 9 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 / 01 / 201 4 . /01/2014 SD/ - ( ) ( N.K.BILLAIYA ) SD/ - ( ) ( VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 30 / 01 /201 4 /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RE SPONDENT. 3. / THE CIT(A) , MUMBAI. ITA NO. 6486 /1 0 8 / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//