ACIT CIR 13(3), MUMBAI V. MILAN D. SHAH, MUMBAI

ITA 6526/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84655 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 6526/MUM/2010 ASSESSMENT YEAR: 2007-08 ACIT 13(3) MUMBAI VS. SHRI MILAN D. SHAH 12B SAMBHAV TIRTH, 12- B/B.D. ROAD, HAJIALSO, MUMBAI 400 026 PAN: AAEPS 0574 R (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI RAJAN VORA REVENUE BY : SHRI AKHILENDRA YADAV DATE OF HEARING : 27 . 11 . 2014 DATE OF ORDER : 19 . 1 2 .2014 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN PREFERRED BY THE REV ENUE, AGAINST ORDER DATED 21.06.2010 PASSED BY THE LD.CIT(A)-24, MUMBAI, FOR THE QUANTUM OF THE ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2007-08 ON THE FOLLOWING GROUNDS:- THE LD.CIT(A), ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, HAS ERRED IN DIRECTING THE AO T TREAT SALE OF SHARES AND MUTUAL FUNDS AS STCG AND LTCGT AND NOT THE INCOME FROM PRO FITS AND GAINS OF BUSINESS. THE LD.CIT(A), ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, HAS FAILED TO APPRECIATE THE NATURE, FREQUENCY AND MAGNITUDE OF THE TRANSACTIONS IN SHARES AND MUTUAL FUNDS. ITA NO. 6526/MUM/2010 SHRI MILAN D. SHAH ASSESSMENT YEAR: 2007-08 2 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS E IS PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF TRADING IN SHARE A ND SECURITIES AND PROPERTY DEVELOPMENT. DURING THE RELEVANT ASSESSMEN T YEAR, THE ASSESSE HAD SHOWN SHORT TERM CAPITAL GAIN ON SALE OF SHARES FOR SUMS AMOUNTING TO RS.46,32,612/- AND LONG TERM CAPITAL GAIN ON SAL E OF SHARES AND MUTUAL FUNDS AT RS.11,59,897/-. THE ASSESSING OFFIC ER TREATED THE SHORT TERM CAPITAL GAIN OF RS.46,32,612/- AS BUSINESS INC OME. THE MAIN REASON FOR SUCH A TREATMENT WAS THAT, IN THE EARLIE R ASSESSMENT YEARS, THAT IS, IN A.YS. 2005-06 AND 2006-07, SUCH GAIN ON SHARE OF SALES HAVE BEEN TREATED AS BUSINESS INCOME. HE NOTED THAT IN T HIS YEAR ALSO, THE ASSESSEE HAD PURCHASED AND SOLD SHARES OF RS.3,45,2 5,074/- AND CARRIED OUT 131 TRANSACTIONS WITH AN AVERAGE HOLDING PERIOD OF LESS THAN SIX MONTHS. RELEVANT CHART FOR THE PERIOD OF HOLDING AN D NUMBER OF TRANSACTIONS WAS AS UNDER:- S. NO. PERIOD OF HOLDING (IN MONTHS) NO. OF TRANSACTIONS VOLUME OF TRANSACTIONS (RS.) PERCENTAGE OF TRANSACTIONS IN VOLUME PERCENTAGE OF TRANSACTIONS IN NUMBER 1 0 (SAME DAY) 2 12534.95 0.04 1.37 2 0 - 1 58 23455400.08 67.94 39.73 3 1 - 2 4 1742827.84 5.05 2.74 4 2 - 3 18 748480.96 2.17 12.33 5 3 - 4 17 640055.56 1.85 11.64 6 4 - 5 15 1196506.89 3.47 10.27 7 5 - 6 17 3273457.06 9.48 11.64 8 7 - 12 15 3455810.62 10.01 10.27 PERCENTAGE OF TRANSACTIONS IN TERMS OF VALUE AND NU MBER CARRIED OUT DURING THE PERIOD OF 6 MONTHS: TOTAL 146 34525073.96 100% 100% ITA NO. 6526/MUM/2010 SHRI MILAN D. SHAH ASSESSMENT YEAR: 2007-08 3 THUS, FOLLOWING THE EARLIER YEAR PRECEDENCE AND THE FINDINGS GIVEN BY THE AO, IN THE EARLIER YEARS, HE TREATED THE SHORT TERM CAPITAL GAIN AS TAXABLE AS BUSINESS INCOME. 3. BEFORE THE LD.CIT(A), THE ASSESSE SUBMITTED THAT THE SHARES WERE HELD AS INVESTMENTS AND ASSESSEE HAS MAINTAINED TWO SETS OF BOOKS OF ACCOUNT, ONE FOR THE REGULAR CLIENTS AND OTHER FOR THE PURPOSE OF INVESTMENTS. IN THE EARLIER YEARS, THAT IS, A.YS. 2 005-06 AND 2006-07, THE LD.CIT(A) HAS ACCEPTED THE ASSESSEES CONTENTIO N BY TREATING IT TO BE A SHORT TERM CAPITAL GAIN AND EVEN THE TRIBUNAL IN A.Y. 2005-06 HAS ACCEPTED THIS STAND OF THE ASSESSEE. OTHER MAIN CON TENTION OF THE ASSESSES BEFORE THE CIT(A) WERE THAT: (I) ALL THE TRANSACTION WERE DELIVERY BASED AND ASS ESSE HAS EARN HUGE DIVIDEND INCOME OF RS.23,98,380/-; (II) THE ASSESSE HAS MAINTAINED TWO PORTFOLIOS, ONE FOR THE PURPOSE OF BUSINESS AND OTHER FOR THE PURPOSE OF INVESTMENT; (III) THE ASSESSE HAS NOT TAKEN ANY BORROWINGS FOR THE PURPOSE OF INVESTMENT IN SHARES AND ONLY THE SURPLUS FUND HAVE BEEN INVESTED IN SHARES. (IV) VARIOUS DECISION WERE RELIED UPON THAT IN SUCH CIRCUMSTANCES, THE GAINS FROM SALE OF SHARES IS TO BE TREATED AS BUSIN ESS INCOME. THE ASSESSEES DETAILED SUBMISSIONS AND VARIOUS CAS E LAWS RELIED UPON, HAS BEEN INCORPORATED BY THE LD.CIT(A) FROM PAGES 3 TO 14 OF THE APPELLATE ORDER. THE LD.CIT(A) HELD THAT, SIMILAR I SSUE HAD ARISEN IN A.Y. 2005-06 AND 2006-07 ALSO, WHEREIN THE ASSESSEES ST AND THAT GAIN ON SALE OF SHARES SHOWN UNDER THE HEAD INVESTMENT IS T O BE TAXED AS SHORT TERM CAPITAL GAIN HAS BEEN ACCEPTED BY THE TRIBUNAL IN A.Y. 2005-06. ITA NO. 6526/MUM/2010 SHRI MILAN D. SHAH ASSESSMENT YEAR: 2007-08 4 4. BEFORE US, THE LD. DR STRONGLY RELIED UPON THE O RDER OF THE AO AND SUBMITTED THAT EVEN THOUGH THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE HOWEVER, LOOKING TO THE FACTS OF THE CASE, THE GAIN FROM SALE OF SHARES WHICH WERE MOSTLY HELD FOR LESS THAN SIX MONTHS IS TO BE TREATED AS BUSINESS INCOME. 5. ON THE OTHER HAND, LEARNED COUNSEL SUBMITTED THA T NOT ONLY THE TRIBUNAL HAS DECIDED ISSUE IN FAVOUR OF THE ASSESSE IN THE A.Y. 2005-06 AND 2006-07 ON SIMILAR SET OF FACTS, BUT ALSO THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF THE ASSESSEE ITSELF, HAS CONFI RMED SAID ORDER OF THE TRIBUNAL. THERE IS NO DIFFERENCE IN THE FACTS IN TH IS YEAR AS WAS PREVALENT IN THE EARLIER YEARS. IN FACT THE NUMBER OF TRANSAC TIONS UNDERTAKEN IN THIS YEAR ARE COMPARATIVELY LESS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AND ALSO THE O RDER OF THE TRIBUNAL AND THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF THE ASSESSE. ON THE PERUSAL OF THE FACTS FOR THE A.Y. 2005-06, IT I S SEEN THAT ASSESSE HAS DISCLOSED SHORT TERM CAPITAL GAIN OF RS.46,32,117/- AND IN THAT YEAR ALSO THE MAIN ALLEGATION OF THE AO WAS THAT THE ASSESSEE HAS CARRIED OUT SEVERAL TRANSACTIONS INLARGE QUANTITY OF SHARES. TH E ASSESSEES CONTENTION WAS THAT, IT HAS MAINTAINED SEPARATE POR TFOLIOS, ONE FOR THE INVESTMENT AND OTHER FOR THE PURPOSE OF BUSINESS. T HE INVESTMENTS WERE MADE FROM SURPLUS FUND AND ASSESSE HAS EARNED SUBST ANTIAL DIVIDEND INCOME AND THEREFORE, SHARES SHOULD BE TREATED AS I NVESTMENT ON WHICH INCOME IS TO BE ASSESSED UNDER THE HEAD SHORT TERM CAPITAL GAIN. THE LD.CIT(A) IN A.Y. 2005-06 HAD DELETED THE ADDITION AFTER DETAIL DISCUSSION. THIS ORDER OF THE LD.CIT(A) HAS ALSO BE EN AFFIRMED BY THE ITA NO. 6526/MUM/2010 SHRI MILAN D. SHAH ASSESSMENT YEAR: 2007-08 5 TRIBUNAL IN A DETAILED MANNER, AFTER DISCUSSING ALL THE FACTS AND THE RELEVANT DECISIONS. THE ORDER OF THE TRIBUNAL WAS A GAIN CHALLENGED BY THE REVENUE BEFORE THE HONBLE BOMBAY HIGH COURT. T HE HONBLE HIGH COURT HAS DISMISSED THE REVENUES APPEAL, VIDE JUDG MENT AND ORDER DATED 04.08.2011. SIMILARLY IN A.Y. 2006-07 ALSO ON SIMILAR FACTS THE TRIBUNAL HAS REJECTED THE REVENUES STAND AND ALLOW ED THE APPEAL IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE GAIN FRO M SALE OF SHARES IS TO BE TAXED UNDER THE HEAD SHORT TERM CAPITAL GAIN. IN THIS YEAR ALSO THE DECISION OF THE TRIBUNAL WAS AGAIN SUBJECT MATTER O F APPEAL BY THE REVENUE BEFORE THE HONBLE HIGH COURT, WHERE AGAIN THE REVENUES APPEAL HAS BEEN DISMISSED. THUS, CONSISTENT WITH TH E EARLIER YEARS PRECEDENCE WHICH IS ALSO APPLICABLE ON THE FACTS OF THE PRESENT CASE, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND REJECT THE GR OUND RAISED BY THE REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DECEMBER, 2014. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.12.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.