PARESH D. SHAH, MUMBAI V. JTCIT RG 12(2), MUMBAI

ITA 6602/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5158 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJIT KUMAR SINHA
• Keywords: Business income
• Section: 14A

Judgement Text

ITA NO. 6602/MUM/2009 ASSESSMENT YEAR : 2006-07 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, (HONBLE PRESIDENT) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 6602/MUM/2009 ASSESSMENT YEAR : 20062007 DATE OF HEARING : 4.8.2010 PARESH D. SHAH ...... APPELLANT FLAT NO.23, SAHAKAR BUILDING OPP. SYDENHAM COLLEGE CHURCHGATE `B, MUMBAI 400 020 PAN AVOPS2489Q VS. JT. COMMISSIONER OF INCOME TAX .. RESP ONDENT RANGE 12(2), MUMBAI APPELLANT BY : SHRI RAKESH JOSHI RESPONDENT BY : SHRI AJIT KUMAR SINHA O R D E R PER PRAMOD KUMAR, ACCOUNTANT MEMBER : 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED I NTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 16 TH NOVEMBER 2009, FOR ASSESSMENT YEAR 2006-07. 2. IN GROUND NO.1, THE GRIEVANCE OF THE ASSESSEE IS AS FOLLOWS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F LEARNED ITA NO. 6602/MUM/2009 ASSESSMENT YEAR : 2006-07 PAGE 2 OF 6 ASSESSING OFFICER IN TREATING THE SHORT TERM CAPITA L GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME WITHOUT CONSID ERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE SHORT ISSUE REQUIRING OUR ADJUDICATION IN TH IS CASE IS WHETHER THE INCOME OF THE ASSESSEE FROM SALE OF SHARES IS TO BE TREATED AS INCOME FROM BUSINESS OR AS CAPITAL GAINS. LEARNED COUNSEL FOR T HE ASSESSEE SUBMITS THAT THE ABOVE ISSUE IS NOW COVERED, IN FAVOUR OF ASSESS EE, BY TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06, (ITA NO. 2232/MUM./2009; ORDER DATED 14 TH JANUARY 2010). IT IS POINTED OUT THAT, AS NOTED BY THE ASSESSING OFFICER IN PARAGRAPH 4.1 OF THE ASSESSMENT ORDER ITSELF, THERE IS NO CHANGE IN THE ASSESSEES ACTIV ITY AS COMPARED TO THE PRECEDING YEAR ( I.E. AY 2005-06) AND THAT THE ASSESSING OFFICER HAS, FOR THE REASONS SET OUT IN THE ASSESSMENT ORDER FOR THE ASS ESSMENT YEAR 2005-06, HELD THAT THE INCOME ON SALE OF SHARES IS IN THE NA TURE OF BUSINESS INCOME. IT IS ALSO POINTED OUT THAT IN THE IMPUGNED ORDER THE CIT(A) HAS ALSO HELD THAT THE INCOME ON SALE OF SHARE IS BUSINESS INCOME IN N ATURE BUT IN DOING SO HE HAS MAINLY FOLLOWED HIS ORDER FOR THE ASSESSMENT YE AR 2005-06, WHICH HAS SINCE BEEN REVERSED BY THE TRIBUNAL. LEARNED COUNS EL THEN TAKES US THROUGH THE TRIBUNALS ORDER FOR THE ASSESSMENT YEAR 2005-0 6 WHEREIN IT IS NOTED THAT SHARES HELD BY THE ASSESSEE WERE SOLD IN THE SUBSEQ UENT YEAR , I.E. ASSESSMENT YEAR BEFORE US NOW, AND THAT THE SAID SH ARES WERE REQUIRED TO BE TREATED AS INVESTMENTS. IT IS THUS CONTENDED THAT T HE SHARES WHICH WERE SOLD BY THE ASSESSEE IN THE CURRENT YEAR WERE HELD TO BE INVESTMENTS OF THE ASSESSEE, AND THE SALE OF THESE SHARES CAN ONLY GIV E RISE TO CAPITAL GAINS. WE ARE, THEREFORE, URGED TO VACATE THE FINDINGS OF THE AUTHORITIES BELOW TO THE EFFECT THAT THE INCOME ON SALE OF THESE SHARES IS R EQUIRED TO BE BUSINESS INCOME. 3. LEARNED DEPARTMENTAL REPRESENTATIVE RATHER DUTIF ULLY RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW, AND FAILS TO BRING ON RECORD ANY MATERIAL TO CONTROVERT THE ABOVE SUBMISSIONS OF THE ASSESSEE. ITA NO. 6602/MUM/2009 ASSESSMENT YEAR : 2006-07 PAGE 3 OF 6 4. THE PLEA OF THE ASSESSEE MERITS ACCEPTANCE. THE ISSUE IN APPEAL IS INDEED COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF A CO-ORDINATE BENCH OF THIS TRIBUNAL, RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 (SUPRA), WHEREIN THE TRIBUNAL HAS, INTER AL IA, OBSERVED AS FOLLOWS:- 5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THEM CAREFULLY. WE HAVE ALSO PERUSED THE RELEVANT M ATERIAL ON RECORD AND FIND THAT THE ASSESSEE DESERVES TO SUCCE ED IN HIS APPEAL. THE ASSESSEE WAS DOING TRADING SHARES AS W ELL AS INVESTMENT. BOTH THESE ACTIVITIES WERE DONE IN PAST AND THE PROFIT ON ACCOUNT OF TRADING WAS SHOWN AS BUSINESS INCOME AND PROFIT ON ACCOUNT OF INVESTMENT WAS SHOWN AS STCG O R LTCG AS THE CASE MAY BE. COPY OF THE ACCOUNTS FOR AY 2003-0 4 AND 2004-05 ARE PLACED ON RECORD WHICH CONFIRMS BOTH TH ESE TRANSACTIONS DONE BY THE ASSESSEE. 5.1 DURING THE YEAR THE ASSESSEE HAS STOPPED TRADIN G ACTIVITY AND WHATEVER THE STOCK WAS THERE, MAJOR PORTION OF THE SAME WAS SOLD DURING THE YEAR UNDER CONSIDERATION AND TH E BUSINESS PROFIT WAS OFFERED FOR TAXATION. IN FACT THERE WAS AN OPENING STOCK OF RS. 2,69,87,538/- AND OUT OF THE SAME WAS SOLD AT RS. 1,80,98,024/ AND REMAINING STOCK OF RS.88,89,514/- WAS TRANSFERRED TO INVESTMENT ACCOUNT. NO SALE WHATEVER WAS EFFECTED ON ACCOUNT OF TRANSFER TO INVESTMENT DURIN G THE YEAR UNDER CONSIDERATION. SALE OF STOCK OF RS. 1,80,98, 024/- HAS BEEN OFFERED AS BUSINESS INCOME. THE STOCK TRANSFER RED TO INVESTMENT ACCOUNT WAS SOLD IN SUBSEQUENT YEAR. THE DETAILS TO THIS EFFECT ARE PLACED AT PAGE 29 OF THE PAPER BOOK . THERE IS NO BAN TO DO BOTH THESE ACTIVITIES TOGETHER I.E. TRADI NG IN SHARE AND INVESTMENT IN SHARE. THERE IS A BOARD CIRCULAR ALSO IN THIS REGARD. THEREFORE, NOT ACCEPTING THE EXPLANATION OF THE ASSESSEE AT THE END OF THE AO OR AT THE END OF THE CIT(A), I N OUR CONSIDERED VIEW WAS NOT JUSTIFIED. THE LD COUNSEL O F THE ASSESSEE HAS SUCCESSFULLY DEMONSTRATED THAT WHATEVE R THE SALES WERE MADE THAT WERE ON ACCOUNT OF INVESTMENT AND DE TAILS WERE PLACED ON RECORD. THEREFORE, IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT THE CAPITAL GAIN OFFERE D ON ACCOUNT OF SALE OF INVESTMENT WAS CORRECT AND THE AO SHOULD HAVE ACCEPTED THE SAME. ACCORDINGLY, WE DIRECT THE AO TO CONSIDER ITA NO. 6602/MUM/2009 ASSESSMENT YEAR : 2006-07 PAGE 4 OF 6 THE PROFIT SHOWN ON ACCOUNT OF SALE OF INVESTMENT A S STCG OR LTCG AS THE CASE MAY BE. WE ORDER ACCORDINGLY. 5. WE HAVE ALSO NOTED THAT IT IS AN ADMITTED POSITI ON BOTH BY THE ASSESSING OFFICER AS ALSO BY THE CIT(A) THAT THE MATERIAL FACTS OF THE PRESENT ASSESSMENT YEAR ARE THE SAME AS OF THE IMME DIATELY PRECEDING ASSESSMENT YEAR WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCH. AS A MATTER OF FACT, THE SHARES S OLD IN THE CURRENT YEAR ARE CARRIED FORWARD FROM THE EARLIER YEAR, AND, VIDE TR IBUNALS ORDER FOR THE SAID YEAR, THESE SHARES WERE HELD AS INVESTMENTS. IN THI S VIEW OF THE MATTER, THE SALE OF THESE SHARES CANNOT GIVE RISE TO AN INCOME TAXABLE UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION; T HE SAID INCOME CAN ONLY BE TAXED AS CAPITAL GAINS. IN VIEW OF THESE DISCUSSI ONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO TAX THE INCOME ON SALE OF SHARES AS CAPITAL GAIN S. WE DIRECT SO. 6. GROUND NO. 2, WHICH RELATES TO DISALLOWANCE OF R S RS.3,73,311/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961, WAS NOT P RESSED BEFORE US. GROUND NO. 2 IS THUS DISMISSED AS NOT PRESSED. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. PRONOUNCED IN THE OPEN COURT TODAY ON THIS 20 TH OF AUGUST 2010. SD/XX SD/XX (R.V. EASWAR) (PRAMOD KUMAR) PRESIDENT AC COUNTANT MEMBER MUMBAI; 20 TH DAY OF AUGUST 2010. ITA NO. 6602/MUM/2009 ASSESSMENT YEAR : 2006-07 PAGE 5 OF 6 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX, MUMBAI 4. COMMISSIONER (APPEALS) , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, C BENCH, ITAT, MUMB AI 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR PRADEEP J. CHOWDHURY INCOME TAX APPELLATE TRIBUNAL SR. PRIVATE SECRETARY MUMBAI BENCHES, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 16.8.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 17.8.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 17.8.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 17.8.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 17.8.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 20.8.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 20.8.2010 SR.PS ITA NO. 6602/MUM/2009 ASSESSMENT YEAR : 2006-07 PAGE 6 OF 6 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER