DCIT 9(2), MUMBAI V. VIJAY AGARWAL, MUMBAI

ITA 6655/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92448 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 29-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: BRIJMOHAN P AGARWAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , BEFORE SHRI G. S. PANNU , A M AND SHRI AMIT SHUKLA , J M ./ I.T.A. NO. 6655/MUM/2010 ( / ASSESSMENT YEAR: 2007 - 08 ) DY. CIT - 9(2), AAYAKAR BHAVAN, R. NO. 218, 2 ND FLOOR, M. K. ROAD, MUMBAI - 400 020 / VS. VIJAY AGARWAL 4 TH FLOOR, STERLING DIAMOND, MOUNT MARY ROAD, BANDRA (W), MUMBAI - 400 050 ./ ./ PAN/GIR NO. AAHPA 0156 A ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI PAV AN KUMAR BEERLA / RESPONDENT BY : SHRI BRIJ MOHAN P. AGARWAL / DATE OF HEARING : 16.04.2015 / DATE OF PRONOUNCEMENT : 24 .04.2015 / O R D E R PER G. S. PANNU , A. M.: THIS IS AN APPEA L BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 20, MUMBAI (CIT(A) FOR SHORT) DATED 15.07.2010, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER (A.O.) U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 30.11.2009 PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 2007 - 08. 2. IN THIS APPEAL , ALTHOUGH THE REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL BUT ESSENTIALLY THE DISPUTE ARISES FROM THE ACTION OF THE CIT(A) IN HOLDING THAT THE GAIN DERIVED BY THE ASSESSEE ON SALE O F SHARES IS ASSESSABLE AS CAPITAL GAIN AS AGAINST THE STAND OF THE A.O . IN TREATING IT AS A BUSINESS INCOME. 2 ITA NO. 6655/MUM/2010 (A.Y. 2007 - 08) DY. CIT VS. VIJAY AGARWAL 3. BRIEFLY PUT THE RELEVANT FACTS ARE THAT THE RESPONDENT - ASSESSEE IS AN INDIVIDUAL WHO FILED A RETURN OF INCOME FOR A.Y. 2006 - 07 , DECLARING A TOTAL INCOME OF RS.2,41,31,253/ - WHICH COMPRISED OF INCOME ON ACCOUNT O F SALARIES, DIVIDEND, INTEREST AND CAPITAL GAIN ON SHARES. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SUBJECT TO SCRUTINY ASSESSMENT U/S.143(3) OF THE ACT, WHEREBY THE A.O. ASSESSED THE TOTAL INCOME AT RS.6,74,76,740/ - WHICH INTER ALIA INCLUDED AN ASSE SSMENT OF SHORT TERM CAPITAL GAIN (STCG) AND LONG TERM CAPITAL GAIN (LTCG) OF RS.47,27,349/ - AND RS.4, 28,37,766/ - RESPECTIVELY , AGGREGATING TO RS.4,75,65,115/ - AS BUSINESS INCOME. IN THE RETURN OF INCOME FILED, THE ASSESSEE HAD DECLARED THE CAPITAL GAIN ON SALE OF SHARES AND INSOFAR AS THE LTCG OF RS.4,28,37,766/ - WAS CONCERNED, THE SAME WAS CLAIMED AS EXEMPT U/S.10(38) OF THE ACT. THE A.O. D IF FERED WITH THE ASSESSEE AND HELD THAT THE ENTIRE CAPITAL GAIN EARNED BY THE ASSESSEE, MA Y IT B E THE SHORT TERM OR LONG TERM, WAS LIABLE TO BE ASSESSED AS BUSINESS INCOME. THE A.O. OBSERVED THAT THE ASSESSEE WAS INDULGING IN TRANSACTION OF SHARES VERY HEAVILY AND ALSO THAT SUCH TRANSACTIONS WERE NOT ENTERED ON THE BASIS OF OWN FUNDS. THE A.O. NOTED THAT DURING THE Y EAR UNDER CONSIDERATION THERE WERE AS MANY AS 200 TRANSACTIONS UNDERTAKEN BY THE ASSESSEE , WHICH WAS SIGNIFICANTLY HIGH. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAS TAKEN AN OVER DRAFT FACILITY WITH THE BANK AND THE BORROWINGS WERE USED FOR THE PURPOSE OF S ALE AND PURCHASE OF SHARES. FOR THE SAID REASONS, THE A.O. TREATED THE GAIN ON SALE AND PURCHASE OF SHARES AS BU S INESS INCOME. 4. IN APPEAL BEFORE THE CIT(A), ASSESSEE ASSAILED THE ORDER OF THE A.O. ON FACTS AND IN LAW. FIRSTLY, IT WAS CONTENDED BY THE ASSESSEE THAT ALL THE TRANSACTIONS IN QUESTION WERE DELIVERY BASED AND THAT INSOFAR AS THE TRANSACTIONS UNDERTAKEN IN THE PORTFOLIO OF F UTURE S AND O PTIONS IS CONCERNED, THE INCOME THERE FROM WAS ALREADY DECLARED AS SPECULATION BUSINESS . THE POINT MADE OUT BY THE ASSESSEE THAT HE WAS MAINTAINING SEPARATE PORTFOLIO OF SHARES HELD AS INVESTMENT AND INCOME FROM SALE OF SUCH SHARES WAS DECLARED AS LTCG AND STCG , DEPENDING ON THE PERIOD OF HOLDING. THE ASSESSEE ALSO POINTED OUT THAT THE NUMBER OF TRANSACTIONS IN THE SHARES AS FOUND BY THE A.O. WAS WRONG , IN - AS - MUCH AS ONLY 23 TRANSACTIONS HAS RESULTED INTO LTCG AND 31 TRANSACTIONS HAD RESULTED INTO STCG. 3 ITA NO. 6655/MUM/2010 (A.Y. 2007 - 08) DY. CIT VS. VIJAY AGARWAL ASSAILING THE STAND OF THE A.O. THAT THE DEALING IN SHARES WAS HIGHLY FREQUENT, ASSESSEE POINTED OUT THAT ON AN AVERAGE ONLY FOUR TRANSACTIONS IN A MONTH WERE CARRIED OUT , WHICH RESULTED IN EARNING OF THE IMPUGNED CAPITAL GAINS. WITH REGARD TO THE USAGE OF THE BORROWED FUNDS, ASSESSEE POINTED OUT THAT THE BALANCE IN HIS CAPITAL ACCOUNT WAS LARGER THAN HIS TOTAL I NVESTMENT IN SHARES AND THE LOAN FACILITY AVAILED FROM THE BANK WAS NOT UTILIZED IN EARNING OF CAPITAL GAINS . THE LOAN FACILITY WAS USED FOR UNDERTAKING TRANSACTIONS IN F UTURE S AND O PTIONS, FOR WHICH INCOME WAS DECLARED AS SPECULATION BUSINESS. THE CIT(A) APPRECIATED THE FACTUAL MATRIX BROUGHT OUT BY THE ASSESSEE AND FOUND THAT THE ASSESSEE C OULD NOT BE SAID TO BE RUNNING A N Y ESTABLISHMENT FOR SALE OR PURCHASE OF SHARES ; AND , THAT ASSESSEE WAS MAINTAINING TWO PORTFOLIOS, ONE INVOLVING TRANSACTIONS IN DERIV ATIVE S AND OTHER RELATING TO INVESTMENT IN SHARES. THE CIT(A) NOTED THAT IN THE PAST YEARS ALSO , ASSESSEE HAS BEEN MAINTAINING TWO PORTFOLIOS AND SUCH FACTUAL MATRIX HAS NOT BEEN DISTURBED BY THE A.O. IN THE PAST. THE CIT(A) ALSO NOTED THAT THE INVESTMEN T PORTFOLIO WAS DELIVERY BASED AND ALL THE TRANSACTIONS WERE MADE THROUGH THE DEMAT ACCOUNT. THE CIT(A) ALSO ANALYSED THE PERIOD OF HOLDING OF SHARES WHICH RESULTED IN EARNING OF CAPITAL GAINS AND FOUND THAT THERE WAS NO REPEAT TRANSACTIONS IN THE SAME SHA RE. ON THIS BASIS, THE CIT(A) INFERRED THAT THE ASSESSEE NOT HAVING INDULGED IN REPETITIVE TRANSACTIONS IN THE SAME SHARES GAVE AN INDICATION T HAT THE TRANSACTIONS WERE NOT DONE AS A TRADER . FOR A LL THE ABOVE REASONS, THE CIT(A) HELD THAT THE ASSESSEE WAS JUSTIFIED IN A SSERTI NG THAT THE GAIN ON SALE OF SHARES WAS LIABLE TO BE ASSESSED AS CAPITAL GAINS AND IN COMING TO SUCH CONCLUSION, HE ALSO RELIED ON THE JUDGMENT OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT [2011] 336 ITR 287 (B OM) . AGAINST THE AFORE - SAID DECISION OF THE CIT(A) , THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) HAS REITERATED THE STAND OF THE A.O. ON T HE BASIS OF THE DISCUSSION CONTAINED IN THE ASSESSMENT ORDER, WHICH WE HAVE ALREADY NOTED IN PARA 3 ABOVE AND THE SAME ARE NOT BE EN REPEATED FOR THE SAKE OF BREVITY. 6. ON THE OTHER HAND, THE LD. REPRESENTATIVE APPEARING FOR THE RESPONDENT - ASSESSEE RELIED ON THE FINDINGS RECORDED BY THE CIT(A) IN THE IMPUGNED ORDER AND ALSO POINTED OUT 4 ITA NO. 6655/MUM/2010 (A.Y. 2007 - 08) DY. CIT VS. VIJAY AGARWAL THAT SIMILAR TRANSACTIONS UNDERTAKEN BY THE ASSESSEE IN THE PRECEDING AS WELL AS IN THE SUCCEEDING ASSESSMENT YEAR HA VE BEEN ACCEPTED AS ASSESSABLE UNDER THE HEAD CAPITAL GAINS . THEREFORE, ACCORDING TO HIM , THERE WAS NO JUSTIFICATION FOR THE A.O. TO HAVE ASSESSED THE INCOME FROM SALE OF SHARES AS BUSINESS INCOME IN THE INSTANT YEAR . 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE PRESENT CASE, THERE IS NO REBUTTAL FROM THE SIDE OF THE REVENUE TO A FACTUAL FINDING ARRIVED BY THE CIT(A) IN PARA 5.3 OF THE ORDER TO THE EF F E CT THAT IN THE PAST YEARS ALSO ASSESSEE HAS TREATED S IMILAR TRANSACTIONS TO BE ASSESSED AS CAPITAL GAINS, WHICH HAS N OT BEEN DISTURBED BY THE A.O. IN THE PAST. AT THE TIME OF HEARING , THE LD. REPRESENTATIVE FO R THE RESPONDENT FURTHER AS SERTED THAT IN THE SUBSEQUENT YEAR ALSO , SIMILAR TRANSACTION S HAVE BEEN ACCEPTED BY THE A.O. TO BE IN THE NATURE OF CAPITAL GAINS, AS DECLARED BY THE ASSESSEE. QUITE CLEARLY , THE AFORE - SAID ASSERTIONS OF THE ASSESSEE , WHICH REM AIN UNCONTROVERTED , JUSTIFY THE INFERENCE DRAWN BY THE CIT(A). MOREOVER, IT IS ALSO APPARENT FROM THE DISCUSSION MADE BY THE CIT(A) IN THE IMPUGNED ORD ER THAT THE ASSESSEE CANNOT BE LOOKED UPON AS A TRADER QUA THE TRANSACTIONS IN QUESTION. THE CIT(A) IN PARA 5 O F HIS ORDER HAS TABULATED THE PERIOD OF HOLDING OF SHARES PRIOR TO THEIR SALE, WHICH HAS RESULTED IN EARNING OF THE IMPUGNED STCG AND LTCG. THE PERIOD OF HOLDING OF SHARES IS QUITE REASONABLE, AND INFACT ALL THE TRANSACTIONS ARE DELIVERY BASED. THE CIT(A) HAS CATEGORICALLY ASSERTED THAT THE ASSESSEE HAS NOT REPEATED THE TRANSACTIONS IN THE SAME SHARES , WHICH WOULD SHOW THAT THE ACTIVITY WAS CARRIED OUT AS AN INVESTMENT ACTIVITY AND NOT AS A TRADER . IT IS ALSO SEEN FROM THE ANALYSIS CARRIED OUT BY THE CI T(A) THAT THE CHARGE MADE BY THE A.O. THAT THE ASSESSEE HAS C ARRI ED OUT AS MAN Y AS 200 TRANSACTIONS IS ALSO NOT TENABLE. EVIDENTLY, THE CIT(A) FOUND THAT ONLY 23 TRANSACTIONS HAD RESULTED INTO LTCG AND 31 TRANSACTIONS RESULT ED INTO STCG. APART THERE - FROM , THE ASSESSEE HAD ASSERTED THAT ONLY FOUR TRANSACTIONS IN A MONTH HAVE BEEN CARRIED OUT ON AN AVERAGE, A FACT WHICH DOES NOT SHOW THAT THE ACTIVITY BEING UNDERTAKEN BY THE ASSESSEE WAS WITH THE INTENTIONS OF TRADING IN SHARES. WITH RESPECT TO THE CHARGE MAD E BY THE A.O. THAT THE BORROWED FUNDS WERE UTILIZED IN THE INVESTMENT OF SHARES, WE FIND THAT THE CIT(A) NOTED THAT THE BORROWINGS BY WAY OF OVE RDRAFT FACILITY 5 ITA NO. 6655/MUM/2010 (A.Y. 2007 - 08) DY. CIT VS. VIJAY AGARWAL FROM UTI BANK L TD. WAS SHOWN TO HAVE BEEN ADVANCED TO M/S. JAMNADAS VIRJI SHARE & STOCK BROKER, WHO WAS THE B ROKER FOR THE TRANSACTIONS IN F UTURE S AND OPTIONS, T HE INCOME FROM WHICH HA S BEEN DECLARED BY THE ASSESSEE AS S PECULATION BUSINESS AND ON THIS ASPECT THERE IS NO DISPUTE. OSTENSIBLY, THE BORROWED FUNDS HAVE NOT BEEN USED FOR THE PURPOSE OF I NVESTMENT IN SHARES. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES AND THE FINDINGS RECORD ED BY THE CIT(A) WHICH REMAIN UN REBUTTED , WE CONCLUDE BY HOLDING THAT THE CIT(A) MADE NO MISTAKE IN CONCLUDING THAT THE TRANSACTIONS OF SALE AND PURCHASE OF SHA RES IN QUESTION WERE RIGHTLY DECLARED BY THE ASSESSEE AS STCG OF RS.47,27,349/ - AND LTCG OF RS.4,28,37,766/ - , DEPENDING ON THE PERIOD OF HOLDING . ACCORDINGLY, THE ORDER OF THE CIT(A) IS HEREBY AFFIRMED AND THE REVENUE FAILS IN ITS APPEAL. 8. IN THE RESUL T, R EVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 24 TH , 201 5 SD/ - SD/ - ( AMIT SHUKLA ) ( G. S. PANNU ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 24 . 0 4 .201 5 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI