ACIT CIR 16(2), MUMBAI V. SHILPA S. MORAKHIA, MUMBAI

ITA 6698/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79113 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 11-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Assessee Lawyers: M C NANIWADEKAR
• Keywords: Business income

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.6698/MUM/2012 : ASST.YEAR 2008-09 ASSTT. COMMISSIONER OF INCOME- TAX 16(2), MATRU MANDIR, TARDEO ROAD, MUMBAI 400 007 SMT. SHILPA S. MORAKHIA, 1 ST FLOOR, SHAKUNTAL, 10,MANAV MANDIR ROAD, WALKESHWAR, MUMBAI 400 006 PAN: AAACPM 4120D ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) C.O. NO.03/MUM/2014 (ARISING OUT OF ITA NO.6698/MUM/2012, A.Y. 2008-09) SMT. SHILPA S. MORAKHIA, 1 ST FLOOR, SHAKUNTAL, 10,MANAV MANDIR ROAD, WALKESHWAR, MUMBAI 400 006 PAN: AAACPM 4120D ASSTT. COMMISSIONER OF INCOME-TAX 16(2), MATRU MANDIR, TARDEO ROAD, MUMBAI 400 007 CROSS OBJECTOR ' ' ' ' / VS. APPELLANT IN APPEAL REVENUE BY : SHRI PRAKASH L. PATHADE ASSESSEE BY : SHRI M.C.NANIWADEKAR ' * +,' / / / / DATE OF HEARING : 11.06.2014 -./ * +,' / DATE OF PRONOUNCEMENT : 11.06.2014 0 0 0 0 / / / / O R D E R PER I.P.BANSAL (JM) : THE APPEAL IS FILED BY THE REVENUE AND CROSS OBJEC TION BY THE ASSESSEE. BOTH ARE DIRECTED AGAINST AN ORDER PASSED BY LD. CIT(A)- 27,MUMBAI DATED 29/8/2012 FOR ASSESSMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: REVENUES GROUND OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.0. TO TREAT RS.31,84,610/- ONLY OUT OF SHORT TERM CAPITAL GAINS OF RS. 69,65,811/- AS INCOME UNDER THE HEAD BUSINESS INCOM E WITHOUT APPRECIATING THE FACT THAT THE SHARES HAVE BEEN FREQUENTLY PURCHASED AND SOLD AND THE HOLDING PERIOD OF SHARES IN MOST OF THE CASES IS LESS THAN A MONTH. ITA NO.6698/MUM/2012& CO 03/MUM/2014 2 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. GROUNDS OF ASSESSEES CROSS OBJECTION: I. THE LEARNED CIT(A) ERRED IN DIRECTING THE LEARN ED AO TO TREAT SHORT TERM CAPITAL GAIN AMOUNTING TO RS. 31 ,84,6 10/- AS BUSINESS INCOME A ND ERRED IN CONFIRMING THE ORDER OF THE LEARNED AO TO THAT EXTENT. THE LEARNED CIT(A) F AILED TO APPRECIATE THAT THE ASSESSEE HAD CORRECTLY SHOWN ENTIRE AMOUNT OF RS.69,65,811/- AS SHORT TERM CAPITAL GAINS, AND ERRED IN GIVING ONLY PARTIAL RELIEF TO THE ASSESSEE ; WHEN, IN LAW, THE ASSESSEE WAS ENTITLED TO COMPLETE RELIEF IN RESPECT OF THE RELEV ANT GROUND RAISED BEFORE THE CIT(A). 2. THE ASSESSEE IS AN INDIVIDUAL AND HAS ASSESSABLE INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION (WHICH COMPRISE S OF SHARE INCOME FROM THE FIRM AND PROFIT ARISING OUT SHARE TRADING), INCOME FROM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS IT WAS NOTICED BY THE AO THAT ASSESSEE HAD SHOWN SHORT TERM CAPITAL GAIN OF RS.69,65,841/- WHICH WAS FROM SALE AND PURCHASE OF SHARES. ACCORDING TO AO SUCH INCOME COULD NOT BE ASSESSED AS SHORT TERM CAPITAL GAIN AS IT WAS IN TH E NATURE OF BUSINESS ACTIVITY. HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE CAP ITAL GAIN INCOME SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE FILED REP LY. BEING NOT SATISFIED WITH THE REPLY THE AO HAS ARRIVED AT A CONCLUSION THAT ASSE SSEE IS HAVING A SYSTEMATIC AND REGULAR COURSE OF SHARE TRANSACTION ACTIVITY WHICH IS EVIDENT FROM THE FACT THAT REGULAR BOOKS OF ACCOUNTS, KEEPING ALL THE RECORD, MAINTAINING THE DETAILS OF SALE AND PURCHASE OF SHARES ALONGWITH BILLS ETC, MAINTENANCE OF D-MAT ACCOUNT AND CORRESPONDING BANK ACCOUNT. THERE IS CONTINUITY OF SHARE TRANSACTION OVER A PERIOD OF TIME FROM YEAR TO YEAR AND THERE IS A CLEAR PROF IT MOTIVE IN THE TRANSACTION TAKEN UP BY THE ASSESSEE. THE ASSESSEE HAS NEVER SUFFERE D ANY NET LOSS. FROM PERUSAL OF THE DETAILS OF TRANSACTIONS, QUANTUM OF SHARES TRAN SACTED AND QUANTUM OF AMOUNTS INVOLVED, IT CAN BE INFERRED THAT IT WAS IN THE NA TURE OF COMMERCIAL ACTIVITY. THE PERIOD OF HOLDING IN SOME TRANSACTIONS IS FEW DAYS. THERE ARE HIGH FREQUENCY AND REPETITIVE SALES AND PURCHASES. THUS, HE HAS ARRIV ED AT A CONCLUSION THAT THE ACTIVITY OF THE ASSESSEE WAS IN THE NATURE OF TRAD E AND AFTER MENTIONING VARIOUS JUDICIAL DECISIONS THE AMOUNT OF RS.69,65,811/- SHO WN AS SHORT TERM CAPITAL GAIN WAS ASSESSED AS BUSINESS INCOME. 3. AN APPEAL WAS FILED BEFORE LD. CIT(A). A DETAIL ED ANALYSIS OF THE SHARE TRANSACTION YEAR WISE WAS SUBMITTED TO SAY THAT FR OM YEAR TO YEAR ON THE BASIS OF SIMILAR TRANSACTION THE ASSESSEE HAS BEEN ASSESSED AS INVESTOR. AFTER PERUSING ALL ITA NO.6698/MUM/2012& CO 03/MUM/2014 3 THESE DETAILS LD. CIT(A) HAS COME TO A CONCLUSION T HAT ASSESSEE CANNOT BE HELD TO BE TRADER IN RESPECT OF ENTIRE SHORT TERM CAPITAL GAI N. IN THE CASES WHERE ASSESSEE HAS ENTERED INTO REPETITIVE TRANSACTION (CHURNING) ONL Y IN THOSE CASES THE ASSESSEE CAN BE HELD TO BE AS A TRADER AND SUCH AMOUNT HAS BEEN COMPUTED AT RS.31,84,610/-. THE ADDITION TO THAT EXTENT TO THE BUSINESS INCOME HAS BEEN UPHELD. 4. THE REVENUE IN ITS APPEAL IS AGITATING THE DELET ION OF BALANCE AMOUNT OF RS.37,81,201/- FROM THE BUSINESS INCOME AND ASSESSE E IN ITS CROSS OBJECTION IS AGITATING THE ORDER OF LD. CIT(A) FOR UPHOLDING THE ADDITION OF RS.31,84,610/- TO THE BUSINESS INCOME. 5. AFTER NARRATING THE FACTS, RELYING UPON THE ASSE SSMENT ORDER IT WAS SUBMITTED BY LD. DR THAT AO WAS RIGHT IN HOLDING THE ENTIRE A MOUNT SHOWN TO BE SHORT TERM CAPITAL GAIN BY THE ASSESSEE WAS ASSESSABLE UNDER T HE HEAD INCOME FROM BUSINESS OR PROFESSION. HE SUBMITTED THAT LD. CIT(A) HAS C OMMITTED AN ERROR IN GIVING PART RELIEF TO THE ASSESSEE. HE SUBMITTED THAT ENTIRE A CTIVITY OF THE ASSESSEE WAS CARRIED ON BY HER AS BUSINESS ACTIVITY. THUS, HE PLEADED T HAT THE RELIEF GRANTED BY LD. CIT(A) TO THE ASSESSEE SHOULD BE SET ASIDE AND APPEAL FILE D BY THE REVENUE SHOULD BE ALLOWED. 6. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR TH AT FROM YEAR TO YEAR THE ACTIVITY OF THE ASSESSEE HAS BEEN TREATED AS INVEST MENT ACTIVITY. HE SUBMITTED THAT ACCORDING TO CHARTS AND FIGURES SUBMITTED BEFORE LD . CIT(A) THE ACTIVITY OF THE ASSESSEE WAS NOT IN THE NATURE OF TRADE. HE SUBMIT TED THAT ASSESSEE DOES NOT HAVE ANY BORROWED FUNDS INVESTED IN THE SHARES AND THE ENTIRE INVESTMENT IN SHARES HAS BEEN SHOWN UNDER THE HEAD INVESTMENT. HE, THEREFOR E, SUBMITTED THAT AO WAS WRONG IN TREATING THE SHARE ACTIVITY OF THE ASSESSE E AS TRADING ACTIVITY. HOWEVER, WHEN A QUESTION WAS ASKED BY THE BENCH THAT WHAT I S ABOUT REPETITIVE TRANSACTION WHICH HAVE BEEN ENTERED INTO BY THE ASSESSEE, HE SU BMITTED THAT THE SAME CANNOT BE VIEWED AS TRADING ACTIVITY OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. FOR THE COMPLETENESS OF FACTS IT WILL BE RELEVANT TO DESCRIBE FOLLOWING CHARTS AND FIGURES FORMING PART OF ORDER OF LD. CIT (A). ITA NO.6698/MUM/2012& CO 03/MUM/2014 4 S.N O. PARTICULARS A.Y.2004- 05 A.Y.2005-06 A.Y.2006-07 A.Y. 2007- 08 A.Y.2008-09 A.Y.2009-10 A.Y.2010- 11 1. NO. OF SCRIPS HELD ON 1 ST APRIL. VALUE OF OPENING INVESTMENTS 1,204,479 4,580,931 15,314,178 26,905,966 24,138,866 43,918,348 29,659,053 2. NO. OF SCRIPS PURCHASED DURING THE YEAR 56 265 236 122 115 46 89 3. NO. OF PURCHASE TRANSATIONS/TOTAL PURCHASE VALUE 4,555,572 91,016,011 114,305,014 86,789,775 139,797,379 27,559,159 83,727,022 4. NO. OF SCRIPS SOLD DURING THE YEAR 66 270 253 144 117 62 91 5. NO. OF SALE TRANSACTION. TOTAL SALE VALUE 10,138,259 85,377,850 102,713,429 92,318,469 145,808,381 30,143,119 85,710,522 6. NO. OF SCRIPS HELD ON 31 ST MARCH 23 58 50 33 40 24 26 7. VALUE OF CLOSING INVESTMENTS 4,580,931 15,314,178 26,905,966 24,138,866 43,918,348 29,659,053 39,834,822 8. CLOSING CAPITAL (NETWORTH) 4,074,633 10,493,364 25,226,190 30,728,506 58,551,139 44,231,618 55,305,484 9. SHARE INVESTMENTS AS % OF CAPITAL 112% 146% 107% 79% 75% 67% 72% 10 AMOUNT OF DIVIDEND RECEIVED DURING THE YEAR. 210,765 182,268 221,228 155,290 109,492 187,016 239 ,176 11. LONG TERM CAPITAL GAIN (57,934) 1,548,433 5,814,492 2,410,256 2,460,949 (3 ,836,716) 699,370 12. SHORT TERM CAPITAL GAINS 42,674 3,626,276 8,133,484 351,278 6,965,812 (7,378 ,153) 7,059,814 13. MARKET VALUE OF INVESTMENTS 5,445,880 32,092,985 32,552,480 34,007,894 34,001,738 18,041,602 47,227,028 STATEMENT OF NO. OF TRANSACTIONS FOR STCG +LTCG DURING THE F.Y.2007-08. NO. OF DAYS TRANSACTION PER MONTH. MONTH ACQUISITION TRANSFER TOTAL APRIL 12 12 24 MAY 8 11 19 JUNE 14 19 33 JULY 17 17 34 AUGUST 18 12 30 SEPTEMBER 17 17 34 OCTOBER 13 14 27 NOVEMBER 17 18 35 DECEMBER 17 12 29 JANUARY 16 14 30 FEBRUARY 04 09 13 MARCH 0 06 06 TOTAL 153 161 314 ITA NO.6698/MUM/2012& CO 03/MUM/2014 5 . NAME OF THE SCRIPS IN WHICH REPETITIVE TRANSACTION ARE CARRIED OUT. PROFIT EARNED (RS.) 3I INFOTECH LTD. (296,443.24) ALLIED CAPITAL SERVICES LTD. 1,363,464.78 ANKUR DRUGS & PHARMA (1,714,304.38) ANKUSH FINSTOCK LTD. (18,641.01) APTECH TRAINING LTD. 159,577.25 ARVIND MILLS LTD. 343,928.52 ASIAN ELECTRONICS LTD. 476,171.35 CREST COMMUNICATIONS LTD. (520,176.57) DCB LTD. 170,268.00 DHAMPUR INDUSTRIES LTD. (6,333.01) DOLPHIN OFFSHORE LTD. (13,991.22) ENTEGRA LTD. 68,226.72 EXPRESS LEASING LTD. 864,099.98 FAIRFILED ATLAS LTD. (8,744.53) FUTURA POLYSTERS LTD., (238,769.72) GENNOX LABORATORIES LTD. (80,903.85) GOLDSTONE TECHNOLOGIES LTD. 1,076,639.50 GULF OIL CORPORATION LTD. 41,161.90 HINDUSTAN OIL EXPLORATION CORP. LTD. 177,143.30 INDSIL ELECTRONICS LTD. (213.63) INTENSE TECHNOLOGIES LTD. (503,127.61) IVP LTD. (54,822.77) JMC PROJECTS LTD. 796,690.48 KWALITY DAIRY (I) LTD. 32,790.74 LLOYD STEEL IND. LTD. 1,344,285.94 MEASTROS MEDILINE (31,863.75) MAHARASHTRA SEAMLESS (676,336.32) MARSONS LTD. (30,392.59) MEDCURE THERAPUTICS LTD. 18,722.55 MOTOR & GENERAL FINANCE 275,064.52 R D B INDUSTRIES LTD. (4,409.87) SALZER ELECTRONICS 147,784.53 SANDUR MAGNES 33,348.78 SHARP INDIA LTD. (90,456.86) SHIVALIK GLOBAL LTD. 27,871.45 VALECHA ENGINEERING 401,774.11 VASPARR SEC. 78,165.16 VICEROY HOTELS LTD. (422,638.44) TOTAL 3,184,610.19 7.1 IN THE PRESENT CASE THE ASSESSEE FROM ALL OF IT S ACTIVITY OF SALE AND PURCHASE OF SHARES (EXCEPT F & O ACTIVITY) HAS SHOWN LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAIN. THE LONG TERM CAPITAL GAIN HAS BEEN ACCEPTED BY THE AO TO BE ITA NO.6698/MUM/2012& CO 03/MUM/2014 6 ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND THOSE TR ANSACTIONS HAVE NOT BEEN TREATED TO BE ASSESSABLE UNDER THE HEAD BUSINESS INCOME. ONLY ON THE BASIS OF VOLUME OF TRANSACTIONS AND FREQUENCY THEREOF, LD.AO HAS TRE ATED THE ENTIRE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. LD. CIT(A) HAS ANALYSED T HE ENTIRE ACTIVITY OF THE ASSESSEE, NUMBER OF TRANSACTION AND TURNOVER. AFTER CAREFUL ANALYSIS LD. CIT(A) HAS SORTED OUT THE TRANSACTION OF THE ASSESSEE IN WHICH ASSESSEE H AS REPETITIVE TRANSACTIONS AND THOSE HAVE BEEN TREATED AS TRANSACTIONS RELATING TO TRADE. IN OUR OPINION ALL THESE FINDINGS OF LD. CIT(A) ARE RELATING TO FACTS OF THE CASE AND THOSE FINDINGS HAVE NOT BEEN CONTROVERTED BY THE DEPARTMENT. IN THIS VIEW OF THE SITUATION, WE ARE OF THE OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER PASSED BY LD. CIT(A) AS HE HAS TAKEN REASONABLE VIEW ON THE BASIS OF FACTS AND CIR CUMSTANCES OF THE CASE. WE DECLINE TO INTERFERE. 7.2 SO FAR AS IT RELATES TO CROSS OBJECTION FILED B Y THE ASSESSEE WE FIND THAT LD. AR DID NOT SERIOUSLY CONTEST THE ACTION OF LD. CIT(A) FOR TREATING THE REPETITIVE TRANSACTION IN THE NATURE OF TRADE. NO SPECIFIC AR GUMENTS WERE SUBMITTED. THEREFORE, WE ARE OF THE OPINION THAT TO THAT EXTEN T ALSO THERE IS NO MATERIAL PLACED ON RECORD TO DIFFER FROM THE VIEW TAKEN BY LD. CIT( A). THEREFORE, CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUES AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11TH JUNE, 2014. 0 * -./ 1'2 11/06/2014 . * 8 SD/- SD/- (RAJENDRA) (I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 1' DATED : 11 TH JUNE, 2014. VM. ITA NO.6698/MUM/2012& CO 03/MUM/2014 7 0 * (+9 : 9/+ 0 * (+9 : 9/+ 0 * (+9 : 9/+ 0 * (+9 : 9/+/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. ;() / THE CIT, MUMBAI. 4. ; / CIT(A)-13, MUMBAI 5. 9>8 (+' , , / DR, ITAT, MUMBAI 6. 8? @ / GUARD FILE. 0' 0' 0' 0' / BY ORDER, )9+ (+ //TRUE COPY// A AA A/ // /B B B B (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI