TIKUCHAND DURGAJI JOGANI, MUMBAI V. ITO 17(3)(4), MUMBAI

ITA 6797/MUM/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4919 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 29-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Business income; Earning of tax free income; Capital Gains
• Section: 271(1)(c); 234B; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI , ! BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER . 6797 / /201 8 ((. . 2011-12 ) ITA NO.6797/MUM/2018 (A.Y.2011-12) . 156 / /201 9 ((. . 2015-16 ) ITA NO.156/MUM/2019 (A.Y.2015-16) TIKUCHAND DURGAJI JOGANI, 301, GUNDECHA CHAMBERS, N.M.ROAD, FORT, MUMBAI 400 023 PAN: AAAPJ8019Q ...... * / APPELLANT ( VS. ITO-17(3) (4), ROOM NO.135A, 1 ST FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020. ..... +,/ RESPONDENT *-/ APPELLANT BY : SHRI ASHOK J. PATIL +,-/ RESPONDENT BY : SHRI SANJAY SETHI (., / DATE OF HEARING : 30/12/2020 /01 ., / DATE OF PRONOUNCEMENT : 25/03/2021 / ORDER THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-28, MUMBAI (I N SHORT THE CIT(A)) FOR THE ASSESSMENT YEAR 2011-12 DATED 27/09/2018 AND FOR ASSESSMENT YEAR 2015-16 DATED 12/11/2018. SINCE, THE GROUNDS AND THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL, THESE APPEALS ARE TAKE UP TOGETHER FOR A DJUDICATION AND ARE DECIDED BY THIS COMMON ORDER. 2 ITA NO.6797/MUM/2018(A.Y.2011-12) ITA NO.156/MUM /2019(A.Y.2015-16) 2. FOR THE SAKE OF CONVENIENCE THE FACTS ARE EXTRAC TED FROM THE APPEAL OF ASSESSEE IN ITA NO.6797/M/2018 FOR ASSESSMENT YEAR 2011-12. 3. SHRI ASHOK PATIL APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN INVESTMENT AND TRADING OF SH ARES AND FUTURE AND OPTIONS. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE APART FROM INCOMES ASSESSABLE UNDER OTHERS HEAD OF INCOME HAS EARNED CAPITAL GAINS (SHORT/LONG TERM CAPITAL GAINS) ON SALE OF SHARES. THE ASSESSE E HAS ALSO EARNED INTEREST INCOME AND DIVIDEND INCOME. IN THE RETURN OF INCOME FOR A Y 2011-12, THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN OF RS.15,50, 041/- FROM SALE OF SHARES. IN SCRUTINY ASSESSMENT PROCEEDS, THE ASSESSING OFFICER TREATED THE AFORESAID SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS MAINTAINED SEPARATE PORTFOLIOS FOR SHA RES HELD AS INVESTMENTS AND THE SHARES HELD FOR TRADING. THE ASSESSEE HAD PURCHASED THE SHARES TRANSACTION OF WHICH IS UNDER DISPUTE WITH THE INTENTION OF MAKING AN IN VESTMENT. THE LD. COUNSEL FOR THE ASSESSEE POINTED THAT IN ASSESSMENT YEAR 2006-07, T HE ASSESSING OFFICER IN SIMILAR MANNER HAD CHANGED THE HEAD OF INCOME FROM SHORT T ERM CAPITAL GAINS TO BUSINESS INCOME IN RESPECT OF SHARES PURCHASED AND SOLD BY THE ASSESSEE UNDER INVESTMENT PORTFOLIO. THE ASSESSEE CARRIED THE ISSUE IN APPEAL BEFORE THE TRIBUNAL IN ITA NO.2285/MUM/2010. THE TRIBUNAL VIDE ORDER DATED 21 /08/2013 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECTED THE ASSESSING O FFICER TO TREAT THE GAIN ON ACCOUNT OF SALE OF SHARES AS SHORT TERM CAPITAL GAIN. THERE AFTER, IN ASSESSMENT YEAR 2008-09, 2012-13 AND 2014-15 AGAIN THE ASSESSING OFFICER CHA NGED THE HEAD INCOME FROM SHORT TERM CAPITAL GAINS TO BUSINESS INCOME IN RESP ECT OF INCOME EARNED BY THE ASSESSEE ON SALE OF SHARES HELD AS INVESTMENT. THE TRIBUNAL IN AN APPEAL BY THE ASSESSEE IN ITA NO. 7710/M/2011 FOR AY 2008-09 DECI DED ON 30-10-2015, ITA NO.6798/MUM/2018 FOR AY 2012-13 & 6800/MUM2018 FOR AY 2014-15 DECIDED VIDE COMMON ORDER DATED 22/01/2020 HELD THAT THE INCOME FROM SALE OF SHARES IS TO BE TREATED AS SHORT TERM CAPITAL GAINS. THE FACTS IN T HE IMPUGNED ASSESSMENT YEAR ARE 3 ITA NO.6797/MUM/2018(A.Y.2011-12) ITA NO.156/MUM /2019(A.Y.2015-16) IDENTICAL. THUS, THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 OF THE APPEAL IS SQUARELY COVERED BY THE DECISIONS OF TRIBUNAL IN AS SESSEES OWN CASE. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN GROUND NO.2 OF APPEAL THE ASSESSEE HAS ASSAILED DISALLOWANCE MADE UNDER SECT ION 14A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) R.W.R 8D(2) OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). THE LD. COUNSEL FOR THE ASSESSEE CONTENDE D THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE EARNE D DIVIDEND INCOME OF RS.4,21,195/-. NO SUO-MOTU DISALLOWANCE WAS MADE B Y THE ASSESSEE IN RESPECT OF EXEMPT INCOME EARNED. THE ASSESSING OFFICER INVOKI NG THE PROVISOS OF RULE -8D AND COMPUTED DISALLOWANCE OF RS.20,98,875/- UNDER SECTI ON 14A OF THE ACT R.W.R. 8D. THE LD. COUNSEL SUBMITTED THAT THE DISALLOWANCE UNDER S ECTION 14A OF THE ACT BE RESTRICTED TO THE EXEMPT INCOME EARNED. TO SUPPORT THIS ARGUMENT, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBUNAL : I. FUTURE CORPORATE RESOURCES LTD. VS. DCIT, 85 TA XMANN.COM 190 (MUM); II. TATA INDUSTRIES LTD. VS. ITO 181 TTJ 600 (MUM). 5. PER CONTRA, SHRI SANJAY SETHI REPRESENTING THE D EPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DISMISSI NG THE APPEAL OF ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AFTE R CONSIDERING FREQUENCY OF TRANSACTIONS, TIME DEVOTED BY THE ASSESSEE, MOTIVE OF SALE AND PURCHASE OF SHARES, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE INCOME FROM SALE OF SHARES IS ASSESSABLE AS BUSINESS INCOME AND NOT AS SHORT T ERM CAPITAL GAINS. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN SOME OF THE PRECEDING ASSESSMENT YEARS THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE BUT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY UNDER INCO ME TAX PROVISIONS, EACH ASSESSMENT YEAR HAS TO BE EXAMINED SEPARATELY ON IT S OWN FACTS. 4 ITA NO.6797/MUM/2018(A.Y.2011-12) ITA NO.156/MUM /2019(A.Y.2015-16) 6. THE LD. COUNSEL FOR THE ASSESSEE CONTROVERTING THE SU BMISSIONS MADE BY LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL THE NUMBER OF TRANSACT IONS IN RESPECT TO SALE AND PURCHASE OF SHARES THAT HAS RESULTED IN SHORT TERM CAPITAL GAINS IS 238, WHEREAS IN ASSESSMENT YEAR 2006-07 THE NUMBER OF TRANSACTIONS WERE 363. THE TRIBUNAL AFTER EXAMINING THE ENTIRE FACTS HELD THAT THE TRANSACTIO NS WERE CARRIED ON ACCOUNT OF CAPITAL INVESTMENTS. THE LD. COUNSEL FOR THE ASSES SEE VEHEMENTLY CONTENDED THAT BY NO STRETCH TO IMAGINATION THE FREQUENCY OF SALE AND PURCHASES OF SHARE TRANSACTIONS IS HIGH LOOKING AT THE SIZE OF ASSESSEES PORTFOLIO . HE REFERRED TO INVESTMENTS REFLECTED IN THE BALANCE SHEET CONSISTING OF 197 QU OTED SHARES AT THE END OF THE YEAR. THE LD. COUNSEL FOR THE ASSESSEE FURTHER REFERRED T O CBDT CIRCULAR NO.4 OF 2007 DATED 16/06/2007 TO CONTEND THAT THE ASSESSEE CAN HAVE TW O PORTFOLIOS ONE COMPRISING OF SECURITIES, WHICH ARE TO BE TREATED AS CAPITAL ASSE TS AND THE TRADING PORTFOLIO COMPRISING OF STOCK IN TRADE. 7. BOTH SIDES HEARD, ORDERS OF THE AUTHORITIES BELO W EXAMINED AND THE DECISIONS ON WHICH RELIANCE HAS BEEN PLACED BY THE LD. COUNSE L FOR THE ASSESSEE CONSIDERED. 8. IN GROUND NO.1 OF APPEAL THE ASSESSEE HAS ASSA ILED THE FINDINGS OF CIT(A) IN TREATING INCOME OF RS.15,50,041/- UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AS AGAINST INCOME FROM SHORT TERM CAP ITAL GAINS DISCLOSED BY THE ASSESSEE. UNDISPUTEDLY, THERE IS NO BAR IN ASSESSE E HOLDING TWO PORTFOLIOS I.E. (1) INVESTMENT PORTFOLIO; AND (2) BUSINESS PORTFOLIO. T HE INCOME GENERATED FROM TRANSACTIONS HELD UNDER INVESTMENT PORTFOLIO RESULT S IN CAPITAL GAINS, SHORT TERM/LONG TERM AS THE CASE MAY BE DEPENDING UPON HOLDING PERI OD. WHEREAS, THE INCOME FROM SALE AND PURCHASE OF SHARES HELD UNDER BUSINESS POR TFOLIO IS EXIGIBLE TO TAX UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. IN THE PRESENT CASE, THE ASSESSEE HAS DISCLOSED INC OME FROM SALE OF SHARES AS SHORT TERM CAPITAL GAINS. THE CONTENTION OF THE ASS ESSEE IS THAT THE ASSESSEE IS 5 ITA NO.6797/MUM/2018(A.Y.2011-12) ITA NO.156/MUM /2019(A.Y.2015-16) MAINTAINING TWO SEPARATE PORTFOLIOS I.E. INVESTMENT PORTFOLIOS AND BUSINESS PORTFOLIO. THE INCOME FROM TRANSACTION OF SHARES HELD UNDER IN VESTMENT PORTFOLIO HAS BEEN RETURNED UNDER THE HEAD CAPITAL GAINS. THE TOTAL NUMBER OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE UNDER INVESTMENT PORTFOLIO DURING T HE PERIOD UNDER APPEAL IS 238. IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, TH E TRIBUNAL ACCEPTED ASSESSEES GROUND ON SIMILAR SET OF FACTS WHERE THE FREQUENCY OF TRANSACTIONS WERE MORE THAN 360. THEREAFTER, IN ASSESSMENT YEARS 2008-09, 2012 -13 AND 2014-15 SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL WHERE THE ASSESSING OFFICER HAD CHANGED THE HEAD OF INCOME IN RESPECT OF INCOME EARNED BY THE ASSESS EE FROM SALE OF SHARES. THE ASSESSEE OFFERED THE INCOME AS SHORT TERM CAPITAL GAINS AND THE ASSESSING OFFICER TREATED THE SAME AS BUSINESS INCOME. THE TRIBUNAL DECIDED THE ISSUE IN EACH OF THE AFORESAID ASSESSMENT YEARS BY FOLLOWING THE ORDER O F TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2285/MUM/2010 FOR ASSESSMENT YEAR 2006-07 (SUPRA). THE TRIBUNAL ACCEPTED ASSESSEES PLEA THAT THE INCOME FROM SALE OF SHARES HAS RIGHTLY BEEN DISCLOSED UNDER THE HEAD SHORT TERM CAPITAL GAINS AND REJECTED REVENUES VIEW OF HOLDING THE INCOME AS BUSINESS INCOME. I FIND THAT THE FACTS IN THE IMPUGNED ASSESSMENT YEAR ARE SIMILAR TO THE FACTS IN THE PRE CEDING ASSESSMENT YEARS ADJUDICATED BY THE TRIBUNAL. THEREFORE, I SEE NO RE ASON TO TAKE A CONTRARY VIEW. THE FINDINGS OF CIT(A) ON THIS ISSUE ARE REVERSED AND G ROUND NO.1 OF THE APPEAL IS ALLOWED. 9. IN GROUND NO.2 OF APPEAL, THE ASSESSEE HAS ASSAI LED DISALLOWANCE OF RS.20,98,875/- MADE UNDER SECTION 14A R.W.R. 8D(2) OF THE ACT. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.4,21,195/- DURING AY 2 011-12. THE SHORT CONTENTION OF THE ASSESSEE IS THAT THE DISALLOWANCE MAY BE RESTRI CTED TO EXEMPT INCOME EARNED. IT IS NO MORE RES-INTEGRA THAT DISALLOWANCE UNDER SECT ION 14A OF THE ACT CANNOT EXCEED EXEMPT INCOME EARNED. [RE. PCIT V. STATE BANK OF PATIALA 259 TAXMAN 314 (P&H); THE HONBLE SUPREME COURT OF INDIA DISMISSED THE SLP OF REVENUE AGAINST THE JUDGEMENT OF HONBLE HIGH COURT]. THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE 6 ITA NO.6797/MUM/2018(A.Y.2011-12) ITA NO.156/MUM /2019(A.Y.2015-16) DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE EX TENT EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE PERIOD RELEVANT TO THE ASSE SSMENT YEAR UNDER APPEAL. THE GROUND NO.2 IS PARTLY ALLOWED IN THE TERMS AFORESAI D. 10. IN GROUND NO.3 OF APPEAL, THE ASSESSEE HAS ASSA ILED CHARGING OF INTEREST UNDER SECTION 234A, 234B AND 234C AND 234D OF THE ACT. CH ARGING OF INTEREST UNDER AFORESAID SECTIONS IS MANDATORY AND CONSEQUENTIAL, HENCE, THE GROUND NO.3 RAISED BY THE ASSESSEE IS WITHOUT ANY MERIT, HENCE, DISMISSED . 11. IN GROUND NO.4 OF APPEAL, THE ASSESSEE HAS ASSA ILED INITIATION OF PENALTY PROCEEDING UNDER SECTION 271(1)(C) OF THE ACT. CHAL LENGE TO PENALTY PROCEEDINGS AT THIS STAGE IS PREMATURE, ERGO, THE GROUND NO.4 IS D ISMISSED AS SUCH. 12. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALL OWED. ITA NO.156/MUM/2019 (A.Y.2015-16): 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED AT T HE OUTSET THAT THE GROUNDS RAISED BY THE ASSESSEE ARE IDENTICAL TO THE GROUNDS RAISED IN ASSESSMENT YEAR 2011- 12. THE SUBMISSIONS MADE WHILE ADDRESSING THE GROU NDS IN ASSESSMENT YEAR 2011-12 WOULD EQUALLY APPLY TO THE GROUNDS RAISED IN ASSESS MENT YEAR 2015-16. THE LD. COUNSEL POINTED THAT THE ISSUE OF DISALLOWANCE U/S 14A CAN BE REMITTED BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF EXEMPT INCOME EARNED AND THE CONSEQUENT DISALLOWANCE THEREON. 14. THE LD. DEPARTMENTAL REPRESENTATIVE CONCURRED W ITH THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE GROUNDS RAISED BY THE ASSESSEE AND THE FACTS IN ASSESSMENT YEAR 2015-16 ARE SIMILAR TO FACTS AND GR OUNDS IN ASSESSMENT YEAR 2011- 12. 15. BOTH SIDES HEARD. A PERUSAL OF GROUNDS OF APPE AL REVEAL THAT THEY ARE IDENTICAL TO THE GROUNDS RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2011-12. BOTH SIDES ARE 7 ITA NO.6797/MUM/2018(A.Y.2011-12) ITA NO.156/MUM /2019(A.Y.2015-16) UNANIMOUS IN STATING THAT THE FACTS GERMANE TO THE GROUNDS IN APPEAL ARE ALSO SIMILAR IN BOTH THE IMPUGNED ASSESSMENT YEARS. SINCE, THE F ACTS ARE PARI MATERIA, THE FINDINGS GIVEN WHILE ADJUDICATING GROUND NO.1 IN AS SESSMENT YEAR 2011-12 WOULD MUTATIS MUTANDIS APPLY TO GROUND NO.1 IN THE PRESEN T APPEAL. CONSEQUENTLY, THE GROUND NO.1 RAISED IN THE APPEAL IS ALLOWED. 16. IN GROUND NO.2, THE ASSESSEE HAS ASSAILED DISAL LOWANCE OF RS.1,81,515/- UNDER SECTION 14A OF THE ACT. THE ASSESSEE HAS EARNED DI VIDEND INCOME OF RS.2,25,446/-. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT WHILE CO MPUTING DISALLOWANCE U/R 8D(2), DISALLOWANCES HAS BEEN MADE ON ACCOUNT INTEREST EXP ENDITURE RS.41,772/- AND ON ACCOUNT OF AVERAGE INVESTMENTS RS.1,39,743/-. THE LD. COUNSEL FOR THE ASSESSEE HAS PRAYED THAT THE ISSUE MAY RESTORED TO THE ASSESSING OFFICER TO RE-EXAMINE DISALLOWANCE. THE ISSUE IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR RE-COMPUTATION OF DISALLOWANCE UNDER SECTION 14A R.W.R. 8D(2), IN ACCORDANCE WITH LAW. THE GROUND NO. 2 OF THE APPEAL IS ALLOWED FOR STATISTICAL PURP OSE. 17. THE GROUND NO. 3 AND 4 ARE IDENTICAL TO THE GRO UNDS RAISED IN ASSESSMENT YEAR 2011-12, THUS, BOTH THESE GROUNDS ARE DISMISSED FOR PARITY OF REASONS. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. 19. TO SUM UP, THE APPEALS OF THE ASSESSEE FOR AY 2 011-12 AND 2015-16 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH URSDAY, THE 25 TH DAY OF MARCH, 2021 SD./- (VIKAS AWASTHY) / JUDICIAL MEMBER / MUMBAI, 3(/ DATED: 25/03/2021 VM , SR. PS (O/S) 8 ITA NO.6797/MUM/2018(A.Y.2011-12) ITA NO.156/MUM /2019(A.Y.2015-16) COPY OF THE ORDER FORWARDED TO : 1. * / THE APPELLANT , 2. +, / THE RESPONDENT. 3. 4, ( )/ THE CIT(A)- 4. 4, CIT 5. 56+,( , . . . , / DR, ITAT, MUMBAI 6. 6789: / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI DETAILS DATE INITI ALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER