The Hiral Manish Shah, Ahmedabad V. The Addl.CIT.,Range-10, Ahmedabad

ITA 683/AHD/2010

• Counselvise Citation: 68320514 RSA 2010
• Duration Of Justice: 2 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLY JINDAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Source of fund; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO. 683/ AHD/2010 (ASSESSMENT YEAR 2006-07) HIRAL MANISH SHAH, 2-16, SHYAMAL ROW HOUSE, AMBAWADI, AHMEDABAD VS. ADDL. CIT, RANGE 10, AHMEDABAD PAN/GIR NO. : AXCPS3434R (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI S N SOPARKAR, AR RESPONDENT BY: MR. SHELLY JINDAL, CIT DR DATE OF HEARING: 27.11.2012 DATE OF PRONOUNCEMENT: 14.12.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER OF LD. CIT(A) XVI, AHMEDABAD DATED 19.10.2009 FOR THE ASSESSMENT YEAR 2006-07. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1.1 THE ORDER PASSED U/S.250 ON 19.10.2009 F OR A.Y.2006-07 BY CIT(A)-XVI, AHMEDABAD UPHOLDING THAT PROFIT ON S ALE OF SHARES WAS BUSINESS INCOME AND NOT CAPITAL GAINS, I S WHOLLY ILLEGAL, UNLAWFUL AND WITHOUT JURISDICTION. 1.2 THE CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR O N FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE EXPLANATIONS FUR NISHED AND THE EVIDENCE PRODUCED BY THE APPELLANT. 1.3 THE CIT(A) HAS GRIEVOUSLY ERRED IN UPHOLDI NG STCG AS BUSINESS INCOME WITHOUT GIVING SUFFICIENT OPPORTUNI TY TO THE APPELLANT AND THEREBY VIOLATING THE PRINCIPLES OF N ATURAL JUSTICE. THE APPELLANT SHOULD THEREFORE BE ALLOWED TO PRODUC E ADDITIONAL EVIDENCE /EXPLANATION DURING THE COURSE OF APPELLAT E PROCEEDINGS AND SHOULD BE ADMITTED. I.T.A.NO.683 /AHD/2010 2 2.1 THE CIT(A) HAS GRIEVOUSLY ERRED IN LAW AN D OR ON FACTS IN UPHOLDING THAT THE SURPLUS ON SALE OF SHARE AS BUSI NESS INCOME INSTEAD OF STCG. 2.2 THAT IN THE FACT AND CIRCUMSTANCE OF THE C ASE THE CIT(A) OUGHT NOT TO HAVE CONFIRMED STCG ON SALE OF SHARES AS BUSINESS INCOME BY RELYING UPON IRRELEVANT FACTS AND CRITERI A. 2.3 THE OBSERVATIONS MADE AND CONCLUSION REAC HED BY CIT(A) FOR UPHOLDING THE STCG AS BUSINESS INCOME ARE NOT A DMITTED BY THE APPELLANT INSOFAR AS THE SAME ARE CONTRARY TO T HE EVIDENCE ON RECORD. IT IS THEREFORE PRAYED THAT SURPLUS ON SALE OF SHAR ES OF RS.2,24,10,408 BE TREATED AS STCG INSTEAD OF BUSINE SS INCOME. 2. BRIEF FACTS OF THE CASE TILL THE ASSESSMENT STAG E ARE NOTED BY LD. CIT(A) IN PARA 3 OF HIS ORDER WHICH IS REPRODUCED B ELOW FOR THE SAKE OF READY REFERENCE: 3. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT OFFERED TOTAL INCOME OF RS. 2,21,81,579/- IN HIS RETURN OF INCOME WHICH INCLUDED SHORT TERM CAPITAL GAIN OF RS. 2,24,10,408/- ON ACC OUNT OF SALE OF SHARES. THE ASSESSING OFFICER ASKED THE APPELLANT T O EXPLAIN AS TO WHY THE INCOME ARISING FROM THE SALE & PURCHASE OF SCRIPTS SHOULD NOT BE TREATED AS TRADING INSTEAD OF SHORT TERM CAP ITAL GAIN. HE OBSERVED THAT THE APPELLANT HAS DONE FREQUENT TRANS ACTIONS IN MANY SCRIPTS AND THEREFORE, THE INCOME IS LIABLE TO BE T AXED AS BUSINESS INCOME IN VIEW OF THE INSTRUCTION NO. 1827 OF THE C BDT. HE EXAMINED .THE CASE FROM THE FOLLOWING ANGLES NAMELY - ' I) WHETHER THE PURCHASE AND SALE OF SECURITY WAS ALLIED TO THE ASSESSEE'S USUAL BUSINESS OR AS ON INDEPENDENT INDI VIDUAL ACTIVITY. . IL) WHETHER THE PURCHASE IS MADE SOLELY WITH THE INTENTION OF PROFIT OR LONG TERM APPRECIATION. III) WHETHER THE SCALE OF ACTIVITY IS SUBSTAN TIAL IV) WHETHER THE TRANSACTIONS ENTERED INTO IS C ONTINUOUS & REGULAR DURING THE RELEVANT FINANCIAL YEAR. HE FINALLY HELD THAT THE APPELLANT IS IN FACT A TRA DER IN THE SHARE & THEREFORE TAXED THE SHORT TERM CAPITAL GAIN AS BUSI NESS INCOME. AGAINST THIS ACTION OF THE ASSESSING OFFICER, THE A PPELLANT HAS FILED PRESENT APPEAL. SHRI S N DIVETIA, CA ATTENDED & FI LED WRITTEN SUBMISSION ON 10.09.2009 AND 10.10.2009. 3. IT WAS SUBMITTED BY THE LD. A.R. THAT IT IS STAT ED BY LD. CIT(A) IN PARA 6 ON PAGE 5 OF HIS ORDER THAT MORE THAN 430 TI MES THE D MAT ACCOUNT I.T.A.NO.683 /AHD/2010 3 IS DEBITED AND CREDITED AND HENCE, IT HAS TO BE HEL D THAT ASSESSEE HAD MADE TRANSACTIONS FOR 430 TIMES. HE SUBMITTED THAT THIS IS NOT FACTUALLY CORRECT BECAUSE FROM THE COPY OF D MAT ACCOUNT SUBMITTED BY THE ASSESSEE ON PAGES 34-46 OF THE PAPER BOOK, IT CAN BE SEEN THAT FOR SALE OF SAME SHARES OF SAME COMPANY, THERE ARE DIFFERENT DATES BECAUSE THE SALE ORDER COULD NOT BE EXECUTED ON ONE DATE AND HENCE, THE ENTIRE T RANSACTION IN ONE SCRIPT SHOULD BE CONSIDERED AS ONE TRANSACTION AND THEN TH E NUMBER OF TRANSACTIONS ARE NOT MUCH. HE ALSO PLACED RELIANCE ON VARIOUS TRIBUNAL DECISIONS. (A) 54 SOT 09 (PUNE) APOORVA PATNI VS ADDL. CIT (B) 46 SOT 23 (MUM) (URO) ITO VS RADHA BIRJU PATEL (C) 47 SOT 172 (PUNE) ARA TRADING & INVESTMENTS ( P.) LTD. (D) ITO VS RAJESH BALWANTBHAI BRAHMBHATT I.T.A.NO. 1705/AHD/2009 DATED 31.08.2012 (COPY FILED). 4. AS AGAINST THIS, LD. D.R. SUPPORTED THE ORDERS O F AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND VARIOUS JUDGEMENTS CITED BY THE LD. A.R. IN THE PRESENT CA SE, THIS ISSUE WAS DECIDED BY LD. CIT(A) AGAINST THE ASSESSEE ON THIS BASIS THAT THERE IS NO DOUBT THAT A PERSON CAN HOLD SHARES BOTH UNDER THE BUSINESS AS WELL AS INVESTMENT PURPOSE BUT CLEAR DEMARCATION IS TO BE D ONE BY HIM AT THE TIME OF ITS PURCHASE ONLY. HE HAS ALSO NOTED THAT INVES TMENT CANNOT BE FOR A SMALL PERIOD OF 1-2 DAYS TO 10-15 DAYS AS SHOWN BY THE ASSESSEE. ON THE BASIS OF THIS, HE HAS DECIDED THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE ARE IN FACT BUSINESS TRANSACTIONS. 6. NOW, WE EXAMINE APPLICABILITY OF VARIOUS JUDGEME NTS CITED BY THE LD. A.R. IN THE LIGHT OF ABOVE FACTS OF THE PRESENT CASE. IN THE CASE OF ITO VS RAJESH BALWANTBHAI BRAHMBHATT (SUPRA), THE T RIBUNAL HAS CONSIDERED ANOTHER TRIBUNAL DECISION RENDERED IN TH E CASE OF MANISHA I.T.A.NO.683 /AHD/2010 4 DIXIT SHAH RENDERED IN I.T.A.NO. 272/AHD/2010 DATED 12.08.2011 AND IT WAS NOTED IN PARA 8 THAT IN ANOTHER TRIBUNAL DECISI ON, IT WAS HELD BY THE TRIBUNAL THAT MAGNITUDE OF TRANSACTION AND FREQUENC Y OF PURCHASE AND SALE ETC. ALONE CANNOT BE BASIS TO CONCLUDE THAT ASSESS EE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. IT WAS HE LD THAT ALL THE FACTORS HAVE TO BE CONSIDERED TOGETHER AND THEN ON THE HOLI STIC CONSIDERATION OF ALL THE FACTORS, REASONABLE VIEW HAS TO BE TAKEN. IN THE PRESENT CASE, COPY OF THE WRITTEN SUBMISSIONS MADE BY THE ASSESSEE BEF ORE LD. CIT(A) ARE APPEARING ON PAGES 1-4 OF THE PAPER BOOK AND AS PER THESE SUBMISSIONS, IT WAS SUBMITTED BY THE ASSESSEE BEFORE LD. CIT(A) THA T OWN FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES. IT WAS POINTED OUT THAT PARTNERS CAPITAL WAS OF RS.264.42 LACS WHEREAS INVESTMENT IN SHARES WAS ONLY RS.237.77 LACS. IT W AS ALSO SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY OFFICE OR OTHER INFRA STRUCTURE TO CARRY OUT TRANSACTION IN SHARES WHICH IS ORDINARILY A STR ONG INDICATION OF THE ASSESSEE CARRYING ON BUSINESS. RELIANCE WAS ALSO P LACED ON THE BOARDS CIRCULAR NO.4/2007 IN WHICH IT WAS SUGGESTED THAT I F THE SOURCE OF FUNDS IS BORROWED FUND, IT WOULD BE CONSIDERED THAT SHARE S ARE STOCK IN TRADE. RELIANCE WAS ALSO PLACED ON THE TRIBUNAL DECISION R ENDERED IN THE CASE OF GOPAL PUROHIT AS REPORTED IN 29 SOT 117 WHERE ALSO, IT WAS HELD THAT HIGH VOLUME ALONE CANNOT BE A BASIS OF HOLDING THAT THE TRANSACTIONS ARE IN RESPECT OF SHARE TRADING. IN THE ORDERS OF AUTHORI TIES BELOW, APART FROM HIGHER MAGNITUDE AND FREQUENCY, THERE IS NO ADVERSE FACTOR POINTED OUT BY THE AUTHORITIES BELOW TO SAY THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF SHARES AND NOT IN INVESTMENT IN SHARES. UNDER THES E FACTS, WE ARE OF THE CONSIDERED OPINION THAT IN THE LIGHT OF THE TRIBUNA L DECISION RENDERED IN THE CASE OF RAJESH B BRAHMBHATT (SUPRA), IT CANNOT BE SAID THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN S HARES AND HENCE, IT HAS TO BE ACCEPTED THAT THE ASSESSEE IS CARRYING ON THE TRANSACTIONS OF THESE I.T.A.NO.683 /AHD/2010 5 SHARES IN THE COURSE OF INVESTMENT IN SHARES AND, T HEREFORE, PROFIT ON SALE OF SUCH SHARES HAS TO BE ASSESSED AS INCOME FROM CA PITAL GAIN AND NOT AS INCOME FROM BUSINESS. THE JUDGEMENT OF HONBLE BOM BAY HIGH COURT RENDERED IN THE CASE OF GOPAL PUROHIT AS REPORTED I N 228 CTR 582 (BOM.) ALSO SUPPORTS THE ASSESSEE AND THE OTHER JUDGEMENTS CITED BY THE LD. A.R. ARE ALSO SUPPORTING THE CASE OF THE ASSESSEE AND NO CONTRARY DECISION HAS BEEN CITED BEFORE US BY THE LD. D.R. IN THE ORDERS OF AUTHORITIES BELOW ALSO, RELIANCE IS NOT PLACED ON ANY OF THE JUDGEMEN TS POINTING OUT THAT MERELY ON THE BASIS OF HIGH VOLUME AND FREQUENCY, I T CAN BE SAID THAT THE SHARES ARE TRANSACTED IN THE COURSE OF TRADING IN S HARES AND NOT IN THE COURSE OF INVESTMENT IN SHARES. AS PER ABOVE DIS CUSSION, WE ARE OF THE CONSIDERED OPINION THAT IN THE FACTS OF THE PRESENT CASE, THE INCOME ARISING TO THE ASSESSEE FROM PURCHASE AND SALE OF SHARES IS ASSESSABLE AS SHORT TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. WE H OLD ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD I.T.A.NO.683 /AHD/2010 6 1. DATE OF DICTATION 07/12/12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 10/12/12.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 14/12/2012 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 14/12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14/12/2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .