ACIT 25(3), MUMBAI V. SHREEGOPAL; R. PUROHITA, MUMBAI

ITA 6950/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8420 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K MEHTA
• Assessee Lawyers: S C TIWARI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.6950/MUM/2010 ASSESSMENT YEAR: 2007-08 ACIT, 25(3), C-11, R.NO.308, PRATYSKHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-51. SHREEGOPAL R PUROHIT, C-702, MAHTRE PLAZA, DHANUKAWADI, M.G.ROAD, KANDIVALI(W), MUMBAI-67. PA NO.AAGPP 1987 K (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI N.K.MEHTA RESPONDENT BY: SHRI S.C.TIWARI DATE OF HEARING: 23 .10.2012 DATE OF PRONOUNCEMENT: 9. .11.2012 ORDER PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2007-08 AGAINST ORDER DATED 29.7.2010 OF LD CIT(A)-35, MUMBAI ON FOLLOWI NG GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ACCEPT THE CL AIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON PROFIT A RRIVING FROM PURCHASE & SALE OF SHARES INSTEAD OF BUSINESS INCOME TREATED B Y THE A.O. WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS DEALING IN LARGE VOLUME OF SHARES, MOST OF THE SHARES ARE BOUGHT AND SOLD WITH IN SHORT PERIOD, WHILE SOME ARE NOT SOLD DUE TO MARKET CONDITIONS AND THEI R HOLDING WITH ASSESSEE REMAINS BEYOND FEW DAYS, IT WILL NOT CHANG E THE NATURE OF TRANSACTIONS AND THE ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SHARE TRADING, WHICH DENOTE THAT THE MOTIVE OF THE ASSESSEE IS TO CARRY ON BUSINESS IN SHARES TO BOOK PROFIT RATHER THAN INVES TMENT IN SHARES. 2. ON PERUSAL OF ORDERS OF AUTHORITIES BELOW AND SU BMISSIONS MADE BEFORE US, WE OBSERVE THAT GROUNDS OF APPEAL TAKEN BY THE DEPARTM ENT IS NOT CORRECT AS THE ONLY DISPUTE BEFORE LD CIT(A) AGAINST WHICH THIS APPEAL HAS ARISEN, WAS TO TREAT THE SUM OF ITA NO.6950/MUM/2010 ASSESSMENT YEAR: 2007-08 2 RS.10,49,522 AS SHORT TERM CAPITAL GAIN IN STEAD OF BUSINESS INCOME CONSIDERED BY THE AO. 3. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL A RE THAT ASSESSEE HAS SHOWN CAPITAL GAIN OF RS.10,49,522 WHICH THE AO CONSIDERED TO BE INCOME FROM BUSINESS ON THE GROUND THAT THE PERIOD OF HOLDING OF THE SHARES BOU GHT AND SOLD IS SHORT. THE AO FURTHER STATED THAT ASSESSEE HAS BORROWED UNSECURED LOAN TO THE EXTENT OF RS.5 LACS WHICH WAS UTILIZED FOR SHARE TRANSACTION. AO HAS S TATED THAT THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE IS IN RESPECT OF SHARES, WHER E PURCHASE AMOUNT WAS RS.5,32,54,726 AND SALE AMOUNT WAS RS.5,43,19,226, DETAILS OF WHICH ARE ALSO MENTIONED BY AO AT PAGE 2 OF THE IMPUGNED ORDER. H E HAS FURTHER STATED THAT ASSESSEE HAS DIVIDED SHARE TRANSACTIONS INTO TWO CATEGORIES I.E. FIRST WHERE SHARES WERE DELIVERED AND SECOND WHERE NO DELIVERY WAS TAKEN. ASSESSEE H AS CONSIDERED INCOME OF FIRST CATEGORY UNDER THE HEAD CAPITAL GAIN AND WHEREAS THE INCOME UNDER SECOND CATEGORY AS BUSINESS INCOME. AO HAS STATED THAT SIMILAR I SSUE AROSE IN ASSESSEES CASE FOR ASSESSMENT YEARS 2005-06 AND 2006-07 AND SHORT TERM CAPITAL GAINS AND LONG TERM CAPITAL GAINS WERE ASSESSED UNDER THE HEAD BUSINES S WHICH WAS CONFIRMED BY LD CIT(A). HOWEVER, AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE THAT THE SHARES FOR WHICH ASSESSEE HAS CLAIMED CAPITAL GAINS WERE TRANS FERRED IN DEMAT ACCOUNT AND PAID STT AS APPLICABLE TO THE INVESTOR. AO STATED THAT MERE ENTRIES IN THE BOOKS OF ACCOUNT SHOWING SHARES AS INVESTMENT IS NOT DETERMINATIVE FACTOR TO DECIDE THE REAL NATURE OF TRANSACTION. AO HAS STATED THAT THE INTENTION OF A SSESSEE IS TO BOOK PROFIT ON SALE OF SHARES AND ASSESSEE HAS ALSO ENTERED INTO LARGE NUM BER OF TRANSACTIONS WITHIN A SHORT PERIOD. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEF ORE LD CIT(A). 4. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT FOR ASSESSMENT YEAR 2005-06, RELIANCE PLACED BY THE AO TO THE ORDER OF LD CIT(A) WAS REVERSED BY THE TRIBUNAL IN I.T.A. NO.4854/M/2008 VIDE ORDER DATED 10.2.2009. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT FOR ASSESSMENT YEAR 2006-07, THE FIRS T APPELLATE AUTHORITIES ALLOWED THE CLAIM OF ASSESSEE THAT PROFIT ARISING ON SALE OF SH ARES IS ASSESSABLE UNDER THE HEAD SHORT TERM CAPITAL GAIN AND THE TRIBUNAL IN I.T.A . NO.4957/M/2009 VIDE ORDER DATED 14.5.2010 CONFIRMED THE ORDER OF LD CIT(A). IT WAS CONTENDED THAT THERE IS NO CHANGE IN THE ACTIVITIES OF THE ASSESSEE DURING THE ASSESS MENT YEAR UNDER CONSIDERATION I.E. A.Y. ITA NO.6950/MUM/2010 ASSESSMENT YEAR: 2007-08 3 2007-08 AS COMPARED TO A.YS 2005-06 AND 2006-07 AND , THEREFORE, THE ORDER OF THE TRIBUNAL SHOULD BE FOLLOWED. IT WAS CONTENDED THAT NUMBER OF TRANSACTIONS FOR ASSESSMENT YEAR UNDER CONSIDERATION ARE LESS AS COM PARED TO PRECEDING ASSESSMENT YEARS. LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE VIDE PARA 3.4 OF THE IMPUGNED ORDER, HAS DIRECTED THE AO TO ASSESS THE P ROFIT ON SALE OF SHARES UNDER THE HEAD SHORT TERM CAPITAL GAIN OR LONG TERM CAPITA L GAIN DEPENDING ON THE PERIOD OF HOLDING. PARA 3.4 OF THE ORDER OF LD CIT(A) READS AS UNDER: 3.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRE SENTATIVE AND THE STAND TAKEN BY THE A.O. ADMITTEDLY, THE APPELLANT HAS DIVIDED T HE SHARE TRADING INTO TWO CATEGORIES: I. DELIVERY BASED AND II. NON DELIVERY BASED AND TREATED THE 1 ST CATEGORY UNDER THE HEAD CAPITAL GAIN. IT IS ALSO SEEN THAT THE APPELLANT TRANSFERRED ALL THE SHARES, IN RESPECT OF WHICH THE CAPITAL GAIN WAS ADMITTED, IN THE NAME OF THE APPELLANT AS PER THE D EMAT ACCOUNT AND PAID STT AT THE RATE APPLICABLE TO THE INVESTMENT. EVEN THOUGH THE APPELLANT HAS ADMITTED PROFIT FROM SHARE TRADING, THERE IS NO BAR FOR THE SAME ASSESSEE TO DO BUSINESS IN SHARES AND ALSO HOLD SOME SHARES AS INVESTMENT AS H ELD BY THE DECISION OF HONBLE HYDERABAD TRIBUNAL IN THE CASE OF SHAH-LA I NVESTMENTS AND FINANCIAL CONSULTANTS PVT. LTD. V DCIT(2 SOT 371). FURTHER T HE SAME VIEW WAS TAKEN BY THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF J. M. SH ARE & STOCK BROKERS VS. JCIT (FEB 2008) ITA NO. 2801/MUM/2000 DATED 30.11.2007. FURTHER THE SHARES WERE HELD AS INVESTMENT BY THE APPELLANT AS SEEN FROM TH E BALANCE SHEET . IT IS SEEN THAT THE APPELLANT HELD SHARE INVESTMENT OF RS. 11, 40,28,692/- AS ON 31.3.2007 AS PER THE BALANCE SHEET AND WHEN COMPARED TO THE A BOVE INVESTMENT, THE TOTAL VALUE OF TRANSACTIONS AS BROUGHT OUT IN THE ASSESSM ENT ORDER IS ONLY RS. 5,43.99,226/- AND, THEREFORE, IT CANNOT BE SAID THA T THE APPELLANT WAS ENGAGED IN VOLUMINOUS TRANSACTIONS WHEN COMPARED TO THE SHARE INVESTMENT ADMITTED IN THE BALANCE SHEET. ADMITTEDLY, THE APPELLANT TRANSFERRE D ALL THE SHARES IN HIS NAME AS EVIDENT BY DEMAT ACCOUNT AND PAID STT AT HIGHER RAT E AS APPLICABLE TO THE INVESTOR. FURTHER THIS ISSUE IS COVERED BY THE DECI SION OF THE HONBLE MUMBAI TRIBUNAL FOR A.YRS. 2005-06 & 2006-07 AND THE DECIS ION OF THE HONBLE MUMBAI HIGH COURT FOR A.Y.2005-06 IN THE APPELLANTS OWN C ASE. AS RIGHTLY CONTENDED BY THE REPRESENTATIVE, THE VOLUME OF SHARE TRANSACTION S DURING THIS YEAR IS LESS COMPARED TO THE EARLIER YEAR. IT IS SEEN THAT EVEN THE SHORT TERM CAPITAL GAINS WAS MUCH HIGHER FOR A.Y. 2005-06 & 2006-07 AT RS. 5 7,31,274/- AND RS,89,27,753/- RESPECTIVELY COMPARED TO RS.10,49,52 2/- DURING THIS YEAR. IN THE CIRCUMSTANCES, THERE IS NO JUSTIFICATION FOR TAXING THE SHORT TERM CAPITAL GAINS ADMITTED BY THE APPELLANT UNDER THE HEAD BUSINESS. REGARDING LONG TERM CAPITAL GAINS, IT IS SEEN THAT THE APPELLANT HELD THE SHARE S FOR A LONG TIME AND IN FACT THE APPELLANT HAS SOLD SHARES WHICH WERE PURCHASED IN T HE YEARS 1998-99, 2003-04 & 2004-05 AND ADMITTEDLY ALL THE SHARES WERE HELD BY THE APPELLANT FOR MORE THAN 12 MONTHS AND, THEREFORE, THERE IS NO JUSTIFICATION FOR TREATING THE LONG TERM ITA NO.6950/MUM/2010 ASSESSMENT YEAR: 2007-08 4 CAPITAL GAINS AS BUSINESS INCOME. IN VIEW OF THE AB OVE, THE A.O. IS DIRECTED TO ACCEPT THE CLAIM OF THE APPELLANT THAT THE PROFIT O N SALE OF SHARES IS ASSESSABLE UNDER THE HEAD SHORT TERM CAPITAL GAIN GAINS OR LON G TERM CAPITAL GAINS DEPENDING UPON THE PERIOD OF HOLDING. THIS GROUND I S ALLOWED. 5. DURING THE COURSE OF HEARING, LD D.R. RELIED ON THE ORDER OF AO AND WHEREAS LD A.R. SUPPORTED THE ORDER OF LD CIT(A). LD A.R. ALS O REFERRED PAGES 3 & 4 OF PB, WHICH CONTAIN DETAILS OF PURCHASE AND SALE OF SHARES DURI NG THE SAME FINANCIAL YEAR AND SUBMITTED THAT AS PER PAGE 3, THERE WAS A SHORT TER M CAPITAL LOSS OF RS.16,52,802 AND WHEREAS THE SHARES WHICH WERE PURCHASED IN EARLIER ASSESSMENT YEAR BUT SOLD IN ASSESSMENT YEAR UNDER CONSIDERATION, THERE WAS A PR OFIT OF RS.27,17,299 AND AFTER SET OFF OF LOSS AGAINST PROFIT, THE NET SHORT TERM CAPI TAL GAIN IS OF RS.10,49,522. LD A.R. SUBMITTED THAT ON PERUSAL OF SAID CHART, IT COULD B E SEEN THAT SOME OF THE SHARES WERE HELD BY THE ASSESSEE FOR A PERIOD OF 11.6 MONTHS AN D SOME OF THE SHARES WERE HELD FOR ABOUT A MONTH OR SO. HE SUBMITTED THAT THERE IS N O REPETITIVE TRANSACTION OF SAME SHARES AND THE CLAIM OF THE ASSESSEE IS GENUINE. H E FURTHER SUBMITTED THAT FACTS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ARE IDENTICAL T O ASSESSMENT YEARS 2005-06 AND 2006-07, WHICH HAVE BEEN DECIDED IN FAVOUR OF ASSES SEE. HE SUBMITTED THAT ORDER OF LD CIT(A) BE CONFIRMED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. 7. WE OBSERVE THAT SHARE TRANSACTION DEPENDS ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS SUCH AS FREQUENCY, VOLUME , ENTRY IN THE BOOKS OF ACCOUNT, NATURE OF FUNDS USED, HOLDING PERIOD ETC, WHICH ARE RELEVANT IN DECIDING THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. THE IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE, WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALING WITH THE SHAR ES SUBSEQUENTLY AND NOT ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNT. THE HONBL E SUPREME COURT HAS HELD IN THE CASE OF CIT VS. H. HOLCK LARSEN, 160 ITR 67((SC) THAT I T IS RELEVANT TO SEE THE INTENTION OF THE ASSESSEE AS TO WHETHER AN ACTIVITY AMOUNTS TO T RADING ACTIVITY OR INVESTMENT ACTIVITY AND FOR WHICH ONE SHOULD NOT LOOK THE END OF THE TR ANSACTION BUT AT THE FIRST PURCHASE TO JUDGE EACH CASE. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ITA NO.6950/MUM/2010 ASSESSMENT YEAR: 2007-08 5 S.RAMAMRITHANS, 217 CTR 206 HELD THAT WHILE DISTIN GUISHING TRADING AND INVESTMENT, THE INTENTION OF THE ASSESSEE IS RELEVANT TO DETERM INE WHETHER AN ASSESSEE IS CARRYING ON BUSINESS IN SHARES OR INVESTMENTS. THE HONBLE APEX COURT HAS ALSO HELD IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. P . LTD., 82 ITR 586(SC) THAT WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTM ENT OR FORMS PART OF STOCK-IN-TRADE IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOL DS SHARES AND IT SHOULD, IN THE NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE E VIDENCE FROM ITS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHAR ES WHICH ARE HELD AS INVESTMENT AND THOSE HELD AS STOCK-IN-TRADE. THE TRIBUNAL IN T HE CASE OF JANAK S. RANGWALA VS ACIT, 11 SOT 627 HAS HELD THAT THE INTENTION OF THE ASSESSEE HAS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY TH E ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGER MAGNITUDE BUT THE SAME WO ULD NOT DECIDE THE NATURE OF TRANSACTION. IT WAS STATED IN THE ABOVE CASE THE M ERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH AR E BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST. 8. IN THE CASE BEFORE US, ASSESSEE HAS DIVIDEND THE SHARE TRADING INTO TWO CATEGORIES, I.E. DELIVERY BASED AND NON-DELIVERY BA SED. IN RESPECT OF FIRST CATEGORY I.E. DELIVERY BASED, ASSESSEE TRANSFERRED ALL THE SHARES IN DEMAT ACCOUNT AND PAID STT AT THE RATE APPLICABLE TO THE INVESTMENT. AS IT CAN BE SEEN FROM THE BALANCE SHEET, ASSESSEE HELD THE SHARES AS INVESTMENT OF RS.11,40, 28,692 AS ON 31.3.2007 AND COMPARED TO ABOVE INVESTMENT, TOTAL VALUE OF TRANSA CTIONS AS PER ASSESSMENT ORDER IS ONLY RS.5,43,99,226. FROM THE ABOVE, IT CAN BE SAI D THAT ASSESSEE WAS NOT ENGAGED IN VOLUMINOUS TRANSACTIONS. WE ALSO OBSERVE FROM PAPER BOOK AT PAGES 3 & 4, WHICH CONTAINS DETAILS OF PURCHASE AND SALE OF SHARES DUR ING THE SAME FINANCIAL YEAR, THERE WAS A SHORT TERM CAPITAL LOSS OF RS.16,52,802 AND WH EREAS THE SHARES WHICH WERE PURCHASED IN EARLIER ASSESSMENT YEARS BUT SOLD IN A SSESSMENT YEAR UNDER CONSIDERATION, THERE WAS A PROFIT OF RS.27,17,299 AND AFTER SETTI NG OFF OF LOSS AGAINST PROFIT, THE NET SHORT TERM CAPITAL GAIN IS OF RS.10,49,522. ON PERU SAL OF SAID CHART, IT CAN BE SEEN THAT SOME OF THE SHARES WERE HELD BY THE ASSESSEE FOR A PERIOD OF 11.6 MONTHS AND SOME OF THE SHARES WERE HELD FOR ABOUT A MONTH OR SO. WE A LSO FIND THAT THERE ARE NO REPETITIVE TRANSACTIONS OF SAME SCRIPTS. WE ALSO OBSERVE THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT ITA NO.6950/MUM/2010 ASSESSMENT YEAR: 2007-08 6 YEARS 2005-05 AND 2006-07. IN VIEW OF ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD CIT(A). HENCE, WE UPHOLD THE SA ME BY REJECTING GROUND OF APPEAL TAKEN BY DEPARTMENT. 9. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2012 SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 9 TH NOVEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),35, MUMBAI 4. COMMISSIONER OF INCOME TAX, 25 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI