VEEKRANT STOCK AND FINANCE P.LTD, MUMBAI V. ITO 4(2)(2), MUMBAI

ITA 7004/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75452 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH, MUMBAI , BEFORE SHRI VIJAY PAL RAO , JM & SHRI N.K.BILLAIYA , AM IT A NO. 7004 / MUM/ 20 12 ( ASSESSMENT YEAR : 20 06 - 20 07 ) M/S VEEKRANT STOCK AND FINANCE PVT. LTD., 13 - B, 1 ST FLOOR, 105, APPOLLO STREET, BOMBAY SAMACHAR MARG, MUMBAI - 01 VS. ITO 4(2)(2), MUMBAI PAN/GIR NO. : AAAC V 426 5 B ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : NONE /REVENUE BY : MR. RAVI PRAKASH DATE OF HEARING : DATE OF PRONOUNCEMENT : O R D E R PER VIJAY PAL RAO , J M : THIS APPEAL BY THE ASSESSE E IS DIRECTED AGAINST THE ORDER DATED 18 - 2 - 2010, PASSED BY THE LEARNED CIT(A) - 8 , MUMBAI , PERTAINING TO ASSESSMENT YEAR 20 06 - 20 07 . 2 . THE ASSESSEE IN ITS APPEAL HAS RAI SED THE FOLLOWING GROUNDS : - 1. THE LEARNED ASSESSING OFFICER ERRED IN TREATING THE SHORT TERM CAPITAL GAINS OF RS.11,645,381/ - AND LONG TERM CAPITAL LOSS OF RS.33,398/ - UNDER THE HEAD BUSINESS INCOME. 2. THE LEARNED ASSESSING OFFICER ERRED IN ADDING RS. 1,50,009/ - U/S.14A AS EXPENDITURE ATTRIBUTABLE TO EARN EXEMPT INCOME BY WAY OF DIVIDEND. ITA NO. 7004 /12 2 3 . NONE APPEARED ON BEHALF OF THE ASSESSEE WHEN THIS APPEAL WAS CALLED FOR HEARING REPEATEDLY, DESPITE THE NOTICE OF HEARING HAS DULLY BEEN SERVED ON THE ASSESSEE VIDE ACKNOWLEDGEMENT ON RECORD. ACCORDINGLY, WE PROPOSE TO HEAR AND DISPOSE OF THIS APPEAL EX - PARTE . 4 . GROUND NO.1 IS REGARDING TREATING THE S HORT T ERM C APITAL GAINS OFFERED BY THE ASSESSEE AS BUSINESS INCOME BY THE ASSESSING OFFICER . 4.1 WE HAVE HEARD LEARNED DR AND CAREFULLY PERUSED THE RELEVANT RECORD. THE ASSESSEE HAS DECLARED SHORT - TERM CAPITAL GAIN OF RS. 1,16,11, 442 / - AND LONG TERM CAPITAL GAINS OF RS. 33,938/ - . WE NOTE THAT THE AO HAS RECORDED CERTAIN FACTS WHILE DECIDING THE ISSUE O F TREAT MENT OF CLAIM OF CAPITAL GAIN AS BUSINESS INCOME IN PARA 3.2 AS UNDER : - 3.2 AFTER CONSIDERING THE ABOVE LEGAL POSITION, THE FACTUAL SITUATION PERTAINING TO THE ASSESSEE IS CONSIDERED AS UNDER : - A. THE TOTAL NO OF TRANSACTIONS UNDERTAKEN BY THE AS SESSEE ARE : 2033 B.(I) TOTAL NO. SHARES PURCHASED DURING THE YEAR :1381876(RS.30,28,98,805) (II) TOTAL NO. OF SHARES SOLD DURING THE YEAR : 1474427(RS.31,25,93,046) THUS, THE PURCHASE TO SALE RATIO IS 0.93 WHICH IS INDICATIVE OF A VERY HIGH RATE OF PURCHASE AND SALE. AND CONSEQUENT VERY LOW PERIOD OF HOLDING. C. THE TOTAL PROFIT FROM INVESTMENT SHORT TERM CAPITAL GAIN IS RS.1,16,11,442/ - AND LTCG IS LOSS OF RS.(33,938/ - ) - ANNEXURE D. THE TOTAL NO . OF TRANSACTIONS COMPRISING LTCG 6 WHILE THE REMAINING TRANSACTIONS OF 2027 ARE PERTAINING TO STCG. E. DURING THE YEAR, THE ASSESSEE HAS TRACED IN 410 SCRIPS. ITA NO. 7004 /12 3 F. NOT EVEN A SINGULAR INSTANCE HAS BEEN BROUGHT TO THE NOTICE WHERE PURCHASES HAVE BEEN MADE FROM PRIMARY MARKET. ALL TRANSACTIONS HAVE BEEN DONE ON SECONDARY MARKET WHICH IS PRIMARILY A TRADING PLATFORM. FROM THE SAMPLES SELECTED AND THE NATURE OF TRANSACTION THE ASSESSEE CANNOT SAY THAT HE HAS AN INTENTION TO HOLD THE SHARES. THE SAME DAY PURCH ASE AND SALES ARE NOT THE INCLINATIONS OF A DISCIPLINED INVESTOR. E. FURTHER, DURING THE YEAR, AS PER AUDIT REPORT, THE ASSESSEE HAS MADE BORROWINGS TO FUND HIS INVESTMENTS BY WAY OF LOANS FROM SHRI KRANTI V. VAID OF RS. 37,00,000/ - . OUT OF TOTAL FUNDS A VAILABLE TO THE ASSESSEE DURING THE YEAR AS PER THE BALANCE - SHEET ARE RS. 3.90 CRORES AND THE TOTAL INVESTMENTS AT THE CLOSE OF FINANCIAL YEAR ARE RS. 3.08CRORES. THUS, 79% OF THE FUNDS HAVE BEEN UTILIZED FOR HOLDING INVESTMENTS. FURTHER, THESE 3.90 CRORES O F AVAILABLE FUNDS HAVE RESULTED IN TOTAL PURCHASES OF RS. 302898805 . THUS, THESE FUNDS HAVE BEEN ROTATED ALMOST 10 TIMES DURING THE COURSE OF ENTIRE YEAR. THROUGH THIS, ONE THING IS CLEAR, THAT IS, THE ASSESSEE HAS BEEN FREQUENTLY AND CONSISTENTLY THROUGHOU T THE YEAR INDULGING IN PURCHASE AND SALE OF SHARES AS THE VOLUME SUGGESTS. THE ASSESSEE CANNOT CLAIM THAT HIS MOTIVE WAS TO EARN DIVIDEND ON HIS INVESTMENT SINCE HE HAS RECEIVED AN AMOUNT OF RS. 2,36,196/ - OF DIVI DEND ON HIS TOTAL TRANSACTIONS. 4.2 THUS, IT IS CLEAR FROM THE FACTS RECORDED BY THE AO ABOVE THAT THE ASSESSEE HAS CARRIED OUT 2033 TRANSACTIONS OF PURCHASES AND SALES OF SHARES DURING THE YEAR COMPRISING OF 13,81,876 NO OF SHARES BEING SOLD DURING THE YEAR. THIS CLEARLY SHOWS A VERY HIGH FREQUE NCY OF PURCHASE AND SALE TRANSACTIONS AND PURCHASE AND SALE RATIO IS . 93. THE LONG TERM CAPITAL GAIN IS ARISING ONLY FROM SIX TRANSACTIONS WHEREAS ALL THE REMAINING TRANSACTIONS OF 2077 ARE PERTAINING TO SHORT TERM CAPITAL GAIN. FURTHER, THE ASSESSEE HAS T RADED IN 410 SCRIPS DURING THE YEAR. THE ABOVE FACTS WERE CONSIDERED BY THE CIT(A) AND THEN CONFIRMED THE ACTION OF THE AO IN PARA 1.3 AS UNDER : - 1.3 I HAVE GONE THROUGH THE ORDER OF THE A.O. AND SUBMISSION OF APPELLANT. THE ACTION OF THE AO TO CONSIDER THE SHORT TERM CAPITAL ITA NO. 7004 /12 4 GAIN DISCLOSED BY THE APPELLANT AS BUSINESS INCOME IS FOUND TO BE VALID ON ACCOUNT OF FOLLOWING: (A) THE APPELLANT HAS BEEN SHOWING INCOME FROM TRANSACTIONS IN SHARES AS CAPITAL GAIN FOR MANY YEARS (POSSIBLY LAST EIGHT YEARS AS STAT ED ORALLY IN COURSE OF APPEAL PROCEEDINGS) BUT IN NONE OF THE PAST YEARS SCRUTINY ASSESSMENTS WERE EVER MADE. THE ASSESSMENT YEAR 2006 - 07 IS THE FIRST YEAR OF SCRUTINY. THE AO, THEREFORE, IN PAST HAD NO OCCASION TO DETERMINE THE REAL NATURE OF TRANSACTIONS . (B) DURING THE YEAR THERE HAS BEEN 2033 TRANSACTIONS, THE TRANSACTIONS HAVE BEEN UNDERTAKEN WITHIN SHORT SPAN OF TIME W ITH A VIEW TO EARN PROFIT AND THE PURCHASE AMOUNT IS RS.30.28 CRORES, THE TOTAL NUMBER OF SHARES PURCHASED ARE OF RS.13.81 LACS AND T HE TOTAL NUMBER OF SHARES SOLD ARE 14.74 LACS AT RS.31.25 CRORES. THUS, IT IS ABSOLUTELY OBVIOUS THAT THE APPELLANT WAS LOOKING FOR PROFIT BY WATCHING MOVEMENTS OF SHARES DAY IN AND DAY OUT. (C) THE SUPREME COURT HAS HELD THAT THE MANNER OL ENTRY IN THE BO OKS OF ACCOUNT IS NOT DECISIVE (82 ITR 363(SC)). THEREFORE, THE SHARE SHOWN AS INVESTMENT DOES NOT MEAN THAT THEY ARE INVESTMENT; ONE HAS TO SEE THE SUBSTANCE OF THE CONDUCT OF THE APPELLANT. IN THE CASE OF KARANPURA DEVELOPMENT CO. LTD. - VS - CIT 44 ITR 36 2, IT HAS BEEN HELD THAT A SUBSTANCE OF TRANSACTION WOULD PREVAIL OVER FORM. THE ESSENTIAL CHARACTERISTIC OF THE BUSINESS ARE - (A) CONTINUOUS AND SYSTEMATIC EXERCISE OF ACTIVITY, (B) PROFIT MOTIVE. THE ACTIVITY OF THE APPELLANT HAS BEEN CONTINUOUS AND SYS TEMATIC AND FREQUENT SALE AND PURCHASES HAVE BEEN MADE WITH THE INTENTION TO EARN PROFIT. IT HAS BEEN HELD IN CASE OF RAJPUTANA TEXTILE (AGENCIES) LTD. - VS. - CIT (1961) 42 ITR 743 (SC) THAT SALES OF SHARES ACQUIRED WITH A VIEW TO SELL AT PROFIT CONSTITUTE ADVENTURE IN NATURE OF TRADE. TH3 FACTS OF THE TRANSACTION OF THE SHARES BY APPELLANT CLEARLY INDICATE THAT IT HAS BEEN PURCHASING AND SELLING SHARES WITH THE INTENTION OF M AKING PROFIT END NOT WITH THE INTENTION TO INVEST AND THE ACTIVITY OF THE APPELLANT HAS BEEN THAT OF AN ADVENTURE IN THE NATURE OF TRADE. (D) LOOKING INTO THE EXTREMELY HIGH VOLUME OF FREQUENT TRANSACTIONS AND THE FACT THAT 79% OF THE FUNDS HAVE BEEN UTILIZED FOR SHARE TRANS ACTIONS, THE TRANSACTIONS ARE NOT OF THE NATUR E OF SHORT TERM CAPIT?1 GAINS BUT IS OF THE NATURE OF BUSINESS INCOME. IN VIEW OF THE ABOVE, GROUND NO.1 IS DISMISSED. 4.3 FROM THE FACTS RECORDED BY THE AUTHORITIES BELOW, WE FIND THAT THE INTENTION OF THE ASSESSEE IN CARRYING OUT THE PURCHASE AND SALE TRANSACTION OF THE SHARES IS TO EARN THE PROFIT AT THE SHORTEST POSSIBLE OCCASION, WHICH SHOWS THE ADVENTURE NATURE OF THE ACTIVITY OF PURCHASE AND SALE OF SHARES. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE ITA NO. 7004 /12 5 WITH THE ORDERS OF THE AUTHORITIES BELOW QUA THIS ISSU E. THIS GROUND OF THE ASSESSEES APPEAL IS DISMISSED. 5 . GROUND NO.2 IS REGARDING DISALLOWANCE UND E R SECTION 14A. 5.2 WE HAVE PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE DISALLOWANCE HAS BEEN MADE UNDER SECTION 14A BY APPLYING RULE 8D, WHEREAS RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) . ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER TO DETERMINE THE DISALLOWANCE UNDER SECTION 14A ON SOME REASONABLE BASIS IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA) . THIS GROUND IS ALLOWE D FOR STATISTICAL PURPOSES. 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED PARTLY FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 29 / 01 / 201 4 . 29/01/2014 SD/ - ( ) ( N.K.BILLAIYA ) SD/ - ( ) ( VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 2 9 / 01 /201 4 /PKM , PS ITA NO. 7004 /12 6 COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI