SONAL VIPUL SHAH, MUMBAI V. ACIT 13(3), MUMBAI

ITA 7040/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4173 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 03-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A DHYANI
• Assessee Lawyers: REEPAL TRALSHAWALA
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI BEFORE SHRI C.N. PRASAD, JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO 7040/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) SMT. SONAL VIPUL SHAH 29, 2 ND FLOOR, 67, HANUMAN BLDG. MUMBADEVI ROAD, PYDHONIE, MUMBAI-400 003. / VS. A.C.I.T. 13 (3), AAYAKAR BHAVAN, MUMBAI-400 020. ./ ./PAN/GIR NO. ABDPS 0200N ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI REEPAL TRALSHAWALA / RESPONDENT BY : SHRI R.A. DHYANI / DATE OF HEARING : 01/02/2016 !'# / DATE OF PRONOUNCEMENT : 05/02/2016 $% / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 06.08.2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-24, MUMBAI (HE REINAFTER CALLED AS THE CIT(A)) FOR ASSESSMENT YEAR 2008-09. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT 1. ON THE FACTS, CIRCUMSTANCES AND LEGALITY OF THE CAS E, THE HONBLE C.I.T.(A) ERRED IN CONFIRMING THE SHORT TERM CAPITAL GAIN AMO UNTING TO RS.7,79,403/- AS BUSINESS INCOME WHILE IN FACT, THE SAME IS TAXAB LE UNDER THE HEAD CAPITAL GAIN. THE SHORT TERM CAPITAL GAIN AMOUNTING TO RS.7,79,40 3/- TREATED AS A BUSINESS INCOME BE TREATED AS SHORT TERM CAPITAL GA IN. 2. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE CONF IRMATION OF SHORT TERM CAPITAL GAIN OF RS.7,79,403/- AS AGAINST THE BUSINE SS INCOME BY LD. CIT(A). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED HER RETURN OF INCOME ON 31/07/2008 BY DECLARING INCOME OF RS.17,61,946/-. T HE RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY SELECTED FOR SCR UTINY. STATUTORY NOTICE U/S 143(1) WERE DULY ISSUED AND SERVED ON THE ASSESSEE. DURING THE YEAR THE ASSESSEE HAS SHOWN INCOME INTER ALIA OF SHORT TERM CAPITAL GAIN OF RS.7,79,403/-, LONG TERM CAPITAL GAIN OF RS.6,29,952/-, SPECULATION GAIN OF RS.5,06,094/- AND INCOME FROM BUSINESS FROM PROPRIETARY CONCERN OF THE ASSESSEE O F M/S. S.V. TRADERS AT RS.11,42,340/- 4. THE LD. AO DURING THE COURSE OF ASSESSMENT PROCE EDING RAISED QUERY AS TO WHY THE ASSESSEES SHARE TRANSACTION ACTIVITY SHOUL D NOT BE TREATED AS BUSINESS ACTIVITY INSTEAD OF INVESTMENT ACTIVITY. FINALLY TH E AO FRAMED THE ASSESSMENT AT RS. 3 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT 31,71,300/- WHILE TREATING SHORT TERM CAPITAL GAIN OF RS.7,79,403/- AND LONG TERM CAPITAL GAIN OF RS.6,29,952/- FROM SALE OF SHARES B Y TREATING THE SAME AS BUSINESS INCOME OF THE ASSESSEE VIDE ORDER DATED 24/12/10. 5. THE ASSESSEE AGGRIEVED BY THE ORDER OF THE AO PR EFERRED AN APPEAL BEFORE THE CIT(A) WHO WHILE DELETING THE ADDITION IN RESPE CT OF LONG TERM CAPITAL GAIN OF RS. 6,29,952/- SUSTAINED THE ADDITION OF SHORT TERM CAPITAL GAIN OF RS. 7,79,403/- BY HOLDING THAT THE INCOME FROM LONG TERM CAPITAL GAIN COULD BE TREATED AS INCOME FROM INVESTMENT AS INVESTMENT WERE HELD MORE THAN 1 YEAR BY THE ASSESSEE WHILE UPHOLDING THE ORDER OF THE AO OF TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME BY HOLDING AS UNDER: FROM THE DETAILS OF THE SHORT TERM CAPITAL GAINS F ILED BY THE ASSESEE, IT IS SEEN THAT SHE HAD ENTERED INTO 98 TR ANSACTIONS OF SALE OF SHARES ON WHICH GAINS HAVE BEEN MADE. ALMOST ALL THE SHARES WHICH HAVE BEEN SOLD HAVE BEEN BOUGHT DURING THE CU RRENT YEAR ITSELF AND, THEREFORE, COULD NOT HAVE BEEN DISCLOSE D AS INVESTMENTS IN THE BALANCE SHEET OF THE PRECEEDING YEAR. OF THE 98 TRANSACTIONS OF THE SALES, 86 TRANSACTIONS RELATE TO SHARES WHIC H WERE HELD FOR LESS THAN 30 DAYS. HENCE, A HUGE 88% OF THE TRANSAC TIONS RELATE TO SHARES WHICH WERE HELD FOR LESS THAN 30 DAYS.22 TRA NSACTIONS OUT OF THE 98 TRANSACTIONS RELATE TO SHARES WHICH WERE HEL D FOR ONLY 1 DAY WHILE 62 OUT OF 98 TRANSACTIONS OF SALE RELATE TO S HARES WHICH WERE SOLD WITHIN 10 DAYS OF THEIR PURCHASE. THIS TRANSLA TES INTO 63.25% 4 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT OF THE SALES TRANSACTIONS WHERE THE SHARES WERE SOL D WITHIN 10 OF THEIR PURCHASE. THIS SHOWS THAT THE INTENTION OF TH E ASSESSEE WAS NOT TO HOLD THE SHARES FOR APPRECIATION OR FOR THE PURPOSE OF EARNING DIVIDEND INCOME. ONCE THE INTENTION OF THE ASSESEE THAT SHE DID NOT PURCHASE THE SHARES FOR HOLDING THEM FOR A PERIOD OF TIME, WHICH IS THE CLASSIC EXAMPLE OF AN INVESTOR, ITSELF , IS CLEAR, THE ASSESSEE CANNOT BE HELD AS AN INVESTOR IN SHARES IN QUESTION. THE QUESTION OF SHOWING THESE SHARES AS INVESTMENTS IN THE EARLIER YEARS DOES NOT ARISE SINCE ALMOST ALL THE SHARES BA RRING A FEW WERE BOUGHT AND SOLD WITHIN THE CURRENT YEAR ITSELF. THE RE MAY BE A FEW SHARES WHICH HAVE BEEN HELD FOR A PERIOD OF TIME. H OWEVER, THE SINGLE ACTIVITY OF THE ASSESSEE CANNOT BE COMPARTME NTALIZED AND IT IS THE OVERALL IMPRESSION WHICH WILL DECIDE WHETHER THE ASSESSEE IS AN INVESTOR OR A TRADER. SINCE THE INTENTION OF THE ASSESEE WAS NOT TO HOLD THE SHARES FOR A LONGER PERIOD TO EARN INCO ME FROM APPRECIATION IN THE VALUE OF SHARES AS IS EVIDENT F ROM THE FACTS AVAILABLE ON RECORD, AND THE CONDUCT OF THE ASSESSE E SHOWS THAT SHE HAS ACTED AS A TRADER IN RESPECT OF THE SHARES IN Q UESTION, SHE HAS TO BE HELD AS A TRADER AND NOT AS AN INVESTOR IN RE SPECT OF THE SHARES ON WHICH SHORT TERM CAPITAL GAINS HAS BEEN C LAIMED BY THE ASSESSEE. THE ACTION OF THE ASSESSING OFFICER OF TR EATING THE GAINS OF RS.7,79,403/- AS BUSINESS INCOME IS, THEREFORE, UPHELD. THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS PARTLY AL LOWED. 6. THE LD. AR SUBMITTED BEFORE US THAT IN ALL THE P ROCEEDINGS AND SUCCEEDING YEARS THE SIMILAR INCOME FROM THE SHORT TERM CAPITA L GAIN WAS ACCEPTED AS SUCH BY 5 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT THE DEPARTMENT. THE LD. AR BROUGHT TO OUR NOTICE TH AT HOLDING OF THE ASSESSEE IN MUTUAL FUNDS AND DEBENTURES WERE DULY SHOWN AS INV ESTMENT IN MUTUAL FUNDS AND INVESTMENT IN SHARES/DEBENTURES WHICH IS PLAC ED AT PG NO. 3 OF THE PAPER BOOK. THE LD. COUNSEL ALSO DREW OUR ATTENTION TO PG .NO.5 & 6 SHOWING DETAILS OF INVESTMENTS, PG.NO.7 LONG TERM CAPITAL GAIN/ LOSS A ND ON PG. NO. 8 &9 SHORT TERM CAPITAL GAIN/LOSS. IT WAS ALSO SUBMITTED BEFORE US THAT THE ASSESSEE HAD NOT BORROWED FUNDS AND ALL THESE INVESTMENTS WERE MADE OUT OF HIS ASSESSEES OWNED FUNDS AND THE ASSESSESEE HAD BEEN SHOWING THE INCOM E FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN FOR THE LAST MORE THAN 15 YEARS C ONSISTENTLY AND IT WAS ONLY DURING THE CURRENT YEAR THAT THE AO TREATED THE SAID SHORT TERM CAPITAL GAIN FROM SHARES AS BUSINESS INCOME BECAUSE OF HEAVY TRANSACTIONS OF SA LES AND PURCHASE OF SHARES. THE LD. AR VEHEMENTLY ARGUED THAT SIMILAR SHORT TERM CA PITAL GAIN ON SALE OF SHARES WAS ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS AND SUCCEEDING YEARS IN THE CASE OF THE ASSESSEE AND ALSO BROUGHT TO OUR NOTICE THAT TH E ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2006-2007, 2009-2010 & 2011-2015 P ASSED U/S 143(3) OF THE ACT WHICH ARE PLACED AT PG. NO. 154-161 OF THE PAPE R BOOK. THE LD. COUNSEL RELIED ON THE SOME DECISIONS OF THE TRIBUNAL IN DEFENCE OF THE ASSESSEE NAMELY:- 1. SHRI MAHENDRA C SHAH, MUMBAI VS. ACIT IN ITA NO. 6289/MUM/2008 (A.Y. 2005-06) DATED 18/05/2011. 6 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT 2. MR. HITESH SATISHCHANDRA DOSHI, ETEMIA VS, THE J T. CIT IN ITA NO. 6497/MUM/2009 (A.Y. 2003-04) DATED 15/06/2011 AND O THERS. THE LD. COUNSEL FINALLY SUBMITTED THAT IN ORDER TO ASCERTAIN WHETHER INCOME FROM SALE OF SHARES FALLS UNDER BUSINESS INCOME OR SHORT TERM CAPITAL GAIN, IS TO BE DETERMINED ON THE CONDUCT OF THE ASSESSEE AND NOT O THERWISE AND FINALLY PRAYED THAT THE ORDER OF CIT(A) BE SET ASIDE AND AO BE DIRECTED TO TREAT INCOME FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN AS RETURNED BY TH E ASSESSEE. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AUTHORITIES B ELOW. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND FROM THE ASSESSMENT ORDERS PASSED U/S 143(3) I N THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2006-07, 2009-10 & 2011-12 PLA CED AT PG. NO. 152-161 THAT INCOME FROM SHORT TERM CAPITAL GAIN FROM SHARES WAS ACCEPTED AS SUCH BY THE DEPARTMENT ITSELF. FURTHER, WE ALSO NOTE THAT ASSES SEE HAS USED HER OWN FUNDS FOR THE PURPOSE OF INVESTMENTS IN MUTUAL FUNDS AND INVE STMENTS IN SHARES/DEBENTURES AS SHOWN IN THE BALANCE SHEET WHICH IS PLACED ON PG .NO.03 OF THE PAPER BOOK. THE CONDUCT OF THE ASSESSEE IS CLEAR FROM THE DETAILS O F SHARES HELD BY THE ASSESSEE AS ON 31.03.2008 THAT THE ASSESSEE HAD HELD THE INVESTMEN TS IN SHARES FOR FAIRLY LONG PERIOD OF TIME RANGING FROM 17 DAYS TO 2971 DAYS WH ICH IS PLACED AT PG. NO. 5&6 OF THE PAPER BOOK. SIMILARLY THE PERIOD OF HOLDING IN THE CASE OF LONG TERM CAPITAL GAIN 7 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT FROM THE SHARES RANGED BETWEEN 740-239 DAYS. WE ARE IN AGREEMENT WITH THE PLEA OF THE LD. AO THAT DURING THE YEAR THERE WAS HEAVY ACTIVITY BY WAY OF SALE AND PURCHASE OF SHARES IN WHICH THE PERIOD OF HOLDING R ANGED BETWEEN 1-356 DAYS BUT THAT IN ITSELF IS NOT ENOUGH TO TREAT THE INCOME FR OM SALE OF SHARES AS INCOME FROM THE BUSINESS CONTRARY TO WHAT HAD BEEN SHOWN BY THE ASSESSEE. IN THE CASE OF SHRI MAHENDRA C SHAH, MUMBAI VS. ACIT IN ITA NO.6289/MUM /08 (A.Y. 2005-06) DATED 18/05/2011 AND IN THE CASE OF MR. HITESH SATI SHCHANDRA DOSHI, ETEMIA VS. THE JT. CIT IN ITA NO. 6497/MUM/09 (A.Y. 2003-04) DATED 15/06/2011 AND OTHERS, CO-ORDINATE BENCH HAVE DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PARA NO. 10 OF ITA NO. 6497/MUM/09 AND OTHERS IS EXTRACTED AS UNDER: THE HONBLE SUPREME COURT IN THE CASE OF CIT VS AS SOCIATED INDUSTRIAL DEVELOPMENT CO P LTD REPORTED IN 82 ITR 586 AS WELL AS IN THE CASE O CIT VS. H HOLSCK LARZEN REPORTED IN 160 ITR 67 HAS LAID DOWN VARIOUS PRINCIPLES, WHICH HAS BEEN CONSIDERED BY THE CBDT F OR ISSUING THE CIRCULAR NO. 4/2007 DATED 15.6.2007. IN SHORT, THE PRINCIPLES LAID DOWN IN THOSE CASES FOR DECIDING THE QUESTION OF NATURE OF THE TRANSACTION AS TRADING OR INVESTMENT, MAINLY/BROADLY ARE:- WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES; WHETHER THE ASSESEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREO N; WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISPOSAL IN THAT PAR TICULAR ITEM; WHETHER THE PURCHASE AND SALE IS FOR REALIZING PROFIT OR PU RCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE; HOW THE VA LUE OF ITEMS HAS BEEN 8 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT TAKEN IN THE BALANCE SHEET. THUS, NO SINGLE FACTOR CAN BE SAID TO BE DECISIVE FACTOR AND NO SINGLE PRINCIPLE CAN BE LAID DOWN TO DETERMINE THE NATURE OF THE TRANSACTION I.E. TRADING ACTIVITY OR INVESTMENT,. EACH CASE HAS TO BE DECIDED BASED ON THE PARTICULAR FACTS OF THE SAID CASE. THEREFORE, THERE CANNOT BE ANY PRECEDENT IN THE MAT TER OF ADJUDICATION OF THE ISSUE OF NATURE OF TRANSACTION WITH REGARD TO P URCHASE AND SALE OF SHARES AND SECURITIES. THE ISSUE CAN BE DETERMINED ONLY BY TAKING INTO ACCOUNT AL THE RELEVANT FACTS AND PRINCIPLES AS LAI D DOWN BY THE HONBLE SUPREME COURT AND OTHER HIGH COURTS. THUS, PRINCIPL ES ARE TAKEN AS GUIDELINES TO BE APPLIED IN THE FACTS OF EACH CASE AND CANNOT BE TAKEN AS STRICT JACKET/FORMULA. THEREFORE, THE BIFURCATION O F THE SHORT TERM CAPITAL GAIN AND TREATING THE TRANSACTION AS INVESTMENT IN THE CASES WHERE THE HOLDING PERIOD OF MORE THAN 30 DAYS AND AS BUSINESS TRANSACTION IN THE CASE WHERE THE HOLDING PERIOD IS LESS THAN 30 DAYS, IN OUR CONSIDERED OPINION, IS NOT JUSTIFIED ON THE PART OF THE CIT(A) . SINCE THERE CANNOT BE A SINGLE CRITERIA FOR JUDGING THE TRANSACTION AS CAPI TAL ASSET OR TRADING ASSET; THE CIT(A) ADOPTED ONLY HOLDING PERIOD AS A SOLE CRITERIA FOR BIFURCATING THE TRANSACTIONS RELATING TO THE SHORT TERM CAPITAL GAIN, WHICH IS NEITHER PROPER AND NOR JUSTIFIED. IN OUR OPINION THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ABOVE DECISION. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO TREAT THE INCOME FROM SALE OF SHARES AS SHORT TERM CAPITAL GAIN AND NOT AS BUS INESS INCOME. 8. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 9 ITA NO. 7040/MUM/2012 (A.Y. 2008-09) SMT. SONAL VIPUL SHAH, VS.ACIT ORDER PRONOUNCED IN THE OPEN COURT ON 5TH FEBRUARY, 2016 SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED :05.02.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI