MINDSET TECHNOLOGIES P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 7071/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4162 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-12-2013
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Assessee Lawyers: R MURLIDHARAN
• Keywords: Business income; Assessment record
• Section: 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA , A M & SHRI AMARJIT SINGH , J M ./ ITA NO. 7071 / MUM/20 1 3 ( / ASSESSMENT YEAR : 20 06 - 07 ) M/S MINDSET TECHNOLOGIES PVT. LTD., SONAWALA BUILDING, 25, BANK STREET, FORT, MUMBAI - 01 VS. DCIT - 5(2), MUMBAI ./ ./ PAN/GIR NO. : A A DCM 0038 N ( / APPELLANT ) .. ( / RESPONDENT ) AND ./ ITA NO. 6709 / M UM/20 13 ( / ASSESSMENT YEAR :2006 - 07 ) DCIT - 5(2), MUMBAI VS. M/S MINDSET TECHNOLOGIES PVT. LTD., SONAWALA BUILDING, 25, BANK STREET, FORT, MUMBAI - 01 ./ ./ PAN/GIR NO. : A ADCM 0038 N ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI R.MURLIDHARAN /REVENUE BY : SHRI SUMIT KUMAR / DATE OF HEARING : 19 / 11 /201 5 / DATE OF PRONOUNCEMENT : 05/02 /2016 / O R D E R PER R.C.SHARMA ( A .M.) : TH ESE ARE THE APPEAL S FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A), MUMBAI, DATED 29 - 12 - 2011 , FOR THE ASSESSMENT YEAR 2006 - 07 . 2. THE SOLITARY ISSUE RAISED BOTH BY ASSESSEE AND REVENUE RELATES TO TREATMENT OF CAPITAL GAINS OFFERED BY THE ASSESSEE WHICH WAS TREATED BY THE AO AS BUSINESS INCOME. ITA NO. 7071&6709/13 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 29/12/2008 DETERMINING T OTAL INCOME AT RS. 9,13,64,910/ - . THE JURISDICTIONAL COMMISSIONER OF INCOME TAX - 5, MUMBAI HAD CALLED FOR AND EXAMINED THE ASSESSMENT RECORD AND THEN ISSUED A SHOW - CAUSE NOTICE U/S .263 OF THE ACT AND AFTER HEARING THE ASSES S EE PASSED AN ORDER U/S.263 OF TH E ACT DATED 15/3/2011 HOLDING THE PREVIOUS ASSESSMENT ORDER U/ S.143(3) DATED 14/12/2006 AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE DIRECTED THE AO TO PASS A FRESH ASSESSMENT ORDER IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY HIM U/ S.263 OF THE ACT DTD . 15/3/2011. THE AO ACCORDINGLY PASSED THE CONSEQUENTIAL ASSESSMENT ORDER U/S .143(3) R. W. S 263 OF THE ACT DATED 29/ 12/2011 WHEREIN HE HAS FOLLOWED THE DIRECTIONS OF THE JURISDICTIONAL CIT'S ORDER U/S.263 DATED 15/3/2011. IN THE ORDER U/S .263 OF THE I. T.ACT, THE LD.CIT HELD THAT IN THE ASSESSMENT ORDER, THE A.O. HAS NOT APPLIED HIS MIND TO THE FACTS OF THE CASE AND RELEVANT LAWS RELATING TO THE ASSESSMENT OF INCOME FROM SHARE TRANSACTIONS OF THE ASSESSEE. ACCORDINGLY, IN THE FRESH ASSESSMENT PR OCEEDINGS IN COMPLIANCE OF ORDER U/ S.263, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROFIT EARNED ON PURCHASE AND SALE OF SHARES SHOULD NOT BE BROUGHT TO TAX AS BUSINESS INCOME INSTEAD OF INCOME UNDER THE HEAD SHORT TERM CAPITAL GAINS. THE ASSESSE E SUBMITTED THAT ITS MAIN OBJECT IS TO MAKE INVESTMENT IN THE SHARES, ACCORDINGLY IT WAS PLEADED THAT INCOME FROM SALE OF SHARES OF THE ASSESSEE IS TAXABLE AS CAPITAL GAINS. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT ACCEPTED BY THE AO. THE AO HELD THAT THE ASSESSEE IS A TRADER IN SHARES AND NOT AN INVESTOR AND HENCE PROFIT EARNED ON SUCH TRADING ACTIVITY IS TAXABLE AS ITA NO. 7071&6709/13 3 BUSINESS INCOME INSTEAD OF CAPITAL GAINS . BY THE IMPUGNED ORDER THE CIT(A) ALLOWED ASSESSEES CLAIM IN RESPECT OF LONG TERM CAPITAL GAINS BUT CONFIRMED THE ORDER OF AO FOR TREATING SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. AGAINST THIS ORDER OF CIT(A), BOTH ASSESSEE AND REVENUE ARE IN APPEALS BEFORE US. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF AUTH ORITIES BELOW AD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED BY LD. AR AND DR DURING THE COURSE OF HEARING BEFORE US. WE HAD ALSO CONSIDERED THE JUDICIAL PRONOUNCEMENTS RELIED ON BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS FOR REACHING TO THE CONCLUSION AS TO WHETHER THE INCOME EARNED BY ASSESSEE WAS LIABLE TO CAPITAL GAIN OR AS INCOME FROM BUSINESS PROFESSION. FROM THE RECORD WE FOUND THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE IN PURSUANCE OF ITS 'OTHER OBJECTS NO. 30' WHICH PERMITS IT TO INVEST SURPLUS FUNDS. IT IS NOT THE OBJECT OF THE ASSESSEE AS PER THE MEMORANDUM OF ASSOCIATION TO TRADE IN SHARES AND SECURITIES . T HE ASSESSEE HAS CONSISTENTLY SHOWN THE SHARES HELD BY IT AS 'INVESTMENTS' IN ITS BOOKS OF ACCOUNT AND BALANCE SHEET AND NEVE R AS 'STOCK - IN - TRADE '. THE ASSESSEE HAS NEVER BORROWED ANY FUNDS FOR INVESTMENT IN THE SHARES. ALL INVESTMENTS HAVE BEEN MADE OUT OF CAPITAL AND RETAINED PROFITS. IN RESPECT OF THE SHORT - TERM CAPITAL GAINS, THE BULK OF THE GAINS HAVE ARISEN IN RESPECT OF SHARES HELD/OR A REASONABLY LONG PERIOD OF TIME. OUT OF THE TOTAL SHORT - TERM CAPITAL GAINS OF RS. 9 . 02 CRORES, THE GAINS IN RESPECT OF SHARES HELD FOR MORE THAN 6 MONTHS IS RS. 6. 70 CRORES WHILE THE GAINS IN RESPECT OF SHARES HELD F OR MORE TH AN 9 MONTHS I S RS. 5,34 CRORES. FURTHERMORE, T HE ASSESSEE HAS NOT ENTERED INTO ANY ' FUTURES & OPTIONS' TRANSACTIONS. HOWEVER, A FEW TRANSACTIONS ITA NO. 7071&6709/13 4 HAD TO BE SQUARED OFF DUE TO UNAVOIDABLE CIRCUMSTANCES. T HE ASSESSEE HAS RECEIVED DIVIDENDS OF RS. 97.22 LAKHS IN THE PRESENT YEAR WHICH IS QUITE SUBSTANTIAL. IN ALL THE EARLIER YEARS, THE/ACTS WERE SIMILAR. THE AO AFTER DUE ENQUIRY TREATED THE ASSESSEE AS AN INVESTOR AND ASSESSED THE GAINS AS 'SHO RT - TERM CAPITAL GAINS. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT YEA R. 5. FROM THE RECORD WE FOUND THAT T HE A O PASSED AN ASSESSMENT OR DER FOR A.Y.2005 - 06 DATED 29TH JUNE 2009 UNDER SECTION 143 (3) OF THE ACT IN WHICH HE NOTED THAT 'THE ASSESSEE IS 'ENGAGED IN INVESTMENT IN S HARES & SECURITIES'. THE A O ACCEPTED THE COMPUTATION OF SHORT - TERM CAPITAL GAINS. T HE ASSESSEE FILED A RETURN OF INCOME FOR A.Y.2006 - 07 ON 20TH OCTOBER 2006 DECLARING IN COME OF RS. 9.08 CRORES. IN THE COMPUTATION OF INCOME THE ASSESSEE HAD SHOWN THAT IT HAD EARNED LONG - TERM CAP ITAL GAINS OF RS. 57.65 CRORES AND SHORT - TERM CAPITAL GAINS OF RS. 9.05 CRORES. IN THE BALANCE SHEET ANNEXED TO T HE RETURN, ALL HOLDINGS WERE SHOWN AS 'INVESTMENTS' AND NOTHI NG IS SHOWN AS 'STOCK - IN - TRADE. THE A O ISSUED NOTICES UNDER SECTIONS 142(1) & 143 (2), BOTH DATED 26 TH SEPTEMBER 2008, TOGETHER WITH A QUESTIONNAIRE IN WHICH HE ASKED A WIDE RANGE OF QUESTIONS. IN PARAGRAPH 11, HE DIRECTED THE ASSESSEE TO FURNISH DETAILS OF PROFITS AND GAINS ON SALE OF SHARES IN THE SPECIFIED FORMAT. THE FORMAL REQUIRED INFORMATION ON TH E DATE OF PURCHASE, DATE OF SALE AND T HE PERIOD OF HOLDING THE SHARE. IN REPLY , THE ASSESSEE FURNISHED A LETTER DATED 3RD OCTOBER 2008 IN WHICH IT FURNISHED COMPLETE DETAILS ON ALL THE ISSUES RAISED BY THE A O . IN PARAGRAPH 11. THE INFORMATION ON THE PROFIT AND LOSS ON SALE OF SHARES WAS GIVEN BY WAY OF TWO ANNEXURES. THE ANNEXURE SHOWED THAT THE ASSESSEE HAD MADE A SHORT - TERM CAPITAL GAIN OF RS. 9.02 ITA NO. 7071&6709/13 5 CRORES BY ENTERING INTO 115 TRANSACTIONS. THE PERIOD OF HOLDING OF THE SHARES WAS ALSO GIVEN WHICH SHOWED TH AT THE BULK OF THE GAINS (RS. 6.70 CRORES) HAD ARISEN IN RESPECT OF SHARES HELD FOR MORE THAN 6 MONTHS. THE GAINS IN RESPECT OF SHARES HELD/OR MORE THAN 9 MONTHS WAS RS. 5.34 CR ORES. 6. IN VIEW OF THE ABOVE DISCUSSION AND KEEPING IN VIEW THE DECISION OF TR IBUNAL IN CASE OF GOPAL PUROHIT, 34 DTR 42, WHICH WAS CONFIRMED BY HON BLE BOMBAY HIGH COURT AS WELL AS DECISION IN THE CASE OF SMK SHARES & STOCK BROKING, ITAT MUMBAI BENCH AND IN THE CASE OF VINOD K. NEVATIA (ITAT MUMBAI BENCH) , WHICH HAVE ALREADY BEEN D ISCUSSED BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS, WE DO NOT FIND ANY MERIT FOR DEVIATING FROM THE CONCLUSIONS DRAWN BY THE DEPARTMENT IN EARLIER YEAR WHILE FRAMING THE ASSESSMENT U/S.143(3) WITHOUT CHANGE IN FACTS AND CIRCUMSTANCES DURING THE Y EAR UNDER CONSIDERATION. IT IS PERTINENT TO MENTION HERE THAT ASSESSEE WAS INVESTING IN SHARES AND CONTINUOUSLY SHOWING NOT ONLY SHORT TERM BUT HUGE LONG TERM CAPITAL GAINS AS WELL AS DIVIDEND INCOME WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN THEIR SCRUT INY ASSESSMENT. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED, WHEREAS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 0 5 / 0 2 /2016 S D / - S D / - ( AMARJIT SINGH ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 0 5 / 0 2 /201 6 . . /PKM , . / PS ITA NO. 7071&6709/13 6 / COPY OF THE ORDER FORWARDED TO : / BY ORD ER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) , MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//