ASST CIT 16(2), MUMBAI V. NEMICHAND P JAIN HUF, MUMBAI

ITA 7159/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2484 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER. ITA. NO. 7159/MUM/2013 (ASSESSMENT YEAR: 2010-11) ACIT- 16(2), 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, APPELLANT MUMBAI-400 007 VS. SHRI NEMICHAND P JAIN HUF B-2, 6 TH FLOOR, MATRU ASHISH BUILDING, RESPONDENT 39, NEPEANSEA ROAD, MUMBAI-400 036. PAN: AAACHN 1035N /BY APPELLANT : SHRI AIRIJU JAIKARAN, D.R. /BY RESPONDENT : SHRI NARESH KUMAR /DATE OF HEARING : 09.11.2015 /DATE OF PRONOUNCEMENT : 13.11.2015 / O R D E R PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-27, MUMBAI, DA TED 24.09.2013 FOR A.Y. 2010-11 ON FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING T HE TRANSACTION OF PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN INSTEA D OF BUSINESS INCOME. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING T HE TRANSACTION OF PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME IGNORI NG THE LANDMARK JUDGMENT OF HON. ITAT IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI IN THE CASE OF VEENA S. KALRA, MUMBAI V/S DEPARTMENT OF THE INCOME-TAX, ACIT 16(1), MUMBAI DELIVERED ON 10 TH JULY, 2013 BEARING I.T.A. NO. 2403/M/2012 (ASSESSMENT YEAR:2008-09). 2. APPELLANT IS AN INDIVIDUAL. THE RETURN OF INCOME FOR THE YEAR UNDER APPEAL WAS FILED ON 13.10.2010 DECLARING TOTA L INCOME OF RS.25,76,970/-.ASSESSMENT U/S 143(3) WAS COMPLETED BY THE LD. ASSESSING OFFICER DETERMINING THE TOTAL INCOME AT R S.52,38,980/-. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS RECEIV ED SHORT TERM CAPITAL GAIN OF RS.38,67,267/- AND LONG TERM CAPITA L GAIN OF RS.10,59,831/-. ASSESSING OFFICER ASK THE ASSESSEE TO EXPLAIN AS TO WHY SUCH CAPITAL GAIN SHOULD NOT BE TAX AS BUSIN ESS INCOME. ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS ON BEHALF OF ASSESSEE TREATED THE SHORT TERM CAPITAL GAIN OF RS. 38,67,267/- AND LONG TERM CAPITAL GAIN OF RS. 10,59,831/- AS BU SINESS INCOME OF ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. 2.1 MATTER WAS CARRIED BEFORE FIRST APPELLATE AUTH ORITY WHERE VARIOUS CONTENTIONS RAISED ON BEHALF OF ASSESSEE TO JUSTIFY ITS CLAIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPI TAL GAIN IN RESPECT OF INCOME FROM SHARES. HAVING CONSIDERED TH E SAME CIT(A) GRANTED RELIEF TO THE ASSESSEE AS CLAIMED. S AME HAS BEEN OPPOSED ON BEHALF OF REVENUE INTER ALIA SUBMITTED THAT CIT(A) ERRED IN TREATING THE TRANSACTION OF PURCHASE AND S ALE OF SHARES AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GA IN INSTEAD OF BUSINESS INCOME. SO, THE ORDER OF CIT(A) BE SET ASI DE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE DEPARTMENTAL REPRESENTATIVE ALSO RELIED ON DECISION OF ITAT IN C ASE ITAT IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI IN THE CASE OF VEENA S. KALRA, MUMBAI V/S DEPARTMEN T OF THE INCOME-TAX, ACIT 16(1), MUMBAI DELIVERED ON 10 TH JULY, 2013 BEARING I.T.A. NO. 2403/M/2012 AND REQUIRED TO SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIVE SUPPO RTED THE ORDER OF CIT(A). 3. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD, WE FIND THAT ASSESSING OFFICER HAS TREATED THE SHORT TERM AND LONG TERM CAPITAL GAIN FROM SHARES AS BUSINESS INCOME. ASSESSEE IS HUF AND ITS KARTAS MAIN ACTIVITY IS OF PROPERTY DEVELOPMENT AND THAT HE IS NEITHER A SHARE BROKER N OR SHARE DEALER. ASSESSEE EARNED CONSIDERABLE AMOUNT OF SHOR T TERM CAPITAL GAINS FROM THE SHARES HELD BY HIM FOR A PER IOD MORE THAN ONE MONTH AND THERE WAS NO CHURNING OF SHARES AS ST ATED BY ASSESSEE. ASSESSING OFFICER HAS PICKED UP ONLY A FE W TRANSACTIONS WHEREIN THE HOLDING PERIOD WAS A FEW DAYS, IGNORING THE MAJORITY OF TRANSACTIONS. AS REGARDS LONG TERM CAPITAL GAIN OFFERED TO TAX IT WAS FOUND THAT SHARE IN THIS CATEGORY WERE HELD BY ASSESSEE STARTING FROM 414 DAYS TO 803 DAYS WHICH IS FAIRLY LONG PERIOD AND THERE WAS NO REASON TO CONSIDER SUCH TRANSACTIO N LONG TERM CAPITAL GAIN AS ASSESSEES BUSINESS ACTIVITIES. THE LIQUIDATING OF INVESTMENT WITH A VIEW TO MINIMIZE THE LOSSES WHEN THE SHARE MARKET IS SHOWING VOLATILITY COULD NOT BE CONSIDERE D AS BUSINESS WITHOUT ATTRIBUTING CHURNING IN SAME SHARES. THE AS SESSING OFFICER OBSERVED FEW TRANSACTIONS WHEREIN THE ASSES SEE HAS INCURRED LOSSES AND ATTRIBUTED THIS FACT TO THE ASS ESSEE INTENTION TO CARRY ON BUSINESS WITHOUT WAITING FOR THE RETURN IN THE LONG TERM. ASSESSING OFFICER FAILED TO APPRECIATE THAT V ALUE OF CLOSING INVESTMENT AT COST IS MORE THAN THE MARKET VALUE. I T IS NOT THE CASE ASSESSEE HAS BEEN TRYING TO LIQUIDATE ALL THE INVESTMENTS. 4. OVER ALL INTENTION OF ASSESSEE HAS TO BE LIQUIDA TE WHILE DECIDING THE ISSUE OF LONG TERM OR SHORT TERM VERSU S BUSINESS ACTIVITY. ASSESSEE WAS NOT IN A HURRY TO MAKE PROFI TS OVER NIGHT AND HE WAS ABLE TO ABSORB THE LOSSES INCURRED BY HI M AND STILL HOLD THE PORTFOLIO AS INVESTMENT. THE ASSESSEE HAS INVESTED HIS OWN CAPITAL IN INVESTMENT OF SHARES AND NO BORROWED FUNDS ARE INVOLVED. THE ASSESSEE WAS IN RECEIPT OF SALARY AS A WORKING PARTNER OF THE FIRMS SO HE WAS NOT FULL TIME INVOLV ED IN SHARE DEALING. THE ACT OF MAINTAINING THE REGULAR BOOKS A LONG WITH DEMAT ACCOUNT AND CONTRACT NOTES AND THUS ORGANIZIN G PROPER RECORDS CANNOT BE CONSTRUED AS SYSTEMATIC AND REGUL AR OF TRADING ACTIVITY SINCE MAINTAINING THE BOOKS AND ORGANIZING THE RECORDS IS NECESSARY FOR EVALUATING ITS INVESTMENT ACTIVITIES IN SHARE. ASSESSEE HAS BEEN FOLLOWING A CONSISTENT METHOD OF SHOWING INVESTMENTS IN HIS BALANCE SHEET. ASSESSEE HAS SHOW N THE SPECULATION PROFIT AND PROFIT AND LOSS ACCOUNT INVE STMENT ACTIVITY SEPARATELY AND THERE IS NO MIX UP OF HIS BUSINESS W ITH THAT OF THE INVESTMENT ACTIVITY. 5. THUS, THE PORTFOLIO HELD BY THE APPELLANT WHEN C ONSIDERED IN THE LIGHT OF NUMBER OF SCRIPS HELD/PURCHASED/SOLD A ND CORRESPONDING NUMBER OF TRANSACTIONS, NUMBER OF DAY S TRANSACTED IN MARKET, LACK OF FREQUENCY OF TRANSACT IONS, CONSISTENT VALUATION OF SHARES AT COST VALUE, SEPAR ATION OF SPECULATION/F&O BUSINESS FROM INVESTMENT ACTIVITY, INVESTMENT BEING MADE FROM OWN FUNDS SHOWS THAT ASSESSEE IS EN GAGED AS INVESTOR IN SHARES AND NOT AS TRADER. IN VIEW OF TH IS CIT(A) APPEAL WAS JUSTIFIED IN OBSERVING THAT INCOME RETURN BY AS SESSEE SHORT TERM AND LONG TERM CAPITAL GAINS HAS TO BE ASSESSED UNDER THE RESPECTIVE HEADS AS CLAIMED BY ASSESSEE AND NOT BUS INESS INCOME. FURTHER, THE ASSESSEE HAS CONSISTENTLY SHOW N SHORT TERM CAPITAL GAIN/SHORT TERM CAPITAL LOSS AS WELL AS LON G TERM CAPITAL GAIN/LONG TERM CAPITAL LOSS IN ALL THESE YEARS. IN FACT, THE GROSS LONG TERM CAPITAL GAIN EARNED BY ASSESSEE IS OVER R S.16.72 LAKH WHICH INDICATES THAT ASSESSEE HAS BEEN A LONG TERM INVESTOR IN SHARES. IN VIEW OF ABOVE CIT(A) WAS JUSTIFIED IN DI RECTING TO ASSESSEE LONG TERM CAPITAL GAIN UNDER RESPECTIVE HE ADS. 6. THIS REASONED FACTUAL FINDING OF CIT(A) NEED NOT INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. IT IS PERTINENT TO MENTION, OF THE CASE RELIED BY BOTH AUTHORITIES HAVE TAKEN INTO CONSIDERATION THOUGH THE SAME HAS NOT BEEN SPECIFICALLY MENTIONED . 7. AS A RESULT, APPEAL FILED BY REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS THE 13 TH DAY OF NOVEMBER, 2015. SD/- SD/- ( R.C. SHARMA ) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R MUMBAI: DATED 13/11/2015 ASHWINI GAJAKOSH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. !'# $$%& , %& , ' () / DR, ITAT, MUMBAI 6. #*+ , / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , ' () / ITAT, MUMBAI