TARUNA J. SANGHVI, MUMBAI V. ITO WD 21(2)(4), MUMBAI

ITA 7172/MUM/2010

• Counselvise Citation: 717219914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 28-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: K GOPAL
• Keywords: Business income; Transactions in derivatives

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC , MUMBAI BEFORE SHIRI RAJENDRA SINGH, A.M. ITA NO. : 7172/MUM/2010 ASSESSMENT YEAR : 2006-07 SMT. TARUNA J. SANGHAVI C/O. M/S. S. SHAH & ASSOCIATES G/5, SNOW WHITE SOC., AZAD ROAD, VILE PARLE (E), MUMBAI-400 057 PAN NO: ABFPS 0760 H VS. ITO, WARD 2 1 ( 2 )( 4 ), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. GOPAL RESPONDENT BY : SHRI P.C. MAURYA DATE OF HEARING : 28.11.2011 DATE OF PRONOUNCEMENT : 14.12.2011 ORDER PER RAJENDRA SINGH (AM) : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 16.08.2010 OF THE LD. CIT(A)-32 FOR THE ASSESSMENT YEAR 2006-07. THE ONLY DISPUTE RAISED IN THIS APPEAL BY THE ASSESSEE IS REGARDING THE NATURE OF INCOME RECEIVED FROM PURCHASE AND SALE OF SHARES. 2. THE FACTS IN BRIEF ARE THAT THE AO DURING THE AS SESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD DISCLOSED S HORT TERM CAPITAL GAIN OF `. 98,583/- ON ACCOUNT OF PURCHASE AND SALE OF SHARES, WHICH INCLUDED A SUM OF `. 27,129/- FROM SALE OF SHARES ON SAME DAY WITHOUT TAKING ANY DELIVERY. THE AO, THEREFORE, ASSESSED TH E SUM OF `. 27,129/- ITA NO :7172/MUM/2010 SMT. TARUNA J. SANGHAVI 2 AS SPECULATION PROFIT, AS NO DELIVERY HAD BEEN TA KEN. IN RESPECT OF THE BALANCE AMOUNT OF `. 71,459/- IN RESPECT OF WHICH DELIVERY HAD BEEN TAKEN, THE AO NOTED THAT THE ASSESSEE HAD MADE FREQ UENT TRANSACTIONS IN SALE AND PURCHASE OF SHARES AND TOTAL TRANSACTIO NS NUMBERED TO 70. THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE REGARDI NG THE PAYMENT OF CONSIDERATION FOR THE PURCHASE OF SHARES, WHICH MEA NT THAT THE ASSESSEE HAD SOLD THE SHARES WHILE STILL LYING WITH THE BROKER. HE, THEREFORE, CONCLUDED THAT THE ASSESSEE WAS TRADING IN SHARES AND WAS NOT A INVESTOR AND ACCORDINGLY, ASSESSED THE INCOME OF `. 71,459/- AS BUSINESS INCOME FROM TRADE OF SHARES. 3. IN APPEAL, CIT(A) NOTED THAT MAJORITY OF SHARES I.E. IN 75% OF CASES SHARES HAD BEEN SOLD WITHIN A PERIOD OF ONE M ONTH FROM THE DATE OF PURCHASE AND IN MOST OF THE CASES SHARES HAVE BE EN SOLD WITHIN 3 TO 10 DAYS. ONLY IN ONE CASE, SHARE HAD BEEN HELD FOR MORE THAN A MONTH. CIT(A), THEREFORE, AGREED WITH THE AO THAT THE ASSE SSEE WAS TRADING IN SHARES AND WAS NOT A INVESTOR. FURTHER, THE ASSESSE E HAD MOSTLY DONE THE TRANSACTION ON CREDIT AND THERE WAS LITTLE DEPL OYMENT OF OWN FUNDS, WHICH ALSO INDICATED TRADING ACTIVITY. CIT(A) DISTI NGUISHED THE DECISION OF TRIBUNAL IN CASE OF GOPAL PUROHIT (29 SOT 117) R ELIED UPON BY THE LD. AR. AS REGARDS, THE CLAIM OF THE ASSESSEE THAT IN EARLIER YEAR, TRANSACTIONS HAD BEEN ACCEPTED AS CAPITAL GAIN. C IT(A) OBSERVED THAT IN THE EARLIER YEARS ASSESSMENT HAD BEEN COMPLETED U/S .143(1) AND THERE WAS NO EXAMINATION OF THE ISSUE AND, THEREFORE, THE EARLIER YEAR CASE CANNOT BE THE BASIS FOR ALLOWING THE CLAIM IN THIS YEAR. HE, THEREFORE, UPHELD THE ASSESSMENT OF INCOME AS BUSINESS INCOME . AS REGARDS, THE PROFIT OF `. 27,129/-, CIT(A) NOTED THAT THE SAME WAS FROM DEALI NG IN FUTURES AND OPTIONS (F&O). IT WAS ALSO OBSERVED BY HIM THAT PROFIT FROM F&O TRANSACTIONS ENTERED PRIOR TO 01.04.2006 H AVE TO BE ASSESSED AS SPECULATION PROFIT IN VIEW OF THE DECISION OF SPECIAL BENCH OF THE ITA NO :7172/MUM/2010 SMT. TARUNA J. SANGHAVI 3 TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LTD. 121 ITD 498. HE, THEREFORE, UPHELD THE ORDER OF THE AO. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE ME, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE TRANSACTIONS MADE BY THE ASSESSEE WERE NOT LARGE AN D, THEREFORE, THE SAME COULD NOT BE TREATED AS TRADING ACTIVITY. HE ALSO REFERRED TO THE JUDGMENT DATED 29.09.2011 OF HON'BLE BOMBAY HIGH CO URT IN ITA N0.1042/MUM/2011, IN WHICH FOLLOWING THE JUDGMENT O F GOPAL PUROHIT (228 ITR 582) THE HON'BLE HIGH COURT UPHELD THE ASS ESSMENT INCOME FROM SALE OF SHARES AS CAPITAL GAIN. THE LD. DR O N THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW. 5. I HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCOM E FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSU E IS WHETHER THE SHARE TRANSACTIONS IN A PARTICULAR CASE SHOULD BE T REATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY HAS BEEN HIGHLY A D EBATABLE ISSUE. THERE ARE DECISIONS OF THE TRIBUNAL ON BOTH THE SIDES. EA CH CASE WILL DEPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIO US FACTORS SUCH AS FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATURE OF FUNDS USED, HOLDING PERIOD ETC. WHICH ARE RELEVANT IN DEC IDING THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSES SEE WHILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON THE BA SIS OF ENTRY IN THE BOOKS OF ACCOUNT OR THE OBJECTS IN THE MEMORANDUM O F ASSOCIATION. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF CIT VS. MADANGOPAL RADHEYLAL (73 ITR 642). THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZING OF THE HOL DING PERIOD ETC. AN ITA NO :7172/MUM/2010 SMT. TARUNA J. SANGHAVI 4 INVESTOR MAKES PURCHASES WITH LONG TERM GOAL OF EAR NING INCOME FROM THE INVESTMENT AND HE IS NOT TEMPTED TO SELL THE SH ARES ON EVERY RISE AND FALL IN THE MARKET WHICH ARE THE ATTRIBUTES OF A TRADER. SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FO RM OF DIVIDEND IS RECEIVED ANNUALLY, NORMALLY AN INVESTOR IS EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. HOWEVER, THERE MAY BE SITUATI ONS WHEN THE INVESTOR MAY ALSO SELL THE SHARES AFTER SHORT HOLDI NG IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO E NCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGE NCIES. EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. 6. IN THIS CASE, THE HOLDING PERIOD OF SHARES HAVE BEEN GIVEN AT PAGE 7 AND 8 OF THE PAPER BOOK, WHICH SHOWS THAT MOST OF THE SHARES HAVE BEEN SOLD WITHIN A PERIOD OF ONE MONTH. ONLY 5 OUT OF 70 CASES, THE SHARES WERE HELD FOR MORE THAN MONTH, BUT THESE TOO WERE SOLD WITHIN A PERIOD OF 3 MONTHS. THERE ARE ALSO REPETITIONS OF T RANSACTIONS IN THE SAME SCRIPT, WHICH CLEARLY SHOWS THAT THE ASSESSEE WAS TRADING IN SHARES. THE CONDUCT OF THE ASSESSEE IN DEALING WITH THE SHARE PURCHASE DOES NOT INDICATE ANY INVESTMENT ACTIVITY. THE AR H AS PLACED RELIANCE ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA). IN THAT CASE, THE TRIBUNAL HAD DECIDED THE ISSUE FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SARNATH INF RASTRUCTURE (120 TTJ 216) AND HELD THAT THE FACTS IN THE CASE OF SARNATH INFRASTRUCTURE WERE IDENTICAL. BUT IN CASE OF SARNATH INFRASTRUCTURE (S UPRA), THE SHARES SOLD OUT OF INVESTMENT ACCOUNT HAD BEEN HELD FOR 2 TO 3 YEARS AND THE REVENUE COULD NOT SHOW ANY SHARES SOLD, WHICH HAD B EEN PURCHASED DURING THE YEAR OR IN THE IMMEDIATE PRECEDING YEAR. THEREFORE, ONLY IN RESPECT OF SUCH CASE, THE DECISION IN CASE OF GOPAL PUROHIT (SUPRA) COULD BE APPLIED. THE HON'BLE HIGH COURT HAD DISMISSED TH E APPEAL OF THE ITA NO :7172/MUM/2010 SMT. TARUNA J. SANGHAVI 5 REVENUE ONLY ON THE GROUND THAT THERE WAS NO SUBSTA NTIAL QUESTION WITH LAW INVOLVED. THUS, EACH CASE HAS TO BE DECIDE D BASED ON ITS OWN FACTS. ON THE FACTS OF THE PRESENT CASE, I AM CONVI NCED THAT THE ASSESSEE WAS TRADING IN SHARES AND WAS NOT AN INVESTOR. I, T HEREFORE, SEE NO INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME I S, THEREFORE, UPHELD. AS REGARDS, THE TRANSACTIONS IN F & O, IN MY VIEW, CIT(A) HAS RIGHTLY ASSESSED THE SAME AS SPECULATION PROFIT. THEREFORE, THE DECISION OF THE CIT(A) ON THIS ISSUE IS ALSO UPHELD. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF DECEMBER, 2011. SD/ - ( RAJENDRA SINGH ) ACCOUNTANT MEMBER MUMBAI, DT: 14/12/2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, SMC - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI