MEHRABOON J IRANI, MUMBAI V. ASST CIT CIR 24(1), MUMBAI

ITA 7226/MUM/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3314 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RAVICHANDRAN
• Assessee Lawyers: GAURANG UNADKAT
• Keywords: Business income; Question of law; Speculation loss
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , . . , BEFORE SHRI MAHAVIR SINGH , JM AND SHRI B. R. BASKARAN , AM ./ I.T.A. NO. 7226/MUM/2010 ( / ASSESSMENT YEAR: 2006 - 07 ) MEHRABOON J. IRANI BLDG. NO. 9B, FLAT NO. 503, BEHRAM BAUG PARSI COLONY, JOGESHWARI (W), MUMBAI - 400 102 / VS. ASST. CIT, C IRCLE 24(1), BANDRA, MUMBAI - 400 051 ./ ./ PAN/GIR NO. AAGPI 2187 Q ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI GAURANG UNADKAT / RESPONDENT BY : SHRI S. RAVICHANDRAN / DATE OF HEARING : 30.0 8.2016 / DATE OF PRONOUNCEMENT : 30.08.2016 / O R D E R PER MAHAVIR SINGH, JM : THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 34 , MUMBAI (CIT(A) FOR SHORT) IN APPEAL NO. C IT(A)/34/IT - 279/08 - 09 DATED 13.08.2009 , DISMISSING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2006 - 07 VIDE ORDER DATED 26.12.2008. 2. THE ONLY ISSUE IN THI S APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE A.O. IN TREATING THE GAIN ARISING OUT OF THE SALE AND PURCHASE OF SHARES AS BUSINESS INCOME INSTEAD OF LONG TERM CAPITAL GAIN (LTCG) OR SHORT TERM 2 ITA NO. 7226/MUM/2010 (A.Y.2006 - 07) MEHRABOON J. IRANI VS. ASST. CIT CAPITAL GAIN (STCG ), DECLARED BY THE ASSESSEE. F OR THIS, THE ASSESSEE HAS RAISED FOLLOWING GROUND NO. 1: 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER OF ASSESSING THE GAINS FROM SAL E OF SHARES AS INCOME FROM BUSINESS INSTEAD OF LONG TERM CAPITAL GAINS OF RS.4823/ - AND SHORT TERM CAPITAL GAINS OF RS.7,08,553/ - . 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A SALARIED EMPLOYEE AND ALSO ENGAGED IN PURCHASE AND SALE OF SHARES. THE ASSESSEE HAS DISCLOSED THE FOLLOWING INCOME IN ITS RETURN OF INCOME: SHORT TERM CAPITAL GAINS (EQUITY) 7,31,901 LONG TERM CAPITAL GAINS (EQUITY) 4,823 SPECULATION PROFIT 64,784 DIVIDEND ON SHARES 15,022 BANK INTEREST 6,039 SALARY FROM M/S. DARASHAW 25 ,23,689 4. THE ASSESSING OFFICER (A.O.) ANALYSIS THE ASSESSEES TRADING OF SHARES, STCG DECLARED AND LTCG DECLARED AS UNDER: TRADING : I) IN THE SHARE TRADING/SPECULATION TRANSACTIONS THAT ASSESSEE HAS P URCHASED 23 SCRIPS AND SOLD THESE 23 SCRIPS DUR ING THE YEAR . II) THE NUMBER OF SHARES PURCHASED WERE 64 ,1 89 AND THE SAME 64 ,189 SHARES WERE ALSO SOLD DURING THE YEAR. ~ III) THE VALUE OF THE PURCHASE TRANSACTIONS AMOUNTS TO RS . 84,47,165/ - AND TH E TOTAL VALUE OF THE SALE TRANSACTIONS AMOUNTS TO RS . 85, 11,949/ - . THE DIFFERENCE OF RS.64,784/ - IS DECLARED AS THE BUSINESS INCOME AND THE SAME IS SET - OFF AGAINST LAST YEARS BROUGHT FORWARD SPECULATION LOSS. IV) OUT OF THE 23 TRADED SCRIPS LOSS HAS BEEN BOOKED IN 06 SCRIPS SHORT TERM CAPITAL GAIN: AS PER THE STCG STATEMENT FILED BY THE ASSESSEE, THE FOLLOWING IS OBSERVED: - I) IN THE S.T.C.G. TRANSACTIONS THAT ASSESSEE HAS PURCHASED 144 SC RI PS AND SOLD THESE 43 SCRIPS, DURING THE YEAR. II) THE OPENING STOCK OF SHARES IS 20,336 VALUED AT RS.18,44,196/ - . III) TH E NUMBER OF SHARES PURCHASES ARE 23,895 AND THE NUMBER OF SHARES SOLD ARE 30,195. IV) OUT OF THE 43 SCRIPS SOLD LOSSES HAVE BEEN BOOKED IN 08 SCRIPS. V) THE VALUE OF THE PURCHASE TRANSACTIONS AMOUNTS TO RS.35,33,186/ - AND THE TOTAL VALUE OF THE SALE TR ANSACTIONS AMOUNTS TO RS 47,07,438/ - . 3 ITA NO. 7226/MUM/2010 (A.Y.2006 - 07) MEHRABOON J. IRANI VS. ASST. CIT LONG TERM CAPITAL GAIN: I) IN THE LTC.G. TRANSACTIONS, THAT ASSESSEE HAS TRANSACTED IN 34 SCRIPS. II) THE OPENING STOCK OF SHARES IS VALUED AT RS.7,55,433/ - III) THE NUMBER OF SHARES SOLD ARE 7752 VALUED AT RS . 7,60,257/ - . IV) OUT OF THE TRADED SCRIPS LOSSES HAVE BEEN BOOKED IN 09 SCRIPS V) LONG TERM CAPITAL GAINS SHOWN IS RS. 4824/ - VI) DIVIDEND RECEIVED IS OF RS 15,022/ - ONLY. 5. FINALLY, ACCORDING TO THE A.O., THE ASSESSEE IS ONLY ENGAGED IN SHARE TR ADING IN VIEW OF VOLUME OF TRANSACTIONS, MAGNITUDE OF TRANSACTIONS AND AMOUNT OF INVESTMENT IN SHARES. ACCORDING TO THE A.O., THE ASSESSEE IS ENGAGED HIMSELF IN AN ORGANIZED MANNER IN PURCHASE AND SALE OF SHARES, THEREFORE, HE TREATED THE ENTIRE ACTIVITY O F ASSESSEE AS BUSINESS INCOME. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 6. THE CIT(A) CONFIRMED THE ACTION OF THE A.O. BY OBSERVING THAT THE PROFITS RESULTING FROM SALE PROCEEDS OF SHARES WAS REVENUE RECEIPT , AS THE PURCHASES WE RE MADE IN SEVERAL LOTS AND PAST RECORDS O F THE ASSESSEE ALSO SHOWS THAT HE WAS ENGAGED REGULARLY IN PURCHASING AND SELLING OF SHARES MOSTLY OF THOSE COMPANIES OF WHICH IT OR ITS ASSOCIATE COMPANIES WERE MANAGING. ACCORDING TO THE CIT(A), THE FINDING OF TH E A.O. IS OF FINDING OF FACT AND, HENCE, HE CONFIRMED THE ACTION OF THE A.O. AGGRIEVED, NOW THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND TH AT THE ASSESSEE IS AN INDIVIDUAL AND SALARIED EMPLOYEE FOR THE LAST TWENTY YEARS. THE ASSESSEE HAS DETAILED OUT THE FACT REGARDING HOLDING OF SHARES, NUMBER OF SCRIPTS IN WHICH HE DEALT WITH AND PERCENTAGE OF TOTAL AS UNDER: HOLDING PERIOD NO. OF SCRIPTS % OF TOTAL STCG LESS THAN 1 WEEK 2 4% 1 WEEK TO 1 MONTH 9 21% 1 MONTH TO 3 MONTHS 12 29% 4 ITA NO. 7226/MUM/2010 (A.Y.2006 - 07) MEHRABOON J. IRANI VS. ASST. CIT 3 MONTHS TO 6 MONTHS 12 29% MORE THAN 6 MONTHS 7 17% 42 100% LTCG LESS THAN 3 YEARS 6 17% 3 YEARS TO 5 YEARS 2 6% 5 YEAR TO 10 YEARS 16 44% 10 YEARS & ABOVE 12 33% 36 100% 8. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT FOR TREATING THE ASSESSEES ACTIVITY FROM SALE AND PURCHASE AS BUSINESS INCOME BY A.O. AS WELL AS CIT(A) RECORDED THE REASONS THAT THERE IS HIGH FREQUENCY OF TRANSACTIONS, LOW PER IOD OF HOLDING OF SCRIPS, LOW INCOME FROM DIVIDEND, LOSS INCURRED IN MAIN SCRIP TR A DED DURING THE YEAR AND IT HAS MAINTAINED BOOKS OF ACCOUNTS. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE ALL THESE FACTORS WERE CONSIDERED BY VARIOUS COURTS AND HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHI (2010) 336 ITR 287 (BOM) H AS CONSIDERED THIS ASPECT AND HELD IN FAVOUR OF THE ASSESSEE. THE LD. COUNSEL BY THE ASSESSEE ALSO ARGUED THAT MORE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALT ER THE NATURE OF THE TRANSACTION AND HEAD OF INCOME IS TO BE DETERMINED WITH REGARD TO THE FACTS RELATING TO THE TRANSACTIONS. THE LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT OUT OF 42 SCRIPS SOLD ON ACCOUNT OF STCG, ONLY 2 SCRIPS WERE SOLD WITHIN A WEEK F ROM THE DATE OF ITS PURCHASE AND 40 SCRIPS WERE SOLD AFTER A WEEK FROM THE DATE OF ITS PURCHASE. AS REGARDS TO LTCG OUT OF 36 SCRIPS SOLD, 30 SCRIPS WERE HELD BY THE ASSESSEE FOR MORE THAN 3 YEARS AND ONLY 6 SCRIPS WERE HELD FOR LESS THAN 3 YEARS. THE LD. COUNSEL FOR THE ASSESSEE ALSO STATED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME FOR THESE SCRIPS HELD FOR 3 TO 6 YEARS, AND ALSO FROM THE SCRIPS HELD FOR SHORT TERM PERIOD. HE ALSO EXPLAINED THAT IN SHORT TERM CAPITAL INVESTMENT, THE ASSESSEE HAS INCURRE D LOSS ONLY IN 8 SCRIPTS OUT OF 42 AND LOSS IN 9 SCRIPS OUT OF 36 SCRIPS ON ACCOUNT OF LONG TERM CAPITAL INVESTMENT. HE ALSO EXPLAINED THAT IN EARLIER YEARS, AND IN THE FUTURE YEARS, THE REVENUE ITSELF H AS ACCEPTED EVEN THOUGH THE ASSESSMENT WAS FRAMED U/S . 143(3), THE PURCHASE AND SALE OF PURCHASE AS STCG OR LTCG , AS THE CASE MAY BE. THE LD. COUNSEL FOR THE ASSESSEE ALSO DISPLAYED FROM THE ACCOUNTS OF THE ASSESSEE THAT THESE SHARES WERE HELD AS INVESTMENT AND KEPT THE SAME IN INVESTMENT PORTFOLIO AND NOT I N STOCK - IN - TRADE. THE LD. 5 ITA NO. 7226/MUM/2010 (A.Y.2006 - 07) MEHRABOON J. IRANI VS. ASST. CIT COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE ACCOUNT S STATEMENT FILED BEFORE US AND ARGUED THAT ONCE THESE SHARES WERE HELD IN INVESTMENT PORTFOLIO, THE INCOME ARISING FROM THE SAME ARE TREATED AS BUSINESS INCOME. 9. O N SIMILAR FACTS , THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT ( SUPRA ) HAS HELD AS UNDER: - 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS I NVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECT LY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD BE TREATED EITHER AS SHORT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. Q UESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 3. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE AC TIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATME NT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 10. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT MERE VOLUME OR MAGNITUDE DOES NOT ALTER THE NATURE OF TRANSACTION, WHICH ARE CONSISTENTLY ASSESSED AS INCOME FROM CAPITAL GAINS FROM PAST YEARS AND EVEN IN FUTURE YEARS BY REVENUE. WHERE THE ASSESSEE WAS HOLDING LARGE MAGNITUDE OF SHARES AS INVESTMENT FROM YEAR TO YEAR AND TRANSACTION OF SHARES IN PRECEDING YEARS AS WELL FOR THE FUTURE YEARS HA D BEEN HELD AS INCOME FROM CAPITAL GAINS BOTH ON LONG TERM AND SHORT TERM BASIS, THERE WAS NO BASIS FOR 6 ITA NO. 7226/MUM/2010 (A.Y.2006 - 07) MEHRABOON J. IRANI VS. ASST. CIT HOLDING ASSESSEE AS TRADER IN SHARES FOR THE YEAR UNDER CONSIDERATION WHEN HIS INTENTION IS CLEAR THAT HE WANT TO HOLD THE SHARES AS INVESTMENT AND NOT STOCK IN TRADE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE REVENUE HAS WRONGLY TREATED PROFITS OR GAINS ARISING OUT OF THE TRANSACTION OF SALE AND PURCHASE OF SHARES AS BUSINESS INCOME , WHEREAS ACTUALLY IT IS AN INVESTMENT AND INCOME ARISING OUT OF THE SAME IS CAPITAL GAINS. WE DIRECT THE ASSESSING OFFICER TO TR E AT THE GAINS ARISING OUT OF SALE AND PURCHASE OF SHARES AS STCG OR LTCG , AS THE CASE MAY BE. ACCORDINGLY, THIS ISSUE OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 30 , 201 6 SD/ - SD/ - ( B. R. BASKARAN ) (MAHAVIR SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 30 . 0 8 .201 6 . . ./ ROSHANI , SR. PS / 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 F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI