SMAA TRADEINVES P.LTD, MUMBAI V. ITO 9(3)(2), MUMBAI

ITA 7531/MUM/2012

• Counselvise Citation: 753119914 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 17-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Business income; Rule of consistency; Advance ruling
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , ! . . '#$ , & '() '! '! '! '! BEFORE SHRI H.L. KARWA, PRESIDENT, AND SHRI P.M.JAG TAP, AM ' ./ I.T.A. NO. 8393/MUM/2010 ( *+ *+ *+ *+ , , , , / ASSESSMENT YEAR: 2007-08) M/S. SMAA TRADE INVEST P. LTD., C-1/23-DURIAN ESTATE GOREGAON MULUND LINK ROAD, GOREGAON (EAST), MUMBAI-400063 + + + + / VS. THE COMMISSIONER OF INCOME-TAX(APPEAL)-20, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 )- & ' ./ PAN : AAECS5315H ( -. / APPELLANT ) .. ( /0-. / RESPONDENT ) ' ./ I.T.A. NO. 7531/MUM/2012 ( *+ *+ *+ *+ , , , , / ASSESSMENT YEAR: 2007-08) M/S. SMAA TRADE INVEST P. LTD., C-1/23-DURIAN ESTATE GOREGAON MULUND LINK ROAD, GOREGAON (EAST), MUMBAI-400063 + + + + / VS. THE INCOME - TAX OFFICER - 9(3)(2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 )- & ' ./ PAN : AAECS5315H ( -. / APPELLANT ) .. ( /0-. / RESPONDENT ) -. 1 2 ' / ASSESSEE BY: SHRI VISHWAS MEHENDALE ') 1 2 ' / REVENUE BY : SHRI PRAKASH L. PATHADE ' + 1 $& / DATE OF HEARING : 17/07/2014 34, 1 $& / DATE OF PRONOUNCEMENT : 30/07/2014 (5 / O R D E R PER P.M.JAGTAP, AM: THIS APPEAL FILED BY THE ASSESSEE BEING ITA NO .8393/MUM/2010 IS QUANTUM APPEAL AND THE SAME IS BEING DISPOSED OF F ALONG WITH CORRESPONDING PENALTY APPEAL FILED BY THE ASSESSEE BEING ITA NO.7531/MUM/2012. ITA NO.8393/MUM/2010 & 7531/MUM/2012 M/S SMAA TRADE INVEST P.LTD. 2 2. FIRST WE TAKE UP THE QUANTUM APPEAL FILED BY THE ASSESSEE WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. CIT( A)-20, MUMBAI DATED 04/10/2010. 3. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE TREATMENT GIVEN BY THE AO TO THE PROFIT ARISING FROM SALE OF SHARES AMOUNTING TO RS.6,13,01 6/- AS INCOME FROM BUSINESS INSTEAD OF SHORT TERM CAPITAL GAIN. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SE CURITIES. IT ALSO CLAIMS TO HAVE MADE INVESTMENT IN SHARES. THE RETU RN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 18/ 10/2007 DECLARING TOTAL INCOME AT RS.3,07,980/-. IN THE SA ID RETURN, LOSS ARISING FROM TRADING IN SHARES AMOUNTING TO RS.4,39 ,436/-WAS SHOWN BY THE ASSESSEE UNDER THE HEAD OF PROFIT AND GAINS OF BUSINESS OR PROFESSION WHILE THE PROFIT CLAIMED BE ARISING FROM THE SALE OF SHARES TREATED AS INVESTMENT WAS DECLARED AS SHORT TERM CAPITAL GAIN, CHARGEABLE TO TAX AT THE CONCESSION RATE OF 1 0%. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ITS CLAIM FOR SHORT TERM CAPITAL GAIN WAS SOUGHT TO BE SUPPORTED BY THE ASSESSEE BY MAKING THE FOLLOWING SUBMISSIONS BY A LETTER DAT ED 25/11/2009: 1.AS REGARDS YOUR QUERY WHY SHORT TERM CAPITAL GAIN S ON SALE OF SHARES OF RS.592,574/- SHOULD NOT BE TREATED AS INCOME FROM BUSINESS AND T AXED ACCORDINGLY, WE WOULD LIKE TO SUBMIT AS UNDER: A. WE HAVE SUBMITTED THE COMPLETE DETAILS OF SHORT TER M CAPITAL GAINS SHOWING SCRIPT NAME, DATE OF PURCHASE DATE OF SALES, QUANTI TY, COST OF PURCHASE AND SALE VALUE ALONG WITH COPY OF SAMPLE CONTRACT NOTES VIDE OUR LETTER DATED 10 TH NOVEMBER, 2009. AS YOU HONOUR WOULD SEE FROM THE D ETAILS FILES THAT IN ALL THE ITA NO.8393/MUM/2010 & 7531/MUM/2012 M/S SMAA TRADE INVEST P.LTD. 3 CASE THE ASSESSEE COMPANY HAS TAKEN DELIVERY AND TH ERE IS A TIME GAP BETWEEN PURCHASE AND SALES. B. THE ASSESSEE COMPANY MAINTAINS SEPARATE RECORDS FOR THE SHARE WHICH HAS BEEN PURCHASED FOR TRADING PURPOSES AND THE SHARES WHICH HAS BEEN PURCHASED FOR INVESTMENT PURPOSES. THE ASSESSEE COMPANY SHOWS TR ADING PROFIT AS BUSINESS INCOME AND GAIN ON SALE OF SHARES HELD FOR INVESTME NTS AS CAPITAL GAINS. C. THE ASSESSEE HAS NOT BORROWED ANY FUNDS FROM ANY FI NANCIAL INSTITUTIONS, BANK OR ANY OTHER PERSON FOR MAKING THE INVESTMENTS IN S HARES WHICH INDICATES THAT ONLY THE SURPLUS FUNDS HAS BEEN INVESTED IN THE SHA RES TO EARN CAPITAL APPRECIATION AND DIVIDEND INCOME HENCE THE SAME CAN NOT BE TERMED AS INCOME FROM BUSINESS. D. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE C OMPANY HAS EARNED DIVIDEND INCOME OF RS.994626/- WHICH CLEARLY INDICATE THAT T HE INVESTMENT IN SHARES HAS BEEN MADE FOR EARNING CAPITAL APPRECIATION AND TO E ARN DIVIDEND AND NOT FOR TRADING PURPOSES. E. IN THE AUDITED BALANCE SHEET THE BIFURCATION OF SHA RES WHICH HAS BEEN PURCHASED FOR TRADING HAS BEEN SHOWN AS INVENTORIES IN SCHEDULE-6 AND SHARES WHICH HAS BEEN PURPOSED FOR INVESTMENT PURPOSES HAS BEEN SHOWN AS INVESTMENTS IN SCHEDULE-5 WHICH CLEARLY INDICATE TH E INTENTION OF THE MANAGEMENT. F. IT MAY ALSO BE STATED THAT INVESTMENT IN SHARES HAS BEEN VALUED AT COST BUT IN CASE OF INVENTORY WHICH HAS BEEN VALUED AT COST OR MARKET VALUE WHICHEVER IS LOW. G. THE FOREMOST PRINCIPAL WHICH HAS BEEN LAID DOWN BY THE AUTHORITY FOR ADVANCE RULING IS WHETHER PURCHASE AND SALE OF SHARES WITH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING IN TH E NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE; BUT WHERE THE OBJECT OF THE IN VESTMENT IN SHARES OF THE COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY DEALING SUCH INVESTMENTS (BY SALE OF SHARES) WILL Y IELD CAPITAL GAIN AND NOT REVENUE RECEIPT FROM THE PROFIT AND LOSS ACCOUNT IT CLEARLY INDICATE THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME OF RS.9 94926/- WHICH CLEARLY INDICATE THAT THE INVESTMENT IN SHARES IS FOR EARNI NG DIVIDEND AND NOT FOR TRADING PURPOSES. H. THE ASSESSEE COMPANY FOLLOWS THE SAME PRINCIPAL FOR LAST SO MANY YEARS AND THE SAME HAS BEEN ASSESSED U/S143(3) FOR VARIOUS YEARS. COPY OF THE LAST ASSESSMENT ORDER HAS BEEN FILED. 2. WITHOUT PREJUDICE TO THE ABOVE ATTENTION OF YOUR GOODSELF IS INVITED TO FACT THAT BY TREATING SHORT TERM CAPITAL GAINS AS INCOME FROM BU SINESS, THERE WOULD NOT BE ANY IMPACT ON THE TAX LIABILITY AND THE TAX PAYABLE WOU LD BE THE SAME AS THE ASSESSEE ITA NO.8393/MUM/2010 & 7531/MUM/2012 M/S SMAA TRADE INVEST P.LTD. 4 HAS PAID TAX AS PER THE PROVISIONS OF SECTION 115JA (MAT), WORKING FOR THE SAME IS ENCLOSED. 3. IN VIEW OF THE ABOVE STATED FACTS YOUR GOODSELF IS REQUESTED TO TREAT THE SHORT TERM CAPITAL GAINS UNDER THE HEAD CAPITAL GAINS ONLY. 6. THE ABOVE SUBMISSION OF THE ASSESSEE WAS NOT FO UND ACCEPTABLE BY THE AO. HE NOTED FROM THE DETAILS OF SHORT TERM CAPITAL GAIN FURNISHED BY THE ASSESSEE THAT MAJORIT Y OF THE SHARES WERE SOLD WITHIN SHORT PERIOD AND THE FREQUENCY OF TRANSACTIONS IN SHARES WAS ALSO VERY HIGH. HE THEREFORE HELD THAT THE INTENTION OF THE ASSESSEE WAS CLEARLY TO TRADE IN SHARES AND IT WAS NOT A CASE OF INVESTMENT MADE BY THE ASSESSEE IN SHARES. ACCORDI NGLY, THE PROFIT ARISING FROM THE PURCHASE AND SALE OF SHARES DECLAR ED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN WAS TREATED BY THE AO AS BUSINESS INCOME OF THE ASSESSEE AND THE SAME WAS BR OUGHT TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PRO FESSION. ON APPEAL, THE LD. CIT(A), UPHELD THE ACTION OF THE AO ON THIS ISSUE AFTER TAKING INTO CONSIDERATION THE VOLUME AND FREQUENCY OF TRANSACTIONS IN SHARES COUPLED WITH SHORTER DURATION OF HOLDING REVISED WHICH, ACCORDING TO HIM, SUFFICIENTLY DISPLAYED THE INTENT ION OF THE ASSESSEE TO TRADE IN SHARES WITH PROFIT MOTIVE. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. C OUNSEL FOR THE ASSESSEE HAS FURNISHED BEFORE US THE DETAILS OF TRA NSACTIONS IN SHARES MADE BY THE ASSESSEE IN THE YEAR UNDER CONSI DERATION AS WELL AS IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2006- 07 TO SHOW THAT THE NATURE OF TRANSACTIONS INCLUDING THEIR FREQUENC Y, HOLDING PERIOD ETC WAS SIMILAR IN BOTH THESE YEARS. HE HAS INVITE D OUR ATTENTION TO THE COPY OF ASSESSMENT ORDER PASSED BY THE AO FOR A .Y.2006-07 TO ITA NO.8393/MUM/2010 & 7531/MUM/2012 M/S SMAA TRADE INVEST P.LTD. 5 SHOW THAT THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAIN AMOUNTING TO 25,67,008/- ON SALE OF SHARES IN THE I DENTICAL FACTS AND CIRCUMSTANCES WAS ACCEPTED BY THE AO IN THE SAID AS SESSMENT COMPLETED U/S 143(3). HE HAS ALSO INVITED OUR ATT ENTION TO THE COPY OF ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) FOR A.Y.2004-05 TO SHOW THAT THE SIMILAR CLAIM OF THE ASSESSEE FOR SHO RT TERM CAPITAL GAIN ON SALE OF SHARES AMOUNTING TO RS.30,70,381/- WAS ACCEPTED BY THE AO IN THE IDENTICAL FACTS AND CIRCUMSTANCES. A PERUSAL OF THESE TWO ASSESSMENT ORDERS PASSED BY THE AO U/S 143(3) O F THE ACT FOR THE A.Y. 2004-05 AND 2006-07 CLEARLY SHOWS THAT THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAIN ON SALE OF SHA RES WAS ACCEPTED BY THE AO IN THE FACTS AND CIRCUMSTANCES, WHICH ARE SIMILAR TO THE YEAR UNDER CONSIDERATION I.E. A.Y. 2007-08 AND THIS POSITION IS NOT DISPUTED BY THE LD. DR AT THE TIME OF HEARING BEFOR E US. IN THE CASE OF CIT V/S GOPAL PUROHIT [2011] 336 ITR 287 (BOM) , IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT, WHILE DEALING WITH T HE SIMILAR ISSUE, THAT IT WAS OPEN TO THE ASSESSEE TO MAINTAIN TWO SE PARATE PORTFOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RE LATING TO BUSINESS OF DEALING IN SHARES. IT WAS ALSO HELD THAT THERE SHOULD BE UNIFORMITY IN TREATMENT GIVEN TO SUCH TRANSACTIONS IN SHARES A ND THE RULE OF CONSISTENCY SHOULD BE FOLLOWED WHEN FACTS AND CIRCU MSTANCES FOR DIFFERENT YEARS ARE IDENTICAL, PARTICULARLY IN THE CASE OF SAME ASSESSEE. IN OUR OPINION, THE RATIO OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT(SUPR A) IS SQUARELY APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSE SSING OFFICER TO ACCEPT THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAP ITAL GAIN OF ITA NO.8393/MUM/2010 & 7531/MUM/2012 M/S SMAA TRADE INVEST P.LTD. 6 RS.6,13,016/- ON SALE OF SHARES. GROUND NO.1 OF TH E ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 8. GROUND NO.2 RAISED BY THE ASSESSEE IN THIS APPEA L RELATING TO THE DISALLOWANCE OF RS.93,638/- MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) U/S-14A OF THE ACT IS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE BEING ITA NO.8393/MUM/2010 IS PARTLY ALLOWED. 10. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE BEING ITA NO. 7531/MUM/2012 WHICH IS DIRECTED AGAINST THE ORDER O F THE LD. CIT(A)-20, MUMBAI DATED 05/10/2012, WHEREBY HE CONF IRMED THE PENALTY OF RS.68,780/- IMPOSED BY THE AO U/S 271(1) (C). 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS POINTED BY THE LD. COUNSEL FOR THE ASSESSEE FROM THE RELEVANT ASSESSME NT ORDER PASSED BY THE AO, EVEN AFTER MAKING THE CORRESPONDING ADDI TION IN RESPECT OF WHICH THE IMPUGNED PENALTY IS IMPOSED, THE TOTAL INCOME OF THE ASSESSEE AS COMPUTED AS PER THE NORMAL PROVISIONS O F THE ACT WAS LESS THAN THE BOOK PROFIT COMPUTED U/S 115JB AND T HE ASSESSEE THUS WAS FINALLY ASSESSED FOR THE YEAR UNDER CONSID ERATION ON THE BASIS OF BOOK PROFIT AS PER THE SECTION 115JB OF T HE ACT. IN THE CASE OF CIT VS. NALWA SONS INVESTMENT LTD. [2010] 194 TAXMAN 387 , HONBLE DELHI HIGH COURT HAD HELD THAT WHEN ASSESSM ENT WAS MADE ON INCOME COMPUTED U/S115JB AND TAX HAD BEEN PAID O N INCOME SO COMPUTED, PENALTY U/S 271(1)(C) WOULD NOT BE IMPOSE D WITH REFERENCE ITA NO.8393/MUM/2010 & 7531/MUM/2012 M/S SMAA TRADE INVEST P.LTD. 7 TO ADDITION THAT WOULD HAVE BEEN MADE WHILE MAKING ASSESSMENT UNDER NORMAL PROCEDURE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NALWA SONS INVESTMENT LTD (SUPRA) , WE CANCEL THE PENALTY IMPOSED BY THE AO AND CONFIRMED BY THE CIT(A) AND ALLOW THIS APPEAL O F THE ASSESSEE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE BEING ITA NO.8393/MUM/2010 IS PARTLY ALLOWED WHILE THE APPEAL OF THE ASSESSEE BEING ITA NO.7531/MUM/2012 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/07/20 14 (5 1 34, & 6(+ 30/07/2014 , 4 1 # SD/- (H.L.KARWA) SD/- (P.M.JAGTAP) HONBLE PRESIDENT ACCOUNTANT MEMBER MUMBAI; 6(+ /DATED : 30 TH JULY, 2014. . F{X~{TA F{X~{TA F{X~{TA F{X~{TA P.S. P.S. P.S. P.S. (5 (5 (5 (5 1 11 1 /*$78 /*$78 /*$78 /*$78 98,$ 98,$ 98,$ 98,$ / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. : ( ) / THE CIT- , MUMBAI. 4. : / CIT(A)- , MUMBAI 5. 8;# /*$*+ , , / DR, ITAT, MUMBAI 6. #< = / GUARD FILE. (5+ ' (5+ ' (5+ ' (5+ ' / BY ORDER, '08$ /*$ //TRUE COPY// > >> > / '? '? '? '? ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI