PIYUSH AVLANI (HUF), MUMBAI V. D.C.I.T.-15(1), MUMBAI

ITA 7551/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1706 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJARSHI DWIVEDI
• Keywords: Business income; Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH , MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI D.KARUNAKAR RAO , A M ITA NO. 7551 / MUM / 20 1 1 ( ASSESSMENT YEAR : 200 7 - 20 0 8 ) PIYUSH AVLANI (HUF), 68/5, GOVIND SADAN, C - 25, SION (W), MUMBAI - 400 022 VS. DCIT 15(1), MUMBAI . PAN/GIR NO. : A AHHP 3781 J ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI PARESH SHAPARIA /REVENUE BY : SHRI RAJARSHI DWIVEDI DATE OF HEARING : 1 7 TH JAN ., 201 3 DATE OF PRONOUNCEMENT : 01 / 03 / 201 3 O R D E R P ER SHRI R.K.G UPTA, JM : TH E ASSESSEE HAS PREFERRED THIS APPEAL AGAINST THE ORDER DATED 2 - 9 - 2011 , PASSED BY THE CIT(A) - 26 , MUMBAI , RELATING TO ASSESSMENT YEAR 200 7 - 08 . 2 . THE ASSESSEE IS OBJECTING ACTION OF THE CIT(A) IN CON FIRMING THE TREATING OF SHORT TERM CAPITAL GAINS OF RS.56,15,867/ - AS BUSINESS INCOME ASSESSED BY THE AO. 3 . BR IEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS INVOLVED IN LARGE SCALE TRANSACTIONS ON REGULAR BASIS IN PURCHASE AND SALES OF SHARES . T HE AO NO TED THAT THE ASSESSEE HAS SHOWN AL L THE ITA NO. 7551 /20 1 1 2 INVESTMENTS IN SHARES UNDER THE HEAD INVESTMENT PORTFOLIO. THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS. 38,104/ - AND SHORT TERM CAPITAL GAIN OF RS.56,15,867/ - . THE AO NOTICED THAT THE FREQUENT TRANSACTIONS IN PURCHASE AND SALES OF SHARES HAVE BEEN MADE DURING THE YEAR UNDER CONSIDERATION. THE AO NOTED THAT 18,780 SHARES OF DIFFERENCE COMPANIES WERE PURCHASED ON A SINGLE DAY I.E. ON 17 - 11 - 2006.THOUGH THE ASSESSEE IS SHOWING PURCHASE AND SALE OF SHARES SINCE LONG , HOWEVER, THE ASSESSEE HAS NOT SHOWN ANY DIVIDEND INCOME FOR ASSESSMENT YEAR 2005 - 06 & 2006 - 07. IT IS ALSO NOTED THAT DURING THESE TWO YEARS, ONLY FEW DAYS SHARES WERE HELD. ACCORDINGLY, THE AO OBSERVED THAT THE ASSESSEES MOTIVE AND INTENTION WAS NOT OF INVESTMENT BUT OF TRADING. THE AO NOTED THAT THOUGH THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 1,57,559/ - DURING THE YEAR UNDER CONSIDERATION BUT THIS DIVIDEND INCOME IS ALSO NOT ON ACCOUNT OF LONG HOLDING OF SHARES AS INVESTMENT BUT IT IS BECAUSE OF PU RCHASE OF SHARES OF FEW COMPANIES BEFORE THE RECORD DATE OF PAYMENT OF DIVIDEND. IT IS FURTHER NOTED THAT ON SEVERAL OCCASION, THE ASSESSEE HAD PURCHASED LARGE QUANTITIES OF SHARES IN ONE GO AND SOLD THEM IN SMALL QUANTITIES OVER A PERIOD BULK AND SELLING IT IN RETAIL, WHICH IS JUST LIKE A NORMAL TRADER OF ANY OTHER ARTICLES. THEREFORE, THE AO VIEWED THAT THE ASSESSEES INTENTION IS NOT FOR INVESTMENT BUT FOR TRADING. RELIANCE WAS ALSO PLACED IN VARIOUS CASE LAWS I.E. IN THE CASE OF CIT VS. ASSOCIATED INDL. DEVELOPMENT CO. PVT. LTD., 82 ITA NO. 7551 /20 1 1 3 ITR 586 (SC), IN THE CASE OF BARENDRA PRASAD RAY VS. ITO, 129 ITR 295, IN THE CASE OF CIT VS. DISTRIBUTORS (BARODA) PVT. LTD., 83 ITR 377 (SC) AND MANY OTHERS. AFTER APPLYING THE RATIO OF THE AFORESAID CASE LAWS, THE AO CONCL UDED THAT THE ASSESSEE HAS MADE PURCHASE OF SHARES OF MORE THAN RS. 7.5 CRORES AND EFFECTED THE SALE OF MORE THAN RS. 8.15 CRORES. HE HAS PURCHASED 4,57,185 SHARES OF VARIOUS COMPANIES DURING THIS PERIOD WHICH SHOWS THAT T HE ASSESSEE HAS REGULARLY, SYSTEMA TICALLY AND CONTINUOUSLY DEALING IN THE PURCHASE AND SALE OF SHARES, WHICH IS A MAJOR SOURCE OF HIS INCOME. ACCORDINGLY, THE ENTIRE INCOME OF THE ASSESSEE ON ACCOUNT OF PURCHASE AND SALE OF SHARES WERE TREATED AS BUSINESS INCOME. 4 . THE ASSESSEE PREFERRE D APPEAL BEFORE THE CIT(A) , BEFORE WHOM THE DETAILED SUBMISSIONS WERE PLACED. THE DETAILS OF PURCHASE OF SHARES BETWEEN 0 TO 30 DAYS, 31 - 60 DAYS, 61 - 90 DAYS AND MORE THAN 90 DAYS WERE FILED. SOME OF THE SHARES WERE HELD FOR MORE THAN 366 DAYS. ALL THE ABO VE DETAILS ARE TABULATED IN THE ORDER OF THE LEARNED CIT(A) AT PAGE 6. AFTER CONSIDERING THE SUBMISSION AND PERUSING OTHER MATERIAL ON RECORD, LEARNED CIT(A) WAS OF THE VIEW THAT LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE HAS TO BE ASSESSED UNDER THE HEA D LONG TERM CAPITAL GAIN, HOWEVER, IN RESPECT TO SHORT TERM CAPITAL GAIN, THE CIT(A) FOUND THAT THE SHORT TERM CAPITAL GAIN IS ON THE BASIS OF CONTINUOUS AND REGULAR TRANSACTIONS FOR PURCHASE AND SALE OF SHARES. THEREFORE, THE INTENTION OF THE ASSESSEE WAS OF TRADING AND NOT OF ITA NO. 7551 /20 1 1 4 KEEPING THOSE SHARES UNDER THE HEAD INVESTMENT PORTFOLIO. ACCORDINGLY, HE SUSTAINED THE ORDER OF THE AO IN PART. THE SHORT TERM CAPITAL GAIN OF RS. 56,15,853/ - WAS TREATED AS BUSINESS INCOME. 5 . BEING AGGRIEVED WITH THE ABOVE FINDIN GS OF THE LEARNED CIT(A) , THE ASSESSEE IS NOW IN APPEAL HERE BEFORE THE TRIBUNAL. THE CONTENTION RAISED BEFORE THE LOWER AUTHORITIES WERE REITERATED HERE BEFORE THE TRIBUNAL. THE ATTENTION OF THE BENCH WAS DRAWN AT PAGES 3 TO 6 OF THE PAPER BOOK, WHERE ALL THE DETAILS IN RESPECT OF PURCHASE AND SALES OF SHARES HAVE BEEN GIVEN. IT WAS SUBMITTED THAT FOR ASSESSMENT YEARS 2005 - 06 & 2006 - 07, THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE HAS BEEN ACCEPTED BY THE AO HIMSELF. IT WAS FURTHER STATED THAT DURING THE YEAR UNDER CONSIDERATION, MOST OF THE TRANSACTION OF SHARES WERE BETWEEN 61 TO 90 DAYS AS IN THIS PERIOD THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE WAS RS. 60,37,738/ - , BETWEEN 31 TO 60 DAYS, THE SHORT TERM CAPITAL GAIN WAS RS. 17,91,319/ - . IF THE SE TWO COMPONENTS ARE TAKEN INTO CONSIDERATION, THE N IT CANNOT BE SAID THAT THE ASSESSEES INTENTION WAS FOR DOING TRADING AND NOT KEEPING THE SAME UNDER THE HEAD INVESTMENT PORTFOLIO. IT WAS FURTHER STATED THAT THE SHARES OF LOK HOUSING AND CONSTRUCTION C OMPANY WAS KEPT FOR 366 DAYS. SHARES OF RELIC TECH. WERE HELD FOR 723 DAYS, WHICH CLEARLY SHOWS THAT THE ASSESSEE WAS PURCHASING THE SHARES FOR THE INVESTMENT PURPOSE ALSO. IT WAS FURTHER STATED THAT THE TRANSACTIONS OF PURCHASE WERE ONLY 24 WHERE THE TRAN SACTION OF SALES WERE 49 AND TOTAL NUMBER OF TRANSACTIONS OF PURCHASE AND SALES WERE 73. MOST OF THESE ITA NO. 7551 /20 1 1 5 TRANSACTIONS WERE COMPLETED BETWEEN 61 TO 90 DAYS. THEREFORE, IN NO MANNER, IT CAN BE SAID THAT THE ASSESSEE WAS DOING PURCHASE AND SALE OF SHARES FOR PU RPOSE OF TRADING AND NOT FOR THE PURPOSE OF INVESTMENT. 6. ON THE OTHER HAND, LEARNED DR HAS PLACED RELIANCE ON THE ORDER OF CIT(A) . 7 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE DESERVES TO SUCCEED IN ITS APPEAL. THE DETAILS OF SALE AND PURCHASE OF SHARES HAVE BEEN DISCUSSED ABOVE WHILE RECORDING THE ARGUMENT OF THE LEARNED AR OF THE ASSESSEE. THERE IS NO DISPUTE IN THESE DETAILS. IT IS ALSO A MATTER OF FACT THAT FOR THE ASSESSMENT YEARS 20 05 - 06 & 2006 - 207, THE AO HIMSELF HAS ACCEPTED THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE, THOUGH IN THESE YEAR NO DIVIDEND INCOME WAS EARNED BY THE ASSESSEE. IN THE YEAR UNDER CONSIDERATION, THE THERE WAS A DIVIDEND INCOME OF RS. 1.57 LAKHS OR ODD, W HICH WAS ON ACCOUNT OF LONG TERM INVESTMENTS IN SHARES. HOLDING PERIOD OF SHARES IN MOST OF THE CASE IS BETWEEN 61 TO 90 DAYS . IT IS NOT A CASE THAT THE ASSESSEE IS TAKING LOANS FROM VARIOUS PARTIES AND INVESTING IN SHARES AS THE ASSESSEE HAS INVESTED ITS OWN FUNDS FOR THE PURCHASE OF SHARES. EVEN OTHERWISE, THIS IS THE ASSESSEE, WHO KNOWS HOW TO RUN HIS BUSINESS ACTIVITIES. IF HE WANTS TO PURCHASE SHARES FOR THE INTENTION TO KEEP THEM UNDER THE HEAD INVESTMENT PORTFOLIO, THEN THERE IS NO BAR. THOUGH HE PUR CHASED SHARES FREQUENTLY, IT DOES NOT MEAN THAT THE ASSESSEES INTENTION IS TO EARN PROFIT ON TRADING ACCOUNT. THIS IS THE ASSESSEE, WHO KNOWS TO PURCHASE ITA NO. 7551 /20 1 1 6 SOME SHARES UNDER THE INVESTMENT PORTFOLIO AND IF HE FINDS THAT THE MARKET IS GOING ONWARD, THEN HE SELLS THE SHARES JUST TO CATCH THE PROFIT. IF BY ANY REASON, THE TAX RATE IS LESS UNDER THE HEAD SHORT TERM CAPITAL OR LONG TERM CAPITAL GAIN THEN THE ASSESSEE SHOULD NOT BE DENIED THAT BENEFIT. IN VARIOUS CASES I.E. IN THE CASE OF GOPAL PUROHIT, REPORTED IN 20 DTR 99, V.A.TRIVEDI, REPORTED IN 172 ITR 95 (BOM) AND IN THE CASE OF GOPAL PUROHIT REPORTED IN 228 CTR 582 (BOM) , THE SIMILAR ISSUE HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE. THE HON BLE SUPREME COURT IN THE CASE OF ASSOCIATED INDUSTRIAL DEVELOPMEN T CO. (P.) LTD , REPORTED IN 82 ITR 586 , HAS OBSERVED THAT , WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK - IN - TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. BY OBSERVING THE SAME, THE HON BLE SUPREME COURT HAS CATEGORICALLY HELD THAT IF ANY BODY PROVES THAT THE SHARE PURCHASED KEPT UNDER THE INVESTMENT PORTFOLIO AND THE SAME ARE KEPT UNDER THE STOCK - IN - TRADE, THEN THE SAME TREATMENT IS TO BE GIVEN. IN THE PRESENT CASE, THE ASSESSEE HAS SHOWN A L L THE PURCHASES UNDER THE HEAD INVESTMENT PORTFOLIO. THIS FACT HAS BEEN ADMITTED BY THE DEPARTMENTAL AUTHORITY IN PREVIOUS TWO YEARS, WHERE THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE HAS BEEN ACCEPTED. ITA NO. 7551 /20 1 1 7 8 . IN CASE OF V.A.TRIVEDI , 172 ITR 95 (BOM) , TH E HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT , T HE PERIOD OF THE HOLDING AND NUMBER OF TRANSACTIONS CANNOT BE THE ONLY BASIS TO DETERMINE WHETHER THE ASSESSEE HAS CARRIED OUT THE BUSINESS IN SHARES TRANSACTIONS. IT MAY BE ONE OF THE RELEVANT CONSIDERA TION BUT CANNOT BE THE MAIN CONSIDERATION FOR DECIDING WHETHER THE ASSESSEE IN THIS CASE IS ENGAGED IN A BUSINESS OR NOT. WE HAVE TO LOOK INTO ALL THE SURROUNDING CIRCUMSTANCES. THIS IS A FACT ON RECORD THAT THE ASSESSEE IN THIS CASE IS ENGAGED IN THE EMPL OYMENT AND HAS DERIVED THE SALARY INCOME. OUT OF THE SURPLUS FUND, HE INVESTED INTO THE SHARES AND THE UNITS AND THOSE SHARES AND UNITS HAS DULY BEEN SHOWN BY THE ASSESSEE AS INVESTMENT IN HIS BALANCE SHEET IN THE EARLIER YEAR AS WELL AS DURING THE YEAR. I N THE EARLIER YEAR ALSO, THE ASSESSEE DERIVED THE INCOME ON THE SALE OF THE SHARES, WHICH HAS BEEN RETURNED BY THE ASSESSEE AS CAPITAL GAIN AND REVENUE HAS DULY ACCEPTED THE SAME. THE ASSESSEE WAS NOT HOLDING THE SHARES OF THE UNITS AS A STOCK IN TRADE. TH IS FACT IS ALSO NOT DENIED BY THE REVENUE. THE PERIOD OF HOLDING ITSELF HAS BEEN TREATED BY THE LEGISLATURE TO BE A RELEVANT CONSIDERATION FOR DETERMINING WHETHER THE CAPITAL GAIN DERIVED IS A LONG TERM CAPITAL GAIN OR A SHORT TERM CAPITAL GAIN . THESE OBS ERVATIONS OF THE HON BLE JURISDICTIONAL HIGH COURT SQUARELY APPLICABLE ON THE FACTS OF THE CASE BECAUSE IF HOLDING OF SHARES FOR LESSER PERIOD THAN THE ONE PRESCRIBED, IT WILL BE REGARDED TO BE THE BUSINESS INCOME. DIVIDING THE CAPITAL GAIN INTO TWO PARTS I.E. THE SHORT TERM GAIN OR THE LONG TERM GAIN ITSELF PROVE THAT THE PERIOD OF THE ITA NO. 7551 /20 1 1 8 HOLDING CANNOT BE THE CRITERIA FOR DETERMINING WHETHER THE PROFIT DERIVED BY THE ASSESSEE IS A LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN IN ANY WAY. THERE ARE MANY O THER CASES ALSO, WHICH SUPPORT THE CASE OF THE ASSESSEE. THEREFORE, FOLLOWING THESE DECISION AND TAKING INTO CONSIDERATION THE FACTUAL MATRIX OF THE PRESENT CASE, WE HOLD THAT THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE HAS TO BE ASSESSED UNDER THE H EAD SHORT TERM CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS INCOME. 9 . IN THE RESULT , APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF MAR . 201 3 . 201 3 SD/ - ( ) ( D.KARUNAKAR RAO ) SD/ - ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 0 1 / 0 3 / 201 3 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI . 4. / CIT 5. / DR, ITAT, MUMBAI . 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( /ASSTT. REGISTRAR) / ITAT, MUMBAI