DHURV H. PATEL, MUMBAI V. DCIT RG 17(3), MUMBAI

ITA 7587/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84407 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Capital asset; Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BE NCH, MUMBAI , !' #$% , !& ! ' BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 7587/MUM/2010 ( ( ( ( ( / ASSESSMENT YEAR : 2006-07 SHRI DHRUV H. PATEL, 601/B AMRUT VILLA, DR. AMBEDKAR ROAD, MATUNGA (E), MUMBAI-400 019 / VS. THE DCIT-17(3), MUMBAI ) !& ./ * ./ PAN/GIR NO. : AADPP 1775A ( )+ / APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . ! / APPELLANT BY: SHRI NISHIT GANDHI ,-)+ / . ! / RESPONDENT BY: SHRI LOVE KUMAR / 0& / DATE OF HEARING :01.12.2014 12( / 0& / DATE OF PRONOUNCEMENT :5 .12.2014 !3 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE LD. CIT(A)-29, MUMBAI DT.8.7.2010 PERTAINING TO A.Y .2006-07. 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE L D. CIT(A) ERRED IN CONFIRMING THE AOS ACTION TO TREAT THE SHORT TERM CAPITAL GAIN ON SALE ITA NO. 7587/M/2010 2 OF SHARES AMOUNTING TO RS. 17,26,855/- AS BUSINESS INCOME OF THE ASSESSEE. 3. THE RETURN FOR THE YEAR WAS FILED ON 28.7.2006 D ECLARING TOTAL INCOME OF RS. 14,54,100/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. DURING THE COURSE OF THE SCRUTINY ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN OF RS. 17,26,855/-. THE AO FURTHER NO TICED THAT 90% OF THE INCOME HAS BEEN DERIVED FROM ONE TRANSACTION WHICH WAS ON ALLOTMENT OF SHARES IN IPO OF FCS SOFTWARES SOLUTIONS LTD. THE AO ALSO NOTICED THAT THE APPLICATION IN THE IPO WAS MADE OUT OF BORROWED FUNDS AND THE SHARES WERE SOLD WITHIN 5 DAYS FROM THE DATE OF ALLOTMENT. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS CARRIED OUT BUSIN ESS ACTIVITIES. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SHORT TERM CA PITAL GAIN SHOULD NOT BE TREATED AS BUSINESS PROFIT. IT WAS EXPLAINE D THAT THE ASSESSEE IS AN INVESTOR AND WAS INVESTOR IN PAST YEARS ALSO. THE PROFIT WAS BOOKED ON THE ALLOTMENT OF THE SHARES OF FCS SOFTWARES SOLUTI ONS LTD AS THE ASSESSEE HAS TAKEN CAUTIOUS VIEW LIKE A PRUDENT INV ESTOR. THE EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO. T HE AO OBSERVED THAT THE ASSESSEE HAS APPLIED FOR THE IPO OF FCS SOFTWA RES SOLUTIONS LTD., BY TAKING FINANCE FROM M/S. MERIT CREDIT CORPN. LTD. AND ALSO FROM MASAT TEXTURISERS & TWISTING PVT. LTD. THE APPLICATION AM OUNT WAS FOR 35 LAKHS SHARES AMOUNTINTO RS. 8.75 LAKHS. THE ASSESSEE WAS ALLOTTED 12971 SHARES ON 17.9.2005 AND THE SHARES WERE SOLD ON 22.9.2005 AND 23.9.2005 AT THE AVERAGE RATE OF RS. 228/- AS AGAINST THE PURCHASE P RICE OF RS. 50/- PER SHARE. THE AO PROCEEDED BY CONSIDERING THE CBDT CI RCULAR QUA INSTRUCTION NO. 1827 DT. 31.8.1989 AND INSTRUCTION DT. 16.5.2006 AND TREATED THE SHARE TRANSACTION OF THE ASSESSEE AS BU SINESS INCOME. ITA NO. 7587/M/2010 3 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CLAI MED THAT THE ASSESSEE WAS AN INVESTOR AND DURING THE YEAR UNDER CONSIDERATION HE HAS APPLIED FOR THE SHARES OF FCS SOFTWARES SOLUTIONS L TD THROUGH IPO. THE ASSESSEE EXPLAINED THAT AFTER HE HAS SOLD THE SHARE S AT AN AVERAGE RATE OF RS. 228/- PER SHARE THE SHARE PRICE CAME DOWN TO RS . 93.60 WITHIN ONE MONTH AND THEREFORE BEING A PRUDENT INVESTOR, THE A SSESSEES DECISION FOR SELLING THE SHARES AT THE RIGHT TIME HAS EARNED HIM SHORT TERM CAPITAL GAINS. THE LD. COUNSEL FURTHER STATED THAT UTILIZA TION OF BORROWED FUNDS IS NO BAR TO MAKE AN INVESTMENT IN CAPITAL ASSET. T HE LD. COUNSEL FURTHER STATED THAT THE ASSESSEE HAS DEALT ONLY IN 19 SCRIP S THEREFORE CONSIDERING THE FACTS OF THE CASE, THE FINDINGS OF THE LD. CIT( A) ARE ERRONEOUS AND DESERVES TO BE REVERSED. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER A ND THE ORDER OF THE FIRST APPELLATE AUTHORITY. IT IS AN ADMITTED F ACT THAT AROUND 90% OF THE TOTAL GAINS IS FROM SALE OF THE SHARES OF FCS S OFTWARES SOLUTIONS LTD. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE HAD APPLIED IN THE SHARES OF THE IPO OF THE SAID COMPANY FROM BORROWED CAPITAL. MERELY BECAUSE THE SHARES WERE APPLIED THROUGH BORROWED CAPITAL CANNOT BE A GROUND FOR TREATING THE CAPITAL GAINS AS BUSINESS INCOME. THE IPO FUNDING AVAILED BY THE ASSESSEE WAS TO GET MORE ALLOTMENT BUT THE FACT OF THE MATTER IS THAT THE ASSESSEE WAS AN INVESTOR AND THE SOLE INTENTION OF APPLYING IN THE SHARES THROUGH IPO WAS TO GET HIGHER ALLOTMENT OF S HARES. WE ALSO FIND ITA NO. 7587/M/2010 4 THAT THERE ARE NO REPETITIVE PURCHASE AND SALE OF T HE SAME SCRIPT WHICH MEANS THAT THERE IS NO CHURNING OF SHARES. THE TOT AL NUMBER OF DAYS UTILIZED BY THE ASSESSEE FOR INVESTMENT IN SHARES I S 32 DAYS. CONSIDERING ALL THESE FACTS IN TOTALITY, WE DO NOT FIND ANY REA SON TO TREAT THE ASSESSEE AS A TRADER. WE, THEREFORE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO TREAT THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES AMOUNTING TO RS. 17,26,855/- AS DECLARED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DEC.2014 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER !& / ACCOUNTANT MEMBER MUMBAI; 4 DATED : 05.12.2014 . . ./ RJ , SR. PS !3 !3 !3 !3 / // / ,0 ,0 ,0 ,0 5!(0 5!(0 5!(0 5!(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 ,0 , , / DR, ITAT, MUMBAI 6. 8 9 / GUARD FILE. !3 !3 !3 !3 / BY ORDER, -0 ,0 //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI