SHARAD K SHAH, MUMBAI V. ACIT 21(2), MUMBAI

ITA 7734/MUM/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9840 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 18-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 16-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Capital asset; Business income
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI R.C. SHARMA , AM AND SHRI AMARJIT SINGH , JM / I .T.A. NO. 7734 / M/ 20 1 1 ( / ASSESSMENT YEAR: 20 0 7 - 08 ) SHARAD K SHAH 6 MADHU PARAG, 69 SWASTIK SOCIETY, J.V. P.D. SCHEME, VILE PARLE (W) MUMBAI - 4000 49 / VS. ACIT 21(2) PRATYAKSHKAR BHAVAN, MUMBAI - 400050 ./ ./ PAN/GIR NO. : AACPS 1840 A ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 05.07 .2017 / DATE OF PRONOUNCEMENT : 12. 07 .2017 / O R D E R PER AMARJIT SINGH, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 08.08.2011 PASSED BY THE COMMIS SIONER OF INCOME TAX (APPEALS) - 3 2 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 200 7 - 08 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1 .1 THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 32 MUMBAI, ERRED IN CONFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME - TAX - 21 (2), ['THE ID A.O.'] WHEREBY THE A.O. ASSESSED THE INCOME OF THE APPELLANT FROM SALE OF SHARES AS ASSESSEE BY: SHRI DINKLE H. HARIYA DEPARTMENT BY: SHRI RAM TIWARI (SR. AR) SHARAD K SHAH 2 'PROFITS AN D GAINS OF BUSINESS ', AS AGAINST 'CAPITAL GAINS ' DEC LARED BY THE APPELLANT IN HIS RETURN OF INCOME. 1.2 WHILE DOING SO, THE CIT (A) FAILED TO APPRECIATE THAT: (I) THE SHARES ON WHICH THE CAPITAL GAIN WAS OFFERED WERE HELD BY THE APPELLANT AS INVESTMENT AND, AS SUCH, THE GAIN ARISING FROM THE SALE OF SUCH SHARES WAS LIABLE TO BE ASSESSED UNDER THE HEAD 'CAPITAL GAIN'; (II) THE ACTIVITY OF SALE AND PURCHASE OF SUCH SHARES DID NOT HAVE ANY INDICIA OF BUSINESS AND WAS NOT CARRIED OUT BY THE APPELLANT IN ANY BUSINESS LIKE MANNER, SO AS TO HOLD THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARE TRADING WITH RESPECT TO SUCH INVESTMENTS. 1.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW, NO SUCH CHANGE OF THE HEAD WAS CALLED FOR. 1.4 WITHOUT PREJUDICE TO THE ABOVE, AND IN ALTERNATIVE, IT IS SUBMITTED THAT IF THE ACTION OF THE A.O. IS LIABLE TO BE CONFIRMED, IT IS PRAYED THAT APPROPRIATE DEDUCTION OF EXPENSES, INCLUDING SECURITIES TRANSACTION TAX (S. T. T.), INCURRED BE ALLOWED . 3 . THE BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED THE RETUR N OF INCOME ON 31.10 .20 07 DECLARING TOTAL INCOME TO THE TUNE OF RS.27,18,438/ - . THE RETURN OF INCOME WAS ACCOMPANIED BY FORM NO. 3CB/3CD, P&L A/C, BALANCE - SHEET AND VARIOUS ANNEXURE ATTACHED TO THE FINANCIAL STATEMENTS. THE SAME WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S.143( 2 ) / 142(1) OF THE I.T. ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSES SEE IS AN LIC AGENT AND ALSO SUB - BROKER. THE ASSESSEES INCOME DURING THE YEAR COMPRISES OF BUSINESS INCOME, CAPITAL GAINS & INCOME FROM OTHER SOURCES. DURING THE YEAR, ASSESSEE HAS DECLARED THE SHORT TERM CAPITAL GAINS. ON VERIFICATION OF THE STATEMENT OF SHORT TERM CAPITAL GAINS FURNISHED BY THE ASSESSEE, IT WAS OBSERVED THAT THE VOLUME OF TRANSACTIONS WAS SUBSTANTIAL. THE SHARAD K SHAH 3 SHORT TERM CAPITAL DECLARED ON ACCOUNT OF SAID TRANSACTIONS AMOUNTED TO RS.20,34,779/ - . ON SEEING THE NATURE OF TRANSACTION , THE ASSESSING OFFICER ARRIVED AT THIS CONCLUSION THAT THE INCOME ARISING OUT OF ON ACCOUNT OF TRADING AND SHARE TO THE TUNE OF RS.20,34,779/ - WAS THE INCOME FROM BUSINESS , THEREFORE, ACCORDINGLY TAXED. THE ASSESSEE FI LED AN APPEAL BEFORE THE CIT(A) WHO CO NFIRMED THE ORDER OF THE ASSESSING OFFICER AND TREATED THE INCOME AS INCOME FROM BUSINESS. FEELING AGGRIEVED THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1: - 4 . WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LEARNED REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE TRANSACTION WHICH HAS BEEN CONSIDERED BY THE AO DERIVES LONG/SHORT TERM CAPITAL GAINS AND THE CONTENTION OF THE ASSESSEE HAS BEEN EXCEPTED BY THE CIT(A) BY VIRTUE OF ORDER D ATED 18.03.2016 FOR THE A.Y. 2009 - 10 LIES AT THE PAGE 16 TO 34 OF THE PAPER BOOK. HOWEVER, ON THE OTHER HAND THE LD. REPRESENTATIVE OF THE REVENUE HAS REFUTED AND SAID CONTENTION . T HE FACTUAL POSITION IS NOT IN DISPUTE . T HE ASSESSEE IS AN LIC AGENT AND ALSO A SUB - BROKER . T HE ASSESSEES INCOME DURING THE YEAR COMPRISES BUSINESS INCOME, CAPITAL GAINS AND INCOME OF OTHER SOURCES. THE ASSESSEE CLAIMED SHORT TERM CAPITAL GAINS ON THE TRANSACTION ASSESSING TO THE TUNE OF RS.20,34,779/ - . THE REVENUE HAS EXCEPTE D THE CONTENTION OF THE ASSESSEE WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE A.Y. SHARAD K SHAH 4 2009 - 10 BY VIRTUE OF ORDER DATED 18.03.2016 PASSED BY THE CIT(A) - 24 MUMBAI, THE RELEVANT PART OF THE SAID DECISION IS HEREBY REPRODUCED BELOW FOR THE SHAPE OF CONVENIEN CE PAGE NO. 31.: - 2.4 1 HAVE GIVEN MY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 2.4.1 BEFORE DEALING WITH THE MAIN GROUND, IT IS PERTINENT TO MENTION THAT DURING THE COURSE OF THE APPELLATE PROCEEDINGS LD. AR HAD FILED AN ADDITIONAL GROUND VIDE LETTER DATED 22NDJULY, 2015 RELATING TO DISALLOWANCE U/S 14A R.W. RULE 8D. HOWEVER, VIDE ORDER SHEET NOTING DATED 16.03.2016 AS WELL AS T HE NOTING DONE ON THE LETTER FILING THE ADDITIONAL GROUND, LD. AR HAS WITHDRAWN THE SAID ADDITIONAL GROUND. ACCORDINGLY, THE SAME IS DISMISSED AS WITHDRAWN. 2.4.2 THUS, THE ONLY GROUND OF APPEAL WHICH SURVIVES FOR ADJUDICATION IN THIS CASE IS AGAINST THE A CTION OF LD. AO IN TREATING THE SHORT TERM CAPITAL GAIN EARNED BY THE APPELLANT ON THE SHARES HELD BY HIM AS INVESTMENT UNDER THE HEAD 'BUSINESS INCOME' RATHER THAN UNDER THE HEAD 'CAPITAL GAINS' AS OFFERED BY THE APPELLANT. WHILE DOING SO, LD. AO FOUND TH AT THE APPELLANT HAD TRANSACTED IN 38 SHARES AND NOT ONLY WERE THE SALE AND PURCHASE FREQUENT IN MOST OF THE SHARES, EVEN THE HOLDING PERIOD WAS VERY LESS. LD. AO ALSO OBSERVED THAT THE QUANTUM OF SHARES PURCHASED WAS OF RS.8.72 CRORE WHICH SHOWED THAT THE APPELLANT WAS SERIOUSLY INTO BUSINESS ACTIVITY AND HIS MOTIVE WAS TO EARN PROFIT OUT OF THE TRANSACTIONS RATHER THAN REAPING BENEFITS A LIC AGENT FOR THE LAST 32 YEARS AND WAS HOLDING CERTAIN SHARES AND MUTUAL FUNDS AS INV ESTMENT DURING THE YEAR UNDER CON SIDERATION. THE APPELLANT WAS FURTHER STATED TO HAVE EARN ED DIVIDEND INCOME OF APPROX.RS.22 LAC WHICH WORKED OUT TO YIELD OF APPROXIMATELY 6.03% ON THE CLOSING COST OF INVESTMENTS. IT WAS ALSO STATED THAT THE OPENING CAPITAL OF THE APPELLANT WAS RS.6.81 C RORE AND CLOSING CAPITAL BALANCE WAS RS.5.61 CRORE WHICH INDICATED THAT HE HAD LARGE CAPITAL OF HIS OWN. IT WAS FURTHER STATED THAT THE APPELLANT HAD NOT MADE ANY BORROWING FOR THE INVESTMENT IN SHARES AND HE HAD A CONSISTENT TRACK RECORD OF BEING A PASSIV E INVESTOR WITH A REASONABLY DIVERSIFIED PORTFOLIO OF DIFFERENT ASSET CLASSES. LD. SHARAD K SHAH 5 AR ALSO DREW MY ATTENTION TO THE FACT THAT THE APPELLANT HAD CONSISTENTLY REFLECTED THE INVESTMENTS IN SHARES AND SECURITIES AS 'INVESTMENTS' IN HIS BALANCE SHEET AND HE HAD CONSISTENTLY OFFERED THE INCOME FROM SALE OF SHARES AS 'CAPITAL GAINS'. THEREAFTER, RELYING ON A NUMBER OF DECISIONS ON SIMILAR SET OF FACTS, LD. AR PLEADED THAT THERE BEING NO ORGANIZED BUSINESS ACTIVITY OR INFRASTRUCTURE FOR ALLEGED TRADING IN SHARES AN D THERE BEING NO BORROWED FUNDS DESPITE WHICH THE APPELLANT HAVING EARNED A DIVIDEND OF APPROXIMATELY RS.22 LAC, LD. AO SHOULD NOT HAVE TREATED THE SHORT TERM CAPITAL LOSS AS BUSINESS LOSS. 2.4.4 ON PERUSAL OF THE DETAILS BROUGHT BEFORE ME AS ALSO THE APPL ICABLE CASE LAWS ON THE SUBJECT, I AM OF THE CONSIDERED OPINION THAT THE APPELLANT'S CASE IS SQUARELY COVERED BY THE DECISION OF HON'BLE MUMBA I BENCH OF ITAT IN THE CASE OF KINNARY SANGHAVI 66 TAXMANNCOM 288 (MUM) WHERE IT WAS INTER ALIA HELD AS UNDER: SUC H DECISION IS TO BE ARRIVED AT BY TAKING INTO ACCOUNT THE INTENTION OF THE ASSESSEE WHILE PURCHASING THE SHARES, AS TO WHETHER THE SAME WAS ACQUIRED FOR HOLDING AS INVESTMENTS OR FOR DOING BUSINESS THEREIN. THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS ALSO ONE OF THE DECISIVE FACTORS TO FIND OUT WHETHER THE SHARES WERE HELD AS INVESTMENT OR STOCK IN TRADE. IF THE SHARES ARE BOUGHT WITH THE INTENTION OF EARNING THE CAPITAL GAINS THEREON AND ALSO DIVIDEND INCOME BY KEEPING THE SAME AS INVEST MENT, THE GAIN ARISING THERE FROM IS REQUIRED TO BE TREATED AS CAPITAL GAINS.... THUS WHAT WAS A CAPITAL ASSET WILL REMAIN A CAPITAL ASSET UNLESS A UIJERSON HOLDING THE ASSET HIMSELF CHANGES THE NATURE BY A SPECIFIC ACTION....' MERELY BECAUSE THE ASSESSES LIQUIDATES ITS INVESTMENT WITHIN A SHORT SPAN OF TIME WHICH HAD GIVEN BETTER OVERALL EARNING TO THE ASSESSES, WOULD NOT LEAD TO CONCLUSION THAT THE ASSESSES HAD NO INTENTION TO KEEP ON THE FUNDS AS INVESTORS IN EQUITY SHARES....... 2.4.5 FURTHER ON FACTS, THE APPELLANT HAS ALSO GIVEN A CHART SHOWING THE BREAKUP OF INCOME INCLUDING THE LONG TERM AND SHORT TERM CAPITAL GAINS/LOSS CLAIMED BY HIM STARTING FROM A.Y. 2007 - 08 TO A.Y. 2014 - 15. THE SAME IS REPRODUCED BELOW: YEAR INCOME FROM BUSINES S SPECULATI ON INCOME INTRA - DAY TRADES DIVIDE ND INCOME INTERE ST INCOM E PPF INTERE ST LIC ANNUIT Y LONG TERM CAPITAL GAIN/LOSS SHORT TERM CAPITAL GAIN/LOS S A.Y200 7 - 08 153.82 4 143,817 770,12 8 701,90 0 109,13 6 - - 2,198,69 2 SHARAD K SHAH 6 A.Y200 8 - 09 117,20 0 - 767,59 1 169,86 8 117,90 1 36,12 8 7,566,428 12,507,66 7 A.Y.200 9 - 10 127,29 2 - 2,155,19 9 240,82 5 127,39 3 18,744 637,767 5,049,15 8 A.Y.201 0 - 11 227,11 7 6,929 214,95 3 1,745 143,17 1 18,744 386,163 3,341,7 58 A.Y.201 1 - 12 71,096 - 298,47 8 20,312 154,70 4 18,744 28,612 285,943 A.Y.201 2 - 13 66,401 - 312,90 9 59,881 178,71 8 18,744 1,713,585 5,318,417 A.Y.201 3 - 14 216,31 8 - 490,90 6 202,31 3 215,94 3 18,744 - 789,636 A.Y.201 4 - 15 164,34 5 - 544,89 7 68,049 239,52 6 18,744 1,279,9 11 162,317 2.4.6 ON PERUSAL OF THE ABOVE CHART, IT IS QUITE CLEAR THAT THE APPELLANT HAD BEEN CONSISTENTLY SHOWING LONG TERM/ SHORT TERM CAPITAL - GAIN/LOSS APART FROM SUBSTANTIAL DIVIDEND INCOME AND AS HELD IN THE CASE OF GOPAL PUROHIT 122 TTJ 87 (MUMBAL) AND JANAK RANGWALLA 11 SOT 627 (MUM), THE APPELLANT HAVING INVESTED HIS SURP LUS FUNDS IN SHARES/SECURITIES, IT COULD NOT BE SAID THAT HE, HAVING CARRIED OUT INVESTMENTS IN ONLY 38 SCRIPS, THAT TOO, OVER A PERIOD OF ONLY 70 DAYS OUT OF 250 TRADING DAYS, COULD BE TREATED AS A TRADER. THE APPELLANT'S INTENTION TO INVEST IN SHARES I B EING APPARENT FROM THE BALANCE SHEET MAINTAINED BY HIM REFLECTING THE SAID INVESTMENTS NOT AS STOCK - IN - TRADE BUT AS MERE INVESTMENTS IN ORDER TO EARN DIVIDEND INCOME AND TO REAP BENEFIT OF CAPITAL GAINS, IT IS HELD THAT THE ACTION OF LD.AO HAD NO BASIS WHA TSOEVER. FURTHER, RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RADHASWAMI SATSANG VS CIT 193 ITR 321 (SC), LD. AO HAVING ASSESSED THE APPELLANT TO BE AN INVESTOR IN SHARES IN OTHER YEARS, COULD NOT HAVE ALLOWED THAT POSITION TO BE CHANGE D IN JUST ONE OUT OF THE EIGHT YEARS FOR WHICH CHARTS HAS BEEN REPRODUCED SUPRA. ACCORDINGLY, GROUNDRAISED IS ALLOWED. 5 . ON A PPRAISAL OF THE ABOVE MENTIONED FINDING , THE CIT(A) HAS CONCLUDED THE INCOME FROM THE SHARE AS SHORT TERM CAPITAL GAINS. THE REVENUE HAS ACCEPTED THE CONTENTION OF THE ASSESSEE. THE ASSESSEE HAS SHOWN THE INCOME FROM THE SHARES AS SHORT TERM CAPITAL GAIN IN EARLIER YEARS ALSO IN WHICH THE CONTEN TION OF THE ASSESSEE HAS BEEN ACCEPTED. THE CO NSISTENCY HAS BEEN DISTURBED ONLY ABOUT THE YEA R UNDER SHARAD K SHAH 7 CONSIDERATION I.E., 2007 - 08. I N VIEW OF THE DECISION OF THE CIT(A) - 24 MUMBAI DATED 18.03.2016 IN THE ASSESSEE S OWN CASE FOR THE A.Y. 2009 - 10, WHICH IS NOT CHALLENGED THEREFORE, WE ARE OF THE VIEW THAT UNDER THE RULE OF CONSIST ENCY THE INCOME OF THE SHARE OF THE ASSESSEE IS LIABLE TO BE TREATED AS SHORT /LONG TERM CAPITAL GAINS AS PER THE DURATION OF THE CONTENTION OF THE SHARES. ACCORDINGLY, WE TREAT THE INC OME OF THE ASSESSEE AS CAPITAL GAIN AND SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NOS. 3 & 4: - 6. ISSUE NO. 3 AND 4 IS FORMAL IN NATURE WHICH NOWHERE REQUIRED ANY ADJUDICATION. 7 . IN THE RESULT , APPEAL OF THE ASSESSEE IS HEREBY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 12.07. 2017 SD/ - SD/ - ( R.C. SHARMA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 12.07. 201 7 V.P.SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - SHARAD K SHAH 8 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI