SANGHVI APOORVA LALUBHAI (HUF), MUMBAI V. ACIT 16(2), MUMBAI

ITA 7767/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2078 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 31-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P JANGID
• Assessee Lawyers: VENUGOPAL C NAIRAR
• Keywords: Business income; Earning of tax free income; Speculation loss
• Section: 143(3); 14A

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY , JM AND SHRI MANOJ KUMAR AGGARWAL , AM ./ I.T.A. NO. 7767/MUM/2014 ( / ASSESSMENT YEAR: 2010 - 2011 ) SANGHVI APPORVA LALUBHAI (HUF) 1 ST FLOOR, KARIM MANOR, 8, KRISHNA SANGHI ROAD GAMDEVI, MUMBAI 400 007 / VS. ASSTT. COMMISSIONER OF INCOME TAX (ACIT) 16(2) INCOME TAX OFFICE MATRU MANDIR MUMBAI ./ ./ PAN/GIR NO. AA EHS1459M ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI VENUGOPAL C. NAIR,AR / RESPONDENT BY : SHRI J.P.JANGID, DR / DATE OF HEARING : 03/11 /2016 / DATE OF PRONOUNCEMENT : /1 1 /2016 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED A PPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 201 0 - 1 1 IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 2 7 [CIT(A)], MUMBAI DATED 01/10 /2014 AND PRIMARILY ASSAILS ASSESSMENT OF SHORT TERM CAPITAL GAINS UNDER THE HEAD BUSINESS INCOME AND 14A CONSEQUENTIAL DISALLOWANCE FOR RS.1,65,595/ - . 2 . FACTS QUA THE DISPUTE A RE THAT THE ASSESSEE IS A RESIDENT HUF ENGAGED IN SHARES/SECURITIES TRANSACTIONS. THE RETURN OF INCOME FOR IMPUGNED AY WAS FILED 2 ITA NO. 7767 /MUM / 2014 SANGHVI APPORVA LALUBHAI (HUF) VS. ACIT ASSESSMENT YEAR 2010 - 201 1 DECLARING TOTAL INCOME OF RS.43,22,899/ - WHICH WAS TAKEN UP FOR SCRUTINY ASSESSMENT U/S 143(3) WHEREIN TOTAL INCOME WAS DETERMI NED AT RS.42,70.920/ - VIDE ASSESSING OFFICER [AO] ORDER DATED 15/03/2013. THE ASSESSEE EARNED S HORT TERM C APITAL G AINS [STCG] ON SECURITIES TRANSACTIONS FOR RS. 43,22,899/ - BESIDES SPECULATION LOSS AND INCOME FROM OTHER SOURCES. THE AO APPLIED VARIOUS PAR AMETERS ON THE SHARE TRANSACTION ACTIVITIES CARRIED OUT BY ASSESSEE AND RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS AND CBDT INSTRUCTION NO. 1827 DATED 31/08/1989 AND CONCLUDED THAT IMPUGNED TRANSACTIONS CONSTITUTED BUSINESS INCOME AND NOT STCG IN THE HAND S OF THE ASSESSEE. AO NOTED THAT SHARE TRANSACTION ACTIVITY WAS BEING CARRIED ON IN REGULAR AND SYSTEMATIC MANNER OVER SEVERAL YEARS WITH A PROFIT MOTIVE. MOREOVER, ACTIVITIES WERE VOLUMINOUS BOTH IN TERMS OF QUANTITY AND QUANTUM. THE HOLDING PERIOD WAS LO W AND THERE WERE REPETITIVE SALE & PURCHASE TRANSACTIONS. FURTHER, AS ASSESSEE EARNED TAX FREE INCOMES, HE APPLIED SECTION 14A AND COMPUTED DISALLOWANCE OF RS.1 , 65,595/ - UNDER RULE 8D. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) WHO NOTED THAT THE ASSESSEE WAS MAINTAINING TWO SEPARATE PORTFOLIO VIZ. INVESTMENT AND TRADING ACCOUNTS. THE ASSESSEE INDULGED IN REPETITIVE SALE AND PURCHASE IN SOME SHARES WITHIN A PERIOD OF LESS THAN 30 DAYS AND IN PARTICULAR LY IN THE SHARES OF JAIN IRRIGATION WHER EIN CAPITAL GAIN EARNED WAS TO THE TUNE OF RS.14,75,102/ - . NOTING THIS, CIT(A) CONCLUDED THAT THE TRANSACTIONS WITH RESPECT TO THIS SCRIP INVOLVING CAPITAL GAIN OF RS.14 , 75 , 102/ - CONSTITUTE BUSINESS INCOME AND ACCORDINGLY TAXABLE AS BUSINESS INCOME. FOR BALANCE AMOUNT, HE ACCEPTED THE CONTENTION OF ASSESSEE , BEING TAXABLE AS STCG. HENCE, THIS CONTENTION WAS PARTIALLY ALLOWED IN FAVOR OF ASSESSEE. THE DISALLOWANCE U/S 14A WAS UPHELD FOR WANT OF JUSTIFICATION AND PROSECUTION ON THE PART OF ASSESSEE. AGGRIEV ED, THE ASSESSEE IS IN APPEAL BEFORE US. 3 . THE LD. COUNSEL FOR ASSESSEE, SH. VENUGOPAL C.NA IR, CONTENDED THAT THE INCOME HAS RIGHTLY BEEN OFFERED UNDER THE HEAD CAPITAL GAINS AS THE ASSESSEE IS A HUF AND INDULGED IN SHARE TRANSACTION WITH INVESTMENT M OTIVE. IT MAINTAINED TWO 3 ITA NO. 7767 /MUM / 2014 SANGHVI APPORVA LALUBHAI (HUF) VS. ACIT ASSESSMENT YEAR 2010 - 201 1 SEPARATE PORTFOLIOS VIZ. TRADING AND INVESTMENT ACTIVITIES FOR SEVERAL YEARS . THE LOSS WITH RESPECT TO TRADING ACTIVITIES WAS SPECULATION IN NATURE AND HENCE THE SAME HAS BEEN OFFERED UNDER THE HEAD BUSINESS INCOME . THE INCOME OF INVESTMENT ACTIVITY HAS BEEN OFFERED UNDER THE HEAD CAPITAL GAINS . IT IS WELL SETTLED THAT THE ASSESSEE MAY MAINTAIN TWO SEPARATE PORTFOLIOS . THE S TAND OF THE ASSESSEE HAS BEEN ACCEPTED BY REVENUE IN OTHER YEARS ALSO. FURTHER, OWNED CAPITAL WAS MUCH MOR E THAN INVESTMENT IN SHARES WHICH FURTHER FORTIFIES THE CLAIM OF THE ASSESSEE THAT IT INDULGED IN INVESTMENT ACTIVITIES . IN SUPPORT, A COPY OF BALANCE SHEET AS ON 31/03/2010 HAS BEEN PLACED BEFORE US. THE LD. AR PLACED R ELIANCE ON THE JUDGMENT CIT VS. HDFC BANK LIMITED BOMBAY HIGH COURT ITA NO. 330 OF 2012 AND ALSO ON M/S VAHANVATI CONSULTANTS P . LTD V DCIT MUMBAI T RIBUNAL ITA NO. 8700/MUM/2011 , A COPY OF WHICH HAS BEEN P LACED BEFORE US. QUA 14A DISALLOWANCE, THE LD. AR HAS CONTENDED THAT DIVIDEND HAS BEEN EARNED FROM TRADING PORTFOLIO AND HENCE NO 14A DISALLOWANCE IS CALLED FOR IN SUCH A CASE. THE LD. AR HAS FAIRLY CONCEDED THAT EVEN IF ANY ADDITION IS TO BE MADE ON ACCOUNT OF 14A, THEN IT SHOULD BE RESTRICTED TO AMOUNT OF TAX EXEMPT INCOME EARNED BY THE AS SESSEE. THIS ISSUE WAS WELL AGITATED BEFORE CIT(A) BUT THIS HAS NOT BEEN PROPERLY CONSIDERED. PER CONTRA, THE LD. DR HAS CONTENDED THAT THE ASSESSEE HAS ENTERED INTO REPETITIVE TRANSACTION OF SAME SCRIPS WHICH HAS BEEN SOLD EVEN BEFORE ONE MONTH FROM DATE OF ACQUISITION. THERE WAS CLEAR PROFIT MOTIVE AND CONDUCT OF ASSESSEE IS NOT COMMENSURATE WITH CONTENTIONS RAISED BY HIM. FURTHER, RES JUD I CATA PRINCIPAL IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS . FURTHER, ASSESSEE EARNED TAX FREE INCOME WHICH JUSTIFIES 14A DISALLOWANCE. 4 . W E HAVE HEARD RIVAL CONTENTIONS AND PERUSED MATERIAL AVAILABLE ON RECORD. A PERUSAL OF DETAILS OF TRANSACTIONS ENTERED BY ASSESSEE IN SCRIP JAIN IRRIGATION SHOWS THAT THE ASSESSEE EARNED INCOME OF RS.14 .75 LACS O N TURNOVER OF RS. 195 .86 LACS WITH HIGH FREQUENCY OF TRANSACTIONS IN THIS PARTICULAR SCRIP. THE HOLDING PERIOD RANGES FROM 0 DAYS TO 30 DAYS. THE ASSESSEE HAS PURCHASED THE SCRIP IN 37 DAYS AND SOLD THE SCRIP 4 ITA NO. 7767 /MUM / 2014 SANGHVI APPORVA LALUBHAI (HUF) VS. ACIT ASSESSMENT YEAR 2010 - 201 1 IN 27 DAYS. THE FREQUENCY AND REPETITIVE NATURE OF TRANSACTION IN ON E SINGLE SCRIP SHOWS A CLEAR PROFIT MOTIVE ON THE PART OF THE ASSESSEE AND NEGATES ITS CONTENTION THAT THE ASSESSEE HAS INDULGED IN INVESTMENT ACTIVITY. A SUBSTANTIAL RELIEF HAS ALREADY BEEN PROVIDED BY CIT(A) WITH RESPECT TO BALANCE AMOUNT. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. THE CASE LAW RELIED UPON BY ASSESSEE ARE OF NO HELP ON THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE. THEY ONLY AFFIRM THE PRESUMPTION THAT IN CASE OF AVAILABILI TY OF INTEREST FREE FUNDS AND LOAN FUNDS WITH ASSESSEE, A PRESUMPTION WOULD BE MADE THAT INVESTMENT ARE MADE OUT OF INTEREST FREE FUNDS. BU T THIS IS NOT THE DISPUTE HERE RATHER THE PRESENT DISPUTE IS WITH RESPECT TO NATURE OF TRANSACTION BEING CARRIED OUT BY ASSESSEE IN THE SCRIP JAIN IRRIGATION. QUA 14A DISALLOWANCE, NO CAL CULATIONS HAVE B EEN PROVIDED BY AO SO AS TO ARRIVE AT THE FIGURES OF RS.1 , 65 , 595/ - IN THE ASS ESSMENT ORDER. AS PER LD. AR, THE ASSESSEE AGITATED THE MATTER BEFORE CIT(A) BUT THE SAME W AS NOT CONSIDERED. FURTHER, THE LD. AR HAS CONTENDED THAT THIS DISALLOWANCE , IF ANY, HAS TO BE MADE THEN IT SHOULD BE RESTRICTED TO AMOUNT OF DIVIDEND EARNED BY THE ASSESSEE. THEREFORE, WE DEEM IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF AO FOR LIMITE D PURPOSE TO RE - COMPUTE 14A DISALLOWANCE AND RESTRICT THE SAME TO THE EXTENT OF TAX FREE INCOME EARNED BY THE ASSESS EE. THE ASSESSEE IS DIRECTED TO COOPERATE WITH THE AO TO SUPPLY NECESSARY INFORMA T I ON / DOCUMENTS FORTHWITH TO SUBSTANTIATE HIS CLAIM IN THI S RE GARD FAILING WHICH AO SHALL BE AT LIBERTY TO COMP UTE THE SAME ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 5. IN NUTSHELL, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH NOVEMBER , 201 6 SD/ - SD/ - ( SAKTIJIT DEY ) ( MANOJ KUMAR AGGARWAL ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATE D : 11 .1 1 .201 6 PS: - POOJA K. 5 ITA NO. 7767 /MUM / 2014 SANGHVI APPORVA LALUBHAI (HUF) VS. ACIT ASSESSMENT YEAR 2010 - 201 1 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CI T CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI SR. NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATION SHEETS ARE ATTACHED SELF TYPED ON COMPUTER BY MEMBER SR.PS/PS 2 DRAFT DICTATED ON SR.PS/PS 3 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 4 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 5 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 6 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 7 ORDER PRONOUNCEMENT ON SR.PS/PS 8 FILE SENT TO THE BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE AR 11 DATE OF DISPATCH OF ORDER