ASR KRISHNAPRASAD, MUMBAI V. ITO WD 22(3)(1), NAVI MUMBAI

ITA 7816/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4234 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-06-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V CHANDRASHEKHAR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI . , ! ' #'' '$ , % ! & BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 7816 / / 2010 A.Y. 2007-08 ITA NO. : 7816/MUM/2010 (ASSESSMENT YEAR : 2007-08) ASR KRISHNAPRASAD, 123, 1 ST FLOOR, KHETANI HEIGHTS, SION MATUNGA ROAD, SION (E), MUMBAI .: PAN: AGMPA 1787 A VS INCOME TAX OFFICER, WARD 22(3)(1), TOWER NO. 6, 3 RD FLOOR, VASHI RLY STATION, R. NO. 306, VASHI, NAVI MUMBAI -400 703 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V. CHANDRASHEKHAR RESPONDENT BY : SHRI MANOJ KUMAR /DATE OF HEARING : 26-06-2013 !' / DATE OF PRONOUNCEMENT : 10 -07-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 33, MUMBAI, DATED 18.08.2011. 2. THE FACTS ARE THAT THE ASSESSEE FILED HIS RETURN OF IN COME FROM CONSULTING SPECULATION BUSINESS - RS. 66,101/- LTCG - RS. 27.87 LACS STCG - RS. 08.99 LACS AGRICULTURE INCOME - RS. 48,000/- ASR KRISHNAPR ASAD ITA NO. 7816/MUM/2010 2 AS SEEN FROM THE ABOVE, ONE SEGMENT OF INCOME AS SHORT TERM CAPITAL GAINS. THIS SEGMENT OF INCOME OF THE ASSESSEE HAS BEEN TH E BONE OF DISPUTE FROM THE ASSESSMENT STAGE. THE ASSESSEE DECLARE D RS. 8,99,916/- AS SHORT TERM CAPITAL GAINS, AS ACCORDING TO HIM, THE SHA RES HAVE BEEN IN THE INVESTMENT PORTFOLIO, HENCE, IT IS STCG, WHE REAS, ON THE OTHER HAND, THE AO, AFTER EXAMINING THE DETAILS OF TRAN SACTIONS CARRIED ON BY THE ASSESSEE, HELD THAT IT IS STCG AS DECLA RED, BUT, BUSINESS INCOME, AS THE AVERAGE PERIOD OF HOLDING IS ABOUT 1 WEEK. 3. THE ASSESSEE APPROACHED THE CIT(A), WHO TOO, REJECTE D THE CONTENTIONS OF THE ASSESSEE AND SUSTAINED THE ORDER OF THE AO, GIVING THE DETAILS OF HOLDING PERIOD WITH DATES & CONCLUDING WHETHE R IT IS LTCG OR STCG. 4. THE ASSESSEE, IS NOW BEFORE THE ITAT. 5. BEFORE US, THE AR, REPRESENTING THE ASSESSEE REITERA TED THE ARGUMENTS PLACED BEFORE THE REVENUE AUTHORITIES. THE AR SUBMITTED THAT, THOUGH THERE IS NO FIXED FORMULA TO DETERMINE WHET HER THE ACTIVITY OF PURCHASING AND SELLING SHARES CAN BE TREATED AS A T RADING ACTIVITY OR AS INVESTMENT ACTIVITY, CERTAIN GUIDING PRINCIPLES HAV E BEEN LAID DOWN IN CBDTS CIRCULAR NO. 4/2007 DATED IS.6.2007 AS WELL AS IN GOPAL PUROHIT 122 TIJ 87 (MUM) (AFFIRMED IN 22CTE. 582 ( BORN)), SARANATH INFRASTRUCTURE 120 TIJ 216 (LUCK) AND OTHER JUDGME NTS. THESE PRINCIPLES OF LAW HAVE TO BE APPLIED TO THE FOLLOWI NG FACTS: (A) AS PER THE BOOKS OF ACCOUNT, THE ASSESSEE HAS TREATED THE ENTIRE INVESTMENT IN SHARES AS AN INVESTMENT AND NOT AS STOCK-IN- TRADE (B) THE ASSESSEE IS NOT A SHARE BROKER NOR HE IS H AVING A REGISTRATION WITH ANY STOCK EXCHANGE; (C) THERE WERE NO DERIVATIVE TRANSACTIONS BY THE A SSESSEE; (D) THERE WERE NO TRANSACTIONS WITHOUT DELIVERY; (E) THE ASSESSEE USED HIS OWN SURPLUS FUNDS FOR IN VESTING IN SHARES AND NOT BORROWED ANY MONEY; (T) THE ASSESSEE RECEIVED DIVIDEND ON THE INVESTME NTS. (G) THE INTENTION OF THE ASSESSEE CANNOT BE READ F ROM HIS MIND BUT IT REFLECTS IN HIS CONDUCT AND THE WAY HE TREATS TH E TRANSACTIONS. CONSIDERING THE TOTALITY OF THE FACTS, THE TRANSACT IONS OF SALE AND PURCHASE OF SHARES CANNOT BE TREATED TO BE TRADING IN SHARES NOR AS AN ADVENTURE IN THE NATURE OF THE TRADE BUT IS A SSESSABLE AS CAPITAL GAIN. THE CIRCULAR NO. 4/2007 DATED 15/06/2007 IS ADVISED THAT THE ABOVE PRINCIPLES SHOULD GUIDE IN DETERMINING WHETHER, IN A GIVEN CASE, THE ASR KRISHNAPR ASAD ITA NO. 7816/MUM/2010 3 SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE TO CAPITAL GAINS) OR AS STOCK-IN-TRADE (AND TH EREFORE GIVING RISE TO BUSINESS PROFITS). IT IS FURTHER ADVISED THAT NO SI NGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. 6. THE AR SUBMITTED THAT THE ASSESSEE COULD NOT BE HE LD TO BE A TRADER BECAUSE, THE ASSESSEE HAS PAID STT TO TAKE DELIV ERY OF SCRIPS, WHICH IS MUCH HIGHER. THE ASSESSEE IS A NEITHER A BROKER OR A TRADER, WHO WOULD BE LOOKING FOR PROFIT. ACCORDING TO THE AR, THER E IS NO TRANSACTION, WHICH THE ASSESSEE TRANSACTED WITHOUT DELIVE RY, IN SO FAR AS THE SHARES HELD AS INVESTMENTS. 7. THE BASIC FACT THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE ACCOUNTS TO DO SPECULATION BUSINESS, WHICH IS SHOWN SEPAR ATELY, GOES TO PROVE, THAT THE ASSESSEES OBJECT IS TO ENHANCE ITS INVESTMENT S. 8. THE AR FURTHER SUBMITTED THAT THERE HAS BEEN NO CH ANGE IN THE TREATMENT OF HIS HOLDING CHARACTER IN THE INSTANT YEAR, W HICH REMAINED THE SAME OVER THE YEARS. THE AR, THEREFORE, PLEADED THAT AS PER THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GOPAL PUROHIT, THE DECISION TAKEN BY THE REVENUE AUTHORITIES AR E INFIRM AND THE ASSESSEE BE ALLOWED THE TREATMENT OF SHARES AS STC G, AS CLAIMED BY THE ASSESSEE. 9. THE DR ON THE OTHER HAND PLEADED THAT RES JUDICATA DOES NOT APPLY ON THE INCOME TAX MATTERS AND THE REVENUE AUTH ORITIES HAVE CLEARLY IDENTIFIED SCRIPS HAVING MULTIPLE TRANSACTIONS, WHICH AR E 61 IN ALL, WHICH GOES TO PROVE THAT THE ASSESSEE WAS ACTUALLY INDULGING IN TRADING ACTIVITY IN THE GUISE OF SHARES HELD AS INVESTMENTS . THE DR PLACE RELIANCE ON THE DECISIONS OF PVS RAJU VS. ADD. CIT, RE PORTED IN 340 ITR 75 (AP) AND RAKESH J SANGHVI, REPORTED IN 7 TAXM AN.COM. THE DR, THEREFORE, PLEADED THAT THE REVENUE AUTHORITIES WERE CORRECT IN HOLDING THE TRANSACTIONS AS TRADE, INSTEAD OF INVESTMENTS. ASR KRISHNAPR ASAD ITA NO. 7816/MUM/2010 4 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES B EFORE US. AS OBSERVED IN THE FACTS, THE ASSESSEE IS AN INDIVIDUAL, HAVING VARIOUS SEGMENTS OF EARNING INCOME, WHICH INCLUDED LTCG, STCG AND SPECULATION. FROM THIS SEGREGATION ITSELF, IT CAN BE INFERRED THAT THE ASSESSEE HAS BEEN KEEPING ITS ACCOUNTS SEPARATELY FOR THE THREE SEGMENTS. WHEN WE LOOK INTO THE INTENTION OF THE ASSESSEE , THE TREATMENT GIVEN BY THE ASSESSEE TO MAINTAIN HIS BOOKS H AS TO BE SEEN ALONG THE DECISION OF THE COORDINATE BENCH IN THE CASE OF JANAK S RANGWALA VS ACIT, ITA NO. 1163/MUM/2004, WHEREIN THE IN TENTION OF THE TAXPAYER WAS ACCEPTED TO BE ONE OF THE DECISIVE FA CTORS TO DETERMINE WHETHER THE ASSESSEE WAS AN INVESTOR OR A T RADER. THIS DECISION GOES TO HOLD THAT VOLUME OF TRANSACTION WOULD NOT ALTER ITS NATURE. SIMILAR VIEW WAS TAKEN BY THE COORDINATE BENCH IN THE CASE OF GOPAL PUROHIT VS JCIT IN ITA NO. 4854/MUM/2008. IN THIS C ASE, THE COORDINATE BENCH WENT FURTHER TO ASCERTAIN THE HISTORY OF HOLDING AND ITS NATURE AND FUNDING. 11. THE REVENUE AUTHORITIES OR THE DR DID NOT MAKE OU T ANY CASE, WHEREIN, THEY COULD PROVE THAT THE FUNDS UTILISD BY THE AS SESSEE OR THE STT PAID ON EACH TRANSACTION OTHER THEN SPECULATION TRA NSACTION, WERE EITHER BORROWED OR INTEREST BEARING OR THAT THE PORTFO LIOS MAINTAINED WERE AN EYE WASH. THE ONLY ARGUMENTS OF THE REVENUE A UTHORITIES THAT THERE WERE 61 SCRIPS TRANSACTED, HAVING REPETITIVE TRANS ACTIONS, WOULD REMAIN BALD, TILL THE REVENUE AUTHORITIES UPSET THE CLAIM OF THE ASSESSEE OR TORE THE VEIL OF THE ASSESSEE WITH REGARD T O STCG. THE DECISION OF THE HONBLE AP HIGH COURT IN THE CASE OF PVS R AJU, IN OUR CONSIDERED OPINION, WOULD NOT AID THE DR, BECAUSE IN THE CA SE, THE ASSESSEE SOLD SHARES OF CONTINENTAL COFFEE LTD. EVEN BEFOR E TAKING ITS DELIVERY. IN THE HEAD NOTES, IT IS HELD, THE CHARACTER OF A TRANSACTION CANNOT BE DETERMINE D SOLELY ON THE APPLICATION OF ANY ABSTRACT RULE, PRINCIPLE OR TEST BUT MUST DEPEND UPON ALL THE FACTS AND CIRCUMSTANCES OF THE CASE. ULTIMA TELY, IT IS A MATTER OF FIRST IMPRESSION WITH THE COURT WHETHER A PARTICULA R TRANSACTION IS IN THE NATURE OF TRADE OR NOT. IF ON THE MATERIAL ON RECOR D, THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE ASSESSEE WAS DEALIN G IN SHARES AS A ASR KRISHNAPR ASAD ITA NO. 7816/MUM/2010 5 BUSINESS, IT CANNOT BE INTERFERED WITH BY THE HIGH COURT. THE TRIBUNAL IS THE FINAL FACT-FINDING BODY. ITS FINDINGS ON QUESTI ONS OF FACT ARE NOT LIABLE TO BE INTERFERED WITH UNLESS IT HAS TAKEN INTO CONS IDERATION IRRELEVANT MATERIAL OR HAS FAILED TO TAKE INTO CONSIDERATION R ELEVANT MATERIAL OR THE CONCLUSION ARRIVED AT BY IT IS PERVERSE IN THE SENS E THAT NO REASONABLE PERSON, ON THE BASIS OF THE FACTS BEFORE THE TRIBUN AL, COULD HAVE COME TO CONCLUSION TO WHICH THE TRIBUNAL HAS COME. THE DECI SION OF THE TRIBUNAL HAS NOT TO BE SCRUTINIZED SENTENCE BY SENTENCE MERE LY TO FIND OUT WHETHER ALL FACTS HAVE BEEN SET OUT IN DETAIL BY TH E TRIBUNAL OR WHETHER SOME INCIDENTAL FACT WHICH APPEARS ON RECORD HAS NO T BEEN NOTICED BY THE TRIBUNAL IN ITS JUDGMENT. IF THE COURT, ON A FA IR READING OF THE JUDGMENT OF THE TRIBUNAL, FINDS THAT IT HAS TAKEN I NTO ACCOUNT ALL RELEVANT MATERIAL, AND HAS NOT TAKEN INTO ACCOUNT I RRELEVANT MATERIAL IN BASING ITS CONCLUSIONS, THE DECISION OF THE TRIBUNA L IS NOT LIABLE TO BE INTERFERED WITH UNLESS, OF COURSE, THE CONCLUSIONS ARRIVED AT BY THE TRIBUNAL ARE PERVERSE. THE ORDER OF THE TRIBUNAL OUGHT NOT TO BE MICROSCOP ICALLY SCRUTINIZED ONLY TO LOCATE SOME INSIGNIFICANT ERRORS. WHEN VIEW ED IN THE LIGHT OF THE SEVERAL FINDINGS RECORDED BY THEM IN COMING TO THE CONCLUSION THAT THE SHARES WERE HELD BY THE ASSESSEE AS STOCK-IN-TRADE AND NOT AN INVESTMENT, THE ERRONEOUS FINDING OF THE TRIBUNAL T HAT THE ASSESSEE HAD HELD ALL THE SHARES FOR LESS THAN TWO MONTHS PALES INTO INSIGNIFICANT. EVEN OTHERWISE, IT IS NOT EVEN THE ASSESSEES CASE THAT HE HAD HELD ALL THE SHARES FOR A LONG DURATION. IT IS EVIDENT FROM THE ORDER OF THE TRIBUNAL THAT THE VOLUMINOUS SHARE TRANSACTIONS WER E IN THE ORDINARY LINE OF THE ASSESSEES BUSINESS; PURCHASE OF SHARES BY HIM WAS NOT FOR THE PURPOSE OF EARNING DIVIDEND, BUT WITH THE DOMIN ANT INTENTION OF RESALE IN ORDER TO EARN PROFITS; THE PROFIT MADE BY HIM IS NOT OF MERE ENHANCEMENT OF VALUE OF THE SHARES, BUT IS A PROFIT MADE IN THE CARRYING ON OF A BUSINESS SCHEME OF PROFIT MAKING; HUGE VOLU ME OF SHARE TRANSACTIONS, THE REPETITION AND CONTINUITY OF THE TRANSACTIONS, GIVE THEM A FLAVOUR OF TRADE; THE MAGNITUDE FREQUENCY AND T HE RATIO OF SALES TO PURCHASES ON THE TOTAL HOLDINGS WAS EVIDENCE THAT T HE ASSESSEE HAD NOT PURCHASED THE SHARES AS AN INVESTMENT, BUT WITH THE INTENTION TO TRADE IN SUCH SCRIP ABOUT BLANK. THIS, IN OUR OPINION, HELPS THE ASSESSEE MORE, AS THE HON BLE ANDHRA PRADESH HIGH COURT CANE TO THE CONCLUSION THAT THE DOM INANT INTENTION WAS TO EARN PROFIT. IN THE INSTANT CASE, THE DOM INANT INTENTION WAS INVESTMENT. WHEN WE LOOK INTO THE CAPITAL GA INS AS CLAIMED, WE FIND THAT IN AGGREGATE, THE ASSESSEE HAD CLAIMED LTCG AND STCG TO THE TUNE OF RS. 36.86 LACS. IN THESE CIRCUMSTAN CES, WE ACCEPT THE ARGUMENTS OF THE AR THAT THE DOMINANT INTENTION OF THE ASSESSEE WAS INVESTMENT AND NOT TRADE, WHICH GETS SQUARELY COVE RED BY THE THE DECISIONS IN THE CASES OF JANAK S RANGWALA (SUPRA ) AND GOPAL PUROHIT (SUPRA) . 12. IN THE LIGHT OF OUR OBSERVATIONS MADE AND CASE LAWS CITED BY US, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIR ECT THE AO TO ASR KRISHNAPR ASAD ITA NO. 7816/MUM/2010 6 TREAT THE INCOME OF RS. 8,99,916/- AS STCG, AS CLAIMED BY T HE ASSESSEE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2013. SD/- SD/- ( . ) ( #'' '$ ) ! ! (B. RAMAKOTAIAH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 10 TH JULY, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE DIT (E)-33, MUMBAI. 4) & & ' 22, MUMBAI / THE CIT22, MUMBAI. 5) ()* + , , & + , -. / THE D.R. A BENCH, MUMBAI. 6) */ 0 COPY TO GUARD FILE. &12 / BY ORDER [ 3 / 4 5 & + , -. DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *784 . . * CHAVAN, SR. PS