HASTIMAL M. JAIN, MUMBAI V. ITO 19(1)(3), MUMBAI

ITA 7825/MUM/2010

• Counselvise Citation: 782519914 RSA 2010
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 29-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC , MUMBAI BEFORE SHIRI RAJENDRA SINGH, A.M. ITA NO. : 7825/MUM/2010 ASSESSMENT YEAR : 2006-07 SHRI HASTIMAL M. JAIN 4, LAXMI NIWAS, 5 TH ROAD, KHAR (W), MUMBAI-400 052 PAN NO : AAFPJ 0497 B VS. INCOME TAX OFFICER, WARD - 19(1) (3), PIRAMAL CHAMBERS, LOWER PAREL, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI P. C. MAURYA DATE OF HEARING : 29 .11.2011 DATE OF PRONOUNCEMENT : 02.12.2011 ORDER PER RAJENDRA SINGH (AM) : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 23.08.2010 OF THE LD. CIT(A)-30 FOR THE ASSESSMENT YEAR 2006-07. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING THE NATURE OF INCOME RECEIVED BY THE ASSESSEE FROM SALE AND PURCHASE OF THE SHARES. 2. THE FACTS IN BRIEF ARE THAT THE AO DURING THE AS SESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD SHOWN SHORT TERM CAPITAL GAIN OF `. 2,50,101/- ON SALE OF SHARES. THE AO ON EXAMINATION OF RECORDS ALSO NOTED THAT THE ASSESSEE WAS REGULARLY ENGAGED IN TH E ACTIVITY OF BUYING ITA NO : 7825/MUM/2010 SHRI HASTIMAL M. JAIN 2 AND SELLING OF SHARES. THE SUBSTANTIAL SALE OF SHAR ES AMOUNTED TO `. 49,04,750/- ON WHICH SHORT TERM CAPITAL GAIN OF `. 2,50,101/- HAD BEEN DECLARED. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD ENTERED INTO LARGE NUMBER OF TRANSACTIONS AGGREGATING TO 107 INV OLVING 57 SCRIPS, OUT OF WHICH THERE WERE REPETITIVE TRANSACTIONS IN 22 S CRIPS. WHEN ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT THE SHARES HAD BEEN PURCHASED BY HIM FOR THE PURPOSE OF INVESTMENT AND THAT INVESTME NTS HAD BEEN MADE OUT OF OWN FUNDS FROM WHICH HE WAS EARNING DIVIDEND . THE AO, HOWEVER, WAS NOT SATISFIED. IT WAS OBSERVED BY HIM THAT THE ASSESSEE WAS FREQUENTLY PURCHASING AND SELLING SHARES AND 33 TRA NSACTIONS WERE MADE WITHIN A PERIOD OF ONE MONTH. 38 TRANSACTIONS WERE MADE BETWEEN 1 TO 3 MONTHS AND 38 TRANSACTIONS WERE ABOVE 3 MONT HS. CONSIDERING THE FREQUENCY, VOLUME, THE HOLDING PERIOD AND CONTI NUITY OF TRANSACTION, THE AO CONCLUDED THAT THE ASSESSEE WAS TRADING IN S HARES. HE, THEREFORE, TREATED THE SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE AS BUSINESS INCOME. THE ASSESSEE DISPUTED THE DECISION OF AO A ND SUBMITTED BEFORE CIT(A) THAT THERE WERE MANY SCRIPS WHICH WERE HELD BY HIM FOR MORE THAN 12 MONTHS. IT WAS ALSO SUBMITTED THAT THE HOLD ING PERIOD RANGED BETWEEN 2 DAYS TO 307 DAYS. THE ASSESSEE HAD SOLD S HARES AS REVIEW OF PORTFOLIO TO EARN MAXIMUM PROFIT. IT WAS ACCORDINGL Y URGED THAT THE CLAIM OF ASSESSEE OF BUSINESS INCOME SHOULD BE ACCE PTED. CIT(A), HOWEVER, WAS NOT CONVINCED BY THE EXPLANATION GIVEN . CONSIDERING THE FREQUENCY, VOLUME, THE HOLDING PERIOD AND CONTINUIT Y OF TRANSACTIONS, HE AGREED WITH THE AO THAT THE ASSESSEE WAS TRADING IN SHARES AND ACCORDINGLY, CONFIRMED THE ORDER OF THE AO TREATING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. AT THE TIME OF HEARING OF THE APPEAL NO ONE APPE ARED ON BEHALF OF THE ASSESSEE TO REPRESENT THE CASE NOR ANY ADJOURN MENT APPLICATION HAS ITA NO : 7825/MUM/2010 SHRI HASTIMAL M. JAIN 3 BEEN RECEIVED. IT IS ALSO NOTED FROM THE RECORDS TH AT THE ASSESSEE HAD BEEN ONLY SEEKING ADJOURNMENT AND NOT PARTICIPATING IN THE PROCEEDINGS. THIS TIME NEITHER SOME ONE HAS APPEARED NOR EVEN AD JOURNMENT APPLICATION HAS BEEN RECEIVED. I, THEREFORE, PROCEE D TO DECIDE THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AF TER HEARING THE LD. DR WHO STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIE S BELOW. THE LD. DR POINTED OUT THAT HOLDING PERIOD OF THE SAID TRANSAC TIONS WERE GIVEN IN THE PAPER BOOK WHICH CLEARLY SHOWED THAT THE ASSESS EE WAS FREQUENTLY TRADING IN SHARES WITH REPETITIVE TRANSACTIONS IN C ERTAIN SCRIPTS. IT WAS, ACCORDINGLY, URGED THAT THE ORDER OF THE CIT(A) SHO ULD BE UPHELD. 4. I HAVE PERUSED THE RECORDS AND CONSIDERED THE RI VAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCOM E FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSU E WHETHER THE SHARE TRANSACTIONS IN A PARTICULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY HAS BEEN HIGHLY A DEBA TABLE ISSUE. THERE ARE DECISIONS OF THE TRIBUNAL ON BOTH THE SIDES. EACH C ASE WILL DEPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACT ORS SUCH AS FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATURE OF FUNDS USED, HOLDING PERIOD ETC. WHICH ARE RELEVANT IN DECIDING THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. TH E MOST IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSES SEE WHILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON THE BA SIS OF ENTRY IN THE BOOKS OF ACCOUNT OR THE OBJECTS IN THE MEMORANDUM O F ASSOCIATION. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF THE HONBLE SU PREME COURT IN THE CASE OF CIT VS. MADANGOPAL RADHEYLAL (73 ITR 642). THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZING OF THE HOLDING PER IOD ETC. AN INVESTOR MAKES PURCHASES WITH LONG TERM GOAL OF EARNING INCO ME FROM THE INVESTMENT AND HE IS NOT TEMPTED TO SELL THE SHARES ON EVERY RISE AND FALL ITA NO : 7825/MUM/2010 SHRI HASTIMAL M. JAIN 4 IN THE MARKET WHICH ARE THE ATTRIBUTES OF A TRADER. SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FORM OF DIVIDE ND IS RECEIVED ANNUALLY, NORMALLY AN INVESTOR IS EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. HOWEVER, THERE MAY BE SITUATIONS WHEN THE INVESTOR MAY ALSO SELL THE SHARES AFTER SHORT HOLDING IN ORDER T O RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO ENCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGENCIES. EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. 5. IN THIS CASE, THE HOLDING PERIOD-WISE DETAILS OF TRANSACTIONS HAVE BEEN GIVEN BY THE ASSESSEE IN THE PAPER BOOK, A PER USAL OF WHICH SHOWS THAT ALL THE SHARES RESULTING INTO SHORT TERM CAPIT AL GAIN HAD SOLD WITHIN A PERIOD OF ONE YEAR. FURTHER OUT OF TOTAL 107 TRAN SACTIONS, THERE ARE 80 TRANSACTIONS WHERE SHARES HAVE BEEN SOLD WITHIN A P ERIOD OF 6 MONTHS; 71 TRANSACTIONS WERE SOLD WITHIN A PERIOD OF 3 MONT HS AND 36 TRANSACTIONS IN WHICH SHARES WERE SOLD WITHIN A PER IOD OF 1 MONTH. THERE ARE MANY CASES IN WHICH SHARES WERE SOLD WITH IN A FEW DAYS FROM THE DATE OF PURCHASE. THE ASSESSEE HAD BEEN REGULAR LY PURCHASING AND SELLING SHARES WITH HIGH FREQUENCY. THERE ARE ALSO REPETITIVE TRANSACTIONS IN 22 SCRIPTS. THIS CLEARLY SHOWS THE TRADING NATUR E OF TRANSACTIONS. THE CONDUCT OF THE ASSESSEE IN DEALING IN SHARES DOES N OT INDICATE ANY INVESTMENT ACTIVITY. THUS, MERELY BECAUSE THE ASSES SEE MAY HAVE RECEIVED SOME DIVIDEND OR PURCHASES MAY HAVE BEEN M ADE FROM OWN FUNDS, THE TRANSACTIONS CANNOT BE TREATED AS INVEST MENT ACTIVITY. EVEN IN CASE OF TRADING SHARES, THE ASSESSEE WILL BE ENT ITLED TO DIVIDEND IF THE SHARE PURCHASED IS HELD ON THE RECORD DATE. THEREFO RE, IN MY VIEW, THE SHARE TRANSACTIONS IN THE PRESENT CASE HAVE TO BE T REATED AS TRADING ACTIVITY AND I SEE NO INFIRMITY IN THE ORDER OF THE CIT(A) IN CONFIRMING THE ORDER OF THE AO. THE SAME IS THEREFORE, UPHELD. ITA NO : 7825/MUM/2010 SHRI HASTIMAL M. JAIN 5 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED ON THIS 02 ND DAY OF DECEMBER, 2011. - SD/- ( RAJENDRA SINGH ) ACCOUNTANT MEMBER MUMBAI, DT: 02/12/2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, SMC - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI