DEVJI NENSHI PALANI, MUMBAI V. ITO WD 13(3)(3), MUMBAI

ITA 7881/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8878 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 12-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Business income; Depreciation; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. : 7881/MUM/2010 ASSESSMENT YEAR : 2007-08 SHRI DEVJI NENSHI PALANI 207, NIMBUS TRADE CENTRE, OPP. MALAD LINK ROAD, ANDHERI (W), MUMBAI-400 061 PAN NO: AAAPP 8974 E VS. THE INCOME TAX OFFICER WARD NO.13(3)(3), AAYKAR BHAVAN, M.K. MARG, MUMBAI-400 009 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDRA SINGH RESPONDENT BY : SHRI AMAR DEEP DATE OF HEARING : 30.08.2012 DATE OF PRONOUNCEMENT : 12.09.2012 ORDER PER RAJENDRA SINGH, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 29.10.2010 OF CIT(A)-24, MUMBAI FOR THE A.Y. 2007-0 8. THE ASSESSEE IN THIS APPEAL HAS RAISED THE DISPUTES ON FOUR DIFFERE NT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING THE DISALLOWANCE OF MOTOR CAR EXPENSES INCLUDING THE DEPRECIATION. THE A.O. NOTE D THAT THE ASSESSEE HAD CLAIMED TOTAL EXPENDITURE OF `. 7,26,416/- INCLUDING THE DEPRECIATION OF `. 2,01,565/- IN RESPECT OF MOTOR CAR. THE A.O. ALSO NOTED THAT THE ASSESSEE COULD NOT PRODUCE THE LOG BOOK MAINTAINED IN RESPECT OF THE MOTOR CAR. HE, THEREFORE, DISALLOWED 20% OF SUCH E XPENSES ON ESTIMATE AMOUNTING TO `. 1,45,283/- TOWARDS PERSONAL USAGES. IN APPEAL, THE CIT(A) REDUCED THE DISALLOWANCES TO 5% OF SUCH EXPE NSES AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . ITA NO : 7881/MUM/2010 SHRI DEVJI NENSHI PALANI 2 2.1 BEFORE US, THE LD. AR FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT THE MOTOR CA R HAD BEEN USED FOR THE PURPOSE OF BUSINESS TO APPROACH VARIOUS CUSTOME RS AND FOR FOLLOW UP OF MEETINGS AND, THEREFORE, NO DISALLOWANCE SHOULD BE MADE. THE LD. DR ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A ). 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING THE ESTIMATED DISALLOWANCE OUT OF MOTOR CAR EXPENSES INCLUDING THE DEPRECIATION. THE A.O. HAD DISALLOWED 20% OF SUCH EXPENSES FOR PERSONAL USAGES WHICH IN APPEAL H AS BEEN REDUCED BY THE CIT(A) TO 5% WHICH COMES TO AROUND `. 3,000/- PER MONTH. THERE IS NO DISPUTE THAT THE ASSESSEE IS NOT MAINTAINING ANY LOG BOOK AND, THEREFORE, THERE IS NO PROOF THAT THE CAR HAS BEEN USED ONLY FOR THE PURPOSE OF BUSINESS. THEREFORE, IN OUR VIEW, THE E STIMATE DISALLOWANCE OF SUCH EXPENSES @5% IS JUSTIFIED. WE ACCORDINGLY CON FIRM THE ORDER OF THE CIT(A) ON THIS POINT. 3. THE SECOND DISPUTE IS REGARDING THE ESTIMATE DIS ALLOWANCE OUT OF TELEPHONE EXPENSES. THE ASSESSEE HAD CLAIMED THE TO TAL TELEPHONE EXPENSES OF `. 5,39,273/-. THE A.O. HAD DISALLOWED 20% OF SUCH EXP ENSES AMOUNTING TO `. 1,07,854/- FOR PERSONAL USAGES. IN APPEAL, THE CIT (A) HAS REDUCED THE DISALLOWANCE TO 5% OF SUCH EXPENSES WHI CH COMES AROUND `. 2,200/- PER MONTH. 3.1 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTE D THAT THE EXPENSES WERE ON ACCOUNT OF TELEPHONES AND MOBILES WHICH WER E USED FOR THE PURPOSE OF BUSINESS ONLY AND, THEREFORE, NO DISALLO WANCE SHOULD BE MADE. THE LD. DR SUPPORTED THE ORDER OF THE CIT(A) . 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING THE ESTIMATE DISALLOWANCE OF TELEPHONE AND MOBILE EXPENSES FOR PERSONAL USAGES. PERSONAL USAGE S OF ITA NO : 7881/MUM/2010 SHRI DEVJI NENSHI PALANI 3 TELEPHONE/MOBILE IS QUITE COMMON AND CANNOT BE RULE D OUT AND IN THE ABSENCE OF FULL DETAILS OF CALL RECORDS ETC., IT IS NOT ESTABLISHED THAT THESE HAVE BEEN USED ONLY FOR THE PURPOSE OF BUSINESS. T HEREFORE, THE ESTIMATED DISALLOWANCE IS JUSTIFIED. THE DISALLOWA NCE MADE BY THE CIT(A) @ 5% WHICH COMES TO `. 2,200/- PER MONTH IS REASONABLE. THEREFORE, THE ORDER OF THE CIT(A) IS UPHELD. 4. THE THIRD DISPUTE IS REGARDING THE ESTIMATE DISA LLOWANCE OUT OF BUSINESS PROMOTION EXPENSES, CONVEYANCE EXPENSES, M ISCELLANEOUS EXPENSES AND OFFICE EXPENSES. THE A.O. NOTED THAT THE ASSESSEE HAD CLAIMED TOTAL EXPENDITURE OF `. 9,21,860/- UNDER THESE FOURHEADS. THE A.O. OBSERVED THAT THERE WERE NO PROPER VOUCHERS WH ICH WERE ONLY SELF MADE OR GENERATED BY THE ASSESSEE AND, THEREFORE, T HE EXPENDITURE WAS NOT SUPPORTED BY THE PROPER EVIDENCE. HE, THEREFOR E, DISALLOWED 20% OF SUCH EXPENSES AMOUNTING TO `. 1,84,372/-. THE ASSESSEE DISPUTED THE DECISION OF THE A.O. AND SUBMITTED BEFORE THE CIT(A ) THAT THE ENTIRE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND THE NATURE OF EXPENSES WAS SUCH THAT NO PROPER EVIDENCE COULD BE KEPT. THE CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE R EDUCED THE DISALLOWANCE TO 10% OF EXPENSES AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.1. BEFORE US, THE LD. AR FOR THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BY THE LOWER AUTHORITIES, WHEREAS THE LD. DR S UPPORTED THE ORDER OF THE CIT(A). 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING THE ESTIMATED DISALLOWANCE OUT OF BUSINESS PROMOTION EXPENSES, CONVEYANCE EXPENSES, MISCELLANE OUS EXPENSES AND OFFICE EXPENSES WHICH AGGREGATED TO `. 9,21,860/. THERE IS NO DISPUTE THAT THE EXPENDITURE WAS NOT SUPPORTED BY PROPER BI LLS AND VOUCHERS. ITA NO : 7881/MUM/2010 SHRI DEVJI NENSHI PALANI 4 THE A.O. HAD DISALLOWED 20% OF SUCH EXPENSES ON EST IMATE WHICH HAS BEEN REDUCED BY THE CIT(A) TO 10%. THE CASE OF THE ASSESSEE IS THAT THE NATURE OF MANY OF THE EXPENSES UNDER THESE HEADS IS SUCH THAT NO PROPER VOUCHERS ARE POSSIBLE. WE AGREE THAT IT MAY NOT BE POSSIBLE TO HAVE PROPER EVIDENCE IN RESPECT OF CONVEYANCE AND MISCEL LANEOUS EXPENSES ETC, BUT SINCE THE EXPENSES ARE NOT SUPPORTED BY T HE PROPER EVIDENCE, THE ESTIMATED DISALLOWANCE OF SUCH EXPENSES IS JUST IFIED. IN OUR VIEW, ON THE FACTS OF THE CASE THE ESTIMATE DISALLOWANCE OF `. 50,000/- OUT OF THESE EXPENSES WILL MEET THE ENDS OF JUSTICE. WE, THEREF ORE, SET ASIDE THE ORDER OF THE CIT(A) AND UPHOLD THE DISALLOWANCE TO THE EX TENT OF `. 50,000/-. 5. THE FOURTH DISPUTE IS REGARDING THE NATURE OF IN COME FROM SALE AND PURCHASE OF SHARES. THE A.O. NOTED THAT THE ASSESS EE HAD SHOWN SHORT TERM CAPITAL GAIN ON THE SALE OF EQUITY SHARES AT `. 10,50,596/-. THE A.O. ALSO NOTED THAT THE NUMBER OF TRANSACTIONS WAS VERY LARGE WITH HIGH FREQUENCY INVOLVING 3000 TRANSACTIONS. THE A.O. FU RTHER NOTED THAT THE ASSESSEE WHILE GIVING THE DETAILS HAD HIMSELF MENTI ONED SPECULATIVE SHORT TERM CAPITAL GAIN WHICH CLEARLY INDICATED TH E BUSINESS NATURE OF TRANSACTIONS. THE A.O., THEREFORE, TREATED THE SHO RT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE AS BUSINESS INCOME. THE ASSESSEE DISPUTED THE DECISION OF THE A.O. AND SUBMITTED BEFORE THE C IT(A) THAT THE ASSESSEE WAS AN INVESTOR IN SHARES AND IN THE PAST THE CAPITAL GAIN DECLARED BY THE ASSESSEE HAD BEEN ACCEPTED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS DOING FULL TIME BUSINESS IN THE NA ME OF MAHARASHTRA TRADERS AND THERE WAS NO SCOPE OF CARRYING OUT INDE PENDENT BUSINESS OF TRADING IN SHARES. THE CIT(A) HOWEVER, WAS NOT SATI SFIED BY THE EXPLANATION GIVEN. CONSIDERING THE HIGH FREQUENCY OF TRANSACTIONS AND LOW HOLDING PERIOD, HE CONSIDERED THAT THE INTENTIO N OF THE ASSESSEE WAS TO TRADE. HOWEVER, HE NOTED THAT THE ASSESSEE HAD ALSO DERIVED GAIN FROM SALE OF BONUS SHARES. THE BONUS SHARES HAD ARISEN FROM THE SHARE HELD AS INVESTMENT AND, THEREFORE, THESE COULD NOT BE TR EATED AS TRADING. THE ITA NO : 7881/MUM/2010 SHRI DEVJI NENSHI PALANI 5 CIT(A) ACCORDINGLY DIRECTED THE A.O. TO TREAT THE G AIN ARISING FROM SALE OF BONUS SHARES AMOUNTING TO `. 650890.24 AS SHORT TERM CAPITAL GAIN AND THE BALANCE AMOUNT OF `. 3,99,706/- AS BUSINESS INCOME. AGGRIEVED BY THE DECISION OF THE CIT(A), THE ASSESSEE IS IN A PPEAL BEFORE THE TRIBUNAL. 5.1 BEFORE US, THE LD. AR FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE HAD BEEN AN INVESTOR AND IN THE EARLIER YEARS, INVESTMENTS HAD BEEN ACCE PTED. IT WAS THUS ARGUED THAT THE CLAIM OF SHORT TERM CAPITAL GAIN SH OULD BE ACCEPTED. RELIANCE WAS PLACED ON THE DECISION OF TRIBUNAL IN THE CASE OF GOPAL PUROHIT (29 SOT 171) WHICH HAS BEEN UPHELD BY THE H ON'BLE HIGH COURT OF BOMBAY (228 ITR 582). THE LD. DR, ON THE OTHER HAND, ARGUED THAT CONSIDERING THE HIGH FREQUENCY AND LARGE NUMBER OF TRANSACTIONS, THE SAID TRANSACTIONS HAVE BEEN RIGHTLY TREATED AS TRAD ING ACTIVITY. IT WAS ALSO POINTED OUT THAT IN MOST OF THE CASES SHARES H AVE BEEN SOLD ON THE SAME DAY WHICH SHOWED THAT SALES HAVE BEEN MADE EVE N WITHOUT TAKING DELIVERY AND, THEREFORE, IT WAS CLEAR CASE OF THE S PECULATION ACTIVITY. IT WAS ACCORDINGLY URGED THAT THE ORDER OF THE CIT(A) SHOULD BE UPHELD. 5.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL 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 DEBATABLE ISS UE. THERE ARE DECISIONS OF THE TRIBUNAL ON BOTH THE SIDES. EACH CASE WILL D EPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS SUCH A S FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATURE OF FUNDS USE D, HOLDING PERIOD ETC. WHICH ARE RELEVANT IN DECIDING THE TRUE NATURE OF T RANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT FAC TOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE WHICH HAS TO B E GATHERED FROM THE ITA NO : 7881/MUM/2010 SHRI DEVJI NENSHI PALANI 6 ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALING WITH T HE SHARES SUBSEQUENTLY AND NOT ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNT OR THE OBJECTS IN THE MEMORANDUM OF ASSOCIATION. T HIS VIEW IS SUPPORTED BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. MADANGOPAL RADHEYLAL (73 ITR 642). THE ACTUAL COND UCT HAS TO BE EVALUATED BY ANALYZING OF THE HOLDING PERIOD ETC. AN INVESTOR MAKES PURCHASES WITH LONG TERM GOAL OF EARNING INCOME FRO M THE INVESTMENT AND HE IS NOT TEMPTED TO SELL THE SHARES ON EVERY R ISE AND FALL 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 T HE INVESTOR MAY ALSO SELL THE SHARES AFTER SHORT HOLDING IN ORDER TO RES HUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO ENCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGENCIES. EACH CASE IS REQUIRE D TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTI ONS. 6. IN THIS CASE, THE DETAILS OF SHARE TRANSACTIONS GIVING THE DATE OF PURCHASES AND SALE HAVE BEEN PLACED ON RECORD. IT IS CLEAR FROM THE DETAILS GIVEN THAT IN MOST OF THE CASES SHARES HAVE BEEN SOLD ON THE VERY DATE OF PURCHASE WHICH SHOWS THAT SALES HAVE BEEN M ADE EVEN WITHOUT TAKING DELIVERY. THUS MOST OF THE TRANSACTIONS ARE SPECULATIVE IN NATURE. IN FACT THE ASSESSEE WHILE GIVING THE DETAILS OF TH E TRANSACTIONS HAS HIMSELF MENTIONED SPECULATIVE SHORT TERM CAPITAL G AIN. THE OTHER SHARES HAVE ALSO BEEN SOLD AFTER A SHORT DURATION O F HOLDING. THE NUMBERS OF TRANSACTIONS ARE VERY LARGE AND THE ASSE SSEE IS ALMOST BUYING OR SELLING ON THE DAILY BASIS. THERE ARE 3000 TRAN SACTIONS AND THE DETAILS RUN THROUGH SEVERAL PAGES. THE PATTERN OF TRANSACT IONS CLEARLY SHOWS THAT THE ASSESSEE IS TRADING IN SHARES AND IS NOT A N INVESTOR. THEREFORE, WE DO NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESS EE THAT THE SHARES HAVE BEEN BOUGHT AND SOLD AS AN INVESTMENT ACTIVITY . ITA NO : 7881/MUM/2010 SHRI DEVJI NENSHI PALANI 7 7. THE LD. AR FOR THE ASSESSEE HAS RELIED ON THE D ECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (29 SOT 171) TO ARGUE THAT INCOME FROM ALL DELIVERY BASED TRANSACTIONS HAS TO BE ASSE SSED AS INCOME AS HELD BY THE TRIBUNAL IN THE SAID CASE. WE HAVE CAREFULL Y PERUSED THE ORDER OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA), BUT WE FIND THAT THERE IS NO UNIVERSAL FINDING IN THAT CASE THAT ALL DELIV ERY BASED TRANSACTIONS HAVE TO BE TREATED AS INVESTMENT. IT IS PERTINENT TO NOTE THAT THE TRIBUNAL IN CASE OF GOPAL PUROHIT (SUPRA), HAD DECIDED THE CASE FOLLOWING THE DECISION OF TRIBUNAL IN CASE OF SARNATH INFRASTRUCT URE PVT. LTD VS. ACIT (2009) 120 TTJ 216 HOLDING THAT FACTS IN THE CASE O F SARNATH INFRASTRUCTURE PVT. LTD (SUPRA), WERE IDENTICAL. H OWEVER, IT IS NOTED THAT IN SARNATH INFRASTRUCTURE PVT. LTD (SUPRA), THE SHA RES SOLD OUT OF INVESTMENT ACCOUNT HAD BEEN HELD THAT 2-3 YEARS AND REVENUE COULD NOT SHOW ANY SHARES SOLD WHICH HAD BEEN PURCHASED DURIN G THE YEAR OR IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, ONLY IN RESPECT OF SUCH CASES, THE DECISION IN CASE OF GOPAL PUROHIT (SUPRA), COUL D BE APPLIED. THE HONBLE HIGH COURT OF BOMBAY HAD UPHELD THE DECISIO N OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA), ON THE GROUND TH AT THERE WAS NO SUBSTANTIAL QUESTION OF LAW INVOLVED. EVEN BEFORE HONBLE HIGH COURT THERE WAS NO QUESTION RAISED THAT ALL DELIVERY BASE D TRANSACTIONS HAVE ALWAYS TO BE TREATED AS INVESTMENT ACTIVITY. THUS THE DECISION OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT IN CASE OF GOPAL PUROHIT (SUPRA), CANNOT BE CONSIDERED AS A PRECEDENT FOR TH E PROPOSITION THAT ALL DELIVERY BASED SHARES HAVE TO BE TREATED AS INVESTM ENT ACTIVITY. THE ASSESSEE CAN ALSO BE A TRADER IN CASE OF DELIVERY B ASED PURCHASES AND SALES, WHICH IS A NORMAL FEATURE OF ANY TRADING ACT IVITY. THEREFORE, IN OUR VIEW RELIANCE PLACED BY THE LD. AR ON THE DECISION IN THE CASE OF GOPAL PUROHIT IS MISPLACED. EACH CASE HAS TO BE DECIDED BASED ON ITS OWN FACTS. CONSIDERING THE FACTS OF THIS CASE, WE HOLD THAT THE SHARE TRANSACTIONS FROM WHICH THE ASSESSEE HAS SHOWN SHOR T TERM CAPITAL GAIN ITA NO : 7881/MUM/2010 SHRI DEVJI NENSHI PALANI 8 WERE OF THE NATURE OF TRADING ACTIVITY OF THE ASSES SEE AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) TREATING THE SHOR T TERM CAPITAL GAIN AS BUSINESS INCOME. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 12 TH DAY OF SEPTEMBER, 2012. SD/- SD/- - ( D. MANMOHAN ) ( RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DT: 12.09.2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI