SARAH FAISAL HAWA, MUMBAI V. ASST CIT 17 (3), MUMBAI

ITA 7917/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3317 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 24-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMAR
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Business income; Capital Gains
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.7917/MUM/2019 ( ASSESSMENT YEAR: 2011-12 ) SARAH FAISAL HAWA 24 CENTER COURT MOTALIBAI STREET AGRIPADA MUMBAI-400 011 VS. ACIT-17(3) ROOM NO.614, 6 TH FLOOR PIRAMAL CHAMBES LALBAUGN PAREL MUMBAI-400 012 PAN/GIR NO. A A IPH0012P APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI JITENDRA SINGH, AR REVENUE BY SHRI V.VINOD KUMAR, DR DATE OF HEARING 24/02/2020 DATE OF PRONOUNCEME NT 04 /03/2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)33, MUMBAI, DATED 07/11/2019 AND IT PERTAINS TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) -33 , MUMBAI [HEREINAFTER REFERRED TO AS THE 'LD. C1T(A)'] ERRED IN PASSING THE ORDER DATED 7 LH NOVEMBER, 2019 UPHOLDING THE ASSESSMENT ORDER PASS ED BY LD. ASSISTANT COMMISSIONER OF INCOME TAX - 17(3), MUMBA I [HEREINAFTER REFERRED TO AS 'LD. A.O.'] WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, THE ORDER DATED 07.11.2019 PASSE D BY LD. CIT (A) IS BAD IN LAW AND THE SAME MAY BE QUASHED. 2. TREATING THE LONG TERM CAPITAL GAINS DECLARED BY THE APPELLANT AS BUSINESS INCOME UNJUSTIFIED- RS.95,09,761/- ITA NO.7917/MUM/2019 SARAH FAISHAL HAWA 2 I. THE LD. CIT (A) ERRED IN UPHOLDING THE ACTION OF THE LD. A.O IN TREATING THE LONG TERM CAPITAL GAIN AMOUNTING TO RS.95,09,76 1/- AS BUSINESS INCOME OF THE APPELLANT WITHOUT APPRECIATING THE FA CT THAT THE APPELLANT IS AN INVESTOR IN SHARES AND NOT A TRADER AS ALLEGED B Y THE LD. A.O. HENCE, ADDITION MADE BY THE LD. A.O. AMOUNTING TO RS.95,09 ,761/- BY TREATING THE LONG TERM CAPITAL GAINS AS BUSINESS INCOME OF THE A PPELLANT IS MERELY ON CONJECTURE AND SURMISES AND THE SAME MAY BE DELE TED. II. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE SHARES WERE HELD BY THE APPELLANT FOR MORE THAN A YEAR. HENCE, THE SALE CON SIDERATION RECEIVED BY THE APPELLANT WERE RIGHTLY TREATED AS LONG TERM CAP ITAL GAIN. HENCE, TREATING THE LONG TERM CAPITAL GAIN AS BUSINESS INC OME OF THE APPELLANT IS UNJUSTIFIED. 3. TREATING THE SHORT TERM CAPITAL GAINS DECLARE D BY THE APPELLANT AS BUSINESS INCOME UNJUSTIFIED - RS.1,36,83,148/- I. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF LD. A.O. IN TREATING THE SHORT TERM CAPITAL GAINS AMOUNTING TO RS. 1,36,83,1 48/- AS BUSINESS INCOME OF THE APPELLANT WITHOUT APPRECIATING THAT T HE APPELLANT IS AN INVESTOR IN SHARES AND NOT TRADER AS ALLEGED BY LD, A.O. HENCE, TREATING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME OF THE APPELLANT IS WITHOUT ANY BASIS. II. THE LD. C1T(A) FAILED TO APPRECIATE THAT THE APPELLANT SATISFIES ALL THE CONDITIONS ENUMERATED IN CIRCULAR NO. 4 OF 2007 DATED 15.06.2007 TO TREAT THE SHORT TERM CAPITAL GAINS AS BUSINESS INCO ME. HENCE, TREATING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME AND THEREBY MAKING AN ADDITION OF RS.1,36,83,148/- IS UNJUSTIFIED AND THE SAME MAY BE DELETED. 4. THE LD. ASSESSING OFFICER ERRED IN LEVYING INTER EST UNDER SECTION 234A AND 234B WITHOUT APPRECIATING THE FACT THAT THE APP ELLANT DENIES HIS LIABILITY TO THE SAME. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, DELETE, RESCIND OR WITHDRAW ANY OF THE GROUNDS OF APPEAL MENTIONED HER EINABOVE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL, DERIVES INCOME FROM BUSINESS, CAPITAL G AINS AND INCOME FROM OTHER SOURCES FILED HIS RETURN OF INCOME FOR A Y 2012-13 ON 30/09/2011, DECLARING TOTAL INCOME OF RS.1,38,86,08 0/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE LD. AO NOTICED THAT THE ASSESSEE I S INVOLVED IN SYSTEMATIC ACTIVITY OF SHARE TRADING AND ACCORDINGL Y, CALLED UPON THE ASSESEE TO EXPLAIN AS TO WHY, INCOME DECLARED UNDER THE HEAD SHORT TERM CAPITAL GAIN, AS WELL AS LONG TERM CAPITAL GAI N FROM SALE OF ITA NO.7917/MUM/2019 SARAH FAISHAL HAWA 3 SHARES AND SECURITIES SHALL NOT BE ASSESSED UNDER T HE HEAD INCOME FROM BUSINESS OR PROFESSION. IN RESPONSE, THE ASSES SEE SUBMITTED THAT HE IS AN INDIVIDUAL ENGAGED IN THE ACTIVITY OF INVESTMENTS IN SHARES FOR QUITE LONG PERIOD AND INCOME DECLARED UN DER THE HEAD CAPITAL GAINS TOWARDS PROFIT DERIVED FROM SALE OF SHARES HAS BEEN ASSESSED UNDER THE HEAD CAPITAL GAINS IN EARLIER AS SESSMENT YEARS AND IN SUBSEQUENT ASSESSMENT YEARS. THEREFORE, WITH OUT THERE BEING ANY CHANGE IN MATERIAL FACTS DURING THE YEAR UNDER CONSIDERATION, DIFFERENT VIEW CANNOT BE TAKEN TO ASSESS SURPLUS FR OM PURCHASES AND SALE OF SHARES UNDER THE HEAD INCOME FROM BUSINES S OR PROFESSION. THE LD. AO AFTER CONSIDERING RELEVANT SUBMISSIONS O F THE ASSESSEE AND ALSO TAKEN NOTE OF VARIOUS FACTS, INCLUDING HIG H FREQUENCY OF TRANSACTIONS, AS WELL AS LOW PERIOD OF HOLDING, OPI NED THAT THE ASSESSEE IS INVOLVED IN SYSTEMATIC ACTIVITY OF SHAR E TRANSACTIONS, WHICH IS AKIN TO AN ACTIVITY IN THE NATURE OF BUSIN ESS AND ACCORDINGLY, SURPLUS DERIVED FROM SUCH ACTIVITY IS ASSESSABLE UN DER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND ACCORDINGLY, ASSESSED SHORT TERM CAPITAL GAIN, AS WELL AS LONG TERM CAPITAL GAI N DERIVED FROM PURCHASE AND SALE OF SHARES UNDER THE HEAD INCOME F ROM BUSINESS OR PROFESSION. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE HAS REITERATED ITS SUBMISSION MADE BEFORE THE LD. A O AND ARGUED THAT WHEN, INCOME DECLARED UNDER THE HEAD SHORT TER M CAPITAL GAIN, AS WELL AS LONG TERM CAPITAL GAIN TOWARDS PROFIT DE RIVED FROM PURCHASE AND SALE OF SHARES HAS BEEN ACCEPTED IN PA ST, NO DIFFERENT VIEW CAN BE TAKEN, UNLESS THERE IS CHANGES IN FACTS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE, FURTHER SUBMITTE D THAT THE LD. ITA NO.7917/MUM/2019 SARAH FAISHAL HAWA 4 AO ACCEPTED THE CLAIM OF CAPITAL GAIN RIGHT FROM AY 2005-06 TO 2010-11 AND ALSO, IN SUBSEQUENT ASSESSMENT YEARS, H OWEVER HAS TAKEN DIFFERENT VIEW WITHOUT ANY CHANGE IN FACTS FO R THE YEAR UNDER CONSIDERATION. THE ASSESSEE, FURTHER SUBMITTED THAT THE LD AO WAS TAKEN ONE ISOLATED TRANSACTION OF PURCHASES AND SAL ES OF SHARES OF ACCENTIA TECHNOLOGIES LIMITED ON 26/05/2010 AND FIN ANCIAL TECHNOLOGIES LIMITED ON 26/07/2010, IGNORING THE FA CT THAT THE AVERAGE HOLDING PERIOD OF SHARES IN CASE OF LONG TE RM CAPITAL GAIN IS 543 DAYS AND IN CASE OF SHORT TERM CAPITAL GAIN, IT IS 176 DAYS. THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO BY TAKEN NOTE OF VARIOUS OTHER FACTS , INC LUDING FREQUENCY OF TRANSACTIONS IN CERTAIN SCRIPTS, CAME TO THE CONCLU SION THAT THE ASSESSEE IS INVOLVED IN SYSTEMATIC ACTIVITY OF SHAR E TRADING BUSINESS, WHICH IS EVIDENT FROM THE FACT THAT HE HAS MADE CO NTINUOUS AND REGULAR TRADING IN SHARES OF DIFFERENT COMPANIES A ND THERE WAS NO INTENTION TO HOLD THE SHARES FOR THE PURPOSE OF EAR NING DIVIDEND INCOME. THE LD.CIT(A), FURTHER NOTED THAT INSOFAR A S, HOLDING PERIOD IS CONCERNED, THE SAME VARIES AND SOME OF THE SHAR ES ARE FOUND TO HAVE BEEN SOLD ON THE DATE OF PURCHASES. IT IS, TH EREFORE, HE OPINED THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD. AO TO ASSESS PROFIT DERIVED FROM PURCHASES AND SALE OF SH ARES UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. AGGRIEVED BY THE LD.CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE U S. 5. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEAR ING SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF ITAT, MUMBAI F BENCH IN ASSESSEE OWN CASE FOR ASST.YEAR 2007-08 IN ITA NO.5884/MUM/10, WHERE UNDE R IDENTICAL SET OF FACTS, THE TRIBUNAL HELD THAT, THE ASSESSEE IS AN INVESTOR IN ITA NO.7917/MUM/2019 SARAH FAISHAL HAWA 5 SHARES AND PROFIT DERIVED FROM SALE OF SHARES IN AS SESSABLE UNDER THE HEAD CAPITAL GAINS. THE LD. AR, FURTHER SUBMITT ED THAT THE LD. AO HAS REOPENED ASSESSMENT OF EARLIER YEARS ON THE BAS IS OF FINDINGS OF ASST.YEAR 2007-08 AND THOSE MATTERS REACHED TO THE TRIBUNAL AND THE TRIBUNAL UNDER SIMILAR SET OF FACTS HAS HELD TH AT WHEN, THE LD. AO WAS ACCEPTED THE CLAIM OF THE ASSESSEE FOR INCOME D ECLARED UNDER THE HEAD CAPITAL GAINS, IN RESPECT OF PROFIT DERIVE D FROM SHARES TRADING ACTIVITY IN THE PAST AND IN SUBSEQUENT ASSE SSMENT YEARS, THEN THERE IS NO REASON TO TAKE DIFFERENT VIEW FOR THE YEAR UNDER CONSIDERATION. THE LD. AR, FURTHER SUBMITTED THAT THE REVENUE HAS TAKEN THE ISSUE BEFORE THE HONBLE BOMBAY HIGH COU RT IN ASST.YEAR 2007-08, WHERE THE HONBLE HIGH COURT BY FOLLOWING THE DECISION OF ITS EARLIER ORDER, IN THE CASE OF CIT VS GOPAL PURO HIT (2011) 336 ITR 287 HAS HELD THAT THE RESPONDENT IS BEING CONSISTEN TLY HELD TO BE AN INVESTOR BY THE REVENUE FOR THE EARLIER AND SUBSEQU ENT ASSESSMENT YEAR ON SIMILAR FACTS AND HENCE, THERE IS NO REASON TO TAKE DIFFERENT VIEW FOR THE YEAR UNDER CONSIDERATION, WITHOUT THER E BEING ANY CHANGE IN MATERIAL FACTS. HE, FURTHER SUBMITTED THA T FOR THE YEAR UNDER CONSIDERATION FACTS ARE PARI-MATEIA WITH FACTS CONSIDERED BY THE TRIBUNAL FOR EARLIER YEARS AND THE AVERAGE HOL DING PERIOD FOR THE YEAR UNDER CONSIDERATION, IN RESPECT OF LONG TERM C APITAL GAIN IS 543 DAYS AND IT IS 160 DAYS FOR SHORT TERM CAPITAL GAIN . THEREFORE, THE LD. AO, AS WELL AS THE LD.CIT(A) WERE INCORRECT IN TAKI NG DIFFERENT VIEW FOR THE YEAR UNDER CONSIDERATION. 6. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD. AO, AS WELL AS THE LD.CIT(A) SUBMITTED THAT THE ASSESSEE IS INVOLVED IN SYSTEMATIC ACTIVITY OF SHARE TRADING, W HICH IS EVIDENT FROM THE FACT THAT THE LD.CIT(A) HAS BROUGHT OUT CLEAR F ACTS TO THE EFFECT ITA NO.7917/MUM/2019 SARAH FAISHAL HAWA 6 THAT HE HAS MADE REPETITIVE TRANSACTIONS IN CERTAI N SCRIPTS FOR MORE THAN 10 TO 12 TIMES, WHICH IS AKIN TO A TRADING AC TIVITY. HENCE, THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD. AO, AS WELL AS THE LD.CIT(A), IN COMING TO THE CONCLUSION THAT PROFIT DERIVED FROM SHARE TRADING ACTIVITY IS ASSESSABLE UNDER THE HEAD INCO ME FROM BUSINESS OR PROFESSION. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. FIRST AND FOREMOST, THE ISSUE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI F BENCH IN ASSESEE O WN CASE FOR ASST.YEAR 2007-08, WHERE THE TRIBUNAL BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOP AL PUROHIT (SUPRA) HELD THAT THE ASSESSEE IS AN INVESTOR IN SH ARE AND ANY PROFIT DERIVED FROM PURCHASE AND SALE OF SHARES IS ASSESSA BLE UNDER THE HEAD CAPITAL GAINS DEPENDING UPON THE PERIOD OF HOL DING. WE, FURTHER NOTED THAT A SIMILAR VIEW HAS BEEN TAKEN BY THE IT AT, MUMBAI, C BENCH FOR ASST.YEAR 2005-06 TO ASST.YEAR 2008-09, W HERE IT HAS BEEN HELD THAT WHEN, THE DEPARTMENT IS ACCEPTED THE CLAIM OF INCOME DECLARED UNDER THE HEAD LONG TERM CAPITAL GA INS/SHORT TERM CAPITAL GAINS TOWARDS PROFIT DERIVED FROM SHARE TRA DING ACTIVITY IN THE PAST AND IN SUBSEQUENT ASSESSMENT YEARS, THERE IS NO REASON TO TAKE DIFFERENT VIEW FOR THE YEAR UNDER CONSIDERATIO N, WITHOUT THERE BEING ANY CHANGE IN FACTS. WE, FURTHER NOTED THAT T HE CBDT HAS ISSUED A CIRCULAR NO.04/2007, DATED 13/06/2007, WHE RE IT HAS BEEN CLARIFIED THAT IT IS POSSIBLE FOR A TAX PAYER TO HO LD TWO PORTFOLIOS I.E ONE FOR INVESTMENT PORTFOLIO AND ANOTHER ONE FOR TR ADING PORTFOLIO. THE INCOME FROM SHARE TRADING ACTIVITY CANNOT BE DE CIDED ON ONE PARAMETER TO COME TO THE CONCLUSION THAT SUCH INCOM E IS ASSESSABLE ITA NO.7917/MUM/2019 SARAH FAISHAL HAWA 7 UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION, BUT, IT DEPENDS UPON VARIOUS FACTS, INCLUDING FREQUENCY OF TRANSACT IONS, VOLUME OF TRANSACTIONS, PERIOD OF HOLDING AND CAPITAL EMPLOYE D FOR SUCH ACTIVITY. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT (SUPRA), WHICH WAS FURTHER UPHELD BY THE HO NBLE SUPREME COURT HAS CATEGORICALLY HELD THAT IT IS POSSIBLE FO R THE ASSESSEE TO MAINTAIN TWO PORTFOLIOS, I.E ONE FOR INVESTMENTS A ND ONE FOR TRADING. IN THIS CASE, ON PERUSAL OF FACTS AVAILABLE ON RECO RD, THERE IS NO DOUBT OF WHATSOEVER WITH REGARD TO, FREQUENCY, VOLU ME AND PERIOD OF HOLDING IN SHARES, BECAUSE THE AVERAGE PERIOD OF HO LDING, IN CASE OF SHORT TERM CAPITAL GAINS IS 160 DAYS AND THE AVER AGE PERIOD OF HOLDING FOR LONG TERM CAPITAL GAIN IS 543 DAYS. THE LD. AO HAS NEVER BROUGHT ANY RECORDS TO INDICATE THAT THE ASSE SSEE HAS EMPLOYED BORROWED CAPITAL FOR SHARE TRADING ACTIVIT Y. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE HAS TREATED SHARE S PURCHASES AS AN INVESTMENTS IN HIS FINANCIAL STATEMENTS. ALL THE SE FACTS GOES TO PROVE AND UNDOUBTED FACT THAT THE ASSESSEE IS AN IN VESTOR IN SHARES FOR SO MANY YEARS AND IN THE PROCESS, HE HAS EARNED PROFIT ON PURCHASES AND SALE OF SHARES, WHICH IS ASSESSABLE U NDER THE HEAD INCOME FROM CAPITAL GAINS. FURTHER, THE DEPARTMENT ITSELF HAS ACCEPTED INCOME DECLARED UNDER THE HEAD CAPITAL GAI NS IN EARLIER AND SUBSEQUENT ASST.YEARS. UNLESS, THERE IS NO CHA NGE IN FACTS, NO DIFFERENT VIEW CAN BE TAKEN FOR THE YEAR UNDER CONS IDERATION. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE L D. AO, AS WELL AS THE LD.CIT(A) WERE ERRED IN ASSESSED INCOME DERIVED FROM SHARE TRADING ACTIVITY UNDER THE HEAD INCOME FROM BUSINES S OR PROFESSION. HENCE, WE DIRECT THE LD. AO TO ASSESS PROFIT DERIVE D FROM PURCHASE AND SALE OF SHARES UNDER THE HEAD SHORT TERM CAPIT AL GAINS AND AS WELL AS LONG TERM CAPITAL GAINS, AS DECLARED BY THE ASSESSEE. ITA NO.7917/MUM/2019 SARAH FAISHAL HAWA 8 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 04/03/2 020 SD/- (RAVISH SOOD) SD/- (G. MANJUNATHA) JUDICIAL MEMBE R ACCOUNTANT MEMBER MUMBAI ; DATED 04/03/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//