NEW HORIZON EQUITY ADVISORS P. LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 7987/MUM/2011

• Counselvise Citation: 798719914 RSA 2011
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 28-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: PANKAJ R TOPRANI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI . . , ! , ' # BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 7987 / / 2011 2008-09 ITA NO. 7987/MUM/2011 (ASSESSMENT YEAR: 2008-09) NEW HORIZON EQUITY ADVISORS PVT. LTD., 104, 1 ST FLOOR, RAHEJA CENTRE, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI -400 021 .: PAN: AACCN 0326 P VS DY. COMMISSIONER OF INCOME TAX, CIR- 3(2), R. NO. 608, AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ R. TOPRANI RESPONDENT BY : SHRI SURENDRA KUMAR !' /DATE OF HEARING : 29-08-2013 #$ !' / DATE OF PRONOUNCEMENT : 30-08-2013 & O R D E R ! , : PER VIVEK VARMA, JM: THE APPEAL IS FILED AGAINST THE ORDER OF CIT(A)-4, MUMBAI, D ATED 20.09.2011, WHEREIN, THE FOLLOWING GROUNDS HAVE BEEN TAKEN: 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDI NG THE ACTION OF THE AO IN TREATING A SUM OF RS. 77,85,745/- BEING SHORT TERM CAPITAL GAINS AS BUSINESS INCOME INSPITE OF THE APPELLANT BEING INVE STORS IN SHARES AND FREQUENCY OF TRANSACTIONS ARE NOT OF LARGE MAGNITUD E AND THAT DELIVERY OF SHARES WERE DULY TAKEN AND GIVEN. 2. THE CIT(A) ERRED IN REJECTING THE SUBMISSIONS MA DE BY THE APPELLANT DURING THE COURSE OF APPEAL HEARING. 2. THE ASSESSEE IS IN THE BUSINESS OF EQUITY ADVISOR AND SHARE TRADING. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS DECLARED SHORT TERM CAPITAL GAINS (STCG) AT RS. 77,85,745/-. NEW HORIZON E QUITY ADVISORS PVT. LTD. ITA NO. 7987/MUM/2011 2 3. IN THE ASSESSMENT ORDER, THE AO PICKED UP SCRIPS IN THE NAMES OF EVINIX ACCESSORIES LTD. AND ROMAN TARMAT LTD AND CON SIDERED THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE AO, WHILE CONSIDERING THE DETAILS TOOK INTO ACCOUNTS OF THE PARTIES, THE NUMB ER OF TRANSACTIONS, HOLDING PERIOD AND MAGNITUDE OF TRANSACTIONS, FROM WHICH, THE AO CONCLUDED THAT THE CONDUCT OF THE ASSESSE E WAS AKIN TO BE THAT OF A BUSINESS, RATHER THEN THE INVESTOR IN SHARE S. HE, THEREFORE, DISALLOWED THE CLAIM OF STCG, AS MADE BY THE ASSESSEE AND TREATED THE ENTIRE INCOME OF RS. 77,85,745/- AS TRADING PROFIT. 4. BEFORE THE CIT(A), THE ASSESSEE REITERATED ITS SUBMISSIO NS AND ON TAKING THE CONSIDERATIONS INTO ACCOUNT, THE CIT(A) HELD, 4. I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE ASSESSEE. IT IS A MATTER OF FACT WHETHER A PERSON I S DEALING IN SHARES AS TRADER OR AS INVESTOR. FOR THIS PURPOSE ALL THE REL EVANT FACTS HAVE TO BE CONSIDERED. THE RELEVANT FACTS IN SUCH CASES ARE TH E MOTIVE TO PURCHASE, ENTRY IN BOOKS OF ACCOUNT, FREQUENCY OF TRANSACTION S, PERIOD OF HOLDING, VOLUME OF TRANSACTIONS, NATURE OF FUNDS, WHETHER BO RROWED OR OWN CAPITAL, OTHER ACTIVITIES OF THE ASSESSEE ETC. IN T HE CASE OF THE ASSESSEE MOTIVE IS CLAIMED TO BE INVESTMENT BUT IT IS NOT RE FLECTED BY ANY OTHER EVIDENCE EXCEPT CLAIMING THAT IN BOOKS OF ACCOUNT S UCH HOLDING OF SHARES HAS BEEN CLASSIFIED AS INVESTMENT AND ASSESS EE HAS ALSO CLAIMED THAT IT HAS NOT USED THE BORROWED FUNDS. TH ESE TWO FACTORS APPEAR TO BE IN FAVOUR OF THE ASSESSEE WHEREAS A.O. HAS ANALYZED THE OTHER PARAMETERS ALSO, AS PER THE DETAILS AND TABLE S GIVEN IN THE ASSESSMENT ORDER, FROM WHICH IT IS SEEN THAT ASSESS EE IS HOLDING SHARES FROM ONE DAY TO MAXIMUM 75 DAYS AND NO TRANSACTION IS FOR A LONGER PERIOD. MOST OF THE HOLDINGS ARE FOR LESS THAN TWO MONTHS. AT THE SAME TIME, THE VOLUME OF TRANSACTIONS IS ALSO HIGH WHICH IS IN MANY CASES 50,000 SHARES OR MORE, WHICH SHOWS THAT ASSESSEE DO ES NOT INTEND TO HOLD THEM AS INVESTMENT. IN SHARE TRADING A/C. ASSE SSEE HAS NOT SHOWN ANYTHING HELD FOR MORE THAN ONE DAY. THEREFORE, FRO M THE FACTS AND CIRCUMSTANCES OF THE CASE IT CLEARLY APPEARS THAT A SSESSEE IS TRADING IN SHARES BUT THE SHARES WHERE THE HOLDING PERIOD IS L ESS THAN ONE DAY ARE SHOWN ON ACCOUNT OF TRADING EXCEPT TWO TRANSACTIONS AND ALL OTHER TRANSACTIONS DESPITE HIGH VOLUME AND HOLDING FOR LE SS THAN 75 DAYS HAVE BEEN SHOWN AS INVESTMENT. BUT IT IS MERELY TO CLAIM THE BENEFIT UNDER TAXATION. THEREFORE, THE ACTION OF THE A.O. I S UPHELD AND THE GROUND OF APPEAL OF THE ASSESSEE IS REJECTED. 5. HE, THEREFORE, REJECTED THE CONTENTION OF THE ASSESSE E AND SUSTAINED THE FINDING OF THE AO. 6. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. NEW HORIZON E QUITY ADVISORS PVT. LTD. ITA NO. 7987/MUM/2011 3 7. BEFORE US, THE AR REITERATED THE SUBMISSIONS MADE BEFO RE THE REVENUE AUTHORITIES AND PLACED BEFORE US DETAILS OF OTHER SCRIPS HELD BY THE ASSESSEE AND SUBMITTED THAT TILL THE PRECEDING YEAR, THE ASSESSEE NEVER INDULGED IN ANY ACTIVITY OF SALE AND PURCHASE OF SHAR ES/SCRIPS, WHICH COULD HAVE BEEN CONCLUDED TO BE IN THE NATURE OF SHARE TRADING. BESIDES THIS FACT, THE AR POINTED OUT THAT THE ASSESSEE HAD USED ITS OWN FUNDS IN THE INVESTMENT OF SHARES/SECURITIES. HE ALSO PLACED RELIANCE ON THE DECISIONS BY VARIOUS FORA ON THE ISSUE. 8. THE AR, THEREFORE, PLEADED THAT THE ASSESSEE HAD RIG HTLY CLAIMED THE PROFIT EARNED FROM SALE AND PURCHASE OF SHARES AS ST CG, AND THAT THE AO AND CIT(A) ERRED IN HOLDING THE ACTIVITY TO BE IN TH E NATURE OF BUSINESS. 9. THE DR PLACED RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES. 10. WE HAVE HEARD THE ARGUMENTS OF THE ASSESSEE AND HAVE PERUSED THE ORDERS OF THE REVENUE AUTHORITIES ALONG WITH THE DET AILS PLACED IN THE APB, AT PAGES 34-44. FROM THE DETAILS PERUSED BY US , WE FIND THAT IN THE YEAR UNDER CONSIDERATION, HAS INDULGED IN THE ACTIVI TY WHICH COULD ONLY FIT IN THE CLUTCHES OF BUSINESS ACTIVITY. NO DOUBT , THERE IS NO INFUSION OF INTEREST BEARING FUNDS, BUT, THAT BY ITSELF, COULD N OT BE TAKEN TO BE A DECISIVE CRITERIA. THE VOLUME AND MAGNITUDE OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE COMES WELL WIT HIN THE FOLDS OF THE DECISION OF RAJA BAHADUR VISHESHWAR SINGH VS CIT, RENDERED BY THE HONBLE SUPREME COURT, REPORTED IN 41 ITR 685 (SC). 11. THE ASSESSEE ALSO PLACED RELIANCE ON THE CIRCULAR NO. 4/2007, DATED 15.06.2007, ISSUED BY THE CBDT, BUT THIS CIRCULAR CA NNOT AID THE ASSESSEE IN THIS PARTICULAR CIRCUMSTANCE, BECAUSE, TH E CIRCULAR TALKS ABOUT MAINTAINING TWO SEPARATE PORTFOLIOS, BUT IT COME S WITH A RIDER, THE ASSESSING OFFICER ARE FURTHER ADVISED THAT NO SINGLE 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. NEW HORIZON E QUITY ADVISORS PVT. LTD. ITA NO. 7987/MUM/2011 4 12. THE DISPUTE IS REGARDING NATURE OF INCOME FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSUE WH ETHER THE SHARE TRANSACTIONS IN A PARTICULAR CASE SHOULD BE TREATED AS IN VESTMENT ACTIVITY OR TRADING ACTIVITY HAS BEEN HIGHLY A DEBATABLE ISSUE. THERE ARE DECISIONS OF THE TRIBUNAL ON BOTH THE SIDES. EACH CASE WILL DEPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTOR S 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. T HE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALING WITH THE SHARES CA N ONLY BE THE DECISIVE FACTOR. MERELY THE BASIS OF ENTRY IN THE BOOKS O F ACCOUNT OR THE OBJECTS IN THE MEMORANDUM OF ASSOCIATION, CANNOT BE THE ONLY BASIS FOR HOLDING THE INCOME TO BE CAPITAL GAINS. THE ACTUAL CON DUCT HAS TO BE EVALUATED BY ANALYZING OF THE HOLDING PERIOD ETC. AN INV ESTOR MAKES PURCHASES WITH LONG TERM GOAL OF EARNING INCOME FROM THE I NVESTMENT AND HE IS NOT TEMPTED TO SELL THE SHARES ON EVERY RISE AND FALL IN THE MARKET WHICH ARE THE ATTRIBUTES OF A TRADER. BUT THERE MAY BE SITUATIONS WHEN THE INVESTOR MAY ALSO SELL THE SHARES AFTE R SHORT HOLDING IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO ENCASH THE 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. 13. IN THIS CASE, THE DETAILS OF SHARE TRANSACTIONS, HOLDING PERIOD- WISE AS GIVEN BY THE ASSESSEE, AS SEEN FROM THE APB. A C AREFUL PERUSAL OF THE SAME SHOWS THAT MOST OF THE SHARES HAVE BEEN S OLD WITHIN 30 DAYS, AS DISSECTED BY THE AO AND AS PERUSED BY US FROM THE DETAILS IN THE APB. THE INCOME FROM SUCH TRANSACTIONS HAS BEEN DEC LARED BY THE ASSESSEE A SHORT TERM CAPITAL GAIN TREATING THE SHARE P URCHASES AS INVESTMENT. THE PATTERN OF TRANSACTIONS CLEARLY SHOWS T HAT THE ASSESSEE IS TRADING IN SHARES AND IS NOT AN INVESTOR. T HE FREQUENCY AND VOLUME IS QUITE HIGH MAKING THE INTENTION CLEAR THAT THE AS SESSEE WAS NEW HORIZON E QUITY ADVISORS PVT. LTD. ITA NO. 7987/MUM/2011 5 TRADING IN SHARES. THERE ARE ALSO REPETITIVE TRANSACTIONS IN THE SAME SCRIPS, ALL THESE TRAITS POINT TOWARDS TRADING ACTIVITY. THE ARS ARGUMENT THAT TILL THE PRECEDING YEAR, THERE WAS NO SUCH ACTIVITY, WOULD NOT OBLIVIATE THE STAND OF THE REVENUE, AS IT IS A SE TTLED PRINCIPAL THAT DOCTRINE OF RES JUDICATA IS NOT APPLICABLE ON TAX ISSUES. THEREFORE, WE ARE OF THE VIEW THAT THE SHORT TERM CAPITAL GAIN DECLA RED BY THE ASSESSEE IS NOTHING BUT BUSINESS INCOME. APPEAL, AS FILED BY THE ASSESSEE IS, THEREFORE, DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- ( . . ) ( ! ) (R.S. SYAL) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 30 TH AUGUST, 2013 !/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) (! ( ) 4, MUMBAI / THE CIT (A)-4, MUMBAI. 4) (! 3 , MUMBAI / THE CIT3, MUMBAI, 5) )*+ ! , , ' , , - / THE D.R. B BENCH, MUMBAI. 6) +. / COPY TO GUARD FILE. 01 / BY ORDER / / TRUE COPY / / [ 2 / 3 4 ' , , - DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *673 . . * CHAVAN, SR. PS