LATE SHRI LALCHAND S. ROHRA, MUMBAI V. ADDL CIT 14(2), MUMBAI

ITA 7999/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3712 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Assessment record
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 7999/MUM/2010 (ASSESSMENT YEAR : 2006-07) LATE SHRI LALCHAND S. ROHRA, BY LEGAL HEIR : MRS. BEENA SACHEV, 101-A, EMBASSY APARTMENTS, 46, NEPEAN SEA ROAD, MUMBAI 400 026 PAN:AASPR 0251L ... APPELLANT VS. THE ADDL. CIT 14(2), MUMBAI. .... RESPONDENT APPELLANT BY : SHRI VIMAL PUNMIYA RESPONDENT BY : SHRI YOGESH KAMAT DATE OF HEARING : 08/02/2016 DATE OF PRONOUNCEMENT : 29/04/2016 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTA INING TO THE A.Y. 2006-07 IS DIRECTED AGAINST AN ORDER PASSED B Y LD. CIT(A)-25, MUMBAI DATED 01/10/2010, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 29/12/2008. 2 ITA NO. 7999/MUM/2010 (ASSESSMENT YEAR : 2006-07) 2. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1.THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN C ONFIRMING AND TREATING RS.38, 96,224/ - -AS INCOME FROM BUSINESS & PROFESS ION AS AGAINST SHORT TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE. 2. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING AND TREATING RS. 27,44,159/ - AS INCOME FROM BUSINESS & PROFESSI ON AS AGAINST LONG TERM CAPITAL GAINS CLAIMED EXEMPT UNDER SECTION 10(38) O F THE INCOME TAX ACT, 1961 BY THE ASSESSEE. 3. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.6,24,577/ - UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 ALLEGING THAT THE SAID EXPENSES DEBITED TO PROFIT A ND LOSS ACCOUNT ARE PERTAINING TO EXEMPT INCOME. 4. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE CHARGING INTEREST UNDER SECTION 234B & 234C OF INCOME TAX AC T, 1961. 5. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 3. IN SO FAR AS THE GROUNDS OF APPEAL NO.1 & 2 ARE CONCERNED, THEY RELATE TO THE ASSESSABILITY OF THE PROFIT EARNED BY THE ASSESSEE ON SALE AND PURCHASE OF SHARES AND SECURITIES. DEPENDING O N THE PERIOD OF HOLDING, ASSESSEE HAD DECLARED THE GAIN ON SALE OF SHARES AND MUTUAL FUNDS AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPIT AL GAIN. ACCORDINGLY, RS.38,96,224/- WAS DECLARED AS SHORT TERM CAPITAL GAIN AND RS.27,44,159/- AS LONG TERM CAPITAL GAIN, WHICH WA S CLAIMED EXEMPT UNDER SECTION 10(38) OF THE ACT. THE ASSESSING OFF ICER, HOWEVER, TREATED THE ACTIVITY OF SALE AND PURCHASE OF SHARES AND MUTUAL FUNDS AS A TRADING ACTIVITY AND THUS, TREATED THE AFORESAID GAINS AS AN INCOME ASSESSABLE UNDER THE HEAD BUSINESS INCOME. APART FROM OTHER ARGUMENTS SET-UP BY THE ASSESSING OFFICER, A PERTIN ENT POINT, WHICH HAS BEEN NOTED IS THAT EVEN THE ASSESSMENT RECORDS FOR THE EARLIER YEARS 3 ITA NO. 7999/MUM/2010 (ASSESSMENT YEAR : 2006-07) REVEAL THAT VOLUMINOUS TRADING IN SHARES AND MUTUAL FUNDS HAS BEEN UNDERTAKEN BY THE ASSESSEE, AND, THUS THERE WAS REG ULARITY IN CARRYING OUT SUCH AN ACTIVITY. THE STAND OF THE ASSESSING O FFICER THAT SUCH INCOME WAS ASSESSABLE AS BUSINESS INCOME HAS ALSO B EEN FURTHER AFFIRMED BY THE CIT(APPEALS) AGAINST WHICH THE ASSE SSEE IS IN APPEAL BEFORE US BY WAY OF GROUNDS OF APPEAL NO.1 & 2, HER EINABOVE. 4. ON BOTH THE COUNTS, IT WAS A COMMON POINT BETWEE N THE PARTIES THAT SIMILAR STAND OF THE ASSESSING OFFICER CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2005-06 AND VIDE ORDER IN ITA NO.422/MUM/2011 DATED 12/06/2 013, THE STAND OF THE ASSESSEE HAS BEEN UPHELD. IN THIS CONTEXT, WE MAY REPRODUCE HEREINAFTER THE RELEVANT PORTION OF THE ORDER OF TH E TRIBUNAL DATED 12/06/2013(SUPRA), WHICH READS AS UNDER:- 8. WE OBSERVE THAT THE DISPUTE IS MAINLY IN RESPECT OF TAXING THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE BETWEEN 1.10.2004 TO 31. 3.2005 OF RS.6,35,609.19 AS SHORT TERM CAPITAL GAIN PRIOR TO 1.10.2004, WAS ASS ESSABLE @ 30%, THE SAME RATE AT WHICH BUSINESS INCOME WAS TO BE ASSESSED. ON PERUSA L OF BALANCE SHEET AT PAGE 4 OF PB AS WELL AS PROFIT AND LOSS ACCOUNT PLACED AT PAG E 5 OF PB, WE OBSERVE THAT ASSESSEE HAS SPECIFICALLY STATED INVESTMENT IN SHAR ES AT RS.55,94,573 AND HAS SHOWN IN THE CURRENT ASSETS THE STOCK IN TRADE OF MUTUAL FUND. HOWEVER, ASSESSEE HAS ALSO STATED SPECIFICALLY IN THE PROFIT AND LOSS ACCOUNT, DETAILS OF LONG TERM CAPITAL GAIN, SHORT TERM CAPITAL GAIN AND SPECULATIVE DEALINGS IN SHARES, BESIDES SHOWING INTEREST AND DIVIDEND INCOME BY THE ASSESSEE IN THE ASSESSME NT YEAR UNDER CONSIDERATION. FURTHER, IT IS ALSO OBSERVED THAT ASSESSEE IS MAINT AINING SEPARATE DETAILS IN RESPECT OF SHARES, HELD BY THE ASSESSEE UNDER THE HEAD STO CK-IN-TRADE AND SHARES HELD UNDER THE HEAD INVESTMENT. THEREFORE, WE FIND SUB STANCE IN THE SUBMISSION OF LD A.R. THAT ASSESSEE IS MAINTAINING SEPARATE PORTFOLI O OF SHARES HELD AS INVESTMENT AND SHARES HELD AS STOCK IN TRADE. THE ABOVE FACTS HAVE NOT BEEN CONTROVERTED BY THE AUTHORITIES BELOW. WE OBSERVE THAT AUTHORITIES BELOW HAVE NOT ACCEPTED THE PROFIT SHOWN BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN MAINLY FOR THE REASON THAT IN RESPECT OF SOME OF THE SHARES, THE PERIOD OF HOLDIN G WAS SMALL AND ALSO CONSIDERING NUMBER OF SCRIPTS, IN WHICH TRANSACTION TOOK PLACED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. HOWEVER, ON PERUSAL OF SAID STATEMEN T, PLACED AT PAGES 24-25 OF PB, WE OBSERVE THAT THERE ARE NOT REPETITIVE TRANSACTIO NS IN THE SAME SCRIPS. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT ASSESSEE HAS NOT USED ANY BORROWED FUNDS FOR THE PURPOSE OF PURCHASE OF SHARES AND SAM E IS ALSO FORTIFIED ON PERUSAL OF 4 ITA NO. 7999/MUM/2010 (ASSESSMENT YEAR : 2006-07) PROFIT AND LOSS ACCOUNT, THAT NO INTEREST HAS BEEN CLAIMED TOWARDS EXPENSES. THE ITAT MUMBAI HAS HELD IN THE CASE OF JANAK S RANGWAL A VS ACIT, 11 SOT 627 THAT MERE VOLUME OF TRANSACTION DOES NOT MEAN THAT ASSES SEE IS A TRADER. THE INTENTION WITH WHICH PURCHASE HAS BEEN MADE HAS TO BE SEEN. I T IS HELD THAT IF IN EARLIER YEAR, THE DEPARTMENT HAS TREATED THE ASSESSEE AS AN INVE STOR, IT CANNOT TAKE A DIFFERENT VIEW IN SUBSEQUENT YEAR. IN THE CASE BEFORE US, IT ALSO OBSERVED THAT IN ASSESSMENT YEAR 2004-05, ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITAL GAIN AND DEPARTMENT WHILE MAKING THE ASSESS MENT U/S.143(3) OF THE ACT VIDE ORDER DATED 11.8.2006, COPY PLACED ON RECORD, ACCEP TED THE CAPITAL GAIN SHOWN BY THE ASSESSEE. IN THE CASE OF GOPAL PUROHIT VS JCIT, 29 SOT 117(MUM), ITAT HAS HELD THAT MOST CRUCIAL SOURCE OF GATHERING INTENTION OF ASSESSEE AS REGARDS NATURE OF TRANSACTION IS THE ACCOUNTS MAINTAINED BY THE ASSES SEE. IT IS FURTHER HELD THAT DELIVERY BASED TRANSACTIONS SHOULD BE TREATED AS IN VESTMENT TRANSACTIONS. THE SAID FINDING OF 7 THE TRIBUNAL HAS BEEN UPHELD BY HONBL E BOMBAY HIGH COURT IN THE ABOVE CASE REPORTED AT 228 CTR 582(BOM), AND THE AP PEAL FILED BY THE DEPARTMENT AGAINST SAID DECISION OF HONBLE BOMBAY HIGH COURT WAS ALSO REJECTED BY HONBLE SUPREME COURT VIDE ORDER DATED 15.11.2010. FURTHER, IN THE CASE OF DCIT VS. SMK SAHRES & STOCK BROKING PVT LTD., (I.T.A. NO.799/M/2 009) ORDER DATED 24.11.2010, ITAT MUMBAI HAS HELD THAT MERE VOLUME OF TRANSACTIO NS IS NOT THE SOLE CRITERIA TO HOLD THE ASSESSEE TO BE A TRADER. THE MANNER OF SHO WING SHARES IN ACCOUNTS IS RELEVANT WE OBSERVE THAT IN THE CASE BEFORE US, DEP ARTMENT HAS NOT ACCEPTED THE PROFITS SHOWN BY THE ASSESSEE AS CAPITAL GAIN, MERE LY ON THE GROUND OF VOLUME OF TRANSACTIONS BUT HAS NOT DISPUTED THE MANNER OF SHO WING THE SHARES IN ITS ACCOUNT UNDER THE HEAD INVESTMENT. WE ARE OF THE CONSIDER ED VIEW THAT ABOVE DECISIONS OF ITAT SQUARELY APPLY TO THE CASE OF THE ASSESSEE. CO NSIDERING THE FACTS OF THE ASSESSEE, WE HOLD THAT THE SHORT TERM CAPITAL GAIN AGGREGATING TO RS.10,16,274/- SHOWN BY THE ASSESSEE , BE ASSESSED UNDER THE HEAD SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. HENCE, GROUND NO.1 OF APPEAL IS ALLOWED. 5. IN VIEW OF THE ABOVE PRECEDENT, THE STAND OF THE LOWER AUTHORITIES IN TREATING THE ASSESSEE AS A TRADER IN SHARES IS UNSUSTAINABLE. PERTINENTLY, IN THE INSTANT ASSESSM ENT ORDER, THE ASSESSING OFFICER HAS CONSIDERED THE ASSESSMENT RE CORDS FOR THE EARLIER YEARS AS WELL TO SAY THAT THE ASSESSEE IS NOT AN I NVESTOR IN SHARES. NOW, IF IN THE EARLIER PERIOD, THE ASSESSEE HAS BEEN HEL D BY THE TRIBUNAL TO BE AN INVESTOR IN SHARES, CONSEQUENTLY, IN THE INSTANT YEAR ALSO SUCH A FINDING IS INEVITABLE. THE TRIBUNAL IN ITS ORDER DATED 12/06/2013 (SUPRA) HAS NOTICED THAT IN ASSESSMENT YEAR 2004-05 THE DEP ARTMENT HAS ITSELF TREATED THE ASSESSEE AS AN INVESTOR IN SHARES WHILE MAKING THE 5 ITA NO. 7999/MUM/2010 (ASSESSMENT YEAR : 2006-07) ASSESSMENT UNDER SECTION 143(3) OF THE ACT. THUS, H AVING REGARD TO THE HISTORY OF THE CASE, THE ACTION OF THE INCOME-TAX A UTHORITIES IN ASSESSING THE GAIN ON SALE AND PURCHASE OF SHARES AND MUTUAL FUNDS AS BUSINESS INCOME IS UNTENABLE. WE HOLD SO. THUS, GROUNDS OF APPEAL NO.1 & 2 RAISED BY THE ASSESSEE STAND ALLOWED. 6. IN GROUND OF APPEAL NO.3, THE ISSUE RELATES TO D ISALLOWANCE OF RS.6,24,577/- BY APPLICATION OF SECTION 14A OF THE ACT ON THE GROUND THAT SUCH EXPENSES ARE RELATABLE TO INCOMES WHICH A RE EXEMPT FROM TAX. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD D ECLARED INCOMES ON ACCOUNT OF DIVIDEND OF RS.2,56,182/- AND INTEREST O F RS.4,76,848/-, WHICH WAS EXEMPT FROM TAX. HOWEVER, ASSESSEE CLAIM ED THAT NO EXPENDITURE WAS INCURRED FOR EARNING SUCH EXEMPT IN COME AND HENCE NO DISALLOWANCE WAS MADE UNDER SECTION 14A OF THE A CT. THE ASSESSING OFFICER HOWEVER DISAGREED WITH THE ASSESSEE AND COM PUTED AN EXPENDITURE OF RS.6,24,577/- AS RELATABLE TO EARNIN G OF SUCH EXEMPT INCOME BY APPLYING THE PROVISIONS OF 14A R.W. RULE -8D OF THE INCOME TAX RULES,1962( IN SHORT THE RULES). THE SAID DI SALLOWANCE HAS ALSO BEEN AFFIRMED BY THE CIT(APPEALS), AGAINST WHICH TH E ASSESSEE IS IN APPEAL BEFORE US. 7. BEFORE US, THE ONLY POINT PUT-FORTH BY THE ASSES SEE IS THAT THE APPLICATION OF RULE 8D OF THE RULES IN ORDER TO COM PUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IS NOT MERITED BECAUS E THE SAID RULE IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. GODREJ & BOYC E MFG. COMPANY LTD. VS. DCIT,328 ITR 81(BOM). APART THEREFROM, TH E LD. REPRESENTATIVE 6 ITA NO. 7999/MUM/2010 (ASSESSMENT YEAR : 2006-07) FOR THE ASSESSEE SUBMITTED THAT ANY DISALLOWANCE BA SED ON AN ESTIMATE OF 1 TO 3% OF THE TOTAL INCOME WOULD BE IN ORDER. 8. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE HAS NOT CONTROVERTED THE APPLICABILITY OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE MFG. COMPA NY LTD.(SUPRA), BUT CONTENDED THAT THE DISALLOWANCE UNDER SECTION 14A W AS REQUIRED TO BE MADE IN THE ABSENCE OF ANY SUO-MOTU DISALLOWANCE MA DE BY THE ASSESSEE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. QUITE CLEARLY, THE PROVISIONS OF RULE 8D OF THE RULES ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION FOLLOWING THE R ATIO OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. COMPANY LTD.(SUPRA). THEREFORE, THE DISALLOWA NCE OF RS.6,24,577/- WORKED OUT BY THE ASSESSING OFFICER IS NOT APPROPRI ATE. SO HOWEVER, IT ALSO EMERGES FROM THE RECORD THAT APART FROM ASSERT ING THAT NO AMOUNT DEBITED TO THE P&L ACCOUNT PERTAINS TO THE EXEMPT INCOME, ASSESSEE HAS NOT LEAD ANY FURTHER MATERIAL OR EVIDENCE THERE OF. BE THAT AS IT MAY, IN OUR VIEW, IT WOULD BE APPROPRIATE THAT DISA LLOWANCE OF 5% OF THE EXEMPT INCOME I.E. 5% OF RS.7,33,030/- BE CONSIDER ED AS A REASONABLE DISALLOWANCE UNDER SECTION 14A OF THE ACT IN THE PR ESENT CASE. THEREFORE, WE SET-ASIDE THE ORDER OF THE CIT(APPEAL S) AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDE R SECTION 14A AT 5% OF THE EXEMPT INCOME. THUS, ON THIS ASPECT ASSESSEE S UCCEEDS. 7 ITA NO. 7999/MUM/2010 (ASSESSMENT YEAR : 2006-07) 10. THE LAST GROUND OF APPEAL OF THE ASSESSEE IS IN RESPECT OF CHARGING OF INTEREST UNDER SECTION 234B&234C OF THE ACT WHIC H ARE CONSEQUENTIAL IN NATURE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL , 2016. SD/- SD/- (JOGINDER SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 29 /04/2016 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI