BIPIN RAM CHAINNANI, MUMBAI V. ACIT 19(1), MUMBAI

ITA 802/MUM/2012

• Counselvise Citation: 80219914 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: T K DOCTOR
• Keywords: Business income
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , ,, , , ! ! ! ! '# $% '# $% '# $% '# $% , ,, , & & & & ' ' ' ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 802/MUM./2012 ( &) * !+* / ASSESSMENT YEAR : 200506 ) MR. BIPIN RAM CHAINANI 21, DWARKA, 13 TH ROAD, KHAR (W) MUMBAI 400 052 .. ,- / APPELLANT ) V/S ADDL. COMMISSIONER OF INCOME TAX CIRCLE19(1), MUMBAI .... ./,- / RESPONDENT , ./ PERMANENT ACCOUNT NUMBER ADCPC3633Q &) *1# 2 3 / ASSESSEE BY : MR. T.K. DOCTOR ! 2 3 / REVENUE BY : MR. O.P. SINGH )! 2 # / DATE OF HEARING 29.07.2013 $ 4+ 2 # / DATE OF ORDER 18.09.2013 $ $ $ $ / ORDER '# $% '# $% '# $% '# $% , ,, , & & & & 5 5 5 5 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE, CHALLENGING THE IMPUGNED ORDER DATED 29 TH NOVEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS)XXII, MUMBAI, FOR THE QUANTU M OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE MR. BIPIN RAM CHAINANI 2 ACT) FOR THE ASSESSMENT YEAR 200506, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX - (APPEALS) - 22 HAS ERR ED IN LAW AND ON FACTS IN CONFIRMING I UPHOLDING THE ORDER PASSED BY ASSISTAN T COMMISSIONER OF INCOME TAX 19(1), MUMBAI U/S 143(3) WHEREIN THE SHORT TERM CAPITAL GAINS EARNED BY THE ASSESSEE AMOUNTING TO RS. 6,02,458 WAS TREATED AS SHARE TRADING INCOME AND ACCORDINGLY ASSESSED UNDER THE HEAD INCOME FRO M BUSINESS OR PROFESSION. 2. THE APPELLANT PRAYS THAT THE TREATMENT OF THE S HORT TERM CAPITAL GAINS OF RS. 6,02,458 AS BUSINESS INCOME BE DELETED AND THE ASSESSING OFFICER (ASSISTANT COMMISSIONER OF INCOME TAX 19(1), MUMBAI BE DIRECTED TO TREAT THE SAME AS SHORT TERM CAPITAL GAINS AND ACCORDINGL Y ASSESS IT UNDER THE HEAD CAPITAL GAINS 2. FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL AND IS DERIVING IN COME MAINLY BY WAY OF SALARY AND REMUNERATION FROM PARTN ERSHIP FIRMS BRILLIANT INTERNATIONAL AND BRILLIANT INDUSTRIES. THESE FIRMS ARE IN THE BUSINESS OF MANUFACTURE AND EXPORT OF ELECTRICAL GOODS AND ELEC TRICAL CONTRACTORS. THE ASSESSEE HAD SHOWN SALARY / REMUNERATION OF ` 6,99,000 FROM THE PARTNERSHIP FIRM, INCOME FROM HOUSE PROPERTY AT ` 1,19,910, INCOME FROM SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN OF ` 4,80,092 AND INCOME FROM OTHER SOURCES AT ` 80,263. WITH REGARD TO THE TRANSACTIONS OF SALE AN D PURCHASE OF SHARES, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH THE DETAILS AND GIVE EXPLANATION AS TO WHY THE INCO ME FROM SALE AND PURCHASE OF SHARES SHOULD NOT BE TREATED UNDER THE HEAD BUSINESS INCOME . HOWEVER, IN RESPONSE, AS PER THE OBSERVATIONS OF TH E ASSESSING OFFICER, NO DETAILS OR EXPLANATION WAS FILED BY THE ASSESSEE. A CCORDINGLY, HE TREATED THE INCOME FROM SHORT TERM CAPITAL GAIN AS BUSINESS INC OME, ASSESSABLE UNDER SECTION 28. ACCORDINGLY, THE TOTAL INCOME DERIVED F ROM SALE OF SHARES FOR SUMS AGGREGATING TO ` 6,02,458 WAS TAXED UNDER THE HEAD BUSINESS INCOME . MR. BIPIN RAM CHAINANI 3 3. BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSE SSEE PLACED WRITTEN SUBMISSIONS ALONG WITH ALL THE RELEVANT DET AILS FOR THE TRANSACTIONS OF THE SHARES. THESE DETAILS WERE FORWARDED TO THE ASS ESSING OFFICER TO SUBMIT HIS REMAND REPORT. THE ASSESSING OFFICER, VIDE REMA ND REPORT DATED 21 ST SEPTEMBER 2011, STATED THAT THE ASSESSEES CASE SHO ULD BE DECIDED BY THE GUIDELINES ISSUED BY THE CBDT VIDE CIRCULAR NO.4/20 07 DATED 15 TH JUNE 2007. BASED ON THESE GUIDELINES, HE ANALYSED THE ASSESSEE S FACT AND OBSERVED THAT THE ASSESSEE HAS SOLD MOST OF THE SHARES WITHI N A PERIOD OF ONE MONTH AND THE REMAINING WITHIN FOUR MONTHS AND, THEREFORE , THE MOTIVE OF THE ASSESSEE WAS TO EARN QUICK PROFIT. HE ALSO ANALYSED THE FREQUENCY OF SALE OF SHARES AND FOUND THAT THERE WERE REPETITIVE TRANSAC TIONS IN THE NAME OF SCRIPS LIKE UCO BANK, ALLAHABAD BANK, UNION BANK, S YNDICATE BANK, UTI BANK, ETC. THUS, HE CONCLUDED THAT THE ASSESSEES E NTIRE MOTIVE WAS EARNING OF PROFIT AND, HENCE, INSTEAD OF SHORT TERM CAPITAL GAIN IT SHOULD BE TREATED UNDER THE HEAD BUSINESS INCOME . AGAINST THE SAID REMAND REPORT, THE ASSESSEE ALSO FILED REJOINDER SUBMISSIONS. HOWEVER, THE LEARNED COMMISSIONER (APPEALS) REJECTED THE ASSESSEES CONT ENTION AND RELIED UPON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN SADH ANA NABERA V/S ACIT, ITA NO.2586/MUM./2009, DATED 26 TH MARCH 2010. HE ALSO OBSERVED THAT OUT OF 92 TRANSACTIONS, 77 TRANSACTIONS BELONG TO THE S HARE WHICH WERE RETAINED FOR LESS THAN 180 DAYS AND IN SUCH CASES 64% OF THE INCOME HAS BEEN EARNED. IN ALL, 63,240 SHARES WERE PURCHASED AND TH E SOLD THE SAME DURING THE YEAR AND THE QUANTUMWISE, THE SALE WAS AT ` 37,31,902 AND PURCHASE WAS AT ` 31,26,463, WHICH IS SUBSTANTIALLY HIGH AMOUNT. THU S, LOOKING TO THE FREQUENCY AND REGULARITY OF THE TRANSACTIONS, HE IN FERRED THAT THE ASSESSEE WAS CARRYING SYSTEMATIC AND ORGANIZED ACTIVITIES WI TH THE SOLE MOTIVE OF PROFIT. ACCORDINGLY, HE CONCURRED WITH THE OBSERVAT IONS OF THE ASSESSING OFFICER MADE IN THE REMAND REPORT THAT THE INCOME F ROM SALE OF SHARES HAS RIGHTLY BEEN TREATED UNDER THE HEAD BUSINESS INCOME . MR. BIPIN RAM CHAINANI 4 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE IS NOT ENGAGED IN ANY KIND OF ACTIVITY OF SHARE BUSINESS AS HE IS WHOLLY ENGAGED IN THE BUSINESS OF PARTNERSHIP FIRM IN WHICH HE IS PARTNER AND THESE FIRMS ARE ENGAGED IN THE BUSINESS OF MANUFACT URING AND EXPORT OF ELECTRICAL GOODS AND ELECTRICAL CONTRACTORS. THUS, THERE WAS NO SYSTEMATIC ACTIVITY OF CARRYING SEPARATE BUSINESS OF SHARES. F URTHER, THE ASSESSEE HAS INVESTED THESE SHARES OUT OF HIS OWN FUNDS AND NO B ORROWED FUNDS WERE UTILIZED FOR ANY PURCHASE OF SHARES. IN SUPPORT OF HIS CONTENTION, HE HAS REFERRED TO THE BALANCE SHEET AND CAPITAL ACCOUNT O F THE ASSESSEE AS PLACED IN THE PAPER BOOK. HE FURTHER SUBMITTED THAT IN ALL THE YEARS, THE ASSESSEE HAS SHOWN THE PURCHASE OF SHARES AS INVESTMENT IN H IS BOOKS OF ACCOUNT AND IN THE BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME FROM TIME TO TIME. IN THE EARLIER YEARS, SUCH INCOME FROM SALE OF SHAR ES HAS BEEN ASSESSED AS CAPITAL GAIN, THOUGH THESE ASSESSMENTS HAVE BEEN FI NALIZED UNDER SECTION 143(1). REGARDING OBSERVATIONS OF THE LEARNED COMMI SSIONER (APPEALS) ABOUT VARIOUS TRANSACTIONS, HE SUBMITTED THAT SOME OF THE TRANSACTIONS WERE IN MUTUAL FUNDS AND 55 TRANSACTIONS OUT OF 92 TRANS ACTIONS, THE SHARES WERE HELD FOR MORE THEN THREE MONTHS AND OUT OF THESE TR ANSACTIONS, 96% OF THE CAPITAL GAIN HAVE ARISEN TO THE ASSESSEE. IN THE WH OLE YEAR, THE ASSESSEE HAS CARRIED OUT ONLY 92 TRANSACTIONS WHICH WERE DONE FO R THE PERIOD OF 28 DAYS IN THE WHOLE YEAR. HE REFERRED TO THE DETAILS FOR THE PERIOD OF HOLDING AS GIVEN AT PAGE11 AND 12 OF THE PAPER BOOK AND POINTED OUT THAT MAJORITY OF THE SHARES WERE HELD FOR MORE THAN A PERIOD OF THREE MO NTHS AND IN SOME OF THE CASES MORE THAN 200 DAYS. HE ALSO DREW OUR ATTENTIO N TO THE PERCENTAGE OF GAIN SHOWN IN THE SHORT TERM CAPITAL GAIN WITH REGA RD TO THE NUMBER OF DAYS OF HOLDING OF SHARES WHICH WERE GIVEN AS UNDER: MR. BIPIN RAM CHAINANI 5 PERIOD OF HOLDING NO. OF TRANSACTIONS ON SALE OF SHORT TERM CAPITAL GAIN SHARES SHORT TERM CAPITAL GAIN EARNED ON SUCH TRANSACTIONS % OF SHORT TERM CAPITAL GAIN IN SUCH TRANSACTIONS TO (%) 010 DAYS 1 8.373 1.38 1130 DAYS 9 46,142 7.62 3160 DAYS 16 9,273 1.53 6190 DAYS 12 72,042 11.90 91180 DAYS 39 359,340 59.35 181365 DAYS 15 221,096 36.52 TOTAL 92 605,436 100 5. THUS, HE SUBMITTED THAT THE ASSESSEES INTENTION WA S OF INVESTMENT ONLY AND THERE WAS NO SUCH FREQUENCY OF TRANSACTION . IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON CATENA OF THE TRIBUN AL DECISION. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER A S WELL AS THE LEARNED COMMISSIONER (APPEALS). 7. WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE REL EVANT FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE ISSUE OF ASSESSAB ILITY OF INCOME IN THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES, WHETHE R TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN OR UNDER THE HEAD BUSINESS INCOME HAS BEEN SUBJECT MATTER OF CONSIDERATION BEFORE VARIOUS COUR TS. THERE IS THIN LINE DEMARCATION BETWEEN THE ACTIVITIES OF SUCH KIND WHI CH CAN BE CONSIDERED PURELY FOR INVESTMENT PURPOSE OR FOR TRADING PURPOS E. THE GUIDING PARAMETERS LIKE VOLUME AND FREQUENCY OF TRANSACTION S, HOLDING PERIOD OF SHARES, INTENTION OF THE ASSESSEE, TREATMENT GIVEN IN THE BOOKS OF ACCOUNT AND HOST OF OTHER FACTORS THAT ARE VERY RELEVANT FO R SUCH TRANSACTIONS WHETHER THEY ARE FOR INVESTMENT PURPOSE OR FOR TRAD ING PURPOSE. HOWEVER, MR. BIPIN RAM CHAINANI 6 THESE PARAMETERS MAY BREAK DOWN IN CERTAIN CASES AN D THERE CANNOT BE ALL EMBRACING FORMULA OR GUIDELINE TO THESE KINDS OF TR ANSACTIONS. IN THE PAST DECADE, IT HAS BEEN QUITE PHENOMENA THAT MANY PEOPL E HAD INVESTED IN EQUITY SHARES AND MUTUAL FUNDS TO AUGMENT WEALTH HE ALTH AND MAXIMIZE THEIR INVESTMENT WITHIN SHORT PERIOD. TO JUDGE THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES ONE HAS TO ADOPT THE PRAGMATIC A PPROACH LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND KEEPING IN MIND THE INTENTION OF THE ASSESSEE AND THE WHOLE GAMUT OF TRANSACTIONS, WHETH ER IT IS FOR COMMERCIAL CONSIDERATION OR NOT. IF WE ANALYSE THE FACTS OF TH E PRESENT CASE, IT IS SEEN THAT THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF PARTNERSHIP FIRM WHEREIN, HE IS A WHOLE TIME PARTNER. FOR THE PURCHA SE OF SHARES, HE HAS NOT BORROWED ANY FUNDS AND HAS USED HIS OWN FUND FROM W HICH IS EVIDENT FROM THE CAPITAL ACCOUNT. FURTHER, RIGHT FROM THE EARLIE R YEARS, HE HAS SHOWN THESE SHARES AS INVESTMENT IN THE BALANCE SHEET WHICH HAV E BEEN ACCEPTED BY THE DEPARTMENT ALSO. THE GAIN FROM SUCH INVESTMENTS HAS ALSO BEEN ASSESSED AS CAPITAL GAIN, EVEN THOUGH SUCH ASSESSMENTS HAVE BEE N COMPLETED UNDER SECTION 143(1) BUT THE SAME HAVE NOT BEEN DISTURBED . FROM THESE FACTS, IT CAN BE GATHERED THAT THE ASSESSEES INTENTION IN TH E PURCHASE OF SHARES WAS MOSTLY FOR INVESTMENT PURPOSE AND TO HAVE MAXIMUM G AIN. FROM THE DETAILS OF PURCHASE AND SALE OF SHARES, IT IS SEEN THAT THE MAXIMUM GAIN HAS BEEN ON THOSE SHARES, WHICH HAVE BEEN HELD FOR PERIOD OF 91 TO 180 DAYS AND 181 TO 365 DAYS, WHICH IS EVIDENT FROM THE CHART REPROD UCED HEREIN ABOVE. IF ALL THESE FACTORS ARE CONSIDERED IN TOTALITY, IT CANNOT BE HELD THAT THE ASSESSEE WAS ENGAGED IN ORGANIZED AND SYSTEMATIC ACTIVITY OF TRADING OF SHARES. IT HAS ALSO BEEN SUBMITTED BEFORE US THAT IN CASE OF LONG TERM CAPITAL GAIN TRANSACTIONS OF THE SHARES HAVE BEEN ACCEPTED BY TH E ASSESSING OFFICER. THUS, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE , WE HOLD THAT THE LEARNED COMMISSIONER (APPEALS) WAS NOT CORRECT IN H OLDING THAT THE ASSESSEE WAS CARRYING OUT THE BUSINESS OF PURCHASE AND SALE OF SHARES FOR THE MOTIVE OF BUSINESS PROFIT. EVEN IN CASE OF PURCHASE OF SHA RES FOR THE PURPOSE OF MR. BIPIN RAM CHAINANI 7 INVESTMENT, MOTIVE IS ONLY MAXIMIZING GAIN ONLY. TH EREFORE, THIS DISTINCTION CANNOT PERSE BE HELD TO BE OF MUCH RELEVANCE WHILE JUDGING THE TRANSACTION OF SHARES. THUS, WE HOLD THAT INCOME FROM PURCHASE AND SALE OF SHARES IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS INCOME AND ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER P ASSED BY THE LEARNED CIT(A) AND TREAT THE GROUND RAISED BY THE A SSESSEE AS ALLOWED. 8. 1 #6 &) *1# !# 7 ) # 89 : 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. $ 2 4+ ; <)6 18 TH SEPTEMBER 2013 2 = : ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER 2013 SD/- SANJAY ARORA ACCOUNTANT MEMBER SD/- '# '# '# '# $% $% $% $% & & & & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, <) <) <) <) DATED: 18 TH SEPTEMBER 2013 $ 2 .&#'> ?>+# / COPY OF THE ORDER FORWARDED TO : (1) &) *1# / THE ASSESSEE; (2) ! / THE REVENUE; (3) @ () / THE CIT(A); (4) @ / THE CIT, MUMBAI CITY CONCERNED; (5) >!C= .&#&) , , / THE DR, ITAT, MUMBAI; (6) =D* E / GUARD FILE. /># .&# / TRUE COPY $) / BY ORDER . . FG / PRADEEP J. CHOWDHURY !1H &) F! / SR. PRIVATE SECRETARY I / 8 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI