DR. RAHUL DOCTOR, MUMBAI V. ASST CIT RG 16(2), MUMBAI

ITA 827/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3532 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 07-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K. BIL LAIYA, AM ./I.T.A. NO. 827/MUM/2012 ( / ASSESSMENT YEAR : 2008-09 DR. RAHUL DOCTOR, 62, CHITRAKOOT, ALTAMOUNT ROAD, MUMBAI-400 026 THE ACIT, RANGE-16(2), MUMBAI ./ !' ./PAN/GIR NO. : ( # /APPELLANT ) .. ( $%# / RESPONDENT ) # & / APPELLANT BY : ` SHRI DHARMESH SHAH $%# ' & /RESPONDENT BY : SHRI GIRIJA DAYAL ' ( / DATE OF HEARING :06.06.2013 )* ' ( / DATE OF PRONOUNCEMENT :12.06.2013 +, / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-27, MUMBAI DT.14.12.2011 PERTAINING TO A.Y. 2010-11. 2. THE ASSESSEE HAS RAISED FOUR SUBSTANTIVE GROUNDS OF APPEAL AND ONE ADDITIONAL GROUND. GROUND NO. 1 & 2 RELATE TO THE TREATMENT OF SHORT TERM CAPITAL GAIN ON SALE OF SHARES AND SECURITIES UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. GROUND NO. 3 & 4 ARE ALTERNATIVE PLEA AND ITA NO. 827/M/2012 2 SO ALSO THE ADDITIONAL GROUND DEPENDING UPON THE OU TCOME OF THE DECISION IN GROUND NOS. 1 & 2. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE SHOWN SALARY INCO ME FROM RP SECURITIES PVT. LTD., INCOME FROM PROFESSION, CAPITAL GAINS IN SHARES AND SECURITIES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS SHOWN STCG OF RS. 83,15,790/-, LTCG OF RS. 38,88,313/- IN ADDITION TO OTHER INCOME. THE AO SOUGHT CLARIFICATION FROM THE ASSESSEE AS TO WHY THE ASSESSEES SHARE TRANSACTION ACTIVITIES SHOULD NOT BE TREATED AS BUS INESS ACTIVITY INSTEAD OF BEING AN INVESTMENT ACTIVITY AS CLAIMED BY THE ASSE SSEE. 3.1. THE ASSESSEE SUBMITTED A DETAILED REPLY ON 26. 10.2010. IT WAS CONTENDED THAT THE ASSESSEE IS A DOCTOR AND IS FULL Y OCCUPIED IN PRACTICING HIS PROFESSION. AS A RESULT OF HIS FULL TIME OCCUP ATION, THE ASSESSEE IS HARDLY LEFT WITH ANY TIME TO MONITOR THE MOVEMENT I N THE SHARE MARKET. IT WAS EXPLAINED THE DEPLOYMENT OF FUNDS IN THE SHARES IS, THEREFORE ONLY WITH THE OBJECTIVE OF INVESTMENTS AND NOT TRADING I N SHARES. THE ASSESSEE RELIED UPON CERTAIN JUDICIAL DECISIONS IN SUPPORT O F HIS CLAIM THAT HE IS AN INVESTOR AND NOT A TRADE. THE REPLY OF THE ASSESSE E WAS CONSIDERED BY THE AO BUT THE AO DID NOT AGREE WITH THE SUBMISSIONS MA DE BY THE ASSESSEE. THE AO WENT ON TO DISCUSS CERTAIN JUDICIAL DECISION S AS DISCUSSED BY HIM AT PARA 3.1. OF HIS ORDER AND WAS OF THE FIRM BELIE F THAT THE HOLDING PERIOD CLEARLY SHOWN THAT THE ASSESSEE WAS TRADING IN SHAR ES AS THE AVERAGE HOLDING PERIOD WAS 42 DAYS ONLY. THE AO FINALLY CO NCLUDED THAT INCOME FROM STCG AS SHOWN BY THE ASSESSEE IS TO BE TAXED U NDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND ACCORDINGL Y TREATED THE ENTIRE STCG OF RS. 83,15,790/- AS INCOME FROM BUSINESS. ITA NO. 827/M/2012 3 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND REITERATED WHAT HAS BEEN STATED BEFORE THE AO. AF TER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS CARRIED OUT TRANSACTION IN SHARES ON 204 DAYS OUT O F 250 WORKING DAYS OF STOCK EXCHANGE. THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAS DONE REPETITIVE TRANSACTIONS IN THE SAME SCRIPS DUR ING THE YEAR AND AGREED WITH THE FINDINGS OF THE AO THAT THE ASSESSEE HAS C ARRIED OUT TRANSACTION IN SHARES IN A BUSINESS LIKE MANNER. 5. AGGRIEVED BY THIS FINDING OF LD. CIT(A), THE ASS ESSEE IS BEFORE US. 6. BEFORE US, THE LD. COUNSEL FOR THE SUBMITTED THA T THE ASSESSEE IS A FULL TIME DOCTOR AND IS ENGAGED IN HIS PROFESSION E XTENSIVELY. THEREFORE, HE HAS NO TIME TO INDULGE IN TRADING ACTIVITIES IN THE STOCK MARKET. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN THE PAST YEARS ALSO THE ASSESSEE HAD SHOWN PURCHASE OF SHARES AS INVEST MENT WHICH HAS BEEN ACCEPTED BY THE REVENUE AUTHORITIES. THE LD. COUNS EL STRONGLY SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE TOTAL NO. OF PURCHASE TRANSACTIONS WERE 109, NO. OF SCRIPS WHOSE SHARES A RE ACQUIRED WERE 133, NO. OF SALE TRANSACTIONS WERE 343 AND NO. OF SCRIP S WHOSE SHARE ARE SOLD WERE 150. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED A CHART SHOWING THAT DURING THE YEAR UNDER CONSIDERATION, T HE ASSESSEE WAS OUT OF MUMBAI FOR 148 DAYS TO ATTEND VARIOUS MEDICAL CONF ERENCES. IT IS THE SAY OF THE COUNSEL THAT BEING A MEDICAL PRACTITIONER, T HE ASSESSEE CANNOT INDULGE IN ANY BUSINESS ACTIVITY. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED A CHART SHOWING NO. OF DAYS IN WHICH THE TRANSACTIONS WERE CARRIED OUT AND SUBMITTED THAT THE ASSESSEE HAS CAR RIED OUT THE TRANSACTION OF 141 DAYS. ITA NO. 827/M/2012 4 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCE BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. THE DISPUTE IS REGARDING T HE NATURE OF INCOME FROM SALE AND PURCHASE OF SHARES BY THE ASSESSEE. T HE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTIC ULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS B EEN A DEBATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUA TION. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A DOCTOR AND IS WHOLE TIME ENGAGED IN HIS PROFESSION. WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE E VIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINC TION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. THESE OBSERVATIONS BY THE HONBLE SUPRE ME COURT IN THE CASE OF CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT CO . (P) LTD. 82 ITR 586 SQUARELY APPLY ON THE FACTS OF THE PRESENT CASE . IT IS NOT IN DISPUTE THAT ALL THE TRANSACTIONS UNDER REFERENCE ENTERED I NTO BY THE ASSESSEE HAVE BEEN SETTLED BY ACTUAL DELIVERY OF SHARES AND THE M ONEY IS ACTUALLY PAID AND RECEIVED IN EACH AND EVERY CASE; WHEREAS IN CAS E OF A TRADER, ORDINARILY, THE TRANSACTIONS ARE SETTLED WITHOUT AC TUAL DELIVERY. THE PURCHASE AND SALE TRANSACTIONS ARE SETTLED ONLY BY WAY OF RECEIPT/PAYMENT OF NET DIFFERENCE. THIS IS NOT THE CASE OF THE ASS ESSEE AS NO SUCH FINDINGS HAVE BEEN GIVEN BY THE AO. ITA NO. 827/M/2012 5 8.1. THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAINS DURING THE YEAR AT RS. 3888,313/- WHICH HAS BEEN ACCEPTED BY THE AO . IF THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE IS ENGAGED IN TRA DING ACTIVITIES IN THE SHARES THEN IT SHOULD NOT MAKE ANY DIFFERENCE IF TH E SHARES ARE HELD MORE THAN 12 MONTHS AND LESS THAN 12 MONTHS. BUT HERE I S A CASE WHERE THE AO HAS ACCEPTED THAT THE ASSESSEE IS AN INVESTOR SO FA R AS LONG TERM CAPITAL GAINS ARE CONCERNED. THE ALLEGATION THAT THE ASSES SEE HAS DONE REPETITIVE TRANSACTIONS CANNOT IPSO-FACTO MAKE THE ASSESSEE A TRADER. IT IS AN ACCEPTED FACT AND PRACTICE THAT IN ORDER TO REDUCE THE RISK OF LOSS OF CAPITAL OR INCOME, THE INVESTOR MAY TRY DIVERSIFY THE INVES TMENT. THEREFORE, THERE MAY BE A CASE OF RESHUFFLING PORTFOLIO BY SELLING O F SOME SCRIPS AND BUYING OF SOME SCRIPS TO MITIGATE THE SCOPE OF LAW OF CAPITAL OR INCOME. THEREFORE, THE RESHUFFLING IN A SHORT PERIOD IS NO T NECESSARILY TO BE TAKEN AS AN ACTIVITY OF TRADING WHEN THE INTENTION WAS TO REDUCE THE RISK OF LOSS OF CAPITAL. A PERUSAL OF THE STATEMENT OF ACCOUNTS SHOW THAT THE ASSESSEE HAS NO BANK BORROWINGS, THE ONLY BORROWINGS ARE FRO M FAMILY MEMBERS AND THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSES SEE DOES NOT REFLECT ANY CLAIM OF INTEREST PAYMENT WHICH MEANS THAT THE ASSESSEE HAS MADE INVESTMENTS NOT OUT OF BORROWED CAPITAL. 8.2. CONSIDERING THE PROFESSION OF THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE WAS FULLY DEVOTED TO THE STOCK MARKET TRANSACTION. CONSIDERING THE NATURE OF PROFESSION AND THE FACTS IN TOTALITY, IN OUR CONSIDERED VIEW, THE LOWER AUTHORITIES HAVE ERRED I N TREATING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. WE ACCORDIN GLY DIRECT THE AO TO TREAT THE STCG AS DECLARED BY THE ASSESSEE. ON THAT NOTE, WE REVERSE THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 & 2 ARE A CCORDINGLY ALLOWED. ITA NO. 827/M/2012 6 9. AS WE HAVE ALLOWED THE APPEAL ON GROUND NO. 1 & 2, GROUND NO. 3 & 4 AND THE ADDITIONAL GROUND RAISED BY THE ASSESSE E BECOME OTIOSE. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.6.2013 . +, ' * - .+/ 12.6.2013 * ' 0 SD/- SD/- (VIJAY PAL RAO ) ( N.K. BILLAIYA ) + /JUDICIAL MEMBER + / ACCOUNTANT MEMBER MUMBAI; .+ DATED 12/06/2013 . . ./ RJ , SR. PS +, +, +, +, ' '' ' $(1 $(1 $(1 $(1 21( 21( 21( 21( / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. 3 ( ) / THE CIT(A)- 4. 3 / CIT 5. 140 $( , , / DR, ITAT, MUMBAI 6. 0 5 / GUARD FILE. +, +, +, +, / BY ORDER, %1( $( //TRUE COPY// 6 66 6 / 7 7 7 7 ! ! ! ! (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI