DCIT 13(2), MUMBAI V. AMISHA D. MEHTA, MUMBAI

ITA 86/MUM/2011

• Counselvise Citation: 8619914 RSA 2011
• Duration Of Justice: 3 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SENT H IL KUMARAN
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Business income; Salary income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & VIVEK VARMA , J M ITA NO. 86 / MUM/20 1 1 ( ASSESSMENT YEAR : 2006 - 07 ) DCIT 13(2), MUMBAI - 20 VS. SMT. AMISHA D. MEHTA, 1401, RAHEJA CENTRE, NARIMAN POINT, MUMBAI - 400 021 PAN/GIR NO. : A G GPM 3034 L ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. S.SENTHIL KUMARAN /ASSESSEE BY : MR. VIJAY MEHTA DATE OF HEARING : 10 TH JUNE , 201 4 DATE OF PRONOUNCEMENT : 2 ND JULY , 201 4 O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER CIT(A) DATED 18 - 10 - 2010, IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE I.T. ACT, FOR THE ASSESSMENT YEAR 2006 - 07 . 2 . THE ONLY GRIEVANCE OF REVENUE RELATES TO CIT(A )S ACTION IN DIRECTING THE AO TO TREAT INCOME OF RS. 19,03, 224/ - ON SALE OF SHARES AS SHORT TERM CAPITAL GAINS AS AGAINST BUSINESS INCOME TREATED BY THE AO. 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FROM THE RECORD, WE FOUND THAT ASSESSEE FI LED HER RETURN OF INCOME SHOWING INCOME FROM SALARY, BUSINESS SHORT TERM CAPITAL GAIN AND OTHER SOURCES. SHORT TERM CAPITAL GAIN ON SALE OF SHARES WAS SHOWN AT RS. 19,03,224/ - ITA NO. 86 /11 2 AS TABULATED IN THE ENCLOSED CHART. THE AO WHILE FINALIZING THE ASSESSMENT, HAS CONSIDERED THE SAID SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. THE RELEVANT PARA NO.5 AND 6 OF THE ASSESSMENT ORDER IS REPRODUCED HEREIN BELOW : '5. THE ASSESSEE APPLIED 34,6 9,9 50 EQUITY SHARES OF GATEWAY DISTRIPARKS LTD. IN THE LPO. THE APPLICATION MONEY OF RS. 24,98,40,000/ - WAS PAID OUT OF MONEY BORROWED FROM LL & F5, ON WHICH THE ASSESSEE PAID SERVICE FEES OF RS. 20,4/;300/ - . THE MARGIN MONEY FOR AVAILING CREDIT FACILITIES FROM LL & FS WAS PROVIDED BY SHRI JITENDRA MEHTA (28,000 SHARES OF ESSAR STEELS LTD. ) AN D AMGIS HOLDINGS PVT. LTD. (24, 400 SHARES OF TATA STEELS LTD.). SHE WAS ALLOTTED 71,415 SHARES @RS. 72/ - PER SHARE ON 25.3.2005. WHILE THE APPLICATION AND ALLOTMENT MONEY PAID TO THE COMPANY AMOUNTED TO RS. 51,41,880/ - , A SUM OF RS. 20,83,222/ - BE ING FINANCE COST WAS CAPITALIZED. THESE SHARES WERE SOLD ON 19.4.2005 AND 20.4.2005 FOR A CONSIDERATION OF RS. 8 7, 75,694/ - . THE ABOVE FACTS MAKE IT VERY CLEAR THAT : A) THE SHARES WERE ACQUIRED OUT OF BORROWED FUNDS. B) THE MARGIN MONEY FOR AVA ILING LO AN FROM II & FS WAS PROVIDED BY SHRI JITENDRA MEHTA. AND AMGIS HOLDINGS PVT LTD. BY PLEDGE OF THEIR SHARES. C) THE ASSESSEE INCURRED HUGE FINANCE COST OF RS. 20,83,222/ - . D) THE SHARES WERE SOLD IN A VERY SHORT TIME T. E LESS THAN 26 DAYS AND E) NO DIVIDEND WAS RECEIVED BY THE ASSESSEE.' '6. DURING THE YEAR ; THE ASSESSEE, ACQUIRED 2,5 0, 000 SHARES OF ESSAR STEEL LTD. AT A COST OF RS. 1,2 7,49,994/ - ON 3.7.2005 OUT OF FUNDS BORROWED FROM M/S SJ IM PEX. THESE SHARES WERE SOLD WITHIN A PERIOD OF 2 DAYS I.E 07 . 07 . 2005 AND 08.07 . 2005, RESULTING IN PROFIT OF RS.3,59,639/ - . THE ABOVE FACTS MAKES IT VERY CLEAR THAT: A) THE SHARES WERE ACQUIRED OUT OF BORROWED FUNDS. B) THESE SHARES WERE SOLD BEFORE THE DELIVERY WAS RECEIVED FROM THE BROKER AS A DMITTED B Y THE ASSESSEE'S REPRESENTATIVE IN PARA 5 OF THEIR LETTER DATED 13.11.2008. C) THE SHARES WERE SOLD WITHIN 2 DAYS. D) NO DIVIDEND WAS RECEIVED BY THE ASSES SEE. ITA NO. 86 /11 3 4 . BY THE IMPUGNED ORDER, AFTER CONSIDERING EACH AND EVERY OBJECTION OF THE AO, THE CIT(A) DIRECTED THE AO TO TREAT THE INCOME OFFERED BY THE ASSESSEE ON SALE OF SHARES AS SHORT TERM CAPITAL GAINS AFTER HAVING THE FOLLOWING OBSERVATIONS : - THUS, LOOKING INTO THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DETAILED SUBMISSIONS O F THE APPELLANT, IT IS CLEAR THAT THE APPELLANT HAD ONLY TWO TRANSACTIONS DURING THE YEAR RELATING TO GATEWAY DISTRIPARKS LTD.,AND ESSAR STEEL LTD., AND THE VOLUME AND FREQUENCY WERE NOT SO SIGNIFICANT AS TO LEAD TO AN ADVERSE INFERENCE THAT THE APPELLANT WAS CARRYING ON BUSINESS BECAUSE AS STATED BY THE APPELLANT IN ORDER TO REDUCE THE LOSS VIS - A - VIS GATEWAY DISTRIPARKS LTD.,AND ESSAR STEEL LTD., THE APPELLANT WAS COMPELLED TO SELL THE SHARES IN A SHORT TIME AND THE FACT THAT AS REGARDS THE SHARES OF .M/S. ESSAR STEEL LTD., THE LD.COUNSEL HAS STATED VERY CLEARLY THAT SHARES WERE TAKEN BY THE BROKER AND WERE LYING IN THE CUSTODY OF THE BROKER - DELIVERY WAS GIVEN BY THE BROKER AND THEREFORE THE AO HAS REACHED A WRONG CONCLUSION THAT THE SHARES WERE SOLD EVEN BEFORE DELIVERY AND THIS FACT HAS LEAD THE AO TO REACH THE CONCLUSION ADVERSE TO THE APPELLANT WHEREAS ON A PROPER APPRAISAL OF THE FACTS AS BROUGHT ON RECORD BY THE APPELLANT, THE SHARES NEED NOT BE TECHNICALLY PRESENT WITH THE APPELLANT INTO TODAYS MARK ET CONDITION BUT THE FACT THAT THE BROKER HAS TAKEN THE DELIVERY AND THEY ARE IN HIS CUSTODY CANNOT BE IGNORED AND AS STATED BY LD.COUNSEL THAT THIS FACT WAS PROVED BY SUBMITTING THE 'DEMAT' ACCOUNT OF THE BROKER TO THE AO. THUS, LOOKING INTO THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ACTION OF THE AO IN TREATING THE SHORT TERM CAPITAL GAIN OF RS. 19,03,224/ - AS BUSINESS INCOME IS NOT UPHELD AND THE SAME IS TAKEN AS SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS SHOWN BY THE APPELLANT. THIS GROUND OF APPEAL IS ALLOWED. 5 . AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 6 . WE HAVE CONSIDERED RIVAL CONTENTION S , CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT THE AO HAS ASSE SSE D THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. IN PARA 5 & 6 OF THE ASSESSMENT ORDER, THE AO HAS DISCUSSED THE FOLLOWING REASON S FOR WHICH THE SHORT TERM GAIN IS ASSESSEE AS BUSINESS INCOME. ITA NO. 86 /11 4 A) THE SHARES WERE ACQUIRED OUT OF BORROWED FUNDS. B) THE MARGIN MONEY FOR AVAILING LOAN FROM I L & FS WAS PROVIDED BY SHRI JITENDRA MEHTA. AND AMGIS HOLDINGS PVT LTD. B Y PLEDGE OF THEIR SHARES. C) THE ASSESSEE INCURRED HUGE FINANCE COST OF RS. 20,83,222/ - . D) THE SHARES WERE SOLD IN A VERY SHORT TIME E) TH E SHARES OF ESSAR STEEL LIMITED WERE SOLD BEFORE THE DELIVERY WAS RECEIVED FROM THE BROKER. F ) NO DIVIDEND WAS RECEIVED BY THE ASSESSEE . 6.1 THE CIT(A) HAS DEALT WITH EACH AND EVERY OBJECTION OF THE AO . WITH REGARD TO THE BORROWED FUNDS, THE CIT(A) FO UND THAT APPLICATION MONEY WAS DIRECTLY PAID BY IL & FS TO GATEWAY DISTRIPARKS LTD, ACCORDINGLY SHARES WERE ALSO ALLOTTED IN THE NAME OF IL & FS ON 25 - 3 - 2005 , WHICH WERE LATER ON TRANSFERRED TO THE DEMAT ACCOUNT OF THE ASSESSEE. FOR PURCHASE OF SHARES OF ESSAR STEEL LIMITED, THE ASSESSEE HAS GOT MONEY FROM M/S S.J. IMPEX, PROPRIETORY CONCERN OF HER FATHER IN LAW. THE ASSESSEE IS HAVING RUNNING ACCOUNT WITH HER FATHER IN LAW. THE ASSESSEE HAS NOT INCURRED ANY BORROWING COST FOR THIS TRANSACTION AS IT WAS OU T OF A RUNNING ACCOUNT. 7 . WITH REGARD TO AOS OBJECTION REGARDING MARGIN MONEY FOR AVAILING LOAN FROM IL&FS, THE CIT(A) FOUND THAT THE PROVIDING MARGIN MONEY IN THE FORM OF SHARES DOES NOT LEAD TO CONCLUSION THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS. WITH REGARD TO AOS OBJECTION REGARDING INCURRING HUGE COST, THE CIT(A) FOUND THAT ASSESSEE HAS ITA NO. 86 /11 5 TAKEN MONEY FROM RUNNING ACCOUNT FROM HER FATHER IN LAW AND IT DOES NOT BORROWED ANY MONEY. WITH REGARD TO THE AOS OBJECTION REGARDING SHARES HAVING BEEN SOLD BEFORE DELIVERY WAS RECEIVED FROM THE BROKER, THE CIT(A) RECORDED A FINDING TO THE EFFECT THAT SHARES WERE LYING WITH THE CUSTODY OF THE BROKER, DELIVERY WAS GIVEN BY THE BROKER, WHICH IS AS PER THE PRESENT MARKET TREND WHERE NO PHYSICAL DELIVERIES ARE T AKEN BY THE ASSESSEE. THE CIT(A) ALSO OBSERVED THAT ASSESSEE WAS HOLDING SHARES OVER THE YEARS AS INVESTMENT AND NOT AS STOCK - IN - TRADE AND ASSESSEE NEVER INTENDED TO HOLD THE SHARES AS STOCK - IN - TRADE. IN THE FULL YEAR, ASSESSEE HAS DEALT WITH ONLY TWO SCRI PS. IT WAS ALSO FOUND THAT IN THE PAST ASSESSMENT YEARS I.E. A.Y.2004 - 05, WHICH WERE FRAMED UNDER SCRUTINY ASSESSMENT I.E. U /S. 143(3) OF THE ACT, ASSESSEES SHORT TERM CAPITAL GAIN UNDER SIMILAR CIRCUMSTANCES WERE ACCEPTED BY THE DEPARTMENT. WE ARE IN AGR EEMENT WITH THE OBSERVATION OF THE AO THAT PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS, HOWEVER, AT THE VERY SAME TIME, IN ORDER TO MAINTAIN CONSISTENCY, IT IS JUDICI ALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR SUBSEQUENT YEARS, UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. IN THE INSTANT CASE, THE CIT(A) HAD APPLIED THE JUDICIAL PRONOUNCEMENTS LAID DOWN IN THE CASE OF JANAK S. RANGWALA VS. ACIT, 11 SOT 627 , WHEREIN ON IDENTICAL FACTS PROFIT ON SALE OF SHARE S WERE TREATED AS SHORT TERM CAPITAL GAIN S . 8 . IN VIEW OF THE FACT THAT DETAILED FINDING RECORDED BY THE CIT(A) IN HIS APPELLATE ORDER HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT BY ITA NO. 86 /11 6 BRINING ANY POSITIVE MATERIAL ON RECORD, WE DO NOT FIND ANY REASON TO IN TERFERE IN THE FINDINGS OF THE CIT(A) RESULTING INTO TREATING THE PROFIT ON SALE OF SHARES AS SHORT TERM CAPITAL GAIN S . 9 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 ND JULY, 201 4 . 2 ND JULY ,2014 SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIA L MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 02 / 07 /2014 /PKM , 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//