VIPUL A SHAH, MUMBAI V. ACIT 13(3), MUMBAI

ITA 869/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9326 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 09-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Keywords: Business income; Speculation loss
• Section: 143(3); 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . !'#$ , % &' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO. 869/MUM/2012 ( ( ( ( ( / ASSESSMENT YEAR :2008-09 SHRI VIPUL A SHAH, 301, PADMA PRIYA APARTMENT ABOVE PNB BANK , 42-A PRESIDENCY SOCIETY, N.S. ROAD, JVPD SCHEME, VILE PARLE (W), MUMBAI-400 049 / VS. THE ACIT 25(3), C-11 BLDG., 3 RD FLOOR, BANDRA KURLA COMPLEX, MUMBAI-400 051 ') % ./ *+ ./PAN/GIR NO. : ABAPS 8115K ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY: SHRI PARESH SHAPARIA - .), 0 / / RESPONDENT BY : SHRI OMPRAKASH MEENA 0 12% / DATE OF HEARING : 20.11.2012 34( 0 12% / DATE OF PRONOUNCEMENT : 23.11.2012 &5 / O R D E R PER N.K. BILLAIYA, AM: WITH THIS APPEAL THE ASSESSEE HAS CHALLENGED THE CO RRECTNESS OF THE ORDER OF THE LD. CIT(A)-35, MUMBAI DT.20.12.2011 PERTAINING TO A.Y. 2008-09. 2. THE ASSESSEE HAS SHOWN ITS GRIEVANCE BY BIFURCAT ING GROUNDS IN TWO PARTS. FIRST PART RELATES TO THE TREATMENT OF LON G TERM CAPITAL GAINS ON SALE OF SHARES OF RS. 2,71,04,678/- AS BUSINESS INC OME AND SECOND PART ITA NO. 869/MUM/2012 2 RELATES TO THE TREATMENT OF SHORT TERM CAPITAL GAIN S ON SALE OF SHARES OF RS. 60,40,698/- AS BUSINESS INCOME. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT FO R THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN DECLARING TOTAL INCOME AT RS. 82,84,520/-. THE SAME WAS SELECTED FOR SCRUTINY AS SESSMENT AND ACCORDINGLY NOTICES U/S. 142(1) AND 143(2) WERE ISS UED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF THESE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT IN THE RETURN O F INCOME. ASSESSEE HAS DECLARED INCOME FROM BUSINESS AND PROFESSION AT RS. (-7,41,125/-) INCOME FROM CAPITAL GAINS AT RS. 69,34,401/- AND IN COME FROM OTHER SOURCES AT RS. 20,89,279/-. THE ASSESSEE HAS ALSO SHOWN SPECULATION LOSS AT RS. 1965/-. ON FURTHER SCRUTINY, THE ASSESSING OFFICER FOUND THAT ON A TOTAL TRANSACTION IN 48 SCRIPS, THE ASSESSEE HAS SH OWN LONG TERM CAPITAL GAINS FROM SALE OF SHARES AT RS. 2,74,19,944/- AND ON 21 SCRIPS, SHORT TERM CAPITAL GAIN ON SALE OF SHARES HAVE BEEN SHOWN AT RS. 60,40,898/-. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS BEEN EN GAGED IN BUYING AND SELLING OF SHARES ON A REGULAR BASIS. ACCORDING TO THE AO, THE ASSESSEE HAS DONE ALL POSSIBLE TRANSACTIONS PERMITTED ON THE STO CK EXCHANGE VIZ, INTRADAY TRADING, REGULAR DELIVERY BASED TRANSACTIO N AND FNO. THE AO WAS OF THE OPINION THAT BEING ENGAGED IN REGULAR AC TIVITY OF BUYING AND SELLING OF SHARES MERE CLASSIFYING THESE SHARES AS INVESTMENT IN THE BALANCE-SHEET WOULD NOT CHANGE THE NATURE OF THE AS SETS. ON FORMING THIS BELIEF, THE ASSESSEE WAS ASKED TO SHOW-CAUSE AS TO WHY THE INCOME ON SHARE TRANSACTIONS SHOULD NOT BE TREATED AS BUSINES S INCOME. THE ASSESSEE FILED A DETAILED REPLY VIDE LETTER DT. 25.10.2010. THE AO CONSIDERED THE REPLY FILED BY THE ASSESSEE BUT DID NOT ACCEPT THE SAME FOR THE FOLLOWING REASONS: ITA NO. 869/MUM/2012 3 A) TREATMENT OF THE TRANSACTIONS BY THE ASSESSEE IN HI S ACCOUNTS AS INVESTMENT CANNOT BE ACCEPTED AS IT IS WELL ESTABLI SHED LAW THAT MERE ENTRIES IN THE BOOKS OF ACCOUNT SHOWING SHARES AS INVESTMENT IS NOT DETERMINATIVE FACTOR TO DECIDE RE AL NATURE OF TRANSACTION. B) THE AO ALSO REJECTED THE CLAIM OF THE ASSESSEE THAT ALL THE SHARES HAVE BEEN SUBJECTED TO S.T.T. AND THE SAME H AS NOT BEEN CLAIMED AS REBATE U/S. 88E OF THE ACT. 4. THE AO THEREAFTER DISCUSSED SEVERAL JUDICIAL DEC ISIONS AND ALSO CBDT INSTRUCTION NO. 1827 DT. 31.8.1989. THE AO FIN ALLY COMPLETED THE ASSESSMENT BY TREATING CAPITAL GAINS BOTH SHORT TER M AND LONG TERM AS INCOME FROM BUSINESS. 5. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) CONFIRMED THE FINDINGS OF THE AO HOLDING THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON HAS ENTERED INTO NUMEROUS TRANSACTIONS OF PURCHASE/SALE OF SHARES OF NUMEROUS COMPANIES. THE MAXIMUM HOLDING PERIOD WAS VERY SHORT. THE LD. CIT(A) WAS OF THE OPINION THAT VOLUME AND FREQUENCY OF PURCHASE AND S ALE OF THE TRANSACTIONS WAS IN LARGE NUMBERS. PURCHASE AND SA LE OF SHARES WAS THE ONLY ACTIVITY OF THE ASSESSEE. THE TRANSACTIONS WE RE CONTINUOUS AND REGULAR BESIDES BEING SYSTEMATIC. 6. AGGRIEVED BY THE FINDING OF THE LD. CIT(A), ASSE SSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITT ED THAT THE LD. CIT(A) HAS FELL INTO GROSS FACTUAL ERRORS. POINTI NG OUT TO PAGE 39 CLAUSE (XI) OF THE CIT(A)S ORDER, THE COUNSEL POINTED OUT THAT THE CIT(A) HAS ITA NO. 869/MUM/2012 4 HELD THAT FURTHER, IF SOMETHING IS ACCEPTED IN ANY OF THE E ARLIER YEARS U/S. 143(1), THAT WILL NOT AMOUNT TO ACCEPTANCE BY THE DEPARTMENT REGARDING HOLDING OF STOCK IN TRADE OR INVESTMENT. . OBJECTING TO THIS OBSERVATION OF THE LD. CIT(A), THE COUNSEL SUBMITTE D THAT THE CASE OF THE ASSESSEE HAVE BEEN SCRUTINIZED SINCE 2005-06 AND AL L THE ASSESSMENTS THEREAFTER TILL DATE HAVE BEEN COMPLETED U/S. 143(3 ) OF THE ACT. THE COUNSEL FURTHER POINTED OUT THAT IN THE ASSESSMENT YEAR 2005-06, THE LONG TERM CAPITAL GAINS DECLARED BY THE ASSESSEE HAS BEE N ACCEPTED AS SAME BY THE AO, THOUGH SHORT TERM CAPITAL GAINS HAS BEEN TREATED AS BUSINESS INCOME BY THE AO WHICH WAS CONFIRMED BY THE LD. CIT (A). HOWEVER, THE ITAT REVERSED THE FINDINGS OF THE LD. CIT(A) AN D DIRECTED THE AO TO TREAT SHORT TERM CAPITAL GAINS AS SUCH. THE COUNSE L FURTHER POINTED OUT THAT IN THE ASSESSMENT YEAR 2006-07, BOTH SHORT TER M AND LONG TERM CAPITAL GAINS HAS BEEN TREATED AS BUSINESS INCOME B Y THE AO WHICH WAS REVERSED BY THE LD. CIT(A) AND THE FINDING OF THE C IT(A) HAVE BEEN CONFIRMED BY THE TRIBUNAL. THE COUNSEL FURTHER S UBMITTED THAT CONSIDERING THE PAST HISTORY OF THE ASSESSEE AND TH E ORDERS OF THE TRIBUNAL, THERE BEING NO NEW FACTS FOR THE YEAR UNDER CONSIDE RATION, THE FINDING OF THE CIT(A) DESERVES TO BE REVERSED. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO HAVE THE B ENEFIT OF THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMEN T YEAR 2005-06 VIDE ITA NO. 534/MUM/2004 AND FOR A.Y. 2006-07 VIDE ITA NO. 882/MUM/2010. ON PERUSAL OF THE STATEMENT OF LONG TERM CAPITAL GAIN ITA NO. 869/MUM/2012 5 EXHIBITED AT PAGE-3 OF THE PAPER BOOK, WE FIND THAT THE ASSESSEE HAS DONE FOLLOWING TRANSACTIONS: A.Y. 2006-07 U/S. 143(3) S. NO. HOLDING PERIOD LONG TERM GAIN(RS.) NOS. OF SCRIPTS 1 1-2 YEARS 28,58,473/- 2 2. 2-5 YEARS 1,45,59,782/- 21 3. 5-10 YEARS 99,95,801/- 27 4. 10 OR MORE 1,67,123/- 10 TOTAL 2,75,81,179 60 A.Y. 2005-06 U/S. 143(3) S. NO. HOLDING PERIOD LONG TERM GAIN(RS.) NOS. OF SCRIPTS 1 1-2 YEARS 35,20,327/- 11 2. 2-5 YEARS 35,24,418/- 14 3. 5-10 YEARS 84,79,577/- 24 4. 10 OR MORE 4,99,450/- 7 TOTAL 1,60,23,772/- 56 AS COMPARED TO THE ABOVE FIGURES FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DONE THE FOLLOWING TRANSACTIONS: A.Y. 2008-09 U/S. 143(3) S. NO. HOLDING PERIOD LONG TERM GAIN(RS.) NOS. OF SCRIPTS 1 1-2 YEARS 1,14,44,923/- 14 2. 2-5 YEARS 1,11,47,935/- 7 3. 5-10 YEARS 48,01,498/- 12 4. 10 OR MORE 25,589/- 2 TOTAL 2,74,19,944/- 35 ITA NO. 869/MUM/2012 6 SIMILARLY COMPARISON OF SHORT TERM CAPITAL GAIN CA N BE SEEN AS UNDER: A.Y. 2006-07 U/S. 143(3) S. NO. HOLDING PERIOD SHORT TERM GAIN(RS.) NOS. OF SCRIPTS 1 0-30 DAYS 21,55,821/- 12 2. 31-90 DAYS 24,92,433/- 11 3. 91-180 DAYS 49,52,509/- 6 4. 181-270 DAYS 7,38,740/- 5 5. 271-360 DAYS 25,27,724/- 4 TOTAL 1,28,67,227/- 38 A.Y. 2005-06 U/S. 143(3) S. NO. HOLDING PERIOD SHORT TERM GAIN(RS.) NOS. OF SCRIPTS 1 0-30 DAYS 1,99,715/- 7 2. 31-90 DAYS 19,10,512/- 15 3. 91-180 DAYS (64,929) 3 4. 181-270 DAYS 5,05,073/- 6 5. 271-360 DAYS - NA TOTAL 26,36,439/- 31 AS COMPARED TO THE ABOVE FIGURES FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DONE THE FOLLOWING TRANSACTIONS: A.Y. 2008-09 U/S. 143(3) S. NO. HOLDING PERIOD SHORT TERM GAIN(RS.) NOS. OF SCRIPTS 1 0-30 DAYS 55,11,569/- 3 2. 31-90 DAYS (8,13,350) 4 3. 91-180 DAYS (11,82,921/-) 4 ITA NO. 869/MUM/2012 7 4. 181-270 DAYS 27,11,864/- 6 5. 271-360 DAYS (1,86,464) 4 TOTAL 60,40,698/- 21 9. A COMPARATIVE ANALYSIS OF LTCG SHOWS THAT DURING THE A.YRS. 2005-06 AND 2006-07, THE ASSESSEE HAS TRANSACTED IN TOTAL 56 AND 60 SCRIPTS RESPECTIVELY WHEREAS FOR THE YEAR UNDER CON SIDERATION, THE ASSESSEE HAS TRANSACTED IN 35 SCRIPTS. THE POSITION OF STCG FOR A.Y. 2005-06 AND 2006-07 WAS 31 AND 38 SCRIPTS RESPECTIVELY AND FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS TRANSACTED IN 21 SC RIPTS ONLY. THEREFORE, CONSIDERING THE ABOVE FACTUAL MATRIX, WE DO NOT FIN D ANY FORCE IN THE OBSERVATION OF THE LD. CIT(A) THAT THE ASSESSEE IS INDULGED IN NUMEROUS TRANSACTIONS WHICH RESULTED INTO LARGE VOLUME AND F REQUENCY. 10. AS MENTIONED EARLIER, THE TRIBUNAL IN ASSESSEE S OWN CASE IN A.Y. 2005-06 IN ITA NO. 534 HAS HELD AT PAGE-10 OF THE O RDER THAT KEEPING IN VIEW OF THE NUMBER OF TRANSACTIONS GIVING RISE TO T HE EARNING SHORT TERM CAPITAL GAIN AND NUMBER OF SCRIPTS AS WELL AS THE A MOUNT OF INVESTMENT, THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES GIV ING RISE TO SHORT TERM CAPITAL GAIN CANNOT BE TREATED AS TRADING IN SHARES AND CONSEQUENTLY BUSINESS INCOME WHEN THE ASSESSEE IS MAINTAINING THE SEPARATE PORTF OLIO. THE CASE OF THE ASSESSEE IS ALSO COVERED BY VARIOUS DECISIONS AS RELIED UPON BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE TH E ORDER OF THE LD. CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 11. SIMILARLY FOR THE ASSESSMENT YEAR 2006-07, THE TRIBUNAL IN ITA NO. 882/M/2010 (SUPRA) HAS HELD AS FOLLOWS: ITA NO. 869/MUM/2012 8 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIV AL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE NATURE OF INCOME FROM SALE AND PURCHASE OF SHARES BY THE ASSE SSEE. THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN O R AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CON FLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE PRESE NT CASE, THE ASSESSEE HAD HELD THE MAJORITY OF SHARES FOR A VERY LONG TIME, VARYING FROM MORE THAN 1 YEAR TO 10 YEARS. THE INCO ME IS MOSTLY FROM LONG TERM HOLDING OF SHARES. IN SOME CASES, SH ARES HAVE ALSO BEEN SOLD AT SHORT INTERVALS OF LESS THAN 1 YE AR, RESULTING INTO SHORT TERM CAPITAL GAIN AND EVEN IN SUCH CASES, MOS TLY THE SHARES WERE HELD FOR MORE THAN 90 DAYS. IT IS POSSI BLE FOR AN INVESTOR TO SELL SHARES AFTER HOLDING FOR LESS THAN A YEAR IN ORDER TO RESHUFFLE PORTFOLIO, ETC. IN A SIMILAR SITUATION , THE TRIBUNAL IN ASSESSMENT YEAR 2005-06 IN ITA NO.534/MUM/2009 ACCE PTED THE CLAIM OF THE ASSESSEE AS AN INVESTOR. IN THAT Y EAR, THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAIN OF `. 1,60,23,772/- AND SHORT TERM CAPITAL GAIN OF `. 26,36,004/-. THE ASSESSEE HAD ALSO SHOWN SMALL INCOME FROM TRADING, FOR WHICH SEP ARATE ACCOUNTS HAD BEEN MAINTAINED. FURTHER, IN THE ASSES SMENT YEARS 2002-03 AND 2004-05, THE AO HIMSELF ACCEPTED THE SI MILAR INCOME DECLARED BY THE ASSESSEE AS CAPITAL GAIN. TH E CAPITAL GAIN DECLARED BY THE ASSESSEE WAS AGAIN ACCEPTED BY THE AO FOR THE ASSESSMENT YEAR 2007-08 U/S.143(3). CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, IT WILL NOT BE APPROPRIATE TO ASSESS THE INCOME DECLARED BY THE AS SESSEE FROM SALE AND PURCHASE OF SHARES AS BUSINESS INCOME. WE SEE NO INFIRMITY IN THE ORDER OF THE CIT(A) ACCEPTING THE CLAIM OF THE ASSESSEE PARTICULARLY, WHEN THE SIMILAR CLAIM HAD B EEN ACCEPTED BY THE TRIBUNAL IN ASSESSMENT YEAR 2005-06 AND DEPA RTMENT HAD ALSO ACCEPTED THE CLAIM IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEAR. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS, THEREFORE, UPHELD. 12. CONSIDERING THE FACTUAL MATRIX FOR THE YEAR UND ER CONSIDERATION, VIS--VIS A.Y. 2005-06 AND 2006-07, WE DO NOT FIND ANY MAJOR DIFFERENCE, THEREFORE WE DO NOT FIND ANY REASON TO DIVULGE WITH THE FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS. 2005-06 AND 2006-07. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), FACTS AND CIRCUMSTANCES BEING THE SAME FOR THE YEAR UNDER CON SIDERATION, WE DIRECT THE AO TO TREAT LONG TERM CAPITAL GAIN ON SALE OF S HARES AT RS. ITA NO. 869/MUM/2012 9 2,71,04,678/- AND TO TREAT SHORT TERM CAPITAL GAINS ON SALE OF SHARES AT RS. 60,40,698/-. FINDING OF THE LD. CIT(A) ARE ACC ORDINGLY REVERSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 6 17 61 0 8 '91 0 *1 :# ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER, 2012. &5 0 4( % 8 ;&7 4 0 < SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA) /PRESIDENT % &' / ACCOUNTANT MEMBER MUMBAI; ;& DATED 23.11.2012 . . ./ RJ , SR. PS &5 &5 &5 &5 0 00 0 -1! -1! -1! -1! =!(1 =!(1 =!(1 =!(1 / COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. !?< -1 , , / DR, ITAT, MUMBAI 6. <@ / GUARD FILE. &5 &5 &5 &5 / BY ORDER, .!1 -1 //TRUE COPY// A AA A / : : : : * * * * (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI