SANJAY KUMAR H. JHABAK, MUMBAI V. DCIT CIR 4(2), MUMBAI

ITA 8848/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75899 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P R TOPRANI
• Keywords: Business income; Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 8848/MUM/2010 ( / ASSESSMENT YEAR: 2006-07) SANJAY KUMAR JHABAK 1201, SRUSHTI TOWER, NEAR VIP CENTRE, OLD PRABHADEVI ROAD, MUMBAI-400 025 / VS. DY. CIT, CIRCLE 4(2), 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ' ./# ./PAN/GIR NO. AACPJ 4496 M ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI P. R. TOPRANI %&'$ ' ( / RESPONDENT BY : SHRI R. K. SAHU )* + ' , / DATE OF HEARING : 03.03.2014 -./ ' , / DATE OF PRONOUNCEMENT : 14.03.2014 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-8, MUMBAI (CIT(A) FOR SHO RT) DATED 20.09.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2006-07 VIDE ORDER DATED 18.12.2008. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE TREATMENT OF THE INCOME ARISING TO THE ASSESSEE (IN THE SUM OF RS.15,74,397/-) FOR THE PURPOSE OF ITS TAXABILITY UNDER THE 2 ITA NO. 8848/MUM/2010 (A.Y. 2006-07) SANJAY KUMAR JHABAK VS. DY. CIT ACT, I.E., WHETHER AS SHORT TERM CAPITAL GAIN (STCG ), AS RETURNED BY THE ASSESSEE, OR AS BUSINESS INCOME, AS BEING CONSIDERED BY THE REVENUE . 3.1 OPENING THE ARGUMENTS FOR AND ON BEHALF OF THE ASSESSEE, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THAT THE ASSESSEE, AN INDIVIDUAL, HAS HIS OWN TEXTILE BUSINESS. FOR THE Y EAR UNDER REFERENCE, HE RETURNED, AS IN THE PAST, THE INCOME ARISING ON THE DELIVERY BASED TRANSACTIONS IN SHARES AS CAPITAL GAINS, WHILE ADMITTING THE INCOME (OR LOSS) ON NON-DELIVER Y BASED TRANSACTIONS THEREIN AS SPECULATIVE. HOWEVER, THE SAME WERE REGARDED AS BUS INESS INCOME BY THE ASSESSING OFFICER (A.O.), DISREGARDING THE FACT THAT THE ASSE SSEE MAINTAINED SEPARATE PORTFOLIOS FOR THE INVESTMENT AND THE TRADING ACTIVITY. ADVERTING TO THE ASSESSMENT ORDER FOR A.Y. 2005- 06 (PB PGS. 33-35), HE CONTINUED, THAT THE SAME STO OD ACCEPTED FOR THAT YEAR IN REGULAR ASSESSMENT. FURTHER, THE A.O. HAS THOUGH MADE REFER ENCE TO THE RELEVANT CBDT CIRCULAR (VIDE NOTIFICATION NO. 45 OF 2008 DATED 24.03.2008) , HAS NOT SHOWN AS TO HOW THE SAME IS APPLICABLE IN THE FACTS OF THE CASE. 3.2 THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON TH E OTHER HAND, WOULD CONTEND THAT AS IS WELL SETTLED RES JUDICATA IS NOT APPLICABLE TO THE PROCEEDINGS UNDER THE ACT . ACCEPTING THE ASSESSEES CLAIM FOR AN EARLIER YEAR, WHICH MAY WELL BE CONSISTENT WITH THE FACTS OF THAT YEAR, WOULD NOT BIND THE A.O. FOR A S UBSEQUENT YEAR. REFERENCE IN THIS REGARD WAS MADE BY HIM TO THE DECISION IN THE CASE OF PRAGATI CONSTRUCITON CO. VS. ASST. CIT [2004] 89 ITD 271 (DEL.). THE A.O. HAS, ON AN ANALY SIS AND APPRECIATION OF THE FACTS OF THE CASE, APPLIED THE CLEAR LAW IN THE MATTER, WHIC H IN FACT STANDS DISCUSSED BY HIM AT PAGES 1 TO 8 OF HIS ORDER. 4. WE HAVE HEARD THE PARTIES, PERUSED THE MATERIAL ON RECORD, AND GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. 4.1 THE ISSUE, AS WE DISCERN, IS PRIMARILY FACTUAL, TO BE DECIDED ON AN APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LAW IN THE MATTER IS AMPLY CLEAR. BUSINESS IS A TERM OF WIDE IMPORT, AND WOULD INCLUDE ANY ACT IVITY THAT ENGAGES THE TIME, ATTENTION, 3 ITA NO. 8848/MUM/2010 (A.Y. 2006-07) SANJAY KUMAR JHABAK VS. DY. CIT EFFORT OR EVEN ONES RESOURCES ON A REGULAR BASIS I N PURSUIT OF ECONOMIC GAIN. THE LEGAL POSITION, SOUGHT TO BE EMPHASIZED BY THE A.O. WITH REFERENCE TO A NUMBER OF DECISIONS BY THE APEX COURT, AS UNDER, HAS NEITHER BEEN DISPUTED NOR IS DISPUTABLE: A) RAJA BAHADUR VISHESHWARA SINGH VS. CIT [1961] 41 ITR 685 (SC); B) DALHOUSIE INVESTMENT TRUST CO. LTD. VS. CIT [1968] 68 ITR 486 (SC); C) CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. [1975] 100 ITR 706 (SC); D) A.V. THOMAS AND CO. LTD. VS. CIT [1963] 48 ITR 67 (SC); E) CIT VS. P.K.N. CO. LTD. [1966] 60 ITR 65 (SC); AND F) CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD. [1971] 82 ITR 586 (SC). 4.2 COMING TO THE FACTS OF THE CASE, THE ASSESSEE, A CHARTERED ACCOUNTANT BY QUALIFICATION, RETURNED THE FOLLOWING INCOMES FOR T HE YEAR: (PARA 3.5 OF THE ASSTT. ORDER) AMOUNT (RS.) A INCOME FROM SALARY 45,000 B FUTURE TRANSACTIONS LOSS (-) 4,08,104 C SPECULATION PROFIT (-) 41,705 D CAPITAL GAINS 15,74,397 E DIVIDEND ON SHARES & MUTUAL FUNDS 31,240 THE TEXTILE BUSINESS IS CONSPICUOUS BY ITS ABSENCE; THE LONE TRANSACTION IN ITS RESPECT BEING BY WAY OF BANK CHARGES FOR RS.55/- (P B PG. 5). THE ASSESSEE IS ENGAGED IN BUSINESS OF TRADING, BOTH IN THE CASH AND DERIVATIV E SEGMENTS OF THE SHARE MARKET. IN THE CASH SECTION, AGAIN, BOTH DELIVERY AND NON-DELIVERY BASED TRANSACTIONS STAND UNDERTAKEN. THAT, HOWEVER, WOULD ONLY IMPACT THE NATURE OF THE BUSINESS BEING CARRIED ON IN-AS-MUCH AS THE NON-DELIVERY BASED IS CATEGORIZED AS SPECULA TIVE UNDER THE ACT AND, FURTHER, DEEMED TO BE A SEPARATE BUSINESS (REFER EXPLANATION 2 TO SECTION 28). IN OTHER WORDS, IT WOULD NOT OPERATE TO TRANSMUTE AN ACTIVITY WHICH IS BUSINESS THE ESSENCE OF WHICH IS AN ORGANIZED ACTIVITY TOWARD PROFIT, INTO NON-BUSINESS . PROFIT MOTIVE, WHICH IS A DETERMINATIVE FACTOR, HAS GUIDED THE ASSESSEES TRA NSACTIONS IN THE F & O AND THE NON- DELIVERY BASED SEGMENTS, SO THAT THE SAME, OTHER TH INGS BEING EQUAL, WOULD BE INFERRED FOR THE DELIVERY BASED TRANSACTIONS AS WELL. RATHER, HOW COULD, ONE MAY ASK, THE SAME TO BE 4 ITA NO. 8848/MUM/2010 (A.Y. 2006-07) SANJAY KUMAR JHABAK VS. DY. CIT CONSTRUED ANY DIFFERENTLY ? HOWEVER, THOUGH NOT SUBSCRIBING SO, INASMUCH AS T HE FACTS HAVE TO BE NECESSARILY VIEWED IN A COMPOSITE AND HO LISTIC MANNER, EVEN EXAMINING THE CASH, DELIVERY-BASED TRANSACTIONS IN ISOLATION, THE ASSESSEE HAS UNDERTAKEN A TOTAL OF 818 TRANSACTIONS DURING THE YEAR. IF ALL THIS DOES NOT AMOUNT TO BUSINESS, WHAT, WE W ONDER, DOES ? A PERUSAL OF THE RELEVANT TRANSACTIONS, DETAILED AT PGS.10-22 OF THE PAPER-BOOK, REVEALS A HOLDING PERIOD OF A FEW DAYS GENERALLY, E XTENDING TO WITHIN A MONTH IN MOST CASES. THE FREQUENCY AND REGULARITY OF THE TRANSACT ION EXHIBIT A SYSTEMATIC ACTIVITY. IN FACT, ONLY ONE WHO IS WELL VERSED WITH THE MARKET W OULD UNDERTAKE TRANSACTIONS IN SUCH VOLUME, FREQUENCY, REGULARITY, ALSO ASSUMING FINANC IAL RISK BY INCURRING INTEREST-BEARING DEBT. LOANS TO THE EXTENT OF RS.170.01 LACS HAVE BE EN ASSUMED, WHICH ARE AGAIN DEPLOYED IN BUSINESS. THE ASSESSEES OWN CAPITAL REPRESENTS ONLY 30% OF THE TOTAL CAPITAL EMPLOYED IN BUSINESS. THE FACTS ARE SELF-SPEAKING, AND LEAVE US IN NO MANNER OF ANY DOUBT OF THE ASSESSEE BEING ENGAGED IN TRADE IN SHARES AND SECUR ITIES IN ALL ITS VARIOUS ASPECTS, EVEN AS FOR TAX PURPOSE A DIFFERENT TREATMENT IS TO BE A CCORDED THERETO, VIZ. SPECULATIVE OR NON- SPECULATIVE. IT IS THIS THAT PREVAILED WITH BOTH TH E AUTHORITIES BELOW, TO IN FACT NO REBUTTAL BY THE ASSESSEE, WITH THE PRIMARY FACTS BEING NOT I N DOUBT OR DISPUTE. 4.3 AS REGARDS THE ACCEPTANCE OF THE ASSESSEES CAS E FOR THE IMMEDIATELY PRECEDING YEAR, THE SAME TO OUR MIND WOULD BE OF LITTLE ASSIS TANCE TO THE ASSESSEE. THE FACTS FOR THE SAID YEAR ARE NOT ON RECORD; THERE BEING IN FACT NO DISCUSSION QUA THE SAME IN THE ASSESSMENT ORDER FOR THAT YEAR. IF AT ALL, IT CONFI RMS THE ASSESSEE TO BE ACTIVE IN THE MARKET FROM A PERIOD PRIOR TO THE CURRENT YEAR, EMPHASIZIN G A CONTINUITY OF OPERATIONS. IT IS NOT UNUSUAL TO FIND ONE TO BEGIN WITH ON A SELECTIVE, T ENTATIVE BASIS INITIALLY, AND GRADUALLY PICKING UP THE NUANCES OF THE TRADE, IN TERMS OF TH E NECESSARY SKILLS AND PRACTICES, BESIDES GAINING IN EXPERIENCE OVER A PERIOD OF TIME, SO AS TO UNDERTAKE THE SAID ACTIVITY ON A REGULAR BASIS, WHICH IS BY DEFINITION BUSINESS. 4.4 THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY PVT. LTD. [1971] 82 ITR 586 (SC), WHEREIN IT IS HELD THAT WH ETHER THE SHARES ARE HELD AS STOCK-IN-TRADE OR INVESTMENT IS SOMETHING IN THE KNOWLEDGE OF THE 5 ITA NO. 8848/MUM/2010 (A.Y. 2006-07) SANJAY KUMAR JHABAK VS. DY. CIT ASSESSEE. THE SAME, HOWEVER, WOULD BE OF NO CONSEQU ENCE. THIS IS AS THE ASSESSEE HAS, APART FROM ONLY CLASSIFYING HIS HOLDING OF SHARES A S INVESTMENT, DONE LITTLE TO SUBSTANTIATE OR JUSTIFY THE SAID TREATMENT, I.E., W ITH REFERENCE TO THE UNDERLYING ACTIVITY. IN FACT, THOUGH THE ASSESSEE SPEAKS OF MAINTAINING TWO PORTFOLIOS, HIS BALANCE-SHEET REFLECTS THE ENTIRE HOLDING UNDER ONE GROUP HEAD, I.E., INV ESTMENTS (PB PG.3). WHAT IS ALSO RELEVANT AND MATERIAL IS THE BASIS ON WHICH THE CLA SSIFICATION, WHERE SO, IS MADE, AND WHETHER THE ASSESSEE IS ABLE TO SUBSTANTIATE THE SA ME IN TERMS OF THE UNDERLYING PRINCIPLES DISTINGUISHING BETWEEN INVESTMENT AND STOCK-IN-T RADE. WE HAVE ALREADY OBSERVED AND EMPHASIZED ON THE VOLUME, REGULARITY AND HIGH FREQU ENCY OF THE TRANSACTION, SIGNIFIED BY A LOW HOLDING PERIOD ON A REGULAR BASIS. THE TREATM ENT ACCORDED IN BOOKS, WHICH WE FOUND TO BE NOT IN AGREEMENT WITH THE ACTIVITY IN-A S-MUCH AS THE ASSESSEE HAS CLUBBED ITS ENTIRE SHAREHOLDING UNDER ONE HEAD, IS NOT CONCLUSI VE OF THE MATTER. 4.5 WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE REVENUE HAS RIGHTLY CONSIDERED THE INCOME DECLARED BY THE ASSESSE AS STCG AS BUSI NESS INCOME. SO, HOWEVER, IN OUR VIEW, ITS QUANTUM WOULD REQUIRE TO BE REWORKED. THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE AT RS.20.50 LACS (PB PG.4). THE SAME WO ULD REQUIRE BEING APPORTIONED AGAINST DIFFERENT BUSINESSES, AS WELL AS, WHERE SO, INVESTMENT ACTIVITY. THE A.O. HAS CONSIDERED THE ENTIRE INTEREST AGAINST INTEREST INC OME FALLING UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH IS INCONSISTENT WITH HIS OWN FINDING OF THE BUSINESS BEING FINANCED, IF ONLY PARTLY, BY BORROWED CAPITAL. IT IS ONLY THE NET INCOME SO ARRIVED AT THAT WOULD STAND TO BE ASSESSED AS BUSINESS INCOME. WE DECIDE ACCO RDINGLY, AND THE ASSESSE, IN CONSEQUENCE, GETS PART RELIEF. 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 0/ 1 )2 30 ' * 4 ' 56 ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 14, 201 4 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 7+ MUMBAI; 8) DATED : 14.03.2014 6 ITA NO. 8848/MUM/2010 (A.Y. 2006-07) SANJAY KUMAR JHABAK VS. DY. CIT *.)../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. ;*< = %)>2 , , >2/ , 7+ / DR, ITAT, MUMBAI 6. = ?3 @ + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , 7+ / ITAT, MUMBAI