SIDDHALCHAL ENTERPRISES P.LTD, MUMBAI V. ITO 9(3)(2), MUMBAI

ITA 8969/MUM/2010

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0707 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 15-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 22-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Business income; Rule of consistency
• Section: 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , , BEFORE SHRI R. C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER . / ITA NO . 8969 / MUM./ 2010 ( / ASSESSMENT YEAR : 200 6 07 ) M/S. SIDDHALCHAL ENTERPRISES PVT. LTD. 113, BALAJI ARCADE, CTS NO.68 S.V. ROAD, OPP. CENTRAL BANK KANDIVALI (W), MUMBAI 400 067 PAN AACCS7297L .. / APPELLANT V/S INCOME TAX OFFICER WARD 9(3)(2), MUMBAI .... / RESPONDENT / ASSESSEE BY : S HRI VIMAL PUNMIYA / REVENUE BY : SHRI NEIL PHILIP / DATE OF HEARING 24 .03.2015 / DATE OF ORDER 28.05.2015 / ORDER , / PER SANJAY GARG , J UDICIAL MEMBER TH E PRESENT APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 20 TH OCTOBER 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS) - 20 , MUMBAI, RELEVANT TO THE ASSESSMENT YEAR 2006 07. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS: M/S. SIDDHALCHAL ENTERPRISES PVT. LTD. 2 1. THE LEARNED CIT(A) ERRED IN CONFIRMING AND TREATING ` 17,48,604 AS INCOME FROM BUSIN ESS AND PROFESSION AS AGAINST SHORT TERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. 2. THE LEARNED CIT(A) HAS GROSSLY ERRED IN TREATING THE LOSS SUFFERED BY ASSESSEE ON ACCOUNT OF PURCHASE AND SALE OF SHARES AS DIVIDEND STRIPPING ACTIVITY U/S 94(7) AND THER EBY ENHANCED THE BUSINESS INCOME TO THE EXTENT OF ` 2,983. 3. THE LEARNED CIT(A) HAS GROSSLY ERRED IN RESTRICTING THE CLAIM OF THE PRELIMINARY EXPENSES TO ` 500 ONLY AS AGAINST ` 3,204 DEBITED TO PROFIT & LOSS ACCOUNT BY THE ASSESSEE AND SUBSEQUENTLY CLAI MED AS A DEDUCTION UNDER SECTION 35D OF THE ACT. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING PENALTY U/S 271(1)(C) OF THE ACT. 5. THE LEARNED CIT(A) ALSO ERRED IN CONFIRMING THE INTEREST U/S 234B AND 234C OF THE ACT . 2. GROUND NO.1 IS RELATING TO THE ISSUE OF TREATMENT OF INCOME EARNED FROM SALE AND PURCHASE OF SHARES WHETHER AS SHORT TERM CAPITAL GAIN S AS CLAIMED BY THE ASSESSEE OR IS TO BE TREATED AS BUSINESS INCOME, AS ASSESSED BY THE ASSESSING OFFICER. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF GARMENTS AND TRADING OF DYES AND CHEMICALS. THE ASSESSING OFFICER NOTED THAT DURING THE YEARS, THE ASSESSEE HAD SHOWN TO HAVE EARNED SHORT TERM CAPITAL GAIN OF ` 17,48,604. THE ASSESSING OFFICER, TAKING INTO CONSIDERATION THE VOLUM E AND FREQUENCY OF TRA NSACTION S , HELD THAT THE ASSESSEE HAD BEEN SYSTEMATICALLY ENGAGED IN THE SHARE TRANSACTIONS WITH PROFIT MOTIVE. HE, THEREFORE, TREATED THE INCOME CLAIMED AS SHORT TERM CAPITAL GAIN BY THE ASSESSEE AS BUSINESS INCOME. M/S. SIDDHALCHAL ENTERPRISES PVT. LTD. 3 4. THE LEARNED CIT(A) ALSO UPHELD THE FIN DINGS OF THE ASSESSING OFFICER. THE ASSESSEE IS THUS IN APPEAL BEFORE US. 5. LEARNED A.R. FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE COMPANY HAS BEEN ENGAGED IN THE BUSINESS OF EXPORT GARMENT AS WELL AS TRADING IN DYES AND CHEMICALS. ITS MEMORANDUM AND ARTICLE OF ASSOCIATION DOES NOT ALLOW IT TO TRAD E IN SHARES AND SECURITIES AND, HENCE, FROM THE VERY BEGINNING, THE ASSESSEE COMPANY WAS NEITHER ALLOWED NOR HAD ANY INTENTION TO TRADE IN SHARES AND SECURITIES. THE ASSESSEE COMPANY HAD BEEN INVESTING ITS S URPLUS BUSINESS PROFIT IN SHARES SINCE 1997 AND HAS ALWAYS BEEN TREATED AS AN INVESTOR. EARLIER THE SHARE INCOME FROM PURCHASE AND SALE OF SHARES AND BUSINESS INCOME WERE TAX ABLE AT THE SAME RATE. HOWEVER, FROM THE YEAR 2004 05, THE CHARGING RATE FOR SHORT TERM CAPITAL GAINS HAVE BEEN DECREASED GIVING BENEFIT TO THE INVESTORS IN SHARE AND SECURITIES. THE ASSESSEE COMPANY, DURING THE YEAR, HAS ALSO EARNED LONG TERM CAPITAL GAINS SOME OF WHICH HAVE BEEN IN RELATION TO SHARES WHICH WERE ACQUIRED FROM THE YEAR 1999 ONWARDS. THE ASSESSEE HAS NEVER BEEN TREATED AS TRADER IN EARLIER ASSESSMENT YEARS. NO BORROWED FUNDS HAVE BEEN USED FOR THE PURCHASE AND SALE OF SHARES AS THE ASSESSEE USED TO INVEST ITS SURPLUS PROFITS ONLY IN THE PURCHASE OF SHARES AND SECURITIES. THE ASSESSEE, DURING THE YEAR, HAS DECLARED LONG TERM CAPITAL GAIN OF ` 3,54,470, WHICH HAS BEEN ACCEPTED BY THE LOWER AUTHORITIES. HE HAS M/S. SIDDHALCHAL ENTERPRISES PVT. LTD. 4 FURTHER SUBMITTED THAT CONSIDERING THE INVESTMENT OF THE ASSESSEE IN SHARES TO THE TUNE OF ` 70,00,000, THE QUANTUM OF PURCHASE AND SALE OF SHARES DURING THE YEAR WAS VERY SMALL. THE ASSESSEE, DURING THE YEAR, HAS ALSO EARNED DIVIDEND OF ` 1,24,125. HE HAS FURTHER STATED THAT EVEN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEE HAD EARNED DIVIDEND INCOME OF ` 2 ,09,687. HE HAS STATED THAT MERELY BECAUSE THIS YEAR THE DIVIDEND INCOME AS COMPARED TO THE LAST YEAR HAS SOMEWHAT DECREASED THAT DOES NOT MEAN THAT THE ASSESSEE HAS CEASED TO BE AN INVESTOR. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELI ED UPON THE FINDINGS OF THE LOWER AUTHORITIES AND HAS VEHEMENTLY STRESSED THAT TAKING INTO CONSIDERATION THE LARGE VOLUME OF TRANSACTION S , THE ASSESSEE CANNOT BE TREATED AS AN INVESTOR BUT ONLY AS A TRADER IN SHARES. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIO NS. THERE IS NO DENIAL BY THE REVENUE TO THE FACT THAT THE ASSESSEE HAS BEEN INVESTING THE SURPLUS BUSINESS PROFITS IN PURCHASE OF SHARES SINCE 1997 AND IT HAS ALWAYS BEEN ACCEPTED AS AN INVESTOR. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ALSO BEE N TREATED AS INVESTOR IN RESPECT OF INCOME FROM SHARE TRANSACTIONS CLAIMED BY THE ASSESSEE AS LONG TERM CAPITAL GAINS. THE ASSESSING OFFICER HAS TREATED THE ASSESSEE AS TRADER IN RESPECT OF ONLY SHORT TERM CAPITAL GAIN S CLAIMED BY THE M/S. SIDDHALCHAL ENTERPRISES PVT. LTD. 5 ASSESSEE. IN OUR VIEW , THE REVENUE CANNOT ADOPT DOUBLE YARDSTICK WHILE TREATING THE ASSESSEE AS AN INVESTOR IN RESPECT OF LONG TERM CAPITAL GAIN AND AS A TRADER IN RESPECT OF SHORT TERM CAPITAL GAIN. IF SUCH YARDSTICK IS ALLOWED TO BE ADOPTED, THEN THE PROVISIONS OF SHORT TERM CAPITAL GAIN WILL BECOME REDUNDANT. WHEN THE ASSESSEE HAS BEEN CONSISTENTLY BEEN TREATED AND ACCEPTED AS INVESTOR SINCE SO MANY YEARS AND THERE IS NOT MUCH CHANGE IN THE INVESTING PATTERN OR IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THEN APPLYING THE RU LE OF CONSISTENCY, THE ASSESSEE IS TO BE TREATED AS INVESTOR ONLY. MOREOVER, AS EXPLAINED BY THE LEARNED A.R., THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE COMPANY DOES NOT ALLOW IT TO TRADE IN SHARES AND IT HAS BEEN CONSISTENTLY INVESTING IT S MONEY AS AN INVESTOR IN SHARES. NO BORROWED FUNDS HAVE BEEN USED FOR MAKING THE SHARE TRANSACTIONS. THE ASSESSEE HAS ALSO EARNED SUBSTANTIAL INCOME FROM LONG TERM CAPITAL GAIN AND ALSO DIVIDEND INCOME. ALL THESE FACTS PROVE BEYOND DOUBT THAT THE INTENTIO N OF THE ASSESSEE HAS ALWAYS BEEN TO INVEST THE MONEY IN SHARES AND NOT THE TRADING IN SHARES. HIGH FREQUENCY OF THE TRANSACTIONS CANNOT BE THE SOLE FACTOR IN HOLDING THE ASSESSEE AS A TRADER. EVEN T HERE IS NO MINIMUM HOLDING PERIOD OF SHARES IS PRESCRIBED UNDER THE STATUTE FOR TREATMENT OF THE SAME AS SHORT TERM CAPITAL GAIN. KEEPING IN VIEW THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE PRINCIPLE OF CONSISTENCY, IN OUR VIEW, THE ASSESSEE HAS TO BE TREATED AS AN INVESTOR AND THE M/S. SIDDHALCHAL ENTERPRISES PVT. LTD. 6 INCOME EARNED FROM PURCHASE AND SALE OF SHARES IS TO BE TREATED AS SHORT TERM CAPITAL GAIN. THUS, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 8. GROUND NO.2 IS RELATING TO DIVIDEND STRIPPING. 9. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PURCHASED AND S OLD SHARES OF THREE COMPANIES WITHIN THE TIME PROHIBITED UNDER SECTION 94(7) OF THE ACT WHICH HAD RESULTED IN LOSS. THE ASSESSING OFFICER, THEREFORE, REDUCED THE LOSS SUFFERED BY THE ASSESSEE TO THE EXTENT OF DIVIDEND EARNED WHICH WAS COMPUTED AT ` 2, 9 8 3 , AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. THE LEARNED CIT(A) UPHELD THE ADDITION. 10. WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER ON THIS ISSUE AND THIS ADDITION IS ACCORDINGLY CONFIRMED. 11. GROUND NO.3, RELATES TO DISALLOWANCE OF DEDUCTION UNDER SECTION 35D. 12. THE ASSESSEE DEBITED ` 3,204 TO THE PROFIT & LOSS ACCOUNT AS PRELIMINARY EXPENSES. THE ASSESSING OFFICER NOTED THAT THE CAPITAL EMPLOYED WAS ` 2,00,000 AND DEDUCTION OF PRELIMINARY EXPENSES WAS ALLOWABLE ONLY TO THE EXTENT OF ` 500. HE, THEREFORE, DISALLOWED THE M/S. SIDDHALCHAL ENTERPRISES PVT. LTD. 7 DEDUCTION OF BALANCE OF ` 2,704. THE LEARNED A.R. FOR THE ASSESSEE HAS NOT ADVANCED ANY ARGUMENTS ON THIS ISSUE. 13. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) WHILE UPHOLDING THE DISALLOWANCE ON THIS ISSUE. THU S, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 14. 14. IN THE RESULT, ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 28.05.2015 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - SANJAY GA RG JUDICIAL MEMBER MUMBAI, DATED : 28.05.2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE ; (2) THE REVENUE; (3) THE CIT(A ) ; (4) THE CIT, MUMBAI CITY CONCERNED ; (5) THE DR, ITAT, MUMBAI ; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASS ISTANT REGISTRAR ITAT, MUMBAI