ACIT 13(3), MUMBAI V. LAXMICHAND KUNVERJI KENIA, MUMBAI

ITA 928/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3683 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 02-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRANAV FORIA
• Keywords: Business income; Rule of consistency; Set aside; Capital Gains
• Section: 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 928/MUM/2010 (ASSESSMENT YEAR: 2006-07) ACIT - 13(3) SHRI LAXMICHAND KUNVERJI KENIA ROOM NO. 430, 4TH FLOOR C/O S.K. OIL TRADING CO. AAYAKAR BHAVAN, M.K. ROAD VS. 208/210, NARSI NATHA STREET MUMBAI 400002 MUMBAI 400009 PAN - AAHPK 1061 C APPELLANT RESPONDENT APPELLANT BY: SHRI AARSI PRASAD RESPONDENT BY: SHRI PRANAV FORIA O R D E R PER B. RAM AKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXIV, MUMBAI DATED 17.11.2009. 2. REVENUE HAS RAISED THE FOLLOWING GROUND: - 1. (A) THE LD. CIT(A), ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE AND IN LAW, ERRED IN DELETING THE ADDITION OF RS.42,63,303/- MADE BY THE AO AS BUSINESS INCOME AS AGAINST STCG S HOWN BY THE ASSESSEE. (B) THE LD. CIT(A), ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, ERRED IN NOT APPRECIATING THE FACT ORS LIKE VOLUME, FREQUENCY, PERIOD OF HOLDING AS CRITERION TO DETERM INE THE NATURE OF TRANSACTIONS. 3. BRIEFLY STATED, THE ASSESSEE HAS OFFERED AN INCOME OF R.42,63,303/- AS SHORT TERM CAPITAL GAIN. THE ASSESSEE IS A PARTNER IN S.K. OIL & PULSES, SHANTILAL KUNVERJI & CO. AND S.K. COMDEX AND THE TO TAL INCOME COMPRISES BUSINESS INCOME BEING SHARE OF PROFIT FROM FIRMS, C APITAL GAINS AND INCOME FROM OTHER SOURCES. THE A.O. TREATED THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME AND FOLLOWED THE ORDERS IN ASSESSEES CASE F OR A.Y. 2004-05. HE ALSO GAVE A FINDING THAT THE FACTS OF THE CASE FOR THIS YEAR WERE IDENTICAL TO THE FACTS OF THE PRECEDING ASSESSMENT YEAR AND IN VIEW OF THE STAND TAKEN BY THE ITA NO. 928/MUM/2010 SHRI LAXMICHAND KUNVERJI KENIA 2 DEPARTMENT, THE ASSESSEE IS TO BE TREATED AS TRADER OF SHARES AND PROFIT SHOWN AS SHORT TERM CAPITAL GAIN WAS REQUIRED TO BE BROUGHT TO TAX AS BUSINESS INCOME. WHEN THE MATTER WAS CONTESTED BEFO RE THE CIT(A), THE CIT(A) EXAMINED THE FACTS AND HAVING NOTICED THAT T HE ISSUE WAS CONSIDERED BY THE ITAT A BENCH IN A.Y. 2005-06 VIDE ORDER DA TED 22.10.2009 GAVE RELIEF TO THE ASSESSEE BY STATING IN PARA 2.2 AS UN DER: - 2.2 I HAVE EXAMINED THE CONTENTION OF THE LD. COUN SEL AND FIND THAT THE VERY SAME ISSUE HAS BEEN CONSIDERED BY THE HON'BLE ITAT A BENCH IN ASSESSEES OWN CASE FOR A.Y. 2005-06 AND VIDE ITS O RDER DT. 22/10/2009 IN PARA 12 OF THE SAID ORDER THE HON'BLE TRIBUNAL H AD ACCEPTED THE PLEA OF THE ASSESSEE FOR TAXING THE PROFIT ON SALE OF SHARE S AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. ACCORDINGLY, FOLL OWING THE ORDER OF THE HON'BLE ITAT A BENCH THE DISALLOWANCE MADE BY AO OF RS.42.69,303/- BY TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME IS REVERSED AND CLAIM OF APPELLANT AS SHORT TERM CAPITAL GAIN IS AL LOWED. FURTHER, AS HELD BY THE HON'BLE SUPREME COURT IN RADHASAOMI SATSANG S CASE 193 ITR 321 THAT WHEN THE MATERIAL FACTS REMAINS THE SAME T HERE IS NO REASON TO DEPART FROM THE EARLIER ORDERS AND THEREFORE THE PR INCIPLE OF CONSISTENCY ALSO MANDATES FOLLOWING THE EARLIER ORDER OF HON'BL E ITAT A BENCH. REVENUE IS AGGRIEVED. 4. WE HAVE HEARD THE LEARNED D.R. AS WELL AS THE LEARN ED COUNSEL FOR THE ASSESSEE. SINCE THE FACTS ARE IDENTICAL TO A.Y. 200 5-06 IN WHICH THIS WAS CONSIDERED AND THE ITAT IN THAT YEAR, ON THE FACTS THEN EXISTING, HAS GIVEN A FINDING THAT THE INCOMES WERE CAPITAL GAINS. THE FI NDINGS OF THE ITAT FOR A.Y. 2005-06 ARE AS UNDER: - 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT TH E SHARES IN QUESTION, THE PROFIT ON SALE OF WHICH IS THE SUBJECT MATTER O F DISPUTE IN THE PRESENT CASE, WERE SHOWN BY THE ASSESSEE IN HIS BOOKS OF AC COUNT FOR THE YEAR UNDER CONSIDERATION AS WELL AS FOR THE EARLIER YEAR S AS INVESTMENT AND THE TREATMENT SO GIVEN WAS NOT QUESTIONED BY THE A. O IN ANY OF THE ASSESSMENTS COMPLETED FOR THE EARLIER YEARS. ON TH E OTHER HAND, THE PROFIT ARISING FROM SALE OF THE SAID SHARES TREATED AS INVESTMENT WAS OFFERED BY THE ASSESSEE TO TAX UNDER THE HEAD SHOR T TERM CAPITAL GAIN AND THE SAME WAS ACCEPTED BY THE A.O. I.E. THE EARL IER YEARS INCLUDING THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2004-05. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. HAS NOT BEEN ABLE TO POINT OUT ANY MATERIAL DIFFERENCE IN THE FACTS INVOLVED IN THE YEAR UNDER CONSIDERATION VIS--VIS THE FACTS INVOLVED IN THE IMMEDIATELY PRECEDING YEA R. IN FACT THE AO HAS ACCEPTED PART OF THE SAME SET OF TRANSACTIONS AS SU CH AND ACCEPTED THE LONG TERM CAPITAL GAINS WITH OUT ANY MODIFICATIONS. THE LEARNED DR ITA NO. 928/MUM/2010 SHRI LAXMICHAND KUNVERJI KENIA 3 COULD NOT EXPLAIN WHY THE AO DID NOT PREPARE A TRAD ING ACCOUNT, IF HE CONSIDERS THE SAME AS BUSINESS INCOME. THE OPENING STOCK OF SHARES AND CLOSING STOCK OF SHARES SHOULD ALSO REQUIRE ADJ USTMENTS, IF THE AO CHANGES THE HEAD OF INCOME AND TREATS DIFFERENTLY. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS PREPARED AND F URNISHED THE FOLLOWING COMPARATIVE CHART SHOWING THAT THE FACTS INVOLVED IN THE YEAR UNDER CONSIDERATION WERE SIMILAR TO THAT OF A.Y. 04 -05. PARTICULARS A.Y.2005- 06 A.Y. 2004- 05 INVESTMENT IN SHARES 2,01,72,120 1,63,13,362 SHORT TERM CAPITAL GAIN 24,97,850 27,98,034 DIVIDEND FROM SHARES 8,96,704 5,38,957 DIVIDEND FROM MUTUAL FUNDS 2,27,887 15,30,483 NUMBER OF SCRIPS PURCHASED 106 114 NUMBER OF SCRIPS SOLD 104 108 VALUE OF PURCHASES 2,65,81,691 3,42,80,786 VALUE OF SALES 2,38,20.271 2,78,25,367 10. AS IS EVIDENT FROM THE COMPARATIVE POSITION GIV EN ABOVE, THE PATTERN OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE IN T HE YEAR UNDER CONSIDERATION WAS ALMOST SIMILAR TO THAT OF THE PRE CEDING YEAR. IN THE CASE OF SHRI GOPAL PUROHIT VS. DCIT DECIDED BY THE TRIBUNAL VIDE ORDER DATED 10.2.09 PASSED IN ITA NO. 4854/M/08 (SUPRA), A SIMILAR ISSUE WAS INVOLVED IN THE LIGHT OF THE IDENTICAL FACTS AN D CIRCUMSTANCES AND IT WAS HELD BY THE TRIBUNAL THEREIN THAT WHERE THE NAT URE OF ACTIVITIES, MODUS OPERANDI OF THE ASSESSEE, MANNER OF KEEPING R ECORDS AND PRESENTATION OF SHARES AS INVESTMENT WAS THE SAME I N ALL THE YEARS, THERE WAS NO JUSTIFICATION IN THE ACTION OF THE A. O. IN GIVING A DIFFERENT TREATMENT TO THE PROFIT ARISING FROM THE SALE OF SH ARES BY BRINGING THE SAME TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUS INESS AS AGAINST SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE. IT WAS ALSO HELD BY THE TRIBUNAL THAT RULE OF CONSISTENCY MUST BE APPLIED I N SUCH CASES AND ON THE BASIS OF THE SAID RULE ALONE, THE ACTION OF THE REVENUE AUTHORITIES TO GIVE SUCH DIFFERENT TREATMENT WAS NOT SUSTAINABLE. 11. IN THE CASE OF SHRI GOPAL PUROHIT (SUPRA), THE TRIBUNAL ALSO CONSIDERED AND DECIDED ON MERIT THE ISSUE RELATING TO THE EXACT HEAD UNDER WHICH PROFIT ARISING FROM SALE OF SHARES WAS CHARGEABLE TO TAX. IN THIS CONTEXT, THE TRIBUNAL NOTED THAT THE OPENING A ND CLOSING BALANCE OF INVESTMENT IN SHARES MADE BY THE ASSESSEE WAS ABOUT RS. 90 LACS AND RS. 46 LACS WHEREAS THE SALE OF SHARES WAS ONLY TO THE TUNE OF RS. 32 LACS. IT WAS HELD BY THE TRIBUNAL THAT THE TURNOVE R TO STOCK RATIO IN INVESTMENT PORTFOLIO OF THE ASSESSEE THUS WAS VERY LOW AS COMPARED TO THAT IN TRADING PORTFOLIO. IN THE PRESENT CASE ALS O, THE VALUE OF INVESTMENT HELD BY THE ASSESSEE IN SHARES AS ON 31.3.04 AND 31 .3.05 WAS TO THE EXTENT OF RS. 1.09 CRORES AND RS. 1.33 CRORES WHERE AS THE VALUE OF ITA NO. 928/MUM/2010 SHRI LAXMICHAND KUNVERJI KENIA 4 SHARES SOLD DURING THE YEAR UNDER CONSIDERATION WAS ONLY TO THE TUNE OF RS. 1.31 CRORES. THE TURNOVER TO STOCK RATIO IN INV ESTMENT PORTFOLIO THUS WAS VERY LOW AS COMPARED TO THAT IN ANY TRADING POR TFOLIO. MOREOVER, THE SHARES TREATED AS INVESTMENT IN HIS BOOKS OF ACCOUN T WERE ALWAYS VALUED BY THE ASSESSEE AT COST WITHOUT THERE BEING ANY REFERENCE TO THE MARKET VALUE THEREOF WHICH AGAIN GOES TO SHOW THE I NTENTION OF THE ASSESSEE TO HOLD THE SAID SHARES AS INVESTMENT AND NOT STOCK IN TRADE. 12. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. HAS LAID GREAT EMPHASIS ON THE FREQUENCY OF THE TRANSACTIONS ENTERED INTO B Y THE ASSESSEE FOR PURCHASE AND SALE OF SHARES AND ALSO ON THE PERIOD OF HOLDING OF THE SAID SHARES. IN THIS REGARD, THE LD. COUNSEL FOR THE AS SESSEE HAS PREPARED AND FURNISHED A FACTS SHEET BEFORE US GIVING ALL THE RE LEVANT FEATURES AND A PERUSAL OF THE SAME SHOWS THAT ON 268 DAYS IN THE Y EAR UNDER CONSIDERATION, THERE WAS NO PURCHASE OF ANY SHARES MADE BY THE ASSESSEE. SIMILARLY, THERE WAS NO SALE OF ANY SHAR ES BY THE ASSESSEE ON 195 DAYS OF THE YEAR UNDER CONSIDERATION. THIS MAK ES IT ABUNDANTLY CLEAR THE FREQUENCY OF TRANSACTION OF SHARES ENTERED INTO BY THE ASSESSEE WAS NOT SUCH THAT ON THAT BASIS ALONE, IT COULD BE HELD THAT THE TRANSACTIONS IN PURCHASE AND SALE OF SHARES WERE ENTERED INTO BY TH E ASSESSEE AS BUSINESS ACTIVITY. EVEN THE AVERAGE HOLDING PERIOD OF SHARES SOLD IN SHORT TERM WAS 171 DAYS WHICH WAS WELL COMPARABLE TO A SI MILAR PERIOD OF 122 DAYS INVOLVED IN THE CASE OF SHRI KUNVARJI NANJI KE NIA VS. ACIT (ITA NO. 6545/M/08 DATED 28.4.09) CITED BY THE LEARNED COUNS EL FOR THE ASSESSEE WHEREIN THE ISSUE WAS DECIDED BY THE TRIBUNAL IN FA VOUR OF THE ASSESSEE HOLDING THAT THE AUTHORITIES BELOW WERE NOT JUSTIFI ED IN TREATING THE PROFIT ON SALE OF SHARES DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN TO BE HIS BUSINESS PROFIT. IN THE SAID DECISION, THE TRIBUNAL ALSO TOOK NOTE OF THE FACT THAT THE INVESTMENT IN SHARES WAS MADE BY THE ASSESSEE FROM HIS OWN FUNDS AND THERE WERE NO BORROWED FUND DEPLOYED BY HIM FOR MAKING SUCH INVESTMENT WHICH IS THE FACTUAL POSITION EVEN IN THE PRESENT CASE. THE TRIBUNAL ALSO TOOK NOTE OF THE FACT THAT SUBSTA NTIAL DIVIDEND INCOME WAS EARNED BY THE ASSESSEE ON THE SHARES TREATED AS INVESTMENT WHICH IS AGAIN SIMILAR TO THE FACTUAL POSITION PREVALENT IN THE PRESENT CASE. KEEPING IN VIEW ALL THESE RELEVANT ASPECTS OF THE MATTER AS WELL AS RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SHRI GOPAL PUROHIT (SUPRA), IT WAS HELD BY THE TRIBUNAL IN THE CASE OF SHRI KUNVARJI N ANJI KENIA (SUPRA) THAT PROFIT ON SALE OF SHARES WAS CHARGEABLE TO TAX UNDE R THE HEAD SHORT TERM CAPITAL GAIN AS OFFERED BY THE ASSESSEE. AS THE IS SUE INVOLVED IN THE PRESENT CASE AS WELL AS ALL THE MATERIAL FACTS RELE VANT THERETO ARE SIMILAR TO THAT OF THE CASES OF SHRI KUNVARJI NANJI KENIA A ND SHRI GOPAL PUROHIT (SUPRA), WE RESPECTFULLY FOLLOW THE ORDERS OF THE T RIBUNAL PASSED IN THE SAID CASES AND SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) WITH A DIRECTION TO THE A.O. TO ASSESS THE PROFIT ON SALE OF SHARES UNDER THE HEAD SHORT TERM CAPITAL GAIN AS OFFERED BY THE ASSESSEE. GROUND NO. 1 OF ASSESSEES APPEAL IS ACCORDINGLY ALLOWED . 5. SINCE THE FACTS ARE SIMILAR IN THIS ASSESSMENT YEAR AND AS THE CIT(A) FOLLOWED THE ITAT ORDER IN ASSESSEES OWN CASE IN E ARLIER YEAR ASSESSMENT ITA NO. 928/MUM/2010 SHRI LAXMICHAND KUNVERJI KENIA 5 YEAR, WE CONFIRM THE ORDER OF THE CIT(A) AND REJECT THE GROUND OF THE REVENUE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DECEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 10 TH DECEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXIV, MUMBAI 4. THE CIT XII, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.