DCIT CIR 13(3), MUMBAI V. RAJESH S. SANGHVI, MUMBAI

ITA 934/MUM/2010

• Counselvise Citation: 93419914 RSA 2010
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIK SR
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 934/MUM/2010 ASSESSMENT YEAR 2006-07 ASST. COMMISSIONER OF INCOME TAX 13(3), ROOM NO. 430, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI-400 020 VS. SHRI RAJESH S. SANGHVI 26, LATIF HOUSE, S.T. MARG, MASJID, MUMBAI-400 009 PAN: AADPS 3889C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI C.G.K. NAIK (SR.AR) RESPONDENT BY : SHRI SH. PRADIP KAPASI DATE OF HEARING : 11-04-2012 DATE OF PRONOUNCEMENT : 18-04-2012 ORDER PER RAJENDRA, A.M. CHALLENGING THE ORDER OF THE COMMISSIONER OF INCOME -TAX (APPEALS) -24, MUMBAI, DATED 25.11.2009 REVENUE HAS PREFERRED THE PRESENT APPEAL.THE EFFECTIVE GROUND OF APPEAL RELATES TO DISALLOWANCE OF SHORT TERM CAPITAL GAIN OF ` . 25,25,835/- AND ASSESSED AS BUSINESS INCOME BY THE ASSESSING OFFICER ON THE GROUNDS THAT THE VOLUME, FREQUENCY, MAGNITUDE, PERIOD OF HO LDING WARRANT AS ASSESSMENT AS A BUSINESS INCOME AND NOT A SHORT TERM CAPITAL GAIN 2. IN THE ORDER PASSED UNDER SECTION 143(3) OF THE IT ACT 1961, ON 30-12-2008 ASSESSING OFFICER (AO) UNDER THE HEAD PURCHASE AND SALE OF SHARES WHETHER INVESTMENT OR TRADING OBSERVED AS UNDER: ON PERUSAL OF THE STATEMENT GIVING COMPUTATION OF TOTAL INCOME FILED BY THE ASSESSEE WITH THE RETURN OF INCOME, IT IS NOTED THAT ASSESSE E HAS SHOWN SHORT-TERM CAPITAL GAINS 2 OF ` . 25,25,835/-. ON PERUSAL OF DETAILS OF SHORT-TERM CAPITAL GAINS FILED BY THE ASSESSEE , IT IS NOTED THAT DURING THE RELEVANT PRE VIOUS YEAR THE ASSESSEE HAS CARRIED OUT 205TRANSCTIONS OF PURCHASE AND SALE OF SHARES O N WHICH NET SHORT-TERM CAPITAL GAINS OF ` . 25,25,835/- WAS DECLARED. TAKING INTO CONSIDERAT ION THE TOTAL NUMBER AND MAGNITUDE OF TRANSACTIONS OF PURCHASE AND SALE OF S HARES, IT WAS THOUGH FIT TO EXAMINE THE ASSESSEE S STATUS AS TO WHETHER HE IS AN INVES TOR OR TRADER IN SHARES AND PROFIT EARNED ON SUCH PURCHASE AND SALE IS TAXABLE AS CAPI TAL GAINS OR BUSINESS INCOME. IT MAY BE MENTIONED THAT FOR THE PURPOSE OF DETERM INING THE NATURE OF TRANSACTION, IT IS REQUIRED TO BE VERIFIED AS TO WHETHER THERE ARE SUBSTANTIAL TRANSACTIONS, THEIR MAGNITUDE ETC., AND FINDING THE RATIO BETWEEN PURCH ASES AND SALES. ORDINARILY PURCHASE AND SALE OF SHARES WITH A MOTIVE OF REALIZ ING PROFIT WOULD LEAD TO INFLUENCE OF TRADE/ADVENTURE IN THE NATURE OF TRADE. WHERE T HE OBJECT OF INVESTMENT IN SHARES OF COMPANIES IS TO DERIVE INCOME BY WAY OF DIVIDEND TH E TRANSACTIONS OF PURCHASE AND SALE OF SHARE WOULD LEAD TO CAPITAL GAINS AND NOT B USINESS PROFITS. FURTHER, THE NUMBER OF SHARES TRADED, NUMBER OF TRANSACTIONS AND VOLUME OF TRANSACTIONS IS REQUIRED TO BE TAKEN INTO CONSIDERATION FOR DETERMI NING WHETHER THE TRANSACTION IS IN THE NATURE OF TRADE OR INVESTMENT. FREQUENCY OR NU MBER OF SIMILAR TRANSACTIONS BY THE SAME PERSONS CAN ALSO BE THE RULE TO DETERMINE WHET HER THE ASSESSEE IS A TRADER OR INVESTOR. ALSO, IF REALIZATION OF THE SHARES/SECUR ITIES OCCUR IN SUCCESSION OVER A PERIOD OF TIME OR THERE ARE SEVERAL SUCH REALIZATIONS, A P RESUMPTION ARISES THAT THE ASSESSEE IS DEALING IN SUCH COMMODITIES. WHEN THERE IS A OR GANIZED EFFORT TO OBTAIN PROFIT THE SAME INDICATES THE NATURE OF ACTIVITY AS TRADE AND NOT INVESTMENT. 3. AFTER AFFORDING AN OPPORTUNITY TO THE ASSESSEE FOR TREATING THE SHARE TRANSACTION AS BUSINESS INCOME ASSESSING OFFICER IN CLUDED AS UNDER: I AM PROCEEDING TO HOLD THAT THE ASSESSEE IS A TR ADER IN SHARES AND NOT AN INVESTOR AND HENCE PROFIT EARNED ON SUCH TRADING AC TIVITY IS TAXABLE AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS SHOWN BY THE ASSESS EE IN THE RETURN OF INCOME FILED. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) VIDE HIS ORDER DT. 29-10-2009 HE HELD I. THE MERE FACT THAT THE VOLUME OF TRANSACTIONS IS SO ME WHAT LARGE IS NOT DECISIVE OF THE FACT THAT THE ASSESSEE IS A TRADER IN SHARES AS HELD IN JANAK S. RANGWALL VS. ACII (2007) 11 SOI 627 (MUM) AND IN THE CASE OF GOPAL PUROHIT VS. JCII (2009) 20 DIR 99 (MUM). II. NO ASSESSEE WOULD TOLD ON TO THE SHARES TO INCUR L OSS WHEN THE VOLATILITY IN THE STOCK EXCHANGE WARRANTS THAT THE ASSESSEE WILL MINIMIZE HIS CAPITAL LOSS BY SELLING AT AN OPPORTUN E AND APPROPRIATE TIME AND MERELY BECAUSE THIS LEADS TO A HIGHER FREQUENCY, THIS BY ITSELF WILL NOT NEGATE THE CLAIM OF THE ASSESSEE 3 AS BEING AN INVESTOR (GOPAL PUROHIT VS. JC T(2009) 20 DTR 99(MUM). III. MERELY BECAUSE THE ASSESSEE EMPLOYS THE INFRASTRUC TURE OF FINANCIAL CONSULTANCY ETC., WILL NOT TURN AN INVEST MENT ACTIVITY IN THE BUSINESS ACTIVITY. (GOPAL PUROHIT VS. JCIT( 2009) 20 DTR 99 (MUM). IV. THE HON'BLE MADRAS HIGH COURT IN CIT VS. N.S.S. INV ESTMENTS (P) LTD., (2005) 277 ITR 149 AND HON'BLE KERALA HIG H COURT IN ACIT VS. KETHAN KUMAR A. SHAH (2000) 242 ITR 83 HAV E VERY CLEARLY HELD IN FAVOUR OF ASSESSEE AND STATED THAT WHERE SHARES HAVE ALREADY BEEN HELD AS INVESTMENT AND NEVER TRAN SFERRED OR CONVERTED AS STOCK IN TRADE, THE PROFIT ON SALE OF SUCH SHARES IS ASSESSABLE AS CAPITAL GAINS. ACCORDINGLY, THE SHORT TERM CAPITAL GAIN OF RS. 2 5,25,835/- AS SHOWN BY ASSESSEE IS ACCEPTED AND ITS TREATMENT AS A BUSINESS INCOME BY ASSESSING OFFICER IS DELETED. 5. BEFORE US, DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN THE PAPER BOOK (PB) FILED BY THE ASSESSEE ON PAGE NO. 17, 17A AND 20 S HARES HAVE BEEN SHOWN AS STOCK IN TRADE, THAT CHARACTER OF THE INVESTOR IS MISSING IN THE CASE OF THE ASSESSEE ,THAT PURCHASE AND SALE OF IDFC SHARES WITHIN 10 DAYS OF THE ALLOTMENT WAS A PROOF THAT ASSESSEE WAS DEALING IN SHARES. AUTHORIZED REPRES ENTATIVE OF THE ASSESSEE SUBMITTED THAT IN THE BALANCE SHEET OF THE ASSESSEE SHARES W ERE CLAIMED TO BE PART OF INVESTMENT, THAT ON PAGE NOS. 17, 17A AND 20 THEY W ERE WRONGLY CLASSIFIED AS STOCK IN TRADE, THAT ASSESSEE WAS INVESTING IN SHARES FOR T HE LAST 20 YEARS, THAT MAIN BUSINESS OF THE ASSESSEE WAS NOT DEALING IN SHARES BUT TO DEAL IN LICENSES AND MONEY LENDING, THAT DIVIDEND AMOUNTING TO RS.1.5 LAKHS WAS RECEIVED BY THE ASSESSEE DURING THE A.Y. UNDER CONSIDERATION, THAT THE ASSESSEE HAD NOT BOR ROWED ANY FUND FROM ANYBODY FOR INVESTING IN SHARE MARKET, THAT THE ASSESSEE HAD N OT USED ANY INFRASTRUCTURE IN THIS REGARD, THAT THE AVERAGE HOLDING OF SHARES WAS MORE THAN 140 DAYS, THAT TOTAL TRANSACTION OF SALE/PURCHASE OF SHARES WERE 105 DUR ING THE PERIOD UNDER CONSIDERATION, 4 THAT IN THE SUCCEEDING YEAR WHEN CIT(A) HAD HELD TH E ASSESSEE AN INVESTOR SAID FINDING OF THE CIT(A) WAS NOT CHALLENGED BY THE DEP ARTMENT, THAT IN EARLIER YEAR AO HAD ASSESSED INCOME UNDER THE HEAD SHORT TERM CAPI TAL GAINS IN HIS ORDERS PASSED U/S. 143(3) OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE A VAILABLE RECORDS. WHILE DECIDING THE ISSUE OF INCOME FROM BUSINESS OF SHARE TRADING/INCOME FROM OTHER SOURCES, NO ARITHMETICAL FORMULA CAN BE APPLIED. TH AT WAS THE PRECISE REASON FOR THE CBDT TO ISSUE A CIRCULAR ON 15-06-2007 (CIRCULAR 4 OF 2007) IN THIS REGARD. IT HAS TO BE DECIDED CONSIDERING VARIOUS SURROUNDING CIRCUMST ANCES. IF TOTALITY OF THE TRANSACTION IS LOOKED INTO, IT B ECOMES CLEAR THAT ASSESSEE WAS AN INVESTOR NOT A PERSON DEALING IN SHARES. COMPARISON OF BALANCE SHEET OF A.Y. 2005-06 AND 2006-07 SHOW THAT CAPITAL OF ASSESSEE WAS ` . 2.73 CRORES AND ` . 2.92 CRORES RESPECTIVELY WHEREAS INVESTMENT IN SHARE IS ` . 67.2 LAKHS AND 77.62 LAKHS RESPECTIVELY. EVEN IN THE BALANCE SHEET OF A.Y. 2003-04 INVESTMEN T IN SHARE FINDS PLACE. AO HAS HELD IN THE ASSESSMENT ORDERS OF A.Y. 2004-05 AND 2 005-06 THAT ASSESSEE HAD INCOME FROM OTHER SOURCES UNDER THE HEAD SHORT TERM CAPITA L GAINS. VOLUME OF THE TRANSACTION ON ITS OWN IS NOT A DECIDING FACTOR TRE ATING AS INVESTOR AS A DEALER IN SHARES. AO HAS NOWHERE GIVEN DETAILS OF BORROWED MONEY INVE STED IN SHARE TRANSACTIONS NOR HAS HE FOUND EVIDENCE OF USE OF INFRASTRUCTURE FOR SALE AND PURCHASE OF SHARES. CONSIDERING THE NUMBER OF TRANSACTIONS (ABOUT 105) CARRIED OUT IN A YEAR, IT CANNOT BE SAID THAT THE ACTIVITY WAS OF SHARE TRADING BUSINES S. PRINCIPLES DISCUSSED IN THE MATTERS OF GOPAL PUROHIT 22P ITR 582 (BOMBAY) MITESH SATISH CHANDRA DOSHI (140 TTV MUM) AND NEHAL V SHAH (ITA 2733/MUM/2009) ALSO SUPP ORT THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE. WE ARE OF THE OPI NION THAT THE ORDER OF THE CIT(A) DOES NOT NEED ANY INTERFERENCE. 5 7. APPEAL FILED Y THE ASSESSING OFFICER STANDS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH APRIL, 2012. SD/- SD/- (D.K. AGARWAL) (RAJEN DRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE 18-04-2012 TNMM COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR D BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI