ROHAN SHAH, MUMBAI V. ITO WD 21(1)(2), MUMBAI

ITA 947/MUM/2010

• Counselvise Citation: 94719914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D : MUMBAI BEFORE SHRI R.V. EASWAR, (PRESIDENT) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO. 947/MUM/2010 ASSESSMENT YEAR : 2004-05 ROHAN SHAH 42, SNEHJYOT VALLABHNAGAR, JVPD SCHEME VILE PARLE (W) MUMBAI-400 056. ..( APPELLANT ) P.A. NO. (AAPPS 1093 F) VS. INCOME TAX OFFICER AAYAKAR BHAVAN MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI HARESH P. SHAH RESPONDENT BY : SHRI C. G.K. NAIR DATE OF HEARING : 21.7.2011 DATE OF PRONOUNCEMENT : 29 TH JULY, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19.11.2009 BY THE CIT(A) FOR THE ASSESSMENT YEAR 20 04-05. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING NATURE O F INCOME EARNED BY THE ASSESSEE FROM SALE AND PURCHASE OF SHARES. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT, DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAD DEC LARED INCOME ITA NO.947/M/10 A.Y:04-05 2 RS.19,87,754/- FROM SALE AND PURCHASE OF SHARES AS LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN . THE AO ON EXAMINATIO N OF RECORDS NOTED THAT ONLY SOURCE OF INCOME OF THE ASSESSEE WAS TRADING I N SHARES. THE VOLUME AND FREQUENCY OF TRANSACTIONS WAS HIGH. FURTHER TH E ASSESSEE DID NOT HAVE ADEQUATE RESOURCES OF HIS OWN FOR MAKING INVESTMENT IN SHARES AND HAD USED BORROWED FUNDS. HE, THEREFORE, CONCLUDED THAT THE A SSESSEE WAS NOT AN INVESTOR BUT A TRADER IN SHARES AND ACCORDINGLY TRE ATED THE INCOME FROM SALE AND PURCHASE OF SHARES AS BUSINESS INCOME. THE ASS ESSEE DISPUTED THE DECISION OF THE AO AND SUBMITTED BEFORE THE CIT(A) THAT THE AO WAS NOT CORRECT IN STATING THAT THE TRANSACTIONS WERE MAINL Y FROM BORROWED FUNDS. IT WAS SUBMITTED THAT THE ASSESSEE HAD TAKEN ONLY SOME TEMPORARY LOANS FROM FAMILY MEMBERS. THE ASSESSEE WAS AN INVESTOR AND T HE SHARES WERE HELD FOR LONG TERM BEFORE BEING SOLD. SOME SHARES HAD BEEN SOLD AFTER SHORT HOLDING TO CONTAIN LOSSES OR TO TAKE ADVANTAGE OF UPWARD TR END IN THE MARKET. IT WAS ACCORDINGLY URGED THAT THE BUSINESS INCOME DECLARED SHOULD BE ACCEPTED. THE CIT(A) WAS HOWEVER NOT SATISFIED BY THE EXPLANA TION GIVEN BY THE ASSESSEE. HE ASKED THE ASSESSEE TO GIVE HOLDING DE TAILS OF SHARE TRANSACTIONS SUCH AS SHARES SOLD AFTER HOLDING FOR 30 DAYS ETC. AND AS PER CIT(A) ASSESSEE COULD NOT GIVE SUCH DETAILS. HE THE REFORE, CONFIRMED THE ORDER OF AO AGGRIEVED, BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES, PERUSED RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCOME FROM PURCHASE ITA NO.947/M/10 A.Y:04-05 3 AND SALE OF SHARES. THE CLAIM OF THE ASSESSEE IS T HAT HE IS AN INVESTOR AND INCOME HAD ACCORDINGLY BEEN DECLARED AS CAPITAL GAI N. THE AO HAS HOWEVER HELD, CONSIDERING THE VOLUME, FREQUENCY AND BORROWE D FUNDS USED, THAT THE ASSESSEE IS A TRADER IN SHARES. WHETHER DEALING IN SHARES IS OF THE NATURE OF INVESTMENT OR IS A TRADING ACTIVITY IS A VERY DEBAT ABLE ISSUE. THE FACTS OF EACH CASE HAVE TO BE ANALYSED CAREFULLY TO ARRIVE A T A PROPER CONCLUSION. FACTORS LIKE FREQUENCY AND VOLUME OF TRANSACTIONS, ENTRY OF TRANSACTIONS IN THE BOOKS OF ACCOUNT, USE OF BORROWED FUNDS ETC. AR E RELEVANT FACTORS FOR DECIDING WHETHER THE ACTIVITY IS AN INVESTMENT ACTI VITY OR TRADING ACTIVITY BUT NO SINGLE FACTOR IS CONCLUSIVE AND CUMULATIVE EFFE CT OF ALL THE FACTORS IS TO BE SEEN. MOST RELEVANT FACTOR IS INTENTION OF THE ASS ESSEE AT THE TIME OF PURCHASE, WHICH HAS TO BE UNDERSTOOD FROM THE CONDU CT OF THE ASSESSEE IN ACTUAL DEALING WITH THE SHARES SUBSEQUENTLY. AN IN VESTOR PURCHASES SHARES FOR LONG TERM HOLDING SO AS TO DERIVE INCOME FROM D IVIDEND. HOWEVER, AN INVESTOR MAY ALSO SELL THE SHARES AT SHORT PERIODS TO CONTAIN LOSSES IN CASE A PARTICULAR SCRIP IS NOT DOING WELL OR TO TAKE ADVAN TAGE OF EXCEPTIONAL GAIN IN PARTICULAR SCRIP OR IN CASE THERE IS URGENT REQUIRE MENT OF FUNDS. A TRADER ON THE OTHER HAND IS MAINLY GUIDED BY PROFIT MOTIVE AN D MAKES FREQUENT PURCHASE AND SALE OF SHARES ON EVERY RISE/FALL IN T HE VALUE OF SHARES. A PROPER CONCLUSION CAN BE DRAWN ONLY AFTER ANALYZING THE HOLDING PERIOD-WISE DETAILS OF TRANSACTIONS AND AFTER EXAMINING THE EXP LANATION OF THE ASSESSEE FOR SALES AT SHORT INTERVALS. THE AO HAS NOT MADE ANY EXAMINATION IN THIS REGARD. THOUGH THE CIT(A) DID CALL FOR DETAILS BUT IT APPEARS HE DID NOT PURSUE THE MATTER OTHERWISE HE COULD HAVE REMANDED THE MAT TER TO THE AO FOR ITA NO.947/M/10 A.Y:04-05 4 DETAILED REPORT WHICH HAS NOT BEEN RECORDED. IT IS NOT POSSIBLE TO ARRIVE AT ANY FAIR CONCLUSION IN THE MATTER ON THE BASIS OF F ACTS AVAILABLE ON RECORD. IN OUR VIEW DETAILED EXAMINATION IS REQUIRED AFTER OBT AINING NECESSARY DETAILS. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RE STORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSAR Y EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29.7.2011. SD/- SD/- (R.V. EASWAR) (RAJENDRA SINGH ) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 29.7.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.