Dy.Commissioner of Income Tax Circle-3(3), Ahmedabad V. Smt.Rachna Y Parikh, Ahmedabad

ITA 957/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6084 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT ZAVERI
• Keywords: Capital asset; Business income; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 957/AHD/2016 (ASSESSMENT YEAR: 2005-06) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(3), AHMEDABAD V/S SMT. RACHNA Y PARIKH 17, HARE RAM FLATS, PANCHVATI, AHMEDABAD-380015 (APPELLANT) (RESPONDENT) PAN: AACFH9579H APPELLANT BY : SHRI JAYANT ZAVERI, SR. D .R. RESPONDENT BY : SHRI BANDISH S. SOPARKAR, A. R. ( )/ ORDER DATE OF HEARING : 15 -02-201 8 DATE OF PRONOUNCEMENT : 20 -02-2018 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-10, AHMEDABAD DATED 03.02.2016 PERTAINING TO A.Y. 2005- 06. ITA NO. 957/ AHD/2016 . A.Y. 2005-0 6 2 2. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) ERRED IN DIRECTING TO TREAT THE PROFIT FROM SALES AS LONG TERM CAPITAL GA IN AS AGAINST THE BUSINESS INCOME TREATED BY THE A.O. 3. ON EXAMINATION OF RECORDS, THE A.O. NOTICED THAT DU RING THE YEAR, THE ASSESSEE HAS SOLD SHARES OF VISHAL EXPORTS OVERSEAS LTD. THE A.O. WAS OF THE FIRM BELIEF THAT THE SHARE PRICE OF THIS COMPANY WAS KEP T ARTIFICIALLY HIGH AND THE SHARES OF ASSESSEE WERE SOLD WITHIN VERY SHORT PERI OD. THE A.O. WAS OF THE OPINION THAT THE ENTIRE EXERCISE WAS STAGE MANAGED. THE A.O. DISALLOWED THE CLAIM OF LONG TERM CAPITAL GAIN FROM SALES OF SHARE S AND TREATED THE SALE CONSIDERATION AS BUSINESS INCOME. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND VEHEMENTLY STATED THAT THE SHARES WERE PURCHASED IN THE YEAR 1995, 2000 & 2002. THEREFORE, IT IS INCORRECT TO SAY THAT THE SHARES WERE SOLD WITHIN A VERY SHORT PERIOD OF TIME FROM THE DATE OF PURCHASE. STRONG RELIANCE WAS ALSO PLACED ON THE CBDT CIRCULAR NO. 6 OF 2016 DATED 29.02.2016. 5. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) DIRECTED THE A.O. TO TREAT THE PROFIT FROM SALES OF SHARES AS LO NG TERM CAPITAL GAIN. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE. THE DECISION OF THE TRIBUNAL IN THE CASES OF THE FAMILY OF THE ASSESSEE WHICH ALSO INCLUDED THE ASSESSEE. IT IS THE SAY OF THE LD. COUNSEL THAT ON IDENTICAL SET OF FAC TS, THE TRIBUNAL HAD CONSIDERED THE ISSUE AT LENGTH AND HAS DECIDED IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. ITA NO. 957/ AHD/2016 . A.Y. 2005-0 6 3 6. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISION OF THE TRIBUNAL IN ITA NOS. 1921 TO 1924/AHD/2014. 7. INSOFAR AS THE ALLEGATION THAT THE SHARES WERE SOLD WITHIN A SHORT PERIOD OF TIME, THE FOLLOWING CHART WILL DISLODGE THE ALLEGATIONS O F THE A.O. S.NO NAME OF NO. OF DATE OF DATE OF SALE NAME OF SCRIP UNITS PURCHASE BROKER 1 VISHAL 1,50,000 06/03/1995 31/05/2004 NA(IPO) EX PORTS OVERSEAS LTD 2 DO 1,80,000 15/12/1995 31/05/2004 DO 3 DO 4,95,000 31/03/2000 31/05/2004 DO 4 DO 1,65,000 31/08/2000 31/05/2004 DO 5 DO 59,200 09/02/2002 31/05/2004 DO 8. IT CAN BE SEEN FROM THE AFORE-STATED CHART THAT THE BULK OF THE SHARES WERE PURCHASED IN 1995 & 2000 AND SOLD IN F.Y. 2004-05. THE HOLDING PERIOD WAS SUBSTANTIAL. FURTHER, THE CO-ORDINATE BENCH HAD TH E OCCASION TO CONSIDER AN IDENTICAL ISSUE ON IDENTICAL SET OF FACTS AND THE R ELEVANT FINDINGS READ AS UNDER:- 16. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO T HE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE APPELLANTS HAVE NOT PURCHASED AND SOLD THE SHARES OF ANY OTHER COMPANY EXCEPT VEOL. AS PER THE FACTS ON RECORD, THE LADIES WERE HOLDING SHARES SINCE 2003 AND POST IPO SOME OF THE SHARES WERE HELD SINCE 2004. THERE IS NO DISPUTE THAT THE SHARES HAVE BEEN SOLD THROUGH THE STOCK EXCHANGE AT THE PREVAILING MARKET PRICE. WHEN THE S HARES ARE SOLD THROUGH BOLT BOMBAY STOCK EXCHANGE ON LINE TRADING THE SELLER DOES NOT KNOW WHO THE PURCHASER IS AND PURCHASER DOES NOT KNOW WHO THE SE LLER IS. THE MARKET RATE ON THE BOURSES ARE DECIDED BY THE MARKET FORCES. WHERE VER IN PARTICULAR SCRIP THE ITA NO. 957/ AHD/2016 . A.Y. 2005-0 6 4 BUYERS ARE MORE THAN THE SELLERS, THE MARKET PRICE RISES AND WHEN THE SELLERS ARE MORE THAN THE BUYERS, THE MARKET PRICES FALL. IN S UCH A SCENARIO, IT CANNOT BE EXPECTED THAT THE MARKET PRICES WERE RIGGED BY THE APPELLANTS. IF THE MARKET PRICES STARTED FALLING DOWN AFTER THE SALE OF SHARE S BY THE APPELLANT, THE APPELLANTS CANNOT BE HELD RESPONSIBLE FOR THE SAME UNLESS THE SEBI, THE BSE OR THE NSE AUTHORITIES, AFTER THOROUGH INVESTIGATION, FOUND THAT THERE WAS A CARTEL WHICH RIGGED THE PRICES AND HAVE MANIPULATED THE TR ADING IN THE SHARES. THE FACTS ON THE CASE RECORD ARE DEVOID OF ANY SUCH INV ESTIGATION BY THE AUTHORITIES. THE ALLEGATION OF THE LD. D.R. THAT IN AUGUST 2017, THE SEBI HAS DECLARED VEOL AS A SHAM COMPANY DOES NOT HOLD ANY WATER BECAUSE THE IMPUGNED SALE OF SHARES HAVE TAKEN PLACE ALMOST 12 YEARS AGO. THE LD. D.R. HAS FURTHER ALLEGED THAT THE ENFORCEMENT DIRECTORATE HAD FILED A CHARGE SHEET UN DER THE PREVENTION OF MONEY LAUNDERING ACT AGAINST THE DIRECTORS OF VEOL IN 20 15 ALSO DOES NOT HAVE ANY FORCE AS THE LADIES HAVE SOLD THEIR SHARES IN 2005. THE ENTIRE ASSESSMENT IS BASED ON PRESUMPTIONS, SURMISES AND CONJECTURES OF THE AS SESSING OFFICER WHICH WERE SUBSEQUENTLY ENDORSED BY THE FIRST APPELLATE AUTHOR ITY. INSOFAR THE ISSUE RELATING TO THE TAXABILITY OF SURPLUS ON SALE OF SHARES AND SECURITIES IS CONCERNED, THE CBDT CIRCULAR ISSUED BY THE CBDT NEEDS SPECIAL MENTION A ND THE SAME READS AS UNDER:- CIRCULAR NO.6/2016 GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NORTH BLOCK, NEW DELHI, THE 29 TH OF FEBRUARY, 2016 SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOM E - INSTRUCTIONS IN ORDER TO REDUCE LITIGATION - REG.- SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT ,, 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET TO INCLUDE PROPERTY OF ANY KIND HELD BY AN ASSESSEE,, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TRADE OR PERSONAL ASSETS S UBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AND OTHER SECURITIES, THE SAME CAN BE HELD EITHER AS CAPITAL ASSETS OR STOCK-IN-TRADE/ TRADING ASSETS OR BOTH- DETERMINATION OF THE CHARACTER OF A PARTICULAR INVE STMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN-TRADE, IS ESSENTIALLY A FACT-SPECIFIC DETERMINATION AND HAS LED TO A LOT OF UNCERTAINTY AND LITIGATION IN THE PAST. ITA NO. 957/ AHD/2016 . A.Y. 2005-0 6 5 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS IN VESTMENTS FROM THE SHARES HELD AS STOCK-IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT') HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIRCULAR NO. 4 OF 2007 DATED JUNE 15, 2007. SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS.- 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDI VIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN T HIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRI NCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SAFE OF SHARES AND SECURIT IES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPI TAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESP ECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AN D UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATIO N TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASS ESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENE RATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME SHALL TA KE INTO ACCOUNT THE FOLLOWING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES , OPTS TO TREAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRA NSFER OF SUCH SHARES/SECURITIES WOULD HE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HEL D FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY P RECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES T O TREAT THE INCOME ARISING FROM THE TRANSFER THEREO F AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE A SSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN B Y THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REM AIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT /CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GA IN OR BUSINESS INCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIE W THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/ SECURITIES WHERE THE GENUINENESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LONG TERM CAP ITAL GAIN / SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSAC TIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSU E OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF S HARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INV OLVING TRANSFER OF SHARES AND SECURITIES. (ROHITGARG) DEPUTY SECRETARY GOVERNMENT OF INDIA F,NO.225/12/2016-ITA-II COPY TO:- 1)CHAIRMAN, CBDT AND ALL MEMBERS,CBDT 2) OSD TO REVENUE SECRETARY 3) ALL PR. CCSIT/PR. DSGIT 4) ALL JS/CSIT, CBDT 5) ADG (PR,PP & OL) WITH REQUEST FOR PLACING ON OFF ICIAL HANDLE OF THE DEPARTMENT 6) ADDL. CIT, DATA BASE CELL FOR UPLOADING ON DEPAR TMENTAL WEBSITE 7) WEB MANAGER FOR UPLOADING ON INCOMETAXINDIA.GOV. IN & PLACING IN PUBLIC DOMAIN 8) ITCC, CENTRAL BOARD OF DIRECT TAXES(3 COPIES) 9) GUARD FILE ITA NO. 957/ AHD/2016 . A.Y. 2005-0 6 6 (ROHIT GARG) DEPUTY SECRETARY GOVERNMENT OF INDIA 17. IN THE LIGHT OF THE AFOREMENTIONED CIRCULA R, THE INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHASE OF SHARES IS PARAMOUNT. IF THE ASSESSEE HAS CLEAR INTENTION OF BEING AN INVESTOR AND SHOWING THE SHAR ES AS INVESTMENT, THE SAME SHOULD NOT BE DISTURBED. THE LADIES WERE HOLDING SH ARES SINCE 2003 AND FURTHER PURCHASED SHARES FROM THE IPO IN 2004. MERELY BECAU SE THE APPELLANTS HAVE MADE SOME PROFIT ON THE SALE OF SHARES, THE SAME CA NNOT BE TREATED AS BUSINESS PROFIT OF THE APPELLANTS. MERELY BECAUSE, THE MARKE T PRICE FELL AFTER THE SALE OF SHARES CANNOT GO TO ESTABLISH THAT THE MARKET PRICE S WERE RIGGED. IN OUR UNDERSTANDING OF THE FACTS, THE MARKET PRICES OF A PARTICULAR SCRIP FALLS FOR MORE THAN ONE REASON AND ONE OF SUCH REASON IS THE ISSUE OF BONUS SHARES AND TRADING OF SHARES SUBSEQUENTLY AS EX BONUS. IN THE CASE IN HAND, THE SHARES OF VEOL BECAME EX-BONUS FROM 27.08.2005. 18. BEFORE CLOSING, ANOTHER ALLEGATION MADE BY THE LOWER AUTHORITIES IS THAT THE PURCHASERS HAVE BOOKED HEAVY LOSSES ON THE PURCHASE OF SHARES WHICH WERE SOLD BY THE LADIES. IN OUR CONSIDERED OPINION AND AS MEN TIONED ELSEWHERE, THE SELLERS DO NOT KNOW WHO THE PURCHASERS ARE. MOREOVER, THERE IS NOTHING ON RECORD TO SUGGEST THAT THE PURCHASERS COLLIDED WITH THE SELLE RS TO BOOK LOSSES. CONSIDERING THE FACTS IN TOTALITY, IN THE LIGHT OF THE CBDT CIR CULAR, WE DO NOT FIND ANY MERIT IN THE ORDERS OF THE AUTHORITIES BELOW. WE, ACCORDINGL Y, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO TREAT THE SURPLUS ON THE SALE OF SHARES AS LONG TERM CAPITAL GAIN. 19. IN THE RESULT, ALL THE APPEALS ARE ALLOWED. ITA NO. 957/ AHD/2016 . A.Y. 2005-0 6 7 9. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF T HE AFOREMENTIONED DECISION OF THE CO-ORDINATE BENCH, DECLINE TO INTERFERE WITH TH E FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 20 - 02- 20 18 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 20 /02/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD