ATUL A SHAH, MUMBAI V. ACIT 25(3), MUMBAI

ITA 975/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3505 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Business income; Rule of consistency
• Section: 143(3)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 975 /MUM/2013 ( / ASSESSMENT YEAR : 2007-08) SHRI ATUL A SHAH, F-1001, SHANTI APPT., OFF ATUL TOWERS, MATHURDAS ROAD, KANDIVALI, MUMBAI 400067. / V. ASSISTANT COMMISSIONER OF INCOME TAX- 25 (3),BANDRA MUMBAI. ./ PAN : AACPS9190F ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI RAHUL K. HAKANI REVENUE BY : SHRI AARSI PRASAD / DATE OF HEARING : 07-06-2016 / DATE OF PRONOUNCEMENT : 17-08-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 9 75/MUM/2013, IS DIRECTED AGAINST APPELLATE ORDER DATED 29 TH NOVEMBER, 2012 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 35, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2007-08, THE APPE LLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDE R DATED 16 TH DECEMBER, 2009 PASSED BY THE LEARNED ASSESSING OFFICER (HEREI NAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALL ED THE ACT). ITA 975/MUM/2013 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE I N THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READS AS UNDER:- 1. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARN ED CIT(A) HAS ERRED IN TREATING A SUM OF RS.5,51,677 BEING CAPITAL GAIN TAXABLE @10% AS BUSINESS INCOME. THIS SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS TAXABLE @10%. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PARTNER IN PARTNERSHIP FIRMS FROM WHICH THE ASSESSEE DERIVED I NCOME BY WAY OF SHARE OF PROFIT, REMUNERATION AND INTEREST INCOME. THE ASSE SSEE HAS ALSO DECLARED CAPITAL GAINS ON SALE OF SHARES AND INTEREST INCOME ETC. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE A.O. OBSERVED THAT THE ASSES SEE HAS ENTERED INTO TRANSACTIONS IN SHARES AND MUTUAL FUNDS AND KEEPING IN VIEW THE VOLUMES, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S IN SHARE AND MUTUAL FUNDS, THE ASSESSEE WAS ASKED BY THE AO TO SHOW CAU SE AS TO WHY THE SHORT TERM/LONG TERM CAPITAL GAINS ON SHARES AND MUTUAL F UNDS SHOWN SHOULD NOT BE TREATED AS ASSESSEES BUSINESS INCOME. THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD DISCL OSED INCOME FROM SECURITIES TRANSACTION AS SHORT TERM AND LONG TERM CAPITAL GAINS. IN THE EARLIER ASSESSMENT YEAR 2005-06 IN SCRUTINY ASSESSM ENT U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, IT WAS ACCEPTED AS CAPIT AL GAIN . WHILE FOR THE ASSESSMENT YEAR 2006-07 THE SAME WAS TREATED AS BUS INESS INCOME. THE ASSESSEE SUBMITTED THAT HE HAS FILED APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE ORDER OF THE AO FOR EARLIER YEAR SUFFERED FROM SEVERAL INFIRMITIES AGAINST WHICH ELABORATE SUBMISSIONS WER E MADE BEFORE THE LEARNED CIT(A) AND ORDER OF THE LEARNED CIT(A) IS AWAITED. ITA 975/MUM/2013 3 THE A.O. OBSERVED THAT ASSESSEE HAS FAILED TO SUBMI T SPECIFIC EXPLANATION AS TO WHY INCOME FROM SHARES BE NOT TREATED AS BUSINES S INCOME AND KEEPING IN VIEW THE VOLUME, FREQUENCY, CONTINUITY AND REGULARI TY OF THE SHARE TRANSACTIONS , IT CAN BE INFERRED THAT THESE TRANSA CTIONS MADE BY THE ASSESSEE WITH A PROFIT MOTIVE AND CONSIDERING THE FACTS THAT THE ASSESSMENT IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING A SSESSMENT YEAR I.E ASSESSMENT YEAR 2006-07 UNDER SIMILAR FACTS AND CIR CUMSTANCES OF THE CASE THE ENTIRE PROFITS ON PURCHASE AND SALE OF SHARES W ERE TREATED AS INCOME OF THE ASSESSEE UNDER THE HEAD PROFIT AND GAIN FROM BU SINESS AND PROFESSION AND HENCE THE GAINS OFFERED ON SHORT TERM CAPITAL G AINS OF RS. 5,51,677/- WAS TREATED AS INCOME OF THE ASSESSEE FROM BUSINESS VID E ASSESSMENT ORDER DATED 16 TH DECEMBER, 2009 PASSED BY THE AO U/S 143(3) OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 16.12.20 09 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FILED HIS FIRS T APPEAL BEFORE THE LD. CIT(A). 6. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM M/S KIND METAL WORK S AS REMUNERATION, INTEREST AND SHARE OF PROFIT AS PARTNER. THE ASSES SEE IS ALSO PARTNER IN OTHER THREE FIRMS. THE ASSESSEE HAS RECEIVED SHARE OF PR OFIT OF RS. 24,59,286/- WHICH WAS DISCLOSED AS SHARE OF PROFIT FROM FIRMS B EING EXEMPT FROM TAX. THE ASSESSEE IS WORKING PARTNER IN M/S KING METAL WORKS AND DERIVING REMUNERATION OF RS. 4 LACS AND INTEREST ON CAPITAL OF RS. 4,07,786/- ALSO. THE ASSESSEE SUBMITTED THAT SURPLUS FUNDS ARE INVESTED IN SHARES AND MUTUAL FUNDS. THE ASSESSEE SUBMITTED THAT MAJORITY OF THE TIME IS DEVOTED IN THE BUSINESS AND THIS IS NOT THE MAIN ACTIVITY BEING A WORKING PARTNER WITH M/S KING METAL WORKS. THE INVESTMENT IN SHARES WAS MAD E MAINLY THROUGH THE BROKERS OR IPO AND MAINLY IN MUTUAL FUNDS. IT WAS SUBMITTED THAT IN THE BOOKS OF ACCOUNT THESE TRANSACTION WERE REFLECTED A S INVESTMENT IN SHARES ITA 975/MUM/2013 4 AND NOT AS STOCK-IN-TRADE. NO FUNDS WERE BORROWED FOR THE PURPOSE OF INVESTMENT IN SHARES AND NO INTEREST IS PAID. ALL THE TRANSACTIONS WERE ENTERED THROUGH THE STOCK EXCHANGES AND THE PAYMENT S WERE THROUGH CHEQUES. THUS, THE INCOME WAS SHOWN AS CAPITAL GAIN S. AVERAGE PERIOD OF HOLDING OF SHARES WAS 95 DAYS WITH 70 TRANSACTIONS AGAINST 129 DAYS OF HOLDING FROM 107 SCRIPTS DURING PRECEDING YEAR. IT WAS SUBMITTED THAT THE NUMBER OF TRANSACTIONS WERE NOT LARGE AND INVESTMEN TS WERE MAINLY HELD FOR LONG TERM PERIOD TO EARN DIVIDEND AND GOOD INCOME. ALL THE SHARE DEALINGS WERE DONE THROUGH RECOGNIZED STOCK EXCHANGES AND WE RE DELIVERY BASED . THE SAID INVESTMENTS ARE DULY RECORDED IN THE BOOKS OF ACCOUNTS AS INVESTMENT. IT WAS ALSO SUBMITTED THAT IN ASSESSMENT YEARS 2004 -05 AND 2005-06 THE INCOME WAS TREATED AS INVESTMENT INCOME AND CHARGED TO TAX AS CAPITAL GAIN IN THE SCRUTINY ASSESSMENT FRAMED BY THE REVENUE, W HILE IN THE ASSESSMENT YEAR 2006-07 THE SAME WAS ASSESSED AS BUSINESS INCO ME. THUS, THE ASSESSEE PRAYED BEFORE THE LEARNED CIT(A) THAT THE INCOME BE TAXED AS SHORT TERM CAPITAL GAINS ONLY INSTEAD OF CHARGING THE SAME AS INCOME FROM BUSINESS. THE LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE A SSESSEE AND THE STAND OF THE A.O. AND OBSERVED THAT THE ASSESSEE HAD ENTERED INTO VOLUMINOUS TRANSACTION OF PURCHASE AND SALE OF SHARES DURING T HE PREVIOUS YEAR. THE ASSESSEE TOOK THE DELIVERIES OF SHARES ON PURCHASE AND LATER SOLD THE SAME. THE NUMBER, VOLUME AND FREQUENCY OF THE TRANSACTION OF PURCHASE AND SALE OF SHARES WERE HUGE AND THE OBJECTIVE IS TO EARN PROFI T AND NOT TO HOLD THE SHARES FOR EARNING DIVIDEND OR CAPITAL APPRECIATION. THE LD. CIT(A) OBSERVED THAT THE VOLUME OF PURCHASE AND SALE OF THE ASSESSEE DURING THE PREVIOUS YEAR WAS SUBSTANTIALLY HIGH AND PURCHASE AND SALE OF SHARES WAS THE MAIN ACTIVITY OF THE ASSESSEE. THE TRANSACTIONS WERE CONTINUOUS AND REGULAR AND SYSTEMATIC. THE LD. CIT(A) RELIED UPON VARIOUS DECISIONS WHICH ARE DETAILED IN HIS ORDER AND CAME TO THE CONCLUSION THAT THE ASSESSEE IS ENG AGED IN ADVENTURE IN NATURE OF TRADE ON FULL-SCALE AND IT HAS SHOWN PURC HASE OF SHARES AS ITA 975/MUM/2013 5 INVESTMENTS AND GAINS AS SHORT TERM CAPITAL GAIN WI TH A VIEW TO AVOID TAX. THE INVESTMENTS SHOWN IN THE BOOKS OF ACCOUNT ARE N OTHING BUT STOCK IN TRADE. PURCHASE AND SALE OF SHARES FREQUENTLY IN S HORT PERIOD OF TIME INDICATE THAT THE ASSESSEE HAS A MOTIVE TO EARN PROFIT IN SH ORT PERIOD. LOOKING INTO THE OVERALL ACTIVITY OF THE ASSESSEE IN THE SHARE TRANS ACTION, THE LD. CIT(A) HELD THAT INTENTION OF THE ASSESSEE IS TO GAIN PROFITS A ND HENCE THE DECISION OF THE A.O. WAS UPHELD BY THE LEARNED CIT(A) VIDE APPELLAT E ORDER DATED 29.11.2012. 7. AGGRIEVED BY THE APPELLATE ORDER DATED 29.11.201 2 PASSED BY THE LD. CIT(A), THE ASSESSEE FILED APPEAL BEFORE THE TRIBUN AL. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD MADE INVESTMENTS IN SHARES WHICH WERE PURCHASED THROUGH RECOGNIZED STOCK EXCHANGES THROUGH BROKERS OR IPO. THE PAYMENTS WER E MADE THROUGH CHEQUE. THE INVESTMENTS IN SHARES ARE SHOWN IN THE BOOKS OF ACCOUNT AS INVESTMENT WHICH ARE STATED AT COST. THE ASSESS EE IS A FULL TIME WORKING PARTNER IN PARTNERSHIP FIRM AND HE DOES NOT HAVE TI ME TO FULLY INVOLVE IN THE SHARE TRADING BUSINESS. THE INVESTMENTS WERE MADE FROM THE SURPLUS OWN FUNDS AVAILABLE WITH THE ASSESSEE AND NO BORROWINGS WERE MADE FOR THIS PURPOSE AND TRANSACTIONS WERE DELIVERY BASED. IN T HE ASSESSMENT YEAR 2005- 06 THE REVENUE HAS ACCEPTED THE TRANSACTION AS CAPI TAL GAIN AND NO ADDITIONS WERE MADE BY THE AO , WHILE FOR ASSESSMENT YEAR 20 06-07 THE AO BROUGHT THE SAME TO TAX AS INCOME FROM BUSINESS. IN ASSESS MENT YEARS 2006-07 THE LD. CIT(A) HAS ACCEPTED THE PURCHASE AND SALE OF SH ARES AS SHORT TERM CAPITAL GAIN VIDE ORDER DATED 19 TH AUGUST, 2009 WHICH IS PLACED IN PAPER BOOK PAGE 16 TO 24. THE LD. COUNSEL SUBMITTED THAT THERE IS NO CHANGE IN THE FACTUAL MATRIX OF THE CASE IN THE INSTANT PREVIOUS YEAR AS COMPARED TO THE EARLIER YEARS. PRINCIPLE OF CONSISTENCY HAS TO BE MAINTAIN ED AND THE SHORT TERM CAPITAL GAINS OFFERED FOR TAX SHOULD BE BROUGHT TO TAX AS SHORT TERM CAPITAL GAINS AND NOT AS INCOME FROM BUSINESS. THE ASSESSEE ALSO SUBMITTED A CHART ITA 975/MUM/2013 6 VIDE PAPER BOOK PAGE 25 FOR ASSESSMENT YEARS 2005-0 6 ,2006-07 AND 2007-08 WHEREIN THE AVERAGE PERIOD OF HOLDING FOR SHARE SOL D FOR A PERIOD OF NOT MORE THAN ONE YEAR WAS SHOWN AS 95 DAYS WITH NUMBER OF T RANSACTIONS BEING 70 FOR THE INSTANT PREVIOUS YEAR WHILE FOR THE ASSESSM ENT YEAR 2005-06 IT WAS ONLY 70 DAYS WITH NUMBER OF TRANSACTION BEING 119 W HILE THE SIMILAR FIGURE FOR ASSESSMENT YEAR 2006-07 BEING 129 DAYS AND 107 TRAN SACTION. THE ASSESSEE ALSO SUBMITTED A CHART VIDE PAPER BOOK PAGE 26 TO 2 9 SHOWING THE STATEMENT OF SHORT TERM CAPITAL GAINS /LOSS ON SHARE TRANSAC TION FOR THE INSTANT ASSESSMENT YEAR 2007-08 . THE LD. COUNSEL RELIED U PON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GOP AL PUROHIT (2011) 336 ITR 287(BOM.). 9. THE LD. D.R., ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAD INDULGED IN VOLUMINOUS SHARE TRANSACTIONS REGULARLY AND FREQUENTLY WITH THE MOTI VE BEHIND THESE TRANSACTIONS WAS TO EARN PROFIT. IT WAS SUBMITTED T HAT THE AUTHORITIES BELOW HAVE RIGHTLY BROUGHT THE GAINS ARISING FROM SHARES HELD FOR A PERIOD OF NOT MORE THAN ONE YEAR AS BUSINESS INCOME INSTEAD OF SH ORT TERM CAPITAL GAINS AS CLAIMED BY THE ASSESSEE. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RELIED UPON . WE HAVE OBSERVED THAT THE ASSESSEE IS A WORKING PARTNER IN PARTNERSHIP FI RMS FROM WHERE HE IS DERIVING INCOME FROM SHARE FROM PARTNERSHIP FIRM(EX EMPT), INTEREST ON CAPITAL AND REMUNERATION . WE HAVE OBSERVED THAT THE ASSE SSEE HAS PURCHASED AND SOLD THE SHARES THROUGH RECOGNIZED STOCK EXCHANGES THROUGH BROKERS OR IPO AND THE PAYMENTS WERE MADE THROUGH CHEQUE. THE SHAR ES /MUTUAL FUNDS HAVE BEEN SHOWN AS INVESTMENT IN THE BOOKS OF ACCOU NT AND VALUED AT COST. THERE WERE NO BORROWINGS BY THE ASSESSEE AND NO INT EREST WAS PAID. THE NUMBER OF TRANSACTIONS HAS ALSO COME DOWN IN THE IM PUGNED ASSESSMENT ITA 975/MUM/2013 7 YEAR AS COMPARED TO THE PRECEDING ASSESSMENT YEAR. THE AVERAGE PERIOD OF HOLDING WAS 95 DAYS AND NUMBER OF TRANSACTIONS WERE 70 , WHILE FOR ASSESSMENT YEAR 2005-06 IT WAS 70 DAYS AND 119 TRAN SACTION WHILE FOR ASSESSMENT YEAR 2006-07 , THE AVERAGE PERIOD OF HOL DING WAS 129 DAYS AND TRANSACTIONS WERE 107. IN THE PRECEDING ASSESSMENT YEAR 2006-07, THE LEARNED CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESS EE WHEREBY THE SAID GAINS WERE ACCEPTED AS SHORT TERM CAPITAL GAINS BY THE LE ARNED CIT(A) AND THE REVENUE HAS ACCEPTED THE ORDERS OF THE LEARNED CIT( A) AS IT WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL THAT REVENUE HAS PREF ERRED FURTHER APPEAL WITH THE TRIBUNAL IN THIS REGARD FOR ASSESSMENT YEAR 200 6-07. THE AO ACCEPTED THE SAID GAINS AS SHORT TERM CAPITAL GAINS WHILE FR AMING ASSESSMENT U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2005-06. THE FACTUAL MATRIX IN THE INSTANT ASSESSMENT YEAR UNDER APPEAL IS SIMILAR TO THE PRECEDING ASSESSMENT YEARS I.E. 2005-06 AND 2006-07 AND WE DO NOT FIND A NY REASONS OF DEVIATING FROM THE SETTLED POSITION IN THIS YEAR. KEEPING IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE CONSIDERE D OPINION THAT PRINCIPLE OF CONSISTENCY HAS TO BE MAINTAINED AND FOLLOWED IN TH IS YEAR AS FACTS ARE ALMOST SIMILAR TO THAT OF PRECEDING YEARS AND HENCE WE DIR ECT THAT THE INCOME EARNED BY THE ASSESSEE FROM PURCHASE AND SALE OF SHARES WI TH RESPECT TO SHARES HELD FOR NOT MORE THAN ONE YEAR BE HELD AS SHORT TERM C APITAL GAINS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AND NOT AS BUSIN ESS INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION AS HELD BY THE AUTHORITIES BELOW . THE RELIANCE IS PLACED UP ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GOPAL PUROH IT (2011) 336 ITR 287(BOM.) AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT REPORTED IN (1992) 193 ITR 321(SC).T HE ASSESSEE SUCCEEDS IN THIS APPEAL AS PER OUR DISCUSSIONS AND REASONING A S SET OUT ABOVE. WE ORDER ACCORDINGLY ITA 975/MUM/2013 8 11. IN THE RESULT, ASSESSEES APPEAL IN ITA NO 975 /MUM/2013 FOR THE ASSESSMENT YEAR 2007-08 IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH AUGUST , 2016. # $% &' 17-08-2016. ( ) SD/- SD/- (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 17-08-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI