Shri Harsh S. Shah, Ahmedabad V. The DY.CIT, Circle-10, Ahmedabad

ITA 991/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8416 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: NIMISH B SHAH
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I S. S. GODARA , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER HARSH S. SHAH, C - 54, SILVER ARC, NR. ELLISBRIDGE RLY CROSSING, AHMEDABAD - 380006 AFAPS3154G (APPELLANT) VS THE DCIT, RANGE - 10, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI ROOP CHAND, D . R. ASSESSEE BY: S H RI NIMISH B. SHAH , A.R. DATE OF HEARING : 28 - 08 - 2 017 DATE OF PRONOUNCEMENT : 22 - 09 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2 010 - 11 , AR ISES FROM ORDER OF THE CIT(A) - XV, AHMEDABAD DATED 07 - 03 - 2014 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - I T A NO . 991 / A HD/20 14 A SSESSMENT YEAR 2010 - 11 I.T.A NO . 991 /AHD/20 14 A.Y. 2010 - 11 PAGE NO HARSH S. SHAH VS. DCIT 2 1. ON THE FACTS AND CIRCUMSTANCE S OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT THE GAIN EARNED BY THE APPELLANT ON SHARE TRANSACTIONS OF RS 84,81,597/ - WAS LIABLE TO BE TAXED UNDER THE HEAD BUSINESS INCOME AS AGAINST CAPITAL GAIN AND CONSEQUENTALLY THE APPELLANT WAS NO T ENTITLED FOR THE SETOFF OF CARRIED FORWARD SHORT TERM CAPITAL LOSS OF RS 71,35,047/ - FROM THE SAID INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT USE OF PORTFOLIO MANAGEMENT SERVICE OF HDFC FOR SHARE TRANSACTIONS IS TO EARN THE BUSINESS INCOME. 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 24 , 77 , 375/ - WAS FILED ON 26 TH JULY, 2010. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 27 T H JULY, 2011. THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF PURCHASE AND SALE OF LAND AND TRADING OF SHARE S AND SECURITIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER NOTICED THAT ASSESSEE S BUSINESS INCOME CONSISTS OF RS. 1 ,0 6 , 32 7/ - AS INCOME FROM SPECULATION AND RS. 6 , 16 ,1291/ - AS INCOME FROM FRANGIPANI ART AND FURTHER THE ASSESSEE HAS EARNED INCOME OF RS. 84 ,8 1 , 597/ - FROM THE SALE AND PURCHASE OF SHARES. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD SHOWN THE SAME UNDER TH E SHORT TERM CAPITAL GAIN AND SET OFF THE BROUGHT FORWARD LOSS OF RS. 71 , 35 , 047/ - . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE INCOME AROSE FROM SHARE TRANSACTION S SHOULD HAVE BEEN CONSIDERED UNDER THE BUSINES S HEL D INSTEAD OF CAPITAL GAIN. T HERE WERE 2287 TRANSACTION S UNDERTAKEN BY THE ASSESSEE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR AND THE AMOUNT INVOLVED WAS RS . 639162754/ - ON WHICH T HE ASSESSEE HA D SHOWN CAPITAL GAIN OF RS. 84 , 81 , 5 97/ - . HE FURTHER OBSERVED THAT ASSESSEE WAS CARRYING OUT BUSINESS OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS AND THE I.T.A NO . 991 /AHD/20 14 A.Y. 2010 - 11 PAGE NO HARSH S. SHAH VS. DCIT 3 TURNOVER WAS EXCEEDING MORE THAN 1 CRORE , THE ASSESSEE HAS NOT FILED TAX AUDIT REPORT. THE ASSESSEE WAS INDEPENDENTLY DOING BUSINESS OF INVESTMENTS IN SHARES AND MUT UAL FUNDS BY ENGAGING SERVICES OF PMS. HE ALSO OBSERVED THAT ASSESSEE HAS OBTAINED LOAN OF RS. 4 , 46 , 08205 FROM RELATIVES AND THE SAID LOAN WAS USED FOR MAKING INVESTMENT IN MUTUAL FUNDS AND SHARES. HE WAS OF THE VIEW THAT T HE PURCHASE AND SALE OF SHARE S AND MUTUAL FUNDS WAS THE MAJOR ACTIVITY OF THE ASSESSEE LOOKING TO THE ABOVE FACTS AND CIRCUMSTANCES. THEREFORE,T HE ASSESSING OFFICER HAS ASSESSED THE SHORT TERM CAPITAL GAIN OF RS. 8481597/ - AS INCOME FROM BUSINESS OUT OF SHARE TRADING ACTIVITY. 4. A GGRIEVED AGAINST THE DECISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 3.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT. IN THIS REGARD, IT IS SEEN THAT HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF DR AJAY RANKA (ITA NO 3302/AHD/2009) AND SEEMA RANKA (ITA NO 3301/AND/2009) HAVE HELD THAT TRANSACTIONS UNDER THE PMS SCHEME ARE TO BE TREATE D AS BUSINESS TRANSACTIONS. IN THESE CITED ORDERS, HON'BLE TRIBUNAL HAVE FOLLOWED THEIR DECISION IN ITA NO 4517/AHD/2007 WHEREIN IT WAS HELD THAT TRANSACTIONS UNDER THE PMS SCHEME ARE TO BE TREATED AS BUSINESS TRANSACTIONS. FURTHER, HON'BLE ITAT DELHI IN T HE CASE OF M/S. RADIAL INTERNATIONAL ITA NO 1368/DELHI/2010 FOR A Y_2006 - 07 HAVE HELD THAT PMS TRANSACTIONS ARE TO BE TREATED AS BUSINESS INCOME. SIMILARLY, HON;BLE ITAT, HYDERABAD IN THE CASE OF ANILKUMAR JAIN ITA NO 163 & 164/HYD/2011 FOR A Y 2007 - 08 & H ON'BLE ITAT, INDORE IN THE CASE OF SHRI ANURAG VIJAY VARGAYA ITA NO 122/LND/2010 FOR AY 2006 - 07 HAVE CONCLUDED THAT PMS TRANSACTIONS ARE BUSINESS TRANSACTIONS OF THE APPELLANT AND. INCOME THEREUPON IS A BUSINESS INCOME. THE FACTS OF THE CASE PRESENT IN THE APPEAL HAVE BEEN COMPARED WITH THE FACTS OF THE CASE AS AVAILABLE IN THE IMPUGNED DECISIONS OF HON;BLE TRIBUNALS AND IT HAS BEEN FOUND THAT THE SAME ARE MORE OR LESS IDENTICAL. PERUSAL OF THE DECISIONS OF THE HON'BLE TRIBUNALS INDICATE THAT ALL THE HON'BL E TRIBUNALS I.T.A NO . 991 /AHD/20 14 A.Y. 2010 - 11 PAGE NO HARSH S. SHAH VS. DCIT 4 INCLUDING HOBBLE JURISDICTIONAL. TRIBUNAL HAVE HELD THAT PMS TRANSACTIONS ARE TO BE TREATED AS BUSINESS TRANSACTIONS OF THE ASSESSEE AND PROFIT OR LOSS EARNED THEREIN CANNOT BE BROUGHT UNDER THE PURVIEW OF INCOME FROM CAPITAL GAINS. IN RESPECTF UL COMPLIANCE TO THE DECISIONS - OF HON'BLE TRIBUNALS INCLUDING JURISDICTIONAL TRIBUNAL, IT IS HELD THAT THE ID A O HAS NOT ERRED IN CONCLUDING THAT THE PMS TRANSACTIONS ARE TO BE TREATED AS AN BUSINESS ACTIVITY. CONSEQUENTLY THE ADDITION OF RS. 84,81, 587/ - MADE BY THE ID A O IS CONFIRMED AND THE GROUND OF APPEAL NO. 1 IS DISMISSED. 5 . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS FURNISHED THE PAPER BOOK CONTAINING WRITTEN SUBMISSION, STATEMENT OF TOTAL INCOME , BALANCE SHEET AND JUDICIAL PRONOUNCEMENTS ETC. HE CONTENDED THAT HE LD. CIT(A) HAS ERRED IN HOLDING THE PURCHASE AND SALE OF SHARES AS BUSINESS ACTIVITY AND TREATING THE GAIN EARNED AS BUSINESS INCOME IN TRAD ING OF SHARE. ON THE OTHER HAND LD. DEPARTMENTAL REPRESENTAT IVE HAS SUPPORTED THE ORDER OF THE LD. CIT(A). 6 . WE HAVE HEARD BOTH THE SIDES AND PURSED THE MATERIAL ON RECORD CAREFULLY. WE NOTICED THAT THE ASSESSING OFFICER HAS ASSESSED THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE AS BUSINESS INCOME AND HEL D THAT ASSESSEE WAS NOT ENTITLED FOR SET OFF OF BROUGHT FORWARD LOSS ON THE GROUND THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES AND SECURITIES WERE CARRIED OUT THROUGH THE PORTFOLIO MANAGEMENT SERVICES (PMS). WE OBSERVED FROM THE BALANCE SHEET OF THE ASSESSEE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN THE PURCHASE AND SALE OF SHARES AND SECURITIES AS INVESTMENT UNDER THE HEAD H D FC ASS ET MANAGEMENT. WE HAVE I.T.A NO . 991 /AHD/20 14 A.Y. 2010 - 11 PAGE NO HARSH S. SHAH VS. DCIT 5 FURTHER VERIFIED FROM THE PAPER BOOK THAT IN THE PR E CEDING YEAR ALSO T HE SAME WAS SHOWN AS INVESTMENT IN THE BALANCE SHEET OF THE ASSESSEE. WE FIND THAT ASSESSEE HAS BEEN CONSISTENTLY SHOWING THE SHARES AS INVESTMENT. THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. (I) ACIT V. SACHIN R. TENDULKAR IN ITA NO. 3217/MUM/2014 (II) CIT V. KAPOOR INVESTMENT PV T. LTD. (2015) 234 TAXMANN . 149 (KARN A TKA) (III) UDAYAN FINSTO CK PVT. LTD. V ITAT D BENCH AHMEDABAD ITA NO. 849/AHD/2012 (IV) ACIT V. DARSHAN NARANBHAI PATEL ITA NO. 2374/AHD/2012 ( V) DR . JAIKUMAR CHMANLAL SHAH V DCIT (2016) 47 CCH 186/AHD/TRIB. IT IS ALSO OBSERVED THAT AS PER CBDT CIRCULAR NO. 4/ 7 DATED 16 - 06 - 2007 THE ASSESSEE CAN HAVE TWO PORTFOLIO ONE FOR INVESTMENT PURPOSE S AND THE OTHER FOR BUSINESS PURPOSES. IT IS ALSO NOTICED THA T THE CBDT CIRCULAR NO. 6/2016 DEMONSTRATE THAT ASSESSEE HAS CHOICE OF DECIDING WHETHER SHARES ARE PURCHASED IN INVESTMENT PORTFOLIO OR BUSINESS PORTFOLIO. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE DECISION OF THE DELHI BENCH ITAT IN WHICH IT WAS HELD TH AT GAIN ON SALE OF SHARES THROUGH THE SERVICES OF PORTFOLIO MANAGEMENT SERVICES WILL BE THE BUSINESS INCOME HAS BEEN REVERSED BY THE HON BLE DELHI HIGH COURT VIDE 367 ITR 1 ON 25 TH APRIL, 2014. WE FIND THAT HON BLE KARNATKA HIGH COURT IN THE CASE OF CIT VS. KAPUR INVESTMENT P. LTD (2015) 234 TAXMAN 0149 HELD THAT PROFIT FROM INVESTMENT THROUGH PORTFOLIO MANAGEMENT SERVICE EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGED FIRM, WOULD STILL REMAIN AS PROFITS TO BE TAXED AS CAPITAL I.T.A NO . 991 /AHD/20 14 A.Y. 2010 - 11 PAGE NO HARSH S. SHAH VS. DCIT 6 GAINS AS SAME WILL NOT CHA NGE NATURE OF INVESTMENT THAT IS IN SHARES, AND LAW PERMITS IT TO BE TAXED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. WE HAVE ALSO OBSERVED THAT THE ASSESSEE HAS RIGHT FROM THE BEGINNING TREATED THE AMOUNT HELD IN SHARES AS PART OF INVESTMENT IN THE PREC EDING ASSESSMENT YEAR. IT WAS ALSO BROUGHT TO OUR NOTICE THAT IN THE PRECEDING ASSESSMENT YEARS 2005 - 06 TO ASSESSMENT YEAR 2007 - 08 IN THE ASSESSMENT MADE U/S. 143(3) THE AMOUNT OF GAIN AROSE FROM SALE AND PURCHASE OF SHARES WAS ASSESSED UNDER THE HEAD CA PITAL GAIN BY THE ASSESSING OFFICER . SIMILARLY, IT WAS ALSO CONTENDED THAT IN THE SUBSEQUENT YEARS I.E. ASSESSMENT YEAR 2012 - 13 TO 2014 - 15 GAIN ARISING ON S ALE AND PURCHASE OF SHARES WAS SHOWN UNDER THE HEA D INCOME F R OM CAPITAL GAIN AND WERE ACCEPTED BY THE ASSESSING OFFICER IN THE AS SESSMENT MADE U/S. 143(3) OF THE ACT. AFTER CONSIDERING THE ABOVE FACTS AND LEGAL FINDINGS, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICER AS BUSI N ES S INCO ME. T HEREFORE, WE ALLOW THE APPEAL OF T HE ASSESSEE . 7. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 22 - 09 - 201 7 SD/ - SD/ - ( S.S. GODARA ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 22 /09 /2017 I.T.A NO . 991 /AHD/20 14 A.Y. 2010 - 11 PAGE NO HARSH S. SHAH VS. DCIT 7 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,