The ACIT, Central Circle-1(3), Ahmedabad V. Shri Akash R.Kasat, Ahmedabad

ITSSA 386/AHD/2010

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2474 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 20-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEWAK
• Assessee Lawyers: AHD; M K PATEL A R ITSSA NOS; ITSSA N
• Keywords: Unexplained investment; Sale consideration of property below Jantri Value; Capital asset; Business income; Search and seizure; Wrong claim; Valuation report; Sham transactions
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) IT(SS)A. NOS: 386 & 390/AHD/2010 (ASSESSMENT YEAR: 2006-07) ACIT, CENTRAL CIRCLE 1(3), AHMEDABAD ACIT, CENTRAL CIRCLE 1(3), AHMEDABAD V/S V/S SHRI AKASH R KASAT 804, AVDHESH HOUSE, OPP:: GURUDWARA, S.G. ROAD, THALTEJ, AHMEDABAD PAN NO. AJNPK5481B MISS. KUNJAN R KASAT 804, AVDHESH HOUSE, OPP:: GURUDWARA, S.G. ROAD, THALTEJ, AHMEDABAD PAN NO. AIBPK6773F (APPELLANT) (RESPONDENT) IT(SS)A. NOS: 392 & 393/AHD/2010 (ASSESSMENT YEARS: 2005-06 & 2006-07) ACIT, CENTRAL CIRCLE 1(3), AHMEDABAD V/S SMT. BASANTIDEVI R KASAT 804, AVDHESH HOUSE, OPP:: GURUDWARA, S.G. ROAD, THALTEJ, AHMEDABAD PAN NO. ACYPK5533G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHIVA SEWAK, SR. D.R. RESPONDENT BY : SHRI M.K. PATEL, A.R. IT(SS)A NOS. 386 & 390/AHD/10 & IT(SS)A NOS. 393 & 393/AHD/10 . A.YS. 2005- 06 & 2006-07 2 ( )/ ORDER DATE OF HEARING : 17 -10-201 6 DATE OF PRONOUNCEMENT : 20 -10-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THE ABOVE CAPTIONED APPEALS BY THE REVENUE ARE PREF ERRED AGAINST SEPARATE ORDERS OF THE LD. CIT(A) PERTAINING TO THR EE DIFFERENT ASSESSEES. IN ALL THESE APPEALS COMMON ISSUES ARE INVOLVED, THERE FORE THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. 2. THE COMMON GRIEVANCE IN ALL THESE APPEALS RELATES T O THE TREATMENT OF SHORT TERM CAPITAL GAINS/LONG TERM CAPITAL GAINS AS BUSINESS INCOME BY THE ASSESSING OFFICER WHICH HAVE BEEN TREATED BY THE FI RST APPELLATE AUTHORITY AS CAPITAL GAINS. 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. FOUND THAT THE ASSESSEES HAVE SHOWN PROFIT UNDER THE HEAD SHORT TERM CAPITAL GAINS/LONG TERMS CAPITAL GAINS FROM THE PURCHASES A ND SALES OF SHARES. THE A.O. FOUND THAT THE TRANSACTIONS WERE VOLUMINOUS AN D SOURCES APPEAR TO BE FROM THE LOANS. THE MAIN REASONS FOR TREATING THE C APITAL GAINS AS BUSINESS INCOME BY THE A.O. (I) THE LENGTH OF THE PERIOD OF OWNERSHIP (II) THE FREQUENCY /NUMBER OF TRANSACTIONS. IT(SS)A NOS. 386 & 390/AHD/10 & IT(SS)A NOS. 393 & 393/AHD/10 . A.YS. 2005- 06 & 2006-07 3 (III) UTILIZATION OF BORROWED FUNDS. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AT LENGTH AND W ITH THE ASSISTANCE OF THE LD. COUNSEL. WE HAVE CAREFULLY PERUSED THE RELA TED DOCUMENTARY EVIDENCES BROUGHT ON RECORD AND REFERRED TO DURING THE COURSE OF THE PROCEEDINGS IN THE LIGHT OF RULE 18(6) OF THE APPEL LATE TRIBUNAL RULES. 5. A PERUSAL OF THE ORDER OF THE FIRST APPELLATE AUTHO RITY SHOWS THAT THE APPELLATE AUTHORITY AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS WAS OF THE OPINION THAT THE ASSESSEES WERE HOLDING SHARES AS INVESTMENT AND THE SAME WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET ALSO AND ACCORDINGLY DIRECTED THE A.O. TO TREAT THE SURPLUS UNDER THE HE AD CAPITAL GAINS. 6. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SA LE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHETHER THE INCO ME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE T REATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND T HERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD 'INVESTMENT'. THESE INVESTMEN T SHARES HAVE BEEN VALUED AT COST. THE HON'BLE SUPREME COURT IN THE CA SE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHI CH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2 007 DT. 15.6.2007, HAS OBSERVED THAT: IT(SS)A NOS. 386 & 390/AHD/10 & IT(SS)A NOS. 393 & 393/AHD/10 . A.YS. 2005- 06 & 2006-07 4 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS -WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTA NCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE A ND THOSE WHICH ARE HELD BY WAY OF INVESTMENT' 7. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONTROVER SIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.2016 AND THE SAME READS AS UNDER:- SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS IN ORDER TO REDUC E 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 HEL D BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTIONS. A S 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 INVESTMENT 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 DETE RMINATION AND HAS LED TO A LOT OL UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK-IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT') HAS ALSO, THROUGH IN STRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIRCULAR NO. 4 OF 2007 DATED JU NE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATION S. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL 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 PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE IT(SS)A NOS. 386 & 390/AHD/10 & IT(SS)A NOS. 393 & 393/AHD/10 . A.YS. 2005- 06 & 2006-07 5 SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS I NCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCER TAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER IN STRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED F ROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN O R BUSINESS INCOME, SHALL TAKE 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 TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TR EATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSF ER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOW EVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQ UENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CO NTINUE TO BE DECIDED KEEPING IN VIEW 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 GENUINE NESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LONG TERM CAP ITAL GAIN/SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINING CO NSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO AP PLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. IT(SS)A NOS. 386 & 390/AHD/10 & IT(SS)A NOS. 393 & 393/AHD/10 . A.YS. 2005- 06 & 2006-07 6 8. CONSIDERING THE FACTS IN HAND, IN THE LIGHT OF THE AFOREMENTIONED CIRCULAR OF THE BOARD, IN OUR CONSIDERED OPINION, 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, WE DO NOT FIND ANY REASON TO DISTURB THE INTENTION OF THE ASSESSEE. THE ASSESSEE UNDER CONSIDERATION IS INVESTOR AND, THEREFORE, ANY GAIN ARISING OUT THE TRANSFER OF SHARES SHOULD BE TREATED AS CAPITAL GAI NS BE IT SHORT TERM OR LONG TERM. 9. IN THE LIGHT OF THE AFOREMENTIONED DISCUSSION QUA T HE FACTUAL MATRIX OF THE CASE IN HAND, WE HAVE NO HESITATION IN UPHOLDING TH E FINDINGS OF THE LD. CIT(A). COMMON GRIEVANCE BY THE REVENUE IS ACCORDIN GLY DISMISSED. IN IT(SS)A NO. 392/AHD/2010 PERTAINING TO A.Y. 2005 -06 10. THE OTHER GRIEVANCE OF THE REVENUE RELATES TO THE D ELETION OF THE ADDITION MADE U/S. 69B ON ACCOUNT OF UNACCOUNTED INVESTMENT OF RS. 3,96,280/-. 11. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS PURCHASED A PLOT OF LAND AT SUNRISE PARK, DRIVE -IN-ROAD, AHMEDABAD ON 16.07.2004 FOR A CONSIDERATION OF RS. 20,82,539/- + RS. 48,825/-. THE TOTAL INVESTMENT IN THE PLOT WAS SHOWN AT RS. 21,31,354/- . THE A.O. WAS OF THE OPINION THAT THE VALUE SHOWN BY THE ASSESSEE IS NOT ACCORDING TO THE PREVAILING MARKET RATES. THE A.O. MADE A REFERENCE U/S. 142A TO THE DVO FOR DETERMINATION OF COST OF INVESTMENT IN THE SAID PIECE OF LAND. THE DVO IT(SS)A NOS. 386 & 390/AHD/10 & IT(SS)A NOS. 393 & 393/AHD/10 . A.YS. 2005- 06 & 2006-07 7 SUBMITTED HIS VALUATION REPORT DATED 05.12.2008 DET ERMINING THE COST OF THE IMPUGNED LAND AT RS. 25,27,634/- . ON THE BASIS OF THE VALUATION REPORT OF THE DVO, THE A.O. ASKED THE ASSESSEE TO SHOW CAU SE WHY ADDITION OF RS. 3,96,280/- SHOULD NOT BE MADE U/S. 69B OF THE ACT. ASSESSEE FILED A DETAILED REPLY QUESTIONING THE VALIDITY OF THE VALUATION REP ORT. THE A.O. WAS ALSO POINTED OUT THAT THE D.V.O HAS NOT TAKEN CARE OF CO MPARABLE SALE INSTANCES. THE COMPARABLE SALE INSTANCES CONSIDERED BY THE DVO ARE FROM COMMERCIAL/RESIDENTIAL COMPLEXES OF PLOTS SITUATED ON WIDER ROADS. THEY ARE SITUATED IN ALTOGETHER DIFFERENT AREAS. THE DET AILED SUBMISSIONS BY THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO PROCEEDED BY MAKING AN ADDITION OF RS. 3,96,280/- U/S. 69B OF THE ACT. 12. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A) AND REITERATED WHAT HAS BEEN STATED BEFORE THE ASSESSING OFFICER. 13. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD.CIT(A) WAS OF THE OPINION THAT NEITHER THE A.O. NOR THE DVO HAS BROUG HT OUT ANY CONCRETE DOCUMENTS OR ISSUES ON RECORD TO HOLD THAT THE APPE LLANTS DECLARATION OF PURCHASE PRICE IS NOT AT MARKET VALUE. THE FIRST AP PELLATE AUTHORITY FURTHER FOUND THAT THERE IS NO EVIDENCE ON RECORD TO HOLD T HAT THE ASSESSEE HAD PAID MORE THAN WHAT IS THE APPELLANTS CONSIDERATIO N RECORDED BY THE PURCHASE/CONVEYANCE DEED. THE LD. CIT(A) CONCLUDED BY HOLDING THAT THE A.O. WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS . 3,96,280/- AND DIRECTED THE A.O. TO DELETE THE SAME. IT(SS)A NOS. 386 & 390/AHD/10 & IT(SS)A NOS. 393 & 393/AHD/10 . A.YS. 2005- 06 & 2006-07 8 14. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. THE LD . D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSE L FOR THE ASSESSEE RELIED UPON THE ORDER OF THE FIRST APPELLATE AUTHORITY. 15. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS . IT IS ALSO AN UNDISPUTED FACT THAT THE STAMP DUTY VALUE OF THE IM PUGNED PIECE OF LAND IS THE SAME AS SHOWN BY THE ASSESSEE IN THE BALANCE SH EET. WE DO NOT FIND ANY REASON/LOGIC FOR REFERRING THE MATTER TO THE DV O. THE ASSESSEE IS A PURCHASER AND NOT A SELLER. THEREFORE, PROVISIONS O F SECTION 50C ARE NOT APPLICABLE ON THE FACTS OF THE CASE. MOREOVER, THE STAMP DUTY VALUATION IS THE SAME. CONSIDERING ALL THESE FACTS IN TOTALITY, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). THIS G ROUND OF REVENUE IS ACCORDINGLY DISMISSED. 16. IN THE RESULT, ALL THE APPEALS BY THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 20 - 10- 2016. SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: -