ADDL CIT RG 21(2), MUMBAI v. SANJEEV CHAWLA, MUMBAI

ITA 1113/MUM/2010 | 2006-2007
Pronouncement Date: 03-12-2010

Appeal Details

RSA Number 111319914 RSA 2010
Assessee PAN AABPC0945K
Bench Mumbai
Appeal Number ITA 1113/MUM/2010
Duration Of Justice 9 month(s) 22 day(s)
Appellant ADDL CIT RG 21(2), MUMBAI
Respondent SANJEEV CHAWLA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-12-2010
Appeal Filed By Department
Bench Allotted E
Tribunal Order Date 03-12-2010
Assessment Year 2006-2007
Appeal Filed On 11-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI. BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER ITA NO.1113/MUM/10 (ASSESSMENT YEAR : 2006-07) ADDL. COMMISSIONER OF INCOME TAX RANGE 21(2) BANDRA KURLA COMPLEX BANDRA MUMBAI-400051 VS. SHRI SANJEEV CHAWLA 102 LEELA APARTMENT S.V. ROAD VILE PARLE (W) MUMBAI-400056. PAN AABPC0945K (APPELLANT) (RESPONDENT) ITA NO.317/MUM/10 (ASSESSMENT YEAR : 2006-07) SHRI SANJEEV CHAWLA 102 LEELA APARTMENT S.V. ROAD VILE PARLE (W) MUMBAI-400056. PAN AABPC0945K VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 21(2) MUMBAI-400051 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH MODY. REVENUE BY : SHRI SATBIR SINGH. PER V. DURGA RAO : ITA NO.113/MUM/10 THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDE R OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-32 MU MBAI DT.16.11.2009. 2. THE FIRST GROUND OF APPEAL RAISED BY THE REVENUE IS AS UNDER : I) THE LEARNED CIT(A) ERRED IN TREATING THE BUSIN ESS INCOME ON ACCOUNT OF TRADING IN SHARES AS SHORT TERM CAPITAL GAIN BY APPLYING ITA NOS.1113/MUM/10 & 317/MUM/10 2 THE SHARE HOLDING PERIOD FOR SHORT TERM CAPITAL GAI N AS MORE THAN 30 DAYS BUT LESS THAN 1 YEAR. II) THE LEARNED CIT(A). WHILE PROVIDING RELIEF TO THE ASSESSEE HAS TAKEN 30 DAYS AS HOLDING PERIOD OF SHARES TO DISTIN GUISH BETWEEN TRADING AND INVESTMENT. THE DEMARCATION OF 30 DAYS IS ARBITRARY AND NOT IN CONSONANCE WITH THE CBDTS CIRCULAR 1827 DATED 31.8.1989 SUPPLEMENTED WITH CBDTS CIRCULAR NO.4 OF 2007 DATED 15.06.2007. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL PROPRIETOR OF M/S. METRO EXPORTS A CONCERN ENGAGED IN THE MANUFACTURING AND EXPORT OF WRITING INSTRUMENTS. THE ASSESSEE IS ALSO HOLDING DEMAT ACCOUNT AND MAKE INVESTMENTS IN THE SHARES IN BSE A ND NSE. THE PURCHASE AND SALE OF THE SHARES IS ROUTED THROUGH DEMAT ACCO UNT. THE ASSESSEE ALSO DEALS IN DERIVATIVES AND FUTURES. THE TRANSACTIONS RELATING TO SHARES ARE CLAIMED AS INVESTMENT. HOWEVER THE ASSESSING OFFI CER HAS DENIED THE CLAIM OF THE ASSESSEE AND THE ASSESSEES SHARE TRANSACTIO NS TREATED AS A BUSINESS IN NATURE AND TAXED ACCORDINGLY. THE ASSESSEE CARRIE D THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) DIREC TED THE ASSESSING OFFICER TO TREAT THE SURPLUS OR LOSS ON SALE OF SHA RES HELD FOR LESS THAN 30 DAYS IN RESPECT OF SECONDARY MARKET OF PURCHASES AND SALE AS A BUSINESS INCOME OR LOSS AND TO TREAT THE SURPLUS/LOSS ON SAL E OF SHARES HELD FOR MORE THAN 30 DAYS AS A CAPITAL GAIN OR LOSS. ITA NOS.1113/MUM/10 & 317/MUM/10 3 3. ON BEING AGGRIEVED THE ORDER OF CIT( A) THE REVENUE HAS CARRIED THE MATTER BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BOTH THE COUNSELS AGREED THAT THE ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE ASSESSEES O WN CASE IN ITA NO.5614/MUM/2009 VIDE ORDER DT.30.8.2010. AT THE O UTSET THE OPERATIVE PORTION OF THE TRIBUNAL ORDER IS EXTRACTED HEREUNDE R FOR READY REFERENCE : WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY B OTH THE PARTIES PERUSED THE ORDERS OF THE AO AND THE CIT(A ) AND THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DI SPUTE TO THE FACT THAT THE ASSESSMENT DURING THE IMPUGNED ASSES SMENT YEAR HAS SHOWN TO HAVE EARNED CERTAIN CAPITAL GAIN RECEI PTS OF ` 25 69 800 ON ACCOUNT OF PURCHASE AND SALE OF SHARES . WE FIND THAT THE AO ON THE BASIS OF THE FREQUENCY VOLUME AN D HOLDING PERIOD OF THE SHARES TREATED THE ASSESSEE AS A TRA DER IN SHARES AND THE ENTIRE INCOME FROM PURCHASE AND SALE OF SHA RES WAS TREATED BY HIM AS BUSINESS INCOME. WE FIND THAT IN APPEAL CIT(A) DIRECTED THE AO TREAT THE SURPLUS/LOSS ON SA LE OF SHARES HELD FOR LESS THAN 30 DAYS IN RESPECT OF SECONDARY MA RKET PURCHASE AND SALE AS BUSINESS INCOME/LOSS AND TO TR EAT THE SURPLUS/LOSS ON SALE OF SHARES HELD FOR MORE THAN 3 0 DAYS AS CAPITAL GAINS/LOSS. WE FIND THAT THE CO-ORDINATE B ENCHES OF THE TRIBUNAL ARE NOW TAKING A CONSISTENT VIEW THAT WHEN THERE IS FREQUENCY AND VOLUMINOUS TRANSACTIONS IN SHARES ON A CONTINUOUS BASIS AND THE HOLDING PERIOD IS ONLY FOR A FEW DAYS NOTWITHSTANDING THE TREATMENT IN THE BOOKS OF ACCOU NTS OF THE ASSESSEE THE PROFIT ON SUCH FREQUENT PURCHASE AND SALE OF SHARES HAS TO BE TREATED AS BUSINESS INCOME. SINCE IN THE INSTANT CASE THERE IS FREQUENT PURCHASE AND SALE OF SHARES ON A CONTINUOUS BASIS WITH HIGH VOLUME TRANSACTIONS AND THE HOLDING PERIOD IS STARTING FROM ZERO DAYS TO A FEW DAYS ONLY THEREFORE PROFITS ON SUCH FREQUENT BUYING AND SELLING OF SHARE S IN OUR ITA NOS.1113/MUM/10 & 317/MUM/10 4 OPINION HAS TO BE TREATED AS BUSINESS INCOME. THE AO SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE FIRST ISSUE RAISED BY THE AS SESSEE IN THE GROUNDS OF APPEAL IS ACCORDINGLY ALLOWED FOR STATIST ICAL PURPOSES. HOWEVER WE FIND MERIT IN THE SUBMISSIONS OF THE LE ARNED COUNSEL FOR THE ASSESSEE THAT IN CASE SUCH INCOME IS TREATE D AS BUSINESS INCOME NECESSARY BENEFIT OF MARKET VALUE OF THE INV ENTORY AT THE BEGINNING OF THE YEAR AS PER LAW BENEFIT OF SEC URITY TRANSACTION TAX AND SET OFF OF BUSINESS LOSS OUT OF SUCH BUSINESS PROFIT HAS TO BE GIVEN. WE THEREFORE DEEM IT FI T AND PROPER TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFF ICER WITH A DIRECTION TO CONSIDER THE ALLOWABILITY OF THE ABOVE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE WHILE TREATING THE INCOME FROM FREQUENT PURCHASE AND SALE OF SHARES AS BUSINE SS INCOME. WE RESPECTFULLY FOLLOWING THE ABOVE TRIBUNAL ORDER I N ASSESSEES OWN CASE FOR THE ASST. YEAR 2005-06 WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO FOLLOW T HE ORDER PASSED BY THE TRIBUNAL DT.30.8.2010 IN ITA NO.5614/MUM/09. THIS GROUND OF APPEAL RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PUR POSES. 5. THE NEXT GROUND OF APPEAL RAISED BY THE REVENUE I S REPRODUCED AS UNDER : THE LEARNED CIT(A) HAS ERRED IN HOLDING NET INCO ME FROM F&O SEGMENT UPTO 25.1.2006 TO BE TREATED AS SPECULATION INCOME AND NOT BUSINESS INCOME ALTHOUGH THE AMENDMENT TO SECT ION 43(5)(D) IN THIS REGARD WAS INTRODUCED W.E.F. 1.4.2 006 AND APPLICABLE FOR ASST. YEAR 2006-07 AS HELD BY THE SPEC IAL BENCH OF ITAT (KOLKATA) IN THE CASE OF SHREE CAPITAL SERV ICES LTD. ITA NOS.1113/MUM/10 & 317/MUM/10 5 ON THE ABOVE GROUND WE HAVE HEARD BOTH THE SIDES. THE SPECIAL BENCH OF ITAT AT KOLKATA IN THE CASE OF SHREE CAPITAL SERVIC ES LTD. VS. ACIT (319 ITR (AT) 1) WHERE IT WAS HELD THAT CLAUSE (D) OF SE CTION 43(5) INSERTED IN THE STATUTE BY THE FINANCE ACT 2005 W.E.F. 1.4.2006 IS A PROSPECTIVE IN NATURE AND THE SAME IS APPLICABLE TO THE ASST. YEAR 2006-07 AND ONWARDS. IT WAS HELD THAT PRIOR TO THE A.Y. 2006-07 THE TRANSA CTIONS IN DERIVATIVES WERE IN THE NATURE OF SPECULATIVE TRANSACTIONS AS P ROVIDED U/S. 43(5) OF THE ACT. AS PER SECTION 43(5) READ WITH EXPLANATION TH ERETO THE BENEFIT IS AVAILABLE ONLY WHEN THE STOCK EXCHANGE GETS NOTIFIED . THE LEARNED CIT(A) IN OUR OPINION WAS FULLY JUSTIFIED IN DIRECTING THE AO TO APPLY THE PROVISION OF SECTION 43(5) FROM THE DATE WHEN BSE AND NSE WERE N OTIFIED I.E. 25.1.2006 AND DIRECTED THE A.O. TO TREAT INCOME AS NORMAL INC OME W.E.F. 25.1.2006. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) THEREFORE THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.317/MUM/10 7. THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORD ER OF CIT(A) DT.16.11.2009 FOR THE A.Y. 2006-07. ITA NOS.1113/MUM/10 & 317/MUM/10 6 8. GROUND NO.1 RAISED BY THE ASSESSEE IS AGAINST TRE ATING THE SURPLUS/LOSS ON SALE OF SHARES IS SIMILAR TO THE GR OUND NO.2(I) AND 2(II) RAISED BY THE REVENUE IN ITA NO.1113/MUM/09. WE THEREFORE IN VIEW OF THE AFORESAID ORDER THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 9. GROUND NO.2 IS AGAINST TREATING THE INCOME FROM FUTURES AS BUSINESS INCOME W.E.F. 25.1.2006 INSTEAD OF TREATING THE SAM E AS SHORT TERM CAPITAL GAINS. THE ASSESSEE HAS CLAIMED INCOME FROM FUTURES OF ` 1 38 231 INCOME RECEIVED FROM FUTURES TREATED AS A SHORT TERM CAPIT AL GAIN. HOWEVER IN VIEW OF THE OUR DECISION IN GROUND NO.1 UPHOLDING T HE ORDER OF THE ASSESSING OFFICER THAT THE ENTIRE INCOME OF THE ASSESSEE IS A BUSINESS INCOME. THIS GROUND RAISED BY THE ASSESSEE CANNOT SURVIVE. 10. GROUND NO.3 RELATES TO ASSETS WRITTEN OFF AMOUN TING TO ` 28 649.THE ASSESSING OFFICER AND LEARNED CIT(A) HELD THAT WHEN ANY DEPRECIABLE ASSET IS SOLD THEN THE SAME HAS TO BE INCLUDED IN THE BL OCK OF ASSETS OR THE SAME SHOULD BE OFFERED TO TAX AS SHORT TERM CAPITAL GAIN . UNILATERAL WRITE OFF BY THE ASSESSEE IS NOT PERMITTED IN THE SCHEME OF BLOC K OF ASSETS. 11. WE HAVE HEARD BOTH THE SIDES. UNILATERAL WRITE OFF BY THE ASSESSEE IS NOT PERMITTED IN THE SCHEME OF BLOCK OF ASSETS. WE FIND THAT THE THERE IS NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). UNI LATERAL WRITE OFF BY THE ITA NOS.1113/MUM/10 & 317/MUM/10 7 ASSESSEE IS NOT PERMITTED IN THE SCHEME OF BLOCK OF ASSETS. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 12. GROUND NO.4 RELATES TO DISALLOWANCE OF MAINTENA NCE CHARGES OF ` 1 23 283 BROKERAGE EXPENSES OF `.2 02 327. THE ASS ESSEE HAS FILED RETURN OF INCOME AND DISCLOSED INCOME FROM HOUSE PROPERTY. HOWEVER IN THE COMPUTATION OF INCOME THE ASSESSEE CLAIMED MAINTEN ANCE EXPENSES FOR THE PROPERTY AT PUNE OF ` 1 23 283. THE ASSESSEE HAS A LSO CLAIMED BROKERAGE EXPENDITURE OF ` 2 02 237 AGAINST THE RENTAL INCOME OF PUNE PROPERTY. THE ASSESSING OFFICER AND THE CIT(A) DISALLOWED THE CLA IM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS ELIGIBLE FOR STANDA RD DEDUCTION @ 30% AS PERMITTED BY THE LAW. NO SEPARATE DEDUCTION IS PERM ISSIBLE. THE CIT(A) CONFIRMED THE ORDER PASSED BY THE A.O. 13. ON BEING AGGRIEVED BY THE ORDER OF CIT(A) THE A SSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. 14. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN SO FAR AS MAINTENANCE IS CONCERNE D THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER OF TRIBUNAL IN IT A NO.5304/MUM/08 DT.30.11.2009 (TRILOCHAN SINGH SAHNEY VS. ADDL. CIT) WHEREIN THE TRIBUNAL ITA NOS.1113/MUM/10 & 317/MUM/10 8 HAS FOLLOWED THE ORDER OF BANGALORE BENCH OF ITAT I N ITA NO.975/BANG/08 DT.13.12.2008. THE OPERATIVE PORTION OF THE ORDER IS EXTRACTED HEREUNDER : ON A CAREFUL CONSIDERATION OF THE MATTER WE ARE OF THE VIEW THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDERS OF THE TRIBUNAL. IN DELHI CA SE (SUPRA) IT WAS HELD THAT THE AMOUNT OF SERVICE CHARGES WERE NO T DEDUCTIBLE UNDER SECTION 234 BUT WOULD BE DEDUCTIBLE EVEN WHIL E COMPUTING THE ALV OF THE PROPERTY UNDER SECTION 23 SINCE THEY WOULD HAVE TO BE TAKEN NOTE OF WHILE CALCULATING THE ALV. IN T HE MUMBAI CASE (SUPRA) THE SOCIETY MAINTENANCE CHARGES WERE S IMILARLY HELD DEDUCTIBLE WHILE ESTIMATING THE ALV OF THE PROPERTY UNDER SECTION 23 FOLLOWING THE ORDER OF THE DELHI BENCH CITED SUPRA AS ALSO THE ORDER OF THE MUMBAI BENCH DT.15.11.2000 IN THE CASE OF BOMBAY OIL INDUSTRIES LTD. IN ITA NO.550/MUM/2000. NO ORDER OR JUDGEMENT TAKING A CONTRARY VIEW WAS BROUGHT TO O UR NOTICE BY THE DEPARTMENT. THEREFORE RESPECTFULLY FOLLOWING TH E AFORESAID ORDERS OF THE DELHI AND MUMBAI BENCHES OF THE TRIBU NAL WE DIRECT THE ASSESSING OFFICER TO DEDUCT THE ASSOCIAT ION MAINTENANCE CHARGES PAID TO THE SUMMIT APARTMENT OW NERS ASSOCIATION EVEN WHILE COMPUTING THE ALV OF THE PRO PERTY UNDER SECTION 23 OF THE ACT. THE APPEAL OF THE ASSESSEE ALLOWED WITH NO ORDER AS TO COSTS. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ITA NO.5304/MUM/08 (SUPRA) THE MAINTENANCE CHARGES OF ` 1 23 283 ARE ALLOWED. WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) TO THE EXTENT OF ` 1 23 283 AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E TO THE EXTENT INDICATED ABOVE. IN SO FAR AS BROKERAGE PAID BY THE ASSESSEE IS CONCERNED WE FIND THAT THE AUTHORITIES BELOW CORRECTLY CONSIDERED THE ISSUE AND DISALLOWED THE CLAIM OF THE ASSESSEE. WE THEREFORE TO THE EXTE NT OF BROKERAGE CLAIMED ITA NOS.1113/MUM/10 & 317/MUM/10 9 BY THE ASSESSEE UPHOLD THE ORDER PASSED BY THE LEARN ED CIT(A). THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS PARTLY ALL OWED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 3 RD DEC. 2010. SD/- SD/- (P.M. JAGTAP) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT.3-12-2010. *GPR COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT MUMBAI (4) CIT(A) MUMBAI (5) DR (6) GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES ITA NOS.1113/MUM/10 & 317/MUM/10 10 DATE INIT IALS 1. DRAFT DICTATED ON 25.11.2010 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE SECOND MEMBER 4. DRAFT DISCUSSED & APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO SR.PS/PS 2.12.2010 6. KEPT FOR PRONOUNCEMENT ON 3.12.2010 7. FILE SENT TO BENCH CLERK 3.12.2010 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER.