ACIT 14(3), MUMBAI v. PRAFUL D. MODI, MUMBAI

ITA 1334/MUM/2010 | 2006-2007
Pronouncement Date: 30-12-2010 | Result: Dismissed

Appeal Details

RSA Number 133419914 RSA 2010
Assessee PAN AAHPM7042F
Bench Mumbai
Appeal Number ITA 1334/MUM/2010
Duration Of Justice 10 month(s) 10 day(s)
Appellant ACIT 14(3), MUMBAI
Respondent PRAFUL D. MODI, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 30-12-2010
Date Of Final Hearing 09-12-2010
Next Hearing Date 09-12-2010
Assessment Year 2006-2007
Appeal Filed On 18-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 1334/MUM/2010 (ASSESSMENT YEAR: 2006-07) ACIT - 14(3) SHRI PRAFUL D. MODI 6TH FLOOR EARNEST HOUSE 1ST FLOOR UJJMSHI BHUVAN NARIMAN POINT MUMBAI 400021 VS. 127 V.P. ROAD MUMBAI 400002 PAN - AAHPM 7042 F APPELLANT RESPONDENT APPELLANT BY: SHRI SUMEET KUMAR RESPONDENT BY: SHRI SATISH R. MODY O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXV MUMBAI DATED 19.11.2009 WHEREIN THE CIT(A) HELD THA T THE ASSESSEE IS AN INVESTOR AND TREATING THE INCOME AS BUSINESS INCOME CANNOT BE SUSTAINED ON THE FACTS OF THE CASE. 2. BRIEFLY STATED THE ASSESSEE IS AN INVESTOR WHO IS P URCHASING AND SELLING SHARES IN THE LAST 40 YEARS AS CLAIMED. DUR ING THE RELEVANT YEAR THE ASSESSEE HAS DECLARED A TOTAL INCOME OF ` 1 07 60 180/- WHICH INCLUDED CAPITAL GAINS OF ` 1 06 37 606/-. THE A.O. FOLLOWING THE ORDER IN A.Y . 2005- 06 WHEREIN ALSO ASSESSEES PURCHASE AND SALE OF SHA RES WERE TREATED AS AN ACTIVITY INVOLVING BUSINESS INCOMES WERE BROUGHT T O TAX AS BUSINESS INCOME. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE GAVE A FINDING THAT THE ASSESSEE IS INVESTING IN SHARES AND CANNOT BE TREATED AS BUSINESS INCOME. HIS FINDINGS IN PARA 6 ARE AS UNDER: - 6. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMI SSIONS OF THE APPELLANT AND ALSO PERUSED THE ORDER OF THE AO. THE RE IS NO DISPUTE REGARDING THE FACT THAT THE APPELLANT HA SINCE LAST 40 YEARS BEEN CONTINUOUSLY SHOWING INVESTMENT IN SHARES UNDER THE HEAD INVESTMENT AND NOT AS STOCK IN TRADE WHICH HAS BEEN ACCEPTED B Y THE DEPARTMENT. IT IS ALSO A FACT THAT THE APPELLANT DURING THE ASSESS MENT YEAR UNDER APPEAL HAS DECLARED SPECULATIVE INCOME ON THE TRANS ACTIONS IN SHARES WHICH FALLS U/S. 43(5) OF THE ACT. IT IS ALSO A FAC T THAT THE INVESTMENTS ITA NO. 1334/MUM/2010 SHRI PRAFUL D. MODI 2 MADE IN SHARES WERE OF INDEPENDENT COMPANIES AND NO T OF SISTER CONCERNS/RELATED COMPANIES. FURTHER I ALSO FIND TH AT THE APPELLANT HAS DEALT WITH THE SCRIPTS DURING THE YEAR OF 33 IN N UMBER AS AGAINST 38 SCRIPTS IN THE EARLIER ASSESSMENT YEAR I.E. A.Y. 20 05-06. SIMILARLY NUMBER OF TRANSACTIONS ENTERED INTO DURING THE YEAR UNDER APPEAL IS 66 AS AGAINST NUMBER OF TRANSACTIONS DONE DURING THE E ARLIER ASSESSMENT YEAR I.E. 2005-06 OF 75. SIMILARLY SALE VALUE DURI NG THE YEAR UNDER CONSIDERATION IS 35.69 LAKHS AS AGAINST 51.48 LAKHS AND PURCHASE COST AT ` 25.05 LAKHS AS AGAINST ` 51.05 LAKHS FOR THE AY 2005-06 RESPECTIVELY. IT IS THUS EVIDENT THAT DURING THE YEAR UNDER APP EAL THE NUMBER OF SCRIPTS DEALT WITH HAS DECREASED AND ALSO THE NUMBE R OF TRANSACTIONS DONE HAVE DECREASED AND ALSO THE OVERALL SALE AND P URCHASE COST HAVE ALSO DECREASED AS COMPARED TO THE AY 2005-06. MOREO VER THE AVERAGE HOLDING PERIOD OF SHARES IS ALSO COMPARATIVELY MORE DURING THE YEAR WHICH IS OF 3.86 MONTHS AS AGAINST 2.7 MONTHS OF TH E EARLIER ASSESSMENT YEAR. THEREFORE IN VIEW OF THESE FACTS I FIND CON SIDERABLE FORCE IN THE CONTENTION OF THE APPELLANT THAT EVEN IN THE EARLIE R AY I.E. 2005-06 THE THEN CIT(A) HAS ALLOWED THE APPEAL IN FAVOUR OF THE APPELLANT. I HAVE GONE THROUGH THE ORDER OF MY LD. PREDECESSOR AND FI ND THAT ON BASIS OF THESE FACTS AND ON CONSIDERING THE VARIOUS DECISION S AND THE CBDT CIRCULAR HE HAS ARRIVED AT THE CONCLUSION THAT THE APPELLANTS CASE FULLY FITS IN THE TESTS FOR INVESTMENTS MADE IN SHARES AN D MUTUAL FUNDS WITHOUT ANY SIGNIFICANT ATTRIBUTE OF TRADING. HE HA S ALSO OBSERVED THAT IN THE CASE OF THE APPELLANT THERE ARE STRONG CUES AND FACTS TO SHOW THAT THE APPELLANT IS BASICALLY AN INVESTOR WHO IS INVESTING IN SHARES AS WELL AS UNITS OF MUTUAL FUNDS. THERE IS NO CHANGE EITHER IN FACTS OR IN LAW RELATING TO THE TRANSACTIONS IN SHARES CARRIED OUT BY THE APPELLANT DUNG THE YEAR UNDER APPEAL. THEREFORE I DO NOT FIND ANY REASON FOR DEVIATING THE FINDING OF MY LD. PREDECESSOR IN THE APPELLANT S OWN CASE FOR THE AY 2005-06. MOREOVER I ALSO FIND THAT THE RATIO OF DE CISION OF HON'BLE ITAT MUMBAI IN THE CASE OF GOPAL PUROHIT VS. JCIT 20 DTR 99 (MUM) IS APPLICABLE TO THE FACTS OF THE APPELLANTS CASE AS WELL. ACCORDINGLY BY RESPECTFULLY FOLLOWING THE DECISIONS RELIED UPON BY THE APPELLANT AS WELL AS ORDER OF MY LD. PREDECESSOR I HOLD THAT THE STG C SHOWN BY THE APPELLANT ON THE SALE OF SHARES AND UNIT OF MUTUAL FUNDS IS IN ACCORDANCE WITH LAW AND THE AO IS NOT JUSTIFIED IN TREATING TH E SAME AS BUSINESS INCOME. THEREFORE THE AO IS DIRECTED TO TREAT THE SAME AS SHORT TERM CAPITAL GAINS. ACCORDINGLY THESE GROUNDS ARE ALLOW ED IN FAVOUR OF THE APPELLANT. REVENUE IS AGGRIEVED. 3. THE LEARNED D.R. SUPPORTED THE ORDER OF THE A.O. AN D ALSO TRIED TO DISTINGUISH THE FACTS ON THE BASIS OF VARIOUS ORDER S OF THE ITAT ON THE ISSUE. 4. THE LEARNED COUNSEL HOWEVER SUBMITTED THAT ON SIM ILAR FACTS THE CIT(A) HAD GIVEN RELIEF TO THE ASSESSEE IN A.Y. 200 5-06 WHICH WAS RELIED UPON BY THE A.O. AND THE CIT(A) AND THE REVENUE WA S NOT IN APPEAL FOR THAT YEAR. NOT ONLY THAT IN THE LATER YEAR IN WHICH THE ASSESSEE HAS SHORT TERM ITA NO. 1334/MUM/2010 SHRI PRAFUL D. MODI 3 CAPITAL LOSS THE A.O. DID NOT DISTURB THE COMPUTAT ION AND IN THE SCRUTINY ASSESSMENT ACCEPTED THE SAME AS SHORT TERM CAPITAL LOSS ONLY AND NOT TREATED AS BUSINESS INCOME. HE GAVE COMPARATIVE CHA RTS OF THREE YEARS INVOLVED AS UNDER: - COMPARISON OF SHORT TERM CAPITAL GAINS FOR THREE YE ARS ASSESS- MENT YEAR PURCHASES PERTAINING STCG SALES PERTAINING STCG NO. OF SHARES SHORT TERM CAPITAL GAIN/LOSS NO. OF TRANS- ACTIONS NO. OF SCRIPS DIVIDEND RECEIVED AVG. HOLDG PERIOD (IN MONTHS) 2005-06 51053806 51488744 1815216 434938 75 41 262330 2.7 2006-07 25055101 35692707 620358 10637606 66 33 719650 4.19 2007-08 139733243 125970978 1998492 -13762265 58 22 1756749 3.08 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE MATTE R. THE VARIOUS CASE LAWS RELIED UPON WERE ISSUES IN THE CONTEXT OF FACTS AS AVAILABLE IN EACH CASE LAW. THE INTENTION OF THE ASSESSEE HAS TO BE E XAMINED IN THE LIGHT OF THE MERIT OF THE TRANSACTIONS KEEPING IN MIND THE CBDT CIRCULAR ISSUED IN THIS REGARD AND VARIOUS CASE LAWS GOVERNING THE ISSUE. H OWEVER AS STATED BY THE LEARNED COUNSEL THE REVENUE HAS TREATED THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME IN A.Y. 2005-06 AND AFTER THE CIT(A ) GAVE RELIEF THE REVENUE DID NOT PREFER APPEAL. NOT ONLY THAT IN THE LATER YEAR WHEN THE ASSESSEE HAS SHORT TERM CAPITAL LOSS OF ALMOST ` 1.37 CRORES THE A.O. DID NOT CHANGE THE HEAD OF INCOME BUT TREATED IT AS BUSINESS INCOME. O NLY IN THIS ASSESSMENT YEAR THE REVENUE PREFERRED APPEAL. KEEPING THE STA ND TAKEN BY THE REVENUE IN THE EARLIER YEAR AND IN THE LATER YEAR AND ALSO KEEPING IN MIND THE ORDER OF THE CIT(A) WHICH IS GIVEN ON FACTS WE FIND THAT TH ERE IS NO MERIT IN THE REVENUES APPEAL. ACCORDINGLY WE REJECT REVENUES GROUNDS. 6. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 30 TH DECEMBER 2010 ITA NO. 1334/MUM/2010 SHRI PRAFUL D. MODI 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXV MUMBAI 4. THE CIT XIV MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.