DCIT, New Delhi v. Mohan Gupta, New Delhi

ITA 1923/DEL/2010 | 2007-2008
Pronouncement Date: 28-02-2011

Appeal Details

RSA Number 192320114 RSA 2010
Assessee PAN AADHM5680B
Bench Delhi
Appeal Number ITA 1923/DEL/2010
Duration Of Justice 10 month(s)
Appellant DCIT, New Delhi
Respondent Mohan Gupta, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Department
Bench Allotted E
Tribunal Order Date 28-02-2011
Date Of Final Hearing 31-01-2011
Next Hearing Date 31-01-2011
Assessment Year 2007-2008
Appeal Filed On 28-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH E DELHI ] BEFORE SHRI C. L. SETHI JM & SHRI K. D. RANJAN AM I. T. APPEAL NO. 1923 (DEL) OF 2010. ASSESSMENT YEAR : 200708. DY. COMMISSIONER OF INCOME-TAX SHRI MOHA N GUPTA [HUF] C I R C L E : 31 (1) VS. 502 NIRMA L TOWER N E W D E L H I. 26 BARAKHAMBA ROAD N E W D E L H I 110 001. P A N / G I R NO. AAD HM 5680 B. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI VED JAIN C. A.; & MS. RANO JAIN C.A.; & SHRI V. MOHAN C.A.; DEPARTMENT BY : SHRI PEEYUSH SONKAR SR. D. R.; O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 7-08 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XXVI NEW DELHI. 2. THE GROUND OF APPEAL RAISED BY THE REVENUE READ S AS UNDER :- THE LD. CIT (APPEALS) HAS ERRED IN HOLDING T HAT INCOME FROM SALE AND PURCHASE OF SHARES BE TREATED AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME AS HELD BY THE ASSESSING OFFICER WITHOUT CO NSIDERING THE FACT THAT MAGNITUDE AND FREQUENCY OF PURCHASE AND SALE OF SHA RES PERIOD OF THEIR HOLDING AND MOTIVE TO EARN PROFIT INSTEAD OF DIVIDEND CLEA RLY SUGGEST THAT ACTIVITY OF PURCHASE AND SALE OF SHARES IS CERTAINLY A BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE. 2 I. T. APPEAL NO. 1923 (DEL) OF 2010 . 3. THE ONLY ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION BY HOLDING THAT INCOME FROM SALE AND PURCHASE OF SHARES BE TREATED AS SHOR T TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD DECLA RED SHORT TERM CAPITAL GAINS OF RS.33 00 053/- ON SALE OF SHARES. THE ASSESSING OFFICER WAS OF TH E OPINION THAT THE ASSESSEE HAD CARRIED OUT ACTIVITIES OF PURCHASE AND SALE OF SHARES ON REGULA R BASIS. HE THEREFORE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROFIT OF RS.33 00 053/- SHOU LD NOT BE ASSESSED AS INCOME FROM BUSINESS AGAINST DECLARED AS SHORT TERM CAPITAL GAINS. IN R ESPONSE TO THIS QUERY IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD PURCHASED AND SOLD S HARES ONLY ON 29 DAYS DURING THE WHOLE YEAR AND IF 250 TRADING DAYS AT STOCK EXCHANGE WERE TO B E TAKEN IT WAS JUST ABOUT 10 PER CENT OF TOTAL DAYS WHICH BY NO MEANS ESTABLISHED THAT THE ASSESS EE WAS ENGAGED IN PURCHASE AND SALE OF SHARES FREQUENTLY. IT WAS ALSO SUBMITTED THAT THE OPENING INVESTMENT AT COST AS ON 1/04/2006 WAS OF RS.55 32 355/- OUT OF WHICH THE ASSESSEE HAD SOL D INVESTMENTS OF RS.39 33 315.50 LEAVING BALANCE OF RS.15 99 039.83. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE MADE FRESH INVESTMENTS OF RS.67 89 173/-. THUS THE CLOSING IN VESTMENT AS ON 31 ST MARCH 2007 WAS AT RS.83 88 212/-. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS HOLDING SHARES AS ON 31 ST MARCH 2007 RANGING FROM 83 DAYS TO NINE YEARS. THEREFORE IT COULD NOT BE SAID THAT THE ASSESSEE WAS HOLDING THE SHARES AS STOCK-IN-TRADE WITH THE INTEN TION OF CARRYING OUT BUSINESS TRANSACTIONS. IT WAS ALSO SUBMITTED THAT THE SCRIPS SOLD DURING THE YEAR WERE HELD BY THE ASSESSEE RANGING FROM THREE DAYS TO 219 DAYS. ON THE BASIS OF THESE FACT S IT WAS SUBMITTED THAT THE ASSESSEE WAS NOT TRADING IN THE SHARES FREQUENTLY AND THE AVERAGE PE RIOD OF HOLDING WAS 2-3 MONTHS. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENTS SINCE INCEPTION AND THERE WAS NO CHANGE IN THE ACCOUNTING SYSTEM. HE PLACED RELI ANCE ON SEVERAL DECISIONS TO SUPPORT HIS CONTENTIONS THAT THE PROFITS ON SALE OF SHARES WAS ASSESSABLE AS INCOME UNDER THE HEAD CAPITAL GAINS. HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT CBDT CIRCULAR NO. 4 OF 2007 DATED 15/06/2007 WHICH LAID DOWN CERTAIN CRITERIA FOR EX AMINING THE ISSUE RELATING TO SHARE HOLDING WAS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE CBDT CIRCULAR CLARIFIED UNDER WHAT CIRCUMSTANCES THE SHARES HELD BY THE ASSESSEE WERE TO BE TREATED AS INVESTMENT OR STOCK-IN-TRADE. IT DEPENDED UPON THE MAGNITUDE OF PURCHASES AND SAL ES AND FREQUENCY OF TRANSACTIONS PERIOD FOR WHICH SHARES WERE HELD WHETHER THE OBJECTIVE WAS T O EARN INCOME BY WAY OF DIVIDENDS OR THE MOTIVE WAS TO REALIZE PROFITS. THE ASSESSING OFFIC ER EXAMINED THE MATTER IN VIEW OF BOARDS 3 I. T. APPEAL NO. 1923 (DEL) OF 2010 . CIRCULAR AND CAME TO THE CONCLUSION THAT THE SHARES WERE PURCHASED BY THE ASSESSEE FOR EARNING THE PROFITS AND THEREFORE PROFITS EARNED ON SALE OF THE SHARES WAS IN THE NATURE OF BUSINESS INCOME. 4. ON APPEAL IT WAS SUBMITTED THAT THE ASSESSEE HUF CONSISTED OF HUSBAND WIFE AND THEIR TWO MINOR SONS. SHRI MOHAN GUPTA KARTA AND HIS WI FE SMT. ANITA GUPTA WERE GAINFULLY EMPLOYED AND WERE REGULAR INCOME-TAX ASSESSEES. TH E ASSESSEE HAD PURCHASED AND SOLD SHARES OUT OF INVESTMENTS MADE IN EARLIER YEARS. THE MAGN ITUDE OF TRANSACTIONS WAS NOT LARGE. RELIANCE WAS PLACED ON SEVERAL DECISIONS FOR THE PROPOSITION THAT THE REVENUE HAD TO ESTABLISH THAT PROFITS EARNED IN THE TRANSACTIONS WERE REVENUE REALIZATION AND NOT CAPITAL GAIN. THE ASSESSEE WAS HOLDING SHARES AS INVESTMENTS AND THEREFORE SALE OF SHARES COULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE ALSO FILED THE BREAK-UP OF SA LES MADE DURING THE YEAR IN RESPECT OF VARIOUS SHARES. ON THE BASIS OF THE DETAILS IT WAS SUBMITT ED THAT THE ASSESSEE HAD EARNED LOSSES IN FOUR OUT OF 12 SCRIPS. THE BULK OF PROFIT WAS ON ACCOUNT OF SALE OF SHARES OF MANGALAM CEMENT M/S. PRAKASH INDUSTRIES AND IDBI THE PURCHASES OF THES E SHARES WERE MADE IN FY 2005-06 AND WERE SOLD IN THE CURRENT YEAR. THEREFORE THE BULK OF T HE PROFIT ON 20 000 SHARES OF IDBI WAS IN RESPECT OF SHARES WHICH WERE HELD FOR OVER FIVE WEEKS. BAR RING THIS MAGNITUDE OF SHARES SOLD AND PROFIT/LOSS THEREUPON WAS RELATIVELY MUCH SMALLER. IT WAS ALSO SUBMITTED THAT ALL TRANSACTIONS WERE SUBJECT TO STT. SINCE THE FREQUENCY OF SHARES WAS VERY LOW THE PROFIT EARNED ON SALE OF SHARES WAS ASSESSABLE AS SHORT TERM CAPITAL GAINS. THE LD. CIT (APPEALS) EXAMINED THE CONTENTION OF THE ASSESSEE IN THE LIGHT EVIDENCES P LACED ON RECORD. THE LD. CIT (APPEALS) NOTED THAT THE ASSESSEE HUF FURNISHED THE DETAILS OF PU RCHASE AND SALE OF SHARES. DURING THE YEAR ONLY 12 STRIPS WERE BOUGHT AND SOLD AND SUCH TRANSA CTIONS WERE CARRIED ONLY FOR 29 DAYS. IN ORDER TO DETERMINE THE FREQUENCY OF TRANSACTIONS O VERALL NUMBER OF SHARES SOLD / BOUGHT WAS LESS IMPORTANT THAN NUMBER OF SHARES PURCHASED AND SOLD. AN INVESTOR IS LIKELY TO ENGAGE IN A FEWER OF NUMBER OF TRANSACTIONS COMPARED TO A TRADER OF S HARES. THE NUMBERS OF SHARES SOLD / PURCHASED PER TRANSACTION DEPEND ON THE CAPACITY OF THE PERSON DEALING IN SHARES AND HENCE NOT AN IMPORTANT FACTOR FOR DETERMINING THE FREQUENCY O F SUCH DEALINGS AND THE TENURE OF HOLDING. THE HUF HAD DERIVED ENTIRE SHORT TERM CAPITAL GAINS FROM SALE OF THREE STRIPS WHICH WERE CARRIED FORWARD AS OPENING STOCK FROM IMMEDIATELY PRECEDING FINANCIAL YEAR. THE REMAINING NINE STRIPS 4 I. T. APPEAL NO. 1923 (DEL) OF 2010 . WERE PURCHASED AND SOLD DURING THE YEAR OVER 23 DAY S ONLY AS MENTIONED ABOVE. HE FURTHER NOTED THAT THE SHARES PURCHASED AND SOLD DURING THE YEAR COMPRISED RELATIVELY MUCH SMALLER FRACTION OF THE INCOME OF THE ASSESSEE FROM SHARES TRANSACTIONS AND IN FACT RESULTED IN NET LOSS ONLY. HE FURTHER NOTED THAT THOUGH THE AO HAD NOT AGREED WITH THE CONTENTION OF THE ASSESSEE HOWEVER NO COGENT EVIDENCE OR ADVERSE FINDINGS HAD BEEN BROUGHT ON RECORD BY HIM TO REFUTE THE PRACTICE OF THE ASSESSEE HUF FOLLOWED OVER A LONG PERIOD OF TIME OF EIGHT YEARS. CBDT CIRCULAR NO. 4 OF 2007 REFERS TO THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF CIT VS. ACC LTD. WHEREIN THE HONBLE SC HAS OBSERVED THAT W HETHER A PARTICULAR OF HOLDING OF SHARES IS IN THE NATURE OF INVESTMENT OR FORMS PART OF THE ST OCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND SHOULD IN NORMAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE THE EVIDENCE FROM THE RECORDS. THE LD. CIT (APPEALS) FURTHER NOTED THAT THE ASSESSEE HAD BROUGHT OUT THE RELEVANT EVIDENCES BY GIVING DETAILS OF SPECIFIC TRANSACTIONS STATE OF AFFAIRS OF SUCH TRANSACTIONS FOR THE ASSESSEE FOR O VER A REASONABLE TIME OF EIGHT YEARS. IN ADDITION IT WAS ALSO BROUGHT ON RECORD THAT NO ESTABLISHMENT WAS RUN BY THE ASSESSEE HUF OF THE NATURE AND EXTENT THAT IS EXPECTED FROM BUSINESS ENTITY EN GAGED IN REGULAR SALE / PURCHASE OF SHARES AS A PART OF BUSINESS ACTIVITIES. SINCE THE AO HAD NOT ABLE TO BRING ANY COGENT EVIDENCE OR ADVERSE FINDING OTHER THAN REJECTING THE CLAIM OF THE ASSES SEE SUMMARILY. THEREFORE THE LD. CIT (APPEALS) CAME TO THE CONCLUSION THAT THE PROFITS E ARNED ON TRANSFER OF SHARES WAS ASSESSABLE AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME . 5. BEFORE US THE LD. SR. DR SUBMITTED THAT IN VIEW OF CIRCULAR NO. 4 OF 2007 DATED 15/06/2007 THE PROFITS ON SALE OF SHARES IS TO BE A SSESSED AS BUSINESS INCOME. THE ASSESSEE HAS A HUGE TURNOVER AND THEREFORE THE PROFITS ARISING O N SALE OF SUCH SHARES COULD NOT BE CONSIDERED AS SHORT TERM CAPITAL GAINS. ACCORDINGLY IT HAS BEEN PLEADED THAT THE AO WAS JUSTIFIED IN TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. ON THE OTHER HAND THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE- HUF HAS ALWAYS BEEN IN VESTOR IN SHARES. THE SHARES WERE VALUED AT COST PRICE. IN THE CURRENT YEAR THE ASSESSEE HAS S OLD OUT SOME OF THE INVESTMENTS MADE IN EARLIER YEAR AND THE PROFIT EARNED HAS BEEN INVESTED IN PUR CHASE OF NEW SHARES. ALL THE INVESTMENTS HAVE BEEN MADE OUT OF OWN CAPITAL. IT WAS FURTHER SUBMI TTED THAT AS ON 31 ST MARCH 2006 THE ASSESSEE HAD TOTAL INVESTMENTS IN SHARES OF SIX COMPANIES. THE INVESTMENT WAS MADE IN SHARES OF ONE OF 5 I. T. APPEAL NO. 1923 (DEL) OF 2010 . THE COMPANIES IN 1998 AND IN ANOTHER IN 2003 AND AN OTHER IN 2005 AND REMAINING IN 2006. ALL THESE SHARES HAVE BEEN CLASSIFIED AND SHOWN AS INVE STMENT IN EVERY YEAR. IN THE YEAR UNDER CONSIDERATION OUT OF ABOVE SIX SCRIP INVESTMENT I N TWO SCRIP NAMELY ALSTON PROJECT INDIA AND MANGALAM CEMENT WAS SOLD OUT WHEREAS SHARES OF PRAK ASH INDUSTRIES WERE SOLD PARTIALLY. THEREFORE INVESTMENTS IN THREE STRIPS CONTINUE TO BE CARRIED FORWARD. THE ASSESSEE MADE INVESTMENT IN THE SHARES OF JINDAL STAINLESS STEEL UTTAM STEEL AND VIDEOCON DURING THE YEAR. IT WAS FURTHER SUBMITTED THAT THE INTENTION OF THE ASS ESSEE WAS ALWAYS TO INVEST AND NOT TO EARN QUICK PROFITS. IT WAS ALSO SUBMITTED THAT THE ASSE SSEE HAD PURCHASED CERTAIN SHARES AND SOLD THEM ON THE SAME DAY. THE SHARES WERE SOLD AS LATER ON THE ASSESSEE CAME TO KNOW THAT DECISION TO INVEST IN THOSE SHARES WAS NOT GOOD AND THEREFORE THE SAME WERE SOLD OUT. MERELY BECAUSE THOSE SHARES WERE NOT CREDITED TO DEMAT ACCOUNT IT WOULD NOT MEAN THAT RIGHT HAS NOT ARISEN IN THE SHARES ON THE DATE OF PURCHASE. THEREFORE THE TRA NSACTIONS MADE ON THE SAME DAY COULD NOT BE TREATED AS BUSINESS TRANSACTIONS. THE LD. AR OF TH E ASSESSEE HOWEVER SUBMITTED THE DETAILS OF PURCHASE AND SALE OF SHARES IN RESPECT OF SHARES OF THREE COMPANIES WHICH WAS MADE ON THE SAME DAY. SHARES OF ANDHRA SUGARS JINDAL STEELS WERE S OLD AT PROFITS OF RS.21 850.41 AND SHARES OF IDBI WERE SOLD ON A LOSS OF RS.21 633.80. THE NET GAIN IN RESPECT OF SHARES PURCHASED AND SOLD ON THE SAME DAY IS AT RS.216.61. 6. WE HAVE HEARD BOTH THE PARTIES. FROM THE FACTS STATED ABOVE IT IS SEEN THAT THE ASSESSEE HAS INVESTED IN THE SHARES AS INVESTMENT. THE SHAR ES ARE NOT HELD AS STOCK-IN-TRADE. THE ASSESSEE WAS FOLLOWING THE PRACTICE FOR THE LAST EIGHT YEARS . THE AO HAD NOT BROUGHT ON RECORD ANY ADVERSE FINDING TO REFUTE THE PRACTICE OF THE ASSES SEE TO SHOW THE SHARES AS INVESTMENTS. THE ASSESSEE HAD SOLD SOME OF THE SHARES WITHIN THE PER IOD OF ONE YEAR AND THEREFORE THE PROFITS ARISING ON SALE OF SHARES WILL BE ASSESSABLE AS SHO RT TERM CAPITAL GAINS. NO MATERIAL HAS BEEN PLACED ON RECORD TO DISLODGE THE FINDINGS OF THE LD . CIT (APPEALS). THEREFORE AS FAR AS THE SHARES WHICH HAVE BEEN CREDITED TO DEMAT ACCOUNT AND HAVE BEEN SOLD WITHIN THE PERIOD OF ONE YEAR THE PROFITS ARISING ON SUCH SHARES WILL BE TREATED AS SHORT TERM CAPITAL GAINS. AS REGARDS THE SHARES PURCHASED AND SOLD BY THE ASSESSEE ON THE SA ME DAY WITHOUT CREDIT/DEBIT IN DEMAT ACCOUNT IN OUR CONSIDERED OPINION WILL FALL IN TH E CATEGORY OF SPECULATIVE TRANSACTIONS DEFINED UNDER SECTION 43(5) OF THE ACT. THEREFORE THE NET PROFIT ARISING ON SALE OF SHARES PURCHASED AND 6 I. T. APPEAL NO. 1923 (DEL) OF 2010 . SOLD ON THE SAME DAY WOULD BE IN THE NATURE OF SPEC ULATIVE PROFIT. FROM THE DETAILS GIVEN IN RESPECT OF PURCHASE AND SALE ON THE SAME DAY WE FI ND THAT SUCH TRANSACTIONS HAVE TAKEN ONCE IN A MONTH. IN OTHER WORDS THE ASSESSEE HAD PURCHASED AND SOLD SHARES OF ANDHRA SUGARS ON 20 TH NOVEMBER 2006. ANOTHER 2576 SHARES WERE PURCHASED AND SOLD ON 12TH DECEMBER 2006. LIKEWISE SHARES OF IDBI WERE PURCHASED AND SOLD ON 11 TH JANUARY 2007. 6351 SHARES OF JINDAL STEELS WERE PURCHASED AND SOLD ON 23 RD MAY 2006. THE ASSESSEE ALSO PURCHASED AND SOLD 1 000 SHARES OF JINDAL STAINLESS STEELS ON 14/12/2006. T HE TRANSACTIONS OF PURCHASE AND SALE AFFECTED ON FIVE DATES IN THE YEAR CAN BY NO STRETCH OF IMAG INATION BE TREATED AS BUSINESS INCOME. TO TREAT A TRANSACTION IN THE NATURE OF BUSINESS IT SHOULD BE REGULAR PURCHASE AND SALE OF SHARES. SINCE THE PURCHASE AND SALE OF SHARES HAS NOT BEEN MADE ON RE GULAR BASIS AS A BUSINESS CONCERN IN OUR CONSIDERED OPINION THE LD. CIT (APPEALS) IS JUSTIF IED IN TREATING THE TRANSACTIONS AS SHORT TERM CAPITAL GAINS EXCEPT THE SHARES PURCHASED AND SOLD ON THE SAME DAY WHICH WE HAVE HELD AS SPECULATIVE IN NATURE. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DECIDED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON : 28 TH FEBRUARY 2011. SD/- SD/-. [ C. L. SETHI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH FEBRUARY 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 7 I. T. APPEAL NO. 1923 (DEL) OF 2010 .