KORADIA CONSTRUCTION P. LTD, MUMBAI v. DCIT 9(2), MUMBAI

ITA 2265/MUM/2010 | 2006-2007
Pronouncement Date: 28-09-2016 | Result: Allowed

Appeal Details

RSA Number 226519914 RSA 2010
Assessee PAN AAACK9154E
Bench Mumbai
Appeal Number ITA 2265/MUM/2010
Duration Of Justice 6 year(s) 6 month(s) 6 day(s)
Appellant KORADIA CONSTRUCTION P. LTD, MUMBAI
Respondent DCIT 9(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 28-09-2016
Date Of Final Hearing 02-07-2015
Next Hearing Date 02-07-2015
Assessment Year 2006-2007
Appeal Filed On 22-03-2010
Judgment Text
A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE SHRI G.S. PANNU AM AND SHRI SANDEEP GOSAIN JM ./ I.T.A. NO. 2265/ MUM/2010 ( / ASSESSMENT YEAR : 2006-07 KORA DIA CONSTRUCTION PVT. LTD. C-402 GOKUL DIVINE IRLA S.V. ROAD VILE PARLE (WEST) MUMBAI 400 056. / VS. THE DY. COMMISSIONER OF INCOME TAX 9(2) MUMBAI. ./ PAN : AAACK 9154 E ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI VIMAL PUNMIYA R E SPONDENT BY : SHRI ASHWANI SINHA / DATE OF HEARING : 26-8-2016 / DATE OF PRONOUNCEMENT : 28-09-2016 [ !' / O R D E R PER SANDEEP GOSAIN JM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) -20 MUMBAI DATED 4-1-2010 FOR A.Y. 2006-07 . 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS A PPEAL IS THE TREATMENT OF PROFIT ARISING ON SHARE TRANSACTION OF RS. 1 05 41 397/- AS BUSINESS AS HELD BY THE A.O. AGAINST SHORT TERM CAPITAL GAIN AS OFFE RED BY THE ASSESSEE. 3. BRIEF FACTS IN THIS CASE ARE THAT THE ASSESSEE I S A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTA TE SPECULATION IN SHARES ITA 2265/M/10 2 AND DEALINGS IN SHARES. THE RETURN OF INCOME WAS F ILED BY THE ASSESSEE ON 29-11-2006 DECLARING TOTAL INCOME OF RS. 1 57 50 58 0/-. IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE AN AMOUNT OF RS. 1 05 31 8 12/- BEING SHORT TERM CAPITAL GAIN ON SALE OF SHARES AN AMOUNT OF RS. 9 585/- AS LONG TERM CAPITAL GAIN HAS BEEN SHOWN. IN THE COMPUTATION OF INCOME T HE ASSESSEE HAS TREATED THESE TRANSACTIONS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAIN. HOWEVER THE A.O. HAS TAXED THESE AMOUNTS UNDER THE HEAD BU SINESS INCOME. THE A.O. WAS OF THE VIEW THAT THE ASSESSEE IS NOT A SMALL SC ALE RETAIL INVESTOR BUT A TRADER IN SHARES. FOR THIS HE HELD THAT FOR THE MA JORITY OF THE SHARE TRANSACTIONS THE ASSESSEE HAD SOLD SHARES WITHIN A PERIOD OF 12 MONTHS OF THEIR ACQUISITION. HE ALSO HELD THAT EXCEPT IN ONE SCRIPT THE ASSESSEE HAS EARNED SMALL LONG TERM CAPITAL GAIN ALL OTHER TRAN SACTIONS ARE HUGE IN VOLUME RESULTING INTO VOLUMINOUS THEREFORE THE AMOUNT EA RNED BY THE ASSESSEE WAS NOT IN THE CAPACITY OF AN INVESTOR BUT DEALER IN S HARES. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSEE HAS PREFERRED AN AP PEAL BEFORE THE LD. CIT(A) WHO CONCURRING WITH THE VIEWS OF THE A.O. HAS ALSO HELD THAT THE ASSESSEE HAD PURCHASED VERY LARGE QUANTITY OF SHARES AND THE CON TINUITY IN SUCH TRANSACTIONS THROUGHOUT THE YEAR COUPLED WITH SHORT ER DURATION OF HOLDING IT WAS EVIDENT THAT THE ASSESSEE HAD PROFIT MOTIVE WHI LE DEALING IN SHARES AND THEREFORE THE INCOME GENERATED ON SHARE PROFIT IS BUSINESS INCOME. 4. ON FURTHER APPEAL BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED A DETAIL WRITTEN SUBMISSION IN THE FORM OF COMPARAT IVE CHART WHICH DEMONSTRATED THAT THE ASSESSEE IS IN FACT ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND IN ASSESSEES OWN CASE IN A. Y. 2007-08 THE MUMBAI BENCH OF TRIBUNAL IN ITA NO. 1054/MUM/2011 VIDE ITS ORDER DATED 27.9-2013 HAS HELD THAT THE ASSESSEE IS AN INVESTOR AND NOT A TRADER. HE FURTHER RELIED ON THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF SAGAR CONSTRUCTION VS. ACIT IN ITA NO. 4646/MUM/2011 DATE D 11-03-2015 WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE IS AN INVESTOR I N THE SHARES. HE FURTHER ITA 2265/M/10 3 SUBMITTED THAT THE TRANSACTION IN THE SHARE IS THRO UGH D-MAT ACCOUNT AND THEY HAVE SHOWN IN THE BALANCE SHEET AS AN INVESTOR . DURING THE YEAR THE ASSESSEE COMPANY HAD EARNED DIVIDEND INCOME OF RS. 3254/- AND NO BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSE OF IN VESTMENT IN SHARES. THE MAIN CONTENTION OF THE ASSESSEE IS THAT IN A.Y. 200 7-08 THE ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN OF RS. 7 24 45 273/- AND IN THIS YEAR THE ASSESSEE HAD EARNED SHORT TERM CAPITAL GAIN OF RS. 1 05 31 812/-. IN A.Y. 2007-08 THE NUMBER OF SHARES PURCHASED ARE 24 WHER EAS IN THE CURRENT YEAR IT IS 26. THE LD. COUNSEL FOR THE ASSESSEE HAS MAI NLY RELIED ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE OF A.Y. 2007-08 WH ERE ON IDENTICAL FACTS AND CIRCUMSTANCES THE ITAT HAS HELD THAT THE ASSESSEE TO BE AN INVESTOR. HE FURTHER SUBMITTED THAT DURING THE YEAR THE SHORT T ERM CAPITAL GAIN LONG TERM CAPITAL GAIN AS WELL AS DIVIDEND INCOME IS LESS COM PARED TO EARLIER YEAR AS INVESTMENT PORTFOLIO IS SOLD AND DEPLOYED IN THE RE GULAR BUSINESS OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE MAIN REASON OF INVESTMENT IS ONLY BECAUSE THE ASSESSEE COULD NOT GET PERMISSION FROM THE LOCAL AUTHORITIES IN ITS REGULAR BUSINESS. HE ALSO STATED THAT THE ASSESSEE IS HELD TO BE AN INVESTOR BY THE ORDER OF THE TRIBUNAL IN A.Y. 2007-08 AND T HE A.O. AND THE LD. CIT(A) THEMSELVES TREATED THE ASSESSEE AS INVESTOR IN A.Y. 2008-09 THOUGH THE FACTS ARE SIMILAR BUT BOTH A.O. & LD. CIT(A) WERE AT ERR OR IN CONSIDERING THE ASSESSEE AS TRADER IN THIS YEAR. HE FURTHER STATED THAT ALL TRANSACTIONS ARE DELIVERY BASED TRANSACTIONS AND ARE NOT WITH PROFIT MOTIVE. 5. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE BOARD CIRCULAR NO. 4 OF 2007 AS WELL AS THE SPEECH OF HONBLE FINANCE MI NISTER SUPPORTING HIS CONTENTION THAT ALL CONDITIONS SHOULD BE SAME CUMUL ATIVELY AND INDEPENDENT AND ISOLATED CONDITION CANNOT BE USED AGAINST THE A SSESSEE. THEREFORE HE STATED THAT THE ASSESSEE IS AN INVESTOR. ITA 2265/M/10 4 6. THE LD. D.R. SUBMITTED THAT THE FACTS OF THE EAC H CASE IN EACH YEAR TO BE SEEN SEPARATELY AND THEREFORE RELIANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR A.Y. 2007- 08 DOES NOT COME INTO ANY HELP TO THE ASSESSEE. HE FURTHER CONTENDED THAT HOLDING PERIOD WHICH HAS RESULTED INTO SHORT TERM C APITAL GAIN IS JUST 10/15 DAYS AND THEREFORE INTENTION OF THE ASSESSEE IS E VIDENT THAT IT WANTED TO MAXIMIZE THE PROFIT. HE ALSO SUBMITTED THAT DISCLOS URE OF SHARES IN THE BOOKS OF ACCOUNT AS INVESTMENT CANNOT BE THE ONLY CRITERI A TO DECIDE THE ISSUE. THE SUBMISSION MADE BY THE LD. DR ON LESS DIVIDEND RECE IVED DURING THE YEAR WAS ALSO TO SUPPORT ITS CONTENTION THAT THE INTENTION O F THE ASSESSEE IS NOT AN INVESTOR IN SHARES BUT WAS PROFIT THEREFROM. HE ALS O RELIED UPON THE ORDERS OF THE A.O. AS WELL AS THE LD. CIT(A) AND CONTENDED TH AT LOOKING INTO THE VOLUME FREQUENCY AND OTHER FACTORS THE ASSESSEE IS RIGHTL Y TREATED AS TRADER IN SHARES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE ORDERS OF LOWER AUTHORITIES AND THE DECISIONS CITED BEFORE US. IT I S TRUE THAT IN ASSESSEES OWN CASE FOR A.Y. 2007-08 THE TRIBUNAL IN ITA NO. 1074 /MUM/2011 DATED 5-9- 2013 HAS CONSIDERED THIS ISSUE AND HELD AS UNDER:- 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE DISPUTE IS REG ARDING THE NATURE OF INCOME ON SALE AND PURCHASE OF SHARES BY THE ASSESS EE. THE ISSUE WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINE SS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS THEREFORE TO BE BASED ON ITS OWN FACTUAL SITUATION. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSES SEE SHOWS THAT THE ASSESSEE HAS SEPARATELY SHOWN SHARE TRADING PROFIT LONG TERM CAPITAL GAINS ON SHARES AND PROFIT FROM BUSINESS. IN THE BA LANCE SHEET THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD INVESTMEN T. THESE INVESTMENT SHARES HAVE BEEN VALUED AT COST . THE HO NBLE SUPREME COURT IN THE CASE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMEN T CO PVT. LTD. 82 ITR 586 WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DT. 15.6.2007 HAS OBSERVED THAT : WHET HER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN- TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO ITA 2265/M/10 5 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 STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT THE CBDT HAS A LSO MENTIONED IN ITS CIRCULAR THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO AND TRADING PORTFOLIO. THIS VI EW HAS ALSO BEEN FORTIFIED BY THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT 336 ITR 287. 9. THE ASSESSEE HAD OPENING INVESTMENT AT RS. 4 01 49 296/- AND THE INVESTMENT AS ON 31.3.2007 WAS AT RS. 3 97 99 072/- . THIS CLEARLY SHOWS 5 ITA NO.1074/M/2011 THAT THE ASSESSEE HAD BR OUGHT FORWARD INVESTMENT IN SHARES. THE BORROWED CAPITAL OF RS. 1 36 23 246/- HAS COME DOWN TO RS. 2 396/- AT THE CLOSE OF THE CURREN T FINANCIAL YEAR. THE ALLEGATION OF THE REVENUE AUTHORITIES IS THAT THE A SSESSEE HAS INDULGED INTO HIGH FREQUENCY TRANSACTION. THIS IN ITSELF COU LD NOT MEAN THAT TRADING ACTIVITIES HAVE BEEN CARRIED OUT. A PRUDENT INVESTO R ALWAYS KEEP A WATCH ON THE VOLATILITY OF THE MARKET AND MAKES SOUND INV ESTMENT DECISION IN ACCORDANCE WITH SUCH MARKET FLUCTUATION AND HAS THE LIBERTY TO LIQUIDATE ITS INVESTMENTS IN SHARES AS AND WHEN NECESSARY. TH E LAW ITSELF HAS RECOGNIZED THIS FACT BY TREATING THE SAME AS SHORT TERM CAPITAL GAINS FOR SHARES HELD LESS THAN 12 MONTHS AND LONG TERM CAPIT AL GAINS WHERE THE SHARES ARE HELD FOR MORE THAN 12 MONTHS. HAD THIS B EEN NOT THE CASE ALL THE GAINS ON SHARES WOULD HAVE BEEN CONSIDERED AS B USINESS INCOME ONLY. THE FACT THAT THE LAW RECOGNIZES SUCH VOLATIL ITY AND HAS SPECIFICALLY PROVIDED A SEPARATE HOLDING PERIOD IN RESPECT OF SU CH SHARES MAKES IT VERY CLEAR THAT GAINS ON SUCH SHARES HAVING A HOLDI NG PERIOD OF LESS THAN 12 MONTHS AND HELD AS INVESTMENT WOULD BE CONSIDERE D AS SHORT TERM CAPITAL GAINS ONLY. THUS THE ASSESSEES CLAIM CANNO T BE NEGATED ON THE BASIS OF FREQUENCY OF TRANSACTION AS HELD IN THE CA SE OF GOPAL PUROHIT (SUPRA). 9.1. AS REGARDS THE ALLEGATION THAT THE BO RROWED FUNDS HAD BEEN APPLIED FOR INVESTMENT IN SHARES IT HAS BEEN HELD BY THE TRIBUNAL DELHI BENCH IN THE CASE OF NARENDRA GEHLAUT VS JCIT 21 TA XMANN .COM 82 THAT IT CANNOT CONSTITUTE A FACTOR AS IN NONE OF THE C ASE LAWS OR CBDT CIRCULAR IT HAS BEEN HELD THAT BORROWINGS WILL NOT BE ALLOWED IN INVESTMENT TRANSACTIONS. THE INVESTMENT IN CAPITAL ASSETS CAN ALSO BE CARRIED OUT BY WAY OF BORROWED FUNDS THERE BEING N O BAR NOTIFIED BY THE LAW JUDICIAL PRONOUNCEMENT OR CBDT CIRCULAR. 6 IT A NO.1074/M/2011 9.2. CONSIDERING THE ENTIRE FACTS IN TOTALITY IN TH E LIGHT OF THE JUDICIAL DECISION DISCUSSED HERE IN ABOVE WE FIND THAT IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE HAS SHOWN SHARES AS INVESTMENT RI GHT FROM THE DATE OF PURCHASE AND THAT WAS SHOWN AS SUCH IN THE BALANCE SHEET OF THE ASSESSEE WHICH WAS FILED BEFORE THE AO. IN OUR HUMB LE OPINION THE SHARES HAVE TO BE TREATED AS AN INVESTMENT AND THER EFORE ANY PROFIT EARNED ON THE SALE THEREOF IS TO BE TREATED AS CAPI TAL GAIN. FINDINGS OF THE LD. CIT(A) ARE REVERSED. THE AO IS DIRECTED TO TREA T THE PROFITS ON SALE OF SHARES AS CAPITAL GAIN SHORT TERM OR LONG TERM AS THE CASE MAY BE. GROUND NO. 1 & 2 ARE ACCORDINGLY ALLOWED. ITA 2265/M/10 6 8. WE HAVE CONSIDERED THE DECISION OF THE TRIBUNAL CITED SUPRA AND ARE OF THE VIEW THAT THE FACTS OF THAT YEAR AS WELL AS OF THIS YEAR ARE IDENTICAL ACCORDING TO THE FOLLOWING CHART :- FACTS A.Y. 2007 - 08 A.Y. 2006 - 07 SHARES SHOWN IN INVESTMENT YES YES TRANSACTION THROUGH D-MAT YES YES SHORT TERM CAPITAL GAIN 7 24 45 273 10531812 LONG TERM 100445 9585 COMPANY 24 26 SEPARATE PORTFOLIO YES YES DIVIDEND 452588 3254 REASON FOR INVESTMENT THE ASSESSEE COMPANY HAS COMPLETED THE SALE OF INDU STRIAL GALAS IN THE PROJECT SAGAR PLAZA. THE PROJECT SAGAR SIGNATUR E IS UNDER CONSTRUCTION. THE APPELLANT COULD NOT START NEW PROJECT DUE TO DI SPUTE BETWEEN CIDCO AND VIRAR VASAI MUNICIPAL THAT WHO WILL GRANT NECESS ARY PERMISSION. SINCE THE NEW CONSTRUCTION WAS TAKING TIME THE ASS ESSEE DEPLOYED THE FUNDS FOR INVESTMENTS IN SHARES. WHEN PERMISSION GR ANTED INVESTMENT WERE SOLD OUT AND DEPLOY FUNDS IN BUSINESS. THEREF ORE IN A.Y. 2008-09 APPELLANT INCURRED LOSS. AND DEPARTMENT ALSO ASSES SEE THE LOSS UNDER CAPITAL GAIN HEAD ON PROTECTIVE BASIS. BORROWED FUNDS NO BORROWED FUNDS WERE USED AND FURT HER THERE IS NO BAR ON BORROWED FUND USED IN INVESTMENT AS PER NARENDRA GEHLAUT VS. JCIT 21 TAXMANN.COM 82 ITAT FINDING THE HONBLE TRIBUNAL AFTER CONSIDERING ALL THESE FACTS HELD THAT APPELLANT IS AN INVESTOR AND GAIN IS LIABLE TO BE ASSESSED UNDER CAPITAL GAIN HEAD. APPEAL BEFORE YOUR HONOUR. SUBMISSION FACTS ARE EXACT SAME AND DEPARTMENT ALS O ACCEPTED APPELLANT AS INVESTOR IN A.Y. 2008-09 I.E. SUBSEQUENT YEAR. THEREFORE AS PER RULE OF CONSISTENCY ASSESSEE HAS TO BE TREATED AS INVESTOR AND GAIN IS LIABLE TO BE TAXED UNDER CAPITAL GAIN HEAD. ON SAME ASPECT THE HONBLE TRIBUNAL IN CASE OF ITA 2265/M/10 7 SAGAR CONSTRUCTIONS VS. ACIT ITA O. 4646/MUM/2011 HELD THAT AFTER GOING THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR WHEREIN FACTS AND CIRCUMSTANCES WERE THE SAME WE DIRECT THE AO TO TREAT THE PROFIT ON SALE OF SHARES AS SHO RT TERM AND LONG TERM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING OF SHARE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL CITED SUPRA WE ALLOW THIS GROUND RAISED BY THE ASSESSEE. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 28.09.2016 SEPTEMBER 2015. !' 0 12 3! 4 28.09.2016 5 6 SD/- SD/- (G.S. PANNU) (SAN DEEP GOSAIN ) ! ACCOUNTANT MEMBER 07 !/J UDICIAL MEMBER 1 < MUMBAI ; 3! DATED 28.09.2016 [ .7../ R.K. R.K. R.K. R.K. SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. = () / THE CIT(A)- 20 MUMBAI 4. = / CIT- -9 MUMBAI 5. @A5 77BC BC 1 < / DR ITAT MUMBAI A BENCH 6. 5DE F / GUARD FILE. ' / BY ORDER @ 7 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) 1 < / ITAT MUMBAI