SANJEEV CHAWLA, MUMBAI v. JTCIT RG 21(2), MUMBAI

ITA 5614/MUM/2009 | 2005-2006
Pronouncement Date: 13-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 561419914 RSA 2009
Assessee PAN AABPC0945K
Bench Mumbai
Appeal Number ITA 5614/MUM/2009
Duration Of Justice 9 month(s) 29 day(s)
Appellant SANJEEV CHAWLA, MUMBAI
Respondent JTCIT RG 21(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 13-09-2010
Date Of Final Hearing 05-08-2010
Next Hearing Date 05-08-2010
Assessment Year 2005-2006
Appeal Filed On 15-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI `I BENCH BEFORE SHRI N.V.VASUDEVAN JUDICIAL MEMBER & SHRI R.K.PANDA ACCOUNTANT MEMBER I.T.A.NO.5614/MUM/2009 - A.Y 2005-06 MR. SANJEEV CHAWLA 1 LELA APARTMENT S.V.ROAD VILE PARLE [WEST] MUMBAI 400 056. PAN NO.AABPC 0945 K VS. JT. COMMISSIONER OF I.T. RANGE 21(2) MUMBAI . (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATISH MODI. RESPONDENT BY : SHRI S.K.SINGH [SR.AR] O R D E R PER R.K.PANDA AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 22/07/2009 OF THE CIT[A]-XXI MUMBAI RELATIN G TO THE A.Y 2005- 06. 2. THE FIRST ISSUE IN THE GROUND RAISED BY THE ASSE SSEE RELATES TO THE ORDER OF THE CIT[A] IN TREATING THE SHORT TERM CAPITAL GAINS ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS AS BUSINESS IN COME AND SHARES HELD FOR MORE THAN 30 DAYS AS SHORT TERM CAPITAL GA IN. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE AN INDIVIDUAL AND IS PROPRIETOR OF M/S METRO EXPORTS A CONCERN E NGAGED IN THE MANUFACTURING AND EXPORT OF WRITING INSTRUMENTS. TH E AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE CLAIMED SHORT TERM CAPITAL GAINS BEING INCOME FROM SHARE TR ANSACTIONS AT RS.25 69 800/-. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THE 2 AO NOTED THAT THE ASSESSEE IS HAVING A SYSTEMATIC A ND REGULAR COURSE OF SHARE TRANSACTION ACTIVITIES WHICH IS EVIDENT FR OM THE REGULAR BOOKS OF ACCOUNT MAINTAINED KEEPING ALL THE RECORDS MAI NTAINING THE DETAILS OF SALES AND PURCHASE OF SHARES ALONG WITH BILLS ET C. MAINTENANCE OF DMAT ACCOUNT AND CORRESPONDING BANK ACCOUNTS. THERE IS A CONTINUITY OF THE SHARE TRANSACTION ACTIVITY OVER A PERIOD OF TIME. THE QUANTITY OF SHARES TRANSACTED AND THE QUANTUM OF AMOUNT INVOLVE D IS ALSO HUGE. ACCORDING TO THE AO SUCH HIGH VOLUME TRANSACTION IS GENERALLY A FEATURE OF A COMMERCIAL ACTIVITY. THE HOLDING PERIO D OF SHARES IN MOST OF THE CASES IS LESS THAN 60 DAYS. FURTHER IN SOME OF THE CASES THE SHARES HAVE BEEN PURCHASED AND SOLD ON THE SAME DAY AND IN SOME OTHER CASES THE HOLDING PERIOD IS ONLY FOR A FEW DA YS. THE AO NOTED THAT THERE IS HIGH FREQUENCY AND REPETITION OF THE PURCHASE AND SALE TRANSACTIONS. THE ASSESSEE IS ALREADY INVOLVED IN S PECULATION ACTIVITY IN THE FORM OF TRADING IN FUTURES AND OPTIONS. THE AO CONSIDERED ALL THE ABOVE FACTS AND ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE TAKEN AS BUSINESS ACTIVITY. NOT BEING SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND RELYING ON A FEW DECISIONS HE TREATED THE SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE AS BUSINESS IN NATURE AND THE ENTIRE INCOME DISCLOSED FROM THE PURCHASE AND SALE OF SHARES WAS TREATED BY THE AO AS BUSINESS INCOME. WHILE HOLDING SO HE FURTHER HELD THAT THE DELIVERY OR NON DELIVERY O F SHARES THE METHOD OF PAYMENT AND SETTLEMENT ETC. IS NOT RELEVANT FOR ARRIVING AT SUCH CONCLUSION. 3 4. BEFORE THE CIT[A] IT WAS SUBMITTED THAT THE PUR CHASE AND SALE OF SHARES AND INTRA DAY ARE PROPERLY BIFURCATED BY THE ASSESSEE AND SHOWN UNDER PROPER HEAD OF INCOME. THE SHARES ARE P URCHASED THROUGH BROKERS OF THE COMPANIES LISTED ON BSE AND NSE AND THE SHARES ARE SHOWN AS INVESTMENT IN THE BALANCE SHEET . FULL PAYMENTS OF SHARES PURCHASED ARE MADE PROPER DELIVERY OF SHARE S TAKEN AND SHARES ARE TRANSFERRED TO DMAT ACCOUNT. SOME OF THE SHARES ARE ALSO PURCHASED DIRECTLY FROM IPO. IT WAS SUBMITTED THAT STT HAS BEEN PAID ON EACH TRANSACTION AND THE SHARE TRANSACTIONS ARE COVERED U/S.2(42) AND SEC.111A OF THE INCOME TAX ACT. IT WAS SUBMITTE D THAT THE SHARES ARE HELD FOR LONGER PERIOD RANGING FROM 30 DAYS TO 230 DAYS. THE SHARES ARE SHOWN AT COST AS ON 31-3-2005 AND NO LOS S ON ACCOUNT OF FLUCTUATION OF MARKET PRICE HAS BEEN CLAIMED. IT W AS FURTHER SUBMITTED THAT INVESTMENT IN SHARES ARE MADE TO EARN DIVIDEND . REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. J.M.SH ARE BROKER LTD. AND VARIOUS OTHER DECISIONS IT WAS SUBMITTED THAT THE INCOME ARISING FROM SALE OF SHARES SHOULD BE CONSIDERED AS SHORT TERM C APITAL GAIN AND NOT AS BUSINESS INCOME. 4.1 BASED ON VARIOUS SUBMISSIONS MADE BY THE ASSES SEE THE CIT[A] HELD THAT THE SHORT TERM PROFIT ON SALE OF S HARES HELD FOR LESS THAN 30 DAYS SHOULD BE TREATED AS BUSINESS INCOME WHEREAS THE SHORT TERM PROFIT ON SALE OF SHARES HELD FOR MORE THAN 30 DAYS SHOULD BE HELD AS CAPITAL GAINS. AGGRIEVED BY THE ORDER OF THE CIT [A] ASSESSEE IS IN APPEAL BEFORE US. 4 5. THE REVENUE HAS NOT PREFERRED ANY APPEAL AGAINST THE ORDER OF THE CIT[A] HOLDING THE SHORT TERM PROFIT ON SALE OF SHARES HELD FOR MORE THAN 30 DAYS AS CAPITAL GAINS. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES PERUSED THE ORDERS OF THE AO AND THE CIT[A ] AND THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO T HE FACT THAT THE ASS DURING THE IMPUGNED ASSESSMENT YEAR HAS SHOWN TO H AVE EARNED CERTAIN CAPITAL GAIN RECEIPTS OF RS.25 69 800/- ON ACCOUNT OF PURCHASE AND SALE OF SHARES. WE FIND THAT THE AO ON THE BASI S OF THE FREQUENCY VOLUME AND HOLDING PERIOD OF THE SHARES TREATED TH E ASSESSEE AS A TRADER IN SHARES AND THE ENTIRE INCOME FROM PURCHAS E AND SALE OF SHARES WAS TREATED BY HIM AS BUSINESS INCOME. WE FI ND THAT IN APPEAL CIT[A] DIRECTED THE AO TO TREAT THE SURPLUS/LOSS ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS IN RESPECT OF SECONDARY MARKE T PURCHASE AND SALE AS BUSINESS INCOME/LOSS AND TO TREAT THE SURPLUS/LO SS ON SALE OF SHARES HELD FOR MORE THAN 30 DAYS AS CAPITAL GAINS/LOSS. W E FIND THAT THE COORDINATE BENCHES OF THE TRIBUNAL ARE NOW TAKING A CONSISTENT VIEW THAT WHEN THERE IS FREQUENCY AND VOLUMINOUS TRANSAC TIONS IN SHARES ON A CONTINUOUS BASIS AND THE HOLDING PERIOD IS ONLY F OR 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 INST ANT CASE THERE IS FREQUENT PURCHASE AND SALE OF SHARES ON A CONTINUO US BASIS WITH HIGH VOLUME TRANSACTIONS AND THE HOLDING PERIOD IS START ING FROM ZERO DAYS 5 TO A FEW DAYS ONLY THEREFORE PROFITS ON SUCH FREQ UENT BUYING AND SELLING OF SHARES IN OUR OPINION HAS TO BE TREAT ED AS BUSINESS INCOME. 7. HOWEVER WE FIND MERIT IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN CASE SUCH INCOME IS TREATED AS BUSINESS INCOME NECESSARY BENEFIT OF MARKET VALUE OF THE INVENTORY AT THE BEGINNING OF THE YEAR AS PER LAW BENEFIT OF SECURITY TRANSACTIO N TAX AND SET OFF OF BUSINESS LOSS OUT OF SUCH BUSINESS PROFIT HAS TO B E GIVEN. WE THEREFORE DEEM IT FIT AND PROPER TO RESTORE THE MA TTER TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THE ALLOWABILITY OF THE ABOVE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE WHIL E TREATING THE INCOME FROM FREQUENT PURCHASE AND SALE OF SHARES AS BUSINESS INCOME. THE AO SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDA NCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WE HOLD AND DIRECT ACCORDINGLY. THE FIRST ISSUE RAISED BY THE A SSESSEE IN THE GROUNDS OF APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PU RPOSES. 8. THE NEXT ISSUE RAISED BY THE ASSESSEE RELATES TO THE ORDER OF THE CIT[A] IN CONFIRMING THE DISALLOWANCE OF TELEPHONE EXPENSES OF RS.15 000/- SALARY EXPENSES OF RS.20 000/- AND LOC AL CONVEYANCE EXPENSES OF RS.10 000/- ON ADHOC BASIS. 9. AFTER HEARING BOTH THE PARTIES WE FIND THAT THE AO MADE THE DISALLOWANCE OF ABOVE EXPENSES ON ADHOC BASIS FOR W ANT OF DETAILS AND CONSIDERED IT TO BE PART OF PERSONAL IN NATURE. WE FIND THE CIT[A] CONFIRMED THE ACTION OF THE AO ON THE GROUND THAT S UCH DISALLOWANCE IS FAIR AND REASONABLE IN THE ABSENCE OF COMPLETE B ILLS AND VOUCHERS. 6 WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T[A] SINCE ADMITTEDLY THE ASSESSEE WAS NOT ABLE TO FURNISH TH E DETAILS WITH SUPPORTING EVIDENCE ETC. TO THE SATISFACTION OF TH E AO. THEREFORE THE ORDER OF THE CIT[A] ON THIS ISSUE IS UPHELD. THE SE COND ISSUE RAISED IN THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DI SMISSED. 10. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF AUGUST 2010. SD/- SD/- (N.V.VASUDEVAN) (R.K.PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:13 TH AUGUST 2010. P/-*