ADDL 25(3), MUMBAI v. NIDHI LODHA, MUMBAI

ITA 6009/MUM/2009 | 2006-2007
Pronouncement Date: 15-02-2012 | Result: Dismissed

Appeal Details

RSA Number 600919914 RSA 2009
Assessee PAN ITANO6009O
Bench Mumbai
Appeal Number ITA 6009/MUM/2009
Duration Of Justice 2 year(s) 3 month(s) 3 day(s)
Appellant ADDL 25(3), MUMBAI
Respondent NIDHI LODHA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 15-02-2012
Date Of Final Hearing 02-02-2012
Next Hearing Date 02-02-2012
Assessment Year 2006-2007
Appeal Filed On 12-11-2009
Judgment Text
ITA NO 6009 OF 2009 NIDHI LODHA MUMBAI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH MUMBAI BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER ITA NO. 6009/MUM/2009 (ASSESSMENT YEAR: 2006-07) ADDL.CIT 25(3) VS NIDHI LODHA C-11 ROOM NO.308 PRATYAKSHKAR BHAVAN BANDRA-KURLA COMPLEX 3C/204 WHISPERING PALMS LOKHANDWALA TOWNSHIP BANDRA (EAST) KANDIVALI (E) MUMBAI 400 051 MUMBAI 400101 PAN AAYPL 6785 B APPELLANT RESPONDENT REVENUE BY: SHRI A.K. NAYAK ASSESSEE BY: SHRI RAKESH JOSHI DATE OF HEARING: 02/02/2012 DATE OF PRONOUNCEMENT: 15/02/2012 O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL IS BY THE REVENUE AGAINST THE ORDERS OF THE CIT (A)- XXV MUMBAI DATED 28.08.2009. THE REVENUE HAS RAISE D TWO GROUNDS: GROUND NO.1 GROUND NO.1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN D IRECTING THE ASSESSING OFFICER TO ACCEPT THE CLAIM OF LONG T ERM CAPITAL & SHORT TERM CAPITAL GAIN ON PROFIT ARRIVIN G FROM PURCHASE AND SALE OF SHARES INSTEAD OF BUSINESS INC OME TREATED BY THE ASSESSING OFFICER WITHOUT APPRECIATI NG THE FACT THAT THE ASSESSEE IS DEALING IN LARGE VOLUME O F SHARES MOST OF THE SHARES ARE BROUGHT AND SOLD WIT HIN SHORT PERIOD WHILE SOME ARE NOT SOLD DUE TO MARKET CONDITIONS AND THEIR HOLDING WITH ASSESSEE REMAINS BEYOND FEW DAYS IT WILL NOT CHANGE THE NATURE OF TRANSACTIONS AND THE ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SHARE TRADING WHICH DENOTE THAT THE MO TIVE OF THE ASSESSEE IS TO CARRY ON BUSINESS IN SHARES TO B OOK PROFIT RATHER THAN INVESTMENT IN SHARES. ITA NO 6009 OF 2009 NIDHI LODHA MUMBAI PAGE 2 OF 6 2. BRIEFLY STATED THE ASSESSING OFFICER FOUND THAT TH E ASSESSEE ADMITTED LONG TERM CAPITAL GAIN OF ` 3 04 015/- AND SHORT TERM CAPITAL GAIN AT ` 64 16 975/- AND WAS ALSO HAVING PROFIT FROM SPECULATIVE TRADING IN SHARES TO EXTENT OF ` 2 52 001/- AND THERE WAS NO OTHER BUSINESS CARRIED OUT BY THE ASSESSEE. HE F URTHER NOTICED THAT 11 TRANSACTIONS RESULTED IN LONG TERM CAPITAL GAIN AND 421 TRANSACTIONS RESULTED IN SHORT TERM CAPITAL GAIN AN D THAT THE ASSESSEE CARRIED OUT TRANSACTIONS IN F&O SEGMENTS I N WHICH A LOSS OF ` 7 66 682/- WAS INCURRED BY THE ASSESSEE. FROM THE A BOVE FACTS THE ASSESSING OFFICER WAS PRIMA FACIE OF THE OPINIO N THAT THE INCOME ADMITTED UNDER CAPITAL GAIN IS TO BE ASSESSED UNDER THE HEAD BUSINESS AND THEREFORE ISSUED A SHOW CAUSE NOTI CE TO THIS EFFECT. 3. IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAS TAKEN DELIVERY DISCLOSED THE SHARES AS INVESTMENT AND HA S BEEN ACCEPTED AS INVESTOR IN EARLIER YEARS AND FURTHER THERE ARE NO BORROWALS AND OFFICE SET UP AND FURTHER THE ASSESSEE BEING A POST GRADUATE AND PROFESSIONALLY QUALIFIED CFA DID THE INVESTMENT ON HER OWN. THE ASSESSING OFFICER DID NOT ACCEPT THE SAME AND TREAT ED THE PROFITS ON SALE OF SHARES AS BUSINESS INCOME. THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DID NOT AGREE WITH THE ASSESSING OFFICER AND DIRECTED HIM TO TREAT IT AS C APITAL GAINS ONLY BY STATING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENT ATIVE STAND TAKEN BY THE ASSESSING OFFICER AND THE CASE RECORDS. IT IS SEEN THAT THE APPELLANT HAS GIVEN DE TAILED REPLY AS TO WHY THE PROFIT ON SALE OF SHARES SHOULD NOT BE ASSESSED UNDER THE HEAD BUSINESS BUT SHOULD BE ASSESSED UNDER THE HEAD LONG TERM CAPITAL GAIN AN D SHORT TERM CAPITAL GAIN. ADMITTEDLY THE SHARES WE RE SHOWN AS INVESTMENT IN THE BALANCE SHEET WHICH INDICATES THE INTENTION OF THE APPELLANT TO HOLD TH EM AS INVESTMENT. AS CONTENDED BY THE REPRESENTATIVE MER ELY BECAUSE THE APPELLANT HAS ADMITTED INCOME FROM SPECULATIVE TRANSACTION IT CANNOT BE CONCLUDED THA T ALL THE SHARES PURCHASED AND TRANSFERRED IN HER NAME THROUGH DEMAT ACCOUNT SHOULD ALSO BE TAKEN AS STOCK -IN- TRADE. WHAT IS RELEVANT IS THE INTENTION OF THE APP ELLANT AT THE TIME OF PURCHASE AND THE METHOD OF DISCLOSING T HE ITA NO 6009 OF 2009 NIDHI LODHA MUMBAI PAGE 3 OF 6 SAME IN THE BALANCE SHEET IS THE MAIN INDICATOR TO FIND OUT SUCH INTENTION. THE ASSESSING OFFICER HAS REMAR KED IN THE ASSESSMENT ORDER THAT MOST OF THE SHARES WERE S OLD WITHIN 30 DAYS WHEREAS THE MAJOR PORTION OF SHORT T ERM CAPITAL GAIN WAS ARRIVED AT BY SELLING THE SHARES W HICH WERE HELD FOR MORE THAN 30 DAYS. REGARDING LONG TER M CAPITAL GAIN THE SHARES WERE HELD FOR A LONG TIME. THE LONG TERM CAPITAL GAIN WAS EARNED ON SALE OF TWO SC RIPS ONLY WHICH WERE PURCHASED BETWEEN JANUARY 2004 TO AUGUST 2004 AND THE SAME WAS SOLD BETWEEN APRIL 20 05 TO AUGUST 2005. THUS IT CANNOT BE SAID THAT THERE WAS INTENTION TO EARN PROFIT WHILE BUYING THESE SHARES. REGARDING THE SHORT TERM CAPITAL GAIN THE APPELLAN T HAS CONSISTENTLY BEEN SHOWING THEM AS INVESTMENT IN THE BALANCE SHEET EVEN IN THE EARLIER YEARS AND THE SAM E HAS BEEN ACCEPTED. THE REMARKS OF THE A.O THAT THE APPE LLANT HAS BORROWED LOANS FOR THE PURPOSE OF TRADING IN SH ARES CANNOT BE ACCEPTED AS HE HAS NOT GIVEN THE BASIS FO R ARRIVING AT THIS CONCLUSION. EVEN THOUGH THE APPELL ANT HAS MADE SOME BORROWINGS DURING THIS YEAR THE A.O HAS NOT LINKED THE SAME TO THE SHARE BUSINESS. IT IS SEEN T HAT THE APPELLANT HAS MADE FRESH BORROWINGS AND INVESTMENTS AS SHOWN BELOW: BORROWINGS AMOUNT 1. BASIX FOREX ` 1 50 000 2. KOMAL GEMS ` 15 00 000 3. DINESH LODHA ` 14 31 998 NEW INVESTMENTS 1. ADVANCE FOR FLAT-SILVER LEAF GLOMORE ` 8 23 000 2. MOTOR CAR HONDA ` 7 72 651 3. SHARE APPLICATION MONEY ` 25 96 900 4. DINESH LODHA HUF ` 5 70 000 5. ADVANCE FOR PLOT AT BHILWARA ` 2 24 498 FROM THE ABOVE IT IS QUITE POSSIBLE THAT THE NEW BORROWALS WERE USED FOR THE ABOVE NEW INVESTMENTS MADE DURING THE YEAR AND THEREFORE THE STAND OF TH E A.O THAT THE BORROWALS WERE USED FOR SHARE BUSINESS CAN NOT BE ACCEPTED IN THE ABSENCE OF LINKING WITH THE BORR OWALS. AS HELD BY THE HON'BLE TRIBUNAL IN THE CASE OF JANA K S. RANGWALLA VS. ACIT (11 SOT 627) THE FREQUENCY AND MAGNITUDE OF TRANSACTION CANNOT BE THE CRITERIA FOR DETERMINING THE HEAD OF INCOME. THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE ITA NO 6009 OF 2009 NIDHI LODHA MUMBAI PAGE 4 OF 6 TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. THEIR LORDSHIPS OF HON'BLE SUPREME COURT IN THE RADHASOAMI SATSANG V CIT (1992) 193 ITR 321 HAVE CATEGORICALLY HELD AS UNDER: STRICTLY SPEAKING REJUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. THOUGH EACH ASSESSMENT YEAR BEING A UNIT WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NO CHALLENGING THE ORDER IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. THE SAME VIEW HAS BEEN TAKEN BY THE HON'BLE DELHI HIGH COURT IN CIT V NEO POLY PACK (P) LTD (2000) 245 ITR 492. FURTHER THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF GOPAL PUROHIT (29 SOT 117) HELD THAT THE DELIVERY BASED TRANSACTIONS ARE TO BE TREATED AS INVESTMENT AND TH ERE CAN BE TWO TYPES OF TRANSACTIONS I.E. ONE ACTIVITY OF INVESTMENT AND OTHER ACTIVITY OF JOBBING WITHOUT DE LIVERY. 4. THE REVENUE IS AGGRIEVED. AFTER CONSIDERING THE ARG UMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE LEA RNED ASSESSEES COUNSEL WE ARE OF THE OPINION THAT THERE IS NO NEE D TO DIFFER FROM THE FINDINGS OF THE CIT (A). NOT ONLY THE REVENUE C OULD NOT COUNTER THE FINDINGS OF THE CIT (A) BUT AS SEEN FROM THE O RDER OF AY 2009-10 PLACED ON RECORD THE ASSESSING OFFICER HIMSELF ACCE PTED THE ASSESSEE AS INVESTOR AND THE LONG TERM CAPITAL AND SHORT TERM CAPITAL LOSS WERE ACCEPTED AS SUCH. CONSIDERING THE FACTS OF THE CASE AND THE NATURE OF THE ACTIVITIES OF THE ASSESSEE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT (A). ACCORDINGLY THE GROUND IS REJECTED. ITA NO 6009 OF 2009 NIDHI LODHA MUMBAI PAGE 5 OF 6 5. GROUND NO.2 GROUND NO.2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO TREAT ` 3 55 793/- AS SPECULATIVE INCOME AND ALLOW THE SET OFF OF THE SAME AGAINST CAPITAL GAIN BY HOLDING THAT THE F&O TRANSACTIONS DT. 25.01.06 ARE TO BE TREATED AS NON- SPECULATIVE IN VIEW OF THE AMENDMENT TO SECTION 43( 5) FROM AY 2006-07 WITHOUT APPRECIATING THE FACT THAT EVEN THOUGH THE AMENDMENT HAS BEEN BROUGHT ABOUT W.E.F. FINANCIAL YEAR 2006-06 NSE BSE HAVE BEEN RECOGNIZ ED AS STOCK EXCHANGES W.E.F. 25.01.2006 VIDE NOTIFICAT ION NO.2/2006 DT. 25.01.2006 AND IN EXPLANATORY MEMORANDUM IN RESPECT OF NOTIFICATION S.O 89 (E) DT . 25.01.2006 IT HAS BEEN EXPLAINED THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES CA RRIED OUT ON THESE TWO STOCK EXCHANGES WITH EFFECT FROM 2 5 TH JANUARY 2006 SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTION. THUS IT MEANS THAT ANY TRANSACTION P RIOR TO 25.01.2006 IS TO BE TREATED AS SPECULATIVE TRANSACTION. 6. AO TREATED LOSS IN DERIVATIVES SUFFERED BY ASSESSEE UP TO 25- 01-06 AS SPECULATION LOSS AS THE SAID NOTIFICATION WAS ISSUED FROM THAT DATE. THE LD CIT(A) HELD THAT THE LOSS HAS TO BE TREATED AS BUSINESS LOSS AS THE AMENDMENT HAS TO BE APPLIED FR OM 01-04-06 AND FOLLOWED THE DECISION OF ITAT ON SSKI INVESTOR SERVICES 113 TTJ 511. AT THE OUTSET IT WAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HON'BLE ITAT IN THE CASE OF PREM AS SOCIATES ADVERTISING & MARKETING IN ITA NO.6547/MUM/2009 DAT ED 17 TH SEPTEMBER 2010. THE FINDINGS OF THE ABOVE ORDER AR E AS UNDER: 7. WE FIND THAT IT IS UNDISPUTED POSITION THAT THE STOCK EXCHANGES ON WHICH THE IMPUGNED TRANSACTIONS WERE CARRIED OUT WERE DULY NOTIFIED ON 25 TH JANUARY 2006 AND THAT IN ACCORDANCE WITH THE VIEWS OF THE CO-ORDINAT E BENCH IN THE CASE OF ANAND BUILDWELL (SUPRA) (G.K. ANAND BROTHERS BUILDWELL (PVT) LTD VS INCOME TAX OFFICER (34 SOT 349) AS ALSO WITH THE VIEWS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CLARIS LIFE SCIENCES (SUPRA) ONCE THE APPROVAL IS GRANTED IN THE RELEVANT PREVIOUS YEAR AND IN THE ABSENCE OF ANYTHING INDICATED TO THE CONTRARY THE APPROVAL HAS TO BE TAKEN AS EFFECTIVE FROM THE BEGI NNING OF THE RELEVANT YEAR. THE ISSUE IS THUS COVERED IN FA VOUR OF THE LINE OF REASONING ADOPTED BY THE ASSESSEE BY D ECISION ITA NO 6009 OF 2009 NIDHI LODHA MUMBAI PAGE 6 OF 6 OF THE COORDINATE BENCH IN THE CASE OF ANAND BROTHE RS (SUPRA) AND BY HONBLE GUJARAT HIGH COURTS JUDGMEN T IN THE CASE OF CLARIS LIFESCIENCES (SUPRA)( 221 CTR 30 1). RESPECTFULLY FOLLOWING THESE DECISIONS WE UPHOLD T HE GRIEVANCE OF THE ASSESSEE AND HOLD THAT THE DERIVAT IVE TRANSACTIONS ENTERED INTO BY THE ASSESSEE AT THE RECOGNIZED STOCK EXCHANGES EVEN PRIOR TO THE DATE O F NOTIFICATION IN THE RELEVANT PREVIOUS YEAR ARE TO BE TREATED AS COVERED BY THE EXCLUSION CLAUSE SET OUT IN SECTI ON 43(5)(D). THE ASSESSEE GETS THE RELIEF ACCORDINGLY . SINCE THE FACTS ARE SIMILAR AND AS CIT (A) FOLLOWED THE COORDINATE BENCH DECISION IN THE CASE OF DCIT VS. SSKI INVESTO RS SERVICES P. LTD. (2008) 113 TTJ 511 (MUM) WE DO NOT SEE ANY R EASON TO DIFFER FROM THE FINDINGS OF THE CIT (A). GROUND IS REJECT ED. 7. IN THE RESULT THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY 2012. SD/- SD/- (V. DURGA RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 15 TH FEBRUARY 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR G BENCH ITAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI