ADDL CIT 13(2), MUMBAI v. S.K. FINANCE, MUMBAI

ITA 773/MUM/2010 | 2006-2007
Pronouncement Date: 31-03-2011 | Result: Dismissed

Appeal Details

RSA Number 77319914 RSA 2010
Bench Mumbai
Appeal Number ITA 773/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 28 day(s)
Appellant ADDL CIT 13(2), MUMBAI
Respondent S.K. FINANCE, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 31-03-2011
Date Of Final Hearing 28-03-2011
Next Hearing Date 28-03-2011
Assessment Year 2006-2007
Appeal Filed On 02-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 773/MUM/2010 ASSESSMENT YEAR-2006-07 THE ADDL. CIT 13(2) AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. S.K. FINANCE SHOP NO. SARASWATI SADAN 113/115 K.N. ROAD CHINCH BUNDER MUMBAI-400 009 PAN-AAQWFS 3123C (APPELLANT) (RESPONDENT) APPELLANT BY: MS. MAHUA SARKAR RESPONDENT BY: SHRI PRADIP N. KAPASI O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 23.11.2009 PASSED BY THE LD. CIT(A)-24 FOR TH E ASSESSMENT YEAR 2006-07. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM HAVING BUSINESS OF LENDING FUNDS ON INTEREST A ND HAS ALSO EARNED SHORT TERM CAPITAL GAIN OF RS. 42 40 042/-. ACCORD ING TO THE AO SINCE THE ASSESSEE HAD ENGAGED THE SERVICE OF ONE M/S. EM KAY SHARES AND STOCK BROKERS PVT. LTD. AS PORTFOLIO MANAGERS FOR PURCHASE AND SALE OF SHARES AND FOR WHICH RS. 7 44 930/- WAS PAID AS POR TFOLIO MANAGEMENT CHARGES THE INTENTION OF THE ASSESSEE WAS TO MAKE PROFITS BY DEALING IN SHARES AND HAVING TAKEN ADVANTAGE OF THE EXPERTS AN D EXPERTISE OF A ITA NO. 773/M/2010 2 PERSONAL FUND MANAGER THE INCOME HAD TO BE ASSESSE D AS BUSINESS INCOME. 3. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A) AND SUBMITTED THAT DURING THE COURSE OF APPELLATE PROCE EDINGS THAT THE AO HAS ERRED IN TREATING THE TRANSACTIONS OF INVESTMEN T IN SHARES AS SHOWN BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN AS BUSIN ESS INCOME MERELY BY LOOKING INTO THE VALUE FREQUENCY PORTFOLIO MANAGE MENT SERVICES AND PERIOD OF HOLDING AS BEING DECISIVE OF THE FACT WHE REAS THERE ARE A CATENA OF DECISIONS WHICH HOLD OTHERWISE. 4. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNS EL ON BOTH THE FACTUAL AND LEGAL ASPECTS AND IT IS SEEN THAT T HE AO HAS DRAWN AN ADVERSE INFERENCE BY TREATING THE FREQUENC Y OF TRANSACTIONS THE VOLUME AND MAGNITUDE PERIOD OF H OLDING TO COME TO A CONCLUSION THAT THE ASSESSEE IS A TRADER AND NOT INVESTOR IN SHARES. HOWEVER I AM UNABLE TO ACCEPT THE FINDING OF THE A O THAT THE ASSESSEE IS A TRADER IN SHARES AND NOT AN INVESTOR FOR THE FOLLOWING REASONS: I) THE MERE FACT THAT THE VOLUME OF TRANSACTIONS IS SOME WHAT LARGE IS NOT DECISIVE OF THE FACT THAT THE ASSESSEE IS A TRADER IN SHARES AS HELD IN JANAK S. RANGWALLA VS ACIT 11 SOT 627 (MUM) AND IN THE CASE OF GOPAL PUROHIT VS JCIT 20 DTR 99 (MUM). II) NO ASSESSEE WOULD HOLD ON TO THE SHARES TO INCUR LOSS WHEN THE VOLATILITY IN THE STOCK EXCHANGE WARRANTS THAT THE ASSESSEE WILL MINIMIZE HIS CAPITAL LOSS BY SELLING AT AN OPPORTUNE AND APPROPRIATE TIME AND MERELY BECAUSE THIS LEADS TO A HIGH FREQUENCY THIS BY ITSELF WILL NOT NEGATE THE CLAIM OF THE ASSESSEE AS BEING AN INVESTOR. (GOPAL PUROHIT VS JCIT (2009) 20 DTR 99(MUM). ITA NO. 773/M/2010 3 III) MERELY BECAUSE THE ASSESSEE EMPLOYS THE INFRASTRUCTURE OF FINANCIAL CONSULTANCY ETC. WILL N OT TURN AN INVESTMENT ACTIVITY IN THE BUSINESS ACTIVITY. (GOPAL PUROHIT VS JCIT (2009) 20 DTR 99(MUM). IV) THE HONBLE MADRAS HIGH COURT IN CIT VS N.S.S. INVESTMENT (P) LTD. (2005) 277 UITR 149 AND HONBLE KERALA HIGH COURT IN ACIT VS KETHAN KUMAR A. SHAH (2000) 242 ITR 83 HAVE VERY CLEARLY HELD IN FAVOUR OF THE ASSESSEE AND STATED THAT WHERE SHARES HAVE ALREADY BEEN HELD AS INVESTMENT AND NEVER TRANSFERRED OR CONVERTED AS STOCK IN TRADE THE PROFIT ON SALE OF SUCH SHARES I S ASSESSABLE AS CAPITAL GAINS. V) ALSO THE FACT THAT THE APPELLANT HAS SUCCESSFULLY DEMONSTRATED THAT WHATEVER BORROWED FUNDS WERE THERE TOTALING RS. 4 CRORES THEY HAVE GONE TOWARDS FINANCING THE MONEY LENDING BUSINESS OF THE ASSESSEE AND THE APPELLANT HAS SHORT TERM CAPITAL GAIN OF RS. 41 LAKHS DURING THE YEAR AND INVESTMENT IN SHARES DURING THE YEAR IS OF RS. 11 98 480/- AND THIS CLEARLY SHOWS THAT THE FUNDS FOR INVESTMENT IN SHARES HAVE COME FROM SHORT TERM CAPITAL GAIN BOOK DURING THE YEAR OF RS. 41 LAKHS. ALSO THE APPELLANT HAS OPENING CAPITAL OF RS. 1 35 58 119/- AND THIS FAR EXCEED THE INVESTMENT IN SHARES OF RS. 43 89 107/-. ALSO DURING THE YEAR THE INVESTMENT IN SHARES IS ONLY RS. 11 98 480/- AMD AS HELD BY THE HONBLE MUMBAI HIGH COURT IN THE CASE OF RELIANCE UTILITIES LTD. 221 CTR 435 (MUM) THAT WHEN ASSESSEE IS FOUND TO BE IN POSSESSION OF SUFFICIENT INTEREST FREE FUNDS THEN NO PRESUMPTION AS TO USE OF BORROWED FUNDS FOR GRANT OF INTEREST FREE ADVANCES CAN BE MADE AND INSTEAD THE PRESUMPTION WOULD BE SUCH ADVANCE WERE MADE OUT OF OWN INTEREST FREE FUNDS. ACCORDINGLY EVEN ON THIS FACTUAL BASIS AND DECISIO N OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF RELIANCE U TILITIES LTD. 221 CTR 435 (MUM) THE CASE OF THE ASSESSEE DE SERVES TO BE ACCEPTED. ITA NO. 773/M/2010 4 ACCORDINGLY THE SHORT TERM CAPITAL GAIN OF RS. 42 4 0 042/- AS SHOWN BY THE ASSESSEE IS ACCEPTED AND ITS TREATMEN T AS A BUSINESS INCOME BY AO IS DELETED. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) REVENU E IS IN APPEAL BEFORE US. 6. THIS ISSUE IS COVERED BY THE DECISION OF THE MUM BAI TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO. 6190/M/08 WHEREIN IT HAS BEEN HELD AS UNDER: AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE AO AND THE LD. CIT(A) FILED THE FOLLOWING CHART TO SHOW THAT ON SIMILAR FACTS AND CIRCUMSTANCES THE TRIBUNAL IN OTHER CASES HAS ACCE PTED THE SHARE TRANSACTIONS AS SHORT TERM CAPITAL GAINS : CHART COMPARING VOLUMES WITH OTHER DECIDED CASES CRITE- RIA S.K. FINANCE (ASSESSEE) LAXMICHAND KENIA RAMJI KENIA DHIRAJ KENIA BHARAT KENIA KUNVERJI KENIA PERIOD OF HOLDING 106 DAYS 134 DAYS 86 DAYS 107 DAYS 116 DAYS 124 DAYS NO. OF SCRIPS PURCHA -SED 51 106 144 129 142 213 NO. OF SCRIPS SOLD 49 104 129 105 168 173 VALUE OF PURCHA -SES 79 15 605 2 65 81 691 2 45 03 380 1 53 70 408 2 72 94 423 20 08 45 292 VALUE OF SALES 79 35 156 2 38 20 271 2 06 27 334 1 31 47 240 3 69 83 128 10 59 95 053 NO. PURCHA -SE DAYS 315 DAYS 268 DAYS 234 DAYS 261 DAYS 236 DAYS 177 DAYS NO. SALE DAYS 312 DAYS 195 DAYS 214 DAYS 240 DAYS 202 DAYS 162 DAYS IN SUPPORT HE HAS ALSO FILED COPY OF TRIBUNAL ORDE RS IN THE ABOVE CASES AS UNDER: ITA NO. 773/M/2010 5 1. SHRI LAXMICHAND KUNVERJI KENIA VS. ACIT IN ITA NO.2 697/MUM/2009 FOR A.Y. 2005-06 DATED 22.10.2009. 2. SHRI DHIRAJ DEVJI KENIA VS. ACIT AND SHRI RAMJI DEV JI KENIA VS. ACIT IN ITA NO.2701 & 2703/MUM/2009 FOR A.Y.2005-06 DATE D 18.8.2009. 3. SHRI BHARAT KUNVERJI KENIA VS. ADDL. CIT IN ITA NO. 6544/MUM/2008 FOR A.Y. 2005-06 DATED 15.5.2009. 4. SHRI KUNVARJI NANJI KENIA VS. ADDL. CIT IN ITA NO.6 545/MUM/2008 FOR A.Y. 2005-06 DATED 28.4.2009. 5. SHRI GOPAL PUROHIT VS. JCIT IN ITA NO.4854/MUM/2008 FOR A.Y. 2005- 06 DATED 10.2.2009. 6. CIT VS. GOPAL PUROHIT IN INCOME TAX APPEAL NO.1121 OF 2009 JUDGMENT DATED 6.1.2010 OF HONBLE BOMBAY HIGH COURT HE FURTHER SUBMITS THAT THE LD. CIT(A) IN THE ASSES SEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 HAS ACCEPTED THE S HORT TERM CAPITAL GAIN AS SHOWN BY THE ASSESSEE . HE FURTHER SUBMITS THAT THE ASSESSEE HAS COMPLIED WITH ALL THE TESTS AS LAID DOWN IN CBD T CIRCULAR NO.4 OF 2007 DT.15.6.2007 TO SHOW THAT THE TRANSACTION SHOU LD BE TREATED AS INVESTMENT VIDE PAGE 11 TO 14 OF THE ASSESSEES PAP ER BOOK. HE FURTHER SUBMITS THAT IN THE BALANCE SHEETS FOR THE YEAR END ED 31.3.2004 AND 31.3.2005 APPEARING AT PAGE 26 TO 29 OF THE ASSESSE ES PAPER BOOK THE ASSESSEE HAS SHOWN THE INVESTMENT IN SHARES AS INVE STMENT. HE THEREFORE SUBMITS THAT THE SHORT TERM CAPITAL GAIN S SHOWN BY THE ASSESSEE BE TREATED AS SHORT TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. . ON THE OTHER HAND THE LD. DR WHILE RELYING ON T HE ORDER OF THE AO AND THE LD. CIT(A) FURTHER SUBMITS THAT THE COMP LIANCE SHOWN BY THE ASSESSEE AS YES AT PAGE 14 OF THE ASSESSEES PA PER BOOK IS A SUBJECTIVE COMPLIANCE SHOWN BY THE ASSESSEE IN RESP ECT OF ALL THE TESTS LAID DOWN IN THE CBDT CIRCULAR NO.4 OF 2007 DATED 1 5.6.2007 THEREFORE IN VIEW OF THE FINDING RECORDED BY THE AO AND THE LD. CIT(A) THE SAME IS NOT APPLICABLE IN THE CASE OF THE ASSES SEE FOR HOLDING THAT THE TRANSACTIONS ARE FOR INVESTMENT IN SHARES AND NOT FOR BUSINESS PURPOSES. HE THEREFORE SUBMITS THAT THE ORDER PASSE D BY THE AO IN TREATING THE TRANSACTIONS AS BUSINESS TRANSACTIONS BE UPHELD. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT SHOWN THE INVESTMENT IN S HARES AS INVESTMENT IN THE BALANCE SHEETS FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06. IT IS ALSO NOT THE CASE OF THE REVENU E THAT THE SAID INVESTMENT IN SHARES AND MUTUAL FUND WAS FOUND TO B E FALSE AND UNTRUE. THE REVENUE HAS PLACED NO MATERIAL TO SHOW THAT THE ASSESSEES CASE DOES NOT FALL ON THE TESTS LAID DOW N BY THE CBDT IN ITS ITA NO. 773/M/2010 6 CIRCULAR NO.4 OF 2007 (SUPRA) TO SHOW THAT THE SH ARES HELD BY THE ASSESSEE ARE AS STOCK IN TRADE AND NOT HELD AS INVE STMENT. FURTHER IT IS EVIDENT FROM THE CHART FILED BY THE ASSESSEE RE PRODUCED HEREINABOVE THAT THE PATTERN OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE IS ALMOST SIMILAR TO THE OTHER CASES DECI DED BY THE TRIBUNAL(SUPRA). IN CIT VS. GOPAL PUROHIT IN IT APPEAL NO.1121 OF 20 09 DATED 6.1.2010 THE HONBLE JURISDICTIONAL HIGH COURT HAS U PHELD THE FINDING OF THE TRIBUNAL HOLDING THAT THE DELIVERY BASED TRA NSACTIONS IN THE PRESENT CASE SHOULD BE TREATED AS THOSE IN THE NATU RE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOU LD BE TREATED EITHER AS SHORT TERM OR AS THE CASE MAY BE LONG TERM CAP ITAL GAIN DEPENDING UPON THE PERIOD OF THE HOLDING AND THE FI NDING OF THE FACT ARRIVED AT BY THE TRIBUNAL DOES NOT CALL FOR INTERF ERENCE IN AN APPEAL U/S.260A AND DISMISSED THE REVENUES APPEAL. IN THIS VIEW OF THE MATTER AND IN THE ABSENCE OF AN Y DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REV ENUE WE RESPECTFULLY FOLLOWING THE AFORESAID DECISION AND C ONSISTENT VIEW OF THE TRIBUNAL IN THE ABOVE CASES RELIED ON BY THE LD. C OUNSEL FOR THE ASSESSEE WHEREIN IT HAS BEEN CONSISTENTLY HELD THA T THE PROFIT ON SALE OF SHARES IS ASSESSABLE UNDER THE HEAD SHORT TERM C APITAL GAIN HOLD THAT THE SHARE TRANSACTIONS ARE IN THE NATURE OF IN VESTMENT AND THE PROFIT RECEIVED THEREFROM IS ASSESSABLE AS SHORT TE RM CAPITAL GAIN AS SHOWN BY THE ASSESSEE. THE GROUNDS TAKEN BY THE AS SESSEE IN THIS REGARD ARE THEREFORE ALLOWED. 7. FURTHER THE ASSESSEE SUBMITTED A CHART SHOWING COMP ARISON OF VARIOUS VOLUME FOR TWO YEARS I.E. FOR A.YRS. 2006-0 7 AND 2005-06 WHICH IS AS FOLLOWS: PARTICULARS A.Y. 2006-07 A.Y. 2005-06 DIVIDEND 68 546 50 277 NUMBER OF SCRIPTS PURCHASED 38 51 NUMBER OF SCRIPT SOLD 49 49 AVERAGE PERIOD OF HOLDING 140 DAYS 106 DA YS NUMBER OF DAYS OF PURCHASES 87 DAYS 5 0 DAYS NO. OF DAYS OF SALES 56 DAYS 64 DAYS NO. TRANSACTION DAYS 289 DAYS 303 DAYS ITA NO. 773/M/2010 7 CAPITAL OF THE FIRM 13 558 119 -2 402 957 TURNOVER RATIO 0.77:1 0.12:1 8. FROM THIS CHART IT IS EVIDENT THAT AO HAS ERRED IN TREATING THE TRANSACTIONS OF INVESTMENT IN SHARES AS SHOWN BY T HE ASSESSEE AS SHORT TERM CAPITAL GAIN AS BUSINESS INCOME MERELY BY LOOK ING INTO THE VALUE FREQUENCY PORTFOLIO MANAGEMENT SERVICES AND PERIOD OF HOLDING WHEREAS FOR THE PRESENT YEAR I.E. A.Y. 2006-07 ALL THESE F ACTORS ARE MORE FAVOURABLE TO THE ASSESSEE THAN IN THE A.Y. 2005-06 FOR WHICH YEAR THE TRIBUNAL HAS GIVEN THE FINDING REPRODUCED AT PARA-6 ABOVE. 9. IN THESE CIRCUMSTANCES RESPECTFULLY FOLLOWING T HE ORDER OF THE TRIBUNAL FOR A.Y. 2005-06 WE DISMISS THE REVENUES APPEAL. 10. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF MARCH 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 31 ST MARCH 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 773/M/2010 8 DATE INITIALS 1 DRAFT DICTATED ON: 2 8 . 0 3 .201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 8 .0 3 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______