Income Tax Appellate Tribunal - Mumbai
Rajkamal R. Bajaj, Mumbai vs Assessee on 7 January, 2015
आयकर अपीलीय अिधकरण, Ûयायपीठ, मुंबई
अिधकरण मुंबई डȣ, Ûयायपीठ,
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES 'D' MUMBAI
ौी जोिग᭠दर ᳲसह, ᭠याियक सद᭭य एवं
ौी राजेÛि, लेखा सदःय के सम¢
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND
SHRI RAJENDRA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.4138/MUM/2012
िनधा[रण वष[ /Assessment Year: 2008-09
Mr. Rajkamal R. Bajaj, The Additional Commissioner
24-B, Rajabahadur Of Income Tax,
Vs.
Compund, 1st Floor, Hamam Range-12(1), Aayakar
Street, Fort, bhavan, M.K. Marg,
Mumbai-400023 Mumbai-400020
(िनधा[ǐरती /Assessee) (ू×यथȸ /Respondent)
P.A. NUMBER : AACPB0040M
िनधा[ǐरती कȧ ओर से /Assessee by : Shri Vijay Mehta
ू×यथȸ कȧ ओर से /Respondent by Shri Akhilendra Yadav
सुनवाई कȧ तारȣख / 01/01/2015
Date of Hearing :
घोषणा कȧ तारȣख / 07/01/2015
Date of Pronouncement :
ORDER
PER JOGINDER SINGH, Judicial Member:
The assessee is aggrieved by the impugned order dated 04/04/2012 of the ld. First Appellate Authority, Mumbai. The assessee has raised the following grounds:
1. Ground No.1: Treating gains from sale of shares as 'Income From Business' instead on 'Capital Gain'.
2 Mr. Rajkamal R. Bajaj .
On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the Additional Commissioner of Income Tax Range-12(1) ("the Assessing Officer") of assessing the gains from transfer of shares amounting to Rs.1,53,35,274/- as 'Income from Business' instead of short term capital gains of Rs.1,53,35,274.
The appellant prays that it be held that the gains on transfer of shares be assessed under the head 'capital gains' as returned by the appellant.
The learned CIT(A) erred in law and on facts and in circumstances of the case in holding that the principle of res judicata does not apply to the fact of the case.
2. Ground No. 2: Disallowance of expenses of rs.33,367/-.
On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the Assessing Officer of making disallowance of expenses of Rs.33,367/-, while calculating Income under the head ' Income from other Sources'.
3. Ground No.3: Restriction in exemption available u/s 17(2) of the Act.
On the facts and circumstances of the case and in law, the learned CIT(A) erred in by restricting the exemption available u/s 17(2)(vi) of the Act to Rs.15,000/- in place of actual expenses incurred by the appellant of Rs.90,090/-
3 Mr. Rajkamal R. Bajaj .
while calculating income under the head 'income from salary' without appreciating the proper facts of the case.
2. At the time of hearing, so far as, ground no. 1 is concerned, Shri Vijay Mehta, ld. counsel for the assessee contended that the assessee sold shares of 33 scrips in IPO and sale transactions for shares acquired under IPO are only 34. It was pleaded that the assessee sold shares of just two scrips, acquired in secondary market, and thus the sale transaction of the shares are only two. So far as, earning of long term capital gains of Rs.15,52,023/-, is concerned, it was argued to be accepted by the Assessing Officer. On the issue of consistency, it was argued that the assessee had been offering gains from investment under the head capital gains which has been accepted by the Department, thus, in the absence of the contrary facts, no U turn is permitted/expected from the Department. The ld. counsel placed reliance on the decision in the case of Gopal Purohit 228 CTR 582 (Bom) against which SLP was also dismissed (334 ITR (ST) 308). Plea was also raised that no borrowed funds were used for making the investment and own funds were used. On the issue of frequency, it was contended that average holding period of shares held for short term is 34 days for shares acquired by IPO and 36 days for shares acquired in secondary market. A strong plea was raised that the assessee has not carried out any speculative, derived it as well as repetitive transactions. It was also pleaded that identically in the case of Smt. Seema R. Bajaj (wife of the assessee) the Tribunal vide order dated 23/04/2014 in ITA No. 3168/Mum/2012 decided in favour of the assessee i.e. the issue is covered in favour of the assessee.
4 Mr. Rajkamal R. Bajaj .
2.1. On the other hand, Shri Akhilendra Yadav, ld. DR strongly defended the conclusion arrived at in the impugned order by submitting that the true intent and nature of the transaction is required to be seen, which cannot be determined from the nature of the asset being traded. Plea was also raised that all the shares were sold at a profit and thus there was no dividend income. It was also contended that surrounding facts/circumstances has to be considered. It was empathetically pleaded that period of holding in all scrips is very low, consequently, the profit from sales of shares is a business income.
2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared total income of Rs.17,38,48,385/- in its return filed on 22/09/2008. In the Year under consideration, the assessee made investment in the shares and mutual funds which is mainly consist of shares allotted by making applications in Initial Public Officers (IPO). The assessee invested his own funds for making the investment and no borrowed funds were utilized. The total investment in IPO is of 35 companies i.e. through primary market and also made investment in shares of five companies through secondary market. We find that about 99.99% of the total shares transacted by the assessee (valuewise) were allotted in IPOs (Primary Market) and the assessee disclosed the shares in the balance sheet as investment. It is not worthy that for the last many years, identical disclosure has been made as investment which has been accepted by the Department. For better appreciation, we are summarizing the facts hereunder, 5 Mr. Rajkamal R. Bajaj .
Sr. Asstt. No. of Transaction Total Traded Capital Gains Assessment
No. Year in short term STGC in as orders at
capital gain `)
(`) shares computed Paper Book
by the Page No.
assessee
accepted u/s.
In Others Total
IPO
1) 2005-06 9 1 10 25,36,635 No 143(3) 17-18
2) 2006-07 36 11 47 56,44,269 No 143(3) 21-23
r.w.s 153A
3) 2007-08 14 - 14 28,15,011 No 143(3) 26-28
r.w.s 153A
4) 2008-09 34 2 36 1,53,35,274 No Year under -
consideration
5) 2009-10 7 4 11 2,79,159 Yes 143(3) r.w.s. 29-32
153A
6) 2010-11 15 6 21 2,73,77,413 Yes 143(3) r.w.s. 33-36
153A
7) 2011-12 34 53 87 2,17,21,564 Yes 143(3) r.w.s. 37-40
153A
8) 2012-13 1 - 1 86,690 Yes 143(3) r.w.s. 41-46
153A
We are also reproducing hereunder the relevant portion from the order of the Tribunal dated 23/04/2014:-
"2. Brief facts, qua the ground no.1, are that the assessee is an individual having income from salary, capital gain, etc. She is also a director in M/s. Bajaj Consultants Pvt. Ltd. a company which is engaged in the business of share broking. The Assessing Officer noted that the assessee had shown short term capital gain on sale of shares at Rs.2,72,721. The Assessing Officer further noted that the assessee had carried out 34 transactions in 33 scrips and the total number of scrips purchased was 3310 and total number of scrips sold was also 3310. The average holding period was quite less. These facts have been noted by the Assessing Officer at Page-4 of the assessment order. Before the Assessing Officer, the assessee submitted that the shares were not purchased from secondary market but was allotted through IPO, which was mostly held as capital asset. At the
6 Mr. Rajkamal R. Bajaj .
time of making the application in IPO, the shares were not listed in exchange and, therefore, are not tradable at the time of application being made. The funds are blocked for 30-45 days after which the shares are allotted and there is no certainty to the quantity of shares that may finally be allotted to the assessee. These shares, after allotment, cannot be sold before they are listed in stock exchange and, therefore, they cannot be treated as share trading activity. In the earlier years, the Department has assessed the transaction of IOP shares as capital gains. However, the Assessing Officer rejected the assessee's contention and held that the nature of transactions has to be seen from the intention behind and, hence, cannot be determined from the nature of assets being traded. Once these IPO shares are listed, they became freely tradable and, therefore, they are tradable assets. After detail discussion, he treated the income from short term capital gain at Rs.2,74,187 as business income.
3. The learned Commissioner (Appeals) has confirmed the finding of the Assessing Officer mainly on the ground that the magnitude and the frequency of the transaction is quite high and there is a very low holding period i.e., they are less than 20 days which reflects intention of the assessee that it was not for the purpose of investment but for getting indulged in the adventure of trade.
4. Before us, the learned Counsel, Mr. Vijay Mehta, on behalf of the assessee, submitted that first of all, the assessee had purchased shares of 32 companies in the IPO out of 34 scrips. Other than the IPO only two sale transactions were through secondary market. In the IPO, only serious investors will make investment, because this is the best possible mode of acquiring shares at a lowest price and sold the same at an initially listing period which gives the best possibility of getting good sale price. All throughout the various assessment years, the assessee has been mostly engaged in making investment in IPO shares only and surplus arising out of sale of such IPO shares have 7 Mr. Rajkamal R. Bajaj .
been offered as capital gain which has been assessed by the Department mostly under section 143(3) not only in the earlier years but also in the subsequent years. The copy of assessment orders have also been placed in the paper book. In the case of a business venture, huge risk is undertaken, whereas in the case of IPO, there is very less risk involved. Moreover, the assessee has not borrowed any funds for the purpose of investment and investments has been made out of her own funds. In the books also, the purchase of shares in IPO has been shown as investment. Further, the assessee has no employee or salary cost and the total expenditure is only Rs.2,170 out of which Rs.1,780 is on account of accounting charges and Rs. 420 as bank charges. All the shares are delivery based and there is no repetitive transaction. All these facts can only lead to a conclusion that the assessee's intention was not to do any trading in shares but only to buy the shares as investor. Thus, as a matter of consistency and also on the facts of the case, the gains shown from the sale of shares should be assessed as short term capital gain and not as a business income.
5. The learned Departmental Representative, on the other hand, submitted that the average period of holding is very less and even the transactions are only 34, then also it has to be seen that the assessee had brought 3,310 scrips which has been sold also within few days. Thus, there is frequency and volume of transaction also. All these factors can only lead to a conclusion that the assessee's intention was to earn profit from business of buying and selling of shares. He further strongly relied upon the orders of the Assessing Officer and the learned Commissioner (Appeals).
6. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. From the records, it is seen that the assessee has purchased shares of 34 companies out of which shares of 32 companies were in IPO. The assessee has purchased aggregate shares of Rs.7,71,415, and has sold the same at Rs.10,45,602. The assessee's case has been that at the 8 Mr. Rajkamal R. Bajaj .
time of making application in the IPO, the shares were not listed in the Stock Exchange and, therefore, the same are not immediate tradable items. In the IPO, the funds are blocked for 30-45 days after which the shares are allotted and that too the quantity of shares is not certain. It is only when the shares are allotted, they are listed in Stock Exchange and wherever there is some rise in value of the shares, the assessee immediately used to sell the same to book the gain. This practice of investment in IPO has been consistent since last several years and also in the subsequent years, wherein the income has been offered as capital gain and the same has been accepted by the Department under scrutiny proceedings under section 143(3). Further, the investments have been made through own funds and no borrowed funds have been utilized. Thus, the intention of the assessee was only for the investment and not for trading of shares. Moreover, there is no repetitive transaction and all are delivery based, hence, any gain arising out of such transaction is to be assessed as capital gain. On the other hand, Revenue's case is that the period of holdings is quite less and number of transactions is also huge, therefore, it should be assessed as business income. While adjudicating such kind of cases, the primary parameter is to gauge the intention of the assessee. The period of holding may not be all relevant in the given facts of the case. In the present case, most of the investments have been made in IPO, which is only reflects the intention of investment for getting quick gain from sales immediately as and when the shares are listed in the Stock Exchange. The purchase of IPO is mostly done by the investors as there is less risk of loss. Further, the other attendant facts like; the assessee has utilized its own funds and has shown the shares under the head investment and most important that exactly similar nature of transactions have been held by the Department to be capital gain not only in the earlier assessment years but also in the subsequent assessment year. Thus, there has been consistency which has been accepted. This goes to show that the intention of the 9 Mr. Rajkamal R. Bajaj .
assessee was only for the purpose of making investment and not for entering into any venture of trade. Under these facts and circumstances, we hold that the gain arising out of sale of shares should be assessed as capital gain and not as a business income. The fundings of the Assessing Officer and the learned Commissioner (Appeals) are based on various decisions which cannot be held to be applicable universally in all the cases, because in such kind of transaction, each fact of the case has to be analysed, depending upon the intention of the assessee and also the other attendant circumstances. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and allow the ground no.1, raised by the assessee."
2.3. If the observation made in the assessment order treating the income as business income, affirmation of the same made in the impugned order, material available on record, conclusion drawn by the Tribunal on identical facts and the assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that on identical fact, the Tribunal considered and found that the intention of the assessee was simply to make the investment from its own funds and there is no entering into venture of trade and thus the gains, arising out of sale of shares was held as capital gains and not business income. The facts in the case of Ms. Seema R. Bajaj are identical, wherein also the assessee purchased shares of 32 companies in IPO out of 34 scrips. In the present appeal, the assessee transacted in 36 transactions out of which 34 are through IPOs (Primary Market). It is not worthy that the Department itself in earlier and assessment years as is evident from the paper book (summarized in the aforesaid table) had been accepting the claim of the assessee as short term capital gain, 10 Mr. Rajkamal R. Bajaj .
while framing the assessment u/s 143(3) of the Act, thus, for the sake of consistency also, the assessee is having a good case in his favour. The totality of facts, indicates that the intention of the assessee was making the investment, thus gains arising out of sale of shares should be assessed as capital gain and not business income as has been canvassed by the ld. CIT-DR. Admittedly, no borrowed funds were utilized for making the investment, frequency of transactions, intention of the assessee making investments main through IPOs, being best possible mode of acquiring shares at lowest price and sold the same at initial period, being the best possible opportunity to sell at the pick price, as is evident from page 67 of the paper book, wherein, we find that the assessee held the investment till the accounting period i.e. 31/03/2008 and sold the shares at prevailing price as on that date earning short term capital gain of Rs.50,73,057, which is at the rate of 13.71% of returned income as against actual short term capital gain of Rs.1,53,51,497/- which fetched returned income at the rate of 41.48%. It is also not worthy, the assessee retained 41% of the total sales acquired during the year and sold in subsequent years and the capital gains earned there from has been accepted as capital gains by the Assessing Officer in scrutiny assessment. So far as, manner of accounting is concerned, it has been shown as investment (page-13 of the paper book) in his financial statement and consistently followed in all the years and accepted by the Department. So far as, method of valuation is concerned, the assessee valued at "cost" and not at "cost are market price 11 Mr. Rajkamal R. Bajaj .
whichever is less". Therefore, the assessee is having merit in its contention.
2.4. If this issue is analyzed, keeping in view, the principle of consistency, as in earlier Assessment Year, the issue was decided by the Tribunal in favour of the assessee, consequently, the Department is expected to follow the same. The ratio laid down in the following cases supports our view:-
1. CWT v. Allied Finance Pvt. Ltd.;289 ITR 318(Del)
2. Berger Paints India Ltd. vs. DCIT; 266 ITR 99 (SC)
3. CIT v Neo Polypack Pvt. Ltd.; 245 ITR 492 (Del)
4. CIT v. A.R.J. Security Printers; 264 ITR 276 (Del)
5. UOI v. Kumudini N.Dalal; 249 ITR 219 (SC)
6. UOI vs. Satish Pannalal Shah; 249 ITR 221 (SC)
7. CIT v. Shivsagar Estate; 257 ITR 59 (SC)
8. DCIT v. United Vansapati Ltd.; 275 ITR 124(Chd. ITAT)
9. CIT v. Narendra Dosi; 254 ITR 606
10.Radhaswaomy Satsang v. CIT; 193 ITR 321 (SC)
11. Union of India vs Satish Pannalal Shaha (249 ITR 211) (SC)
12. Parshuram Pottry Works Com. Ltd. vs ITO (106 ITR 1) (SC)
13. Pradip Ramanlal Sheth [1993] 204 ITR 866 (Guj) In the aforesaid cases, the ratio laid down by Hon'ble Apex Court and Hon'ble High courts is that once the correctness of a particular decision is not challenged/upheld by the Hon'ble Higher forum/Courts then the Revenue is bound by the principle laid down therein, meaning thereby, the consistency has to be followed, consequently, we are of the view that unless and until contrary facts are brought on record by the Revenue, the Department is expected to follow the same otherwise there will be no end to the litigation. In such a situation, we are quoting the 12 Mr. Rajkamal R. Bajaj .
decision of the Hon'ble Madhya Pradesh High Court in Agrawal Warehousing & Leasing Limited (257 ITR 235)(MP) wherein it was held as under :-
"The orders passed by the Tribunal are binding on all the revenue authorities functioning under the jurisdiction of the Tribunal. The principle of judicial discipline require that the order of the higher authorities should be followed unreservedly by the subordinate authorities........."
Therefore, from this angle also, the assessee is having merit in its contention, in view of these facts and judicial pronouncements discussed hereinabove, this ground of the assessee is allowed.
2.5. The next ground pertains to disallowance of expenses of Rs.33,367/- while calculating income under the head "income from other source". This ground was not pressed by the ld. counsel for the assessee, therefore dismissed as not pressed.
2.6. The last ground pertains to restricting the exemption available u/s 17(2)(vi) of the Act amounting to Rs.15,000/- in place of actual expenses incurred at Rs.90,090/-, while calculating income under the head "income from salary". The ld. Assessing Officer head dealt with this issue at para 5 (page-16) of the assessment order. The assessee received a sum of Rs.90,090/- towards reimbursement of medical expenses from the company M/s Bajaj Consultants Pvt. Ltd., wherein, he is a Director and claimed the same as exempt u/s 17(2) of the Act. The ld. Assessing Officer in view of section 17(2)(vi) brought to tax 13 Mr. Rajkamal R. Bajaj .
by treating it as perquisite under the head income from salary and taxed accordingly. The claim of the assessee is that the assessee was admitted in the hospital to carry out angioplasty (angiography). The assessee also submitted the bills of hospital in support of its claim. The expenses were first incurred by the assessee for treatment of Coronary Angiography cost in Rs.90,090/- and claimed as medical reimbursement as per the provision of section 17(2), while computing the salary income. In view of these facts, it is allowable expenses and cannot be said to be perquisite u/s 17(2) of the Act. This ground of the assessee is allowed.
Finally, the appeal of the assessee is partly allowed.
This order was pronounced in the open court in the presence of ld. Representatives from both sides at the conclusion of the hearing on 01/01/2015.
Sd/- Sd/-
(RAJENDRA) (JOGINDER SINGH )
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED - 07/01/2015
f{x~{tÜ? P.S/.िन.स.
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)-
4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुब ं ई / ITAT, Mumbai