Income Tax Appellate Tribunal - Mumbai
Praful D. Modi, Mumbai vs Department Of Income Tax on 19 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri R.S. Padvekar, Judicial Member
and Shri B. Ramakotaiah, Accountant Member
ITA No. 1334/Mum/2010
(Assessment Year: 2006-07)
ACIT - 14(3) Shri Praful D. Modi
6th Floor, Earnest House Vs. 1st Floor, Ujjmshi Bhuvan
Nariman Point, Mumbai 400021 127, V.P. Road, Mumbai 400002
PAN - AAHPM 7042 F
Appellant Respondent
Appellant by: Shri Sumeet Kumar
Respondent by: Shri Satish R. Mody
ORDER
Per B. Ramakotaiah, A.M.
This appeal by the Revenue is against the order of the CIT(A) XXV, Mumbai dated 19.11.2009 wherein the CIT(A) held that the assessee is an investor and treating the income as business income cannot be sustained on the facts of the case.
2. Briefly stated the assessee is an investor who is purchasing and selling shares in the last 40 years as claimed. During the relevant year the assessee has declared a total income of `1,07,60,180/-, which included capital gains of `1,06,37,606/-. The A.O., following the order in A.Y. 2005- 06 wherein also assessee's purchase and sale of shares were treated as an activity involving business, incomes were brought to tax as business income. The CIT(A), after considering the submissions of the assessee gave a finding that the assessee is investing in shares and cannot be treated as business income. His findings in para 6 are as under: -
"6. I have carefully considered the facts and submissions of the appellant and also perused the order of the AO. There is no dispute regarding the fact that the appellant ha since last 40 years been continuously showing investment in shares under the head 'Investment' and not as stock in trade which has been accepted by the department. It is also a fact that the appellant during the assessment year under appeal has declared speculative income on the transactions in shares which falls u/s. 43(5) of the Act. It is also a fact that the investments 2 ITA No. 1334/Mum/2010 Shri Praful D. Modi made in shares were of independent companies and not of sister concerns/related companies. Further, I also find that the appellant has dealt with the scripts, during the year, of 33 in number as against 38 scripts in the earlier assessment year i.e. A.Y. 2005-06. Similarly, number of transactions entered into during the year under appeal is 66 as against number of transactions done during the earlier assessment year i.e. 2005-06 of 75. Similarly, sale value during the year under consideration is 35.69 lakhs as against 51.48 lakhs and purchase cost at `25.05 lakhs as against `51.05 lakhs for the AY 2005-06 respectively. It is, thus, evident that during the year under appeal, the number of scripts dealt with has decreased and also the number of transactions done have decreased and also the overall sale and purchase cost have also decreased as compared to the AY 2005-06. Moreover, the average holding period of shares is also comparatively more during the year which is of 3.86 months as against 2.7 months of the earlier assessment year. Therefore, in view of these facts, I find considerable force in the contention of the appellant that even in the earlier AY i.e. 2005-06, the then CIT(A) has allowed the appeal in favour of the appellant. I have gone through the order of my ld. predecessor and find that on basis of these facts and on considering the various decisions and the CBDT Circular, he has arrived at the conclusion that the appellant's case fully fits in the tests for investments made in shares and mutual funds without any significant attribute of trading. He has also observed that in the case of the appellant there are strong cues and facts to show that the appellant is basically an investor who is investing in shares as well as units of mutual funds. There is no change either in facts or in law relating to the transactions in shares carried out by the appellant dung the year under appeal. Therefore, I do not find any reason for deviating the finding of my ld. predecessor in the appellant's own case for the AY 2005-06. Moreover, I also find that the ratio of decision of Hon'ble ITAT, Mumbai in the case of Gopal Purohit vs. JCIT 20 DTR 99 (Mum) is applicable to the facts of the appellant's case as well. Accordingly, by respectfully following the decisions relied upon by the appellant as well as order of my ld. predecessor, I hold that the STGC shown by the appellant on the sale of shares and unit of mutual funds is in accordance with law and the AO is not justified in treating the same as business income. Therefore, the AO is directed to treat the same as short term capital gains. Accordingly, these grounds are allowed in favour of the appellant."
Revenue is aggrieved.
3. The learned D.R. supported the order of the A.O. and also tried to distinguish the facts on the basis of various orders of the ITAT on the issue.
4. The learned counsel, however, submitted that on similar facts the CIT(A) had given relief to the assessee in A.Y. 2005-06, which was relied upon by the A.O. and the CIT(A) and the Revenue was not in appeal for that year. Not only that, in the later year in which the assessee has short term 3 ITA No. 1334/Mum/2010 Shri Praful D. Modi capital loss, the A.O. did not disturb the computation and in the scrutiny assessment accepted the same as short term capital loss only and not treated as business income. He gave comparative charts of three years involved as under: -
Comparison of Short Term Capital Gains for Three Years Purchases Sales Short Term No. of Avg. Holdg Assess- No. of Dividend Pertaining Pertaining Capital trans- No. of scrips Period (in ment year shares Received STCG STCG Gain/Loss actions months) 2005-06 51053806 51488744 1815216 434938 75 41 262330 2.7 2006-07 25055101 35692707 620358 10637606 66 33 719650 4.19 2007-08 139733243 125970978 1998492 -13762265 58 22 1756749 3.08
5. We have considered the issue and examined the matter. The various case laws relied upon were issues in the context of facts as available in each case law. The intention of the assessee has to be examined in the light of the merit of the transactions keeping in mind the CBDT circular issued in this regard and various case laws governing the issue. However, as stated by the learned counsel, the Revenue has treated the short term capital gain as business income in A.Y. 2005-06 and after the CIT(A) gave relief the Revenue did not prefer appeal. Not only that, in the later year when the assessee has short term capital loss of almost `1.37 crores the A.O. did not change the head of income but treated it as business income. Only in this assessment year, the Revenue preferred appeal. Keeping the stand taken by the Revenue in the earlier year and in the later year and also keeping in mind the order of the CIT(A) which is given on facts, we find that there is no merit in the Revenue's appeal. Accordingly, we reject Revenue's grounds.
6. In the result, Revenue's appeal is dismissed.
Order pronounced in the open court on 30th December 2010.
Sd/- Sd/-
(R.S. Padvekar) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, Dated: 30th December 2010
4 ITA No. 1334/Mum/2010
Shri Praful D. Modi
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - XXV, Mumbai
4. The CIT- XIV, Mumbai City
5. The DR, "C" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.