Income Tax Appellate Tribunal - Ahmedabad
Hemlata S.Behki, Baroda vs Acit.,Circle-3,, Baroda on 16 February, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ ।
IN THE INCOME TAX APPELLATE TRIBUNAL,
"B" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI MANISH BORAD, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA.No.1280/Ahd/2011
नधा रण वष / Asstt. Year: 2007-2008
Hemlata S. Behki ACIT, Cir.3
13, Meet Bungalows Vs. Baroda.
Nr. Akin Party Plot
High Tension Road
Baroda 390 023.
PAN : AFOPB 1770 P
(Applicant) (Responent)
Assessee by : Shri Deepak R. Shah, AR
Revenue by : Shri James Kurian, Sr.DR
सन
ु वाई क तार ख/ Dateof Hearing : 10/02/2017
घोषणा क तार ख / Date of Pronouncement: 16/02/2017
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-II, Baroda dated 19.11.2010 passed for the Asstt.Year 2007-08.
2. Registry has pointed out that the appeal is time barred by 111 days. In order to explain the delay the assessee has filed application for condonation of delay. In the application, the assessee has contended that order of the CIT(A) was served upon her and it was handed over to her counsel, M/s.Ambalal M. Shah & Co., Chartered Accountants on or around 20.1.2011. After perusal of the order, it was decided that an application under section 154 of the Income ITA No.1280/Ahd/2011 2 Tax Act, 1961 should be filed before the CIT(A). The appeal could not be filed before the Tribunal because the assessee remained under impression that a joint-appeal will be filed against the final order of the CIT(A) i.e. the order impugned herein as well any order passed under section 154 of the Act. Under this misconception of law, the appeal was not filed within the time. On the strength of this explanation, the delay in filing of appeal has been prayed to be condoned.
3. The ld.DR on the other hand, contended that the assessee did not give any plausible explanation for condonation of delay, and therefore, delay in filing the appeal be not condoned.
4. We have duly considered rival contentions and gone through the record. Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross-objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression "sufficient cause"
employed in the section has also been used identically in sub-section 3 of section 249 of Income Tax Act, which provides powers to the ld.Commissioner to condone the delay in filing the appeal before the Commissioner. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon'ble High Court as well as before the Hon'ble Supreme Court, then, Hon'ble Court were unanimous in their conclusion that this expression is to be used liberally. We may make reference to the following observations of the Hon'ble Supreme court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353:ITA No.1280/Ahd/2011 3
"1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.
2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.
3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner.
4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.
5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.
6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so."
5. Similarly, we would like to make reference to authoritative pronouncement of Hon'ble Supreme Court in the case of N.Balakrishnan Vs. M. Krishnamurthy (supra). It reads as under:
"Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the ITA No.1280/Ahd/2011 4 remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time.
A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss."
6. We do not deem it necessary to re-cite or recapitulate the proposition laid down in other decisions. It is suffice to say that the Hon'ble Courts are unanimous in their approach to propound that whenever the reasons assigned by an applicant for explaining the delay, then such reasons are to be construed with a justice oriented approach.
ITA No.1280/Ahd/2011 57. In the light of the above, if we examine the explanation of the assessee, then it would reveal that the delay in filing the appeal was caused on account of misconception of the procedure for filing the appeal before the Tribunal. The assessee remained under the impression that appeal against order on an application under section 154 purported to be filed before the ld.CIT(A) as well as impugned order could be filed together. In our opinion, it is a bona fide error and not adopted as a dilatory strategy, therefore, we condone the delay in filing the appeal and proceed to decide the appeal on merit.
8. In ground no.1 grievance of the assessee is that the ld.CIT(A) has erred in confirming the assessment of 56,52,395/- as a business income as against income from short term capital gain declared by the assessee.
9. Brief facts of the case are that the assessee has filed her return of income on 30.10.2007 declaring total income at Rs.54,16,980/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that though the assessee is a salaried employee but made huge investment in shares. According to the AO, she had a starting capital of Rs.11 lakhs and from that capital, she earned a profit of Rs.13 lakhs thereby reporting capital to turnover ratio of 218%. The ld.AO has made reference to CBDT Circular No.1827 and other factors i.e. frequency of transaction and volume of the transaction and treated the assessee as a trader. We are not devoting our energy for highlighting the finding of the AO, because the ld.CIT(A) has accepted the assessee as an investor partly, and that finding of the ld.CIT(A) has not been challenged. In brief, the ld.AO has treated the assessee as a trader. He assessed the income shown by the assessee as a short ITA No.1280/Ahd/2011 6 term capital gain as business income. He disallowed the expenses paid on STT.
10. Dissatisfied with the disallowance, the assessee carried the matter in appeal before the ld.CIT(A) and filed written submissions. The ld.CIT(A) has reproduced written submission and thereby concurred with the assessee in principle. The ld.CIT(A) has followed the order of the ITAT in the case of Sugamchand C. Shah (HUF) Vs. DCIT, (2016) 75 taxmann.com 105 and observed that transactions where shares were held by the assessee for less than 30 days should be considered as business transaction, and accordingly allowed the appeal of the assessee partly. Submissions made by the assessee and noticed by the CIT(A) as well as finding of the CIT(A) are worth to note. They read as under:
"2.2. In appeal the learned Authorized Representative attended and submitted that -
"The appellant is not a dealer in shares holding stock in trade in trade of shares and securities and his principle source of income is-also not share broking or dealing. The appellant also contended that classification in the accounts is 'investments' and not as 'stock-in-trade'. This can be verified from audit reports. The appellant also submitted details of investment of last three years by submitting copies of audited accounts. It is also contended that she had never valued investment portfolio in the manner in which a trader of shares values his stock-in-trade. For holding stock-in-trade, there is no need to get the asset registered in the name of owner running the business whereas in the case of capital asset identification of owner of capital asset is must in order to determine the period of holding as well as the quantum of capital gains to be taxed in the hands of respective owners.
It is further contended that if the shares are held as stock-in-trade then the valuation would be at cost or market price whichever is /ess which means that the appellant had valued the shares at cost which also proves that shares are held as investment and not as stock-in-trade. Appellant relied upon the recent decision of IT AT, 3 Bench Mumbai in the case ofJ.M. Shares & Stock brokers Ltd., IT A No.2801/Mum/2000 dated 30.11.2007.
It is also contended that your appellant herewith wish to bring to your kind attention that, your appellant had made investments in various shares as reflected in Balance sheet as on 31-03-2007, Investments shown in these ITA No.1280/Ahd/2011 7 dated as per audited accounts filed are Rs.21,13,282/-, Appellant did not have any amount of shares as stock-in-trade in any of the preceding years which means appellant was not treating share transactions as trading but the same were kept as investment. Accordingly purchase and sale of share and stock thereof were not taken to profit & loss account. Only profit on short term investment have been taken to P&L account. Therefore the treatment given by the appellant, much before the sale of these shares, is clearly as capital assets as against stock-in-trade.
Considering all these facts, only number of transactions cannot determine the nature of appellant's income from share transaction.
With the above findings tribunal held that these proved the real intention to hold these shares as investments and for these reasons the assessee had not claimed any loss on account of depreciation in value of shares on the Balance sheet date. Tribunal further noted that apart from the fact that the assessee was a share broker and having good knowledge of share market, the revenue was not able to bring on record any other fact to prove that the impugned shares was held by the assessee was "stock-in-trade". Tribunal allowed the appeal of the assessee.
In the case of appellant also the share transactions were kept as 'Investment' on the Balance sheet and the same were not routed from "
Profit & Loss account" and the investment was not valued as on Balance Sheet date taking into consideration the depreciation in the cost of the shares held as investment on the date of Balance sheet. :
"Appellant is also an investor. Facts of the appellant's case are identical with that of in the case of Gopal Purohit V/s. JCIT in ITA No.4854/Mum/2O08 and therefore the decision of Hon.Mumbai IT AT is applicable. Appellant never kept any portfolio as stock-in-trade and hence in the case of the appellant there is no confusion about the intention of the appellant while purchasing the shares. Hon. Madras High court's decision in the case of CIT Vs. NSS Investment Pvt. Ltd. is also applicable on the facts of the appellant's case. Considering these, the transactions in the share in case of appellant has to be treated as capital gain as against business income treated by the Assessing Officer. I therefore allow these grounds and direct the Assessing Officer to treat the share transactions as short term capital gain as against business income.
In the light of above it can rightly be held that the main business activity of your appellant is an investor, and not a trader or dealer in shares and securities. The learned Assessing Officer ought to have taken in to consideration the Circular No. 4/2007 dated 15.06.2007 issued by C.B.D.T. giving guidelines in respect of capital asset and trading asset.
The aforesaid circular states:ITA No.1280/Ahd/2011 8
Capital asset is defined in Section 2(14) of the Act.
Long-term capital assets and gains are dealt with under Section 2(29A) and Section 2(29B). Short-term capital assets and gains are dealt with under Section 2(42A) and Section 2(42B).
Trading asset is dealt with under Section 28 of the Act. The Central Board of Direct Taxes (CBDT) through Instruction No. 1827 dated August 31, 1989 had brought to the notice of the assessing officers that there is a distinction between shares held as investment (capital asset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of assessee as well as for guidance of the assessing officers.
In the case of Commissioner of Income Tax (Central), Calcutta Vs Associated Industrial Development Company (P) Ltd (82 ITR 586), the Supreme Court observed that:
Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in- trade and those which are held by way of investment.
In the case of Commissioner of Income Tax, Bombay Vs H, Holck Larsen (160 ITR 67), the Supreme Court observed:
The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This was a mixed question of law and fact.
The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing officers.
The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles:-
(i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction;
(ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio ITA No.1280/Ahd/2011 9 between purchases and sales and the holding would furnish a good guide to determine the nature of transactions;
(iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt.
"CBDT also wishes to emphasize that it is possible for a tax payer to have two portfolios, i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in- trade which are to be treated as trading assets. Where an assesses has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income."
"Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade."
12. These instructions shall supplement the earlier Instruction no. 1827 dated August 31, 1989.
From the above, your honour will appreciate the fact that intention of your appellant was to make investment in the shares and not to trade in the same which is evident from the books of accounts.
Further to the above, in ITA No. 2801/Mum./2000 (BCAJ), in the case of J. M. Share & Stock Brokers Ltd. Vs. Jt. CIT, based on the same facts the tribunal has held as under:
• The assesses was consistently following the practice of holding some shares as 'stock-in trade' and other shares as 'investments'.
• Income from the shares held as stock-in-trade was offered to tax as 'business. income' and from those held as investment, was offered to tax as 'Capital gains'.
• Balance sheet of the assessee also showed that shares/debentures, etc. held for business as under the head 'stock-in-trade' and others as 'investments'.ITA No.1280/Ahd/2011 10
• Shares held as 'stock-in-trade' were being valued by the assessee at lower of cost or market price; whereas, the shares held as investment were valued at cost.
In view of the above, your appellant, in the interest of justice, prays hereby that the A.O. be directed to assess the short term capital gain and levy tax as per the provisions of section 111 A of the I.T. Act. 1961.
Reliance was placed on- the decisions of the Hon'ble:
1. J M SHARE & STOCK BROKERS LTD Vs. JT. CIT (2008)
2. ACIT V/S. MOTILAL OSWAL IN ITA NO.3860/MUM/2001 FOR A.Y. 1993-94.
3. Gopal Purohit V/s. JCIT - ITA. No. 4854 / MUM/2008
4. Circular No. 4/2007 dated 15/06/2007 issued by CBDT".
2.3. I have considered the submissions of the learned Authorized Representative and the order of the Assessing Officer. It is to be noted that frequency and volume of transaction is quite substantial and it cannot be completely ignored. There are very frequent intra-day transactions and sometimes shares are held for longish period. The volume of transaction which is more than 100 crores on a capital base of 20 lakhs cannot be purely on investment account. It is apparent that the appellant is maintaining two portfolios which are not clearly identifiable and totally mixed up. On the facts of the case ratio of the Hon'ble IT AT in the case of Sugamchand C. Shah (2010 TIOL 336) ITAT (Ahd) is fully applicable wherein it has been held that in cases where transactions are mixed it would be proper to treat share held for 30 days or less as business transaction. Accordingly the Assessing Officer is directed to treat all transaction wherein shares have been held for 30 days as less as trading transaction while share held for more then 30 days would be considered as short term capital gains. The appellant may furnish required information for working out the above before the Assessing Officer.
3. Ground No. 3 is not pressed and therefore the same is treated to have been withdrawn.
4. In the result, the appeal is partly allowed."
11. Before us, the ld.counsel for the assessee contended that CBDT had issued Circular No.6/2016 on 29.2.2016. According to this circular, if an assessee has been showing holding of listed shares irrespective of period as an investment in different assessment years, then the assessee should be treated as an investor. Accrding to the ld.counsel for the assessee, this circular has ITA No.1280/Ahd/2011 11 been relied upon by the ITAT, Pune Bench in the case of Suresh Babulal Shah (HUF) Vs. DCIT, (2016) 75 taxmann.com 105. Tribunal while considering the circular has observed that this circular clarifies that once a particular stand has been taken by assessee to such purchases in a particular assessment year, it shall be applicable in subsequent assessment years also, and tax payer shall not be allowed to adopt a divergent stand in different assessment years.
Similarly, he made reference to the decision of ITAT, Jaipur in the case of DCIT Vs. Shri Mahender Kumar Bader. He placed on record copy of the Tribunal's order in ITA No.605/JP/2013. The ld.DR on the other hand, relied upon the order of the CIT(A).
12. We have duly considered rival contentions and gone through the record carefully. The ld.CIT(A) has observed that the assessee has been maintaining two portfolios which according to the ld.CIT(A) could not be identified. Therefore, transactions wherein shares were held for less than 30 days should be treated as business transaction. The ld.CIT(A) has made reference to the decision of the ITAT in the case of Sugamchand C. Shah. On due consideration of this finding, we are of the view that in principle ld.CIT(A) has accepted status of the assessee as investor also. It has also been explained that the assessee was maintaining two portfolios. There is no provision in the Income Tax Act which can authorize the authority to draw a line i.e. shares held less than 30 days would be treated as a business transaction. An assessee is either an investor or trader. His status cannot be changed on the basis of the transactions where shares were held below a particular number of days. There is no such provision in the Act. Thus, the ld.CIT(A) has erred in creating an artificial line between transactions. The Revenue has not challenged the finding of the ld.CIT(A) qua treating the assessee as an investor. Therefore, we partly allow the appeal of the assessee and modify ITA No.1280/Ahd/2011 12 the order of the CIT(A). The transactions in respect of shares held by the assessee less than 30 days should also be treated as a transaction of investment. In other words, short term capital gain shown by the assessee is to be accepted.
13. In ground no.2, the assessee has pleaded that the ld.CIT(A) has erred in confirming disallowances of Rs.4,14,273/- in respect of expenditure relevant to the activity of shares and securities. Alternatively, it has been contended that the AO be directed to delete the disallowance or he may be directed to grant rebate under section 88E of the Act. A perusal of the record shows that an application under section 154 of the Act was filed before the ld.CIT(A) and the ld.CIT(A) has decided this application vide order dated 31.3.2011. Relevant part of the order of the ld.CIT(A) on this application reads as under:
"2. The appellant vide his application has pointed out that an apparent mistake has occurred while disposing off the Ground of Appeal. The ground No. 4 is remaining to dispose off. Ground No. 4 as per grounds of appeal is as followed:-
"On the facts and in the circumstances of the case the learned Assessing Officer erred in not allowing deduction under chapter VI-A of the Act."
"The appellant therefore in the interest of justice hereby prays that the Assessing Officer be directed to grant deductions u/s. 80C and 88E as per the provisions of the Act."
3. From the order dated 19.11.2010 it is noticed that this ground was remained to be adjudicated. Since the claim under chapter VI-A is a legal claim, the Assessing Officer is directed to examine the claim and pass a speaking order as per law.
4. In the result, the rectification application filed by the appellant on 17th February, 2011 stands disposed off in the above manner."
14. Since this issue has already been relegated to the AO for re- adjudication and there is no specific finding at the end of the AO on this issue.
ITA No.1280/Ahd/2011 13Moreover, the order of the ld.CIT(A) based on an application under section 154 of the Act has not been challenged before the Tribunal, it became final. In view of this development, we are of the view that ends of justice would meet if we set aside this issue to the file of the AO for re-adjudication in accordance with law.
15. In the result, the appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the Court on 16th February, 2017 at Ahmedabad.
Sd/- Sd/- (MANISH BORAD) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 16/02/2017