Deepika Dharia, Mumbai vs Assessee

BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग , या यक सद य के सम

आयकर अपील सं./I.T.A.No.5084/Mum/2013 ( नधा रण वष / Assessment Year : 2008-09)

Mrs. Deepika Dharia, बनाम/ Income Tax Officer, 10C, Sett Minar, Vs. 16(1)(1), 16A, Dr G Deshmukh Marg, 2nd floor, Matru Mandir, Pedder Road, Tardeo Road, Mumbai-400026 Mumbai-400007. (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AABPD6643D

अपीलाथ ओर से / Appellant by Shri G P Mehta यथ क# ओर से/ Respondent by Shri Love Kumar

सन ु वाई क# तार'ख / Date of Hearing : 5.3.2015 घोषणा क# तार'ख /Date of Pronouncement :13.3.2015

आदे श / O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the assessee is directed against the order

dated 4.3.2013 passed by Ld CIT(A)-27, Mumbai and it relates to

the assessment year 2008-09.

2. The assessee is aggrieved by the decision of Ld CIT(A) in

respect of the following two issues:-

2 ITA No.5084/Mum/2013 (a) Assessment of Capital gains arising on sale of shares as Business income.

(b) Disallowance of interest expenditure claimed by the assessee.

3. We heard the parties and perused the record. The facts relating to the above said two issues have been discussed by Ld CIT(A) as under:-

"3. The AO. in his assessment order noted that appellant has carried on trading in shares in a business like manner that appellant's claim to treat her as investor cannot be accepted. The A.O observed that during the year under consideration, appellant has purchased shares worth Rs.40.91 lakhs and sold shares worthRs.41.98 lakhs. The holding period of shares varied from 1 day to less than 6 months. The number of purchase transactions was 150 and sale transactions were of

120. The A.O. also noted that the appellant has indulged in frequent purchases and sale of shares and indulged in churning of shares. It is also observed that appellant has taken overdraft facility from the bank and paid interest of Rs.69,112/-. Thus, from overall appreciation of the facts, the A.O. concluded that the appellant has carried on business of share trading and therefore, the impugned income of Rs.69,627/- should be assessed as income from business and not as short term capital gains.

4. Secondly, appellant was in receipt of FDR interest of Rs.2,37,310/-, bond interest of Rs.1,24,132/-, SB account interest of Rs.792/- and interest from Shri Pankaj Dharia of Rs.2,27,312/-, totaling to Rs.5,89,546/- against the said income from other sources, appellant has paid interest of Rs.1,055/- to Shri Farooq Hawa, Rs.99,152/- to Shri Shaishav Dharia and interest of Rs.69,112/- towards the overdraft facility availed from State Bank of India. The A.O. noted that the appellant was unable to establish the nexus between the loans taken and the investment in FDRs/Bonds and the loans given to Shri Pankaj Dharia. Accordingly, the A.O. rejected the appellant's claim for deduction of interest paid of 3 ITA No.5084/Mum/2013

Rs.1,69,319/- against the aforesaid income from other sources of Rs.5,89,546/-."

4. The first issue relates to the assessment of Capital gains arising on sale of shares as business income of the assessee. The AO, on considering the frequency and volume of share transactions and also by considering other factors, held that the assessee has actually acted as a trader in shares and not as an Investor. Accordingly he assessed the Capital gains as Business income of the assessee.

5. In the appellate proceedings, the ld. CIT(A) upheld the order of the AO by making following observations:

"7. I have carefully considered the contents of the assessment order and submissions of the appellant. On being called upon, the AR has placed on record various details of the short term capital gains earned by the appellant. As noted there from, during the year under consideration, appellant earned short term capital gains of Rs.4,75,062/- and incurred short term capital loss of Rs.3,99,018/-, resulting in net gain of Rs.76,044/- and after claiming DEMAT and other charges of Rs.6,4171-, appellant has offered to tax net short term capital gains of Rs.69,627-. Secondly, appellant has purchased 62 scrips and sold 60 scrips involving 170 purchase transactions and 134 sale transactions. Appellant indulged in purchases worth Rs.48.59 lakhs and sales worth Rs.53.07/-lakhs. On such transactions, appellant earned long term capital gains of Rs.75,902/- and short term capital gains of Rs.76,045/- Further, appellant received dividend of Rs.10,699/-. From the analysis of materials placed on record, it is noted that the appellant has earned the aforesaid short term capital gains of Rs.76,045/-, on cost of investments sold of Rs.40,91,994/-, thus giving a profit ratio of 1.85%. It is also noted that appellant has entered into 136 transactions with a holding period of 1 day to less than one month on which earned a gain of Rs.1,61,762/- and entered into 84 transactions with a holding period of 1 month to less than three months on 4 ITA No.5084/Mum/2013

which incurred a loss of Rs.1,31,089/-. Thus, the majority of the transactions are for a very short holding period. It is also noted that except for the months of May, June and September, 2007, appellant has been regularly trading in stock exchange in all the months. From the scrip wise details of short term capital gains placed on record, it is evident that appellant has indulged in churning of shares in 20 scrips out of the 60 scrips sold during the year, yielding a net short term capital gains of Rs.2,68,616/-. It is also noted that four of the scrips falling in the category of churning were also part of the scrips resulting in speculation income offered to tax. Thus, the overall facts of the case would go to show that the appellant has the dominant intention of trading in shares rather than holding them as investment. The profit margins of short term capital gains reported are akin to the business results rather than the capital appreciation expected on investment. Apparently, the appellant has lot of appetite for risk taking. Further, the fact that appellant is involved in churning in same scrips i.e. buying, selling and repurchasing the same scrips in a shorter duration that she has been habitually trading in shares and making profits and not in reshuffling of the portfolio by discarding a scrip and investing in a different scrip with an intention to maximize the value of portfolio.

Having regard to the key principle laid down in the case of Sarnath Infrastructure Pvt. Ltd. Vs. ACIT 120 TTJ 216 (Lucknow) that habitual dealing in a particular item is indicative of intention of trade, profit earned by the appellant in the given facts and circumstances has to be assessed as trading profit. Further, the facts of the appellant's case are not similar to that of the facts of the cases cited by the appellant's AR. Secondly, it is a settled law that the principal of res- judicata is not applicable for Income-tax proceedings as observed by the Hon'ble ITAT, Delhi Bench in the case of M/s. Radials International Vs. ACIT, that the mistake committed earlier should not be perpetuated. Therefore, in the given facts and circumstances, the principal of consistency is of no avail to the appellant. Thus, considering the overall facts of the case, I hold that the A.O. is justified in treating the short term capital gains offered to tax as appellant's business income. The appellant fails on this ground."

5 ITA No.5084/Mum/2013 6. Before us, the Ld A.R placed reliance on the decision rendered by the co-ordinate benches in the case of Koradia Construction Pvt Ltd Vs. DCIT (146 ITD 251) and Rikeen P Dalal Vs. DCIT (62 SOT 94 URO/41 in order to contend that the frequency of transactions in shares cannot be the sole factor to hold that the gains arising on sale of shares is to be assessed as business income. However, we notice that the Ld CIT(A) has considered the various factors, inter alia the frequency of transactions, and accordingly held that the dominant intention of the assessee was to indulge in share transactions as a trader only. He has further recorded a finding that the assessee has indulged in churning of shares in 20 scrips out of 60 scrips sold during the year, meaning thereby the assessee has carried out repetitive transactions. The Ld D.R has pointed out that the assessee has also availed overdraft facility from banks. We further notice that majority of shares have been held for less than 10 days only. All these factors cumulatively show that the assessee has acted as a trade only in share transactions. Hence, we do not find any infirmity in the decision of Ld CIT(A) on this issue.

7. The next issue relates to the disallowance of interest claimed on bank overdraft facility availed on the pledge of Fixed deposits. The Ld A.R submitted that the assessee, instead of closing the fixed deposits, has availed overdraft facility on the pledge of fixed deposit certificates. Accordingly he submitted that the intention of availing overdraft facility was to keep the Fixed deposits in tact. Accordingly he submitted that the interest payable on the overdraft facility should be set off against the interest income earned form the fixed deposits. In support of this proposition, the Ld A.R placed reliance on the decision of Agra bench of Tribunal rendered in the caes of 6 ITA No.5084/Mum/2013

Raj Kumari Agarwal (150 ITD 597). However, the Ld A.R could not furnish the details about the utilization of loan taken by way of overdraft facility.

8. We notice that this issue is squared covered against the assessee by the decision rendered by Hon'ble Supreme Court in the case of Cit Vs. V.P.Gopinathan (248 ITR 449)(SC). Accordingly, we hold the order of Ld CIT(A) on this issue.

9. In the result, the appeal filed by the assessee is dismissed.

Pronounced accordingly in the open court on 13th March, 2015.

घोषणा खल ु े यायालय म+ ,दनांकः 13th March, 2015 को क# गई ।

sd sd (संजय गग /SANJAY GARG) ( बी.आर.बा करन / B.R. BASKARAN)

या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

मुंबई Mumbai: 13th March,2015.

व. न.स./ SRL , Sr. PS

आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु0त(अपील) / The CIT(A)- concerned

4. आयकर आयु0त / CIT concerned

5. 1वभागीय त न3ध, आयकर अपील'य अ3धकरण, मुंबई / DR, ITAT, Mumbai concerned

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER,

true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील'य अ3धकरण, मुंबई /ITAT, Mumbai