Gaurishankar Jhalani, Mumbai vs Department Of Income Tax

BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ववेक वमा , या यक सद य के सम

आयकर अपील सं./I.T.A. No.2644/Mum/2009 and 5271/Mum/2010 ( नधा रण वष / Assessment Years : 2005-06 and 2007-08)

Asstt. Commissioner of बनाम/ Shri Gaurishankar Jhalani, Income Tax--25(3), Vs. 1805,1806, Oberoi Wood, B C-11, Room No.308, Wing, Goregaon (E), Pratyakshakar Bhavan, Mumbai-400063 Bandra-Kurla Complex, Bandra (E), Mumbai-400051. (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AAIPJ3872F

अपीलाथ ओर से / Appellant by Shri Pavan Kumar Beerla

यथ क" ओर से/ Respondent by Shri Vijay Mehta and Shri Sunil Hiravat

सन ु वाई क" तार&ख / Date of Hearing : 10.2.2015 घोषणा क" तार&ख /Date of Pronouncement : 20. 2. 2015

आदे श / O R D E R

Per B.R.BASKARAN, Accountant Member:

Both the appeals filed by the revenue are directed against the orders passed by Ld CIT(A)-XXVI, Mumbai and they relate to the assessment years 2005-06 and 2007-08. The revenue is aggrieved by the decision of Ld CIT(A) in reversing the decision of the AO in assessing the Capital gains declared by the assessee as Business income in both the years. Accordingly, both the appeals were heard together and are being disposed of by this common order, for the sake of convenience.

2 ITA. No.2644/Mum/2009 and 5271/Mum/2010

2. We heard the parties and perused the record. The assessee herein is an Individual and is a director of M/s Mudra Commodity & derivatires P Ltd. The above said company is dealing in shares and securities. The assessee herein was also indulging in share transactions and declared Short term Capital gain as well as Long term Capital gain. The AO assessed both of them as business income of the assessee in both the years under consideration. We notice that the assessing officer has placed reliance on the Circular No.4 of 2007 dated 15.6.2007 issued by CBDT, wherein certain guiding factors that are need to be considered to decide about the nature of transactions have been prescribed. The case laws relating to this issue as well as the CBDT circular referred above, reveal only one point that there is no straight jacket formula to decide about the nature of share transactions viz., whether it was carried as business activity or investment activity. The facts prevailing in each case has to be judged independently in order to resolve the said question.

3. We notice from the assessment order that the AO has considered following facts in this regard:-

(a) The frequency of the share transactions is very high

(b) The volume of transaction is also very high.

(c) The assessee has used loan funds for investing in shares.

(d) The assessee has maintained full fledged officer for carrying on the business of share trading.

(e) The period of holding was few days only in most of the scrips.

Based on these facts, the AO has come to the conclusion that the intention of the assessee was not to hold the shares as his investment. Though the assessee offered extensive arguments to support his case, the same did not find favour with the AO. Accordingly he assessed the Capital gains offered by the assessee as business income. However, the Ld CIT was convinced with the submissions of the assessee and accordingly reversed 3 ITA. No.2644/Mum/2009 and 5271/Mum/2010

the order of the AO. Aggrieved, the revenue has filed these appeals before us.

4. The Ld D.R submitted that the assessee, being an employee of a share trading company, could not have the intention to make investments. He submitted that the intention of the assessee was demonstrated by the facts prevailing in this case and the same have been clearly brought out by the AO. He submitted that the assessee has used loan funds for making investment, which fact proves that the intention of the assessee was to trade in shares.

5. The Ld A.R submitted, on the contrary, submitted that the assessing officer has made only general observations without actually analyzing the facts prevailing in these cases. He submitted that the assessee had borrowed funds from his family members only and he did not pay any interest to them. Accordingly he submitted that the same cannot be considered as an effective borrowing. He submitted that he has dealt in 47 scrips only in AY 2005-06 and in 45 scrips in AY 2007-08. The average period of holding was as under:-

Description AY 2005-06 AY 2007-08 Long term Capital gain shares 748 days 685 days Short term Capital gain shares 54 days 133 days

He further submitted that the assessee has carried out repetitive transactions only in few scrips mostly only once. He further submitted that the assessee was a full time employee in a company and was otherwise engaged, thus proving that the share transaction was not his principal activity. He further submitted that the assessee has accounted the shares as "Investment" only in the books of accounts. He also submitted that the assessee has valued the shares at "Cost" in consonance with his intention to hold them as investment. He further submitted that the assessing officer was not correct in stating that the assessee has maintained full 4 ITA. No.2644/Mum/2009 and 5271/Mum/2010

fledged infrastructure for transacting in shares. He submitted that the AO has made this observation without verifying the facts. He further submitted that the assessee has shown the income arising from derivatives transaction as his business income. He also submitted that the assessee has received dividend income in both the years.

6. The Ld A.R then invited our attention to the following decisions rendered co-ordinate benches of Tribunal and submitted that the Tribunal has decided the issues in favour of the assessee in identical set of facts:-

(a) ACIT Vs. Naishadh V Vachharajani in ITA No.6429/Mum/2009 dated 25.02.11

(b) Shri Mohan K Jain Vs. ADCIT (ITA No.1033/Mum/2010 dated 21.02.2014)

(c) Bipin Ram Chainani Vs. ADCIT (ITA No.802/Mum/2012 dated 18-09-2013)

He further submitted that the order of the Tribunal passed in the case of Naishadh V Vachharajani has since been approved by the Hon'ble Bombay High Court in ITA No.1042 of 2011. He further submitted that the assessing officer has accepted the Capital gains declared by the assessee in the prior and subsequent years, though the returns of income were processed u/s 143(1) of the Act.

7. In the rejoinder, the Ld D.R submitted that there was no application of mind of the assessing officer, if the return of income is processed u/s 143(1) of the Act. Accordingly he submitted that the assessing officer cannot be considered to have been accepted the Capital gains declared by the assessee in other years.

8. Having heard the rival submissions, we are of the view that there is merit in the contentions of the assessee. As already noticed that the assessing officer has made general observations and accordingly assessed the Capital gains as the business income of the assessee. However, the 5 ITA. No.2644/Mum/2009 and 5271/Mum/2010

specific details furnished by the Ld A.R in the course of his submissions show that the intention of the assessee was to hold the shares as his investment. It was also shown to us that the assessee has declared the income arising from derivatives transactions as his business income, meaning thereby the assessee was clear in his mind in holding the two portfolios, viz., one for investment activity and another for trading activity. In respect of borrowings, it was submitted that the assessee has not paid interest, since they were taken from relatives. Hence, it cannot be said that the assessee has borrowed interest bearing funds for making investments, which characteristics is attached with the risk appetite of business activity. Further, it was seen that the assessee has dealt in few scrips only in both the years under consideration. The repetitive transactions were almost only one time. Further the assessee was the director of a company and he was drawing salary there from. All these facts go to show that there is merit in the contention of the assessee that he has purchased and sold shares with the intention to hold them as his Investment asset only. Accordingly, we do not find any infirmity in the decision of Ld CIT(A) rendered on this issue in both the years.

9. In the result, both the appeals of the revenue are dismissed.

The above order was pronounced in the open court on 20th FEB, 2015.

घोषणा खल ु े यायालय म) *दनांकः 20th Feb, 2015 को क" गई ।

sd sd

( ववेक वमा / VIVEK VARMA) ( बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

मुंबई Mumbai: 20th Feb ,2015. व. न.स./ SRL , Sr. PS 6 ITA. No.2644/Mum/2009 and 5271/Mum/2010

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

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

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

4. आयकर आय/ ु त / CIT concerned

5. वभागीय त न1ध, आयकर अपील&य अ1धकरण, मंब ु ई/ DR, ITAT, Mumbai concerned

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील&य अ1धकरण, मंब ु ई /ITAT, Mumbai