Vinodkumar R Bajaj, Mumbai vs Assessee

ITA No. : 4139/Mum/2012 (Assessment year: 2008-09) Mr. Vinodkumar R. Bajaj, Vs The Assistant Commissioner of 24-B, Rajabahadur Compound, 1st Income tax Range- 12(1), Floor, Hamam Street, Fort, Aayakar Bhavan, M K Marg, Mumbai -400 023 Mumbai -400 020 ःथयी लेखा सं.:PAN: AACPB 0038 P अपीलाथ (Appellant) ू"यथ (Respondent) Appellant by : Shri Vijay Mehta Respondent by : Shri Pavankumar Beerla

सुनवाई क% तार'ख /Date of Hearing : 14-01-2015 घोषणा क% तार'ख /Date of Pronouncement : 18-02-2015

आ दे श ORDER

ि िववेक वमा , या स: PER VIVEK VARMA, JM:

The appeal is filed by the assessee against the order of CIT(A) 23, Mumbai, dated 04.04.2012, wherein the following grounds have been taken:

"1.0 Ground No.1: Treating gains from sale of shares as 'Income From Business' instead on 'Capital Gains'.

On the facts and circumstances of the case and in law, the leaned CIT(A) erred in upholding the action of the Assistant Commissioner of Income Tax Range-12(l) ("the AO") of assessing the gains from transfer of shares amounting to Rs. 1,35,54,599/- as 'Income From Business' instead of STCG of Rs. 1,35,54,599/- 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 2 Mr. Vinodkumar R. Bajaj ITA 4139/M/2012

and in circumstances of the case in holding that the principle of res judicata does not apply to the fact of the case.

2.0 Ground No. 2: Disallowance u/s. 14A of the Act.

On the facts and circumstances of the case and in law, the learned CIT (A) erred in upholding the action of the AO of making disallowance u/s. 14A and thereby disallowing expenditure amounting to Rs. 4,31,427/- on the alleged ground that the said expenditure is incurred for earning tax-free dividend income, whereas the total expense incurred and claimed by the appellant is Rs. 50,881/-.

The Ld. CIT(A) failed to appreciate and ought to have held that where no direct expenditure has been actually incurred, no estimation can be made to disallow expenditure for earning the exempt income. Further, the disallowance if any should not in any case exceed the amount of expense claimed by the appellant in return of income.

Your appellant craves leave to add, alter, amend or withdraw all or any of the above grounds of appeal herein and to submit statements, documents and papers as may be considered necessary either at or before hearing of appeal".

2. The facts are that assessee is a director in M/s Bajaj Share & Stock Broker Pvt. Ltd. and also M/s Bajaj Consultants Pvt. Ltd. In the course of assessment proceedings, the AO noticed that the assessee had large volumes and frequency of transactions in shares, which accordingly averaged at 16.86 days of holding period. The AO, thus opined that the assessee was wrong to treat the transaction in shares as short term capital gains and held the same to be business income.

3. The assessee approached the CIT(A), who sustained the view of the AO, primarily on the fact that principles of res judicata did not apply to the income tax proceedings and each year in itself is self contained unit to determine the income of the year/period.

4. Against this decision of the CIT(A), the assessee approached the ITAT.

3 Mr. Vinodkumar R. Bajaj ITA 4139/M/2012

5. Before us, at the outset, the AR pointed out that initial addition was made by the same AO and sustained by the same CIT(A), in the hands of assessee's wife, Mrs. Seema Bajaj. The case of Seema Bajaj also came upto the ITAT, wherein, on identical facts, the coordinate Bench in ITA No. 3168/Mum/2012, held, "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 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, 4 Mr. Vinodkumar R. Bajaj ITA 4139/M/2012

there has been consistency which has been accepted. This goes to show that the intention of the 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 funding 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 analyzed, 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".

6. The AR, thus submitted that since on same and identical facts, the coordinate Bench has allowed the appeal of the assessee by accepting the treatment of gains on sale of shares as STCG, the same inference needs to be taken in the case of the assessee.

7. The DR though supported the orders of the revenue authorities, but accepted that on identical grounds, the ITAT has given relief to the other director of the companies.

8. After hearing the contentions from either side, we are of the view that no diverse view needs to be taken in the case of the assessee since on identical facts, the ITAT has already given a finding on facts and restored the treatment given by the assessee as STCG. The AR also pointed out that identical view has been taken in the case of Rajkumar R Bajaj, ITA No. 4138/Mum/2012.

9. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to allow the treatment of profit on sale of shares/securities as STCG.

10. Ground no. 1 is therefore allowed.

5 Mr. Vinodkumar R. Bajaj ITA 4139/M/2012

11. Ground no. 2 pertains to disallowance of Rs. 4,31,427/- u/s 14A on dividend.

12. In the assessment proceedings, the AO noticed that the assessee had earned dividend income of Rs. 21,25,940/-, against which, the assessee had not claimed any expenditure. The AO was of the view that the assessee must have incurred some expenditure to earn this much dividend, he, therefore, invoked section 14A and applying Rule 8D, computed the disallowance of Rs. 4,31,427/-. It was pointed out to the AO that the assessee had incurred expenses on bank charge, office rent, general expenses and depreciation and accountant fee which aggregated to Rs. 50,881/-, and which did not have any nexus towards the earning of the dividend. The assessee further submitted that if the disallowance has to be made then proportionate disallowance may be made, which would have to be computed as dividend income compared to total income, which in that case, would be Rs. 35,579/-.

13. The AR once again submitted that the identical issue was denied by the ITAT in the case of Seem R Bajaj, wherein against the dividend income of Rs. 479/-, the revenue authorities had made a disallowance of Rs. 64,349/-, which was deleted by the ITAT.

14. The AR submitted that since the issue is the same, same inference may be drawn in the case of the assessee as well.

15. The DR relied on the orders of the revenue authorities.

16. We have heard the arguments and have pursued the order of the ITAT in the case of Smt. Seema R Bajaj. We find that the facts are razor thin different, i.e. the dividend in the case of the assessee was Rs. 21,25,940/-, against which, the disallowance was computed at Rs. 4,31,427/-, whereas in the case of Mrs. 6 Mr. Vinodkumar R. Bajaj ITA 4139/M/2012

Seema R Bajaj the dividend income was Rs. 479/- against which the AO had computed Rs. 64,349/-.

17. On examination of the details, we find that the AO did not compute the disallowance by going into account of the assessee, which is a mandatory condition. Computing the disallowance mechanically is not allowed, as per the provisions of section 14A(2) or 14A(3).

18. In these circumstances, we are of the opinion that the issue be restored to the AO for adjudication on the issue.

19. We, therefore, set aside the order of the CIT(A) and restore the issue of disallowance to the AO, who is directed to compute the disallowance as per law and in accordance with the various judicial pronouncements by the ITAT and the various Hon'ble High Courts.

20. Ground no. 2 is therefore allowed for statistical purposes.

21. In the result, the appeal is treated as allowed. Order pronounced in the open Court on 18th February, 2015.

(आर.

आर. सी.

सी. शमा ) (िववेक वमा ) Sd/- Sd/-

लेखा सदःय याईक सदःय (R C SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 18th February, 2015

ूित/Copy to:- 1) अपीलाथ /The Appellant. 2) ू"यथ /The Respondent. 3) The CIT(A) -23, Mumbai.

4) The CIT-12, Mumbai/CIT -12, Mumbai.

5) 0वभागीय ूितिनिध "यॅफ़", आयकर अपीलीय अिधकरण, मुब ं ई/ The D.R. "F" Bench, Mumbai.

7 Mr. Vinodkumar R. Bajaj ITA 4139/M/2012

6) गाड4 फाईल Copy to Guard File.

आदे शानुसार/By Order / / True Copy / /

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, मुबं ई Dy./Asstt. Registrar I.T.A.T., Mumbai

*च हान व.िन.स *Chavan, Sr.PS