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ACIT, 4(2), Mumbai-400 020 Vs. Mr. Prashant J. Patel, Dev Neo Vikram Sahakar Nagar, CHS, 2nd Floor, Andheri(West), Mumbai-400 053
April, 25th 2014
        ,  Û `Õ,  
     IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH MUMBAI

[^ ..[,    ... , Û 
     BEFORE SHRI R.C.SHARMA, AM
                   &
             DR.STM PAVLAN, JM
                 ./ITA No.6033/Mum/2012
              ( [ [ / Assessment Year :2009-10)
                         Mr. Prashant J. Patel,
     ACIT, 4(2), Mumbai-400 020   Vs.
                         Dev Neo Vikram Sahakar
                         Nagar, CHS, 2 n d Floor,
                         New Link Road, Above
                         Audi           Showroom,
                         Andheri(W est), Mumbai-
                         400 053
         . /   . / PAN/GIR No. : AABPP 2156 M
     ( /Appellant)   ..     (× / Respondent)
    /Revenue by                     :     Mr. M.L.Perumal
[    /Assessee by                   :     Mr. V.G.Ginde
   / Date of Hearing :                      13th March, 2014
  / Date of Pronouncement :                  22nd April, 2014
                             / O R D E R

PER R.C.SHARMA (A.M.) :

        This is an appeal filed by the Revenue against the order of

CIT(A) dated 11-7-2012 for the assessment year 2009-10, in the matter

of order passed under Section 143(3) of the I.T. Act.


2.      This appeal of Revenue was heard along with the appeal filed by

the Revenue for the assessment year 2008-09. The grounds raised by

the Revenue in the present appeal are same as was taken by the

Revenue for the assessment year 2008-09, which has been decided by

the Tribunal vide order dated 28th March, 2014, passed in ITA

No.3546/Mum/2012.
                                      2
                                                             ITA No.6033/12

3.    The first issue is with regard to treatment of profit offered on sale

of shares which has been accepted by CIT(A) as capital gains after

recording following observations :-

      3.10 I have considered the contention of the AO as well as
      the Ld. AR. I find that there is merit in the arguments and the
      facts of the case before me. The brief summary of the
      arguments of the Ld. AR are as under:

            1. The appellant consistently maintained two separate
            portfolios - one for Trading and other for Investment,
            which is accordingly reflected in the accounts.

            2. In the books of account regularly maintained by the
            Appellant, consistently the shares forming part of
            trading portfolio are reflected as stock-in-trade and
            those forming part of investment portfolio are reflected
            as investments.

            3. . The shares held in trading portfolio are consistently
            valued at cost or market pnce, whichever is lower,
            whereas, shares held in investment portfolio are
            consistently valued at cost.

            4. The past tax record of the Appellant would also
            reveal that when shares held In Investment portfolio
            were sold, the surplus/income is always assessed and
            taxed as capital gains either shall term or long term, as
            the case may be, at the applicable rate of tax.

            5. The Appellant has earned substantial dividend on
            the investments held by him.

            6. The Appellant has not utilized borrowed fund for
            purchase or acquisition of investments.

            The frequency of transactions in the case of the
      Appellant are not high. During the previous year, the
      Appellant has executed in aggregate 17 sale transaction. in
      only 10 scrips resulting in short term capital gains. It is very
      evident from the statement of capital gains submitted before
      me that the appellant has not entered into huge number of
      transactions which has resulted into short term capital gains.

      3.11 [have considered the contention of the AO as well as of
      the Ld. AR, where the reliance is placed on the decision of
                              3
                                                      ITA No.6033/12




Hon'ble Mumbai Tribunal in case of Gopal Purohit reported
in 122 IT] 87(Mum) (affirmed in 228 CTR 582 (Born)),
Saranath Infrastructure 120 TT] 216 (Luck) and other
decisions. I am in agreement with the Ld. AR submissions
that facts of the appellant's case are similar to case of Gopal
Purohit are adhered to by the Appellant.

3.12 The appellant's status as an investor is valid because:

      I. The appellant is consistently maintaining two
      separate portfolios - one for Investments and other for
      trading.

      2. The Departments in past years has assessed the
      appellant as investor, and there is no change in the
      modus of operandi of share transactions from year to
      year.

      3. The intention of the appellant is clearly reflected in
      the manner in which the accounts are maintained.

      4. The appellant has earned substantial dividend on
      investments.

      5.The appellant has not utilized borrowed funds for
      purchase of investment.

      6. The AO has also accepted the status of appellant as
      investor by accepting the Long Term Capital Gains as
      capital gains.

3.13 The Appellant further submits that in his own case for
the assessment year 2008-09, after considering the facts of
the case in detail, in terms of my appeal order dated 2151
March, 2012, I have given a finding that the assessee is an
Investor and the income from sale of short term capital asset
be taxed as short term capital gains as provided u/s. 111 A
of the Act, considering the facts of the case, I have
no hesitation to allow the ground to assess the gains on
which STT is paid, computed on FIFO basis, as short term
capital gains.

3.14 In light of the above discussion, the AO is directed to
treat the said gain of the appellant on sale of shares on
which STT is paid as short term capital gain and not as
business income. Accordingly, this ground of appeal is
allowed."
                                   4
                                                           ITA No.6033/12


4.    We have considered rival contentions. Exactly similar issue has

been discussed by Tribunal in great detail in assessee's own case in

the assessment year 2008-09, wherein the observations of the Tribunal

are as under :-

      "5. We have considered rival contentions and found from
      the record that assessee was consistently maintaining two
      separate portfolio-one for trading and other for investment.
      Shares held in trading portfolio were reflected as stock-in-
      trade and those forming part of investment portfolio were
      reflected as investment. Stock of shares held in trading
      portfolio were consistently valued at cost or market price,
      whichever is lower, whereas shares held as investment
      portfolio were consistently valued at cost. We found that
      assessee has earned substantial dividend income on
      investment and past tax record of the assessee revealed
      that assessee held shares as investment portfolio. The
      income so offered on shares were always assessed and
      taxed as capital gains either short term or long term
      depending upon the period of holding. The CIT(A) after
      applying the proposition of law laid down in the case of
      Dhanalaxmi Cotex Ltd. (supra) and Gopal Purohit, 29
      SOT 117, which was confirmed by the Hon'ble Bombay High
      Court reported in 336 ITR 287, to the facts of the instant
      case and came to the conclusion that profit earned by on
      delivery based transaction in respect of shares held as
      investment are liable to capital gain tax. Detailed findings
      recorded by the CIT(A) at para 4.5, 4.6 & 4.7 have not been
      controverted by Revenue by bringing any positive material
      on record. Accordingly, we do not find any reason to
      interfere in the findings of CIT(A) for treating the profit on
      sale of shares as capital gains.

      We have considered rival contentions and gone through the

orders of authorities below. We have also gone through the order of

Tribunal dated 28.03.14. In this case the findings recorded by CIT(A)

have not been controverted by Revenue by bringing any positive

material on record.
                                       5
                                                                 ITA No.6033/12

As facts and circumstances during the year under consideration are

parimateria with the facts discussed by the Tribunal for the assessment

year 2008-09 as reproduced above, respectfully following the order of

the Tribunal in ITA No.3546/Mum/2012, dated 28-3-2014, we dismiss

the grounds raised by the Revenue.


5.    The Revenue is also aggrieved for deletion of addition made for

non-deduction of tax in respect of referral fees. Exactly this issue has

been dealt by the Tribunal in assessee's own case for the assessment

year 208-09. The precise observation of the Tribunal for the A.Y.2008-

09 are as under :-

      "6. The CIT(A) also deleted the addition made on account
      of referral fee for non-deduction of tax at source under
      Section 40(a)(ia) of the I.T. Act. The precise observation of
      the CIT(A) are as under :-
            "5.3 1 have considered the contention of the AO as well as
            the Ld. AR. The provisions of sections194H and
            particularly the Explanation (i) to section 194H of the Act,
            which reads as follows:

                     "commission or brokerage" includes any payment
                     received or receivable, directly or indirectly, by a
                     person acting on behalf of another person for
                     services rendered (not being professional services)
                     or for any services in the course of buying or selling
                     of goods or in relation to any transaction relating to
                     any asset, valuable article or thing, not being
                     securities;

            5.4 The client referral fees cannot termed as commission
            or brokerage as it is out of the purview of definition of
            commission or brokerage. Further, it is can be observed
            from the aforesaid explanation that any payment in relation
            to any transactions relating to any asset, valuable article or
            thing which is security is specifically excluded from the
            definition of commission or brokerage. The Department
            has also consistently accepted the said stand of the
            appellant in the past. Accordingly, the client referral fees do
            not fall within the purview of section 194H of the Act as
            specifically excluded. Accordingly, the provisions of
                                    6
                                                            ITA No.6033/12

            deduction of tax at source thereof do not apply.
            Accordingly this ground of appeal is allowed".

      7.     We have considered rival contentions. The AO had
      disallowed payment of referral fees on the plea of non-
      deduction of tax at source on such payment. Whether such
      referral fees comes under meaning of commission or
      brokerage so as to make it liable to deduction of tax at
      source is governed by provisions of Section 194H. As per
      provisions of Section 194H, explanation (i), commission or
      brokerage do not include the payment received for any
      services in the course of buying and selling of securities. In
      the instant case before us, the referral fee was paid to sub-
      broker in respect of transaction of purchase and sale of
      securities there, it is not covered by the Explanation (i) to
      Section 194H. Accordingly, client referral fee cannot be
      termed as commission or brokerage as it is outside the
      definition of commission or brokerage. We also found that
      department has also consistently accepted the stand of the
      assessee in the past. We, therefore, do not find any reason
      to interfere in the findings recorded by the CIT(A) in para 5.3
      & 5.4 resulting into deletion of disallowance made under
      Section 40(a)(ia) amounting to Rs.71,86,398/-."




As the facts and circumstances of the case during the year under

consideration are parimateria, respectfully following the order of the

Tribunal in assessee's own case for the A.Y.2008-09, we dismiss the

ground raised by the Revenue.


6.    Revenue is also aggrieved by the action of CIT(A) in directing the

AO to compute the capital gains as per the prescribed FIFO method

as prescribed in the light of mandatory provisions of section 45(2A) of

the Act.


7.    Rival contentions have been heard and record perused.             The

relevant facts appearing from the assessment order are that the

assessee had in terms of the return of income inadvertently computed
                                   7
                                                          ITA No.6033/12

short term capital gains of Rs.36,94,456/- in respect of shares held in

dematerialized format on weighted average basis.             The said

inadvertence was noticed by the assessee in the course of the

assessment proceedings.      In light of the mandatory provisions of

section 45(2A) of the Act, the computation of short term capital gains

were re-computed based on mandatory and FIFO method in the course

of the assessment proceedings to arrive at correct quantum of capital

gains based on mandatory FIFO method were furnished reflecting

short term capital gains at Rs.6,49,060/-. The AO rejected assessee's

contention and assessed the capital gains on weighted average basis

as against the mandatory provisions of section 45(2A) of the Act, on

the ground that it is not open at the stage of assessment to consider

revised working on FIFO method.


8.   By the impugned order CIT(A) directed the AO to compute capital

gains as per the prescribed FIFO method in the light of mandatory

provisions of section 45(2A) of the Act, after having the following

precise observation.

     "2.5 I have considered the contention of the AO as well as of
     the Ld. AR. I find that the AO has failed to appreciate the fact
     that the capital gains need to be computed as per FIFO basis in
     the light of the mandatory provisions of section 45(2A) of the Act.
     The AO has merely rejected the method adopted for computation
     of capital gains on the ground that the same amounts to revision
     in method of valuation without appreciating the fact that that the
     said re-computation was to correct the incorrect method adopted
     at the time of making the return. I find that assessee had also
     furnished a detailed explanation as to why the quantum of capital
     gains computed on FIFO basis is less than computed as per
     weighted average basis. In view of above discussion and the
     mandatory method in terms of provision of section 45(2A) of the
                                    8
                                                            ITA No.6033/12

       Act, the AO is directed to compute the capital gains as per the
       prescribed FIFO method as furnished in light of the mandatory
       provisions of section 45(2A) of the Act. Accordingly, this
       ground of appeal is allowed."

9.     We have considered the rival contentions, carefully gone through

the orders of the authorities below and found that assessee has

originally applied the method of weighted average for valuation of

stock/investment, but later on recomputed the capital gains as per

mandatory method provided under provisions of section 45(2A) of the

Act. No fault was found by AO in the revised computation so offered

as per the FIFO method. Further, the detailed finding recorded by

CIT(A) at para 2.5 as reproduced hereinabove has not been

controverted by DR by bringing any positive material on record.

Accordingly, we do not find any infirmity in the order of the CIT(A) in

directing the AO to compute the valuation of the stock as per FIFO

method as provided under provisions of section 45(2A) of the Act.


10.    In the result, the appeal of the Revenue is dismissed.

       Order pronounced in the open court on this 22nd April.2014.
            Û   22nd April,2014    


                Sd/-                                      Sd/-
         (.. )                                       (..[)
        (S.T.M.PAVLAN)                             (R.C.SHARMA)
     Û  / JUDICIAL MEMBER                  / ACCOUNTANT MEMBER
 Mumbai;               Dated 22/04/2014

. ./pkm,    ./ PS
                              9
                                              ITA No.6033/12

    /Copy of the Order forwarded to :
1.    / The Appellant
2.   × / The Respondent.
3.    () / The CIT(A), Mumbai.
4.     / CIT
5.    ,   ,  / DR, ITAT, Mumbai

6.   [  / Guard file.


                 ×  //True Copy//
                                              / BY ORDER,


                                                / 
                                      (Asstt. Registrar)
                                      ,  / ITAT, Mumbai

 
 
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