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IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH MUMBAI
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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.
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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
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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."
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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.
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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
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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
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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
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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
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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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