IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "B" MUMBAI
BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER
AND
SHRI RAJENDRA, ACCOUNTANT MEMBER
ITA No.1779/Mum/2009
Assessment Year 2005-06
The Dy. Commissioner of Mulraj P. Mody (HUF),
Income Tax 14(3), 20,
6th Floor, Kilachand Buildings,
Earnest House, Vs. 298, Princess Street,
Nariman Point, Marine Lines,
Mumbai-400 021. Mumbai-2.
(Appellant) (Respondent)
Revenue by : Shri P.C. Maurya
Assessee by : Shri K. Shivaram
Date of hearing : 20-06-2012
Date of pronouncement : 27-06-2012
ORDER
PER RAJENDRA, A.M.
Challenging the Order dt.16th January, 2009 of the
CIT(A)-XV, Mumbai, Assessing officer (AO) has filed following Grounds
of appeal :
i. On the facts and circumstances of the case and in law the CIT(A) erred in
directing the Assessing Officer to treat the Income arising from trading in
shares as Short Term Capital Gain' instead of Business prom Income' held
by the Assessing Officer without appreciating the fact that the assessee has
indulged in frequent buying and selling of shares with a motive of quick
2 ITA No. 1779/Mum/2009
Mulraj P. Mody (HUF),
profit and his intention was not to invest for a long period and to earn
dividend on such investments.
ii. On the facts and circumstances of the case and in law the CIT(A) erred in
directing the Assessing Officer to treat the Income arising from trading in
shares as Short Term Capital Gain without appreciating the fact that the
assessee had a turnover of Rs. 1,20,74,421/- and the number of shares
involved was transaction of 1,48,540 shares and the period of holding
ranges from 3 days to 364 days which shows the activity of the was trading
in shares.
iii. On the facts and circumstances of the case and in law the CIT(A) has failed
to appreciate that the volume and frequency of transactions shows its
intensive, integrated and brisk activity to acquire and sell the shares and
most of the shares were brought from secondary market and not brought
from primary market with an intention to keep these investments in good
quality listed companies for `investment purpose'
iv. On the facts and circumstances of the case and in law the CIT(A) has failed to
appreciate that the assessee has gave up his regular business of hardware and
steel items from A.Y. 2004-05 as admitted by the assessee and has turned to
share trading activity with a motive of quick profit in a short period.
2. The assessee HUF, having office at 20, Khilachand building 298,
Princess Street, Marine Lines, Mumbai had filed return of income on
31.1.06declaring an income of Rs.39,65,559/-.Return was processed
u/s.143(1)on 22.7.2006.Thereafter it was selected for scrutiny and
assessment was finalized u/s. 143(3) of the Income-tax Act,1961(Act)
on 28.12.2007.Considering the volume of transactions, number of
shares involved, the period of holding and the regularity of purchase &
sale of shares AO changed the heads of income from `Capital gain' to
`Profits & Gains of business or Profession'.
3. Assessee HUF preferred an appeal against the order of the AO
before the First appellate authority (FAA). After considering the
material before him he held that the AO had changed the heads of
income offered by the appellant merely on the ground that there was a
huge investment from borrowed fund, that loans taken were all from
family members and, in fact, same were surplus funds of the family
members which had been invested by the assessee HUF, that funds
-
received from the family members could not be strictly construed as
the loans from the outsiders, that no interest was paid by the assessee
HUF, that there was no reason whatsoever with the AO to change the
opinion without bringing out the new and substantial facts,that in
respect of shares held for more than one year, the AO had treated
these shares even for these assessment years as exigible to capital
gains, that the magnitude of investments cannot be the decisive factor
about the nature of transaction. Relying upon the case of Janak
3 ITA No. 1779/Mum/2009
Mulraj P. Mody (HUF),
S. Rangwala v. ACIT, 11 SOT 627, ITAT H Bench Mumbai he held that
the magnitude of the transaction could not decide the nature of
transaction. Finally, he observed as under
"Therefore, considering the order of the AO for A.Y. 2004-05,
longevity of investment and utilisation of surplus fund of the family
members/related members of the HUF, I hold that unless contrary
evidences or more facts are brought on record, the claim of the
appellant cannot be altered or changed merely on the basis of huge
investments or sales of the shares. Further, it is pertinent to mention
that appellant has also shown dividend income of Rs. 3,35,137/-
which has not been considered by the AO while deciding the issue
under reference. Therefore, I am not convinced with the stand of the
ld. AO for changing the heads of income. Thus, AO is directed to
treat an amount of Rs.39,80,678/ as capital gain and not as
business income."
4. Before us, Departmental Representative(DR) referred to pg. 17 of
Paper Book II and submitted that there were repetitive transactions
and that motive of the assessee (HUF )was to indulge in share
business. Authorised Representative (AR) submitted that there were
no borrowed funds and all were family funds, that neither any
infrastructure was maintained nor any expenses were incurred for
earning the said income, that AO had changed the head only because
there was a reduction in tax rate, that out of total 113 purchase
transactions, 87 purchase transactions were before 01.10.2004. He
relied upon the cases of Bharat K Kenia (ITA/6544/2008dtd.15.5.09),
Gopal Purohit (34DTR52),Amita K kapadia(ITA/7054/Mum/2007/dtd.
03.02.09.)and Nehal V Shah (ITA/2733/Mum/2009/dtd. 15.12.2010).
5. After hearing the rival submission and perusing the material
available on file, we are of the opinion that assessee HUF was not
carrying out share business in the year under consideration, rather it
was an investor.FAA has specifically mentioned that the basic reason
for changing the heads of income by the AO was that there was huge
investment from borrower funds. But, from the details available, it is
clear that loans to the assessee HUF were from the constituents i.e.,
members of HUF and no interest was paid by the Assessee HUF to its
members. We find that in the earlier Assessment Year AO had
accepted the similar kind of transaction as capital gains and without
assigning any specific reasons in the AY under consideration, he
changed the heads of Income from Capital Gains to Income from
Business. Assessee had dividend income also during A.Y. under
consideration. It is a fact that shares purchased in earlier AYs, and
treated as investment ,were also sold during the AY. We find that more
than 70% shares were held by the assessee HUF for more than 90
4 ITA No. 1779/Mum/2009
Mulraj P. Mody (HUF),
days. Out of total short term capital gains of Rs.40.3 lakhs only
Rs.5.68 lakhs pertained to shares held for less than 90 days. In the
balance sheet shares were shown as investment. Considering these
facts and decisions relied upon by the AR, specially the matter of
Gopal Purohit (supra), e are of the opinion that the order of the FAA
does not suffer from any infirmity and should be upheld.
We dismiss Ground Nos. 1 to 4.
Appeal filed by the AO stands rejected.
Order pronounced in the open court on 27th June, 2012.
Sd/- Sd/-
(B.R. MITTAL) (RAJENDRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai,
Date 27th June, 2012
TNMM
Copy to:
1. Assessee
2. Respondent
3. The concerned CIT (A)
4. The concerned CIT
5. DR "B" Bench, ITAT, Mumbai
6. Guard File
(True copy)
By Order
Asst. Registrar,
Income Tax Appellate Tribunal,
Mumbai Benches, Mumbai
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