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ITA No.520 /2014 Page 1
$~24 * IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 02nd February, 2015 + ITA 520/2014
SANJEEV MITTAL
..... Appellant Through Dr. Rakesh Gupta and Mr. Mukul Mathur, Advs.
versus
COMMISSIONER OF INCOME TAX
..... Respondent Through Mr. Rohit Madan and Mr. Ruchir Bhatia, Advs.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K.GAUBA
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
% 1. The assessee is aggrieved by the order of the Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT”) to the extent that it remitted the case for reconsideration by the Assessing Officer (AO) on the assumption that additional evidence had been filed, or was sought to be led by the assessee. The question sought to be urged is whether in the circumstances of the case the nature of the remand ought to have been limited, given that the CIT(Appeals) considered all materials on record and held that the sum of ₹1,97,17,460/-, reported during assessment year 2007- 08, constituted capital gains. 2. The assessee concededly is a medical practitioner. He reported ₹1,39,097/-, as his professional income in his returns. The AO noticed that 2015:DHC:1010-DB
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professional receipts of the appellant amounted to ₹7,49,500/-. This was a mere 1/37th of the gains from transactions in shares. Before the AO, the appellant contended that the said amount of ₹1,97,17,460/- constituted capital gain and could not be treated as professional or business income. The assessee’s primary submission was that in the concerned assessment year, 57 transactions recording sale of shares of various companies held by him, for periods ranging from 366 days to over 1150 days were involved. Consequently, given the settled position in law on the question of whether the income was a capital account or a business income, it had to be treated as capital gain. The AO however rejected this contention and treated the entire amount as business income, thus applying a higher rate of tax. The assessee’s appeal to the CIT(Appeals) succeeded. The CIT(Appeals) pertinently held as follows : “That the appellant made investments in shares in last several years and he was lucky enough amongst millions that he sold his investments when the sensex was at fire. During the year under assessment the appellant earned LTCG of Rs.1.98 crores i.e. about 71%, of the total gain and STCG of Rs. 0.80 crore i.e. about 29% of the total gain. That while earning LTCG more than 74% of the shares were held for more than 18 months and in 11% cases shares were held for more than 36 months. Moreover 69% of the LTCG was earned on account of bonus and split shares being received against original investments. Sir, it could have been well appreciated by the learned AO from the records made available before him that the appellant had consistently been declaring income in past and future years under the head LTCG/ STCG and also consistently reflecting the impugned investments in the financial statements under the head 'Investments' and valuing the same at 'cost price' unlike on 'cost price or market price which ever is less' as is done by a trader as, also mandated by 2015:DHC:1010-DB
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the Accounting Standard released by the accounting apex body lCAI. Ex.-2-Some examples inter-alia of major scripts being bought and sold where the appellant earned LTCG of Rs.1,97,93,968/- during the year and where the holding period was up to 1,151 days:-
Sl Scripts Dt Purchase Cost Nos Dt Sale Sale Price LTCG Days 1 Thermax Ltd. 10/13/2003 33083 500 12/7/2006 190055 156972 1151 2 Thermax Ltd. 11/13/2003 112151 1695 12/19/2006 629698 517547 1132 3 BEL 3/10/2003 385000 1000 4/12/2006 1347010 962010 1129 4 Thermax Ltd. 11/17/2003 155496 2305 12/19/2006 856316 700820 1128 5 Havell’s India Ltd. 10/22/2003 99923 1125 11/7/2006 343411 243488 1112 6 Havell’s India Ltd. 10/22/2003 15544 175 11/7/2006 53288 37744 1112 7 Indian Rayon 7/11/2003 141430 1000 6/13/2006 552201 410771 1068 8 Crompton Greaves 11/25/2003 14121 500 10/3/2006 121118 106997 1043 9 Crompton Greaves 11/25/2003 70604 2500 9/18/2006 560140 489536 1028 10 KPIT Cummins 12/2/2003 2599989 2000 8/4/2006 770800 510811 976 11 Crompton Greaves 11/25/2003 42363 300 6/12/2006 241799 199436 930 12 Hindustan Cons 9/17/2004 191292 10000 3/5/2007 950000 758708 899 13 Crompton Greaves 10/17/2003 67831 500 4/1/2006 525000 457169 897 14 Jindal Steel 7/29/2004 272000 50 1/11/2007 1059612 787612 896 15 Crompton Greaves 11/25/2003 70604 500 4/1/2006 525000 454396 858 16 Havell’s India Ltd. 8/20/2004 142420 1000 11/7/2006 307891 165471 809 17 IVRCL Infra 10/20/2004 94279 1875 11/7/2006 641244 546965 748 18 Jindal Steel 7/28/2004 281365 500 8/8/2006 733068 451703 746 19 Kalataru Power 3/16/2005 96847 200 2/28/2007 219071 122224 714 20 Kalataru Power 3/23/2005 231169 500 3/5/2007 497625 266456 712 21 IVRCL Infra 5/3/2005 87136 1000 3/5/2007 276043 188907 671 2015:DHC:1010-DB
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22 Simplex Const. 5/2/2005 50481 490 2/27/2007 168007 117526 666 23 IVRCL Infra 5/3/2005 130704 1500 2/26/2007 511282 380578 664 24 EID Parry India 10/12/2004 131731 2000 8/4/2006 389100 256369 661 25 IVRCL Infra 5/3/2005 130704 1500 2/15/2007 570995 440291 653 26 EID Parry India 11/4/2004 72961 1000 8/4/2006 194550 121589 638 27 Simplex Const. 6/23/2005 101869 770 3/5/2007 225211 123342 620 28 Havell’s India Ltd. 8/8/2005 0 2800 3/29/2007 1256569 1256569 598 29 IVRCL Infra 5/3/2005 87136 1000 12/18/2006 398684 311548 594 30 KEC International 9/3/2004 83510 1000 4/19/2006 405490 321980 593 31 KEC 9/3/2004 83509 1000 4/18/2006 407700 324191 592 32 Kalataru Power 3/16/2005 145270 300 10/21/2006 246002 100732 584 33 Kalataru Power 3/4/2005 117311 300 9/25/2006 231326 114015 570 34 IVRCL Infra 10/20/2004 100564 2000 4/28/2006 566722 4666158 555 35 IVRCL Infra 10/20/2004 25141 500 4/25/2006 152681 127540 552 36 IVRCL Infra 10/8/2004 111301 2500 4/12/2006 799690 688389 551 37 EID Parry India 11/5/2004 71314 1000 4/25/2006 305726 234412 536 38 Havell’s India Ltd. 8/8/2005 0 1200 1/15/2007 573718 573718 525 39 Hindustan Cons. 3/28/2005 87767 2000 8/24/2006 214400 126633 514 40 Simplex Const. 4/15/2005 97192 200 9/9/2006 364880 267688 512 41 Ashapura Mine 3/23/2005 162453 2000 8/4/2006 386800 224347 499 42 Simplex Const. 5/2/2005 51511 100 9/11/2006 186137 134626 497 43 Ashapura Mine 3/16/2005 7995 1000 6/28/2006 182670 102675 469 44 Ashapura Mine 3/16/2005 79995 1000 6/27/2006 181839 101844 468 45 Ashapura Mine 7/6/2005 92028 1005 10/17/2006 205216 113138 468 46 Ashapura Mine 7/7/2005 89887 990 10/17/2006 202153 112266 467 47 Hindustan Cons. 3/28/2005 131652 3000 6/15/2006 504603 372951 444 48 Ansal Properties 12/7/2005 263482 1500 2/23/2007 853421 589939 443 49 Simplex Const. 4/12/2005 51498 102 6/9/2006 158085 106587 423 50 Simplex Const. 4/7/2005 48201 92 5/19/2006 201305 153104 407 51 Ashapura Mine 3/4/2005 70132 765 4/5/2006 189865 119733 397 52 Titan Industries 9/23/2005 239538 500 10/23/2006 395379 155841 395 53 Ansal Properties 12/6/2005 41303 250 12/7/2006 265717 224414 366 2015:DHC:1010-DB
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Total 17,401,526
Likewise the CIT(Appeals) noted that even though certain loans had been availed from banks and private sources – the materials on record did not suggest any link between the acquisition of shares, which were ultimately sold, and the availing of such credit. The CIT(Appeals) pertinently noticed that “It may be worth noting, however, that all the gains resulted during the year in question were from the holdings of the prior period when the credit line from the bankers were started availing by the appellant. Moreover, the interest paid on loans was neither claimed as an expense against LTCG/STCG nor against professional income.” 4. The CIT(Appeals) also concluded that apart from the shares, he was holding properties of substantial value, had given loans, to family members to the extent of ₹78.99 lakhs as on 31.03.2007, as against secured loans of ₹2 crores, and secured loans by banks upto ₹39.75 lakhs as on that date. Consequently, the CIT(Appeals) concluded that loans against securities were used for multifarious purposes. In these circumstances, applying the ratio in Ramnarain Sons (P.)Ltd. v. CIT [1961] 41 ITR 534, the dominant intention of availing the loans was not for the purpose of share purchase. 5. Thus applying the well-settled principle that the intention of the assessee is to be discovered from various angles such as the expenditure, length of holding, volume, and frequency of share sale and purchase transaction, whether the shares were acquired through borrowed funds or funds of the assessee, and whether separate accounts were maintained for 2015:DHC:1010-DB
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the purpose and the duration of holding, the CIT (Appeals) concluded that the assessee’s contentions were acceptable. 6. The CIT (Appeals) however said as follows : “2.10 The appellant was asked to clarify whether any additional evidence has been filed during appellate proceedings. Vide submissions dated 14.2.11, the appellant has clarified that no additional evidence has been filed during appellate proceedings.
DETERMINATION
2.11 The submissions of the appellant and the facts have been carefully considered. Various judicial decisions on this subject including those cited by the appellant have also been perused. These decisions lay down principles on the basis of which, it has to be decided whether income from shares is to taxed under the head capital gains or under the business head. No single criterion is decisive but a holistic consideration of all the factors is required. In the light of principles laid down in these decisions, it is clear that in this case, the AO’s decision to tax income from shares under the business head and not under the head capital gains, is not legally tenable.”
Having regard to the elaborate discussion, the CIT (Appeals) consequently concluded that the department’s contention that the amounts ought to be treated as business income was meritless in the following terms : “2.1 Ground no. 1 challenges the addition of Rs. 2,77,96,322/- on account of considering STCG and LTCG of Rs. 80,02,356/- and Rs. 1,97,93,968/- as business income. In the astt. order, the A.O. has stated that the appellant is a doctor by profession and has been engaged in the business of buying and selling of shares. The professional receipts of the appellant amount to merely Rs.7,49,500/-. On inquiry about the reasons of low professional income, the appellant explained that the nature of his specialization does not call for much of OPD practice. The A.O. has observed 2015:DHC:1010-DB
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that the appellant does not have much of a practice and consequently he is engaged in share trading on a regular basis. The A.O. has observed that during the year, the assessee had carried on in a systematic and organized manner, numerous transactions of buying and sale of shares, which constitutes his business activities. The A.O. has referred to the chart containing the capital gain statement submitted by the assessee during assessment proceedings and has observed that this clearly indicates that the assessee carried out a large number of transactions with huge volumes and some of the transactions are completed in a very short period. The A.O. observed that this clearly indicates that the motive of the assessee while buying and selling these shares was to earn profit. The A.O. held that these frequent transactions carried out by the assessee are in the nature of business activities and not capital investment as claimed by him. Accordingly, the profits arising from purchase and sale of shares were treated as profit from business and not as capital gains.”
The ITAT felt that there was no clarity as to whether additional evidence had been produced during the course of CIT(Appeals)’s proceeding. The ITAT thereafter recorded its findings upsetting the Appellate Commissioner’s order in the following terms : 8.1 As regards the merits of the case, we find that before the Ld. CIT(A), assessee has made elaborate submissions running from pages 4 of the Ld. CIT(A)'s order to pages 36 out of the total 44 pages CIT(A)'s order. In these submissions, there are various charts also submitted. In this regard, we note that from the reading of the AO's order and the appellate order, it is not clear whether the detailed submissions and charts produced before the Ld. CIT(A) were also submitted before the AO. In this regard, Ld. CIT
(A) himself has doubted in Para 2.10 of his order. Ld. CIT(A) has noted that assessee was asked to clarify whether any additional evidence has been filed during appellate proceedings. Ld. CIT(A) accepted the assessee's submissions that no additional evidence were filed. Thus Ld. CIT(A) without verifying from the AO, has accepted that additional evidence were furnished during the 2015:DHC:1010-DB
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appellate proceedings. In our considered opinion on the facts and circumstances of the case, AO should have been given an opportunity to go through the submissions before the Ld. CIT(A) and given a report. 8.2 As regards, the merits of the case, we note that Ld. CIT(A) has produced the assessee's submission in his whole order and then in few pages he has noted down briefly the assessee's submission in his own order. Thereafter, Ld. CIT(A) has allowed assessee's appeal. Ld. CIT(A) has not given any finding himself on the submissions of the assessee. In these circumstances, the Ld. CIT(A) order cannot be said to be a speaking order showing proper application. In our considered opinion, on the facts and circumstances of the case, interest of justice will be served if the matter is remitted to the file of the AO. The AO is directed to consider the issue afresh. Needless to add that the assessee should be granted adequate opportunity of being heard.
The appellant’s counsel urged that all material was produced in the course of the assessment proceedings. He highlighted the fact that of all the share transactions which yielded substantial income, 69% was on account of sale of bonus shares and split shares. Counsel highlighted the CIT (Appeals)’s orders to show that the shares in question were held for a considerable long period ranging from about a year to 1150 days. In fact, it was submitted that the CIT (Appeals) took note of the fact that 11% of the shares were held for more than 36 months and 74% of the shares were held for more than 18 months. Furthermore, given that there was no linkage between the borrowings and the amounts used for acquisition of shares, the confusion in the ITAT’s findings stemmed from its mis-appreciation of the facts. 10. Learned counsel for the revenue urged that the AO had also taken note of the previous year’s assessments, which had, in turn, noticed that 2015:DHC:1010-DB
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amounts towards capital gains had been reported. This, according to counsel, supported the AO’s findings for this year that the appellant’s primary activity was not medical practice but share trading. It was also urged that given the dis-proportionate ratio between the medical earnings and the share transactions earnings, the findings of the AO should not have been interfered with, and in these circumstance, the remand directed by the ITAT in the widest terms has to be upheld. 11. This Court has considered the submissions. The record itself would show that the CIT(Appeals) painstakingly looked into the nature of transactions and apparently analysed each one of them to conclude that the income derived from sale of shares was not business income but capital gains. In arriving at this decision, the CIT(Appeals) was guided by several binding decisions, such as CIT V. Associated Industrial Development Company (P) Ltd. (1971) 82 ITR 586 (SC), Raja Bahadur Kamakhya Narayan Singh V. CIT (1970) 77 ITR 253 (SC) and CIT V. Holck Larsen (1987) 160 ITR 67 (SC) etc. In fact the order of the CIT (Appeals) with respect to analysis of the facts covers a considerable part of the order. 12. Likewise the analysis of case law and the inference is drawn on the basis of its application run into over 30 pages. The contentions noted by the CIT (Appeals) are at para 2.11 and its findings ultimately favouring the assessee are at para 2.14. The ITAT apparently was mistaken in its assumption that some additional evidence was led before the CIT (Appeals). In fact, the order of the CIT (Appeals), in para 2.10 clearly records that the appellant had clarified that no additional evidence was filed during the appellate proceedings. Furthermore, a comparison of the details of the share 2015:DHC:1010-DB
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transactions in question from the AO’s order and the CIT (Appeals) order would show that there is complete identity as to the details of the transactions i.e. the name of the companies, the duration of holding, date of purchase, date of sale etc. In fact, CIT (Appeals)’s order is a more elaborate analysis of some basic material. Furthermore, it was not pointed out during the course of the hearing as to what was the additional material or evidence reiterated before the CIT (Appeals) by the assessee, which necessitated the remand. In these circumstances, the Court is of the opinion that present appeal has to succeed. However, we notice that the CIT (Appeals) had recorded that 29% of the transactions reported by the assessee could be treated as short term capital gain. In these circumstances, the remand directed by the ITAT is limited to enquiry on this aspect. The rights and contentions of the parties on this question are reserved. The AO shall proceed to deal with and decide as to which shares are to be treated as short term capital gain, for the purposes of directions contained in this judgment in accordance with law. Consequently, the appeal is allowed in the above terms.
S. RAVINDRA BHAT (JUDGE)
R.K.GAUBA (JUDGE) FEBRUARY 02, 2015 vld
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