VENKATARAGHAVAN VENUGOPAL,NAVI MUMBAI vs. ITO (IT) 2(1), MUMBAI

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ITA 5168/MUM/2013Status: DisposedITAT Mumbai14 March 2016AY 2009-107 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer erred in treating short-term capital gains on shares with a holding period of two days or less as speculative income. It directed the Assessing Officer to re-examine the claim and allow set-off of losses against gains, as the transactions were routed through the exchange.

What were the facts?

The assessee, a non-resident Indian, declared income including capital gains. The Assessing Officer treated short-term capital gains on shares with a holding period of two days or less as speculative income and taxed it as income from other sources. The assessee filed a rectification application arguing a mistake apparent from the record.

What were the issues?

Whether short-term capital gains on shares with a holding period of two days or less should be treated as speculative income, and whether penalty under Section 271(1)(c) is leviable for disallowance of expenses.

Which sections of the Income-tax Act were involved?

Section 154,Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘F’ MUMBAI

Before: Shri Joginder Singh, & Shri Jason P. Boaz

For Appellant: Shri M. Subramanian
For Respondent: Shri Rajiv Pant
Hearing: 10/03/2016

Per Bench The assessee is in appeal for Assessment year 2009-10, against the impugned orders both dated 20/05/2013 of the ld. First Appellate Authority, Mumbai. First, we shall take up ITA No.5168/Mum/2013, wherein, the ground raised pertains to dismissing the appeal u/s 154 has been challenged without appreciating the fact that there was mistake apparent from record that certain shares sold in two days or less at loss of Rs.3,45,648/- included in capital gains and considering the same as income from other sources.

2.

During hearing, Shri M. Subramanian, ld. counsel for the assessee advanced arguments which is identical to the ground raised by explaining that the ld. Assessing Officer ignored the facts on whims and fancies by inviting our attention to page-1, para 4 of the assessment order and also page-8 of the paper book. The ld. Assessing Officer treated the gains as income from other sources and ignored the cases, where, there was a loss but holding period in both the cases was two days. The transactions were argued to be transacted through exchange only and no period has been set out by the exchange. The crux of argument is that it was a mistake apparent from record. On the other hand, the ld. DR, Shri Rajiv Pant, defended the conclusion arrived at in the assessment order/impugned order.

2.1.

We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a non-resident Indian, declared income of Rs.6,90,389/-, which includes interest income and capital gains, etc. The case of the assessee was selected for scrutiny through “CASS”. The assessee was asked to furnish the working of loss of Rs.1,11,167/-, claimed under the head “capital gains”. The ld. Assessing Officer concluded that all the Venkatraghavan Venugopal.

share traded with a holding period of two days or less should be construed as speculative and thus treated the same as “income from other sources” instead of under “capital gains”. The assessee filed rectification application u/s 154 of the Act by explaining that there is apparent mistake in the assessment order, therefore, the same can be rectified. The assessee filed letter dated 05/01/2012 containing statement of facts. The ld. counsel took us to various pages of the paper book. Before coming to any conclusion, we are expected to analyze, if there was an apparent mistake. It is noticed that in the last para of page 1 of the assessment order, it has been mentioned that the assessee was actively dealing in shares/mutual fund schemes and in its statement of short term capital gains, filed by the assessee, there are transactions, where the holding period is less than three days. Such transactions has been summarized at page-2 of the assessment order. The shares of Lanco Infra were purchased on 23/07/2008 and sold on 25/07/2008, meaning thereby, the holding period is two days and the short term capital gains was Rs.24,433/- and likewise, for Sonata, the date of purchase is 13/10/2008, which were sold on 15/10/2008 and the short term capital gain is Rs.51,400/-. The holding period is again two days. The ld. Assessing Officer observed that in share transaction, the stock exchange takes minimum three days to deliver/transfer of shares so purchased, thus, he opined that it cannot be considered as short term capital gain. We have perused the paper book and at page-8, we find that there is another transaction in the case of Union Bank, where, the shares were purchased on 23/07/2008 and sold on 25/07/2008, likewise, the shares of Yes Bank were purchases on 23/07/2008 and sold on 25/07/2008 causing loss of Rs.54,771/- and Rs.89,550/- respectively. These figures of loss were ignored by the Assessing Officer, where also the period of holding is two days. This approach of the Assessing Officer cannot be said to be justified. Likewise, in the case of Tata Sponge, Tata Metaliks, KEC Intal, the period of holding is three days. This paper book was very much filed before the Assessing Officer and it is a factual issue, therefore, clearly, there is mistake apparent from record. It is also noted that the copy of return, computation of income along with enclosures (pages 1 to 10 of the paper book) were duly available with the Assessing Officer. Totality of facts, clearly indicates that mistake was apparent from record and loss should have been set off against gains. All the transactions were routed through exchange. In view of this factual matrix, the alleged gains cannot be said to be income from other sources, therefore, we direct the Assessing Officer to examine the claim of the assessee afresh as the mistake was apparent from record and allow set off of loss against gains. The assessee be given opportunity of being heard, thus, the appeal of the assessee is allowed for statistical purposes.

3.

Now, we shall take up ITA No.5225/Mum/2013, imposing/confirmation of penalty of Rs.6,54,972/- u/s 271(1)(c) of the Act. The crux of argument on behalf of the assessee is that the assessee is a non-resident, filed revised computation and there was no motive of avoiding tax. Our attention was invited to page-15 of the paper book by claiming that there was no loss to the Revenue and rather it was a case of refund. The inadvertent mistake, if any, does not amount to concealment. On the other hand, the ld. DR, defended the imposition as well as confirmation of penalty.

3.1.

We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a non-resident Indian. The assessee invested in mutual funds as well as shares and securities. The assessment was completed u/s 143(3) on 16/12/2011 assessing the total income at Rs.12,34,430/- against the returned income of Rs.6,90,389/-. The main additions were made on account of disallowance of expenses, claimed against short term capital gain of Rs.2,32,477/- and short term capital gain on sale of mutual funds of Rs.1,86,963/-. The ld. Assessing Officer also made addition in respect of short term capital gains on the plea that there was non-delivery trading to the extent of Rs.75,834/- and short term capital gains of non- Repatriable trading to the extent of Rs.4,68,207/- aggregating Rs.5,44,041/-, which was treated as speculative in nature. Penalty proceedings u/s 271(1)(c) were initiated for abovementioned additions/transactions. It is noted that the assessee claimed expenses like DP/Custodians/PIS shares, courier charges, overseas telephone charges, interest paid on loan, STD paid. These expenses were disallowed by the Assessing Officer by observing that the capital gains is taxable under concessional rate of tax and the expenditure for earning capital gain was also disallowed. The ld. Assessing Officer treated the short term capital gain as speculative under the head income from other sources. We have discussed this issue while deciding ITA No.5168/Mum/2013 holding that the income was not income from other sources rather it was short term capital gain, therefore, on this count, the penalty cannot survive. So far as, disallowance of expenses is concerned, automatically does not tantamount to concealment of income or furnishing of inaccurate particulars of such income. Our view find supports from the ratio laid down in Reliance Petroproducts ltd. 322 ITR 158 (SC). If the claim of the assessee is not acceptable to the Assessing Officer or out of the claim, any disallowance is made by him, it does not lead to the conclusion that the assessee hides something or furnished inaccurate particulars, thus, the penalty cannot survive. The appeal of the assessee is allowed. Finally, the appeal of the assessee in ITA No.5168/Mum/2013 is allowed with certain directions for statistical purposes, whereas, the appeal in ITA No.5225/Mum/2013 is allowed. This order was pronounced in the open court in the presence of the ld. representative from both sides at the conclusion of the hearing on 10/03/2016. (Jason P. Boaz) (Joginder Singh) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य /JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 14/03/2016 f{x~{tÜ? P.S //."न.स.

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant (Respective assessee)

2.

""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT, Mumbai. 4. आयकर आयु"त / CIT(A)- , Mumbai,

5.

"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file.

आदेशानुसार/ BY ORDER, स"या"पत ""त ////

उप/सहायक पंजीकार (Dy./Asstt.

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