Kusum Ganeriwalla, L/R of Lake Hemant Kumar Ganeriwalla, Kolkata V. DCIT, C ircle- 10, Kolkata, Kolkata

CO 156/KOL/2010

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9181 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-12-2013
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 30-09-2010
• Court: TRIBUNAL
• Department Lawyers: R K PATODI
• Keywords: Business income; Cost of acquisition
• Section: 143(3); 14A

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE , /AND . . . . ' '' ''# '#'# '#, $% ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] & & & & / I.T.A NO. 1703/KOL/2010 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, VS. KUSUM GANE RIWALLA L/R OF LATE CIRCLE-10, KOLKATA. HEMANT KUMAR GANERIALLA (PAN: ADNPG4454G) (,- /APPELLANT ) (./,-/ RESPONDENT ) & C.O. NO. 155/KOL/2010 IN & & & & / I.T.A NO. 1703/KOL/2010 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2006-07 KUSUM GANERIWALLA L/R OF LATE VS. DEPUTY COMMISSI ONER OF INCOME-TAX, HEMANT KUMAR GANERIALLA CIRCLE-10, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) & & & & & / I.T.A NO. 1704/KOL/2010 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. KUSUM GANE RIWALLA L/R OF LATE CIRCLE-10, KOLKATA. HEMANT KUMAR GANERIALLA (PAN: ADNPG4454G) (,- /APPELLANT ) (./,-/ RESPONDENT ) & C.O. NO. 156/KOL/2010 IN & & & & / I.T.A NO. 1704/KOL/2010 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2007-08 KUSUM GANERIWALLA L/R OF LATE VS. DEPUTY COMMISSI ONER OF INCOME-TAX, HEMANT KUMAR GANERIALLA CIRCLE-10, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING: 10.12.2013 DATE OF PRONOUNCEMENT: 19.12.2013 FOR THE APPELLANT: SHRI SANJAY MUKHERJEE, SR. DR FOR THE RESPONDENT: SHRI R. K. PATODI, FCA $0 / ORDER 2 ITA NOS. 1703-1704/K/2010 & CO NOS.155-156/K/2010 KUSUM GANERIWALLA L/R OF LATE HEMANT KR. GANERIWALLA, AY:2006-07 & 2007-08 PER SHRI MAHAVIR SINGH, JM: APPEAL BEING ITA NO. 1703/K/2010 BY REVENUE AND CRO SS OBJECTION NO. 155/K/2010 BY ASSESSEE ARE ARISING OUT OF ORDER OF CIT(A)-XII, KOLKATA IN APPEAL NO. 355/XII/CIR-10/08-09 DATED 23.06.2010. ASSESSMENT WAS FRAMED BY DCIT, C IRCLE-10, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) FOR ASSESSMENT YEAR 2006-07 VIDE HIS ORDER DATED 22.12.2008. SIMILARLY, APPEAL BEING ITA NO. 1704/K/2010 BY REVENUE AND CROSS OBJECTION NO. 156/K/2010 BY ASSESSEE ARE ARIS ING OUT OF ORDER OF CIT(A)-XII, KOLKATA IN APPEAL NO. 782/XII/CIR-10/09-10 DATED 23.06.2010. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE- 10, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE HIS ORDER DATED 14.12. 2009. 2. THE ONLY COMMON ISSUE IN THESE TWO APPEALS OF RE VENUE IS AGAINST THE ORDER OF CIT(A) IN TREATING THE PROFIT FROM SALE OF SHARES AS CAPIT AL GAINS INSTEAD OF BUSINESS INCOME ASSESSED BY AO. IN BOTH THE YEARS, THE REVENUE HAS RAISED IDEN TICAL GROUND AND THE GROUND AS RAISED IN ITA NO. 1703/K/2010 FOR AY 2006-07 READS AS UNDER: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN TREATING REGULAR TRANSACTIONS IN SHARES AS CAPITAL GAIN WITH OUT SHOWING ANY PROOF THAT THE TRANSACTIONS WERE CAPITAL IN NATURE. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS ARE THAT ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN OF RS.12,02,996/- AND LONG TERM CAPITAL GAIN OF RS.75,64,938/- FROM SALE OF SHARES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE IS CARRYI NG ON SHARE TRANSACTIONS IN A SYSTEMATIC AND ORGANISED MANNER WITH A MOTIVE TO EARN PROFIT AND A CCORDINGLY, HE ASSESSED CAPITAL GAINS DECLARED BY THE ASSESSEE AS BUSINESS INCOME. AGGRI EVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE AND CONSIDERING THE FACT THAT THE ASSESSEE IS INVESTING IN EQUITY SHARES FROM MANY YE ARS AND DECLARED UNDER THE HEAD INVESTMENTS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT IT IS EARNING ONLY CAPITAL GAINS. THE ASSESSEE HAS NEVER DECLARED THESE INVESTMENTS AS STOCK IN TRADE AND REVENUE HAS ALSO ACCEPTED THE MATTER CONSISTENTLY IN EARLIER YEARS AND ALSO IN FUTURE YE ARS. THE CIT(A) RELYING ON VARIOUS DECISIONS MADE FOLLOWING OBSERVATIONS: THE A.O TREATED THE INCOME FROM CAPITAL GAINS AS I NCOME FROM BUSINESS. THE A.O APPLIED THE PARAMETERS LIKE FREQUENT TRANSACTIONS, LARGE VO LUME OF TRANSACTIONS, PLANNED, SYSTEMATIC AND ORGANIZED TRANSACTIONS, MOTIVE TO EA RN PROFITS ETC TO THE APPELLANTS CASE TO TREAT THE TRANSACTIONS IN SHARES AS BUSINESS TRANSA CTIONS. THE A.O ALSO RELIED ON CERTAIN CASE LAWS TO DRIVE A POINT THAT THE APPELLANTS TRA NSACTIONS IN SHARES ARE IN THE NATURE OF TRADING AND NOT INVESTMENTS. ON THE OTHER HAND, THE APPELLANT MAINLY SUBMITTED THAT ITS 3 ITA NOS. 1703-1704/K/2010 & CO NOS.155-156/K/2010 KUSUM GANERIWALLA L/R OF LATE HEMANT KR. GANERIWALLA, AY:2006-07 & 2007-08 INTENTION WAS TO HOLD SHARES AS INVESTMENTS SINCE B EGINNING WITH A MOTIVE TO EARN DIVIDEND AND APPRECIATION IN VALUE. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. I HAVE ALSO CONSIDERED THE REASONS STATED AND CASE LAWS RELIED ON BY THE A.O I N HIS ASSESSMENT ORDER. LN THIS REGARD RELIANCE IS PLACED PRIMARILY ON JURISDICTIONAL ITAT , B-BENCH, KOLKOTA IN THE CASE OF DCIT VS. RELIANCE TRADING ENTERPRISES LTD. (ITAT NO. 944 /KOL/2008 DT. 3.1 .2008) AND HOST OF OTHER IMPORTANT CASE LAWS MENTIONED AS UNDER FOR DE CIDING THIS ISSUE: CIT V. H. HOLCK LARSEN (1986) 160 ITR 67 (SC) CIT V. REWASHANKAR A. KOTHARI (2006) 201 CTR 510 (G UJ) CIT V. RAMAMRITHANS (2008) 217 CTR 206 (MAD) CIT V. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD. ( SC) 82 ITR 586 JANAK S. RANGWALIA V. ACIT (2007) 11 SOT 627 (MUM. TRIB.) CIT V. N.S.S. INVESTMENTS P. LTD. (2005) 277 ITR 14 9 (MAD) BOMBAY GYMKHANA LTD. V. ITO (220) 115 TTJ 639 (MUM. TRIB.) GOPAL PUROHIT V. JCIT, (2010) 228 CTR (BOM) 582 SARNATH INFRASTRUCTURE P. LTD. V. ACIT (2009) 313 I TR (AT) 13 (LUCKNOW) DCIT V. REENA SAROGI (ITA NO. 1202/CAL/98 & 332/CAL /2001) DCIT V. KAVTA PARASRAMKA (ITA NO. 1033/KOL/2008, D T. 20.3.09) THE RATIO LAID DOWN BY THE JUDICIAL FORUMS IN THE A BOVE CASES IS THAT ONE HAS TO SEE THE BASIC INTENTON OF THE ASSESSEE IN THE BOOKS TO DIS TINGUISH WHETHER THE ACTIVTY IS IN THE NATURE OF TRADING OR INVESTMENT. ONCE THIS IS ESTAB LISHED THE OTHER FEATURES LIKE FREQUENCY, MAGNITUDE, VOLUME ETC DO NOT ALTER THE CHARACTER OF TRANSACTION. IN THE PRESENT CASE THE APPELLANT HAD SHOWN THE TRANSACTIONS IN SHARES UNDE R THE HEAD INVESTMENTS AND TREATED ACCORDINGLY. RESPECTFULLY FOLLOWING THE KOLKATA TRI BUNAL DECISIONS IN RELIANCE TRADING ENTERPRISES LTD. (SUPRA), REENA SAROGI (SUPRA) AND KAVITA PARSRAMKA (SUPRA) AND THE RATIO LAID DOWN BY THE COURTS INCLUDING SUPREME COU RT IN THE ABOVE CITED CASES, AND AFTER EXPLAINING THE FACTS OF THE CASE. I HOLD THAT THE GAINS ON ACCOUNT OF TRANSFER OF SHARES SHALL BE TREATED AS CAPITAL GAINS AS AGAINST BUSINESS INC OME ASSESSED BY THE A.O. THE APPELLANTS GROUND IS ALLOWED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US. 4. BEFORE US ASSESSEE FILED A COMPLETE DETAILS OF L ONG TERM CAPITAL GAINS ON SALE OF SHARES AND SHORT TERM CAPITAL GAINS ON SALE OF SHARES FOR THE RELEVANT YEARS I.E. DATE OF ACQUISITION, COST OF ACQUISITION, DATE OF SALE, QUANTITY OF SHARE SOL D, SALE CONSIDERATION, NUMBER OF DAYS HELD BEFORE SALE LONG TERM OR SHORT TERM CAPITAL GAINS A S DECLARED. FROM THE CHART WE CAN SEE THAT HOLDING PERIOD IS FROM 1 YEAR TO 10 YEARS AND EVEN IN SOME CASES IT IS 15 YEARS. FURTHER, IT IS ALSO A FACT THAT THE ASSESSEE IN EARLIER YEARS AS W ELL AS IN FUTURE YEARS HAS DECLARED THE INVESTMENT AND ACCEPTED BY REVENUE AS IT IS. THE A CCOUNTING TREATMENT GIVEN BY ASSESSEE HAS NEVER BEEN DISTURBED BY REVENUE. IN EARLIER YEARS AND IN FUTURE YEARS ASSESSEES CONTENTION FOR ALL ALONG BEEN ACCEPTED. EVEN OTHERWISE, SYSTEMATI CALLY THE ASSESSEE IS MAKING INVESTMENT AND THE SYSTEMATIC INVESTMENT IS NOTHING BUT INVESTMENT NOT TRADING. WE HAVE GONE THROUGH THE ENTIRE PATTERN AND SYSTEM OF THE ASSESSEES PURCHAS E AND SALE WHICH IS FILED IN ASSESSEES PAPER BOOK PAGES 11 TO 31. EVEN THE ASSESSEE HAS FILED C OMPLETE ANALYSIS OF TRANSACTION RESULTING IN 4 ITA NOS. 1703-1704/K/2010 & CO NOS.155-156/K/2010 KUSUM GANERIWALLA L/R OF LATE HEMANT KR. GANERIWALLA, AY:2006-07 & 2007-08 LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITA L GAINS. IN SUCH CIRCUMSTANCES, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PURO HIT (2010) 228 CTR 582 (BOM) HAS HELD AS UNDER: THE ASSESSEE IS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS NAMELY, INVESTMENT IN SHARES AND DEALING IN SHARES FOR THE PURPOSES OF BU SINESS AND HELD THAT THE DELIVERY BASED TRANSACTIONS ARE TO BE TREATED AS INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM IS TO BE TREATED AS SHORT TERM OR LONG TE RM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING OF SHARES AND THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY IN VARIOUS YEARS. IN VIEW OF OUR ABOVE SUBMISSIONS, YOU HONOUR IS REQ UESTED TO PLEASE DIRECT THE ASSESSING OFFICER TO ACCEPT THE PROFIT AGGREGATING TO RS.8767934 DERIVED BY THE APPELLANT ON TRANSFER OF INVESTMENTS IN SHARES AS C APITAL GAINS AND NOT SAME TO BE A BUSINESS LNCOME. IN SUCH CIRCUMSTANCES, AS THE FACTUAL POSITION IS V ERY CLEAR IN THE PRESENT CASE AND HENCE, WE ARE OF THE VIEW THAT THE ASSESSEE IS HOLDING THE SHARES AS AN INVESTMENT AND THE PROFIT ARISING OUT OF SALE OF SHARES IS CAPITAL GAINS EITHER LONG TERM OR SHORT TERM, AS THE CASE MAY BE. SIMILAR ARE THE FACTS IN AY 2007-08. HENCE, TAKING A CONSISTENT VI EW, WE UPHOLD THE ORDER OF CIT(A) IN BOTH THE YEARS AND THE APPEAL OF REVENUE ARE DISMISSED. 5. COMING TO CROSS OBJECTIONS OF ASSESSEE FOR AY 20 06-07 I.E. C.O. NO. 155/K/2010 AND FOR AY 2007-08 I.E. CO NO. 156/K/2010. THE ONLY IS SUE IN BOTH THE YEARS IS THAT THE CIT(A) HAS WRONGLY CONFIRMED THE DISALLOWANCE OF INDIRECT EXPENSES U/S. 14A OF THE ACT. THE RELEVANT GROUND RAISED IN CO NO. 155/K/2010 READS AS UNDER: 1. FOR THAT THE LD. C.I.T. (A), WHILE CONFIRMING T HE DISALLOWANCE OF RS. 1,17,271/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT ON ACCOUNT OF INDIRECT EXPENSES OTHER THAN INTEREST, ERRED IN LAW IN NOT H OLDING SUCH DISALLOWANCE AS UNLAWFUL TO THE EXTENT IT EXCEEDED THE ACTUAL AMOUNT OF EXPE NSES CLAIMED BY THE APPELLANT, WHICH AGGREGATED TO RS. 71,393/- ONLY. 2. FOR THAT, WITHOUT PREJUDICE TO THE ABOVE, THE LD . C.L.T.(A), WHILE UPHOLDING THE DISALLOWANCES U/S 14A ON THE BASIS OF COMPUTATION M ADE UNDER RULE 8D (2) (II)AND (III), WAS UNJUSTIFIED IN NOT DIRECTING THE ASSESSI NG OFFICER TO RECOMPUTE SUCH DISALLOWANCES AS THE CALCULATIONS MADE BY HIM UNDER RULE 8D (2) (II) AND (III) WERE ERRONEOUS AS HE COMPUTED THESE DISALLOWANCES ON THE ENTIRE AMOUNT OF INVESTMENTS APPEARING IN THE BALANCE SHEET INSTEAD OF TAKING TH E AVERAGE OF VALUE OF THOSE INVESTMENTS, THE INCOME FROM WHICH DOES NOT/ SHALL NOT FORM PART OF THE TOTAL INCOME, AS PROVIDED IN RULE 8D. IDENTICALLY WORDED GROUNDS ARE RAISED IN CO NO. 156 /K/2010. 6. AT THE OUTSET, IT IS TO BE MENTIONED THAT THE RE LEVANT ASSESSMENT YEAR INVOLVED ARE 2006- 07 AND 2007-08 AND IT IS A FACT THAT RULE 8D WILL N OT APPLY TO THESE ASSESSMENT YEARS. HOWEVER, 5 ITA NOS. 1703-1704/K/2010 & CO NOS.155-156/K/2010 KUSUM GANERIWALLA L/R OF LATE HEMANT KR. GANERIWALLA, AY:2006-07 & 2007-08 TRIBUNAL IS TAKING A CONSISTENT VIEW THAT 1% OF THE EXEMPTED INCOME SHOULD BE DISALLOWED. ACCORDINGLY, WE DIRECT THE AO TO RECOMPUTE THE DISA LLOWANCE BY TAKING 1% OF THE EXEMPTED INCOME AND RESTRICT THE DISALLOWANCE TO THAT EXTENT . BOTH THE CROSS OBJECTIONS OF THE ASSESSEE ARE PARTLY ALLOWED. 7. IN THE RESULT, APPEALS OF REVENUE ARE DISMISSED AND CROSS OBJECTIONS OF ASSESSEE ARE PARTLY ALLOWED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 19 TH DEC., 2013 . SD/- SD/- . . . . ' '' ''# '#'# '# , $% , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 19TH DECEMBER, 2013 12 '3' 4 JD.(SR.P.S.) $0 5 . 6$ )7- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT DCIT, CIRCLE-10, KOLKATA 2 ./,- / RESPONDENT KUSUM GANERIWALA L/R OF LATE HEMANT KUMAR GANERIWALLA, 28B, ROWLAND ROAD, KOLKATA-700 020.. 3 . 0' ( )/ THE CIT(A), KOLKATA 4. 5. 0' / CIT KOLKATA <= .' / DR, KOLKATA BENCHES, KOLKATA / ./ TRUE COPY, $0'>/ BY ORDER, ' /ASSTT. REGISTRAR .