M/s. Dewsoft Overseas Pvt. Ltd., New Delhi V. DCIT, New Delhi

CO 213/DEL/2012

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 1875 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TAPAS MISHRA
• Keywords: Capital asset; Business income; Depreciation
• Section: 14A

Judgement Text

1 ITA NO. 1835/DEL/2012 & C.O213.DEL.2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.-1835/DEL /2012 (A.Y 2008-09) DCIT CIRCLE 10(1), NEW DELHI (APPELLANT) VS DEWSOFT OVERSEAS PVT. LTD. 101, GAGANDEEP BUILDING, 12, RAJENDRA PLACE, NEW DELHI AABCD3196J (RESPONDENT) C.O NO. 21 3/DEL/2012 (A.Y 2008-09) DEWSOFT OVERSEAS PVT. LTD. 101, GAGANDEEP BUILDING, 12, RAJENDRA PLACE, NEW DELHI AABCD3196J (APPELLANT) VS DCIT CIRCLE 10(1), NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM APPELLANT BY SH. NEEHAR RANJAN PANDEY, SR. DR RESPONDENT BY SH. TAPAS MISHRA, ADV DATE OF HEARING 14.12.2015 DATE OF PRONOUNCEMENT 28.01.2016 2 ITA NO. 1835/DEL/2012 & C.O213.DEL.2012 THIS APPEAL AND CROSS OBJECTION ARE FILED BY THE RE VENUE AND ASSESSEE AGAINST THE ORDER DATED 03/01/2012 PASSED BY LD. CIT (A) IV, NEW DELHI FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- (IN ITA NO. 1835) 1. WHETHER THE LD. CIT(A) ON THE FACTS AND CIRCUM STANCES OF THE CASE IS CORRECT IN HOLDING THE PROFIT ON SALE O F SHARES AS LONG TERM AND SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME AS ASSESSED BY THE A.O 2. WHETHER THE LD. CIT(A) ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW WAS JUSTIFIED IN ALLOWING 60% DEPRECIATION ON PRINTERS, UPS, SCANNER ETC AS AGAIN ST NORMAL RATE OF 15% DEPRECIATION ALLOWED BY THE A.O. 3. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G. 2.1 THE GROUNDS OF APPEAL ARE AS FOLLOWS: - (IN C.O NO. 213) 1. THAT THE LEARNED A.O AND LD. CIT(A) BOTH HAD ER RED ON FACTS AND IN LAW, IN MAKING DISALLOWANCE A SUM OF RS.4,14,472/- U/S14A TOWARDS EXPENSES IN EARNING EXEMPTED INCOME BY IGNORING THE FACTUAL POSITION. 2. THE RESPONDENT CRAVES LEAVE, TO ADD, ALTER OR AM END ANY GROUND OF CROSS OBJECTIONS RAISED ABOVE AT THE TIME OF THE HEARING. 3. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING ONLINE AND REAL TIME EDUCATION TO RETAIL AND INSTITUTIONAL PLANS ON A VARIETY OF PROGRAMMES AND SUBJECTS INCLU DING COMPUTERS, MANAGEMENT, LANGUAGES, PERSONALITY DEVEL OPMENT ETC. THE ASSESSEE COMPANY FILED ITS RETURN FOR ASSESSMEN T YEAR 2008- 3 ITA NO. 1835/DEL/2012 & C.O213.DEL.2012 2009 DECLARING AN INCOME OF RS. 14,40,64,570/- ON 15.10.2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER ASKED THE ASSESSEE TO SUBMIT DETAILS OF SHORT TERM AND LONG TERM CAPITAL GAIN, WHICH WAS DULY SUBMITTED BY THE COMPA NY. TOTAL SHORT TERM CAPITAL GAIN OF RS. 78,11,351/- AND LONG TERM CAPITAL GAIN OF RS. 16,94,045/- WAS EARNED DURING THE FINANCIAL YEA R BY THE COMPANY AND WAS CHARGED UNDER SECTION 111A AND 10(3 8) OF INCOME TAX ACT, 1961/- RESPECTIVELY. THE ASSESSEE S UBMITTED BEFORE THE ASSESSING OFFICER THAT THE INVESTMENT WERE NOT DIRECTLY CO- RELATED WITH THE BUSINESS LINE OF COMPANY AND THE I NVESTMENTS WERE DONE THROUGH THE INVESTMENT AGENCIES, WHERE A LUMP SUM AMOUNT WAS TRANSFERRED TO THEM. THERE WAS NO DIRECT DAY TO DAY NEXUS BETWEEN THE COMPANY BUSINESS PERSONNEL AND THE INVE STMENTS IN THE NAME OF THE COMPANY. 4. THE ASSESSING OFFICER HAS DISALLOWED THE SHORT T ERM CAPITAL GAIN AND TREATED THE SAME AS A BUSINESS INCOME BY H OLDING THAT THE SAME WAS EARNED ON SALE AND CHARGES OF SHARES AND T HUS FORM A PART OF BUSINESS INCOME. THE ASSESSING OFFICER FUR THER HELD THAT AN AMOUNT OF RS. 4,14,472/- IS EXPENSES INCURRED IN RE LATION TO EARNING THE TAX FREE INCOME DURING THE YEAR AND HEN CE ADDED BACK UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME T AX RULES, 1962. THE ASSESSING OFFICER ALSO DISALLOWED THE DEP RECIATION CLAIMED ON THE COMPUTER. 5. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY HELD THAT THE INVESTMENT MADE BY THE ASSESSEE AND I NCOME EARNED 4 ITA NO. 1835/DEL/2012 & C.O213.DEL.2012 ON IT, AS BUSINESS INCOME, AS THE ENTIRE SALE AND P URCHASE OF SHARES WAS RELATED TO THE INVESTMENT OF THE BUSINESS AND T HUS COULD NOT BE TREATED AS SHORT TERM CAPITAL GAIN WHICH FORM PART OF THE BUSINESS INCOME. THE LD. DR FURTHER SUBMITTED THAT THE DEPRE CIATION HAS ALSO BEEN RIGHTLY DISALLOWED BY THE ASSESSING OFFIC ER AND THE INVOCATION OF SECTION 14A READ WITH RULE 8D WAS JUS T AND PROPER. 6. THE LD. AR REFUTED THE SAME. THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) HAS RIGHTLY HELD GAINS ARISING ON S ALE OF SHORT TERM CAPITAL ASSETS AND BEING INVESTMENT IN EQUITY SHARE S AS PROFIT AND GAINS OF BUSINESS OR PROFESSION. THUS CIT(A) DIREC TED THE ASSESSING OFFICER TO TREAT THE ABOVE INCOME AS LONG TERM AND SHORT TERM CAPITAL GAIN AS SHOWN BY THE ASSESSEE. AS RELA TES TO DEPRECIATION THE LD. AR SUBMITTED THAT THE CIT(A) H AS RIGHTLY ALLOWED THE DEPRECIATION. THE LD. AR FURTHER SUBMIT TED THAT THE ASSESSING OFFICER HAS NOT INVOKED RULE 8D AND, THER EFORE, SECTION 14A WILL NOT COME INTO PICTURE. 7. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH T HE PARTIES. AS RELATES TO GROUND NO. 1 OF THE REVENUE THE CIT(A ) HAS RIGHTLY HELD THAT THE TRANSACTION OF SHARES CARRIED OUT BY THE ASSESSEE DURING THE YEAR SHOULD BE TREATED AS INVESTMENTS AN D THE SHORT TERM CAPITAL GAIN ON SALE OF SUCH SHARES SHALL BE A SSESSED UNDER THE HEAD CAPITAL GAIN AND NOT AS BUSINESS INCOME. THE R EASON BEING THAT THE ASSESSEES BUSINESS WAS NOT THAT OF SHARE TRANSACTION BUT THAT OF PROVIDING ONLINE AND REAL TIME EDUCATION TO RETAIL AND INSTITUTIONAL PLANS ON A VARIETY OF PROGRAMMES AND SUBJECT. IN FACT 5 ITA NO. 1835/DEL/2012 & C.O213.DEL.2012 IN EARLIER YEAR ALSO THE CIT(A) HAS HELD THE SAME. THEREFORE, GROUND NO. 1 OF THE REVENUE IS DISMISSED. AS RELATES TO GR OUND NO. 2 OF THE APPEAL OF THE REVENUE, THE DEPRECIATION HAS BEEN RI GHTLY ALLOWED BY THE CIT(A) ON THE BASIS OF DECISION IN THE CASE OF M/S. DATACRAFT INDIA LIMITED VS. DCIT PASSED BY THE SPECIAL BENCH ITAT MUMBAI AND ALSO DELHI HIGH COURTS DECISION IN CASE OF CIT VS. BSES RAJDHANI POWER LTD. WHEREIN IT WAS HELD THAT COMPUT ER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERV ER ETC. FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM AND ARE THEREF ORE, ENTITLED TO DEPRECIATION @ 60%. THE ISSUE IS COVERED DISCUSSED THEREIN IS IN FAVOUR OF THE ASSESSEE THEREFORE, THIS GROUND OF TH E REVENUE IS DISMISSED. 8. AS RELATES TO GROUND NO. 1 OF THE CROSS OBJECTIO N, SECTION 14A THOUGH WAS DISCUSSED BY THE ASSESSING OFFICER AND C IT(A), BUT THE SAME WAS NOT IN CONSONANCE WITH INVOCATION OF RULE 8D. THUS, THIS ISSUE NEEDS TO BE LOOKED INTO, THEREFORE, WE REMAND BACK THIS ISSUE TO THE ASSESSING OFFICER. 9. IN RESULT, THE REVENUES APPEAL IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STA TISTICAL PURPOSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28 TH OF JANUARY 2016. SD/- SD/- (S. V. MEHROTRA) (SUCHI TRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER 6 ITA NO. 1835/DEL/2012 & C.O213.DEL.2012 DATED: 28/01/2016 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 04.01.2016 PS 2. DRAFT PLACED BEFORE AUTHOR 05.01.2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .01.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. .01.2016 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .01.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON .01.2016 PS 7. FILE SENT TO THE BENCH CLERK 1.02.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 7 ITA NO. 1835/DEL/2012 & C.O213.DEL.2012