Cross Links Finlease Pvt. Ltd, New Delhi V. ACIT, New Delhi

CO 245/DEL/2010

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1212 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 16-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SMT. DIVA SINGH , JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO S . 2898 & 2899 /DEL/201 0 ASSESSMENT YEAR S : 2005 - 06 & 2006 - 07 DY. COMMISSIONER OF INCOME VS. M/S CROSS LINKS FINLEASE PVT. LTD., TAX, CIRCLE - 3(1), NEW DELHI B - 1, KALINDI COLONY, NEW DELHI (PAN: AABCC3727A ) (APPELLANT) (RESPONDENT) AND C.O. NO S . 245 & 246/DEL/2010 [IN ITA NO S . 2898 & 2899/DEL/2010] ASSESSMENT YEAR S : 2005 - 06 & 2006 - 07 M/S CROSS LINKS FINLEASE PVT. LTD., VS. DY. COMMISSIONER OF INCOME B - 1, KALINDI COLONY, NEW DELHI TAX, CIRCLE - 3(1), NEW DELHI (PAN:AABCC3727A) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SH. SALIL KAPOOR & VIKAS JAIN, ADVOCATES DEPT. BY : SMT. PARWINDER KAUR, SR. DR DATE OF HEARING: 02.07.2015 DATE OF PRONOUNCEMENT: 12.08.2015 ORDER PER INTURI RAMA RAO, A.M. : THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AS WELL AS BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 AGAINST THE CONSOLIDATED ORDER DT. 30.03.2010 PASSED BY LEARNED CIT(A) . THE REVENUE HAS FILED ITA NOS. 2898 & 2899/DEL/2010 AND THE ASSESSEE HAS FILED CROSS OBJECTION NO S. 245 & 246/DEL/2010. 2 ITA NOS. 2898 & 2899/DEL/2010 FOR AY 2005 - 06 & 2006 - 07 2. FIRST, W E SHALL TAKE UP THE APPEALS FILED BY THE REVENUE. SINCE COMMON GROUNDS OF APPEAL RAISED IN BOTH THE APPEALS, WE PROCEED TO DECIDE THE APPEAL S BY A CONSOLIDATED ORDER. GROUNDS OF APPEAL RAISED IN ITA NO. 2898/DEL/2010 ARE REPRODUCED BELOW: I) THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING TO TREAT INCOME FROM TRANSACTION OF SHARES, AS INCOME AFTER HOLDING THEM FOR TOO SHORT PERIOD AND WITHOUT EARNING ANY DIVIDEND ON THE SAID SHARES/SECURITIES. II) THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UN DER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF INVESTMENT AND PURCHASE OF SALE OF SHARES AND SECURITIES. THE RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 WERE FILED ON 31.10.2005 AND 08.12.2006 DISCLOSING INCOME OF RS. 28,12,920/ - AND 51,52,190/ - RESPECTIVELY. AGAINST THE SAID RETURN S OF INCOME, THE ASSESSMENTS FOR AY 2005 - 06 AND 2006 - 07 WERE COMPLETED UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (FOR SHORT VIDE ORDERS DATED 27.12.2007 AND 10 .12.2008 R E S P E C T I V E L Y . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE SOLD SHARES WHICH WERE SHOWN AS INVESTMENTS AND OFFERED TO TAX THE GAINS ARISING THEREOF UNDER THE HEAD INCOME OF RS . 28,12,917/ - FOR AY 2005 - 0 6 AND RS. 33,04,231/ - FOR AY 2006 - 07. HE CALLED UPON THE ASSESSEE COMPANY TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE TREATED AS THE BUSINESS 3 INCOME. AFTER CONSIDERING THE EXPLANATION FURNISHED THEREOF, THE ASSESSING OFFICER HELD THAT SINCE THE SHARES W ERE HELD ON WHICH THE CAPITAL GAINS WERE OFFERED WERE HELD FOR SHORT PERIOD, THE SAME SHOULD BE TREATED AS A BUSINESS INCOME AND HE ACCORDINGLY BROUGHT TO TAX. THE ASSESSING OFFICER ALSO DISALLOWED A SUM OF RS. 1,81,400/ - UNDER THE PROVISIONS OF SECTION 14 A FOR THE ASSESSMENT YEAR 2005 - 06 AND SUM OF RS. 2,04,416/ - FOR THE ASSESSMENT YEAR 2006 - 07. BEING AGGRIEVED BY THIS ASSESSMENT ORDER, AN APPEAL WAS FILED BEFORE THE CIT(A) WHO VIDE HIS CONSOLIDATED ORDER DATED 30.03.2010 PARTLY ALLOWED THE APPEAL. WHILE D OING SO, THE LEARNED CIT(A) HELD THAT THE INCOME ARISEN FROM THE SALE OF SHARES SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS ONLY VIDE PARA 2.1 OF HIS ORDER, WHICH READS AS UNDER: 2.1 I HAVE PERUSED THE ASSESSMENT ORDER, WRITTEN SUBMISSIONS OF THE ASSES SEE, THE CBDT CIRCULAR, GROUNDS OF APPEAL OF THE ASSESSEE AND DISCUSSED THE MATTER WITH THE AR VERY CAREFULLY. THE AR OF THE ASSESSEE HAD CLEARLY EXPLAINED HIS CASE AND ITS TREATMENT IN THE BOOKS OF ACCOUNT AS INVESTMENT AND NOT STOCK - IN - TRADE. THERE ARE 7 TRANSACTIONS OF SHORT TERM SALE OF SHARES IN THE A.Y. 2005 - 06. THERE ARE 9 TRANSACTIONS OF SHORT TERM SALE OF SHARES IN THE A.Y. 2006 - 07. THE PHOTO COPY OF THE STATEMENTS IS ENCLOSED WITH THE ORDER. KEEPING IN VIEW THE LESS NUMBER OF TRANSACTIONS, LESS NUMBER OF SHARES DEAL WITH & TREATMENT GIVEN BY THE ASSESSEE AS INVESTMENT AND NOT STOCK - IN - TRADE, AS PER THE BOARD'S CIRCULAR NO. 4/2007 DATED 15.06.07, THE TRANSACTIONS ARE TREATED AS SHORT TERM CAPITAL GAINS AND NOT BUSINESS INCOME. THE AO IS DIRECTED T O MODIFY THE TAX ACCORDINGLY. 4. SO FAR AS THE ADDITION UNDER SECTION 14A IS CONCERNED, THE LD. CIT(A) CONFIRMED IN PRINCIPLE THE ADDITION UNDER SECTION 14A BUT HOWEVER MODIFIED THE CALCULATION OF DISALLOWANCE AS UNDER: HOWEVER, CALCULATION OF AMOUNT TO BE DISALLOWED AS PER RULE 8 - D READ WITH SECTION 14A OF THE INCOME TAX ACT, 1961 KEEPING IN VIEW, THE SPECIAL BENCH DECISIONS OF ITATS IN FAVOUR OF REVENUE, DAGA CAPITAL MANAGEMENT PVT. 4 LTD. (ITAT SB MUMBAI) AND MLS CHEM IN VEST (P) LTD (ITAT SB DELHI), IS AS UNDER: I) AMT. OF THE EXPENDITURE DIRECTLY RELATING TO THE INCOME NIL WHICH DOES NOT FORM PART OF TOTAL INCOME. II) AMOUNT OF INTEREST (A) NIL AVERAGE VALUE OF INVESTMENT (B) OPENING 271,11,156.65 CLO SING 151,67,129.00 AVERAGE 2,11,39,143.00 IV) AMOUNT EQUAL TO THE 1/2 % OF THE AVERAGE VALUE OF THE INVESTMENT I NCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME: RS. 2,04,416.00 RS. 2,11,39,143 X % . AMOUNT TO BE DISALLOWED.' RS. 1 ,05,695.00 SINCE, THE SPECIAL BENCH DECISION OF ITAT, BOMBAY IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. AND SPECIAL BENCH, ITAT, DELHI IN THE CASE OF M/S CHEM INVESTMENT PVT. LTD. HAD GIVEN THE APPLICATION OF RULE 8D R.W. SECTION 14A IN FAVOUR OF R EVENUE, I DISALLOW RS. 88,248/ - ON ACCOUNT OF EXPENDITURE TO EARN EXEMPTED INCOME OF DIVIDENDS AS COMPUTED ABOVE. THE AO HAD DISALLOWED RS.2,04,416/ - ON PROPORTIONATELY BASIS, WHICH IS NOT SUSTAINABLE. THUS ASSESSEE GETS A RELIEF OF RS. (RS.2,04,416 - 1,05,69 5)= RS.98,721/ - FROM ADDITION U/S 14 - A OF THE ACT FOR A.Y.2005 - 06. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED . BEING AGGRIEVED BY THIS, THE REVENUE IS BEFORE US WITH THE PRESENT APPEALS AND ASSESSEE WITH THE PRESENT CROSS OBJECTIONS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE RATIONALE OF THE DECISION OF CIT(A) IN HOLDING THAT THE GAINS ARISING OUT OF THE SALE OF SHARES SHOULD B E HELD AS CAPITAL GAINS IS IN CONFORMITY WITH THE SPIRIT OF THE CBDT CIRCU LAR NO. 4 OF 2007. IN ORDER TO DETERMINE WHETHER THE SHARES ARE HELD AS INVESTMENT PORTFOLIO OR TRADING PORTFOLIO, THE FACTORS TO BE TAKEN INTO CONSIDERATION ARE THE INTENTIONS OF THE PARTIES AT THE TIME OF PURCHASE OF THE SHARES. THE INTENTION OF THE PART IES HERE IS ESTABLISHED BY T R E A T I N G THESE SHARES AS INVESTMENTS IN THE BOOKS OF ACCOUNT. THE 5 DR HAD NOT BROUGHT ANY EVIDENCE IN REBUTTAL OF THE SAME, T H E R E F O R E WE UPHOLD THE ORDER OF THE CIT(A) IN HOLDING THAT THE GAINS ARISING OUT OF THE SALE OF SHARES ARE ONLY SHOR T TERM CAPITAL GAINS. THEREFORE, WE DISMISS BOTH THE APPEALS FILED BY THE REVENUE. C.O. NOS. 245 & 246/DEL/2010 6. THE ASSESSEE HAD FILED THE PRESENT CROSS APPEALS CHALLENGING THE ORDER OF THE CIT(A) WHO CONFIR MED THE DISALLOWANCE UNDER SECTION 14A OF TH E ACT. WE NOTICE FROM THE IMPUGNED ORDER THAT THE CIT(A) HAS FOLLOWED THE SPECIAL BENCH DECISIONS OF ITAT, BOMBAY IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. AND ITAT, DELHI IN THE CASE OF M/S CHEM INVESTMENT PVT. LTD. THEREFORE, WE DO NOT FIND ANY R EASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). HENCE, THE BOTH THE CROSS APPEALS FILED BY THE ASSESSEE COMPANY ARE DISMISSED. 7. IN THE RESULT, THE APPEAL S FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 1 2 T H A U G U S T , 2015. S D / - S D / - ( DIVA SINGH ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 2 T H A U G U S T , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI