Smt. Kalpanaben Sureshbhai Bhatt, Navsari V. The Income tax Officer,Ward-2, Navsari

CO 253/AHD/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7119 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-03-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PRAKRATI R UPADHAYAY
• Assessee Lawyers: O P BATHEJA
• Keywords: Business income; Opportunity of being heard; Advance ruling; Cost of acquisition; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO.2565 / AHD/2011 (ASSESSMENT YEAR 2008-09) ITO, WARD 2, NAVSARI VS. SMT. KALPNABEN SURESHBHAI BHATT, 68, PAR FALIA, NAVSARI DISTT. NAVSARI-396445 C.O. NO.253/AHD/2011 (ASSESSMENT YEAR 2008-09) SMT. KALPNABEN SURESHBHAI BHATT, VS. ITO, WARD 2, 68, PAR FALIA, NAVSARI NAVSARI DISTT. NAVSARI-396445 PAN/GIR NO. : ACNPB7045H (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI O P BATHEJA, SR. DR RESPONDENT BY: MRS. PRAKRATI R UPADHAYAY, AR DATE OF HEARING: 29.03.2012 DATE OF PRONOUNCEMENT: 27.04.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL IS FILED BY THE REVENUE AND CROSS OBJE CTION IS FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST THE ORDER O F LD. CIT(A) VALSAD DATED 26.08.2011 FOR THE ASSESSMENT YEAR 2008-09. 2. FIRST, WE TAKE UP THE APPEAL FILED BY THE REVENU E. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: I.T.A.NO.2565 /AHD/2011 C.O.NO.253/AHD/2011 2 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), VALSAD, WITHOUT APPRECIATING THE FA CTS, HAS ERRED IN DELETING THE ADDITION OF RS.80,77,459/- IN RESPECT OF SALE PROCEEDS OF SHARES CONSIDERED AS BUSINESS INCOME AS THE ASSE SSEE IS ENTIRELY ENGAGED IN THE BUSINESS OF TRADING OF SHARES AND SH E HAS TAKEN THE COST OF ACQUISITION OF SHARES AS NIL. THE ADDITION WAS MADE BY TAKING THE CONSIDERATION OF THE RATIO OF PRINCIPLE OF THE AUTHORITY FOR ADVANCE RULING (AAR) (288 ITR 641). THE ASSESSE E HAS ALSO FAILED TO PROVE ANY CORROBORATIVE EVIDENCE BETWEEN THE SHARES SOLD BY THE ASSESSEE FETCHING ALLEGED LONG TERM CAPITAL GAIN AND SHARES SCRIPTS & NUMBERS SHOWN IN THE WILL. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), VALSAD OUGHT TO HAVE UPHELD THE ORD ER OF THE A.O. 3) IT IS, THEREFORE, PRAYED TO SET-ASIDE THE ORDER OF THE CIT(A), VALSAD AND RESTORED THE ORDER PASSED BY THE A.O. 3. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. HE SUBMITTED THAT DETAILS OF SHARES SOLD BY THE ASSESS EE ARE NOTED BY THE A.O. ON PAGE 12 OF THE ASSESSMENT ORDER. HE FURTHER SUB MITTED THAT ON PAGE 13 OF THE ASSESSMENT ORDER, IT IS NOTED BY THE A.O. TH AT THE AVAILABILITY OF THE SHARES IN WILL IS VERIFIED AND IT IS NOTED THAT MOS T OF THE SHARES ARE NOT AVAILABLE IN THE WILL. HE FURTHER SUBMITTED THAT O N THE BASIS OF THIS, IT IS HELD BY THE A.O. THAT THIS ARGUMENT OF THE ASSESSEE THAT THE SHARES ALLOTTED WERE RECEIVED BY HER IN-LAWS, IS TOTALLY BASELESS B ECAUSE THERE ARE NUMBER OF SHARES WHICH WERE SOLD BUT ARE NOT INCORPORATED IN THE WILL AND EVEN THOSE SHARES WHICH ARE AVAILABLE IN THE WILL, THERE IS VAST DIFFERENCE IN THE QUANTITY SOLD AND QUANTITY AVAILABLE IN THE WILL. IT IS FURTHER CONTENDED THAT IT IS NOTED BY THE A.O. THAT SOURCE OF THESE S HARES RECEIVED REMAINED UNEXPLAINED AND MOREOVER, THESE SHARES WERE RECEIVE D BY THE ASSESSEE WITHOUT EXPENDING A SINGLE PIE AND HENCE, COST OF A CQUISITION OF THE SAME IS TO BE TAKEN AS NIL. HE FURTHER POINTED OUT TH AT THE ASSESSEE HAS TAKEN MARKET RATE AS ON 01.04.2007 AS COST OF ACQUISITION BUT THIS IS NOT CORRECT AND EVEN IF IT IS ACCEPTED THAT THE SOURCE OF SHARE S RECEIVED IS FROM WILL, I.T.A.NO.2565 /AHD/2011 C.O.NO.253/AHD/2011 3 ONLY FACE VALUE OF THE SHARE WAS REQUIRED TO BE TAK EN WHICH IS VERY SMALL VALUE OF THESE SHARES. HE SUBMITTED THAT THE ORDER OF LD. CIT(A) IS NOT SUSTAINABLE. 4. LD. D.R. SUPPORTED THE ORDER OF LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS ISSUE WAS DECIDED BY LD. CIT(A) AS PER PA RA 6.3 OF HIS ORDER WHICH IS REPRODUCED BELOW: 6.3 DECISION :- I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER AS WELL AS THE CO NTENTIONS RAISED BY THE AR OF THE APPELLANT. THE FACT OF THE CASE WA S THAT THE APPELLANT INHERITED CERTAIN SHARES AND SOLD THEM TH ROUGH 3 BROKERS. THE AO OBSERVED THAT [THE SHARE SOLD BY THE APPELLA NT WAS WITH PROFIT MOTIVE. FURTHER, THE FINDING OF THE AO INDIC ATED IN THE ASSESSMENT ORDER WAS THAT THE ENTIRE SALES PROCEEDS FALLS UNDER THE CATEGORY OF BUSINESS INCOME. ALTHOUGH, HE HAD ACCEP TED THE SHARES WERE HELD FOR MORE THAN A YEAR BUT BECAUSE THE TRAN SACTIONS ARE REPETITIVE, THE SALES OF SHARE BE ASSESSED AS BUSIN ESS INCOME INSTEAD OF CAPITAL GAIN. IT IS APPARENT THAT THE AO HAD MIX ED UP THE TRANSACTIONS OF SHARES WITH THE 3 BROKERS AND THE P MS MAINTAINED WITH FRANKLIN TEMPLETON. TO SET THE MATTER ON CLEAR PERSPECTIVE, THE APPELLANT HAD ROUTED INHERITED SHARES FOR SALE THROUGH 3 BROKERS NAMELY, FRANKLIN TEMPLETON, STOCK HOLDING CORPORATI ON AND GANDHI SECURITIES & INVESTMENT LTD. MAJORITY OF THE SHARES WERE SOLD THROUGH FRANKLIN TEMPLETON I.E. RS.73,31,215/- AND BALANCE OF RS.6,59,727/- & RS.46,851/- WERE SOLD THROUGH GANDH I SECURITIES & INVESTMENT AND STOCK HOLDING CORPORATION RESPECTI VELY. THUS THE TOTAL SALES CONSIDERATION OF THE INHERITED SHAR ES WAS RS.80,37,795/-, OUT OF WHICH THE APPELLANT DID SPEN D RS.10,00,000/- FROM FRANKLIN TEMPLETON AND THE ENTI RE AMOUNT FROM GANDHI SECURITIES AND STOCK HOLDING. THE APPEL LANT STATED THAT THE BALANCE AMOUNT FROM FRANKLIN TEMPLETON I.E . RS.63,31,215/-(73,31,215 - 10,00,000) WAS USED FOR PMS WITH FRANKLIN TEMPLETON. THE PORTFOLIO MANAGER DID PURCH ASE AND SALE OF SHARES; ON BEHALF OF THE APPELLANT AND INCURRED A LOSS OF RS.4,59,992/-. IN OTHER WORDS, THE APPELLANT INCURR ED LOSS OF RS.4,59,992/- FROM THE PMS WITH FRANKLIN TEMPLETON. THE I.T.A.NO.2565 /AHD/2011 C.O.NO.253/AHD/2011 4 APPELLANT CLAIMED THAT PROFITS FROM THE SALE OF SHA RE IS LONG TERM CAPITAL GAIN AND EXEMPTED U/S.10(38) OF THE ACT. HO WEVER, THE AO HELD THAT THE SHARES WERE INHERITED BY THE APPEL LANT AND THE COST OF ACQUISITION OF THOSE SHARES WAS NIL AND THE REFORE, THE ENTIRE SALE PROCEEDS WAS BUSINESS PROFITS AND SHOULD BE TA XED AS BUSINESS INCOME AND NOT CAPITAL GAIN. AS SEEN ABOVE, THE UND ISPUTED FACTS ARE THAT THE APPELLANT INHERITED SHARES WHICH WAS H ELD FOR MORE THAN A YEAR WAS SOLD FOR A CONSIDERATION OF RS.80,3 7,795/-. ACCORDING TO THE APPELLANT THE LTCG WAS RS.7,65,808 /- AFTER DEDUCTION THE COST OF SHARES INHERITED BY THE APPEL LANT. THE MAIN CONTENTION HERE WAS THAT THE AO TREATED SALES OF SH ARES OF RS.80,37,795/- AS BUSINESS INCOME. SECONDLY, THE A O MADE UPWARD ADJUSTMENT OF VALUE OF CLOSING STOCK OF SHAR ES. THE APPELLANT'S CONTENTION WAS THAT THE PROFITS FROM TH E INHERITED SHARES IS LTCG AND EXEMPTED U/S. 10(38) OF THE ACT BECAUSE THE SHARES WERE HELD FOR MORE THAN A YEAR. THE AO ALSO HELD TH AT ENTIRE SALE CONSIDERATION WAS BUSINESS INCOME AS THE COST OF AC QUISITION WAS NIL. THE APPELLANT CONTENDED THAT THE VALUE OF THE SHARES BEFORE INHERITANCE BE TAKEN AS THE COST OF SHARES AND ACCO RDINGLY WORKED OUT LTCG OF RS.7,65,808/-. WITH REGARDS TO THE UPWA RD REVISION OF VALUE OF CLOSING STOCK, THE ID. AR CONTENDED THAT S INCE THIS IS THE FIRST YEAR AND HE HAS NO OBJECTION TO THE UPWARD RE VISION OF VALUE. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE CAREFULLY. THE MAIN ISSUE IS THAT THE AO GOT CONFUSED WITH THE TRADING OF SHARES THROUGH? PMS FRANKLIN TEMPLETON AND THE ACTU AL SALE OF INHERITED SHARES THROUGH FRANKLIN TEMPLETON. NOW IT IS VERY CLEAR THAT THE APPELLANT FIRST SOLD THE INHERITED SHARES THROUGH 3 BROKERS AND MAJOR PART OF THE SALE PROCEEDS WAS INVESTED TH ROUGH PMS WITH FRANKLIN TEMPLETON. SMALL PORTION OF SALES CON SIDERATION WAS SPENT BY THE APPELLANT. IT HAS ALSO CLEARLY BROUGHT THAT THE PMS WITH FRANKLIN TEMPLETON HAS RESULTED IN LOSS. I HAV E NOT DEALT WITH THE COST OF ACQUISITION OF INHERITED SHARES BECAUSE IT HAS REVENUE- NEUTRAL IN THIS CASE AS THE ENTIRE PROFIT IS LTCG A ND EXEMPTED U/S.10(38) OF THE ACT. IN THIS CIRCUMSTANCES, THE A DDITION MADE BY THE AO IS NOT LEGALLY SUSTAINABLE AND ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION. THIS GROUND OF APP EAL IS ALLOWED. 6. FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A), IT IS SEEN THAT HE HAS NOT CONSIDERED THE ISSUE REGARDING COST OF ACQU ISITION OF INHERITED SHARES AND HAS DECIDED THE ISSUE SIMPLY ON THIS BAS IS THAT IT IS REVENUE I.T.A.NO.2565 /AHD/2011 C.O.NO.253/AHD/2011 5 NEUTRAL BECAUSE THE ENTIRE PROFIT IS LONG TERM CAPI TAL GAIN AND THEREFORE, EXEMPT U/S 10(38). WE FIND NO BASIS FOR HOLDING TH AT THE PROFIT ON SALE OF THESE SHARES IS LONG TERM CAPITAL GAIN WHEN THOSE S HARES ARE NOT PART OF THE WILL AS NOTED BY THE A.O. IN THE ASSESSMENT ORDER A ND UNLESS THE SOURCE OF ACQUISITION OF THESE SHARES IS EXPLAINED PROPERLY, IT IS NOT COMING OUT AS TO WHETHER THE PROFIT ON THESE SHARES IS LONG TERM CAP ITAL GAIN OR SHORT TERM CAPITAL GAIN OR BUSINESS INCOME OR UNDISCLOSED INCO ME BY WAY OF SALE OF THOSE SHARES, SOURCE OF ACQUISITION OF WHICH IS NOT EXPLAINED. WE, THEREFORE, FEEL THAT IN THE INTEREST OF JUSTICE, TH IS MATTER SHOULD GO BACK TO THE FILE OF THE A.O. FOR AFRESH DECISION AFTER FIND ING OUT AS TO WHETHER THESE SHARES WERE SOLD AFTER DEMATERIALIZING OR WER E SOLD IN PHYSICAL FORM. IF THE SHARES WERE SOLD AFTER DEMATERIALIZIN G THEN HE SHOULD OBTAIN STATEMENT OF DMAT ACCOUNT OF THE ASSESSEE TO FIND O UT THE ACTUAL DATE OF DEMATERIALIZING OF SHARES BY THE ASSESSEE. IN ANY CASE, THE SHARES MUST HAVE BEEN TRANSFERRED IN THE NAME OF THE ASSESSEE A ND, THEREFORE IT SHOULD BE OBTAINED FROM THE RESPECTIVE COMPANY AS ON WHICH DATE THE SHARES WERE TRANSFERRED IN THE NAME OF THE ASSESSEE AS PER THE RECORDS OF THE COMPANY. SHARE TRANSFER FORM WILL ALSO DECLARE THE COST OF ACQUISITION. IT WILL ALSO DISCLOSE THE NAME OF EARLIER OWNER AND IN THIS MANNER, ALL THE RELEVANT FACTS CAN BE UNEARTHED AND EXAMINED AND TH EN ONLY, THIS ISSUE CAN BE DECIDED IN A PROPER MANNER. WE ORDER ACCORD INGLY. 7. IN THE RESULT, APPEAL OF THE REVENUE STANDS ALLO WED FOR STATISTICAL PURPOSES. 8. NOW, WE TAKE UP THE CROSS OBJECTION OF THE ASSES SEE. THE ONLY GROUND RAISED BY THE ASSESSEE IN THE C.O. IS AS UND ER: THE A.O. HAS ERRED IN LAW AND ON FACTS TO ASSESS B USINESS INCOME AT RS.59,884/- AGAINST BUSINESS LOSS SHOWN BY THE A PPELLANT AT RS.4,59,992/- BY CHANGING METHOD OF VALUATION OF CL OSING STOCK I.T.A.NO.2565 /AHD/2011 C.O.NO.253/AHD/2011 6 FORM LOWER OF COST OF MARKET TO ACTUAL COST. L D. CIT(A) HAS ALSO ERRED IN CONFIRMING THE A.O.S ACTION. 9. IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE A.O. TO ADOPT VALUE OF CLOSING STOC K AT COST OR MARKET PRICE WHICHEVER IS LOWER. LD. D.R. SUPPORTED THE ORDER O F LD. CIT(A). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE A.O. HAS WORKED OUT BUSINESS INCOME AT RS. 49,884/- BY ADOPTING VALUE OF CLOSING STOCK AT RS.62,22,563/- AS AGAINST VALUE OF CLOSING STOCK DECLARED BY THE ASSESSEE AT RS.56,80,461/-. FROM T HE ASSESSMENT ORDER, IT IS NOT COMING OUT AS TO WHETHER VALUE OF CLOSING ST OCK ADOPTED BY THE A.O. IS MARKET PRICE OR COST OR MARKET PRICE WHICHE VER IS LOWER. ON THIS ASPECT, THIS IS THE FINDING OF LD. CIT(A) THAT IT I S SUBMITTED BY THE LD. A.R. BEFORE HIM THAT SINCE THIS IS THE FIRST YEAR, HE HAS NO OBJECTION TO THE UPWARD REVISION OF THE VALUE OF CLOSING STOCK. BUT BEFORE US, THE ASSESSEE HAS RAISED CROSS OBJECTION AND DISPUTED THE VALUE O F CLOSING STOCK. UNDER THESE FACTS AND IN THE INTEREST OF JUSTICE, WE FEEL THAT THIS ISSUE SHOULD ALSO GO BACK TO THE FILE OF THE A.O. FOR A FRESH DECISIO N AND HENCE, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE ALSO AND REST ORE THE MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. 10. THE A.O. SHOULD ADOPT VALUE OF CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER AND WORKING OF THIS SHOULD BE PROVIDED BY THE ASSESSEE ALONG WITH SUPPORTING EVIDENCE. THE ASSES SEE SHOULD ALSO SATISFY THE A.O. THAT THIS BASIS IS REGULARLY ADOPT ED BY THE ASSESSEE IN THE SUBSEQUENT YEARS ON CONSISTENT BASIS. THE A.O. SHO ULD PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROV IDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. I.T.A.NO.2565 /AHD/2011 C.O.NO.253/AHD/2011 7 11. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS C.O. OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 12. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 20/4 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23/4.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 27/4 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.27/4 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27/4 /12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .