Churamani Housing Pvt. Ltd., Kolkata V. DCIT, Central Circle - XXVII, Kolkata, Kolkata

CO 26/KOL/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 6877 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 17-03-2010
• Court: TRIBUNAL
• Department Lawyers: R SALARPURIA
• Assessee Lawyers: NIRAJ KUMAR
• Keywords: Business income; Earning of tax free income; Additional evidence; Question of law
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH B, KOLKATA [ () , ,, , , ! . .. .#$ #$#$ #$. .. . , , , , %& ] ]] ] [BEFORE SRI N.VIJAYAKUMARAN, JM & SRI C. D. RA O, AM] !( / I.T.A NO. 294/(KOL) OF 2010 )* +,/ ASSESSMENT YEAR : 2006-07 DCIT,CENTRAL CIRCLE-XXVII, - - CHURAMANI HOUSING (P)LTD. KOLKATA -VERSUS- KOLKATA (PAN : AABCC 0368 D (./ / APPELLANT ) ( 01./ /RESPONDENT) 2 3 / C.O.NO.26/KOL/2010 !( / A/O I.T.A NO. 294/(KOL) OF 2010 )* +,/ ASSESSMENT YEAR : 2006-07 CHURAMANI HOUSING (P)LTD - - DCIT,CENTRAL CIRCLE-XXVII, KOLKATA -VERSUS- KOLKATA (PAN : AABCC 0368 D) (./ / APPELLANT ) ( 01./ /RESPONDENT) ./ 4 5 %/ FOR THE APPELLANT: SHRI NIRAJ K UMAR , CIT 01./ 4 5 %/ FOR THE RESPONDENT: SHRI R.SALARPURIA 6 4 $& /DATE OF HEARING : 24.11.2011. 7+ 4 $& /DATE OF PRONOUNCEMENT : 20.01.2012. %8 / ORDER ( (( ( . .. .#$ #$#$ #$. .. . ) )) ), , , , %& PER SHRI C.D.RAO, AM THE ABOVE APPEAL FILED BY THE REVENUE AND CROSS OBJ ECTION FILED BY ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. C.I.T.(A)-CEN TRAL-II, KOLKATA DATED 13.11.2009 PERTAINING TO ASSESSMENT YEAR 2006-07. 2 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN DIRECTING TO ALLOW LON G TERM CAPITAL GAINS OF RS. 1,23,62,236/- AND ALSO SHORT TERM CAPITAL GAINS OF RS. 18,82,626/- IN PLACE OF BUSINESS INCOME, AS HELD BY THE A.O. FOR THE REASON S AS DISCUSSED IN THE ORDER. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IS DELETING THE DISALLOWA NCE OF RS.3,88,814/- MADE U/S 14A OF THE ACT WITHOUT APPRECIATING THAT THE SHARE OF PROF IT OF RS.71,91,384/- IS EXEMPT U/S LO(2A) AND IS NOT A PART OF THE TOTAL INCOME AND TH EREFORE, IN COMPUTATION OF DISALLOWANCE U/SL4A READ WITH RULE 8D THE INVESTMEN T IN FIRM WAS RIGHTLY TAKEN INTO ACCOUNT. 3. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, MODIFY OR ALTER ANY OF THE GROUND(S) OF APPEAL AND / OR ADDUCE ADDITIONAL EVIDENCE AT THE T IME OF HEARING OF THE CASE. 3. THE BRIEF FACTS OF THE ABOVE ISSUES ARE THAT WHILE DOING THE SCRUTINY ASSESSMENT, ASSESSING OFFICER TREATED THE INCOME SHOWN BY ASSES SEE AS LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AS BUSINESS INCOME OF A SSESSEE BY OBSERVING AS UNDER :- THE TRANSACTION IN SHARES OUT OF WHICH NET SHORT T ERM CAPITAL GAIN HAS ARISEN TO THE ASSESSEE ARE BASICALLY DONE WITH A MOTIVE TO EARN PROFIT OUT OF SALE OF SUCH SHARES HELD ON SHORT TERM BASIS. THE NATURE, FREQUE NCY AND THE QUANTUM OF TRANSACTION INDICATE THAT SUCH TRANSACTIONS WERE MADE BY THE AS SESSEE DURING THE COURSE OF ITS BUSINESS AND IS A PART AND PARCEL OF ITS BUSINESS A CTIVITY OF INVESTING AND TRADING IN SHARES/SECURITIES. THE MOTIVE IS TO MAKE PROFIT OUT OF TRANSACTION IN CASE WHERE SHARES WERE HELD FOR LESS THAN ONE YEAR. BY VIRTUE OF BEIN G SOLD WITHIN ONE YEAR DOES NOT CONFER SUCH TRANSACTION, THE STATES OF A SHORT TERM INVESTMENT. CONSEQUENTLY PROFIT/LOSS ARISING OUT OF SUCH TRANSACTIONS IS TO BE TREATED A S BUSINESS PROFIT/LOSS. THE ASSESSEE HAS SOLD SHARES OUT OF ITS STOCK OF SH ARES ALLEGEDLY HELD AS INVESTMENT AS PER THE BALANCE SHEET. THE PROFIT AS SHOWN LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN SHOULD BE CHARGED TO TAX AS BUSINESS INCOME. THE A.R. WAS REQUESTED TO EXPLAIN WHY SUCH GAIN BE NOT TREATED A S BUSINESS PROFIT AND ALSO ASKED WHY THE SECTION 1 4A READ WITH RULE-8D WILL NOT BE APPLIED IN RESPECT OF DIVIDEND BEING EXEMPTED INCOME. 3.1. AFTER TAKING INTO CONSIDERATION OF THE VARIOUS SUBMISSIONS OF ASSESSEE WHICH WAS INCORPORATED AT PAGE NO.2 TO 7 HE FINALLY CONCL UDED AS UNDER :- IT IS CLEAR THAT THE NATURE OF BUSINESS OF THE ASS ESSEE REMAINED SAME OVER THE YEARS. HOWEVER, CONSIDERING THE FACTS OF THE CASE, THE NATURE OF ASSESSEES BUSINESS, THE CONTENT IS NOT ACCEPTABLE. IT IS HELD IN THE CASE O F RAJPUTNA TEXTILES (AGENCIES) LIMITED VS. CIT. 42 ITR 743 (SC) THAT, WHERE, FROM THE VERY BEGINNING OF ITS COMMENCEMENTS OF BUSINESS, PURCHASE OF SHARES IS MADE WITH A DEFI NITE INTENTION OF SELLING THEM AT A PROFIT, IT IS AN ADVENTURE IN THE NATURE OF TRADE. INITIAL PURCHASE OF SHARES BY THE ASSESSEE WAS NOT FOR THE PURPOSE OF INVESTMENT BUT WITH A VIEW TO EARN PROFIT BY RESALE OF THOSE SHARES, AND IS TO BE TREATED AS BUSINESS P ROFIT. THE FACT FINDS SIMILARITY WITH THE CASE OF DALHOUSIE INVESTMENT TRUST COMPANY LIMI TED VS. CIT. (1968) 68 ITR 486 3 3 (SC). THE PURCHASES AND SALE OF SHARES WAS MADE IN THE COURSE OF ASSESSEES BUSINESS OF INVESTMENT / DEALING IN SHARES AND HENCE, PROFIT /LOSS IS TO BE TREATED AS BUSINESS INCOME. THIS VIEW DRAWS SUPPORT FROM THE JUDGEMENT IN THE CASE OF CIT. VS SHREE KRISHNA PROJECTS LIMITED (1994) 205 ITR 300. THE AS SESSEE COMPANY IS IN THE LINE OF CARRYING ON THE BUSINESS OF ACQUIRING AND INVESTING IN AND HOLDING SECURITIES AND ULTIMATELY SELLING THEM AT A PROFIT. WHETHER THE AS SESSEE WILL BE CONSIDERED TO HAVE MADE A PROFIT ON SALE OF INVESTMENT OR SALE OF STOC K IN SHARES, WILL NOT DEPEND ON THE BASIS OF ENTRIES MADE IN THE BOOKS OF ACCOUNTS. WHE THER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE REVI SION OF LAW THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NO R CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNTS BE DECISIVE OR CON CLUSIVE IN THE MATTER KEDAMATH JUTE MANUFACTURING CO. LTD. VS. C.LT. 82 ITR 363 (S C). JUST BECAUSE OF THE FACT THAT THE ASSESSEE HAS PREFERRED TO SHOW SOME HOLDING AS INVESTMENT IN THE BALANCE SHEET DOES NOT ALTER THE NATURE OF PROFIT ON TRANSFER / S ALE OF SUCH SHARES PARTICULARLY IN VIEW OF THE ASSESSEES NATURE OF BUSINESS. IT HAS ALSO BEEN HELD IN THE CASE OF RAJA BAHADUR V ISWESWARA SINGH VS. CIT. 41 ITR 685(SC) THAT PURCHASE OF SHARES OF SUBSTANTI AL AMOUNTS AND SALE IN SUBSEQUENT YEAR MAKING REGULAR AND ADEQUATE AMOUNT OF PURCHASE AND SALE OF SHARES MUST BE TREATED AS BUSINESS TRANSACTIONS AND NOT AS SALE OF INVESTMENT. THE ASSESSEES CASE IS WELL COVERED WITHIN THE SCOPE AND AMBIT OF THE JUDI CIAL PRONOUNCEMENT AS WELL. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, JUDGI NG A NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE OVER THE YEARS AND ON TH E BASIS OF ELABORATE DISCUSSION ABOVE, I AM OF THE OPINION THAT THE ALLEGED TRANSAC TION IN SHARES LEADING TO CAPITAL GAIN ARE TO BE TREATED AS BUSINESS TRANSACTION. CONSEQUE NTLY PROFIT/LOSS ARISING FROM SUCH TRANSACTION IS TO BE TREATED AS INCOME FROM BUSINES S. 3.2. HE FURTHER DISALLOWED AN AMOUNT OF RS.56,471/- U/S 14A READ WITH RULE 8D OF THE IT RULES. 3.3. ON APPEAL THE LD. CIT(A) HAS DIRECTED THE AO T O TREAT THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AS DECLARED BY ASS ESSEE BY OBSERVING AS UNDER :- 4. 1 HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. I FIND THAT ASSESSING OFFICER HAS NOT INDICATED ANY MATERIAL CH ANGE ON FACTS AND LAW FOR THE YEAR UNDER APPEAL IN COMPARISON TO THE EARLIER YEARS. TH E QUESTION OF TRADING VIS A VIS INVESTMENT IS A MIXED QUESTION OF LAW AND FACT. THE RE IS NO CHANGE IN LAW OR FACTS IN THE YEAR UNDER CONSIDERATION IN RESPECT OF EARLIER ASSESSMENT YEARS. ASSESSING OFFICER HAS NOT BROUGHT OUT ANY FACT DIFFERENT FROM EARLIER YEARS TO PROVE THE INTENTION OF APPELLANT DIFFERENT IN RESPECT OF SHARES SHOWN AS I NVESTMENT. IN THE EARLIER ASSESSMENT YEAR 2005- 06, IN APPELLANTS OWN CASE, HBLE ITAT H AS HELD IN THE APPEAL NO 2026/KOL/2008, VIDE ORDER DATED 03-04-2009, THAT CO NSIDERING THE TOTALITY OF FACTS, IE, (I) THERE WAS NO FREQUENT PURCHASE AND SALE OF SHAR ES (II) THE SOURCE OF INVESTMENT WAS OWN FUND AND NOT BORROWED MONEY (III) IN THE PRECED ING YEARS THE SHARES WERE HELD AS INVESTMENT AND NOT AS STOCK-IN- TRADE IN THE BOOKS OF APPELLANT AND THEREFORE THEY CANNOT BE TREATED AS TRADING SHARES AND THE SALE OF SUCH INVESTMENT SHARES IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND NOT PROFITS AND G AINS OF BUSINESS. RESPECTFULLY 4 4 FOLLOWING THE ABOVE DECISION OF HBLE ITAT- KOLKATA , I DIRECT THE ASSESSING OFFICER TO ALLOW LONG TERM CAPITAL GAIN OF RS.1,23,62,235.65 AND SHORT TERM CAPITAL GAIN OF RS,18,82,626.00 (WITH 10% TAX) WHICH WAS TREATED AS BUSINESS INCOME IN ASSESSMENT ORDER. 3.4. AS REGARDING DISALLOWANCE U/S 14A OF THE IT AC T HE RESTRICTED THE DISALLOWANCE OF RS.7,56,471/- TO RS.3,67,603/- BY OBSERVING AS U NDER :- 4. 1 HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUB MISSIONS OF APPELLANT. IT IS APPARENT FROM THE COMPUTATION OF INCOME SUBMITTED W ITH THE RETURN OF INCOME OF THE INSTANT ASSESSMENT YEAR THAT THE APPELLANT HAS ITSE LF ESTIMATED AND ALLOCATED RS. 5,760/- AS EXPENSES REQUIRED TO EARN THE DIVIDEND I NCOME. THIS ACTION OF APPELLANT REFERS TO THE TIME OF FILING OF RETURN OF INCOME AN D THERE IS NO QUESTION OF BUYING PEACE OF MIND AT ANY LATER TIME ON THIS ISSUE. FURTHER, A SSESSING OFFICER HAS A GOOD REASON IN INVOKING THE PROVISIONS OF SECTION 14A WHEN APPELLA NT ITSELF HAS ALLOCATED THE EXPENDITURE OF RS 5,760/- TOWARDS EARNING OF EXEMPT DIVIDEND AS REFLECTED IN THE COMPUTATION OF INCOME FILED WITH THE RETURN OF INCO ME. ONCE ASSESSING OFFICER INVOKES THE PROVISIONS OF SECTION 14A, THE PROVISIO NS OF RULE 8D OF LT.RULES ARE BINDING ON ASSESSING OFFICER. HOWEVER, I FIND, THAT APPELLANT HAS TAKEN AN ARGUMENT DURING THE ASSESSMENT PROCEPDINGS,, THAT THE SHARE OF PROFIT OF RS 71,91,384/- FROM PARTNERSHIP FIRM IS EXEMPT U/S L0(2A) OF THE IT.ACT AND THIS SHARE IS RECEIVED AFTER NETTING OF ALL EXPENSES INCURRED BY THE FIRM IN EAR NING SUCH PROFIT AND NONE OF SUCH EXPENSES ARE INCLUDED IN THE P&L A/C OF THE APPELLA NT. THE ARGUMENT OF APPELLANT APPEARS TO BE CORRECT AND THEREFORE THE INVESTMENT OF RS, 15,55,47,384/- IN THE FIRM AS ON 31.3.2006 AND NIL AS ON 31.3.2005 IS REQUIRED TO BE SEPARATED FROM THE OTHER NON TAXABLE INVESTMENTS AND TOTAL ASSETS AS APPEARING I N THE BALANCE SHEET OF THE APPELLANT FOR THE PURPOSE OF CALCULATION OF EXPENDITURE U/R 8 D OF THE I.T.RULES. THE AVERAGE VALUE OF INVESTMENT IN PARTNERSHIP FIRM IS RS. 1/2 (15,55,47,384 + NIL) = RS 7,77,73,692/-. THEREFORE FOR THE PURPOSE OF RULE SD , THE AVERAGE INVESTMENT, FROM WHICH INCOME SHALL NOT FORM PART OF TOTAL INCOME AN D IN RESPECT OF WHICH THE EXPENDITURE TO EARN SUCH INCOME HAS BEEN DEBITED TO THE P&L A/C OF THE APPELLANT, STANDS AT RS.7,35,20,5501/-, IE THE DIFFERENCE OF R S 15,12,94,242 AS CONSIDERED BY ASSESSING OFFICER AND RS 7,77,73,692/- AS MENTIONED ABOVE (THE AVERAGE INVESTMENT IN PARTNERSHIP FIRM IN RESPECT OF WHICH NO EXPENDITURE IS DEBITED IN THE ACCOUNTS OF APPELLANT). SIMILARLY THE TOTAL ASSETS OF THE BALAN CE SHEET WOULD ALSO REDUCE TO RS, 24,75,13,212/- , IE THE DIFFERENCE OF RS 32,5Z86,9O 4/ AS CONSIDERED BY ASSESSING OFFICER AND RS 7,77,73,692/- AS THE INVESTMENT IN P ARTNERSHIP FIRM IN RESPECT OF WHICH NO EXPENDITURE IS DEBITED IN THE ACCOUNTS OF APPELL ANT. THE EXPENDITURE U/R 8D MAY THEREFORE BE CALCULATED AT 0.5% OF AVERAGE INVESTME NT OF RS, 7,35,20,550/- AS THERE IS NO INTEREST COST DEBITED TO P&L A/C. THEREFORE THE EXPENDITURE INCURRED TO EARN EXEMPT INCOME IS REDUCED FROM RS. 7,56,471/- TO RS. 3,67,6 03/- U/R 8D OF IT. RULES READ WITH SECTION 14A OF THE I.T,ACT, THE CORRESPONDING DISAL LOWANCE FROM TAXABLE INCOME BY THE ASSESSING OFFICER IS ALSO REDUCED FROM RS. 7,56 ,471/- TO RS, 3,67,603/-. 5 5 3.5. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEF ORE US AND THE ASSESSEE IS IN CROSS OBJECTION IN REGARDING THE CONFIRMATION OF RS.3,67, 703/- BY APPLYING SECTION 14 A OF THE IT ACT WITH RULE 8D OF THE IT RULES. 4. AT THE TIME OF HEARING THE LD. DR APPEARING ON B EHALF OF THE REVENUE HAS RELIED ON THE ORDERS OF AO AND REITERATED THE SUBMISSIONS MADE BY AO IN THE ASSESSMENT ORDER. 5. ON THE OTHER HAND, THE LD. COUNSEL APPEARING ON BEHALF OF ASSESSEE RELIED ON THE ORDERS OF THE LD. CIT(A) AND FURTHER BY REFERRING T O THE PAPER BOOK WHICH WAS FILED BEFORE THE REVENUE AUTHORITIES CONTENDED THAT THE A SSESSEE HAS ALWAYS SHOWN THESE SHARES IN THE INVESTMENT PORTFOLIO AND IN THE EARLI ER ASSESSMENT YEAR 2005-06 IN ASSESSEES OWN CASE IN ITA NO.2026/KOL/2008. THIS T RIBUNAL HAS TREATED THE SAID TRANSACTION AS LONG TERM CAPITAL GAIN AS WELL AS SH ORT TERM CAPITAL GAIN AND SINCE THE LD. CIT(A) HAS FOLLOWED THE ORDERS OF THE TRIBU NAL HE REQUESTED TO UPHELD THE SAME. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF MATERIALS AVAILABLE ON RECORD, SINCE THE LD. CIT(A) HAS FOLLOWED THE OR DERS OF THE TRIBUNAL IN THE CASE OF ASSESSEE HIMSELF FOR THE IMMEDIATELY PRECEDING ASSE SSMENT YEARS AND THE LD. DR COULD NOT BRING ANY CONTRARY MATERIAL TO THE OBSERVATIONS MADE BY THE LD. CIT(A) WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A) TO BE INT ERFERED WITH. WE CONFIRM THE SAME AND DISMISS GROUND NO. 1 OF THE REVENUES APPEAL. 6.1. GROUND NO.2 RAISED BY THE REVENUE AS WELL AS T HE ISSUE RAISED IN THE CROSS OBJECTION BY THE ASSESSEE ARE RELATING TO THE DISAL LOWANCE OF EXPENDITURE U/S 14A OF THE IT ACT AND APPLICATION OF RULE 8D UNDER IT RULES. 7. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD KEEPING IN VIEW OF THE FACT THAT SINCE TH E ASSESSMENT YEAR INVOLVED IN THIS 6 6 APPEAL IS RELATING TO A.YR. 2006-07 AS PER THE DECI SION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. PVT. LTD . (SUPRA) RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, RULE 8D IS NOT APPLICABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THIS TRIBUNAL HAS BEEN TAKING A CONS ISTENT VIEW OF SUSTAINING THE DISALLOWANCE U/S 14A AT 1% OF THE DIVIDEND INCOME. ACCORDINGLY WE DIRECT THE AO TO DISALLOW 1% OF THE DIVIDEND INCOME AS EXPENDITURE R ELEVANT TO EARNING OF DIVIDEND INCOME. WE ORDER ACCORDINGLY. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. %8 9 : ;< %8 9 : ;< %8 9 : ;< %8 9 : ;< 20.01.2012. ORDER PRONOUNCED IN THE COURT ON 20.01.2012. SD/- SD/- , , , , ) ) ) ) N.VIJAYAKUMARAN, JUDICIAL MEMBER . .. .#$ #$#$ #$. .. . , , , , %& %& %& %& , C.D.RAO, ACCOUNTANT MEMBER. ( (( ($& $& $& $&) )) ) DATE: 20.01.2012. %8 4 0)) =%+>- COPY OF THE ORDER FORWARDED TO: 1. CHURAMANI HOUSING PVT. LTD., 10/1D, LALBAZAR STREET , 3 RD FLOOR, MARCANTILE BLDG., KOLKATA-700001. 2 THE D.C.I.T., CENTRAL CIRCLE-XXVII, KOLKATA 3. THE CIT, 4. THE CIT(A)-CENTRAL-II, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA 1 0)/ TRUE COPY, %8/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.)