M/s Chandra Global Finance Ltd., New Delhi V. DCIT, New Delhi

CO 357/DEL/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8206 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 31-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K JAIN
• Assessee Lawyers: DEEPAK SEHGAL
• Keywords: Business income
• Section: 14A

Judgement Text

ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NO. 1145/DEL/2011 ASSESSMENT Y EAR: 2005-06 DY.COMMISSIONER OF INCOME TAX, VS M/S CHANDRA GLOBAL FINANCE LTD., CIRCLE 3 (1), B-94, OKHLA INDUSTRIAL AREA, NEW DELHI. PHASE-II, NEW DELHI. C.O. NO.357/DEL/2011 ( IN ITA NO. 1145/DEL/2011) ASSESSMENT Y EAR: 2005-06 M/S CHANDRA GLOBAL FINANCE LTD., VS DY.COMMISSI ONER OF INCOME TAX, NEW DELHI. CIRCLE 3(1), NEW DELHI. (PAN: AABCC3404E) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI DEEPAK SEHGAL, SR.DR RESPONDENT BY: SHRI A.K.JAIN, CA O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER OF THE CIT(A)-IV, NEW DELHI DATED 16.12.2010 FOR AY 2005-0 6. 2. THE ONLY GROUND RAISED BY THE REVENUE IN THIS AP PEAL READS AS UNDER:- 1. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSESSIN G OFFICER NOT TO TREAT OTHERWISE THE INCOME DECLARED UNDER TH E HEAD ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 2 SHORT TERM CAPITAL GAINS IGNORING THE FACT THAT DUR ING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED I N THE BUSINESS OF TRADING AND INVESTMENT OF SHARES AND SECURITIES. 3. BRIEF FACTS GIVING RISE TO THIS APPEAL ARE THAT THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND A NOTICE U/S 143(2) OF TH E INCOME TAX ACT, 1961 (FOR SHORT THE ACT) WAS SERVED ON THE ASSESSEE. DU RING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE HAD AN INCOME FROM SALE OF INVESTMENT AND HE TREATED THE SAME AS BUSINESS INCOME INSTEAD OF INCOME UNDER THE HEAD CAPITAL GAINS. WITH THI S OBSERVATION, THE AMOUNT OF RS.37,81,329 WAS TREATED AS SHORT TERM CAPITAL G AIN BY THE ASSESSING OFFICER. THE AGGRIEVED ASSESSEE FILED AN APPEAL BE FORE THE COMMISSIONER OF INCOME TAX(A)-IV, DELHI WHICH WAS ALLOWED BY LD. CO MMISSIONER OF INCOME TAX(A) WITH THE FOLLOWING OBSERVATIONS:- 10. FROM THE DETAILS FILED BY THE LD. ASSESSING O FFICER, IT IS VERY CLEAR THAT IN THE BOOKS OF ACCOUNT, THE SHA RES IN QUESTION ARE SHOWN AS INVESTMENT ON NON-TRADING ASS ET. THE ASSESSEE IS ALSO NOT ALLEGED TO HAVE BORROWED M ONEY TO BUY THE SHARES. THE FREQUENCY OF PURCHASE AND SA LE IS NOT VERY FREQUENT AND IN THE REMAND REPORT, THE LD. AO HAS HIMSELF CERTIFIED THAT IN NONE OF THE CASES, THEY W ERE LESS THAN 5 MONTHS OF HOLDING. IT IS EVIDENT THAT THE SH ARES HAD BEEN PURCHASED FOR REALIZING PROFIT ON APPRECIATION OF THEIR VALUE. THE ASSESSEE HAS ADDUCED ENOUGH EVIDENCE TO SUGGEST THAT THE HOLDINGS WERE FOR SHORT TERM CAPIT AL GAINS. THE CIRCULAR NO. 4 OF 2007 WOULD NOT BE APPLICABLE TO THE FACTS OF THE CASE. I AM CONVINCED THAT THE INCOME A RISING ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 3 FROM THE SALE OF SHARES WOULD BE ASSESSED AS SHORT TERM CAPITAL GAINS AND NOT BUSINESS INCOME. 11. FURTHER, THE JURISDICTIONAL HIGH COURT HAS DEC IDED ON THE ISSUE IN CIT V ROHIT ANAND (2010) 46 DTR ( DEL) 236. HERE THE HON'BLE COURT HAS UPHELD THE DECISION OF T HE TRIBUNAL IN ITO V ROHIT ANAND (2010) 34 DTR (DTR)(TRIB) 89. THE ASSESSEE WAS IN THE BUSINESS OF JEWELLERY. IT ALSO INVESTED IN SHARES AND SHOWED TH E SAME AS INVESTMENT IN THE BOOKS. IT WAS OBSERVED THAT IN VESTMENT WAS NOT ROTATED FREQUENTLY AND THE TOTAL NUMBER OF TRANSACTIONS WERE QUITE FEW. ALL THE SHARES PURCHAS ED WERE NOT SOLD AND HELD FOR QUITE A NUMBER OF DAYS. IT WA S HELD THAT TRANSACTIONS WERE TO BE TREATED AS GIVING RISE TO CAPITAL GAINS AND COULD NOT BE BRANDED AS TRADING I N SHARES. THE CASE IN HAND STANDS ON AN EQUAL FOOTING AND, THEREFORE, HAS TO BE TREATED AS INCOME OUT OF CAPIT AL GAINS AND NOT TRADING. 4. LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE ASSESSING OFFICER TO NOT TO TREAT OTHERWISE THE INCOME DECLARED UNDER THE HEAD SHORT TERM CAPI TAL GAINS. LD. DR FURTHER SUBMITTED THAT THE COMMISSIONER OF INCOME T AX(A) IGNORED THE FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE WAS ENGAGED IN THE BUSINESS OF TRADING OF SHARES AND SECURITIES. THE DR ALSO SUBMITTED THAT ALTHOUGH THE ASSESSEE HAS A RIGHT TO KEEP TWO PORTF OLIOS SERVED FOR INVESTMENT AND SECOND FOR TRADING IN SHARES AND SEC URITIES BUT IN THE PRESENT CASE, THE ASSESSEE WAS REGULARLY BUYING AND SELLING THE SHARES AND SECURITIES AND THIS ACT OF THE ASSESSEE WAS INTENDED TO DO THE BUSINESS OF SHARES AND ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 4 SECURITIES. THE DR VEHEMENTLY CONTENDED THAT THE I NTENTION OF THE ASSESSEE WAS NOT TO INVEST MONEY IN SHARES AND SECURITIES BU T TO DO THE TRADING OF SECURITIES AND SHARES. THEREFORE, THE ASSESSING OF FICER RIGHTLY HELD THE INCOME FROM SALE OF SHARES AS BUSINESS INCOME. THE DR CONCLUDED HIS SUBMISSIONS WITH A REQUEST THAT THE ORDER OF LD. CO MMISSIONER OF INCOME TAX(A) DESERVES TO BE SET ASIDE AND THAT OF THE ASS ESSING OFFICER BE RESTORED. 5. REPLYING TO THE ABOVE SUBMISSIONS, THE ASSESSEE S REPRESENTATIVE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) CO NSIDERED THE DURATION OF THE HOLDING OF SHARES BY THE ASSESSEE AND RIGHTL Y OBSERVED THAT THE INTENTION OF THE ASSESSEE WAS INVESTMENT ONLY AND I NCOME THEREON WOULD BE CONSIDERED AS SHORT TERM CAPITAL GAIN. THE AR SUPP ORTED THE ORDER OF THE FIRST APPELLATE AUTHORITY. 6. AFTER CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AND PERUSAL OF THE RECORD PLACED BEFORE US, WE OBSERVE THAT IT IS A SE TTLED POSITION THAT THE ASSESSEE IS ENTITLED TO KEEP TWO PORTFOLIOS SIMULTA NEOUSLY, ONE FOR TRADING IN SHARES AND SECOND FOR INVESTMENT. 7. FROM THE IMPUGNED ORDER, WE OBSERVE THAT THE LD. COMMISSIONER OF INCOME TAX(A) HAS CONSIDERED THE DURATION OF HOLDIN G OF SHARES BY THE ASSESSEE CONSIDERING THE TIME TAKEN FOR PURCHASE AN D SALE OF THE SHARES. FROM THE AUDITED BALANCE SHEET OF THE ASSESSEE AVAI LABLE FROM PAGE NO. 71 TO ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 5 80, IT IS REVEALED THAT THE ASSESSEE HAS MADE INVES TMENT OF RS.37,57,962 AT THE END OF RELEVANT FINANCIAL YEAR. AS PER PERIOD OF HOLDING, CONSIDERED BY LD. COMMISSIONER OF INCOME TAX(A) IN PARA 7 OF HIS ORDER, WE OBSERVE THAT THE ASSESSEE HAD HELD SHARES MINIMUM FROM 5 MONTHS TO 9 MONTHS. THIS PERIOD OF HOLDING SUGGESTS THAT THE INTENTION OF TH E ASSESSEE WAS NOT TO DO THE BUSINESS OF SHARES BUT FOR SHORT TERM INVESTMENT PU RPOSE AND INCOME FROM SALE OF THESE SHORT TERM INVESTMENTS CANNOT BE CONS IDERED AS BUSINESS INCOME. 8. IN VIEW OF THIS FACTUAL MATRIX, WE OBSERVE THAT THE FINDINGS OF THE ASSESSING OFFICER ARE NOT SUSTAINABLE AND LD. COMMI SSIONER OF INCOME TAX(A) RIGHTLY HELD THAT THE INCOME FROM SALE OF IN VESTMENT SHOULD BE TREATED AS GIVING RISE TO CAPITAL GAINS AND SHOULD NOT BE TREATED AS BUSINESS INCOME. ACCORDINGLY, WE FINALLY OBSERVE AND HOLD T HAT THERE IS NO REASON FOR US TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX(A) AND THIS APPEAL OF THE REVENUE IS DEVOID OF MERITS AND DESERVES TO BE DISMISSED. C.O. NO. 357/DEL/2011 9. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN CROSS OBJECTION:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-IV, NEW DELHI HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.23,087/- U/S 14A OF THE I.T.ACT, 1961 ON ESTIMATED BASIS WITHOUT IDENTIFYIN G ANY EXPENDITURE INCURRED FOR EARNING TAX FREE/EXEMPTED INCOME. ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 6 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.38,637/-. C.O. NO.1 10. THE ASSESSEES REPRESENTATIVE SUBMITTED THAT LD . COMMISSIONER OF INCOME TAX(A)-IV, NEW DELHI CONFIRMED THE DISALLOWA NCE OF RS.23,087/- U/S 14A OF THE ACT ON ESTIMATED BASIS. THE AR FURT HER SUBMITTED THAT THIS CONFIRMATION HAS BEEN DONE WITHOUT IDENTIFYING ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TAX FREE OR EXEMPTED INCOM E. 11. LD. DR SUBMITTED THAT THE DISALLOWANCE ON THIS COUNT WAS ORIGINALLY MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.50,00 0 ON ESTIMATED BASIS WITH AN OBSERVATION THAT THE ASSESSEE HAS SHOWN DIV IDEND INCOME OF RS.67,737 AS EXEMPTED INCOME AND EXPENSES RELATED T O THIS INCOME NEEDS TO BE DISALLOWED AS PER SECTION 14A OF THE ACT. THE D R SUBMITTED THAT ALTHOUGH THE ADDITION U/S 14A OF THE ACT AMOUNTING TO RS.50,000 WAS MADE BY THE ASSESSING OFFICER BUT IN THE APPELLATE PROCE EDINGS IT WAS REDUCED TO RS.23,087/- BY COMMISSIONER OF INCOME TAX(A) CONSID ERING THE ARGUMENTS OF THE ASSESSEE. 12. AFTER CAREFUL CONSIDERATION OF RIVAL SUBMISSION ON THIS ISSUE PLACED BEFORE US BY BOTH THE PARTIES, WE OBSERVE THAT THE COMMISSIONER OF INCOME TAX(A) HAS CONSIDERED VARIOUS DECISIONS OF THE HIGH COURT AND DELHI ITAT ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 7 HELD THAT THE ONUS ON CORRECTION ESTIMATION OF THE EXPENDITURE RELATED TO THE EXEMPTED INCOME IS ON THE REVENUE. AFTER CONSIDERI NG THE JUDGMENT OF HONBLE BOMBAY HIGH COURT REFERRED IN THE CASE OF G ODREJ & BOYCE MFG. CO. LTD. VS DCIT (2010) 328 ITR 81 (BOM) , THE COMMISSIONER OF INCOME TAX(A) MADE A REASONABLE ESTIMATE AND HELD T HAT IT WOULD BE APPROPRIATE THAT 5% OF THE TOTAL EXPENDITURE WAS TO BE DISALLOWED. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT THE ASSESSEE H AS EARNED TAX FREE INCOME AND DISALLOWANCE U/S 14A OF THE ACT OF RS.23,087/- ON ESTIMATED BASIS CANNOT BE HELD AS UNJUSTIFIED. ACCORDINGLY, WE OBS ERVE THAT THERE IS NO REASON BEFORE US TO INTERFERE WITH THE IMPUGNED ORD ER. THEREFORE CROSS OBJECTION NO. 1 IS DISMISSED. CROSS OBJECTION NO.2 13. THE ASSESSING OFFICER NOTED THAT AS PER COMPUTA TION OF INCOME OF THE ASSESSEE, THE ASSESSEE HAS EARNED INTEREST ON FIXED DEPOSITS AMOUNTING TO RS.66,437 AND THE ASSESSEE HAS PAID TAX ON OTHER IN COME SHOWN AS RS.27,800 ONLY INSTEAD OF RS.66,437. HENCE, THE ASSESSING OF FICER MADE AN ADDITION OF RS.38,637/- IN THIS REGARD. 14. IN THE IMPUGNED ORDER, THE LD. COMMISSIONER OF INCOME TAX(A) CONFIRMED THIS ADDITION WITH A FINDING THAT THE ASS ESSEE HAS EARNED INCOME ON FIXED DEPOSITS FOLLOWING THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH ITA 1145/D/2011 & CO 357/DEL/2011 ASSTT.YEARS: 2005-06 8 COURT OF DELHI IN THE CASE OF COMMISSIONER OF INCOM E TAX VS SHRI RAM HONDA POWER EQUIPMENT LTD. 289 ITR 475 (DEL) WHEREIN IT WAS HELD THAT THE INTEREST INCOME EARNED ON FIXED DEPOSIT HAS TO BE NECESSARILY TREATED AS INCOME FROM OTHER SOURCES. 15. IN VIEW OF ABOVE, ADDITION MADE BY THE ASSESSIN G OFFICER AND ITS CONFIRMATION BY THE COMMISSIONER OF INCOME TAX(A) I S JUSTIFIED AND WE HAVE NO REASON TO INTERFERE WITH THE SAME. ACCORDI NGLY, C.O. NO. 2 IS ALSO DISMISSED. 16. IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.01.2013. SD/- SD/- ( B.C. MEENA ) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 16TH JANUARY 2013 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. COMMISSIONER OF INCOME TAX(A) 4. C.I.T. 5. DR BY ORDER ASSTT. REGISTRAR