Agni Enterprises Private Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(1), Hyderabad

ITA 100/Hyd/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6530 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-07-2018
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRANJAN
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business income

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B-SMC, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.100/HYD/2018 ASSESSMENT YEAR: 2006-07 AGNI ENTERPRISES PRIVATE LIMITED, HYDERABAD. PAN AABCA6505F VS. DCIT, CIRCLE-1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SHRI NIRANJAN DATE OF HEARING : 26-07-2018 DATE OF PRONOUNCEMENT : 31-07-2018 ORDER PER SHRI B. RAMAKOTAIAH, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-1, HYDERABAD DATED 22.09.2017. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO WHETHER THE GAINS RECEIVED BY THE COMPANY ARE CAPITAL GAINS OR BUSINESS INCOME? 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE COMPANY FILED ITS RETURN OF INCOME AT NIL UNDER NORMAL PROVISIONS AND THE INCOME OF RS. 39,90,539/- UNDER MAT PROVISIONS. ASSESSEE IN THE COMPUTATION HAS CLEARLY SHOWN ITS BUSINESS TRANSACTIONS IN PURCHASE AND SALE OF SHARES AND ITS INVESTMENTS IN MUTUAL FUNDS AND ALSO IN OTHER SHARES. THE COMPUTATION OF INCOME CLEARLY SPECIFIED THE TRANSACTIONS AND EVEN THE PROFIT AND LOSS ACCOUNT INDICATE, THE SALE OF SECURITIES AND SALE OF INVESTMENTS SEPARATELY. WHEN 2 ITA NO. 100/HYD/2018 AGNI ENTERPRISES PVT LTD., HYD. ENQUIRED WHY THE ENTIRE SALE OF SHARES SHOULD BE CONSIDERED AS BUSINESS INCOME, ASSESSEE RELIED ON ITS OBJECTS TO SUPPORT THAT ASSESSEE HAS BOTH TRADING ACTIVITY AND INVESTMENT ACTIVITY AND RELIED ON THE CLASSIFICATION GIVEN IN THE BALANCE SHEET AND ALSO IN PROFIT AND LOSS ACCOUNT, NOT ONLY IN THE YEAR BUT ALSO IN EARLIER YEARS. A.O HOWEVER, DID NOT AGREE AND TREATED THE ENTIRE CAPITAL GAINS CLAIMED AS EXEMPT AS BUSINESS INCOME AND BROUGHT TO TAX. 3. BEFORE THE LD. CIT(A) ASSESSEE CONTENDED THAT ITS INVESTMENT PORTFOLIO IS DIFFERENT FROM TRADING PORTFOLIO AND RELIED ON THE EARLIER YEARS ANNUAL REPORTS, TRANSACTION SLIPS ETC., BUT LD. CIT(A) DID NOT AGREE AND CONFIRMED THE ACTION OF A.O. 4. IT WAS THE CONTENTION OF LD. COUNSEL THAT ASSESSEE HAS SHOWN THE INVESTMENTS ON TRADING TRANSACTIONS SEPARATELY AND RELIED ON THE COMPUTATION OF INCOME FILED ALONG WITH THE BALANCE SHEET AND ANNUAL REPORTS OF EARLIER YEARS, TO SUBMIT THAT ASSESSEE WAS CONSISTENTLY SHOWING THE TRANSACTIONS SEPARATELY AND FINDINGS OF THE LD. CIT(A) ARE FACTUALLY INCORRECT. HE RELIED ON THE BOARD CIRCULAR DATED 29.02.2016 ISSUED ON THE ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHARES AND SECURITIES TO SUBMIT THAT A.O HAS TO ACCEPT THE SEGREGATION OF TRANSACTIONS AS DONE BY ASSESSEE. LD. COUNSEL FOR ASSESSEE ALSO RELIED ON THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SWARNIM MULTIVENTURES PVT LTD., 452 & 453/HYD/2012 DATED 21.09.2012. HE SUBMITTED THAT ASSESSEE HAS SHOWN THE TRANSACTIONS SEPARATELY, INVESTMENT AND TRADE AND A.O 3 ITA NO. 100/HYD/2018 AGNI ENTERPRISES PVT LTD., HYD. SHOULD HAVE ACCEPTED THE SAME. IT WAS ALSO SUBMITTED THAT ASSESSEE HAS ITS OWN FUNDS, THERE WERE NO BORROWINGS. 5. LD. DR, HOWEVER, RELIED ON THE ORDERS OF THE A.O AND CIT(A). 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE DOCUMENTS PLACED ON RECORD, I AM UNABLE TO UNDERSTAND HOW THE A.O COULD TREAT TRANSACTIONS IN MUTUAL FUNDS AS BUSINESS INCOME. AS SEEN FROM THE COMPUTATION INCOME, ASSESSEE HAS BOTH TRADING PORTFOLIO AND INVESTMENT PORTFOLIO AND COMPUTATION WAS CLEARLY INDICATING THE BIFURCATION, NOT ONLY IN EARLIER YEARS BUT ALSO IN LATER YEARS ALSO. THE ASSESSEE HAS SHOWN THE TRANSACTIONS SEPARATELY. ANOTHER INTERESTING ASPECT WHICH NEITHER THE A.O NOR CIT(A) HAS CONSIDERED OR EXAMINED IS THAT THE GAIN OF RS. 43,80,825/- (WHICH IS MORE THAN THE PROFIT BROUGHT TO TAX) ARISES ON SALE OF CHOLA MANDALAM FINANCIAL UNITS, BONUS UNITS ALLOTED IN THE YEAR 2004-05. HOW THE ASSESSEE COULD DO BUSINESS IN MUTUAL FUND UNITS WAS NOT EXPLAINED BY A.O OR BY CIT(A). ANY INVESTMENT IN MUTUAL FUNDS ARE TO BE ACCEPTED AS SUCH AND AS SEEN FROM THE TRANSACTIONS ASSESSEE PURCHASED ORIGINAL UNITS IN THE YEAR 2004-05 / BONUS UNITS WERE GRANTED IN THAT YEAR WHICH WERE SOLD DURING THE YEAR WITH A GAIN OF RS. 43,80,825/-. THERE ARE LOSSES IN THE INVESTMENT PORTFOLIO WHICH WAS SET OFF TO LONG TERM GAINS IN THE INVESTMENTS AND TRANSACTIONS IN TRADING HAS RESULTED IN LOSS. ASSESSEE HAS ALSO CARRIED FORWARD LOSSES. WITHOUT EXAMINING ANY OF THESE ASPECTS, A.O SIMPLY TREATED THE LONG TERM CAPITAL GAIN (MOSTLY PERTAINING TO THE INVESTMENTS, THAT TOO IN MUTUAL FUNDS) AS BUSINESS INCOME 4 ITA NO. 100/HYD/2018 AGNI ENTERPRISES PVT LTD., HYD. WHICH CANNOT BE ACCEPTED. SINCE THE A.O AND CIT(A) HAS NOT EXAMINED THE COMPUTATION OF INCOME OR TRANSACTIONS IN TRADING PORTFOLIOS IN CORRECT PERSPECTIVE, I AM OF THE OPINION THAT A.O SHOULD EXAMINE THE ISSUE AFRESH AND ACCEPT THE TRANSACTIONS IN TRADING PORTFOLIO AS SUCH AFTER DUE VERIFICATION, PARTICULARLY ON THE STAND TAKEN BY ASSESSEE THAT THESE TRANSACTIONS WERE ALSO REFLECTED AS SUCH IN EARLIER YEARS. A.O IS ALSO DIRECTED TO KEEP THE RECENT BOARD CIRCULAR IN MIND RELIED UPON BY THE LD. COUNSEL IN THE COURSE OF ARGUMENT TO DETERMINE THE NATURE OF TRANSACTIONS. WITH THESE DIRECTIONS THE IMPUGNED ORDERS OF A.O AND CIT(A) ARE SET ASIDE AND THE GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL FILED BY ASSESSEE IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2018. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST JULY, 2018. KRK 1) AGNI ENTERPRISES PVT LTD. C/O P. MURALI & CO. CAS, 6-3- 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2) DY. CIT, CIRCLE 1(1) HYDERABAD. 3) CIT(A) -1, HYDERABAD. 4) THE ADDL. CIT, RANGE-1, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6) GUARD FILE