ITO, Ward - 6(1), Kolkata, Kolkata V. M/s. CFL Capital Financial Services Ltd., Kolkata

ITA 1009/KOL/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0988 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-07-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 15-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MD USMAN
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B, KOLKATA [BEFORE SHRI J.SUDHAKAR REDDY, AM & SHRI S.S. VISWANETHRA RAVI, JM ] I.T.A. NO. 1009/KOL/2011 ASSESSMENT YEAR 2004-05 INCOME TAX OFFICER..............................APPELLANT WARD 6(1), KOLKATA P-7, CHOWRINGHEE SQUARE, 6 TH FLOOR, KOLKATA 700069. M/S. CFL CAPITAL FINANCE SERVICES LTD....................RESPONDENT N.S. ROAD, KOLKATA 700 001 [PAN: AABCC0704F] I.T.A. NO. 862/KOL/2011 ASSESSMENT YEAR 2004-05 M/S. CFL CAPITAL FINANCE SERVICES LTD....................RESPONDENT N.S. ROAD, KOLKATA 700 001 [PAN: AABCC0704F] INCOME TAX OFFICER..............................APPELLANT WARD 6(1), KOLKATA P-7, CHOWRINGHEE SQUARE, 6 TH FLOOR, KOLKATA 700069. APPEARANCES BY: MD. USMAN, CIT (DR) APPEARING ON BEHALF OF THE REVENUE. NONE APPEARING ON BEHALF OF THE ASSESSEE. DATE OF CONCLUDING THE HEARING : OCTOBER 31, 2017 DATE OF PRONOUNCING THE ORDER : NOVEMBER 17, 2017 ORDER SHRI J. SUDHAKAR REDDY, AM THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) VI, KOLKATA DATED 24.03.2011 TO THE ASSESSMENT YEAR 2004-05. 2 I.T.A. NOS. 1009 & 862/KOL/2011 CFL CAPITAL FINANCIAL SERVICES LTD. 2. THESE APPEALS WERE FILED IN THE YEAR 2011. THOUGH NOTICES HAVE BEEN ISSUE THROUGH RPAD AS WELL AS THROUGH THE DEPARTMENT FIXING THE HEARING ON VARIOUS DATES FOR THE LAST SIX YEARS, NONE APPEARED ON BEHALF OF THE ASSESSEE NOR THERE WAS AN APPLICATION FOR ADJOURNMENT. FROM THE YEAR 2015, NOTICES ARE BEING ISSUED AND SERVED ON THE OFFICIAL LIQUIDATOR. THERE IS NO RESPONSE WHATSOEVER. UNDER THESE CIRCUMSTANCES, WE HAVE NO OTHER ALTERNATIVE BUT TO DISPOSE OF THIS CASE EX-PARTE, ON MERITS, AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. DELAY CONDONED. 3. THE ASSESSEE IS A NON-BANKING FINANCE COMPANY ENGAGED IN THE BUSINESS OF LEASING. IT FILED ITS RETURN OF INCOME ON 01.11.2004 DECLARING A TOTAL INCOME OF RS. 4,28,99,760/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) ON 22.12.2006 DETERMINING THE TOTAL INCOME AT RS. 4,35,48,572/-, INTER ALIA, MAKING ADDITION ON ACCOUNT OF DISALLOWANCE OF LOSS IN SHARE TRADING ETC. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL, THE LD. CIT (A) GRANTED PART RELIEF. AT THE SAME TIME HE ENHANCED THE ASSESSMENT BY USING ITS CO-TERMINUS POWERS WITH THAT OF THE A.O. HE DELETED THE ADDITION MADE BY THE A.O. BY UPHOLDING THE CONTENTION OF THE ASSESSEE THAT IT HAS NO LONG TERM CAPITAL GAINS BUT MADE AN ADDITION UNDER SECTION 28(IV). AGGRIEVED BOTH THE PARTIES ARE IN APPEAL. 4. WE HAVE HEARD MD. USMAN, LD. CIT DR ON BEHALF OF THE REVENUE. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE LD. CIT (A) HAS ERRED IN GIVING TO A CONCLUSION AT PARA 6.3 OF HIS ORDER THAT, THE ASSESSEE IS COVERED BY THE SECOND EXCEPTION GIVEN IN EXPLANATION TO 3 I.T.A. NOS. 1009 & 862/KOL/2011 CFL CAPITAL FINANCIAL SERVICES LTD. SECTION 73 OF THE INCOME TAX ACT 1961 (ACT). HE SUBMITTED THAT THE ASSESSEE IS NOT IN THE PRINCIPAL BUSINESS OF GRANTING LOANS AND ADVANCES. HE ARGUED THAT THE DEPLOYMENT OF FUNDS MADE BY THE ASSESSEE DURING THE YEAR DOES NOT SUPPORT THE CONCLUSION DRAWN BY THE LD. CIT (A). HE REQUESTED THAT THIS DECISION OF THE CIT(A) BE REVERSED AND THE APPEAL OF THE REVENUE ALLOWED. 5. AFTER HEARING RIVAL SUBMISSIONS, WE FIND THAT THE FIRST APPELLATE AUTHORITY AT PARA 6.3 HELD AS FOLLOWS: I HAVE CONSIDERED THE ABOVE SUBMISSION OF LD. A.R. FROM THIS SUBMISSION IT CAN BE SEEN THAT LD. A.R. HAS HIMSELF ACCEPTED THAT THE ASSESSEE WAS NOT COVERED BY THE FIRST EXCEPTION GIVEN IN THE EXPLANATION TO SECTION 73. NOW WE HAVE TO CONSIDER WHETHER THE ASSESSEE WAS COVERED BY THE SECOND EXCEPTION GIVEN IN THE EXPLANATION TO SECTION 73 OR NOT. IT IS SEEN THAT THE SAID SECOND EXCEPTION PROVIDES THAT IF THE PRINCIPAL BUSINESS OF THE ASSESSEE COMPANY IS GRANTING OF LOANS AND ADVANCES OR BANKING THEN SUCH COMPANY WILL NOT BE COVERED BY THE PROVISIONS OF EXPLANATION TO SECTION 73. IN THE CASE OF THE ASSESSEE THIS ISSUE SHOULD BE DECIDED BY EXAMINING THE DEPLOYMENT OF FUNDS IN VARIOUS TYPES OF ACTIVITIES DURING THE CURRENT YEAR AND A FEW PREVIOUS YEARS TO GIVE AN IDEA AS TO WHAT IS THE NATURE OF MAIN ACTIVITIES OF THE ASSESSEE. FOR THIS PURPOSE THE DEPLOYMENT OF FUNDS DURING LAST FOUR YEARS MAY BE EXAMINED WHICH IS AS FOLLOWS: A.Y. 2001-02 A.Y. 2002-03 AY 2003-04 AY 2004-05 FUNDS DEPLOYED IN 473,243,465 226,767,407 202,999,760 626,098 STOCK OF SHARES 868,338,051 733,557,626 618,687,249 3,345,583 HIRE PURCHASE STOCK 214,979,697 140,951,726 19,257,839 0 LOANS AND ADVANCES 1,031,954,317 258,663,730 161,690,478 208,319,7885 FROM THE ABOVE DEPLOYMENT IT CAN BE SEEN THAT THE FUNDS DEPLOYED IN LEASED ASSETS, HIGHER PURCHASE STOCK AND LOANS AND ADVANCES ARE HIGHER THAN THE FUNDS DEPLOYED IN STOCK OF SHARES DURING THE CURRENT YEAR AND ALSO PRECEDING YEARS. LD. A.R. OF THE ASSESSEE HAS CLAIMED THAT HIRE PURCHASE AND LEASING OF ASSETS IS ALSO A FINANCING ACTIVITY. I AGREE WITH THIS 4 I.T.A. NOS. 1009 & 862/KOL/2011 CFL CAPITAL FINANCIAL SERVICES LTD. CLAIM AND THEREFORE IT CAN BE SEEN THAT THE FUNDS DEPLOYED IN LEASING, HIRE PURCHASE AND GIVING OF LOANS AND ADVANCES ACTIVITIES ARE MORE THAN THE FUNDS DEPLOYED IN SHARES. SINCE A SUBSTANTIAL PORTION OF THE FUNDS OF THE ASSESSEE ARE DEPLOYED IN FINANCING ACTIVITIES THEREFORE IT CAN BE SAID THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS GRANTING OF LOANS AND ADVANCES. THEREFORE, THE ASSESSEE IS COVERED BY THE SECOND EXCEPTION GIVEN IN EXPLANATION TO SECTION 73. HENCE PROVISIONS OF EXPLANATION TO SECTION 73 WILL NOT APPLY TO THE ASSESSEE AND THE SHARE TRADING LOSS OF RS. 17,47,82,119/- CANNOT BE TREATED AS LOSS FROM SPECULATION BUSINESS. 6. THE ARGUMENT OF THE LEARNED DR THAT THE LD. CIT (A) HAS ERRED IN COMING TO A CONCLUSION THAT SUBSTANTIAL BUSINESS OF THE ASSESSEE IS LENDING IS WRONG FOR THE REASON THAT THE STOCK OF SHARES HELD BY THE COMPANY DISCLOSED SCHEDULE 6 TO THE BALANCE SHEET WAS NOT CONSIDERED IN THIS CALCULATION. THE ASSESSEE HAS DISCLOSED THAT UNDER SCHEDULE 5 TO THE BALANCE THAT THE AMOUNTS DEPLOYED IN SHARES OF STOCK IN INVESTMENTS IS RS. 49,90,35,262/- FOR THE YEAR ENDING 31 ST MARCH, 2004 AND RS. 54,83,16,854/- FOR THE YEAR ENDING 31 ST MARCH, 2003. IN SCHEDULE 6 TO THE BALANCE SHEET, THE ASSESSEE DISCLOSED STOCK OF SHARE ETC. RS. 3,90,31,984/- FOR THE YEAR ENDED 31.03.2004 AND RS. 24,31,96,343/- FOR YEAR ENDED 31.03.2003 7. THE LD. CIT (A) HAS CONSIDERED ONLY THE STOCK OF SHARES IN SCHEDULE 6, WHICH IS HELD AS CURRENT ASSET, WHILE EXAMINING THE DEPLOYMENT OF FUNDS THE INVESTMENT OF SHARES DISCLOSED IN SCHEDULE 5 HAVE TO BE CONSIDERED AS PER THE LD. CIT DR. 8. BE IT AS IT MAY, THE INCOME FROM LEASED ASSETS AND THE DEPLOYMENT OF FUNDS, APPEARED TO BE MORE THAN 20% OF THE TOTAL INCOME. IT IS ALSO FOUND THAT THE ASSESSEE IS A REGISTERED NBFC AND IS IN THE REGULAR BUSINESS OF ADVANCEMENT LOANS IN ITS NORMAL COURSE OF 5 I.T.A. NOS. 1009 & 862/KOL/2011 CFL CAPITAL FINANCIAL SERVICES LTD. BUSINESS. WE HAVE NO ASSISTANCE FROM THE ASSESSEE. HENCE WE DO NOT EXPRESS ANY OPINION ON THIS ISSUE. IN ANY EVENT THE SUBMISSIONS OF THE LD. CIT DR HAVE FORCE. THE A.O. HAS TO CONSIDER THEM AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY. 9. UNDER THESE CIRCUMSTANCES, IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE SHOULD BE RESTORED THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 862/KOL/2011 10. THE ASSESSEE HAS TAKEN TOTAL NINE GROUNDS OF APPEAL. THE SOLE ISSUE IN ALL THE GROUNDS RELATE TO THE ENHANCEMENT OF INCOME MADE BY THE LD. CIT (A). THE CIT (A), IN THIS CASE HAS ENHANCED THE ASSESSMENT WITHOUT GIVING NOTICE OF ENHANCEMENT OF ASSESSEE. THE ENHANCEMENT IN THIS CASE WAS IN RELATION TO A SOURCE OF INCOME WHICH IS NOT CONSIDERED BY THE ASSESSING OFFICER. IT IS WELL SETTLED THAT NO SUCH ENHANCEMENT CAN BE MADE BY THE LD. CIT (A) WITHOUT GIVING A NOTICE OF ENHANCEMENT. WE RELY ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SHAPOORJI PALLONJI MISTRY 44 ITR 891 (SC). HENCE THE ENHANCEMENT IS BAD IN LAW. HENCE WE ALLOW THIS APPEAL OF THE ASSESSEE. 6 I.T.A. NOS. 1009 & 862/KOL/2011 CFL CAPITAL FINANCIAL SERVICES LTD. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS SET ASIDE FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH NOVEMBER, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (J. SUDHAKAR REDDY) (JUDICIAL MEMBER) ACCOUNTANT MEMBER DATED: 17/11/2017 BISWAJIT, SR. P.S. COPY OF ORDER FORWARDED TO: 1. M/S. CFL CAPITAL FINANCE SERVICES LTD., 81, N.S. ROAD, KOLKATA 700 001. 2. I.T.O. WARD 6(1), P-7, CHOWRINGHEE SQUARE, 6 TH FLOOR, KOLKATA 700 069 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA