M/s. Indian Syntans Investments Pvt.Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1112/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64328 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR STAND ING
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Business income; Cost of acquisition; Difference of opinion
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1112(MDS)/2012 ASSESSMENT YEAR : 2007-08 M/S.INDIAN SYNTANS INVESTMENTS PVT. LTD., NO.12, THIRD MAIN ROAD, KASTURBA NAGAR, ADYAR, CHENNAI-600 020. PAN AAACI1775K. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE II(3), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.RAMAKRISHNAN, FCA RESPONDENT BY : SHRI KEB RENGARAJAN, JR.STAN DING COUNSEL DATE OF HEARING : 20 TH SEPTEMBER, 2012 DATE OF PRONOUNCEMENT : 21 ST SEPTEMBER, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX-I AT CHENNAI. THE REVISION ORDER HAS BEEN PASSED ON 30 -3-2012 UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961. - - ITA 1112 OF 2012 2 2. THE ASSESSEE IS AN INVESTMENT COMPANY ENGAGED IN THE BUSINESS OF INVESTING AND ALSO TRADING IN SH ARES AND SECURITIES. ACCORDING TO THE ASSESSEE, SECURITIES PURCHASED AS INVESTMENTS ARE HELD AS INVESTMENTS IN ITS BOOKS OF ACCOUNT AND THE SECURITIES PURCHASED FOR TRADING PURPOSES ARE A CCOUNTED AS STOCK IN TRADE. IT IS THE CASE OF THE ASSESSEE THA T SEPARATE FOLIOS HAVE BEEN MAINTAINED FOR ALL THESE MATTERS IN ITS B OOKS OF ACCOUNT. 3. THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR WAS COMPLETED UNDER SECTION 143(3), DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT ` 2,95,54,662/-. 4. THEREAFTER, ON PERUSAL OF THE RECORDS OF THE CA SE, THE COMMISSIONER OF INCOME-TAX FOUND THAT THE ASSES SMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER AND REMANDED THE CASE TO THE ASSESSING OFFICER TO EXAMI NE THE POINTS RAISED BY THE COMMISSIONER OF INCOME-TAX AND PASS A FRESH ORDER IN ACCORDANCE WITH LAW. 5. IT IS AGAINST THE ABOVE THAT THE ASSESSEE HAS C OME IN APPEAL BEFORE US. - - ITA 1112 OF 2012 3 6. WE HEARD SHRI B.RAMAKRISHNAN, THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE AND SHRI K.E.B.RENGARAJAN, THE LEARNED STANDING COUNSEL APPE ARING FOR THE REVENUE. 7. THE FIRST PROPOSITION OF ERROR MADE OUT BY THE COMMISSIONER OF INCOME-TAX IS THAT AGAINST A PROFIT OF ` 1,35,91,367/- SHOWN BY THE ASSESSEE BY WAY OF TRAD ING ON SECURITIES, THE ULTIMATE BUSINESS INCOME WAS BROUGH T DOWN TO ` 6,58,447/-. ACCORDING TO THE COMMISSIONER OF INCO ME-TAX, THIS POSITION SHOWED THAT THE CAPITAL LOSS ON SALE OF IN VESTMENTS IS ADJUSTED BY THE ASSESSEE AGAINST THE BUSINESS PROFI TS OF THE YEAR. 8. ANOTHER GROUND POINTED OUT BY THE COMMISSIONER OF INCOME-TAX TO REVISE THE ASSESSMENT ORDER IS THAT T HE ASSESSEE HAS CLAIMED EXEMPTION FROM LONG TERM CAPITAL GAINS FOR AN AMOUNT OF ` 29,70,04,740/- UNDER SECTION 10(38) OF THE ACT. B UT, AT THE SAME TIME, THE COST OF ACQUISITION OF SHARES WAS COMPUTED WITHOUT TAKING INTO CONSIDERATION THE COST OF IMPRO VEMENT. THE ISSUE OF COST OF IMPROVEMENT WAS SPECIFICALLY MENTI ONED BY THE - - ITA 1112 OF 2012 4 COMMISSIONER OF INCOME-TAX FOR THE REASON THAT THOS E SHARES WERE EARLIER HELD BY THE ASSESSEE AS STOCK IN TRADE . 9. ANOTHER POINT MADE OUT BY THE COMMISSIONER OF INCOME-TAX IS THAT THE ASSESSING OFFICER HAS NOT PR OPERLY CONSIDERED THE ISSUE OF VARIOUS EXPENDITURE INCURRE D FOR EARNING TAX-FREE INCOME WHILE APPLYING THE PROVISIONS OF SE CTION 14A OF THE ACT. ACCORDING TO THE COMMISSIONER OF INCOME-T AX THE DISALLOWANCE OF ` 3,56,278/- WAS NOT SUFFICIENT. 10. WE HEARD BOTH SIDES IN DETAIL AND PERUSED THE RECORDS OF THE CASE. THE ASSESSEE HAS MAINTAINED P ROPER BOOKS OF ACCOUNT REGARDING ITS DIFFERENT SETS OF TRANSACT IONS. AS ALREADY STATED, THE ASSESSEE IS AN INVESTMENT COMPANY AS WE LL AS A TRADING COMPANY. ALL THE ACTIVITIES ARE WITH REFER ENCE TO SHARES AND SECURITIES. WHEREVER THE ASSESSEE HAS PROCURED SHARES AND SECURITIES FOR THE PURPOSE OF INVESTMENT, SUCH PURCHASES HAVE BEEN CLASSIFIED AS INVESTMENTS AND REFLECTED I N THE BOOKS OF ACCOUNT. WHEREVER THE ASSESSEE HAS PURCHASED SH ARES AND SECURITIES FOR THE PURPOSE OF ITS TRADING BUSINESS, THOSE PURCHASES HAVE BEEN SHOWN IN THE BOOKS OF ACCOUNT A S STOCK IN TRADE. - - ITA 1112 OF 2012 5 11. THERE IS NO COMPLAINT EITHER FROM THE ASSESSIN G OFFICER OR FROM THE COMMISSIONER OF INCOME-TAX REGA RDING THE ABOVE PATTERN OF BOOK KEEPING FOLLOWED BY THE ASSES SEE CONSISTENTLY SINCE SO MANY YEARS IN THE PAST. THER E IS ALSO NO CASE THAT THERE IS ANY UNDERSTATEMENT OR OVERSTATEM ENT OF CONSIDERATION EITHER AT THE TIME OF PURCHASE OR SAL E OF SHARES AS TRADING STOCK AS WELL AS INVESTMENTS. THERE IS ALS O NO CASE THAT THERE IS ANY MISTAKE IN THE VALUATION OF STOCKS OF SHARES FROM YEAR TO YEAR. 12. LET US EXAMINE THE DEFECTS POINTED OUT BY THE COMMISSIONER OF INCOME-TAX IN HIS REVISION ORDER IN THE ABOVE BACKGROUND. 13. THE FIRST POINT MADE OUT BY THE COMMISSIONER O F INCOME-TAX IS THAT THE TRADING PROFIT OF ` 1,35,91,367/- HAS BEEN REDUCED TO ` 6,58,447/-, AT THE FINAL TAXABLE POINT. THE COMMISSIONER OF INCOME-TAX SAYS THAT THIS IS A CASE WHERE THE ASSESSEE HAS ADJUSTED CAPITAL LOSS ON SALE OF INVES TMENTS AGAINST BUSINESS PROFIT. BUT, INTERESTINGLY, NOT A SINGLE INSTANCE HAS BEEN POINTED OUT BY THE COMMISSIONER OF INCOME- TAX TO SUBSTANTIATE HIS ALLEGATION. IT IS ALSO FOUND THAT THE AUTHORITIES - - ITA 1112 OF 2012 6 BELOW HAVE NO CASE AGAINST THE METHOD OF BOOK KEEPI NG EMPLOYED BY THE ASSESSEE. THE ASSESSEE IS CLASSIFY ING ALL ITS ASSETS NATURE-WISE; SO THERE IS NO QUESTION OF ANY INTERMINGLING OR INTERLACING OF DIFFERENT SETS OF ASSETS AND ULTI MATELY MISLEADING THE BUSINESS RESULTS. IF AT ALL THERE COULD BE SUC H A CASE, THE COMMISSIONER OF INCOME-TAX SHOULD HAVE POINTED OUT ATLEAST ONE INSTANCE. WE FIND THAT THE ABOVE PRESUMPTION OF THE COMMISSIONER OF INCOME-TAX IS WITHOUT ANY BASIS. O N THE OTHER HAND, THE INCOME UNDER DIFFERENT HEADS HAVE BEEN CA TEGORICALLY STATED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME AND ALL THE ADJUSTMENTS HAVE BEEN REFLECTED IN THE COMPUTATION SHEET ITSELF AND, THEREFORE, THERE IS NO CONFUSION IN ARRIVING A T THE ULTIMATE FIGURE WORKED OUT FOR THE PURPOSE OF TAXATION. WE DO NOT FIND THAT THE ABOVE STATED REASON IS ANYWAY JUSTIFIED TO INIT IATE REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT. 14. THE NEXT POINT MADE OUT BY THE COMMISSIONER OF INCOME-TAX IS THAT WHILE CLAIMING THE EXEMPTION UND ER SECTION 10(38) ON LONG-TERM CAPITAL GAINS ON SALE OF SHARES , THE ASSESSEE HAS REDUCED THE SALE CONSIDERATION BY INCR EASING THE COST OF IMPROVEMENT. WE DO NOT UNDERSTAND AS TO WH AT WOULD BE - - ITA 1112 OF 2012 7 THE IMPROVEMENT THAT COULD HAVE BEEN MADE BY THE AS SESSEE TO THE STOCKS AND SHARES HELD BY THE ASSESSEE, SO AS T O THINK OVER THE COST OF IMPROVEMENT. IT IS VERY DIFFICULT TO C ONCEIVE A SITUATION WHERE AN ASSESSEE CAN INCUR COST ON THE IMPROVEMENT MADE ON SHARES AND SECURITIES. 15. MOREOVER, THERE IS NO DOUBT THAT THE LONG-TERM CAPITAL GAINS ACCOUNTED IN THE HANDS OF THE ASSESSE E COMPANY ARE EXEMPT FROM TAXATION BY VIRTUE OF SECTION 10(38 ). WHEN THE REVENUE HAS NO CASE AGAINST THIS CLAIM OF EXEMPTION , THE ANXIETY OF THE COMMISSIONER OF INCOME-TAX REGARDING THE QUANTUM COMPUTATION OF LONG-TERM CAPITAL GAINS IS O NLY ACADEMIC. IT IS NOT AT ALL PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. IT IS TO BE SEEN THAT AN ORDER CAN BE REV ISED ONLY IF THE ORDER IS BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. 16. THEREFORE, WE FIND THAT THIS REASON ALSO IS NO T SUFFICIENT TO UNSETTLE AN ASSESSMENT COMPLETED UNDE R SECTION 143(3) OF THE INCOME-TAX ACT, 1961. - - ITA 1112 OF 2012 8 17. THE ARGUMENT OF THE COMMISSIONER OF INCOME-TAX ON THE QUESTION OF STT PAYMENT AND DEDUCTION UNDER SECTION 80E DOES NOT CARRY ANY CONVICTION. 18. REGARDING SECTION 14A MATTER, THE ASSESSEE HAS ALREADY DISALLOWED ` 3,56,278/-. THE IMPUGNED ASSESSMENT YEAR IS 2007-08. RULE 8D IS NOT APPLICABLE. IN SU CH CIRCUMSTANCES, A REASONABLE DISALLOWANCE OF ` 3,56,278/- IS JUSTIFIED. ANY DISPUTE ON THIS POINT COULD BE VIEW ED ONLY AS A DIFFERENCE OF OPINION. THE SAME CANNOT BE A REASON TO HOLD AN ASSESSMENT ORDER ERRONEOUS. 19. ANOTHER ISSUE POINTED OUT BY THE COMMISSIONER OF INCOME-TAX IS THAT THE DETAILS OF THE SHARES TRANSA CTED BY THE ASSESSEE, BOTH ON SHORT-TERM AND LONG-TERM ACCOUNTS , HAVE NOT BEEN PROPERLY EXAMINED BY THE ASSESSING OFFICER. W E DO NOT THINK SO. EVEN THOUGH THE ASSESSMENT ORDER IS NOT THAT MUCH A SPEAKING ORDER, A PERUSAL OF THE RECORDS SHOW THAT ALL THE RELEVANT ASPECTS OF THE ASSESSMENT HAVE BEEN CONSID ERED BY THE ASSESSING OFFICER IN A DETAILED MANNER. THE ASSESS ING OFFICER HAS ASKED FOR A NUMBER OF DETAILS FROM THE ASSESSEE , WHICH WERE FURNISHED BY THE ASSESSEE. THE DETAILS OF TRANSACT IONS WERE - - ITA 1112 OF 2012 9 CLOSELY EXAMINED BY THE ASSESSING OFFICER. AS A RE SULT OF SUCH CLOSE EXAMINATION, THE ASSESSING OFFICER HAS COME T O A CONCLUSION THAT THE ASSESSEE HAS ADOPTED THE COST O F ACQUISITION OF SHARES INSTEAD OF THE PRICE OF SHARES ON CONVERS ION DATE IN THE MATTER OF SHARES CONVERTED FROM INVESTMENT INTO STO CK IN TRADE. ON THIS GROUND ITSELF THE ASSESSING OFFICER HAS DIS ALLOWED AND ADDED AN AMOUNT OF ` 54,74,231/-. IN THE LIGHT OF THE ABOVE ADDITION, IT IS NOT POSSIBLE TO HOLD THAT THE ASSES SING OFFICER HAS NOT EXAMINED THE RELEVANT DETAILS BEFORE COMPLETING THE ASSESSMENT. 20. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE COMMISSIONER OF INCOME-TAX HAS REVISED THE ASSESSMENT ORDER ONLY ON THE GROUND OF CERTAIN SUPE RFLUOUS OBSERVATION AND PRESUMPTIONS. THE OBJECTIONS RAISE D BY THE COMMISSIONER, DO NOT MAKE AN ASSESSMENT ORDER ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THERE FORE, WE FIND THAT THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME- TAX IN THE PRESENT CASE IS BAD IN LAW. ACCORDINGLY , THE IMPUGNED REVISION ORDER IS SET ASIDE. - - ITA 1112 OF 2012 10 21. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDERS PRONOUNCED ON FRIDAY, THE 21 ST OF SEPTEMBER, 2012 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 21 ST SEPTEMBER, 2012. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.