Ratna Commercial Enterprises Pvt. Ltd., New Delhi V. ADIT, New Delhi

ITA 1132/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7267 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 28-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: CHANDAN AGARWAL
• Keywords: Business income; Opportunity of being heard; Revenue expenditure; Capital Gains
• Section: 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHARY, JUDICIAL MEMBER ITA NO.1132/DEL/2017 ASSESSMENT YEAR: 2011-12 RATNA COMMERCIAL ENTERPRISES PVT LTD. 4 TH FLOOR, PUNJABI BHAWAN, 10, ROUSE, AVENUE, NEW DELHI-110002 VS. ADIT RANGE-21 NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. CHANDAN AGARWAL, CA RESPONDENT BY SH. GAYASUDDIN ANSARI, SR. DR. DATE OF HEARING: 28/01/2020 DATE OF PRONOUNCEMENT: 31/01/2020 ORDER PER R.K PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 21.12.2016 OF THE CIT(A)-7, NEW DELHI R ELATING TO A.Y.2011-12. 2. ALTHOUGH A NUMBER OF GROUNDS HAVE BEEN RAISED BY THE ASSESSEE, THESE ALL RELATE TO THE ORDER OF THE CIT( A) IN CONFIRMING THE ACTION OF THE AO IN TREATING THE SHORT TERM CAP ITAL GAIN OF PAGE | 2 RS.93,08,807/- AS BUSINESS INCOME AND FURTHER UPHOL DING THE DISALLOWANCE OF EXPENDITURE OF RS.2,62,097/- ON ACC OUNT OF FEES PAID FOR INCREASE IN CAPITAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY AND ENGAGED IN THE BUSINESS OF FINANCIAL SE RVICES AS NBFC AND INVESTING IN SHARES AND MUTUAL FUNDS. IT F ILED ITS RETURN OF INCOME ON 29.09.2011 DECLARING TOTAL INCO ME OF RS.16,45,48,570/- UNDER NORMAL PROVISION AND BOOK P ROFIT OF RS.14,56,29,065/- U/S. 115 JB. THE ASSESSEE REVISE D ITS RETURN OF INCOME ON 27.09.2012 DECLARING TOTAL INCOME OF RS.14,08,02,104/-. THE AO DURING THE COURSE OF ASS ESSMENT PROCEEDINGS NOTED THAT WHILE COMPUTING THE INCOME T HE ASSESSEE HAS NOT DISALLOWED THE EXPENSES INCURRED ON INCREAS E IN AUTHORIZED CAPITAL INCLUDING FILING FEE PAID TO THE ROC. APPLYING THE PROVISIONS OF SECTION 35D AND RELYING ON VARIOU S DECISIONS THE AO DISALLOWED THE AMOUNT OF RS.2,67,847/- CLAIMED B Y THE ASSESSEE AS REVENUE EXPENDITURE ON ACCOUNT OF FILIN G FEES PAID TO ROC FOR INCREASE IN THE SHARE CAPITAL. 4. THE AO FURTHER NOTED THAT THE ASSESSEE HAS TREAT ED THE PROFIT FROM SHARE TRANSACTIONS AMOUNTING TO RS. 93, 08,807/- AS SHORT TERM CAPITAL GAIN. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE HE NOTED THAT THE ASSESSEE IS CATEGORI ZING SOME SHARES AS INVESTMENT WHILE SOME OTHER SCRIPS HAVE B EEN TREATED AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT. HE NOTED THAT THE ASSESSEE IS MAINTAINING COMMON ACCOUNTING SYSTEM FO R BOTH THE PAGE | 3 TRADING AND INVESTMENT PORTFOLIOS AND IS SHOWING IN COME FROM TRADING IN SHARES AS WELL AS CAPITAL GAINS ON TRANS FER OF SHARES. HE NOTED THAT NONE OF THE SHARES WHICH ARE PART OF THE TABLE OF COMPUTATION OF SHORT TERM CAPITAL GAIN WERE IN THE OPENING STOCK OF SHARES. ALSO, NONE WERE IN THE CLOSING BALANCE O F INVESTMENTS. THESE WERE, THEREFORE, INTRA YEAR STOCK TRANSACTION S WHICH WERE CARRIED OUT IN THE REGULAR COURSE OF BUSINESS BY TH E ASSESSEE WITH THE MOTIVE TO HARVEST THE CAPITAL APPRECIATION RESU LTING FROM INCREASE IN THE STOCK PRICES. REJECTING THE EXPLAN ATION GIVEN BY THE ASSESSEE, THE AO TREATED THE PROFIT ON SALE OF SHARES AS BUSINESS INCOME AS AGAINST SHORT TERM CAPITAL GAIN TREATED BY THE ASSESSEE. 5. IN APPEAL THE LD. CIT(A) SUSTAINED BOTH THE ADDI TIONS MADE BY THE AO. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. SO FAR AS THE DISALLOWANCE OF RS.2,62,097/- ON A CCOUNT OF FEES PAID FOR INCREASE IN SHARE CAPITAL IS CONCERNE D, THE LD. COUNSEL FOR THE ASSESSEE DID NOT MAKE ANY ARGUMENT. THEREFORE, THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS DISMISSED. 8. SO FAR AS THE TREATMENT OF SHORT TERM CAPITAL GA IN OF RS.93,08,807/- AS BUSINESS INCOME IS CONCERNED THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF T HE CIT(A). HE SUBMITTED THAT BOTH THE LOWER AUTHORITIES HAVE ERRO NEOUSLY RECORDED THE FACTS AND THEREBY MADE THE DISALLOWANC E. HE PAGE | 4 SUBMITTED THAT OUT OF 72 TRANSACTIONS ON ACCOUNT OF SALE OF SHARES 41 TRANSACTIONS HAVE OPENING BALANCES AND WHATEVER SHARES HAVE BEEN PURCHASED DURING THE YEAR HAVE NOT BEEN SOLD B Y THE ASSESSEE. THE AVERAGE PERIOD OF HOLDING OF SHARES I S 156 DAYS AND ASSESSEE IS MAINTAINING SEPARATE SET OF BOOKS OF AC COUNTS FOR INVESTMENTS MADE AND STOCK-IN-TRADE. THE ASSESSEE H AS MADE INVESTMENT AND TRADED ONLY IN MUTUAL FUNDS AND NOT IN SHARES. THE ASSESSEE HAS PAID SECURITY TRANSACTION TAX ON A LL PURCHASES. FURTHER THE REVENUE AUTHORITIES IN THE PRECEDING YE ARS AS WELL AS IN SUCCEEDING YEARS HAVE ACCEPTED CAPITAL GAIN U/S. 45 OF THE IT ACT. HE SUBMITTED THAT IN THE PRECEDING YEARS THE A O HAS ACCEPTED THE SHORT TERM CAPITAL GAIN AND IN THE SUB SEQUENT YEARS ALSO THE SHORT TERM CAPITAL GAIN HAS BEEN ACCEPTED, THEREFORE, FOR THE IMPUGNED ASSESSMENT YEAR TREATING THE SHORT TER M CAPITAL GAIN AS BUSINESS INCOME IS NOT JUSTIFIED. THE LD. COUNSEL FOR THE ASSESSEE ALSO FILED THE FOLLOWING TABLE TO SUBSTANT IATE THE ABOVE PROPOSITION: RATNA COMMERCIAL ENTERPRISES P LTD AY 2011-12 SI.NO AY PARTICULARS REMARKS 1 2012-13 AO ACCEPTS LTCG COPIES OF RETRUN, COMPUTATION AND ASSESSMENT,ORDER ATTACHED 2 2011-12 CI RA AND A - J ACCEPTS LTCG COPIES OF RETRUN, COMPUTATION ANA ASSESSMENT ORDER ATTACHED 3 2010-11 AO ACCEPTS CAPITAL GAINS U/S 45 COPIES OF RETRUN, COMPUTATION AND ASSESSMENT ORDER ATTACHED 4 2009-10 AO ACCEPTS CAPITAL GAINS U/S 45 COPIES OF RETRUN, COMPUTATION AND ASSESSMENT ORDER ATTACHED PAGE | 5 5 2008-9 CITA ACCEPTS CAPITAL GAINS U/S 45 CIT(A) ORDER ATTACHED 6 2007-8 CITA- XVIII ACCEPTS CAPITAL GAINS U/S 45 CIT(A) ORDER ATTACHED 7 2006-7 CITA-XVIII, ACCEPTS CAPITAL GAINS U/S 45 CIT(A) ORDER ATTACHED CASE LAW 1 2008-9/ 2010 GYAN ENTERPRISES P LTD - ITA NO 4149/2013 AND ITA N O 11 6116/2014 9. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. GYAN ENTERPRISES (P) LTD. VS. DCIT AND IN ITA NO.6116/DE L/2014 ORDER DATED 19.10.2015 IN A.Y.2008-09 AND 2010-11 RESPECT IVELY. 10. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE TOTAL INVESTMENTS MADE BY THE ASSESSEE IS RS.12 3 CRORES AND HOLDS INVENTORY OF ABOUT RS.11 CRORES AND HAS NOT E VEN DONE SALE/ PURCHASE OF 5% OF THE TOTAL INVESTMENT DURING THE YEAR. 11. THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE AO AND THE CIT(A). HE SUBMITTED THAT THE LD. CI T(A) HAS GIVEN VALID REASONS WHILE UPHOLDING THE ACTION OF THE AO IN TREATING SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. HE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F RAJA BAHADUR VISHESHWARA SINGH VS. CIT REPORTED IN 41 IT R 685 WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE PR ESENT CASE. FURTHER THE ASSESSEE HAS BEEN REGULARLY TRADING IN SHARES AND, THEREFORE, THERE IS NO JUSTIFICATION FOR TREATING T HE TRANSACTIONS AS DISPOSAL OF INVESTMENT AND THE AO HAS CORRECTLY TAX ED THE SAME PAGE | 6 AS REGULAR BUSINESS INCOME OF THE ASSESSEE. HE ACC ORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AN D THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE BE DISMISSED. 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO IN THE INSTANT CASE TREATED THE SHORT TERM CAPITAL GAIN OF RS.93,0 8,807/- AS BUSINESS INCOME. WE FIND THE LD. CIT(A) RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJA BAHADU R (SUPRA) UPHELD THE ACTION OF THE AO. WHILE DOING SO HE FURT HER NOTED THAT MERELY BECAUSE THE VOLUME OF TRANSACTIONS IN SHARE TRADING IS LIMITED THE SAME DOES NOT CHANGE THE CHARACTER OF T HE TRANSACTION FROM TRADING TO INVESTMENT. ACCORDING TO HIM, THERE IS NO MATERIAL TO SHOW THAT SHARES AND SECURITY PURCHASED IN THE Y EAR UNDER CONSIDERATION AND CLASSIFIED AS INVESTMENT IN BOOKS WERE ACTUALLY INTENDED TO BE LONG TERM INVESTMENT. ACCORDING TO H IM BESIDES SALE OF SHARES SHOWN AS INVESTMENT ON THE FIRST DAY OF THE ACCOUNTING YEAR, THE ASSESSEE HAS ALSO TRADED IN QU OTED SHARES DURING THE YEAR PART OF WHICH HAS BEEN DISCLOSED AS BUSINESS INCOME. THE ASSESSEE IS REGULARLY TRADING IN SHARES OVER THE YEARS AND, THEREFORE, THERE IS NO JUSTIFICATION FOR TREAT ING THE TRANSACTION AS DISPOSAL OF INVESTMENTS. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT OUT OF 72 TRANSACTION S 41 TRANSACTIONS RELATE TO TRANSACTIONS OUT OF OPENING STOCK AND WHATEVER SHARES HAVE BEEN PURCHASED DURING THE YEAR HAVE NOT BEEN SOLD. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE PAGE | 7 THAT IT TRADES ONLY IN MUTUAL FUNDS AND NOT IN SHAR ES. FURTHER THE ASSESSEE HAS ALSO PAID SECURITY TRANSACTION TAX ON ALL THE SHARES THAT HAVE BEEN PURCHASED. SINCE THE ABOVE SUBMISSIO NS OF THE LD. COUNSEL FOR THE ASSESSEE IS CONTRARY TO THE FIN DINGS GIVEN BY THE LOWER AUTHORITIES, THEREFORE, CONSIDERING THE T OTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRE CTION TO ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE SUB MISSIONS MADE BY THE ASSESSEE. THE AO SHALL DECIDE THE ISSUE AS P ER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WHILE DOING SO HE IS ALSO DIRECTED TO EXAMINE THE TREATME NT GIVEN BY HIM IN THE PRECEDING AND SUBSEQUENT YEAR ON SIMILAR TRANSACTIONS CARRIED ON BY THE ASSESSEE. WE HOLD AND DIRECT ACCO RDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLO WED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.01.2020. SD/- SD/- (N. K. CHOUDHARY) (R.K PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER *NEHA* DATE:- 31.01.2020 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI PAGE | 8 DATE OF DICTATION 28.01.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 29.01.2020 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS 31.01.2020 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 31.01.2020 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 31.01.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 31.01.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.01.2020 DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER