ACIT, New Delhi V. M/s. AVB Finance Pvt. Ltd., New Delhi

ITA 1217/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65262 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 18-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SHRI
• Keywords: Capital asset; Business income; Advance ruling; Cost of acquisition; Date of conversion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1217 & 1308/DEL/2010 ASSESSMENT YEAR : 2005-06 & 2006-07 DCIT, M/S AVB FINANCE PVT. LTD., CIRCLE-10 (1), (FORMERLY KNOWN AS DABUR FINANCE LT D.) NEW DELHI. V. 4 TH FLOOR, PUNJAB BHAWAN, 10-ROUSE AVENUE, NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACD AAACD AAACD AAACD- -- -0475 0475 0475 0475- -- -D DD D APPELLANT BY : SHRI SANJAY PANDEY, SR. DR. RESPONDENT BY : SHRI PANKAJ JAIN & SHRI GURJEET SINGH, C.A. ORDER PER TS KAPOOR, AM: THESE ARE TWO APPEALS FILED BY REVENUE AGAINST TWO SEPA RATE ORDERS OF LD CIT(A) DATED 12.11.2009 & 12.11.2010 RE LATING TO ASSESSMENT YEAR 2005-06 & 2006-07 RESPECTIVELY. THESE APP EALS WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE, THE SE ARE BEING DISPOSED OFF BY THIS SINGLE CONSOLIDATED ORDER. THE GR OUNDS OF APPEALS TAKEN BY REVENUE IN BOTH THE YEARS RELATES TO ONE COM MON GRIEVANCE AND I.E. THE TREATMENT OF INCOME FROM SALE OF SHARES A S SHORT TERM CAPITAL GAIN INSTEAD OF INCOME BUSINESS ACTIVITIES. 2. THE BRIEF FACTS OF THE CASE ARE THAT THAT ASSESSEE IS A NON BANKING FINANCIAL COMPANY AND HAD DECLARED INCOME F ROM CAPITAL GAIN, ITA NO1217 & 1308/DEL/2010 2 INCOME FROM BUSINESS AND PROFESSION AND INCOME FROM OTHE R SOURCES IN ITS RETURNS OF INCOME. THE ASSESSEE HAD CLAIMED INCOME F ROM SALE OF CERTAIN SHARES AS SHORT TERM CAPITAL GAIN WHEREAS THE A SSESSING OFFICER HAD CONSIDERED THE SAME AS INCOME FROM BUSINESS. THE CASE OF THE ASSESSING OFFICER IS THAT ASSESSEE HAD BEEN REGULARLY DEALI NG IN SALE AND PURCHASE OF SHARES AND VOLUME OF TRANSACTION IS VER Y LARGE. THE ASSESSING OFFICER RELIED UPON THE DECISION OF ADVANCE RU LING IN THE CASE OF FIDELITY NORTHSTAR FUND, [2007] 288 ITR 641 (AAR) WHEREIN CERTAIN PRINCIPLES WERE LAID DOWN FOR DETERMINING AS TO WHETH ER A PARTICULAR PROFIT/LOSS FROM TRANSACTION WAS A CAPITAL GAIN OR INCO ME FROM BUSINESS. IN THAT CASE THE AUTHORITY FOR ADVANCE RULING HAD OB SERVED THE SUBSTANTIAL NATURE OF TRANSACTION, MANNER OF MAINTAINI NG BOOKS OF ACCOUNTS. MAGNITUDE OF PURCHASE AND SALE ETC. AS GOOD G UIDE TO DETERMINING THE NATURE OF TRANSACTION. THE ASSESSING OFF ICER OBSERVED THAT KEEPING IN VIEW THOSE PRINCIPLES, INCOME OF THE ASSESSEE WAS FROM BUSINESS ACTIVITIES. THE ASSESSING OFFICER ALSO NOTED AS UNDE R:- I). THAT IN THE AUDIT REPORT ON FORM NO.3CD THE NAT URE OF BUSINESS OR PROFESSION HAS BEEN STATED TO BE DEALING IN STO CK, SHARES AND INVESTMENTS. II) THAT THE VALUE OF OPENING STOCK WAS STATED TO BE ` .2.98 CRORES AND VALUE OF CLOSING STOCK WAS ` .2.70 CRORES FOR THE YEAR ENDING 31.3.2005. III). THE PURCHASE AND SALE OF SHARES OF VARIOUS COMPANI ES PURPORTEDLY KEPT UNDER THE HEAD INVESTMENT ACCOUNT W AS NOTHING BUT THE BUSINESS ACTIVITY IN THE SALE AND PURCH ASE OF SHARES/MUTUAL FUNDS. ITA NO1217 & 1308/DEL/2010 3 IV). THAT TRANSACTIONS WERE REGULARLY ENTERED DURING THE YEARS UNDER CONSIDERATION. V). THAT PURCHASE AND SALE OF SHARES WERE NOT OCCASION AL BUT CONTINUED. VI). THAT THE ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS O F ACCOUNTS FOR THE ALLEGED INVESTMENTS AND REGULAR BUSIN ESS. THEREFORE, IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HELD THAT TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE BUSINESS TRANSACTIONS AND ASSESSED THE PROFIT/LOSS ARISING FROM SALE OF SHARES AS INCOME OF ASSESSEE AS BUSINESS INCOME. 3. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD CIT( A) AND SUBMITTED THAT BOARD OF DIRECTORS VIDE RESOLUTION HAD CONVERTED THE STOCK OF SHARES INTO INVESTMENT FROM STOCK IN TRADE W.E .F. 1.4.2004. THE SHARES WERE CONVERTED INTO INVESTMENT AT THE BOOK VALUE SHOWN IN THE BOOKS OF ACCOUNTS ON THE DATE OF CONVERSION. LATE R THESE SHARES HELD AS INVESTMENTS WERE SOLD AND APPELLANT HAD OFFERED THE CAPITAL GAIN EARNED THEREON AS SHORT TERM CAPITAL GAIN. RELI ANCE WAS PLACED IN THE CASE OF ACIT V. BRIGHT STAR INVESTMENT PVT. LTD. 120 TTJ 498 WHERE THE APPELLANT HAD ALSO CONVERTED ITS SHARES INTO INVESTM ENTS WHICH WERE HELD AS STOCK IN TRADE AND ON SALE OF SUCH SHARES THE APPELLANT HAD OFFERED THE GAIN AS CAPITAL GAIN AND THE COST OF ACQUISITION OF SHARES WAS TAKEN AT THE BOOK VALUE OF THE SHARES ON THE DATE OF CONVERSION. 4. FOR ASSESSMENT YEAR 2006-07, THE ASSESSEE ALSO RELIED ON THE FOLLOWING CASES:- ITA NO1217 & 1308/DEL/2010 4 I) CIT V. NSS INVESTMENT PVT. LTD. 277 ITR 149 (MAD.). II) JANAK S. RANGWALA IN I.T.A. NO. 1163/B/2004 DATED 19.12.2006. III) ADDL. CIT V. SUNDARAM IN I.T.A. NO.295?BOM/2001 DAT ED 15.10.2002. IV) ADDL. CIT V. MOTI LAL OSWAL IN I.T.A. NO.3861/MUM.2 001 DATED 28.8.2006. 5. RELIANCE WAS ALSO PLACED ON CBDT CIRCULAR NO.4 DAT ED 15.6.2007 WHEREIN CBDT HAD TRIED TO EXPLAIN THE DIFFERENCE BE TWEEN THE TRADING ASSET AND CAPITAL ASSET. THE LD CIT(A) AFTER HEARING T HE SUBMISSIONS OF ASSESSEE AGREED WITH THE CONTENTIONS MADE BY THE ASSESSEE AN D DIRECTED THE ASSESSING OFFICER TO TREAT THE PROFIT ON SALE OF SHARES AS INCOME FROM SHORT TERM CAPITAL GAIN AND NOT AS INCOME FROM BUSINESS. 6. AGGRIEVED, THE REVENUE HAS FILED APPEAL IN BOTH T HE YEARS. 7. AT THE OUTSET, THE LD AR STATED THAT THE CASES ARE C OVERED WITH THE CASE OF DCIT V. CHOUDHARY & ASSOCIATES IN I.T.A. N O.1241/DE/2005 DATED 18.2.2011. THEREFORE, IN VIEW OF THE ABOVE, T HE LD AR REQUESTED THAT THE CASES MAY BE DECIDED IN ACCORDANCE WITH THAT . 8. THE LD DR, ON THE OTHER HAND, ARGUED THAT FACT O F BOARD RESOLUTION REGARDING CONVERSION OF STOCK OF SHARES INTO INVESTMENT WAS NOT BROUGHT BEFORE ASSESSING OFFICER AND THEREFORE, HE ARGUED THAT ASSESSING OFFICER HAD RIGHTLY HELD THAT THE INCOME FROM SALE/PURCHASE OF SHARE WAS IN THE NATURE OF BUSINESS INCOME. THE LD A R STATED THAT FACT OF BOARD RESOLUTION REGARDING CONVERSION OF STOCK INTO INVESTMENT WAS BROUGHT BEFORE THE NOTICE OF ASSESSING OFFICER. IN THIS RESPECT, HE INVITED OUR ATTENTION TO PAGE 61 OF PAPER BOOK WHER EIN THE FACT WAS ITA NO1217 & 1308/DEL/2010 5 BROUGHT BEFORE ASSESSING OFFICER VIDE PARAGRAPH 5 OF TH E LETTER ADDRESSED TO DCIT, NEW DELHI. . 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTED FROM THE NOTES FORMING PART OF BALANCE SHEET AS ON 31. 3.2005 THAT THERE IS NO MENTION OF THE FACT THAT STOCK OF SHARES HAS BEEN CONVERTED INTO INVESTMENTS. PAGE 140 142 RELATING TO SIGNIFIC ANT ACCOUNTING POLICIES AND NOTES TO ACCOUNT FOR THE YEAR ENDING 31 .3.2005 DO NOT CONTAIN ANY SUCH DISCLOSURE WHEREAS IT IS A SIGNIFICANT D ISCLOSURE WHICH AS PER ASSESSEE HAD HAPPENED AS ON 1.4.2004 AND WHICH SHOU LD HAVE FORMED PART OF SIGINIFICANT POLICIES. SIMILARLY, AT P AGE 141 OF PAPER BOOK FOR THE YEAR 31.3.2005, THE POINT (VI) STATES TH AT STOCK OF SHARES, SECURITY AND MUTUAL FUNDS HAVE BEEN CARRIED OUT AT A LOWER COST OR MARKET PRICE WHICH SHOULD HAVE BEEN ONLY AT COST PRIC E IF THE SHARES WERE HELD AS INVESTMENTS. AS IN THE CASE OF INVESTMENT, THE SHARES ARE HELD AT COST PRICE ONLY. MOREOVER, DURING SUBMISSIONS B EFORE LD CIT(A) AT PAGE 3 OF PAPER BOOK, THE ASSESSEE VIDE PARA 4 HAD CLAIMED THAT SHARES HAS BEEN VALUED AT COST WHICH IS AGAINST THE STATED POLICY AS PER SIGNIFICANT ACCOUNTING POLICIES. THEREFORE, THERE IS CONTRADICTION BETWEEN THE ACCOUNTING POLICY STATED AS PER DISCLOSURE OF SIGNIFICANT POLICIES AND CLAIM OF ASSESSEE THAT THE SHARES WERE VALUED AT COST. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE CASES SHOULD BE REFERRED BACK TO THE ASSESSING OFFICER FOR RE -ADJUDICATION. NEEDLESS TO SAY, THAT ASSESSING OFFICER WILL GIVE PROPER O PPORTUNITY TO THE ASSESSEE OF BEING HEARD. 10. IN VIEW OF THE ABOVE, THE APPEALS FILED BY THE R EVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO1217 & 1308/DEL/2010 6 11. ORDER PRONOUNCED IN THE OPEN COURT ON 9TH DAY O F AUGUST, 2012. SD/- SD/- (R.P. TOLANI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 9 .8.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 27.6.2012 DATE OF DICTATION 3.8.2012 DATE OF TYPING 3.8.2012 DATE OF ORDER SIGNED BY 9.8.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 9.8.2012 & SENT TO THE BENCH CONCERNED.