ITO,Ward-11(2), Kolkata, Kolkata V. M/s. Olympic Commercial Enterprises Ltd, Kolkata

ITA 1239/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91952 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 24-08-2012
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH
• Keywords: Capital asset; Business income; Business expenditure; Charitable institution; Cost of acquisition; Date of conversion; Fair market value
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 123 9 /KOL/201 2 ASSESSMENT YEAR : 200 5 - 0 6 INCOME - TAX OFFICER, WD - 11 (2), KOLKATA. VS. OLYMPIC COMMERCIAL ENTERPRISES LTD. (PAN:AAAC O2834R ) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 1 8 .0 5 .2015 DATE OF PRONOUNCEMENT: 22 . 0 5 . 2015 FOR THE APPELLANT: SHRI KALYAN NATH, JCIT FOR THE RESPONDENT: S HRI SUBASH AGARWAL, ADVOCATE ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER PASSED BY CIT (A) - XI I , KOLKATA VIDE NO. 413 /CIT(A) - XII/CIR - 11/09 - 10 DATED 16 . 0 5 .201 2 . ASSESSMENT WAS FRAMED BY DCIT, CIR - 11 , KOLKATA U/S. 14 3(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 5 - 0 6 VIDE HIS ORDER DATED 28 . 12 .20 0 7 . 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF PROFIT ARISING FROM SALE OF SHARE DEALING AS BUSINESS INCOME AS AGAINST DECLARED BY ASSESSEE AS SHORT TERM CAPITAL GAINS. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN TREATING THE PROFIT RESULTED FROM SHARE DEALINGS AS SHORT TERM CAPITAL GAINS IN STEA OF BUSINESS INCOME. 3. BRIEFLY STATED FACTS ARE THAT THE AO TREATED THE SALE OF SHARES AS BUSINESS INCOME AS AGAINST DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS. AGGRIEVED ASSESSEE PREFERRED A PPEAL BEFORE CIT(A), WHO DELETED THE ADDITION BY OBSERVING IN PARA 4 AS UNDER: 4. I HAVE GONE THROUGH THE FINDINGS OF THE AO. IN THE ASSESSMENT ORDER AND SUBMISSION FILED BY THE AR. ON DIFFERENT GROUNDS OF APPEAL. IN THE FIRST GROUND WHERE THE ASSESSEE HAS CONVERTED THE TRADING STOCK INTO INVESTMENT, THE FINDING OF THE A.O. IS THAT SEC. 45 (2) OF 2 ITA NO . 1239 /K/201 2 OLYMPIC COMMERCIAL ENTERPRISES LTD. AY 200 5 - 0 6 THE I.T. ACT PROVIDES ABOUT CONVERSION OF INVESTMENT TO STOCK BUT THERE IS NO PROVISION FOR CONVERTING STOCK INTO INVESTMENT AND ON THIS BASIS THE AO. HAD REJEC TED THE CLAIM OF THE ASSESSEE. THE BRIEF FACT OF THE CASE IS THAT THE ASSESSEE COMPANY WAS ORIGINALLY ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING. THE COMPANY PASSED A RESOLUTION ON 30 - 07 - 2004 FOR TRANSFER OF SHARE HELD AS A STOCK IN TRADE AS ON 30 .07.2004 INTO INVESTMENT PORTFOLIO. THE NET VALUE OF THE CLOSING STOCK OF SHARES AS ON 30 - 07 - 2004 INTO INVESTMENT PORTFOLIO. THE NET VALUE OF THE CLOSING STOCK OF SHARE AS ON 30 - 07 - 2004 WAS RS. 2597534/ - . THE MARKET VALUE OF SUCH SHARES AS ON THAT DATE WAS RS. 3520077/ - AND THUS T HE COMPANY OFFERED THE DIFFERENCE OF RS. 922543/ - FOR TAXATION. THE AO DID NOT ACCEPT THE ASSESSEE S ACTION OF CONVERTING S TOCK INTO INVESTMENT AND. THEREFORE, HE MADE AN ADDITION OF RS. 26,88,600/ - . THE AR DURING THE APPELL ATE PROCEEDING HAS POINTED OUT THAT ALTHOUGH THE PROVISION OF SEC. 45(2) OF THE ACT, 1961 SPEAKS OF CONVERTING INVESTMENT INTO STOCK BUT VARIOUS DECISIONS HAVE ACCEPTED THAT EVEN STOCK CAN ALSO BE CONVERTED INTO INVESTMENT. FOR THIS PURPOSE, THE AR. CITED THE CASE DECIDED BY ITAT, MUM BAI H BENCH IN THE CASE OF ACIT VS. BRIGHT STAR INVESTMENT PVT. LTD. IN IT APPEAL NOS. 6374 & 9543 (MUM) OF 2004 A.Y. 2000 - 01 & 2001 - 02. THE RELEVANT PORTION OF THE TRIBUNAL'S OBSERVATION IS AS FOLLOWS: 'HAVING HEARD THE RIVAL SUBMISSIONS AND FROM CAREFUL PERUSAL OF THE RECORD, WE FIND THAT THE SHARES HELD IN STOCK IN TRADE WERE CONVERTED INTO INVESTMENT AT THE BOOK VALUE SHOWN IN THE BOOKS OF ACCOUNT. LATER ON, THE SHARES HELD IN INVESTMENT WERE SOLD AND THE ASSESSEE OFFERED T HE CAPITAL GAIN ACCRUED ON THE SALE OF SHARES. ADMITTEDLY, THE PROVISIONS OF SECTION 45(2) OF THE INCOME TAX ACT, DEALS WITH THE ISSUE OF CAPITAL GAIN WHERE THE INVESTMENT IS CONVERTED INTO STOCK IN TRADE. ACCORDING TO THIS SECTION, THE PROFITS OR GAINS AR ISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO OR ITS TREATMENT BY HIM AS S T OCK IN TRADE OF A BUSINESS CARRIED ON BY HIM, SHALL BE CHARGEABLE TO TAX AS THE INCOME FROM T HE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOL D OR OTHERWISE TRANSFERRED BY HIM, AND FOR THE PURPOSE OF SECTION 48, FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT, SHALL BE D E EMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVE D OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. WHILE INCORPORATION THE SUB - SECTION (2) TO SECTION 45, THE LEGISLATURE HAS NOT VISUALIZED THE SITUATIONS IN OTHER WAY ROUND, WHERE THE STOCK IN TRA DE IS TO BE CONVERTED INTO THE INVESTMENTS AND LATER ON THE INVESTMENT WAS SOLD ON PROFIT. IN THE ABSENCE OF A SPECIFIC PROVISION TO DEAL WITH THIS TYPE OF SITUATIONS, A RATIONAL FORMULA SHOULD BE WORKED OUT TO DETERMINE THE PROFITS AND GAI NS ON TRANSFER OF THE ASSET. WE ARE ALSO CONSCIOUS ABOUT THE JUDGMENTS IN THE CASES OF SIR KIKABHAI PREMCHAND (SUPRA), DHANUKA & SONS (SUPRA) IN WHICH IT HAS BEEN HELD THAT THERE CANNOT BE AN ACTUAL PROFIT OR LOSS OF SUCH TRANSFER WHEN NO THIRD PARTY IS INVOLVED AND THE ITEMS ARE KEPT IN A DIFFERENT ACCOUNT OF THE ASSESSEE HIMSELF. THE QUESTION OF GAIN OR LOSS WOU LD ARISE ONLY IN FUTURE WHEN THE STOCK TRANSFERRED TO THE INVESTMENT ACCOUNT MIGHT BE DEALT WITH BY THE ASSESSEE. IF SUCH SHARES BE DISPOSED OF AT A VALUE OTHER THAN THE VALUE AT WHICH IT WAS TRANSFERRED FROM THE BUSINESS STOCK , THE QUESTION OF CAPITAL LO SS OR CAPITAL GAIN WOULD ARISE. IN THE ABSENCE OF A SPECIFIC PROVISION TO DEAL WITH THE PRESENT SITUATION, TWO FORMULAS CAN BE EVOLVED TO WORK OUT THE PROFITS AND GAINS ON TRANSFER OF THE ASSETS. ONE FORMULA WHICH HAS BEEN ADOPTED BY THE ASSESSING OFFICER I.E. DIFFERENCE BETWEEN THE BOOK VALUE OF THE SHARES AND THE MARKET VALUE OF THE SHARES ON THE DATE OF CONVERSION SHOULD BE TAKEN AS A BUSINESS INCOME AND THE DIFFERENCE BETWEEN THE BOOK VALUE OF THE SHARES AND THE MARKET VALUE OF THE SHARES ON THE DATE OF CONVERSION SHOULD BE TAKEN AS A BUSINESS INCOME AND THE 3 ITA NO . 1239 /K/201 2 OLYMPIC COMMERCIAL ENTERPRISES LTD. AY 200 5 - 0 6 DIFFERENCE BETWEEN THE S A LE PRICE OF THE SHARES AND THE MARKET VALUE OF THE SHARES ON THE DATE OF CONVERSION BE TAKEN AS A CAPITAL GAIN. THE OTHER FORMULA WHICH IS ADOPTED BY THE ASSESSEE I.E. THE DI FFERENCE BETWEEN THE SALE PRICE OF THE SHARES AND THIS COST OF ACQUISITION OF SHARE, WHICH IS THE BOOK VALUE ON THE DATE OF CONVERSION WITH INDEXATION FROM THE DATE OF CONVERSION, SHOULD BE COMPUTED AS A CAPITAL GAIN. IN THE ABSENCE OF A SPECIFIC PROVISION , OUT OF THESE TWO FORMULAS, THE FORMULA WHICH IS FAVOURABLE TO THE ASSESSEE, SHOULD BE ACCEPTED.' FROM THE ABOVE DECISIONS OF MUM B AI TRIBUNAL IT IS CLEAR TH A T ASSESSEE'S CASE IS VERY SIMILAR TO IT. THUS, THIS GROUND OF APPEAL IS SQUARELY COVERED BY MUMBAI TRIBUNAL'S DECISION IN THE CASE OF ACIT VS. BRIGHT STAR INVESTMENT PVT. LTD. AS A RESULT THE ASSESSEE S APPEAL ON THIS GROUND IS ALLOWED. HENCE, GROUND NO.1 IS ALLOWED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 4 . W E HAVE HEARD RIVAL SUBMI SSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY WAS ORIGINALLY ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING. THE ASSESSEE HAS CONVERTED THE TRADING STOCK INTO INVESTMENT BY PASSING A RESOLUTION ON 30.0 7.2004. THE NET VALUE OF CLOSING STOCK OF SHARES AS ON 30.07.2004 WAS AT RS.25,97,534/ - AND THE CREDIT VALUE WAS AT RS.35,20,077/ - . THE COMPANY OFFERED THE DIFFERENCE OF RS.9,22,543/ - FOR TAXATION BUT THE AO TREATED THE ENTIRE CONVERSION OF STOCK INTO I NVESTMENT AT RS.35,20,077/ - AS BUSINESS INCOME IN VIEW OF THE PROVISIONS OF SECTION 45(2) OF THE ACT. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF COORDINATE BENCH OF MUMBAI OF THIS ITAT IN THE CASE OF ACIT VS. BRIGHT STAR INVESTMENT PVT. LTD., C ITED SUPRA. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS CONFIRMED. THIS ISSUE OF REVENUE S APPEAL IS DISMISSED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF FOREIGN TRAVEL EXPENSES OF DIRECTOR. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF FOREIGN AND DOMESTIC TRAVEL MADE NON - EXECUTIVE DIRECTOR DESPITE THE FACT THAT THE SAME WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 6 . WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE SECOND GROUND OF APPEAL IS REGARDING DISALLOWANCE OF RS. 2 , 21 , 117/ - ON ACCOUNT OF FOREIGN AND DOMESTIC TRAVEL BY MRS. MADHURIKA KHAITAN. THE A.O. IN THE 4 ITA NO . 1239 /K/201 2 OLYMPIC COMMERCIAL ENTERPRISES LTD. AY 200 5 - 0 6 ASSESSMENT ORDER HAS GIVEN HIS FIND INGS THAT MRS. MADHURIAKA KHAITAN WAS A NON- E XECUTIVE DIRECTOR OF THE COMPANY. THEREFORE, EX PENSES INCURRED ON HER DOMESTIC AND FOREIGN TRAVELS W ERE DISALLOWED. DUR ING THE APPELLATE PROCEEDINGS THE COUNSEL FOR THE ASSESSEE FILED A LETTER CLEARLY MENTIONING THAT MRS. MADHURIKA KHAITAN WAS AN EMPLOYEE OF THE COMPANY. IT HAS ALSO BEEN MENTIONED THAT SHE WAS VERY MUCH AN EXECUTIVE OF THE COMPANY AND SHE WAS NOT RELATED TO ANY DIRECTORS OF THE COMPANY. SHE WAS EMPLOYED FOR THE PURPOSE TO START AGAIN THE DISCONTINUED BUSINESS OF THE ASSESSEE IN FOREIGN EXPORT AND FOR DEVELOPMENT AND SMOOTH RUNNING OF TH E EXISTING BUSINESS. IT HAS ALSO BEEN POINTED THAT THE RELATION OF MRS. MADHURIKA KHAITAN WITH THE COMPANY WAS OF EMPLOYER AND EMPLOYEE. THEREFORE, TRAVELLING EXPENSES WERE I N CURRED FOR THE PURPOSE OF BUSINESS AND NOT FOR PERSONAL TRAVEL. WE FIND THAT THE CIT(A) HAS ALSO ALLOWED THE EXPENSES AS BUSINESS EXPENSES BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE FINDINGS OF THE A.O ON THIS ISSUE AND THE SUBMISSION OF THE A.R. I FIND THAT SINCE DOMESTIC AND FOREIGN TRAVELLING OF MRS. MADHURIKA KHAITAN AN EXE CUTIVE AND EMPLOYEE OF THE COMPANY WAS FOR THE PURPOSE OF BUSINESS PROMOTION. THEREFORE, THE ADDITION MADE BY THE A.O. ON THIS GROUND IS NOT SUSTAINABLE. HENCE, ASSESSEE'S APPEAL ON THIS GROUND IS ALLOWED. HENCE, GROUND NO. 2 IS ALLOWED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND HENCE, THE SAME IS CONFIRMED. THIS ISSUE OF REVENUE S APPEAL IS DISMISSED. 7. THE NEXT GROUND IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT (A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DONATION BY ADMITTING FRESH EVIDENCE. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.3: 3 . THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION TOWARDS DONATION BY ADMITTING FRESH EVIDENCE IN VIOLATION OF RULE 46A. 8 . WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS SUBMITTED ATG CERTIFICATE OF THE DON E E DURGA PRASAD KHAITAN CHARITABLE TRUST ALONG WITH A RECEIPT OF DONATION OF RS.50,000/ - . ACCORDING TO US, THIS IS NEW EVIDENCE, WHICH REQUIRES VERIFICATION. LD. COUNSEL FOR THE ASSESSEE ALSO NOT OBJECTED TO THE SAME. IN TERM OF THE ABOVE, WE SET ASIDE THIS ISSUE TO 5 ITA NO . 1239 /K/201 2 OLYMPIC COMMERCIAL ENTERPRISES LTD. AY 200 5 - 0 6 THE FILE OF AO FOR V ERIFICATION AND DECIDE THE ISSUE AS PER LAW. THIS ISSUE OF REVENUE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 9 . IN THE RESULT, APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. . 1 0 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 22,05.2015 . SD/ - SD/ - ( P. K. BANSAL ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 22ND MAY , 201 5 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT ITO, WARD - 11 (2), KOLKATA . 2 RESPONDENT OLYMPIC COMMERCIAL ENTERPRISES LTD., OMKAR BHAWAN , 96, GARDEN REACH ROAD, KOLKATA - 700 023 . 3 . THE CIT (A), KOLKATA 4. 5. THE CIT, KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .