DCIT, New Delhi V. M/s. Chowdry Associates, New Delhi

ITA 1241/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0414 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: PANKAJ JAINGURJEET SINGH S
• Keywords: Cost of acquisition

Judgement Text

ITA NO. 1241/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1241/DEL/2010 A.Y. : 2005-06 DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), C.R. BUILDING, NEW DELHI VS. M/S CHOWDRY ASSOCIATES, 4 TH FLOOR, PUNJABI BHAVAN, 10, ROUSE AVENUE, NEW DELHI (PAN/GIR NO. : AAACC03387R) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. PANKAJ JAIN/GURJEET SINGH, ADVOCATES, DEPARTMENT BY : SH. H.K. LAL, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 12/11/ 2009 PERTAINING TO ASSESSMENT YEAR 2005-06. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN DIRECTING TO TREAT THE ASSESSEE AS INVESTOR IN SHARES AS AGAINST TREATMENT BY THE ASSESSING OFFICER OF A SSESSEE AS A TRADE. 3. THE ASSESSEE IN THIS CASE HAS DECLARED INCOME F ROM LONG TERM /SHORT TERM CAPITAL GAINS AND INCOME FROM BUSINESS AN D PROFESSION. THE ASSESSING OFFICER IN THIS CASE OBSERVED THAT A SSESSEE WAS HOLDING SHARES MAINLY OF GROUP COMPANIES INCLUDING OF DABUR INDIA LTD. AS INVESTMENT SINCE LONG BACK. THE ASSESSEE WAS ALS O ENGAGED IN PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS MOSTLY OF BLUE CHIP ITA NO. 1241/DEL/2010 2 COMPANIES AS STOCK-IN-TRADE. DURING THE YEAR UNDER C ONSIDERATION, ASSESSEE HAS TRANSFERRED THE SHARES OF CERTAIN COM PANY AS HELD IN STOCK-IN-TRADE UPTO 31.3.2004 AT COST PRICE AS ON 1 .4.2004 AS UNDER:- SL.NO. SL.NO. SL.NO. SL.NO. NAME OF THE COMPANY NAME OF THE COMPANY NAME OF THE COMPANY NAME OF THE COMPANY QUANTITY QUANTITY QUANTITY QUANTITY AMOUNT AMOUNT AMOUNT AMOUNT 1. MORGAIN STANLAY 5000 30000/- 2. NESTLE INDIA LTD. 500 303310/- 3. BIOCON LTD. 1250 393750/- 4. HDFC LTD. 400 245536/- TOTAL TOTAL TOTAL TOTAL 7150 7150 7150 7150 972596/ 972596/ 972596/ 972596/- -- - 4. ASSESSING OFFICER FURTHER NOTED THAT APART FROM THE SHARES OF THE FOUR COMPANIES TRANSFERRED TO INVESTMENT ACCOUNT AS ON 1.4.2004 FROM STOCK-IN-TRADE AS ON 31.3.2004, THE ASSESSEE HAS MAD E PURCHASES SHARES/ MUTUAL FUNDS OF 51 COMPANIES. THEREAFTER, ASSESSING OFFICER HELD THAT CONSIDERING THE FACTS AND JUDICIAL PRINCIP LES AND EXPLANATION RELATING TO THE TREATMENT BY THE ASSESSEE WITH RESP ECT TO THE GAIN DERIVED FROM SALE OF SHARES TRANSFERRED FROM STOCK I N TRADE TO THE INVESTMENT ACCOUNT AND FURTHER PURCHASE AND SALE OF SHARES DURING THE YEAR ON VOLUMINOUS SCALE IS BEREFT OF ANY PLAUSIBLE EXPLANATION AND NOT ACCEPTABLE. 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) ELABORATELY CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE OBSERVATIONS OF THE AO AND THE SUBMISSIONS MADE BY TH E COUNSEL OF THE APPELLANT. THE APPELLANT COMPANY IS RECOGNIZ ED BY THE RESERVE BANK OF INDIA AS NON-BANKING FINANCIAL CORPO RATION. IT IS OBSERVED THAT THE COMPANY IS HAVING AN INVESTMENT P ORTFOLIO AND ALSO HELD CERTAIN SHARES AS STOCK IN TRADE. TH E MATTER WAS ITA NO. 1241/DEL/2010 3 PUT BEFORE THE BOARD TO CONVERT THESE SHARES FROM S TOCK IN TRADE INTO INVESTMENTS. THE RESOLUTION WAS APPROVED BY T HE BOARD AND LATER ON THE APPELLANT HAS FOLLOWED THE SAME METHOD OF VALUATION AT COST PRICE ON PERMANENT BASIS. IT IS OBSERVED FR OM THE DETAILS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SH ARES HELD IN STOCK IN TRADE HAVE BEEN CONVERTED INTO INVESTMENTS W.E.F. 1 ST OF APRIL, 2004. THE VALUE OF ACQUISITION HAS BEEN T AKEN TO BE THE MARKET VALUE AS ON 31ST OF MARCH, 2004. IT IS SUBMITT ED BY THE COUNSEL OF THE APPELLANT THAT THE DIFFERENCE BETWE EN PURCHASE PRICE OF THE SCRIP AND THE MARKET VALUE AS ON 31 ST OF MARCH, 2004 HAVE BEEN TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS FOR THE YEAR ENDING AS ON 31 ST OF MARCH, 2004. IT IS CLEAR FROM THE BALANCE SHEET FOR THE FINANCIAL YEAR 2003-04 THAT T HE MARKET VALUE OF THE SHARES AS ON 31 ST OF MARCH, 2004 HAS BEEN TAKEN INTO ACCOUNT BY WORKING OUT THE CLOSING STOCK OF SHARES AND THIS HAS BEEN TAKEN INTO ACCOUNT FOR WORKING OUT THE PROFITS FOR THAT YEAR. THE MARKET VALUE AS ON 31 ST OF MARCH, 2004 HAS BEEN TAKEN AS THE COST OF ACQUISITION OF THESE SHARES AND THE DIF FERENCE BETWEEN COST OF ACQUISITION AND THE SALE PRICE HAS BEEN OFFERED FOR TAXATION AS INCOME FROM SHORT TERM CAPITAL GAI N. 5.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER REFERRED TO ITAT, LUCKNOW BENCH IN THE CASE OF M/S SARNATH INFRA STRUCTURE PVT. LTD. REPORTED IN 120 TTJ 216. CONSIDERING THE SAME TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED AS UNDER:- ADVERTING BACK TO THE FACTS OF THE CASE, IT IS OBS ERVED THAT THE APPELLANT WAS TRADING IN SHARES REGULARLY FOR THE L AST MANY YEARS. DURING THESE YEARS THE COMPANY WAS TRADING IN SHARES AS WELL AS ITA NO. 1241/DEL/2010 4 HAVING AN INVESTMENT PORTFOLIO. THE SEPARATE BOOK S OF ACCOUNT WERE MAINTAINED FOR TRADING AS WELL AS INVESTMENT PORTFOLIO. THE COMPANY DECIDED TO CONVERT THE SHARES HELD IN TRADIN G PORTFOLIO INTO INVESTMENTS. THE MATTE WAS PUT BEFORE THE BOARD IN THE ANNUAL GENERAL MEETING TO CONVERT THE SHARES FROM S TOCK IN TRADE TO INVESTMENTS. THIS RESOLUTION WAS APPROVED BY T HE BOARD AND THE MARKET VALUE AS ON 31 ST OF MARCH, 2004 WAS TAKEN AS THE COST OF ACQUISITION OF THESE SHARES WERE TRANSFERRED TO THE INVESTMENT PORTFOLIO. LATER ON THE APPELLANT HAD FOLLOWED THE SAME METHOD OF VALUATION AT COST PRICE ON PERMANENT BASIS. PAR T OF THESES SHARES WERE SOLD BY THE APPELLANT DURING THE YEAR. THE APPELLANT HAD TAKEN THE CLOSING VALUE AS ON 31.3.2004 AS THE COST OF ACQUISITION AND WITHOUT TAKING THE BENEFIT OF INDEX ATION, THE DIFFERENCE BETWEEN THE SALE PRICE AND THE COST OF ACQUISITION HAS BEEN OFFERED FOR TAXATION AS SHORT TERM CAPITAL GAIN . IT IS WORTH MENTIONING HERE THAT WHEREAS THE SHARES HELD BY THE COMPANY IN THE TRADING ACCOUNT WERE TRANSFERRED TO THE INVEST MENT PORTFOLIO, HOWEVER, THE TRADING IN MUTUAL FUNDS CONTINUES TO BE BUSINESS ACTIVITY OF THE COMPANY. IN VIEW OF THE FACTS DISC USSED ABOVE AND DECISION OF THE HONBLE ITAT IN THE CASE OF AC IT VS. BRIGHT STAR INVESTMENT PVT. LTD. AND M/S SARNATH INFRASTRUC TURE PVT. LTD. IT IS HELD THAT THE APPELLANT IS A REGULAR INVESTOR AND UNDER NO STRETCH OF IMAGINATION, IT CAN BE TREATED AS TRADER IN SHARES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. IT IS OBSERV ED THAT FROM THE FACTS OF THE CASE SHARES WILL HELD IN STOCK IN TRAD E WERE CONVERTED INTO INVESTMENTS W.E.F. 1.4.2004. THE VALUE OF ACQUISIT ION HAS BEEN TAKEN TO THE MARKET VALUE AS ON 31.3.2004. THE ASSESSEE HAS FURTHER ITA NO. 1241/DEL/2010 5 CLARIFIED THAT DIFFERENCE BETWEEN PURCHASE PRICE OF THE SCRIP AND THE MARKET VALUE AS ON 31.3.2004 HAVE BEEN TAKEN INTO AC COUNT WHILE WORKING OUT THE PROFITS FOR THE YEAR ENDING AS ON 3 1 ST MARCH, 2004. THUS, IT IS CLEAR THAT THE DIFFERENCE IN VALUE ATTR IBUTABLE TO THE COST AND MARKET PRICE OF THESE SHARES HAVE ALREADY BEEN ACCOU NTED FOR BY THE ASSESSEE. ASSESSEE HAS ALSO BEEN MAINTAINED SEPAR ATE BOOKS FOR TRADING AND INVESTMENT PORTFOLIOS. THE COMPANY DECI DED TO CONVERT TRADING PORTFOLIO INTO INVESTMENTS VIDE RESOLUTION OF THE BOARD IN ANNUAL GENERAL MEETING TO CONVERT THE SHARES FROM STOCK IN TRADE TO INVESTMENTS. THE ASSESSEE HAS TAKEN THE MARKET V ALUE ON 31.3.2004 AS THE COST OF THE ACQUISITION WITHOUT TAKING THE B ENEFIT OF THE INDEXATION, THE DIFFERENCE BETWEEN THE SALES PRICE AND THE COST OF ACQUISITION HAS BEEN OFFERED FOR TAXATION AS SHORT TERM CAPITAL GAIN. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/02/2011. SD/- SD/- [ [[ [I.P. BANSAL I.P. BANSAL I.P. BANSAL I.P. BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 18/02/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES