ACIT, New Delhi V. M/s Ganesha Securities Ltd., New Delhi

ITA 1279/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7080 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Rule of consistency; Earning of tax free income; Deemed dividend
• Section: 143(3); 14A

Judgement Text

1 ITA 1563/D/2010; 1279 & 1747/DEL/2011 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI: JUDICIAL MEMBER ITA NOS. 1563/DEL/2010 (AY: 2005-06) 1279/DEL/2011 (AY: 2006-07) 1747/DEL/2011 (AY 2007-08) DCIT CIRCLE 12(1), VS. GANESHA SECURITIES (P) LTD ., NEW DELHI. D-6/17, VASANT VIHAR, NEW DELHI.. PAN: AAACG 2464 R ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI RAJESH KUMAR SR. DR RESPONDENT BY : SHRI SANJAY AGRAWAL CA DATE OF HEARING : 23/06/2016. DATE OF ORDER : 30/06/20126. O R D E R PER S.V. MEHROTRA, A.M: THESE ARE REVENUES APPEALS AGAINST SEPARATE OR DERS OF THE LD. CIT(A)-XV, NEW DELHI RELATING TO AY 2005-06 TO 2007 -08. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMPOSITE ORDER FOR THE SAKE OF CONVENIENCE. AY 2005-06 (ITA NO. 1563/DEL/2010) : 2. GROUNDS OF APPEAL RAISED BY THE REVENUE FOR AY 2 005-06 READ AS UNDER: 2 ITA 1563/D/2010; 1279 & 1747/DEL/2011 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE ORDER OF THE CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASI DE. 2. ON THE FACTS AND CIRCUMSTANCES, WHETHER LD. CIT(A) WAS JUSTIFIED ON FACTS OF THE CASE AND IN LAW IN DELETI NG THE DISALLOWANCE OF RS.98,49,931/- MADE BY THE AO, WHO TREATED THE PROFIT DERIVED FROM SHARE TRADING AS BUSINESS I NCOME WHEREBY THE ASSESSEE HAS TREATED THE SAME AS THE LO NG TERM CAPITAL GAIN EXEMPT U/S 10(38). 3. THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HE ARING. 3. BRIEF FACTS OF THE CASE, AS OBTAINING FROM THE A SSESSMENT ORDER, ARE THAT IN THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, DEBENT URES, STOCK BONDS AND SECURITIES. THE ASSESSEE FILED ITS RETURN OF INCO ME DECLARING TOTAL INCOME OF RS. 17,38,820/-. THE AO NOTICED THAT ASSESSEE HAD C LAIMED EXEMPTION U/S 10(38) IN RESPECT OF LONG TERM CAPITAL GAIN AMOUNTI NG TO RS. 97,96,248/- AND SHORT TERM CAPITAL GAIN WAS DECLARED AT RS. 1,007/- . FURTHER, LONG TERM CAPITAL GAIN [AS PER PROVISO TO SECTION 112(1)] AMOUNTING T O RS. 52,676/- WAS ALSO DECLARED. THE AO OBSERVED THAT ASSESSEE WAS DOING S HARE TRADING, WHICH WAS BOTH DELIVERY BASED AND NON-DELIVERY BASED. THE AO HAS OBSERVED THAT SINCE THE BUSINESS OF THE ASSESSEE WAS TRADING IN SHARES, THEREFORE, HE REQUIRED THE ASSESSEE TO EXPLAIN WHY CAPITAL GAIN DECLARED ON SH ARES/ SECURITIES SHOULD NOT BE TREATED AS BUSINESS INCOME AS THE BUSINESS OF TH E ASSESSEE WAS TRADING IN SHARES. THE ASSESSEE VIDE ITS REPLY DATED B14.9.200 7 SUBMITTED THAT ITS BUSINESS WAS TO MAKE INVESTMENT AS WELL AS TO HOLD THESE INVESTMENTS. IT WAS FURTHER SUBMITTED THAT INVESTMENT HAD BEEN MADE BY THE ASSESSEE ON LONG TERM BASIS AND CLASSIFIED AS INVESTMENT IN ITS AC COUNTS. THE INVESTMENTS 3 ITA 1563/D/2010; 1279 & 1747/DEL/2011 WERE MADE FROM OWN FUNDS AND, THEREFORE, THE SALE O F INVESTMENT SHOULD BE TREATED AS LONG TERM CAPITAL GAIN. 4. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION, INTER ALIA, OBSERVING THAT ASSESSEE HAD ITSELF DECLARED SHORT TERM CAPI TAL GAINS FROM SHARE TRADING, WHICH SHOWS THAT SHARES HAD BEEN PURCHASED FOR SHOR T TERM ALSO. HE FURTHER REFERRED TO THE AUDIT REPORT FILED BY THE ASSESSEE U/S 44AB, WHEREIN ALSO THE BUSINESS OF THE ASSESSEE WAS STATED TO BE PURCHASE , ACQUIRE, HOLD AND DISPOSE OFF OR OTHERWISE INVESTMENT IN SHARES, DEBE NTURES, STOCKS, BONDS, OBLIGATIONS AND SECURITIES. THE AO FURTHER POINTED OUT THAT PERUSAL OF THE P&L A/C SHOWS THAT THE ASSESSEE HAD PRIMARILY DERIV ED ITS INCOME FROM SPECULATIVE TRADING OF SHARES AND DELIVERY BASED T RADING OF SHARES. HE NOTED THAT THE LONG TERM CAPITAL GAIN WAS SHOWN IN RESPEC T OF SALE OF SCRIP IN RASANDIK ENGINEERING INDUSTRIES INDIA LTD. AMOUNTIN G TO RS. 98,41,195/-. AO FURTHER OBSERVED THAT IT IS SCRIP IN WHICH THE A SSESSEE HAD ALSO DONE NON- DELIVERY BASED SPECULATIVE TRADING AND DECLARED SPE CULATION PROFITS ON THE SAME. HE, THEREFORE, CONCLUDED THAT SINCE THE ASSES SEE ITSELF HAD DECLARED BUSINESS INCOME FROM THE TRADING IN THE SHARES OF R ASANDIK ENGINEERING INDUSTRIES INDIA LTD., THE CLAIM OF THE ASSESSEE TH AT IT DERIVED LONG TERM CAPITAL GAIN FROM THE SAME SCRIP COULD NOT BE ACCEP TED. HE, ACCORDINGLY, TREATED THE ENTIRE CAPITAL GAINS AS BUSINESS INCOME OF THE ASSESSEE. 5. LD. CIT(A), KEEPING IN VIEW THE FACTS OF THE CAS E, READ WITH CBDT CIRCULAR NO. 4/2007 DATED 15.6.2007 AND ALSO IN VIE W OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GO PAL PUROHIT ITA NO. 1121 OF 2009 DATED 6.1.2010 AND ITAT MUMBAI DECISIO N IN THE CASE OF J.M. SHARE & STOCK BROKERS LTD. VS. JCIT IN ITA NOS . 2801/DEL/2000 & ORS., VIDE ORDER DATED 30.11.2007), HELD THAT PROFI T ON SALE OF SUCH SHARES HAD TO BE ASSESSED AS CAPITAL GAIN. 4 ITA 1563/D/2010; 1279 & 1747/DEL/2011 6. LD. DR RELIED ON THE ORDER OF AO AND SUBMITTED T HAT SINCE THE ASSESSEE COMPANY WAS IN THE BUSINESS OF SHARE TRADI NG, THEREFORE, AO HAD RIGHTLY TREATED THE PROFIT FROM SALE OF SHARES AS B USINESS INCOME. 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE WAS NOT TRADING IN SHARES. THE CONSISTENT PRACTICE OF ASSESSEE WAS TO HOLD SHARES AS INVESTMENT. IN THIS REGARD LD. COUNSEL REFERRED TO THE BALANCE- SHEET OF ASSESSEE WHEREIN IN SCHEDULE 4, RELATING TO INVESTMENT, CONTAINED AT PA GE 48 OF THE PB, 838882 EQUITY SHARES OF RASANDIK ENGINEERING INDUSTRIES IN DIA LTD. WERE HELD AS INVESTMENT AS ON 31.3.2004 A WELL AS ON 31.3.2005. LD. COUNSEL FURTHER REFERRED TO THE WRITTEN SUBMISSIONS FILED BEFORE LD . CIT(A), CONTAINED AT PAGE 23 OF THE PB, WHEREIN DETAILS OF SHARE HOLDING AS O N 31.3.2004 AND 31.3.2005 WAS AS UNDER: NAME 2003-04 2004-05 NO. OF SHARES AMOUNT NO. OF SHARES AMOUNT RASANDIK ENGINEERING INDUSTRIES INDIA LTD. 814396 7618277.00 838882 16232324.00 JAY BHARAT MARUTI LTD. 100 2010.00 100 2010 AUTOMOTIVE STAMPINGS AND ASSEMBLIES LTD. 60 370.00 60 252 TATA MOTORS LTD. 1500 746015.00 1500 746015 TATA STEEL LTD. 300 117585.00 450 117585 JBM AUTO COMPONENTS LTD. 40 148 TOTAL 616356 8484257.00 841032 17098334.00 8. FURTHER, IT WAS POINTED OUT THAT THE INVESTMENT IN SHARES HAD BEEN MADE OUT OF OWN FUNDS AND NOT FROM ANY BORROWINGS. THE DETAILS OF INCOME, INVESTMENT, LOAN GIVEN AND TAKEN OVER THE YEAR WAS ALSO GIVEN, WHICH IS REPRODUCED HEREUNDER: 5 ITA 1563/D/2010; 1279 & 1747/DEL/2011 YEAR INCOME PROFIT BEFORE TAX INVESTMENT LOAN GIVEN LOAN TAKEN 2001-02 3828538.00 1564718.00 00.00 3225000.00 3500 00.00 2002-03 4149062.00 3961157.00 7529757.00 00.00 7500 00.00 2003-04 5297581.00 5143350.00 8484287.00 150000.00 750000.00 2004-05 12852886.00 12430877.00 17098334.00 00.00 0 0.00 9. LD. COUNSEL FURTHER RELIED ON THE CBDT CIRCULAR NO. 6 DATED 29.2.2016, WHEREIN IT HAS BEEN, INTER ALIA, OBSERVE D AS UNDER: B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DA TE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCO ME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHAL L NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YE AR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS AL SO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFEREN T/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; .. . 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITI GATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF SHARES AND SECUR ITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO AP PLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECUR ITIES ' 10. LD. COUNSEL FURTHER RELIED ON THE DECISION OF I TAT DELHI BENCH C IN ASSESSEES OWN CASE FOR AY 2008-08 RENDERED IN ITA NO. 4151/DEL/2013 VIDE ORDER DATED 9.5.2014, WHEREIN IT HAS BEEN HELD THAT PRINCIPLE OF CONSISTENCY REQUIRES THAT THE VIEW TAKEN IN ONE YEA R SHOULD BE FOLLOWED IN SUBSEQUENT YEAR UNLESS THE FACTS OR THE LEGAL POSIT ION JUSTIFIES DEPARTURE THEREFROM. THE OBSERVATIONS OF TRIBUNAL ARE REPRODU CED HEREUNDER: 6 ITA 1563/D/2010; 1279 & 1747/DEL/2011 4. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATI VE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS N O APPEARANCE FROM THE SIDE OF THE ASSESSEE DESPITE NO TICE. AS SUCH, WE ARE PROCEEDING TO DISPOSE OF THIS APPEAL E X-PARTE QUA THE ASSESSEE. THE ENTIRE DISPUTE CENTRES AROUND THE CHARACTERIZATION OF PROFIT OF RS. 24.79 LAC EARNED BY THE ASSESSEE FROM SALE OF SHARES HELD FOR A PERIOD OF M ORE THAN ONE YEAR. IN THIS CONNECTION, IT IS RELEVANT TO NOTE TH AT FOR THE IMMEDIATELY PRECEDING THREE ASSESSMENT YEARS, NAMEL Y, 2005- 06, 2006-07 AND 2007-08, THE AO ADOPTED SIMILAR APP ROACH AS IN THE YEAR UNDER CONSIDERATION BUT THE CIT(A) OVER TURNED THE ASSESSMENT ORDER ON SUCH POINT BY HOLDING SIMILAR I NCOME TO BE CAPITAL GAIN INSTEAD OF BUSINESS INCOME ASSESSED BY THE ASSESSEE. 5. PRINCIPLE OF CONSISTENCY REQUIRES THAT THE VIEW TAKEN IN ONE YEAR SHOULD BE FOLLOWED IN SUBSEQUENT YEARS, UN LESS THE FACTS OR THE LEGAL POSITION JUSTIFIES DEPARTURE THE REFROM. THE HON'BLE BOMBAY HIGH COURT IN CIT VS. DARIUS PANDOLE [(2011) 330 ITR 485 (BORN.)} HAS HELD THAT INCOME F ROM SALE OF SHARES TREATED AS BUSINESS INCOME IN EARLIER YEARS BY WAY OF ASSESSMENT U/S 143(3) CANNOT BE TAKEN AS CAPITAL GA IN IN SUBSEQUENT YEAR. THE ESSENCE OF THE JUDGMENT IS THA T THE PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED AND THE PARTIES SHOULD NOT BE ALLOWED TO REGISTER DEPARTURE FROM TH E EXISTING POSITION TIME AND AGAIN. IN THE LIKE MANNER, THE HO N'BLE BOMBAY HIGH COURT IN CIT VS. GOPAL PUROHIT (2011) 3 36 ITR 287 (BORN) HAS HELD INCOME FROM SHARES AS BUSINESS INCOME ON THE BASIS OF THE RULE OF CONSISTENCY. SINCE, THE VI EW TAKEN BY THE ASSESSING OFFICER ON SIMILAR ISSUE HAS BEEN REVERSE D BY THE LD. CIT(A) AND NO MATERIAL HAS BEEN BROUGHT ON RECORD B Y THE ID. DR TO DEMONSTRATE THAT THE TRIBUNAL TINKERED WITH S UCH VIEW CANVASSED BY THE LD. FIRST APPELLATE AUTHORITY FOR THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS OF THE HON'BLE BOMBAY HIGH COURT, WE UPHOLD THE IMPUGNED O RDER ON THIS SCORE. 7 ITA 1563/D/2010; 1279 & 1747/DEL/2011 11. HE, THEREFORE, SUBMITTED THAT PROFIT ON SALE OF SHARES RETURNED BY ASSESSEE SHOULD BE ASSESSED AS LONG TERM/ SHORT TER M CAPITAL GAIN AS RETURNED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. AS FAR AS LD. COUNSELS CONTENTION TH AT ASSESSEE COMPANY WAS NOT TRADING IN SHARES, WE ARE UNABLE TO ACCEPT THE SAME CONTENTION IN VIEW OF THE MAIN OBJECT OF THE COMPANY OF ASSESSEE FOR WHIC H IT WAS FORMED. THE FIRST MAIN OBJECT OF ASSESSEE AS PER MEMORANDUM OF ASSOCIATION CONTAINED AT PAGE 74 WAS AS UNDER: TO CARRY ON INVESTMENT BUSINESS AND TO PURCHASE, AC QUIRE, HOLD AND DISPOSE OF OR OTHERWISE INVEST IN SHARES, DEBENTURES, STOCKS, BONDS, OBLIGATIONS AND SECURITIES, ISSUED O R GUARANTEED BY ANY COMPANY CONSTITUTED OR CARRYING ON BUSINESS IN INDIA OR ELSEWHERE AND DEBENTURE, STOCKS, BONDS, OBLIGATIONS , AND SECURITIES ISSUED OR GUARANTEED BY ANY GOVERNMENT, STATE DOMINION SOVEREIGN RULER, COMMISSIONER, PUBLIC BODY OR AUTHORITY, SUPREME MUNICIPAL, LOCAL OR OTHERWISE WH ETHER IN INDIA OR ELSEWHERE AND TO DEAL IN AND/ OR INVEST IN REAL ESTATE OR PROPERTIES, EITHER OUT OF ITS OWN FUNDS OR OUT OF F UNDS THAT THE COMPANY MIGHT BORROW AND TO VARY OR OTHERWISE DISPO SE OF EXCHANGE, TRANSFER OR ALIENATE ANY OF THE INVESTMEN TS, REAL ESTATES AND PROPERTIES OF THE COMPANY. 13. A BARE PERUSAL OF THIS OBJECT CLEARLY SHOWS THA T MAIN OBJECT OF THE ASSESSEE WAS TRADING IN SHARES INCLUDING INVESTMENT IN SHARES ETC. ALSO. HOWEVER, IN ORDER TO FIND OUT WHETHER THE INCOME AR ISING FROM SALE OF SHARES IS TO BE ASSESSED AS CAPITAL GAIN OR BUSINESS INCOM E, WE HAVE TO FIND OUT THE TRUE INTENTION OF ASSESSEE KEEPING IN VIEW THE FACT S AND CIRCUMSTANCES OF EACH CASE. 14. IN THE PRESENT CASE THE CIT(A) HAS ANALYZED THE FACTUAL ASPECTS AS UNDER: 8 ITA 1563/D/2010; 1279 & 1747/DEL/2011 1. THE ASSESSEE COMPANY IS A PROMOTOR GROUP COMPAN Y OF RASANDIK ENGINEERING INDUSTRIES INDIA LTD. AND THER EFORE IT HOLDS SHARES ON LONG-TERM BASIS. 2. RASANDIK ENGINEERING INDUSTRIES INDIA LTD. IS IN AUTO ANCILLARY AND THEREFORE THE ASSESSEE COMPANY HAS MA DE INVESTMENT ON LONG- TERM BASIS IN SIMILAR AUTO SECT OR COMPANIES SUCH AS JAY BHARAT MARUTI LTD. (100 SHARES) AUTOMOT IVE STAMPINGS & ASSEMBLIES LTD. (60 SHARES) AND TATA MO TORS LTD. (1500 SHARES). BESIDES THESE IT HAS MADE INVESTMENT IN TATA STEEL LTD. (450 SHARES). THE DETAILS ARE CONTAINED IN SCHEDULE 4 TO THE ACCOUNTS. 3. THE INVESTMENT HAVE BEEN MADE FROM OWN FUND OVER A PERIOD OF TIME AND ARE CLASSIFIED AS LONG TERM INVE STMENT IN THE BOOKS AND ACCOUNTS OF THE ASSESSEE COMPANY. 4. THE INVESTMENT IS HELD IN DEMATERIALIZED FORM. T HE SALES FROM THE DEMAT ACCOUNTS ARE RECOGNIZED ON FIRST IN FIRST OUT (FIFO) BASIS. 5. THE COPIES OF DEMAT ACCOUNTS ARE ENCLOSED TO SHO W THE LONG-TERM HOLDING OF THE SHARES. 6. THE OPENING BALANCE OF HOLDING IN RASANDIK ENGIN EERING INDUSTRIES INDIA LTD. SHARES WAS 814396 EQUITY SHAR ES ON 01- 04- 2004. THE SAME WERE DEMATERIALIZED AS UNDER:- OPENING AS ON 01.04.04 IN DEMAT ACCOUNT 39,696 20.09.04 - DEMATERIALIZED 1,600 23.09.04 - DEMATERIALIZED 2,50,000 24.09.04- DEMATERIALIZED 5,23,100 8.14.396 DURING THE YEAR 2004-05 THE COMPANY HAD PURCHASED 1 ,84,523 SHARES ON LONG-TERM BASIS WHICH WERE CREDITED TO DE MAT ACCOUNT. 9 ITA 1563/D/2010; 1279 & 1747/DEL/2011 7. THE COMPANY SOLD 1,61,137 SHARES FROM THE OPENIN G BALANCE THROUGH STOCK EXCHANGE AND HAS CLAIMED EXEM PTION U/S 10(38). 8. THE COMPANY WAS ALLOTTED 3200 SHARES ON FORFEITU RE. 9. IT ALSO SOLD 2000 SHARES ON OFF MARKET BASIS UND ER PROVISO TO SECTION 112(1). 10. OTHER SALES WERE 325 SHARES. 11. THE CLOSING HOLDING THEREFORE WORKED OUT AS UND ER:- OPENING BALANCE 8,14,396 PURCHASES 1,84,523 ALLOTMENT 3,200 SALES & TRANSFER (1,63,462) CLOSING BALANCE 8,38,657 THUS, THE INVESTMENT IN SHARES HAS BEEN MADE FOR LO NG TERM BASIS. 15. THE AFOREMENTIONED FACTS HAVE REMAINED UNCONTRO VERTED BY THE DEPARTMENT. ONCE THE ASSESSEE WAS CONSISTENTLY SHOW ING THE SHARES AS ITS INVESTMENT, THE SAME CANNOT BE CONVERTED INTO STOCK -IN-TRADE, UNLESS THE INTENTION IS PROVED OTHERWISE. 16. LD. CIT(A) HAS POINTED OUT THAT FROM THE RECORD IT IS EVIDENT THAT ASSESSEE COMPANY HAD DISTINCT PORT-FOLIO OF SHARES AND MUTUAL FUNDS UNDER TWO CATEGORIES I.E. INVESTMENTS AND STOCK-IN-TRADE. HE HAS OBSERVED THAT DURING THE LAST FEW YEARS TOO THE ASSESSEE COMPANY HAD FOLLOWED THE SAME PRACTICE OF HOLDING CERTAIN SHARES UNDER THE HEAD INVESTMENT AND SOME SHARES AS STOCK IN TRADE. THEREFORE, AS THE ASSES SEE WAS HOLDING THE SHARES AS INVESTMENT CONSISTENTLY AND THE SAME WERE ACQUIR ED OUT OF OWN FUNDS, THERE WAS NO REASON TO TREAT THE SAME AS BUSINESS I NCOME. WE, ACCORDINGLY 10 ITA 1563/D/2010; 1279 & 1747/DEL/2011 CONFIRM THE ORDER OF LD. CIT(A) ON THIS ISSUE IN VI EW OF VARIOUS DECISIONS RELIED BY LD. CIT(A) AS NOTICED EARLIER. 17. IN THE RESULT, DEPARTMENT APPEAL FOR AY 2005-06 IS DISMISSED. AY 2006-07 (ITA NO. 1279/DEL/2011) : 18. GROUNDS OF APPEAL RAISED IN AY 2006-07 ARE AS U NDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ORDER OF THE CIT(A) IS ERRONEOUS, PERVERSE, ILL EGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF R S.1,01,510/- ON ACCOUNT OF EXPENSES U/S 14A MADE BY AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF RS.3,61,49,379/- AS BUSINESS INCOME INSTEAD OF L TC G & STCG. 4. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HE ARING. 19. GROUND NOS. 1 & 4 ARE GENERAL AND REQUIRE NO AD JUDICATION. 20. APROPOS GROUND NO.3, BRIEF FACTS ARE THAT ASSES SEE HAD FILED RETURN DECLARING LOSS OF RS. 20,06,475/-. THE AO NOTICED T HAT THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN (CLAIMING EXEMPTION U/S 10(38) AMOUNTING TO RS. 3,23,56,173/- AND SHORT TERM CAPITAL GAIN AMOUN TING TO RS. 37,93,206/-. THE AO HAS FURTHER NOTICED AS UNDER: THE PERUSAL OF THE DETAILS FILED BY THE ASSESSEE I N RESPECT OF ITS CLAIM OF LONG TERM CAPITAL GAINS SHOWS THAT THE GAI N OF RS. 9841195/- HAS BASICALLY BEEN DERIVED FROM THE SALE OF THE SCRIP - RASANDIK ENGINEERING INDUSTRIES INDIA LTD. IT IS TH E SAME SCRIP IN WHICH THE ASSESSEE HAS ALSO DONE NON-DELIVERY BA SED 11 ITA 1563/D/2010; 1279 & 1747/DEL/2011 SPECULATIVE TRADING AND DECLARED SPECULATION PROFIT S ON THE SAME. THEREFORE, WHEN THE ASSESSEE HAS ITSELF DECLA RED BUSINESS INCOME FROM THE TRADING IN THE SHARES OF RASANDIK E NGINEERING INDUSTRIES INDIA LTD., THE CLAIM OF THE ASSESSEE TH AT IT HAS DERIVED LONG TERM CAPITAL GAINS FROM THE SAME SCRIP CANNOT BE ACCEPTED. THUS, THE ENTIRE GAINS DERIVED BY THE ASS ESSEE FROM THE PURCHASE AND SALE OF SHARES IS HELD TO BE BUSIN ESS INCOME OF THE ASSESSEE. 21. THUS, THE FACTS IN THE PRESENT ASSESSMENT YEAR AS REGARDS GROUND NO. 3 ARE SIMILAR TO THE FACTS AS OBTAINING IN AY 2005-06 . THEREFORE, FOR THE REASONS THEREFORE, FOR THE VERY SAME REASONS AS IN AY 2005-06, S ABOVE, WE UPHOLD THE ACTION OF LD. CIT(A) ON THE ISSUE IN QUE STION. GROUND IS DISMISSED. 22. APROPOS GROUND NO. 2, FACTS IN BRIEF ARE THAT T HE AO NOTICED THAT ASSESSEE HAD DECLARED DIVIDEND INCOME OF RS. 10,48, 381/-. HE SHOW CAUSED THE ASSESSEE REGARDING APPLICABILITY OF SECTION 14A . AFTER CONSIDERING THE ASSESSEES REPLY, APPLYING THE PROVISIONS OF RULE 8 D(2)(III), HE DETERMINED THE DISALLOWANCE U/S 14A AT RS. 1,01,510/-. 24. LD. CIT(A), KEEPING IN VIEW THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 2010-TIOL- 564-HC-MUM-IT, HELD THAT THOUGH RULE 8D WAS NOT APP LICABLE BUT SINCE ADMINISTRATIVE AND PERSONAL EXPENSES MUST HAVE BEEN INCURRED TO EARN EXEMPT INCOME, DETERMINED THE DISALLOWANCE AT RS. 6 3,352/-. 25. HAVING HEARD BOTH THE PARTIES, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THIS COUNT, AS HE H AS MADE A REASONABLE DISALLOWANCE OF 5% OF THE EXPENDITURE INCURRED UNDE R THE HEAD ADMINISTRATIVE AND PERSONAL EXPENSES. GROUND IS DIS MISSED. 12 ITA 1563/D/2010; 1279 & 1747/DEL/2011 26. IN THE RESULT REVENUES APPEAL FOR AY 206-07 IS DISMISSED. ASSESSMENT YEAR 2007-08 (ITA NO. 1747/DEL/2011): 27. GROUNDS OF APPEAL RAISED IN AY 2007-08 ARE AS U NDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF 15,97,563/- OUT OF RS. 16,35,393/-ON ACCOUNT OF EXPENSES U/S 14 A MADE BY AO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF R S.52,64,895/- AS BUSINESS INCOME INSTEAD OF LTCG & STCG. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT' (A) HAS ERRED IN DELETING ADDITION U/S 2(22)(E) OF RS.15,34,349/- ON ACCOUNT OF LOAN RECEIVED. 4. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HE ARING. 28. GROUND NO. 4 IS GENERAL AND REQUIRES NO ADJUDIC ATION. 29. APROPOS GROUND NO.2, BRIEF FACTS ARE THAT ASSES SEE HAD FILED RETURN DECLARING INCOME OF RS. 38,86,420/-. THE AO NOTICED THAT THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN (CLAIMING EXEMPTION U/S 10(38) AMOUNTING TO RS. 62,04,497/- AND SHORT TERM CAPITAL GAIN AMOUNTI NG TO RS. 9,39,602/-. THE AO HAS FURTHER NOTICED AS UNDER: THE PERUSAL OF THE DETAILS FILED BY THE ASSESSEE IN RESPECT OF ITS CLAIM OF LONG TERM CAPITAL GAINS SHOWS THAT THE GAI N OF RS. 9841195/- HAS BASICALLY BEEN DERIVED FROM THE SALE OF THE SCRIP - RASANDIK ENGINEERING INDUSTRIES INDIA LTD. IT IS THE SAME SCRIP IN WHICH THE ASSESSEE HAS ALSO DONE NON-DELIV ERY BASED SPECULATIVE TRADING AND DECLARED SPECULATION PROFIT S ON THE SAME. THEREFORE, WHEN THE ASSESSEE HAS ITSELF DECLA RED BUSINESS INCOME FROM THE TRADING IN THE SHARES OF RASANDIK E NGINEERING 13 ITA 1563/D/2010; 1279 & 1747/DEL/2011 INDUSTRIES INDIA LTD., THE CLAIM OF THE ASSESSEE TH AT IT HAS DERIVED LONG TERM CAPITAL GAINS FROM THE SAME SCRIP CANNOT BE ACCEPTED. THUS, THE ENTIRE GAINS DERIVED BY THE ASS ESSEE FROM THE PURCHASE AND SALE OF SHARES IS HELD TO BE BUSIN ESS INCOME OF THE ASSESSEE. 30. HE, ACCORDINGLY, TREATED THE PROFIT ON SALE OF SHARES AS BUSINESS INCOME. LD. CIT(A) FOLLOWING THE ORDER FOR AY 2005- 06, ALLOWED THE ASSESSEES CLAIM. THUS, THE FACTS IN THE PRESENT AS SESSMENT YEAR, AS REGARDS GROUND NO. 2, ARE SIMILAR TO THE FACTS AS OBTAININ G IN AY 2005-06. THEREFORE, FOR THE VERY SAME REASONS AS IN AY 2005-06, ABOVE, WE UPHOLD THE ACTION OF LD. CIT(A) ON THE ISSUE IN QUESTION. GROUND IS DISM ISSED. 31. APROPOS GROUND NO. 1, FACTS IN BRIEF ARE THAT T HE AO NOTICED THAT ASSESSEE HAD DECLARED DIVIDEND INCOME OF RS. 8,87,9 29/-. HE SHOW CAUSED THE ASSESSEE REGARDING APPLICABILITY OF SECTION 14A . AFTER CONSIDERING THE ASSESSEES REPLY, APPLYING THE PROVISIONS OF RULE 8 D(2)(III), HE DETERMINED THE DISALLOWANCE U/S 14A AT RS. 16,35,393/-. 32. LD. CIT(A), KEEPING IN VIEW THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 2010-TIOL- 564-HC-MUM-IT, HELD THAT THOUGH RULE 8D WAS NOT APP LICABLE BUT SINCE ADMINISTRATIVE AND PERSONAL EXPENSES MUST HAVE BEEN INCURRED TO EARN EXEMPT INCOME, DETERMINED THE DISALLOWANCE AT RS. 3 7,830/-. 33. HAVING HEARD BOTH THE PARTIES, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THIS COUN T, AS HE HAS MADE A 14 ITA 1563/D/2010; 1279 & 1747/DEL/2011 REASONABLE DISALLOWANCE OF 5% OF THE EXPENDITURE IN CURRED UNDER THE HEAD ADMINISTRATIVE AND PERSONAL EXPENSES. GROUND I S DISMISSED. 34. APROPOS GROUND NO. 3, BRIEF FACTS ARE THAT FROM THE BALANCE-SHEET OF THE ASSESSEE COMPANY, THE AO NOTICED THAT ASSESSEE HAD RECEIVED LOAN FROM ONE OF ITS GROUP COMPANY I.E. RADHIKA SECURITIES P VT. LTD. HE REQUIRED THE ASSESSEE TO FILE COPY OF ACCOUNT, SHAREHOLDING PATT ERN OF RASANDIK ENGINEERING INDUSTRIES INDIA LTD.. HE ALSO SHOW CAU SED THE ASSESSEE AS TO WHY ADDITION U/S 2(22)(E) BE NOT MADE. AFTER CONSID ERING THE ASSESSEES REPLY, THE AO OBSERVED AS UNDER: THE SHARE HOLDING PATTERN OF THE RADHIKA SECURITIES PVT. LTD. IS AS UNDER MRS.ANJULA KHANNA-25% MRS.RADHIKA KAPOOR-75%. THE SHAREHOLDING PATTERN OF ASSESSEE COMPANY IS AS UNDER- MRS.ANJULA KHANNA-25% MRS.RADHIKA KAPOOR-75%. APPLYING ABOVE PARAMETERS OF SECTION 2(22)(E) IT IS SEEN THAT ASSESSEE COMPANY HAS RECEIVED LOAN FROM THE COMPANY IN WHICH IT SEEN THAT BOTH OF THE SHAREHOLDERS ARE COMMON IN ASSESSEE COMPANY AND COMPANY FROM WHICH ASSESSEE COMPANY HAS RECEIVED LOAN AND BOTH SHAREHOLDER HAS SUBSTANTIAL INTEREST IN BOTH COMPANIES. SO THE APPLICABILITY OF THE DEEMING PROVISION IS ESTABLISHED . 35. HE, THEREFORE, MADE ADDITION OF RS. 15,34,349/- AS PER THE CALCULATION GIVEN IN PARA 5 OF HIS ORDER. 15 ITA 1563/D/2010; 1279 & 1747/DEL/2011 36. LD. CIT(A) DELETED THE ADDITION, INTER ALIA, KE EPING IN VIEW THE DECISION OF SPECIAL BENCH OF THE ITAT MUMBAI IN THE CASE OF BHAUMIK COLOR PVT. LTD. VS. ACIT (2008) TIOL 641, WHEREIN I T WAS HELD AS UNDER: ' ON THE FIRST QUESTION : DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION: THE EXPRESSION SHAREHOLDER REFERRED TO IN SEC.2(22)(E) REFERS TO BOTH A REGISTERED SHAR EHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THAN THE PROVISI ONS OF SEC.2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN A LSO THE PROVISIONS OF SEC.2(22)(E) WILL NOT APPLY. ' 37. LD. CIT(A), THUS, CONCLUDED AS UNDER:- PERUSAL OF THE PROVISIONS OF SECTION 2(22)(E) AND THE JUDICIAL DECISIONS CITED ABOVE SHOW THAT DEEMED DIVIDEND WIL L BE TAXED IN THE HANDS OF THE SHARE HOLDER. IN THE INSTANT CA SE SINCE THE APPELLANT WAS NOT A SHARE HOLDER OF THE COMPANY, TH EREFORE, THE ASSESSMENT OF THE DEEMED DIVIDEND IN THE HANDS OF T HE APPELLANT WAS NOT CORRECT. IN VIEW OF THE FINDINGS ABOVE AND JUDICIAL PRECEDENTS ON THE SUBJECT, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE APPELLANT. 38. LD. COUNSEL POINTED OUT THAT NOW THIS ISSUE IS ALSO CONCLUDED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH P. LTD. (2012) 340 ITR 14 (DELHI), HOLDING THAT LOAN RECEIVED BY ASSESSEE COMPANY FROM ANOTHER COMPANY PERSONS HAVING SUBS TANTIAL INTEREST IN ASSESSEE COMPANY AND COMPANY WHICH GAVE LOAN ASSE SSEE COMPANY NOT SHAREHOLDER OF COMPANY WHICH GAVE LOAN, LOAN NOT AS SESSABLE AS DEEMED 16 ITA 1563/D/2010; 1279 & 1747/DEL/2011 DIVIDEND U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961. HONBLE DELHI HIGH COURT HAS, INTER ALIA, OBSERVED AS UNDER: FURTHER, IT IS AN ADMITTED CASE THAT UNDER THE NORM AL CIRCUMSTANCES, SUCH A LOAN OR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY A LEGAL FICTION CREATED UNDER S ECTION 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT T HIS LEGAL PROVISION RELATES TO 'DIVIDEND'. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LE GAL FICTION DOES NOT EXTEND TO SHAREHOLDER'. WHEN WE KEEP IN M IND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT WOULD ALSO BE TREATED AS DIVIDEND. THE FICT ION HAS TO STOP HERE AND IS NOT TO BE EXTENDED FURTHER FOR BRO ADENING THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS IN THE FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS A ND SUCH DIVIDEND CANNOT BE GIVEN TO NON- MEMBERS. THE SECON D CATEGORY SPECIFIED UNDER SECTION 2(22)(E) OF THE AC T, VIZ. A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF T HE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DIVIDEND. IF THE IN TENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF 'DEEMING SHARE-HOLDER, TH EN THE LEGISLATURE WOULD HAVE INSERTED A DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. MOST OF THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE REVENUE WO ULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FROM THIS PE RSPECTIVE . 39. ADMITTEDLY, THE ASSESSEE WAS NOT A SHAREHOLDER OF RADHIKA SECURITIES PVT. LTD. AND, THEREFORE, NO DEEMED DIVIDEND COULD BE ADDED IN THE HANDS OF 17 ITA 1563/D/2010; 1279 & 1747/DEL/2011 THE ASSESSEE COMPANY. ACCORDINGLY, WE SEE NO REASO N TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION. GROUN DS IS DISMISSED. 40. IN THE RESULT, ALL THE THREE APPEALS PREFERRED BY THE REVENUE STAND DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 30/06/2016. SD/- SD/- (BEENA A. PILLAI) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30/06/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.