ITO, Ward - 44(4), Kolkata, Kolkata V. Daulal Janardhan Kumar Kothari (HUF), Kolkata

ITA 1433/KOL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75018 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2011
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER ITA NO. 143 4 / KOL / 2011 ASSESSMENT YEAR :2007-08 INCOME TAX OFFICER, WARD-44(4), 3, GOVT. PLACE, (GR. FLOOR), KOLKATA 700 001 V/S . VEENA KOTHARI 4, BYSCK STREET, KOLKATA 700 007 [ PAN NO.AFYPK 7105 H ] / APPELLANT .. / RESPONDENT) & ITA NO.1433/KOL/2011 ASSESSMENT YEAR :2007-08 INCOME TAX OFFICER, WARD-44(4), 3, GOVT. PLACE, (GR. FLOOR), KOLKATA 700 001 V/S . DAULAL JANARDHAN KUMAR KOTHARI 4, BYSCK STREET, KOLKATA 700 007 [ PAN NO.AACHK4554K ] / APPELLANT .. / RESPONDENT) /BY APPELLANT SMT. RANU BISWAS, SR-DR /BY RESPONDENT SHRI S.L. KOCHAR, AR, & SHRI ANIL KOCHAR, AR /DATE OF HEARING 18-12-2013 /DATE OF PRONOUNCEMENT 27-01-2014 / // / O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- BOTH THESE APPEALS BY REVENUE ARE ARISING OUT OF S EPARATE ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-XXX, KOLKATA I N APPEAL NOS.442 & 440/CIT(A)-XXX/CIR-44/2009-10 DATED 27-07-2011. ASS ESSMENTS WERE FRAMED ITA NO.1434/KOL//2011 A.Y. 2007-08 ITO WD-44(4), KOL V. VEENA KOTHARI PAGE 2 BY DCIT, CIRCLE-44, KOLKATA U/S. 143(3) OF THE INCO ME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS SEP ARATE ORDERS DATED 30-12-2009 AND 31.12.2009 FOR ASSESSMENT YEAR 2007-08. 2. THE FIRST COMMON ISSUE IN THESE APPEALS OF REVEN UE IS AGAINST THE ORDERS OF CIT(A) DELETING THE ADDITION OF GAINS FRO M SHARE TRANSACTION TREATED AS CAPITAL GAINS INSTEAD OF BUSINESS INCOME AS TREA TED BY ASSESSING OFFICER. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NOS. 1 TO 4 IN RESPECT OF BOTH THE APPEALS:- 1. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN HOLDING THAT GAIN FROM SHARE TRANSACTION IS TO BE TREATED AS CAP ITAL GAIN INSTEAD OF BUSINESS INCOME WITHOUT CONSIDERING THAT THE SHARES WERE NOT PURCHASED OR SALE WITH THE SOLE MOTIVE OF INVESTMEN T WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE EARNED ONLY 2.15% D IVIDEND WHEREAS IT COULD HAVE EARNED MUCH MORE INVESTING THE SAME IN N ORMAL MODE OF INVESTMENT IN BANKS. 2. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS IN NOT CONSIDERING THE MAGNITUDE AND INTENTION OF TRANSACTION AND THE RATIO BETWEEN PURCHASE & SALE AS PER THE PRINCIPLES LAID DOWN IN CBDTS CIRCULAR NO. 4/2007 DATED 15.06.2007. 3. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS IN NOT RELYING UPON THE DECISION OF HONBLE SUPREME COURT PRONOUNCED IN THE CASE OF RAJA BAHADUR VISHESHWARA SINGH VS. CIT [(1961) 41 ITR 685 (SC)] WHEREIN IT WAS HELD BY THE APEX COURT THAT PURCHASE AND SAL E OF SHARES OF SUBSTANTIAL AMOUNTS AT FREQUENT INTERVALS CANNOT BE TREATED AS A CHANGE IN INVESTMENTS BUT HAVE TO BE TREATED AS DEALING IN SHARES AND TREATMENT OF SHARE DEALINGS IN EARLIER YEAR(S) IS N OT A FACTOR. 4. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS IN NOT CONSIDERING THAT IN TERMS OF PARA 11 OF CBDT CIRCULAR NO. 4/200 7 DATED 15.06.2007 THE PURCHASE AND SALE OF SHARES SHOWN BY THE ASSESS EE ARE ESSENTIALLY IN THE NATURE OF ASSESSEES BUSINESS ACTIVITIES AND AS SUCH THE CLAIM OF SEC. 10(38) ALLOWED BY THE CIT(A) IS UNJUSTIFIED AN D BAD IN LAW. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE DISCLOSED LONG TERM CAPITAL GAINS (LTCG) OF RS.43,59,492/- AND SHORT TERM CAPIT AL GAINS (STCG) OF RS.18,39,391 FROM SHARE TRANSACTIONS. THE ASSESSING OFFICER HAS GONE THROUGH THE NATURE OF TRANSACTION, THE MAGNITUDE OF TRANSACTION AND RATIO ITA NO.1434/KOL//2011 A.Y. 2007-08 ITO WD-44(4), KOL V. VEENA KOTHARI PAGE 3 BETWEEN SALES AND PURCHASES AND ACCORDINGLY HELD TH AT THE NATURE OF ACTIVITY OF THE ASSESSEE IS IN THE NATURE OF TRADE. AGGRIEVE D, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. BEFORE CIT(A), ASSESSEE FILED DETAILED CHART OF SCRIP-WISE QUANTITY OF SHARE PURCHASE AND SOLD DURING THE YEAR AS WELL AS CLOSING BALANCES. A.Y PURCHASES SALES TOTAL CAPITAL GAINS 2004-05 RS.1,35,39,873/- RS.1,34,42,338/- RS. 14,70,826/- 2005-06 RS.2,77,01,509 /- RS.2,68,41,493/- RS.62,34,404/- 2006-07 RS.2,33,63,411- RS.2,42,19,374/- RS.33,39,868/- 2007-08 RS.1,25,77,039/- RS.1,63,33,302/- RS.33,39,868/- 2008-09 RS.1,52,16,747/- RS. 99,95,724/- RS.23,06,713/- 2009-10 RS. 29,78,006/- RS. 26,50,720/- RS. 5,55,819- (-) THE ASSESSEE GAVE EXPLANATION AND THE BASIS ON WHIC H SHARE TRANSACTIONS WERE TREATED AS INVESTMENT IN SHARE IN THE BALANCE- SHEET AND OUT OF THOSE TRANSACTIONS, PROFIT OFFERED AS CAPITAL GAINS IN TH E RETURN OF INCOME. THE ASSESSEE EXPLAINED THAT THE SHARES WERE HELD BY WAY OF INVESTMENT WHICH IS TOTALLY WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HE LD THE SHARES AND THIS WAS DISCLOSED BEFORE THE AO DURING THE COURSE OF ASSESS MENT PROCEEDINGS. ACCORDINGLY, ASSESSEE IS MAINTAINING INVESTMENT ACC OUNTS IN SHARE CONSISTENTLY, AND REVENUE IS ALSO ACCEPTING THE INV ESTMENT, AND SHARES ARE VALUED AT COST PRICE AND NOT AT MARKET PRICE. I T WAS ALSO EXPLAINED THAT INVESTMENTS ARE MADE BY ASSESSEE OUT OF ITS OWN FUN DS AND CONSIDERING THE SAME THE CIT(A) DELETED THE ADDITION VIDE PARA-5 OF HIS APPELLATE ORDER AS UNDER:- 5. THE CONTENTIONS OF THE APPELLANT AS SUMMED UP A BOVE HAVE BEEN CONSIDERED IN THE CONTEXT OF THE FINDINGS ARRIVED A T BY THE ASSESSING OFFICER IN HIS ORDER WHILE TREATING THE INCOME FROM SHARE TRANSACTIONS AS APPELLANTS BUSINESS INCOME. IT IS SEEN THAT THE AP PELLANT HAS CONSISTENTLY BEEN SHOWING HER SHARES AS INVESTMENTS AND THE SAME HAS BEEN ACCEPTED AS SUCH BY THE DEPARTMENT IN EARLIER YEARS AND THE ASSESSING OFFICER HAS NOT BROUGHT IN ANY FRESH EVID ENCE IN HIS ITA NO.1434/KOL//2011 A.Y. 2007-08 ITO WD-44(4), KOL V. VEENA KOTHARI PAGE 4 ASSESSMENT ORDER FOR THE PRESENT YEAR TO THE CONTRA RY. HE HAS SIMPLY REFERRED TO THE MAGNITUDE OF SHARE TRANSACTION AND COME TO HIS OWN CONCLUSIONS ABOUT THE INTENTIONS OF THE APPELLANT. THE DETAILED EVIDENCES AND WRITE UP GIVEN BY THE APPELLANT IN SU PPORT HER ARGUMENTS, SUBSTANTIATE HER CLAIM OF BEING AN INVESTOR. IT IS ALSO CLEAR THAT THE ASSERTION THAT SHE IS AN INVESTOR CAN ONLY BE CHALL ENGED ON THE BASIS OF HER OWN RECORDS AND TRANSACTIONS WHICH COULD INDICA TE THAT IT IS ACTUALLY DOING TRADING BUSINESS. THIS IS NOT THERE IN THE AP PELLANTS CASE AND THE AO HAS FAILED TO DO SO OTHER THAN MAKING A LONG WIN DING ANALYSIS OF THE GUIDELINES LAID OUT IN CBDT CIRCULAR NO.4/2007 . THE RELIANCE OF ASSESSING OFFICER ON THE DECISION OF ITO VS. LILY E XPORTS PVT. LTD. OF HONBLE ITAT A BENCH, KOLKATA IS BASED ON DIFFERE NT FACTS AND CANNOT BE APPLIED IN THE APPELLANTS CASE. IN THE AFOREMEN TIONED CASE THE HONBLE ITAT HAS REFERRED TO SEVERAL FACTORS WHILE HOLDING THAT THE INCOME WAS NORMAL BUSINESS PROFIT REFERRING TO SHOR T PERIOD OF RETENTION AND OTHER FACTORS WHICH ARE MISSING IN THE CASE OF APPELLANT. ON THE OTHER HAND, THE DECISIONS IN THE CASE OF M/S. ASTIX ENTERPRISES AND M/S. ETERNA STEEL & INVESTMENT PVT. LD. SUPRA ARE SQUARE LY APPLICABLE IN THE APPELLANTS CASE. IT MAY ALSO BE MENTIONED THAT THE MATTER HAD BEEN CONSIDERED IN APPEAL IN HER OWN CASE FOR AY 1992-93 , AND DECIDED IN HER FAVOUR BY THE CIT(A) XXVI, KOLKATA IN HIS ORDER DATED 27-02-2002. CONSIDERING THE ABOVE, THE CONTENTION OF THE APPELL ANT IS ACCEPTED AND THE INCOME FROM SHARE TRANSACTIONS OF RS.43,59,492/ - IS TO BE TREATED AS OFFERED BY APPELLANT IN ITS INCOME-TAX RETURN AS LO NG TERM CAPITAL GAIN AND RS.18,39,391/- AS SHORT TERM CAPITAL GAINS. THIS GROUND OF THE APPELLANT IS THEREFORE ALLOWED. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS OF THE CASE RECORD. WE FIND THAT AO HAS TREATED THE ENTIRE INVE STMENT ACCOUNTS AS TRADING ACCOUNT TREATING THE TRANSACTIONS AS BUSINESS TRANS ACTIONS BUT THE ASSESSEE TREATED CAPITAL GAINS EITHER SHORT TERM OR LONG TER M. THE ASSESSEE HAS NEVER INVESTED ANY BORROWED FUNDS RATHER IT HAS INVESTED HER OWN FUNDS. THE ASSESSEE HAS DISCLOSED THE PURCHASE AND SALE AND GA INS ARISING OUT OF SALE AS CAPITAL GAINS ALL ALONG AND RELEVANT DETAILS ARE DISCLOSED ABOVE IN PARA 4. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT CIT(A) H AS RIGHTLY TREATED THE GAINS AS LTCG AND STCG, AS THE CASE MAY BE, OUT OF THESE SHARE TRANSACTIONS. WE UPHOLD THE ORDER OF CIT(A) AND THIS ISSUE OF REV ENUES APPEAL IS DISMISSED. ITA NO.1434/KOL//2011 A.Y. 2007-08 ITO WD-44(4), KOL V. VEENA KOTHARI PAGE 5 6. SIMILAR ARE THE FACTS IN THE CASE OF DULAL JANAR DHAN KUMAR KOTHARI (HUF) IN ITA NO. 1433/KOL/2011 FOR AY 2007-08 AND C IT(A) HAS ALSO DELETED EXACTLY ON SAME FACTS AND PROPOSITION OF LAW, WE TA KING A CONSISTENT VIEW, CONFIRM THE ORDER OF CIT(A). THE LD. DR AS WELL AS LD. COUNSEL FOR THE ASSESSEE CONCEDED THAT THE FACTS ARE EXACTLY IDENTI CAL IN BOTH THE CASES. HENCE, REVENUES APPEAL IN THIS CASE IS ALSO DISMIS SED. 7. ONE MORE ISSUE IN ITA NO. 1433 OF 2011 IS AS REG ARDS TO THE ORDER OF CIT(A) IN RESTRICTING THE ADDITION OF RS.5000/-. F OR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.5: 5. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT CONSIDERING THAT TO EARN A COMMISSION OF RS.1,16,95 4/- AND INTEREST OF RS.2100/- ONLY AN EXPENDITURE TO THE TUNE OF RS. 1,00,901/- (I.E. 84.75% OF TOTAL EARNING) IS COMPLETELY UNJUSTIFIED. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO MAD E AD HOC DISALLOWANCE OF RS.75,000/- OUT OF TOTAL EXPENDITURE OF LRS.1,09,00 1/- CLAIMED BY THE ASSESSEE IN THE P&L ACCOUNT FOR THE REASON THAT ONE EXPENDIT URE IS ON ACCOUNT OF INCOME TAX AT RS.6560/- AND OTHER EXPENSES LIKE PRI NTING AND STATIONERY, GENERAL EXPENSES, TEA, SALARY, RENT, EMPLOYEE WELFA RE ETC. AND THESE EXPENSES ARE INCURRED MOSTLY IN CASH ON SELF MADE V OUCHERS. AS THE ASSESSEE COULD NOT SUBSTANTIATE SUCH EXPENSES HE MA DE DISALLOWANCE AT RS.75,000/-. THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE BY OBSERVING IN PARA 6.2 AS UNDER: 6.2. IN APPEAL IT HAS BEEN SUBMITTED THAT THE EXPE NSES BY THEIR VERY NATURE HAVE TO BE IN CASH AND FULL NARRATION A RE RECORDED IN BOOKS. IT IS TOTALLY IMPROPER ON THE PART OF A.O. TO STATE THAT THE APPELLANT FAILED TO SHOW THAT EXPENSES WERE INCURRE D FOR THE PURPOSES OF BUSINESS. THE MATTER HAS BEEN CONSIDER ED. AS MENTIONED BY ME ABOVE, MAJOR PORTION OF THE EXPENSE S IS TOWARDS SALARY AND THEREFORE EVEN IF THE VOUCHERS A RE IN CASH OR SELF MADE THE DISALLOWANCE CAN BE ONLY TO THE EXTEN T OF REMAINING EXPENDITURE. ACCORDINGLY, THE DISALLOWAN CE RESTRICTED TO RS.5000/-. RELIEF RS.70,000/-. ITA NO.1434/KOL//2011 A.Y. 2007-08 ITO WD-44(4), KOL V. VEENA KOTHARI PAGE 6 9. WE FIND THAT THE AO HAS MADE DISALLOWANCE ON AD HOC BASIS AND THERE IS NO REASON FOR THE SAME. ONLY EXPENDITURE OF RS. 6560/- INCURRED ON ACCOUNT OF INCOME TAX IS TO BE DISALLOWED APART FROM DISALL OWANCE RESTRICTED AT RS.5000/-. WE DIRECT THE AO ACCORDINGLY. THIS ISS UE OF REVENUES APPEAL IS PARTLY ALLOWED. 10. IN THE RESULT, REVENUES APPEAL IN ITA NO. 1434/K/2 011 IS PARTLY ALLOWED AND THAT OF ITA NO.1433/K/2011 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT 27/0 1/2014 SD/- SD/- (ABRAHAM P GORGE) ( MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP !' #- 27/ 01/2014 ) **+ **+ **+ **+ ,+ ,+ ,+ ,+ / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '/'*0 1 / CONCERNED CIT 4. 1- / CIT (A) 5. +34 ***0, *0 , / DR, ITAT, KOLKATA 6. 478 9: / GUARD FILE. BY ORDER/ , ;/< '= *0 , )