DEEPLAK FINANCIAL SERVICES LTD., Kolkata V. I. T.O. Wd-6(1), Kolkata,

ITA 1475/KOL/2008

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6643 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P P SARKAR
• Assessee Lawyers: S L KOCHAR
• Keywords: Capital asset; Business income; Opportunity of being heard; Fair market value
• Section: 143(3); 14A

Judgement Text

, , , , , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [ . . . . . . . . , ,, , , ,, , , ] [BEFORE HONBLE SHRI B. R. MITT AL, JM & HONBLE SHRI AKBER BASHA, AM] !' !' !' !' / I.T.A NO. 1475/KOL/2008 #$ %&' #$ %&' #$ %&' #$ %&'/ // / ASSESSMENT YEAR : 2005-06 DEEPLOK FINANCIAL SERVICES LIMITED -VS .- INCOME TAX OFFICER/WARD-6(1) KOLKATA. [PAN : AABCD 0576 A] KOLKATA (*+ /APPELLANT ) (-.*+/ RESPONDENT ) *+ / FOR THE APPELLANT : / /SHRI S. L. KOCHAR -.*+ / FOR THE RESPONDENT : / / SHRI P. P. SARKAR /O R D E R [ , ] PER AKBER BASHA, AM THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2005-06 AGAINST ORDER OF CIT (A)- VI, KOLKATA DATED 21.05.2008 ON THE FOLLOWING GROUN DS :- (1) FOR THAT THE ORDER OF THE LD. CIT(A) WAS ARBITRARY AND WITHOUT ANY BASIS. (2) FOR THAT THE ORDER PASSED BY THE LD. CIT(A) WAS PER VERSE AS HE EXCEEDED HIS JURISDICTION AND AUTHORITY IN NOT STRICTLY FOLL OWING THE PROCEDURE LAID DOWN IN SECTION 250 OF THE INCOME TAX ACT, 1961. (3) FOR THAT THE ORDER OF THE LD. CIT(A) IS IN VIOLATIO N OF THE INSTRUCTIONS NO.20/2003 [F. NO.279/MISC. 53/2003/ITJ] DATED 23.1 2.2003 OF THE CENTRAL BOARD OF DIRECT TAXES U/S. 119 OF THE INCOM E TAX ACT, 1961 AND HENCE THE APPEAL SHOULD BE TREATED TO HAVE ALLOWED BY THE LD. CIT(A). (4) FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS.11,61,266/- MADE BY THE A.O. BY APPLYING HE PROV ISIONS OF SECTION 14A. (5) FOR THAT THE LD. CIT(A) OUGHT TO HAVE ACCEPTED THE SUBMISSIONS OF THE APPELLANT THAT THE DISALLOWANCE OF RS.11,61,266/- M ADE BY THE A.O. WAS TOTALLY UNCALLED FOR AND OTHERWISE HEAVY AND EXCESS IVE AND WAS WITHOUT ANY FEASIBLE BASIS. (6) FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORD ER OF THE A.O. WHO HELD THAT THERE WAS UNDERSTATEMENT OF INCOME OF RS. 6,67,564/- WHILE ANALYZING APPELLANTS TRADING AND INVESTMENT ACCOUN T IN SHARES. ITA NO. 1475/KOL/2008 2 (7) FOR THAT THE LD. CIT(A) FAILED TO TAKE NOTE OF AND DULY APPRECIATE THE FACTS ON RECORD AND ERRED IN DISMISSING THE APPEAL OF THE APPELLANT. (8) FOR THAT FURTHER GROUNDS OF APPEAL MAY KINDLY BE AL LOWED TO BE TAKEN AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPAN Y FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION ON 29.10.2005 AT A TOTAL I NCOME OF RS.56,72,520/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) ON 21.09.2006. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT BY THE ASSESSING OFFICER. WHILE DOING ASSESSMENT, ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.11,61,266/- BY APPLYING PROVISIONS OF SECTION 14A OF THE ACT AND ASSESSING OFFICER ALSO M ADE THE ADDITION OF RS.6,67,564/- BEING UNDER STATEMENT OF INCOME BY ANALYZING THE TRADING AND IN VESTMENT ACCOUNT OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE WENT IN AP PEAL BEFORE CIT (A). ON APPEAL, CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 3. AGGRIEVED FURTHER, ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NOS. 1 TO 3 IN THE GROUNDS OF APPEAL OF T HE ASSESSEE, WAS NOT PRESSED AT THE TIME OF HEARING. HENCE, GROUND NOS. 1 TO 3 OF THE ASSESSEE ARE DISMISSED AS NOT PRESSED. 5. GROUND NOS. 4 & 5 IS RELATING TO DISALLOWANCE OF RS.11,61,266/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) BY APPLYING PROVISIONS OF SECTION 14A OF THE ACT. 6. AT THE TIME OF HEARING, LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THERE WAS SOME ARITHMETICAL MISTAKE BY THE ASSESSING OFFI CER IN HIS ASSESSMENT ORDER WHEREIN HE HAS TREATED THE LONG TERM CAPITAL GAIN AS RS.77,13,674/ - WHEREAS ACTUAL LONG TERM CAPITAL GAIN IS RS.60,17,764/- ONLY. HENCE, IT IS SUBMITTED THAT TH E ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RECOMPUTATION. FOR WHICH LD. DEPARTMENTAL REPRESENTATIVE HAS NOT MADE ANY SERIOUS OBJECTION TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE MATTE R AFRESH. UNDER THIS CIRCUMSTANCES AND IN THE INTERES T OF JUSTICE, WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN AC CORDANCE WITH LAW AND AS PER RATIO OF JUDGMENT IN THE CASE OF GODREJ BOYCEE MANUFACTURING CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOMBAY) AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. HENCE, GROUND NOS. 4 & 5 RAISED BY THE ASSESSEE ON THIS ISSUE IS TREATED AS ALLOWED FO R STATISTICAL PURPOSES. ITA NO. 1475/KOL/2008 3 7. GROUND NO.6 RELATES TO ALLEGED UNDER STATEMENT O F INCOME OF RS.6,67,564/- AND ITS ADDITION TO THE INCOME OF THE ASSESSEE BY THE ASSESSING OFFI CER AND CONFIRMED BY CIT (A). 8. WITH REGARD TO GROUND NO.6, ASSESSEE HAS FILED H IS WRITTEN SUBMISSION AS UNDER :- THE LAST GROUND OF APPEAL RELATES TO THE AMOUNT OF RS.6,67,564/- WHICH HAS BEEN WORKED OUT BY THE A.O. AS UNDERSTATEMENT OF IN COME WHILE ANALYZING APPELLANTS TRADING & INVESTMENT PORT FOLIO IN SHARES. THE A.O. REFERRED TO THE AUDITED ACCOUNTS AND THE NOTES OF THE AUDITORS. SCHEDULE - 9 HAS BEE N QUOTED BY HIM IN THE ORDER OF ASSESSMENT AND DESPITE THE FACT THAT THE APPELLANT SUBMITTED DETAILS OF THE SHARES HELD ON 31.03.2004 WHICH WERE CONVERTED TO INVESTMENT AC COUNT AND SUBSEQUENT DISINVESTMENT THE A.OS OBSERVATION IS THAT SALE OF CONVERTED STOCK WILL BE TREATED AS TRADING ACTIVITY. THE A.O. HAS REFERRED TO PROVISIO NS OF SEC. 45 (2). THESE PROVISIONS ARE AS UNDER :- NOTWITHSTANDING ANYTHING CONTAINED IN SUBSECTION (1 ), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY O F CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK- IN-TRADE OF A BUSINESS CARRIED ON BY HIM SHALL BE C HARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WH ICH SUCH STOCK- IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AN D, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF TH E ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEME D TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. THUS, THE A.O. HAS ACCEPTED THE PROPORTION IN LAW T HAT CAPITAL ASSET MAY GET COLOR OF STOCK-IN-TRADE. BUT THEN THE A.O. SAYS THAT THER E IS NO PROVISION IN THE INCOME TAX ACT, 1961 IN RESPECT OF CONVERSION OF STOCK-IN-TRADE INT O INVESTMENT. HERE THE SUBMISSION OF THE APPELLANT IS THAT THERE IS NO PROVISION IN THE INCOME TAX ACT, 1961 PROHIBITING THE CONVERSION OF STOCK-IN-TRADE TO CAPITAL INVESTMENT AND AS SUCH THE ACTION OF THE ASSESSEE IN CONVERTING ITS STOCK-IN-TRADE OF SHARES TO INVES TMENT PORT FOLIO CAN NOT BE TREATED AS AGAINST ANY PROVISION OF THE INCOME TAX ACT, 1961. ONE CAN NOT READ INTO THE LAW WHEN THERE IS NO SPECIFIC PROVISION IN THE SAME. THE A.O. HAS MADE ADDITION OF RS.6,67,564/- WHICH H AS A MISTAKE. THIS IS WORKED OUT AS UNDER BY THE APPELLANT. RS.5,66,414/- BEING THE CAPITAL GAINS ON CONVERTED SHARES FROM TRADING TO INVE STMENT A/C AS PER SHEET LESS: RS.1,01,150/- BEING THE SALE VALUE OF 5000 SH ARES OF CHEMICAL FERTILIZER LTD. AS PER SHEET ________________ RS .4,65,264/- ADD : RS.2,02,300/- THE A.O. HAS TAKEN DOUBLE OF SALE AMOUNT OF SHARE S OF CHEMICAL FERTILISERS LTD. DUE TO MISTAKE AS T HE RS.6.67,564/- APPELLANT DID SELL 10000 SHARES (5000 CONVERTED & 5000 ALREADY EXISTING IN INVESTMENT A/C). ACCORDINGLY, WITHOUT PREJUDICE IF THE WORKING IS T O BE MADE AS PER A.O.S ITA NO. 1475/KOL/2008 4 PROCEDURE & OBSERVATIONS THE AMOUNT WILL BE S.5,66, 414/- & NOT RS.667,564/- 8.1 CIT (A) HAS CONFIRMED THE SAME BY OBSERVING AS UNDER :- I HAVE CONSIDERED THE SUBMISSION OF A/R OF THE APP ELLANT AND ALSO GONE THROUGH THE ASSESSMENT ORDER AND FINDING OF ASSESSI NG OFFICER AND ALSO CBDT CIRCULARS AND JUDICIAL PRONOUNCEMENTS. THE CBDT INS TRUCTION NO 1827 DATED 31.08.1989 HAD LAID DOWN CERTAIN TESTS TO DISTINGUI SH BETWEEN THE SHARES HELD AS STOCKS IN THE TRADE AND SHARES HELD AS INVESTMENTS. THE FOLLOWING SUPPLEMENTARY INSTRUCTION PROVIDED IN THIS REGARD AS FOR THE FURT HER GUIDELINES FOR DETERMINING WHETHER A PERSON IS A TRADER IN STOCKS OR AN INVEST OR IN STOCKS. I) WHETHER THE PURCHASE AND SALE OF. SECURITIES WAS AL LIED TO HIS USUAL TRADE OR BUSINESS/WAS INCIDENTAL TO IT OR WAS AN OCCASIONAL INDEPENDENT ACTIVITY. FROM THE DETAILS IT IS OBSERVED THAT ASSESSEE COMPA NY USUALLY TRADING IN SECURITIES AND IT IS NOT AN OCCASIONAL. II) WHETHER THE SCALE OF THE ACTIVITIES WERE SUBSTANTIA L. FROM THE DETAILS IT IS OBSERVED THAT THE HUGE NUMBE R OF SHARES WAS ACQUIRED AND ALSO SOLD ON DIFFERENT OCCASIONS SO MAIN MOTIVE WAS TO EARN PROFIT BY DEALING IN SHARES. THE HONBLE SUPREME COURT IN THE CASE OF C. VENKAT A SWAMI NAIDU & CO. VS. CIT (1959) 35 ITR 594 LAID DOWN CERTAIN PRI NCIPLES IN DECIDING THE CHARACTER OF TRANSACTIONS :- WHETHER THE PURCHASER WAS A TRADER AND THE PURCHASE OF THE COMMODITIES AND ITS RESALE WERE ALLIED TO HIS USUAL TRADE OR BU SINESS OR WERE INCIDENTAL TO IT. 1) THE NATURE AND QUANTITY OF THE COMMODITY PURCHAS ED AND RESOLD IF THE COMMODITY PURCHASED IN VERY LARGE QUANTITY, IT COULD TEND TO ELIMINATE THE POSSIBILITY OF INVESTMENTS FOR PERSONAL USE, PO SSESSION OR ENJOYMENT. 2) THE REPETITION OF THE TRANSACTION :- THE SUPREME COURT OBSERVED THAT THE PRESENCE OF ALL THESE FACTORS MAY BE HELD IN THE COURT TO DRAW AN INFERENCE THAT A TRANSACTION IN THE NATURE OF TRADE. THE SUPREME COURT IN THIS CASE ALS O DISCUSSED THE TEST OF INTENTION, IT HELD THAT IN CASES WHERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION OF RESALE AT A P ROFIT AND THE PURCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSEL F OR OTHERWISE ENJOYING IT OR USING IT, THE PRESENCE OF SUCH INTENTION IS A RELEVANT FACTOR AND UNLESS IT IS OFF-SET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STRONG PRESUMPTION THAT A TRANSACTION IS AN ADVENTURE IN T HE NATURE OF TRADE. ITA NO. 1475/KOL/2008 5 SO AS PER PRINCIPLE LAID DOWN BY HONBLE SUPREME CO URT IT IS SEEN THAT : I) THE ASSESSEE COMPANY PURCHASED THE SHARE WAS AS A T RADER AND DEALER IN SHARES AND PURCHASE OF SHARES AND ITS RESALE WERE ALLIED TO ITS USUAL TRADE OR BUSINESS. II) THE SHARES WERE ACQUIRED IN LARGE NUMBER OF QUANTIT Y WITH THE OBJECT TO RESALE. III) THE PURCHASE AND SALE OF SHARES CLEARLY INDIC ATE REPETITION OF THE SHARE TRANSACTIONS. SO IT IS VERY CLEAR THAT ASSESSEE COMPANY TRADING I N SHARES. THE HONBLE SUPREME COURT IN THE CASE OF SARDER IND RA SINGH & SONS LTD VS. CIT (1953) 24 ITR 415 ALSO HELD THAT THE SURPLU S RESULTING FROM SALE OF SHARES AND SECURITIES CONSTITUTED BUSINESS INCOME. THE OBJ ECT CLAUSE INTER ALIA PROVIDED THAT THE COMPANY WAS INCORPORATED WITH THE OBJECT O F CARRYING ON BUSINESS OF FINANCIERS AND WAS ALSO EMPOWERED TO INVEST AND DEA L WITH THE MONIES OF THE COMPANY NOT IMMEDIATELY REQUIRED FOR ITS BUSINESS U PON SUCH SECURITIES AND IN SUCH MANNER AS MIGHT FROM TIME TO TIME BE DETERMINE D. IT WAS HELD IN THAT CASE TO CONSTITUTE BUSINESS INCOME, IT WAS NOT NECESSARY TH AT SURPLUS SHOULD HAVE RESULTED FROM SUCH A COURSE OF DEALING IN SECURITIES AS BY I TSELF WOULD AMOUNT TO THE CARRYING ON OF BUSINESS OR IF THE REALIZATION OF SE CURITIES IS A NORMAL STEP OF CARRYING ON THE ASSESSEES BUSINESS. THE SUPREME CO URT OBSERVED THAT THE PRINCIPLE APPLICABLE IN ALL SUCH CASES WAS WELL SET TLED AND THE QUESTION ALWAYS WAS WHETHER THE SALES WHICH PRODUCED THE SURPLUS WERE S O CONNECTED WITH THE CARRYING ON OF THE ASSESSEES BUSINESS THAT IT COULD FAIRLY BE SAID THAT THE SURPLUS WAS THE PROFITS AND GAINS OF SUCH BUSINESS. IN VIEW OF THE AFORESAID FACTS, AND AS PER CBDT CIR CULAR NO.4/2007 DATED 15.06.2007 AND DECISIONS OF HONBLE SUPREME COURT I T IS VERY CLEAR THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF DEA LING IN SHARES AND ACCORDINGLY PROFIT EARNED BY THE ASSESSEE COMPANY I N SHARE TRANSACTION CONSTITUTE BUSINESS INCOME AND ACCORDINGLY, ASSESSED UNDER THE HEAD BUSINESS AND THE CLAIM OF THE ASSESSEE COMPANY TO TREAT THE SAME AS CAPITA L GAIN DENIED. THE ACTION OF ASSESSING OFFICER IS SUSTAINED. ACCORDINGLY, GROUND NO. 5 IS DISMISSED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CIT (A), BY FOLLOWING THE CBDT INSTRU CTION NO.1827 DATED 31.08.1989 WHICH LAID DOWN CERTAIN TESTS TO DISTINGUISH BETWEEN THE SHARE S HELD AS STOCKS IN THE TRADE AND SHARES HELD AS INVESTMENTS AND HE HAS ALSO FOLLOWED THE JUDGMENT O F HONBLE APEX COURT IN THE CASE OF G. VENKATASWAMI NAIDU & CO. VS. CIT REPORTED IN 35 ITR 594 WHICH LAID DOWN CERTAIN PRINCIPLES IN DECIDING THE CHARACTER OF TRANSACTION. IT APPEARS T HAT THERE IS NO PROVISIONS IN THE INCOME TAX ACT IN RESPECT OF CONVERSION OF STOCK IN TRADE INTO INVEST MENT AND ITS TREATMENT. HENCE, THE LOWER ITA NO. 1475/KOL/2008 6 AUTHORITIES RIGHTLY MADE THE ADDITION AS THERE WAS UNDER STATEMENT OF INCOME BY ANALYZING THE ASSESSEES TRADING AND INVESTMENT ACCOUNT IN SHARES . 10. HOWEVER, WE FIND MERIT IN THE ALTERNATE GROUND OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS MADE ADDITION OF RS.6,67,564/- ERRONEOUSLY AS A GAINST RS.5,06,414/- WHICH WAS ACTUALLY WORKED OUT BY THE ASSESSEE AS PER ASSESSING OFFICER S PROCEDURE AND OBSERVATION WHICH WERE GIVEN AT PAGE 6 OF THE PAPER BOOK FILED BY THE ASSESSEE. UNDER THE CIRCUMSTANCES, WE FEEL IT PROPER AND JUST TO RESTORE THE ISSUE TO THE FILE OF THE ASSESS ING OFFICER TO RECOMPUTE THE ADDITION AND ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO REL OOK THE COMPUTATION MADE BY THE ASSESSEE AS PER ASSESSING OFFICERS PROCEDURE AND OBSERVATION AND R ECOMPUTED THE WORKING IF THE ASSESSEES PLEA IS CORRECT. HENCE, GROUND NO.6 RAISED BY THE ASSESS EE IS PARTLY ALLOWED. 11. GROUND NOS. 7 & 8 IS GENERAL IN NATURE AND NO A DJUDICATION IS REQUIRED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 0 1 2# 3 04 5 ORDER PRONOUNCED IN THE COURT ON 13. 05. 2011. SD/- SD/- [ . . , ] [ , ] [ B. R. MITTAL ] [ AKBER BASHA ] JUDICIAL MEMBER ACCOUNTANT M EMBER 5 / DATED : 13TH MAY, 2011. 6 -7 87&9 - COPY OF THE ORDER FORWARDED TO: 1. % /APPLICANT- DEEPLOK FINANCIAL SERVICES LTD., C/O. S.L. KOCHAR, ADVOCATE, 86, CANNING STREET , KOLKATA-1. 2 -.*+ / RESPONDENT : INCOME TAX OFFICER/WARD-6(1), AAYAKA R BHAWAN, KOLKATA. 3. # / CIT 4. # ( )/ CIT(A) 5. %:3 -# / DR, KOLKATA BENCHES, KOLKATA [ .7 - / TRUE COPY] #2 / BY ORDER ; / !< /DEPUTY/ASSTT. REGISTRAR . [KKC %=> #?< @% /SR.PS]