The DCIT, Central Circle-1(3), Ahmedabad V. Sujal Leasing & Finance Pvt.Ltd., Ahmedabad

ITA 1524/AHD/2010

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1172 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) I.T. A. NO. 1524/AHD/2010 (ASSESS MENT YEAR: 2005-06) ACIT, CENTRAL CIRCLE 1(3), AHMEDABAD V/S SUJAL LEASING AND FINANCE P. LTD. 1 ST FLOOR, H.N. HOUSE NR. OLD HIGH COURT NAVRANGPURA, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AACCS 1273Q APPELLANT BY : SHRI NARENDRA SINGH, SR. D .R. RESPONDENT BY : SHRI S.N. SOPARKAR WITH BAND ISH SOPARKAR, A.R. ( )/ ORDER DATE OF HEARING : 18-08-2015 DATE OF PRONOUNCEMENT : 21 -08-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-I, AHMEDABAD DATED 19.03.2010 FOR A.Y. 2005-06. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS STATED TO BE AN INVESTMENT COMPANY RE GISTERED AS NON BANKING FINANCE COMPANY WITH RESERVE BANK OF INDIA. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2005-06 ON 27.10.2005 DEC LARING TOTAL INCOME AT RS. 2,13,58,400/-. THE CASE WAS SELECTED FOR SCRUTI NY AND THEREAFTER THE ITA NO 1524 /AHD/2010 . A.Y. 2005-06 2 ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORD ER DATED 31.12.2007 AND THE TOTAL INCOME WAS DETERMINED AT RS. 2,13,58, 400/- BUT THE PROFITS ON SALE OF SHARES WAS TREATED AS BUSINESS INCOME INS TEAD OF SHORT TERM CAPITAL GAINS AS CONSIDERED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO V IDE ORDER DATED 19.03.2010 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US A ND HAS RAISED THE FOLLOWING EFFECTIVE GROUND:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRE CTING THE ASSESSING OFFICER TO TAX SURPLUS OF RS.2,11,59,808/- ARISING FROM SALE OF SH ARES AND SECURITIES AS SHORT TERM CAPITAL GAINS AS PER THE PROVISION OF SECTION 111A AND NOT AS BUSINESS INCOME. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD SOLD SHARES AND THE PROFIT EARNED ON ITS SALE WAS C ONSIDERED AS SHORT TERM CAPITAL GAINS. A.O ON PERUSING THE DETAILS THAT WE RE SUBMITTED BY THE ASSESSEE NOTED, THAT THE PURCHASE AND SALE OF SHARE S WERE IN EXCESS OF RS. 20 CRORES, THE ASSESSEE HAD SOLD THE SHARES WITHIN A S HORT PERIOD AND THE ACTIVITIES OF PURCHASE AND SALE OF SHARES WERE FREQ UENT AND THAT DURING THE YEAR, ASSESSEE HAD ACQUIRED SHARES FROM THE PERSONS INVOLVED IN IPO SCAM IN LARGE QUANTITIES. A.O THEREFORE CONCLUDED THAT T HE MOTIVE OF THE ASSESSEE WAS TO EARN MAXIMUM PROFIT AND NOT TO HOLD THE SHAR ES AS INVESTMENT AND THEREFORE THE ASSESSEE WAS A DEALER IN SHARES AND S ECURITIES AND NOT AN INVESTOR. HE ACCORDINGLY TREATED THE SURPLUS ARISIN G ON SALE OF SHARES OF RS. 2,11,59,808/- AS BUSINESS INCOME INSTEAD OF CAPI TAL GAINS. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLD ING AS UNDER:- ITA NO 1524 /AHD/2010 . A.Y. 2005-06 3 9. APPLYING THE RATIO OF HIPOLIN CASE, SUPRA, IT IS OBSERVED THAT IN THE PRESENT CASE, SURPLUS AMOUNT OF RS.2,11,59,808/-, HAS ARISEN AS T HE APPELLANT COMPANY HAD INVESTED IN SHARES ITS OWN FUNDS. THE COMPANY IS NOT HAVING ANY OBJECT CLAUSE AS PER THE MEMORANDUM OF ASSOCIATION WHICH AUTHORIZES IT TRADI NG IN SHARES. HOWEVER, THE APPELLANT IS AUTHORIZED TO INVEST, FUNDS IN SHARES AND SECURITIES AND IMMOVABLE PROPERTIES AS A SUPPLEMENTARY OBJECT. IT IS ALSO NOTICED THAT INVESTMENT IN SHARES IS SHOWN BY THE APPELLANT IN THE ACCOUNT UNDER THE HEAD INVESTMENT AND NOT STOCK IN TRADE. THUS, THE APPELLANT'S INTENTION OF MAKING INVESTMENT WAS CLEA R. THE APPELLANT HAS NOT INCURRED ANY INTEREST ON BORROWINGS FOR SUCH INVESTMENT. THERE I S NO MOTIVE OF TRADING IN SHARES ESTABLISHED BY THE ASSESSING OFFICER EXCEPT REFERRI NG TO THE VOLUME AND NUMBER OF TRANSACTIONS, I ALSO APPRECIATE THE ARGUMENTS THAT THE ASSESSING OFFICER'S CONTENTION ABOUT PERIOD OF HOLDING ARE NOT CORRECT PARTICULARL Y IN VIEW OF THE FACT THAT DEFINITION OF SHORT TERM CAPITAL ASSET IN RESPECT OF SHARES AND S ECURITIES ITSELF SPECIFICALLY PROVIDES THAT THE PERIOD OF HOLDING WOULD BE LESS THAN ONE YEAR. THIS ITSELF SUGGEST THAT THE SHORT PERIOD OF HOLDING IS NOT THE CRITERIA TO BE CONSIDERED AS TRADING TRANSACTION. APART FROM THIS, THE SECTION 111A ALSO PROVIDES FOR SPECIFIC TREATMENT O F TAX IN RESPECT OF SHORT TERM CAPITAL ASSET, PARTICULARLY WHEN STT HAS BEEN PAID. IN APPE LLANT'S CASE, THE TRANSACTIONS ARE SUBJECTED TO STT AND SUCH STT HAS NOT BEEN CLAIMED OR ALLOWED IN THE COMPUTATION OF INCOME. IN SO FAR AS THE IPO SCAM IS CONCERNED, IT IS SHOWN BY THE APPELLANT THAT THEY HAVE NOT PURCHASED ANY SHARES FROM EITHER PANCHAL G ROUP OR SUNGADH GROUP DURING THE YEAR. I ALSO APPRECIATE THE REFERENCE MADE TO THE M UMBAI ITAT. DECISION IN THE CASE OF GOPAL PUROHIT 29 SOT 117, WHICH HAS BEEN SUBSEQUENT LY CONFIRMED BY HON'BLE BOMBAY HIGH COURT, WHICH SUPPORTS THE APPELLANT'S EXPLANAT ION. THE OTHER JUDICIAL DECISIONS RELIED UPON BY THE AUTHORIZED REPRESENTATIVE ARE AL SO SUPPORTING ITS EXPLANATION. SIMILAR ISSUE HAS ARISEN IN CASE OF APPELLANT COMPANY IN AY . 2006-2007 WHEREIN I VIDE MY ORDER DATED 15/10/2009 IN APPEAL NO CIT(A)-I/CC1(3)/31/20 08-2009 HAS HELD THAT PROFIT EARNED FROM SALE OF SHARES OTHER THAN SHARES ACQUIR ED THROUGH RUPAL NARESH PANCHAL AND M/S SUNGANDH ESTATE & INVESTMENT PVT LIMITED AS SHORT TERM CAPITAL GAINS CHARGEABLE TO TAX @ 10% AS PER PROVISIONS OF SECTIO N 111A AS FAR AS APPELLANT'S TRANSACTIONS WITH MS. RUPAL PANCHAL IN THE YEAR UND ER CONSIDERATION ARE CONCERNED, IT IS NOTICED THAT THE APPELLANT HAS ADVANCED RS.3,33,68,400/- TO MS. RUPAL N. PANCHAL ON ITA NO 1524 /AHD/2010 . A.Y. 2005-06 4 11.03.2005 (BY CHEQUE) AND SAME HAS BEEN RECEIVED B ACK BY CHEQUE ON 30.03.2005. THE APPELLANT HAS NOT RECEIVED ANY SHARES FROM MRS. RUP AL N. PANCHAL IN THE PREVIOUS YEAR UNDER CONSIDERATION. IN THE CIRCUMSTANCES, MERELY B ECAUSE THE APPELLANT HAS SOLD THE SHARES WHICH WERE PURCHASED IN BOOMING PERIOD AND I T EARNED SURPLUS BY WAY OF CAPITAL GAIN, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HO LDING IT AS A BUSINESS PROFIT. HE IS DIRECTED TO TAX SUCH SURPLUS OF RS.2,11,59,808/- AS SHORT TERM CAPITAL GAINS AS PER PROVISIONS OF SECTION 111 A. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D.R. TOOK US THROUGH THE FINDINGS OF A.O AND SUPPORTED HIS ORDER. LD. A.R. ON THE OTHER HAND REITERATED THE SU BMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT AS PE R THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE, IT IS ONLY AUTHORIZED TO MAKE INVESTMENT IN SHARES AND NOT TO TRADE IN SHARES AND THAT THE ASSE SSEE IS AN INVESTMENT COMPANY REGISTERED AS NON BANKING FINANCE COMPANY (NBFC) WITH RESERVE BANK OF INDIA. HE FURTHER SUBMITTED THAT T HE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NOT BORROWED FUNDS AND FU RTHER SUBMITTED THAT THE NET WORTH OF THE ASSESSEE AS PER THE BALANCE SH EET IS MORE THAN RS. 9 CRORES AND ASSESSEE HAS NO BORROWINGS AND FOR WHICH HE POINTED TO THE COPY OF THE BALANCE SHEET AS AT 31 ST MARCH, 2005 WHICH IS PLACED AT PAGE 68 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE TOTAL SCR IPS IN WHICH THE ASSESSEE HAD TRADED WERE IN 23 COMPANIES AND EVEN IN THE CAS E OF CIT VS. VAIBHAV SHAH (TAX APPEAL NO. 77 OF 2010 ORDER DATED 27.06.2 012), WHERE THE ASSESSEE HAD ENTERED IN 64 SALE TRANSACTIONS IN 27 SCRIPS AND 17 SALE TRANSACTIONS IN 4 SCRIPS, THE HONBLE GUJARAT HIGH COURT HELD THE SURPLUS TO BE CAPITAL GAINS. HE FURTHER PLACED RELIANCE ON TH E DECISION OF AHMEDABAD ITA NO 1524 /AHD/2010 . A.Y. 2005-06 5 TRIBUNAL IN THE CASE OF SMT. SMRUTI SHAH ITA NO. 32 14 AND THE DECISION OF BOMBAY TRIBUNAL IN THE CASE OF DCIT VS. E-CAP PARTN ERS (2014) 45 TAXMAN.COM 342 (MUM). HE THUS SUPPORTED THE ORDER O F LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE TR EATMENT OF SURPLUS ARISING OUT OF SALE OF SHARES AS CAPITAL GAINS OR BUSINE SS INCOME. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION AND AFTER PLACIN G RELIANCE ON THE DECISION IN THE CASE OF AHMEDABAD TRIBUNAL IN THE CASE OF AC IT VS. HIPOLIN LTD. ITA NO. 4259/A/2007 HAS GIVEN A FINDING THAT THE INVEST MENT IN SHARES WERE SHOWN BY THE ASSESSEE UNDER THE HEAD INVESTMENT AND NOT STOCK IN TRADE, ASSESSEE HAD NOT INCURRED ANY INTEREST EXPENSE FOR MAKING THE INVESTMENT AND THE STT PAID BY THE ASSESSEE HAS NOT BEEN CLAIM ED AS DEDUCTION IN THE COMPUTATION OF INCOME. HE HAS FURTHER GIVEN A FINDI NG THAT ASSESSEE DURING THE YEAR HAS NOT PURCHASED ANY SHARES FROM THE GROU PS INVOLVED IN IPO SCAM. BEFORE US, REVENUE HAS NOT CONTROVERTED THE F INDINGS OF LD. CIT(A) NOR HAS BROUGHT ON RECORD ANY CONTRARY BINDING DECI SION IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDE R OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 21 - 08- 2015 . SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY