RACHIT INVESTMENTS LTD, MUMBAI V. ITO 8(3)(3), MUMBAI

ITA 1533/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7241 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 05-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G GURUSWAMI
• Keywords: Business income; Capital Gains
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI A.L. GEHLOT, A.M. AND SMT. P. MADHAVI DEVI, J.M. ITA NO. 1533/M/2009 ASSESSMENT YEAR: 2005-06 M/S RACHIT INVESTMENTS LTD., APPELLANT 601, SUMROCK APTS., JUHU LANE, ANDHERI (W), MUMBAI 400 058 (PAN AAACR2615M) VS. INCOME TAX OFFICER, RESPONDENT 8(3)(3), ROOM NO. 202, AAYAKAR BHAVAN, MUMBAI 400 020. APPELLANT BY : MR. BHUPENDRA SHAH RESPONDENT BY : MR. G. GURUSWAMI ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- XXIX, MUMBAI, PASSED ON 19.12.2009 FOR THE ASSESSMENT YEAR 2005-06. 2. THE GROUND RAISED IN THIS APPEAL IS IN RESPECT O F ADDITION OF RS. 6,04,200/- AS INCOME BENEFIT U/S 28(IV) OF THE ACT ON ACCOUNT OF AY 2005-06. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING T HE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD S OLD 76000 SHARES OF M/S K.K. SILK MILLS PVT. LTD., FORMERLY KNOWN AS M/S MANSIH WEAVING INDUSTRIES PVT. LTD., AT RS. 10/- PER SHARE . THE ASSESSEE IS ITA NO. 1533/MUM/2009 M/S RACHIT INVESTMENTS LTD.. 2 ENGAGED IN THE BUSINESS OF SHARE TRADING AND INVEST MENT. THE AO WAS OF THE VIEW THAT SINCE THE ASSESSEE IS ENGAGED IN S HARE TRADING AND INVESTMENT, THEREFORE, THE ASSESSEE IS IN RECEIPT O F BENEFIT IN REAL TERMS. THE AO INVOKED SECTION 28(IV) AND THE DIFFER ENCE BETWEEN THE INTRINSIC VALUE AND PAR VALUE AMOUNTING TO RS. 6,04 ,200/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE ACTIO N OF THE AO HAS BEEN CONFIRMED BY THE CIT(A) BY OBSERVING AS UNDER: - 5. I HAVE GONE THROUGH THE ASSESSMENT ORDER, PERUSE D THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO DISCUSSE D CASE WITH THE A/R OF THE APPELLANT. THE APPELLANT HAS RAISED A TECHNICAL OBJECTION THAT VALUATION OF SHARES SHOULD NOT HAVE BEEN DONE ON THE BASIS OF INTRINSIC VALUE. HOWEVER, NO ALTERNAT E METHOD HAS BEEN SUGGESTED BY THE APPELLANT TO SUBSTANTIATE ITS CLAIM HENCE I FIND NO FORCE IN THE ARGUMENT PUT FORWARD BY THE AP PELLANT. IT HAS FURTHER BEEN ARGUED THAT IT SHOULD BE TAXED UNDER T HE HEAD CAPITAL GAINS AND NOT U/S 28(IV). HOWEVER, AS MEN TIONED BY AO., BUSINESS OF APPELLANT IS SHARE TRADING AS WELL AS I NVESTMENTS. FURTHER, THE APPELLANT COULD NOT FURNISH ANY EVIDEN CE IN SUPPORT OF ITS CLAIM THAT THE SHARES WERE HELD AS INVESTMEN T AND NOT AS STOCK-IN-TRADE. HENCE, THERE IS NO FORCE IN THIS AR GUMENT OF THE APPELLANT. IN VIEW OF THESE FACTS AND ALSO ON ACCOU NT OF THE DETAILED DISCUSSION MADE BY THE AO IN THE ASSESSMEN T ORDER WITH THE CASE LAWS, I FIND NO MERIT IN THE ARGUMENT PUT FORWARD BY THE APPELLANT AND ACCORDINGLY THE ADDITION MADE U/S 28( IV) AMOUNTING TO RS. 6,04,200/- TO THE INCOME OF THE AP PELLANT IS SUSTAINED. 4. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS S OLD 76000 SHARES AT PAR I.E. RS. 10/- PER SHARE. FROM THE SAL E OF ABOVE SHARES, NEITHER PROFIT NOR LOSS HAS BEEN ACCOUNTED FOR AS B OTH PURCHASE AND SALE ARE AT PAR. THE LEARNED AR FURTHER SUBMITTED T HAT SHARES OF M/S K.K. SILK MILLS WERE UNQUOTED AND SO READY BUYERS W ERE NOT AVAILABLE AND DUE TO LIQUIDITY REASONS THE COMPANY COULD NOT EVEN BARGAIN FOR THE PRICE. HENCE, THE SALE OF SHARES OF M/S K.K. SI LK MILLS AT PAR MADE BY THE ASSESSEE IS ACCEPTABLE. THE LEARNED AR FURTH ER SUBMITTED THAT THE AO HAS MADE THE ADDITION INVOKING SECTION 28(IV ) OF THE ACT WHICH IS APPLICABLE ONLY WHEN THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINES S OR THE EXERCISE OF PROFESSION. THIS SECTION DOES NOT APPLY IN THE CASE UNDER ITA NO. 1533/MUM/2009 M/S RACHIT INVESTMENTS LTD.. 3 CONSIDERATION AS THE ASSESSEE COMPANY HAS NOT ACQUI RED ANY BENEFIT RELATED TO BUSINESS FROM THE SALE TRANSACTION. THE LEARNED AR SUBMITTED THAT IT IS A CAPITAL GAIN TRANSACTION AS THE SHARES ARE SHOWN AS INVESTMENTS AND NOT STOCK-IN-TRADE. IT IS ALSO SUBMITTED BY THE LEARNED AR THAT THE AO HAS ERRED IN CALCULATING THE INTRINSIC VALUE FOR CAPITAL GAIN TRANSACTION. HE FURTHER SUBMITTED THAT INTRINSIC VALUE IS CALCULATED AT THE TIME OF AMALGAMATION OF COMPAN IES OR ACQUIRING OF NEW BUSINESS IN ORDER TO DECIDE THE NUMBER OF SHARE S TO BE GIVEN TO THE SHAREHOLDERS OF AMALGAMATING COMPANY. THE LEARN ED AR SUBMITTED THAT THE SALE OF SHARES IS ASSESSABLE UND ER THE HEAD CAPITAL GAINS. THE LEARNED AR IN SUPPORT OF HIS CONTENTION, RELIED UPON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT VS. JCIT, [2009] 122 TTJ 87(MUMBAI) WHEREIN IT WAS HELD THAT WHERE INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN SECTION 28(IV) IS NOT APPLICABLE. IT IS ALSO THE SUBMISSION OF THE LE ARNED AR THAT FOR COMPUTATION OF CAPITAL GAIN FULL VALUE OF CONSIDERA TION IS TO BE CONSIDERED AND NOT THE MARKET VALUE, FOR WHICH HE R ELIED UPON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. SMT. NILOFER SINGH, [2009] 221 CTR (DEL.) 277. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND FROM THE SCHEDULES FORM ING PART OF THE ACCOUNTS, OF WHICH A COPY HAS BEEN PLACED AT PAGE N O. 16 OF THE ASSESSEES PAPER BOOK, IN THE YEAR UNDER CONSIDERAT ION AND IN EARLIER YEARS, THE ASSESSEE HAS SHOWN THE SHARES OF M/S K. K. SILK MILLS PVT. LTD. UNDER THE SCHEDUE E INVESTMENT. IN EARLIER Y EAR ENDED AS AT 31.03.2004, THE SHARES WERE ACCEPTED AS INVESTMENT, THEN, SALE OF SUCH SHARES DURING THE YEAR UNDER CONSIDERATION SHO WN AS INVESTMENT IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN. SINCE TH IS IS AN ADMITTED FACT, SALE TRANSACTION 76000 SHARES IS ASSESSABLE U NDER THE INCOME FROM CAPITAL GAIN. SECTION 28(IV) IS APPLICABLE ONL Y IN RESPECT OF BUSINESS INCOME. WE, THEREFORE, HOLD THAT SECTION 2 8(IV) IS NOT APPLICABLE WHEN SALE CONSIDERATION IS ASSESSABLE UN DER THE HEAD ITA NO. 1533/MUM/2009 M/S RACHIT INVESTMENTS LTD.. 4 CAPITAL GAIN. WE ALSO FIND FORCE IN THE SUBMISSION OF LEARNED AR THAT FOR THE PURPOSE OF CALCULATION OF CAPITAL GAIN FULL VALUE OF CONSIDERATION BARGAINING BETWEEN PARTIES IS TO BE A CCEPTED IN STEAD OF MARKET VALUE. WE, THEREFORE, DO NOT FIND MERIT IN M AKING THE ABOVE ADDITION BY THE AO AND SUSTAINED BY THE CIT(A), THE REFORE, THE ADDITION OF RS. 6,04,200/- AS INCOME BENEFIT U/S 28 (IV) ON ACCOUNT OF AY 2005-06 IS HEREBY DELETED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED ON THIS 23 RD DAY OF MARCH, 2010 SD/- SD/- (P. MADHAVI DEVI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 23 RD MARCH, 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 5.03.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 9.03.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM ITA NO. 1533/MUM/2009 M/S RACHIT INVESTMENTS LTD.. 5 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER