Jitendra Kumar Gupta, Meerut V. ACIT, Meerut

ITA 1540/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2386 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 17-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B KISHORE
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Set aside
• Section: 250; 208

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER & SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 1011 /DEL/2009 ASSESSMENT YEAR: 2004-05 ACIT, VS. JITENDER KUMAR GUPTA, CIRCLE-1, MEERUT. 219, RAILWAY ROAD, MEERUT. PAN NO. AARPG5507B (APPELLANT) (RESPONDENT) & ITA NO. 1540 /DEL/2009 ASSESSMENT YEAR: 2004-05 JITENDER KUMAR GUPTA, VS. ACIT, 219, RAILWAY ROAD, MEERUT. CIRCLE 1, MEERUT. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B. KISHORE, DR RESPONDENT BY : NONE ORDER PER I.P. BANSAL, J.M. THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST THE ORDER OF CIT(A) DATED 07.01.09 FOR A.Y. 2004-05. GROUNDS OF APPEAL BY THE DEPARTMENT READ AS UNDER: - 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ASSESS THE ASSESSE ES INCOME FROM MONEY LENDING AS BUSINESS INCOME ON THE GROUND THAT NO REASONS HAD BEEN ASSIGNED FOR SUCH TREATMENT IGNORING THE F ACT THAT SUCH REASONS HAD BEEN NARRATED IN DETAILS IN PARA 4 OF T HE ASSESSMENT ORDER. ITA NOS. 1011 & 1540/DEL/09 2 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ASSESS THE ASSESSE ES INCOME FROM MONEY LENDING AS BUSINESS INCOME ON THE GROUND THAT IN EARLIER YEARS THAT SAID INCOME HAD BEEN ASSESSED AS BUSINES S INCOME IGNORING THE FACT THAT IN THE IMMEDIATELY PRECEDING YEAR SIMILAR INCOME WAS ASSESSED AS INCOME FROM OTHER SOURCES AN D THAT ALL ASSESSMENT YEARS ARE SEPARATE? 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN ALLOWING MISCELLANEOUS EXPENDITURE OF RS. 5,71,091/- IGNORING THE FACT THAT THIS EXPENDITURE WAS CLAIMED AGAINST INCOME WHICH WAS RIGHTLY ASSESSABLE AS EXEMPT INCOME, INCO ME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES? 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN ALLOWING EXPENDITURE OF RS. 5,74,091/- IGNORING THE FACT THAT NO SUPPORTING BILLS/ VOUCHERS WERE PRODUCED BY THE ASSESSEE IN RESPECT OF SUCH EXPENSES? 5. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO TAKE THE INCOME FR OM IFCI BOND AT RS. 11,02,439/- IN PLACE OF RS. 72,76,930/- WITHOUT CONSIDERING THE FACT THAT ASSESSEE FAILED TO PRODUCE ANY DOCUMENTAR Y EVIDENCE IN SUPPORT OF HIS CLAIM OF BEING AN INTERMEDIATE PURCH ASER? 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE O RDER OF THE LD. CIT(APPEALS) MAY BE SET ASIDE AND THAT OF THE AO RE STORED. GROUNDS OF APPEAL BY THE ASSESSEE READ AS UNDER: - 1. THAT THE LONG TERM CAPITAL LOSS OF RS. 45,69,287 /- AS CLAIMED BY THE ASSESSEE/APPELLANT ON THE PURCHASE AND SALE OF SHAR ES OF R.B. CREDITS P. LTD. IS ERRONEOUSLY DISALLOWED BY THE LD . CIT(APPEALS). 2. THAT THE VARIOUS OBSERVATIONS MADE BY THE AUTHOR ITIES BELOW IN THEIR RESPECTIVE ORDERS ON THE ABOVE ISSUE ARE EITHER INC ORRECT OR ARE LEGALLY UNTENABLE. 3. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, MO DIFY OR AMEND THE GROUNDS OF APPEAL. ITA NOS. 1011 & 1540/DEL/09 3 2. NOTICE OF HEARING WAS SENT TO ASSESSEE, WHICH HA S BEEN DULY SERVED AS PER ACKNOWLEDGMENT PLACED ON RECORD. HOWEVER, O N THE FIXED DATE OF HEARING NONE APPEARED ON BEHALF OF ASSESSEE, THEREF ORE, WE PROCEED TO DECIDE THE APPEALS EX-PARTE QUA THE ASSESSEE AFTER HEARING LD. DR. 3. APROPOS GROUND NO. 1 AND 2OF DEPARTMENTAL APPEAL IT IS THE FINDING OF LD. CIT(A) THAT INCOME OF MONEY LENDING IN ALL PREC EDING YEARS I.E. UPTO AY 03-04 AND IN SUCCEEDING ASSESSMENT YEARS I.E. AY 06 -07 AND ONWARDS HAS BEEN ASSESSED AS BUSINESS INCOME AND AS THERE IS NO CHANGE IN THE FACTS OF PRESENT YEAR. THEREFORE, THE INCOME EARNED BY TH E ASSESSEE FROM MONEY LENDING BUSINESS HAS TO BE ASSESSED AS BUSINESS INC OME AGAINST WHICH FINDINGS DEPARTMENT HAS FILED GROUND NO. 1 & 2. LD . DR RELIED ON THE ORDER OF AO. 4. AFTER GOING THROUGH THE ORDER OF LD. CIT(A) IT I S SEEN THAT HIS FINDINGS THAT IN PRECEDING YEARS AS WELL AS SUCCEEDING YEAR THE INCOME EARNED BY THE ASSESSEE FROM MONEY LENDING ACTIVITY HAS BEEN T REATED AS BUSINESS INCOME, HAS NOT BEEN CONTROVERTED BY BRINGING ANY M ATERIAL ON RECORD TO SHOW THAT THESE FINDINGS OF LD. CIT(A) ARE CONTRARY TO THE FACTS AVAILABLE ON RECORD, WE DECLINE TO INTERFERE IN SUCH FINDINGS OF LD. CIT(A). THE GROUND NO. 1 & 2 OF THE DEPARTMENT IS DISMISSED. 5. APROPOS GROUND NO. 3 & 4 OF DEPARTMENTAL APPEAL, IT IS THE FINDING OF LD. CIT(A) THAT TOTAL INCOME CREDITED TO THE ACCOUN T OF THE ASSESSEE ARE A SUM OF RS. 15,57,123/- WHICH ARE IN THE SHAPE OF IN TEREST EARNED BY THE ASSESSEE ON VARIOUS ACCOUNTS. THE DETAILS OF WHICH ARE AS UNDER: - ITA NOS. 1011 & 1540/DEL/09 4 INCOME RS. INTEREST ON LOANS 216,707 BANK INTEREST 974 INTEREST ON BONDS 7,795 INTEREST ON DEBENTURES 5,000 DIVIDEND FROM SHARES 125.30 INTEREST FROM POST OFFICE 53,040 INTEREST ON INCOME TAX REFUND 43,489 INTEREST ON WEALTH TAX REFUND 2,374 INTEREST ON REDEMPTION OF BOND 1,102,43 1,557,123 6. AGAINST ABOVE THE EXPENDITURE OF RS. 5,74,091/- ARE CLAIMED BY THE ASSESSEE: - LESS: EXPENDITURE CLAIMED: SALARY TO STAFF 444,800 POSTAGE & TELEGRAMS 1,188 PRINTING & STATIONERY 607 TELEPHONE 35,431 UNIFORM & WELFARE 1,066 BANK CHARGES 5,325 BONUS 14,400 INSURANCE 10,220 CAR EXPENSES 24,857 VEHICLE RUNNING EXPENSES 7,180 FOREIGN TRIP EXPENSES 21,100 GENERAL EXPENSES 7,010 LEGAL EXPENSES 14,500 RENT, RATES & TAXES 11,455 MAINTENANCE & SUPERVISION 1,095 ELECTRICITY EXPENSES 78,912 AUDIT FEE 5,400 ITA NOS. 1011 & 1540/DEL/09 5 SUBSCRIPTION 9,063 DEEPAWALI EXPENSES 4,021 DEPRECIATION ON ASSETS 17,261 574,091 PROFIT 983,032 7. NET PROFIT I.E. THE DIFFERENCE BETWEEN THE TWO I .E. A SUM OF RS. 9,83,032/- HAS BEEN DECLARED AS INCOME. IT WAS THE CLAIM OF THE ASSESSEE FIRSTLY, THAT IT IS BUSINESS INCOME THEREFORE, EXPE NDITURES HAVE TO BE ALLOWED AND SECONDLY; IN THE ALTERNATIVE, IT HAS BEEN CLAIM ED THAT EVEN OTHERWISE THE EXPENDITURE HAVE BEEN INCURRED FOR THE PURPOSE OF E ARNING INCOME, THEREFORE, AS PER PROVISIONS OF SEC. 57(III), THEY ARE ALLOWABLE. EACH AND EVERY EXPENDITURE WAS EXPLAINED AND MATTER WAS REFE RRED TO THE AO. AFTER CONSIDERING THE SAME LD. CIT(A) HAS GIVEN THE FINDI NG THAT ALL THESE EXPENDITURES HAVE BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING INCOME EXCEPT CERTAIN EXPENSES WHICH WERE I N THE NATURE OF PERSONAL EXPENDITURE. LD. CIT(A) IN PARA 12 HAS WO RKED OUT THE ALLOWABLE EXPENDITURE AT A SUM OF RS. 5,33,028/- IN PLACE OF CLAIM OF THE ASSESSEE OF A SUM OF RS. 5,74,091/- AND HE HAS DIRECTED THE AO TO ALLOW THE SAME. THE CALCULATION OF CIT(A) IS AS UNDER : RS. TOTAL EXPENDITURE CLAIMED 5,74,091 LESS: SUBSCRIPTION 9,063 FOREIGN TRIP EXPENSES 21,100 INSURANCE OF TRACTOR 3,900 GENERAL EXPENSES 7,010 41,073 5,33,028 ITA NOS. 1011 & 1540/DEL/09 6 8. IT IS ALSO OBSERVED BY LD. CIT(A) THAT EVEN IN S UCCEEDING ASSESSMENT YEAR I.E. FOR A.Y. 05-06 THESE EXPENSES HAVE BEEN A LLOWED IN THE ASSESSMENT FRAMED U/S 143(3). 9. IN THIS VIEW OF THE SITUATION, AFTER HEARING LD. DR AND AFTER CONSIDERING THE FACTS AVAILABLE IN THE ORDER OF CIT(A), WE ARE OF THE OPINION THAT LD. CIT(A) HAS RIGHTLY HELD THAT THESE EXPENDITURES ARE ALLOWED AND WE DECLINE TO INTERFERE IN SUCH FINDINGS OF LD. CIT(A). THUS, GROUND NOS. 3 & 4 OF DEPARTMENTAL APPEAL ARE DISMISSED. 10. GROUND NO. 5 OF DEPARTMENTAL APPEAL RELATES TO INTEREST EARNED BY THE ASSESSEE FROM IFCI BONDS. IT IS THE CASE OF AO THAT THE DIFFERENCE BETWEEN THE INITIAL VALUE AND SALE PROCEEDS OF THE BONDS WAS ASSESSABLE AS INCOME OF THE ASSESSEE. AS AGAINST THAT IT IS THE CASE OF THE ASSESSEE THAT HE BEING INTERMEDIATE PURCHASER OF THE BONDS THAT I T COULD NOT BE SO ASSESSED AND THE COST INCURRED BY THE ASSESSEE ON P URCHASE OF THESE IFCI BOND HAS TO BE ALLOWED FROM THE SALE PROCEEDS. A T ABLE HAS BEEN GIVEN IN PARA 6.2 WHEREBY IT HAS BEEN SHOWN THAT SUCH & SUCH QUANTITY WAS PURCHASED OF IFCI BONDS ON SUCH AND SUCH DATE AND O N SUCH AND SUCH RATES. THE SAID TABLE FOR THE SAKE OF CONVENIENCE IS REPRODUCED BELOW: - DATE NO. OF BONDS RATE AMOUNT 21.12.1998 4 7,053.93 28,215.70 23.12.1998 1 7,027.75 7,027.75 01.01.1999 4 7,113.45 28,453.80 28.10.2003 32 14,506.26 464,200.45 29.10.2003 93 14,506.26 1,349,082.56 134 1,876,980.26 ITA NOS. 1011 & 1540/DEL/09 7 IFCI BONDS (RS. 10,000 PAID) 19.01.1999 40 15,156.37 606,254.90 28.10.2003 116 28,788.72 3,339,492.04 29.10.2003 118 27,962.51 3,417,575.75 05.11.2003 3 29,152.25 87,456.75 05.11.2003 4 29,152.25 116,609.00 05.11.2003 6 29,101.99 174,611.94 05.11.2003 5 29,101.99 145,509.95 292 7,887,510.33 11. THEREAFTER LD. CIT(A) HAS REFERRED TO CIRCULAR NO. 2/02 ISSUED BY CBDT, WHEREIN IT HAS BEEN STATED AS UNDER: - 6.1 WHERE THE BOND IS REDEEMED BY AN INTERMEDIATE PURCHASER, THE DIFFERENCE BETWEEN THE REDEMPTION PR ICE AND THE COST OF THE BOND TO SUCH PURCHASER WILL BE TAXABLE AS INTEREST OR BUSINESS INCOME; AS THE CASE MAY BE. FOR THIS PURPOSE, AGAIN, THE COST OF THE BOND WILL MEAN THE AGGREGATE OF THE COST AT WHICH THE BONDS WERE A CQUIRED AND THE INCOME ARISING FROM THE BOND WHICH HAS ALRE ADY BEEN OFFERED TO TAX BY THE PERSON REDEEMING THE BON D. 12. IN THIS VIEW OF THE SITUATION, LD. CIT(A) HAS A SKED THE AO TO ASSESS THE INCOME FROM IFCI BONDS AT RS. 11,02,439/- INSTE AD OF 72,76,930/- TAKEN BY AO AND GRANTED THE RELIEF OF RS. 61,74,491/-. 13. WE HAVE HEARD LD. DR WHO RELIED ON THE ORDER OF AO AND AFTER GOING THROUGH THE DETAILS FOUND IN THE ORDER OF CIT(A) AN D AFTER GOING THROUGH THE CONTENTS OF CIRCULAR RELIED UPON BY ASSESSEE, WE AR E OF THE OPINION THAT LD. CIT(A) HAS TAKEN A RIGHT VIEW AND HAS RIGHTLY ACCEP TED THE CLAIM OF THE ITA NOS. 1011 & 1540/DEL/09 8 ASSESSEE. THEREFORE, WE DECLINE TO INTERFERE AND T HIS GROUND OF THE REVENUE IS DISMISSED. 14. NOW COMING TO THE APPEAL FILED BY THE ASSESSEE. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT(A) IN PARA 7 TO 7.3. A L ONG TERM CAPITAL LOSS OF RS. 45,69,287/- WAS CLAIMED BY THE ASSESSEE ON SALE AND PURCHASE OF SHARES OF R.B. CREDITS P. LTD. THE ASSESSEE HAD PU RCHASED 58,000 EQUITY SHARES AT THE COST OF RS. 45 LAKH AND SOLD THE SHAR ES AT RS. 5,80,000/-. THE AO VALUED THE SHARES ON THE DATE OF SALE AT RS. 34. 49 PER SHARE ON THE INTRINSIC (BOOK VALUE METHOD) BASED ON BALANCE SHEE T OF R.B. CREDITS P. LTD. AS AGAINST THAT IT IS THE CASE OF THE ASSESSE E THAT COST OF CAPITAL ASSET HAS TO BE TAKEN AS EXPENDED BY THE ASSESSEE TO ACQU IRE THAT CAPITAL ASSET. THE AO HAS OBSERVED IN THE ASSESSMENT ORDER THAT AS SESSEE HAD PURCHASED THE SHARES ON AN UNKNOWN/UNQUOTED/CLOSELY HELD FAMILY COMPANY ON A PREMIUM OF RS. 40 AND 240 PER SHARE WH OSE FACE VALUE IS RS. 10/- ONLY AND THOSE SHARES WERE SOLD AT FACE VA LUE. THE AO OBSERVED THAT PAID UP SHARE CAPITAL OF THE SAID COMPANY WAS 62,40,000/- RESERVE FUND WERE RS. 1 LAKH AND SHARE PREMIUM ACCOUNT WAS OF RS. 1,48,91,000/-. SURPLUS IN PROFIT AND LOSS ACCOUNT WAS A SUM OF RS. 2,91,890/- AND IN THIS MANNER LD. AO HAS ARRIVED AT BOOK VALUE OF THE SHAR E OF RS. 34.49 PER SHARE. IN THE CIRCUMSTANCES LD. CIT(A) AFTER REFER RING TO THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. BA LA SUBRAMANIAM 159 ITR 208 HAS OBSERVED THAT RULES PRESCRIBED UNDER WE ALTH TAX RULES OR SCHEDULE TO THE ACT MAY PROVIDE A GOOD GUIDE LINE F OR FINDING THE VALUE OF UNQUOTED SHARES. THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE EXTREMELY ITA NOS. 1011 & 1540/DEL/09 9 LOW SALE VALUE OF THE SHARES AS DECLARED BY HIM IN VIEW OF THIS THE ADDITION OF THIS GROUND IS CONFIRMED. 15. LD. DR RELIED ON THE ORDER OF AO AND CIT(A). 16. AFTER CONSIDERING THE ASSESSMENT ORDER AS WELL AS ORDER OF CIT(A), WE ARE OF THE OPINION THAT NO MATERIAL HAS BEEN BRO UGHT ON RECORD BY THE ASSESSEE TO JUSTIFY THAT THE PURCHASE PRICE GIVEN B Y HIM FOR THE SHARES WAS A JUSTIFIED PRICE AND SIMILAR IS THE POSITION WITH REGARD TO SALE PRICE. THERE IS NO MATERIAL ON RECORD TO SHOW ALSO THAT THE SHARES PURCHASED AND SOLD BY THE ASSESSEE WERE NOT BELONGING TO THE FAMILY CONCE RN. THERE IS LACK OF MATERIAL EITHER IN THE ORDER OF CIT(A) OR IN THE OR DER OF AO. THOUGH THE AO HAS OBSERVED THAT THE VALUE OF SHARES AS ON THE DAT E OF PURCHASE CANNOT BE TAKEN AT RS. 50 AND RS. 250 PER SHARE BUT HE HAS AL SO NOT GIVEN ANY FINDING THAT WHAT COULD BE AN APPROPRIATE RATE OF PURCHASE AND WHETHER THE SALE SHOWN RATE SHOWN BY THE ASSESSEE WAS JUSTIFIED. AL L THESE ASPECTS HAVE NOT BEEN MADE CLEAR. THEREFORE, WE ARE OF THE OPIN ION THAT THIS MATTER IS REQUIRED TO BE RESTORED TO THE FILE OF AO FOR GIVIN G APPROPRIATE FINDINGS ON THE PURCHASE AND THE SALE OF SHARES ON WHICH SUCH L ONG TERM CAPITAL LOSS HAS BEEN CLAIMED BY THE ASSESSEE. AFTER GIVING A R EASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, THE AO WILL RE-DECIDE THIS ISSUE IN ACCORDANCE WITH LAW. WE, DIRECT ACCORDINGLY. FOR STATISTICAL PURPO SES THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. ITA NOS. 1011 & 1540/DEL/09 10 17. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED AND APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 30.12.09 (R.C. SHARMA) (I.P. BANSAL) ACCOUNTANT MEMBER JU DICIAL MEMBER DATED: *KAVITA CHOPRA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR