The ACIT, Central Circle-2(3), Ahmedabad V. M/s. AGL Infrastructure Pvt.Ltd., Ahmedabad

ITA 167/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1026 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 21-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Keywords: Business income
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.167/AHD/2011 ( / ASSESSMENT YEAR : 2008-09) ACIT CENTRAL CIRCLE-2(3) AHMEDABAD / VS. M/S.AGL INFRASTRUCTURE PVT.LTD. 2 ND FLOOR, CITY MALL NR.RAJPATH CLUB SG HIGHWAY, AHMEDABAD ./ ./ PAN/GIR NO. : AAFCA 6389 N ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SMT. VIBHA BHALLA, CIT-DR / RESPONDENT BY : SHRI ASEEM THAKKAR, AR / DATE OF HEARING 28/06/2016 !'# / DATE OF PRONOUNCEMENT 27/07/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-III, AHMEDABAD DATED 22/06/2010 FOR ASSESSMENT YEAR (AY) 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- ITA NO.167/AHD/ 2011 ACIT VS. M/S.AGL INFRASTRUCTURE PVT.LTD. ASST.YEAR 2008-09 - 2 - 2.1. ASSESSEE IS A COMPANY STATED TO BE INCORPORA TED ON 09/03/2006 UNDER THE COMPANIES ACT, 1956 WITH THE OBJECT OF IN VESTING AND DEVELOPING INFRASTRUCTURE PROJECTS. IT ELECTRONICAL LY FILED ITS RETURN OF INCOME FOR AY 2008-09 ON 29/09/2009 DECLARING TOTAL INCOME OF RS.7,44,11,730/-. THE CASE WAS SELECTED FOR SCRUTIN Y AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 2 9/12/2009 AND THE TOTAL INCOME WAS DETERMINED AT RS.7,44,11,730/- BY TREATING THE PROFITS EARNED ON SALE OF SHARES AS BUSINESS INCOME AS AG AINST ITS TREATMENT OF CAPITAL GAINS BY THE ASSESSEE. AGGRIEVED BY THE ORD ER OF ASSESSING OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE CI T(A) WHO VIDE ORDER DATED 22/06/2010 (IN APPEAL NO.CIT(A)-III/212/DCIT- CC-2(3)/09-10) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. AGGRIE VED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- (1) THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON T HE FACTS OF THE CASE IN NOT UPHOLDING THE ACTION OF THE ASSESSING OFFICER TO TR EAT THE DECLARED LONG TERM CAPITAL GAIN OF RS.8.00 CRORES CHARGEABLE TO TAX AS PER THE PROVISIONS OF SECTION 112 OF THE ACT AS BUSINESS INCOME IN THE LI GHT OF FACTS DISCUSSED IN THE BODY OF ASSESSMENT ORDER. (2) THE LD. C.I.T.(A) HAS FURTHER ERRED IN LAW AND ON THE FACTS OF THE CASE IN RELYING ON THE VARIOUS JUDICIAL CITATIONS REFERRED TO THE BY THE ASSESSEE IN ITS SUBMISSIONS BEFORE HIM AND IN HOLDING THAT THE FACT S OF THOSE CITATIONS ARE SIMILAR TO THE FACTS OF THE CASE OF THE ASSESSEE. (3) THE LD. C.I.T.(A) HAS FURTHER ERRED IN LAW AND ON THE FACTS OF THE CASE IN IGNORING THAT THE ASSESSEE COMPANY HAS REGULARLY EN GAGED IN THE TRANSACTIONS OF THE SHARES OF ASIAN GRANITE(INDIA) LTD. NUMBERIN G 17 IN THE YEAR AND IN THE SAID TRANSACTIONS, IT HAD EARNED BOTH PROFIT AS WEL L AS LOSSES. THE FACT OF HAVING TRANSACTIONS AT REGULAR INTERVAL MEET THE CR ITERIA OF HOLDING THE ITA NO.167/AHD/ 2011 ACIT VS. M/S.AGL INFRASTRUCTURE PVT.LTD. ASST.YEAR 2008-09 - 3 - TRANSACTION AS TRADING ACTIVITIES IN THE LIGHT OF T HE PRINCIPLE LAID DOWN BY THE SUPREME COURT OF INDIA IN THE CASE OF G. VENKATASWA MI NAIDU & CO. VS. CIT [ 35 ITR 594 (SC).] (4) THE LD. C.I.T.(A)HAS FURTHER ERRED IN LAW AND ON THE FACTS OF THE CASE IN IGNORING THE FACT THAT IN THE MEMORANDUM OF COMPANY , ONE OF THE ACTIVITIES LISTED WAS OF ACQUIRING AND HOLDING OF SHARES OF AN Y COMPANY THEREBY GIVING ADEQUATE INDICATION THAT THE ASSESSEES ACT OF ACTI NG IN THE CONTRARY AND IN DISPOSING OF THE SHARES OF A SINGLE COMPANY AT SHOR T INTERVAL WAS CONTRARY TO THE OBJECTIVE OF THE COMPANY AND CARRIED OUT AS TRA DING ACTIVITIES SOLELY WITH A VIEW TO EARN PROFIT FROM BUSINESS VENTURE. (5) THE LD. C.I.T.(A) HAS FURTHER ERRED IN LAW AND ON THE FACTS OF THE CASE IN IGNORING THE FACT THAT IT IS A SETTLED PROPOSITION OF LAW THAT THE ACCOUNTING ENTRY WAS NOT SACROSANCT IN DETERMINING THE TRUE CH ARACTER AND NATURE OF TRANSACTION AND THEREFORE, THE SHARES ACQUIRED AND SOLD BY THE COMPANY CANNOT BE TERMED AS 'INVESTMENT' MERELY BECAUSE OF THE ENTRY AS SUCH IN THE BOOKS OF ACCOUNTS. (6) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER O N THE ABOVE ISSUE. (7) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN NOT EXERCISING THE POWERS INCLUDING THAT OF PLENARY NAT URE AVAILABLE WITH HIM IN DETERMINING THE TRUE NATURE OF THE TRANSACTION AND THE CHARACTER OF THE PORTION OF THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE COMPANY IN EXCESS OF THE FACE VALUE IGNORING THAT NO PRUDENT PERSON SHALL PU RCHASE THE SHARES AT SUCH EXORBITANT CONSIDERATION UNDER THE NORMAL CIRCUMSTA NCES IMMEDIATELY AFTER ITS SUBSCRIPTION AND PRIOR TO ITS LISTING. (8) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE ID. C.I.T.(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. 3. BEFORE US, AT THE OUTSET LD.DR SUBMITTED THAT THOUGH REVENUE HAS RAISED VARIOUS GROUNDS BUT THE SOLITARY ISSUE FOR A DJUDICATION IS TREATMENT TO THE PROFITS EARNED ON SALE OF SHARES. ITA NO.167/AHD/ 2011 ACIT VS. M/S.AGL INFRASTRUCTURE PVT.LTD. ASST.YEAR 2008-09 - 4 - 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE COMPUTATION FILED BY THE ASSESSEE, AO NOTICED THAT ASSESSEE HAD PURCHASED 1 LAC EQUITY SHARES (FOR AN AGGREGATE SUM OF RS.1 CRORE) OF ASIAN GRANITE (I) LTD, ITS GROUP COMPANY IN THE MON TH OF MARCH 2006 AND THE SAME SHARES WERE SOLD ON VARIOUS DAYS IN TH E MONTH OF AUGUST 2007 FOR AN AGGREGATE AMOUNT OF RS.9 CRORES (THE DE TAILS OF PURCHASE AND SALE ARE TABULATED AT PAGE 2 OF THE ASSESSMENT ORDE R) AND THE PROFITS EARNED ON SALE OF SUCH SHARES WAS CONSIDERED AS LON G TERM CAPITAL GAINS BY THE ASSESSEE. AO ALSO NOTICED THAT PAID UP SHARE CAPITAL OF THE ASSESSEE WAS ONLY RS.1 LAC AND HAD RECEIVED RS.29,4 4,90,000/- AS SHARE APPLICATION MONEY AND THAT THE SHARE APPLICATION MO NEY RECEIVED BY IT WAS USED FOR PURCHASE OF SHARES AND THAT DURING TH E YEAR, ASSESSEE HAD NOT UNDERTAKEN ANY OTHER BUSINESS ACTIVITY. THE ASS ESSEE WAS ASKED TO SHOW AS TO WHY THE PROFIT EARNED ON SALE OF SHARES NOT BE TREATED AS BUSINESS INCOME TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT THE MAIN OBJECT OF THE COMPANY IS TO DEVELOP INFRASTRUCTURE AND NOT TO DEAL IN SHARES AND THE FUNDS THAT WERE AVAILABLE WITH IT, A ND IN THE ABSENCE OF ADEQUATE BUSINESS OPPORTUNITY, WERE USED TO DEPLOY TO EARN INCOME AND THAT NO BORROWED FUNDS WERE USED FOR MAKING THE INV ESTMENTS. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTAB LE TO THE AO FOR THE REASON THAT ASSESSEE HAD USED SHARE APPLICATION MON EY FOR MAKING THE INVESTMENTS AND THE SHARE APPLICATION MONEY TILL TH E TIME OF ITS ALLOTMENT AS SHARES, WAS IN THE NATURE OF LIABILITY OF THE A SSESSEE THE SHARES WERE ITA NO.167/AHD/ 2011 ACIT VS. M/S.AGL INFRASTRUCTURE PVT.LTD. ASST.YEAR 2008-09 - 5 - SOLD IN OFF MARKET TRANSACTION AND THAT THE PROFI T ON SALE OF SHARES WAS SEVERAL TIMES HIGHER THAN THE DIVIDEND INCOME. HE THEREFORE CONSIDERED THE PROFITS EARNED ON SALE OF SHARES AS BUSINESS I NCOME INSTEAD OF LONG TERM CAPITAL GAINS AS CONSIDERED BY THE ASSESSEE. A GGRIEVED BY THE ORDER OF AO,ASSESSEE CARRIED THE MATTER BEFORE CIT(A), WH O VIDE ORDER DATED 22/06/2010 DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE BY HOLDING AS UNDER: 12. THE CONTENTIONS/DETAILS ON RECORD/JUDICIAL D ECISIONS CITED, WERE CONSIDERED CAREFULLY. THE APPELLANT IN ITS REBUTTA L, OF THE AOS CONTENTIONS, HAS POINTED OUT THAT THE SHARE APPLICA TION MONEY CANNOT BE EQUATED WITH THE BORROWED FUNDS, AS PERCEIVED BY TH E A.O. THE REASONS GIVEN FOR THE INVESTMENT IN SHARES I.E. PARKING OF IDLE FUNDS COUPLED WITH SAFETY AND LIQUIDITY, HAS NOT BEEN REFUTED/DISPROVE D. AS POINTED OUT, THE INFERENCE DRAWN BY THE AO IN RESPECT OF THE CURRENT LIABILITIES, WAS NOT JUSTIFIED ON THE FACTS AS EXPLAINED. THE FREQUENCY OF TRANSACTIONS WAS MINIMAL, THE ACQUISITION BEING ON 2 DAYS OF MARCH, 2006 AND THE SALE ON ONE SINGLE DAY IN AUGUST, 2007. THE AO HAS ONLY AI RED HER DOUBTS ABOUT THE CORRECTNESS OF THE RATE ADOPTED IN THE OF F MARKET TRANSACTIONS OF SALE/PURCHASE, WITHOUT BRINGING ON RECORD, ANY E VIDENCE TO SUGGEST ANY MANIPULATION IN THE VALUE OF CONSIDERATION. MO REOVER THE RELEVANCE OF THIS ASPECT TO THE STATUS OF THE ASSESSEE I.E. I NVESTOR OR TRADER IS NOT CLEAR. THE SHARES IN QUESTION WERE SOLD NOT IMMEDI ATELY BUT AFTER A PERIOD OF ABOUT 16 MONTHS. THE CONDUCT OF THE APPE LLANT, AS REFLECTED FROM THE ENTRIES IN THE BOOKS OF ACCOUNT/BALANCE-SH EET ALSO SUPPORTS THE CONTENTION OF THE APPELLANT THAT THE TRANSACTIONS W ERE FOR THE PURPOSE OF INVESTMENT ONLY. IT HAS BEEN POINTED OUT THAT THE DECISION RELIED UPON BY THE AO I.E. IN CASE OF DELHOUSIE INVESTMENT, WAS DISTINGUISHABLE FROM THE FACTS OF THE APPELLANT AND ITS RATIO NOT APPLIC ABLE. ON THE OTHER HAND, THE RATIO OF THE DECISION(S) CITED BY THE APP ELLANT, WAS INCONFORMITY WITH THE FACTS IN CASE OF THE APPELLAN T. THUS ON A HOLISTIC CONSIDERATION, THE ACTION OF THE AO, IN HOLDING THA T THE DECLARED LONG ITA NO.167/AHD/ 2011 ACIT VS. M/S.AGL INFRASTRUCTURE PVT.LTD. ASST.YEAR 2008-09 - 6 - TERM CAPITAL GAINS WAS INCOME FROM BUSINESS, CANNOT BE UPHELD. THE RELATED GROUND OF APPEAL IS, THEREFORE, ALLOWED. 4.1. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW BEFORE US. 4.2. BEFORE US, LD.CIT-DR TOOK US THROUGH THE OBSER VATIONS OF AO AND SUPPORTED HIS ORDER. SHE FURTHER SUBMITTED THAT AS SESSEE HAS NOT USED OWN FUNDS BUT HAD USED THE MONEY RECEIVED AS SHARE APPLICATION MONEY FOR PURCHASE OF SHARES, THE SHARES WERE SOLD OFF IN OFF MARKET TRANSACTIONS JUST BEFORE ITS LISTING AND THEREFORE THE CONDUCT O F THE ASSESSEE SHOWS THAT ASSESSEE WAS NOT AN INVESTOR OF SHARES BUT A T RADER OF SHARES AND THAT THE TREATMENT GIVEN BY THE ASSESSEE TO SHOW THE SHA RES IN ITS BOOKS OF ACCOUNTS CANNOT BE THE SOLE CRITERION FOR DETERMINI NG THE SHARES AS INVESTMENT OR STOCK-IN-TRADE. SHE THUS SUPPORTED T HE ORDER OF AO. THE LD.AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE AO AND CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE HAD PURC HASED THE SHARES IN THE MONTH OF MARCH-2006 AND WERE SOLD IN AUGUST-200 7 AFTER HOLDING IT FOR MORE THAN ONE YEAR. HE SUBMITTED THAT THOUGH A SSESSEE HAD USED SHARE APPLICATION MONEY BUT IT HAD ALLOTTED THE SHA RES TO THE SHARE APPLICANTS AND HAD NOT PAID ANY INTEREST ON IT. HE SUBMITTED THAT SINCE THE MONEY RECEIVED WAS NOT IMMEDIATELY REQUIRED, IT WAS INVESTED IN SHARES AND IT WAS A PRUDENT DECISION OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE PRICE AT WHICH THE SHARES HAVE BEEN SOLD HAVE N OT BEEN DOUBTED BY AO AND THAT THERE IS NO ALLEGATION THAT ASSESSEE HA S RECEIVED AMOUNT OVER ITA NO.167/AHD/ 2011 ACIT VS. M/S.AGL INFRASTRUCTURE PVT.LTD. ASST.YEAR 2008-09 - 7 - AND ABOVE THE SALES CONSIDERATION. HE THUS SUPPORT ED THE ORDER OF CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESP ECT TO TREATMENT TO THE PROFITS EARNED ON SALE OF SHARES. IT IS AN UNDISPU TED FACT THAT THE ASSESSEE HAD EARNED PROFIT ON SALE OF SHARES. THE HOLDING P ERIOD OF SHARES, THE PRICE AT WHICH THE SHARES ARE SOLD AND THE ACT OF S ALE OF SHARES HAS NOT BEEN DOUBTED BY THE AO. FROM THE FACTS, IT CAN BE SEEN THAT APART FROM THE IMPUGNED SALES, DURING THE YEAR, ASSESSEE HAS N OT ENTERED INTO ANY OTHER TRANSACTION OF PURCHASE AND SALE OF SHARES AN D THE IMPUGNED TRANSACTION WAS THE ONLY INSTANCE OF SALE OF SHARES . WE FURTHER FIND THAT LD.CIT(A) WHILE DECIDING THE ISSUE HAS GIVEN A FIND ING THAT THE CONDUCT OF THE ASSESSEE AS REFLECTED FROM THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS SUPPORT THE CONTENTION OF THE ASSESSEE THAT THE TRA NSACTIONS WERE FOR THE PURPOSE OF INVESTMENTS ONLY. BEFORE US, REVENUE HA S NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CI T(A). FURTHER, IT IS NOT THE CASE OF REVENUE THAT THE ACT OF SALE OF SHARES INDICATE A SYSTEMATIC AND ORGANIZED ACTIVITY ON THE PART OF ASSESSEE INDI CATING TRADING OF SHARES AND THAT THE ASSESSEE HAS SHOWN THE SHARES ON ITS I NVESTMENTS. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). THUS, THE GROU ND OF REVENUE IS DISMISSED. ITA NO.167/AHD/ 2011 ACIT VS. M/S.AGL INFRASTRUCTURE PVT.LTD. ASST.YEAR 2008-09 - 8 - 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 27 /0 7 /2016 SD/- SD/- ( KUL BHARAT ) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 21/ 07 /2016 ORDER PRONOUNCED ON 27/7/2016 SD/- SD/- S.K.Y. A.C. (JM) (AM) &.., .(../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-III, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. (WORD PROCESSED BY HONBLE AM IN HIS COMPUTER) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11.7.2016/18.7.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.27.7.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.7.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER