Murugesan Chellappa, CHENNAI V. ITO Corporate Ward 3(4), CHENNAI

ITA 1673/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0563 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 15-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M S NETHRAPAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Business income; Principle of natural justice; Earning of tax free income; Capital Gains

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , , ( BEFORE SHRI GEORGE MATHAN , JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.1673/CHNY/2018 /ASSESSMENT YEAR: 2013-14 MR.MURUGESAN CHELLAPPA, #10/38, SAROJINI STREET, T.NAGAR, CHENNAI-600 017. VS. THE INCOME TAX OFFICER, CORPORATE WARD-3(4), CHENNAI-34. [PAN: AAEPC 4591 L ] ( * /APPELLANT) ( +,* /RESPONDENT) * - / APPELLANT BY : MR.R.VIJAYARAGHAVAN, ADV. +,* - /RESPONDENT BY : MR.M.S.NETHRAPAL, JCIT - /DATE OF HEARING : 22.08.2019 - /DATE OF PRONOUNCEMENT : 16.09.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNA I, DATED 31.01.2018 FOR THE AY 2013-14. 2. AT THE OUTSET, THERE WAS A DELAY OF 28 DAYS IN FIL ING OF THE PRESENT APPEAL. THE ASSESSEE HAS FILED A PETITION STATING THAT THE DELAY HAS OCCURRED ON ACCOUNT OF THE ADVICE GIVEN BY THE CHAR TERED ACCOUNTANT TO ITA NO.1673/CHNY/2018 :- 2 -: FILE A RECTIFICATION PETITION BEFORE THE LD.CIT(A). HOWEVER, ON THE ADVICE OF ANOTHER SR.CHARTERED ACCOUNTANT, THE APPEAL WAS FIL ED BEFORE THE TRIBUNAL WITH THE DELAY OF 28 DAYS. HE SUBMITTED THAT THE D ELAY WAS ON ACCOUNT OF PURSUIT ALTERNATIVE REMEDY WHICH CONSTITUTES THE RE ASONABLE CAUSE FOR DELAY IN FILING OF THE APPEAL. ON THE OTHER HAND, THE SR.DR HAS NOT RAISED ANY SERIOUS OBJECTION IN CONDONING THE DELAY. IN T HESE CIRCUMSTANCES, WE CONDONED THE DELAY OF 28 DAYS IN FILING OF THE APPE AL AND PROCEED TO DISPOSE OF THE APPEAL ON MERITS. 3. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEA L: 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME -TAX (APPEALS) 11, CHENNAI IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND IS OPPOSED TO THE PRINCIPLES OF NATURAL JUSTICE. 2. FOR THAT THE APPELLANT HAD DILIGENTLY DECLARED T HE LONG-TERM CAPITAL GAINS ON SALE OF EQUITY SHARES HELD FOR MORE THAN ONE YEAR AS EXEMPT INCOME IN THE FINANCIALS FILED FOR THE YEAR COVERED UNDER THIS APPEAL FOR WHICH HE IS ENTI TLED FOR THE EXEMPTION U/S.10(38) OF THE ACT. 3. FOR THAT THE APPELLANT HAD SUBMITTED THE DETAILS RELEVANT TREATING THE EQUITY SHARES AS INVESTMENT DURING THE ASSESSMENT PROCEEDINGS ALONG WITH THE EVIDENCES IN SUPPORT OF THE CLAIM OF LONG TERM CAPITAL GAINS AROSE ON SALE OF S HARES AS PER THE PROVISIONS OF SECTION 112 OF THE INCOME TAX ACT, 1961. 4. FOR THAT THE ASSUMPTION OF THE LD. AO AS WELL THE CIT (APPEALS) RELYING ON THE ERRORS IN THE STATEMENT WHICH WAS CONTRARY TO THE FACTS AND T HE PROVISIONS OF INCOME-TAX ACT, 1961. 5. FOR THAT THE CIT (APPEALS) HAD FURTHER ASSUMED TH AT THE ENTIRE CAPITAL GAINS AS PROFIT EARNED ON SALE OF SHARES DISREGARDING THE FACT, THA T THE INVESTMENT WAS MADE AND HELD EQUITY SHARES FOR MORE THAN ONE YEAR. 6. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PR AYS THAT INVESTMENT IN EQUITY SHARES AS SHORT TERM INVESTMENT AND THE GAINS AS SHORT TERM G AINS AND SUBJECT TO INCOME TAX THEREON ACCORDINGLY. 7. FOR THAT THE APPELLANT OBJECTS TOWARDS LEVY OF I NTEREST U/S.234 B OF THE INCOME TAX ACT, 1961. 8. FOR THESE GROUNDS AND SUCH OTHER GROUND THAT MAY BE ADDUCED BEFORE OR DURING THE HEARING OF THE APPEAL WITH THE LEAVE OF THIS RESPEC TFUL AUTHORITY, MAY BE PLEASED TO A) ALLOW THE EXEMPTION U/S.10(38) OF THE I T ACT, 196 1 ON THE LONG TERM CAPITAL GAINS OF RS.4,81,80,386/-; OR B) TREAT THE CAPITAL GAINS AS SHORT TERM CAPITAL GAI NS ON SALE OF EQUITY SHARES OF RS.4,81,80,386/-; OR C) PASS SUCH OTHER ORDERS AS THIS RESPECTFUL AUTHORI TY MAY DEEM FIT. ITA NO.1673/CHNY/2018 :- 3 -: 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL DERIVING INCOME FROM INVESTMENTS. THE RETURN OF IN COME FOR THE AY 2013- 14 WAS FILED ON 29.09.2013 DISCLOSING INCOME OF RS. 4,65,400/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPL ETED BY THE AO VIDE ORDER DATED 29.03.2016 PASSED U/S.143(3) OF THE ACT DENYING THE EXEMPTION U/S.10(38) IN RESPECT OF THE LONG TERM CA PITAL GAINS BY HOLDING THAT THE ASSESSEE IS ONLY A TRADER IN THE SHARES. 5. BEING AGGRIEVED BY THE ACTION OF THE AO, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDER CONFIR MED THE ACTION OF THE AO BY HOLDING THAT THE ASSESSEE ITSELF HAD SHOWN TH E VALUE OF INVESTMENTS AS STOCK IN TRADE AND THE CIRCULAR NO.6/2016 ISSUED BY THE CBDT IS NOT APPLICABLE. 6. BEING AGGRIEVED, THE ASSESSEE IS BEFORE US IN THE PRESENT APPEAL. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN V IEW OF THE BENEFICIAL CIRCULAR NO.6/2016 DATED 29.02.2016 ISSUED BY THE C BDT, THE TRANSACTION OF ACQUISITION OF SHARES SHOULD BE TREATED AS INVES TMENT WHERE THE ASSESSEE HELD HIS SHARES FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF THE SALE. THUS, THE CAPITAL GAINS ARISING ON SALE OF SUCH SHARES SHOULD BE EXEMPTED U/S.10(38) OF THE AC T. ON THE OTHER HAND, THE SR.DR SUBMITTED THAT THE ASSESSEE HIMSELF HAD SHOWN THE PURCHASE OF SHARES AS STOCK IN TRADE AND THEREFORE, THE ABOVE CIRCULAR CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. ITA NO.1673/CHNY/2018 :- 4 -: 7. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MAT ERIALS PLACED ON RECORD. 8. THE ONLY ISSUE INVOLVED IN THE PRESENT APPEAL IS W HETHER THE TRANSACTION OF PURCHASE OF SHARES BY THE ASSESSEE I S TO BE CONSIDERED AS INVESTMENT OR STOCK IN TRADE. THE AO GAVE FINDING VIDE PAGE NO.3 OF HIS ASSESSMENT ORDER THAT THE TRANSACTION OF PURCHASE B Y THE ASSESSEE WERE SHOWN AS STOCK IN TRADE. THE AO FURTHER OBSERVED T HAT THE PURCHASE OF SHARES WAS DEBITED TO THE P&L A/C. HOWEVER, THIS W AS EXPLAINED THAT THIS WAS AN ACCOUNTING ERROR. HOWEVER, NO EVIDENCE WAS FILED TO SHOW THAT THE CONTENTION OF THE ASSESSEE IS ONLY TO HOLD THE SHAR ES AS CAPITAL ASSET NOT AS STOCK IN TRADE. THE CIRCULAR NO.6/2016 DATED 29 .02.2016 SPECIFICALLY STATES THAT WHERE THE ASSESSEE ITSELF OPTS TO TREAT THE SHARES AS A STOCK IN TRADE IRRESPECTIVE OF THE PERIOD OF HOLDING LISTED THE SHARES, THE INCOME ARISING FROM THE TRANSFER OF SUCH SHARES COULD BE T REATED AS A BUSINESS INCOME. IN THE PRESENT CASE, THOUGH THE ASSESSEE D ISPUTES THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNTS BUT ADMITTEDLY FACT REMAINS THAT THE SHARES WERE SHOWN AS A PART OF STOCK IN TRADE AND THEREFOR E THE CIRCULAR NO.6/2016 DATED 29.02.2016 ISSUED BY THE CBDT CANNO T COME TO THE RESCUE OF THE ASSESSEE. HOWEVER, IT IS SETTLED POS ITION OF THE LAW THAT THE INTENTION AT THE TIME OF ACQUISITION OF SHARES IS T HE DETERMINATIVE FACTOR TO DECIDE WHETHER THE SHARES ARE HELD ON STOCK IN TRAD E OR INVESTMENT ACCOUNT. IN THE PRESENT CASE, THERE IS A PRIMA FAC IE EVIDENCE ON RECORD TO SHOW THAT THE SHARES ARE HELD AS STOCK IN TRADE ON PURCHASE OF SHARES WAS ITA NO.1673/CHNY/2018 :- 5 -: DEBITED TO P&L A/C. THIS WOULD PRIMA FACIE PROVE T HE INTENTION ON THE PART OF THE ASSESSEE THAT THE SHARES ARE HELD ON TRADING ACCOUNT. NOTHING IS BROUGHT ON RECORD IN REBUTTAL OF THIS EVIDENCE. TH EREFORE, WE HAVE NO OPTION BUT TO HOLD THAT THE INVESTMENTS IN SHARES W ERE HELD IN TRADING ACCOUNT AND THE SURPLUS ARISING ON SALE OF SUCH SHA RES IS LIABLE TO TAX AS BUSINESS INCOME. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S DISMISSED. ORDER PRONOUNCED ON THE 16 TH SEPTEMBER, 2019 IN CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) ( INTURI RAMA RAO ) /ACCOUNTANT MEMBER /CHENNAI, 4 /DATED: 16 TH SEPTEMBER, 2019. TLN - +56 76 /COPY TO: 1. * /APPELLANT 4. 8 /CIT 2. +,* /RESPONDENT 5. 6 + /DR 3. 8 ( ) /CIT(A) 6. /GF