Harish Products Pvt.Ltd., Bhavnagar V. The Addl.CIT.,Bhavnagar Range-1, Bhavnagar

ITA 1690/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6887 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: HARISH S PATEL
• Keywords: Opportunity of being heard
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND T.K. SHARMA, JUDICIAL MEMBER) ITA NO.1690/AHD/2009 [ASSTT. YEAR : 2006-2007] HARISH PRODUCTS PVT. LTD. 218, GIDC, CHITRA BHAVNAGAR 364 004. PAN : AABCH 0129 E VS. ACIT, BHAVNAGAR RANGE-1 BHAVNAGAR. ITA NO.1739/AHD/2009 WITH CO NO.134/AHD/2009 [ASSTT. YEAR : 2006-2007] ACIT, BHAVNAGAR CIRCLE-1 BHAVNAGAR. VS. HARISH PRODUCTS PVT. LTD. 218, GIDC, CHITRA BHAVNAGAR 364 004. PAN : AABCH 0129 E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HARISH S. PATEL REVENUE BY : SHRI K. MADHUSUDAN O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THESE ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE AND THE CROSS-OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XX, AHMEDABAD OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) THE INCOME TAX ACT, 1961. FOR THE SAKE OF CONVENIENCE, WE DISPOSE OF ALL THESE APPEALS BY THIS COMMON ORDE R. 2. FIRST WE SHALL TAKE UP THE ITA NO.1690/AHD/2009 (ASSESSEES APPEAL): ITA NO.1690 AND 1739/AHD/2009 WITH CO NO.134/AHD/2009 -2- 3. THE ONLY GROUND RAISED IN THIS APPEAL BY THE ASS ESSEE IS AGAINST THE DISALLOWANCE OF RS.76,844/- UNDER SECTION 14A OF TH E INCOME TAX ACT. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE ISSUE IS COVERED BY TH E DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE M FG. CO. LTD. 328 ITR 81 WHEREIN THE HONBLE COURT HAS LAID DOWN CERTAIN GUI DELINES FOR COMPUTATION OF DISALLOWANCE UNDER SECTION 14A AND THE MATTER HAS B EEN RESTORED BACK TO THE FILE OF THE AO FOR WORKING OF THE DISALLOWANCE UNDER SECTIO N 14A. RELEVANT OBSERVATION OF THEIR LORDSHIPS READS AS UNDER: HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APPLY WITH E FFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAD TO ENFORCE TH E PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CON SISTENT WITH ALL THE RELE- VANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REA SONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/ INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE T OTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFIC ER CAN ADOPT A REASON- ABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE M AKING THAT DETERMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE O PPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE M ATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONB LE BOMBAY HIGH COURT, SET ASIDE THE ORDER OF THE AUTHORITIES BELOW WITH REGARD TO D ISALLOWANCE UNDER SECTION 14A AND RESTORE THE MATTER BACK TO THE FILE OF THE AO. WE DIRECT HIM TO RE-COMPUTE THE DISALLOWANCE AS PER THE GUIDELINES LAID DOWN BY THE HONBLE BOMBAY HIGH COURT. NEEDLESS TO MENTION THAT, THE AO WILL ALLOW ADEQUAT E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO.1690 AND 1739/AHD/2009 WITH CO NO.134/AHD/2009 -3- ITA NO.1739/AHD/2009 (REVENUES APPEAL) 5. GROUND NO.1 OF THE REVENUES APPEAL READS AS UND ER: 1. THE LD. LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSES SING OFFICER WAS NOT JUSTIFIED IN TAXING THE PROFIT ON SALE OF SHARE S AMOUNTING TO RS.31,80,8212/- AS INCOME FROM SPECULATION BUSINES S, WITHOUT APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. GROUND NO.2 TO 4 ARE ONLY ARGUMENTS IN SUPPORT OF THE ABOVE GROUND NO.1 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE HAS DISCLOSED LONG TERM CAPITAL GAIN OF RS.31,80,821/-. THE ASSESSING OFFICER DISALLOWED THE SAME BY INVOKING THE EXPLANATION TO SECTION 73 OF THE IT ACT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND HELD AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS O F THE LEARNED COUNSEL FOR THE APPELLANT AND HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND THE DECISION CITED THEREIN. FROM THE TRANSACTIONS OF THE SHARES, IT IS SEEN THAT THE APPELLANT HAS NOT TRADED IN THE SHARES BUT HAS SHOWN IN THE BOOKS ARE ALSO FOR A LONG-TERM PERIOD AND NOT FOR SHORT-TERM PERIO D AS ALLEGED BY THE AO. FROM THE DETAILS OF INVESTMENTS FURNISHED BEFORE ME , IT IS SEEN THAT THE APPELLANT HAS SOLD THE SHARES HELD BY HIM FOR MORE THAN 12 MONTHS AND HENCE, THE DEFINITION OF SHORT-TERM CAPITAL-GAIN DOES NOT APPLY TO THE PRESENT CASE. MOREOVER, THE APPELLANT HAS PAID THE STT ON THE SAL E OF SHARES WHICH IS FOR A LONG PERIOD AND IT IS NOT THE TRANSACTION OF SHORT- TERM. IF THE APPELLANT HAD CLAIMED THE SET-OFF OF LOSS INCURRED ON SHARE TRANS ACTIONS, THE AO COULD THINK INVOKING EXPLANATION TO SECTION 73 THAT TOO FOR REM OTE POSSIBILITY. THE DECISION CITED BY THE AO IS NOT APPLICABLE TO THE FACTS OF T HE PRESENT CASE. I FIND THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. EXPLANATIO N TO SECTION 73 IS NOT AT ALL ATTRACTED BECAUSE FOR THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS NOT SUFFERED ANY LOSS ON THE SALE OF SHARES. THE SECTIO N AS WELL AS THE EXPLANATION ITA NO.1690 AND 1739/AHD/2009 WITH CO NO.134/AHD/2009 -4- APPENDED TO IT ARE DEEMING PROVISIONS AND THEY COME INTO OPERATION ONLY WHEN AN ASSESSEE SUFFERS A LOSS. THIS VIEW FINDS SU PPORT FROM THE DECISION OF THE I.T.A.T., HYDERABAD IN THE CASE OF GODAVARI CAP ITAL VS. DCIT, 273 ITR (AT) 10. IN VIEW OF THESE FACTS AND CIRCUMSTANCES O F THE CASE, I AM INCLINED TO HOLD THAT THE ADDITION OF RS.31,80,821/- MADE BY TH E ASSESSING OFFICER TREATING THE LTCG SHOWN BY THE APPELLANT AS SPECULATION BUSI NESS INCOME IS NOT JUSTIFIED WHICH IS HEREBY DELETED. 7. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THE EXPLANATION TO SECTION 73 WOULD BE APPLICABLE WHERE THE BUSINESS OF A COMPANY CONSISTI NG OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. FOR APPLICATION OF THIS SECTION THERE SHOULD BE BUSINESS OF PURCHASE AND SALE OF SHARES. IN THE CASE OF THE ASSESSEE ADMITTEDLY, THERE WAS NO BUSINESS OF PURCH ASE AND SALE OF SHARES, BUT THE ASSESSEE MADE INVESTMENT IN THE SHARES AND THEREFORE PROFIT GENERATED ON THE REALIZATION OF THE INVESTMENT WAS OFFERED AS CAPITAL GAIN. IN OUR OPINION, THE EXPLANATION TO SECTION 73 WOULD NOT BE APPLICABLE FOR CAPITAL GAIN. SIMILAR VIEW IS ALSO TAKEN BY THE HY DERABAD BENCH OF THE ITAT IN THE CASE OF GODAVARI CAPITAL VS. DCIT, 273 ITR (AT) 10. IN VIEW OF THE ABOVE WE UPHOLD THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND DISMISS THE REVENUES APPEAL. CO NO.134/AHD/2009 8. THE CO IS ONLY IN SUPPORT OF THE ORDER OF THE CI T(A). WE HAVE ALREADY UPHELD THE ORDER OF THE CIT(A) WITH REGARD TO THE LONG TERM CAPITAL GAIN OF RS.31,80,821/-, THEREFORE, THE CO O F THE ASSESSEE IS INFRUCTOUS AND IS REJECTED AS SUCH. ITA NO.1690 AND 1739/AHD/2009 WITH CO NO.134/AHD/2009 -5- 9. IN RESULT, REVENUES APPEAL IS DISMISSED, ASSESS EES APPEAL IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSE AND TH E ASSESSEES CO IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31 ST MARCH, 2011 SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 31-03-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD