Shri Dhananjay A. Nene, Pune V. Jt.CIT, Range 5, Pune, Pune

ITA 170/PUN/2012

• Counselvise Citation: 17024514 RSA 2012
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK MISHRA
• Keywords: Business income; Opportunity of being heard; Question of law; Assessment record
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMB ER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 170//PN/12 : (ASSTT. YEAR: 2008-09) SHRI DHANANJAY A NENE, .. APPELLANT 803 SILVER LEAF, GOKHALE CROSS RD, SHIVAJINAGAR, PUNE PAN ACBPN 2353 E VS. JT. COMMISSIONER OF INCOME-TAX, .. RESPO NDENT RANGE-5, PUNE APPELLANT BY : SHRI M K KULKARNI RESPONDENT BY : SHR I ALOK MISHRA DATE OF HEARING : 26.03.201 2 DATE OF PRONOUNCEMENT : .04.2012 ORDER PER G.S. PANNU, A.M : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX-III, PUNE (IN SHORT REFE RRED TO AS THE COMMISSIONER) DATED 22.12.2011 PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), SETTING ASIDE THE O RDER DATED 28-12-2010 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF TH E ACT FOR THE ASSESSMENT YEAR 2008-09 . 2. THE SOLITARY ISSUE RAISED IN THIS APPEAL IS THAT THE COMMISSIONER WAS NOT JUSTIFIED IN HOLDING THE ASSESSMENT ORDER OF T HE ASSESSING OFFICER AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE AND THUS, THE ORDER PASSED BY HIM UNDER SECTION 263 OF THE ACT BE CANCE LLED. 3. THE FACTS, IN BRIEF, ARE THAT FOR THE ASSESSMENT YEAR 2008-09 A SCRUTINY ASSESSMENT IN THIS CASE WAS MADE BY THE ASSESSING O FFICER UNDER SECTION 143(3) OF THE ACT ON 28.12.2010 DETERMINING THE ASS ESSEES TOTAL INCOME AT RS 65,17,715/-. ON A PERUSAL OF THE ASSESSMENT RECO RDS, THE COMMISSIONER NOTICED THAT THE ASSESSMENT ORDER PASSED BY THE ASS ESSING OFFICER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE IN TERESTS OF REVENUE. HE ACCORDINGLY ISSUED A SHOW-CAUSE NOTICE UNDER SECTIO N 263 OF THE ACT TO THE ASSESSEE ON THE FOLLOWING POINTS: I) THE ASSESSEE ENGAGED M/S ICICI PRUDENTIAL ASSETS MANAGEMENT CO. LTD. AND M/S IL&FS LTD FOR MANAGEMENT OF ITS PO RTFOLIOS. THESE PARTIES EXECUTED SEVERAL TRANSACTIONS OF PURCHASE A ND SALE OF SHARES. THE ASSESSEE DISCLOSED INCOME FROM LONG TER M AND SHORT TERM CAPITAL GAINS WHEREAS THE TRANSACTIONS WERE OF BUSINESS NATURE. THE TRANSACTIONS WERE CARRIED ON AS REGULAR TRADING ACTIVITY. THE ASSESSEE PAID SUBSTANTIAL AMOUNT TO THESE PARTI ES FOR SERVICES RENDERED BY THEM. THE PROFITS ON TRANSACTIONS WERE THEREFORE REQUIRED TO BE TAXED AS BUSINESS INCOME AND NOT AS SHORT TERM CAPITAL GAINS AND LONG TERM CAPITAL GAINS. II) THE ASSESSEE WAS OWNER OF MOTOR VEHICLES BUT TH E EXPENSE ON RUNNING OF THESE VEHICLES WAS NOT CLAIMED IN THE AC COUNT. III) THE ASSESSEE HAD SHOWN ADDITION OF RS 46,32,10 8/- AS ADDITION TO HIS CAPITAL. HOWEVER, THE SOURCE OF THIS ADDITION W AS NOT EXAMINED. 4. THE COMMISSIONER WAS NOT SATISFIED WITH THE EXPL ANATION OF THE ASSESSEE AND HAS FOUND THE ASSESSMENT ORDER ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE ON THE ISSUE OF ASSESSMENT OF CAPITAL GAIN DECLARED BY THE ASSESSEE ON SALE OF SHARES. T HE COMMISSIONER HAS DIRECTED THE AO TO PASS AN ORDER AFRESH ON THE AFOR ESAID LIMITED ISSUE AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF B EING HEARD. THE RELEVANT PORTION IN THE ORDER OF THE COMMISSIONER IS AS UNDE R: 4. I HAVE GONE THROUGH THE AOS CASE RECORDS AND HAVE CONSIDERED CAREFULLY THE SUBMISSIONS OF THE LD AR. THERE IS NO DISPUTE THAT THE ASSESSEE HAS DISCLOSED LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS IN HIS ACCOUNTS. LONG TERM CAPITAL GAINS ARE EXEMPTED FROM INCOME-TAX AND SHORT TERM C APITAL GAINS HAVE SUFFERED TAX AT 10%. IT IS OBSERVED THAT THE ASSESSEE HAS CARRIED O UT TRANSACTIONS IN PURCHASE AND S SALE OF SHARES ON REGULAR BASIS THROUGH TWO PROFESS IONAL AGENTS, NAMELY, M/S ICICI PRUDENTIAL ASSETS MANAGEMENT CO. LTD. AND M/S IL&FS . THE ASSESSEE HAS ALSO PAID SIGNIFICANT AMOUNTS TO THESE PARTIES FOR CARRYING O UT THIS ACTIVITY ON BEHALF OF THE ASSESSEE. IN THE LIGHT O THE FACTS AND CIRCUMSTANCE S, THE PROFITS ON SALE OF EQUITY SHARES, ETC. PRIMA FACIE APPEAR TO BE IN THE NATURE OF BUSINESS INCOME LIABLE TO BE TAXED AT HIGHER RATE OF 30%. IT IS FURTHER OBSERVED FROM THE ASSESSMENT RECORD THAT THE AO OVERLOOKED THIS ISSUE. HE CARRIED NO ENQUIRIES IN THIS REGARD AND ACCEPTED THE ASSESSEES CONTENTION AS DISCLOSED IN THE RETURN. H IS FAILURE IN ACCEPTING THE ASSESSEES CONTENTION WITH REGARD TO CAPITAL GAINS WITHOUT CARRYING OUT NECESSARY ENQUIRIES, WHICH WERE REQUIRED ON THE FACE OF THE R ECORD, HAS RENDERED THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJU DICIAL TO THE INTEREST OF REVENUE. 5. THE ASSESSEES ARGUMENTS WITH REGARD TO EXPENSE ON RUNNING AND MAINTENANCE OF MOTOR VEHICLES AND ADDITION TO CAPIT AL IN THE CURRENT YEAR ARE FOUND ACCEPTABLE FROM THE FACTS ON RECORD. 6. IN VIEW OF THE DISCUSSION IN THE PRECEDING PARAG RAPHS, I AM OF THE VIEW THAT THE ASSESSMENT ORDER DT 28.12.2010, MADE U/S 143(3) , IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE ON THE ISSUE OF TAXATION OF PROFITS ON PURCHASE AND SALE OF SHARES. THE ASSESSMENT ORDER IS ACCORDI NGLY SET ASIDE ON THIS ISSUE. THE AO SHALL EXAMINE THIS ISSUE AND PASS AN ORDER AFRES H AFTER ALLOWING THE ASSESSEE REASONABLE OPPORTUNITY OF BEING HEARD. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S. 5. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE IMPUGNED ORDER HAS BEEN PASSED BY THE COMMISSIONER ON A WRONG CONSIDERATION INASMUCH AS THERE WAS NO JUSTIFICATIO N TO HOLD THAT THE ASSESSMENT ORDER WAS ERRONEOUS IN THE EYES OF LAW. IT WAS POINTED OUT THAT THERE ARE NO CIRCUMSTANCES OR FACTOR TO SHOW THAT T HERE WAS ANY BUSINESS CARRIED OUT IN THE DEALINGS OF SHARES AND THE ASSES SEE WAS PRIMARILY A SOFTWARE CONSULTANT ENGAGED IN VARIOUS TYPES OF SOF TWARES. THE AO CONSIDERED THIS AND IN FACT THE SHORT TERM CAPITAL GAIN WAS SUBJECTED TO EXAMINATION BY THE AO AS IS EVIDENT FROM PARA 5 OF THE ASSESSMENT ORDER. ON THE ISSUE OF SHORT TERM CAPITAL GAIN AFTER EXAMININ G THE MATERIAL, THE AO ALSO MADE A ADDITION AND THEREFORE, IT COULD NOT BE SAID THAT THERE WAS ANY LACK OF APPLICATION OF MIND BY THE ASSESSING OFFICER. ADDI TIONALLY, THE LEARNED COUNSEL ALSO POINTED OUT THAT EVEN IN THE PAST IN AN ASSESS MENT FINALIZED U/S 143(3) FOR A.Y. 2004-05 THE INCOME DECLARED ON SALE OF SHARES/ UNITS AS LONG TERM CAPITAL GAIN HAS BEEN ACCEPTED AND IN SUPPORT THE ASSESSMEN T ORDER DATED 29-12- 2011 FOR A.Y. 2004-05 IS PLACED ON RECORD. 5. ON THE OTHER HAND, THE LEARNED DR APPEARING FOR THE REVENUE REFERRED TO THE OBSERVATIONS OF THE COMMISSIONER TO THE EFFE CT THAT NO INQUIRIES WERE MADE BY THE AO IN THIS REGARD AND THEREFORE, THE C OMMISSIONER WAS JUSTIFIED IN TREATING THE ASSESSMENT ORDER DATED 28-12-2010 A S ERRONEOUS WITHIN THE MEANING OF SECTION 263(1) OF THE ACT. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. SECTION 263(1) OF THE ACT MAKES IT CLEAR THAT THE PRE-REQUISITES FOR THE EXERCISE OF JURISDICTION BY THE COMMISSIONER ARE VIZ. THAT THE ORDER OF THE AO IS ERRONEOUS AND THAT SUCH ERROR HAS CAUSED PREJUDICE TO THE INTEREST OF REVEN UE. IN THE PRESENT CASE, THE ASSESSEE HAD DECLARED LONG TERM AND SHORT TERM CAPITAL GAIN ON SALE OF SHARES WHICH HAVE BEEN ACCEPTED BY THE AO IN THE AS SESSMENT FINALIZED U/S 143(3) ON 28-12-2010 EXCEPT THE ADDITION OF RS. 34, 014/- ON ACCOUNT OF SHORT TERM CAPITAL GAIN AS DISCUSSED IN PARA 5 OF THE ASS ESSMENT ORDER. SUBSEQUENTLY, THE COMMISSIONER INVOKING JURISDICTIO N U/S 263 OF THE ACT OBSERVED THAT NO INQUIRIES WERE MADE BY THE AO AND THE INCOME ON THE SALE OF SHARES HAS BEEN ACCEPTED AS ASSESSABLE AS CAPITAL G AIN INSTEAD OF EXAMINING AS TO WHETHER THE SAME WAS TO BE ASSESSED AS BUSINE SS INCOME. 7. PERTINENTLY ONE OF THE PRE-REQUISITE TO JUSTIFY INVOKING SECTION 263 OF THE ACT IS THAT THE ASSESSMENT ORDER SHOULD BE ERRONEOU S SO AS TO BE UNSUSTAINABLE IN THE EYES OF LAW. NO DOUBT AN ORDE R PASSED BY THE AO WITHOUT APPLICATION OF MIND IS ALSO LIABLE TO BE CONSIDERED AS FALLING U/S 263 OF THE ACT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (2000) 243 ITR 83 (SC). IN THE CONTEXT OF PRE SENT CONTROVERSY, IT MAY BE NOTED THAT INCOME ON SALE OF SHARE HAS TO BE TAXED AS BUSINESS INCOME OR CAPITAL GAIN IS A VEXED ISSUE WHICH INVOLVES A MIXE D QUESTION OF LAW AND FACTS. THERE IS PLETHORA OF CASE LAW ON THE SUBJECT AND TH IS ITSELF SHOWS THAT THE ISSUE AS TO WHETHER THE INCOME IS ASSESSABLE AS BUSINESS OR UNDER THE CAPITAL GAIN, HAS TO BE DECIDED IN THE LIGHT OF PARTICULAR FACTS AND CIRCUMSTANCES OF EACH CASE. IN THE PRESENT CASE, IN THE PAST, SIMILAR IN COME EARNED BY THE ASSESSEE I.E. ON SALE OF SHARES/UNITS HAS BEEN ACCEPTED AS A SSESSABLE UNDER THE HEAD CAPITAL GAIN AS EVIDENCED BY THE ASSESSMENT FINAL IZED U/S 143(3) OF THE ACT FOR A.Y. 2004-05 (SUPRA). FURTHERMORE, THE ASSESSE ES MAIN ACTIVITY IS THAT OF SOFTWARE CONSULTANT WHICH WAS ALSO SO IN THE EARLIE R YEARS. THEREFORE, UNDER THESE CIRCUMSTANCES, IF THE ASSESSMENT ORDER DATED 28-12-2010 WAS TO BE TREATED AS ERRONEOUS QUA THE ASSESSMENT OF INCOME O N SALE OF SHARES BY THE COMMISSIONER, THE ONUS WAS ON THE COMMISSIONER TO E STABLISH AS TO IN WHAT MANNER SUCH INCOME WAS LIABLE IN THE CASE OF THE AS SESSEE TO BE TAXED AS BUSINESS INCOME AND NOT UNDER THE HEAD CAPITAL GAI N. OSTENSIBLY HAVING REGARD TO THE PAST RECORD, THE ASSESSMENT ORDER DAT ED 28-12-2010 FOR THE INSTANT ASSESSMENT YEAR COULD NOT BE DISMISSED AS E RRONEOUS MERELY FOR NON- INQUIRIES BY THE AO WITHOUT POINTING ANY CLINCHING FACTORS TO SHOW THAT THE INFERENCE MADE BY THE AO WAS WRONG. APART FROM POI NTING OUT THAT THE BUSINESS INCOME IS LIABLE TO BE TAXED AT A HIGHER R ATE AND THAT THE TRANSACTIONS HAVE BEEN CARRIED OUT THROUGH PROFESSIONAL AGENTS, THERE IS NO MATERIAL REFERRED BY THE COMMISSIONER SO AS TO ARRIVE AT A C ONCLUSION THAT THE ASSESSMENT ORDER WAS UNSUSTAINABLE IN THE EYES OF L AW, CONSIDERING THE PAST HISTORY. THEREFORE, IN THIS VIEW OF THE MATTER, TH E MATERIAL AND THE FACTS BROUGHT OUT BY THE COMMISSIONER DO NOT JUSTIFY INV OKING OF SECTION 263 OF THE ACT TO HOLD THE ASSESSMENT ORDER DATED 28-12-2010 A S ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE QUA TH E TAXATION OF PROFITS ON SALES AND PURCHASE OF SHARES. AS A RESULT THEREOF, WE SE T ASIDE THE IMPUGNED ORDER OF THE COMMISSIONER AND RESTORE THE ASSESSMENT ORDE R DATED 28-12-2010. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF APRIL, 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PA NNU) JUDICIAL MEMBER ACCOUNTAN T MEMBER PUNE, DATED 30 TH APRIL, 2012 ANKAM COPY TO:- 1) ASSESSEE, 2) JT.CIT R-5 PUNE, 3) THE CIT-III PUNE 4) DR, A BENCH, I.T.A.T., PUNE. 5) GUARD FILE TRUE COPY BY ORDER SR. PS, ITAT PUNE