ITO, WD-12(1), KOLKATA, Kolkata V. M/s Nupur Carpets Pvt. Ltd., Kolkata

ITA 171/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1287 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 171/KOL/201 6 ASSESSMENT YEAR : 2006-0 7 I.T.O, WARD-12(1), KOLKATA -VS- M/S NUPUR CARPETS PVT. LTD. [PAN: AABCN 0170 A] (APPELLANT) (RESPONDEN T) FOR THE APPELLANT : SHRI SALLONG YADEN , ADDL. CIT FOR THE RESPONDENT : SHRI S. JHAJHARIA, FCA DATE OF HEARING : 13.02.2018 DATE OF PRONOUNCEMENT : 07.03.2018 ORDER PER M.BALAGANESH, AM 1. . THIS APPEAL BY THE REVENUE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-4, KOLKATA [IN SHORT THE LD CIT (A)] IN APPEAL NO.685/CIT(A)- 4/CIRCLE-12/KOL/14-15 DATED 27.11.2015 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE- 12, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 26.12.2008 FOR THE ASSESSM ENT YEAR 2006-07. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN TREATING THE INCOME FROM SALE OF SHARE S AS LONG TERM CAPITAL GAINS (LTCG) AND SHORT TERM CAPITAL GAINS (STCG) AS THE C ASE MAY BE , IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE FILED ITS RETURN OF INCOME FOR THE ASST YEAR 2006-07 ON 30.11.2006 DECLARING TOTAL INCOME O F RS 79,34,220/-. THE ASSESSEE IS AN INVESTMENT COMPANY DEALING IN CARPETS , GARMENTS , STOCKS AND SHARES. THE LD AO 2 ITA NO.171/KOL/2016 M/S NUPUR CARPETS PVT. LTD. A.YR.2006-07 2 OBSERVED THAT THE ASSESSEE HAS SHOWN CONSIDERABLE I NCOME FROM PROFIT ON SALE OF INVESTMENT WHICH THE ASSESSEE HAS SHOWN AS LTCG AND STCG. THE LD AO OBSERVED THAT THE SAME HAS BEEN SHOWN AGAINST NUMEROUS SALE AND PURCHASE TRANSACTIONS OF MUTUAL FUNDS / SHARES THROUGH OWN INVESTMENT / OFF MARKET SALE AND THROUGH KOTAK PORTFOLIO MANAGEMENT SERVICE. IN VIEW OF NUMEROUS TRANSACTIONS, THE LD AO ASKED THE ASSESSEE TO JUSTIFY AS TO WHY THE PROFIT ON SALE OF SHARES WAS NOT TO BE TREATED AS BUSINESS PROFITS. IN RESPONSE THE ASSESSEE REPLIE D THAT IT IS A NON-BANKING FINANCIAL COMPANY , EARNING INTERST INCOME FROM ADVANCING OF LOANS, INVESTMENTS AND DEPOSITS WITH BANK. IT ALSO EARNS DIVIDEND ICNOEM FROM INVE STMENT IN SHARES AND SECURITIES. DURING THE YEAR UNDER APPEAL, THE ASSESSEE COMPANY HAD CLAIMED BUSINESS LOSS AT RS 19,40,817/- AS WELL AS CAPITAL GAIN OF RS 98,35,801 /- AND LTCG OF RS 1,38,27,474/-. IT WAS REPLIED THAT THE SHARES WERE HELD BY ASSESSEE A S INVESTMENT ONLY IN THE AUDITED ACCOUNTS AND HENCE THE GAIN HAS TO BE ASSESSED AS C APITAL GAINS ONLY AND IT HAS ONLY ONE PORTFOLIO. ALL THE INVESTMENTS WERE MADE OUT OF A SSESSEES OWN FUNDS AND NO AMOUNT WAS BORROWED FOR MAKING INVESTMENTS. THE ASSESSEE IN SUPPORT OF ITS ARGUMENTS PLACED RELIANCE ON VARIOUS DECISIONS OF HIGH COURTS AND TRIBUNALS. THE LD AO ON PERUSAL OF THE OBJECTS IN THE MEMORANDUM OF ASSOCIA TION OF THE ASSESSEE COMPANY CONCLUDED THAT THE BUYING AND SELLING OF SHARES IS ONE OF THE PRIMARY OBJECTS OF THE COMPANY AND THE SAME WAS CARRIED OUT IN A SYSTEMAT IC AND ORGANIZED MANNER BY THE ASSESSEE BY WAY OF NUMEROUS TRANSACTIONS. MOREOVE R, THE HOLDING PERIOD OF SHARES WERE VERY LESS AND ACCORDINGLY HE CONCLUDED THAT TH E MOTIVE OF ASSESSEE WHILE BUYING AND SELLING THESE SHARES WERE ONLY TO EARN PROFITS. HENCE BASED ON FREQUENCY OF TRANSACTIONS AND MINIMUM PERIOD OF HOLDING , HE CON CLUDED THAT THE PROFITS ON SALE OF SHARES ARE TO BE ASSESSED ONLY AS BUSINESS INCOME I N THE SUM OF RS 1,63,88,559/-. 4. THE LD CITA TREATED THE GAINS ARISING ON SALE OF SHARES AS LTCG AND STCG DEPENDING UPON THE PERIOD OF HOLDING AS AGAINST BUS INESS INCOME TREATED BY THE LD AO, BY PLACING RELIANCE ON THE DECISION OF THIS TRIBUNA L IN ASSESSEES OWN CASE FOR THE ASST 3 ITA NO.171/KOL/2016 M/S NUPUR CARPETS PVT. LTD. A.YR.2006-07 3 YEAR 2005-06 IN ITA NO. 783/KOL/2009 DATED 1.7.2015 . THE LD CITA HOWEVER HELD THAT IF THERE WAS ANY INCIDENCE OF CONVERSION OF ST OCK IN TRADE INTO INVESTMENT, THE SAME IS TO BE TREATED AS BUSINESS INCOME. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BY IGNORING THAT THE ASSESSEE WAS CARRYING OUT SHARE T RANSACTIONS IN GOOD VOLUME, FREQUENTLY, SYSTEMATICALLY AND IN ORGANIZED MANNER WITH A SET GOAL THEN WHETHER THE PROFIT ARISING OUT OF SUCH SHARE TRANSACTIONS A MOUNTS TO BUSINESS PROFIT OR CAPITAL GAIN OUT OF INVESTMENTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED BY IGNORING THAT THE ASSESSEE HAS CARRIED OUT ITS ACTI VITIES OF SHARE TRANSACTIONS IN A SYSTEMATIC AND ORGANIZED MANNER AND EFFECTED SALE OF SHARES AT AN OPPORTUNE MOMENT AND ARRANGED THE TRANSACTION AS PER ITS OWN WHIMS AND FANCY IN ITS BOOKS OF ACCOUNTS TO LOWER THE TAX INCIDENCE. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD/ALTER/MOD IFY THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 6. THE LD DR VEHEMENTLY RELIED ON THE ORDER OF THE LD AO. IN RESPONSE TO THIS, THE LD AR STATED THAT THE ISSUE UNDER DISPUTE IS COVERED B Y THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEARS 2005-06 VIDE ORDER DATED 1.7.2015 AND FOR ASST YEAR 2007-08 VIDE ORDER DATED 10.1.18. HE STATED T HAT THERE WAS NO CONVERSION OF STOCK IN TRADE INTO INVESTMENT AND HENCE THERE IS N O QUESTION OF ASSESSING ANY BUSINESS INCOME. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT I N DISPUTE THAT THE ASSESSEE DURING THE YEAR UNDER APPEAL WAS HAVING ONLY INVESTMENT PORTFO LIO IN ITS BALANCE SHEET. THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING THESE SHARES AND MUTUAL FUNDS UNDER INVESTMENTS IN ITS BALANCE SHEET. WE FIND THAT THE ISSUE UNDER DISPUTE IS COVERED IN 4 ITA NO.171/KOL/2016 M/S NUPUR CARPETS PVT. LTD. A.YR.2006-07 4 FAVOUR OF THE ASSESSEE IN ASST YEAR 2005-06 IN ITA NO. 783/KOL/2009 DATED 1.7.2015 WHEREIN IT WAS HELD THAT:- WE HAVE GONE THROUGH THE LEDGER ACCOUNTS OF THE AS SESSEE FOR THE ASSESSMENT YEAR 2005-06 UNDER CONSIDERATION AND NOTICED SEPARATE LE DGER ACCOUNTS IN RESPECT OF CONVERSION OF STOCK-IN-TRADE INTO INVESTMENT. BY CO NVERTING THE STOCK-IN-TRADE INTO INVESTMENT, IT DOES NOT ALTER THE CHARACTER, NATURE AND INTENTION OF THAT PARTICULAR TRANSACTION ESPECIALLY IN THE CONTEXT OF CAPITAL GA IN VERSUS BUSINESS INCOME. BY BRINGING IN STOCK-IN-TRADE UNDER THE HEAD INVESTMEN T THE ASSESSEE COULD REDUCE THE TAX INCIDENCE CONSIDERABLY. THE ACTIVITY OF TRADING IN SHARES CARRIED OUT SEPARATELY IN THE ASSESSMENT YEAR 2004-05 AND AGAIN BROUGHT FORWA RD TO BE CONTINUED IN THE NEXT ASSESSMENT YEAR I.E. 2005-06 UNDER THE HEAD INVES TMENT IS TO BE CONSIDERED AS TRADING ACTIVITY ONLY. SUBSEQUENT CONVERSION AND TR EATMENT GIVEN IN THE BOOKS OF ACCOUNTS DO NOT ALTER THE CHARACTER OF COMMERCIAL T RANSACTION. ACCORDINGLY, THE PROFIT THAT HAS BEEN ATTRIBUTABLE TO THIS TRADING ACTIVITY CORRESPONDING TO CONVERSION OF STOCK-IN-TRADE INTO INVESTMENT IS TO BE TREATED AS BUSINESS INCOME AND ACCORDINGLY TO BE TAXED. IN VIEW OF THE ABOVE FINDINGS OF LD. CIT( A) THAT THE INCOME FROM INVESTMENT IS TO BE TAKEN AS CAPITAL GAINS AND CONVERSION OF STOCK-IN-TRADE INTO INVESTMENT IS TO BE TAKEN AS TRADING INCOME, WHICH IS BASED ON FAC TS OF THE CASE AND NEED NO DISTURBANCE. ACCORDINGLY, WE CONFIRM THE FINDINGS O F LD. CIT(A). RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE P ROFIT ON SALE OF SHARES AND MUTUAL FUNDS COULD BE ASSESSED ONLY AS CAPITAL GAINS (LTCG AND STCG) DEPENDING UPON THE PERIOD OF HOLDING. ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 07.03.2018 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.03.2018 SB, SR. PS 5 ITA NO.171/KOL/2016 M/S NUPUR CARPETS PVT. LTD. A.YR.2006-07 5 COPY OF THE ORDER FORWARDED TO: 1. I.T.O., WARD-12(1), KOLKATA, AAYAKAR BHAWAN, P-7 , CHOWRINGHEE SQUARE, KOLKATA- 700069. 2. M/S NUPUR CARPETS PVT. LTD., 23C, ASHUTOSH CHOWD HURY AVENUE, KOLKATA-700019 3. C.I.T(A)- , KOLKATA 4. C.I.T.- K OLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S