M/s. Sirohi Investment Ltd., New Delhi V. ITO, New Delhi

ITA 1917/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65962 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 22-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Assessee Lawyers: T R TALWAR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI G BENC H BEFORE SHRI A.N. PAHUJA, AM & SHRI C.M. GARG, JM ITA NO.1917/DEL/2012 ASSESSMENT YEAR: 2007-08 M/S SIROHI INVESTMENT LTD., 4034, CHARKHEWALAN, CHOWRI BAZAR, NEW DELHI V/S . INCOME-TAX OFFICER, WARD-8(4), NEW DELHI [PAN : AAACS 3971 P] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI T.R. TALWAR, AR REVENUE BY DR. DEEPAK SEHGAL, DR DATE OF HEARING 22-11-2012 DATE OF PRONOUNCEMENT 07-12-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 26 TH APRIL, 2012 BY THE ASSESSEE AGAINST AN ORDER DATED 01-02-2012 OF THE LEARNED CIT(A)-XI, NE W DELHI, RAISES THE FOLLOWING GROUNDS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(A} HAS ERRED: I} IN CONFIRMING THE ADDITION OF ` .39,46,840/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TREATING THE PROFIT ON SALE OF LONG TERM INVESTMENT AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS AS RETURNED BY THE ASSESSEE IN RESPECT OF 1,3 2,500 SHARES OF M/S ARAVALI SECURITIES & FINANCE LTD. WHI CH WERE CONVERTED INTO INVESTMENTS FROM STOCK-IN- TRADE ON 1-4-2004. II} IN UPHOLDING THE VIEW OF THE ASSESSING OFFICER THAT THE DECISION REGARDING CONVERSION OF THE ABOVE SHARES F ROM STOCK-IN-TRADE INTO INVESTMENT WAS ACTUALLY MADE SO METIME IN OCTOBER 05 ENDING, INSTEAD OF ON 1-4-2004 AS CLA IMED BY THE ASSESSEE AS PER THE RESOLUTION PASSED IN THE DI RECTORS MEETING HELD ON THAT DATE. ITA NO.1917/DEL./2012 2 III) IN IGNORING THAT THE BOOK ENTRIES ARE NOT DEC ISIVE OF THE CHARACTER OF ASSET WHETHER IT IS CAPITAL OR STOCK-I N-TRADE & THE FACT THAT THE COMPANY HAS NOT DONE ANY TRADING IN S HARES OF ARAVALI LEASING LTD. ANY TIME IN THE PAST SINCE THE IR ACQUISITION. IV} IN IGNORING THE FACT THAT THE CONVERSION OF TH E ABOVE SHARES FROM STOCK-IN-TRADE TO INVESTMENT ON 1-4-2004 AT TH E PREVAILING MARKET PRICE, AS SUGGESTED BY THE ASSESS ING OFFICER, WOULD HAVE MEANT A FICTIONAL SALE INTRODUC ING A FICTIONAL PROFIT/IOSS WHICH IN TRUTH AND IN FACT IS NON- EXISTENT AND WOULD BE AGAINST ALL CANONS OF MERCANTILE AND I NCOME TAX LAW AS HELD BY THE SUPREME COURT IN SIR KIKABHA I PREMCHAND V. CIT (1953) 24 ITR 506 (SC). THE APPELLANT CRAVES LEAVE TO ADD, MODIFY, ALTER, S UBSTITUTE OR DELETE ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS AR E THAT E-RETURN DECLARING NIL INCOME FILED ON 30.10.2007 BY THE ASSESSEE, TRADING IN SHA RES & CARRYING ON FINANCING BUSINESS, AFTER BEING PROCESSED U/S 143(1) OF THE I NCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), WAS SELECTE D FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ISSUED ON 17.09.2008 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE REFLECTED PROFIT OF ` 38,00,460/- ON SALE OF 1,32,500 SHARES OF ARAVALI SECURITIES & FINANCE LTD. , WHICH WERE CONVERTED IN TO INVESTMENT FROM STOCK IN TRADE ON 01.04.2004, CLAIMING EXEMPTION UNDER THE R ELEVANT PROVISIONS OF THE ACT. TO A QUERY BY THE AO, THE ASSESSEE REPLIED THAT THE BOARD OF DIRECTORS OF THE COMPANY IN A MEETING HELD ON 1.4.2004 TRANSFERRED 1 ,32,500 SHARES OF ARAVALI SECURITIES & FINANCE LTD. FROM STOCK IN TRADE IN TO INVESTMENT. HOWEVER, THE AO WAS OF THE OPINION THAT THE ASSESSEE MANIPULATED IT S ACCOUNTS IN ORDER TO AVOID PAYMENT OF DUE TAX, CLAIM HAVING BEEN MADE ON THE B ASIS OF INTERNAL SELF GENERATED JOURNAL VOUCHERS, WHICH DID NOT REFLECT T HE TRANSACTION IN TOTALITY WHILE THE SALE OF ` `1,40,450/-[1,32,500 SHARES @`1.06] WAS BASED ON C LOSING RATE OF SHARES IN BSE S ON 1.4.2004. WHILE REFERRING TO SA LES OF VARIOUS SHARES MADE IN ITA NO.1917/DEL./2012 3 THE PERIOD RELEVANT TO THE AY 2005-06 , THE AO OBSE RVED THAT THE AMOUNT OF ` 1,40,450/- WAS NOT INCLUDED IN THE TOTAL SALES OF ` ` 6,37,49,788/- FOR THAT YEAR. AFTER ANALYZING THE FACTS AND CIRCUMSTANCES, THE AO CONCLUDED THAT DECISION REGARDING CONVERSION OF STOCK IN TRADE OF 1,32,500 SHARES OF ARAVALI SECURITIES & FINANCE LTD. INTO INVESTMENT WAS TAKEN IN OCTOBER ,2005.WHILE ANALYZING PRICE MOVEMENT OF SHARES OF THE SAID COMPANY DURING THE P ERIOD MARCH, 2000 TO APRIL, 2006, THE AO FURTHER OBSERVED THAT PRICE MOVEMENT WAS IN A NARROW BAND AND NOT MANY SHARES WERE TRANSACTED. SINCE THE ASSESSEE WAS HOLDING THE SHARES OF THE AFORESAID COMPANY IN THE PRECEDING SO MANY YEAR S AND THE STOCK WAS ALMOST DEAD STOCK WHILE OBSERVING THAT THE ASSESSEE HAD IN SIDER INFORMATION IN RESPECT OF SHARES OF THE SAID COMPANY, THE AO CONCLUDED THA T THE ACCOUNTS WERE MANIPULATED AND, THEREFORE, ADDED AN AMOUNT OF ` ` 39,46,840 ON ACCOUNT OF SALE OF AFORESAID SHARES AND DENIED EXEMPTION CLAIMED BY THE ASSESSEE. 3. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDING S OF THE AO IN THE FOLLOWING TERMS:- GROUND NO.2;- THE ISSUE IN QUESTION IS WHETHER THE CAPITAL GAIN ARISING TO THE APPELLANT ARE LONG TERM AND HEN CE EXEMPT, OR AS BUSINESS INCOME, AND HENCE TAXABLE. THE APPELLANT HELD 1,32,500 SHARES OF ARAVALI SECURITIE S & FINANCE LTD. WHICH WERE SOLD IN APRIL, 2006 FOR A P ROFIT OF `38,00,460/- WHICH WAS CLAIMED AS EXEMPT U/S 10(38) OF THE ACT AS LONG TERM CAPITAL GAINS. IT WAS STATED THAT THESE SHARES HELD AS STOCK IN TRADE WERE CONVERTED TO INV ESTMENTS ON 01.04.04 AS PER THE RESOLUTION PASSED IN THE DIR ECTORS MEETING HELD ON THAT DATE. THE ASSESSING OFFICER AFTER DETAILED EXAMINATION DI D NOT AGREE WITH THE CONTENTIONS OF THE APPELLANT. HE HE LD THAT THERE WAS NO INDEPENDENT PROOF THAT THE SHARES WERE ACTUALLY CONVERTED FROM STOCK IN TRADE TO INVESTMEN TS ON 01.04.04. HE MADE OUT A CASE THAT THE DECISION TO CONVERT THE SHARES FROM STOCK IN TRADE TO INVESTMENTS WAS I N FACT MADE SOME TIME DURING THE FINALIZATION OF ACCOUNTS BY WHICH TIME THE MARKET PRICE OF THE SHARES HAD INCREASED CONSIDERABLY. ADMITTEDLY, THE AO HAS RELIED ON CIRC UMSTANTIAL EVIDENCE TO PROVE HIS CASE BUT HAS ALSO CLARIFIED T HAT IN CIVIL ITA NO.1917/DEL./2012 4 PROCEEDINGS HE IS NOT REQUIRED TO PROVIDE CLINCHING EVIDENCE. THE AO BROUGHT OUT THAT THE PRICE OF THESE SHARES W AS ALWAYS ON THE LOWER SIDE AND APPRECIABLY AND THE DE CISION TO CONVERT THE SHARES TO INVESTMENT WAS TAKEN SOMETIME S DURING THIS PERIOD. AT THIS TIME THERE WAS ALSO INS IDER INFORMATION AVAILABLE ABOUT THE DEMERGER OF THE INV ESTMENT DIVISION IN THE HOTEL INDUSTRY WHICH WOULD RESULT I N FURTHER SPURT IN PRICES. WHILE THE BASIS OF THE ADDITION WA S CIRCUMSTANTIAL, THE AO WAS NOT PROVIDED WITH ANY INDEPENDENT PROOF REGARDING THE CONVERSION OF SHARE S ON 01/04/04. THE APPELLANT SUBMITTED A COPY OF THE MINUTES OF TH E BOARD OF DIRECTORS DATED 01/04/04. A COPY OF ACCOUNTS FOR THE YEAR ENDED 31/03/05 SHOWING THE SHARES AS INVESTMENT WAS ALSO FILED. THE COPY OF ACCOUNTS ARE BASED ON FINALIZATI ON OF ACCOUNTS THAT WOULD NORMALLY TAKE PLACE BETWEEN AUG UST TO OCTOBER; 05 AND DOES NOT DISPROVE THE AO'S CASE. TH E PRODUCTION OF THE MINUTES OF THE BOARD OF DIRECTORS WAS BY MEANS TO AN ATTESTED EXTRACT. ATTENTION WAS INVITED TO SECTION 193 OF THE COMPANIES ACT WHICH REQUIRED MIN UTES OF THE MEETINGS OF THE BOARD TO BE RECORDED IN MINUTE BOOKS WITH EACH PAGE CONSECUTIVELY NUMBERED NOT ONLY IS T HIS A LEGAL REQUIREMENT BUT WOULD HAVE EASILY PROVED IF T HE BOARD MEETING WAS ACTUALLY HELD ON 01.04.04. THE APPELLA NT DID NOT SUBMIT THE SAME. ON PERUSAL OF ALL ASPECTS OF THE CASE, THE CRUX OF THE ISSUE IS WHETHER THE SHARES SOLD IN APRIL, 06 WERE ACTUALLY CONVERTED FROM STOCK IN TRADE TO INVESTMENT ON 1.4.04 AS CLAI MED BY THE APPELLANT OR AROUND AUGUST TO OCTOBER, 05 WHEN ACCO UNTS WERE FINALIZED. ADMITTEDLY, THE ASSESSING OFFICER S CASE IS CIRCUMSTANTIAL. BUT IT IS NOT THAT THE CASE IS WIT HOUT ANY BASIS. THE APPELLANT COULD EASILY HAVE REFUTED THE ASSESSING OFFICERS CONTENTION BY PRODUCING THE MIN UTE BOOK, WHICH BEING CONSECUTIVELY PAGE NUMBERED WOULD HAVE PROVIDED THE DATE OF THE CONVERSION OF SHARES. THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE ANY INDEPENDENT EVIDEN CE IN SUPPORT OF ITS CONTENTION REGARDING CONVERSION OF S TOCK INTO INVESTMENT. THE CLAIM THAT IN ITS ANNUAL ACCOUNTS T HE SAME ARE REFLECTED AS STOCK IN TRADE, DOES NOT DENY THE AO'S CONTENTION THAT THIS DECISION WAS TAKEN DURING FINA LIZATION. THE APPELLANT HAS ALSO COUNTERED OTHER ARGUMENTS OF THE AO, BUT THE SAME ARE NOT REQUIRED TO BE REPEATED ON THE FACE OF THE WEIGHTAGE GIVEN TO THE LEGAL REQUIREMEN T U/S 193 OF THE COMPANIES ACT TO MAINTAIN A MINUTE BOOK RECO RDING ITA NO.1917/DEL./2012 5 THE PROCEEDINGS OF THE DIRECTORS MEETINGS WHOSE PAG ES WOULD BE CONSECUTIVELY NUMBERED AND EACH PAGE WOULD BE INITIALED BY THE CHAIRMAN OF THE MEETING. THIS DOCU MENT WAS NOT PRODUCED. THE ADDITION MADE BY THE AO IS THEREF ORE CONFIRMED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSESSEE WH ILE CARRYING US THROUGH THE IMPUGNED ORDER AND PAGES 62 ,64 TO 66 OF THE PAPER BOOK CONTENDED THAT THE SHARES OF THE AFORESAID COMPANY HELD AS STOCK-IN-T RADE UNTIL 31.3.2004 WERE CONVERTED INTO INVESTMENT ON 1.4.2004 IN TERMS OF R ESOLUTION OF BOD OF THE COMPANY. WHILE REFERRING TO THE ASSESSMENT ORDER FO R THE AY 2005-06, THE LD. AR VEHEMENTLY ARGUED THAT THE AO DID NOT DOUBT THE CON VERSION OF AFORESAID SHARES FROM STOCK-IN-TRADE INTO INVESTMENT IN THAT YEAR. AFTER HAVING ACCEPTED THE ACCOUNTS FOR THE AYS 2005-06 AND 2006-07, THE AO WA S NOT ENTITLED TO REJECT THE ACCOUNTS FOR THAT YEAR IN THE ASSESSMENT PROCEEDING S FOR THE YEAR UNDER ONSIDERATION. TO A QUERY BY BENCH AS TO WHY MINUTE BOOK DESIRED BY THE LD CIT(A) WAS NOT PRODUCED BEFORE HIM, THE LD. AR REPL IED THAT THE ASSESSEE IS PREPARED TO PRODUCE THE MINUTE BOOK. INTER ALIA, T HE LD. AR RELIED ON THE DECISION DATED JULY 2, 2008 IN ACIT VS. BRIGHT STAR INVESTME NT PVT. LTD. IN I.T.A. NO.6374/MUM/2004; AND DECISION DATED 11.02.2003 IN ACIT VS. AMER INVESTMENTS(DELHI) LTD. IN I.T.A. NO.6114/DEL./1997 WHEREIN ON SIMILAR FACTS CLAIM OF THE ASSESSEE HAD BEEN ACCEPTED. ON THE OTHER HAN D, THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE. THE ISSUE BEFORE US IS AS TO WHETHER THE PROFIT ON SA LE OF 1,32,500 SHARES OF ARAVALI SECURITIES & FINANCE LTD. IS LONG TERM CAPITAL G AIN OR BUSINESS INCOME. AS IS APPARENT FROM THE AFORESAID FACTS, THE AO DOUBTED T HE CONVERSION OF SHARES OF M/S ARAVALI SECURITIES PVT. LTD. FROM STOCK IN TRAD E INTO INVESTMENT W.E.F. 1.4.2004 WHILE THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO ON THE GROUND THAT NO DOCUMENTARY EVIDENCE INCLUDING MINUTE BOOK MAINTAIN ED IN TERMS OF PROVISIONS OF SECTION 193 OF THE COMPANIES ACT, 1956 WAS PROD UCED BEFORE HIM. THE LD. ITA NO.1917/DEL./2012 6 AR ON BEHALF OF THE ASSESSEE WHILE REFERRING TO TH E RESOLUTION DATED 1.4.2004 OF THE BOD OF THE COMPANY SUBMITTED THAT THE ASSESSEE IS PREPARED TO PRODUCE THE MINUTE BOOK IF OPPORTUNITY IS GIVEN. IN THESE CIRCU MSTANCES, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. C IT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE AFORESAID ISSUE, AFRESH I N ACCORDANCE WITH LAW IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS INC LUDING THE AFORESAID DECISIONS RELIED UPON BY THE LD. AR AND O F COURSE, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES . THE ASSESSEE SHALL PRODUCE THE RELEVANT MINUTE BOOK AND ANY OTH ER EVIDENCE IN SUPPORT OF ITS CONTENTION BEFORE THE LD. CIT(A) . N EEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, THE LD. CIT(A) SHALL P ASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. THE LD. CIT(A) IS FREE TO UNDERT AKE ANY INDEPENDENT ENQUIRIES, FOUND NECESSARY TO ASCERTAI N THE FACTS OF THE CASE. WITH THESE DIRECTIONS GROUND NOS. I) TO I V) IN THE APPEAL ARE DISPOSED OF. 6.. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERM OF RESIDUARY GROUND IN THE APPEAL, ACCORDINGLY, THE SAID GROUND IS DISMISSED. 7. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE US . 8. IN THE RESULT, APPEAL IS ALLOWED BUT FOR STATI STICAL PURPOSES. SD/- SD/- (C.M. GARG) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. INCOME-TAX OFFICER,WARD-8(4),NEW DELHI 3. CIT CONCERNED 4. CIT(A)-XI, NEW DELHI 5. DR, ITAT,G BENCH, NEW DELHI ORDER PRONOUNCED IN OPEN COURT ITA NO.1917/DEL./2012 7 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI