DCIT, New Delhi V. M/s. GDA Finvest Trade (P) Ltd., New Delhi

ITA 2019/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7381 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SAROHA
• Keywords: Capital asset; Business income; Earning of tax free income
• Section: 143(3); 2(14); 142(1); 153A; 14A; 132; 15

Judgement Text

ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO. 2019/DEL/2013 A.Y. : 2006-07 DEPUTY COMMISSIONER OF INCOME TAX, CENTRA CIRCLE 13, ROOM NO. 332, ARA CENTRE, JHANDEWALAN EXTN., NEW DELHI VS. M/S GDA FINVEST & TRADE PVT. LTD., ASSAM TIMBER MARKET, SWARN PARK, MUNDKA, NEW DELHI -29 (PAN:AAACG4200D) (APPELLANT) (RESPONDENT) & C.O. 321/DEL/2014 (IN ITA NO. 2019/DEL/2013) A.Y. : 2006-07 M/S GDA FINVEST & TRADE PVT. LTD., ASSAM TIMBER MARKET, SWARN PARK, MUNDKA, NEW DELHI -28 (PAN:AAACG4200D) VS. DEPUTY COMMISSIONER OF INCOME TAX, CENTRA CIRCLE 13, ROOM NO. 332, ARA CENTRE, JHANDEWALAN EXTN., NEW DELHI (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. A.K. SAROHA, CIT(DR) ASSESSEE BY : SH. VED JAIN, ADV. DATE OF HEARING : 11-12-2015 DATE OF ORDER : 15-01-2016 ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THE APPEAL AND ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT(A)-I DATED 09.01.2013 RELEVANT FOR THE ASSESSMENT YEAR 2006-07 . 2. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 2 1. THE ORDER OF THE LD. CIT(A) IS NOT CORRECT IN LAW AND FACTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN LAW IN DIRECTING THE AO TO TREA T THE INCOME OF RS. 95,92,653/- AS STCG AGAINST BUSINESS INCOME ASSESSED BY AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW IN DIRECTING THE AO TO CHARGE THE AMOU NT OF RS. 90,180/- AS SHORT TERM CAPITAL GAIN UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD INCOME FROM BUSINESS INCOME WHEREAS THE AMOUNT OF ADDITION WAS RS. 95,92,653/-. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AN\Y / ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HE ARING OF THE APPEAL. 3. THE GROUNDS RAISED IN THE ASSESSEES CROSS OBJEC TION READ AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD C OMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] HAS ERRED BOTH ON FACTS & IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THA T THE PROCEEDINGS INITIATED UNDER SECTION 153A AND ORDER PASSED BY THE LEARNED ASSESSING OFFICER (AO) UNDER SECTION 15 3A/143(3) IS WITHOUT JURISDICTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD C OMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] HAS ERRED BOTH ON FACTS & IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THA T THE PROCEEDINGS INITIATED UNDER SECTION 153A ARE BAD IN LAW IN THE ABSENCE OF ANY INCRIMINATING MATERIAL BELONGING TO THE ASSESSEE BEING FOUND DURING THE COURSE OF THE SEARC H. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN IGNORING THE FACT THAT THE ADDITIONS MADE BY THE AO ARE OTHERWISE UNTENABLE SI NCE THE SAME IS NOT ARISING FROM THE ANY INCRIMINATING MATE RIAL SEIZED DURING THE COURSE OF SEARCH AND REASSESSMENT UNDER SECTION ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 3 153A/153A CONSEQUENT TO SEARCH IS TO BE CONFINED ON LY TO THE INCRIMINATING MATERIAL BELONGING TO THE ASSESSEE FO UND DURING THE COURSE OF THE SEARCH. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD C OMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] HAS ERRED BOTH ON FACTS & IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THA T THE ORDER PASSED BY THE LEARNED AO UNDER SECTION 153A IS BAD AND LIABLE TO BE QUASHED AS THE SAME HAS BEEN FRAMED CO NSEQUENT TO A SEARCH WHICH ITSELF WAS UNLAWFUL AND INVALID I N THE EYE OF LAW. 5 (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] HAS E RRED BOTH ON FACTS & IN LAW IN MAKING ADDITION OF RS. 62 ,817/- INVOKING THE PROVISIONS OF SEC 14A OF THE ACT. (II) THAT THE ADDITION HAS BEEN ARBITRARILY ESTIMA TING THE EXPENSES RELATED TO EXEMPT INCOME. 6. THE RESPONDENT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE GROUNDS OF CROSS OBJECTIONS. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE A SEARC H AND SEIZURE OPERATION WAS INITIATED U/S. 132 IN THE SWASTIK PI PES GROUP OF CASES ON 28.8.2008. THE ASSESSEE COMPANY WAS COVERED IN THE SEARCH. NOTICE U/S. 153A WAS ISSUED ON 25.8.2010 AND SERVED. IN RESPON SE TO THE SAID NOTICE, THE ASSESSEE FILED THE RETURN OF INCOME ON 20.9.2010 DECLARING TOTAL INCOME OF RS. 95,34,323/-. NOTICE WAS ISSUED U/S. 143(2) ON 20.9.2010 AND U/S. 142(1) ON 30.9.2010. THESE NOTI CES WERE DULY COMPLIED WITH, AND NECESSARY DETAILS / CLARIFICATIO NS WERE FILED. THE AO HAS COMPLETED THE ASSESSMENT AT AN INCOME OF RS.99, 74,084/- AS AGAINST RETURNED INCOME OF RS.95,34,323/-. THE ASSESSEE DU RING THE YEAR HAS EARNED LONG TERM CAPITAL GAIN OF RS.14,27,860/- AND SHORT TERM CAPITAL GAIN OF RS.95,92,653/-. THE AO HELD THAT THE SHORT TERM CAPITAL GAIN IS A BUSINESS INCOME AND HAS ASSESSED IT ACCORDINGLY. T HE AO MADE CERTAIN ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 4 OTHER ADDITIONS/DISALLOWANCES VIDE ORDER DATED 28.1 2.2010 PASSED U/S. 143A R.W.S. 143(3) OF THE I.T. ACT, 1961 5. AGGRIEVED WITH THE AFORESAID ORDER OF THE AO, TH E ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) CHALLENGING THE ASSESS MENT COMPLETED UNDER SECTION 153A READ WITH SECTION 143(3) OF THE ACT ON THE LEGAL GROUND AS WELL AS VARIOUS ADDITIONS/DISALLOWANCES MADE BY THE AO. THE CIT(A) VIDE ORDER DATED 9.1.2013 REJECTED THE LEGAL CONTENTIONS RAISED BY THE ASSESSEE. HOWEVER, ON MERIT THE CIT(A) GAVE PARTIA L RELIEF TO THE ASSESSEE. 6. AGAINST THE ORDER OF THE LEARNED CIT(A) THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL AND ASSESSEE HAS FILED CROSS OB JECTION. DURING THE COURSE OF HEARING THE ASSESSEE DID NOT PRESS THE C ROSS OBJECTION FILED BY IT RAISING LEGAL GROUND. ACCORDINGLY THE SAME IS D ISMISSED AS NOT PRESSED. 7. THE ISSUE IN ALL THE FOUR GROUNDS OF APPEAL IS O NE ONLY I.E. REGARDING TAXATION OF SHORT TERM CAPITAL GAIN AS BUSINESS INC OME. IT WAS SUBMITTED BY THE LEARNED DR THAT THE AO HAS RIGHTLY ASSESSED THE INCOME OF RS.95,92,653/- AS BUSINESS INCOME AND THE LEARNED C IT(A) HAS ERRED IN DIRECTING THE AO TO ASSESS THE SAME AS SHORT TERM C APITAL GAIN. IT WAS FURTHER SUBMITTED BY HIM THAT IN THE ASSESSEES MEM ORANDUM & ARTICLES OF ASSOCIATION IN THE OBJECT CLAUSE IT HAS BEEN STATED THAT ITS BUSINESS IS INVESTMENT IN SHARES AND DEBENTURES AND HENCE THE A O WAS RIGHT IN ASSESSING INCOME ARISING FROM THE INVESTMENT IN SHA RES AS BUSINESS INCOME. IT WAS FURTHER SUBMITTED THAT AO HAS GIVEN COGENT REASONS FOR TREATING SHORT TERM CAPITAL GAIN AS BUSINESS INCOME . 8. ON THE CONTRARY, THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THE ACTION OF THE AO WAS NOT JUSTIFIED. HE STATED TH AT THE ASSESSEE DURING THE YEAR HAS EARNED A TOTAL CAPITAL GAIN OF RS.1,10 ,20,860/- WHICH INCLUDED LONG TERM CAPITAL GAIN OF RS.14,27,860/- A ND SHORT TERM CAPITAL GAIN OF RS.95,92,653/-. HE FURTHER STATED THAT THE AO HAS ACCEPTED THE ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 5 LONG TERM CAPITAL GAIN AS IS EVIDENT FROM THE ASSES SMENT ORDER BUT HAS NOT ACCEPTED THE SHORT TERM CAPITAL GAIN AND HAS TR EATED THE SAME AS BUSINESS INCOME THOUGH BOTH SHORT AND LONG TERM CAP ITAL GAIN HAS ARISEN FROM INVESTMENT IN SHARES ONLY. THE LEARNED COUNSE L OF THE ASSESSEE INVITED OUR ATTENTION TO THE DETAILS OF THESE CAPIT AL GAIN PLACED AT PB PAGE 83 IN SUPPORT OF HIS CONTENTION THAT THERE WERE VERY FEW TRANSACTION AS IS EVIDENT FROM THE DETAILS. THE AS SESSEE ALL ALONG HAS BEEN HOLDING INVESTMENT IN SHARES AND HAS BEEN DECL ARING SO. IN THIS REGARD ATTENTION WAS ALSO INVITED TO THE BALANCE SH EET OF THE EARLIER YEARS WHEREBY INVESTMENTS IN SHARES HAS ALWAYS BEEN DECLA RED AS INVESTMENT. IT WAS ALSO STATED BY HIM THAT THERE ARE NO FREQUEN T TRANSACTIONS. THERE IS NO ORGANIZED ACTIVITY. THE ASSESSEES MAIN BUSI NESS IS THAT OF FINANCING FROM WHICH IT HAS EARNED INTEREST INCOME AND THAT H AS BEEN RIGHTLY DECLARED AS BUSINESS INCOME AND THERE IS NO TRADING ACTIVITY OF SHARES. 9. AS REGARDS THE OBJECT CLAUSE OF THE MEMORANDUM O F ASSOCIATION IT WAS SUBMITTED BY THE LD. COUNSEL OF THE ASSESSEE TH AT UNDER THE COMPANIES ACT EVEN FOR MAKING INVESTMENT THE MEMORA NDUM & ARTICLES OF ASSOCIATION NEEDS TO HAVE A CLAUSE PERMITTING IN VESTMENT IN SHARES. FURTHER THERE IS NO BAR. A TRADER CAN ALSO MAKE INV ESTMENT IN SHARES AND CAN HAVE TWO PORTFOLIOS. IN SUPPORT THEREOF, HE PL ACED RELIANCE ON THE ORDER OF THE ITAT IN THE CASE OF ACIT VS. ASCOT IN VESTMENTS, ITA NO. 4691/DEL/2011 DATED 27.04.2015 AND OMKARESHWAR PROP ERTIES (P) LTD. VS. ITO, ITA NO. 5754/DEL/2013 DATED 23.10.2015. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE PAPER BOOK, ASSESSMENT ORDER AND THE ORDER OF THE LD. IT(A). I N THE REVENUES APPEAL, THOUGH IT HAS RAISED FOUR GROUNDS OF APPEAL BUT THE ONLY ISSUE IS TREATMENT OF INCOME OF RS.95,92,653/- AS SHORT TERM CAPITAL GAIN AGAINST BUSINESS INCOME THOUGH IN GROUND NO.3 THE REVENUE H AS STATED THAT THE LEARNED CIT(A) HAS MENTIONED THE AMOUNT OF RS.90,18 0/- AS SHORT TERM CAPITAL GAIN INSTEAD OF RS.95,92,653/-. DURING THE COURSE OF THE HEARING ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 6 BOTH LEARNED AR AND LEARNED DR CLARIFIED THAT THIS IS A TYPOGRAPHICAL ERROR AND THE CORRECT AMOUNT IS RS.95,92,653/- WHICH THE AO HAS ASSESSED AS BUSINESS INCOME AND THE LEARNED CIT(A) HAS DIRECTED TO ASSESS THE SAME AS SHORT TERM CAPITAL GAIN. 11. IT IS AN ADMITTED FACT THAT THE ASSESSEE DURING THE YEAR HAS EARNED LONG TERM CAPITAL GAIN OF RS.14,27,860/-. THIS LON G TERM CAPITAL GAIN HAS BEEN ACCEPTED BY THE AO AND WHEREAS THE SHORT TERM CAPITAL GAIN HAS BEEN ASSESSED AS BUSINESS INCOME. FROM THE ASSESSM ENT ORDER, WE FIND THAT NO REASON HAS BEEN GIVEN BY THE AO TO TREAT TH ESE TWO DIFFERENTLY. FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY OF T HIS YEAR AND ALSO EARLIER YEARS IT IS EVIDENT THAT ALL ALONG THE ASSE SSEE HAS BEEN MAKING INVESTMENT IN SHARES AND THE SAME HAVE BEEN DECLARE D AS INVESTMENT. THESE TRANSACTIONS HAVE BEEN ACCOUNTED FOR IN THE B OOKS OF ACCOUNT AS INVESTMENT. THE DIVIDEND EARNED ON SUCH INVESTMENT HAS BEEN DECLARED SEPARATELY. FROM THE DETAILS FILED BY THE ASSESSEE AND AVAILABLE ON RECORD WE NOTE THAT THERE ARE NO MULTIPLE TRANSACTIONS. T HE ASSESSEE HAS MADE INVESTMENT AND AFTER A PERIOD OF TIME THE SAME HAVE BEEN SOLD. DEPENDING UPON THE PERIOD OF HOLDING THE GAIN ARISI NG THEREON HAVE BEEN DECLARED AS LONG TERM CAPITAL GAIN AND SHORT TERM C APITAL GAIN. FROM THE DETAILS IT IS ALSO EVIDENT THAT THERE ARE ONLY FEW SCRIPTS IN WHICH ASSESSEE HAS MADE INVESTMENT. THERE ARE NO REPEATED TRANSAC TIONS IN THE SAME SCRIPT. THERE DOES NOT APPEAR TO BE ANY ORGANIZED ACTIVITIES AS IS NORMAL IN THE CASE OF A TRADER. THERE IS NO INTRA-DAY TRA NSACTION. 12. THE AO HAS REFERRED TO THE MEMORANDUM & ARTICLE S OF ASSOCIATION TO SUPPORT ITS ALLEGATION THAT INVESTMENT IN SCRIPTS I S THE BUSINESS OF THE ASSESSEE. WE ARE OF THE VIEW THAT THIS CANNOT BE T HE BASIS FOR HOLDING THAT THE GAIN ARISING DURING THE YEAR IS BUSINESS I NCOME AND NOT CAPITAL GAIN BECAUSE THE MEMORANDUM OF ASSOCIATION HAS AN O BJECT OF INVESTMENT IN EQUITY SHARES, PREFERENCE SHARES AND DEBENTURES. FIRSTLY EVEN IF SUCH OBJECT IS THERE IN THE MEMORANDUM OF ASSOCIATION I. E. TO CARRY ON THE ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 7 INVESTMENT IN SHARES, IT DOES NOT DEBAR A COMPANY F ROM HOLDING SHARES AS A CAPITAL ASSET. A COMPANY IS ENTITLED TO CARRY ON THE BUSINESS IN SHARES AS WELL AS TO HOLD SHARES AS INVESTMENT. THE GAIN ARISING ON SHARES HELD AS INVESTMENT WILL BE CHARGEABLE AS CAPITAL GAIN WH EREAS THE GAIN ARISING ON SALE OF SHARES HELD AS STOCK IN TRADE AS BUSINES S INCOME. THIS ISSUE HAS COME UP BEFORE THE ITAT IN THE CASE OF OMKARESH WAR PROPERTIES (P) LTD. VS. ITO (SUPRA) WHERE IT WAS HELD THAT IF THE ASSESSEE THOUGH HAVING OBJECT CLAUSE OF CARRYING ON THE BUSINESS OF REAL E STATE IN THE MEMORANDUM & ARTICLES OF ASSOCIATION, THE LAND HELD AS CAPITAL ASSET WILL NOT BECOME STOCK IN TRADE MERELY BECAUSE THE MEMORA NDUM & ARTICLES OF ASSOCIATION HAS AN OBJECT CLAUSE TO CARRY ON THE BU SINESS OF REAL ESTATE. 13. AN INCOME HAS TO BE ASSESSED UNDER A PROPER HEA D AS PER THE PROVISIONS OF THE INCOME TAX ACT. AS PER SECTION 4 5(1) OF THE ACT, ANY GAIN ARISING ON TRANSFER OF A CAPITAL ASSET IS TO B E TAXED AS CAPITAL GAIN. FURTHER SECTION 2(14) DEFINE CAPITAL ASSET TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSEE WHETHER OR NOT EARMARKED FOR HI S BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK IN TRADE , CONSUMABLE STORES OR RAW MATERIAL HELD FOR THE PURPOSE OF BUSINESS. THU S THE GAIN ARISING ON CAPITAL ASSET FALLING WITHIN THE MEANING AS DEFINED IN SECTION 2(14) IS TO BE CHARGED AS CAPITAL GAIN. 14. IN THE PRESENT CASE AS IS EVIDENT FROM THE FACT S ON RECORD, THE INVESTMENTS IN SHARES WERE HELD AS CAPITAL ASSET. THE ASSESSEE HAS ACCOUNTED FOR THESE INVESTMENTS IN SHARES AS CAPITA L ASSET IN ITS BOOKS OF ACCOUNTS. THE SAME HAS ALSO BEEN DECLARED IN THE F INANCIAL STATEMENTS AS CAPITAL ASSET. THESE FINANCIALSTATEMENTS HAVE BEEN AUDITED AND ALSO HAVE BEEN APPROVED BY THE SHAREHOLDERS FILED WITH THE RE GISTRAR OF COMPANIES. THE BOOKS OF ACCOUNTS AND THE AUDITED FINANCIAL STA TEMENTS HAVE EVIDENTIALLY VALUE AND WHAT IS RECORDED THEREIN CAN NOT BE DISTURBED LIGHTLY. THE INCOME ARISING ON SALE OF CAPITAL ASS ET, AS STATED HEREINABOVE, HAS TO BE ASSESSED UNDER SECTION 45(1) AS CAPITAL GAIN AND ITA NO. 2019/DEL/2013 & CO NO. 321/DEL/2014 8 ACCORDINGLY THE CIT(A) WAS RIGHT IN HOLDING THAT GA IN ARISING ON SALE OF INVESTMENT WILL BE CHARGEABLE AS CAPITAL GAIN AND N OT AS BUSINESS INCOME. 15. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENT, WE ARE OF THE VIEW THAT LD. CIT(A) HAS PASSED A WELL R EASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE SAME. ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALSO DISM ISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/01/2016. SD/- SD/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 15/1/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES