Sh. Amrit Lal Batra, Prop., Srinagar V. The Additional Commissioner of Income-tax, Jammu

ITA 211/ASR/2013

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0975 (ITAT-AMRITSAR)
• Duration Of Justice: 10 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-09-2023
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Set aside; Capital Gains
• Section: 37; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 211/Asr/2013 Assessment Year: 2007-08 Sh. Amrit Lal Batra, P/o M/s Ch. Aishi Ram Batra, Unit-2, Ram Munshi Bagh, Srinagar [PAN: ABWPB5198B] (Appellant) Vs. Addl. Commissioner of Income Tax, Range-3, Srinagar Camp at Jammu (Respondent) I.T.A. No. 482/Asr/2014 Assessment Year: 2010-11 Sh. Amrit Lal Batra, C/o M/s Aishi Ram Batra, Unit-2, Ram Munshi Bagh, Srinagar [PAN: ABWPB 5198B] (Appellant) Vs. Deputy Commissioner of Income Tax-3, Srinagar (Respondent) Appellant by Respondent by : : Sh. Sudhir Sehgal, AR Sh. Manoj Aggarwal, Sr. DR Date of Hearing Date of Pronouncement : : 13.09.2023 06.10.2023 2 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT ORDER Per Dr. M. L. Meena, AM: Both the captioned appeals have been filed by the assessee against the order of the ld. CIT(A) National Faceless Appeal Centre (NFAC), Delhi dated 16.03.2023 in respect of Assessment Year 2018-19. 2. At the outset, the Ld. Counsel for the appellant assessee submitted that the Hon’ble High Court of Jammu and Kashmir vide its Judgment delivered on 14.07.2017 has remitted the matter back to the Tribunal in respect of the Assessment Year 2007-08 vide para 5 by observing that since, we are in any event remitting the matter with regard to the nature of the transaction concerning the sale and purchase of shares, we also set- aside the finding with regard to legal expenses and that also ought to be considered afresh. Parties shall be entitled to raise all contentions available to them in law. 3. Thus, the Hon’ble Jurisdictional High Court has remitted the matter regarding the nature of the transaction in respect of the sale and purchase of shares, and also set-aside the finding with regard to legal expenses to be considered afresh. 3 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT 4. The appellant assessee is a Proprietor who has filed return of income showing income of Rs. 1,15,18,020/-. However, the said Return of income was revised at total income of Rs. 1,08,55,610/-. During scrutiny assessment, the income was assessed at Rs. 1,37,62,030/- vide assessment order dated 30.12.2009.The Ld. CIT(A) has partly granted relief in respect of expenses claimed vide order dated 14.01.2013.On filing appeal before the Hon’ble ITAT, Amritsar Bench, in ITA No. 211/Asr/2013, the appeal of the Assessee was allowed vide order dated 27.06.2013. 5. The department being aggrieved with the Tribunal order, has filed an appeal before the Hon’ble High Court against the above said order which has been set aside to the Hon’ble Bench on the issues of treatment of income from sale and purchase of shares whether to be considered as business income or as income from capital gains and also on the issue of disallowance of legal expenses. 6. First, we take up the Issue with regard to treatment of purchase and sale of shares as adventure in the nature of trade i.e.Business income or income from capital gains. The Hon’ble High Court set aside the matter by observing vide para 4 and 5 of its judgement as under: 4 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT “4. The tribunal while examining the issue has referred to a decision of the Delhi High Court in the case of Commissioner of Income Tax v. Vinay Mittal: [2012]208 Taxmann 106 (Delhi). In that decision, there is also a reference to a Gujarat High Court decision in case of Commissioner of Income Tax v. Rewashanker A. Kothari: [2006] 283 ITR 338, wherein various tests were formulated in order to determine whether an assessee could be said to be carrying on the business of sale and purchase of various securities or whether the said assessee was holding them as an investment. One of the most important tests outlined in that decision was as to whether the transactions in the shares were of a large volume and were frequent and whether there was continuity and regularity in such transactions of purchase and sale. It was noted that if there was repetition and continuity coupled with the magnitude of the transactions bearing a reasonable proportion to the holding then it would be an important circumstance in considering such activity to be in the nature of trade and business. 5.This aspect pertaining to the volume of transactions, the frequency of transactions and the continuity and regularity of the purchase of sale of the shares which was highlighted in the Gujarat High Court decision as also in the Delhi High Court decision and which was specifically taken note of by the tribunal, has not been examined in the facts of the present case. It appears that the tribunal was impressed by the fact that a similar treatment had been given and accepted by the department in earlier assessment years. But in our view, that alone cannot form the basis of the conclusion as to whether the said shares were bought and sold as a part of trading activity or as a part of investments. All the circumstances outlined in the decision of the Delhi High Court and that of the Gujarat High Court as also the guidelines of the Central Board of Direct Taxes referred to in the impugned order needed to be considered and then a view was required to be taken on the totality of circumstances. Unfortunately, that has not been done. It is for this reason that we feel that the present appeal ought to be disposed of by setting aside the impugned order and by remitting the matter to the tribunal for a fresh consideration in the manner indicated above. It is ordered accordingly. Since we are in any event remitting the matter with regard to the nature of the transaction concerning the sale and purchase of shares, we also set-aside the finding with regard to legal expenses and that also ought to be considered afresh. Parties shall be entitled to raise all contentions available to them in law.” 7. The learned Counsel for the assessee has submitted thatit is not a case where in the Hon’ble Bench earlier has not considered the various 5 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT tests as laid down by the Hon’ble Delhi High Court in the case of CIT vs Vinay Mittal. The Hon’ble High Court has set aside the matter in order to see the applicability of the various tests although the same are already dealt by the Hon’ble Bench in its earlier order. The Ld. AR argued that even otherwise, the Hon’ble Gujarat High Court in its latest Judgment in the case of CIT v. Bhanuprasad D Trivedi, HUF [2017] 87 taxmann.com 137 (wherein the Judgment of Commissioner of Income Tax v. Rewashanker A. Kothari: [2006] 283 ITR 338 has even been referred) has held that- “Mere high volume of transactions & utilization of borrowings in purchase of shares could not alter assessee's consistent treatment of shares purchased on delivery basis as investment, which was even accepted by revenue for several years” 8. Further the counsel referred to the Judgment of Hon’ble Apex Court in the case of Pr. CIT v. Bhanuprasad D Trivedi, HUF (supra) in the latest Judgment has even held that - “Where assessee had purchased shares with clear intention of being an investor and held shares by way of investment, gain arising out of transfer of shares should be treated as capital gains and not business income.” 9. He further placed reliance on the Judgment in the case of the Jurisdictional Hon’ble Punjab & Haryana High Court in the case of CIT 6 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT vs S.K Kaintal as reported in 23 DTR 68 (P&H HC) is worth to mention here wherein it was held as under: “Where the assessee sold its agricultural land which was used by it for carrying out agricultural activities after holding the same for more than two decades, gain arising out of sale of such land was held to be assessable as ‘Capital gain’ and not ‘Profits and gain of business or profession” 10. The Ld. AR argued that the transactions of sale and purchase of shares cannot be classified as in the nature of business activity as the assessee is actively involved in the various other businesses which are either conducted by him in his individual capacity or as partner. The share business requires full time attention but as the Assessee is actively involved in many other business priorities. Even if the person is investing on routine basis through its broker, it cannot be the base for concluding that the person has done trading in the same. It is to be considered that intention to resell at a profit would be material but not decisive consideration in holding any transaction to be in the nature of trade. Every person would make an investment only to fetch profit. He argued that there is no question of holding the Investment for a long period of time when the same is giving profit to the assessee in short span of time. He contended that the amount of investment cannot be the sole criteria for classifying the 7 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT transaction of sale and purchase of shares as trading activity as the amount of investment would depend upon the surplus money available with any person. If anybody has his own surplus sources, he can surely invest the amount for whatever time he wants. He prayed that assessee had purchased shares with clear intention of being an investor and held shares by way of investment, gain arising out of transfer of shares and accordingly the said gains should be treated as capital gains and not business income. 11. Per Contra, the Ld. DR relies on the order of the CIT appeal. 12. We have heard both the sides, perused the record, Hon’ble High Court Judgement, impugned orders, and case law cites before us.The Hon’ble High Court of Jammu and Kashmir vide its Judgement delivered on 14.07.2017 has remitted the matter back to the Tribunal vide para 5 by observing that it is remitting the matter with regard to the nature of the transaction concerning the sale and purchase of shares, and also set-aside the finding with regard to legal expenses and that also ought to be considered afresh. The Hon’ble High Court while set asiding the order of the Bench has observed that the Bench has though referred to the Judgment of the Hon’ble Delhi HC and Gujarat HC but has ignored the applicability of 8 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT tests as laid down in the said Judgment vis-à-vis in the case of the Assessee. 13. In the case of “Commissioner of Income Tax vs. Rewashanker A. Kothari”, [2006] 283 ITR 338 the Hon’ble Gujarat High Court has laid down the first test that whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. The Ld. Counsel argued that the Assessee has disclosed the shares in hand as Investments in the books of accounts and thus same ought to be considered by the AO with the intention of the Assessee as an investment. The AR further argued that it is a matter of fact that the department has not pointed out any different facts as compared to the AY 2004-05 and 2006-07 wherein same has been accepted as investment in the Assessee’s own case and even for the AY 2010-11, the Coordinate Bench has decided the issue in favour of the Assessee and the department has not even filed any further appeal before the Hon’ble High Court. In view of that matter, the Tribunal, its order dated 27.06.2013 has even rightly held that the investment made by the Assessee as declared in the balance sheet is to be treated as Investment portfolio and not trading portfolio (Pg. 24 of the Tribunal order). 9 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT 13.1 The second test often applied is as to why and how and for what purpose the sale was effected subsequently. The Ld. AR argued that every person would make an investment only to fetch profit. There is no question of holding the Investment for a long period of time when the same profit is earned by the assessee in a short span of time out of the investment. The Tribunal has even held that although the AO has mentioned that the assessee had made substantial transactions and has earned huge profit, but this can even happen even in the case of investment portfolio (page-24 of Tribunal order dated 27.06.2013). 13.2 The third test, is frequency of Transactions applied, is as to how the assessee dealt with the subject-matter of transaction during the time the shares were with the appellant assessee. Has it been treated as stock-in- trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry is relevant, but not conclusive. It is noted that the Assessee has rightly disclosed the shares in hands as Investments in the books of accounts and thus the same fact has to be duly considered. Admitedly, the Assessee is also getting a substantial amount of dividend income of Rs. 1.72 Cr. which further proves that the Assessee has kept the investment in shares for certain period. In our view, if the Assessee has 10 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT been receiving enough dividend income, as in the present case, the intention of the Assessee is very much clear that it is done with/for investment mind set. 13.3 The fourth test is as to how the assessee itself has shown the profits in return income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, although not conclusive, can afford good and cogent evidence to judge the nature of transaction and would be a relevant circumstance to be considered in absence of any satisfactory explanation before the authorities below. It is undisputed fact on record that the Assessee has shown profits from the sale of shares as short term capital gain every year and the same has been accepted by the department year after year. 13.4 The fifth test, would not apply in the present case of the appellant being an individual because, this applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association authorizes such an activity. 13.5 Lastly, the most important test is as to the volume, frequency, continuity, and regularity of transactions of purchase and sale of the goods/shares concerned. In a case where there is repetition and continuity, 11 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is business activity. The Bench of Tribunal its order dated 27.06.2013 has even discussed that the AO has mentioned that the assessee had made substantial transaction and has earned huge profit and that can even happen even in the case of investment portfolio. Thus, this test has even earlier been examined by the Hon’ble Bench. 14. In the subsequent various Judgments of Hon’ble Courts even after referring the Judgment of Hon’ble Delhi High Court and Gujrat High Court, it has been decided that the frequency of transaction is not important and what is the main factor to be considered is intention of the investor. 15. In the case of “Smt. Yamini Khandelwal vs ACIT”, 142 taxmann.com 529 (Kol Trib) vide order dated 27.09.2022 while referring the Judgment of Hon’ble Gujarat High Court in the case of “Commissioner of Income Tax vs. Rewashanker A. Kothari”, (Supra) held that “Mere high volume of transactions and utilization of borrowings in purchase of shares could not alter assessee's consistent treatment of shares purchased on delivery basis as investment, which was even accepted by revenue for several years” 12 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT 16. Further, even the Hon'ble Gujarat High Court in the case of “Pr. CIT v. Bhanuprasad D Trivedi, HUF”, [2017] 87 taxmann.com 137 held that where assessee had purchased shares with clear intention of being an investor and held shares by way of investment, gain arising out of transfer of shares should be treated as capital gains and not business income. The Hon'ble Apex Court has dismissed the SLP filed against said Judgment of Hon’ble High Court of Gujarat in the case of “Pr. CIT v. Bhanuprasad D Trivedi, HUF”, (Supra). 17. In the present case, mere high volume of transactions and frequently investment in shares could not alter assessee's consistent treatment of shares purchased on delivery basis as investment duly accounted for in its books of account and shown in its Balance Sheet as investment, which was even accepted by revenue for proceeding years and subsequent years. 18. In view of the factual matrix of the case and judicial precedents, we are of the considered view that the appellant assessee has purchased the shares with the intention of investment. Respectfully, following the Later judgment of the Hon'ble Gujarat High Court in the case of “Pr. CIT v. Bhanuprasad D Trivedi, HUF”, (Supra) we hold that the assessee had 13 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT purchased shares with clear intention of being an investor and held shares by way of investment, and gain arising out of transfer of shares would be treated as capital gains and not business income. Accordingly, the AO is directed to treat the income of the assessee arising out of transfer of shares as capital gains. 19. The Next issue the Hon’ble High Court has even set aside is the matter relating to legal expenses by observing that the Bench allowed the ground without giving any finding. 19.1 The Ld. AR argued that the legal expenses were incurred in order to protect the assessee’s interest of noting right who is the Chairman of M/s AB Hotels Ltd. and is holding 19% shares. He submitted that there was a dispute regarding the structure of the Board of Directors of the said Company for which the matter was pending before the CLB. He argued that the AO as well as the CIT(A) are not correct in stating that the amount spent cannot be termed as an allowable business expenditure as the Assessee is only earning dividend and meeting fees income from the said Company. It is also submitted that he was a Director in many of the concerns and the assessee filed the petition before the CLB to save the goodwill and reputation of the business. Though the assessee is not earning any 14 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT business income from the said Company but the other business of the Assessee is directly linked to each other. If the status of the Assessee as a Chairman in M/s AB Hotels is affected, it would naturally affect all other businesses of the Assessee. Moreover, the Assessee is earning annual dividend income of more than Rs. 1 crore from M/s AB Hotels Ltd. It is true that the Dividend income is exempt in the hands of the Assessee, but it is just the shift of the hands that the Company is paying Corporate Dividend Tax on the same. The Dividend Income earned by the Assessee is used to make investments in many other concerns from where a handsome amount is earned by him. So, the same cannot be disallowed. He placed reliance in this regard on the Judgment of the Apex Court in the case of “CIT vs. Delhi Safe Deposit Co. Ltd.”, as reported in 133 ITR 756 wherein it has been held as under: “In the instant case, the assessee incurred the expenditure in question to avoid any adverse effect on its reputation, to protect the managing agency which was an income earning apparatus and for retaining it with the reconstituted firm in which the interest of the assessee was the same as before. It was likely that but for the expenditure, the fair name of the assessee would have been tarnished or rendered suspicious and the managing agency would have been terminated. The expenditure incurred on the preservation of a profit earning asset of a business has always been held to be a deductible expenditure by courts. In the circumstances, it is difficult to hold that the expenditure incurred by the assessee was either gratuitous or one incurred outside the trading activities of the assessee. The expenditure was, therefore, rightly held to be deductible under section 37. 15 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT We, therefore, reject the contention of the revenue that the amount in question could not be claimed as a deduction under section 37 of the Act.” 19.2 The counsel further relies on the Judgment of the Hon’ble Mumbai Tribunal in the case of “DCIT vs Anil Dhirajlal Ambai”, as reported in 93 taxmann.com 492 wherein it had been held as under: “Where SEBI initiated enforcement action against assessee and to avoid long drawn litigation, assessee paid consent/settlement charges to SEBI under SEBI's Guidelines regarding consent terms without admitting guilt, it would be an business expenditure” 19.3 The ITAT Amritsar Bench earlier deleted the addition by observing vide Para 13 of its earlier order are as under: “13. We have heard the rival contentions and perused the facts of the case. It is not in dispute that the assessee is a Director in many concerns, which is on record. The assessee has filed petition before the Company Board to save the goodwill and reputation of the business. Though the assessee is not earning any business income from the said company but the other business of the assessee are directly linked to each other, which affects the status of the assessee as a Chairman in M/s. AB Hotels. The dividend income earned by the assessee is used to make investments in many other concerns from where a handsome amount is earned by the assessee is on record as per AO’s order. Therefore, any expenditure incurred by the assessee to avoid any adverse effect on its reputation should be allowed as deductible expenditure. In the facts and circumstances of the case, we direct the AO to allow the claim of the assessee and reverse the order of ld. CIT(A). Thus, grounds No., 3 & 4 of the assessee are allowed.” 20. In the Present case of the Assessee, the facts are similar to that of “CIT vs. Delhi Safe Deposit Co. Ltd.”, (supra). Appellant being holding the 16 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT Chairmanship in M/s AB Hotels nothing but a profit earning asset of the Assesses. Thus, the expenditure incurred by the Assessee in order to protect the same would be an allowable expenditure. 21. Respectfully, following the Hon’ble Apex Court in the case of “CIT vs. Delhi Safe Deposit Co. Ltd.”, (supra) we hold that in the present case, the legal expenses claimed by the assessee are allowable expenses u/s 37 of the Act. Ordered accordingly. 22. As regards I.T.A. No. 482/Asr/2014, in respect of the Assessment Year: 2010-11, the Ld. AR submitted at the time of hearing that this appeal was filed by mistake/error of his office staff and he wished that it may be treated as infructuous. Accordingly, the I.T.A. No. 482/Asr/2014 is dismissed as infructuous. 23. In the backdrop of the aforesaid discussion, the subject appeals of the appellant are disposed off in the terms indicated as above. Order pronounced in the open court on 06.10.2023 Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr.PS* Copy of the order forwarded to: 17 ITA Nos. 211 & 482/Asr/2013 & 2014 Amrit Lal Batra v. Addl./Dy.CIT (1)The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T. True Copy By Order