ITO, New Delhi V. M/s. E- Net Infoways Pvt. Ltd., New Delhi

ITA 2180/DEL/2012

• Counselvise Citation: 218020114 RSA 2012
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SEHGAL
• Assessee Lawyers: AMIT GOEL
• Keywords: Business income; Transactions in derivatives

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI RAJPAL YADAV, JM ITA NO. 2180/DEL/2012 ASSESSMENT YEAR : 2008-09 ITO, WARD 11(1) VS. E NET INFOWAYS P.LTD. ROOM NO.321, C.R.BLDG. 306, R.G.COMPLEX I.P.ESTATE SECTOR 8, ROHINI NEW DELHI - 2 NE W DELHI - 85 PAN: AABCE 1398M (APPELLANT) (RESPONDENT) APPELLANT BY:- SH.DEEPAK SEHGAL, SR.D.R. RESPONDENT BY:- SH.AMIT GOEL, C.A. O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE LD.CIT(A)-XIII, NEW DELHI DATED 22.2.2012 PERT AINING TO ASSESSMENT YEAR 2008-09 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, LD.CIT(A) HAS ERRED IN HOLDING THAT FOR ASSESSMENT YEAR 2008-09 THE PRO FIT EARNED ON SALE OF SHARES AT RS.10,58,86,408/- WAS SHORT TERM CAPITAL GAINS AND NOT BUSINESS INCOME SPECIFICALLY IN VIEW OF THE FACT THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2007-08 THE ASSESSEE HAD DECLARED SIMILAR SALES AS BUSINESS INCOME AND NOT SHORT TERM CAPIT AL GAIN. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD.CIT(A) HAS ERRED IN BELIEVING THE ASSESSEES EXPLANATION REGARDING S ETTING OFF OF SHORT TERM CAPITAL GAIN IN ASSESSMENT YEAR 2007-08 AGAINST BUS INESS LOSSES BECAUSE THE SAME IS AN AFTER THOUGHT AS NO SUCH SHORT TERM CAPITAL GAIN STAND DECLARED IN THE RELEVANT COLUMN OF E-FILED RETURN O F INCOME FOR ASSESSMENT YEAR 2007-08. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF LOSS AT RS.1,67,57, 880/- BY HOLDING THAT CHANGES IN CLIENT CODES FOR 64 TRANSACTIONS WAS SIM PLY A CORRECTION OF ITA NO: 2180/DEL/2012 PAGE 2 OF 6 ASSESSMENT YEAR: 2008-09 E-NET INFOWAYS (P) LTD. MISTAKE COMMITTED BY EMPLOYEES OF THE BROKER IN PUN CHING THE CODE AND NOT BOGUS/UNPROVED LOSSES AS HELD BY THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD.CIT(A) HAS ERRED IN HOLDING THAT THE CHANGES IN CLIENT CODE HAS APPROVA L STAMP FROM SEBI AND NSE BECAUSE NO ENQUIRIES WERE INITIATED IN THIS REG ARD IGNORING THE FACT THAT SEBI AND NSE ARE NOT CONCERNED ABOUT MATTERS R ELATED TO TAX DODGING BY ASSESSEES AND IT IS A CASE OF MISUSE, BY THE ASS ESSEE, OF A FACILITY PROVIDED BY NSE FOR GENUINE HUMAN MISTAKES/ERROR IN CODE PUNCHING. 2. WE HAVE HEARD SHRI DEEPAK SEHGAL, LD.SR.D.R. ON BEHALF OF THE REVENUE AND MR.AMIT GEOL, C.A. THE LD.COUNSEL FOR T HE ASSESSEE. 3. THE FIRST ISSUE THAT HAS TO BE DECIDED IS WHETHE R THE INCOME DERIVED BY THE ASSESSEE ON THE SALE OF SHARES IS TA XABLE UNDER THE HEAD SHORT TERM CAPITAL GAIN OR UNDER THE HEAD BUSINE SS INCOME. THE FIRST APPELLATE AUTHORITY AT PARA 6.3 OF HIS ORDER HAS BR OUGHT OUT THE FACTS WHICH ARE NOT DISPUTED BY THE REVENUE. THIS IS EXT RACTED FOR READY REFERENCE. THE APPELLANT IS ENGAGED IN INVESTMENT OF SHARES AND ALSO DOING DERIVATIVE TRADING (F&O) AT NATIONAL STOCK EX CHANGE OF INDIA. THE APPELLANT HAS MADE INVESTMENTS IN SHARE S OF DLF LTD. DURING FY 2006-07 AND AS ON 31 ST MARCH,2007 THE APPELLANT WAS HOLDING 2,45,496 SHARES OF DLF LTD. THEREAFTER IN FY 2007-08 APPELLANT PURCHASED 33,000 SHARES ON 24 TH APRIL,2007 AND 98,496 SHARES ON 30 TH APRIL,2007 OF DLF LTD. THERE WAS NO OTHER PURCHASES OF SHARES DURING THE Y EAR. THE SHARES PURCHASED DURING THE FY 2006-07 AND IN THE M ONTH OF APRIL,2007 WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET OF THE APPELLANT. IT IS CLAIMED BY THE APPELLANT THAT THESE SHARES WERE PURCHASED FOR INVESTMENT PURPOSES AND SAME HA VE BEEN SHOWN UNDER THE HEAD INVESTMENT PORTFOLIO SE PARATELY. IT IS SEEN FROM THE INVESTMENT SCHEDULE THAT BESIDE S INVESTMENT IN DLF SHARES, THERE WERE 3-4 OTHER COMP ANIES ITA NO: 2180/DEL/2012 PAGE 3 OF 6 ASSESSMENT YEAR: 2008-09 E-NET INFOWAYS (P) LTD. MOSTLY UNQUOTED SHARES WHEREIN THE INVESTMENT HAVE BEEN MADE BY THE APPELLANT. IT IS ALSO SEEN THAT SHARES WERE PURCHASED IN FY 2006-07 AND APRIL,2007 AND THEREAFT ER THERE WAS NO PURCHASE OF SHARES IN FY 2007-08. THERE IS NO FREQUENT PURCHASE AND SALES IN THE CASE OF APPELLAN T. THE APPELLANT HAS PURCHASED SHARES OF DLF LTD. AND SAME HAVE BEEN SOLD IN FY 2007-08 IN SMALL LOTS. ON THESE FACTS, WE UPHOLD THE FINDINGS OF THE COM MISSIONER OF INCOME TAX (APPEALS). THE ASSESSEE HAS REFLECTED THE INVE STMENTS IN ITS BALANCE SHEET UNDER THE HEAD INVESTMENTS. THE COMMENT OF THE ASSESSING OFFICER THAT IN THE E-RETURN, DLF SHARES WERE SHOW N AS TRADE INVESTMENTS AND HENCE STOCK IN TRADE IS CONTRARY TO THE FACTS. 4. THE ASSESSEE HAS IN THE ASSESSMENT YEAR 2007-08 DECLARED SIMILAR INCOME UNDER THE HEAD SHORT TERM CAPITAL GAINS ON LY. THE ASSESSING OFFICER WAS FACTUALLY WRONG IN HOLDING THAT THE ASS ESSEE HAS DECLARED THE SAME AS BUSINESS PROFITS. THE HOLDING PERIOD OF S HARES, ON WHICH SHORT TERM CAPITAL GAIN HAD BEEN DERIVED, WAS BETWEEN TH REE MONTHS TO TEN MONTHS. THERE IS NO PURCHASE AND SALE OF SHARES O N THE SAME DAY, NOR IS THERE ANY EVIDENCE OF THE ASSESSEE TRADING IN SH ARES BY INDULGING IN FREQUENT PURCHASES AND SALES. THE ASSESSEE HAD PUR CHASED SHARES IN DLF LTD. AND 3 UNLISTED COMPANIES DURING THE FY 200 6-07 AND 2007-08 AND THERE AFTER SOLD THESE INVESTMENTS IN SMALL LOT S ON DIFFERENT DATES. 5. THE ASSESSEE HAD USED ITS OWN FUNDS TO MAKE THE INVESTMENTS AND THERE ARE NO BORROWINGS. 6. IT IS WELL SETTLED THAT THE ASSESSEE CAN HAVE T WO SEPARATE PORTFOLIOS, ONE FOR INVESTMENT PURPOSE AND OTHER FO R TRADE PURPOSES. IN VIEW OF THE ABOVE WE UP HOLD THE DECISION OF THE FI RST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE REVENUE. ITA NO: 2180/DEL/2012 PAGE 4 OF 6 ASSESSMENT YEAR: 2008-09 E-NET INFOWAYS (P) LTD. 7. GROUND NO.2 IS MISCONCEIVED, AS THERE IS NO SUCH FINDING BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER, HENCE THE SAME IS DISMISSED. 8. COMING TO GROUND NO.3, THE ARGUMENT OF THE DEPAR TMENTAL REPRESENTATIVE, BASED ON THE FINDING OF THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER IS DEVOID OF MERIT. WRONG PUNCHIN G OF CLIENT CODE, REQUIRING SUBSEQUENT CHANGE IN CLIENT CODE IS RECTI FIED BY THE NATIONAL STOCK EXCHANGE, WHICH HAS FORMULATED RULES AND STRI CTLY IMPLEMENTS THEM. IT IS NOT CORRECT TO ASSUME THAT THESE CHANG ES WERE FRAUDULENTLY DONE WITHOUT ANY INVESTIGATION AND EVIDENCE. SUCH SURMISE CANNOT BE ENDORSED. THE FIRST APPELLATE AUTHORITY IN PARA 7. 3 AT PAGE 25 HELD AS FOLLOWS. IT IS SEEN THAT AS FAR AS TRANSACTIONS ARE CONCERN ED SAME ARE REFLECTED WITH NATIONAL STOCK EXCHANGE (NSE) AND SAME HAVE B EEN CARRIED OUT ON THE STOCK EXCHANGE. THERE IS NO DISPUTE ABOUT THE LOSS INCURRED ON SUCH TRANSACTIONS. THE NATIONAL STOCK EXCHANGE HAS CONF IRMED THAT THESE F&O TRANSACTIONS WERE CARRIED OUT IN THE NAME OF APPELL ANT HOWEVER THERE WAS A CHANGE OF CLIENT CODE. IN THIS REGARD THE APPELL ANT HAS SUBMITTED THAT THIS MISTAKE HAS OCCURRED DUE TO WRONG PUNCHING OF CLIENT CODE BY THE STAFF OF THE BROKER AND THE SAME WAS LATER ON RECTIFIED W ITH THE NATIONAL STOCK EXCHANGE. IT MAY BE MENTIONED HERE THAT EVEN THE N SE WAS AWARE OF THE FACT THAT CLIENT CODE WAS INITIALLY PUNCHED WRONG A ND THEREAFTER IT HAS BEEN CORRECTED BY THE BROKER. THEREFORE NO INFORMA TION WAS HIDE FROM THE NSE. THERE IS NO ILLEGALITY NOTICED IN THIS CHANGE OF CLIENT CODE. THIS IS A MERE HUMAN ERROR AND IT CAN HAPPEN IN EVERY SPHERE OF LIFE. THEREFORE THIS ERROR IS NOT SO IMPORTANT WHICH CAN LEAD TO DISALLO WANCE OF ENTIRE LOSS. IF THERE WAS ANYTHING WRONG ABOUT THE CHANGE OF CODE T HE NSE AND SEBI WOULD HAVE TAKEN ACTION AGAINST THE BROKER AND WOUL D HAVE MADE ENQUIRY AGAINST THE APPELLANT COMPANY. SINCE THERE WAS NOT HING WRONG IN F&O TRANSACTIONS AND CHANGE OF CLIENT CODE WAS DONE TO RECTIFY MISTAKE TAKEN PLACE DUE TO WRONG PUNCHING OF CODES NO ACTION WAS CALLED FOR AGAINST THE BROKER AND AS WELL AS THE APPELLANT. SINCE THE LOSS HAS BEEN INCURRED IN THE NORMAL COUR SE OF THE F&O TRANSACTIONS AND SUCH TRANSACTIONS ARE IN THE KNOWL EDGE OF NSE, THEREFORE THE LOSS INCURRED ON DERIVATIVE TRADING TRANSACTION S HAS TO BE ALLOWED AND SUCH LOSS HAS ALLOWED SET OFF AGAINST THE INCOME FR OM SHORT TERM CAPITAL GAIN. THE F&O TRANSACTIONS HAVE BEEN TREATED AS BU SINESS TRANSACTIONS IF THEY HAVE BEEN CARRIED OUT ON RECOGNIZED STOCK EXCH ANGE. THESE TRANSACTIONS HAVE BEEN CARRIED OUT ON NSE WHICH IS RECOGNIZED FOR SUCH ITA NO: 2180/DEL/2012 PAGE 5 OF 6 ASSESSMENT YEAR: 2008-09 E-NET INFOWAYS (P) LTD. TRANSACTIONS. HENCE LOSS ON SUCH TRANSACTIONS IS A BUSINESS LOSS AND SAME HAS TO BE ALLOWED SET OFF. 9. WE UPHOLD THIS FINDING AND DISMISS GROUND NOS. 3 AND 4 OF THE REVENUE. 10. IN THE RESULT THE APPEAL BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DECEMBER,2012. SD/- SD/- (RAJPAL YADAV) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 14 TH DECEMBER, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR ITA NO: 2180/DEL/2012 PAGE 6 OF 6 ASSESSMENT YEAR: 2008-09 E-NET INFOWAYS (P) LTD. 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :