Chona Financial Services Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2226/CHNY/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8131 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 05-09-2014
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: D ANAND
• Keywords: Business income; Search and seizure
• Section: 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 2226/MDS/2014 / ASSESSMENT YEAR :20 06 - 07 M/S. CHONA FINANCIAL SERVICES LTD., OLD NO. 19, NEW NO. 46, PRAKASAM STREET, T. NAGAR, CHENNAI 600 017. [PAN: A AAC C 3031C ] VS. THE ASSISTANT COMMISSIONER OF I NCOME TAX , COMPANY CIRCLE I(3), C HENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI D. ANAND , A DVOCATE / RESPONDENT BY : S HRI SHIVA SRINIVAS , J CIT / DATE OF HEAR ING : 1 0 . 1 1 .201 6 / DATE OF P RONOUNCEMENT : 06 . 01 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMIS SIONER OF INCOME TAX (APPEALS)(C) - II , C HENNAI DATED 2 8 . 03 .201 4 RELEVANT TO THE ASSESSMENT YEAR 20 06 - 07 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF .26,71,264/ - BY CONSIDERING THE CAPITAL GAINS AS SPECULATIV E PROFITS. I.T.A. NO . 2226 / M/ 1 4 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 25.10.2006 FOR THE ASSESSMENT YEAR 2006 - 07 ADMITTING TOTAL INCOME OF .3,97,75,158/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTIO N 143(2) OF THE INCOME TAX ACT, 1961[ ACT IN SHORT] WAS SERVED ON THE ASSESSEE ON 18.10.2007. IN RESPONSE THERETO, THE ASSESSEE FILED THE DETAILS AS CALLED FOR. AFTER CONSIDERING THE SUBMISSIONS AND DETAILS FILED BY THE ASSESSEE, THE ASSESSMENT WAS COMPLE TED UNDER SECTION 143(3) OF THE ACT ON 03.12.2008 BY ASSESSING TOTAL INCOME OF THE ASSESSEE AT .4,24,55,141/ - AFTER MAKING VARIOUS ADDITIONS. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY CONSIDERING THE VARIOUS DECISIONS, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL FILE D BY THE ASSESSEE. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY FILING COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INV OLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL AND THE SAME MAY BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION. 5. ON THE OTHER HAND, THE LD. DR DUTIFULLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. I.T.A. NO . 2226 / M/ 1 4 3 6. WE HAVE HEARD BOTH SI DES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO. 1368/MDS/2013 DATED 05.06.2014, WHER EIN BY CONSIDERING THE SIMILAR ISSUE RAISED BY THE ASSESSEE, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 8. THE NEXT ISSUE IS REGARDING THE TREATMENT OF SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE AS BUSINESS INCOME BY THE ASSESSING AUTHORITY. THE COMMISSIONER OF INCOME - TAX(APPEALS) HAS IN FACT DISCUSSED THE MATTER AT LENGTH, RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS AS WELL AS CIRCULARS ISSUED BY THE CBDT. ALL THE PROPOSITIONS MADE OUT BY THE COMMISSIONER OF INCOME - TAX(APPEALS) ARE ACCEPTABLE IN P RINCIPLE. 9. BUT WHEN WE EXAMINE THIS ISSUE, WE FIND THAT THERE IS A GREAT FORCE IN THE ARGUMENTS OF THE ASSESSEE THAT THE SHARES WERE SOLD BY THE ASSESSEE COMPANY, AS INVESTMENT AND THEREFORE, THE SURPLUS SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS. W E HAVE ALREADY SEEN WHILE EXAMINING THE QUESTION OF DISALLOWANCE IN THE MATTER OF EXEMPTED INCOME THAT THE ASSESSEE IS EARNING DIVIDEND INCOME. EARNING OF DIVIDEND INCOME NORMALLY PRESUPPOSES HOLDING OF INVESTMENT. IT IS OUT OF SUCH INVESTMENT HELD BY THE ASSESSEE THAT THE ASSESSEE COMPANY EARNS DIVIDEND. THIS IS A POINTER TO SUPPORT THE ARGUMENTS OF THE ASSESSEE. SECONDLY, WE HAVE ALSO SEEN THAT THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS ON SALE OF SHARES. THEREFORE, IT IS CLEAR FROM THE FACTS OF THE PRESENT CASE THAT THE ASSESSEE IS CARRYING ON BUSINESS OF SHARE BROKING AND ALSO ACTIVITIES OF INVESTING IN SHARES. THE CONTENTION OF THE ASSESSEE HAS TO BE EXAMINED IN THE ABOVE SCENARIO. THE ASSESSEE HAS CLEARLY STATED THAT IT IS MAINTAINING A SEPARATE P ORTFOLIO FOR INVESTMENT IN SHARES AND A SEPARATE PORTFOLIO FOR ITS REGULAR BUSINESS OF SHARE BROKING. EVEN THOUGH BOOKS OF ACCOUNT ARE NOT MAINTAINED SEPARATELY, INDEPENDENT DETAILS ARE DISCERNIBLE FROM THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ON TH E DUAL ACTIVITIES OF THE ASSESSEE. THE ASSESSEE HAS MAINTAINED NECESSARY PARTICULARS REGARDING THE SHARE INVESTMENTS SUCH AS, DATE OF ACQUISITION, CONSIDERATION PAID, DETAILS OF SALE, CONSIDERATION RECEIVED, DISTINCTIVE NUMBERS OF THE SHARES, THE DETAILS O F THE PARTIES ETC. THE FACT THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME AND LONG TERM CAPITAL GAINS ON SALE OF SHARES, SUPPORTS THE ARGUMENT OF THE ASSESSEE THAT THE SURPLUS EARNED ON SALE OF SHARES IN THE PRESENT CASE, COULD WELL BE FROM SALE OF INVESTME NT LEADING TO SHORT TERM CAPITAL GAINS. I.T.A. NO . 2226 / M/ 1 4 4 10. WHEN AN ASSESSEE IS ALSO ENGAGED IN MAKING INVESTMENTS OF SHARES ALONG WITH THE REGULAR BUSINESS OF SHARE BROKING, THIS IS THE ONLY WAY BY WHICH THE ASSESSEE CAN PROVE ITS INTENTION THAT THE SHARES WERE HELD AS INVESTMENTS. HERE, IN THE PRESENT CASE, THE ASSESSEE IS ALREADY HAVING INVESTMENT IN SHARES AS ESTABLISHED BY THE FACT OF EARNING DIVIDEND INCOME AND LONG TERM CAPITAL GAINS ON SALE OF SHARES. WHEN ALL THESE FACTS ARE TAKEN INTO CONSIDERATION, WE FIND THAT THERE IS NO REASON FOR THE ASSESSING OFFICER TO TREAT THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME OF THE ASSESSEE. WE ARE AFRAID THAT THE ASSESSING OFFICER WAS PROMPTED BY THE DIFFERENCE IN THE RATE OF TAX. T HE RATE OF TAX FOR SHORT TERM CAPITAL GAINS EARNED OUT OF SALE OF SHARES IS 10% AND THE RATE OF TAX FOR BUSINESS INCOME IS 30%. 11. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO TREAT THE SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE, AS SUCH, AND L EVY TAX AT THE LOWER RATE. 12. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL. THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEA R 2007 - 08, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO, WE DIRECT THE ASSESSING OFFICER TO TREAT THE SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE AS SUCH AND LEVY TAX IN ACCORDANCE WITH THE PROVISIONS OF LAW. THUS, THE GROUND RAISED BY THE ASSESSE E IS ALLOWED. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THE 06 TH JANUARY , 201 7 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 06 . 0 1 .201 7 VM / - I.T.A. NO . 2226 / M/ 1 4 5 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.