Assistant Commissioner of Income-tax, Pune V. RDA Holding & Trading Private Ltd., Pune

ITA 2229/PUN/2013

• Counselvise Citation: 222924514 RSA 2013
• Duration Of Justice: 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Assessee Lawyers: R D ONKAR
• Keywords: Business income
• Section: 143(3); 142(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.2229/PN/2013 (ASSESSMENT YEAR: 2007-08) THE ADDL. COMMISSIONER OF INCOME TAX RANGE-6, PUNE . APPELLANT VS. RDA HOLDING & TRADING PRIVATE LIMITED 12, BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE 411001 PAN: AAACR9831K . RESPONDENT APPELLANT BY : SHRI P.S. NAIK RESPONDENT BY : SHRI R.D. ONKAR DATE OF HEARING : 27-10-2014 DATE OF PRONOUNCEMENT : 30-10-2014 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF C IT(A)- III, PUNE DATED 17.10.2013 RELATING TO ASSESSMENT YEAR 2 007-08 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 148 OF T HE INCOME-TAX ACT. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-III HA S ERRED IN TREATING THE INCOME EARNED FROM SALE AND PURCHASE OF SHARES AS CAPITAL GAIN, THOUGH THE ASSESSEE HAD CARRIED OUT TRANSACTION ON A LARGE SCALE, FREQUENTLY AND IN A SYS TEMATIC AND CONTINUOUS MANNER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-III HA S ERRED ITA NO.2229/PN/2013 RDA HOLDING & TRADING PVT. LTD. 2 IN NOT APPRECIATING THAT THE NATURE OF TRANSACTION E NTERED INTO BY THE ASSESSEE IN SCRIPS OTHER THAN THERMAX LTD. AR E WITH THE INTENTION OF DERIVING THE PROFIT AND NOT CAPITAL APPRECIATION OR EARNING DIVIDEND. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-III HA S ERRED IN NOT CONSIDERING THE ASSESSEE'S NATURE OF BUSINES S, THE MAGNITUDE OF PURCHASES AND SALES OF SHARES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-III HA S ERRED IN NOT APPRECIATING THE FACT THAT CONSIDERING THE NA TURE OF TRANSACTIONS, THE HOLDINGS CAN BE BEST CONSIDERED AS STOCK-IN- TRADE THOUGH SHOWN AS THE INVESTMENT BY THE ASSESSEE. 5. FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED AT THE T IME OF HEARING, THE ORDER OF THE ID. CIT(A) MAY BE VACATED AND THA T OF THE A.O. BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELET E ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF APP ELLATE PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS IN RELAT ION TO THE TREATMENT OF PROFITS EARNED ON SALE AND PURCHASE OF SHAR ES AS CAPITAL GAIN OR AS BUSINESS INCOME. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE AT THE OUTSET OF HEARING POINTED OUT THAT THE ISSUE IN THE PRE SENT APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN. HE FURTHER CLARIFIED TH AT THE FACTS ARISING IN THE PRESENT APPEAL WERE IDENTICAL TO THE FACTS B EFORE THE TRIBUNAL IN THE CASE OF SISTER CONCERN. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. ITA NO.2229/PN/2013 RDA HOLDING & TRADING PVT. LTD. 3 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSMENT IN T HE CASE WAS RE- OPENED UNDER SECTION 147 / 148 OF THE ACT. THE ASSESS EE DID NOT RAISE ANY OBJECTION TO THE RE-OPENING OF THE ASSESSMENT AND CONSEQUENTLY, NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT WERE ISSU ED TO THE ASSESSEE. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE GAIN ARISING ON THE SALE OF SHARES DECLARED BY THE ASSESSEE A S INCOME FROM SHORT TERM CAPITAL GAIN SHOULD NOT BE TREATED AS BUSINE SS PROFITS. THE ASSESSEE IN REPLY, FURNISHED SCRIP-WISE DETAILS OF THE SHORT TERM CAPITAL GAIN IN RESPECT OF THE EQUITY SHARES SOLD / EQUITY MUTUAL FUNDS REDEEMED DURING THE YEAR TOTALING RS.6,90,58,658/-. THE A SSESSEE ALSO FURNISHED THE DETAILS OF SHORT TERM CAPITAL LOSS IN RESPECT OF SHAR ES SOLD DURING THE YEAR. IT WAS EXPLAINED BY THE ASSESSEE THAT IN THE PRECEDING YEARS, SIMILAR GAIN WAS REALIZED ON SALE OF SHARES AND REDEMPTION OF MUTUAL FUNDS, WERE ASSESSED AS CAPITAL GAIN. THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE OBSER VING THAT EVERY ASSESSMENT WAS UNIQUE AND INDEPENDENT TO THE PREVIOUS YEAR ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER FURTHER PLAC ED RELIANCE ON THE SERIES OF DECISIONS OF VARIOUS BENCHES OF THE TRIB UNAL, WHEREIN IT HAD BEEN HELD THAT THE INCOME EARNED FROM SALE OF SHAR ES WAS BUSINESS INCOME. IT WAS FURTHER HELD THAT LARGE NUMBER O F SHARES HAD BEEN TRANSACTED DURING THE YEAR WHICH WERE HELD FOR SHO RT PERIOD AND THE MOTIVE WAS CLEAR TO EARN PROFIT DURING THE PERIOD AN D THE INCOME THEREFROM WAS TO BE ASSESSED AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN. 7. THE CIT(A) VIDE PARAS 7.2 AND 7.3 HELD AS UNDER: ITA NO.2229/PN/2013 RDA HOLDING & TRADING PVT. LTD. 4 7.2. I HAVE CONSIDERED THE SUBMISSION MADE AND PERUS ED THE ORDERS OF THE HON'BLE ITAT PUNE AND THE FACTS AS REC ORDED BY THE ASSESSING OFFICER. ADMITTEDLY, THE APPELLANT IS AN INVE STMENT COMPANY AND HAS MADE MOST OF THE INVESTMENT THROUGH A PORTFOLIO MANAGER. THE VERY CONCEPT OF A PORTFOLIO MANAGER REVO LVES AROUND ENTRUSTING CAPITAL APPRECIATION AND MAXIMIZATION OF W EALTH TO THE SAID MANAGER. THE APPELLANT HAS CONSISTENTLY DISCLOSED INCOME FROM SHARE TRADING AS CAPITAL GAINS RIGHT FROM THE YE AR 2001. NO FUNDS HAVE BEEN WITHDRAWN FROM THE CORPUS FUNDS PLA CED WITH THE PORTFOLIO MANAGER. THE TRANSACTIONS OF PURCHASE A ND SALE OF SHARES ARE DELIVERY BASED TRANSACTIONS. THE ASSESSING OFF ICER HAS NOT BROUGHT ANYTHING RECORD TO HOLD THAT THE APPELLAN T UTILIZED BORROWER'S FUNDS TO EARN THE SAID INCOME. APPARENTLY , THE ONLY REASON FOR THE ASSESSING OFFICER TO HOLD THAT THE INCOME WAS IN THE NATURE OF BUSINESS INCOME IS THE MAGNITUDE OF THE PUR CHASE AND SALE OF SHARES. NO DISTINCTION HAS BEEN DRAWN BY THE ASSESSING OFFICER VIS-A-VIS THE FACTS PERTAINING TO THE EARLIE R YEARS WHEREIN THE INCOME STANDS ACCEPTED AND ASSESSED AS CAPITAL G AINS. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT R EPORTED IN 336 ITR 287 HAS HELD THAT THOUGH THE PRINCIPLE RES JUD ICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER IS BOUND TO FOLLOW THE PRINCIPLES OF CONSISTENCY, WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. THE SLP FILED BY THE DEPA RTMENT AGAINST THE HIGH COURT DECISIONS STANDS DISMISSED B Y THE HON'BLE HIGH COURT. 7.3. THIS ISSUE HAS BEEN ALREADY ADJUDICATED BY THE IT AT PUNE IN THE TWO GROUP CASES NAMELY M/S K.R.A. HOLDING AND TRADI NG PVT. LTD. AND M/S A.R.A TRADING AND INVESTMENT PVT. LTD. FOR THE A.YS. 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 IN FAVOUR OF T HE APPELLANT. FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT, IT IS HELD THAT THE INCOME WHICH WAS ALREADY CORRECTLY ASSE SSED UNDER THE HEAD CAPITAL GAINS IN THE ORIGINAL ORDER DATED 15.1 2.2009, CANNOT BE TREATED AS BUSINESS INCOME. GROUND NOS. 2 AND 3 ARE ALLOWED. 8. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HA D DECLARED SHORT TERM CAPITAL GAIN AT RS.6,90,58,658/-. THE ASSESSING OFFICER NOTED THAT IN ADDITION, THE ASSESSEE HAD ALSO BOOKED LOS SES IN CERTAIN TRANSACTIONS OF SALE OF SHARES. THE TOTAL PURCHASES MADE BY THE ASSESSEE WERE TO THE TUNE OF RS.32.67 CRORES AND TOTA L SALES WERE TO THE TUNE OF RS.38.78 CRORES. IN VIEW OF THE MAGNITUDE OF THE PURCHASE S AND SALES, PERIOD OF HOLDING AND FREQUENCY OF THE TRANSACT IONS, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE REAL MOTIVE WAS TO EARN PROFIT FROM TRADING. ITA NO.2229/PN/2013 RDA HOLDING & TRADING PVT. LTD. 5 9. THE ASSESSEE ON THE OTHER HAND, POINTED OUT THAT IT WAS ENGAGED IN SIMILAR ACTIVITY OF SALE OF SHARES AND REDEMPTION OF MUTUAL FUNDS IN THE PRECEDING YEARS AND THE INCOME THEREFROM WAS ASSES SED UNDER THE HEAD INCOME FROM CAPITAL GAIN. THE ASSESSEE FURTHER FURN ISHED SCRIP- WISE DETAILS IN RESPECT OF EQUITY SHARES SOLD / EQUITY MUTU AL FUNDS REDEEMED DURING THE YEAR TOTALING RS.6.90 CRORES, DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE WHILE WORKING OUT THE INVESTMENTS HAD MADE DISALLOWANCE UNDER SECTION 94(VII) OF THE ACT. THE PLEA OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WA S THAT SIMILAR ACTIVITY WAS CARRIED ON BY ITS SISTER CONCERN I.E. ARA TRAD ING AND INVESTMENT PVT. LTD. AND KRA HOLDING AND TRADING PVT. LT D. AND THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE HAD TREATED THE GAIN ARISING FROM THE SAID ACTIVITY AS CAPITAL GAIN AND NOT A S BUSINESS PROFITS. THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASS ESSEE. HOWEVER, THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE. 10. WE FIND THAT THE TRIBUNAL IN ITA NOS.94/PN/2012 AND 337/PN/2012 IN THE CROSS APPEAL FILED IN THE CASE OF ARA T RADING & INVESTMENTS PVT. LTD., PUNE VS. ACIT RELATING TO ASSESSME NT YEAR 2007-08, CROSS APPEALS FILED IN THE CASE OF ACIT VS. KRA HO LDING & TRADING PVT. IN ITA NOS.665/PN/2012 AND 703/PN/2012 RELA TING TO ASSESSMENT YEAR 2008-09 AND CROSS APPEALS FILED IN THE C ASE OF ARA TRADING & INVESTMENTS PVT. LTD., PUNE VS. DY.CIT IN ITA NOS.1857/PN/2012 AND 2035/PN/2012 RELATING TO ASSESSM ENT YEAR 2008-09 VIDE CONSOLIDATED ORDER DATED 19.09.2013 ALLOWED THE CLAIM OF THE ASSESSEE. RELIANCE WAS PLACED BY THE TRIBUNAL ON THE RATIO LAID DOWN IN THE ASSESSEES OWN CASE FOR THE PRECEDING YEA RS I.E. ASSESSMENT YEARS 2004-05 TO 2006-07 VIDE ORDER DATED 31.05.2011 ITA NO.2229/PN/2013 RDA HOLDING & TRADING PVT. LTD. 6 AND THE GAINS ARISING ON SALE OF EQUITY AND MUTUAL FUNDS W AS TREATED AS INCOME FROM CAPITAL GAINS HOLDING THE ASSESSEE TO BE E NGAGED IN AN INVESTMENT ACTIVITY AND NOT IN BUSINESS ACTIVITY. THE RELEV ANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 4. THE RELEVANT FACTS ARE THAT ASSESSEE IS A COMPAN Y ENGAGED IN THE BUSINESS OF INVESTMENT IN FINANCIAL INSTRUMENT S AND IS A NON-BANKING FINANCIAL COMPANY REGISTERED WITH RESERVE B ANK OF INDIA AND IS AN INVESTMENT COMPANY PROMOTED BY THE O WNERS OF THERMAX GROUP OF COMPANIES. THE ASSESSING OFFICER NO TICED THAT ASSESSEE HAD DECLARED SHORT TERM CAPITAL GAIN ON SALE OF SHARES AT RS.79,28,679/- AND LONG TERM CAPITAL GAIN ON SALE OF SHA RES AT RS.8,60,49,555/- DEPENDING ON THE PERIOD OF HOLDING OF SHA RES. THE SHORT TERM CAPITAL GAIN WAS OFFERED TO TAX WHEREA S THE LONG TERM CAPITAL GAIN WAS CLAIMED AS EXEMPT. THE ENTIRE AC TIVITY OF DEALING IN SHARES AND MUTUAL FUNDS WAS TREATED BY T HE ASSESSEE AS AN INVESTMENT ACTIVITY AND NOT AS A BUSINESS ACTI VITY. FOLLOWING HIS STAND FOR THE EARLIER ASSESSMENT YEARS I.E. FROM ASSESSMENT YEARS 2004-05 TO 2007-08, THE ASSESSING OFF ICER TREATED THE ENTIRE CAPITAL GAINS DECLARED BY THE ASSE SSEE AS BUSINESS INCOME ON THE GROUND THAT SUCH ACTIVITY WAS AN ACTIVITY OF BUSINESS. THE CIT(A) HOWEVER REVERSED THE ORDER OF THE ASSESSING OFFICER FOLLOWING THE DECISION OF THE TRIBU NAL IN THE ASSESSEES OWN CASE FOR THE PRECEDING YEARS I.E. ASSES SMENT YEARS 2004-05, 2005-06 AND 2006-07 VIDE ITA NOS. 500/1320/499/1321/1322/PN/2008 AND ITA NO. 434/806/PN/2009 DATED 31 ST MAY, 2011. AGAINST THE AFORESAID DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US IT WAS A COMMON POINT BETWEEN THE PART IES THAT THE ORDER OF THE TRIBUNAL DATED 31 ST MAY, 2011 (SUPRA) FOR ASSESSMENT YEARS 2004-05 TO 2006-07 CONTINUES TO HOLD THE FIELD AND HAS NOT BEING ALTERED BY ANY HIGHER AUTHOR ITY. FURTHER, IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-0 8 ALSO THE TRIBUNAL VIDE ORDER IN ITA NOS. 356 & 240/PN/2011 DAT ED 25.07.2012 HAS UPHELD THE STAND OF THE ASSESSEE TO THE EFFECT THAT INCOME EARNED FROM SALE AND PURCHASE OF SHARES WAS ASSESSABLE AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME AS CONTENDED BY THE ASSESSING OFFICER. 6. IN VIEW OF THE AFORESAID PRECEDENTS IN THE ASSES SEES OWN CASE, WE FIND NO ERROR ON THE PART OF THE CIT(A) IN D ECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ORD ER OF THE CIT(A) IS HEREBY AFFIRMED. 11. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE B EFORE THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE (S UPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE INCO ME ARISING ITA NO.2229/PN/2013 RDA HOLDING & TRADING PVT. LTD. 7 ON SALE OF SHARES AND REDEMPTION OF MUTUAL FUNDS IS ASSESS ABLE AS INCOME FROM CAPITAL GAIN AS THE ASSESSEE IS ENGAGED IN THE INVESTMENT ACTIVITY. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROU NDS OF APPEAL RAISED BY THE REVENUE. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF OCTOBER, 2014. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH OCTOBER, 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE