Uma Laboratories Pvt.Ltd., Ahmedabad V. The Income tax Officer, Ward-4(4), Baroda

ITA 2379/AHD/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9303 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 05-01-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 22-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Business income; Speculation loss; Assessment record
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, A M. ITA NO.2379/AHD/2010 ASST. YEAR: 2006-07 M/S UMA LABORATORIES PVT. LTD., C/O M/S RAVI & DEV, C.A. 201, ARTH, BEHIND A.K. PATEL HOUSE, MITHAKALI SIX ROADS, AHMEDABAD. VS. ACIT, CIR-4, BARODA. APPELLANT RESPONDENT PAN AAACU 2855N APPELLANT BY SHRI UMAID SINGH BHATI, AR RESPONDENT BY SMT. SONIA KUMAR, SR.DR DATE OF HEARING: 5/1/2016 DATE OF PRONOUNCEMENT: 03/03/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A)-III, BARODA DATED 13.1.2010. ASSESSMENT FOR ASST. YEAR 2006- 07 WAS FRAMED UNDER SECTION 143(3) OF THE IT ACT, 1 961 (IN SHORT THE ACT) ON 17.12.2008 BY ACIT, CIRCLE-4, BARODA. ASSES SEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING DISALLOWANCE U/S 14A TO THE EXTENT OF RS.10,000/-. ITA NO. 2379/AHD/2010 ASST. YEAR 2006-07 2 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING THE ACTION OF THE LD. AO IN TREATING THE CAPITAL GAIN AS IN COME FROM BUSINESS. 3. THE APPELLANT MAY BE ALLOWED TO ADD, AMEND, ALTE R OR RAISE ADDITIONAL GROUNDS OF APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY MAINLY ENGAGED IN THE BUSINESS OF PHARMACEU TICALS, RESEARCH, DEVELOPMENT LABORATORY AND INVESTMENT ACT IVITIES. THE ASSESSEE FILED ITS E-RETURN ON 19.12.2006 DECLARING TOTAL INCOME AT RS.3,49,120/-. THE CASE WAS SELECTED FOR SCRUTINY A SSESSMENT AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 10.10.20 07 WHICH WAS DULY SERVED. THE CASE WAS DISCUSSED AND INFORMATION REQU IRED BY THE ASSESSING OFFICER WERE FURNISHED. ASSESSMENT WAS CO MPLETED BY ASSESSING THE INCOME AT RS.32,68,295/- AND SPECULAT ION LOSS ON ACCOUNT OF F & O TRANSACTIONS OF SHARES AT RS.2,,67 ,692/- BY ACCEPTING THE CLAIM OF ASSESSEE. WHILE FRAMING THE ASSESSMENT ORDER LD. AO DISALLOWED RS.1,89,347/- U/S 14A OF THE ACT AND TREATED THE SHORT TERM CAPITAL GAIN OF RS. 16,17,292/- AND LON G TERM CAPITAL GAIN AT RS.11,12,534/- FROM PURCHASES/SALES OF SHARES AS BUSINESS INCOME. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHEREIN LD. CIT(A) RESTRICTED THE DISALLOWANCE U/S 14A TO R S.10,000/- AT THE PLACE OF RS.1,89,347/- MADE BY ASSESSING OFFICER AN D CONFIRMED THE VIEW OF LD. ASSESSING OFFICER BY TREATING THE SHORT TERM AND LONG TERM CAPITAL GAIN FROM SALE OF SHARES AS BUSINESS INCOME . ITA NO. 2379/AHD/2010 ASST. YEAR 2006-07 3 4. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE OUTSET LD. AR OF THE ASSESSEE SUBMITTED T HAT HE IS NOT PRESSING GROUND NO.1 AND HENCE THE SAME IS DISMISSE D AS NOT PRESSED. 6. AS REGARDS THE SECOND GROUND LD. AR SUBMITTED TH AT ASSESSEES MAIN BUSINESS IS DEALING IN PHARMACEUTICALS, RESEAR CH, DEVELOPMENT, LABORATORY AND UNDER THE HEAD OTHER OBJECTS. THE CO MPANY HAS CARRIED ON ACTIVITIES OF INVESTMENT IN SHARES SINCE LAST MANY YEARS. LD. AR SUBMITTED THAT IN THE PAST YEARS ALSO THIS I SSUE OF TREATMENT OF PROFIT FROM SALE OF SHARES AS CAPITAL GAIN OR BUSIN ESS INCOME HAS BEEN RAISED BY THE ASSESSING AUTHORITIES AND FOR AS ST. YEAR 2004-05 LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE B Y TREATING THE INCOME ARISING FROM SALE OF UNITS OF MUTUAL FUNDS A S CAPITAL GAIN AND NOT AS BUSINESS INCOME AND, THEREFORE, INCOME FROM SALE OF SHARES AND MUTUAL FUNDS SHOULD HAVE BEEN ACCEPTED TO BE TA XED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 7. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE BEFORE US IS TO EXAMINE THE TAXABILITY HEAD FOR INCOME FROM SALE OF SHARES AS TO WHETHER IT HAS TO BE TREATED AS CAPITAL GAINS OR INCOME FROM BUSINESS. FROM GOING T HROUGH THE RECORD, WE FIND THAT THE ASSESSEE COMPANY IS MAINLY DEALING IN ITA NO. 2379/AHD/2010 ASST. YEAR 2006-07 4 PHARMACEUTICALS, LABORATORY WORKS AND RESEARCH AND DEVELOPMENT SINCE LAST MANY YEARS AND COUPLED WITH THESE ACTIVI TIES ASSESSEE COMPANY HAS ALSO EARNED INCOME FROM INVESTMENTS IN THE FORM OF LONG TERM AND SHORT TERM CAPITAL GAIN. FURTHER FROM GOING THROUGH THE COMPUTATION OF INCOME WE FIND THAT ASSESSEE COMPANY HAS ALSO SUFFERED LOSS FROM F & O TRANSACTIONS WHILE DEALING IN SHARES AND HAS SHOWN IT AS A SPECULATION LOSS. THE VARIETIES OF IN COME FROM LONG TERM CAPITAL AND SHORT TERM CAPITAL GAIN FROM SHARES, DI VIDEND INCOME AND SPECULATION LOSS IN F & O TRANSACTIONS SHOWS THAT A SSESSEE HAS BEEN REGULARLY INVOLVED IN SHARES RELATED ACTIVITIES IN THE YEAR UNDER APPEAL AS WELL AS IN PAST ALSO. ON THE BASIS OF DOCUMENTS PLACED ON RECORD WE HAVE SUMMARIZED THE YEAR-WISE DETAIL OF INVESTME NTS IN SHARES, RESERVE AND SURPLUS, BUSINESS TURNOVER, OTHER INCOM E AND NET PROFIT FROM FINANCIAL YEAR 2002-03 TO FINANCIAL YEAR 2005- 06 DETAILED AS BELOW :- PARTICULARS F.Y.2002 - 03 F.Y.2003 - 04 F.Y.2004 - 05 F.Y.2005 - 06 INVESTMENT IN SHARES 3.54 CR. 4.61 CR. 5.31 CR. 5 .43 CR. SHARE CAPITAL + RESERVE & SURPLUS 5.74 CR. 6.93 CR. 6.82 CR. 7.10 CR. BUSINESS TURNOVER 3.00 CR. 1.56 CR. 0.68 CR. 0.64 CR. OTHER INCOME INCLUDING DIVIDEND & CAPITAL GAIN 0.03 CR. 1.39 CR. 0.21 CR. 0.44 CR. NET PROFIT TO BE TAXED 1.42 CR. 1.77 CR. 0.22 CR. 0.44CR. ITA NO. 2379/AHD/2010 ASST. YEAR 2006-07 5 9. FROM BROAD ANALYSIS OF THE FINANCIAL DATA OF THE ASSESSEE AS PER THE TABLE REFERRED ABOVE WE FIND THAT ASSESSEE S INVESTMENTS IN SHARES HAVE INCREASED FROM RS.3.54 CRORES IN FY 200 2-03 TO RS.5.43 CRORES IN FY 2005-06; WHEREAS BUSINESS TURNOVER HAS DRASTICALLY DECREASED FROM RS.3 CRORES IN FY 2002-03 TO RS.0.64 CRORES IN FY 2005-06. WE FURTHER OBSERVE THAT MAJOR PORTION OF N ET PROFIT WHICH WAS FLOWING OUT OF THE BUSINESS ACTIVITIES UPTO FY 2002-03 HAVE SHIFTED TO THE INVESTMENTS INCOME SO MUCH SO THAT I N THE YEAR UNDER APPEAL NET PROFIT OF THE ASSESSEE IS RS.0.44 CRORES WHICH IS EQUIVALENT TO THE OTHER INCOME AND THERE IS HARDLY ANY INCOME FROM BUSINESS ACTIVITIES. 10. FURTHER FROM GOING THROUGH THE RECORDS WE FIND THAT IN PAST ASSESSEES CLAIM HAVE BEEN ACCEPTED BY THE REVENUE AUTHORITIES BY TREATING INCOME FROM SALE OF SHARES/MUTUAL FUND UNI TS AS CAPITAL GAINS AND NOT AS BUSINESS INCOME BUT THE SAME CANNOT BE K EPT AS A BENCH MARK TO BE FOLLOWED IN SUBSEQUENT YEARS AND MUCH MO RE WILL DEPEND ON FACTS AND FIGURES AS REFLECTED IN THE FINANCIAL STATEMENTS. FROM GOING THROUGH THE ORDER OF LD. CIT(A) WE FIND THAT HE HAS DISMISSED THE APPEAL OF ASSESSEE BY OBSERVING AS UNDER :- 5 THE GROUNDS NO.2,3 & 4 ARE DIRECTED AGAINST TREAT MENT OF CONSIDERING THE SHARE TRANSACTION ACTIVITY FOR THE PURPOSE OF CAPIT AL GAIN. IT HAS BEEN NOTED BY THE AO THAT THE INVESTMENT WAS ONE OF THE ACTIVITIE S AS NOTED IN THE AUDIT REPORT ITSELF. ACCORDING TO THE AO, THE SHARE TRANS ACTION ACTIVITY HAS BEEN UNDERTAKEN AS BUSINESS. THERE IS NO REASON FOR THE APPELLANT TO SHOW THE SAME AS CAPITAL GAIN ITA NO. 2379/AHD/2010 ASST. YEAR 2006-07 6 5.1 BEFORE ME, IT HAS BEEN STATED THAT IN EARLIER Y EAR, THE ID. CIT(A) HAS ACCEPTED THE CONTENTION OF THE APPELLANT AND REQUES TED THAT THE SAME MAY BE CONSIDERED THIS YEAR ALSO. 5.2 I HAVE GIVEN MY CAREFUL CONSIDERATION. IT IS NO TICED BY THE AO THAT DURING THE YEAR HUGE TRANSACTIONS WERE UNDER TAKEN AND THE FREQUENCY IS ALSO VERY HIGH FOR THESE TRANSACTIONS DURING THE YEAR. YEAR A FTER YEAR HUGE TRANSACTIONS ARE UNDERTAKEN AND THE FREQUENCY OF SALE PURCHASE I S ALSO INCREASING. IN FACT, MANY TRANSACTIONS ARE ENTERED INTO FOR A VERY SHORT DURA TION AND THE-WHOLE .ACTIVITY IS SO REGULAR THAT THEY HAVE TO BE CATEGORIZED AS REGULAR BUSINESS ACTIVITIES. BEFORE ME, NO EVIDENCE/DOCUM ENTS HAVE BEEN FILED TO REBUT THE FINDINGS-OF THE AO. IT IS THEREFORE HELD THAT THE AO WAS JUSTIFIED IN HIS ACTION. ACCORDINGLY THE GROUNDS NO.2,3 & 4 ARE DISMISSED. 11. FROM GOING THROUGH THE ORDER OF LD. CIT(A) WE F IND THE SAME TO BE A NON-SPEAKING ORDER BECAUSE OF FOLLOWING TWO RE ASONS :- (I) NO EVIDENCE/DOCUMENTS WERE FILED BY THE ASSESSE E TO REBUT THE FINDINGS OF THE ASSESSING OFFICER BEFORE LD. CIT(A). (II) NO ANALYSIS WAS MADE BY LD. CIT(A) FROM THE AV AILABLE ASSESSMENT RECORDS. 12. WE ARE, THEREFORE, OF THE VIEW THAT LOOKING TO THE FACTS AND FIGURES OF THE CASE FOR THE YEAR UNDER APPEAL AS WE LL AS THE FIGURES OF PAST YEARS IT WAS NECESSARY ON THE PART OF LD. CIT( A) TO HAVE ADJUDICATED THE ISSUE IN THE LIGHT OF THE FACTS AS DISCUSSED ABOVE AND A SPEAKING ORDER OUGHT TO HAVE BEEN PASSED BY HIM. IN THESE CIRCUMSTANCES, WE HEREBY SET ASIDE THE ISSUE IN THE APPEAL RELATING TO THIS GROUND OF TREATMENT OF INCOME FROM SALE OF SHA RES AS CAPITAL GAIN /BUSINESS INCOME TO THE FILE OF LD. CIT(A) WITH THE INSTRUCTIONS TO THE ASSESSEE TO PRODUCE ALL RELEVANT DETAILS INCLUDING FINANCIAL DATA WHICH HAVE BEEN PRODUCED BEFORE US TO BE AGAIN SUBMITTED BEFORE LD. ITA NO. 2379/AHD/2010 ASST. YEAR 2006-07 7 CIT(A) TO FACILITATE HIM IN PASSING A SPEAKING ORDE R. ACCORDINGLY THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPO SES. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MARCH, 2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 03/03/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 2379/AHD/2010 ASST. YEAR 2006-07 8 1. DATE OF DICTATION: 19/02/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 03/03/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 03/03/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: