Sulaxmi Export & Marketing Pvt.Ltd., Ahmedabad V. The ACIT.,(OSD)Circle-8, Ahmedabad

ITA 2385/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85869 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Capital asset; Business income
• Section: 143(3); 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL CH ATURVEDI, A.M.) I.T. A. NO. 2385/AHD/2011 (ASSESSME NT YEAR: 2008-09) SULAXMI EXPORT & MARKETING PVT. LTD. 710, MAHAKANT BUILDING OPP. V.S. HOSPITAL, ELLISBRIDGE AHMEDABAD-380006 V/S ASSTT. COMMISSIONER OF INCOME TAX (OSD), CIRCLE-8, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AADCS0294C APPELLANT BY : SHRI TUSHAR P. HEMANI , A. R. RESPONDENT BY : SHRI M.K. SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 11-03-2015 DATE OF PRONOUNCEMENT : 26 -03-2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-XIV, AHMEDABAD DATED 27.07.2011 FOR A.Y. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF TRADING IN SHARES. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y . 2008-09 ON 25.09.2008 DECLARING TOTAL LOSS OF RS. 80,03,910/-. THE CASE W AS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECT ION 143(3) VIDE ORDER ITA NO 238 5/AHD/2011 . A.Y. 2008-09 2 DATED 20.10.2010 AND THE TOTAL INCOME WAS DETERMINE D AT RS. 8,08,300/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN A PPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS;- 1. THE ORDER PASSED BY A.O. AND PARTIALLY CONFIRMED BY LEARNED CIT(A) IS BAD IN LAW AND ON FACTS AND HENCE REQUIRES TO BE QUASHED. 2. THE LEARNED A.O, AND C.I.T. (A) HAVE ERRED IN TREAT ING THE LOSS OF RS. 88,12,209/- ARISING OUT OF SALES OF SHARE OF ONE OF THE SCRIPS AS CAPITAL LOSS AS AGAINST TRADING LOSS SHOWN BY THE APPELLANT. 3. THE LEARNED A.O. AND CIT(A) OUGHT TO HAVE CONSIDERE D THE CONTENTION OF THE APPELLANT THAT ; (I) THE APPELLANTS MAIN ACTIVITY IS PURCHASE AND SALE OF SHARES. (II) THE SHARES OF PARTICULAR SCRIP WERE SHOWN AS INVEST MENT INSTEAD OF AS STOCK IN TRADE ONLY FOR THE CONVENIENCE OF IDENTIFICATION AS THE SAID SHARE WER E LOCKED IN FOR TRADING FOR A PERIOD OF ONE YEAR. (III) THE SAID SHARES WERE MEANT FOR TRADING ONLY. 4. BEFORE US, LD. A.R. SUBMITTED THAT THOUGH VARIOUS G ROUNDS HAVE BEEN RAISED BUT THE ONLY ISSUE IS WITH RESPECT TO TREATING THE LOSSES ON SALE OF SHARE AS CAPITAL LOSS. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE BALANCE SHEET, A.O NOTICED THAT ASSESSEE HAD SHOWN INVESTME NT OF RS. 2.3 CRORES IN 1,50,000 EQUITY SHARES OF RPG LIFE SCIENCES LTD. IN F.Y. 2006-07. HE ALSO NOTICED THAT THE AFORESAID SHARES WERE SOLD IN THE YEAR UNDER CONSIDERATION AND WERE SHOWN IN THE PROFIT AND LOSS ACCOUNT AS A BUSINESS TRANSACTION. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF LOSS AND TREATING THE SAME AS ITA NO 238 5/AHD/2011 . A.Y. 2008-09 3 BUSINESS LOSS. ON PERUSING THE DETAILS FURNISHED BY THE ASSESSEE, A.O NOTICED THAT 1,50,000 EQUITY SHARES WERE ALLOTTED T O THE ASSESSEE @ 158 PER SHARE DURING THE F.Y. 2005-06 AND THE SHARES WAS HE LD AS INVESTMENTS AND WAS ALSO REFLECTED AS INVESTMENTS IN THE AUDIT BALA NCE SHEET FOR A.Y. 2005-06 & 2006-07. THE SUBMISSION OF THE ASSESSEE THAT IT H AD CONVERTED THE SHARES INTO STOCK IN TRADE AS ON 02.04.2007 WAS ALSO NOT F OUND ACCEPTABLE TO THE A.O FOR THE REASON THAT IN THE TAX AUDIT REPORT SUB MITTED BY THE ASSESSEE, IT WAS STATED BY THE TAX AUDITOR THAT THERE WAS NO CON VERSION OF CAPITAL ASSETS INTO STOCK IN TRADE DURING THE YEAR UNDER CONSIDERA TION. CONSIDERING ALL THE AFORESAID FACTS, A.O CONCLUDED THAT THE LOSS ON SAL E OF EQUITY SHARES OF RPG LIFE SCIENCES LTD AMOUNTING TO RS. 88,12,209/- WAS A LONG TERM CAPITAL LOSS AND CANNOT BE CONSIDERED AS A BUSINESS TRANSA CTION AND THEREFORE CANNOT BE ADJUSTED AGAINST THE BUSINESS INCOME IN V IEW OF THE PROVISIONS OF SECTION 71(3) AND 74(1) OF THE ACT. HE ACCORDINGLY DISALLOWED THE ADJUSTMENT OF LOSS AGAINST THE BUSINESS INCOME. AGG RIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO UPHELD THE ORDER OF A.O BY HOLDING AS UNDER:- 3.4 DECISION I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. FROM THE PERUSAL OF ASSESSMENT ORDER AND THE WRITTE N SUBMISSION GIVEN BY THE A. O., THE FOLLOWING FACTS COME TO LIGHT. (I) THE APPELLANT IS MAINTAINING TWO PORTFOLIO IN THE B ALANCE SHEET ONE FOR INVESTMENT AND OTHER FOR TRADE. (II) THE MAIN ACTIVITY OF THE APPELLANT IS PURCHASE AN D SALE OF SHARES. (III) AS PER THE ACCOUNTING POLICY MENTIONED IN THE AUDIT REPORT, THE INVESTMENT ARE VALUED AT COST AND STOCK IN TRADE ARE TAKEN AT YEAR END AND CLOSING AT CLOSING MARKET RATE OR COST WHICHEVER IS LOWER. ITA NO 238 5/AHD/2011 . A.Y. 2008-09 4 (IV) THE APPELLANT PURCHASED THE SHARES OF RPG LIFE SCIE NCES IN THE F. Y. 2006-07 FOR AN AMOUNT OF RS. 2,37,00,000/-. THE SHARES WERE ALL OTTED IN PREFERENTIAL ISSUE AND WERE LOCKED IN FOR TRADING FOR ONE YEAR. THE APPELLANT HAS SUBMITTED THAT THE SHARES OF RPG LIFE SCIENCES WERE INTENDED TO BE A TRADING SCRIP AND NOT AS INVESTMENT. FOR THE SAKE O F IDENTIFICATION, THE SHARES WERE PLACED IN THE INVESTMENT ACCOUNT. THE SUBMISSION OF THE AP PELLANT IS NOT ACCEPTABLE AS IT IS AN AFTERTHOUGHT. THE FACTS AND THE CIRCUMSTANCES SHOW THAT THE INTENTION OF THE APPELLANT WAS TO PURCHASE THE SHARES AS AN INVESTMENT. THE CLAIM THAT THESE WERE PUT IN THE INVESTMENT PORTFOLIO FOR THE SAKE OF IDENTIFICATION IS AN AFTE RTHOUGHT. THE INTENTION OF THE APPELLANT IS DEMONSTRATED BY THE FACT THAT THE SHARES ARE PLACED IN THE INVESTMENT PORTFOLIO AND WERE VALUED AT COST. THE SHARES WERE PURCHASED FOR A CON SIDERATION OF RS. 2,37,00,000/- AND WERE SHOWN I.E. AT COST IN ACCORDANCE WITH THE ACCO UNTING POLICY FOR VALUATION OF THE INVESTMENT. THE FACT THAT THE SHARES HAVE BEEN BOUG HT IN PREFERENTIAL ALLOTMENT IS ALSO AN INDICATOR THAT THIS WAS INTENDED TO BE AN INVESTMEN T. THEREFORE, THE A. O. WAS JUSTIFIED IN TREATING THE LOSS ARISING OUT OF THE SALE OF THESE SHARES AS CAPITAL LOSS AND NOT AS TRADING LOSS. THE GROUND OF APPEAL IS, THEREFORE, DISMISSED. 4. THE FIFTH GROUND OF APPEAL IS REGARDING SET OFF OF CARRIED FORWARD B USINESS LOSS. PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A. O . HAS NOT GIVEN ANY FINDING REGARDING NON-ALLOWANCE OF SET OFF OF. CARRY FORWARD BUSINESS LOSS. HOWEVER, HE IS DIRECTED TO VERIFY THE RECORDS AND ALLOW THE SET OFF OF CARRY FORWARD BUSINESS LOSS AS PER THE LAW. 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A) AND FURTHER SUBMITTED THAT THE SHARES WHICH WERE AC QUIRED BY THE ASSESSEE WAS SUBJECT TO LOCK IN PERIOD OF 1 YEAR AND THEREFO RE THE ASSESSEE THOUGHT IT FIT TO DEBIT IT TO THE INVESTMENT ACCOUNT SO AS T O IDENTIFY SUCH SHARE SEPARATELY FROM OTHER SHARES WHICH WERE NOT SUBJECT TO ANY LOCK IN PERIOD. ON 02.04.2007 I.E. AT THE END OF LOCK IN PERIOD OF 1 YEAR, ASSESSEE ITA NO 238 5/AHD/2011 . A.Y. 2008-09 5 TRANSFERRED THE SHARES FROM INVESTMENT ACCOUNT TO REGULAR STOCK IN TRADE ACCOUNT AND THEREFORE IT TREATED THE AFORESAID SHAR ES AT PAR WITH OTHER SHARES BEING PART OF STOCK IN TRADE. HE FURTHER SUBMITTED THAT SINCE THE SHARES WERE SOLD IN THE NORMAL COURSE OF BUSINESS, THE RESULTAN T LOSS WAS ADJUSTED AGAINST THE BUSINESS INCOME FROM TRADING OF SHARES AND TH E MERE ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUNT CANNOT DETERMINE THE TAXABILITY OF ANY INCOME. HE FURTHER PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. ARVIND INVESTMENTS LTD. 192 ITR 365 (CALCUTTA). LD. D.R. ON THE OTHER HAND POINTED TO THE VARIOUS FINDINGS OF A.O AND SUPPORTE D THE ORDER OF A.O AND LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE TR EATMENT OF LOSS ON SALE OF EQUITY SHARES OF RPG LIFE SCIENCES LTD. WHICH WERE ALLOTTED TO THE ASSESSEE ON 23.02.2006. FROM THE PERUSAL OF THE BALANCE SHEE T AS ON 31 ST MARCH, 2007, IT IS SEEN THAT THE SHARES OF RPG LIFE SCIENC ES LTD OF RS. 2.37 CRORES ARE REFLECTED UNDER THE HEAD OF INVESTMENT AND AR E VALUED AT COST WHICH IS ALSO IN LINE WITH THE ACCOUNTING POLICIES ( AS REFL ECTED IN THE ANNUAL ACCOUNTS AND PLACED AT PAGE 29 OF THE PAPER BOOK,). ON THE O THER HAND, IF THE ASSESSEE HAD TREATED THE SHARES OF RPG LIFE SCIENCES LTD. AS PART OF STOCK IN TRADE, AS IS THE SUBMISSION BEFORE US, THEN IT SHOULD HAVE VA LUED THE SHARES AT CLOSING MARKET RATE OR COST WHICHEVER IS LOWER WHICH IS THE POLICY ADOPTED BY ASSESSEE FOR VALUE STOCK IN TRADE. THE SUBMISSION O F THE ASSESSEE THAT AT THE EXPIRY OF THE LOCK IN PERIOD I.E. ON 02.04.2007, TH E SHARES OF RPG LIFE SCIENCE LTD. WERE TRANSFERRED TO STOCK IN TRADE IS NOT SUPPORTED BY ANY EVIDENCE MORE SO WHEN THE ASSESSEE IS A LIMITED COM PANY AND IS REQUIRED TO FOLLOW CERTAIN GUIDELINES, PROCEDURES PRESCRIBED UN DER THE ACCOUNTING ITA NO 238 5/AHD/2011 . A.Y. 2008-09 6 STANDARDS WHEN THERE IS TRANSFER FROM INVESTMENT TO STOCK IN TRADE. FURTHER, IT IS ALSO SEEN THAT UNDER CLAUSE 12A OF T HE TAX AUDIT REPORT FOR A.Y. 2008-09 WHICH IS PLACED AT PAGE 84, AGAINST TH E COLUMN WITH RESPECT TO PARTICULARS OF CAPITAL ASSET CONVERTED INTO STOCK I N TRADE, THE AUDITOR HAS MENTIONED AS NIL MEANING THEREBY THAT AUDITOR HAS A LSO CERTIFIED THAT THERE IS NO CONVERSION OF CAPITAL ASSET TO STOCK IN TRADE. THE SUBMISSION OF THE ASSESSEE THAT FOR THE PRACTICAL PURPOSES IT HAD TRE ATED THE SHARES AS STOCK IN TRADE CANNOT BE ACCEPTED IN VIEW OF THE FACT THAT T HE ACCOUNTING STANDARD 13 ON ACCOUNTING OF INVESTMENTS, ISSUED BY THE INSTITU TE OF CHARTERED ACCOUNTANTS OF INDIA WHICH IS BEING FOLLOWED BY THE ASSESSEE, STATES THAT SHARES, DEBENTURES AND OTHER SECURITIES HELD AS STO CK IN TRADE ARE TO BE ACCOUNTED FOR AND DISCLOSED SIMILAR TO THE CURRENT INVESTMENT AND WITH RESPECT TO CURRENT INVESTMENT IN THE ACCOUNTING STA NDARD, IT IS STATED THAT IT HAS TO BE VALUED AT LOWER OF COST AND FAIR VALUE WH EREAS ON THE OTHER HAND, THE ASSESSEE HAS IN ITS BOOKS TREATED THE SHARES AS INVESTMENT AND ACCORDINGLY VALUED THE SHARES AT COST AND THEREFORE ITS CONTENTION OF HOLDING THE SHARES AT STOCK IN TRADE IS ALSO NOT SUPPORTED BY THE METHOD OF ACCOUNTING AND ITS VALUATION. BEFORE US, LD. A.R. HAS ALSO NOT PLACED ANY MATERIAL ON RECORD IN SUPPORT OF ITS CONTENTION THAT FOR THE SA KE OF IDENTIFICATION, THE SHARES WERE PLACED IN INVESTMENT ACCOUNT. BEFORE US , ASSESSEE HAS ALSO RELIED ON THE DECISION OF CALCUTTA HIGH COURT IN TH E CASE OF CIT VS. ARVIND INVESTMENTS LTD. (SUPRA). WE HOWEVER, FIND THAT THE AFORESAID DECISION ARE ON DIFFERENT FACTS AND ARE NOT APPLICABLE TO THE PR ESENT FACTS OF THE ASSESSEE AND THEREFORE NOT APPLICABLE. CONSIDERING THE TOTAL ITY OF THE AFORESAID FACTS, WE FIND THAT NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. ITA NO 238 5/AHD/2011 . A.Y. 2008-09 7 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN OPEN COURT ON 26 - 03 - 2015. SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD