ITO, Ward - 12(1), Kolkata, Kolkata V. M/s. Nupur Carpets Pvt. Ltd., Kolkata

ITA 2417/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1188 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T VARKEY JUDIC IA L M EMBER
• Assessee Lawyers: ARINDAM BHATTACHERJEE RE
• Keywords: Business income; Revenue expenditure
• Section: 143(3); 37(1); 37

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND DR.A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 2417/ KOL / 2016 ASSESSMENT YEAR :2008-09 INCOME TAX OFFICER, WARD-12(1), 7 TH FLOOR, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 V/S . M/S NUPUR CARPETS PVT. LTD., 23C, ASHUTOSH CHOWDHURY AVENUE, KOLKATA-19 [ PAN NO.AABCN 0170 A ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI ARINDAM BHATTACHERJEE, ADDL. CIT-DR /BY RESPONDENT SHRI S. JHAJHARIA, AR /DATE OF HEARING 08-03-2018 /DATE OF PRONOUNCEMENT 28-03-2018 / O R D E R PER DR. A.L. SAINI, ACCOUNTANTMEMBER:- THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAINING TO ASSESSMENT YEAR 2008-09, IS DIRECTED AGAINST AN ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-15, KOLKATA, IN APPEAL NO.406/CIT(A)-15/15-16/CIR- 12/R&T/KOL, DATED 19.10.2016, WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DATED, 29.12.2010. 2.THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1.THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) HAD ERRED TO ALLOW RELIEF ON THIS GROUND ON THE VIEW THAT LONG TERM CAPITAL GAINS ARE THE MAJOR COMPONENT AS COMPARED TO THE SHORT TERM CAPITAL ITA NO.2417/KOL/2016 A.Y. 2008-09 ITO WD-12(1), KOL. VS. M/S NUPUR CARPETS PVT. LTD. PAGE 2 LOSS. SHORT TERM INVESTMENTS ARE ALSO RECORDED IN THE BOOKS AS INVESTMENT AND NOT STOCK-IN-TRADE. 2. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE LD. CIT(A) HAD ERRED TO DELETE THE ADDITION, CONSIDERING SUNDRY BALANCE WRITTEN OFF AS REVENUE EXPENDITURE. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD/ALTER/MODIFY THE GROUNDS OF APPEAL. 3.GROUND NO.1 RAISED BY REVENUE RELATES TO THE ISSUE WHETHER SHORT TERM CAPITAL GAINS / LONG TERM CAPITAL GAINS EARNED BY ASSESSEE IS A BUSINESS INCOME OR INCOME FROM INVESTMENT. 3.1 AT THE OUTSET, ITSELF, LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT THE ISSUE RAISED BY REVENUE BY WAY OF GROUND NO.1 IS SQUARELY COVERED BY THE ORDER OF THE CO-ORDINATE BENCH KOLKATA, IN ASSESSEES OWN CASE, IN ITA NO. 436/KOL/2016 FOR ASSESSMENT YEAR 2007-08, ORDER DATED 10.01.2018, WHEREIN THE TRIBUNAL HELD AS FOLLOWS:- 8. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT THE AO TREATED NET SURPLUS AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS ON THE GROUND THAT THE ASSESSEE CARRIED OUT BUSINESS OF SHARE TRADING AS EVIDENT FROM LARGE VOLUME OF TRANSACTIONS AND SYSTEMATIC, ORGANIZED, REPEATED AND REGULAR ACTIVITY IN SHARES WITH A CLEAR INTENTION TO EARN HUGE PROFITS. BUT THE FACTS SUGGESTS THAT THE ASSESSEE-COMPANY WAS HOLDING SHARES AS INVESTMENT ALL ALONG AND THAT THE INITIAL INTENTION WAS EVIDENT BY WAY THE ENTRIES MADE IN BOOKS AND VALUATION OF SHARES AT COST AND THAT THE VOLUME OF TRANSACTIONS WAS LOW AND THAT SUBSTANTIAL DIVIDEND INCOME EARNED REFLECTING THE INTENTION. THUS, ACCORDING TO ASSESSEE THE NET SURPLUS WAS NOT A BUSINESS INCOME BUT ON ACCOUNT OF CAPITAL GAIN. TO DECIDE WHETHER A TRANSACTION IS IN THE NATURE OF INVESTMENT OR TRADING THE CRUCIAL TEST THAT LAID DOWN BY VARIOUS COURTS IS THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES. THE AO ON THE OTHER HAND, WAS ON THE CONDUCT OF THE BUSINESS OF THE ASSESSEE WHICH ACCORDING TO HIM CARRIED OUT IN A SYSTEMATIC AND ORGANIZED MANNER INVOLVING LARGE VOLUMES OF TRANSACTIONS IN SHARES. AS SEEN FROM THE PRINCIPLES LAID DOWN BY VARIOUS COURTS, THE MAIN TEST PRESCRIBED IS THE INITIAL INTENTION OF THE ASSESSEE TO DECIDE WHETHER AN ACTIVITY AMOUNTS TO TRADING ACTIVITY OR INVESTMENT ACTIVITY . AS SEEN FROM THE ABOVE FACTS, THE ASSESSEE IS JUSTIFIED IN ITS ARGUMENT THAT ITS ORIGINAL INITIAL INTENSION IS TO HOLD THE SHARES AS INVESTMENTS AND NOT AS ITA NO.2417/KOL/2016 A.Y. 2008-09 ITO WD-12(1), KOL. VS. M/S NUPUR CARPETS PVT. LTD. PAGE 3 STOCK-IN-TRADE . THE INTENTION OF THE ASSESSEE AS IS EVIDENT FROM THE CIRCUMSTANCES AT THE TIME OF PURCHASE OF SHARES/UNITS,IS A RELEVANT FACTOR AND OFTEN A CONCLUSIVE FACTOR IN DETERMINING WHETHER A TRANSACTION IS IN THE NATURE OF TRADE OR IN THE NATURE OF INVESTMENT. THE ASSESSEE HAD BEEN KEEPING ITS HOLDINGS IN CERTAIN COMPANIES FROM A FEW MONTHS TO A FEW YEARS, WHICH CLEARLY INDICATES THAT THE MOTIVE AND INTENTION OF THE ASSESSEE IS TO EARN RETURNS IN THE FORM OF CAPITAL GAIN APART FROM DIVIDEND INCOME. WE NOTE THAT THE SOURCES FOR ACQUISITION OF SHARES ARE FROM SHARE CAPITAL, RESERVES AND SURPLUS FUNDS. THE ASSESSEE HAS BEEN AN INVESTOR AND NOT A TRADER AS SEEN FROM THE INTENTION OF THE ASSESSEE. THE TREATMENT GIVEN IN THE BOOKS UNDER THE HEAD INVESTMENT CLEARLY SHOWS THAT THE ASSESSEES INTENTION TO DEAL IN SHARES AS INVESTMENT. THE CONVERSION OF INVESTMENT INTO STOCK-IN-TRADE AND CONTINUING THE TRADING UNDER THAT HEAD AND AGAIN CONVERTING THE CLOSING STOCK UNDER THAT HEAD INTO INVESTMENT , UNDER CONSIDERATION AMOUNTS TO A CLEAR CHANGE OF INTENTION DEPENDING ON THE CIRCUMSTANCES.THE ASSESSEE MAINTAINED SEPARATE LEDGER ACCOUNTS IN RESPECT OF CONVERSION OF STOCK- IN-TRADE INTO INVESTMENT. BY CONVERTING THE STOCK-IN-TRADE INTO INVESTMENT, IT DOES NOT ALTER THE CHARACTER, NATURE AND INTENTION OF THAT PARTICULAR TRANSACTION ESPECIALLY IN THE CONTEXT OF CAPITAL GAIN VERSUS BUSINESS INCOME. SUBSEQUENT CONVERSION AND TREATMENT GIVEN IN THE BOOKS OF ACCOUNTS DO NOT ALTER THE CHARACTER OF COMMERCIAL TRANSACTION. ACCORDINGLY, THE PROFIT THAT HAS BEEN ATTRIBUTABLE TO THIS TRADING ACTIVITY CORRESPONDING TO CONVERSION OF STOCK-IN-TRADE INTO INVESTMENT IS TO BE TREATED AS BUSINESS INCOME AND ACCORDINGLY TO BE TAXED. IN VIEW OF THE ABOVE FINDINGS OF CIT(A) THAT THE INCOME FROM INVESTMENT IS TO BE TAKEN AS CAPITAL GAINS AND CONVERSION OF STOCK-IN-TRADE TO INVESTMENT IS TO BE TAKEN AS TRADING INCOME , WHICH IS BASED ON FACTS OF THE CASE AND NEED NO DISTURBANCE. IN ADDITION TO THIS, THE ASSESSEE`S CASE UNDER CONSIDERATION IS FULLY COVERED BY THE JURISDICTIONAL ITAT KOLKATA, IN ITA NO.783/KOL/2009, A.Y 2005-06 (SUPRA). THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEE`S OWN CASE, VIDE ITA NO.783/KOL/2009, A.Y 2005-06 (SUPRA),IN THE ASSESSMENT YEAR 2005-06, WHEREBY THE ISSUES WERE DECIDED IN FAVOUR OF THE ASSESSEE COMPANY, AS SET OUT ABOVE, THEREFORE WE CONFIRM THE FINDINGS OF CIT(A). WE NOTE THAT THE ASSESSEE`S ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF THE CO-ORDINATE BENCH CITED (SUPRA) AND THERE IS NO CHANGE IN FACT AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AFORESAID FINDING OF LD. CIT(A). WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THEREFORE, THIS GROUND OF REVENUE IS DISMISSED. 3.2. IN THE RESULT, APPEAL FILED BY REVENUE IN ( GROUND NO.1 ) IS DISMISSED. ITA NO.2417/KOL/2016 A.Y. 2008-09 ITO WD-12(1), KOL. VS. M/S NUPUR CARPETS PVT. LTD. PAGE 4 4.GROUND NO.2 RAISED BY REVENUE RELATES TO SUNDRY BALANCE WRITTEN OFF AS REVENUE EXPENDITURE AT 52,000/-. 4.1.THE BRIEF FACTS APROPOS THIS ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS DEBITED AN AMOUNT OF 52,000/- TO ITS PROFIT AND LOSS ACCOUNT OF SUNDRY BALANCE WRITTEN OFF. ON EXAMINING THE DETAILS PRODUCED IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ADVANCE WAS WRITTEN OFF, WHICH WAS NOT ELIGIBLE FOR DEDUCTION AS THE ABOVE EXPENDITURE WAS CAPITAL IN NATURE. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE OF 52,000/- ON SUNDRY BALANCES WRITTEN OFF IN ITS PROFIT AND LOSS ACCOUNT. 4.2. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA, AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY,WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS DEFENDED THE ORDER PASSED BY LD. CIT(A). 4.3.WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE SUM OF 52,000/- SPENT BY THE ASSESSEE DURING THE COURSE OF ITS BUSINESS PROMOTION,THEREFORE, IT IS AN ALLOWABLE EXPENDITURE U/S. 37(1) OF THE ACT. THE ASSESSEE HAS INCURRED THE SAID EXPENDITURE TOWARDS A STALL FOR BUSINESS EXHIBITION AT HOTEL TAJ KRISHNA, HYDERABAD, BUT DUE TO REASON BEYOND CONTROL OFASSESSEE, IT COULD NOT PARTICIPATE IN THE SAID EXHIBITION, THEREFORE ASSESSEE WRITTEN OFF OF THE SAID IN ITS BOOKS OF ACCOUNT AS BAD DEBT. WE NOTE THAT THIS EXPENDITURE IS IN THE NATURE OF REVENUE IN PROMOTING THE BUSINESS OF ASSESSEE, THEREFORE IT IS ALLOWABLE U/S 37 OF THE ACT. HOWEVER, WE NOTE THAT LD. CIT(A) HAS ALREADY ADJUDICATED THIS ISSUE IN FAVOUR OF ASSESSEE STATING THAT FROM THE ASSESSMENT ORDER OR FROM THE SUBMISSION OF ASSESSEE IT WAS NOT CLEAR WHETHER THIS EXPENDITURE WAS INCURRED DURING THE ITA NO.2417/KOL/2016 A.Y. 2008-09 ITO WD-12(1), KOL. VS. M/S NUPUR CARPETS PVT. LTD. PAGE 5 CURRENT YEAR OR ANY OTHER YEAR. THEREFORE, LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF 52,000/- IF IT IS INCURRED IN THE CURRENT YEAR. THEREFORE, WE ALSO DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF 52,000/- IF IT IS INCURRED BY ASSESSEE IN THE CURRENT YEAR, THAT IS THE ASSESSMENT YEAR UNDER CONSIDERATION. 4.4. IN THE RESULT, APPEAL FILED BY REVENUE IN (GROUND NO.2) IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT 28/03/2018. SD/- SD/- ( ) ( ) (ABY. T. VARKEY) (DR. A.L. SAINI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S - 28 / 03 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO WARD-12(1),7 TH FL, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQ. KOL-69 2. /RESPONDENT-M/S NUPUR CARPETS PVT.LTD.23C, ASHUTOHS CHOWDHURY AVENUE,KOL-19 3. / CONCERNED CIT KOLKATA 4. - / CIT (A) KOLKATA 5. , , / DR, ITAT, KOLKATA 6. [ / GUARD FILE. BY ORDER/ , SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO ,