I.T.O Wd - 12(3),kolkata., Kolkata V. M/s Aashyana Goods (P) Ltd., Kolkata

ITA 2487/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9385 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 25-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VARKEY JUDIC IA L M EMBER
• Assessee Lawyers: SALLONG YADEN CITSRDR RESPONDE
• Keywords: Business income; Earning of tax free income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI ABY.T VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 2487 / KOL / 2013 ASSESSMENT YEAR :2008-09 ITO WARD-12(3), P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR,KOLKATA-69 V/S . M/S AASHYANA GOODS (P) LTD., 2/5 SARAT BOSE ROAD, KOLKATA-20 [ PAN NO.AACCA 5319 B ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SALLONG YADEN, ADDL. CIT-SR-DR /BY RESPONDENT SHRI MANISH TIWARI, AR /DATE OF HEARING 12-01-2017 /DATE OF PRONOUNCEMENT 22-02-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA D ATED 23.07.2013. ASSESSMENT WAS FRAMED BY ITO WARD-12(3), KOLKATA U/ S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 30.11.2010 FOR ASSESSMENT YEAR 2008-09. SHRI SALLONG YADEN, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI MANISH TIWARI, LD. AUTHORIZED R EPRESENTATIVE APPEARED ON BEHALF OF ASSESSEE. ITA NO.2487/KOL/2013 A.Y. 2008-09 ITO WD-12(3) KOL. VS. M/S AASHYANA GOODS (P) LTD. PA GE 2 2. FACTS IN BRIEF ARE THAT ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY DEALING IN SHARE AND MUTUAL FUNDS. THE ASSE SSEE FOR THE YEAR UNDER CONSIDERATION HAS FILED ITS RETURN OF INCOME DECLAR ING LOSS OF 41,46,668/- WHICH WAS PROCESSED U/S. 143(1) OF THE ACT. THEREAF TER THE CASE WAS SELECTED UNDER SCRUTINY AND ACCORDINGLY NOTICE U/S 143(2)/14 2(1) OF THE ACT WAS ISSUED UPON ASSESSEE. THE ASSESSMENT WAS FRAMED U/S. 143(3 ) OF THE ACT AT A TOTAL INCOME OF 1,03,26,550/- AFTER MAKING CERTAIN ADDITIONS / DISA LLOWANCES. 3. SOLITARY ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN TREATING THE LOSS OF 1,40,12,844/- AS BUSINESS LOSS INSTEAD OF CAPITA L LOSS. 3.1 THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S CLAIMED LOSS ON SALE OF INVESTMENT IN ITS MUTUAL FUND AND FUTURE OPTION FOR 1,40,12,844/- AS BUSINESS LOSS. THE AO, DURING THE COURSE OF ASSES SMENT PROCEEDINGS OBSERVED THAT THERE WAS NO TRANSACTION IN FUTURE OP TION AND THEREFORE THE WHOLE LOSS REPRESENTED THE LOSS FROM TRANSACTIONS I N MUTUAL FUNDS. IT WAS ALSO FURTHER OBSERVED THAT THERE WAS INVESTMENT IN QUOTE D SHARE AS WELL BUT THERE WAS NO TRANSACTIONS IN THOSE QUOTED SHARE. THE QUOT ED SHARE WAS OF LESSER VALUE IN COMPARISON TO INVESTMENT IN MUTUAL FUND. A O ALSO OBSERVED THAT THE INTENTION OF ASSESSEE IN DEALING OF MUTUAL FUND WAS EARNING CAPITAL GAINS. FURTHER, AO OBSERVED THAT IN PRECEDING ASSESSMENT Y EAR 2006-07 THE LOSS FROM TRANSACTIONS IN MUTUAL FUND WAS TREATED AS CA PITAL LOSS. ACCORDINGLY, AO CALLED UPON ASSESSEE FOR TREATING THE AFORESAID LOS S OF 1,40,12,844/- FROM MUTUAL FUND AS CAPITAL LOSS. THE ASSESSEE IN COMPLI ANCE THERETO SUBMITTED THAT IT IS NON-BANKING FINANCE COMPANY DULY REGISTE RED WITH RESERVE BANK OF INDIA WITH THE MAIN OBJECT OF BUSINESS AS LOAN / AD VANCE AND INVESTMENT. THE ASSESSEE, FURTHER SUBMITTED THAT LOSS INCURRED IN M UTUAL FUND IS AN ADVENTURE IN THE NATURE OF TRADE, WHICH CAN BE VERIFIED FROM THE FREQUENCY AND QUANTUM OF TRANSACTIONS RELATED TO INVESTMENT. THE ASSESSEE FURTHER SUBMITTED THAT IN THE BOOKS OF ACCOUNT IT HAS BEEN SHOWN AS BUSINESS INCOME IN THE EARLIER YEARS AND SUBSEQUENT YEAR TO THE YEAR UNDER CONSIDE RATION. THE TRANSACTIONS ITA NO.2487/KOL/2013 A.Y. 2008-09 ITO WD-12(3) KOL. VS. M/S AASHYANA GOODS (P) LTD. PA GE 3 FROM THE SALE-PURCHASE OF MUTUAL FUND WERE TREATED AS BUSINESS INCOME WHICH WAS DULY ACCEPTED BY REVENUE. HOWEVER, AO DISREGARD ED THE CLAIM OF ASSESSEE BY OBSERVING AS UNDER:- I) THE SUBSTANTIAL SHARE CAPITAL OF THE ASSESSEE IS INVESTED IN MUTUAL FUND IN COMPARISON TO THE ACTIVITIES OF GRANTING OF LOAN AND ADVANCE. THEREFORE THE MAJOR ACTIVITIES OF ASSESSEE ARE IN T HE NATURE OF INVESTMENT ONLY. II) THE ASSESSEE ITSELF HAS SHOWN THE LOSS ON THE T RANSACTIONS OF MUTUAL FUND AS LOSS OF INVESTMENT AND NO TURNOVER OF THE S ALE-PURCHASE OF SHARE HAS BEEN REPORTED IN TAX AUDIT REPORT U/S. 44 AB OF THE ACT. III) IN THE EARLIER AY 2006-07 LOSS FROM THE TRANSA CTIONS TO MUTUAL FUND HAS BEEN TREATED AS CAPITAL LOSS. IV) THE ASSESSEE IS NOT MAINTAINING TWO PORT-FOLIO ONE FOR INVESTMENT AND OTHER FOR STOCK IN TRADE, THEREFORE ASSESSEE WA S INTENDING TO MAKE INVESTMENT IN MUTUAL FUND. V) THE ASSESSEE RECEIVED DIVIDEND OF 59,43,930/- OF MUTUAL FUND AND RECEIVED DIVIDEND INCOME OF 1,36,800/- FROM SHARES. THEREFORE, INTENTION OF ASSESSEE WAS VERY CLEAR THA T IT WANTED TO HAVE LONG TERM PROFITS BY WAY OF EARNING OF EXEMPT INCOME IN THE FORM OF DIVIDEND. IN VIEW OF ABOVE, AO TREATED THE LOSS OF MUTUAL FUND O F RS.1,40,12,844/- AS CAPITAL LOSS. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE THE LEARNED CIT(A) SUBMITTED THAT I T IS NBFC COMPANY REGISTERED WITH RBI AND ITS OBJECTS PERMITS TO CARR Y ON THE BUSINESS OF INVESTMENT, ACQUIRE, HOLD AND DISPOSE OF OR OTHERWI SE INVEST IN SHARES, DEBENTURES, BONDS, OBLIGATIONS AND SECURITIES. IN THE EARLIER ASSESSMENT YEARS FOR 2005-06 TO 2007 -08 THE ACTIVITIES OF THE ASSESSEE WAS ACCEPTED AS IN THE NATURE OF BUSINESS. ITA NO.2487/KOL/2013 A.Y. 2008-09 ITO WD-12(3) KOL. VS. M/S AASHYANA GOODS (P) LTD. PA GE 4 4.1 THE AO HIMSELF IN THE ASSESSMENT ORDER HAS NOTE D THAT THE ASSESSEE HAS INVESTED SUBSTANTIAL CAPITAL IN MUTUAL FUNDS. THE LEARNED CIT-A AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS TREATED THE IMPUGNED LOSS AS BUSINESS LOSS BY OBSER VING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSION PUT FORT H ON BEHALF OF THE APPELLANT ALONG WITH THE CASE LAWS RELIED UPON, PER USED THE FACTS OF THE CASES INCLUDING THE FINDINGS OF THE ASSESSING OFFICER AND OTHER MATERIALS BROUGHT ON RECORD. IT IS NOTED THE IDENTICAL ISSUE HAS COME UP FOR ADJUDICATION BEFORE MY PREDECESSOR WHILE DISPOSING THE APPEAL OF THE APPEL LANT FOR THE ASSESSMENT YEAR 2006-07. THE AO HAS TREATED THE BUSINESS LOSS CLAIM ON SALE OF UNITS IN MUTUAL FUND OF RS.2,97,332/- AS CAPITAL LOSS. ON AP PEAL, THE LD. CIT(A) VIDE ORDER DATED 17.10.2012 ALLOWED THE APPELLANTS CLAI M OF TREATING SUCH LOSS ON MUTUAL FUNDS AS BUSINESS LOSS IN PLACE OF SHORT TER M CAPITAL LOSS. IT IS ALSO SEEN THAT THE CONTENTION OF THE AO FOR MAKING THE D ISALLOWANCE OF THE LOSS ON SALE OF MUTUAL FUNDS BY TREATING AS CAPITAL LOSS WA S BASED ON SIMILAR TREATMENT OF THE CLAIM OF LOSS FROM TRANSACTIONS IN MUTUAL FU ND IN THE ASSESSMENT FOR ASSESSMENT YEAR 2006-07 WHICH WAS IN APPEAL DECIDED IN FAVOUR OF THE APPELLANT. IT IS SUBMITTED THAT THE QUANTUM AND FRE QUENCY OF INVESTMENTS IN MUTUAL FUNDS WAS MORE THAN INVESTMENT IN SHARES, WH EREIN THE APPELLANT DEALT IN 43 SCRIPTS WITH TRANSACTION FOR PURCHASES OF ARO UND RS.4.84 CR. AND SALES OF RS.2.12 CR. PROFIT ON SALE OF SUCH SHARES/INVESTMEN TS AMOUNTING TO RS.10,379,807/- HAS BEEN ACCEPTED BY THE AO AS BUSI NESS INCOME. HENCE, IT IS SUBMITTED THAT IF PROFIT ON SALE OF INVESTMENTS IS ACCEPTED AS BUSINESS PROFIT, THE LOSS ARISING FROM SALE OF SIMILAR INVESTMENTS S HOULD ALSO BE CONSIDERED AS BUSINESS LOSS. I FIND FORCE IN THE ARGUMENT OF THE APPELLANT THAT THE NATURE OF BUSINESS OF THE COMPANY REMAINS THE SAME AS IN THE PAST EXCEPT IN QUANTUM/VOLUME OF BUSINESS AND THE ASSESSMENTS FOR 2005-06 TO 2007-08 WERE COMPLETED BY ACCEPTING THE NATURE OF PROFITS F ROM INVESTMENTS AS BUSINESS INCOME. IN THE LIGHT OF THE ABOVE DISCUSSION AND FINDINGS, AFTER PERUSING THE ENTIRE FACTS OF THE CASE AND FOLLOWING THE DECISION OF MY PREDEC ESSOR ON THE ISSUE WHILE ADJUDICATING THE APPEAL OF THE APPELLANT FOR ASSESS MENT YEAR 2006-07, I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN TREATING THE BUSINESS/TREATING LOSS CLAIM OF THE APPELLANT ON SALE OF UNITS IN MUTUAL F UND OF RS.1,40,12,844/- AS CAPITAL LOSS AND THEREFORE HE IS DIRECTED TO ALLOW THE APPELLANTS CLAIM OF LOSS AS TRADING LOSS. THUS, THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED ACCORDINGLY. AGGRIEVED BY THIS, REVENUE HAS COME UP IN APPEAL BE FORE US. 5. BEFORE US LD. DR RELIED ON THE ORDER OF AO. ON THE OTHER HAND THE LD. AR SUBMITTED THAT THE AO HAS ACCEPTED THE ACTIVITY OF SALE PURCHASE OF THE SHARES AS BUSINESS TRANSACT IONS BUT LOSS ARISING OUT OF ITA NO.2487/KOL/2013 A.Y. 2008-09 ITO WD-12(3) KOL. VS. M/S AASHYANA GOODS (P) LTD. PA GE 5 MUTUAL FUND HAS BEEN TREATED AS CAPITAL LOSS WITHOU T ANY COGENT REASONS. THE LEARNED AR REITERATED THE SUBMISSION AS MADE BEFORE THE LEARNED CIT(A) AND HE SUPPORTED THE ORDER OF LD CIT(A). 6. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE CAS E RELATES TO THE TREATMENT MADE BY THE AO FOR THE LOSS CLAIMED BY THE ASSESSEE FOR ITS MUTUAL FUND TRANSACTIONS AS CAPITAL LOSS. HOWEVER THE LD CIT(A) TREATED THE SAME AS BUSINESS LOSS AND ALLOW THE APPEAL IN FAVOUR OF ASS ESSEE. AT THE OUTSET, WE FIND THAT THE ASSESSEE HAS BEEN SHOWING THE TRANSAC TIONS FROM THE AFORESAID ACTIVITIES AS BUSINESS TRANSACTION WHICH WERE ACCEP TED BY THE REVENUE IN EARLIER ASSESSMENT YEARS. ON EXAMINATION OF THE ORD ER OF LOWER AUTHORITIES, WE FIND THAT THERE WAS NO CHANGE IN THE FACTUAL POSITI ON OF THE ASSESSEE. THE ASSESSEE HAS ALSO BEEN SHOWING SUCH TRANSACTIONS AS BUSINESS TRANSACTIONS IN ITS BOOKS OF ACCOUNTS. OF LATE THE CBDT HAS ISSU ED CIRCULAR NO. 6/2016 DATED 29.2.2016 TO AVOID THE LITIGATION BETWEEN THE ASSESSEE AND THE REVENUE. THE RELEVANT CONTENTS ARE EXTRACTED BELOW: DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPLICA TION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN T HIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SECURITIES (LE. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN O R BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRAN SACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUC E LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORE SAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOW ING:- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE P ERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK- IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TR EATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSF ER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THERE OF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICE R. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YE AR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT ITA NO.2487/KOL/2013 A.Y. 2008-09 ITO WD-12(3) KOL. VS. M/S AASHYANA GOODS (P) LTD. PA GE 6 BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN T HIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CO NTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY T HE CBDT. IN VIEW OF ABOVE, WE FIND THAT THE ASSESSEE HAS BEE N SHOWING ITS MUTUAL FUND TRANSACTIONS UNDER THE HEAD BUSINESS AND PROFESSIO N. THERE WAS NO CHANGE IN THE STAND OF THE ASSESSEE WITH THAT OF THE EARLI ER YEARS. THEREFORE, WE FIND THAT THE ASSESSEE HAS SHOWN THE IMPUGNED LOSS FROM THE SOURCE OF THE BUSINESS CORRECTLY. THE LD DR HAS ALSO NOT BROUGHT ANYTHING CONTRARY TO THE FINDING OF LD CIT(A). IN VIEW OF ABOVE, WE ARE INCL INED NOT TO INTERFERE IN THE ORDER OF LD CIT(A). HENCE THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 22/ 02/2017 SD/- SD/- (ABY. T. VARKEY) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 22 / 02 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO WARD-12(3), P-7, CHOWRINGHEE SQ., 7 TH FLOOR, KOLKATA-69 2. /RESPONDENT-M/S AASHYANA GOODS (P) LTD., 2/5 SARAT BOSE ROAD, KOLKATA-20 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,