DCIT 1(3), MUMBAI V. SHRI RANGJI INVESTMENTS P.LTD, MUMBAI

ITA 2501/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0715 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 14-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAY
• Keywords: Business income; Rule of consistency; Speculative transactions
• Section: 143(3); 11

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFORE S/SH. A.D. JAIN,JUDICIAL MEMBER & RAJE NDRA,ACCOUNTANT MEMBER /. ITA NO. 2501 /MUM/201 3 , / ASSESSMENT YEAR - 200 7 - 08 DCIT - 1(3) ROOM NO.540, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020. VS M/S. SHRI RANGJI INVESTMENTS P. LTD. C/O., KARNAVAT & CO., KITAB MAH AL, 1 ST FLOOR, 192 DR. D.N. ROAD, MUMBAI - 400 001. PAN: AAICS 5225 J ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI VIJAY MEHTA - AR / REVENUE BY : SHRI CHANDRA VIJAY - DR / DATE OF HEARING : 20 - 07 - 2015 / DATE OF PRONOUNCEMENT : 20 - 07 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 02.01.2013 OF THE CIT(A) - 2, MUMBAI,THE ASSESSING OFFICER(AO) HAS R AISED FOLLOWING GROUNDS OF APPEAL: 1.WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING ASSESSEES CLAIM OF INTEREST U/S. 24 OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT FURNISH ED CERTIFICATES FROM THE LENDER OF THE MONEY WHICH ARE THE REQUIRED BY THE PROVISO 4 TO SUB SECTION (B) OF SECTION 24 OF THE IT ACT, 1961? 2. .WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING PROFIT ON SALE OF SHARES AS SHORT TERM CAPITAL GAIN JUST BECAUSE THE ASSESSEE HAS SHOWN IT IN BALANCE SHEET AS INVESTMENT? THE APPELLANT CRAVES LEAVE TO ADD, AMEND, OR WITHDRAW THE AFORESAID GROUND OF APPEAL. ASSESSEE - COMPANY DERIVING INCOME FROM INVESTMENTS IN S HARES AND SECURITIES AND HOUSE PROPERTY, FILED RETURN OF INCOME ON 2 6 .10.0 7 DECLARING INCOME OF RS. 55.13 LACS. THE AO COMPLETED THE ASSESSMENT ON 28 .12.20 10, U/ S.143(3) OF THE ACT, DETERMINING THE INCOME OF THE ASSESSE AT RS. 75 , 47,240/ - . 2. F IRST GROUND OF APP EAL IS ABOUT CLAIM OF INTEREST MADE U/S.24(B)OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.24.77 LAKHS U/S.24 OF THE ACT UNDER THE HEAD INCOME FROM HOUSE PROPERTY.HE OBSERVED THAT THE ASSESSEE HAD N OT FURNISHED THE CERTIFICATES FROM THE LENDERS,THAT IN VIEW OF THE PROVISO TO SECTION 24 OF THE ACT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION,THAT IT HAD NOT PROVED THAT THE LOAN WAS TAKEN , THAT LOAN WAS TAKE N FOR THE PURPOSE OF CONSTRUCTION OR ACQUISITI ON OF THE PROPERTY FROM WHICH HOUSE PROPERTY WAS DECLARED,THAT IT HAD TAKEN LOANS FROM THE COMPANIES ON WHICH THERE WERE INTEREST PAYMENTS, THAT THOSE LOANS WERE TAKEN FOR THE GENERAL BUSINESS PURPOSES,THAT IT HAD NOT ACQUIRED OR CONSTRUCTED THE PROPERTY F ROM WHICH INCOME FROM HOUSE PROPERTY WAS DECLARED, THAT IT HAS SUFFICIENT RESERVES AND SURPLUS(RS.7.60 CRORES),THAT THE INVESTMENT IN THE IMMOVABLE PROPERTIES WERE ONLY TO THE EXTENT TO RS.4.13 CRORES.FINALLY,HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE UN DER THE HEAD INTEREST EXPENDITURE TO THE TUNE OF RS.24.77 LAKHS. 2501/M/13 (07 - 08)RANGJI 2 2.1 AGGREIVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE A UTHORITY (FAA). BEFORE HIM, IT WAS ARGUED THAT IT HAD ACQUIRED FOUR PROPERTIES SITUATED AT DIF FERENT CITIES OF THE COUNTRY NAMELY AHMEDABA D , BANGLORE, CHENNAI AND LONAVALA,THAT AHMEDABAD AND CHENNAI PROPERTIES WERE GIVEN ON RENT,THAT INTEREST ON BORROWED FUNDS WAS CLAIMED U/S.24(B)OF THE ACT,THAT THE PROPERTY ACQUIRED AT AHMEDABAD WAS ACQUIRED BY G IVING ADVANCE IN THE YEAR UNDER ENDED 31.03.2006,THAT IT WAS SUBSEQUENTLY REFINANCED THROUGH BORROWINGS MADE DURING THE YEAR,THAT THE CHENNAI PROPERTY WAS FINANCED BY BORROWING OF THE FUNDS IN THE MONTHS OF JUNE(RS.2.71 CRORES) AND JULY(RS.6.26 CRORES).THE ASSESSEE FURNISHED TRIAL BALANCES FOR THE ABOVE TWO MONTHS,SHOWING THE NAMES OF THE PERSONS FROM WHOM LOANS WERE RECEIVED FOR ACQUIRING THE PROPERTIES,THAT THE ASSESSEE HAD FILED THE CONFIRMATION OF THE LENDERS BEFORE THE AO,THAT THE LOAN WAS TAKEN ON MOR TGAGE OF THE PROPERTY,THAT IT HAD USED THE OWN FUNDS FOR ACQUIRING AHMEDABAD PROPERTY,THAT IT HAD TAKEN LOAN FOR CHENNAI PROPERTY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , AND THE ASSESSMENT ORDER THE FIRST APPELATE AUTHORITY ( FAA ) HELD THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF INTEREST OF RS.24.77 LAKHS(RS.8.21 LAKHS FOR AHMEDABAD PROPERTY AND RS.16.56 LAKHS FOR CHENNAI PROPERTY),THAT ON INTEREST BEARING FUNDS WERE UTILIZED FOR PURCHASING AHMEDABAD PROPERTY,THAT INTEREST ON BORROWED FUNDS FOR C HENNAI PROPERTY AMOUNTED TO RS.15.80 LAKHS. ACCORDINGLY,HE DIRECTED THE AO TO ALLOW RS.15,80,053 AS INTEREST U/S.24 OF THE ACT. 2.2. BEFORE US, DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO AND STATED THAT THE ASSESSEE HAS NOT FURNISHED THE CE RTIFICATE.AUTHORISED REPRESENTATIVE(AR) STATED THAT THE PROVISO TO SECTION 24 WAS NOT APPLICABLE TO LET OUT PROPERTIES,THAT CERTIFICATE WAS TO BE FURNISHED FOR SELF OCCUPIED PROPERTIES. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON REC ORD.WE FIND THAT THE SHORT POINT OF THE DISPUTE IS THE INTEREST CLAIMED BY THE ASSESSEE FOR ACQUIRING HOUSE PROPERTIES.THE AO HAS INVOKED THE PROVISIONS OF SECTION 24 OF THE ACT HAS HELD THAT IN ABSENCE OF A CERTIFICATE THE CLAIM MADE BY THE ASSESSEE WAS N OT ALLOWABLE,THAT THE FAA HAS PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BY RESTRICTING IT TO THE CHENNAI PROPERTY THAT WAS PURCHASED BY UTILIZING BORROWED FUNDS.WE FIND THAT THE CONDITION OF FILING OF CERTIFICATE IS FOR SOPS AND NOT FOR THE LET OUT PROPERTI ES.THE AO HAS NOT PROPERLY INTERPRETED THE SECTION.THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2002 CLEARLY MENTION THAT THE AMENDED PROVISION WERE NOT APPLICABLE TO RENTED PROPERTIES.WE FIND THAT THE FAA HAS NOT ALLOWED THE DEDUCTION ABOU T THE AHMDABAD PROPERTY THAT WAS NOT FINANCED BY LOANS.IN OUR OPINION THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.THEREFORE,CONFIRMING HIS ORDER WE DECIDE GROUND NO.1 AGAINST THE AO. 3. NEXT GROUND OF APPEAL DEALS WITH PROFIT ARISING OUT OF SALE OF SHARES. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD DETERMINED SHORT TERM CAPITAL GAINS(STCG)AT RS. 35.47 LAKHS,THAT THE CAPITAL GAINS HAS ARISEN OUT OF HUGE QUANTITY OF SHARES AND MUTUAL FUNDS BEING BOUGHT AND SOLD AT A FREQUENT INTERVAL,THAT IT HAD BEEN BUYING SHARES IN HUGE QUANTITIES MUCH BEYOND ITS CAPA CITY BY BORROWING FUNDS FROM THE MARKET , THAT 60% OF I NCOME FR O M SHARES HAD BEEN EARNED WHILE HOLDING THEM FOR A VERY SHORT PERIOD, THAT THE INVESTMENT IN SHARES AND MU TUAL FUND WAS RS. 17.10 CR. THAT THE SHARE CAPITAL RESERVES AND SURPLUS ACCOUNTED FOR RS.7.96CR. ONLY.THE AO REFERRED TO THE CASES OF RAJABAHADUR VISHWESH W AR SINGH ( 41 ITR 685 ) , DULHOUSIE INVESTMENT TRUST L TD. ( 68 ITR 486 ) , SUTLEJ COTTON MILLS ( 100 ITR 76 ) ; A.V. THOMAS AND CO. LTD. (48 ITR 67) AND DISCUSS ED THE PRINCIP LE AS TO WHEN THE SHARE TRANSACTIONS CAN BE HELD TO BE BUSINESS OR PROFESSION/CAPITAL GAINS.FINALLY HE HELD THAT THE INCOME ARISING OUT OF SALE OF SHARES HAD TO BE TREATED AS BUSINESS INCOME AN D HAD TO BE CHARGED TO TAX AT NORMAL RATE OF 30%. 3.1 AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA . 2501/M/13 (07 - 08)RANGJI 3 BEFORE HIM, IT WAS SUBMITTED THAT THE COMPANY WAS HOLDING SHARES AS PART OF THE INVESTMENT ACTIVITY FOR PAST SEVERAL YE ARS, THAT THE SHARES WERE ALWAYS REFLECTED AS INVESTMENTS IN THE AUDITED ACCOUNTS , THAT THE AO HIMSELF HAD ACCEPTED STCG ON MUTUAL FUNDS. THE ASSESSEE RELIED UPON THE CASES OF H.HOLCK LARSEN (160 ITR 67); NEERAJ A . S URTI ( 238 CTR 294); GOPAL PUROHIT ( 22 8 CTR 582) ; S HANTILAL M. JAIN ( ITA 2690/MUM/2010; MAHENDRA C . S HAH ( 58 DTR 242 ) ; RAMAMITRAM ( 306 ITR 239); P&B FINANCE AND INDUSTRIES LTD. ( 236 CTR 1); JANAK S. RANGWAL A ( 11 SOT 627); AND RELIEANCE UTILITIES AND P OWER LTD. ( 313 ITR 340) AND CONTENDED THAT A SINGLE FACTOR CANNOT DECIDE THE NATURE OF TRANSACTION, THAT CUMULATIVE EFFECT OF SEVERAL FACTS AND CIRCUMSTANCES HAD TO BE CONSIDERED , THAT MOST OF THE SHARES WERE HELD FOR A CONSIDERABLE LONG PERIOD RANGING FOR NINE MONTHS, THAT THERE WERE ONLY A FEW EXCEPTIONS. A FTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THE SHARES OF S . R S HIPPING LTD., JSW STEELS AND UNION BANK OF INDIA WERE PURCHASED BY THE ASSESSEE IN THE ACCOUNTING YEAR RELEVANT TO THE EARLIER ASSESS MENT YEAR , THAT IT HAD TREATED THE SHARES AS INVESTMENT AND HAD REFLECTE D THE SAME IN THE BALANCE SHEET OF 31 ST M ARCH 2006, TO DECIDE THE ISSUE OF BUSINESS/INVESTMENT. THE ENTRIES IN THE BOOKS OF ACCOUNT WAS ONE OF THE IMPORTANT FACTOR, THA T IN MOST OF THE TRANSACTIONS THE ASSESSEE HAD INCURRED LOSS IN THE SALE OF SHARES SH O WN AS INVESTMENT, THAT THE GAINS WERE FROM SR S HIPPING LTD., JSW STEEL, ANSAL INFRA, THAT SOME OF THE SHARES OF SR S HIPPING WERE HELD FOR MORE THAN SEVEN MONTHS, THAT THE SHARES OF ANSA L INFRA WERE HELD FOR MORE THAN FIVE MONTHS, THAT THE ASSESSEE WAS ALLOTTED SHARES OF TANTIA C ONSTRUCTION IN PUBLIC ISSUE, THAT DURING THE YEAR IT HAD SOLD AND PURCHASED SHARES OF NINE COMPANIES ONLY. HE DIRE C TED THE AO TO TREAT THE GAINS/LOSS FROM SALE OF SHARES UNDER THE HEAD CAPITAL GAINS. 3.2 DURING THE COURSE OF HEARING BEFORE US THE DR SUPPORTED THE ORDER OF FAA.THE AR ARGUED THAT THE TOTAL NUMBER OF SALE TRANSACTION ENTERED INTO DURING THE YEAR WAS 18 ONLY, THAT THE AVERAGE HOLDING PERIOD OF SHARES W AS 92 DAYS, THAT DURING THE ASSESSMENT YEAR 20 06 - 07 AND ASSESSMENT YEAR 2008 - 09 THE AO HAD ACCEPTED THE SHARE TRANSACTIONS UNDER THE HEAD CAPITAL GAINS WHILE PASSING THE ORDERS U/S. 143(3) OF THE ACT, THAT THE ASSESSEE HAD NOT ENTERED INTO ANY SPECULATIVE TRANSACTIONS, THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD EARNED D IVIDEND INCOME OF RS. 3.13 LACS, THAT THE SHARES HAD ALWAYS BEEN VALUED AT COST ALTHOUGH THE MARKET VALUE WAS LOWER ON LAST DAY OF THE F INANCIAL Y EAR , THAT THE ASSESSEE HAS MAI NLY USED ITS OWN FUNDS FOR MAKING ITS OWN INVES T MENTS .HE REFERRED TO PAGE NUMBER - 34 AND 7 OF THE PAPER BOOK. 4.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE FAA HAD GIVEN A CATEGORICAL FINDING OF THAT VOLUME OF THE TRANSACTION WAS NOT VERY HIGH, THAT THE ASSESSEE HAD BEEN SHOWING ITS SHARES AS INVESTMENT FOR LAST SO MANY YEARS IN THE BOOKS OF ACCOUNT, THAT IT HAD VALUED THE SHARES AT COST AND NOT AT COST OR MARKET RATE WHICH EVER IS LESS, THAT IN EARLIER AND SUBSEQ UENT AYS THE AO HAD ASSESSED THE SHARE TRANSACTIONS UNDER THE HEA D CA P ITAL GAINS THAT THE AO HAD NOT GIVEN ANY REASON FOR NOT FOLLOWING RULE OF CONSISTENCY, THAT HE HAD NOT BROUGHT ON RECORD THAT DIFFERENTIATED THE FACTS AND CIRCUMSTANCES OF THE EARLIER SC RUTINY ASSESSMENT AS COMPARED TO THE FACTS OF THE AY UNDER APPEAL. IN OUR OPINION THE ISSUE OF TRADING / INVESTMENT IN SHARES HAS TO BE DECIDED AFTER TAKING MANY A FACTORS INTO CONSIDERATION AS INDICATED BY THE CIRCULAR OF THE BOARD ISSUED IN THAT REGARD. CONSIDERING THE FACTORS LIKE DIVIDEND INCOME, HOLDING PERIOD OF THE SHARES, VALUATION OF SHARES IN THE BOOKS OF ACCOUNT, VOLUME OF THE SHARES TRADED ETC. WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY. THEREFORE, C ONFIRMING HIS ORDER GROUND NO.2 IS DECIDED AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. . 2501/M/13 (07 - 08)RANGJI 4 ORDE R PRONOUNCED IN THE OPEN COURT ON 20 TH JU LY ,2015. 20 TH , 2015 SD/ - SD/ - ( . . / A.D. JAIN ) ( / RAJE NDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 20 .0 7 .2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.