ITO, Ward-6(1), Kolkata, Kolkata V. Smt. Bharati Khandelwal, Kolkata

ITA 268/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54554 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 11-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-02-2010
• Court: TRIBUNAL
• Department Lawyers: S K ROY
• Assessee Lawyers: D S DAMLE
• Keywords: Capital asset; Business income; Earning of tax free income; Advance ruling
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE . . , !' # # # # /AND $# , !' ) [BEFORE HONBLE SHRI S. V. MEHROTRA, AM & HONBLE S RI MAHAVIR SINGH, JM] #% #% #% #% / I.T.A NO. 268/KOL/2010 $&' () $&' () $&' () $&' ()/ // / ASSESSMENT YEAR: 2006-07 INCOME-TAX OFFICER, WD-6(1), KOLKATA VS. SMT. BHAR ATI KHANDELWAL (PAN-AFJPK 8094 E) (+, /APPELLANT ) (-.+,/ RESPONDENT ) & C.O. NO.24/KOL/2010 IN #% #% #% #% / I.T.A NO. 268/KOL/2010 $&' () $&' () $&' () $&' ()/ // / ASSESSMENT YEAR: 2006-07 SMT. BHARATI KHANDELWAL VS. INCOME-TAX OFFICER, WD-6(1), KOLKATA (CROSS OBJECTOR) (RESPONDENT) FOR THE REVENUE: SHRI S. K. ROY FOR THE ASSESSEE: SHRI D. S. DAMLE !/ / ORDER PER MAHAVIR SINGH, JM ( $# $# $# $#, , , , !' !' !' !' ) THE APPEAL BY REVENUE AND CROSS OBJECTION BY ASSESS EE ARE ARISING OUT OF ORDER OF CIT(A)-VI, KOLKATA IN APPEAL NO. 628/CIT(A)-VI/08-0 9/CIR-6/KOL DATED 13.11.2009. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-6, KOLKATA FO R ASSESSMENT YEAR 2006-07 U/S. 143(3) INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS TH E ACT) VIDE HIS ORDER DATED 26.12.2008. FOR THE SAKE OF BREVITY AND CLARITY, WE DISPOSE OF BOTH THESE APPEAL AND CROSS OBJECTION BY THIS CONSOLIDATED ORDER. 2. THIS APPEAL OF REVENUE IS DELAYED BY 1 DAY AND R EVENUE HAS FILED CONDONATION PETITION STATING THE REASON THAT DUE TO TRANSFER OF NEW INCU MBENT IN CHARGE OF CIT, KOL-II, THERE IS DELAY OF ONE DAY AND HE REQUESTED FOR CONDONATION OF DELA Y. THE LD. COUNSEL FOR THE ASSESSEE HAS NOT OBJECTED TO CONDONATION OF DELAY. HENCE, WE CONDON E THE DELAY AND ADMIT THE APPEAL. 2 ITA 268/K/2010 & CO .24/K/2010 SMT. BHARATI KHANDELWAL A.Y.06-07 3. ORIGINALLY, REVENUE HAS FILED TWO GROUNDS AND SU BSEQUENTLY FILED REVISED GROUNDS OF APPEAL IN WHICH ONE ISSUE WAS TAKEN. ON QUERY FROM BENCH, LD. SR. D. R. FAIRLY CONCEDED THAT ONLY ONE ISSUE INVOLVED IN REVENUES APPEAL. THE O NLY ISSUE AGAINST THE REVENUE IN TREATING THE INCOME FROM SALE OF SHARES AS SHORT TERM CAPITAL GA IN AS AGAINST COMPUTED BY ASSESSING OFFICER AS BUSINESS INCOME. FOR THIS, REVENUE HAS RAISED FO LLOWING REVISED GROUND NO.1: 1.THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.124,23,38,703/-, CLAIME D AS AMORTIZATION OF PREMIUM PAID FOR PURCHASE OF SECURITY, WITHOUT CONSIDERING THAT SINCE INVESTMENT TRADING ACCOUNT IS SEPARATELY PREPARED BY THE ASSESSEE, ANY EXPENDITUR E OR INCOME RELATED TO SECURITIES ARE TO BE SEPARATED FROM THE PROFIT & LOSS ACCOUNT.: 4. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE HAS DISCLOSED SHORT TERM CAPITAL GAIN OF RS.25,50,910/- IN ITS RETURN OF INC OME. THE ASSESSING OFFICER NOTED FROM THE ACCOUNTS OF ASSESSEE THAT IT HAD SHOWN SOME OPENING AND CLOSING STOCK AT THE BEGINNING AND END OF THE YEAR WITHOUT ENTERING INTO ANY TRANSACTION F OR WHOLE OF THE YEAR. THE ASSESSING OFFICER NOTED FROM DETAILS OF SHORT TERM CAPITAL GAIN THAT SHARES WERE PURCHASED AND SOLD FREQUENTLY AND ASSESSEE HAS DISCLOSED PROFIT FROM SALE OF SHAR ES UNDER THE HEAD SHORT TERM CAPITAL GAIN. ASSESSING OFFICER RELYING ON CBDT CIRCULAR NO.4/200 7 TREATED THE ASSESSEES PROFIT DECLARED UNDER SHORT TERM CAPITAL GAIN AS BUSINESS INCOME BY HOLDING THAT THE ASSESSEES PERIOD OF HOLDING, FREQUENCY OF TRANSACTION AND SOURCE OF FUN D, MAGNITUDE OF TRANSACTION, INTENTION OF ASSESSEE ARE GUIDING FACTORS FOR TREATING INCOME DE CLARED BY ASSESSEE AS BUSINESS INCOME. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO TREATED THE INCOME UNDER THE HEAD SHORT TERM CAPITAL GAIN BY GIVING FOLLOWING FINDING IN PARA 7 OF HIS APPELLATE ORDER: 7. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPE LLANT AND ALSO THE ORDER OF THE A.O. THE APPELLANT IS BOTH DEALER AND INVESTOR IN SHARES . THIS FACT HAS BEEN ACCEPTED IN THE PAST INCOME TAX ASSESSMENTS AS WELL AS IN THE IMPUG NED ORDER. IN THE BOOKS OF ACCOUNT THE APPELLANT ALWAYS MAINTAINED TWO DISTINCT AND DI FFERENT ACCOUNTS RELATING TO TRADING IN SHARES AND INVESTMENTS, WHICH IS NOT DISPUTED BY THE A.O. AS SEEN FROM DETAILS FILED BEFORE ME, THE APPELLANT HAS VALUED THE STOCK IN TR ADE AT LOWER OF THE COST OR MARKET VALUE, AND INVESTMENTS AT COST. IN THE EARLIER YEA RS THE LOSS ARISING ON INVENTORY VALUATION OF STOCK IN TRADE WAS ALLOWED IN THE ASSE SSMENTS. BEFORE ME THE APPELLANT FILED COPIES OF AUDITED ACCOUNTS FOR THE RELEVANT YEAR AN D ALSO FOR EARLIER YEARS. IT APPEARED FROM THE AUDITED ACCOUNTS THAT IN THE PRECEDING YEA R ALSO THE APPELLANT HELD SHARES BY WAY OF INVESTMENTS APART FROM STOCK IN TRADE. SINC E THE APPELLANT HELD THE INVESTMENTS AT COST, INVENTORY VALUATION LOSS WAS NOT ACCOUNTED IN THE BOOKS. IT APPEARED FROM THE AUDITED ACCOUNTS THAT THE INVE STMENTS WERE MADE OUT OF THE SURPLUS FUND OF THE APPELLANT. IT WAS ALSO SUBMITTED BY TH E APPELLANT THAT SAVINGS OUT OF HER PAST EARNINGS WERE DEPLOYED IN SHARES OF FEW REPUTED COM PANIES WHICH YIELD THE APPELLANT DIVIDEND AND CAPITAL APPRECIATION. WHEN THE SHARES ARE ACCOUNTED FOR IN THE BOOKS AS INVESTMENT SHARES, THE VOLUME OF TRANSACTION OF SUC H SHARES CANNOT ALTER ITS STATUS FROM INVESTMENT TO TRADING. PROFIT ON SALE OF SUCH INVE STMENT SHARES HELD AS CAPITAL ASSETS ARE 3 ITA 268/K/2010 & CO .24/K/2010 SMT. BHARATI KHANDELWAL A.Y.06-07 ASSESSABLE UNDER THE HEAD CAPITAL GAIN. THE PERIOD OF HOLDING SUCH ASSETS CANNOT DETERMINE ITS STATUS OR CHANGE IT FROM INVESTMENT T O TRADING. THE INVESTMENT SHARES PURCHASED AND HELD TILL THEIR SALE HAD DUAL PURPOSE I.E. FOR EARNING DIVIDEND AS AN INCIDENTAL INCOME AS WELL AS TO MAKE PROFIT ON SAL E AT APPROPRIATE TIME. IT APPEARS TO ME THAT THE AOS DECISION TO ASSESS PROFIT REALISED ON SALE OF INVESTMENTS AS BUSINESS INCOME WAS LARGELY INFLUENCED BY THE TIME OF HOLDIN G THE INVESTMENT SHARES AND THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE IN HOLDING THAT, IN A GIVEN CASE, THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE, ARE GIVING RISE TO BU SINESS INCOME OR CAPITAL GAIN. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE TRANSACTIONS ARE BASICALLY TRADING TRANSACTIONS AND THE MAGNITUDE OF THESE TRA NSACTIONS IS HEAVY AND FREQUENT. THE DECISION OF THE AUTHORITY FOR ADVANCE RULING REPORT ED IN (288 ITR 471) ALSO SUPPORTS THE APPELLANTS CONTENTION THAT THE PROFIT REALISED ON S ALE OF INVESTMENTS WAS ASSESSABLE AS CAPITAL GAINS. I HAVE ALSO CAREFULLY GONE THROUGH T HE JUDICIAL DECISIONS ON WHICH APPELLANT PLACED RELIANCE AND CONSIDERED THE APPLIC ABLE PROVISIONS OF LAW. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES THEREFO RE, I HOLD THAT THE INCOME OF RS.25,50,910/- IS TO BE ASSESSED UNDER THE HEAD SHO RT TERM CAPITAL GAINS. THESE GROUNDS OF APPEAL ARE ALLOWED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE IS BOTH DEALER AS WELL AS INVESTOR IN SHARES AND THIS FACT HAS BEEN ACCEPTED IN ASSESSMENT OF ASSESSEE FOR PAST ASSESSM ENT YEARS. THE ASSESSEE IN HER BOOKS OF ACCOUNT ALWAYS MAINTAINED TWO DISTINCT AND DIFFEREN T ACCOUNTS RELATING TO TRADING IN SHARES AND INVESTMENTS. THE LD. COUNSEL FOR THE ASSESSEE BEFO RE US FILED COMPLETE SET OF ACCOUNTS WHEREIN DISTINCTION WAS APPARENT IN THE CURRENT YEAR AND HA S ARGUED THAT THIS DISTINCTION WAS IN PAST ALSO. ON THE BASIS OF THE SAME IN PAST ASSESSMENT YEARS, THE ASSESSING OFFICER HAS ACCEPTED THE ASSESSEES DISCLOSED INCOME ON ACCOUNT OF SHORT TER M CAPITAL GAIN. EVEN THE ASSESSEE HAS VALUED INVESTMENTS ON THE BASIS OF COST PRICE WHERE AS STOCK IN TRADE IS ALWAYS VALUED ON THE PRINCIPLE OF COST OR MARKET VALUE WHICHEVER IS LOWE R. THE LD. COUNSEL DEMONSTRATED BEFORE US THIS FACT FROM ACCOUNTS. WE FIND THAT THE NUMBER O F SHARES IN WHICH ASSESSEE HAS CLAIMED SHORT TERM CAPITAL GAINS FIND PLACED IN INVESTMENT IN THE BALANCE SHEET. ONCE IT IS ESTABLISHED THAT ASSESSEE MAINTAINED THE DISTINCTION IN HER BOOKS OF ACCOUNTS AND TAX RETURNS BETWEEN ITS INVESTMENTS AND STOCK IN TRADE AND WHATEVER SOLD FR OM INVESTMENT AND DISCLOSED AS SHORT TERM CAPITAL GAIN THE ASSESSEE HAS RIGHTLY COMPUTED HER INCOME. ACCORDINGLY, WE ARE OF THE VIEW THAT CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF ASSESS EE AND WE CONFIRM THE SAME. APPEAL OF THE REVENUE IS DISMISSED. 6. NEXT ISSUE IN C.O. N O. 24/K/2010 OF ASSESSEE IS AS REGARD TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE U/S. 14A R.W.S. RULE 8D OF I. T. RULES TO THE EXTENT OF RS.23,391/- AGGRIEVED ASSESSEE RAISED FOLLOWING GROUNDS: 4 ITA 268/K/2010 & CO .24/K/2010 SMT. BHARATI KHANDELWAL A.Y.06-07 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJUSTIFIED IN LAW AND IN FACT IN UPHOLDING THE DISALLOWANCE OF ENTIRE EXPENDITURE OF RS.23,391/- WHICH THE A.O. HAD MADE BY INVOKING RULE 8D(2)(III) OF THE I. T. RULES. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS UNJUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.23,391/- WHICH THE AO MADE WHILE COMPUTING INCOME UNDER THE HEADS OTHER SOURCES EVEN THOUGH TH E APPELLANT HAD NOT CLAIMED ANY DEDUCTION IN COMPUTING INCOME UNDER THE HEAD OTHER SOURCES. 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN DISALLOWING THE ENTIRE EXPENDITURE I NCURRED IN RELATION TO ASSESSEES BUSINESS BY TAKING RECOURSE TO RULE 8D, BUT WITHOUT ESTABLISHING THAT THE EXPENDITURE WAS INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. 7. AFTER HEARING RIVAL CONTENTIONS AND PERUSING FAC TS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT RULE 8D OF I. T. RULES WILL NOT AP PLY FOR ASSESSMENT YEAR 2006-07 AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOY CEE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.). WE ALSO FIND THAT THE PRINCIPLE LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. VS. DCIT [ 2010] 328 ITR 81 (BOM.) AT PAGES 138 & 139 VIDE SUB PARAS (V) TO (VII) ARE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH E FFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFF ICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICE R SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH D OES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASONABLE BASIS FOR EFFECTING THE APPORTIONM ENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CAS E IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COUR T, WE SET ASIDE THIS ISSUE TO THE FILE OF CIT(A) TO DECIDE THIS ISSUE IN TERM OF DIRECTIONS O F HONBLE BOMBAY HIGH COURT, CITED SUPRA. THIS GROUND OF ASSESSEES CROSS OBJECTION IS ALLOWE D FOR STATISTICAL PURPOSES. 5 ITA 268/K/2010 & CO .24/K/2010 SMT. BHARATI KHANDELWAL A.Y.06-07 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND C.O. OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. ORDER PRONOUNCED IN OPEN COURT ON 09.09.2011 SD/- SD/- . . , !' $# $# $# $# , !' (S. V. MEHROTRA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 0 0 0 0 ) )) ) DATED : 9TH SEPTEMBER, 2011 12 $&34 $5 JD.(SR.P.S.) !/ 6 -$$ 7(8- COPY OF THE ORDER FORWARDED TO: 1 . +, / APPELLANT ITO, WARD-6(1), KOLKATA. 2 -.+, / RESPONDENT, SMT. BHARATI KHANDELWAL, 25, SWALLOW LANE, KOLKATA- 700 001. 3 . $/& ( )/ THE CIT(A), KOLKATA 4. $/& / CIT, KOLKATA 5 . $> -$& / DR, KOLKATA BENCHES, KOLKATA . -$/ TRUE COPY, !/&?/ BY ORDER, #4 /ASSTT. REGISTRAR .