DCIT, New Delhi V. M/s Global Credit Capital Ltd., New Delhi

ITA 2864/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0064 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: PRADEEP DINODIA F; R K KAPOOR F
• Keywords: Business income; Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.2864/DEL/2010 ASSESSMENT YEAR : 2007-08 DCIT, M/S GLOBAL CREDIT CAPITAL CIRCLE-12 (1), LTD., R-5, GREEN PARK EXTN., NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACG AAACG AAACG AAACG- -- -0891 0891 0891 0891- -- -Q QQ Q APPELLANT BY : SMT. MONA MOHANTY, SR. DR. RESPONDENT BY : SHRI PRADEEP DINODIA, F.C.A. & SHRI R.K. KAPOOR, F.C.A. ORDER PER A.K. GARODIA, AM: THIS IS REVENUE'S APPEAL FILED AGAINST THE ORDER OF LD CIT(A)-VI, NEW DELHI DATED 30.3.2010 FOR ASSESSMENT YEAR 2007-08. 2. GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXP ENDITURE OF `.59,84,232/- ON THE BASIS THAT THERE ARE NO FACTS ON RECORD TO SHOW THAT THE ASSESSEE COMPANY HAD INCURRED ANY INTEREST PAGE 2 OF 8 ITA NO2864./DEL/10 EXPENDITURE IN RELATION TO EARNING THE EXEMPT INCOM E WHEREAS THE FACTS OF THE CASE STATE OTHERWISE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW T HE CIT(A) HAS ERRED IN DELETING THE ADDITION OF `,1,30,19,819/ - IGNORING THE FINDINGS OF THE ASSESSING OFFICER THAT THE PROFIT ON SALE OF SHARES BE TREATED AS BUSINESS INCOME AS THE SHARES ARE STOCK IN TR ADE AND NOT AN INVESTMENT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW T HE CIT(A) HAS FAILED TO APPRECIATE THE FINDINGS OF THE ASSESSING OF FICER THAT IN FORM NO. 3CD OF THE AUDIT REPORT FILED BY THE ASSE SSEE U/S 44AB, IT IS CLEARLY STATED THAT THE BUSINESS OF THE ASSESSE E IS TRADING IN SHARERS AND SECURITIES. 3. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER W HEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). REGARDING GROUND NO.2, IT WAS ALSO SUBMITTED BY HIM THAT THE LD CIT(A) HAS APPLIED RULE 8D AND HAS CONFIRMED PART DISALLOWANCE O F `.317188/- AGAINST WHICH THE ASSESSEE IS NOT IN APPEAL. REGARDING T HE DISALLOWANCE DELETED BY LD CIT(A) TO THE EXTENT OF ` .5984232/-, IT IS SUBMITTED BY HIM THAT THE SAME WAS DELETED BY LD CIT(A ) ON THIS BASIS THAT INTEREST PAYMENT TO THAT EXTENT HAD DIRECT NEXU S WITH THE INCOME FROM INTEREST AND THE INVESTMENT IN SHARES AND FUNDS WER E OUT OF DIVIDEND PROCEEDS. 4. REGARDING GROUND NO.3 & 4, IT IS SUBMITTED THAT BO TH ARE INTER- CONNECTED. IT IS SUBMITTED BY HIM THAT THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HI GH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN I.T.A. NO. 1942OF 2010 AND C.M. NO.21645 OF 2010 DATED 9.12.2010. HE SUBMITTED A COPY OF THIS JUDGMENT OF HON'BLE DELHI HIGH COURT. REGARDING GROUND PAGE 3 OF 8 ITA NO2864./DEL/10 NO.4, IT WAS SUBMITTED BY HIM THAT THE SAME IS FACTUALL Y INCORRECT BECAUSE IT IS NO WHERE STATED IN FORM NO.3CD OF TAX AU DIT REPORT THAT THE BUSINESS OF THE ASSESSEE IS TRADING IN SHARES AND SECURIT IES. IT IS SUBMITTED THAT THE RELEVANT TAX AUDIT REPORT IN FORM NO.3 CD FOR THIS YEAR IS AVAILABLE ON PAGES 52-58 OF THE PAPER BOOK. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE TH ROUGH THE MATERIAL AVAILABLE ON RECORD. GROUND NO.1 IS GENERAL . AS PER GROUND NO.2, THE REVENUE IS AGGRIEVED WITH THE DELETION OF PART DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT. THE ASSESSING OFFICER HAD MADE DISALLOWANCE OF `.6301420/- U/S 14A AFTER AP PLYING RULE 8D OF IT RULES, 1962. RULE 8D WAS INSERTED IN THE IT RUL ES W.E.F. 24.3.2008 AND HENCE, THE SAME IS APPLICABLE FROM ASSESSMENT YEAR 20 08-09 AND NOT IN THE PRESENT YEAR I.E. ASSESSMENT YEAR 2007-08. IT HAS BEEN HELD BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. G ODREJ BOYCE & MFG. CO. PVT. LTD. AS REPORTED IN 43 DTR 177 THAT RU LE 8D IS NOT APPLICABLE IN THE ASSESSMENT YEAR PRIOR TO ITS INSERTION BUT STILL THE DISALLOWANCE IS TO BE MADE BY THE ASSESSING OFFICER ON RE ASONABLE BASIS. OUT OF TOTAL DISALLOWANCE MADE BY THE ASSESSING OF FICER U/S 14A OF `.6301420/-, LD CIT(A) HAS ALREADY CONFIRMED THE DISALLOWANCE OF `.317188/- AND FOR THE SAME, THE ASSESSEE IS NOT IN APPEA L BEFORE US AND HENCE, TO THIS EXTENT, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BECOME FINAL ALTHOUGH THE SAME WAS CONFIRM ED BY LD CIT(A) ON THE BASIS OF RULE 8D WHICH IS NOT CORRECT AS PER THE DECISION OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ BOYCE & MFG. CO. (SUPRA). WE, THEREFORE, FEEL THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AS PER THE DECISION OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ BOYCE MFG. CO. (SUPRA). IF IT IS FOUND BY THE ASSESSING OFFICER THAT THE DISALLOWANCE TO BE MADE U/S 14A AS PER THIS JUDGMENT O F HON'BLE PAGE 4 OF 8 ITA NO2864./DEL/10 BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ BOY CE MF. CO. (SUPRA) IS LESS THAN `.317188/- THEN NO FURTHER DISALLOW ANCE SHOULD BE MADE BY THE ASSESSING OFFICER BUT IF IT IS FOUND THAT T HE DISALLOWANCE COMES TO MORE THAN `.317188/- THEN SUCH EXCESS SHOULD BE FURTHER DISALLOWED. WHILE WORKING OUT THE REASONABLE DISALLOW ANCE TO BE MADE AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA), THIS ASPECT SHOULD ALSO BE EXA MINED AND CONSIDERED AS TO WHETHER ANY INTEREST PAYMENT HAS GOT D IRECT NEXUS, WITH INTEREST INCOME DECLARED BY THE ASSESSEE AND IF SO F OUND, FOR THAT PART OF INTEREST EXPENDITURE, NO DISALLOWANCE CAN BE MADE U/S 14A BECAUSE SUCH INTEREST EXPENDITURE IS ALLOWABLE AGAINST I NTEREST INCOME U/S 57(III). THE ASSESSING OFFICER SHOULD PROVIDE REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THEREAFTER, HE SHOUL D PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION. GROU ND NO.2 OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 6. REGARDING GROUND NO.3 & 4, WE FIND THAT THE ISSUE INVOLVED IS ONE ONLY. THE ASSESSING OFFICER HAS HELD THAT INCOME OF `.13019819/- DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN IS ASSESSA BLE AS BUSINESS INCOME. IN THIS REGARD, THE ASSESSING OFFICER HAS OBSERVED IN PARA NO.4 OF THE ASSESSMENT ORDER THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF LENDING AND ADVANCING MONEY TO OTHER CORPO RATE AND TRADING IN SHARES AND SECURITIES AND THIS HAS BEEN CLEAR LY STATED IN THE AUDIT REPORT U/S 44AB FILED WITH THE RETURN OF INCOM E. GROUND NO.4 OF THE REVENUE IS ALSO TO THIS EFFECT THAT IT HAS BEEN RE PORTED BY THE ASSESSEE IN THE FORM NO.3CD OF THE TAX AUDIT REPORT THA T THE BUSINESS OF THE ASSESSEE IS TRADING IN SHARES AND SECURITIES BUT WHE N WE EXAMINE THE RELEVANT FORM NO.3CD OF THE TAX AUDIT R EPORT, WHICH IS AVAILABLE ON PAGES 52-58 OF THE PAPER BOOK, WE FIND THAT AGAINST COL. NO.8(A) OF FORM NO.3 CD, NATURE OF BUSINESS OF THE ASSE SSEE HAS BEEN PAGE 5 OF 8 ITA NO2864./DEL/10 REPORTED AS LENDING AND ADVANCING MONEY. IN COL. NO .8(B), IT HAS BEEN REPORTED THAT THERE IS NO CHANGE IN THE BUSINESS OR PRO FESSION IN THE PRESENT YEAR. HENCE, THIS OBSERVATION OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER IS NOT CORRECT THAT AS PER FORM NO. 3CD, THE BUSINESS OF THE ASSESSEE IS DEALING IN SHARES AND SECURITIES. HENCE , GROUND NO.4 OF THE REVENUE IS LIABLE TO BE REJECTED SINCE THERE I S NO SUCH MENTION IN TAX AUDIT REPORT AND LD DR OF THE REVENUE ALSO COULD NOT POINT OUT ANY SUCH REPORTING BY THE TAX AUDITOR IN THE TAX AUDIT R EPORT. HENCE, GROUND NO.4 IS REJECTED. 7. REGARDING GROUND NO.3, AFTER CONSIDERING THE RIVA L SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE DETAILS OF VARIOUS INCOMES IS AVAILABLE IN SCHEDULE-10 & 11 WHICH IS AVAI LABLE ON PAGE NO.125 OF THE PAPER BOOK. INCOME FROM OPERATION IS ON ACCOUNT OF INTEREST ON ICD AND CONSULTANCY FEES AND OTHER INCOME IS ON ACCOUNT OF DIVIDEND INCOME, PROFIT ON SALE OF INVESTMENT I.E. SHO RT TERM AND LONG TERM, RENT RECEIVED AND PROFIT ON SALE OF OFFICE. I N THE PRESENT YEAR, THERE IS NO PROFIT/LOSS ON SPECULATION ALTHOUGH THERE W AS A SMALL PROFIT OF `.31,948/- UNDER THIS HEAD IN THE PRECEDING YEAR. WE HAVE ALREADY SEEN THAT THE ASSESSING OFFICER IS NOT CORRECT IN SAYING T HAT AS PER THE TAX AUDIT REPORT, THE ASSESSEE IS ENGAGED IN THE BUSINESS O F DEALING IN SHARES AS REPORTED IN FORM NO.3CD. WE ALSO FIND THAT O UT OF TOTAL SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE OF `.1,30,19 ,819/-, AN AMOUNT OF `.5,03,743/- IS ON ACCOUNT OF PROFIT ON SAL E OF OFFICE. TO THIS EXTENT, THE CLAIM OF THE ASSESSEE HAS TO BE ACCEPTED OUT RIGHT AND THIS PORTION OF TOTAL SHORT TERM CAPITAL GAIN CANNOT BE A SSESSED AS BUSINESS INCOME IN THE PRESENT CASE BECAUSE THIS IS NOT THE CASE O F THE ASSESSING OFFICER THAT THE ASSESSEE IS DEALING IN OFFICE OR REAL ESTATE. HENCE, TO THIS EXTENT, THE ORDER OF THE ASSESSING OFFICE R IS PATENTLY WRONG AND WITHOUT ANY BASIS. REGARDING BALANCE AMOU NT OF PAGE 6 OF 8 ITA NO2864./DEL/10 `.12513730.89 I.E. PROFIT ON SALE OF INVESTMENT (SHORT TERM), WE FIND THAT A CLEAR FINDING HAS BEEN GIVEN BY THE LD CIT(A) ON PAGE NO.13 OF HIS ORDER THAT FROM THE PERUSAL OF THE LEDGER ACCOUNT SUBMITTED BY THE ASSESSEE WHEREIN THE SCRIPS WHICH HAS BEEN SOLD HAVE BEEN SHOWN AS INVESTMENT AND MOREOVER OUT OF SEVEN SCRIPS ON WHICH SHO RT TERM CAPITAL GAIN HAS BEEN SHOWN, FOUR SCRIPS HAVE COME FROM AN EARLIER YEAR WHERE THEY HAD BEEN SHOWN AS INVESTMENT. THIS FI NDING IS ALSO GIVEN BY LD CIT(A) THAT NONE OF THE SCRIPS HAVE BEEN SHOWN AS STOCK- IN-TRADE. THIS FINDING IS ALSO GIVEN BY LD CIT(A) THA T DURING THE YEAR, NO SHARE TRADING OF INCOME OR SPECULATION INCOME HAS BEEN SHOWN BY THE ASSESSEE AND WE HAVE ALSO EXAMINED THE PROFIT & LOSS ACCOU NT OF THE ASSESSEE COMPANY AND HAVE FOUND THAT THERE IS NO SUCH IN COME EARNED BY THE ASSESSEE IN THE PRESENT YEAR. BEFORE US, I T WAS THE ARGUMENT OF LD AR OF THE ASSESSEE THAT THIS ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE JURISDICTIONA L HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06, COPY OF THIS JUDGMENT HAS BEEN SUBMITTED BEFORE US. IN THIS JUDGMEN T OF HON'BLE DELHI HIGH COURT, THE FINDING OF TRIBUNAL IN ASSESSMEN T YEAR 2005-06 HAD BEEN REPRODUCED. IN THAT ORDER, THE TRIBUNAL H AS GIVEN THIS FINDING THAT THE PURCHASE AND SALE OF SECURITY IN THE ASSESSEES CA SE WAS NOT ALLIED TO ITS USUAL TRADE OR BUSINESS, WHICH IS EARNING OF INTEREST ON ICD AND DIVIDEND ON INVESTMENTS MADE IN SHARES. IN THE PR ESENT YEAR ALSO, NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY THE L D DR OF THE REVENUE. HON'BLE DELHI HIGH COURT HAS NOTED THAT IN VESTMENT IN SHARE WAS DULY REFLECTED IN THE BALANCE SHEET AS INVESTMENT I N SHARES AND THE SAME WERE NOT HELD AS STOCK-IN-TRADE IN THAT YEAR. IN THE PRESENT YEAR ALSO, THE ASSESSEE WAS HOLDING SHARES AS INVESTMENT TO T HE EXTENT OF `.438.27 LAKHS AS ON 31.3.2007 WHEREAS ITS SHARE HOLD ING AS ON 31.3.2006 WAS TO THE EXTENT OF `.830.47 LAKHS. NO SHA RE HAS BEEN HELD AS STOCK IN TRADE IN THE PRESENT YEAR ALSO AND THE ASSESSEE HAS EARNED PAGE 7 OF 8 ITA NO2864./DEL/10 DIVIDEND INCOME OF `.13.52 LAKHS IN THE PRESENT YEAR FROM SHARES AND `.6.81 LAKHS HAD BEEN RECEIVED AS DIVIDEND IN THE PRE SENT YEAR ON INVESTMENT IN MUTUAL FUNDS. SINCE NO DIFFERENCE IN FA CTS COULD BE POINTED OUT BY THE LD DR OF THE REVENUE IN THE PRES ENT YEAR AS COMPARED TO THE FACTS IN ASSESSMENT YEAR 2005-06, THE IS SUE INVOLVED IN THE PRESENT YEAR IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED I N THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06. HENCE, BY RESPECT FULLY FOLLOWING THIS JUDGMENT OF HON'BLE DELHI HIGH COURT, WE DECLINE TO INTERFERE IN THE ORDER OF LD CIT(A) REGARDING THIS P ROFIT ON SALE OF INVESTMENT OF `.125.13 LAKHS ALSO. WE HAVE ALREADY OB SERVED THAT THE BALANCE PROFIT OF `.5.03 LAKHS ON SALE OF OFFICE IS ASSE SSABLE AS SHORT TERM CAPITAL GAIN ONLY. HENCE, THIS ENTIRE ISSUE IS DEC IDED IN FAVOUR OF THE ASSESSEE AND BOTH GROUND NO.3 & 4 ARE REJECTED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25TH D AY OF MARCH, 2011. SD/- SD/- (I.P. BANSAL) (A.K. GAR ODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 25.3.2011. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). PAGE 8 OF 8 ITA NO2864./DEL/10