PEE TEE TRADING P. LTD, MUMBAI V. ITO 9(2)(4), MUMBAI

ITA 290/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83680 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JH JH JH UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.290/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2007-08 PEE TEE TRADING PVT. LTD. 304, MAKANI CENTRE, 35 TH ROAD, KHAR (W) MUMBAI 400 052. VS.` CIT(A)-20, 4 TH FLOOR AAYAKAR BHVAN, M.K. ROAD, CHURCHGATE MUMBAI 400 020. PAN:- AAWPS9592B APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12.11.2010 OF CIT(A) FOR THE A.Y. 2008-09. THE ASSESSEE HAS RA ISED FOLLOWING GROUNDS IN THIS APPEAL:- 1THE LD. CIT(A) ERRED IN CONFIRMING RS. 17,53,46 1/- AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN. 2. A) THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE U/S 14A R.W.R 8D RS. 61220/- BEING EXPENSES ATTRIBUTABLE TO EXEMPT INCOM E. WE SAY OUR TOTAL ADMINISTRATION EXPENSES IS ONLY RS. 12,417/- ONLY T HEN HOW ITO DISALLOWED MORE THAN OUR EXPENSES. B) THE LD. CIT(A) ERRED IN CONFIRMING RULE 8D DISAL LOWANCES WHEN BOMBAY HIGH COURT HAS HELD THAT RULE 8D NOT APPLICABLE FOR THE REAR IN APPEAL . ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI VIMAL PUNAMIYA AND SHRI HIMANSHU GANDHI REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS MS. PARMINDER DATE OF HEARING 01.09.2014 DATE OF PRONOUNCEMENT 05.09.2014 PEE TEE TRADING PVT. LTD. 2 | P A G E 2. GROUND NO. 1 IS REGARDING SHORT TERM CAPITAL GAIN OFFERED BY THE ASSESSEE WAS ASSESSED AS BUSINESS INCOME. THE ASSESSEE HAS SH OWN LONG TERM CAPITAL GAIN OF RS. 86,811/-, SHORT TERM CAPITAL GAIN OF RS. 17, 53,461/-, PROFIT ON SPECULATIVE TRADING IN SHARES OF RS. 8,309/-, DIVIDEND INCOME OF RS . 1,02,528/- AND INTEREST INCOME OF RS. 76,736/-. IN SUPPORT OF HIS CLAIM OF SHORT TERM CAPITAL GAIN, THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT IT HAS BEEN MAINTAINING SHARES IN INVESTMENT PORTFOLIO, IT VALUED THEM ON CO ST AND HELD THEM TO EARN INCOME AND NOT TO MAKE PROFIT OUT OF THEM. THE ASSES SING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND TREATED THE SHORT TERM CAPITAL GAIN ARISING FROM PURCHASE AND SALE OF SHARES OF RS. 17,53,461 AS BUSI NESS INCOME. 3. THE ASSESSEE CHALLENGED THE ACTION OF ASSESSING O FFICER BEFORE CIT(A) BUT COULD NOT SUCCEED AS THE CIT(A) HAS CONFIRMED THE ACT ION OF ASSESSING OFFICER. 4. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPO RT AND EXPORT AND DUE TO LULL IN THE BUSINESS OF IMPORT AND EXPORT, THE ASSESSEE H AS INVESTED ITS SURPLUS FUNDS INTO SHARES. AT THE THRESHOLD, THE LD. AUTHORIZED R EPRESENTATIVE SUBMITTED THAT FOR THE A.Y. 2006-07, AN IDENTICAL ISSUE CAME UP BEF ORE THE CIT(A) AND WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE REVENUE HAS ACC EPTED THE DECISION OF CIT(A) ON THE ISSUE OF SHORT TERM CAPITAL GAIN FOR THE A.Y. 2006-07. HOWEVER FOR THE A.Y. UNDER CONSIDERATION, THE CIT(A) HAS REFUSED TO FOLLOW ITS EARLIER ORDER. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT TH AT THE CIT(A) HAS GIVEN THE REASONS FOR NOT FOLLOWING THE EARLIER YEAR ORDER BY ASSUMING WRONG FACTS. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT IN PAR A 4 OF THE ORDER, THE CIT(A) HAS STATED THAT LAST YEAR, THE ASSESSEE HAD SHOWN ONL Y LONG TERM CAPITAL GAIN ON SALE OF SHARES WHEREAS IT HAS ALSO CLAIMED SHORT TER M CAPITAL GAIN AND PROFIT ON SPECULATION IN SHARES IN THE CURRENT YEAR. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS OBSERVATION OF THE CIT(A) IS INCORRECT AND PEE TEE TRADING PVT. LTD. 3 | P A G E CONTRARY TO THE FACTS ON RECORD AS STATED IN PARA 3 OF THE CIT(A) ITSELF. THE ISSUE FOR THE A.Y. 2006-07 WAS REGARDING SHORT TERM CAPIT AL GAIN TREATED BY THE ASSESSING OFFICER AS BUSINESS INCOME, THEREFORE, TH E FACTS AND CIRCUMSTANCES ARE IDENTICAL FOR THE YEAR UNDER CONSIDERATION AS IN THE A.Y. 2006-07. HE HAS FURTHER SUBMITTED THAT THE NUMBER OF TRANSACTIONS FOR THE A. Y. UNDER CONSIDERATION ARE ALSO VERY LESS ONLY FIFTY SEVEN TRANSACTIONS CARRIE D OUT BY THE ASSESSEE. THE LD. AUTHORIZED REPRESENTATIVE HAS REFERRED THE DETAILS OF THE PURCHASE AND SALE OF THE SHARES DURING THE YEAR AND SUBMITTED THAT THE SHORT T ERM CAPITAL GAIN FROM THE SHARES HELD MORE THAN 30 DAYS IS RS. 14,48,756/- IN COMPARISON TO THE SHORT TERM CAPITAL GAIN FROM THE SHARE HELD UP TO 30 DAYS I S RS. 3,04,704/-, THEREFORE, IN THE MAJORITY OF CASES THE HOLDING PERIOD IS MORE TH AN THIRTY DAYS. HE HAS FURTHER SUBMITTED THAT ONLY IN TWO CASES THE PURCHASE AND SA LE HAS BEEN DONE ON THE SAME DATE IN THE SPECULATIVE TRADING. THUS THERE IS N O CHANGE IN THE FACTS AND CIRCUMSTANCES IN COMPARISON TO THE A.Y. 2006-07. HE HAS FURTHER SUBMITTED THAT WHEN THE ASSESSEE HAS SHOWN THE INVESTMENT IN SHARE S IN THE BALANCE SHEET AND PAID THE SECURITY TRANSACTION TAX, VALUED AT COST THE N THE INTENTION OF THE ASSESSEE IS CLEAR FROM THE RECORD THAT THE ASSESSEE HAS HELD T HE SHARES AS INVESTMENT AND NOT AS STOCK IN TRADE. ALL THE TRANSACTIONS OF PURCH ASE AND SALE OF SHARES ARE DELIVERY BASED, THERFORE, THE GAIN ARISING FROM THE S ALE AND PURCHASE OF SHARES IS CAPITAL GAIN AND NOT BUSINESS INCOME. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE SERIES OF DECISIONS OF THIS TRIBUNAL INCLUDI NG THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOP AL PUROHIT ( 336 ITR 287), WHEREIN IT HAS BEEN HELD THAT ASSESSEE CAN HAVE TWO PORTFOLIO ONE FOR TRADING AND ONE FOR INVESTMENT. 5. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE CIT(A) HAS GIVEN THE RE ASONS FOR DISTINGUISHING THE FACTS FOR THE YEAR UNDER CONSIDERATION FROM THE A.Y. 2006-07. PEE TEE TRADING PVT. LTD. 4 | P A G E 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT AN IDENTICAL ISSUE WAS DECIDED BY THE CIT (A) FOR THE A.Y. 2006-07, WHEREBY T HE CLAIM OF THE ASSESSEE REGARDING SHORT TERM CAPITAL GAIN FROM PURCHASE AND S ALE OF SHARES WAS ACCEPTED. FOR THE YEAR UNDER CONSIDERATION, THE CIT(A) HAS DIST INGUISHED THE FACTS FROM THE A.Y. 2006-07 AS STATED IN PARA 4 AS UNDER:- I HAVE CONSIDERED THE DISPUTE. THE PERIODIC ANALYS IS OF THE HOLDING OF THE SHARES HAS BEEN MADE ABOVE BY THE APPELLANT. THERE IS NO DISPUTE ON THIS. HOWEVER, THE FACTS AND CONDUCT ON THE PART OF THE APPELLANT ARE DIFFERENT IN THE C URRENT YEAR AS COMPARED TO LAST YEAR. LAST YEAR, THE APPELLANT HAD SHOWN ONLY LONG TERM CAPITA L GAIN ON SALE OF SHARES. HOWEVER, IT HAS ALSO CLAIMED SHORT TERM CAPITAL GAIN AND PROFIT ON SPECULATION IN SHARES IN THE CURRENT YEAR. THE APPELLANT HAS SUBMITTED A TABLE SHOWING THE SHARE TRANSACTIONS WHICH NUMBER 37 IN ALL. IT IS SEEN THAT THERE ARE NOT ONLY SEVER AL REPEAT TRANSACTIONS BUT ALSO BOUGHT AND SOLD TRANSACTIONS IN THE SAME SHARE ON THE SAME DAY . AS FOR ILLUSTRATION, THE APPELLANT PURCHASED 150 SHARES OF I-FLEX SOLUTION ON 01.04.06 AND SOLD THEM ON 07.04.06. IT PURCHASED 100 NO. OF THE SAME SHARE AGAIN ON 25.08. 06 WHICH WERE SOLD ON 12.01.07. SIMILAR IS THE CASE OF TRANSACTION OF PURCHASE AND SALE OF SHARES OF INDIA HOTEL, JYOTI LTD AND SATYAM COMPUTER. NOT ONLY THAT THE SHARES OF JY OTI LTD AND SATYAM COMPUTERS WERE BOUGHT AND SOLD ON THE SAME DAY. ALL THESE CLEARLY DEMONSTRATE BUSINESS BENT OF MIND IN INDULGING IN IMPUGNED TRANSACTIONS. MULITPLICITY OF TRANSACTIONS ADDED WITH SUBSTANTIAL VOLUME ALONG WITH REPETITIVE NATURE OF THE TRANSAC TIONS ONLY SHOW THE ENTERPRISING ATTITUDE OF THE APPELLANT WHICH IS NOTHING BUT ADVE NTURE IN THE NATURE OF TRADE. THE APPELLANT WAS NOT BUYING SHARES FOR ENJOYING THE PR OPERTY THEREIN BUT FOR THE PURPOSE OF MAKING QUICK BUCKS THROUGH SHORT SALES. 7. THE CIT (A) HAS GIVEN TWO REASONS NAMELY, THE AS SESSEE HAD SHOWN ONLY LONG TERM CAPITAL GAIN ON SHARES DURING THE LAST YE AR WHICH WE FIND IS NOT CORRECT AS FOR THE A.Y. 2006-07, THE LONG TERM CAPITAL GAIN WAS ACCEPTED BY THE ASSESSING OFFICER AND ONLY THE SHORT TERM CAPITAL GAIN WAS TRE ATED AS BUSINESS INCOME WHICH WAS DECIDED BY THE CIT(A) IN FAVOUR OF THE ASSESSEE B Y ACCEPTING THE CLAIM AS SHORT TERM CAPITAL GAIN. THE SECOND REASON ASSIGNED B Y THE CIT (A) IS REGARDING THE REPETITIVE TRANSACTION IN THE SAME SCRIPT AND SP ECULATION IN SHARES. WE NOTE FROM THE DETAILS OF THE SALE AND PURCHASE THAT THERE IS ONLY ONE INSTANCE OF REPETITIVE TRANSACTION IN THE CASE OF INDIA HOTEL SHARES, APART FROM THIS NO OTHER REPETITIVE TRANSACTION INSTANCE HAS BEEN BROUGHT TO OUR NOTICE, THEREFORE, THE PEE TEE TRADING PVT. LTD. 5 | P A G E OBSERVATION OF THE CIT(A) THAT SEVERAL REPETITIVE T RANSACTIONS CARRIED OUT BY THE ASSESSEE IS NOT BORNE FROM THE RECORD. 8. AS FAR AS THE SPECULATIVE TRANSACTION, WE FIND TH AT THE ASSESSEE HAS CARRIED OUT ONLY TWO TRANSACTIONS WHICH ARE IN THE NATURE O F SPECULATIVE TRADING, THEREFORE, HAVING REGARD TO THE NUMBER OF SPECULATIV E TRANSACTIONS AND REPETITIVE TRANSACTIONS WHICH ARE ONLY RARE INSTANCE DURING TH E YEAR ALL OTHER FACTS AND CIRCUMSTANCES ARE IDENTICAL WITH THE A.Y. 2006-07. T HEREFORE, WHEN THE CLAIM OF THE ASSESSEE WAS ACCEPTED FOR THE A.Y. 2006-07 AND NO SIGNIFICANT CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE WAS BROUGHT ON R ECORD FOR THE YEAR UNDER CONSIDERATION THEN IN VIEW OF THE FACTS THAT NUMBER OF TRANSACTIONS FOR THE A.Y. UNDER CONSIDERATION AND FOR THE A.Y. 2006-07 ARE ALS O VERY LOW, A DIFFERENT VIEW TAKEN BY ASSESSING OFFICER IS NOT JUSTIFIED. FURTHE R THE ASSESSEE HAS NOT UTILIZED ANY INTEREST BEARING FUND THE LOAN HAS BEEN TAKEN B Y THE ASSESSEE FROM ITS DIRECTORS WHICH IS NOT INTEREST BEARING. IN THESE C IRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY JUSTIFICATION IN TREATING THE SHORT TER M CAPITAL GAIN OFFERED BY THE ASSESSEE AS BUSINESS INCOME. ACCORDINGLY, WE SET ASI DE THE ORDERS OF AUTHORITIES BELOW QUA THIS ISSUE AND ALLOW THE CLAIM OF THE ASSE SSEE REGARDING SHORT TERM CAPITAL GAIN ARISING FROM SALE AND PURCHASE OF SHARE S. 9. GROUND NO. 2 IS REGARDING DISALLOWANCE U/S 14A. 10. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS MADE DI SALLOWANCE U/S 14A BY APPLYING RULE 8D. ON APPEAL, THOUGH THE CIT (A) HAS ACCEPTED THAT FOR THE YEAR UNDER CONSIDERATION, RULE 8D IS NOT APPLICABLE IN V IEW OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOY CE MFG. CO LTD. (328 ITR 81), HOWEVER, THE DISALLOWANCE MADE BY ASSESSING OFFICER B Y APPLYING RULE 8D HAS BEEN CONFIRMED BY CIT (A) BY TREATING THE SAME AS R EASONABLE. IT IS PERTINENT TO NOTE THAT NEITHER THE ASSESSING OFFICER NOR THE CIT (A) HAS EXAMINED THE ISSUE OF PEE TEE TRADING PVT. LTD. 6 | P A G E DISALLOWANCE U/S 14A ON THE PRINCIPLE OF REASONABLE DISALLOWANCE OF EXPENSES ATTRIBUTABLE FOR EARNING THE EXEMPT INCOME. ACCORDIN GLY, THIS ISSUE IS SET ASIDE TO THE RECORD OF ASSESSING OFFICER FOR DECIDING THE SAME AFRESH BY CONSIDERING THE RELEVANT FACTS AND IN THE LIGHT OF DECISION OF HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO LTD. (SUPRA). 11. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 05-9- 2014 SD/- SD/- ( N.K. BILLAIYA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 5-9 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI