ITO ward-10(4),Kolkata, Kolkata V. M/s Aum Capital Market Pvt. Ltd., Kolkata

ITA 302/KOL/2017

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7220 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 15-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Proportionate interest; Question of law; Speculative transactions
• Section: 43(5); 28

Judgement Text

2 I.T.A. NO. 302/KOL/2017 ASSESSMENT YEAR: 2011-12 M/S. AUM CAPITAL MARKET PVT. LTD 1277/KOL/2011 ALSO STOOD QUOTED IN SUPPORT. THE ASSESSEE FURTHER PLACED ON RECORD ALL OF ITS DETAILS INCLUDING INTEREST FREE FUNDS OF RS.11,70,47,650/- AS AGAINST ITS INVESTMENTS UNDER EXEMPT INCOME EARNING INSTRUMENTS TO THE TUNE OF RS.2,42,44,506/-. THE CIT(A) HOLD IN THIS BACKDROP OF FACTS THAT THE ASSESSING OFFICERS ACTION INVOKING THE IMPUGNED DISALLOWANCE IS NOT SUSTAINABLE. 4. WE HAVE HEARD RIVAL CONTENTIONS. THERE IS NOT DISPUTE ABOUT THE IMPUGNED DISALLOWANCE TO BE COMPRISING OF THE TWO COMPONENTS OF PROPORTIONATE INTEREST AND ADMINISTRATIVE EXPENDITURE. THE ASSESSEE CASE OF HAVING DERIVED POSITIVE INTEREST INCOME AND ALSO HOLDING SUFFICIENT INTEREST FREE FUNDS (SUPRA) HAS GONE UNREBUTTED FROM THE REVENUES SIDE. WE THEREFORE SEE NO MERIT IN REVENUES ARGUMENTS TO THIS EFFECT. 5. NEXT COMES THE ADMINISTRATIVE EXPENDITURE LIMB IN THE INSTANT LIS. THE ASSESSEE ITSELF APPEARS TO HAVE PLEADED DURING THE COURSE OF LOWER APPELLATE PROCEEDINGS THAT THE NECESSARY COMPUTATION FORMULA FOR THE PURPOSE OF ADMINISTRATIVE EXPENDITURE TAKING INTO CONSIDERATION ONLY EXEMPT INCOME YIELDING INSTRUMENTS WOULD REACH TO AN AMOUNT OF RS.79,872.51/- AS INDICATED IN PAGE 10 OF THE CIT(A)S ORDER. WE THEREFORE QUOTE THIS TRIBUNALS DECISION IN REI AGRO LTD. VS. DCIT IN ITA NO.1331/KOL/2011, AS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT TO PARTLY ACCEPT REVENUES INSTANT GRIEVANCE TO THE EXTENT OF THE ABOVE SUM OF RS.79,822/- ONLY. THE REVENUE GETS PART RELIEF ON THIS FIRST ISSUE THEREFORE. 6. THE REVENUES SECOND SUBSTANTIVE GROUND CHALLENGES CORRECTNESS OF THE CIT(A)S ACTION DELETING ALLOCATED EXPENDITURE DISALLOWANCE/ADDITION OF RS.41,89,920/-, AS FOLLOWS:- 5.1. AT THE APPELLATE STAGE, THE AR OF THE APPELLANT DISCUSSED THE ISSUE AND FILED WRITTEN SUBMISSION ON THE MATTER AS FOLLOWS:- DISALLOWANCE OF RS.41,89,920/- AS EXPENDITURE APPORTIONED TOWARDS SPECULATION BUSINESS: THE APPELLANT IN THIS REGARD WOULD FIRSTLY LIKE TO SUBMIT THAT SECTION 43(5) OF THE INCOME TAX ACT. 1961 DEALS WITH SPECULATIVE TRANSACTIONS. SECTION 43(5) OF THE INCOME TAX ACT, 1961 READS AS UNDER: [DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES- 1) ACTUAL COST' ..... 2) 4 I.T.A. NO. 302/KOL/2017 ASSESSMENT YEAR: 2011-12 M/S. AUM CAPITAL MARKET PVT. LTD AO LED TO A DOUBLES SET OFF BY ARTIFICIAL APPORTIONMENT OF EXPENDITURE WHICH IS CLEARLY NOT THE INTENDMENT OF SECTION 73 OF THE INCOME TAX ACT, 1961. IN THIS REGARD, THE APPELLANT WOULD HUMBLY LIKE TO SUBMIT THAT AS ALREADY STATED EARLIER, SECTION73 OF THE INCOME TAX ACT, 1961 ENVISAGES A SINGLE OUTCOME OF SPECULATION TRANSACTIONS WHICH IS EITHER PROFIT OR LOSS. WHERE LOSS ON SET OFF RESULTS IN REAL NET PROFIT, THE NET PROFIT IS TREATED AS THE FINAL OUTCOME OF THE SPECULATION BUSINESS AND VICE VERSA. NOWHERE DOES SECTION 73 OF THE INCOME TAX. ACT, 1961. OR ANY OTHER PROVISION OF THE INCOME TAX ACT, 1961 MANDATES ARTIFICIAL APPORTIONMENT OF EXPENDITURE TO SPECULATION BUSINESS, ONCE SECTION 73 OF THE INCOME TAX ACT, 1961 HAS BEEN COMPLIED WITH. THE LD. AO IN THE INSTANT CASE ARTIFICIALLY APPORTIONED EXPENSES OF RS. 41 ,89,920/-, TO THE RESULTANT NET PROFIT OF RS.15, 144/- OF THE APPELLANT'S SPECULATION BUSINESS (ARRIVED AT BY SETTING OFF LOSS OF RS. 4,728/-) THUS CONVERTING THE NET PROFIT OF RS.15,144/-, DERIVED OUT OF SPECULATION BUSINESS INTO A LOSS OF RS.41,74,776/-, FOR SET OFF IN SUBSEQUENT ASSESSMENT YEARS, WHICH IS CLEARLY NOT WHAT THE INCOME TAX ACT, 1961 PROVIDES FOR. THUS, THIS ARTIFICIAL APPORTIONMENT OF EXPENSES BY THE LD. AO, TO THE APPELLANT'S REAL OF IT EARNED FROM SPECULATION BUSINESS IS BIFURCATION FROM THE PROVISIONS LAID DOWN IN .THE INCOME TAX ACT, 1961. IN VIEW OF THE ABOVE, IT IS BEING HUMBLY SUBMITTED BY THE APPELLANT THAT THE LD. AO'S ACTION OF APPORTIONING EXPENDITURE OF RS.41,89,920/-, TO THE APPELLANT'S REAL PROFIT EARNED FROM SPECULATION BUSINESS IS UNJUSTIFIED AND BAD IN LAW. IN VIEW OF THE ABOVE, IT IS THUS URGED BY THE APPELLANT THAT THE LD. AO'S ACTION OF ARTIFICIALLY APPORTIONING EXPENDITURE OF RS.41,89,9201-, TO THE APPELLANT'S REAL PROFIT EARNED FROM SPECULATION BUSINESS BEING UNJUSTIFIED AND BAD IN LAW MAY KINDLY BE DELETED.' 5.2. I HAVE CONSIDERED THE SUBMISSION OF THE AR OF THE APPELLANT. I FIND THAT THE APPELLANT EARNED A PROFIT OF RS. 19,872/- (FROM INTRA-DAY SHARE TRADING) AND LOSS OF ,RS. 4,728/- (FROM CURRENCY DERIVATIVE TRANSACTION). ON SET OFF OF THE LOSS OF RS. 4, 728/- AGAINST THE PROFIT OF RS. 19,872/- FROM SPECULATIVE TRANSACTION, THE APPELLANT EARNED A NET PROFIT OF RS. 15,144/- FROM SPECULATION BUSINESS. THUS, THE APPELLANT EARNED AN ACTUAL NET PROFIT OF RS. 15, 144/- FROM SPECULATION BUSINESS DURING THE RELEVANT ASSESSMENT YEAR. I FIND THAT THE AO IN THE INSTANT CASE ARTIFICIALLY APPORTIONED EXPENSES OF RS. 41,89,920/-, TO THE RESULTANT NET PROFIT OF RS. 15,144/- OF THE APPELLANT'S SPECULATION BUSINESS (ARRIVED AT BY SETTING OFF LOSS OF RS. 4,728/-) THUS CONVERTING THE NET PROFIT OF RS. 15, 144/-, DERIVED OUT OF SPECULATION BUSINESS INTO A LOSS OF RS. 41 ,74,7761, FOR SET OFF IN SUBSEQUENT ASSESSMENT YEARS, WHICH IS AGAINST THE PROVISIONS OF THE ACT. I FIND THAT THIS ARTIFICIAL APPORTIONMENT OF EXPENSES BY THE AO, TO THE APPELLANT'S REALISED PROFIT EARNED FROM SPECULATION BUSINESS IS WITHOUT ANY LEGAL SUPPORT OF THE ACT. THE AO IS DIRECTED TO DELETE THE ADDITION MADE ON THIS COUNT. THESE GROUNDS OF APPEAL ARE ALLOWED. 6.1. IT IS CLEAR FROM ABOVE BACKDROP OF FACTS THAT THE SOLE DISPUTE BETWEEN THE PARTIES IS THAT OF APPORTIONMENT OF ASSESSEES EXPENDITURE. WE MAKE IT CLEAR THAT THERE IS NO DISPUTE ABOUT THE ASSESSEE HAVING DERIVED NET PROFIT IN SPECULATION BUSINESS. RELEVANT CLINCHING FACT THAT OF THE ASSESSEE HAVING SET OFF ITS INTRADAY 6 I.T.A. NO. 302/KOL/2017 ASSESSMENT YEAR: 2011-12 M/S. AUM CAPITAL MARKET PVT. LTD REFLECTED BY THE APPELLANT AS LONG-TERM CAPITAL GAIN AND THE SAME WAS ACCEPTED BY THE AO. THE AO HOWEVER, GAVE DIFFERENT TREATMENT TO THE SHARES HELD IN THE SAME PORTFOLIO, HELD FOR A PERIOD OF LESS THAN ONE YEAR WHICH IS NOT JUSTIFIABLE IN VIEW OF THE FACTS OF THE CASE. I ALSO FIND THAT THE APPELLANTS OWN FUNDS WERE SUFFICIENT FOR INVESTMENTS MADE BY IT DURING THE RELEVANT ASSESSMENT YEAR, ON SALE OF WHICH IT EARNED THE STCG, THEREFORE, THE BORROWED CAPITAL THEORY OF THE AO ALSO DOES NOT HOLD GOOD. THUS IT IS HELD THAT THE GAIN SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE. AO IS DIRECTED TO DO SO. THESE GROUNDS ARE ALLOWED. 7.1. LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CONTENDS DURING THE COURSE OF HEARING THAT THE ASSESSING OFFICER HAD RIGHTLY HELD THE ASSESSEE TO HAVE DERIVED BUSINESS INCOME FROM SALE OF ITS SHARES. SOME KEY FACTS EMERGE FROM THE CASE RECORDS QUA THE IMPUGNED ISSUE. THE ASSESSEE ADMITTEDLY MAINTAINS TWO PORTFOLIOS FOR ITS INVESTMENTS AND BUSINESS IN SHARES. THE REVENUE IS FAIR ENOUGH IN NOT DISPUTING THE FACT THAT THE ASSESSEE HAS SHOWN ITS SHARES AS INVESTMENTS IN ITS BOOKS. THE ASSESSEE HAS ALSO PROVED NOT TO HAVE UTILIZED ANY BORROWED FUNDS FOR ACQUIRING THE FIVE SCRIPS IN QUESTION. WE FIND THAT THIS TRIBUNALS CO-ORDINATE BENCHS DECISION IN ITO VS. SRI SAILESH JALAN IN ITA NO. 1880/KOL/2012, DECIDED ON 02/03/2016, REITERATES THE FOLLOWING PARAMETERS TO BE RELEVANT FOR ADJUDICATING THE ISSUE BEFORE US OF BUSINESS INCOME VERSUS CAPITAL GAINS IN CASE OF SALE OF SHARES AS FOLLOWS:- 8. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ISSUE TO BE DECIDED IS AS TO WHETHER THE STCG ON TRANSACTION OF PURCHASE AND SALE OF SHARES UNDERTAKEN BY THE ASSESSEE DURING THE PREVIOUS YEAR IS TO BE ASSESSED UNDER THE HEAD 'INCOME FROM BUSINESS' AS CLAIMED BY THE REVENUE OR INCOME UNDER THE HEAD 'CAPITAL GAIN' AS CONTENDED BY THE ASSESSEE. BEFORE WE DEAL WITH THE FACTS OF THE CASE OF THE ASSESSEE, WE WILL BRIEFLY NARRATE THE PRINCIPLES APPLICABLE IN DECIDING THE ABOVE ISSUE AS LAID DOWN IN SEVERAL JUDICIAL PRONOUNCEMENTS :- (A) WHETHER A TRANSACTION OF SALE AND PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR WHETHER THEY WERE IN THE NATURE OF INVESTMENTS IS MIXED QUESTION OF LAW AND FACT. CIT VS. HOLCK LARSEN, 60 ITR 67 (SC). (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN INVESTOR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMENT OR FORMED PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WERE HOLD BY HIM AS INVESTMENTS AND THOSE HOLD AS STOCK IN TRADE. (CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD., 82 ITR 586 (SC). (C) TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NOT BE CONCLUSIVE. IF THE VOLUME, FREQUENCY AND REGULARITY WITH WHICH TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIVITY WITH PROFIT MOTIVE, THEN IT WOULD BE A CASE OF BUSINESS PROFITS AND NOT CAPITAL GAIN. CIT VS. MOTILAL HIRABHAI SPG. AND WVG. CO. LTD., 113 ITR 173 (GUJ); RAJA BAHADUR VISWSHWARA SINGH VS. CIT, 41 ITR 685 (SC). 8 I.T.A. NO. 302/KOL/2017 ASSESSMENT YEAR: 2011-12 M/S. AUM CAPITAL MARKET PVT. LTD REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION.' 12. THE ABOVE DECISION OF THE HON'BLE BOMBAY HIGH COURT IS CLEARLY APPLICABLE IN THIS CASE. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7.2. WE KEEP IN MIND THE ABOVE FINE TUNED PRINCIPLES TO REVERT BACK TO THE FACTS OF THIS CASE. THE ASSESSEE HAS ADMITTEDLY DERIVED ITS SHORT-TERM CAPITAL GAINS FROM SHARES HELD AS INVESTMENTS NOT ACQUIRED THROUGH USE OF ANY BORROWED FUNDS. IT SUCCESSFULLY DEMONSTRATED DURING THE COURSE OF LOWER APPELLATE PROCEEDINGS THAT GOING BY THE ASSESSING OFFICERS CONCLUSION, IT WOULD RATHER BE ENTITLED FOR BUSINESS LOSS CLAIM OF RS.51,71,149/- THAN SHORT TERM CAPITAL GAINS OF RS.1,11,99,92/-. WE TAKE INTO ACCOUNT ALL THESE PECULIAR FACTS AND CIRCUMSTANCES TO AFFIRM THE CIT(A)S FINDING HOLDING ASSESSEES PROFITS DERIVED FROM SALE OF SHARES TO BE SHORT TERM CAPITAL GAINS INSTEAD OF BUSINESS INCOME. 8. THIS REVENUES APPEAL IS DISMISSED. KOLKATA, THE 28 TH DAY OF SEPTEMBER, 2018. SD/- SD/- [J. SUDHAKAR REDDY] [ S.S. GODARA ] ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATED :28.09.2018 {SC SPS}