PREST IMPEX P.LTD, MUMBAI V. ITO WD 8(2)(4), MUMBAI

ITA 306/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83822 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 12-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SOLD STOCK HELD
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER ITA NO.306/MUM/2011 ASSESSMENT YEAR: - 2006-07 PREST IMPEX PVT. LTD 4/12, SONA UDYOG INDUSTRIAL ESTATE, PARSI PANCHAYAT ROAD, ANDHERI (EAST) MUMBAI 400069. VS.` INCOME TAX OFFICER, 8(2)(4) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020. PAN:- AAACP2021R APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 4.11.2010 OF CIT(A) FOR ASSESSMENT YEAR 2006-07. THE ASSESSEE HA S RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 1. I N CONFIRMING THAT THE GAIN FROM SALE OF INVESTMENT IN BENCHMARK CAPITAL PRESERVATION PORTFOLIO SYSTEM - CAPPS WAS TAXABLE A S BUSINESS INCOME INSTEAD OF AS SHORT TERM CAPITAL GAIN . 2. I N NOT APPRECIATING THAT THE APPELLANT WAS ACT I VELY ENGAGED IN THE DIAMOND BUSINESS TILL THE EARL I ER YEAR WHEN IT HAD DEINVENTORIZED ITSELF AND SOLD THE STOCK HELD AND WAS IN THE PROCESS OF SELLING ITS PR EMISES AND THE FUND AVAILABLE TO THE APPELLANT WAS MERELY KEPT I NVESTED DURING THIS PERIOD. 3. IN NOT APPRECIAT I NG THAT THE A 0 HAD BASED HIS CONCLUSION ON INCORRE CT FACTS BY HOLDING THAT THE INVESTMENT (WHICH HAD RESULTED IN THE GAIN) HAD BEEN MADE FROM NOT BEEN MADE OUT OF MONEY BORROWED FROM K K D OSHI . WITHOUT PREJUDICE, IN ALSO NOT APPRECIATING THAT THIS WAS A N INTEREST FREE TEMPORARY LOAN FROM A DIRECTOR AND THAT HENCE NO ADVERSE INFE RENCE SHOULD HAVE BEEN DRAWN MERELY BASED ON THIS FACT. ASSESSEE BY SHRI NITESH S. JOSHI AND SHRI APPURVA SHAH REVENUE BY SMT. PARMINDER DATE OF HEARING 09.09.2014 DATE OF PRONOUNCEMENT 12.09.2014 PREST IMPEX PVT. LTD 2 | P A G E 4. IN MERELY HOLD I NG THAT DEALING IN INVESTMENTS WAS ALSO AN ANCILLAR Y OBJECTIVE WHICH THE COMPANY HAD TURNED TO AND THAT HENCE THE GAIN WAS TAXABLE AS BUSINESS GAIN. 2. THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND A DJUDICATION IS WHETHER THE AUTHORITIES BELOW ARE JUSTIFIED IN TREATING THE PROF IT ON SALE OF CAPITAL PRESERVATION PORTFOLIO SYSTEM (CAPPS) WITH BENCH MA RK AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN OFFERED BY THE AS SESSEE. THE ASSESSEE HAS OFFERED SHORT TERM CAPITAL GAIN ON SALE OF MUTUAL FU NDS AT RS. 7,73,019/-, OUT OF WHICH PROFIT OF SALE OF CAPPS WITH BENCH MARK WAS R S. 6,60,814/-. THE ASSESSING OFFICER NOTED THAT THE SURPLUS FUND AVAILABLE WITH T HE ASSESSEE AS ON 31.03.2005 WERE INVESTED IN THE EQUITY SHARES AND MUTUAL FUNDS , THUS THERE WERE NO SUPLUS FUNDS AVAILABLE. FURTHER THE ASSESSEE HAD BORROWED RS . 30.50 LACS FROM SHRI K.K. DOSHI, DIRECTOR, AS AN INTEREST FREE LOAN WHICH HAS BEEN USED FOR INVESTMENT IN BENCH MARK-PMS. THE INVESTMENT WAS REALIZED WITHIN A SHORT PERID WITH THE HOLDING PERIOD BEING OF TWO TO THREE MONTHS. THEREFO RE, THE ASSESSING OFFICER TREATED CAPPS OF RS. 6,60,814/- AS BUSINESS INCOME. 3. BEFORE CIT(A), THE ASSESSEE CONTENDED THAT THE AS SESSING OFFICER HAS COMMITTED AN ERROR BY OBSERVING THAT THE INVESTMENT IN CAPPS IS FROM BORROWED FUNDS, WHEREAS THE SAID INVESTMENT WAS MADE FROM THE RESERVE AND ASSESSEES OWN FUND AND NOT FROM THE BORROWINGS. IN SUPPORT OF H IS CONTENTION, THE ASSESSEE REFERRED THE BANK STATEMENT. THE CIT(A) DID NOT ACCEP T THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ACTION OF ASSESSING OFFICE R, WHEREBY THE SHORT TERM CAPITAL GAIN ON SALE OF CAPPS WAS TREATED AS BUSINES S INCOME. 4. BEFORE US, THE LD AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAS SUBMITTED THAT THE AUTHORITIES BELOW HAVE TREATED THE CAPITAL GAIN AS BUSINESS INCME BY ASSUMPTION OF THE FACT THAT THE ASSESSEE HAS USED BO RROWED FUNDS FOR THE PREST IMPEX PVT. LTD 3 | P A G E INVESTMENTIN CAPPS UNIT. HE HAS REFERRED BANK STATEM ENT AS WELL AS BANK ACCOUNT, WHEREIN THE VARIOUS INVESTMENT IN MUTUAL F UNDS INCLUDING THE INVESTMENT IN BENCH MARK-PMS (CAPPS) HAS BEEN MADE BY THE ASSESSEE. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT THE CH EQUE OF RS. 25 LACS ISSUE FOR INVESTMENT IN THE CAPPS WAS ENCASHED ON 3-5-2005 AS IT IS CLEAR FROM THE BANK STATEMENT, PLACED AT PAGE NO. 5 OF THE PAPER BOOK. H E HAS FURTHER SUBMITTED THAT THE LOAN AMOUNT OF RS. 30.50 LACS TAKEN FROM THE D IRECTOR OF THE ASSESSEE AS INTEREST FREE LOAN WAS SUBSEQUENT TO THE SAID INVEST MENT AS IT IS CLEAR FROM THE BANK STATEMENT. THE LD. AUTHORIZED REPRESENTATIVE H AS SUBMITTED THAT THE ASSESSING OFFICER TOOK A WRONG ITEM AS INVESTMENT I N CAPPS ON 14.6.2005 WHICH IS INFACT NOT THE INVESTMENT IN QUESTION BUT WAS A SUBSEQUENT INVESTMENT IN MUTUAL FUNDS. THEREFORE, THE LOAN TAKEN FROM THE DI RECTOR ON 10.06.2005 IS SUBSEQUENT TO THE INVESTMENT MADE IN THE CAPPS ON 3. 5.2005 AND, THEREFORE, THE FINDINGS OF THE ASSESSING OFFICER IS BASED ON THE WR ONG ASSUMPTION OF FACTS. HE HAS FURTHER SUBMITTED THAT AS PER THE BANK STATEMEN T, THE ASSESSEE WAS HAVING SUFFICIENT FUND IN THE BANK ACCOUNT ON 3.5.2005 AND, THEREFORE, THE ASSESSEE HAS USED ITS OWN FUND FOR THE PURPOSE OF INVESTMENT IN Q UESTION. 5. ALTERNATIVELY, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THERE IS NO DOUBT THAT THE LOAN FROM DIRECTOR IS INTEREST FREE AND, THEREFORE, THE SAME CANNOT BE A RELEVANT FACTOR FOR TREATING THE INVESTMENT AS TRADING ACTIVITY. 6. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 7. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSING OFFICER HAS ALLOW ED THE SHORT TERMM CAPITAL GAIN OFFERED BY THE ASSESSEE IN RESPECT OF OTHER MU TUAL FUNDS AND TREATED THE SURPLUS ARISING FROM SALE OF BENCH MARK AMC-PMS CAP PS, AS BUSINESS INCOME MAINLY ON THE GROUND THAT THE ASSESSEE HAS TAKEN A L OAN FROM ITS DIRECTOR FOR PREST IMPEX PVT. LTD 4 | P A G E INVESTMENT IN THE SAID PMS. THE ASSESSING OFFICER HA S STATED IN THE ORDER THAT THE ASSESSEE INVESTED IN THE SAID PMS ON 14.06.2005 WHER EAS WE NOTE THAT THE ASSESSEE HAS ISSUED A CHEQUED DATED 28.04.2005 FOR INVE STMENT IN THE CAPPS VIDE CHEQUE NO. 602263 WHICH WAS ENCAHSED ON 03.05.2005. THEREFORE, THE INVESTMENT IN CAPPS IS MADE ON 3.5.2005 AND NOT ON 14 .06.2005 AS RECORDED BY ASSESSING OFFICER. WE FURTHER NOTE THAT THE LOAN EN TRY IN THE BANK ACCOUNT OF THE ASSESSEE IS ON 10.06.2005 FOR A SUM OF RS. 25 LACS. THEREFORE, THE SAID AMOUT WAS SUBSEQUENT TO THE INVESTMENT IN QUESTION. ON THE DA TE OF INVESTMENT ON 3.5.2005, THE ASSESSEE WAS HAVING SUFFICIENT FUND IN ITS BANK ACCOUNT TO MEET THE INVESTMENT OF RS. 25 LACS. THEREFORE, IT IS MANIFFE ST FROM THE RECORD THAT THE INVESTMENT IN QUESTION WAS MADE BY THE ASSESSEE FRO M ITS OWN FUND AND NOT FROM BORROWED FUND. EVEN OTHERWISE, THE BORROWED FUND IS NO T INTEREST BEARING FUND BUT IT WAS TAKEN FROM ITS DIRECTOR AS INTEREST FREE LOAN. HENCE, THE VERY BASIS OF THE ASSESSING OFFICER IN TREATING THE SHORT TERM CA PITAL GAIN OFFERED BY THE ASSESSEE AS BUSINESS INCOME IS TURN OUT TO BE WRONG AS NO BORROWED FUND WAS USED BY THE ASSESSEE FOR THE PURPSOE OF INVESTMENT I N QUESTION. 8. ACCORDINGLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW QUA THIS ISSUE AND ALLOW THE CLAIM OF ASSESSEE OF SHORT TERM CAPITAL GAIN ARISING FROM SALE OF BENCH MARK-P MS CAPPS IN QUESTION. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF SEPTEMBER 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 12-9 -2014