DCIT, Cir-11, Kolkata, Kolkata V. M/s Machino Finance Pvt. Ltd., Kolkata

ITA 312/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4430 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL JCITSRDR
• Keywords: Business income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.312/KOL/2014 ASSESSMENT YEARS:2009-10 DCIT, CIRCLE-11, P-7, CHOWRINGHEE SQUARE, KOLKAA-700 069 / V/S . M/S MACHINO FINANCE PVT. LTD., JINDAL HOUSE, 8A, ALIPORE ROAD, KOLKTA-700 027 [ PAN NO.AABCM 6967 G ] /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI RAJAT KUMAR KUREEL, JCIT-SR-DR /BY RESPONDENT SHRI SUNIL SURANA, FCA /DATE OF HEARING 25-07-2016 /DATE OF PRONOUNCEMENT 09-09-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA DATED 13.11.2013. ASSESS MENT WAS FRAMED BY DCIT, CIRCLE-11, KOLKATA U/S 143(3) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 26.12.2011 FOR ASSE SSMENT YEAR 2009-10. THE GROUNDS RAISED BY THE REVENUE PER ITS APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT(A) ERRED IN ALLOWING THE GAINS GENERATED FROM TRANSACT ION OF SHARES AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. ITA NO.312/KOL/2014 A.Y. 2009-10 DCIT CIR-11 KOL. VS. M/S MACHINO FINAN CE PVT. LTD. PAGE 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT(A) ERRED IN NOT CONSIDERING THE FREQUENCY OF TRANSACTI ON IN SHARE DEALING BY THE ASSESSEE WHILE TREATING THE GAIN AS CAPITAL GAIN. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO US 14 A READ WITH RULE 8D AMOUNTING RS.56,36,668/- FOR EARNING EXEMPTED INCOM E. 4. THAT ON THE FACTS AND I LAW, LD. CIT(A) ERRED IN DELETING THE CALCULATION MADE BY THE AO IN ACCORDANCE WITH RULE 8D OF THE IT RULES, 1962. SHRI RAJAT KUMAR KUREEL, LD. DEPARTMENTAL REPRESENT ATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI SUNIL SURANA, LD. ADVOCATE APPEARE D ON BEHALF OF ASSESSEE. 2. FIRST INTER-CONNECTED ISSUE IN GROUND NO.1 AND 2 RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN TREATING THE INC OME FROM PURCHASE/ SALE OF SHARES AS INCOME FROM CAPITAL GAINS ALTHOUGH IT IS BUSINESS INCOME. 3. FACTS IN BRIEF ARE THAT ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE SHARE TRADING BUSINESS. DURING T HE YEAR UNDER CONSIDERATION, ASSESSEE HAS MADE VARIOUS TRANSACTIONS FOR PURCHASE AND SALE OF SHARES WITH VARIOUS COMPANIES. THE ASSESSEE ON THE SALE-PURCHASE OF SHA RE HAS DECLARED THE INCOME UNDER THE HEAD CAPITAL GAINS. HOWEVER, ASSESSING OFFICE R, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE INCOME FROM THE SALE / PURCHASE OF SHARES SHOULD BE TREATED AS BUSINESS INCOME. THE ASSESSEE IS DOING I TS ACTIVITIES FOR SALE-PURCHASE OF SHARE VERY FREQUENTLY IN A SYSTEMATIC MANNER AND IN VOLUME. THE OBJECT CLAUSE OF THE COMPANY ALSO PROVIDES THE DEALING IN SHARES. IN THE ASSESSMENT YEAR 2006-07, THE AO UNDER SECTION 143(3) HAS ALSO TREATED THE INCOME FR OM THE AFORESAID TRANSACTIONS AS BUSINESS INCOME. IN VIEW OF ABOVE THE AO REGARDED T HE INCOME FROM THE AFORESAID ACTIVITIES AS BUSINESS INCOME IN PLACE OF CAPITA L GAINS. ACCORDINGLY THE AO TREATED THE SAME AS INCOME FROM BUSINESS. ITA NO.312/KOL/2014 A.Y. 2009-10 DCIT CIR-11 KOL. VS. M/S MACHINO FINAN CE PVT. LTD. PAGE 3 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO TREATED THE INCOME OF ASSESSEE UNDER THE HEAD CAPITAL GAINS B Y REVERSING THE ORDER OF AO BY OBSERVING AS UNDER:- 5.2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION P UT FORTH ON BEHALF OF THE APPELLANT ALONG WITH THE SUPPORTING DOCUMENTS FURN ISHED, PERUSED THE FACTS OF THE, GONE THROUGH THE FINDINGS OF THE AO AND OTHER MATERIALS BROUGHT ON RECORD. IN SO FAR AS THE TREATMENT OF LONG TERM CAP ITAL GAIN AND SHORT TERM CAPITAL GAIN AS BUSINESS INCOME IS CONCERNED, I FIN D THAT THE ISSUE IS COVERED IN FAVOR OF THE APPELLANT BY THE ORDER OF THE ITAT FOR THE ASSESSMENT YEAR 2005-06 REFERRED TO ABOVE. HENCE THE APPELLANTS APPEAL ON THIS GROUND IS ALLOWED. THE AO IS DIRECTED TO MODIFY THE ORDER ACCORDINGLY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, WE FIND THAT THIS ISSUE IS SQUARE LY COVERED IN FAVOUR OF ASSESSEE IN ITS OWN CASE IN ITA NO.152/KOL/2011 DATED 12.034.2013 FOR AY AND RELEVANT OPERATIVE PORTION OF THE SAID ORDER IS REPRODUCED B ELOW:- 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LD. DR HAS SUPPORTED THE O RDER OF THE LD. AO WITH RESPECT TO THE REVENUES APPEAL AND HAS SUPPORTED T HE ORDER OF LD. CIT(A) IN SO FAR AS THE ASSESSEES APPEAL IS CONCERNED. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE FACTS AS BROUGHT ON RECORD BY THE AO VIS--VIS AS CONSIDERED BY THE LD. CIT(A) FOR RENDERING THE INCOME AS CAPITAL GAINS, WAS ACCEPTED ON THE UNDISPUTED FACTS THAT THE SHARES WERE HELD BY THE A SSESSEE AS INVESTMENT AND WERE BEING SOLD ON HAVING HELD FOR TWO YEARS, WAS N OT CONTROVERTED BY THE REVENUE. IT WAS NOT THE CASE OF THE AO TO RELY ON T HE HONBLE APEX COURT TOGETHER WITH CBDT CIRCULAR WHICH DEFINITELY HAS TO BE CONSIDERED IRRESPECTIVE OF FINDING OF FACT AS TO WHEN THE INVESTMENT WHETHE R CONVERTED FOR THE PURPOSE OF SALE WHETHER COULD BE CONSIDERED, THEN AS OPINI ON OF THE AO FOR BUSINESS PURPOSES WAS TO BE CONSIDERED ON THE BASIS OF THE C ITED CASE LAWS WHICH THE COMPILATION HAS ALSO BEEN FURNISHED BY THE LD.COUNS EL FOR THE ASESSEE. THE TRIBUNAL BEING A FACT FINDING BODY, IT WAS NOT THE CASE OF THE AO TO FORM AN OPINION AS TO HOW TO CONDUCT THE SHARE BUSINESS WHE N THE ASSESSEE IS DEALING IN SHARES AND HELD AS INVESTMENT IN SHARES WHICH HOLDI NG IS NOT DISPUTED BY THE AO, IN SO FAR AS, THE SHARES WERE HELD FOR MORE THA N ONE YEAR WAS ACCEPTABLE TO IT. THIS WAS CONSIDERED IN THE CASE OF CIT VS GOPAL PUROHIT BY ITAT MUMBAI REPORTED IN 228 CTR 582. SIMILARLY IN THE CASE OF C IT VS R.K.DHAWAN REPORTED IN 208 TAXATION 393 IT WAS HELD THAT HAVIN G FOUND THAT THE ASSESSEE HAD SOLD THE SHARES WHICH WAS HELD BY IT AS INVESTM ENT CANNOT BE TREATED AS STOCK-IN-TRADE, UNILATERALLY BY THE AO TO BE RENDER ING INCOME FROM BUSINESS. COMING CLOSER TO THE TRIBUNAL DECISIONS AT KOLKATA THE LD.COUNSEL HAD RELIED ON VARIOUS DECISION RENDERED BY ITAT, KOLKATA BEING DC IT VS M/S. ETERNA STEEL & ITA NO.312/KOL/2014 A.Y. 2009-10 DCIT CIR-11 KOL. VS. M/S MACHINO FINAN CE PVT. LTD. PAGE 4 INVESTMENTS PVT. LTD. IN ITA NO.817/KOL/2010 WHEN THE TRIBUNAL WAS PLEASED TO HOLD THAT THE SHARES WHICH BEING ALREADY AS INVE STMENT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR CAN BE CONSIDERED AS INCO ME FROM CAPITAL GAINS ON THEIR SALE IN SO FAR AS THE INTENTION OF THE ASSESS EE WAS TO HOLD SHARES AS INVESTMENT ONLY. IN ANOTHER DECISION OF ITAT, KOLKA TA IN THE CASE OF ITO,WARD- 6(2) VS M/S.LOOKAD FINANCE & LEASING LTD. IN ITA NO .659/KOL/2008, IT WAS HELD THAT EVEN THE SHARES PURCHASED IN THE SAME YEA R AND SOLD CANNOT BE CONSIDERED FOR TAXATION AS BUSINESS IN SO FAR AS TH E ASSESSEE HAD COMPLIED WITH VARIOUS GOVT. REGULATIONS TO HOLD THE SHARES AS PER THE GUIDELINES OF THE SEBI CANNOT BE THRUST UPON THE ASSESSEE ON THE SOLE OPIN ION OF THE AO TO BE RENDERED AS BUSINESS INCOME. SIMILARLY RELIANCE HAS BEEN PLA CED ON ITAT, KOLKATA IN THE CASE OF COLOMA COMMERCIAL CO. LTD VS ACIT IN ITA NO .585/KOL/2009 AND ALSO IN THE CASE OF JCIT VS SHRI DEO KUMAR SARAF IN ITA NO.411/KOL2009. THE CRUX OF THE FINDING THAT THE ASSETS WHICH HAVE BEEN HELD AS INVESTMENTS HAVE BEEN SOLD ON ACCOUNT OF CAPITAL AND NOT FOR BUSINESS. WE ARE INCLINED TO HOLD THE ISSUE AS COVERED IN FAVOUR OF THE ASSESSEE, IN SO F AR AS, THE REVENUE HAS NOT BEEN ABLE TO BRING OUT ANY CONTROVERTING MATERIAL W HICH THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE CASE LAWS CITED FAI RLY COVER THE FACTS WHICH THE LD. CIT(A) ACCEPTED AND ALLOWED THE ASSESSEES APPE AL WHO CONFIRMED THE RETURNED INCOME ON SALE OF SHARES AS FOR CAPITAL GA INS. THE APPEAL OF THE REVENUE STANDS DISMISSED. SINCE THE ISSUE IS ALREADY COVERED IN FAVOUR OF ASS ESSEE WE DO NOT FIND ANY REASONS TO INTERFERE IN THE ORDER OF LD. CIT(A). ACCORDINGLY W E UPHOLD. THIS GROUND OF REVENUE IS DISMISSED. 6. NEXT ISSUE RAISED BY REVENUE IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR RS.50,36,668/- U/S 14A OF THE ACT R. W.S. RULE 8D OF THE IT RULES, 1962. 7. ASSESSEE DURING THE YEAR HAS EARNED INCOME OF 27,54,699/- AS DIVIDEND INCOME WHICH IS EXEMPTED FROM TAX. THE ASSESSEE IN TERMS OF PROVISIONS OF SEC. 14A OF THE ACT HAS SUO MOTU DISALLOWED A SUM OF 21,93,862/- AS PROPORTIONATE EXPENSE RELATING TO INCOME NOT TAXABLE U/S. 14A OF THE ACT. HOWEVER, AO INVOKED THE PROVISION OF RULE 8D OF THE IT RULE DURING THE COUR SE OF ASSESSMENT PROCEEDINGS AND MADE THE DISALLOWANCE AS UNDER:- A) DISALLOWANCE AS PER RULE 8D(2)(I) OF RS.436 B) DISALLOWANCE AS PER RULE 8D(2)(II) OF RS.46,45, 939/- ITA NO.312/KOL/2014 A.Y. 2009-10 DCIT CIR-11 KOL. VS. M/S MACHINO FINAN CE PVT. LTD. PAGE 5 C) DISALLOWANCE AS PER RULE 8D(2)(III) OF RS. 9,90 ,299/- RS.56,36,668/- ACCORDINGLY, AO DISALLOWED THE ABOVE EXPENSES U/S. 14A R.W.S RULE 8D OF IT RULE AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 8. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO DELETED THE ADDITION MADE BY AO IN PART BY OBSERVING AS UNDER:- 5.3.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION P UT FORTH O BEHALF OF THE APPELLANT ALONG WITH THE SUPPORTING DOCUMENTS FURN ISHED, PERUSED THE FACTS OF THE GONE THROUGH THE FINDINGS OF THE AO AND OTHER M ATERIALS BROUGHT ON RECORD. AS REGARD TO THE DISALLOWANCE OF THE EXPENSES BY AP PLYING SECTION 14A READ WITH RULE 8D ON THE GROUND, IT IS SUBMITTED THAT NO SATISFACTION WAS RECORDED BY THE AO. IT IS APPARENT FROM THE ASSESSMENT ORDER TH AT THE AO HAS SPECIFICALLY MENTIONED THAT QUANTUM OF DISALLOWANCE HAS TO BE MA DE UNDER SECTION 14A READ WITH RULE 8D AND THAT, IN MY OPINION, IS SUFFI CIENT TO SHOW THAT THE AO WAS SATISFIED WITH REGARD TO THE DISALLOWANCE TO BE COM PUTED UNDER SECTION 14A AD WITH RULE 8D IGNORING THE CALCULATION AND DISALLOWA NCE UNDER RULE 8D2(II) COMPUTED BY THE APPELLANT. THEREFORE, THIS ARGUMENT OF THE LD A/R IS NOT ACCEPTED. HOWEVER, IN SO FAR AS THE CALCULATION OF DISALLOWANCE FROM INTEREST WAS CONCERNED, I AM IN AGREEMENT WITH THE CONTENTIO N OF THE LD. A/R OF THE APPELLANT THAT DISALLOWANCE ON ACCOUNT OF INTEREST IS TO BE CALCULATED WITH REFERENCE TO THE NET AMOUNT OF INTEREST BY GIVING C REDIT TO THE INTEREST OF RS.90,34,07/- CREDITED IN THE PROFIT & LOSS ACCOUNT AND ACCORDINGLY MODIFY THE DISALLOWANCE MADE U/S. 14A OF THE ACT. THUS, THIS G ROUND OF APPEAL IS PARTLY ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 9. BEFORE US THE LD. DR VEHEMENTLY SUPPORTED THE OR DER OF THE AO WHEREAS THE LD. AR SUBMITTED THAT AO HAS INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT WITHOUT RECORDING THE SATISFACTION. THE LD. AR ALSO DREW OU R ATTENTION ON PAGE 5 OF THE PAPER BOOK AND DEMONSTRATED THAT THE INVESTMENT WAS MADE OUT OF THE OWNED FUNDS OF THE ASSESSEE. THE LOAN FUND WAS OBTAINED DURING THE YEA R AND NO PART OF IT WAS INVESTED IN SHARES. THE OPENING BALANCE OF THE INVESTMENT WAS R S. 18.31 CRORES AND THE LOAN AMOUNT OF THE OPENING BALANCE WAS NIL. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIN D THAT THE ASSESSEE WAS HAVING NO LOAN IN THE PREVIOUS YEAR AND THE INVESTMENT MADE W AS OF RS. 18.31 CRORES. SO IT IS ITA NO.312/KOL/2014 A.Y. 2009-10 DCIT CIR-11 KOL. VS. M/S MACHINO FINAN CE PVT. LTD. PAGE 6 CLEAR THAT THE INVESTMENT WAS MADE OUT OF THE OWNED FUND IN THE PREVIOUS YEAR. THE INVESTMENT AND LOAN IN THE YEAR UNDER CONSIDERATION HAS INCREASED BY RS. 2.98 CRORES AND 12.25 CRORES RESPECTIVELY. SO AT THE MOST THE I NTEREST PERTAINING TO THE INCREASED INVESTMENT OF RS. 2.98 CRORES CAN PROPORTIONATELY B E DISALLOWED. BESIDES THE ABOVE WE ALSO FIND THAT THE AO HAS FAILED TO ESTABLISH WHETH ER THE BORROWED FUND WAS UTILIZED FOR THE INVESTMENT IN THE SHARES. IT IS ALSO IMPORT ANT TO NOTE THAT THE ASSESSEE IS HAVING BOTH INTEREST INCOME AND INTEREST EXPENSES. IN THIS CONNECTION VARIOUS COURTS HAVE DECIDED TO TAKE THE NET OF INTEREST AMOUNT WHILE MA KING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES 1 962. THEREFORE WE ARE RELYING IN THE ORDER OF JURISDICTIONAL TRIBUNAL IN THE CASE OF DCIT VS. TRADE APARTMENT LIMITED ITA NO. 1277/KOL/2011. THE RELEVANT EXTRACT IS EXTR ACTED BELOW : 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 4. AS LEARNED CIT(A) HAS RIGHTLY OBSERVED, ONCE THE RE IS NO NET INTEREST EXPENDITURE, AS IS THE CASE BEFORE US - UPON SETTING OFF INTERES T CREDITED TO PROFIT AND LOSS ACCOUNT, NO PART OF INTEREST DEBITED CAN BE DISALLOWED AS AT TRIBUTABLE TO EARNING TAX FREE DIVIDEND. THE CIT(A) WAS THUS QUITE JUSTIFIED IN DE LETING THE INTEREST DISALLOWANCE. WE HAVE ALSO NOTED THAT ENTIRE EXPENSES INCURRED BY THE ASSESSEE HAVE BEEN OFFERED FOR DISALLOWANCE, AND ONCE THAT HAPPEN, NOTHING REM AINS FOR FURTHER DISALLOWANCE U/S. 14A. THE DISALLOWANCE UNDER SECTION 14A CAN COME INTO PLAY ONLY OUT OF EXPENSES CLAIMED FOR DEDUCTION AND EXPENSES HAVE BE EN CLAIMED FOR DEDUCTION, THERE CANNOT BE ANY DISALLOWANCE EITHER. THE CONCLUSIONS ARRIVED AT BY THE CIT(A) ARE, THEREFORE, CORRECT AND ADMIT NO INTERFERENCE BY US. WE, APPROVE AND CONFIRM THE ORDER OF THE CIT(A). IN THE INSTANT CASE THE LD. CIT(A) HAS CALCULATED T HE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULES AFTER TAKING THE NET INTEREST EXPENDITURE. WE FIND THAT THE VIEW TAKEN BY THE LD. CIT(A) IS SUPPORTED WITH THE ORDER OF TRADE APARTMENTS LIMITED (SUPRA) . IN VIEW OF THE ABOVE PROPOSITION OF LAW, WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). HENCE THIS GR OUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO.312/KOL/2014 A.Y. 2009-10 DCIT CIR-11 KOL. VS. M/S MACHINO FINAN CE PVT. LTD. PAGE 7 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 09 /09/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP - 09 /09/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-11, P-7, CHOWRINGHEE SQUARE , KOLKATA-69 2. /RESPONDENT-M/SMACHINOFINANCEPVT.LTD.JINDAL HOUSE,8 A,ALIPORERD,KOL-27 3. ' % / CONCERNED CIT 4. % - / CIT (A) 5. & ))' , ' / DR, ITAT, KOLKATA 6. + / GUARD FILE. BY ORDER/ , / ',