The ACIT, Circle-1, Bhavnagar V. Bhavnagar Industries Parts Pvt.Ltd., Bhavnagar

ITA 3159/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6462 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOORYAWANSHI
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Capital expenditure
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA,JM & SHRI A N PAHUJA,AM ITA NO.3159/AHD/2009 (ASSESSMENT YEAR:-2005-06) ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, AAYAKAR BHAVAN, NAKUBAUG, JASHONATH CHOWK, BHAVNAGAR-364001 V/S BHAVNAGAR INDUSTRIAL PARTS PVT. LTD., LG-10/11, PANCHKUTIR, KALUBHA ROAD, BHAVNAGAR PAN: AACCB 5350 K [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI G S SOORYAWANSHI, DR ASSESSEE BY:- MS. VAIBHAVI PARIKH, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 11- 08-2009 OF THE LD. CIT(APPEALS)-XX, AHMEDABAD, FOR THE ASSESSMENT YEAR 2005-06, RAISES THE FOLLOWING GROUNDS:- [1] THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE PROFIT ON SALE OF SHARES AMOUNTING TO RS.59,51,381/- HAS TO BE TREATED AS LONG TERM CAPITAL GAINS INSTEAD OF INCOME FROM SPECULATION BUSINESS IN SHARES, WITHOUT PROPERLY APPRECIATIN G THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. [2] IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT, TAKING INTO ACCOUNT THE SUBSTANTIAL NA TURE OF TRANSACTIONS AND THE MAGNITUDE OF PURCHASES AND SALES OF SH ARES, THE SAID PURCHASES AND SALES OF SHARES WERE CARRIED OUT BY TH E ASSESSEE COMPANY WITH THE MOTIVE OF EARNING PROFIT AND TH E SAID SHARES WERE NOT HELD BY THE ASSESSEE AS INVESTMENT; AND THER EFORE THE AO WAS JUSTIFIED IN TREATING THE SAID PROFIT ON SAL E OF SHARES AS THE PROFIT FROM SPECULATION BUSINESS. [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. [4] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) BE SET ASIDE AND THAT OF AO BE RESTORED TO THE ABOVE EXTENT. 2. ADVERTING FIRST TO GROUND NOS.1 & 2 I N THE APPEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DE CLARING INCOME ON 2 ITA NO.3159/AHD/2009 2 ACCOUNT OF L.T.C.G. OF RS.3,96,950/- FILED ON 20-10-2005 BY THE ASSESSEE PROVIDING UTILITY SERVICES, WAS SELECTED FOR SCRUTI NY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX AC T, 1961 [HEREINAFTER REFERRED TO AS THE ACT] ON 31-10-200 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER[ THE AO IN SHORT] NOTICED THAT THE ASSESSEE CLAIMED LONG TERM CAPITAL LOSS OF RS.47,73,487/- AGAINST THE LONG TERM CAPITAL GAIN ( NON-INDEXED 10 % TAX) OF RS.51,70,433/-,RESULTING IN NET CAPITAL GAI N OF RS.3,96,946/-. TO A QUERY BY THE AO, AS TO WHY TRANSACTIONS IN SAL E OF SHARES SHOULD NOT BE TREATED AS SPECULATION BUSINESS IN VI EW OF THE EXPLANATION TO SECTION 73 OF THE ACT, THE ASSESSEE REPLIED THAT THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT HAD NO APPLICATION, SINCE THE ASSESSEE DID NOT CARRY ON THE BUSINESS OF BUYING AND SELLING SHARES AND HAD CONSISTENTLY BEEN SHOWING THE INVESTMENTS IN SHARES UNDER THE HEAD INVESTMENTS'. INTER ALIA, THE ASSESSEE RELIED ON DECISION IN KRUTI MARKETING LIMITED VS. ACIT 118 TAXMAN 194 (AHD) (MAG.) AND HS BC SECURITIES AND CAPITAL MARKETS (I) PRIVATE LIMITED VS. JCIT(MUMBAI BENCH) IN ITA NO. 3386/MUM./2001 .HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND TREATED THE TRANSA CTIONS IN SALE AND PURCHASE OF SHARES SPECULATIVE IN NATURE IN TER MS OF EXPLANATION TO SEC. 73 OF THE ACT WHILE RELYING UPON DECISION I N EASTERN AVIATION & INDUSTRIES LTD. V. CIT [1994] 208 ITR 1023(CAL.). 3. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CL AIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 2.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND T HE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE A PPELLANT. I FIND (I) THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE EXPL ANATION TO SECTION 73 OF THE ACT IS NOT AT ALL ATTRACTED BECAUSE FOR THE YEAR UNDER CONSIDERATION THE APPELLANT HAS NOT SUFFERED ANY LOSS ON T HE SALE AND PURCHASE OF SHARES. SECTION 73 AND THE EXPLANATION APP ENDED THERETO ARE ONLY ATTRACTED IN THE CASE OF LOSSES SUFFERED BY AN ASSESSEE. THE SAID SECTION AS WELL AS THE EXPLANATION APPENDED TO ARE DEEMI NG PROVISIONS AND THEY COME INTO ACTION ONLY WHEN AN ASSESSEE SUFFERS LOSS. IN THE FACTS OF THE PRESENT CASE, SINCE THE APPELLANT HAS NOT SUFFERED ANY LOSS ON SALE AND PURCHASE OF SHARES, THE VERY PROVISION OF SECTION 73 OF THE ACT IS NOT 3 ITA NO.3159/AHD/2009 3 TRIGGERED. WHEN THE MAIN SECTION IS NOT ATTRACTED, THE EXPLANATION APPENDED THERETO, CAN HAVE NO APPLICATION WHATSOEVER. (I I) IN ANY CASE, I FIND THAT THE APPELLANT HAS PURCHASED AND SOLD THE SHARE S OF INDEPENDENT AND UNCONNECTED COMPANIES AND THEREFORE ALSO, THE PROVISIO NS OF EXPLANATION TO SECTION 73 OF THE ACT ARE NOT ATTRACTED. (III) I ALSO FIND THAT THE APPELLANT HAS BEEN HOLDING THE SHARES SOLD DURING T HE YEAR UNDER CONSIDERATION AS INVESTMENT. THIS IS APPARENT FROM THE PE RUSAL OF THE BALANCE-SHEET FOR THE YEAR UNDER CONSIDERATION AS ALSO F OR THE IMMEDIATELY PRECEDING PREVIOUS YEAR. ONCE SHARES ARE HELD AS INVESTMENTS, ANY GAIN OR LOSS SUFFERED ON THE SALE OF THE SAME SHALL HAVE TO BE TAXED UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE BUSINESS HEAD. THIS VIEW IS FORTIFIED BY THE BINDING DECISION OF THE HON'BLE I.T.A.T., AHMEDAB D IN THE CASE OF KRUTI MARKETING (SUPRA). I, THEREFORE, HOLD THAT THE PROFIT ON SALE OF SHARES AMOUNTING TO RS.59,51,381/- HAS TO BE TREATED AS LONG TERM CAPITAL GAINS, AND TAXED AS SUCH. THIS GROUND OF APPEAL IS, THUS, ALLOWE D. 4. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE A FORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) IN THE LIGHT OF DECISION DATED 31- 12-2010 OF THE ITAT IN THE CASE OF ACIT VS. SHREE G AUTAM SHIP BREAKING INDUSTRIES LTD. IN ITA NO.379/AHD/2009. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE BEFORE US AS TO WHETHER THE PROFIT OF RS.59,51,381/- ON SALE OF SHARES IS TO BE ASSESSED AS LONG TERM CAPITAL GAIN REFLECTED BY THE ASSESSEE IN THEIR R ETURN OR CAN BE TREATED AS SPECULATION PROFIT. THE TERM SPECULATION TRANSACTION IS DEFINED IN SECTION 43(5) OF THE ACT AS UNDER: 5) SPECULATIVE TRANSACTION MEANS A TRANSACTION IN W HICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED O THERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCR IPS: 5.1 THE AO HAS INVOKED EXPLANATION TO SEC. 73 OF THE ACT. THE SAID SECTION READS AS UNDER: 73. LOSSES IN SPECULATION BUSINESS. (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGA INST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. 4 ITA NO.3159/AHD/2009 4 (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECCT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UNDER SUB-SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO SET OFF OR TH E WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPECULATI ON BUSINESS, SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAP TER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR, AND- (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATIO N BUSINESS AS THEY APPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN FOUR ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE AS SESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. EXPLANATION.-WHERE ANY PART OF THE BUSINESS OF A CO MPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MA INLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SE CURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND ' INCOME FROM OTHER SOURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND AD VANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANI ES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. 5.2 THE AFORESAID EXPLANATION TO SECTION 73 OF THE ACT TREATS ANY PURCHASE AND/OR SALE OF SHARES BY CERTAIN COMPANIES TO BE SPECULATIVE FOR THE PURPOSE OF SECTION 73 ONLY. FOR THE PURPOSE OF SETTING OFF AND CARRYING FORWARD OF LOSS, BUYING AN D SELLING OF SHARES OF CERTAIN COMPANIES IS REGARDED BY THE STATUTE AS SPECULATION BUSINESS, EVEN THOUGH THE TRANSACTION OF PURCHASE A ND SALE WAS FOLLOWED BY DELIVERY OF SCRIPS AND AS SUCH CANNOT B E TREATED AS 'SPECULATIVE TRANSACTION' AS DEFINED IN SECTION 43( 5) OF THE INCOME- TAX ACT. THE EXPLANATION TO SECTION 73 INTRODUCES A LEGAL FICTION. THE SECTION APPLIES ONLY TO A COMPANY. THE SAID EXPLANA TION DOES NOT APPLY TO A COMPANY WHOSE GROSS TOTAL INCOME CONSIST S MAINLY OF 5 ITA NO.3159/AHD/2009 5 INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTERES T ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND ' INCOME FROM OTHER SOURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND AD VANCES .IF THE BUSINESS OF A COMPANY, WHICH DOES NOT FALL WITHIN T HE EXCLUDED CATEGORIES, CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THEN SUCH A COMPANY SHALL BE DEEMED TO B E CARRYING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73 TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SAL E OF SUCH SHARES. THE OBJECT OF THIS PROVISION IS TO CURB THE DEVICE SOMETIMES RESORTED TO BY BUSINESS HOUSES CONTROLLING GROUPS O F COMPANIES TO MANIPULATE AND REDUCE THE TAXABLE INCOME OF COMPANI ES UNDER THEIR CONTROL. NEITHER IN THE ASSESSMENT ORDER THERE IS ANY SUCH FINDING NOR THE LD. AR APPEARING BEFORE US ESTABLISHED THAT THE CASE OF ASSESSEE FALLS IN ANY OF THE EXCEPTED CATEGORIES O F COMPANIES SPECIFIED IN THE EXPLANATION TO SECTION 73 IBID. FI RSTLY, IT IS NOT A COMPANY WHOSE MAIN SOURCE OF INCOME IS FROM 'INTERE ST ON SECURITIES' OR 'INCOME FROM HOUSE PROPERTY', OR FRO M 'CAPITAL GAINS', OR 'OTHER SOURCES'. SECONDLY, IT IS ALSO NOT A COMP ANY WHOSE PRINCIPAL BUSINESS IS THAT OF 'BANKING OR GRANTING OF LOAN AND ADVANCE. THE UNDISPUTED FACTS ARE THAT THE ASSESSE E RETURNED LONG TERM CAPITAL GAIN ON SALE OF SHARES AND THE AO IN VOKED EXPLANATION TO SEC. 73 OF THE ACT. THERE IS NOTHING TO SUGGEST IN THE ASSESSMENT ORDER THAT THE ASSESSEE CARRIED ON THE BUSINESS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES NOR THE LD. DR NOR THE LD. DR MADE ANY ATTEMPT BEFORE US TO ESTABLISH SO AND NOR EVEN PLACED ANY SUCH MATERIAL. THE LD. CIT(A), FOLLOWING THE DE CISION IN KRUTI MARKETING LIMITED VS. ACIT 118 TAXMAN 194 (AHD) (MA G.), ALLOWED THE CLAIM OF THE ASSESSE ON THE GROUND THAT SECTION 73 IS NOT AT ALL ATTRACTED, THE ASSESSEE HAVING NOT SUFFERED ANY LOS S ON THE SALE OF SHARES IN THE YEAR UNDER CONSIDERATION. WE FIND THA T FOLLOWING THE AFORESAID DECISION IN KRUTI MARKETING LIMITED(SUPRA) AS ALSO DECISIONS IN DCIT VS JINDAL EXPORTS LTD. 101 ITD 129 (DELHI) (TM ) 6 ITA NO.3159/AHD/2009 6 AND HARRISONS MALAYALAM LTD. VS ACIT 32 SOT 497(COC HIN), A CO- ORDINATE BENCH WHILE ADJUDICATING A SIMILAR ISSUE IN ACIT VS. SHREE GAUTAM SHIP BREAKING INDUSTRIES LTD. IN ITA NO.379/ AHD/2009 CONCLUDED IN THEIR ORDER DATED 31-12-2010 THAT ONC E THE SHARES ARE HELD AS INVESTMENT, ANY GAIN OR LOSS SUFFERED ON AC COUNT OF SALE OF THE SAME SHALL HAVE TO BE TAXED UNDER THE HEAD CAPI TAL GAIN. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS OF T HE ITAT AND THE REVENUE HAVING NOT PLACED BEFORE US ANY CONTRARY DE CISION NOR ESTABLISHED THAT THE ASSESSEE CARRIED ON BUSINESS O F PURCHASE OR SALE OF SHARES OF OTHER COMPANIES, WE ARE NOT INCLI NED TO INTERFERE. THEREFORE, GROUND NOS.1 & 1.2 IN THE APPEAL ARE DIS MISSED. 6. GROUND NOS. 3 AND 4 BEING MERE PRAYER NOR ANY SU BMISSIONS HAVING BEEN MADE ON THESE GROUNDS, DO NOT REQUIRE A NY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 7.IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 10-06-2011 SD/- SD/- ( T K SHARMA ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 10-06-2011 COPY OF THE ORDER FORWARDED TO: 1. BHAVNAGAR INDUSTRIAL PARTS PVT. LTD., LG-10/11, PANCHKUTIR, KALUBHA ROAD, BHAVNAGAR 2. ACIT, CIRCLE-1, BHAVNAGAR 3. CIT CONCERNED 4. CIT(A)-XX, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD