M/s USS Reality Pvt. Ltd., Indore V. The Addl. CIT, Range-3, Indore

ITA 336/IND/2013

• Counselvise Citation: 33622714 RSA 2013
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 22-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHIM KUNWAR
• Assessee Lawyers: SVS S N AGARWAL
• Keywords: Business income; Transactions in derivatives
• Section: 143(3)

Judgement Text

PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAACU 7827 L I.T.A.NO. 336/IND/2013 A.Y. : 2008-09 M/S.USS REALITY PVT LTD G-14, MIG COLONY INDORE VS. THE ADDL. CIT RANGE-3 INDORE APPELLANT RESPONDENT APPELLANT BY : SVS S.N. AGARWAL & PANKAJ MOGRA, RESPONDENT BY : SHRI BHIM KUNWAR, SR. DR DATE OF HEARING : 31 . 10 .201 3 DATE OF PRONOUNCEMENT : 20. 1 1 .201 3 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT(A), DATED 04-03-2013 FOR THE ASSE SSMENT YEAR 2008-09, IN THE MATTER OF ORDER PASSED U/S 14 3(3) OF THE INCOME-TAX ACT, 1961. 2. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO TR EATMENT OF SHORT TERM CAPITAL GAIN OFFERED IN THE RETURN OF IN COME, AS USS REALITY PVT LTD. A.Y. 2008-09 2 PAGE 2 OF 12 BUSINESS INCOME WITHOUT PROPERLY APPRECIATING THE F ACTS AND SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD S PERUSED. THE FACTS IN BRIEF ARE THAT IN THE RETURN OF INCOME, THE ASSESSEE HAD SHOWN SHORT TERM CAPITAL GAINS AND BUS INESS INCOME. HOWEVER, WHILE FRAMING THE ASSESSMENT, THE AO TREATED THE CAPITAL GAIN SO OFFERED AS BUSINESS INC OME ON THE PLEA THAT THERE WAS HIGH FREQUENCY IN THE TRANSACTI ONS OF PURCHASE AND SALE OF SHARES. THE CONTENTIONS OF THE LEARNED AR WERE THAT THE ASSESSEE WAS INVESTING IN SHARES A ND SAME WAS ACCORDINGLY TREATED IN THE AUDITED BALANCE SHEE T AS INVESTMENT IN THE SCHEDULE V OF THE AUDITED FINAL A CCOUNTS. FURTHER CONTENTIONS WAS THAT THE PROFIT ON SALE OF F&O SHOWN AS BUSINESS INCOME AND PROFIT ON SALE OF SHARES AS INCOME FROM CAPITAL GAIN. THE LEARNED AR FURTHER CONTENDED THAT INVESTMENT IN SHARES SHOWN AS INVESTMENT IN BALANCE SHEET WAS NOT ROUTED THROUGH PROFIT AND LOSS ACCOUNT AS P URCHASE AND SALE OF SHARES AND THAT THE SHARES HAVE BEEN VA LUED IN THE BOOKS AT COST. HE FURTHER CONTENDED THAT DURING THE YEAR, THE USS REALITY PVT LTD. A.Y. 2008-09 3 PAGE 3 OF 12 ASSESSEE HAD PAID INTEREST OF RS.14,85,239/- WHEREA S INTEREST RECEIVED DURING THE YEAR WAS RS.16,85,913/-. HENCE, NO BORROWED FUNDS WERE UTILIZED TOWARDS INVESTMENT IN SHARES. OUR ATTENTION WAS ALSO INVITED TO TAX AUDIT REPORT WHEREIN THE TAX AUDITOR HAS EXPRESSED THE NATURE OF ASSESSEES BUSINESS IN CLAUSE 8(A) OF TAX AUDIT REPORT WHEREIN IT WAS MENT IONED THAT THE ASSESSEE IS ENGAGED IN DEALING IN DERIVATIVES A ND INVESTMENT IN SHARES, SECURITIES AND BULLIONS. OUR ATTENTION WAS ALSO INVITED TO THE MAIN COMPONENT OF CAPITAL G AIN EARNED BY THE ASSESSEE WHICH WAS OUT OF 9 SCRIPTS ONLY. TH US, CAPITAL GAIN OF RS.1,22,99,805/- OUT OF TOTAL GAINS OF RS. 1,26,11,282/- SHOWN BY ASSESSEE WAS RELATED TO 09 S CRIPTS. THE ASSESSEE WAS ALSO IN RECEIPT OF DIVIDEND INCOME OF RS.1,90,979/- IN THE IMMEDIATELY PRECEDING ASSESSME NT YEAR. OUR ATTENTION WAS ALSO INVITED TO THE FACT THAT THE ASSESSEE HAS NOT CLAIMED ANY REBATE U/S 88E IN RESPECT OF STT PA ID BUT CONSIDERED THE AMOUNT OF STT AS PART OF ITS COST. O UR ATTENTION WAS ALSO INVITED TO SCRUTINY ASSESSMENT ORDER PASSE D U/S 143(3) FOR THE ASSESSMENT YEAR 2009-10 WHEREIN THE AO HAS USS REALITY PVT LTD. A.Y. 2008-09 4 PAGE 4 OF 12 ACCEPTED THE CAPITAL GAIN AS OFFERED BY THE ASSESSE E. FURTHER ATTENTION WAS INVITED TO THE HOLDING PERIOD OF SCRI PTS WHICH WERE RANGING ONE MONTH TO 11 MONTHS. THE LD. AR ALS O PLACED RELIANCE OF CBDT CIRCULAR NO. 4/200 AS ISSUED ON 15 -06-2007, WHEREIN CBDT APPROVED THE TWO PORTFOLIOS CONCEPT. 4. FURTHER RELIANCE WAS PLACED BY THE LD. AR ON THE DECISION OF I.T.A.T. MUMBAI BENCH IN THE CASE OF HITESH SATI SHCHANDRA DOSHI VS JCIT, 140 TTJ 32 WHEREIN THE BENCH HELD AS UNDER:- ASSESSEE HAVING TREATED THE SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT AND VALUED THE SAME AT COST IN THE BALANCE SHEET AND MAINTAINED DISTINCTION BETWEEN THE SHARES HELD AS INVESTMENT AND THOSE HELD AS STOCK IN TRADE RIGHT FROM THE BEGINNING AND CLAIM OF THE ASSESSEE REGARDING CAPITAL GAINS AND INVESTMENT SHOWS IN THE BALANCE SHEET HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS, INCOME ARISING FROM PURCHASE AND SALE OF SHARED HELD AS INVESTMENT IS ASSESSABLE AS CAPITAL GAINS AND NOT AS BUSINESS INCOME; USS REALITY PVT LTD. A.Y. 2008-09 5 PAGE 5 OF 12 BIFURCATION OF THE SHORT TERM CAPITAL GAIN AND TREATING THE TRANSACTION AS INVESTMENT IN THE CASES WHERE THE HOLDING PERIOD IS MORE THAN 30 DAYS AND AS BUSINESS TRANSACTION IN THE CASE WHERE THE HOLDING PERIOD IS LESS THAN 30 DAYS IS NOT JUSTIFIED. 5. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF MUMBAI BENCH IN THE CASE OF BHARAT KUNVERJI KENIA VS ADDL. CIT (2010) 130 TTJ (MUMBAI (UO) WHEREIN IT HAS BEEN HELD AS UN DER:- WHERE THE ASSESSEE HAS SHOWN INVESTMENT IN SHARES UNDER THE HEAD INVESTMENT IN THE BALANCE SHEET FOR MANY YEARS AND THE SAME IS ACCEPTED BY THE AO IN THE PAST, THERE IS NO JUSTIFICATION FOR TREATING THE ACTIVITY OF THE ASSESSEE OF PURCHASE AND SALE OF SHARES AS BUSINESS, MERELY ON THE REASON OF THE VOLUME OF THE TRANSACTIONS, PARTICULARLY WHEN NO MONEY HAS BEEN BORROWED FOR MAKING INVESTMENT IN SHARES. USS REALITY PVT LTD. A.Y. 2008-09 6 PAGE 6 OF 12 6. THE RELIANCE WAS PLACED ON THE DECISION OF HON' BLE DELHI HIGH COURT IN THE CASE OF CIT VS JUBILANT SEC URITIES PVT. LTD. REPORTED IN (2011) 59 DTR 172 AND 333 ITR 445 (DEL) WHEREIN IT WAS HELD AS UNDER:- WHERE THE ASSESSEE DEALING IN THE BUSINESS OF SALES/PURCHASE OF SHARES , WAS MAINTAINING TWO PORTFOLIOS, AND SHARES IN A COMPANY RECKONED AS INVESTMENT FROM THE DATE OF PURCHASE ITSELF AND SHOWN IN THE INVESTMENT PORTFOLIO, PROFIT FROM SALE OF SUCH SHARES HAD TO BE ASSESSED AS LONG TERM CAPITAL GAINS. 7. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE M ADRAS HIGH COURT IN THE CASE OF CIT VS N.S.S. INVESTMENT PVT. LTD. REPORTED IN (2005) 277 ITR 149. 8. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE B OMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT IN I TA NO.1121 OF 2009 DATED 06-01-2010. THIS DECISION OF HON'BLE BOMBAY USS REALITY PVT LTD. A.Y. 2008-09 7 PAGE 7 OF 12 HIGH COURT WAS UPHELD BY THE HON'BLE SUPREME COURT BY REJECTING THE SLP FILED BY THE DEPARTMENT. 9. RELIANCE WAS PLACED ON THE DECISION OF KOLKATA B ENCH OF I.T.A.T. IN THE CASE OF M/S. LANDMARK FINANCE PVT. LTD. IN ITA NO.195/KOL/2011 DATED 28-12-2011 WHICH HAS DISCUSSE D THE SIMILAR ISSUED IN DETAIL AND HELD THAT :- 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORDS OF THE FACTS. THE FACTS ARE NOT DISPUTED THAT THE ASSESSEE WAS DEALING SHARES AS TRADER IN SHARES AS WELL AS HOLDING THE SHARES AS INVESTMENT. IT IS NOT DISPUTED THAT THE ASSESSEE HAD KEPT BOTH THE PORTFOLIOS SEPARATELY AND MODE OF THE VALUATION OF STOCKS HELD AS INVESTMENT AND STOCK HELD AS STOCK IN TRADE WAS DIFFERENT. THE INVESTMENTS WERE VALUED AT COST AND IT WAS SOWN IN THE BALANCE SHEET ONLY WHEREAS STOCK IN TRADE WAS VALUED AT COST OR MARKET PRICE WHICHEVER WAS LOWER AND THE LOSS USS REALITY PVT LTD. A.Y. 2008-09 8 PAGE 8 OF 12 WAS ACCORDINGLY CLAIMED IN THE PROFIT & LOSS ACCOUNT AND ALLOWED TO THE ASSESSEE. IN RESPECT OF SHORTFALL IN THE VALUE OF INVESTMENT, THE ASSESSEE HAD NOT CLAIMED ANY LOSS. THIS MODE OF ACCOUNTING IS NOT DISPUTED. FURTHER, IT IS NOT DISPUTED THAT IN RESPECT OF SHARES HELD AS 7 ITA NO. 195/KOL/2011 & C.O. INVESTMENT, THE STT PAID BY THE ASSESSEE IN RESPECT OF SHARESD SOLD BY IT WAS NOT CLAIMED U/S 88E OF THE INCOME TAX ACT. THUS, IT WAS RIGHTLY POINTED OUT THAT BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAD NOT CLAIMED THE BENEFICIAL PROVISIONS, WHICH WERE APPLICABLE TO THE SHARES HELD AS STOCK IN TRADE. IT IS A TRITE LAW THAT IF THE ASSESSEE IS HOLDING SHARES AS INVESTMENT AND AS STOCK IN TRADE SEPARATELY AND IF THIS POSITION HAS NOT BEEN DOUBTED IN EARLIER YEARS, THEN THE SAME CANNOT BE ALTERED MERELY BECAUSE OF AMENDMENT IN LAW IN ASSESSMENT YEAR 2005-06. WE FIND USS REALITY PVT LTD. A.Y. 2008-09 9 PAGE 9 OF 12 THAT THE CASE OF M/S. SONTHALIA SECURITIES PVT. LTD. IN ITA NOS. 2054 & 2061/KOL/2008 IS IDENTICAL WITH THE FACTS OF THIS CASE, WHEREIN THE DECISION DATED 21-08-2009 OF THIS TRIBUNAL HAS BEEN ACCEPTED BY THE DEPARTMENT IN SUBSEQUENT YEARS. IN VIEW OF ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND UPHOLD THE SAME. RECENTLY, THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT IS DISMISSED. 10. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS AVINASH JAIN REPORTED AT ITA NO. 703/2012 DATED 09-01-2013 (84 CCH 018). 11. ON THE OTHER HAND, THE CONTENTIONS OF THE LD. D R WAS THAT THERE WAS HIGH FREQUENCY TO TRANSACTION, WHEREIN AS SESSEE HAS EARNED PROFIT ON SALE OF SHARES, THEREFORE, LOWER A UTHORITIES WERE CORRECTLY HELD THE CAPITAL GAIN AS BUSINESS IN COME. 12. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOU ND FROM USS REALITY PVT LTD. A.Y. 2008-09 10 PAGE 10 OF 12 RECORD THAT SHARES WERE HELD AS INVESTMENT IN THE A UDITED ACCOUNTS AS PER SCHEDULE V OF THE BALANCE SHEET. TH E INVESTMENT IN SHARES SHOWN AS INVESTMENT IN THE BAL ANCE SHEET AND NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT AS PURCHASE AND SALE OF SHARES. THE ASSESSEE HAD ALSO VALUED THE SHARES AT COST PRICE, EVEN WHEN MARKET VALUE OF SHA RES WAS LOWER. IT IS CLEAR AS PER SCHEDULE V OF AUDITED ACC OUNTS. THE QUANTUM OF INTEREST PAID AND INTEREST EARNED, WHERE IN INTEREST EARNED WAS MORE THAN INTEREST PAID, CLEARLY INDICAT E THAT NO BORROWED FUNDS WERE UTILIZED TOWARDS INVESTMENT IN SHARES. THE TAX AUDITOR HAS ALSO EXPRESSED THE NATURE OF AS SESSEES BUSINESS WHICH WAS DEALING IN DERIVATIVES AND INVES TMENT IN SHARES AND SECURITIES. MAJOR CAPITAL GAIN WAS EARNE D IN 9 SCRIPTS ONLY. THE ASSESSEE WAS REGULARLY EARNING DI VIDEND INCOME ON THESE INVESTMENTS. IN RESPECT OF S.T.T. P AID NO DEDUCTION WAS CLAIMED U/S 88E, BUT THE STT WAS CONS IDERED AS PART OF ITS COST. WE FOUND THAT IN THE ASSESSMEN T YEAR 2009- 10, WHICH WAS SCRUTINY ASSESSMENT U/S 143(3), ASSES SEES CLAIM OF CAPITAL GAIN WAS NOT DECLINED. WE ALSO FOU ND THAT USS REALITY PVT LTD. A.Y. 2008-09 11 PAGE 11 OF 12 HOLDING PERIOD OF SCRIPTS WERE RANGING BETWEEN ONE MONTH TO ELEVEN MONTHS. THE CBDT CIRCULAR NO. 4/2007 DATED 15.6.2007 ALSO SUPPORTS THE CASE OF THE ASSESSEE, W HEREIN HON'BLE CBDT APPROVED TWO PORTFORIO CONCEPT. INTENT ION OF ASSESSEE FROM THE VERY BEGINNING WAS TO INVEST IN S HARES. THUS, THE PROFIT EARNED ON DELIVERY BASED TRANSACTI ON WAS LIABLE TO BE ASSESSED AS CAPITAL GAIN AND NOT AS BU SINESS PROFIT. I.T.A.T. INDORE BENCH IN THE CASE OF OM PRAKASH SUR I HAVE HELD THAT PROFIT EARNED ON SALE OF SHARES HELD AS I NVESTMENT IN RESPECT OF DELIVERY BASED TRANSACTION ARE LIABLE TO BE ASSESSED AS CAPITAL GAINS. JURISDICTIONAL HIGH COURT HAVE AF FIRMED THE ORDER OF THE TRIBUNAL AND SAME IS REPORTED AT 19 IT J 326. APPLYING THE PROPOSITION OF LAW DISCUSSED IN VARIOU S JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE TO THE FACTS OF T HE INSTANT CASE, WE CAN SAFELY REACH TO THE CONCLUSION THAT PR OFIT EARNED ON SALE OF DELIVERY BASED SHARE IS TO BE TAXED AS C APITAL GAIN AND NOT AS BUSINESS PROFITS. USS REALITY PVT LTD. A.Y. 2008-09 12 PAGE 12 OF 12 13. IN THE RESULT, THE APPEAL IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20 TH NOVEMBER, 2013. RNM