DCIT 3(2), MUMBAI V. ORCHID TELELINK P.LTD, MUMBAI

ITA 3437/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70917 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 15-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIYA IZRFKHZ DH LS
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Business income

Judgement Text

ORCHID TELELINK P. LTD. - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH ,P- ,Y- DKJOK] V/;{K ,OA JH JKTSUNZ FLAG YS[KK L NL; DS LE{K BEFORE HONBLE PRESIDENT SHRI H.L. KARWA AND SHRI R AJENDRA SINGH ACCOUNTANT MEMBER VK;DJ VIHY LA[;K /ITA NO.3437/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 DCIT 3(2). ROOM NO. 608, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI400 020 CUKE@ VS. ORCHID TELELINK P. LTD. 17 TH FLOOR, ABDULLAH TERRACE, ACHARYA, DHONDE MARG, PAREL (E) MUMBAI - 12 PAN:- AAACO4202D VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI DEEPAK SUTARIYA IZR;FKHZ DH VKSJ LS @ RESPONDENT BY DR. K. SHIVARAM & MS. NEELAM JADHAV VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 2.3.2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-09. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS WHETHER INC OME FROM PURCHASE AND SALE OF SHARES SHOULD BE ASSESSED AS BUSINESS INCOM E OR SHORT TERM CAPITAL GAIN. LQUOKBZ DH RKJH[K @ DATE OF HEARING 29-08-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 4-09-2013 ORCHID TELELINK P. LTD. - 2 - 2. THE FACTS IN BRIEF ARE THAT THE AO DURING THE AS SESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD EARNED GAIN OF RS. 1,76 ,75,949/- ON PURCHASE AND SALE OF SHARES WHICH HAD BEEN DECLARED AS SHORT TERM CAPITAL GAIN. AO NOTED THAT THE SHARE CAPITAL OF THE ASSESSEE WAS ON LY RS. 2,17,600/- AND THE ASSESSEE HAD TAKEN LOAN OF RS. 1,56,20,252/- ON WHICH INTEREST HAD BEEN PAID. AFTER EXAMINATION OF DETAILS, THE AO NOT ED THAT SHARES HAD BEEN PURCHASED OUT OF THE LOAN FUNDS. THE ASSESSEE HAD P URCHASED 6,52,832 SHARES OF GTL INFRA SALE OF WHICH HAD RESULTED INTO GAIN. AO ALSO OBSERVED THAT THE VOLUME OF TRANSACTION WAS VERY HIGH AND HO LDING PERIOD IN MAJORITY OF TRANSACTIONS WAS LESS THAN TWO MONTHS. HE, THERE FORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY INCOME FROM SALE AND PURCHASE OF SHARES SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSES SEE SUBMITTED THAT THE COMPANY HAD BEEN INCORPORATED TO UNDERTAKE BUSINESS OF ELECTRONIC GOODS AND NETWORKING EQUIPMENT. THE LOAN HAD BEEN TAKEN F OR THE PURCHASE OF A PROPERTY BUT THE SAME DID NOT MATERIALIZE. THE SAID AMOUNT THEREFORE, HAD BEEN INVESTED IN SHARES. SINCE, SUBSEQUENTLY, THE P ROPOSAL FOR THE PURCHASE OF PROPERTY MATERIALIZED, THE INVESTMENTS WERE SOLD DURING THE YEAR. THE INTENTION OF THE ASSESSEE WAS, THEREFORE, TO MAKE INVESTMENT AND NOT TO TRADE IN SHARES. THE PURCHASE OF SHARES HAD BEEN CONSISTENTLY ACCOUNTED AS INVESTMENT IN THE BOOKS OF ACCOUNTS. T HE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVE D THAT IT WAS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE O F SHARES WHICH WAS IMPORTANT FOR JUDGING THE NATURE OF TRANSACTION. HE FURTHER OBSERVED THAT INVESTMENT HAD BEEN MADE OUT OF LOAN FUNDS. AO ALSO OBSERVED THAT THE PURCHASES OF SHARES HAD BEEN MADE ON 14.6.2007,15.6 .2007 AND 3.08.2007 AND SALES HAD TAKEN PLACE ON 2.8.2007, 3. 8.2007, 28.8.2007, 15.11.2007 AND 20.11.2007. IT WAS, THEREFORE, CLEAR THAT THE INTENTION OF THE ASSESSEE WAS TO EARN PROFIT AND SHARES WERE SOL D AS AND WHEN PROFIT HAD ARISEN. AO, THEREFORE, DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT PURCHASE OF SHARE WAS INVESTMENT AND ACCORDINGLY AS SESSED THE GAIN FROM SHARES AS BUSINESS INCOME. ORCHID TELELINK P. LTD. - 3 - 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT(A) THAT THE ASSESSEE COMPANY IN THE FINANCIAL Y EAR 2006-07 HAD RAISED UNSECURED INTER-CORPORATE DEPOSITS WITH A VIEW TO P URCHASE OFFICE PREMISES AND THE FUNDS WERE RAISED AND UTILIZED FOR PAYMENT OF ADVANCE FOR PURCHASE OF PREMISES. HOWEVER THE DEAL COULD NOT MA TERIALIZE AND THE ADVANCE PAID WAS RECEIVED BACK IN THE FINANCIAL YEA R 2007-08. THE ASSESSEE COMPANY WAS STILL LOOKING FOR PURCHASE OF PREMISES AND SINCE THE SAME WAS CONSUMING CONSIDERABLE TIME, THE BOARD OF DIRECTORS HAD DECIDED TO INVEST THE FUNDS FOR THE TIME BEING AND ACCORDIN GLY THE MONEY HAD BEEN UTILIZED IN PURCHASE OF SHARES OF GTL INFRA LTD. IN THE MEANTIME THE PROPOSAL FOR PURCHASE OF PREMISES HAD MATERIALIZED AND THE ASSESSEE HAD SOLD THE INVESTMENT TO GENERATE FUNDS REQUIRED FOR PURCHASE OF PREMISES. IT WAS THUS SUBMITTED THAT MERELY BECAUSE THE PURCHASE HAD MADE OUT OF LOAN FUND, IT WAS NOT CONCLUSIVE TO THE FACT THAT P URCHASE WERE NOT INVESTMENTS. THE TRANSACTIONS OF SALES WERE GUIDED BY THE FUNDS REQUIRED FOR THE PURCHASE OF PREMISES. AT THE TIME WHEN THE ASSESSEE HAD PURCHASED THE SHARES, IT HAD NO DEFINITE IDEA AS TO WHETHER THE VALUE OF INVESTMENTS WOULD GO UP IN THE NEAR FUTURE. IT WAS, THEREFORE, REQUESTED THAT THE PURCHASES SHOULD BE ACCEPTED AS INVESTMENT AND THE GAIN SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAIN. 3.1 CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT TRADING IN SHARES AND SECURITIES WAS NOT THE B USINESS OF THE ASSESSEE. THERE WAS ALSO NO DISPUTE THAT THE ASSESSEE HAD ACQ UIRED UNSECURED INTER- CORPORATE DEPOSITS WITH A VIEW TO PURCHASE OFFICE P REMISES AND THE SAME FUNDS WERE UTILISED FOR PURCHASE OF SHARES. THE ASS ESSEE WAS LOOKING FOR A SHORT TERM AVENUE FOR PARKING ITS FUNDS TO EARN CER TAIN INCOME ON IDLE FUNDS TILL THE PROPERTIES WERE PURCHASED. IT WAS, T HEREFORE, CLEAR THAT THERE WAS NO INTENTION OF THE ASSESSEE TO ENTER INTO ANY TRADING ACTIVITY. CIT(A) ALSO OBSERVED THAT AS SOON AS THE TRANSACTION FOR O FFICE PREMISES MATERIALIZED, THE INVESTMENTS WERE SOLD. MERELY BEC AUSE THE LOAN FUNDS ORCHID TELELINK P. LTD. - 4 - HAD BEEN UTILIZED WAS NOT THE SOLE CRITERIA FOR DEC IDING THE NATURE OF TRANSACTION. MOREOVER THERE WAS ONLY THREE PURCHAS ES AND SALES ON FIVE OCCASIONS AND ONLY ONE SCRIPT I.E. GTL INFRASTRUCT URE WAS INVOLVED. CIT(A), THEREFORE, CONCLUDED THAT IT WAS A CASE OF INVESTME NT AND NOT TRADING ACTIVITY AND DIRECTED THE AO TO ASSESS THE GAIN AS SHORT TERM CAPITAL GAIN. AGGRIEVED BY THE DECISION OF CIT(A), THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 4. BEFORE US THE LEARNED AR FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES. IT WAS ALSO POINTED OUT THAT PURCHASES WERE MADE ONLY ON TWO OCCASIONS I.E. ON 14.6.2007 AND 15 .6.2007 AND THE THIRD TRANSACTION FOR PURCHASE ON 30.8.2007 WAS UPRIGHT I SSUE AND NOT PURCHASE FROM THE MARKET. THEREFORE, EFFECTIVELY THERE WAS ONLY ONE PURCHASE ON 14.6/15.6.2007. THE SALES WERE MADE IN AUGUST 2007 AND NOVEMBER 2007 WHEN THE FUNDS WERE REQUIRED FOR THE PURCHASE OF PR OPERTY. HOWEVER THE LEARNED AR FOR THE ASSESSEE COULD NOT PRODUCE DETAI LS TO LINK THE SALE OF SHARES WITH THE FUNDS REQUIRED AND UTILIZED FOR THE PURCHASE OF PROPERTY. IT WAS SUBMITTED THAT THESE DETAILS WERE NOT CALLED FO R BY THE AUTHORITIES BELOW AND IF REQUIRED THE ASSESSEE WILL BE ABLE TO PRODUCE BEFORE THE AO IF THE MATTER IS REMANDED TO AO. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF ASSESSING OFFICER. HOWEVER HE HAD NO SERIOUS OBJECTION IF THE MATTER WAS REMANDED TO THE AO FOR FURTHER VERIFICATION. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCOM E FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSU E WHETHER THE SHARE TRANSACTION IN A PARTICULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY IS HIGHLY DEBATABLE AND WILL DEPEN D UPON THE FACTS OF EACH CASE. THERE ARE VARIOUS FACTORS SUCH AS FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATURE OF FUNDS USED, HOLDING PE RIOD ETC. WHICH ARE RELEVANT IN DECIDING THE TRUE NATURE OF TRANSACTION BUT NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT FACTOR IS INTENTION OF THE ASSESSEE AT THE ORCHID TELELINK P. LTD. - 5 - TIME OF PURCHASE WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNTS. 5.1 NORMALLY, INVESTMENT IN SHARES IS MADE FOR EARN ING DIVIDEND INCOME AND FOR LONG TERM APPLICATION BUT THERE MAY BE SITU ATIONS IN WHICH AN ASSESSEE MAY SELL THE SHARES AFTER SHORT HOLDING IN COME TO RESHUFFLE PORTFOLIO OR FOR SOME PERSONAL EXIGENCIES. CASE IS REQUIRED TO BE EXAMINED TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. IN T HIS CASE THE ASSESSEE HAD TAKEN LOAN IN ASSESSMENT YEAR 2006-07 FOR PURCHASE OF PROPERTY FOR WHICH ADVANCES HAD BEEN CLAIMED TO HAVE BEEN GIVEN. THE P ROPOSAL AS PER THE ASSESSEE DID NOT MATERIALIZE AND THE ADVANCES WERE REFUNDED IN ASSESSMENT YEAR 2007-08. AS THE PURCHASE OF PROPERT Y WAS TAKING TIME, THE ASSESSEE PARKED THE FUNDS AVAILABLE IN THE SHORT TE RM INVESTMENT IN SHARES WHICH WERE SOLD WHEN THE FUNDS WERE REQUIRED FOR PU RCHASE OF PROPERTY. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT ONCE THE TRANSACTION FOR OFFICE PREMISE WAS MATERIALIZED, THE INVESTMENTS WE RE SOLD. THIS IS HOWEVER NOT SUPPORTED BY ANY MATERIAL ON RECORD. EVEN BEFOR E US, THE LEARNED AR SUBMITTED NO MATERIAL TO LINK THE SALE OF SHARES TO THE FUNDS REQUIRED FOR PURCHASE OF PREMISES. THE AUTHORITIES BELOW HAVE NO T EXAMINED THIS ASPECT WHICH HAS BEARING ON THE NATURE OF TRANSACTIONS. TH E CLAIM OF THE ASSESSEE THAT PURCHASE ON 30 TH AUGUST 2007 WAS RIGHT ISSUE AND NOT PURCHASES ALSO REQUIRES VERIFICATION. IN CASE THIS IS FOUND TO BE CORRECT THE PURCHASES HAVE BEEN MADE ONLY ON 14.6.2007 AND 15.6.2007 AND CONSI DERING THE FACT THAT LARGE VOLUME OF SHARES RUNNING INTO LAKHS HAD BEEN PURCHASED WHICH MAY NOT BE POSSIBLE IN ONE DAY, EFFECTIVELY, THE PURCHA SES HAVE TO BE CONSIDERED AS SINGLE TRANSACTION. HOWEVER, THE SALES HAVE TAKE N PLACE IN DIFFERENT DATES IN AUGUST AND NOVEMBER 2007 FOR WHICH NO EXAM INATION HAS BEEN MADE TO LINK WHETHER THE FUNDS FROM SALE OF SHARES WERE REQUIRED FOR PURCHASE OF PROPERTY. IN OUR VIEW, THE MATTER REQUI RES FRESH CONSIDERATION AT THE LEVEL OF AO TO WHICH BOTH THE PARTIES HAVE N O OBJECTION. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTOR E THE MATTER BACK TO AO ORCHID TELELINK P. LTD. - 6 - FOR PASSING AFRESH ORDER AFTER NECESSARY EXAMINATIO N IN THE LIGHT OF OBSERVATIONS MADE IN THIS ORDER AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT APPEAL OF REVENUE IS ALLOWED FOR S TATISTICAL PURPOSE. ORDER PRONOUNCED ON 4-9-2013 SD/- SD/- (H.L. KARWA) (RAJENDRA SINGH) HONBLE PRESIDENT ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 4.9.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI