DCIT, New Delhi V. M/s. H.B. Stock Holdings Ltd, New Delhi

ITA 3452/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58622 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 05-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: SANTOSH KUMAR AGGARWAL
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency; Earning of tax free income; Block assessment
• Section: 14A; 115JB; 37(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 3327(DEL)2009 ASSESSMENT YEAR: 2005-06 M/S. HB STOCK HOLDINGS LTD. THE DY. CO MMISSIONER OF I. TAX, H-72, CON.CIRCUS, NEW DELHI. V. CIRCLE 12(1), NEW DELHI. ITA NO. 3452(DEL)2009 ASSESSMENT YEAR: 2005-06 THE DY.COMMISSIONER OF I.TAX, M/S. HB STOCK HOLDINGS LTD., CIRCLE 12(1), NEW DELHI. V. H-72, CON . CIRCUS, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SANTOSH KUMAR AGGARWAL, ADVOCA TE DEPARTMENT BY: SHRI SALI L MISHRA, SR. DR ORDER PER A.D. JAIN, J.M . THESE ARE CROSS APPEALS FOR ASSESSMENT YEAR 2005-06 AGAINST THE ORDER DATED 22.5.09 PASSED BY THE LD. CIT(A)-XV, NEW DELH I. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS:- 1. THAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE INCOME BY WAY OF DIVIDEND AND AS SUCH NO EXPENDITURE WAS TO BE DE DUCTED UNDER SECTION 14A OF THE ACT. 2. THAT THE DISALLOWANCE OF ` 20,51,591/- ON ESTIMATE, UNDER SECTION 14A OF THE ACT IS WRONG ON FACTS AND BAD IN LAW. ITA NOS. 3327 & 3452(DEL)09 2 3. THAT THE ADDITION OF ` 20,51,591/- BEING THE ESTIMATED DISALLOWANCE U/S 14A OF THE ACT IN THE BOOK PROFITS U/S 115JB OF THE ACT IS WRONG ON FACTS AND BAD IN LAW. 4. THAT THE APPELLANT IS ENTITLED TO DEDUCTION OF ` 2,46,217/- FOR THE SECURITIES TRANSACTION TAX UNDER SECTION 88E OF THE ACT. 2. THE DEPARTMENT HAS TAKEN THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN TREATING THE BUSINESS INCOME OF ` 46,27,931/- AS SHORT TERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. 2. ON THE FACTS AND CIRCUMSTANCES OF LAW, THE CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO TREATING THE I NTEREST EXPENDITURE OF ` 7,28,617/- AS FOR NON-BUSINESS USE AND NOT ALLOWABL E U/S 37(1) OF THE I.T. ACT, 1961. 3. APROPOS GROUND NOS. 1&2 OF THE DEPARTMENTS APPE AL, THE AO MADE DISALLOWANCE OF ` 20,51,591/- U/S 14A OF THE ACT. THE ASSESSEE HAD DECLARED A DIVIDEND INCOME OF ` 82,06,366/- IN ITS RETURN OF INCOME, CLAIMING IT AS EXEMPT. BEFORE THE AO, THE ASSESSEE SUBMITTED THA T THE INTENTION OF THE ASSESSEE WAS NOT TO EARN DIVIDEND BUT TO HOLD THE S ECURITIES FOR EARNING PROFIT FROM THEIR SALE/PURCHASE; THAT THE DIVIDEND WAS ONL Y INCIDENTAL TO THE ACTIVITY DERIVED FROM THE PURCHASE/SALE OF SHARES; AND THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENSES RELATED EITHER DIRECTLY OR IN DIRECTLY TO, OR ALLOCABLE TO THE EARNING OF THE DIVIDEND INCOME. THE AO REFUSE D TO ACCEPT THE STAND TAKEN BY THE ASSESSEE. IT WAS OBSERVED THAT FOR EA RNING DIVIDEND INCOME, THERE ARE VARIOUS ADMINISTRATIVE EXPENSES INVOLVED, LIKE TAKING DECISION OF ITA NOS. 3327 & 3452(DEL)09 3 INVESTMENT, EXPENSES RELATED TO PURCHASE/SALE OF TH E INVESTMENT LIKE THE DMAT FEE, COLLECTION EXPENSES, TELEPHONE EXPENSES, ETC. AND OTHER ADMINISTRATIVE EXPENSES AS WELL AS PERSONNEL COST; THAT ALSO, KEEPING THE INVESTMENT TOO INVOLVES INTEREST COST OF MAINTAININ G THE INVESTMENT PORTFOLIO; THAT THEREFORE, THE EXPENSES ON EARNING DIVIDEND WO ULD INCLUDE INTEREST AND ADMINISTRATIVE AND PERSONNEL EXPENSES; AND THAT SIN CE THE ASSESSEE HAD NOT MADE SEGREGATION OF EXPENSES RELATING TO INVESTMENT /EARNING OF DIVIDEND INCOME, THE EXPENDITURE RELATING TO EARNING OF THE DIVIDEND INCOME WAS BEING ESTIMATED AT 25% OF THE DIVIDEND INCOME. TH E AO, IN DOING SO, RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNITED GENERAL TRUST PVT. LTD., 200 ITR 488(SC). THUS, 25% OF T HE DIVIDEND INCOME OF ` 82,06,366/-, AMOUNTING TO ` 20,51,591/- WAS DISALLOWED U/S 14A OF THE I.T. ACT. 4. THE LD. CIT(A) MAINTAINED THE DISALLOWANCE OBSER VING THAT NO SUBMISSION HAD BEEN OFFERED BY THE ASSESSEE IN THIS REGARD. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY OBSERVED THAT NO SUBMISSION WAS MADE BEFORE HIM REGARDING THIS ISSUE. ATTENTION HAS BEEN DRAWN TO PAGES 21 TO 31 OF THE ASSESSEES PAPER BOOK (APB FOR SHORT). THIS IS A COPY OF THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LD. CI T(A). THESE WRITTEN ITA NOS. 3327 & 3452(DEL)09 4 SUBMISSIONS HAVE BEEN CERTIFIED TO HAVE BEEN FILED BEFORE THE LD. CIT(A), WHICH SUBMISSION REMAINS UNREBUTTED. THEREIN, IT HAS BEEN SUBMITTED WITH REGARD TO THIS ISSUE THAT DETAILED SUBMISSIONS WOUL D BE SUBMITTED AT THE NEXT HEARING. THE LEARNED COUNSEL FOR THE ASSESSEE CON TENDS THAT THOUGH IT HAD BEEN SUBMITTED THESE BEFORE THE LD. CIT(A), NO FURT HER OPPORTUNITY WAS GRANTED TO THE ASSESSEE, AND THE IMPUGNED ORDER WAS PASSED ON 22.5.09. IT HAS BEEN SUBMITTED THAT EVEN OTHERWISE, THE MATTER NEEDS TO BE REMITTED TO THE AO IN VIEW OF THE DECISION IN MAXOPP INVESTMEN T LTD. V. CIT. 6. ON THE OTHER HAND, THE LD. DR HAS STRONGLY RELI ED ON THE IMPUGNED ORDER. IT HAS BEEN SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO REBUT THAT NO SUBMISSIONS ON THIS COUNT WERE MADE BEFORE THE L D. CIT(A) AND, THEREFORE, THE ASSESSEE IS DEEMED TO HAVE ACCEPTED THE DECISION OF THE AO ON THE ISSUE. 7. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE AO MADE DISALLOWANCE OF ` 20,51,591/-, I.E., 25% OF THE DIVIDEND INCOME OF ` 82,06,366/-, HOLDING THAT THE ASSESSEE HAD NOT MADE ANY SUBMISSION OF EXPENSES RELATING TO INVESTMENT OR DI VIDEND OF INCOME, THOUGH INDISPUTEDLY, CERTAIN EXPENSES ARE BOUND TO HAVE IN CURRED FOR EARNING THE DIVIDEND INCOME. IN MAXOPP INVESTMENT LTD. V. CI T(SUPRA) IT HAD BEEN HELD THAT IN TERMS OF SECTION 14A(2) OF THE ACT, TH E CONDITION PRECEDENT FOR ITA NOS. 3327 & 3452(DEL)09 5 THE AO TO DETERMINE THE AMOUNT OF EXPENDITURE INCUR RED IN RELATION TO EXEMPT INCOME IS THAT HE MUST RECORD HIS DIS-SATISF ACTION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED; THAT THEREFORE, THE DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D OF THE RULE S WOULD ONLY COME INTO PLAY WHEN THE AO REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. MAXOPP INVESTMENT LTD. V. CIT(SUPRA), IT IS SEEN, IS SQUA RELY APPLICABLE HERETO. THE ASSESSMENT ORDER DOES NOT EVINCE ANY SUCH DIS-S ATISFACTION OF THE AO WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT NO EX PENDITURE HAD BEEN INCURRED. 8. THEREFORE, THE MATTER IS REMITTED TO THE FILE OF THE AO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, I.E., THE DECISION I N MAXOPP INVESTMENT LTD. V. CIT(SUPRA), BY RECORDING HIS DIS-SATISFACTION A BOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. 9. GROUND NOS. 3&4 ARE CONSEQUENTIAL TO THE DECISIO N ON GROUND NOS. 1&2 AND THEREFORE, THESE GROUNDS ARE ALSO REMITTED TO THE FILE OF THE AO. 10. CONSEQUENTLY, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 3327 & 3452(DEL)09 6 11. COMING TO THE DEPARTMENTS APPEAL, APROPOS GROU ND NO.1, THE ASSESSEE COMPANY, PRIMARILY ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, SHOWED PART OF THE PURCHASE AND SALE IN ITS PROFIT AND LOSS ACCOUNT. HOWEVER, THE REST OF THE GAINS DERIVED FROM THE TRA DING OF SHARES WAS CLAIMED AS SHORT TERM CAPITAL GAINS AMOUNTING TO ` 46,27,931/-. THE AO ASKED THE ASSESSEE TO SHOW AS TO HOW THE INCOME FRO M PURCHASE AND SALE OF SHARES COULD BE DECLARED AS SHORT TERM CAPITAL GAI N RATHER THAN BUSINESS INCOME. THE ASSESSEE SUBMITTED THAT THE SHORT TER M CAPITAL GAINS HAD BEEN DECLARED IN THE LONG TERM INVESTMENT HELD BY THE ASSESSEE AS CAPITAL ASSETS; THAT THE ASSESSEE WAS HOLDING DUAL PORTFOLI OS (I) STOCK IN TRADE AND (II) INVESTMENT; THAT THE SHORT TERM CAPITAL GAINS HAS BEEN DERIVED FROM SUCH INVESTMENT WHICH HAD TO BE ACCEPTED BY THE DEP ARTMENT. THE AO FOUND THE RESPONSIBILITY OF THE AO TO BE UNACCEPTAB LE. IT WAS HELD THAT THE ASSESSEES CLAIM OF THE SHARES FROM WHICH SHORT TER M CAPITAL GAIN HAD BEEN DERIVED, BEING LONG TERM INVESTMENTS, WAS FACTUALLY INCORRECT; THAT THESE SHARES WERE LIKE THE OTHER STOCK HELD BY THE ASSESS EE FOR A SHORT TERM, WHICH FACT WAS CLEAR SINCE SHORT TERM CAPITAL GAIN HAD B EEN DECLARED BY THE ASSESSEE; THAT IT WAS ALSO INCORRECT THAT THESE SHA RES WERE THE ASSESSEES LONG TERM INVESTMENTS, SINCE THE BUSINESS OF THE ASSESSE E BEING TRADING IN SHARES, THE ASSESSEE COULD NOT SHOW PART OF THE TR ADING SHARES AS BUSINESS ITA NOS. 3327 & 3452(DEL)09 7 RECEIPTS AND THE REST AS RECEIPTS FROM CAPITAL GAIN S; AND THAT AS SUCH, THE ENTIRE PROCEEDS FROM SHARE TRADING REQUIRED TO BE R ECOGNIZED AS RECEIPTS ON BUSINESS. RELIANCE IN THIS REGARD WAS PLACED BY T HE AO ON THE DECISION OF THE HONBLE SUPREME COURT IN G.VENKATA SWAMI NAIDU & CO. V. CIT, 35 ITR 594(SC). THE AO ALSO RELIED ON SARDAR INDRA SINGH & SONS LTD. V. CIT, 24 ITR 415(SC) AND KARAM CHAND THAPAR &BROTH ERS PVT. LTD. V. CIT, 83 ITR 899(SC). IT WAS OBSERVED THAT IN THE ASSESSEES CASE, THE SHARES HAD BEEN PURCHASED IN VERY LARGE QUANTITIES WHICH ELIMINATES THE POSSIBILITY OF INVESTMENT FOR PERSONAL USE, POSSESS ION OR ENJOYMENT. MOREOVER, THE PURCHASE/SALE TRANSACTIONS OF SHARES WERE REPETITIVE, SHOWING THAT THE PROFITS AND GAINS FROM THE TRADING OF SHAR ES WAS THE ASSESSEES BUSINESS INCOME; THAT FURTHER MORE, IT WAS ABSOLUTE LY CLEAR THAT THE INTENTION OF THE ASSESSEE WHILE PURCHASING THE SHARES WAS TO RE-SALE THEM AT A PROFIT AND THERE WAS NO INTENTION OF HOLDING THE SAME; THA T BY SHOWING THE PART OF THE SHARE TRADING IN ITS PROFIT AND LOSS ACCOUNT, T HE ASSESSEE HAD ITSELF ACCEPTED THAT SHARE TRADING WAS ITS BUSINESS ACTIVI TY; THAT IT WAS ONLY AN ADMISSION ON THE PART OF THE ASSESSEE TO CAMOUFLAGE SUCH BUSINESS INCOME AS SHORT TERM CAPITAL GAIN; THAT UNDENIABLY, THE SALES PRODUCED THE SURPLUS WERE CONNECTED WITH THE ASSESSEES BUSINESS, SO THA T THE SURPLUS WAS NOTHING ELSE BUT THE PROFITS AND GAINS OF SUCH BUSINESS OF THE ASSESSEE; AND THAT IN ITA NOS. 3327 & 3452(DEL)09 8 VIEW OF KARAM CHAND THAPAR &BROTHERS PVT. LTD.(S UPRA), IN THE FACTS OF THE CASE, THERE WAS NO MERIT IN THE ASSESSEES CONT ENTION THAT IT WAS THE PREROGATIVE OF THE ASSESSEE TO DECIDE AS TO WHICH A SSETS WERE TO BE SHOWN AS INVESTMENT AND WHICH WERE TO BE DECLARED AS TRADING ASSETS. AS SUCH, THE AO HELD THAT THE ENTIRE GAINS DERIVED BY THE ASSESS EE FROM PURCHASE AND SALE OF SHARES, AMOUNTING TO ` 46,27,931/- CLAIMED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS, WAS ITS BUSINESS INCOME. 12. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED TH AT DURING THE YEAR, IT HAD EARNED PROFIT/GAIN OF ` 1,93,61,380/- ON SALE OF SECURITIES, WHICH CONSISTED OF ` 1,47,33,449/- ON TRADING PORTFOLIO, I.E., CURRENT I NVESTMENT AND ` 46,27,931/- ON PORTFOLIO OF CAPITAL ASSET, I.E., LO NG TERM INVESTMENTS; THAT IT WAS THEREFORE, THAT THE AMOUNT OF ` 1,47,33,449/- WAS SHOWN UNDER THE HEAD OF BUSINESS AND THE AMOUNT OF ` 46,27,931/- WAS SHOWN AS SHORT TERM CAPITAL GAIN; THAT THE ASSESSEE WAS CARRYING ON BUS INESS ACTIVITY IN SECURITIES AS WELL AS HOLDING THEM AS INVESTMENTS; THAT THE TR EATMENT ACCORDED WAS ENTIRELY IN KEEPING WITH THE POLICY CONSISTENTLY FO LLOWED BY THE ASSESSEE COMPANY, AS WAS MENTIONED IN THE COMPUTATION OF INC OME FILED ALONG WITH THE RETURN OF INCOME; THAT THE ASSESSEE WAS HAVING A DUAL PORTFOLIO, WHICH WAS THE ACCEPTED POSITION FOR THE LAST OVER A DECAD E; THAT MOREOVER, THERE ITA NOS. 3327 & 3452(DEL)09 9 WAS NO PROHIBITION UNDER LAW FOR A PERSON TO BE A D EALER IN SHARES AS WELL AS INVESTOR IN SHARES; THAT THE CASE LAW RELIED ON BY THE AO WAS NOT AT ALL APPLICABLE TO THE FACTS OF THE ASSESSEES CASE; THA T THE DECISION IN KARAM CHAND THAPAR &BROTHERS PVT. LTD.(SUPRA), RATHER SU PPORTED THE CASE OF THE ASSESSEE COMPANY, INASMUCH AS IT HELD THAT THE TREA TMENT GIVEN BY THE ASSESSEE TO THE SHARES IN ITS BOOKS AND BALANCE SH EET WAS A RELEVANT CIRCUMSTANCE TO INFER AS TO WHETHER THE LOSS WAS A CAPITAL LOSS OR REVENUE LOSS. 13. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, HOLDING, INTER ALIA, THAT THE CLASSIF ICATION OF THE ASSESSEES ACCOUNTS DID NOT LEAD TO THE CONCLUSION THAT ALL TH E SHARES DISPOSED OF BY THE ASSESSEE SHOULD BE ASSESSED AS INCOME FROM BUSINESS ONLY, SINCE THE ASSESSEE WAS TRADER IN SHARES; THAT THIS ISSUE HAD BEEN DECI DED BY THE CIT(A) FOR ASSESSMENT YEAR 1995-96 VIDE ORDER DATED 28.2.2003, IN FAVOUR OF THE ASSESSEE AND THE SAME HAD BEEN CONFIRMED BY THE TRI BUNAL VIDE ORDER DATED 25.3.2008; THAT FOR ASSESSMENT YEARS 1996-97, 2001- 02 AND 2002-03, THIS FACT HAD BEEN ACKNOWLEDGED BY THE AO HIMSELF, OBSER VING THAT A PART OF THE SHARES AVAILABLE WITH THE ASSESSEE WERE IN THE NATU RE OF INVESTMENT AND SURPLUS FROM SALE THEREOF WAS ASSESSABLE AS CAPITAL GAINS ONLY; THAT THERE IS ITA NOS. 3327 & 3452(DEL)09 10 NO BAR ON A PERSON HAVING TWO PORTFOLIOS AND WHERE IT IS SO, THERE CAN BE INCOME BOTH BY WAY OF CAPITAL GAINS AS WELL AS BUSI NESS INCOME. 14. BEFORE US, THE LD. DR HAS CONTENDED THAT THE LD . CIT(A) HAS ERRED IN TREATING THE BUSINESS INCOME OF ` 46,27,931/- AS SHORT TERM CAPITAL GAIN, AS CLAIMED BY THE ASSESSEE, WHILE DOING SO, THE LD. CI T(A) HAS WRONGLY IGNORED THAT SINCE THE ASSESSEE WAS TRADING IN SHARES AS BU SINESS ACTIVITY, HE COULD NOT HAVE SHOWN PART OF THE GAMES FROM TRADING OF SH ARES AS SHORT TERM CAPITAL GAINS WHILE AT THE SAME TIME SHOWING PART T HEREOF IN ITS PROFIT AND LOSS ACCOUNT; THAT THE LD. CIT(A) HAS ALSO WRONGLY OVER-LOOKED THE FACT THAT IT IS QUITE EVIDENT THAT THE ASSESSEE HAD HELD THE SHA RES FOR A SHORT TIME ONLY, SINCE SHORT TERM CAPITAL GAIN WAS DECLARED AND THAT THE ASSESSEE WAS WRONG IN CONTENDING THAT THE SHARES FROM WHICH THE SHORT TERM CAPITAL GAINS CAME WERE ITS LONG TERM INVESTMENTS; THAT THE CASE LAWS RELIED ON BY THE AO ARE FAIRLY AND SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND THE LD. CIT(A) HAS ERRED IN NOT FOLLOWING THEM; THAT THE LD . CIT(A) HAS ALSO MISSED THE FACT THAT THERE WAS A FREQUENT PURCHASE AND SAL E OF SHARES AND THE MAXIMUM PERIOD OF HOLDING WAS THREE MONTHS, DUE TO WHICH THE INVESTMENT CANNOT BE SAID TO BE LONG TERM INVESTMENT; THAT FUR THER, IN THE COMPUTATION ITA NOS. 3327 & 3452(DEL)09 11 OF INCOME, ONLY SHORT TERM CAPITAL GAIN WAS REFLECT ED; THAT IN ITS REPLY BEFORE THE AO, THE ASSESSEE HAD SUBMITTED ITS INTEN TION NOT TO EARN DIVIDEND. 15. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER, SUBMITTING T HAT IT IS A CONSISTENT POLICY FOLLOWED BY THE ASSESSEE THAT THE SHARES/SEC URITIES IN THE NATURE OF CAPITAL ASSET ARE SHOWN UNDER THE HEAD LONG TERM I NVESTMENT AND THEREFORE, GAIN/LOSS THEREON IS SHOWN AS CAPITAL GA IN, THE SHARES/SECURITIES IN THE NATURE OF TRADING/REVENUE ASSETS, HELD FOR DISP OSAL IN THE ORDINARY COURSE OF BUSINESS, ARE SHOWN AS CURRENT INVESTMENTS AND AS SUCH, PROFIT/LOSS THEREFROM IS SHOWN AS INCOME FROM PROFESSION; THAT IT WAS SO ALSO STATED IN THE COMPUTATION OF INCOME ACCOMPANYING THE RETURN OF INCOME FILED; THAT THE ASSESSEE IS HAVING DUAL PORTFOLIOS OF SECURITIE S, I.E., ONE OF TRADING/REVENUE ASSETS AND THE OTHER OF CAPITAL ASS ETS; THAT THIS HAS BEEN THE POSITION FOR THE LAST MORE THAN A DECADE AND IT HAS BEEN ACCEPTED ALL THROUGH; THAT THERE BEING NO CHANGE IN THE FACTS, THE PRINCI PLE OF CONSISTENCY IS SQUARELY APPLICABLE AND HAS RIGHTLY BEEN APPLIED BY THE LD. CIT(A), MAKING A REFERENCE TO THE DECISION OF THE TRIBUNAL FOR ASSES SMENT YEAR 1995-96, WHICH WAS FOLLOWED BY THE AO HIMSELF FOR ASSESSMENT YEARS 1996-97, 2001-02 AND 2002-03; THAT THE HONBLE HIGH COURT HAS ALSO DECID ED THE MATTER IN FAVOUR ITA NOS. 3327 & 3452(DEL)09 12 OF THE ASSESSEE, AS AVAILABLE FROM THE HIGH COURT O RDER DATED 16.11.09 (APB 153 TO 158, FOR ASSESSMENT YEAR 1995-96). 16. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND HAV E GONE THROUGH THE MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSEE IS HAVING DUAL PORTFOLIOS, I.E., ONE FOR TRADING/REVENUE ASSETS AND THE OTHER FOR CA PITAL ASSETS. THIS HAS BEEN THE POSITION, AS ACCEPTED BY THE DEPARTMENT, F OR THE LAST OVER TEN YEARS. AS THE POLICY CONSISTENTLY FOLLOWED BY THE ASSESSEE COMPANY, THE SHARES/SECURITIES IN THE NATURE OF CAPITAL ASSETS A RE SHOWN AS LONG TERM INVESTMENT. GAIN/LOSS THEREON IS ACCORDINGLY, SHO WN AS CAPITAL GAIN/LOSS. ON THE OTHER HAND, THE SHARES/SECURITIES IN THE NA TURE OF TRADING/REVENUE ASSETS, WHICH ARE HELD FOR DISPOSAL IN THE ORDINARY COURSE OF BUSINESS,, ARE BEING CLASSIFIED BY THE ASSESSEE AS CURRENT INVESTM ENT. ACCORDINGLY, IT IS UNDER THE HEAD OF INCOME FROM BUSINESS AND PROFESSI ON THAT THE PROFIT/LOSS THEREON IS GENERATED. UNDISPUTEDLY, SUCH FACT HAS ALSO BEEN MENTIONED IN THE COMPUTATION OF INCOME FILED BY THE ASSESSEE ALONG W ITH THE RETURN OF INCOME. 17. FOR ASSESSMENT YEAR 1995-96, THE LD. CIT(A) VID E ORDER DATED 20.8.2003, (COPY AT APB 45 TO 51), HAD HELD THAT T HE ASSESSEE HAD BEEN MAINTAINING SEPARATE ACCOUNT FOR INVESTMENT AND IN TRADE SINCE THE BEGINNING; AND THAT EVEN THE BOOKS OF ACCOUNT SEIZE D AND EMPLOYED FOR ITA NOS. 3327 & 3452(DEL)09 13 MAKING ASSESSMENT FOR THAT YEAR CONFIRMED THE SAID STATE OF AFFAIRS. THE TRIBUNAL, VIDE ORDER DATED 25.3.08 (COPY AT APB 133 TO 152), CONFIRMED THE CIT(A)S ORDER FOR ASSESSMENT YEAR 1996-97 ( COPY A T APB 54 TO 61), FOR ASSESSMENT YEAR 2001-02 (COPY AT APB 62 TO 65) AND FOR ASSESSMENT YEAR 2002-03 (COPY AT APB 66 TO 69), THE AO, FOLLOWING T HE PRINCIPLE OF CONSISTENCY, ACCEPTED THIS POSITION. IT WAS HELD T HAT A PART OF SHARES AVAILABLE WITH THE ASSESSEE WERE IN THE NATURE OF I NVESTMENT AND THE PROFIT FROM SALE THEREOF WAS ASSESSABLE ONLY AS CAPITAL GA INS. THE LD. CIT(A), FOR THE PRESENT YEAR, HAS RECOGNIZED THIS POSITION. P ERTINENTLY, AFTER PASSING OF THE IMPUGNED ORDER DATED 22.5.09, VIDE ORDER DATED 16.11.09 (SUPRA), THE HONBLE HIGH COURT, FOR ASSESSMENT YEAR 1995-96 HAS CONFIRMED THE ORDER OF THE LD. CIT(A). IT IS PERTINENT TO MENTION HERE, HOWEVER, THAT THE TRIBUNAL HAD QUASHED THE PROCEEDINGS UNDER SECTIONS 147/148 OF THE ACT FOR THE REASON THAT NOTICE FOR REASSESSMENT, SERVING ON THE ASSESSEE, WAS NOT ON THE BASIS OF THE VALID REASON AND IT WAS THIS FINDING O F THE INCOME TAX APPELLATE TRIBUNAL WHICH WAS UPHELD BY THE HONBLE HIGH COURT . IT WOULD BE APPROPRIATE, THOUGH, TO REPRODUCE THE RELEVANT PORT ION OF THE HIGH COURT ORDER:- 5. AFTER GOING THROUGH THE REASONS FOR ISSUANCE O F NOTICE UNDER SECTION 148, ONE FINDS THAT THERE IS A DETAILED DIS CUSSION ABOUT THE AFORESAID BLOCK ASSESSMENT AND EVEN REFERENCE TO TH E ORDERS PASSED BY THE CIT(A) IS MADE BY THE ASSESSING OFFICER. IN FA CT THE AFORESAID PORTION ITA NOS. 3327 & 3452(DEL)09 14 OF THE ORDER OF THE CIT(A) HAS BEEN EXTRACTED BY TH E AO ALSO IN HIS REASONS RECORDED UNDER SECTION 148 OF THE ACT. AFTE R RECORDING THE SAME THE A.O OBSERVED THAT CIT(A) HAD GIVEN A FINDING TH AT IN THE ABSENCE OF ANY ENTRIES IN THE SEIZED BOOKS SHOWING THAT THE PA RTICULAR SCRIP WAS ACTUALLY STOCK-IN-TRADE AND NOT INVESTMENT. AFTER EXTRACTING THE AFORESAID PORTION, THE AO OBSERVED THAT THIS FINDING INDICATE S THAT CIT(A) HAS NOT DISPUTED THE FACT THAT SHARES WERE HELD AS STOCK-IN -TRADE. COMMENTING UPON THIS, THE INCOME TAX APPELLATE TRIBUNAL HAS ST ATED THAT IT IS THE DISTORTED READING OF THE ORDER OF THE CIT(A) PASSED IN THOSE BLOCK ASSESSMENT PROCEEDINGS. WE AGREE WITH THIS OBSERVAT ION OF THE INCOME TAX APPELLATE TRIBUNAL. READING OF THE ORDER OF THE CIT(A) IN BLOCK ASSESSMENT PROCEEDINGS CLEARLY DEMONSTRATES THAT TH E CIT(A) HELD THAT STOCKS WERE RIGHTLY SHOWN BY THE ASSESSEE AS INVEST MENT IN HIS BOOKS OF ACCOUNTS WHICH COULD NOT BE TREATED AS STOCK-IN-TRA DE. WE ARE OF THE OPINION THAT IN VIEW OF THIS CATEGORICAL FINDING OF THE CIT(A) IN BLOCK ASSESSMENT PROCEEDINGS WHICH HAD ATTAINED FINALITY, NOTICE UNDER SECTION 148 PREDICATED ON THE SAME GROUND WAS IMPERMISSIBLE .( (EMPHASIS SUPPLIED) 6. IN VIEW OF THE ORDER OF THE CIT(A) WHICH WAS EVEN UPHELD BY THE TRIBUNAL IT WAS NOT OPEN TO THE AO TO RE-OPEN THE P ROCEEDINGS UNDER SECTION 148, ON THE GROUND WHICH HAD BEEN DEALT WIT H SPECIFICALLY AND DECIDED IN FAVOUR OF THE ASSESSEE. 7. IT IS TRITE LAW THAT EVEN WHERE TWO VIEWS ARE POSSIBLE, PROCEEDINGS UNDER SECTION 148 CANNOT INITIATED. IN THE INSTANT CASE, ON THE OTHER HAND, THERE IS A CATEGORICAL FINDING OF THE CIT(A) ON THI S VERY ASPECT WHICH WAS UPHELD BY THE ITAT ALSO. WE, THUS, FIND THAT NO QUE STION OF LAW ARISES FOR DETERMINATION IN THE PRESENT APPEAL AND, THEREFORE, DISMISS THIS APPEAL. 18. THE HONBLE HIGH COURT, IT IS SEEN, TOOK NOTE O F THE FACT THAT THE LD. CIT(A), IN THE BLOCK ASSESSMENT PROCEEDINGS, HAD HE LD THAT THE STOCKS WERE RIGHTLY SHOWN BY THE ASSESSEE AS INVESTMENT IN ITS BOOKS OF ACCOUNT, WHICH COULD NOT BE TREATED AS STOCK IN TRADE AND THAT THI S CATEGORICAL FINDING OF THE LD. CIT(A) IN THE BLOCK ASSESSMENT PROCEEDINGS HAD ATTAINED FINALITY. ITA NOS. 3327 & 3452(DEL)09 15 19. BE THAT AS IT MAY, AS THE MATTER STANDS, FOR AS SESSMENT YEAR 1995-96, THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND THIS POSITION HAS BEEN FOLLOWED BY THE AO FOR ASSESSMENT YEARS 1996-97, 20 01-02 AND 2002-03. 20. THE FACTUM OF THE ASSESSEES HOLDING TWO PORTFO LIOS IS NOWHERE DENIED. RATHER, IT HAS BEEN ACCEPTED FOR MORE THA N A DECADE. THE LD. CIT(A) HAS RIGHTLY RELIED ON CIT (CENTRAL) V. ASSO CIATED INDUSTRIAL DEVELOPMENT CO. PVT. LTD., 82 ITR 586(SC) IN HOLDI NG THAT WHERE AN ASSESSEE HAS TWO PORTFOLIOS, IT CAN HAVE INCOME BY WAY OF BOTH CAPITAL GAIN AND BUSINESS INCOME. UNDENIABLY, CIRCULAR NO. 4/200 7 DATED 15.6.2007, IN THIS REGARD, IS SQUARELY IN FAVOUR OF THE ASSESSEE, CLARIFYING A TAX PAYER CAN CONTINUE TO HOLD TWO PORTFOLIOS, I.E., A PORTFOLIO COMPRISING THE STOCK IN TRADE AND INVESTMENT PORTFOLIO TO BE TREATED AS CAPITAL A SSET. IN THE PRESENT CASE, THE ASSESSEE HAS SEGREGATED ITS INVESTMENTS INTO CU RRENT INVESTMENTS - TRADE AND LONG TERM INVESTMENTS. THE TOTAL VALUE OF TH E CURRENT INVESTMENT TRADE IS ` 14,17,53,766/- ON THE BALANCE SHEET DATA. THE TOT AL VALUE OF THE LONG TERM INVESTMENT IS ` 45,97,39,674/-. THE GROSS VALUE OF BOTH THE INVESTMENTS IS ` 60,14,93,441/- AND IT IS THIS WHICH HAS BEEN TAKEN INTO THE BALANCE SHEET . AS PER CLAUSE (E) OF SCHEDULE 11 , I.E., SIGNIFICANT ACCOUNTING POLICY, APPENDED TO THE BALANCE SHEET, U NDISPUTABLY, THE ITA NOS. 3327 & 3452(DEL)09 16 METHODS OF VALUATION OF BOTH THE INVESTMENTS ARE DI FFERENT. THE ASSESSEE SPECIFIED IN SCHEDULE 12 TO THE ACCOUNTS THAT GAIN OF ` 1,47,33,449/- HAD ACCRUED ON CURRENT INVESTMENT AND ` 46,27,931/- HAD ACCRUED ON LONG TERM INVESTMENT. THE COMPUTATION OF INCOME APPENDED TO THE RETURN FILED FOR THE YEAR CONTAINED THE FOLLOWING NOTE:- AS PER THE POLICIES CONSISTENTLY FOLLOWED BY THE C OMPANY THE SHARES/SECURITIES IN THE NATURE OF CAPITAL ASSET AR E SHOWN UNDER THE HEAD LONG TERM INVESTMENT AND ACCORDINGLY GAIN/LOSS THEREON IS SHOWN UNDER THE HEAD CAPITAL GAIN. THE SHARES/SEC URITIES IN NATURE OF TRADING/REVENUE ASSETS THAT IS HELD FOR DISPOSAL IN THE ORDINARY COURSE OF BUSINESS ARE CLASSIFIED UNDER THE HEAD CURRENT I NVESTMENT AND ACCORDINGLY PROFIT AND LOSS THEREON IS SHOWN UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. 21. FROM THE ABOVE, THE LD. CIT(A) RIGHTLY OBSERVED THAT THERE WAS NO OCCASION, AS SUCH, TO CONCLUDE THAT ALL DISPOSAL OF SHARES, WHETHER UNDER STOCK IN TRADE OR AS INVESTMENT, SHOULD BE ASSESSED ONLY AS THE BUSINESS INCOME OF THE ASSESSEE, MERELY FOR THE FACT THAT TH E ASSESSEE WAS A TRADER IN SHARES. 22. IN VIEW OF THE ABOVE DISCUSSION, FINDING NO ERR OR THEREWITH, THE CIT(A)S ORDER ON THIS ISSUE IS CONFIRMED REJECTING GROUND NO.1 RAISED BY THE DEPARTMENT. ITA NOS. 3327 & 3452(DEL)09 17 23. TURNING TO GROUND NO.2, THE AO DISALLOWED INTER EST EXPENDITURE OF ` 7,28,217/- ON ACCOUNT OF ALLEGED NON-BUSINESS USE O F THE BORROWED FUNDS. THE AO OBSERVED THAT THE ASSESSEE HAD BORROWED FUND S AND HAD GIVEN INTEREST FREE LOANS TO ITS SISTER CONCERNS. 24. THE ASSESSEE MAINTAINED BEFORE THE LD. CIT(A) T HAT INTEREST OF ` 7,28,217/- PAID BY THE ASSESSEE COMPANY COMPRISED O F ` 63,489/- REPRESENTING VEHICLE FINANCE CHARGES TO BANK/INSTIT UTION AND ` 6,64,728/- REPRESENTING INTEREST TO BROKER ON MARGIN FINANCING IN RESPECT OF SHARES PURCHASED. IT WAS SUBMITTED THAT THE VEHICLE FINA NCE CHARGES HAVE BEEN PAID TO BANK/INSTITUTION IN RESPECT OF THE VEHICLES FINA NCED THROUGH THEM, WHICH VEHICLES HAD BEEN USED ONLY FOR THE BUSINESS PURPOS ES OF THE ASSESSEE COMPANY AND WHICH FACT HAD NOT BEEN DISPUTED BY THE AO; THAT THE AO HAD ALLOWED DEPRECIATION ON THOSE VERY VEHICLES; THAT FURTHER, NO FUNDS HAD BEEN BORROWED AND THE ASSESSEE COMPANY HAD NOT GOT ANY F UNDS FROM BANK AND GIVEN THEM AS INTEREST FREE ADVANCES TO ITS SISTER CONCERN; THAT THE AMOUNT HAD BEEN PAID DIRECTLY BY THE BANK TO THE COMPANY F ROM WHOM THE VEHICLES HAD BEEN PURCHASED; THAT THIS WAS ALSO TRUE THAT TH E INTEREST PAID TO FORTIS FINANCE SERVICES LTD. AND THE SAID INTEREST HAD BEE N PAID IN RESPECT OF THE SHARES PURCHASED ON CREDIT, WHICH WAS KNOWN AS MAR GIN FINANCING . ITA NOS. 3327 & 3452(DEL)09 18 25. WHILE DECIDING THE MATTER IN FAVOUR OF THE ASSE SSEE, THE LD. CIT(A) OBSERVED THAT IN SCHEDULE 10 OF THE ACCOUNTS, THER E HAD BEEN SHOWN NO INTEREST BY WAY OF CORPORATE LOANS; THAT AS REGARDS INTEREST ON THE VEHICLE LOANS, THESE HAD BEEN PROVIDED TO CITY CORPORATE FI NANCE AND TO ABN AMRO BANK AND THERE WAS NOTHING BROUGHT ON RECORD BY THE AO TO SHOW THAT THE VEHICLE LOANS HAD BEEN DIVERTED BY THE ASSESSEE AS INTEREST FREE ADVANCES; THAT THE INTEREST ON OTHERS HAD ACCRUED IN RESPECT OF THE ASSESSEES TRANSACTION THAT FORTIS SECURITIES LTD. TOWARDS MARGIN FINANCI NG; THAT NO MONEY HAD BEEN PROVIDED BY ON ACCOUNT OF FORTIS SECURITIES LT D. DURING THE ASSESSEE ANY TIME DURING THE YEAR, OTHER THAN AN AMOUNT OF ` 81,222/- ON 8.7.04 AND THAT OF ` 4,521/- ON 20.8.04; THAT INTEREST HAD BEEN PAID TO FORTIS ON ACCOUNT OF DELAY IN REMITTING THE SALE PROCEEDS EXECUTED ON THEIR BEHALF; THAT THERE WAS NO EVIDENCE TO SHOW DIVERSION TO ANY PART OF TH E SALE PROCEEDS EXECUTED ON ACCOUNT OF FORTIS AS INTEREST FREE ADVANCES. 26. IN THIS REGARD, THE LD. DR HAS SOUGHT TO PLACE RELIANCE ON THE AOS ORDER WHILE DISPUTING THE CIT(A)S ORDER. RELIANC E HAS ALSO BEEN PLACED ON ABHISHEK INDUSTRIES, 261 ITR 1(P&H). 27. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS STRONGLY RELIED ON THE ORDER OF THE LD. CIT(A). ITA NOS. 3327 & 3452(DEL)09 19 28. HAVING CONSIDERED THE RIVAL CONTENTIONS ON THIS ISSUE IN THE LIGHT OF THE MATERIAL ON RECORD, WE, AGAIN, DO NOT FIND ANY ERRO R IN THE ORDER OF THE LD. CIT(A). IT IS SEEN THAT ABSOLUTELY NO EVIDENCE WA S BROUGHT ON RECORD BY THE AO TO SHOW ANY DIVERGENCE OF FUNDS BY THE ASSESSEE TO ITS SISTER CONCERNS. NO DISALLOWANCE OF INTEREST WAS CALLED FOR EITHER I N RESPECT OF INTEREST ON MARGING FINANCING OR REGARDING INTEREST ON VEHICLE LOAN. THE LD. CIT(A) HAS CATEGORICALLY OBSERVED THAT SCHEDULE 10 OF THE ACCOUNTS WHICH SHOWS A TOTAL OF ` 7,28,217/- BY WAY OF INTEREST AND FINANCIAL CHARGES , DOES NOT DEPICT ANY INTEREST BY WAY OF CORPORATE LOANS. INTEREST O N OTHERS REPRESENTS THAT IN RESPECT OF THE ASSESSEES TRANSACTION WITH FORTIS S ECURITIES LTD. TOWARDS MARGIN FINANCING. DURING THE YEAR, OTHER THAN THE AMOUNTS OF ` 81,222/- AND ` 4,521/-, NO MONEY WAS PROVIDED ON ACCOUNT TO THE AS SESSEE BY FORTIS. INTEREST PAID TO FORTIS WAS ON ACCOUNT OF DELAY IN REMITTING THE SALE PROCEEDS EXECUTED ON THEIR BEHALF. NO PART OF THE SALE PRO CEEDS EXECUTED ON ACCOUNT OF FORTIS HAS BEEN PROVED TO HAVE BEEN DIVERTED TO PARTIES WHO HAVE BEEN PROVIDING INTEREST FREE ADVANCES. APROPOS THE INT EREST ON VEHICLE LOAN, THESE HAD BEEN PROVIDED TO CITY FINANCE AND ABN AMRO BANK . AGAIN, THERE IS NOTHING ON RECORD TO SUGGEST THE ASSESSEE HAVING DI VERTED THESE LOANS TO THE ACCOUNT OF THE PARTIES THAT HAD BEEN PROVIDING INTE REST FREE ADVANCES. ITA NOS. 3327 & 3452(DEL)09 20 29. IN THESE FACTS OF THE CASE, THE APPLICABILITY O F THE CASE LAW SOUGHT TO BE RELIED ON ON BEHALF OF THE DEPARTMENT HAS NOT BEEN SHOWN. AS SUCH, GROUND NO.2 RAISED BY THE DEPARTMENT ALSO DOES NOT CARRY ANY MERIT AND THE SAME IS REJECTED, UPHOLDING THE ORDER OF THE LD. CI T(A) IN THIS REGARD ALSO. 30. CONSEQUENTLY, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES WHEREAS THAT PREFERRED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.01.2012. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31.01.2012. *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR