ACIT 4(2), MUMBAI V. WALLFORT FINANCIAL SERVICES LTD, MUMBAI

ITA 3455/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83872 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 23-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Keywords: Business income; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 3455/MUM/2012 (ASSESSMENT YEAR: 2008-09) ACIT, CIRCLE 4(2) VS. M/S. WALLFORT FINANCIAL SERVICES LTD. ROOM NO. 642, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 205, GUNDECHA CHAMBERS NAGINDAS MASTER ROAD FORT, MUMBAI 400001 PAN - AAACW0617L APPELLANT RESPONDENT APPELLANT BY: SHRI VIVEK BATRA RESPONDENT BY: NONE DATE OF HEARING: 23.09.2014 DATE OF PRONOUNCEMENT: 23.09.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.02.2012 PASSED BY CIT(A)-8, MUMBAI AND IT PERTAI NS TO AY 2008-09. 2. FOLLOWING GROUNDS WERE URGED BEFORE US: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE EXPENSES OF RS.2,7 0,23,685/- ON ACCOUNT OF TRANSACTION OF PURCHASE AND SALE OF SHAR ES AS BUSINESS INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS .3,39,515/- BEING INSTITUTIONAL STT AND SERVICE TAX NOT COLLECT ED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SE T ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE, THOUGH NOT ICE WAS SENT THOUGH RPAD. WE, THEREFORE, PROCEED TO DISPOSE OF T HE APPEAL EXPARTE, QUA THE ASSESSEE. WE HAVE HEARD THE LEARNED D.R. AND PE RUSED THE RECORD. ITA NO. 3455/MUM/2012 M/S. WALLFORT FINANCIAL SERVICES LTD. 2 4. THE FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. ASSESSEE COMPANY IS A MEMBER OF THE BOMBAY STOCK EX CHANGE AND NATIONAL STOCK EXCHANGE AND CARRYING ON BROKING BUSINESS AS WELL AS DEALING IN SHARES AND SECURITIES. FOR THE PREVIOUS YEAR RELEVA NT TO AY 2008-09 ASSESSEE OFFERED INCOME FROM SHARE TRADING UNDER THE HEAD C APITAL GAINS. THE AO NOTICED THAT UPTO AY 2004-05 ASSESSEE ADMITTED TO H AVE BEEN A TRADER IN SHARES AND OFFERED INCOME THEREFROM UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. HOWEVER, HE CLAIMED TO HAVE CONVER TED HIS ENTIRE STOCK AS HIS INVESTMENT AND SUBSEQUENT PURCHASES WERE SHOWN AS INVESTMENT ACTIVITY. ASSESSEE SUBMITTED BEFORE THE AO THAT THE PROFIT ON SALE OF THE ABOVE INVESTMENT GIVES RISE TO SHORT TERM CAPITAL G AINS. 5. IN THE SCRUTINY ASSESSMENT PROCEEDINGS THE AO DEALT WITH THE ISSUE IN DETAIL IN THE BACKDROP OF THE PRECEDENTS AND OBSERV ED THAT IN THE INSTANT CASE THE ASSESSEE MADE DELIVERY BASED TRANSACTION I N OVER 300 SCRIPS AND THE HOLDING PERIOD OF MAXIMUM SCRIPS WAS VERY LESS. IN THIS BACKDROP HE OBSERVED THAT BOOK ENTRIES WOULD NOT BE DETERMINATI VE OF THE CHARACTER OF INVESTMENT AND FINALLY CONCLUDED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. THEREFORE SHORT TERM CAPITAL GAIN OF ` 2,70,23,685/- WAS TREATED AS BUSINESS INCOME. 6. THE AO FURTHER NOTICED THAT THE ASSESSEE COMPANY DE BITED A SUM OF ` 3,39,515/- TO ITS PROFIT & LOSS ACCOUNT UNDER THE H EAD SERVICE TAX NOT COLLECTED FROM THE CLIENTS. THE CASE OF THE ASSESS EE WAS THAT IT WAS DEALING WITH BIG CLIENTS WITH WHOM THEY HAD AGREED FOR A CO MPETITIVE ALL INCLUSIVE RATE, WHICH INCLUDED SERVICE TAX. ASSESSEE EARNED B ROKERAGE INCOME OF ` 7,77,46,335/- AND 50% APPROXIMATELY BELONGS TO THES E HIGH END CLIENTS FROM WHOM SERVICE TAX IS NOT COLLECTED. IT WAS, THE REFORE CONTENDED THAT SERVICE TAX WAS PAID BY THE ASSESSEE ON THE PRINCIP LE OF COMMERCIAL EXPEDIENCY, WHICH IS ALLOWABLE AS DEDUCTION. 7. THE AO OBSERVED THAT THE LIABILITY TO PAY SERVICE T AX WAS THAT OF THE CLIENTS AND IT CAN NEVER BE SAID TO BE ASSESSEES L IABILITY SO AS TO CLAIM UNDER SECTION 37(1) OF THE ACT. HE THEREFORE DISALLOWED T HE SAID CLAIM. ITA NO. 3455/MUM/2012 M/S. WALLFORT FINANCIAL SERVICES LTD. 3 8. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). WITH REGARD TO THE CLAIM OF SHORT TERM CAPITAL GAINS THE LEARNE D CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE, BY OBSERVING AS UNDER: - 4.9 (I) IN THE ASSESSMENT YEAR 2005-06 THE ITAT MU MBAI G BENCH (ITA NO. 847/M/2009 DATED 30/06/2010) CONFIRMED THA T THE ACTION OF THE AO TO TREAT THE INCOME ON PURCHASE AND SALE OF SHARES AS BUSINESS INCOME INSTEAD OF CAPITAL GAIN CLAIM BY THE APPELLA NT. THE AR POINTED OUT THAT THE HON'BLE TRIBUNAL DETERMINED THE VARIOU S RATIOS LIKE TURNOVER TO STOCK RATIO, RETURN ON INVESTMENT IN THE FORM OF GAIN ON DISPOSAL THEREOF AND RETURN ON INVESTMENT IN THE FORM OF DIV IDEND TO ASCERTAIN THE NATURE OF TRANSACTION. HOWEVER THE TURNOVER FIG URE OF APPELLANT COMPANY FOR THE SAID YEAR WAS ERRONEOUSLY TAKEN AS 3500 CRORES AS AGAINST THE ACTUAL DELIVERY BASED SEGMENT TURNOVER OF RS.149.97 CRORES WHICH RESULTED INTO CAPITAL GAIN. CONSEQUENTLY THE HIGH TURNOVER TO INVESTMENT RATIO WORKED OUT 80 TIMES AS AGAINST ACT UAL 3.32 TIMES, RETURN ON INVESTMENT IN CASE OF GAIN ON DISPOSAL WO RKED OUT AT 0.5% AS AGAINST ACTUAL 10.89% AND RETURN ON INVESTMENT IN T HE FORM OF DIVIDEND WORK OUT AT 0.30% AS AGAINST ACTUAL 4.15%. THEREFOR E MISCELLANEOUS APPLICATION HAS BEEN FILED BEFORE THE HON'BLE ITAT ON 14/11/2011 WHICH IS STILL PENDING FOR DISPOSAL. COPY OF THE SA ID APPLICATION IS ALSO PLACED ON RECORD. (II) ON THE BASIS OF FINDINGS OF THE TRIBUNAL THE AFORESAID RATIOS IN APPELLANTS CASE DURING THE YEAR UNDER CONSIDERATIO N COMES AS UNDER: 1) TURNOVER TO INVESTMENT RATIO = 438/19.26 (CROR3) = 22.75 TIMES 2) RETURN ON INVESTMENT RATIO CAPITAL GAIN/AVERAGE INVESTMENT = 2,70,23,685/19,26,78,251 * 100 = 14.03% 3) DIVIDEND YIELD RATIO DIVIDEND /AVERAGE INVESTMENT = 42,40,311/19,26,78,251 * 100 = 2.20% THE AFORESAID RATIOS ARE ON MUCH BETTER FOOTING THA N WHAT ARE DETERMINED IN THE ITAT ORDER IN APPELLANTS OWN CAS E FOR THE A.Y. 2005- 06, TO ASCERTAIN THE NATURE OF TRANSACTION AND THER EBY TO DECIDE WHETHER ASSESSEE IS INVESTOR OR TRADER. 4.10 CONSIDERING THE CUMULATIVE EFFECT OF SEVERAL FACTORS DISCUSSED ABOVE, INCLUDING THE FACT THAT THERE WAS NO MOTIVE OF THE APPELLANT TO TAKE ADVANTAGE OF CONCESSIONAL TAX RATE APPLICABLE TO CAPITAL GAINS AND ALSO THE VARIOUS RATIOS WORKED OUT IN THE ABOVE MAN NER, CLEARLY ESTABLISH THAT APPELLANT WAS AN INVESTOR AND NOT A TRADER IN RESPECT OF SHARES HELD BY IT AND THEREFORE THE ASSESSING OFFIC ER WAS NOT JUSTIFIED IN COMPUTING THE INCOME UNDER THE HEAD BUSINESS AS AGA INST CAPITAL GAIN SHOWN BY THE APPELLANT. HENCE, THIS GROUND OF APPEAL IS ALLOWED. ITA NO. 3455/MUM/2012 M/S. WALLFORT FINANCIAL SERVICES LTD. 4 9. SIMILARLY, WITH REGARD TO THE CLAIM OF DEDUCTION UN DER SECTION 37(1) OF THE ACT, REFERABLE TO SERVICE TAX PAYABLE BY THE AS SESSEE, THE AO OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE BR OKING AND DEALT WITH SEVERAL INSTITUTIONAL CLIENTS SUCH AS LIC, BANKS, UTI, FORE IGN BANKS, ETC. THE BROKERAGE WAS CHARGED AT PRE-FIXED RATE DECIDED BY MUTUAL UND ERSTANDING, WHICH IS INCLUSIVE OF STT AND SERVICE TAX. UNDER THESE CIRCU MSTANCES IT WAS CONTENDED THAT IT IS ONLY THE NET PROFIT WHICH HAS TO BE TREA TED AS ASSESSEES ACTUAL INCOME; THOUGH STT IS INITIALLY INCLUDED IN THE COM POSITE BILL, IT IS ACTUALLY COLLECTED AND PAID ON BEHALF OF THE CLIENTS TO THE GOVERNMENT EXCHEQUER AND IT WAS NEVER DEBITED TO THE PROFIT & LOSS ACCOUNT AS A N EXPENDITURE. 10. HAVING REGARD TO THE CIRCUMSTANCES THE LEARNED CIT( A) SET ASIDE THE DISALLOWANCE BY OBSERVING IN PARA 9.5 AS UNDER: - 9.5 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE AO AS WELL AS OF THE LD. AR. I FIND MERIT IN THE SUBMISSIONS MADE BEFORE ME. FROM THE SCHEME OF LEVY OF STT, I FIND THAT STT WAS TO BE BO RNE BY THE RESPECTIVE CLIENTS AND THE BROKERS WERE MERE COLLECTING AND PA YING AGENTS. THE IMPUGNED STT AMOUNTING TO RS.3,39,515/- WAS COLLECT ED IN A COMPOSITE BILL AND SIMULTANEOUSLY PAID TO THE EXCHANGES (AND ONWARD TO THE GOVT. TREASURY). STT CANNOT BE EQUATED TO AN EXPENSE PART ICULARLY SINCE STT WAS COLLECTED BY THE BROKER ON BEHALF OF GOVERNMENT OF INDIA AS AN INTERMEDIARY AND AS REQUIRED BY THE PROVISIONS OF L AW. THEREFORE, STT COLLECTED FROM THE CLIENTS, EITHER DIRECTLY OR EMBE DDED IN THE BROKERAGE, AND PAID TO THE GOVERNMENT OF INDIA THROUGH THE EXC HANGES CANNOT BE TREATED AS AN EXPENSE OF THE APPELLANT. ALSO, IN TH E INSTANT CASE THE APPELLANT HAS NOT CLAIMED IT AS AN EXPENSE IN ITS P ROFIT & LOSS ACCOUNT. IN THE PREMISE SINCE IT IS NOT THE APPELLANTS EXPE NDITURE IT COULD ALSO NOT HAVE BEEN DISALLOWED UNDER SECTION 40(A)(IB) OF THE ACT. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE T HE ADDITION OF RS.3,39,515/- IS DELETED. THIS GROUND OF APPEAL IS, THUS, ALLOWED. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 11. EXCEPT RELYING UPON THE ORDER PASSED BY THE AO THE LEARNED D.R. WAS UNABLE TO CONTROVERT THE FINDINGS OF THE LEARNED CI T(A). IN OTHER WORDS, NO MATERIAL, WHATSOEVER, WAS FURNISHED BEFORE US TO SH OW THAT THE CONCLUSIONS REACHED BY THE LEARNED CIT(A) ARE ARBITRARY OR INCO RRECT. 12. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE WE A RE OF THE VIEW THAT THE ORDER PASSED BY THE CIT(A) DOES NOT CALL FOR AN Y INTERFERENCE. IT DESERVES TO BE NOTICED THAT IT IS THE PRIMARY DUTY OF AN APP ELLANT TO POINT OUT THE ITA NO. 3455/MUM/2012 M/S. WALLFORT FINANCIAL SERVICES LTD. 5 ERRORS IN THE ORDER PASSED BY THE CIT(A) AND MERELY RELYING UPON THE ORDER PASSED BY THE AO, WITHOUT BRINGING ON RECORD ANY MA TERIAL TO CONTRADICT THE FINDINGS OF THE CIT(A), COULD NOT SERVE ANY PURPOSE EXCEPT INDICATING THE CASUAL APPROACH OF THE REVENUE IN DEALING WITH SUCH MATTERS. WITH THESE OBSERVATIONS THE APPEAL FILED BY THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2014. SD/- SD/- (D. KARUNAKARA RAO) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 23 RD SEPTEMBER, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 8, MUMBAI 4. THE CIT 4, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.