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ITA 3490/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97058 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 31-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Keywords: Capital asset; Business income; Rule of consistency; Question of law; Cost of acquisition
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI J.S. REDDY : ACCOUNTANT MEMBER AND SHRI C.M. GARG: JUDICIAL MEMBER ITA NO. 3490/DEL/2013 ASSTT. YR: 2008-09 DCIT, CIRCLE 10(1), VS. M/S DISCOVER INDIA TOURS PVT. LTD., NEW DELHI. D-21, KALKAJI, NEW DELHI. PAN: AAACD 0675 K ( APPELLANT ) (RESPONDENT) APPELLANT BY : SMT. PARWINDER KAUR SR. DR RESPONDENT BY : SHRI RAKESH KUMAR CA DATE OF HEARING : 13/08/2015. DATE OF ORDER : 14/08/2015. O R D E R PER C.M. GARG, J.M: THIS APPEAL, BY THE DEPARTMENT, IS PREFERRED AGAI NST THE ORDER OF THE CIT(A)-VI, NEW DELHI DATED 08-03-2013 IN APPEAL NO . 115/12-13 FOR ASSESSMENT YEAR 2008-09. 2. THE SOLE GROUND RAISED BY THE REVENUE READS AS U NDER: WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW WAS JUSTIFIED IN TREATING THE INCOM E FROM SALE & PURCHASE OF SHARES AS LONG TERM CAPITAL GAIN INST EAD OF BUSINESS INCOME AS ASSESSED BY THE ASSESSING OFFI CER. 2 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. 3. BRIEF STATED FACTS, GIVING RISE TO THIS APPEAL, ARE THAT THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND A NOTICE U/S 1 43(2) AND ANOTHER NOTICE U/S 142(1) OF THE INCOME-TAX ACT (FOR SHORT THE AC T), ALONG WITH QUESTIONNAIRE WAS ISSUED TO THE ASSESSEE ON 1-7-201 0. THE AO FINALIZED THE ASSESSMENT BY OBSERVING THAT THE ALLEGED LONG TERM CAPITAL GAIN, EARNED ON ENTIRE SALE/ PURCHASE OF SHARES, DESERVED TO BE TRE ATED AS BUSINESS INCOME AND, THUS, HE TREATED THE SAME AS BUSINESS INCOME BY REJECTING THE SPECIAL TAX TREATMENT AS PER SECTION 111(A), DENYING EXEM PTION U/S 10(38) OF THE ACT. 3.1. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE FIRST APPELLATE AUTHORITY I.E. CIT(A), WHICH GRANTED RELIEF TO THE ASSESSEE BY PASSING THE IMPUGNED ORDER. NOW, THE AGGRIEVED REVENUE IS BEFOR E THIS TRIBUNAL IN SECOND APPEAL WITH THE SOLE GROUND AS REPRODUCED HE REINABOVE. 4. WE HAVE HEARD ARGUMENTS OF BOTH SIDES AND CAREF ULLY PERUSED THE MATERIAL AVAILABLE ON RECORD, INTER ALIA, ASSESSMEN T ORDER, IMPUGNED ORDER OF THE CIT(A) AND PAPER BOOK OF THE ASSESSEE, SPREAD O VER IN 161 PAGES. 5. LD. DR, SUPPORTING THE ASSESSMENT ORDER, SUBMITT ED THAT A PORTFOLIO MANAGER IS AN AGENT OF THE INVESTOR AND THOUGH HE M AY CARRY ON CERTAIN TRANSACTIONS IN HIS OWN NAME, SUCH TRANSACTIONS ARE IN HIS CAPACITY AS AN AGENT OF THE INVESTOR. LD. DR FURTHER SUBMITTED THA T, THEREFORE, SUCH TRANSACTIONS ARE THE TRANSACTIONS OF THE INVESTOR, CARRIED OUT THROUGH AN AGENT 3 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. AND THE INCOME FROM SUCH TRANSACTIONS IS LIABLE TO TAX AS THE INCOME OF THE INVESTOR, AND WOULD TAKE ITS COLOUR FROM THE CIRCUM STANCES SURROUNDING THE ACTIONS OF THE INVESTOR. LD. DR FURTHER SUBMITTED T HAT SIMILARLY, DIVIDENDS RECEIVED BY THE PORTFOLIO MANAGER IS RECEIVED BY HI M IN HIS CAPACITY AS AN AGENT OF THE INVESTOR AND, ACCORDINGLY, SUCH DIVIDE NDS ARE TAXABLE OR EXEMPT IN THE HANDS OF THE INVESTOR AS DIVIDENDS. 5.1. LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS WRONGLY INTERPRETED THE MEANING OF INVESTMENTS AND CAPITAL ASSETS AND UTILI ZED IT FOR ITS BENEFIT TO AVOID TAX INCIDENT. THEREFORE, THE AO WAS RIGHT IN TREATING THE INCOME THEREFROM AS BUSINESS INCOME. LD. DR VEHEMENTLY C ONTENDED THAT THE IMPUGNED INVESTMENT SHOWN BY THE ASSESSEE WAS NOT A CTUALLY AN INVESTMENT, BUT A WRONG INTERPRETATION ADOPTED BY THE ASSESSEE. THEREFORE, THE ACTION OF THE AO WAS CORRECT WHICH WAS WRONGLY DEMOLISHED BY THE CIT(A). 5.2. LD. DR PARTED HIS ARGUMENT WITH THE FINAL SUBM ISSION THAT IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO. 6. IN REPLY TO THE ABOVE, LD. AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE (AR IN SHORT), SUPPORTED THE IMPUGNED ORDER OF CI T(A) AND SUBMITTED THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME DUR ING THE YEAR ON SHARES PURCHASED BY IT AND SINCE SHARES HAVE BEEN PURCHASE D UNDER INVESTMENT PORTFOLIO, THEREFORE, THE DECREASE IN VALUE AS AGAI NST COST HAS NOT BEEN 4 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. CLAIMED AS LOSS, WHICH OTHERWISE WOULD BE AVAILABLE TO THE ASSESSEE IF THE SHARES ARE HELD AS STOCK IN TRADE. 6.1. LD. AR STRENUOUSLY CONTENDED THAT THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD INVESTMENT IN THE AUDITED BALANCE- SHEET, PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT , 1956. LD. AR FURTHER POINTED OUT THAT THE ASSESSEE UTILISED ITS OWN FUND S AND NOT THE BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN QUOTED SHAR ES, WHICH WERE ACTUALLY INVESTMENTS AND, THEREFORE, THE CIT(A) WAS CORRECT IN DIRECTING THE AO TO TREAT THE IMPUGNED INCOME/ PROFIT AS LONG TERM CAP ITAL GAIN INSTEAD OF BUSINESS INCOME. 6.2. LD. AR TOOK US THROUGH THE OPERATIVE PARAS FR OM 5.3 TO 5.5 OF THE IMPUGNED ORDER AND SUBMITTED THAT THERE WERE NO MUL TIPLE TRANSACTIONS OR MULTIPLE SALES/ PURCHASES OF SHARES AND THE FREQUEN CY AND MAGNITUDE OF SALE/ PURCHASE WAS ALSO VERY LOW AND OBSERVATIONS OF THE AO IN THIS REGARD ARE CONTRARY TO THE FACTS OF THE CASE AND HENCE THE AO GROSSLY ERRED IN TREATING THE LONG TERM CAPITAL GAIN ON THE SALE OF QUOTED SH ARES AS BUSINESS INCOME OF THE ASSESSEE. 6.3. LD. AR FINALLY SUBMITTED THAT THE ISSUE/ GROUN D RAISED BY THE REVENUE IS WITHOUT MERITS AND THE SAME MAY KINDLY BE DISMIS SED. 5 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. 7. ON CAREFUL CONSIDERATION OF SUBMISSIONS OF BOTH THE SIDES AND VERY CAREFUL READING OF THE IMPUGNED ORDER, WE NOTE THAT HE CIT(A) GRANTED RELIEF TO THE ASSESSEE WITH FOLLOWING OBSERVATIONS AND CON CLUSIONS: 5.3. IT IS OBSERVED THAT THE APPELLANT HAS SHOWN T HE SHARES UNDER THE HEAD 'INVESTMENTS' IN THE AUDITED BALANCE SHEET AND PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPA NIES ACT, 1956. THE APPELLANT HAD INVESTED IN THE QUOTED SHAR ES ONLY. THE APPELLANT HAS UTILIZED ITS OWN FUNDS AND NOT BORROW ED FUNDS FOR THE PURPOSE OF ACQUIRING THE SHARES AS ON 31.03.200 7 & 2008, THE APPELLANT COMPANY HAD RESERVE AND SURPLUSES OF RS.16,30,95,849.20/- AND RS.20,48,20,824.34/- RESPE CTIVELY WHERE AS THE INVESTMENTS AS ON 31.03.2007 AND 31.03 .208 WERE OF RS.15,48,07,722.57/- AND RS 19,39,93,223.13/- RE SPECTIVELY. THE APPELLANT COMPANY HAS PAID THE INTEREST OF RS.1 4. 31 ONLY DURING THE YEAR. THE INFRASTRUCTURE OF THE APPELLAN T COMPANY IS ALSO VERY SMALL WHICH REPRESENTS THE INVESTMENT ACT IVITY RATHER THAN A TRADING ACTIVITY WHICH WOULD REQUIRE A MUCH BIGGER INFRASTRUCTURE. THE APPELLANT COMPANY HAVE EARNED D IVIDEND INCOME DURING THE YEAR ON SHARES PURCHASED BY IT. S INCE THE SHARES HAVE BEEN HELD UNDER INVESTMENT PORTFOLIO TH US THE DECREASE IN VALUE AS AGAINST COST HAS NOT BEEN CLAI MED AS LOSS WHICH OTHERWISE WOULD BE AVAILABLE IF THE SHARES AR E HELD AS STOCK IN TRADE. THERE ARE NO MULTIPLE TRANSACTIONS OR MULTIPLE SALES AND PURCHASE OF SHARES AND THE FREQUENCY AND MAGNITUDE WAS ALSO VERY LESS IN CONTRARY TO THE OBSERVATION O F THE AO. THEREFORE, IN MY OPINION, THE AO HAS ERRED IN TREAT ING THE LONG TERM CAPITAL GAIN ON THE SALE OF EQUITY SHARES AS B USINESS INCOME OF THE APPELLANT. WHILE IT IS A FACT THAT RES-JUDICATA IS NOT APPLICA BLE IN INCOME TAX PROCEEDINGS, THE PRINCIPAL OF CONSISTENCY IS AC CEPTED BY NOW IN RADHASOAMI SATSANG VS. CIT [1992] 1931TR 321 (SC), IT WAS HELD THAT: 6 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. 'WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO IT PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ' IN OTHER WORDS, THE RULE OF CONSISTENCY HAD ALREADY BEEN ACCEPTED BY THE HON'BLE APEX COURT. 5.4. THE APPELLANT'S CASE IS FURTHER STRENGTHENED B Y THE RELIANCE PLACED ON GOPAL PUROHIT VS. JCIT (2009) 20 DTR 99 ( MUMBAI TRIBUNAL). THE HON'BLE HIGH COURT IN THE AFORESAID CASE HAD HELD AS UNDER:- A) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BFE ITAT WAS JUSTIFIED IN TREATING THE INCOME FROM SALE OF 7;59,003/- . SHARES OF RS. 5,00, 12,879/- AS AN INCOME FROM SHORT THEM CAPITAL GAIN AND SALE OF 3,88,797 SHARES FOR RS. 6,65,02,340/- AS LONG TERM CAPITAL GAIN AS AGAINST THE 'INCOME FROM BUSINESS' ASSESSED BY THE A O? B) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON 'BLE ITAT WAS JUSTIFIED IN HOLDING THAT PRINCIPLE OF CONSISTENCY MUST BE APPLIED HERE AS AUTHORITIES DID NOT TREAT THE ASSESSEE AS A SHARE TRADER IN PRECEDING YEAR, I N SPITE OF EXISTENCE OF SIMILAR TRANSACTION, WHICH CANNOT IN ANY ~AY OPERATE AS RESJUDICATE TO 7 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. PRECLUDE THE AUTHORITIES FROM HOLDING SUCH TRANSACTIONS AS BUSINESS ACTIVITIES IN CURRENT YEAR ? 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTION S INVOLVED INVESTMENT IN SHARES THE SECOND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSE OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE , SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THERE FROM SHOULD BE TREATED AS SHORT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW 3. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED 8 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RES- JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT A/SO RAISE ANY SUBSTANTIAL QUESTION' 5.5. IN MY VIEW, THE CASE OF THE APPELLANT COMPANY IS SQUARELY COVERED BY THE JUDICIAL PRONOUNCEMENT OF THE HON'BL E RV1UMBAI HIGH COURT AND FURTHER CONFIRMED BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. GOPAL PUROHIT 5.6 IN VIEW OF THE DISCUSSION ABOVE AND THE FACTS OF THE CASE, I AM OF THE CONSIDERED OPINION THAT THE. AO HAS ERR ED IN NOT APPRECIATING THE FACTS CORRECTLY. THE INCOME OF RS. 13,79,138/- SHOULD BE DETERMINED AS LONG TERM CAPITAL GAIN AND NOT BUSINESS INCOME. THEREFORE. THE AO IS DIRECTED TO D ELETE TO ADDITION OF RS 13,79,138/- AS BUSINESS INCOME OF TH E APPELLANT. 7.1. IN VIEW OF ABOVE, AT THE VERY OUTSET, WE NOTE THAT THE AO HAS NOT DEMOLISHED THE FACT THAT THE ASSESSEE UTILIZED ITS OWN FUNDS FOR THE PURPOSE OF ACQUIRING QUOTED SHARES, WHICH WERE ALSO SHOWN A S INVESTMENT IN THE BALANCE-SHEET. THE ASSESSEE ALSO EARNED DIVIDEND IN COME THEREFROM AND THE SHARES HAVE BEEN HELD UNDER INVESTMENT PORTFOLIO, W HICH WERE VALUED AT THE 9 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. END OF THE YEAR IN THE AUDITED BALANCE-SHEET AT THE COST OF ACQUISITION AND THE SAME WERE NOT HELD AS STOCK-IN-TRADE. THE AO HAS AL SO NOT CONTROVERTED THE FACT THAT THERE WERE NO MULTIPLE TRANSACTIONS OF S ALE/ PURCHASE OF SHARES AND THE FREQUENCY AND MAGNITUDE WAS ALSO VERY LOW. THE OBSERVATIONS OF THE AO IN THIS REGARD ARE BASELESS, WHICH WERE RIGHTLY DEM OLISHED BY THE CIT(A). 7.2. IN VIEW OF ABOVE NOTED FACTS AND CIRCUMSTANCES , WE ARE OF THE CONSIDERED OPINION THAT THE VIEW TAKEN BY THE CIT(A ), TREATING THE IMPUGNED INCOME AS LONG TERM CAPITAL GAIN, IS SUSTAINABLE IN ACCORDANCE WITH LAW AND PROVISIONS OF THE ACT AND, THUS, WE UPHOLD THE SAME . WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE FIRST APPELL ATE AUTHORITY AND HENCE SOLE GROUND OF THE REVENUE, BEING DEVOID OF MERITS, IS D ISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 14/08/2015. SD/- SD/- (J.S. REDDY) (C.M. GARG.) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14-08-2015. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT(A) 4. CIT 5. DR (ITAT) 10 ITA 3490/DEL/2013 DCIT VS. DISCOVER INDIA TOURS PVT. LTD. - + DATE INITIAL 1. DRAFT DICTATED ON 14 - 0 8 .2015 PS 2. DRAFT PLACED BEFORE AUTHOR 14 .0 8 .2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.