Deputy Commissioner of Income-tax, V. Finolex Industries Ltd., Pune

ITA 357/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9378 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 153A

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.357/PUN/2016 / ASSESSMENT YEAR : 2006-07 DY.COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 1(2), PUNE. . / APPELLANT V/S FINOLEX INDUSTRIES LIMITED, D-10, MIDC, CHINCHWAD, PUNE 19. PAN : AAACF2634A. . / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR. REVENUE BY : SHRI RAJEEV KUMAR, CIT. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE REVENUE U/S 253 OF THE INCOME T AX ACT IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCO ME TAX (A) - PUNE 11 DT.21.12.2015 FOR THE ASSESSMENT YEAR 2006-07. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF PVC RESIN, PVC PIPES ETC. A SEA RCH AND SEIZURE ACTION WAS CARRIED OUT ON 18.11.2010 IN THE F INOLEX / DATE OF HEARING : 05.02.2018 / DATE OF PRONOUNCEMENT: 09.02.2018 2 GROUP OF COMPANIES. CONSEQUENTLY, NOTICE U/S 153A OF THE ACT WAS ISSUED ON 22.08.2012 AND IN COMPLIANCE TO WHICH ASSESS EE FURNISHED RETURN OF INCOME ON 10.08.2011 DISCLOSING TOTAL INCO ME OF RS.66,38,77,799/-. THEREAFTER, ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 153A OF THE ACT VIDE ORDER DT.28.03.2013 AND T HE TOTAL TAXABLE INCOME WAS DETERMINED AT RS.67,55,19,067/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO VIDE ORDER DT.21.12.2015 (IN APPEAL NO.PN/CIT(A )- 11/DCIT, CEN. CIR.1(2), PUNE/407/2014-15) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CI T(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLL OWING GROUNDS : 1) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ACCEPTING THE PLEA OF THE ASSESSEE THAT 'MUTUAL FUNDS' IS NOT A TRADING INVES TMENT WHEREAS NO SUCH DISTINCTION HAS BEEN PROVIDED IN TH E ACT TO ASCERTAIN WHETHER ANY ACTIVITY IS A 'BUSINESS' AS P ER SEC. 2(13) OF THE INCOME TAX ACT, 1961. 2) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, ALTHOUGH THE LD. CIT(A) HAS HELD THAT ISSUES, WHICH HAVE BEEN CONCLUDED DURING PROCEEDINGS U/S 143(3) C ANNOT BE REVISITED U/S. 153A OF THE INCOME TAX ACT, 1961 'BASED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CONTINENTAL WAREHOUSING CORPORATION (374 IT R 64 5) AND MURALI AGRO PRODUCTS (49 TAXMANN. COM.172), WHE N THESE DECISIONS HAVE NOT REACHED FINALITY AND HAVE BEEN ADMITTED IN SLP BY THE HON'BLE SUPREME COURT. 3) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN OVERLOOKING THE NO N- OBSTANTE NATURE OF SECTION 153A, WHICH TREATS THE R ETURN FILED OR RELIED UPON BY THE ASSESSEE AS A FRESH RET URN AND IN CONSEQUENCE THE ASSESSING OFFICER WAS WELL WITHIN H IS RIGHTS TO ASSUME JURISDICTION OVER THE SAID FILED O R RELIED UPON RETURN U/S.143(2) OF THE INCOME TAX ACT,1961 NOTWITHSTANDING THE FACT THAT AN ORDER U/S. 143(3) HAD BEEN PASSED IN RESPECT OF THE ORIGINAL RETURN. 4) THE ORDER OF THE LD. CIT(A) MAY BE VACATED AND T HE ASSESSING OFFICER BE RESTORED. 3 5) THE APPELLANT CRAVES LEAVE TO ADD, ALTER AMEND A ND MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BEFORE US, AT THE OUTSET, LD.D.R. SUBMITTED THAT THOUGH REVENUE HAS RAISED VARIOUS GROUNDS BUT ALL THE GROUNDS ARE INTER- CONNECTED AND CAN BE CONSIDERED TOGETHER. 4. AO NOTICED THAT ASSESSEE HAD OFFERED SHORT TERM CAP ITAL GAINS OF RS.19,95,85,093/-, OUT OF WHICH ON THE AMOUNT OF CA PITAL GAINS OF RS.5,29,56,697/-, ASSESSEE HAD PAID TAX AT 10% U/ S 111A OF THE ACT. THE ASSESSEE WAS ASKED TO SHOW CAU SE AS TO WHY THE INCOME NOT BE TREATED AS BUSINESS INCOME AND TAXED AT 30%. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCE PTABLE TO THE AO. AO NOTICED THAT ASSESSEE COMPANY HAS DONE SU BSTANTIAL INVESTMENTS IN UNITS OF MUTUAL FUNDS AND HAD ENTERED INTO MORE THAN 200 TRANSACTIONS. AO THEREFORE CONCLUDED THAT THE INTENTION OF THE ASSESSEE WAS TO TRADE WITH A VIEW TO EARN PROFITS RATHER THAN TO KEEP IT AS INVESTMENTS. AO HELD THE TRANSACTIONS OF P URCHASE AND SALE OF MUTUAL FUNDS ENTERED INTO BY THE ASSESSEE T O BE ADVENTURE IN THE NATURE OF TRADE AND THEREFORE THE SUB MISSION THAT THE PROFIT SHOULD BE CONSIDERED AS SHORT TERM CAP ITAL GAIN WAS NOT ACCEPTABLE. AO ACCORDINGLY HELD THAT THE PROFITS EAR NED OF RS.5,29,56,697/- AS INCOME FROM BUSINESS AND PROFESSION A S AGAINST THE CLAIM OF ASSESSEE OF SHORT TERM CAPITAL GAINS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 4 7.2 HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. THE SHORT TERM CAPITAL GAINS IN QUESTION WERE ACCEPTED AS SUCH IN THE ORIGINAL ASST ORDER BY THE AO. THERE IS NO MENTION IN THE PRESENT ASST ORD ER THAT ANY NEW FACTS IN THIS REGARD HAD COME TO LIGHT AS A RESULT OF THE SEARCH OR DURING THE REASSESSMENT PROCEEDINGS. 7.3 THE APPELLANT EXPLAINED TO THE AO THAT THERE ARE AB OUT 10 TRANSACTIONS OF INVESTMENT IN THE UNITS OF THE M UTUAL FUNDS AND REDEMPTION OF THE SAME, INVESTMENT IN UNIT S OF MUTUAL FUNDS IS GENERALLY NOT A TRADING INVESTMENT BECAUSE THE UNITS OF MUTUAL FUNDS CAN ONLY BE REDEEMED. IT WAS ALSO STATED THAT ON AN AVERAGE THERE WAS HOLDING PE RIOD OF MORE THAN 30 DAYS FOR SUCH TRANSACTIONS, IT WAS ALS O EXPLAINED THAT THE INVESTMENT WAS OUT OF- THE SURPL US FUNDS OF THE COMPANY AND WAS AKIN TO PARKING OF THE SURPL US FUNDS IN FDS ETC. THE APPELLANT ALSO RELIED ON VARI OUS COURT DECISIONS IN THIS REGARD BEFORE THE AO. THE AO HOWE VER BRUSHED ASIDE ALL THESE ARGUMENTS AND FACTS AS EXPL AINED BY THE APPELLANT WITHOUT ACCEPTING OR REJECTING ANY OF THE CONTENTION DIRECTLY. THE AO ACCEPTED THE CLAIM OF T HE ASSESSEE WITH RESPECT TO INVESTMENT IN DEBT ORIENTE D MFS ETC BUT REFUSED THE SAME WITH RESPECT TO INVESTMENT IN EQUITY ORIENTED FUNDS THAT ALSO ONLY 9 M FS WHICH R ESULTED INTO SHORT TERM GAIN OF 5.29 CRS. IT IS ALSO SEEN T HAT IN SOME OF THE FUTURE ASST YEARS THE AO HAS ACCEPTED THE AP PELLANTS CLAIM OF SHORT TERM GAINS. THE AO THUS HAS MADE THE ADDITION IN THIS YEAR BECAUSE IN HIS OPINION THE TR ANSACTIONS LOOKED LIKE A BUSINESS TRANSACTION AND NOT INVESTME NT. 7.4 THUS, IT IS A CLEAR CASE OF CHANGE OF OPINION B Y THE AO ABOUT THE ISSUE WITHOUT ANY CHANGE IN THE LAW OR TH E FACTS OF THE CASE. THIS TYPE OF REVIEW OF ANY ISSUE CONCLUDE D IN AN EARLIER SCRUTINY ASSESSMENT IS NOT PERMISSIBLE IN T HE REASSESSMENT TO BE FRAMED UNDER SECTION 153A OF THE ACT. THE LAW IN THIS REGARD HAS BEEN LAID DOWN VERY CLEA RLY BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CONTIN ENTAL WAREHOUSING CORPORATION (374 ITR 645) AND MURALI AG RO PRODUCTS (49 TAXMANN.COM 172). THE GROUND OF APPEAL IS THEREFORE ALLOWED AND THE AO IS DIRECTED TO NOT TO TAX THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 5. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE AO AN D LD.CIT(A) AND FURTHER SUBMITTED THAT SIMILAR TRANSACTIONS OF PROFITS OFFERED BY THE ASSESSEE AS CAPITAL GAINS IN EARLIER Y EARS AND 5 SUBSEQUENT YEARS HAVE NOT BEEN DISPUTED BY THE REVEN UE. HE FURTHER SUBMITTED THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH AND THEREFORE THE LD.CIT(A) HAS RIGHTLY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE C ASE OF CONTINENTAL WAREHOUSING CORPORATION (374 ITR 645), HAD D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE THEREFORE SUBMITT ED THAT IN VIEW OF THE AFORESAID FACTS, NO INTERFERENCE TO THE ORDER OF LD.CIT(A) IS CALLED FOR. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE TAXABILITY OF CAPITAL GAINS EARNED ON SALE OF MUTUA L FUNDS. ASSESSEE HAD OFFERED THE GAIN AS SHORT TERM CAPITAL GAIN WHEREAS IN THE ASSESSMENT PROCEEDINGS U/S 153A OF THE ACT, AO H ELD IT AS BUSINESS INCOME. WE FIND THAT LD.CIT(A) WHILE DECIDING THE ISSU E NOTED THAT WHILE PASSING THE ORIGINAL ASSESSMENT ORDER, TH E SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE WAS ACCEPTED AND THAT NO NEW FACTS WITH RESPECT TO THE SHORT TERM CAPITAL GAIN S HAD COME TO LIGHT AS A RESULT OF SEARCH. HE HAS ALSO NOTED THAT AO ACCEPTED THE CLAIM OF ASSESSEE OF SHORT TERM CAPITAL GAINS IN RESPEC T OF PROFITS OF DEBT ORIENTED MUTUAL FUNDS BUT REFUSED THE CO NTENTION OF ASSESSEE WITH RESPECT TO PROFITS EARNED FROM EQUITY O RIENTED MUTUAL FUNDS AND THEREFORE IT WAS A CASE OF CHANGE OF O PINION WITHOUT ANY CHANGE IN LAW AND THE FACTS OF THE CASE. THE AFORESAID FINDING OF LD.CIT(A) HAS NOT BEEN CONTROVERTED BY REVENUE. BEFORE US, REVENUE HAS NEITHER PLACED ANY CONTRARY BINDING DEC ISIONS IN ITS SUPPORT NOR POINTED OUT ANY FALLACY IN THE FINDINGS OF L D.CIT(A). 6 IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFER E WITH THE ORDER OF LD.CIT(A). THUS, THE GROUNDS OF THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 9 TH DAY OF FEBRUARY, 2018. SD/- SD/- ( VIKAS AWASTHY ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 9 TH FEBRUARY, 2018. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A), PUNE-11, PUNE. PR.CIT, (CENTRAL), PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // / // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.