DCIT, New Delhi V. M/s. Espire Infrastructure Corp. Ltd., New Delhi

ITA 3618/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58424 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P S KANODIA; INDIRA BANSAL
• Keywords: Capital asset; Business income; Depreciation; Revenue expenditure
• Section: 32

Judgement Text

ITA NO. 3618/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3618/DEL/2010 A.Y. : 2007-08 DCIT, CIRCLE - 11(1), CR BLDG., NEW DELHI VS. M/S ESPIRE INFRASTRUCTURE CORP. LTD., 1 ST FLOOR, GATE NO. 3, JEEVAN TARA BUILDING, PARLIAMENT STREET, NEW DELHI (PAN/GIR NO. : AAACU1718L) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SMT. INDIRA BANSAL, CA & SH. P.S. KANODIA, CA DEPARTMENT BY : SH. ROHIT GARG, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 19.5.2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF DEP RECIATION OF ` 3,07,707/- OUT OF ` 4,10,227/-. 3. IN THIS CASE ASSESSING OFFICER OBSERVED THAT AS SESSEE HAS CLAIMED DEPRECIATION OF ` 410277/- ON VARIOUS FIXED ASSETS AS FOLLOWS:- I) PLANT AND MACHINERY - ` 11,509/- II) OFFICE EQUIPMENTS - ` 65,011/- ITA NO. 3618/DEL/2010 2 III) FURNITURE AND FIXTURES - ` 18,704/- IV) VEHICLES - ` 3,15,053/- ` 4,10,277/ ` 4,10,277/ ` 4,10,277/ ` 4,10,277/- -- - 3.1 ASSESSING OFFICER FURTHER OBSERVED THAT DURIN G THE YEAR ASSESSEE HAS CARRIED ON ITS CORE MANUFACTURING ACTIVITY OF T EXTILE ON A VERY MARGINAL SCALE. THE MAIN FOCUS OF THE ASSESSEE COMPAN Y DURING THE YEAR HAS BEEN REAL ESTATE DEVELOPMENT. THE TOTAL A MOUNT SPENT BY THE ASSESSEE ON REAL ESTATE OPERATIONS AND WHICH HA VE BEEN SHOWN UNDER THE HEAD WORK TO PROGRESS IS ` 2,10,28,536/ -. ASSESSING OFFICER OBSERVED THAT STATEMENT OF THIS WORK IN P ROGRESS SHOWS VARIOUS ITEMS OF EXPENSES BEING DEBITED IN THIS ACC OUNT LIKE SITE DEVELOPMENT EXPENSES, CONVERSION CHARGES, INFRASTRU CTURE DEVELOPMENT CHARGES, TRAVELLING, CONSULTANCY, OFFIC E RENT, LEGAL FEES, DIRECTORS REMUNERATION, TELEPHONE, VEHICLE RUNNING ETC. FROM THIS ASSESSING OFFICER INFERRED THAT ASSESSEE HIMSELF A LLOCATED THE EXPENSES INCURRED ON INFRASTRUCTURE RELATED BUSINES S TO THE WORK IN PROGRESS ACCOUNT AND IS NOT CLAIMING THEM AS EXPENSE S IN THE PROFIT AND LOSS ACCOUNT. ASSESSING OFFICER OBSERVED THAT BY APPLYING THE SAME LOGIC, EVEN THE DEPRECIATION OF ` 4,10,277/- C ANNOT BE SAID TO BE FULLY RELATED TO THE TEXTILE BUSINESS OF THE ASSESS EE BUT A PART OF IT SHOULD BE ALLOCATED TO THE INFRASTRUCTURE RELATED A CTIVITIES. ASSESSING OFFICER REFERRED TO THE PROVISIONS OF SECTION 38(2 ) OF THE IT ACT, 1961 WHICH READS AS UNDER:- 38(2) WHERE ANY BUILDING, MACHINERY, PLANT OR FURNI TURE IS NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OR PROFESSION, THE DEDUCTIONS UNDER CLAUSE (II) OF CLAUSE (A) AND CLAUSE (C) OF SECTION ITA NO. 3618/DEL/2010 3 30, CLAUSE (I) AND (II) OF SECTION 31 AND CLAUSE ( II) OF SUB-SECTION (1) OF SECTION 32 SHALL BE RESTRICTE D TO A FAIR PROPORTIONATE PART THEREOF WHICH THE ASSESSING OFFICER MAY DETERMINE HAVING REGARD TO THE USER OF SUCH BUILDING, MACHINERY, PLANT OR FURNITURE FOR THE PURPOSE OF BUSINESS OR PROFESSION. 3.2 IN VIEW OF THE ABOVE ASSESSING OFFICER HELD TH AT ASSESSEE CANNOT BE ALLOWED FULL CLAIM OF DEPRECIATION UNDER THE HEA D INCOME FROM BUSINESS. ASSESSING OFFICER MADE PROPORTIONATE DI SALLOWANCE OF 75% IN THIS REGARD AND ALLOWED 25% DEPRECIATION IN THIS REGARD TO THE ASSESSEE. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE REVENUE EXPENDITURE I NCURRED BY THE ASSESSEE IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AMOUNTING TO ` 2,10,28,536/- IS DEBITED TO WORK IN PROGRESS ACCO UNT AS STOCK IN TRADE WHICH IS DULY REFLECTED IN SCHEDULE I OF THE PROF IT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2007 UNDER THE HEAD COST OF SALE OF GOODS AS ADDITION OF WORK IN PROGRESS AS WELL AS CLOSING STOCK OF WORK IN PROGRESS. THE ASSESSEE HAS NOT SHOWN THE SAID EXP ENDITURE AS PRE- OPERATIVE EXPENSES. THUS, LD. COMMISSIONER OF INCO ME TAX (APPEALS) FOUND THAT THE ASSESSING OFFICERS FINDING THAT ASS ESSEE IS NOT CLAIMING THEM AS EXPENSES IN PROFIT AND LOSS ACCOUNT IS WRON G. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT T HE ENTIRE ITEMS OF PLANT AND MACHINERY, OFFICE EQUIPMENTS, FURNITURE AND FIXTURES AND VEHICLES HAVE BEEN USED BY THE ASSESSEE IN THE COUR SE OF CARRYING OUT OF ITS BUSINESS DURING THE PERIOD UNDER CONSIDERATI ON. LD. ITA NO. 3618/DEL/2010 4 COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVE D THAT ASSESSING OFFICER CANNOT INVOKE THE PROVISION OF SECTION 38( 2) IN THE CASE OF THE ASSESSEE BECAUSE UNDER THE SAID PROVISION, SHE CAN RESTRICT THE DEDUCTION UNDER CLAUSE (II) OF CLAUSE (A) AND CLAUS E (C) OF SECTION 30, CLAUSE (I) AND (II) OF SECTION 31 AND CLAUSE (II) O F SUB-SECTION (1) OF SECTION 32 ONLY IN THOSE CASES WHERE ANY BUILDING, MACHINERY, PLANT OR FURNITURE IS NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. LD. COMMISSIONER OF INCOME TAX (APPEALS ) FURTHER PLACED RELIANCE THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF C.I.T. VS. BHARAT ALUMINIUM CO. LTD. (2010) 187 TAX MAN 111(DELHI); HONBLE BOMBAY HIGH COURT IN THE CASE OF C.I.T. VS. GR SHIPPING LTD. ITA NO. 598 OF 2009, HONBLE ITAT, CHANDIGARH DEC ISION IN THE CASE OF GULATI SARI CENTRE 71 ITD 73 (CHD.) (SB). LD. COMMIS SIONER OF INCOME TAX (APPEALS) CONCLUDED THAT HE WAS OF THE OPINION THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISI ON OF SECTION 38(2) OF INCOME TAX ACT, 1961 FOR RESTRICTING THE CLAIM OF D EPRECIATION TO THE EXTENT OF 25% ONLY. HE HELD THAT THE ASSESSEE WA S ENTITLED FOR DEDUCTION OF ENTIRE DEPRECIATION OF ` 4,10,277/-. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY OBSERVED THAT AL L THE EXPENSES RELATING TO REAL ESTATE DEVELOPMENT ACTIVITY OF TH E ASSESSEE HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. SO, ASSESS ING OFFICER IS WRONG FOR OBSERVING THAT THE SAME HAS NOT BEEN DONE. THE RE IS NO REASON IN RESTRICTING THE DEPRECIATION IN THIS REGARD. THE ENTIRE ITEMS OF PLANT AND MACHINERY, OFFICE EQUIPMENTS, FURNITURE AND FIXT URES AND VEHICLES ITA NO. 3618/DEL/2010 5 HAVE BEEN USED BY THE ASSESSEE IN THE COURSE OF CAR RYING OUT OF ITS BUSINESS DURING THE PERIOD UNDER CONSIDERATION. HEN CE, IN OUR CONSIDERED OPINION, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD IS COGENT ENOUGH WHICH DOE S NOT NEED ANY INTERFERENCE ON OUR PART. ACCORDINGLY, WE UPHOLD THE SAME. 7. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING THE PROFIT OF ` 69,68, 996/- ON SALE OF SHARES AND MUTUAL FUNDS AS BUSINESS INCOME INSTEAD OF AS S HORT TERM CAPITAL GAIN. 8. WE FIND THAT THERE IS SOME DISCREPANCY IN THE G ROUND RAISED BY THE REVENUE. LD. DEPARTMENTAL REPRESENTATIVE CLAIME D THAT THE GROUND SHOULD BE READ AS LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING THE PROFIT OF ` 69,68,996/- ON SA LE OF SHARES AND MUTUAL FUNDS AS SHORT TERM CAPITAL GAIN INSTEAD OF BU SINESS INCOME. 9. IN THIS CASE ASSESSING OFFICER OBSERVED THAT A SSESSEE HAS EARNED PROFIT BY TRADING IN EQUITY SHARES AND MUTU AL FUNDS OF ` 69,68,996/- AND TREATING THE SAME AS SHORT TERM CAP ITAL GAIN ON SHARES HAS AVAILED A CONCESSIONAL TAX RATE OF 10% U/S 111 A. FROM THE RECORDS SUBMITTED BY THE ASSESSEE, IT IS NOTED THAT THE ASSESSEE HAS DONE VARIOUS SALE PURCHASE TRANSACTION IN THE SHARE S OF A NUMBER OF COMPANIES ON ALMOST A REGULAR BASIS. THE TOTAL SA LES AND PURCHASE VALUE IS ABOUT ` 16,92,61,472/-. APART FROM THESE TRANSACTIONS, AS ON 31.3.2007, THE ASSESSEE IS HOLDING SHARES WORTH ` 8 ,17,13,852/- WHOSE PURCHASE VALUE IS NOT INCLUDED IN THE SALE / PURCHA SE VALUE OF ABOUT ` 16.92 CRORES MENTIONED ABOVE. ASSESSING OFFICER OBSERVED THAT THE NUMBER OF COMPANIES WHOSE SHARE HAVE BEEN PURCHASED AND SOLD, THE SHORT PERIOD OF HOLDING BETWEEN THE DATES OF PURCHA SE AND SALES, THE ITA NO. 3618/DEL/2010 6 VALUE OF TRANSACTIONS INVOLVED, SHOWS THAT THE MOTIV E OF THE ASSESSEE IN PURCHASING THE SHARES IS NOT FOR INVESTMENT PUR POSES AND TO EARN DIVIDEND INCOME BUT TO HOLD THESE SHARES FOR A SHORT PERIOD OF TIME AND MAKE A PROFIT. ASSESSING OFFICER FURTHER OBSERVED THAT THE DIVIDEND INCOME EARNED IS ` 13,60,511/- AND THE PROFIT IN SH ARE TRADING IS ` 69,68,996/-. THEREFORE, ASSESSING OFFICER HELD T HAT THIS PROFIT IN SHARE TRADING HAS TO BE TREATED AS PART OF BUSINESS INCOME AND NOT SHORT TERM CAPITAL GAIN TAXABLE AT A CONCESSIONAL RA TE OF 10%. THEREFORE, ASSESSING OFFICER ADDED ` 69,68,996/- T O THE BUSINESS INCOME. 10. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) ASSESSEE SUBMITTED THAT ASSESSING OFFICER HAS WRONGLY HELD THAT THE PROFIT ON SALE OF SHARES AND MUTUAL FUNDS PURCHASED AS BUSINES S INCOME INSTEAD OF SHORT TERM CAPITAL GAIN WITHOUT APPRECI ATING THE FACT THAT :- (I) THE OBJECTS CLAUSE OF THE MEMORANDUM OF ASSOCIAT ION OF THE ASSESSEE COMPANY DO NOT PERMIT IT TO CARRY ON THE BU SINESS OF TRADING IN SHARES /MUTUAL FUNDS. (II) THE ASSESSEE HAD SHOWN THE AMOUNT OF SHARES /MU TUAL FUNDS PURCHASED AS INVESTMENT IN ITS BOOKS OF ACC OUNTS AND BALANCE SHEET. (III) THE ASSESSEE HAD EARNED DIVIDEND INCOME OF 13 ,60,511/- ON SHARES / MUTUAL FUNDS DURING THE PERIOD UNDER APPEA L. (IV) THE ASSESSEE HAS UTILIZED ITS OWN FUNDS AND NO T BORROWED ANY FUNDS FOR ACQUIRING ANY SHARE/MUTUAL FUND. (V) THE ASSESSEE HAS BEEN HOLDING THE SHARES BY TAK ING DELIVERY AND MAKING FULL PAYMENT FOR SUCH INVESTMENT . ITA NO. 3618/DEL/2010 7 (VI) THE ASSESSEE HAD NOT FREQUENTLY PURCHASED AND SOLD SHARE AND MUTUAL FUNDS. 10.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVE D THAT DURING THE YEAR THE ASSESSEE HAS MADE TRANSACTION OF SHARES AND MUTUAL FUNDS. ASSESSEE HAS SHOWN THE SAID SHARES AND MUT UAL FUNDS IN ITS BOOKS OF ACCOUNT AS WELL AS IN SCHEDULE C OF THE BALANCE SHEET AS INVESTMENT AND HAS ACCORDINGLY OFFERED THE PROFI T ON SALE OF SHARES/ REDEMPTION OF MUTUAL FUNDS FOR TAXATION UNDER THE HEA D CAPITAL GAIN. ASSESSING OFFICER ON THE OTHER HAND, TREATED THE S HARE TRANSACTIONS AS WELL AS TRANSACTIONS OF PURCHASE AND REDEMPTION OF M UTUAL FUNDS AS BUSINESS ACTIVITY AND HAS ACCORDINGLY ASSESSED THE PROFIT ON SALE OF SHARES AS WELL AS PROFIT ON REDEMPTION OF MUTUAL FUND S AS BUSINESS INCOME. LD. COMMISSIONER OF INCOME TAX (APPEALS) FUR THER OBSERVED THAT ASSESSEE HAD MADE INVESTMENT OUT OF ITS OWN FUN DS AND HAS NOT BORROWED ANY FUNDS FOR MAKING SUCH INVESTMENT IN SHA RES/ MUTUAL FUNDS. 10.2 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHE R OBSERVED AS UNDER:- L HAVE OBSERVED THAT THE APPELLANT INVESTED A SUM ` 8 CRORE IN DIFFERENT MUTUAL FUNDS IN JULY,2006 OUT OF ENTIRE SALE PROCEEDS OR SHARES SOLD ON 30TH JUNE, 2006. THE APPELLANT REDEEMED CERTAIN MUTUAL FUNDS OUT OF MUTUAL FUNDS OF ` 8 CRORE INVESTED IN JULY, 2006 AND REINVESTED THE AMOUNT IN OTHER MUTUAL FUNDS. TOTAL INVESTMENT IN MUTUAL FUNDS INCLUDING REINVESTMENT OF FUNDS RECEIVED ON REDEMPTION DURING THE PERIOD UNDER CONSIDERATION WAS ` 1574.40 LACS. ITA NO. 3618/DEL/2010 8 OUT OF THE SAID INVESTMENT OF ` 1574.40 LACS IN MUTU AL FUNDS, MUTUAL FUNDS HAVING COST PRICE OF ` 1122.38 LACS WERE SOLD FOR ` 1126.71 LACS AND THUS EARNED N ET GAIN OF ` 4.33 LACS. REMAINING MUTUAL FUNDS OF THE VALUE OF ` 447.69 LACS WERE HELD AS INVESTMENT AS O N 31 ST MARCH,2007. I HAVE ALSO NOTICED THAT APPELLANT COMPANY FURTHER INVESTED A SUM OF ` 516.42 LAC IN EQUITY SHARES SCRIPTS OF DIFFERENT LISTED COMPANIES DURING THE PERIOD JULY'2006 TILL 31 ST MARCH'2007. 0UT OF THE SAID INVESTMENT, IN EQUITY SHARES, EQUITY SHARES HAVING COST PRICE OF ` 147.19 LACS WERE SOLD FOR ` L5L.17 LACS AND EARNED NET GAIN OF ` 3.99 LACS. REMAINING EQUIT Y SHARES SCRIPTS OF DIFFERENT COMPANIES OF THE VALUE O F ` 369.23 LACS WERE HELD AS INVESTMENT ON 31ST MARCH,2007. ON GOING THROUGH THE COMPLETE SET OF FACTS, IT IS SEEN THAT THE APPELLANT HAD SOLD SHARE SCRIPTS OF DIFFERENT LISTED COMPANIES ONLY ON 12 OCCASIONS DURI NG THE YEAR UNDER CONSIDERATION AND HAS NOT MADE SALE PURCHASE TRANSACTIONS OF SHARES ON REGULAR BASIS. I T IS SEEN THAT THE FREQUENCY OR TRANSACTIONS OF PURCHASE AND SALE OF SHARES IS NOT HIGH. THE INVESTMENT HAS NOT BEEN ROTATED FREQUENTLY AS ALL THE SHARES/MUTUAL FUN DS PURCHASED BY THE APPELLANT WERE NOT SOLD, RATHER TH E SAME WERE HELD FOR QUITE NUMBER OF DAYS. THE APPELLANT EARNED DIVIDEND INCOME OF ITA NO. 3618/DEL/2010 9 ` 13,60,511/- FROM INVESTMENT IN SUCH SHARES AND MUTUAL FUNDS. IT IS SEEN THAT OUT OF PROFIT OF ` 69,68,996/- SHOWN BY THE APPELLANT ON SALE/REDEMPTION OF SHARES/MUTUAL FUNDS, THE APPELLANT HAD EARNED CAPIT AL GAIN OF ` 61,37,442/- ON SALE OF SHARES DURING THE YEAR ON A SINGLE DAY I.E. 30TH JUNE,2006, THE PROFIT OF ` 4,33,467/- WAS EARNED ON REDEMPTION OF MUTUAL FUNDS DURING THE YEAR AND BALANCE PROFIT OF ` 3,98,087/- WAS EARNED BY THE APPELLANT ON SALE OF SHARES DURING TH E PERIOD 1 ST JULY' 2006 TO 31 ST MARCH'2007. IT IS WELL KNOWN FACT THAT MUTUAL FUNDS ARE NEVER TRADED IN MARKET. THEREFORE PROFIT ON REDEMPTION OF MUTUAL FUNDS CANNOT BE ASSESSED AS BUSINESS INCOME. THE INCOME-TAX ACT ITSELF, PROVIDE THAT WHEN THE SHARES ARE HELD FOR APERIOD OF LESS THAN ONE YEAR, IT WILL BE TREATED AS SHORT TERM CAPITAL ASSET AND IF THE SAME IS HELD FOR A PERIOD OF ONE YEAR OR MORE, THE SAME WILL BE TREATE D AS LONG TERM CAPITAL ASSET CONTRARY TO OTHER ASSETS WHERE THE HOLDING PERIOD TO TREAT SUCH ASSET AS LON G TERM IS MORE THAN 36 MONTHS. IT IS ALSO SEEN THAT INVESTMENT IN SHARES MADE BY THE APPELLANT COMPANY IS DULY AURTHORISED BY ITS MEMORANDUM AND ARTICLES OF ASSOCIATION. THE APPELLANT COMPANY HAS RELIED UPON THE FOLLOWING CASE LAWS:- ITA NO. 3618/DEL/2010 10 MADRAS HIGH COURT IN THE CASE OF C.I.T. VS. NSS INVESTMENTS PVT. LTD. 277 ITR 149. HON'BLE DELHI HIGH COURT IN THE CASE OF CLT VS. ESS JAY ENTERPNSE;, (P) LTD., 173 TAXMAN 1 HON'BLE SUPREME COURT IN THE CASE OF RAJA BAHADUR KAMAKHYA NARAIN SINGH VS. CLT 77 ITR 253 HON'BLE SUPREME COURT IN THE CASE OF CLT VS. MADAN GOPAL RADHEY LAL 73 LTR 652,(SC) HON'BLE ITAT, MUMBAI IN THE CASE OF CITADELL AGENCIE S (P) LTD. VS. ACIT(2007) 11 SOT 273 HON'BLE ITAT MUMBAI IN THE CASE OF J.M. SHARE & STOC K BROKERS LTD. VS. JT. CLT ITA NO. 2801I11UM/2000(BC A) HON'BLE ITAT MUMBAI IN THE CASE OF ACIT VS. BRIGHT STAR INVESTMENT (ITA NO.6374/MUM./2004 FOR ASSESSMENT YEAR 2000-2001 AND ITA NO.9543/MUM./2004 FOR THE ASSESSMENT YEAR 2001- 2002 DATED 2ND JULY'2008 HON'BLE KERLA HIGH COURT I N THE CASE OF ACLT VS. KETHAN KUMAR A. SHAH (2000) 242 ITR 83. HON'BLE MUMBAI HIGH COURT IN CLT VS. GOPAL PUROHIT (2010) 188 TAXMANN 140 THE RATIO OF AFORESAID CASE LAWS RELIED UPON BY THE APPELLANT SQUARELY COVER THE GROUND OF APPEAL I N FAVOUR OF THE APPELLANT. ITA NO. 3618/DEL/2010 11 AFTER CAREFULLY CONSIDERING THE FACTS AND ARGUMENTS AND JUDICIAL PRONOUNCEMENTS AS WELL AS THE ABOVE OBSERVATIONS MADE BY ME, I AM OF THE VIEW THAT THE TRANSACTIONS OF SHARES AND MUTUAL FUNDS CARRIED OUT BY THE APPELLANT COMPANY DURING THE YEAR UNDER APPEAL SHOULD BE TREATED AS INVESTMENT AND THE PROFI T ON SALE OF SHARES/REDEMPTION OF MUTUAL FUNDS SHALL B E ASSESSED UNDER THE HEAD 'CAPITAL GAIN' AS SHORT TER M CAPITAL GAIN AND NOT 'BUSINESS INCOME'. THE ASSESSIN G OFFICER IS, THEREFORE, DIRECTED TO ASSESS ` 69,68,9 96/- AS SHORT TERM CAPITAL GAIN TAXABLE U/S 111A @10%. A S A RESULT, THIS GROUND OF THE APPELLANT IS ALLOWED. 11. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. 12.1 WE FIND THAT LD. COMMISSIONER OF INCOME TAX (AP PEALS) HAS OBSERVED THAT ASSESSEE HAS MADE INVESTMENT OUT OF I TS OWN FUND AND NOT BORROWED ANY FUNDS FOR MAKING SUCH INVESTMENT. IN ITS BOOKS AND ACCOUNTS, BALANCE SHEET, ASSESSEE HAS DISCLOSED THE SAME AS INVESTMENT ALSO. LD. COMMISSIONER OF INCOME TAX (AP PEALS) HAS GIVEN A FINDING THAT ASSESSEE HAS SOLD SHARES OF DIFFEREN T LISTED COMPANIES ONLY ON 12 OCCASIONS DURING THE YEAR UNDER CONSIDER ATION AND HAS NOT MADE SALE PURCHASE TRANSACTIONS OF SHARES ON REGULAR BASIS. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO GIVEN A FINDING THAT THE FREQUENCY OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES IS NOT HIGH. THE INVESTMENT HAS NOT BEEN ROTATED FREQUEN TLY AS ALL THE SHARES / MUTUAL FUNDS PURCHASED BY THE ASSESSEE WER E NOT SOLD, RATHER ITA NO. 3618/DEL/2010 12 THE SAME WERE HELD FOR QUITE NUMBER OF DAYS. THE A SSESSEE EARNED DIVIDEND INCOME OF ` 13,60,511/- FROM INVESTMENT IN SUCH SHARES AND MUTUAL FUNDS. LD. COMMISSIONER OF INCOME TAX (APPEA LS) FURTHER OBSERVED THAT IT IS WELL KNOW FACT THAT MUTUAL FU NDS ARE NEVER TRADED IN MARKET. THEREFORE, PROFIT ON REDEMPTION OF MUTU AL FUNDS CANNOT BE ASSESSED AS BUSINESS INCOME. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER GIVEN A FINDING THAT INVESTMEN T MADE BY THE ASSESSEE COMPANY ARE AS PER THE OBJECT GIVEN IN THE ME MORANDUM OF ASSOCIATION. THUS, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT HE WAS OF THE VIEW THAT THE TR ANSACTIONS OF SHARES AND MUTUAL FUNDS CARRIED OUT BY THE ASSESSEE COMPANY DURING THE YEAR UNDER APPEAL SHOULD BE TREATED AS INVESTMENT AND TH E PROFIT ON SALE OF SHARES / REDEMPTION OF MUTUAL FUNDS SHALL BE ASSESSE D UNDER THE HEAD CAPITAL GAIN AS SHORT TERM CAPITAL GAIN A ND NOT BUSINESS INCOME. IN OUR CONSIDERED OPINION, LD. COMMISSIONE R OF INCOME TAX (APPEALS) HAS PASSED A REASONABLE ORDER, WHICH DOE S NOT NEED ANY INTERFERENCE ON OUR PART. ACCORDINGLY, WE UPHOLD TH E SAME. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/1/2012. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 06/1/2012 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR,ITAT, DELHI BENCHES