The DCIT, 5(1), Indore V. SMT. AARTI KARWA, Indore

ITA 362/IND/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0450 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Keywords: Capital asset; Business income; Treatment of capital gains as business income; Deemed dividend

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER AND SHRI B.C. MEENA, HONBLE ACCOUNTANT MEMBER 1. ITA NO. 358/IND/2014 A.Y. 2006-07 2. ITA NO. 359/IND/2014 A.Y. 2006-07 3. ITA NO. 360/IND/2014 A.Y. 2006-07 4. ITA NO. 361/IND/2014 A.Y. 2006-07 5. ITA NO. 362/IND/2014 A.Y. 2006-07 6. ITA NO. 363/IND/2014 A.Y. 2006-07 7. ITA NO. 364/IND/2014 A.Y. 2006-07 8. ITA NO. 365/IND/2014 A.Y. 2006-07 9. ITA NO. 366/IND/2014 A.Y. 2006-07 10. ITA NO. 367/IND/2014 A.Y. 2006-07 11. ITA NO. 368/IND/2014 A.Y. 2006-07 12. ITA NO. 369/IND/2014 A.Y. 2006-07 DEPUTY COMMISSIONER OF INCOME TAX 4(1), INDORE ::: APPELLANT 2 VS. 1. SHRI VISHNU KARWA INDORE PAN ABCPK 8868P 2. SMT. SUDHA KARWA INDORE PAN ABPPK 6381G 3. SHRI SUBHASH CHAND PUSRAM KARWA (HUF) INDORE PAN AAMHS 1460C 4. SHRI SUSHIL JAI NARAIN KARWA INDORE PAN ABCPK 8869N 5. SMT. AARTI KARWA INDORE PAN ALNPK 7410K 6. SMT. SUWARNA KARWA INDORE PAN A BBNPK 6380H 7. SHRI ASHISH SUBHASH CHAND KARVE (HUF) INDORE PAN AAFHA 7378Q 8. SHRI MANISH KARWA INDORE PAN ALGIK 3905P 3 9. SHRI SUSHIL JAI NARAYAN KARWA(HUF) INDORE PAN AABHK 8503M 10. SHRI MUKUND KARWA INDORE PAN A LGPK 4632H 11. SHRI ANOOP KARWA INDORE PAN ANBPK 5655R 12. SMT. MATHURA DEVI KARWA INDORE PAN ABPPK 6384D ::: RESPONDENTS APPELLANT BY SHRI R.A. VERMA RESPONDENT BY SHRI RITESH JAIN DATE OF HEARING 10 .6.2015 DATE OF PRONOUNCEMENT 1 1 .6.2015 O R D E R PER SHRI B.C. MEENA, AM ALL THESE APPEALS EMANATE FROM THE COMMON ORDER DATED 31.1.2014 OF THE LEARNED CIT(A)-II, INDORE WHER EIN THE PENALTY LEVIED U/S 271(1)() OF THE ACT IN THE C ASES OF 4 ALL THESE ASSESSES HAS BEEN DELETED ON THE BASIS OF ORD ER OF THE ITAT IN ITA NOS. 307 TO 315/IND/2009 WHEREIN TH E ITAT HAS DIRECTED THE ASSESSING OFFICER TO TREAT THE GAIN ON THE SALE OF SHARES AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE RELEVANT PORTION OF THE ORDER OF THE LEAR NED CIT(A) IS REPRODUCED AS UNDER :- 3. BOTH THE GROUNDS ARE DIRECTED AGAINST THE LEVY OF PENALTY U/S 271(1) OF IT ACT, 1961 AND TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. I HAVE GONE THROUGH THE RELEVANT PENALTY ORDER U/S 271(1) OF IT ACT, 1961, RELEVANT ASSESSMENT ORDERS, APPELLATE ORDERS OF CIT(APPEALS) AND HON'BLE ITAT, INDORE BENCH DATED 20.12.2013 AND THE WRITTEN SUBMISSIONS FILED FROM TIME TO TIME AND THE ONE FINALLY FILED ON 28.01.2014 WHICH IS REPRODUCED ABOVE. 5 3.1 THESE ARE THE PENALTY APPEALS OF KARWA GROUP OF CASES NUMBERING 12 AS DETAILED ABOVE IN THE WRITTEN SUBMISSIONS. THE PENALTY HAS BEEN LEVIED ON A COMMON ISSUE OF TREATING THE CAPITAL GAINS OF THE APPELLANTS BUSINESS INCOME AND THE QUANTUM APPEAL WAS DECIDED BY THE CIT(A) AGAINST ALL THE ABOVEMENTIONED APPELLANTS. THEREFORE, THE A.O. HAD LEVIED PENALTY U/S 271(1)() OF IT ACT, 1961 IN ALL THE GROUP CASES. THE ISSUE OF TREATMENT OF CAPITAL GAINS AS BUSINESS INCOME IS COMMON AND SINGLE ISSUE IN ALL THE 12 CASES EXCEPT IN THE CASES OF SHRI SUSHIL KARWA AND SHRI ANUP KARWA. IN THE CASE OF THESE TWO APPELLANTS, BESIDES THE COMMON ISSUE OF TREATING CAPITAL GAIN AS BUSINESS INCOME, THE ADDITION U/S 2(22) WAS ALSO EXISTENT. THE COMMON ISSUE AS 6 WELL AS THE ISSUE OF ADDITION U/S 2(22) OF IT ACT, 1961 HAVE BEEN DULY CONFIRMED BY THE CIT(A). HOWEVER, IN FURTHER APPEAL BEFORE HON'BLE ITAT, INDORE BENCH, ON THE QUANTUM ADDITIONS, ALL THE APPELLANTS HAVE GOT THE COMPLETE RELIEF ON COMMON ISSUE AND THE ADI U/S 2(22) IN CASE OF SUSHIL KARAW. BUT THE ADDITION U/S 2(22) IN CASE OF MR. ANUP KARWA HAS BEEN CONFIRMED. THE APPELLANT HAS REFERRED THE RELEVANT PORTION OF COMMON APPEAL ORDER OF HON'BLE ITAT IN ITA NO. 307 TO 315 AND ITA NO. 346 TO 347 ALL FOR A.Y. 2006-07. THE RELEVANT FINDING OF HON'BLE ITAT IS REPRODUCED HEREUNDER :- CAPITAL GAIN U/S 111A TREATED AS BUSINESS INCOME IN THE PARA 38 PAGE NO. 64 TO 66 THE LD. SR. DR PLACED RELIANCE UPON THE DECISION OF THIS TRIBUNAL IN ACIT VS. SHRI 7 NAVEET KUMAR (ITA NO. 346/IND/2013) ORDER DATED 30.08.2013. WE HAVE PERUSED THIS ORDER AND FOUND THAT IT HAS BEEN CLARIFIED THAT IF THE SHARES ARE SHOWN AS INVESTMENT AND NOT AS STOCK IN TRADE, PROFIT ARRIVING FROM SUCH SHARES WILL BE CAPITAL GAINS AND NOT BUSINESS PROFIT. THE MATTER WAS RESTORED TO THE ASSESSING OFFICER TO EXAMINE THE FACTS AND THEN DECIDE ACCORDINGLY. THEREFORE, THIS JUDICIAL PRONOUNCEMENT MAY NOT HELP THE REVENUE. THE OTHER CASES RELIED UPON BY THE REVENUE HAVE ALSO BEEN PERUSED AND ARE OF THE VIEW THAT THE FACTS ARE NOT IDENTICAL, THEREFORE, THESE MAY NO HELP THE REVENUE. THE BOARD CIRCULAR NO. 4.2007 DATED 15.06.2007 ALSO EMPHAZIES THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS NAMELY AN INVESTMENT PORTFOLIO, COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND TRADING PORTFOLIO COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADE ASSETS. NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE FACT HAS TO BE CONSIDERED IN ENTIRETY. THIS PROPOSITION HAS BEEN CONFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI OM PRAKASH SURI (SUPRA). THE TOTALITY OF FACTS PLAINLY INDICATE THAT THE LD. FIRST APPELLATE AUTHORITY RIGHTLY DIRECTED THE ASSESSING OFFICER TO TREAT THE SHORT TERM CAPITAL GAIN AS EARNED FROM INVESTMENT IN SHARES. INSTRUCTION NO. 8 1827 DATED 31 ST AUGUST, 1989 WAS SUPPLEMENTED BY CBDT CIRCULAR NO. F. NO. 149/287/2005-TPL) REPORTED IN 210 CTR 29 (ST.), ADVISING THE ASSESSING OFFICER THAT THE PRINCIPLES CONTAINED IN THE CIRCULAR SHOULD GUIDE THEM IN DETERMINING WHETHER IN GIVEN CASES THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE TO CAPITAL GAINS) ON STOCK IN TRADE AND THEREFORE GIVING RISE TO BUSINESS PROFIT BY FURTHER OPINING THAT NO SINGLE PRINCIPLE SHOULD BE CONSIDERED. IF THE NUMBER OF TRANSACTIONS ARE ANALYSED WE NOTE THAT IN A COMPUTER BASED TRADING SYSTEM/E- FILING THE FIGURES, BEING SPLIT UP, GIVE MISLEADING HIGH FIGURES, REFLECTING INDIVIDUAL COMPONENT OF THE TRANSACTION BUT REALLY, IF THESE FIGURES ARE SYNCHRONIZED THEN CLEAR PICTURE OOZES OUT. SINCE THE GAIN HAS BEEN EARNED FROM THE DELIVERY BASED TRANSACTIONS, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION FROM HON'BLE JURISDCIGTIONAL HIGH COURT IN THE CASE OF SHRI OM PRAKASH, SURI (SUPRA) WE DO NOT FIND ANY MERIT IN THE CONCLUSION DRAWN BY THE LOWER AUTHORITIES FOR TREATING THE GAINS ARISING OUT OF SALE OF SHARES AS BUSINESS INCOME RATHER THAN CAPITAL GAIN. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO TREAT THE GAIN ARISING OUT OF SALE OF SHARES AS CAPITAL GAINS. WE DIRECT ACCORDINGLY. 9 ADDITION ON ACCOUNT DEEMED DIVIDEND U/S 2(22)(E) IN THE PARA 48 TO 51 PAGE NO. 86 TO 87 48. THE CONCLUSION DRAWN IN THE IMPUGNED ORDERS, OBSERVATIONS MADE FROM THE ASSESSMENT ORDERS, ASSERTIONS MADE BY RESPECTIVE COUNSEL AND THE MATERIAL AVAILABLE ON RECORD ARE KEPT IN JUXTAPOSITION AND ANALYSED, WE FIND THAT THE ASSESSEE IS NOT COMING WITHIN THE MISCHIEF OF 2(22) 49. IN VIEW OF THE ABOVE DISCUSSIONS WE DO NOT FIND ANY MERIT IN THE ACTIONS OF LOWER AUTHORITIES IN INVOKING THE PROVISIONS OF SEC. 2(22) OF IT ACT, 1961, IN CASE OF SUSHIL KARWA. 50. THE ASSESSEE IS ALSO AGGRIEVED FOR ADDITION OF RS.6,04,988/- MADE U/S 2(22) IN CASE OF ANOOP KARWA FOR THE ASSESSMENT YEAR 2006-07. 51. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT SHRI ANOOP KARWA HAS TAKEN A LOAN FROM M/S KRISHI DHAM SEEDS LIMITED. WE FOUND THAT SHRI ANOOP KARWAS HAS MORE THAN 10% VOTING RIGHTS IN THE SHARE CAPITAL OF KRISHI DHAM SEEDS LIMITED, THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) IS CLEARLY APPLICABLE FOR LOANS AND ADVANCES SO TAKEN BY THE 10 ASSESSE. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER U/S 2(22) WAS PERFECTLY JUSTIFIED. 3.2 IT IS EVIDENT FROM THE ABOVEMENTIONED ORDER OF HON'BLE ITAT THAT THE QUANTUM ADDITIONS ON WHICH THE PENALTY HAS BEEN LEVIED HAVE BEEN DELETED BY THE HON'BLE ITAT. THEREFORE, THE PENALTY ORDER CANNOT BE SUSTAINED. IN CASE OF SHRI ANUP KARWA, AN ADDITION OF RS. 6,04,988/- MADE U/S 2(22) HAS BEEN CONFIRMED BY THE HON'BLE ITAT. BUT PERUSAL OF THE RECORD REVEALS THAT ON THIS PART OF ADDITION, THE PENALTY U/S 271(1) HAS NEITHER BEEN INITIATED NOR LEVIED BY THE A.O. THE ISSUE OF PENALTY ON THE ABOVE MENTION ADDITION IN THIS CASE DOES NOT EXIST IN THE RELEVANT PENALTY ORDER. IN VIEW OF THE ABOVE DISCUSSION, THE PENALTY LEVIED U/S 271(1) OF I.T. ACT, 1961 IS DIRECTED TO BE DELETED. 11 2. WE HAVE HEARD BOTH THE SIDES. THERE IS NO FACTUAL DISCREPANCY IN THE FACT THAT THE HON'BLE ITAT, INDORE BENCH, HAS DECIDED THE QUANTUM APPEAL WHEREIN THE ITAT HAS DIRECTED THE ASSESSING OFFICER TO TREAT THE GAIN AR ISING OUT OF SALE OF SHARES AS CAPITAL GAINS. CONSIDERING ALL THESE ASPECTS OF THE CASE, WE FIND NO FAULT IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE PENALTY IN ALL THE CASES AND WE, THEREFORE, SUSTAIN THE SAME. 3. IN THE RESULT, ALL THE APPEALS OF THE REVENUE STAND DISMISSED. PRONOUNCED IN OPEN COURT ON 11 TH JUNE, 2015 SD/- SD/- (D.T. GARASIA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JUNE 11 , 2015 DN/-