VIC Enterprises P. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 3634/DEL/2011

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9582 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 25-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Tax effect; Set aside; Capital Gains
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3910/DEL./2011 (ASSESSMENT YEAR : 2007-08) ACIT, CIRCLE 17 (1), VS. SHRI VIC ENTERPRISES PVT. LTD., NEW DELHI. 4 TH FLOOR, PUNJABI BHAWAN, 10, ROUSE AVENUE, NEW DELHI. (PAN : AAACV0132B) ITA NO.3634/DEL./2011 (ASSESSMENT YEAR : 2007-08) SHRI VIC ENTERPRISES PVT. LTD., VS. ACIT, CIRCLE 1 7 (1), 4 TH FLOOR, PUNJABI BHAWAN, NEW DELHI. 10, ROUSE AVENUE, NEW DELHI. (PAN : AAACV0132B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. RASTOGI, ADVOCATE REVENUE BY : SHRI J.K. MISHRA, CIT DR DATE OF HEARING : 12.09.2019 DATE OF ORDER : 01.10.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : PRESENT CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE BEING DISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 2 2. APPELLANT, ACIT, CIRCLE 17 (1), NEW DELHI (HEREI NAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL BEING ITA NO.3910/DEL/2011, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 06.06.2011 PASSED BY THE COMMISSIONER OF INCOME - T AX (APPEALS)-XIX, NEW DELHI ON THE GROUNDS INTER ALIA THAT :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AD IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDIT ION OF RS.40,85,049/- BY TREATING THE BUSINESS INCOME AS L ONG TERM CAPITAL GAINS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY S TIPULATED CARRYING ON BUSINESS OF TRADING IN INVESTMENT AND H ENCE THE INCOME DERIVED BY SUCH ACTIVITY WAS BUSINESS INCOME . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) HAS FAILED TO APPRECIATE THAT THE CASE OF THE ASSESSEE SQUARELY FALLS UNDER THE CATEGORY OF SPECU LATION BUSINESS AS PER EXPLANATION TO SECTION 73 OF THE I. T. ACT, 1961 AS THE BUSINESS OF THE ASSESSEE IS TRADING IN SALE/PURCHAS E OF MUTUAL FUNDS. THIS IS WITHOUT PREJUDICE TO THE OTHER GROUN DS OF APPEAL AS AGITATED ABOVE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS.5,71,780/- ON ACCOUNT OF INTEREST WITHOUT APPREC IATING THAT LOANS/ADVANCES WERE GRANTED FOR NON BUSINESS PURPOS ES.' 3. APPELLANT, M/S. VIC ENTERPRISES PVT. LTD. (HEREI NAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESEN T APPEAL BEING ITA NO.3634/DEL/2011, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 06.06.2011 PASSED BY THE COMMISSIONER OF INCOME - T AX (APPEALS)-XIX, NEW DELHI ON THE GROUNDS INTER ALIA THAT :- 1. BECAUSE THE ACTION IS UNDER CHALLENGE ON FACTS AND LAW IN DECLINING THE CLAIM FOR THE INVESTMENT ACTIVITY REL ATING TO SHARES TREATING THE SAME AS BUSINESS INCOME WHICH IS NOT I N ACCORDANCE ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 3 WITH THE REGULARLY FOLLOWED METHOD OF ACCOUNTING SU BSTANTIATED BY THE AUDITED FINANCIAL STATEMENT. 2. BECAUSE THE ACTION IS UNDER CHALLENGE ON FACTS A ND LAW FOR HAVING TREATED THE GAINS ACCRUED ON DISPOSAL OF SHARES AMOUNTING TO RS.2,75,11,065/- AS BUSINESS INCOME WH EREAS PER THE ASSESSEE THE SAME IS SHORT TERM CAPITAL GAIN CH ARGEABLE TO TAX U/ S 111A. 3. BECAUSE THE ACTION IS UNDER CHALLENGE HAVING OVE RLOOKED & IGNORED THE CBDT CIRCULAR NO. 4/2007 DT. 15.06.20 07 IN TERMS OF WHICH THE GAIN ARISING ON ACCOUNT OF DISPOSAL OF SHARES HELD AS INVESTMENT ARE LIABLE TO BE TAXED UNDER THE HEAD CAPITAL GAIN AND THE DECISION OF THE CIT(A) IN THE LIKELY PLACED OTHER CASES. 4. BECAUSE THE ACTION IS UNDER CHALLENGE ON FACTS A ND LAW HAVING FOLLOWED THE HON'BLE DELHI HIGH COURT OVERLO OKING THE FACTS OF SAID CASE. 5. BECAUSE THE ACTION IS UNDER CHALLENGE ON FACTS A ND LAW IN MAKING AN ADDITION OF RS.7,54,488/- ON ACCOUNT OF S TT PAID IGNORING THE FACT THAT THE APPELLANT ALREADY DISALL OWED THE EXPENSES IN COMPUTATION OF INCOME. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : ASSESSEE FILED RETURN OF INCOME AT RS.2,67,34,667/- BY MAKING TAX AT SPECIAL RATE UNDE R SECTION 111A OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). ASSESSEE DECLARED INCOME FROM LONG TERM/SHORT TERM CAPITAL G AINS AND INCOME FROM BUSINESS AND PROFESSION. ASSESSEE ALSO CLAIMED LOSS ON SPECULATIVE/DERIVATIVE TRANSACTIONS. ASSESSEE H AS CLAIMED SPECIAL RATE OF TAX PRESCRIBED U/S 111A OF THE ACT @ 10% OF THE GAIN QUA THE SHORT-TERM CAPITAL GAIN OF RS.2,75,11, 065/-. DECLINING THE CONTENTIONS RAISED BY THE ASSESSEE, ASSESSING O FFICER (AO) MADE ADDITION OF RS.2,75,11,065/- DUE TO NON-FURNIS HING OF ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 4 EXPLANATION SOUGHT FOR BY THE AO AND BY FOLLOWING R EASONS RECORDED IN THE ASSESSMENT ORDER PASSED FOR AYS 200 5-06 & 2006- 07 TREATED THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE AS BUSINESS INCOME. AO ALSO MADE ADDITION OF RS.7,54, 488/- ON ACCOUNT OF SECURITIES TRANSACTION TAX (STT) ON FAIL URE OF THE ASSESSEE TO RECONCILE THE STT PAID ON PURCHASES AS WELL AS ON SALE OF SHARES THAT THE RATE OF STT APPLICABLE QUA THE C ONCERNED TRANSACTIONS. 5. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS PARTLY ALLOWED THE APPEAL. FEEL ING AGGRIEVED, THE REVENUE AS WELL AS THE ASSESSEE HAS COME UP BEF ORE THE TRIBUNAL BY WAY OF FILING THE PRESENT CROSS APPEALS . 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. SINCE THE TAX EFFECT IN THE APPEAL FILED BY THE REVENUE IS LOW I.E. LESS THAN RS.50,00,000/-, IN VIEW OF THE CBDT CIRCULAR NO.17/2019 DATED 8 TH AUGUST, 2019 WHICH IS APPLICABLE RETROSPECTIVELY IN VIEW OF THE DECISION RENDERED BY COORDINATE BENCH OF THE TRIBUNAL IN CASE OF DINESH MADHAVLAL PATEL [TS-469- ITAT-2019(AHD)] 2019-TIOL-1556-ITAT-AHM DATED 14 TH ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 5 AUGUST, 2019, THE APPEAL OF THE REVENUE BEING ITA NO.3910/DEL/2011 IS DISMISSED ON ACCOUNT OF LOW TAX EFFECT. 8. HOWEVER, IN VIEW OF THE GROUNDS RAISED BY THE AS SESSEE, THE ASSESSEES APPEAL BEING ITA NO.3634/DEL/2011 IS BEI NG DISPOSED OFF ON MERITS. ITA NO.3634/DEL/2011 (ASSESSEES APPEAL) GROUNDS NO.1, 2, 3 & 4 9. UNDISPUTEDLY, ASSESSING OFFICER AS WELL AS LD. C IT (A) HAVE MADE/CONFIRMED THE ADDITION OF RS.2,75,11,065/- BY TREATING THE SAME AS BUSINESS INCOME OTHERWISE CLAIMED BY THE AS SESSEE AS GAIN ACCRUED ON DISPOSAL OF SHARES CHARGEABLE TO TAX U/S 111A OF THE ACT, BY FOLLOWING THEIR OWN ORDER PASSED IN AY 2005 -06. 10. THE LD. AR FOR THE ASSESSEE CONTENDED THAT THE ISSUE IN CONTROVERSY IS COVERED BY THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITA NO.2863/DEL/2010 FOR A Y 2006-07 ORDER DATED 22.12.2015 IN ASSESSEES OWN CASE WHICH FACT HAS NOT BEEN CONTROVERTED BY THE LD. DR FOR THE REVENUE BY PLACING ON RECORD MATERIAL IF THE ORDER RELIED UPON BY THE LD. AR HAS BEEN OVERRULED OR LYING CHALLENGED BEFORE THE HIGHER APP ELLATE AUTHORITY. 11. COORDINATE BENCH OF THE TRIBUNAL DETERMINED THE ISSUE IN CONTROVERSY IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN AY 2006-07 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 6 25. GROUND NOS. 1 AND 2: SIMILAR ARGUMENTS HAVE BE EN ADOPTED BY THE PARTIES AS ADVANCED BY THEM HEREINAB OVE ON THE ISSUE OF LONG TERM CAPITAL GAIN RAISED IN THE APPEA L PREFERRED BY THE REVENUE. THE AUTHORITIES BELOW HAVE TREATED THE CLAIMED SHORT TERM CAPITAL GAIN OF RS.6,23,34,129 ACCRUED O N DISPOSAL OF SHARES INVESTED FOR A SHORT TERM PERIOD AS BUSINESS INCOME. THE ASSESSEE HAD ALSO CLAIMED BENEFIT UNDER SEC. 111A O F THE ACT ON THE SAID SHORT TERM CAPITAL GAIN. 26. THE ASSESSEE HAD FURNISHED LIST OF SHARES AND T HE NUMBER OF SCRIPTS INVOLVED AS 170. IT HAD CLAIMED SHORT TERM CAPITAL GAIN OF RS.6,71,16,180 AND LOSS OF RS.47,82,051 THUS THE NE T GAIN WAS CLAIMED AT RS.6,23,34,129. THE ASSESSEE HAD CLASSIF IED THE GAINS INTO LONG TERM AND SHORT TERM, AFTER TAKING INTO CO NSIDERATION THE PERIOD OF HOLDING OF SHARES. THE ASSESSING OFFICER DID NOT AGREE WITH THE CLAIM OF THE ASSESSEE ON THE BASIS THAT TH E NUMBER OF SHARES AND FREQUENCY OF TRANSACTIONS WERE IN THE NA TURE OF REGULAR BUSINESS ACTIVITIES. HE HELD THAT ASSESSEE HAD DONE THE SAME WITH A MOTIVE TO MAXIMIZE THE PROFITS IMMEDIAT ELY RATHER THAN HOLDING THEM AS INVESTMENT. WE DO NOT AGREE W ITH SUCH APPROACH OF THE ASSESSING OFFICER AS EARNING OF MAX IMUM PROFIT IS THE OBJECT OF THE ASSESSEE IN BOTH TYPE OF TRANS ACTIONS I.E. INVESTMENT AND TRADE, HENCE, IT CANNOT BE A SOLE CR ITERIA TO TEST THE NATURE OF THE TRANSACTION. IF THE ASSESSEE HAS SOLD A SHARE WITHIN A SHORT TERM PERIOD AFTER PURCHASE BUT THE INTENTIO N OF THE ASSESSEE BEHIND THE SAME REMAINED INVESTMENT STILL THE GAIN WILL BE TREATED AS SHORT TERM CAPITAL GAIN. THE CONTENTI ON OF THE ASSESSEE REMAINED THAT THESE SHARES WERE ALSO PURCH ASED WITH INTENTION TO INVEST THEREIN DETAILS OF WHICH HAS BE EN MADE AVAILABLE AT PAGE NO.142 TO 146 OF THE PAPER BOOK. IN THE DETAILS, THE PERIOD OF HOLDING HAS BEEN SHOWN LESS THAN OR E QUAL TO SIXTY DAYS WITH ALL THE OTHER DETAILS AS WELL AS STT PAID ON THE TRANSACTION. 26.1 BOTH THE LD AO AND LEARNED CIT(A) HAVE ERRED I N TREATING THE INCOME FROM SALE OF STT PAID LISTED EQUITY SHAR ES FROM SHORT TERM CAPITAL GAINS TO BUSINESS INCOME. IT CAN BE SE EN THAT THE ASSESSEE IS PRIMARILY AN INVESTOR IN SHARES. FROM T HE RATIO OF SALE OF INCOME FROM SHARES, 84% OF THE INCOME IS DETERMI NED FROM LONG TERM HOLDING OF STT PAID LISTED EQUITY SHARES. ONLY A SMALL COMPONENT 15% OF INCOME FROM SHARES IS TREATED AS S HORT TERM. A LOOK INTO THE HOLDING PERIOD OF SHARES APPENDIX B W OULD REVEAL THAT OUT OF 560 SCRIPTS, THE TRANSACTIONS PERTAINED ONLY TO 60- 65 SCRIPTS WHICH WERE SOLD IN AT DIFFERENT TIMES. 409 SCRIPTS OUT OF 560 TOTAL SCRIPTS HAS A HOLDING PERIOD OF MORE THAN 60 DAYS HAVING A SHORT TERM CAPITAL GAIN OF RS 5.13 CRORES OUT OF RS 6.23CRORES, ONLY RS 1.09 CRORES WERE EARNED FROM 15 1 SCRIPTS HAVING A HOLDING PERIOD OF 15-60 DAYS BARRING FEW W HICH ARE THAN 10 DAYS. THUS, THE APPELLANT STATES THAT WHEN SHARES ARE ACQUIRED AFTER PAYING STT AND TAKING COMPLETE DELIV ERY OF SHARES ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 7 KEEPING A LONG TERM IN VIEW AS 84% OF SHARES ARE HE LD FOR MORE THAN ONE YEAR, TRANSACTING IN SOME SHARES IN SHORT TERM TO ALTER ITS INVESTMENT VISION AND GOAL CANNOT BE CONSIDERED AS AN ACTION BORNE OUT TO DO TRADE. IT HAPPENS WHEN THE VISION I S LONG TERM, SOME SHARES THOUGHT PURCHASED ARE DROPPED OUT FROM PORTFOLIO EITHER BECAUSE SUFFICIENT FUNDS ARE NOT AVAILABLE T O MAKE THEM REACH TO A LEVEL TO ACCUMULATE CAPITAL OR BECAUSE O F SOME OTHER ALLIED REASONS. 26.2 IT IS NOT THE FINDING OF THE ASSESSING OFFICER OR THE LEARNED CIT(APPEALS) THAT THESE SHARES WERE SHOWN AS STOCK IN TRADE OR THE ASSESSEE WAS NOT CORRECT IN SHOWING THESE SHARE S AS INVESTMENT. WE THUS DO NOT FIND INFIRMITY IN THE CL AIM OF THE ASSESSEE THAT THE PROFIT ACCRUED ON SALE OF THESE S HARES WAS SHORT TERM CAPITAL GAIN AND THE ASSESSEE WAS ELIGIBLE FOR CLAIMING CHARGING OF THE GAIN UNDER THE PROVISIONS LAID DOWN UNDER SEC. 111A OF THE ACT. WE THUS WHILE SETTING ASIDE THE OR DERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSI NG OFFICER TO ACCEPT THE CLAIM OF THE ASSESSEE AND ALLOW THE BENE FIT OF CHARGING OF THE GAIN UNDER SEC. 111A OF THE ACT. THE GROUND NOS. 1 AND 2 ARE ACCORDINGLY ALLOWED. 12. FOLLOWING THE DECISION RENDERED BY COORDINATE B ENCH OF THE TRIBUNAL FOR AY 2006-07 (SUPRA) AS PER FINDINGS EXT RACTED HEREIN BEFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSE SSEE IS ENTITLED FOR CLAIMING/CHARGING OF GAINS UNDER THE PROVISIONS CONTAINED U/S 111A OF THE ACT, CONSEQUENTLY THE ISSUE IS SET ASID E TO THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE BY GIVING BENEFIT OF CHARGING OF SHORT TERM CAPITAL GAIN TO TAX U/S 111A OF THE ACT AFTER DUE VERIFICATION. CONSEQUENTLY, GROUNDS NO.1, 2, 3 & 4 ARE DETERMINED IN FAVOUR OF THE ASSESSEE. GROUND NO.5 13. AO MADE ADDITION OF RS.7,54,488/- ON ACCOUNT OF STT PAID ON THE GROUND THAT THE ASSESSEE HAS NOT FILED CERTI FICATE FROM ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 8 NSE/BSE IN RESPECT OF STT PAID AND THEREBY DENIED T HE CREDIT OF RS.7,54,488/- TO THE ASSESSEE. THE LD. CIT (A) CON FIRMED THE ADDITION BY PASSING A CRYPTIC ORDER BY RETURNING FO LLOWING FINDINGS:- 28. GROUND NO.14 READS AS UNDER : 'THE LD. ADDL. COMMISSIONER OF INCOME TAX ERRED IN MAKING AN ADDITION OF RS.7,54,488/- ON ACCOUNT OF S IT PAID IGNORING THE FACT THE APPELLANT ALREADY DISALL OWED THE EXPENSE IN ITS COMPUTATION OF INCOME. FULL ARGUMENT S WILL BE ADVANCED AT THE TIME HEARING.' 29. VIDE THIS GROUND THE ASSESSEE CHALLENGED THE AC TION OF THE AO IN ADDING BACK STT PAID OF RS.7,54,488/-. 30. THE AR FILED DETAILED WRITTEN SUBMISSIONS, IN T HIS REGARD WHICH ARE AS UNDER: 'REGARDING SIT PAID OF RS.754488/- IT IS TO MENTION THAT THE APPELLANT ITSELF ADDED BACK THE SIT PAID AMOUNT ING TO RS.754488/-. FURTHER ADDING BACK THE SAME EXPENSE WHICH HAS ALREADY BEEN ADDED BACK IN THE INCOME OF THE APPELLANT, IS NOT CORRECT, HENCE IT REQUIRES DELETI ON.' 31. IT IS SEEN THAT WHILE WORKING OUT DISALLOWANCE U/S 14A THE ASSESSEE HAS TAKEN CREDIT FOR STT PAID. HENCE, THE ADDITION OF RS.7,54,488/- IS UPHELD. ACCORDINGLY, GROUND NO.14 IS DISMISSED. 14. IT IS CATEGORIC CASE OF THE ASSESSEE THAT WHEN THE ASSESSEE HIMSELF HAS ADDED BACK THE STT PAID AMOUNTING TO RS .7,54,488/- BY DISALLOWING THE EXPENSES IN ITS COMPUTATION OF I NCOME, THE ADDITION IS NOT SUSTAINABLE. BUT AO AS WELL AS LD. CIT (A) HAVE DEALT WITH THE ISSUE WITHOUT LOOKING INTO THE FACTS PLEADED BY THE ASSESSEE. SO, THE ISSUE IS SET ASIDE TO THE AO TO DECIDE ACCORDINGLY ITA NO.3910/DEL./2011 ITA NO.3634/DEL./2011 9 IN VIEW OF THE STAND TAKEN BY THE ASSESSEE AND ON T HE BASIS OF COMPUTATION OF INCOME FILED BY THE ASSESSEE AFTER P ROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . CONSEQUENTLY, GROUND NO.5 IS DETERMINED IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES. 15. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 1 ST DAY OF SEPTEMBER, 2019. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 1 ST DAY OF OCTOBER , 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.