ACIT 1(3), MUMBAI V. YATISH TRADING CO. P.LTD, MUMBAI

ITA 38/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8389 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Keywords: Capital asset; Business income; Date of conversion; Revised return
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & VIVEK VARMA , J M ITA NO. 38 / MUM/20 1 3 ( ASSESSMENT YEAR : 200 8 - 0 9 ) ACIT - 1(3), MUMBAI - 400020 VS. M/S YATISH TRADING CO PVT. LTD., 4 TH FLOOR, SADHANA HOUSE, 570, P.B.MARG, WORLI, MUMBAI - 400 018 PAN/GIR NO. : A AACY 0189 P ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. PAVAN KUMAR BEERLA /ASSESSEE BY : MR. NISHANT THAKKAR DATE OF HEARING : 10 TH NOVEMBER , 201 4 DATE OF PRONOUNCEMENT 21 ST NOV. , 201 4 O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER CIT(A) DATED 12 - 10 - 2012 , IN THE MATTER OF ORDER PASSED U/S. 250 (6) OF THE I.T. ACT, FOR THE ASSESSMENT YEAR 200 8 - 0 9, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING TO FOLLOW THE DECISION OF THE ITAT IN THE CASE OF ASSESSEE FOR AY.2006 - 07 WHEREIN THE ITAT HAS DIRECTED TO TREAT THE DIFFERENCE BETWEEN THE PURCHASE PRICE OF SHARES AND THE MARKET VALUE OF SHARES, AS ON DATE OF CONVERSION OF SHARES FROM STOCK IN TRADE TO INVESTMENTS, AS BUSINESS INCOME AND DIFFERENCE BETWEEN SALE PRICE OF SHARES AND MARKET VALUE OF SHARES, AS ON DA TE OF CONVERSION, AS CAPITAL GAINS IN THE LIGHT OF REVENUE APPEAL IS PENDING FOR DECISION OF HIGH COURT. 2. THE LD. CIT(A) HAS FURTHER ERRED IN OVERLOOKING THE FACT THAT THERE IS NO PROVISION IN THE ACT FOR CONVERTING STOCK IN TRADE INTO CAPITAL ASSETS. ITA NO. 38 / 13 2 2 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FACTS IN BRIEF ARE THAT ASSESSEE COMPANY IS A NON BANKING FINANCE COMPANY REGISTERED WITH RBI AND ENGAGED IN THE BUSINESS OF INVESTMENT AND GRANTING OF LOANS AND ADVANCES. THE A SSESSEE C OMPANY HAS FILED ITS RETURN OF INCOME FOR A. YR. 2008 - 09 ON 30.09.2008 ADMITTING TOTAL INCOME OF RS.10,83,30,173 / - . SUBSEQUENTLY, THE ASSESSEE COMPANY HAS FILED REVISED RETURN OF INCOME ON 27.08.2010 DECLARING TOTAL INCOME OF RS.3,87,62,546 / - . IN THE REVIS ED RETURN OF INCOME, THE ASSESSEE COMPANY HAS REDUCED RS.6,95,67,627 / - FROM THE TOTAL INCOME ADMITTED IN THE ORIGINAL RETURN OF INCOME. THE ASSESSEE COMPANY HAS STATED THAT RS.6,95,67,627 / - SHOULD BE TREATED AS LONG TERM CAPITAL GAINS AND NOT PROFITS FROM BUSINESS. IN THE ASSESSMENT ORDER U / S 143(3) DATED 28.11.2010, THE AO HAS NOT ACCEPTED THE ASSESSEE COMPANY'S CONTENTION IN THE REVISED RETURN OF INCOME. 3 . BY THE IMPUGNED ORDER, CIT(A) PARTLY ALLOWED ASSESSEES CLAIM AND RESTORED THE MATTER BACK TO THE FILE OF AO FOR RECOMPUTING INCOME UNDER THE HEAD OF CAPITAL GAINS AND BUSINESS AND PROFESSION AS PER DIRECTION OF TRIBUNAL GIVEN IN PARA 10 OF ORDER DATED 23 - 2 - 2010. 4 . WE HAVE CONSIDERED RIVAL CONTENTIONS, THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2006 - 07, DATED 23 - 2 - 2010, WHEREIN THE TRIBUNAL IN PARA 9 & 10 HAS DECIDED THE ISSUE AS UNDER: - '9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FIRST QUESTION IS AS TO THE HEAD OF INCOME UNDER WHICH THE INCO ME IS TO BE ASSESSED, WHETHER UNDER THE HEAD INCOME FROM BUSINESS OR CAPITAL GAIN. THE TEST OFTEN APPLIED, TO ASCERTAIN THE NATURE OF THE PROPERTY IN THE HANDS OF THE ASSESSEE AS TO WHETHER THE SAME IS INVESTMENT OR STOCK - IN - TRADE OF BUSINESS OF THE ASSESS EE IS TO LOOK AT THE TREATMENT ITA NO. 38 / 13 3 GIVEN IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. WE STILL FIRST CONSIDER THE LEGAL POSITION IN THIS REGARD AS LAID DOWN IN JUDICIAL PRONOUNCEMENTS. IT HAS BEEN LAID DOWN BY HONBLE SUPREME COURT I N THE CASE OF RAJA BAHADUR KAM AKHAYA NARAIN SINGH VS. CIT - 77 ITR 253 THAT THE INTENTION OF THE ASSESSEE AS REFLECTED FROM THE TREATMENT GIVEN IN HIS ACCOUNTS IN HOLDING A PARTICULAR ASSET AS STOCK - IN - TRADE OF A BUSINESS OR AS AN INVESTMENT WILL BE VERY IMPORTANT. AS HELD BY HON'BLE SUP REME COURT IN THE CASE OF BENGAL ASSAM INVESTORS LTD. VS. CIT - 59 ITR 547, THE MERE FACT THAT A COMPANY IS INCORPORATED TO CARRY ON INVESTMENT BUSINESS DOES NOT AUTOMATICALLY LEAD TO THE INFERENCE THAT IT IS CARRYING ON BUSINESS BY PURCHASE AND SALE OF PR OPERTIES HELD AS INVESTMENTS AND THE QUESTION ALWAYS IS WHETHER SUCH SALE WHICH PRODUCED THE SURPLUS WAS CONNECTED WITH THE CARRYING ON OF THE ASSESSEE'S BUSINESS THAT IT COULD FAIRLY BE SAID THAT THE SURPLUS IS THE PROFITS AND GAINS OF SUCH BUSINESS. AS L AID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA DISCOUNT CO. LTD. - 41 ITR 191, ONCE CANNOT GENERALIZE THAT IN EVERY CASE OF INVESTMENT COMPANY, A L L TRANSACTIONS INVOLVING INVESTMENTS ARE NOTHING BUT DEALING IN THE COURSE OF BUSINESS. AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. PVT. LTD. - 82 ITR 586, THE DETERMINATION OF THE QUESTION WHETHER PARTICULAR HOLDING OF SHARES BY THE ASSESSEE IS BY WAY OF AN INVESTMENT OR WHETHER IT FORMS PART OF STO CK - IN - TRADE OF THE ASSESSEE IS A MATTER GENERALLY WITHIN THE KNOWLEDGE OF THE ASSESSEE HOLDING THE SHARES AND NORMALLY THE ASSESEE SHOULD BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS OWN RECORDS AS TO WHETHER HE HAD MAINTAINED ANY DISTINCTION BETWEEN THOS E SHARES WHICH ARE HELD AS STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENTS. IN THE PRESENT CASE, THE AO HAS NOT DISPUTED THE FACT THAT THE ASSESSEE HAS RECOGNIZED THE SHARES WHICH WERE SOLD AND GAINS FROM SUCH SALE WHICH WERE OFFERED UNDER TH E HEAD CAPITAL GAIN, WERE SHOWN AS INVESTMENTS IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. THESE INVESTMENTS WERE HELD FOR VARYING PERIODS OF TIME YI Z., ONE YEAR TO 48 MONTHS. THE TREATMENT IN THE BOOKS OF ACCOUNTS HAS NOT BEEN DISPUTED BY THE REVENUE. THERE ARE NO OTHER FACTS BROUGHT ON RECORD BY THE AO TO SHOW THAT THE SHARES THE GAIN IN QUESTION HAS TO BE CONSIDERED AS BUSINESS INCOME. THE FACT THAT THE ASSESSEE GAINS AN ADVANTAGE IN THE FORM OF EXEMPTION FROM LONG TERM CAPITAL GAIN CAN BE NO GROUND TO H OLD THAT THE GAIN IN QUESTION IS BUSINESS INCOME. THE OTHER REASON GIVEN BY THE AO THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES IS NO GROUND TO TREAT THE GAIN IN QUESTION AS BUSINESS INCOME. AS ALREADY STATED THE ASSESSEE, DESPITE THE FACT THA T HE DOES TRADING, IN SHARES AND SECURITIES, HAS RIGHT IN LAW TO HAVE TO PORTFOLIOS ONE UNDER THE HEAD INVESTMENTS AND THE OTHER UNDER THE HEAD STOCK - IN- TRADE. IN RESPECT OF THE SALE OF SHARE WHICH HAS GIVEN RAISE TO THE INCOME IN DISPUTE IN THE PRESENT A PPEAL, THERE IS, NO DISPUTE REGARDING THE TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS WHICH WAS ADMITTEDLY WAS AS INVESTMENT AND NOT AS STOCK - IN - TRADE OF BUSINESS. IN THOSE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCOME WAS TO BE CONSIDERED UNDER THE HEAD 'CAPITAL GAINS'. ITA NO. 38 / 13 4 10. AS FAR AS METHOD OF ARRIVING ON THE PROFIT ON SALE OF SHARES IS CONCERNED, LEARNED CIT(A) HAS' CONSIDERED THREE POSSIBLE ALTERNATIVE METHODS WHICH COULD BE FOLLOWED. LEARNED CIT(A) FOUND THAT THE ASSESSEE FOLLOWED A M ETHOD BY WHICH PROFIT FROM THE DATE OF PURCHASE TO THE DATE OF CONVERSION OF THE SHARES INTO INVESTMENT WILL BE CHARGED AS BUSINESS PROFIT AND THE PROFIT FROM THE DATE OF CONVERSION INTO INVESTMENT TILL DATE OF SALE WILL BE CHARGED AS CAPITAL GAIN. THE ASS ESSEE HAD FILED RETURN OF INCOME ON THE BASIS OF THE ABOVE METHOD AND HAS OFFERED INCOME FROM BUSINESS 'AS WELL AS INCOME FROM CAPITAL GAINS. IN OUR VIEW, LEARNED CIT(A) WAS RIGHT IN ACCEPTING THIS METHOD OF VALUATION ADOPTED BY THE ASSESSEE. THE ASSESSEE HAS, HOWEVER SOUGHT TO PLEAD BEFORE LEARNED CIT(A) AND ALSO BEFORE US THAT ENTIRE PROFIT RIGHT FROM THE DATE OF PURCHASE OF SHARES TILL DATE OF SALE SHOULD BE CHARGED AS CAPITAL GAINS. THIS REQUEST IN OUR OPINION WAS RIGHTLY REJECTED BY LEARNED CIT(A) BECA USE ALLOWING ASSESSEE TO DO SO WOULD RESULT IN REDUCTION IN INCOME OFFERED BY THE ASSESSEE FOR TAXATION IN THE RETURN OF INCOME. TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT IS LOGICAL AND IN ACCORDANCE WITH LAW. WE THEREFORE, UPHOLD THE ORDER O F LEARNED CIT(A) AND DISMISS THE APPEAL BY THE REVENUE. 5 . AS THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE DURING THE YEAR UNDER CONSIDERATION ARE PARI MATERIA , RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF CIT(A). 6 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 /11/ 201 4 . 21 /11/ 2014 SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 11 /2014 /PKM , PS ITA NO. 38 / 13 5 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//