ACIT, New Delhi V. M/s. Dhampur Alchochem Ltd., New Delhi

ITA 3949/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58958 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK SINGH SENIOR
• Assessee Lawyers: R S ADLAKHA
• Keywords: Capital asset; Business income; Cost of acquisition; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3949/DEL./2010 (ASSESSMENT YEAR : 2007-08) ACIT, CIRCLE 10 (1), VS. M/S. DHAMPUR ALCHOCHEM L TD., NEW DELHI. 24, SCHOOL LANE, NEW WORLD TRADE CENTRE, NEW DELHI. (PAN : AAACD0732F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.S. ADLAKHA, ADVOCATE REVENUE BY : SHRI ALOK SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XIII, NEW DELHI DATED 11.06.2010. THE GR OUNDS TAKEN BY THE ASSESSEE READ AS UNDER :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT THE I NCOME OF RS.518654/- AS SHORT TERM CAPITAL GAIN AND RS.12320 814/- AS LONG TERM, CAPITAL GAIN INSTEAD OF INCOME FROM BUSI NESS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS INVOLVED IN FREQUENT TRADING OF SHARES AND NO SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 200000/- ITA NO.3949/DEL./2010 2 MADE ON ACCOUNT OF SUNDRY DEBTORS' WRITTEN OFF WITH OUT APPRECIATION THE FACT THAT THE ADVANCES WERE CAPITA L IN NATURE FOR THE PURCHASE OF ASSET. 3. THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HE ARING. 2. IN THE GROUND NO.1, THE ISSUE RAISED IS DELETING THE ADDITION MADE BY THE ASSESSING OFFICER TO TREAT THE INCOME OF RS.5,18,65 4/- AS SHORT TERM CAPITAL GAIN AND RS.1,23,20,814/- AS LONG TERM CAPITAL GAIN INSTEAD OF INCOME FROM BUSINESS. THE REVENUES CLAIM IS THAT THE ASSESSEE WAS INVOLVED IN FREQUENT TRADING OF SHARES AND NO SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED. 3. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE A SSESSEE WAS INDULGED IN THE PURCHASE AND SALE OF SHARES ON OCCASIONAL BASIS AND NOT ON USUAL TRADE. THE PURCHASES WERE MADE IN NOVEMBER, 2003 AND SALES WERE EFFECTED IN FEBRUARY, 2007. IN SOME OF THE CASES, THE HOLDING PERIOD OF THE SECURITIES WAS AS LONG AS 38 MONTHS. THE RATIO OF THE SALE PRICE OF THE SHARES WAS ONLY 2% OF THE TOTAL TURNOVER. THUS, IT IS CLEAR THAT THE TIM E DEVOTED TO THE ACTIVITY WAS NOT LARGE. KEEPING THESE FACTS IN VIEW, WE FIND N O FAULT IN THE ORDER OF THE CIT (A) WHO HAS DECIDED THE ISSUE AS UNDER :- GROUND NO.4: IN REGARD TO LONG TERM CAPITAL GAIN OF RS.L,23,20,814 ASSESSED AS BUSINESS INCOME, I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATIONS OF THE ASSESSING OFFICER MADE IN THE ASSESSMENT ORDER. THE APPELLANT COMPANY HAS SOLD ONLY 1 SCRIPT OF THE COMPANY WHICH WAS CLEARLY REFL ECTING UNDER THE HEAD INVESTMENT IN SHARES OF THE BALANCE SHEET. THE ASSESSING OFFICER IN HIS ORDER HAS STATED THAT IN POINT NO. 4.1 ITA NO.3949/DEL./2010 3 'THE SHARES OF DHAMPUR INVERTOS LTD TO THE QUANTITY OF 1,11,225 SHARES WERE SOLD BY THE ASSESSEE COMPANY ON DIFFERE NT DATES I.E. ON 9TH FEB, 12 TH FEB, 15 TH FEB, 19 TH FEB, 21 ST FEB, 22 ND FEB, 23 RD FEB, 26 TH FEB 2007 MEANS WITHIN A SHORT SPELL OF FEBRUARY 2 007 ALL THE SHARES WERE SOLD WHICH WAS ALSO PURCHASED O N VARIOUS OCCASIONS SUCH AS ON 3 RD NOV., 4 TH NOV, 6 TH NOV AND ON 7 TH NOV 2003 AND AGAIN ON 11 TH NOVEMBER 2003 WHICH SHOWS THAT THE INTENTION OF THE ASSESSEE COMPANY WAS JUST TO MAKE A TRADING IN THESE SHARES INSPITE OF HAVING INTENTION OF INVESTM ENT.' HOWEVER, THE APPELLANT SUBMITTED THAT THE PURCHASE AND SALE OF SHARES WAS AN OCCASIONAL INDEPENDENT ACTIVITY AND N OT USUAL TRADE, SINCE PURCHASE OF SHARES HAVE TAKEN PLACE IN NOV, 2 003 AND SALES OF SHARES WAS MADE IN FEB,2007. MOREOVER, THE SHARES W ERE PURCHASED OUT OF OWN FUND AND NOT BORROWINGS. THE APPELLANT SUBMI TTED THE BELOW DETAILS IN RESPECT OF LONG TERM CAPITAL GAIN. NAME OF SCRIPT DATE OF PURCHASE NO. OF SHARES AMOUNT PURCHASE DHAMPUR INVERTOS LTD. 22/10/2005 93200 932000 06/04/2004 26275 52550 19/11/2004 5000 28866 27/10/2003 15500 18080 28/10/2003 92525 155634 03/11/2003 20000 28000 04/11/2003 79300 111720 05/11/2003 81200 111700 06/11/2003 17000 23645 07/11/2003 50500 92885 11/11/2003 24734 298595 TOTAL (A) 5 05234 1853675 SALE DHAMPUR INVERTOS LTD. 09/02/2007 10000 871935 12/02/2007 10000 915283 15/02/2007 10000 1058778 19/02/2007 10000 1086630 21/02/2007 20000 2317854 22/02/2007 20000 2433447 23/02/2007 20000 2555020 26/02/2007 10000 1341286 26/02/2007 1225 148777 TOTAL (B) 111225 12729010 WEIGHTED AVERAGE PURCHASE COST 408196 LONG TERM CAPITAL GAIN WITH STT 12320814 ITA NO.3949/DEL./2010 4 ON GOING THROUGH THE FACTS AND SUBMISSIONS IT WAS A LSO NOTICED THAT SELLING OF SHARES ARE NOT MAIN OBJECTS BUT ARE OTHER OBJECTS AS STATED IN THE MEMORANDUM AND ARTICLE OF ASSOCIATION OF THE ASSESSEE. THE APPELLANT ALSO SUBMITTED THAT HOLDING PERIOD OF SEC URITIES WHICH WERE BOUGHT AND SOLD WAS ALSO AS LONG AS 38 MONTHS. FURTHERMORE, THE APPELLANT ALSO SUBMITTED THAT THE RATIO OF SALES PRICE OF SHARES WAS ABOUT 2% OF TOTAL TURNOVER. THE TIME DEVOTED TO THE ACTIVITY AND THE EXTENT TO WHICH IT IS MEANS OF LIV ELIHOOD ARE AVERAGE AND REASONABLE SINCE SOLITARY TRANSACTION. IN VIEW OF THE ABOVE OBSERVATIONS I AM OF THE VIEW THAT TRANSACTION OF SHARES CARRIED OUT BY APPELLANT COMP ANY DURING THE YEAR UNDER APPEAL SHOULD BE TREATED AS INVESTMENTS AND T HE LONG TERM CAPITAL GAIN ON SALE OF SUCH SHARES SHALL BE ASSESSED UNDER THE HEAD 'CAPITAL GAIN' AND NOT 'BUSINESS INCOME'. THE ASSESSING OFF ICER IS THEREFORE DIRECTED TO ASSESS RS.1,23,20,814/- AS LONG TERM CA PITAL GAIN. HENCE, THE GROUND NO.1 STANDS DISMISSED. 4. IN THE GROUND NO.2, THE ISSUE INVOLVED IS DELETI NG THE ADDITION OF RS.2 LACS MADE BY ASSESSING OFFICER ON ACCOUNT OF SUNDRY DEBTORS WRITTEN OFF. ON THIS ISSUE, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS WRITTEN OFF SUNDRY DEBTORS OF RS.2 LACS IN THE NAME OF SHRI GUMNAM SIN GH. THIS AMOUNT WAS PAID TO HIM AGAINST THE PURCHASE OF LAND. THIS PUR CHASE OF LAND WAS NOT TOWARDS THE BUSINESS OF THE ASSESSEE AND IT CANNOT BE HELD TO BE REVENUE EXPENDITURE. THEREFORE, THE CIT (A) WAS NOT JUSTIF IED IN DELETING THE SAME. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDER O F THE CIT (A). 5. WE HAVE HEARD BOTH THE SIDES. THE ASSESSEE HAS MADE ADVANCE OF RS.2 LACS TO SHRI GUMNAM SINGH FOR PURCHASE OF LAND. TH E ASSESSEE IS NOT DEALING BUSINESS OF SALE AND PURCHASE OF LAND. THIS AMOUNT WAS PAID FOR ACQUIRING THE ITA NO.3949/DEL./2010 5 CAPITAL ASSET IN THE FORM OF LAND. THE ASSESSEES CLAIM THAT THE EXPENDITURE WAS MADE DURING THE COURSE OF REGULAR BUSINESS CARR IED ON BY THE ASSESSEE IS COMPLETELY UNJUSTIFIED AND NOT SUPPORTED BY ANY EVI DENCE. IN OUR CONSIDERED VIEW, THE CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. IN VIEW OF THIS FACT, WE REVERS E THE ORDER OF THE CIT (A) ON THIS ISSUE AND RESTORE THE ORDER OF THE ASSESSIN G OFFICER. THIS GROUND STANDS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF MARCH, 2012. SD/- SD/- (I.P. BANSAL) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 23 RD DAY OF MARCH, 2012/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI AR, ITAT NEW DELHI.