CAWASJI JEHANGIR TRADING COMPANY, MUMBAI V. CIT2, MUMBAI

ITA 4300/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83727 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 29-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Corroborative evidences; Assessment record
• Section: 143(3); 142(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER ITA NO.4300/MUM/2013 ASSESSMENT YEAR: - 2008-09 CAWASJI JEHANGIR TRADING COMPANY, 4 TH FLOOR, READYMONEY MANSION 43, VEER NARIMAN ROAD, FORT, MUMBAI 400001 VS. CIT-2 344, 3 RD FLOOR, AAYAKAR BHAVAN, MUMBAI 400020. PAN:- AAACC2095C APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE REVISION ORDER DATED 26.03.2013 OF COMMISSIONER OF INCOME TAX, PASSED U/S 263 OF THE INCOME TAX ACT, FOR THE A.Y. 2008-09. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- THE UNDER MENTIONED GROUNDS OF APPEAL ARE WITHOUT P REJUDICE TO ONE ANOTHER : 1) THE ORDER DATED 26/0312013 ('THE IMPUGNED ORDER' ) PASSED BY THE CIT-2, MUMBAI ('THE CIT') PURPORTEDLY UNDER SECTION 263 OF THE INCOME TAX ACT 1961 ('THE ACT') IS VOID, ILLEGAL, WITHOUT JURISDICTION, CONTRARY TO THE PRINCIPLE OF NATURE JUSTICE AND BAD IN LAW AND, WITHOUT PREJUDICE, IS E RRONEOUS. 2) THE CIT ERRED IN HOLDING THAT THE ASSESSMENT ORD ER DATED 22ND NOVEMBER 2010 PASSED BY THE ASSESSING OFFICER ('THE AO') IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3) THE CIT ERRED IN ALLEGING THAT: ASSESSEE BY SHRI FAROOKH IRANI REVENUE BY SHRI A.C. TEJPAL DATE OF HEARING 10.09.2014 DATE OF PRONOUNCEMENT 17.09.2014 M/S GANPATRAI JAIGOPAL 2 | P A G E I) THE AO HAD PASSED THE ASSESSMENT ORDER WITHOUT MAKING PROPER ENQUIRIES, WITHOUT GIVING REASONS AND WITHOUT ANY APPLICATION OF MIND. II) THE AO'S ACTION OF ACCEPTING THE APPELLANT'S P ROFIT AS A SHORT TERM CAPITAL GAIN WAS CONTRARY TO THE FACTS IN THE CASE. III) THAT THE APPELLANT'S CLAIM THAT IT HAD PASSED A RESOLUTION ON 03/0112006 WAS HIGHLY DOUBTFUL. IV) THAT THE APPELLANT HAD SHOWN ITS SHARES AS INVE STMENT ONLY ON 31/0312008 WITH THE SOLE PURPOSE OF CLAIMING A LOWE R TAXATION RATE OF 15% OF THE PROFIT EARNED ON THEIR SALE. V) THAT THE APPELLANT'S AR HAD STATED THAT THE SHA RES PURCHASED AS INVESTMENT HAVE BEEN SHOWN IN THE BALANCE SHEET IN STOCK IN TRADE BY OVERSIGHT. VI) THE SHARES SOLD BY THE APPELLANT DURING THE YEAR WERE HELD AS STOCK IN TRADE. 4) THE IMPUGNED ORDER IS VITIATED BY ERRORS OF LAW AND FACTS BY A FAILURE TO APPLY CORRECT LEGAL PRINCIPLES IN DETERMINING WHETH ER SHARES ARE HELD AS INVESTMENTS OR STOCK IN TRADE. 2. THE ASSESSMENT FOR A.Y. UNDER CONSIDERATION WAS CO MPLETED U/S 143(3) ON 22.11.2010 AT THE TOTAL INCOME OF RS. 2,84,08,54 6/- AS AGAINST THE RETURNED INCOME OF RS. 2,83,02,205/-.SUBSEQUENTLY AFTER GOIN G THROUGH THE ASSESSMENT RECORD AS WELL AS ASSESSMENT ORDER, THE CIT NOTED THA T THE ASSESSEE HAS OFFERED TO TAX SHORT TERM CAPITAL GAIN OF RS. 2,13,84,581/- FROM SALE OF INVESTMENT (SHARES) WHEREAS THE ASSESSEE HAD SHOWN THE VALUE OF INVESTMENT AS ON 31.03.2007 AT RS. 19,986/- IN COMPARISON TO THE STO CK IN TRADE AT RS. 3.54 CRORES . IN VIEW OF THE SMALLNESS OF THE VALUE OF I NVESTMENTS SHOWN IN THE BALANCE-SHEET AS ON 31.03.2007/-, THE PROFIT SHOWN BY THE ASSESSEE FROM THE SALE OF SHARES HELD AS INVESTMENT DURING THE PREVI OUS YEAR, IN VIEW OF THE COMMISSIONER WAS ABNORMAL. THEREFORE, THE COMMISSIO NER WAS OF THE OPINION THAT THE ACTION OF THE ASSESSING OFFICER IN ACCEPTI NG THE SAID PROFIT AS SHORT TERM CAPITAL GAIN CHARGEABLE TO CONCESSIONAL RATE IS ERR ONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLLY, A SHOW-CAUSE NO TICE DATED 26.03.2013 U/S 263 OF THE ACT, WAS ISSUED TO THE ASSESSEE PROPOSIN G TO SET ASIDE THE M/S GANPATRAI JAIGOPAL 3 | P A G E ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSEE FILED ITS REPLY DATED 26.03.2013 TO THE SHOW-CAUSE NOTICE U/S 263 AND CONTENDED THAT THE ASSESSEE HAD TWO PORTFOLIO ONE FOR TRADING AND ONE FOR INVESTMENT. THE BOARD RESOLUTION REGARDING INVESTMENT TO BE MADE WAS PASSED AND RECORDED IN THE MINUTES BOOKS OF THE COMPANY WHICH PERMITS THE ASSESSEE COMPANY TO MAINTAIN TWO PORTFOLIOS. THIS F ACT WAS BROUGHT TO THE NOTICE OF ASSESSING OFFICER WHILE COMPLETING THE AS SESSMENT U/S 143(3). THE ASSESSEE HAS ALSO REPLIED TO THE GROUND OF SHOW-CAUSE NOTICE. 3. THE COMMISSIONER DID NOT ACCEPT THE REPLY FILED BY THE ASSESSEE AND HELD THAT THE CLAIM OF THE ASSESSEE HAVING PASSED THE SA ID RESOLUTION IS HIGHLY DOUBTFUL AND ACCORDINGLY TREATED THE CAPITAL GAIN OFFE RED BY THE ASSESSEE FROM SALE OF SHARES HELD AS INVESTMENT AS BUSINESS INCOM E OF THE ASSESSEE. THE COMMISSIONER ALSO HELD THAT THE ASSESSING OFFICER H AS PASSED AN ORDER U/S 143(3) WITHOUT APPLICATION OF MIND. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS S UBMITTED THAT THE ASSESSEE IS MAINTAINING TWO PORTFOLIO AS IT IS EVIDE NT FROM THE BOOKS OF ACCOUNTS OF THE ASSESSEE. HE HAS REFERRED P&L ACCOU NT AS WELL AS THE BALANCE- SHEET AND FURTHER THE SCHEDULE OF INVESTMENT AND SUBMI TTED THAT THE SHARES WHICH ARE HELD AS INVESTMENT ARE SEPARATELY SHOWN UN DER INVESTMENT WHEREAS THE ASSESSEE IS ALSO HAVING TRADING PORTFOLIO AND T HE SHARES HELD IN THE TRADING PORTFOLIO ARE SHOWN AS STOCK IN TRADE. HE HAS REFERR ED THE REPLY DATED 9-8-2010 IN RESPONSE TO THE NOTICE AND QUERIES RAISED BY THE A SSESSING OFFICER U/S 142(1) AND 143(2). IN THE SAID REPLY, THE ASSESSEE S UBMITTED THE DETAILS AND EXPLANATION INCLUDING TWO SEPARATE LISTS OF PURCHASE OF SHARE MADE FOR TRADING AND INVESTMENTS, TWO SEPARATE LISTS OF SALES MADE FOR TRADING AND INVESTMENTS, THE DETAILS AND TWO SEPARATE PORTFOLIO MAINTAINED BY THE ASSESSEE. THE M/S GANPATRAI JAIGOPAL 4 | P A G E ASSESSEE HAD ALSO SPECIFICALLY RELIED UPON THE RESOL UTION PASSED BY THE BOARD OF DIRECTORS OF ASSESSEE COMPANY AT THE MEETING HELD ON 3.1.2000, WHERE IN IT WAS RESOLVED THAT THE ASSESSEE COMPANY MAY INVEST ITS F UND IN THE SHARES, SECURITIES AND BONDS DEPLOYED IN THE MARKET CONDITIONS. THE SECUR ITIES FOR THE PURPOSE OF SUCH INVESTMENT WERE ALSO SPECIFIED IN THE SAID RES OLUTION. THE LD. COUNSEL HAS SUBMITTED THAT THE SHORT TERM CAPITAL GAIN EARNED BY THE ASSESSEE IS ONLY FROM THE SALE AND PURCHASE OF SECURITIES WHICH WERE ALLOW ED IN THE BOARD RESOLUTION, THEREFORE, IT IS NOT THE CASE OF CONVE RTING THE STOCK IN TRADE INTO INVESTMENT FOR AVOIDING THE TAX. HE HAS FURTHER SUBM ITTED THAT THE ASSESSEE HAS FILED DETAILED REPLY BEFORE THE ASSESSING OFFICER AND AFTER CONSIDERING THE SAME, THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE, THEREFORE, THE ASSESSING OFFICER HAS APPLIED ITS MIND ON THE ISSUE. HE HAS REFERRED THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSING OFFI CER WHILE CONSIDERING THE CLAIM OF THE ASSESSEE IN RESPECT OF REBATE U/S 88E HAS VERIFIED THE DETAILS FILED BY THE ASSESSEE AND IT WAS NOTED BY THE ASSESSI NG OFFICER THAT OUT OF THE TOTAL AMOUNT OF RS. 4,74,835/- PAID AS STT, AN AMO UNT OF RS. 2,92,282/- PERTAINS TO THE PROFIT OF SALE OF INVESTMENT I.E. C APITAL GAIN, THEREFORE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF REBATE U/ S 88E TO THE EXTENT OF THE STT PAID IN RESPECT OF SALE OF INVESTMENT RESULTIN G CAPITAL GAIN. THE LD. AUTHORIZED REPRESENTATIVE THUS SUBMITTED THAT THE DETA ILED REPLY FILED BY THE ASSESSEE AND THE DISALLOWANCE OF STT CLAIM BY THE ASS ESSING OFFICER TO THE EXTENT OF SALE OF SHARES RESULTING CAPITAL GAIN CLE ARLY SHOWS THAT THE ASSESSING OFFICER HAS CONSIDERED THE ISSUE OF CAPITAL GAIN OF FERED BY THE ASSESSEE AND AFTER SATISFYING HIMSELF, ALLOWED THE SAME. ONCE THE ASSESSING OFFICER HAS TAKEN A VIEW AND ACCEPTED THE CLAIM OF CAPITAL GAIN ON SALE OF SHARES, THE COMMISSIONER CANNOT TAKE A DIFFERENT VIEW MERELY BEC AUSE HE DID NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER. M/S GANPATRAI JAIGOPAL 5 | P A G E 5. THE SECOND LEG OF ARGUMENT OF THE LD. AUTHORIZED R EPRESENTATIVE IS REGARDING THE INCONSISTENCY AND DEPARTURE BETWEEN THE GROUNDS RAISED IN THE SHOW-CAUSE NOTICE AND THE REASONS ON WHICH THE IMPUG NED ORDER IS PASSED IN SETTING ASIDE THE ASSESSMENT ORDER BY HOLDING THE SAM E AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE HAS FURTH ER SUBMITTED THAT IN THE SHOW-CAUSE NOTICE U/S 263, THE COMMISSIONER HAS NOW HERE STATED THAT THE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY. FURT HER THE SHOW-CAUSE NOTICE HAS BEEN ISSUED ONLY ON THE GROUND THAT THE VA LUE OF INVESTMENT AS ON 31.03.2007 WAS VERY LESS IN COMPARISON TO STOCK IN TRADE AND FURTHER THE BOARD RESOLUTION, WHEREBY THE ASSESSEE COMPANY WAS ALLOWE D TO INVEST IN SHARES AND SECURITIES IS DOUBTFUL. WHEREAS WHILE PASSING THE IM PUGNED ORDER, THE COMMISSIONER HAS GIVEN THE REASON WHICH ARE IN COMP LETE DEPARTURE OF GROUNDS RAISED IN THE SHOW-CAUSE NOTICE. THE LD. COUN SEL HAS POINTED OUT THAT WHILE HOLDING THE SHORT TERM CAPITAL GAIN OFFERED B Y THE ASSESSEE AS BUSINESS INCOME, THE COMMISSIONER HAS CITED THE REASONS AND GR OUNDS COMPRISING OF NUMBER OF TRANSACTIONS, FREQUENCY OF TRANSACTIONS, PERIOD OF HOLDING WHICH WERE NOT PART OF THE SHOW-CAUSE NOTICE AND THE ASSES SEE WAS NOT EVEN GIVEN AN OPPORTUNITY TO RESPOND TO SUCH GROUNDS AND REASONS ST ATED IN THE IMPUGNED ORDER. THUS THE LD. COUNSEL HAS SUBMITTED THAT THE C OMMISSIONER CANNOT PROCEED BEYOND THE SCOPE OF SHOW-CAUSE NOTICE ISSUED U/S 263. THE LD. AUTHORIZED REPRESENTATIVE HAS CONCLUDED HIS ARGUMENT AND SUBMITTED THAT THE ASSESSEE FILED THE DETAILED SUBMISSIONS BEFORE TH E ASSESSING OFFICER AND AFTER CONSIDERING THE SUBMISSIONS AND DISCUSSING THE ISSUE IN THE ASSESSMENT ORDER, THE CLAIM OF THE ASSESSEE WAS ALLOWED. THEREFO RE, THERE WAS AN APPLICATION OF MIND ON THE PART OF ASSESSING OFFICE R AND WHEN THE ASSESSING OFFICER HAS TAKEN THE VIEW ON THE ISSUE OF CAPITAL GAIN FROM SALE OF SHARES WHICH IS HIGHLY DEBATABLE ISSUE HAVING POSSIBILITY OF TWO VIEWS THEN THE COMMISSIONER IS NOT ALLOWED TO TAKE A DIFFERENT VIEW ON SUCH ISSUE. SECONDLY, M/S GANPATRAI JAIGOPAL 6 | P A G E NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO EXPLAIN THE REASONS WHICH ARE DULY NEW AND DIFFERENT FROM THE SHOW-CAUSE NOTICE, THEREFO RE, THE IMPUGNED ORDER IS NOT SUSTAINABLE BASED ON THE REASONS WHICH ARE NO T PART OF THE SHOW-CAUSE NOTICE AND THE ASSESSEE WAS NOT GIVEN AN OPPORTUNIT Y TO REPLY THE SAME. THE ASSESSING OFFICER MADE A DETAILED ENQUIRY IN THE SCRU TINY ASSESSMENT, THEREFORE, THE ORDER CANNOT BE HELD AS ERRONEOUS FOR WANT OF APPLICATION OF MIND. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSE E HAS RELIED UPON THE FOLLOWING DECISIONS:- (I) CIT VS GABRIEL INDIA LTD. (71 TAXMAN 585)(BOM.) (II) RAMPIYARI KHEMKA VS. CIT (61 ITR 600) (CAL.) (III) CIT VS. MAX INDIA LTD. (166 TAXMAN 188)(SC) (IV) SHARMA ENGINEERING CO. VS. ITO ( 26 TTJ 629)(ALL.) (V) GOPAL PUROHIT VS. JOINT CIT 122 TTJ (MUMBAI) 87 (VI) ARSH INDUSTRIALS & INVESTMENTS (P) LTD. VS. ITO (32 TTJ 402) (VII) G.K. SEKHON VS. ITO 14 TTJ (CHD) 330. (VIII) CIT VS. GOPAL PURHOIT (336 ITR 287 ) 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT T HE COMMISSIONER HAS CONSIDERED THE RELEVANT FACT THAT AS ON 31.03.2007, THE ASSESSEE HAS SHOWN THE INVESTMENT OF RS. 19,986/- IN COMPARISON TO STOCK I N TRADE OF RS. 3.51 CRORES WHEREAS IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN THE SHORT TERM CAPITAL GAIN OF RS. 2,13,84,581/- WHICH IS APP ARENTLY ABNORMAL. THE RESOLUTION RELIED UPON BY THE ASSESSEE CANNOT BE CO NSIDERED AS A CONCLUSIVE PROOF IN DETERMINATION OF NATURE OF TRANSACTION BECA USE THE ASSESSEE HAS NOT ACTED UPON THE SAID RESOLUTION UP TO THE PERIOD OF 31. 03.2007. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS TREATED THE STOCK IN TRADE AS INVESTMENT FOR THE PURPOSE OF AVOIDING THE TAX LIABILITY AND TO PAY THE CONCESSIONAL TAX AS THERE IS M/S GANPATRAI JAIGOPAL 7 | P A G E NO LEDGER ENTRY FOR SUCH CONVERSION. THE RESOLUTION IS AN AFTER THOUGHT AND COOKED UP STORY. IN SUPPORT OF HIS CONTENTION HE HA S RELIED UPON THE DECISION OF INDORE BENCHES OF THIS TRIBUNAL JEHAN NUMA PALACE HOTEL (P.) LTD. VS. CIT ( 70 ITD 552) AND SUBMITTED THAT THE COMMISSIONER COULD INVOKE THE REVISIONAL POWERS WHEN THE ISSUE WAS DEBATABLE. HE HAS ALSO REL IED UPON THE DECISION OF KOLKATA BENCHES OF THIS TRIBUNAL IN THE CASE OF HOOGHLY MILLS CO. LTD VS. ACIT (71 ITD 264) AND SUBMITTED THAT THE COMMISSIONER MUST NOT STATE IN EXPRESS WORDS THAT THE ORDER SOUGHT TO BE REVISED IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF IT BE QUITE EVIDENT FROM A PERUSAL OF THE ORDER OF THE COMMISSIONER THAT HE HA S ACTUALLY MEANT THE ASSESSMENT TO BE SO, THE INGREDIENTS FOR ASSUMING J URISDICTION UNDER SECTION 263 GET FULFILLED AND THE COMMISSIONER COULD NOT BE C ONSIDERED TO BE LACKING IN SUCH JURISDICTION. THUS THE LD. DR HAS SUBMITTED THAT WHEN THE ISSUE IS SAME IN THE SHOW-CAUSE NOTICE AND IN THE IMPUGNED ORDER THEN I T IS NOT NECESSARY THAT THE COMMISSIONER SHOULD EXPRESS DETAIL REASONING IN THE SHOW-CAUSE NOTICE FOR HOLDING THE ORDER OF THE ASSESSING OFFICER ERRONEOUS . HE HAS FURTHER SUBMITTED THAT THE DECISIONS RELIED UPON BY THE LD. AUTHORIZED REPRESENTATIVE ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVA NT MATERIAL ON RECORD. THERE IS NO QUARREL ON THE POINT OF THAT LAC K OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER RENDERS THE ORDER ERRONEOUS SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREBY THE COMMISSIONER GETS JURISDICTION U/S 263 TO REVISE SUCH ERRONEOUS ORDER PASSED WITHOUT APPLICA TION OF MIND. IN THE CASE IN HAND, THE ASSESSING OFFICER ISSUE NOTICES U/S 142 (1) AND 143(2). IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED ITS REPLY DATED 9- 8-2010 ADDRESSED TO DEPUTY COMMISSIONER OF INCOME TAX, WHICH READS AS UNDER:- M/S GANPATRAI JAIGOPAL 8 | P A G E 1) TWO SEPARATE LISTS OF PURCHASES OF SHARES MADE FOR TRADING AND INVESTMENT. 2) TWO SEPARATE LISTS OF SALES MADE FOR TRADING AND IN VESTMENTS 3) WE WILL PRODUCE AT THE TIME OF HEARING, ALL THE ORIG INAL CONTRACTS, AS THEY ARE VERY LARGE IN NOS. WE HAVE TAKEN OUT A XEROX COPIE S OF THE SAME. WE HOWEVER, WIL GIVE YOU XEROX COPIES OF ANY CONTRACTS SELECTED BY YOU AT RANDOM. 4) THE COMPANY HOLDS ITS INVESTMENTS IN TWO DISTINCT P ORTFOLIOS. ONE FOR TRADING AND ANOTHER FOR INVESTMENTS. PROFIT OR LOSS ON SALE OF SHARES HELD IN TRADING ARE SHOWN AS BUSINESS PROFIT AND ON THOSE HELD FOR INVESTMENTS ARE SHOWN AS CAPITAL GAIN. WE ARE PRODUCING A COPY OF RESOLUTION PASSED BY THE BOARD OF DIRECTORS AT THE MEETING HELD ON 03.01.2006, WHEREIN THE BOARD HAS D ECIDED ON THE POLICY OF TWO SEPARATE PORTFOLIOS. IT IS COMMON PRACTICE FOR THE COMPANY AS WELL AS IN DIVIDUAL TO HOLD TWO DISTINCT PORTFOLIOS, ONE FOR TRADING AND ANOTHER FO R INVESTMENTS TO SHOW THE PROFIT ACCORDINGLY TO THE JUDICIAL DECISION UPHELD THIS PRACTICE. 5) WE ARE ENCLOSING DEMAT STATEMENT OF THE COMPANY HE LD WITH STOCKHOLDING CORPN FOR THE PERIOD 01.04.2007 TO 31.03.2008. WE AR E ALSO ENCLOSING BANK A/C STATEMENT HELD WITH HSBC BANK, M.G.R.OAD, MUMBA I, OR THE PERIOD 01.04.2007 TO 31.03.2008. 6) AS COMPANY IS DEALING IN INVESTMENTS IN SHARES IT 1 8 INCIDENT 1 THAT IT EARNS DIVIDEND INCOME. WE ARE GIVING HEREWITH LIST OF DIV IDEND INCOME EARNED DURING THE YEAR MOST OF THE DIVIDEND GOES DIRECTLY INTO THE BANK ACCOUNT THROUGH E.C.S. AND EVEN THOSE DIVIDEND WHICH ARE RE CEIVED BY POST AT OUR ADDRESS ONLY RECEIPT DEPOSIT SLIP TO BE DEPOSITED A ND SEND TO BANK. THIS YOU WILL AGREE AS IT HARDLY INVOLVES ANY EXPENSES. FURTHER YOU WILL OBSERVE THAT IN COMPARISON TO THE VOLUME OF PURCHASE , SALES OF THE COMPANY, DIVIDEND INCOME IS EXTREMELY INSIGN IFICANT. THE COMPANY HAS NOT INVESTED OR DEALT IN ANY MUTUAL FUND DURING THE YEAR. 7) WE ARE ENCLOSING CERTIFICATE ISSUED BY OUR BROKERS FOR SECURITY TRANSACTION TAX CHARGED BY THEM TO US. 8) WE ARE ENCLOSING LOAN AI C OF MR. JEHANGIR H. C. JEH ANGIR OUR DIRECTOR WHO HAS GIVEN A LOAN TO THE COMPANY DURING THE YEAR, TH IS LOAN IS FREE FROM INCOME 'TAX. WE TRUST THE ABOVE INFORMATION WILL MEET WITH YOUR R EQUIREMENTS AND ENABLE YOU TO COMPLETE THE ASSESSMENT AT AN EARLY DATE. 8. IN THE SAID REPLY THE ASSESSEE HAS REFERRED THE BO ARD RESOLUTION DATED 23.01.2006, WHEREBY IT WAS DECIDED THAT THE ASSESSEE CAN INVEST ITS FUND IN M/S GANPATRAI JAIGOPAL 9 | P A G E CERTAIN SECURITIES. THE COPY OF RESOLUTION WAS ALSO FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WHICH READS AS UNDER:- TRUE COPY OF A RESOLUTION PASSED AT THE MEETINQ OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON 3RD JANUARY JANUARY 2006. -----------------------------------------~------- 'RESOLVED THAT THE COMPANY'S FUNDS MAY BE INVESTED IN SHARES, SECURITIES AND BONDS DEPLOYED IN MARKET CONDITIONS SO THAT THE PROFIT/LOSS IS BOOKED ON AN ON-GOING BASIS CONSIDERI.NG THE PERFORMANCE O F THE INVESTMENTS. THE SECURITIES FOR THE PURPOSE OF SUCH INVESTMENT WILL BE : ESCORTS LTD. HIMACHAL FUTURISTIC CO. LTD. HINDUSTAN MOTORS LTD., IDBI IFCI ISPAT PRISM CEMENT STERLITE OPTICALS FURTHER RESOLVED THAT THE DIRECTORS MAY FROM TIME T O TIME INVEST IN SUCH SECURITIES OF ANY OTHER COMPANIES AT THEIR DISCRETI ON. FURTHER RESOLVED THAT THE DIRECTORS SHALL HOLD THE SECURITIES IN TWO PORTFOLIOS ONE OF INVESTMENT AND OTHER OF STOCK-IN- TRADE DEPENDING ON THE NATURE OF INVESTMENT INTENDED.' 9. FROM THE REPLY FILED BY THE ASSESSEE IT IS MANIF EST THAT THE ASSESSEE HAS GIVEN TWO SEPARATE LISTS OF PURCHASE OF SHARES MADE FOR TRADING AND INVESTMENTS AND SIMILARLY, TWO SEPARATE LISTS OF SAL E OF SHARES FOR TRADING AS WELL AS INVESTMENTS. THERE IS NO QUARREL THAT THE A SSESSEE CAN HAVE TO SEPARATE PORTFOLIOS ONE FOR TRADING AND ANOTHER FOR INVESTME NT AS HELD BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT ( 336 ITR 287) . THE SAID DECISION HAS NOW BEEN CONFIRMED BY THE HONBLE HON'BLE SUPREME M/S GANPATRAI JAIGOPAL 10 | P A G E COURT IN (334 ITR 308)(ST.) , AND THE APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED. THE ASSESSING OFFICER HAS ALSO RECORDED IN T HE ASSESSMENT ORDER THAT THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS AS W ELL AS THE DETAILS WHICH WERE CONSIDERED BY THE ASSESSING OFFICER. THE RELEV ANT PART OF THE ORDER OF ASSESSING OFFICER IN THIS RESPECT IS AS UNDER:- IN RESPONSE TO THE ABOVE NOTICES, SHRI S.B. BULSAR A, CA, REPRESENTATIVE OF THE ASSESSEE COMPANY ATTENDED AND FILED WRITTEN SUB MISSIONS. THE CASE WAS DISCUSSED WITH HIM. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING & INVESTMENTS IN SHARES/DEBENTURES OF THE COMPANY. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE REPRESENTATIVES OF THE ASSESSEE CO MPANY FURNISHED DETAILS OF DIRECTORS AND VARIOUS OTHER DETAILS. REBATE U/S 88E DURING THE YEAR CONSIDERATION, ASSESSEE CLAIMED REB ATE U/S 88E FOR AGAINST TAX LIABILITY TO THE EXTENT OF RS. 4,74,835 /-. ON VERIFICATION OF THE DETAILS, IT WAS NOTICED TRHAT OUT OF THE SAID AMOUN T, AN AMOUNT OF RS. 2,92,282/- PERTAINS TO PROFIT ON SALE OF INVESTMENT I.E. CAPITAL GAINS. THE ASSESSEE ON BEING ASKED TO EXPLAIN WHY THE SAME SHO ULD NOT BE REDUCED FROM THE CLAIM OF REBATE U/S 88E, AGREED THAT THE S AME WAS DONE OUT OF IGNORANCE. IN VIEW OF THE ABOVE, THE REBATE U/S 88E IS RESTRICTED TO THE EXTENT OF RS. 1,82,553/-. IN VIEW OF THE ABOVE, THE REBATE U/S 88E IS RESTRICTED TO THE EXTENT OF RS. 18,25,553/- ONLY. 10. THUS IT IS CLEAR FROM THE ASSESSMENT ORDER THAT THE ASSESSEE FILED THE WRITTEN SUBMISSIONS AS WELL AS FURNISHED THE DETAILS OF DIRECTORS AND VARIOUS OTHER DETAILS AS RECORDED BY THE ASSESSING OFFICER. WH ILE DISCUSSING THE ISSUE OF REBATE U/S 88E, THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEES CLAIM OF REBATE OF RS. 4,74,835/- INCLUDES AN AMOUNT OF RS. 2 ,92,282/- RELATING TO THE SALE OF INVESTMENTS RESULTING CAPITAL GAINS AND ACCO RDINGLY, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF REBATE U/S 88E TO T HAT EXTENT. THEREFORE, IT IS EVIDENT FROM THE ASSESSMENT ORDER AS WELL AS FROM TH E REPLY FILED BY THE ASSESSEE THAT THE ASSESSING OFFICER MADE AN ENQUIRY AND CONSIDERED THE REPLY M/S GANPATRAI JAIGOPAL 11 | P A G E GIVEN BY THE ASSESSEE ACCORDINGLY IT IS NOT A CASE O F LACK OF ENQUIRY WHILE PASSING THE SCRUTINY ASSESSMENT U/S 143(3) BY THE A SSESSING OFFICER. LACK OF ENQUIRY NO DOUBT RENDERS THE ASSESSMENT ORDER ERRONEO US SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AND CONSEQUENTLY, THE COM MISSIONER HAS THE JURISDICTION TO EXERCISE ITS REVISIONAL POWERS U/S 263 BUT WHEN THERE IS AN ENQUIRY AS IT IS MANIFEST FROM THE RECORD AND FURTH ER THE ASSESSING OFFICER HAS APPLIED ITS MIND AS THE RECORD EXHIBITS THE THOUGHT P ROCESS OF THE ASSESSING OFFICER ON THE ISSUE OF SALE OF INVESTMENTS AND CAPI TAL GAIN, THEN IT CANNOT BE SAID THAT THIS ISSUE AND FACT OF CAPITAL GAINS OFFER ED BY ASSESSEE HAS COMPLETELY ESCAPED THE ATTENTION OF THE ASSESSING OFFICER. FUR THER THE FACT THAT THE INVESTMENT SHOWN IN THE BALANCE-SHEET AS ON 31.03.2 007 IS RS. 19,986/- ONLY DOES NOT IFSO FACTO PROVE THAT THE CLAIM OF THE ASSESSEE OF MAINTAININ G TWO SEPARATE PORTFOLIOS IS BOGUS BECAUSE THE ASSESSEE H AS CLAIMED SHORT TERM CAPITAL GAIN WHICH MEANS THAT THE SHARES SOLD DURING THE YEAR UNDER CONSIDERATION WERE ALSO PURCHASED DURING THE YEAR AND , THEREFORE, THE SAME CANNOT BE PART OF EITHER THE INVESTMENT HELD AS ON 31.03.2007 OR STOCK IN TRADE ON THE SAID DATE. 11. THE COMMISSIONER HAS POINTED OUT IN THE SHOW-CAU SE NOTICE THAT THE ASSESSEE HAS NOT PRODUCED ANY SUPPORTING EVIDENCE SUCH AS COPY OF RETURN FILED BEFORE THE MINISTRY OF CORPORATE AFFAIRS REGARDING THE SAID RESOLUTION. THE ASSESSEE REPLIED TO THE SHOW-CAUSE NOTICE AND SUBMITT ED THAT THERE IS NO PROVISION TO FILE SUCH RESOLUTION IN THE MINISTRY O F CORPORATE AFFAIRS. THEREFORE, THE QUERY AND SUSPICION RAISED BY THE COMMISSIONER IN THE SHOW-CAUSE NOTICE WAS REPLIED BY THE ASSESSEE SO FAR AS THE BOARD RESOL UTION IS CONCERNED. THE CAPITAL GAINS OFFERED BY THE ASSESSEE IS FROM THE SALE OF SHARES OF THE COMPANIES WHICH ARE SPECIFIED IN THE RESOLUTION. TH EREFORE, IT IS NOT THE CASE OF THE COMMISSIONER THAT THE ASSESSEE IS DOING THE TRAD ING ACTIVITY EVEN IN THE M/S GANPATRAI JAIGOPAL 12 | P A G E SHARES WHICH ARE SPECIFIED IN THE RESOLUTION FOR TH E PURPOSE OF INVESTMENT. ONCE THE INVESTMENT IS PERMITTED IN THE RESOLUTION UNDER THE SPECIFIED SHARES THEN THE CAPITAL GAINS OFFERED FROM SALE OF THOSE SP ECIFIED SHARES ARE PRIMA FACIE CANNOT BE DOUBTED. IN THE SHOW-CAUSE NOTICE, T HE COMMISSIONER HAS RAISED THE GROUNDS BY CONSIDERING MAINLY TWO FACTS THA T THE INVESTMENT AS ON 31.03.2007 IS VERY LOW IN COMPARISON TO STOCK IN TR ADE AND FURTHER THE RESOLUTION ACCEPTED BY THE ASSESSING OFFICER IS NOT FREE FROM DOUBT. WE FIND THAT IN THE IMPUGNED ORDER, THE COMMISSIONER HAS TREA TED THE TRANSACTION IN THE SHARES HELD AS INVESTMENT AS TRADING IN NATURE A ND THE CAPITAL GAIN IS TREATED AS BUSINESS INCOME ON THE GROUND THAT NUMBER OF TRANSACTIONS INVOLVING VERY HIGH VOLUME AND THE HOLDING PERIOD IS VERY LESS BUT NO SUCH GROUND WAS RAISED IN THE SHOW-CAUSE NOTICE. THEREFORE , IT IS APPARENT THAT THE REASONS CITED IN THE IMPUGNED ORDER WERE NOT CONFRONTE D WITH THE ASSESSEE FOR ITS RESPONSE AND REPLY. THE ISSUE OF TREATMENT OF T RANSACTION OF SALE AND PURCHASE AS INVESTMENT, OR TRADING IS HIGHLY DEBATAB LE ISSUE. THEREFORE, WHEN THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF THE A SSESSEE AND ACCEPTED THE SHORT TERM CAPITAL GAIN BY CONSIDERING THE DETAILED R EPLY, THEN THE ASSESSING OFFICER APPLIED HIS MIND AND TAKEN A VIEW ON THE ISSU E WHERE TWO VIEWS ARE POSSIBLSE WITH WHICH THE COMMISSIONER DOES NOT AGREE , IT CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW AS HE LD BY HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (243 ITR 83). 11. ACCORDINGLY IN VIEW OF THE ABOVE DISCUSSED FACTS A ND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE IMPUGNED REVISION ORDER IS NOT SUSTAINABLE UNDER LAW AND THE SAME IS LIABLE TO B E SET ASIDE. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . M/S GANPATRAI JAIGOPAL 13 | P A G E ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 17 - 9-2014 SD/- SD/- ( N.K. BILLAIYA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK YS[KK YS[KK YS[KK LNL; LNL; LNL; LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 17-9 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI