M.N. Capital Private Limited, Indore V. The DCIT 1(1), Indore

ITA 489/IND/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74763 (ITAT-INDORE)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 19-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRIKANT NAMDEO
• Assessee Lawyers: S S MUNDRA SHRI GIRDHAR GARG; ARPIT MUNDRA CAS
• Keywords: Reopening of assessment; Capital asset; Business income; Transactions in derivatives; Earning of tax free income; Reason to believe
• Section: 14A; 68

Judgement Text

PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AABCM1736F I.T.A.NO. 489 /IND/201 3 A.Y. : 2005-06 M.N.CAPITAL PRIVATE LIMITED, (NOW H.N.GLOBEX P.LTD.) INDORE. VS. DY. CIT, 1(1), INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S.S.MUNDRA, SHRI GIRDHAR GARG AND SHRI ARPIT MUNDRA, CAS RESPONDENT BY : SHRI SHRIKANT NAMDEO, SR. DR DATE OF HEARING : 28 . 01 .201 4 DATE OF PRONOUNCEMENT : 28 . 01 .201 4 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT(A), DATED 20 TH MARCH, 2013, FOR THE ASSESSMENT YEAR 2005-06 IN THE MATTER OF ORDER PASS ED U/S 143(3)/147 OF THE INCOME-TAX ACT, 1961. M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 2 PAGE 2 OF 9 2. IN THE FIRST GROUND, THE ASSESSEE HAS CHALLENGED REOPENING OF ASSESSMENT U/S 147. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH REASONS RECORDED BY THE ASSESSING OFFICER F OR REOPENING OF ASSESSMENT. AS PER THE REASONS SO RECO RDED, THE ASSESSEE HAS CLAIMED EXPENSES AGAINST THE EXEMP T INCOME, WHICH ARE NOT ALLOWABLE U/S 14A. ACCORDINGL Y, THERE WAS REASON TO BELIEVE THAT INCOME OF ASSESSEE HAS ESCAPED ASSESSMENT. IN VIEW OF THE FACT THAT THE AS SESSEE WAS ENGAGED IN SHARE TRADING BUSINESS, THE ASSESSIN G OFFICER RECORDED THE REASON THAT PROFIT OCCURRED UN DER THE HEAD CAPITAL GAIN IS LIABLE TO TAX AS PROFIT FROM BUSINESS INCOME CHARGEABLE TO TAX AT 30% INSTEAD OF 10%. THE SE REASONS CONSTITUTED VALID GROUND FOR ISSUE OF NOTIC E U/S 148. ACCORDINGLY, GROUND NO.1 OF THE ASSESSEE HAS N O MERIT AND THE SAME IS DISMISSED. 4. GROUND NO.2 PERTAINS TO ADDITION OF RS. 15 LAKHS U/S 68 IN RESPECT OF SHARE APPLICATION MONEY RECEIV ED FROM HINDUSTAN CONTINENTAL LIMITED. THE LD. AUTHORI ZED M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 3 PAGE 3 OF 9 REPRESENTATIVE FAIRLY CONCEDED THAT THE ISSUE HAS B EEN CONSISTENTLY DECIDED BY THE COORDINATE BENCH AGAINS T THE ASSESSEE, ACCORDINGLY, THIS GROUND WAS NOT PRESSED. WE DISMISS THIS GROUND AS NOT PRESSED. 5. GROUND NO. 3 PERTAINS TO DISALLOWANCE U/S 14A AT RS. 1000/- OUT OF INTEREST EXPENSES AND RS. 10,000/ - OUT OF ADMINISTRATIVE EXPENSES. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. LOOKING TO THE MAGNITUDE OF EXEMPT INCOME BY THE ASSESSEE V IS-- VIS INTEREST EXPENSES AND OTHER ADMINISTRATIVE EXPE NSES CLAIMED BY THE ASSESSEE, WE FOUND THAT THE ASSESSIN G OFFICER HAS PROPERLY CALCULATED DISALLOWANCE U/S 14 A. ACCORDINGLY, WE CONFIRM THE ACTION OF ASSESSING OFF ICER FOR THE SAID DISALLOWANCE. 7. GROUND NO. 4 PERTAINS TO TREATING THE PROFIT ON SAL E OF SHARES OFFERED AS SHORT TERM CAPITAL GAIN AT RS. 3,36,862/- AS BUSINESS INCOME. 8. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORDS PERUSED. IN THE COURSE OF SCRUTINY ASSESSME NT, THE M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 4 PAGE 4 OF 9 ASSESSING OFFICER HAS TREATED SHORT TERM CAPITAL GA IN ON DELIVERY BASED TRANSACTION AS BUSINESS INCOME BY CONSIDERING THE REPLY OF THE ASSESSEE TO THE EFFECT THAT IT WAS ENGAGED IN BUSINESS OF SALE AND PURCHASE OF SHA RES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE W AS HAVING TWO SEPARATE PORTFOLIOS, ONE PERTAINING TO INVESTMENT IN SHARES AND OTHER PERTAINING TO STOCK OF SHARES HELD FOR PURCHASE AND SALE AND THEREBY EARNI NG BUSINESS INCOME. THE ASSESSEE HAS DULY OFFERED THE PROFIT ARISING OUT OF SHARES HELD AS STOCK IN TRADE AS BU SINESS INCOME, HOWEVER, PROFIT AROSE ON SALE OF SHARES HEL D IN INVESTMENT WAS OFFERED UNDER THE HEAD SHORT TERM A ND LONG TERM CAPITAL GAINS. THE ASSESSING OFFICER HAS ACCEPTED THE LONG TERM CAPITAL GAINS BUT DECLINED T O ACCEPT THE SHORT TERM CAPITAL GAINS. THERE IS NO ME RIT IN ASSESSING OFFICERS ACTION IN SO FAR AS SUCH GAIN W AS IN RESPECT OF DELIVERY BASED TRANSACTION ON WHICH STT WAS PAID AND SHARES WERE SOLD AFTER HOLDING AS INVESTME NT FOR REASONABLE PERIOD OF TIME THE DELIVERY BASED TRANSA CTION M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 5 PAGE 5 OF 9 WERE ACQUIRED WITH INVESTMENT MOTIVE AND OUT OF THE SURPLUS FUND AVAILABLE WITH THE COMPANY. 9. THE ISSUE HAS BEEN CONSIDERED IN GREAT LENGTH IN THE CASE OF ACIT VS OM PRAKASH SURI, (2010) 16 ITJ (INDORE), AND HELD AS UNDER:- 3. WE HAVE CONSIDERED THE SUBMISSIONS PUT FORTH BY THE LEARNED SENIOR DR AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. BRIEF FACTS ARE THAT IN THE PAST THE ASSESSEE WAS ENGAGED IN ROAD BUILDING CONTRACTOR AND WAS DERIVING INCOME FROM CONTRACT RECEIPTS AS WELL AS FROM SALE OF GITTI AND DURING THE IMPUGNED YEAR, VENTURED INTO INVESTMENT IN SHARE MARKET. THE INCOME ARISING FROM F&O TRANSACTIONS AND DAILY TRADING IN SHARES (WITHOUT PHYSICAL DELIVERY) REFLECTED AS SPECULATIVE BUSINESS WHEREAS THE INCOME ON DELIVERY BASED TRANSACTIONS OF SALE AND PURCHASE OF SHARES, INCOME WAS SHOWN FROM CAPITAL GAINS. THE LEARNED AO CONSIDERED THE INCOME WHICH WAS BASED ON PURCHASE AND SALE OF SHARES AS BUSINESS INCOME ON THE GROUNDS AS NARRATED IN THE ASSESSMENT M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 6 PAGE 6 OF 9 ORDER AS WELL AS AT PAGES 3 AND 4 OF THE APPELLATE ORDER. BROADLY, THE LEARNED AO WAS OF THE VIEW THAT THE INTENTION OF THE ASSESSEE SINCE BEGINNING WAS SALE OF SHARES AS TRADING ACTIVITIES, AS EVIDENT FROM AUDITED PROFIT AND LOSS ACCOUNT BY NOT SHOWING THE SAME AS SHORT TERM CAPITAL GAIN AND ALSO IN FORM 3CD THE ASSESSEE HAS MENTIONED THE NATURE OF BUSINESS AS TRADING/DEALING IN SHARES/SECURITIES AND MUTUAL FUNDS. THE FREQUENCY OF TRANSACTIONS WAS ALSO CONSIDERED, CONSEQUENTLY HE TREATED THE AMOUNT OF RS.49,81,915/- AS BUSINESS INCOME FROM SHARE TRADING. HOWEVER, BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE BASIS OF ADDITIONS WAS EXPLAINED AS EVIDENT FROM PARA 3.1.1 ONWARDS. THE CRUX OF CLAIM OF THE ASSESSEE IS THAT IN THE AUDITED ACCOUNTS, THE SALE OF SHARES AMOUNTING TO RS. 9.43 CRORES IN WHICH DELIVERY HAD BEEN TAKEN, STT WAS PAID AND THE SHARES WERE SOLD AFTER HOLDING FOR A FEW DAYS/FEW WEEKS. THE MUTUAL FUNDS OF RS. 2.91 LACS WERE SOLD AND WERE TREATED AS INCOME FROM SHORT TERM CAPITAL GAINS. BEFORE THE M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 7 PAGE 7 OF 9 LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE ALSO FILED A DETAILED NOTE ON THE PURCHASE PROCESS FOR DELIVERY BASE SHARES, DETAILS OF DIVIDEND RECEIVED ON THE BASIS OF RELEVANT STATEMENTS BY PLACING RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JM SHARES & STOCK BROKERS V. JCIT DATED JANUARY, 2009. BRIEFLY, THE CLAIM OF THE ASSESSEE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS THAT THE DELIVERY BASED TRANSACTIONS WERE MADE WITH AN INVESTMENT MOTIVE AND AS SUCH THE INCOME THEREFROM WAS IN THE NATURE OF SHORT TERM CAPITAL GAINS WHEREAS THE INCOME AROSE FROM F&O TRANSACTIONS AND DAILY TRADING IN SHARES WERE WITH THE BUSINESS MOTIVE WHICH WERE SHOWED AS BUSINESS INCOME ONLY WHICH WAS MAINLY THROUGH STOCK BROKER, ARIHANT CAPITAL MARKETS LIMITED, REGISTERED WITH NSC, NSE AND BSE. IT IS ALSO SEEN THAT IN THE IMPUGNED ORDER THE BOARD CIRCULAR NO. 4/2007 DATED 15.6.2007 WHEREIN IT WAS EMPHASIZED THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORT FOLIOS I.E. AN M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 8 PAGE 8 OF 9 INVESTMENT PORT FOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET AND TRADING PORT FOLIO COMPRISING STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSET, WAS CONSIDERED. THE BOARD FURTHER CLARIFIES THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL PROPOSITION NEEDS TO BE CONSIDERED. THE ASSESSEE HAS MAINTAINED ONLY ONE PORT FOLIO AND CLAIMED THAT TO BE AN INVESTMENT FOLIO. UNDISPUTEDLY, THE PERIOD OF HOLDING IS LESS THAN ONE YEAR, CONSEQUENTLY, THERE IS NO INFIRMITY IN HOLDING THAT THESE TRANSACTIONS WOULD BE TREATED AS SHORT TERM CAPITAL GAIN ON WHICH THE APPLICABLE TAX IS @ 10% ONLY. IN VIEW OF THIS UNCONTROVERTED FACT, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH AUGUST, 2010. 10. THE AFORESAID DECISION WAS AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT REPORTED IN (2012) 19 ITJ 326 (M.P). M.N. CAPITAL PRIVATE LIMITED, INDORE. I.T.A.NO. 489/IND/2013 A. Y. 2005-06 9 PAGE 9 OF 9 11. AS THE PROFIT AROSE IN RESPECT OF DELIVERY BASED TRANSACTION WITH REFERENCE TO THE SHARES HELD AS INVESTMENT, KEEPING IN VIEW FREQUENCY OF TRANSACTIO N AND NUMBER OF SHARES INVOLVED AND APPLYING THE PROPOSIT ION OF LAW AS LAID DOWN BY COORDINATE BENCH AND AFFIRMED B Y THE JURISDICTIONAL HIGH COURT, AS DISCUSSED ABOVE, WE D O NOT FIND ANY MERIT IN THE ACTION OF LOWER AUTHORITIES F OR TREATING THE GAIN ARISING OUT OF SALE OF SHARES AS BUSINESS INCOME. ACCORDINGLY, THE ASSESSING OFFICER IS DIRE CTED TO TAX THE GAIN SO OFFERED BY THE ASSESSEE AS CAPITAL GAIN RATHER THAN BUSINESS INCOME. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COUR T ON 28 JANUARY, 2014. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH JANUARY, 2014. CPU* 28291