DCIT, New Delhi V. M/s. Divya Shakti Trading Services Ltd., New Delhi

ITA 5178/DEL/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6893 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 05-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMIT KUMAR SHARMA
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 5178 /DEL/ 2012 ASSESSMENT YEAR: 2008 - 09 DCIT, CIRCLE - 10(1), NEW DELHI VS. M/S. DIVYA SHAKTI TRADING SERVICES LTD. (NOW M/S. INDIABULLS ADVISORY SERVICES LTD.) F - 60, 2 ND FLOOR, MALHOTRA BUILDING, CONNAUGHT PLACE, NEW DELHI PAN : AACCD4953E (APPELLANT) (RESPONDENT) AND ITA NO. 5029 /DEL/ 2012 ASSESSMENT YEAR: 2008 - 09 M/S. DIVYA SHAKTI TRADING SERVICES LTD. (NOW KNOWN AS M/S. INDIABULLS ADVISORY SERVICES LTD.) F - 60, 2 ND FLOOR, MALHOTRA BUILDING, CONNAUGHT PLACE, NEW DELHI VS. ADDL.CIT , RANGE - 10, NEW DELHI PAN : AACCD4953E (APPELLANT) (RESPONDENT) DEPARTMENT BY SMT. AMIT KUMAR SHARMA, SR.DR ASSESSEE BY NONE DATE OF HEARING 15.12.2016 DATE OF PRONOUNCEMENT 23.01.2017 2 ITA NO.5178/DEL/2012 &5029/DEL/2012 AY: 2008 - 09 ORDER PER O.P. KANT , A. M. : THESE CROSS A PPEALS OF THE R EVENUE AND THE ASSESSEE ARE DIRECTED AGAINST ORDER DATED 23/07/2012 OF LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) - XIII, LAXMI NAGAR, NEW DELHI FOR ASSESSMENT YEAR 2008 - 09. 2. THE G ROUNDS OF APPEAL RAISED BY THE R EVENUE IN ITA NO.5 178/DEL/2012 ARE AS UNDER: 1. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW WAS JUSTIFIED IN HOLDING THAT PROFIT OF RS.35,14,66,127/ - EARNED BY THE ASSESSEE ON SALE OF SHARES IS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE C OURSE OF HEARING OF THE APPEAL. 3. T HE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITA NO. 5029/DEL/2012 ARE AS UNDER: 1. THE LEARNED CIT( A) HAS ERRED, IN LAW AND FACTS, IN CONFIRMING THE DISALLOWANCE U/S 14A AMOUNTING TO RS.760,000/ - , WITHOUT GIVING DUE CONSIDERATION TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IS NOT CONSIDERING THE GROUND RELATED TO INITIATION OF PENALTY PROCEEDING U/S 271(1)(C), AS THE ASSESSEE HAD NEITHER CONCEALED THE PAR TICULARS OF INCOME NOR SUBMITTED ANY INACCURATE PARTICULARS OF INCOME. 3. THAT THE ASSESSEE CRAVES FOR LIBERTY TO RAISE ANY OTHER GROUND AT THE TIME OF HEARING OF APPEAL. 4 . T HE BRIEFLY STATED FACTS OF THE CASE AS CULLED OUT FROM THE ORDER OF THE LOWER AUTHORITIES ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN BUYING, SELLING AND DEALING IN SECURITIES, SHARES DEBENTURES, BONDS UNITS ETC. FOR THE YEAR UNDER CONSIDERATION , THE ASSESSEE FILED RETURN OF INCOM E 3 ITA NO.5178/DEL/2012 &5029/DEL/2012 AY: 2008 - 09 DECLARING TOTAL INCOME OF RS.36,56, 50,924/ - ON 30/09/2008. THE INCOME DECLARED CONSISTED OF INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION AMOUNTING TO RS.1,41,84, 797/ - AND INCOME FROM SHORT - TERM CAPIT AL GAIN OF RS.35,14,66,127/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) OF THE ACT WAS ISSUED AND COMPLIED WITH. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE THAT ACTIVITY OF PURCHAS E AND SALE OF SHAR ES WAS INVESTMENT ACTIVITY AND PROFIT EARNED THEREON WAS TAXABLE UNDER THE HEAD SHORT - TERM CAPITAL GAIN. THE ASSESSING OFFICER OBSERVED THAT VARIOUS SCRIP S OF SHARE WERE PURCHASED AND SOLD AFTER HOLDING FOR A SMALL PERIOD. HE FURTHER OBSE RVED THAT : (I) NO SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED FOR ALLEGED INVESTMENTS AND BUSINESS ACTIVITY (II) TURNOVER IN THE SHARE WAS TO THE TUNE OF RS. 69, 06, 09, 30, 892/ - (III) THE ASSESSEE WAS FREQUENTLY TRADING IN A PARTICULAR SCRIP AND THE INTENTION WAS TO EARN PROFIT AND NOT DIVIDEND, OTHERWISE THE ASSESSEE WOULD HAVE HELD THE SHARES FOR A LONGER PERIOD. (IV) IN THE ASSESSMENT YEAR 2007 - 08, THE ASSESSEE HIMSELF TREATED THE INCOME FRO M BUYING AND SELLING OF SECURITIES UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION . 4.1 AFTER ANALYZING THE RATIO OF THE D ECISION ON THE ISSUE , THE ASSESSING OFFICER HELD THE ACTIVITIES OF BUYING AND SELLING OF SHARES CARRIED OUT WITH ASSESSE E IS BUSINESS ACTIVITY AS AGAINST SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE . THE ASSESSING OFFICER ALSO MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I NCOME TAX R ULES, 1962 (FOR SHORT THE R ULES ). 4.2 AGGRIEVED , THE ASSE SSEE FILED APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), WHO HELD THE ACTIVITY OF BUYING 4 ITA NO.5178/DEL/2012 &5029/DEL/2012 AY: 2008 - 09 AND SELLING OF THE SHARES AS INVESTMENT ACTIVITY. ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14 A OF THE ACT READ WITH RULE 8D OF THE R ULES, THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) GAVE PART RELIEF TO THE ASSESSEE. AGGRIEVED, BOTH THE R EVENUE AND THE ASSESSEE ARE IN APPEALS RAISING THE GROUNDS AS REPRODUCED ABOVE. 5. THE HEARING IN THE ABOVE APPEALS WERE ADJOURNED FROM TIME TO TIME ON THE RE QUEST OF THE DEPARTMENT AS WELL AS THE ASSESSEE AND LAST NOTICE FOR FIXING THE APPEAL ON 15/12/2016 WAS ISSUED ON 07/11/2016. THIS NOTICE WAS SERVED THROUGH REGISTERED POST, HOWEVER , ON THE DATE OF HEARING , NEITHER ANY PRINCIPLE OFFICER OF THE ASSESSEE COM PANY , NOR IT S AUTHORIZED REPRESENTATIVE ATTENDED. THEREFORE , THE APPEALS WERE HEARD EX PARTE QUA THE ASSESSEE. 6. IN SUPPORT OF THE SOLE GROUND RAI SED IN THE APPEAL FILED BY THE R EVENUE, THE LEARNED S ENIOR DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT IN VIEW OF FACTS AND CIRCUMSTANCES OF FREQUENCY AND VOLUME OF TRANSACTIONS IN PURCHASE AND SALE OF SHARES COUPLED WITH THE FACTS OF MONEY BORROWED FOR PURCHASE OF SHARES, NO SEPARATE BOOKS OF ACCOUNTS FOR BUSINESS AND INVESTMENTS ETC . , THE ASSESSING OFFICER HAS RIGHTLY HELD THE ACTIVITY OF PURCHASE AND SALE OF SHARES AS THE BUSINESS ACTIVITY. IN RESPECT OF THE GROUND NO. 1 RAISED BY THE ASSESSEE IN ITS APPEAL, THE LEARNED SR. DEPARTMENTAL REPRE SENTATIVE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) AND SUBMITTED THAT DISALLOWANCE CONFIRMED FOR ADMINISTRATIVE EXPENSES UNDER R ULE 8D(2)(III) WAS JUSTIFIED. IN RESPECT OF THE GROUND NO. 2, THE LEARNED SR. DEPARTMENTAL REPRES ENTATIVE SUBMITTED TH AT PENALTY UNDER SECTION 271(1)(C) OF THE ACT , WAS MERELY INITIATED IN THE ORDER AND NOT LEVIED AND, THEREFORE , GROUND WAS PREMATURE AND LIABLE TO BE DISMISSED AS INFRUCTUOUS. 5 ITA NO.5178/DEL/2012 &5029/DEL/2012 AY: 2008 - 09 7. WE HAVE HEARD THE SUBMISSION OF THE LEARNED SR. DEPART MENTAL REPRESENTATIVE AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS FAR AS T HE GROUND IN THE APPEAL OF THE R EVENUE IS CONCERNED, WE FIND THAT ASSESSEE HIMSELF IN THE PRECEDING YEAR HAS DECLARED THE ACTIVITY FROM BUYING AND SELLING OF THE SHARES UNDER THE HEAD PROFIT AND GAINS OF BUSINESS/PROFESSION . THE ASSESSEE SUBMITTED DETAILS OF THE SHARES PURCHASED AND SOLD DURING THE YEAR, WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS UNDER: 8. W E FIND FROM THE ABOVE TABLE THAT THE ASSESSEE HAS ALMOST SOLD ALL THE SHARES WHICH WERE PURCHASED DURING THE YEAR EXCEPT ONE SHARE, WHICH SHOWS THE PROFIT MOTIVE BEHIND THE PURCHASE OF THE SHARES. HAD THE ASSESSEE INTERESTED IN INVESTMENT, HE WOULD HAVE NOT SOL D ENTIRE QUANTITY OF THE SHARES. S.N O. NAME OF COMPANY NO. OF SHARES ACQUIRED NO OF SHARES SOLD 1 ORCHID CHEMICAL & PHARMACEUTICAL S LTD 540,230 540,230 2 NITCO LIMITED 5,300 5,300 3 OMAXE LIMITED 24,426 24,426 4 DLF LIMITED 6,567,294 6,567,294 5 EDELWEISS CAPITAL LTD 5,202 5,202 6 BGR ENERGY SYSTEMS 5,838 5,838 7 RELIANCE POWER LIMITED 142,896 142,896 8 RELIANCE ENERGY LIMITED 408,982 408,982 9 GRABAL ALOK IMPEX LIMITED 1,900,000 1,900,000 10 PRAKASH INDUSTRIES LIMITED 1,250,000 NIL 6 ITA NO.5178/DEL/2012 &5029/DEL/2012 AY: 2008 - 09 9. THE AS SESSING OFFICER IN THE ASSESSMENT ORDER HAS ALSO COMMENTED UPON THE FREQUENCY OF THE TRANSACTION AS UNDER: THE SHARES OF ORCHID CHEMICALS & PHARMACEUTICALS LTD. PURCHASED ON 04.04.2007 AND WERE SOLD ON 04.05.07, 7.05.2007, 9.05.2007,10.05.2007 AND 11.05.2007 MEANS THE HOLDING WAS ONLY FOR A PERIOD FOR LESS THAN A MONTH TIME. SHARES OF M/S NITO LTD. WERE PURCHASED ON 8TH MAY, 2007 AND SOLD ON 30TH MAY, 2007, OMAXE LTD. SHARES WERE PURCHASED ON 2ND AUGUST, 2007 AND SOLD ON 20.07.2007. THE SHARES OF DLF LTD. WERE PURCHASED ON 21, 22, 23,AND 24TH JANUARY, 2008 AND IF WE HAVE A CLOSE LOOK ON SALE PATTERN THEN WE FOUND THAT THE SHARES WERE SOLD 4TH AND 5TH FEBRUARY, 2008 MEANS THE ASSESSEE COMPANY WERE MAKING TRANSACTIONS LIKE A BUSINESS DEALING. SIM ILARLY, SHARES OF THIS COMPANY PURCHASED ON 8TH AND 11TH FEBRUARY WERE AGAIN SOLD BETWEEN 13 TO 27 FEBRUARY, 2008 ON 8 OCCASIONS. THE SHARES OF RELIANCE ENERGY LTD. WERE PURCHASED ON 15TH FEBRUARY, 2008 AND 24TH MARCH, 2008 WERE SOLD WITHIN 10 DAYS AND SE CONDLY ON THE VERY NEXT DAYS OF PURCHASE. SIMILARLY, IN THE CASE OF M/S GRABAL ALOK IMPEX LTD. THE SHARES WERE PURCHASED ON 18TH MARCH, AND SOLD ON 27TH AND 28TH MARCH, 2008. 10. T HE FACTS ALSO SHOW THAT ASSESSEE HAS MADE FREQUENT PURCHASE AND SALE OF S HARES. THE ASSESSING OFFICER HAS OBSERVED THAT NO SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED FOR THE ALLEGED INVESTMENT AND THE BUSINESS ACTIVITY AND THE ASSESSEE HAS BORROWED MONEY FOR PURCHASE OF SHARES. 11. IN THE LIGHT OF THE RATIOS OF JUDICIAL PRONOU NCEMENT ON THE ISSUE IN DISPUTE, WE ARE OF THE OPINION THAT CONDUCT OF THE ASSESSEE REFLECT THE INTENTION OF BUSINESS ACTIVITY AND , THUS , WE , ACCORDINGLY , HOLD THE SHORT - TERM CAPITAL GAIN DECLARED B Y THE ASSESSEE AMOUNTING TO RS.35,14,66, 127/ - AS THE PROFIT AND GAINS FROM BUSINESS ACTIVITY OF 7 ITA NO.5178/DEL/2012 &5029/DEL/2012 AY: 2008 - 09 PURCHASE AND SALE OF SHARES. ACCORDINGLY , T HE GROUND OF THE APPEAL OF THE R EVENUE IS ALLOWED. 12. IN RESPECT OF THE GROUND NO. 1 OF APPEAL OF THE ASSESSEE, WE FIND THAT THE LEARNED COMMISSIONER OF INCOME - TA X ( APPEALS) HAS PASSED A WELL REASONED AND COMPREHENSIVE ORDER ON THE ISSUE IN DISPUTE, WHICH IS REPRODUCED AS UNDER: AS REGARDS THE DISALLOWANCE OF 0.5% OF EXPENSES OF THE AVERAGE INVESTMENT AS ADMINISTRATIVE EXPENSES FOR EARNING EXEMPT INCOME IT IS SEEN THAT APPELLANT HAS SHOWN AVERAGE INVESTMENT OF RS. 15,20,00,000/ - DURING THE YEAR IN THE SHARES. THE APPELLANT HAS SUBMITTED THAT NO DISALLOWANCE CAN BE MADE FOR EXPENSES FOR EARNING EXEMPT INCOME AS NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCO ME AND ALL EXPENSES HAVE BEEN INCURRED FOR BUSINESS PURPOSES. HOWEVER, IT IS SEEN FROM THE BALANCE SHEET THAT AVERAGE INVESTMENTS IN THE. CASE OF APPELLANT COMES TO RS. 15,20,00,000/ - , THEREFORE, DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES EQUAL TO 0.5% OF AVERAGE INVESTMENT HAS TO BE MADE IN VIEW OF CLAUSE - (II) OF RULE 8D(2) OF THE IT RULE 1962. IT IS OBSERVED THAT EARNING OF EXEMPT INCOME IS NOT A PASSIVE ACTIVITY. IN THE PRESENT AGE OF MAKING OF INVESTMENT, MAINTAINING OR CONTINUING WITH INVESTMEN T AND TIME OF EXIT FROM THE INVESTMENT ARE WELL INFORMED AND WELL COORDINATED MANAGEMENT DECISION INVOLVING NOT ONLY INPUTS FROM VARIOUS SOURCES BUT ALSO ACUMEN OF SENIOR MANAGEMENT FUNCTIONARIES. THEREFORE, COST IS INBUILT EVEN IN SO CALLED PASSIVE INVEST MENT. THERE ARE INCIDENTAL EXPENDITURE OF COLLECTION, TELEPHONE AND FOLLOW UP ETC. THEREFORE, EXPENSES RELATED TO EARNING OF EXEMPT INCOME ARE EMBEDDED IN THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT. HENCE, 0.5% EXPENSES HAS TO BE DISALLOWED WHICH IS W ORKED OUT AT RS. 7,60,000/ - OF AVERAGE INVESTMENTS OF RS. 15,20,00,000/ - . AS SUCH THE DISALLOWANCE MADE ON ACCOUNT OF ADMINISTRATIVE EXPENSES BY THE ASSESSING OFFICER IS CONFIRMED. 13. I N VIEW OF ABOVE, WE UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE AND GROUND OF THE APPEAL OF THE ASSESSEE IS REJECTED. 14. THE GROUND NO. 2 OF THE APPEAL IS DISMISSED AS INFRUCTUOUS AS THE PENALTY WAS MERELY INITIATED AND NOT LEVIED BY THE ASSESSING OFFICER. THE 8 ITA NO.5178/DEL/2012 &5029/DEL/2012 AY: 2008 - 09 ASSESSEE CANNOT BE SAID TO BE AGGRIEVED AT THIS STAGE AS THE ASSESSEE WILL GET SUFFICIENT OPPORTUNITY AT THE TIME OF LEVY OF THE PENALTY. ACCORDINGLY , THE GROUND NO. 2 OF THE APPEAL IS REJECTED. 15. IN THE RESULT , APPEAL FILED BY THE R EVENUE IS ALLOW ED AND THE APPEAL FILED B Y T H E ASSESSEE IS DISMISSED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 3 R D JANUARY , 201 7 . S D / - S D / - ( DIVA SINGH ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2 3 R D J ANUARY , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI