DCIT 5(1), JALNA V. FERRARI INVEST. & TRADING CO. P. LTD, MUMBAI

ITA 6099/MUM/2009

• Counselvise Citation: 609919914 RSA 2009
• Duration Of Justice: 4 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 26-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJN EESH K ARVIND
• Assessee Lawyers: K SHIVRAM; RAHUL K HAKANI
• Keywords: Business income; Opportunity of being heard; Additional evidence
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.6099/MUM/2009 ( / ASSESSMENT YEAR :2006-07) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 5(1), ROOM NO.568/525, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S FERRARI INVST. AND TRADING CO. PVT.LTD., ESSAR HOUSE, II, K K MARG, MAHALAXMI, MUMBAI-400034 ( / APPELLANT) .. ( !' / RESPONDENT) AND ./I.T.A. NO.6260/MUM/2009 ( / ASSESSMENT YEAR :2006-07) M/S FERRARI INVST. AND TRADING CO. PVT.LTD., 156-D-J DADAJEE ROAD, TARDEO, MUMBAI-400034 / VS. DY. COMMISSIONER OF INCOME TAX CIRCLE- 5(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( / APPELLANT) .. ( !' / RESPONDENT) ./ '( ./ PAN/GIRNO.: AAAFC2986P ) / REVENUE BY : SHRI RAJNEESH K ARVIND !' * ) /ASSESSEE BY : SHRI K SHIVRAM AND SHRI RAHUL K HAKANI + , * - . / DATE OF HEARING : 28.8.2014 /0 * - . / DATE OF PRONOUNCEMENT : 10.9.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 16-09-2009 PASSED BY LD CIT(A)-9, MUMBAI AND THEY RELATE TO TH E ASSESSMENT YEAR 2006-07. I .T.A. NO.6099/MUM/2009 I.T.A. NO.6260/MUM/2009 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING IN CAPITAL MARKET. IT FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS.8,32,5 2,094/-. THE AO, HOWEVER, DETERMINED THE TOTAL INCOME AT RS.8,43,51,270/-. T HE APPEAL FILED BY THE ASSESSEE BEFORE LD CIT(A) WAS PARTLY ALLOWED. HENC E BOTH THE PARTIES ARE IN APPEAL BEFORE US CHALLENGING THE ORDER OF LD CIT(A) IN RESPECT OF THE ISSUES DECIDED AGAINST EACH OF THEM. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE A SSESSEE. FOUR GROUNDS ARE URGED BEFORE US. THE GROUND NO.4 IS GENERAL IN NAT URE. AT THE TIME OF HEARING, THE LD A.R DID NOT PRESS GROUND NO.1 AND HENCE THE SAME IS DISMISSED AS NOT PRESSED. 4. THE GROUND NO.2 RELATES TO THE ASSESSMENT OF G AIN ARISING ON REDEMPTION OF MUTUAL FUNDS AS BUSINESS INCOME OF THE ASSESSEE. THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER HAD ACCEPTED THE GAINS ARISIN G ON MUTUAL FUND UNITS AS CAPITAL GAIN. HOWEVER, THE LD CIT(A), BY GIVING EN HANCEMENT NOTICE, HAS TREATED THE CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE . HE FURTHER SUBMITTED THAT THE LD CIT(A) HAS DECIDED THIS ISSUE WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE A LSO COULD NOT FURNISH COMPLETE DETAILS RELATING TO THE WORKING OF GAIN/LO SS ARISING ON REDEMPTION OF MUTUAL FUND, PORTFOLIO STATEMENTS FROM ABN-AMRO. H E SUBMITTED THAT THE ASSESSEE HAS NOW FILED THESE DETAILS IN THE FORM OF ADDITIONAL EVIDENCES BEFORE THE TRIBUNAL. ACCORDINGLY, HE PRAYED THAT THESE AD DITIONAL EVIDENCES BE ACCEPTED AND THE MATTER MAY BE SET ASIDE TO THE FIL E OF LD CIT(A) FOR FRESH CONSIDERATION. 5. THE LD D.R ALSO DID NOT OBJECT TO THE PLEA MAD E BY LD A.R. ACCORDINGLY, WE ADMIT THE ADDITIONAL EVIDENCES AND SET ASIDE THE MATTER TO THE FILE OF LD CIT(A) WITH THE DIRECTION TO EXAMINE THIS MATTER AF RESH. THE LD CIT(A) MAY OBTAIN REMAND REPORT FROM THE AO FOR ADJUDICATING T HIS MATTER. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. HE SUBMITTED THAT BOTH THE TAX AUTHORITIES HAVE APPLIE D RULE 8D FOR COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT. HE SUBMITTED THAT THE JURISDICTIONAL HIGH COURT HAS HELD IN THE CASE OF GODREJ BOYCE MFG. CO. LTD ( 328 ITR 81) THAT THE RULE 8D I .T.A. NO.6099/MUM/2009 I.T.A. NO.6260/MUM/2009 3 SHALL HAVE PROSPECTIVE OPERATION FROM AY 2008-09. ACCORDINGLY, HE SUBMITTED THAT THIS MATTER ALSO REQUIRES FRESH EXAMINATION. 7. WE HEARD LD D.R ON THIS ISSUE. WE FIND MERIT IN THE SUBMISSION OF LD A.R. IN VIEW OF THE DECISION OF JURISDICTIONAL HIG H COURT, REFERRED SUPRA, THE PROVISIONS OF RULE 8D CANNOT BE APPLIED TO THE YEAR UNDER CONSIDERATION. HOWEVER, THE HIGH COURT HAS HELD THAT THE DISALLOW ANCE U/S 14A IS REQUIRED TO BE COMPUTED ON A REASONABLE BASIS FOR THE YEARS FAL LING PRIOR TO AY 2008-09. SINCE THE EARLIER ISSUE IS SET ASIDE TO THE FILE OF LD CIT(A), WE SET ASIDE THIS ISSUE ALSO TO HIS FILE FOR FRESH CONSIDERATION. 8. NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE GI VEN PROPER OPPORTUNITY OF BEING HEARD. 9. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE R EVENUE. THE GROUND URGED BY THE REVENUE RELATES TO THE TREATMENT OF GAIN ARI SING ON SALE OF 30 LAKH SHARES OF MID DAY MULTIMEDIA LTD. THE AO HAS ASSESSED THE SAME AS PROFITS AND GAINS OF BUSINESS. HOWEVER, THE LD CIT(A) HELD TH AT THE GAIN ARISING ON SALE OF ABOVE SAID SHARES IS ASSESSABLE AS LONG TERM CAPITA L GAIN. 10. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FACTS RELATING TO THE ABOVE SAID ISSUE, AS NARRATED IN THE ASSESSM ENT ORDER, ARE STATED IN BRIEF. THE ASSESSEE COMPANY INITIALLY PURCHASED 4960 SHARE S OF MID DAY MULTIMEDIA LTD HAVING A FACE VALUE OF RS.100/- EACH ON 15.11.1 999. LATER, THE SHARES WERE SPLIT INTO SHARES OF RS.10/- EACH AND HENCE THE NUM BER OF SHARES HELD BY THE ASSESSEE INCREASED FROM 4960 TO 49,600. SUBSEQUENT LY ON 23.6.2000, THE ASSESSEE RECEIVED 29,50,400 BONUS SHARES. THUS, TH E TOTAL NUMBER OF SHARES HELD IN THE ABOVE SAID COMPANY INCREASED TO 30,00,0 00. THE ASSESSEE SOLD ALL THE 30,00,000 LAKHS FOR A TOTAL CONSIDERATION OF RS .18 CRORES AND COMPUTED LONG TERM CAPITAL GAIN AS UNDER:- SALE VALUE OF 30,00,000 SHARES 18,00 ,00,000 LESS:- BROKERS EXPENSES 79,90,783 COST OF PURCHASE 15.11.99 (49600 SHARES) 10,00,00,000 23.6.2000 (BONUS SHARES 2950400 SHARES) NIL ------------------ 10,79, 90,783 LONG TERM CAPITAL GAIN 7,20, 09,217 ========== I .T.A. NO.6099/MUM/2009 I.T.A. NO.6260/MUM/2009 4 THE AO HAS NOTICED THAT THE ASSESSEE COMPANY HAS PU RCHASED 4960 SHARES @ RS.20,161/- PER SHARE FROM THE PROMOTERS OF MIDDAY MULTIMEDIA LTD AS DETAILED BELOW:- MR.KHALID ANSARI 992 MS. RUKYA ANSARI 992 MR. TARIQUE ANSARI 992 MR. TEHZEEB ANSARI 992 MR. SHARIQUE ANSARI 992 ------------ 4,960 ======= WE NOTICE THAT MR. KHALID ANSARI, MR. TARIQUE ANSAR I AND MR. SHARIQUE ANSARI ARE THE DIRECTORS OF THE PRESENT ASSESSEE COMPANY ALSO. THUS THE ASSESSEE COMPANY AND M/S MIDDAY MULTIMEDIA LTD ARE COMPANIES FALLING IN THE SAME GROUP. THE AO HAS FURTHER NOTICED THAT THE ASSESSE E COMPANY WAS HAVING A SHARE CAPITAL OF RS.1.00 LAKH ONLY AT THAT POINT OF TIME AND IT HAS RECEIVED LOAN OF RS.10.00 CRORES FOR MAKING THE ABOVE SAID INVESTMEN T. THE LOAN WAS OBTAINED FROM THE FOLLOWING PERSONS, WHO ARE PROMOTERS OF MI DDAY MULTIMEDIA LLTD. TWO OF THE FOLLOWING PERSONS ARE ALSO DIRECTORS OF THE ASSESSEE COMPANY :- RUKYA ANSARI 3,33,35,000 SHARIQ ANSARI 3,33,35,000 TEHJEEB ANSARI 3,33,35,000 --------------------- 10,00,00,000 ============ THE AO HAS FURTHER NOTICED THAT THE DIVIDEND AMOUNT OF RS.4,83,300/- RECEIVED FROM M/S MIDDAY MULTIMEDIA LTD HAS BEEN CREDITED TO THE ABOVE SAID THREE CREDITORS BY PASSING A JOURNAL ENTRY. ACCORDINGLY, THE AO HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS INDULGED IN ADVENT URE IN THE NATURE OF TRADE. FURTHER THE AO HAS PLACED RELIANCE ON THE FOLLOWING CASE LAW:- VENKATASWAMY NAIDU & CO. VS. CIT (1959)(35 ITR 594 )(SC) ITO VS. RANI RATNESHKUMARI (1950)(123 ITR 343)(ALL ) CIT VS. PRABHODAYA (1971)(82 ITR 804)(SC) CIT VS. GODAVARI CORPORATION LTD (1995)(156 ITR 83 5)(MP) ECLAT CONSTRUCTION P LTD VS. CIT (1988)(172 ITR 84 )(PAT) BY PLACING RELIANCE ON THE ABOVE CITED CASE LAW, TH E AO CONCLUDED THAT THE ASSESSEES INTENTION IN MAKING INVESTMENTS IN THE S HARES OF MIDDAY MULTIMEDIA LTD WAS TO MAKE PROFIT ONLY AND HENCE IT HAS BORROW ED MONEY TO MAKE THE SAID INVESTMENT. THE RELEVANT OBSERVATIONS MADE BY THE AO ARE EXTRACTED BELOW:- I .T.A. NO.6099/MUM/2009 I.T.A. NO.6260/MUM/2009 5 THE FACTS DISCUSSED HEREINABOVE CLEARLY INDICATE T HAT PURCHASE AND SALE OF SHARES CLEARLY FALL INTO THE AMBIT OF ADVENTURE IN THE NATURE OF TRADE. THE FACTS AND CIRCUMSTANCES OF THE CASE CLEARLY SUG GEST THAT THE ASSESSEE COMPANY HAD ENTERED INTO TRANSACTION WITH BORROWED FUND WITH AN INTENTION TO EARN PROFIT. FURTHER IN THE WRITTEN S UBMISSION OF THE ASSESSEE DATED 14.8.2006, IT HAS BEEN STATED THAT THE ASSESSEE WAS INCORPORATED IN JUNE 1995 AND HAS BEEN IN THE BUSINESS SINCE THE N. THE ASSESSEE HAS BEEN IN THE BUSINESS OF INVESTMENT AND TRADING IN C APITAL MARKET IN GENERAL AND EQUITY MARKET IN PARTICULAR. THE ASSES SEE HAS INVESTED IN THE EQUITY SHARES OF PUBLIC LIMITED COMPANY WITH AN INT ENTION TO TRADE AS AND WHEN THE CONDITION ARE RIPE. THEREFORE, TAKING INTO CONSIDERATION THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, THE SAL E CONSIDERATION (SIC. PROFIT ) RECEIVED BY THE ASSESSEE ON SALE OF 30,00, 000 SHARES OF MID DAY MULTIMEDIA AMOUNTING TO RS.7,20,09,217/- IS CONSIDE RED AS BUSINESS INCOME OF THE ASSESSEE. 11. THE LD CIT(A), HOWEVER, GAVE IMPORTANCE TO THE FOLL OWING FACTS AND HAS HELD THAT THE IMPUGNED GAIN IS ASSESSABLE AS LONG T ERM CAPITAL GAIN:- (A) THE SHARES WERE PURCHASED ON 15.11.1999. THU S THE ASSESSEE HAS HELD THE SHARES FOR ABOUT SIX YEARS. (B) THEY WERE SHOWN AS INVESTMENTS IN THE BOOKS OF ACCOUNT. (C) IT IS A SINGLE TRANSACTION, (I.E. THERE IS N O REPETITIVE TRANSACTION). 12. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. WE HAVE ALREADY NOTICED THAT THE LD CIT(A) HAS REVERSED THE DECISION OF THE ASSESSING OFFICER BY APPLYING CERTAIN PRINCIPLES ENUMERATED B Y THE COURTS VIZ., THE NATURE OF ENTRIES MADE IN THE BOOKS OF ACCOUNT, PERIOD OF HOL DING, SINGLE TRANSACTION. HOWEVER, WE NOTICE THAT THE BASIC FACTS SURROUNDING THE ISSUE, WHICH WERE BROUGHT OUT BY THE ASSESSING OFFICER AND WHICH WERE ALSO DISCUSSED BY US IN THE PRECEDING PARAGRAPHS, WERE NOT CONSIDERED OR ADDRES SED AT ALL BY LD CIT(A). WE NOTICE THAT THE ASSESSING OFFICER HAS LUCIDLY NA RRATED THE MODUS OPERANDI ADOPTED BY THE PROMOTERS AND THE ASSESSEE IN RESPEC T OF THE PURCHASE AND SALE OF SHARES OF MIDDAY MULTIMEDIA LTD. HOWEVER, THE F IRST APPELLATE AUTHORITY HAS FAILED TO DISCUSS ANYTHING ABOUT THE SAME IN HIS OR DER. HENCE, IN OUR VIEW, THIS ISSUE ALSO REQUIRES FRESH EXAMINATION AT THE END OF THE LD CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE A ND RESTORE THE SAME TO HIS FILE FOR FRESH CONSIDERATION, AFTER HEARING THE ASSESSEE . THE LD CIT(A) IS ALSO I .T.A. NO.6099/MUM/2009 I.T.A. NO.6260/MUM/2009 6 DIRECTED TO ADDRESS THE VARIOUS FACTUAL ASPECTS BRO UGHT OUT BY THE ASSESSING OFFICER WHILE ADJUDICATING THIS ISSUE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 10TH SEPT, 2014 . /0 + 1 23 4 5 10 TH SEPT, 2014 0 * 6, 7 SD SD ( . . / H.L. KARWA ) ( . . , / B.R. BASKARAN) / PRESIDENT / ACCOUNTANT MEMBER 2 + , MUMBAI : 10TH SEPT, 2014 . . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. + ;- ( ) / THE CIT(A)- CONCERNED 4. + ;- / CIT CONCERNED 5. 6. <= 6 !-> , . > , 2 + , / DR, ITAT, MUMBAI CONCERNED 6 ? , / GUARD FILE. @ + / BY ORDER, TRUE COPY A ' (ASSTT. REGISTRAR) . > , 2 + , /ITAT, MUMBAI