DCIT 2(3), MUMBAI V. URUDAVAN INVESTMENT & TRADING P.LTD, MUMBAI

ITA 6441/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1890 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 20-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Transactions in derivatives
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.2228/M/2012 ASSESSMENT YEAR: 2007-08 M/S. URUDAVAN INVESTMENT AND TRADING PVT. LTD., 209-210 2 ND FLOOR, ARCADIA BLDG., 195, NARIMAN POINT, MUMBAI 400 021 PAN: AAACU 1353M VS. THE COMMISSIONER OF INCOME TAX-2, AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RESPONDENT) ITA NO.6441/M/2014 ASSESSMENT YEAR: 2007-08 DCIT-2(3), R.NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S. URUDAVAN INVESTMENT AND TRADING PVT. LTD., 209-210, ARCADIA BLDG., 195, NARIMAN POINT, MUMBAI 400 021 PAN: AAACU 1353M (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIJAY MEHTA, A.R. REVENUE BY : SHRI G.M. DOSS, D.R. DATE OF HEARING : 12.08.2015 DATE OF PRONOUNCEMENT : 16.12.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE CAPTIONED ARE TWO APPEALS RELEVANT TO TH E SAME ASSESSMENT YEAR. ONE HAS BEEN FILED BY THE ASSESSEE AGITATING THE ORDER OF THE COMMISSIONER OF INCOME TAX [HEREINAFTER REFERRED TO AS THE CIT] DATED 20.03.2012 PASSED UNDER SECTION 263 OF THE ACT. TH E OTHER ONE IS THE APPEAL OF THE REVENUE AGAINST THE ORDER OF THE LD. CIT(APPEAL S) DATED 11.07.2014 ITA NO.2228/M/2012 & ITA NO.6441/M/2014 M/S. URUDAVAN INVESTMENT AND TRADING PVT. LTD. 2 WHEREIN THE REVENUE HAS AGITATED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITIONS MADE UNDER SECTION 143(3) R.W.S. 263 OF T HE ACT. 2. THE LD. REPRESENTATIVES OF THE PARTIES HAVE SUBM ITTED THAT SINCE THE ISSUE IS SMALL, HENCE THE APPEAL OF THE REVENUE MAY BE HEARD FIRST. SO FIRST WE TAKE UP THE APPEAL OF THE REVENUE I.E. ITA NO.6441/ M/2014. ITA NO.6441/M/2014 3. THE REVENUE IN THIS APPEAL HAS AGITATED THE DELE TION OF THE DISALLOWANCE OF RS.88,44,792/- MADE BY THE ASSESSING OFFICER (HE REINAFTER REFERRED TO AS THE AO) ON ACCOUNT OF PROPORTIONATE EXPENDITURE ATTRIBU TABLE TO CAPITAL GAINS. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 29.10.07 DEC LARING TOTAL INCOME AT RS.5,29,77,133/-. ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 21.05.09 ASSESSING THE TOTAL INCOME AT RS.5,46,22,8 60/-. THE SAID ASSESSMENT ORDER WAS SET ASIDE BY THE LD. CIT VIDE ORDER DATED 21.03.12 PASSED UNDER SECTION 263 OF THE ACT AND DIRECTED THE AO TO MAKE A FRESH ASSESSMENT IN RESPECT OF THE FOLLOWING TWO ISSUES. THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF R S.37,52,677/- FROM TRANSACTIONS WHERE SHARES WERE SOLD WITHIN 15 DAYS. THE ISSUE IS SET ASIDE TO EXAMINE SALE OF SHARES WITHIN A SHORT SPAN OF 15 DAYS WAS MADE WITH THE INTENTION OF BOOKING QUICK PROFIT S AND AS SUCH WAS TO BE TAXED AS INCOME FROM BUSINESS AND PROFESS ION. B. THE PROFESSIONAL FEES PAID TO PHF INTERNATIONAL SHOULD HAVE BEEN ALLOCATED PROPORTIONATELY TOWARDS TRADING INCOME AN D CAPITAL GAINS AND HENCE TO EXAMINE THE PROPORTIONATE ALLOCATION OF SU CH EXPENSE. 4. IN THE SET ASIDE PROCEEDINGS, ON THE ISSUE OF CA PITAL GAINS, THE AO ACCEPTED THE CONTENTION OF THE ASSESSEE AND DID NOT MAKE ANY ADDITION. HOWEVER, ON THE ISSUE OF PROFESSIONAL FEES, THE AO NOTED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.2,01,01,800/- ON ACCOUNT OF PRO FESSIONAL FEES PAID TO M/S. PFH ENTERTAINMENT LTD. FOR PROVIDING ADVISORY SERVI CES IN THE FIELD OF INVESTMENT. HE FURTHER NOTED THAT THE ASSESSEES I NCOME CONSISTED OF PROFIT ON INCOME FROM TRADING AND SPECULATION AMOUNTING TO RS .2,94,53,170/- AND SHORT ITA NO.2228/M/2012 & ITA NO.6441/M/2014 M/S. URUDAVAN INVESTMENT AND TRADING PVT. LTD. 3 TERM CAPITAL GAIN OF RS.2,30,97,562/-. HE ASKED TH E ASSESSEE TO EXPLAIN AS TO WHY PROFESSIONAL EXPENSES SHOULD NOT BE PROPORTIONA TELY ALLOCATED BETWEEN BUSINESS INCOME AND INCOME FROM INVESTMENTS AND THE EXPENSES RELATING TO INVESTMENTS BE NOT DISALLOWED. THE ASSESSEE SUBMIT TED BEFORE THE AO THAT THE PROFESSIONAL FEES PAID TO M/S. PFH ENTERTAINMENT LT D. FOR ADVISORY SERVICES IN THE AREA OF FUTURE AND OPTIONS (F&O) ON THE BASIS O F RESEARCH CONDUCTED FOR VARIOUS INDUSTRIES AND AS SUCH, IT WAS RELATED TO T HE BUSINESS ACTIVITIES OF THE ASSESSEE. THE AO, HOWEVER, DID NOT AGREE WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND HELD THAT THE PROFESSIONAL FEES WAS PA ID FOR BOTH BUSINESS AND INVESTMENT INCOME. HE, THEREFORE, APPORTIONED THE FEES BETWEEN THE F&O SEGMENT AND SHORT TERM CAPITAL GAIN AND ATTRIBUTED THE SUM OF RS.88,44,792/- TO THE CAPITAL GAINS AND DISALLOWED THE SAME. BEING A GGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CI T(A). 5. THE LD. CIT(A), AFTER HEARING THE LD. REPRESENTA TIVES OF THE PARTIES, DELETED THE ADDITIONS MADE BY THE AO OBSERVING THAT THE ASSESSEE HAD FURNISHED THE DOCUMENTARY EVIDENCE SUCH AS CERTIFIC ATE ALONG WITH THE COPY OF INVOICE FROM M/S. PFH ENTERTAINMENT LTD. STATING TH AT THE SAID PARTY HAD RECOMMENDED THE TIMING OF PURCHASE AND SALE IN F&O SEGMENT. EVEN DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, THE AUTHORIZED PERSON FROM M/S. PFH ENTERTAINMENT LTD. HAD ALSO APPEARED BEFORE THE AO AND HIS STATEMENT IN THIS RESPECT WAS ALSO RECORDED. THE LD. CIT(A), AFTER A PPRECIATION OF THE EVIDENCES ON THE FILE, HELD THAT THE ADVISORY SERVICES WERE G IVEN BY THE M/S. PFH ENTERTAINMENT LTD. RELATING TO THE BUSINESS ACTIVIT Y OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE LD. CIT(A) FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: 6.3 I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE APPELLANT AS WELL AS THE FACTS OF THE CASE. THE AO HAS, WHILE PASSING THE IMPUGNED ORDER OBSERVED THAT THE APPELLANT HAD DEBITED A SUM OF RS.2,01,01,800/- ON ACCOUNT OF PROFESSIONAL FEES PAID TO PFH ENTERTAINMENT LTD FOR PROVIDING ADVISOR Y SERVICES IN THE FIELD OF INVESTMENTS. SUCH PROFESSIONAL FEES WERE RELATED TO SHARE TRANSACTIONS, ADVISORY SERVICES FOR STOCKS, RESTRUCTURING OF PORT FOLIO, DEMAT CHARGES AND ITA NO.2228/M/2012 & ITA NO.6441/M/2014 M/S. URUDAVAN INVESTMENT AND TRADING PVT. LTD. 4 STAMP CHARGES ETC. THEREFORE HE CONCLUDED THAT THE PROFESSIONAL FEES WERE BOTH FOR THE BUSINESS OF TRADING IN SHARES AND INVE STMENT SEGMENT. ACCORDINGLY, 44% OF THE PROFESSIONAL SERVICE FEES A T RS.88,44,792/ - WERE DISALLOWED FROM THE BUSINESS INCOME AND HELD TO BE ATTRIBUTABLE TO CAPITAL GAINS. AS AGAINST THIS DECISION OF THE AO, IT MAY BE SEEN THA T THE APPELLANT HAS FURNISHED A CERTIFICATE ALONG WITH THE COPY OF INVOICE FROM PFH ENTERTAINMENT LTD STATING THAT THE SAID PARTY HAD RECOMMENDED THE TIMING OF PURCHA SE AND SALE OF A) MAHARASHTRA SEAMLESS LTD, B) STERLITE INDUSTRIES LTD AND C) IPC L LTD. ACCORDINGLY, THE APPELLANT, BY TRADING IN THESE SHARES MADE PROFIT OF RS.10,75, 57,943/- IN F&O SEGMENT. THE DETAILS OF THESE TRANSACTIONS ARE AS UNDER: PARTICULARS AMOUNT (RS.) D) MAHARASHTRA SEAMLESS LTD. 6,28,59,954.00 E) STERLITE INDUSTR IES LTD. 2,01,94,973.00 F) IPCL LTD. 2,45,03,016.00 TOTAL 10,75,57,943.60 6 .4 THE AO HAS, IN SPITE OF A CONFIRMATION FROM PFH ENTERTAINMENT LTD MADE HIS OWN CONCLUSION AND DIVIDED THE FEES FOR PROFESSIONA L SERVICES BETWEEN TRADING/BUSINESS INCOME AND CAPITAL GAINS INCOME, W ITHOUT CONDUCTING ANY INDEPENDENT ENQUIRIES AND WITHOUT CONTROVERTING THE CERTIFICATE GIVEN BY PFH ENTERTAINMENT LTD. THE AO HAS ONLY RELIED UPON THE MOU BETWEEN THE APPELLANT AND PFH ENTERTAINMENT LTD, WHILE MAKING DISALLOWANC E OF RS.88,44,792/- IN RESPECT OF THE CLAIM OF PROFESSIONAL FEES AGAINST BUSINESS INCOME. THE AO HAS NOT AT ALL COMMENTED ABOUT THE CERTIFICATE GIVEN BY THE PFH EN TERTAINMENT LTD, THE RELEVANT PART OF WHICH IS AS UNDER: 'NATURE OF SERVICES PROVIDED - THE INVOICE RAISED O N UITPL IS ENCLOSED HEREWITH. WE HAVE PROVIDED TIMELY ADVISORY SERVICES IN THE AREA OF INVESTMENT I.E. PURCHASE OR SALE OF SHARES IN FUTUR E OR OPTIONS SEGMENT ON THE BASIS OF RESEARCH CONDUCTED FOR VARIOUS INDUSTR IES. THIS REPORT MAINLY CONTAINS THE INVESTMENT STRATEGY WHICH IS RECOMMEND ED BY US AFTER VETTING THE VIEW OF VARIOUS EXPERTS BELONGING TO DIVERSIFIE D INDUSTRIES. SPECIFICALLY, WE HAD RECOMMENDED THE TIMING OF PURCHASE AND SALE OF FOLLOWING SCRIPTS WHEREIN UITPL HAS MADE EXORBITANT PROFITS VIZ MAHAR ASHTRA SEAMLESS, STERLITE, JPCL.' 6.5 THE ABOVE CERTIFICATE GIVEN BY PFH ENTERTAINMEN T LTD HAS NOT BEEN PROVED BY THE AO EITHER TO BE FALSE OR DEVOID OF THE MERITS. IT MAY ALSO BE NOTED THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE AUTHORISED PERSON FROM PFH ENTERTAINMENT LTD HAD ALSO APPEARED BEFORE THE AO A ND HIS STATEMENT WAS ALSO RECORDED. ACCORDINGLY, THE EXPENDITURE OF PROFESSIO NAL FEES OF RS.2,01,01,800/- WAS ALLOWED TO THE APPELLANT AS BUSINESS EXPENDITURE. F URTHER, PHF ENTERTAINMENT LTD HAS TREATED THE FEES OF RS.2,01,01,800/- AS THEIR B USINESS INCOME AND PAID TAXES ACCORDINGLY FOR AY 2007-08. THE NEXUS OF THE FEES O F RS.2,01,01,800/- WITH THE BUSINESS INCOME OF THE APPELLANT CAN BE SEEN FROM T HE INVOICE RAISED BY PFH ENTERTAINMENT LTD ALONGWITH THE DETAILED NOTE AS WE LL AS THE ACTUAL PURCHASE AND SALES MADE BY THE APPELLANT IN THE ABOVE SAID THREE SCRIPTS. 6.6 AN ASSESSEE IS ENTITLED TO CARRY OUT HIS B USINESS AS IS EXPEDIENT FOR HIM TO DO. ITA NO.2228/M/2012 & ITA NO.6441/M/2014 M/S. URUDAVAN INVESTMENT AND TRADING PVT. LTD. 5 THE REVENUE CANNOT STEP INTO THE SHOES OF THE BUSIN ESSMAN AND ON ITS OWN DECIDE AS TO WHAT EXPENDITURE INCURRED IS RELATABLE TO WHI CH PART OF THE INCOME ON THE BASIS OF ASSUMPTIONS AND SURMISES, UNLESS THE SAME IS ESTABLISHED BY THE REVENUE BEYOND DOUBT. IT IS THE BUSINESSMAN'S CONCERN HOW T O RUN THE BUSINESS. THIS VIEW IS SUPPORTED BY A NUMBER OF DECISIONS SOME OF THEM BEI NG WALCHAND & CO. PVT. LTD, 65 ITR 381 (SC), DHAWAN INVESTMENT & TRADING CO. LT D, 100 TAXMAN 562 (CAL) ETC. 6.7 THE AO HAS CITED THE SUPREME COURT JUDGEMENT IN THE CASE OF SUMATI DAYAL (SUPRA), WHICH CANNOT BE SAID TO BE APPLICABLE TO T HE PRESENT CASE OF THE APPELLANT. IN THAT CASE HON'BLE SUPREME COURT LAID DOWN THE PR INCIPLE OF 'PREPONDERANCE OF PROBABILITIES'. THIS DECISION, INSTEAD OF FAVOURING THE CASE OF THE REVENUE, RATHER FAVOURS THE CASE OF THE APPELLANT, WHERE BY VIRTUE OF THE PRINCIPLE OF 'PREPONDERANCE OF PROBABILITIES', IT CAN VERY WELL BE SAID THAT THE PROFESSIONAL FEES WERE PAID BY THE APPELLANT FOR THE TRADING IN F & 0 SEGMENT OF THREE SCRIPTS NAMELY, MAHARASHTRA SEAMLESS LTD, STERLITE INDUSTRIES LTD A ND IPCL LTD, WHEREBY THE APPELLANT MADE A HUGE PROFIT OF RS.10,75,57,943/- A ND THUS BY VIRTUE OF THE PREPONDERANCE OF PROBABILITIES, THE PROFESSIONAL FE ES OF RS.2,01,01,800/- MUST HAVE BEEN PAID BY THE APPELLANT FOR THE ADVISORY RECEIVE D IN RESPECT OF THE THREE SCRIPTS. 6.8 IN THE CIRCUMSTANCES THEREFORE, THE DECISION OF THE AO DOES NOT APPEAR TO BE JUSTIFIED. THE AO IS DIRECTED TO DELETE THE DISALLO WANCE OF RS.88,44,792/- FROM THE BUSINESS INCOME. 6. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE FACTUA L FINDING GIVEN BY THE LD. CIT(A) WHICH IS BASED ON THE APPRECIATION OF TH E EVIDENCES ON THE FILE. THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. 7. NOW COMING TO THE APPEAL OF THE ASSESSEE I.E. IT A NO.2228/M/2012. ITA NO.2228/M/2012 8. THE ASSESSEE HAS AGITATED AGAINST THE REVISION O F THE ASSESSMENT ORDER UNDER SECTION 263 OF THE ACT. HOWEVER, WE FIND THAT THE ADDITIONS MADE BY THE AO DURING THE FRESH ASSESSMENT PROCEEDINGS IN COMPL IANCE OF THE ORDER OF LD. CIT UNDER SECTION 263, HAVE ALREADY BEEN DELETED BY THE LD. CIT(A) WHICH ORDER HAS BEEN UPHELD BY US IN VIEW OF THE ABOVE DI SCUSSION WHILE DECIDING THE APPEAL OF THE REVENUE. HENCE, THE ISSUE OF REVISION OF THE ASSESSMENT ORDE R UNDER SECTION 263 IS RENDERED ACADEMIC AT THIS STAGE. WE DO NOT THINK I T PROPER AT THIS STAGE TO DELIBERATE UPON THE MERITS OF THE ACTION OF THE LD. CIT IN INVOKING THE ITA NO.2228/M/2012 & ITA NO.6441/M/2014 M/S. URUDAVAN INVESTMENT AND TRADING PVT. LTD. 6 PROVISIONS OF SECTION 263 OF THE ACT AT THIS STAGE. THE APPEAL OF THE ASSESSEE HAS, THUS, BECOME INFRUCTUOUS AND IS DISPOSED OF AC CORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE APPEAL OF THE ASSESSEE IS ALSO TREATED AS DISMISSED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16.12.2015. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.12.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.