M/s. Earthstone Holding Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 6607/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7171 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 12-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMESH CHANDRA DUBEY SENIOR
• Assessee Lawyers: RUPESH J AIN
• Keywords: Business income; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH D DD D : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 6607/DEL/2013 6607/DEL/2013 6607/DEL/2013 6607/DEL/2013 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2009 2009 2009 2009 - -- - 10 1010 10 M/S EARTHSTONE HOLDING M/S EARTHSTONE HOLDING M/S EARTHSTONE HOLDING M/S EARTHSTONE HOLDING PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., 18 1818 18- -- -20, HT HOUSE, 20, HT HOUSE, 20, HT HOUSE, 20, HT HOUSE, K KK K.G. MARG, .G. MARG, .G. MARG, .G. MARG, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 001. 110 001. 110 001. 110 001. PAN : AABCE8511C. PAN : AABCE8511C. PAN : AABCE8511C. PAN : AABCE8511C. VS. VS. VS. VS. ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, RANGE RANGE RANGE RANGE- -- -39(1), 39(1), 39(1), 39(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RUPESH JAIN, ADVOCATE AND SHRI ANKIT GUPTA, CA. RESPONDENT BY : SHRI UMESH C HANDRA DUBEY, SENIOR DR. DATE OF HEARING : 08.09.2016 08.09.2016 08.09.2016 08.09.2016 DATE OF PRONOUNCEMENT : 19.09.2016 19.09.2016 19.09.2016 19.09.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEA R 2009-10 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XXVIII , NEW DELHI DATED 23 RD SEPTEMBER, 2013. 2. THE FIRST GROUND OF ASSESSEES APPEAL READS AS U NDER:- THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D ON FACTS AND IN LAW IN AFFIRMING THE ACTION OF THE ASS ESSING OFFICER IN DISREGARDING THE LONG TERM CAPITAL LOSS OF RS.1,37,78,697/- ARISING ON SALE OF SHARES RETURNED BY THE APPELLANT, HOLDING THAT THE TRANSACTION OF SALE OF SHARES GAVE RISE TO BUSINESS INCOME SINCE THE DOMINANT INT ENTION OF THE APPELLANT WAS TO EARN INCOME FROM SALE OF SH ARES. ITA-6607/DEL/2013 2 3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT THE ASSESSEE PURCHASED 3,84,588 SHARES OF M/S ACME TELEPOWER LTD. ON 12 TH NOVEMBER, 2007 FOR A SUM OF `26,45,96,544/-. ALL THE SHARES WERE SOLD ON 6 TH MARCH, 2009 FOR A SUM OF `26,56,96,544/-. THUS, THERE WAS A SINGLE TRANSACT ION OF PURCHASE AND SALE OF SHARES. THE SHARES WERE SOLD AFTER 16 MONT HS FROM ITS ACQUISITION AND AFTER CONSIDERING THE INDEXED COST OF ACQUISITION, THE ASSESSEE CLAIMED LONG TERM CAPITAL LOSS OF `1,37,78 ,697/-. THE ASSESSING OFFICER TREATED THE PURCHASE AND SALE OF THE SHARES AS BUSINESS ON THE GROUND THAT THE ASSESSEE HAS INTENT ION TO TAKE THE CONTROL OF M/S ACME TELEPOWER LTD. LEARNED COUNSEL FOR THE ASSESSEE CLARIFIED THAT THE ASSESSEE MADE THE INVESTMENT IN SHARES BECAUSE, AT THE RELEVANT TIME, M/S ACME TELEPOWER LTD. WAS COMI NG UP WITH AN IPO. THE ASSESSEE EXPECTED GOOD APPRECIATION IN TH E MARKET VALUE OF THE SHARES AND, THEREFORE, MADE INVESTMENT THEREIN. WHEN THE COMPANY CANCELLED ITS PLAN OF IPO, THE ASSESSEE REA LIZED ITS INVESTMENT. THAT ASSESSEE WAS NEVER IN A POSITION TO ACQUIRE THE CONTROLLING INTEREST IN THE SAID COMPANY. HE POINT ED OUT THAT THE ACQUISITION OF THE SHARES BY THE ASSESSEE WAS ONLY 0.25% OF THE TOTAL SHARES OF M/S ACME TELEPOWER LTD. THUS, THERE IS N O QUESTION OF ANY TAKING OVER THE CONTROL AND MANAGEMENT OF M/S ACME TELEPOWER LTD. HE FURTHER STATED THAT THE ASSESSEE INVESTED OWN FU NDS AND NO BORROWED MONEY WAS UTILIZED FOR ACQUISITION OF M/S ACME TELEPOWER LTD. HE ALSO POINTED OUT THAT IN ITS BALANCE SHEET ENDED ON 31 ST MARCH, 2008, THE SHARES WERE SHOWN AS INVESTMENT. THAT TH E PRESUMPTION OF THE ASSESSING OFFICER THAT THE ASSESSEE MADE THE IN VESTMENT IN THE SHARES WITH AN INTENTION OF EARNING PROFIT IS WITHO UT ANY BASIS. 4. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF AUTHORITIES BELOW AND POINTED OUT THAT ON THE INVES TMENT OF MORE THAN `26 CRORES, THE ASSESSEE HAD EARNED THE DIVIDEND IN COME OF ITA-6607/DEL/2013 3 `9,45,821/- ONLY. THUS, THE INVESTMENT IN SHARES W AS CERTAINLY NOT FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME BUT FOR EARNING THE PROFIT FROM THE SALE OF SHARES. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND HAVE PERUSED THE MATERIAL PLACED BEFORE US. AF TER CONSIDERING THE FACTS OF THE CASE, WE DO NOT FIND ANY JUSTIFICATION FOR THE FINDING OF THE LOWER AUTHORITIES THAT THE SHARES WERE ACQUIRED WIT H THE INTENTION OF BUSINESS IN SUCH SHARES. WE FIND THAT THERE WAS A SINGLE TRANSACTION OF PURCHASE AND SALE OF SHARES. THE PURCHASE WAS MADE WITH OWN FUNDS. THE SHARES WERE HELD FOR A PERIOD OF 16 MONTHS AND THEN SOLD. AFTER SALE OF SHARES, THERE IS NO ACQUISITION OF SHARES O F THIS COMPANY OR ANY OTHER COMPANY. NEITHER IN THE PRECEDING ASSESSMENT YEAR NOR IN THIS YEAR, THERE IS PURCHASE AND SALE OF SHARES OF ANY O THER COMPANY. IN THE BALANCE SHEET OF 31 ST MARCH, 2008, SHARES HAVE BEEN SHOWN AS INVESTMENT. TOTALITY OF THESE FACTS CLEARLY LEAD T O THE CONCLUSION THAT IT IS A CASE OF INVESTMENT IN SHARES WHICH WAS REALIZE D LATER ON. THE PRESUMPTION OF THE ASSESSING OFFICER THAT THE SHARE S OF M/S ACME TELEPOWER LTD. WERE PURCHASED TO ACQUIRE THE MANAGE MENT AND CONTROL OF THE SAID COMPANY IS WITHOUT ANY BASIS. THE ASSESSEE HAS POINTED OUT THAT THE SHARES ACQUIRED BY THE ASSESSE E WERE LESS THAN 1% OF THE TOTAL SHARES OF M/S ACME TELEPOWER LTD. THE INTENTION OF THE ASSESSEE AT THE TIME OF ACQUISITION OF SHARES IS TO BE GATHERED FROM THE TOTALITY OF ALL THE FACTS AND, AFTER CONSIDERING TH E TOTALITY OF ALL THE FACTS, WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE MAD E THE INVESTMENT IN THE SHARES. THE CONCLUSION OF THE ASSESSING OFF ICER THAT THE ASSESSEE PURCHASED THE SHARES WITH THE INTENTION OF BUSINESS IS WITHOUT ANY JUSTIFICATION AND IS ONLY ON THE BASIS OF PRESUMPTION AND SUSPICION. IN VIEW OF THE ABOVE, WE DIRECT THE ASS ESSING OFFICER TO ACCEPT THE LONG TERM CAPITAL LOSS ON THE SALE OF SH ARES OF M/S ACME TELEPOWER LTD. ITA-6607/DEL/2013 4 6. GROUND NO.2 OF THE ASSESSEES APPEAL READS AS UN DER:- THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D ON FACTS AND IN LAW IN AFFIRMING THE ACTION OF THE ASS ESSING OFFICER IN DISREGARDING THE SHORT TERM CAPITAL GAIN S OF RS.7,860/- ARISING ON SALE OF MUTUAL FUNDS RETURNED BY THE APPELLANT, HOLDING THAT THE TRANSACTION OF SALE OF MUTUAL FUNDS GAVE RISE TO BUSINESS INCOME SINCE THE DOMINA NT INTENTION OF THE APPELLANT WAS TO EARN INCOME FROM SALE OF MUTUAL FUNDS. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D HAVE PERUSED THE MATERIAL PLACED BEFORE US. THE FACTS R ELATING TO THIS GROUND ARE THAT THE ASSESSEE MADE INVESTMENT IN MUT UAL FUNDS WHICH WAS REALIZED SUBSEQUENTLY. FROM THE DETAILS OF THE ACQUISITION OF MUTUAL FUNDS, WE FIND THAT THERE WERE TOTAL THREE T RANSACTIONS OF ACQUISITION OF UNITS OF MUTUAL FUNDS AND ONLY THREE TRANSACTIONS OF THEIR REDEMPTION. THERE IS NO FREQUENCY OF THE ACQUISITI ON AND REDEMPTION OF THE INVESTMENT IN MUTUAL FUNDS. INVESTMENT IS M ADE FROM OWN FUNDS. THEREFORE, IN OUR OPINION, THE SURPLUS FROM THE REDEMPTION OF THE UNITS OF MUTUAL FUNDS SHOULD BE ASSESSED AS SHO RT TERM CAPITAL GAIN (SINCE THE REDEMPTION IS WITHIN ONE YEAR FROM THE I NVESTMENT IN MUTUAL FUNDS) RATHER THAN BUSINESS INCOME. ACCORDINGLY, G ROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. DECISION PRONOUNCED IN THE OPEN COURT ON 19.09.2016 . SD/- SD/- (CHANDRA MOHAN GARG (CHANDRA MOHAN GARG (CHANDRA MOHAN GARG (CHANDRA MOHAN GARG ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. ITA-6607/DEL/2013 5 COPY FORWARDED TO: - 1. APPELLANT : M/S EARTHSTONE HOLDING PVT.LTD., M/S EARTHSTONE HOLDING PVT.LTD., M/S EARTHSTONE HOLDING PVT.LTD., M/S EARTHSTONE HOLDING PVT.LTD., 18 1818 18- -- -20, HT 20, HT 20, HT 20, HT HOUSE, K.G. MARG, HOUSE, K.G. MARG, HOUSE, K.G. MARG, HOUSE, K.G. MARG, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 001. 110 001. 110 001. 110 001. 2. RESPONDENT : ADDITIONAL COMMISSIONER OF INCOME T AX, ADDITIONAL COMMISSIONER OF INCOME TAX, ADDITIONAL COMMISSIONER OF INCOME TAX, ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE RANGE RANGE RANGE- -- -39(1), NEW DELHI. 39(1), NEW DELHI. 39(1), NEW DELHI. 39(1), NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR