ACIT, New Delhi V. M/s. Gyan Enterprises Pvt. Ltd., New Delhi

ITA 666/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3924 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: SHRI
• Keywords: Business income; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 666/DEL/2010 ASSESSMENT YEAR: 2005-06 ACIT, VS. GYAN ENTERPRISES PVT. LTD., CENTRAL CIRCLE 5, ROOM NO. 361, 4 TH FLOOR, PUNJABI BHAWAN, ARA CENER, JHADEWALAN EXTN., 10, ROUSE AVENUE, NEW DELHI. NEW DELHI. AAACG0512G (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. MONA MOHANTY, SR. DR RESPONDENT BY : SHRI PANKAJ JAIN, ADV., & SH. GUR JEET SINGH, CA ORDER PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIR ECTED AGAINST THE ORDER PASSED BY LD. CIT(A) DATED 12.11.2009 FOR A.Y . 2005-06. GROUNDS OF APPEAL READ AS UNDER: - 1. THE ORDER OF THE LD. CIT(A) IS NOT CORRECT IN L AW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN HOLDING THAT THE INCOME G ENERATED BY DEALING IN SHARES AND SECURITIES BY THE ASSESSEE WA S TO BE TREATED AS INCOME FROM CAPITAL GAIN AND NOT INCOM E FROM BUSINESS AS WAS ASSESSED BY THE AO. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY/ALL OF THE GROUNDS OF THE APPEAL BEFORE OR DURING THE COURSE O F THE HEARING OF THE APPEAL. ITA NO. 666/D/2010 2 2. THE ASSESSEE COMPANY IS RECOGNIZED BY THE RESERV E BANK OF INDIA AS NON-BANKING FINANCIAL CORPORATION. THE CO MPANY IS HAVING AN INVESTMENT PORTFOLIO AND HAS HELD CERTAIN SHARES IN STOCK-IN-TRADE. DURING THE YEAR UNDER CONSIDERATION VIDE RESOLUTION DATED 22 ND APRIL, 2004 IT WAS RESOLVED THAT STOCK-IN-TRADE AMOUNTING TO RS. 79,73,293.15/- HELD BY THE COMPANY IN SHARES/ SECURITIES OF OTHER BODIES CORPORATE CONVERTED INTO INVESTMENT W.E.F. 1.04.2004, DETAILS OF THESE SHARES ARE AS UNDER: - S.NO. NAME OF THE COMPANY QUANTITY AMOUNT 1. ASSOCIATED CEMENT LTD. 2000 509300/- 2. BALAJI TELE FILMS LTD. 5000 362420/- 3. BALRAMPUR CHINI MILLS LTD. 1000 286250/- 4. BIOCON LTD. 1250 393750/- 5. GAS AUTHORITY OF INDIA 3874 825549/- 6. HDFC LTD. 400 245496/- 7. MORGAN STANLAY 5000 30000/- 8. NESTLE INDIA LTD. 500 297140/- 9. RADICO KHAITAN LTD. 5000 480525/- 10. RELIANCE INDUSTRIES 1000 305101/- 11. SUN PHARMA LTD. 450 293175/- 12. STATE BANK OF INDIA 500 289885/- 13. TATA POWER CO. LTD. 1250 471437/- 14. TV TODAY NETWORK LTD. 2500 237500/- 15. TATA TELE SERVICES LTD. 20000 324000/- 16. TALBROS AUTOMOTIVE COMPONENTS LTD. 82143 2063843/- 17. VSNL LTD. 1600 285680/- 18. WIPRO LTD. 200 272240/- TOTAL 133667 7973293/- 3. THE VALUE OF ACQUISITION OF THESE SHARES WAS TAK EN TO BE THE MARKET VALUE AS ON 31.3.2004 AND AS PER SUBMISSIONS OF THE ASSESSEE THE DIFFERENCE BETWEEN PURCHASE PRICE OF THE SCRIPT AND THE MARKET VALUE AS ON 31.3.2004 WAS TAKEN INTO ACCOUNT WHILE WORKIN G OUT THE PROFITS OF THE YEAR ENDING AS ON 31.3.2004 AND THESE FINDINGS ARE RECORDED BY THE CONCLUSION DRAWN BY CIT(A) IN THE IMPUGNED ORDER IN PARA 5. IT IS FURTHER OBSERVED BY LD. CIT(A) THAT IT IS CLEAR FROM THE BA LANCE SHEET FOR F.Y. ITA NO. 666/D/2010 3 2003-04 THAT THE MARKET VALUE OF THESE SHARES AS ON 31.3.2004 HAS BEEN TAKEN INTO ACCOUNT BY WORKING OUT OF THE CLOSING ST OCK OF THE SHARES AND THIS HAS BEEN TAKEN INTO ACCOUNT FOR WORKING OUT TH E PROFITS FOR THAT YEAR. IT HAS BEEN FURTHER FOUND BY THE LD. CIT(A) THAT TH E MARKET VALUE AS ON 31.3.2004 HAS BEEN TAKEN AS THE COST OF ACQUISITION OF THESE SHARES AND THE DIFFERENCE BETWEEN COST OF ACQUISITION AND THE SALE PRICE HAS BEEN OFFERED FOR TAXATION AS INCOME FROM SHORT TERM CAPI TAL GAIN. ON THESE FACTS, LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE BY FOLLOWING CERTAIN DECISION OF TRIBUNAL AND HAS HELD THAT THE GAIN OF THE ASSESSEE IS TO BE ASSESSED AS SHORT TERM CAPITAL GA IN IN PLACE OF BUSINESS INCOME TREATED BY THE AO. THE AO HAD HELD THAT FREQUENT TRANSACTION OF PURCHASE AND SALE OF SHARES IN TERMS OF AMOUNT AND QUANTITY ASSUMED EXPLICITY THE CHARACTER OF BUSINES S AND HE TREATED THE GAIN THERE FROM AS BUSINESS INCOME OF THE ASSESSEE. 4. AT THE OUTSET IT WAS PLEADED BY LD. COUNSEL OF T HE ASSESSEE THAT ON THE FACTS OF THE CASE THE PROPOSITION IS DULY CO VERED BY THE DECISION OF TRIBUNAL IN ANOTHER CASE. HE IN THIS REGARD REFERR ED TO THE DECISION OF TRIBUNAL DATED 18.2.2011 IN THE CASE OF DCIT VS. M/ S CHAUDHARY ASSOCIATES (ITA NO. 1241/DEL/2010), WHEREIN ON SIMI LAR FACTS THE ORDER OF CIT(A) WAS UPHELD VIDE WHICH THE IMPUGNED RELIEF WAS GRANTED TO THE ASSESSEE. HE HAS PRODUCED BEFORE US A COPY OF THE SAID ORDER. A COPY WAS ALSO GIVEN TO LD. DR. ITA NO. 666/D/2010 4 5. HOWEVER, ON THE OTHER HAND, LD. DR RELYING UPON THE ORDER OF AO PLEADED THAT RELIEF HAS WRONGLY BEEN GIVEN BY LD. C IT(A) TO THE ASSESSEE AND THE ORDER OF CIT(A) SHOULD BE SET ASIDE AND THA T OF AO BE RESTORED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. WE HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS ORDER PASSED BY CIT(A). THE FINDINGS OF FACT RECORDED BY LD. CIT(A) IT IS NARRATED ABOVE. THEREFORE, THE FACTS OF THE PRESEN T CASE AND THE AFOREMENTIONED CASE OF DCIT VS. M/S CHAUDHARY ASSOC IATES ARE IDENTICAL. THE FINDINGS OF FACT RECORDED BY LD. CI T(A) IN THE PRESENT CASE HAVE NOT BEEN CONTROVERTED BY THE REVENUE. IN THIS VIEW OF THE POSITION, THE RATIO LAID DOWN IN THE AFOREMENTIONED DECISION WILL BE APPLICABLE TO THE PRESENT CASE ALSO. FOR THE SAKE OF COMPLETENES S THE RELEVANT PORTION OF THE SAID ORDER IS REPRODUCED BELOW: - 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING TO TREAT THE ASSE SSEE AS INVESTOR IN SHARES AS AGAINST TREATMENT BY THE ASSE SSING OFFICER OF ASSESSEE AS A TRADE. 3. THE ASSESSEE IN THIS CASE HAS DECLARED INCOME FROM LONG TERM /SHORT TERM CAPITAL GAINS AND INCOME FROM BUSINESS AND PROFESSION. THE ASSESSING OFFICER I N THIS CASE OBSERVED THAT ASSESSEE WAS HOLDING SHARES MAIN LY OF GROUP COMPANIES INCLUDING OF DABUR INDIA LTD. AS INVESTMENT SINCE LONG BACK. THE ASSESSEE WAS ALS O ENGAGED IN PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS MOSTLY OF BLUE CHIP COMPANIES AS STOCK-IN-TRADE. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS TRANSFER RED THE SHARES OF CERTAIN COMPANY AS HELD IN STOCK-IN-TRA DE UPTO 31.3.2004 AT COST PRICE AS ON 1.4.2004 AS UNDER:- ITA NO. 666/D/2010 5 SL.NO. NAME OF THE COMPANY QUANTITY AMOUNT 1. MORGAIN STANLAY 5000 30000/- 2. NESTLE INDIA LTD. 500 303310/ - 3. BIOCON LTD. 1250 393750/- 4. HDFC LTD. 400 245536/- TOTAL 7150 972596/- 4. ASSESSING OFFICER FURTHER NOTED THAT APART FROM THE SHARES OF THE FOUR COMPANIES TRANSFERRED TO INVESTM ENT ACCOUNT AS ON 1.4.2004 FROM STOCK-IN-TRADE AS ON 31 .3.2004, THE ASSESSEE HAS MADE PURCHASES SHARES/ MUTUAL FUND S OF 51 COMPANIES. THEREAFTER, ASSESSING OFFICER HEL D THAT CONSIDERING THE FACTS AND JUDICIAL PRINCIPLES AND E XPLANATION RELATING TO THE TREATMENT BY THE ASSESSEE WITH RESP ECT TO THE GAIN DERIVED FROM SALE OF SHARES TRANSFERRED FROM STOCK IN TRADE TO THE INVESTMENT ACCOUNT AND FURTHER PURCHAS E AND SALE OF SHARES DURING THE YEAR ON VOLUMINOUS SCALE IS BEREFT OF ANY PLAUSIBLE EXPLANATION AND NOT ACCEPTABLE. 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOM E TAX (APPEALS) ELABORATELY CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE OBSERVATIONS OF THE AO AND THE SUBMISSIONS MADE BY THE COUNSEL OF THE APPELLANT. THE APPELLANT COMPANY IS RECOGNIZED BY THE RESERVE BANK OF INDIA AS NON-BANK ING FINANCIAL CORPORATION. IT IS OBSERVED THAT THE CO MPANY IS HAVING AN INVESTMENT PORTFOLIO AND ALSO HELD CERTAI N SHARES AS STOCK IN TRADE. THE MATTER WAS PUT BEFORE THE B OARD TO CONVERT THESE SHARES FROM STOCK IN TRADE INTO INVES TMENTS. THE RESOLUTION WAS APPROVED BY THE BOARD AND LATER ON THE APPELLANT HAS FOLLOWED THE SAME METHOD OF VALUATION AT COST PRICE ON PERMANENT BASIS. IT IS OBSERVED FROM THE DETAILS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SH ARES HELD IN STOCK IN TRADE HAVE BEEN CONVERTED INTO INVESTME NTS W.E.F. 1 ST OF APRIL, 2004. THE VALUE OF ACQUISITION HAS BE EN TAKEN TO BE THE MARKET VALUE AS ON 31ST OF MARCH, 2004. I T IS ITA NO. 666/D/2010 6 SUBMITTED BY THE COUNSEL OF THE APPELLANT THAT THE DIFFERENCE BETWEEN PURCHASE PRICE OF THE SCRIP AND THE MARKET VALUE AS ON 31 ST OF MARCH, 2004 HAVE BEEN TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS FOR THE YEAR ENDING AS ON 3 1 ST OF MARCH, 2004. IT IS CLEAR FROM THE BALANCE SHEET FO R THE FINANCIAL YEAR 2003-04 THAT THE MARKET VALUE OF THE SHARES AS ON 31 ST OF MARCH, 2004 HAS BEEN TAKEN INTO ACCOUNT BY WORKING OUT THE CLOSING STOCK OF SHARES AND THIS HA S BEEN TAKEN INTO ACCOUNT FOR WORKING OUT THE PROFITS FOR THAT YEAR. THE MARKET VALUE AS ON 31 ST OF MARCH, 2004 HAS BEEN TAKEN AS THE COST OF ACQUISITION OF THESE SHARES AND THE DIFFERENCE BETWEEN COST OF ACQUISITION AND THE SALE PRICE HAS BEEN OFFERED FOR TAXATION AS INCOME FROM SHORT TERM CA PITAL GAIN. 5.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHE R REFERRED TO ITAT, LUCKNOW BENCH IN THE CASE OF M/S SARNATH INFRASTRUCTURE PVT. LTD. REPORTED IN 120 TTJ 216. CONSIDERING THE SAME THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED AS UNDER:- ADVERTING BACK TO THE FACTS OF THE CASE, IT IS OBS ERVED THAT THE APPELLANT WAS TRADING IN SHARES REGULARLY FOR T HE LAST MANY YEARS. DURING THESE YEARS THE COMPANY WAS TR ADING IN SHARES AS WELL AS HAVING AN INVESTMENT PORTFOL IO. THE SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED FOR TRADI NG AS WELL AS INVESTMENT PORTFOLIO. THE COMPANY DECIDED TO CONVERT THE SHARES HELD IN TRADING PORTFOLIO INTO I NVESTMENTS. THE MATTE WAS PUT BEFORE THE BOARD IN THE ANNUAL GE NERAL MEETING TO CONVERT THE SHARES FROM STOCK IN TRADE T O INVESTMENTS. THIS RESOLUTION WAS APPROVED BY THE BOARD AND THE MARKET VALUE AS ON 31 ST OF MARCH, 2004 WAS TAKEN AS THE COST OF ACQUISITION OF THESE SHARES WERE TRA NSFERRED TO THE INVESTMENT PORTFOLIO. LATER ON THE APPELLANT H AD FOLLOWED THE SAME METHOD OF VALUATION AT COST PRICE ON PERMA NENT BASIS. PART OF THESES SHARES WERE SOLD BY THE APP ELLANT DURING THE YEAR. THE APPELLANT HAD TAKEN THE CLOSI NG VALUE ITA NO. 666/D/2010 7 AS ON 31.3.2004 AS THE COST OF ACQUISITION AND WITH OUT TAKING THE BENEFIT OF INDEXATION, THE DIFFERENCE BETWEEN T HE SALE PRICE AND THE COST OF ACQUISITION HAS BEEN OFFERED FOR TAXATION AS SHORT TERM CAPITAL GAIN. IT IS WORTH ME NTIONING HERE THAT WHEREAS THE SHARES HELD BY THE COMPANY IN THE TRADING ACCOUNT WERE TRANSFERRED TO THE INVESTMENT PORTFOLIO, HOWEVER, THE TRADING IN MUTUAL FUNDS CONTINUES TO B E BUSINESS ACTIVITY OF THE COMPANY. IN VIEW OF THE F ACTS DISCUSSED ABOVE AND DECISION OF THE HONBLE ITAT I N THE CASE OF ACIT VS. BRIGHT STAR INVESTMENT PVT. LTD. A ND M/S SARNATH INFRASTRUCTURE PVT. LTD. IT IS HELD THAT TH E APPELLANT IS A REGULAR INVESTOR AND UNDER NO STRETCH OF IMAGINA TION, IT CAN BE TREATED AS TRADER IN SHARES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. IT IS OBSERVED THAT FROM THE FACTS OF THE CASE SHARES WIL L HELD IN STOCK IN TRADE WERE CONVERTED INTO INVESTMENTS W.E. F. 1.4.2004. THE VALUE OF ACQUISITION HAS BEEN TAKEN TO THE MARKET VALUE AS ON 31.3.2004. THE ASSESSEE HAS FU RTHER CLARIFIED THAT DIFFERENCE BETWEEN PURCHASE PRICE OF THE SCRIP AND THE MARKET VALUE AS ON 31.3.2004 HAVE BEEN TAK EN INTO ACCOUNT WHILE WORKING OUT THE PROFITS FOR THE YEAR ENDING AS ON 31 ST MARCH, 2004. THUS, IT IS CLEAR THAT THE DIFFERE NCE IN VALUE ATTRIBUTABLE TO THE COST AND MARKET PRICE OF THESE SHARES HAVE ALREADY BEEN ACCOUNTED FOR BY THE ASSES SEE. ASSESSEE HAS ALSO BEEN MAINTAINED SEPARATE BOOKS F OR TRADING AND INVESTMENT PORTFOLIOS. THE COMPANY DEC IDED TO CONVERT TRADING PORTFOLIO INTO INVESTMENTS VIDE RE SOLUTION OF THE BOARD IN ANNUAL GENERAL MEETING TO CONVERT THE SHARES FROM STOCK IN TRADE TO INVESTMENTS. THE ASSESSE E HAS TAKEN THE MARKET VALUE ON 31.3.2004 AS THE COST OF THE ACQUISITION WITHOUT TAKING THE BENEFIT OF THE INDE XATION, THE DIFFERENCE BETWEEN THE SALES PRICE AND THE COST OF ACQUISITION HAS BEEN OFFERED FOR TAXATION AS SHORT TERM ITA NO. 666/D/2010 8 CAPITAL GAIN. IN THESE CIRCUMSTANCES, WE DO NOT FI ND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COM MISSIONER OF INCOME TAX (APPEALS) AND WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/02/2011. 7. IN THE AFOREMENTIONED DECISION, BOTH OF US ARE P ARTY, THEREFORE, FOLLOWING THE AFOREMENTIONED DECISION, WE FIND NO I NFIRMITY IN THE RELIEF GIVEN BY THE LD. CIT(A). WE DECLINE TO INTERFERE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30.5.2011 SD/- SD/- (SHAMIM YAHYA) (I.P. BANSAL) ACCOUNTANT MEMBER JUDI CIAL MEMBER DATED: 30.5.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR