NIPUN FINVEST P. LTD, MUMBAI V. ITO 10(3)2), MUMBAI

ITA 6718/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84363 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 26-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-09-2010
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV SR
• Keywords: Capital asset; Business income; Opportunity of being heard; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO. 6718/M/2010 ( AY: 2007 - 2008 ) ./I.T.A. NO. 3374/M/2011 ( AY: 2009 - 2010 ) M/S. NIPUN FINVEST PRIVATE LIMITED, 217 RUNWAL COMM. COMPLEX, LBS MARG, MULUND (W), MUMBAI. / VS. ITO - 10(3)(2), MUMBAI. ./ PAN : AAFPD 8678 Q ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DEVENDRA JAIN / RESPONDENT BY : SHRI AKHILENDRA YADAV, SR. AR / DATE OF HEARING : 26.11.2014 / DATE OF PRONOUNCEMENT : 26.11.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. BOTH THE APPEALS ARE FILED BY THE ASSESSEE INVOLVING THE ASSESSMENT YEARS 2007 - 2008 AND 2009 - 2010. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CL UBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE SUCCEEDING PARAGRAPHS OF THIS ORDER. 2. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE REVISED / CONCISED GROUNDS / ADDITIONAL GROUNDS, THREE GROUND IN TOTO, AND MENTIONED THAT THE GROUNDS HAVE TO DECIDE EITHER BASED ON THE ORDER OF THE TRIBUNAL FOR THE AY 2006 - 07 VIDE ITA NO.575/M/2010, DATED 15.2.2011 OR REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICA TION WITH REFERENCE TO THE ADDITIONAL GROUNDS. THE SAID SUMMARIZED GROUNDS READ AS UNDER: 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER BY TREATING THE INCOME O F RS. 37,97,056/ - (LTCG) AND RS. 26,246/ - (STCG) FROM INVESTMENTS AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER RULE 8D OF RS,. 12 ,54,184/ - . 3. WITHOUT PREJUDICE TO GROUND NO.1, IT IS SUBMITTED THAT ONLY GAINS ARISING OUT OF THE SALE OF SHARES CONVERTED FROM STOCK IN TRADE MAY B E TREATED AS BUSINESS INCOME. THE GAINS ARISING FROM SHARES PURCHASED AFTER 1.4.2005 SHOULD BE TREATED AS CAPITAL GAINS SINCE THEY WERE ALWAYS TREATED AS CAPITAL ASSET RIGHT FROM THE DATE OF PURCHASE. 4. WITHOUT PREJUDICE TO GROUND NO.2, IT IS SUBMITTED THAT THE ASSESSING OFFICER, FOR THE PURPOSE OF GROUND NO.1 MENTIONED ABOVE TREATED ALL THE SHARES AS STOCK IN TRADE. HOWEVER, FOR THE PURPOSE OF APPLYING THE RULE 8D, HE TREATED ALL THE SHARES AS INVESTMENT. HENCE, THE ASSESSING OFFICER IS CONTRADICTING HIS OWN STAND. IN VIEW OF THIS, THE DISALLOWANCE U/S 14A SHOULD BE DELETED. 3. BRIEFLY STATED RELEVAN T FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT IN SHARES AS MENTIONED IN THE ASSESSMENT ORDER. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE LOSS OF RS. 8,349/ - FOR THE AY 2007 - 2008. ASSESSMENT WAS COMP LETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 50, 58,410/ - . DURING THE AY UNDER CONSIDERATION, ASSESSEE CONVERTED HIS SHARES (HELD AS STOCK - IN - TRADE) INTO INVESTMENT. IN SUPPORT OF THE SAME, ASSESSEE FURNISHED A BOARD RESOLUTIO N DATED 15.3.2005. ACCORDINGLY, THE INCOME EARNED ON SALE OF SUCH CONVERTED SHARES WAS SHOWN AS CAPITAL GAINS IN THE ASSESSMENT YEAR 2006 - 2007. THIS ISSUE OF OFFERING THE GAINS UNDER THE HEAD CAPITAL GAINS TRAVELLED TO THE TRIBUNAL AND THE ITAT REJECTE D THE ASSESSEES CLAIM. IN THAT YEAR, ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE AND TAXED THE SAME UNDER THE HEAD BUSINESS INCOME. PARAS 4 TO 7 OF THE TRIBUNALS ORDER (SUPRA) ARE RELEVANT IN THIS REGARD. IN VIEW OF ITS IMPORTANCE, PARA 7 O F THE SAID ORDER OF THE TRIBUNAL DATED 15.2.2011 IS REPRODUCED HERE WHICH READS AS UNDER: 7. IN VIEW OF THE ABOVE DISCUSSIONS AND HAVING NOTED THAT THERE IS NO CHANGE IN ACTIVITY LEVEL OR CHARACTER IN THE PRESENT YEAR AND THAT THE ASSESSEE HAS BEEN A TRAD ER IN SHARES ALL ALONG, WE UPHOLD THE ORDERS OF THE AUTHORITIES BELOW. GAINS ON SALE OF SHARES, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HAVE BEEN RIGHTLY TAXED AS BUSINESS INCOME. WE DECLINE TO INTERFERE IN THE MATTER. 4. ASSESSEE ACCEPTED TH E SAID ORDER OF THE TRIBUNAL THEREBY THE SAID CONVERSION OF SHARES INTO INVESTMENT STANDS REVERSED. SOME OF THOSE SHARES WERE NOW SOLD DURING THE AY UNDER CONSIDERATION (AY 2007 - 2008). CONSIDERING THE DECISION OF THE TRIBUNAL (SUPRA) ON THIS ISSUE AS WEL L AS FOR MAINTAINING THE PRINCIPLE OF CONSISTENCY, 3 WE ARE OF THE OPINION, THE PROFITS RELATABLE TO SUCH SHARES IS REQUIRED TO BE CHARGED TO TAX UNDER THE HEAD BUSINESS INCOME. ACCORDINGLY, ASSESSEES CLAIM OF OFFERING THE SAME AS CAPITAL GAINS IS DISA LLOWED. THUS, THE ISSUE RAISED IN BOTH THE APPEALS VIDE GROUND NO.1 IS DISMISSED. 5. GROUND NO.3, BEING ADDITIONAL GROUND, IS RAISED FOR THE FIRST TIME BEFORE US AND IT RELATES TO THE CHARGING CAPITAL ASSETS TO TAX UNDER THE PROPER HEAD OF INCOME WHEN THE GAINS ARE CONNECTED TO THE SHARES PURCHASED AFTER 1.4.2005 AND NOT HIT BY THE DECISION O N T H E ABOVE REFERRED CONVERSION OF THE SHARES INTO INVESTMENTS. AFTER HEARING BOTH THE PARTIES ON THIS ISSUE, WE ADMIT THAT THE SAI D GROUND BEING LEGAL IN NATURE , A N D REMAND THIS ISSUE THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE REMAND PROCEEDINGS, ASSESSING OFFICER SHALL N O T E THAT WHETHER THE ASSESSEE PURCHASED THE SHARES AFTER 1.4.2005 , RECORDED THE SAME AS INVESTMENT IN THEIR BOOKS OF ACCOUNT INVESTMENT AND THE SAME ARE R E Q U I R E D T O B E D E A L T W I T H D I F F E R E N T L Y . ACCORDINGLY, GROUND NO.3 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NOS.2 AND 4 RELATE TO THE DISALLOWANCE UNDER RULE 8D. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2007 - 2008 AND THE ASSESSEE OFFERED FOR DISALLOWANCE U/S 14A AN AMOUNT OF RS. 1,22,220/ - WHICH CONSTITUTE 12% OF THE EXEMPT INCOME OF RS. 10,24,629/ - . RE FERRING TO THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 , WHEREIN IT WAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE FOR THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE FACTUAL MATRIX OF THE PRESENT CASE, WE ARE OF THE OPINION THAT THE DISALLOWANCE MADE BY THE ASSESSEE IN THE RETURN OF INCOME IS A REASONABLE PERCENTAGE AND THEREFORE, THE ORDERS OF THE ASSESSING OFFICER / CIT (A) IN THIS REGARD ARE REQUIRED TO BE REVERSED. ACCORDINGLY, GROUND NOS. 2 AND 4 RAISED BY THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4 ITA NO.3374/M/2011 (AY 2009 - 2010) (BY ASSESSEE) 8. THIS APPEAL FILED BY THE ASSESSEE ON 14.5.2012 IS AGAINST THE ORDER OF THE CIT (A) - 22, MUMBAI DATED 13.2.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. 9. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER BY TREATING THE INCOME FROM INVESTMENT IN SHARES AND SECURITIES BEING SHORT TERM CAPITAL LOSS OF RS. 7, 69,679/ - AS BUSINESS INCOME INSTEAD OF INCOME FROM CAPITAL GAINS. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN HOLDING THE INCOME FROM INVESTMENT IN SHARES AND SECURITIES BEING EXEMPT LONG TERM CAPITAL GAIN OF RS. 32,34,469/ - AND LONG TERM CAPITAL LOSS OF RS. 48,681/ - AS BUSINESS INCOME INSTEAD OF INCOME FROM CAPITAL GAINS. 3. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, IT IS SUBMITTED THAT ONLY GAINS ARISING OUT OF THE SALE OF SHARES CONVERTED FROM STOCK IN TRADE SHOULD BE TREATED AS BUSINESS INCOME. THE GAINS ARISING FROM SHARES PURCHASED AFTER 1.4.2005 SHOULD BE TREATED AS CAPITAL GAINS SINCE THEY WERE ALWAYS TREATED AS CAP ITAL ASSET RIGHT FROM THE DATE OF PURCHASE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER RULE 8D OF RS.1,80,308/ - . 5. WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED THAT THE ASSESSING OFFICER, FOR THE PURPOSE OF GROUND NO.1 MENTIONED ABOVE TREATED ALL THE SHARES AS STOCK IN TRADE. HOWEVER, FOR THE PURPOSE OF APPLYING RULE 8D, HE TREATED ALL THE SHARES AS INVESTMENT. HENCE, THE ASSESSING OFFICER IS CONTRADICTING HIS OWN STAND. IN VIEW OF THIS, THE DISALLOWANCE U/S 14A SHOULD BE DELETED. 10. THE ABOVE RAISED BY THE ASSESSEE ARE EXACTLY IDENTICAL TO THAT OF THE GROUNDS RAISED FOR THE AY 2007 - 08. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS FOR BOTH THE AYS, THEREFORE, OUR DECISION GIV EN IN APPEAL ITA NO. 6718/M/2011 SQUARELY APPLIES TO THE PRESENT APPEAL TOO. CONSIDERING THE SAME AND APPLYING THE SAME DECISONS , GROUND NO.1 AND 2 ARE DISMISSED. GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS. 4 & 5 ARE ALLOWED . 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOU NCED IN THE OPEN COURT ON 2 6 T H NOVEMBER, 2014. S D / - S D / - ( AMIT SHUKLA ) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 2 6 /11/2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 5 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI