Appeal Details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 48800 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 5 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-05-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2004-2005
Appeal Filed On
02-12-2008
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI V.DURGA RAO, JM ITA NO.6870/MUM/2008 : ASST.YEAR 2004-2005 M/S.AL BARR FINANCE HOUSE LIMITED INDIA HOUSE-2, OOMER PARK ESTATE KEMPS CORNER, MUMBAI 400 036. PAN : AAACA3573F. VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 5(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.V.JHAVERI RESPONDENT BY : SHRI SHRAVAN KUMAR O R D E R PER R.S.SYAL (AM) : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 13.10.2008 IN RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. CONCISE GROUNDS HAVE BEEN FILED. FI RST GROUND IS AGAINST THE DENIAL OF DEPRECIATION AMOUNTING TO RS.12,67,828 ON ASSETS LEASED TO M/S.PENTASOFT TECHNOLOGIES LIMITED. SEC OND GROUND IS AGAINST THE C ONFIRMATION OF ADDITION OF RS.18,27,871 BEING INTEREST INCOME IN RESPECT OF LEASE TRANSACTI ONS WITH PENTASOFT TECHNOLOGIES LIMITED. BRIEFLY STATED THE FA CTS OF THE CASE ARE THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY, WHICH, INTE R ALIA, CLAIMED DEPRECIATION ON ASSETS LEASED TO PENTASOFT TECHNOLOGIES LIMITED. THESE LEASE TR ANSACTIONS WERE EFFECTED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2001-2002. IN THAT YEAR THE ASSESSING OFFICER, AFTER CARRYING OUT DETAILED VERIFICATION AND I NVESTIGATION, CAME TO THE CONCLUSION THAT THESE TRANSACTIONS WERE NOT GENUINE LEASE TRANSACTIONS BUT MERE FINANCE TRANSACTIONS. FOLLOW ING THE VIEW TAKEN BY THE ASSE SSING OFFICER IN EARLIER YEARS, HE DISALLOWED THE CLAIM FOR DEPREC IATION AND CHARGED TO TAX THE INTEREST AMOUNTING TO RS.18.27 LAKHS IN THE INSTANT YEAR. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. ITA NO.6870/MUM/2008 M/S.AL BARR FINANCE HOUSE LIMITED. 2 3. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE PLACED ON RECORD COPY OF ORDER PASSED BY THE TRIBUNAL IN THE IMME DIATELY PRECEDING ASSESSMENT YEAR I.E. 2003-2004 IN ITA NO.4645/MUM/2006 VIDE WH ICH SIMILAR ISSUE H AS BEEN RESTORED TO THE FILE OF A.O. WITH THE DIRECTIONS GIVEN IDENTICAL TO T HOSE WHICH WERE GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002-2003. THE LEARNED COUNSE L FOR THE ASSESSEE INVITED OUR ATTENTION TOWARDS THE ORDER PASSED BY THE ASSESSING OFFICER PURSUANT TO SUCH DIRECTIONS OF THE TRIBUNAL. COPY OF THE ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2003-2004 U/S.254 R.W.S. 143( 3) IS PLACED AT PAGES 76 AND 77 OF THE PAPER BOOK. AS PER THIS ASSESSMENT OR DER, THE GENUINENESS OF OPERATING LEASE TO PENTASOFT TECHNOLOGIES LIMITED HAS BEEN ACCEPTED FOLLOWING THE ORDER OF THE A.O. PASSED U/S.254 R.W.S. 143(3) FOR A SSESSMENT YEARS 2001- 2002 AND 2002-2003, COPIES OF WHICH ARE ALSO AVAILABLE AT PA GES 68 ONWARDS OF THE PAPER BOOK. IN THE LIGHT OF THESE ASSESSMENT ORDERS PASSED PURSUANT TO THE TRIBUNAL ORDERS FOR THE AFORENOTED EARLIER YEARS, IT BECOMES CLEAR THAT THE LEASE TRANSAC TIONS WITH PENTASOFT TECHNOLOGIES LIMITED UNDERTAKEN IN THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-2002 HAVE NOW BE EN ACCEPTED BY THE DEPAR TMENT AS GENUINE AND OPERATING LEASE. IN THAT VIEW OF THE MA TTER THE CLAIM OF DEPRECIATION IS TO BE ALLOWED WHEREAS THE INTEREST HYPOTHECATION CHARGED BY THE ASSESSING OFFICER IS TO BE DELETED. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND DIRECT THE AO TO ALLOW DEPRECIATION AND NOT CHARGE THE SAID INTEREST . AT THE SAME TIME IT IS ALSO DIRECTED THAT SINCE THE GENUINENESS OF OPERATING LE ASE HAS BEEN ACCEPTED, THE LEASE RENT RECEIVED BY THE ASSESSEE SHOULD BE BROUGHT TO TAX, THAT MAY HAVE BEEN IGNORED BY THE ASSESSING OFFICER WHILE PASSING THE ORIGINAL ASSESSMENT ORDER U/S.143(3) ON THE PREMISE THAT THE LEASING TRANSACTIONS WERE HE LD BY HIM TO BE OF FINANCIAL NATURE. WE ORDER ACCORDINGLY. 4. THE ONLY OTHER GROUND IS AGAINST LOSS OF RS.6,27,676 ON PURCHASE AND SALE OF SHARES WHICH HAS BEEN HELD BY THE LEARNED CIT(A) TO BE SPECULATION LOSS. THE FACTS OF THIS GROUND ARE THAT TH E ASSESSEE WAS ENGAGED IN THE BUSINESS OF NON-BANKING FINANCE COMPANY. A SUM OF RS.6,27,676 BEING LOSS ON SALE OF INVESTMENT WAS ITA NO.6870/MUM/2008 M/S.AL BARR FINANCE HOUSE LIMITED. 3 DEBITED TO THE PROFIT AND LOSS ACCOUNT. ON BEING CALLED UPON TO EXPLAIN AS TO HOW THIS LOSS WAS DEDUCTIBLE, THE ASSESSEE STATED THAT THE POLICY OF TREATING PROFIT AND LOSS ON INVESTMENT OF SHARES AS BUSINESS PROFIT OR BUSINESS LOSS WAS CONSISTENTLY FOLLOWED BY IT. NOT CONVINCED, THE ASSESSING OFFICER HELD THAT LOSS FROM SALE OF SECURITIES / SHARES IS NOTHING BUT, CAPITAL LOSS AND NOT BUSINESS LOSS . RESULTANTLY THIS AMOUNT WAS ADDED BACK TO THE TOTAL INCOME. WHEN THE MATTER CAME UP BEFORE THE LEARNED CIT(A), HE CAME TO THE CONCLU SION THAT THE PROFIT OR LOSS FROM THE SALE OF CURRENT INVESTMENT WAS TO BE TREATED AS BUSINESS PROFIT OR LOSS ONLY. HE HOWEVER INVOKED THE PROVISIONS OF EXPLANATION TO SECTION 73 AND CAME TO THE CONCLUSION THAT IT WOULD RESULT INTO A SPECULATION LO SS AS THE CASE OF THE ASSESSEE WAS NOT COVERED BY EXCEPTIONS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IN ORDER TO APPRECIATE THE RIVAL SU BMISSIONS IT IS NECESSARY TO TAKE NOTE OF THE PROVISIONS OF EXPLANATION TO SECTION 73 WHIC H READS AS UNDER:- WHERE ANY PART OF THE BUSINE SS OF A COMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTERES T ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES, OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. (EMPHASIS SUPPLIED BY US) 6. A SIMPLE READ ING OF THE ABOVE EXPLANATION BRINGS TO LIGHT THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER TH AN A COMPANY, THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR GRANTING OF LOANS ETC. CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER CO MPANIES, SUCH COMPANY SHA LL, FOR THE PURPOSE OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SP ECULATION BUSINESS TO THE EXTENT TO WHICH ITA NO.6870/MUM/2008 M/S.AL BARR FINANCE HOUSE LIMITED. 4 THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHAR ES. TO PUT IT IN SIMPLE WORDS THE BUSINESS OF PURCHASE AND SALE OF SHARES SHALL NOT BE DEEMED AS SPECULATION BUSINESS WHERE THE COMPANY IS ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES OR ITS PRIN CIPAL BUSINESS IS THAT OF TH E BUSINESS OF BANKING. FROM THE ASSESSMENT ORDER IT CAN BE SEEN THAT THE ASSESSING OF FICER HAS MENTIONED IN THE TITLES ITSELF AS NON-BANKI NG FINANCE COMPANY AGAINS T THE HEADING NATURE OF BUSINESS OF THE ASSESS EE. AGAIN IN PARA 3 THE A.O. HAS MENTIONED THAT THE ASSESSEE IS A NON-BANKING FINANCE COMP ANY. THE SAME THING HAS BEEN REPEATED AGAIN IN PARA 6.1 OF THE ASSESSMENT ORDER. IT SHOWS THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVA NCES. EVEN FROM THE PROFIT AND LOSS ACCOUNT IT CAN BE SEEN THAT THE ASSESSE E HAS EARNED FEES, FINANCE & SERV ICE CHARGES TO THE TUNE OF RS.50,83,750. IN THE LIGHT OF THESE FACTS IT BECOMES APPARENT TH AT THE CASE OF THE ASSESSEE FALLS WITHIN THE EXCEPTION OF SECTION 73 IN ASMUCH AS THE PRINCIPAL BUSINESS OF THE COMPANY WAS THAT OF GRANTING OF LOANS AND ADVA NCES. IN THAT VIEW OF THE MATTER THE LOSS FROM THE SALE AND PURCH ASE OF SHARES AMOUNTING TO RS.6.27 LAKHS SHALL BE REGARDED AS BUSINESS LOSS AND NOT SPECULATION LOSS. OUR VIEW IS FORTIFIED BY THE SPECIAL BENCH ORDER IN THE CASE OF DCIT VS. VE NKATESWAR INVESTMENT AND FINANCE P. LTD. (2005) 277 ITR (AT) 20 (KOL KATA). THE IMPUGNED ORDER IS SET ASIDE TO THIS EXTENT. 7. IN THE RESULT, THE AP PEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 4 TH DAY OF MAY, 2011. SD/- SD/- (V.DURGA RAO) JUDICIAL MEMBER (R.S.SYAL) ACCOUNTANT MEMBER MUMBAI : 4 TH MAY, 2011. DEVDAS* ITA NO.6870/MUM/2008 M/S.AL BARR FINANCE HOUSE LIMITED. 5 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - V, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.
