DCIT 9(1), MUMBAI V. ADD IT CAPITAL & CREDIT P. LTD, MUMBAI

ITA 6907/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8440 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 04-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY KOTHARI

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 6907/MUM/2010 ASSESSMENT YEAR 2005-06 D.C.I.T. RG. 9(1), R.NO. 223, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20. VS. M/S. ADD IT CAPITAL & CREDIT P. LTD., LA MANSION, 10 TH ROAD, KHAR (W), MUMBAI 400 050 PAN: AADCA 3426 C ( / APPELLANT ) ( ! / RESPONDENT ) REVENUE BY : SHRI MANOJ KUMAR ASSESSEE BY : SHRI VIJAY KOTHARI ' # $% / DATE OF HEARING : 04-10-2012 &'( # $% / DATE OF PRONOUNCEMENT : 23-10-2012 ) / O R D E R PER RAJENDRA, AM THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT . 19-07-2010 PASSED BY THE CIT(A)-19, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSING OFFICER (AO): 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT PROFIT ON SALE OF SHARES AND UNITS OF RS. 21,22,736/- WAS TAXABLE UNDER THE HEAD LONG TERM CAPITAL GAIN AS AGAINST PROFI TS AND GAINS OF BUSINESS AS HELD BY THE ASSESSING OFFICER, DESPITE EVIDENCE AVA ILABLE ON RECORD SHOW THAT THE ASSESSEE HAD BORROWED FUNDS TO INVEST IN SHARES AND UNITS UNDER REFERENCE AND THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE PORTFOLIO FOR INVESTMENT AND TRADING. 2.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. I.TA. NO. 6907/MUM/2010 M/S. ADD IT CAPITAL & CREDIT P. LTD., 2 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF FINANC ING AND DEALING IN SHARES, FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCOME OF RS. 21.22 LAKHS. ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT U/S .144 OF THE INCOME-TAX ACT, 1961(ACT) ON 22.11.2007 DETERMINING THE TOTAL INCOM E AT RS. 27.82 LAKHS. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE-COMPANY HAD SHOWN PROFIT ON REDEMPTION OF MUTUAL FUNDS AMOUNTIN G TO RS. 27,95,191/- INCOME FROM FINANCING ACTIVITIES AT RS. 4,20,357/-. AS P ER THE AO, INCOME RECEIVED BY THE ASSESSEE-COMPANY ON REDEMPTION OF MUTUAL FUND WAS INCOME FROM BUSINESS AND WAS NOT INCOME FROM LONG TERM CAPITAL GAIN AS CLA IMED BY THE ASSESSEE. AO HELD THAT THE APPELLANT WAS DEALING IN SHARES AND THE PR OFITS ARRIVED AT FROM THE PURCHASE AND SALE OF SHARES HAD TO BE TREATED AS INCOME FRO M BUSINESS. 3. AGAINST THE ADDITIONS MADE BY THE AO, ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE- COMPANY AND THE ASSESSMENT ORDER, FAA HELD THAT APP ELLANT HAD FILED A COPY OF THE ANNUAL ACCOUNTS BEFORE HIM FOR THE RELEVANT ASSESSM ENT YEAR (AY), THAT THE TRANSACTION IN QUESTION WERE IN NATURE OF APPLICATI ON IN THE IPO/INITIAL OFFERS FOR SALE OF UNITS OF THE FOLLOWING MUTUAL FUND: DATE NAME OF THE FUND AMOUNT RS. 29 - 03 - 2005 RELIANCE EQUITY OPPORTUNITY FUND 39,00,000/ - 31-12-2004 TATA INFRASTRUCTURE FUND 35,00,000/- 06-11-2003 KOTAK LIQUID INSTITUTIONS 1,50,00,000/- 30-01-2004 KOTAK GLOBAL INDIA 20,00,000/- 02-03-2005 FRANKLIN TEMPLETON 30,00,000/- FAA FURTHER HELD THAT THE TOTAL AMOUNT RECEIVED BY THE APPELLANT ON REDEMPTION OF THE UNITS OF MUTUAL FUND WAS AS UNDER : DATE NAME OF THE PARTY AMOUNT RS. 14-12-2004 KOTAK LIQUID REGULAR 27,76,986/- 14-12-2004 KOTAK LIQUID (INSTITUTIONAL) 7,34,000/- 15-01-2004 KOTAK LIQUID (INSTITUTIONAL) 20,00,000/- 04-03-2005 KOTAL-30-GROWTH 40,08,707/- 09-02-2005 KOTAK LIQUID REGULAR 50,00,000/- 3.1 CONSIDERING THE ABOVE FACTS, FAA ARRIVED AT THE CON CLUSION THAT APART FROM THE AFORESAID PURCHASE IN OPEN OFFER OF THE UNITS AND R EDEMPTION OF UNITS OF AFORESAID MUTUAL FUNDS-THERE WERE NO OTHER TRANSACTIONS, THAT THE LIST OF INVESTMENT MUTUAL FUND WAS PLACED BEFORE THE AO AS PER THE LETTER DT. 18-1 0-2007, THAT APART FROM THE TRANSACTION OF PURCHASE AND REDEMPTION OF UNITS OF MUTUAL FUND, THE OTHER TRANSACTIONS WERE ONLY ON ACCOUNT OF DIVIDEND RE-INVESTMENT. FA A FINALLY HELD THAT UNITS OF MUTUAL FUND WERE NOT TRADING TRANSACTIONS, THAT TH E GAIN ARISING ON TRANSACTION OF UNITS OF MUTUAL FUND WAS INCOME ASSESSABLE UNDER THE HEAD SHORT TERM CAPITAL GAIN, THAT IN THE CASE UNDER CONSIDERATION, THE ENTIRE DISPUTE AROSE SINCE THE AO HAD CONSTRUED THE PURCHASE/REDEMPTION OF UNITS OF MUTUAL FUND AS TRANSACTION RELATING TO PURCHASE AND SALE OF SHARES. APPEAL FILED BY THE ASSESSEE-C OMPANY WAS ALLOWED BY THE FAA. I.TA. NO. 6907/MUM/2010 M/S. ADD IT CAPITAL & CREDIT P. LTD., 3 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE AO. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT DURIN G THE YEAR UNDER CONSIDERATION, ASSESSEE-COMPANY HAD NEITHER SOLD OR PURCHASED ANY SHARES, THAT ALL THE TRANSACTIONS WERE RELATED TO PURCHASE/REDEMPTION OF MUTUAL FUNDS , THAT EXCEPT FOR ONE REDEMPTION IN THE YEAR UNDER CONSIDERATION ALL OTHER INVESTMEN TS WERE CARRIED FORWARD. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUG H THE MATERIAL BEFORE US. IN OUR OPINION, FAA HAD RIGHTLY POINTED OUT THAT TH E ROOT CAUSE OF THE CONTROVERSY WAS THAT AO HELD THE PURCHASE/REDEMPTION OF UNITS OF MU TUAL FUND AS PURCHASE AND SALE OF SHARES. WE ENTIRELY AGREE WITH THE FAA THAT PURCHA SE/INVESTMENT AND REDEMPTION OF UNITS OF MUTUAL FUND CANNOT BE EQUATED WITH CARRYIN G OUT OF BUSINESS. AS THE ASSESSEE HAD ONLY PURCHASED/REDEEMED UNITS OF MFS, INCOME ARISING FROM SUCH TRANSACTION HAS TO BE ASSESSED UNDER THE HEAD SHORT TERM CAPITAL GAINS. UPHOLDING THE ORDER OF THE FAA WE DISMISS THE GROUNDS OF APPE AL FILED BY THE AO. AS A RESULT, APPEAL FILED BY THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, *' DATE: 23 RD OCTOBER, 2012 TNMM ) ) ) ) # ## # $+ $+ $+ $+ ,+($ ,+($ ,+($ ,+($ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR A BENCH, ITAT, MUMBAI 6. GUARD FILE !+$ $ //TRUE COPY// )' )' )' )' / BY ORDER, - -- - / . . . . DY./ASSTT. REGISTRAR , / ITAT, MUMBAI