M/s Ess Ess Exim Private Limited, Chandigarh V. DCIT, Chandigarh

ITA 720/CHANDI/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5216 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 07-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Search and seizure; Principle of natural justice; Wrong claim; Sham transactions
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACOCUNTANT MEMBER ITA NOS. 712 & 713/CHD/2016 ASSESSMENT YEARS: 2005-06 & 2006-07 M/S EMM BEE FINCAP PRIVATE LTD., VS. THE DCIT, CC- 1, CHANDIGARH CHANDIGARH PAN NO. AABCE1496Q ITA NO. 720/CHD/2056 ASSESSMENT YEARS: 2008-09 M/S ESS ESS EXIM PRIVATE LTD., VS. THE DCIT, CC-1 , CHANDIGARH CHANDIGARH PAN NO. AABCE1490J (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ALOK KRISHAN RESPONDENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 07.02.2017 DATE OF PRONOUNCEMENT : 17.04.2017 ORDER PER ANNAPURNA GUPTA, AM ALL THE ABOVE THREE APPEALS HAVE BEEN FILED BY TWO DIFFERENT ASSESSEES. SINCE THE ISSUE INVOLVED IN ALL THE THREE APPEALS WAS COM MON, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS C OMMON ORDER. 2. AT THE OUTSET, IT MAY BE STATED THAT DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE MADE ARGUMENTS REL ATING TO ONLY ONE GROUND OUT OF SEVERAL GROUNDS RAISED BEFORE US AND THE SAID GR OUND WAS COMMON IN ALL THE 2 THREE APPEALS. THE REST OF THE GROUNDS RAISED IN AL L THE THREE APPEALS WERE NOT PRESSED BEFORE US AND, THEREFORE, THE SAME ARE BEIN G TREATED AS DISMISSED. 3. FOR THE SAKE OF CONVENIENCE WE SHALL BE DEALING WITH THE FACTS IN THE CASE OF APPEAL FILED IN ITA NO. 712/CHD/2015 RELATING TO ASSESSMENT YEAR 2005-06 IN THE CASE OF MS. EMM BEE FINCAP PVT.LTD, CHANDIGARH. THE ASSESSEE IN THE PRESENT APPEAL HAS RAISED THE FOLLOWING GROUNDS:- 1.1 THAT WITHIN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND THE LAW ON THE POINT THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX (OSD), GURGAON WITH CHARGE OF CIT (APPEALS) - 3, GURGAON (LEARNED CIT(A }) HAS ERRED IN CONFIRMING THE ORDER PASSED BY THE LEA RNED DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - , CHANDIGARH (LEARNED DOT) UNDER SECTION 153A(L)(B) R.W.S 143(3} OF THE INCOME TAX ACT, 1961(ACT) FOR ASSESSMENT YEAR 2005-2006 WHICH ORDER HAS BEEN PASSED WITHOUT JURISDICTION, IS BAD IN LAW AND DESE RVES TO BE SET ASIDE. 1.2 THAT WITHIN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW ON THE POINT THE LEARNED CIT(A) HAS ERRED I N REJECTING THO CONTENTION OF THE APPELLANT THAT THE ORDER PASSED BY THE LEARNED AO UNDER SECTION 153A(L){B) R.W.S 143(3) OF THE ACT IS BAD AND LIABLE TO BE QUASHED AS THE SAME HAS BEEN FRAMED WITHOUT SEARCH AND SEIZURE CARRIED OUT ON THE APPEL LANT WHICH ITSELF WAS UNLAWFUL AND INVALID IN LAW. 2. THAT WITHIN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW ON THE POINT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSMENT OF THE LEARNED DCIT IN TREATING CAPITAL GAINS OF RS. 1,14,77,193.00.00 FRO M SALE OF SHARES LISTED ON STOCK EXCHANGES ON SALE WHEREOF SECURITIES TRANSACTION TAX WAS PAID AS BUSI NESS INCOME INSTEAD OF LONG TERM CAPITAL GAINS AS WAS CHARGEABLE AND SO OFFERED FOR TAXATION, AND THUS TH E LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ASSESSMEN T 3 WHICH HAS BROUGHT TO TAX AN INCOME OF THE APPELLANT EXEMPT FROM INCOME TAX UNDER SECTION 10(38) OF THE ACT WITHOUT APPRECIATING THE EXPLANATION AND JUSTIFICAT ION GIVEN BY THE APPELLANT THAT THE SALE OF SHARES WAS ON DELIVERY BASIS AND THE SAID SHARES WERE INVESTMENTS OF THE APPELLANT HELD FOR ABOUT 5 YEARS, AND THUS, TH E ADDITION WAS UNJUSTIFIED AND UNWARRANTED. 3. THAT WITHIN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW ON THE POINT THE LEARNED CIT(A) HAS ERRED I N DISMISSING THE APPEAL OF THE APPELLANT WITHOUT HAVI NG AFFORDED AN ADEQUATE OPPORTUNITY TO THE APPELLANT T O PROVIDE EXPLANATION ON ISSUES RELIED UPON BY THE LEARNED CIT(A) IN FORMING THE DECISION, WHICH IS AGAINST THE PRINCIPAL OF NATURAL JUSTICE AND HAVE B EEN DECIDED IN HASTE, AND THAT FOR SUCH REASONS THE IMPUGNED ORDER IS BAD IN LAW AND DESERVES TO BE SET ASIDE AND BE REMANDED BACK TO THE LEARNED DCIT OR T HE LEARNED CIT(A) TO BE DECIDED AFRESH, 4. THAT THE GROUNDS OF APPEAL SUBMITTED HEREINABOVE AR E WITHOUT PREJUDICE TO ONE ANOTHER IN SUCH CASES AND CIRCUMSTANCES WHEREVER THE CONTEXT SO REQUIRES. 5. THAT THE APPELLANT RESERVES ITS RIGHTS TO ADVANCE S UCH OTHER GROUNDS BEFORE OR AT THE HEARING, WHICH IT MA Y CONSIDER FIT AND APPROPRIATE, FOR WHICH IT CRAVES L EAVE TO AMEND, ALTER OR OTHERWISE MODIFY THE GROUND(S) APPEARING HEREINBEFORE. 4. AS STATED ABOVE, ARGUMENTS WERE MADE BEFORE US O NLY IN RELATION TO GROUND NO.2 RAISED BEFORE US. THE REST OF THE GROUN DS WERE NOT PRESSED AND ARE THEREFORE, BEING TREATED AS DISMISSED. THUS, GROUND NOS. 1.1, 1.2, 3, 4 AND 5 ARE DISMISSED. 5. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE TREATMENT OF THE GAINS EARNED FROM THE SALE OF SHARES AMOUNTING TO RS. 1,1 4,77,193/- AS BUSINESS INCOME OF THE ASSESSEE AS AGAINST CAPITAL GAINS RET URNED BY THE ASSESSEE. 4 6. BRIEF FACTS RELATING TO THE ISSUE ARE THAT IN TH E COMPUTATION OF INCOME FILED WITH THE RETURN OF INCOME, THE ASSESSEE HAD DECLARE D LONG TERM CAPITAL GAIN AS EXEMPT U/S 10(38) OF THE ACT TO THE TUNE OF RS. 1,1 4,77,193/-. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE A SSESSEE WAS INVOLVED IN NO OTHER BUSINESS ACTIVITIES OTHER THAN TRANSACTIONS IN SHARES. HE FURTHER OBSERVED THAT THIS WAS ITS PRIMARY BUSINESS SINCE ITS INCEPT ION,. FURTHER, NO EVIDENCE OR DOCUMENTS TO SUPPORT ITS CLAIM OF THE SAME BEING IN VESTMENTS WERE FOUND TO HAVE BEEN FURNISHED BY THE ASSESSING OFFICER. THUS THE ASSESSING OFFICER WAS PERSUADED TO TREAT THE ENTIRE SHARE TRANSACTIONS AS BUSINESS ACTIVITY. WHILE COMING TO THIS CONCLUSION, THE ASSESSING OFFICER NO TED THAT THE TRANSACTION OF SHARES WERE BEING CONTINUOUSLY AND SYSTEMATICALLY U NDERTAKEN YEAR FROM YEAR SINCE INCEPTION, INVOLVING TREMENDOUS VOLUME WHICH POINTED OUT TO A PROFIT MOTIVE. THE ASSESSING OFFICER MENTIONED THAT NEITHE R THE DETAILS OF PURCHASE AND SALE OF SHARES NOR PROOF OF THE SAME BEING IN THE N ATURE OF INVESTMENT OR STOCK IN TRADE (REFERRED TO CBDT CIRCULAR NO. 4 OF 2007 DATE D 15.6.2007) AS ALSO THE MANNER AND MODE OF THE TRANSACTIONS WERE PROVIDED N OR WERE BOOKS OF ACCOUNT FOR ANY OF THE YEARS UNDER ASSESSMENT WERE PRODUCED FOR VERIFICATION. THE ASSESSING OFFICER THEREFORE, HELD THAT THE ENTIRE S HARE TRANSACTIONS AS BUSINESS ACTIVITY AND TREATED THE GAINS EARNED THEREON AS TH E BUSINESS INCOME OF THE ASSESSEE AND ADDED BACK THE SAME TO THE TAXABLE INC OME OF THE ASSESSEE MAKING AN ADDITION OF RS. 1,14,77,193/- IN THE PROCESS. TH E LD. CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER. 7. AGGRIEVED BY THE SAME THE ASSESSEE HAS NOW COME UP IN APPEAL BEFORE US. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO CIRCULAR NO. 6 OF 2016 ISSUED BY CBDT AND POINTED OUT THAT CBDT IN THE SAID CIRCULAR HAD GIVEN INSTRUCTIONS THAT IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING TO THE DATE OF ITS TRANSFER, THE ASSESSEE AT ITS OPT ION CAN TREAT THE INCOME ARRIVED THEREFROM AS CAPITAL GAIN WHICH SHALL NOT BE DISPUT ED BY THE ASSESSING OFFICER. 5 THE LD. COUNSEL STATED THAT ACCORDINGLY, AS PER THE SAID ORDER AND STANDING INSTRUCTIONS GIVEN BY THE CBDT, THE ASSESSEE HAVING OPTED TO TREAT THE INCOME EARNED FROM SALE OF SHARES AS CAPITAL GAINS, THE SA ME COULD NOT BE DISPUTED BY THE ASSESSING OFFICER. 8. THE LD. DR DID NOT DISPUTE THE SAID CIRCULAR. 9. WE HAVE HEARD THE LD. REPRESENTATIVES AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW AND GONE THROUGH THE DOCUMENTS RE LIED UPON BEFORE US. ON GOING THROUGH THE CBDT CIRCULAR NO. 6 / 2016 DATED 29.2.2016, THE SUBJECT OF WHICH IS RELATING TO THE ISSUE OF TAXABILITY OF TH E SURPLUS ON SALE OF SHARES AND SECURITIES, WHETHER CAPITAL GAIN OR BUSINESS INCOM E, WE FIND THAT CBDT IN THE SAID CIRCULAR, HAS LAID DOWN FURTHER GUIDELINES TO BE FOLLOWED BY ASSESSING OFFICERS WHILE DECIDING THE ISSUE, THE OBJECTIVE BE ING REDUCING LITIGATION ON AN ISSUE WHERE THERE IS LOT OF UNCERTAINTY AND HENCE T REMENDOUS LITIGATION. THE SAID CIRCULAR IS REPRODUCED HEREUNDER: CIRCULAR NO. 6/2016 .. SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME - INSTRUCTIONS IN ORDER TO REDUCE LITIGATION - REG.- SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT , 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNEC TED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE AN Y STOCK-IN- TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTI ONS. AS REGARDS SHARES AND OTHER SECURITIES, THE SAME CAN B E HELD EITHER AS CAPITAL ASSETS OR STOCK-IN-TRADE/ TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULA R INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER T HE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN-TRADE, IS ESSENTIALLY A FACT-SPECIFIC DETERMINATION AND HAS LED TO A LOT OT UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVEST MENTS FROM THE SHARES HELD AS STOCK-IN-TRADE. THE CENTRAL BOAR D OF DIRECT 6 TAXES ('CBDT) HAS ALSO, THROUGH INSTRUCTION NO. 182 7, DATED AUGUST 31, 1989 AND CIRCULAR NO.4 OF 2007 DATED JUN E 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE O F THE FIELD FORMATIONS . 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE R ECOGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CA.N BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES ANDSECURITIES (LE. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUC E LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICAT ION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASS ESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED F ROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT TH E FOLLOWING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERI OD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO T REAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DA TE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICE R. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E . WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS I NCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAI D CIRCULARS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHAL L NOT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES W HERE THE GENUINENESS OF THE TRANSACTION ITSELF IS QUESTIONAB LE, SUCH AS BOGUS CLAIMS OF LONG TERM CAPITAL GAIN / SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SALE OBJECTIVE OF REDUCING LITI GATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT 7 OF INCOME DERIVED FROM TRANSFER OF SHARES AND SECUR ITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE T O APLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECUR ITIES. F.NO. 225/12/2016-ITA-II SD/- (ROHIT GARG) DY. SECRETARY GOVERNMENT OF INDIA. 10. IT IS EVIDENT FROM THE AFORESAID CIRCULAR THAT THE CBDT HAS GIVEN INSTRUCTIONS TO THE ASSESSING OFFICER TO TREAT THE CAPITAL GAIN EARNED ON LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THA N 12 MONTHS, AS INCOME FROM CAPITAL GAINS IF THE ASSESSEE SO DESIRES. HOWEVER, THE SAID INSTRUCTIONS STATES THAT ONCE SUCH A STAND IS TAKEN BY THE ASSESSEE IT SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO. IN THE LIGHT OF THE AFORESAID CIRCULAR WE CONSIDER IT APPROPRIATE TO RESTORE THE ISSUE OF DETERMINING THE NATURE OF THE GAINS EARNED BY THE ASSESSEE ON THE TRANSACTIONS OF PURCHASE AND SALES OF SHARES, BACK TO THE FILE OF THE ASSESSING OFFICER. THE AO IS DIRECTED TO DECIDE THE ISSUE AF RESH IN THE LIGHT OF THE AFORESAID CIRCULAR OF THE CBDT AFTER TAKING INTO CO NSIDERATION THE FACTS OF THE CASE IN HAND. THE ASSESSING OFFICER IS FURTHER DIRE CTED TO GIVE THE ASSESSEE DUE OPPORTUNITY OF HEARING IN THIS REGARD WITH ADEQUATE OPPORTUNITY TO ADDUCE THE EVIDENCE WHICH THE ASSESSEE WISHES TO PLACE RELIANC E UPON IN SUPPORT OF ITS CONTENTIONS BEFORE THE ASSESSING OFFICER. IN VIEW OF THE ABOVE, GROUND NO.2 OF THE APPEAL RA ISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. SINCE THE ISSUE RAISED IN ALL THE APPEALS AND C ONTENTIONS OF THE LD. COUNSELS ARE COMMON, THE DECISION RENDERED ABOVE IN ITA NO. 712/CHD/2015 WILL APPLY TO THE APPEALS IN ITA NO. 713/CHD/2015 A ND 720/CHD/2015 WITH EQUAL FORCE. 8 12. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17-04-2017. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17 TH APRIL, 2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR