NVS BROKERAGE P. LTD, MUMBAI V. ASST CIT CIR 1(2), MUMBAI

ITA 7280/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2718 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 25-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SATYARAMAYANA RAJO
• Assessee Lawyers: SANJUKTA CHOW DHURY
• Keywords: Capital asset; Business income; Opportunity of being heard; Principle of natural justice; Tax effect
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI R.C.SHARMA (AM) AND SHRI RAM LAL NEGI (JM ) ITA NO. 7280/MUM/2010 ASSESSMENT YEAR: 2007-08 M/S. NVS BROKERAGE PVT. LTD., 1 & 1A, 3 RD FLOOR, BIRLA MANSION, 134, NAGINDAS MASTER ROAD, MUMBAI- 400 023. PAN: AAACN9184H VS. THE ACIT - CIRCLE 4 (2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400 020. (APPELLANT) (RESPONDENT) & ITA NO. 8295/MUM/2010 ASSESSMENT YEAR: 2007-08 THE ACIT, CIR. 4(2), ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400 020. VS. M/S. NVS BROKERAGE PVT. LTD., 1 & 1A, 3 RD FLOOR, BIRLA MANSION, 134, MANGALDAS ROAD, MUMBAI- 400 023. PAN: AAACN9184H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. PRAMOD KUMAR PARIDA & MS. SANJUKTA CHOWDHURY RESPONDENT BY : SHRI. B. SATYARAMAYANA RAJO DATE OF HEARING: 2 2/04/2016 DATE OF PRONOUNCEMENT: 21/07/20 16 O R D E R PER RAM LAL NEGI, JM THESE CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE AGAINST ORDER DATED 20/09/2010 PASSED BY TH E LD. CIT(APPEALS)-8, MUMBAI, FOR THE ASST. YEAR 2007-08. SINCE BOTH THE 2 ITA NO. 7280 & 8295/MUM/2010 ASSESSM ENT YEAR: 2007-08 APPEALS PERTAIN TO THE SAME ASSESSEE FOR THE SAME A SSESSMENT YEAR, THE SAME WERE CLUBBED AND HEARD TOGETHER FOR THE SA KE OF CONVENIENCE. ITA NO. 7280/MUM/2010 A.Y. 2006-0 7 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF BROKERAGE IN SHARES & ST OCKS, GOVERNMENT AND CORPORATE BONDS, FILED ITS RETURN OF INCOME FOR THE ASST. YEAR 2007-08 ON 23/11/2006 DECLARING TOTAL INCOME OF RS. 1,21,28,97 2/- THE AO INTER ALIA MAKING ADDITION OF RS. 40,72,521/-, CLAIMED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN, ASSESSED THE TOTAL INCOME AT RS. 1,27 ,45,770/- U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) TREATING THE SAID AMOUNT AS BUSINESS INCOME. 3. THE IMPUGNED ASSESSMENT ORDER WAS CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER HEARING THE ASSESS EE PARTLY ALLOWED THE APPEAL, HOWEVER, CONFIRMED THE FINDING OF THE A.O. REGARDIN G ADDITION OF RS. 40,72,521/- TREATING THE SAME AS BUSINESS INCOME. S TILL AGGRIEVED, THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THE FOLLOWING GROUNDS:- 1. THE LD. ASSESSING OFFICER HAS ERRED IN TREATING THE SHORT TERM CAPITAL GAIN OF RS. 40,72,521/- ON THE SALE OF SHAR ES EARNED BY YOUR PETITIONER AS THE BUSINESS INCOME. 2. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ABOVE AMOUNT OF RS. 40,72,521/- EARNED BY THE PETITIONER AS SHORT TERM CAPITAL GAIN ON THE SALE OF SHARES AS BUSINESS INCOME. 3. THE ORDER APPEALED AGAINST IS BAD IN LAW AND IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 3 ITA NO. 7280 & 8295/MUM/2010 ASSESSM ENT YEAR: 2007-08 4. THE ORDER APPEALED AGAINST IS BASED ON SURMISES AND CONJECTURES. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY UPHELD THE FINDINGS OF THE A.O. THE APPELLANT HAS B EEN EARNING PROFITS AND INCURRING LOSSES FROM SPECULATION IN SHARES BUT MER ELY BECAUSE THE ASSESSEE IS ENGAGED IN TRADING IN SHARES DOES NOT MEAN THAT ALL THE SHARES HOLDING BY THE ASSESSEE ARE NECESSARILY STOCK IN TRADE. THE ASSESS EE CAN HOLD OTHER SHARES AS INVESTMENT. IT IS WELL SETTLED PRINCIPLE OF LAW THA T MERE VOLUME OF TRANSACTIONS WOULD NOT ALTER THE NATURE OF TRANSACTION UNLESS TH E SURROUNDING CIRCUMSTANCES SUPPORT THE SAME. THE ASSESSEE HAS RE CORDED IN THE BOOKS OF ACCOUNT TO THE EFFECT THAT THE SHARES IN QUESTION W ERE HELD AS INVESTMENT AND NOT AS STOCK-IN-TRADE. THE LD. COUNSEL FURTHER SUBM ITTED THAT MERE INTENTION TO MAKE GAIN DOES NOT CONVERT SHARES PURCHASED AS C APITAL ASSET INTO STOCK-IN- TRADE NOR DOES IT CONVERT THE CAPITAL GAIN ARISING THEREON INTO BUSINESS INCOME. ALL THE INVESTMENTS HAVE BEEN MADE FROM THE COMPANI ES SURPLUS FUNDS. THE COMPANY IS DEBT FREE AND HAS NO BORROWINGS. THE LD. COUNSEL RELIED UPON THE DECISION RENDERED BY THE MUMBAI TRIBUNAL IN JANAK S . RANGWALA VS. ACIT (ITA NO 1163/MUM/2004 DATED 19.12.2006), DECISION R ENDERED BY THE HYDERABAD TRIBUNAL IN SHAH INVESTMENTS AND FINANCIA L CONSULTANTS PVT. LTD. VS DCIT [2005]2 SOT 371(HYD) AND JUDGMENT DELIVERED BY THE HONBLE HIGH COURT OF MADRAS IN N.S.S. INVESTMENTS VS P. LTD. [2 005] 277 ITR 149(MAD) TO SUBSTANTIATE HIS CONTENTIONS. THE LD. COUNSEL FOR T HE ASSESSEE RELYING ON THE JUDGMENTS PASSED BY THE HONBLE SUPREME COURT IN AS HOK VINIYOGA LTD. VS CIT 84 ITR 264(SC), KARAM CHAND THAKUR & BROS.PVT. LTD.VS CIT 82 ITR 899 (SC), MADNANI DEVELOPMENT CORPORATION PVT. LTD. VS CIT 161 ITR 165 (SC) AND OTHER JUDGMENTS PASSED BY THE HIGH COURTS, SUBMITTE D THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE RELEVANT TO DETERMINE WHETHER THE ASSET IS STOCK IN TRADE OR A CAPITAL ASSET. 4 ITA NO. 7280 & 8295/MUM/2010 ASSESSM ENT YEAR: 2007-08 5. ON THE OTHER HAND THE LD. DR. SUBMITTED THAT SIN CE THE FINDINGS OF THE A.O. IS BASED ON THE LAW LAID DOWN BY THE HONBLE SUPREM E COURT, HONBLE HIGH COURTS AND VARIOUS TRIBUNALS, DISCUSSED IN THE ASSE SSMENT ORDER, THE LD. CIT(A) HAS RIGHTLY UPHELD THE FINDINGS OF THE AO AN D CONFIRMED THE ADDITION. THEREFORE THERE IS NO MERIT IN THE ASSESSEES APPEA L. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED ON RECORD INCLUDING THE DECISIONS RELIED UPON BY THE A UTHORITIES IN SUPPORT OF THEIR CONTENTIONS. THE ONLY GRIEVANCE OF THE APPEL LANT/ASSESSEE IS THAT THE AUTHORITIES BELOW HAS WRONGLY TREATED THE SHORT TER M CAPITAL GAIN OF RS. 40,72,521/ AS INCOME FROM BUSINESS. THE LD. CIT(A) AS UPHELD THE FINDINGS OF THE LD. A.O. HOLDING AS UNDER:- I FIND THAT THE ISSUE WHETHER THE INCO ME ARISING FROM TRANSACTION IN SHARE IN THE INSTANT CASE WAS SHORT TERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE OR BUSINESS INCOME AS HELD BY THE ASSESSING OFFICER HAD BEEN DECIDED BY MY LEARNE D PREDECESSOR IN THE APPELLANTS OWN CASE FOR THE IMME DIATELY PRECEDING YEAR IN WHICH THE ACTION OF ASSESSING OFF ICER ASSESSING THE INCOME AS BUSINESS INCOME WAS FOUND TO BE CORRE CT AND CONFIRMED. I FIND THAT THE RELEVANT FACTS DURING TH E CURRENT YEAR REMAIN IDENTICAL TO THOSE IN THE IMMEDIATELY PRECED ING YEAR. THE DECISION OF MY LEARNED PREDECESSOR FOR THE ASSESSME NT YEAR 2006-07, THEREFORE SQUARELY APPLIES TO THE CURRENT YEAR AS WELL, FOLLOWING WHICH I HOLD THAT THE AMOUNT OF RS.40,72, 521/- ASSESSED AS BUSINESS INCOME BY THE ASSESSING OFFICE R IS TO BE SUSTAINED WHICH IS CONFIRMED. THE APPEAL ON THIS GR OUND IS, THEREFORE NOT ALLOWED. 5 ITA NO. 7280 & 8295/MUM/2010 ASSESSM ENT YEAR: 2007-08 7. FROM THE ABOVE OBSERVATIONS, IT IS CLEAR THAT T HE LD. CIT(A) HAS UPHELD THE FINDINGS OF THE AO FOLLOWING THE DECISION OF HIS PR EDECESSOR PASSED IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2006-07. AD MITTEDLY, THE ASSESSEE HAS BEEN EARNING PROFITS OR INCURRING LOSSES FROM SHARE TRANSACTION BUT, MERELY BECAUSE AN ASSESSEE IS ENGAGED IN TRADING IN SHARES DOES NOT MEAN THAT ALL THE SHARES HE IS HOLDING ARE NECESSARILY STOCK-IN-T RADE. THE ASSESSEE CAN ALSO HOLD OTHER SHARES AS INVESTMENT. IN CIT VS. N.S.S. INVESTMENTS P. LTD. (SUPRA) THE HONBLE MADRAS HIGH COURT HAS HELD THAT A COMPA NY CAN HOLD SHARES AS STOCK IN TRADE FOR THE PURPOSE OF DOING BUSINESS OF BUYING AND SELLING OF SUCH SHARES, WHILE AT THE SAME TIME IT CAN ALSO HOLD OTH ER SHARES AS ITS CAPITAL. WHERE THE FINDING WAS THAT THE SHARES IN QUESTION W ERE NEVER TREATED BY THE ASSESSEE AS STOCK IN TRADE, THE PROFIT ON SALE THER EOF WAS TO BE TREATED AS CAPITAL GAIN. HENCE, THERE IS NOTHING IN LAW WHICH PROHIBITS A TRADER IN SHARES TO INVEST IN SHARES. THE INTENTION OF THE ASSESSEE IS RELEVANT TO DETERMINE WHETHER THE TRADER IS CARRYING ON THE BUSINESS IN S HARES OR INVESTMENTS. 8. HOWEVER, WE NOTICE THAT THE AO HAS NOT VERIFIED AND BROUGHT ON RECORDS THE FACTS NECESSARY TO DETERMINE WHETHER THE SHARES ARE STOCK IN TRADE OR THE CAPITAL ASSET, IN ACCORDANCE WITH THE GENERAL PRINC IPLES OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN NEW ERA AGENCIES P. LTD VS CIT(1968) 68 ITR 585 (SC). SO, IN OUR CONSIDERED VIEW THE FOLLOWING FACT S ARE REQUIRED TO BE VERIFIED IN THIS CASE, WHETHER THE ASSESSEE HAD BEEN MAINTAI NING TWO SEPARATE PORTFOLIOS IN RESPECT OF SHARES, ONE IN RESPECT OF INVESTMENT AND OTHER AS STOCK IN TRADE, WHETHER SHARES WERE TRANSFERRED FROM ONE PORTFOLIO TO OTHER DURING THE RELEVANT PREVIOUS YEAR AND APART FROM THE FREQU ENCY OF TRANSACTIONS THE AO WAS REQUIRED TO ASCERTAIN THE NUMBER OF COMPANIE S OF WHICH THE SHARES WERE HELD AS A CAPITAL ASSET. 9. THE ASSESSEE HAS FURTHER ALLEGED THAT SINCE THE INCORPORATION OF THE COMPANY, IT HAS BEEN FOLLOWING THE PRACTICE OF TREA TING ALL INVESTMENTS IN 6 ITA NO. 7280 & 8295/MUM/2010 ASSESSM ENT YEAR: 2007-08 SHARES AS INVESTMENTS WHETHER LONG TERM OR SHORT TE RM AND MAKING ENTRIES IN THE BOOKS OF ACCOUNT AND IN ALL THESE YEARS THE ASS ESSEE HAS SHOWN LONG TERM AND SHORT TERM CAPITAL GAIN ON THE SALE OF SHARES A ND THE DEPARTMENT HAS ACCEPTED THE SAME. UNDER THESE CIRCUMSTANCES THE AO IS REQUIRED TO RECORD THE REASON FOR REJECTING THE BOOKS OF ACCOUNT BEING MAINTAINED CONSISTENTLY FOR A PERIOD OF ABOUT TEN YEARS. 10. IN VIEW OF THE POINTS DISCUSSED IN THE FORGOING PARAS, WE ARE OF THE CONSIDERED OPINION THAT FURTHER VERIFICATION OF THE MATERIAL FACTS, NECESSARY TO DECIDE AS TO WHETHER THE AMOUNT IN QUESTION IS TO B E TREATED AS SHORT TERM GAIN AS CLAIMED BY THE ASSESSEE OR THE SAME IS TO B E TREATED AS BUSINESS INCOME OF THE ASSESSEE, IS REQUIRED. WE, THEREFORE, SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO VERIFY THE AFO RESAID MATERIAL FACTS AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH THE PRIN CIPLES OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN NEW ERA AGENCIES P. LT D.(SUPRA) AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR THE ASST. YEAR 2007-08 IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 8295/MUM/2010 A.Y. 2006-0 7 1. THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER O N FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS . 1,05,509/- MADE IN RESPECT OF TRANSACTION CHARGES WITHOUT REALIZING THE FACT THAT THESE WERE COMPOSITE CHARGES ALONGWITH TRANSACTION CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS T HEREON. 7 ITA NO. 7280 & 8295/MUM/2010 ASSESSM ENT YEAR: 2007-08 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 5, 11,252/- MADE U/S 14A R. W. RULE 8D OF THE I.T. ACT BY ASSESSING OFFI CER . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SE T ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TAX EFFECT IN THIS CASE IS BELOW RS.10,00,000/- AS THE TOTAL D ISALLOWANCE MADE BY THE AO IN RESPECT OF TRANSACTION CHARGES IS RS. 1,05,509/- . HENCE, AS PER THE CBDT CIRCULAR NO. 21 OF 2015, DATED 10/12/2015, THE PRES ENT APPEAL IS NOT MAINTAINABLE. 3. THE LD. DR FAIRLY ADMITTED THAT THE TAX EFFECT I N DEPARTMENTS APPEAL IS BELOW RS.10 LAKHS, WE FIND THAT THE ISSUE RAISED IN APPEAL DOES NOT FALL UNDER ANY OF THE EXCEPTIONS SPECIFIED IN PARA 8 OF THE C IRCULAR. SINCE, IT HAS BEEN SPECIFICALLY CLARIFIED IN THE CIRCULAR AFORESAID TH AT THE INSTRUCTION WILL APPLY RETROSPECTIVELY TO ALL THE PENDING APPEALS; THE PRE SENT APPEAL FILED BY THE REVENUE IS NOT MAINTAINABLE. WE, THEREFORE, DISMIS S THE SAME IN LIMINE . 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT 21 ST JULY, 2016. SD/- SD/- ( R.C.SHARMA ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 21/07/2016 8 ITA NO. 7280 & 8295/MUM/2010 ASSESSM ENT YEAR: 2007-08 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. ! , # !$ , / DR, ITAT, MUMBAI 6. %& ' / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA