M/s HMA Data Systems (P) lTD., V. DCIT,

ITA 74/BANG/2013

• Counselvise Citation: 7421114 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 17-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAODR
• Assessee Lawyers: A SHANKAR
• Keywords: Business income; Rectification of order
• Section: 143(3); 154

Judgement Text

ITA NO.74 OF 2013 HMA DATA SYSTEMS P LTD BANGALORE PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE ABENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.74/BANG/2013 (ASSESSMENT YEAR: 2004-05) M/S. HMA DATA SYSTEMS (P) LTD NO.G-01 RIO GRANDE NO.7/3 BRUNTON ROAD BANGALORE 560001 PAN: AAACH 3508 D VS. DCIT, CIRCLE 11(4) NRUPATHUNGA ROAD BANGALORE 560001 (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI A SHANKAR, ADVOCATE DEPARTMENT BY: SHRI C.H. SUNDAR RAO,(DR) (CIT) DATE OF HEARING: 21/08/2014 DATE OF PRONOUNCEMENT: 28/08/2014 O R D E R PER RAJPAL YADAV, J.M. THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT (A) D ATED 31.10.2012 PASSED FOR ASSESSMENT YEAR 2004-05. THE ASSESSEE HAS TAKEN SIX GROUNDS OF APPEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE WHEREBY IT HAS PLEADED THAT T HE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LE ARNED ASSESSING OFFICER PASSED U/S 154 OF THE INCOME TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOP MENT, EQUIPMENTS TRADING AND MAINTENANCE. IT HAS FILED IT S RETURN OF INCOME ON 29.10.2004 DECLARING AN INCOME OF RS.3,70 ,66,590/-. ITA NO.74 OF 2013 HMA DATA SYSTEMS P LTD BANGALORE PAGE 2 OF 6 THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A N ASSESSMENT U/S 143(3) WAS PASSED ON 22.12.2006 WHER EBY THE TOTAL INCOME WAS DETERMINED TO RS.6,38,52,200/-. TH E ASSESSING OFFICER LATER ON NOTICED THAT THERE ARE CERTAIN APP ARENT ERRORS CREPED IN THE ORDER. HE, THEREFORE,SOUGHT TO EXERCI SE HIS POWERS OF RECTIFICATION U/S 154. THE ASSESSEE HAS ALSO FIL ED AN APPLICATION FOR RECTIFICATION ON 1.2.2007. THE ASSE SSEE SOUGHT RECTIFICATION UNDER SEVEN HEADS. THE LEARNED ASSESS ING OFFICER HAS ACCEPTED THE CONTENTION OF THE ASSESSEE UNDER A LL THE HEADS EXCEPT AT S.NO.(F). UNDER THIS HEAD ASSESSEE SOUGHT EXCLUSION OF RS.5,22,166/- WHICH WAS SHOWN AS INCOME IN THE P&L A/C AS PROFIT ON REVALUATION OF SHARES. THE LEARNED ASSESS ING OFFICER HAS REJECTED THIS CONTENTION OF THE ASSESSEE BY OBSERVI NG AS UNDER: REGARDING POINT NO.(F), THE ASSESSEES CLAIM IS TH AT THE PROFIT ON REVALUATION OF SHARES ADMITTED AS INCOME BY THE ASSESSEE IN THE P&L A/C SHOULD BE EXCLUDED BY THE DEPARTMENT IN THE ASSESSMENT FOR THE REASN THAT THE DEPARTMENT IS HOLDIGN THE TRANSACTION AS COMING UNDER CAPITAL GAINS AND NOT UNDER THE HEAD BUSINESS. IRRESPECTIVE OF THE ASSESSEES PRESENTATION, YEAR AFTER YEAR CONSISTENT LY, IT IS CLAIMED THAT THE DEPARTMENT ALSO SHOULD CONSISTENTLY TAKE A STAND THAT THE RESULTANT SHOULD EB CONSIDERED UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD BUSINESS. AS FOR ASSESSMENT YEAR 2004-05 IS CONCERNED, THE ASSESSEE HAS TAKEN A STAND THAT THE INVESTMENTS ARE DIVIDED INTO TWO CATEGORIES, VIZ., CATEGORY A-INVESTMENTS-TRADE & CATEGORY B-INVESTMENTS-NON-TRADE. THE ASSESSEE HAS BEEN CHARGING THE P&L A/C WITH PROFIT OR LOSS O N THE VALUE OF SHARES AS ON LAST DAY OF THE ACCOUNTIN G YEAR AS BUSINESS INCOME OR LOSS. THERE HAS BEEN NO CHANGE IN THE ASSESSEES PRESENTATION AND CLAIM IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004- 05. THE ISSUE FOR EARLIER YEARS WAS DISMISSED BY TH E CIT (APPEALS) AND THE ASSESSEE HAS TAKEN THE ISSUE TO ITAT WHERE THE APPEAL IS PENDING. CONSIDERING THESE ASPECTS, THIS OFFICE TOOK A STAND TO TREAT TH E INCOME AS BUSINESS INCOME APPLYING THE PRINCIPLES AS CLAIMED BY THE ASSESSEE. SINCE THE ASSESSEES ITA NO.74 OF 2013 HMA DATA SYSTEMS P LTD BANGALORE PAGE 3 OF 6 STAND IN PRINCIPLE HAS BEEN ACCEPTED AND ADOPTED FO R ASSESSMENT YEAR 2004-05, THIS INCOME OF RS.5,22,166/- DECLARED BY THE ASSESSEE DOES NOT AMOUNT TO MISTAKE APPARENT FROM RECORD AND TO THIS EXTENT, THE ASSESSEES CLAIM FOR RECTIFICATIN IS REJECTED. THE ENTIRE NARRATION IN THIS PARA IS AFTE R DISCUSSION AND ON THE SAME LINES WITH THE REPRESENTATIVE ON 9/3/07. 3. ON APPEAL, THE LEARNED CIT (A) HAS OBSERVED THAT SINCE THE ASSESSEE HAS CHALLENGED THIS ISSUE IN THE APPEAL AG AINST THE ASSESSMENT ORDER, THAT APPEAL HAS BEEN ALLOWED ON T HIS ISSUE BY THE CIT (A) AND ALSO UPHELD BY THE ITAT. THE ASSESS ING OFFICER HAS PASSED AN ORDER GIVING EFFECT TO THE CIT (A)S ORDER. IN VIEW OF THAT ORDER, THIS ISSUE BECAME INFRUCTUOUS. THE OBSE RVATION OF THE LEARNED CIT (A) IN PARA 3 ON THIS ISSUE READ AS UND ER: 3. I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS AND THE REASONS GIVEN BY THE ASSESSING OFFICER IN THE RECTIFICATION ORDER. DURING THE COUR SE OF THE HEARING, THE AR OF THE APPELLANT FILED A COPY O F THE ORDER DATED 07/04/2009 WHEREIN THE ASSESSING OFFICER GAVE EFFECT TO THE ORDER DATED 12/07/2007 PASSED BY THE CIT (A) IN THEIR OWN CASE FOR THE SAM E ASSESSMENT YEAR IN ITA NO.295/DC-11(4)CIT(A)II/06- 07. AS PER THE SAID ORDER DATED 07.04.2009 OF THE ASSESSING OFFICER, THE ISSUES RAISED IN THE APPEAL WERE RESOLVED AS THE ASSESSEE GOT RELIEF FROM THE C IT (A). THEREFORE, THE APPEAL BECOMES INFRUCTUOUS AND DOES NOT REQUIRE ANY CONSIDERATION. IT MAY BE FURTH ER MENTIONED THAT THE ORDER DATED 12/07/2007 PASSED BY THE CIT (A) WAS ALSO UPHELD BY THE HON'BLE ITAT VIDE ORDERS DATED 29/05/2009 IN ITA NO.1154/BANG/2009 AND ITA NO.1201/BANG/2009. HENCE, THE GROUNDS OF APPEAL IN THIS REGARD ARE DISMISSED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT AT THIS STAGE THIS ORDER ON THIS ISSUE MAY NOT BE EXECUTABL E AND NOT AFFECTING THE ASSESSEE, BUT APPEAL OF THE DEPARTMEN T AGAINST THE ITATS ORDER IS PENDING BEFORE THE HON'BLE HIGH COU RT. IN CASE ITA NO.74 OF 2013 HMA DATA SYSTEMS P LTD BANGALORE PAGE 4 OF 6 THAT APPEAL IS ALLOWED BY HIGHER APPELLATE AUTHORIT Y, THEN THIS AMOUNT WOULD BE INCLUDED IN THE TOTAL INCOME UNDER THE HEAD BUSINESS INCOME AND IF THE ASSESSEE WOULD INTEND TO CLAIM CORRESPONDING SET OFF OF CARRY FORWARD LOSSES OR EX PENSES, THEN THAT WOULD NOT BE ADMISSIBLE TO IT BY VIRTUE OF THI S ORDER. THEREFORE, WHEN THE ASSESSING OFFICER WOULD PASS FR ESH ORDER GIVING EFFECT TO THE HIGHER APPELLATE AUTHORITIES O RDER, THEN LIBERTY SHOULD BE GIVEN TO THE ASSESSEE TO RAISE ALL THESE ISSUES AND THIS ORDER PASSED UNDER SECTION 154 SHOULD NOT AFFECT TH E EXPLANATION OF THE ASSESSEE OR SHOULD NOT COME IN ITS WAY. 5. THE LEARNED DR SUBMITTED THAT THE ASSESSEE CANNO T CLAIM SET OFF OF BUSINESS LOSSES OR EXPENDITURE AGAINST T HE INCOME UNDER THE HEAD CAPITAL GAIN. THE ASSESSING OFFICE R HAS RIGHTLY RECTIFIED THE MISTAKE. THE ASSESSEE IS NOT ENTITLED FOR THE LOSSES UNDER THE HEAD CAPITAL GAINS INCLUDING SHORT TERM C APITAL LOSSES AGAINST THE INCOME UNDER OTHER HEADS. THE ASSESSEE ITSELF DID NOT DISPUTE BEFORE THE ASSESSING OFFICER ABOUT THE APPA RENT ERROR CREPT IN THE PROCEEDINGS. 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS. T HE ONLY CLAIM MADE BY THE ASSESSEE IS THAT IN CASE THE STAN D ACCEPTED BY THE LEARNED CIT (A) IN THE QUANTUM APPEAL AND UPHEL D BY THE ITAT GETS REVERSED IN FURTHER APPEAL BEFORE THE HON 'BLE HIGH COURT, THEN ITS CLAIM FOR SET OFF OF EXPENDITURE OR LOSSES AGAINST THE BUSINESS INCOME SHOULD NOT BE CLOSED BY VIRTUE OF THIS ORDER. TO OUR MIND, THE LEARNED FIRST APPELLATE AUTHORITY, WHILE DISMISSING THE APPEAL OF THE ASSESSEE HAS ALREADY T AKEN CARE OF THIS ASPECT IN THE OBSERVATIONS EXTRACTED (SUPRA). THE ASSESSING OFFICER IN THE FIRST PARAGRAPH OF THE RECTIFICATION ORDER HAS ALSO ITA NO.74 OF 2013 HMA DATA SYSTEMS P LTD BANGALORE PAGE 5 OF 6 RESERVED THE RIGHT OF THE ASSESSEE. THE RECTIFICATI ON HAS BEEN MADE WITHOUT PREJUDICE TO THE STAND TAKEN BY THE AS SESSEE IN THE APPEAL. IN THIS CONNECTION, THE FIRST PARAGRAPH OF THE RECTIFICATION ORDER IS WORTH TO NOTE WHICH READ AS UNDER: THE ASSESSMENT U/S 143(3) FOR ASSESSMENT YEAR 2004-05 WAS COMPLETED ON 22/12/06 DETERMINING THE TOTAL INCOME AT RS.6,38,52,200/-. TO ARRIVE AT THIS TOTAL INCOME, THE LOSS UNDER THE HEAD CAPITAL GAINS INCLUSIVE OF SHORT TERM CAPITAL LOSS OF RS.6,93,43,505/- AND LONG TERM CAPITAL LOSS OF RS.6,54,06,527/- TOTALING TO RS.13,47,50,032/- WAS DEDUCTED FROM THE INCOME UNDER OTHER HEADS AMOUNTING TO RS.19,86,02,231/-. THIS IS A MISTAKE APPARENT ON RECORD SINCE THERE IS SPECIFIC PROHIBIT ION UNDER THE LAW FOR SUCH SET OFF. A NOTICE U/S 154 WA S ISSUED TO THE ASSESSEE ON 1/3/07 IN RESPONSE TO WHICH SRI GURURAJA RAO, CA APPEARED ON 9/3/07 AND DISCUSSION HELD. THE REPRESENTATIVE AGREED THAT THIS MISTAKE IS APPARENT ON RECORD AND REQUIRES TO BE CORRECTED. HE HAS NO OBJECTION FOR CORRECTING THE MISTAKE AND RECTIFYING THE ORDER. THIS IS WITHOUT PREJUDICE TO THE STAND TAKEN BY THE ASSESSEE THAT T HE INCOME ON SALE OF THE INVESTMENTS HAS TO BE TAKEN A S CAPITAL GAINS AS DECLARED AND NOT AS BUSINESS INCOME AS DETERMINED IN THE ASSESSMENT ORDER AND ALSO WITHOUT PREJUDICE TO THE APPEAL FILED AGAINST THE ASSESSMENT ORDER. SUBJECT TO THIS, THE ASSESSEE HAS GIVEN ITS CONSENT FOR RECTIFYING THE ORDER. THE DISCUSSION IS NOTED IN THE ORDER SHEET. THE CONTENTION OF THE ASSESSEE IS THAT LOSS UNDER S HORT TERM CAPITAL GAIN OF RS.69,34,350/- AND LONG TERM CAPITA L GAIN OF RS.6,54,06,527/- TOTALING TO RS.13,47,50,032/- NOT ALLOWED AS SET OFF AGAINST INCOME FROM OTHER HEADS COULD BE CL AIMED, IF ITS STAND ON INVESTMENT GOT REVERSED. AT THAT STAGE THI S ORDER SHOULD NOT COME TO ITS WAY. THOUGH THE LEARNED ASSESSING O FFICER HAS ALREADY OBSERVED THAT THIS ORDER IS WITHOUT PREJUDI CE TO THE RIGHTS OF THE ASSESSEE IN APPEAL, BUT WE MAKE THE ISSUE MO RE CLEAR, AFTER THE DECISION OF THE HON'BLE HIGH COURT, WHEN THE ASSESSING ITA NO.74 OF 2013 HMA DATA SYSTEMS P LTD BANGALORE PAGE 6 OF 6 OFFICER WILL GIVE EFFECT TO THE ORDER, THIS RECTIFI CATION ORDER WOULD NOT COME IN THE WAY OF THE ASSESSEE. THE ASSESSEE W OULD BE AT LIBERTY TO RAISE THE PLEA WHICH WAS RAISED BY IT IN THE APPEAL BEFORE THE LEARNED FIRST APPELLATE AUTHORITY WHICH HAS BEEN CONSIDERED AS INFRUCTUOUS KEEPING IN VIEW THE ORDER GIVING EFFECT DATED 7.4.2009. THE LEARNED ASSESSING OFFICER SHALL TAKE A FRESH LOOK ON THE FACTS EMERGING OUT AFTER THE ORDER OF T HE HON'BLE HIGH COURT. WITH THE ABOVE OBSERVATION THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014. SD/- SD/- (ABRAHAM P. GEORGE) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 28 TH AUGUST, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE