Surya Kant Gupta, Gurgaon V. ITO WARD - 4(2), Gurgaon

ITA 7828/DEL/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7355 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 26-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY
• Keywords: Capital Gains
• Section: 73; 101; 20

Judgement Text

1 ITA NO. 7828/DEL/2019 IN THE INCOME TAX APPE LLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL ME MBER AND SHRI PRASHANT MAHARISHI, ACCO UNTANT MEMBER I.T.A. NO. 7828/DEL/20 19 (A.Y 2015-16) (THROUGH VIDEO CON FERENCING) SURYA KANT GUPTA H. NO. 651, FF, SECTOR-10A, NEAR MENAKSHI PUBLIC SCHOOL, GURGAON, HARYANA PAN: AAJPG5098B (APPELLANT) VS ITO WARD-4(2)HSIDC BUILDING, VANIJYA NIKUNJ, UDYOG VIHAR PHASE-5, GURGAON HARYANA ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 29/07/2019 PASSED BY CIT(A)-1 GURGAON, FOR ASSESSMENT YEAR 20 15-16. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD.CIT(A) HAS ERRED IN CONFIRMING THE FINDING OF THE AO THAT TRANSACTION OF SALE OF SHARES OF M/S HCL TECHNOLOGIES LTD REFLECT ACTIVE INVOLVEM ENT OF ASSESSEE AS A ' TRADER' RATHER THAN AS AN 'INVESTOR' IGNORING THE F ACT THAT ASSESSEE IS ACTIVELY INVOLVED IN OTHER GAINFUL ACTIVITIES. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW , THE LD.CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ORDER OF THE AO THAT ASSESSEE'S DEALING IN APPELLANT BY SH. M. R. SAHU, CA RESPONDENT BY SH. PRAKASH DUBEY, SR. DR DATE OF HEARING 30.06.2021 DATE OF PRONOUNCEMENT 18.08.2021 2 ITA NO. 7828/DEL/2019 THE SHARES OF M/S HCL TECHNOLOGIES LTD IS IN THE NA TURE OF 'TRADE' WHERE AS AO ACCEPTED ASSESSEE AS AN 'INVESTOR' FOR DEALING I N OTHER SHARES AND SECURITIES. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF AO AND NOT FOL LOWING THE BINDING LEGAL PRECEDENTS WHERE IT WAS DECIDED THAT THE NATURE OF 'BONUS SHARES' WAS ON 'CAPITAL ACCOUNT'. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD.CIT(A) HAS FURTHER GROSSLY ERRED IN NOT FOLLOWING THE PROV ISIONS OF SECTION 55(2)(AA) CLAUSE (III)(A) IN ARRIVING AT THE COST OF THE 'BON US SHARES' AS 'NIL'. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW , THE LD.CIT(A) HAS ERRED IN NOT HOLDING THAT 'SHORT TERM CAPITAL L OSS' SUFFERED ON SALE OF SHARES OF M/S HCL TECHNOLOGIES LTD WAS MADE WITHIN FOUR CORNERS OF LAW WHICH IS PERMISSIBLE UNDER THE I.T ACT-1961. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS FURTHER GROSSLY ERRED IN CONFIRM THE 'BUSINESS LOSS' OF RS. 6,67,382/- ARRIVED BY AO IGNORING THE COMPUTATION OF THE ASSESSEE AS 'SHORT TERM CAPITAL LOSS' AMOUNTING TO RS.1,23,14,530/- RELATING TO SHARES OF M/S HCL TECHNOLOGIES LTD. 7. THAT THE LD. CIT(A) HAS FURTHER GROSSLY ERRED IN RE LYING ON THE JUDGMENTS TOTALLY IN APPLICABLE TO THE FACTS OF THE CASE AND FURTHER PLACED RELIANCE ON THE , PROVISIONS NOT APPLICABLE TO THE FACTS OF THE CAS E 8. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THE ASSESSEE CRAVES THE RIGHT TO AMEND, ADD, DELETE, REPLACE , ALL OR ANY OF THE GROUNDS OF APPEAL EITHER DURING THE COUR SE OF HEARING OR AT ANY TIME BEFORE HEARING OF THIS APPEAL. PRAYER/RELIEF CLAIMED: 1. TO HOLD ASSESSEE AS AN 'INVESTOR' NOT AS ' TRADER' IN RELATION TO DEALING IN SHARES OF M/S HCL TECHNOLOGIES LTD . 2. TO ALLOW COMPUTATION OF THE ASSESSEE THAT IS 'SHORT TERM CAPITAL LOSS' OF RS L,23,14,530/- ON SALE OF SHARES M/S HCL TECHNOLOGI ES LTD IS AS PER LAW 3 ITA NO. 7828/DEL/2019 ACCORDINGLY SET OFF IS PERMISSIBLE AGAINST' SHORT T ERM CAPITAL GAIN EARNED ON SALES OF OTHER SHARES AND SECURITIES DURING THE REL EVANT ASSESSMENT YEAR. 3. ANY OTHER RELIEF AS DEEMED FIT IN CIRCUMSTANCES OF THE CASE . 3. THE ASSESSEE IS AN INDIVIDUAL AND PARTNER IN M/S HIROW INDUSTRIES TO FILE A RETURN OF INCOME FOR ASSESSMENT YEAR 2015-16 DECL ARING TOTAL INCOME OF RS. 33,53,380/-. THE ASSESSING OFFICER OBSERVED THAT THE SHORT TERM CAPITAL LOSS OF RS. 1,23,14,530/- WAS MAINLY ON ACCOUNT OF SALE OF SHARES OF ONE COMPANY NAMELY HCL TECHNOLOGIES LTD. WHICH WAS COMPLETED B Y THE ASSESSEE AS AN INVESTMENT AND THE ASSESSING OFFICER TREATED THE S AME AS BUSINESS OF TRADING IN SHARES. THE ASSESSING OFFICER FURTHER OBSERVED THAT HCL TECHNOLOGIES LTD. HAD ANNOUNCED ITS SCHEME OF ISSUE OF BONUS SHARES D URING THE PERIOD JANUARY, 2015 I.E. ON 31.01.2015. AS PER THIS SCHEME THE COM PANY M/S HCL TECHNOLOGY LTD. WOULD ISSUE BONUS SHARES TO THE EXISTING SHARE HOLDERS ON 20/3/2015 IN PROPORTION OF 1:1. THE SHARES BECAME THE EX-BONUS- SHARE AS ON 19.03.2015. THE ASSESSEE PURCHASED 11,400/- EQUITY SHARES IN M/ S. HCL TECHNOLOGIES LTD. FROM 17/3/2015 TO 18/3/2015. AFTER THE ALLOTMENT OF BONUS SHARES, THE ASSESSEE SOLD THE ENTIRE HOLDING OF 11400 SHARES HE LD AS ORIGINAL SHARES AS 23.03.2015 AND INCURRED A LOSS OF RS. 1,23,14,530/- . THE PURCHASE OF SHARES OF M/S HCL TECHNOLOGY LTD. WAS MADE OUT OF FUNDS GE NERATED IN THE FORM OF LOAN FROM M/S ADITYA FINANCE. THEREFORE, THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE EFFECTED SALE OF 11,400/- SHARES OUT O F THE ORIGINAL SHARES AT AN EXCESS BONUS RATES ON 27/3/2015 WITH SALE CONSIDERA TION OF RS. 1,09,79,767/- AT AN AVERAGE SALE RATE OF RS. 963.18 PER EQUITY SH ARES WHICH RESULTED IN THE SHORT TERM CAPITAL LOSS OF RS. 1,23,14,530/- WHICH WAS ADJUSTED IN THE COMPUTATION OF INCOME. THE ASSESSING OFFICER HELD T HAT IN RESPECT TO PURCHASE AND SALE OF EQUITY SHARES OF HCL TECHNOLOGIES LTD. CARRIED OUT BY THE ASSESSEE INDICATED THAT THE ASSESSEE WAS A TRADER IN SHARES AND NOT AN INVESTOR. AS PER THE ASSESSING OFFICER , DEALINGS IN THE SHARES OF H CL TECHNOLOGIES LTD. INDICATED A PRE PROJECTED INTENTION TO SET OFF THE SHORT TERM CAPITAL LOSS INCURRED ON ACCOUNT OF BONUS STRIPPING OF HCL TECHN OLOGIES LTD. SHARES 4 ITA NO. 7828/DEL/2019 AGAINST THE SHORT TERM CAPITAL GAIN EARNED ON THE S ALE OF OTHER EQUITY SHARES WITH MUTUAL FUNDS. THUS, THE ASSESSING OFFICER MA DE ADDITION OF ENHANCED SHORT TERM CAPITAL LOSS BY AN AMOUNT OF RS. 1,23,14 ,513.05 AND TREATED RS. 1, 16,88,467.50/- AS INCOME FROM SHORT TERM CAPITAL GA IN. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT AS PER THE ASSESSING O FFICER THE MOTIVE OF THE ASSESSEE IN DEALING IN THE SHARES OF HCL TECHNOLOGI ES LTD. WAS TAX AVOIDANCE AND DUBIOUS TAX PLANNING AND THE ASSESSING OFFICER APPLIED RATIO OF THE DECISION OF THE HON'BLE SUPREME COURT IN CASE OF MC DOWELL & COMPANY LTD. VS. ITO (1985) 154 ITR 148. THE LD. AR SUBMITTED T HAT THE DECISION OF THE HONBLE APEX COURT IN CASE OF MCDOWELL & COMPANY LT D. ESTABLISH THE PRINCIPAL THAT THE BONAFIDE BUSINESS ARRANGEMENT WI TH INCIDENTAL FALL OUT BY WAY OF TAX BENEFIT CAN BE TOLERATED BUT TAX AVOIDAN CE OR TAX EVASION BY MEANS OF A COLOURABLE DEVICE OR MAKE BELIEF TRANSACTION AND DUBIOUS MEANS CANNOT BE RECOGNIZED. THE LD. AR FURTHER SUBMITTED THAT T AX PLANNING IS NOT ILLEGAL/ILLEGITIMATE/IMPERMISSIBLE AND ONCE TRANSAC TION IS GENUINE AND TREATED AS PROPER VARIATION, EVEN IF ENTERED WITH A MOTIVE TO AVOID TAX WOULD NOT BECOME COLOURABLE DEVICE SPECIAL TO ANY DISQUALIFIC ATION. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS:- (I) VODAFONE INTERNATIONAL HOLDINGS B V VS. UOI (20 12) 341 ITR 1 (SUPREME COURT) (II) CIT VS. WALFORT SHARES AND STOCK BROKER PVT. L TD. (201) 326 ITR 1 (SUPREME COURT) (III)UOI VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 70 6 (SUPREME COURT) (IV) PORRITS & SPENCERR (ASIA) LTD. VS. CIT (2010) 329 ITR 222 (P &H HIGH COURT) (V) BANYAN & BERRY VS. CIT(1996) 222 ITR 831 (GUJRA T HIGH COURT ) (VI) CIT VS. SPECIAL PRINTS LTD. (2013) 356 ITR 404 (GUJRAT HIGH COURT) 5 ITA NO. 7828/DEL/2019 (VII) BHOURKA ENGINEERING INDUSTRY LTD. VS. DCIT (2 013) 356 ITR 25 (KARNATAKA HIGH COURT). 6. THE LD. AR SUBMITTED THAT LOWER AUTHORITIES HAVE ERRED IN THE ACTIVITY OF DEALING IN SHARES OF HCL TECHNOLOGIES LTD. AS A BUS INESS ACTIVITY. THE ASSESSEE WAS WHOLLY TIME INVOLVED AS MANAGING PARTNER OF M/S HI ROW INDUSTRIES AND THERE WAS NEITHER AN ORGANIZATION ACTIVITY OR TRADI NG IN SHARES AND THERE WAS NEITHER ANY ORGANIZATIONALLY SUPPORT IN THIS REGARD . LOWER AUTHORITIES HAVE ERRED IN CONFIRMING WITHOUT BONUS SHARES RECEIVED F ORM PART OF STOCK IN TRADE AND TAKING THE COST OF SHARES SOLD ON AN AVERAGE BA SIS ALSO WRONG. THE LD. AR RELIED UPON THE DECISION OF THE HON'BLE SUPREME COU RT IN CASE OF CIT VS. MADAN GOPAL RADHE LAL 73 ITR 652 AND ALSO RELIED UP ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF PCIT VS. ASHOK APPARELS PVT. LTD (2019) 106 TAXMAN.COM 63 (BOMBAY HIGH COURT). THE LD. AR SUBMITTED THAT THE DECISION OF THE HON'BLE SUPREME COURT IN CASE O F COMMISSIONER OF INLAND REVENUE VS. JOHN BLOTT (1921) 8 T.C. 101 HAS IDENTI CAL FACTS AND NO DISTINCTION CAN BE MADE IN THE PRESENT CASE. THE FACTS ARE VIR TUALLY IDENTICAL. AS OBSERVED BY THE HON'BLE SUPREME COURT IN CASE OF SHARES GIV EN BY COMPANY IN PROPORTION TO THE HOLDING OF EQUITY CAPITALIZATION BY SHARE HOLDERS WOULD IN THE ABSENCE OF EXPRESS PROVISION TO BE CONTRARY BE TREA TED AS CAPITAL AND NOT INCOME. THE ASSESSING OFFICER HAS MERELY PROCEEDE D ON THE BASIS THAT THE ORIGIN OF THE BONUS SHARES BEING THE SHARES HELD B Y THE ASSESSEE BY WAY OF STOCK IN TRADE, NECESSARILY THE BONUS SHARES WOULD ALSO PARTAKE THE SAME CHARACTER. THE LD. AR CONTENDED THAT THE QUANTITY OF BONUS SHARES COULD NOT BE CONSIDERED BY DETERMINING THE COST OF ORIGINAL S HARES SOLD DURING THE YEAR UNDER CONSIDERATION. THIS IS ALSO ON PAR WITH SECT ION 55(2)(AA)(IIIA) OF THE ACT WHERE IN THE COST OF BONUS SHARES IS TO BE TAKEN AS NIL AND THE ENTIRE COST IS LIABLE TO BE ADJUSTED ON THE ORIGINAL SHARES. THE LD. AR RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. ESS JAY ENTERPRISES PVT. LTD. (2007) 165 TAXMAN 465 AS WELL AS THE HON' BLE SUPREME COURTS DECISION IN CASE OF RAJA BAHADUR KAMAKHYA NARAIN SI NGH VS. CIT (1970) 77 6 ITA NO. 7828/DEL/2019 ITR 253. DURING THE YEAR UNDER CONSIDERATION THE A SSESSEE HAS SOLD OTHER SHARES AND UNITS OF MUTUAL FUNDS AND PROFIT ARISING FROM SUCH TRANSACTIONS HAVE ACCEPTED BY THE ASSESSING OFFICER TO BE ASSESS ABLE AS CAPITAL GAINS. FURTHERMORE, IT WAS POINTED OUT THAT IN THE PRECEDI NG ASSESSMENT YEARS SALE AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEARS, THE ASS ESSING OFFICER HAS ASSESSED GAIN ON SALE SHARES AS AN INCOME ASSESSABL E UNDER THE HEAD CAPITAL GAINS. THE LD. AR FURTHER SUBMITTED THAT THE CBDT CIRCULAR NO. 6 DATED 29/2/2016 RELATING TO THE WHETHER THE PARTICULAR HO LDING OF SHARES BY WAY OF INVESTMENTS OR FORMS PART OF THE STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLD THE SHARES AND I T SHOULD IN NORMAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN T HOSE SHARES WHICH ARE STOCK IN TRADE AND THOSE WHICH ARE HELD BY WAY OF I NVESTMENT. THE LD. AR RELIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF ADAR POONAWALLA VS. ADDITIONAL CIT ITA NOS. 7641/PN/2012 & 824/PN/2012 ORDER DATED 30/1/2015. THUS, THE LD. AR PRAYED THAT THE APPEAL OF THE ASSESSEE BE ALLOWED BY TREATING THE ASSESSEE AS AN INVESTOR FOR PURCHASE AND SALE OF SHARES OF HCL TECHNOLOGIES LTD. 7. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). THE LD. DR FURTHER SUBMITTED THE SHARES WERE PURCHA SED THROUGH LOAN TAKEN FROM M/S ADITYA FINANCE. THE LD. DR FURTHER SUBMITT ED THAT THE CIRCULAR NO. 6 DATED 29.02.2016 IS ONLY APPLICABLE FOR 12 MONTHS A ND NOT APPLICABLE IN ASSESSEES CASE. THUS, THE LD. DR SUBMITTED THAT TH E APPEAL OF THE ASSESSEE BE DISMISSED AS THE CIT(A) HAS TAKEN COGNIZANCE OF ALL THE ASPECTS AND CONFIRMED THE ADDITION. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT H CL TECHNOLOGIES LTD. HAD ANNOUNCED ITS SCHEME OF ISSUE OF BONUS SHARES DURIN G THE PERIOD JANUARY, 2015 I.E. ON 31.01.2015. AS PER THIS SCHEME THE COM PANY M/S HCL TECHNOLOGY 7 ITA NO. 7828/DEL/2019 LTD. WOULD ISSUE BONUS SHARES TO THE EXISTING SHARE HOLDERS ON 20/3/2015 IN PROPORTION OF 1:1. THE SHARES BECAME THE EX-BONUS- SHARE AS ON 19.03.2015. THE ASSESSEE PURCHASED 11,400/- EQUITY SHARES IN M/ S. HCL TECHNOLOGIES LTD. FROM 17/3/2015 TO 18/3/2015. AFTER THE ALLOTMENT OF BONUS SHARES, THE ASSESSEE SOLD THE ENTIRE HOLDING OF 11400 SHARES HE LD AS ORIGINAL SHARES AS 23.03.2015 AND INCURRED A LOSS OF RS. 1,23,14,530/- . IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS WHOLE TIME MANAGING PARTNER O F M/S HIGH ROW INDUSTRIES AND WAS RECEIVING SALARY. THE SALE OF SH ARES AS TRADING ACTIVITY BY THE ASSESSING OFFICER IS NOT JUSTIFIABLE AS THE ASS ESSEE IS NOT INTO THE BUSINESS OF DEALINGS IN SHARES. IN FACT, THE ASSESSEE TREATE D THE INCOME AS SHORT TERM CAPITAL GAIN AND SET OFF THE LOSS INCURRED IN THE T RANSACTION AGAINST THE LONG TERM GAIN OBTAINED FROM THE DEALINGS IN SALE OF OTH ER EQUITY SHARES AND MUTUAL FUNDS. IN FACT, THE ASSESSEE MADE INVESTMENT IN MUTUAL FUNDS AND EQUITY SHARES OF RS. 6,26,063.35/- ON THESE TRANSAC TIONS. DURING THE PREVIOUS, YEAR, THE ASSESSEE HAD MADE TRANSACTION IN TEN COMP ANIES EQUITY SHARES AND MUTUAL FUNDS WHICH INCLUDES HCL AS WELL. THE DECISI ON RELIED BY THE LD. AR IN CASE OF ADAR POONAWALLA (SUPRA) IS APT IN THE PRESE NT CASE AS IN THAT CASE AS WELL THE ISSUE WAS RELATING TO LOSS ON ACCOUNT OF S ALE OF SHARES OF HCL TECHNOLOGIES WHICH WAS ADJUSTED AGAINST LONG TERM C APITAL GAIN. THE CONTENTION OF THE LD. DR THAT THE SHARES WERE PURCH ASED THROUGH LOAN WILL NOT MAKE ANY IMPACT AS THE ASSESSEES PROFILE IS THAT O F INVESTOR AND NOT THAT OF TRADER WHICH WAS NOT AT ALL DISPUTED BY THE ASSESSI NG OFFICER AT ANY POINT OF TIME. THE TRANSACTION OF SALE AND PURCHASE OF SHARE S WERE ALSO NOT HELD AS NON GENUINE BY THE ASSESSING OFFICER AT ANY POINT OF TI ME. THUS, THE ASSESSING OFFICER AS WELL AS THE CIT(A) WAS NOT RIGHT MAKING ADDITION AND CONFIRMING THE SAME. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE CAPITAL GAIN/LOSS ON THE SALE OF SHARES OF HCL TECHNOLOGIES LTD. THEREBY TAKING THE SAME TO BE ASSESSABLE UNDER THE HEAD CAPITAL GAINS AS PER LAW. HENCE, APPEAL OF THE ASSESSEE IS ALLOWED. 8 ITA NO. 7828/DEL/2019 9. IN RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF AUGUST, 2021. SD/- SD/- (PRASHANT MAHARISHI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 18/08/2021 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI