ITO 9(2)-3, MUMBAI V. MODLITE HOLDINGS P. LTD, MUMBAI

ITA 7927/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3408 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 24-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMAND J
• Keywords: Unexplained cash credit; Business income
• Section: 143(3); 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) THE I.T.O 9(2)(3) ROOM NO.225, AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 ... APPELLANT VS. M/S. MODLITE HOLDINGS PVT. LTD. B-304, MAKANI CENTRE-II, BEHIND NATIONAL COLLEGE, 35 TH ROAD, KHAR(W), MUMBAI 400052 PAN: AAACM 4435A .... RESPONDENT APPELLANT BY : SHRI PREMAND J. RESPONDENT BY : NONE DATE OF HEARING : 10/05/2016 DATE OF PRONOUNCEMENT : 18/05/2016 ORDER PER MAHAVIR SINGH, J.M: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT(A)-20, MUMBAI IN APPEAL NO.CIT(A)20/ITO.9(2)(3)/I.T.328/20 10-11, ORDER DATED 19/09/2011. ASSESSMENT WAS FRAMED BY ITO, WA RD 9(2)(3), MUMBAI FOR THE ASSESSMENT YEAR 2008-09 UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961 (HEREAFTER REFERRED AS THE AC T) VIDE HIS ORDER DATED 29/12/2010. 2 ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) 2. AT THE OUTSET IT IS NOTICED THAT THE REVENUE HAS RAISED THE FOLLOWING ONE GROUND:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN NOT APPRECIATING THE FINDING OF ASSESSING OFFICER THAT THE ASSESSEE HAS INVOLVED IN SHARE TRANSACTION S SYSTEMATICALLY AND REGULARLY BY TAKING LOANS FROM ITS DIRECTORS AN D GIVEN TO ITS SHARE TRANSACTIONS AND SO THE INCOME FROM SHARE TRADING I S BUSINESS INCOME AND NOT CAPITAL GAIN. ON FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATIN G THE FACT THAT ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE BAL ANCE LOAN OF RS.27,07,645/- WHICH LED TO ADDITION UNDER SECTION. 68 OF THE I.T. ACT. FROM THE ABOVE GROUND IT IS NOTICED THAT THE FOLLO WING TWO ISSUES ARE ARISING:- (I) WHETHER THE CIT(A) ERRED IN TREATING THE INCOM E FROM SALE AND PURCHASE OF SHARES AS CAPITAL GAINS AS AGAINST ASS ESSMENT MADE BY ASSESSING OFFICER AS BUSINESS INCOME. (II)WHETHER THE CIT(A) ERRED IN DELETING THE ADDITI ON MADE BY ASSESSING OFFICER OF UNSECURED LOANS UNDER SECTION 68 OF THE ACT TREATING THE SAME AS NON-GENUINE. 3. FIRST, WE WILL DEAL WITH THE FIRST ISSUE. BRIEF LY STATED, THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN TRADING OF SHARES A ND SECURITIES AND ALSO INVESTMENT AS NOTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED F ROM THE BOOKS OF ACCOUNT THAT THE ASSESSEE IS CONTINUOUSLY EARNING D IVIDEND INCOME AND THAT AT REGULAR INTERVALS. THE ASSESSING OFFICER R EQUIRED THE ASSESSEE TO FURNISH SCRIP-WISE DETAILS OF DIVIDEND RECEIVED, CO PY OF DEMAT ACCOUNT STATEMENT, DETAILS OF SHARE TRANSACTIONS, ETC. ENTE RED INTO BY THE ASSESSEE DURING THE YEAR. THE ASSESSING OFFICER NO TED THAT THERE ARE 3 ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) VOLUMINOUS AND REGULAR SHARE TRANSACTION AND CAPITA L GAIN DISCLOSED BY THE ASSESSEE ON THE SAME BASIS SHOULD BE BROUGHT TO TAX AS BUSINESS INCOME. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS TAKEN FRESH LOANS OF RS.4,17,15,103/- AND OUT OF TH E SAME, THE LOANS WERE UTILIZED BY ASSESSEE FOR PURCHASE OF SHARES. ACCORDINGLY, HE TREATED THE CAPITAL GAIN DISCLOSED BY THE ASSESSEE AS BUSINESS INCOME AMOUNTING TO RS.37,67,608/-. AGGRIEVED, ASSESSEE P REFERRED AN APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF THE ASSESSE E AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING AS UND ER:- 3.3.1. THE APPELLANT HAS UTILIZED ITS OWN FUNDS AS WELL AS THAT INFUSED BY THE DIRECTOR AND ASSOCIATE CONCERNS, WHICH IS ACKNOWLED GED BY THE ASSESSING OFFICER AS WELL. AS SUCH, THESE FUNDS ARE IN THE NA TURE OF QUASI-EQUITY BEING INTEREST FREE AND HENCE NOT BORROWINGS AS HELD BY THE ASSESSING 'OFFICER. THE FREQUENCY OF PURCHASE AND SALE BEING 44 SCRIPS IN SHORT TERM AND 12 SCRIPS IN LONG TERM CANNOT BE TREATED AS VOLUMINOUS AND REGUL AR. MOST OF THESE SHARES HAVE JUST BEEN PURCHASED AND SOLD ONLY ONCE, THE RETURNS ON THESE TRANSACTIONS ARE IN THE VICINITY OF 52.57%. A TRADE R NORMALLY GOES FOR REGULAR AND LOW RETURNS SINCE HE HAS TO BOOK PROFITS ON A D AILY BASIS. THE TRANSACTIONS HAVE BEEN CARRIED OUT THROUGH A DEMAT ACCOUNT BY TA KING DELIVERY IN ELECTRONIC SYSTEM IN THE STOCK EXCHANGE. 3,3.2. THOUGH NOT MATERIAL BUT THE ANALYSIS OF SHOR T TERM CAPITAL GAINS SHOWS THAT ONLY RS.55,585/- HAS BEEN EARNED AS CAPITAL GA INS FROM SHARES SOLD WITHIN 30 DAYS FROM PURCHASE. AS AGAINST THIS, THE SHORT TERM CAPITAL GAINS EARNED FROM SHARES HELD FOR MORE THAN 30 DAYS IS RS .24.45 LAKHS. THIS DEMONSTRATES THE APPELLANT'S , INTENTION TO HOLD TH ESE SHARES ON A LONGER PERIOD OF TIME AND EARNED DIVIDEND AS WELL. 3.3.3. THE ASSESSEE HAS BEEN VALUING THE INVESTMENT S AT COST AND HAS NEVER VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. ALL THESE FACTORS TAKEN CUMULATIVELY ALONG WITH THE DECISION OF HON'BLE BOM BAY HIGH COURT IN GOPAL PUROHIT VS JCIT (CITED SUPRA) AND THE RECENT OF HON 'BLE ITAT IN HITESH SATISHCHANDRA JOSHI (ITA.NO.6497/MUM/2009 DATED 15. 06.2011), IT IS HELD THAT THE ACTION OF THE ASSESSING OFFICER IN TREATIN G THE SALE AND PURCHASE OF SECURITIES AS BUSINESS INCOME IS NOT PROPER AND THE SAME IS REVERSED. THE ASSESSING OFFICER IS DIRECTED TO TREAT THE SAME UND ER THE HEAD CAPITAL GAINS. THIS GROUND OF APPEAL IS ALLOWED. 4 ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) AGGRIEVED, NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AS SESSEE IS IN THE BUSINESS OF SALE AND PURCHASE OF SHARES I.E. TRADIN G AND INVESTMENTS. FACTS OF THE CASE CLEARLY REVEAL THAT THE ASSESSEE HAS MAINTAINED TWO SEPARATE ACCOUNTS I.E. ONE FOR TRADING AND ONE FOR INVESTMENTS. THE ASSESSEE IS EARNING SUBSTANTIAL AMOUNT OF DIVIDEND FROM INVESTMENTS, WHICH IS NOT DOUBTED OR DISTURBED BY ASSESSING OFFI CER. WE FURTHER FIND THAT THE ASSESSEE HAS TRANSACTED IN 44 SCRIPS IN SH ORT TERM AND 12 SCRIPS IN LONG TERM. WE FURTHER FIND THAT NONE OF THE SHA RES, THAT THE ASSESSEE HAVE TRANSACTED DURING THE RELEVANT YEAR, HAVE BEEN TRADED FREQUENTLY AND IN MOST OF THE SHARES IT HAS JUST PURCHASED AND SOLD ONCE ONLY. WE FURTHER FIND FROM THE STATEMENT ACCOUNTS MAINTAINED FOR INVESTMENT IS THAT WHEREIN THOUGH SHORT TERM CAPITAL GAIN HAVE BE EN ANALYSED IS BASED ON THE PERIOD OF HOLDING. NONE OF THE TRANSA CTIONS HAVE BEEN SQUARED OFF DURING THE SAME SETTLEMENT PERIOD. WE, HOWEVER, FIND THAT THE ASSESSEE IS ABLE TO PRODUCE COMPLETE BOOKS OF A CCOUNT AND COMPLETE STATEMENT OF INCOME ALSO DETAILS OF TRANSA CTIONS OF SHARES AND LOANS TAKEN AND ALSO UTILIZATION OF LOAN. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE RATIO OF HON' BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS.GOPAL PUROHIT,(2011) 3 36 ITR 287(BOM) HAS LAID DOWN THE PRINCIPAL AS FOLLOWS:- A) THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS , ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RE LATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. DELIVERY BA SED TRANSACTIONS WERE RIGHTLY 5 ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) TREATED AS BEING IN THE NATURE OF INVESTMENT TRANSA CTIONS GIVING RISE TO CAPITAL GAINS. (B) THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION TH AT THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED, THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE ID ENTICAL . THE TRIBUNAL HAS NOTED THAT THE ASSESSEE HAS FOLLOWED A CONSISTE NT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR IN ALL THE YEARS AND THERE IS NO JUSTIFICATION FOR A DIFFERENT VIEW BEING TAKEN BY THE AO. (C) THE TRIBUNAL APPLIED THE CORRECT PRINCIPLE IN H OLDING THAT WHILE ENTRIES IN THE BOOKS OF ACCOUNT ALONE ARE NOT CONCLUSIVE IN DE TERMINING THE NATURE OF INCOME 5. IN VIEW OF THE FACTS THAT THE ASSESSEE HAS TRAN SACTED IN 12 SCRIPS ON LONG TERM BASIS AND 44 SCRIPS ON SHORT TERM BASI S AND NONE OF THE SHARES TRANSACTED BY ASSESSEE DURING THE RELEVANT PREVIOUS YEAR HAVE BEEN TRADED FREQUENTLY. ALL THE PURCHASES HAVE BEE N MADE WITH AN INTENTION TO INVEST IN THE SCRIP FOR EARNING CAPITA L APPRECIATION AND NOT TO TRADE REGULARLY IN THE SAME. THE FACTS CLEARLY REVEAL THAT THE ASSESSEE HAS SEPARATELY MAINTAINED INVESTMENT ACCOUNT AND TR ADING PORTFOLIO, WHICH ALTOGETHER DIFFERENT. THE FACTUM OF RECEI PT OF FRESH LOANS OF RS.4.70 CRORES DURING THE YEAR, OUT OF WHICH, HE HA S IDENTIFIED ONLY A SUM OF RS.1.65 CRORE AS BEING UTILIZED FOR SHARE TR ADING AND NOT FOR INVESTMENT MADE IN SHARES. IN VIEW OF THESE FACTS AND RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA), WE CONFIRM THE ORDER OF CIT(A) WHO ALLOWED THE CLAIM O F THE ASSESSEE OF LONG TERM CAPITAL GAINS. APPEAL OF REVENUE ON THIS ISSUE IS DISMISSED. 5. THE SECOND ISSUE IS REGARDING DELETION OF ADDITI ON BY CIT(A) OF UNSECURED LOANS. BRIEF FACTS LEADING TO THIS ISSUE ARE THAT THE TOTAL LOANS 6 ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) TAKEN BY THE ASSESSEE WERE RS.4,17,15,103/- AND ACC ORDING TO ASSESSING OFFICER THE ASSESSEE COULD EXPLAIN THE GENUINENESS, CREDITWORTHINESS AND IDENTITY OF THE CREDIT TO THE EXTENT OF LOANS O F RS.3,90,07,458/-, BUT THE BALANCE WERE UNEXPLAINED CASH CREDITS OF RS.27, 07,645/-. ACCORDINGLY, HE ADDED THE SAME AS UNDISCLOSED INCOM E OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT . AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A), WHO DELETED THE ADDITION AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE BY OBSE RVING IN PARA 5.2 AS UNDER:- 5.2. I HAVE PERUSED THE ASSESSMENT ORDER AND WRIT TEN SUBMISSIONS OF THE APPELLANT. IT IS OBSERVED THAT THE EXTERNAL ENQUIRY CARRIED OUT BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 133(6) RESULTED IN CONFIRMATION BEING RECEIVED IN RESPECT OF 99% OF TH E UNSECURED LOANS. THE ASSESSING OFFICER HAS CARRIED OUT A STRANGE EXERCIS E BY TAKING THE CLOSING BALANCE AS ON 31.03.2008 AND THEREAFTER LESSING IT OPENING BALANCE AS ON 31.03.2007 TO WORK OUT OF INCREASE OF RS. 4,17,15,1 03/-. HE ASSUMED THAT THE LOAN AMOUNTS HAVE REMAINED CONSTANT THROUGHOUT THE YEAR I.E, NEITHER A LOAN HAS BEEN REPAID OR FRESH LOANS TAKEN. THIS ASS UMPTION HAS GOT NO BASIS. BY CARRYING OUT THIS EXERCISE, HE HAS BETRAYED A BA SIC LACK OF KNOWLEDGE OF ACCOUNTANCY. ON THE GIVEN FACTS AND CIRCUMSTANCES, THE AMOUNT OF RS. 27,07,645/- IS A FACTUALLY INCORRECT AMOUNT ARRIVED UNILATERALLY BY THE ASSESSING OFFICER. THE CONSOLIDATED STATEMENT PREPA RED BY THE ASSESSING OFFICER LACKS AUTHENTICITY AND THE ADDITION SO MADE IS ARBITRARY AND ONE SIDED. TO SUM UP, UNSECURED LOANS HAVE BEEN CONFIRM ED BY THE LOAN CREDITORS IN RESPONSE TO NOTICES U/S.133(6) SEND TO THEM AND THERE IS NOTHING ON RECORD TO SUGGEST THAT THEY ARE NOT GENUINE. THE ADDITION MADE IS, THEREFORE, DELETED. AGGRIEVED, REVENUE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS TAKEN LOANS FROM THE FOLLOWING PARTIES AS NOTED IN SCHEDULE-C OF THE AUDITED BALANCE SHEET:- 7 ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) I. RAMANI BROTHERS & SONS RS.66,83,334/- II. KAMLA JAGRANI RS.2,243/- III. DEEPAK KEWALRAMANI RS.61,811/- IV. KAYDEE HOLDING PVT. LTD. RS. 3,44,089/- V. SEVEN ESTABLISHMENT RS.3,80,359/- VI. PEE TEE TRADING PVT. LTD. RS.7,70,000/- VII. SUNIL P. KEWALRAMANI RS.1,87,458/- VIII. KANHIYALAL KEWALRAMANI RS.1,98,16,667/- IX. PERMANAND KEWALRAMANI RS.1,98,16,667/- X. WADHURAM KEWALRAMANI RS.1,98,16,667/- WE FIND FROM THE FACTS OF THE CASE THAT AMOUNT OF R S.27,07,645/- BEING ASSESSED AS UNEXPLAINED CASH CREDIT IS NOT PROPERLY CONSIDERED BY THE ASSESSING OFFICER BECAUSE THE AMOUNT OF RS.4,17,15, 103/- HAS BEEN ARRIVED AT BY CONSIDERING THE INCREASE IN THE LOANS AS PER BALANCE SHEET. WE FIND THAT THE ASSESSING OFFICER HAS MADE FACTUAL ERROR OF NOT CONSIDERING REPAYMENT TO THE PARTIES AND ALSO MISSE D OUT A SUM OF RS.77.00 LACS RECEIVED FROM ONE MR.PARMANAND KEWALR AMANI DURING THE YEAR, WHICH HAS ALREADY BEEN CONFRONTED TO THE ASSE SSING OFFICER UNDER SECTION 133(6) OF THE ACT BY THE PARTY. THE TOTAL OF THIS ERRONEOUS LOANS RECEIVED AND STATEMENT DRAWN BY THE ASSESSING OFFIC ER, WHICH WAS FACTUALLY INCORRECT WAS AT RS.3,90,07,458/-. WE FI ND THAT THE ASSESSING OFFICER HAS ONLY COMPILED THE CONSOLIDATED STATEMEN T FROM THE LEDGERS AND CONFIRMATION AVAILABLE ON RECORD. WE FURTHER F IND THAT ASSESSEE HAS GOT CONFIRMATION OF 99% OF UNSECURED LOANS AND SUBMITTED TO THE ASSESSING OFFICER UNDER SECTION 133(6) OF THE ACT. IN VIEW OF THE ABOVE FACTS AND FINDINGS RECORDED BY THE CIT(A), WE ARE O F THE VIEW THAT THE 8 ITA NO. 7927/MUM/2011 (ASSESSMENT YEAR : 2008-09) ORDER OF CIT(A) NEED NO INTERFERENCE AND HENCE THE SAME IS CONFIRMED. THIS ISSUE OF REVENUES APPEAL IS ALSO DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON /05/ 2 016. SD/- SD/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTNAT MEMBER JUDICIAL M EMBER MUMBAI, DATED 18/05/2016 VM , SR. PS 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