ACIT 5(1), MUMBAI V. PASHA FINANCE P. LTD, MUMBAI

ITA 8699/MUM/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9301 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2010
• Court: TRIBUNAL
• Department Lawyers: CIRCUMSTANCES OF CASE
• Keywords: Business income
• Section: 5(2); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI VK;DJ VIHYH; VF/KDJ.K] LH U;K;IHB EQACBZ BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER JH FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K ITA NO. 8699 /MUM/ 2010 ASSESSMENT YEAR: - 2007 - 08 DY. COMMISSIONER OF INCOME TAX, 5(2) R. NO. 571, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS.` M/S PASHA FINANCE PVT LTD. 3 - 3A, 32/34, CHURCHGATE HOUSE, VEER NARIMAN ROAD, MUMBAI 400 007. APPELLANT / VIHYKFKHZ RESPONDENT / IZR;FKHZ ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 13.10.2010 OF CIT(A) FOR A.Y. 2007 - 08. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL: - 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF EXPENSES U./S 14A TO RS. 18496/ - AS AGAINST RS. 3,57,705/ - DISALLOWED BY THE ASSESSING OFFICER IGNORING THE FACT THAT THE DISALLOW ANCE WAS COMPUTED IN ACCORDANCE WITH RULE 8D OF THE I.T. RULE. FOR WHICH THE ASSESSEE HIMSELF HAD NO OBJECTION. REVENUE BY / JKTLP DH VKSJ LS SHRI PREMANAND J. ASSESSEE BY / FU/KKZFJRH FD VKSJ LS NONE DATE OF HEARING 03.03.2015 DATE OF PRONOUNCEMENT 11 .03.2015 M/S PASHA FINANCE PVT LTD. 2 | P A G E 2. 'WHETHER ON THE FACT AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING OF PROFIT EARNED ON PURCHASE AND SALE OF SHARE OF MIS MARG CONSTRUCTION LTD. AS INCOME FROM 'LONG TERM CAPITAL GAINS' IGNORING THE FACT THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE CLEARLY AMOUNTS TO TRADING ACTIVITY AND NOT INVESTMENT ACTIVITY AND HENCE PROFIT EARNED IS TAXABLE AS 'BUSINESS IN COME'. 2. NONE HAS APPEARED ON BEHALF OF THE RESPONDENT ASSESSEE WHEN THIS APPEAL WAS CALLED FOR HEARING. WE NOTE THAT THE NOTICE ISSUED TO THE ASSESSEE WERE DULY SERVED AS PER THE ACKNOWLEDGEMENT ON RECORD. ACCORDINGLY, WE PROPOSE TO HEAR AND DISPOSE OFF THIS APPEAL EX PARTE 3. GROUND NO. 1 IS REGARDING DISALLOWANCE U/S 14A. THE ASSESSEE HAS RECECIVED THE DIVIDEND INCOME OF RS. 9,97,494/ - WHICH IS CLAIMED AS EXEMP U/S 10(34). THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS. 3,57,705/ - U/S 14A BY APPLYING RULE 8D OF THE INCOME TAX RULES. 4. ON APPEAL, THE CIT(A) HAS HELD THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND ACCORDINGLY RESTRICTED THE DISALLOWANCE TO RS. 18,497/ - . 5. WE HAVE HEARD THE LD. DR AND CONSIDERED THE RELEV ANT MATERIAL ON RECORD. THE ISSUE OF APPLICABILITY OF RULE 8D FOR THE A.Y, 2007 - 08 IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (328 ITR 81) . THE CIT(A) HAS DECIDED THE ISSUE OF DISALLOWANCE U/S 14A IN PARA 3.2 AS UNDER: - I HAVE VERIFIED THE FACTUAL POSITION AND ALOS GONE THROUGH THE SUBMISSION OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER OF THE ASSESSING OFFICER. IT IS OBSERVED THAT THE APPELLANT HAS DEBITED TO THE P&L ACCOUNT BY ADMINISTRATIVE AND OTHER EXPENDITURE OF RS. 18,496/ - ONLY, THEREFORE, DISALLOWANCE U/S 14A CANNOT BE MADE FOR MORE THAN RS. 18,496/ - . HENCE A M/S PASHA FINANCE PVT LTD. 3 | P A G E DISALLOWANCE MADE U/S 14A RESTRICTED TO 18,496/ - . ACCORDINGLY, THE APPELLANT GETS A RELIEF O F RS. 3,39,209/ - ( I.E. RS. 3,57,705/ - MINUS RS. 18,496). 6. AS IT IS CLEAR FROM THE FINDIN G OF CIT(A) THAT THE TOTAL EXPENDITURE ON ACCOUNT OF ADMINISTRATIVE AND OTHER EXPENSES DEBITED TO THE P&L ACCOUNT BY THE ASSESSEE IS RS. 18,496/ - AND, THEREFORE, W E DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) SO FAR AS THE GRIEVANCE OF THE REVENUE IS CONCERNED. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 7. GROUND NO. 2 IS REGARDING LONG TERM CAPITAL GAIN ON PRUCHASE AND SALE OF SH ARES ASSESSED BY THE ASSESSING OFFICER AS BUSINESS INCOME. DURING THE F.Y. 2005 - 06, THE ASSESSEE PURCHASED 6 LAKHS EQUITY SHARES OF M/S MARG CONSTRUCTION LTD AT RS. 15 PER SHARE MAKING THE TOTAL INVESTMENT AMOUNTING TO RS. 9 LAKH. THESE SHARES WERE ALLOTED TO THE ASSESSEE BY M/S MARG CONSTRUCTION LTD BY PREFERENTIAL ALLOTMENT BASIS, WHEREBY, THE CONDITION OF ALLOTMENT WAS THAT THE ASSESSEE CANNOT SALE/PLEDGE/HYPOTHECATE FOR ONE YEAR. IN OTHER WORDS, THE SAHRES HAVE A LOCK - IN - PERIOD OF ONE YEAR. SINCE THE A SSESSEE HAS ALSO SHOWN THE INCOME FROM TRADING IN SHARES, THEREFORE, THE ASSESSING OFFICER HAS HELD THAT THIS PARTICUALR TRANSACTION WAS ALSO ENTERED INTO WITH THE MOTIVE FOR EARNING THE PROFIT. THE SHARES IN QUESITON WERE ALLOTED TO THE ASSESSEE ON PREFE RENTIAL BASIS AND AT THE PRICE LESS THAN THE MARKET PRICE OF THE SHARES, THEREFORE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE ACQUIRED THESE SHARES UNDER THE PREFERENTIAL ARRANGEMENT WITH THE MOTIVE TO EARN PROFIT WITHIN SHORT PERIOD AND NOT TO DERIVE THE INCOME BY WAY OF DIVIDENT BY HOLDING THE INVESTMENT. 8. ON APPEAL, THE CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE BY TAKING INTO CONSIDERATION, THE FACT THAT THE ASSESSEE HAS MAINTAINED TWO SEPARATE PORTFOLIO OF SHARE IN QUESTION AND TH E SHARE IN QUESTION WERE SHOWN BY THE ASSESSEE AS SEPARATE INVESTMENT AND NO T AS STOCK IN TRADE, THEREFORE, WHEN THE M/S PASHA FINANCE PVT LTD. 4 | P A G E TRANSACTION OF ACQUIRING THE SHARE IS DELIVERY BASED AND THE HOLDING PERIOD IS MORE THAN ONE YEAR THEN THE CAPITAL GAIN ARISING FROM THE SA LE OF SHARES CANNOT BE HELD AS BUSINESS INCOME. 9. BEFORE US, THE LD. DR HAS HEAVILY RELIED UPON THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT ALLOTMENT OF THESE SHARES WERE MADE TO THE ASSESSEE AT A PRICE WHICH IS LOWER THAN THE PREVAILING MARKET PRICE, THEREFORE, THE ASSESSEE ACQUIRED THE SHARES WITH THE MOTIVE TO EARN THE PROFIT AND NOT TO EARN THE DIVIDEND INCOME. 10. WE HAVE HEARD THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE ARE NOT I N AGREEMENT WITH THE CONENTION OF THE LD. DR AS WELL AS THAT OF THE ASSESSING OFFICER THAT MERELY BECAUSE THE SHARES WERE ALLOTED TO THE ASSESSEE ON PREFERENTIAL BASIS AND AT A PRICE WHICH IS LESS THAN THE MARKET PRICE, THE CHARACTER OF TRANSACTION WILL BE TRADING IN NATURE AND NOT INVESTMENT. IT IS PERTINENT TO NOTE THAT THE FIRST CONDITION OF THE ALLOTMENT IS THAT THE SHARES IN QUESTION CANNOT BE SOLD/PLEDGED/HYPOTHECATED FOR AT LEAST ONE YEAR AND, THEREFORE, THE ASSESSEE AT THE TIME OF PURCHASING THE SHA RES WAS KNOWING FULLY WELL THAT IT HAS TO RETAIN OR HOLD THE SHARES IN QUESTION FOR AT LEAST ONE YEAR. THUS THE INTENTION AT THE TIME OF ACQUIRING THE SHARES WAS TO RETAIN THE SHARE AND TO RESALE IMMEDIATELY FOR EARNING THE PROFIT. FROM THE VERY FACT THAT THE SHARES WERE ALLOTED TO THE ASSESSEE ON PREFERENTIAL BASIS AND THERE WAS A LOCK - IN - PERIOD FOR AT LEAST ONE YEAR AND THE ASSESSEE HAS FINALLY SOLD THE SHARES AFTER THE GAP OF ABOUT TWO YEARS, CLEARLY ESTABLISHES THAT THE ASSESSEE TREATED THE SHARES IN Q UESTION AS INVESTMENT IN THE BALANCE SHEET RIGHT FROM THE FINANCIAL YEAR ENDING ON 31.03.2006 AND VALUED THEM AT COST. THEREFORE, THE INVESTMENT SHOWN BY THE ASSESSEE AS ON 31 ST MARCH 2006, CANNOT BE TREATED AS STOCK - IN - TRADE AT THE TIME OF SALE DURING THE YEAR UNDER CONSIDERATION. M/S PASHA FINANCE PVT LTD. 5 | P A G E ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) QUA THIS ISSUE AND THE SAME IS UPHELD. 11. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUCNED IN THE OPEN COURT ON THIS 11 TH DAY OF MARCH 2015 VKNS'K DH ?KKS'K.KK [KQYS U;K;KY; ES FNUKAD 11 EKPZ 2015 DKS DH XBZA SD/ - SD/ - ( RAJENDRA ) (VIJAY PAL RAO) ( ACCOUNTANT MEMBER / YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; ) MUMBAI DATED . 03.2015 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI