1 ITA No.3435/Del/2010
Asstt. Year: 2006-07
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `C' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.3435/Del/2010
Assessment Year : 2006-07
Income Tax Officer, vs M/s HGI Finance & Leasing Ward Ltd.
12(4), New Delhi. 1512-A, Chiranjiv Tower, 43, Nehru
Place,
New Delhi-110019
(Appellant) (Respondent)
Appellant by: Shri Divender Singh, Sr.DR
Respondent by : Shri Sanjiv Sapra
ORDER
PER CHANDRAMOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the Revenue against the order of
Commissioner of Income Tax(A)-XV, New Delhi dated 17.05.2010 for A.Y. 2006-
07.
2. The grounds raised in this appeal read as under:-
"1. On the facts and in the circumstances of the
case, the ld. CIT(A) has erred in directing the
Assessing Officer to treat the income of
Rs.31,70,049/- as income under the head Capital
Gains instead of income from business without
appreciating the fact that the assessee was involved in
frequent trading of shares and no separate books of
accounts were maintained.
2 ITA No.3435/Del/2010
Asstt. Year: 2006-07
2. On the facts and in the circumstances of the case, the ld.
CIT(A) has erred in holding that since the assessee
holding the shares under the category of investment and
hence the income arising is to be treated as income from
Capital Gains is contrary to the intention of the assessee.
The assessee's intention was to gain profits from trading
of shares and not by investing in it. the supreme court in
the case of Reserve Bank of India vs Peerless General
Finance and Investment Co. Ltd. (1987) 61 Comp Case
663, observed: "Interpretation must depend on the text
and the context. They are the basis of interpretation...."
3. On the facts and in the circumstances of the case, the ld.
CIT(A) has erred in directing the AO to assess
Rs.31,70,049 as income under the head capital gains
without appreciating the guidelines issued by the CBDT
and legal position settled by various courts including the
Apex Court of India.
4. On the facts and in the circumstances of the case, the ld.
CIT(A) has failed to appreciate that the assessee in
claiming expenses to the tune of Rs.22,28,392/- without
any business other than trading of the shares. Still the
assessee is claiming the same as capital gains.
5. On the facts and in the circumstances of the case, the ld.
CIT(A) has erred in allowing the deduction of
Rs.1,57,197/- u/s 35D without appreciating the fact that
the assessee failed to justify and to provide details of these
expenses."
3. Briefly stated, the facts of the case giving rise to this appeal are that before the
authorities below it was not in dispute that the appellant assessee company was
registered as Non-Banking Financial Co.(NBFC) and such registration continued
3 ITA No.3435/Del/2010
Asstt. Year: 2006-07
to be valid during the year under consideration. As per the auditor's report filed
before the Assessing Officer during the course of assessment, a note of business
expertise of the assessee company was given. As per the same note, the assessee
company was incorporated on 9/11/1992 as a private limited company which was
later converted into a public limited company w.e.f. 27.3.1995. Since then the
main business activity pursued by the company included:
i) Investment in shares, debentures, securities and government
securities etc.
ii) Inter corporate Deposits (ICDs) and short term financing
iii) Leasing activities and Hire Purchase activities
iv) To acquire infrastructure facilities
Meaning thereby that the company had continued to carry out only those activities
including investment activities which were permitted by RBI for an NBFC
company.
4. The assessee company filed a return declaring an income of Rs.4,63,845/-
which was processed u/s 143(1) of the Income Tax Act, 1961(hereinafter referred
to as the Act). The case of the assessee was selected for scrutiny through CASS
and statutory notices were issued and duly served on the assessee company. After
due discussion with assessee's representative, the Assessing Officer held that the
assessee deliberately showed its transaction of shares as an investment and
4 ITA No.3435/Del/2010
Asstt. Year: 2006-07
proposed to be taxed under the head of capital gain which was factually and
conceptually incorrect and rejecting the submissions of assessee, the Assessing
Officer treated the income of Rs. 31,70,049 as business income earned from sale
and purchase of shares.
5. The Assessing Officer also held that during the year under consideration, the
assessee earned dividend income of Rs.4,10,936 as an exempted income. When
the assessee was asked to furnish details in respect of expenses attributed to the
exempt income under the head dividend income, the assessee submitted a working
statement showing disallowance of expenditure u/s 14A of the Act in accordance
with Rule 8D of the Income Tax Rules 1962 at Rs. 1,62,607. The Assessing
Officer held that as the CBDT has laid down method of calculation of expenses
attributed to exempt income in Rule 8D of the Rules, therefore, the Assessing
Officer disallowed the above expenditure u/s 14A of the Act.
6. The Assessing Officer also noted that the assessee had claimed preliminary
and other miscellaneous expenditure of Rs.1,57,197/-. After considering the reply,
the Assessing Officer held that as the assessee failed to explain miscellaneous
expenses for which amortization u/s 35D of the Act was claimed, the Assessing
Officer disallowed the same and added to the income of the assessee.
7. The aggrieved assessee filed an appeal before the Commissioner of Income
Tax(A) which was partly allowed. Ld. Commissioner of Income Tax(A) held that
5 ITA No.3435/Del/2010
Asstt. Year: 2006-07
the income has been derived from the sale of investment which has been duly
reflected in the accounts of the assessee under the head of investment. The
Commissioner of Income Tax(A) also held that the assessee was consistently
following the practice of holding some shares as stock-in-trade and some shares as
investment and both are reflected separately in the final accounts of the assessee.
Accordingly, the profit and sale of such shares shown as investment has to be
assessed as capital gain. Accordingly, the Commissioner of Income Tax(A)
allowed this ground of appeal in favour of the assessee.
8. The Commissioner of Income Tax(A) also considered the ground pertaining
to disallowance of Rs.1,57,197 as amortization of 1/10th expenses as claimed by
the assessee in earlier nine years consistently. Accordingly, the Commissioner of
Income Tax(A) following the principle of consistency as laid down by Hon'ble
Supreme Court in the case of Berger Paints India Ltd. vs Commissioner of
Income Tax(2004) 266 ITR 99(SC) and in the case of Commissioner of Income
Tax vs J.K. Charitable Trust (2009) 1SCC 196 held that once a similar
proposition has been accepted by the revenue in respect of earlier assessment year,
it is not open to the revenue to deviate from its earlier stand and to challenge that
finding. Consequently, the Commissioner of Income Tax(A) also allowed this
ground of appeal of the assessee and deleted the addition. Aggrieved the revenue
is in appeal before us.
6 ITA No.3435/Del/2010
Asstt. Year: 2006-07
Grounds no. 1 to 3
9. We have heard the rival arguments of both the parties in the light of material
placed before us. The ld. DR submitted that the action of the Assessing Officer
was justified and as per principles laid down by Hon'ble Apex Court and High
Court but the Commissioner of Income Tax(A) failed to appreciate the facts and
circumstances of the case in accordance with law and citations before him. The
DR further submitted that the Commissioner of Income Tax(A) was not justified in
directing the Assessing Officer to treat the income of Rs.31,70,049 as income
under the head capital gains instead of income from business without appreciating
the fact that the assessee company was involved in frequent trading of shares and
no separate books of accounts were maintained for shares in stock-in-trade and
shares as investment. He also submitted that the Commissioner of Income Tax(A)
was not justified in holding that the assessee company held the shares under the
category of investment, therefore, the income arising from investment was to be
treated as income from capital gains which was contrary to the intention of the
assessee. The DR vehemently submitted that the intention of the assessee
company was to earn profits from trading of shares and not by investing in it.
Therefore, the Commissioner of Income Tax(A) grossly erred in directing the
Assessing Officer to assess income of Rs.31,70,049 under the head of capital
7 ITA No.3435/Del/2010
Asstt. Year: 2006-07
gains, ignoring the guidelines issued by CBDT and legal position settled by
Hon'ble Supreme Court and Hon'ble High Court.
10. The assessee's representative supported the impugned order and replied that
the contentions of ld. DR are baseless and imaginary. Per contra the ld.
Commissioner of Income Tax(A) rightly appreciated the facts and circumstances
of the case and also properly considered the submissions and documents submitted
before him and the ld. Commissioner of Income Tax(A) rightly held that income
shown by the assessee company had arisen from the shares kept by the assessee
company as investment and not as stock-in-trade. The AR also submitted that the
assessee company has a right to keep two separate portfolios of shares: i) as
investment ii) as stock-in-trade. Therefore, if the profit shown by the assessee is
related to the investment shares, then the profits or income from investment would
be considered for tax under the head `capital gains'.
11. On bare reading of the impugned order, we observe that the ld.
Commissioner of Income Tax(A) considering the evidence, submissions and
citations placed before him finally held that the balance sheet of the assessee
reflected some shares as stock-in-trade and some shares as investment, then profit
on sale of investment shares deserves to be assessed as capital gain. The relevant
operating paras of impugned order are being reproduced as under:-
"I have carefully considered the facts of the case, order
of the AO and submissions made by the AR. The central
8 ITA No.3435/Del/2010
Asstt. Year: 2006-07
point of dispute in this ground of appeal is regarding the
head of income under which the profit earned on sale of
shares/mutual funds is taxable. The appellant has
vehemently claimed that as per the policy of the
company, the appellant had certain share portfolio under
the category of investments on which long term and short
term capital gains have been disclosed as capital gains.
On the other hand the AO is of the view that the entire
income earned by the appellant on sale of shares is
taxable as business income.
After considering the rival submissions and
various case laws quoted by the AO as well as relied
upon by the AR, I am of the considered view that in the
facts and circumstances of the instant case the view taken
by the AO does not appear correct. It is seen from the
record of the appellant that the appellant company had
distinct portfolio of shares under the category of
investments. The contention of the AR, that it is not open
for the AO summarily reject the decisions of the Board of
Directors of the company as it is their prerogative to
decide as to whether the company would earn income
under the head capital gains or business income from
sale of shares, also appears correct. In the instant case
during the last few years too, the appellant company had
followed the same practice of holding all shares under
the head investments. The appellant has never held any
share as stock in trade either during the year or for the
past 5 years. It is also seen that for A.Y. 01-02, 04-05,
05-06 when the appellant was assessed u/s 143(3) the
appellant's contention that the income derived from the
sale of investments was to be taxed as capital gain and
not business income has been regularly accepted by the
Department. The Hon'ble Mumbai High Court in the case
of CIT Vs Gopal Purohit ITA No. 1121 of 2009 vide
order dated 06.01.2010 has held as under:
"2. The Tribunal has entered a pure finding of fact that the
assessee was engaged in two different types of
transactions. The first set of transactions involved
9 ITA No.3435/Del/2010
Asstt. Year: 2006-07
investment in shares. The second set of transactions
involved dealing in shares for the purposes of business
(described in paragraph 8.3 of the judgment of the
Tribunal as transactions purely of jobbing without
delivery). The Tribunal has correctly applied the principle
of law in accepting the position that it is open to an
assessee to maintain two separate port folios, one relating
to investment in shares and another relating to business
activities involving dealing in shares. The Tribunal held
that the delivery based transactions in the present case,
should be treated as those in the nature of investment
transactions and the profit received therefrom should be
treated either as short term or, as the case may be, long
term capital gain, depending upon the period of the
holding. A finding of fact has been arrived at by the
Tribunal as regards the existence of two distinct types of
transactions namely, those by way of investment on one
hand and those for the purposes of business on the other
hand. Question (a) above, does not raise any substantial
question of law".
The Hon'ble ITAT Mumbai in the case of J.M. Shares and
Stock Brokers Ltd. Vs JCIT ITA No. 2801 I Mum.l2000 has
held that where the assessee was consistently following the
practice of holding some shares as stock in trade and other
shares as investment and if they were being reflected in the
balance sheet of the assessee as investment then the profit
on sale of such shares has to be assessed as capital gain.
In view of the discussion above and considering the fact
that the income has been derived from the sale of investments
which have been duly reflected in the accounts under the head
investments, and the judicial decisions on the subject, and
following the principle of judicial consistency as laid down by
the Hon'ble Supreme Court in the case of Berger Paints India
Ltd. Vs CIT 266 ITR 99, the action of the AO in treating the
entire income as business income is not justified, hence
addition made by him on this account is deleted. This ground
of appeal is allowed."
10 ITA No.3435/Del/2010
Asstt. Year: 2006-07
12. At the outset, we observe that ld. Commissioner of Income Tax(A) relied on
the judgment of Hon'ble Supreme Court in the case of Burger Paints India Ltd.
(supra) wherein their Lordships held that if the decision in the case of one
assessee has been accepted by the revenue and never challenged the correctness,
then it is not open to the revenue to challenge the same judgment in the case of
other assessee without making a `just case'.
13. From the impugned order, we also observe that the ld. Commissioner of
Income Tax(A) also relied on the judgement of Hon'ble Supreme Court in the
case of Commissioner of Income Tax(Central), Calcutta vs Associated
Industrial Development Co.(P) Ltd. reported as (1971) 82 ITR 586 (SC)
wherein their Lordships held as under:-
"Whether a particular holding of shares is by way of
investment or forms part of the stock-in-trade is a matter
which is within the knowledge of the assessee who holds
the shares and he should, in normal circumstances, be in
a position to produce evidence from his records as to
whether he has maintained any distinction between those
shares which are his stock-in-trade and those which are
held by way of investment."
14. Ld. Commissioner of Income Tax(A) also followed the principle laid down
by Hon'ble Punjab & Haryana High Court in the case of Commissioner of
Income Tax vs Girish Mohan reported as (2003) 260 ITR 417(P&H) wherein
their lordships held that on consideration of entire material on record, if the
11 ITA No.3435/Del/2010
Asstt. Year: 2006-07
authorities below had found that the shares held by the assessee were by way of
investment only and he was not dealing in them, then the profit from sales of such
shares in the assessment year under consideration was assessable as capital gains.
In the judgement, the Hon'ble Punjab & Haryana High Court considered the
judgement of Hon'ble Apex Court in the case of Commissioner of Income Tax
vs H.Holck Larsen (1986) 160 ITR 67 (SC) wherein the Hon'ble Apex Court
held as under:-
"In order to determine whether one was a dealer
in shares or an investor, the real question was not
whether the transaction of buying and selling the shares
lacks the element of trading, but whether the later stages
of the whole operation show that the first step-the
purchase of the shares-was not taken as, or in the course
of, a trading transaction. The totality of all the facts will
have to be borne in mind and the correct legal principles
applied to these. If all the relevant factors have been
taken into consideration and there has been no
misapplication of the principles of law, then the
conclusion arrived at by the Tribunal cannot be
interfered with because the inference is a question of law,
if such an inference was a possible one, subject, however,
that all the relevant factors have been duly weighed and
considered by the Tribunal, the inference reached by the
Tribunal should not be interfered with."
15. The assessee's representative submitted a copy of submissions made before
the Assessing Officer in the proceedings u/s 143(3) of the Act where the assessee
submitted the list of shares kept as investment by the assessee during the year
under consideration which clearly shows the intention of the assessee company that
12 ITA No.3435/Del/2010
Asstt. Year: 2006-07
the shares as shown in the list has been kept by the assessee for the purpose of
investment and profit arising from them deserves to be assessed under the head of
capital gain. Accordingly, we are unable to see any infirmity or perversity in the
impugned order in this regard. Therefore, these grounds of appeal are not
sustainable and hence we dismiss the same.
Ground no. 4
16. On bare reading of the orders of the authorities below, we are unable to
see any issue as mentioned in ground no.4. Therefore, we observe that ground
no. 4 is irrelevant which needs no adjudication and we dismiss the same.
Ground No.5
17. Ld. DR submitted that the Commissioner of Income Tax(A) deleted the
addition of Rs.1,57,197 on baseless grounds. The DR supported the action of the
Assessing Officer by submitting that the assessee company failed to explain
miscellaneous expenditure from which 1/10th of amortization was claimed.
Therefore, the Assessing Officer rightly disallowed this claim of the assessee
and added to the income of the assessee.
18. The assessee's representative contended that as per principle of consistency
laid down by Hon'ble Supreme Court in the case of Berger Paints India ltd. (supra)
and J.K. Charitable Trust (supra), when once similar proposition has been accepted
by the revenue in respect of previous assessment year, then it is not open to the
13 ITA No.3435/Del/2010
Asstt. Year: 2006-07
revenue to challenge a similar finding and to deviate from its earlier stand. The
AR supported the impugned order and finally submitted that the appeal of the
revenue is baseless and misconceived.
19. For the sake of clarity in the findings, we find it just and proper to reproduce
the findings of the ld. Commissioner of Income Tax(A) as below:-
" Ground no. 2 is regarding the disallowance made
by the AO of Rs. 157197/- which was claimed by the
appellant u/s 350 of the 1.1. Act, while making the above
disallowance the AO has observed as under:
"It is also observed that the assessee claimed preliminary
& other miscellaneous of Rs. 157197/-. The AR of the
assessee was asked to furnish the reason for claiming of
this expenses alongwith nature and justification. The AR of
the assessee vide letter dated 07.11.2008 that misc.
expenses were incurred in earlier year and during the year
on 1/10 of such expenses has been amortized in
accordance with section 350 of the 1.1. Act, 1961. The
submissions of the assessee was considered and found on
substance as assessee failed to explain of misc. expenses
which amortized u/s 350 as all expenses u/s 350 can not be
allowed to be amortized. In these circumstances the
expenses claimed by assessee on account of preliminary
and misc. expenses amounting to Rs. 157197/- are
disallowed and added to the income of the assessee.
During the course of appellate proceedings the appellant
had submitted misc. expenditure of Rs. 15,71,970/- was
incurred in earlier years and accordingly, 1/10th of such
expenses have been amortized over the years in
accordance with section 350 of the 1.1. Act. In fact, the
year under consideration was the last year of such
amortization and accordingly, Rs. 1,57,197/- being 1/10th
of such expenditure deserved to be allowed u/s 350 as had
been accepted in the past 9 years by the Income-tax Dept.
14 ITA No.3435/Del/2010
Asstt. Year: 2006-07
These expenses were incurred in financial year 1996-97 in
connection with the public issue of the appellant Co. and
were therefore deductible over 10 years u/s 35D.
It has been further submitted that during the year
under consideration, there was no change in the facts and
circumstances of the case when compared with earlier 9
years and neither the AO has brought on record any new
fact for justifying the denial of such deduction u/s 350 of
the 1.1. Act. Hence, Rule of consistency does apply to the
facts of this case for which reliance is placed on the case
laws in the case of Berger Paints Vs CIT 266 ITR 99 (SC),
Radhasoami Satsand Vs CIT 193 ITR 321 (SC).
"It has, therefore, been submitted that the
disallowance of Rs.1,57,197/- as made may kindly be
deleted."
20. After careful consideration of submissions of both the parties and findings of
ld. Commissioner of Income Tax(A), we observe that this point has not been
disputed by the revenue that the appellant company had incurred expenditure of
Rs.15,71,970 in the financial year 1996-97 in connection with the public issue of
the appellant company and these expenses had been amortized by the assessee by
way of claiming deduction of 1/10th of expenditure every year. Ld. DR also did
not dispute the fact that the above deduction was allowed to the assessee in the
preceding nine years and no disallowance was made by the department in these
earlier years. From the assessment order, we observe that the AO has not brought
any fact on record to show that these expenses are not allowable. The Assessing
Officer simply mentioned that the assessee failed to explain miscellaneous
15 ITA No.3435/Del/2010
Asstt. Year: 2006-07
expenses for which amortization of 1/10th part u/s 35D has been claimed. There is
no detailed discussion or finding regarding allowability of this claim in the earlier
nine years to the assessee. Accordingly, we are inclined to hold that the action of
the Assessing Officer and its finding were baseless and which were rightly
corrected by ld. Commissioner of Income Tax(A) following the well-accepted
principle of consistency. Therefore, we have no reason to interfere with the
findings of the ld. Commissioner of Income Tax(A) in this regard. In view of
above, ground no. 5 of the Revenue is also dismissed.
21. In the light of findings hereinabove, we arrive to the conclusion that this
appeal by the revenue is devoid of merit and deserves to be dismissed and we
dismiss the same.
22. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 28.08.2012
Sd/- Sd/-
(G.D. AGRAWAL) (CHANDRAMOHAN GARG)
VICE PRESIDENT JUDICIAL MEMBER
DT. 28th AUGUST 2012
`GS'
16 ITA No.3435/Del/2010
Asstt. Year: 2006-07
Copy forwarded to:-
1. Appellant
2. Respondent
3. CIT(A)
4. CIT 5. DR By order
Asstt. Registrar
|
