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Income Tax Officer,12(4), New Delhi. vs M/s HGI Finance & Leasing Ward Ltd. 1512-A, Chiranjiv Tower, 43, Nehru
August, 30th 2012
                                         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
 
 
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