Income Tax Appellate Tribunal - Delhi
Gda Finvest Trade (P) Ltd., New Delhi vs Department Of Income Tax on 15 January, 2016
ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
I.T.A. No. 2019/Del/2013
A.Y. : 2006-07
DEPUTY COMMISSIONER OF M/S GDA FINVEST & TRADE
INCOME TAX, VS. PVT. LTD.,
CENTRA CIRCLE 13, ASSAM TIMBER MARKET,
ROOM NO. 332, ARA CENTRE, SWARN PARK,
JHANDEWALAN EXTN., NEW MUNDKA, NEW DELHI -29
DELHI (PAN:AAACG4200D)
(APPELLANT) (RESPONDENT)
&
C.O. 321/DEL/2014
(IN ITA NO. 2019/DEL/2013)
A.Y. : 2006-07
M/S GDA FINVEST & TRADE PVT. DEPUTY COMMISSIONER OF
LTD., VS. INCOME TAX,
ASSAM TIMBER MARKET, SWARN CENTRA CIRCLE 13,
PARK, ROOM NO. 332, ARA CENTRE,
MUNDKA, NEW DELHI -28 JHANDEWALAN EXTN., NEW
(PAN:AAACG4200D) DELHI
(APPELLANT) (RESPONDENT)
Department by : Sh. A.K. SAROHA, CIT(DR)
Assessee by : Sh. VED JAIN, ADV.
Date of Hearing : 11-12-2015
Date of Order : 15-01-2016
ORDER
PER H.S. SIDHU : JM The Revenue has filed the Appeal and Assessee has filed the Cross Objection against the impugned Order passed by the Ld. CIT(A)-I dated 09.01.2013 relevant for the assessment year 2006-07.
2. The grounds raised in the Revenue's Appeal read as under:-
1ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014 "1. The order of the Ld. CIT(A) is not correct in law and facts.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in directing the AO to treat the income of Rs. 95,92,653/- as STCG against business income assessed by AO.
3. On the facts and circumstances of the case the ld. CIT(A) has erred in law in directing the AO to charge the amount of Rs.
90,180/- as Short Term Capital Gain under the head 'Capital Gains' and not under the head 'Income from Business income' whereas the amount of addition was Rs. 95,92,653/-.
4. The appellant craves leave to add, amend an\y / all the grounds of appeal before or during the course of hearing of the appeal."
3. The grounds raised in the Assessee's Cross Objection read as under:-
1. On the facts and circumstances of the case, Ld Commissioner of Income Tax (Appeals) [CIT(A)] has erred both on facts & in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A and order passed by the learned Assessing Officer (AO) under Section 153A/143(3) is without jurisdiction.
2. On the facts and circumstances of the case, Ld Commissioner of Income Tax (Appeals) [CIT(A)] has erred both on facts & in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A are bad in law in the absence of any incriminating material belonging to the assessee being found during the course of the search.
3. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in ignoring the fact that the additions made by the AO are otherwise untenable since the same is not arising from the any incriminating material seized during the course of search and reassessment under Section 2 ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014 153A/153A consequent to search is to be confined only to the incriminating material belonging to the assessee found during the course of the search.
4. On the facts and circumstances of the case, Ld Commissioner of Income Tax (Appeals) [CIT(A)] has erred both on facts & in law in rejecting the contention of the assessee that the order passed by the learned AO under Section 153A is bad and liable to be quashed as the same has been framed consequent to a search which itself was unlawful and invalid in the eye of law.
5 (i) On the facts and circumstances of the case, Ld Commissioner of Income Tax (Appeals) [CIT(A)] has erred both on facts & in law in making addition of Rs. 62,817/-
invoking the provisions of Sec 14A of the Act.
(ii) That the addition has been arbitrarily estimating the expenses related to exempt Income.
6. The respondent craves leave to add, amend or alter any of the grounds of cross objections.
4. The brief facts of the case are that the a search and seizure operation was initiated u/s. 132 in the Swastik Pipes Group of cases on 28.8.2008. The assessee company was covered in the search. Notice u/s. 153A was issued on 25.8.2010 and served. In response to the said notice, the assessee filed the return of income on 20.9.2010 declaring total income of Rs. 95,34,323/-. Notice was issued u/s. 143(2) on 20.9.2010 and u/s. 142(1) on 30.9.2010. These notices were duly complied with, and necessary details / clarifications were filed. The AO has completed the assessment at an income of Rs.99,74,084/- as against returned income of Rs.95,34,323/-. The assessee during the year has earned long term capital gain of Rs.14,27,860/- and short term capital gain of Rs.95,92,653/-. The AO held that the short term capital gain is a business income and has assessed it accordingly. The AO made certain 3 ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014 other additions/disallowances vide order dated 28.12.2010 passed u/s. 143A r.w.s. 143(3) of the I.T. Act, 1961
5. Aggrieved with the aforesaid order of the AO, the assessee filed appeal before the Ld. CIT(A) challenging the assessment completed under section 153A read with section 143(3) of the Act on the legal ground as well as various additions/disallowances made by the AO. The CIT(A) vide order dated 9.1.2013 rejected the legal contentions raised by the assessee. However, on merit the CIT(A) gave partial relief to the assessee.
6. Against the order of the learned CIT(A) the Revenue is in appeal before the Tribunal and assessee has filed cross objection. During the course of hearing the assessee did not press the cross objection filed by it raising legal ground. Accordingly the same is dismissed as not pressed.
7. The issue in all the four grounds of appeal is one only i.e. regarding taxation of short term capital gain as business income. It was submitted by the learned DR that the AO has rightly assessed the income of Rs.95,92,653/- as business income and the learned CIT(A) has erred in directing the AO to assess the same as short term capital gain. It was further submitted by him that in the assessee's Memorandum & Articles of Association in the object clause it has been stated that its business is investment in shares and debentures and hence the AO was right in assessing income arising from the investment in shares as business income. It was further submitted that AO has given cogent reasons for treating short term capital gain as business income.
8. On the contrary, the Ld. Counsel of the Assessee contended that the action of the AO was not justified. He stated that the assessee during the year has earned a total capital gain of Rs.1,10,20,860/- which included long term capital gain of Rs.14,27,860/- and short term capital gain of Rs.95,92,653/-. He further stated that the AO has accepted the 4 ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014 long term capital gain as is evident from the assessment order but has not accepted the short term capital gain and has treated the same as business income though both short and long term capital gain has arisen from investment in shares only. The learned Counsel of the Assessee invited our attention to the details of these capital gain placed at PB Page 83 in support of his contention that there were very few transaction as is evident from the details. The assessee all along has been holding investment in shares and has been declaring so. In this regard attention was also invited to the balance sheet of the earlier years whereby investments in shares has always been declared as investment. It was also stated by him that there are no frequent transactions. There is no organized activity. The assessee's main business is that of financing from which it has earned interest income and that has been rightly declared as business income and there is no trading activity of shares.
9. As regards the object clause of the Memorandum of Association it was submitted by the Ld. Counsel of the Assessee that under the Companies Act even for making investment the Memorandum & Articles of Association needs to have a clause permitting investment in shares. Further there is no bar. A trader can also make investment in shares and can have two portfolios. In support thereof, he placed reliance on the Order of the ITAT in the case of ACIT vs. Ascot Investments, ITA No. 4691/Del/2011 dated 27.04.2015 and Omkareshwar Properties (P) Ltd. vs. ITO, ITA No. 5754/Del/2013 dated 23.10.2015.
10. We have heard both the parties and perused the paper book, assessment order and the order of the Ld. IT(A). In the Revenue's appeal, though it has raised four grounds of appeal but the only issue is treatment of income of Rs.95,92,653/- as short term capital gain against business income though in ground no.3 the Revenue has stated that the learned CIT(A) has mentioned the amount of Rs.90,180/- as short term capital gain instead of Rs.95,92,653/-. During the course of the hearing 5 ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014 both learned AR and learned DR clarified that this is a typographical error and the correct amount is Rs.95,92,653/- which the AO has assessed as business income and the learned CIT(A) has directed to assess the same as short term capital gain.
11. It is an admitted fact that the assessee during the year has earned long term capital gain of Rs.14,27,860/-. This long term capital gain has been accepted by the AO and whereas the short term capital gain has been assessed as business income. From the assessment order, we find that no reason has been given by the AO to treat these two differently. From the balance sheet of the assessee company of this year and also earlier years it is evident that all along the assessee has been making investment in shares and the same have been declared as investment. These transactions have been accounted for in the books of account as investment. The dividend earned on such investment has been declared separately. From the details filed by the assessee and available on record we note that there are no multiple transactions. The assessee has made investment and after a period of time the same have been sold. Depending upon the period of holding the gain arising thereon have been declared as long term capital gain and short term capital gain. From the details it is also evident that there are only few scripts in which assessee has made investment. There are no repeated transactions in the same script. There does not appear to be any organized activities as is normal in the case of a trader. There is no intra-day transaction.
12. The AO has referred to the Memorandum & Articles of Association to support its allegation that investment in scripts is the business of the assessee. We are of the view that this cannot be the basis for holding that the gain arising during the year is business income and not capital gain because the Memorandum of Association has an object of investment in equity shares, preference shares and debentures. Firstly even if such object is there in the Memorandum of Association i.e. to carry on the 6 ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014 investment in shares, it does not debar a company from holding shares as a capital asset. A company is entitled to carry on the business in shares as well as to hold shares as investment. The gain arising on shares held as investment will be chargeable as capital gain whereas the gain arising on sale of shares held as stock in trade as business income. This issue has come up before the ITAT in the case of Omkareshwar Properties (P) Ltd. vs. ITO (Supra) where it was held that if the assessee though having object clause of carrying on the business of real estate in the Memorandum & Articles of Association, the land held as capital asset will not become stock in trade merely because the Memorandum & Articles of Association has an object clause to carry on the business of real estate.
13. An income has to be assessed under a proper head as per the provisions of the Income Tax Act. As per Section 45(1) of the Act, any gain arising on transfer of a capital asset is to be taxed as capital gain. Further section 2(14) define capital asset to mean property of any kind held by an assessee whether or not earmarked for his business or profession, but does not include any stock in trade, consumable stores or raw material held for the purpose of business. Thus the gain arising on capital asset falling within the meaning as defined in Section 2(14) is to be charged as capital gain.
14. In the present case as is evident from the facts on record, the investments in shares were held as capital asset. The assessee has accounted for these investments in shares as capital asset in its books of accounts. The same has also been declared in the financial statements as capital asset. These financialstatements have been audited and also have been approved by the shareholders filed with the Registrar of Companies. The books of accounts and the audited financial statements have evidentially value and what is recorded therein cannot be disturbed lightly. The income arising on sale of capital asset, as stated hereinabove, has to be assessed under section 45(1) as capital gain and 7 ITA NO. 2019/Del/2013 & CO NO. 321/DEL/2014 accordingly the CIT(A) was right in holding that gain arising on sale of investment will be chargeable as capital gain and not as business income.
15. In the background of the aforesaid discussions and precedent, we are of the view that Ld. CIT(A) has passed a well reasoned order which does not need any interference on our part, hence, we uphold the same. Accordingly, the appeal of the Revenue is also dismissed.
16. In the result, the appeal filed by the Revenue and the Cross Objection filed by the Assessee stand dismissed.
Order pronounced in the Open Court on 15/01/2016.
Sd/- Sd/-
[O.P. KANT] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 15/1/2016
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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