Income Tax Appellate Tribunal - Kolkata
Surya Kant Dalmia, Kolkata vs Department Of Income Tax
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IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'A' BENCH, KOLKATA
Bef ore Shri K.K. Gupta (Accountant Member ),
and Shri George Mathan (Judicial Member)
I.T.A. No. 1140 / Kol. / 200 9
Asse ssment yea r : 20 06-07
Sh ri Surya Kan t Dal mia,................................................Appella nt
2/3, Sarat Bose Road,
Kolka ta-700 020
[PAN : ADG PD 0822 J]
-Vs.-
Additio nal Commi ssion er of Incom e Tax,......................R espo nd ent
Range-31, Kolka ta,
10B, Middleton Row, 4 t h floo r,
Kolka ta-700 071
&
I. T.A. No. 1216 /Kol./2009
Asse ssment Yea r : 2006-07
Assistan t Commissi one r of Income Tax,.......................App ellant
Circl e-31, Kolkata
-vs.-
Sh ri Surya Kan t Dal mia,...........................................R espo nd ent
2/3, Sarat Bose Road,
Kolka ta-700 020
[PAN : ADG PD 0822 J]
&
I.T.A. No . 124 7/ Kol. / 2010)
Asse ssment yea r : 2007-08
Sh ri Surya Kan t Dal mia,...........................................Appell an t
2/3, Sarat Bose Road,
Kolka ta-700 020
[PAN : ADG PD 0822 J]
-Vs.-
Additio nal Commi ssion er of Incom e Tax,..................R espo nd ent
Range-31, Kolka ta,
10B, Middleton Row, 4 t h floo r,
Kolka ta-700 071
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Page 2 of 12
&
I.T.A. No. 1282 / Kol. / 201 0
Asse ssment yea r : 2007-08
Assistan t Commissi one r of Income Tax,....................App ellant
Circl e-31, Kolkata
-vs.-
Sh ri Surya Kan t Dal mia,.........................................R espo ndent
2/3, Sarat Bose Road,
Kolka ta-700 020
[PAN : ADG PD 0822 J]
Appearances by:
Shri R.N. Bajoria and Shri A.K. Gupta, for the assessee
Shri K.K. Das, JCIT, Sr. D.R. , f or th e Dep art ment
Date of co ncluding t he hea ri ng : May 2 1, 20 13
Date of prono unci ng the o rde r : Ma y 21, 2013
O R D E R
Per George Mathan :
I.T.A. 1216/Kol./2009 is an appeal filed by the revenue and I.T.A. 1140/Kol./2009 is an appeal filed by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-XIX, Kolkata in Appeal No. 325/CIT(A)-XIX /Addl. CIT, Range-31, Kol/08-09 dated 08.05.2009 for the assessment year 2006-07.
I.T.A. 1282/Kol./2010 is an appeal filed by the Revenue and I.T.A.1247/Kol./2010 is an appeal filed by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-XIX, Kolkata in Appeal No.114/CIT-XIX(A)/Addl.CIT,R-31/09-10 dated 30.04. 2010 for the assessment year 2007-08.
2. Shri R.N. Bajoria, Sr. Advocate alongwith Shri A.K. Gupta, FCA represented on behalf of the assessee and Shri K.K. Das, ld. Dr. D.R. represented on behalf of the Revenue.
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3. In ITA No. 1140/Kol/2009 (assessee's appeal), the assessee has raised the following grounds :-
(1) For that the CIT(Appeals) erred in holding that Rule 8D of the Income Tax Rules, 1962 which was introduced in the statute only on24th March 2008 was applicable in respect of assessment year 2006-07. The CIT(Appeals) faile d to appreciate the fact that even sub-section (2) of section 14A of the Act in which the said rule was inserted was introduced in the statute book with effect from 1 s t April, 2007 and was admittedly applicable only from assessment year 2007-08 as stated in the memo explaining the Finance Bill, 2006.
(2) For that no expenses were incurre d by the appellant for earning dividend income. Further and in any event the Assessing Officer as well as the CIT(Appeals) could not point out any expenditure which was dire ctly relatable to exempt income and as such disallowance of Rs.54,523/- on proportionate basis even under Rule 8D of the Rules was erroneous.
(3) For that further and in any event and without prejudice to ground no. 3 interest on PPF should not have been included for computation as the said sub scription was made out of income earned and also consisted of opening balance mainly.
(4) For that the CIT(Appeals) erred in confirming the disallowance of Rs.3,03,718/- under Section 14A of the Income Tax Act, 1961 (in short the Act). The CIT(Appeals) failed to appreciate that disallowance was made without any basis and/or material and/or in excess of jurisdiction. (5) For that further and in any event and without prejudice to the above the disallowance twice under Rule 8D of the Rules amounting to Rs.54,523/- and Rs.3,03,718/- amounts to disallowing the same expenditure twice and as such the said disallowance has been made without any basis and is I . T. A . N o s . 11 4 0 , 1 2 1 6 / K o l . / 2 0 0 9 & 1 2 4 7 , 1 2 8 2 / K o l . 2 0 1 0) A s s e s s m e nt y e a r s : 2 0 0 6 - 0 7 & 2 0 0 7 - 0 8 Page 4 of 12 illegal and in excess of jurisdiction and is liable to be deleted.
and, in ITA No. 1216/Kol./2009 (Revenue's appeal), the Revenue has raised the following grounds :-
(1) the AO in his order u/s. 143(3), treated the profit as 'business income' which the assessee disclosed as Short Term Capital Gain on the basis of facts and material available on record. The ld. CIT(A) has allowed the appeal on this point. It appears that the ld. CIT(A) has erred in both law as well as in fact on the basis of facts and material available on record.
(2) The ld. CIT(A), in his order, allowed the appeal of treating the interest income disclose4d by the assessee as 'income from b usiness' which the AO in his order u/s.
143(3) treated as income from other source. It appears that the ld. CIT(A) has erred keeping the circumstances of the case in view as well as the materials available on record.
4. In the Revenue's appeal, the issue raised in Ground No. 1 is against the action of ld. CIT(Appeals) in treating the income from purchase and sale of shares, which was disclosed by the assesee as Short Term C apital Gains and had been treated by the Assessing Officer as business income in favour of the assessee as Short Term Capital Gains. It was the submission by the ld. D.R. that the assessee was in the business of purchase and sale of shares and in view of the Circular No. 4 dated 15 t h June, 2007 issued by the C.B.D.T. as the assessee was regularly dealing in shares and was utilizing borrowed funds for the said business and as the frequency of the purchase and sale of shares was high as also the magnitude and volume of transaction, the Assessing Officer had treated the income generated from the said business of purchase and sale of shares as business I . T. A . N o s . 11 4 0 , 1 2 1 6 / K o l . / 2 0 0 9 & 1 2 4 7 , 1 2 8 2 / K o l . 2 0 1 0) A s s e s s m e nt y e a r s : 2 0 0 6 - 0 7 & 2 0 0 7 - 0 8 Page 5 of 12 income. It was the submission that the assessee had disclosed the profit from the said transactions of the purchase and sale of shares as short- term capital gains. It was the submission that ld. CIT(Appeals) had upheld the view of the assessee and had held that the profit from the purchase and sale of shares was assessable as short-term capital gains and not profit and gains of business. It was the submission that for this purpose, ld. CIT(Appeals) had relied upon various decisions of the coordinate Benches of this Tribunal as also the decision of the Hon'ble Madras High Court in the case of Rama Mitram reported in 217 CT R
206. It was the submission that in view of the Circular of the CBDT referred to supra as the transactions of the assessee fell within the criteria as prescribed in the said Circular, the same was liable to be treated as income from business and not short-term capital gains. It was the submission that the order of ld. CIT(Appeals) was liable to be reversed.
5. In reply, ld. A.R. submitted that no borrowed funds were utilized for the purchase and sale of shares as done by the assessee. It was the further submission that substantial p ortion of the shares, which had been sold by the assessee, were either IPOs or public offers. It was the submission that out of the total short-term capital gains of Rs.18,10,914/-, Rs.12,98,017/- was out of the IPO's and public offers and Rs.5,12,894/- related to shares purchased from the open market. It was the submission that for the assessment years 2004-05 and 2005-06 also, the assessee had shown the income from the purchase and sale of shares as short-term capital gains and the same had also been accepted by the Revenue. Ld. A.R. drew our attention to the assessment order I . T. A . N o s . 11 4 0 , 1 2 1 6 / K o l . / 2 0 0 9 & 1 2 4 7 , 1 2 8 2 / K o l . 2 0 1 0) A s s e s s m e nt y e a r s : 2 0 0 6 - 0 7 & 2 0 0 7 - 0 8 Page 6 of 12 passed under section 143(3) for the assessment year 2004-05, which was shown at pages 51 to 53, wherein the short-term capital gains as disclosed by the assessee had been accepted. For the assessment year 2005-06, ld. A.R. drew ou r attention to page 37 of the paper book, which is intimation under section 143(1). It was the submission that for the assessment year 2009-10 also, scrutiny assessment under section 143(3) has been done wherein the short-term capital gains had been accepted. It was the submission that for the assessment year 2009-10, it had been accepted as short-term capital gains and disclosed as a loss. It was the fu rther submission that for the assessment year 2010-11 also, the same transactions had been treated as short-term capital gains and assessment had also been done under section 143(3). It was the submission that even though there was short-term capital gains for the assessment 2010-11 as there was a carry forward short-term capital loss accepted for 2009-10 and the same had been set off against the short- term capital gains for 2010-11, the same had also been accepted. It was the further submission that the sole issue of whether the income from the purchase and sale of shares was liable to be assessed under the head "short-term capital gains" or under the head "bu siness income"
became an issue on account of the amendment which took place on 1 s t June, 2004 whereby if STT is paid, the tax on the gains on the purchase and sale of shares was taxable at a lower rate. It was the submission that as the assessee's income from the purchase and sale of shares was assessed as short-term capital gains for the earlier years and the subsequent years and there was no change in the facts for the year under appeal, the income of the assessee was liable to be assessed only under the head "short-term capital gains". He placed reliance on the I . T. A . N o s . 11 4 0 , 1 2 1 6 / K o l . / 2 0 0 9 & 1 2 4 7 , 1 2 8 2 / K o l . 2 0 1 0) A s s e s s m e nt y e a r s : 2 0 0 6 - 0 7 & 2 0 0 7 - 0 8 Page 7 of 12 decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang [193 ITR 321 (SC)]. It was the submission that the order of ld. CIT(Appeals) was liable to be upheld.
6. We have considered the rival submissions. At the outset, a perusal of the facts of the p resent case clearly shows that no borrowed funds had been u sed by the assessee for the purchase and sale of shares. Further, a perusal of the list of shares as also the details of the short-term capital gains clearly shows that the assessee is not regularly purchasing and selling shares in a systematic manner to be termed as 'business'. Substantial portion of the gains as disclosed by the assessee is admittedly from the sale of shares, which have been purchased from IPOs and public offers. It cannot be said that the assessee is regularly and systematically doing any business of purchase and sale of shares. Further, the fact that for the earlier and subsequent years, the Revenue has accepted the similar transactions in the hands of the assessee being taxed as short-term capital gains also goes in favou r of the assessee especially in view of the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang referred to supra. In the above circumstances, we are of the view that the finding of the ld. CIT(Appeals) on this issue is on right footing and does not call for any interference.
7. In regard to Ground No.2, it was submitted by the ld. D.R. that the issue was against the action of ld. CIT(Appeals) in treating the interest income disclosed by the assessee as income from business. It was the submission by the ld. D.R. that the Assessing Officer had held I . T. A . N o s . 11 4 0 , 1 2 1 6 / K o l . / 2 0 0 9 & 1 2 4 7 , 1 2 8 2 / K o l . 2 0 1 0) A s s e s s m e nt y e a r s : 2 0 0 6 - 0 7 & 2 0 0 7 - 0 8 Page 8 of 12 that the interest income was liable to be treated as income from other sources. It was the submission that the ld. CIT(Appeals) had held that the interest income was liable to be treated as income from business on the ground that for the earlier years, the interest income had been assessed under the head 'income from business'. He vehemently supported the order of Assessing Officer. It was the submission that the order of ld. CIT(Appeals) was liable to be reversed.
8. In reply, ld. A.R. submitted that for the assessment years 2003-04, 2004-05 and 2005-06, assessments had been completed under section 143(3), wherein the interest income shown by the assessee as income from business, had been accepted by the Assessing Officer. Ld. A.R. drew our attention to para 7 of the order of ld. CIT(Ap peals) at pages 20-24 of his order. It was the su bmission that the order of ld. CIT(Appeals) was liable to be upheld.
9. We have considered the rival submissions. A perusal of the order of ld. CIT(Appeals) clearly shows that the ld. CIT(Appeals) has decided this issue on the basis of the stand taken by the Revenue in the earlier years. No reason has been shown by the Revenue for changing its stand for the year under appeal. It is also noticed that ld. CIT(Appeals) has applied the ratio on the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang referred to supra to hold that interest income is liable to be assessed only as business income for the relevant assessment year. In these circumstances, we are of the view that the finding of ld. CIT(Appeals) on this issue is on right footing and does not call for any interference.
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10. In the result, the appeal of the Revenue stands dismissed.
11. In ITA No. 1140/Kol./2009 (assessee's appeal), the only issue is against the action of ld. CIT(Appeals) in confirming the disallowance made under section 14A of the Act.
12. At the time of hearing, it was fairly agreed by both the sides that the issue is now covered by the decision of the Hon'ble Calcutta High Court in the case of R.R. Sen & Brothers (Pvt.) Ltd. in G.A. No. 3019 of 2012 dated 4 t h January, 2013, wherein expenditure at 1 percentage of the dividend income is a thumb rule applied consistently as the expenditure relatable for earning of the exempt income. This view also finds support from the decision of the Hon'ble Bombay High Cou rt in the case of Godrej and Boyce Mfg. Co. Ltd. -vs.- DCIT & Another reported in [2010] 328 ITR 81. In this view of the matter and respectfully following the decision of the Hon'ble ju risdictional High Court in the case of R.R. Sen & Brothers (Pvt.) Ltd. referred to supra as also the decision of the Hon'ble Bombay High Cou rt referred to supra, the Assessing Officer is directed to restrict the disallowance under section 14A to 1 percentage of the exempt income.
13. In ITA No.1247/Kol./2010 (assessee's appeal), the assessee has raised the following ground, which is against the action of ld. CIT(Appeals) in confirming the disallowance made under section 14A :-
"For that on the facts and in the circumstances of the case, the ld. Commissioner of Income Tax-XIX, Kolkata erred in confirming the disallowance of Rs.4,54,612/- made by the I . T. A . N o s . 11 4 0 , 1 2 1 6 / K o l . / 2 0 0 9 & 1 2 4 7 , 1 2 8 2 / K o l . 2 0 1 0) A s s e s s m e nt y e a r s : 2 0 0 6 - 0 7 & 2 0 0 7 - 0 8 Page 10 of 12 Assessing Officer u/s. 14A of the I.T.Act, 1961 read with Rule 8D of the I.T. Rules".
14. At the time of hearing, it was fairly agreed by both the parties that the finding in ITA No.1140/Kol./2009 (supra) would apply to this appeal also. Consequently our finding in ITA No. 1140/Kol./2009 applies to this appeal also. Consequently the appeal of the assessee is partly allowed.
15. In ITA No. 1282/Kol./2010 (Revenue's appeal), the Revenue has raised the following grounds, which is against the action of ld. CIT(Appeals) in treating the income of the assessee from purchase and sale of shares as short-term capital gains :-
"Assessment u/s. 143(3) was completed on 31.12.09 determining the total income at Rs.2,41,59,690/- as against the income of Rs.2,37,05,080/- returned by the assesse e vide his return of income filed on 12.10.2007. The assessee aggrieved by the said order preferred an appeal before the ld. CIT(A)-XIX, Kolkata. The ld. CIT(A)-XIX, Kolkata vide his order u/s. 250 of the I.T. Act dated 30.04.10 allowed relied to the assessee partly.
The major issue on which the assesee had preferred an appeal :
TRANSACTION OF SHARES TREATED AS BUSINESS INCOME
1. The assessee disclosed a profit of Rs.1,43,26,030/-
derived by the assessee from sale and purchase of shares and credited the same in the profit & loss a/c. however, in the computation sheet this profit was treated as 'short term capital gain' and tax was calculated as per the prevalent rate applicable under this head. In the order u/s. 143(3) the head of income was changed and treated as business income on the basis of facts and material brought on record during the proceedings and also, inter alia, relying on CBDT I . T. A . N o s . 11 4 0 , 1 2 1 6 / K o l . / 2 0 0 9 & 1 2 4 7 , 1 2 8 2 / K o l . 2 0 1 0) A s s e s s m e nt y e a r s : 2 0 0 6 - 0 7 & 2 0 0 7 - 0 8 Page 11 of 12 Circular No. 4 of 2007 and the decision of Authority for Advanced Ruling in 288 ITR 641 on this subject.
However, the ld. CIT(A)-XIX, Kolkata vide his orde r dated 30.04.10 has allowed the appeal on this point.
From the said order it appears that the ld. CIT(A) has erred in both law and fact on the basis of facts and material available on record".
16. It was fairly agreed by both the sides that our finding in respect of Ground No. 1 of the Revenue's appeal in ITA No. 1216/Kol./2009 would apply to this appeal also. In these circumstances, our finding in respect of Ground No. 1 of the Revenue's appeal in ITA No. 1216 of 2009 holds good for this appeal also.
17. In the result, the appeal of the revenu e stands dismissed.
18. In the result, the appeal of the Revenue in ITA No. 1216/Kol./2009 is dismissed. The appeal of the Revenue in ITA No. 1282/Kol./2010 is dismissed. The appeal of the assessee in ITA No.1140/Kol./2009 is partly allowed and the appeal of the assessee in ITA No. 1247/Kol./2010 is partly allowed.
Order pronounced in the open Court on 21 s t day of May, 2013.
Sd/- Sd/-
K.K. Gupta George Mathan
(Accountant Member) (Judicial Member)
Kolkata, the 21 s t day of May, 2013
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Copies to : (1) Th e assessee
(2) Th e D ep artment
(3) Commi ssion er of In come-tax (Ap peals)
(4) Commi ssi oner of Inc ome T ax
(5) Th e D ep artment al Rep resentativ e
(6) Guard File
By order
Assis tant Registrar
Income Tax Appe llate Tribunal
Kolkata benches, Kolkata
Laha/Sr. P.S.