Income Tax Appellate Tribunal - Delhi
Hgi Finance & Leasing Ward Ltd., New ... vs Department Of Income Tax
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/2010Asstt. 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/2010Asstt. 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