Income Tax Appellate Tribunal - Ahmedabad
Prodigy Infosoft Pvt. Ltd.,, Ahmedabad vs Department Of Income Tax on 9 August, 2012
1 ITA No 696/Ahd/2010
A.Yr.. 2006-07
IN THE INCOME TAX APPELLATE TRIBUNAL "D "BENCH, AHMEDABAD
(BEFORE SHRI D. K. TYAGI JM & SHRI ANIL CHATURVEDI A.M.)
I.T.A. No.696/AHD/2010.
(Assessment Year: 2006-07)
Income Tax Officer, Vs. Prodigy Infosoft Pvt. Ltd.,
Ward 5(2), 103-104,Shapath-II,
Ahmedabad. Opp. Rajpath Club,
S.G. Highway,
Ahmedabad.
(Appellant) (Respondent)
PAN: AAACF 1781A
Appellant by : Mr.T. Shankar, Sr. D.R.
Respondent by : Mr. S.N.Soparkar, Sr. Advocate
आदे श)/ORDER
(आदे Date of hearing : 9 - 8- 2012 Date of Pronouncement : 12 -10-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER.
This appeal is filed by the Revenue against the order of Ld. CIT (A)- XI, Ahmedabad dated 22-12-2009 for the assessment year 2006-07.
2. The Revenue in its appeal has raised 4 grounds of appeal of which ground No.3 and 4 are general in nature and therefore not required to be adjudicated.
2 ITA No 696/Ahd/2010 A.Yr.. 2006-07
3. The assessee is a company carrying business of export of computer software and has earned profit in purchase and sale of shares and commodities. The assessee filed its return of income on 29-12-2006 declaring total income at Rs.7,93,712/-. The case was selected for scrutiny. During the course of assessment proceedings on perusing the computation of income along with the audited financial statement and tax audit report, the A.O. noticed that the company has income from the business of software of Rs.69,57,681/- which has been claimed as exempt u/s. 10A and the taxable income from software business has been computed at Rs. Nil. A.O. called for various details from the assessee in respect of claim made u/s. 10A. After going through the submissions made by the assessee A.O. observed that during the year number of export transactions were around four or five only. The assessee did not provide complete details of all the export transactions, details of sales orders and the details of extent of work carried out for the orders. A.O. also directed the assessee to produce proof for the software bills. A.O. submits that the assessee did not furnish the same. From the salary register produced before the A.O. he noticed that it was not properly maintained, signed and stamped. A.O. also noticed that the assessee was having group concern involved in similar business activity and were operating from the same premises. A.O. also noticed that the assessee had shown net profit on software business of Rs.69,57,681/- against the software export sales of Rs. 88,17,893/- i.e. around 79% of the sales which according to him was on a very higher side. On the other hand in the case of sister concern M/s. Prodigy Software Ltd., the assessee had shown loss continuously in A.Y. 2005-06 and 2006-07. Considering all the aforesaid factors A.O. concluded that the required condition of Sec.10A was violated by assessee. He also observed that 3 ITA No 696/Ahd/2010 A.Yr.. 2006-07 there was no compliance with respect to section10A in earlier years also. He accordingly held the claim of the assessee as not genuine and therefore, rejected the claim of the assessee.
4. Aggrieved by the action of the A.O. assessee carried the matter before CIT (A).
5. Before CIT (A), the assessee made detailed submissions in support of its claim. After considering the submissions of assessee CIT (A) allowed the benefit of Sec. 10A to assessee by holding as under:-
"4.3. I have carefully considered the submissions made by the A.R. of the appellant. I have also gone through the decisions, referred to above, which are relied upon by the A.R. of the appellant and the observations of the Assessing Officer in the assessment order. While rejecting the appellant's claim u/s.10A of the Act and thereby making an addition of Rs.69,57,681/-, the Assessing Officer has not appreciated the facts of the case. Similar issue arose in the appellant's own case for Assessment Years 2001-02 and 2002-03, wherein the issue in question has already been decided by my predecessor in favour of the appellant vide his order No. CIT(A)- XI/104/05-06 dated 2-9-2005 for Assessment Year 2002-03 and No. CIT (A)-XI/212/2006-07 dated 6-3-2007 for A.Y. 2001-02. Further, the said issue has already been decided in favour of the appellant by the Hon'ble ITAT "C" Bench, Ahmedabad in the appellant's own case for A.Y. 2002-03 vide its order ITA No.2544/AHD/2005 dated 13-11- 2009.
4.3.1. Therefore, having considered the facts and circumstances of the case and respectfully following the above decisions, I am inclined to direct the Assessing Officer to allow exemption u/s.10A of the Act as claimed by the appellant and thereby to delete the addition made by him at Rs.69,57,681/-. Thus, this ground of appeal, stands allowed."
4 ITA No 696/Ahd/2010 A.Yr.. 2006-07
6. Aggrieved by the order of CIT (A), the Revenue is now in appeal before us.
7. Before us, the Ld. D.R. submitted that the A.O. was right in disallowing the benefit u/s. 10A in view of the fact that similar claim was rejected in earlier years. The conditions of section 10A were not complied by assessee, the profits of the company are very high, the assessee had not prepared time sheets, assessee had no infrastructure facilities to complete the work. The Ld. D.R. further submitted that the other companies of the assessee which were engaged in the similar business activities were incurring losses. The Ld. D.R. submitted that the assessee had not furnished the time-sheet, time-in and time-out details etc., copies of the same as supporting evidence. Time sheet was required to ascertain the details of report. The Ld. D.R. further pointed out that the assessee has not been able to explain as to whether for making changes in the software sold whether the software were brought back to India or the same has been done in the clients country. The assessee has also not furnished information as to whether it has supplied source code to the clients. In view of all the aforesaid facts, the Ld. D.R. strongly supported the order of the A.O.
8. On the other hand the Ld. A.R. submitted that on identical facts of the case in assessee's own case for A.Y. 2002-03, Hon'ble Tribunal has allowed the appeal of the assessee vide ITA No.2544/Ahd/2005 vide order dated 13-11-2009. He also placed a copy of the order (at page-27 to 32 of the paper book). The Ld. A.R. further submitted that against the aforesaid 5 ITA No 696/Ahd/2010 A.Yr.. 2006-07 order of ITAT for A.Y. 2002-03 Revenue had preferred appeal before the Hon'ble Gujarat High Court. Hon'ble Gujarat High Court in Tax Appeal No.742 of 2010 vide its order dated 25-1-2012 dismissed the appeal of the Revenue. He placed on record the copy of the order of Gujarat High Court.
9. The Ld. A.R. further submitted that for A.Y. 2008-09 the Hon'ble ITAT in appeal No.3207/Ahd/2011 vide order dated 18-5-2012 relying on the earlier order for A.Y. 2002-03 and the decision of Hon'ble Gujarat High Court dismissed the appeal of the Revenue by holding as under. He placed on record the copy of the same.
"3. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. Admittedly, the Ld. CIT (A) had decided this issue by following the Tribunal order in the assessee's own case for the assessment year 2002-03 and this order of the Tribunal had been duly confirmed by the Hon'ble Gujarat High Court by way of dismissing the appeal of the Revenue. Ld. D.R. of the Revenue could not point out any difference in the facts of the present year and hence, we do not find any reason to take a contrary view in the present year. We, therefore, decline to interfere in the order of Ld. CIT (A)."
The Ld. A.R. further submitted that the facts of the case are identical to that of earlier years and therefore the assessee should be allowed the benefit of deduction by following orders of ITAT of earlier years.
10. We have heard the rival submissions and perused the material on record. It is undisputed fact that on identical matter, the co-ordinate Bench of Tribunal had allowed the appeal of assessee. In the present case, the 6 ITA No 696/Ahd/2010 A.Yr.. 2006-07 Revenue could not controvert by bringing any material on record that the factual position in the current year is different from that of earlier years. Since the facts in the current year are identical to those of A.Y. 2002-03 and A.Y. 2008-09 and since the matter has already been decided in favour of the assessee by the co-ordinate Bench and the Hon'ble High Court we find no reason to take a contrary view. We thus, following the decisions of the Co-ordinate Bench, dismiss the appeal of the Revenue on this point. Thus this ground of Revenue is dismissed.
11. Ground No.2 relates to the deletion of addition of Rs.4,26,285/- treating short term capital gain as business income.
12. During the course of assessment proceedings, the A.O. observed that assessee is involved in dealing in shares and commodities. The turnover of F & O transaction, gain from speculation business and transaction shown under short term capital gain was combinedly very high as compared to business of software. A.O. observed that the assessee had traded in shares of more than 40 companies. The purchase of shares of each company was made a number of times and in different lots and the same was also made at different lots. The assessee had entered more than 57 transactions, there were frequent buying and selling of shares of companies throughout the year, most of the shares were held for a period ranging from 3-4 days to 1-8 months. The assessee had purchased and sold shares worth more than Rs. 89,46,311/- and Rs.93,72,596/- respectively. A.O. was thus of the view that since the assessee was in the line of buying and selling of shares continuously during the year as well as year after year and the motive was therefore to earn profits. He was of the 7 ITA No 696/Ahd/2010 A.Yr.. 2006-07 view that if the intention of the assessee was to hold the shares as investments then the assessee should have only bought shares and held them and should have sold it only in case of emergency. He was of the view that the assessee was buying and selling the shares as if it was stock in trade and for earning profits. He relying on the decision of ITAT "C" Bench, Ahmedabad in ITA No.3154/Ahd/2002 held that the short term capital gain shown by the assessee at Rs. 4,26,285/- as business income. Aggrieved by the action of the A.O. assessee carried the matter before the CIT (A).
13. Before the CIT (A), Ld. A.R. submitted that the company is primarily engaged in the business of export of software, the dealing in the share was merely undertaken to deploy funds to take the benefit of stock market. The activity of purchase and sale was carried out by one of the directors and for which no help of any staff was required and no staff was employed. No other infrastructure facilities were utilized. It was further submitted that no interest borrowings were made for the investment in shares and securities. The assessee had shown the shares collection under the head of investments in the books of accounts and the profit on sale of share was shown as capital gain. The company had invested its own funds to buy the shares. On few occasions the shares were sold to earn profits. It was further submitted that only 57 transactions were carried out in the whole year and the activities had taken place only in the last quarter of the year and not throughout the year. Ld. CIT (A) after considering the submissions of the assessee allowed the appeal of the assessee by holding as under:-
8 ITA No 696/Ahd/2010 A.Yr.. 2006-07 "6.2. As explained by the appellant, the short term gain was only Rs.4.4 lakhs, as against total income of Rs.96.9 lakhs, surplus funds were being invested in shares in A.Y. 2004-05 and 2005-06 department accepted the income as STCG; no borrowed capital was invested; buying and selling of shares was occasional activity incidental/ancillary to main business; accounting treatment given was as investment; only 57 transactions in 35 stocks were carried out;
moist of this activity was in the last quarter and not throughout the year; the main object of the appellant is to carry on the business of software and investment activity is permitted under other objects; and that dividend income of Rs.61,811/- was received during the year.
6.3. Having considered the facts of the case, I hold that the appellant cannot be said to have traded in shares. A.O. is directed to assess the income from such activity as short-term capital gain. This ground of appeal is allowed."
14. Aggrieved with the order of CIT (A), Revenue is now in appeal before us.
15. Before us the Ld. D.R. relied on the order of A.O.
16. On the other hand, the Ld. A.R. apart from the submissions made before the CIT (A), further submitted that the assessee has treated the gains as short term capital gain and the investments have been shown in the balance sheet as investments and not as stock in trade. He placed on record the Investment Schedule-E forming part of the Balance Sheet at page-25 of the paper book. He also relied on the decision of Gujarat High Court in the case of CIT vs. Vaibhav J.Shah (HUF) in Tax Appeal No.77 & 78 of 2010 dated 27-6-2012. In view of these facts, the Ld. A.R. submitted 9 ITA No 696/Ahd/2010 A.Yr.. 2006-07 that the CIT (A) was right in holding the transactions of capital gain. He thus relied on the order of CIT (A).
17. We have heard the rival submissions and perused the material on record. In the present case before us, the Ld. CIT (A) has given a finding that no borrowed capital was invested in purchase of shares, buying and selling of shares was an occasional activity of the assessee and was carried out only in the last quarter of the year, the assessee had treated the shares as its investments in its Balance Sheet in Assessment Year 2004- 05 and 2005-06, the Department had accepted the income as short term capital gains.
18. In the case of CIT vs. Vaibhav J. Shah (HUF), Hon'ble Gujarat High Court relying on the decision of CIT vs. Associated Industrial Development Co.(P) Ltd., 82 ITR 586 (SC), CIT vs. H. Holck Larsen 160 ITR 67 (SC) and CIT vs. Rewashankar A. Kothari (2006) 283 ITR 338 (Guj.) has held "that from the number of transactions of sale and purchase of shares takes place, the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of the shares. However, when coupled with magnitude of transaction, bearing reasonable proportion to the strength of holding, then an inference can be drawn that the activity is in the nature of business."
19. In view of totality of the aforesaid facts, we are of the view that CIT (A) was right in holding the income from sale of shares as capital gains instead of business income. We thus, find no reason to interfere in the order of CIT (A). Thus, this ground of the Revenue is dismissed.
10 ITA No 696/Ahd/2010 A.Yr.. 2006-07
20. In the result, appeal of the Revenue is dismissed.
Order pronounced in Open Court on 12 -10 - 2012.
Sd/- Sd/-
( D.K. TYAGI) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad.
S.A.Patki.
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals)-XI, Ahmedabad.
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad.
1.Date of dictation 28 - 8 -2012
2.Date on which the typed draft is placed before the Dictating 3, 4 /10 / 2012 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S 8 -10 -2012.
4.Date on which the fair order is placed before the Dictating Member for pronouncement 12 - 10 -2012
5.Date on which the fair order comes back to the Sr.P.S./P.S 12 - 10 -2012
6.Date on which the file goes to the Bench Clerk 12 - 10 -2012.
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................