TMI Blog2012 (8) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Appellant. P.C. Maurya for the Respondent. ORDER D.K. Agarwal, Judicial Member All these appeals preferred by the assessee are directed against the common order dated 18.8.2006 for the assessment years 2003-04 and 2004-05, the order dated 7.12.2007 for the assessment year 2002-03, and the order dated 24.9.2009 for the assessment year 2006-07 passed by the ld. CIT(A). Since facts are identical and the issues involved are common, all these four appeals are disposed of by this common order for the sake of conveyance. 2. Briefly stated facts of the case extracted from ITA No.5932/Mum/2006 for the assessment year 2003-04 are that the assessee company is engaged in trading in shares, securities and units, filed return declaring total income of Rs. 70,67,364/-. However, the assessment was completed at an income of Rs. 1,34,74,170/- under normal provisions of the Act and at a book profit Rs. 1,46,11,735/- u/s 115JB of the Income Tax Act, 1961 (the Act) vide order dated 31.10.2005 passed under section 143(3) of the Act. On appeal, the ld. CIT(A) vide his common order dated 18.8.2006 partly allowed the appeals for the A.Ys. 2003-04 and 2004-05. 3. Being aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was not freely tradable. 2,00,000 shares of MDS were sold in one lot, because entire company was taken over by Legrand Group, In the case of the assessee there has been no transaction of purchase and sale of shares even of the listed companies on a regular basis. The investment made by the assessee in shares of Dharamsi Morarji Chemical Company Ltd. was held for a period of 8 years and sold in one lot during the year ended 1992. During the year ended 31.12.1996, the assessee purchased one lot of 530226 shares of the said company to retain family control over the said company. It was further submitted before the AO that the sale proceeds of shares of MDS were invested into units eligible for exemption u/s 54EA of the Act and after a lock-in-period of 3 years, the said units were redeemed. Assessee invested the said funds into units of mutual funds. Assessee did not make investment in open market and preferred mutual funds route for safety of capital. It was further submitted that sale of units of mutual funds, which are not freely tradable as sale of stock-in-trade chargeable as business income. Assessee placed reliance on the Hon'ble Supreme Court decision in the case of Ramn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment in three Private Limited Companies which were sister concerns. The said shares were extinguished during the year ended on 31.3.1998 when the said companies were amalgamated with the assessee company. On the basis of the above fact, thus it is abundantly clear that the assessee can in no way be treated as a dealer in shares looking to the transactions of purchase and sale of shares undertaken by the assessee right from 1984 onwards. The ld. Counsel for the assessee while referring to the statement of short term and long term capital gain showing the number of units purchased and sold with amount submits that the purpose of redemption of these units of Mutual Fund and holding period is as under : S. No. Particulars Nos. Purpose of Redemption Period of holding (days) 1 HDFC Income Fund 39,05,439 For Buy Back of Shares 184 2 HDFC liquid fund 44,30,071 Switching of Units from one Scheme to another Scheme of same Fund 15 Prudential ICICI Liquid Fund 35,84,820 Switching of Units from one Scheme to another Scheme of same Fund 16 3 Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment and not as stock-in-trade. Therefore, the gain arisen out of purchase and sale of units be treated as short term capital or long term capital gain/loss. He further submits that the Tribunal in the assessee's own case for the assessment years 2001-02 while accepting that the income from disinvestment of units held u/s 54EA as capital gains held that the other income from sale of shares and units was rightly treated by the AO as income from other sources. The ld. Counsel for the assessee further submits that against the said order, the assessee has filed appeal before the Hon'ble Jurisdictional High Court u/s 260A which is pending. He further submits that the Tribunal without giving any reason has treated the income from purchase and sale of shares /units as income from business except disinvestment of units held u/s 54EA. He further submits that considering the facts that all the investments in units was made as investment and not as a stock-in-trade, valuation was shown at cost price and not at a market price or realizable value, no borrowed funds were used, no interest was paid, there is no frequency of transaction, average holding period of the units is 413 days, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-in-trade held for the purpose of business. Section 2(22) of the Act defines "dividend" to include any distribution by a company of accumulated profits, whether capitalised or not. Section 2(42A) defines "short-term capital asset" to mean a capital asset held by an assessee for not more than thirty- six months immediately preceding the date of its transfer. Section 2(42B) defines "short-term capital gain" to mean capital gain arising from the transfer of a short-term capital asset. Under section 28(i) of the Act, the profits and gains of any business carried on by the assessee, at any time during the previous year, is chargeable to income-tax under the head "profits and gains of business or profession". Under section 45(1) of, the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year is deemed to be income of the previous year in which the transfer took place. Section 111A, inserted by the Finance Act, 2004, relates to tax on short-term capital gains in certain cases and, under sub-section (1) thereof, where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitutions, mutual funds, as well as securities, loans and bonds of Central and State Government". 11. In the present case, the AO while treating the transactions from shares/units of mutual funds as income from business has relied on finding recorded in the assessment order for the assessment year 2001-02. The said reasons for treating the income as business income have been mentioned by the Tribunal vide paragraph 4 of the order in assessee's own case in ITA No.6695/Mum/2004 for the A.Y.2001-02, dated 27.5.2005 as under: "4. The AO has mainly given the following reasons for treating the said income as business income: ( i ) As per the Memorandum of association of the assessee-company, the only business of the assessee is to buy, invest acquire, subscribe to, hold and dispose off and deal in shares, units etc. ( ii ) During the year, the assessee has carried on in a systematic and an organized manner, buying and selling of shares/units of large number with volumes of over Rs.100 crores. Most of the transactions are completed in a span of 4-5 days. This clearly shows the motive of the assessee-company while buying and selling of units was to earn profits. ( iii ) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, when a price is paid even for allotment and more so for acquiring shares or units, it is a purchase of shares and units in general law " 13. We further find that the Tribunal in the assessee' s own case ( supra ) vide paragraph 10 of the order observed and held : "10. We have heard both the parties in detail and are of the view that the sale proceeds of M/s MDS Switchgear were invested in the unit of Mutual funds as required u/s 54EA with the intention to save capital gain tax. It cannot be stated that these units were purchased with the intention to deal in them for making profit as these were non-transferable for three years. The case law as relied on by the AO lays down certain principles of law but we have to see whether these are applicable to the facts of the case of the assessee or not?. The intention of the assessee for investing in the unit eligible u/s 54EA was to save capital gins tax and as such the income on account of disinvestments of such units cannot be assessed under the head income from business and profession. However, as far other income from the sale of shares/units, the AO has correctly treated the same as income from business. The AO is dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law, the CIT(A) erred in not giving any finding in respect of the ground pertaining to deduction in respect of provision for diminution in value of investments." 18. At the time of hearing the ld. Counsel submits that if the income from purchase and sale of shares/units/mutual funds is not treated as income from long term/ short term capital gain, therefore in the alternative the assessee claim as mentioned in ground Nos.2 and 3 be allowed. 19. On the other hand, the ld. DR supports the order of the AO and the ld. CIT(A). 20. We have carefully considered the submissions of the rival parties and perused the material available on record. 21. In CIT v. Tollaram Hassomal [2008] 298 ITR 22/[2006] 153 Taxman 532 (MP), it has been held (Headnote): "Held, that the Tribunal having permitted the assessee to raise four additional grounds treating them to be legal grounds in appeal for the first time, should have set aside the order of the Commissioner of Income-tax (Appeals) and remanded the case to the Commissioner of Income-tax (Appeals) for deciding the appeal afresh on all the issues including on those four grounds raised by the assessee in the appeal before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, since primarily profit on the sale of shares and units has been held as business income except on the sale of 4894046 units of Birla Sun Life Income Plus, appellant will be entitled to deduction proportionately. Accordingly, AO is directed to restrict the disallowance of expenses to the capital gain computed on the sale of units of Birla Sun Life Income Plus. As regards depreciation, since the issue is identical, AO is directed to allow the depreciation on the same lines as discussed in respect of expenses above." 27. In the absence of any contrary material placed on record by the ld. Counsel for the assessee against the findings recorded by the ld. CIT(A), we decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the grounds taken by the assessee are, therefore, rejected. ITA No.5933/Mum/2006 (AY- 2004-05) 28. Ground Nos. I, II and III taken by the assessee read as under : "I. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Dy. Commissioner of Income Tax in taxing income from sale of units under the head "Business income" instead of the head "capital gains" even tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, therefore, in the interests of justice the issue may be restored back to the file of the ld. CIT(A) to decide the same afresh which was not objected to by the ld. DR. 33. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. Counsel for the assessee that the ld. CIT(A) while directing the AO to allow credit of TDS after verification of the TDS has not decided the above issue. The ground raised by the assessee before him to grant the interest u/s 244A of the Act was not adjusted by him, therefore, in the interests of justice, we consider it fair and reasonable that the matter should go back to the file of the ld. CIT(A) and accordingly, we restore the matter to his file to decide the same afresh and according to law after providing reasonable opportunity of being head to the assessee. The ground taken by the assessee is, therefore, partly allowed for statistical purposes. ITA No.206/Mum/2010(AY:2006-07) 34. Ground Nos. I and II taken by the assessee read as under : "I. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment, they could not be treated as stock-in-trade in the year of sale. III. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance in respect of the provision for diminution in value of investments amounting to Rs. 19,22,804/- even though the units have been treated as stock-in- trade. IV. In case Ground No. I is decided in favour of the appellant, the appellant prays that the Assistant Commissioner of Income Tax be directed to grant deduction in respect of expenses of Rs. 5,65,960/- and depreciation of Rs. 18,92,917/-" 38. At the time of hearing, both the parties have agreed that the facts of the above grounds are similar to the facts of the case for the assessment year 2003-04, therefore, plea taken by them in the said appeal may be considered while deciding the above grounds taken by the assessee. 39. After hearing the rival parties and perusing the material available on record and keeping in view that there is no dispute that the facts of the above issues are similar to the grounds taken in the assessment year 2003-04, we direct the AO to follow our findings recorded in relevant paragraphs of this order for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the assessee is a legal ground, therefore, in view of the decision of the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, Jute Corpn. of India Ltd. v. CIT [1991]187 ITR 688/[1990] 53 Taxman 85 (SC) and Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351/66 Taxman 27 (Bom) [FB] the same may be admitted. 47. On the other hand, the ld. DR did not oppose the admission of the above legal additional ground. 48. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the additional ground taken by the assessee is legal ground, facts are borne out from the records and the issue goes to the root of the matter, therefore, following decision of the Hon'ble Supreme Court in National Thermal Power Co. Ltd. ( supra ), wherein it has been held that the Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the income-tax authorities and having a bearing on the tax liability of the assessee, we admit the additional ground raised by the assessee. 49. On merits, the ld. Counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. ( supra ), it has been held (page 502, head note): "Taxing income escaping assessment in the case of an intimation under section 143(1)(a) is covered by the main provision of section 147 as substituted with effect from April 1, 1989, and initiating reassessment proceedings in the case of intimation would be covered by the main provision of section 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143(1) has been issued. Held, accordingly, that the Assessing Officer had jurisdiction to issue notice under section 148 for bringing to tax income escaping assessment in an intimation under section 143(1)(a) on the ground that the claim for bad debts by the assessee was not acceptable as the conditions for allowance specified in section 36(1)(vii) and (2) were not fulfilled." 53. In Prshant S Joshi ( supra ) relied on by the ld. Counsel for the assessee, it has been held (headnote): "Held, allowing the petitions, that the Revenue had sought to urge that the amount received by the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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