M/s. PCS Commodities P. Ltd, Hyderabad v. The DCIT, Circle-16(3), Hyderabad

ITA 1405/HYD/2010 | 2005-2006
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 140522514 RSA 2010
Assessee PAN AADCP3375P
Bench Hyderabad
Appeal Number ITA 1405/HYD/2010
Duration Of Justice 2 month(s) 21 day(s)
Appellant M/s. PCS Commodities P. Ltd, Hyderabad
Respondent The DCIT, Circle-16(3), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-01-2011
Assessment Year 2005-2006
Appeal Filed On 09-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI N.R.S. GANESAN JM AND SHRI CHANDRA POOJARI AM I.T.A. NO. 1405/HYD/2010 (ASSESSMENT YEAR 2005-06) M/S. PCS COMMODITIES PVT. LTD. HYDERABAD PAN: AADCP3375P VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 16(3) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI A.V. RAGHU RAM RESPONDENT BY: SHRI K.E. SUNIL BABU O R D E R PER NRS GANESAN JM: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-V HYDERABAD DATED 30.9.2010 AN D PERTAINS TO ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE ARISING FOR CONSIDERATION IS CLASSIFICATION OF INCOME ARISING OUT OF SALE OF SHA RES. SHRI A.V. RAGHU RAM THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN T HE BUSINESS OF COMMODITIES. REFERRING TO THE PAPER BO OK FILED BY THE ASSESSEE THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THIS IS THE FIRST YEAR OF OPERATION OF THE COMPANY. THE PRIMARY BUSINESS OF THE ASSESSEE IS N OT IN DEALING IN SHARES. ACCORDING TO THE LEARNED COUNSE L FOR THE ASSESSEE THE ASSESSEE INVESTED THE SURPLUS FUNDS IN THE SHARES AND THOSE WERE SUBSEQUENTLY SOLD. THEREFORE I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 2 INVESTMENT IN SHARES IS ONLY FOR THE PURPOSE OF INV ESTMENT AND NOT FOR BUSINESS PURPOSE. THEREFORE THE PROFI T ARISING OUT OF SALE OF SHARES HAS TO BE CLASSIFIED AS CAPIT AL GAIN AND NOT AS BUSINESS INCOME. 3. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THERE ARE NO CREDITORS DURING THE YE AR UNDER CONSIDERATION AND THE AVAILABLE FUNDS WERE INVESTED IN SHARES. REFERRING TO THE PURCHASE AND SALE OF SHAR ES THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT D URING THE YEAR UNDER CONSIDERATION PURCHASES WERE MADE ON LY ON 25 DAYS AND SALES WERE ONLY ON 36 DAYS. THEREFORE ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE T HE ASSESSEE CANNOT BE SAID THAT IT IS DEALING IN SHARE BUSINESS. 4. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE HAS FILED ALL THE DETAI LS OF PURCHASE AND SALES OF SHARES IN THE PAPER BOOK WHIC H CLEARLY SHOWS THAT THE ASSESSEE HAS INVESTED THE FU NDS ONLY FOR THE PURPOSE OF INVESTMENT AND NOT FOR THE PURPO SE OF BUSINESS. REFERRING TO THE BALANCE SHEET OF THE AS SESSEE FOR THE YEAR ENDED 31ST MARCH 2005 THE COPY OF WH ICH IS AVAILABLE AT PAGE 12 OF THE PAPER BOOK THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE INVESTMENT IN SHARES I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 3 ARE SHOWN AS INVESTMENT IN THE BALANCE SHEET. THER EFORE ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE T HE LOWER AUTHORITIES ARE NOT JUSTIFIED IN CLASSIFYING THE PR OFIT ON SALE OF SHARES AS BUSINESS INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE UNREPORTED JUDGEMEN T OF THE DELHI HIGH COURT IN CIT VS. PNB FINANCE & INDUS TRIES LTD. ITA NO. 306/2010 DATED 18.10.201 AND SUBMITTE D THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR TH E PURPOSE OF INVESTMENT IN SHARES. THE ASSESSEE INVE STED ITS SHARE CAPITAL WHICH IS NOT REQUIRED IMMEDIATELY IN THE EQUITY SHARES. THEREFORE THE INTENTION OF THE ASS ESSEE IS ONLY TO INVEST THE FUNDS IN SHARES AND NOT TO DO AN Y BUSINESS IN PURCHASE AND SALE OF SHARES. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THIS JUDGEMENT OF THE DELHI HIGH COURT IS SQUARELY APPLICABLE TO THE FACT S OF THIS CASE. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED HIS RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THI S TRIBUNAL IN MANAGEMENT STRUCTURE & SYSTEMS PVT. LTD . VS. ITO IN I.T.A. NO. 6966/MUM/2007 AND SUBMITTED THAT THE MUMBAI BENCH ALSO FURTHER HELD THAT THE ASSESSEE HA S NOT BORROWED ANY FUNDS FOR INVESTING IN SHARES. THEREF ORE THE PROFIT ARISING ON SALE OF SHARES HAS TO BE TREATED AS CAPITAL GAIN. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALS O PLACED RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THI S TRIBUNAL IN THE CASE OF NEHAL B. SHAH VS. ACIT IN I.T.A. I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 4 NO. 2733/MUM/09 DATED 15TH DECEMBER 2010. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO PLACED HI S RELIANCE ON THE DECISION OF MUMBAI BENCH OF THIS TR IBUNAL IN DCIT VS. SMK SHARES & STOCK BROKING PVT. LTD. I .T.A. NO. 799/MUM/09 DATED 24.11.2010 AND VINOD K. NEVAT IA VS. ACIT IN I.T.A. NO. 6556/MUM/09 DATED 3RD DECEMB ER 2010. ACCORDING TO THE LEARNED COUNSEL FOR THE ASS ESSEE THE PROFIT ARISING ON SALE OF SHARES HAS TO BE CLAS SIFIED AS SHORT TERM CAPITAL GAIN. THEREFORE THE LOWER AUTH ORITIES ARE NOT CORRECT IN CLASSIFYING THE PROFIT AS BUSINE SS INCOME. 5. ON THE CONTRARY SHRI K.E. SUNIL BABU THE LEARN ED DR SUBMITTED THAT FOR THE PURPOSE OF CLASSIFICATIO N OF PROFIT ON SALE OF SHARES EITHER AS BUSINESS INCOME OR AS CAPITAL GAIN THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF SHARES HAS TO BE SEEN. AFTER REFERRING TO THE SALES AND PURCHASES MADE BY THE ASSESSEE THE LEARN ED DR POINTED OUT THAT THE INTENTION OF THE ASSESSEE IS N OT TO KEEP THE SHARES AS INVESTMENT. THE VERY FACT THAT THE A SSESSEE PURCHASES THE SHARES AND SOLD THE SAME FOR A PROFIT WITHIN A SHORT PERIOD SHOWS THAT THE INTENTION OF THE ASSE SSEE IS ONLY TO DO BUSINESS AND NOT TO KEEP THE SAME AS INVESTMENT. REFERRING TO THE ORDER OF THE CIT(A) THE LEARNED DR POINTED OUT THAT EVEN THOUGH THE MAIN OB JECT OF THE ASSESSEE WAS TO DO TRADING IN AGRICULTURAL PROD UCTS THE I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 5 BUSINESS OF THE ASSESSEE IN DEALING IN SHARES IS A LSO ONE OF THE OBJECTS. THEREFORE IN VIEW OF THE CLAUSE CONT AINING IN MOA THE ASSESSEE IS ALSO ENTITLED TO DO BUSINESS IN PURCHASE AND SALE OF SHARES. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS NOT DONE ANY OTHER BUSINESS EXCEPT THE TRANSACTIONS IN SHARES. OUT OF THE TOTAL CAPITAL EMPLOYED TO THE EXTENT OF RS. 1.10 CR ORES THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 1 09 777. T HIS FACTUAL ASPECT ACCORDING TO THE LEARNED DR CLEARL Y SHOWS THAT THE ASSESSEE TRANSACTED IN BUSINESS ACTIVITIES BY SALE AND PURCHASE OF SHARES. THEREFORE THE LOWER AUTHO RITIES HAVE CLASSIFIED THE PROFIT AS BUSINESS INCOME. THE LEARNED DR PLACED HIS RELIANCE ON THE OBSERVATIONS MADE BY THE ASSESSING OFFICER AND THE CIT(A) IN THE IMPUGNED OR DERS. 6. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AND ALSO PERUSED THE MATERIALS AV AILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE THE ONLY ISSUE ARISES FOR CONSIDERATI ON IS CLASSIFICATION OF INCOME ON SALE AND PURCHASE OF SH ARES. WE HAVE CAREFULLY GONE THROUGH THE DETAILS OF PURCH ASE AND SALES OF SHARES MADE BY THE ASSESSEE. ON 30.8.2004 THE ASSESSEE HAD 20 000 SHARES OF ALLAHABAD BANK. ON 4.10.2004 THE ASSESSEE HAS SOLD 20 000 SHARES OF ALLAHABAD BANK. THEREFORE AS ON 9.10.2004 THE AS SESSEE I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 6 WAS NOT IN POSSESSION OF ANY SHARES OF ALLAHABAD BA NK. HOWEVER THE MATERIAL AVAILABLE ON RECORD SHOWS THA T THE ASSESSEE HAS SOLD 4000 SHARES OF ALLAHABAD BANK ON 9.10.2004. SUBSEQUENTLY ON 14.3.2005 THE ASSESSEE HAS PURCHASED 5000 SHARES OF ALLAHABAD BANK. THEREFORE IT IS VERY CLEAR THAT ON 9.10.2004 WHEN THE ASSESSEE SOLD 4000 SHARES OF ALLAHABAD BANK IT HAS NO SHARES OF ALLAHA BAD BANK IN HAND. IN OTHER WORDS THE ASSESSEE SOLD TH E SHARES BEFORE PURCHASE OF THE SHARES. IT CLEARLY E STABLISHES THE INTENTION OF THE ASSESSEE IN TRADING THE SHARES . UNLESS THE ASSESSEE INTENDED TO TRADE IN SHARES IT WOULD N OT HAVE ENTERED INTO TRANSACTION OF SALE OF SHARES ON 4.10. 2004 WHEN ACTUALLY IT WAS NOT IN POSSESSION OF ANY OF TH E SHARES OF ALLAHABAD BANK. SUBSEQUENTLY THE ASSESSEE HAS PURCHASED SHARES ON 14.3.2005. SIMILARLY IN THE CA SE OF NATCO PHARMA THE ASSESSEE SOLD THE SHARES INITIALLY AND ACQUIRED THE SAME SUBSEQUENTLY. THEREFORE IN OUR OPINION THE INTENTION OF THE ASSESSEE IS ONLY TO D EAL IN SHARES AS A BUSINESS VENTURE AND NOT TO INVEST IN T HE SHARES. IT IS WELL SETTLED PRINCIPLE OF LAW THAT T HE INTENTION OF THE ASSESSEE HAS TO BE ASCERTAINED AT THE TIME O F PURCHASE OF THE SHARES TO FIND OUT WHETHER THE ASSE SSEE INVESTED IN SHARES OR DEALING IN SHARES. IN THIS C ASE AT THE TIME OF PURCHASE OF SHARES THE ASSESSEE KNOWS VERY WELL THAT IT HAS TO SELL THE SHARES. IN OTHER WORDS TH E INTENTION I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 7 OF THE ASSESSEE IN PURCHASE OF SHARES IS TO DO BUSI NESS IN PURCHASE AND SALE OF SHARES AND NOT AS AN INVESTOR. 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE DELHI HIGH COURT IN PNB FINANCE & INDUSTRIES LTD. ( SUPRA). IN THE CASE BEFORE THE DELHI HIGH COURT THE ASSESSE E COMPANY WAS ENGAGED IN SALE AND PURCHASE OF SHARES. THE COMPANY INVESTED IN TIMES BANK LTD. AS LONG TERM INVESTMENT. THE TIMES BANK LTD. SUBSEQUENTLY GOT MERGED WITH HDFC BANK AND IN LIEU OF 30 LAKH EQUITY SHARES OF TIMES BANK LTD. THE ASSESSEE RECEIVED 5 21 739 CONVERTED EQUITY SHARES OF HDFC BANK AFTER DEMERGER . THE COMPANY ADOPTED A POLICY OF LIQUIDATING ITS EQUITY INVESTMENT AND TO BUY MUTUAL FUND. IN THESE CIRCUMSTANCES THE DELHI HIGH COURT FOUND THAT THE ASSESSEE KEPT THE INVESTMENT FOR MORE THAN 7 YEARS. THEREFORE THE ASSESSEE HAD NOT INVOLVED ITSELF IN BUYING AND SELLING OF SHARES. AFTER REFERRING TO THE CBD T CIRCULAR IT WAS FOUND THAT THE TAX PAYER CAN MAINTAIN TWO PO RTFOLIOS I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURIT IES WHICH HAS TO BE TREATED AS CAPITAL ASSETS AND A TRADING P ORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATE D AS TRADING ASSETS. THE ASSESSEE WAS FOUND TO BE HOLD ING THE SHARES AS CAPITAL ASSET. THEREFORE THE DELHI HIGH COURT HELD THAT THE PROFIT HAS TO BE TREATED AS CAPITAL G AIN. IN THE I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 8 CASE BEFORE US THE ASSESSEE PURCHASED THE SHARES A FTER ENTERING INTO SALE TRANSACTION. THEREFORE THE INT ENTION OF THE ASSESSEE IN PURCHASING THE SHARES IS ONLY TO TR ADE IN SHARES AND NOT TO KEEP THE SAME AS INVESTMENT. THE REFORE THE JUDGEMENT OF THE DELHI HIGH COURT MAY NOT OF AN Y ASSISTANCE TO THE ASSESSEE. 8. WE HAVE ALSO CAREFULLY GONE TROUGH THE DECISIONS OF THE MUMBAI BENCH OF THIS TRIBUNAL IN MANAGEMENT STRUCTURE & SYSTEMS PVT. LTD. (SUPRA) NEHAL B. SHA H (SUPRA) SMK SHARES & STOCK BROKING PVT. LTD. (SUP RA) AND VINOD K. NEVATIA (SUPRA). IN ALL THESE CASES IT WA S FOUND THAT THE ASSESSEE WAS KEEPING THE INVESTMENT IN EQU ITY SHARES AS INVESTMENT. IN THE CASE BEFORE US IN VI EW OF THE ADMITTED FACT THAT THE ASSESSEE PURCHASED THE SHARE S WITH AN INTENTION TO SELL THE SAME IN OUR OPINION THE PROFIT ARISING OUT OF SALE OF SHARES HAS TO BE TREATED AS BUSINESS INCOME. 9. NOW COMING TO THE CONTENTION OF THE ASSESSEE THA T NO BORROWED FUNDS WERE INVESTED AND THEREFORE IT HAS TO BE TREATED AS INVESTMENT. IT HAS NO MERIT AT ALL. TH IS ISSUE WAS DISCUSSED BY THE MUMBAI BENCH OF THIS TRIBUNAL IN VINOD K. NEVATIA (SUPRA). THE MUMBAI BENCH OF THIS TRIBUNAL FOUND THAT THE INTENTION OF THE ASSESSEE H AS TO BE GATHERED FROM THE CIRCUMSTANCES OF THE CASE. IF TH E I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 9 ASSESSEE PURCHASES THE SHARES FROM ITS OWN FUNDS WI TH A VIEW TO KEEP THE FUNDS IN EQUITY SHARES TO EARN CONSIDERABLE RETURNS ON ACCOUNT OF ENHANCEMENT IN T HE VALUE OF SHARES OVER A PERIOD THEN MERELY BECAUSE T HE ASSESSEE LIQUIDATES ITS INVESTMENT WITHIN 6 MONTHS OR 8 MONTHS WOULD NOT LEAD TO THE CONCLUSION THAT THE AS SESSEE HAS NO INTENTION TO KEEP THE FUNDS AS INVESTOR IN E QUITY SHARES. IT IS ALSO OBSERVED BY THE MUMBAI BENCH OF THIS TRIBUNAL THAT IT CANNOT BE HELD IN ALL CIRCUMSTANCE S IF THE ASSESSEE USED ITS OWN FUNDS FOR SHARE ACTIVITY THAT THE INVESTMENT IS ONLY FOR INVESTMENT PURPOSE. THE MUM BAI BENCH FURTHER OBSERVED THAT THE FREQUENCY OF TRANSA CTION THE INTENTION OF THE ASSESSEE HAS TO BE GATHERED FR OM THE FACTS OF THE CASE. THE MUMBAI BENCH INDICATED THAT BORROWAL OF FUNDS IN MAKING INVESTMENT IN SHARES MA Y BE ONE OF THE INDICATOR OF ITS INTENTION TO TRADE IN S HARES. THEREFORE IT IS OBVIOUS THAT INVESTMENT OF ITS OWN FUNDS DOES NOT AUTOMATICALLY LEAD TO A PRESUMPTION THAT T HE ASSESSEE INVESTED THE FUNDS AS INVESTOR. THE FREQU ENCY OF TRANSACTION AND THE INTENTION OF THE ASSESSEE IS MO RE IMPORTANT THAN THE USAGE OF FUNDS EITHER OWN FUNDS OR BORROWED FUNDS. AS OBSERVED BY THE MUMBAI BENCH OF THIS TRIBUNAL THE BORROWED FUNDS MAY BE ONE OF THE INDIC ATOR TO SHOW THAT THE ASSESSEE IS TRADING IN SHARES. IN TH E CASE ON OUR HAND THE INTENTION OF THE ASSESSEE AT THE TIME OF I.T.A. NO. 1405/HYD/201 0 M/S. PCS COMMODITIES PVT. LTD. ========================= 10 PURCHASE IS VERY CLEAR WHICH SHOWS THAT THE ASSESSE E IS DEALING IN SHARES. THEREFORE IN OUR OPINION THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE PROFIT ON SALE OF SHARES AS BUSINESS INCOME. WE DO NOT FIND ANY INFIRMITY I N THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY THE S AME IS CONFIRMED. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST JANUARY 2011. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (N.R.S. GANESAN) JUDICIAL MEMBER HYDERABAD DATED 31ST JANUARY 2011 TPRAO COPY FORWARDED TO: 1. M/S. PCS COMMODITIES PVT. LTD. C/O. M/S. K. VAS ANT KUMAR A.V. RAGHU RAM P. VINOD & B. PEDDI RAJULU ADVOCATES FLAT NO. 610 6TH FLOOR BABUKHAN ESTATE BASHEER BAGH HYDERABAD-500 001 2. THE DY. CIT CIRCLE 16(3) HYDERABAD. 3. THE CIT(A)-V HYDERABAD. 4 THE CIT-IV HYDERABAD 5. THE DR B BENCH ITAT HYDERABAD