Shri Navinchandra N.Mahithia, Mumbai v. DCIT, Circle 24(2), Mumbai

ITA 18/MUM/2004 | 1999-2000
Pronouncement Date: 30-04-2010 | Result: Allowed

Appeal Details

RSA Number 1819914 RSA 2004
Assessee PAN AAEPM6435F
Bench Mumbai
Appeal Number ITA 18/MUM/2004
Duration Of Justice 6 year(s) 3 month(s) 29 day(s)
Appellant Shri Navinchandra N.Mahithia, Mumbai
Respondent DCIT, Circle 24(2), Mumbai
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-04-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 1999-2000
Appeal Filed On 01-01-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI. BEFORE SHRI R.V.EASWAR SR.VP AND SHRI J.SUDHAKAR R EDDY AM I.T.A. NOS. 18 /MUM/2004 & 7424 /MUM/2005 (ASSESSMENT YEAR: 1999-2000) SHRI NAVINCHANDRA N.MAJITHIA 304 KEDIA CHAMBERS 76 S.V.ROAD MALAD(W) MUMBAI-400 064. PAN:AAEPM6435F VS. THE DEPUTY COMMISSIONER OF INCOME TAX 24(2) BANDRA KURLA COMPLEX BANDRA MUMBAI-400 051. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIPUL B.JOSHI RESPONDENT BY : MR.VIKRAM GAUR DR O R D E R PER R.V.EASWAR SENIOR VICE PRESIDENT: THESE TWO APPEALS ARE BY THE ASSESSEE AND THEY RELATE TO THE ASSESSME NT YEAR 1999-2000. ITA NO.18/MUM/2004 IS AN APPEAL ARISING OUT OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT ON 27.03.2002 AND ITA NO.7424/MUM/2005 IS A N APPEAL CHALLENGING LEVY OF PENALTY OF RS.1 83 810/ - IMPOSED UNDER SECTION 271(1)(C) OF THE ACT. SINCE BOTH THE APPEALS ARE BY THE SAME ASSESSEE FOR THE SAME ASSESSMENT YEAR AND ARE ALSO INTERCONNECTED THEY WERE HEARD TOGETHER AND A RE DISPOSED OF BY A SINGLE ORDER. ITA NO.18/MUM/2004:- 2. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUS INESS OF SHARE TRADING AND ALSO DERIVING INCOME FROM OTHER SOURCES. THERE ARE ONLY TWO GROUNDS OF APPEAL. THE FIRST IS AGAINST THE DISALLOWANCE OF THE LEGAL EXPENSES OF RS.12 79 871/ - AND THE OTHER IS AGAINST THE ASSESSMENT OF RS.6 12 711/- AS BUSINESS INCOME OF THE ASSESSEE AS AGAINST THE ASSESSEES C LAIM THAT IT SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAINS. ITA NOS.18/M/04 & 7424/M/05 2 3. AS REGARDS THE LEGAL EXPENSES BRIEF FACTS ARE T HAT FROM THE DETAILS FILED BY THE ASSESSEE THE ASSESSING OFFICE R NOTICED THAT EXCEPT AN AMOUNT OF RS.34 000/- THE BALANCE WAS INC URRED FOR CONSULTANCY AND HEARING CHARGES PAID TO DIFFERENT A DVOCATES IN CONNECTION WITH THE CASE OF M/S. J.B. HOLDINGS LTD. BEFORE THE HIGH COURT AND THE SUPREME COURT. THE AMOUNT OF RS. 34 000/- WAS FOUND TO HAVE BEEN INCURRED IN CONNECTION WITH PROPERTY DISPUTES. SO FAR AS THE CASE AGAINST M/S. J.B. HOL DINGS LTD. IS CONCERNED THE ASSESSEE ALONG WITH THE OTHER FAMILY MEMBERS ENTERED INTO A SALE AGREEMENT IN THE YEAR 1995-96 F OR SALE OF THE SHARES OF M/S. INDIAN FARMERS PVT. LTD. DISPUTES A ROSE AND M/S. J.B. HOLDINGS LTD. FAILED TO MAKE PAYMENT AND ALSO FILED A CRIMINAL COMPLAINT AGAINST THE ASSESSEES GROUP CON CERNS. THE COMPLAINT WAS CONTESTED UPTO THE SUPREME COURT. A PART OF THE SHARES WERE SOLD DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1996-97 AND CAPITAL GAINS WERE OFFE RED. A SUM OF RS.3 46 52 000/- RECEIVED FROM M/S. J.B. HOLDING S LTD. WAS SHOWN IN THE BALANCE SHEET OF THE ASSESSEE AS DEPOS ITS RECEIVED. THOUGH THIS AMOUNT WAS SAID TO HAVE BEEN RECEIVED F ROM M/S. J.B. HOLDINGS LTD. AS SALE PRICE OF THE SHARES HOW EVER IN VIEW OF THE DISPUTES THE ASSESSEE SHOWED THE AMOUNT AS DEP OSITS. THE LEGAL CHARGES WERE INCURRED IN CONNECTION WITH THE DISPUTE WITH M/S. J.B. HOLDINGS LTD. AND WERE CLAIMED AS BUSINES S EXPENDITURE AGAINST THE INCOME FROM SHARE TRADING. THE ASSESSING OFFICER TOOK THE VIEW THAT THE LEGAL EXPE NSES WERE INCURRED NOT IN CONNECTION WITH THE ASSESSEES BUSI NESS IN SHARES BUT IN CONNECTION WITH THE DISPUTE WITH M/S. J.B. HOLDINGS LTD. AND IT CAN BE SAID THAT THE EXPENSES WERE INCURRED IN CONNECTION WITH THE TRANSFER OF SHARES. HE THEREFORE HELD THAT THE EXPENSES HAVE TO BE CAPITALIZED AND WHENEVER THE SALE TRANSACTION ULTIMATELY TAKES PLACE WITH REGARD TO THE BALANCE OF THE SHARES THE LEGAL EXPENSES MAY BE CO NSIDERED AS PART OF THE COST OF THE SHARES. HE ACCORDINGLY DISA LLOWED THE ITA NOS.18/M/04 & 7424/M/05 3 CLAIM OF THE LEGAL EXPENSES. THE DISALLOWANCE HAVIN G BEEN UPHELD BY THE CIT(A) THE ASSESSEE IS IN FURTHER AP PEAL BEFORE US. ONE POINT WHICH HAS TO BE NOTED NOW IS THAT BEF ORE THE CIT(A) THE ASSESSEE CLAIMED THAT IF THE LEGAL EXPE NSES WERE NOT ALLOWABLE AS BUSINESS EXPENDITURE THEY SHOULD BE A LLOWED AGAINST THE INCOME EARNED BY THE ASSESSEE BY WAY OF INTEREST FROM THE DEPOSIT OF THE AMOUNT OF RS.3 46 52 000/- WHICH HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM OTHER SOU RCES. IN SUPPORT OF THIS CLAIM THE ASSESSEE RELIED ON THE J UDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. SMT. ARCHA NA R.DHANWATAY (1982) 136 ITR 355. THIS CLAIM WAS ALSO DISALLOWED BY THE CIT(A) THOUGH NO SPECIFIC REASON HAS BEEN ADDUCED FOR THE SAME. 4. IN FURTHER APPEAL BEFORE THE TRIBUNAL IT IS FAI RLY STATED ON BEHALF OF THE ASSESSEE THAT THE LEGAL EXPENSES CANN OT BE ALLOWED AS A DEDUCTION AGAINST THE BUSINESS INCOME. IT IS H OWEVER CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN REJE CTING THE ASSESSEES CLAIM THAT THEY SHOULD BE ALLOWED UNDER SECTION 57(III) AGAINST THE INTEREST INCOME RECEIVED BY TH E ASSESSEE FROM INVESTING THE AMOUNT OF RS.3.46 CRORES RECEIVED FRO M M/S. J.B. HOLDINGS LTD. IT IS CONTENDED THAT THE CIT(A) HAS NOT ADDUCED ANY REASONS TO REFUSE THE CLAIM EVEN THOUGH IT IS S UPPORTED BY THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH CO URT CITED ABOVE. ON THE OTHER HAND THE LEARNED D.R. CONTEND ED THAT THE SCOPE OF ALLOWANCE OF AN EXPENDITURE UNDER SECTION 57(III) IS NOT SO WIDE AS AN EXPENDITURE CLAIMED UNDER SECTION 37( 1) AND THAT IN ANY CASE THE NEXUS BETWEEN THE INTEREST INCOME A ND THE LEGAL EXPENSES HAS TO BE EXAMINED BEFORE ANY DECISION IS TAKEN ABOUT IS ALLOWABILITY. 5. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS WE ARE OF THE VIEW THAT THE MATTER SHOULD RECEIVE FRESH CO NSIDERATION IN ITA NOS.18/M/04 & 7424/M/05 4 THE HANDS OF THE ASSESSING OFFICER. UNDER SECTION 5 7(III) ANY EXPENDITURE INCURRED FOR THE PURPOSE OF MAKING OR E ARNING THE INCOME ASSESSED UNDER THE HEAD INCOME FROM OTHER S OURCES IS ALLOWABLE AS A DEDUCTION. IT IS A FACTUAL QUESTION TO BE EXAMINED AND ESTABLISHED AS TO WHETHER THE LEGAL CHARGES HAV E ANY NEXUS WITH THE EARNING OF THE INCOME. WE THEREFORE RESTOR E THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO WILL EXAMI NE THE ASSESSEES CLAIM FOR DEDUCTION OF THE LEGAL EXPENSE S UNDER SECTION 57(III) AGAINST THE INTEREST INCOME AND TAK E A FRESH DECISION IN ACCORDANCE WITH LAW AFTER AFFORDING DUE OPPORTUNITY TO THE ASSESSEE. 6. THE SECOND GROUND IS WHETHER THE AMOUNT OF RS.6 12 711/- BEING SURPLUS ON SALE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME AS HELD BY THE ASSESSING OFFICER OR AS SHORT TERM CAPITAL GAINS AS CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER TOOK THE VIEW THAT THE SURPLUS WAS ASSESSAB LE AS BUSINESS INCOME SINCE THE ASSESSEE WAS BASICALLY EN GAGED IN THE BUSINESS OF TRADING IN SHARES. THE CIT(A) HELD THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE SHARES WERE H ELD AS INVESTMENT WHEN THEY WERE ACQUIRED. HE ALSO FOUND T HAT THE SHARES WERE SOLD AFTER A SHORT PERIOD AND FURTHER THAT NO EVIDENCE COULD BE FURNISHED BY THE ASSESSEE REGARDI NG ACTUAL DELIVERY OF SHARES ON WHICH THE SURPLUS WAS EARNED. HE ACCORDINGLY CONFIRMED THE ASSESSING OFFICERS ACTIO N AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL. THE CONTE NTION OF THE ASSESSEE BEFORE US IS THAT THE SHARES HAVE BEEN HEL D AS INVESTMENT IN A SEPARATE PORTFOLIO AND SHOWN AS SU CH IN ALL THE EARLIER YEARS AND IT IS OPEN TO AN ASSESSEE CARRYIN G ON BUSINESS IN SHARES TO ALSO HOLD SHARES IN THE INVESTMENT POR TFOLIO AND MERELY BECAUSE THE ASSESSEE WAS CARRYING ON BUSINES S IN SHARES IT DOES NOT FOLLOW THAT ALL THE GAINS ARISING ON SA LE OF SHARES SHOULD BE TREATED AS BUSINESS INCOME IRRESPECTIVE O F THE FACT ITA NOS.18/M/04 & 7424/M/05 5 THAT THE SHARES WERE HELD AS INVESTMENT. THE JUDGEM ENT OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. GOPAL PUROHIT 34 DTR 52 HAS BEEN CITED TO CONTEND THAT THE DEPARTMENT HA S CONSISTENTLY ACCEPTED THE ASSESSEES CLAIM THAT SAL E OF SHARES HELD IN INVESTMENT PORTFOLIO GAVE RISE TO CAPITAL G AINS AND NOT BUSINESS INCOME. IT WAS ALSO VEHEMENTLY CONTENDED T HAT THERE IS NO BASIS FOR THE STATEMENT OF THE CIT(A) THAT THERE WAS NO DELIVERY OF THE SHARES IN QUESTION. ON THE OTHER HA ND THE LEARNED D.R. STRONGLY SUPPORTED THE ORDERS OF THE D EPARTMENTAL AUTHORITIES. HAVING GIVEN THE MATTER SERIOUS CONSID ERATION WE ARE OF THE VIEW THAT THIS ISSUE ALSO HAS TO BE REST ORED TO THE ASSESSING OFFICER FOR THE PURPOSE OF FINDING OUT WH ETHER THE SHARES WHICH GAVE RISE TO THE SURPLUS WERE ACTUALLY DELIVERED WHEN THEY WERE SOLD. THIS POINT APPEARS TO HAVE BE EN TAKEN FOR THE FIRST TIME BY THE CIT(A) AND IT SEEMS TO US THA T THE CIT(A) HAS RECORDED A FINDING WITHOUT GIVING ANY OPPORTUNI TY TO THE ASSESSEE. FURTHER IT IS ALSO NECESSARY TO EXAMINE T HE ASSESSEES CLAIM REGARDING THE CONSISTENT CONDUCT OF THE REVEN UE IN ACCEPTING THE SURPLUS ARISING ON SALE OF SHARES HEL D IN THE INVESTMENT PORTFOLIO AS CAPITAL GAINS IN THE PAST. THE ASSESSING OFFICER HAS TO KEEP IN VIEW THE JUDGEMENT OF THE HO NBLE BOMBAY HIGH COURT CITED ABOVE. HE WILL TAKE A FRESH DECISI ON AFTER TAKING NOTE OF ALL THE FACTS FOR WHICH DUE OPPORTUNITY SHO ULD BE GIVEN TO THE ASSESSEE. WE DIRECT ACCORDINGLY AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE APPEAL OF TH E ASSESSEE IS THUS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.7424/MUM/2005:- 7. THIS IS AN APPEAL OF THE ASSESSEE AGAINST THE PE NALTY OF RS.1 83 810/- IMPOSED ON HIM UNDER SECTION 271(1)(C ) OF THE ACT. THE ORDER OF PENALTY SHOWS THAT IT HAS BEEN I MPOSED CONSEQUENT TO THE ASSESSMENT OF RS.6 12 711/- BEING THE SURPLUS ARISING ON SALE OF SHARES AS BUSINESS INCO ME AS AGAINST ITA NOS.18/M/04 & 7424/M/05 6 THE ASSESSEES CLAIM THAT IT SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAINS. SINCE THIS ISSUE HAS BEEN RESTORED T O THE FILE OF THE ASSESSING OFFICER VIDE OUR ORDER IN ITA NO.18/MUM/2 004 (SUPRA) THE PENALTY HAS NO LEGS TO STAND AND THE S AME IS CANCELLED AND THE APPEAL IS ALLOWED. 8. TO SUM UP THE ITA NO.18/MUM/2004 IS ALLOWED FOR STATISTICAL PURPOSES AND ITA NO.7424/MUM/2005 IS AL LOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL 2010. SD/- (J.SUDHAKAR REDDY) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI DATED 30 TH APRIL 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-IX /XXIV MUMBAI. 4. THE CIT(A)-IX / XXIV MUMBAI 5. THE DR A BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI