DCIT, CHENNAI v. M/s. Malladi Project Management P. Ltd., CHENNAI

ITA 2354/CHNY/2006 | 1999-2000
Pronouncement Date: 03-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 235421714 RSA 2006
Assessee PAN AAACM2412P
Bench Chennai
Appeal Number ITA 2354/CHNY/2006
Duration Of Justice 4 year(s) 26 day(s)
Appellant DCIT, CHENNAI
Respondent M/s. Malladi Project Management P. Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 03-01-2011
Date Of Final Hearing 13-12-2010
Next Hearing Date 13-12-2010
Assessment Year 1999-2000
Appeal Filed On 07-12-2006
Judgment Text
IN THE INCOMETAX APPELLATE TRIBUNAL: B-BENCHL;CHENN AI (BEFORE SHRI U.B.S.BEDI JUDICIAL MEM BER AND SHRI ABRAHAM P. GEORGE. ACCOU NTANT MEMBER) ITA NO. 2354 / MDS/ 2006 ASST. YEAR 1999-2000 THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIR.II(3) CHENNAI VS M/S MALLADI PROJECT MANAGEMENT P. LTD 52 JAWAHARLAL NEHRU RD EKKATTUTHANGAL CHENNAI 600097 PAN: AAACM2412P (APPELLANT) (RESPONDENT) APPELLANT BY: RESPONDENT BY: SHRI P.B.SEKARAN CIT-DR SHRI SAROJKUMAR PARIDA ORDER PER SHRI ABRAHAM P.GEORGE ACCOUNTANT MEMBER: THIS IS A RECALLED MATTER. RECALL HAS BEEN EFFECTE D BY ORDER DATED 04-06- 2010 IN MP NO.284/MDS/09 FOR DISPOSING GROUND NO.5 OF THE REVENUE IN ITS APPEAL. RELEVANT GROUND NO.5 OF THE REVENUE IS REPR ODUCED HEREUNDER: 5. THE LD. CIT(A) ERRED IN HOLDING THAT THE LOSS A RISING OUT OF SALE OF SHARES IDENTIFIED AS CURRENT INVESTMENT IS TO BE TREATED AS CAPITAL LOSS AND NOT AS BUSINESS LOSS. 5.1 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE ITSELF CLASSIFIED THE INVESTMENT AS CURRENT AS SUCH THE DURATION OF HOLDING OF SUCH SHARES CANNOT BE A FACTOR TO DECIDE WHETHER THE ASSET IS A CAPITAL ASSET OR A CURRENT ASSET. 5.2 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT I N THE CASE OF M/S SAKA MARKETING A GROUP COMPANY CURRENT INV ESTMENTS WERE TREATED UNDER THE BUSINESS HEAD. ACCORDINGLY THE T REATMENT OF LOSS FROM SALE OF CURRENT INVESTMENTS UNDER THE HEAD BUS INESS IS PROPER. ITA NO.2354/MDS//06. 2 2. SHORT FACTS RELATING TO THIS ISSUE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAD CLAIMED LONG TERM CAPITAL LOSS OF ` 1 78 64 028/- ON SALE OF CERTAIN SHARES. ON A SURVE Y DONE ON 27-02-2002 IN THE PREMISES OF THE ASSESSEE AO FOUND THAT FOLL OWING SHARES ON WHICH LONG TERM CAPITAL LOSS WAS CLAIMED WERE ACTUALLY HELD BY THE ASSESSEE AS STOCK-IN- TRADE: SL.NO. COMPANYS NAME NO. OF SHARES YEAR OF PURCHASE 1 EMMELLEN BIOTECH PHARMA LTD. (EBPL) 50000 1990-91 2 KAUSIK CHEMICALS LTD. (KCL) 25000 1995-96 3 ASWIN BIO PHARMA (ABL) 341500 1996-97 4 RC LASERTECH 300000 300000 600000 1995-96 1994-96 AO WAS OF THE OPINION THAT THE ABOVE SHARES BEING STOCK-IN-TRADE WOULD NOT BE ELIGIBLE FOR ANY INDEXATION BENEFIT. WHEN EX PLANATION WAS SOUGHT ASSESSEE VIDE ITS LETTER DATED 13-03-2002 STATED THAT GAINS FROM SALE OF CURRENT INVESTMENT WOULD BE CHARGEABLE TO TAX UNDER THE HEA D PROFITS AND GAINS FROM BUSINESS OR PROFESSION. AO WAS ALSO OF THE OPINION THAT THE SALE PRICE WHICH WERE SHOWN BY THE ASSESSEE COULD NOT BE RELIED ON SINCE THE SHARES THAT WERE SOLD WERE OF UNLISTED COMPANIES AND IN VIEW OF THE INTRA RELATIONS BETWEEN THE ITA NO.2354/MDS//06. 3 SHAREHOLDERS AND VARIOUS COMPANIES WHOSE SHARES WER E SOLD ACCORDING TO HIM VALUATION HAS TO BE DONE AS PER RULE 1D OF THE WEAL TH-TAX ACT. THEREFORE HE MADE A REVALUATION OF THE SHARES WHICH WERE SOLD BA SED ON BREAK UP VALUE AND ARRIVED AT A BUSINESS PROFIT OF ` .64 45 275/- WHICH WAS TREATED AS BUSINESS INCOME OF THE ASSESSEE. 3. IN ITS APPEAL BEFORE THE CIT(A) ARGUMENT OF THE ASSESSE WAS THAT THE AO COULD NOT APPRECIATE THAT TRANSFER OF SHARES WERE O N ACCOUNT OF A FAMILY SETTLEMENT AND THE SHARES WERE ALL PURCHASED BY TH E FAMILY MEMBERS OF MALLADI GROUP AND NOT ANY OUTSIDERS. FURTHER ACCORDING TO T HE ASSESSEE RULE 1D OF THE W.T. RULES COULD NOT BE APPLIED FOR ASCERTAINING CA PITAL GAINS. LD. CIT(A) WAS APPRECIATIVE OF THE CONTENTIONS OF THE ASSESSEE. AC CORDING TO HIM AO HAD NOT DISPUTED THE TRANSFER OF SHARES NOR THE SALE CONSID ERATION OF SHARES AND THE CONSIDERATION THAT HAD ACTUALLY PASSED WAS KNOWN. AS PER THE LD. CIT(A) ENTIRE TRANSACTIONS WERE PART OF RESTRUCTURING OF THE GROU P COMPANIES OF THE ASSESSEE AND PRICE ON WHICH THE SHARES WERE TRANSFERRED WERE DETERMINED BY COMMON VALUERS. ACCORDING TO HIM AO WAS NOT CORRECT IN AD OPTING A NOTIONAL AS VALUE AS THE SALE CONSIDERATION. NEVERTHELESS LD. CIT(A) NO TED THAT THE ASSESSEE ITSELF HAD DURING THE COURSE OF ASSESSMENT WITHDREW THE CL AIM TOWARDS CAPITAL LOSS ON A GROUND THAT THE TRANSFER OF SHARES WAS A PART OF FAMILY ARRANGEMENT WHICH HE DID NOT CONSTITUTE A TRANSFER WITHIN THE MEANING OF SEC. 2(47) OF THE INCOME-TAX ACT 1961 (THE ACT FOR SHORT). ACCORDING TO HIM EVEN IF THERE WAS SOME TRANSFER PROFIT/GAINS HAD TO BE WORKED OUT AS DONE BY THE AS SESSEE ON THE BASIS OF ACTUAL ITA NO.2354/MDS//06. 4 CONSIDERATION. HE THEREFORE DELETED THE ADDITION O F ` 64 45 275/- MADE BY THE AO. 4. NOW BEFORE US THE LD. DR STRONGLY ASSAILING THE ORDER OF THE CIT(A) SUBMITTED THAT THE LD. CIT(A) FELL IN ERROR IN CONS IDERING THE PRICES AS MENTIONED BY THE ASSESSEE FOR THE SALE OF SHARES TO BE THE CO RRECT ONE WITHOUT CONSIDERING THE INTRINSIC WORTH OF THE SHARES. PER CONTRA THE LD. AR STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL S UBMISSIONS. IF WE LOOK AT THE GROUND RAISED BY THE REVENUE THE ISSUE RAISED BY IT IS THAT LOSS ARISING OUT SALE OF SHARES HAS TO BE CONSIDERED AS BUSINESS LOS S AND NOT AS CAPITAL LOSS. WE FIND THAT ASSESSEE WAS HOLDING THE SHARES AS PART O F ITS STOCK-IN-TRADE AND IT HAS NOT BEEN DISPUTED. ASSESSEE ITSELF HAD SUBMITTED IN ITS LETTER DATED 13-03-2002 TO THE AO AS UNDER: YOUR CONTENTION THAT THE GAIN ARISING ON TRANSFER OF SHARES CLASSIFIED UNDER THE HEAD CURRENT INVESTMENTS BY THE ASSESSEE COMPANY UNDER THE HEAD INCOME FROM OTRHER SOURCES IS UNTENABLE IN LAW AND ON FACTS. THE ASSESSE COMPANY CLASSIFIED ITS INVESTMENTS IN VARIO US OTHER BODY CORPORATES UNDER THE HEAD 1. INVESTMENTS AND 2. CUR RENT INVESTMENTS. THE ASSESSEE COMPANY HAS CLASSIFIED UNDER THE HEAD CURRENT INVESTMENTS WITH THE INTENTION THAT THE GAIN ON SAL E OF CURRENT INVESTMENTS WOULD BE CHARGEABLE TO INCOME TAX UNDER THE HEDAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT IS AN ACCEPTED POSITION IN LAW THAT THE AO CANNOT SUBSTITUTE HIS VIEWS AS AGAINST THE INTENTIO N OF THE ASSESSEE WHICH IS CLEARLY EXHIBNITED IN THE AUDITED ANNUAL ACCOUNT S OF THE ASSESSEE COMPANY YEAR AFTER YEAR. IN THIS REGARD THE ASSESS EE COMPANY CRAVE LEAVE TO REFER TO THE ORDER OF THE CIT(A) IN THE CA SE OF MIPL FOR THE ASST. YEAR 1993-94. A PHOTO COPY OF THE SAID ORDER OF THE CIT(A) IS MARKED AS ANNEXURE-B. FROM THE SAID ORDER IT IS DEMONSTRABLY CLEAR THAT THE HONOURABLE CIT(A) HAS HELD THAT DIVIDEND INCOME REC EIVED ON CURRENT INVESTMENTS SHOULD BE SET OFF AGAINST BUSINESS LOSS THEREBY HOLDING THAT ITA NO.2354/MDS//06. 5 ANY GAIN ARISING ON SALE OF ANY OF THE CURRENT INVE STMENTS SHOULD BE ASSESSED AS BUSINESS INCOME. 6. HAVING ADMITTED THAT THE GAIN ARISING ON THE SAL E OF SHARES SHOULD BE CONSIDERED UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION WE ARE OF THE OPINION THAT THE CIT(A) OUGHT NOT HAVE HELD THE LOSS TO BE A CAPITAL LOSS. ASSESSEE OUGHT NOT HAVE BEEN ALLOWED TO GO BACK FRO M AN ADMITTED POSITION. INSOFAR AS THE FINDING OF THE CIT(A) THAT THE SALE CONSIDERATION COULDNOT BE SUBSTITUTED WITH THE VALUES FIXED UNDER RULE1D OF T HE W.T.ACT WE DO NOT FIND ANY REASON TO DISTURB SINCE THE ACTUAL CONSIDERATION T HAT HAD PASSED HAS NOT BEEN QUESTIONED. NEVERTHELESS WE ARE OF THE OPINION THA T THE RESULTANT LOSS OR PROFIT SHOULD HAVE BEEN CONSIDERED ONLY UNDER THE HEAD IN COME FROM BUSINESS/PROFESSION. WE ARE OF THE OPINION THAT TH E REVENUE HAS TO SUCCEED IN THIS REGARD. GROUND NO.5 OF THE REVENUE IS THEREFOR E ALLOWED. 7. RESULTANTLY APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 03 -01 -2011. SD/- SD/- (U.B.S.BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 3RD JANUARY 2011. NBR CC: ASSESSEE /ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE.