DCIT, New Delhi v. M/s. Cecil Webber Engineering Ltd., New Delhi

ITA 3757/DEL/2010 | 2006-2007
Pronouncement Date: 22-11-2017 | Result: Dismissed

Appeal Details

RSA Number 375720114 RSA 2010
Assessee PAN AABCC6065D
Bench Delhi
Appeal Number ITA 3757/DEL/2010
Duration Of Justice 7 year(s) 3 month(s) 16 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Cecil Webber Engineering Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-11-2017
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 22-11-2017
Date Of Final Hearing 09-05-2017
Next Hearing Date 09-05-2017
Assessment Year 2006-2007
Appeal Filed On 05-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI SHRI P.K. BANSAL V.P. AND SHRI C.M. GARG JM ITA NO: 3757 /DEL/201 0 AY : 200 6 - 07 & ITA NO: 3659 /DEL/201 1 AY : 200 7 - 08 DY.CIT CIRCLE 3( 1 1) VS. CECIL WEBBER ENGINEERING LTD. NEW DELHI 108 ANSAL BHAWAN 16 K.G. MARG NEW DELHI 110 0 01 PAN: AABCC6 065D (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ANSHU PRAKASH SR.D.R. RESPONDENT BY : SHRI AJAY VOHRA SR. ADV. MS. SHAILY GUPTA ADV. O R D E R PER C.M. GARG JUDICIAL MEMBER TH ESE ARE APPEAL S FILED BY THE REVENUE ITA 3757/DEL/10 AGAINST THE ORDER DATED 7.6.2010 OF THE LD.CIT(A) - IV DELHI PERTAINING TO THE ASSESSMENT YEAR (AY) 200 6 - 07 AND ITA 3659/DEL/2011 AGAINST THE ORDER OF LD.CIT(A) - IV DELHI DATED 20.5.2011 PERTAINING TO THE A.Y. 2007 - 08. 2. ITA 3757/ DEL/2010 A.Y. 2006 - 07 : - GROUND NO.1 AND 3 OF REVENUE ARE GENERAL IN NATURE WHICH DO NOT REQUIRE ANY ADJUDICATION. THE SOLE EFFECTIVE GROUND READS AS UNDER. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO TREAT SHORT TERM CAPITAL GAINS ON ACCOUNT OF SALE OF SHARES OF RS.75 34 023/ - AS BUSINESS INCOME IGNORING THE DETAILED FINDINGS RECORDED BY THE A.O. IN THE ASSESSMENT ORDER THAT THE ASSESSEE WAS ENGAGED IN TRADING ACTIVITY RATHER ITA 3757/DEL/2010 ASSESSMENT YEAR: 2006 - 07 ITA 3659/DEL/2011 ASSESSMENT YEAR 2007 - 08 CECIL WEBBER ENGINEERING LTD. NEW DELHI 2 THAN ANY INVESTMENT ACTIVITY EVEN THOUGH THE SHAR ES HAD BEEN SHOWN AS INVESTMENT IN THE BALANCE SHEET. 3. WE HAVE HEARD ARGUMENTS ON BOTH SIDES AND PERUSED RELEVANT MATERIAL PLACED ON RECORD. THE LD.D.R. SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DIRECTING THE A.O. TO TREAT THE SHORT TERM CAPITAL GAIN ON ACCOUNT OF SALE OF SHARES AS BU SINESS INCOME IGNORING THE DETAILED FINDINGS RECORDED BY THE A.O. IN THE ASSESSMENT ORDER THAT THE ASSESSEE WAS ENGAGED IN TRADING ACTIVITY RATHER THAN IN ANY INVESTMENT ACTIVITY EVEN THOUGH SHARES HAD BEEN SHOWN AS INVESTMENT IN THE BALANCE SHEET. THE LD .DR ALSO DREW OUR ATTENTION TOWARDS RELEVANT PART OF THE ASSESSMENT ORDER AND SUBMITTED THAT THE MORE OF THE ASSETS OR SHARES HAD BEEN TREATED AS INVESTMENT BY THE ASSESSEE AS THE CHANGES HAD BEEN BROUGHT ABOUT IN THE TAX STATUTE UNDER THE HEAD CAPITAL GA IN. THE LD.DR SUBMITTED THAT THE STAND OF ASSESSEE FOR SALE OF SHARES SHOWN AS INVESTMENT DOES NOT HOLD GROUND AS THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE OF SHARES AND SECURITIES OF THE ASSESSEE. THE LD.DR SUBMITTED THAT THE LD.CIT(A) HAS G RANTED RELIEF TO THE ASSESSEE WITHOUT ANY BASIS THEREFORE THE IMPUGNED ORDER MAY KINDLY BE SET ASIDE BY RESTORING THAT OF THE A.O. 4. THE LD. SR. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE FIRST APPELLATE ORDER AND SUBMITTED THAT AS PER RECENT C IRCULARS OF CBDT VIZ. CIRCULAR NO.6/2016 DATED 29.2.2016 AND COPY OF THE LETTER ISSUED BY CBDT CLARIFYING CIRCULAR NO.6/2016 CLEARLY STATES THAT THE INCOME ARISING FROM TRANSFER OF UNLISTED SHARES TO BE CONSIDERED UNDER THE HEAD CAPITAL GAIN IRRESPECTI VE OF PERIOD OF HOLDING WITH A VIEW TO AVOID DISPUTES/LITIGATION AND TO MAINTAIN UNIFORM APPROACH. THE LD.SR.COUNSEL SUPPORTING THE FIRST APPELLATE ORDER ALSO DREW OUR ATTENTION TOWARDS SUB PARA (B) OF PARA 3 OF THE CBDT CIRCULAR (SUPRA) AND SUBMITTED THA T IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER IF ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM ITA 3757/DEL/2010 ASSESSMENT YEAR: 2006 - 07 ITA 3659/DEL/2011 ASSESSMENT YEAR 2007 - 08 CECIL WEBBER ENGINEERING LTD. NEW DELHI 3 TRANSFER THEREOF AS CAPITAL GAIN THE SAME SHALL NOT BE PUT TO DISPUTE BY THE A.O. 5. ON A CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS FROM THE FIRST APPELLATE ORDER WE OBSERVE THAT THE LD.CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE WITH THE FOLLOWING FINDING. I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE OBS ERVATIONS OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE AR OF THE APPELLANT. THIS GROUND OF THE APPELLANT IS BEING DECIDED AFTER MAKING THE FOLLOWING OBSERVATIONS: (A) FROM THE FACTS OF THE CASE IT IS CLEAR THAT THE SHARES WHICH HAD BEEN SOLD DURIN G THE YEAR WAS SHOWN AS AN ASSET IN THE BALANCE SHEET AND THE AR OF THE APPELLANT HAS ALSO CONTENTED THAT A DIVIDEND OF RS. 1.63 CRORES HAS ALSO BEEN SHOWN ON THE BASIS OF THE INVESTMENTS MADE BY THE APPELLANT. THE AR HAS CONTENDED THAT VARIOUS DETAILS WE RE FILED BEFORE THE LD. ASSESSING OFFICER VIDE LETTER DATED 25/11/2008 IN WHICH THE AUDIT ACCOUNTS AND DETAILS HAD BEEN FURNISHED BY THE AR OF THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAS NOT CONTROVERTED THE CONTENTION OF THE AR OF THE APPELLANT THAT THESE SHARES HAD BEEN TREATED AS INVESTMENT AND SHOULD THEREFORE BE TAXED UNDER THE HEAD OF SHORT TERM CAPITAL GAINS. (B) T HE AR HAS FURTHER HIGHLIGHTED THAT THE APPELLANT COMPANY HAD DECLARED THE SHORT TERM CAPITAL GAIN AND LON G TERM CAPITAL GAIN UNDER ONE BASKET OF INVESTMENT AND WHILE THE LONG TERM CAPITAL GAIN HAD BEEN ACCEPTED NO REASONS HAD BEEN PROVIDED AS TO WHY THE SHORT TERM CAPITAL GAIN SHOULD NOT BE ACCEPTED. THE DECISION OF CIT VS GOPAL PUROHIT (ITA NO. 1121 OF 200 9) OF MUMBAI HIGH COURT HAS ALSO BEEN RELIED UPON TO ARGUE THAT IF THE ASSESSEE HAD BEEN FOLLOWING A CONSISTENT POLICY THE ASSESSING OFFICER HAS NO JUSTIFICATION FOR ADOPTING A DIVULGING APPROACH. FROM THE FACTS IT IS ALSO OBSERVED THAT THE ASSESSING OFFI CER HAS ACCEPTED THAT THE ASSESSEE HAS SEPARATE PORTFOLIO FOR INVESTMENT AND TRADING AS ALSO STATED ON PAGE 6 OF THE ASSESSMENT ORDER. IN VIEW OF THE CBDT'S CIRCULAR DATED JUNE 2007 AS WELL AS CBDT'S INSTRUCTION NO. 1827 DATED 31/8/1987 THESE FACTS INDIC ATE THAT THE APPELLANT WAS HOLDING THESE SHARES AS INVESTMENT EVEN THOUGH OTHER SHARES WERE BEING HELD FOR TRADING PURPOSES. (C) ON GOING THROUGH THE FACTS IT IS SEEN THAT IN TOTALITY THE NUMBER OF TRANSACTIONS ARE ALSO NOT FREQUENT AND THERE ARE 9 TRAN SACTIONS OF SALE OF SHARES AND 3 TRANSACTIONS OF SALE OF MUTUAL FUNDS. IT HAS ALSO BEEN OBSERVED THAT THE DIVIDEND RECEIVED ON SHARES HAS ALSO BEEN DECLARED BY THE APPELLANT COMPANY. THE TOTAL NETWORTH OF THE APPELLANT COMPANY WAS RS. 973.21 LACS AS ON 31. 3.2006 OUT OF WHICH INVESTMENTS IN SHARES/MUTUAL FUND AMOUNTED TO RS. 921.51 LACS. THE INVESTMENTS WERE MADE OUT OF OWN FUNDS OF THE ITA 3757/DEL/2010 ASSESSMENT YEAR: 2006 - 07 ITA 3659/DEL/2011 ASSESSMENT YEAR 2007 - 08 CECIL WEBBER ENGINEERING LTD. NEW DELHI 4 COMPANY AND NOT THROUGH BORROWED FUNDS. THIS FACT HAD ALSO BEEN SPECIFICALLY HIGHLIGHTED BY THE AR OF THE APPELLANT. ON THE OTHER HAND THE ASSESSING OFFICER HAS GENERALLY RELIED UPON THE CBDT'S CIRCULAR OF JUNE 2007 BUT HAS NOT HIGHLIGHTED AS TO HOW HE CAME TO THE CONCLUSION THAT THE INTENTION OF THE APPELLANT FOR HOLDING THESE SHARES WAS FOR THE PURPOSE OF TRADING AND NOT IN VESTMENT. KEEPING IN VIEW THE LOW FREQUENCY OF TRANSACTION THE REFLECTION OF THE SHARES IN THE BALANCE SHEET AS INVESTMENT AS WELL AS THE OTHER FACTS HIGHLIGHTED BY THE AR OF THE APPELLANT I AM OF THE CONSIDERED OPINION THAT IN VIEW OF THE SPECIFIC FACTS AND ARGUMENTS AS MADE OUT BY THE AR OF THE APPELLANT AND ALSO KEEPING IN VIEW THE CBDT CIRCULAR ON THIS ISSUE IN THE PRESENT SET OF FACTS THE SALE OF SHARES MADE BY THE APPELLANT SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS AND NOT BUSINESS INC OME AS HE LD BY THE ASSESSING OFFICE. 6. IN VIEW OF THE ABOVE T HERE WERE 9 TRANSACTIONS ON SALE OF SHARES AND THREE TRANSACTIONS ON SALE OF MUTUAL FUNDS AND THE DIVIDEND RECEIVED ON SHARES HAS ALSO BEEN DECLARED BY THE APPELLANT. UNDISPUTEDLY THE INVESTMENTS WERE MADE OUT OF OWN FUNDS OF THE ASSESSEE AND NOT BY BORR OWING THE FUNDS. THE ASSESSING OFFICER HAS RELIED ON THE CBDT CIRCULAR OF JUNE 2007 BUT THE A.O. MISERABLY FAILED TO ESTABLISH THAT THE INTENTION OF THE ASSESSEE FOR HOLDING SHARES AND SECURITIES WAS FOR THE PURPOSE OF TRADING AND NOT INVESTMENT. UNDIS PUTEDLY THERE WAS VERY LOW FREQUENCY OF TRANSACTIONS AND THE ASSESSEE SHOWN THE SHARES AS INVESTMENT IN THE BALANCE SHEET. FURTHER FROM THE CBDT CIRCULAR 6/2016 AND CLARIFICATIONS NO. II DATED 2.5.2016 IT IS CLEAR THAT THE CBDT HAS ADVISED THE A.O. TH AT THE INCOME ARISING FROM TRANSFER OF UNLISTED SHARES WOULD BE CONSIDERED UNDER THE HEAD CAPITAL GAIN IRRESPECTIVE OF PERIOD OF HOLDING WITH A VIEW TO AVOID LITIGATION AND TO MAINTAIN UNIFORMITY IN APPROACH BY REVENUE AUTHORITIES. 7. IN VIEW OF THE ABOVE CONCLUSION DRAWN BY THE LD.CIT(A) TREATING THE INCOME OF ASSESSEE AS CAPITAL GAIN IS CORRECT AND WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE SAME. ACCORDINGLY THE SOLE GROUND OF REVENUE BEING DEVOID OF MERIT IS DISMISSED. ITA 3757/DEL/2010 ASSESSMENT YEAR: 2006 - 07 ITA 3659/DEL/2011 ASSESSMENT YEAR 2007 - 08 CECIL WEBBER ENGINEERING LTD. NEW DELHI 5 8. IN THE R ESULT THE APPEAL OF THE REVENUE IN ITA NO.3757/DEL/2010 FOR THE A.Y. 2006 - 07 IS DISMISSED. ITA 3659/DEL/2011: A.Y. 2007 - 08 9. THE EFFECTIVE GROUND S RAISED BY REVENUE READ AS FOLLOWS. 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICTING T HE DISALLOWANCE U/S 14A READ WITH RULE 8D TO RS.658674/ - AS AGAINST DISALLOWANCE OF RS.1683393/ - . LD.CIT(A) HAS FAILED TO TAKE COGNIZANCE OF SUB SECTION (3) OF SECTION 14A WHICH SPECIFIES THAT EVEN IF THE ASSESSEE MAKES A CLAIM THAT NO EXPENDITURE HAS BEE N INCURRED IN EARNING THE EXEMPTED INCOME SUB SECTION (2) OF SECTION 14A SHALL APPLY MEANING THEREBY DISALLOWANCE U/S 14A(1) IS CALLED FOR. 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE AO NOT TO TREAT OTHERWISE THE INCOME DECLARED AT RS.4148271/ - UNDER THE HEAD SHORT TERM CAPITAL GAINS IGNORING THE FACT THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF SHARES. 10. GROUND NO.1: - THE LD.DR SUBMITTED THAT THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICTING THE DISALLOWANCE OF RS.6 58 674/ - AS THE FIRST APPELLATE AUTHORITY HAS FAILED TO TAKE COGNIZANCE OF SUB SECTION (3) OF SECTION 43A OF THE ACT WHICH SPECIFIES THAT EVEN IF THE ASSESSEE MAKES THE CLAIM NO EXPENDITURE HAS BEEN INCURRED I N EARNING EXEMPT INCOME SUB SECTION (2) OF SECTION 14A OF THE ACT SHALL APPLY AND DISALLOWANCE CAN BE MADE ACCORDINGLY. 11. REPLYING TO THE ABOVE THE LD.SR.COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE RATIO OF DECISION OF HON BLE MUMBAI HIGH COURT I N THE CASE OF GODREJ & BOYCE MANUFACTURING CO.LTD. VS. DCIT REPORTED IN 328 ITR 81 (BOM.) RULE 8D SHALL BE APPLICABLE FROM THE A.Y. 2008 - 09 THEREFORE THE CONCLUSION DRAWN BY THE LD.CIT(A) IS QUITE SUSTAINABLE AND CORRECT. 12. ON CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS WE OBSERVE THAT THE LD.CIT(A) HAS GRANTED PART RELIEF TO THE ASSESSEE ON THE ISSUE BY OBSERVING AS FOLLOWS. ITA 3757/DEL/2010 ASSESSMENT YEAR: 2006 - 07 ITA 3659/DEL/2011 ASSESSMENT YEAR 2007 - 08 CECIL WEBBER ENGINEERING LTD. NEW DELHI 6 12. ON A CLOSE PERUSAL OF THE VARIOUS DECISIONS OF THE HIGH COURTS AND THE DELHI TRIBUNAL IT IS ABUNDANTLY CLEAR THAT THE ONUS O N CORRECT ESTIMATION OF THE EXPENDITURE IS ON THE REVENUE. THE PROBLEM IS FURTHER AGGRAVATED BY THE FACT THAT THE BOMBAY HIGH COURT WHICH HAS DEALT WITH RULE 8D HAS HELD THAT THE SAME SHALL BE APPLICABLE FROM ASSESSMENT YEAR 2008 - 09. THIRDLY IT HAS ALS O BEEN HELD BY THE BOMBAY HIGH COURT THAT WHEN THE COMPANY PAYS TAXES IT IS ON THE PROFITS AS A DISTINCT TAXABLE ENTITY AND NOT ON BEHALF OF OR AS AN AGENT FOR SHAREHOLDERS. 13. THE BOMBAY HIGH COURT WHICH IS PROBABLY THE ONLY COURT WHICH HAD DEALT WITH THE ISSUE OF RULE 8D IN GREAT DETAIL HAS IN ITS DECISION IN GODREJ & BOYCE (SUPRA) HAS SENT THE FILE TO THE AO TO MAKE A REASONABLE ESTIMATE. THUS IT WOULD BE REASONABLE TO ADD BACK THE AMOUNT OF RS.6 58 674/ - AS OFFERED BY THE ASSESSEE IN THE SUBMISSI ONS MADE BEFORE ME. THE ASSESSEE SUCCEEDS PARTLY IN GROUND OF APPEAL NO.2. 13. IN VIEW OF THE ABOVE WE CLEARLY OBSERVE THAT THE LD.CIT(A) HAS DISMISSED THE ACTION OF THE AO IN MAKING DISALLOWANCE BY TAKING RULE 8D RESTRICTED THE ADDITION AS OFFERED BY TH E ASSESSEE TO RS.6 58 674/ - . IT IS A WELL ESTABLISHED PROPOSITION THAT FOR MAKING DISALLOWANCE U/S 14A OF THE ACT THE AO HAS TO RECORD HIS DISSATISFACTION ABOUT NO EXPENDITURE CLAIMED OR SUO MOTO DISALLOWED AMOUNT OF EXPENDITURE THEREAFTER ONLY THE AO M AY VALIDLY PROCEED TO MAKE DISALLOWANCE UNDER THIS PROVISION. IN THE PRESENT CASE FROM THE RELEVANT PART OF THE ASSESSMENT ORDER WE CLEARLY OBSERVE THAT THE LD.CIT(A) HAS NOT RECORDED ANY SUCH SATISFACTION AND PROCEEDED TO INVOKE RULE 8D OF THE I.T. RULES 1962 WHICH WAS NOT APPLICABLE TO THE A.Y. 2007 - 08. THEREFORE THE ADDITION MADE BY THE AO WAS NOT CORRECT AND SUSTAINABLE AND LD.CIT(A) WAS RIGHT IN RESTRICTING THE DISALLOWANCE TO THE AMOUNT SUO MOTO DISALLOWED BY THE ASSESSEE. 14. ACCORDINGLY GROUND NO.1 OF THE REVENUE HAVING NO SUBSTANCE IS DISMISSED. 15. GROUND NO.2 : - THE FACTUAL CIRCUMSTANCES OF EARLIER A.Y. 2006 - 07 ARE SIMILAR AND IDENTICAL TO THE PRESENT A.Y. 2007 - 08 AND THIS FACT HAS BEEN ITA 3757/DEL/2010 ASSESSMENT YEAR: 2006 - 07 ITA 3659/DEL/2011 ASSESSMENT YEAR 2007 - 08 CECIL WEBBER ENGINEERING LTD. NEW DELHI 7 ACCEPTED BY BOTH THE PARTIES DURING THE COURSE OF HEAR ING. SINCE BY THE EARLIER PART OF THIS ORDER WE HAVE DISMISSED GROUND NO.1 OF THE REVENUE UPHOLDING THE CONCLUSION DRAWN BY LD.CIT(A) THAT THE INCOME EARNED AND DECLARED BY THE ASSESSEE UNDER THE HEAD SHORT TERM CAPITAL GAIN FROM SALE OF SHARES AND SECU RITIES CANNOT BE TREATED AS BUSINESS INCOME OF TRADING OF SHARES. THEREFORE OUR CONCLUSION DRAWN ON THIS ISSUE FOR THE A.Y. 2006 - 07 WOULD APPLY MUTATIS MUTANDIS TO THE PRESENT ASSESSMENT YEAR 2007 - 08 AND GROUND NO.2 OF THE REVENUE IS DISMISSED. 16. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 RD NOVEMBER 2017. SD/ - SD/ - (P.K. BANSAL) (C.M. GARG) VICE PRESIDENT JUDICIAL MEMBER DATED: THE 2 2 RD NOVEMBER 2017. @ MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASST. REGISTRAR ITAT DELHI BENCHES