Shambhavi Overseas Private Limited, Lucknow v. ACIT, Lucknow

ITA 64/LKW/2011 | 2005-2006
Pronouncement Date: 03-03-2011

Appeal Details

RSA Number 6423714 RSA 2011
Assessee PAN AAFCS5817H
Bench Lucknow
Appeal Number ITA 64/LKW/2011
Duration Of Justice 1 month(s) 1 day(s)
Appellant Shambhavi Overseas Private Limited, Lucknow
Respondent ACIT, Lucknow
Appeal Type Income Tax Appeal
Pronouncement Date 03-03-2011
Appeal Filed By Assessee
Bench Allotted SMC
Date Of Final Hearing 03-03-2011
Next Hearing Date 03-03-2011
Assessment Year 2005-2006
Appeal Filed On 01-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH S MC SMC SMC SMC LUCKNOW LUCKNOW LUCKNOW LUCKNOW BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT ITA NO.64/LUC/2011 ASSESSMENT YEAR:2005-06 SHAMBHAVI OVERSEAS PVT. LTD. C-3357 RAJAJIPURAM LUCKNOW V. ACIT RANGE IV LUCKNOW PAN:AAFCS5817H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K. P. TANDON ADVOCATE RESPONDENT BY: SHRI ANADI VERMA D.R. O OO O R RR R D DD D E EE E R RR R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. CIT(A)-II LUCKNOW DATED 26.8.2010 RELATING TO ASSE SSMENT YEAR 2005-06. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS:- 1. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(APPEAL) HAS ERRED IN DISMISSING THE APPEAL FILED BY THE APP ELLANT AGAINST THE ORDER DATED 31.12.2007 PASSED BY THE ASSISTANT COMMISSION ER OF INCOME TAX RANGE IV LUCKNOW. 2. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED CIT (APPEAL) HAS ERRED IN LAW AND IN FACT IN HOLDING THAT DIVIDEND AMOUNTING TO RS.3 40 600/- RECEIVED IN RESPECT OF UNITS FROM MUTUAL FUND AND REINVESTED IN THE SAME MUTUAL FUND AMOUNTED TO BUSINESS INCOME AND NOT EXEMPT U/S 10(35) OF THE IN COME TAX ACT 1961. 3. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED CIT (APPEAL) HAS ERRED IN LAW AND IN FACT IN HOLDING THAT LONG TERM CAPITAL GAIN AMOUNTING TO RS.1 34 060/- ARISING AFTER 01.10.2004 BY SWITCHING OVER TO ANOTHER SCHEM E OF THE SAME MUTUAL FUND IS BUSINESS INCOME AND NOT EXEMPT U/S 10(38) O F THE INCOME TAX ACT 1961. 4. THE APPLICANT RESPECTFULLY SUBMITS THAT THE CLAIM O F EXEMPTION U/S 10(35) AND U/S 10(38) AS REQUESTED ABOVE MAY KINDLY BE ACC EPTED. :-2-: 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY. RETURN OF INCOME WAS FILED ON 30.10.2005 SHOWING A LOSS OF $44 300. THE ASSESSEE-COMPANY ENJOYS INCOME FROM MUTUAL FUND AND THE DIVIDEND RECEIVED FROM MUTUAL FUND WAS CLAIMED AS EXEMPT U/S. 10(35) OF TH E INCOME-TAX ACT 1961 (IN SHORT THE ACT). THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE-COMPANY HAD BEEN INVESTING ITS FUNDS IN MUTUAL FUND SINCE FINANCIAL YEAR 2000-01 AND TREATED THE SAME AS BUSINESS INCOME AND ASSESSEE WAS ASSESSED ON A TOTA L INCOME OF $4 41 280. THUS THE ASSESSING OFFICER HAS NOT ALLOWED EXEMPTION OF INCO ME FROM MUTUAL FUND AND TREATED THE SAME AS BUSINESS INCOME. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CI T(A) ASSESSEE REFERRED TO PARA 27 OF THE MEMORANDUM OF ASSOCIATION WHICH READS AS UNDER:- TO INVEST MONEY OF THE COMPANY NOT IMMEDIATELY REQ UIRED IN SHARES SECURITIES BANK DEPOSITS AND OTHER DEPOSITS LOANS ETC. AS MAY FROM TIME TO TIME BE DETERMINED. 4.1. THE ASSESSEE ALSO FURNISHED A COPY OF THE RESOLUTIO N DATED 22.2.2002 BEFORE THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) WHICH R EADS AS UNDER:- RESOLVED THAT WITH THE CONSENT OF ALL THE DIRECTOR IN THE BOARD MEETING IT HAS BEEN DECIDED TO INVESTMENT THE BANK BALANCE IN THE VARIOUS TYPE OF MUTUAL FUND ACCOUNT AS INVESTMENT TO JUST INCREASE THE FUND AVAILABLE WITH THE COMPANY AND ON(SIC) DIRECTOR SHRI SUSHIL KUMAR TRIPATHI IS FULLY AUTHORIZED TO INVESTMENT AS HE MAY THINK IN PRESENT ISSUE OF MUTUAL FUND OR RUNNING MUTUAL FUND IN THE MARKET OR MUTUAL FUND WHICH WILL BE OPENED IN FUTURE. 4.2. IN ADDITION TO ABOVE THE ASSESSEE ALSO CONTENDED B EFORE THE LD. CIT(A) THAT EXEMPTION U/S. 10(35) AND 10(38) OF THE ACT IS AVAI LABLE TO ALL THE ASSESSEES AND THE ASSESSING OFFICER HAS NOT ADVANCED ANY VALID REASON FOR TREATING NON-TAXABLE INCOME AS BUSINESS INCOME. IT WAS ALSO SUBMITTED BY THE ASSE SSEE BEFORE THE LD. CIT(A) THAT THE INVESTMENTS WERE MADE AS PER PROVISIONS OF LAW AND REAL CHARACTER OF INVESTMENTS CANNOT BE CHANGED. ACCORDINGLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE EXEMPTED INCOME OF $4 41 280 MAY BE DELETE D. :-3-: 5. THE LD. CIT(A) HAS GIVEN ASSESSMENT YEAR-WISE DETAI LS OF HOLDING WITH THE ASSESSEE-COMPANY AT PAGE 3 OF THE IMPUGNED ORDER. THE LD. CIT(A) HELD THAT DURING ASSESSMENT YEARS 2002-03 2003-04 2004-05 AND 2005 -06 THE ASSESSEE HAS INDULGED IN PURCHASE AND SALE OF MUTUAL FUND. THE LD. CIT(A ) HAS NARRATED CERTAIN FACTS TO ANSWER THE QUESTION AS TO WHETHER THE TRANSACTIONS ARE IN THE NATURE OF INVESTMENT OR TRADING IN MUTUAL FUNDS. THE OBSERVATIONS OF THE L D. CIT(A) ARE AS UNDER:- 1. THE ASSESSEE WAS INCORPORATED ON 26.05.1998. 2. IT HAS VALUED ITS SHARES TREATING IT AS STOCK IN TR ADE AND THE NOTIONAL LOSS HAS BEEN TREATED AS SHORT TERM CAPITAL LOSS IN THE A.Y.2003-04. 3. MOST OF THE INVESTMENT IN THE FORM OF BANK FDS HAD BEEN INVESTED IN PURCHASE OF MUTUAL FUNDS IN THE A. Y. 2002-03. THIS INDICATED THE PROFIT EARNING MOTIVE OF THE ASSESSEE. SUBSEQUENT TRANSACT IONS AND THE SALE OF MUTUAL FUNDS AND ACQUISITION OF OTHER MFS DENOTED A SERIES OF PURCHASE AND SALE TRANSACTIONS MAKING THEM TRADING IN NATURE AND/OR ADVENTURE IN THE NATURE OF TRADE. 4. THE SALE OF MUTUAL FUNDS IN THE SUBSEQUENT YEARS HA S LED TO PURCHASE OF FURTHER MUTUAL FUNDS. IN V. AMIRTHAM AMMAL V. COMMI SSIONER OF INCOME- TAX [1969] 74 ITR 739 (MAD.) WHERE THE ASSESSEE W AS NOT A REGULAR DEALER IN SHARES AND THERE WAS NO URGENCY TO CASH S HARES SO SOON AFTER PURCHASE ON FACTS THE TRANSACTION OF SALE COULD N OT BE SAID TO BE MERELY A CONVERSION OF ONE FORM OF ASSET INTO ANOTHER GIVING RISE TO CAPITAL GAIN AND IT WAS HELD THAT THE TRIBUNAL WAS JUSTIFIED IN HOLD ING THAT TRANSACTION IN QUESTION WAS ADVENTURE IN NATURE OF TRADE AND THUS PROFIT MADE ON THIS TRANSACTION WAS ASSESSABLE AS BUSINESS INCOME. 5. THE BOARD OF DIRECTORS HAD AUTHORIZED INVESTMENT IN SHARES OBVIOUSLY FOR DEPLOYMENT OF THE IDLE FUNDS WITH A PROFIT MOTIVE. IT WAS NOT THE CASE WHERE THE TRANSACTIONS WERE NOT AUTHORIZED BY THE BOARD O F DIRECTORS. 6. THE ASSESSEE HAD ALSO DEBITED DIRECT EXPENSES RELAT ING TO SUCH TRANSACTIONS IN ITS PROFIT & LOSS ACCOUNT. 7. THE TRANSACTIONS ARE NOT ISOLATED OR SOLITARY TRANS ACTIONS BUT MUTUALLY CONNECTED WITH THE SALE PROCEEDS OF A SALE BEING UT ILIZED TO MAKE SUBSEQUENT PURCHASES IN SUBSEQUENT YEARS WHICH IS AN INDICATOR OF NORMAL TRADING OR AN ADVENTURE IN THE NATURE OF TRADE. 8. IT IS JUDICIALLY SETTLED PRINCIPLE THAT THE CUMULAT IVE EFFECT OF ALL THE FACTORS :-4-: HAS TO BE SEEN. THERE IS NOTHING ON RECORD TO SHOW THAT THE PURCHASE WAS FOR NON-COMMERCIAL PURPOSES. 5.1. ULTIMATELY THE LD. CIT(A) HELD AS UNDER:- EVIDENTLY WHEN VIEWED IN TOTALITY ON THE FACTS A ND CIRCUMSTANCES OF THE CASE THE TRANSACTIONS WERE NOT IN THE NATURE OF SI MPLE INVESTMENTS BUT WERE MADE IN THE COURSE OF NORMAL COMMERCIAL OPERAT IONS AS THE PRIMARY ACTIVITY OF EXPORT HAD NOT TAKEN PLACE AND THE ASSE SSEE HAD DIVERTED ITS ACTIVITIES TO TRADING IN MUTUAL FUNDS. THE ASSESSIN G OFFICER HAS RIGHTLY TREATED THESE TRANSACTIONS AS BUSINESS TRANSACTIONS AND ASSESSED IT AS BUSINESS INCOME OF THE ASSESSEE. THUS GROUNDS NO. 1 AND 2 ARE REJECTED AND THE ASSESSMENT ORDER IS CONFIRMED. 6. I HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI K. P. TANDON THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY SUMMARIZED THE FACTS IN PARA 3(2 ) OF THE IMPUGNED ORDER WHEREIN IT HAS BEEN STATED THAT THE ASSESSEE HAS VALUED ITS SH ARES TREATING IT AS STOCK IN TRADE. SHRI K. P. TANDON THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS SHOWN INVESTMENT NOT AS STOCK IN TRADE AS ALLEGED B Y THE LD. CIT(A). THIS FACT IS CLEAR FROM THE BALANCE SHEET ENDING AS ON 31.3.2003. SHR I K. P. TANDON THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSING OFFI CER AS WELL AS THE LD. CIT(A) HAS NOT LOOKED INTO THE BOOKS OF ACCOUNT REGULARLY MAINTAIN ED BY THE ASSESSEE. AS REGARDS PARA 3(3) OF THE ORDER OF THE LD. CIT(A) SHRI K. P. TAN DON THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INVESTMENTS WERE MADE AS PER PRO VISIONS OF THE LAW. THEREFORE THERE WAS NO PROFIT EARNING MOTIVE OF THE ASSESSEE AS ALL EGED BY THE LD. CIT(A). AS REGARDS PARA 3(4) OF THE ORDER OF THE LD. CIT(A) SHRI K. P . TANDON THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DECISION RELIED UPON BY THE LD. CIT(A) IN THE CASE OF V. AMIRTHAM AMMAL V. COMMISSIONER OF INCOME-TAX [1969 ] 74 ITR 739 (MAD.) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE THE SAID CASE WAS ENTIRELY ON A DIFFERENT ISSUE I.E. REGARDING PURCHASE OF SHARES I N PRIVATE LIMITED COMPANY AND SALE TO THE MANAGING DIRECTORS GROUP. THIS CASE HAS NOTHI NG TO DO WITH THE ISSUE IN HAND IN OTHER WORDS THE SAME IS NOT APPLICABLE IN THE CASE OF MUTUAL FUNDS BECAUSE THE INVESTMENTS WERE MADE AS PER PROVISIONS OF LAW. AS REGARDS PARA 3(5) OF THE ORDER OF THE LD. CIT(A) SHRI K. P. TANDON THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE OBSERVATIONS MADE BY THE LD. CIT(A) ARE NOT CORRECT PARTICULARLY KEEPING IN VIEW THE :-5-: RESOLUTION DATED 22.2.2002. AS PER THIS RESOLUTION IT HAS BEEN DECIDED TO INVEST BANK BALANCE IN THE VARIOUS TYPES OF MUTUAL FUND ACCOUNT AND NOT IN SHARES AS INVESTMENT TO JUST INCREASE THE FUND AVAILABLE WITH THE COMPANY. AS REGARDS PARA 3(6) OF THE ORDER OF THE LD. CIT(A) SHRI K. P. TANDON THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRUE NATURE OF TRANSACTION CANNOT BE IGNORED AND THEREFO RE THE FACTS NARRATED BY THE LD. CIT(A) HAVE NO RELEVANCE. SHRI K. P. TANDON THE LD. COUN SEL FOR THE ASSESSEE DREW MY ATTENTION TO THE DECISION OF THE HON'BLE SUPREME CO URT IN SUTLEJ COTTON MILLS LTD V. CIT 116 ITR 1 WHEREIN THEIR LORDSHIPS HAVE OBSERVED THA T THE ENTRIES MADE IN THE BOOKS CANNOT BE REGARDED AS CONCLUSIVE. WHAT IS NECESSAR Y TO BE CONSIDERED IS THE TRUE NATURE OF TRANSACTION. AS REGARDS PARAS 3(7) AND (8) OF T HE ORDER OF THE LD. CIT(A) SHRI K. P. TANDON THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INVESTMENTS IN THE UNITS OF MUTUAL FUND WERE MADE AS PER PROVISIONS OF LAW AND THE INCOME RECEIVED IN THE FORM OF DIVIDENDS WERE RE-INVESTED IN THE SAME MUTUAL FUNDS . 6.1. IT IS OBSERVED THAT THE ASSESSEE HAS MADE SIMI LAR INVESTMENTS IN MUTUAL FUNDS IN ASSESSMENT YEARS 2002-03 2003-04 AND 2004-05. THE LD. CIT(A) HAS NOT DISCUSSED THAT AS TO WHAT TREATMENT WAS GIVEN TO THE INVESTME NTS MADE IN THOSE YEARS WHICH FACTOR IS CERTAINLY RELEVANT TO DECIDE THE PRESENT CONTROV ERSY. AT THE SAME TIME I ALSO FIND SUFFICIENT FORCE IN THE ABOVE SUBMISSIONS OF SHRI K . P. TANDON THE LD. COUNSEL FOR THE ASSESSEE. CONSIDERING THE ENTIRE FACTS AND CIRCUMS TANCES OF THE PRESENT CASE AND ALSO KEEPING IN VIEW THE ABOVE OBSERVATIONS I THINK IT PROPER TO SET ASIDE THE ORDER OF THE LD. CIT(A) IN TOTO AND REMAND THE MATTER TO HIS FILE WI TH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. FOR STATISTICAL PURPOSES THE APPEAL IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 3 3 2011 . SD/- [H. L. KARWA] VICE PRESIDENT DATED:3.3.2011 JJ:0303 :-6-: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR