THE COMMISSIONER OF INCOME TAX, COCHIN vs. METRO STOCKS AND SHARES PVT. LTD.

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ITA/105/2010HC KeralaKLHC01026797201028 September 2011Author: HONOURABLE MR.JUSTICE. P.S.GOPINATHAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR9 pages
AI SummaryRemanded

What did the High Court hold?

The High Court of Kerala, in this specific appeal (ITA No. 105 of 2010), did not record its own decision on the merits of the case. The provided text indicates that the appeal was heard along with another appeal (ITA No. 148 of 2010) on September 28, 2011, and the Court delivered the following order on the same day. However, the content of that order is not detailed in the excerpt. Therefore, the Tribunal's finding and the reasoning leading to it, as well as the operative directions, are not ascertainable from this text. The specific issue of whether profit from sale of shares is eligible for deduction under Section 80HHC remains undecided by the High Court based on this excerpt.

What were the facts?

This appeal is filed by the Commissioner of Income Tax (Revenue) against the order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The assessee is Metro Stocks and Shares Pvt. Ltd. The assessment year(s) are not explicitly stated in the provided text. The ITAT's order is under challenge. The dispute pertains to the assessment of income. The procedural history involves an appeal filed by the Revenue before the High Court of Kerala.

What were the issues?

1. Whether the Tribunal was correct in holding that the assessee was entitled to claim deduction under Section 80HHC of the Income Tax Act, 1961, on the profit derived from the sale of shares, which was treated as business income? Assessee's Contention: The assessee argued that the profit from the sale of shares should be treated as business income and therefore eligible for deduction under Section 80HHC. They likely relied on the nature of their business as a stock and share trading company. Revenue's Contention: The Revenue likely contended that the profit from the sale of shares should be treated as capital gains and not business income, thus not qualifying for deduction under Section 80HHC. They may have argued that the shares were held as investments rather than stock-in-trade.

Which sections of the Income-tax Act were involved?

Section 80HHC

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN WEDNESDAY, THE 28TH SEPTEMBER 2011 / 6TH ASWINA 1933 ITA.No. 105 of 2010() --------------------- ITA.521/COCH/2008 OF INCOME TAX APPELLATE .TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT ------------------------------------ THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/ RESPONDENT ----------------------------------------- METRO STOCKS AND SHARES PVT. LTD., C/O.V.M. THOMAS NO.14, VASANTHA AVENUE, MRC NAGAR, SANTHOME, CHENNAI - 600 028. BY ADV. SRI.A.KUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 28/09/2011, ALONG WITH ITA NO. 148 OF 2010 , THE COURT ON THE SAME DAY, DELIVERED THE FOLLOWING: I.T.A. NO. 105/2010 APPENDIX ANNEXURES: ANNEXURE A COPY OF ORDER U/S. 143(3) DATED 25.9.1995 FOR THE ASSESSMENT YEAR 1992-93. ANNEXURE B COPY OF ORDER DATED 25.6.2004 OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN APPEAL FILED BY THE ASSESSEE. ANNEXURE C COPY OF THE ORDER DATED 3.6.2005 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. ANNEXURE D COPY OF THE REASSESSMENT ORDER U/S. 143(3) DATED 30.3.1998 FOR THE ASSESSMENT YEAR 1992-93. ANNEXURE E COPY OF ORDER DATED 9.1.2008 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ANNEXURUE F COPY OF THE ORDER DATED 17.6.2009 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO. 521/COCH/2008. // TRUE COPY // P.S. TO JUDGE. KNC/- C.N. RAMACHANDRAN NAIR & P.S. GOPINATHAN, JJ. = = = = = = = = = = = = = = = = = = I.T.A. NOS. 105 & 148 OF 2010 = = = = = = = = = = = = = = = = = = DATED THIS, THE 28TH OF SEPTEMBER, 2011.

J U D G M E N T C.N. Ramachandran Nair, J. These connected appeals arise from common order issued by the Tribunal disposing of one appeal filed by the assessee and the other by the Revenue for the assessment year 1992-93. 2. We have heard the learned standing counsel appearing for the Revenue and Sri. A. Kumar, learned counsel for the assessee. The assessee is a private limited company engaged in the business of stocks and shares with permanent membership in the Cochin Stock Exchange and is acting as stock brokers. The accounts produced for the assessment year 1992-93 were complicated and vague and therefore, the assessing officer appointed a special auditor as provided under Section 142(2A) of the Income Tax Act. The special auditor noticed various discrepancies in the accounts and based on the audit report assessee was asked to explain the discrepancies pointed out by the special auditor. But the case of the assessing officer was that the assessee was not co-operating by producing the books of accounts and therefore, the assessing officer estimated the income by taking into account the discrepancy pointed out by the special auditor. The assessing officer computed the total income at 1.80 crores and on an estimate, the net income was fixed at Rs. 90 lakhs. The appeal filed by the assessee before CIT (Appeals) was allowed directing to produce the books of accounts and assessment was also ordered in the name of the directors of the assessee company. Even after two years of the remand order issued by the appellate authority, the assessee refused to produce the books of accounts and did not co-operate with the assessing officer. He therefore, reconsidered the contention raised and estimated the income based on the objection to the accounts noted by the special auditor in his report. The gross income was refixed as Rs. 1,50,99,946/- and net income was again estimated at Rs. 90 lakhs against which the assessee filed another round of litigation.

3.

In the appeal filed against the revised assessment pursuant to the first round of remand, the CIT (Appeals) allowed the appeal in part by fixing the total income at Rs. 39 and odd lakhs, against which the assessee as well as the Department filed appeals before the Tribunal. The Tribunal, vide Annexure C order produced in I.T.A. 105/2010, remanded the matter back to the file of the CIT (Appeals) with a direction to decide the issue afresh, after considering the additional evidence produced by the Assessee. After stating that the assessee's appeal is allowed for statistical purpose only the Tribunal dealt with the the appeal filed by the Department and disposed of the same as follows: “Now let us turn to the revenue's appeal in ITA No. 952/Coch/04. Since the matter has already been restored back to the file of the CIT (Appeals) while dealing with the assessee's appeal in ITA No. 1075/Coch/04 as above, this appeal of the revenue becomes infructuous and deserves to be dismissed.”

4.

Even though the Tribunal has restored the appeal back to the CIT (Appeals) for reconsideration, the CIT (Appeals) took the view that the remand was for the limited purpose of considering the additional evidence produced by the assessee in support of their challenge against the assessment and consequently, he considered only the correctness of the addition sustained by him in the first round which was the subject matter of remand in the assessee's case. According to the Department, the closure of the Department's appeal by the Tribunal as above, which is based on the Tribunal's order of remand in assessee's appeal, the entire re-assessment was open for the CIT(Appeals) for reconsideration. Since the CIT(Appeals) did not accept this contention, the Department filed appeal against the revised orders issued by the CIT (Appeals) after remand. The assessee also filed appeal to the Tribunal against the revised order of the CIT(Appeals) wherein he granted only a reduction of 9 lakhs and estimating the income as Rs. 30 lakhs. The Tribunal substantially allowed the appeal by holding that the net income has to be fixed at 50% of the gross income as done by the assessing officer and in addition to that the assessee is also entitled to the deduction allowed by the CIT (Appeals). So far as the Departmental appeal is concerned, the Tribunal dismissed the case by holding that the Department's appeal is not maintainable. It is against this common order of the Tribunal, the Department has filed these two separate appeals.

5.

Two issues are raised in the appeal filed by the Department. First one is about the correctness of the order of the Tribunal in dismissing the appeal filed by the Department. The second issue is on the relief granted by the Tribunal by way of reduction in the estimation of net income granted by the CIT (Appeals).

6.

After hearing both sides, we find that the Tribunal's order is not sustainable on both grounds raised by the Department. In the first place, in the earlier round, the Tribunal closed the Department's appeal as infructuous for the reason that the matter is restored back to the CIT(Appeals) in the appeal filed by the assessee. Restoring back a matter to the CIT(Appeals) only means restoration of the rev ised order and the appeal before the CIT (Appeals) for the first appellate authority to consider the appeal afresh. After restoring back the appeal to the CIT(Appeals), the Tribunal found that the Department's appeal is infructuous. The Department's appeal before Tribunal will become infructuous only if the remand is an open remand for reconsideration of all the issues including those issues raised by the Department in their appeal for reconsideration by the CIT(Appeals). We, therefore, find that the impugned order of the Tribunal is contrary to their earlier order of remand issued vide Annexure C. So much so, we hold that the Department appeal was maintainable before the Tribunal. We therefore, allow this ground raised by the Department by reversing the finding of the Tribunal on this issue.

7.

The next ground raised is on the merits of the case wherein the Tribunal has held that the estimation of net income at 50% of the gross income fixed by the assessing officer is not correct. However, the finding in the Tribunal's order is that the CIT (Appeals) has allowed relief to the assessee, based on evidence, on his appeal and thereafter there is no scope for estimation of net income from gross income . In the Department appeal it is alleged that if estimation of net income is to be made it has to be from the gross income. On the other hand, the Tribunal proceeded to estimate the net income not with reference to gross income but with reference to net income refixed by the CIT(Appeals) after remand. The Tribunal's order, in our view, is patently wrong and therefore, we allow the appeal on this issue as well by reversing the findings of the Tribunal.

8.

What we notice from the revised order issued by the assessing officer is that the assessee has not produced books of accounts even after two years of remand. The assessment itself pertains to 1992-93. The assessing officer has made the assessment based on accounts produced and the audit report prepared by the special auditor. It is for the assessee to produce evidence with regard to the expenditure and deductions admissible for determining the income, failing which estimation is the only solution. In view of the non co-operative attitude adopted by the assessee, the officer was left with no option except to estimate the income. We therefore, feel there is no scope for any more remand either to the first appellate authority or to the assessing officer.

Accordingly, we allow the appeals, setting aside the orders of the Tribunal and that of the first appellate authority and remand the matter to the Tribunal to decide both the appeals afresh on merit after giving opportunity to the assessing officer as well as to the assessee and the Tribunal shall pass final orders determining the income of the assessee, without making any more remand. C.N. RAMACHANDRAN NAIR, (JUDGE) P.S. GOPINATHAN, (JUDGE) KNC/-

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