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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI S. RIFAUR RAHMAN
The present appeal has been filed by the assessee challenging the impugned order dated 11.10.2013, passed by the learned Commissioner of Income Tax (Appeals)–25, Mumbai, for the assessment year 2008–09.
Assessee has raised five grounds raising the issues of deemed dividend, earning of income from share trading, income from speculative transactions and exemption claimed under section 54B of 2 Suresh Mehta the Income Tax Act, 1961 (for short “the Act”). For the sake of convenience, we are dealing the issues ground–wise.
Brief facts relating to ground no.1 are, during assessment proceedings the Assessing Officer observed in Form no.3CD, filed by the assessee which shown credit balance of ₹ 12,95,528/– received from M/s.Vogue Property Developers Pvt. Ltd. He observed that the assessee has 50% shareholding in the above said company and the company had reserves and surplus of ₹ 36,92,008/– as on 31st March 2008. When the assessee was called upon to explain the transaction, the assessee submitted that the said advance was not loan but advance received pursuant to the transaction and also submitted a copy of the audited accounts of the said company. The assessee submitted break–up of the balance outstanding in his books of accounts as below:–
Loan Account ` (12, 64,000) 2. Deposit for office hire ` 24, 75,000 3. Transfer Account ` 19, 50,000 4. Balance as per balance sheet ` 31, 61,000
4. The assessee submitted that the balance as per books of accounts were reconciled with Vogue Property Developers Pvt. Ltd. The Assessing Officer rejected the submissions of the assessee and proceeded to treat the difference between closing balance of ₹
3 Suresh Mehta 31,61,000 and opening balance of ₹ 20,64,000 as loan taken by the assessee from the above said company (₹ 10,97,000) as deemed dividend and made addition in the hands of the assessee. Aggrieved with the above order assessee filed an appeal before Ld CIT(A) and filed a detailed submission before him. After considering the submissions of the assessee, Ld CIT(A) rejected the above said submission and opined that the documents submitted by the assessee are afterthought and to hide the transactions as deemed dividend, assessee has adopted a colourable device and accordingly he sustained the addition made by the Assessing Officer.
Aggrieved with the above order, the assessee is in appeal before us. At the time of hearing, the Ld AR brought to our notice the Page– 16 of the assessment order and further brought to our notice Page–58 of the paper book, which is the balance sheet schedule of Vogue Property Developers Private Limited. In schedule of deposits, it is shown as deposit of ₹ 31,61,000/– receivable from Suresh Mehta. He also brought to our notice Page–70 and 71 which is the corresponding Ledger accounts of Vogue Property Developers Pvt. Ltd. He also brought to our notice Page–63 and 64 of the paper book, which is Memorandum of Understanding between assessee and the above said company (unsigned document). He submitted that the assessee was holding office premise which was given on hire to the above said
4 Suresh Mehta company. The assessee has received advance from the above said company in the previous assessment year. The assessee paid huge advance to the said company and also received rental advance, in net result assessee to receive ₹ 20,64,000 as of previous assessment year. During this assessment year, the assessee has received back the advance which is paid in the earlier assessment year and also received further rental advance. In the net result, the assessee has received net additional rental advance of ₹ 10,97,000. He submitted that the Assessing Officer has treated the above amount as deemed dividend he prayed that the extent of the above said addition may be deleted.
On the other hand, the Ld DR submitted that Assessing Officer has brought out the facts clearly in his order and he relied on the orders passed by the Ld CIT(A)/AO.
Considered the rival submissions and material on record. We notice that assessee is holding 50% of the shareholding in Vogue Property Developers Pvt. Ltd. and in the previous assessment year, assessee has paid advances to the company to the extent of ₹ 3,289,000 and also received ₹ 1,225,000, as the rental advance, as per the books of account clearly discloses that assessee to receive ₹ 2,064,000 from the company. During this assessment year, the assessee has received ₹ 5,650,000 and paid ₹ 425,000. The amount received by the assessee from the company which includes repayment
5 Suresh Mehta of advances which was paid during the previous assessment year, additional rental advances received from the company and advance for sale of plot to the company. In the net result, assessee has received ₹ 1,097,000 additional funds from the company. As per the balance sheet declared by the above said company it is disclosed as deposits of ₹ 3,161,000, which tallies with the Ledger accounts declared by the assessee in his books of account. The break–up declared by the assessee which clearly indicates that assessee has paid ₹ 1,264,000 as additional advance to the company, received ₹ 2,475,000 as rental advance and received ₹ 1,950,000 as advance for sale of plot. We notice from the records submitted before us indicate that the assessee was having regular transactions with the company and paid advances to the company in the earlier assessment year and this year assessee has entered into transactions like sale of plot to the above said company and also intend to give office space on rent, even though the MOU submitted by the assessee are unsigned, the transactions declared by the assessee in the previous assessment year clearly indicates that assessee has already taken ₹ 12,25,000 as rental advance in the previous year. Since it is a continuous transaction and we notice that still assessee to receive ₹ 12,64,000 from the company against the advance paid during the previous assessment year, in our opinion, we do not see any reason to treat the current year transaction as deemed dividend. Further what needs to be seen particularly in 6 Suresh Mehta terms of deemed dividend is that whether the assessee has received the money from the company, which indicate that it was received solely for the personal benefit and indicate the circumstances that assessee has intended to receive indirect dividend. In the present case, we notice that irrespective of the reserves and surplus balance outstanding in the company, the assessee was dealing with the company by paying advances/deposit to the company. Further we notice that the assessing officer has proceeded to treat the difference between the closing balance and the opening balance as the deemed dividend. In order to make the addition under the head deemed dividend, the Assessing Officer should investigate each transaction of money received from the company and the make the addition accordingly. Therefore, we do not see any reason to sustain addition made by the Assessing Officer. Accordingly, we direct the Assessing Officer to delete the addition made under the head deemed dividend under section 2(22)(e) of the Act.
With regard to grounds no.2 and 3, the relevant facts are, the Assessing Officer observed from the documents submitted by the assessee that assessee carrying on the business of dealing in shares and trading in shares and derivative segments. Even noticed that the assessee has declared long-term capital gain of ₹ 81,46,911 short- term capital gain of ₹ 42,24,936 and loss of ₹ 57,28,078 from 7 Suresh Mehta speculative and derivative transactions. He further observed that the assessee has entered into 1024 transactions, including 913 transactions in case of derivative trading, 97 transactions in case of STCG and 14 transactions in case of long term capital gain. He also observed that the assessee has made purchase turnover of ₹ 384.55 crore and sales turnover of ₹ 385.53 crore, the assessee traded in total of 69,25,386 scripts, scripts in derivatives – 65,12,850 scripts, 343,236 scripts in short term capital gain and 69,300 scripts in long term capital gain. Considering the volume of transactions carried on by the assessee and huge amount paid by the assessee towards brokerage, service tax and STT charges, the Assessing Officer treated the transactions carried on by the assessee as business transaction and rejected the claim of the assessee that income is chargeable under the head income from capital gains.
Aggrieved with the above order, the assessee preferred an appeal before CIT(A). After considering the submissions of the assessee, Ld CIT(A) agreed with the findings of the assessing officer and he observed that AO has brought out ample facts on record to prove his contention that assessee was engaged in the business of share trading, the frequency and volume of transaction was undoubtedly very high, the period of holding was low, the investment and the year end dividend income were minuscule compared to the 8 Suresh Mehta traded volume and the assessee had used borrowed funds and also paid interest thereon. Accordingly he opined that the facts clearly indicates that the transactions carried on by the assessee are adventure in the nature of trade.
Aggrieved with the above order, assessee is in appeal before us. Before us Ld AR brought to our notice observations of the assessing officer in his order and he brought to our notice paper book filed by the assessee, the various correspondence with the assessing officer relating to this issue and he filed a chart indicating the various investments and period of holding of investments in the share. He submitted that assessee earned profit after holding for 90 days or more, he brought to our notice page 48 of the paper book which is the statement for shares purchased and sold during the year. Further he brought to notice page 5 and 6 of the paper book which is financial statement for this assessment year and he submitted that assessee was regularly following this method of declaring income over the years and assessee follows this pattern of declaring income like long-term capital gain short-term capital gain and derivative income or loss regularly. He brought to notice return of income for other assessment years in which assessee was following the same method of accounting and he submitted all along revenue was accepting this method. The Ld AR relied on jurisdictional High Court decision in the case of CIT versus
9 Suresh Mehta Gopal Purohit (2011) 336 ITR 287 and further he brought to notice para 10 of the CBDT circular No.4/2007 dated 15 6 2007 to submit that the CBDT has allowed the taxpayer to have 2 portfolios i.e., investment portfolio and trading portfolio. The assessee can have 2 portfolios and declare income in both heads capital gains as well as business income. He prayed that the income declared by the assessee is business income which assessee has maintained books of account based on this consistent method. Therefore, the consistent method of accounting followed by the assessee may be sustained.
On the other hand, the Ld DR relied on the orders passed by the revenue authorities and agreed with their findings.
Considered the rival submissions and material on record. We notice that assessee declares income from sale of shares as capital gains and also deals in derivative transactions. Assessee has submitted statement and chart before us to indicate that assessee declared income on transfer of shares/securities based on the period of holding. Ld AR brought to our notice various shares which was held as investment for more than 12 months as long-term capital gains. It was submitted before us that assessee should be allowed to claim the benefit under the head capital gains based on the investment portfolios held by the assessee during this year and also assessee was following this method of holding shares in investment portfolio over
10 Suresh Mehta the years. It was submitted before us that as per circular No. 6/2016 of CBDT, in respect of listed shares and securities if held more than 12 months immediately preceding the date of its transfer, it is a choice of the assessee to treat the income arising from the transfer of those shares as capital gain and revenue should not object to it. Considered the submissions and considering the statement submitted before us, it indicates that assessee had shares held for more than 12 months and we are in agreement with the assessee that assessee can have choice of treating the income under the head capital gains as per the circular No. 6 above 2016 dated 29 February 2016 and also in our opinion that statements submitted by the assessee needs verification, therefore we find it appropriate to remit this issue back to the file of assessing officer to verify the claim of the assessee and accordingly treat the income declared by the assessee under the head capital gains to those portfolios which was held by the assessee as investment.
With regard to short-term capital gain and derivative transactions, as held in the case of Ghopal Purohit (supra) the assessee is allowed to maintain its business transaction/portfolio management under 2 categories one held as stock in trade and another held for investment. In our considered view the facts in this case is similar to Gopal Purohit (supra) case, the findings of the Hon’ble Bombay High Court is given below:–
11 Suresh Mehta “2. The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in the present case, should be treated as those in the nature of investment transactions and the profit received therefrom should be treated either as short-term or, as the case may be, long-term capital gain, depending upon the period of the holding. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transactions namely, those by way of investment on one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law.
3. Insofar as Question (b) is concerned, the Tribunal has observed in paragraph 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question.
Insofar as Question (c) is concerned, again there cannot be any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature of income. The Tribunal has applied the correct principle in arriving at the decision in the facts of the present case. The finding of fact does not call for interference in an appeal under section 260A. No substantial question of law is raised. The appeal is accordingly dismissed.”
12 Suresh Mehta
Considering the above findings, we direct the assessing officer to complete the assessment based on the ratio of above decision. Accordingly ground No.2, 3 and 4 are allowed for statistical purpose.
With regard to ground No.5, the relevant facts are, the Assessing Officer observed that assessee had claimed ₹ 4.47 crores exemption as profit on sale of agricultural land, when the assessee was asked to prove that the said land was agricultural land as per Income Tax Act 1961, in reply, assessee submitted that the sale proceeds of agricultural land is exempt and it is not a capital asset as it satisfies the conditions of section 10(14)(iii) i.e., the said land is situated beyond 8 km from the municipal limits and the population in the village is less than 10,000. The assessee submitted a certificate from “Talati” on the above aspects. When the assessing officer verified the same by issue of notice under section 133(6), Tahsildar of Lonavala Municipal Council issued a certificate certifying that the above land is situated 3 kms. from the limit of the municipal area and also no agricultural activity was performed in the above said land for the last 10 years. When the assessee was asked to substantiate the claim. Assessee filed a reply on 27.12.2010. After considering the submissions of the assessee, assessing officer rejected the contentions and by relying on the certificate issued by Tehsildar, he rejected the exemption claimed as agricultural land by the assessee
13 Suresh Mehta
Aggrieved with the above order, assessee preferred an appeal before CIT(A) and before Ld CIT(A) assessee made a new claim under section 54B of the Act. Before Ld CIT(A), assessee submitted that assessee had purchased 2 agricultural lands out of sale proceed of sale of agricultural land in this assessment year. It was submitted that these details were submitted before Assessing Officer along with the other claim. However, Ld CIT(A) observed that assessee had never claimed any exemption under section 54B before Assessing Officer and assessee was contesting only the eligibility of claiming the sale of land as agricultural land. He observed that assessee in his statement on 17 12 2010 admitted that the agricultural activities was done by watchmen/workers/care takers Akers of the above said land and assessee has never carried on agricultural activities in the above said land himself and also not declared any agricultural income in its statement of income. Further, he observed that there is nothing on record to show that the 2 new lands purchased by the assessee were used for agricultural purposes. Therefore, he rejected the claim made by the assessee under section 54B of the Act.
Aggrieved with the above order assessee is in appeal before us. Ld AR submitted that assessee had made a new claim before Ld CIT(A) and prayed that the claim of the assessee with regard to agricultural activity on the new land purchased by the assessee and the relevant
14 Suresh Mehta documents were never verified by the tax authorities, he prayed that it may be remitted back to assessing officer to verify the claim of the assessee and he submitted that new claim of deduction can be raised any time before appellate authorities and he relied on the case of Prithvi brokers and shareholders (2012) 349 ITR 336 (Bombay). On the other hand Ld DR agreed that this issue may be remitted back to AO however he relied on the findings of Ld CIT(A).
Considered the rival submissions and material on record. We notice that assessee has claimed deduction under section 54B first time before Ld CIT(A) and Ld CIT(A) rejected the claim of the assessee without going into the documents submitted by the assessee and he rejected the claim based on the information available on record. We’re in agreement with the assessee that assessee can claim the deduction/exemption anytime during the appellate proceedings. Since assessee is making a fresh claim and it is found that assessee is legally eligible to claim the same. In order to verify the claim of the assessee, we are remitting this issue back to the file of AO and we are directing the assessing officer to verify the relevant documents and submissions made by the assessee and in case it is found that assessee is eligible to claim deduction then it may be allowed as per law. With the above direction, we are allowing the ground raised by the assessee for statistical purpose.
15 Suresh Mehta
In the net result appeal filed by the assessee is allowed for statistical purpose.