ACIT, CIR-1, KALYAN vs. SISTON INDIA PVT.LTD., DOMBIVALI

Grounds no.1 and 2, are the effective grounds in the present appeal. In ground no.1, the Revenue has challenged deletion of addition of ` 26,54,640, made under section 36(1)(iii) of the Income Tax Act, 1961 (for short “the Act”).

Brief facts are, the assessee company, as stated by the Assessing Officer, is engaged in the business of manufacturing of Boilers for Sugar Industry with diversifying interest in power generation / co– generation projects. For the assessment year under dispute, the assessee filed its return of income on 29th September 2011, declaring total income of ` 6,79,72,467. During the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction on account of interest expenditure amounting to ` 26,54,640, called for the necessary details. After examining the details furnished by the assessee, he found that the interest expenditure is on account of unsecured loan of 2,21,22,000 availed from the directors for investing an amount of ` 3,25,00,000 in M/s. Hassan Biomass Power Co. Pvt. Ltd. Noticing this fact, the Assessing Officer was of the view that the assessee was deliberately diverting fund for non–business purpose to unjustly enrich the directors by paying them interest against the unsecured loan. Therefore, he called upon the assessee to explain why the interest expenditure should not be disallowed in terms of section 36(1)(iii) of the Act. Though, the assessee objected to the proposed disallowance and also submitted before the Assessing Officer that similar disallowance made in assessment year 2008–09, was deleted by the Tribunal, however, the Assessing Officer rejecting the submissions of the assessee proceeded to disallow the interest paid of 3 M/s. Sitson India Pvt. Ltd. ` 26,54,640 under section 36(1)(iii) of the Act by opining that it does not qualify for deduction under section 36(1)(iii) of the Act. As regards assessee’s contention that the issue was decided in favour of the assessee by the Tribunal in assessment year 2008–09, the Assessing Officer observed that the Department has preferred appeal against the order of the Tribunal. Being aggrieved of the disallowance made by the Assessing Officer the assessee preferred appeal before the first appellate authority.

The learned Commissioner (Appeals) after considering the submissions of the assessee and noticing that in assessee’s own case for assessment years 2008–09 to 2010–11, similar disallowance made by the Assessing Officer have been deleted by the appellate authorities, followed the same and accordingly deleted the addition made in the impugned assessment year as well.

We have considered rival submissions and perused materials on record. At the outset, the learned Authorised Representative submitted that identical dispute arising in assessee’s own case for assessment years 2008–09, 2009–10 and 2010–11 have been decided by the Tribunal in favour of the assessee under similar facts and circumstances. He submitted, there being no dissimilarity in facts, the decisions of the Tribunal in the preceding assessment years would squarely apply to the facts of the present case.

The learned Departmental Representative fairly submitted that identical dispute arising in earlier assessment years have been decided in favour of the assessee by the Tribunal.

We have considered rival submissions and perused materials on record. As could be seen from the facts and material on record, the investment of ` 3.25 crore in M/s. Hassan Biomass Power Co. Pvt. Ltd. was made in the financial year 2007–08 corresponding to the assessment year 2008–09. While completing the assessment for A.Y. 2008–09, the Assessing Officer made disallowance of interest expenditure amounting to ` 26,54,640 under section 36(1)(iii) of the Act stating that the assessee had deliberated diverted interest bearing fund for non–productive purposes. However, the learned Commissioner (Appeals) after considering the submissions of the assessee deleted the disallowance made by the Assessing Officer. Being aggrieved of the aforesaid decision of the learned Commissioner (Appeals), the Revenue came in appeal before the Tribunal. The Tribunal, while deciding the appeal in ITA no.4540/Mum./2012, dated 14th February 2016, after considering the submissions made from both the sides, held that the investment of ` 3.25 crore in M/s. Hassan Biomass Power Co. Pvt. Ltd., cannot be said to be for non–business purpose and accordingly upheld the decision of the learned Commissioner (Appeals). The aforesaid decision of the Co–ordinate

In ground no.2, the Revenue has challenged the decision of the learned Commissioner (Appeals) in accepting assessee’s claim of income derived from share transaction as short term capital gain and adjustment of long term capital loss against such income.

Brief facts are, during the assessment proceedings, the Assessing Officer on verifying the Profit & Loss account of the assessee found that in the relevant previous year the assessee has derived income of ` 16,62,716 from share transaction and after setting–off long term capital loss of ` 5,64,067 against the said income the assessee has offered net short term capital gain of ` 10,98,649. The Assessing Officer was of the view that the income derived from share transaction has to be treated as business income as was held by him in assessment year 2008–09 and subsequent assessment years.

The learned Commissioner (Appeals) after considering the submissions of the assessee reversed the decision of the Assessing Officer by accepting assessee’s claim of short term capital gain. The observations of the learned Commissioner (Appeals) in this regard are reproduced as under:–

The learned Departmental Representative relied upon the observations of the Assessing Officer and grounds raised.

The learned Authorised Representative submitted, similar decision of the Assessing Officer to assess the income from share

We have considered rival submissions and perused materials on record. The short issue arising for consideration is, whether the income derived from share transaction is to be treated as capital gain as claimed by the assessee or business income as held by the Assessing Officer. On a perusal of material on record, it is noticed that this is a recurring dispute between the parties from assessment year 2008–09 onwards. While deciding the Department’s Appeal on identical issue in assessment year 2008–09, the Tribunal restored the issue to the 8 M/s. Sitson India Pvt. Ltd. Assessing Officer to examine whether the assessee has carried on the share transaction as investment activity or as a business venture. The Assessing Officer while completing the assessment in pursuance to the directions of the Tribunal, again treated the income from share transaction as business income. However, while deciding assessee’s appeal against such decision of the Assessing Officer in assessment year 2008–09, the learned Commissioner (Appeals) observed that the assessee has not used any borrowed fund for investment in shares and mutual fund. Further, over 88% of shares and mutual funds continued to be medium and long term investment and only 11.87% is held for less than three months. Moreover, the assessee has earned considerable amount of dividend income. Further, the learned Commissioner (Appeals) observed that the predominant activity of the assessee is manufacturing of engineering goods and renewable energy projects. Thus, considering the aforesaid facts learned Commissioner (Appeals) ultimately held that the assessee has carried on the share transaction as investment activity and accordingly accepted assessee’s claim of taxability of income from share transaction as short term capital gain. As could be seen from the observations of the learned Commissioner (Appeals) in the impugned assessment year, 90% of the shares held by the assessee is for a period of more than one year, 6% from three months to one year and 4% is for less than three months. Thus, from the aforesaid fact it is clear that there is no change in the 9 M/s. Sitson India Pvt. Ltd. mode and manner of share transaction carried on by the assessee from the preceding assessment years. It is also a fact on record that in assessment years 2009–10 and 2010–11 the first appellate authority has upheld assessee’s claim of treating the income from share transaction as capital gain. There being no difference in facts in the impugned assessment year, applying the rule of consistency we hold that the income from share transaction has to be assessed under the head capital gain. That being the case, the decision of the learned Commissioner (Appeals) on the issue deserves to be upheld. The ground raised is dismissed.

In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 11.07.2018