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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SMT. P. MADHAVI DEVI & SHRI ABRAHAM P GEORGE
Per Smt. P. MADHAVI DEVI, JM:
This appeal by the revenue is against the order of the CIT(A)-V, Bangalore, dated 03/10/2011 for the assessment year 1997-98. The revenue has raised the following grounds of appeal:
M/s Telestar Investments Pvt. Ltd. Page 2 of 6 “1 The order of the Ld.CIT(A) is opposed to law and facts of the case.
2. The CIT(A) erred in holding that the income derived on sale of shares has to be assessed as capital gains without appreciating that the assessee being a investment company, its primary business is to deal in shares and any profits arising from such business should be assessed as business income.
3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.”
Brief facts of the case are that the assessee-company which is engaged in the business of investment, had filed its return of income for the relevant assessment year on 29/11/1997 declaring a total income of Rs9,97,320/- after setting off of business loss of Rs.69,104/- against capital gains of Rs.10,66,425/-. During the assessment proceedings u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] the Assessing Officer (AO) held that the income arising out of sale of shares is business income and not capital gains as claimed by the assessee.
Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted the addition made by the AO directing
M/s Telestar Investments Pvt. Ltd. Page 3 of 6 him to treat profits on sale of shares under the head ‘capital gains’. Aggrieved by the same, the Revenue came in appeal before the Tribunal and the Tribunal, vide order dated 08/09/2006 in set aside the order of the AO directing fresh assessment observing that it is not clear whether the assessee-company used its own funds or borrowed funds or whether it was valuing the stock-in-trade at cost price or market price and that if the stock-in-trade is valued at cost price and if such shares are not valued at market price, then such shares cannot be treated to have been held as stock-in-trade. Pursuant to the order of the Tribunal, the AO issued a notice u/s 143(2) of the Act which was returned un-served by the postal authorities. Thereafter notice was served on the Chartered Accountant of the assessee and details were called for. In response, the assessee filed a letter dated 26/11/2007 stating that the assessee-company has purchased shares in the year 1992 and 1995 and therefore they were long-term investments and further that the shares sold were not procured out of borrowed funds and that they were held as investment and valued at cost consistently from the inception and year after year. Thereafter, after considering the assessee’s contentions and referring to certain judicial precedents on the issue, the AO again held that the income from sale of shares is business income of the assessee. He accordingly brought it to tax.
M/s Telestar Investments Pvt. Ltd. Page 4 of 6 4. Aggrieved, assessee preferred an appeal before the CIT(A) who allowed the same and the revenue is in appeal before us. The learned Departmental Representative supported the order of the AO. None was present on behalf of the assessee.
On consideration of the material on record and the arguments of the learned Departmental Representative, we find that in the proceedings u/s 143(3) r.w.s 254 of the Act, AO had called for the details of the shares sold as well as the assessee’s explanation as to why income from sale of shares should not be treated as business income. The AO has reproduced the details of the particulars called for by him as well as reply furnished by the assessee at paras.2 and 3 of his order. For ready reference, the said paragraphs are reproduced hereunder:
“2. ……………………………..In response to this notice, Sri T.J.Khan, Chartered Accountant of M/s.Kumbhat & Co., Chartered Accountants, appeared on 12.11.2007, to whom a notice u/s 142(1) of the Act was issued calling for the following details: a) Copy of the wealth tax return for AY 97-98. b) What percentage of the total shares has been sold? c) How long were the shares sold, held? d) Whether the shares sold were acquired out of own funds or borrowed funds? e) Whether the shares sold were valued at cost price or market price? and f) Was any bonus shares issued against the shares sold? 3.0 In response to these queries, the assessee’s said authorized representative, Sri. T.J.Khan, furnished a letter dated 26.11.2007 detailing the following: a) The assessee company do not have any immovable properties or any other assets attracting the provisions of Wealth-tax Act and hence, the M/s Telestar Investments Pvt. Ltd. Page 5 of 6 question of filing wealth-tax return for the said assessment year does not arise. b) During the year, the assessee company had sold 34.88% of the shares out of its holdings of the shares (191825/549825*100=34.88%). c) The assessee company sold 191825 shares during the year. Out of these, 153825 are held since its inception i.e. 1992 and the balance 38,000 shares were purchased during the year 1995. Hence, it is very clear that these are long term investments. d) The shares which were sold were not procured out of borrowed funds. e) All the shares which were sold were held investments and valued at cost consistently from its inception and year after year. Even, shares which sold during the year were obviously part of the said investments and valued at cost only. f) The company did not receive any Bonus shares in any of the years.” Thereafter, AO, without giving any reason as to why he is not accepting the assessee’s contention, has proceeded to make the disallowance by referring to the following decisions: i. Michael A.Kallivayalil vs. CIT (1976) 102 ITR 2002, ii. G.Venkata Swami Naidu & Co. vs. CIT (1959) 35 ITR 594 and iii. Sarder Indra Singh & Sons Ltd. vs. CIT (1953) 24 ITR 415 We find that the AO has not given any reasons for not accepting the assessee’s contention and also as to how these decisions are applicable to the facts of the case before him. Therefore, in our opinion, the CIT(A) has rightly observed that the assessee’s statement that the shares which were sold were not acquired out
M/s Telestar Investments Pvt. Ltd. Page 6 of 6 of borrowed funds and that all the shares purchased by the company were held as investments and valued at cost consistently from its inception and year after year, has not been rebutted by the AO with any evidence to the contrary. Therefore, we do not see any reason to interfere with the order of the CIT(A).
In the result, the revenue’s appeal is dismissed.