M/S AKANKSHA VINIYOG LTD. vs. C.I.T. I, KOLKATA

1 ITA No. 1713/Kol/2013 Akanksha Viniyog Ltd. AY 2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]

I.T.A No. 1713/Kol/2013 Assessment Year: 2006-07 Akanksha Viniyog Ltd. Vs. Commissioner of Income-tax-1, Kolkata (PAN: AACCA8186C) (Appellant) (Respondent)

Date of hearing: 11.07.2016 Date of pronouncement: 15.07.2016

For the Appellant: Shri Subash Agarwal, Advocate For the Respondent: Shri Niraj Kumar, CIT, Sr. DR

ORDER Per Shri M. Balaganesh, AM:

This appeal by assessee is arising out of revision order of CIT-1, Kolkata vide dated 28.03.2013. Assessment was framed by ITO, Wd-1(4), Kolkata u/s. 147/143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2006-07 vide his order dated 30.11.2011.

2 ITA No. 1713/Kol/2013 Akanksha Viniyog Ltd. AY 2006-07 details stating that other income comprises of dividend income of Rs. 82,876/- , profit on sale of units of mutual fund of Rs. 1,40,176/- and profit on sale of derivatives of Rs. 16,950/- through portfolio management scheme (PMS) of Prudential ICICI Asset Management Company Limited. It was also stated by the assessee that the assessee had disclosed the other income earned through PMS other than dividend income, under the head ‘income from business’. This plea of business income has been accepted by the ld AO while completing the assessment u/s 143(3) of the Act on 3.7.2008. Later this assessment was sought to be reopened u/s 147 of the Act for the following reasons :-

It came to light that claim of assessee on insurance amounting to Rs. 2,28,780/- is apparently ineligible and a claim of depreciation on assets also not allowable as there was no business during that year.

In the re-assessment proceedings, the ld AO observed that keyman insurance premium is eligible for deduction as per CBDT Circular No. 762 dated 18.2.1998. However, in respect of depreciation, he observed that the same was claimed on assets such as air-conditioner, furniture, electrical fitting etc along with a car. The assessee claimed to have used the car for business purpose as well as in connection with new business venture. However, the ld AO observed that the claim is not fully substantiated that the car was entirely used for business and accordingly made proportionate disallowance of depreciation of Rs. 80,192/- and completed the reassessment u/s 147 / 143(3) of the Act on 30.11.2011.

3 ITA No. 1713/Kol/2013 Akanksha Viniyog Ltd. AY 2006-07 business income of the assessee and assessed as such in the original 143(3) proceedings by the ld AO. Even in the reassessment proceedings the ld AO sought to only disallow proportionate depreciation on car as used for personal purposes also. It was argued that the ld AO had completely appreciated the fact that the assessee had indeed carried on business during the year under appeal and that is why he had assessed the profit on sale of units of mutual fund and profit on sale of derivatives as business income of the assessee and had also granted deduction towards business expenditure towards administrative expenses of Rs. 8,80,065/- comprising of salaries & bonus, staff refreshment expenses, bank charges& commission, interest paid to bank, travelling & conveyance , printing and stationery, repairs and maintenance, building repairs and maintenance, miscellaneous expenses, postage & stamps, rent, auditor’s remuneration, car running & maintenance, stock exchange annual fees, trade licence & profession tax, legal expenses, licence & fees, filing fees, insurance, rates & taxes, electricity & water, books & periodicals, consultancy fees and securities transaction tax , apart from accepting the certain disallowances made voluntarily by the assessee in the return of income as per law. The ld DR vehemently relied on the order of the ld CIT.

4 ITA No. 1713/Kol/2013 Akanksha Viniyog Ltd. AY 2006-07 CIT to hold the order passed by the ld AO to be erroneous warranting revisionary jurisdiction u/s 263 of the Act. It is not the case of the revenue that the profit on sale of mutual funds should not be treated as business income during the year under appeal. Similarly it is not the case of the revenue to treat the profit on sale of derivatives should not be treated as business income during the year under appeal. It is already well settled that transactions in derivatives would always be construed only as business transactions as the same activities are carried out without taking delivery of the instruments. Even the provisions of section 43(5)(d) of the Act had construed the transactions in derivatives to be regular business transactions only. It is not in dispute that the profit derived by the assessee on sale of units of mutual funds were earned under Portfolio Management Scheme with the assistance of Prudential ICICI Asset Management Company Ltd who also do PMS service by engaging in purchase and sale of shares and mutual funds for and on behalf of their clients. The ld AR vehemently argued that the profit derived from sale of units of mutual fund through PMS is only business income which has been rightly considered as such by the ld AO in the original assessment as well as in reassessment proceedings and there was no error committed by the ld AO thereon. In this regard, we find that the reliance placed by the ld AR on the decision of Co-ordinate Bench of Delhi Tribunal in the case of M/s Radials International vs ACIT in ITA No. 1368 (Del) of 2010 for Asst Year 2006-07 dated 16.12.2011 is very well founded, where it was held that :- “13. The assessee had made investment under PMS. The profit has not arisen directly from deposits made, but from the securities purchased from such deposits, which were traded by the portfolio manager on behalf of the assessee. The quantity of share traded is huge as is evident from the list appended with the assessment order. The shares have been traded frequently with a motive to maximize profit and not with a view to hold them as investment. The volume of the transaction is very high. All these facts indicate that the portfolio manager had in fact done trading on behalf of the assessee. There is no difference between similar transactions carried out by an individual in shares and the transactions carried out by portfolio manager. Such transactions can be compared with trading in commodities or real estate. If an assessee gives money to a property dealer with the instructions to purchase, get possession and sale at a reasonable profit keeping in view the market conditions. The property dealer acting as an agent enters into series of transactions of purchase and sale earns profit in some of the transactions and incurs loss in some of them. The property dealer after charging his commission and expenses will handover the amount together profit to the principal. Can the profit earned or loss incurred on such transactions be treated as capital gain or loss. The answer is no. Therefore, in our considered opinion, the profits arising on purchase and sale of shares are in the nature of business and not as investment. Merely because the purchase and sale of shares had occurred through DEMAT account on delivery based; it would not change the nature of the transaction. Since the portfolio manager in the capacity of an agent has traded in shares on behalf of the assessee, the profits arising therefrom will be in the nature of business profits. Further simply because the assessee has treated the deposits made under

5 ITA No. 1713/Kol/2013 Akanksha Viniyog Ltd. AY 2006-07 PMS as investments and balance shares lying in DEMAT account as on the last day of the accounting year under the head 'investment' would not change the character of trading done by the portfolio manager on behalf of the assessee. The shares purchased and sold during the year have not been recorded in the books of accounts as investment nor it is feasible to record as the details were not available with the assessee and the assessee has no control or say as to when and the type of shares or the period of holding of the shares. Therefore, in our considered opinion, the transactions are in the nature of business. The decision relied upon by the assessee in the case of Gopal Purohit (supra) is not applicable to the facts of the assessee's case.”

5.1. The jurisdiction of the ld CIT u/s 263 of the Act can be exercised only when he finds that the order of the ld AO which is sought to be revised u/s 263 of the Act was erroneous and prejudicial to the interest of the revenue. The law is well settled that failure of the ld AO to make an enquiry which he ought to have made before concluding the assessment, in the given set of facts and circumstances of the case , renders his order erroneous and prejudicial to the interest of the revenue. But in the instant case, we find that the ld AO had accepted the profit on sale of mutual funds and derivatives to be assessed under the head ‘income from business’ which is also accepted by the ld CIT. The ld AO had allowed the claim of deduction towards keyman insurance premium in the sum of Rs. 2,28,780/- by placing reliance on the CBDT Circular No. 762 dated 18.2.1998 which is binding on him. In fact, we find that the ld AO though had reopened the assessment initially on the pretext that there was no business carried on by the assessee and accordingly keyman insurance premium and depreciation are not allowable business expenditure, was thoroughly convinced on the fact that the assessee was carrying on business and allowed the deduction towards keyman insurance premium by placing reliance on the CBDT Circular No. 762 dated 18.2.1998 which Circular is actually binding on him. However, he proceeded to disallow the portion of the claim of depreciation on car as not used for business purposes as assessee had not substantiated the usage of the same for the purpose of business. These facts go to prove beyond doubt that the ld AO had duly applied his mind on the aspect as to whether the assessee had indeed carried on any business during the year or not. It is not in dispute that the ld AO had allowed the claim of other administrative expenses as allowable business expenditure. Hence it could be safely concluded that the ld AO had indeed made requisite enquiry in the given set of facts and circumstances of the case and had taken a judicious view on the entire issue. Hence his order cannot be termed as erroneous within the meaning of section 263 of the Act. We find that even the ld CIT had not disturbed

6 ITA No. 1713/Kol/2013 Akanksha Viniyog Ltd. AY 2006-07 the claim of administrative expenses to be allowed under the head ‘income from business’. Hence either way, no prejudice is caused to the interest of the revenue by the order of the ld AO. Hence the twin conditions required for section 263 of the Act are not satisfied. In this regard, we place reliance on the following decisions :-

Malabar Industries Co Ltd vs CIT reported in 243 ITR 83 (SC) “The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the A.O. Every loss of revenue as a consequence of an order of A.O. cannot be treated as prejudicial to the interest of the revenue. It was further held that if the A.O. has adopted one of the courses permissible in law or where two views are possible and the A.O. has taken one view with which CIT does not agree, the order cannot be treated as erroneous and prejudicial to the interest of the revenue unless the view taken by the A.O. is unsustainable in law.”

Bongaigaon Refinery and Petrochemicals Ltd vs Union of India reported in 287 ITR 120 (Gau)

“"Entertainment of a view different from the one adopted by the Assessing Ofjicer, if plausible would not clothe the Commissioner with the power to interfere therewith under the said provision of the Act. Differently put, an error within the jurisdiction of the Assessing Officer on an evaluation of the materials available would not be exposed to interference in exercise of suo motu revisional powers under section 263 of the Act. The provision though permits the Commissioner to initiate an enquiry as he may deem necessary does not authorise a roving probe into the facts with the disposition to pick out errors to sustain the eventual interference. This assumes great significance in the context of the statutory framework of the Act outlining the jurisdictional contours of different authorities to adjudicate the issues as legislatively stipulated. The Commissioner in exercise of his revisional powers cannot-arrogate to himself a status to surrogate the other authorities and supplant their roles under the Act".

Order is pronounced in the open court on 15.07.2016

Sd/- Sd/- (S. S. Viswanethra Ravi) (M. Balaganesh) Judicial Member Accountant Member 15th July, 2016 Dated : Jd.(Sr.P.S.)

7 ITA No. 1713/Kol/2013 Akanksha Viniyog Ltd. AY 2006-07

Copy of the order forwarded to:

APPELLANT – Akanksha Viniyog Ltd., 1/1A, Biplabi Anukul Street, 1. Kolkata-700072. Respondent –CIT-1, Kolkata. 2 The DCIT, Kolkata 3. 4. ITO, Ward-1(4), Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.