Appeal details
Counselvise Citation
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 year(s) 6 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-10-2024
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
17-10-2024
Assessment Year
2012-2013
Appeal Filed On
07-04-2017
Judgement Text
" \n1 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \n IN THE INCOME TAX APPELLATE TRIBUNAL \n DELHI BENCH ‘C’: NEW DELHI \nBEFORE \n SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER \n AND \n SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER \n \n ITA No. 1688/Del/2016, A.Y.2010-11) \n \n \n \n \n \n \n \n& \n ITA No. 2079/Del/2017, A.Y.2012-13) \n \nJagatpal Gupta \n34, Sri Ram Road, \nCivil Lines, Delhi \nPAN : AAAPG3798D \n \n \nVs. \nACIT \nCircle-35(1) \nNew Delhi \n(Appellant) \n \n (Respondent) \n \nAppellant by \nSh. Samir Mahajan, CA \nRespondent by \nShri Om Prakash, Sr.DR \n \nDate of Hearing \n17/10/2024 \nDate of Pronouncement \n 23/10/2024 \n \nORDER \n \nPER YOGESH KUMAR U.S., JM : \n \nBoth the captioned appeals are filed by the Assessee against the order \nof Ld. Commissioner of Income Tax (Appeals) [“Ld. CIT(A)” for short], dated \n22/02/2016 & 28/02/2017 for the Assessment Year 2010-11 & 2012-13 \nrespectively. \n2. \nThe grounds of Appeal are as under: \nITA No. 1688/Del/2016, A.Y.2010-11) \n “1. \n That the Learned CIT (Appeals) has grossly erred by \naffirming the actions of Assessing Officer. \n \n\n \n2 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \n2. That the Learned CIT (Appeals) has further erred by affirming \nthe decision of Assessing Officer of treating short term capital gain \nearned on sale fares held in Citi Bank DMAT A/c as income from \nbusiness. \n \n3. That the Learned CIT (Appeals) has further erred by ignoring \ncertain important facts, documents and submissions, which were \nsufficient to prove the claim of the appellant as declared and she \nfailed to appraise the facts properly. 4. That the Learned CIT \n(Appeals) has further erred by treating the declared short term \ncapital gain as business income but did not re-compute the profit \nby adopting value of shares held as on close of the year on basis \nof cost or market value whichever is less. 5. That the Learned CIT \n(Appeals) has further erred by disturbing the consistency of the \nappellant for treating the transactions relevant to Citi Bank DMAT \nA/c as of investments in the subsequent years. \n \nThat the above grounds are without prejudice to each other.” \n \nITA No. 2079/Del/2017, A.Y.2012-13) \n \nThat the Learned CIT (Appeals) has grossly erred by affirming the \nactions of the Assessing Officer. \n \n2. That the Learned CIT (Appeals) has further erred by affirming \nthe decision of Assessing Officer of treating short term capital gain \nearned (on which STT paid) as part of business income. \n \n3. That the Learned CIT (Appeals) further erred by confirming \ndisallowance of Rs. 522036/- made by the Assessing Officer in \nterms of section 14A of Income Tax Act, 1961 read with Rule 8D of \nIncome Tax Rules, 1962. \n \n4. That the Learned CIT (Appeals) has further erred by treating the \ndeclared short term capital gain as business income but did not re-\ncompute the profit by adopting value of shares held as on close of \nthe year on basis of cost or market value whichever is less. \n \n5. That the Learned CIT (Appeals) has further erred by disturbing \nthe consistency of the appellant for treating the transactions \nrelevant to Citi Bank DMAT A/c as of investments in the \nsubsequent years. \n \n\n \n3 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \n6. That the Learned CIT (Appeals)-12 has further erred by not \nconsidering \nthe \nevidences \navailable \nfor \nthe \ndeletion \nof \nadditions/disallowances made by the Assessing Officer. \n \nThat the above grounds are without prejudice to each other. \n \nThe appellant craves leave to add, alter, amend or forego any of \nthe grounds of appeal before or at the time of hearing. \n \n \n(Assessment Year 2010-11) \n \n3. \nBrief facts of the case are that, the Assessee filed return of income for \nAssessment Year 2010-11 showing net taxable income at Rs. 1,15,30,630/-. \nThe income of the Assessee included Short Term Capital Gain on listed \nsecurities of Rs. 58,68,776/- and Short Term Capital Gain on listed \nsecurities (on which STT has been paid) of Rs. 58,68,776/-and Short Term \nCapital Gain on listed securities (on which no STT has been paid) of \nRs.3064/- during the year. The total returned income of the Assessee also \nincludes a sum of Rs 21,79,042/- being income from Business and \nProfession from trading of shares etc. The Assessing Officer treated the \nShort Term Capital Gain of Rs. 58,68,776/- as Profit from Business & \nProfession. The Assessing Officer framed the Assessment Order u/s 143(3) \nof income tax Act (‘Act’ for short), 1961 on 22.03.2013the short term capital \ngain of Rs 5868776/- has been taxed @ flat 30%. The Assessee filed an \napplication for rectification u/s 154 as there were certain mistakes in the \nassessment order. The mistakes included non-adjustment of brought \nforward losses; non-adjustment of unabsorbed depreciation and non-\n\n \n4 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \nadjustment of eligible deduction under section 80G of the Act. The \napplication for rectification has been disposed off vide order u/s 154/143(3) \nof the Act, on 03.09.2013, after the filing of appeal, and the demand created \nwas reduced to Rs. 36,310/-.The Assessee preferred an Appeal challenging \nthe assessment order dated 22/03/2013 before the CIT(A) which came to be \ndismissed vide impugned dated 22/02/2016. As against the order of the \nCIT(A), the Assessee preferred the present Appeal on the grounds mentioned \nabove. \n \n4. \nThe Ld. Consul for the Assessee submitted that the Ld. CIT(A) \ncommitted error in affirming the decision of the A.O. of treating the Short \nTerm Capital Gain earned on sale of shares held in City Bank D-mat \naccount as ‘income from business’. Further submitted that the Assessee \nhad a D-mat account with HSBC for holding business investments and the \nAssessee decided to open a separate D-mat account for holding shares of \nthe purpose of investment. Both the D-mat accounts as well as \ntransactions were accounted separately in the books of accounts as well as \nthe financial statement. The transactions in the D-mat account with City \nbank were of the investments and the D-mat account with HSBC are \nbusiness and the Assessee never challenged any of its investments in \nshares/securities into stock-in-trade. Further submitted that the Ld. CIT(A) \nin the Appeal for Assessment Year 2011-12 filed by the Assessee, decided \n\n \n5 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \nthe issue in favour of the Assessee by accepting the version of the Assessee \nand assessed the income under Short Term Capital Gain, therefore, \nsubmitted that the issue involved in the present Appeal deserves to be \ndecided in favour of the Assessee by following the principle of consistency. \n \n5. \n Per contra, the Ld. Departmental Representative relied on the orders \nof the Lower Authorities. \n \n6. \nWe have heard both the parties and perused the material available on \nrecord. Admittedly, the Assessee had two D-mat accounts one D-mat \naccount is in HSBC Bank for holding business investments and the \nAssessee opened one more D-mat account on 20th August, 2009 for holding \nshares for the purpose of investment. The Ld. A.O. while making the \naddition observed that ‘the volume and the frequency of transaction is more \nin the case of shares held as investment than the shares held as business \nand further alleged that the short period of holding suggests it to be \nbusiness and the motive of the Assessee to earn profit and the Assessee \nmade an artificial distinction in the nature of share transaction only to reap \nthe benefit of low rate of taxation. \n \n7. \nThe Assessee contended and justified his claim of making distinction \nbetween the shares held as stock-in-trade and as investment are as under:- \n“i) D-mat account with Citi Bank was opened on 28.08.2009 for \nmaking distinction and holding shares as investments. The D-mat \n\n \n6 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \naccount with HSBC was being used for business transactions \nsince its inception. \n \nii) D-mat account with Citi Bank has been held for purpose of \ninvestments only from its inception till date. \n \niii) The Books of accounts as well as financial statements have \nbeen prepared by considering the shares in Citi Bank D-mat \naccount as of investment and shares in HSBC D-mat account as \nof business. The taxes have been computed and the return of \nincome has been filed accordingly. \n \nvi) 86% of shares held as investment were disposed off in the \nmonth of January on apprehension of fall in rates after \ndeclaration of budget. \n \nv) The consistency of preparing financial statements and filing of \nincome tax return maintained. \n \nvi) The business stocks have been valued at cost or market value, \nwhichever is lower, while the investments/ capital assets are \nbeing valued at cost. \n \nvii) The Appellant was holding 65715 shares in investment \nportfolio at the close of the year and held 1839050/- shares at \nthe close of the year under business portfolio. viii) Had the \ninvestment portfolio treated as business portfolio, the valuation \nwould have been done on the basis of lower of cost or market \nprice. This would have resulted in lower income by a sum of Rs \n1,43,831/- (Calculation available at page 59 of Appeal Paper \nBook). The additional tax payable would have been NIL as the tax \npayable has been determined at Rs 36310/- (Refer page 49-50). \n \nix) Thus, there was no intention to defraud the revenue and the \nappellant has not engaged himself in any kind of tax avoidance \nmeasures. \n \nx) To open a separate D-mat account for investments is the \nconclusive evidence of the intentions of the Appellant to purchase \nshares as investments and not as stock-in-trade. \n \n\n \n7 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \nxi) The income tax return or the income tax portal does not provide \na facility to declare intentions at the time when the transaction \ntakes place. \n \nxii) The Appellant had paid more taxes due to having separate \ninvestment portfolio. The Appellant suffered losses in proceeding \nyears also because of reason of valuation of investments at cost. \nThis fact has been accepted by CIT(A)-32 while allowing relief \nand accepting the profit as short term capital gain for the \nassessment year 2012-13 (refer page 86-96). \n \nxiii) The appellant had declared business income only during the \npreceding years i.e. assessment year 2009-10 & 2008-09. No \ncapital gain has been declared in those years as the investment \nportfolio started during the year, with the opening of D-mat \naccount with Citi Bank on 28.08.2009 (refer page no. 100 – 104). \n \nxiv) The purchases and sales of different portfolios are \nidentifiable. The distinction of both portfolios is real as there are \nseparate d-mat accounts. \n \n XV) The appellant has maintained the consistency of distinction \nbetween the shares held as business shares as well as \ninvestment. \n \n8. \nIt is found that the very same addition has been made for Assessment \nYear 2011-12 by treating the Short Term Capital Gain earned on sale of \nshares held in City Bank D-mat Account as income from business which \nhas been challenged by the Assessee before the CIT(A). The Ld. CIT(A) vide \norder dated 16/11/2015 held that the shares in City Bank D-mat Account \nwere investment and resulting gain or loss for sale and purchase of shares \ntherein will be Short Term or Long Term Capital Gain, accordingly directed \nthe A.O. to treat the said amount as Short Term Capital Gain and not as \n\n \n8 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \nprofit of business. The relevant portion of the order of the CIT(A) for \nAssessment Year 2011-12 is reproduced as under: - \n“The assessee claimed that he is having two De-mat accounts \nsince 1999-2000. These two De-mat accounts are separate and \nare used for two exclusive purposes i.e. one for investment and \nanother for business. The assessee has never mixed these two \nDe-mat accounts. TATA Steel shares (Investment) held in HSBC \naccount was acquired prior to 1999-2000 when assessee was \nhaving only one De-mat account. The assessing officer has based \nhis decision only on the basis of frequency of the transactions in \nthe De-mat account. Frequency of transactions gives some \nindication about the nature of operation. But if somebody is doing \npurchase and sales of shares on regular basis and is taking \ndelivery of shares in each and every case, we cannot declare it as \na business unilaterally. The Act provides for short term capital \ngains. In short term capital gains one has to take delivery of the \nshares and holding of the shares can be as less as one or two \ndays. It is therefore for the assessee to declare whether the \nshares in De-mat account are investment or stock in trade. \nHowever once the assessee has exercised this option, he is not \nfree to change it at his will. In the present case the assessee has \ndeclared that the two accounts are different and are for specific \npurposes. One is for investment and other is for stock in trade. \nAssessee has been following this regularly since 1999-2000. The \nassessee has also pointed out that if the CITI bank De-mat \naccount is held to be for business purpose then the stock therein \nshould be valued at market rate or cost price whichever is lower. \nIn this case the market rate as on 31/03/2011 was much lower \nthan the cost of acquisition of the shares. If the shares held in \nCITI bank De-mat account are valued at market rate as on \n31/03/2011 the assessee will incur a loss of Rs. 1202530/-. The \nassessee has taken this ground also that if CITI bank De-mat \naccount is held to be for business purpose the assessee should be \nallowed to value the shares as on 31/03/2011 at market rate or \ncost whichever is lower. This will result in reduction of profit \namounting to Rs. 1202530/-. \n \nThe assessee has valued the shares in CITI bank De-mat \naccounts a cost, whereas he himself has valued the shares in \nHSBC De-mat account at cost or market value whichever is lower. \nThis clearly proves the bona fide of the assessee. Therefore it is \n\n \n9 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \nheld that the shares in CITI bank De-mat account were \ninvestment and resulting gain or loss on sale and purchase of \nshares therein will be short term or long term capital gain. The \nA.O. is directed to treat Rs. 844351/- as short term capital gain \nand not as profit of business.” \n \n9. \nThe Assessee was holding D-mat account with Citi Bank for the \npurpose of investment from the date of inception to till date, the Books of \naccounts as well as financial statements have been prepared by considering \nthe shares in Citi Bank D-mat account as of investment and shares in \nHSBC D-mat account as of business. The taxes have been computed and \nthe return of income has been filed accordingly. The consistency of \npreparing financial statements and filing of income tax return maintained. \nThe business stocks have been valued at cost or market value, whichever is \nlower, while the investments/ capital assets are being valued at cost. Apart \nfrom the same, the Ld. CIT(A) for Assessment Year 2011-12 treated the \nshares in City Bank D-mat account as investment and directed A.O. To \ntreat the amount as Short Term Capital Gain and not as profit of business. \nIn view of the same we are of the opinion that the Department has \ncommitted error in not following the principle of consistency. Finding the \nmerits in the submission of the Assessee's Representative, we delete the \naddition made by the A.O. which has been confirmed by the CIT(A). \n \n10. \nIn the result, Appeal of the Assessee in ITA No. 1688/Del/2016 is \nallowed. \n\n \n10 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \nAssessment Year 2012-13 \n11. \n The Ground No. 1 & 6 are general in nature which requires no \nadjudication. \n \n12. \nGround No. 2, 4 & 5 are regarding treating the transaction in the City \nBank D-mat Account as income from business. The said issue has already \nbeen decided in favour of the Assessee for Assessment Year 2010-11 \n(supra). Adopting the very same adjudication and the ratio, we delete the \naddition made by the A.O. which has been confirmed by the CIT(A), \naccordingly, Ground No. 2, 4 & 5 of the Assessee are allowed. \n \n13. \n In Ground No. 3, the Assessee contended that the Ld. CIT(A) erred in \nconfirming the disallowance of Rs. 5,22,036/- made by the A.O. in terms of \nSection 14A of the Act read with rule 8D of the Income Tax Rules, 1962. \n \n14. \n Brief facts of the case are that, the Assessee earned exempt dividend \nof Rs. 37,43,933/- the A.O. calculated the disallowance at 0.5% of average \ninvestment of Rs. 10,44,07,321/- as per Sub Rule 2 of Rule 8D of the Rules, \naccordingly made disallowance of Rs. 5,22,036/-. The Ld. CIT(A) observed \nthat the Assessee had incurred Long Term Capital Loss of Rs. 34,13,674/- \nwhich will be adjusted in future. Thus, provision of Section 14A of the Act \nare applicable on all investments where the Assessee earning exempt \nincome, thereby sustained the addition. The Ld. Counsel for the Assessee \n\n \n11 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \nsubmitted that it is settled law that no disallowance can be made u/s 14A if \nthere is no expenditure to earn exempt income and further submitted that \nthe Courts have held no disallowance that the depreciation is a statutory \nallowance therefore, no amount u/s 14A of the Act disallowed for \ndepreciation allowance claimed u/s 32 of the Act. Further submitted the \ndisallowance u/s 14A of the Act cannot exceed the total expenditure of the \nAssessee. Following the plethora of Judgments sought for allowing the \nGround No. 3 \n \n15. \n Per contra, the Ld. Departmental Representative relying on the orders \nof the Lower Authorities sought for dismissal of the Appeal filed by the \nAssessee. \n \n16. We have heard both the parties and perused the material available on \nrecord. In the present case, the total expenditure claimed by the Assessee \nare to the tune of Rs. 1,59,158/- which includes depreciation of Rs. \n97,842/-, in other words, the net expenditure amount is Rs. 61,316/- only \nthus, the disallowance can be made out of this expenditure of Rs. 61, \n316/- which cannot be to the tune of Rs. 5,22,036/-. Further the only \nexpenditure for earning business income were claimed in the profit and \nloss account which is evident from the P & L Account produced by the \nAssessee at page No. 31 of the Paper Book. It is well settled law that no \n\n \n12 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \ndisallowance can be made u/s 14A of the Act if there is no expenditure to \nearn exempt income as held in following Judgments: \na. COMMISSIONER OF INCOME TAX vs. HERO CYCLES LTD (2009) 77 \nCCH0989 PHHC \nb. ASSISTANT COMMISSIONER OF INCOME TAX vs. SIL INVESTMENT \nLTD. (2012) 32 CCH 0057 Del Trib \n \n \n17. \n Further it is well settled law that the depreciation is a statutory \nallowance and therefore, no amount u/s 14A of the Act to be disallowed for \ndepreciation allowance claimed u/s 32 of the Act. The reliance is based on \nfollowing Judgments: - \na. VISHNU ANANT MAHAJAN vs. ASSISTANT COMMISSIONER OF \nINCOME TAX (2012) 72 DTR 0217 (SB) \n \nb. HOSHANG D. NANAVATI vs. ASSISTANT COMMISSIONER OF \nINCOME TAX (2012) 31 CCH 0302 Mum Trib \n \n18. \nFurther the disallowance u/s 14A of the Act cannot exceed the total \nexpenditure as held in following Judgments:- \na. JOINT INVESTMENTS PVT LTD. vs. COMMISSIONER OF INCOME \nTAX (2015) 92 CCH 0088 Del HC \n \nb. PRINCIPAL COMMISSIONER OF INCOME TAX vs. ENVESTOR \nVENTURES LTD (2021) 431 ITR 0221 (Mad) \n \nc. Deputy Commissioner of Income Tax VS Trade Apartment Ltd [TS-\n6741-ITAT- 2012(Kolkata)-O.” \n\n \n13 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \n \n19. \nIn view of the above facts and circumstances and following the ratio \nlaid down in the above judicial pronouncements, we are of the opinion that \nthe Ld. CIT(A) has committed error in confirming the disallowance of Rs. \n5,22,036/- made by the A.O. in terms of Section 14A of the Act read with \nrule 8D of the Rules, accordingly, the said disallowance is hereby deleted. \n \n20. \n In the result, the appeal of the Assessee in ITA No. 2079/Del/2017 is \nallowed. \n Order pronounced in open Court on 23rd October, 2024 \n Sd/- Sd/- \n (S. RIFAUR RAHMAN) \n \n \n \n(YOGESH KUMAR U.S.) \n ACCOUNTANT MEMBER \n \n \n JUDICIAL MEMBER \nDated: 23/10/2024 \nR.N, Sr. PS \n \nCopy forwarded to: \n \n1. Appellant \n2. Respondent \n3. CIT \n4. CIT(Appeals) \n5. DR: ITAT \n \n \n \n ASSISTANT REGISTRAR \n ITAT, NEW DELHI \n\n \n14 \nITA No. 1688/ 2079/Del/2016 \n \n \nJagatpal Gupta Vs. ACIT \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n"
