$~32
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% DECIDED ON: 06.05.2014
+ ITA 206/2014
COMMISSIONER OF INCOME TAX (CENTRAL)-II ..... Appellant
Through: Ms. Suruchi Aggarwal, Sr. Standing
Counsel with Mr. Judy James, Jr. Standing
Counsel.
versus
SMT. KUSUM GUPTA .... Respondent
Through: Mr. Prakash Kumar, Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE VIBHU BAKHRU
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
1. The Revenue claims to be aggrieved by an order of the Income
Tax Appellate Tribunal (ITAT) dated 25.10.2013 and urges that the
treatment of `70,77,375/- by it and the CIT (A) as long term capital
gain in the facts of the case is erroneous.
2. The assessee filed the return of income declaring `6,16,070/- in
respect of AY 2007-08. In this, she had claimed `70,77,375/- as
long term capital gain and, therefore, exempt under Section 10 (38) of
the Income Tax Act. The Assessing Officer by his order holds that
the assessee carried on the business of shares and securities and had a
closing stock of shares valued at `2,19,15,145/- in that business and,
ITA 206/2014 Page 1
consequently, a sum of `70,77,375/- was in reality business income.
The CIT (A) on being approached by the assessee reversed the
findings of the AO after analyzing the nature of the share holdings,
dates of purchase of shares, the respective dates on which they were
sold as well as the sale price. The CIT (A) also noticed the law
applicable on the issue and further took into consideration the fact
that the shares were shown in a separate investment account having
regard to the copy of the returns filed for the previous assessment
years, i.e., 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 and
2006-07. These had consistently shown investments and closing stock
separately. The CIT (A) noticed that in the balance sheet as on
31.03.2006, the investment shown was `3,67,81,204/- and the closing
stock was `1,59,75,712/-. The closing stock related to traded shares,
whereas the investments related to house property, bank bonds and
various shares that were sold during the year and for which capital
gain had been claimed. The CIT (A) further found that the
assessment year was not the first time when the assessee has shown
separate assessment in her balance sheet; he also verified the profit
and loss account of the assessee for the previous 7 years. Thereafter,
he applied the law declared by the Courts on the subject and also
noticed the CBDT Circular No.4/2007 which carved out the principles
applicable to determine whether a profit or income is to be
characterized as business income or capital gain. On a proper
application of these, he held that the income was long term capital
gain and directed it to be deleted.
3. The Revenue's appeal to the ITAT was dismissed by the
ITA 206/2014 Page 2
impugned order. The findings of the ITAT in this regard are as
follows: -
"7. We have heard the rival submissions and perused the
material available on record. On a consideration of the same,
we are of the view that in the peculiar facts and circumstances
of the case and considering the case law relied upon by the
Revenue and the assessee and considered by the AO and the
CIT (A), the departmental ground deserves to be dismissed. The
arguments based on the suspicion of the Ld. CIT DR which
have been orally canvassed and also by way of write-up filed
subsequently it is seen stands fully addressed by the assessee in
the impugned order itself. The same are found reproduced in
the order and have been taken into consideration by the CIT
(A) while passing his order. These arguments addressing the
departmental suspicion are reproduced in page 4, 5 & 6 of the
impugned order and have also been extracted by us in paras
3.2 to 3.4 in the earlier part of this order. Similarly it is seen
that the facts taken into consideration qua the issue arising out
of sale of 25,000 shares of OASASCIN purchased on
08.01.2005 at the cost of Rs.1,68,875 and sold on specific
different dates have not been disputed by the department as no
evidence to the contrary has been relied upon. The number of
shares, the date of purchase and dates of sale at the prices of
specific number of shares as set out in the impugned order in
para 3.1 at page 2 of the order extracted at page 6 of this order
has not been shown to be incorrect by the Revenue.
Considering the entire arguments advanced on behalf of the
Revenue it is seen that none of these facts are disputed neither
the dates are disputed nor the nos. of shares nor the price of
sale or purchase. The department has also not attempted to
upset the finding of the CIT(A) inasmuch as that the assessee
was maintaining two separate portfolios one for Investment and
one for business. Similarly the finding that there was no
intermingling of shares in the two portfolios and that the two
were separate and distinct has also not been shown to be
incorrect on facts. The settled legal position permits the
assessee to maintain two separate portfolios which admittedly
ITA 206/2014 Page 3
has been done. This findings is found recorded in para 3.3 of
the impugned order which has been extracted in page 8 & 9 of
this order. Similarly the fact that this was not the first year
when the assessee has shown separate investment in her
balance sheet has been taken into consideration by the CIT (A)
who has considered the copies of the balance sheet for the last
7 years which was found to support the facts that the assessee
has regularly been maintaining two separate portfolios which
finding is recorded in para 3.3.1 of the impugned order,
nothing has been placed before us by the Revenue to upset this
finding. It is also seen that the CIT (A) records that he has
personally verified the position for the last 7 years from the
P&L A/c of the assessee as well as the inventory of closing
stock and then has come to a finding that neither during the
year nor in the earlier years the assessee has ever traded in
those shares which are kept as an investment. No attempt has
been made by the Revenue to upset this finding as the line of
argument adopted by the Ld. CIT DR is not supported by
placing anything before us in order to canvass that a contrary
view be taken. Thus it is seen that the finding that all along the
assessee demonstrated that she had an intention to maintain
two separate portfolios wherein there was no mixing up in the
two portfolios remains unrebutted on record as nothing to the
contrary has been placed by the Revenue before us. It is seen
that none of these relevant facts have been assailed by the
Revenue and only general arguments have been advanced. It is
further seen that the finding that there is no intermingling of
shares in the two portfolios has been verified by the CIT(A)
after considering the balance sheets of the last 7 years and also
the P&L A/c. Nothing has been placed before us by the Revenue
in order to take a contrary view. In fact the CIT (A) takes into
consideration the fact that the AO was himself contradicting his
own action because if he was of the opinion that there was only
one portfolio then he ought to have taken the entire investment
in shares as appearing in the balance sheets towards the
closing stock of shares at cost or market price whichever was
less and worked out the profit of the trading business which the
AO has not done. The finding is also recorded that the AO even
ITA 206/2014 Page 4
in the immediately preceding year i.e. 2006-07 assessment year
when the investment in the said shares i.e. OASASCIN was
shown for the first time in the balance sheet as it was
purchased admittedly on 08.01.2005 has accepted the position
and thereby accepted the position of two separate portfolios.
Similarly the factum of maintaining two separate portfolio was
found to be correct even on a perusal of the position emanating
from the 143(3) order of the AO in 2002-03 assessment year.
These findings found recorded in para 3.3.2 have not been
assailed by the Revenue. No evidence to the contrary upsetting
these findings as incorrect finding has been placed before us.
Similarly the holding period has also not been argued to be
incorrect which is more than one and a half year or more. The
reliance placed on the assumption of the AO that earning of the
dividend is the only acceptable criteria for making an
investment does not have any relevance as investments can be
made with the objective to earn profit on appreciation also and
we find no good reason to interfere with the said conclusion.
The general arguments advanced on behalf of the Revenue that
the attitude to purchase in a falling market and sell in a rising
market is a ground to interfere with the finding to our minds
may have relevance if the case of the Revenue is that the
assessee is manipulating the market which admittedly is not the
case of the department. The judgements and the case laws
relied upon by the Ld. CIT DR, it is seen operate on entirely
distinct and separate peculiar facts and circumstances, the
arguments that the AO is not fettered by technical rules of
evidence is a settled legal position and it is an accepted legal
position that all relevant circumstances which appear on the
issue and the material which may not strictly be evidence under
the Indian Evidence Act can be taken into consideration by the
AO to inquire probe and consider however in order to lead to
the conclusion that material which is not an evidence to justify
the addition has been that material which has the sanctity of a
fact. As such the judgements relied upon in the context of the
said proposition addressing the settled legal position and
cannot be read out of context. The judgements relied upon in
ITA 206/2014 Page 5
the context of the proposition that res judicata does not apply to
income tax proceedings canvassing that a settled position can
be changed are also distinguishable as in order to come to the
said conclusion in each and every case facts have to be referred
to for consideration of the Courts/Tribunals in order to justify
interference and change from the settled position by
demonstrating that facts as originally considered in some stray
year may have not been correctly presented and a different
conclusion is legally justified on facts. In the facts of the
present case as observed no fact has been brought on record by
the Revenue to justify that the past position of the last 7 years
taken into consideration by the CIT (A) to show that the
assessee was maintaining two separate portfolios one where
shares were held in business portfolio and the other where
separate portfolio reflecting shares held in the investment
portfolio is not a correct fact. The mere argument that there is
intermingling of shares in the two portfolios has to be
demonstrated by facts and evidence which admittedly has not
been attempted by the Revenue let alone done. Accordingly
placing reliance on the judgements to take a contrary view
where in the facts of those cases intermingling of the shares is
an accepted fact is of no help to the Revenue as the basic fact to
trigger the applicability of those principles is conspicuous by
its absence. The very basic fact not having been established by
the Revenue that there was intermingling of shares amongst
other accepted facts as discussed earlier makes the attempt to
rely on legal principles on different facts a wasted exercise. In
the absence of any fact in contradistinction to the finding
concluded in the impugned order. We find no good reason to
deviate from the finding and conclusion arrived at the
impugned order. Being satisfied by the reasoning and finding
arrived at on the facts as they stand the departmental ground is
dismissed."
4. This Court has carefully considered the submissions. The
Revenue has essentially reiterated its contentions that were urged
before the ITAT and pointed out what, at best, can be charitably
ITA 206/2014 Page 6
termed as prejudicial arguments. The fact remains that for the
concerned period, i.e., AY 2007-08, the findings of the CIT (A) -
found in paragraph 3.2 to 3.5 were gone into by the ITAT in its
elaborate order. The reasoning of the ITAT, in our opinion, is in
conformity with the law declared by the Supreme Court in several
decisions such as CIT v. Sutlej Cotton Mills Supply Agency Ltd. 100
ITR 706 (SC) and Commissioner of Income Tax v. H. Holck Larsen,
(1986) 160 ITR 67 (SC).
5. In this view of the matter, we hold that there is no substantial
question of law for our consideration. The appeal being devoid of
merit is, accordingly, dismissed.
S. RAVINDRA BHAT
(JUDGE)
VIBHU BAKHRU
(JUDGE)
MAY 06, 2014
/vks/
ITA 206/2014 Page 7
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