IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI
BEFORE HON’BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
. . , . . ,
( / Assessment Year :2006-07)
Asstt. Commissioner of Income / M/s Ferrari Invst. And Trading Co.
Tax Circle- 5(1), Pvt.Ltd.,
Room No.568/525, Essar House, II, K K Marg,
Aayakar Bhavan, Mahalaxmi,
( /Appellant) .. ( / Respondent)
( / Assessment Year :2006-07)
M/s Ferrari Invst. And Trading / Dy. Commissioner of Income Tax
Co. Pvt.Ltd., Circle- 5(1),
156-D-J Dadajee Road, Aayakar Bhavan,
( /Appellant) .. ( / Respondent)
./ ./PAN/GIRNo.: AAAFC2986P
/ Revenue by : Shri Rajneesh K Arvind
/Assessee by : Shri K Shivram and
Shri Rahul K Hakani
/ Date of Hearing : 28.8.2014
/Date of Pronouncement : 10.9.2014
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
These cross appeals are directed against the order dated 16-09-2009
passed by Ld CIT(A)-9, Mumbai and they relate to the assessment year 2006-07.
2 I.T.A. No.6099/Mum/2009
2. The assessee company is engaged in the business of investment and
trading in Capital market. It filed its return of income for the year under
consideration declaring a total income of Rs.8,32,52,094/-. The AO, however,
determined the total income at Rs.8,43,51,270/-. The appeal filed by the
assessee before Ld CIT(A) was partly allowed. Hence both the parties are in
appeal before us challenging the order of Ld CIT(A) in respect of the issues
decided against each of them.
3. We shall first take up the appeal filed by the assessee. Four grounds are
urged before us. The Ground no.4 is general in nature. At the time of hearing,
the Ld A.R did not press Ground no.1 and hence the same is dismissed as not
4. The Ground no.2 relates to the assessment of gain arising on redemption
of Mutual funds as business income of the assessee. The Ld A.R submitted that
the assessing officer had accepted the gains arising on mutual fund units as
Capital gain. However, the Ld CIT(A), by giving enhancement notice, has treated
the Capital gain as business income of the assessee. He further submitted that
the Ld CIT(A) has decided this issue without giving sufficient opportunity to the
assessee. He further submitted that the assessee also could not furnish
complete details relating to the working of gain/loss arising on redemption of
mutual fund, Portfolio Statements from ABN-AMRO. He submitted that the
assessee has now filed these details in the form of additional evidences before
the Tribunal. Accordingly, he prayed that these additional evidences be
accepted and the matter may be set aside to the file of Ld CIT(A) for fresh
5. The Ld D.R also did not object to the plea made by Ld A.R. Accordingly,
we admit the additional evidences and set aside the matter to the file of Ld
CIT(A) with the direction to examine this matter afresh. The Ld CIT(A) may
obtain remand report from the AO for adjudicating this matter.
6. The next issue relates to the disallowance made u/s 14A of the Act. He
submitted that both the tax authorities have applied Rule 8D for computing the
disallowance u/s 14A of the Act. He submitted that the jurisdictional High Court
has held in the case of Godrej Boyce Mfg. Co. Ltd (328 ITR 81) that the Rule 8D
3 I .T.A. No.6099/Mum/2009
shall have prospective operation from AY 2008-09. Accordingly, he submitted
that this matter also requires fresh examination.
7. We heard Ld D.R on this issue. We find merit in the submission of Ld
A.R. In view of the decision of jurisdictional High Court, referred supra, the
provisions of Rule 8D cannot be applied to the year under consideration.
However, the High Court has held that the disallowance u/s 14A is required to
be computed on a reasonable basis for the years falling prior to AY 2008-09.
Since the earlier issue is set aside to the file of Ld CIT(A), we set aside this issue
also to his file for fresh consideration.
8. Needless to mention, the assessee should be given proper opportunity of
9. Now we shall take up the appeal filed by the revenue. The ground urged
by the revenue relates to the treatment of gain arising on sale of 30 lakh shares
of Mid Day multimedia Ltd. The AO has assessed the same as ?Profits and
Gains of Business?. However, the Ld CIT(A) held that the gain arising on sale of
above said shares is assessable as Long term Capital gain.
10. We heard the rival contentions and perused the record. The facts relating
to the above said issue, as narrated in the assessment order, are stated in brief.
The assessee company initially purchased 4960 shares of Mid day Multimedia
Ltd having a face value of Rs.100/- each on 15.11.1999. Later, the shares were
split into shares of Rs.10/- each and hence the number of shares held by the
assessee increased from 4960 to 49,600. Subsequently on 23.6.2000, the
assessee received 29,50,400 bonus shares. Thus, the total number of shares
held in the above said company increased to 30,00,000. The assessee sold all
the 30,00,000 lakhs for a total consideration of Rs.18 crores and computed Long
term capital gain as under:-
Sale value of 30,00,000 shares 18,00,00,000
Less:- Brokers expenses 79,90,783
Cost of purchase
15.11.99 (49600 shares) 10,00,00,000
2950400 shares) NIL
Long term Capital gain 7,20,09,217
4 I.T.A. No.6099/Mum/2009
The AO has noticed that the assessee company has purchased 4960 shares @
Rs.20,161/- per share from the promoters of Midday Multimedia Ltd as detailed
Mr.Khalid Ansari 992
Ms. Rukya Ansari 992
Mr. Tarique Ansari 992
Mr. Tehzeeb Ansari 992
Mr. Sharique Ansari 992
We notice that Mr. Khalid Ansari, Mr. Tarique Ansari and Mr. Sharique Ansari are
the directors of the present assessee company also. Thus the assessee
company and M/s Midday Multimedia Ltd are companies falling in the same
group. The AO has further noticed that the assessee company was having a
share capital of Rs.1.00 lakh only at that point of time and it has received loan of
Rs.10.00 crores for making the above said investment. The loan was obtained
from the following persons, who are promoters of Midday Multimedia Lltd. Two
of the following persons are also directors of the assessee company :-
Rukya Ansari 3,33,35,000
Shariq Ansari 3,33,35,000
Tehjeeb Ansari 3,33,35,000
The AO has further noticed that the dividend amount of Rs.4,83,300/- received
from M/s Midday Multimedia Ltd has been credited to the above said three
creditors by passing a journal entry. Accordingly, the AO has come to the
conclusion that the assessee has indulged in adventure in the nature of trade.
Further the AO has placed reliance on the following case law:-
Venkataswamy Naidu & Co. Vs. CIT (1959)(35 ITR 594)(SC)
ITO Vs. Rani Ratneshkumari (1950)(123 ITR 343)(All)
CIT Vs. Prabhodaya (1971)(82 ITR 804)(SC)
CIT Vs. Godavari Corporation Ltd (1995)(156 ITR 835)(MP)
Eclat Construction P Ltd Vs. CIT (1988)(172 ITR 84)(Pat)
By placing reliance on the above cited case law, the AO concluded that the
assessee?s intention in making investments in the shares of Midday Multimedia
Ltd was to make profit only and hence it has borrowed money to make the said
investment. The relevant observations made by the AO are extracted below:-
5 I.T.A. No.6099/Mum/2009
“The facts discussed hereinabove clearly indicate that purchase and sale
of shares clearly fall into the ambit of adventure in the nature of trade.
The facts and circumstances of the case clearly suggest that the assessee
company had entered into transaction with borrowed fund with an
intention to earn profit. Further in the written submission of the assessee
dated 14.8.2006, it has been stated that “ The assessee was incorporated
in June 1995 and has been in the business since then. The assessee has
been in the business of investment and trading in capital market in
general and equity market in particular. The assessee has invested in the
equity shares of public limited company with an intention to trade as and
when the condition are ripe.” Therefore, taking into consideration the
entire facts and circumstances of the case, the sale consideration (sic.
Profit ) received by the assessee on sale of 30,00,000 shares of Mid day
Multimedia amounting to Rs.7,20,09,217/- is considered as Business
income of the assessee.”
11. The Ld CIT(A), however, gave importance to the following facts and has
held that the impugned gain is assessable as Long term capital gain:-
(a) The shares were purchased on 15.11.1999. Thus the assessee has
held the shares for about six years.
(b) They were shown as ?investments? in the books of account.
(c) It is a single transaction, (i.e. there is no repetitive transaction).
12. We heard the parties on this issue and perused the record. We have
already noticed that the Ld CIT(A) has reversed the decision of the assessing
officer by applying certain principles enumerated by the Courts viz., the nature of
entries made in the books of account, period of holding, single transaction.
However, we notice that the basic facts surrounding the issue, which were
brought out by the assessing officer and which were also discussed by us in the
preceding paragraphs, were not considered or addressed at all by Ld CIT(A).
We notice that the assessing officer has lucidly narrated the modus operandi
adopted by the promoters and the assessee in respect of the purchase and sale
of shares of Midday Multimedia Ltd. However, the first appellate authority has
failed to discuss anything about the same in his order. Hence, in our view, this
issue also requires fresh examination at the end of the Ld CIT(A). Accordingly,
we set aside the order of Ld CIT(A) on this issue and restore the same to his file
for fresh consideration, after hearing the assessee. The Ld CIT(A) is also
6 I.T.A. No.6099/Mum/2009
directed to address the various factual aspects brought out by the assessing
officer while adjudicating this issue.
13. In the result, the appeal filed by the assessee is treated as partly allowed
and the appeal of the revenue is treated as allowed for statistical purposes.
The above order was pronounced in the open court on 10th Sept, 2014 .
10 Sept, 2014
( . . / H.L. KARWA ) ( . . ,/ B.R. BASKARAN)
/ PRESIDENT /Accountant Member
Mumbai : 10th Sept, 2014.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. ( ) / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
, /ITAT, Mumbai