Gala Trading P.Ltd, Mumbai vs Assessee

सर्वश्री आय.सी.शभमव, रेखम सदस्म एवुं श्री वर्जम ऩमर यमर्, न्ममयमक सदस्म BEFORE : SHRI R.C.SHARMA, AM & SHRI VIJAY PAL RAO, JM आमकय अऩीर सं./ITA No.6999/Mum/2013 ( नििाारण वषा / Assessment Year :2001-02) ITO Wd.1(1)-4, Mumbai Vs. M/s Gala Trading Pvt.

Ltd., Times Square Bldg., Unit No.2, A-W ing, 3 r d Floor, Marol, Andheri-

Kurla Road, Andheri(E), Mumbai-400059 स्थममी रेखम सं ./ जीआइआय सं ./ PAN/GIR No. : AAACG 8667 N (अऩीरमथी /Appellant) .. (प्रत्मथी / Respondent) AND आमकय अऩीर सं./ITA No.6930/Mum/2013 ( नििाारण वषा / Assessment Year :2001-02) M/s Gala Trading Pvt. Vs. ITO Wd.1(1)-4, Mumbai Ltd., Times Square Bldg., Unit No.2, A-W ing, 3 r d Floor, Marol, Andheri-

Kurla Road, Andheri(E), Mumbai-400059 स्थममी रेखम सं ./ जीआइआय सं ./ PAN/GIR No. : AAACG 8667 N (अऩीरमथी /Appellant) .. (प्रत्मथी / Respondent)

यमजस्र् की ओर से /Revenue by : Shri Love Kumar यनधमवरयती की ओर से /Assessee by : Shri Tarun Rohatgi

सन ु र्मई की तमयीख / Date of Hearing : 27/04/2015 घोषणम की तमयीख/Date of Pronouncement : 08/05/2015 आदे श / O R D E R

PER R.C.SHARMA (A.M.) :

These are the cross appeals filed by the revenue and assessee

against the order of CIT(A), dated 16-9-2013, for the assessment year

2001-02, in the matter of order passed u/s.143(3) r.w.s254 of the I.T.Act.

2 ITA Nos.6999&6930/2013

2. Common grievance of assessee and revenue relates to

disallowance of assessee's claim of business loss which was treated by

the AO as capital loss.

3. Rival contentions have been heard and record perused. The

present appeals of the assessee and revenue have arisen against the set

aside assessment order passed u/s.143(3) r.w.s254 of the Act dated

14.12.2009. The Tribunal in assessee's appeal against the order of Ld.

CIT(A)-I, Mumbai for A.Y.2001-02 vide ITA No.3996/Mum/2005 dated

29.09.2008 had set aside the order of the Ld.CIT(A) and restored the

issues of (i) Diminution in value of current investment of Rs.49,18,573/- (ii)

Addition on account of professional expenses and administrative

expenses to the file of the LAO to decide the issues afresh after affording

opportunity to the appellant. The relevant paragraph nos.3 and 4 of the

relevant ITAT order dated 29.09.2008 reads as under:-

"3. After considering the submissions and perusing the material on record we are of the view that this matter needs re-verification. The Ld. A.O. has disallowed the claim merely on the reason that the assets have been shown as investment and not stock in trade. Other aspect of the case was not examined by the A.O. The Ld. CIT(A) has also confirmed the finding of the Ld. A.O. Other aspect were also not examined by the Ld. CIT(A). The nature of transaction has to be taken into consideration while deciding the issue. It has been repeatedly said that the purchase and sale were made in short period and they were not for the purpose of earning dividend as the sale and purchase were for the purpose of earning profits. We noted that earning of dividend is of very small amount whereas profit on sale of shares is of substantial amount. It has also been stated that year after year the assessee is showing profit on account of purchase and sales of shares under the head business income. These aspects were not examined by the Ld. AO. Therefore, we are of the considered view that the matter should go back to the file of the AO to examine the issue afresh. The Ld. AO will take into consideration the transaction of the assessee made year after year and then will draw a conclusion that, they are in nature of trading in shares or they are in nature of capital gains. It is a settled position of law that the entries in the books of accounts are 3 ITA Nos.6999&6930/2013

not decisive, but has to be looked into. In view of these facts and circumstances, we restore this issue to the file of the A.O. to decide the issue afresh after affording opportunity to the assessee. We order accordingly.

4. Second issue is against sustaining the addition on account of professional expenses and administrative expenses.

4.1 Since, we have restored the main issue to the file of the A.O. to examine the nature of the business activity afresh, therefore, we feel that this matter should also go back to the file of the A.O. to decide the same afresh along with main issue. We order accordingly."

While giving effect to the above mentioned ITAT order for A.Y.2001-02,

the AO has not given complete and proper effect to the operative

paragraph nos.3 and 4 of the said ITAT order. The assessee approached

to the CIT(A). By the impugned order the CIT(A) held as under :-

"5.1 I have carefully and dispassionately considered the facts and circumstances of the case. The LAO is directed to give and full correct effect to the order of the jurisdictional ITAT, 'G' Bench, Mumbai in the appellant's case as set aside vide ITA No.3996/Mum/2005 dated 29.09.2008. Secondly, it has been stated that year after year the appellant is showing the profit on account of purchase and sale of shares under the head business income. The LAO has not properly applied the directions of the Hen'ble ITAT, 'G' Bench, Mumbai. He has repeated the disallowances earlier made by him in the original assessment order and has relied on the order of Ld. CIT(A)-l which has already been reversed by the Hon'ble ITAT, 'G' Bench, Mumbai. Departmental appeal has been dismissed by the Hon'ble Bombay High Court, as stated by the LAR.

5.2 Having regard to the facts and circumstances of the case, I am constrained to direct the LAO to give full, true and correct effect to the order of Hon'ble ITAT 'G' Bench, Mumbai in appellant's case for A.Y.2001-02 decided vide ITA No.3996/Mum/2005 dated 29.09.2008.

5.3 For statistical purposes, grounds of appeal are partly allowed."

5. Against the above order of CIT(A), both revenue and assessee are

in appeals before us.

6. We have considered rival contentions, carefully gone through the

orders of the authorities below and found from the record that the AO has 4 ITA Nos.6999&6930/2013

disallowed the assessee's claim for diminution in value of shares on the

plea that assessee was investing in shares. In first round of appeal, the

Tribunal restored the matter back to the file of AO with a direction to

examine the nature of transaction entered into by the assessee. The AO

has also directed to take into consideration the transaction of the

assessee made year after year so as to find out as to whether the

assessee was trading in shares or holding the shares as investment. The

Tribunal also observed that as per the settled position of law entries in the

books of accounts are not decisive. However, in the second round the AO

did not examine the issue as per the directions and just repeated the

addition made in the first round. We found that consistently profit declared

by the assessee on sale of shares have been assessed as business

income from assessment years 2002-03 to 2007-08. All the assessment

from 2003-04 to 2007-08 has been framed u/s.143(3), wherein stand of

the assessee to the effect that profit/loss on sale of shares was

assessable as business income, was accepted by the department. During

the year under consideration the assessee had claimed loss of

Rs.49,18,573/- on account of valuation of shares on the date of balance

sheet and the loss resulted due to the fact that market rates fallen as

compared to the cost price of the shares. Since the assessee was dealing

in shares, at the end of the year assessee was required to value the share

at cost or the market price, whichever is lower. The loss has occasioned

due to the valuation of the shares on the closing date as per the market

price, such loss is to be allowed. Accordingly, we direct the AO to allow 5 ITA Nos.6999&6930/2013

loss on valuation of the shares as on the closing date insofar as

consistently assessee was dealing in sharers as business.

7. The assessee is also aggrieved for disallowance of professional

fees of Rs.2 lakhs and administrative expenses of Rs.1,06,458/-. No

reason has been mentioned by the AO for the said disallowance in the set

aside order. We found that for all the subsequent years professional fee

paid by the assessee was allowed in scrutiny assessment u/s.143(3). We

found that during the year under consideration assessee has paid

professional fees of Rs.2 lakhs which was disallowed by the AO.

However, similar professional fees of Rs.78 lakhs, Rs.45 lakhs, Rs.18

lakhs and Rs.4 lakhs paid in the assessment year 2003-04 to 2007-08,

respectively were allowed under scrutiny assessment. Accordingly, we do

not find any justification in the disallowance of professional fees of Rs.2

lakhs for the purpose of assessee's business. So far as disallowance of

Rs.1,06,458/- out of administrative expenses are concerned, nothing was

brought on record by ld. AR to persuade us to delete the disallowance so

made. Accordingly, we confirm the disallowance of Rs.1,06,458/- out of

the administrative expenses so incurred and debited in the profit and loss

account.

8. It is pertinent to mention that in the order passed by the CIT(A), the

CIT(A) has not allowed the loss claimed by the assessee on account of

diminution in value of shares, he has only restored the matter back to the

file of the AO for giving effect to the order of the Tribunal. Thus, no relief

has been given by the CIT(A), therefore, grounds taken by the revenue 6 ITA Nos.6999&6930/2013

are misconceived insofar as it states that CIT(A) has allowed the loss on

account of diminution in value of shares.

9. In the result, appeal of the revenue is dismissed, whereas

appeal of the assessee is allowed in part.

Order pronounced in the open court on this 08/05/2015.

Sd/- Sd/- (वर्जम ऩमर यमर्) (आय.सी.शभमव) (VIJAY PAL RAO) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनमंक Dated 08/05/2015 प्र.कु.मभ/pkm, यन.स/ PS

आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :

1. अऩीरमथी / The Appellant

2. प्रत्मथी / The Respondent.

3. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai.

आदे शािसार/ BY ORDER,

4. आमकय आमुक्त / CIT

5. वर्बमगीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भंफ ु ई / DR, ITAT, Mumbai

6. गमर्व पमईर / Guard file.

उप/सहायक पुंजीकार

सत्ममवऩत प्रयत //True Copy// (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai

Date Initial

1. Draft dictated on 27-4-15 Sr.PS

2. Draft placed before author 28-4-15 Sr.PS (dictation pad has been enclosed along with this original file)

3. Draft proposed & placed before JM/AM the second member

4. Draft discussed/approved by JM/AM Second Member.

5. Approved Draft comes to the Sr.PS/ Sr.PS/PS PS

6. Kept for pronouncement on Sr.PS

7. File sent to the Bench Clerk Sr.PS

8. Date on which file goes to the AR

9. Date on which file goes to the Head Clerk.

10. Date of dispatch of Order.