Principal Commissioner Of Income Tax Central-1, Kolkata v. Purvanchal Leasing Ltd

Form No.(J2) ORDER SHEETIN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE Present : The Hon'ble JUSTICE T. S. SIVAGNANAM And The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA ITAT/203/2017 IA NO.GA/2/2017 (Old No.GA/1778/2017) PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL-1, KOLKATAVSPURVANCHAL LEASING LTD. Appearance:Ms. Sucharita Biswas, Adv.Mr. Soumen Bhattacharjee, Adv.…for the appellant. Mr. J.P. Khaitan, Sr. Adv.,Ms. Swapna Das, Adv.Mr. Siddhartha Das, Adv.for the respondent. Heard on : 21.01.2022 Judgment on : 21.01.2022 T.S. SIVAGNANAMM J. : This appeal of the revenue filedunder Section 260A of the Income Tax Act (the ‘Act’ in brevity)is directed against the order dated 19[th] October, 2016 passed by the Income Tax Appellate Tribunal, C-Bench, Kolkata (the‘Tribunal’) in ITA No.1429/Kol/2013 for the assessment year2006-07. The revenue has raised the following substantialquestions of law for consideration: (i)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in treatingthe income from trading in shares as capital gainsand not business income without determining whethershares held by the assessee as investment (thereaftergiving rise to capital gains) or stock in trade(therefore giving rise to business profit)?case, the Learned Tribunal erred in law in treatingthe income from trading in shares as capital gainsand not business income without determining whethershares held by the assessee as investment (thereaftergiving rise to capital gains) or stock in trade(therefore giving rise to business profit)? (ii)Whether on the facts and circumstances of the case,the Learned Tribunal erred in law in not appreciatingthat an under assessment made by the Assessingofficer in a particular assessment year cannot be thebasis of the principle of consistency for all thefollowing assessment years?the Learned Tribunal erred in law in not appreciatingthat an under assessment made by the Assessingofficer in a particular assessment year cannot be thebasis of the principle of consistency for all thefollowing assessment years? (iii)Whether on the facts and circumstances of the case,the Learned Tribunal erred in law in not appreciatingthat circular no. 6/16 dated 29/2/2016 is not at allapplicable in respect to assessment year 2006-07?the Learned Tribunal erred in law in not appreciatingthat circular no. 6/16 dated 29/2/2016 is not at allapplicable in respect to assessment year 2006-07? We have heard Ms. Sucharita Biswas, learned standingcounsel assisted by Mr. Soumen Bhattacharjee appearing for the appellant/revenue and Mr. J.P. Khaitan, learned senior counselassisted by Ms. Swapna Das, learned counsel and Mr. SiddharthaDas, learned counsel, appearing for the respondent/assessee.The assessee is a company engaged in the business ofinvestment in shares, mutual funds and debentures for severalyears. For the assessment year under consideration AY - 2006-07, the assessee filed the return of income on 30[th] November,2006 disclosing a total income of Rs.4,91,85,610/-. Theassessee declared short-term capital gain on purchase and saleof shares and mutual funds. The assessment was completed underSection 143(3) of the Act by order dated 30[th] June, 2008 inwhich the short-term capital gain as declared by the assesseewas accepted by the assessing officer. The Commissioner ofIncome Tax, Central-1, Kolkata (CIT) invoked his power underSection 263 of the Act and passed an order dated 4[th] March, 2011holding that the assessing officer did not properly examine thequestion as to whether the gain on purchase and sale of sharesand security had to be assessed under the head of “capitalgain” or “income from business”. The CIT directed the assessingofficer to make a fresh assessment. Pursuant to such direction,the assessing officer examined the question and held that thegain on sale of shares had to be under the head of “income frombusiness”.Aggrieved by such order, the assessee preferred anappeal before the Commissioner of Income Tax (Appeals), Central -1, Kolkata contending that in the past, that is, for theassessment year 2005-2006, similar transactions were consideredas giving rise to short-term capital gain and merely becausethere was large volume and frequency of transactions, it cannotautomatically make the transaction as trading in shares. Theassessee, therefore, contended that the principle ofconsistency should be followed as the revenue for the previousassessment year has accepted the similar transactions to giverise to short-term capital gain and cannot take a contrary viewin the subsequent assessment year on the same set of facts. Theassessee further pointed out that for the assessment year 2007-08 proceedings were initiated by the CIT under Section 263 ofthe Act and the assessee’s case was accepted by the revenue andthe proceedings initiated under Section 263 were dropped.Therefore, the assessee contended that the finding rendered bythe assessing officer was erroneous. The Tribunal examined thecontention and after noting the factual position has grantedrelief to the assessee. It is contended before us that thevolume of transaction was rightly noted by the assessingofficer by which the intention of the assessee can be culledout. It was further submitted that for the assessment yearunder consideration (AY 2006-07), the shares and stocks havebeen treated as stock in trade and not as an investment as wasthe case in the assessment year 2005-06 or 2007-08. It wasfurther submitted that the principles of res judicata is not applicable to the provisions of the income tax and in thisregard placed reliance on the decision in the case ofCommissioner of Wealth Tax –vs- Meatles (P) Ltd. Reported in(1984) 19 Taxman 116 (Delhi).We have heard Mr. Khaitan on the above submissions.Firstly, we note that the contention of the revenue that theshares and mutual funds that were sold during the year whichresulted in the income has been shown as stock in trade and notan investment is a factually incorrect submission. Though thelearned standing counsel contended that she has oralinstructions to say so the facts are otherwise. On goingthrough the order passed by the Tribunal in paragraph 10therein we find that the Tribunal has recorded that it has beenheld as an investment and not as a stock in trade. Similarfinding has also been rendered by the CIT. Therefore, the saidcontention cannot be accepted. The second submission is withregard to the volume of transaction which, according to therevenue, is to be noted to ascertain the intention of theassessee. It was pointed out by the learned senior counsel forthe respondent that only less than 1/3[rd] of the totaltransactions was held for a short period. That apart, thevolume of transaction cannot have any impact to consider as towhether the transaction would give rise to short-term capitalgain or not. This aspect of the matter was rightly dealt withby the Tribunal by taking note of the fact that similar transactions were accepted by the department for the previousyear and the subsequent assessment year as giving rise tocapital gain and not as business income. In fact, for thesubsequent investment year 2007-08, proceedings initiated underSection 263 were dropped by the CIT on being satisfied with thenature of the transaction. Hence, if the same volume oftransactions were not the subject matter of any review by theauthorities, a solitary stand cannot be taken for theassessment year under consideration alone. In any event, thevolume of transaction cannot have any impact to assess as towhether it would give rise to short-term capital gainespecially when the fact is not in dispute that the assessee isengaged in the business of making investment in shares, mutualfunds and debentures etc. for several years. Therefore, thesecond contention raised by the revenue also is not tenable.With regard to the plea of res judicata is concerned, theTribunal rightly noted the law that rule of res judicata is notapplicable to income tax proceedings but the principle ofconsistency will definitely apply. In the preceding paragraphswe have set out the facts to show as to how the department hasexamined the returns filed by the assessee for the previousassessment year and the subsequent year. Therefore, we findthat there cannot be different yardstick for the assessmentyear under consideration when facts and circumstances areidentical. Reliance has been placed on the decision in the case of Meatles (P) Ltd. (supra). The said decision is clearlydistinguishable on facts as could be seen from paragraph 5 ofthe judgment which arose under the Wealth Tax Act, 1957 whereinthe department urged that an inadvertent admission was made inthe income tax appeal for exclusion of the income fromassessment. Therefore, it was held that the Tribunal cannot beprevented from giving an independent finding in the wealth taxappeals. The said decision is wholly inapplicable to the factsand circumstances of the case on hand. The learned seniorcounsel for the respondent placed reliance on the decision inthe case of Commissioner of Income-Tax, Kolkata - III Vs.Merlin Holding (P) Ltd., reported in [2016] 56 taxmann.com 37(Calcutta) equivalent to [2015] 375 ITR 118 (Cal). In the saidcase the Court found that the frequency cannot alone go to showthe intention was not to make an investment. Thus, the Tribunalrightly appreciated the legal position and granted relief. Thelearned senior counsel placed reliance on a circular issued bythe CBDT dated 29[th] February, 2016. This circular having beenissued only in the year 2016 obviously cannot be referred totest the correctness of an order of assessment passed for theassessment year 2006-07. For the above reasons, we find thatthere is no error or perversity in the order passed by theTribunal. In the result, the appeal (ITAT/203/2017) fails and ishereby dismissed. Consequently, the substantial questions oflaw are answered against the revenue.With the dismissal of the appeal, the stay application(GA/2/2017) stands closed. (T. S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.) S.Das/sp3