Shri Prakash R. Patel, Ahmedabad V. The Income tax Officer, Ward-3(4), Ahmedabad

CO 164/AHD/2005

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6715 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 6 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-12-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 23-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK DAMANI
• Assessee Lawyers: JASBIR S CHOUHAN
• Keywords: Capital asset converted into stock in trade; Opportunity of being heard; Date of conversion
• Section: 45(2); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, AHMEDABAD BEFORE SHRI G. C. GUPTA, HONBLE VICE PRESIDENT AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.1262 / AHD/2005 (ASSESSMENT YEAR 1998-99) ITO, WARD 3(4), AHMEDABAD VS. SHRI PRAKASH R. PATEL, RAM NIVAS-1, RAMNIVAS, AHMEDABAD C.O.NO. 164/AHD/2005 (ASSESSMENT YEAR 1998-99) SHRI PRAKASH R. PATEL, VS. ITO, WARD 3(4), RAM NIVAS-1, AHMEDABAD RAMNIVAS, AHMEDABAD PAN/GIR NO. : AFKPP3245F (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI JASBIR S CHOUHAN, SR. DR RESPONDENT BY: SHRI VIVEK DAMANI, AR DATE OF HEARING: 21.12.2011 DATE OF PRONOUNCEMENT: 30.12.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS APPEAL FILED BY THE REVENUE AND CROSS OBJE CTION IS FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST THE ORDER O F LD. CIT(A) IX, AHMEDABAD DATED 07.02.2005 FOR THE ASSESSMENT YEAR 1998-99. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO RESTRICT THE DISALLOWANCE MADE ON ACCOUNT OF INTERE ST PAID ON INVESTMENT IN SHARES AND STOCK OF RS.77,510/- FROM RS.15,50,209/-. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A. O. I.T.A.NO. 1262 /AHD/2005 C.O.NO.164/AHD/2005 2 3. THE GROUNDS RAISED BY THE ASSESSEE IN THE C.O. A RE AS UNDER: 1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE RESPONDENT'S CASE, THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT TH E ASSESSMENT ORDER IS VOID AB INITIO. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE RESPONDENT'S CASE, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN RE STRICTING THE DISALLOWANCE TO THE TUNE OF RS.77,510. HE OUGHT TO HAVE DELETED THE ENTIRE SUM OF RS.15,50,209/-. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE RESPONDENT'S CASE, THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT IN VIEW OF THE FACT THAT INSERTION OF SECTION 14A BEING RETROSPECTIVE, THE ASSESSEE IS NOT LIABLE TO ANY INTEREST U/S.234B OF THE ACT. HE OUGHT TO HAVE DELETED THE INTEREST U/S.234B TO THE TUNE OF RS.2,6 8,345. 4. GROUND NO.1 OF THE CROSS OBJECTION WAS NOT PRESS ED BY THE LD. A.R. OF THE ASSESSEE AND HENCE, THE SAME IS REJECTE D AS NOT PRESSED. 5. REGARDING GROUND NO.3 OF THE CROSS OBJECTION, IT IS ADMITTED POSITION THAT THIS IS CONSEQUENTIAL AND NO SEPARATE ADJUDICATION IS CALLED FOR. 6. THE REMAINING GROUND OF THE CROSS OBJECTION AND THE ONLY EFFECTIVE GROUND OF THE REVENUES APPEAL ARE INTERCONNECTED. 7. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A) FOR THE REVENUES APPEAL AND SUBMITTED THAT HE SHOULD HAVE DELETED THE ENTIRE DISALLOWANCE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF AUTHORITI ES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) AS PER PARA 4.3 OF HIS ORDER, WHICH IS REPRODUCED BELOW: 4.3 I HAVE CAREFULLY CONSIDERED THE ISSUE AND I HA VE ALSO GONE THROUGH THE ENTIRE DETAILS SUBMITTED BY THE APPELLA NT DURING THE COURSE OF APPELLATE PROCEEDINGS. IT IS SEEN THAT I T WAS CONSISTENTLY STATED BEFORE THE CIT(A) THAT MAJORITY OF THE INVES TMENT WERE I.T.A.NO. 1262 /AHD/2005 C.O.NO.164/AHD/2005 3 CONVERTED INTO STOCK IN TRADE AS ON 1.4.97. THEREF ORE, WHENEVER THESE SHARES WERE SOLD THE INCOME HAS TO BE WORKED OUT UNDER TWO HEADS. FIRST ONE BEING LONG TERM CAPITAL GAINS U/S 45(2) OF THE ACT AND IF THERE IS ANY SURPLUS OVER THE PRICE ON THE D ATE OF CONVERSION INTO STOCK IN TRADE, THEN THE SAME WILL BE TAXED AS BUSINESS PROFIT. IN THE CASE OF THE APPELLANT THE COST OF SHARES AS ON THE DATE OF CONVERSION I.E., 1.4.97 AND AS ON THE DATE OF SALE WERE MORE OR LESS THE SAME. THEREFORE, THE ENTIRE GAINS WERE LIABLE T O BE TAXED AS CAPITAL GAINS U/S. 45(2) OF THE ACT AND THAT IS WHY APPELLANT HAS OFFERED CAPITAL GAINS TO TAX. THE A.O HAS NOT PROPE RLY APPRECIATED THIS FACT AND HAS CONSIDERED THE ISSUE AS IF THE EN TIRE SHARES WERE HELD AS INVESTMENT THOUGH IT WAS CATEGORICALLY AND REPEATEDLY STATED BY THE APPELLANT THAT MAJOR PORTION OF INVES TMENT IN SHARES WERE CONVERTED INTO STOCK IN TRADE AS ON 1.4.97. IN VIEW OF THE ABOVE FACTS, INTEREST ON BORROWED CAPITAL IS ALLOWA BLE TO THE EXTENT IT RELATES TO THE STOCK OF SHARES. FROM THE DETAILS SUBMITTED IT IS NOTICED THAT INVESTMENT IN SHARES, AFTER EXCLUDING THE INVESTMENT CONVERTED INTO STOCK IN TRADE, WORKS OUT TO 17.46,3 697- ONLY. IF APPELLANT'S CAPITAL IS TAKEN INTO ACCOUNT, INVESTME NT IN THESE SHARES WHICH IS RELATED TO BORROWED CAPITAL WOULD BE TO TH E EXTENT OF 4 TO 5 % OF THE BORROWED AMOUNT. THEREFORE, TO THAT EXTE NT INTEREST IS CERTAINLY DISALLOWABLE IN VIEW OF PROVISIONS OF SEC TION 14A OF THE ACT. IN THE WRITTEN SUBMISSIONS, THE LD. A.R HAS A LSO STATED THAT DISALLOWANCE MAY BE MADE TO THE EXTENT IT RELATES T O INVESTMENT IN SHARES WHICH ARC NOT PART OF STOCK IN TRADE. HOWEVE R, RELATABLE INTEREST WORKED OUT BY HIM AT RS.20,000/- IS NOT TH E CORRECT FIGURE. CONSIDERING THE AMOUNT OF INVESTMENT AND AVAILABILI TY OF INTEREST FREE FUNDS IT IS CLEAR THAT ALMOST 5% OF THE BORROW ED FUNDS HAVE BEEN INVESTED IN SHARES WHICH ARE HELD AS INVESTMEN T. THEREFORE, 5% OF INTEREST IS LIABLE TO BE DISALLOWED. ACCORDIN GLY, THE DISALLOWANCE IS RESTRICTED TO RS.77,510/- AND THE B ALANCE AMOUNT IS DELETED. 9. IN THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE , IT WAS SUBMITTED THAT IF THE BENCH DOES NOT FOLLOW MAIN CONTENTION O F THE ASSESSEE THEN THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE CIT( A) FOR FRESH DECISION IN ACCORDANCE WITH THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF ITO VS DAGA CAPITAL MANAGEMENT PVT. LTD. AS REPORTED IN 312 ITR (AT) 01. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE LD. I.T.A.NO. 1262 /AHD/2005 C.O.NO.164/AHD/2005 4 CIT(A) ON THIS BASIS THAT THE SHARES WERE CONVERTED INTO STOCK IN TRADE BY THE ASSESSEE W.E.F. 1.4.1997 AND THEREFORE, INTERES T ON BORROWED CAPITAL IS ALLOWABLE TO THE EXTENT IT RELATES TO THE STOCK OF SHARES. ON THIS ASPECT, THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL WAS NOT A VAILABLE AT THAT POINT OF TIME AND HENCE, WE FEEL IT PROPER THAT THIS ISSU E SHOULD GO BACK TO THE FILE OF LD. CIT(A) FOR A FRESH DECISION AFTER CONSI DERING THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL AND OTHER JUDGEMENTS OF ANY HONBLE HIGH COURT WHICH MAY BE AVAILABLE BY THAT POINT OF TIME. HENCE WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE T HE MATER BACK TO THE FILE OF LD. CIT(A) FOR A FRESH DECISION AS PER ABOVE DIS CUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH THE SID ES. THE ASSESSEE AND THE REVENUE ARE AT LIBERTY TO MAKE THEIR SUBMISSION S BEFORE THE LD. CIT(A) AND TO CITE ANY JUDGMENT BEFORE THE LD. CIT( A) AND THE LD. CIT(A) SHOULD PASS NECESSARY ORDER AS PER LAW AFTER CONSIDERING ALL THOSE SUBMISSIONS AND JUDGEMENTS WHICH MAY BE RELIED UPON BEFORE HIM BY BOTH THE SIDES. GROUND NO.1 OF THE REVENUES APPEA L AS WELL AS GROUND NO.2 OF THE ASSESSEES C.O. ARE ALLOWED FOR STATIST ICAL PURPOSES. 10. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- (G. C. GUPTA) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP ORDER PRONOUNCED ON 30.12.2011 SD./- SD./- (G.C.GUPTA) VP (B.P.JAIN)AM I.T.A.NO. 1262 /AHD/2005 C.O.NO.164/AHD/2005 5 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 21/12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23/12.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.23/12 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 30/12 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.30/12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30/12/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..