Shri Hasmukh U Gadhecha, Ahmedabad V. The Income tax Officer,Ward-10(2), Ahmedabad

CO 26/AHD/2012

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3365 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHAURYA SHUKLA
• Keywords: Capital asset; Salary income; Principle of natural justice; Cost of acquisition

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA NO. 3031 /AHD/201 1 & CO NO.26/AHD /2012 / ASSESSMENT YEAR : 2008 - 09 INCOME - TAX OFFICER, WARD - 10(2), AHMEDABAD VS SHRI HASMUKH U. GADHECHA, 3 RD FLOOR, ANJALI HOUSE, OPP. LAL BUNGALOW, CG ROAD, AHMEDABAD - 380009 PAN : AANPG 4520 C / (APPELLANT) / (RESPONDENT) & CROSS - OBJECTOR REVENUE BY : SHRI SHAURYA SHUKLA, SR. DR. ASSESSEE BY : SHRI TUSHAR HEMANI, AR / DATE OF HEARING : 0 5 / 0 5 /201 6 / DATE OF PRONOUNCEMENT: 09 / 06 /201 6 / O R D E R PER R.P. TOLANI , JUDICIAL MEMBER: - THIS APPEAL FILED BY THE REVENUE AND CROSS - OBJECTION THEREO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - XVI, AHMEDABAD DATED 28.09.2011 FOR ASSESSMENT YEAR 2008 - 09. 2. FOLLOWING GROUNDS ARE RAISED IN REVENUES APPEAL: - 1 . THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ALLOW THE SHORT TERM CAPITAL LOSS ON SALE OF UNQUOTED SHARE OF RS.1,82,10,800/ - . 2 . THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST PAYMENT OF RS.9,87,264/ - BEING EXCESS OF INTEREST RECEIVED. 3 . ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 2 3 . FOLLOWING GROUNDS ARE RAISED IN ASSESSEE S CROSS - OBJECTION : - 1 . LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE ACTION OF LD. AO IN DISALLOWING TRANSFER COS T OF RS.5.50 LACS AND RS.2.05 LACS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF SHELLA LAND WHILE WORKING OUT SHORT TERM CAPITAL GAIN U/S 48 OF THE ACT. 2 . BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT PROPERLY APPRECIATING AND CONSIDERING VARIOUS SUBMISSIONS, EVIDENCES AND SUPPORTING PLACED ON RECORD DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND NOT PROPERLY APPRECIATING VARIOUS FACT S AND LAW IN ITS PROPER PERSPECTIVE AND FURTHER ERRED IN PASSING ORDERS IN GROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. 3 . LEARNED CIT( A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF AO IN CHARGING INTEREST U/S 234 A/B/C/D OF THE ACT. 4 . LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ADJUDICATING UPON THE GROUND CHALLENGING THE ACTION OF AO IN INITIATING PENAL TY UNDER SECTION 271(1)(C) OF THE ACT WITHOUT RECORDING MANDATORY SATISFACTION AS CONTEMPLATED UNDER THE ACT. 4 . AT THE OUTSET, LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING CROSS - OBJECTION ; HENCE, THE CROSS - OBJECTION FI LED BY THE ASSESSEE IS DISMISSED BEING NOT PRESSED. 5 . COMING TO THE REVENUES APPEAL , THE B RIEF FACTS ARE THE ASSESSEE DERIVES INCOME FROM SALARY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES AND RETURNED NET AMOUNT OF CAPITAL GAINS AT RS. 14,38,505/ - . THIS INCLUDED STCG OF RS. 1,81,50,000/ - ON SALE OF LAND AND LOSS OF RS. 1,82,10,800/ - ON ACCO UNT OF SALE OF SHARES OF INTER ACTIVE TECHNOLOGIES PVT. LTD.. AO CALLED FOR DETAILS OF LOSS IN SHARE AND HELD THAT THE CLAIM IN THIS BEHALF WAS NOT GENUINE. IN APPEAL LD. CIT(A) HELD THAT THE IMPUGNED TRANSACTION OF SALE OF SHARES WAS GENUINE AND ALLOWED THE LOSS. AGGRIEVED REVENUE IS BEFORE US ON THIS GROUND. ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 3 6 . L D. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7 . L D. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ASSESSEE WAS ALREADY HOLDING 99,998 SHARES IN EARLIER YEARS IN THE SAID COMPANY INTER ACTIVE TECHNOLOGIES PVT. LTD . D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ACQUIRED FURTHER 9,00,000 SHARES @ RS.100/ - PER SHARE, AGGREGATING HIS HOLDING TO 9,99,998 SHARES. BY THE END OF THE FINANCIAL YEAR, THE SHARE MAR KET BECAME VERY VOLATILE RESULTING IN SUBSTANTIAL CRASH IN THE COMPANYS NET WORTH . OUT OF ABUNDANT CAUTION, ASSESSEE TOOK A PRUDENT CALL TO SALE IT OFF HIS ABOUT 1 /3 RD SHAREHOLDING , I.E ., 3,43,600 SHARES IN INTER ACTIVE TECHNOLOGIES @ RS.47/ - PER SHARE SO AS TO RESTRICT HIS LOSS ES. THE SALE IN THESE MARKET CONDITIONS RESULTED IN LOSS AT RS.1,82,10,800/ - . AO WAS SUSPICIOUS MAINLY ON THE LOSS FIGURE BEING INCIDENTALLY NEARER TO STCG ON LAND SALE AMOUNTING TO RS.1,81,50,000/ - , WHICH WAS SET OFF. IN THIS CONN ECTION, THE ASSESSEE VIDE LETTER DATED 18/12/2010 SUBMITTED A DETAILED REPLY EXPLAINING THAT THE GENUINENESS OF LOSS AND ITS ALLOWABILITY. HOWEVER, THE L D. ASSESSING OFFICER WITHOUT APPRECIAT ING T HE FACTS DISALLOWED THE LOSS OF RS.1,82,10,800/ - HOLDING THE SALE TO BE PAPER TRANSACTION ON FOLLOWING COUNTS : - ( I ) THE ASSESSEE HAS MADE INVESTMENT BY ACQUIRING 8,43,600 SHAR ES IN SUCH COMPANY @ RS.100/ - PER SHARE ON 31 / 12 /200 7 AND 56 ,400 SHARE ON 09/01/2008 ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 4 ( II ) OUT OF TOTAL 9,99,998 SHARES, THE ASSESSEE HAS SOLD 343,600 SHARES @ RS.47/ - PER SHARE TO SHRI UGARCHAND P. GADHECHA (HUF) ON 27/03/2008 . 7 . 1 L D. COUNSEL FURTHER CONTENDS THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED SUBMISSION DATED 18.12.2010 BEFORE THE ASSESSING OFFICER AND EXPLAINED THAT, THE SHARES INTERACTIVE TECHNOLOGIES WERE PURCHASED IN EARLIER YEAR ALSO BESIDE PURCHASE AND SALE IN CURRENT YEAR ABOUT 2/3 RD SHARE HOLDING CONTINUED IN SUBSEQUENT YEARS. THE EARLI ER AND SUBSEQUENT SHARE HOLDING IN INTERACTIVE TECHNOLOGIES HAVE BEEN ACCEPTED BY THE DEPARTMENT; THEREFORE, THERE IS NO GAINSAYING THAT THE IMPUGNED TRANSACTION WAS PAPER TRANSACTION. THE CURRENT YEAR PURCHASE WAS MADE TO SAFEGUARD THE EARLIER SHARE HOLDI NG AND TO SAVE THE COMPANY FROM FINANCIAL CRISIS WHICH MAY HAVE LEAD TO LIQUIDATION. IT IS EVIDENT FROM THE RECORD THAT THE BOOK VALUE OF THE COMPANY HAD GONE UP TO RS. 170/ - PER SHARE AS ON 18.12.2010 WHICH WAS FOR RS. ( - ) 40.23 PER SHARE AS ON 29.12.2007 I.E. BEFORE THE INFUSION OF FUNDS BY THE APPELLANT. THE AFORESAID COMPANY HAD PAID THE TAXES OF RS. 95/ - LAKHS FOR THE A.Y. 2010 - 11 AFTER SET OFF OF EARLIER YEARS LOSSES (PROFIT RS. 614/ - LAKHS FOR THE A.Y. 2010 - 11) AND ALSO PAID ADVANCE - TAX OF RS. 15/ - LAKHS FOR THE A.Y. 2011 - 12. 7.2 BESIDE ASSESSEE FURNISHED ALL THE RELEVANT DOCUMENTS TO DEMONSTRATE THE AUTHENTICITY OF PURCHASE AND SALE OF SHARES BY FILING - COPY OF ALLOTMENT LETTER, RESOLUTION PASSED BY THE COMPANY ALLOTTING SHARES TO THE ASSESSEE , BANK STATEMENT SHOWING PAYMENT FOR ACQUI SITION OF SUCH SHARES, RETURN S FILED WITH THE ROC REPORTING ALLOTMENT OF SHARES, BALANCE SHEET OF THE COMPANY, TRANSFER FORM AND ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 5 OTHER NECESSARY DOCUMENTS . THE ASSESSEE THUS DISCHARGE PRIME FACIE BURDEN IN THIS BEH ALF AND AO FAILED TO DISCHARG E THE ONUS TO DISPROVE THE SAME AND ON ASSUMPTIONS, HELD IT AS PAPER TRANSACTION . 7 . 3 THE ASSESSEE PURCHASED THE SHARES IN QUESTION BY MA KING THE PAYMENT OF CONSIDERATION BY ACCOUNT PAYEE CHEQUES, SHARES HAVE BEEN DELIVERED, NECESSARY STATUTORY FORMALITIES REQUIRED BY REGULATORY AUTHORITIES I.E ROC QUA THE APPLICATION, ALLOTMENT AND DISTINCTIVE NOS. OF THESE SHARES HAVE BEEN COMPLIED WITH. SIMILARLY THE DETAILS ABOUT OF THE SUBSEQUENT SALE , THE BUYER OF THE SHARES, RECEIPT OF THE SALE CONSIDERATION THROUGH ACCOUNT PAYEE CHEQUES, TRANSFER OF THE SOLD SHARES FROM ASSESSEE 'S ACCOUNT TO THE ACCOUNT OF THE BUYER ETC HAVE BEEN DEMONSTRATED BY RELEVANT DOCUMENTARY EVIDENCE . UNDER THE CIRCUMSTANCES, THE IMPUGNED TRANSACTION OF SAL E OF SHARES IS ESTABLISHED BY THE ASSESSEE AND HAS NOT BEEN PROVED TO BE FALSE OR NON - GENUINE. ASSESSEE COMPLIED WITH ALL THE REASONABLE REQUIREMENTS TO DEMONSTRATE THE GENUINENESS OF PURCHASE AND SALE OF IMPUGNED SHARES. CONSEQUENTLY LD. A SSESSING OFFICER ERRED IN FACTS AND IN LAW IN DISALLOW ING THE CLAIM OF LOSS IN THIS BEHALF . RELIANCE IS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA AND ANOTHER VS. AZADI BACHAO ANDOLALN AND ANOTHER, REPORTED IN (2003) 263 ITR 706 ( SC). IT IS FURTHER SUBMITTED THAT, T HE EXPRESSION 'FULL VALUE OF CONSIDERAT ION' N EITHER REFER S TO THE ADEQUACY OR INADEQUACY OF THE PRICE N OR TO THE MARKET VALUE OF THE CAPITAL ASSET . RELIANCE IS PLACED ON FOLLOWING AUTHORITIES: - CIT VS. GILLANDERS ARBUTHNOT & CO. [1973] 87 ITR 407; CIT VS. GEORGE HENDERSON & CO. LTD. 66 ITR 622 (SC) ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 6 7 .4 DURING THE COURSE OF APPELLATE PROCEEDINGS, A REMAND REPORT WAS CALLED FOR BY THE LD. CIT(A). AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD, AOS REMAND REPORT AND SUBMISSIONS OF THE ASSESSEE LD. CIT(A) HELD THAT THE IMPUGNED TRANSACTION OF PURCHASE AND SALE OF SHARES AS GENUINE, BY OBSERVING AS UNDER: - 2.16 THE ASSESSING OFFICER HAD NOT CONTROVERTED THE CONTENTION OF THE APPELLANT FOR PURCHASE OF SHARES OF THE AFORESAID COMPANY @ RS. 100 PER SHARE (AT A PREMIUM OF RS. 90 PER SHARE) NEITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOR WHILE SENDING THE REMAND REPORT. IT IS EVIDENT FROM THE SUBMISSION DATED 18.1 2.2010 OF THE APPELLANT BEFORE THE A SSESSING OFFI C E R THAT THE SHARES AT HIGH PREMIUM WERE PURCHASED TO SAVE THE COMPANY FROM LIQUIDATION AND TO RE - STRENGTHEN THE COMPANY'S CAPITAL AND RESERVES AND THE APPELLANT WAS SUCCESSFUL IN SAVING THE AFORESAID COMPANY FROM ADVERSE CONSEQUENCES. IT IS E VIDENT FROM THE RECORD THAT THE BOOK VALUE OF THE COMPANY HAD GONE UPTO RS. 170/ - PER SHARE AS ON 18.12.2010 WHICH WAS FOR RS. ( - ) 40.23 PER SHARE AS ON 29.12.2007 I.E. BEFORE THE INFUSION OF FUNDS BY THE APPELLANT. THE AFORESAID COMPANY HAD PAID THE TAXE S OF RS. 95/ - LAKHS FOR THE A.Y. 2010 - 11 AFTER SET OFF OF EARLIER YEARS LOSSES (PROFIT RS. 614/ - LAKHS FOR THE A.Y. 2010 - 11) AND ALSO PAID ADVANCE - TAX OF RS. 15/ - LAKHS FOR THE A.Y. 2011 - 12. THESE PAYMENTS OF TAXES ARE THE RESULTS OF THE FUNDS INFUSED BY T HE APPELLANT IN THE SHARE CAPITAL OF THE COMPANY. APART FROM IT, THE INFUSION OF THE FUNDS BY THE APPELLANT IN THE SHAPE OF PURCHASE OF SHARES, THE AFORESAID COMPANY HAD NOT ONLY SURVIVED FROM THE LIQUIDATION BUT ITS STANDING WAS SUBSTANTIALLY IMPROVED. TH E BOOK VALUE OF THE SHARES HAD ROSE TO RS. 170/ - PER SHARE FROM RS. ( - ) 40.23 PER SHARE AS ON 29.12.2007. THUS, THE PURCHASE OF SHARES BY THE APPELLANT AT RS. 100 PER SHARE (AT A PREMIUM OF RS. 90 PER SHARE) CANNOT BE ANY HOW CONSIDERED AS NON - GENUINE OR B OGUS OR PAPER TRANSACTIONS. THE COMPANY HAD FURNISHED NECESSARY INFORMATION TO THE REGISTRAR OF COMPANIES AND NO ANY INFIRMITY WAS NOTICED BY THE ROC IN PURCHASE AND SALE OF SHARES AND IN MAINTENANCE OF OTHER RECORDS FOR SHARE TRANSACTIONS. THERE IS THUS N O SUBSTANCE IN THE CONTENTION OF THE ASSESSING OFFICER THAT THERE WERE SEVERAL INTERPOLATION IN THE INITIAL REGISTERS OF THE COMPANY. IF ROC HAD NOT SEEN ANY MANIPULATIONS IN THE INITIAL RECORDS, THE ASSESSING OFFICER HAD NO JURISDICTION TO FIND FAULT IN T HE AREA OF EXAMINATION OF THE ROC. THE TRANSACTION OF PURCHASE OF SHARES ARE THEREFORE, HELD TO BE GENUINE. ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 7 7 .5 THE LD. CIT(A) FURTHER HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ARRIVING AT THE CONCLUSION THAT THE ASSESSEE HAD MADE A DELIBERATE ATTEMPT TO REDUCE ITS INCIDENCE OF TAX BY ADOPTING A COLORABLE OR QUESTIONABLE DEVICE, BY OBSERVING AS UNDER: - 2.18 IT IS EVIDENT FROM THE AFORESAID SUBMISSION FURNISHED BEFORE THE ASSESSING OFFICER THAT THE SHARE MARKET WAS BOOMING AT THE TIME OF INVESTMENT IN SHARES. HOWEVER, ALL OF A SUDDEN, JUST AFTER THE COUPLE OF DAYS OF INVESTMENT, THE SHARE MARKET WAS SUBST ANTIALLY CRASHED IN ONLY ONE DAY AND THEN AFTER IT CONTINUED TO SHOW DOWNWARDS. AFTER THE CRASH IN THE MARKET, THE COMPANY'S NETWORTH WAS REDUCED FROM RS.800 LAKHS TO RS . 400 LAKHS. THE BOOK VALUE OF SHARE OF THE COMPANY CAME DOWN TO RS.38.21 AS ON 27/03/20 08. THE APPELLANT THEREBY, TOOK A CONSCIOUS DECISION TO SALE 1/3 RD OF HIS TOTAL SHAREHOLDING IN THE COMPANY SO AS TO REDUCE HEAVY LOSSES AND LIQUIDATED HIS FUNDS TO THAT EXTENT. ACCORDINGLY, THE APPELLANT SOLD 3,43,600 SHARES AT RS.47/ - PER SHARE WHICH IS HIGHER THAN THE BOOK VALUE OF RS.38.21 PER SHARE AS ON 27/03/2008. AS REGARDS THE SALE OF SHARES TO THE CLOSE RELATIVE IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER BY THE APPELLANT THAT AS PER THE COMPANIES ACT, 1956, THE CLOSELY HELD COMPANY CANNOT INVITE OR TRANSFER THE EQUITY SHARE OF THE COMPANY TO THE GENERAL PUBLIC AND THEREFORE, THE SHARES WERE TRANSFERRED TO THE HUF OF ASSESSEE'S FATHER. HOWEVER, BY MERELY TRANSFERRING THE SHARES TO A RELATIVE CANNOT BE CONSIDE RED AS A NON - GENUINE TRANSACTION WHERE THE SHARES WITH DISTINCTIVE NUMBERS WERE ACTUALLY DELIVERED AND THE AMOUNT WAS RECEIVED BY THE ASSESSEE BY ACCOUNT PAYEE CHEQUES. THE ASSESSING OFFICER HAD NO WHERE CONTROVERTED THIS SUBMISSION OF THE APPELLANT THOUGH THE ENTIRE FACTS WERE BEFORE HIM. IN VIEW THEREOF, THE TRANSACTION OF SALE OF SHARE IS HELD TO BE GENUINE. THEREFORE, THE IMPLIED CONCLUSION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD MADE THE DELIBERATE ATTEMPT TO REDUCE ITS INCIDENCE OF TAX BY ADOPT ING A COLOURABLE OR QUESTIONABLE DEVICE CANNOT BE SAID TO BE JUSTIFIABLE. 7 .6 RELYING ON HONBLE CALCUTTA HIGH COURT JUDGMENT IN THE CASE OF CIT VS. OBEROI HOTELS P. LTD, 334 ITR 293 (CAL.) , LD. CIT(A) HELD THAT THE TRANSACTIONS OF THE PURCHASE AND SALE OF SHARES OF THE ASSESSEE WERE GENUINE AND HE ACCORDINGLY ALLOWED THE IMPUGNED SHORT TERM CAPITAL ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 8 LOSS OF RS.1,82,10,800/ - ATTRIBUTABLE TO SALE OF PART OF THE SHARES OF M/S. INTER ACTIVE TECHNOLOGIES PVT LTD., BY OBSERVING AS UNDER: - THE SHARES WERE ACTUALLY PURCHASED BY THE ASSESSEE AND PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. THE SHARES WERE ACTUALLY SOLD AND PAYMENTS WERE RECEIVED BY ACCOUNT PAYEE CHEQUES . ON ACCOUNT OF CRASH OF THE SHARE MARKET, THE ASSESSEE HAD SOLD PART OF THE SHARES TO MINIMISE THE LOSSES AS THE COMPANY'S NETWORTH WAS REDUCED FROM RS.800 LAKHS TO RS.400 LAKHS. THE BOOK VALUE OF SHARE OF THE COMPANY CAME DOWN TO RS.38.21 AS ON 27/03/200 8. THIS WAS A CONSCIOUS DECISION OF THE ASSESSEE. THE ASSESSING OFFICER WAS THUS NOT JUSTIFIED IN CONSIDERING THE ENTIRE TRANSACTION AS A COLOURABLE ONE AND CONSIDERED AS HAVING BEEN ENTERED INTO WITH THE INTENTION OF OFFSETTING THE SHORT - TERM CAPITAL GAIN EARNED FROM THE SALE OF LAND. 2.24 THERE IS NO SUBSTANCE IN THE FINDING OF THE ASSESSING OFFICER WITHOUT PREJUDICE RECORDED IN PARA - 4.19 OF THE ASSESSMENT ORDER. THE APPELLANT HAD ACQUIRED SHARES IN THE FORM OF PHYSICAL CERTIFICATES WITH DISTINCTIVE NUMBE RS AND IT WAS NEVER DEMATERIALIZED WITH A DEPOSITORY AND THEREFORE, WHILE COMPUTING THE CAPITAL GAIN, PURCHASE AND SALE OF SHARES WERE REQUIRED TO BE CORRELATED WITH THE DISTINCTIVE NUMBERS OF SUCH SHARES WITHOUT FOLLOWING ANY METHOD OF FIFO OR LIFO OR WEI GHTAGE AVERAGE. THE REFERENCE WAS INVITED BY THE LD. COUNSEL TO THE CBDT CIRCULAR NO.704, DATED 28 APRIL, 1995 [213 ITR ST. 7] WHEREIN IT HAS BEEN PROVIDED THAT FIFO METHOD IS ONLY REQUIRED TO BE APPLIED WHERE THE DATES OF PURCHASE AND SALE COULD NOT BE C ORRELATED WITH SPECIFIC NUMBERS OF THE SCRIPTS. CONSIDERING THE AFORESAID SUBMISSION OF THE LD. COUNSEL, I AM OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING FIFO METHOD INSTEAD OF ADOPTING SPECIFIC DISTINCTIVE NUMBERS OF SHARES FOR THE PURCHASE AND SALE OF SHARES WHILE C OMPUTING CAPITAL LOSS FOR RS. 99,10,980/ - . HOWEVER, THE ASSESSING OFFICER HIMSELF HAD NOT COMPUTED THE INCOME BY ADOPTING THE LOSS OF SHORT - TERM CAPITAL LOSS OF RS. 99,10,980/ - , THE AFORESAID FINDING OF THE ASSESSING OFFICER REMAINED ACADEMIC AND THE SAME IS HEREBY REJECTED. 2.25 CONSIDERING THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONB LE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN , HON'BLE GUJ A RAT HIGH COURT IN THE CASE OF BANYAN & BERRY AND SPECIFICALLY THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. OBEROI HOTELS P. LTD. 334 ITR 293 (CAL.), I AM OF THE OPINION THAT THE TRANSACTIONS OF THE PURCHASE AND SALE OF SHARES WERE ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 9 GENUINE AND THER EFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE SHORT - TERM CAPITA L LOSS OF RS. 1,82,10,800/ - INCURRED ON ACCOUNT OF SALE OF PART OF THE SHARES OF M/S INTER ACTIVE TECHNOLOGIES PVT. LTD. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE AFORESA ID LOSS OF RS. 1,82,10,800/ - . THE FIRST GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 7 .7 LD. COUNSEL THUS CONTENDS THAT ASSESSEES EARLIER YEAR SHARE HOLDING IN INTER ACTIVE TECHNOLOGIES HAS BEEN HELD TO BE GENUINE BY A SSESSING OFFICER , SIMILARLY AFTER THE IMPUGNED SALE 2/3 SHARE HOLDING CONTINUE, WHICH ALSO HAS NOT BEEN DOUBTED. IN VIEW OF THESE FACTS COUPLED WITH THE SUFFICIENT MATERIAL ON RECORD WHICH HAS NOT BEEN CONTROVERTED BY LD. A SSESSING OFFICER , THERE IS NO REASON TO DISALLOW THE LOSS ON THE BASIS OF SOME ASSUMPTIONS, PRESUMPTIONS AND CONJECTURES. 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . THE UNDISPUTED FACTS ARE THAT THE ASSESSEE WAS ALREADY A SHARE HOLDER IN SAID INTER ACTIVE TECHNOLOGIES , AND AFTER SELLING ABOUT 1/3 SHARE HOLDING REMAINED OWNER OF ABOUT 2/3 RD SHARES IN NEXT YEAR, DOUBTS HAVE BEEN RAISED BY LD. A SSESSING OFFICER ONLY IN RESPECT OF THIS YEARS SALE OF SHARES TOW2ARDS THE END OF THE YEAR. IT EMERGES FROM THE RECORD THAT ASSESSEE IN ORDER TO PROTECT HIS EARLIER SHARE HOLDING PURCHASED THE NEW SHARES AT HIGH ER RATE TO SAVE INTER ACTIVE FROM LIQUIDATION AND TO RE - STRENGTHEN THE COMPANY'S CAPITAL AND RESERVES , WHICH IS CLAIMED TO BE A PRUDENT BUSINESS DECISION. AS SESSEES EFFORTS ARE PROVED FROM THE RECORD THAT THE BOOK VALUE OF THE COMPANY WENT UPTO RS. 170/ - PER SHARE AS ON 18.12.2010 WHICH WAS FOR RS. ( - ) 40.23 PER SHARE AS ON 29.12.2007 I.E. BEFORE THE INFUSION OF FUNDS BY THE APPELLANT. THE AFORESAID COMPANY HAD PAID ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 10 THE TAXES OF RS. 95/ - LAKHS FOR THE A.Y. 2010 - 11 AFTER SET OFF OF EARLIER YEARS LOSSES (PROFIT RS. 614/ - LAKHS FOR THE A.Y. 2010 - 11) AND ALSO PAID ADVANCE - TAX OF RS. 15/ - LAKHS FOR THE A.Y. 2011 - 12. 8 .1 IN OUR CONSIDERED VIEW, IN CONSIDERATION OF ALL THESE UNDISPUTED FACTS, LD. CIT(A) RIGHTLY OBSERVED THAT THE PURCHASE OF THESE SHARES BY THE APPELLANT CANNOT BE CONSIDERED AS NON - GENUINE OR PAPER TRANSACTIONS. ASSESSEE PRODUCED NECESSARY EVIDENCE THAT INTER ACTIVE I.E. COMPANY FU RNISHED NECESSARY INFORMATION AND NO ANY INFIRMITY WAS INDICATED BY THE ROC QUA THE IMPUGNED PURCHASE AND SALE OF SHARES AND IN MAINTENANCE OF OTHER RECORDS RELATING TO SHARE TRANSACTIONS. THUS THE ADVERSE INFERENCE DRAWN BY LD. ASSESSING OFFICER THAT THER E WERE ALLEGED INTERPOLATION IN THE REGISTERS OF THE COMPANY ARE NOT TENABLE . 8 .2 THE SHARES WERE SOLD BY ASSESSEE DUE TO CRASH OF THE SHARE MARKET ADVERSELY RESULTING IN THE CASCADING EFFECT ON OTHER INVESTMENTS. IN ORDER TO MINIMISE THE LOSSES AS THE INTER ACTIVES NET WORTH WAS REDUCED FROM RS.800 LAKHS TO RS.400 LAKHS. THE BOOK VALUE OF SHARE OF THE COMPANY SLIDED DOWN TO RS.38.21 AS ON 27/03/2008. THIS WAS A CONSCIOUS BUSINESS DECISION OF THE ASSESSEE. BESIDES, T HE PAYMENTS FOR PURCHASE OF SHARES WE R E MADE BY ACCOUNT PAYEE CHEQUES, SIMILARLY THE CONSIDERATION FOR SALE OF SHARE WAS ALSO RECEIVED BY ACCOUNT PAYEE CHEQUES. ASSESSEES REFERENCE TO THE CBDT CIRCULAR NO.704, DATED 28 APRIL, 1995 [213 ITR ST. 7] PROVID ING THAT FIFO METHOD IS ONLY REQUIRED T O BE APPLIED WHERE THE DATES OF PURCHASE AND SALE COULD NOT BE CORRELATED WITH SPECIFIC NUMBERS OF THE SCRIPTS. LD. ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING FIFO METHOD INSTEAD OF ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 11 ADOPTING SPECIFIC DISTINCTIVE NUMBERS OF SHARES FOR THE PURCHASE AND SALE OF SHARES WHILE COMPUTING THE IMPUGNED STCG . 8 .3 R ESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN , HON'BLE GUJARAT HIGH COURT IN THE CASE OF BANYAN & BERRY AND HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. OBEROI HOTELS P. LTD. (SUPRA) , WE SEE NO INFIRMITY IN THE ORDER OF LD. CIT(A) ALLOWING THE IMPUGNED STCG LOSS. WE UPHOLD HIS ORDER ON THIS ISSUE, THIS GROUND OF THE REVENUE IS DISMISSED. 9 . BY GROUND N O. 2, R EVENUE CHALLENGES THE DELETION OF DISALLOWANCE OF INTEREST EXPENDITURE OF RS.9,87,264/ - . THE ASSESSING OFFICER DISALLOWED THE ABOVE INTEREST EXPENDITURE OF RS.9,87,264/ - A LLEGING THAT THE ASSESSEE FAILED TO PROVIDE THE NEXUS OF UTILIZATION OF BORROWING FOR EARNING OFFERED INTEREST INCOME. IN FIRST APPEAL LD. CIT(A) DELETED THE DISALLOWANCE OF INTEREST BY FOLLOWING OBSERVATIONS: 4. IS MUCH SUBSTANCE IN THE CONTENTION OF THE LD. COUNSEL THAT WHEN IT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER THAT INTEREST EXPENDITURE HAS BEEN EXPENDED T EARN INTEREST INCOME, IT IS NO MATTER OF CONSEQUENCES AT WHAT RATE INTEREST HAS BEEN CHARGED OR PAID. THE APPELLANT HAD EXPLAINED THE REASONS AS TO HOW THE INTEREST EXPENSES WERE MORE THAN THE INTEREST RECEIPTS AS IS EVIDENT FROM THE SUBMISSION OF THE LD. COUNSEL REPRODUCED IN PARA - 4.1 ABOVE. THERE IS NO CASE FOR DIVERSION OF BORROWED FUNDS FOR NON - BUSINESS PURPOSES. THERE IS NO 2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AS WELL AS THE FINDING OF THE ASSESSING OFFICER RECORDED IN THE ASSESSMENT ORDER. I HAVE ALSO CONSIDERED THE REMAND REPORT OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAD RELIED UPON THE DISCUSSION MADE IN PARA - 6 OF THE ASSESSMENT ORDER. THE LD. COUNSEL VIDE PARA - 12 OF THE COMMENTS ON THE REMAND REPORT OF THE ASSESSING OFFICER HAD RAISED THE ALTERNATIVE CONTENTION WHICH HAS ALSO BEEN CONSIDERED. THERE IS NO SUBSTANCE IN THE ALTERNAT IVE CONTENTION SO RAISED. THE LD. COUNSEL COULD NOT JUSTIFY AS TO HOW THE DISALLOWED INTEREST INCREASED THE COST OF ACQUISITION AS THERE IS NO NEXUS BETWEEN THE DISALLOWED INTEREST AND THE COST OF ACQUISITION ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 12 OR COST OF IMPROVEMENT OF THE LAND. THE ALTER NATIVE CONTENTION IS THEREBY REJECTED. HOWEVER, THERE SUBSTANCE IN THE CONTENTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD ROTATED THE FUNDS FOR CREATING TRANSFER ENTRIES FOR SHARE SUBSCRIPTION, PURCHASE OF LAND, INVESTMENTS AND DEPOSITS IN SOCIETY ETC. ALL SUCH NATURE OF INVESTMENTS ARE IN THE NATURE OF CAPITAL AND NOT IN THE REGULAR BUSINESS OF THE ASSESSEE AS HAS BEEN PROJECTED. IF THAT WAS THE POSITION THEN THE ASSESSING OFFICER HAD TO ALLOW THE SAME BY INCREASING THE COST OF THE LAND BY THE AM OUNT OF INTEREST TREATED AS CAPITAL IN NATURE. SINCE THE CONTENTION OF THE ASSESSING OFFICER WAS WITHOUT ANY BASIS, THE ALTERNATIVE CONTENTION OF THE APPELLANT HAS BEEN REJECTED. THE INTEREST EXPENDITURE WAS ACTUALLY INCURRED FOR EARNING THE INTEREST INC OME AND DUE TO CHARGING OF LESSER RATE OF INTEREST ON OLD LOANS AND ADVANCES AND ADVANCES GIVEN FOR SHORTER PERIOD. THIS CONTENTION OF THE APPELLANT WAS NOT CONTROVERTED BY THE ASSESSING OFFICER EITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOR DURIN G REMAND PROCEEDINGS. THE ASSESSING OFFICER HAD INDIRECTLY ADMITTED THE CONTENTION OF THE APPELLANT THAT THE INTEREST EXPENDITURE WAS INCURRED FOR EARNING THE INTEREST INCOME AS HE HAD ACCEPTED THE INTEREST EXPENSES UPTO INTEREST INCOME AND ONLY EXCESS IN TEREST OVER INTEREST INCOME WAS ONLY DISALLOWED. CONSIDERING THE FACTS OF THE CASE AND THE ABOVE DISCUSSION, I AM OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE EXCESS INTEREST EXPENDITURE OVER THE INTEREST INCOME. THE DISALL OWANCE SO MADE FOR RS.9,87,264/ - IS HEREBY DELETED. 9 . 1 LD. DR RELIED ON THE ORDER OF LD. A SSESSING OFFICER . 9 . 2 LD. COUNSEL CONTENDS THAT LD. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS EARNED IN TEREST INCOME OF RS.19,03,827/ - , WHEREAS I NTEREST EXPENDITURE OF RS.28,97,976/ - WAS SHOWN TO HAVE BEEN INCURRED RESULTING IN LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES. TO EXPLAIN THE JUSTIFICATION ASSESSEE, VIDE LETTER DATED 23.12.2010 SUBMITTED THAT INTEREST EXPENDITURE HAS BEEN INCURRED TO E ARN INTEREST INCOME ONLY WHICH IS REQUIRED TO BE NETTED OFF WITH THE INTEREST EXPENDITURE. IT WAS ALSO SUBMITTED , THE EARLIER BORROWERS DESIRED TO RETURN INTEREST BEARING LOANS THEREBY BORROWED FUNDS WOULD HAVE ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 13 REMAINED IDLE, TO AVOID BEARING THE INTEREST ON BORROWED FUNDS ASSESSEE , AS A PRUDENT MEASURE AND IN THESE PECULIAR CIRCUMSTANCES CHARGED LOWER INTE REST @ 6% ON OLD LOAN & ADVANCE . LD. ASSESSING OFFICER THOUGH ACCEPTED THE CONTENTION OF THE ASSESSEE THAT INTEREST EXPENDITURE HAS BEEN INCURRED TO EA RN INTEREST INCOME, HOWEVER, WITHOUT ASSIGN ING ANY TENABLE REASON , DISALLOWED THE EXCESS INTEREST EXPENDITURE OVER INTEREST INCOME . IT IS CONTENDED ONCE IT HAS BEEN PRINCIPALLY ACCEPTED BY THE ASSESSING OFFICER THAT INTEREST EXPENDITURE HAS BEEN EXPENDED TO EARN INTEREST INCOME, THERE IS NO JUSTIFICATION IN CHALLENGING THE RATE INTEREST CHARGED BY THE ASSESSEE IN AFOREMENTIONED CIRCUMSTANCES. IT IS SUBMITTED THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UNJUSTIFIED LD. CIT(A) HAS RIGHTLY DELETED THE D ISALLOWANCE, HIS ORDER DESERVES TO BE UPHELD. 10 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. I T HAS BEEN ACCEPTED BY THE ASSESSING OFFICER THAT INTEREST EXPENDITURE HAS BEEN EXPENDED T O EARN INTEREST INCOME. SEC. 56 DOES NOT POSTULATE ANY CONDITION ABOUT THE RATE OF CHARGING INTEREST. THE APPELLANT EXPLAINED THE REASONS AND CIRCUMSTANCES AS TO HOW THE LESSER INTEREST WAS CHARGED ON OLD LOANS. NO DISCERNIBLE CASE FOR DIVERSION OF BORROWED FUNDS FOR NON - BUSINESS PURP OSES HAS BEEN MADE OUT BY LD. A SSESSING OFFICER . WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AS WELL AS THE FINDING OF THE ASSESSING OFFICER RECORDED IN THE ASSESSMENT ORDER. A REMAND REPORT WAS ALSO CALLED FROM THE ASSESSING OFFICER , WHICH DID NOT IMPINGE ON THE ASSESSEE IN EFFECTIVE TERMS, AS THE POSSIBILITY OF USE OF FUNDS IN CAPITAL INVESTMENT WAS NOT ESTABLISHED. LD. A SSESSING OFFICER ACCEPTED THAT ITA NO. 3031/AHD/ 201 1 ITO VS. SHRI HASMUKH U. GADHECHA AY : 2008 - 09 14 T HE INTEREST EXPENDITURE WAS ACTUALLY INCURRED FOR EARNING THE INTEREST INCOME AND L OSS AROSE DUE TO CHARGING OF LESSER RATE OF INTEREST ON OLD LOANS AND ADVANCES AND ADVANCES GIVEN FOR SHORTER PERIOD. THIS CONTENTION OF THE APPELLANT WAS NOT CONTROVERTED BY THE ASSESSING OFFICER EITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOR DUR ING REMAND PROCEEDINGS . CONSIDERING ALL THE SE FACTS AND CIRCUMSTANCES LD. CIT(A) DELETED THE DISALLOWANCE. IN OUR CONSIDERED VIEW THERE IS NO INCONSISTENCY IN THE ORDER OF LD. CIT(A) ON THIS ISSUE, WHICH IS UPHELD. THUS, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. ACCORDINGLY , REVENUES APPEAL IS DISMISSED. 1 1 . IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS - OBJECTION OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 9 T H JUNE , 201 6 AT AHMEDABAD. SD/ - SD/ - N.K. BILLAIYA ( ACCOUNTANT MEMBER ) R.P. TOLANI ( JUDICIAL MEMBER ) AHMEDABAD; DATED 0 9 / 0 6 /201 6 *BIJU T. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD