Appeal Details
Counselvise Citation
[2022] 103 COUNSELVISE.COM (IT) 8787 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 7 month(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-11-2022
Appeal Filed By
Department
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
05-09-2022
Assessment Year
2012-2013
Appeal Filed On
22-03-2021
Judgement Text
। आयकर अपीलीय अिधकरण ᭠यायपीठ, कोलकाता । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI SANJAY GARG, HON’BLE JUDICIAL MEMBER & SHRI MANISH BORAD, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 Deputy Commissioner of Income Tax, Circle-4(1), Kolkata Vs M/s. Rav Dravya Private Limited Hastings Chambers, 2 nd Floor 7/C, Kiran Shankar Roy Road Kolkata - 700001 PAN : AABCR3154Q अपीलाथᱮ/ (Appellant) ᮧ᭜ यथᱮ/ (Respondent) Assessee by : Shri Ravi Tulsiyan, FCA Revenue by : Md. Ghayasuddin, CIT D/R सुनवाई कᳱ तारीख/Date of Hearing : 06/09/2022 घोषणा कᳱ तारीख/Date of Pronouncement : 09/11/2022 आदेश/O R D E R PER SHRI SANJAY GARG, JUDICIAL MEMBER: The present appeal is directed at the instance of the revenue against the order of the learned Commissioner of Income Tax (Appeals) - Kolkata (hereinafter the “ld. CIT(A)”) dt. 13/03/2020, passed u/s 250 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2012-13. 2. This revenue’s appeal is time barred by 198 days and the petition seeking condonation of delay has been filed stating that the delay in filing of this appeal was attributable to the restrictions imposed due to Covid-19 pandemic. We have heard both the sides and find that there is reasonable cause for delay in filing of the appeal on time. Hence we condone the delay and admit the appeal for hearing. 3. The revenue has raised the following revised grounds of appeal before this Tribunal:- “1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in admitting new documentary evidence during the appeal proceedings in violation of Rule-46A of the I.T Rule, 1962 and not referring the said documents to the A.O seeking Comments. 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition of Rs 3,02,57,500/- made on the ground of bogus I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 2 loss claimed by the assessee on sale of unquoted shares without considering the facts of the case. 3. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in allowing the bogus loss claimed by the assessee on sale of unquoted shares even though the genuineness of transactions was not established before the A.O. during the course of the assessment proceedings though the onus of providing substantive evidences vests solely with the assessee. 4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred as findings are contrary to evidence and material on record. 5. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the disallowance made by the A.O. on the issue of disallowance u/s 14A of Rs 76,96,453/- without considering the facts of the case. 6. The appellant craves to add, alter, amend, delete or substitute any of the grounds of appeal and/or take additional grounds before or at any time of hearing of the appeal.” 4. Ground No.1 : Vide Ground No. 1, the revenue has contested the action of the ld. CIT(A) in admitting the additional evidence during the first appellate stage under Rule 46A of the Income Tax Rules, 1962 (‘Rules’). The assessee in its profit and loss account had debited Rs.3,02,57,500/- as loss on sale of shares being stock in trade. Since the assessee did not furnish any documents in support of such claim of loss, therefore, the Assessing Officer had rejected the claim of loss and made the impugned addition. During the appellate stage of proceedings, the assessee pleaded before the ld. CIT(A) that the Assessing Officer did not ask the assessee to furnish the required documents for the purpose of proving the transaction in question. The ld. CIT(A) accordingly accepted the documents on record relating to the transaction of sale of shares (the issue relating to which, we will discuss in later part of this order). Since the opposite documents were necessary for going through the transaction in question and to determine the genuineness of the claim of loss made by the assessee, therefore, in our view, the ld. CIT(A) did not commit any error in taking on record the aforesaid documents. Ground No.1 of the revenue’s appeal is, therefore, dismissed. I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 3 5. Ground No. 2, 3 & 4: The revenue through the aforesaid grounds has contested the action of the ld. CIT(A) in deleting the addition of Rs.3,02,57,500/- made by the assessing officer on account of disallowance of loss on sale of shares being stock in trade. The Assessing Officer had made the impugned addition for want of verification of the transactions in question. However, the ld. CIT(A), during the appellate proceedings, as noted above, admitted the additional evidence. During the appellate proceedings before the ld. CIT(A), the ld. A/R of the assessee made the following submissions:- “As stated earlier, the applicant company is engaged in the business of sale and purchase of shares. During the year under consideration, the appellant company had debited Rs.3,02,57,500 as Loss on Sale of Shares under the head “Other expenses” in its Profit & Loss Account. In this regard, it is submitted that the appellant company had purchased 19,000 shares of Aryaman Construction Pvt Ltd on 01,04.2010 from Neerza Jhunjhunwala. The said shares were purchased at a cost of Rs. 7017.50/unit and thus the cost price of the said shares was Rs. 13,33,32,500/-. The said shares were held as stock in trade in the books of appellant company. The appellant company agreed to sell the said 19,000 shares of Aryaman Constructions Pvt Ltd to Mr. Radhe Shyam Saraf on 02.03.2011@ Rs. 7,017.50 i.e. at the same price as the purchase price on the following terms and conditions: i. No. of shares 19,000 @ Rs. 7017.50 ii. The seller i.e. the appellant company shall ensure mutation of land belonging to the company is carried out along with other legal formalities if any within 6 months from the date of agreement. iii. Payment - The purchaser of shares shall pay to the seller total Rs 13,33,32,500/- within six months from the date of mutation of land, subject to the above legal formalities being complied to by the seller. Copy of the agreement of sale of the said 19000 shares is enclosed at pages 40 of the paper book. In regard to the above, it is submitted that the Ms/ Aryaman Construction was holding a land at Siuri District, Birbhum, West Bengal. As per the terms and agreement of the aforesaid Sale deed (refer point 2), the appellant company was supposed to complete mutation process of land within six months from the date of the agreement i.e by 30.06.2011. In this regard it is to be noted that the appellant I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 4 company failed to meet the said condition and could not complete mutation process by 30.06.2011. since the mutation process was not complete within the time specified in the agreement i.e. by the buyer of shares (Shri Radhe Shyam Saraf) of Aryaman Construction decided to pay less payment to the appellant company and wrote a letter dated 16.03.2012 wherein he requested the applicant company to accept the payment for the said, shares @ Rs. 5,425.00 per share totaling to Rs. 10.30.75.000/- instead of original rate Rs. 7017.50 totaling to Rs. 13,33,32,500/-. The said letter dated 16.03.2012 is enclosed at pages 41 the paper book. Thus, it is clear that the seller Shri Radhe Shyam Saraf decided to make less payment by [13,33,32.500- 10,30,75,000] Rs. 3,02,57,500/- because mutation process was incomplete and the appellant ant company failed to complete the same within the time specified in the sad In light of the above attention is sought to the bank statement enclosed at pages 42- 45 of the paper book. On a perusal of the same it can be seen that Shri Radhe Shyam Saraf made payment amounting to Rs. 10,30,75,000/- on the following dates: 15.03.2012: Rs. 6,000 20.03.2012: Rs. 1,50,00,000 22.03.2012: Rs. 1,75,00,000 27.03.2012: Rs. 2,00,00,000 29.03.2012: Rs. 2,25,00,000 16.04.2012: Rs. 1,00,00,000 16.05.2012: Rs. 53,64,000 08.06.2012: Rs. 30,00,000 12.06.2012: Rs. 30,00,000 23.06.2012: Rs. 67.05.000 Total: Rs.10,30,75,000 Thus, from the above it is clear that the appellant company received only Rs. 10,30,75,000/- against sale of shares of 19,000 shares of M/s Aryaman Constructions Pvt Ltd which was originally purchased at Rs. 13,33,32,500/-. Thus, it is clear that the amount receivable was Rs. 13.33,32,500/- but actual receipt was Rs. 10,30,75,000/- and the balance was not received as the buyer refused to pay. So, the assessee incurred bad debt in this year on account of non-recoverability of debt. In connection to the above it is submitted that the loss on sale of shares amounting to Rs. 3,02,57,000/- constitutes bad debts written off. In this light it needs to be brought to your kind notice that the claim for bad debt is to be allowed in the year in which the bad debt has been written off as irrecoverable in the accounts of the assessee and the assessee is not required to establish the debt to have become bad in the relevant previous year. Reference in this regard is invited towards the provisions of section 36 of The Income Tax Act, 1961. The relevant extracts of the said section reads as under: I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 5 Other deductions. (i) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (ii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply— (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;” Further, the Hon’ble Supreme Court in the case of TRF (T.R.F.) Limited vs. Commissioner of Income Tax, Ranchi (09.02.2010 - SC) [2010] 323 ITR 397 (SC), held that: 4. This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above- mentioned aspect only and that too only to the extent of the write off. Further, CBDT relying on the aforesaid Supreme Court Judgement vide CIRCULAR NO. 12/2016, Dated: May 30, 2016 stated that claim of deduction of Bad Debt under section 36(1) (vii) read with section 36(2) of the Income-Tax Act, 1961 shall be allowed if it is written off as irrecoverable in books of accounts of the assessee. The relevant para is quoted as under: “3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable.The Hon’ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 6 judgment dated 9.2.2010 (available in NJRS 2010-LL-0209-8), has stated that the position of law is well settled. “After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1)(vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee.” 4. In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act." On a perusal of the above, it may kindly be appreciated that while computing the business profit, an assessee is entitled to avail deduction with respect to bad debts written off in the books if the following conditions are fulfilled: 1. The debt in question must be written off as irrecoverable in the books of accounts for the relevant previous year and 2. The amount of debt must be taken into accounts while computing the income ~ either during the previous year or during the earlier years. In the instant case, the appellant company had booked total income of Rs. 13,33,32,500 crores in A.Y. 2011-12. However, the appellant company received only Rs. 10,30,75,000 and thus received less amount by Rs. 3,02,57,500/- in the A.Y. 2012-13. In the relevant assessment year i.e. A.Y. 2012-13, since the amount of Rs. 3,02,57,500/- had become irrecoverable, the same had been written off with the nomenclature “loss on sale of shares”. This very clearly shows that the assessee has duly complied with the provision of section 36(1) & (2) of the Act and therefore the same is allowable as deduction u/s 36 of the Act.” 5.1. The ld. CIT(A) considering the above submissions of the assessee allowed the claim of the assessee holding that the expenditure/loss claimed by the assessee was an allowable expenditure u/s 36(1)(vii)/36(2) of the Act by way of a non- speaking order. The relevant part of the order of the ld. CIT(A) in this respect is reproduced as under:- “4.2. I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I have also taken note of the materials on record pertinent to the issue at hand. On an overall analysis of the issue, I find substance in the submission of the AR of the appellant backed by sufficient material to the effect that the claim of the appellant is an allowable expense u/s 36(1)(vii)/36(2) of the Act. I also find that there is no violation of Rule 46A in the instant case. In such view of the matter, the AO is directed to delete the impugned amount of Rs.3,02,57,500/-. This ground is allowed.” I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 7 6. A perusal of the above reproduced submissions of the ld. A/R of the assessee which have been accepted without any discussion by the ld. CIT(A) reveals that the assessee before the ld. CIT(A) has claimed that, income by way of sale of shares of M/s. Aryaman Constructions Pvt. Ltd. by Shri Radhe Shyam Saraf, was in fact amount received from sale of immovable property i.e., a piece of land. As per the agreement, the price was agreed at Rs.7017.50/- per share for 19000 shares. The assessee was supposed to get the mutation of the land transferred/sanctioned along with legal formalities. Since the assessee could not get the mutation transferred/sanctioned within six months from the date of agreement, therefore, the buyer Shri Radhe Shyam Saraf wrote a letter dt. 16/03/2012, requesting the assessee company to accept payment of the said 19,000 shares @ Rs.5425/- per share, totalling to Rs.10,30,75,000/- as against the originally agreed rate of Rs.7017.50/- per share, totalling to Rs.13,33,32,500/-. The assessee, therefore, claim the above loss as debts written off. 7. The ld. D/R has submitted before us that this was a sham transaction made by the assessee of sale of shares whereas, the underlying transaction was relating to immovable property. The ld. D/R has also brought our attention to the fact that the business of the assessee is trading of iron and steel products. That the purchase and sale of shares was never the business of the assessee. Even the assessee is not dealing in sale, purchase or development of properties. The ld. D/R further invited our attention to the Explanation to Section 73 of the Act to submit that the principal business of the assessee company is not of trading in shares or investing, therefore, even otherwise, the said transaction relating to purchase and sale of shares by the assessee company would be deemed to be of speculation business and that as per the provisions of Section 73 of the Act, any loss, computed in respect of the speculation business carried on by the assessee shall not be set off except against profit and gains, if any, of another speculation business. The I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 8 relevant provision of Section 73 of the Act, for the sake of a ready reference are reproduced as under:- “73. (1) Any loss, computed in respect of a speculation business carried on 3 by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any 3 assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and— (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than 4 [four] assessment years immediately succeeding the assessment year for which the loss was first computed. 5 [Explanation.—Where any part of the business of a company ( 6 [other than a company whose gross total income consists mainly of income which is chargeable 7 under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources"], or a company 8 [the principal business of which is the business of trading in shares or banking] or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section 7 , be deemed to be carrying on a speculation business 7 to the extent to which the business consists of the purchase and sale of such shares.]” 8. The ld. D/R, therefore, has submitted that the aforesaid loss, even otherwise, is not allowable as business loss or as bad debt written off claimed by the assessee. 9. The ld. A/R, on the other hand, has relied upon the provisions of Section 36(1)(vii) & (2) of the Act to submit that the assessee has rightly claimed the loss as bad debt written off. 10. We have considered rival contentions and gone through the record. 11. The transactions in question, in our view is not bonafide transaction of sale of shares being stock in trade as alleged by the assessee. The facts speak itself that the underlying transactions is relating to the sale of immovable property i.e., land. Another fact on the file is that the assessee is neither in the business of purchase and sale of shares nor in the business of purchase and sale of immovable property, land etc. Therefore, the assessee, in our view, has treated the said shares as stock I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 9 in trade for the purpose of evasion of due tax. The assessee firstly has evaded the levy of stamp duty by giving the colour to the transaction of sale of land as part of transaction of sale of shares. Secondly, the transaction in question, since was not related to the business activity of the assessee, therefore, the said land/shares cannot be said to be a stock in trade. Even if for the sake of argument it is assumed that the transaction was of sale of shares, the said shares cannot be treated as stock in trade of the assessee. Even otherwise, the said transaction of shares would be hit by the provision of Section 73 of the Act and this loss claimed by the assessee being speculation loss could not be adjusted against the business income of the assessee. So far as, the claim of the ld. A/R that if the transaction has to be treated as that of sale of capital asset then, the aforesaid loss may be treated as short-term capital loss, we, in this respect, are of the view that the entire transaction requires examination/verification at the end of the Assessing Officer. We, therefore, restore this issue to the file of the Assessing Officer for the purpose of examining the entire transaction and to find out the real facts and intent pertaining to the transaction and also to find out the tax evasion method, if any, adopted by the assessee and to decide the limited issue by way of a speaking order as to whether the assessee is entitled to claim short-term capital loss in this case or not. Accordingly, these grounds of the revenue are allowed for statistical purposes. 12. Ground No. 5 : The revenue vide this ground has contested the action of the ld. CIT(A) in deleting the disallowance made by the Assessing Officer u/s 14A of the Act on account of expenditure incurred towards tax exempted income. 13. We find that the ld. CIT(A), in this case has deleted the disallowance made by the Assessing Officer by relying upon the following decisions of the various Hon’ble High Courts of the country:- Cheminvest Ltd. vs. CIT 378 ITR 33 (Del). CIT vs. M/s. Holcim India Pvt. Ltd. in ITA no. 486/2014 and ITA no. 299/2014; Judgment dt. 5-9-2014 I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 10 CIT v. Shivam Motors (P.) Ltd. [2015] 230 Taxman 63 CIT vs. Ashika Global Securities Ltd. (G.A. No. 2122 of 2014) dt. 11/06/2018 In these case laws, Hon’ble High Courts have been unanimous to hold that where the assessee has not derived any tax exempt income from investments, then no disallowance is attracted u/s 14A of the Act. 13.1. The ld. D/R, however, has relied upon the newly inserted explanations to Section 14A of the Act, which is extracted for the sake of ready reference:- “14A. [(1)] [Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.] ************************ *********************** [Explanation.—For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]” The ld. D/R has further relied on the decision of the Co-ordinate Bench of ITAT Guwahati in the case of ACIT vs. Williamson Financial Services Ltd. reported in [2022] 140 taxmann.com 164 (Guwahati - Trib.). (Both of us herein being party to the said decision), to submit that the said explanation to Section 14A of the Act is retrospectively applicable. 14. However, the ld. A/R, has relied upon the recent decision of the Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd. (ITA 204/2022) judgment dt. 20/07/2022, wherein, it has been held that the aforesaid explanation inserted to Section 14A of the Act is applicable prospectively. I.T.A. No. 103/Kol/2021 Assessment Year: 2012-13 M/s. Rav Dravya Private Limited 11 15. Respectfully abiding by the principle of judicial hierarchy, the Hon’ble Delhi High Court being a Higher Court, and as no decision of the Hon’ble Jurisdictional High Court or Hon’ble Supreme Court is available on this issue as yet, hence applying the said decision of the Hon’ble Delhi High Court, we dismiss to ground of appeal of the revenue. 16. In the result, appeal of the revenues is treated as partly allowed. Order pronounced in the Court on 9 th November, 2022 at Kolkata. Sd/- Sd/- (MANISH BORAD) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Kolkata, Dated 09/11/2022 *SC SrPs आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent 3. संबंिधत आयकर आयुᲦ / Concerned Pr. CIT 4. आयकर आयुᲦ)अपील (/ The CIT(A)- 5. िवभागीय ᮧितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडᭅ फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata
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