ITO 10(1)(1), MUMBAI V. PARAMOUNT CORPORATION LTD, MUMBAI

ITA 1157/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8081 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHIVARAM; S A S H A N K D U N D U A R S
• Assessee Lawyers: RAJAT MITTAL; A R U N K U M A S I N G H D
• Keywords: Capital asset; Business income; Depreciation; Opportunity of being heard; Opportunity of cross examination; Earning of tax free income; Additional evidence; Speculation loss; Third party statement; Competent authority
• Section: 143(3); 14A; 115JB; 143(1); 32; 131

Judgement Text

P A G E | 1 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) IN THE INCOME TAX APPELLATE TRIBUNAL ' C ' BENCH, MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 1725 /MUM/2016 (ASSESSMENT YEAR: 2011 - 12 ) PARAMOUNT CORPORATION LTD. 5 TH FLOOR, NIMBUS CENTRE, OBEROI COMPLEX, ANDHERI (W) MUMBAI - 400 053 VS. ITO - 8(2)(4) MUMBAI PAN AAECP1187A ( A PPELLANT) ( R ESPONDENT) ITA NO. 1157/MUM/2016 (ASSESSMENT YEAR: 2011 - 12 ) INCOME TAX OFFICER - 10(3)(3) ROOM NO. 213, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. PARAMOUNT CORPORATION LTD. 5 TH FLOOR, NIMBUS CENTRE, OBEROI COMPLEX, ANDHERI (W) MUMBAI - 400 053 PAN AAECP1187A (APPELLANT) (RESPONDENT) A P P E L L A N T BY: DR. K. SHIVARAM & SHRI ADITYA AJGAONKAR & S H R I S A S H A N K D U N D U , A.R S RE S P O N D E N T BY: SHRI RAJAT MITTAL & S H R I A R U N K U M A S I N G H , D.R S DATE OF HEARING: 05.10 .2018 DATE OF PRONOUNCEMENT: 1 9 . 1 2 .2018 O R D E R PER RAVISH SOOD, JM THE PRESENT CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(APPEALS) - 17, MUMBAI, DATED 31.12.2015, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER PASSED BY THE A.O UNDER SEC. 143(3) OF THE INCOME TAX ACT , 1961 (FOR SHORT I.T. ACT), DATED 29.03.2014 FOR A.Y. 2011 - 12 . WE SHALL FIRST TAKE P A G E | 2 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) UP THE APPEAL OF THE ASSESSEE. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL : - CONSIDERING WDV OF BLOCK OF ASS ETS AT ONL Y RS.20,30,982/ - AS AGAINST RS. 2,36,30,892/ - CONSIDERED BY THE APPELLANT 1. THE CIT (A) FAILED TO APPRECIATE THAT THE APPELLANT HAD ACQUIRED AND WAS POSSESSED OF THE NEW OFFICE PREMISE WHICH WAS SUPPORTED BY POSSESSION LETTER, AND HENCE, THE SAME WAS LIABLE TO BE ADDED TO THE COST OF THE BLOCK OF OFFICE PREMISES U/S 50(1)(III) OF THE ACT FOR COMPUTING CAPITAL GAINS U/S 50 OF THE ACT. 2. THE CIT (A) ERRED IN HOLDING THAT THE AO WAS JUSTIFIED ILL RELYING ON THIRD PARTY STATEMENTS AND FAILED TO APPRECIATE THAT THE AO HAD FAILED TO PROVIDE OPPORTUNITY OF CROSS EXAMINATION OF THE PARTIES RELIED UPON BY HIM BEFORE MAKING THE ADDITION. NON - APPRECIATION OF ALTERNATE ARGUMENT THAT PROVISIONS OF EXPLANATION TO SECTION 73 CANNOT BE INVOKED IF BENEFI T OF RS. 2,16,00,000/ - IS DENIED U/S 50 . 3. THE CIT (A) FAILED TO APPRECIATE THAT IF THE BENEFIT OF RS. 2,16,00,000/ - IS DENIED TO THE APPELLANT, PROVISIONS OF EXPLANATION TO SECTION 73 COULD NOT BE INVOKED. DISALLOWANCE OF RS.3.42,385/ - TINDER SECTION 14A OF THE ACT . 4. THE CIT (A) FAILED TO APPRECIATE THAT THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE FOR THE PURPOSE OF EARNING EXEMPT INC OME. HENCE, THE ADDITION OF RS. 3,42,385/ - U/S 14A READ WITH RULE 8D MAY BE DELETED. 5. THE CIT (A) ERRED IN MAKING DISALLOWANCE U/S 14A R.W. RULE 8D IN SPITE OF BEING SATISFIED WITH THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEM PT INCOME. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGE D IN THE BUSINESS OF PRODUCTION AND MARKETING OF TELEVISION PROGRAMS HAD E - FILED ITS RE TURN OF INCOME FOR A.Y. 2011 - 12 ON 03.02.2012, DECLARING TOTAL INCOME OF RS. 23,81,140/ - UNDER THE NORMAL PROVISION S AND HAD PAID TAX ON BOOK PROFIT OF RS. 1,04,81,974/ - UNDER SEC. 115JB OF THE I.T. ACT. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE I.T. ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). P A G E | 3 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) 3. THE A.O WHILE FRAMING THE ASSESSMENT MA D E CERTAIN AD DITIONS/DISALLOWANCES AS UNDER : - (I) I T WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD CLAIME D A LOSS OF RS. 1,05,62,765/ - ON SALE OF SHARE S OF HINDUSTAN ZINC LTD. WHICH WAS SET OFF AGAINST SHORT TERM CAPITAL GAIN (FOR SHORT STCG) ARISING ON SALE OF OFFI CE PREMISES ( DEPRECIABLE ASSET S ) COMPUTED IN ACCORDANCE WITH SEC. 50 OF THE I.T. ACT. THE A.O OBSERVED THAT AS THE PRINCIPAL BUSINESS OF THE ASSESSEE COMPANY WAS PRODUCTION AND MARKETING OF TELEVISION SERIALS , AND IT WAS NEITHER ENGAGE D IN THE BUSINESS OF ADVANCING LOANS NOR WAS AN INVESTMENT COMPANY , THEREFORE, ITS CASE WAS NOT COVERED BY THE EXCEPTIONS CARVED OUT IN EXPLANATION TO SEC. 73 OF THE I.T. ACT . ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE A.O CONCLUDED THAT THE LOSS ON SALE OF SHARES OF RS. 1,05,62,764/ - WAS LIABLE TO BE TREATED AS A SPECULATIVE LOSS AS PER EXPLANATION TO SEC. 73 OF THE I.T. ACT. IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS THE A.O REJECTED THE CLAIM OF SET OFF OF THE LOSS OF RS. 1,05,62,764/ - AGAINST THE STCG ARISING ON S ALE OF OFFICE PREMISES (DEPRECIABLE ASSETS), AS WAS CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME . (II) FURTHER, IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION EARNED DIVIDEND INCOME OF RS. 17,44,114/ - WHICH WAS CLAIMED AS EXEMPT. IT WAS HOWEVER NOTICED BY THE A.O THAT THE ASSESSEE HAD NOT DISALLOWED ANY EXPENSE ATTRIBUTABLE TO EARNING OF THE SAID EXEMPT INCOME IN ACCORDANCE WITH SEC. 14A OF THE I.T. ACT. T HE A.O CALLED UPON THE ASSESSEE TO GIVE WORKING OF DISALLOWANCE U NDER SEC. 14A IN ACCORDANCE WITH RULE 8D(2). P A G E | 4 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) IN RESPONSE, THE ASSESSEE SUBMITTED WORKING OF SUCH DISALLOWANCE, AS PER WHICH THE SAME WORKED OUT TO AN AMOUNT OF RS. 7,10,977/ - . INSOFAR THE EXPENSES WHICH WERE DIRECTLY ATTRIBUTABLE TO EA RNING OF THE SAID EXE MPT INCOME WERE CONCERNED, IT WAS THE CLAIM OF THE ASSESSEE THAT NO DIRECT EXPENSES WERE INCURRED FOR EARNING OF THE SAME . ON THE BASIS OF THE WORKING OF DISALLOWANCE UNDER SEC. 14A R.W. RULE 8D(2) FURNISHED BY THE ASSESSEE IN COMPLIANCE TO THE DIRECTION S OF THE A.O, THE LATTER RESTRICTED THE SAME UPTO THE AMOUNT OF TOTAL EXPENSES OF RS. 3,42,385/ - THAT WERE DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. (III) THE A.O FURTHER NOTICED THAT THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION SOLD TWO OF ITS OFFICE PREMISES VIZ (I) FLAT NO. 302 ON THE 3 RD FLOOR OF THE BUILDING NAMED AS KHAN HOUSE (VIDYANAND CO O P E RATIVE HOUSING SOCIETY) AT CTS NO. 407, VIDYANAND CHS LTD., PLOT NO. 107, 24 TH ROAD, BANDRA (WEST), MUMBAI FOR A CONSIDERATION OF RS. 1,95,00,000/ - THROUGH A REGISTERED AGREEMENT DATED 22.10.2010 ; AND (II) FLAT NO. 101A ON THE 1 ST FLOOR OF THE BUILDING NAMED AS KHAN HOUSE (VIDYANAND CO O P E RATIVE HOUSING SOCIETY) AT CTS NO. 407, V IDYANAND CHS LTD., PLOT NO. 107, 24 TH ROAD, BANDRA (WEST), MUMBAI FOR A CONSIDERATION OF RS. 1,90,00,000/ - THROUGH A REGISTERED A GREEMENT DATED 22.10.2010. THE ASSESSEE HAD RECEIVED A TOTAL SALE CONSIDERATION OF RS. 3,85,00,000/ - ON THE SALE OF THE AFOREMENTIONED OFFICE PREMISES. IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD INITIALLY SHOWN THE STCG ON THE SALE OF THE OFFICE PREMISES AS PER SEC. 50 OF THE I.T. ACT AT RS. 98,69,108/ - , AS UNDER : P A G E | 5 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) OFFICE PREMISES - SALE VALUE RS. 3,35,00,000/ - LESS: WDV OF THE BLOCK RS. 2,36,30,892/ - SHORT TERM CAPITAL GAINS RS. 98,69,108/ - HOWEVER, THE ASSESSEE ON BEING CALLED UPON BY THE A.O TO EXPLAIN THE DIFFERENCE OF RS. 50,00,000/ - IN THE SALE CONSIDERATION OF THE OFFICE PREMISES AS WAS DISCERNIBLE FROM THE COMPUTATION OF STCG FILED ALONG WITH ITS RETURN OF INCOME , THEREIN FILED A REVISED COMPUTATION OF STCG AS UNDER : SALE CONSIDERATION RS. 3,85,00,000/ - LESS EXEMPTION U/S 54EC RS. 50,00,000/ - SALE CONSIDERATION AFTER EXEMPTIO N RS. 3,35,00,000/ - LESS: WDV OF ASSETS RS. 2,36,30,892/ - SHORT TERM CAPITAL GAIN RS. 98,69,108/ - ON A PERUSAL OF THE REVISED COMPUTATION OF STCG FILED BY THE ASSESSEE, IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD FOR THE FIRST TIME CLAIMED EXEMPTION UNDER SEC. 54EC AS REGARDS THE INVESTMENT OF RS. 50,00,000/ - MADE IN NHAI BONDS. THE A.O OBSERVING THAT AS NO SUCH CLAIM UNDER SEC. 54EC WAS RAISED BY THE ASSESSEE IN ITS RETURN OF INCOME, THUS DECLINED TO ACCEPT THE SAME. IN SUPPORT OF HIS AFOR ESAID VIEW THE A.O RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (2006) 284 ITR 223 (SC) . FURTHER, IT WAS NOTICED BY THE A.O THAT THE ASSESSEE HAD MADE AN ADDITION OF RS. 2,16,00,000/ - TO ITS BLOCK OF ASSET S DURING THE YEAR. THE DETAILS FURNISHED BY THE ASSESSEE REVEALED THAT IT WAS THE CLAIM OF THE ASSESSEE THAT IT HAD PAID THE AFORESAID AMOUNT OF RS. 2,16,00,000/ - TO M/S GOVINDRAM BROTHERS PVT. LTD. FOR ACQUISITION OF A COMMERCIAL PROPERTY VIZ. UNIT NO. 5 & P A G E | 6 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) 6 ON THE 5 TH FLOOR OF SILVER TURNING POINT AT NEW MANIKLAL STREET, GHATKOPAR (WEST), MUMBAI. ON A PERUSAL OF A LETTER OF M/S GOVINDRAM BROTHERS PVT. LTD., THE A.O WAS OF THE VIEW THAT THE ASSESSEE WAS ONLY ASSIGNED THE RIGHTS IN THE AFORESAID PROPERTY WHICH WERE CONFERRED ON M/S GOVINDRAM BROTHERS PVT. LTD THROUGH AN ALLOTMENT LETTER DATED 25.06.2009. IN ORDER TO CONFIRM THE FACTUAL POSITION THE A.O ISSUED SUMMONS UNDER SEC. 131 TO THE BUILDERS VIZ M/S SILVER LAND DEVELOPERS PVT. LTD. ON THE B ASIS OF THE INFORMATION THAT WAS GATHERED BY THE A.O FROM M/S GOVINDRAM BROTHERS PVT. LTD AND M/S SILVER LAND DEVELOPERS PVT. LTD. , IT WAS OBSERVED BY HIM THAT THE ACQUI SI TION OF UNIT NO. 5 & 6 IN THE BUILDING SILVER TURNING POINT BY THE ASSESSEE WAS NOT C OMPLETED DURING THE YEAR UNDER CONSIDERATION. THE A.O WAS OF THE VIEW THAT THE AMOUNT OF RS. 2,16,00,000/ - PAID BY THE ASSESSEE TO M/S GOVINDRAM BROTHERS PVT. LTD. WAS MERELY AN ADVANCE THAT WAS PAID TOWARDS ASSIGNMENT OF THE ALLOTMENT RIGHTS IN RESPECT OF THE AFORESAID PROPERTY UNDER CONSIDERATION. APART FROM THIS, IT WAS NOTICED BY THE A.O THAT THE OWNER/BUILDER HAD CATEGORICALLY DENIED OF HAVING SOLD THE UNIT NO. 5 & 6 TO THE ASSESSEE. IN COMPLIANCE TO THE SUMMONS ISSUED BY THE A.O UNDER SE C. 131 OF THE I.T. ACT TO M/S GOVINDRAM BROTHERS PVT. LTD. THE ACCOUNTANT OF THE SAID CONCERN VIZ. SH. MANOJ PARIHAR APPEARED BEFORE THE A.O WHO RECORDED HIS STATEMENT ON OATH ON TWO OCCASIONS VIZ. 24.02.2014 AND 28.02.2014. ON THE BASIS OF THE STATEMENT O F SH. MANOJ PARIHAR (SUPRA) THE A.O OBSERVED THAT THE ASSESSEE HAD MERELY PAID AN ADVANCE OF RS. 2,16,00,000/ - TO M/S GOVINDRAM BROTHERS PVT. LTD. TOWARDS ASSIGNMENT OF ALLOTMENT RIGHTS IN THE AFOREMENTIONED PROPERTY VIZ. UNIT NO. 5 & 6 IN THE BUILDING SIL VER TURNING P A G E | 7 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) POINT . THE A.O WAS O F THE VIEW THAT THE ACQUISITION OF THE SAID PROPERTY WAS TO BE COMPLETED ON RATIFICATION BY THE BUILDERS AND WAS TO BECOME ABSOLUTE ONLY AFTER ISSUE OF NO OBJECTION CERTIFICATE (FOR SHORT NOC ) BY THE BUILDERS AND COMPLET ION OF REGISTRATION FORMALITIES AS REQUIRED UNDER THE LAW GOVERNING THE TRANSACTION IN IMMOVABLE PROPERTIES. ON THE BASIS OF HIS AFORESAID DELIBERATIONS, THE A.O WAS OF THE VIEW THAT THE AMOUNT ADVANCED BY THE ASSESSEE COULD ONLY BE TREATED AS A C APITAL WORK - IN - P ROGRESS AND COULD NOT BE INCLUDED IN THE BLOCK OF ASSETS. IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS THE A.O REC OMPUTED THE STCG IN THE HANDS OF THE ASSESSEE [ (AFTER REDUCING THE ADDITION TO THE BLOCK OF ASSETS OF RS. 2,16,00,000/ - ) ] AT RS. 3,64,69,108/ - , AS UNDER : - SALE CONSIDERATION AS PER AGREEMENTS RS. 3,85,00,000/ - LESS : I. EXPENDITU RE IN CONNECTION WITH TRANSFER RS. NIL II. WDV AT THE BEGINNING OF THE P.Y. RS. 20,30,892/ - III. ACTUAL COST OF ANY ASSET ACQUIRED IN P.Y. RS. NIL RS.20,30,892/ - (AMOUNT OF RS. 2,16,00,000/ - IS TREATED AS ADVANCE PAID FOR ACQUIRING CAPITAL ASSET AS DISCUSSED) SHORT TERM CAPITAL GAIN COMPUTED U/S . RS. 3,64,69,108/ - ON THE BASIS OF THE AFORESAID ADDITIONS/DISALLOWANCES THE A.O ASSESSED THE INCOME OF THE ASSESSEE COMPANY AT RS. 3,99,55,699/ - . 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS ADVANCED BY THE ASS ESSEE IN RESPECT OF THE RECHARACTERIZATION OF THE CAPITAL LOSS ON SALE OF SHARES OF RS. 1,05,62,764/ - AS A SPECULATIVE LOSS BY THE A.O , DID FIND FAVOUR WITH THE SAME AND REVERSED THE ORDER OF THE A.O TO THE P A G E | 8 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) SAID EXTENT. INSOFAR THE DISALLOWANCE OF RS. 3,42 ,385/ - MADE BY THE A.O UNDER SEC. 14A R.W. RULE 8D(2) WAS CONCERNED , THE SAME WAS RESTRICTED BY THE CIT(A) TO AN AMOUNT OF RS. 30,000/ - . FURTHER, THE CIT(A) DIRECTED THE A.O TO ALLOW THE CLAIM OF EXEMPTION OF RS. 50,00,000/ - RAISED BY THE ASSESSEE UNDER 54EC VIS - A - VIS THE INVESTMENT MADE IN THE NHAI BONDS AND ALLOW THE SAID EXEMPTION IF THE SAME SATISFIED THE CONDITIONS CONTEMPLATED IN THE AFORESAID STATUTORY PROVISION. HOWEVER, THE CIT(A) DID NOT FIND FAVOUR WITH THE CLAIM O F THE ASSESSEE THAT THE NEW ASSET VIZ UNIT NO. 5 & 6 IN THE BUILDING SILVER TURNING POINT , MUMBAI QUALIFIED FOR BEING CONSIDERED AS ACQUIRED WITHIN THE MEANING OF SEC. 50(1)(III) OF THE I.T. ACT. AS A RESULT THEREOF , THE EXCLUSION OF RS. 2,16,00,000/ - FR OM THE BLOCK OF ASSETS BY THE A.O FOR THE PURPOSE OF COMPUTATION OF STCG WAS UPHELD BY THE CIT(A). ON THE BASIS OF HIS AFORESAID OBSERVATIONS THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. 5. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT( A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LEARNED AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE DR. K. SHIVARAM, SENIOR ADVOCATE SUBMITTED , THAT INSOFAR THE ADDITION OF RS. 2,16,00,000/ - IN RESPECT OF THE ACQUIRING OF THE ASSETS B Y THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS CONCERNED , THE LOWER AUTHORITIES HAD ABSOLUTELY MISCONCEIVED THE FACTS AND THE SCOPE AND GAMUT OF SEC. 50 OF THE I.T. ACT . THE LD. A.R TAKING US THROUGH SEC. 50(1)(III) OF THE I.T. ACT SUB MITTED, THAT AS PER THE MANDATE OF THE SAID STATUTORY PROVISION WHERE A CAPITAL ASSET WAS ACQUIRED BY THE ASSESSEE, THE ACTUAL COST OF THE SAME WAS MANDATORILY REQUIRED TO BE REDUCED FOR THE PURPOSE OF COMPUTING THE STCG AS PER SEC. 50 OF THE I.T. ACT. THE LD. A.R SUBMITTED THAT THOUGH THE REQUIREMENT OF OWNERSHIP OF THE CAPITAL ASSET WAS MANDATORY FOR CLAIM OF P A G E | 9 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) DEPRECIATION UNDER SEC. 32 OF THE I.T. ACT, HOWEVER, FOR THE PURPOSE OF COMPUTING THE STCG UNDER SEC. 50 THE REQUIREMENT WAS CIRCUMSCRIBED BY ACQUIRING OF THE ASSET BY THE ASSESSEE. IT WAS SUBMITTED BY THE LD. A.R THAT THE WORD ACQUIRED USED IN SEC. 50 WAS OF A VERY AMORPHOUS NATURE AND AN ASSET COULD BE ACQUIRED WITHIN THE MEANING OF SEC. 50 WITHOUT OBTAINING A VALID TITLE. IN SUPPORT OF HIS AFORESAID CONTENTION THE LD. A.R PLACED HEAVY RELIANCE ON THE ORDER OF THE ITAT, MUMBAI BENCH D IN THE CASE OF ORIENT CARTONS (P) LTD. VS. DCIT (1997) 60 ITD 87 (MUM). THE LD. A.R TAKING US THROUGH THE AFORESAID ORDER OF THE COORDINATE BENCH OF THE TRIB UNAL SUBMITTED , THAT IN THE SAID CASE THE TRIBUNAL HAD CONCLUDED THAT THOUGH THE ASSESSEE HAD ACQUIRED THE TWO PREMISES WITHIN THE MEANING OF SEC. 50 OF THE I.T. ACT , HOWEVER THE SAME FALLING SHORT OF VESTING OF THE OWNERSHIP OF THE SAME WIT H THE ASSESSEE WOULD DISENTITLE THE LATTER TOWARDS CLAIM OF DEPRECIATION UNDER SEC. 32 OF THE I.T. ACT. IT WAS SUBMITTED BY THE LD. A.R THAT THE TRIBUNAL HAD OBSERVED THAT EVEN IF THE PREMISES WERE INCLUDED IN THE BLOCK OF ASSETS , NO DEPRECIATION COULD BE GRANTED, SO T HERE WAS NO IRRECONCILABLE CONTRADICTION IN SUCH A SITUATION. IN SUM AND SUBSTANCE , THE LD. A.R HAD TRIED TO IMPRESS UPON US THAT AS LONG AS THE CAPITAL ASSET HAD BEEN ACQUIRED BY THE ASSESSEE , THE SAME DE HORS THE VESTING OF THE OWNERSHIP/TITLE OF THE SAID CAPITAL ASSET WOULD BE ELIGIBLE FOR BEING INCLUDED IN THE BLOCK OF ASSETS FOR THE PURPOSE OF COMPUTI NG THE STCG IN TERMS OF SEC. 50. IT WAS SUBMITTED BY THE LD. A.R THAT AS THE ASSESSEE HAD ACQUIRED THE UNI T NO. 5 & 6 IN THE BUILDING SILVER TURNING POINT , MUMBAI ON 31.03.2011 , THEREFORE, THE SAME WAS RIGHTLY INCLUDED IN THE BLOCK OF ASSETS AND HENCEFORTH CONSIDERED WHILE COMPUTING THE STCG ON THE SALE OF ASSETS FORMING PART OF THE SAME BLOCK . THE LD. A.R F URTHER TOOK US THROUGH THE AFFIDAVIT, DATED 12.03.2018 OF SH. HARSH K UMAR N. SEKSARIA DIRECTOR OF M/S GOVIND RAM BROTHERS PVT. LTD. WHICH WAS P A G E | 10 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) FILED BEFORE US BY WAY OF AN ADDITIONAL EVIDENCE BY THE ASSESSEE APPELLANT. IN THE SAID AFFIDAVIT THE DIRECTOR O F M/S GOVINDRAM BROTHERS PVT. LTD. HAD DEPOSED THAT THE ASSESSEE HAD PURCHASED THE COMMERCIAL PREMISES IN THE BUILDING VIZ. SILVER TURNING POINT , MUMBAI AND HAD TAKEN POSSESSION OF THE SAME ON AS IS WHERE IS BASIS AFTER PAYING THE ENTIRE CONSIDERATION ON /BEFORE 31.03.2011. IT IS FU RTHER STATED BY THE DEPONENT THAT SH. MANOJ PAR I HAR, ACCOUNTANT OF M/S GOVINDRAM BROTHERS PVT. LTD. WHO HAD APPEARED BEFORE THE A.O WAS NOT FULLY ACQUAINTED WITH THE FACTS AS REGARDS THE TRANSACTION UNDER CONSIDERATION. FURTHER, THE SAID AFFIDAVIT ALSO BRINGS ON RECORD THE SUBSEQUENT EVENTS WHICH AS PER THE DEPONENT ESTABLISHED THAT THE OCCUPATION CERTIFICATE FOR THE BUILDING WAS OBTAINED AFTER CONSIDERABLE DELAY. THE LD. A.R TAKING US THROUGH THE CO NTENT S OF THE AFFIDAVIT SUBMITTED , THAT AS THE SAME HAD A STRONG BEARING ON THE ADJUDICATION OF THE ISSUE UNDER CONSIDERATION , THEREFORE, THE SAME MAY BE ADMITTED AS PER RULE 29 OF THE APPELLATE TRIBUNAL RULES, 1963. INSOFAR THE DISALLOWANCE MADE BY THE A. O UNDER SEC. 14A OF THE I.T. ACT, IT WAS SUBMITTED BY THE LD. A.R THAT AS THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE FOR EARNING OF THE EXEMPT DIVIDEND INCOME, THUS NO DISALLOWANCE AS REGARDS THE SAME WAS CALLED FOR IN ITS HANDS . 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDER OF THE CIT(A) TO THE EXTENT THE LATTER HAD UPHELD THE ADDITIONS/DISALLOWANCES MADE BY THE A.O. IT WAS SUBMITTED BY THE LD. D.R THAT THE ASSESSEE HAD MADE THE PAYMENT OF R S. 2,16,00,000/ - BY WAY OF AN ADVANCE TO M/S GOVINDRAM BROTHERS PVT. LTD. FOR ASSIGNMENT OF THE ALLOTMENT RIGHTS IN RESPECT OF UNIT NO. 5 & 6 IN THE SHOPPING C ENTER CUM COMMERCIAL COMPLEX KNOWN AS SILVER TURNING POINT, GHATKOPAR (WEST), MUMBAI . THE LD. D.R SUBMITTED THAT AS THE ASSESSEE HAD NOT ACQUIRED ANY CAPITAL ASSET, THEREFORE, THE P A G E | 11 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) SAME HAD RIGHTLY BEEN EXCLUDED BY THE A.O FROM THE BLOCK OF ASSETS OF BUILDING. IT WAS AVERRED BY THE LD. D.R THAT THE CIT(A) APPRECIATING THE FACTS OF THE CASE IN THE RIG HT PERSPECTIVE HAD RIGHTLY UPHELD THE EXCLUSION OF THE AMOUNT OF RS. 2,16,00,000/ - FROM THE BLOCK OF ASSETS. INSOFAR THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A OF THE I.T. ACT WAS CONCERNED , IT WAS SUBMITTED BY THE LD. D.R THAT THE A.O HAD RIGHTLY W ORKED OUT THE DISALLOWANCE UNDER SEC. 14A R.W. RULE 8D, WHICH THEREAFTER IN ALL FAIRNESS WAS RESTRICTED TO THE EXTENT OF THE TOTAL EXPEND ITURE OF RS. 3,42,385/ - AS WERE DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION . IT WAS SUBMITTED BY THE LD. D.R THAT THE APPEAL OF THE ASSESSEE WAS DEVOID OF ANY FORCE AND WAS THUS LIABLE TO BE DISMISSED. 7. WE SHALL FIRST ADVERT TO THE CONTENTION OF THE LD. A.R THAT THE CIT(A) HAD ERRED IN FAILING TO APPRECIATE THAT NOW WHEN THE ASSESSEE HAD ACQUIRED AND WAS POSSESSED OF THE NEW OFFICE PREMISES , WHICH FACT WAS SUPPORTED BY THE POSSESSION LETTER, THEREFORE, THE INVESTMENT MADE TOWARDS ACQUISITION OF THE SAME WAS RIGHTLY ADDED BY THE ASSESSEE TO THE COST OF THE BLOCK OF ASSET OF O FFICE PREMISES UNDER SEC. 50(1)(III) OF THE I.T. ACT WHILE COMPUTING THE STCG IN RESPECT OF TWO PREMISES (DEPRECIABLE ASSETS) WHICH WERE SOLD DURING THE YEAR UNDER CONSIDERATION. THE ISSUE INVOLVED IN THE PRESENT APPEAL AS HAD BEEN CULLED OUT BY US HEREINA BOVE LIES IN A NARROW COMPASS. THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION SOLD TWO OF ITS OFFICE PREMISES VIDE REGISTERED AGREEMENTS DATED 22.10.2010 FOR AN AGGREGATE SALE CONSIDERATION OF RS. 3,85,00,000/ - . THAT A PERUSAL OF THE COMPUTATION OF T HE STCG REVEALED THAT IT WAS THE CLAIM OF THE ASSESSEE THAT IT HAD DURING THE YEAR UNDER CONSIDERATION PAID AN AMOUNT OF RS. 2,16,00,000/ - TO M/S GOVINDRAM BROTHERS PVT. LTD. FOR ACQUISITION OF A COMMERCIAL PROPERTY VIZ. UNIT NO. 5 & 6 , 5 TH FLOOR, SILVER T URNING P A G E | 12 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) POINT, NEW MANIKLAL STREET, GHATKOPAR (WEST), MUMBAI . THE A.O BEING OF THE VIEW THAT THE ASSESSEE DURING THE YEAR WAS ONLY ASSIGNED THE RIGHTS IN THE AFORESAID PROPERTY WHICH WERE CONFERRED ON M/S GOVINDRAM BROTHERS PVT. LTD. THROUGH AN ALLOTMENT LETTER DATED 25.06.2009 AND THE ACQUISITION OF THE PROPERTY WAS NOT COMPLETED DURING THE YEAR UNDER CONSIDERATION, THEREFORE, TREATED THE AMOUNT ADVANCED BY THE ASSESSEE TO M/S GOVINDRAM BROTHERS PVT. LTD. AS A CAPI TAL WORK - IN - PROGRESS AND DECLINED TO INCLUDE THE SAME IN THE BLOCK OF ASSETS FOR THE YEAR UNDER CONSIDERATION. IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS THE A.O AFTER REDUCING THE ADDITION OF RS. 2,16,00,000/ - MADE BY THE ASSESSEE TO THE BLOCK OF AS SETS, RECOMPUTED THE STCG ON THE SALE OF THE AFOREMENTIONED TWO OFFICE PREMISES. ON APPEAL, THE CIT(A) NOT FINDING FAVOUR WITH THE CONTENTIONS ADVANCED BY THE ASSESSEE THEREIN UPHELD THE ORDER OF THE A.O IN CONTEXT OF THE ISSUE UNDER CONSIDERATION AND SUS TAINED THE WORKING OF THE STCG BY THE A.O AFTER REDUCING THE ADDITION OF RS. 2,16,00,000/ - FROM THE BLOCK OF ASSETS. 8. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVA ILABLE ON RECORD IN CONTEXT OF THE ISSUE UNDER CONSIDERATION . INSOFAR, THE AFFIDAVIT OF SH. HARSHKUMAR N. SEKSARIA, DIRECTOR OF M/S M/S GOVINDRAM BROTHERS PVT. LTD., DATED 12 .03.2018 , IS CONCERNED , THE SAME HAD BEEN FILED BY THE ASSESSEE BY WAY OF AN ADDITIONAL EVIDENCE UNDER RULE 29 OF THE APPELLATE TRIBUNAL RULES, 1963. WE FIND THAT SH. HARSHKUMAR N. SEKSARIA (SUPRA) IN HIS AFORESAID AFFIDAVIT HAD TRIED TO SHOW THE INCORRECTNESS OF THE FACTS A S WERE STATED BY SH. MANOJ PARIHAR, ACCOUNTANT OF M/S GOVINDRAM BROTHERS PVT. LTD., IN HIS STATEMENTS THAT WERE RECORDED BY THE A.O IN THE COURSE OF THE ASSESSMENT PROCEEDINGS ON TWO OCCASIONS I.E. ON 24.02.2014 AND P A G E | 13 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) 28.02.2014 , AS WELL AS HAD DEPOSED CERTA IN OTHER FACTS WHICH ARE MATERIAL FOR DISPOSING OF F THE PRESENT APPEAL . IN THE BACKDROP OF THE FACT THAT THE CONTENTS OF THE AFFIDAVIT DATED 12.03.2018 HAS A STRONG BEARING ON THE ADJUDICATION OF THE ISSUE AS REGARDS THE DATE OF ACQUISITION OF THE PROPER TY UNDER CONSIDERATION VIZ. UNIT NO. 5 & 6 (SUPRA) BY THE ASSESSEE , THEREFORE, THE SAME ARE ADMITTED BY US UNDER RULE 10 R.W. RULE 29 OF THE APPELLATE TRIBUNAL RULES, 1963. 9. INSOFAR, THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT AS ENVISAGED IN CLAUSE (III) OF SUB - SECTION (1) TO SEC. 50 OF THE I.T. ACT WHILE COMPUTING THE STCG IN RESPECT OF A CAPITAL ASSET FORMING PART OF A BLOCK OF ASSET IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED UNDER THE I.T. ACT, THE FULL VALUE OF THE CONSIDERATION R ECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ANY CAPITAL ASSET FALLING WITHIN THE SAID BLOCK OF ASSET DURING THE PREVIOUS YEAR SHALL BE INTER ALIA ARRIVED AT AFTER REDUCING THE ACTUAL COST OF ANY ASSET FALLING WITHIN SUCH BLOCK OF ASSET ACQUIRED DURING THE PREVIOUS YEAR , WE FIND OURSELVES TO BE IN AGREEMENT WITH THE SAME. WE ARE OF THE CONSIDERED VIEW THAT THE BONE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE IS AS TO WHETHER THE ASSESSEE HAD ACQUIRED THE PROPERTY UNDER CONSIDERATION VIZ. UNIT NO. 5 & 6, 5 TH FLOOR, SILVER TURNING POINT, NEW MANIKLAL STREET, GHATKOPAR (WEST), MUMBAI DURING THE YEAR UNDER CONSIDERATION, OR NOT. IT IS THE CLAIM OF THE ASSESSEE THAT IT HAD ACQUIRED AND WAS POSSESSED OF THE SAID OFFICE PREMISES BY THE END OF THE YEAR, WHILE FOR THE REVENUE REJECTING THE SAID CLAIM HAD PROCEEDED WITH ON THE GROUND THAT THE ASSESSEE BY MAKING A PAYMENT OF RS. 2,16,00,000/ - TO M/S GOVINDRAM BROTHERS PVT. LTD. WAS ONLY ASSIGNED THE RIGHTS IN THE AFORESAID PROPERTY WHICH WERE CONFERRE D ON THE SAID PARTY TH ROUGH AN ALLOTMENT LETTER DATED 25.06.2009, AND AS SUCH THE P A G E | 14 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) AFORESAID PROPERTY WAS NOT ACQUIRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 10. WE FIND FROM A PERUSAL OF THE ORDER OF THE A.O THAT HE HAD CONCLUDED THAT ONLY THE RIGHTS WHICH WERE CONFERRED BY THE BUILDERS M/S SILVER LAND DEVELOPERS PVT. LTD. TO M/S GOVINDRAM BROTHERS PVT. LTD. , VIDE ALLOTMENT LETTER DATED 25.06.2009 WERE ASSIGNED TO THE ASSESSEE DURING THE YEAR AND THE ACQUISITION OF THE PROPERTY HAD NOT CONCLUDED BY 31.03.2011 , BY OBSERVING AS UNDER : - 5.12 THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE IN VIEW OF THE FOLLOWING DISCUSSION: (I) THE ACQUISITION OF ASSET IS NOT COMPLETE AS NEITHER REGISTRATION IS DONE NOR POSSESSION IS TAKEN (II) THE ASSESSEE HAS PAID ADVANCE TO M/S GOVINDRAM BROTHERS PVT. LTD. WHO WAS NOT THE OWNER OF THE PROPERTIES, THEY WERE MERELY ALLOTTEES OF UNITS BY THE BUILDERS AND THEIR RIGHT WAS RESTRICTED TO THE PURCHASE OF UNITS. IT IS SETTLED PRINCIPLE OF LAW THAT NOBO DY CAN SELL WHAT HE DOES NOT HAVE. M/S GOVINDRAM BROTHERS PVT. LTD. WERE NOT THE OWNERS OF THE UNITS. THERE WAS NO REGISTERED DEED/DEED IN FAVOUR OF GOVINDRAM BROTHERS PVT. LTD. THEY WERE ALSO NOT HANDED OVER THE POSSESSION BY THE BUILDERS. (III) THE OWNER/BUIL DERS M/S SILVER LAND DEVELOPERS PVT. LTD. HAS SUBMITTED THAT THEY HAVE NOT SOLD ANY UNIT TO THE ASSESSEE NOR THEY WERE AWARE OF ANY TRANSACTIONS PERTAINING TO UNITS BY THE ASSESSEE COMPANY. (IV) AS ON 31.03.2011 THE UNITS WERE NOT COMPLETE AND READY FOR USE/P OSSESSION AS THERE WAS NO ELECTRICITY AND WATER CONNECTIONS AS EVIDENT FROM THE REPLY TO QUESTION NO. 2 OF STATEMENT DATED 28.02.2014 OF SHRI MANOJ V PARIHAR OF M/S GOVINDRAM BROTHERS PVT. LTD. THE SUBMISSION OF THE AR REGARDING THIS THAT UNITS WERE COMPLE TE AND CAPABLE OF BEING OCCUPIED AS ON 31.03.2011 IS NOT ACCEPTABLE AS NOTHING HAD BEEN BROUGHT ON RECORD TO PROVE THE SAME, EVEN THE ACQUISITION OF THE UNITS WAS NOT COMPLETE. THE ASSESSEE WAS MERELY AN ALLOTTEE THAT TOO AT THE STRENGTH OF ASSIGNMENT OF A LLOTMENT BY A PROSPECTIVE BUYER I.E. M/S GOVINDRAM BROTHERS PVT. LTD. (V) M/S GOVINDRAM BROTHERS PVT. LTD. WERE NEITHER DU - JURE OWNER (NO LEGAL TITLE OF OWNERSHIP IN THEIR FAVOUR) NOR DE - FACTO (THE UNITS WERE NOT IN POSSESSION OF M/S GOVINDRAM BROTHERS PVT. LTD.). THEY WERE MERELY ALLOTTEE OF UNITS AND AT THE MOST THEY CAN TRANSFER THE ALLOTMENT RIGHTS. FOR CLAIM OF DEPRECIATION AND INCLUSION IN BLOCK OF P A G E | 15 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) ASSETS, THE ASSET MUST BE OWNED BY THE ASSESSEE AND IT SHOULD BE READY TO USE. BOTH THESE C ONDITIONS ARE NOT FULFILLED AND HENCE THE ADVANCE PAID BY THE ASSESSEE CAN BE TREATED AS CAPITAL WORK - IN - PROGRESS AND NOTHING MORE. (VI) OWNERSHIP IS ESSENTIAL TO CLAIM DEPRECIATION AND DEPRECIATION IS ALLOWABLE IN RESPECT OF BLOCK OF ASSETS AND MANDATED BY S ECTION 32 OF THE IT ACT, 1961. UNLESS THE ASSESSEE IS OWNER OF A PARTICULAR ASSET IT WILL NOT FORM PART OF BLOCK OF ASSETS. (VII) THE ACQUISITION OF THE UNITS HAS NOT BEEN COMPLETED AS THE OWNER/BUILDERS HAS NOT TRANSFERRED THE RIGHTS TO THE ASSESSEE, THE ASSES SEE HAS NOT GOT PHYSICAL POSSESSION, THERE IS NO CONTRACT BETWEEN THE OWNER AND THE ASSESSEE, THE OWNER HAS CATEGORICALLY DENIED ANY TRANSACTION WITH THE ASSESSEE. (VIII) MERE ALLOTMENT CANNOT BE EQUATED WITH OWNERSHIP RIGHTS. IN CASE OF TRANSFER OF IMMOVABLE PR OPERTIES AS PER GOVERNING LAW I.E. TRANSFER OF PROPERTY ACT AND INDIAN REGISTRATION ACT THE TRANSFER IS TO COMPLETE ON PAYMENT OF CONSIDERATION, REGISTRATION OF DOCUMENTS AND GETTING POSSESSION. IN THE CASE OF ASSESSEE THESE FACTORS ARE ABSENCE AND HENCE I T IS HELD THAT ACQUISITION OF ASSET IS INCOMPLETE. (IX) FROM THE REPLY OF M/S SILVER LAND DEVELOPERS PVT. LTD. IT IS CLEAR THAT THEY HAVE NOT HANDED OVER THE POSSESSION AND ALL RIGHTS TO USE, EXPLOIT AND ACCESS TO THE UNITS UNDER REFERENCE LIED WITH THEM ONLY . THE REPLY SAYS THAT THEY ALLOWED THEIR CUSTOMERS TO ACCESS THEIR UNITS IMPLIEDLY PROVES THAT THE RIGHTS TO ACCESS LIED WITH THEM ONLY. (X) FURTHER, IN RESPONSE TO THE STATUTORY NOTICES, M/S SILVER LAND DEVELOPERS PVT. LTD. VIDE THEIR LETTER DATED 13.03.2014 HAVE STATED THAT THEY ARE YET TO GIVE FORMAL POSSESSION OF OFFICE UNITS TO THEIR CUSTOMERS AND THE SAME WILL BE GIVEN UPON RECEIPT OF OC/BCC FROM MUNICIPAL CORPORATION OF GREATER MUMBAI. THE BUILDERS ALSO INFORMED THAT THEY ALLOTTED SOME OF THE OFFICE UNI TS TO PROSPECTIVE BUYERS INCLUDING GOVINDRAM BROTHERS PVT. LTD. AND HAVE ISSUED ALLOTMENT LETTER TO THEM. FROM THE REPLIES OF ASSESSEE M/S GOVINDRAM BROTHERS PVT. LTD. AND M/S SILVER LAND DEVELOPERS PVT. LTD. IT IS CLEAR THAT TILL 24.03.2014 THE UNITS ARE NOT REGISTERED IN THE NAME OF ASSESSEE. POSSESSION IS NOT HANDED OVER TO THE ASSESSEE, THE UNITS ARE NOT READY TO USE AS THE OC FROM THE MUNICIPAL CORPORATION/COMPETENT AUTHORITY IS YET TO BE ISSUED, BUILDERS/OWNER HAD NOT RECOGNIZED THE ASSESSEE EVEN AS A N ALLOTTEE OF THE UNITS. 5.13 IN VIEW OF THE ABOVE DISCUSSION THE AMOUNT OF RS. 2,16,00,000/ - PAID AS ADVANCE BY THE ASSESSEE TO M/S GOVINDRAM BROTHERS PVT. LTD. IS TREATED AS CAPITAL WORK - IN - PROGRESS WHICH DOES NOT QUALIFY TO BECOME PART OF BLOCK OF ASSETS OF THE BUILDINGS AND ACCORDINGLY SHALL NOT BE REDUCED FROM SALE CONSIDERATION OR INCLUDED IN THE AGGREGATE AMOUNT REFERRED TO IN CLAUSE (III ) OF SUB - SECTION 1 OF SECTION 50 OF THE IT ACT, 1961 IN COMPUTING STCG IN ACCORDANCE WITH SECTION 50 OF THE IT ACT, 1961. P A G E | 16 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) ON A PERUSAL OF THE AFORESAID OBSERVATIONS OF THE A.O, IT CAN SAFELY BE CONCLUDED THAT HE HAD DISLODGED THE CLAIM OF THE ASSESSEE THAT IT HAD ACQUIRED THE PROPERTY UNDER CONSIDERATION VIZ. UNIT NO. 5 & 6, 5 TH FLOOR, SILVER TURNING POINT, NEW MANIKLAL STREET, GHATKOPAR (WEST), MUMBAI ON THE GROUND VIZ. (I) THAT NO REGISTERED DEED WAS EXECUTED IN FAVOUR OF M/S GOVINDRAM BROTHERS PVT. LTD; (II) THAT M/S GOVINDRAM BROTHERS PVT. LTD. WERE ALSO NOT HANDED OVER THE POSSESSION OF THE PROPERTY UNDER CONSIDERATION BY THE BUILDERS; (III) THE BUILDERS M/S SILVER LAND DEVELOPERS PVT. LTD. HAD SUBMITTED THAT THEY HAD NOT SOLD ANY UN IT TO THE ASSESSEE ; (IV) THAT AS PER THE STATEMENT DATED 28.02.2014 OF SH. MANOJ V. PARIHAR THE AFORESAID UNIT NO. 5 & 6 (SUPRA) WERE NOT COMPLETE AND READY FOR USE/POSSESSION AS THERE WAS NO ELECTRICITY AND WATER CONNECTION BY THE SAID DATE ; (V) THAT M/S GOVINDRAM BROTHERS PVT. LTD. WERE MERELY ALLOTTEE OF THE UNIT NO. 5 & 6 (SUPRA) AND AT THE MOST THEY COULD TRANSFER ONLY THEIR ALLOTMENT RIGHTS ; (VI) THAT AS THE ASSESSEE WAS NOT THE OWNER OF THE AFORESAID PROPERTY, THEREFORE, IT WOULD FORM PART OF THE BLOCK OF ASSET; (VII) THAT THERE WAS NO CONTRACT BETWEEN THE OWNER AND THE ASSESSEE AND AS SUCH THE OWNER/BUILDERS HAD NOT TRANSFERRED THE RIGHTS TO THE ASSESSEE ; (VIII) THAT AS THE TRANSFER WOULD BE COMPLETE ONLY ON PAYMENT OF CONSIDERATION, REGISTRATION OF DOCUMENTS AND GETTING POSSESSION OF THE PROPERTY, THEREFORE IN THE ABSENCE OF THE ASPECTS THE ACQUISITION OF THE PROPERTY BY THE ASSESSEE WAS NOT COMPLETE; (IX) THAT AS PER THE REPLY OF THE BUILDERS VIZ. M/S SILVER LAND DEVELOPERS PVT. LTD. THE POSSESS ION OF THE PROPERTY UNDER CONSIDERATION I.E. UNIT NO. 5 & 6 (SUPRA) HAD NOT BEEN HANDED OVER BY THEM AND ALL RIGHTS TO USE, EXPLOIT AND ACCESS THE SAID PROPERTY REMAINED WITH THEM; AND (X) THAT THE BUILDERS VIZ. M/S SILVER LAND DEVELOPERS PVT. LTD. VIDE T HEIR LETTER DATED 13.03.2014 HAD STATED THAT THEY WERE YET TO GIVE FORMAL P A G E | 17 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) POSSESSION OF OFFICE UNITS TO THEIR CUSTOMERS AND THE SAME WOULD BE GIVEN UPON RECEIPT OF OC/BCC FROM MUNICIPAL CORPORATION OF GREATER MUMBAI . IT WAS THUS FOR THE AFORESAID REASONS A ND THE INFORMATION GATHERED BY THE A.O THAT IT WAS CONCLUDED BY HIM THAT THE AMOUNT OF RS. 2,16,00,000/ - PAID BY THE ASSESSEE TO M/S GOVINDRAM BROTHERS PVT. LTD. WAS IN THE NATURE OF AN ADVANCE WHICH NOT HAVING CRYSTALLIZED INTO ACQUISITION OF THE PROPERTY DURING THE YEAR UNDER CONSIDERATION, THUS DID NOT QUALIFY TO BECOME PART OF THE BLOCK OF ASSETS OF THE BUILDINGS FOR THE YEAR UNDER CONSIDERATION. 11. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE AFORESAID OBSERVATIONS OF THE A.O AND FIND THAT THE SAME ARE IN CONTRADICTION OF THE FACTS AS HAD BEEN DEPOSED BY SH. HARSHKUMAR N. SEKSARIA, DIRECTOR OF M/S GOVINDRAM BROTHERS PVT. LTD. IN HIS AFORESAID AFFIDAVIT DATED 12.03.2018 THAT HAS BEEN PLACED ON OUR RECORD. INSOFAR, THE ADVERSE INFERENCES WHICH H AD BEEN DRAWN BY THE A.O BY RELYING ON THE STATEMENTS OF SH. MANOJ PARIHAR, ACCOUNTANT OF M/S GOVINDRAM BROTHERS PVT. LTD. AS WERE RECORDED BY THE A.O ON TWO OCCASIONS I.E. ON 24.02.2014 AND 28.02.2014, ARE CONCERNED, IT IS DEPOSED BY SH. HARSHKUMAR N. SEK SARIA (SUPRA) IN HIS AFFIDAVIT THAT SH. MANOJ PARIHAR WAS MERELY AN ACCOUNTANT AND NOT FAMILIAR WITH THE AFORESAID TRANSACTION UNDER CONSIDERATION. IT IS FURTHER STATED BY HIM THAT SH. MANOJ PARIHAR HAD MADE INCORRECT STATEMENT OF FACTS, WHICH AS THE SAME BEYOND HIS KNOWLEDGE AND INSTRUCTIONS. RATHER , IN CONTRADICTION OF THE FACTS AS STATED BY SH. MANOJ PARIHAR , IT IS DEPOSED BY SH. HARSHKUMAR N. SEKSARIA THAT M/S GOVINDRAM BROTHERS PVT. LTD. WAS PUT INTO POSSESSION OF THE PROPERTY UNDER CONSIDERATION VIZ. UNIT NO. 5 & 6 (SUPRA) DURING THE FINANCIAL YEAR 2010 - 11. IT IS FURTHER STATED BY HIM THAT THE COMPANY VIZ. M/S GOVINDRAM BROTHERS PVT. LTD. HAD VIDE LETTER DATED 30.03.2011, IN LIEU OF HAVING RECEIVED THE ENTIRE P A G E | 18 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) CONSIDERATION OF RS. 2,16,00,000/ - , GRANTE D/TRANSFERRED/ASSIGNED THE ALLOTMENT WITH RESPECT TO THE UNIT NO. 5 & 6 (SUPRA) TOGETHER WITH ALL THE RIGHT, TITLE AND INTEREST AND COVENANTS AS STATED IN THE LETTER OF ALLOTMENT TO THE ASSESSEE I.E. M/S PARAMOUNT CORPORATION LTD. FURTHER, IT IS STATED BY HIM THAT HIS COMPANY VIZ. M/S GOVINDRAM BROTHERS PVT. LTD. HAD IN ITS LETTER DATED 30.03.2011 ALSO UNDERTAKEN TO OBTAINED NOC FOR THE ASSIGNMENT OF THE AFORESAID UNIT NO. 5 & 6 (SUPRA) FROM THE BUILDER I.E. M/S SILVER LAND DEVELOPER PVT. LTD. SH. HARSHKUMA R N. SEKSARIA HAD IN HIS AFORESAID AFFIDAVIT CATEGORICALLY DEPOSED THAT THE POSSESSION OF THE AFORESAID UNITS WERE HANDED OVER TO THE ASSESSEE COMPANY I.E. M/S PARAMOUT CORPORATION LTD. AS PER THE LETTER 31 ST MARCH, 2011 . IT IS FURTHER STATED BY HIM THAT O N THE DATE OF HAND ING OVER THE POSSESSION TO THE ASSESSEE COMPANY, THE CONSTRUCTION OF THE SAID UNITS WAS COMPLETE, HOWEVER, THE OCCUPATION CERTIFICATE WAS STILL TO BE OBTAINED BY THE BUILDER DUE TO SOME REGULATORY ISSUES . IT IS STATED BY HIM THAT THOUGH H IS COMPANY VIZ. M/S GOVINDRAM BROTHERS PVT. LTD. HAD UNDERTAKEN IN ITS LETTER DATED 30.03.2011 TO GET THE NO OBJECTION CERTIFICATE OF THE BUILDER, HOWEVER, AS THE LATTER WAS EVASIVE AND NON - COOPERATIVE , HENCE THE SAME COULD NOT BE OBTAINED AND RESULTANTLY THE FORMAL REGISTRATION OF THE SALE OF THE AFORESAID UNITS COULD NOT BE CARRIED OUT. IT IS FURTHER CLARIFIED BY HIM THAT ON THE DATE OF HANDING OVER THE POSSESSION OF THE AFORESAID UNITS THE BUILDING WAS COMPLETE EXCEPT FOR CERTAIN ELECTRIC/WATER SUPPLY TH AT WOULD HAVE REQUIRED THE OCCUPANCY CERTIFICATE. FURTHER, IT IS STATED BY HIM THAT THE BUILDER I.E. M/S SILVER LANDS DEVELOPER PVT. LTD. WERE UNWILLING TO COMPLETE ITS OBLIGATIONS AND GET THE OCCUPATION CERTIFICATE AND COMPLETE THE REMAINING FORMALITIES. IT IS FURTHER STATED BY HIM THAT THE AMOUNT OF RS. 2,16,00,000/ - THAT WAS RECEIVED FROM THE ASSESSEE COMPANY WAS NOT BY WAY OF AN ADVANCE , BUT WAS TOWARDS THE FULL AND FINAL CONSIDERATION FOR THE UNIT NO. 5 & 6 (SUPRA) THAT WERE P A G E | 19 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) TRANSFERRED TO THEM. IT IS FURTHER AVERRED BY HIM THAT DUE TO THE EVASIVE APPROACH OF THE BUILDER VIZ. M/S SILVER LAND DEVELOPERS PVT. LTD. THE OCCUPATION CERTIFICATE COULD BE OBTAINED AFTER CONSIDERABLE DELAY IN AN D AROUND THE YEAR 2016. 12. WE HAVE PERUSED THE CONTENTS OF THE AF FIDAVIT OF SH. HARSHKUMAR N. SEKSARIA, DIRECTOR OF M/S GOVINDRAM BROTHERS PVT. LTD. AND FIND THAT AS OBSERVED BY US HEREINABOVE , THE SAME SERIOUSLY MILITATES AGAINST THE OBSERVATIONS ARRIVED AT BY THE LOWER AUTHORITIES IN CONTEXT THERETO. INSOFAR , THE FACT S AS HAD BEEN GATHERED AND RELIED UPON BY THE A.O ON THE BASIS OF THE STATEMENTS OF SH. MANOJ PARIHAR, ACCOUNTANT OF M/S GOVINDRAM BROTHERS PVT. LTD. THAT WERE RECORDED ON OATH ON 24.02.2014 AND 28.02.2014, IS CONCERNED, THE SAME IN THE BACKDROP OF THE DEP OSITION BY SH. HARSHKUMAR N. SEKSARIA, DIRECTOR OF M/S GOVINDRAM BROTHERS PVT. LTD. THAT THE AFORESAID PERSON VIZ. SH. MANOJ PARIHAR WHO WAS AN ACCOUNTANT WITH M/S GOVINDRAM BROTHERS PVT. LTD. NOT BEING FAMILIAR WITH THE FACTS ON THE TRANSACTION UNDER CONS IDERATION HAD THUS MADE INCORRECT STATEMENT OF FACTS, AS THE SAME WERE BEYOND HIS KNOWLEDGE AND INSTRUCTION , THUS DOES NOT INSPIRE MUCH OF CONFIDENCE AND HENCE IN THE BACKDROP OF THE AFORESAID CONTRADICTION OF HIS STATEMENT BY SH. HARSHKUMAR N. SEKSARIA (SUPRA) CANNOT BE SUMMARILY ACTED UPON FOR DRAWING OF INFERENCES AS REGARDS THE TRANSACTION UNDER CONSIDERATION. AS REGARDS THE OBSERVATIONS OF THE A.O THAT THE REGISTRATION OF THE SALE TRANSACTION HAD NOT CONCLUDED DURING THE YEAR, WE ARE OF THE CONSIDER ED VIEW THAT THE SAID ASPECT I.E. TRANSFER OF TITLE OF THE PROPERTY THOUGH WOULD BE INDISPENSABLY RELEVANT FOR CLAIM OF DEPRECIATION UNDER SEC. 32 OF THE I.T. ACT, HOWEVER THE SAME WOULD NOT HAVE ANY BEARING ON THE ACQUISITION OF THE PROPERTY IN CONTEXT OF SEC. 50(1)(III), AS IS THE ISSUE UNDER CONSIDERATION. IN SUPPORT OF OUR AFORESAID VIEW RELIANCE IS PLACED ON THE ORDER OF THE P A G E | 20 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) ITAT, MUMBAI BENCH D IN THE CASE OF ORIENT CARTONS (P) LTD. VS. DCIT (1997) 60 ITD 87 (MUM) . INSOFAR, THE SUBMISSIONS OF THE BU ILDERS VIZ. M/S SILVER LAND DEVELOPERS PVT. LTD. WHEREIN THEY HAD STATED THAT THEY HAD NOT SOLD ANY UNIT TO THE ASSESSEE NOR WERE AWARE OF ANY TRANSACTION PERTAINING TO THE UNITS BY THE ASSESSEE COMPANY IS CONCERNED, WE ARE OF THE CONSIDERED VIEW THAT AS T HE ASSESSEE HAD PURCHASED THE PROPERTY UNDER CONSIDERATION FROM M/S GOVINDRAM BROTHERS PVT. LTD. AND NOT DIRECTLY FROM THE AFORESAID BUILDER I.E. M/S SILVER LAND DEVELOPERS PVT. LTD., THEREFORE , THE SAID CLAIM OF THE BUILDER SHALL NOT HAVE ANY MATERIAL BEA RING ON THE ISSUE UNDER CONSIDERATION. AS REGARDS THE OBSERVATIONS OF THE A.O THAT THE AFORESAID UNITS WERE NOT SUPPORTED WITH ELECTRIC/WATER SUPPLY, WE FIND THAT SH. HARSHKUMAR N. SEKSARIA HAD CLARIFIED THE SAID ASPECT IN HIS AFFIDAVIT DATED 12.03.2018 T H AT THOUGH THE CONSTRUCTION OF THE SAID UNITS WAS COMPLETE ON THE DATE OF HANDING OVER THE POSSESSION TO THE ASSESSEE COMPANY, HOWEVER, AS THE OCCUPATION CERTIFICATE WAS STILL TO BE OBTAINED BY THE BUILDER DUE TO SOME REGULATORY ISSUES , THEREFORE, THE SAID PROPERTY WAS NOT SUPPORTED BY ELECTRIC/WATER SUPPLY , AS THE SAME WOULD HAVE REQUIRED THE OCCUPANCY CERTIFICATE. INSOFAR THE OBSERVATIONS OF THE A.O THAT M/S GOVINDRAM BROTHERS PVT. LTD. WERE NOT IN POSSESSION OF THE UNIT NO. 5 & 6 (SUPRA) DURING THE YEAR U NDER CONSIDERATION, WE FIND THAT IN CONTRADICTION OF THE SAID OBSERVATIONS OF THE A.O IT IS DEPOSED BY SH. HARSHKUMAR N. SEKSARIA IN HIS AFFIDAVIT DATED 12.03.2018 THAT THE POSSESSION OF THE SAID UNITS WERE HANDED OVER BY THEM TO THE ASSESSEE COMPANY AS PE R LETTER DATED 31.03.2011 . RATHER, IT HAS BEEN CLARIFIED BY HIM THAT ON THE DATE OF HANDING OVER THE POSSESSION TO THE ASSESSEE , THOUGH THE CONSTRUCTION OF THE AFORESAID UNITS WAS COMPLETE, HOWEVER THE OCCUPATION CERTIFICATE WAS STILL TO BE OBTAINED BY THE BUILDER DUE TO SOME REGULATORY ISSUES. WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE OBSERVATIONS OF P A G E | 21 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) THE A.O THAT DE HORS OWNERSHIP OF AN ASSET, THE SAME CANNOT FORM PART OF THE BLOCK OF ASSETS. IN THIS REGARD , AS OBSERVED BY US HEREINABOVE , T HOUGH THE VESTING OF THE TITLE IS MANDATORILY REQUIRED FOR CLAIM OF DEPRECIATION UNDER SEC. 32 OF I.T. ACT, HOWEVER, THE SAME WOULD NOT APPLY FOR DETERMINING THE POINT OF ACQUISITION OF THE PROPERTY IN TERMS OF SEC. 50(1)(III) OF THE I.T. ACT. AS REGARDS T HE OBSERVATIONS RECORDED BY THE A.O THAT THE BUILDER VIZ. M/S SILVER LAND DEVELOPERS PVT. LTD. HAD STATED T HAT ALL RIGHTS TO USE, EXPLOIT AND ACCESS THE UNITS UNDER REFERENCE REMAINED WITH THEM ONLY , AND THEY WERE YET TO GIVE FORMAL POSSESSION OF THE OFFICE UNITS TO ITS CUSTOMERS ONLY AFTER RECEIVING THE OC/BCC FROM MUNICIPAL CORPORATION OF GREATER MUMBAI, W E FIND THAT THE SAID ASPECT HAS BEEN CLARIFIED BY SH. HARSHKUMAR N. SEKSARIA (SUPRA) IN HIS AFF IDAVIT, DATED 12.03.2018 . IN THE BACKDROP OF OUR AFORESAID DELIBERATIONS , WE FIND THAT THE OBSERVATIONS RECORDED BY THE A.O ARE FOUND TO BE IN SERIOUS CONFLICT WITH THE DEPOSITIONS MADE BY SH. HARSHKUMAR N. SEKSARIA, DIRECTOR OF M/S GOVINDRAM BROTHERS PVT. LTD. APART THEREFROM, AS OBSERVED BY US HEREINABOVE , THE STATEMENT OF SH. MANOJ PARIHAR, ACCOUNT ANT OF M/S GOVINDRAM BROTHERS PVT. LTD. WHEN READ IN THE BACKDROP OF THE DEPOSITION OF SH. HARSHKUMAR N. SEKSARIA (SUPRA) , DOES NOT INSPIRE MUCH OF CONFIDENCE AND HENCE CANNOT BE SUMMARILY ACTED UPON FOR DRAWING OF INFERENCES AS REGARDS THE ISSUE UNDER CONSIDERATION . WE ARE OF THE CONSIDERED VIEW THAT AS THE AFFIDAVIT, DATED 12.03.2018 OF SH. HARSHKUMAR N. SEKSARIA, DIRECTOR OF M/S GOVINDRAM BROTHERS PVT. LTD. WHICH SUBSTANTIALLY DISLODGES THE OBSERVATIONS AND THE VERACITY THE MATERIAL ACTED UPON BY THE A.O FOR DRAWING OF ADVERSE INFERENCES AS REGARDS THE DATE OF ACQUISITION OF THE PROPERTY UNDER CONSIDERATION VIZ. UNIT NO. 5 & 6 (SUPRA) BY THE ASSESSEE, WAS NOT THERE BEFORE THE A.O, THEREFORE, HE HAD NO OCCASION TO VERIFY THE GENUINENESS AND VERACITY OF THE FACTS AS HAD BEEN DEPOSED THEREIN. WE THUS IN ALL FAIRNESS AND IN THE INTEREST P A G E | 22 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) OF JUSTICE ARE OF THE CONSIDERED VIEW THAT THE MATTER REQUIRES TO BE REVISITED BY THE A.O , WHO SHALL VERIFY THE VERACITY OF THE FACTS DEPOSED BY SH. HARSHKUMAR N. SEKSARIA IN HIS AFFIDAVIT DATED 12.03.2018 AND AFTER MAKING NECESSARY VERIFICATIONS AS HE MAY DEEM FIT , THEREIN READJUDICATE THE ISSUE. NEEDLESS TO SAY, THE A.O SHALL IN T HE COURSE OF THE SET ASIDE PROCEEDINGS AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WHO SHALL REMAIN AT A LIBERTY TO SUBSTANTIATE ITS CLAIM THAT THE PROPERTY UNDER CONSIDERATION VIZ. UNIT NO. 5 & 6, 5 TH FLOOR, SILVER TURNING POINT, NEW M ANIKLAL ESTATE, GHATKOPAR (WEST), MUMBAI, WAS ACQUIRED BY IT DURING THE YEAR UNDER CONSIDERATION I.E. FINANCIAL YEAR 2010 - 11. IN TERMS OF OUR AFORESAID OBSERVATIONS THE MATTER IS SET ASIDE TO THE FILE OF THE A.O FOR FRESH ADJUDICATION. THE GROUNDS OF APPEA L NO. 1 & 2 ARE ALLOWED FOR STATISTICAL PURPOSES. 1 3 . WE SHALL NOW ADVERT TO THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A AS REGARDS THE EXEMPT DIVIDEND INCOME OF RS. 17,44,114/ - RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD NOT DISALLOWED ANY EXPENSE ATTRIBUTABLE TO EARNING OF AFOREMENTIONED EXEMPT DIVIDEND INCOME IN ACCORDANCE WITH SEC. 14A OF THE I.T. ACT. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE ON BEING CALLED UPON BY THE A.O TO FURNISH A WORK ING OF A DISALLOWANCE UNDER SEC. 14A R.W. RULE 8D(2), THEREIN IN COMPLIANCE TO THE SAID DIRECTION SUBMITTED A WORKING ON THE BASIS OF WHICH THE DISALLOWANCE WORKED OUT TO RS. 7,10,977/ - . INSOFAR, EXPENSES DIRECTLY ATTRIBUTABLE TO THE EARNING OF THE EXEMPT DIVIDEND INCOME WERE CONCERNED, IT WAS THE CLAIM OF THE ASSESSEE THAT NO SUCH DIRECT EXPENSES WERE INCURRED. HOWEVER, AS THE TOTAL EXPENSE S DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AMOUNT ED TO RS. 3,42,385/ - , THEREFORE, THE A.O RESTRICTED THE DISALLOWANCE UNDER SEC. 14A TO AN AMOUNT OF RS. 3,42,385/. ON P A G E | 23 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) APPEAL, THE CIT(A) AFTER DELIBERATING AT LENGTH ON THE CONTENTIONS ADVANCED BY THE ASSESSEE WAS OF THE CONSIDERED VIEW THAT THE RELATING OF THE ENTIRE EXPENSES OF RS. 3,42,385/ - DEBITED IN THE PROFIT AND LOSS ACCOUNT TO THE EARNING OF THE EXEMPT DIVIDEND INCOME BY THE ASSESSEE, HAD RESULTED IN AN ABSURD SITUATION AND TANTAMOUNTED TO ASSUMING THAT ALL THE EXPENDITURE INCURRED BY THE ASSESSEE WAS TOWARDS EARNING OF EXEMPT INCOME , OR THAT IT HAD EARNED ITS TAXABLE INCOME WITHOUT INCURRING ANY EXPENDITURE. THE CIT(A) BEING OF THE VIEW THAT AS THE PROPOSITION CANVASSED BY THE A.O WAS UNTENABLE AND INCONCEIVABLE, THUS THE SAME COULD NOT BE ADMITTED. IN THE COURSE OF THE APPELLATE PROCEEDINGS THE ASSESSEE FURNISHED AN EXPLANATION WITH REGARD TO EACH ITEM OF EXPENDITURE AS WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND ARRIVED AT A POSSIBLE DISALLOWANCE OF RS. 27,234/ - THAT COULD BE ATTRIBUTED TO EARNING OF THE EXEMPT DIVID END INCOME DURING THE YEAR UNDER CONSIDERATION. THE CIT(A) PERSUADED BY THE AFORESAID DISALLOWANCE OF RS. 27,234/ - WORKED OUT BY THE ASSESSEE, THEREIN BEING OF THE VIEW THAT THE SAME WAS A MODEST DISALLOWANCE AND THERE WAS NO NEED FOR CONDUCTING A DETAILED ACCOUNTING FORENSIC EXERCISE, DIRECTED THE A.O TO TAKE THE DISALLOWANCE UNDER SEC. 14A AT RS. 30,000/ - . 14 . WE HAVE PERUSED THE ORDERS OF THE LOWER AUTHORITIES IN CONTEXT OF THE ISSUE PERTAINING TO THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W. RU LE 8D(2), WHICH THEREAFTER WAS SCALED DOWN BY THE CIT(A) TO AN AMOUNT OF RS. 30,000/ - . BEFORE PROCEEDING WITH THE MERITS OF THE ISSUE UNDER CONSIDERATION, WE MAY HEREIN OBSERVE THAT THE ASSESSEE LOOSING SIGHT OF THE FACT THAT THE CIT(A) HAD SCALED DOWN THE DISALLOWANCE UNDER SEC. 14A FROM AN AMOUNT OF RS. 3,42,385/ - AS WAS DISALLOWED BY THE A.O TO AN AMOUNT OF RS. 30,000/ - , HAD HOWEVER WRONGLY ASSAILED BEFORE US THE DISALLOWANCE OF RS. 3,42,385/ - (SUPRA). P A G E | 24 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) WE HAVE DELIBERATED AT LENGTH ON THE OBSERVATIONS OF THE CIT(A) AND FIND OURSELVES AS BEING IN AGREEMENT WITH THE VIEW TAKEN BY HIM THAT THE RELATING OF ENTIRE EXPENSES OF RS. 3,42,385/ - DEBITED IN THE PROFIT AND LOSS ACCOUNT TO THE EARNING OF THE EXEMPT DIVIDEND INCOME BY THE ASSESSEE, WOULD INESCAPABLY RESULT IN AN ABSURD SITUATION, AS PER WHICH THE SOLE ILLOGICAL VIEW THAT WOULD EMERGE WOULD BE THAT THE ASSESSEE HAD EARNED ITS TAXABLE INCOME WITHOUT INCURRING ANY EXPENDITURE. WE ARE OF A STRONG CONVICTION THAT THE SAID UNTENABLE AND INCONCEIVABLE VIEW A RRIVED AT BY THE A.O COULD NOT BE SUSTAINED AND HAS RIGHTLY BEEN DISLODGED BY THE CIT(A). WE FIND THAT THE CIT(A) DULY APPRECIATED THAT THE A.O HAD FAILED TO RECORD THE REASONS WHICH HE WAS OBLIGED TO DO FOR DISLODGING THE CLAIM RAISED BY THE ASSESSEE IN I TS RETURN OF INCOME THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF THE EXEMPT DIVIDEND INCOME. IN THE BACKDROP OF THE AFORESAID FACTS , THE CIT(A) OBSERVING THAT A PART OF THE EXPENSES WOULD HAVE BEEN INCURRED BY THE ASSESSEE AS REGARDS ITS OTHER BUSINESS ACTIVITIES VIZ. (I) PRODUCTION AND MARKETING OF TELEVISION PROGRAMS; AND (II) SALE AND PURCHASE OF HIGH VALUE IMMOVABLE PROPERTIES, AS WELL AS A PART OF SUCH EXPENSES WOULD HAVE BEEN INCURRED BY THE ASSESSEE FOR MAINTAINING ITS CORPORATE ENTITY, THEREFORE, ACCEPTED THE DISALLOWANCE OF RS. 27,234/ - AS WAS ATTRIBUTED BY THE ASSESSEE BY MAKING A SPECIFIC REFERENCE TO ALL THE EXPENSES AS STOOD DEBITED IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, AS HAVING BEEN INCURRED FOR EARNING OF THE EXE MPT DIVIDEND INCOME. IN OUR CONSIDERED VIEW NO INFIRMITY DOES EMERGE FROM THE ORDER OF THE CIT(A) WHO HAD SCALED DOWN THE DISALLOWANCE UNDER SEC. 14A TO AN AMOUNT OF RS. 30,000/ - IN THE HANDS OF THE ASSESSEE. THE GROUNDS OF APPEAL NO. 4 & 5 RAISED BY THE A SSESSEE ARE DISMISSED. P A G E | 25 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) 15 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ITA NO. 1157/MUM/2016 AY. 2011 - 12 1 6 . WE SHALL NOW ADVERT TO THE APPEAL FILED BY THE REVENUE. THE REVENUE ASSAILING THE ORDER OF THE CIT( A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL : 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,05,62,764! - RELATING TO LOSS ON SALE OF SHARES WHICH WAS TREATED AS SPECULATION LOSS IN VIEW OF EXPLAN ATION TO SECTION 73 OF THE ACT. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S.14A TO RS.30,000/ - AS AGAINST RS. 3,42,385/ - WHICH WAS DONE ON THE BASIS OF ASSESSEE OWN WORKING. 3. THE APPELLAN T PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 17 . THE LD. D.R AT THE VERY OUTSET ASSAILED THE DELETION OF THE ADDITION OF RS. 1,05,62,764/ - RELATING TO LOSS ON SALE OF SHARES WHICH WAS TREATED AS A SPECULATION LOSS BY THE A.O AS PER EXPLANATION TO SEC. 73 OF THE I.T. ACT. THE LD. D.R SUBMITTED THAT AS THE ASSESSEE COMPANY WAS NOT ENGAGED IN THE BUSINESS OF ADVANCING LOANS AND WAS ALSO NOT AN INVESTMENT COMPANY, THEREFORE, THE A.O APPRECIATING THAT THE CASE OF THE ASSESSEE WAS NOT COVERED BY THE EXCEPTIONS PROVIDED IN THE EXPLANATION TO SEC. 73 OF THE I.T. ACT , HAD THUS R IGHTLY CHARACTERIZED THE LOSS ON SALE OF SHARES OF RS. 1,05,62,764/ - AS A SPECULATIVE LOSS IN THE HANDS OF THE ASSESSEE COMPANY. THE LD. D.R RELIED ON THE ORDER PASSED BY THE A.O. INSOFAR THE DISALLOWANCE U NDER SEC. 14A OF RS. 3,42,385/ - WAS CONCERNED, IT WAS SUBMITTED BY THE LD. D.R THAT THE SAID DISALLOWANCE WAS RIGHTLY MADE BY THE A.O BY TAKING RECOURSE TO SEC. 14A R.W. RULE 8D. PER CONTRA, THE LD. A.R IN CONTEXT P A G E | 26 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) OF THE AFORESAID ISSUES AS WERE ASSAILED BY THE REVENUE IN ITS APPEAL BEFORE US, RELIED ON THE ORDER OF THE CIT(A) . I T WAS SUBMITTED BY THE LD. A.R THAT THE CIT(A) AFTER DELIBERATING ON THE AFORESAID ISSUES HAD RIGHTLY DELETED THE SAID ADDITIONS/DISALLOWANCES MADE BY THE A.O. 1 8 . WE SHALL FIRST ADVERT TO THE DELETI ON BY THE CIT(A) OF THE ADDITION OF RS. 1,05,62,764 / - MADE BY THE A.O BY RECHARACTERIZING THE LOSS ON S ALE OF SHARES AS S PECULATION LOSS IN VIEW OF EXPLANATION TO SECTION 73 OF THE I.T. ACT . SUCCINCTLY STATED, IN THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD CLAIMED CAPITAL LOSS OF RS. 1,05,62,765/ - ON THE SALE OF SHARES OF HINDUSTAN ZINC LTD., WHICH WAS SET OFF AGAINST THE STCG ARISING FROM SALE OF OFFICE PREMISES. THE A.O NOTICED THAT THE GROSS TOTAL INCOME OF THE ASSESSEE MAINLY CONSISTED OF INCOME/LOSS DERIVED FROM THE BUSINESS OF SHARE TRADING AND THE SAID INCOME WAS HIGHER THAN ITS INCOME FROM OTHER HEADS OF INCOME. FURTHER, IT WAS OBSERVED BY THE A.O THAT NEITHER THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF ADVANCING OF LOANS, NOR ENGAGED IN SHARE TR ADING BUSINESS OR WAS AN INVESTMENT COMPANY . APART THEREFROM, THE A.O WAS OF THE VIEW THAT AS THE ASSESSEE WAS NOT AN INVESTOR IN SHARES, THEREFORE, THE SHARES OF HINDUSTAN ZINC LTD. WHICH WERE ACQUIRED AND SOLD DURING THE YEAR UNDER CONSIDERATION ITSELF , CONSTITUTED AN ADVENTURE IN THE NATURE OF TRADE. INSOFAR THE NEGATIVE INCOME/LOSS OF RS. 1,05,62,76 4 / - THAT WAS CLAIMED BY THE ASSESSEE TO HAD ARISEN ON THE SALE OF SHARES OF HINDUSTAN ZINC LTD., IT WAS OBSERVED BY THE A.O THAT THE SAME WAS ASSESSABLE AS BUSINESS INCOME , WHICH WAS HIGHER THAN ALL OTHER HEADS OF INCOME. IN THE BACKDROP OF THE AFORESAID OBSERVATIONS THE A.O TREATED THE LOSS OF RS. 1,05,62,764/ - AS A SPECULATIVE LOSS AS PER EXPLANATION TO SEC. 73 OF THE I.T. ACT. P A G E | 27 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) 1 9 . AGGRIEVED, THE ASSESSE E ASSAILED THE AFORESAID RECHARACTERIZATION OF THE LOSS OF RS. 1,05,62,764/ - CLAIMED ON THE SALE OF SHARES OF HINDUSTAN ZINC LTD. WHICH HAD BEEN SET OFF AGAINST THE STCG ARISING FROM SALE OF OFFICE PREMISES BY THE ASSESSEE, AS A SPECULATION LOSS BY THE A.O. THE CIT(A) AFTER DELIBERATING AT LENGTH ON THE CONTENTION S WHICH WERE ADVANCED BY THE ASSESSEE TO FORTIFY ITS CLAIM THAT THE AFOREMENTIONED LOSS O N SALE OF SHARES WAS RIGHTLY CLAIMED AS A CAPITAL LOSS AND HAD WRONGLY BEEN CHARACTERIZED BY THE A .O AS A SPECULATIVE LOSS AS PER THE EXPLANATION TO SEC. 73 OF THE I.T. ACT, DID FIND FAVOUR WITH HIM. IT WAS OBSERVED BY THE CIT(A) THAT THE ISOLATED TRANSACTION OF ACQUISITION/SALE OF SHARES OF HINDUSTAN ZINC LTD. DURING THE YEAR UNDER CONSIDERATION WOULD NOT BE SUFFICIENT FOR CHARACTERIZING THE ASSESSEE AS A SHARE TRADER . THE CIT(A) OBSERVED THAT NOT ONLY THE AFORESAID PURCHASE/SALE OF EQUITY SHARES OF HINDUSTAN ZINC LTD. WAS THE SOLITARY TRANSACTION CARRIED OUT BY THE ASSESSEE DURING THE YEAR, BUT EVEN T HE ASSESSEE HAD NOT CLASSIFIED THE SAID SHARES AS PART OF ITS STOCK - IN - TRADE. FURTHER, IT WAS NOTICED BY HIM THAT THERE WAS NOTHING DISCERNIBLE FROM THE RECORDS WHICH WOULD INDICATE THAT THE INTEREST BEARING FUNDS WERE DEPLOYED BY THE ASSESSEE FOR THE ACQU ISITION OF THE AFOREMENTIONED EQUITY SHARES. ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE CIT(A) CONCLUDED THAT THE SALE OF SHARES OF HINDUSTAN ZINC LTD. COULD NOT BE TAKEN AS PART OF ANY SHARE TRADING BUSINESS OF THE ASSESSEE. IN THE BACKDROP OF THE AF ORESAID FACTS, IT WAS OBSERVED BY THE CIT(A) THAT A CLEAR CUT REQUIREMENT THAT THE BUSINESS OF THE COMPANY CONSISTED OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES WAS INDISPENSABLY REQUIRED TO BE SATISFIED FOR THE PURPOSE OF INVOKING THE EXPLANATION TO SEC. 73 . THE CIT(A) WAS OF THE VIEW THAT AS THE SALE OF SHARES OF HINDUSTAN ZINC LTD. COULD NOT BE TAKEN AS PART OF ANY SHARE TRADING BUSINESS OF THE ASSESSEE, THEREFORE, THE ASSESSEE COULD NOT BE BROUGHT WITHIN THE SWEEP OF THE EXPLANATION TO SEC. 73 OF P A G E | 28 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) THE I.T. ACT, AND RESULTANTLY THE LOSS OF RS. 1,05,62,764/ - ON THE SALE OF SHARES OF HINDUSTAN ZINC LTD. COULD NOT BE TREATED AS A SPECULATION LOSS IN THE HANDS OF THE ASSESSEE. ON THE BASIS OF HIS AFORESAID OBSERVATIONS THE CIT(A) VACATED THE RECHARACTERI ZATION OF THE CAPITAL LOSS OF RS. 1,05,62,764/ - AS A SPECULATIVE LOSS BY THE A.O . 20 . WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES IN CONTEXT OF THE AFORESAID ISSUE UNDER CONSIDERATION AND HAVE PERUSE THE ORDERS OF THE LOWER AUTHORITIES . BEFORE ADVERTING TO THE ISSUE UNDER CONSIDERATION IT WOULD BE WORTHWHILE TO PERUSED THE EXPLANATION OF SEC. 73 OF THE I.T. ACT , WHICH READS AS UNDER : - EXPLANATION WHERE ANY PART OF THE BUSINESS OF A COMPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES, OR A COMPANY PRINCIPAL BUSIN ESS OF WHICH IS THE BUSINESS OF 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, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE E XTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. ON A PERUSAL OF THE AFORESAID , IT CAN SAFELY BE GATHERED THAT INVOKING OF THE EXPLANATION TO SEC. 73 PRESUPPOSES CUMULATIVE SATISFACTION OF FOUR CONDITIONS VIZ. (I) THE ASSESSE E IS A COMPANY; (II) IT DOES THE BUSINESS OF TRADING IN SHARES; (III) ITS GROSS TOTAL INCOME DOES NOT CONSIST MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES; AND (IV) ITS PRINCIPAL BUSINESS IS NOT OF BANKING OR GRANTING OF LOANS OR ADVANCES . IN THE CASE BEFORE US THE FACTS, GENUINENESS AND QUANTUM OF THE SHARE SALE TRANSACTION HAS NOT BEEN DISPUTED. THE ASSESSEE HAD DURING THE YEAR ACQUIRED 15000 P A G E | 29 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) SHA RES OF HINDUSTAN ZINC LTD. AND HAD TAKEN DELIVERY OF THE SAME. PURSUANT TO STOCK SPLIT AND BONUS ISSUE, THE TOTAL HOLDING OF SHARES THE ASSESSEE INCREASED TO 1,50,000 SHARES OUT OF WHICH THE ASSESSEE HAD TRANSFERRED 75,000 SHARES FOR A NET SALE CONSIDERATI ON OF RS. 96,78,490/ - AND RESULTANTLY HAD SUFFERED A CAPITAL LOSS OF RS. 1,05,62,764/ - . THE DISPUTE INVOLVED IN THE CASE BEFORE US IS AS REGARDS THE CHARACTERIZATION OF THE LOSS SUFFERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. INSOFAR THE FIRS T CONDITION NOTED ABOVE IS CONCERNED, THE SAME DOES NOT PRESENT A DIFFICULTY , I N AS MUCH AS THE ASSESSEE IS A COMPANY. HOWEVER, WE FIND THAT THE A.O BYPASSING THE SECOND CONDITION VIZ. THAT THE ASSESSEE IS DOING THE BUSINESS OF TRADING OF SHARES, HAD AS A MATTER OF FACT STRAIGHT AWAY GIVEN A FINDING THAT THE GROSS TOTAL INCOME OF THE ASSESSEE COMPRISES INCOME FROM SHARE TRADING, WITHOUT GIVING ANY BASIS FOR CONCLUDING THAT AS TO WHY AS PER HIM THE ASSESSEE WAS FOUND TO BE ENGAGED IN THE BUSINESS OF TRADING IN SHARES. RATHER, THE A.O HAD BROUGHT THE CASE OF THE ASSESSEE WITHIN THE SWEEP OF THE EXPLANATION TO SEC. 73 BY PRIMARILY FOCUSING ON THE FACT THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF ADVANCING LOANS AND THAT IT WAS NOT AN INVESTMENT COMPANY. ON A PERUSAL OF THE ASSESSMENT ORDER , IT CAN SAFELY BE GATHERED THAT THE A.O HA D FAILED TO RECORD A REASONING AS TO WHY THE PURCHASE/SALE OF SHARES OF HINDUSTAN ZINC LTD. BY THE ASSESSEE WAS TO BE HELD AS ITS BUSINESS OF TRADING IN SHARES. 21 . WE SHALL NOW DELIBERATE ON THE ASPECT AS TO WHETHER THE TRANSACTION OF PURCHASE/SALE OF 7 5000 SHARES OF HINDUSTAN ZINC LTD. BY THE ASSESSEE DURING THE YEAR COULD BE BROUGHT WITHIN THE AMBIT OF A BUSINESS ACTIVITY OR AN ADVENTURE IN THE NATURE OF TRADE, THEREBY, MAKING THE LOSS THEREFROM ASSESSABLE UNDER THE HEAD BUSINESS INCOME. WE FIND THAT THE ASSESSEE COMPANY HAD DURING THE YEAR P A G E | 30 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) UNDER CONSIDERATION CARRIED OUT A SOLITARY TRANSACTION OF PURCHASE/SALE OF SHARES OF HINDUSTAN ZINC LTD. IN THE EARLIER YEARS AND IN THE SUBSEQUENT YEAR, THERE WAS NO SALE OF AN Y EQUITY SHARES BY THE ASSESSEE. RATH ER, THE AFORESAID SHARES OF HINDUSTAN ZINC LTD. WERE BOTH ACQUIRED AND SOLD DURING THE YEAR UNDER CONSIDERATION ITSELF AND THE LOSS ON THE SALE OF THE SAME WAS REFLECTED BY THE ASSESSEE AS A CAPITAL LOSS. INFACT, THE ASSESSEE HAD SOLD ONLY A PART OF ITS SH ARE HOLDING OF HINDUSTAN ZINC LTD. AND THE BALANCE SHARES WHICH REMAINED UNSOLD WERE REFLECTED IN ITS AUDITED ACCOUNTS AS INVESTMENTS. FURTHER, ON A PERUSAL OF THE AUDITED ACCOUNTS, IT WAS DISCERNIBLE THAT SHARE CAPITAL OF RS. 12 CRORES AND RESERVES OF RS. 6 CRORES WERE AVAILABLE WITH THE ASSESSEE, WHEREAS, THE UNSECURED LOANS STOOD AT RS. 1.36 CRORES. IN THE BACKDROP OF THE AFORESAID FAC TS IT COULD SAFELY BE CONCLUDED THAT THE ASSESSEE HAD DEPLOYED ITS SURPLUS FUNDS FOR MAKING THE INVESTMENT IN SHARES. FURTHER, A PERUSAL OF THE MEMORANDUM OF THE ASSESSEE COMPANY REVEALED THAT IT COULD MAKE INVESTMENT IN SHARES ONLY OUT OF ITS OWN SURPLUS FUNDS . A FAIR APPRECIATION OF THE AFORESAID FACTS REVEALS THAT THE ASSESSEE HAD DEPLOYED ITS SURPLUS FUNDS TOWARDS INVESTMENT IN SHARES OF HINDUSTAN ZINC LTD. WE ARE OF THE CONSIDERED VIEW THAT THE ISOLATED TRANSACTION OF PURCHASE/SALE OF SHARES OF HINDUST AN ZINC LTD. BY THE ASSESSEE CANNOT SUFFICE FOR CHARACTERIZING THE SAME AS A BUSINESS ACTIVITY OR AN ADVENTURE IN THE NATURE OF TRADE, AS A RESULT WHEREOF THE EXPLANATION TO SEC. 73 CANNOT BE INVOKED. OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF COMMISSIONER OF INCOME TAX VS. LOKMAT NEWSPAPER PVT. LTD. (2010) 322 ITR 43 (BOM). IN THE AFORESAID CASE IT WAS OBSERVED BY THE HONBLE HIGH COURT THAT THE EXPLANATION TO SEC. 73 WOULD NOT BE ATTRACTED UNLESS THE RE IS SOMETHING MORE THAN AN ISOLATED TRANSACTION OF PURCHASE AND SALE OF SHARES. RATHER, IT WAS OBSERVED BY THE HONBLE P A G E | 31 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) HIGH COURT THAT THE EXPLANATION TO SEC. 73 IS ATTRACTED IN A SITUATION WHERE SALE AND PURCHASE OF SHARES CARRIED OUT IN A SYSTEMATIC MANNER WAS FOUND TO BE INVOLVED. A SIMILAR VIEW THAT AN ISOLATED TRANSACTION OF PURCHASE/SALE OF SHARES BY A COMPANY WAS NOT TO BE HELD AS AN ADVENTURE IN THE NATURE OF TRADE WAS WAY BACK ARRIVED AT B Y THE HONBLE SUPREME COURT IN THE CASE OF PATIALA BISCUIT MFG. (P). LTD. VS. CIT (1971) 82 ITR 812 (SC). IN OUR CONSIDERED VIEW AS THE TRANSACTION INVOLVED IN PURCHASE AND SALE OF SHARES OF HINDUSTAN ZINC LTD. BY THE ASSESSEE COMPANY DURING THE YEAR WAS A SOLITARY TRANSACTION, THEREFORE, THE PRESUMPTION WOULD BE THAT THE SAID SHARES AS CLAIMED BY THE ASSESSEE WERE HELD AS AN INVESTMENT, UNLESS THE SAME IS REBUTTED BY THE DEPARTMENT ON THE BASIS OF IRREFUTABLE MATERIAL. WE THUS IN THE BACKDROP OF OUR AFORES AID DELIBERATIONS ARE OF CONSIDERED VIEW THAT AS THE SOLITARY TRANSACTION OF PURCHASE AND SALE OF SHARES OF HINDUSTAN ZINC LTD. BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION CANNOT BE HELD TO BE A PART OF ITS BUSINESS, THEREFORE, THE LOSS OF RS. 1,05,62,764/ - SUFFERED BY THE ASSESSEE ON THE SALE OF THE SAME WAS RIGHTLY CLAIMED AS A CAPITAL LOSS, AND THE SAME COULD NOT HAVE BEEN HELD TO BE A SPECULATIVE LOSS AS HAD BEEN SO DONE BY THE A.O BY INVOKING THE EXPLANATION TO SEC. 73 OF THE I.T. ACT. WE THUS BEING PERSUADED TO SUBSCRIBE TO THE WELL REASONED VIEW OF THE CIT(A) THAT THE LOSS ON SALE OF SHARES OF HINDUSTAN ZINC LTD. BY THE ASSESSEE WAS RIGHTLY CLAIMED AS A CAPITAL LOSS , THUS UPHOLD HIS ORDER TO THE SAID EXTENT. THE GROUND OF APPEAL NO. 1 RAISED BY THE REVENUE BEFORE US IS DISMISSED. 2 2 . WE SHALL NOW ADVERT TO THE CONTENTION OF THE REVENUE THAT THE CIT(A) HAS ERRED IN REDUCING THE DISALLOWANCE OF RS. 3,42,385/ - MADE BY THE A.O UNDER SEC. 14A TO AN AMOUNT OF RS. 30,000/ - . IN THIS REGARD WE MAY HEREIN OBSERVE THAT WHILE DISPOSING OF F THE GROUNDS OF P A G E | 32 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) APPEAL NO. 4 & 5 OF THE ASSESSE S APPEAL I.E. ITA NO. 1725/MUM/2016, THE ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A TO THE EXTENT OF RS. 30,000/ - HAS BEEN UPHELD BY US AFTER NECESSARY DELIBERATIONS. IN TERMS OF OUR OBSERVATIONS RECORDED IN CONTEXT OF THE ISSUE UNDER CONSIDERATION, THE APPEAL OF THE REVENUE ASSAILING THE ORDER OF THE CIT(A) ON THE GROUND THAT HE HAS ERRED IN SCALING DOWN THE DISALL OWANCE UNDER SEC. 14A TO AN AMOUNT OF RS. 30,000/ - DOES NOT MERIT ACCEPTANCE AND IS THEREFORE DISMISSED . THE GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE IS DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. 2 3 . THAT AS THE GROUNDS OF APPEAL NO. 3 & 4 RAISED BY THE REVENUE ARE GENERAL IN NATURE, THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 2 4 . THE APPEAL OF THE REVENUE IS DISMISSED. 2 5 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS, AND THE APPEAL OF THE REVE NUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN COURT ON 1 9 / 12/2018 S D / - S D / - ( G. MANJUNATHA ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 19 .12 .2018 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT P A G E | 33 ITA NO. 1725/MUM/2016 AY 2011 - 12 PARAMOUNT CORPORATION LTD. VS. ITO - 8(2)(4) 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI