Roots Industries India Ltd., CHENNAI V. JCIT, Coimbatore

ITA 1190/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81186 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Cost of acquisition
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , . . , ! ' [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.1190/MDS/2013 / ASSESSMENT YEAR : 2009-10 M/S ROOTS INDUSTRIES INDIA LTD R.K.G INDUSTRIAL ESTATE GANAPATHY COIMBATORE 641 006 VS. THE JT. COMMISSIONER OF INCOME-TAX RANGE IV COIMBATORE [PAN AABCR 0314 E] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI GURU BASHYAM, JCIT / DATE OF HEARING : 09-09-2014 ! / DATE OF PRONOUNCEMENT : 25-09-2014 ' / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 20 09-10, IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCO ME-TAX(APPEALS)-I COIMBATORE, DATED 29.4.2013, PASSED IN I.T.A.NO.212 /11-12 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). I.T.A.NO.1190/13 :- 2 -: 2. THE ASSESSEES SOLE SUBSTANTIVE GROUND CHALLENGES THE CIT(A)S ORDER SUSTAINING DISALLOWANCE OF ITS SET O FF CLAIM OF LONG TERM CAPITAL LOSS OF ` 14 LAKHS AGAINST LONG TERM CAPITAL GAINS OF ` 3,79,125/- MADE IN THE ASSESSMENT ORDER DATED 22.11.2011. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING ENGINEERING GOODS AND JOB WORKS. THE ASSESSEE HAD FILED ITS RETURN ON 28.9.2009 ADMITTING INCOME OF ` 1,05,40,999/- UNDER NORMAL PROVISIONS AND BOOK PROFITS OF ` 10,49,73,127/-. THE SAME WAS SUMMARILY PROCESSED. 4. IN SCRUTINY, THE ASSESSING OFFICER NOTICED THE ASSESSEES CLAIM OF LONG TERM CAPITAL LOSS ARISING FROM LOSS O F INVESTMENTS IN ITS JOINT VENTURE COMPANY, M/S ROOTS BRAKE SYSTEMS P. L TD. IT HAD INVESTED A SUM OF ` 14 LAKHS. THE SAID COMPANY HAD UNDERGONE WINDING UP. ITS NAME WAS STRUCK OFF FROM THE COMPA NIES ROLLS ON 23.12.2008 I.E IN THE RELEVANT PREVIOUS YEAR. THE ASSESSEE COULD NOT RECOVER ANY SUM FROM ITS AFORESAID INVESTMENTS. O N THE OTHER HAND, IT HAD DERIVED CAPITAL GAINS OF ` 3,79,125/- FROM INVESTMENTS MADE IN ROOTS INDUSTRIES NORTH AMERICA. THE ASSESSEE HAD SOUGHT TO SET OFF ITS AFORESAID LONG TERM CAPITAL LOSS AGAINST THE LA TTER LONG TERM CAPITAL GAINS AND DECLARED NET LONG TERM CAPITAL LOSS OF ` 10,20,875/-. THE I.T.A.NO.1190/13 :- 3 -: ASSESSING OFFICER AGREED WITH THE ASSESSEES LONG T ERM CAPITAL LOSS ARISING FROM SHARES BUT DECLINED THIS SET OFF BY OB SERVING THAT SINCE NO CONSIDERATION HAD BEEN RECEIVED AGAINST THE IMPUGNE D EXTINGUISHMENT, SECTION 48 OF THE ACT PRESCRIBING COMPUTATION COULD NOT BE APPLIED. HE QUOTED LANDMARK JUDGMENT OF CIT VS B.C. SRINIVASA SETTY [1981]128 ITR 294 (SC) AND DISALLOWED THE AS SESSEES CLAIM. THE AFORESAID LONG TERM CAPITAL GAINS WERE BROUGHT TO TAX. 5. THE CIT(A) HAS ALSO AFFIRMED THE ASSESSING OFFICER S FINDINGS. THEREFORE, THE ASSESSEE IS AGGRIEVED. 6. WE HAVE HEARD BOTH PARTIES AND PERUSED THE CASE FIL E. RELEVANT FACTS GIVING RISE TO THE PRESENT ISSUE OF SETTING OFF OF THE LONG TERM CAPITAL LOSS AGAINST LONG TERM CAPITAL GAINS A LREADY STAND NARRATED. THERE IS NO DISPUTE THAT THE ASSESSEE S SHARES IN QUESTION ARE CAPITAL ASSETS. ITS INVESTMENTS STAND EXTINGUI SHED WITHOUT ANY CONSEQUENTIAL SUM BEING PAID. THE NET EFFECT IS TH AT THE ASSESSEE HAS SUFFERED LOSSES OF ` 14 LAKHS. WE FIND THAT EXTINGUISHMENT OF RIGHTS I N A CAPITAL ASSET IS INCLUDED IN THE DEFINITION OF TRANSFER U/S 2(47)(II) OF THE ACT. THE ASSESSING OFFICER IS FAIR ENOUGH T O TREAT THIS EXTINGUISHMENT AS LOSS. HE ONLY OBSERVES THAT ONCE THERE IS NO I.T.A.NO.1190/13 :- 4 -: CONSIDERATION RECEIVED, COMPUTATION PROVISION U/S 4 8 DOES NOT APPLY. WE PROPOSE TO DIFFER WITH THIS REASONING. UNDISPU TEDLY, THE ASSESSEE HAS NOT RECEIVED ANY CONSIDERATION IN LIEU OF THE S AID EXTINGUISHMENT. THE SAME IS TO BE TREATED AS ` NIL RESULTING IN NET LONG TERM CAPITAL LOSS OF ` 14 LAKHS. EVEN SECTION 48 OF THE ACT MAINTAINS THI S FIGURE OF LOSS ONLY. THE REVENUES TECHNICAL OBJECTION NO MO RE SURVIVES. 7. NOW WE COME TO THE CASE LAW QUOTED BY THE REVENUE. THE FIRST AMONGST THREE JUDICIAL PRECEDENTS IS THE LAND MARK CASE B.C. SRINIVASA SETTY(SUPRA). THE HON'BLE APEX COURT HAD DEALT WITH COMPUTATION OF GOODWILL ACQUIRED AFTER COMMENCEMENT OF A NEW BUSINESS. IT WAS HELD THAT SUCH A GOODWILL WOULD N OT BE AN ASSET U/S 45 OF THE ACT RESULTING IN ANY CAPITAL GAINS SINC E COST OF ACQUISITION WAS NOT ASCERTAINABLE. IN THE INSTANT CASE, BOTH RELEVANT FIGURES FOR COMPUTATION ARE AVAILABLE(SUPRA). THIS CASE LAW I S DISTINGUISHED. 8. THE REVENUES NEXT JUDGMENT QUOTED IS CIT VS R. CHIDAMBARANATHA MUDALIAR [1999] 240 ITR 552 (MAD). THE ASSESSEE THEREIN HAD SUFFERED A LOSS BECAUSE HIS AMOUNT DEPO SITED IN A WINDING UP COMPANY COULD NOT BE RECOVERED. HE HAD ALSO CLAI MED THIS AMOUNT AS A BAD DEBT. THE COMMISSIONER TREATED IT AS A CA PITAL LOSS. THE ASSESSEE PRAYED FOR SETTING IT OFF AGAINST CAPITAL GAINS. THE HON'BLE JURISDICTIONAL HIGH COURT DENIED THIS RELIEF AND TE RMED IT AS ONLY A CASE I.T.A.NO.1190/13 :- 5 -: OF CAPITAL LOSS NOT ARISING FROM A TRANSFER OF ANY CAPITAL ASSET. WE HAVE ALREADY HELD IN THE PRESENT ASSESSEES CASE T HAT THE DEFINITION OF TRANSFER UNDER THE ACT I.E SECTION 2(47)(II) ALRE ADY APPLIES IN INVESTMENTS EXTINGUISHMENT. THEREFORE, THIS CASE LAW IS ALSO DISTINGUISHED. 9. THE REVENUES LAST QUOTED JUDGMENT IS KERALA SMALL INDUSTRIES DEVELOPMENT CORPORATION LTD VS CIT [2004 ]270 ITR 452(KERALA). THE CONCERNED ASSESSEES SHARES RELEV ANT TO THE LOSS CLAIMED HAD ONLY BEEN REVALUED AND THERE WAS NO ELE MENT OF TRANSFER INVOLVED. THE HON'BLE HIGH COURT ALSO TOOK NOTICE OF THE FACT THAT THERE WERE NO TRADING ACTIVITIES I.E SALE AND PURCH ASE OF SHARES INVOLVED. WE FIND THAT BOTH THE SAID CIRCUMSTANCE S DO NOT ARISE IN THE PRESENT CASE. THE LAST CASE LAW IS ALSO HELD NOT APPLICABLE IN FACTS OF THE PRESENT CASE. IN VIEW OF OUR ABOVE DISCUSSION, WE HOLD THAT THE ASSESSEE IS ENTITLED TO SET OFF LONG TERM CAPITAL LOSS OF ` 14 LAKHS AGAINST LONG TERM CAPITAL GAINS OF ` 3,79,125/- PRAYED FOR IN THE COURSE OF ASSESSMENT. ITS SUBSTANTIVE GROUND IS ACCEPTED. I.T.A.NO.1190/13 :- 6 -: 10. THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 25 TH OF SEPTEMBER, 2014, AT CHENNAI. SD/- SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) ! / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 25 TH SEPTEMBER, 2014 RD %& '()( / COPY TO : 1 . / APPELLANT 2 . / RESPONDENT 3. *+, / CIT(A) 4. * / CIT 5. (-. / / DR 6. .01 / GF