Axis Steels Ltd., Kolkata V. DCIT, CC-XXI, KOLKATA, Kolkata

ITA 1288/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9220 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 06-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SATNALIWALA FCA SHRI
• Assessee Lawyers: ASS KOLKATA
• Keywords: Capital receipt
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1288 / KOL / 2014 ASSESSMENT YEAR :2010-11 AXIS STEELS LTD., 19, G.K. TOWERS, CAMAC STREET, KOLKATA-17 [ PAN NO.AAACG 9375 P ] V/S . DCIT, CC-XXI, AAYAKAR BHAWAN PURVA, 5 TH FLOOR, 110, SHANTI PALLI, E.M. BY-ASS, KOLKATA-107 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI M.SATNALIWALA, FCA /BY RESPONDENT SHRI SRIDHAR BHATTACHARYA, ADDL-CIT-DR /DATE OF HEARING 22-02-2017 /DATE OF PRONOUNCEMENT 22-03-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-CENTRAL-II, KO LKATA DATED 23.04.20114 ASSESSMENT WAS FRAMED BY DCIT, CC-XXI, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 28.03.2013 FOR ASSESSMENT YEAR 2010-11. SHRI M. SATNALIWALA, LD. AUTHORIZED REPRESENTATIVE APPEARED ON BEHALF OF ASSESSEE AND SHRI SRIDHAR BHATTACHARYA, LD. DEPARTM ENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. ITA NO.1288/KOL/2014 A.Y. 2010-11 AXIS STEELS LTD. VS. DCIT, CC-XXI, KOL. PAGE 2 2. SOLITARY ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY SUS TAINING THE DISALLOWANCE OF 3.80 CRORES ON ACCOUNT OF FORFEITURE OF SHARES WAR RANTS. 3. THE FACTS IN BRIEF ARE THAT ASSESSEE IN THE PRES ENT CASE IS A LIMITED COMPANY AND IS ALSO A NON-BANKING FINANCIAL COMPANY REGISTERED WITH RESERVE BANK OF INDIA. THE ASSESSEE ACQUIRED 50 LAK HS SHARE WARRANT OF ELECTROSTEEL CASTINGS LIMITED (ECL FOR SHORT) FROM M/S DIWAKAR COMMERCIALS (P) LTD. (MDCPL FOR SHORT) ON 24.03.2008 AT A PRICE OF 76/- PER SHARE WARRANT. THE PRICE OF SHARE WARRANT OF 76/- WAS INCLUSIVE OF PREMIUM I.E. 75/- PER SHARE WARRANT. THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES WARRANT WAS REQUIRED TO MAKE 10% OF THE TOTAL PAYME NT OF THE SHARE WARRANT AND THE BALANCE AMOUNT WAS TO BE PAID AT THE TIME O F CONVERSION OF SHARE WARRANT INTO EQUITY SHARES. THEREFORE, ASSESSEE AT THE TIME OF PURCHASE PAID 7.60 PER SHARE WARRANT BEING 10% OF THE TOTAL VALUE OF THE PRICE PER SHARE WARRANT. THE GROSS PRICE OF SHARE WARRANT AT THE TI ME OF CONVERSION OF SHARE WARRANT WAS RS. 35 PER SHARE WARRANT. ASSESSEE CHOS E NOT TO MAKE BALANCE PAYMENT I.E. 90% TOTAL VALUE OF SHARE WARRANTS. AS A RESULT, THE INITIAL PAYMENT MADE BY ASSESSEE WAS FORFEITED AND LOSS OF 3.80 CRORES WAS INCURRED BY ASSESSEE WHICH WAS CLAIMED AS SHORT TERM CAPITAL LO SS (STCL FOR SHORT). HOWEVER, THE AO DISREGARDED THE CLAIM OF ASSESSEE B Y OBSERVING THAT AMOUNT FORFEITED HAS NOT BEEN OFFERED TO TAX BY ECL THUS T HE LOSS AS CLAIMED BY ASSESSEE WAS NOT ALLOWED TO BE CARRIED FORWARD. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT AT THE TI ME OF CONVERSION OF SHARE WARRANT INTO EQUITY SHARE THE PRICE OF THE SHARE OF ECL WAS DECLINED TO 35/- PER SHARE. THEREFORE, THE ASSESSEE ABANDONED THE ID EA TO PURCHASE THE SHARES WARRANT AND ACCORDINGLY THE BALANCE PAYMENT OF THE SHARE WARRANT WAS NOT MADE. THE ASSESSEE FURTHER SUBMITTED THAT THE A MOUNT FORFEITED BY ECL IS IN THE NATURE OF CAPITAL RECEIPT AND THEREFORE THE SAME CANNOT BE TAXABLE IN THE HANDS OF ECL. MOREOVER, THE ASSESSEE SUBMITTED THAT THE TAX TREATMENT OF THE FORFEITED AMOUNT IN THE HANDS OF ECL CANNOT BE A DE CIDING FACTOR FOR THE ITA NO.1288/KOL/2014 A.Y. 2010-11 AXIS STEELS LTD. VS. DCIT, CC-XXI, KOL. PAGE 3 DISALLOWANCE OF LOSS IN THE HANDS OF ASSESSEE. HOWE VER, LD. CIT(A) HAS DISREGARDED THE PLEA OF ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- 5. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE DOCUMENTS FILED BY THE APPELLANT COMPANY. IT IS OBSERVED THAT M/S ELECTRO STEEL CASTINGS LTD. ISSUE D A WARRANT CERTIFICATE TO M/S DIWAKAR COMMERCIALS PVT. LTD. FOR FIFTY LAKH WARRAN TS ON 19.01.2008. THE SAID WARRANTS WERE PURCHASED BY THE APPELLANT COMPANY FR OM M/S DIWAKAR COMMERCIALS PVT. LTD. AND ON 24.03.2008 THE APPELLANT COMPANY L ODGED THE WARRANTS WITH ELECRO STEEL CASTINGS LTD., FOR TRANSFER OF THE SAME IN TH E NAME OF APPELLANT COMPANY. AS PER THE EVIDENCE SUBMITTED BY THE APPELLANT COMPANY , M/S ELECTRO STEEL CASTINGS LTD., TRANSFERRED THE WARRANTS IN THE NAME OF APPEL LANT COMPANY ON 24.03.2008 ITSELF. HOWEVER, SURPRISING, M/S ELECTRO STEEL CASTINGS LTD ., WROTE A LETTER DATED 19.06.2009 WHICH WAS ADDRESSED TO M/S DIWAKAR COMMERCIALS PVT. LTD., I.E. THE ORIGINAL ALLOTTEE FOR CONVERTIBLE SHARE WARRANTS IN WHICH M/S ECL REQ UESTED DIWAKAR COMMERCIALS TO MAKE PAYMENT OF BALANCE 90% OF THE TOTAL CONSIDERAT ION TOWARDS ALLOTMENT OF FIFTY LAKHS CONVERTIBLE SHARE WARRANTS. THUS, THE LETTER FOR PAYMENT OF BALANCE 90% CONSIDERATION WAS ISSUED BY ECL TO DIWAKAR COMMERCI ALS AND NOT TO THE APPELLANT COMPANY THOUGH AS PER THE WARRANT CERTIFICATE THE N AME OF THE APPELLANT COMPANY WAS ENTERED ON 24.03.2008 ITSELF. FURTHER, M/S ECL ISSUED A LETTER DATED 21.07.2009 AND THAT WAS ALSO ADDRESSED TO M/S DIWAKAR COMMERCI AL PVT. LTD., AND NOT TO THE APPELLANT COMPANY. IN THE SAID LETTER ECL INFORMED DIWAKAR COMMERCIALS THAT SINCE WARRANTS WERE NOT CONVERTED INTO SHARES WITHIN 18 M ONTHS FROM THE DATE OF ALLOTMENT THEREOF, THE INITIAL PAYMENT OF 10% IS FORFEITED BY THE COMPANY AND ACCORDINGLY ALL FIFTY LAKH CONVERTIBLE SHARE WARRANTS STANDS CANCELLED. F ROM THE ABOVE, IT APPEARS THAT ALL WAS NOT WELL WITH THE TRANSACTIONS REGARDING CLAIM OF PURCHASE OF WARRANTS BY THE APPELLANT COMPANY. IT IS NOT KNOWN THAT IF ECL ALRE ADY CHANGED THE NAME IN THE WARRANT CERTIFICATE FROM DIWAKR COMMERCIAL PVT. LTD ., TO AXIS STEELS LTD. ON 24.03.2008, AS TO WHY LETTERS DATED 19.06.2009 AND 21.07.2009 WERE ADDRESSED TO THE ORIGINAL ALLOTTEE FOR PAYMENT OF BALANCE CONSID ERATION AS WELL AS FORFEITURE OF 10% AMOUNT. IN VIEW OF ABOVE, I AM OF THE OPINION THAT THE LOSS OF RS.3.80 CRORE CLAIMED BY THE APPELLANT COMPANY DID NOT APPEAR TO BE A GEN UINE LOSS. HENCE, THE ACTION OF THE APPELLANT COMPANY DID NOT APPEAR TO BE A GENUIN E LOSS. HENCE, THE ACTION OF THE AO MAKING DISALLOWANCE OF LOSS CLAIMED BY THE APPEL LANT COMPANY AS WELL AS DENYING OF CARRY FORWARD OF LOSS IS UPHELD. THE GRO UND NO. 1 & 2 ARE DISMISSED. BEING AGGRIEVED BY THIS, ASSESSEE CAME IN SECOND AP PEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THAT, THE LD. C.I.T.(A)-II, KOLKATA WAS NOT JUS TIFIED IN CONFIRMING THE DISALLOWANCE OF SHORT TERM CAPITAL LOSS OF RS.3,80,00,000/- ON FORFEITURE OF SHAREWARRANTS. 2. THAT, THE LD. CIT(A),C-II, KOLKATA WAS NOT JUSTI FIED IN NOT ALLOWING CHARRY FORWARD OF SHORT TERM CAPITAL LOSS OF RS.3,80,00,000/-. ITA NO.1288/KOL/2014 A.Y. 2010-11 AXIS STEELS LTD. VS. DCIT, CC-XXI, KOL. PAGE 4 3. THAT OTHERS GROUNDS, IF ANY, WILL BE ARGUED AND URGED AT THE TIME OF HEARING. 5. BEFORE US LD. AR FOR THE ASSESSEE FILED PAPER BO OK WHICH IS COMPRISING PAGES 1 TO 11 AND HE REITERATED SAME SUBMISSION AS MADE BEFORE LD. CIT(A). ON THE OTHER HAND, LD. DR FOR THE REVENUE VEHEMENTL Y RELIED ON THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO DI SALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT LOSS CLAIMED B Y ASSESSEE HAS NOT BEEN OFFERED TO TAX BY ECL. HOWEVER LD. CIT(A) ALSO CONF IRMED THE ORDER OF AO BUT ON DIFFERENT FOOTINGS. THE LD. CIT(A) OBSERVED THAT ECL HAS WRITTEN A LETTER TO THE ORIGINAL ALLOTTEE I.E. MDCPL FOR THE BALANCE AM OUNT OF PAYMENT I.E. 90% OF THE TOTAL CONSIDERATION TOWARDS THE ALLOTMENT OF 50 LAKH CONVERTIBLE SHARE WARRANTS. THEREFORE THE LD. CIT(A) WAS OF THE VIEW THAT LOSS CLAIMED BY ASSESSEE IS BOGUS AND ACCORDINGLY, HE DISALLOWED TH E SAME. HOWEVER ON EXAMINATION OF THE ORDER OF AUTHORITIES BELOW, WE F IND THAT LOSS CLAIMED BY ASSESSEE AS DISCUSSED ABOVE HAS BEEN DISALLOWED ON DIFFERENT REASONS. FIRSTLY, THE PROFIT AMOUNT WAS NOT OFFERED TO TAX B Y ECL. SECONDLY, THE DEMAND WAS RAISED BY ECL TO THE ORIGINAL ALLOTTEE OF SHARE WARRANT I.E. MDCPL BY ECL. ADMITTEDLY, THE LOSS INCURRED BY ASSESSEE WHIC H WAS ADMITTED BY AO BUT THE SAME WAS REJECTED ON THE GROUND THAT ECL HAS NO T OFFERED TO TAX. HERE, IT IS PERTINENT TO NOTE THAT WHAT WILL BE THE TAX TREA TMENT OF THE FORFEITED AMOUNT IN THE HANDS OF ECL IS NOT THE CONCERN OF THE AO WH ETHER IT IS TAXABLE RECEIPT OR REVENUE RECEIPT. THE AO HAS TO SEE THE TRANSACTI ONS AND ITS EFFECT IN THE HANDS OF THE ASSESSEE. THEREFORE, IN OUR CONSIDERED VIEW, THE TAX TREATMENT IN THE HANDS OF ECL CANNOT BE A DECIDING FACTOR FOR TH E LOSS INCURRED AND SUBSEQUENTLY CLAIMED BY ASSESSEE. THEREFORE, THE AL LEGATION FRAMED BY AO AGAINST THE ASSESSEE IS BASELESS AND IT WAS ALSO SE EN THAT A NOTICE WAS ISSUED BY THE AO U/S 133(6) OF THE ACT TO ECL FOR T HE VERIFICATION OF LOSS INCURRED AND CLAIMED BY ASSESSEE. THE ECL IN RESPON SE THERETO AS CLEARLY ITA NO.1288/KOL/2014 A.Y. 2010-11 AXIS STEELS LTD. VS. DCIT, CC-XXI, KOL. PAGE 5 SUBMITTED THAT THE ORIGINAL ALLOTTEE WAS MDCPL BUT SUBSEQUENTLY IT WAS TRANSFERRED TO ASSESSEE. THE COPY OF THE LETTER IS PLACED ON PAGE 6 AND 7 OF THE PAPER BOOK. BESIDES THE ABOVE, ECL HAS DULY REC ORDED IN ITS RECORD THE TRANSFER OF 50 LAKH CONVERTIBLE WARRANTS FROM MDCPL TO ASSESSEE AND THE CONFIRMATION OF THE SAME IS PLACED ON PAGES 9 TO 10 OF THE PAPER BOOK. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE IMPUGNED FINDING OF LD. CIT(A) THAT THE LETTER HAS NOT BEEN ISSUED TO THE ASSESSEE BUT TO MDCPL FOR THE BALANCE PAYMENT IS NOT A VALID REASON FOR THE IMPUGNED DISA LLOWANCE. THUS, AFTER CONSIDERING ALL THE FACTS IN TOTALITY, WE ARE INCLI NED TO REVERSE THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE GETS THE RELIEF ACC ORDINGLY. 7. LAST ISSUE IS GENERAL IN NATURE AND CALLS FOR NO SPECIFIC ADJUDICATION. 8. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 22/ 03/2017 SD/- SD/- ( !') ( !') (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S $!% &- 22 / 03 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-AXIS STEELS LTD., 19, G.K. TOWERS, CAMAC STREET, KOLKATA-17 2. /RESPONDENT-DCIT,CC-XXI, AAYAKAR BHAWAN PURVA, 5 TH FLOOR, 110, SHANTI PALLI, E.M BY-PASS KO LKATA-107 3. %.%/0 1 1 2 / CONCERNED CIT KOLKATA 4. 1 1 2- / CIT (A) KOLKATA 5. 567 /0, 1 /0 , / DR, ITAT, KOLKATA 6. 7:; <= / GUARD FILE. BY ORDER/ 1! , /TRUE COPY/ / % 1 /0 ,