ACIT Circle-34(1), New Delhi V. Ashok Kumar Minda (HUF), New Delhi

ITA 133/DEL/2020

AI Insights

The case revolves around the dispute concerning the assessment of long-term capital gains (LTCG) and the offsetting of these gains with short-term capital losses (STCL) incurred through transactions in mutual funds. The assessee, Ashok Kumar Minda (HUF), sold shares of M/s Minda Stoneridge Instruments Ltd., realizing substantial LTCG, which he sought to offset with STCL from mutual fund transactions financed by a loan from M/s India Infoline Finance Ltd. (IIFL). The Assessing Officer (AO) disallowed the STCL, viewing the transactions as a colourable device to evade tax. However, the CIT(A) reversed this decision, leading to the Revenue's appeal to the Tribunal. The Tribunal upheld the CIT(A)'s decision, emphasizing the genuineness of the transactions and the lack of evidence supporting the AO's allegations of tax evasion.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115542 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-04-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 06-01-2020
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital Gains
• Section: 133(6); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘A’ : NEW DELHI) BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.133/Del/2020 (Assessment Year : 2016-17) ACIT, Circle-34(1), New Delhi Vs. Ashok Kumar Minda (HUF) A-15, Phase-1, Ashok Vihar, New Delhi PAN : AAGHA2440A (APPELLANT) (RESPONDENT) Assessee by Sh. Salil Agarwal, Sr. Adv., Sh. Shailesh Gupta, Adv. & Sh. Madhur Aggarwal, Adv. Revenue by Shri P. Praveen Sidharth, CIT- DR Date of hearing: 01.05.2023 Date of Pronouncement: 28.06.2023 ORDER PER ANUBHAV SHARMA, JM: The Assessee has come in appeal against the appellate order dated 18.10.2019 of Commissioner of Income Tax (Appeals)- 23, New Delhi, in appeal no. 135/19-20 for Assessment Year 2016-17 whereby the appeal of the assessee against assessment order u/s 143(1) of the Income Tax Act, 1961 dated 28.12.2018 passed by Asstt. Commissioner of Income Tax, Circle-34(1), New Delhi (hereinafter referred as the Ld. AO). 2. The Facts in brief are that assessee earned Long Term Capital Gain (LTCG) amounting to Rs. 27,09,42,726/- by selling 26,26,765 shares of M/s Minda Stoneridge Instruments Ltd. @ 107 per share. The assessee claimed a ITA 133.Del.2020 2 set off of loss of Rs. 27,18,93,255/- (in form of Short-Term Capital Gains) against the said Long Term Capital Gains of Rs. 27,09,42,726/-. The said loss (in form of short-term capital Gains) was incurred on sale of units of JM Equity Fund (Half Yearly Dividend option), also called JM Large Cap Fund, on 31.03.2016. These units were purchased on 03.12.2015 for Rs. 80,00,00,000/-. The investment in units of Large Cap Fund (J M Mutual funds) was done by taking a loan of Rs. 75,00,00,000/- from M/s. India Infoline Finance Ltd. (IIFL) on which an interest of Rs. 2,31,77,425/- was paid. In the meanwhile, on 30.03.2016, a dividend @ Rs. 6.25 per unit was paid out ( which totaled to Rs. 23,43,59,986/-). These units were sold for Rs. 55,12,84,170/- [Rs. 55,12,89,683/- less Rs. 5,513/- (STT)] on 31.03.2016 and a loss of Rs. 27,18,93,255/- {80,00,00,000 + 2,31,77,425 (-) 55,12,84,170} (in form of short term capital gains) was incurred. 2.1 The AO treated the transactions of taking loan from M/s. India Infoline Finanace Ltd.(IIFL), purchasing units of Mutual Fund (J M Large Cap Fund ) on 03.12.2015 and selling the units of Mutual Fund (J M Large Cap Fund ) 31.03.216 as a colourable device. According to the AO, these activities of taking loan from M/s. India Infoline Finanace Ltd.(IIFL), purchasing units of Mutual Fund (J M Large Cap Fund ) on 03.12.2015 and selling the units of Mutual Fund (J M Large Cap Fund ) 31.03.216, were exercised to avoid tax which arose on sale of shares of M/s. Minda Stoneridge Instrument Limited. In view of the same, the AO disallowed the loss of Rs. 27,18,93,255/- also having taken into account the NAV of sold stocks of M/s. Minda Stoneridge Instrument Limited from M/s. SMC Capital recalculated the LTGC. 3. Ld. CIT(A) however taking into consideration the fact that there was no dispute to the transactions were actually carried out for the genuineness incredibility of IIFL merely on suspicion, surmises and conjectures concluded that addition could not have been made. The Revenue is in appeal ITA 133.Del.2020 3 raising following grounds : “1. The Ld. CIT(A) has erred in deleting the addition of Rs. 27,18,93,255/- made by the AO on account of disallowance of STC loss, ignoring the fact that the assessee has used colourable device to avoid tax. 2. The Ld. CIT(A) has erred in deleting the addition of Rs. 1,63,38,478/- made on account of LTCG by AO, ignoring the fact that of valuation of shares of market rate. 3. That the appellant craved leave to add/delete/ modify the grounds of appeal at any time during hearing of appeal.” 4. Heard and perused the record. 5. Ld. DR submitted that Ld. AO had thoroughly examined the modus operandi of the assessee and how with assistance of M/s. India Infoline Finance Ltd. (IIFL) and M/s. J M Mutual Fund made investments in the mutual fund without any financial credentials to take the loan without any co- lateral security and to incur loss on sale of the mutual funds. Further calling valuation report of shares from M/s. SMC Capital, which had given a fair market value of 113.22 per unit while assessee sold the shares at Rs. 1.07 per shares additions were justified. It was submitted that Ld. AO had thoroughly examined the colourable device adopted by the assessee through India Infoline and JM Financial Mutual fund to evade the liability arising of long term capital gain received by the assessee on sale of shares of M/s. Minda Stoneridge Instruments Limited. 5.1 On the other hand Ld. Sr. Counsel, supported the findings of Ld. CIT(A) submitting that Ld. CIT(A) has thoroughly examined the issue. His stress was on the fact that both the parties who have been attributed collusion are not related and were working on market forces. He specifically mentioned that in para 4.6. Ld. AO had mentioned about the transactions effected by other family members which have been accepted u/s 143(3). Ld. Sr. Counsel submitted that all the necessary information were provided by IIFL, M/s. J M ITA 133.Del.2020 4 Financial Asset Management ltd. and ld. AO had fallen in error to place suspicion above the realities which have been examined by ld. CIT(A). 6. Giving thoughtful consideration to the matter on record and the submission, it can be appreciated from the order of Ld. AO that he has considered the transaction of purchase of mutual funds on the basis of loan to be a colourable device. Ld. AO considered that there was no business necessity for taking a loan and make investment. Ld. CIT(A) has fairly observed that Revenue authorities cannot question the intention of parties with regard to their business module or reasons for entering into a particular transaction. 7. Ld. AO then questions the assessee’s financials to take such a huge loan and repay the same. The bench is of considered view that Ld. AO has not cited out anything to show that M/s. IIFL was in anywhere related to assessee. Certainly there was delay in marking of the lien on 8.12.2015 and not on 03.12.2015 when the loan was given but it was the wisdom of IIFL to take the risk. In fact there was unconditional power of attorney issued by the assesee in favour of IIFL’s associate fund manager to make the purchase. 8. Then Ld. AO as concluded that as the assessee knew that there would be a tax liability on sale of shares so made the colourable arrangement. It comes up that Ld. AO had issued notices u/s 133(6) to both IIFL and M/s. JM Financial Mutual fund who have responded with all the necessary information which were relevant to the issue. Ld. AO has been unable to point out that in spite of being unrelated party as to why this two institutions, would put their credibility on stake. No disproportionate expenses on that account have been shown to reason that this alleged colorable devise has benefited these two parties. It appears from the assessment order that he kept on making inquiry with M/s J M Financial mutual fund about the fact if the fund was recognized by SEBI and who all were the investor to whom also dividend was paid etc., without making any effort on his own to collect any ITA 133.Del.2020 5 evidence to show that M/s. J M Financial Mutual Fund was acting as a conduit for the assessee. 9. The order of ld. CIT(A) shows that he has considered that there is no dispute to the transactions being actually carried out. He duly appreciated that M/s. IIFL and M/s J M Financial Asset Management Ltd. were both independent and had no relationship with the assessee, therefore, there was no reason to attribute any motive to them. Ld. CIT(A) also appreciated that the capacity of assessee to raise loan is not dependent upon the value of assets held and rightly that the lenders lend the money primarily securing the same as was done in case of assessee. It was rightly observed by Ld. CIT(A) that in regard to other family members Sarika Minda and Aakash Minda, who entered into similar transaction assessment was completed u/s 143(3). The orders of ld. CIT(A) takes into cognizance the fact that being quasi judicial authority Ld. AO could not have concluded on the basis of suspicion when transactions were entered into with unrelated parties who had confirmed transactions where replies to the notices u/s 133(6). In para 6.2.7 and 6.2.8 of the order of Ld. CIT(A) specifically examines the credentials of M/s. IIFL and M/s. J M Finance Asset Management Ltd. to observe that Ld. AO has not brought anything to show that these companies were engaging into anything against law when the transaction is otherwise real. 10. The Bench is of considered opinion that findings of ld. CIT(A) require no interference and there is no substance in the grounds raised. The appeal of Revenue is dismissed. Order pronounced in the open court on 28 th June, 2023. Sd/- Sd/- (ANIL CHATURVEDI) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 28 /06/2023 *Binita, Sr. PS* ITA 133.Del.2020 6 Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT By Order Assistant Registrar, ITAT, Delhi ITA 133.Del.2020 7 Draft dictated 24.05.2023 26.06.2023 Draft placed before author 25.05.2023 Approved Draft comes to the Sr.PS/PS Order signed and pronounced on Date of uploading on the website File sent to the Bench Clerk Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.