The ACIT, Circle-10, Ahmedabad V. Shri Rajpal P.Mehta, Ahmedabad

ITA 1381/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9319 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-07-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 10-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGRAWAL
• Assessee Lawyers: S N SOPARKAR
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.1381/AHD/2005 ASSESSMENT YEAR: 2001-02 DATE OF HEARING:10.7.09 DRAFTED:13.7.09 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-10, AHMEDABAD V/S . SHRI RAJPAL P. MEHTA, 15, NAVYUG SOCIETY, S.M. ROAD, AHMEDABAD PAN NO.ABCPM1469Q (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI RAJEEV AGRAWAL, CIT DR RESPONDENT BY:- SHRI S.N.SOPARKAR, AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE OR DER OF INCOME-TAX (APPEALS)-XVI, AHMEDABAD IN APPEAL NO. CIT(A)-XVI/C IR.10/24/04-05 DATED 28-02- 2005. THE ASSESSMENT WAS FRAMED BY THE ASSTT. COMMI SSIONER OF INCOME-TAX, CIRCLE-10, AHMEDABAD U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 29-03-2004 FO R THE ASSESSMENT YEAR 2001-02. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF CAPITAL LOSS. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING EFFE CTIVE GROUND NO.1 :- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACT S IN DIRECTING TO DELETE THE DISALLOWANCE OF THE CAPITAL LOSS AMOUNTING TO RS.20 ,16,230/-. ITA NO.1381/AHD/2005 A.Y. 2001-02 ACIT, CIR-10, ABD V. SH. RAJPAL P. MEHTA PAGE 2 3. AT THE OUTSET THE LEARNED DR STATED THAT THIS I S NOT THE CASE OF DIVIDEND STRIPPING AND HE NARRATED THE FACTS OF THE CASE WHICH HAVE BE EN DISCUSSED ELABORATELY IN ASSESSMENT ORDER AS WELL AS IN THE ORDER OF CIT(A). ACCORDING TO THE LEARNED DR, THE ASSESSEE HAD INVESTED IN MUTUAL FUNDS AND WITHI N A PERIOD OF TWO DAYS ONLY, THE ASSESSEE SOLD THE UNITS OF MUTUAL FUND AND ACCORDIN GLY LOSS OF RS.20,16,230/- WAS CREATED. ACCORDING TO HIM, SIMULTANEOUSLY THE ASSES SEE EARNED DIVIDEND INCOME OF RS.17,84,067/- FROM THE SAID INVESTMENT WITHIN THE PERIOD OF TWO DAYS AND CLAIMED THE SAID DIVIDEND INCOME AS EXEMPT U/S.10(33) OF TH E ACT. THUS, AS PER HIM, THE ASSESSEE HAS ON THE ONE SIDE CREATED DIVIDEND INCOM E WHICH IS CLAIMED EXEMPT AND ON THE OTHER HAND CREATED LOSS OF RS.20,16,230/- WH ICH IS CLAIMED TO BE CARRIED FORWARD TO BE SET OFF AGAINST CAPITAL GAIN. THE LD. DR ACCORDINGLY ARGUED THAT THE ASSESSEE USED A COLOURABLE DEVICE TO REDUCE THE TAX ABLE INCOME AND PRE-KNOWINGLY ENTERED INTO TRANSACTIONS OF INVESTMENT WITH MUTUAL FUNDS AND THE RATIO OF HON'BLEBLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD. (1985) 154 ITR 148 (SC) IS VERY MUCH RELEVANT AND APPLICABLE IN THE FACTS OF T HE CASE OF ASSESSEE. THE LOSS WAS CREATED BY THE ASSESSEE UNDER A DEVICE AND IS T HEREFORE NOT ADMISSIBLE. THE LD. DR FURTHER ARGUED THAT SECONDLY THE PROVISIONS OF SECTION 14A OF THE ACT WHICH ARE OPERATIVE WITH EFFECT FROM 01-04-2001 ARE VERY CLEAR THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE LD. DR MAINLY RELIED ON THE SPECIAL BENCH OF THIS TRIBUNAL MUMBAI BENCH IN THE CASE OF CIT V. DAGA CAPITAL INVESTMENT PVT. LTD. (2008) 119 TTJ 209 (MUM) (SB) , WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- SECTION 14A APPLIES TO ALL HEADS OF INCOME AND AIM S AT DISALLOWING EXPENDITURE INCURRED IN RELATION TO INCOME NOT FORM ING PART OF TOTAL INCOME EVEN THOUGH SUCH EXPENDITURE MAY BE ALLOWABLE UNDER ANY OTHER PROVISION, E.G., S.36(1)(III); PROVISIONS OF S. 14A ARE APPLIC ABLE WITH RESPECT TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE ENGAGED IN T HE BUSINESS OF DEALING IN SHARES AND SECURITIES, ON THE SHARES HELD AS STO CK-IN-TRADE; PROVISIONS OF SUB-S. (2) AND (3) OF S. 14A ARE PROCEDURAL IN NATU RE, HENCE APPLICABLE RETROSPECTIVELY. ACCORDING TO HIM, THE ASSESSEE HAS CLAIMED DIVIDEND OF RS.26,41,149/- AS EXEMPT U/S.10(33) OF THE ACT AND AGAINST SUCH EXEMPT DIVID END INCOME, THE ASSESSEE ITA NO.1381/AHD/2005 A.Y. 2001-02 ACIT, CIR-10, ABD V. SH. RAJPAL P. MEHTA PAGE 3 CLAIMED LOSS OF RS.20,16,230/- AS TO BE SET OFF AGA INST THE INCOME. THE CLAIM OF THE ASSESSEE IS NOT TENABLE IN FACTS AS WELL AS IN LAW. 4. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE A RGUED THAT THE ASSESSING OFFICERS FINDINGS IN RESPECT TO INVESTMENT IN UNIT S OF MUTUAL FUNDS WAS ONLY TO REALIZE TAX TREE DIVIDEND IS NOT CORRECT BECAUSE THE ASSESS EE WANTED TO MAKE INVESTMENT IN THE MUTUAL FUNDS, WHICH WAS MADE, AND DIVIDEND WAS DECLARED WHICH WAS RECEIVED BY THE ASSESSEE. HE FURTHER STATED THAT THIS DIVIDE ND WAS GIVEN BECAUSE THE ASSESSEE HAS MADE INVESTMENT IN THE MUTUAL FUNDS OU T OF HIS CAPITAL AND HAS OPTIONS TO INVEST IN HIS BUSINESS OR IN MUTUAL FUND OR IN B ANK DEPOSITS AND THEREFORE, IT CANNOT BE SAID THAT THERE HAS BEEN SERIES OF TRANSA CTIONS ON PAPER RELATING TO INVESTMENT IN UNITS OF MUTUAL FUND. ACCORDING TO HI M, THE TRANSACTIONS OF INVESTMENT IN MUTUAL FUND ARE BACKED UP BY FINANCE FLOWING FRO M THE ASSESSEES DEPOSITS LYING WITH COMPANIES AND FIRMS AND UPON THE DECISION OF D ISINVESTMENT BEING TAKEN BY THE ASSESSEE THESE FUNDS HAVE BEEN RETURNED THEREFORE I T IS NOT A PAPER TRANSACTION. HE FURTHER STATED THAT, IT IS A GENUINE TRANSACTION OF INVESTMENT OF THE ASSESSEE AND IT IS DECISION OF ASSESSEE TO MAKE INVESTMENT IN MUTUAL F UNDS. ACCORDING TO HIM, MUTUAL FUNDS AND SEBI ALWAYS STATE THE RISK FACTOR OF MAKI NG INVESTMENT IN MUTUAL FUNDS AND IT DOES NOT ALWAYS HAPPEN THAT ONE END UP MAKIN G PROFITS IN MUTUAL FUND AS THE NET ASSET VALUE GOES UP AND DOWN WITH THE MARKET CO NDITIONS AND INVESTMENTS HELD BY MUTUAL FUNDS. IT IS NOT EARNING INTEREST INCOME FROM MUTUAL FUNDS. IF THE MARKET GOES DOWN THEN THE NAV FOR UNITS WILL GO DOWN. THES E KIND OF INVESTMENTS ARE MADE FROM LAST MANY YEARS. INVESTORS USED TO INVEST IN S HARES OF LIMITED COMPANY LIKE BATA, ARVIND MILLS, BOMBAY DYEING AND CENTURY MILLS WHERE THEY WOULD GET DIVIDEND AND A COUPON TO PURCHASE THE PRODUCTS MANU FACTURED BY THE COMPANY AT DISCOUNTS. THE SHARES WERE PURCHASED ON EITHER BADL A ACCOUNT OR AT THE TIME OF BOOK CLOSURE. LATER ON, WHEN TRADING STARTS IN THE SCRIPT, THE SHARES SOLD AND PROFIT OR LOSS ON INVESTMENT IS REALIZED BY THE INVESTOR. THE SE CASES HAVE NEVER BEEN CONSIDERED AS PAPER EXERCISE OR SERIES OF TRANSACTI ON ON PAPER. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, IN CASE OF ASSESSEE, HE M ADE INVESTMENT AND AFTER RECEIVING DIVIDEND, HE SAW THAT THE NAV WAS GOING D OWN AND WITH A VIEW TO ARREST HIS LOSSES HE DECIDED TO QUIT FROM MUTUAL FUND. HE THEREFORE INCURRED LOSS. INVESTMENT IN MUTUAL FUND IS NOT MADE FOR EARNING D IVIDEND INCOME ONLY. IT IS ONE OF THE OBJECTIVES BUT MAIN CONSIDERATION IS RECEIVING APPRECIATION FROM INVESTMENTS. ITA NO.1381/AHD/2005 A.Y. 2001-02 ACIT, CIR-10, ABD V. SH. RAJPAL P. MEHTA PAGE 4 5. THE LD. COUNSEL FURTHER MADE ARGUMENTS THAT WHIL E SETTLING LAW AND MAKING AMENDMENT TO SUCH A SITUATION WHICH GIVES BENEFIT T O ASSESSEE AN AMENDMENT IS BROUGHT W.E.F. A.Y. 2002-2003. SECTION 94(7) WAS BR OUGHT FOR DIVIDEND STRIPPING WHICH WAS BROUGHT PROSPECTIVE. THIS ASPECT HAS BEEN EXAMINED BY ITAT MUMBAI SPECIAL BENCH IN THE CASE OF WALLFORT SHARES & STOCK BROKERS LTD. V. ITO (2005) 96 ITD 1 (MUM) (SB), WHEREIN THE ISSUE HAS BEEN DEALT WITH IN GREAT DEAL AND THE AMENDMENT IS TO BE HELD RETROSPECTIVE. ACCORDING TO THE LD. COUNSEL IF LAW DESIRED TO CORRECT THE SITUATION AS MENTIONED BY YOU IT WOULD HAVE BEEN BROUGHT RETROSPECTIVELY AS MANY OTHER PROVISIONS HAVE BEEN INTRODUCED. THE SUGGESTION MADE BY THE AO IS AGAINST THE PROVISION OF LAW AND IS NOT TENABLE IN LAW. THE ASSESSEE HAS INCURRED SHORT TERM CAPITAL LOSS OF RS. 20,16,392/- WHICH CA NNOT BE SEPARATED AND CANNOT BE EQUATED WITH EXPENDITURE INCURRED BY THE ASSESSEE T O EARN DIVIDEND INCOME. THE ASSESSEE HAS EARNED INCOME AND UPON TRANSFER OF ASS ETS HE HAS INCURRED CAPITAL LOSS AND NOT A REVENUE LOSS WHICH IS AGAINST YOUR D ISCUSSION AND THE EXPENDITURE BEING DISALLOWED. UNDER THE CIRCUMSTANCES, DISALLO WING SHORT TERM CAPITAL LOSS OF RS. 20,16,392/- NEEDS TO BE RECONSIDERED. 6. WE FIND THAT THE CIT(A) AFTER CONSIDERING THE SU BMISSIONS MADE BEFORE HIM, EXACTLY THE SAME WHAT HAS BEEN MADE BEFORE US, ALLO WED THE CLAIM OF THE ASSESSEE BY GIVING FOLLOWING FINDINGS IN HIS APPELLATE ORDER :- 2.3.5 ON CONSIDERATION OF THE ENTIRE SET OF FACTS OF THE CASE RELATING TO THE IMPUGNED ISSUE, IT IS OBSERVED THAT THE A.O. HAS NO T DOUBLED THE GENUINENESS OF ANY OF THE TRANSACTIONS INVOLVED, SUCH AS, SUBSC RIBING TO THE UNITS OF THE MUTUAL FUNDS, ALLOTMENT OF UNITS, ALLOTMENT OF UNIT S AGAINST DIVIDEND EARNED OR THE PAYMENTS TO APPELLANT, ON REDEMPTION OF THE UNI TS. FURTHER, THE A.O. HAS NOT DISPUTED THE FACT THAT THE PAYMENTS / RECEIPTS ON THESE TRANSACTIONS WERE THROUGH CHEQUE / REGULAR BANKING CHANNEL. THEREFORE , THERE IS CONSIDERABLE FORCE IN THE ARGUMENT OF THE LD. A.R. THAT THE TRAN SACTIONS INVOLVED WERE LEGAL AND GENUINE BUSINESS TRANSACTIONS. FURTHER, IT IS N OT THE CASE OF THE A.O. THAT THE PARTIES TO THE TRANSACTIONS WERE DUMMY AND MERE PAPER ENTITIES OR THAT THERE WAS ANY COLLUSION BETWEEN THE APPELLANT AND T HE CONCERNED MUTUAL FUNDS. THE A.O. HAS ALSO NOT BROUGHT ANY MATERIAL O N RECORD TO INDICATE THAT ANY OF THE TRANSACTIONS WAS SHAM OR ONLY ON PAPER O R WAS IN THE FORM OF AN ARTIFICIAL INSERTED STEPS. FURTHER I FIND MERIT IN THE CONTENTION OF THE APPELLANT THAT THE TAX PLANNING WITHIN FOUR CORNERS OF LAW WA S PERMISSIBLE AND EVERY ATTEMPT OF TAX REDUCTION MADE AS PER THE PROVISIONS OF LAW BY AN ASSESSEE SHOULD NOT BE VIEWED OR TREATED AS AN INSTANCE OF T AX AVOIDANCE. THIS VIEW IS SUPPORTED BY THE FOLLOWING CASE LAWS: ITA NO.1381/AHD/2005 A.Y. 2001-02 ACIT, CIR-10, ABD V. SH. RAJPAL P. MEHTA PAGE 5 I) UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 706(SC) II) BANYAN & BERRY VS. CIT(1996), 222 ITR 832 (GUJ .) III) CGT VS. SATYA NAND MUNJAL, (2002), 256 ITR 516 (P&H) IV) CIT VS. GEORGE WILLIAMSON (ASSAM) LTD. (2004), 265 ITR 626 (GRUH.) 2.3.6 FINALLY, IT IS SEEN THAT A SIMILAR ISSUED HA S BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY HON. ITAT IN THE CASE OF ACIT VS. PREMI UM CONSOLIDATED CAPITAL TRUST (I) LTD. (2004), 83 TTJ 843 (MUM). IN THAT CA SE, HON. TRIBUNAL HAVE, UNDER ALMOST SIMILAR CIRCUMSTANCES, HELD THAT LOSS ON PURCHASE AND SALE OF TAX FREE BONDS INCURRED BY THE ASSESSEE COMPANY, WH EN THE GENUINENESS OF SALE OR THE PRICE RECEIVED BY THE ASSESSEE WAS NOT DOUBTED, AND EVEN IF IT WAS ASSUMED THAT THIS WAS A PREMEDITATED TRANSACTION, T HERE WAS NOTHING TO IMPEACH THE GENUINENESS OF THE TRANSACTION BECAUSE THE ASSESSEE HAD MERELY MADE USE OF THE PROVISIONS OF LAW, AND USE O F PROVISIONS OF LAW COULD NOT BE CONSIDERED TO BE ABUSE OF LAW. ACCORDINGLY, THE ASSESSEE WAS FOUND ENTITLED TO ALLOWANCE OF THE LOSS, IN THIS MATTER, THE TRIBUNAL HAD THREADBARE CONSIDERED THE SIMILAR SUCH ISSUE, THAT IS THERE IN THE PRESENT CASE, AND PASSED THE ORDER AFTER TAKING INTO CONSIDERATION TH E DECISION OF HON. APEX COURT RENDERED IN THE CASE OF MCDOWELL & CO. LTD. ( SUPRA). 2.3.7 IN VIEW OF THE ABOVE DISCUSSION, AND RESPECT FULLY FOLLOWING THE RATIOS OF THE VARIOUS CASE LAWS CITED ABOVE, IT IS HELD THAT THE MCDOWELLS CASE IS NOT APPLICABLE IN THE FACTS OF THE APPELLANTS CASE. 2.3.8 NOW COMING TO THE QUESTIONS OF THE LOSS BEIN G TREATED AS EXPENDITURE BY THE A.O. AND APPLICATION OF PROVISIONS OF SECTIO N 14A, IT IS OBSERVED THAT THE APPELLANT HAS DISPUTED THE FINDING OF THE A.O. ON T HE GROUND THAT LOSS COULD NOT BE EQUATED WITH EXPENDITURE. IN THIS REGARD, IT IS OBSERVED THAT THE ISSUE AS TO WHETHER LOSS CAN BE EQUATED WITH EXPENDITURE IN THE CONTEXT OF SECTION 14A, IS DIRECTLY COVERED BY THE DECISION OF HON. IT AT, MUMBAI, IN THE CASE OF NAVIN BHARAT INDUSTRIES LTD. VS. DCIT REPORTED AT 9 0 ITD 1 (MUM.)(TM). IN THIS CASE, HON. ITAT HAVE HELD: 16. SECTION 14A READ AS UNDER: EXPENDITURE INCURRED IN RELATION TO INCOME NOT INC LUDIBLE IN TOTAL INCOME FOR THE PURPOSE OF COMPUTING THE TOTAL INCOM E UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 17. THIS SECTION PUTS RESTRICTION ON THE ALLOWABILI TY OF EXPENDITURE. CAN THIS RESTRICTION BE EXTENDED TO LOSS ALSO? WHE THER LOSS COULD BE CONSTRUED TO BE EXPENDITURE? ARE SOME OF T HE QUESTIONS, WHICH NEED TO BE EXAMINED. 18. SPENDING IN THE SENSE OF PAYING OUT OR AWAY OF MONEY IS THE PRIMARY MEANING OF EXPENDITURE. EXPENDITURE IS WHAT IS PAID ITA NO.1381/AHD/2005 A.Y. 2001-02 ACIT, CIR-10, ABD V. SH. RAJPAL P. MEHTA PAGE 6 OUT OR AWAY AND IS SOMETHING WHICH IS GONE IRRETRIE VABLY. EXPENDITURE RELATES TO DISBURSEMENTS: THAT MEANS SO METHING THAT A TRADER PAID OUT INDICATING A SORT OF VOLITIO N ON HIS PART. HE CHOOSES TO PAY OUT SOME DISBURSEMENT IT IS AN EXPEN SE; IT IS SOMETHING WHICH COMES OUT OF HIS POCKET. A LOSS I S SOMETHING DIFFERENT. THAT IS NOT A THING, WHICH HE EXPENDS OR DISBURSES. THAT IS A THING, WHICH COMES UPON HIM AS EXTRA. BUS INESS EXPENDITURE IS ALLOWABLE IF IT IS LAID OUT OR EXPEN DED WHOLLY AND EXCLUSIVELY FOR THE ASESSEES BUSINESS, WHILE A BUS INESS LOSS IS ALLOWABLE IF IT IS OF NON CAPITAL NATURE AND IS NOT ONLY CONNECTED WITH THE TRADE BUT IS INCIDENTAL TO THE TRADE ITSEL F. IN ASSESSING THE AMOUNT OF PROFITS AND GAINS OF A YEAR, ACCOUNT MUST NECESSARILY BE TAKEN OF ALL LOSSES INCURRED, BESIDE S THE EXPENDITURE ALLOWABLE UNDER SECTION 30 TO 44 OF THE ACT. THIS VIEW IS BUTTRESSED BY THE DECISION OF THE APEX COUR T RENDERED IN THE CASE OF CIT VS. S.C. KOTHARI (1971) 82 ITR 794, 801, 802. THEREFORE, LOSS COULD NOT BE CONSTRUCTED TO BE EXPE NDITURE. SECTION 14A IF THE ACT IS APPLICABLE QUA THE EXPEND ITURE AND NO QUA THE LOSS. 2.3.9 IN VIEW OF THE ABOVE, RESPECTIVELY FOLLOWING THE DECISION OF HON. ITAT, MUMBAI BENCH IN THE CASE OF NAVIN BHARAT INDUSTRIES LTD. (SUPRA), IT IS HELD THAT THE STCL CANNOT BE EQUATED WITH EXPENDITURE AN D, THEREFORE, THE STCL CANNOT BE DISALLOWED IN TERMS OF THE PROVISIONS OF SEC. 14A OF THE ACT. 7. WE FIND THAT THE ASSESSEE HAD PURCHASED RS. 1,9 2,565 UNITS FOR RS. 30,00,000 ON 17.01.2001, 1,70,729/- UNITS FOR RS. 2 9,24,578 ON 19.01.2001 AND 1,93,548/- UNITS FOR 30 LACS ON 9.2.2001. THESE UNI TS WERE SOLD IN 3 TRANSACTIONS, NAMELY, FIRST ON 18.01.2001, SECOND ON 22.01.2001 A ND THIRD ON 11.02.2001. THE ASSESSEE RECEIVED DIVIDEND OF RS. 17,78,575 AND ON SALE OF THE UNITS SUFFERED CAPITAL LOSS OF RS. 20,16,392/-. THE ASSESSEE HAD S OLD THE UNITS AFTER RECEIPT OF DIVIDEND AT A LOSS AS STATED ABOVE AND HAD CLAIMED IT AS SHORT TERM CAPITAL LOSS. IT WAS NOT DISPUTED BY THE A.O. THAT PAYMENTS WERE MAD E FOR PURCHASE OF THE SAID UNITS AND ON SALE, THE APPELLANT HAD RECEIVED THE CONSIDERATION AND ALSO RECEIVED THE DIVIDEND. THUS, TRANSACTIONS OF PAYMENTS WERE NOT AT ALL DOUBTED BY THE DEPARTMENT, BUT IN VIEW OF THE SHORT GAP BETWEEN TH OSE TRANSACTIONS OF PURCHASE AND SALE OF THE SAID UNITS, THE DEPARTMENT HAD COME TO THE CONCLUSION WITHOUT PROVING THAT IT WAS ONLY EFFECTED IN ORDER TO CLAIM SHORT TERM CAPITAL LOSS. IT WAS NOT THE CASE OF THE DEPARTMENT THAT THE TWO ENTITIES I.E. SELLI NG ENTITY AS WELL AS THE PURCHASING ENTITY WERE NOT INDEPENDENT HAVING CONNECTION OR P ROXIMITY BETWEEN THEM I.E., THE ASSESSEE AND THE MUTUAL FUND. THE PURCHASE AND SAL E OF UNITS WAS AT THE MARKET ITA NO.1381/AHD/2005 A.Y. 2001-02 ACIT, CIR-10, ABD V. SH. RAJPAL P. MEHTA PAGE 7 PRICE OF THE UNITS. IT WAS CLAIMED BY THE ASSESSEE BEFORE THE A.O. THAT INSERTION OF SUB-SECTION 7 IN SECTION 94 WHICH FORBID SIMILAR SU CH ACTIVITY W.E.F. A.Y. 2002-03. ON AN ANALYSIS OF ORDER OF THE A.O. IT CAN BE SEEN THA T ONLY ON PRESUMPTION AND ASSUMPTION THE A.O. DOUBTED THE TRANSACTION AND REJ ECTED THE CLAIM OF YOUR APPELLANT DOUBTING THE GENUINENESS OF THE TRANSACTION IN QUES TION. 8. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW T HAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISION OF MUMBAI SPECIAL BENCH IN THE CASE OF WALLFORT SHARES & STOCK BROKERS LTD. (SUPRA), WHEREIN IT IS HELD AS UNDER:- 139. IN OUR OPINION, IF CANNOT BE ASSUMED THAT ONCE MUTUAL FUND UNITS ARE HELD FOR THE PRESCRIBED PERIOD, THE FALL IN NAV ON ACCOUNT OF INCOME PAY OUT WOULD BE NEUTRALIZED. IF, AS ARGUED BY THE LEANED S PECIAL COUNSEL BEFORE US, THERE IS SURGE OF INFLOW OF MONEY FROM THE DIVIDEND -STRIPPERS SO MUCH SO THE SIZE OF THE MUTUAL FUND WOULD ON RECORD DATED SWELL TO MANY TIMES THE SIZE OF THE ORIGINAL FUND LYING INVESTED IN EQUITY THERE IS NO WAY THE E-DIVIDEND NAV RETURNING TO NAV ON RECORD DATE TILL SUCH TIME A SI ZEABLE PORTION OF THE NEW OR OLD ,MONEY EXIT THE MUTUAL FUND AFTER TAKING A HIT ON ACCOUNT OF EX-DIVIDEND NAV. IN OTHER WORDS, THE PROVISIONS OF SECTION 94(7 ) DO NOT BLOCK DIVIDEND STRIPPERS. IT ONLY MAKE THEM SQUAT FOR A LONGER PER IOD. IT, THEREFORE, APPEARS TO US THAT PROVISIONS OF SECTION 94(7) ARE GEARED TOWA RDS QUICK-IN-OUT ASPECT AND NOT AGAINST CLAIM OF LOSS AGAINST THE ORDER INCOME OF THE TAXPAYER. THE SPECIAL BENCH FURTHER CONSIDERING THE INSTRUCT ION ISSUED BY CBDT FROM F. NO.178/32/2003-ITA 1 ON 23 RD FEBRUARY, 2004 AND CBDT CIRCULAR NO.14 OF 2001, REPORTED AT 252 ITR (ST) 108 DECIDED THE ISSUE AS U NDER (IN PARA-141& 142) :- ON CONSIDERATION WE DO NOT FIND ANY SUPPORT TO THE CASE OF THE REVENUE IN THE APPEALS BEFORE US FROM THE INSTRUCTIONS ABOVE QUOTE D. IT IS CLEARLY MENTIONED THAT ORDINARILY DISALLOWANCE OF LOSS IN SIMILAR CIR CUMSTANCES IN RESPECT OF ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2002-03 W OULD AMOUNT TO APPLYING THE PROVISIONS OF SECTION 94((7) ARE RETRO SPECTIVELY. THE BOARD, THEREFORE, CAUTIONS ITS OFFICERS THAT SUCH AN ASSES SMENT SHOULD BE MADE ONLY AFTER IN-DEPTH INVESTIGATION AND PROPER RECORDING A ND MARSHALLING OF ALL RELEVANT FACTS BECAUSE THE PROVISIONS OF SECTION 94 (7) ARE PROSPECTIVE ONLY. 142. IN VIEW OF THE DISCUSSION IN THE FOREGOING PAR AGRAPHS, WE FIND ANSWER TO THE THIRD QUESTION IN THE NEGATIVE, I.E. THE ASSESS EE IS NOT DISENTITLED TO HAVE THE LOSS ARISING FROM THESE TRANSACTIONS SET OFF AG AINST HIS INCOME FROM ANY OTHER TRANSACTIONS OR SOURCE. ITA NO.1381/AHD/2005 A.Y. 2001-02 ACIT, CIR-10, ABD V. SH. RAJPAL P. MEHTA PAGE 8 IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE. THIS ISSUE OF THE REVENUES APPEAL IS DI SMISSED. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31/08/2009 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 31/08/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XVI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD