ACIT, Pune V. SHRI Shyam Babulal Jain, Pune

ITA 1549/PUN/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1143 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B C MALAKAR SINGH
• Keywords: Capital asset; Business income; Opportunity of being heard; Cost of acquisition; Capital receipt; Revised return
• Section: 2(14)

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.1549/PN/2012 % % / ASSESSMENT YEAR : 2008-09 ACIT, CIRCLE-9, PUNE . / APPELLANT V/S SHRI SHYAM BABULAL JAIN, 838, ANOHAR RESIDENCY, SHIVAJINAGAR, PUNE 5 PAN NO.ACRPJ6760B . / RESPONDENT ITA NO. 1551/PN/2012 (ASSESSMENT YEAR : 2008-09) SHRI SHYAM BABULAL JAIN, 838, ANOHAR RESIDENCY, SHIVAJINAGAR, PUNE 5 PAN NO.ACRPJ6760B . / APPELLANT V/S ACIT, CIRCLE-9, PUNE . / RESPONDENT / ASSESSEE BY : SHRI KISHOR PHADKE / RESPONDENT BY : SHRI B.C. MALAKAR SINGH / DATE OF HEARING : 08.07.2015 / DATE OF PRONOUNCEMENT:07.09.2015 2 / ORDER PER BENCH : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE REVENUE AND THE SECOND ONE FILED BY THE ASSESSEE AND A RE DIRECTED AGAINST THE ORDER DATED 27-04-2012 OF THE CIT (A)-V, PUNE RELATING TO ASSESSMENT YEAR 2008-09. FOR THE SAK E OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.1549/PN/2012 (BY REVENUE) : 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READ S AS UNDER : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN HOLDING THAT THE INCOME FR OM SHARE TRANSACTIONS OF THE ASSESSEE IS NOT CHARGEABLE TO TAX UND ER THE HEAD BUSINESS INCOME EVEN THOUGH CONSISTENCY, FREQUENCY AND LARGE VOLUME WERE INVOLVED IN THE SAID TRANSACTIONS. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING TH E COURSE OF ASSESSMENT PROCEEDINGS OBSERVED FROM THE DET AILS OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN FILED BY T HE ASSESSEE THAT THE ASSESSEE IS ENGAGED IN SALE AND PUR CHASE OF SHARES AND OTHER SECURITIES THROUGHOUT THE YEAR. SUCH VOLUME OF SALE AND PURCHASE WAS ALSO VERY HIGH. FROM THE VARIOU S DETAILS FURNISHED BY THE ASSESSEE, HE OBSERVED THAT THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN DECLARED BY THE A SSESSEE FOR THE PRECEDING AND SUCCEEDING TWO YEARS ARE AS UNDER: ASST. YEAR LONG TERM CAPITAL GAIN (IN RS.) SHORT TERM CAPITAL GAIN (IN RS.) PURCHASE SALE LTCG SHOWN (CLAIMED EXEMPT) PURCHASE SALE STCG SHOWN 2006 - 07 29,00,931 56,45,456 25,44,113 17,10,470 19,58,514 2,48,044 3 2007 - 08 9,01,095 25,87,468 16,86,373 42,16,697 41,47,022 ( - )69,675 2008 - 09 8,68,924 32,77,275 23,13,343 85,02,368 88,08,921 3,06,553 2009 - 10 1,45,676 3,14,434 1,68,758 1,66,82,960 1,67,42,879 59,919 2010 - 11 28,33,207 26,53,853 ( - ) 1,79, 354 1,16,02,085 1,20,39,342 4,37,257 HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY T HE INCOME OUT OF THE ASSESSEES SHARE TRANSACTIONS SHOULD NOT BE TREATED AS BUSINESS INCOME ESPECIALLY IN VIEW OF THE FREQ UENCY AND VOLUME OF SUCH TRANSACTIONS OVER THE YEARS. ACCORD ING TO THE AO THE SOLE PURPOSE OF THE ASSESSEE TO SHOW THE S HARE TRANSACTIONS AS SHORT TERM CAPITAL GAIN/LONG TERM CAPITA L GAIN IS TO BE TAXED AT LOWER RATE WHEN IT FALLS UNDER THE CATEGO RY OF SHORT TERM CAPITAL GAIN AND CLAIM EXEMPT, VIS--VIS LONG TERM CAP ITAL GAIN WHICH IS TO THE TUNE OF RS.25,44,113/-, RS.16,86,373/-, RS.23,13,343/- AND RS.1,68,758/- FOR A.Y. 2006-07, A.Y. 2007- 08, A.Y. 2008-09 AND RS.2009-10 RESPECTIVELY. REJECTING T HE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND DISTINGUISH ING THE VARIOUS DECISIONS CITED BEFORE HIM, AND CONSIDERING THE CONSISTENCY, FREQUENCY AND VOLUME OF THE SHARES/ SECURIT IES TRANSACTIONS INVOLVED THE AO TREATED THE SHORT TERM CA PITAL GAIN AND LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE AS BU SINESS INCOME. 3. IN APPEAL IT WAS SUBMITTED THAT THE SHARES ARE APPEA RING AS INVESTMENT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THERE IS NO STOCK IN TRADE AT ALL AND THE INTENTION AT THE TIME OF PURCHASE WAS ALWAYS INVESTMENT AND NOT FOR ANY TRADING PURPOSES . IT WAS SUBMITTED THAT NO BORROWINGS FOR INVESTMENT FOR SHARES W ERE OBTAINED. SOME LOANS AKIN TO QUASI CAPITAL ARE TAKEN BY T HE 4 ASSESSEE FROM CLOSE FAMILY MEMBERS TOWARDS INITIAL CAPITAL IN BUSINESS. NO INTEREST HAS BEEN PAID ON THESE LOANS. THE RE WERE ONLY 31 SALE TRANSACTIONS LEADING TO SHORT TERM CAPITAL G AIN AND 34 TRANSACTIONS LEADING TO LONG TERM CAPITAL GAIN TOTALING T O 65 TRANSACTIONS. THE COMPANIES WHOSE SHARES WERE TRANSAC TED ARE ABOUT 25 IN THE ENTIRE YEAR. THERE WAS NOT A SINGLE DA Y-TRADE OR IMMEDIATE SALE AFTER BUYING. THE SHARES TRANSACTED ARE V ERY SMALL IN QUANTITY AND VALUE. THE ASSESSEE HAS NOT DEALT IN HUGE QUANTITIES AND VALUES WHICH ARE DONE BY A BUSINESSMAN. T HE ASSESSEE TRANSACTED IN SHARES MAINLY TO MINIMIZE/SPREAD INVESTMENT RISK. THERE WAS NO INTENTION OF MAKING PROFIT BOOKING OR MAKING QUICK GAINS. THE SHARES WERE ALWAYS VA LUED AT COST. THERE WAS NEVER ANY LOWERING DOWN EXERCISE TO VALUE THE SHARES AT LESS THAN THE COST AT ANY TIME. IT WAS SUBMITTED THAT THE ASSESSEE IS A REAL INVESTOR AND EARNS DIVIDEND FROM OVER 58 COMPANIES AND MUTUAL FUNDS TO THE TUNE OF RS.1.86 LAKHS . IT WAS SUBMITTED THAT IF A PERSON HAS TWO PORTFOLIOS THEN CB DT CIRCULAR WILL APPLY. SINCE THE ASSESSEE HAS ONLY ONE ACTIV ITY, THEREFORE, HE HAS GOT ONLY ONE PORTFOLIO. RELYING ON VA RIOUS DECISIONS IT WAS ARGUED THAT THE CAPITAL GAIN SHOWN BY TH E ASSESSEE SHOULD BE ACCEPTED. 4. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, THE LD.CIT(A) DIRECTED THE AO NOT TO TREAT THE LONG TERM CAP ITAL GAIN AND SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE AS BUSINESS INCOME. THE RELEVANT OBSERVATION OF THE LD.CIT(A) AT PARA 25 OF THE ORDER READS AS UNDER : 25. AFTER CAREFULLY CONSIDERING THE REPLY OF THE AP PELLANT AS WELL AS FACTS OF THE CASE, IT IS SEEN THAT THE ASSESSING OFFICER HAS BASED HIS FINDING MERELY ON THE BASIS OF FREQUENCY AND VOLUME O F TRANSACTIONS WITHOUT VERIFYING THE TRANSACTIONS IN DETAIL. IT IS SEE N THAT THE APPELLANT HAS NOT DONE TRADING IN SHARES IN THE PAST TO O AS IN ALL THE 5 YEARS GAIN ON SHARES HAS BEEN TAXED AS CAPITAL GAIN. YES , IT IS TRUE THAT THE APPELLANT HAS SHOWN SUBSTANTIAL GAIN IN PURCHA SE AND SALE OF TRANSACTIONS BUT THE SAME CANNOT JUSTIFY TREATING TH E SAME AS BUSINESS INCOME UNLESS BUSINESS MOTIVE, ITS TREATMENT IN BOO KS, BORROWING MONEY FOR THE SAME ETC. ARE BROUGHT ON REC ORD TO SUBSTANTIATE THE CLAIM THAT THE SAME REPRESENTS BUSINESS TRANSACTION. AFTER GOING THROUGH ALL THE FACTUAL MAT RIX ASSOCIATED WITH THE TRANSACTION, I AM NOT INCLINED TO TREAT THE SAME AS BUSINESS INCOME. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED N OT TO TREAT THE SAME AS BUSINESS INCOME IN PLACE OF LTCG/STCG AS THE CASE MAY BE. THUS, GROUND NO. 4 IS ALLOWED. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDER OF THE CIT(A) AND THE PAPER BOO K FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE V ARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE TH E ASSESSING OFFICER TREATED THE LONG TERM CAPITAL GAIN AND SH ORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE FROM PURCHASE AND SALE OF SHARES AS BUSINESS INCOME MAINLY ON THE GROUND OF CONSISTENCY, FREQUENCY AND VOLUME OF THE TRANSACTIONS. W E FIND THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO TREAT SUCH INCOME AS LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AS D ECLARED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT DONE TRADING IN SHARES IN THE PAST AND IN ALL THE YEARS SUCH G AIN HAS BEEN TAXED AS CAPITAL GAIN. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). IT IS AN ADMITTED FACT THAT THE SH ARES ARE APPEARING AS INVESTMENT IN THE BOOKS OF ACCOUNT AND TH ERE IS NO STOCK IN TRADE AT ALL A FACT STATED BEFORE THE LD.CIT(A) AN D NOT CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. F URTHER, THE LD. DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT CONTR OVERT THE SUBMISSION OF THE ASSESSEE BEFORE THE LD.CIT(A) THAT N O 6 INTEREST BEARING FUNDS HAVE BEEN BORROWED FOR INVESTMENT IN SHARES AND SUCH SHARES WERE ALWAYS VALUED AT COST. 6.1 THE PUNE BENCHES OF THE TRIBUNAL ARE CONSISTENTLY TA KING THE VIEW THAT MERELY BECAUSE THERE IS CONSISTENCY, FREQU ENCY AND VOLUME IN TRANSACTION OF SHARES, THE SAME CANNOT BE TRE ATED AS BUSINESS INCOME. THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF SUCH SHARES/SECURITIES ARE TO BE SEEN. SINC E THE ASSESSEE IN THE INSTANT CASE HAS MADE PURCHASES AND S OLD THE SHARES SUPPORTED BY ACTUAL DELIVERIES THROUGH THE DEMAT ACCOUNT AND SINCE THERE HAS NOT BEEN A SINGLE TRANSACT ION OF SHORT SALE DURING THE ENTIRE YEAR, THEREFORE, WE ARE OF T HE CONSIDERED OPINION THAT THE INCOME FROM SUCH GAIN CANNOT BE TREATED AS BUSINESS INCOME. THIS VIEW OF OURS IS SUPPOR TED BY PLETHORA OF DECISIONS OF THE COORDINATE BENCHES OF THE TRIB UNAL AND DIFFERENT HIGH COURTS. IN THIS VIEW OF THE MATTER WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO.1551/PN/2012 (BY ASSESSEE) : 7. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE ALON GWITH HIS BUSINESS ASSOCIATES NAMED ASHWIN BHOGILAL SHAH AND SUBHASH BHIKCHAND CHUTTAR ENTERED INTO MEMORANDUM OF UNDERSTANDING (MOU) ON 21 ST MAY, 1998 WITH SRISHTI DEVELOPERS PVT. LTD. REPRESENTED BY ITS DIRECTORS SHRIRAM DATTATRAY KARANDIKAR AND SHRI MADHUMAD TRIMBANK PETHE FOR DEVELOPMENT OF LAND BEARING SURVEY NO.50/L/(P), 51, HISSA NO.L & HISSA NO.2 AT VILLAGE TUNGARLI, WITHIN THE LIMITS OF LONVALA MUNICIPAL COUNCIL. THIS LAND, WHICH WAS IN POSSESSION OF 7 KARANDIKAR GROUP, WAS MORTGAGED TO SUVARNRA SAHAKARI B ANK. THE MOU WAS SIGNED FOR DEVELOPMENT OF THE SAID LAND INTO A HOTEL/RESORT FOR WHICH A SEPARATE COMPANY KNOWN AS SHR ISTI HOTELS PVT.LTD.(SHPL) WAS FORMED. THE ASSESSEE AND HIS ASSOCIATES INVESTED RS.53,00,000/- ON VARIOUS DATES AS PE R MOU AS PART OF EQUITY CONTRIBUTION IN THE COMPANY WHICH WAS D ECIDED AT RS.1,00,00,000/- WHILE KARANDIKAR GROUP WAS TO BRING THE SAID LAND IN THE NEWLY CREATED COMPANY, THE VALUE OF WH ICH WAS MUTUALLY AGREED TO BE RS.1,00,00,000/-. HOWEVER, THE LAND COULD NOT BE TRANSFERRED TO THE NEW COMPANY AND ULTIMA TELY SETTLEMENT AGREEMENT WAS SIGNED ON 27/05/2007 BETWEEN M/S.SHRISHTI DEVELOPERS PVT. LTD. REPRESENTED BY KARANDIK AR GROUP, THE ASSESSEE GROUP AND M/S.DINESH ENTERPRISES ( THIRD PARTY). AS PER THIS TRIPARTITE AGREEMENT, THE ASSESSEE A ND ASSOCIATES SURRENDERED ALL RIGHTS PERTAINING TO THE SAID LAND FOR WHICH M/S.DINESH ENTERPRISES PAID RS.1,00,00,000/- TO THE ASSESSEE AND ITS ASSOCIATES ON BEHALF OF KARANDIKAR GROUP . THE ASSESSEE RECEIVED RS.49.36 LACS AS HIS SHARE. THE ASSESSE E INITIALLY OFFERED RS.17,86,000/- AS LONG TERM CAPITAL GAINS (LTCG) CLAIMING TO BE SALE PROCEEDS OF M/S.SHRISHTI HOTELS PVT.LTD. BUT LATER ON REVISED HIS CLAIM AND FILED REVISED RETU RN OF INCOME SHOWING LTCG ON LAND AT RS.12,15,921/- AFTER CLAIMING BENEFIT OF INDEXATION ON LAND (EARLIER NO INDEXATION WAS CLAIME D) AND ALSO LTCG OF RS.178 ON 10 SHARES OF M/S.SHRISTI HOTE LS PVT. LTD. 7.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE SHARES OF M/S.SHPL WERE NEVER SOLD AND THERE WAS NO COST OF ACQ UISITION IN RESPECT OF THE RIGHTS IN LAND HELD BY M/S.SHRISTI DEVELOPE RS 8 PVT. LTD. ACCORDINGLY, HE TAXED THE ENTIRE RECEIPT OF RS.49,36,000/- UNDER THE HEAD 'LTCG'. SINCE THE ASSESSEE HAD SHOWN LTCG OF RS.12,16,277/- IN THE REVISED RETURN OF INCOM E, THE ASSESSING OFFICER MADE FURTHER ADDITION OF RS. 37,19,723/ - (RS.49,36,000 RS.12,16,277). 8. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSES SING OFFICER BY OBSERVING AS UNDER : 10. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. BEFORE DECIDING THE VARIOUS ISSUES TAKEN IN THE GROUND BY THE APPELLANT, IT IS IMPERATIVE TO ASCE RTAIN THE NATURE OF RECEIPT. AS PER SETTLEMENT AGREEMENT DATED 27/05/2 005, THE APPELLANT HAS RECEIVED RS.49.36 LACS FOR SETTLEMENT OF FOLLOWING RIGHTS AS PER CLAUSE 3(A) OF THE SETTLEMENT AGREEMENT WHICH READS AS UNDER: '(3)(A) ALL CLAIMS OF EXECUTANTS- NO,2 TO 5 AGAINST T HE EXECUTANT NO,1 AND/OR EXECUTANT NO.6 AND FOR THE SAI D LAND AND/OR THE MONEY SO FAR PAID AND/OR RETURNS THEREOF HAVE BEEN SETTLED FULLY AND FINALLY. (B) EXCEPT THE AMOUNT RECEIVABLE BY THE EXECUTANTS- NO.2 TO 5 AS ENUMERATED IN THE ANNEXURE, THE EXECUTANTS-NO.2 TO 5 ARE NOT ENTITLED TO ANY OTHER MONEY OR OTHER CLAIMS WHATSOEVER. (C) ALL OTHER OBJECTIONS RELATING TO TRANSACTION BY A ND BETWEEN THE EXECUTANT NO.1 AND EXECUTANTS NO.2 TO 6 RELATING TO THE SAID LAND RAISED BY EXECUTANTS-NO.2 T O 5 STAND WITHDRAWN UNCONDITIONALLY'. 11. THEREAFTER, THE PAYMENT WAS MADE ON THE BASIS OF A NNEXURE 'A' AND 'B' OF THE SETTLEMENT AGREEMENT WHICH READS AS UNDER: ANNEXURE 'A' AMOUNTS OUTSTANDING TO EXECUTANT NOS. 2 TO 5 FROM E XECUTANT NO.L (AMOUNT RS. IN LAKHS) PARTICULARS ASHWIN SHAH MRS. HARSHIDA A SHAH S.B. CHUTTAR (HUF) SHYAM B JAIN SHARE APPLICATION MONEY WITH SRISHTI HOTELS PVT.LTD 4.00 4.50 4.50 10.00 DEPOSIT WITH SRISHTI DEVELOPERS PVT. LTD. - - - 8.66 TOTAL 4.00 4.50 4.50 18.66 9 ANNEXURE 'B' AMOUNTS SETTLED & TO BE PAID IN THE FOLLOWING MANNE R (AMOUNT RS. IN LAKHS) MR.SHYAM B JAIN 49.36 MR. ASHWIN SHAH 34.46 MRS. HARSHIDA A SHAH 10.54 MR. SUBHASH B. CHUTTAR 5.64 TOTAL 100 12. THUS, FROM THE READING OF CLAUSE (A), (B) & (C) O F PARA 3 AND ANNEXURES 'A' & 'B' OF THE SETTLEMENT AGREEMENT DATE D 27/05/2007, IT IS SEEN THAT THE AMOUNT OF RS.49,36,000 /- HAS BEEN RECEIVED ON ACCOUNT OF THE FOLLOWING: (I) RIGHT/INTEREST IN LAND BY VIRTUE OF THE APPELLA NT BEING SHAREHOLDER IN M/S.SHRISTI HOTEL PVT. LTD. (II) SHARE APPLICATION MONEY WITH SHRISTI HOTEL PVT. LTD., RS. 10 LACS (III) DEPOSIT WITH M/S.SHRISTI DEVELOPERS PVT. LTD. RS.8.66 LACS. 13. THEREFORE, THE AMOUNT OF RS.49,36,000/- REPRESENTS NOT ONLY CONSIDERATION IN RESPECT OF THE SAID LAND BY VIRTUE OF APPELLANT BEING A SHAREHOLDER IN M/S.SHPL BUT ALSO REFUND OF SH ARE APPLICATION MONEY AS WELL AS DEPOSIT. THEREFORE, FOR A RRIVING AT THE SALE CONSIDERATION IN RESPECT OF LAND AMOUNT OF RS.18.6 6 LACS (10 + 8.66) HAS TO BE EXCLUDED. AFTER EXCLUDING THE AMOUNT OF RS.18.66 LACS, THE BALANCE AMOUNT COMES TO RS.30,70,000/- (RS.49 ,36,000 RS.18,66,000). THIS AMOUNT OF RS.30,70,000/- NEEDS TO B E SUBJECTED TO CAPITAL GAIN. 14. AS FAR AS THE CLAIM OF THE APPELLANT THAT INDEXAT ION BENEFIT - SHOULD BE ALLOWED IN RESPECT OF RS. 10 LACS BEING SHARE A PPLICATION MONEY, IT IS SEEN THAT BY VIRTUE OF SHARE APPLICATION MO NEY, NO RIGHT HAS BEEN CREATED WHATSOEVER IN THE LAND. THE APPELLAN T EXERCISED RIGHT IN THE LAND BY VIRTUE OF HIS SHARE HOLDING IN M/S.SHPL AND NOT BY VIRTUE OF SHARE APPLICATION MONEY. THE APPELLANT COULD HAVE TAKEN BENEFIT OF INDEXATION IN RESPECT OF RS.100/-BEING SHARE C APITAL IN M/S.SHPL BUT SINCE NO SHARES WERE TRANSFERRED, THE, SAME WAS DENIED BY THE ASSESSING OFFICER. SHARE APPLICATION MONEY WAS REFUNDABLE AMOUNT AND THEREFORE, THE SAME CANNOT BE CONSIDERED FOR BENEFIT OF INDEXATION. 15. THE APPELLANT HAS TAKEN THE ISSUE OF INTEREST ON DEPOS IT AMOUNTING TO RS.13,00,828/- IN REVISED GROUND NO.(2). AS PER APPELLANT, THE AMOUNT OF RS.49,36,000/- CONSISTS OF RS.13,00,828/- BEING UNPAID INTEREST ON DEPOSIT MADE TO M/S.SHRISTI DEV ELOPERS PVT. LTD. WHICH HAS BEEN OFFERED FOR TAXATION IN VARIOUS YEA RS INCLUDING CURRENT YEAR THE SAME SHOULD BE EXCLUDED FROM TOTAL AMOUNT OF RS.49,36,000/-. 10 16. THIS GROUND IS BEREFT OF ANY MERIT. THE APPELLAN T CLAIMS THAT INTEREST AMOUNTING TO RS.13,00,828/- WAS OUTSTANDING ON THE DATE OF SETTLEMENT AND THIS AMOUNT WAS ALSO A COMPONENT OF TOTAL AMOUN T OF RS.49,36,000/-. HOWEVER, ANNEXURE 'A' OF THE SETTLEMENT AGREEMENT REPRODUCED ABOVE, SHOWS THAT NO SUCH AMOUNT WAS OUTSTANDING. IN ANY CASE, THE ANNEXURE DOES NOT REFER TO SETTLEMENT IN RESPECT OF INTEREST ON DEPOSITS. THEREFORE, REQUEST AS PER REVISED GROUND NO.2 CANNOT BE ENTERTAINED. 17. IN GROUND NO.3 (REVISED), THE APPELLANT HAS THE GRIEVA NCE THAT THE LD. ASSESSING OFFICER HAS ERRED IN TREATING RS.8,66,0 00/- REPRESENTING DEPOSIT AS CONSIDERATION FOR TRANSFER OF RI GHTS IN SHPL. 18. THIS ISSUE HAS BEEN DECIDED WHILE ADJUDICATING GROUN D NO.1 WHEREIN LTCG WAS CALCULATED AT RS.30,70,000/- AFTER DEDUCTING SHARE APPLICATION MONEY OF RS.10,00,000/- AND DEPOSIT OF R S.8,66,000/-. 19. TO SUM UP, GROUND NO.L IS PARTLY ALLOWED WITH DIRE CTION TO THE ASSESSING OFFICER TO ADOPT LTCG AT RS. 30,70,000/- AS CALCULATED ABOVE. 20. GROUND NO.2 IS REGARDING CLAIM OF INDEXATION BENEFIT I N RESPECT SHARE APPLICATION MONEY OF RS.10,00,000/- IS DISMISS ED. 9. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS AS PER REVISED GROUNDS OF APPEAL : 1. THE LEARNED CIT(A)-V, PUNE AND THE LEARNED AO ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT VIDE SETTLEMEN T AGREEMENT DATED 27/05/2007, APPELLANT'S RIGHTS IN SHRISTI HOTELS PRIVATE LIMITED HAVE BEEN RELINQUISHED / EXTINGUISHED, GIVING RISE TO CAPITAL GAINS UNDER ITA, 1961; AND AS SUCH, DEDUCTION OF INDEXED COST OF ACQUISITION OF THE FOLLOWING INVESTMENTS OUGHT TO HAVE BEEN GRANTED TO THE APPELLANT, I.E. A) SHARE CAPITAL OF RS. 100/- AND B) SHARE APPLICATION MONEY OF RS. 10,00,000/-. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, THE LEARNE D CIT(A) AND THE LEARNED AO ERRED IN LAW AND ON FACTS IN COMPUTIN G LONG TERM CAPITAL GAINS IN THE HANDS OF THE APPELLANT WITHOUT R EDUCING ANY COST OF ACQUISITION FROM THE CONSIDERATION RECEIVED UN DER THE SETTLEMENT AGREEMENT DATED 27/05/2007. THE LEARNED I .T. AUTHORITIES THUS ERRED IN NOT FOLLOWING THE RATIO OF THE APEX COURT IN THE CASE OF CIT V. B. C. SHRINIWSA SETTY - 128 ITR 294. 3. THE LEARNED CIT (APPEALS)-V, PUNE ERRED IN LAW A ND ON FACTS IN NOT CONSIDERING INTEREST OF RS. 13,00,828/- OFFERED TO TAX BY THE APPELLANT IN PAST YEARS, AS A PART AND PARCEL OF F ULL & FINAL CONSIDERATION OF RS. 49,36,000/- RECEIVED UNDER THE SE TTLEMENT AGREEMENT DATED 27/05/2007 FROM KARANDIKAR GROUP. T HE LEARNED CIT(A) AND A.O. ERRED IN NOT APPRECIATING T HAT THE SAID AMOUNT OF RS. 13,00,828/- IS BEING DOUBLY TAXED, ONCE FROM TIME TO TIME IN EARLIER YEARS AND AGAIN IN A. Y. 2008-09. 11 4. THE APPELLANT CRAVES, LEAVE TO ADD / MODIFY / DE LETE ALL OR ANY OF THE GROUNDS OF APPEAL. 10. GROUND OF APPEAL NO.1 BY THE ASSESSEE RELATES TO INDEXATION OF SHARE APPLICATION MONEY OF RS.10,00,000/- AND SHARE CAPITAL OF RS.100/-. 11. AFTER HEARING BOTH SIDES WE FIND THE LD.CIT(A) REJECTE D THE CLAIM OF THE ASSESSEE FOR INDEXATION OF SHARE APPLICATION MON EY ON THE GROUND THAT NO RIGHT HAS BEEN CREATED WHATSOE VER IN THE LAND. THE ASSESSEE EXERCISED RIGHT IN THE LAND BY VIRTUE OF HIS SHAREHOLDING IN M/S. SHRISHTI HOTELS PVT. LTD., AND NOT BY VI RTUE OF SHARE APPLICATION MONEY. FURTHER, SUCH SHARE APPLICATION MONEY WAS REFUNDABLE AMOUNT AND THEREFORE THE SAME CANNOT BE CONSIDERED FOR BENEFIT OF INDEXATION. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT INDEXATION BENEFIT ON TH E SHARE APPLICATION MONEY INTRODUCED BY THE ASSESSEE INTO M/S. S HRISHTI HOTELS PVT. LTD. SHOULD BE GRANTED. FOR THE ABOVE PROPO SITION, HE RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBU NAL IN THE CASE OF BLUE STAR LTD. VS. JCIT REPORTED IN 20 SOT 25. 11.1 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE O F BLUE STAR LTD. (SUPRA) HAS HELD THAT BENEFIT OF INDEXED COST OF ACQUISITION CAN BE GRANTED TO SHARE APPLICATION MONEY. TH E RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 21 TO 24 OF THE ORDER READS AS UNDER : 21. WE HAVE HEARD THE PARTIES. IN GAMMON INDIA (P. ) LTD. V. CIT (SUPRA), THE BOMBAY HIGH COURT HAS HELD THAT IF THE P AYMENT IS RECEIVED IN THE ORDINARY COURSE OF THE BUSINESS OF THE ASSESSEE FOR LOSS OF STOCK-IN-TRADE, IT IS REVENUE RECEIPT, AND IF, ON THE OTHER HAND, THE PAYMENT IS RECEIVED TOWARDS COMPENSATION FOR EXTINCTION OR STERILIZATION, PARTLY OR FULLY, OF A PROFIT-EARNI NG. SOURCE, SUCH RECEIPT, NOT BEING IN THE ORDINARY COURSE OF ASSESSEES' BUSINESS IS A CAPITAL RECEIPT. IN THE CASE BEFORE-US, THE ASSESSEE HA D ENTERED INTO A JOINT VENTURE AGREEMENT WITH HP BY WHICH THE ASSESSEE WAS GIVEN THE RIGHT TO SUBSCRIBE TO THE EXTENT OF 20 PER CENT O F THE PAID-UP 12 CAPITAL OF THE JOINT VENTURE, NAMELY, HPIL. THE JOI NT VENTURE AGREEMENT ALSO CONTAINED A NON-COMPETE CLAUSE, WHICH PROHIBITED THE ASSESSEE FROM CARRYING ON A BUSINESS IN COMPETITION WI TH THE JOINT VENTURE. THE ASSESSEE PAID A SUM OF RS. 2,73,20,000 AS SHARE APPLICATION MONEY TO HPIL. THE MOU, ON THE OTHER HA ND, PROVIDED FOR PAYMENT OF RS. 15 CRORES TO THE ASSESSEE WHICH INCLUD ED REFUND OF SHARE APPLICATION MONEY AS ALSO FOR A NON-COMPETE C LAUSE INCORPORATED IN THE AGREEMENT WHICH PROHIBITED THE ASSESSEE FROM CARRYING ON A BUSINESS IN COMPETITION WITH HP OR HPIL . IN BROAD TERMS, THE SUM OF RS. 2,73,20,000 PAID BY THE ASSESSEE TO HPIL WAS SUBSTITUTED BY A SUM OF RS 15 CRORES TO BE PAID TO THE A SSESSEE UNDER THE MOU CONTAINING SIMILAR NON-COMPETE CLAUSES. THE SUM AND SUBSTANCE OF THE AGREEMENT, I.E., MOU IS THAT A SUM OF RS. 15 CRORES HAS BEEN PAID OVER TO THE ASSESSEE AS COMPENSATION UPON TERMINATION OF THE JOINT VENTURE AGREEMENT AND CONSE QUENTLY UPON EXTINCTION OF ASSESSEE'S RIGHTS TO SUBSCRIBE THE SHARE CAPI TAL OF THE JOINT VENTURE NAMELY, HPIL. SINCE IT IS COMPENSATION FOR EXTINCTION OF SOURCE OF INCOME, WHICH THE ASSESSEE WOULD HAVE ENJOY ED THROUGH HPIL IF IT HAD NOT BEEN TERMINATED UNDER TH E MOU ENTERED INTO BETWEEN THE PARTIES, THE COMPENSATION SO RECEIVED IS A CAPITAL RECEIPT LIABLE TO TAX AS CAPITAL GAINS PROVIDED THE R EQUISITES OF SECTION 45 ARE SATISFIED. 22. SECTION 45 PROVIDES THAT ANY PROFITS OR GAINS ARISI NG FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YE AR SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'CAPITAL GA INS' AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN W HICH THE TRANSFER TOOK PLACE. IT IS NOT THE CASE OF THE ASSESSEE TH AT THE REQUISITES OF SECTION 45 FOR TAXING THE IMPUGNED SUM AS CAPITAL GAINS ARE NOT FULFILLED. THE RIGHT TO SUBSCRIBE TO THE SHARE CAPITAL IS A VALUABLE RIGHT AND SO IS THE RIGHT TO BE INVOLVED IN THE AFFAIRS OF JOINT VENTURE UNDER THE JOINT VENTURE AGREEMENT. SUCH RIG HT IS A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE INCOM E-TAX ACT, WHICH DEFINES CAPITAL ASSET AS MEANING PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS O R PROFESSION. THEREFORE THE SUBJECT-MATTER OF IMPUGNED T RANSFER FALLS WELL WITHIN THE AMBIT OF 'CAPITAL ASSET' AS DEFINED I N SECTION 2(14) OF THE INCOME-TAX ACT. LOSS OR EXTINCTION OF RIGHT TO SUB SCRIBE TO THE SHARE CAPITAL AND TO BE INVOLVED IN THE AFFAIRS OF JO INT VENTURE FALL WITHIN THE MEANING OF 'TRANSFER' AS DEFINED IN SECTION 2(45) OF THE INCOME-TAX ACT. THE IMPUGNED CAPITAL ASSET HAS BEEN TR ANSFERRED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEA R UNDER APPEAL THROUGH THE MOU. THUS, THE PROFITS OR GAME ARI SING FROM THE TRANSFER OF IMPUGNED CAPITAL ASSET EFFECTED IN THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL ARE CHARGE ABLE TO TAX UNDER THE HEAD 'CAPITAL GAINS' UNDER SECTION 45. 23. SECTION 48 PROVIDES FOR THE MODE OF COMPUTATION OF CAPITAL GAINS. IT PROVIDES THAT THE INCOME CHARGEABLE UNDER T HE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET THE EXPENDITURE INCLINED WHOLLY AN D EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND THE COST OF ACQUISITI ON OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO. IN THE CASE BEFORE US, THE COST OF ACQUISITION IS THE AMOUNT PAID AS SHARE A PPLICATION MONEY AND THE SALE CONSIDERATION IS THE AMOUNT WHICH H AS BEEN RECEIVED ON TERMINATION OR EXTINCTION 'OF ASSESSEE'S RIG HT TO SUBSCRIBE TO THE SHARE CAPITAL. THE PRAYER OF THE ASSESSEE THAT IT 13 SHOULD BE ALLOWED THE BENEFIT OF INDEXED COST OF ACQU ISITION, THEREFORE MERITS CONSIDERATION. IN THIS VIEW OF THE MA TTER, WE DIRECT THE ASSESSING OFFICER TO TAX THE IMPUGNED AMOUNT AS LONG -TERM CAPITAL GAINS AFTER GIVING THE BENEFIT OF INDEXED CO ST OF ACQUISITION AS PER LAW. 24. IN VIEW OF THE AFORESAID, THE ORDER OF THE CIT(A ) BIFURCATING THE COMPENSATION RECEIVED IN TWO PARTS, I.E.' (I) INTEREST ON SHARE APPLICATION MONEY LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES; AND (II) REFUND OF SHARE APPLICATION MONEY AND BALA NCE AMOUNT AS COMPENSATION ON TERMINATION OF JOINT VENTURE AGREEME NT TO BE TAXED AS LONG-TERM CAPITAL GAINS WITHOUT ATTRIBUTING ANY COST THERETO IS VACATED. 11.2 RESPECTFULLY FOLLOWING THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL CITED (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE HOLD THAT THE ASSESS EE IS ENTITLED TO INDEXATION BENEFIT ON THE SHARE APPLICATION MON EY INTRODUCED IN M/S. SHRISTI HOTELS PVT. LTD. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE BENEFIT OF INDEXATION ON THE SHARE APPLICATION MONE Y AND DETERMINE THE LONG TERM CAPITAL GAIN IN ACCORDANCE WIT H LAW AFTER GIVING DUE OPPORTUNITY OF BEARING HEARD TO THE ASSE SSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUND OF APPEAL NO.1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 12. SO FAR AS THE ISSUE RELATING TO BENEFIT OF INDEXATION IN RESPECT OF RS.100/- BEING SHARE CAPITAL IN M/S. SHPL IS CONCERNED, WE FIND THE LD.CIT(A) WHILE HOLDING THAT THE ASSES SEE COULD HAVE TAKEN SUCH BENEFIT, HOWEVER, DENIED THE SAME O N THE GROUND THAT NO SHARES WERE TRANSFERRED, THEREFORE, THE ASSESSEE IS NOT ENTITLED TO BENEFIT OF INDEXATION. WE FIND THE LD.CIT(A) WAS NOT JUSTIFIED ON THIS ISSUE. WE HAVE ALREADY HELD IN THE PRECEDING PARAGRAPHS THAT ASSESSEE IS ENTITLED TO BENE FIT OF INDEXATION ON ACCOUNT OF SHARE APPLICATION MONEY. FOLLOWING THE SAME REASONINGS WE HOLD THAT THE ASSESSEE IS ENTITLE D TO 14 BENEFIT OF INDEXATION IN RESPECT OF RS.100/- BEING SHARE CAP ITAL MONEY IN M/S. SHPL. GROUND OF APPEAL NO.1 IS ACCORDINGLY ALLOWED. 13. GROUND OF APPEAL NO.2 WAS NOT PRESSED BY THE ASSE SSEE FOR WHICH THE LD. COUNSEL FOR THE DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY, THE SAME IS DISMISSED. 14. IN GROUND OF APPEAL NO.3 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN NOT CONSIDERING THE GRIEVANCE OF THE ASSESSEE THAT THE AMOUNT OF RS.13,00,828/- HAS BEEN TAX ED TWICE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE PRECEDING YEARS THE ASSESSEE ON THE BASIS OF THE TDS CERTIFICATES HAS ACCOUNTED FOR THE INCOME AND PAID TAX ON THE SAME WITHOUT ACTUALLY RECEIVING THE SAME. THEREFORE, TAXING THE WHOLE A MOUNT AGAIN IN THE IMPUGNED ASSESSMENT YEAR WILL AMOUNT TO DOUB LE TAXATION. HE HOWEVER SUBMITTED THAT THE MATTER MAY B E RESTORED TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE SAME AND DECIDE THE TAXABILITY OF INTEREST AMOUNT OF RS.13,00,828/- WH ICH HAS BEEN OFFERED BY THE ASSESSEE IN THE PAST YEARS. 15. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE AO WITH A DIRECT ION TO VERIFY THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT OF RS.13,00,828/- HAS BEEN OFFERED TO TAX IN THE PRECEDING YE ARS. IN OUR OPINION, IF THE ASSESSEE HAS ALREADY ACCOUNTED FOR SUCH INCOME ON ACCRUAL BASIS IN THE PAST, THE SAME CANNOT BE TAXED AGAIN IN THE CURRENT YEAR ON RECEIPT BASIS. HOWEVER, THE SAME NEEDS VERIFICATION AT THE LEVEL OF THE AO. IN VIEW OF THE AB OVE, WE REMIT GROUND OF APPEAL NO.3 TO THE FILE OF THE AO WITH A D IRECTION TO VERIFY THE PAST RECORDS AND FIND OUT AS TO WHETHER THE ASSESS EE 15 HAS OFFERED TO TAX THE INTEREST AMOUNT OF RS.13,00,828/-. THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVIN G DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUND RAISED BY THE ASSESSEE IS ACCORDINGL Y ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMIS SED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07-09-2015. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; # DATED : 07 TH SEPTEMBER, 2015. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ( ) S / THE CIT(A)-V, PUNE 4 . 5. ( / THE CIT-V, PUNE + ., ., IQ.KS / DR, ITAT, A PUNE; 6 . / GUARD FILE. / BY ORDER , + //TRUE C + //TRUE COPY// 2 . / SR. PRIVATE SECRETARY ., IQ.KS / ITAT, PUNE