K. DAMANI SECURITIES P. LTD, MUMBAI V. ACIT 4(3), MUMBAI

ITA 1569/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8997 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 06-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI R.S.PADVEKAR, JM ITA NO.1569/MUM/2009 : ASST.YEAR 2001-2002 M/S.K.DAMANI SECURITIES PRIVATE LIMITED 5 SURYA MAHAL, BURJORJI BHARUCHA MARG FORT, MUMBAI 400 023. PA NO.AABCK6800C. VS. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 4(3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HIRO RAI RESPONDENT BY : SHRI SHRAVAN KUMAR O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 05.02.2009 IN RELATION TO THE ASSESSMENT YEAR 2001-2002. 2. THE ONLY ISSUE IN THIS APPEAL IS AGAINST NOT ALL OWING THE LOSS OF RS32,64.586 WHICH WAS OUT OF THE COST OF PURCHASE OF UNITS (CUM -DIVIDEND), WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL. BRIEFLY STATED THE F ACTS OF THE CASE ARE THAT THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(3) ON 28.11.2003 DISALLOWING LOSS OF RS.1,66,24,537 ON ACCOUNT OF MUTUAL FUND UNITS ON THE PREMISE THAT SUCH TRANSACTIONS WERE AIMED AT MITIGATING THE TAX LIABI LITY. RELEVANT DISCUSSION IS CONTAINED IN PARAS 7 TO 8 OF THE ASSESSMENT ORDER. IN PARA 9, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE PURCHASED UNITS OF MUTUAL FUNDS AS CUM-DIVIDEND ON THE RECORD DATE ITSELF WITH THE INTENTION OF EARNING EX EMPT DIVIDEND INCOME. IT WAS OPINED THAT THE PURCHASE CONSIDERATION WAS TO BE SP LIT INTO TWO AMOUNTS VIZ., TOWARDS DIVIDEND AND CONSIDERATION FOR PURCHASE OF SHARES. HE, THEREFORE, REDUCED THE AMOUNT OF DIVIDEND AT RS.1.54 CRORE FROM THE PU RCHASE PRICE OF UNITS CUM DIVIDEND AT RS.11.20 CRORES THEREBY DETERMINING ACT UAL COST OF MUTUAL FUND UNITS AT RS.9.65 CRORES. SINCE THESE UNITS WERE SOLD FOR RS .9.33 CRORES, THE A.O. HELD THAT ITA NO.1569/MUM/2009 M/S.K.DAMANI SECURITIES PRIVATE LIMITED. 2 THE LOSS OF RS.32.64 LAKHS WAS TO BE DISALLOWED AND ADDED TO THE TOTAL INCOME. HE HOWEVER DID NOT MAKE ANY SEPARATE ADDITION IN RESPE CT OF THIS AMOUNT AS THE LOSS OF RS.1.66 CRORES, INCLUDING THIS AMOUNT, WAS ALREADY DISALLOWED BY HIM. THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT(A) , WHO, VIDE HIS ORDER DATED 30.3.2004, UPHELD THE ASSESSMENT ORDER. THE ASSESS EE PREFERRED SECOND APPEAL BEFORE THE TRIBUNAL CHALLENGING THE DISALLOWANCE OF LOSS OF RS.1.86 CRORE ON PURCHASE AND SALE OF MUTUAL FUND UNITS (BEFORE THE DEDUCTION OF THE AMOUNT OF INCENTIVE RECEIVED AMOUNTING TO RS.21.02 LAKHS). T HE TRIBUNAL NOTED THAT THE LOSS WAS INCURRED ON PURCHASE AND SALE OF UNITS OF MUTUA L FUNDS AND THE ISSUE WAS COVERED IN ASSESSEES FAVOUR BY THE SPECIAL BENCH O RDER IN WALLFORT SHARES & STOCK BROKERS LTD. VS. ITO [(2005) 96 ITD 1 (MUM.) (SB)] . FOLLOWING THIS ORDER AND CERTAIN OTHER JUDGEMENTS, THE TRIBUNAL HELD THAT TH E DISALLOWANCE OF LOSS OF RS1.86 CRORES (WITHOUT REDUCING THE AMOUNT OF INCENTIVE), WAS NOT JUSTIFIABLE. 3. THE INSTANT APPEAL ARISES OUT OF THE PROCEEDINGS ARISING OUT OF THE ORDER PASSED BY THE AO GIVING EFFECT TO THE TRIBUNAL ORD ER. IN HIS ORDER DATED 19.3.2008, THE ASSESSING OFFICER OBSERVED IN PARA 1 THAT THE T RIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE ON ACCOUNT OF DISALLOWANCE OF LOSS OF RS.1 .66 CRORES (AFTER CONSIDERING INCENTIVE OF RS.21.02 LAKHS) ON PURCHASE AND SALE O F UNITS OF MUTUAL FUNDS. HE HOWEVER NOTED THAT IN THE ORIGINAL ORDER PASSED U/S .143(3) ON 28.11.2003, THE A.O. ALSO MADE DISALLOWANCE OF LOSS OF RS.32.64 LAK HS ON ACCOUNT OF CUM- DIVIDEND PURCHASE TRANSACTIONS OF UNITS OF MUTUAL FUNDS. THE SAME WAS FOUND TO BE NOT DISALLOWED SEPARATELY AS IT WAS ALREADY FORM ING PART OF DISALLOWANCE OF RS.1.66 CRORES. IN THIS BACKDROP OF FACTS, THE ASS ESSING OFFICER, IN THE INSTANT PROCEEDINGS, HELD THAT THE RELIEF TO THE ASSESSEE BY THE TRIBUNAL WAS TO BE RESTRICTED TO RS.1.33 CRORES (RS.1.66 CRORES RS.32.64 LAKHS) . THE ASSESSEE FAILED TO CONVINCED THE LD. CIT(A) ON ITS LINE OF REASONING. ITA NO.1569/MUM/2009 M/S.K.DAMANI SECURITIES PRIVATE LIMITED. 3 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER DISALLOWED THE LOSS OF RS.1.66 CRORES ON ACCOUNT OF TRANSACTIONS OF PURCHASE AND SALE OF MUTUAL FUNDS. THERE IS NO DISPUTE ON THIS A SPECT OF THE MATTER. THOUGH HE SEPARATELY DISCUSSED IN PARA 9 ABOUT THE PURCHASING OF UNITS OF MUTUAL FUNDS AS CUM DIVIDEND RESULTING INTO BIFURCATION OF THE PURC HASE CONSIDERATION INTO TWO PARTS THERE BY NOT ALLOWING LOSS OF RS.32.64 LAKHS, BUT H E DID NOT MAKE ANY SEPARATE ADDITION FOR THIS AMOUNT BECAUSE SUCH DISALLOWANCE WAS PART OF THE TOTAL DISALLOWANCE MADE BY HIM ON THIS COUNT. THE ASSES SEE CHALLENGED THE TOTAL ADDITION OF RS.1.66 CRORES BEFORE THE LEARNED CIT(A ), WHO VIDE PARA 41 OPINED : SINCE THE TOTAL LOSS CLAIMED BY THE ASSESSEE HAS B EEN DISALLOWED BY THE A.O., THE DISALLOWANCE OF PART OF THE LOSS BY INVOKING SUPREM E COURT DECISION LOOSES ITS RELEVANCE AND HAS NO MATERIAL BEARING ON THE FACTS OF THE CASE. THIS OBSERVATION IS IN THE CONTEXT OF THE DISALLOWANCE OF RS.32.64 LAKH S AS DISCUSSED BY THE A.O. IN PARA 9 OF THE ASSESSMENT ORDER. THE LD. FIRST APPEL LATE AUTHORITY, HOWEVER UPHELD THE ASSESSMENT ORDER ABOUT THE DISALLOWANCE OF LOSS OF RS.1.66 CRORE. FROM THE ABOVE QUOTED OBSERVATIONS OF THE LEARNED CIT(A) IT IS DIS CERNIBLE THAT HE DID NOT RECORD ANY SEPARATE FINDING AGAINST THE ASSESSEE ABOUT THE DISALLOWANCE OF LOSS OF RS.32.64 LAKHS. THE ASSESSEE ASSAILED THE TOTAL DISALLOWANCE BEFORE THE TRIBUNAL WHICH WAS HELD TO BE NOT SUSTAINABLE IN VIEW OF THE SPECIAL B ENCH ORDER. AT THIS JUNCTURE, IT WOULD BE RELEVANT TO MENTION THAT THE VIEW TAKEN BY THE SPECIAL BENCH IN WALLFORT SHARES & STOCK BROKERS LTD. (SUPRA) NOW STANDS AFFIRMED BY THE HONBLE SUPREME COURT IN CIT VS. WALFORT SHARE AND STOCK BROKERS P.LTD. [(20 10) 326 ITR 1 (SC)] . IT IMPLIES THAT THE TOTAL AMOUNT OF DISALLOWANCE O F LOSS OF RS.1.66 CRORES, IN RESPECT OF WHICH THE A.O. MADE ADDITION, WAS FINALLY RIGHTL Y DELETED BY THE TRIBUNAL. AS THERE WAS NO SEPARATE ADDITION OF RS.32.64 LAKHS BY THE ASSESSING OFFICER AS THE SAME WAS HELD TO BE FORMING PART OF THE TOTAL DISAL LOWANCE OF RS.1.66 CRORES, NATURALLY THE TRIBUNAL ALSO DID NOT GIVE ANY SEPARA TE FINDING AGAINST THE ASSESSEE. ON THE CONTRARY THE TOTAL DISALLOWANCE OF LOSS OF R S.1.66 CRORES, WHICH ALSO ITA NO.1569/MUM/2009 M/S.K.DAMANI SECURITIES PRIVATE LIMITED. 4 INCLUDED A SUM OF RS.32.64 LAKHS AS PER THE VERSION OF THE AO IN ORIGINAL AS WELL AS PRESENT PROCEEDINGS, CAME TO BE DELETED BY THE TRIB UNAL. WHEN THE ENTIRE DISALLOWANCE OF LOSS AS MADE BY THE AUTHORITIES BEL OW AMOUNTING TO RS.1.66 CRORES WAS DELETED BY THE TRIBUNAL, THE ASSESSING OFFICER WAS SUPPOSED TO ALLOW RELIEF FOR THE SAME FIGURE IN THE ORDER GIVING EFFECT TO THE T RIBUNAL ORDER. IF NO SPECIFIC ADDITION WAS MADE BY THE A.O. IN THE ORIGINAL ASSES SMENT ORDER, HOW HE COULD MAKE SUCH ADDITION IN THE ORDER GIVING EFFECT TO TH E TRIBUNAL ORDER, IS BEYOND OUR COMPREHENSION. 5. IT CAN BE SEEN FROM THE SPECIAL BENCH ORD ER IN WALFORT SHARES & STOCK BROKERS P.LTD. (SUPRA), WHICH FINALLY STANDS APPROVED BY THE HONBLE SUPRE ME COURT THAT THE DEPARTMENT IN THAT CASE ALSO TOOK T HE SIMILAR STAND THAT THE ASSESSEE PURCHASED UNITS ONLY AFTER ANNOUNCEMENT OF DIVIDEND THE PURCHASE PRICE WAS TO BE SPLIT INTO TWO PARTS. REPELLING THIS CONTENTION, T HE TRIBUNAL HELD THAT THERE WAS DIFFERENCE BETWEEN THE EQUITY SHARES AND MUTUAL FUN DS UNITS. IT HELD THAT THE PRICE OF THE UNIT OF MUTUAL FUND DEPENDS ON ITS NAV AND N OT THE AMOUNT OF DIVIDEND ANNOUNCED / DECLARED AND HENCE THE AMOUNT ANNOUNCED BY THE MUTUAL FUND WOULD NOT AFFECT THE PRICE AT WHICH THE ASSESSEE PURCHASE D THE UNIT. EXACTLY SIMILAR STAND WAS TAKEN BY THE AO IN THE ORIGINAL ASSESSMENT ORDE R. FROM THE SPECIAL BENCH ORDER IT CAN BE NOTICED THAT SUCH A STAND WAS HELD TO BE NOT SUSTAINABLE. WHEN THE TRIBUNAL, IN THE INSTANT CASE, FOLLOWED THE SPECIA L BENCH ORDER IN WALLFORT SHARES & STOCK BROKERS LTD. (SUPRA) AND HELD THE ENTIRE DISALLOWANCE OF LOSS OF RS.1.6 6 CRORES AS NOT SUSTAINABLE, THAT ALSO INCLUDED THE AMOUNT OF LOSS OF RS.32.64 LAKHS, WHICH WAS ALSO HELD BY THE SPECIAL BENCH TO BE NOT DISALLOWABLE. IT IS AXIOMATIC THAT WHEN SPECIAL BENCH ORDER WAS FOLLOWED BY THE T RIBUNAL THE SAME WAS TO BE CONSIDERED IN ENTIRETY AND ALL THE ISSUES IN APPEAL BEFORE THE TRIBUNAL, WHICH WERE CONSIDERED AND DECIDED BY THE SPECIAL BENCH, AUTOMA TICALLY STOOD CONSIDERED AS DECIDED IN CONSONANCE WITH THE SAID SPECIAL BENCH O RDER. IN THAT VIEW OF THE MATTER THERE IS NO WARRANT FOR MAKING SEPARATE DISALLOWANC E OF RS.32.64 LAKHS IN THE ITA NO.1569/MUM/2009 M/S.K.DAMANI SECURITIES PRIVATE LIMITED. 5 SUBSEQUENT PROCEEDINGS , GIVING EFFECT TO THE TRI BUNAL ORDER. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND HOLD THAT THE ENTIRE A MOUNT OF RS.1.66 CRORES IS LIABLE TO BE CONSIDERED AS RELIEF ALLOWED BY THE TRIBUNAL. 6. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 7 TH DAY OF JANUARY, 2011. SD/- SD/- (R.S.PADVEKAR) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 7 TH JANUARY, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XIV, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.