PAVAK SECURITIES LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 1803/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4983 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition; Wrong claim
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , , ./I.T.A. NO.1803/MUM/2012 ( / ASSESSMENT YEAR:2008-09) M/S PAVAK SECURITIES PVT. LTD., 202, P.J.TOWERS, DALAL STREET, MUMBAI-400001 / VS. INCOME TAX OFFICER, 4(2)(3), AAYAKAR BHAVAN, MUMBAI-400020 ( & / APPELLANT) .. ( ' & / RESPONDENT) ./ ./PAN/GIR NO. : AABCP4399M & / APPELLANT BY : SHRI SANJAY R PARIKH ' & * /RESPONDENT : SHRI PRABHAT JHA * - / DATE OF HEARING : 29.8.2013 * - /DATE OF PRONOUNCEMENT : 13.9.2013 / O R D E R PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2008-09 AGAINST ORDER OF LD. CIT(A) DATED 30.1.2012 ON THE FOLLOWING GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONFIRMING THE INCOME ASSESSED BY THE ASSESSING OFF ICER AT RS.2,69,41,570/- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN I NVOKING RULE 8D AND THEREBY DISALLOWING RS.2,34,139/- U/S 14A OF THE IN COME TAX ACT, 1961. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND IN FACTS BY CONFIRMING THE ASSESSING OFFICER'S CONT ENTION IN NOT ACCEPTING THE REVISED LONG TERM CAPITAL GAIN ON SAL E OF SHARES OF BSE LTD. SUBMITTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) WAS NOT JUSTIFIED IN STATING THAT THE APPELLANT'S CLAIM OF LOWER LONG TERM CAPITAL GAINS ON SALE OF BSE SHARES CANNOT BE ACCEPTED IF THE CLA IM IS NOT MADE BY REVISING THE RETURN OF INCOME; EVEN THOUGH THE CLAI M OF APPELLANT MAY HAVE MERIT. I.T.A. NO.1803/MUM/2012 2 3. GROUND NO.1 OF THE APPEAL IS GENERAL AND DOES NO T REQUIRE ANY SPECIFIC ADJUDICATION. 4. IN RESPECT OF GROUND NO.2 OF THE APPEAL, THE REL EVANT FACTS ARE THAT THE ASSESSEE IS A REGISTERED SHARE-BROKER ON RECOGNIZED STOCK E XCHANGE DOING BROKERAGE ACTIVITIES AND ALSO TRADING IN SHARES. 5. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED DIVIDEND INCOME AMOUNTING TO RS.46,5,118/- WHICH IS CLAIMED AS EXEMPT. AO HAS STATED THAT ASSESSEE HAS NOT MADE ANY DISALLOWANCE U/S 14A OF INCOME TAX ACT, 1961 (THE ACT), IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HOWEVER, THE ASSESSEE VIDE LETTER DATED 7.12.2010 STATED THAT INVESTMENT WAS MADE BY THE ASSESSEE IN NEW SHA RES BY PAYING THE APPLICATION MONEY WHICH REMAINS OUTSTANDING PENDING ALLOTMENT O R REFUND. THAT THE SAID APPLICATION MONEY CANNOT BE CONSIDERED AS INVESTMEN T FOR THE PURPOSE OF INCLUSION IN THE LIST OF INVESTMENT UNDER RULE 8D. HOWEVER, T HE AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND STATED THAT AS PER BALANCE SHEET, TOTA L INVESTMENT ARE AT RS.6,53,56,661/-. AO HAS STATED THAT CERTAIN PERCENTAGE OF THE EXP ENSES CLAIMED BY THE ASSESSEE- COMPANY WOULD DEFINITELY BE ATTRIBUTABLE TO TAX FR EE INCOME EARNED BY ASSESSEE AS IT IS THE COMMON POOL OF HUMAN AND FINANCIAL RESOURCES WH ICH ARE BEING UTILIZED TO EARN INCOME IN VARIOUS FORM. AO AFTER CONSIDERING SECT ION 14A(2) OF THE ACT AND RULE 8D HAS CALCULATED THE DISALLOWANCE AT RS.2,34,139/-. BEIN G AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 6. BEFORE LD. CIT(A), ON BEHALF OF ASSESSEE, IT W AS CONTENDED THAT IT HAS NOT USED ANY BORROWED FUND FOR ACQUISITION OF INVESTMENT. I T WAS CONTENDED THAT VARIOUS ADMINISTRATIVE EXPENSES AND INTEREST HAD BEEN INCUR RED NOT TO EARN DIVIDEND INCOME BUT TO RUN DAY TO DAY BUSINESS ACTIVITY. THAT THE ACTI VITY OF PURCHASE AND SALE OF SHARES FORM PART OF INDIVISIBLE BUSINESS OF THE ASSESSEE. FURTHER, AO HAS NOT ESTABLISHED NEXUS BETWEEN THE EXPENDITURE INCURRED WITH TAX FREE INCO ME. 7. LD. CIT(A) DID NOT ACCEPT THE SAID CONTENTION OF ASSESSEE AND JUSTIFIED THE ACTION OF AO TO INVOKE THE PROVISIONS OF RULE 8D TO DETERM INE THE QUANTUM OF EXPENSES FOR DISALLOWANCE U/S 14A WITH RESPECT TO EARNING OF EXE MPT INCOME. LD. CIT(A) STATED THAT ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNT OF EX PENSES INCURRED FOR EARNING OF EXEMPT INCOME. HE HAS STATED THAT AS THE ASSESSEE HAD NOT MAINTAINED ANY SEPARATE I.T.A. NO.1803/MUM/2012 3 RECORDS ON ACCOUNT OF EXPENDITURE HAVING BEEN INCUR RED FOR EARNING OF DIVIDEND INCOME THE AO BLINDLY CANNOT BE FASTENED WITH ANY BURDEN T O DISCOVER SUCH EXPENDITURE OF ESTABLISHING NEXUS OF SUCH EXPENDITURE WITH EXEMPT INCOME. LD. CIT(A) HAS STATED THAT WITH EFFECT FROM 1.4.2007 SUB-SECTION (2) OF SECTI ON 14A HAS BEEN INSERTED REQUIRING THE AO TO DETERMINE SUCH AMOUNT IN ACCORDANCE WITH SUCH METHOD AS HAS BEEN PRESCRIBED. LD. CIT(A) HAS STATED THAT RULE 8D HAS BEEN MADE APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND REFERRED THE DECISION O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT ( 2010) 328 ITR 81 (BOM). HE HAS STATED THAT ASSESSEE BEING A SHARE-BROKER UNDERTAKE S TRANSACTIONS OF SHARES WHICH INCLUDES THOSE TRANSACTIONS WHICH SUBSEQUENTLY, YIE LDED DIVIDEND INCOME WHICH IS EXEMPT. LD. CIT(A) HAS VIDE PARA 3.5 OF THE SAID O RDER CONFIRMED ACTION OF THE AO. HENCE, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT T HE ASSESSEE HAD NOT MADE ANY INVESTMENT IN SHARES TO EARN DIVIDEND INCOME. THAT THE DIVIDEND RECEIVED WAS INCIDENTAL RECEIPTS IN RESPECT OF SHARES PURCHASED BY THE ASSESSEE DURING THE COURSE OF ITS TRADING. HE SUBMITTED THAT THE AUTHORITIES BEL OW APPLIED RULE 8D OF THE RULES WITHOUT RECORDING THE SATISFACTION AS PER SUB-SECT ION (2) OF SECTION 14 OF THE ACT, THAT AO IS NOT SATISFIED IN RESPECT OF CORRECTNESS OF C LAIM OF ASSESSEE OF THE EXPENDITURE IN RELATION TO EXEMPT INCOME. HE SUBMITTED THAT DISA LLOWANCE MADE BY AUTHORITIES BELOW BY APPLYING RULE 8D SHOULD BE DELETED. 9. ON THE OTHER HAND, LD. DR SUPPORTS THE ORDERS O F AUTHORITIES BELOW AND SUBMITTED THAT RULE 8D IS APPLICABLE TO THE ASSESSM ENT YEAR UNDER CONSIDERATION IN VIEW OF DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF GODREJ & BOYCE MFG CO LTD (SUPRA). 10. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTH ORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE OBSERVE THAT THE ASSESSEE RECEIVED DIVIDEND INCOME IN THE ASSESSMENT YEAR UND ER CONSIDERATION OF RS.4,65,118/-, WHICH IS EXEMPT FROM TAX. ADMITTEDLY, ASSESSEE HA S NOT MADE ANY DISALLOWANCE ON ACCOUNT OF THE EXPENDITURE RELATING TO EXEMPT INCO ME. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT SAID DIVIDEND INCOME HAS BEEN RECEIV ED IN RESPECT OF SHARES, PURCHASED BY ASSESSEE DURING ITS SHARE-BROKING TRANSACTIONS. THE QUESTION IS NOT AS TO WHETHER THE SHARES PURCHASED WERE DURING THE SHARES-BROKING TR ANSACTIONS OR FOR THE PURPOSE OF INVESTMENT. THE QUESTION IS AS TO WHETHER THE ASSES SEE IS CLAIMING EXEMPT INCOME AND WHETHER ANY EXPENDITURE HAS BEEN INCURRED TO EARN T HE EXEMPT INCOME. THERE IS NO I.T.A. NO.1803/MUM/2012 4 DISPUTE TO THE FACT THAT RULE 8D IS APPLICABLE TO T HE ASSESSMENT YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. THERE IS ALSO NO DISP UTE TO THE FACT THAT THE LD. CIT(A) HAS STATED THAT THE BALANCE-SHEET AS ON 31.3.2008 SHOW S CERTAIN BALANCES OF OWN OUTSTANDING BORROWED FUNDS AND THEREFORE, THE LD. C IT(A) HAS STATED THAT IT CANNOT BE SAID THAT NO BORROWED FUNDS HAD EVER BEEN UTILIZED BY ASSESSEE FOR THE PURPOSE OF MAKING INVESTMENT OR UNDERTAKING TRANSACTIONS WHICH YIELDED DIVIDEND INCOME, WHICH HAS BEEN CLAIMED AS EXEMPT. THE ASSESSEE HAS NOT DISPUTED THE FACT THAT IT FAILED TO PRODUCE ANY CASH FLOW STATEMENT OR ANY OTHER MATER IAL WHICH COULD ESTABLISH THAT BORROWED FUNDS HAD NOT BEEN UTILIZED FOR EARNING OF EXEMPT INCOME AS OBSERVED BY LD. CIT(A) IN HIS ORDER. THE CONTENTION OF LD. AR THAT NO SATISFACTION HAS BEEN RECORDED BY AO BEFORE INVOKING RULE 8D, ACCORDING TO US, HAS NO MERITS PARTICULARLY WHEN THE AO AT THE TIME OF MAKING THE ASSESSMENT CONFRONTED THE AS SESSEE IN RESPECT OF INVESTMENT IN SHARES AND EXPENSES CLAIMED AND PARTICULARLY WHEN THE AO ASKED THE ASSESSEE AS TO WHY DISALLOWANCE BE NOT MADE U/S 14A READ WITH RUL E 8D OF THE ACT IN RESPECT OF THE EXEMPT DIVIDEND INCOME. CONSIDERING THE FACTS OF THE CASE, AND THE REASONINGS AS GIVEN BY LD. CIT(A) IN THE IMPUGNED ORDER, WE DO NO T FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) TO DETERMINE THE AMOUNT OF EXPENDITURE AS PER PROVISIONS OF RULE 8D FOR THE EXEMPT INCOME. HENCE GROUND NO.2 O F THE APPEAL TAKEN BY ASSESSEE IS REJECTED BY CONFIRMING THE ORDER OF LD. CIT(A). 11. IN RESPECT OF GROUND NOS.3 AND 4 OF THE APPEAL , THE RELEVANT FACTS ARE THAT THE ASSESSEE ACQUIRED MEMBERSHIP OF MUMBAI STOCK EXCHA NGE FOR THE CONSIDERATION OF RS.55 LAKHS ON 24.12.1999. THE ASSESSEE CLAIMED D EPRECIATION ON STOCK EXCHANGE CARD OF RS.1,83,540/- IN THE ASSESSMENT YEAR UNDER CONS IDERATION. AO CONSIDERING THE FACT THAT IN THE ASSESSMENT YEAR 2006-07, MEMBERSHIP RIG HTS OF BOMBAY STOCK EXCHANGE (BSE) GOT DEMUTUALIZED AFTER CORPORATIZATION OF THE BOMBAY STOCK EXCHANGE AND THE CARD HOLDERS ON DEMUTUALIZATION OF THE BOMBAY ST OCK EXCHANGE GOT 10000 SHARES OF BOMBAY STOCK EXCHANGE LTD. (BSEL) OF FACE VALUE OF RS.1 EACH. IN VIEW OF ABOVE, AO STATED THAT BOMBAY STOCK EXCHANGE CARD CEASED TO EXISTS ON DEMUTUALIZATION AND AS PER SECTION 55(2)(AB) OF THE ACT, THE COST OF SHAR ES ALLOTTED TO THE CARD HOLDERS OF THE STOCK EXCHANGE UNDER THE SCHEME OF DEMUTUALIZATIO N SHALL BE COST OF ACQUISITION OF THE ORIGINAL MEMBERSHIP OF THE EXCHANGE. IN VIEW OF ABOVE, AO DISALLOWED THE CLAIM OF DEPRECIATION OF THE ASSESSEE ON BOMBAY STOCK CAR D. FURTHER, THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION SOLD 4562 SHARE S AND DETERMINED THE CAPITAL GAIN IN THE RETURN OF INCOME AS UNDER : I.T.A. NO.1803/MUM/2012 5 I) PROPORTIONATE CO ST OF 4562 SHARES OF BSE LTD, IN THE HANDS OF ASSESSEE RS.4,562/ - II) YEAR OF PURCHASE IN 2006 - 07 AND ITS INDEX IS 519 III) YEAR OF SALE IS 2007 - 08 AND ITS INDEX IS 551 IV) INDEXED COST OF 4562 SHARES OF BSE LTD IS RS.4,843/ - V) SALE PROCEED OF 4562 SHARES OF BSE LTD IS RS.2,37,22,400/ - VI) TAXABLE LONG TERM CAPITAL GAIN ON SALE OF 4562 BSE LTD SHARES IS RS.2,37,17,557/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE REVISED ITS STATEMENT OF LONG TERM CAPITAL GAIN AND WORKED OUT AT RS.2,31,39 ,956/-. THE ASSESSEE STATED THAT WHILE FILING THE RETURN OF INCOME THE COST OF ACQU ISITION WAS TAKEN AT RS.1 PER SHARE. WHEREAS IN THE REVISED WORKING OF LONG TERM CAPIT AL GAIN, IT HAS ADOPTED THE COST OF ACQUISITION AS RS.1 PER SHARES + WRITTEN DOWN VALU E (WDV) OF BOMBAY STOCK EXCHANGE AS ON 31.3.2005. AO DID NOT ACCEPT THE RE VISION OF CAPITAL GAIN. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FI RST APPELLATE AUTHORITY. 12. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ACTION OF AO ON THE GROUND THAT ASSESSEE HAS NOT R EVISED THE LONG TERM CAPITAL GAIN ON SALE OF BOMBAY STOCK EXCHANGE SHARES BY REVIS ING THE RETURN OF INCOME AND REFERRED THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF GOETZE (INDIA) LTD. V/S CIT (2006) 284 ITR 323 (SC). HENCE, THIS APPEAL BY THE ASSESSEE. 13. LD. AR SUBMITTED THAT THE ASSESSEE CLAIMED DEPR ECIATION ON THE MEMBERSHIP RIGHTS OF STOCK EXCHANGE AND EVEN AFTER INSERTION OF SECTION 55(2)(AB) OF THE ACT, THE ASSESSEE WAS OF THE VIEW THAT DEPRECIATION COULD B E CLAIMED ON THE MEMBERSHIP RIGHTS OF THE BOMBAY STOCK EXCHANGE, AS NO AMENDMENT T O SECTION 43(1) OR SECTION 43(6), WERE MADE. LD. AR SUBMITTED THAT SINCE CLAIM OF DEPRECIATION WAS WITHDRAWN DURING THE YEAR UNDER CONSIDERATION AND SAME WAS ALSO DISA LLOWED IN EARLIER YEARS, THE ASSESSEE, AT THE TIME OF ASSESSMENT PROCEEDINGS, MADE A REVISED CLAIM BEFORE AO BY INCREASING COST OF SHARES BY WDV OF THE STOCK EX CHANGE CARD. HE SUBMITTED THAT LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO BY RELYI NG ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA), BUT THE SAID CASE IS NOT APPLICABLE AS THE CLAIM WAS ITSELF BEFORE THE AO AND THE ASSESSEE ONLY MADE A REVISED CLAIM AS IT FOUND THAT EARLIER ONE WAS A WRONG CLAIM. HE SUBM ITTED THAT IN VIEW OF DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S PRUTHVI BROKERS AND SHAREHOLDERS P.LTD (2012) 349 ITR 336(BOM), THE AP PELLATE AUTHORITIES HAD POWERS TO ENTERTAIN AN ADDITIONAL CLAIM. HE SUBMITTED THAT T HE ASSESSEE HAD NOT ALLOCATED THE I.T.A. NO.1803/MUM/2012 6 WDV OF THE MEMBERSHIP RIGHTS OF THE STOCK EXCHANGE CARD TO THE COST OF SHARES AND COMPUTED THE LONG TERM CAPITAL GAIN IN RESPECT OF SHARES SOLD BY CONSIDERING THE COST OF ACQUISITION OF SHARES I.E. RS.1 PER SHARE. HE SUBMITTED THAT THE CLAIM OF DEPRECIATION HAS BEEN WITHDRAWN, AND THEREFORE, THE CLAIM BY INCREASING COST OF SHARES WAS MADE AND THE REVISED STATEMENT OF LONG TERM CAPITAL GAIN WAS FILED. LD. AR REFERRED THE DECISION OF ITAT, MUMBAI IN THE CASE O F SINO SECURITIES (P.) LTD. V/S ITO (2011) 134 ITD 321 (MUM), WHEREIN IT WAS HELD THAT THE DEPRECIATION IS NOT AVAILABLE ON THE ERSTWHILE BOMBAY STOCK EXCHANGE CARD AFTER DEMUTUALIZATION OF THE STOCK EXCHANGE AND THE SAID DECISION WAS FOLLOWED BY ITA T, MUMBAI IN THE CASE OF SUNIDHI CONSULTANCY SERVICES LTD V/S DCIT (2012) 50 SOT 22 3 (MUM). LD. AR SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE AO TO CONSIDER T HE LONG TERM CAPITAL GAINS AS THERE WAS NO MALAFIDE INTENTION IN CLAIMING DEPRECI ATION ON MEMBERSHIP CARD AFTER DEMUTUALIZATION OF THE STOCK EXCHANGE AND IT IS T HE EVIDENT THAT THE ASSESSEE HAD NOT ALLOCATED TO THE COST THE WDV OF THE MEMBERSHIP CAR D. 14. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSES SEE MADE WRONG LONG TERM CAPITAL GAIN IN THE COMPUTATION FILED WITH THE RETU RN OF INCOME AND ONLY ON BEING POINTED OUT BY AO, THE ASSESSEE REVISED THE RETURN. HE SUBMITTED THAT ASSESSEE IS A BIG SHAREHOLDER AND HAVE THE BENEFIT OF EXPERT ADVICE. HE SUBMITTED THAT THE ASSESSEE ADOPTED THE ALTERNATIVE CLAIM BY REVISING LONG TER M CAPITAL GAIN ONLY WHEN THE DEPRECIATION ON THE STOCK EXCHANGE CARD CLAIMED BY THE ASSESSEE WAS NOT ENTERTAINED ON ACCOUNT OF CORPORATIZATION OF BOMBAY STOCK EX CHANGE AS PER SCHEME OF DEMUTUALIZATION AND THE CARD CEASED TO EXISTS. 15. WE HAVE CONSIDERED THE ORDERS OF AUTHORITIES BE LOW, FACTS ON RECORD AND THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTI ES. THERE IS NO DISPUTE TO THE FACT THAT THE BOMBAY STOCK EXCHANGE WAS CORPORATIZED A S PER THE SCHEME OF CORPORATIZATION AND DEMUTUALIZATION AND THE ER STWHILE BOMBAY STOCK EXCHANGE WAS SUCCEEDED BY A COMPANY INCORPORATED UNDER COMPANIES ACT, 1956. THE ASSESSEE WAS GRANTED 10000 SHARES OF NEWLY INCORPORATED COMPANY VIZ BOMBAY STOCK EXCHANGE LIMITED (HEREINAFTER REFERRED TO AS BSEL). THEREFO RE, RIGHTS OF THE EXISTING BSE MEMBER AS CARD HOLDERS GOT EXTINGUISHED AND IN LIEU THERE OF BSE MEMBERS HAVE ACQUIRED SHARES IN BSEL AND TRADING RIGHTS IN BSEL. THE AME NDMENT WAS ALSO MADE BY INSERTING CLAUSE (XIIIA) TO SECTION 47 OF THE ACT TO STATE SP ECIFICALLY THAT SUCH EXTINGUISHMENT OF RIGHT AND ACQUISITION OF SHARES AND TRADING RIGHT S OF BOMBAY STOCK EXCHANGE LIMITED IS I.T.A. NO.1803/MUM/2012 7 NOT REGARDED AS TRANSFER. CORRESPONDINGLY, AN AM ENDMENT WAS MADE BY INSERTING SECTION 55 (2) (AB) OF THE ACT WHICH READS AS UNDER : 55. (1) FOR THE PU.. (2). [(AB) IN RELATION TO A CAPITAL ASSET, BEING EQUITY SHARE OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNISED STOCK EXCHANGE IN IND IA UNDER A SCHEME FOR [DEMUTUALISATION OR] CORPORATISATION APPROVED B Y THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992), SHA LL BE THE COST OF ACQUISITION OF HIS ORIGINAL MEMBERSHIP OF THE EXCHA NGE:] 7 [ PROVIDED THAT THE COST OF A CAPITAL ASSET, BEING TRADING OR CLEARING RIGHTS OF THE RECOGNISED STOCK EXCHANGE ACQUIRED BY A SHAREHOLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUCH SCHEME OF DEMUTUALISATION OR CORPORATISATION, SHALL BE DEEMED TO BE NIL;] FROM THE ABOVE PROVISION OF SECTION 55(2)(AB) OF T HE ACT, IT IS EVIDENT THAT ON DEMUTUALIZATION OR CORPORATIZATION OF THE BOMBAY S TOCK EXCHANGE, IN THE CASE BEFORE US, THE COST OF ACQUISITION OF OWNERSHIP RIGHT AND TRADING RIGHTS HAVE BEEN SPLIT. THE TRADING RIGHTS ARE BASED ON DEPOSIT SYSTEM AND IN T HE CASE OF EXISTING MEMBER ITS COST DEEMED TO BE NIL. THE ENTIRE VALUE OF BOMBAY STOCK EXCHANGE CARD, AS STANDS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE ON THE DATE OF DEM UTUALIZATION OF BOMBAY STOCK EXCHANGE WOULD BE ASSIGNED TO THE SHARES ALLOCATED TO SAID MEMBERS. THEREFORE, WHEN THE MEMBERSHIP CEASED TO EXISTS AND IN LIEU OF THE CARD NEW ASSET CAME INTO EXISTENCE I.E. 10000 SHARES AS WELL AS RIGHTS TO TRADE AND C LEARING IN THE STOCK EXCHANGE AND THE ACQUISITION OF COST OF TRADE AND CLEARING HAS BEEN PROVIDED TO BE NIL AS PER PROVISO TO SECTION 55(2)(AB) OF THE ACT, THE ENTIRE COST OF ME MBERSHIP AS STANDS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WOULD BE TREATED AS COST OF ACQUISITION OF 10000 SHARES, WHICH IS NOT A DEPRECIABLE ASSET. HENCE, THE CLAIM OF A SSESSEE TO CLAIM DEPRECIATION ON DEMUTUALIZATION OR CORPORATIZATION OF THE STOCK EXC HANGE OF THE BOMBAY STOCK EXCHANGE CARD WAS NOT JUSTIFIED AND LEGAL. THEREFO RE, THE SAME WAS RIGHTLY DENIED BY AO IN THE ASSESSMENT YEAR UNDER CONSIDERATION. NOW THE QUESTION ARISES AS TO WHETHER THE ASSESSEE WAS JUSTIFIED TO ALLOCATE THE WDV OF THE BOMBAY STOCK EXCHANGE CARD TO THE COST OF ACQUISITION DURING THE COURSE OF ASSE SSMENT PROCEEDINGS AND IS TO BE ALLOWED OR NOT. WE ARE OF THE CONSIDERED VIEW THAT LONG TERM CAPITAL GAIN IN RESPECT OF THE SHARES HAS TO BE CONSIDERED AFTER ASSIGNING THE WDV OF THE BOMBAY STOCK EXCHANGE CARD TO THE COST OF 10000 SHARES ALLOCATE D TO THE ASSESSEE. IT IS OBSERVED THAT THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONS IDERATION HAS SOLD 4562 SHARES, THEREFORE, PROPORTIONATE COST OF SAID BOMBAY STOCK EXCHANGE CARD HAS TO BE ASSIGNED I.T.A. NO.1803/MUM/2012 8 TO THE SAID SHARES WHILE COMPUTING THE LONG TERM C APITAL GAINS. HENCE, WE HOLD THAT THE LD. CIT(A), WAS NOT JUSTIFIED IN NOT CONSIDERI NG THE REVISED LONG TERM CAPITAL GAINS ON SALE OF SHARES. THE SAID REVISED COMPUTA TION OF LONG TERM CAPITAL GAINS FILED BY THE ASSESSEE HAD TO BE CONSIDERED TO ADJUDICAT E THE ISSUE AS PER LAW. HENCE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO COMPUTE LONG TERM CAPITAL GAIN BY CONS IDERING THE COST OF SHARES TAKING INTO ACCOUNT THE WDV OF THE STOCK EXCHANGE CARD. HENCE GROUND NOS.3 AND 4 OF THE APPEAL TAKEN BY ASSESSEE ARE ALLOWED FOR STATIS TICAL PURPOSES BY RESTORING THE ISSUE TO THE FILE OF AO WITH A DIRECTION TO COMPUTE LONG TERM CAPITAL GAINS AS INDICATED ABOVE. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH SEP TEMBER, 2013 * 1 2 13TH SEPTEMBER, 2013 * SD SD ( /RAJENDRA ) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2 DATED 13/ 09/2013 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. & / THE APPELLANT 2. ' & / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- CONCERNED 4. 6 / CIT CONCERNED 5. 7 '9 , - 9 , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - 9 , /ITAT, MUMBAI