PARKLIGHT INVESTMENTS P.LTD, MUMBAI V. ASST CIT 4(2), MUMBAI

ITA 1960/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88459 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PERMANAND J
• Assessee Lawyers: REEPAL G TRAISHAWALA
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition; Tax effect
• Section: 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. , ! , BEFORE S/SH.VIJAY PAL RAO, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.1960/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2008-09 M/S PARKLIGHT INVESTMENTS P. LTD. BOMBAY MUTUAL CHAMBERS, BLOCK NO. 36, 3RD FLOOR, BOMBAY SAMACHAR MARG, MUMBAI-400023 PAN:AAACP9065D VS ACIT 4(2), MUMBAI. ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI REEPAL G. TRAISHAWALA + * / REVENUE BY : SHRI PERMANAND J. ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 03.03.2015 -.# + ), / DATE OF PRONOUNCEMENT : 03-03-2015 ' ' ' '1961 1961 1961 1961 + + + + 254 254 254 254( (( (1 11 1) )) ) )7) )7) )7) )7) 8 8 8 8 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DATED 05.01.2012 OF CIT(A)-8, MUMBAI,THE ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.1 IN LAW & AS PER THE FACTS & IN THE CIRCUMSTANCE S OF THE APPELLANT'S CASE, THE HON'BLE C.I.T.(A) GROSSLY ERRED IN CONFIRMING DISALLOWANCE U/S 14A RE AD WITH RULE 80 OF THE INCOME TAX ACT. THE SAME SHOULD BE DELETED. 1.2 IN LAW & AS PER THE FACTS & IN THE CIRCUMSTANCE S OF THE APPELLANT'S CASE, THE HON'BLE C.I.T.(A), WHILE CONFIRMING THE APPLICATION OF THE PROVISIONS OF S. 14A R.W.R. 80, OVERLOOKED THE FACT THAT, THE ID. A.O. HAD FAILED TO PROVE BEYOND DOUBT, INCURREN CE OF ANY EXPENDITURE IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT AND HAD ARBITRARILY APPLIED RULE 80, HENCE, THE SAME SHOULD BE DELETED. 1.3 IN LAW & AS PER THE FACTS & IN THE CIRCUMSTANCE S OF THE APPELLANT'S CASE, THE HON'BLE C.I.T.(A), FAILED TO APPRECIATE THE FUNDS FLOW POSITION, BASED ON THE BALANCE SHEET OF THE APPELLANT COMPANY AND THE ACTIVITY-WISE PROFIT AND LOSS ACCOUNT , WHI CH CLEARLY ESTABLISHES THAT, THE APPELLANT WAS HAVING SUFFICIENT OWN FUNDS TO MAKE AN INVESTMENTS, GIVING RISE TO AN EXEMPT INCOME. 1.4 WITHOUT PREJUDICE TO THE ABOVE GROUNDS, IN LAW & AS PER THE FACTS & IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE, THE HON'BLE C.I.T.(A), ALSO FAILE D TO APPRECIATE THAT, THE TOTAL DISALLOWANCE U/S 14A CANNOT BE HIGHER THAN, DIVIDEND EARNED OF RS. 4 7,713/-, HENCE, SHOULD HAVE RESTRICTED THE SAME TO EARNING OF DIVIDEND. 1.5 IN LAW AND IN THE FACTS & CIRCUMSTANCES OF THE APPELLANT'S CASE, THE HON'BLE CIT(A) MISINTERPRETED THE PROVISIONS OF SECTION 14A READ W ITH RULE 80 BY WRONGLY RELYING ON THE DECISION AS MENTIONED IN THE IMPUGNED ORDER AS WELL AS DISRE GARDING THE DECISION OF YATISH TRADING CO. PVT. LTD. VS ACIT (2011) 129 ITD 237 (MUM), A JURIS DICTIONAL ITAT DECISION. HENCE, THE ORDER NEEDS TO BE QUASHED. 2.1 IN LAW & AS PER THE FACTS & IN THE CIRCUMSTANCE S OF THE APPELLANT'S CASE, THE HON'BLE C.I.T.(A) ERRED IN CONFIRMING THE LD. AO.'S METHOD OF COMPUTI NG THE LONG TERM CAPITAL GAINS AND ALSO OVERLOOKED THE FACT THAT, NO DEPRECIATION WAS ACTUA LLY ALLOWED (ALTHOUGH CLAIMED IN EARLIER 2 YEARS) TO THE APPELLANT COMPANY ON THE VALUE OF SSE CARD. HENCE, THE COST OF SHARES MUST BE CONSIDERED AS THE ACTUAL COST OF SSE AS COST OF ACQ UISITION, AS STIPULATED U/S 55 (2)(AB). 2.2 IN LAW & AS PER THE FACTS & IN THE CIRCUMSTANCE S OF THE APPELLANT'S CASE, THE HON'BLE C.I.T. (A) ERRED IN CONFIRMING THE LD. AO.'S ACTION OF ADOPTIN G COST INFLATION INDEX OF F.Y. 2003/04, I.E. FROM THE YEAR THE APPELLANT DISCONTINUED TO CLAIM DEPREC IATION ON STOCK EXCHANGE CARD. THIS ACTION OF 2 ITA NO. 1960/M/2012 M/S PARKLIGHT INVESTMENTS P. LT D. THE LD. AO. IS IN GROSS MISINTERPRETATION OF THE EX PRESS PROVISIONS OF 47 (XIIIA), WHEREBY THE CAPITAL ASSET, BEING MEMBERSHIP RIGHTS HELD BY THE MEMBER O F RECOGNIZED STOCK EXCHANGE, ALLOWS THE APPELLANT TO BECOME A MEMBER (BY WAY OF OWNING A SH ARES) OF SSE ON CORPORATISATION IN ACCORDANCE WITH THE SCHEME APPROVED BY SESI, AND IS NOT REGARDED AS 'TRANSFER' AND ACCORDINGLY, THE HOLDING PERIOD MUST BE RECKONED FROM THE DATE O F ACQUISITION OF SSE CARD, AND CONSEQUENTIAL INDEXATION BE ADOPTED FOR COMPUTING CAPITAL GAIN ON TRANSFER OF BSE SHARES. IN THE PRESENT APPELLANT CASE, THE SAID DATE IS 16/09/1998. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR MODIFY THE GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE HEARING. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) OF THE ASSESSEE STATED THAT CONSIDERING THE SMALLNESS OF THE TAX EFFECT,GR OUND OF APPEAL NO.1 WAS NOT BEING PRESSED. HENCE,SAME STANDS DISMISSED. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF BROKING ACTIVITIES,FILED ITS RETURN OF INCOME ON 27. 09.2008,DECLARING TOTAL INCOME OF RS.3,97,59,100/-. ASSESSING OFFICER(AO)COMPLETED THE ASSESS - MENT U/S.143(3) OF THE ACT ON 20.12.2010 DETERMININ G THE INCOME OF THE ASSESSEE AT RS.4,75,45, 682/-. 2. SECOND GROUND OF APPEAL IS ABOUT METHOD OF COMPUTIN G LONG TERM CAPITAL GAINS (LTCGS) OF VALUE OF BOMBAY STOCK EXCHANGE(BSE)CARD.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD SOLD 9123 SHARES OF BSE LTD. ON W HICH IT HAD EARNED LTCG, THAT THOSE SHARES WERE ALLOTTED TO IT UNDER THE SCHEME OF CAPITALIZAT ION AND DEMUTUALIZATION OF BSE IN LIEU OF MEMBERSHIP CARD, THAT IT HAD INDEXED THE ORIGINAL C OST OF THE CARD AS THE COST OF ACQUISITION FOR CALCULATING THE CAPITAL GAINS.HE FURTHER FOUND THAT IT HAD CLAIMED DEPRECIATION ON THE CARD TILL ASSESSMENT YEAR 2002-03.THEREFORE,HE HELD THAT CLAI M OF THE ASSESSEE-COMPANY WAS NOT ACCEPTAB- LE AS IT COULD NOT CLAIM DOUBLE DEPRECIATION ON A C APITAL ASSET BY WAY OF TWO DIFFERENT PROVISIONS OF THE ACT,THAT THE ASSESSEE HAD TO ADOPT WDV OF TH E CAPITAL ASSET AS THE COST OF ACQUISITION FOR THE PURPOSES OF CALCULATING CAPITAL GAINS,THAT THE WDV AS ON 01.04.2002 WAS RS. 55,78,875/-. ALLOWING THE INDEXATION FROM THE YEAR WHEN THE ASSE SSEE STOCK CLAIMED DEPRECIATION I.E. FROM AY 2003-04 HE HELD THAT NO INDEXATION COULD BE GIVEN O N DEPRECIABLE ASSET. FINALLY, HE COMPUTED THE CAPITAL GAIN ON BSE CARD AS UNDER: SALE PROCEEDS OF 9123 SHARES 47,439,600 WRITTEN DOWN VALUE AS ON 1/4/02 5578875 LESS WDV(5578875*551/463) 6639223 LESS: COST OF 9123 SHARES OF BSE LTD 9123 LONG TERM CAPITAL GAINS 40791254 AS A RESULT,HE MADE AN ADDITION OF RS. 4.07 CRORES TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED THAT ASSESS EE HAD ACQUIRED THE BSE MEMBERSHIP IN THE YEAR 1998,THAT IN THE YEAR 2006 IT WAS ALLOTTED 10, 000 SHARES OF BSE AND IT CONTINUED TO HOLD TRADING/CLEARING MEMBERSHIP RIGHTS,THAT IT STARTED CLAIMING DEPRECIATION ON THE CARD FROM THE AY. 2001-02 AND CLAIMED TILL AY 2002-03,THAT THE SAID C LAIM OF DEPRECIATION WAS DISALLOWED IN THE COURSE OF ASSESSMENT,THAT THE FAA CONFIRMED THE DIS ALLOWANCE MADE BY THE AO,THAT THE TRIBUNAL ALLOWED THE CLAIM OF DEPRECIATION IN FAVOUR OF THE ASSESSEE FOR BOTH THE YEARS,THAT THE DEPARTMENT HAD PREFERRED AN APPEAL BEFORE THE HON'BLE JURISDIC TIONAL HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL, THAT THE HON'BLE BOMBAY HIGH COURT REVERS ED THE DECISION OF THE TRIBUNAL, THAT THE AO APPROACHED THE TRIBUNAL FOR RECTIFICATION OF DECISI ON IN VIEW OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT,THAT THE TRIBUNAL ALLOWED THE MIS CELLANEOUS APPLICATION FILED BY THE AO, 3 ITA NO. 1960/M/2012 M/S PARKLIGHT INVESTMENTS P. LT D. THAT THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE FOR BOTH THE YEARS WAS REVERSED, THAT IN ORDER TO AVOID ANY LITIGATIONS THE ASSESSEE DISCONTINUED TO CLAIM DEPRECIATION OF STOCK-EXCHANGE CARD FROM AY 2003-04,THAT THE COST OF ACQUISITION OF THE CARD AS ON 16.09.1998 WAS RS. 99.18 LAKHS THAT THE DEPRECIATION FOR THE AY 2001-02 AND 2002-0 3 WAS CLAIMED AT RS. 24.79 LAKHS AND RS. 18.59 LAKHS RESPECTIVELY,THAT THE NET WDV AS PER TH E ACT AS WELL AS THE BOOKS OF ACCOUNTS WAS RS.55.78 LAKHS, THAT IT HAD SOLD 9123 SHARES DURING THE YEAR UNDER APPEAL FOR CONSIDERING OF RS.4. 74 CRORES,THAT IT HAD COMPUTED THE LTCG IN VIEW OF THE DEEMING PROVISIONS OF SECTION 55(2) (AB) OF THE ACT AT RS.3.32 CRORES.REFERRING TO THE PROVI SIONS OF SECTION, IT IS CONTENDED THAT THE COST OF THE SHARES FOR THE PURPOSE OF CAPITAL GAIN HAD TO B E THE COST OF ACQUISITION OF ORIGINAL MEMBERSHIP OF EXCHANGE AT WHICH THE BSE CARD WAS PURCHASED. AC CORDINGLY, INDEXED COST OF ACQUISITION WAS DETERMINED BY IT AT RS.1.42 CRORES(ORIGINAL COST DE VIDED BY 551/351).IT WAS FURTHER ARGUED THAT THE ALLOTMENT OF SHARES WAS UNDER SCHEME FOR CORPORATIZ ATION,AS APPROVED BY SEBI UNDER THE PROVISIO -NS OF SECTION 47(XIII),THAT IT DID NOT CONSTITUTE TRANSFER,THAT HOLDING PERIOD WAS TO BE TAKEN FROM THE FY.1998-99 AND INDEXING OF COST WAS TO BE TAKEN ACCORDINGLY -LY. AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBM ISSION OF THE ASSESSEE,THE FAA REFERRED TO THE PROVISIONS OF SECTION 2(42A), 47(XIIIA) AND 55(2)(A B) OF THE ACT.HE HELD THAT PROVISIONS OF SECTION 50 HAD TO BE APPLIED TO TRANSFER OF SHARES RECEIPT ON CONVERSION OF RIGHTS IN AOP, THAT THE AMEND - MENT OF SECTION 55(2) PROVIDED FOR COST OF SHARES A ND TRADING RIGHTS IN BSE DID NOT ANY MANNER EXCLUDED THE PROVISIONS OF SECTION 50. HE FURTHER H ELD THAT ALLOWANCE OF DEPRECIATION FOR THE AY.S. 2001-02 AND 2002-03 WAS SUBJUDICE, THAT IT WAS NOT BROUGHT TO HIS NOTICE THAT IN TERMS OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF M/ S TECHNO SHARES AND STOCK LTD. (327 ITR 323),THAT THE APPELLANT HAD MOVED ANY RECTIFICATION APPLICATION BEFORE THE TRIBUNAL, THAT THE MEMBERSHIP RIGHT OF THE BSE FROM WHICH THE SHARES H AD EMERGED THE ALLOWANCE OF DEPRECIATION SHOULD BE REDUCED FROM THE COST OF ACQUISITION OF T HE SHARES OF BSE WHILE CALCULATING THE LTCG ON SALE OF SHARES, THAT THE SHARES OF BSE WERE LONG TERM CAPITAL ASSETS WITHIN THE MEANING OF SECTION2(42A)(HA),THAT THE BENEFIT OF INDEXATION SH OULD BE GRANTED FROM THE YEAR IN WHICH NO DEPR -ECIATION HAD BEEN CLAIMED AND ALLOWED TO THE ASSES SEE.CONFIRMING THE ORDER OF THE AO, HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US, AUTHORISED REPRESENTATIVE (AR)REFERRED T O THE ORDERS OF THE TRIBUNAL FOR THE AY.S. 2001-02 AND 2002-03,ORDER OF THE HON'BLE BOMBAY HIG H COURT FOR THE YEAR 2001-02 AND M.A. ORDER OF THE TRIBUNAL FOR THE AY 2002-03.HE FURTHER STATED THAT ASSESSEE HAD NOT AGITATED THE MATTER BEFORE THE SUPREME COURT,THAT IT HAD STOPPED CLAIMING DEPRECIATION AFTER AY.2002-03,THAT THE DEPRECIATION CLAIM MADE BY IT HAD BEEN DISALLOW ED,THAT THE FAA HAD REJECTED THE CLAIM OF THE ASSESSEE AS HE WAS OF THE OPINION THAT IT COULD NOT BE ALLOWED TO CLAIM DOUBLE DEDUCTION. WE FIND THAT AS ON TODAY THE ASSESSEE HAS NOT AVAIL ED ANY DEPRECIATION AND HAD CLAIMED BENEFIT OF INDEXATION ONLY.IT IS ALSO A FACT THAT ASSESSEE WAS OWNER OF BSE CARD FROM AY 1998-99 AND THEREFORE,IT IS ENTITLED TO CALCULATE THE LTCG TAKI NG INTO CONSIDERATION THE BASE OF 1998-99.SO, DECIDING THE GROUND NO.2 IN FAVOUR OF THE ASSESSEE, WE REVERSE THE ORDER OF THE FAA. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ( 9 '() + 8): ; + ) <=. ORDER PRONOUNCED IN TH E OPEN COURT ON 3 RD ,MARCH,2015 . 8 + -.# ? @' 3 B , 2015 . + 7 D SD/- SD/- ( / VIJAY PAL RAO) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER , / MUMBAI, @' /DATE: 03.03 . 2015. SK 4 ITA NO. 1960/M/2012 M/S PARKLIGHT INVESTMENTS P. LT D. 8 8 8 8 + ++ + &) &) &) &) E #) E #) E #) E #) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ F G , 4. THE CONCERNED CIT / F G 5. DR C BENCH, ITAT, MUMBAI / H7 &)' , . . . 6. GUARD FILE/ 7 I ') ') ') ') &) &)&) &) //TRUE COPY// 8' / BY ORDER, J / < DY./ASST. REGISTRAR , /ITAT, MUMBAI