M/s Vesa Holdings Private Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2155/CHNY/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4690 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-06-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 06-11-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VISWANATHAN JT
• Assessee Lawyers: C V RAJAN
• Keywords: Capital asset; Revenue expenditure
• Section: 143(3); 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 2155/MDS/2006 ASSESSMENT YEAR : 1999-2000 M/S VESA HOLDINGS PVT. LTD NO.25, TAURUS, UNITED INDIA COLONY FIRST MAIN ROAD KODAMBAKKAM CHENNAI 600 024 VS THE DY. CIT COMPANY CIRCLE III(4) CHENNAI [PAN - AAACV4872C] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI C.V. RAJAN, ADVOCATE RESPONDENT BY : SHRI VISWANATHAN, JT.CIT/DR O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YE AR 1999-2000, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), DA TED 23.8.2006. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE- COMPANY FILED ITS RETURN OF INCOME FOR ASSESSMENT Y EAR 1999-2000 ON 16.12.1999 ADMITTING TOTAL INCOME OF ` 18,22,730/- AND LONG TERM CAPITAL GAINS OF ` 52,10,000/- ON SALE OF SHARES. THE RELEVANT ASSESSMENT U/S 143(3) WAS COMPLETED ON 28.3.2002 AT A TOTAL INCOME ITA 2155/06 :- 2 -: OF ` 24,52,695/- AND LONG TERM CAPITAL GAINS OF ` 52,10,000/-. SUBSEQUENTLY, IT WAS NOTICED THAT THERE WERE CERTAI N EXPENSES INCURRED BY THE ASSESSEE TOWARDS PURCHASE OF STAMPS DIRECTLY RELATABLE TO THE INVESTMENT IN SHARES. AS PER THE ASSESSING OFFICER , THIS EXPENDITURE HAS TO BE TREATED AS CAPITAL IN NATURE AND THUS WAS WRONGLY ALLOWED IN THE ORIGINAL ASSESSMENT AS REVENUE EXPENDITURE. S UBSEQUENTLY, NOTICE U/S 148 WAS ISSUED ON 18.2.2003 TO BRING TO TAX THI S INCOME WHICH, ACCORDING TO HIM, HAD ESCAPED ASSESSMENT. THE ASSE SSMENT U/S 143(3) R.W.S 147 WAS COMPLETED ON 7.11.2003. AGAIN ST VARIOUS ADDITIONS MADE BY THE ASSESSING OFFICER, THE ASSESS EE PREFERRED FIRST APPEAL. THE LD. CIT(A) HAS SUSTAINED THE ADDITIONS AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING FOLLOWIN G GROUNDS: 1. HE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN CONFIRMING THE ASSESSING OFFICER'S DISALLOWANCE OF ` 20,21,346/- BEING THE DEMAT CHARGES, SHARE T RANSFER CHARGES AND CUSTODIAL CHARGES WHICH WERE IN CURRED BY THE APPELLANT SOLELY IN CONNECTION WITH RAISING OF BANK LOAN. 1.1 THE LEARNED COMMISSIONER'S FINDING THAT THE IMP UGNED EXPENDITURE OF ` 20,21,346 WERE INCURRED FOR THE ACQUISITION OF CAPITAL ASSET IS OPPOSED TO FACTS OF THE CASE. 1.2 THE LEARNED COMMISSIONER (APPEALS) HAS FAILE D TO APPRECIATE THE NEXUS BETWEEN THE SAID EXPENDITURE A ND THE RAISING OF BANK LOAN. 1.3 THE LEARNED COMMISSIONER (APPEALS) HAS FAILED TO APPRECIATE THAT THE BANK LOANS WERE OBTAINED IN ORD ER TO PROVIDE ADDITIONAL WORKING FUND AND THE DEMAT CHARG ES ( ` 5,19,085) AND CUSTODIAL CHARGES ( ` 2,28,995) HAD TO BE INCURRED BECAUSE OF LEGAL COMPULSION FOR OBTAINING THE BANK LOANS. ITA 2155/06 :- 3 -: 2. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED I N ENHANCING THE TOTAL INCOME BY ` 1,66,800 BY DISALLOWING 10% OF THE TOTAL ADMINISTRATIVE EXPENSES OF ` 16.68 LAKHS U/S 14A AS PERTAINING TO DIVIDENDS WHICH ARE EXEMPT U/S 10(33). 2.1 THE LEARNED COMMISSIONER HAS FAILED TO APPR ECIATE THAT THE WARRANT FOR DIVIDEND OF ` 51,60,180 WAS RECEIVED ON THE LAST DAY OF THE ACCOUNTING YEAR AND THE DISALLOWANC E OF ` 1,66,800 U/S 14A IS DISPROPORTIONATE TO THE EXPENDITURE THAT MIGHT HAVE BEEN INCURRED FOR REALIZING THE DIVIDEND INCOME. FOR THESE AND OTHER REASONS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THIS APPEAL BE A LLOWED. 3. THE FIRST ISSUE OF THIS APPEAL IS IN RELATION TO D ISALLOWANCE OF ` 20,21,346/- BEING THE DEMAT CHARGES, SHARE TRANSFER CHARGES AND CUSTODIAL CHARGES WHICH ALLEGEDLY WERE INCURRED BY THE ASSESSEE SOLELY IN CONNECTION WITH RAISING OF BANK LOAN. THE ASSES SING OFFICER AS WELL AS THE LD. CIT(A) HAVE HELD THIS EXPENDITURE AS INC URRED FOR THE ACQUISITION OF A CAPITAL ASSET. THE ARGUMENT PUT FORTH ON BEHALF OF THE ASSESSEE WAS THAT THIS EXPENDITURE RELATABLE TO RAI SING OF BANK LOAN WAS TURNED DOWN BY BOTH THE AUTHORITIES BELOW. IT WAS ALSO ARGUED THAT THE BANK LOANS WERE OBTAINED IN ORDER TO AVAIL ADDITIONAL WORKING FUND. THE AMOUNT OF ` 5,19,085/- WAS SPENT TOWARDS DEMAT CHARGES AND ` 2,28,955/- TOWARDS CUSTODIAL CHARGES WHICH WERE IN CURRED AS PER THE LEGAL COMPULSION FOR OBTAINING THE BANK LOAN. 4. AFTER HEARING BOTH SIDES VIS--VIS THE RECORDS AV AILABLE BEFORE US, WE CONSTRUE THAT THE ASSESSEE-COMPANY WAS FORME D FOR CARRYING ITA 2155/06 :- 4 -: ON TRADING IN SHARES. IT ACQUIRED SHARES OF THE PR OMOTERS OF PENTAFOUR SOFTWARE AND EXPORTS LTD AND M/S PENTAFOUR COMMUNIC ATIONS LTD SO THAT THE BANK LOAN COULD BE RAISED IT BY PLEDGING THESE SHARES. HOWEVER, THE BANK INSISTED UPON THE TRANSFER OF THE RELEVANT SHARES TO ITS NAME WITHOUT WHICH IT WOULD NOT BE SANCTIONED L OAN. THE PHYSICAL FORM OF SHARES WAS CONVERTED INTO THE COMPANYS NAM E IN ELECTRONIC FORM FOR WHICH TRANSFER CHARGES WERE INCURRED. TH E CASE OF THE ASSESSEE IS THAT THE TRANSFER CHARGES INCURRED FOR THESE SHARES, THUS, HAS A DIRECT NEXUS WITH THE EXPENSES INCURRED IN CO NNECTION WITH THE LOAN BECAUSE THIS IS A NECESSARY EXPENDITURE OTHERW ISE, THE COMPANY WOULD NOT BE ABLE TO CARRY ON ITS TRADING IN SHARES . THE CASE OF THE REVENUE IS THAT THE EXPENSES INCURRED FOR THE TRANS FER OF SHARES IN QUESTION TOWARDS DEMAT CHARGES, CUSTODIAL CHARGES A ND PURCHASE OF STAMPS BY THE ASSESSEE-COMPANY ARE TO BE TREATED AS EXPENDITURE TOWARDS INVESTMENT. THE REVENUES CONTENTION IS THAT THE PLEDGING OF THESE SHARES IN ORDER TO OBTAIN LOAN FROM BANK AND THEIR ACQUISITION FROM THE PROMOTERS ARE THE FACTS WHICH HAVE SECONDA RY IMPORTANCE BECAUSE EVEN IN THOSE CIRCUMSTANCES, THE CATEGORY O F SHARES PURCHASED AS INVESTMENT WOULD NOT ALTER THEIR CHA RACTER. BEFORE US THE LD.AR HAS RELIED ON THE DECISION OF ITAT, BANGA LORE BENCH, RENDERED IN THE CASE OF INFOSYS TECHNOLOGIES LTD VS JT. CIT, 109 TTJ (BANG) 631. A COPY OF THIS DECISION WAS PLACED BEF ORE US IN SUPPORT OF ITA 2155/06 :- 5 -: THE CONTENTION THAT PAYMENT FOR CONVERTING SHARES I NTO DEMATERIALIZED FORM IS ALLOWABLE AS REVENUE EXPENDITURE. THE PA YMENT MADE BY THE ASSESSEE AS ONE TIME CHARGES TO NATIONAL SECURITY D EPOSITORY LTD (NSDL), DOES NOT RESULT INTO APPLICATION OF ANY CAP ITAL ASSET PARTICULARLY BECAUSE AS PER SEBI GUIDELINES, THE SHARES COULD BE TRADED ONLY IN DEMAT FORM. THIS DECISION WAS RENDERED AFTER ELABO RATELY CONSIDERING VARIOUS DECISIONS AND THE FACTS OF THE ABOVE CASE A RE SIMPLY IDENTICAL TO THE FACTS OF THE GIVEN CASE. THEREFORE, BY RESP ECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH(SUPRA), WE HAVE T O ALLOW THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 5. THE SECOND ISSUE RAISED IN THIS APPEAL IS REGARDIN G ENHANCEMENT OF TOTAL INCOME BY ` 1,66,800/- BY DISALLOWING 10% OF THE TOTAL ADMINISTRATIVE EXPENSES OF ` 16.68 LAKHS U/S 14A AS PERTAINING TO DIVIDENDS WHICH ARE EXEMPT U/S 10(33) . THE CASE OF THE ASSESSEE IS THAT THE WARRANT FOR DIVIDEND OF ` 51,60,180/- WAS RECEIVED ON THE LAST DAY OF THE ACCOUNTING YEAR AND THE DISALLOWANCE OF ` 1,66,800/- U/S 14A IS DISPROPORTIONATE TO THE EXPE NDITURE THAT MIGHT HAVE BEEN INCURRED FOR REALIZING THE DIVIDEND INCOM E. AT THE TIME OF HEARING, IT WAS THOUGHT PROPER THAT THIS DISALLOWAN CE BEING BASED ON ESTIMATES ALONE, IF WE REDUCE THIS DISALLOWANCE T O 5% INSTEAD OF 10% OF THE TOTAL ADMINISTRATIVE EXPENSES CLAIMED, IT WO ULD MEET THE ENDS OF ITA 2155/06 :- 6 -: JUSTICE. GIVEN VIEW THESE FACTS AND CIRCUMSTANCES, WE REDUCE THIS DISALLOWANCE TO 5% AND PARTLY ALLOW THIS GROUND OF APPEAL. WE DIRECT THE ASSESSING OFFICER TO DISALLOW ONLY 5% OF THE TO TAL ADMINISTRATIVE EXPENSES INSTEAD OF 10% DISALLOWED BY THE LD. CIT(A ). 6. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.7.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 11 TH JULY, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR