The ITO, Ward-8(1), Ahmedabad V. Shri Vimal Ramniklal Ambani, Ahmedabad

ITA 2362/AHD/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0591 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 20-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADIP KR MAJUMDAR
• Assessee Lawyers: SAMIR S JANI
• Keywords: Unexplained investment; Sale consideration of property below Jantri Value; Capital asset; Business income; Depreciation; Transactions in derivatives; Earning of tax free income; Retrospective amendment; Speculation loss; Deemed dividend; Unabsorbed depreciation
• Section: 143(3); 50C; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER THE ITO, WARD - 8(1), AHMEDABAD (APPELLANT) VS VIMAL RAMNIKLAL AMBANI, VIMAL HOUSE, NAVRANGPURA, AHMEDABAD - 380009 PAN: AADPA7562Q (RESPONDENT /CROSS OBJECTOR ) VIMAL RAMNIKLAL AMBANI, VIMAL HOUSE, NAVRANGPURA, AHMEDABAD - 380009 PAN: AADPA7562Q (APPELLANT) VS THE ITO, WARD - 8(1), AHMEDABAD (RESPONDENT) REVENUE BY : S H RI PRADIP KR. MAJUM DAR , SR. D . R. ASSESSEE BY: S H RI SAMIR S. JANI , A.R. DATE OF HEARING : 18 - 07 - 2 016 DATE OF PRONOUNCEMENT : 07 - 09 - 2 016 I T A 2362 & CO 237 / A HD/20 10 & ITA 2453 & CO 244/AHD/2011 A SSESSMENT YEAR 200 6 - 07 & 2008 - 09 ITA NO. 1397 /AHD/20 12 ASSESSMENT YEAR 200 9 - 10 I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 2 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS IS A BATCH OF FIVE APPEALS. FIRST ASSESSMENT YEAR 2006 - 07 INVOLVES REVENUE S APPEAL ITA 2362/AHD/2010 FOLLOWED BY ASSESSEE S CROSS OBJECTION NO. 237/AHD/2010 FILED AGAINST ORDER OF THE CI T(A) - XIV, AHMEDABAD DATED 19 - 02 - 2010 IN CASE APPEAL NO. CIT(A) - XIV/WD. 8(1)214/08 - 09. SECOND ASSESSMENT YEAR 2008 - 09 COMPRI S ES OF REVENUE S APPEAL ITA 2453/AHD/2010 AND ASSESSEE S CROSS OBJECTION NO. 244/AHD/2011 AGAINST ORDER OF THE CIT(A) - XIV, AHMEDABAD IN APPE AL NO. CIT(A) - XIV/WD. 8(1)/111/2010 - 11 DATED 06 - 07 - 2011. LAST ASSESSMENT YEAR 2009 - 10 CONTAINS ASSESSEE S APPEAL ITA 1397/AHD/2012 FILED AGAINST ORDER OF THE VERY CIT(A), DATED 24 - 12 - 2012 IN CASE NO. CIT(A) - XIV/WD. 8(1)243/2011 - 12. RELEVANT PROCEEDINGS IN ALL THE S E ASSESSMENT YEARS ARE U/S. 143(3) OF THE INCOME TAX ACT, 1961, IN SHORT THE ACT . WE PROCEED ASSESSMENT YEAR WISE FOR THE SAKE OF CONVENIENCE AND BREVITY. ASSESSMENT YEAR 2006 - 07 REVENUE S APPEAL ITA 2362/AHD/2010 AND ASSESSEE S CO NO. 237 /AHD/2010 2 . WE COME TO REVENUE S APPEAL . IT RAISES TWO SUBSTANTIVE GROUNDS IN CHALLENGING THE LOWER APPELLATE ORDER INTER ALIA DIRECTING THE ASSESSING OFFICER TO TREAT ASSESSEE S PROFITS REALIZED FROM SALE I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 3 OF SHARE INVESTMENTS OF RS. 1,93,185/ - AND RS. 29,74,443/ - AS SHORT AND LONG TERM CAPITAL GAINS INSTEAD OF BUSINESS INCOME ; AS DONE IN ASSESSMENT ORDER DATED 12 - 12 - 2008 AND DELETING UNACCOUNTED INVESTMENT ADDITION OF RS. 18,73,800/ - ; RESPECTIVELY. THE ASSESSEE S CROSS OBJECTION S ON THE OTHER HAND PLEAD THAT THE CIT(A) HAS ERRED IN AFFIRMING ASSESSING OFFICER S ACTION ON THE ISSUES OF BROUGHT FORWARD BUSINESS LOSS AND DISALLOWANCE U/S. 14A OF THE ACT AMOUNTING TO RS. 10,03,320/ - ; RESPECTIVELY . 3 . WE NOW PROCEED TO DEAL WITH RE VENUE S FIRST SUBSTAN TIVE GROUND QUA TREATMENT OF ASSESSEE S SHARE PROFITS AS SHORT AND LONG TERM CAPITALS GAINS IN THE LOWER APPELLATE ORDER. THIS ASSESSEE - INDIVIDUAL DERIVES SALARY AND TRADING INCOME. HE FILED RETURN ON 26 - 12 - 2006 STATING NIL INCOME. THE SAME WAS PROCESSE D. THE ASSESSING OFFICER TOOK UP SCRUTINY THEREAFTER. HE NOTICED THE ASSESSE TO HAVE DECLARED SHORT AND LONG TERM CAPITAL GAINS OF RS. 1,93,185/ - AND RS. 29,74,443/ - ; RESPECTIVELY. HE CAME ACROSS ASSESSEE S INTEREST OUTGO INCURRED ON LOANS AND UTILIZATI ON THEREOF IN THE IMPUGNED SHARE INVESTMENT ALONG W ITH TURNOVER TO FORM A PRIMA FA C IA OPINION THAT ALL THIS AMOUNTED TO ADVENTURE IN THE NATURE OF SHARE TRADING. 4 . THE ASSESSEE INTER ALIA PLEADED BEFORE THE ASSESSING AUTHORITY THAT HE HAD BEEN MAINTAI NING TWO SEPARATE PORTFOLIOS OF INVESTMENT AND STOCK IN TRADE QUA THE SHARES, SECURITIES AND MUTUAL FUNDS IN QUESTION. HE QUOTED CBDT CIRCULAR NO. 4/2007 DATED 15 - 06 - 2007 TO I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 4 BE SUPPORTIVE OF HIS ACTION. THE ASSESSEE FURTHER HIGHLIGHTED THE FACT THAT ALL THE IMPUGNED INVESTMENTS HAD BEEN VALUED AT COST IN INVESTMENT CATEGORY AND NOT AT MARKET VALUE. HE ALSO EXPLAINED THAT THE ASSESSING OFFICER HIMSELF HAD TREATED HIM AS AN INVESTOR IN A REGULAR ASSESSMENT PERTAINING TO IMMEDIATE PRECEDING ASSESSMENT YEAR 2005 - 06. 5 . THIS CASE FILE INDICATES THAT THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 12 - 12 - 2008 REJECTED ALL OF THE ABOVE STATED PLEAS. HE EXAMINED ASSESSEE S SHARE TRADING RESULTS INDICATING SALES OF RS. 1,32,90,490/ - , OPENING STOCK OF RS. 1,41, 02,311/ - , CLOSING STOCK OF RS. 27,26,873/ - AND PURCHASES OF RS. 1,41,02,311/ - STATING NET RESULT OF LOSSES OF RS. 9,23,860/ - . HIS VIEW WAS THAT AS S ESSEE S BUSINESS DEDUCTION OF RS. 16 LACS WOULD INCREASE LOSS IN QUESTION TO RS . 25 LACS. THE ASSESSING OFF ICER THEREAFTER PROCEEDED TO EXAMINE ASSESSEE S SHARE INVESTMENT PORTFOLIO RESULTING IN THE IMPUGNED PROFITS. HE OPIN ED THAT ALL THE ABOVE STATED FIGURES DEMONSTRATED THAT ASSESSEE HAD CLAIMED LOSS UNDER BUSINESS HEAD BUT OFFERED CAPITAL GAINS AT LOWER RA TE IN THE LATTER CATEGORY. HE WAS FURTHER OF THE VIEW THAT THE ASSESSEE HAD NOT FURNISHED ANY EVIDENCE PROVING UTILIZATION OF INTEREST BEARING FUNDS IN TRADING ACTIVITY ONLY SINCE THE LOANS IN QUESTION HAD BEEN AVAILED AGAINST SHARES ONLY RESULTING INTO I NTEREST EXPENDITURE OF RS. 7,41,965/ - . HE QUOTED ASSESSEE S FAILURE IN NOT PLACING ON RECORD ANY CASH FLOW OR SCRIP WISE DETAILS TO PROVE THE LOANS IN QUESTION AS AVAILED FOR TRADING ACTIVITY ONLY. THE ASSESSING OFFICER LASTLY DEALT WITH ASSESSMENT YEAR 2005 - 06 TO CONCLUDE THAT I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 5 EACH AND EVERY ASSESSMENT YEAR IS A SEPARATE UNIT. HE ACCORDINGLY TREATED ASSESSEE S ABOVE STATED SHARE PROFITS AS BUSINESS INCOME INSTEAD OF SHORT AND LONG TERM CAPITAL GAINS. 6 . THE CIT(A) REVERSES ASSESSING OFFICER S FINDI NGS AS UNDER: - 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT BASED ON FACTS THAT APPELLANT'S UTILISATION OF BORROWED FUND FOR MAKING INVESTMENT DOES NOT MAKE ALL THE TRANSACTIONS OF PURCHASE AND SALE OF SHARE AS BUSINESS TRANSACTION BRUSHING ASIDE THE VARIOUS OTHER IMPORTANT AND RELEVANT FACTORS. FURTHER, THE COMPARISON OF LOSS IN THE CASE OF TRADING TRANSACTIONS WITH THAT OF HUGE PROFIT IN RESPECT OF CAPITAL GAIN WITHOUT SPECIFYING ANY INSTANCES TO SHOW THE TRANSACTION IN SAME SHARE HAS NO CREDIBLE EVIDENCE TO HOLD THAT APPELLANT HAS DONE THE SAME TO CONCEAL INCOME OR SHIFT HIS TAX OBLIGATION. IN FACT THE APPELLANT HAS FOLLOWED THE CONSISTENT POLICY AS FAR AS SEPAR ATE AND DISTINCT ACCOUNTING FOR SHARES HELD AS STOCK IN TRADE AND STOCK HELD FOR INVESTMENT. OVER THE YEARS, THE APPELLANT'S BALANCE SHEET CLEARLY REFLECTS ABOUT HIS INVESTMENT AND STOCK IN TRADE. IT IS, THEREFORE, FOR A SINGLE YEAR ON ACCOUNT OF HEAVY LOS SES IN TRADING COMPARED TO CAPITAL GAIN AND APPELLANT'S SUCH POLICY DULY SUPPORTED BY BOARD'S CIRCULAR C ANNOT BE REJECTED. IT IS NOT ONLY THE BOROWED FUND UTILISED BY THE APPELLANT FOR TRADING AS WELL AS INVESTMENT BUT OTHER FACTORS SUCH AS FREQUENTY AND V OLUME OF TRANSACTIONS ARE ALSO TO BE CONSIDERED. AS PER THE STATEMENT OF INCOME, IT DOES NOT REFLECT HIGH FREQUENCY AND VOLUME IN RESPECT OF TRANSACTION RESULTING INTO CAPITAL GAIN. THE HUGE LONG TERM CAPITAL GAIN IS ON THE PRINCIPLE OF APPRECIATION IN VAL UE OF THOSE SHARES MAY BE 'AT ITS PEAK IN PREVIOUS YEAR FOR WHICH APPELLANT HAS MADE SUCH INVESTMENT. THE DETAILS OF LONG TERM CAPITAL GAIN SHOWS THAT TJIE APPELLANT HAS NOT SOLD ITS SHARES PURCHASED BY HIM IN F.Y. 05 - 06 IN ONLY TWO BLUE CHIP SCRIPS OF NTP C AND RELIANCE INDUSTRIES. THE FREQUENCY OF TRANSACTION IS ALSO NOT VERY HIGH. THEREFORE, THE A.O. IS NOT JUSTIFIED IN HOLDING SUCH GAIN AS BUSINESS INCOME. THE SAME IS DIRECTED TO BE TREATED AS CAPITAL GAINS AND TO BE GIVEN ACCORDINGLY TAX TREATMENT AS PE R PROVISIONS BY HOLDING, I.E. SHORT TERM OR LONG TERM. THE APPELLANT'S GROUND OF APPEAL IS, THEREFORE, ALLOWED. I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 6 7 . HEARD BOTH SIDES. RELEVANT RECORDS PERUSED. THERE IS NO DISPUTE ABOUT ASSESSEE S HOLDING PERIOD OF THE SHARE INVESTME NTS IN QUESTION I NVOLVES A TIME SPAN OF MORE AND LESS THAN A YEAR CLASSIFICATION - WISE . IT HAS ALREADY BEEN INDICATED THAT THE ASSESSING OFFICER HI MSELF TREATS THE ASSESSEE AS AN INVESTOR IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR WHILST FRAMING A REGULAR ASSESSMENT. SO ARE THE CIT(A) S FINDINGS IN ASSESSMENT YEAR 2009 - 10 WHEREIN THE REVENUE HAS NOT FILED ANY SUCH APPEAL . WE COME TO ASSESSEE S INVESTMENT CHART OF THE IMPUGNED SHARE TRANSACTIONS AT PAGE 190 OF THE PAPER BOOK. HE HAS TRANSACTED IN FOUR SCRIPS OF M/S. S ATYAM COMPUTERS, BANK OF INDIA, HINDUSTAN OIL EXPLORATION AND RIL HAVING HOLDING PERIOD OF MINIMUM THREE TO FOUR MONTHS. THERE IS NO T EVEN A SINGLE INSTANCE OF INTRA - DAY TR ADING. THE CORRESPONDING DETAI LS INDICATE TEN TRANSACTIONS INVOLVING 85 UNITS AT T HE MAXIMUM. THE ASSESSEE S LONG TERM CAPITAL GAINS ARISE FROM SALE OF 2 SCRIPS OF NTPC AND RIL TRANSACTED ON 17 OCCASIONS INVOLVING 16 OF THEM IN CASE OF THE LATTER ENTITY ONLY. THE REVENUE FAILS TO REBUT THE FACT THAT THE ASSESSEE HAS BEEN MAINTAINING TW O SEPARATE PORTFOLIOS OF INVESTMENT AND STOCK IN TRADE RIGHT FROM THE BEGINNING IN VALUING HIS SHARE INVESTMENT S AT COST UNDER THE FORMER HEAD INSTEAD OF COST OR MARKET PRICE; WHICHEVER IS LOWER, UNDER THE LATTER HEAD OF STOCK IN TRAD E. HON BLE JURISDICTI ONAL HIGH C OURT IN CASE OF CIT VS. VAIBHAV J. SHAH IN TAX APPEAL NO. 77/2010 DECIDED ON 27 - 06 - 2012 HOLDS AN ASSESSEE S INTENTION, VOLUME, FREQUENTLY , CONTINUITY, REGULARITY OF TRANSACTIONS , HOLDING PERIOD, USAGE OF BORROWED FUNDS AND TREATMENT IN BOOKS OF ACCOUNTS TO FORM THE RELEVANT PARAMETERS FOR ADJUDICATING I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 7 THIS PERENNIAL ISSUE OF CAPITAL GAINS VERSUS BUSINESS INCOME. THE REVENUE S SOLE EMPHASIS ON INTEREST OUTGO; EVEN IF ACCEPTED DOES NOT SUPPORT ITS CASE ON ALL OTHER PARAMETER S NARRATED HEREINABOVE. WE ADOPT CONSISTENCY IN THESE FACTS TO AFFIRM THE CIT(A) S FINDINGS UNDER CHALLENGE. THE REVENUE S FIRST SUBSTANTIVE GROUND ACCORDINGLY FAILS. 8 . THE REVENUE S LATTER SUBSTANTIVE GROUND SEEKS TO REVIVE UNACCOUNTED INVESTMENT ADDITION OF RS. 18,73,800/ - . THE ASSESSEE CO - PURCHASED TWO PROPERTIES IN FP NO. 676 AND 677 IN APRIL,2005 FOR RS. 11,03,000/ - AND RS. 9.79 LACS; RESPECTIVELY. THE SUB - REGISTRAR ENHANCED THE SAME TO RS. 30,88,400/ - AND RS. 27,41,200/ - ; RESPECTIVELY RESULTING IN DIFFERENTIAL SUM OF RS. 19,85,400/ - AND RS. 17,62,200/ - . THE ASSESSEE INCLUDED DIFFERENCE OF STAMP DUTY PAID IN CLOSING STOCK OF THE LAND AS RS. 18,87,283/ - WITHOUT ENHANCING CORRESPONDING VALUE OF THE PROPERTIES IN QUESTION. THE ASSESSING OFFICER T REATED THE ABOVE STATED SUM OF R S. 18,73,800/ - I.E. SHARE IN GROSS VALUE OF RS. 37,47,600/ - AS HIS UNACCOUNTED INVESTMENT RESULTING IN THE IMPUGNED ADDITION. 9 . THE CIT(A) ACCEPTS ASSESSEE S CONTENTIONS AS UNDER: - 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMIS SIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTION OF THE APPELLANT BASED ON FACTS AND LEGAL POSITION. THE APPELLANT HAD DISCHARGED ITS ONUS BY SUBMITTING THE 'BANAKHAF IN RESPECT OF THE DEAL OF THESE LANDS SHOWING THE INITIAL TRANSACTION WAS M ADE IN 1993 AND ON ACCOUNT OF PROBLEM OF GETTING VACANT POSITION FROM JAIL AUTHORITIES, THE DEAL ULTIMATELY CULMINATED DURING PREVIOUS YEAR. IT IS THE REGISTRATION OF TRANSFER OF LAND ON WHICH THE REGISTRAR OF PROPERTY I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 8 RIGHTLY CHARGED DUTIES AS PER PREVAIL ING RATE, BUT IT DOES NOT CERTIFY THAT APPELLANT HAS PAID THE EXTRA AMOUNT TO SELLER BEING DIFFERENCE IN RATE IN 1993 AND PREVIOUS YEAR. THE A.O. HAS ALSO NOT BROUGHT OUT ANY SUCH FACT. THE SELLERS OF THE PROPERTIES WERE NOT EXAMINED. THE APPELLANT HAS FUR THER RIGHTLY PUT THAT APPLICATION OF SEC. 50C OF THE ACT, WHICH IS IN RESPECT OF SELLER AND NOT THE PURCHASER. THERE IS NO SUCH PROVISION IN THE' ACT BY WHICH THERE CAN BE DEEMED ASSUMPTION THAT PURCHASER HAD PAID SUCH DIFFERENCE. EVEN, SECTION 50C OF THE ACT DOES NOT CONTEMPLATE SUCH DEEMING. THE 'BANAKHAT' WAS A REGISTERED DOCUMENT AND THE PRICE IN 1993 AT RS. 1000 PER SQ. METER WAS \ REASONABLE AS PER PREVAILING RATE AT THAT TIME, MORE SO CONSIDERING THE PROBLEM WITH THE POSSESSION OF LAND WHICH TOOK ALM OST MORE THAN 12 YEARS. IT IS, THEREFORE, THE A.O. IS NOT JUSTIFIED IN MAKING SUCH ADDITION BASED ON CONJUCTURE AND SURMISES. THE SAME IS DIRECTED TO BE DELETED. THE APPELLANT WILL GET RELIEF OF RS. 18,73,800/ - . 10 . WE HAVE GIVEN OUR THOUGHTFUL CONSIDE RATION TO RIVAL CONTENTIONS. THE REVENUE STRONGLY REITERATES ITS PLEADINGS SEEKING TO REVIVE THE IMPUGNED ADDITION. IT IS FAIR ENOUGH AT THE SAME IN NOT DISPUTING THE SETTLED PREPOSITION THAT SECTION 50C OF THE ACT DOES NOT APPLY IN CASE OF A PURCHASER. THERE IS FURTHER NO EVIDENCE IN THE CASE FILE POINTING OUT AN Y EXCESS SUM BEING PAID OVER AND ABOVE THAT ACTUAL STATED IN THE SALE DEED. THE CASE FILE DEMONSTRATES THAT ASSESSE HAD ENTERED INTO THE IM P UGN E D PURCHASE BY WAY OF A REGISTERED AGREEMENT IN TH E YEAR 1993 AND THE SALE DEED IN QUESTION COULD BE EXECUTED AFTER A TIME SPAN OF 12 YEARS DUE TO SP ECIAL CIRCUMSTANCES INDICATING TO A POSSESSION DISPUTE. THE REVENUE FAILS TO REBUT ALL THIS EVIDENCE. WE FIND NO REASON TO INTERFERE WITH THE I (A) S OBSERV ATIONS EXTRACTED HEREINABOVE. THE REVENUE LOOSES ITS BOTH SUBSTANTIVE GROUNDS. SO IS THE OUTCOME OF ITS APPEAL ITA 2362/AHD/2010. I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 9 11 . WE COME TO ASSESSEE S CROSS OBJECTION NO. 237/AHD/2010 NOW. THE FIRST ISSUE RAISED THEREIN IS ABOUT DISALLOWANCE OF LOSS. THE I COMPUTES THE SAME IN ASSESSMENT ORDER IN THE FOLLOWING MANNER. 6. THE ASSESSEE WAS REQUESTED TO RECONCILE THE BROUGH T FORWARD BUSINESS LOSS, UNABSORBED DEPRECIATION , SPECULATION LOSS AND LONG - TERM CAPITAL LOSS AFTER CONSIDERING PREVIOUS Y EARS ADDITIONS/DISALLOWANCES MADE WHILE MAKING ASSESSMENT AND AFTER GIVING SET OFF IN THE A.Y 2005 - 06. THE ASSESSEE HAS SUBMITTED THE SAME WHICH IS REPRODUCED ASUNDER: A.Y B/F BUSINESS LOSS B/F UNABSORBED DEPRECIATION B/F SPECULATION LOSS B/F LONG - TERM CAPITAL LOSS 1998 - 99 0 2005 . 189376 0 2001 - 02 0 0 860578 0 2002 - 03 529986 314815 0 0 2003 - 04 0 0 151985 0 2004 - 05 4232224 0 0 0 2005 - 06 0 0 0 3186392 TOTAL 4762210 314815 1201939 3186392 HOWEVER, IT IS FOUND THAT WHILE MAKING ASSESSMENT FOR THE A.Y 2005 - 06, THE A.O HAD MADE AN ADDITION OF RS. 8,81,025/ - U/S 14A OF THE I.T. ACT. IN THE SAID ORDER, THE B/F LOSS AMOUNTING TO RS. 6,24,174/ - WAS SET OFF. BEFORE THE SET OFF OF SUCH LOSS, THE B/F FORWARD LOSS FOR A.Y 2005 - 06 WAS AS UNDER: A.Y B/F LOSS FOR A.Y 2005 - 06 2002 - 03 529986 I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 10 2004 - 05 4232224 47,62,210 THEREFORE, AFTER THE SET OFF OF LOSS OF RS. 6,24,1747 - IN A.Y 2005 - 06, THE CARRIED FORWARD LOSS REMAINS AS UNDER: A.Y B/F LOSS FOR A.Y 200 5 - 06 2002 - 03 0 2004 - 05 41,38,036 41,38,036 IN VIEW OF THE ABOVE FACTS, THE ASSESSEE S WORKING OF B/F LOSSES IS NOT CORRECT AND SAME IS WORKED OUT AS UNDER: A.Y B/F BUSINESS LOSS B/F UNABSORBED DEPRECIATION B/F SPECULATION LOSS B/F LONG - TERM CAPITAL LOSS 1998 - 99 0 0 189376 0 2001 - 02 0 0 860578 0 2002 - 03 0 314815 0 0 2003 - 04 0 0 151985 0 2004 - 05 41,38,036 0 0 0 2005 - 06 0 0 0 3186392 TOTAL 41,38,036 314815 1201939 3186392 I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 11 12 . THE CIT( A) OBSERVES IN THE LOWER APPELLATE ORDER INTER ALIA THAT SECTION 43(5)(2) AMENDMENT TAKES OUT ALL TRANSACTIONS IN DERIVATIVES FROM THE AMBIT OF SPECULATIVE TRANSACTIONS W.E.F. 01 - 04 - 2006 AND THE SAME IS NOT RETROSPECTIVE. HE HOLDS THAT ASSESSEE S DERIVATI VES TRANSACTIONS RESULTING INTO THE IMPUGNED SPECULATIVE LOSS DO NOT RESULT IN ANY BUSINESS LOSS AS PER PROVISIONS OF THE ACT AS ON 01 - 04 - 2005 FOR FINANCIAL YEAR 2005 - 06 IN VIEW OF THE SETTLED LAW TH A T THE INCOME TAX A CT ; AS ITS STAND AMENDED ON 1 ST DAY OF THE APRIL MONTH OF ANY FINANCIAL YEAR APPLIES TO THE ASSESSMENT OF THE CORRESPONDING ASSESSMENT YEAR. 13 . WE HAVE HEARD BOTH THE PARTIES REITERATING THEIR RESPECTIVE STANDS AGAINST AND IN SUPPORT OF THE LOWER AUTHORITIES ORDERS. THERE IS NO DISPUTE ABOUT ASSESSEE S SPECULATIVE LOSS OF RS. 17,74,912/ - TO HAVE BEEN INCURRED IN RESPECT OF SALE OF FUTURE AND OPTIONS CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE . WE REITERATE THAT THE IMPUGNED ASSESSMENT YEAR IS 2006 - 07 WITH RELEVANT ACCOUNTING PERIOD FROM 01 - 04 - 2005 TO 31 - 01 - 20 06. THE CI T(A) RELIES UPON AMENDMENT TO SECTION 43(5)(2) OF THE ACT W.E.F. 01 - 04 - 2006 EXCLUDING ALL TRANSACTIONS IN DERIVATIVE S TO BE OUT OF THE AMBIT OF SPECULATIVE TRANSACTIONS TO CONCLUDE THAT THE SAME DOES NOT HAVE RETROSPECTIVE EFFECT. HE QUO T ES A CATENA OF CASE LAW IN SUPPORT HOLDING THAT PROVISIONS OF THE ACT; AS THE Y STAND ON 1 ST DAY OF THE APRIL MONTH OF THE FINANCIAL YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, APPLY FOR THE PURPOSE OF A SSESSMENT. THE STAND TAKEN BY TH E CIT(A) IS I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 12 CLEARLY CONTRARY TO CBDT CIRCULAR NO. 3/2006 DATED 27 TH FEBRUARY, 2006 WHICH SPECIFICALLY STATES THAT THE AMENDMENT IS APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2006 - 07 ONWARDS . IT IS ALSO ELEMENTARY THAT CBDT CIRCULARS ISSUED UNDER SECTION 119 BIND THE FIELD AUTHORITIES, EVEN IF THESE CIRCULARS DEVIATE FROM LAW; IF THAT BE SO. IT WAS, THEREFORE, NOT OPEN TO THE ASSESSING OFFICER TO ACT IN CONTRAVENTION WITH A CIRCULAR BENEFICIAL TO THE ASSESSEE. WE ACCORDINGLY ACCEPT THE ASSESSEE S FIRST SUBSTANTIVE GROUND RAISED IN THE INSTANT CROSS OBJECTIONS. 14 . THE ASSESSEE S SECOND SUBSTANTIVE GROUND ASSAILS CORRECTNESS OF SECTION 14A OF RS. 10,03,320/ - MADE BY THE CIT(A) AS AGAINST THAT MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 2,10,157/ - IN ASSESSMENT ORDER. WE COME TO RELEVANT FACTS. THE ASSESSING OFFICER NOTICED ASSESSEE S DIVIDENDS OF RS. 25, 09,866 AND LONG TERM CAPITAL GAINS OF RS. 29, 74,451/ - . THE ASSESSEE S CASE IN T ER ALIA WAS THAT HE HAD ALREADY DECLARED LATTER AMOUNT AS BUSIN ESS INCOME, HIMSELF DISALLOWED DEMAT CHARGES OF RS. 10,157/ - AND DID NOT INCUR ANY EXPENDITURE QUA THE FORMER DIVIDEND INCOME. THE ASSESSING OFFICER REJECTED THE SAME TO DISALLOW A LUMPSUM FIGURE OF RS. 2 LACS IN QUESTION . 15 . THE CIT(A) APPLIES RULE 8D(2)( I TO III ) OF THE INCOME TAX RULES TO COMPUTE DISALLOWANCE OF DIRECT EXPENSE, PROPORTIONATE AND ADMINISTRATIVE EXPENSES OF RS. 10,157/ - (SUPRA), RS. 5,05,668/ - AND I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 13 RS. 4,87,495/ - ; TOTALING TO RS. 10,03,320/ - THEREBY ENHANCING THE IMPUGNED DISALLOWA NCE TO THE TUNE OF RS. 7,93,163/ - LEAVING THE ASSESSE AGGRIEVED. 16 . HEARD RIVAL CONTENTIONS. CASE FILE PERUSED. THERE CAN HARDLY BE ANY DISPUT E BY NOW THAT RULE 8D APPLIES W .E.F. ASSESSMENT YEAR 2008 - 09 ONLY WHEREAS THE IMPUGNED ASSESSMENT YEAR 200 6 - 07. THE CIT(A) THEREFORE HAS ERRED IN INVOKING THE IMPUGNED ENHANCEMENT. BOTH THE PARTIES FURTHER AGREE THAT THE IMPUGNED SECTION 14A DISALLOWANCE ASSESSMENT YEARS PRECEDING TO ASSESSMENT YEAR 2008 - 09 HAS TO BE MADE ON REASONABLE BASIS AS PER PECULIAR FACTS OF THE CASE. WE KEEP IN MIND ASSESSEE S DIVIDEND INCOME OF R S. 25.09 LACS HEREINABOVE AND DEEM IT APPROPRIATE IN LARGER INTEREST OF JUSTICE THAT A LUMPSUM DISALLOWANCE OF RS . 1 LAC WOULD BE JUST AND FAIR . THIS LATTER SUBSTANTIVE GROUND PARTLY SUCC EEDS. ASSESSEE S CO NO. 237/AHD/2010 IS PARTLY ACCEPTED. ASSESSMENT YEAR 2008 - 09 REVENUE S APPEAL ITA 2453/AHD/2011 AND ASSESSEE S CO 244/AHD/2011 17 . WE COME TO REVENUE S APPEAL. ITS FIRST SUBSTANTIVE GROUND PLEADS THAT THE CIT(A) HAS ERRED IN DIRECT ING THE ASSESSING OFFICER TO TREAT AS S ESSEE S PROFITS FROM SALE OF SHARES TOTALING TO RS. 93,47,579/ - AS LONG AND SHORT TERM CAPITAL GAINS AS AGAINST BUSINESS INCOME. BOTH PARTIES ARE AD - IDEM THAT OUR CORRESPONDING FINDINGS HEREINABOVE ON THE VERY ISSUE I N PRECEDING ASSESSM ENT YEAR SQUARELY COVER THIS FIRST REVENUE S GROUND . WE APPRECIATE THIS FAIR STAND AND UPHOLD THE I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 14 CIT(A) ORDER UNDER CHALLENGE. THIS FIRST SUBSTANTIVE GROUND IS REJECTED. 18 . THE REVENUE S SECOND SUBSTANTIVE GROUND CHALLENGES THE LOWER APPELLATE ORDER DELETING SECTION 14A DISALLOWANCE OF RS. 8,27,429/ - OUT OF RS. 13,57,520/ - . THE ASSESSEE S CROSS OBJECTION ON THE OTHER HAND SEEKS TO DELETE THE ENTIRE DISALLOWANCE FIGURE. WE ACCORDINGLY TAKE UP BOTH THESE GROUNDS RAISING A COMMON I SSUE TOGETHER FOR ADJUDICATION. 19 . THIS CASE FILE INDICATES THAT ASSESSEE EARNED DIVIDEND INCOME OF RS. 12,81,466/ - AND LONG TERM CAPITAL GAINS OF RS. 63,85,467/ - . ALL THIS AGGREGATED TO A GROSS SUM OF RS. 76,67,03/ - . HIS P & L ACCOUNT DEMONSTRATED TO TAL EXPENDITURE OF RS. 17,77,447/ - . THE ASSESSEE HAD DISALLOWED A SUM OF RS. 2,93,400/ - ON HIS OWN. THE ASSESSING OFFICER ASKED HIM TO JUSTIFY COMPUTATION THEREOF. THE REITERATED HIS STAND IN SUPPORT OF THE ABOVE STATED COMPUTATION. THE ASSESSING OFFICE R IN ASSESSMENT ORDER DATED 30 - 11 - 2010 INVOKED RULE 8D(2)( I TO III) TO DISALLOW DIRECT EXPENSES, PROPORTIONATE EXPENDITURE AND ADMINISTRATIVE EXPENSES OF RS.4,230/ - , RS. 3,47,115/ - AND RS. 13,61,840/ - ; AGGREGATING TO RS. 17,08,955/ - . 2 0 . THE CIT(A) PA RTLY CONFIRMS THE SAME AS FOLLOWS: - 4.3 I HAVE CAREFULLY PERUSED THE PENALTY ORDER AND THE WRITTEN SUBMISSION FILED BY THE ID. AR OF THE APPELLANT. THE A. O. HAS CORRECTLY APPLIED THE PROVISIONS OF SECTION 1 4A R. W. RULE 8D. HE HAS GIVEN DETAILED FINDING ABOUT THE APPLICABILITY OF SECTION 14A R. W. I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 15 RULE 8D. THE A. O. HAS CORRECTLY HELD THAT THE APPELLANT'S CONTENTION THAT IT HAD NOT INCURRED ANY EXPENSES ATTRIBUTABLE TO EARNING OF INTEREST INCOME WERE NOT CORRECT. HE HAS ALSO QUOTED FROM THE JUDGMENT GIVEN BY ITAT SPECIAL BENCH MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. THAT THE DISCUSSION ABOUT APPORTIONMENT OF DIRECT OR INDIRECT EXPENDITURE TOWARDS TAXABLE AND EXEMPT INCOME HAS BECOME ACADEMIC IN VIEW OF RULE 8D WHICH PRESCRIBES MECHANISM FOR WORKING OUT DISALLOWANCE U/S. 14A. THE A. O. IS BOUND TO ADOPT RULE 8D FOR MAKING DISALLOWANCE U/S. 14A. SINCE THE A. O. WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM, HE MADE THE DISALLOWANCE, AFTER GIVING THE FINDING THAT THE APPELLANT HAS NOT COR RECTLY SHO WN THE EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. HOWEVER, THE SUBMISSION OF THE APPELLANT REGARDING HIS CLAIM THAT DEPRECIATION SHOULD NOT HAVE BEEN CONSIDERED AS A PART OF THE EXPENDITURE THAT HAS BEEN CONSIDERED FOR PROPORTIONATE DISAL LOWANCE HAS MERIT AND DESERVES TO BE CONSIDERED FAVOURABLY. HE HAS SUBMITTED THAT THERE WAS A DISTINCTION BETWEEN EXPENDITURE AND ALLOWANCE AND THE EXPRESSION 'EXPENDITURE' DOES NOT INCLUDE ALLOWANCE SUCH AS DEPRECIATION ALLOWANCE. BEFORE REACHING TO ANY C ONCLUSION ON THE ISSUE, IT WOULD BE PRUDENT TO CONSIDER THE LANGUAGE OF SECTION 14A. THE SUB - SECTION (1) OF THE SECTION READS AS UNDER: SECTION 14A. [(1 )] FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE SECTION USES THE WORD EXPENDITURE. THE DEPRECIATION IS AN ALLOWANCE GIVEN TO THE APPELLANT UNDER THE INCOME TAX ACT. TH EREFORE, THE DISALLOWANCE U/S. 14A CANNOT COVER DEPRECIATION BECAUSE WHAT CAN BE DISALLOWED U/S. 14A IS ONLY EXPENDITURE INCURRED BY THE ASSESSEE AND NOT ALLOWANCE ADMISSIBLE TO HIM. THERE IS A CLEAR DISTINCTION BETWEEN EXPENDITURE AND ALLOWANCE. THE EXPEN DITURE DOES NOT INCLUDE ALLOWANCE SUCH AS DEPRECIATION ALLOWANCE. THEREFORE, DEPRECIATION WHICH IS ADMITTEDLY IN THE NATURE OF ALLOWANCE CANNOT BE SUBJECT MATTER OF DISALLOWANCE U/S. 14A AND THE A. O. SHOULD ONLY CONSIDER THE ITEMS WHICH ARE IN THE NATURE OF EXPENDITURE. THE A. O. IS, THEREFORE, DIRECTED TO RECOMPUTE THE DISALLOWANCE UNDER SECTION 14A R. W. RULE 8D AFTER EXCLUDING THE I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 16 DEPRECIATION OF RS. 5,30,091/ - . THIS GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. 21 . WE HAVE HEARD BOTH THE LEARNED R EPRESENTATIVES SUPPORTING THEIR RESPECTIVE STANDS. WE COME TO REVENUE S GROUND FIRST. THERE IS NO DISPUTE THAT THE C IT(A) HAS EXCLUDED DEPRECIATION FIGURE OF RS. 5,30,091/ - OUT OF THE PURVIEW OF CRUCIAL EXPRESSION EXPENDITURE FORMING SUBJECT MATTER OF SECTION 14A DISALLOWANCE . THE REVENUE FAILS TO REBUT THE SAME BY WAY OF POINTING OUT ANY ILLEGALITY OR INFIRMITY THEREIN. THERE CAN HARDLY BE ANY ISSUE THAT SECTION 14A APPLIES TO AN EXPENDITURE RELATING TO ANY EXEMPT INCOME ONLY. T HE ABOVE STATED DEPRE CIATION AMOUNT DOES NOT HAVE ANY SUCH NEXUS. WE REJECT REVENUE S LATTER GROUND AS WELL AS ITS APPEAL ITA 2453/AHD/2011 IN THESE FACTS AND CIRCUMSTANCES. 22 . WE COME TO ASSESSEE S ARGUMENTS NOW. HIS ONLY CONTENTION IS THAT THE ASSESSING OFFICER DID NOT RECORD ANY SATISFACTION U/S. 14A(2) BEFORE INVOKING RULE 8D COMPUTATION HEREINABOVE. CASE LAW ITA 2839/AHD/2011 KAMAL M ANGALDAS VS. ITO D EC IDED ON 31 - 05 - 2012 IS QUOTED IN SUPPORT . WE HAVE PERUSED THE SAME. T H E RE IS NO ISSUE ABOUT THE SETTLED LEGAL PROP OSITION SO FAR AS SECTION 14A(2) IS CONCERNED AS REITERATED BY THE LEARNED CO - ORDINATE BENCH. WE NOTICE AT PAGE 28 OF THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS EXAMINED EACH HEAD OF EXPENDITURE BEFORE ISSUING SHOW CAUSE NOTICE TO THE ASSESSEE FO R INVOKING THE IMPUGNED DISALLOWANCE. WE OBSERVE IN THESE PECULIAR FACTS THAT THE NECESSARY STIPULATION OF SATISFACTION U/S. 14A(2) OF THE ACT HAS BEEN SUFFICIENTLY COMPLIED WITH . I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 17 THE ASSESSEE S ARGUMENT IS ACCORDINGLY REJECTED. SO IS HIS SOLE SUBSTANT IVE GROUND AS WELL AS CO NO. 244/AHD/2011. ASSESSMENT YEAR 2009 - 10 ASSESSEE S APPEAL ITA 1397/AHD/2012. 23 THE ASESSEE S FIRST SUBSTANTIVE GROUND CHALLENGES SECTION 14A R.W. RULE 8D DISALLOWANCE OF RS. 14,62,825/ - MADE BY BOTH LOWER AUTHORITIES IN VIE W OF THEIR CORRESPONDING FINDINGS IN THE PRECEDING ASSESSMENT YEAR 2008 - 09. LEARNED COUNSEL FOR BOTH THE PARTIES STATE VERY FAIRLY THAT THERE IS NO DISTINCTION ON FACTS OR LAW INVOLVED IN THE TWO ASSESSMENT YEARS. WE DRAW SUPPORT FROM OUR FINDINGS IN PRE CEDING ASSESSMENT YEAR HEREINA BOVE TO CONFIRM THE IMPUGNED DISALLOWANCE . THIS FIRST SUBS TANTIVE GROUND FAILS . 24 . THE ASSESSEE S LATTER SUBSTANTIVE GROUND CHALLENGES SECTION 2(22)(E) DEEMED DIVIDEND ADDITION OF RS. 93,45,302/ - . HE IS DIRECTOR HOLDING 10% STAKE IN M/S. TOWER OVERSEA S LTD. THIS ENTITY ADVANCED HIM A LOAN OF RS. 1,92,10,000/ - ON 08 - 05 - 2008. ITS RESERVES AND SURPLUS FIGURES READ A SUM OF RS. 93,45,302/ - AS ON 31 - 03 - 2008. THE ASSESSING OFFICER SOUGHT TO TREAT THE IMPUGNED LOAN AS DEEMED DIVIDEND. 25 . THE ASSESSEE INTER ALIA PLEADED THAT HE HAD AD VANCED A SUM OF R S. 66,59,529/ - BY WAY OF AN UNSECURED LOAN TO THE COMPANY ON 01 - 04 - 2008 . HIS BOOKS TREATED THE SAME AS C URRENT BALANCE IN I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 18 COMPANY S ACCOUNT. THE SAID COMPANY DID NOT HAVE AN Y ACCU MU LATED PROFITS ON 31 - 03 - 2009 IN VIEW OF ACCUMULATED LOSS OF RS. 1,71,21,986/ - . THE ASSESSEE ACCORDINGLY SOUGHT TO TREAT THE ABOVE TRANSACTION AS A COMMERCIAL ONE NOT INVOL VING ANY REPAYMENT OBLIGATION . HE FURTHER EXPLAINED TO HAVE GIVEN PERSONAL C OLLATERAL SE CURITIES TO ABOVE STATED COMPANY S CREDITOR BANK M/S HDFC BANK WHICH DID NOT ATTRACT ANY DEEMING FICTION ENVISAGED U/S. 2(22)(E) OF THE ACT. THE ASSESSING OFFICER DECLINED THE SAME TO MAKE THE IMPUGNED ADDITION. 26 . THE C IT(A) PARTLY CONFIR MS ASSESSING OFFICER S ACTION AS FOLLOWS: 5.3 DECISION: I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSION FILED BY THE APPELLANT. THE MAIN THRUST OF THE APPELLANT'S ARGUMENT IS THAT THE LOAN GIVEN BY THE COMPANY WAS AGAINST THE SHARE S PLEDGED BY THE DIRECTOR TO THE HDFC BANK FOR GIVING LOAN TO THE COMPANY I.E. TOWER OVERSEAS LIMITED. FURTHER, THERE WAS NO ACCUMULATED PROFIT AS ON THE DATE OF GIVING THE LOAN TO THE DIRECTOR. THE APPELLANT HAS ALSO RELIED ON THE DECISION OF PRADEEP KU MAR MALOHTRA VS. CIT [338 ITR 538 (CAL)J. THE APPELLANT HAS CLAIMED THAT THE FACTS OF THIS CASE ARE IDENTICAL, AS IN THAT CASE ALSO THE DIRECTOR HAD GIVEN PERSONAL COLLATERAL SECURITY FOR PROVIDING THE LOAN TO THE COMPANY. AFTER CONSIDERING THE FINDINGS MADE BY THE A. O., THE WRITTEN SUBMISSION MADE BY THE APPELLANT, JUDGMENT CITED BY HIM AND FACTS ON RECORD, IT APPEARS THAT THE CLAIM OF THE APPELLANT THAT THE LOAN HAS BEEN GIVEN BY THE COMPANY AGAINST THE SECURITY OF SHARES GIVEN BY THE APPELLANT FOR OBT AINING LOAN FROM THE BANK IS NOT SUPPORTED BY ANY EVIDENCE. THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE ANY I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 19 CONTEMPORARY EVIDENCE TO PROVE THAT THE LOAN WAS AGAINST THE PLEDGING OF SHARES. THERE IS NO EVIDENCE OF ANY MINUTES OF MEETING OF THE BOARD AS THE I NFORMATION FILED WITH THE ROC DOES NOT INDICATE THAT ANY SUCH RESOLUTION APPROVING THE LOAN TO THE DIRECTOR WAS PASSED BY THE BOARD OF DIRECTORS. THE APPELLANT HAS ALSO SUBMITTED A COPY OF THE EXTRACT OF RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF TOWER OVERSEAS LIMITED IN THE MEETING CLAIMED TO BE HELD ON 05/04/2008. THIS CANNOT NOW BE ACCEPTED AS IT WAS NOT PRODUCED BEFORE THE A. O. AND THERE IS NO EVIDENCE THAT THE RESOLUTION WAS ACTUALLY PASSED BY THE DIRECTORS ON THAT DAY. THE COPIES OF RETURN FILED BY THE COMPANY WITH THE ROC ALSO DOES NOT MENTION ABOUT THIS RESOLUTION. THEREFORE, THIS EVIDENCE CANNOT BE ACCEPTED AS CONTEMPORARY AND DO NOT SUPPORT THE CASE OF THE APPELLANT. ACCORDINGLY, THE CLAIM OF THE APPELLANT THAT THE AMOUNT GIVEN WAS N6T GRATUI TOUS IS NOT ACCEPTED AND THE TRANSACTIONS OF LOAN GIVEN BY THE COMPANY TO THE APPELLANT CLEARLY FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT. THE ACTION OF THE A. O. IS THEREFORE UPHELD. HOWEVER, THERE IS MERIT IN THE CLAIM OF THE APPELLANT THAT THERE WAS NO ACCUMULATED PROFIT WITH THE COMPANY AS ON THE DATE OF ADVANCING LOAN. THE APPELLANT HAS SUBMITTED A COPY OF ACCOUNT OF THE APPELLANT IN THE COMPANY TOWER OVERSEAS LIMITED. IT IS SEEN FROM THE ACCOUNT THAT THERE WAS AN OPENIN G CREDIT BALANCE OF RS.67,39,365/ - . SUBSEQUENTLY, THE APPELLANT HAS TAKEN A LOAN OF RS. 1 CRORE FROM THE COMPANY WHICH HAS RESULTED IN AN OVERDRAFT OF RS.32,60,635/ - . THIS OVERDRAFT WOULD CLEARLY BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT SUBJECT TO THE LIMIT OF ACCUMULATED PROFIT AS ON THAT DAY. THE APPELLANT HAS CLAIMED THAT IT HAS INCURRED HEAVY LOSSES DURING THE YEAR AND, THEREFORE, ACCUMULATED PROFIT AS ON THE DATE OF LOAN SHOULD BE CONSIDERED. THE CLAIM OF THE APPELLANT IS ACCORDINGLY ACCEPTABLE. THE A. O. IS DIRECTED TO WORK OUT THE ACCUMULATED PROFIT ON THE DATES ON WHICH THERE IS OVERDRAFT BY THE APPELLANT. IN THE PRESENT CASE, THE FIRST OVERDRAFT IS ON 07/04/2008. THE A. O. SHOULD VERIFY AND WORK OUT THE VALUE OF ACCUMULATED PROFIT AS ON THAT DATE ON THE BASIS OF ACCOUNTS OF THE APPELLANT COMPANY AS ON THAT DATE. SUBSEQUENTLY, THE APPELLANT HAS FURTHER TAKEN A LOAN OF RS.37,00,000/ - ON 29/04/2008. THIS AMOUNT WOULD AGAIN .BE TREATED AS DEEMED DIVIDEND SUBJECT TO THE ACCUMULATED PROF IT AVAILABLE ON THAT DATE. THE A. O. IS ACCORDINGLY DIRECTED TO WORK OUT THE APPLICABILITY OF SECTION 2(22) (E) I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 20 AFTER VERIFYING THE AVAILABLE ACCUMULATED PROFIT WITH THE APPELLANT AS ON THE DATES ON WHICH THERE IS AN OVERDRAFT. WHILE WORKING OUT THE DEEMED DIVIDEND, THE AMOUNT OF ACCUMULATED PROFIT ONCE CONSIDERED FOR DEEMED DIVIDEND WILL NOT BE CONSIDERED FOR THE SUBSEQUENT WITHDRAWAL. FOR THE SAKE OF CLARIFICATION, IF SOME AMOUNT IS CONSIDERED AS DEEMED DIVIDEND FOR THE OVERDRAFT OF RS.32,60,635/ - ON 07/0 4/2008 THAT AMOUNT WILL NOT BE CONSIDERED FOR DEEMED DIVIDEND ON SUBSEQUENT LOAN OF RS.37,00,000/ - ON 29/04/2008 AND FOR SUBSEQUENT LOANS THIS AMOUNT WILL ALSO BE EXCLUDED. THE APPELLANT WILL ACCORDINGLY GET THE RELIEF TO THE EXTENT AS INDICATED ABOVE. THE GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. 27 . WE HAVE HEARD BOTH THE PARTIES. THE ASSESSE TAKES US TO PAGE 222 OF THE PAPER BOOK CONTAINING THE ABOVE STATED ENTITY S BOARD S RESOLUTION ASKING ITS CREDITOR BANK A CREDIT FACILITY OF RS. 44.5 CRORE S IN LIEU OF HYPOTHECATION CHARGE ON STOCKS AND BOOK DEBT S OF COMPANY S AS WELL AS HIS SHARES. HE STATES THAT THIS COMPANY AUTHORIZED HIM TO EXECUTE NECESSARY DOCUMENTS AND FURTHER CONFERRED UPON HIM THE REQUISITE DRAWING PO WER. THIS WAS FOLLOWED BY C OMP ANY S ANOTHER RESOLUTION DATED 05 - 04 - 2008 GRANTING PERMISSION TO ASSESSEE TO DRAW A SUM OF RS. 1.75 CRORES FOR A MAXIMUM PERIOD OF ONE MONTH . THE ASSESSEE THEREAFTER REFERS TO CASE LAW OF PRADIP KUMAR MALHOTRA VS. CIT ITA 219/2003 DECIDED ON 02 - 08 - 2011 ( H ON BLE CALCUTTA HIGH C OURT ) . THE R EVENUE STRONGLY SUPPORTS THE CIT(A) S ORDER. 28 . WE HAVE HEARD BOTH THE PARTIES. CASE FILE STAND PERUSED. RELEVANT FACTS NARRATED HERE ARE NOT REPEATED FOR THE SAKE OF BREVITY. I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 21 THE AS S ESSEE S ONLY ARGUMENT PLEADS C OMMERCIAL EXPEDIENCY ELEMENT TO BE INVOLVED IN T H E IMPUGNED TRANSACTION TREATED AS A CASE OF DEEMED DIVIDEND. HIS CASE IS THAT HE RECEIVED THE IMPUGNED SUM IN LIEU OF FURNISHING COLLATERAL TO THE COMPANY S CREDITOR BANK (SUPRA). THE ASSESSEE QUOTES BOAR D S RESOLUTION TO THIS EFFECT AS WELL. WE FIND THAT ONLY THE LATTER RESOLUTION AUTHORIZED THE ASSESSEE TO DRAW A SUM OF RS. 1.75 CRORES . AND THAT TOO FOR A PERIOD OF ONE MONTH ONLY. WE REITERATE THAT THE ASSESSEE S LOAN IS OF RS. 1.92 CRORES TAKEN ON 08 - 05 - 2008. ALL THIS EXCEEDS PECUNIA RY AS WELL AS TIME LIMIT AS PER THE FACTS NARRA TED IN PRECEDING PARAGRAPHS. WE OBSERVE ACCORDINGLY THAT THE ABOVE STATED EVIDENCE DOES NOT SUPPORT HIS CASE. WE NOTICE FROM HON BLE CALC UTTA HIGH COURT DECISION (SU PRA) TH AT THE ASSESSEE THEREIN HAD SUCCESSFULLY DEMONSTRATED THAT THE COMPANY WAS UNABLE TO FURNISH PROPERTY FOR HYPOTHECATION. IT WAS THEREFORE FOUND IN COMPANY S BUSINESS INTEREST TO GIVE LOAN ADVANCE IN QUESTION TO THE SAID ASSESSEE IN LIEU OF UTILIZING HIS S ERVICES FOR THE PURPOSE OF PROVIDING COLLATERAL SECURITY. THERE IS NO SUCH EVIDENCE FORTHCOMING IN THE INSTANT CASE FILE. WE FURTHER NOTICE FROM A PERUSAL OF SECTION 2(22)(E) CLAUSE (II) THAT LENDING OF MONEY IS ALSO NOT A SUBSTANTI AL PART OF THE BUSINES S OF THE AB O V E - STATED ENTITY IN QUESTION . WE ACCORDINGLY FIND NO REASON TO INTERFERE WITH THE IMPUGNED ADDITION. THIS SECOND SUBSTANTIVE GROUND IS ACCORDINGLY REJECTED. ITA 1397/AHD/2012 FAILS. 29 . THE REVENUE S TWO APPEALS ITA NOS. 2362/AHD/2010 AN D 2453/AHD/2011 ARE DISMISSED. ASSESSEE S CROSS OBJECTIONS THE REIN I. T.A NOS. 2362, 2453 & 1397 & CO NOS. 237 & 244 PAGE NO ITO VS. VIMAL RAMNIKLAL AMBANI 22 237/AHD/2010 AND 244/AHD/2011 ARE PARTLY ACCEPTED IN ABOVE TERMS. HIS APPEAL ITA 1397/AHD/2012 IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 07 - 09 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 0 7 /09 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,