The ACIT,(OSD)Circle-10, Ahmedabad V. Sonal Dhiren Vora, Ahmedabad

ITA 24/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57263 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-03-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 04-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A TIRKEY
• Assessee Lawyers: P M MEHTA
• Keywords: Proportionate interest; Cost of acquisition

Judgement Text

ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, A HMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI A.M.) I.T.A. NO. 24 /AHD/2012 (ASSESSMENT YEAR: 2008 - 09 ) THE ASSISTANT COMMISSIONER OF INCOME TAX(OSD), CIRCLE-10, NARAYAN CHAMBERS, NR. PATANG HOTEL, ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. SMT. SONAL DHIREN VORA 2 ND FLOOR, H. K. HOUSE, NR. HIGH COURT RLY. CROSSING, NAVRANGPURA, AHMEDABAD-380 009. (RESPONDENT) PAN: AAOPV 7209G APPELLANT BY : SHRI A. TIRKEY, SR. D.R. RESPONDENT BY : SHRI P.M. MEHTA. ( )/ ORDER DATE OF HEARING : 7-3-2012 DATE OF PRONOUNCEMENT : 16-3-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF LD. CIT (A)-XVI, AHMEDABADS ORDER DATED 18-10-2011 FOR THE ASSESSME NT YEAR 2008-09. 2. THE GROUND IN APPEAL TO BE EFFECTIVELY ADJUDICAT ED IS AS UNDER:- THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF INTEREST OF RS.48,00,847/- PAID AS THE COST OF ACQU ISITION OF SHARES FOR COMPUTING THE SHORT TERM CAPITAL LOSS. ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME ON 25- 7-2008 DECLARING TOTAL INCOME OF RS. NIL THE RETURN WAS PROCESSED U/S. 143(1). LATER ON THE CASE WAS SELECTED FOR SCRUTINY. 4. IN THIS CASE THE ASSESSEE HAD APPLIED FOR 6 0,00,000 EQUITY SHARES IN THE IPO OF RELIANCE POWER LTD. FOR THE PURPOSE OF MAKI NG APPLICATION IN IPO, THE ASSESSEE HAD TAKEN A LOAN OF RS.63 CRORE FROM L & T FINANCE LTD. AND ON THAT LOAN PAID INTEREST OF RS.9,83,836/-. DUE TO THE OVERSUBS CRIPTION OF IPO, THE ASSESSEE WAS ALLOTTED ONLY 37,604 SHARES AS AGAINST HER APPLICAT ION FOR 60,00,000 SHARES. THE ASSESSEE CONSIDERED THE INTEREST OF RS.49,19,680/- AND DELAYED INTEREST OF RS.9,83,836/- AGGREGATING TO RS. 59,03,516/- AS CO ST OF ACQUISITION AND ADDED IT TO THE COST OF SHARES AND ACCORDINGLY DETERMINED TH E COST OF EACH SHARE AT RS.580.33. DURING THE YEAR THE ASSESSEE SOLD THE SH ARES @ RS.450/- PER SHARE THEREBY INCURRING LOSS. SHE CLAIMED THE RESULTANT L OSS OF RS.68,09,741/- (RS.580.33 450) AS SHORT TERM LOSS. 4.1. ACCORDING TO THE ASSESSING OFFICER, SINCE THE ASSESSEE WAS ALLOTTED ONLY 37,604 SHARES AS AGAINST ITS APPLICATION FOR 60 LAC SHARES ONLY THE PROPORTIONATE INTEREST WITH REFERENCE TO THE SHARES ALLOTTED SHOU LD HAVE BEEN CONSIDERED AS COST AND NOT THE INTEREST ON THE ENTIRE LOAN BORROWED. A CCORDINGLY, THE ASSESSING OFFICER CALCULATED THE PROPORTIONATE INTEREST OF RS .36,999/- THAT WAS ELIGIBLE FOR CONSIDERATION AS COST OF ACQUISITION AND THEREFORE, DISALLOWED THE BALANCE INTEREST OF RS.48,00,847/-. THE RELEVANT FINDING OF THE ASSE SSING OFFICER IS AS UNDER:- 4.2.1. THE ASSESSEE HAS CLAIMED TO BE AN INVEST OR. HOWEVER, HE HAS MADE APPLICATION FOR 60 LACS SHARES WHICH MADE THROUGH L & T FINANCE. AS PER ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 3 THE IPO ISSUED, THERE WAS A LIMIT OF 225 SHARES FOR INDIVIDUAL INVESTOR. HOWEVER, THE ASSESSEE HAS INVESTED THROUGH A FINANC E AGENCY BY TAKING HUGE LOAN. THESE SHARES WERE IMMEDIATELY SOLD @ RS.425/- PER SHARE WHEN THE ISSUE PRICE WAS RS.450/- PER SHARE THEREBY INCURRIN G A LOSS. THE ASSESSEE HAS CLAIMED THE COST PRICE TO BE RS.580.33 INCLUSIV E OF INTEREST PAID FOR APPLYING FOR 60 LAC SHARES. 4.2.2. THE ASSESSEE HAS RELIED ON THE DECISIO N OF THE MUMBAI ITAT IN THE CASE OF SMT. NEERA JAIN VS. ACIT. THE DECISION OF H ONBLE ITAT MUMBAI IS NOT CONCLUSIVE. COST OF ACQUISITION OF AN ASSET IS THE TOTAL AMOUNT SPENT TO ACQUIRE THAT ASSET. ANY EXPENDITURE INCURRED WITH P URCHASE OF SUCH ASSET ONLY FORMS A PART OF THE ACQUISITION. 4.2.3. SEC. 48 CLEARLY STATES THAT ANY EXPEND ITURE INCURRED FOR ACQUISITION OF THE ASSET SHALL BE ALLOWABLE FOR COMPUTING THE C OST OF THE ASSET. IN THIS CASE, THE ASSET ACQUIRED IS 37604 SHARES AND NOT 60 LACS SHARES APPLIED. THE ASSESSEE AS NOT INTO TRADING OF SHARES AND HAS SHOW N THE SHARES AS INVESTMENT. DEDUCTION OF INTEREST EXPENSE IS ALLOWA BLE ONLY IF THE ASSESSEE IS IN THE BUSINESS OF SHARE TRADING. BY INCLUDING THE ENTIRE EXPENSE OF INTEREST INCURRED FOR APPLICATION OF SHARES IN THE COST OF A CQUISITION OF SHARES ALLOTTED, THE ASSESSEE IS DERIVING DOUBLE ADVANTAGE I.E. THE COST OF ACQUISITION IS INCREASED TO INCLUDE THE ENTIRE INTEREST EXPENDI TURE AND THE INCOME DERIVED IS SHOWN UNDER SHORT TERM CAPITAL GAIN WHER EIN THE TAX RATE IS ONLY 10%. AS SUCH THE ASSESSEES CLAIM OF INTEREST PAID SHOULD BE WITH REGARD TO SHARES ACQUIRED ONLY. HE HAS ACQUIRED 37604 SHARES, HENCE, THE PURCHASE VALUE OF THE SAME SHOULD INCLUDE ONLY THE PROPORTIO NATE INTEREST PAID FOR ACQUIRING THESE SHARES AND NOT FOR THE ENTIRE 60 LA CS SHARES. 4.2.4. THUS, THE EXPENDITURE INCURRED FOR ACQU IRING AN ASSET IS TO BE CONSIDERED AND NOT THE EXPENDITURE INCURRED FOR AN ASSET LIKELY TO BE PURCHASED BY THE ASSESSEE. IN THIS CASE, FOR ACQUIR ING 37604 SHARES, THE ASSESSEE HAS PAID INTEREST OF RS.36,999/-. 4.2.5. HENCE, THE COST OF THE ASSET FOR THE A SSESSEE IS RS.1,69,58,799/- I.E. (RS,.450 X 37604 + 36,999). THUS, THE ACTUAL LOSS O N THE TRANSACTION IS RS.9,43,225/-. ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 4 4.2.6. IN VIEW OF THE ABOVE, THE CLAIM OF SHORT TERM LOSS OF THE ASSESSEE IS RESTRICTED TO RS.9,43,225/- AND THE SHORT TERM CAP ITAL GAIN OF THE ASSESSEE IS WORKED OUT AS UNDER: SHORT TERM CAPITAL G AIN ALLIED COMPUTER RS. 48,67,920 VARUN INDUSTRIES. RS. 8,76,152 ------------------ RS. 57,44,073 LESS:- RELIANCE POWER. RS. 9,43, 225 ------------------ SHORT TERM CAPITAL GAIN ASSESSED. RS. 48,00,847 ========== 5. PURSUANT TO THE ABOVE AND SUBJECT TO THE DETAILS MADE AVAILABLE BY THE ASSESSEE, THE TOTAL INCOME OF THE ASSESSEE IS COMPU TED AS UNDER:- SHORT TERM CAPITAL GAIN AS PER ABOVE. RS. 48,00,847 INCOME FROM OTHER SOURCES. RS. 88,355 ----------------- GROSS TOTAL INCOME. RS. 48,00,847 ROUNDED OFF TO RS. 48,00,850 ========== 5. THE ASSESSEE BEING AGGRIEVED BY THE DECISION OF THE ASSESSING OFFICER CARRIED THE MATTER BEFORE CIT (A). CIT (A) DID NOT AGREE WITH THE CONTENTION OF ASSESSING OFFICER AND ALLOWED THE APPEAL OF THE ASS ESSEE BY HOLDING AS UNDER:- 2.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD, COUNSEL AND THE FACTS OF THE CASE. THERE IS NO DISPUTE THAT THE COS T OF FINANCE OR INTEREST HAS TO BE ADDED TO THE COST OF ACQUISITION OF THE ASSET FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAINS . THIS PRINCIPLE HAS BEEN UPHELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRI HARIRAM HOTELS P. LTD. (325 ITR 136).THE ONLY DISPU TE REGARDING THE ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 5 QUANTUM OF INTEREST. AS PER THE ASSESSING OFFICER, THE INTEREST RELATABLE TO THE ALLOTTED SHARES IS TO BE ALLOWED. HOWEVER, AS P ER THE LD. COUNSEL, THE INTEREST PAID TO THE FINANCIAL INSTITUTION FOR THE LOAN RAISED FOR THE ACQUISITION OF SHARE IS TO BE ALLOWED I.E. FOR THE WHOLE LOAN OF RS. 63,00,00,000/-. I AGREE WITH THE CONTENTION OF THE LD. COUNSEL. THE ASSESSEE HAD RAISED THE LOAN OF RS.63,00,000/- M/S. L & T FI NANCE LTD., FOR ACQUISITION OF 60,00,000/- SHARES. THE REQUIRED SHA RES WERE NOT ALLOTTED BUT PART OF THE REQUIRED SHARES WAS ONLY ALLOTTED. THUS THE BORROWED FUNDS WERE HAVING DIRECT NEXUS WITH THE ACQUISITION OF SHARES. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE MUMBAI TRIBUNAL IN THE UNREPORTED CASE OF SMT. NEERA JAIN VS. ACIT ITA NO.1861/MUM/2009 DATED 22-2-2010. THE COPY OF ORDER WAS FILED AND THE FINDING OF THE ORDER IS REPRODUCED IN THE SUBMISSIO N OF THE LD. COUNSEL. CONSIDERING THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE HONBLE MUMBAI TRIBUNAL, THE ASSESS ING OFFICER IS DIRECTED TO ALLOW THE INTEREST OF RS.49,19,680/- PAID TO M/S . L & T FINANCE LTD., AS THE COST OF ACQUISITION OF SHARES FOR COMPUTING THE SHORT TERM CAPITAL LOSS. THE FIRST GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 6. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE N OW IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT TH E FACTS OF THE CASE ARE EXACTLY IDENTICAL TO THAT OF NEERA JAIN AND THEREFO RE, THE ISSUE STANDS COVERED IN HER FAVOUR IN VIEW OF THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF SM. NEERA JAIN VS. ACIT (ITA NO.1861/M/2009 ORDER DATED 22-2- 2010). 7.1. WE HAVE ALSO HEARD THE LD. DR. THE LD. DR VEH EMENTLY ARGUED THAT THE ASSESSING OFFICER WAS RIGHT IN ALLOWING THE INTERES T ONLY TO THE EXTENT OF SHARES ALLOTTED AND FURTHER URGED THAT THE ORDER OF THE AS SESSING OFFICER BE UPHELD. 7.2. WE HAVE HEARD THE PARTIES AND PERUSED THE RECO RDS. THERE IS NO DISPUTE ABOUT THE FACT THAT MONEY BORROWED BY THE ASSESSEE WAS US ED FOR IPO APPLICATIONS. THOUGH THE ASSESSEE HAD APPLIED FOR 60 LACS SHARES BUT ONLY 37604 SHARES WERE ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 6 ALLOTTED TO THE ASSESSEE, BUT THE ASSESSEE HAD TO P AY INTEREST ON THE ENTIRE LOAN OF RS.63 CRORE THAT SHE HAD BORROWED FROM THE FINANCIE RS. IN THE CASE OF SMT. NEERA JAIN (SUPRA) RELIED UPON BY THE ASSESSEE, ON IDENTI CAL FACTS, THE ASSESSEE HAD BORROWED THE MONEY FOR IPO APPLICATION BUT ALL THE SHARES WERE NOT ALLOTTED AS APPLIED AND ONLY PART OF THE SHARES WERE ALLOTTED A ND BALANCE AMOUNT WAS REFUNDED TO THE ASSESSEE IN RESPECT OF NON ALLOTMENT OF SHAR ES. THE ASSESSEE HAD TO PAY THE INTEREST ON ENTIRE FINANCE WHICH WAS BORROWED FOR M AKING THE PAYMENT OF SHARE APPLICATION MONEY. THE ENTIRE INTEREST WAS NOT ALLO WED BY THE LOWER AUTHORITIES. WHEN THE MATTER REACHED BEFORE THE TRIBUNAL, THE TR IBUNAL HELD AS UNDER:- 5. WE HAVE GIVEN OUR ANXIOUS CONSIDERATIONS TO THE RIVAL SUBMISSION OF THE PARTIES. IN THE PRESENT CASE, THERE IS O DISPUT E ABOUT THE FACT THAT THE ENTIRE LOAN WAS BORROWED FOR THE PURPOSE OF ACQ UIRING THE SHARES OF THE PUNJAB NATIONAL BANK AND NTPC LTD. AS PER TH E FACTS ON RECORD, THERE IS NO DISPUTE AT ALL THAT IMMEDIATELY AFTER ALLOTMENT OF THE SHARES MONEY REFUNDED BY BOTH THE COMPANY WERE PAID BACK TO THE FINANCIERS. THE CONTROVERSY IS WHETHER THE ENTIRE I NTEREST ON THE BORROWED MONEY PAID BY THE ASSESSEE CAN BE ALLOWED U/S. 48 TREATING THE SAME AS THE COST OF ACQUISITION. THE ARGUMENT O F THE LD,. COUNSEL IS THAT FUNDS WERE BORROWED WITH SOLE INTENTION FOR ACQUIRING THE SHARES AND THAT IS NO WHERE DISPUTED BY THE ASSES SING OFFICER AND AS ALLOTMENT OF THE SHARES WAS NOT IN THE HANDS OF THE ASSESSEE AND HENCE, THE INTEREST PAID TO THE FINANCIERS ON THE E NTIRE BORROWED MONEY HAS TO BE ALLOWED AND SAME CANNOT BE RESTRICT ED TO THE EXTENT OF SHARES ALLOTTED. IN OUR OPINION, THE ASSESSEE HA S TO SUCCEED ON THIS GROUND. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL, TH E ENTIRE MONEY HAS BEEN BORROWED BY THE ASSESSEE, WITH THE SOLE PURPOS E FOR ACQUIRING THE SHARES OF THE PUNJAB NATIONAL BANK AND NTPC LTD . THOUGH THE APPLIED SHARES WERE NOT ALLOTTED ON FULL, THAT WILL NOT DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE INTEREST PAID AS THE PART OF THE COST OF THE ACQUISITION OF THE SHARES ALLOTTED AS THE M ONEY BORROWED HAS DIRECT NEXUS WITH THE ACQUISITION OF THE SHARES. WE , THEREFORE, DIRECT THE ASSESSING OFFICER TO TREAT THE INTEREST PAID BY THE ASSESSEE TO BOTH ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 7 THE FINANCIERS AS A PART OF COST OF ACQUISITION OF THE SHARES AND ALLOW THE SAME AS A DEDUCTION. ACCORDINGLY, GROUND NO.1 I S ALLOWED. 7.3. THE CASE OF THE ASSESSEE IS IDENTICAL TO THAT OF NEERA JAIN (SUPRA). IN THE CASE BEFORE US IT IS SEEN THAT THE ENTIRE MONEY BORROWED BY THE ASSESSEE WAS FOR THE SOLE PURPOSE OF ACQUIRING SHARES OF RELIANCE POWER LTD. THE ASSESSEE HAS PAID INTEREST TO L & T FINANCE ON THE ENTIRE AMOUNT BORROWED THOU GH ONLY PARTIAL ALLOTMENT OF SHARES WAS MADE TO THE ASSESSEE. THE BORROWED FUNDS WERE HAVING DIRECT NEXUS WITH THE ACQUISITION OF SHARES. THIS FACT IS NOT DI SPUTED BY THE ASSESSING OFFICER. WE THEREFORE, HOLD THAT THE INTEREST PAID BY THE AS SESSEE ON THE MONEY BORROWED FOR ACQUIRING THE SHARES ON WHICH THE ASSESSEE PAID THE INTEREST PARTAKES THE CHARACTER OF THE COST OF THE SHARES. ACCORDINGLY, THE INTERES T PAID BY THE ASSESSEE ON THE MONEY BORROWED FOR IPO APPLICATION IS PART OF ACQUI SITION AND THE SAME IS TO BE ALLOWED. WE, THEREFORE, DIRECT THE ASSESSING OFFICE R TO ALLOW THE ENTIRE INTEREST PAID BY THE ASSESSEE FOR ACQUISITION OF SHARES OF R ELIANCE POWER LTD., AS THE COST OF ACQUISITION WHILE COMPUTING THE SHORT TERM CAPITAL LOSS. THE GROUND OF THE REVENUE IS THEREFORE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 16 - 3 - 20 12. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUN TANT MEMBER AHMEDABAD. S.A.PATKI. ITA 2 4/AHD/2012 C.O. NO.71/AHD/2012 A.Y. 2 008-09. 8 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-XVI, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 7 - 3 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 13 / 3 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 16 - 3 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 16 - 3 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 16 - 3 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 16 - 3 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..