Appeal details
Counselvise Citation
[2018] 118 COUNSELVISE.COM (IT) 6812 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-12-2018
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Not Allotted
Assessment Year
2010-2011
Appeal Filed On
02-02-2016
Judgement Text
, IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER AND MS MADHIMITA ROY , JUDICIAL MEMBER ./ ITA NO.218/AHD/2016 / ASSTT. YEAR : 2010 - 2011 A U RA SECURITIES PVT. LTD. AKHAY BUILDING, B/H, VADILAL HOUSE, 53, SHRIMALI SOCIETY, NAVRANGPURA, AHMEDABAD - 380009 PAN : AABCT4637N VS . D CIT, CIRCLE - 1, AHMEDABAD . ./ ITA NO S.247 & 248/AHD/2016 / ASSTT. YEAR S:( 2010 - 2011 & 2011 - 2012) DCIT, CIRCLE - 1, AHMEDABAD. VS. AUR A SECURITIES PVT. LTD. AKHAY BUILDING, B/H, VADILAL HOUSE, 53, SHRIMALI SOCIETY, NAVRANGPURA, AHMEDABAD - 380009 PAN : AABCT4637N ./ ITA NOS.1760 & 2857/AHD/2016 / ASSTT . YEAR S : (2012 - 2013 & 2013 - 14) DCIT, CIRCLE - 1, AHMEDABAD. VS. ARUNA SECURITIES PVT. LTD. AKHAY BUILDING, B/H, VADILAL HOUSE, 53, SHRIMALI SOCIETY, NAVRANGPURA, AHMEDABAD - 380009 PAN : AABCT4637N ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 2 (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI VARTIK CHOKSI & MS . IRA KAPOOR, A.RS REVENUE BY : SHRI S.K. DEV, SR. D.R / DATE OF HEARING : 05 / 11 / 201 8 / DATE OF PRONOUNCEMENT: 31 / 12 /201 8 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER : THESE ARE A BUNCH OF FIVE APPEALS BY THE ASSESSEE AND THE REVENUE AG AINST RESPECTIVE ORDERS OF THE L D CIT - A O UT OF W HICH THE ASSESSEE FILES ONE APPEAL AND THE REVENUE FILES FOUR APPEALS . ASSESSMENT YEARS INVOLVED IN THESE APPEAL S ARE 2010 - 2011 TO 2013 - 2014 . SINCE ISSUES INVOLVED IN ALL THESE APPEALS ARE INTERCONNECTED WITH EACH OTHER , THEREFORE FOR THE SAKE OF CONVENIENCE WE PROCEED TO DISPOSE O F ALL THESE APPEALS BY WAY OF THIS COMMON ORDER. 2. FIRST , WE TAKE UP ASSESSEE APPEAL BEARING N O. 218/AHD/2016 PERTAINING TO THE ASSESSM ENT YEAR 2010 - 11 . THE AS SESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE, THE, CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF LONG TERM CAPITAL LOSS RS. 1,49,70,000 ON SALE OF 30, 00,000 SHARES OF ARVIND LTD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF SHORT TERM CAPITAL LOSS ON SALE OF 1,00,000 SHARES OF ANAGRAM KNOWLEDGE ACADEMY LTD. (AKAL) AMOUNTING TO RS.3,50,00,000. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 3 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS.11,82,418 FR OM OUT OF THE TOTAL DISALLOWANCE OF RS.58,77,294 MADE BY THE ASSESSING OFFICER U/S.14A OF THE IT. ACT READ WITH RULE 8D OF THE IT. RULES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE TO TH E EXTENT OF RS.13,63,244 FROM OUT OF THE TOTAL DISALLOWANCE OF RS.16,03,792 MADE BY THE ASSESSING OFFICER BEING DEPRECIATION ON BMW MOTORCAR. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND/OR ALTER THE GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIM E OF HEARING OF THE APPEAL. 3 . THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT( A ) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DISALLOWANCE OF LOSS OF RS. 1,49,70 , 000.00 ON THE SALE OF SHARES OF M/S ARVIND LTD. 3 .1 BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF CARRYING INVESTMENT ACTIVITY, TRADING IN PAINTINGS, SHARES AND SECURITIES, CONSULTANCY SERVICES AND CONDUCTING CAPITAL MARKET - RELATED ACTIVITIES. THE ASSESSEE BELONGS TO LALBHAI DALPATBHAI GROUP. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS SHOWN LONG - TERM CAPITAL LOSS OF RS. 7,95,59,183.00 ON THE SALE OF SHARES OF A COMPANY NAMELY ARVIND L TD WHICH BELONGS TO THE SAME GROUP AS DISCU SSED ABOVE. THE ASSESSEE SOLD THE SHARES OF ARVIND L TD OFF - MARKET THOUGH THE SHARES OF THE COMPANY WERE LISTED ON NSE AS WELL AS ON BSE. THE ASSESSEE SOLD THESE SHARES OFF - MARKET TO SHRI SANJAY S. LALBHAI WHO IS DIRECTOR OF ARVIND LTD AS WELL AS IN THE ASS ESSEE COMPANY. 3 .2 THE NECESSARY DETAILS OF THE LONG - TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE ON THE SALE OF SHARES OF M/S ARVIND LTD STAND AS UNDER: ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 4 SR. NO. NAME OF SECURITY DATE OF INVESTM ENTS NO. OF SHARES PURCHASE S PURCHASE VALUE PRICE/S HARES DATE OF SALES NO. OF SHARE SOLD VALUE OF SALES SALES VALU E PER UNIT INDEXED COST PROFIT/ LOSS 1 ARVIND LTD 31/03/08 3000000 143407500 47.80 25/03/10 3 000000 164489183 28 . 31 164489 183 - 795591 83 3 .3 THE ASSESSEE SOLD THESE SHARES OFF - MARKET AT THE RATE OF RS. 28.31 PER SHARE WHEREAS THE SHARE PRICE LISTED ON THE STOCK EXCHANGE AT THAT RELEVANT TIME WAS RS. 33.30 PER SHARE. 3 .4 THE ASSESSEE SUBMITTED THAT DURING THE PERIOD FROM 1 ST FEBRUARY 2010 TO 31 ST MARCH 2010 THERE WAS AN AVERAGE DAILY QUANTUM OF TRADING OF SHARES IN ARVIND LTD FOR 4,87,085 SHARES AND 9,56,701 SHARES ON NSE AND BSE RESPECTIVELY. HOWEVER, THE ASSESSEE WANTED TO SELL 30 LAC S SHARES WHICH W ERE ALMOST 6 TIMES MORE IN BSE AND 3 TIMES MORE IN NSE THAN THE AVERAGE DAILY QUANTU M OF TRADING OF SHARES ON STOCK EXCHANGES . A CCORDINGLY, THE ASSESSEE WAS UNDER THE APPREHENSION THAT IF IT SUPPLIES 30 LACS SHARES IN THE MARKET THROUGH THE STOCK EXCHANGE , THE N THE VALUE PER SHARE PREVAILING IN THE STOCK MARKET WILL FALL DRASTICALLY. AS PER THE ASSESSEE , THE PRICE OF A SHARE IN THE STOCK MARKET IS DETERMINED BY DEMAND AND SUPPLY. THUS THERE WAS VERY HIGH POSSIBILITY FOR GETTING THE LOWER CIRCUIT BREAKER TRIGGERED ON THE SALE OF SHARES OF THE COMPANY DUE TO SUBSTANTIAL FALL IN THE PRIC E OF ARVIND LTD ON ACCOUNT OF SUPPLY OF 30 LACS SHARES. 3 .5 THE ASSESSEE ALSO EXPLAINED THAT IT SAVED COST APPROXIMATELY 1.5 - 2% OF THE LISTED SALE PRICE ON ACCOUNT OF TRANSACTION COST , I.E. , BROKERAGE, ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 5 SECURITIES TRANSACTION TAX , AND SERVICE TAX , ETC . THUS THE PRICE FOR THE TRANSACTION OF THE SALE OF SHARES WAS DETERMINED AFTER CONSIDERING A 15% DISCOUNT OF THE MARKET PRICE WHICH COMES TO RS. 28.31 PER SHARE. ACCORDINGLY, THE TRANSACTION FOR THE SALE OF SHARES AS DISCUSSED ABOVE CANNOT BE TREATED AS A NON - GENUINE AND SHAM TRANSACTION . 4 . HOWEVER, THE AO WAS OF THE VIEW THAT THE WHOLE OF THE TRANSACTION RESULTING THE LONG - TERM CAPITAL LOSS IS A COLORABLE DEVICE TO GENERATE THE LONG - TERM CAPITAL LOSS. ACCORDINGLY, THE AO ISSUED SHOW CAUSE VIDE NOTICE DATED 25 - 0 2 - 2013 TO THE ASSESSEE TO EXPLAIN SUCH LOSS. 4 .1 IN COMPLIANCE TO IT THE ASSESSEE VIDE LETTER DATED 5 TH MARCH 2013 SUBMITTED AS UNDER: 1. THE SHARES WERE SOLD OFF - MARKET TO AVOID THE SUDDEN SUPPLY OF THE SHARES IN THE STOCK EXCH ANGE OTHERWISE THE PRICE PREVAILING ON THE STOCK EXCHANGE WOULD HAVE SUBSTANTIALLY FALLEN. 2. IT DID NOT ADJUST THE IMPUGNED LOSS AGAINST ANY OTHER INCOME TILL DATE. MOREOVER , IT IS ALSO NOT POSSIBLE TO PREDICT THE INCOME IN FUTURE WHICH WILL BE SET OFF AGAINST SUCH LOSS AS DISCUSSED ABOVE. 4 .2 HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE SHARES WERE SOLD AT A PRICE LESS THAN THE FAIR MARKET RATE TO A RELATED PARTY. THEREFORE, HE WAS OF THE VIEW THAT THE IMPUGNED TRANSACTION WAS NOT REPRESENTING THE LOSS AS A RESULT OF BUSINESS EXPEDIENCY. ACCORDINGLY, THE AO TREATED THE LOSS OF RUPEES 4.99 PER SHARE BEING THE DIFFERENCE OF THE MARKET PRICE R S. 33.30 AND THE ACTUAL PRICE RS. 28.31 PER SHARE AGGREGATING TO RS ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 6 1,49,70 , 000.00 AS THE RESULT OF THE COLORABLE DEVICE AND ADDED TO TH E TOTAL INCOME OF THE ASSESSEE. 5 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LEARNED CIT - A. THE ASSESSEE BEFORE THE LD. CIT - A SUBMITTED AS UNDER: I) THE SHARES WERE SOLD OF F - MARKET TO AVOID THE BULK SUPPLY OF THESE SHARES IN THE STOCK EXCHANGE OTHERWISE THERE WAS VERY HIGH POSSIBILITY THAT THE PRICE LISTED ON THE STOCK EXCHANGE WOULD HAVE FALLEN DRASTICALL Y. AS A RESULT OF THE SUPPLY OF THESE SHARES THROUGH THE STOCK EXCHANGE , THE LOWER CIRCUIT WOULD HAVE BEEN TRIGGERED BY THE STOCK EXCHANGE. II) THE IMPUGNED LOSS WAS NOT SET O F F AGAINST ANY INCOME TILL DATE. MOREOVER , IT WAS ALSO NOT POSSIBLE TO PREDICT THE FUTURE INCOME WHICH WOULD BE SET OFF AGAINST SUCH LOSS. THEREFORE THE ALLEGATION OF THE AO THAT THE IMPUGNED LOSS HAS BEEN GENERATED THROUGH THE USE OF THE COLORABLE DEVICE IS BASELESS. III) THE SHARES WERE SOLD AS A MATTER OF COMMERCIAL EXPEDIENCY. THE ASSESSEE WAS FREE TO SELL THESE SHARES AT A RATE WHICH, COMMERCIALLY JUSTIFIES TO IT. IV) THERE IS NO PROVISION UNDER THE ACT TO DETERMINE THE SALE PRICE OF THE SHARES , UNLIKE THE PROVISIONS AS SPECIFIED UNDER SECTI ON 50C OF THE ACT. 6. HOWEVER , THE LEARNED CIT (A) DIS REGARDED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT HAD THE ASSESSEE SOLD THESE SHARES GRADUALLY OVER A ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 7 PERIOD OF TIME THEN IT COULD HAVE FETCHED THE PRICE LISTED ON THE STOCK EXCHANGE. 6.1 THERE WAS NO COMPULSION ON THE ASSESSEE TO SELL THE SHARES TO THE GROUP CONCERN AT A PRICE LOWER THAN THE PRICE LISTED ON THE STOCK EXCHANGE. ACCORDINGLY , THE LEARNED CIT (A) UPHELD THE ORDER OF THE AO. 7. BEING AGGRIEVED BY THE ORDER OF LEARNED CIT (A) ASSESSEE IS IN APPEAL BEFORE US . 8. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 114 AND SUBMITTED THAT THERE IS NO PROVISION UNDER THE INCOME TAX ACT TO DETERMINE THE SALE PRICE OF THE SHARES AKIN TO THE PROVISIONS OF SECTION 50C OF THE ACT. 8.1 EVEN AS PER THE PROVISIONS OF SECTION 56 (2)(X) THE DIFFERENCE BETWEEN THE SALE PRICE AND MARKET PRICE IS SUBJEC T TO TAX IN THE HANDS OF THE RECIPIENT. IN THE CASE , THE ASSESSEE IS A SELLER . T HEREFORE , THE SAID PROVISIONS CANNOT BE APPLIED IN ITS HANDS. MOREOVER , THE PROVISIONS OF THE SECTION ARE APPLICABLE WITH EFFECT FROM 1 ST APRIL 2017. 8.2 SIMILARLY , THE PROVISIONS AS SPECIFIED UNDER SECTION 50 CA OF THE ACT ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. IT IS BECA USE THE PROVISION OF SECTION 50 CA OF THE ACT DOES NOT SPEAK ABOUT THE QUOTED SHARES. MOREOVER , THE PROVISIONS OF THE SECTION ARE APPLI CABLE WITH EFFECT FROM 1 ST APRIL 2018. 9. ON THE OTHER HAND , THE LEARNE D DR SUBMITTED THAT THE SHARES WERE SOLD TO A GROUP COMPANY AT A PRICE LESS THAN THE MARKET PRICE. HAD THE ASSESSEE ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 8 SOLD THESE SHARES THROUGH THE STOCK EXCHANGE THEN THE IMPUGNED LOSS COULD HAVE BEEN AVOIDED. ACCORDINGLY , THE LEARNED DR CONTENDED THAT THE LOSS CLAIMED BY THE ASSESSEE IS NOTHING BUT GENERATED THROUGH THE USE OF A COLORABLE DEVICE. 9.1 THE LEARNED DR ALSO SUBMITTED THAT THERE ARE NOMINAL CHARGES LEVIED BY THE STOCK EXCH ANGE ON THE SALE AND PURCHASE OF SHARES WHICH IS NEGLIGIBLE TO THE LOSS INCURRED BY THE ASSESSEE. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 10 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. I N THE INSTANT CASE , THE ASSESSEE HAS SOLD EQUITY SHARES OF ARVIND LTD AT RS. 28.83 PER SHARE WHICH IS LESS THAN THE PRICE LISTED ON THE STOCK EXCHANGE BY RS. 4.99 PER SHARE. THE ASSESSEE HAS SOLD 30 LACS SHARES OF ARVIND LTD WHICH RESULTED IN THE LONG - TERM CAPITAL LOSS OF RS. 1,49,70,000 / - ON ACCOUNT OF THE DIFFERENCE IN THE PRICE AS DISCUSSED ABOVE . THE ASSESSEE SOLD THESE SHARES TO SHRI SANJAY LALBHAI WHO IS THE DIRECTOR IN ASSESSEE COMPANY AS WELL AS ARVIND LTD. ACCORDINGLY, THE AO WAS OF THE VIEW THAT T HE LOSS CLAIMED BY THE ASSESSEE HAS BEEN GENERATED THROUGH THE USE OF A CO LORABLE DEVICE . 10 . 1 THEREFORE, THE SAME WAS DISALLOWED. THE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY CONFIRMED BY THE LEARNED CIT (A). 10 .2 NOW THE CONTROVERSY ARISES WHETHER THE LOSS CLAIMED BY THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES IS BASED ON BUSINESS EXPEDIENCY OR IT WAS USED AS A TOOL OF A COLORABLE DEVICE TO GENERATE SUCH LOSS. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 9 10 .3 IT IS AN UNDISPUTED FACT THAT ALL THE PART IES WHICH CARRIED OUT SUCH TRANSACTION WERE IDENTIFIABLE AND THERE WAS ALSO A CONSIDERATION AMONG SUCH PARTIES. THE LIMITED ISSUE BEFORE US IS THAT WHETHER THE ASSESSEE CAN SALE LISTED SHARES OFF - MARKET AT A PRICE LESSER THAN THE PRICE LISTED ON THE STOCK EXCHANGE. 10 .4 THE PRICE PREVAILING ON THE STOCK EXCHANGE AT THE RELEVANT TIME WAS RS. 33.30 PER SHARE. IT IS A N UNDISPUTED FACT THAT AMONG OTHER THING S THE PRICE AT THE STOCK EXCHANGE IS DECIDED BY DEMAND AND SUPPLY OF THE SHARES. IT MEANS IF THERE IS MORE SUPPLY OF THE SHARES IN THE MARKET, THE P RICE OF THE SHARE WILL FALL AND VICE VERSA. THUS, IF THE ASSESSEE WOULD HA VE SOLD THESE SHARES THROUGH THE NETWORK OF THE STOCK EXCHANGE, THE POSSIBILITY O F THE REDUCTION IN THE VALUE OF SHARES IN THE MARKET WOULD NOT HAVE BEEN AVOIDED. IT IS BECAUSE AT THAT RELEVANT TIME THE DAILY AVERAGE NUMBER OF SHARES TRADED IN THE STOCK EXCHANGE NAMELY BSE & NSE WERE 4,87,085 AND 9,56,701 RESPECTIVELY. THE RELEVANT DET AILS SHOWING THE AVERAGE NUMBER OF SHARES TRADED IN THE STOCK EXCHANGE IS PLACED ON PAGES 54 TO 55 OF THE PAPER BOOK. THUS THE SUDDEN SUPPLY OF 30 LACKS SHARES, THAT TOO BY THE PROMOTER OF THE ASSESSEE COMPANY IN THE STOCK EXCHANGE WOULD HAVE ADVERSELY AFF ECTED THE PRICE OF THE SHARES OF ARVIND LTD. 10 .5 WE ALSO NOTE THAT THE ASSESSEE MUST HAVE SAVED TRANSACTION COST CONSISTING OF SERVICE TAX, SECURITY TRANSACTION TAX , AND BROKERAGE BY SELLING THE SHARES OFF - MARKET . HAD THE ASSESSEE GONE THROUGH T HE NETWORK OF STOCK EXCHANGE THE N HE WOULD HAVE INCURRED THE COST AS STATED ABOVE. THEREFORE THE DIFFERENCE, TO THE EXTENT OF THE COST INVOLVED IN SUCH TRANSFER , AS DISCUSSED ABOVE, BETWEEN THE MARKET PRICE AND ACTUAL PRICE REQUIRES DUE CONSIDERATION FOR QUAN TIFYING THE LOSS ARISING FROM THE SALE OF SHARES. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 10 10 .6 WE ALSO NOTE THAT THERE IS NO PROVISION UNDER THE ACT PRESCRIBING THE GUIDELINES FOR PRICING OF THE SHARES UNLIKE THE PROVISIONS CONTAINED UNDER SECTION 50C OF THE ACT CONCERNING IMMOVABLE PROPERTIES UNDER THE HEAD CAPITAL GAIN . THUS IN THE ABSENCE OF ANY SPECIFIC PROVISION TO DETERMINE THE SALE PRICE OF THE SHARES OF THE LISTED COMPANY, WE ARE INCLINED TO HOLD THAT THE PRICE DECLARED BY THE ASSESSEE IS CORRECT AND WITHIN THE PROVISIONS OF LAW. 10 .7 WE ALSO FIND THAT A NEW SECTION 50CA OF THE ACT WAS INSERTED BY THE FINANCE ACT 2018 WHICH IS APPLICABLE FROM 1 ST APRIL 2018, THE RELEVANT EXTRACT OF THE SECTION IS REPRODUCED AS UNDER: [ SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION FOR TRANSFER OF SHARE OTHER THAN QUOTED SHARE. 50CA. WHERE THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET, BEING SHARE OF A COMPANY OTHER THAN A QUOTED SHARE, IS LESS THAN THE FAIR MARKET VALUE OF SUCH SHARE DETERM INED IN SUCH MANNER AS MAY BE PRESCRIBED 40A , THE VALUE SO DETERMINED SHALL, FOR THE PURPOSES OF SECTION 48 , BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, 'QUOTED SHARE' MEANS THE SHARE QUOTED ON ANY RECOGNISED STOCK EXCHANGE WITH REGULARITY FROM TIME TO TIME, WHERE THE QUOTATI ON OF SUCH SHARE IS BASED ON CURRENT TRANSACTION MADE IN THE ORDINARY COURSE OF BUSINESS. ] 10 .8 FROM THE PLAIN READING OF THE ABOVE PROVISION WE NOTE THAT THE LAW WAS AMENDED TO BRING THE TRANSACTION OF UNQUOTED SALE AND PURCHASE OF SHARES UNDER THE NET OF INCOME TAX CONCERNING THE SALE PRICE OF THE SHARES. AS PER THE PROVISIONS OF SECTION 50CA OF TH E ACT , THE SALE PRICE OF SHARES OTHER THAN QUOTED S HARES SHALL BE THE FAIR MARKET RATE WHICH SHALL BE DETERMINED AS PRESCRIBED UNDER THE RULE 11UAA OF THE I NCOME T AX R ULE. 10 .9 FROM THE ABOVE PROVISIONS IT IS CLEAR THAT THE LAWMAKERS HAVE NOT BROUGHT ANY MECHANISM TO DETERMINE THE SALE PRICE OF QUOTED SHARES IF SOLD ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 11 OFF - MARKET . THUS IT IS TRANSPIRED THAT THE SALE PRICE OF THE QUOTED SHARES SHALL BE THE PRICE AS AGREED BETWEEN TWO PARTIES IF IT IS SOLD OFF - MARKET . 10 .10 WE ALSO NOTE THAT THERE IS NO PROVISION UNDER THE HEAD CAPITAL GAIN WHICH EMPOWERED AO TO DETERMINE THE FAIR SALE OR PURCHASE PRICE OF THE QUOTED SHARES BETWEEN THE RELATED PARTIES UNLIKE THE PROVISIONS OF SECTION 40A(2) OF THE ACT UNDER THE HEAD BUSINESS & PROFESSION. 10 .11 THUS AFTER CONSIDERING THE ABOVE FACTS, WE ARE OF THE OPINION THAT AO IS NOT CORRECT IN CHALLENGING THE SALES CONSIDERATION DECIDED BY THE PARTIES. THERE IS NO MECHANISM IN THE LAW, AS DISCUSSED ABOVE, WHICH ALLOWS AO TO TAKE THE LISTE D PRICE OF A SHARE IN PLACE OF ACTUAL SALES CONSIDERATION. 10 .12 WE ALSO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT THERE WAS SOME INFLOW OF MONEY FROM THE BUYER OF THE SHARES TO THE ASSESSEE WHICH I S UNACCOUNTED. AS THERE IS NO DISPUTE ABOUT THE NATURE OF THE TRANSACTION AND THE CONSIDERATION RECEIVED BY THE ASSESSEE AGAINST THE SALE OF SHARES, THEREFORE THE TRANSACTION CANNOT BE TERMED AS A SHAM TRANSACTION. 10 .13 MOREOVER, THE ONUS IS ON REVENU E TO ESTABLISH THAT ASSESSEE HAS RECEIVED SOME BENEFIT OVER AND ABOVE THE ACTUAL SALES CONSIDERATION. IN THIS REGARD , WE FIND SUPPORT AND GUIDANCE FROM A RECENT JUDG MENT OF DELHI HIGH COURT IN CASE ARJUN M ALHOTRA VS. CIT (403 ITR 354) WHERE THE SAME ISSUE HAS BEEN DEALT AND DECIDED IN FAVOR OF THE ASSESSEE . THE RELEVANT EXTRACT OF THE ORDER READS AS UNDER: 24. IN VIEW OF THE AFORESAID DISCUSSION AND PRONOUNCEMENT OF LAW IN K.P. VARGHESE CASE ( SUPRA ), WE FAIL TO FATHOM HOW THE TRIBUNAL HAD DISTINGUISHED THE SAID DECISION SOLELY AND ENTIRELY ON THE GROUND THAT IN THE PRESENT CASE THE TRANSACTION WAS NOT AT ARM'S LENGTH (SEE PARAGRAPHS 18 AND 19 OF THE ORDER OF THE ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 12 TRIBUNAL QUOTED ABOVE IN PARAGRAPH 16 ). K.P. VARGHESE CASE ( SUPRA ) CASE HOLDS THAT SUB - SECTIONS (1) AND (2) RELATE TO TRANSACTIONS, WHICH WERE NOT AT ARM'S LENGTH BETWEEN RELATED PARTIES AND THIRD PARTIES RESPECTIVELY, BUT THE TWO PROVISIONS WERE INTEGRALLY CONNECTED INASMUCH AS THEY WOULD AP PLY WHEN THERE WAS EVIDENCE AND MATERIAL TO SHOW THAT THE CONSIDERATION DECLARED AND DISCLOSED WAS UNDER - STATED AND NOT THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE. ONLY WHEN THE SAID PRE - CONDITION WAS SATISFIED, THE ASSESSING OFFICER WAS ENTITLED TO TREAT THE FAIR MARKET VALUE AS THE FULL VALUE OF CONSIDERATION. DIFFERENCE BETWEEN THE CONSIDERATION ACTUALLY RECEIVED AND MARKET VALUE OF CONSIDERATION BY ITSELF WOULD NOT JUSTIFY INVOKING THE SAID SECTION. THE AFORESAID RATIO HAS BEEN FOLLOWED BY THE SU PREME COURT IN CIT V. SHIVAKAMI CO. (P.) LTD. [1986] 25 TAXMAN 80K/159 ITR 71 , WHICH OBSERVES THAT THE PROVISION WOULD APPLY ONLY WHEN THERE WAS CONSIDERATION AND WHICH CONSIDERATION ACTUALLY RECEIVED WAS MORE THAN THE CONSIDERATION DISCLOSED OR DECLARED. FURTHER, ONUS WAS ON THE REVENUE TO PROVE UNDER - STATEMENT OF THE SAID CONSIDERATION. SECTION 52 WAS NOT MEANT TO APPLY TO TAX CAPITAL GAINS ON THE BASIS THAT THE ASSESS EE MIGHT HAVE GAINED OR COULD HAVE GAINED A HIGHER PRICE WHICH IN FACT WAS NOT RECEIVED . REFERENCE CAN BE ALSO MADE TO CIT V. GODAVARI CORPN. LTD. [1993] 68 TAXMAN 344/2 00 ITR 567 (SC) AND JUDGMENTS OF THIS COURT IN CIT V. DINESH JAIN , HUF [2012] 25 TAXMANN.COM 550/211 TAXMAN 23/[2013] 352 ITR 629 AND CIT V. GULSHAN KUMAR [2002] 123 TAXMAN 111/257 ITR 703 (DEL) . 25. AS NOTED ABOVE, SECTION 52 OF THE ACT WAS OMITTED BY FINANCE ACT, 1987 WITH EFFECT FROM 1ST APRIL, 1988. THE SAID PROVISION, THEREFORE, WAS NOT APPLICABLE IN THE ASSESSMENT YEAR 1999 - 2000. WE HAVE REFERRED TO THE AFORESAID JUDGMENT IN K.P. VEARGHESE CASE ( SUPRA ) AS THIS JUDGMENT WAS REFERRED TO AND DISTINGUISHED BY THE TRIBUNAL IN THE IMPUGNED ORDER. W E HAVE ALSO REFERRED TO K.P. VARGHESE CASE ( SUPRA ) TO ELUCIDATE THAT THE LEGAL RATIO PROPOUNDED WITH REFERENCE TO THEN APPLICABLE SECTION 52 OF THE ACT WOULD BE AGAINST THE REVENUE EVEN IF THE SAID SECTION WAS APPLICABLE. IT IS OBVIOUS THAT WHEN SECTION 52 OF THE ACT ITSELF WAS NOT APPLICABLE, THE ASSESSING OFFICER COULD NOT HAVE SUBSTITUTED THE ACTUAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE WITH ANOTHER FIGURE STATING THAT THIS WAS THE FAIR MARKET VALUE. THE AFORESAID DISCUSSION WOULD ALSO TAKE CARE OF THE ARGUMENT THAT M/S GIPL HAD PAID FOR FOREIGN TRAVEL OF THE ASSESSEE. THE FACT THAT M/S GIPL HAD INCURRED ANY SUCH EXPENDITURE WOULD NOT BE A GROUND AND REASON TO SUBSTITUTE THE ACTUAL CONSIDERATION RECEIVED WITH THE FIGURE RELYING UPON THE MARKET QUOTA TION OF THE SHARE AS THE FAIR MARKET VALUE. 11 . NOW COMING TO THE MAIN ALLEGATION/FINDING OF THE AO, WHICH WAS LATER CONFIRMED BY THE LD. CIT(A), THAT ASSESSEE HAS USED THIS TRANSACTION AS A COLORABLE DEVICE TO REDUCE ITS FUTURE TAX LIABILITY AND HEAVILY RELIED ON HONORABLE SUPREME COURT IN CASE OF MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (154 ITR 148) DATED 17 - 4 - 1985 WHEREIN APEX COURT OBSERVED THAT TAX ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 13 PLANNING WITHIN THE LAW IS PERMITTED , BUT COLORABLE DEVICES CANNOT BE PART OF TAX PLANNING. 11.1 IN THE CASE OF MCDOWELL & CO, T HE ASSESSEE WAS NOT COLLECTING THE SALES TAX LIABILITY ON THE EXCISE DUTY EVEN AFTER THE AMENDMENT IN THE DISTILLERY RULES 76 & 79 W.E.F. 4 - 8 - 1981. AS SUCH BEFORE THE A MENDMENT IN THE RULES , I.E. , DISTILLERY RULES 76 & 79 W.E.F. 4 - 8 - 1981, THE BUYERS WERE LIABLE TO DEPOSIT THE EXCISE DUTY DIRECTLY TO THE STATE GOVERNMENT . T HEREFORE THE ASSESSEE DID NOT COLLECT THE SALES TAX ON SUCH EXCISE DUTY. IT IS PERTINENT TO NOTE THA T THE HON BLE SC BEFORE THE AMENDMENT IN THE RULES 76 & 79 DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE REPORTED IN 1 SCR 914 DATED 25 - 10 - 1976. THUS THE AS S ES S EE DEFAULTED IN COMPLYING THE AMENDED DISTILLERY RULES 76 & 79 W.E.F. 4 - 8 - 1981. THUS THE HON BLE AP EX COURT DECIDED THE ISSUE IN FAVOR OF REVENUE. HENCE WE ARE OF THE CONSIDERED VIEW THAT THE PRINCIPLES LAID DOWN BY THE HON BLE APEX COURT CANNOT BE APPLIED IN THE CASE BEFORE US AS THE FACTS ARE DIFFERENT. 11.2 I T IS ALSO PERTINENT TO NOTE HERE THAT THE HON BLE APEX COURT IN CASE OF UNION OF INDIA AND ANR VS . AZADI BACHAO ANDOLAN (263 ITR 705) DISCUSSED THE CASE MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (SUPRA) IN DETAIL AND DISTINGUISHED FROM IT BY OBSERVING AS UNDER: WE MAY IN THIS CONNECTION USEFULLY REFER TO THE JUDGMENT OF THE MADRAS HIGH COURT IN M.V.VALLIPAPPAN AND OTHERS V. ITO , WHICH HAS RIGHTLY CONCLUDED THAT THE DECISION IN MCDOWELL CANNOT BE READ AS LAYING DOWN THAT EVERY ATTEMPT AT TAX PLANNING IS ILLEGITIMATE AND MUST BE IGNORED, OR THAT EVERY TRANSACTION OR ARRANGEMENT WHICH IS PERFECTLY PERMISSIBLE UNDER LAW, WHICH HAS THE EFFECT OF REDUCING THE TAX BURDEN OF THE ASSESSEE, MUST BE LOOKED UPON WITH DISFAVOUR. THOUGH THE MADRAS HIG H COURT HAD OCCASION TO REFER TO THE JUDGMENT OF THE PRIVY COUNCIL IN IRC V. CHALLENGE CORPORATION LTD. , AND DID NOT HAVE THE BENEFIT OF THE HOUSE OF LORDS'S PRONOUNCEMENT IN CRAVEN , THE VIEW TAKEN BY THE MADRAS HIGH COURT APPEARS TO BE CORRECT AND WE AR E INCLINED TO AGREE WITH IT. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 14 11.3 FURTHER, WE ALSO NOTE THAT HON BLE J URISDICTIONAL H IGH C OURT IN CASE OF BANYAN AND BERRY V S . COMMISSIONER OF INCOME TAX (222 ITR 831) HELD THAT TAX PLANNING WITHIN THE LAW IS PERMISSIBLE AND ONLY IF ANY TRANSACTION WHICH IS REDUCING THE TAX LIABILITY CANNOT BE REGARDED AS A COLORABLE DEVICE. THE COURT ALSO DISCUSSED THE MEANING OF COLORABLE DEVICE AND CASE OF MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (SUPRA) IN DETAIL. THE RELEVANT EXTRACT OF THE ORDER IS READ AS UNDER: FROM THE AFORESAID, IT IS APPARENT THAT ON THE FACTUAL ASPECT THE COURT WAS CONSIDERING THE CASE WHERE IN A GOING BUSINESS A LIABILITY TO PAY DUTY WHICH WAS LEGALLY OF THE ASSESSEE AND WHICH ON SUCH PAYMENT WAS TO BECOME PART OF ITS COST OF COMMODITY SOLD BY IT AND TO BECOME PART OF ITS SELLING PRICE TO THE BUYERS, WAS AS A RESULT OF ARRANGEMENT BETWEEN THE SELLER AND BUYER SPLIT INTO TWO, N AMELY - DUTY SO FAR PAID SEPARATELY DIRECTLY TO THE TAX AUTHORITIES AND THE BALANCE SO PAID TO THE SELLER; THE ARRANGEMENT WAS EXISTING SOLELY FOR THE PURPOSE OF NOT PAYING THE TAX AND IT IS NOT A TRANSACTION IN REALITY OF RECEIVING LESS PRICE THAN THE ONE ON WHICH IT WAS MARKETING. THE COURT NO WHERE SAID, THAT EVERY ACTION OR INACTION ON THE PART OF THE TAXPAYER WHICH RESULTS IN REDUCTION OF TAX LIABILITY TO WHICH HE MAY BE SUBJECTED IN FUTURE, IS TO BE VIEWED WITH SUSPICION AND BE TREATED AS A DEVICE FOR AVOIDANCE OF TAX IRRESPECTIVE OF LEGITIMACY OR GENUINENESS OF THE ACT; AN INFERENCE WHICH UNFORTUNATELY, IN OUR OPINION, THE TRIBUNAL APPARENTLY APPEARS TO HAVE DRAWN FROM THE ENUNCIATION MADE IN MCDOWELL'S CASE (SUPRA). RATIO OF ANY DECISION HAS TO BE UN DERSTOOD IN THE CONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANCES WHICH LED TO MCDOWELL'S DECISION (SUPRA) LEAVES US IN NO DOUBT THAT THE PRINCIPLE ENUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MANNER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION, WITHIN THE FRAME WORK OF LAW, UNLESS THE SAME FALL IN THE CATEGORY OF COLORABLE DEVICE WHICH MAY PROPERLY BE CALLED A DEVICE OR A DUBIOUS METH OD OR A SUBTERFUGE CLOTHED WITH APPARENT DIGNITY. IT WAS WITH THIS CONSCIOUSNESS THAT THE COURT HAS USED THESE EXPRESSIONS WHILE DEPRECIATING THE SCHEMES OF TAX AVOIDANCE IN THE NAME OF TAX PLANNING. ALL THE EXPRESSIONS USED BY THEIR LORDSHIPS IN DEPRECIAT ING THE METHODOLOGY OF TAX AVOIDANCE THROUGH TAX PLANNING OF RESORTING TO ' COLORABLE DEVICE ', 'DUBIOUS METHODS OR SUBTERFUGE' HAVE SPECIAL SIGNIFICANCE IN LEGAL WORLD. IN THE CONTEXT OF THE PRESENT DISCUSSION, THE MEANING ASSIGNED TO ' COLORABLE ' IN BROWN'S JUDICIAL DICTIONARY HAS BEEN DEFINED AS 'REVERSE OF BONA FIDE '. BLACK'S LAW DICTIONARY EXPLAIN ' COLORABLE ' TO MEAN 'THAT WHICH IS IN APPEARANCE ONLY, AND NOT IN REALITY, WHAT IT PURPORTS TO BE, HENCE, COUNTERFEIT, FEIGNED HAVING THE APPEARANCE OF TRUTH '. SO ALSO A DEVICE. THE CONTEXT IN WHICH THE EXPRESSION DEVICE HAS BEEN USED IN ITS ORDINARY DICTIONARY MEANING AS PER SHORTER OXFORD DICTIONARY MEANS ' INNEUITY , SOMETHING DEVICE, ARRANGEMENT, PLAN, CONTRIVANCE, A PLOT OR A TRICK. BLACK'S ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 15 DICTION ARY REFERS TO DEVICE AS CONTRIVANCE, A SCHEME, TRICK. SUBTERFUGE - ACCORDING TO ORDINARY MEANING AS PER THE SHORTER OXFORD ENGLISH DICTIONARY - MEANS THAT TO WHICH ONE REFERS FOR ESCAPE OR CONCEALMENT. SUBTERFUGE ON HISTORICAL PRINCIPLES MEANS, AN ARTICLE OR DEVICE TO WHICH A PERSON REFERS IN ORDER TO ESCAPE THE FORCE OF AN ARGUMENT, AN EXCUSE WITH WHICH CONCEALS A CLUE. SO ALSO THE EXPRESSION DUBIOUS REFERS TO A DOUBTFUL OR OF QUESTIONABLE CHARACTER. THAT IS TO SAY WHAT HAS BEEN DEPRECATED AS TAX PLANNING FOR AVOIDANCE OF TAX ARE THOSE ACTS WHICH HAVE DOUBTFUL, OR QUESTIONABLE CHARACTER AS TO THEIR BONA FIDE AND RIGHTEOUSNESS. NOT ALL LEGITIMATE ACTS OF A TAXPAYER WHICH IN ORDINARY COURSE OF CONDUCTING HIS AFFAIRS A PERSON DOES AND ARE UNDER LAW HE IS ENTIT LED TO DO, CAN BE BRANDED OF QUESTIONABLE CHARACTER ON THE ANVIL OF MCDOWELL (SUPRA). WE ARE UNABLE TO READ IN THE AFORESAID DECISION THAT ANY ACT OF AN ASSESSEE WHICH RESULTS IN REDUCTION OF HIS TAX LIABILITY OR EXPECTATION OF TAX BENEFIT IN FUTURE AMOUNT S TO COLORABLE DEVICE, A DUBIOUS METHOD OR SUBTERFUGE TO AVOID TAX AND CAN BE IGNORED IF THE ACTS ARE UNAMBIGUOUS AND BONA FIDE, MERELY ON THE GROUND THAT TREATING THOSE AS DELIBERATE WOULD RESULT IN TAX LIABILITY IN FUTURE. WHILE THE PLANNING ADOPTED AS A DEVICE TO AVOID TAX HAD BEEN DEPRECATED, PRINCIPLE CANNOT BE READ AS LAYING DOWN THE LAW THAT A PERSON IS TO ARRANGE HIS AFFAIRS SO AS TO ATTRACT MAXIMUM TAX LIABILITY, AND EVERY ACT WHICH RESULTS IN TAX REDUCTION, EXEMPTION OF TAX OR NOT ATTRACTING TAX A UTHORISED BY LAW IS TO BE TREATED AS DEVICE OF TAX AVOIDANCE. 11.4 IT IS ALSO PERTINENT TO MENTION HERE THAT WHENEVER ASSESSEE HAS TWO OPTIONS, ANY LAYMAN WILL ALWAYS GO FOR ONE WHICH REDUCES ITS TAX LIABILITY BUT TO HOLD THAT THE TRANSACTION AS A COLORABLE DEVICE REVENUE NEED S TO SEE IT IN ENTIRETY, AS HELD BY THE HON BLE GUJARAT HIGH COURT IN THE ABOVEMENTIONED CASE. 11.5 THE AO IN HIS ORDER ALSO RELIED ON THE JU DGMENT OF SUPREME COURT IN THE CASE OF WORKMEN VS. ASSOCIATED RUBBER INDUSTRY LIMITE D (157 ITR 77) (SC) AND HELD THAT FACTS OF THE ABOVE CASE ARE SIMILAR TO ASSESSEE S CASE. HOWEVER, WE NOTE THAT THE ABOVE DECISION WAS IN RESPECT TO THE CALCULATION OF BONUS PAYABLE TO WORKERS WHERE AN ARTIFICIAL ENTITY WAS CREATED TO DIVERT THE INCOME SO THAT BONUS LIABILITY CAN BE REDUCED AS THE BONUS WAS TO BE CALCULATED AT A FIXED RATE AND DIVERTING THE INCOME RESULTED IN REDUCING THE BONUS LIABILITY. THEREFORE, HON BLE SUPREME COURT HELD THAT IT IS NOT PERMISSIBLE AS THE ARTIFICIAL ENTITY WAS LATER WOUND UP IN 2 YEARS. BUT WE FIND ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 16 THAT FACT S IN THE CASE ON HAND ARE DIFFERENT FROM THE CASE AS MENTIONED IN THE IMMEDIATE LY PRECEDING PARAGRAPH . FURTHER, WE ALSO NOTE THAT THE ABOVE CASE WAS RELATED TO THE ISSUE OF LABORS WHILE THE PRESENT CASE IS RELATED TO TAX P LANNING . T HUS , THE PRINCIPLE S LAID DOWN CONCERNING THE LABOR LAWS CANNOT BE ADOPTED IN THE CASE BEFORE US. 11.6 WE ALSO NOTE THAT THERE WAS NO SET OFF OF SUCH LOSS AGAINST ANY INCOME TILL THE DATE OF PASSING THE ORDER AS CLAIMED BY THE ASSESSEE. THE LEARNED DR BEFORE US HAS NOT BROUGHT ANY IOTA OF EVIDENCE AGAINST THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE . THUS WE FEEL THAT HAD THE LOSS CL AIMED BY THE ASSESSEE BEEN COLO RABLE DEVICE THEN, THE ASSESSEE SHOULD HAVE CLAIMED SET OFF OF SUCH LOSS AGAINST THE INCOME AS PER THE PROVISIONS OF THE ACT. AS THE ASSESSEE HAS NOT CLAIMED THE SET OFF OF SUCH LOSS, WE ARE OF THE VIEW THAT THE SAME CANNOT BE HELD AS THE RESULT OF THE COLORABLE DEVICE. 11.7 WE ALSO NOTE THAT THE PURCHASE AND SALE OF THE SHARES BY THE ASSESSEE OF THE SHARES OF ARVIND LTD WERE DULY SUPPORTED WITH THE RELEVANT SHREDS OF EVIDENCE WHICH ARE PLACED ON PAGES 50 TO 53 OF THE PAPER BOOK. IT IS ALSO PERTINENT TO NOTE THAT T HE LOWER AUTHORITIES DID NOT DOUBT THE DETAILS OF THE PURCHASES AND SALES OF THE SECURITIES. 11.8 IN VIEW OF THE ABOVE , WE ARE NOT INCLINED TO UPHOLD THE FINDING OF AUTHORITIE S BELOW. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM . H ENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 17 12. THE 2 ND ISSUE OF THE ASSESSEE AND THE FIRST ISSUE IN REVENUE APPEAL ARE INTERCONNECTED , AND THE LD. CIT - A PASSED COMMON ORDER . THEREFORE, WE HAVE CLUBBED THEM TOGETHER FOR THE ADJUDICATION AND CONVENIENCE. 12.1 THE ISSUE RAISED BY THE ASSESSEE IS THAT LEARNE D CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF SHORT - TERM CAPITAL LOSS OF RS. 3.50 CRORES ON THE SALE OF SHARES OF M/S ANAGRAM KNOWLEDGE ACADEMY LTD (FOR SHORT AKAL) WHEREAS THE R EVENUE IS IN APPEAL AGAINST THE DELETION OF THE ADDITION MADE BY THE AO ON ACCOUNT OF LOSS ON THE FORFEITURE OF WARRANTS . 12 . 2 THE ASSESSEE HAS CLAIMED A SHORT - TERM CAPITAL LOSS IN THE YEAR UNDER CONSIDERATION AMOUNTING TO RS. 3.50 CRORES ON SALE OF SHARES OF AKAL AND RS. 36,19,050 / - ON ACCOUNT OF FORFEITURE OF SHARE WARRANTS. THE NECESSARY DETAILS OF SUCH LOSS STAND AS UNDER: SR. NO. NAME OF SECURI TY DATE OF INVEST MENTS NO. SHAR ES PURC HASE PURC HASE VALUE PRICE/S HARES DATE OF SALE NO. SHAR E SOLD VALUE OF SALES SA LES VAL VE PE R UN IT HOL DING DAYS PROFIT / LOSS 1 ANAGR AM KNOWL EDGE ACADE MY LTD. (AKA L) 20/03/ 10 1000 00 5000 0000 500 25/0 3/10 1000 00 1500 0000 15 0 5 - 3500 0000 2 ARVIN D LTD. WARRA NTS 29/09/ 08 4060 000 3619 051 - 17/0 5/09 FORF EITED 0.09 - 229 - 3619 050 5361 9051 1500 0001 3861 9050 ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 18 12 .3 ALL THE TRANSACTIONS ABOVE OF SALES OF SHARES AND FORFEITURE OF SHARE WARRANTS WERE CARRIED OUT AMONG THE RELATED PARTIES AND BELONGING TO THE SAME GROUP. 12 .4 THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS ACQUIRED 1,00,000 SHARES OF M/S ANAGRAM KNOWLEDGE ACADEMY LTD ( FOR SHORT AKAL) AT RS. 500/ - PER SHARE. ASSESSEE FUNDED RS. 5,00,00,000/ - TO AKAL TO INFUSE THE CAPITAL IN THE COMPANY. AS SUCH THERE WAS NEED OF FUND IN THE HANDS OF AKAL FOR THE REPAYMENT OF THE UNSECURED LOAN AS WELL AS TO STRENGTHEN THE FINANCIAL POSITION OF THE COMPANY. ACCORDINGLY, THE SHARES WERE SUBSCRIBED BY THE ASSESSEE AT A PREMIUM OF RS. 490 PER SHARE HAVING THE FACE VALUE OF RS. 10 PER SHARE. 12 .5 THE ASSESSEE ALSO CLAIMED THAT THE VALUE OF TH E SHARES OF AKAL AS PER RULE 11UA OF INCOME TAX RULE WAS DETERMINED AT RS. 109.57 PER SHARE WHEREAS IT HAS SOLD SHARES AT RS. 150.00 PER SHARE. 12 .6 ASSESSEE IN RESPECT OF SHARE WARRANT CLAIMED THAT IT HA D NOT EXERCISED HIS RIGHT TO ACQUIRE THE SHARES AG AINST THE SHARE WARRANTS BECAUSE THE SHARE PRICE OF ARVIND LTD WAS FALLEN SUBSTANTIALLY WHEREAS IT AGREED TO ACQUIRE THE SHARES AT RS. 52 PER SHARE. THEREFORE, TO AVOID FURTHER LOSS DUE TO THE REDUCTION IN THE PRICE OF THE SHARES IT DID NOT ACQUIRE THE SHARES AGAINST SHARE WARRANTS. ACCORDINGLY, ARVIND LTD FORFEITED THE SHARE WARRANTS ISSUED TO THE ASSESSEE RESULTING CAPITAL LOSS OF RS. 36,19,050 WHICH WAS CLAIMED AS A SHORT - TERM CAPITAL LOSS. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 19 12 .7 HOWEVER, THE AO WAS OF THE VIEW THAT THE LOSS CLAIMED BY THE ASSESSEE IS A COLO RABLE DEVICE AND SHOW CAUSED THE ASSESSEE VIDE LETTER DATED 25 TH FEBRUARY 2013 FOR ITS EXPLANATION. 12 .8 IN COMPLIANCE TO IT THE ASSESSEE VIDE LETTER DATED 5 TH MARCH 2013 SUBMITTED THAT THE SHARES WERE SOLD AT A HIGHER PRICE THAN THE FAIR MARKET VALUE . T HEREFORE , THE SAME CANNOT BE DISALLOWED . 12 .9 SIMILARLY, THE ASSESSEE SUBMITTED THAT ALL THE DETAILS OF SHARES WARRANTS FORFEITED BY ARVIND LTD WERE DULY FILED VIDE LETTER DATED 18 TH DECEMBER 2012 WHICH JUSTIFIES THE LOSS INCURRED ON ACCOUNT OF FORFEITURE OF SHARE WARRANTS. 12 .10 IN VIEW OF ABOVE THE ASSESSEE CLAIMED THAT THE LOSS INCURRED BY IT AS DISCUSSED ABOVE C OULD NOT BE TREATED AS THE COLORABLE DEVICE ON THE GROUND THAT THE S HARES WERE PURCHASED AT THE ABNORMALLY HIGH PRICE AND SOLD AT THE LESS PRICE. SIMILARLY , THE LOSS ON ACCOUNT OF THE FORFEITURE OF SHARE WARRANTS WAS THE RESULT OF THE COMMERCIAL EXPEDIENCY. 12 .11 HOWEVER, THE AO DISAGREED WITH THE CONTENTIO N OF THE ASSES SEE BY OBSERVING THAT THE WHOLE OF THE TRANSACTION FOR THE PURCHASE AND SALE OF SHARES AS WELL AS SHARE FORFEITURE OF SHARE WARRANTS WAS CARRIED OUT AMONG THE RELATED PARTIES AND BELONGING TO THE SAME GROUP. ACCORDINGLY, THE AO HELD THAT ASSESSEE USED THIS SALE & PURCHASE OF SHARES AND FORFEITURE OF WARRANTS AS A COLORABLE DEVICE TO REDUCE ITS TAX LIABILITY AND DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 13 . AGGRIEVED ASSESSEE PRE FERRED AN APPEAL TO LEARNED CIT( A ) . THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED AS UNDER: ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 20 I) THE TRANSACTION CANNOT BE CLASSIFIED AS A COLORABLE DEVICE M ERELY ON THE GROUND THAT SALE & PURCHASE OF SHARES IS WITHIN THE SAME GROUP, TO WHICH ASSESSEE ALSO BELONGS. THE OTHER RELEVANT FACTS AND PIECES OF EVID ENCE WHICH JUSTIFY THE BUSINESS EXPEDIENCY OF TRANSACTION CANNOT BE IGNORED . II) UNLIKE THE PROVISIONS OF SECTION 40A(2) OF THE ACT , THERE IS NO PROVISION UNDER THE HEAD CAPITAL GAIN CHAPTER TO DETERMINE THE FAIR SALES CONSIDERATION IF THE TRANSACTION IS BETWEEN THE RELATED PART IES . III) LD. AO FAILED TO JUSTIFY THAT HOW THE PAYMENT AND RECEIPT OF THE TRANSACTION ARE NULLIFIED , OR THERE WAS SOME UNACCOUNTED TRANSACTION TO NULLIFY THE EFFECT OF SUCH TRANSACTION IN THE BOOKS. IV) THE FAIR MARKET VALUE OF THE SHARE AS PER RULE 11 UA IS RS. 109.65 PER SHARE WHILE THE SHARE HAS BEEN TRANSFERRED AT RS. 150.00 PER SHARE. V) THE WARRANT WAS CONVERTIBLE INTO EQUITY SHARE AT RS.52/ - PER SHARE . H OWEVER, WHEN THE PRICE OF SHARES W AS CONSTANTLY FALLING , THEREFORE THE APPELLANT DE CIDED NOT TO CONVERT THE WARRANT INTO SHARES AT A PRICE OF RS. 52 PER SHARE WHICH WAS VERY HIGH TH A N THE PRICE LISTED AT THE STOCK EXCHANGE . VI) THESE WARRANTS WERE PURCHASED FROM SANJAY LALBHAI ON 29/09/08 @ RS. 0.09/ - PER WARRANT WHICH AO HAS NO T DOUBTED . THUS, THE WARRANT S W ERE HELD FOR 7 MONTHS WITH THE INTENTION OF CONVERSION BUT FORFEITED SUBSEQUENTLY WHEN THE PRICE OF SHARES W AS FALLING. THIS FACT ITSELF PROVES THE COMMERCIAL EXPEDIENCY OF TH E TRANSACTION ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 21 WHICH THE AO DOUBTED BY HOLDING THE TRANSACTION AS A COLORABLE DEVICE . 14. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND HELD THAT ASSESSEE COULD NOT PROVIDE ANY BONAFIDE EXPLANATION FOR SELLING THE SHARES AT SUCH HEAVY LOSS TO THE GROUP CONCERN WITH IN 5 DAYS OF THE PURCHASE OF SHARES. ACCORDINGLY, THE LD. CIT(A) UPHELD THE ORDER OF AO TO THE EXTENT OF RS. 3,50,00,000/ - REPRESENTING THE SHORT - TERM LOSS ON THE SALE OF SHARES. 14.1 HOWEVER, LD. CIT(A) DELETED THE ADDITION MADE BY AO ON ACCOUNT OF THE TRANSFER OF SHARE WARRANTS OF ARVIND LTD BY OBSERVING THAT HAD THE INTENTION OF THE ASSESSEE TO CREATE THE LOSS THROUGH THESE WARRANTS IT WOULD NOT HAVE CONVERTED THE 96,00,000 WARRANT S INTO SHARES WHICH WERE INITIALLY ACQUIRED. FURTHER, THE AO HAS ACCEPTE D THE LOSS ON ACCOUNT OF FORFEITURE OF 4,00,000 WARRANTS AMOUNTING TO RS. 4,59,949.00 ON EARLIER OCCASION. THEREFORE THE LOSS O F THE FORFEITURE OF 4,06,00,000 WARRANTS SHOULD ALSO BE ACCEPTED AS IT ALSO PERTAINS TO THE SAME COMPANY . ACCORDINGLY, LD. CIT(A) DELETED THE ADDITION TO THE EXTENT OF RS. 36,19,050/ - ON ACCOUNT OF FORFEITURE OF SHARE WARRANT. 15 . BEING AGGRIEVED BY THE ORDER OF LD. CIT( A ) , BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE C ONFIRMATION MADE BY THE LD. CIT( A ) FOR THE LOSS OF RS. 3.5 CRORES ON THE SALE OF SHARES WHEREAS THE REVENUE IS IN APPEAL BEFORE US AGAINST T HE DELETION MADE BY THE LD. CIT( A ) FOR THE LOSS OF RS. 36,19,050/ - ON THE FORFEITURE OF SHARES WARRANT. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 22 16. THE LD. AR BEFORE US SUBMITTED THAT THE TRANSACTION FOR THE SALE AND PURCHASE OF SHARES OF AKAL WAS CARRIED OUT THROUGH BANKING CHANNEL AND THE SAME WAS DISCLOSED IN THE BOOKS OF ACCOUNTS. 16.1 THE TRANSACTION WAS CARRIED OUT BETWEEN THE RELATED PARTIES , BUT TH AT CANNOT BE THE BASIS FOR TREATING THE TRANSACTION AS A COLORABLE DEVICE. THERE WAS NO DEFECT POINTED OUT BY THE AUTHORITIES BELOW REGARDING THE PURCHASE PRICE OF THE SHARES OF AKAL WHICH WAS INCLUSIVE OF THE PREMIUM. THEREFORE THE LOSS INCURRED ON THE S ALE OF SHARES CANNOT BE TREATED AS A COLORABLE DEVICE. 16.2 THE LEARNED AR ALSO SUBMITTED THAT IF THE COMPANY IN WHICH PUBLIC IS NOT SUBSTANTIAL INTERESTED ISSUES SHARES AT A PREMIUM EXCEEDING THE FAIR MARKET VALUE , THEN IT SHALL BE TREATED AS INCOME OF THE COMPANY AND NOT OF THE SHAREHOLDER. MOREOVER , SUCH PROVISION WAS BROUGHT UNDER THE STATUTE WITH EFFECT FROM 1 ST APRIL 2013. THUS THE SHARES PURCHASED BY THE ASSESSEE AT A PREMIUM DO NOT GENERATE ANY INCOME IN ITS HAND. 16.3 SIMILARLY , THE LEARNED AR FURTHER ARGUED THAT THE LOSS ON THE FORFEITURE OF WARRANTS WAS NO T DISPUTED BY THE AO , BEING THE AMOUNT OF RUPEES 4,59,949.00 AS DISCUSSED ABOVE. THEREFORE THERE IS NO QUESTION FOR DISALLOWING THE LOSS BY TREATING THE SAME A COLORABLE DEVICE. 17. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE LOSS INCURRED BY THE ASSESSEE IS THE COLORABLE DEVICE . T HEREFORE THE SAME CANNOT BE ALLOWED AS DEDUCTION. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 23 18. BOTH THE PARTIES BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 19 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. IN THE INSTANT CASE, THE ASSESSEE HAS ACQUIRED THE SHARES OF AKAL AT RS. 5 00 PER SHARE REPRESENTED BY THE PREMIUM OF RS. 490 AND FACE VALUE OF RS.10 PER SHARE. THE ASSESSEE ACQUIRED THESE SHARES ON 20 TH MARCH 2010 WHICH WERE SOLD ON 25 TH MARCH 2010 AT RS.150 PER SHARE RESULTING IN TOTAL SHORT - TERM CAPITAL LOSS OF RS.3.50 CRORES WHICH WAS TREATED BY THE AO AS A COLORABLE DEVICE TO GENERATE SUCH LOSS. ACCORDINGLY, THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY CONFIRMED BY THE LEARNED CIT (A). 19 .1 SIMILARLY, TH E ASSESSEE HAS CLAIMED LOSS OF RS. 36,19,050 ON ACCOUNT OF FORFEITURE OF SHARE WARRANTS OF ARVIND LTD. AS SUCH THE ASSESSEE DID NOT EXERCISE HIS RIGHT TO ACQUIRE SHARES AGAINST THE SHARE WARRANTS ON THE DUE DATE . T HEREFORE, ARVIND LTD FORFEITED THE AMOUNT ADVANCED BY THE ASSESSEE. AS PER THE ASSESSEE , SUCH TRANSACTION WAS AN EXTINGUISHMENT OF HIS RIGHT, THEREFORE, QUALIFY WITHIN THE DEFINITION OF THE TRANSFER. ACCORDINGLY, THE VALUE OF SUCH EXTINGUISHMENT OF RIGHT WAS DETERMINED BY THE ASSESSEE AT RS. 36,19 ,050/ - . HOWEVER, THE AO TREATED THE SAME AS A COLORABLE DEVICE ON THE GROUND THAT THE TRANSACTION WAS CARRIED OUT AMONG THE RELATED PARTIES WHICH WERE BELONGING TO THE SA ME GROUP. ACCORDINGLY, THE LOSS ON ACCOUNT OF FORFEITURE OF SHARES AS DISCUSSED ABOVE CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE AO. HOWEVER, T HE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY REVERS ED BY THE LEARNED CIT (A). ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 24 19 .2 NOW THE CONTROVERSY BEFORE US ARISES WHETHER THE LOSS CLAIMED BY THE ASSESSEE ON THE SALE OF SHARES OF AKAL IS GENERATED AS A TOOL OF A COLORABLE DEVICE. IT IS AN UNDISPUTED THE FACT THAT ALL THE PARTIES INVOLVED IN SUCH TRANSACTION WERE IDENTIFIABLE AND THE WHOLE TRANSACTION WAS BASED ON THE DOCUMENTARY EVIDENCE. NOW THE QUESTION ARISES TO DETERMINE THE PRICE AT WHICH THE ASSESSEE SOLD THESE SHARES . IT IS AN UNDISPUTED FACT THAT THE ASSESSEE ACQUIRED SHARES OF AKAL AT A PREMIUM OF RS.490 PER SHARE HAVING FACE VALUE AT RS.10 PER SHARE O NLY. THESE SHARES WERE SOLD AT A PRICE OF 150 PER SHARE WHICH IS IN EXCESS THAN THE FAIR MARKET VALUE OF THE SHARES DETERMINED AS PER RULE 11UA OF INCOME TAX RULE. AS PER RULE 11UA , THE VALUE OF THE SHARE COMES AT RS.109 PER SHARE . T HEREFORE , THERE REMAINS NO DOUBT THAT THE PRICE OF THE SHARE SOLD WAS AT A HIGHER PRICE THAN THE FAIR MARKET VALUE. 19 .3 UNDER THE INCOME TAX PROVISION, WE NOTE THAT THERE WA S NO MECHANISM TO DETERMINE THE PURCHASE & SALE PRICE OF THE SHARE AT THAT THE RELEVANT TIME . THE LAWMAKERS TO DETERMINE THE TRANSFER VALUE OF UNQUOTED SHARE BROUGHT SPECIAL PROVISION BY INTRODUCING SECTION 50CA OF THE ACT WHICH READS AS UNDER: [ SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION FOR TRANSFER OF SHARE OTHER THAN QUOTED SHARE. 50CA. WHER E THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET, BEING SHARE OF A COMPANY OTHER THAN A QUOTED SHARE, IS LESS THAN THE FAIR MARKET VALUE OF SUCH SHARE DETERMINED IN SUCH MANNER AS MAY BE PRESCRIBED 40A , THE VALUE SO DETERMINED SHALL, FOR THE PURPOSES OF SECTION 48 , BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED O R ACCRUING AS A RESULT OF SUCH TRANSFER. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, 'QUOTED SHARE' MEANS THE SHARE QUOTED ON ANY RECOGNISED STOCK EXCHANGE WITH REGULARITY FROM TIME TO TIME, WHERE THE QUOTATION OF SUCH SHARE IS BASED ON CURRENT TRANSACT ION MADE IN THE ORDINARY COURSE OF BUSINESS. ] ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 25 19 .4 HOWEVER, SECTION 50CA IS APPLICABLE W.E.F. 01 ST APRIL 2018, THEREFORE, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THERE WAS NO MECHANISM UNDER THE LAW TO DETERMINE THE SALE PRICE OF UNQUOTED SHARES. SIMILARLY, THERE IS ALSO NO PROVISION UNDER THE PROVISION OF LAW TO DETERMINE THE PRICE, WHICH SHOULD BE TAKEN AS THE PURCHASE COST OF A CAPITAL ASSET. 19 .5 FURTHER, WE ALSO NOTE THAT THERE IS AN AMENDMENT UNDER THE PROVISIONS OF SECTION 56(2)(X) OF THE ACT WHICH READS AS UNDER: [(X) WHERE ANY PERSON RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS ON OR AFTER THE 1 ST DAY OF APRIL, 2017, --- XXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (C) ANY PROPERTY, OTHER THAN IMMOVABLE PROPERTY, ----- (A) WITHOUT CONSIDERATION, THE AGGREGATE FAIR MARKET VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE OF THE AGGREGATE FAIR MARKET VALUE OF SUCH PROPERTY; (B) FOR A CONSIDERATION WHICH IS LESS THAN THE AGGREGATE FAIR MARKET VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE AGGREGATE FAIR MARKET VALUE OF SUCH PROPERTY AS EXCEEDS SUCH CONSIDERATION: 19 .6 A PLAIN READING OF THE ABOVE PROVISION REVEALS THAT THE PERSON BEING THE RECIPIENT IS SUBJECT TO TAX IF IT ACQUIRES ANYTHING AT A VALUE LESSER THAN THE FAIR MARKET PRICE. THESE PROVISIONS HAVE BEEN BROUGHT UNDER THE STATUTE WITH EFFECT FROM 01.04.2017. WE ALSO NOTE THAT THE SAME PROVISION WAS ALSO THE RE IN THE OLD PROVISION UNDER CLAUSE ( VII ) TO SECTION 56(2) OF THE ACT . H OWEVER, ON READING THE SAME, WE NOTE THAT THE TAX LIABILITY , IF ANY ARISES WILL BE APPLICABLE IN THE HANDS OF THE RECIPIENT AND NO LIABIL ITY, CAN BE IMPOSED ON THE TRANSFEROR . T HEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE BEING THE TRANSFEROR OF SHARES CANNOT BE SUBJECT TO TAX IN THE INSTANT CASE. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 26 19 .7 IN HOLDING SO , WE ALSO FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF ASARA SALES AND INVESTMENTS PRIVATE LIMITED ( ITA NO. 1345/PUN/2014 ) WHEREIN IT WAS HELD AS UNDER: 19. ANOTHER ASPECT OF THE ISSUE IS THE ALLEGATION OF ASSESSING OFFICER THAT AS AGAINST BOOK VALUE OF SHARE AS ON 31.03.2008 AT RS.59.61 PER SHARE, THE SHARES OF GGDL WERE SOLD AT RS.48/ - PER SHARE TO ANOTHER GROUP CONCERN BVHPL. THESE SHARES WERE ACQUIRED BY THE ASSESSEE @ RS.74.25 IN DECEMBER, 2006. THE SAID TRANSACTION AS PER THE ASSESSING OFFICER SUGGESTED COLORABLE DEVICE SO THAT BY SELLING THE SHARES TO ITS OWN SUBSIDIARY, AT PRICES ABOVE OR BELOW THE BOOK VALUE, THE ASSESSEE WAS MANIPULATING THE INCOME TO REDUCE ITS TAX LIABILITY. FIRST OF ALL, AS DECIDED IN THE PARAS HEREINABOVE, THE SHARES HAVE NOT BEEN SOLD TO SUBSIDIARY OF THE ASSESSEE BUT TO A CONCERN F ROM WHOM THE ASSESSEE HAS RAISED LOAN TO THE EXTENT OF RS.18 CRORES AND THE DECISION WAS TAKEN TO REPAY THE LOAN AND ARREST THE PAYMENT OF INTEREST ON SUCH LOANS, THE SHARES OF THE GROUP CONCERN WERE SOLD IN OFF MARKET TRANSACTION TO BVHPL. THE SAID TRANSA CTION IS NOT A COLORABLE DEVICE. FURTHER, THE ASSESSEE HAS SOLD THE SHARES ON THE MARKET PRICE PREVAILING ON THE DATE OF SALE AND NO FAULT CAN BE FOUND WITH SUCH TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. IN CASE AS AGAINST THE MARKET VALUE, THE OTHER CONCER N HAD PURCHASED THE SHARES AT A HIGHER VALUE, THEN IT WOULD BE QUESTIONABLE, BUT IT IS NOT SO, IN THE PRESENT CASE AND HENCE, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN HOLDING THAT THE LOSS CLAIMED BY SELLING THE SHARES OF GGDL TO ITS 100% SUB SIDIARY BELOW THE BOOK VALUE SHOULD BE IGNORED WHILE SETTING IT OFF AGAINST THE OTHER INCOME, IF ANY, IN CURRENT YEAR OR FOR CARRY FORWARD AND SET OFF IN SUBSEQUENT YEARS. THE LOSS WAS WORKED OUT AT ( - ) RS.2,75,83,524/ - . WE REVERSE THE ORDERS OF ASSESSING OFFICER AND CIT(A) IN THIS REGARD AND HOLD THAT THE TOTAL LOSS ARISING ON THE SAID TRANSACTION CAN BE ADJUSTED AGAINST THE GAIN ARISING ON SALE OF UNQUOTED SHARES DURING THE YEAR AND BALANCE LOSS CAN BE CARRIED FORWARD AND SET OFF AGAINST ANY OTHER GAIN AR ISING IN THE SUBSEQUENT YEARS. 19.8 WE ALSO NOTE THAT IN THE CASE TAX NEEDS TO BE LEVIED ON THE SHARE CAPITAL & PREMIUM IS TAXABLE IN THE HANDS OF THE RECIPIENT. THE SHARE CAPITAL & PREMIUM C AN BE BROUGHT TO TAX UNDER THE PROVISIONS OF SECTION 56 (2) OR 68 OF THE ACT AS THE CASE MAY BE. BUT THERE IS NO PROVISION TO TAX THE INVESTMENT ALONG WITH SHARE PREMIUM AMOUNT IN THE HANDS OF THE PA YER OR INVESTOR . IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS INVESTED IN AKAL BY ACQUIRING THE SHARES AT A PREMIU M . THE A CT OF ACQUIRING THE SHARES AT A PREMIUM BY THE ASSESSEE DOES NOT RESULT IN ANY INCOME IN ITS HANDS. THUS THERE CANNOT BE ANY ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 27 TAX IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF THE INVESTMENT IN SHARES IN AKAL AT A PREMIUM . IN THIS REGARD , WE DRAW THE PRINCIPLES FROM THE ORDER OF MUMBAI TRIBUNAL IN THE CASE OF PRATIK SYNTEX PVT. LTD. VS. ITO REPORTED IN 94 TAXMANN.COM 12 WHEREIN THE HEADNOTE READS AS UNDER: SECTION 68 OF THE INCOME - TAX ACT, 1961 - CASH CREDITS (SHARE CAPITAL) - ASSESSMENT YEAR 2012 - 13 - DURING RELEVANT YEAR, ASSESSEE RECEIVED HUGE AMOUNT FROM THREE COMPANIES AS SHARE CAPITAL - ASSESSING OFFICER TAKING A VIEW THAT TRANSACTION OF ISSUE OF SHARE CAPITAL WAS BOGUS, ADDED SAID AMOUNT TO ASSESSEE'S TAXABLE INCOME UNDER SECTION 68 - IT WAS NOTED THAT EVEN THOUGH SHARES HAD BEEN ISSUED AT A VERY HIGH PREMIUM TO NEW SHAREHOLDERS, YET ASSESSEE COULD NOT EVEN GIVE CORRECT ADDRESSES OF THRE E APPLICANT COMPANIES WHERE THEY WERE LOCATED - FURTHER, ASSESSEE DID NOT FILE ANY COGENT MATERIAL/EVIDENCES TO JUSTIFY CHARGEABILITY OF SUCH A HUGE SHARE PREMIUM FROM THREE NEW SHAREHOLDERS VIS - A - VIS ISSUING SHARES AT PAR TO ORIGINAL PROMOTERS WITHIN SAME RELEVANT YEAR UNDER CONSIDERATION - IT WAS ALSO UNDISPUTED THAT THREE COMPANIES PAYING HUGE AMOUNT TO ASSESSEE, HAD MINISCULE PAID UP CAPITAL AND EARNED VERY SMALL PROFITS AND, THUS, THEY WERE NOT IN A FINANCIAL CONDITION TO SUBSCRIBE TO ASSESSEE'S SHARES AT SUCH A HIGH PREMIUM - WHETHER, IN AFORESAID CIRCUMSTANCES, ASSESSING OFFICER RIGHTLY CONCLUDED THAT ASSESSEE FAILED TO PROVE IDENTITY OF PARTIES AND GENUINENESS OF SHARE TRANSACTIONS AND, THUS, IMPUGNED ADDITION WAS TO BE CONFIRMED - HELD, YES [PARA 6] [IN FAVOUR OF REVENUE] 19.9 WE ALSO FEEL TO CLARIFY THAT THE ISSUE OF SHARES AT A PREMIUM IS THE PR EROG ATIVE OF AKAL WHICH CANNOT BE QUESTIONED . SIMILARLY , THE DECISION OF THE ASSESSEE TO SUBSCRIBE THE SHARES OF AKAL AT A PREMIUM IS ITS PR EROG ATIVE WHICH CANNOT BE QUESTIONED . THE ONLY TEST TO TREAT THE SUM OF SHARE CAPITAL AS INCOME UNDER SECTION 68 OF THE ACT OR 56 OF THE ACT AND THAT TOO IN THE HANDS OF THE REC IP IENT I.E. AKAL IN THE INSTANT CASE . IN THIS REGARD , WE FIND SUPPORT & GUIDANCE FROM TH E JUDGMENT OF MUMBAI TRIBUNAL IN THE CASE OF GREEN INFRA LIMITED VS. ITO REPORTED IN 38 TAXMANN.COM 253 WHEREIN IT WAS HELD AS UNDER: NO DOUBT A NON EST COMPANY OR A ZERO BALANCE COMPANY ASKING FOR A SHARE PREMIUM OF RS. 490 PER SHARE DEFIES ALL COMMERCIAL PRUDENCE, BUT AT THE SAME TIME ONE CANNOT IGNORE THE FACT THAT IT IS A PREROGATIVE OF THE BOARD OF DIRECTORS OF A COMPANY TO DECIDE THE PREMIUM AMOUNT AND IT IS THE WISDOM OF THE SHAREHOLDERS ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 28 WHETHER THEY WANT TO SUBSCRIBE TO SUCH A HEAVY PREMIUM. THE REVENUE AUTHORITIES CANNOT QUESTION THE CHARGING OF SUCH OF HUGE PREMIUM WITHOUT ANY BAR FROM ANY LEGISLATED LAW OF THE LAND. 19.10 THUS WE HOLD THAT THE INVESTMENT MADE BY THE ASSESSEE AT SUCH A HIGH PREMIUM AND SUBSEQUENT S ALE AT A LOSS CANNOT BE THE BASIS HOLDING THAT SUCH LOSS IS BOGUS IN THE GIVEN FACTS & CIRCUMSTANCES. 20. NOW THE 2 ND CONTROVERSY ARISES WHETHER THE LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF THE SALE OF THE SHARES OF AKAL IS THE RESULT OF THE COLORABLE DEVICE USED TO GENERATE SUCH LOSS. WE W ANT TO EXPLAIN SUCH LOSS INCURRED BY THE ASSESSEE WITH THE HELP OF AN EXAMPLE. 20.1 SUPPOSING MR . X AC QUIRES 10 SHARES OF ABC LTD HAVING A FACE VALUE OF 10 PER SHARE AT A PREMIUM OF RUPEES 490.00 PER SHARE IN THE FINANCIAL YEAR 2009 - 10 . ACCORDINGLY , MR . X HAS SHOWN AN INVESTMENT OF 5000 IN ITS BALANCE SHEET AS ON 31 . 3 . 2010. ON THE ACQUISITION OF THE SHARES , THERE IS NO QUESTION OF WORKING OUT ANY TAXABLE INCOME IN THE HANDS OF THE ASSESSEE. THUS THE VALUE OF THE INVESTMENT SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET WIL L CERTAINLY BE ACCEPTED BY THE R EVENUE. THERE CANNOT BE ANY QUESTION OF ANY INCOME IN THE HANDS OF MR. X ON ACCOUNT OF INVESTMENT IN ABC LTD. AT A PREMIUM . 20.2 HOWEVER, THE PROVISIONS OF THE ACT REQUIRES ABC LTD. TO JUSTIFY THE SHARE CAPITAL & SHARE PREMIUM IN ITS HANDS. ABC LTD. IS REQUIRED TO EXPLAIN THE SOURCE OF SHARE CAPITAL AND PREMIUM UNDER SECTION 68 OF THE ACT. SIMILA RL Y , ABC LTD. IS ALSO REQUIRED TO EXPLAIN THE SO UR CE OF SHARE PREMIUM IN ITS HANDS UNDER SECTION 56(2) OF THE ACT. THUS IF ABC LTD. FAILS TO JUSTIFY THE SAME UNDER THE RELEVANT SECTION 68/ 56(2) OF THE ACT, THEN IT WILL BE SUBJECT ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 29 TO TAX IN THE HANDS OF ABC LTD. THUS THE VALUE OF SH ARE PRICE ALONG WITH PREM IUM AT THE MOST CAN BE BROUGHT TO TAX IN THE HANDS OF THE ABC LTD IF IT FAILS TO JUSTIFY THE SAME. 20.3 NOW MR . X S ALES THE SHARES IN THE FINANCIAL YEAR 2012 - 13 SAY AT 15 0 PER SHARE. THE SALE PRICE OF THE SHARES WAS DETERMINED AS PER THE PROVISIONS OF R ULE 11 UA OF I NCOME T AX R ULE. ACCORDINGLY , THE ASSESSEE SHALL CLAIM THE LOSS OF 3 , 50 0.00 ( RS. 5000 - 1500 ) IN ITS BOOKS OF ACCOUNTS. THE QUESTION ARISES WHETHER THE LOSS CLAIMED BY THE ASSESSEE IS ALLOWABLE. THE ANSWER IS YES. IT IS BECAUSE THE PURCHASE VALUE CANNOT BE DISPUTED AND THE SALE PRICE OF THE SHARES WAS DETERMINED AS PER THE PROVISIONS OF I NCOME T AX R ULE. THEREFORE THE LOSS CLAIMED BY THE ASSESSEE IS WITHIN THE PROVISIONS OF THE I NCOME T AX ACT. 20.4 IN OUR CONSIDERED VIEW THE SAME LOGIC CAN BE APPLIED TO THE CASE ON HAND. HOWEVER , THE FACTS OF THE CASE IN HAND ARE A BIT DIFFERENT FROM THE EXAMPLE GIVEN ABOVE. IN T HE CASE ON HAND , THE SHARES W ERE SOLD WITHIN 5 DAYS FROM THE DATE OF ACQUISITION. ACCORDINGLY , THE LOSS WAS INCURRED IN THE SAME FINANCIAL YEAR IN WHICH THE ASSESSEE ACQUIRED THE SHARES . THE TRANSACTION RESULTIN G THE LOSS CREATES SUSPICION IN THE MIND THAT IT WAS GENERATED FOR THE PURPOSE OF THE LOSS IN ORDER TO SET OFF THE TAXABLE INCOME . NOW THE NEXT DOUBT ARISES THAT SUCH LOSS MUST HAVE BEEN SET OFF AGAINST THE INCOME. BUT THE FACT IS THAT THE ASSESSEE HAS NOT CLAIMED THE SET OF F OF SUCH LOSS IN THE YEAR UNDER CONSIDERATION . IN OUR CONSIDERED VIEW THIS FACT CANNOT BE IGNORED. IT IS BECAUSE IF THE ASSESSEE WOULD INTEND TO SET OF F OF SUCH LOSS IN THE SAME FINANCIAL YEAR , THEN IT WOULD HAV E DONE SO IN THAT YEAR ONLY. BUT THE ASSESSEE HAS NOT DONE SO. THUS HAD THERE BEEN ANY PLANNING OF THE ASSESSEE FOR CREATING SUCH BOGUS LOSS THAN IT SHOULD HAVE CLAIMED THE SET OFF OF SUCH LOSS IN THAT YEAR ONLY. IT IS ALSO ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 30 PERTINENT TO NOTE THAT SUCH LOSS WAS NOT SET OFF TILL THE DATE OF THE PASSING OF THE ORDER BY THE LD. CIT - A DATED 16 - 11 - 2015 . 20.5 WE ALSO NOTE THAT THE ASSESSEE ACQUIRED THE SHARES AT THE FAG END OF THE FINANCIAL YEAR WHICH WAS SOLD IMMEDIATELY AFTER THE ACQUISITION WHICH RESULTED IN T HE LOSS AS DISCUSSED ABOVE , BUT THE SAME WAS NOT SET OFF AGAINST ANY OTHER INCOME. 20.6 IN ADDITION TO THE ABOVE , WE ALSO NOTE THAT THE ASSESSEE COULD HAVE SPLIT THE TRANSACTION INTO TWO FINANCIAL YEARS BY ACQUIRING THE SHARES OF AKAL IN ONE YEAR AND SELLING THE SAME IN THE YEAR OF SET O F F OF SUCH LOSS. SO THAT THERE SHOULD NOT HAVE BEEN ANY QUESTION OF ANY DISALLOWANCE. ON THE CONTRARY , THE ASSESSEE HAS NOT DONE SO RATHER INCURRED THE LOSS WITH IN 5 DAYS FROM THE ACQUISITION OF THE SHARES. IT IS ALSO PERTINENT TO NOTE THAT THE SHARES WERE ACQUIRED AT THE FAG E ND OF THE PREVIOUS YEAR , AND THERE WERE FEW DAYS LEFT FOR THE EXPIRY OF SUCH FI NANCIAL YEAR . THE ASSESSEE COULD HAVE PLANNED SUCH TRANSACTION BY SPLITTING IN TO 2 DIFFERENT FINANCIAL YEARS AS I T WAS THE MATTER OF FEW DAYS ONLY. THUS THE ACTION OF THE ASSESSEE DOES NOT SHOW ANY MALAFIDE IN TENTION TO USE THE S ALE OF SHARES AS THE COLOURABLE DEVICE IN CREATING SUCH A LOSS . ACCORDINGLY , WE ARE OF THE VI EW THAT HAD THER E BEEN ANY MALAF IDE INTENTION OF THE ASSESSEE THEN IT COULD HAVE BOOKED SUCH LOSS IN THE MORE PLANNED MANNER SO THAT THERE SHOULD NOT HAVE BEEN ANY DOUBT. WE ARE FORMING OUR VIEW ON THE BASIS THAT THE ASSESSEE DID NOT SET OF F SUCH LOSS TILL THE DATE OF PASSING THE ORDER BY THE LEARN E D CI T - A. HAD THERE BEEN ANY MALAFID E INTENTION OF THE ASSESSEE , THE N IT COULD HAVE CLAIMED THE SET OF F OF SUCH LOSS IN THE SAME FINANCIAL YEAR OR THE SUBSEQUENT FINANCIAL YEAR. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 31 20.7 SIMILARLY, W E ALSO NOTE THAT THE FUTURE INCOME UNDER THE HEAD CAPITAL GAIN CANNOT BE PREDICTED FOR CLAIMI N G THE SET OFF OF SUCH LOSS. MOREOVER, THERE WAS NO ALLEGATION OF THE REVENUE THAT SUCH LOSS WAS CREATED TO CLAIM THE SET OFF OF THE FUTURE INCOME. THE FUTURE INC OME IS UNSEEN AND UNPR E DICTABLE AND IT WAS NOT POSSIBLE TO DESIGN THE SAME IN THE RELEVANT YEAR . THEREFORE, WE ARE OF THE VIEW THAT SUCH LOSS CANNOT BE DISALLOWED KEEPING IN MIND THE FUTURE INCOME OF THE ASSESSEE. 20.8 THUS SIMPLY THE TRANSACTION WAS CARRIED OUT AMONG THE REL A TED PARTIES CAN NOT THE GROUND TO HOLD THAT THE LOSS CLAIMED BY THE ASSESSEE IS BOGUS. THE TAXABILITY OF THE TRANSACTION HAS TO BE SEEN AS PER THE PROVISION OF THE ACT. IT CANNOT BE DECIDED BASED ON EMOTIONS AND THE MORAL OF THE ASSESSEE. IN THIS REGARD WE FIND SUPPORT & GU IDANCE FROM THE JUDGMENT OF HON BLE APEX COURT IN THE CASE OF CIT VS. A. RAMAN & CO. REPORTED IN 67 ITR 11 WHEREIN IT WAS HELD AS UNDER: AVOIDANCE OF TAX LIABILITY BY SO ARRANGIN G COMMERCIAL AFFAIRS THAT CHARGE OF TAX IS DISTRIBUTED IS NOT PROHIBITED. A TAXPAYER MAY RESORT TO A DEVICE TO DIVERT THE INCOME BEFORE IT ACCRUES OR ARISES TO HIM. EFFECTIVENESS OF THE DEVICE DEPENDS NOT UPON CONSIDERATIONS OF MORALITY, BUT ON THE OPERATI ON OF THE ACT. LEGISLATIVE INJUNCTION IN TAXING STATUTES MAY NOT, EXCEPT ON PERIL OF PENALTY, BE VIOLATED , BUT IT MAY LAWFULLY BE CIRCUMVENTED . 20.9 THUS FROM THE ABOVE , WE NOTE THAT THE CONDUCT OF THE ASSESSEE IS SUGGESTING THAT THE LOSS WAS NOT CREA TED PURPOSEFULLY TO MEET SOME MALAFI D E PURPOSES. 21. WE ALSO WANT TO EXPLAIN SUCH LOSS INCURRED BY THE ASSESSEE WITH THE HELP OF ANOTHER EXAMPLE. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 32 21.1 SUPPOSING MR. X, A TRADER IN SHARES, ACQUIRES 10 SHARES OF ABC LTD HAVING A FACE VALUE OF 10 PER SHARE AT A PREMIUM OF RUPEES 490.00 PER SHARE IN THE FINANCIAL YEAR 2009 - 10. ACCORDINGLY, MR. X HAS SHOWN STOCK IN TRADE AT 5000 IN ITS BOOKS OF ACCOUNTS. FURTHER MR. X REQUIRES TO VALUE SUCH STOCK IN TRADE IN THE BALANCE SHEET AS ON 31.3.2010 WHI CH COMES TO RS. 1500 . 00. T HUS THERE SHALL BE A LOSS OF RS. 3500 TO THE ASSESSEE WHICH WILL BE ALLOWED TO HIM AS A BUSINESS LOSS. 21.2 BUT IN CASE MR. X CLASSIFIED THE SHARES IN ITS BALANCE SHEET AS AN INVESTMENT THEN THE LOSS CANNOT BE ALLOWED TO HIM ON ACCOUNT DEVALUATION OF THE INVESTMENT AT THE YEAR - END UNLESS MR. X SELLS THESE . THUS THE LOSS ALLOWABLE TO THE TRADER OF SHARES CANNOT BE DISALLOWED IF SUCH SHARES WERE HELD AS AN INVESTMENT . BUT SUCH LOSS WILL BE ALLOWED ONLY ON THE SALE OF SUCH SHARES. 21.3 WE ALSO FIND SUPPORT & GUIDANCE FROM THE ORDER OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ORBIT F IN M ARK PVT. LTD. IN ITA 100/AHD/1999 DATED 9/11/2012 WHEREIN IT WAS HELD AS UNDER : 10. AFTER HEARING BOTH T HE PARTIES AND PERUSING THE RECORD WE FIND THAT LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY HOLDING THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE HON'BLE CALCUTTA HIGH COURT DECISION IN THE CASE OF CIT VS. SMT. NANDINI NOPANY (230 ITR 679), THE RELEVANT PORTION OF WHICH READS AS UNDER: - 'THE GENUINENESS OF THE TRANSACTION OF THE SALE AND PURCHASE OF THE SHARES BETWEEN THE ASSESSEE AND VISHWA MANGAL T RADING CO. PVT. LTD., HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THIS HAS NOT EVEN BEEN QUESTIONED BY THE DEPARTMENT. IT IS NOT DISPUTED THAT THE ASSESSEE HAD TRANSFERRED THOSE SHARES AT THE BOOK VALUE COST MAINTAINED BY HER. IT IS ALSO NOT DISPUTED TH AT THE BOOK VALUE COST WAS LOWER THAN THE MARKET VALUE OF THE SHARES. IN FACT IT IS ADMITTED THAT THE MARKET VALUE OF THOSE SHARES WAS TO THE TUNE OF RS.20,67,876/ - . ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 33 UNDER THOSE CIRCUMSTANCES, HOLDING THAT THE ASSESSEE HAD DERIVED ANY INCOME, BEING THE DIF FERENCE BETWEEN THE MARKET VALUE AND THE PRICE ON WHICH THE SHARES WERE SOLD BY THE ASSESSEE, IN OUR OPINION, WAS NOT CORRECT. WE ARE OF THE VIEW THAT THE TRIBUNAL RIGHTLY UPHELD THE FINDING OF THE COMMISSIONER OF INCOME - TAX (APPEALS). IT IS NOT A CASE WHE RE ANY UNDERSTATEMENT OF VALUE OR MISSTATEMENT OF VALUE OF THE SHARES SOLD WAS MADE BY THE ASSESSEE . THIS IS A CASE WHERE THE ASSESSEE HAD SOLD THE SHARES AT A VALUE ADMITTEDLY LOWER THAN THE MARKET PRICE. YET THE SHARES COULD NOT BE ASSESSED ON THE DIFFER ENCE AMOUNT BEING HER INCOME BECAUSE NO INFERENCE CAN BE DRAWN IN THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE DESIGN OF THE ASSESSEE WAS SUCH THAT SHE CONCEALED CERTAIN FACTS AND SHE RECEIVED THE DIFFERENCE OF THE VALUE BY FRAUDULENT MEANS. THERE WAS NO EVIDENCE DIRECT OR INFERENTIAL, NOR WAS THERE ANY FINDING BY ANY INCOME - TAX AUTHORITY THAT THE ASSESSEE INDULGED IN SUCH A PRACTICE. WE ARE FORTIFIED IN OUR VIEW BY A JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. SHIVAKAMI CO. PVT. LTD . [1986] 159 ITR 71 (SC). WE ALSO FIND SUPPORT IN OUR VIEW FROM A DIVISION BENCH JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF INDIA FINANCE AND CONSTRUCTION CO. PVT. LTD. V. B.N . PANDA, DY. CIT[1993] 200 ITR 710.' A.Y. 1994 - 95 WE FURTHER FIND THAT THE ORDER OF LD. CIT(A) IS IN CONFORMITY WITH THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF MARGHABHAI KISHABHAI PATEL & CO. (SUPRA) WHEREIN HON'BLE COU RT REFERRED TO THE CASE OF MADRAS HIGH COURT IN THE CASE OF RAMLINGA CHOODAMBIKAI MILS LTD. VS. CIT (1955) 281 ITR 952 AND THAT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. KESHAVLAL CHANDULAL (1996) 59 ITR 120 AND HELD AS UNDER: - 'IN ABSENCE OF EVIDENCE TO SHOW EITHER THAT THE SALES WERE SHAM TRANSACTION OR THAT THE MARKET PRICE WERE IN FACT PAID BY THE PURCHASERS, THE MERE FACT THAT GOODS WERE SOLD AT A CONCESSIONAL RATE TO BENEFIT TO PURCHASER AT THE EXPENSES OF THE COMPANY WOULD NOT ENTITLED TO INCOME - TAX DEPARTMENT TO ASSESS THE DIFFERENCE BETWEEN MARKET PRICE AND PRICE PAID BY THE PURCHASER AS PROFIT OF THE COMPANY.' 11. IN VIEW OF THE ABOVE AND SINCE NO CONTRARY DECISION WAS CITED BY THE REVENUE , W E ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) DELETING THE ADDITION OF RS.14,14,06,326/ - AND THE SAME IS HEREBY UPHELD . THIS GROUND OF THE REVENUE IS DISMISSED . 21.4 FURTHER, IN ALMOST IN A SIMILAR CASE HON BLE GUJARAT HIGH COURT IN CASE OF ASSISTANT COMMISSIONER OF INCOME - TAX VS. BIRAJ INVESTMENT (P.) LTD ( 24 TAXMANN.COM 273) HELD AS UNDER: ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 34 14. HAVING THUS HEARD THE LEARNED COUNSEL FOR THE PARTIES, WE FIND THAT THE RELEVANT FACTS ARE NOT IN DISPUTE. THE RESPONDENT ASSESSEE SOLD SHARES OF RUSTOM MILLS AND INDUSTRIES LTD FOR A SUM OF RS.4,01,000/ - ON WHICH TRANSACTION , THE ASSESSEE CLAIMED LONG TERM CAPITAL LOSS OF RS.8,38,790/ - . DURING THE SAME PERIOD, THE ASSESSEE ALSO SOLD CERTAIN SHARES OF RUSTOM SPINNERS LTD. AND SHOWED LONG TERM CAPITAL GAIN OF RS.1,46,792 AND SHORT TERM CAPITAL GAIN OF RS.7,41,563/ - . IT IS ALSO NOT IN DISPUTE THAT THE SHARES OF RUSTOM MILLS AND INDUSTRIES LTD. WERE PLEDGED BY THE ASSESSEE WITH IDBI BANK. THE ORIGINAL SHARE CERTIFICATES ALONG WITH THE TR ANSFER FORM DULY SIGNED BY THE ASSESSEE WERE IN POSSESSION OF THE IDBI BANK. THE ASSESSEE HAD ALSO UNDERTAKEN NOT TO TRANSFER SUCH SHARES. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 17. WE ARE NOT INCLINED TO ACCEPT THE REVENUE'S CONTENT ION THAT THIS WAS A COLOURABLE DEVICE AND THAT THE ENTIRE ARRANGEMENT WAS A PAPER ARRANGEMENT. FIRSTLY, THERE IS NO PROVISION IN THE ACT WHICH WOULD PREVENT THE ASSESSEE FROM SELLING LOSS MAKING SHARES. SIMPLY BECAUSE SUCH SHARES WERE SOLD DURING THE PREVI OUS YEAR WHEN THE ASSESSEE HAD ALSO SOLD SOME SHARES AT PROFIT BY ITSELF WOULD NOT MEAN THAT THIS IS A CASE OF COLOURABLE DEVICE OR THAT THERE IS A CASE OF TAX AVOIDANCE. FURTHER, THERE IS NO RESTRICTION THAT SUCH SALE OR TRANSACTION CANNOT BE EFFECTED WIT H A GROUP COMPANY. AS LONG AS THE REVENUE COULD NOT DOUBT THE SALE PRICE OF THE SHARES, IT WOULD NOT BE OPEN FOR THE REVENUE TO CONTEND THAT THE ASSESSEE HAD SHOWN LOSS WHICH IT DID NOT REALLY SUFFER. IN THE PRESENT CASE, IT IS NOT EVEN THE CASE OF THE REV ENUE THAT SHARES WERE SOLD AT A PRICE LOWER THAN THE MARKET RATE. IF THAT BE SO, THE QUESTION OF INFLATING THE LOSS BY TRANSFERRING THE SHARES TO GROUP COMPANY WOULD NOT ARISE. UNDER ORDINARY CIRCUMSTANCES, IT IS ALWAYS OPEN TO THE ASSESSEE IN HIS OWN WISD OM TO EITHER HOLD ON TO CERTAIN BUNCH OF SHARES OR TO SELL THE SAME TO AVOID FURTHER LOSS, IF HE FINDS THAT MARKET VALUE OF THE SHARES IS FAST DIMINISHING. IT IS EQUALLY OPEN FOR THE ASSESSEE TO EFFECT SUCH SALE DURING THE SAME YEAR WHEN HE ALSO CHOOSES TO DISPOSE OF CERTAIN PROFIT MAKING SHARES. IN THE PRESENT CASE, OF COURSE, THERE IS A FURTHER ANGLE OF THE SHARES IN QUESTION BEING PLEDGED TO IDBI AND THEREFORE IT WOULD NOT BE POSSIBLE FOR THE ASSESSEE TO DELIVER THE ORIGINAL SHARE CERTIFICATES TO ITS PUR CHASER ALONG WITH THE DULY SIGNED TRANSFER FORMS. AS ALREADY NOTED, SUCH SPECIAL ANGLE MAY HAVE REPERCUSSION INSOFAR AS THE LEGAL RELATION BETWEEN THE ASSESSEE AND THE IDBI IS CONCERNED AND INSOFAR AS THE PURCHASER'S RIGHT TO HAVE SHARES TRANSFERRED IN ITS NAME IS CONCERNED. THIS , HOWEVER, BY ITSELF WOULD NOT ESTABLISH THAT THE SALE OF SHARES WAS ONLY A PAPER TRANSACTION AND A DEVICE CONTRIVED BY THE ASSESSEE TO CLAIM LOSS WHICH IT DID NOT SUFFER AND THEREBY SEEK SET OFF AGAINST THE CAPITAL GAIN RECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION. 18. IN THE CASE OF CIT V. SAKARLAL BALABHAI [1968] 69 ITR 186 (RAJ.), A DIVISION BENCH OF THIS COURT OBSERVED THAT AVOIDANCE OF TAX CANNOT INCLUDE EVERY CASE OF REDUCTION OF TAX LIABILITY OF AN ASSESSEE. THE ASSESSEE MAY ENTER INTO A TRANSACTION WHICH HAS THE EFFECT OF DIMINISHING HIS INCOME AND CONSEQUENTLY REDUCIN G HIS TAX LIABILITY. IN SUCH A CASE, THERE WOULD BE NO AVOIDANCE OF TAX, FOR EXAMPLE, A CASE WHERE THE ASSESSEE MAKES A GIFT OF SHARES TO HIS SON. BY REASON OF GIFT INCOME FROM THE SHARES WOULD NOT ACCRUE TO THE ASSESSEE BUT WOULD ACCRUE TO THE SON AND TO THAT EXTENT THE INCOME OF THE ASSESSEE WOULD BE DIMINISHED AND HIS TAX LIABILITY REDUCED. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 35 THIS CANNOT BE REGARDED AS A CASE OF TAX AVOIDANCE EVEN IF THE MOTIVE OF THE ASSESSEE IN MAKING THE GIFT WAS TO SAVE TAX ON THE INCOME FROM SHARES AT A HIGHER RATE AP PLICABLE TO HIM. 19. UNDER THE CIRCUMSTANCES, EVEN WITHOUT REFERRING TO THE DECISION OF THE APEX COURT IN THE CASE OF AZADI BACHAO ANDOLAN ( SUPRA ) AND THE OBSERVATIONS MADE IN THE LATER DECISION IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGSS B.V. ( SUPRA ) , WE DO NOT FIND THAT THIS A CASE WHICH WOULD FALL WITHIN THE PARAMETERS OF THE DECISION IN THE CASE OF MCDOWELL & LTD ( SUPRA ). 21.5 IN VIEW THE ABOVE THE LOSS OF RS. 3,50 CRORES CANNOT BE TREATED AS GENERATED THROUGH THE USE OF COLRABLE DECVICE. THE ONLY ALLEAGATION OF THE REVENUE WAS THAT THE LOSS WAS GENERATED AS A DEVICE OF COULORABLE TOOL. HOWEVER, WE DISAGREE WITH THE REASONING OF LOWER AUTHORITIES. 21.6 REGARDING THE GROUND OF REVENUE, WE NOTE THAT THE ASSESSEE DID NOT UTILIZE HIS RIGHT TO ACQUIRE THE SHARES AGAINST THE SHARE WARRANT ON THE GROUND THAT THE PRICE OF ARVIND LTD WAS FALLEN SUBSTANTIALLY. AS SUCH THE ASSESSEE WAS UNDER THE OBLIGATION TO ACQUIRE THE SHARES AT THE RATE OF 52 PER SHARE WHICH WAS QUITE HIGH IN COMPARISON TO THE MARKET RATE. THERE IS NO DOUBT ABOUT THE MARKET RATE OF THE SHARE OF ARVIND LTD AS DISCUSSED ABOVE IN DETAIL. THEREFORE, THE ASSESSEE DID NOT EXERCISE HIS RIGHT TO ACQUIRE THE SHARES AGAINST THE SHARE WARRANT OTHERWISE THE ASSESSEE WOULD HAVE INVESTED MORE MONEY BY ACQUIRING SHARES AT A HIGHER VALUE. THE TRANSACTION CARRIED OUT AMONG THE PARTIES HAS NOT BEEN DOUBTED , AND THE SAME IS SUPPORTED ON THE BASIS OF SUPPORTING PIECES OF EVIDENCE . THEREFORE, WE ARE OF THE VIEW THAT THE LOSS CLAIMED BY THE ASSESSEE I S WITHIN THE PURVIEW OF LAW. 21.7 WE ALSO NOTE THAT DURING THE YEAR UNDER CONSIDERATION THERE WAS ANOTHER FORFEITURE OF THE WARRANT OF ARVIND LTD ON WHICH ASSESSEE INCURRED A LONG - TERM LOSS OF RS. 4 , 59 , 949/ - WHICH WAS ALLOWED BY THE AO . BUT , NO ADDITION ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 36 WAS MADE BY THE AO. THE RELEVANT EXTRACT OF THE AO ORDER IS REPRODUCED AS UNDER: SR. NO. NAME OF SECURITY DATE OF INVESTMENTS NO. OF SHARES PURCHASES PURCHASE VALUE PRICE/SH ARES DATE OF SALES NO. OF SHARE SOLD VALUE OF SALES SALES VALU E PER UNIT INDEXE D COST PROFIT/ LOSS 2 WARRANTS 26/03/08 400000 401001 1.00 17/05/09 400000 FORFEITED 1 459950 21.8 IT IS ALSO PERTINENT TO MENTION HERE THAT AO DID NOT MAKE ANY ADDITION EVEN AFTE R CONDUCTING THE I NQUIRY FOR THE LONG - TERM LOSS ON FORFEITURE OF THE WARRANT OF ARVIND LTD AS EVIDENT FROM THE ORDER OF AO ITSELF , BUT HE RESTRAINED HIMSELF FROM MAKING ANY ADDITION. 21.9 AO ALSO ALLEGED THAT ASSESSEE USED THESE TRANSACTIONS AS A COLORABLE DEVICE TO REDUCE ITS TAX LIABILITY. HOWEVER, WE HAVE ALREADY DECIDED THIS IN PARA 6 OF THIS ORDER WHILE ADJUDICATING THE GROUND NO 1, THE SAME PRINCIPLE AND FACTS ARE APPLICABLE IN THESE GROUNDS ALSO. THEREFORE, AO IS NOT CORRECT IN HOLDING THAT THESE TRA NSACTIONS ARE USED AS A COLORABLE DEVICE. 21.10 IN VIEW OF ABOVE, WE ARE OF THE VIEW THAT THE LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF SALE OF SHARES AND EXTINGUISHMENT OF ITS RIGHT CANNOT BE HELD AS A COLORABLE DEVICE. WE ALSO NOTE THAT THE LOSS CLAIM ED BY THE ASSESSEE HAS NOT BEEN SET OFF AGAINST ANY INCOME TILL THE DATE OF PASSING THE ORDER OF THE LD. CIT - A . THUS THE LOSS INCURRED BY THE ASSESSEE CANNOT BE DENIED MERELY ON THE GROUND THAT THE ASSESSEE GENERATED SUCH LOSS TO SET OFF THE FUTURE INCOME. IT IS ALSO PERTINENT TO NOTE THAT HAD THERE BEEN ANY PLANNING OF THE ASSESSEE TO SET OFF THE LOSS AGAINST THE INCOME THEN HE SHOULD HAVE SET OFF THE SAME BY THEN . THE LEARNED DR HAS NOT BROUGHT ANYTHING ON RECORDS SUGGESTING THAT THE ASSESSEE HAS SET OFF THE LOSS AS DISCUSSED ABOVE TILL THE DATE OF PASSING THE ORDER . ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 37 21.11 THEREFORE, WE ARE NOT INCLINED TO UPHOLD THE ORDER OF AUTHORITIES BELOW FOR SHORT - TERM CAPITAL LOSS ON SALE O F SHARES OF AKAL FOR RS. 3,50,00,000/ - AND UPHOLD THE ORDER OF LD. CIT(A) F OR THE LOSS ON SALE OF THE WARRANT OF RS. 36,19,050/ - . ACCORDINGLY , WE DIRECT THE AO TO DELETE THE ADDITION FOR RS. 3,86,19,050/ - . H ENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED , AND GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 22 . THE 3 R D ISSUE OF THE ASSESSEE AND THE 2 ND ISSUE IN REVENUE APPEAL ARE INTERCONNECTED , AND THE LD. CIT( A ) PASSED COMMON ORDER . THEREFORE, WE HAVE CLUBBED THEM TOGETHER FOR ADJUDICATION AND CONVENIENCE. 22.1 THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 3 IS THA T LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF 11,82,418.00 OUT OF THE TOTAL DISALLOWANCE OF 58,77,294.00 UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULE WHEREAS THE R EVENUE IS IN APPEAL AGAINST THE DELETION OF THE ADDITION MADE BY THE AO FOR RS. 46,94,876.00 UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULE. 22.2 THE ASSESSEE DURING THE YEAR HAS EARNED DIVIDEND INCOME OF 31 , 25 , 760 / - WHICH WAS CLAIMED AS EXEMPT INCOME UNDER SECTION 10(34) OF THE ACT. THE ASSESSEE IN RESPECT OF SUCH INCOME HAS MADE THE FOLLOWING DISALLOWANCES IN ITS INCOME TAX RETURN. 1. INTEREST EXPENSES 1,47,18,116.00 2. ADMINISTRATIVE EXPENSES 3,25,000.00 ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 38 22.3 HOWEVER, THE AO VIDE ORDER SHEET ENTRY DATED 23 RD NOVEMBER 2012 PROPOSED TO MAKE THE DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULE. 22.4 THE ASSESSEE IN RESPONSE TO THE NOTICE ISSUED BY THE AO INTER - ALIA SUBMITTED VIDE LETTER DA TED 18 TH OF DECEMBER 2012 THAT ITS FUNDS EXCEED THE AMOUNT OF INVESTMENT AS ON 31 ST MARCH 2010. AS PER THE ASSESSEE , ITS FUNDS AS ON 31 ST MARCH 2010 IS OF 1 , 89 , 06 , 41 , 542 / - WHEREAS ITS INVESTMENT AS ON 31 ST MARCH 2010 STANDS AT 1 , 37 , 30 , 44 ,257 / - ONLY . THUS THE ASSESSEE CLAIMED THAT NO DISALLOWANCE OF INTEREST EXPENSES C OULD BE MADE . 22.5 THE ASSESSEE WITHOUT PREJUDICE TO THE ABOVE ALSO SUBMITTED THAT IF THE DISALLOWANCE OF INTEREST EXPENSE NEEDS TO BE MADE THEN INTEREST EXPENSE NET OF INTEREST INCOME S HOULD BE CONSIDERED FOR DISALLOWANCE. 22.6 THE ASSESSEE REGARDING THE ADMINISTRATIVE EXPENSES SUBMITTED THAT IT HAS CLAIMED EXPENSES TO THE TUNE OF 15,07,418.00 ONLY IN THE PROFIT & LOSS ACCOUNT . THE ASSESSEE FURTHER EXPLAINED THAT IT HAS ALREADY MADE DISALLOWANCE OF 3 , 25,000 / - OUT OF SUCH EXPENSES. THEREFORE, THE ASSESSEE CLAIMED THAT NO FURTHER DISALLOWANCE C OULD BE MADE ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 22.7 THE ASSESSEE FURTHER SUBMITTED THAT THERE C OULD NOT BE ANY DISALLOWANCE OF THE ADMINI STRATIVE EXPENSES EXCEEDING THE EXPENSES CLAIMED IN THE INCOME TAX RETURN. AS SUCH THE ASSESSEE CLAIMED THAT I T HA D CLAIMED THE EXPENSE OF 15,0 7 ,418/ - ONLY, THEREFORE, THERE IS NO QUESTION OF MAKING THE DISALLOWANCE OF 62 , 02 , 294 / - IN RESPECT OF ADMINIST RATIVE EXPENSES. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 39 22.8 HOWEVER, THE AO DISAGREED WITH THE CONTENTION OF THE ASSESSEE AND WORKED OUT THE DISALLOWANCE OF THE EXPENSES UNDER SECTION 14A READ WITH RULE 8D AS DETAILED UNDER: 1. DIRECT EXPENSES UNDER RULE 8D(A)(I) NIL 2. INTEREST EXPENSES UNDER RULE 8D(A)(II) 1,47,18,116.00 3. ADMINISTRATIVE EXPENSES UNDER RULE 8D(A)(III) 62,02,294.00 TOTAL 2,09,20,410.00 22.9 IN VIEW OF THE ABOVE , THE AO DISALLOWED THE BALANCE AMOUNT OF 58,77,294.00 (20920410 - 15043116 , I.E. AMOUNT ALREADY DISALLOWED BY THE ASSESSEE) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 23 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CIT ( A ) . THE ASSESSEE BEFORE THE LEARNED CIT(A) SUBMITTED THAT ITS FUNDS ARE MORE THAN THE AMOUNT OF INVESTMENT . T HEREFORE , THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES. 23 .1 BESIDES THE ABOVE THE ASSESSEE BEFORE LD. CIT(A) ALSO SUBMITTED THAT IF ANY DISALLOWANCE NEEDS TO BE MADE ON ACCOUNT OF INTEREST EXPENSES , THEN INTEREST EXPENSES NET OF INTEREST INCOME SHOULD BE CONSIDERED. 23 .2 THE ASSESSEE REGARDING ADMINISTRATIVE EXPENSES SUBMITTED THAT I T HAS CLAIMED EXPENSES OF 15, 07,418.00 ONLY IN ITS PROFIT & LOSS ACCOUNT. THEREFORE, THE DISALLOWANCE CANNOT EXCEED SUCH AMOUNT OF THE EXPENSES CLAIMED IN THE INCOME TAX RETURN. THE A SSESSEE ALSO CLAIMED THAT IT HAS SUO - MOTO DISALLOWED A SUM OF 3 , 25,000.00 AND NO DEFECT WAS POINTED OUT BY THE AO REGARDING THIS. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 40 23 .3 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO IN PART BY OBSERVING AS UNDER: SO FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III) IS' CONCERNED, IF IS OBSERVED THAT ASSESSING OFFICER HAS COMPUTED SUCH D/ SA / TOWANCE AT RS.62,02,294 BEING 0.5% OF AVERAGE INVESTMENTS. ON CAREFUL CONSIDERATION OF PROFIT & LOSS ACCOUNT SUBMITTED BY APPELLANT IS OBSERVED THAT APPELLANT WAS DEBITED OPERATING AND OTHER EXPENSES AS WELL AS LOAN PROCESSING FEE OF RS,98,78,058 IN PROFIT & LOSS ACC OUNT OUT OF WHICH MAJOR EXPENDITURE IN FORM OF FEES FOR INCREASE IN AUTHORIZED SHARE CAPITAL FOR RS. 63,97,821, DONATION OF RS.12,50,000 AND LOSS ON STATE OF ASSET FOR RS.1,21,101, ETC., ARE ALREADY DISALLOWED, WHILE FILING RETURN OF INCOME AND ONL Y EXPEND ITURE OF RS.15,07,415 ARE CLAIMED. IT I S SETTLED LEGAL LAW THAT DISAL LO WANCE UNDER SECTION 14A CANNOT EXCEED EXPENDITURE DEB/TED AND CLAIMED IN PROFIT & LOSS ACCOUNT THE HON'BLE ANMEDABAD ITAT IN IDENTICAL CAKE OF ADANI PORT INFRASTRUCTURE PVT. LTD, (I.TA NO. L383/AHD/2013) HAS HELD AS UNDER: FURTHER OUR ATTENTION HAS ALSO BEEN DRAWN ON THE P &L I A/C DRAWN ON 31ST MARCH, 2008 ACCORDING TO WHICH THE ASSESSEE HAS CLAIMED EXPENDITURE IN RESPECT OF FILLING FEES, DEMAT CHARGES, FINANCE CHARGES ETC . AS FOLLOWS: FILLING FEES 126950 DEMAT CHARGES 657548 LEGAL EXPENSES 48236 MISCELLANEOUS EXPENSES -- FINANCE CHARGES 48182348 PRELI MINARY EXPENSES WRITTEN OFF 4292 54 . TOTAL 49619556 5,2 AS AGAINST THAT THE INCOME OF THE ASSESSES WAS EARNED FROM PROFESSIONAL FEES OF RS.6,75,000 / - . THE ASSESSEE HAD DISALLOWED THE AFORELISTED EXPENDITURE AS WE HA VE NOTED FROM THE COMPUTATION OF INCOME FURNISHED ALONG WITH RETURN . ON THOSE VERY FACTS, THE RESPECTED COORDINATE BENCH DE/W IN THE CASE OF GILLETE GROUP INDIA (SUPRA) HAS OPINED AS UNDER - '5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENT OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. SECTION 14 A REA DS AS UND ER: - 'E XPENDITURE INCURRED IN RELATION TO INCOME - NOT INCLUDIBLE IN TOTAL INCOME . 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 PORT OF THE & TOTA L INCOME UNDER THIS ACT,] [(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT \ OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TO TAL & INCOME UNDER THIS ACT IN AC CORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED; IF THE ASSESSING OFFICER, ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 41 HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE , ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE P ROVISIONS OF SUB - SECTION (2) SHA LL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT] [PROVIDED THAT NOTHING CONTAINED IN THIS[ - $QCTIOFR SHALL EMPOWER TH& ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASI NG THE LIABILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1 DAYS OF APRIL 2001] 6. FROM THE ABOVE, IT IS EVIDENT THAT AS PER SUB SECTION OF SECT/ON F 4A, NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EXPENDITURE, INCURRED BY THE ASSESSES IN RELATION TO INCOME. SUB - SECTION (2) OF SECTION 14A PROVIDES THE PROCEDURE FOR DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER. - THE BEGIRD HAS A/SO PRESCRIBE D RULE 8D FOR DETERMINING THE EXPENDITURE INCURRED BY THE ASSESSES FOR EARNING OF EXEMPT INCOME. THUS, THE DISALLOWA NCE EXPENDITURE CAN BE MADE UNDER SUB - SECTION (1) FOR THE EXPENDITURE INCURR ED FOR EARNING OF EXEMPT INCOME I N THE CASE UNDER APPEAL BEFORE US, FROM THE PERUSAL OF THE ASSESSEE S PROFIT & LOSS A CCOUNT, IT IS EVIDENT THAT THE TOTAL EXPENDITURE INCURRED WAS RS,49,04,028/ - ONLY. THUS, THE ASSESSES CLAIMED THE DEDUCTION FOR THE EXPENDITURE OF R$.49,04,028/ -- WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE DISALLOWANCE CANNOT EXCEED THE EXPENDIT UR E ACTUALLY CLAIMED BY THE ASSESSES . WE, THEREFORE, ACCEPT THE ASSESSEE S CONTENTIONS THAT THE DISALLOWANCE MADE BY THE AS SESSING OFFICER AND SUSTAINED.BY THE L EARNED CIT(A) IN EXCESS OF TOTAL E XPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT WAS UNJUSTIFIED. ACCORDINGLY, WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXPENDITURE ACTUALLY CLAIMED BY THE A SSESSES I.E. RS.49,04,028/ - 5.3 THEREFORE ON MERITS A S WET! WE CAN HOLD THAT IN SUCH SITUATION A DISALLOWANCE U/S. 14A CANNOT EXCEED THE EXPENDITURE ACTUALLY CLAIMED BY THE ASSESSEE. I N THE ABSENCE OF ANY CONTRADICTORY JUDGMENT PIECED BEFORE US, WE HEREBY RESPECTFULLY FOLLOW THE DECISION OF THE RESPECTED COORDINATE BENCH AND HOLD THAT THE TEAMED C OMMISSIONER WAS NOT JUSTIFIED IN INVOKING THE PR OVISIONS OF SECTION 263 OF THE AC T. THE IMPUGNED ORDER PASSED U/S. 263, DATED 18,03,2003 IS HEREBY QUASHED . GROUNDS RAISED BY THE ASSESSES ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSES IS ALLOWE D. CONSIDE RING THE FACTS DISCUSSED HEREIN ABOVE , IT IS OBSERVED THAT DISALLOWANCE OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(I II) IS REQUIRED TO BE RRESTRICTED TO RS. 15,07,418 AND AS APPELLANT HAS ALREADY MADE DISALLOWANCE OF RS.3,25,000/ - NET DISALLOW ANCE UNDER SECTION 14A IS RESTRICTED RS. 11,82,41 8/ - AS AGAINST DISALLOWANCE MADE BY ASSESSING OFFI CER AT RS.62,02,294/ - , IN THE NUTSHELL OVERALL DISALLOWANCE UNDER SECTION 14A IS RESTRICTED AT RS, 11,82,418/ - AS AGAINST RS. 58,77,29 4/ - . ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 42 24 . BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN APPEAL BEFORE US FOR THE CONFIRMATION OF THE ADDITION MADE BY THE LD. CIT(A) 11,82,418.00 WHEREAS THE REVENUE IS IN THE APPEAL FOR THE DE LETION MADE BY THE LD. CIT(A) FOR 46,94,876.00 . BOTH THE PARTIES BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 25 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL S AVAILABLE ON RECORD. IT IS A FACT ON RECORD THA T THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTMENT SHOWN BY THE ASSESSEE IN ITS FINANCIAL STATEMENT. ANY OF THE AUTHORITY BELOW HAS NOT DISPUTED THIS FACT . THEREFORE, THERE IS NO QUESTION OF MAKING THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPEN SES. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER: THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL 25 .1 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BA NK LTD REPORTED IN 366 ITR 505 (BOM). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 43 25 .2 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.COM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS , THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A 25 .3 BECAUSE OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MADE ON ACCOUNT OF INVESTMENT IN THE SECURITIES UNDER SECTION 8D R.W.S. 14A OF THE ACT. 25 .4 HOWEVER, WE NOTE THAT THE ASSESSEE HAS MADE THE DISALLOWANCE OF THE INTEREST EXPENSES FOR THE AMOUNT OF 1,47 , 18 , 116.00 WHICH WAS PROPOSED AND DISALLOWED BY THE AO AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE I NCOME T AX R ULE. THEREFORE, THERE REMAINS NO DISPUTE FOR THE INTEREST AMOUNT DISALLOWED BY THE AO. THEREFORE, WE DO NOT FIND ANY INFIRMITY THE ORDER OF LD. CIT(A) ON ACCOUNT OF DELETION OF INTEREST EXPENSES AS DISCUSSED ABOVE. 25 .5 AS REGARDS THE ADMINISTRATIVE EXPEN SES WE NOTE THAT THE ASSESSEE HAS CLAIMED THE DEDUCTION OF 15 , 07 , 418 / - ONLY WHEREAS THE AO HAS MADE THE DISALLOWANCES OF 62 , 02 , 294 / - WHICH IS EXCEEDING THE ACTUAL EXPENSES CLAIMED BY THE ASSESSEE IN ITS INCOME TAX RETURN. THEREFORE WE ARE OF THE VIEW THA T THE DISALLOWANCES UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED THE ACTUAL EXPENSES CLAIMED BY THE ASSESSEE IN THE INCOME TAX RETURN IN ANY GIVEN FACTS AND CIRCUMSTANCES. 25 .6 AT THIS JUNCTURE WE FIND IMPORTANT TO REFER THE PROVISIONS OF RULE 8D WH ICH READS AS UNDER: ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 44 (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH - 1. THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR 2. THE CLAIM MADE BY THE ASSESSEE THAT NO EXPEN DITURE HAS BEEN INCURRED , IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB - RULE (2). 25 .7 THE ABOVE PROVISIONS REQUIRE THAT THE AO SHOULD MAKE THE DISALLOWANCE AFTER HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. BUT IN THE INSTANT CASE , WE NOTE THAT THE AO HAS MADE THE DISALLOWANCE UNDER RULE 8D MECHANICALLY WITHOUT REFERRING TO THE EXPENSES CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. THE EXPENSES CLAIMED BY THE ASSESSEE ARE ONLY TO THE TUNE OF 15 , 07 , 418 / - UNDER THE HEAD ADMINISTRATIVE EXPENSES IN THE PROFIT & LOSS ACCOUNT. THIS FACT HAS NOT BEEN DISPUTED BY THE AUTHORITIE S BELOW. THUS IN OUR CONSIDERED VIEW , THE DISALLOWANCE CANNOT EXCEED THE ACTUAL EXPENSES CLAIMED BY THE ASSESSEE IN ITS ACCOUNTS. THUS WE ARE OF THE VIEW THAT THE AO HAS NOT MADE ANY REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS REQUIRED UNDER RULE 8D OF INCOME TAX RULE. 25 .8 IN ADDITION TO THE ABOVE WE ALSO NOTE THAT THE ASSESSEE HAS MADE SUO - MOTO DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES AMOUNTING TO 3 , 25,000 / - BUT THE AO WITHOUT REJECTING THE CLAIM OF THE ASSESSEE HAS INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. THE RELEVANT DETAILS OF THE DISALLOWANCE MADE BY THE ASSESSEE ARE PLACED ON PAGES 33 TO 34 OF THE PAPER BOOK AND REPRODUCED THE SAME AS UND ER: ENCLOSURE - 7 ITEMS DEBITED TO PROFIT AND LOSS ACCOUNT BEING AMOUNTS INADMISSIBLE UNDER SECTION 14A: [VIDE PART - B CLAUSE NO.17(I)] NOTE: EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS COMPUTED AT UP RS.1,50,43,116/ - AND SUCH INADMISSIBLE AMOUNT HAS BEEN COMPUTED AS UNDER : ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 45 SR. NO. ACCOUNT HEAD AMOUNT REMARKS 1 DIRECT EXPENSES -- 2 INTEREST EXPENSES 1 47 18 116 SEE NOTE(I) BELOW 3 OTHER EXPENSES: 0 .5% OF AVERAGE INVESTMENTS 3 25 000 SUBJECT TO OBSERVATION PINT(II) BELOW TOTAL 1 50 43 116 NOTE: (I) IN THE OPINION OF THE ASSESSEE, THE DISALLOWANCE ON ACCOUNT OF INTEREST IN THE PROPORTION OF AVERAGE INVESTMENT TO AVERAGE ASSETS SHOULD BE RESTRICTED TO RS.83,90,734/ - ( I.E INTEREST EXPENDITUR E RS.1 99 186/ - LESS INTEREST INCOME RS. 1 15 50 452/ - ) (II) IN THE OPINION OF THE ASSESSEE, THE ALLOWABLE ADMINISTRATIVE EXPENDITURE COMES TO RS.15 07 419/ - AS DEPICTED HEREUNDER AS AGAINST THE AMOUNT OF RS.6202295/ - AS PER THE COMPUTATION FORMULATE OF TH E RULE 8D. THE ASSESSEE COMPANY IS OF THE OPINION THAT THE FORMULAE OF THE RULE 8D IN ITS SET OF FACTS IS NOT APPLICABLE AS ALL EXPENSES ARE INDENTIFIABLE . THEREFORE THE DISALLOWANCE ON ACCOUNT OF OTHER EXPENDITURE APPORTIONED IN THE RATIO OF INCOME FROM I NVESTMENT TO INCOME FROM FINANCIAL ASSETS AS COMPUTED HEREUNDER. SR.NO. PARTICULARS AMOUNT 1 TOTAL EXPENDITURE AS PER PROFT AND LOSS ACCOUNT 16 07 70 611 2 LESS: INTEREST CONSIDERED SEPARATELY 1 99 41 186 3 LESS: EXPENDITURE DISALLOWED/CONSIDERED SEPARATELY IN RETURN OF INCOME DONATION INCREASE IN AUTHORIZED CAPITAL DEMAT CHARGES DEPRECIATION DEFERRED TAX LIABILITY OPENING STOCK OF PAINTING LOSS ON SALE OF INVESTMENTS LOSS ON SALE OF FIXED ASSETS LOSS ON WARRANTS FORFEITED 12 50 000 63,97,821 6 01 718 10 92 599 1 11 915 3 39 99 302 9 17 27 500 1 21 101 40 20 050 13 93 22 006 BALANCE ADMINISTRATIVE EXPENSITURE 15 07 419 THE BALANCE ADMINISTRATIVE EXPENDITURE IS APPORTIONED IN THE RATIO OF INCOME FROM INVESTMENTS TO INCOME FROM FINANCIAL ASSETS. SR. NO. PARTICULARS AMOUNT 1 INCOME FROM INVESTMENTS 31 25 760 ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 46 2 3 INCOME FROM FINANCIAL ASSETS THEREFORE, ADMINISTRATIVE EXPENDITURE PROPORTIONATE TO INCOME FROM INVESTMENTS 1 15 50 452 1 46 76 212 SAY 3 21 052 3 25 000 25 .9 IN OUR CONSIDERED OPINION , THE AO HAS TO REJECT THE DISALLOWANCE MADE BY ASSESSEE SUO MOTO FOR ADMINISTRATIVE EXPENSES BEFORE MAKING ANY DISALLOWANCE UNDER SECTION 14A READ WITH THE RULE 8D. 25 .10 BESIDES THE ABOVE WE ALSO FIND IMPORTANT TO REFER THE PROVISIONS OF SECTION 14A OF THE ACT WHICH READS AS UNDER: [ EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME 85 . 86 14A. 87 [(1)] FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED 88 BY THE ASSESSEE IN RELATION TO 88 INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 88 UNDER THIS ACT.] 87 [(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED 89 , IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB - SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTA L INCOME UNDER THIS ACT :] 25 .11 A PLAIN READING OF THE ABOVE PROVISIONS REVEALS THAT THE AO BEFORE MAKING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WAS TO RECORD HIS SATISFACTION , BUT IN THE CASE , BEFORE US , WE NOTE THAT THE AO FAILED TO RECORD ANY SATISFACTION AS MANDATED UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. THEREFORE, WE A RE OF THE VIEW THAT NO D ISALLOWAN CE UNDER SECTION 14A READ WITH RULE 8D CAN BE MADE OTHER THAN THE AMOUNT DISALLOWED BY THE ASSESSEE IN ITS INCOME TAX RETURN. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 47 JUDGMENT OF H ON BLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. RELIANCE CAPITAL ASSETS MANAGEMENT LTD. REPORTED IN 400 ITR 217 WHEREIN IT WAS HELD AS UNDER : 20. IT IS THAT MISTAKE COMMITTED BY THE ASSESSING OFFICER WHICH WAS PARTIALLY CORRECTED BY THE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY AGREED WITH THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT COMMENTED UPON THE CORRECTNESS OR OTHERWISE OF THE APPELLANT'S WORKING OF THE CLAIM. HE HAS NOT SPECIFICALLY REJECTED THAT WORKING AND HAS NOT PROVIDED ANY REASON FOR DOING SO. THE COMMI SSIONER WAS OF THE VIEW THAT BEFORE PROCEEDING TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D, THE ASSESSING OFFICER SHOULD CONSIDER THE WORKING OF EXPENSES MADE BY THE ASSESSEE AND WHEN HE IS NOT SATISFIED WITH THE SAID WORKING AND TERMS IT AS INCORRECT, BASED ON OBJECTIVE CRITERIA AND FOR COGENT REASONS, HE CAN THEN PROCEED TO WORK OUT THE DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D OF THE RULES. 26 . HENCE THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED , AND THE GROUNDS OF APPEAL OF TH E REVENUE ARE DISMISSED . 27 . THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT - A ERRED IN THE CONFIRMING THE ORDER OF AO BY DISALLOWING THE DEPRECIATION TO THE EXTENT OF 13,63,244.00 OUT OF TOTAL DISALLOWANCE OF 16,03,792.00 . 27 .1 THERE WAS DI SALLOWANCE OF 16,03,792.00 BY THE AO IN THE IMMEDIATELY PRECEDING THE ASSESSMENT YEAR 2009 - 10 FOR THE DEPRECIATION ON THE CAR. THE AO FOLLOWING THE ORDER OF THE EARLIER ASSESSMENT YEAR MADE THE DISALLOWANCE OF 16,03,792.00 FOR THE DEPRECIATION CLAIMED ON THE CAR AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 27 .2 AGGRIEVED ASSESSE E PREFERRED APPEAL TO LD. CIT - A, WHO HAS PARTLY CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER: 5. 3 I HAVE CAREFULLY CONSIDERED' THE ASSESSMENT ORDER AND SUBMISSION FILED BY APPELLANT - THE ASSESSING OFFICER HA$ MADE, DISALLOWANCE OF DEPRECIATION ON BMW CAR AS PER ASSESSMENT ORDER OF A.Y. 2009 - 10. IT IS PERTINENT TO NOTE THAT IDENTICAL ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 48 ISSUE IS DECIDED AGAINST THE APPELLANT BY THE PREDECESSOR CIT(APPEAL S) - VI VIDE HIS ORDER DATED 23'* MAY, 2012 WHEREIN HE HAS HELD AS UNDER . 'I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION , THE BASIC FACT IS THAT DIRECTOR OF THE COMPANY PURCHASED MOTOR CARS IN HIS NAME AND THE BILLS FOR THE SAID PURCHASE ARE ALSO IN THE NAME OF DIRECTOR . THEREFORE, APPELLANT COMPANY I S NOT THE LEGAL OWNER OF THE MOTOR CARE. FOR CLAIM OF DEPRECIATION THE TWO CONDITIONS ARE TO BE FULFILLED NAME LY - APPELLANT MUST BE OWNER OF THE A SSET AND IT MUST: BE USED FOR THE PURPOSE OF APPELLANT'S BUSINESS. IN THIS CASE APPELLANT I S NOT THE OWNER SINCE THE OWNERSHIP VESTS WITH THE DIRECTORS WHO ARE SEPARATE ENTITY THAN THE APPELLATE COMPANY. AS REGARDS USE OF THESE CARS FOR THE PURPOSE OF BUSINESS, THE SAME WERE NOT FURNIS HED. THEREFORE, USE OF CAR FOR THE PURPOSE OF COMPANY' S BUSINESS IS NOT ESTABLISHED B Y THE APPELLANT , ALTHOUGH THE ONUS TO PROVE THE USER OF ASSET WAS ON THE APPELLANT, THE SAME WAS NOT DISCHARGED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE UN DERSIGNED. CLAIM OF AN EXPENSE I N THE COMPANY ACCOUNT IS NOT AN EVIDENCE TO PROVE THAT ASSET WAS USED FOR THE BUSINESS OF THE COMPANY. IN ABSENCE OF ANY TANGIBLE EVIDNECE TO PROVE THE BUSINESS USE OF THE MOTOR CARS PURCHASED IN THE NAME OF DIRECTORS, IT IS HELD THAT THE MOTOR CARS WERE NOT USED FOR THE PURPOSE OF APPELLANT'S BUSI NESS. COMING TO THE APPELLANT'S ARGUMENT OF BENEFICIAL OWNERSHIP, APPELLANT SUBMITTED THAT PAYMENT FOR THE CAR WAS MADE BY THE COMPANY AND HENCE THE APPELLANT IS THE BENEFICIAL OWNER. PAYMENT WILL NOT DETERMINE THE OWNERSHIP SI NCE PAYMENT CAN BE MADE BY WAY OF L OAN ALSO. IN F ACT MAJOR PAYMENT IS MADE BY THE FINANCE COMPANY BUT IT IS NOT THE BENEFICIAL OWNER. SINCE BOTH APPELLANT AND IT S DIRECTOR ARE SEPARATE ENTITIES AND DIRECTORS ARE NOT PERMANENT, IT CANNOT BE SAI D THAT APPELLANT COMPA NY HAS GOT COMPLETE DOMINION OVER T HE MOTOR CAR. SINCE MOTOR CAR IS IN POSSESSION AND CONTROL OF THE DIRECTORS IN WHOSE NAME THE SAME STAND, THERE IS NO DOMINION OR CONTRA/ OF T HE APPELLANT COMPANY ON THE SAID MOTOR CARS. THOUGH PURCHASED FROM THE FUNDS PROVIDED BY IT, APPELLANT CANNOT BE SAI D TO BE BENEFICIAL OWNER FOR THE PURPOSE OF CLAIMING DEPRECIATION, APPELLANT RELIED UPON THE DIVISIONS OF /TAT AHMEDABAD AND A/SO CERTAIN HIGH COURTS INCLUDING SUPREME COURT DECISION IN TH E CASE OF MYSORE MINERALS LIMITED. I T WOULD B E VERY RE/WANT TO REFER TO; THREE - MEMBER DECISION OF HON'BL E SUPREME COURT IN THE CASE OF TAMIL NADU CIVIL SUPPLIES CORPORATION LTD . V/S CI T REPORTED IN 249 ITR 214. IN THIS LARGER BENCH DERISION OF APEX COURT, EARLIER DECISION OF MYSORE MINERALS LIMITED WAS AL SO CONSIDERED THE SAID DECISION WAS DISTINGUISHED ON F ACTS AND IT WAS HELD THAT SINCE ASSESSES HAS NOT ACQUIRED DOMINION OVER ASSET IN QUESTION CLAIM OF DEPRECIATION IS NOT ALLOWED IN ANOTHER DECI SI ON OF DE/HI COURT IN THE CASE OF MA/J - FISHERIES PRIVATE LIMI TED VERSUS CI T 227 /TR 204.ON T HE IDENTICAL ISSUE OF CLAIM OF - DEPRECATION ON VEHICLES REGISTERED IN THE NAME OF DIRECTORS, TH E SA ME WAS DECIDED AGAINST THE ASSESSES. IN THE LIGHT OF TH ESE TWO LANDMARK DECISIONS, T HE ISSUE IS NOT HELD TO BE COVERED BY THE JURISDICTIONAL /TAT SINCE THESE DECISIONS - WERE NOT CONSIDERED THEREIN. ONUS IS ON THE APPELLANT TO PROVE THE DOMINION OVER THE AS SET AS WELL AS USE FOR THE PU RPOSE OF BUSINESS.; IF APPELLANT IS NOT ABLE TO PROVE EITHER IN T HE LIGH T OF LARGER BENCH ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 49 DEW'S/ON OF SUPREME COURT, CLAIM OF DEPRECIATION ON ASSETS STANDING IN OTHERS ' NAME CANNOT BE ALLOWED . TH E DECISIONS OF OTHER HIGH COURT HAVE BEEN CONSIDERED, IN ALL THOSE DECISIONS T HE USER OF ASSET NAME/Y TRANSPORT BUSES, ERE ., WERE BY THE COMPANIES AND THE COMPANIES WERE DISCLOSING THE INCO ME FROM HIRING THOSE VEHICLES. THE USER OF ASSET FOR ME PURPO SE OF BUSINESS WAS PROVED IN ALL THESE CASES BEYOND DOUBT WITH THE USER OF ASSET , DOMINION AND CONTROL IS AL SO PROVED . THEREFORE, CLAIM OF DEPRECIATION IN THESE CASES WERE A//OWED BY VARIOUS HI GH COURTS. HOWEVER, IN THE APPELLANT'S CASE USE FOR THE PURPOSE OF BUSI NESS IS NOT AT ALL PROVED AND THE DOMINION AND CONTROL AL SO REMAINED UNPROVED , THEREFORE , THESE DECISIONS DO NOT HEL P THE APPE LLANT. CONSIDERING THE LARGER BENCH DECISION OF APEX COURT AND THE DELHI HIGH COURT DECISION IN THE CAS E OF MM FISHERIES PRIVATE LTD , THE DECISION OF JURISDICTIONAL ITAT IS NOT FOLLOWED WHICH HAS NOT CONSI DERED MESS DECISIONS, IT IS, THEREFORE, HELD THAT THE DEPRECIATION CLAI MED BY THE APPELLANT IS CORRECTLY DISALLOWED BY THE ASSESSING OFFICER . AS THE ENTIRE ISSUE IS ADJUDICATED AGAINST TH E APPELLANT BY MY PREDECESSOR CIT | (APPEALS), FOLLOWING THE RATIO HEREIN ABOVE , DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UPHELD . HOWEVER, IT I S OBSERVED THAT ASSESSING OFFICER HAS MADE DISALLOW ANCE OF DEPRECIATION AT RS.1 6, 03, 792 WHICH IS SIMILAR TO DISALLOWANCE MADE IN A.Y. 2009 - 10 WHEREAS CORRECT DISALLOWANCE ON CAR IS RS.13,63,224/ - . THUS, DISALLOWANCE IS RESTRICTED TO RS.13,63,244. THIS GROUND IS PARTLY ALLOWED. 28 . BEING AGGRIEVED BY THE ORDER OF LD. CIT - A, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR FOR THE ASSESSEE BEFORE US SUBMITTED THAT THE HON BLE ITAT HA D DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR IN ITA NO. 1330/AHD /2012 VIDE ORDER DATED 12 - 07 - 2017. 29 . ON THE OTHER HAND THE LD. DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 30 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET , WE NOTE THAT ISSUE HAS BEEN DECIDED BY THE ITAT IN ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 50 THE OWN CASE OF THE ASSESSEE AS DISCUSSED ABOVE IN ITS FAVOR . THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 18. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE. AUTHORITIES BELO W, A PERUSAL OF THE BANK STATEMENT OF THE ASSESSEE AND THE COPY OF THE LEDGER ACCOUNT SHOW THAT THOUGH THE VEHICLE IN THE NAME OF THE DIRECTOR BUT ALL THE PAYMENTS HAVE .BEEN MADE BY THE APPELLANT COMPANY AND THE VEHICLE HAS BEEN SHOWN AS AN ASSET OF THE C OMPANY IN ITS BALANCE SHEET ON FINDING :HAT THE FUNDS FOR PURCHASE OF VEHICLE HAD BEEN INVESTED BY THE APPELLANT COMPANY AND THE SAME HAS BEEN DULY REFLECTED ON THE ASSETS SIDE OF THE BALANCE SHEET OF THE APPELLANT COMPANY, WE DO NOT FIND ANY REASON WHY TH E CLAIM OF DEPRECIATION SHOULD NOT BE ALLOWED TO THE APPELLANT COMPANY. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD. 106 TAXMANN.COM 166. WE ACCORDINGLY, DIRECT THE A.O TO ALLOW TH E CLAIM OF DEPRECIATION. GROUND NO.3 IS ACCORDINGLY ALLOWED. 30 .1 RESPECTFULLY FOLLOWING THE SAME WE DO NOT FIND ANY REASON TO UPHOLD THE ORDER OF LD. CIT - A. THUS WE SET ASIDE THE ORDER OF LD. CIT - A, AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 31 . NOW COMING TO THE REVENUE APPEAL IN ITA 247/AHD/2016, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1 .THE LD.CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF CAPITAL LOSS OF RS.36,19,050/ - MADE ON FORFEITURE OF WARRANTS OF ARVIND LTD. 2 .THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A R.W RULE 8D AT RS.11,82,418 AS AGAINST RS.62,02,294/ - MADE BY THE AO. 3 .THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.17,01,370/ - MADE BY AO ON ACCOUNT OF SHORT CHARGING OF INTEREST ON THE ADVANCE S GIVEN TO RADIANT URJA LIMIT ED. 32 . THE 1 ST ISSUE RAISED BY THE REVENUE IS THAT LEARNED CIT - A ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO FOR 36,19,050.00 ON ACCOUNT OF FORFEITURE OF WARRANTS OF ARVIND LTD. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 51 32 .1 THIS ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATI NG THE APPEAL OF THE ASSESSEE IN ITA 218/AHD/2016. FOR A DETAILED DISCUSSION , PLEASE REFER TO PARA NUMBER 10 OF THIS ORDER. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 33 . THE 2 ND ISSUE RAISED BY REVENUE IS THAT LD. CIT - A ERRED IN RESTRICTING THE DISALLOWANCE AT 11,8 2,4 18 / - UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULE AGAINST THE ADDITION MADE BY THE AO 62,02,094.00 ONLY. 33 .1 THIS ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE IN ITA 218/AHD/2016. FOR DETAILED DISCUSSION PLEASE REF ERRED TO PARA NUMBER 14&15 OF THIS ORDER. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 34 . THE LAST ISSUE RAISED BY R EVENUE IS THAT LE ARNER CIT( A ) ERRED IN DELETING THE ADDITION MADE BY THE AO 17,01,370.00 ON ACCOUNT OF SHORT CHARGING OF INTEREST ON THE ADVANCES. 34 .1 THE ASSESSEE HAS GIVEN THE LOAN OF RUPEES TO 25 , 15 , 31 , 233 / - ON INTEREST AT THE RATE OF 6% PER ANNUM TO RADIANT URJA LTD. THUS THE ASSESSEE CHARGED INTEREST OF 17,01,370.00 FROM THE SAID COMPANY. 34 .2 T HE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS INCURRED INTEREST COST ON THE BORROWING AT THE RATE OF 12% PER ANNUM. THEREFORE , THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS CHARGED SHORT INTEREST ON A LOAN PROVIDED BY IT TO M/S RADIANT URJA LTD. ACCORDINGLY , THE AO MADE THE ADDITION OF 17,01,370.00 BEING 6% OF THE LOAN ON ACCOUNT OF SHORT CHARGING OF INTEREST. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 52 35 . AGGRIEVED ASSESSEE PRE FERRED AN APPEAL TO THE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT - A INTER - ALIA SUBMITTED THAT IT S F UND EXCEED THE AMOUNT OF ADVANCE GIVEN TO RADIANT URJA LTD. THEREFORE NO DISALLOWANCE CAN BE MADE. THE LEARNED CIT - A AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER 6.3. ON CAREFUL CONSIDERATION OF ENTIRE FACTS, IT IS OBSERVED THAT APPELLANT HAS ADVANCED FUNDS TO RADIANT URJA LIMITED @ 6% AND ASSESSING OF FICER HAS NOT PROVED THAT TERMS AND CONDITIONS FOR CHARGING OF INTEREST WAS @12%. IT IS NOT THE CASE OF ASSESSING OFFICER THAT ADVANCES ARE GIVEN TO SISTER CONCERN HENCE THERE IS NO CASE OF DIVERSION OF PROFIT FROM ASSESSEE COMPANY TO BORROWER . IT IS SETTLED LEGAL LAW THAT ASSESSEE CANNOT BE THRUST UPON TO PAY THE TAXES ON INCOME WHICH HAS NOT AT ALL ACCRUED TO IT. IN PRESENT CASE, THERE IS NO EVIDENCE WHICH CAN SUGGEST THAT APPELLANT HAS IN FACT EARNED INTEREST @ 12% HENCE ASSESSING OFFICER IS NOT JUS TIFIED IN MAKING ADDITION ASSUMING THAT APPELLANT HAS EARNED @12% INTEREST AS AGAINST @6% INTEREST SHOWN IN PROFIT & LOSS ACCOUNT IT IS ALSO OBSERVED THAT APPELLANT IS HAVING OWN FUNDS OF RS.189.06 CRORES AS AGAINST 6% INTEREST BEARING ADVANCES G IVEN BY AP PELLANT FOR RS. 25.15 C RORES HENCE IT IS PRESUMED THAT SUCH INTEREST BEARING ADVANCES ARE GIVEN OUT OF OWN FUNDS AND NOT OUT OF INTEREST BEARING FUNDS AVAILABLE WITH APPELLANT. IN THIS REGARD, RELIANCE IS PLACED ON DECISION OF - (I) HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S RAGHUVIR SYNTHETICS LIMITED [ 2013] 36 TAXMANN.COM 275 (GUJARAT), THE RELEVANT PORTION OF WHICH READS AS UNDER: 'AS CAN BE NOTED FROM THE ORDER OF THE TRIBUNAL, THE ASSESSING OFFICER DISALLOWED THE INTEREST SOLEL Y ON THE GROUND THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO THE ASSOCIATE CONCERNS, VIZ., R. R. FAMILY TRUST AND SAGAR TEXILE MILLS AND THIS DISALLOWANCE, IN APPEAL THE CIT (APPEALS) DELETED BY HOLDING THAT THE AMOUNT ADVANCED TO BOTH R. R. FAMILY T RUST AND SAGAR TEXTILES MILS WERE NOT GIVEN DURING THE YEAR UNDER CONSIDERATION, BUT THE SAME WAS GIVEN IN THE EARLIER YEARS. CIT (APPEALS) HAD ALSO TAKEN NOTE OF THE FACT THAT THERE WA S SUFFICIENT FUNDS AVAILABLE WITH THE ASSESSEE - RESPONDENT ON WHICH THERE WAS NO INTEREST LIABILITY THAT HAD BEEN INCURRED . IN SUCH CIRCUMSTANCES, RELYING ON THE CASE OF TORRENT FINANCIERS LTD. (SUPRA), IT FOUND THAT THE DISALLOWANCE WAS NOT JUSTIFIABLE. THE TRIBUNAL ON NOTING THESE DE TAILS, IN TERMS HELD THAT THERE WAS NOTHING CONTRARY THAT COULD BE BROUGHT ON RECORD BY THE DEPARTMENT. THE ASSESSEE'S EQUITY SHARE CAPITAL RS.3.85 CORES AND RESERVE AND SURPLUS OF RS.5.52 CRORES ALSO WERE NOTED BY THE TRIBUNAL. IT FOUND THAT THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE WAS FAR GREATER THAN THE LOAN ADVANCED TO THE SISTER CONCERNS AND AS A COROLLARY TO THAT, IT CONCLUDED THAT THE BORROWED MONEY WAS NOT UTILIZED FOR THE PURPOSE OF ADVANCE TO THE SISTER CONCERNS, AS HAD BEEN NOTED BY TH E ASSESSING OFFICER. WHAT HAD WEIGHED WITH THE TRIBUNAL IS THE FACT THAT THE ENTIRE INTEREST FREE FUNDS INCLUDED OWNER'S OWN CAPITAL AND ACCUMULATED PROFITS AND OTHER INTEREST FREE CREDITS AND LOANS AND ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 53 IF THE TOTAL INTEREST FREE ADVANCES INCLUDING THE DEB IT BALANCE OF THE PARTNERS DID NOT EXCEED THE TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, INTEREST WAS NOT DISALLOWABLE MERELY ON ACCOUNT OF THE UTILIZATION OF THE FUNDS FOR NON - BUSINESS PURPOSES. THUS, AS CAN BE SEEN THE TRIBUNAL ACTUALLY RELI ED ON THE FINDINGS GIVEN IN CASE OF TORRENT FINANCIERS LTD. (SUPRA) AND FURTHERMORE THERE WAS NOTHING CONTRARY THAT COULD BE BROUGHT ON RECORD BY THE DEPARTMENT FOR IT TO HOLD OTHERWISE. FACTUALLY, IT FOUND HUGE FUNDS WERE AVAILABLE WITHOUT INTEREST LIABIL ITY WITH THE ASSESSEE AND THAT THERE WAS NO EVIDENCE TO HOLD THAT THE BORROWED MONEY WAS UTILIZED FOR THE PURPOSE OF ADVANCE TO THE SISTER CONCERN. ALL THESE ASPECTS CUMULATIVELY LED THE TRIBUNAL TO HOLD THAT THE DISALLOWANCE MADE ONLY ON THE GROUND THAT ADVANCES WERE GIVEN OUT OF THE BORROWED FUNDS, HOLDING THE ASSESSEE INELIGIBLE FOR ALLOWANCE OF INTEREST BY THE ASSESSING OFFICER OF THE SUM OF RS. 1 8.66 LACS WAS NOT SUSTAINABLE.............' (II) DECISION OF GUJARAT HIGH COURT IN THE CASE OF CASE OF CIT V/S AMOD STAMPING (P) LTD [2014] 45 TAXMANN.COM 427AND THIS COURT HAS OBSERVED AS UNDER . '[3.2] SIMILAR OBSERVATIONS ARE MADE BY THE LEARNED IT AT WITH RESPECT TO THE ASSESSMENT YEARS 20Q5 - 06AND 2006 - 07. IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), THE BOMBAY HIGH COURT HAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOUL D ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS AND THEREFORE, INTEREST WAS DEDUCTIBLE. SIMILAR VIEW HAS BEEN TAKEN BY THE DIVISION BENCH OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS GUJARAT STATE FERTILIZERS AND CHEMICALS LTD. REPORTED IN [2013] 358 ITR 323 [GUJ]. APPLYING THE RATIO/LAW LAID DOWN BY THE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) AS WELL AS DIVISION BENCH OF THIS COURT IN THE CASE OF GUJARAT STATE FERTILIZERS AND CHEMICALS LTD. (SUPRA) TO THE FACTS OF THE CASE ON HAND AND WHEN IT HAS BEEN FOUND THAT THE ASSESSEE WAS HAVING INTEREST - FREE FUNDS FAR IN EXCESS OF INVESTMENTS AN D THEREFORE, IT CAN BE SAID THAT THE INVESTMENTS ARE MADE OUT OF INTEREST - FREE FUNDS AND THEREFORE, THE AO WAS NOT JUSTIFIED IN MAKING ADDITIONS AND/OR MAKING DISALLOWANCE UNDER SECTION 36(1)(III) OF THE IT ACT. UNDER THE CIRCUMSTANCES, NO ERROR AND/OR ILL EGALITY HAS BEEN COMMITTED BY THE LEARNED IT AT IN DELETING THE DISALLOWANCE MADE BY THE AO UNDER SECTION 36(1)(III) OF THE IT ACT. NO QUESTION OF LAW MUCH LESS SUBSTANTIAL QUESTION OF LAW ARISE WITH RESPECT TO DELETION OF THE DISALLOWANCE MADE BY THE AO U NDER SECTION 36(1)(III) OF THE IT ACT.' CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE , ADDITION MADE BY ASSESSING OFFICER FOR RS 17,01,370 IS DELETED . THIS GROUND OF APPEAL I S ALLOWED. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 54 36 . BEING AGGRIEVED BY THE ORDER OF LD. CIT - A REVENUE IS IN APPEAL BEFORE US. THE LD. DR BEFORE US VEHEMENTLY SUPPORTED THE ORDERS OF THE AO WHEREAS THE LEARNED AR FOR THE ASSESSEE BEFORE US SUBMITTED THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF LOAN. THEREFORE THERE CANNOT BE AN Y DISALLOWANCE OF INTEREST EXPENSES. THE LD. A R BEFORE US VEHEMENTLY SUPPORTED THE ORDERS OF THE LD. CIT( A ) . 37 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AN UNDISPUTED FACT THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF LOANS GIVEN TO M/S RADIANT URJA LTD. THUS A PRESUMPTION CAN BE DRAWN THAT THE ASSESSEE HAS GIVEN SUCH LOAN OUT OF ITS FUNDS AND WITHOUT USING ANY BORROWED FUND FOR SUCH LOANS AND ADVA NCES. IN HOLDING SO, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER: - THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL 37.1 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO B E PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 55 37.2 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.COM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A 37.3 IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MADE ON ACCOUNT OF DIVERSION OF THE FUND . HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT - A. ACCORDINGLY , THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 38 . IN THE RESULT , THE APPEAL OF THE ASSESSEE IS ALLOWED , AND THE APPEAL OF THE R EVENUE IS DISMISSED . 39 . NOW COMING TO THE REVENUE APPEAL IN ITA 248/AHD/2016, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AT RS.15,41,073/ - AS AG AINST RS.1,00,07,145/ - WORKED OUT BY THE ASSESSING OFFICER.' ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME/BOOK PROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. THE APPELLANT CRAVES, TO LEAVE, TO AMEND OR ALTER ANY GROUND OR ADD A N EW GROUND WHICH MAY BE NECESSARY. 40. THE ONLY ISSUE RAISED BY REVENUE IS THAT LD. CIT - A ERRED IN RESTRICTING THE DISALLOWANCE AT 15,41,073.00 UNDER SECTION 14A READ WITH RULE 8D AGAINST THE ADDITION MADE BY THE AO AT 1,00,07,145.00 ONLY ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 56 40 .1 THE IDENTICAL ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE IN ITA 218/AHD/2016. FOR DETAILED DISCUSSION PLEASE REF ERRED TO PARA NUMBER 14&15 OF THIS ORDER. AS THE ISSUE INVOLVED IS IDENTICAL TO THE ISSUE RAISED IN ITA 2 18/AHD/2016, THEREFORE RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 41 . NOW COMING TO THE REVENUE APPEAL IN ITA 1760/AHD/2016, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. (1) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.9,56,310/ - MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION CLAIMED ON MOTOR CAR. (2) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,04,87,720/ - MADE U/S 14A OF THE ACT. (3) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.L 0,80,5 72/ - MADE U/S 36(L)(III) OF THE ACT. (4) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.97,224/ - MADE U/S 35D OF THE ACT. (5) THAT THE L D.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.12,25,908/ - MADE U/S 40(A)( IA ) OF THE ACT. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER TO THE EXTENT MENT IONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME/BOOK PROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. THE APPELLANT CRAVES, TO L EAVE, TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 42 . THE 1 ST ISSUE RAISED BY THE REVENUE IS THAT THE LD. CIT - A ERRED IN DELETING THE ADDITION MADE BY THE AO FOR DISALLOWING THE DEPRECIATION AMO UNTING TO RS. 9,56,310.00 ONLY. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 57 42 .1 THE IDENTICAL ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE IN ITA 218/AHD/2016. FOR DETAILED DISCUSSION PLEASE REF ERRED TO PARA NUMBER 19 OF THIS ORDER. AS THE ISSUE INVOLVED IS IDENTICAL TO THE ISSUE RAISED I N ITA 218/AHD/2016, THEREFORE , RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 43 . THE 2 ND ISSUE RAISED BY REVENUE IS THAT LD. CIT - A ERRED IN DELETION THE ADDITION OF 1,04,87,720.00 UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES. 43.1 THE IDENTICAL ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE ASSESSE E IN ITA 218/AHD/2016. FOR DETAILED DISCUSSION , PL EASE REFER TO PARA NUMBER 14&15 OF THIS ORDER. AS THE ISSUE INVOLVED IS IDENTICAL TO THE ISSUE RAISED IN ITA 218/AHD/2016, THEREFORE , RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 44 . THE 3 RD ISSUE RAISED BY REVENUE IS THAT LD. CIT - A ERRED IN DELETION THE ADDITION OF 10,80,572.00 UNDER SECTION 36(1)(III) OF THE ACT. 44 .1 THE IDENTICAL ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE REVE NUE IN ITA 247/AHD/2016. FOR DET AILED DISCUSSION , PLEASE REFER TO PARA NUMBER 26&27 OF THIS ORDER. AS THE ISSUE INVOLVED IS IDENTICAL TO THE ISSUE RAISED IN ITA 247/AHD/2016, THEREFORE RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPE AL OF THE REVENUE IS DISMISSED . ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 58 45 . THE 4 TH ISSUE RAISED BY REVENUE IS THAT THE LEARNED CIT - A ERRED IN DELETING THE ADDITION MADE BY THE AO OF 9 7 , 224 / - UNDER SECTION 35 D OF THE ACT. 45 .1 THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLAIMED DE MERGER EXPENSES AMOUNTING TO 9 7 , 224 / - UNDER SECTION 35 D OF THE ACT. THE ASSESSEE HAS EXPLAIN ED DURING THE ASSESSMENT PROCEEDINGS THAT THE DEMERGER EXPENSES WERE CLAIMED IN THE EARLIER ASSESSMENT YEARS 2009 - 10 AND 2011 - 12 WHICH WERE ALLOWED UNDER SECTION 35 D D OF T HE ACT. AS SUCH T HESE EXPENSES ARE ARISING FROM THE EARLIER AS SESSMENT YEARS . T HEREFORE THESE A R E ELIGIBLE FOR DEDUCTION UNDER SECTION 3 5D D OF THE ACT. THE ASSESSEE ALSO ADMITTED ITS MISTAKE SAYING THAT IT HAS WRONGLY CLAIME D THE DEDUCTION UNDER SECTION 35D OF THE ACT. 4 5 .2 HOWEVER THE AO DISAGREED WITH THE SUBMISSION OF THE ASSESSEE BY OBSERVING THAT THE DEDUCTION HAS BEEN CLAIM ED UND ER THE WRONG SECTION , I.E. 3 5D OF THE ACT. THE AO ALSO OBSERVED THAT THE ASSESSEE HA D NOT PRODUCED ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM FOR THE DEDUCTION UNDER SECTION 35 DD OF THE ACT. THEREFORE THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 46 . AGGRIEVED ASSESSEE P REFERRED AN APPEAL TO THE C IT - A . TH E ASSESSEE BEFORE THE LEARNED CIT - A SUBMITTED THAT IT HAS INCURRED DEMERGER EXPENSES IN THE ASSESSMENT YEAR 2008 - 09 OF 1, 59 , 530 / - AND IN THE ASSESSMENT YEAR 20 11 - 12 OF 3, 26 , 590 / - WHICH WERE ALLOWED IN THE RESPE CTIVE YE A R S AS PER THE PROVISIONS OF SECTIO N 35 DD OF THE ACT. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 59 47 . THE LEARNED CIT - A AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : 7.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSION FILED BY THE APPELLANT. IT IS OBSERVED THAT APPELLANT HAD INCURRED DEMERGER EXPENSES IN THE A.Y. 2008 - 09 FOR RS. 1,59,5307 - AND IN A.Y. 2011 - 12 FOR RS. 3,26,5907 - AND AGGREGATE AMOUNT OF RS. 4,86 ,120/ - WAS DEBITED IN PROFIT & LOSS ACCOUNT. THE APPELLANT HAS CLAIMED 1/5 IH OF SUCH EXPENSES U/S 35DD OF THE ACT. THE ASSESSING OFFICER IS INCORRECT IN OBSERVING THAT APPELLANT HAS CLAIMED SUCH EXPENDITURE U/S 35DOF THE ACT WHICH IS APPARENT IN COMPUTATIO N OF TOTAL INCORRECT. EVEN IF IT IS FOUND THAT APPELLANT HAS CLAIMED SUCH EXPENDITURE U/S 35D OF THE ACT AS AGAINST CORRECT SECTION OF 35DD, ASSESSING OFFICER CANNOT DENY DEDUCTION ONLY ON THE GROUND THAT WRONG EXPENDITURE HAS BEEN CLAIMED . IT IS OBSERVED THAT AS PER PROVISIONS OF SECTION 35DD OF THE ACT ANY DEMERGER EXPENSES INCURRED BY ASSESSEE IS ALLOWABLE OVER A PERIOD OF 5 YEARS FROM THE YEAR IN WHICH IT IS INCURRED . THE APPELLANT HAS NOT INCURRED SUCH EXPENDITURE IN YEAR UNDER CONSIDERATION BUT CLAIMED IN EARLIER ASSESSMENT YEAR. THE ABOVE CLAIM IS ALLOWED BY ASSESSING OFFICER CONSISTENTLY IN EARLIER ASSESSMENT YEARS INCLUDING THE ASSESSMENT YEAR IN WHICH IT IS INCURRED HENCE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING SUCH CLAIM IN CURRENT YEAR. THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. GUJARAT NARMADA VALLEY CO. LTD. 356 ITR 460 SQUARELY APPLIES TO PRESENT CASE. CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE , DISALLOWANCE MADE BY ASSESSING OFFICE R FOR RS.97,224/ - IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 48 . B EING AGGRIEVED BY THE ORDER OF LEARNED CIT - A, RE VENUE IS IN APPEAL BEFORE US . THE LEARNED D R BEFORE US RELIED ON THE ORDER OF AO WHEREAS THE L D . AR FOR THE ASSESSEE BEFORE US REITERATED THE SUBMI SSION MADE BEFORE THE LD . CIT - A AND SUPPORTED HIS ORDER. 49 . W E HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL S AVAILABLE ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS CLAIMED 1/5 TH OF DEMERGER EXPENSES IN THE EARLIER YEARS AND THERE WAS NO DISALLOWANCE MADE BY THE AO IN THE ASSESSMENT FRAMED UNDER SECTION 143 (3) OF THE ACT . T H US TH ERE REMAINS NO DOUBT THAT THESE EXPENSES WERE BROUGHT FORWARD FROM THE EARLIER YEARS. THEREFORE THE SAM E CANNOT BE DISALLOWED IN THE YEAR UNDER CONSIDERATION . I N THIS REGARD , WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 60 OF H ONORABLE GUJARAT HIGH COURT IN THE CASE OF THE DCIT, BHARUCH VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD REPORTED IN 356 ITR 460. WHEREIN IT WAS HELD AS UNDER : 7.1 FROM THE ABOVE, WE NOTICED THAT ONE OF THE PRIME FACTORS WHICH WEIGHED WITH THE TRIBUNAL WAS THE RULE OF CONSISTENCY. LEARNED COUNSEL FOR THE ASSESSEE RIGHTLY POINTED OUT THAT SUCH CLAIM DID NOT ARISE FOR CONSIDERATION FOR THE FIRST TIME, BUT, IS SPREAD OVER TO THE ENTIRE PERIOD BETWEEN A.YS. 1996 - 97 TO 1999 - 2000. SUCH CLAIM WAS MADE BY THE ASSESSEE AND DULY GRANTED BY THE ASSESSING OFFICER. IN THAT VIEW OF THE MATTER, IN OUR OPINION, THE TRIBUNAL COMMITTED NO ERROR. 49 .1 BY THE ABOVE PROPOSITION, I N OUR CONSIDERED VIEW THE DEDUCTION CLAIM ED BY THE A SSESSEE UNDER SECTION 35 DD OF THE ACT CANNOT BE THE DENIED MERELY ON THE GROUND THAT IT WAS CLAIMED UNDER SECTION 3 5 D OF THE ACT. SINC E THE DEMERGER EXPENSES WERE ALLOWED FOR DEDUCTION AS P ER THE PROVISIONS OF SECTION 35 DD OF THE ACT IN THE EARLIER ASSESSMENT YEARS WHICH WERE ACCEPTED BY THE R EV ENUE , T HEREFORE , FOR CLAIMING SUCH EXPENSES , THERE IS NO NEED TO REFER ANY SUPPORTING EVIDEN CE EX CEPT THE DETAILS OF SUCH ELIGIBLE EXPENSES IN THE EARLIER ASSESSMENT YEARS . THE FINANCIAL STATEMENTS OF THE ASSESSEE OF THE EARLIER ASSESSMENT YEARS WERE IN POSSESSION OF THE AO . H AD THERE BEEN ANY W RONG CLAIM OF THE ASSESSEE IN THE EARLIER YEARS T HE SAME SHOULD HAVE BEEN POINT ED OUT BY THE AO . B UT IN THE GIVEN FACTS AND CIRCUMSTANCES THERE WAS NO SUCH ALLEGATION BROUGHT ON RECORD SUGGESTING THAT THE ASSESSEE HAS NOT AMORTIZED THE DEMERGER EXPENSES IN THE EARLIER YEARS . T HEREFORE , WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEARNED C IT - A . THU S T HE GROUND OF APPEAL OF THE REVENUE IS DISMI SSED. 50 . THE LAST I SSUE RAISED BY THE REVENUE IS THAT LD. CIT - A ERRED IN DELETING TH E ADDITION MADE BY THE AO OF 1 2 , 25,908 / - UNDER SECTION 40(A)( IA ) OF THE ACT . ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 61 50 .1 T HE ASSESSEE DURING THE YEA R HAS INCURRED AN EXPENSE OF 1 2 , 25 , 908 / - UNDER THE HEAD CREDIT CARD COMMISSION EXPENSES . AS PER THE ASSESSEE , THE EXPENSES ON CREDIT CARD COMMISSION WAS INCURRED TO THE EARLY PAYMENT FROM THE BANK AGAINST THE SALE MADE BY IT THROUGH THE USE OF CREDIT CARD. THE ASSESSEE EXPLAI NED THAT IN CASE ANY SALES MADE THROUGH THE CREDIT CARD THE PAYMENT OF THE SAME IS CREDITED IN ITS BANK ACCOUNT ON ITS DUE DATE. BUT TO ENHAN CE THE FINANCIAL LIQUIDITY , IT HAS TAKEN EARLY PAYMENT FROM THE BANK BEFORE THE DUE DATE. ACCORDINGLY , THE BANK RELEASED THE PAYMENT TO THE ASSESSEE BEFORE THE DUE DATE AFTER CHARGING CERTAIN CHARGES WHICH WE R E TERMED AS CREDIT CARD COMMISSION. THE ASSESSE E ALSO CLAIMED THAT SUCH CREDIT CARD COMMISSION IS NOTHING BUT REPRESENTING THE INTEREST PAID TO THE BANK . T HEREFORE , THERE IS NO LIA BILITY FOR DEDU CTING THE TDS UNDER SECTION 194H OF THE ACT. 50 .2 HOWEVER , THE AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND TREATED THE SAME AS COMMISSION TO THE BANK WHICH IS SUBJECT TO THE PROVISIONS OF TDS. ACCORDINGLY , THE AO DISALLOWED THE SAME DU E TO NON - DEDUCTION OF TDS AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 51 . AGGRIEVED ASSESSEE PREF ERRED AN APPEAL TO LEARNED CIT - A , WHO HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 8.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSION FILED BY THE APPELLANT. THE BRIEF FACTS OF PRE SENT CASE ARE THAT MERCHANT BANKERS HAD PROVIDED CARD SWIPING MACHINES TO THE APPELLANT COMPANY. BY AVAILING THESE FACILITIES, A CREDIT CARD HOLDER COULD MAKE PAYMENT BY SWIPING THE CREDIT CARD ON THE SAID MACHINES AGAINST PURCHASES MADE FROM VARIOUS STORE S SELLING BRANDED GARMENTS. THE APPELLANT PRESENT THE DETAILS OF COLLECTION MADE THOROUGH CREDIT CARD TO MERCHANT BANKERS WHO IN TURN MAKE PAYMENT TO APPELLANT AFTER DEDUCTING SERVICE CHARGES. IT IS OBSERVED THAT SALES MADE TO CREDIT CARD HOLDER ARE NOT CA RRIED WITH THE HELP OF MERCHANT BANKER NOR SAID CREDIT CARD COMPANY HAS BROUGHT APPELLANT AND BUYER TOGETHER LIKE COMMISSION AGENT. THE ISSUE WHETHER CHARGES DEDUCTED BY MERCHANT BANKER ARE IN NATURE OF COMMISSION OR NOT IS SETTLED BY DECISION OF ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 62 HON'BLE D ELHI 'HIGH COURT IN THE CASE OF JDS APPARELS (P.) LTD,*[2Q15] 53 TAXMANN.COM 139 (DELHI) WHEREIN IT IS HELD AS UNDER: 'SECTION 194H, READ WITH SECTION 40(A)(IA) OF THE INCOME - TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - COMMISSION, BROKERAGE, ETC. (BANK CHARGES) - ASSESSMENT YEAR 2009 - 10 - WHETHER BANKING SERVICES PROVIDED BY BANK TO ITS CLIENT CANNOT BE COVERED AND TREATED AS SERVICES RENDERED BY AN AGENT FOR PRINCIPAL DURING COURSE OF BUYING OR SELLING OF GOODS AS BANKER DOES NOT RENDER ANY SERVICE IN NA TURE OF AGENCY - HELD, YES - ASSESSEE, ENGAGED IN BUSINESS OF TRADING IN READYMADE GARMENTS, PAID 'COMMISSION' TO BANK ON PAYMENTS RECEIVED FROM CUSTOMERS WHO HAD MADE PURCHASES THROUGH CREDIT CARDS - WHETHER AMOUNT CHARGED BY BANK WAS A FEE FOR RENDERING BANKING SERVICES TO ITS CLIENT AND, THUS, SAME COULD NOT BE TREATED AS A COMMISSION OR BROKERAGE UNDER SECTION 194H - HELD, YES [PARA 16] [IN FAVOUR OF ASSESSEE]' IT IS FURTHER OBSERVED THAT HON'BLE MUMBAI ITAT IN THE CASE OF /TO V/S JET AIRWAYS( LNDIA ) LI MITED 2013] 36 FAXMANN.COM 379 HAS ALSO HELD THAT 'PAYMENTS TO BANKS FOR UTILIZATION OF CREDIT CARD FACILITIES ARE IN NATURE OF BANK CHARGES, AND NOT COMMISSION, AND THEREFORE, NO TAX IS DEDUCTIBLE AT SOURCE UNDER SECTION 194H'. AS FACTS OF APPELLANT CASE ARE IDENTICAL WITH FACTS OF DECISIONS REFERRED SUPRA, DISALLOWANCE MADE BY ASSESSING OFFICER U/S 40(A)( IA ) FOR RS 12,25,9087 - IS DELETED . THIS GROUND OF APPEAL IS ALLOWED 52 . B EING AGGR IEVED BY THE ORDER OF THE C IT - A R EVENUE IS IN A PPEAL BEFORE US. THE LEARNED DR AND AR BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 52.1 IN THE INSTANT CASE , THE COMMISSION PAID BY THE ASSESSEE AGAINST THE EARLY RECOVERY FROM THE BANK IS AGAINST THE SALES MADE BY IT THROUGH THE USE OF CREDIT CA RD . A S PER THE ASSESSEE , SUCH CH ARGES PAID TO THE BANK A R E IN THE NATURE OF BANK INTEREST . T HEREFORE , THE SAME CANNOT BE SUBJEC T TO TDS UNDER SECTION 194H OF THE ACT . H OWEVER , THE AO WAS OF THE VIEW THAT THE IMPUGNED PAYMENT IS REPRESENTING THE COMMISSION PAID TO THE BANK . T HEREFORE THERE HAS TO BE THE DEDUCTION OF T DS UNDER SECTION 194H OF THE ACT. HOWEVER , THE VIE W OF THE AO WAS SUBSEQUENTLY REVERSED BY THE LEARNED CIT (A). ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 63 52.2 NOW THE CONTROVERSY BEFORE US ARISES TO DECIDE WHETHE R THE COMMISSION PAID AGAINST THE SALES EFFECTED THROUGH THE USE OF CREDIT CARD BY THE CUSTOMERS IS LIABLE FOR DEDUCTION OF TDS . THERE IS NO AMBIGUITY THAT THE BANK S LEVY CERTAIN CHARGES IF THE ASSE SSEE EXPECTS PAYMENT FROM THE BANK BEFORE THE DUE DATE. IF WE SEE THE NATURE OF THE TRANSACTION , IT IS CLEAR THAT THE ASSESSEE PAYS THE CHARGES FOR AVAILING THE FUND FROM THE BANK BEFORE THE DUE DATE . THUS THESE CHARGES A R E REPRESENTING THE INTEREST PAID T O THE BANK. 52.3 WE ALSO NOTE THAT THERE IS NO ROLE OF THE BANK FOR THE SALES MADE BY THE ASSESSEE TO THE CUSTOMERS. THE BANK UNDERTAKES THE LIABILITY TO MA K E THE PAYMENT TO THE ASSESSEE ON BEHALF OF THE CUSTOMER WHO USES THE CREDIT CARD FOR THE PAYMENT. IN THIS REGARD , WE ALSO FIND SUPPORT AND GUIDANCE FROM THE JUDG MENT OF MUMBAI ITAT IN THE CASE OF ITO VERSUS JET AIRWAYS INDIA LTD REPORTED IN 36 TAXMAN.COM 3 79 WH EREIN IT WAS HELD AS UNDER: WE ALSO OBSERVE THAT THE BANGALORE BENCH OF THE TRIBUNAL BY FOLLOWING THE SAID DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL HAS HELD THAT THE PAYMENTS MADE TO THE BANKS ON ACCOUNT OF UTILIZATION OF CREDIT CARD FACILITIES WO ULD BE IN THE NATURE OF BANK CHARGES AND NOT IN THE NATURE OF COMMISSION WITHIN THE MEANING OF SECTION 194H OF THE ACT AND HENCE NO TDS IS REQUIRED TO BE DEDUCTED U/S 194 H OF THE ACT. IN VIEW OF THE ABOVE WE HOLD THAT THE ISSUE IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCHES OF THE TRIBUNAL WE UPHOLD THE ORDER OF THE LD. CIT(A) AND REJECT THE GROUNDS NO.1 TO 3 TAKEN BY THE DEPARTMENT FOR ALL THE THREE ASSESSMENT YEARS UNDER CONSIDERATION. 52. 4 I N VIEW OF ABOVE WE CONCLUDE THAT THE COMMISSION CHARGES PAID BY THE ASSESSEE TO THE BANK FOR GETTING THE EARLY PAYMENT ON ACCOUNT OF THE SALES MADE BY IT AGAINST THE USE OF CRE DIT CARD BY THE CUSTOMERS A R E REPRESENTING THE INTERESTS T O THE BANK. ACCORDINGLY , THERE IS NO LIABILITY ON THE PART OF THE ASSESSEE FOR THE DEDUCTION OF TDS ON SUCH PAYMENT TO THE BANK. HEN CE THE GROUND OF APPEAL OF THE R EVENUE IS DISMISSED. 53 . IN THE RE SULT , THE APPEAL OF THE R EVENUE IS DISMISSED . ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 64 54 . NOW COMING TO TH E REVENUE APPEAL IN ITA 2857/AHD/2016, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. (1) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.8,12,864/ - MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION CLAIMED ON MOTOR CAR. (2) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.L,54,26,525/ - MADEU/SL4AR.W.R.8D OF THEACT. (3) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.19,68,967/ - MADE U/S 36(L)(III) OF THE ACT ON ACCO UNT OF DISALLOWANCE OF INTEREST. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME/BOOK P ROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. THE APPELLANT CRAVES, TO LEAVE, TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 55 . THE 1 ST ISSUE RA ISED BY REVENUE IS THAT LD. CIT( A ) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR DISALLOWING THE DEPRECIATION AMOUNTING TO RS. 8,12,864.00 ONLY. 55 .1 THE IDENTICAL ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE IN ITA 218/AHD/2016. FOR DETAILED DISCUSSION PLEASE REF ERRED TO PARA NUMBER 19 OF THIS ORDER. AS THE ISSUE INVOLVED IS IDENTICAL TO THE ISSUE RAISED IN ITA 218/AHD/2016, THEREFORE RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 56 . THE 2 ND ISSUE RAISED BY REVENUE IS THAT LD. CIT - A ERRED IN DELETION THE ADDITION OF 1,54,26,525.00 UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES. ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 65 56 .1 THE IDENTICAL ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE IN ITA 218/ AHD/2016. FOR DETAILED DISCUSSION PLEASE REF ERRED TO PARA NUMBER 14&15 OF THIS ORDER. AS THE ISSUE INVOLVED IS IDENTICAL TO THE ISSUE RAISED IN ITA 218/AHD/2016, THEREFORE RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 57 . THE 3 RD ISSUE RAISED BY REVENUE IS THAT LD. CIT - A ERRED IN DELETI N G THE ADDITION OF 19,68,967.00 UNDER SECTION 36(1)(III) OF THE ACT. 57 .1 THE IDENTICAL ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATING THE APPEAL OF THE REVENUE IN ITA 2 47/AHD/2016. FOR DETAILED DISCUSSION PLEASE REF ERRED TO PARA NUMBER 26 OF THIS ORDER. AS THE ISSUE INVOLVED IS IDENTICAL TO THE ISSUE RAISED IN ITA 247/AHD/2016, THEREFORE RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 58 . IN THE RESULT , THE APPEAL OF THE REVENUE IS DISMISSED . 59 . IN THE COMBINED RESULT , THE APPEAL FILED BY ASSESSEE BEARING NO.218/AHD/2016 IS ALLOW ED , AND APPEALS FILED BY THE REVENUE BEARING ITA NOS. 247 - 248, 1760 & 2857 /AHD/2016 ARE DISMISSED . O RDER PRONOUNCED IN THE COURT ON 31/12/ 2018 AT AHMEDABAD. - SD - - SD - (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER A HMEDABAD; DATED 31 / 12/2018 ITA NOS.248/AHD/2016 ASSTT. YEAR 20010 - 11 & OTHERS 66 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , / DR, ITAT, 6. / GUARD FILE .
