ITO 4(2)(2), MUMBAI V. STRATCAP SECURITIES (INDIA) P. LTD, MUMBAI

ITA 2756/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6698 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 19-07-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 08-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS.2755 AND 2756/MUM /2010 (ASSESSMENT YEAR: 2001-02 AND 2000-01) THE ITO -4(2)(2), ROOM NO.644, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 ....... APPELLANT VS STRATCAP SECURITIES (INDIA) PVT. LTD., 44, MINT ROAD, FORT, MUMBAI -400 020 ..... RESPONDENT PAN: AAACS 7113 H APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI VIMAL PUNMIYA O R D E R PER R.S. PADVEKAR, JM THESE TWO APPEALS BY THE REVENUE ARE FILED CHALLENG ING THE IMPUGNED RESPECTIVE ORDERS OF THE LD. CIT (A). WE F IRST TAKE THE APPEAL FOR THE A.Y. 2000-01 BEING ITA NO.2756 OF 2010. TH E REVENUE HAS TAKEN THE FOLLOWING GROUND:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) CLEARLY ERRED IN DELETING THE ADDITION OF RS 39,41,501/- CLAIMED BY THE ASSESSEE ON SALE OF UNIT S OF MUTUAL FUND WITHOUT APPRECIATING THE FACT THAT THE TRANSACTION WAS UNCOMMERCIAL AND WAS EFFECTED ONLY TO AVOID TAX PAYMENTS. ITA 2755 AND 2756/MUM/2010 STRATCAP SECURITIES (INDIA) PVT. LTD. 2 2. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE IS SHARE- BROKER. THE ASSESSEE FILED THE RETURN OF INCOME FO R THE A.Y. 2000-01 WHICH WAS SELECTED FOR SCRUTINY. THE A.O. DISALLOW ED THE LOSS OF RS 39,41,501/- WHICH WAS CLAIMED AS BUSINESS LOSS INCU RRED IN PURCHASE AND SALE OF UNITS OF MUTUAL FUND. THE ASSESSEE CON TENDED THAT THE ASSESSEE ENTERED INTO GENUINE COMMERCIAL TRANSACTIO N FOR PURCHASE AND SALE OF UNITS, WHICH ARE FULLY SUPPORTED WITH E VIDENCE AND PROOFS. THE ASSESSEE ALSO FILED THE DETAILS AND ALL TRANSAC TIONS OF SALES AND PURCHASES IN RESPECT OF THE UNITS OF THE RELIANCE M UTUAL FUND. 3. BEFORE US, IT IS SECOND ROUND OF APPEAL. IN THE FIRST ROUND, THE MATTER WAS RESTORED TO THE FILE OF THE A.O. TO VERI FY WHETHER THE LOSS IS GENUINE OR NOT ? AS PER THE ASSESSMENT ORDER, WE F IND THAT THE ASSESSEE PROVED THAT LOSS WAS GENUINE BUT HE A.O. D ECLINED TO FOLLOW THE DECISION OF THE ITAT (SB) IN THE CASE OF CIT VS . WALLFORT SHARES AND STOCK BROKERS P. LTD. 326 ITR 1 (SC) BY STATING THAT EVEN IF THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE H ONBLE HIGH COURT, THE DEPARTMENT HAS NOT ACCEPTED THE DECISION AND SL P IN THE HONBLE SUPREME COURT IS BEING FILED. THIS CASE IS NOTHING BUT IT IS A CASE OF THE DIVIDEND STRIPPING AND PRIOR TO THE AMENDMENT TO SECTION 94 BY INSERTION OF SUB-SECTION (7) BY FINANCE ACT OF 2001 W.E.F. 2.4.2002 AND SUBSEQUENT AMENDMENT BY THE FINANCE ACT (NO.2) 2004 W.E.F. 1.4.2005, THE SAID TRANSACTIONS WERE PERMISSIBLE AS HELD IN THE CASE OF WALLFORT SHARES AND STOCK BROKER P. LTD. (SUPRA). THE HONBLE SUPREME COURT HAS EXPLAINED THE SCOPE OF INSERTION OF SUB-SECTION (7) OF SECTION 94 ARE AS UNDER:- THE LEAD MATTER COVERED ASSESSMENT YEARS BEFORE IN SERTION OF SECTION 94(7) VIDE THE FINANCE ACT, 2001 WITH EFFEC T FROM 1.4.2002. WITH REGARD TO SUCH CASES, IT WAS ESTABL ISHED THAT THERE WAS A SALE AND THE SALE PRICE WAS RECEIVED BY THE ASSESSEE, AND THAT THE ASSESSEE DID RECEIVE DIVIDE ND. THE FACT THAT THE DIVIDEND RECEIVED WAS TAX-FREE WAS THE POS ITION ITA 2755 AND 2756/MUM/2010 STRATCAP SECURITIES (INDIA) PVT. LTD. 3 RECOGNIZED UNDER SECTION 10(33). THE ASSESSEE HAD MADE USE OF THE SAID PROVISION OF THE ACT. SUCH USE CANNOT BE CALLED AS ABUSE OF LAW. EVEN ASSUMING THAT THE TRANSACTION WAS PRE- PLANNED, THERE WAS NOTHING TO IMPEACH THE GENUINENE SS OF THE TRANSACTION. HOWEVER, AFTER 1-4-2002, SUCH LOSSES TO THE EXTENT OF DIVIDEND RECEIVED BY THE ASSESSEE COULD BE IGNORED BY THE ASSESSING OFFICER IN VIEW OF SECTION 94(7). THE OB JECT OF SECTION 94(7) IS TO CURB THE SHORT-TERM LOSSES. APPLYING S ECTION 94(7) IN A CASE OF THE ASSESSMENT YEAR(S) FALLING AFTER 1-4-20 02, THE LOSS TO BE IGNORED WOULD BE ONLY TO THE EXTENT OF THE DIVID END RECEIVED AND NOT THE ENTIRE LOSS. IN OTHER WORDS, LOSSES OV ER AND ABOVE THE AMOUNT OF THE DIVIDEND RECEIVED WOULD STILL BE ALLO WED FROM WHICH IT FOLLOWS THAT THE PARLIAMENT HAS NOT TREATE D THE DIVIDEND STRIPPING TRANSACTION AS SHAM OR BOGUS. 4. WE, THEREFORE, FIND NO REASON TO DISTURB THE ORD ER PASSED BY THE LD. CIT (A) AND ACCORDINGLY THE SAME IS CONFIRMED. 5. IN THE A.Y. 2001-02 THE REVENUE HAS TAKEN THE FO LLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) CLEARLY ERRED IN DELETING THE ADDITION OF RS 59,56,062/- CLAIMED BY THE ASSESSEE ON SALE OF UNIT S OF MUTUAL FUND WITHOUT APPRECIATING THE FACT THAT THE TRANSACTION WAS UNCOMMERCIAL AND WAS EFFECTED ONLY TO AVOID TAX PAYMENTS. 6. THE ISSUE IS IDENTICAL AS DECIDED IN A.Y. 2000-0 1 IN RESPECT OF DIVIDEND STRIPPING AND THE ASSESSMENT YEAR INVOLVED IS A.Y. 2001-02 AND SUB-SECTION (7) OF SECTION 94 WAS NOT IN THE ST ATUTE BOOK. WE, THEREFORE, FOLLOWING OUR REASON IN REVENUES APPEAL FOR A.Y. 2004-05 IN ITA 2755 AND 2756/MUM/2010 STRATCAP SECURITIES (INDIA) PVT. LTD. 4 THIS YEAR ALSO CONFIRMED THE ORDER OF THE LD. CIT ( A) AND DISMISSED THE REVENUES APPEAL. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 2ND JULY 2011. SD/- SD/- ( B. RAMAKOTAIAH ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 22ND JULY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)8/4, MUMBAI. 4) THE CIT-4, MUMBAI. 5) THE D.R. J BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 2755 AND 2756/MUM/2010 STRATCAP SECURITIES (INDIA) PVT. LTD. 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 18.07.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 20.07.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER