Shri Mukeshbhai Jashvantlal Panchal HUF, Ahmedabad V. The Income tax Officer, Ward-2(3), Ahmedabad

ITA 2925/AHD/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5845 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-06-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 30-09-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: S N DIVATIA
• Keywords: Principle of natural justice; Cost of acquisition; Capital Gains
• Section: 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI T K SHARMA,JM & A N PAHUJA,AM] ITA NO.2925/AHD/2004 (ASSESSMENT YEAR:-2001-02) MUKESHBHAI JASHVANTLAL PANCHAL,HUF, 652/11, SHAMAL BECHARS DEHLA, DARIAPUR, AHMEDABAD [PAN: AABHP 2956 B] V/S INCOME-TAX OFFICER, WARD- 2(3),AHMEDABAD [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI S N DIVATIA, AR RESPONDENT BY:- SHRI K M MAHESH, DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 03- 08-2004 OF THE LD. CIT(APPEALS)-VI, AHMEDABAD, RAI SES THE FOLLOWING GROUNDS :- 1.1 THE ORDER PASSED BY THE LD.CIT(A)-VI, AHMEDABAD, CO NFIRMING THE ASSESSMENT MADE BY AO IS WHOLLY ILLEGAL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2.1 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O N FACTS IN CONFIRMING THAT AO WAS JUSTIFIED IN CHARGING CAPITAL GAIN TAX @ 20% ON THE CAPITAL GAIN OF RS.1,08,172/-. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD.CIT(A) OUGHT NOT TO HAVE CONFIRMED LEVY OF CAPITAL GAIN TA X ON THE LONG TERM CAPITAL GAIN OF RS.1,08,172/-. 2.3 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN WORKING OUT LONG TERM CAPITAL GAIN AT RS.3,94,000/- FOR THE PURPOSE OF TAX PAYABLE UNDER THE PROVISO TO SECTION 112(1). THE LD.CIT(A) HAS FAILED TO TAKE INTO CONSIDERATION THE LONG TERM/SHORT TERM CA PITAL LOSS OF RS.2,59,980/- BY WAY OF SET OFF AND AS SUCH TAXABLE LONG TERM CAPITAL GAIN OUGHT TO HAVE BEEN TAKEN AT RS.1,34,02 0/- AS SHOWN BY AO IN COL.9 AT PARA-5 OF HIS ORDER. 2.4 THE LD.CIT(A) HAS FAILED TO APPRECIATE THAT THE TAX ON LONG TERM CAPITAL GAIN (NET) AS PER PROVISO TO SECTION 112(1) WAS LESS THAN TAX ON LONG TERM CAPITAL GAIN (NET) AFTER INDEXATION, S O THAT TAX SHOULD HAVE BEEN CHARGED @ 10% ON RS.1,34,020/-. ITA NO.2925/AHD/2004 FOR AY 2001-02 MUKESHBHAI J PANCHAL- HUF 2 3.1 THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF DEMAT CHARGES OF RS.34,000/- CLAIME D AGAINST THE CONSULTANCY INCOME. 3.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD.CIT(A) OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF DEM AT CHARGES. 2 AT THE OUTSET, THE LEARNED AR ON BEHALF OF THE AS SESSEE DID NOT PRESS GROUND NO.1.1 IN THE APPEAL. THEREFORE, THIS GROUND IS DISMISSED. 3 ADVERTING NOW TO GROUND NOS.2.1 TO 2.4 RELATING T O TAXATION OF CAPITAL GAINS AFTER CONSIDERING THE LONG TERM/SHOR T TERM CAPITAL LOSS, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT TH E RETURN DECLARING INCOME OF RS.3,95,785/-FILED ON 29-10-2001 BY THE A SSESSEE, ENGAGED IN THE BUSINESS OF TRADING IN SHARES, AFTER BEING PROCESSED ON 21.10.2002 U/S 143(1) OF THE INCOME-TAX ACT, 196 1 [HEREINAFTER REFERRED TO AS THE ACT], WAS SELECTED FOR SCRUTIN Y WITH THE ISSUE OF NOTICE U/S 143(2)OF THE ACT ON 26.10.2002.DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD SHOWN LONG-TERM CAPITAL GAI N OF RS.9,00,204/- ON SALE OF SHARES OF RELIANCE INDUSTR IES IN DIFFERENT LOTS AND ON DIFFERENT DATES. HOWEVER, THE YEAR OF A CQUISITION OF 2500 SHARES OF RELIANCE INDUSTRIES HAD BEEN SHOWN AS 199 7-98. TO A QUERY BY THE AO, THE ASSESSEE ADMITTED THAT THE YEA R OF ACQUISITION OF THESE SHARES WAS 1999-2000 AND ACCORDINGLY, CAPI TAL GAIN WAS WORKED OUT BY THE AO AS UNDER, AFTER ADJUSTMENT OF LOSS OF RS. 2,59,980/-: NAME OF CO. & NO. OF SHARES PURCHASE PRICE INDEXED COST OF ACQUISITION SALE VALUE INDEXED GAIN LONG TERM & SHORT TERM CAPITAL LOSS BALANCE TO BE TAXED @ 20% BALANCE TO BE TAXED @10% ITA NO.2925/AHD/2004 FOR AY 2001-02 MUKESHBHAI J PANCHAL- HUF 3 ADJUSTED BY THE ASSESSEE 5-4-7 5-3-7 2 3 4 5 6 7 8 9 RELIANCE IND. 2500 SHARES 591475 591475 X 406/389 = RS.617323 985475 368152 259980 108172 134020 3.1 THE AMOUNT OF LONG-TERM CAPITAL GAIN OF RS.1 ,08,172/- TO BE TAXED AT THE RATE OF 20 PERCENT WAS, THEREFORE, ADDED TO THE TOT AL INCOME . 4. ON APPEAL, THE ASSESSEE CONTENDED THAT TH E TAX ON THE LONG TERM CAPITAL GAIN IS TO BE CALCULATED IN TERMS OF PROVIS IONS OF SEC. 112 OF THE ACT. AS PER PROVISO TO SUB-SECTION (1) OF SECTION 112, IF T HE TAX PAYABLE ON THE LONG TERM CAPITAL GAIN AS PER SUB-SECTION (1) OF THAT SECTION EXCEEDED 10% OF THE AMOUNT OF CAPITAL GAINS BEFORE GIVING EFFECT TO THE PROVISION S OF SECOND PROVISO TO SECTION 48, THEN, SUCH EXCESS HAD TO BE IGNORED FOR THE PUR POSE OF CALCULATING THE TAX PAYABLE BY THE ASSESSEE. SINCE THE 10% OF BOOK GAIN ON THE SALE OF SHARES WAS LESS THAN 20% OF THE LONG TERM CAPITAL GAIN CALCULA TED AS PER SECOND PROVISO TO SECTION 48, THE ASSESSEE WAS REQUIRED TO PAY ONLY 1 0% OF BOOK GAIN AS TAX ON LONG TERM CAPITAL GAIN, THE ASSESSEE ARGUED. HOWEVE R, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO ON THE GROUND THAT THE CAPITAL G AIN WITHOUT GIVING EFFECT TO THE PROVISIONS OF SECOND PROVISO TO SECTION 48 WOULD WO RK OUT TO RS.3,94,000/- (RS.9,85,475/- (-) RS.5,91,475/-) AND CONSEQUENTLY, THE TAX AS PER PROVISO TO SUB- SECTION (1) OF SECTION 112 @10% ON THIS GAIN WOULD WORK OUT TO RS.39,400/- WHEREAS THE TAX IMPOSED @ 20% ON THE LONG TERM CAPI TAL GAIN OF RS.1,08,172/- WORKED OUT BY THE AO WAS ONLY RS.21,634/- (20% OF R S.1,08,172/-). 5. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE SUBMITTING THE CALCULATIONS OF CAPITAL GAINS POINTED OUT THAT THE LD. CIT(A) IGNORED LOSS OF RS. 2,59,980/- WHILE WO RKING OUT BOOK GAIN OF RS. 3,94,000/-,WHICH THE AO HIMSELF HAD CON SIDERED. ITA NO.2925/AHD/2004 FOR AY 2001-02 MUKESHBHAI J PANCHAL- HUF 4 THEREFORE, THE ASSESSEE WAS REQUIRED TO BE TAXED @1 0% OF CAPITAL GAINS WORKED OUT AFTER SETTING OFF OF THE AFORESAID LOSS. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDER S . 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO BROUGHT TO TAX LONG TERM CAPITAL GAINS OF RS. 1,08,872/-(AFTER SET OFF OF RS. 2,59,980/-) @ 20% . THE ASSESSEE BEFORE US NOW SEEKS TAXATION OF LONG TERM CAPITAL GAINS @10% AFTER SET OFF OF THE AFORESAID LOSS SINCE ACCO RDING TO HIM THE 10% OF BOOK GAIN ON THE SALE OF SHARES WOULD WORK O UT TO LESS THAN 20% OF THE LONG TERM CAPITAL GAIN, CALCULATED AS PER SECOND P ROVISO TO SECTION 48 OF THE ACT. THE LD. CIT(A) HAS NOT ASSIGNED ANY REASONS FOR IGN ORING THE LOSS OF RS. 2,59,980/- IN HIS ORDER WHILE CALCULATING THE GAINS TO BE TAXED @10%, EVEN WHEN THE AO HIMSELF HAD CONSIDERED THE S AME IN HIS WORKING. SINCE THE ASSESSEE SEEKS TAXATION @ 10% O N BOOK GAIN IN TERMS OF PROVISO TO SEC. 112(1) OF THE ACT WHILE T HE LD. CIT(A) HAVE NOT ASSIGNED ANY REASONS FOR IGNORING THE CURRENT YEARS LOSS ALLOWED BY THE AO HIMSELF, WE ARE INCLINED TO ACCE PT THE CLAIM OF THE ASSESSEE. THEREFORE, THE AO IS DIRECTED TO RECO MPUTE THE CAPITAL GAINS ,KEEPING IN VIEW THE PROVISO TO SEC. 112(1) OF THE ACT. WITH THESE DIRECTIONS, GROUND NOS.2.1 TO 2.4 ARE DI SPOSED OF. 7. GROUND NOS.3.1 AND 3.2 RELATE TO DEDUCTION OF DEMAT CHARGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT AN AMOUNT OF RS.32,500/- WAS DEBITED AS 'DEMAT CHAR GES' IN THE PROFIT AND LOSS ACCOUNT OF M/S. J M CONSULTANCY, TH E PROPRIETARY CONCERN OF THE ASSESSES. TO A QUERY BY THE AO, SEEK ING, INTER ALIA, THE DETAILS OF CORRESPONDING INCOME FOR WHICH THESE CHARGES WERE PAID, THE ASSESSEE EXPLAINED THAT DEMAT CHARGES OF RS.32,400/- WERE ACTUALLY PAID BY ONE NILABEN JASWANTLAL PANCHA L, A SISTER OF MUKESHBHAI J PANCHAL,KARTA OF THE ASSESSEE. FOR PAY MENT MADE BY HER, A COPY ITA NO.2925/AHD/2004 FOR AY 2001-02 MUKESHBHAI J PANCHAL- HUF 5 OF DEBIT NOTE DATED 19-2-2001 ISSUED BY THE AHMEDAB AD PEOPLES CO-OP. BANK LTD., BHADRA BRANCH, AHMEDABAD WAS ALSO SUBMITTED . IT WAS FURTHER POINTED OUT THAT J M CONSULTANCY HAD OPENED DEMAT ACCOUNTS IN T HE NAME OF ITS VARIOUS CUSTOMERS AND HUF MEMBERS WITH THE STANDARD CHARTER ED BANK LIMITED BUT ALL ACCOUNTS WERE CLOSED ON 17-10-2000 WITHOUT MAKING ANY TRANSACTION. ON PERUSAL OF REPLY FILED BY THE ASSESSEE, THE AO OBSE RVED THAT IT WAS NOT CLEAR AS TO WHETHER THE DEMAT ACCOUNT OPENED BY THE ASSESSEE IN THE NAME OF NILABEN J. PANCNAL WAS IN THE CAPACI TY OF HER BEING THE KARTA'S SISTER OR IN THE CAPACITY OF THE ASSESS EE'S CUSTOMER. SINCE THE COPY OF DEBIT NOTE ISSUED BY THE AHMEDABA D PEOPLES COOP. BANK LIMITED REVEALED THAT THE SAME WAS ISSUE D TOWARDS 'RIL ECS CHARGES - SOD A/C. 66 ' AND THERE WAS NO MENTIO N OF DEMAT CHARGES NOR IT WAS IN THE NAME OF THE ASSESSEE'S P ROPRIETARY CONCERN, THE AO ASKED THE ASSESSEE TO FURNISH EVIDE NCE THAT THE DEMAT CHARGES CLAIMED BY THE ASSESSEE WERE INCURRED FOR THE PURPOSE OF THEIR BUSINESS . HOWEVER, THE ASSESSEE D ID NOT FURNISH ANY REPLY. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF RS. 32,400/-. 8. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE DISA LLOWANCE WITH THE FOLLOWING OBSERVATIONS:- 4. GROUND NO.5 RELATES TO DISALLOWANCE OF DEMAT CH ARGES OF RS.32,400/-. THE LEARNED COUNSEL HAS SUBMITTED THAT THE APPELLANT IS ENGAGED IN THE TRADING OF SHARES AS ALSO IN PROVIDI NG CONSULTANCY TO THE INVESTORS AS REGARDS DEMATERIALIZATION OF SHARES. H E INCURRED AN EXPENDITURE OF RS.32,400/- FOR OPENING OF DEMAT ACC OUNTS OF HIS CLIENTS. THE DEMAT CHARGES WERE DEBITED TO THE ACCOUNT OF MS . NEELABEN J. PANCHAL BY THE AHMEDABAD PEOPLES CO.OP. BANK LTD. T HE APPELLANT LATER PAID THESE CHARGES TO MS.NEELABEN J. PANCHAL VIDE C HEQUE NO. 529447 DATED 29.3.2001. HE HAS STATED THAT IT WAS A BUSINE SS EXPENDITURE INCURRED BY THE APPELLANT AND, THEREFORE, IT WAS RE QUIRED TO BE ALLOWED AS DEDUCTION IN CALCULATING HIS TAXABLE INCOME MORE SO WHEN THE COMMISSION INCOME OF RS.25,000/- EARNED FROM PROVID ING CONSULTANCY TO THE INVESTORS FOR DEMATERIALIZATION OF SHARES ETC. WAS CREDITED IN THE PROFIT AND LOSS ACCOUNT. THE CONTENTIONS OF THE LEARNED CO UNSEL ARE NOT TENABLE. THE DEMAT CHARGES IS A LIABILITY WHICH IS TO BE BOR NE BY THE INVESTOR AND ITA NO.2925/AHD/2004 FOR AY 2001-02 MUKESHBHAI J PANCHAL- HUF 6 NOT BY THE BROKER. THE EXPENDITURE INCURRED ON THE OPENING OF DEMAT ACCOUNTS OR DEMATERIALIZATION OF SHARES WAS TO BE B ORNE BY THE RESPECTIVE INVESTORS / CLIENTS AND SUCH EXPENDITURE WAS DEDUCT IBLE IN CALCULATING THE CAPITAL GAIN IN THE HANDS OF SUCH INVESTORS / CLIEN TS. THE APPELLANT HAS NOT ESTABLISHED THAT THE DEMAT CHARGES OF RS.32,500/- R ELATED TO OPENING OF ITS DEMAT ACCOUNT OR FOR DEMATERIALIZATION OF SHARES OW NED BY IT AND, THEREFORE, THIS EXPENDITURE COULD NOT BE TREATED TO HAVE BEEN INCURRED IN THE ORDINARY COURSE OF ITS BUSINESS. TAKING INTO AC COUNT THESE FACTS, THE DISALLOWANCE OF DEMAT CHARGES OF RS.32,500/- IS HEL D JUSTIFIED AND THE SAME IS CONFIRMED. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGIN ST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS MADE BEFORE THE LD. CI T(A) WHILE THE LEARNED DR SUPPORTED THE IMPUGNED ORDER. 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE. WE FIND THAT THE AO DISALLOWED AN AMOUNT OF RS. 32,400/- ONLY AND THE LD. CIT(A) UPHELD THE SAME. THE AMOUNT OF RS.34,000 MENTIONED IN THESE GROUNDS HAS NOT BEEN RECONCILED BEFORE US WITH THE DISALLOWANCE UPHELD BY THE LD. CIT(A).UNDISPUTE DLY, THE DEBIT NOTE ISSUED BY THE AHMEDABAD PEOPLES COOP. BANK LIM ITED REVEALED THAT THE AMOUNT OF RS. 32,400/- WAS TOWA RDS 'RIL ECS CHARGES - SOD A/C. 66 ON ACCOUNT OF NILABEN JASWAN TLAL PANCHAL, A SISTER OF KARTA OF THE ASSESSEE HUF. AS POINTED OUT BY TH E AO, THERE WAS NO MENTION OF DEMAT CHARGES ON THE SAID DEBIT NOTE NOR IT WAS IN THE NAME OF THE ASSESSEE'S PROPRIETARY CONCERN. DESPITE REQUEST MADE BY THE AO, THE ASSESSEE DID NOT FURNISH ANY EVIDENC E THAT THE SAID AMOUNT WAS ON ACCOUNT OF DEMAT CHARGES AND HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF CONSULTANCY, AS CLAIMED BY THE ASSESSEE. EVEN BEFORE THE LD. CIT (A), THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US THAT THE SAID AMOUNT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE OR THAT IT HAD NEXUS WITH ANY CONSULTA NCY INCOME ITA NO.2925/AHD/2004 FOR AY 2001-02 MUKESHBHAI J PANCHAL- HUF 7 EARNED BY THE ASSESSEE, WE ARE NOT INCLINED TO TAKE A DIFFERENT VIEW IN THE MATTER. THEREFORE, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LOWER AUTHORITIES. THUS, GROUND NOS . 3.1 & 3.2 IN THE APPEAL ARE DISMISSED. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 30-6 -2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-6-2010 COPY OF THE ORDER FORWARDED TO: 1. MUKESHBHAI JASHVANTLAL PANCHAL-HUF, 652/11, SHAM AL BECHARS DEHLA, DARIAPUR, AHMEDABAD 2. THE ITO, WARD-2(3), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VI, AHMEDABAD 5. THE DR, BENCH-C, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD