DCIT, Cir-12, Kolkata, Kolkata V. M/s The Diamond Company Ltd., Kolkata

ITA 326/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4615 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P R KOTHARI
• Keywords: Capital asset; Charitable institution; Earning of tax free income
• Section: 143(3); 2(14); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.326/KOL/2014 ASSESSMENT YEARS:2009-10 DCIT, CIRCLE-12, P-7, CHOWRINGHEE SQUARE, AAYAKR BHAWAN, 7 TH FLOOR, KOLKATA-700 069 / V/S . M/S THE DIAMOND CO.LTD. 707, CENTRAL PLAZA, 2/6 SARAT BOSE ROAD, KOLKATA-700 020 [ PAN NO.AAACT 9733 G ] /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI SALLONG YADEN, ADDL-CIT-DR /BY RESPONDENT SHRI P.R.KOTHARI, FCA /DATE OF HEARING 03-08-2016 /DATE OF PRONOUNCEMENT 24-08-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA DATED 21.11.2013. ASSESS MENT WAS FRAMED BY JCIT(OSD), KOLKATA U/S 143(3) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 08.12.2011 FOR A SSESSMENT YEAR 2009-10. THE GROUNDS RAISED BY THE REVENUE PER ITS APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT ERRED IN DELETING THE DISALLOWANCE AMOUNTING TO RS.55,00,010/- MADE BY THE AO AS CAPITAL LOSS WHICH WAS ADJUSTED FROM THE TCG B THE ASSESSEE COMPANY. 2. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN ALLOWING SET OF CAPITAL LOSS WITH THE LTCG. ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 2 3. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN ALLOWING TO ADJUST THE STCL AMOUNTING TO RS.27,19,888/- WITH TH E STCG WHERE STT WAS NOT PAID. 4. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN ALLOWING TO ADJUST STCL WHERE STT WAS PAID WITH THE STCG WHERE STT WAS NOT PAID IN VIOLATION OF SEC. 111A OF THE IT ACT. 5. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN DELETING THE ADDITION MADE THE AO U/S 14A READ WITH RULE 8D AMOU NTING RS.8,31,749/- FOR EARNING EXEMPTED INCOME. 6. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S. 14A TO RS.3,41,720/- IN VIOLA TION OF RULE 8D OF THE IT ACT. SHRI P.R. KOTHARI, LD. AUTHORIZED REPRESENTATIVE AP PEARED ON BEHALF OF ASSESSEE AND SHRI SALLONG YADEN, LD. DEPARTMENTAL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE 3. FIRST COMMON ISSUE RAISED BY REVENUE IN GROUND N O. 1 AND 2 IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY ASSES SING OFFICER FOR 55,00,010/- ON ACCOUNT OF CAPITAL LOSS. 3.1 THE FACTS AS HAVE BEEN BROUGHT ON RECORD ARE TH AT ASSESSEE IS A LIMITED COMPANY AND FOR THE YEAR UNDER CONSIDERATION HAS FI LED ITS RETURN OF INCOME ON 24.09.2009 DECLARING TOTAL INCOME OF 38,15,680/-. THEREAFTER CASE WAS SELECTED FOR SCRUTINY AND SUBSEQUENTLY NOTICE U/S. 143(2) OF THE ACT WAS ISSUED TO INITIATE THE PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. THE ASSESSEE ACQUIRED 1,29,412 OPTIONAL CONVERTIBLE SHARE WARRANTS ON DATED 03.09.2007 FROM M/S WEST COAST PAPER MILLS LTD. (WC PM FOR SHORT). THE FACE VALUE OF THE SAID SHARE WARRANT WAS AT 425.00 PER SHARE WARRANT. THE ASSESSEE WAS TO PAY 10% OF THE FACE VALUE OF THE TOTAL CONSIDERATION I. E., 55.00 LAKH (10% OF 129412 X 425.00) AT THE TIME OF APPLICATION FOR THE PURCHASE OF SAID WARRANTS. ACCORDINGLY, ASSESSEE HAS MADE THE PAYMENT TO THE WCPM FOR RS.55 .10 LAKH AS APPLICATION MONEY FOR THE PURCHASE OF SHARE WARRANT CONVERTIBLE INTO EQUITY SHARE AT THE OPTION OF ASSESSEE. THE SHARE WARRANT WAS TO BE CONVERTED INT O EQUITY SHARE OF RS.10 EACH OF WCPM UPON THE PAYMENT OF BALANCE 90% OF THE TOTAL V ALUE OF THE SHARE WITHIN THE ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 3 SPECIFIED PERIOD. HOWEVER, ASSESSEE DID NOT EXERCIS E ITS OPTION FOR CONVERTING THE SHARE WARRANT INTO EQUITY SHARE OF WCPM. ACCORDINGL Y, ASSESSEE DID NOT PAY THE BALANCE STIPULATED AMOUNT I.E. 90% OF VALUE OF SHA RE WARRANT. AS A RESULT ALL THE RIGHTS ATTACHED WITH THE SHARE WARRANT CAME TO AN END AND THE AMOUNT OF 55.00 LAKH PAID EARLIER AGAINST THE SHARE WARRANT WAS FORFEITED BY WCPM IN TERMS OF THE ISSUE OF SAID SHARE WARRANTS. IN VIEW OF THE ABOVE, ASSESSEE CLAI MED SHORT TERM CAPITAL LOSS (STCL FOR SHORT) OF 55.00 LAKH. HOWEVER, AO OBSERVED THAT SHARE WARRAN TS ARE NOT CAPITAL ASSET WITHIN THE MEANING OF SEC. 2(14) OF T HE ACT. THEREFORE, LOSS ARISING FROM THE FORFEITURE OF SHARES WARRANT IS NOT CAPITAL LOS S CHARGEABLE UNDER THE INCOME TAX ACT. THEREFORE, LOSS CLAIMED BY ASSESSEE FOR AN AMO UNT OF 55.10 LAKH WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT THE SHARE WARRANT IS A CAPITAL ASSET AS PER THE SEC. 2(14) OF THE ACT AND ASSESSEE WAS HAVING RIGHT TO CONVERT SHARE WARRANT INTO EQUITY SHARE AS PER THE TERMS OF AGREEMENT OF SHARE WARRANT. THE ASSESSEE DID NOT EXERCISE ITS OPTION TO ACQUIRE THE SHARE OF THE SAID COMPANY WCPM AND ACCORDINGLY RIGH T OF THE ASSESSEE GOT EXTINGUISHED. CONSIDERING THE SUBMISSION OF ASSESSE E, LD. CIT(A) DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- AS ALREADY FOUND FROM THE DEFINITION OF TRANSFER , TRANSFER INCLUDES RELINQUISHMENT. OF THE ASSET OR EXTINGUISHMENT OF A NY RIGHTS THEREON. AS THE TERMS RELINQUISHMENT AND EXTINGUISHMENT ARE NOT DENIED UNDER THE ACT, ONE HAS TO DEPEND UPON THE DECIDED CASE LAW FOR UND ERSTANDING THEIR ORDINARY MEANING. ACCORDING TO THE SHORTER OXFORD ENGLISH DI CTIONARY, WHILE THE WORD RELINQUISH MEANS: TO WITHDRAW FROM, DESERT, ABANDON; TO CEAS E TO HOLD, ADHERE TO, THE WORD EXTINGUISH MEANS TO PUT A TOTAL END TO, BLOT OUT OF EXISTENCE. IN OTHER WORDS, IN A TRANSACTION OF RELI NQUISHMENT, THE INTEREST OF A PERSON IN A PROPERTY IS EITHER GIVEN UP, ABANDONED, OR SURRENDERED; BUT THE PROPERTY IN WHICH INTEREST IS RELINQUISHED CONTINUE S TO EXIST AND THE PROPERTY CONTINUES TO BE OWNED BY SOME PERSON OR PERSONS AFT ER THE TRANSACTION OF RELINQUISHMENT CIT V (HUF) [1974] 95 ITR 656 (BOM ). A RELINQUISHMENT TAKES PLACE WHEN THE OWNER WITHDRAWS HIMSELF FROM T HE PROPERTY AND ABANDON HIS RIGHTS THERETO. IT PRESUMES THAT THE PROPERTY C ONTINUES TO EXIST AFTER THE RELINQUISHMENT CIT V. RASIKLAL MAENKLAL (HUF) [19 80] 177 ITR 198 (SC) ON THE OTHER HAND, EXTINGUISHMENT REFERS NOT TO EXT INGUISHMENT OF ASSET ITSELF BUT TO EXTINGUISHMENT OF HOLDERS RIGHT TO THE ASSE TS CIT V. EAST INDIA CHARITABLE TRUST [1994] 206 ITR 152/73 TAXMAN 380(C AL). REDEMPTION OF ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 4 PREFERENCE SHARES BY A COMPANY; SQUARELY COMES WITH IN THE PHRASE SALE, EXCHANGE, OR RELINQUISHMENT OF THE ASSET AND, CONSEQUENTLY, IT IS TREATED AS TRANSFER ANARKALI SARABHAI V. CIT [1977] 90 TAXMA N 509 (SC). HOWEVER, IF THERE IS A REDUCTION OF SHARE CAPITAL BY A COMPANY BY PAYING A PART OF CAPITAL TO ITS SHAREHOLDERS, IT WOULD RESULT IN EXTINGUISHMENT OF PROPORTIONATE RIGHT IN SHARES HELD BY SHAREHOLDERS AND CHARGEABLE TO CA PITAL GAINS TAX IN THE HANDS OF SHAREHOLDERS AS HELD IN KARTIKEYA VS. SAARABHAI V. CIT [1997] 94 TAXMAN; 164 (SC), CIT V. G.NARASIMHAN [1999] 102 TAXMAN 66 (SC). IN THE SAME WAY, FORFEITURE OF SHARE APPLICATION MONEY BECAUSE OF FA ILURE BY AN ASSESSEE TO PAY BALANCE AMOUNT ON ALLOTMENT OF SHARES, IS TRANSFER CIT V. BPL SANYO FINANCE LTD. [2009] 312 ITR 63 (KAR.). IN VIEW OF T HE FACTS OF THE CASE, THE EXPRESS PROVISIONS OF THE ACT AND THE PRINCIPLE OF LAW AS LAID DOWN BY THE APEX COURT AND OTHER HIGH COURT, I AM OF THE VIEW THAT THE RIGHT OVER 129412 OPTIONALLY CONVERTIBLE SHARE WARRANTS OF WEST COAS T PAPER MILLS LTD., OWNED BY THE APPELLANT WAS A CAPITAL ASSET UNDER SEC. 2(1 4) OF THE ACT AND ITS FORFEITURE AMOUNTED TO TRANSFER UNDER SECTION 2(47) OF THE ACT. THEREFORE, THE LOSS ARISING OUT OF THE TRANSFER AMOUNTING TO R S.55,00,010/- WAS ELIGIBLE FOR ADJUSTMENT AGAINST PROFITS. THEREFORE, THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT. HE IS DIRECTE D TO ALLOW THE SAME ALLOW APPROPRIATE RELIEF TO THE APPELLANT WHILE GIVING EF FECT TO THIS ORDER. THIS GROUND OF APPEAL IS ALLOWED ACCORDINGLY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL PARTIES AND PERUSED THE MAT ERIALS AVAILABLE ON RECORD. BEFORE US BOTH THE PARTIES RELIED ON THE ORDERS OF AUTHORITIES BELOW AS FAVOURABLE TO THEM. LD. AR SUBMITTED PAPER BOOK WHICH IS RUNNING PAGES FROM 1 TO 51 AND STATED THAT SHARE WARRANT IS A CAPITAL ASSET WITHIN THE ME ANING OF SEC. 2(14) OF THE ACT THE EXTINGUISHMENT OF THE RIGHT ATTACHED TO IT IS A TRA NSFER WITHIN THE MEANING TO SEC. 2(47) OF THE ACT, THEREFORE, LOSS ARISEN FROM THE EXTINGU ISHMENT OF THE RIGHT ATTACHED SHARE WARRANT IS RESULTING SHORT TERM CAPITAL LOSS. 5.1 WE FIND THAT ASSESSEE WAS ALLOTTED CONVERTIBLE SHARE WARRANT ON 03.09.2007 AND ASSESSEE DID NOT EXERCISE ITS OPTION TO CONVERT THE SHARE WARRANT INTO EQUITY SHARE. THE ASSESSEE SURRENDERED THE SHARE WARRANTS WITHIN THE SPECIFIED TIME AND AS A RESULT RIGHT ATTACHED TO THE SHARE WARRANT OF THE ASSESSEE CAME TO AN END WHICH HAS RESULTED INTO STCL WHICH WAS DISALLOWED BY AO ON THE GROUND THAT SHARE WARRANT IS NOT A PROPERTY AS PER THE PROVISIONS OF SEC. 2(14) OF THE ACT. HOW EVER, IN APPELLATE STAGE, LD. CIT(A) ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 5 DISMISSED THE ACTION TAKEN BY AO. NOW THE QUESTION BEFORE US ARISE SO AS TO WHETHER THE SHARE WARRANT WHICH IS OPTIONAL CONVERTIBLE INT O SHARES ARE CAPITAL ASSET AS PER SEC. 2(14) OF THE ACT. WE FIND THAT SEVERAL COURTS HAVE HELD THIS ISSUE IN FAVOUR OF ASSESSEE, WHICH ARE REPRODUCED BELOW:- 1) DYNAMIC FOUNDATION (P) LTD. VS. CIT (2015) 57 TA XMANN.COM 139 (CAL) 2) DCIT VS. BPL SANYO FINANCE LTD. (2009) 312 ITR 6 3 (KAR) 3) CIT VS. CHAND RATAN BAGRI (2010) 329 ITR 356 FROM THE ABOVE JUDGMENTS, WE FIND THAT THERE WAS A BINDING CONTRACT BETWEEN ASSESSEE AND WCPM WITH THE OPTION TO THE ASSESSEE TO ACQUIRE THE EQUITY SHARE. THE ASSESSEE, IN THE INSTANT CASE, HAS PAID ONLY 10% OF THE TOTAL CONSIDERATION AND THE BALANCE WAS TO BE PAID BY ASSESSEE WITHIN THE SPECIFIED TIME. HOWE VER, THE MARKET VALUE OF THE SHARE OF WCPM CAME DOWN DRASTICALLY AND ASSESSEE DECIDED NOT TO MAKE FURTHER PAYMENT FOR THE PURCHASE OF SHARE WARRANT. AS A RESULT OF N ON-PAYMENT OF BALANCE AMOUNT FOR THE PURCHASE OF SHARE WARRANT, THE COMPANY FORFEITE D THE AMOUNT. IN THE INSTANT CASE, SHARE WARRANT IS A CAPITAL ASSET WITHIN THE MEANING OF SEC. 2(14) OF THE ACT. AT THIS JUNCTURE, WE FIND TO REFLECT THE PROVISION OF SEC. 2(14) OF THE ACT AS UNDER:- 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUI RES,- (14) [CAPITAL ASSET MEANS- (A) PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETH ER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION; (B) ANY SECURITIES HELD BY A FOREIGN INSTITUTIONAL INVESTOR WHICH HAS INVESTED IN SUCH SECURITIES IN ACCORDANCE WITH THE REGULATIONS MADE UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) FROM A BARE READING OF SEC. 2(14) OF THE ACT AND WE FIND THAT SHARE WARRANT IS A CAPITAL ASSET. SO THE LOSS GENERATED FROM THE FORFEITURE OF SHARE WARRANT IS NOTHING BUT A CAPITAL LOSS AND CHARGEABLE UNDER THE HEAD CAPITAL GAIN . IN VIEW OF THE ABOVE, THE LOSS ACQUIRED FROM THE FORFEITURE OF SHARE WARRANTS IS N OTHING BUT STCL. HENCE, THIS LOSS SHOULD BE ALLOWED IN FAVOUR OF ASSESSEE. THEREFORE, WE FIND NO REASON TO INTERFERE INTO THE ORDER OF LD. CIT(A). HENCE, REVENUES GROUND IS DISMISSED. 6. NEXT COMMON ISSUE RAISED BY REVENUE IN GROUND NO . 3 AND 4 IS THAT LD. CIT(A) ERRED IN ALLOWING TO ADJUST THE STCL OF 27,19,888.00 BASED ON STT PAID ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 6 TRANSACTIONS WITH SHORT TERM CAPITAL GAIN (STCG FOR SHORT) WHERE SECURITIES TRANSACTION TAX (STT FOR SHORT) WAS NOT PAID. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS S HOWN STCL ON THIS SALE-PURCHASE OF SECURITIES ON WHICH STT WAS PAID OF 27,19,888/-. THE ASSESSEE ADJUSTED THIS LOSS AGAINST STCG WHICH WAS ARISING FROM THE SALE-PURCHA SE OF SHARES ON WHICH NO STT WAS PAID. THE AO, DURING THE COURSE OF ASSESSMENT P ROCEEDINGS OBJECTED TO ALLOW THE SET OFF OF CURRENT YEARS STCL AMOUNTING TO 27,19,888/- AGAINST CURRENT YEARS STCG ON WHICH NO STT WAS PAID ON THE GROUND THAT SEC.111 A OF THE ACT PROVIDE FOR SPECIAL TAX TREATMENT OF STCG WHERE STT HAS BEEN PAID. ACCO RDINGLY, LOSS OF 27,19,888/- HAS NOT BEEN ALLOWED TO THE SET OFF AGAINST OTHER S HORT TERM CAPITAL GAINS INCOME. 7. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A), WHEREAS ASSESSEE SUBMITTED THAT SEC. 70(2) OF THE ACT CLEARLY PROVID ES FOR SET OFF OF ANY STCL OF CURRENT YEAR WITHOUT MAKING ANY DISTINCTION BETWEEN STT PAID AND NON STT PAID TRANSACTIONS. IT WAS ALSO SUBMITTED THAT THE PROVIS ION OF SEC. 111A COMES INTO EFFECT ONLY AFTER COMPUTATION OF TOTAL INCOME UNDER VARIOU S HEADS OF INCOME. ACCORDINGLY, CONSIDERING THE SUBMISSION, LD. CIT(A) ALLOWED THE SET OFF OF STCL ON WHICH STT WAS PAID BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSION. FOR THE CORRECT APPRECIATION OF THE PROVISIONS OF LAW, THE RELEVANT SECTIONS MAY BE REP RODUCED BELOW: SECTION 70(2): WHERE THE RESULT OF THE COMPUTATION MADE FOR ANY ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY SHOR T-TERM CAPITAL ASSET IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT O F SUCH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPU TATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASS ET. SECTION 111A: WHERE THE TOTAL INCOME OF AN ASSESSE E INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS, ARISING FROM THE TRANSFER OF A SHORT-TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND AND- (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNIT IS ENTERED INTO ON OR AFTER THE DATE OF WHICH CHAPTER VII OF THE FINANCE (NO.2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TR ANSACTION TAX UNDER THAT CHAPTER; ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 7 THE TAX PAYABLE BY THE ASSESSEE ON THE TOTAL INCOME SHALL BE THE AGGREGATE OF- (I) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH SHORT-T ERM CAPITAL GAINS AT THE RATE OF FIFTEEN PER CENT; AND (II) THE AMOUNT OF INCOME-TAX PAYABLE ON THE BALANCE AMO UNT OF THE TOTAL INCOME AS IF SUCH BALANCE AMOUNT WERE THE TOTAL INC OME OF THE ASSESSEE. FROM A PLAIN READING OF THE PROVISIONS OF THE ACT, IT IS CLEAR THAT SECTION 111A LAYS DOWN THE PROCEDURE FOR TAKING THE CAPITAL GAIN S IN RESPECT OF EQUITY SHARES, AND THIS SECTION DOES NOT PRESCRIBE CONDITION FOR T REATMENT OF CAPITAL LOSS ON TRANSFER OF SUCH ASSET, WHEREAS PROVISIONS OF SEC. 70 PRESCRIBES CONDITIONS FOR TREATMENT OF A CAPITAL LOSS OF BUSINESS, SPECULATIV E OR NON-SPECULATIVE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THERE HAS NO T BEEN ANY TRANSFER OF CAPITAL ASSET AND THERE HAS NOT BEEN LOSS, WHICH COULD NOT BE SET OFF. THE PROVISIONS DO NOT MAKE ANY DISTINCTION BETWEEN THE LOSS ON TRANSF ER OF A CAPITAL ASSET OF EQUITY SHARES OR ANY OTHER ASSET. NOW, THE EXCEPTIO NS IN PROVISIONS OF SECTION 70 ARE- (I) LOSS FROM SPECULATION BUSINESS CAN BE SET OFF ONLY AGAINST THE PROFITS IN A SPECULATION BUSINESS; (II) LOSS FROM A SPECIFIED BUSINESS UNDER SEC. 35AD; (III) LOSS FROM THE ACTIVITY OF OWNING AND MAINTAINING RA CE HORSES; (IV) LONG TERM CAPITAL LOSS CAN BE SET OFF ONLY AGAINST LONG-TERM CAPITAL GAINS; (V) LOSS CANNOT BE SET OFF AGAINST WINNINGS FROM LOTTER IES, CROSSWORD PUZZLES, ETC. (VI) LOSS FROM PURCHASE AND SALE OF SECURITIES COVERED U NDER SEC. 94(7) OF THE ACT. BARRING THE AFORESAID CASES, ANY OTHER LOSS CAN BE SET OFF AGAINST ANY OTHER INCOME WITHIN THE SAME HEARD OF INCOME. IN OTHER WO RDS-(A) LOSS FROM A NON- SPECULATION BUSINESS CAN BE SET OFF AGAINST INCOME FROM SPECULATION OR NON- SPECULATION BUSINESS; AND (B) SHORT-TERM CAPITAL LO SS CAN BE SET OFF AGAINST ANY CAPITAL GAIN (WHETHER LONG TERM OR SHORT TERM). THE REFORE, IN MY VIEW, THE ASSESSING OFFICER IS FOUND NOT JUSTIFIED IN REJECTI NG THE CLAIM OF THE APPELLANT FOR THE SET OFF SHORT TERM CAPITAL LOSS (STT PAID) OF RS.2719888/- AGAINST THE A GAINS UNDER THE SAME HEAD. HE IS HEREBY DIRECTED TO ALLOW SUCH SET OFF INSTEAD OF ALLOWING THE SAME TO BE CARRIED FORWARD. THIS GR OUND OF APPEAL IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 8. BEFORE US LD. DR VEHEMENTLY RELIED ON THE ORDER OF ASSESSING OFFICER WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). LD. AR SU BMITTED THAT AO HAS IGNORED THE FACT THAT SEC. 111A OF THE ACT COMES INTO PLAY ONLY AFTER COMPLETION OF COMPUTATION OF TOTAL INCOME UNDER VARIOUS HEAD OF INCOME, WHERE AS SEC. 70(2) OF THE ACT COMES ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 8 INTO PLAY BEFORE COMPUTATION OF TOTAL INCOME. HENCE , THE INTERPRETATION OF SEC. 111A OF THE ACT ADOPTED BY AO TO DENY INTER HEAD SET OFF WAS MISPLACED AND UNTENABLE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSION, WE FIND THAT ASSESSEE IN THE INSTANT CASE HAS INCURRED LOSS FROM STCL ON THE SALE-PURCHASE OF SHARE ON WHICH STT WAS PAID BUT AO OBSERVED THAT THERE IS A SPECIA L RATE OF TAX U/S 111A OF THE ACT FOR CHARGING TAX IN CASE OF SALE-PURCHASE OF SHARE ON WHICH STT HAS BEEN PAID. THEREFORE, SUCH LOSS WAS DISALLOWED BY AO TO ADJUST THE INCOME UNDER THE SAME HEAD I.E., CAPITAL GAINS AGAINST THE INCOME OF SHARE SAL ES & PURCHASE ON WHICH NO STT WAS PAID. HOWEVER, LD. CIT(A) DELETED THE ADDITION MADE BY AO. NOW THE QUESTION BEFORE US ARISE SO AS TO WHETHER THE TRANSACTIONS O N WHICH THE PROVISION OF SEC. 111A OF THE ACT IS ATTRACTED IS TO BE TREATED SEPARATELY FROM OTHER TRANSACTIONS OF CAPITAL GAINS WHERE NO STT HAS BEEN PAID. IN THIS CONNECTIO N, THE PERUSAL OF SEC. 70(2) OF THE ACT, WHICH IS REPRODUCED BELOW:- [ SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. 70. (1) . (2) WHERE THE RESULT OF THE COMPUTATION MADE F OR ANY ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY SHORT-TERM CAPI TAL ASSET IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SU CH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPU TATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASS ET. FROM A PLAIN READING OF SAID SECTION, WE FIND THAT SAID ACT DOES NOT MAKE ANY DISTINCTION BETWEEN THE INCOME UNDER THE HEAD CAPITAL GAIN ON WHICH STT WAS PAID OR STT WAS NOT PAID. WE FURTHER FIND THAT LOSS UNDE R THE SAME HEAD THEN SET OFF FROM ONE SOURCE TO ANOTHER SOURCE IS ALLOWED IF IT IS CO MPUTED UNDER THE SIMILAR COMPUTATION MADE FOR THE RELEVANT YEAR. THE WORD SIMILAR COMPUTATION CONNOTES THAT INCOME SHOULD HAVE BEEN COMPUTED WITHIN THE RE LEVANT CHAPTER I.E. SEC. 45 TO 55A OF THE ACT. IN SIMILAR FACTS AND CIRCUMSTANCES THE VARIOUS CO-ORDINATE BENCHES HAVE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AS UND ER:- A) CAPITAL INTERNATIONAL EMERGING MARKETS FUND VS. DDI T (IT) (2013) 145 ITD 491 (MUM) (2013) 37 TAXMANN.COM 45 (MUM-TRIB.) ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 9 B) ADIT VS. LEGG MASON ASIA (EX-JAPAN) ANALYST FUND (2 013) 38 TAXMANN.COM 12 (MUMBAII-TRIB) C) ADIT VS. LANSFORSAKRINGAR ASIENFOND (2013) 37 CCH 0 361 (MUMBAI TRIB.) ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT. ACCORDINGLY, WE UPHOLD THE SAME. 10. LAST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN RESTRICTING THE ADDITION TO RS. 3,41,720/- BY REDU CING FOR AN AMOUNT OF 4,90,029/- MADE BY AO. 11. ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS E ARNED DIVIDEND INCOME WHICH WAS EXEMPTED U/S 10(34) OF THE ACT. THE AO INVOKED THE PROVISION OF SEC. 14A OF THE ACT R.W.S RULE 8D(2)(III) OF THE IT RULES, 1962 @ . 5% OF AVERAGE INVESTMENT OF 17,37,72,408/- WHICH IS COMING TO 8,68,862/- THE ASSESSEE AT HIS OWN DISALLOWED A SUM OF 37,113/- AS PER SEC. 14A OF THE ACT. ACCORDINGLY, AO DISALLOWED A SUM OF 8,31,749/- AND ADDED TO THE TOTAL INCOME OF ASSESSE E. 12. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD CIT(A) WHO GAVE RELIEF PARTLY TO ASSESSEE BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUB MISSIONS PUT FORTH ON BEHALF OF THE APPELLANT. IN THIS CASE, THE EXPENSES INCURR ED BY THE APPELLANT ARE CLAIMED FOR OTHER BUSINESS ACTIVITIES AND NOT FOR T HE EARNING OF DIVIDEND INCOME. FROM THE WORKING AS GIVEN BY THE ASSESSING OFFICER HIMSELF WOULD SHOW THAT THE APPELLANT HAD NOT INCURRED ANY EXPEND ITURE ON INTEREST OR OTHER EXPENSES RELATING TO THE INVESTMENT FOR EARNING THE DIVIDEND INCOME DURING THE YEAR. THE APPELLANT HAS SHOWN TO HAVE INCURRED DEMA T EXPENSES OF RS.18,208/-, PORTFOLIO MANAGEMENT EXPENSES OF RS.2,22,680/- AND STT RS.34,762/- AGGREGATING TO RS.2,75,650/-, WHICH ARE DIRECTLY RE LATABLE TO THE SHARE TRANSACTIONS, AND WHICH HAVE BEEN ADDED BACK BY THE APPELLANT ITSELF IN THE COMPUTATION OF TOTAL INCOME. HOWEVER, SINCE THE APP ELLANT COMPANY ITSELF HAS MADE DISALLOWANCE UNDER SEC. 14A OF THE ACT, IT CAN NOT PUT FORWARD THE CLAIM THAT THE ASSESSING OFFICER WAS UNJUSTIFIED IN RESOR TING PROVISIONS OF RULE 8(2)(III). IT IS NOT OPEN TO ASSESSING OFFICER TO M AKE DISALLOWANCE UNDER SECTION 14A ACCORDING TO HIS OWN DISCRETION OR ON AD HOC BA SIS AND HE IS STATUTORILY REQUIRED TO COMPUTE DISALLOWANCE IN MANNER PROVIDED BY SUB-SECTION (2) AND ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 10 (3) OF SECTION 14A CIT V. CITICORP FINANCE (INDIA ) LTD [2007] 12 SOT 248 (MU.). HOWEVER, THERE IS MERIT IN THE ALTERNATIVE G ROUND TAKEN BY THE APPELLANT THAT THE AO OUGHT TO HAVE EXCLUDED THE VALUE OF INV ESTMENTS IN UNITS OF DEBT/LIQUID FUND WITH GROWTH OPTION, DEBENTURES & S HARE WARRANT WHICH ARE NOT CAPABLE OF YIELDING ANY DIVIDEND INCOME AT ALL AND CAPITAL GAIN, IF ANY ON THEIR DISINVESTMENT WOULD ALSO NOT BE EXEMPTED BECAUSE OF NON-STT CHARGEABLE NATURE OF SUCH INVESTMENTS AMOUNTING TO RS.42875720 /- IN CALCULATING THE DISALLOWANCE UNDER RULE 8(2D)(III). AFTER EXCLUDING THE AFORESAID INVESTMENT OF RS.42875720/-, THE RESULT INVESTMENT CAPABLE OF EAR NING DIVIDEND WOULD COME TO RS130896788/- AND THE DISALLOWANCE UNDER SEC. 14 A IS RESTRICTED TO HALF PER CENT OF THE SAME WOULD COME TO RS.6,54,483/- AS AGA INST RS.3,12,763/- (RS.2,75,650 + RS.37113) ADDED BY THE APP. THUS, TH E ADDITION ON ACCOUNT OF DISALLOWANCE UNDER SEC. 14A IS RESTRICTED TO RS.3,4 1,720/- AS AGAINST THE ADDITIONAL DISALLOWANCE MADE BY THE ASSESSING OFFIC ER AT RS.8,31,749/-. THE APPELLANT SHALL GET RELIEF OF RS.4,90,029/- ON THIS GROUND. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US FOR PARTLY RELIEF GRANT TO ASSESSEE. 13. LD. DR BEFORE US VEHEMENTLY RELIED ON THE ORDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). LD. AR SUBMITTED THAT T HERE ARE CERTAIN INVESTMENTS WHICH ARE NOT CAPABLE OF GIVING RISE TO THE DIVIDEND INCO ME THEREFORE THESE SHOULD BE EXCLUDED FROM THE TOTAL VALUE OF INVESTMENT. THE LD . CIT(A) WHILE APPLYING THE PROVISION OF SEC. 14A OF THE ACT HAS ACCORDINGLY EX CLUDED THOSE INVESTMENTS. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE FACTS OF THE CASE HAVE BEE N DULY EXPLAINED IN THE AFORESAID PARAGRAPH, THEREFORE THE SAME IS NOT REQUIRED TO BE REITERATED. FURTHER, AT THE OUTSET, WE FIND THE INVESTMENTS WHICH ARE NOT CAPABLE OF YIELD ING THE DIVIDEND INCOME NEEDS TO BE EXCLUDED AND ACCORDINGLY SEVERAL COURTS HAVE DEC IDED THIS ISSUE IN FAVOUR OF ASSESSEE. THE HONBLE HIGH COURT OF DELHI IN THE CA SE OF ACB IINDIA LTD. VS. ACIT (2015) 374 ITR 108 (DEL) HAS DECIDED THE ISSUE IN F AVOUR OF ASSESSEE. INCOMEEXPENDITURE INCURRED IN RELATION TO EXEMPT INCOMEDISALLOWANCE VALIDITYASSESSEE REPORTED A TAX EXEMPT INCOMEAO M ADE ADDITION U/S 14A R.W. RULE 8D BY TAKING INTO CONSIDERATION TOTAL QUANTUM OF INTEREST OTHER THAN THAT INVESTED U/S 14A IN TERMS OF RULE 8D AND ARRIVED AT THE SAID FIGURE AFTER MULTIPLYING IT WITH RESULT OF AVERAGE VALUE OF INVE STMENTS AND OVER AVERAGE VALUE OF ASSETS DERIVED BY HIMCIT(APPEALS) OBSERVED THAT THAT AMOUNT OF INVESTMENT ATTRIBUTABLE TO DIVIDEND CONSTITUTED LESS THAN 1% O F TOTAL SCHEDULED FUNDSCIT(A) ACCEPTED BASIS OF CALCULATION APPLIED BY AO AND DIR ECTED A DISALLOWANCE OF .05% ITA NO.326/KOL/2014 A.Y . 2009-10 DCIT CIR-12 KOL. VS. M/S THE DIAMO ND CO. LTD. PAGE 11 OF AMOUNT DETERMINED TO BE AVERAGE INVESTMENTTRIBU NAL RESTORED AOS DETERMINATION HOLDING IT TO BE A TRUE CALCULATION I N TERMS OF RULE 8DHELD, AO, INSTEAD OF ADOPTING AVERAGE VALUE OF INVESTMENT OF INCOME WHICH WAS NOT PART OF TOTAL INCOME I.E. VALUE OF TAX EXEMPT INVESTMENT, C HOSE TO FACTOR IN TOTAL INVESTMENT ITSELFEVEN THOUGH CIT(APPEALS) NOTICED EXACT VALUE OF INVESTMENT WHICH YIELDED TAXABLE INCOME, HE DID NOT CORRECT ER ROR BUT CHOSE TO APPLY HIS OWN EQUITYGIVEN THE RECORD, THAT HAD TO BE DONE SO TO SUBSTITUTE FIGURE OF RS.38,61,09,287/- WITH THE FIGURE OF RS.3,53,26,800 /- AND THEREAFTER ARRIVE AT EXACT DISALLOWANCE OF .05% THUS, FINDINGS OF ITAT AND THE LOWER AUTHORITIES WERE SET ASIDEMATTER REMITTED TO WORK OUT TAX EFFE CT TO AO. THE AO, INSTEAD OF ADOPTING THE AVERAGE VALUE OF INVESTMENT OF WHICH I NCOME IS NOT PART OF THE TOTAL INCOME I.E. THE VALUE OF TAX EXEMPT INVESTMENT, CHO SE TO FACTOR IN THE TOTAL INVESTMENT ITSELF. EVEN THOUGH THE CIT(APPEALS) NOT ICED THE EXACT VALUE OF THE INVESTMENT WHICH YIELDED TAXABLE INCOME, HE DID NOT CORRECT THE ERROR BUT CHOSE TO APPLY HIS OWN EQUITY. GIVEN THE RECORD, THAT HAD TO BE DONE SO TO SUBSTITUTE THE FIGURE OF RS.38,61,09,287/- WITH THE FIGURE OF RS.3,53,26,800/- AND THEREAFTER ARRIVE AT THE EXACT DISALLOWANCE OF .05%. RESPECTFULLY FOLLOWING THE AFORESAID PRECEDENTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND WE UPHOLD ACCORDINGLY. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 15. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 24/08/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP ! - 24/08/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-12, P-7, CHOWRINGHEE SQUARE , AAYAKAR BHAWAN, 7 TH FLOOR, KOLKATA-69 2. /RESPONDENT- M/S THE DIAMOND CO. LTD., 707, CENTRAL PLAZA, 2/6 SART BOSE ROA D, KOLKATA-700 020 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,