CHANDRAVADAN BHAICHAND MUCHHALA, MUMBAI V. ITO 4(1)-2, MUMBAI

ITA 3457/MUM/2012

• Counselvise Citation: 345719914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: K GOPAL
• Keywords: Earning of tax free income
• Section: 131; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI . . , ! ' #'' '$ , % ! & BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 3457 / / 2012 A.Y. 2008-2009 ITA NO. : 3457/MUM/2012 (ASSESSMENT YEAR: 2008-2009) SHRI CHANDRAVADAN B. MUCHHALA, 619, ROTUNDA BUILDING, BOMBAY SAMACHAR MARG, FORT, MUMBAI -400 023 PAN: AAHPM 5222 H VS ITO - 4(1)-2, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. GOPAL RESPONDENT BY : SHRI SANJEEV JAIN /DATE OF HEARING : 27-11-2013 / DATE OF PRONOUNCEMENT : 06-12-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE INSTANT APPEAL ARISE FROM THE ORDER OF CIT(A) 8, MUMBAI, DATED 08.02.2012, WHEREIN, THE ASSESSEE HAS RAISED FOLLOWING GROU NDS: 1. THE LEARNED CIT (APPEAL) ERRED IN CONFIRMING ADD ITION MADE BY AO IN RESPECT OF LONG-TERM CAPITAL GAIN OF RS. 46,75,354/ - ON SALE OF SHARE WITHOUT CONSIDERING FACTS AND CIRCUMSTANCES OF CASE . 2. THE LEARNED CIT (APPEAL) ERRED IN CONFIRMING ADD ITION MADE BY AO U/S 14(A) READ WITH RULE 8D OF RS. 64,406/- WITHOUT CON SIDERING FACTS AND CIRCUMSTANCES OF CASE. 2. BRIEF FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL, WHO DECLARED HIS INCOME AT RS. 21,93,430/-. IN THE SCRUTINY PROCEEDINGS , THE ASSESSEE DECLARED A LTCG OF RS. 1,42,29,494/- ON THE SALE OF SHARES OF BOMBAY STOCK EXCHANGE UNDER THE BUY BACK SCHEME. I N THE INSTANT YEAR, THE ASSESSEE SOLD CERTAIN SHARES HELD BY HIM IN HIS INDIVIDUAL CAPACITY AND ALONG WITH HIS BROTHER SHRI AJIT MUCHHALA TO SHRI AJIT MUCHHALA. THESE SHARES HELD BY THE ASSESSEE IN HIS INDIVID UAL SHRI CHA NDRAVADAN B. MUCHHALA ITA 3457/MUM/2012 2 CAPACITY OR AS JOINT OWNER, PERTAINED TO CERTAIN DE-LISTED COMPANIES AND BECAUSE OF WHICH, THE SHARES WERE SOLD TO THE BROT HER, SHRI AJIT MUCHHALA AS OFF MARKET SALES. IT WAS NOTICED BY THE AO, THAT THE SALE CONSIDERATION OF THESE SHARES WERE RS. 17,389/-, ON WHICH, THE ASSESSEE CLAIMED A LTCG AT RS. 46,75,354/-. THE AO DID NO T ACCEPT THE CONDUCT OF THE ASSESSEE, HE, THEREFORE, SUMMONED THE ASSESSEE TO RECORD HIS STATEMENT. IN THE STATEMENT, IN ONE OF THE QU ESTIONS ASKED, THE ASSESSEE DEPOSED THAT, THE RATE DETERMINED WAS BASED ON OUR EXPERIENCE/ASSUMPTION AND NO DOCUMENTARY EVIDENCE WA S AVAILABLE . ON THIS DEPOSITION, THE REVENUE AUTHORITIES TOOK THE STA ND THAT THE ASSESSEE DID NOT PROVIDE ANY DOCUMENTARY EVIDENCE TO G IVE EFFECT TO THE SALE OF THE SHARES. THUS, THE REVENUE AUTHORITIES DISALLOWE D THE LOSS CLAIMED BY THE ASSESSEE, HOLDING THE SALE TRANSACTIONS TO BE SHAM. 3. BEFORE US, THE AR SUBMITTED THE DETAILS OF THE SHARE SOLD ALONG WITH THE XEROX COPIES OF THE SHARE SCRIPS (PAGE 4 APB). 4. THE AR SUBMITTED THAT SINCE THE SHARE SCRIPS BORE T HE NAME OF THE ASSESSEE, THE REVENUE AUTHORITIES HAVE PRESUMED TH AT THE SALE TRANSACTIONS WERE BOGUS. HE POINTED OUT FROM THE DETAIL P LACED AT APB 4 THAT THE ASSESSEE HAD SENT THE SCRIPS FOR TRANSFER T O THE RESPECTIVE COMPANIES (WHEREVER NOTED), BUT THEY WERE YET TO RECEIVE THE I NTIMATION OF CHANGE OF NAME. 5. THE AR ALSO SUBMITTED THAT THE AO HAD EXAMINED THE ASSESSEE ON OATH U/S 131, WHEREIN THE ASSESSEE HAS DEPOSED THA T THE ASSESSEE HAD SOLD THE SHARES TO HIS BROTHER, SHRI AJIT MUCHHALA AN D NOT TO ANY OUTSIDE PARTY, JUST TO KEEP THE SHARES WITHIN THE FAMILY. HE ALSO SUBMITTED THAT THE SALE TRANSACTION WAS GENUINE AND IF TH E REVENUE AUTHORITIES HAD ANY DOUBT, THEY COULD HAVE LIKEWISE EXAMINE D SHRI AJIT MUCHHLA, AS WELL. HE ALSO SUBMITTED THAT THE TRANSACTIONS W ERE ACTUAL TRANSACTIONS OF SALE BY THE ASSESSEE TO HIS BROTHER, BUT THE TRANSACTION HAS BEEN HELD TO BE SHAM, SIMPLY BECAUSE THE SHARES ST ILL WERE IN THE SHRI CHA NDRAVADAN B. MUCHHALA ITA 3457/MUM/2012 3 NAME OF THE ASSESSEE AND THAT THEY WERE SOLD AS OFF MAR KET TRANSACTIONS. 6. THE DR SUBMITTED THAT THE ASSESSEE HAD PLANNED THE SALE OF SHARES TO REDUCE THE LTCG ON SALE OF BUY BACK OF BSE SHARES, WHERE THE ASSESSEE HAD EARNED A LTCG AT RS. 1,42,29,494/-. THE WHOLE IDEA WAS TO REDUCE THE LTCG AND THE MEANS AVAILABLE WITH THE ASSESSEE WAS THE SHARES HELD BY HIM OF THOSE DE-LISTED COMPANIES. 7. THE DR EMPHASIZED THAT ASSESSEE WAS UNABLE TO PROV IDE DOCUMENTARY PROOF, TO SHOW THAT THE SALE ACTUALLY TOOK PLACE, AS THE SHARES WERE STILL IN THE NAME OF THE ASSESSEE AND ASSESS EE AND HIS BROTHER. THIS, ACCORDING TO THE AO WAS A GOOD ENOUGH PR OOF TO HOLD THE SALE TRANSACTIONS TO BE SHAM. 8. WE HAVE HEARD THE ARGUMENTS FROM BOTH THE SIDES AN D HAVE PERUSED THE PAPERS APPENDED IN THE APB ALONG WITH THE ORDER OF THE REVENUE AUTHORITIES. WE HAVE ALSO CAREFULLY GONE THROUGH THE EXTRACTS OF THE STATEMENT RECORDED BY THE AO U/S 131 AND REPR ODUCED IN THE ORDER AND WHOSE COGNIZANCE HAS BEEN TAKEN BY THE CIT (A) AS WELL. ON THE ENQUIRY MADE BY US, AS TO WHY THE DOCUMENTARY EVID ENCE WAS NOT PLACED, AS TAKEN BY THE CIT(A), THE AR REPLIED THAT THERE WAS A DISTINCTION IN THE INTERPRETATION, BECAUSE AS PER THE ANS WER, THE ASSESSEE HAD STATED THAT NO DOCUMENTARY EVIDENCE WAS AVAILABLE WITH REGARD TO THE RATE AND NOT THAT THE ASSESSEE WAS UNABLE TO PROVIDE EVIDENCE WITH REGARD TO TRANSACTIONS OF SALE. EVEN AT THIS STAGE, THE ASSESSEE WAS UNABLE TO BRING THE COPY OF STATEMENT REC ORDED BY THE REVENUE OFFICERS, ON RECORD. 9. WHEN WE EXAMINE FROM THE ANGLE OF THE ASSESSEE THAT THERE WAS SALE TRANSACTION, THIS FACT IS NOT DISPUTED BY THE REVENUE AUTHORITIES. STILL, THE TRANSACTIONS LEAVE A BIG QUESTION MARK AS TO WH Y TO EFFECT THE SALE IN THE YEAR, WHERE THERE IS A HUGE CAPITAL GAIN AND H OW THE AGGREGATE SALE PRICE WAS DETERMINED AT RS. 17,389/-, WHY NOT LESS OR SHRI CHA NDRAVADAN B. MUCHHALA ITA 3457/MUM/2012 4 MORE. WE AGREE WITH THE FINDING OF THE CIT(A) THAT OFF MARKE T TRANSACTIONS ARE ALSO GOOD TRANSACTION. IN THE INSTANT CASE, THE OFF MARKET SALE TRANSACTIONS OF SO MANY COMPANIES PUT TOGET HER IN OUR BASKET, SOLD TO SHRI AJIT MUCHHALA WITHOUT EVEN THE TRANS FERS HAVING BEEN EFFECTED. ON OUR OWN, WE KNOW THAT SHARE TRANSFER D EED IS VALID FOR 3 MONTHS, AFTER WHICH, IT HAS TO BE VALIDATED. IN THESE CASES, EVEN IF THE ASSESSEE SENT THE SCRIPS FOR TRANSFER, WERE NEVER TRANSFERRED AND THE DEEDS NEVER RENEWED. EVEN IF WE ACCEPT THE FACT THA T SHARES WERE SENT FOR TRANSFER, WHAT IS/ARE THE DATE OF SENDING THE S HARES AND WHERE HAVE THEY SENT & WHY THERE HAS BEEN NO COMMUNICATION, IF AT ALL, FROM THE COMPANY, AS TO WHY THE SHARES HAVE NOT BEEN TRAN SFERRED. ALL THESE FACTS HAVE LEFT GAPING HOLES IN THE CASE AND ARGUMENTS OF THE ASSESSEE/AR. 10. IN THESE CIRCUMSTANCES, THE TRANSACTIONS SHOWN AS SALE TRANSACTION DOES NOT INSPIRE ANY CONFIDENCE AND ACCORDING TO US, THE DISALLOWANCE OF LOSS OF RS. 46,75,354/- IS SUSTAINED. 11. GROUND NO. 1 IS THEREFORE, REJECTED. 12. GROUND NO. 2 PERTAINS TO DISALLOWANCE COMPUTED BY T HE AO AT RS. 78,252/- U/S 14A. 13. THE FACTS ARE THAT THE ASSESSEE DURING THE CURREN T YEAR EARNED DIVIDEND INCOME OF RS. 3,22,933/- AND CLAIMED THE SAME TO BE EXEMPT U/S 10(34) OF THE INCOME TAX ACT. IN THE ASSESSMENT PRO CEEDINGS, THE AO SOUGHT THE COMMENTS FROM THE ASSESSEE AS TO WHY 1 4A SHOULD NOT BE INVOKED. THE ASSESSEE VIDE HIS LETTER DATED 07.10.2010 SUBMITTED BEFORE THE AO THAT, NO EXPENSE HAD BEEN INCURRED TO EARN EXEMPT INCOME, HENCE THERE IS NO DISALLOWANCE U/S 14A READ WIT H RULE 8D . THIS SUBMISSIONS OF THE ASSESSEE WAS NOT ACCEPTED BY T HE AO, AND HE INVOKED THE PROVISIONS OF SECTION 14A AND IN ACCORDANCE WITH THE PRESCRIBED FORMULA UNDER RULE 8D, COMPUTED THE DISALLOWANC E AT RS. 78,252/-. SHRI CHA NDRAVADAN B. MUCHHALA ITA 3457/MUM/2012 5 14. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM THE ASSESSEE CONTENDED THAT OUT OF THE TOTAL DISALLOWANCE CO MPUTED, KEEPING IN VIEW THE FINANCIAL EXPENSES, RS. 21,870/- IS PAID O N CAR LOAN AND WHICH HAD NOTHING TO DO WITH THE INTEREST ON INV ESTMENTS. IT WAS ALSO POINTED OUT THAT THAT OUT OF THIS PROPORTIONAT E DISALLOWANCE WORKS OUT AT RS. 13,846/-. THIS PLEA OF THE ASSESSEE WA S ACCEPTED BY THE CIT(A), WHO REDUCED RS. 13,846/- FROM THE DISALLOWANCE C OMPUTED AT RS. 78,353/- TO RS. 64,406/- (IT SHOULD BE RS. 64,507). IN EFFECT, THE CIT(A) SUSTAINED THE DISALLOWANCE U/S 14A AT RS. 64,406/-. 15. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT. 16. BEFORE US, THE AR REITERATED THE CONTENTIONS AND SU BMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND FURTHER SUBMITTE D THAT EVEN IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS CIT, REPORT ED IN 328 ITR 81, THE HONBLE BOMBAY HIGH COURT HAS ACCEPTED THE ARG UMENT THAT WHERE THERE IS NO EXPENSE ACTUALLY INCURRED BY THE ASS ESSEE, PROVISIONS OF SECTION 14A SHALL NOT BE ATTRACTED. THE AR, H OWEVER, SUBMITTED THAT THOUGH THE DISALLOWANCE IS UNTENABLE, BUT B ECAUSE THE SMALLNESS OF THE FIGURE, THE BENCH MAY TAKE AN APPROPRIATE VIEW. 17. THE DR RELIED ON THE WORKING DONE BY THE AO AND SU BMITTED THAT THE CIT(A) HAS ACTUALLY ALLOWED, WHAT SHOULD HAVE ALLOW ED BY THE AO. HE FURTHER SUBMITTED THAT THE PROVISIONS OF SECTION 14 A ARE MANDATORY AND HENCE ANY INCOME WHICH DOES NOT FORM PART OF THE TO TAL INCOME A DISALLOWANCE HAS TO BE COMPUTED. 18. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E IMPUGNED ORDERS. AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA ), DISALLOWANCE OF EXPENSE HAS TO BE COMPUTED IN ACCORDANCE WITH RULE 8D WITH EFFECT FROM AS SESSMENT YEAR 2008-09. IN THESE CIRCUMSTANCES, DISALLOWANCE HAS TO BE MADE ON THE INCOME NOT FORMING PART OF THE TOTAL INCOME. THERE IS N O ESCAPE TO THIS LEGAL PROPOSITION. THE ARGUMENT ADVANCED BY THE AR THAT NO SHRI CHA NDRAVADAN B. MUCHHALA ITA 3457/MUM/2012 6 EXPENSE WAS INCURRED BY THE ASSESSEE TO EARN THE EXE MPT INCOME, IS COVERED BY SECTION 14A(3), WHICH NAILS THE ARGUMENT OF THE ASSESSEE/AR. IN ANY CASE, THE AR HAS ACCEPTED TO THE SMALLNESS OF THE AMOUNT, RESULTING INTO A DISALLOWANCE. 19. TAKING INTO VIEW, THE FACTS, THE JUDICIAL PRONOUNCEMEN T, LEGAL POSITION AND SUBMISSION OF THE AR, WE DO NOT FIND ANY REASO NABLE GROUND TO DIFFER AND INTERFERE WITH THE DECISION OF THE CIT(A). 20. GROUND NO. 2 IS, THEREFORE, REJECTED. 21. IN THE RESULT, THE APPEAL AS FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH DECEMBER, 2013. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 6 TH DECEMBER, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) ! !' ( ) - 8 MUMBAI / THE CIT (A)-8, MUMBAI. 4) ! !' 4, MUMBAI / THE CIT-4, MUMBAI, 5) $%& ' , ! ' , ()* / THE D.R. C BENCH, MUMBAI. 6) &+ , COPY TO GUARD FILE. !-./ / BY ORDER / / TRUE COPY / / [ 0 / 1 )2 ! ' , ()* DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *451 . . * CHAVAN, SR. PS