Chaturanan Industries Ltd., New Delhi V. DCIT, New Delhi

ITA 3565/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4795 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 15-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: V K JAIN
• Keywords: Capital asset; Search and seizure; Principle of natural justice; Tax effect
• Section: 2(14); 191; 153C; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, B: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.3565/DEL/2016 [ASSESSMENT YEAR: 2009-10] CHATURANAN INDUSTRIES LTD. H-108, CONNAUGHT CIRCUS, NEW DELHI-110001 THE DCIT, CENTRAL CIRCLE-20(NOW CC-8), NEW DELHI-110055 PAN-AAACC0762G ASSESSEE REVENUE ASSESSEE BY SH. V.K. JAIN, CA REVENUE BY MS. NIDHI SRIVASTAVA, CIT - DR DATE OF HEARING 26.08.2021 DATE OF PRONOUNCEME NT 30.09.2021 ORDER PER KUL BHARAT, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 31.03.2016 OF THE LEARNED CIT(A), NEW D ELHI, RELATING TO ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1) . THAT, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX - (APPEALS) - 2, NEW DELHI IS BAD IN LAW, WRONG ON THE FACTS AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2) . THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT-(A) ERRED IN CONFIRMING THE DISALLOWANC ES IN THE IMPUGNED ASSESSMENT ORDER FRAMED U/S 153C OF THE ACT ON THE ISSUES WHICH HAS NO NEXUS WITH THE ALLEGED MATE RIAL UNEARTHED DURING THE COURSE OF SEARCH OPERATIONS AND THEREBY ITA NO.-3565/DEL/2016 2 MAKING A DE-NOVO ASSESSMENT, WHICH NEEDS TO BE DELETED. 3) . THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT-(A) HAS ERRED IN LAW IN CONFIRMING T HE DISALLOWANCE OF THE SHORT TERM CAPITAL LOSS ON FORFEITU RE OF CONVERTIBLE SHARE WARRANTS AMOUNTING TO RS. 4,18,50,000/ - WHICH NEEDS TO BE DELETED. 3.1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT-(A) HAS ERRED IN LAW IN DISALLOWING THE SHORT TERM C APITAL LOSS ON FORFEITURE OF CONVERTIBLE SHARE WARRANTS OF RS.4,18,50,000/- WITHOUT APPRECIATING THE FACTS THAT SUCH LO SS WAS ALLOWED BY THE ASSESSING OFFICER VIDE ORDER U/S 1 43(3) DATED 26/12/2011 AFTER CONSIDERING THE EVIDENCES AN D SUBMISSIONS FILED DURING ASSESSMENT PROCEEDINGS. 3.2) THE LD. CIT-(A) HAS ERRED IN CONCLUDING THAT SUBSCRIPTI ON TO THE CONVERTIBLE WARRANT BY THE APPELLANT COMPANY IN WARRANTS OF MONNET ISPAT & ENERGY LTD IS NOT A CAPITA L ASSET U/S 2(14) OF THE INCOME TAX ACT, 1961 WHEN IN FACT IT IS EXTINGUISHMENT OF RIGHTS THEREIN AND COVERED U/S 2(4 7)(II) OF THE INCOME TAX ACT, 1961. 3.3) THE LD. CIT-(A) HAS CONCLUDED THAT FORFEITURE OF SHARE WARRANT IS NOT GENUINE AND BONAFIDE TRANSACTION BUT IS A COLORABLE TRANSACTION ENTERED WITH A MOTIVE TO CREATE LOSS IN ONE COMPANY WITHOUT GETTING IT TAXED IN ANOTHER GROUP COMPANY. THE LD CIT-(A) HAS GROSSLY ERRED IN MAKING TH E AFORESAID CONCLUSION AS THE FORFEITURE OF SHARE WARR ANT IS A GENUINE AND BONAFIDE TRANSACTION. 2. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE DOES NOT WISH TO PRESS G ROUND NO.2. THEREFORE, THE GROUND NO. 2 OF THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. 3. GROUN NO. 1 IS GENERAL IN NATURE NEEDS NO SEPAR ATE ADJUDICATION. 4. THE ONLY EFFECTIVE GROUND NO. 3 TO 3.3 IS AGA INST CONFIRMING DISALLOWANCE OF SHORT TERM CAPITAL LOSS ON ITA NO.-3565/DEL/2016 3 FORFEITURE OF CONVERTIBLE SHARE WARRANTS AMOUNTING TO RS.4,18,50,000/-. 5. THE FACTS GIVING RISE TO THIS GROUND ARE THAT A SEARCH AND SEIZURE OPERATION U/S 132 OF THE INCOME TAX ACT , 1961 (HEREINAFTER THE ACT) WAS CONDUCTED AT THE MONNET GROUP INCLUDING THE ASSESSEE. DURING THE COURSE OF SEARCH , CERTAIN DOCUMENTS BELONGING TO THE ASSESSEE WAS FOUND AND S EIZED. THE CASE OF THE ASSESSEE WAS CENTRALIZED WITH DCIT, CENTRAL CIRLCE-20, NEW DELHI. THEREAFTER, NOTICE U/S 153C OF THE ACT WAS ISSUED. IN RESPONSE TO THE NOTICE U/S 153C ISSU ED BY THE ASSESSING OFFICER, THE LD. AR OF THE ASSESSEE COMPA NY VIDE LETTER DATED 05.03.2013 CHALLENGED THE VALIDITY OF THE NOTICE, HOWEVER, RETURN OF INCOME FOR THE YEAR UNDER APPEAL , WAS FILED DECLARING INCOME OF RS.11,46,720/-. THEREAFTER, TH E ASSESSING OFFICER PROCEEDED TO FRAME ASSESSMENT THEREBY DISAL LOWED THE SHORT TERM CAPITAL LOSS ON FORFEITURE OF CONVERTIBL E SHARE WARRANTS. 6. AGGRIEVED AGAINST THIS, THE ASSESSEE IS IN APPE AL BEFORE THE TRIBUNAL. ITA NO.-3565/DEL/2016 4 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SYNOPSIS. THE S YNOPSIS IS REPRODUCED AS UNDER:- 1. ORIGINAL RETURN OF INCOME WAS FILED DECLARING A INC OME OF RS 11,46,720/- ON 14/09/2009. 2. IN THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143( 3) OF THE INCOME TAX ACT, 1961 BY I.T.O., WARD 3(4), NEW DELH I ON 26/12/2011, ASSESSING INCOME AT RS 16,63,402/-. THE LD. A.O. HAD ALLOWED THE SHORT TERM CAPITAL LOSS ON THE FORFEITURE OF CONVERTIBLE SHARE WARRANTS AMOUNTING TO RS 4,18, 50,000/- WHILE PASSING THE ASSESSMENT ORDER. PHOTOCOPY OF THE ASSESSMENT ORDER IS ENCLOSED HEREW ITH AT PAGES 1 TO 2. 3. THEREAFTER THE CASES OF THE APPELLANT COMPANY WE RE CENTRALIZED AND ASSESSMENT ORDER FOR A.Y. 2009-10 W AS PASSED U/S 153C/143(3) OF THE ACT, ON 28/3/2013 WHE REIN LOSS ON THE FORFEITURE OF CONVERTIBLE SHARE WARRANT S AMOUNTING TO RS.4,18,50,000/- WAS DISALLOWED. THE LD. A.O. IN THE ASSESSMENT ORDER U/S 153C/143(3) OF THE ACT, DATED 28/3/2013 WHILE DISALLOWING THE LOSS ON FORFEITURE OF SHARE WARRANT HAD STATED AS UNDER AT PARA 5(2)(IV):- ..V IN VIEW OF THE ABOVE FACTS, IT IS CLEAR THAT FORFEI TURE OF SHARE WARRANT IS NOT GENUINE AND BONAFIDE TRANSACTI ON. IT IS A COLORABLE TRANSACTION ENTERED WITH A MALAFIDE MOTIV E TO EVADE TAX WHICH CREATES A LOSS IN ONE COMPANY WITHOUT GET TING IT TAXED IN ANOTHER GROUP COMPANY. IT WILL BE PERTINENT TO MENTIONED HERE THAT ADDITION ON THIS ISSUE HAS ALRE ADY BEEN CONFIRMED BY THE LD. CIT-(A) IN THE SAME PROUP COMPANY NAMELY, M/S PAVITRA COMMERCIALS LTD FOR THE A.Y. 2009-10. 4) A) IN THE CASE OF THE GROUP COMPANY M/S PAVITRA COMMERCIALS LTD, FOR A.Y. 2009- 10, HONBIE ITAT, BENCH F, NEW DELHI IN ITA 5389/DEL/2Q12 VIDE ITS ORDER DATED 10/12/2014, HAS ALLOWED THE SHORT TERM CAPITAL LOSS ON THE FORFEITURE OF SHARE WARRANTS. HONBIE ITAT STATED AT PARA 7.3 AS UNDER: - ...7.3 AFTER HEARING THE RIVAL CONTENTIONS, WE HOLD AS FOLLOWS. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS CHAN D RATAN BAGRI REPORTED IN 329 ITR 356 HAS HELD AS FOLLOWS. ITA NO.-3565/DEL/2016 5 MORE IMPORTANTLY, THE SECOND ISSUE AS TO WHETHER TH E FORFEITURE OF THE CONVERTIBLE WARRANT AMOUNTED TO A TRANSFER W ITHIN THE MEANING OF S.2(47) OF THE SAID ACT HAS NOW BEEN MAD E CLEAR BY THE SUPREME COURT IN THE CASE OF MRS GRACE COLLIS ( 2001) 248 ITR 323 AS ALSO BY THE KARNATAKA HIGH COURT IN BPL SANYO FINANCE LTD (2009) 312 ITR 63. WE AGREE WITH THE IN TERPRETATION GIVEN BY KARNATAKA HIGH COURT IN BPL SANYO FINANCE LTD (SUPRA) AND WE SEE NO REASON TO TAKE A DIFFERENT VI EW. THE RESTRICTIVE MEANING GIVEN TO THE WORD TRANSFER BY T HE SUPREME COURT DECISION IN VANIA SILK MILLS P. LTD (1991) 19 1 ITR 647 HAS BEEN OVER RULED BY THE LARGER BENCH OF THE SUPREME COURT IN THE CASE OF MRS. GRACE COLLIS (2001) 248 ITR 323. IN THE PRESENT CASE, WE FIND THAT THE FORFEITURE OF THE CONVERTIBLE WARRANT HAS RESULTED IN EXTINGUISHMENT OF THE RIGHT OF THE ASSESSE TO OBTAIN A SHARE IN BLB LTD. IT IS NOT A C ASE WHERE THE ASSET ITSELF HAS BEEN EXTINGUISHED OR DESTROYED. A SHARE IN A COMPANY IS NOTHING BUT A SHARE IN THE OWNERSHIP OF THE COMPANY. WHILE THE RIGHT OF THE ASSESSE TO SHARE IN THE OWNERSHIP OF THE COMPANY BLB LTD. STANDS EXTINGUISH ED ON ACCOUNT OF THE FORFEITURE, THE COMPANY, WITH ALL IT S ASSETS, CONTINUE TO EXIST. THE FORFEITURE ONLY RESULTS IN O NE LESS SHAREHOLDER. IT IS NOT AS IF THE ASSET IN WHICH A S HARE WAS BEING CLAIMED WAS ALSO EXTINGUISHED. THUS, THE SECOND POI NT URGED BY THE LD. COUNSEL FOR THE REVENUE IS ALSO NOT TENABLE . IN VIEW OF THE FOREGOING REASONS NO SUBSTANTIAL QUE STION OF LAW ARISES FOR OUR CONSIDERATION. THE APPEAL IS DISMISS ED. 7.4 RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE JUR ISDICTIONAL HIGH COURT, WE ALLOW THE CLAIM OF THE ASSESSE. GROU ND NO. 2(E) IS ALLOWED PHOTOCOPY OF THE ORDER OF HONBLE ITAT IS ENCLOSED AT PAGES NO 3 TO 9. B). THE INCOME TAX DEPARTMENT, IN THE CASE OF M/S P AVITRA COMMERCIALS LTD HAD FILED AN APPEAL WITH THE HONBL E DELHI HIGH COURT. THE HONBLE DELHI HIGH COURT IN ITA NO. 782/2015 VIDE ITS ORDER DATED 14/10/2015 HAD DISMISSED THE APPEAL OF THE DEPARTMENT. THE HONBLE DELHI HIGH COURT WHILE DISMISSING THE APPEAL AT PARA 3 AN D 4 HAD STATED AS UNDER:- 3 IN THE IMPUGNED ORDER, THE ITAT HAS RELIED UPON THE JUDGMENT OF THIS COURT IN CIT V. CHAND RATAN BAGRI (2010) 329 ITR 356 (DEL) WHICH HOLDS TH AT THE SHARE WARRANT IS A CAPITAL ASSET. IT IS STATED THAT THE R EVENUE HAS NOT FILED AN APPEAL AGAINST THE SAID JUDGMENT ON ACCOUN T OF LOW TAX EFFECT. 4. BE THAT AS IT MAY, SINCE THE AFOREMENTIONED JUDG MENT OF THIS COURT HOLDS THE FIELD, NO SUBSTANTIAL QUESTION OF L AW ARISES IN THIS APPEAL. ITA NO.-3565/DEL/2016 6 5. THE APPEAL IS DISMISSED PHOTOCOPY OF THE ORDER OF HONBLE DELHI HIGH COURT IS ENCLOSED AT PAGES NO 10 TO 11. 8. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE AS THE ASSESSING OFFICER WHILE MAKING DISA LLOWANCE HAS CATEGORICALLY RECORDED THAT THE LD. CIT(A) IN S AME GROUP COMPANIES FOR THE AY 2009-10 HAS CONFIRMED THE ADDI TION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CASE OF M/S PAVITRA COMMERCIALS LTD. THIS DISALLOWANCE WAS CHAL LENGED BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS DELETED TH E DISALLOWANCE BY FOLLOWING THE JUDGMENTS OF THE HON BLE DELHI HIGH COURT. THE LEARNED COUNSEL TOOK US THROUGH THE RELEVANT FINDING OF THE TRIBUNAL AS ENCLOSED WITH THE WRITTE N SYNOPSIS. FURTHER, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO TOOK US THROUGH THE JUDGMENT OF THE HONBLE DELHI HIGH COUR T DATED 14/10/2015 IN ITA NO.782/2015 IN PR. CIT VS M/S PAV ITRA COMMERCIALS LTD. 9. ON THE CONTRARY, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AT PARA 5D HAS RECORDED THAT T HE ITA NO.-3565/DEL/2016 7 PAYMENT OF 10% AMOUNT TOWARDS SHARE WARRANT CANNOT BE TREATED AS CREATING A SUBSTANTIAL RIGHT IN THE SHAR E WHEN THE MAJOR AMOUNT IS YET TO BE PAID. AT THE BEST IT CAN BE TREATED AS ADVANCE TOWARDS ACQUISITION OF SHARES WHICH ARE SUBJECTED TO MANY CONDITIONS. HE SUBMITTED THAT THE ASSESSIN G OFFICER HAS DISTINGUISHED THE FACTS OF THE CASE IN THE CIT VS CHAND RATTAN BAGRI 329 ITR 356. IN REJOINDER, THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE OBSERVATIONS OF THE ASSESSING OFFICER IS MISPLACED. 10. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RECORDS. THE REVENUE HAS NOT CONTROVERTED THE FACT THAT SIMILAR ADDITION WAS MADE IN THE CASE OF GROUP COMP ANIES M/S PAVITRA COMMERCIAL LTD. FOR AY 2009-10. HOWEVER, T HE TRIBUNAL IN THAT CASE IN ITA NO.5389/DEL/2012, VIDE ITS ORDER DATED 10/12/2014 HAS ALLOWED THE SHORT TERM CAPITAL LOSS ON THE FORFEITURE OF CONVERTIBLE SHARE WARRANTS. T HE RELEVANT CONTENT OF THE TRIBUNAL ARE REPRODUCED AS UNDER:- 7.3. AFTER HEARING RIVAL CONTENTIONS, WE HOLD AS FOLLOWS. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CHAND R ATAN BAGRI REPORTED IN 329 ITR 356 HAS HELD AS FOLLOWS. MORE IMPORTANTLY, THE SECOND ISSUE AS TO WHETHER THE FORFEITURE OF THE CONVERTIBLE WARRANT AMOUNTED TO A TRANSFER WITHIN THE MEANING OF S.2(47) OF THE SAID ACT HAS NOW BEEN ITA NO.-3565/DEL/2016 8 MADE CLEAR BY THE SUPREME COURT IN THE CASE OF MRS.GRA CE COLLIS (2001) 248 ITR 323 AS ALSO BY THE KARNATAKA HIG H COURT IN BPL SANYO FINANCE LTD. (2009) 312 ITR 63. WE AGREE WITH THE INTERPRETATION GIVEN BY THE KARNATAKA HIGH C OURT IN BPL SANYO FINANCE LTD. (SUPRA) AND WE SEE NO REASON TO TAKE A DIFFERENT VIEW. THE RESTRICTIVE MEANING GIVEN TO THE WORD TRANSFER BY THE SUPREME COURT DECISION IN VANIA SILK MILLS P.LTD. (1991) 191 ITR 647 HAS BEEN OVER RULED BY THE LA RGER BENCH OF THE SUPREME COURT IN THE CASE OF MRS.GRACE C OLLIS (2001) 248 ITR 323. IN THE PRESENT CASE, WE FIND THAT THE FORFEITURE OF T HE CONVERTIBLE WARRANT HAS RESULTED IN EXTINGUISHMENT O F THE RIGHT OF THE ASSESSEE TO OBTAIN A SHARE IN BLB LTD. IT IS NOT A CASE WHERE THE ASSET ITSELF HAS BEEN EXTINGUISHED OR DESTR OYED. A SHARE IN A COMPANY IS NOTHING BUT A SHARE IN THE OW NERSHIP OF THE COMPANY. WHILE THE RIGHT OF THE ASSESSEE TO SHARE IN THE OWNERSHIP OF THE COMPANY BLB LTD. STANDS EXTINGUISHED ON ACCOUNT OF THE FORFEITURE, THE COMPANY, WITH ALL ITS ASSETS, CONTINUES TO EXIST. THE FORF EITURE ONLY RESULTS IN ONE LESS SHAREHOLDER. IT IS NOT AS IF TH E ASSET IN WHICH A SHARE WAS BEING CLAIMED WAS ALSO EXTINGUISHED . THUS, THE SECOND POINT URGED BY THE LD. COUNSEL FOR THE REVENUE IS ALSO NOT TENABLE. IN VIEW OF THE FOREGOING REASONS NO SUBSTANTIAL QUEST ION OF LAW ARISES FOR OUR CONSIDERATION. THE APPEAL IS DISMISSED. 11. THIS ORDER OF THE TRIBUNAL WAS CONFIRMED BY TH E HONBLE DELHI HIGH COURT IN ITA NO.782/2015 BY OBSE RVING AS UNDER:- 3. IN THE IMPUGNED ORDER, THE ITAT HAS RELIED UPON THE JUDGMENT OF THIS COURT IN CIT VS CHAND RATAN BAGRI (2010) 329 ITR 356(DEL), WHICH HOLDS THAT THE SHARE WARRANT I S A CAPITAL ASSET. IT IS STATED THAT THE REVENUE HAS NOT FI LED AN APPEAL AGAINST THE SAID JUDGMENT ON ACCOUNT OF THE LOW TAX EFFECT. 4. BE THAT AS IT MAY, SINCE THE AFOREMENTIONED JUDGMEN T OF THIS COURT HOLDS THE FIELD NO SUBSTANTIAL QUESTION OF L AW ARISES IN THIS APPEAL. 5. THE APPEAL IS DISMISSED. ITA NO.-3565/DEL/2016 9 12. THE REVENUE HAS NOT BROUGHT ANY OTHER CONTRARY BINDING PRECEDENT BY THE HONBLE DELHI HIGH COURT O R BY THE HONBLE SUPREME COURT, THEREFORE, RESPECTFULLY FOLL OWING THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S PAVITRA COMMERCIAL LTD. (SUPRA), THE ASSESSING OFFICER IS HEREBY DIREC TED TO DELETE THE ADDITION. ACCORDINGLY, THE GROUND OF THE ASSES SEES APPEAL IS ALLOWED. ABOVE DECISION WAS PRONOUNCED IN THE OPEN COURT O N CONCLUSION OF VIRTUAL HEARING ON 30.09.2021. SD/- SD/- [DR. B.R.R. KUMAR] [KUL BHARAT] ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI; DATED: 30/09/2021. F{X~{T? F{X~{T? F{X~{T? F{X~{T? FA FA FA FA P.S P.SP.S P.S COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI