The ACIT, 2(1), V. M/s. Turquiose Investment and Finance Pvt. Ltd.,

ITA 362/IND/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9527 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-03-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 31-07-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Keywords: Speculation loss
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.362/IND/2008 A.Y.2001-02 ASSTT. COMMISSIONER OF INCOME TAX 2(1), UJJAIN APPELLANT VS M/S TURQUOISE INVESTMENT & FINANCE PRIVATE LIMITED COMPANY NAGDA RESPONDENT APPELLANT BY : SHRI KESHAV SAXENA, CIT DR RESPONDENT BY : SHRI YOGESH A. THAR ALONG WITH AMRIT LAL JAIN O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 16.5.2008 WHEREIN THE FIRST GROUND RAI SED IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DELET ING THE ADDITION OF RS.11,04,300/- MADE ON ACCOUNT OF DISALLOWANCE OF L OSS OF FORFEITURE OF SHARES BY INVOKING EXPLANATION TO 73 OF THE ACT AND FURTHER WHETHER THE 2 CLAIM OF LOSS BEING FORFEITURE OF SHARES CAN AT ALL BE CONSIDERED AS CAPITAL OR REVENUE LOSS ? 2. DURING HEARING, WE HAVE HEARD LEARNED REPRESENTA TIVES OF BOTH THE PARTIES. THE CRUX OF ARGUMENTS ON BEHALF OF THE DEP ARTMENT IS THAT THE CALL MONEY WAS NOT PAID BY THE ASSESSEE, THE AMOUNT IS RELATED TO RS. 147.74 CRORES INVESTED IN SECURITIES AND THE ENTIRE AMOUNT OF RS. 147.74 CRORES WAS SHOWN AS INVESTMENT IN SECURITIES ONLY. THEREFORE, AT BEST IT CAN BE ALLOWED AS A CAPITAL LOSS AS IT IS NOT STOCK IN TRADE. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE DEFENDED TH E IMPUGNED ORDER BY SUBMITTING THAT A REASONABLE VIEW HAS BEEN TAKEN BY THE LEARNED LD. FIRST APPELLATE AUTHORITY THAT TOO AFTER CONSIDERING THE ARGUMENTS RAISED BEFORE HIM. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE LEARNED ASSESSING OFFICER DISALLOWED LOSS ON FORFEITURE OF SHARES AMOUNTING TO RS.14,04,300/- BY TREATING THE SAME AS SPECULATION LOSS WHEREAS THE CLAIM OF THE ASSESSEE IS THAT SINCE IT IS ON ACCOUNT OF FORFEITURE OF SHARES AS THE ASSESSEE COULD NOT PAY THE CALL MONEY, THEREFORE, THE ASSESSING OFFICER MISUNDERSTOOD THE NATURE OF TRANSACTION. THE LD. COUNSEL FOR THE ASSESSEE ALSO TOOK THE PLEA THAT SINCE THE MARKET VALUE OF SHARES DRASTICALLY CAME D OWN, THEREFORE, THE ASSESSEE DID NOT PAY THE CALL MONEY AS A RESULT OF WHICH THE AMOUNT 3 WAS FORFEITED. BEFORE COMING TO ANY CONCLUSION, WE ARE SUMMARISING THE DETAILS OF INCOME OF THE ASSESSEE AS UNDER :- PARTICULARS AMOUNT (RS.) % OF INCOME AS PER PROFIT AND LOSS ACCOUNT REMARK DIVIDEND 8,47,64,324 74.65% CHARGEABLE UNDER HEAD INCOME FROM OTHER SOURCES AS PER SECTION 56(2)(I) IF NOT EXEMPT U/S 10(34) INTEREST ON LONG TERM INVESTMENTS 41,44,618 3.65% IT IS COVERED BY THE HEAD INTEREST ON SECURITIES (ANNEXURE A IS PROFIT AND LOSS ACCOUNT INTEREST ON LOANS AND ADVANCES 78,81,851 6.94% NO REMARK PROFIT ON SALE/ REDEMPTION OF CURRENT INVESTMENTS 1,67,54,289 14.76% CHARGEABLE UNDER HEAD CAPITAL GAIN (ANNEXURE A IS PROFIT AND LOSS ACCOUNT) TOTAL RS. 11,35,45,082 100% 4. IF THE TOTALITY OF FACTS IS ANALYSED, SI NCE THE LOSS SO OCCASIONED WAS NOT ARISING OUT OF PURCHASE AND SALE OF SHARES BUT WAS ON ACCOUNT OF FORFEITURE OF APPLICATION MONEY, THEREFORE, EXPLANATION TO SECTION 73 IS NOT ATTRACTED AT ALL. THUS, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE LOSS ON FORFEITURE OF SHARES UNDER EXPLANATION 73. THE ASSESSEE COMPANY WAS PURCHASING SHARES AS AN INVESTMENT, THEREFORE, THE LOSS OCCASI ONED DUE TO FORFEITURE OF SHARES WAS IN THE NATURE OF CAPITAL LOSS AND THE SHARES WERE APPLIED FOR MAKING INVESTMENT AND NOT KEEPING THE SAME AS S TOCK IN TRADE. THUS, THE LOSS SO OCCASIONED TO THE ASSESSEE CAN BE ALLOWED AS A 4 CAPITAL LOSS. WE, ACCORDINGLY, DIRECT THE ASSESSIN G OFFICER TO ALLOW THE SAME AS CAPITAL LOSS. 5. THE NEXT GROUND RELATES TO MAKING DISALLOWANCE B Y INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THE CASE OF T HE ASSESSING OFFICER WAS THAT SINCE THE ASSESSEE WAS MAKING INVESTMENT F OR ACQUISITION OF SHARES WHICH IS NOT EARNING ANY INCOME, THEREFORE, THE EXPENDITURE INCURRED FOR THE SAME CANNOT BE ALLOWED AS A BUSINE SS EXPENDITURE. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE DIS ALLOWABLE PORTION OF INTEREST KEEPING IN VIEW THE TOTAL FUNDS INVESTED A S DIVIDED BY THE FUNDS INVESTED FOR ACQUISITION OF SHARES. THE CONTENTION OF THE ASSESSEE WAS THAT THE ENTIRE FUNDS BORROWED WERE NOT UTILISED FO R ACQUISITION OF TAX FREE SECURITIES BUT WERE ACTUALLY USED FOR ADVANCING LOA NS WHICH EARNED INTEREST INCOME. HE, THEREFORE, ARGUED THAT THE IN TEREST INCOME RECEIVED ON SUCH INVESTMENT SHOULD BE REDUCED OUT OF THE INT EREST EXPENDITURE SO INCURRED AND THE NET INTEREST EXPENDITURE SHOULD BE APPORTIONED BETWEEN THE TOTAL FUNDS BORROWED AND THE FUNDS INVESTED FOR ACQUISITION OF SHARES. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AC CEPTED THE ASSESSEES CONTENTION AND MADE THE DISALLOWANCE OF NET INTEREST EXPENDITURE AGAINST WHICH THE REVENUE IS IN FURTHER APPEAL BEFORE US. 6. IT WAS ARGUED BY THE LEARNED CIT DR THAT THE ASS ESSING OFFICER HAS ALREADY APPORTIONED THE INTEREST EXPENDITURE WH ICH IS ATTRIBUTABLE TO THE INVESTMENT IN SHARES, THEREFORE, THE LEARNED CO MMISSIONER OF 5 INCOME TAX (APPEALS) WAS NOT JUSTIFIED IN NETTING T HE INTEREST EXPENDITURE AND FURTHER REDUCING THE INTEREST EXPEN DITURE WHICH WAS ATTRIBUTABLE TO SHARES AND SECURITIES. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT EVEN IF THE FORMULA ADOPTED BY THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) IS NOT ACCEPTED, THERE IS FALLACY IN THE COMPUTATION OF SUCH INCOME IN THE ASSESSMENT ORDER INSOFAR AS THERE ARE VARIOUS INVESTMENTS IN INCOME PLUS GROWTH SCHEME WHICH ACTUALLY YIELDED THE INCOME WHICH IS LIABLE TO TAX. THE SAME, THEREFORE, DOES NOT FOR M PART OF THE INVESTMENT IN SHARES AND SECURITIES NOT YIELDING ANY INCOME. HE DREW OUR ATTENTION TO THE AUDITED BALANCE-SHEET PLACED ON RECORD (PAGE 37 OF THE PAPER BOOK) INDICATING CURRENT INVESTMENT IN UNQUOTED FUL LY PAID UP UNITS OF BIRLA INCOME PLUS GROWTH SCHEME WHICH ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE DID NOT EARN ANY TAX FREE INCOME. HE DREW OUR ATTENTION TO SUCH WRONG COMPUTATION OF INTEREST PLACED BEFORE TH E ASSESSING OFFICER WHICH WAS TAKEN INTO ACCOUNT FOR COMPUTING DISALLOW ABLE PORTION OF INTEREST EXPENDITURE U/S 14A OF THE ACT. WE, THEREF ORE, SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) WHEREIN HE HAS GIVEN BENEFIT OF DOUBLE NETTING OF INTEREST EXP ENDITURE. KEEPING IN VIEW THE FALLACY IN COMPUTATION OF INVESTMENT IN UN IT PLUS GROWTH PLAN YIELDING TAXABLE INCOME, IN THE INTEREST OF JUSTICE AND FAIR PLAY, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WIT H THE DIRECTION TO 6 RECOMPUTE THE TOTAL AMOUNT INVESTED IN TAX FREE SEC URITIES SO AS TO ARRIVE AT A CORRECT FIGURE OF DISALLOWABLE PORTION OF INTE REST EXPENDITURE U/S 14A OF THE ACT. WE DIRECT ACCORDINGLY. NEEDLESS TO MEN TION THAT THE ASSESSEE BE PROVIDED REASONABLE OPPORTUNITY OF EXPL AINING ITS CASE BEFORE THE ASSESSING OFFICER, THEREFORE, THIS GROUN D OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. FINALLY, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES OF BOTH THE SIDES ON 21 MA RCH, 2011. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST MARCH, 2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE DN/- 7