M/s. BRIGGS TRADING CO. P. LTD., MUMBAI V. DCIT CIR. - 6(1), MUMBAI

ITA 3723/MUM/2005

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4046 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 01-07-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 17-05-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B S SHARMA
• Keywords: Business income; Share purchase agreement; Speculation loss
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN, AM AND PAWAN SINGH, JM ./ I.T.A. NO . 3723 / MUM/ 2005 ( / ASSESSMENT YEA R : 2001 - 02) BRIGGS TRADING CO.PVT.LTD., 135, CONTINENTAL BLDG, DR.ANNIE BESANT ROAD, WORLI, MUMBAI - 400018 / VS. DY. COMMISSIONER OF INCOME TAX - 6(1) , A A YAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .312 1/ MUM/ 2006 ( / ASSESSMENT YEA R : 2002 - 03) BRIGGS TRADING CO.PVT.LTD., 135, CONTINENTAL BLDG, DR.ANNIE BESANT ROAD, WORLI, MUMBAI - 400018 / VS. ASSTT. COMMISSIONER OF INCOME TAX - 6(1) , A A YAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .4683/ MUM/ 2007 ( / ASSESSMENT YEA R : 2003 - 04) BRIGGS TRADING CO.PVT.LTD., 135, CONTINENTAL BLDG, DR.ANNIE BESANT ROAD, WORLI, MUMBAI - 400018 / VS. DY. COMMISSIONER O F INCOME TAX - 6(1) , A A YAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .4681/ MUM/ 2007 ( / ASSESSMENT YEA R : 2003 - 04) ASSTT. COMMISSIONER OF INCOME TAX - 6(1) , ROOM NO.506, 5 TH FLOOR, A A YAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 / VS. BRIGGS TRADING CO.PVT.LTD., 135, CONTINENTAL BLDG, DR.ANNIE BESANT ROAD, WORLI, MUMBAI - 400018 ( / APPELLANT ) .. ( / RESPONDENT ) ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 2 ./ ./PAN. : AA ACB4674J / A SSESSEE BY SHRI FIROZE B ANDHYARUJINA AND SHRI B S SHARMA / RE VENUE BY SHRI G M DOSS / DATE OF HEARING : 5.11.2015 / DATE OF PRONOUNCEM ENT: 3. 2. 2016 / O R D E R P ER B ENCH : ALL THESE APPEALS WERE HEARD TO GETHER AND HENCE THEY ARE BEING D ISPOSED OF BY THIS COMMON ORDE R, FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT IN SHARES. THE ASSESSEE HAS FILED APPEALS FOR AY 2001 - 02, 2002 - 03 AND 2003 - 04 AND THE REVENUE HAS FILED APPEAL FOR AY 2003 - 04. 3. WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR AY 2001 - 02. THE FIRST ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWAN CE OF LOSS ARISING ON VALUATION OF SHARES OF M/S LCC INFOTECH AT THE YEAR END . THE FACTS RELATING THERETO ARE SET OUT IN BRIEF. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED 28,500 SHARES OF LCC INFOTECH @ RS.175.44 PER SHARE ON 03 - 04 - 20 00. IT WAS NOTICED THAT THE ASSESSEE HAS NOT RECEIVED THE SHARES EITHER PHYSICALLY OR THROUGH DEMAT ACCOUNT. THE AO FURTHER NOTICED FROM THE RULES OF STOCK EXCHANGE PROVIDE THAT THE SHARES SHOULD BE DELIVERED TO THE BUYER WITHIN 15 DAYS OF THE CONTRACT , FAILING WHICH THE CONTRACT SHALL BE CLOSED. BY FOLLOWING THE SAID CIRCULAR, THE AO TOOK THE VIEW THAT THE PURCHASE CONTRACT, IF ANY, SHOULD HAVE BEEN CLOSED WITHIN 15 DAYS . A CCORDINGLY COMPUTED THE FINANCIAL RESULT OF THE TRANSACTION THAT SHOULD HAVE OCCU RRED ON CLOSURE OF THE CONTRACT AS PER SEBI RULES BY ADOPTING THE MARKET RATE PREVAILING AT THAT POINT OF TIME . ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 3 HOWEVER, THE SAME DID NOT RESULT IN ANY ADDITION. SUBSEQUENTLY, IT APPEARS THAT T HE PRICE OF SHARE OF M/S LCC INFOTECH HAS FALLEN DOWN AND AT T HE END OF THE YEAR, THE PRICE STOOD AT RS.14.90 PER SHARE . HENCE THE ASSESSEE HAD REVALUED THE ABOVE SAID SHARES AND ACCORDINGLY BOOKED A LOSS OF RS.4,57,53,900/ - . THE AO TOOK THE VIEW THAT THERE IS NO SUFFICIENT EVIDENCE TO SHOW THAT THE ASSESSEE HAS AC TUALLY PURCHASED THE SHARES AND THEY WERE NOT EXISTING. A CCORDINGLY THE AO CAME TO THE CON C LUSION THAT THE ASSESSEE HAS CLAIMED LOSS IN RESPECT OF NON - EXISTING SHARES AND A CCORDINGLY HE DISALLOWED THE CLAIM OF LOSS OF RS.4,57,53,900/ - . THE LD CIT(A) ALS O CONFIRMED THE SAME. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE IS A NON BANKING FINANCIAL COMPANY (NBFC) REGISTERED WITH RBI AND IT IS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT IN SHARES, BESIDES CARRYING ON FINANCING ACTIVITIES. HE SUBMITTED T HAT THE ASSESSEE HAS MAINLY INVESTED IN STARTUP COMPANIES. HE SUBMITTED THAT THE SHARES HELD BY THE ASSESSEE AS STOCK IN TRADE HAS BEEN VALUED AT THE YEAREND AS PER COST OR MARKET VALUE WHICHEVER IS LESS METHOD OF VALUATION. ACCORDINGLY HE SUBMITTED TH AT THE ASSESSEE HAD VALUED THE SHARES OF M/S LCC INFOTECH AT MARKET VALUE, SINCE THE PRICE OF THE SAID SHARE HAD FALLEN AT THE YEAR END. HE FURTHER SUBMITTED THAT THE SHARES WERE HELD BY THE BROKER ON THE ACCOUNT OF THE ASSESSEE AND HENCE THE SAME WAS NOT RECEIVED BY IT. HE SUBMITTED THAT THE TAX AUTHORITIES HAVE DISALLOWED THE CLAIM ONLY ON SUSPICION. 5. ON THE CONTRARY THE LD D.R SUBMITTED THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM THAT IT HAD ACTUALLY PURCHASED THE SHARES OF M/S LCC INFOTECH BY PRODUCING THE COPY OF SHARE CERTIFICATES OR BY SHOWING THAT THE SHARES WERE CREDITED TO ITS DEMAT ACCOUNT. THE ASSESSEE HAS ALSO FAILED TO PRODUCE CONFIRMATION LETTER FROM THE BROKER ALONG WITH HIS DEMAT ACCOUNT TO SHOW THAT THE SHARES, IF ANY, WERE HE LD BY THE BROKER. HE SUBMITTED ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 4 THAT THE ASSESSEE DID NOT PRODUCE ANY CONTRACT CONTRACT NOTE IN THE PRESCRIBED FORM, BUT SUBMITTED A BILL ONLY. FURTHER THE SAID BILL SHOWS THAT THE BROKER HAS NOT CHARGED ANY AMOUNT FOR BROKERAGE AND FURTHER THE PURCHASE AM OUNT HAS BEEN ADJUSTED TO A ROUND FIGURE BY GIVING DISCOUNT TO THE ASSESSEE, WHICH DEFIES THE LOGIC OF THE TRANSACTION. 6. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS ANALYSED THIS ISSUE AND HAS TAKEN THE DECIS ION AGAINST THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE LD CIT(A): - ( I ) LCC INFOTECH THE ABOVE SHARES HAVE BEEN PURCHASED THROUGH PUSHPAK SECURITIES P LTD ON 3.4.2000 FOR WHICH BILL HAS BEEN FILED. HO WEVER, NO CONTRACT NOTE IN FORM - A HAS BEEN FILED DEPICTING THE TRADE TIME, TRADE NO., AND THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE ANY FURTHER DETAILS IN RESPECT OF ABOVE TRANSACTIONS. THE ABOVE PARTY COULD NOT BE PRODUCED BEFORE THE AO AND SIMILARL Y, COPY OF DEMAT ACCOUNT OF PUSHPAK SERVICES PVT LTD. ALSO COULD NOT BE PRODUCED IN ORDER TO SUBSTANTIATE THE CLAIM OF THE APPELLANT THAT THE APPELLANT HAS RECEIVED THE ABOVE SHARES THROUGH BROKER IN THE CURRENT YEAR. THE ONLY EVIDENCE IS THE BILL AND TH E FACT THAT 5 CRORE IN RESPECT OF ABOVE PURCHASE HAS BEEN PAID ON 2.5.2000 TO PUSHPAK SECURITIES PVT. LTD. I MAY ALSO ADD THAT THE BILL CONTAIN THE QUANTITY OF 2,85,000/ - SHARES @ 175.44 WHICH DO NOT CONTAIN ANY BROKERAGE OR SERVICE CHARGE AND RS.400 / - DISCOUNT HAS BEEN GIVEN FOR BRINGING THE BILL TO A ROUND FIGURE OF 5 CRORES. IN THE ABSENCE OF ANY FURTHER DETAILS GIVEN BY THE APPELLANT COUPLED WITH THE FACT THAT ALTHOUGH THE PURCHASE IS ON 3.4.2000 AND TILL 31.3.2001 NO DELIVERY HAS BEEN RECEIVED BY THE APPELLANT COMPANY AND NO EVIDENCE HAS BEEN RECEIVED HAS BEEN PRODUCED THAT THE SHARES HAVE BEEN RECEIVED BY THE APPELLANT OR BY ITS BROKER, I AM OF THE VIEW THAT THE APPELLANT HAS NOT BEEN ABLE TO PROVE THAT IT HAS INDEED PURCHASED SHARES OF LCC INFOTECH AT THE RATE AND ON DATE AS MENTIONED IN THE BILL. IN VIEW OF ABOVE, THE LOSS CLAIMED BY THE APPELLANT ON ACCOUNT OF VALUATION OF CLOSING STOCK OF LCC INFOTECH AMOUNTING TO RS.4,57,53,900/ - WOULD NOT BE CONSIDERED AS ADMISSIBLE ON A CAREFUL P ERUSAL OF THE ORDER OF LD CIT(A), WE NOTICE THAT THE TAX AUTHORITIES HAVE COME TO THE CONCLUSION THAT THE ASSESSEE DID NOT PURCHASE SHARES OF M/S LCC INFOTECH AT ALL. WE FURTHER NOTICE THAT THE ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 5 ASSESSEE COULD NOT CONTROVERT THE DECISION REACHED BY THE LD CIT(A) BY BRINGING ANY OTHER MATERIAL ON RECORD. THE VERY FACT THAT THE ASSESSEE COULD NOT FURNISH BROKER NOTE IN THE PRESCRIBED FORM AND FURTHER IT COULD NOT ALSO SUBMIT EVIDENCES TO SHOW THAT THE SHARES WERE, IN FACT, PURCHASED BY THE BROKER AND THE SAM E WAS HELD IN HIS BOOKS IN THE ACCOUNT OF THE ASSESSEE SHOWS THAT THE TAX AUTHORITIES HAVE TAKEN CORRECT VIEW ON THIS MATTER. FURTHER THE DISCOUNT GIVEN BY THE BROKER, THAT TOO, WITHOUT CHARGING THE BROKERAGE, IN OUR VIEW, STRENGTHENS THE VIEW TAKEN BY TH E TAX AUTHORITIES. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE VIEW TAKEN BY LD CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.90,82,176/ - A ND CLAIMED THE SAME AS EXEMPT. THE DIVIDEND HAD BEEN RECEIVED FROM THE SHARES HELD IN M/S ESSEL PACKAGING AND M/S ZEE TELEFILM LTD. THE AO TOOK THE VIEW THAT THE INTEREST PERTAINING TO SHARES HELD BY THE ASSESSEE IS DISALLOWABLE U/S 14A OF THE ACT. ACCO RDINGLY HE COMPUTED THE TOTAL INVESTMENT HELD BY THE ASSESSEE AT RS.15.27 CRORES, ON WHICH HE COMPUTED THE INTEREST AMOUNT @ 16% AND ACCORDINGLY DISALLOWED A SUM OF RS.2,44,37,252/ - . 8. THE LD CIT(A) TOOK THE VIEW THAT THE INTEREST PAID ON SHARES HELD AS STOCK IN TRADE IS ALLOWABLE U/S 36(1)(III) OF THE ACT AND HENCE THE SAME NEED NOT BE DISALLOWED U/S 14A OF THE ACT. THE LD CIT(A) FURTHER NOTICED THAT THE AO DID NOT CONSIDER THE PROVISION MADE BY THE ASSESSEE AGAINST THE FALL IN THE VALUE OF SHARES AS WE LL AS THE AMOUNT PAID AS SHARE APPLICATION MONEY. ACCORDINGLY, HE ASKED THE ASSESSEE TO FURNISH A WORKING WITH REGARD TO THE INTEREST EXPENDITURE PERTAINING TO VARIOUS ACTIVITIES. BY MAKING SOME CALCULATIONS, THE LD CIT(A) HELD THAT THE FOLLOWING INTERES T EXPENDITURE REQUIRES DISALLOWANCE U/S 14A OF THE ACT: - ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 6 (A) INTEREST ON INVESTMENTS 38,55,288 (B) INTEREST ON INTEREST FREE LOAN 1,83,893 (C) INTEREST ON ADVANCE FOR PURCHASE OF SHARES 62,88,845 (D) INTEREST ON SHARE APPLICATION MONEY 98,15,442 ------------------- 2,01,43,468 ========== 9. THE LD A.R, BY PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81), SUBMITTED THAT THE DISALLOWANCE U/S 14A IS REQUIRED TO BE COMPUTED ON A REASONABLE BASIS. IN THIS REGARD, HE ALSO PLACED RELIANCE ON THE DECISION RENDERED BY THE CO - ORDINATE BENCH IN THE CASE OF GODREJ AGROVET LTD (ITA NO.1629/UM/2009 DATED 17 - 09 - 2010), WHEREIN THE DISALLO WANCE WAS WORKED OUT AT 2% OF THE DIVIDEND INCOME. HE FURTHER SUBMITTED THAT THE SAID DECISION HAS SINCE BEEN APPROVED BY HONBLE BOMBAY HIGH COURT. HE ALSO PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD (ITA NO.1131 OF 2013) DATED 17 - 03 - 2015 TO CONTEND THAT THE DISALLOWANCE OF INTEREST EXPENDITURE RELATING TO SHARES HELD AS STOCK IN TRADE IS NOT REQUIRED. 10. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE DIVIDEND INCOME CANN OT BE ASSESSED AS BUSINESS INCOME AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF BENGAL AND ASSAM INVESTORS LTD (1966)(59 ITR 547) AND HENCE THE DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE EVEN IF THE SHARES ARE HELD AS STOCK IN TRADE. HE FURTHER SUB MITTED THAT THE INTEREST PAID TO PURCHASE SHARES IS REQUIRED TO BE DISALLOWED AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. SMT. AMIRTABEN R SHAH (1999) (238 ITR 777). 11. IN THE REJOINDER, THE LD A.R PLACED RELIANCE O N THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD (2008)(298 ITR 194) AND THE DECISION OF HONBLE BOMBAY HIGH COURT ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 7 RENDERED IN THE CASE OF CIT VS. PHIL CORPORATION LTD & ANR (2011)(244 CTR (BOM) 226) TO CONTEND THAT THE INTEREST DISALLOWANCE IS NOT CALLED FOR. 1 2 . WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE. WE NOTICE THAT THE LD CIT(A) HAS ALREADY TAKEN THE VIEW THAT THE INTEREST PERTAINING TO SHARES HELD AS STOCK IN TRADE IS REQUIRED TO BE ALLOWED U/S 3 6(1)(III) OF THE ACT AND THE REVENUE HAS NOT FILED ANY APPEAL CHALLENGING THE SAID DECISION. HENCE THE SAID ISSUE HAS ATTAINED FINALITY AND DOES NOT REQUIRE OUR CONSIDERATION. WE FURTHER NOTICE THAT THE DECISION RENDERED IN THE CASE OF GODREJ AGROVET LTD (SUPRA) FIXING A LIMIT OF 2% OF DIVIDEND INCOME FOR MAKING DISALLOWANCE U/S 14A OF THE ACT WAS RELATED TO THE DISALLOWANCE REQUIRED TO BE MADE OUT OF ADMINISTRATIVE EXPENSES. IN THE INSTANT CASE, THE TAX AUTHORITIES HAVE NOT MADE ANY DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES AND HENCE THE SAID DECISION ALSO SHALL NOT APPLY TO THE FACTS OF THE INSTANT CASE. 13. WE HAVE GONE THROUGH THE DECISIONS RENDERED IN THE CASE OF CORE HEALTH CARE LTD (SUPRA) AND PHIL CORPORATION LTD (SUPRA). THE SAID DECISIONS, IN OUR VIEW, HAVE BEEN RENDERED IN A DIFFERENT CONTEXT. IN THE CASE OF CORE HEALTH CARE LTD (SUPRA), THE ISSUE PERTAINING TO THE INTEREST PAID ON THE BORROWINGS MADE FOR PURCHASE OF MACHINERY AND IN THE CASE OF PHIL CORPORATION LTD (SUPRA), RELATED TO IN VESTMENT MADE IN A SUBSIDIARY COMPANY IN ORDER TO HAVE CONTROL OVER IT. HENCE, IN OUR VIEW BOTH THE DECISIONS ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 1 4 . NOW THE QUESTION AGITATED BEFORE US RELATES TO THE DISALLOWANCE MADE OUT OF INTEREST E XPENDITURE. WE NOTICE THAT THE DISALLOWANCE OF RS.2.01 CRORES CONFIRMED BY LD CIT(A) INCLUDES THE INTEREST EXPENDITURE RELATING TO (A) INTEREST FREE LOAN, (B) INTEREST ON ADVANCE FOR PURCHASE OF SHARES, (C) INTEREST ON SHARE APPLICATION MONEY AND (B) INTE REST ON INVESTMENTS. OUT OF THE ABOVE, THE INTEREST PERTAINING TO INTEREST FREE LOAN IS OUT SIDE THE SCOPE OF DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT. ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 8 IN FACT, THE LD CIT(A) HAD ALSO SPECIFICALLY OBSERVED ABOUT IT IN HIS ORDER. HENCE, WE ARE OF T HE VIEW THAT THE INTEREST PERTAINING TO INTEREST FREE LOAN NEEDS TO BE DELETED AS THE SAME IS BEYOND THE SCOPE OF SEC. 14A OF THE ACT. 15 . THE REMAINING THREE ITEMS OF INTEREST PERTAIN TO THE PURCHASE OF SHARES. OUT OF THE THREE, WE ARE OF THE VIEW THAT IT IS REQUIRED TO BE ASCERTAINED AS TO WHAT WAS THE INTENTION OF THE ASSESSEE IN RESPECT OF THE ADVANCE GIVEN FOR PURCHASE OF SHARES AND SHARE APPLICATION MONEY. IF THE INTENTION WAS TO HOLD THEM AS INVESTMENTS, THEN THE INTEREST PERTAINING TO THE SAME REQUIRES TO BE DISALLOWED. IF THEY ARE INTENDED TO BE HELD AS STOCK IN TRADE, THEN THE RELATED INTEREST EXPENDITURE IS REQUIRED TO BE ALLOWED U/S 36(1)(III) AS HELD BY LD CIT(A). FURTHER, IT IS ALSO REQUIRED TO BE SEEN AS TO WHETHER THE ASSESSEE HAS ACT UALLY ALLOTTED SHARES IN THE SUBSEQUENT YEARS. IF THE SHARES HAVE NOT BEEN ALLOTTED, THEN THE CLAIM OF THE ASSESSEE THAT THE SAME REPRESENTS SHARE APPLICATION MONEY TURNS OUT TO BE INCORRECT, IN WHICH CASE, THE DISALLOWANCE OF INTEREST MAY BE JUSTIFIED. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF INTEREST EXPENDITURE REQUIRES TO BE EXAMINED BY CONSIDERING THE DISCUSS IONS MADE ABOVE . ACCORDINGLY , WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF T HE AO FOR FRESH EXAMINATION IN THE LIGHT OF DISCUSSIONS MADE ABOVE. 16 . NOW WE ARE LEFT WITH THE INTEREST ON INVESTMENTS. AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. SMT. AMIRTABEN R SHAH (SUPRA), THE SAME IS REQUIR ED TO BE DISALLOWED, SINCE IT IS A DIRECT EXPENDITURE INCURRED FOR ACQUIRING SHARES. ACCORDINGLY WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 9 17 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03, WHEREIN FOLLOWING IS SUES ARE URGED: - (A) DISALLOWANCE OF INTEREST EXPENDITURE OF RS.11.23 CRORES U/S 14A OF THE ACT IN RESPECT OF ADVANCE GIVEN FOR PURCHASE OF SHARES OF M/S CLASSIC CREDIT LIMITED. (B) DISALLOWANCE OF INTEREST EXPENDITTURE PERTAINING TO INVESTMENT IN EQUITY SHARES AND SHARE APPLICATION MONEY AMOUNTING TO RS. 88,91,906/ - AND RS.76,29,565/ - RESPECTIVELY. (C) DISALLOWANCE OF LOSS RELATING TO PURCHASE AND SALE OF SHARES OF HFCL AND LCC INFOTECH LTD. (D) DISALLOWANCE OF LOSS ARISING ON REVALUATION OF SHARES OF M/S PUSHPANJALI FLORICULTURE LTD. (E) PARTIAL DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED AGAINST INTEREST INCOME. 18 . THE ISSUES URGED IN (A) AND (B) RELATES TO THE DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. WE HAVE DECIDED AN IDEN TICAL ISSUE WHILE CONSIDERING THE APPEAL OF THE ASSESSEE RELATING TO AY 2001 - 02, WHEREIN WE HAVE RESTORED THIS ISSUE WITH SOME DIRECTIONS. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE ORDER OF LD CIT(A) ON THESE ISSUES AND RESTORE THEM TO THE FILE OF THE AO IN THIS YEAR ALSO WITH SIMILAR DIRECTIONS. 19 . THE NEXT ISSUE RELATES TO THE LOSS CLAIMED ON SALE OF SHARES OF M/S LCC INFOTECH. IN THE APPEAL OF THE PRIOR YEAR, I.E., AY 2001 - 02, WE HAVE CONFIRMED THE ORDER OF LD CIT(A) THAT THE TRANSAC TIONS RELATING TO PURCHASE OF SHARES OF LCC INFOTECH ARE NOT GENUINE. HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE LOSS CLAIMED ON THE ALLEGED SALE OF SHARES OF LCC INFOTECH IS NOT ALLOWABLE. ACCORDINGLY, WE UPHOLD HIS O RDER ON THIS ISSUE. ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 10 20 . WITH REGARD TO THE LOSS ARISING ON SALE OF SHARES OF HFCL, WE NOTICE THAT THE LD CIT(A) HAS DIRECTED THE AO TO MAKE ENQUIRIES ABOUT THE CLAIM OF PURCHASE AND SALE OF SHARES AND TAKE DECISION ACCORDINGLY. WE DO NOT FIND ANY INFI RMITY IN THE SAID DECISION AND ACCORDINGLY UPHOLD THE SAME. 21 . THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF LOSS ARISING ON REVALUATION OF VALUE OF SHARES OF M/S PUSHPANJALI FLORICULTURE LTD. THIS ISSUE IS IDENTICAL WITH THE ISSUE OF REVALUAT ION OF SHARES OF M/S LCC INFOTECH, I.E., THE ASSESSEE HAS PRODUCED ONLY BILL AND NOT THE BROKER NOTE IN THE PRESCRIBED FORM; THE ASSESSEE HAS NOT TAKEN DELIVERY OF SHARES; THE ASSESSEE HAS NOT PRODUCED ANY CONFIRMATION LETTER FROM THE BROKER. SIMILARLY TH E CONTRACT NOTE ISSUED FOR SALE OF SHARES THROUGH ANOTHER BROKER M/S JAJODIA & CO DID NOT CONTAIN ANY TRADE NUMBER, TRADE TIME ETC. HENCE THE TAX AUTHORITIES HAVE TAKEN THE VIEW THAT THE CLAIM OF LOSS ARISING ON REVALUATION OF SHARES IS NOT ADMISSIBLE, SIN CE THE ASSESSEE COULD NOT SUBSTANTIATE THE CLAIM OF PURCHASE OF SHARES. 2 2 . BEFORE US, THE ASSESSEE PLACED RELIANCE ON THE VERY SAME DOCUMENTS, WHICH WERE FOUND TO BE DEFICIENT BY THE TAX AUTHORITIES. HOWEVER, THE LD A.R SUBMITTED THAT THE ASSESSING OFFI CER HAS TAKEN DIFFERENT STAND IN THE SUBSEQUENT YEARS AS DETAILED BELOW: - (A) IN AY 2003 - 04, THE DIMINUTION IN THE VALUE OF SHARES AMOUNTING TO RS.5.35 LAKHS HAS BEEN ALLOWED. (B) IN AY 2004 - 05, THE LOSS ARISING ON SALE OF SHARES AMOUNTING TO RS.990/ - HA S BEEN ALLOWED WITHOUT DISPUTING THE SALE CONSIDERATION OF RS.1,52,460/ - . THUS WE NOTICE THAT THE SUBSEQUENT VIEW TAKEN BY THE ASSESSING OFFICER IS IN CONTRADICTION TO THE VIEW TAKEN IN THE AY 2002 - 03, I.E., THE YEAR UNDER CONSIDERATION. IN VIEW OF THIS C ONTRADICT ION, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH CONSIDERATION AT THE END OF THE AO. ACCORDINGLY, WE ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 11 SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO FOR CONSIDERING THE SAME AFRESH. 23 . THE NEXT ISSUE RELATES TO THE PARTIAL DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE LD CIT(A). THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD CIT(A) HAS HELD THAT THE INTEREST INCOME IS ASSESSABLE AS INCOME FROM OTHER SOURCES, WHERE AS THE AO HAS ACCEPTED THE SAM E TO BE THE BUSINESS INCOME. IT IS FURTHER SUBMITTED THAT THE ADVANCING OF LOANS IS PART OF BUSINESS ACTIVITY AND HENCE THE SAME SHOULD BE CONSIDERED AS BUSINESS INCOME ONLY. IN THE ALTERNATIVE, IT IS SUBMITTED THAT THE NET INTEREST INCOME SHOWN BY THE A SSESSEE SHOULD BE CONSIDERED, IF AT ALL THE CONTENTIONS OF THE ASSESSEE IS NOT ACCEPTED. 24. WE HEARD THE PARTIES ON THIS ISSUE. WE NOTICE THAT THE LD CIT(A) HAS DECIDED THIS ISSUE WITHOUT CONSIDERING THE OBJECT CLAUSE OF THE ASSESSEE. IT IS AN UNDIS PUTED FACT THAT THE ASSESSEE IS A NBFC REGISTERED WITH THE RBI AND HENCE THERE APPEARS TO BE SOME MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE INTEREST INCOME IS ASSESSABLE AS BUSINESS INCOME. FURTHER, ACCORDING TO THE ASSESSEE, THE LD CIT(A) HAS DET ERMINED THE NET INTEREST INCOME WITHOUT CONSIDERING THE RATE OF INTEREST ACTUALLY PAID AND CHARGED. THUS WE NOTICE THAT THE CONTENTION OF THE ASSESSEE THAT THE INTEREST INCOME FORMS PART OF ITS BUSINESS ACTIVITIES NEEDS TO BE EXAMINED BY CONSIDERING THE OBJECTS CLAUSE AND THE REGISTRATION GIVEN BY THE RBI AS NBFC. IF IT IS ACCEPTED AS PART OF ITS BUSINESS ACTIVITIES, THEN THERE IS NO REQUIREMENT TO ASSESS THE INCOME AS INCOME FROM OTHER SOURCES. ACCORDINGLY, THIS ISSUE REQUIRES EXAMINATION AT THE END OF THE AO. WITH REGARD TO THE ISSUE RELATING TO ASCERTAINMENT OF NET INTEREST INCOME ALSO, WE FEEL THAT THE SAME REQUIRES FRESH EXAMINATION SINCE THE ASSESSEE IS DISPUTING THE RATE OF INTEREST ADOPTED BY THE LD CIT(A). IN VIEW OF THE ABOVE, WE SET ASIDE TH E ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 12 SAME TO THE FILE OF THE AO FOR EXAMINING THE SAME AFRESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA. 25. WE SHALL NOW TAKE UP THE APPEALS FILED BY BOTH THE PARTIES FOR ASSESSMENT YEAR 2003 - 04. TH E ASSESSEE IS IN APPEAL ON FOLLOWING ISSUES ARE URGED: - (A) LOSS ARISING ON REVALUATION OF SHARES WAS TREATED AS SPECULATION LOSS, CONFIRMED BY THE LD CIT(A). (B) PARTIAL RELIEF GRANTED BY LD CIT(A) ON THE DISALLOWANCE OF INTEREST EXPENDITURE. THE ASSE SSEE PRAYS THAT THE SAME SHOULD BE DELETED. THE REVENUE IS IN APPEAL CHALLENGING THE RELIEF GRANTED BY LD CIT(A) OUT OF THE DISALLOWANCE OF INTEREST EXPENDITURE. 26. THE FIRST ISSUE RELATES TO THE LOSS ARISING ON REVALUATION OF SHARES HELD AS STOCK IN TR ADE, WHICH WAS TREATED AS SPECULATION LOSS BY THE AO. WE NOTICE THAT THE LD CIT(A) UPHELD THE ACTION OF THE AO BY FOLLOWING THE DECISION RENDERED BY HIM IN AY 2002 - 03 WHILE DEALING WITH THE ISSUE RELATING TO INTEREST INCOME/EXPENDITURE. THE LD A.R SUBMIT TED THAT THE DIMINUTION IN THE VALUE OF SHARES HELD BY THE ASSESSEE IS CLAIMED AS BUSINESS LOSS. THUS, WE NOTICE THAT THERE IS NO PURCHASE AND SALE OF SHARES WHICH HAS RESULTED IN LOSS. HENCE, WE FIND MERIT IN THE SUBMISSION OF LD A.R THAT THE QUESTION OF TREATING THE SAME AS SPECULATION LOSS DOES NOT ARISE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE LOSS. 27. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF INTEREST EXPENDITURE. SINCE THE LD CIT(A) HAS GRANTED PARTIAL RELIEF TO THE ASSESSEE, BOTH THE PARTIES ARE IN APPEAL BEFORE US ON THIS CHALLENGING THE DECISION OF LD CIT(A). IDENTICAL ISSUE WAS CONSIDERED BY US IN THE PRECEDING TWO YEARS AND THE SAME WAS SET ASIDE TO THE FILE OF THE AO WITH THE DIRE CTION TO ITA NO.3723 - /M/2005,3121/M/06, 4681/M/07 AND 4683/ MUM/ 2007 13 EXAMINE THE SAME AFRESH. CONSISTENT WITH THE VIEW TAKEN IN THE PRECEDING YEARS, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. THE ORDER OF LD CIT(A) ON THIS ISSUE STANDS SET ASIDE ACCORDINGLY. 28. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY ON 3 RD FEB , 2016 3 RD FEB , 2 01 6 SD SD ( PAWAN SINGH ) ( B.R. BASKARAN) JU DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 3RD FEB , 2016 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI