Lustre Merchants Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 3836/DEL/2011

• Counselvise Citation: 383620114 RSA 2011
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-01-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 11-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Capital asset; Opportunity of being heard; Date of conversion; Reason to believe; Rule 8D; Set aside
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA ITA NO. 3836/DEL/2011 ASSTT. YR: 2008-09 LUSTRE MERCHANTS PVT. LTD. VS. DCIT CIR. 4(1), C/O KAPIL GOEL ADV. NEW DELHI. A-1/25, SECTOR 15, ROHINI, DELHI-110085. PAN/GIR NO. AAACL0457D (APPELLANT) ( RESPONDENT ) APPELLANT BY : SH. KAPIL GOEL ADV. & SH. SUNIL GUPTA CA RESPONDENT BY : MS. ANUSHA KHURANA DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT (A)S ORDER DATED 23-6-2011 RELATING TO A.Y. 2008-09. FOLLOWING EFFECTIVE GROUN DS ARE RAISED : 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER (AO) TREATING THE SUBJECT LOSS AMOUNTING TO RS. 41,60,000/- AS CAPITAL LOSS IN NATURE IGNORING THE FACT THAT APPEL LANT (NBFC) COMPANY HAS THOROUGHLY TREATED THE OBTAINING OF SHARES AS S TOCK IN TRADE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER (AO) TREATING THE SUBJECT LOSS AMOUNTING TO RS. 41,60,000/- AS CAPITAL LOSS IN NATURE IGNORING PROVISIONS OF SECTI ON 36(1)(VII) AND SECTION 36(2)(I) OF THE ACT, COVERED IN FAVOUR OF A SSESSEE BY JURISDICTIONAL DELHI HIGH COURT ORDER IN CASE OF IN SILCO LTD. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER (AO) TREATING THE SUBJECT LOSS AMOUNTING TO RS. 41,60,000/- AS CAPITAL LOSS IN NATURE IGNORING THE SQUARELY APPLIC ABLE RULING OF 2 BOMBAY HIGH COURT IN THE CASE OF TAINWALA TRADING I TA 490/2004 & LATEST GUJARAT HIGH COURT ORDER IN CASE OF VADILAL FINANCIAL SERVICES LTD. DISALLOWANCE U/S 14A WHERE EXCLUSIVE USE OF BORROWE D FUNDS FOR BUSINESS/ TRADE PURPOSES IS THERE. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LEARNED CIT(A) ERRED IN APPROVING THE DISALL OWANCE MADE BY LD. AO U/S 14A OF THE ACT TO THE EXTENT OF RS. 9,88 ,191/- BEING DIVIDEND RECEIVED WHERE ADMITTEDLY TOTAL BORROWING IS DIRECTLY USED FOR TRADE PURPOSES. 2. BRIEF FACTS, AS EMERGE, ARE: (I) THE ASSESSEE COMPANY, ENGAGED IN NON BANKING FINANC IAL BUSINESS (NBFC), FOR A.Y. 2008-09, FILED RETURN DECLARING L OSS OF RS. 64,34,736/-. IT HAD APPLIED FOR 7,50,000/- CONVERTI BLE WARRANTS @ 64/- PER WARRANT OF A LISTED GROUP COMPANY SURYA RO SHNI LTD. ON 16-1-2006 AND REMITTED THE APPLICATION MONEY AMOUNT ING TO RS. 48,00,000/- (II) ON 23-3-2006 THE ASSESSEE COMPANY APPLIED FOR CONVE RSION OF 1,00,000 SHARE WARRANTS INTO EQUITY SHARES BY MAKIN G A PAYMENT OF 57,60,000/- BEING 90% OF VALUE OF SHARE WARRANTS AN D ADJUSTING AN AMOUNT OF RS. 6,40,000/- OUT OF RS. 48,00,000/- PAI D AT THE TIME OF MAKING APPLICATION FOR 7,50,000 SHARE WARRANTS. (III) THE BALANCE AMOUNT OF RS. 41,60,000/- WAS OUTSTANDI NG AS AT 31.3.2006 REPRESENTING APPLICATION MONEY OF 10% VAL UE OF BALANCE 6,50,000 CONVERTIBLE WARRANTS. (IV) AS PER THE TERMS AND CONDITIONS OF THE PREFERENTIA L ISSUE OF OPTIONAL CONVERTIBLE WARRANTS THE ASSESSEE WAS REQU IRED TO MAKE 3 THE PAYMENT FOR BALANCE AMOUNT REPRESENTING 90% VAL UE IN RESPECT OF REMAINING 6,50,000 CONVERTIBLE WARRANTS ON OR BE FORE 15-7-2007 AS PER SEBI GUIDELINES. (V) AS THE ASSESSEE COMPANY FAILED TO REMIT THE BALANCE OUTSTANDING ALLOTMENT MONEY, THE SAID LISTED COMPANY FORFEITED THE APPLICATION MONEY AMOUNTING TO RS. 41,60,000/- AS PER THE TERMS AND CONDITIONS AS NOTED ABOVE AS WELL AS THE EXISTING S EBI GUIDELINES. (VI) THE ASSESSEE COMPANY CLAIMED THIS AMOUNT AS A BUSIN ESS LOSS. 2.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A SSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE BUSINESS LOSS CLAIMED BY T HE ASSESSEE, ATTRIBUTABLE TO LOSS ON FORFEITURE OF SHARE APPLICATION MONEY, S HOULD NOT BE TREATED AS CAPITAL LOSS. ASSESSEE CONTENDED AS UNDER: IT IS EVIDENT THAT A BINDING CONTRACT EXISTED BETW EEN THE ASSESSEE AND THE INVESTEE COMPANY. THEREFORE, AS SO ON AS THE ALLOTMENT IS MADE, THE ASSESSEE WOULD BE DEEMED TO HAVE ACQUIRED A RIGHT IN SUCH SHARES EVEN IF THE CALL MO NIES OR THE FULL FACE VALUE OF THE SHARES HAS NOT BEEN PAID. THUS, I N A CASE WHERE ONLY SHARE APPLICATION MONEY IS PAID AND THE BALANCE IS YET TO BE PAID ON ACTUAL ALLOTMENT OF SHARES, THE H OLDER OF SUCH ALLOTMENT WOULD BE RECOGNIZED AS A MEMBER OF THE IN VESTEE COMPANY. SUCH A TRANSACTION WOULD ATTRACT THE PROVI SIONS OF SECTION 2(47) OF THE ACT. THE EXTINGUISHMENTS OF AN Y RIGHTS THEREIN AS APPEARED IN SECTION 2(47) OF THE ACT, CO VERS EVERY POSSIBLE TRANSACTION RESULTING IN THE DESTRUCTION, ANNIHILATION, EXTINCTION, TERMINATION, CESSATION OR CANCELLATION, BY SATISFACTION OR OTHERWISE OF ALL OR ANY OF THE BUND LE OF RIGHTS WHETHER QUALITATIVE OR QUANTITATIVE, WHICH THE ASSE SSEE HAS IN A CAPITAL ASSET WHETHER OR NOT SUCH AN ASSET IS CORPO REAL OR INCORPOREAL. 4 2.2. AO, HOWEVER, REJECTED THE ASSESSEES CLAIM AND HELD IT TO BE A CAPITAL LOSS, ALLOWABLE UNDER THIS HEAD, BY RELYING ON FOLL OWING JUDGMENTS: - CIT VS. MRS. GRACE COLLIS (2001) 248 ITR 323 (SC) - DCIT V. BPL SANYO FINANCE LTD. (2009) 312 ITR 63 (K AR.) - CIT VS. CHAND RATAN BAGRI (2010) 230 CTR 258 (DEL.) - VANIA SILK MILLS (P) LTD. VS. CIT 98 CTR (SC) 153. 2.3. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE T HE CIT(A), WHERE IT REITERATED ITS STAND AND RELIED ON THE FOLLOWING JU DGMENTS IN SUPPORT OF ITS CLAIM: - BOMBAY HIGH COURT JUDGMENT IN THE CASE OF TAINWALA TRADING & INVESTMENT CO. LTD. (ITA NO. 490/2004); - RBG INVESTMENT & FINANCE 321 ITR 488 (DEL.) - T.A. QUERESHI VS. CIT 287 ITR 547 (SC) - S.C. KOTHARI INDEED PROFITS 82 ITR 794 (SC) - RAMCHANDAR SHIVNARAYAN 111 ITR 263 (SC) - CIT VS. MYSORE SUGAR CO. LTD. (1962) 46 ITR 649 (SC ) - CIT VS. MAINA ORE TRANSPORT (P) LTD. (2010) 324 ITR 100(BOM) 2.4. CIT(A), HOWEVER, HELD THAT THESE CASES WERE NO T APPLICABLE TO ASSESSEES CASE AND UPHELD THE ORDER OF AO, BY OBSE RVING AS UNDER: ON PERUSAL OF THE CASE LAWS ON WHICH RELIANCE HAS BEEN PLACED BY THE APPELLANT, IT IS REVEALED THAT THE FACTS AND CIRCUMSTANCES OF THOSE CASES ARE ENTIRELY DISTINGUISHABLE FROM TH OSE OF THE CASE UNDER CONSIDERATION. CONSIDERING THE TOTALITY OF TH ESE FACTS AND THE RIVAL SUBMISSIONS, IT IS HELD THAT THE ACTION O F THE ASSESSING OFFICER IN REJECTING THE CLAIM OF THE APPELLANT RE GARDING THE AMOUNT OF RS. 41,60,000/- AS BUSINESS LOSS AND TREA TING THE SAME AS CAPITAL LOSS IS JUSTIFIED. 5 2.5. APROPOS SECOND GROUND, AO RECOURSING TO SEC. 1 4A OF THE I.T. ACT, READ WITH RULE 8D OF THE I.T. RULES, DISALLOWED AN AMOUNT OF RS. 19,53,603/-. 2.6. IN APPEAL, CIT(A) ALLOWED PART RELIEF TO THE A SSESSEE BY FOLLOWING OBSERVATIONS. AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ BOYEE MFG. CO. LTD. (SUPRA), RULE 8D OF THE INCOME TAX RULES, 1962 IS APPLICABLE ONLY PROSPECTIVELY I. E. FROM A.Y. 2008-09. SINCE THE ASSESSMENT YEAR INVOLVED IN THE PRESENT CASE IS 2008-09, RESPECTFULLY FOLLOWING THE SAID JUDGMEN T OF THE HONBLE BOMBAY HIGH COURT, IT IS HELD THAT THE ASSE SSING OFFICER WAS JUSTIFIED IN APPLYING THE SAID RULE TO QUANTIFY THE DISALLOWANCE U/S 14A OF THE ACT. AS FURTHER HELD BY THE HONBLE BOMBAY HIGH COURT IN THE SAID CASE, THE QUANTUM OF DISALLOWANCE U/S 14A MUST BE DETERMINED HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE. THE APPELLANT COMPANY HAS SUBMITTED THAT INTEREST AMOUNTING TO RS. 20,05,151/- HAS BEEN INCURRED EXCLUSIVELY TOWARDS LOANS WHICH HAVE BEEN FINANCED BY INDIA BULLS AND WHICH WERE DIRECTLY CHANNELED BY INDIA BU LLS IN RELIANCE POWER (IPO) SHARES. ON PERUSAL OF THE RELA TED DETAILS SUBMITTED ON BEHALF OF THE APPELLANT THE CLAIM OF T HE APPELLANT IS FOUND TO BE CORRECT. THEREFORE, THE INTEREST EXP ENSES OF RS. 20,05,151/- WHICH RELATES TO THE LOANS WHICH HAVE B EEN SPECIFICALLY AVAILED FOR ACQUISITION OF RELIANCE PO WER (IP0) SHARES IS TO BE EXCLUDED FROM THE TOTAL INTEREST FO R THE PURPOSE OF CLAUSE (II) OF SUB-RULE (2) OF RULE 8D. WHILE CO MING TO THE ABOVE CONCLUSION, RELIANCE HAS BEEN PLACED ON THE J UDGMENT OF KERALA HIGH COURT IN THE CASE OF CIT VS. SMT. LEENA RAMACHANDRA (2010) TIOL-541-HC-KERALA-IT WHEREIN IT WAS HELD THAT T HE ASSESSEE IS ENTITLED TO DEDUCTION OF INTEREST U/S 36(1)(III) ON BORROWED FUNDS UTILIZED FOR THE ACQUI SITION OF SHARES ONLY IF SHARES ARE HELD AS STOCK IN TRADE WH ICH ARISES ONLY IF THE ASSESSEE IS ENGAGED IN TRADING IN SHARES. HO WEVER, IT IS OBSERVED THAT AN AMOUNT OF RS. 9,88,191/- HAS BEEN RECEIVED BY THE APPELLANT ON ACCOUNT OF DIVIDEND INCOME WHICH I S EXEMPT FROM TAX. THEREFORE, THE DISALLOWANCE OF INTEREST U NDER SECTION 6 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1961 IS RESTRICTED TO THE SAID AMOUNT OF RS. 9,88,1 91/-. AS A RESULT, THE DISALLOWANCE IS CONFIRMED TO THE EXTENT OF RS 9,88,191/- AND THE APPELLANT GETS RELIEF OF RS. 9,6 5,412/- (RS. 19,53,603/- MINUS RS. 9,88,191/-). HENCE GROUND OF APPEAL NO. 5 IS PARTLY ALLOWED. AGGRIEVED, ASSESSEE IS BEFORE US ON BOTH THE ISSUES . 3. LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGU ES THAT AO HAS NOT DISPUTED THE FOLLOWING FACTS: (I) ASSESSEE IS NBFC (II) AS AN OBJECT OF BUSINESS IT INVESTED IN DEBENTURE A ND SHARES AS STOCK IN TRADE (III) THE CONVERTIBLE WARRANTS ALONG WITH DEBENTURES OF P UBLIC LISTED GROUP COMPANY I.E. SURYA ROSHNI LTD., WERE PURCHASE D BY ASSESSEE TO BE HELD AS STOCK IN TRADE. (IV) THE TRANSACTION IN QUESTION HAS BEEN UPHELD, HOWEVE R, THE REVENUE NATURE OF LOSS CLAIMED BY ASSESSEE HAS BEEN HELD TO BE CAPITAL LOSS. THUS THERE IS DISPUTE ABOUT GENUINENESS OF TRANSACT ION. 3.1. LEARNED COUNSEL FURTHER CONTENDS THAT THESE DE TACHABLE WARRANTS WERE HELD AS STOCK IN TRADE OF THE ASSESSEE; AS A CONSE QUENCE RESULTING PROFIT OR LOSS, WERE TO BE TREATED ON REVENUE ACCOUNT. THE DE TACHABLE WARRANTS WERE NEITHER HELD AS CAPITAL ASSET NOR CAN BE CONSIDERED FIXED ASSETS, AS IMPLIED BY LEARNED AO. LOWER AUTHORITIES FAILED TO CORRECT LY APPRECIATE THE FACTS. VEHEMENT RELIANCE IS PLACED ON HONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CIT VS. TAINWALA TRADING & INVESTMENT C O. LTD. (SUPRA), WHICH HAS ALLOWED THE SIMILAR LOSS TO BE HELD AS BUSINESS / REVENUE IN NATURE BY FOLLOWING OBSERVATIONS: 6. THE ARGUMENT OF THE REVENUE IS THAT THE ASSESSE E PURCHASED THE NAKED CONVERTIBLE WARRANT KNOWING FUL LY WELL 7 THAT TAINWALA CHEMICALS AND PLASTICS (INDIA) LTD. W ILL NOT BE PROSPEROUS IN THE NEAR FUTURE AND THAT THE TRANSACT ION WAS ENTERED INTO WITH A DIFFERENT MOTIVE OTHER THAN EAR NING PROFITS, BECAUSE, THE ASSESSEE BELONGED TO THE SAME GROUP OF COMPANY. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT 67% SHARES OF TAINWALA CHEMICALS AND PLASTICS (INDIA) LTD. WERE H ELD BY THE GENERAL PUBLIC INCLUDING BANKS AND FINANCIAL INSTIT UTIONS, AND ONLY 33% SHARES OF THE COMPANY WERE HELD BY THE PRO MOTERS. THUS, NAKED CONVERTIBLE WARRANTS WERE ISSUED IN THE ORDINARY COURSE OF BUSINESS AND NOT WITH ANY SPECIAL MOTIVE BY THE GROUP CONCERN WITH ULTERIOR MOTIVES. FROM THE AFFIDAVIT F ILED BY THE DIRECTOR OF THE ASSESSEE COMPANY, IT IS SEEN THAT T HE PROFITS OF TAINWALA CHEMICALS AND PLASTICS (INDIA ) LTD. FOR T HE YEAR ENDING 31 ST MARCH, 1995 WERE RS. 4.02 LAKHS AS AGAINST RS. 27.62 LAKHS IN THE ASSESSMENT YEAR IN QUESTION. IN THESE CIRCUMSTANCES, IN THE ASSESSMENT YEAR IN QUESTION, IN WHICH THE ASSESSEE HAD INVESTED AN AMOUNT OF RS. 72,99,996/- TAINWALA CHEMICALS AND PLASTICS (INDIA ) LTD. WAS A PROFIT M AKING COMPANY AND THERE WAS NO REASON TO BELIEVE THAT THE SAID COMPANY WOULD SUFFER LOSSES IN THE NEAR FUTURE. THE MARKET VALUE OF THE SHARES ON THE DATE OF INVESTMENT WERE BETWEEN RS. 60/- TO RS. 80/- PER SHARE AND ON THE DATE OF CONVE RSION OF NAKED CONVERTIBLE WARRANTS, THE SHARE VALUE HAD FAL LEN TO RS. 14/- PER SHARE AND AS PER THE SEBI GUIDELINES THE SHARES WERE OFFERED ON THE DATE OF CONVERSION AT RS. 72.70 PER SHARE. IN THESE CIRCUMSTANCES, THE ASSESSEE TOOK A COMMERCIAL DECISION TO FORGO THE AMOUNT INVESTED IN NAKED CONVERTIBLE WARR ANTS THAN TO INVEST FURTHER AMOUNT BY SUBSCRIBING TO THE SHARES AT A PRICE OFFERED BY THE COMPANY. CONSEQUENTLY, NO FAULT CAN BE FOUND WITH THE DECISION OF THE ITAT IN ALLOWING THE LOSS INCURRED BY THE ASSESSEE ON FORFEITURE OF THE AMOUNTS INVESTED BY THE ASSESSEE IN NAKED CONVERTIBLE WARRANTS. ACCORDINGLY , THE APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. 3.2. IN THE CITED CASE THE ASSESSEE APPLIED FOR S HARES OF TAINWALA CHEMICALS AND PLASTICS (INDIA ) LTD. (TCPL), A PUBL IC LISTED COMPANY. WHEN THIS INVESTMENT WAS MADE, TCPL WAS A PROFIT MAKING COMPANY. THEREAFTER THE VALUE OF SHARES OF TCPL DRASTICALLY FELL DOWN A ND THE ASSESSEE TOOK A 8 COMMERCIAL DECISION TO FOREGO THE AMOUNT INVESTED I N THE CONVERTIBLE WARRANTS AS FURTHER INVESTMENT WOULD HAVE RESULTED IN MORE LOSSES. THE LOSS THUS SUFFERED, WAS ALLOWED AS A BUSINESS LOSS. 3.3. THE FACTS OF CITED CASE ARE SIMILAR TO PRESENT ASSESSEES CASE, AS - (I) ASSESSEE ALSO INVESTED IN CONVERTIBLE DEBENTURES/ WARRANTS OF A PUBLIC LIMITED COMPANY; (II) AT THE TIME OF INVESTMENT, THE VALUE OF SHARES OF S URYA ROSHNI LTD. WERE HIGHER FIGURE AND THEREAFTER IN A PERIOD OF AB OUT 18 MONTHS, THE SHARE PRICE FELL ON THE STOCK MARKET AND THE LO SS WHICH COULD HAVE BEEN SUFFERED BY THE ASSESSEE BY FURTHER INVES TMENT, WERE MORE THAN FOREGOING MONEY ADVANCED. (III) THE TRANSACTION HAS NOT BEEN HELD TO BE BOGUS OR FR AUDULENT 3.4. AO WITHOUT EXAMINING THE NATURE OF CONVERTIBLE DEBENTURES AS STOCK IN TRADE, HAS PROCEEDED TO HOLD THAT ASSESSEE ACQUI RED A VALUABLE RIGHT IN THE SHARES VIA CONVERTIBLE DEBENTURES AND ANY EXTINGUIS HMENTS / RELINQUISHMENT OF SUCH RIGHT WOULD AMOUNT TO A TRANSFER. FOR THIS PROPOSITION, AO HAS RECOURSE TO THE LOCK IN PERIOD OF THE ASSESSEES AM OUNT TILL 16-1-2009. 3.5. LD. AO FAILED TO APPRECIATE THAT MERELY BECAUS E THE CONVERTIBLE WARRANTS HAD A LOCK IN PERIOD, WAS NOT CLINCHER TO CONVERT A STOCK IN TRADE INTO CAPITAL ASSET. THE PURPOSE OF BUYING CONVERTIB LE DEBENTURES WAS ON TRADING ACCOUNT AS STOCK IN TRADE. THE SAME IS DULY REFLECTED IN THE BALANCE- SHEET INCLUDING IN EARLIER YEAR. THIS ASPECT HAS NO T BEEN DISPUTED BY THE AO. BOTH AO AND CIT(A) BY MIS-APPRECIATING THE FACTS, H AVE ARBITRARILY HELD THE STOCK IN TRADE TO BE CAPITAL ASSET. THEREFORE, THE FINDINGS OF LOWER AUTHORITIES 9 SHOULD BE REVERSED AND THE LOSS SUFFERED BY THE AS SESSEE MAY BE HELD TO BE BUSINESS LOSS. 3.6. APROPOS SECOND GROUND, I.E. PART RETENTION OF DISALLOWANCE U/S 14A,LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT THE SHARES IN QUESTION ON WHICH DIVIDEND WAS ELIGIBLE, WERE NOT MADE OUT OF B ORROWED FUNDS BUT OUT OF INTEREST FREE FUNDS. THE ASSESSEE SUBMITTED NECE SSARY DETAILS, WHICH HAVE NOT BEEN EXAMINED. THE INTEREST CLAIMED BY THE ASSE SSEE HAS NO NEXUS WITH THE FINANCE BY INDIA BULLS AND THERE WAS NO OCCASIO N TO APPLY RULE 8D. ASSESSEES CLAIM OF DEDUCTION OF INTEREST U/S 36(1 )(III) HAS ALSO NOT BEEN EXAMINED PROPERLY, THEREFORE, THE PART DISALLOWANCE AS RETAINED BY CIT(A) U/S 14A SHOULD ALSO BE DELETED. 4. LEARNED DR SUPPORTED THE ORDER OF LOWER AUTHORIT IES. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. AS THE FACTS EMERGE, THE LOWER AUTHORITIES HAVE NOT ADVERTED TO THE CRUCIAL FACTS I.E. ASSESSEES INVES TMENT IN SURYA ROSHNI LTD., A GROUP COMPANY, BY WAY OF SUBSCRIPTION TO CONVERTI BLE DEBENTURES BEING HELD AS STOCK IN TRADE NOT ONLY IN THIS YEAR BUT EA RLIER YEAR ALSO. THESE FACTS HAVE A MATERIAL BEARING ON TAKING A PROPER DECISION AS TO WHETHER ASSESSEES INVESTMENT WAS A BUSINESS ASSET. BESIDES, THE AO HA S HEAVILY RELIED ON THE ISSUE OF LOCK IN PERIOD AS A DETERMINATE FACTOR TO HOLD THE IMPUGNED INVESTMENT AS ACCRUAL OF A RIGHT WHILE DENYING THE ASSESSEES CLAIM. IN OUR CONSIDERED VIEW THE CONTENTIONS RAISED BY THE ASSES SEE HAVE NOT BEEN DULY CONSIDERED BY AO. THE OBSERVATIONS ABOUT THE ASSESS EES CONVERTIBLE DEBENTURES/ WARRANTS BECAUSE OF THE LOCK IN PERIOD BECOMING CAPITAL ASSET HAS ALSO NOT BEEN SUBSTANTIATED IN A JUSTIFIED MANN ER. IN THE ENTIRETY OF FACTS 10 AND CIRCUMSTANCES, WE ARE INCLINED TO SET ASIDE THE ISSUE BACK TO THE FILE OF AO TO CONSIDER THE SAME AFRESH AFTER GIVING THE ASS ESSEE AN OPPORTUNITY OF BEING HEARD AND KEEPING IN MIND THE BOMBAY HIGH COU RT JUDGMENT (SUPRA). 5.1. APROPOS GROUND NO. 2, IN OUR VIEW ON THIS ISSU E ALSO LOWER AUTHORITIES HAVE NOT CONSIDERED THE ASSESSEES CLAIM U/S 36(1)( III). BESIDES, SETTING ASIDE THE ABOVE ISSUE WILL HAVE A MATERIAL BEARING ON THE ISSUE ABOUT 14A. IN VIEW THEREOF, WE ARE INCLINED TO SET ASIDE THIS ISSUE AL SO BACK TO THE FILE OF AO FOR DECISION AFRESH IN ACCORDANCE WITH LAW. 6. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 13-02-2012. SD/- SD/- ( B.C. MEENA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13-02-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 11