Cecil Webber Engineering Ltd., New Delhi V. DCIT, New Delhi

ITA 4026/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8078 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 30-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V R SONBHADRA
• Keywords: Capital asset; Principle of natural justice; Question of law; Tax effect
• Section: 2(14); 260A

Judgement Text

ITA NO.4026/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 4026/DEL/2012 A.Y. : 2009-10 M/S CECIL WEBBER ENGINEERING LTD, 108, ANSAL BHAWAN, 16, KG MARG, NEW DELHI 110 001 (PAN: AABCC6065D) VS. DCIT, CENTRAL CIRCLE 20 , ARA CENTRE, 3 RD FLOOR, JHANDEWALAN EXTN., NEW DELHI 110 055 (APPELLANT ) (RESPONDENT ) ASSESSEE BY : SH. ROHIT GARG, ADV. DEPARTMENT BY : SH. V.R. SONBHADRA, SR. DR DATE OF HEARING: 23-03-2016 DATE OF ORDER : 27-04-2016 ORDER PER H.S. SIDHU, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXXI, NEW DELH I DATED 30.5.2012 PERTAINING TO ASSESSMENT YEAR 2009-10 ON THE FOLLOW ING GROUNDS:- 1) THE ORDER OF THE LD. COMMISSIONER OF. INCOME TAX - (APPEALS) -XXXI, NEW DELHI IS BAD IN LAW, WRONG ON THE FACTS AND AGA INST THE PRINCIPLES OF NATURAL JUSTICE. 2. A) THE LD. CIT-(A) HAS ERRED IN CONFIRMING DISAL LOWANCE OF SUM OF RS.4,18,50,000/- TOWARDS THE SHORT TERM CAPITAL LOS S OF RS.4,18,50,000/- CLAIMED IN RESPECT OF FORFEITURE O F SHARE WARRANTS. ITA NO.4026/DEL/2012 2 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE AP PELLANT COMPANY IN ITS RETURN OF INCOME HAD CLAIMED SHORT TERM CAPITAL LOSS OF RS.4,18,50,000/- ON ACCOUNT OF FORFEITURE OF SHARE WARRANT IN ACCORDANCE WITH LAW. B) THE LD. CIT-(A) HAS ERRED IN CONCLUDING THAT SUB SCRIPTION TO THE CONVERTIBLE WARRANT BY THE APPELLANT COMPANY IN WAR RANTS OF MONNET ISPAT & ENERGY LTD IS NOT A CAPITAL ASSET ULS 2(14) OF THE INCOME TAX ACT, 1961 WHEN IN FACT IT IS EXTINGUISHMENT OF RIGH TS THEREIN AND COVERED ULS 2(47)(II) OF THE INCOME TAX ACT, 1961. C). THE LD CIT(A) HAS CONCLUDED THAT FORFEITURE OF SHARE WARRANT IS NOT A 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 G ROSSLY ERRED IN MAKING THE AFORESAID CONCLUSION AS THE FORFEITURE O F SHARE WARRANT IS, A GENUINE AND BONAFIDE TRANSACTION. D) THE LD. CIT-(A) HAS ERRED IN CONCLUDING THAT TH E SUBSCRIPTION TO THE CONVERTIBLE SHARE WARRANTS IS NOT A CAPITAL ASSET A S DEFINED IN SECTION 2(14) OF THE ACT, WHICH IS AGAINST THE PRINCIPLES L AID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS CHAN D RATAN BAGRI 329 ITR 356 WHEREIN IT HAS BEEN HELD THAT FORFEITURE OF CONVERTIBLE WARRANTS AMOUNTS TO TRANSFER WITHIN MEANING OF SECT ION 2(47) OF THE ACT, AS THERE IS EXTINGUISHMENT OF RIGHTS AND LOSS ON THEIR FORFEITURE IS ALLOWABLE AS CAPITAL LOSS AND SIMILAR DECISION BY H ON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V BPL SANYO FINANCE L TD 323 ITR 63 AND HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF CIT V GREWAL BROS 199 TAXMAN 201. THE LD. CIT(A) HAS GROS SLY ERRED IN CONCLUDING THAT THE AFORESAID CASE LAW DOES NOT RES EMBLE THE FACTS OF THE CASE OF THE APPELLANT COMPANY WHEREAS THE FACTS IN ALL THE CASES ARE ABSOLUTELY IDENTICAL. ITA NO.4026/DEL/2012 3 3) THE APPELLANT CRAVES LEAVE TO ADD, ALTER AMEND, MODIFY OR FOREGO ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEAR ING. 2. THE FACTS NARRATED BY THE REVENUE AUTHORITIE S ARE NOT DISPUTED BY BOTH THE PARTIES, HENCE, THE SAME ARE NOT BEING REPEATED HERE FOR THE SAKE OF CONVENIENCE. 3. AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESS EE STATED THAT THE ISSUE INVOLVED IN GROUND NO. 1 IS GENERAL, THEREFORE, NEE D NOT BE ADJUDICATED UPON. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 2 IS CONCE RNED, HE STATED THAT THE SAME IS COVERED IN FAVOR OF THE ASSESSEE BY THE DEC ISION DATED 10.12.2014 OF THE ITAT, DELHI BENCH IN THE CASE OF PAVITRA COMMER CIAL LTD. VS. DCIT (AY 2009-10) PASSED IN ITA NO. 5389/DEL/2012. HE FURTHE R STATED THAT AGAINST THIS TRIBUNALS ORDER DATED 10.12.2014, THE REVENUE FILE D AN APPEAL BEFORE THE HONBLE DELHI HIGH COURT AND THE HONBLE DELHI HIGH COURT HAS DISMISSED THE APPEAL OF THE REVENUE ON 14.10.2015 IN THE CASE OF PR. CIT VS. PAVITRA COMMERCIALS LTD. IN ITA NO. 782/2015. HE HAS ALSO FILED THE COPY OF THE ORDER DATED 22.8.2012 OF THE LD. CIT(A); ORDER DATED 10.1 2.2014 PASSED BY THE TRIBUNAL IN ITA NO. 5389/DEL/2012 IN PAVITRA COMMER CIAL LTD. VS. DCIT (SUPRA) AND THE DECISION DATED 14.10.2015 OF THE H ONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS. PAVTIRA COMMERCIAL LTD. (SU PRA). 4. ON THE CONTRARY, LD. DR RELIED UPON THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE INVOLVED IN GROUND NO. 2. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE ORDERS PASSED BY THE REVENUE AUTHORITIES AS WELL AS THE ORDER OF THE DEL HI TRIBUNAL DATED 10.12.2014 IN THE CASE OF PAVITRA COMMERCIAL LTD. V S. DCIT (AY 2009-10) PASSED IN ITA NO. 5389/DEL/2012 AND THE ORDER DATED 14.10.2015 OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF PR. CIT VS. PAVITRA COMMERCIAL LTD. PASSED IN ITA NO. 782/2015. FOR THE SAKE OF CONVEN IENCE, THE ORDER 10.12.2014 PASSED BY THE ITAT, DELHI IN THE CASE O F PAVITRA COMMERCIAL LTD. ITA NO.4026/DEL/2012 4 VS. DCIT (AY 2009-10) IN ITA NO. 5389/DEL/2012 AND THE ORDER DATED 14.10.2015 BY THE HONBLE HIGH COURT OF DELHI IN TH E CASE OF PR. CIT VS. PAVITA COMMERCIAL LTD. IS REPRODUCED BELOW:- RELEVANT PORTION OF TRIBUNALS ORDER DATED 10.12.20 14 7. GROUND NO. 2(E) IS ON DISALLOWANCE OF CLAIM OF SHORT TERM CAPITAL LOSS. 7.1. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT RIGHT TO OBTAIN SHARES IS AN ASSET AND FORFEITURE OF THE SAME IS, E XTINGUISHING OF A RIGHT AND HENCE COVERED U/S 2(47)(II) OF THE ACT. 7.2. THE LD. SR.D.R. RELIED ON THE ORDER OF THE LD. CIT(A). 7.3. AFTER HEARING RIVAL CONTENTIONS, WE HOLD AS FO LLOWS. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CHA ND RATAN 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 T HE MEANING OF S.2(47) OF THE SAID ACT HAS NOW BEEN MADE CLEAR BY THE SUPR EME COURT IN THE CASE OF MRS.GRACE COLLIS (2001) 248 ITR 323 AS ALSO BY TH E KARNATAKA HIGH COURT IN BPL SANYO FINANCE LTD. (2009) 312 ITR 63. WE AGR EE WITH THE INTERPRETATION GIVEN BY THE KARNATAKA HIGH COURT IN B PL SANYO FINANCE LTD. (SUPRA) AND WE SEE NO REASON TO TAKE A DIFFERENT VIE W. THE RESTRICTIVE MEANING GIVEN TO THE WORD TRANSFER BY THE SUPREME C OURT DECISION IN VANIA SILK MILLS P.LTD. (1991) 191 ITR 647 HAS BEEN OVER R ULED BY THE LARGER BENCH OF THE SUPREME COURT IN THE CASE OF MRS.GRACE COLLI S (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 ASSESSEE TO OBTAIN A ITA NO.4026/DEL/2012 5 SHARE IN BLB LTD. IT IS NOT A CASE 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 TH E ASSESSEE TO SHARE IN THE OWNERSHIP OF THE COMPANY BLB LTD. STANDS EXTING UISHED ON ACCOUNT OF THE FORFEITURE, THE COMPANY, WITH ALL ITS ASSETS, C ONTINUES TO EXIST. THE FORFEITURE ONLY RESULTS IN ONE LESS SHAREHOLDER. IT IS NOT AS IF THE ASSET IN WHICH A SHARE WAS BEING CLAIMED WAS ALSO EXTINGUISH ED. THUS, THE SECOND POINT URGED BY THE LD. COUNSEL FOR THE REVENUE IS A LSO NOT TENABLE. IN VIEW OF THE FOREGOING REASONS NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. THE APPEAL IS DISMISSED. 7.4. RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE JU RISDICTIONAL HIGH COURT, WE ALLOW THE CLAIM OF THE ASSESSEE. GROUND NO.2(E) I S ALLOWED. RELEVANT PORTION OF HONBLE HIGH COURTS ORDER DATE D 14.10.2015. 1. THIS APPEAL BY THE REVENUE UNDER SECTION 260A O F THE INCOME TAX ACT, 1961 (ACT IS AGAINST THE ORDER DATED 10 TH DECEMBER, 2014 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL (ITAT ) IN ITA NO. 5389/DEL/2012 FOR THE ASSESSMENT YEAR (AY) 2009-1 0. 2. THE QUESTION SOUGHT TO BE URGED IS WHETHER THE S HARE WARRANTS COULD BE TREATED AS A CAPITAL ASSET UNDER SECTION 2(14) OF THE ACT AND DISALLOWANCE OF SHORT TERM CAPITAL LOSS BY THE ASSESSING OFFICER (AO) ON ACCOUNT OF FORFEITURE OF SHARES WARRANTS COULD HAVE BEEN DELETED BY THE ITAT? 3. IN THE IMPUGNED ORDER, THE ITAT HAS RELIED UPON THE JUDGMENT OF THIS COURT IN CIT VS. CHAND RATAN BAGRI (2010) 3 29 ITR 356 (DEL.) WHICH HOLDS THAT THE SHARE WARRANT IS A CAPITAL ASS ET. IT IS STATED ITA NO.4026/DEL/2012 6 THAT THE REVENUE HAS NOT FILED AN APPEAL AGAINST TH E SAID JUDGMENT ON ACCOUNT OF THE LOW TAX EFFECT. 4. BE THAT AS IT MAY, SINCE THE AFOREMENTIONED JUDG MENT OF THIS COURT HOLDS THE FIELD, NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL. 5. THE APPEAL IS DISMISSED. 6. AFTER GOING THROUGH THE AFORESAID ORDERS PASSED BY THE ITAT, DELHI AS WELL AS ORDER OF THE HONBLE HIGH COURT OF DELHI, W E ARE OF THE CONSIDERED VIEW THAT THE ISSUE IN DISPUTE INVOLVED IN THE PRESENT APPEAL VIDE GROUND NO. 2 IS SQUARELY COVERED BY THE AFORESAID DECISIONS. THEREF ORE, RESPECTFULLY FOLLOWING THE PRECEDENTS, AS ABOVE, THE ADDITION IN DISPUTE I NVOLVED IN GROUND NO. 2 IS DELETED AND ACCORDINGLY, THE APPEAL FILED BY THE AS SESSEE STANDS ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/04/2016. SD/- SD/- [N.K. SAINI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 27-04-2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR