M/S. BUDHRANI FINANCE LTD., V. THE ITO WD-3(1)(2),

ITA 4077/MUM/2004

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8278 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-01-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 19-05-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PERMANAND J
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Depreciation; Earning of tax free income; Additional evidence
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NOS. 4076 & 4077/MUM/2004 ASSESSMENT YEARS: 1999-2000 & 2000-01 BUDHRANI FINANCE LTD. 94, MAKER CHAMBERS-VI, NARIMAN POINT, MUMBAI- 400 021 PAN: AAACB 2504 R VS. ITO WD- 3(1)(2) AAYAKAR BHAVAN, 5 TH FLOOR, MUMBAI- 400 020 (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI SANJIV M. SHAH REVENUE BY : SHRI P ERMANAND J. DATE OF HEARING : 18 . 11 . 2014 DATE OF ORDER : 12.12.2014 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST SEPARATE ORDER PASSED BY THE LD.CIT(A) -X XVII, MUMBAI, OF EVEN DATE 12.03.2004, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3), FOR THE ASSESSMENT YEARS 1999-2000 & 2000-0 1. SINCE COMMON ISSUE IS INVOLVED IN THE BOTH THE APPEALS, THEREFOR E, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2. WE WILL FIRST TAKE UP APPEAL FOR THE A.Y. 1999-2 000 (4076/MUM/2004). ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 2 3. THE FIRST GROUND RELATE TO DISALLOWANCE OF DEPRE CIATION OF RS.5,60,612/- IN RESPECT OF PLASTIC INJECTION MOUL DS PURCHASED FROM BIJOU LABORATORIES AND USED IN THE BUSINESS OF LE ASING. THE ASSESSEE IS MAINLY IN THE BUSINESS OF LEASE AND HAS UNDERTAKEN ALL TYPES OF LEASING OF MACHINERY, PLANT, EQUIPMENT AND VARIOUS OTHER MO VABLE AND IMMOVABLE PROPERTIES. THE ASSESSEE HAS PURCHASED PL ASTIC INJECTION MOULDS FROM BIJOU LABORATORIES FOR RS.48,66,420/- O N 29.02.1996 AND LEASED THE SAME TO ELECTREX INDIA LTD., VIDE LEASE AGREEMENT DATED 12.03.1996. THE ASSESSING OFFICER NOTED THAT IN TH E ASSESSMENT PROCEEDING FOR THE A.Y. 1996-97, IT WAS FOUND THAT SEVERAL LEASE TRANSACTION UNDERTAKEN BY THE ASSESSEE WERE NOT GEN UINE AND THEREFORE, THE CLAIM OF THE DEPRECIATION WAS DISALLOWED. ACCOR DINGLY HE DISALLOWED SUCH CLAIM BASED ON THE FINDING GIVEN IN THE A.Y. 1 998-99. THE LD.CIT(A) TOO DECIDED THIS ISSUE ON THE BASIS OF FI NDING GIVEN BY THE LD.CIT(A) IN A.Y.1998-99. 4. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT TH IS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE A.Y S.1996-97 TO 1998-99, WHEREIN THE HONBLE TRIBUNAL HAS SET ASIDE THIS ISS UE TO THE FILE OF THE AO. LD. DR ALSO ADMITTED THAT THIS ISSUE HAS BEEN S ET ASIDE TO THE FILE OF THE ASSESSING OFFICER AND THEREFORE, IN THIS YEAR A LSO, THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE AO. 5. AFTER CONSIDERING THE RELEVANT FINDING OF THE AO , THE LD.CIT(A) AND THE ORDER OF THE TRIBUNAL, WE FIND THAT IN THIS YEA R ALSO, THE ISSUE RELATES TO SAME LEASE TRANSACTION WITH THE SAME PARTY AND T HEREFORE, CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL, WE RESTORE THI S ISSUE TO THE FILE OF THE AO FOR DE NOVO CONSIDERATION AND TO DECIDE AFRE SH IN ACCORDANCE WITH LAW, AFTER GIVING EFFECTIVE OPPORTUNITY OF HEA RING TO THE ASSESSE ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 3 PLACE ALL RELEVANT MATERIALS REQUIRED TO DISPOSE OF THIS ISSUE. THUS GROUND NO. 1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 6. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.39,25,000/- BEING THE AMOUNT, MISAPPROPRIATED BY MR. ALIM CHANDANI, CHIEF EXECUTIVE OFFICER. THE ASSESSEE HAS TREATED THE AMOUNT OF RS.39,25,000/- IRRECOVERABLE FROM HIM. LD. COUNS EL SUBMITTED THAT THE SAID PERSON HAS TAKEN LOAN FROM THE ASSESSEE CO MPANY, SANCTIONED BY HIMSELF FOR WHICH NO SECURITY WAS GIVEN TO THE A SSESSEE COMPANY. THE SAID PERSON HAD MISAPPROPRIATED THE FUNDS AND W HEN IT CAME TO THE NOTICE OF THE COMPANY, HE WAS REMOVED AFTER DETAIL NOTICE AND ALSO BY ADVERTISING THE NOTICE ABOUT HIS REMOVAL IN PUBLIC DOMAIN. ALL THE DOCUMENTS RELATING TO SUCH A CLAIM OF BAD DEBT WAS FILED BEFORE THE AO AS WELL AS THE LD.CIT(A). THE LEARNED COUNSEL ALSO REFERRED TO VARIOUS EVIDENCES IN THIS REGARD WHICH WAS FILED BEFORE THE AUTHORITIES BELOW. THE ASSESSE BEFORE US, HAS FURTHER FILED ADDITIONAL EVIDENCES UNDER RULE 29, TO FURTHER CORROBORATE ITS CONTENTION. 7. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ADDITIONAL EVIDENCES ARE MAINLY IN THE NATURE OF CORROBORATIVE EVIDENCE TO THE CONTENTION RAISED BY THE ASSESSEE BEFORE THE AUTHOR ITIES BELOW AND IT GOES TO THE VERY ROOT OF THE ISSUE INVOLVED. ACCORD INGLY WE ADMIT THE ADDITIONAL EVIDENCES AND REMAND THE MATTER TO THE F ILE OF THE AO, TO EXAMINE THE ADDITIONAL EVIDENCES AND ALSO THE EARLI ER MATERIAL PLACED ON RECORD, TO DECIDE THIS ISSUE AFRESH AND IN ACCORDAN CE WITH LAW, AFTER GIVING DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 4 8. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED THE CHARGING OF INTEREST U/S 234B, WITHOUT GIVING CREDIT FOR SELF A SSESSMENT TAX. 9. BEFORE THE LEARNED COUNSEL SUBMITTED THAT THE AO HAS NOT GIVEN CREDIT TO SELF ASSESSMENT TAX WHILE COMPUTING THE I NTEREST U/S 234B. HE REFERRED TO THE COPY OF CHALLAN PLACED IN THE PAPER BOOK AT PAGES 81 AND 82 OF THE PAPER BOOK. 10. ACCORDINGLY WE REMIT THIS MATTER TO THE FILE OF THE AO TO EXAMINE THE ASSESSEES CONTENTION AND ALSO TO VERIFY THE CH ALLAN OF SELF- ASSESSMENT TAX, FILED ALONG WITH THE RETURN OF INCO ME. IF THE SELF ASSESSMENT HAS BEEN PAID, THEN NEEDLESS TO SAY THAT NO INTEREST U/S 234B SHOULD BE LEVIED IN RELATION TO SUCH SELF-ASSE SSMENT TAX PAID. THUS GROUND NO. 3 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. NOW, WE WILL COME UP APPEAL FOR THE A.Y. 2000-01 (4077/MUM/2004). 12. IN GROUND NO. 1 THE ASSESSEE HAS CHALLENGED TH E NON DISALLOWANCE OF DEPRECIATION OF RS.3,36,367/- ON PL ASTIC INJECTION MOULDS. IT HAS BEEN ADMITTED BY BOTH THE PARTIES TH AT THIS GROUND IS SIMILAR TO GROUND NO. 1 OF THE EARLIER APPEAL FOR A.Y. 1999-2000. THUS IN VIEW OF THE FINDING GIVEN THEREIN, WE SET ASIDE THI S ISSUE TO THE FILE OF THE AO ON SIMILAR LINES TO DECIDE IT AFRESH AND IN ACCO RDANCE WITH LAW. THUS GROUND NO. 1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 5 13. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF RS.3,352/-, WHICH WAS ON ACCOUNT OF PENALTY FOR LAT E PAYMENT OF BST(BOMBAY SALES TAX). FROM THE PERUSAL OF THE ORDE R OF THE AO AS WELL AS THE LD.CIT(A), WE ARE UNABLE TO GATHER AS TO WHA T IS THE NATURE OF PENALTY UNDER THE BST ACT. THUS, WITHOUT ASCERTAINI NG THE PROPER NATURE OF PENALTY AND UNDER WHICH PENAL PROVISION PENALTY HAS BEEN IMPOSED, ITS DIFFICULT TO DECIDE THE ALLOWABILITY. SINCE OTH ER ISSUES ARE BEING REMANDED BACK TO THE AO, THEREFORE, WE FEEL THAT TH IS ISSUE SHOULD ALSO BE SET ASIDE TO THE FILE OF THE AO TO DECIDE THE SA ME AFRESH AFTER ASCERTAINING THE CORRECT NATURE OF PENALTY AND THEN DECIDE IN ACCORDANCE WITH LAW. 14. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE U/S 14A OF RS.97,755/-. THE ASSESSING OFFICER NOTED THA T ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS.74,86,559/- AND AT TH E SAME TIME THE ASSESSEE HAS DEBITED ON EXPENDITURE OF RS.86,78,740 /- IN THE P/L ACCOUNT. THE ASSESSEES CASE WAS THAT, IT HAD NOT I NCURRED ANY EXPENDITURE FOR THE EARNING OF THE DIVIDEND INCOME AND THEREFORE, NO DISALLOWANCE SHOULD BE MADE. THE LEARNED ASSESSING OFFICER ON FOLLOWING BASIS HAS DISALLOWED THE SUM OF RS.97,755/-:- EXEMPTION INCOME X ADMINISTRATIVE AND OTHER EXPENSE S TOTAL INCOME = 74,86,559 X 86,78,740 = RS.97,755/- 66,47,18,734 THIS HAS BEEN CONFIRMED BY THE LD.CIT(A) ALSO. 15. BEFORE US, LEARNED COUNSEL SUBMITTED THAT, THOU GH NO EXPENDITURE WAS INCURRED BY THE ASSESSE, IN RELATION TO THE EAR NING OF THE EXEMPT ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 6 INCOME, HOWEVER LOOKING TO THE FACTS AND CIRCUMSTAN CES OF THE CASE, SOME REASONABLE DISALLOWANCE CAN BE MADE. THE LD. D R ON THE OTHER HAND SUBMITTED THAT AO HAS WORKED OUT A VERY PROPER BASIS FOR ALLOCATING THE EXPENSES ON PRO RATA BASIS FOR THE P URPOSE OF DISALLOWANCE U/S 14A, WHICH SHOULD BE UPHELD. 16. AFTER CONSIDERING THE RELEVANT FINDING OF THE A O AS WELL AS THE LD.CIT(A) AND THE SUBMISSIONS OF THE PARTIES, WE FI ND THAT THE DISALLOWANCE AS WORKED OUT BY THE AO AT RS.97,755/- , IS QUITE REASONABLE AS HE HAS WORKED OUT THE EXPENDITURE ON PRO RATA BASIS, WHICH CAN BE SAID TO BE REASONABLE ALLOCATION OF EX PENSES FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE DISALLOWANCE U/S 14A MADE BY AO IS EVEN LESS THAN 2% OF THE DIVIDEND INCOME, WHI CH IS MOSTLY BEING APPLIED BY THE TRIBUNAL IN SOME OF THE CASES FOR TH E A.YS. PRIOR TO 2008- 09, I.E. PRIOR TO APPLICABILITY OF RULE 8D. ACCORDI NGLY, SUCH A DISALLOWANCE MADE BY THE AO IS REASONABLE AND THE SAME IS CONFI RMED. THUS GROUND NO. 3 IS DISMISSED. 17. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF LOSS IN TRADING OF SECURITIES OF RS.52,36,198/-. TH E ASSESSING OFFICER NOTED THAT IN THE COMPUTATION OF INCOME THE ASSESSE E HAS CLAIMED DIVIDEND INCOME OF RS.55,98,164/- AS EXEMPT U/S 10( 33), OUT OF WHICH DIVIDEND OF RS.45,58,216/- WAS RECEIVED FROM CHOLA FREEDOM TECHNOLOGY. THE AFORESAID UNITS WAS HELD BY THE ASS ESSEE FOR THREE DAYS AS IT WAS PURCHASED ON 24.03.2000 AND WAS REDEEMED ON 27.03.2000. THE PURCHASE WAS MADE THROUGH O/D ACCOUNT WITH INDU S IND BANK. THE ASSESSEES CASE WAS THAT, IT HAD PURCHASED AND SOLD THE UNITS DURING THE NORMAL COURSE OF ITS BUSINESS OF TRADING IN SHARES, SECURITIES ETC., HENCE IT WAS A GENUINE TRANSACTION. EARNING OF TAX FREE I NCOME WAS ONLY ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 7 INCIDENTAL TO SUCH BUSINESS TRANSACTION AND NO PART OF THE LOSS INCURRED BY THE ASSESSE. THEREFORE, LOSS INCURRED ON SUCH RE DEMPTION OF UNITS SHOULD BE DISALLOWED. WITHOUT PREJUDICE, IT WAS SUB MITTED THAT PROVISION OF SECTION 94(7) WILL NOT BE APPLICABLE IN THIS YEA R, AS THE SAME HAS BEEN HAS BEEN BROUGHT IN THE STATUTE W.E.F. A.Y. 2002-03 . THE ASSESSING OFFICER DISALLOWED THE ENTIRE LOSS ON THE GROUND TH AT IT WAS NOT A GENUINE TRANSACTION AND DIVIDEND RECEIVED IN RESPECT OF UNI TS PURCHASED CUM DIVIDEND BASIS WOULD REDUCED THE COST OF ACQUISITIO N OF THE UNITS AND THEREBY RESULTING LOSS TO THE ASSESSEE ON NAU. HE H ELD THAT THE ENTIRE TRANSACTION WAS PURELY TAX AVOIDANCE SCHEME. HE ALS O RELIED UPON VARIOUS SUPREME COURT DECISION TO HOLD THAT SUCH A TRANSACTION CANNOT ACCEPTED AS GENUINE TRANSACTION. THE LD.CIT(A) HAS CONFIRMED THE SAID ACTION OF THE AO. 18. BEFORE US LEARNED COUNSEL SUBMITTED THAT IF THE UNITS OF THE MUTUAL FUNDS OR SHARES HAVE BEEN PURCHASED IN THE NORMAL C OURSE OF BUSINESS AND THE ASSESSEE HAS EARNED DIVIDEND WITHIN SHORT P ERIOD, THEN IT CANNOT BE HELD THAT THE LOSS ON THE SALE OF SUCH UNITS OR SHARES ARE NOT GENUINE. HE SUBMITTED THAT THE PROVISIONS OF SECTION 94(7) W AS BROUGHT IN THE STATUTE FROM A.Y. 2002-03 AND THEREFORE, IT CANNOT BE IMPUTED IN A.Y. 2000-01. HE SUBMITTED THAT ON SIMILAR FACTS AND CIR CUMSTANCES, HONBLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS PVT. LTD. REPORTED IN (2010) 326 ITR 1, HELD THAT EVEN IF THE TRANSACTION WAS PRE PLANNED, THEN ALSO THERE IS NOTHING TO IMPE ACH THE GENUINENESS OF THE TRANSACTION, HENCE THE LOSS ARISING IN THE C OURSE OF DIVIDEND STRIPPING TRANSACTION CANNOT BE DISALLOWED, AS THE PROVISION SECTION 94(7) CAME W.E.F. 01.04.2002. ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 8 19. ON THE OTHER HAND LEANED DR STRONGLY RELIED UPO N THE ORDER OF THE AO AS WELL AS LD.CIT(A). 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT FINDING OF THE AO AS WELL AS LD.CIT(A). THE ASSESSE E HAS PURCHASED UNITS OF MUTUAL FUNDS ON THE RECORD DATE AND EARNED DIVIDEND INCOME OF RS.45,53,216/-. SO FAR AS PURCHASE OF SAID UNITS AR E CONCERNED THEY HAVE NOT BEEN DOUBTED. THE SAID UNITS HAVE BEEN RED EEMED AFTER THREE DAY ON NAV COST AND ON SUCH COST, THE ASSESSEE SUFF ERED LOSS, WHICH HAS BEEN CLAIMED AS LOSS IN TRADING OF SECURITIES. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE WAS IN THE BUSINESS OF TRADING IN SHA RES, SECURITIES ETC. THE ASSESSEES CASE WAS THAT SUCH A LOSS HAS BEEN I NCURRED DURING THE NORMAL COURSE OF ITS BUSINESS AND ENTIRE TRANSACTIO N IS GENUINE. THE DEPARTMENTS CASE IS THAT SUCH A TRANSACTION CANNOT BE HELD TO BE GENUINE, BECAUSE THE ASSESSEE HAS PURCHASED THE SAI D UNITS CUM DIVIDEND AND SOLD THEM EX-DIVIDEND, WITH THE PURPOS E OF INCURRING LOSS ON THE COST AND EARNING HUGE DIVIDEND INCOME WHICH IS NOT TAXABLE, HENCE IT IS A TAX AVOIDANCE TRANSACTION. WE FIND TH AT THE SIMILAR ISSUE HAD COME FOR CONSIDERATION BEFORE THE HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. WALFORT SHARES STOCK BROKERS PVT. L TD. (SUPRA), WHEREIN THE HONBLE SUPREME COURT HELD THAT, EVEN ASSUMING THAT THE TRANSACTION WAS PRE PLANNED, THERE IS NOTHING TO IM PEACH THE GENUINENESS OF THE TRANSACTION AND THE LOSS ARISING IN THE COURSE OF DIVIDEND STRIPPING TRANSACTION CANNOT BE DISALLOWED AND CANNOT BE HELD TO BE ABUSE OF LAW. IT WAS ONLY AFTER 01.04.2002 PR OVISION OF SECTION 94(7) WAS BROUGHT IN THE STATUTE TO DISALLOW SUCH K IND OF A LOSS. THUS IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT W E HOLD THAT SUCH A LOSS OVER AND ABOVE AMOUNT OF DIVIDEND CANNOT BE DI SALLOWED IN THIS ITA NOS. 4076 & 4077/MUM/2004 BUDHRANI FINANCE LTD. ASSESSMENT YEARS: 1999-2000 & 2000-01 9 YEAR. ACCORDINGLY FOLLOWING THE HONBLE SUPREME COU RT DECISION WE ALLOW THE GROUND NO. 4 AS RAISED BY THE ASSESSEE. 21. IN THE RESULT THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY DECEMBER, 2014. SD/- SD/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.12.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.