DCIT, Bangalore V. Sri. B.G. Mahesh, Bangalore

ITA 450/BANG/2012

• Counselvise Citation: 45021114 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARESH SAKA
• Assessee Lawyers: D S VIVEK
• Keywords: Business income; Salary income; Principle of natural justice; Source of fund; Cost of acquisition; Avoidance of tax; Condonation of delay
• Section: 143(3); 148; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 450 /BANG/201 2 (ASSESSMENT YEAR : 2007-08) DY. COMMISSIONER OF INCOME TAX, CIRCLE 5(1), BANGALORE-27 VS. SRI B. G. MAHESH , NO.291, 1 ST MAIN, DEFENCE COLONY, INDIRANAGAR, BANGALORE-560 038 PAN AGKPM 5334M APPELLANT RESPONDENT. C.O. NO.99/BANG/2012 (IN ITA NO.450/BANG/2012) (ASSESSMENT YEAR 2007-08) SRI B. G. MAHESH, BANGALORE-560 038 VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 5(1), BANGALORE-27 APPELLANT RESPONDENT ASSESSEE / PETITIONER BY : SHRI D.S. VIVEK. REVENUE BY : SHRI NARESH SAKA. DATE OF HEARING : 25.7.2013. DATE OF PRONOUNCEMENT : 20.09.2013. O R D E R PER SHRI JASON P. BOAZ, A.M. : THIS APPEAL BY REVENUE AND THE CROSS OBJECTION (C .O. IN SHORT) BY THE ASSESSEE ARE IN RESPECT OF THE ORDER OF THE COMMISSIONER OF INCO ME TAX (APPEALS)-II, BANGALORE DT.31.1.2012 FOR ASSESSMENT YEAR 2007-08. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 3. THE ASSESSEE, AN INDIVIDUAL WHO EARNED INCOME FROM SALARY, CONSULTANCY BUSINESS AND CAPITAL GAINS, FILED HIS RETURN FOR ASSESSMENT YEAR 2007-08 ON 29.7.2007 DECLARING INCOME 2 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 OF RS.4,15,43,199 UNDER THE HEAD CAPITAL GAINS, THE ASSESSEE HAD DECLARED INCOME OF RS.3,94,56,299 WHICH WAS THE NET OF LONG TERM CAPIT AL GAINS (LTCG) OF RS.6,03,03,610 AND SHORT TERM CAPITAL LOSS (STCL) OF RS.2,08,47,31 1. ON 25.9.2009, A NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 (HEREIN AFT ER REFERRED TO AS 'THE ACT') WAS ISSUED TO THE ASSESSEE IN RESPONSE TO WHICH THE ASS ESSEE REPLIED THAT THE RETURN OF INCOME FILED EARLIER BE TREATED AS ONE FILED IN RESPONSE T O THE NOTICE UNDER SECTION 148 OF THE ACT. THE ASSESSMENT PROCEEDINGS WERE TAKEN UP BY I SSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT. AFTER CALLING FOR AND EXAMINING THE DETAI LS FILED, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY AN ORDER UNDER SECTION 143(3) OF THE ACT (TO BE READ AS ORDER U/S.143(3) R.W.S. 147 OF THE ACT) BY ORDER D T.22.12.2010 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.6,21,84,170. IN THE ORDER OF ASSESSMENT THE ASSESSING OFFICER CONSIDERED THE SHARE TRANSACTIONS AS A BU SINESS ACTIVITY. HAVING DONE SO, THE ASSESSING OFFICER COMPUTED THE LOSS ON SALE OF SHAR ES AT RS.2,06,340 AND ALLOWED IT AS A DEDUCTION FROM CONSULTANCY BUSINESS INCOME DECLARED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION; DISALLOWED THE STCL OF RS.2,08,47,311 AND BROUGHT TO TAX THE ENTIRE LTCG OF RS.6,03,03,610 FROM SALE OF SHAR ES AS INCOME FROM CAPITAL GAINS. 2.2 AGGRIEVED BYTHE ORDER OF ASSESSMENT FOR ASSESSM ENT YEAR 2007-08 DT.22.12.2010, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (AP PEALS)-II, BANGALORE. THE LEARNED CIT (APPEALS) VIDE ORDER DT.31.1.2012 ALLOWED THE A SSESSEE'S APPEAL ON THE ISSUE OF THE TAXABILITY OF INCOME FROM DEALING IN SHARES. 3 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 3.1 AGGRIEVED BY THE ORDER OF THE CIT (APPEALS)-II, BANGALORE DT.31.1.2012 FOR ASSESSMENT YEAR 2007-08, REVENUE IS IN APPEAL BEFOR E US RAISING THE FOLLOWING GROUNDS : 1. THE ORDER OF THE CIT (APPEALS) IS OPPOSED TO THE FACTS OF THE CASE. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN DELETIN G THE ADDITION OF RS.2,06,40,971 AS INCOME FROM BUSINESS. 3. THE LEARNED CIT (APPEALS) HAS ERRED IN APPLIC ATION OF SECTION 94(8) OF INCOME TAX ACT, 1961 IN ISOLATION TO THE INSTANT CA SE IN DELETING THE ADDITIONS MADE. 4. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT AN SWERING THE BASIC QUESTION WHETHER THE TRANSACTION AMOUNTS TO BUSINESS OR ONLY CAPITAL GAINS OR LOSS. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAYBE URG ED AT THE TIME OF HEARING THE APPEAL, THE ORDER OF THE LEARNED CIT (APPEALS) MAYBE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER MAY BE RESTORED. 4.1 IN THE ASSESSEE'S CROSS OBJECTION (C.O), THE AS SESSEE HAS RAISED THE GROUND THAT THE ASSESSING OFFICER HAD ERRED IN GOING BEYOND THE SCOPE OF ASSESSMENT POWER ENVISAGED UNDER SECTION 143 R.W.S. 147 WHICH IS AGAINST THE P RINCIPLES OF NATURAL JUSTICE. 4.2 ORDER ON THE PETITION FOR CONDONATION OF DELAY IN FILING THE CROSS OBJECTIONS . AS PER THE FACTS ON RECORD, ADMITTEDLY THE PETITIO NER RECEIVED THE NOTICE OF APPEAL FROM THE REGISTRY OF THE INCOME TAX APPELLATE TRIBU NAL, BANGALORE IN ITA NO.450/BANG/2012 ON 17.8.2012. IN THIS VIEW OF THE MATTER, THE PETITIONER OUGHT TO HAVE FILED THE C.O. ON OR BEFORE 16.9.2012, BUT FILED TH E SAME ONLY ON 6.12.2012 THEREBY CAUSING A DELAY OF 81 DAYS IN FILING THE C.O. BOTH THE LEARNED AUTHORISED REPRESENTATIVE AND LEA RNED DEPARTMENTAL REPRESENTATIVE WERE HEARD ON THE PETITION FOR CONDO NATION OF DELAY IN FILING THE C.O. THE LEARNED DEPARTMENTAL REPRESENTATIVE GRACEFULLY SUBM ITTED THAT HE HAD NO OBJECTION IF THE BENCH CONDONED THE DELAY OF 81 DAYS IN FILING THE C .O. BY THE PETITIONER. WE HAVE 4 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 CAREFULLY CONSIDERED THE PETITION FOR CONDONATION O F DELAY AND THE SUBMISSIONS IN THIS REGARD BY BOTH PARTIES AND ARE OF THE OPINION THAT, IN VIEW OF THE REASONS CITED IN THE PETITION AND THE SUBMISSIONS OF THE LEARNED DEPARTM ENTAL REPRESENTATIVE, THAT THIS IS A FIT CASE FOR CONDONATION OF DELAY IN FILING THE C.O. AN D CONDONE THE SAID DELAY OF 81 DAYS IN FILING THE C.O. THE C.O. IS ACCORDINGLY ADMITTED F OR HEARING AND ADJUDICATION. 4.3 FROM THE WRITTEN SUBMISSIONS MADE BEFORE US, TH E ASSESSEE'S CONTENTIONS IN BRIEF ARE AS UNDER :- (I) THAT THE ASSESSMENT CAN BE REOPENED UNDER SECTI ON 148 FOR A SPECIFIC PURPOSE ONLY, BASED ON INFORMATION / MATERIAL AVAILABLE. HOWEVER , THE ASSESSING OFFICER CONDUCTED A ROVING ENQUIRY WHICH IS BAD IN LAW. (II) THE REASONS FOR REOPENING THE ASSESSMENT WAS NEVER GIVEN TO THE ASSESSEE THOUGH REQUEST FOR THE SAME WERE MADE BY LETTER DT.3.1.201 3 AND SUBSEQUENT FOLLOW UPS. (III) THAT THE ASSESSMENT WAS REOPENED TO ASSESS SO URCE OF FUNDS FOR INVESTMENT OF RS.2 CRORES IN ICICI PMS. (IV) THAT THOUGH THE ASSESSING OFFICER WAS SATISFIE D WITH THE SOURCE OF FUNDS OF INVESTMENT, HE CONCLUDED THE ASSESSMENT BASED ON OT HER FINDINGS, WHICH IS NOT TENABLE IN VIEW OF THE JUDICIAL DECISIONS CITED BY THE ASSESSE E IN THE WRITTEN SUBMISSIONS. ITA NO.450/BANG/2012 REVENUES APPEAL FOR ASSESSM ENT YEAR 2007-08. 5.0 THE GROUNDS RAISED AT S.NOS.1 AND 5 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 5 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 6.1 THE GROUNDS RAISED BY REVENUE AT S.NOS.2 TO 4 CHALLENGE THE CIT (APPEALS)S DECISION IN DELETING THE ADDITION OF RS.2,06,40,971 AS INCOME FROM BUSINESS, WITHOUT ANSWERING THE BASIC QUESTION OF WHETHER THE TRANSAC TIONS OF SALE OF SHARES HAVE RESULTED IN BUSINESS INCOME OR CAPITAL GAINS / LOSS. IT IS ALSO CONTENDED THAT THE LEARNED CIT (APPEALS) HAD ERRED IN APPLYING SECTION 94(8) OF TH E ACT TO DELETE THE ADDITIONS MADE BY THE ASSESSING OFFICER. THE LEARNED DEPARTMENTAL RE PRESENTATIVE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED BY REVENUE. 6.2 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATI VE SUPPORTED THE ORDER OF THE LEARNED CIT (APPEALS) AND PRAYED FOR THE SAME TO BE UPHELD. 6.3.1 THE BASIC UNDISPUTED FACTS OF THE CASE AS EMA NATE FROM THE RECORD ARE THAT THE ASSESSEE HAS ENTERED INTO PURCHASE AND SALE OF VARI OUS SHARES BY TRANSACTIONS THROUGH PORTFOLIO MANAGEMENT SYSTEM (PMS). IN THE PERIOD U NDER CONSIDERATION, THE ASSESSEE SOLD SHARES IN TWO COMPANIES, NAMELY, A M COMMUNICATIONS PVT LTD. AND CISCO RESULTING IN LTCG OF RS.6,03,03,610. APART FROM THIS, THE ASSES SEE HAD SOLD SHARES IN FOUR COMPANIES NAMELY; DABUR INDIA LTD., HCL TECHNOLOGIES LTD., SU NDARAM FASTENERS LTD. AND HCL TECHNOLOGIES FUT LTD., WHICH RESULTED IN STCL OFRS .2,04,66,220. THE ASSESSEE HAD ALSO MADE SALES OF CERTAIN MUTUAL FUNDS / DERIVATIVES FR OM WHICH TRANSACTIONS ALSO THERE WAS A LOSS. THE TOTAL STCL AGGREGATED TO RS.2,08,47,311. 6.3.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXAMINED THE SEQUENCE OF PURCHASE AND SALE OF THE AFORESAID SHAR ES AND FOUND A CERTAIN PATTERN THERETO. HE FOUND THAT THE SHARES OF DABUR INDIA L TD., HCL TECHNOLOGIES LTD. AND 6 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 SUNDARAM FASTENERS LTD. WERE PURCHASED IN QUICK SUC CESSION, AT THE TIME WHEN THE BONUS SHARES WERE DUE TO BE ALLOTTED I.E. THE ASSESSEE BO UGHT THESE SHARES CUM-BONUS. IMMEDIATELY AFTER THE ALLOTMENT OF BONUS SHARES, TH E ORIGINAL SHARES WHOSE VALUE HAD REDUCED TO ALMOST 50% DUE TO THE ALLOTMENT OF BONUS SHARES WERE SOLD AT THIS MARKET PRICE. AS A RESULT THEREOF, THE ASSESSEE INCURRED A LOSS IN THIS TRANSACTION, WHILE HIS WEALTH REMAINED INTACT. THIS LOSS WAS OFFSET AGAIN ST WINDFALL GAINS MADE IN OTHER SALE TRANSACTIONS OF SHARES I.E. A.M. COMMUNICATIONS AN D CISCO. THUS, BY BUYING THE SHARES CUM-BONUS JUST BEFORE THE ALLOTMENT OF BONUS SHARES AND SELLING THE SAME EX-BONUS IMMEDIATELY AFTER THE ALLOTMENT OF BONUS SHARES HAS GENERATED A CAPITAL LOSS, EVEN WHILE KEEPING INTACT THE SHARE HOLDING AND CONSEQUENTLY T HE WEALTH OF THE ASSESSEE. THE ASSESSING OFFICER ON EXAMINATION OF THESE TRANSACTI ONS INVOKED CBDTS INSTRUCTION NO.1827 DT.31.8.1989 TO TREAT THESE TRANSACTIONS AS TRADING ACTIVITIES AND HOLD THE LOSS ARISING THEREFROM TO BE LOSS FROM BUSINESS ACTIVITI ES. THE ASSESSING OFFICER, HOWEVER, TREATED THE LTCG ON SALE OF OTHER SHARES AMOUNTING TO RS.6,03,03,610 AS LTCG ONLY AND NOT AS PROFIT FROM BUSINESS. 6.3.2 ON APPEAL, THE LEARNED CIT(APPEALS) HELD THAT THESE SHARE TRANSACTIONS TO BE BONUS STRIPPING IN INVESTORS PARLANCE AND HELD THEM TO BE COVERED UNDER SECTION 94(8) OF THE ACT. AS SECTION 94(8) OF THE ACT COVER ONLY UNITS AND NOT SECURITIES, THE LEARNED CIT(APPEALS) HELD THAT THERE IS NO LEGISLATIVE SAN CTION TO DISALLOW THE LOSS CLAIMED BY THE ASSESSEE. IN COMING TO THIS VIEW, THE LEARNED CIT (APPEALS) COMPARED THE PROVISIONS OF SECTION 94(8) OF THE ACT WHICH RELATED TO BONUS ST RIPPING WITH THE PROVISIONS OF SECTION 7 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 94(7) OF THE ACT RELATED TO DIVIDEND STRIPPING. WHILE SECTION 94(7) OF THE ACT INCLUDED BOTH UNITS AND SECURITIES IN ITS SPHERE OF COVERAGE , THE PROVISIONS OF SECTION 94(8) OF THE ACT ONLY INCLUDED UNITS; WHICH BY DEFINITION INCLUD ES ONLY UNITS OF MUTUAL FUNDS AND DO NOT INCLUDE SHARES OF COMPANIES. IN THIS VIEW OF THE M ATTER, THE LEARNED CIT(APPEALS) CONCLUDED THAT SHARES HAVE BEEN EITHER CONSCIOUSLY OR UNINTENTIONALLY NOT INCLUDED IN THE AMBIT OF SECTION 94(8) OF THE ACT AND THEREFORE THE DISALLOWANCE OF LOSS IS NOT SUSTAINABLE. 6.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE WRITTEN SUBMISSION S MADE AND THE JUDICIAL DECISIONS CITED. THE BASIC FACTS OF THE CASE ARE NOT IN DISPUTE. TH AT THE SHARES OF THE SAID COMPANIES WERE BOUGHT CUM-BONUS WITH A VIEW TO ACQUIRING THE BONUS SHARES HAS BEEN CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER AND THE SAME IS NOT IN DISPUTE. ALSO, THE FACT THAT THE ASSESSEE SOLD THE ORIGINAL SHARES IMMEDIATELY AFTER THE ALLOTMENT OF BONUS SHARES OF THESE COMPANIES IS ALSO AN INDISPUTABLE FACT ON RECORD. IN VIEW OF THESE SALE TRANSACTIONS, THE ASSESSEE HAS INCURRED LOSS IN THE CURRENT YEAR EVEN WHILE HIS WEALTH IS INTACT, AS HE RETAINS THE BONUS SHARES ALLOTTED TO HIM. THEREFORE, IN RE AL TERMS, THE ASSESSEE HAS NOT INCURRED ANY LOSS AS THE LOSS CLAIMED BY HIM IS A NOTIONAL L OSS. AS OBSERVED BY THE LEARNED CIT(APPEALS), THIS GIVES A TWO-FOLD BENEFIT TO THE ASSESSEE, IN THAT HE GETS A DEDUCTION OF THE NOTIONAL LOSS FROM LTCG EARNED FROM SALE OF OTH ER SHARES THEREBY REDUCING HIS TAX LIABILITY AND ALSO THE CAPITAL GAINS ON EVENTUAL SA LE OF THE BONUS SHARES (AFTER HOLDING IT 8 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 FOR A PERIOD OF ONE YEAR, THEREBY MAKING IT LONG TE RM ASSET) IS NOT TAXABLE AS PER THE PROVISIONS OF SECTION 10(38) OF THE ACT. 6.4.2 AS OBSERVED BY THE ASSESSING OFFICER, THE SEQ UENCE OF THE TRANSACTIONS POINT TO A CLEAR INTENTION ON THE PART OF THE ASSESSEE TO GAIN THE BONUS SHARES AND TO MAKE NOTIONAL LOSS BY SALE OF THE ORIGINAL SHARES. THIS INTENTIO N OF THE ASSESSEE HAS ALSO BEEN ACKNOWLEDGED BY THE LEARNED CIT(APPEALS) IN HER ORD ER. HOWEVER, IN OUR VIEW, THE CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT THIS INTENTION OF THE ASSESSEE RENDERS IT A TRADING ACTIVITY AND THEREFORE THE TRANSACTION IS D ISTINGUISHED FORM SECTION 55(2)(AA) OF THE ACT, IS MISPLACED. WHILE SELLING THE SHARES, T HE ASSESSEE HAS ADOPTED THE FIRST-IN- FIRST-OUT (FIFO) METHOD WHICH IS AS PROVIDED IN SEC TION 45(2A) OF THE ACT. FURTHER, IN TERMS OF SECTION 55(2)(AA)(IIIA) OF THE ACT, INTROD UCED BY FINANCE ACT, 1995 AND W.E.F. 1.4.1996, THE COST OF BONUS SHARES ARE TO BE TAKEN AS NIL. HENCE, IT IS CLEAR THAT THESE TRANSACTIONS ARE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 55(2)(AA) OF THE ACT. 6.4.3 THE LEARNED CIT(APPEALS) OBSERVED THAT THESE TRANSACTIONS WHICH GENERATE A NOTIONAL LOSS IS COMMONLY CALLED BONUS STRIPPING . BONUS STRIPPING REFERS TO A TRANSACTION WHERE A PERSON PURCHASES SHARES OF A COMPANY CUM-BO NUS AFTER THE PUBLIC ANNOUNCEMENT OF THE BONUS ISSUE BY THE COMPANY AND AFTER HE GETS ENTITLED TO RECEIVE THE BONUS SHARES ON THE RECORD DATE, HE SELLS THE ORIGINAL SHARES AN D CONTINUES TO HOLD THE BONUS SHARES. USUALLY, AFTER THE RECORD DATE, THE SHARE PRICE DEC LINES ALMOST PROPORTIONATELY TO THE EXTENT OF DILUTION CAUSED BY THE BONUS ISSUE. THE RECORD DATE IS THE CUT-OFF DATE AS ON WHICH THE BENEFICIAL HOLDERS OF THE SHARES ON RECOR D WILL BE CONSIDERED ELIGIBLE FOR 9 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 RECEIVING / BEING ALLOTTED BONUS SHARES. ANYONE BU YING SHARES AFTER THIS DATE WILL NOT BE ELIGIBLE FOR BONUS SHARE ALLOTMENT. UPON THE SALE FOR THE ORIGINAL SHARES, BECAUSE OF THE REDUCTION IN THE MARKET PRICE OF THE SHARES PURSUAN T TO ALLOTMENT OF BONUS SHARES, THE PERSON SUFFERS A STCL ON SUCH TRANSACTION AND CLAIM S SET-OFF OF THE SAME AGAINST OTHER INCOME CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GA INS. IF THE BONUS SHARES ARE LISTED AND THE TAX PAYER SELLS THEM AFTER 12 MONTHS, ANY P ROFIT THAT ARISES THEREFROM WILL BE EXEMPT FROM LTCG. BRIEFLY, BONUS STRIPPING INVOLVE S BUYING SHARES CUM-BONUS AND SELLING THEM EX-BONUS AND CLAIMING A STCL ON SALE OF THE OR IGINAL SHARES. THERE ARE NO SPECIFIC CONDITIONS SPECIFIED IN THE IT ACT, 1961 FOR OBTAIN ING THE BENEFIT OF BONUS STRIPPING OF SHARES EXCEPT THAT HE MUST HOLD THE BONUS SHARES FO R A PERIOD OF ATLEAST 12 MONTHS SO THAT THE GAIN ARISING ON ITS SALE WILL BE LTCG AND WOULD BE EXEMPT TO TAX IF THEY ARE LISTED SHARES. ANY TAX PAYER WHO DERIVES STCG OR LTCG CA N OFF SET THE SAID INCOME BY STCL INCURRED FROM BONUS STRIPPING AND THEREBY REDUCE HI S TAX LIABILITY. AT THE SAME TIME, THE LTCG THAT ARISES ON SALE OF LISTED BONUS SHARES (WH ERE COST OF ACQUISITION IS NIL) WILL BE EXEMPT FROM TAX. 6.4.4 SECTION 94(8) OF THE ACT WAS INTRODUCED W.E.F . 1.4.2005 (VIZ. ASSESSMENT YEAR 2005-06) TO CURB THE PRACTICE OF CREATION OF LOSSES THROUGH BONUS STRIPPING AS HAS BEEN CARRIED OUT BY THE ASSESSEE IN THE CASE ON HAND. T HIS SECTION HAS BEEN INTRODUCED UNDER CHAPTER X OF THE ACT SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX. SECTION 94 OF THE ACT IN CHAPTER X OF THE ACT BEARS THE HEADING AVOIDANCE OF TAX BY CERTAIN TRANSACTIONS IN SECURITIES. 10 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 THE PROVISIONS OF SECTION 94(8) OF THE ACT READ AS UNDER : 94 (8) WHERE (A) ANY PERSON BUYS OR ACQUIRES ANY UNITS WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE; (B) SUCH PERSON IS ALLOTTED ADDITIONAL UNITS WITHO UT ANY PAYMENT ON THE BASIS OF HOLDING OF SUCH UNITS ON SUCH DATE; (C) SUCH PERSON SELLS OR TRANSFERS ALL OR ANY OF T HE UNITS REFERRED TO IN CLAUSE (A) WITHIN A PERIOD OF NINE MONTHS AFTER SUCH DATE, WHI LE CONTINUING TO HOLD ALL OR ANY OF THE ADDITIONAL UNITS REFERRED TO IN CLAUSE (B), THEN, THE LOSS, IF ANY, ARISING TO HIM ON ACCOUNT O F SUCH PURCHASE AND SALE OF ALL OR ANY OF SUCH UNITS SHALL BE IGNORED FOR THE PURPOSES OF COMPUTING HIS INCOME CHARGEABLE TO TAX AND NOTWITHSTANDING ANYTHING CONT AINED IN ANY OTHER PROVISION OF THIS ACT, THE AMOUNT OF LOSS SO IGNORED SHALL BE DE EMED TO BE THE COST OF PURCHASE OR ACQUISITION OF SUCH ADDITIONAL UNITS REFERRED TO IN CLAUSE (B) AS ARE HELD BY HIM ON THE DATE OF SUCH SALE OR TRANSFER.] EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) 'INTEREST' INCLUDES A DIVIDEND ; (AA) 'RECORD DATE' MEANS SUCH DATE AS MAY BE FIXED BY (I) A COMPANY FOR THE PURPOSES OF ENTITLEMENT OF THE HOLDER OF THE SECURITIES TO RECEIVE DIVIDEND; OR (II) A MUTUAL FUND OR THE ADMINISTRATOR OF THE SPE CIFIED UNDERTAKING OR THE SPECIFIED COMPANY AS REFERRED TO IN THE EXPLANATION TO CLAUSE (35) OF SECTION 10 THE PURPOSES OF ENTITLEMENT OF THE HOLDER OF THE UNITS TO RECEIV E INCOME, OR ADDITIONAL UNIT WITHOUT ANY CONSIDERATION, AS THE CASE MAY BE;] (B) 'SECURITIES' INCLUDES STOCKS AND SHARES ; (C) SECURITIES SHALL BE DEEMED TO BE SIMILAR IF TH EY ENTITLE THEIR HOLDERS TO THE SAME RIGHTS AGAINST THE SAME PERSONS AS TO CAPITAL AND I NTEREST AND THE SAME REMEDIES FOR THE ENFORCEMENT OF THOSE RIGHTS, NOTWITHSTANDING AN Y DIFFERENCE IN THE TOTAL NOMINAL AMOUNTS OF THE RESPECTIVE SECURITIES OR IN THE FORM IN WHICH THEY ARE HELD OR IN THE MANNER IN WHICH THEY CAN BE TRANSFERRED; (D) 'UNIT' SHALL HAVE THE MEANING ASSIGN ED TO IT IN CLAUSE (B) OF THE EXPLANATION TO SECTION 115AB. 11 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 6.4.5 BRIEFLY STATED, SECTION 94(8) OF THE ACT STAT ES THAT THE LOSS, IF ANY, ARISING TO A PERSON ON ACCOUNT OF PURCHASE AND SALE OF ORIGINAL UNITS SHALL BE IGNORED FOR THE PURPOSE OF COMPUTING HIS INCOME CHARGEABLE TO TAX IF THE FO LLOWING CONDITIONS ARE SATISFIED : (I) THE PERSON BUYS OR ACQUIRES ANY UNITS WITHIN A PERIOD OF 3 MONTHS PRIOR TO RECORD DATE; (II) HE IS ALLOTTED ADDITIONAL UNITS (BONUS UNITS) WITHOUT ANY PAYMENT, ON THE BASIS OF HOLDING SUCH UNITS ON SUCH DATE; (III) HE SELLS OR TRANSFERS ALL OR ANY OF THE UNIT S EXCLUDING BONUS UNITS WITHIN A PERIOD OF NINE MONTHS FROM SUCH DATE; (IV) ON THE DATE OF SUCH TRANSFER HE CONTINUES TO HOLD ALL OR ANY (ATLEAST ONE) OF THE ADDITIONAL UNITS (VIZ. BONUS UNITS); THEN THE AMOUNT OF LOSS SO IGNORED SHALL BE DEEMED TO BE THE COST OF PURCHASE OR ACQUISITION OF SUCH ADDITIONAL UNITS AS ARE HELD BY HIM ON THE DATE OF SUCH SALE OR TRANSFER. 6.4.6 THE LEARNED CIT(APPEALS), HOWEVER, HAS OBSER VED THAT THE PROVISIONS OF SECTION 94(8) OF THE ACT ARE APPLICABLE ONLY TO UNITS WHI CH MEANS UNITS OF MUTUAL FUNDS ONLY. THERE IS NO AMBIGUITY IN THE MATTER AS THE EXPLANAT ION IN SECTION 94(8) OF THE ACT CLEARLY DEFINES SECURITIES AS INCLUDING STOCKS AND SHARE S AND DEFINES UNITS TO HAVE THE SAME MEANING AS ASSIGNED IN EXPLANATION TO SECTION 115AB OF THE ACT; WHEREIN UNITS ARE DEFINED AS UNITS OF MUTUAL FUNDS ONLY. IN THIS VIE W OF THE MATTER, THE PROVISIONS OF SECTION 98(4) OF THE ACT HAVE NO APPLICABILITY TO S ECURITIES, WHICH INCLUDES SHARES. 6.4.7 THE LEARNED CIT(APPEALS) ALSO OBSERVED THAT I N A SIMILAR PROVISION INTRODUCED TO CURB DIVIDEND STRIPPING I.E. SECTION 94(7) OF THE A CT, BOTH UNITS AND SECURITIES ARE INCLUDED. 12 ITA NO.450/BANG/2012 & C.O. NO.99/BANG/2012 SECTION 94(7) OF THE ACT FOR BONUS STRIPPING WAS INTRODUCED BY FINANCE ACT, 2001 W.E.F. 1.1.2003 WHEREAS SECTION 94(8) OF THE ACT FOR BONU S STRIPPING WAS INTRODUCED IN FINANCE ACT, 2004 W.E.F. 1.4.2005. HENCE IT CAN BE INFERRE D THAT THE INTENTION OF LEGISLATIVE WAS TO EXCLUDE THE SHARES OF COMPANIES FROM THE AMBIT OF T HE PROVISIONS OF SECTION 94(8) OF THE ACT. IN VIEW OF THE ABOVE DISCUSSION IN PARAS 6.3. 1 TO 6.4.7 OF THIS ORDER, WE CONCUR WITH THE FINDING OF THE LEARNED CIT(APPEALS) THAT THERE IS NO LEGISLATIVE AUTHORITY TO DENY THE LOSS INTENTIONALLY CREATED BY THE ASSESSEE; FOR WHA T THE LAW HAS NOT ENVISAGED AND HAS SPECIFICALLY EXCLUDED CANNOT BE READ INTO THE SAME BY THE ASSESSING OFFICER. WE, THEREFORE, UPHOLD THE ORDER OF THE LEARNED CIT(APPE ALS). 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ASSESSEE'S C.O. NO.99/BANG/2012 ASSESSMENT YEAR 2 007-08 8. SINCE THE SUBSTANTIVE ISSUE RAISED BY REVENUE HA S BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE, WE DO NOT DEEM IT NEC ESSARY TO GO INTO AND ADJUDICATE ON THE PROCEDURAL ISSUES RAISED BY THE ASSESSEE IN THE C.O . FILED VIZ. ON THE ISSUE OF NOTICE UNDER SECTION 148 AND COMPLETION OF THE ASSESSMENT BY AN ORDER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. 9. THE C.O. RAISED BY THE ASSESSEE ARE TREATED AS D ISMISSED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH SEPT., 2013. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP