Kailash Motors Finance Pvt. Ltd, Kanpur V. Dy. Commissioner of Income Tax, Kanpur

ITA 456/LKW/2013

• Counselvise Citation: 45623714 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 19-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O N PATHAK
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.456/LKW/2013 ASSESSMENT YEAR:2007-08 KAILASH MOTORS FINANCE PVT. LTD. 84/105, G.T. ROAD, KANPUR V. DCIT-6 KANPUR TAN/PAN:AAACK5547R (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. RAKESH GARG, ADVOCATE RESPONDENT BY: SHRI. O. N. PATHAK, D.R. DATE OF HEARING: 30 04 2015 DATE OF PRONOUNCEMENT: 05 06 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS:- 1. BECAUSE THE LD. CIT (APPEALS) HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDERING THE SUBMISSIONS FILED BY THE ASSESSEE APPELLANT AND WITHOUT APPRECIATING THE SAME HAS PROCEEDED TO DECIDE THE APPEAL, WHICH APPELLATE ORDER IS CONTRARY TO FACTS AND BAD IN LAW. 2. BECAUSE THE LD. CIT (APPEALS) HAS FAILED TO CONSIDER THE WRITTEN SUBMISSIONS AND DEMONSTRATE AS TO HOW THE WRITTEN SUBMISSIONS AND THE DETAILS FILED BY THE APPELLANT WERE NOT ADEQUATE OR EXPLANATORY, AS DESIRED BY HIM. 3. BECAUSE THE LD. CIT (APPEALS) HAS ERRED ON FACTS. AND IN LAW IN NOT CONSIDERING THE EXPLANATION AS FILED BY THE ASSESSEE AND HAS ARBITRARILY CONCLUDED THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS IN ACCORDANCE TO LAW. 4. BECAUSE ON A PROPER CONSIDERATION OF FACTS AND CIRCUMSTANCES :- 2 -: OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING A SUM OF RS. 76841/- BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT. 5. BECAUSE ON A PROPER CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD BE FOUND THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO THE FACTS OF THE CASE AND, THUS, THE DISALLOWANCE OF RS. 76841/- IS CONTRARY TO THE PROVISIONS OF LAW AND BE DELETED. 6. BECAUSE THE LD. CIT (APPEALS) HAS ERRED ON FACTS AND IN LAW IN ARBITRARILY UPHOLDING DISALLOWANCE OF THE LOSS ON SALE OF SHARES AS NON-GENUINE. 7. BECAUSE THE LD, CIT (APPEALS), EVEN AFTER HAVING BEEN FURNISHED COMPLETE DETAILS IN RESPECT OF SALE OF SHARES BY THE APPELLANT TO THE ASSESSING OFFICER, AND THE ASSESSING OFFICER HAVING NOT FOUND ANY DISCREPANCY IN THE SAME, EXCEPT THAT THE SAME BEING MADE TO A PERSON COVERED U/S 40A (2)(B), FAILED TO CONSIDER THE FACTS AND ACCORDINGLY WAS NOT JUSTIFIED IN NOT ALLOWING THE SAME. 8. BECAUSE THE LOSS ON SALE OF SHARES, BEING GENUINE, HAVING TAKING PLACE IN NORMAL COURSE, THE LD. CIT (APPEALS) HAS ERRED IN HOLDING IT OTHERWISE, AND HAS ERRED IN NOT ALLOWING THE SET OFF OF THE SAME AGAINST THE CAPITAL GAINS ON SALE OF LAND. 9. BECAUSE IN ANY CASE AND IN ALL CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) SHOULD OUGHT TO HAVE SET OFF THE LOSS ON SALE OF SHARES, AGAINST THE CAPITAL GAIN EARNED ON SALE OF LAND. 2. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE MAINLY ON TWO ISSUES ONE IS WITH REGARD TO THE DISALLOWANCE OF CAPITAL LOSS SUFFERED BY THE ASSESSEE AND THE SECOND IS WITH REGARD TO THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'). 3. WITH REGARD TO THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, WE FIND THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES, FOR WHICH ASSESSING :- 3 -: OFFICER HAS MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT AND FOR COMPUTING THE DISALLOWANCE, HE INVOKED THE PROVISIONS OF RULE 8D OF THE RULES. 4. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS NOTICED THAT RULE 8D OF THE RULES WOULD NOT BE APPLICABLE IN ASSESSMENT YEAR 2007-08. HE, HOWEVER, DIRECTED THE ASSESSING OFFICER TO CALCULATE THE REASONABLE DISALLOWANCE AS PER DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT, 328 ITR 81. 5. NOW THE ASSESSEE IS IN APPEAL BEFORE US AND HAS INVITED OUR ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE ENDING ON 31.3.2007 THAT THE TOTAL INVESTMENT WAS ONLY OF RS.28,000/- FOR WHICH ASSESSEE HAS NOT INCURRED ANY EXPENSE, THEREFORE, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS CALLED FOR. 6. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDERS OF THE LOWER AUTHORITIES. 7. HAVING CAREFULLY EXAMINED THE QUANTUM OF INVESTMENT, WE FIND THAT THE ASSESSEE HAS MADE A MEAGER INVESTMENT IN SHARES FOR WHICH WE DO NOT FIND MUCH EXPENSES MIGHT HAVE BEEN INCURRED. SINCE THE DISALLOWANCES ARE TO BE MADE FOR THE EXPENSES INCURRED FOR EARNING EXEMPT INCOME, SOME DISALLOWANCE IS REQUIRED TO BE MADE FOR PETTY INVESTMENT OF RS.28,000/-. WE ACCORDINGLY ESTIMATE THE DISALLOWANCE AT RS.1,000/- UNDER SECTION 14A OF THE ACT TO MEET THE ENDS OF JUSTICE. 8. THE MAIN GROUND IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF CAPITAL LOSS CLAIMED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT 35010 SHARES OF COMMERCIAL ENGINEERS AND BODYBUILDERS COMPANY PVT. LTD. HAVE BEEN SOLD @ RS.100/- PER SHARE FOR A SUM OF RS.35,01,000/-; 619355 SHARES OF KAILASH AUTO FINANCE LTD. @ RS.2/- EACH FOR RS.12,38,710/- AND 80500 SHARES OF KAILASH :- 4 -: MOSER INDUSTRIES LTD. WERE SOLD @ RS.1/- EACH FOR RS.80,500/-. THE TOTAL SALE PROCEEDS OF SHARES WAS FOR A SUM OF RS.48,20,210/-; WHEREAS 574930 SHARES HAVE BEEN PURCHASED FOR A SUM OF RS.87,38,936/- @ RS.15.20 PER SHARE OF KAILASH AUTO FINANCE PVT. LTD. IN FINANCIAL YEAR 2005-06 AND THESE SHARES HAVE BEEN SOLD @ RS.2/-- PER SHARE ON 15.3.2007. THUS, THERE WAS A DIFFERENCE IN RATE OF RS.13.20 PER SHARE. THE ASSESSEE WAS ASKED TO JUSTIFY THE RATE OF PURCHASE AND SALE OF SHARES, AS THESE SHARES WERE NOT LISTED AT STOCK EXCHANGE. IT WAS ALSO REQUIRED TO FURNISH THE WORKING OF VALUATION OF SHARES. THE ASSESSEE HAS FURNISHED DETAILED CHART OF YEAR-WISE PURCHASE, COST, INDEX, COST AND SALE OF SHARES, ETC. COPIES OF THE BALANCE SHEETS WERE ALSO FURNISHED BEFORE THE ASSESSING OFFICER. WRITTEN REPLY FURNISHED BY THE ASSESSEE WAS ALSO REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, BUT THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND HE DISALLOWED THE LOSS, AS THE SHARES WERE SOLD TO A PERSON SPECIFIED UNDER SECTION 40A (2)(B) OF THE ACT. 9. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD. CIT(A), BUT DID NOT FIND FAVOUR WITH HIM, AS THE LD. CIT(A) HAS DISPOSED OF THE APPEAL WITHOUT DISCUSSING MUCH WITH RESPECT TO THE SUBMISSIONS OF THE ASSESSEE IN HIS ORDER AND CONFIRMED THE DISALLOWANCE. 10. NOW THE ASSESSEE IS BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT THE REVENUE HAS RAISED A DISPUTE WITH REGARD TO THE SHARES OF KAILASH AUTO FINANCE PVT. LTD. AND KAILASH MOSER INDUSTRIES LTD. WHICH WERE SOLD @ RS.2/- AND RS.1/- PER SHARE RESPECTIVELY. PURCHASE OF THESE SHARES WAS NOT DOUBTED BY THE REVENUE, BUT SALES WERE DISPUTED. THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A COPY OF THE BALANCE SHEET AND COMPUTATION OF VALUATION OF SHARES AS PER RULE 1(D) OF THE WEALTH TAX RULES, ACCORDING TO WHICH THE BREAKUP VALUE PER SHARE OF KAILASH MOSER INDUSTRIES LTD. IS (-) RS.11.89 PER SHARE AND KAILASH AUTO FINANCE PVT. LTD. IS (-)RS.11.40 PER SHARE. DESPITE THE NEGATIVE VALUE OF THE SHARES, THEY WERE SOLD @T RS.2 :- 5 -: AND RS.1/- PER SHARE. SINCE THESE SHARES WERE SOLD AT THE RATE HIGHER THAN THE BREAKUP VALUE PER SHARE, THE TRANSACTION SHOULD NOT HAVE BEEN DOUBTED FOR THE SIMPLE REASON THAT THE SHARES WERE SOLD TO A PERSON SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT. 11. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDERS OF THE LOWER AUTHORITIES. 12. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE DISPUTE WAS RAISED WITH REGARD TO THE SALE OF SHARES OF KAILASH AUTO FINANCE PVT. LTD. AND KAILASH MOSER INDUSTRIES LTD. @ RS.2/- AND RS.1/- PER SHARE RESPECTIVELY. THE SHARES OF KAILASH AUTO FINANCE PVT. LTD. WERE PURCHASED @ RS.15.20 PER SHARE AND THE ASSESSING OFFICER HAS NOTICED DIFFERENCE IN RATE AT RS.13.20 PER SHARE. UNDISPUTEDLY THESE SHARES WERE NOT QUOTED AT STOCK EXCHANGE. THE PURCHASE OF SHARES AND ITS RATES WERE NOT DISPUTED BY THE REVENUE. MOREOVER, IF THE PURCHASE COST IS TO BE DISPUTED, IT CAN ONLY BE EXAMINED IN THE YEAR IN WHICH SHARES WERE PURCHASED AND NOT IN THE YEAR IN WHICH THE SHARES WERE SOLD. THEREFORE, IN THE IMPUGNED ASSESSMENT YEAR THE SHARES WERE SOLD AT A MEAGER PRICE OF RS.2/- AND RS.1/- EACH OF KAILASH AUTO FINANCE PVT. LTD. AND KAILASH MOSER INDUSTRIES LTD. IN THE ABSENCE OF NOTIFIED RATES OF THESE SHARES AT THE STOCK EXCHANGE, ONE HAS TO COMPUTE THE VALUE OF SHARES AS PER RULE 1(D) OF WEALTH TAX RULES, FOR WHICH BALANCE SHEET OF THE COMPANY IS TO BE EXAMINED. THE ASSESSEE HAS FILED COPIES OF BALANCE SHEETS OF KAILASH MOSER INDUSTRIES LTD. AND KAILASH AUTO FINANCE PVT. LTD. ENDING ON 31.3.2007 AND THE BREAKUP VALUE PER SHARE WAS ALSO CALCULATED FOLLOWING THE METHOD PRESCRIBED AS PER RULE 1(D) OF THE WEALTH TAX RULES AND AS PER THAT CALCULATION, THE BREAKUP VALUE OF SHARES OF KAILASH MOSER INDUSTRIES LTD. COMES TO (-)RS.11.89 AND KAILASH AUTO FINANCE PVT. LTD. COMES TO (-) RS.11.40 PER SHARE; WHEREAS THE SHARES OF KAILASH AUTO FINANCE PVT. LTD. AND KAILASH MOSER INDUSTRIES LTD. WERE SOLD :- 6 -: @ RS.2/- AND RS.1/- EACH RESPECTIVELY I.E. MORE THAN THE BREAKUP VALUE OF THE SHARES OF THESE COMPANIES. THE PAPER BOOK SUPPLIED BY THE ASSESSEE WAS ALSO SUPPLIED TO THE LD. D.R. AND DURING THE COURSE OF HEARING, THE REVENUE HAS NOT RAISED ANY DISPUTE WITH RESPECT TO THE CALCULATIONS OF BREAKUP VALUE OF SHARES MADE BY THE ASSESSEE. IN THE ABSENCE OF SPECIFIC DENIAL WITH RESPECT TO THE VALUE OF SHARES COMPUTED BY THE ASSESSEE AS PER RULE 8D OF THE RULES, WE ARE OF THE VIEW THAT THE ASSESSEE HAS SOLD SHARES AT THE RATE MORE THAN THE BREAKUP VALUE OF SHARES CALCULATED AS PER RULE 1(D) OF THE WEALTH TAX RULES. THEREFORE, THERE IS NO IRREGULARITY IN THE TRANSACTION. THE TRANSACTION CANNOT BE SIMPLY DOUBTED FOR THE REASON THAT IT WAS UNDERTAKEN BETWEEN THE PERSONS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT. IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT THE LOSS SUFFERED BY THE ASSESSEE IS AN ALLOWABLE LOSS AND SET OFF OF THE SAME SHOULD BE ALLOWED AGAINST CAPITAL GAIN ACCRUED TO THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CAPITAL LOSS TO THE ASSESSEE. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:5 TH JUNE, 2015 JJ:0605 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR