DDIT (IT) 2(2), MUMBAI V. UNION INVESTMENT LUXEMBOURG S.A. A/C UNIASIA PACIFIC, MUMBAI

ITA 4656/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3535 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKASH AGARWAL
• Keywords: Unexplained investment; Capital asset
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI JASON P. BOAZ (AM) AND SHRI SANDEEP GOS AIN (JM) ITA NO. 4656 /MUM/2013 ASSESSMENT YEAR: 2008-09 THE D D IT (IT) - 2(2) , SCINDIA HOUSE, BALLARD PIER, N.M.ROAD, MUMBAI- 400038. VS. M/S. UNION INVESTMENT LUXEMBOURG S.A. A/C UNIASIA PACIFIC, C/O BSR & CO, LODHA EXCELLUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, N.M.JOSHI MARG, MUMBAI- 400011. PAN : AAACU7349F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. VIKASH AGARWAL RESPONDENT BY : SHRI. NIRAJ SHETH. DATE OF HEARING: 23/02/2016 DATE OF PRONOUNCEMENT: 29/02/2016 O R D E R PER JASON P. BOAZ, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-10, MUMBAI DT. 28/03/2013 FOR ASST. YE AR 2008-09. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER:- 2.1 THE ASSESSEE COMPANY, ESTABLISHED , IS AN APPRO VED SUB-ACCOUNT OF UNION INVESTMENT LUXEMBOURG S.A. A FOREIGN INSTITUTIONAL INVESTOR (FII) REGISTERED WITH SEBI, INVESTS IN INDIAN SECURITIES IN ACCORDAN CE WITH SEBI REGULATIONS FOR ASST. YEAR 2008-09, THE ASSESSEE FILED ITS RETURN O F INCOME ON 30/09/2008 2 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 DECLARING TOTAL INCOME OF RS. 48,90,51,424/-. THE C ASE WAS SELECTED FOR SCRUTINY. IN THE COURSE OF ASSESSMENT PROCEEDINGS T HE ASSESSEE WAS PROVIDED WITH COPY OF AIR AND REQUESTED TO RECONCILE THE E NTRIES WITH THE CUSTODIAN TRADE REPORT AND THE BANK STATEMENTS. THE ASSESSMEN T WAS COMPLETED U/S 143(3) R.W.S.144C(3) OF THE INCOME TAX ACT, 1961 (I N SHORT THE ACT) VIDE ORDER DT. 02/02/2011, WHEREIN THE ASSESSEES INCOME WAS D ETERMINED AT RS. 56,61,11,864/-; BY CONSIDERING RS. 7,70,60,440/- AS UNEXPLAINED INVESTMENT AND BRINGING THE SAME TO TAX UNDER THE HEAD INCO ME FROM OTHER SOURCES@40% PLUS SURCHARGE AND EDUCATION CESS. IN THIS ORDER THE ASSESSING OFFICER ALSO DENIED SET OFF OF SHORT TERM CAPITAL G AINS (STCG) ON WHICH NO STT WAS PAID AGAINST SHORT TERM CAPITAL LOSS (STCL). 2.2. AGGRIEVED BY THE ORDER IF ASSESSMENT DT. 02/02 /2011 FOR ASST. YEAR 2008- 09, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS)-10, MUMBAI. THE LD. CIT(A) ALLOWED THE ASSESSEES APPEAL VIDE THE I MPUGNED ORDER DT. 28/03/2013. 3. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS)-10, M UMBAI DT. 28/03/2013 FOR ASST. YEAR 2008-09, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS:- 1) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, WHETHER THE LD. CIT(A) ERRED IN ALLOWING STCL (ON STT PAID TRANSACTIONS) TO BE SET-OFF AGAINST THE STCG. (ON N ON- STT PAID TRANSACTIONS), WHEN THE STCG ELIGIBLE FOR SPECIAL DISCOUNTED RATE UNDER SECTION 111A DOES NOT COVER MERELY TRANS ACTIONS WHICH RESULT IN PROFIT BUT ALSO INCLUDES ALL ELIGIB LE TRANSACTIONS, WHETHER RESULTING IN GAIN OR LOSS. 3 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, WHETHER THE LD.CIT(A) ERRED IN DIRECTING ASSES SING OFFICER TO LEVY TAX @10% INSTEAD @ 30% ON STCG AMOUNTING T O RS.7,04,43,724/- EARNED ON SALE OF EQUITY SHARES UN DERLYING GDRS EVEN WHEN ASSESSING OFFICER CLEARLY ESTABLISHE D IN THE ASSESSMENT ORDER THAT STCG AMOUNTING TO RS. 7,04,4 3,724/- TO BE TAXED @ 30%. 3). THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESS ING OFFICER BE RESTORED. 4). THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER A NY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4. GROUND AT SR. NO. 3 AND 4 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 5. GROUNDS NO. 1 5.1 IN THIS GROUND, REVENUE CONTENDS THAT THE LD.CI T(A) HAD ERRED IN ALLOWING STCL ON STT PAID TRANSACTIONS TO BE SET OFF AGAINST THE STCG ON NON-STT PAID TRANSACTIONS, WHEN THE STCG ELIGIBLE FOR SPECIAL D ISCOUNTED RATE U/S 111A OF THE ACT DOES NOT MERELY COVER TRANSACTIONS WHICH R ESULT IN PROFIT BUT ALSO INCLUDE ALL ELIGIBLE TRANSACTIONS, WHETHER RESULTIN G IN GAIN OR LOSS. THE LD. AR WAS HEARD IN SUPPORT OF THE GROUNDS RAISED AND PLAC ED STRONG RELIANCE ON THE ORDER OF THE ASSESSING OFFICER IN THIS ISSUE. 5.2 PER CONTRA, THE LD. AR SUPPORTED THE FINDING RE NDERED IN THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE. IT IS SUBMIT TED BY THE LD.AR THAT THE ASSESSEE HAS AN OPTION TO SET OFF ITS STT PAID LOSS AGAINST NON-STT PAID INCOME 4 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 EVEN THOUGH IT HAS STT PAID INCOME AVAILABLE FOR SE T OFF. IT WAS CONTENDED THAT THE LD. CIT(A) IN ALLOWING THE ASSESSEE APPEAL ON T HIS ISSUE CORRECTLY FOLLOWED THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF FIRST STATE INVESTMENTS (HONG KONG) VS. ADIT [(2010) 132 TTJ (M UM) 218] WHEREIN ON AN IDENTICAL ISSUE, THE CO-ORDINATE BENCH HELD THAT TH E ASSESSEE HAD THE CHOICE TO SET-OFF STT PAID LOSSES FIRST AGAINST NON-STT PAID PROFITS AND THEREAFTER THE REMAINING LOSS, IF ANY, AGAINST STT PAID PROFITS. 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENT CITED. WE FIND THAT THE IDENTICAL ISSUE, AS IN THE CASE ON HAND, WAS CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF F IRST STATE INVESTMENTS (HONG KONG) VS. ADIT [(2010) 132 TTJ (MUM) 218)] WHEREIN, IT HAS BEEN HELD AT PARA 11 THEREOF THAT THE SET OFF AS PROPOSED BY THE ASSE SSEE CANNOT BE DENIED, WHICH IS EXTRACTED HEREUNDER: - 11. IN THE PRESENT APPEAL, THE CONTROVERSY IS STIL L NARROWER INASMUCH AS THE SHORT-TERM CAPITAL LOSS WHICH WAS S ET-OFF BY THE ASSESSEE AGAINST THE SHORT TERM CAPITAL GAIN, HAS B EEN ACCEPTED AND THE NET FIGURE OF SHORT-TERM CAPITAL GAIN AFTER SET-OFF OF SHORT TERM CAPITAL LOSS CONTINUES TO REMAIN THE SAME. THE DISPUTE IS ONLY ABOUT THE CHOICE OF SETTING OFF OF SHORT-TERM CAPIT AL LOSS SUFFERED AFTER THE CUT-OFF DATE AGAINST THE SHORT-TERM, CAPI TAL GAIN EARNED PRIOR TO THE CUT-OFF DATE. THIS POSITION HAS ARISEN DUE TO THE INTRODUCTION OF SECTION 111A FOR THE FIRST TIME FR OM THIS YEAR ONLY WHICH PROVIDES FOR LOWER RATE OF TAX ON SHORT-TERM CAPITAL GAINS ARISING ON THE TRANSACTIONS WHICH HAVE SUFFERED SEC URITIES TRANSACTION TAX. IT IS FURTHER PERTINENT TO MENTION THAT SUCH DISPUTE IS RELEVANT ONLY FOR THE FIRST YEAR OF THE OPERATION OF THIS PROVISION AND CANNOT CROP UP IN THE LATER YEARS. HE RE WE ARE 5 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 CONCERNED WITH THE SET-OFF OF SHORT TERM CAPITAL LO SS FROM ONE OR MORE TRANSACTIONS WITH THE SHORT TERM CAPITAL GAIN FROM ONE OR MORE TRANSACTIONS SPREAD OVER THE YEAR, BOTH BEFORE AND AFTER THE CUT-OFF DATE. EFFECTIVELY THE QUESTION IS ABOUT THE SETTING OFF OF SHORT-TERM CAPITAL LOSS AND SUCH SET OFF IS GOVERNE D BY SUB- SECTION (2) OF SECTION 70, WHICH HAS BEEN REPRODUCE D ABOVE. PRIMARILY THE USE OF WORD ANY TO REPRESENT THE T RANSACTION WHICH RESULTED IN THE SHORT-TERM CAPITAL LOSS IS I NDICATOR OF THE INITIAL DETERMINATION OF SHORT-TERM CAPITAL LOSS OR SHORT-TERM CAPITAL GAIN, AS THE CASE MAY BE, FROM EACH TRANSAC TION DISTINCTLY. SUPPOSE THE ASSESSEE ENTERED INTO ONE T RANSACTION OF PURCHASE AND SALE OF THE SHARES OF COMPANY A, WHI CH RESULTED INTO SHORT-TERM CAPITAL LOSS AND THERE ARE OTHER 9 TRANSACTIONS OF PURCHASE AND SALE OF SHARES WHICH RESULTED INTO SHO RT-TERM CAPITAL LOSS OR SHORT-TERM CAPITAL GAIN AS THE CASE MAY BE, IT IS MANDATORY TO DETERMINE SHORT-TERM CAPITAL LOSS OR S HORT-TERM CAPITAL GAIN IN RESPECT OF EACH OF THE 10 TRANSACTI ONS. THEN THE EMPLOYMENT, OF THE EXPRESSION ANY OTHER' CAPITAL A SSET IN THE LATER PART OF THE SUB-SECTION FOR THE PURPOSE OF SE T-OFF CLEARLY INDICATES THAT THE SHORT-TERM CAPITAL LOSS FROM ONE TRANSACTION HAS TO BE CONSIDERED DISJOINTEDLY FOR SET-OFF AGAIN ST THE SHORT - TERM CAPITAL GAIN OF ANY OTHER TRANSACTION FURTHER PRESUME THAT IN THE ABOVE EXAMPLE, ALL 9 OTHER TRANSACTIONS RESU LTED INTO PROFIT. NOW THE QUESTION TO BE DECIDED IS AS TO WHO WILL HA VE THE LAST WORD TO DETERMINE THE PREFERENCE OVER THE ORDER OF THE SET- OFF OF LOSS FROM THE FIRST TRANSACTION WITH THE SHORT-TERM CAPITAL G AIN IN ANY OR THE OTHER 9 TRANSACTIONS THE RELEVANT WORDS USED SOMEWH ERE IN BETWEEN SUB-SECTION (2) ARC THAT THE ASSESSEE SHAL L BE ENTITLED' TO HAVE THE AMOUNT OF SUCH LOSS SET-OFF AGAINST' TH E INCOME IN RESPECT OF ANY OTHER CAPITAL ASSET. PRIMA-FACIE THE RE IS CUE IN THE 6 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 LANGUAGE OF THE SUB-SECTION THAT THE OPTION IS WITH THE ASSESSEE AND HE WILL DECIDE AS TO WHETHER THE SHORT-TERM CAP ITAL LOSS FROM THE FIRST TRANSACTION OUGHT TO BE SET OFF AGAI NST THE SHORT- TERM CAPITAL GAIN OF THE TRANSACTION NO. 2 OR 3 OR 4 ETC, AS THE CASE MAY BE. OUR VIEW ABOUT THE VESTING OF THE DISCRETIO N IN ASSESSEE FOR THE PURPOSES OF SET-OFF OF SHORT- TERM CAPITAL LOSS AGAINST ANY SHORT-TERM CAPITAL GAIN IS FORTIFIED WHEN THE LANGU AGE OF SUB-SECTION (3) OF SECTION 70 IS CONSIDERED, WHICH SPECIFICALLY PROHIBITS THE SETTING OFF OF LONG TERM CAPITAL LOSS AGAINST SHORT -TERM CAPITAL GAIN. IT HAS BEEN PROVIDED IN UNAMBIGUOUS WORDS IN SUB-SECTION (3) THAT THE LONG-TERM CAPITAL LOSS CAN BE SET OFF ONLY AGAINST LONG- TERM CAPITAL GAIN AND NOT AGAINST THE SHORT-TERM CA PITAL GAIN, IF THE INTENTION OF THE LEGISLATURE HAD BEEN NOT TO CO NFER THE CHOICE ON THE ASSESSEE IN THE MATTER OF SETTING OFF OF THE SHORT-TERM CAPITAL LOSS SUFFERED IN THE POST CUT-OFF DATE AGAINST THE SHORT-TERM CAPITAL GAIN OF THE PRE-CUT-OFF DATE, IT WOULD HAVE CLEARLY SET OUT SUCH INTENTION IN THE LANGUAGE OF SUB-SECTION (2) ITSELF , AS HAS BEEN DONE IN SUB-SECTION(3.) IN THE ABSENCE OF AN STIPULATION IN THIS REGARD IN STUB-SECTION (2), WE ARE SATISFIED THAT THE CHOICE HAS BEEN LEFT OVER TO THE ASSESSEE IN TAKING DECISION ABOUT THE SETTING O FF OF SHORT-TERM CAPITAL LOSS FROM ONE TRANSACTION AGAINST ANY OTHER SHORT- TERM CAPITAL GAIN, WHETHER WITHIN OR OUTSIDE THE CU T-OFF DATE. IF HIGHER BENEFIT POURS IT, FROM THE EXERCISE OF THE O PTION IN A PARTICULAR WAY VIS-A-VIS THE LOWER BENEFIT RESULTIN G IN THE OTHER WAY, THEN THE HIGHER BENEFIT AVAILABLE AS PER LAW S HOULD NOT BE DENIED. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF MONTGOMERY EMERGING MARKETS FUND (SUPRA) HAS ALSO R ULED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE SET-OFF OF LONG-TERM CAPITAL LOSS AGAINST THE SHORT-TERM CAPITAL GAIN WAS PERMIS SIBLE UNDER SECTION 70, IN THE PERIOD PRIOR TO THE AMENDMENT. 7 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 5.3.2 FOLLOWING THE AFORESAID DECISION OF THE CO-OR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FIRST STATE INVESTMENTS (HONG KONG)( SUPRA), WE HOLD THAT THE SET OFF AS PROPOSED BY THE ASSESSEE IN THE CASE ON HAN D IS TO BE ALLOWED, AND ACCORDINGLY UPHOLD THE ORDER OF THE LD. CIT(A) IN D IRECTING THE ASSESSING OFFICER TO PERMIT THE SET OFF OF THE STCL (STT PAID) AGAINS T STCG (NON STT PAID). CONSEQUENTLY, GROUND NO.1 OF THE REVENUE APPEAL IS DISMISSED. 6. GROUND NO: 2 6.1 IN THIS GROUND REVENUE CONTENDS THAT THE LD. CI T(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO LEVY TAX @ 10% INSTEAD OF @ 30 % ON STCG AMOUNTING TO RS. 7,04,43,724/- EARNED ON SALE OF EQUITY SHARES U NDERLYING GDRS EVEN WHEN THE ASSESSING OFFICER HAS ESTABLISHED IN THE ORDER OF ASSESSMENT THAT STCG AMOUNTING TO RS. 7,04,43,724/- IS TO BE TAXED @ 30% . THE LD. DR FOR REVENUE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED AND HE P LACED RELIANCE ON THE FINDINGS IN THE ORDER OF THE ASSESSING OFFICER. 6.2 PER CONTRA, THE LD. AR FOR THE ASSESSEE SUBMIT TED THAT THERE WAS NO ERROR IN THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISS UE IN DIRECTING THE ASSESSING OFFICER TO LEVY TAX@ 10% ON THE STCG AMOUNTING TO RS. 7,04,43,724/- EARNED ON SALE OF EQUITY SHARES AND RELYING GDRS AS CLAI MED BY THE ASSESSEE. THE LD. DR CONTENDS THAT THIS GROUNDS RAISED BY REVENUE IS FACTUALLY ERRONEOUS AS THERE IS NO DISCUSSION BY THE ASSESSING OFFICER AS TO WHY HE APPLIED THE TAX @ 30% ON STCG AMOUNTING TO RS. 7,04,43,724/- AS AGAI NST TAX @ 10% OFFERED BY THE ASSESSEE, EXCEPT IN PARA 5.7 OF THE IMPUGNED OR DER WHERE THE ASSESSING OFFICER HAS GROUPED THE IMPUGNED STCG OF RS. 7,04, 43,724/- ALONG WITH NON- STT PAID STCG OF RS. 12,333/- APPLYING THE TAX @ 3 0% IN RESPECT OF BOTH THESE AMOUNTS. 8 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 6.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ON AN APPRAISAL THEREOF, WE CONCUR WITH THE OBSERVATIONS OF THE LD. CIT(A) THAT NO REASONS HAVE BEEN GIVEN BY THE ASSESSING OFFICER FOR TAXING THE SAID STCG @ 30%, WHEREAS THE ASSESSEE HAS SHOWN THE SAME AS STT PAID AND THEREFORE LIABLE TO TAX @10% IN THE RETURN OF INCOME. EVIDENCE TO THIS EFFECT HAS ALSO BEEN PLACE D BEFORE US AT PGS 41 AND 60 OF THE ASSESSEES PAPER BOOK WHICH INDICATE THAT TH E ASSESSEE HAS IN FACT PAID STT IN RESPECT OF THIS TRANSACTION. BEFORE US, REV ENUE HAS FAILED TO CONTROVERT BOTH THE EVIDENCE PLACED BEFORE US AND THE FINDING OF THE LD.CIT(A) IN THIS REGARD. IN THIS FACTUAL MATRIX OF THE CASE, WE UPHO LD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IN DIRECTING THE ASSESSING OFFICER TO TAX THIS AMOUNT OF RS. 7,04,43,724/- @ 10%. IT IS ORDERED ACCORDINGLY. CON SEQUENTLY, GROUND NO: 2 OF THE REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, THE REVENUES APPEAL FOR ASST. YE AR 2008-09 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH FEBRUARY, 2016 SD/- SD/- ( SANDEEP GOSAIN ) (JASON P.BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 29/02/2016 9 ITA NO. 4656/MUM/2013 ASSESSMENT YEAR: 2008-09 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA