Ranji Dhawan, New Delhi V. ACIT, Circle-28(1), New Delhi

ITA 5210/DEL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2384 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 02-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S.C. MALHOTRA
• Keywords: Capital asset; Business income; Opportunity of being heard; Transactions in derivatives; Source of fund; Proportionate interest; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER ITA NO.5210/DEL/2018 ASSESSMENT YEAR: 2015-16 RANJI DHAWAN C-728, NEW FRIENDS COLONY, NEW DELHI PAN NO. AADPD4279M VS ACIT CIRCLE 28 (1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S.C. MALHOTRA, CA RESPONDENT BY SHRI S. L. ANURAGI, SR. DR DATE OF HEARING: 09/05/2019 DATE OF PRONOUNCEMENT: 24/06/2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 18.06.2018 OF THE CIT(A)-10, NEW DELHI RELATING TO A. Y. 2015-16. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEE I S AN INDIVIDUAL AND DRIVES INCOME FROM BUSINESS, HOUSE PROPERTY, CA PITAL GAIN AND INCOME FROM OTHER SOURCES. HE IS ALSO ENGAGED I N THE BUSINESS OF DECORATION OF TILES THROUGH HIS PROPRIE TORSHIP CONCERN M/S. ARCADIA CREATIONS. HE FILED HIS RETURN OF INCO ME ON 24.09.2015 DECLARING NIL INCOME. THE ASSESSING OFF ICER DURING PAGE | 2 THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT T HE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF RS.45,85,992/- ON SALE OF SHARES AFTER CLAIMING INTEREST EXPENSES OF RS.10,76 ,258/-. 3. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUST IFY THE CLAIM OF EXPENSES OF RS.10,76,258/-. REJECTING THE VARIO US EXPLANATION GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER DISALL OWED THE INTEREST EXPENSES OF RS.10,76,258/- BY OBSERVING AS UNDER :- ASSESSEE HAS FAILED TO ESTABLISH THE FACT THAT THE INTEREST EXPENSES INCURRED ARE ACTUALLY WITH RESPECT TO THE SHARES SH OWN AS PART OF SHORT TERM CAPITAL GAIN ALONE. MERE WRITTEN SUBMISSION WITHOUT ANY CORROBORATIVE EVIDENCE DOES NOT SUFFICE FOR ALLOWING ANY CLAIM IN QUASI-JUDICIAL PROCEEDINGS. IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS MAINTAINED A SINGLE PORTFOLIO WITH MOTILAL OSWAL FINANCIAL SECURITIES LTD. THROUG H WHICH INTRADAY TRADING; DERIVATIVE TRADING AND TRADING IN SHARES F OR INVESTMENT PURPOSES IS PERFORMED. AS PER THE ASSESEES SUBMISSION, INTEREST IS CHARG ED ON DAY-TO-DAY BASIS AND DEBITED AT THE END OF THE MONTH. ASSESSEE HAS PROPORTIONATELY DIVIDED THE MONTHLY INTEREST EXPENSES WITH THE COST OF EACH SHARE (SOLD IN SHORT TERM). BUT FOR THE COMPUTATION OF CAPITAL GAIN EACH SECURITY/SHARES IS TO BE TREATED AS SEPARATE CAPITAL ASSET AND THEREBY REQUI RING SPECIFIC COMPUTATION OF COST OF BORROWED CAPITAL FOR ITS PURCHASE. THE METH OD ADOPTED BY ASSESSEE HAS RESULTED IN DISPROPORTIONATE CHARGING OF INTEREST AS PART OF CO ST OF ACQUISITION FOR EVERY SHARE BECAUSE PROPORTIONATE INTEREST COST OF THOSE SHARES PURCHASED WITH BORROWED FUNDS THEREAFTER AS WELL AS ALL THE INTEREST EXPENSES PERTAINING TO PERIOD AFTER THE DATE OF ACQUISITION IS ADDED TO IT. IT IS OBSERVED THAT ASSESSEE PURCHASES SHARES BY O VERDRAWING FROM M/S MOTILAL OSWAL FINANCIAL SECURITIES LTD. AND THA T OVERDRAWING CONTINUES TILL EITHER THE SAME SHARES OR SOME OTHER SHARES EQ UIVALENT TO AMOUNT OVERDRAWN ARE SOLD. THE OVERDRAWING AS WELL AS CORRESPONDING INTEREST S TARTS PAGE | 3 ONLY FROM THE MOMENT SHARES ARE PURCHASED. THEREFOR E ASSESSEE IS ACTUALLY PAYING INTEREST EXPENSE ONLY FOR THE PERIOD AFTER T HE DATE OF ACQUISITION. SUCH INTEREST EXPENSES ARE NOT ALLOWABLE AS PART OF COST OF ACQUISITION. THE SAID VIEW GETS SUPPORT FROM THE DECISION RENDERED IN THE CASE OF V. MAHESH, ITO V. VIKRAM SADANAND HOSKOTE [2007] 18 SOT 130 (MUM), WHEREIN IT IS HELD THAT THE INTEREST EXPENDITURE INCURRED ON BORROWED FUNDS FOR THE PERIOD COMMENCING FROM THE DATE OF ACQUISITION OF SHARES T ILL DATE OF SALE WOULD NOT FORM PART OF COST OF ACQUISITION OF SHARE FURTHER, ASSESSEE CANNOT CLAIM INTEREST EXPENSES IN LUMP SUM. IF IT WAS SHOWN AS BUSINESS INCOME SUCH EXPENSES WERE DED UCTIBLE. IT IS UNDERSTANDABLE THAT LOOKING AT THE NUMBER AND TURNO VER OF TRANSACTIONS, IT IS DIFFICULT TO COMPUTE/ SEGREGATE INTERESTS COST PERT AINING TO EACH SECURITY. BUT ONCE ASSESSEE HAS CONSCIOUSLY TREATED SUCH TRANSACT IONS IN SHARES AS SHORT TERM CAPITAL GAIN, IT CANNOT TAKE ADVANTAGE OF BOTH THE PROVISIONS I.E. PAYING TAX AT LOWER RATE FOR STCG AS WELL AS CLAIMING EXPE NSES OF NATURE OF BUSINESS ACTIVITY TOGETHER. 4.7 THEREFORE BASED ON THE DISCUSSION SUPRA, THE INTERE ST EXPENSE OF RS. 10,76,258/- CANNOT BE SAID TO BEINCURRED ONLY ON TH E SHARES KEPT FOR INVESTMENT PURPOSES AS THE FUNDS AVAILABLE WITH THE MOTILAL OSWAL ARE MIXED FUNDS. THESE INTEREST EXPENSES ACTUALLY PERTAIN TO THE PERIOD AFTER DATE OF ACQUISITION OF SUCH INVESTMENTS OVERDRAWING AS WELL AS CORRESPONDING INTEREST STARTS ONLY FROM THE MOMENT SHARES ARE PURCHASED. F URTHER LOOKING AT THE TURNOVER OF THE ASSESSEE FOR F&O AND SHARE BUSINESS IT CANNOT BE ACCEPTED THAT THE LOAN HAS BEEN USED FOR INVESTMENT IN SHARE S (SHORT TERM INVESTMENT). THE ASSESSEE MUST CALCULATE THE INTEREST EXPENSES A GAINST EACH SECURITY HELD FOR INVESTMENT PURPOSE IF COST OF ACQUISITION IS TO BE CLAIMED. THEREFORE, THE FACT THAT EXACT AMOUNT OF INTEREST EXPENSES PERTAIN ING TO CAPITAL BORROWED FOR THE PURCHASE OF SUCH SHARES AND FOR THE PERIOD PRIO R TO PURCHASE OF SUCH SHARES (INCLUDIBLE AS PART OF COST OF ACQUISITION) IS NOT COMPUTED BY THE ASSESSEE. THUS INTEREST EXPENSES ARE NOT ALLOWED TO BE DEDUCTED FROM THE SALE CONSIDERATION RECEIVED ON THE SALE OF SHARES. IN VI EW OF THE ABOVE DISCUSSIONS, PAGE | 4 THE INTEREST EXPENSES OF RS. 10,76,258/- IS HEREBY ADDED TO THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 4. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE IN TEREST OF RS.10,76,258/- WAS CHARGED BY MOTILAL OSWAL FINANCI AL SERVICES LTD. AND ITS STATEMENT OF ACCOUNT SHOWING INTEREST DEBITED WAS FILED WITH THE AO. THE SOURCE OF FUNDING OF SHARE T RANSACTIONS WAS ALSO WITH THE SAME COMPANY. MONTH-WISE DETAIL O F INTEREST CHARGED BY MOTILAL OSWAL FINANCIAL SERVICES LTD. WA S FILED DURING THE ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT A MOUNT OF INTEREST OF RS. 10,76,258/- WAS PAID TO MOTILAL OSW AL FINANCIAL SERVICES LTD. ONLY IN RESPECT OF STCG ON SHARES. IT WAS ALSO SUBMITTED THAT THERE WAS NO INTEREST PAID FOR THE P ERIOD PRIOR TO PURCHASE OF SHARES AND THE ASSESSEE HAS ALLOCATED A MOUNT OF INTEREST AGAINST EACH SECURITY AND THE STATEMENT OF THE SAME WAS SUBMITTED BEFORE THE AO. THE ASSESSEE RELIED ON THE DECISION OF THE ITAT, DELHI BENCH-E IN THE CASE OF NARENDRA GEH LAUT V JCIT [2012] 21 TAXMANN.COM 82 (DELHI) AND THE DECISION O F HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT V MITHLESH K UMARI [1973] 92 ITR 9 (DELHI). 5. HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED WITH T HE ARGUMENTS ADVANCED BY THE ASSESEE AND UPHELD THE AC TION OF THE ASSESSING OFFICER. WHILE DOING SO HE HELD THAT NO INTEREST WAS PAID BY THE ASSESSEE FOR THE PERIOD PRIOR TO PU RCHASE OF SHARES. HE OBSERVED THAT THE ISSUE WHETHER INTERES T PAID ON THE BORROWED MONEY FOR ACQUISITION OF THE SHARES CO ULD BE ADDED TO ITS COST OF ACQUISITION FOR COMPUTATION OF CAPIT AL GAINS IS PAGE | 5 SQUARELY COVERED AGAINST THE ASSESSEE BY THE JUDGME NT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT V L N DALMIA AND THE JUDGMENT OF KARNATAKA HIGH COURT IN THE CASE OF CIT V MAITHREYEI PAI (SUPRA). FURTHER ITAT MUMBAI IN ITS VARIOUS DECISIONS HAS ALSO HELD THAT INTEREST ON BORROWINGS ON THE PURCHASE OF SHARES CANNOT BE CONSTITUTED AS PART OF THE COST OF THE SHARES FOR THE PURPOSE OF WORKING OUT THE CA PITAL GAINS ON THE SALE OF SHARES. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING FOLLOWING GRO UNDS OF APPEAL :- 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) IS AGAINST FACT AND LAW. 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.10,76,26 0/- BEING THE AMOUNT OF INTEREST CLAIMED AS DEDUCTION IN COMPUTIN G THE SHORT TERM CAPITAL GAIN. 3. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN NOT ALLOWING THE CAPITALIZING OF INTEREST PAID ON INVESTMENTS AND ADJUSTING THE SAME AGAINST SHORT TERM CAPITAL G AIN. 4. THAT THE FURTHER GROUNDS SHALL BE SUBMITTED AT T HE TIME OF HEARING. 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER. HE SUBMITTED THAT THE ASSESSEE HAS CARRIED ON SHARE TRANSACTIONS WHICH RESULTED IN SHORT TERM CAPITAL G AIN COVERING STT. AN INTEREST OF RS. 10,76,258/- WAS INCURRED ON BORROWINGS MADE FOR ACQUISITION OF INVESTMENTS MADE IN SHARES AND WAS PAID PAGE | 6 TO MOTILAL OSWAL FINANCIAL SERVICES LTD. THERE ARE NO MIXED FUNDS IN AS MUCH AS THE ACCOUNT ON WHICH INTEREST HAS BEE N PAID RELATES TO SHORT TERM CAPITAL GAIN ONLY. IT IS A SE PARATE ACCOUNT IN WHICH NO OTHER TRANSACTION HAS BEEN CARRIED OUT EXC EPT OF SHORT TERM CAPITAL GAIN AND THE INTEREST PAID HAS BEEN AP PORTIONED AGAINST EACH INVESTMENT. REFERRING TO PAPER BOOK PA GE NO. 6 AND 7 WHICH CONTAINS THE STATEMENT OF CAPITAL GAIN HE S UBMITTED THAT THE SAME SHOWS SHARE WISE INTEREST ALLOCATED. THE STATEMENT ALSO SHOWS TRANSACTIONS THROUGH ICICI BANK AND J M FINANCIAL SERVICES ON WHICH NO INTEREST HAS BEEN CLAIMED. THE INTEREST PAID WAS CAPITALIZED AS COST OF ACQUISITION OF INVESTMEN T. THE INTEREST WAS PAID ON FUNDS RAISED FOR PURCHASE OF SHARES. IT IS BUT NATURAL THAT THE INTEREST WILL BE PAID ONLY FROM THE DATE F ROM WHICH THE INVESTMENTS ARE PURCHASED AND LOAN IS RAISED. THE I NTEREST IS PAYABLE UP TO THE DATE WHEN THE REPAYMENT IS MADE. THE INTEREST WAS CHARGED ON DAY TO DAY BASIS AND NO INTEREST WAS PAID PRIOR TO ACQUISITION OF INVESTMENT. HE ALSO RELIED ON THE FO LLOWING DECISIONS :- 1. CIT VS. MITHLESH KUMARI 92 ITR 9 (DELHI) 2. CIT VS. K. RAJA GOPALA RAO 125 TAXMAN 148 3. V. MAHESH, ITO VS. VIKRAM SADANAND HOSKOTE 18 SOT 130 8. HE SUBMITTED THAT THE ASSESSEE HAS BEEN CARRYING OUT SIMILAR ACTIVITY IN EARLIER YEARS ALSO. THE ASSESS EE HAS ALSO PAID INTEREST TO MOTILAL OSWAL FINANCIAL SERVICES IN EAR LIER YEARS ALSO. REFERRING TO THE RETURN OF INCOME FOR ASSESSMENT YE AR 2013-14 HE PAGE | 7 SUBMITTED THAT AGAINST SHORT TERM CAPITAL GAIN (COV ERING STT) INTEREST OF RS.4,90,555/- WAS CLAIMED AND WAS ACCEP TED. HE ACCORDINGLY SUBMITTED THAT THE INTEREST EXPENDITURE OF RS.10,76,258/- SHOULD BE ALLOWED AS DEDUCTION. 9. THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON T HE ORDER OF THE CIT(A). 10. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BEL OW. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. I FIND THE ASSESSING OFFICER IN THE INSTANT CASE DENI ED THE CLAIM OF INTEREST EXPENDITURE OF RS.10,76,258/- AS DEDUCTION FROM THE SHORT TERM CAPITAL GAIN ON THE GROUND THAT THE SAME CANNOT BE SAID TO BE INCURRED ONLY ON THE SHARES KEPT FOR INV ESTMENT PURPOSES AS THE FUNDS AVAILABLE WITH M/S. MOTI LAL OSWAL ARE MIXED FUNDS. IT IS ALSO THE ALLEGATION OF THE ASSE SSING OFFICER THAT ASSESSEE COULD NOT SUBSTANTIATE THAT THE LOAN HAS B EEN USED FOR INVESTMENT IN SHARES. IT IS ALSO HIS ALLEGATION THA T THE EXACT AMOUNT OF INTEREST EXPENSES PERTAINING TO CAPITAL B ORROWED FOR THE PURCHASE OF SUCH SHARES AND FOR THE PERIOD PRIO R TO PURCHASE OF SUCH SHARES (WHICH IS INCLUDIBLE AS PART OF COST OF ACQUISITION) HAS NOT BEEN COMPUTED BY THE ASSESSEE. I FIND THE LD. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE G ROUND THAT NO INTEREST WAS PAID BY THE ASSESSEE FOR THE PERIOD PR IOR TO PURCHASE OF SHARES. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE INTEREST EXPENDITURE OF RS.10,76,258/- WAS INCURRED ON BORROWINGS MADE FOR ACQUISITION OF INVESTMENTS MADE IN SHARES PAGE | 8 AND THERE ARE NO MIXED FUNDS AND THAT IT IS A SEPAR ATE ACCOUNT IN WHICH NO OTHER TRANSACTION HAS BEEN CARRIED OUT EXC EPT OF THE SHARES ON WHICH SHORT TERM CAPITAL GAIN HAS BEEN EA RNED. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESESEE THAT IN ASSESSMENT YEAR 2013-14 ASSESSEE HAS ALSO PAID INTE REST TO MOTI LAL OSWAL FINANCIAL SERVICES AMOUNTING TO RS.4,90,5 55/- WHICH WAS ACCEPTED BY THE DEPARTMENT AND ALLOWED AS DEDUC TION FROM SHORT TERM CAPITAL GAIN. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK I AM OF THE CONSIDER ED OPINION THAT IT REQUIRES A RE-VISIT TO THE FILE OF THE ASSE SSING OFFICER TO ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE VAR IOUS SUBMISSIONS MADE BY THE ASSESSEE BEFORE ME. NEEDLESS TO SAY TH E ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE AND DECIDE THE ISSUE AS PER FACT AND LAW. I HOLD AN D DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE AR E ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 24.06.2019. SD/- (R.K PANDA) ACCOUNTANT MEMBER *NEHA* DATE:- 24.06.2019 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) PAGE | 9 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER