DCIT, New Delhi V. Sh. Laxman Dass Mittal, New Delhi

ITA 5541/DEL/2013

• Counselvise Citation: 554120114 RSA 2013
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 10-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Assessee Lawyers: VINAY MALHOTRA; NITIN MALHOTRA
• Keywords: Capital asset; Date of conversion; Fair market value
• Section: 45(2); 40A(3); 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI I.C. SUDHIR : JUDICIAL MEMBER ITA NO. 5541/DEL/2013 ASSTT. YR: 2009-10 DCIT, CIRCLE 11(1), VS. LAXMAN DASS MITTAL, NEW DELHI. 283, AGCR ENCLAVE, NEW DELHI. PAN: AAFPM 2407 C ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : MS. SULEKHA VERMA CIT (DR) RESPONDENT BY : SHRI NITIN MALHOTRA ADV. & SHRI VINAY MALHOTRA CA DATE OF HEARING : 12-08-2014 DATE OF ORDER : 22-08-2014. O R D E R PER S.V. MEHROTRA, A.M: : THIS APPEAL, BY THE REVENUE, IS DIRECTED AGAINST T HE ORDER DATED 18-07- 2013 PASSED BY THE LD. CIT(A)-XV, NEW DELHI IN APPE AL NO. 345/11-12, RELATING TO A.Y. 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE, IN TH E RELEVANT ASSESSMENT YEAR, WAS A WHOLE TIME DIRECTOR AND CHAIRMAN OF TH E COMPANY M/S INTERNATIONAL TRACTORS LTD. THE ASSESSEE DERIVED IN COME FROM SALARY FROM THE COMPANY; PENSION INCOME FROM LIC OF INDIA LTD.; INCOME FROM HOUSE PROPERTY; INCOME FROM BUSINESS OF TRADING IN DERIVA TIVES; CAPITAL GAINS ON INVESTMENTS; AND INCOME FROM OTHER SOURCES BY WAY O F INTEREST DIVIDEND ETC. ITA 5541/DEL/2013 DCIT VS. LAXMAN DASS MITTAL 2 THE ASSESSEE FILED ITS RETURN DECLARING TOTAL TAXAB LE INCOME OF RS. 2,49,31,890/-, WHICH WAS REVISED TO RS. 2,53,74,61 0/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS. 9,56,71,658/-, I NTER ALIA, MAKING FOLLOWING ADJUSTMENTS/ DISALLOWANCES: (I) DISALLOWANCE ON A/C OF LOSS ON SALE OF GOLD RS . 8,08,330/- (II) DISALLOWANCE U/S 14A RS. 86,76,130/- (III) DISALLOWANCE U/S 40A(3) RS. 6,24,29,244/- 2.1. IN APPEAL, LD. CIT(A) PARTLY ALLOWED THE ASSES SEES APPEAL. 2.2. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 6,24,29,244/- U/S 40A(3) OF THE ACT ON PURCHASE OF GOLD BY MAKING PAYMENT IN CASH. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN REJECTING THE ACTION OF T HE AO IN TREATING THE SHORT TERM CAPITAL LOSS OF RS. 8,08,33 0/- AS BUSINESS LOSS ON SALE TRANSACTION OF GOLD. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN NOT DENYING THE CARRY FOR WARD OF SHORT TERM CAPITAL LOSS OF RS. 12,12,07,282/- ON CONVERSI ON OF INVESTMENT INTO STOCK IN TRADE, AS CLAIMED BY THEY ASSESSEE IN HIS RETURN OF INCOME, WHILE HOLDING THAT THE ISSUE WAS PREMATURE AS NO SHORT TERM CAPITAL LOSS TOOK PLACE IN THIS YEAR. 3. GROUND NOS. 1 & 2 ARE INTERLINKED, AND THEREFORE , BOTH ARE BEING DISPOSED OF TOGETHER. BRIEF FACTS APROPOS THESE TWO GROUNDS ARE THAT ASSESSEE HAD SHOWN SHORT TERM CAPITAL LOSS OF RS. 8,08,330/- ON SALE OF GOLD BARS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT D ETAILS IN RESPECT OF SALE/ ITA 5541/DEL/2013 DCIT VS. LAXMAN DASS MITTAL 3 PURCHASE OF GOLD WITH PROOF OF DELIVERY, IN RESPONS E TO WHICH, ASSESSEE SUBMITTED THAT HE HAD PURCHASED GOLD WEIGHING 5120 .960 GMS FOR A TOTAL CONSIDERATION OF RS. 6,24,29,244/- DURING F.Y. 2007 -08. THE PURCHASE WAS MADE IN CASH OUT OF CASH WITHDRAWAL OF RS. 635 LACS VIDE CHEQUE NO. 256265 DATED 28-01-2008, DRAWN ON HDFC BANK. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THIS EXPLANATION AND AFTER CONSIDERI NG THE DEFINITION OF BUSINESS U/S 2(13) AND RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAZGAON DOCK LTD. VS. CIT 34 ITR 368 , CONCLUDED THAT IT WAS AN ADVENTURE IN NATURE OF TRADE WHICH WAS TO BE CONSIDERED U/S 28. HE, ACCORDINGLY, HELD THAT THE LOSS OF RS. 8,08,330/- W AS ASSESSABLE AS BUSINESS LOSS AND NOT AS SHORT TERM CAPITAL GAIN. SINCE ASSE SSEE HAD ADMITTEDLY MADE THE PURCHASE IN CASH, THE ASSESSING OFFICER INVOKED SECTION 40A(3) AND MADE A DISALLOWANCE OF RS. 6,24,29,244/-. 3.1. BEFORE LD. CIT(A) IT WAS CLARIFIED THAT THE GO LD HAD BEEN PURCHASED IN FEBRUARY 2008 AS CAPITAL ASSET ON DIFFERENT DATES. THE SAME WAS DULY SHOWN IN THE BALANCE-SHEET AND IN THE WEALTH-TAX RETURN A ND THE ASSESSEE HAD ALSO PAID WEALTH-TAX THEREON. IT WAS ALSO POINTED OUT TH AT THE ASSESSEES CASE FOR A.Y. 2008-09 HAD UNDERGONE SCRUTINY U/S 143(3) IN W HICH INVESTMENT IN GOLD WAS ACCEPTED AS CAPITAL ASSET. THE SALE WAS MA DE IN THE MONTH OF SEPTEMBER 2008. THE ASSESSEE HAD RELIED ON FOLLOWIN G DECISIONS: - G. VENKATASWAMI NAIDU & CO. VS. CIT 35 ITR 594 (SC) ; - KHAN BAHADUR AHMED ALLADIN & SONS V. CIT 68 ITR 573 (SC); - JANKI RAM BAHADUR RAM V. CIT 57 ITR 21 (SC); - CIT VS. WAL CHAND CO. P. LTD. 65 ITR 381 (SC); - S.A. BUILDING LTD. VS. CIT 288 ITR 1 (SC); - CIT VS. DHAINRAJGIRJI RAJA NRASINGIRJI 91 ITR 544 ( SC); - AMARJOTHI PICTURES V. CIT 69 ITR 755 (MAD.); - CIT VS. GABAID MOTOR SERVICE (P) LTD. 100 ITR 240 ( MAD.); ITA 5541/DEL/2013 DCIT VS. LAXMAN DASS MITTAL 4 - CIT VS. PANIPAT WOOLLEN & GENERAL MILLS CO. LTD. 10 3 ITR 66 (SC); - CIT VS. R.V. GUPTA 258 ITR 261 (DEL.); - CIT VS. MOTILAL KHATRI 218 CTR 602 (RAJ.). 3.2. ACCORDINGLY, IT WAS PLEADED THAT THE INVESTMEN T OF THE ASSESSEE IN GOLD WAS FOR INVESTMENT PURPOSE AND WAS NOT ADVENTURE IN THE NATURE OF TRADE, THEREFORE, THE ASSESSEE SHOULD BE ALLOWED TO CARRY FORWARD CAPITAL LOSS IN RESPECT OF SALE OF SUCH TRANSACTION. 3.3. LD. CIT(A) ALLOWED THE ASSESSEES APPEAL TREAT ING THE LOSS INCURRED ON SALE OF GOLD BAR AS SHORT TERM CAPITAL LOSS AND ACC ORDINGLY DELETED THE DISALLOWANCE U/S 40A(3). 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE RECORD OF THE CASE. THE FACTS ARE NOT DISPUTED . THE GOLD WAS PURCHASED IN FY 2007-08 ON 28-1-2008. IN THE BALANCE SHEET ON 31 -3-2008 IT WAS DISCLOSED AS ASSESSEES INVESTMENT AND IT WAS ALSO SHOWN IN THE ASSESSEES WEALTH-TAX RETURN. THEREFORE, THERE WAS NO EVIDENCE WITH THE ASSESSING OFFICER TO TAKE A CONTRARY VIEW. THE PURCHASE AND S ALE BILLS OF GOLD AS PRODUCED BEFORE LD. CIT(A) SHOWED THAT THE PURCHASE S AND SALES WERE MADE AT PREVALENT MARKET PRICE OF THE GOLD. WE, THEREFOR E, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THE IS SUE IN QUESTION. GROUND NOS. 1 & 2 ARE DISMISSED. 5. APROPOS GROUND NO. 3, BRIEF FACTS OF THE CASE AR E THAT ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY CONVERSION OF INVESTM ENT IN SHARES INTO STOCK IN TRADE SHOULD NOT BE CONSIDERED AS COLOURABLE DEV ICE SO AS TO MAKE IT ELIGIBLE FOR SETTING OFF AGAINST OTHER INCOME BECAU SE IF IT WOULD HAVE BEEN ITA 5541/DEL/2013 DCIT VS. LAXMAN DASS MITTAL 5 SOLD AS AN INVESTMENT, THEN THE ASSESSEE WOULD HAVE INCURRED CAPITAL LOSS AND AS PER THE PROVISIONS OF INCOME-TAX ACT, CAPITAL LO SS CAN BE SET OFF AGAINST CAPITAL GAINS. THE ASSESSEE POINTED OUT THAT HE HAD CONVERTED HIS CAPITAL ASSETS INTO STOCK IN TRADE OF SHARE BUSINESS IN AC CORDANCE WITH PROVISIONS OF SECTION 45(2), AS PER WHICH IN CASE OF CONVERSION B Y THE OWNER OF A CAPITAL ASSET INTO STOCK IN TRADE OF A BUSINESS CARRIED ON BY HIM, PROFITS AND GAINS SHALL BE CHARGEABLE TO INCOME TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD OR TRANSFERRED AN D FOR THE PURPOSE OF SECTION 48 THE FAIR MARKET VALUE OF THE ASSET ON THE DATE O F SUCH CONVERSION SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIV ED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. THE ASSESSEE POIN TED OUT THAT THE ASSET WAS CONVERTED AT THE NAV OF THE ASSETS ON THE DATE OF CONVERSION. THE ASSESSEE POINTED OUT THAT THE INVESTMENT WAS CONVERTED INTO STOCK IN TRADE ON 2-5- 2008 AT A SUM OF RS. 17,87,92,718/- AND IN THE PROC ESS THE ASSESSEE INCURRED SHORT TERM CAPITAL LOSS OF RS. 12,12,07,282/- WHICH REMAINED UNABSORBED AND CARRIED OVER TO NEXT YEAR. THE ASSESSING OFFICER TR EATED IT TO BE A COLOURABLE DEVICE TO REDUCE TAX LIABILITY IN FUTURE YEARS AND THEREFORE RELYING ON THE DECISION IN THE CASE OF MCDOWELL & CO. LTD. V. COMM ERCIAL TAX OFFICER 154 ITR 148 (SC), DENIED THE CARRY FORWARD OF SHORT TERM CAPITAL LOSS CLAIMED AT RS. 12,12,07,282/-. 5.1. LD. CIT(A) REFERRING TO SECTION 45(2) OBSERVED THAT PROFIT/ LOSS ON CONVERSION OF INVESTMENT AS STOCK-IN-TRADE ON 2-5-2 008 BY TAKING NAV OF THE UNITS OF UTI MUTUAL FUNDS AS ON THAT DATE DID N OT ARISE IN THE CURRENT YEAR U/S 45(2). HE, ACCORDINGLY, HELD THAT ISSUE WAS PRE MATURE AND IN THE ABSENCE OF ANY SHORT-TERM CAPITAL LOSS TAKING PLACE IN THE CURRENT YEAR, NO ITA 5541/DEL/2013 DCIT VS. LAXMAN DASS MITTAL 6 ADJUDICATION ON THE ISSUE OF ITS CARRY FORWARD WAS CALLED FOR. HOWEVER, LD. CIT(A) ALLOWED THE GROUND RAISED BY ASSESSEE. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE RECORD OF THE CASE. THE FACTS ARE NOT DISPUTED. THE AO HAD DISALLOWED THE ASSESSEES CLAIM ON THE GROUND THAT IT WAS A CO LOURABLE DEVICE FOR REDUCING THE TAX LIABILITY. LD. CIT(A) HAS NOT COMM ENTED SPECIFICALLY ON THIS ASPECT BUT HE HAS HELD THAT SECTION 45(2) IS ATTRAC TED TO THIS TRANSACTION, WHICH IMPLIES THAT HE DOES NOT TREAT THE TRANSACTIO N AS A COLOURABLE DEVICE IN VIEW OF THE DECISION IN THE CASE OF MCDOWELL & CO. LTD. (SUPRA). WE DO NOT FIND ANY BASIS FOR ASSESSING OFFICER TO ARRIVE AT A FINDING THAT THIS WAS A COLOURABLE DEVICE. THE ASSESSEE IS LEGALLY ENTITLED TO CONVERT THIS CAPITAL ASSET INTO STOCK IN TRADE AND THE TAXABILITY OF THE SAME IS TO BE DETERMINED AS PER SECTION 45(2) OF THE I.T. ACT. SECTION 45(2) CL EARLY MANDATES THAT THE CHARGEABILITY WILL BE DETERMINED IN THE YEAR IN WHI CH THE CONVERTED STOCK IN TRADE IS SOLD AND NOT IN THE YEAR IN WHICH IT IS AC TUALLY CONVERTED INTO STOCK IN TRADE. THEREFORE, LD. CIT(A) HAS RIGHTLY OBSERVED T HAT THE ISSUE IS PREMATURE AT THIS STAGE AND, THEREFORE, HE SHOULD HAVE DISMIS SED THE ASSESSEES GROUND OF APPEAL INSTEAD OF ALLOWING THE SAME BECAUSE IN T HE YEAR UNDER CONSIDERATION THE ASSESSEE COULD NOT TREAT IT AS A SHORT TERM CAPITAL LOSS TO BE CARRIED FORWARD TO SUBSEQUENT YEARS. THE SHORT TERM CAPITAL LOSS/ GAIN WILL ALSO BE INCURRED IN THE YEAR IN WHICH THE TRANSFER TAKES PLACE AND THE COMPUTATION WILL HAVE TO BE MADE ACCORDINGLY. THE A SSESSEE COULD ONLY KEEP THIS AMOUNT IN THE BOOKS OF A/C UNDER THE HEAD MIS CELLANEOUS ASSETS IN THE BALANCE-SHEET AND, THEREFORE, WE PARTLY MODIFY THE LD. CIT(A)S CONCLUSION AND HOLD THAT THE GROUND RAISED BEFORE LD. CIT(A) B Y ASSESSEE HAD TO BE DISMISSED AND THE ASSESSEE WILL BE ENTITLED TO DETE RMINE THE TAX LIABILITY AS ITA 5541/DEL/2013 DCIT VS. LAXMAN DASS MITTAL 7 PER SEC. 45(2) IN RESPECT OF STOCK IN TRADE IN THE YEAR IN WHICH IT IS SOLD. IN THE RESULT, THE GROUND RAISED BY THE DEPARTMENT IS PARTLY ALLOWED. 7. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON 22-08-2014. SD/- SD/- ( I.C. SUDHIR ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22-08-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR