Mask Investment Ltd., Surat V. The Income tax Officer,Ward-1(3), Surat

ITA 617/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50840 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 25-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAY RAJ KUMAR
• Assessee Lawyers: MANISH MALPANI
• Section: 133(6)

Judgement Text

, , . .. . . .. . , , , , ! !! ! . .. . . .. .'#$ '#$ '#$ '#$ , % % % % & & & & IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SHRI A.K.GARODIA, A.M.) ! !! !. ITA NO. 617/AHD./2009 : ' ()- 2005-06 MASK INVESTMENT LTD., SURAT (,- /APPELLANT) -VS- (PAN : AACCM 7 549P) I.T.O., WARD-1(3), SURAT ( ./,- /RESPONDENT ) ,- 0 1 / APPELLANT BY : SHRI MANISH MALPANI, A.R. ./,- 0 1 / RESPONDENT BY : SHRI JAYRAJ KUMAR, SR.D.R. 2'3 0 4% / DATE OF HEARING : 05/10/2011 5#( 0 4% / DATE OF PRONOUNCEMENT : /10/2011 / ORDER PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 15-01-2009 OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I, SURA T SUSTAINING THE ADDITION OF RS.9 LAKHS MADE BY THE AO BY WAY OF DISALLOWANCE OF LOSS ON FORFEITURE OF SHARES AS BUSINESS LOSS FOR THE ASSESSMENT YEAR 2005-2006. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING IN SHARES/STOCK/MUTUAL FUNDS. F OR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED ITS RETURN OF INCOME ON 27.10.2005 SHOWING TOTAL INCOME OF RS.NIL. WHILE VERIFYING THE TRADING PROFIT OF THE ASSESSEE, THE AO NOTICES THAT THE ASSESSEE HAS CLAIMED LOSS ON FORFEITURE OF SHARES AMOUNTING TO R S.9 LAKHS. ON FURTHER VERIFICATION, HE NOTICED THAT THE ASSESSEE COMPANY HAS BEEN ALLOW ED SHARES OF M/S.HANUMAN FILAMENTS PVT. LTD. ON 01.11.2000 AS PARTLY PAID UP SHARES. ON BEING CALLED FOR REMAINING CALL MONEY OF THESE SHARES BY M/S. HANUMA N FILAMENTS PVT. LTD., THE ASSESSEE COMPANY FAILED TO MAKE PAYMENT OF REMAININ G CALL MONEY. ACCORDINGLY, ITA NO. 617-AHD-09 2 1,80,000 SHARES OF RS.10/- EACH, PAID UP RS.5/- EAC H WAS FORFEITED BY THE SAID COMPANY DURING THE YEAR UNDER CONSIDERATION AND THE ASSESSEE HAS CLAIMED THIS AMOUNT AS ITS TRADING LOSS AND DEBITED INTO PROFIT AND LOSS ACCOUNT. AFTER COLLECTING THE VARIOUS INFORMATION IN THIS REGARD, THE AO FOUND TH AT SHARES IN QUESTION WERE FORFEITED ON 05.02.2004 AND INTIMATED THE ASSESSEE, VIDE LETT ER DATED 06.02.2004. UNDER THESE CIRCUMSTANCES, THE AO OBSERVED THAT THE ASSESSEE CO ULD HAVE MADE THE CLAIM ON LOSS OF FORFEITURE OF SHARES IN THE ASSESSMENT YEAR 2004 -05 BECAUSE IN THAT YEAR, THE EVENT, IN QUESTION, TOOK PLACE. IN ORDER TO VERIFY THIS PO SITION, THE AO ALSO MADE ENQUIRY UNDER SECTION 133(6) FROM M/S. HANUMAN FILAMENT PVT . LTD. AND FOUND THAT THE ASSESSEE COMPANY HAS PAID APPLICATION MONEY OF RS.9 LAKHS BY WAY OF ACCOUNT PAYEE CHEQUE IN THE FINANCIAL YEAR 1997-98. M/S. HANUMAN FILAMENTS PVT. LTD. INTIMATED THAT FORFEITURE WAS TAKEN PLACE ON 05.02.2004 AND T HE ASSESSEE WAS INTIMATED THROUGH RLAD-B-4501 DATED 10.02.2004 WHICH WAS DULY SERVED TO THE ASSESSEE ON 12.02.2004. THE EVIDENCES OF PAYMENT OF ALLOTMENT M ONEY AND FINAL NOTICE FOR PAYMENT AS WELL AS EVIDENCE OF FORFEITED THE SHARES WITH SERVICE PROOF, HAVE BEEN FURNISHED BY M/S. HANUMAN FILAMENTS PVT. LTD. ON TH IS BASIS, IN PARA 6 OF THE ASSESSMENT ORDER, HE STATED THAT THE FOLLOWING TWO POINTS NEED DISCUSSION. I) WHETHER LOSS OF FORFEITER OF SHARES IS REVENU E LOSS. II) WHETHER THIS LOSS IS ALLOWABLE IN THIS YEAR E VEN IT PERTAINED TO F.Y.2003-04 IN THIS PARA, THE AO ALSO DISCUSSED BOTH THE AFORE SAID POINTS AS UNDER: 7. AS FAR AS POINT NO.1 CONCERNED, THE ASSESSEE COMPANY ITSELF HAS CLAIMED THE SHARES OF M/S. HANUMAN FILAMENTS PVT. LTD. UNDE R THE HEAD OF 'INVESTMENT IN EQUITY SHARES' NOT IN STOCK IN TRADE. FURTHER, T HE INVESTMENT MADE IN F.Y. 1997-98 AND KEPT TILL FORFEITER IS ALSO PROVED THAT THIS WAS LONG TERM INVESTMENT MADE BY THE ASSESSEE COMPANY. IT IS BEYOND DOUBT TH AT IT IS A CAPITAL NATURE INVESTMENT. THE LOSS, IF ANY, CAN ONLY BE CLAIMED B EING CAPITAL NATURE LOSS. 8. AS FAR AS POINT NO.2 IS CONCERNED, THE ASSESSEE COMPANY HAS CLAIMED THIS LOSS DURING THE YEAR UNDER CONSIDERATION WHEREAS IT PERTAINED TO THE A.Y. 2004- 05. IT COULD ONLY BE CLAIMED IN THE A.Y. 2004-05 NO T IN A.Y. 2005-06. IT BECAME MORE RELEVANT WHEN THE ASSESSEE WAS GOT AWARE OF FO RFEITER EVENT BY THE SAID COMPANY DURING THE F.Y. 2003-04 VIDE ITS LETTER DAT ED 06.02.2004, DISPATCHED THROUGH RLAD ON 10.02.2004 AND SERVED ON 12.02.2004 . ACCORDINGLY, THE CLAIM COULD ONLY BE ALLOWABLE IN A.Y. 2004-05 AS CA PITAL LOSS. ITA NO. 617-AHD-09 3 3. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) UPHELD THE ACTION OF THE AO FOR THE DETAILED REASONS GIVEN IN PARA 2.3.1 AND 2. 3.2, WHICH READS AS UNDER: 2.3.1 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O. THERE ARE TWO ISSUES INVOLV ED -(I) WHETHER THE LOSS PERTAINS TO CURRENT YEAR AND (II) THE LOSS IS CAPIT AL NATURE OR REVENUE NATURE. AS REGARDS FIRST ISSUE IS CONCERNED, IT IS CLEAR THAT THE COMPANY, M/S. HANUMAN FILAMENTS PVT. LTD. HAD PASSED A BOARD RESOLUTION O N 05.02.2O04 FORFEITING THE SHARES. M/S. HANUMAN FILAMENTS PVT. LTD. HAD AS KED THE ASSESSEE TO PAY THE REMAINING AMOUNT BY 31.10.20O3 SIMPLY BECAUSE T HE APPELLANT WROTE ONE LETTER TO M/S. HANUMAN FILAMENTS PVT. LTD. ON 18.05 .2OO4 DOES NOT MAKE THE LOSS AS ACCRUED DURING THE CURRENT YEAR. HENCE THE A.O. HAS RIGHTLY HELD THAT THE LOSS DOES NOT PERTAIN TO THE CURRENT YEAR. 2.3.2 IT IS VERY CLEAR THAT THIS IS A CAPITAL LOSS AND NOT A REVENUE LOSS IN VIEW OF THE FOLLOWING REASONS: (I) THE APPELLANT HAD ITSELF SHOWN THESE SHARES U NDER THE HEAD 'INVESTMENT IN EQUITY SHARES'. THESE SHARES WERE NOT SHOWN AS STOC K-IN-TRADE. (II) THE SHARES OF A PRIVATE LIMITED COMPANY ARE N OT TRADABLE AND HENCE THERE CANNOT BE ANY TRADING IN THESE SHARES. THE SHARES O F A PVT. LTD, CO. ARE BROUGHT AS INVESTMENT AND NOT AS STOCK-IN-TRADE. (III) THE PERIOD FURTHER SHOWS THAT THESE SHARES WE RE PURCHASED FOR THE PURPOSE OF INVESTMENT BECAUSE THE SHARE APPLICATION WAS MAD E IN F.Y. 1997-98, THE SHARES WERE ALLOTTED IN F.Y. 2000-01 AND AT THAT TI ME ONLY PART PAYMENTS WAS MADE. THE SHARES HAVE BEEN FORFEITED IN F.Y. 2003-0 4 AND HENCE IT IS CLEAR THAT THIS PERIOD OF HOLDING THE SHARES WERE INVESTMENT P URPOSE ONLY. 4. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, SHRI MANISH MA LPANI, APPEARED ON BEHALF OF THE ASSESSEE AND POINTED OUT THAT THE CONTROVERSY I NVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE FOLLOWING JUDGEMENTS: I) DCIT-VS- BPL SANYO FINANCE LTD. (2009) 312 ITR 63 (KAR) II) CIT-VS- CHAND RATAN BAGRI (2010) 329 ITR 356 (DEL). ITA NO. 617-AHD-09 4 THE COUNSEL OF THE ASSESSEE ALSO DREW OUR ATTENTION TO THE MAIN OBJECT CLAUSE IN THE MEMORANDUM OF ASSOCIATION OF THE COMPANY AND COPY O F NBFC CERTIFICATE PROVING THAT THE MAIN BUSINESS OF THE ASSESSEE WAS TO MAKE INVESTMENTS IN SHARES/SECURITIES AND THEREFORE LOSS ON ACCOUNT OF FORFEITURE OF SHAR ES WAS BUSINESS LOSS. THE COUNSEL OF THE ASSESSEE POINTED OUT THAT AS PER THE RATIO O F THE JUDGEMENT OF THE AFORESAID TWO DECISIONS, THE AO BE DIRECTED TO ALLOW THE LOSS IN QUESTION AS BUSINESS LOSS. 6. ON THE OTHER HAND, SHRI JAYRAJ KUMAR, SR.D.R., A PPEARING ON BEHALF OF THE REVENUE, POINTED OUT THAT M/S. HANUMAN FILAMENTS PV T. LTD. HAD PASSED A BOARD RESOLUTION ON 05.02.2004 FORFEITING THE SHARES. THE REFORE, THE LOSS, IN QUESTION, CANNOT BE ALLOWED IN THE ASSESSMENT YEAR UNDER APPEAL. AS AGAINST THIS, THE COUNSEL OF THE ASSESSEE SUBMITTED THAT IN CASE THE LOSS IS NOT ALL OWABLE IN THE ASSESSMENT YEAR UNDER APPEAL, IN THAT EVENT, THE DIRECTION BE GIVEN TO TH E AO FOR ALLOWING THE LOSS IN THE ASSESSMENT YEAR 2004-05. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED BEFORE U S IS WHETHER THE LOSS IN QUESTION IS ALLOWABLE IN THE ASSESSMENT YEAR UNDER APPEAL OR NO T. IN OUR CONSIDERED OPINION, THE LOSS, IN QUESTION, IS INCURRED IN THE ASSESSMENT YE AR 2004-05 AND NOT IN THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, IT CANNOT BE ALLOWED IN THIS ASSESSMENT YEAR. WITH REGARD TO PLEA OF THE ASSESSEE TO ISSUE DIRECTION T O ALLOW THE LOSS IN THE ASSESSMENT YEAR 2004-05, WE ARE OF THE VIEW THAT THE TRIBUNAL HAS N O POWER TO ISSUE DIRECTION FOR EARLIER ASSESSMENT YEAR. WE, THEREFORE, DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). RESULTANTLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 6 0 5#( $'!) 14/10 /2011 # 7 0 '3 8 THIS ORDER PRONOUNCED IN THE OPEN COURT ON 14/10/2011. SD/- SD/- (A.K.GARODIA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14/10/2011 ITA NO. 617-AHD-09 5 0 00 0 .49 .49 .49 .49 :9(4) :9(4) :9(4) :9(4)- -- - 1. ,- 2. ./,- 3. !! 4 2> 4. 2>- - 5. 9A' .4' , , 8 6. ' C6 , D/ !F , 8 TALUKDAR/ SR. P.S.