The DCIT, Circle-2(1)(1), Baroda V. M/s. Shreno Limited, Baroda

ITA 623/AHD/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1033 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-11-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A KHAN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Earning of tax free income; Question of law; Wholly owned subsidiary; Fair market value; Speculation loss; Bad and doubtful debts; Valuation report; Capital receipt; Commercial expediency; Rule 8D; Capital Gains
• Section: 50C; 72(1); 14A; 115JB; 64; 48; 73; 72; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, HONBLE JUDICIAL MEMBER AND SHRI WASEEM AHMED HONBLE ACCOUNTANT MEMBER ITA.NO.675/AHD/2016 / ASSTT.YEAR : 2012-2013 SHRENO LIMITED ALEMBIC ROAD BARODA 390 002 PAN : AABCA 7953 Q VS ACIT, CIR.1(1)(1) BARODA. ITA.NO.688/AHD/2016 / ASSTT.YEAR : 2012-2013 AND ITA NO.622 AND 623/AHD/2018 ASSTT.YEAR 2013-14 AND 2014-15 DCIT, CIR.2(1)(1) BARODA. VS SHRENO LIMITED ALEMBIC ROAD BARODA 390 002 PAN : AABCA 7953 Q / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR, LD.AR SHRI PARIN SHAH REVENUE BY : SHRI M.S.A. KHAN, CIT - DR / DATE OF HEARING : 21/11/2019 / DATE OF PRONOUNCEMENT: 18/12/2019 !'/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 2 IN THE ASSTT.YEAR 2012-13 REVENUE AND ASSESSEE BOTH ARE IN APPEAL AGAINST THE ORDER OF THE LD.CIT(A)-2, BARODA DATED 31.12.2015; WHEREAS THE ORDERS OF THE LD.CIT(A) DATED 27.12.2017 AND 21.12. 2017 PASSED IN THE ASSTT.YEARS 2013-14 AND 2014-15 ARE BEING IMPUGNED BY THE REVENUE ONLY. SINCE COMMON ISSUES ARE INVOLVED, THEREFORE, WE HEA RD THEM TOGETHER AND PROCEED TO DISPOSE OF THEM BY THIS COMMON ORDER. 2. GROUND NO.1 IN THE ASSESSEES APPEAL, GROUND NO. 1 AND 2 OF THE REVENUES APPEAL IN ASSTT.YEAR 2012-13, GROUND NO.1 IN THE ASSTT.YEARS 2013-14 AND 2014-15: 3. THE ISSUES INVOLVED IN THESE GROUNDS OF APPEAL R ELATE TO DETERMINATION OF EXPENSES REQUIRE TO BE DISALLOWED FOR THE PURPOS E OF SECTION 14A OF THE INCOME TAX ACT READ WITH RULE 8D OF INCOME TAX RULE S. 3. FACTS ON ALL VITAL POINTS ARE COMMON. THEREFORE , FOR FACILITY OF REFERENCE WE TAKE UP THE FACTS FROM THE ASSTT.YEAR 2014-15. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT IN ALL THESE T HREE ASSESSMENT YEARS, THE ASSESSEE HAD DIVIDEND INCOME WHICH IS EXEMPT FROM T AX. THE ASSESSEE ITSELF HAS ALLOCATED A SUM OF RS.1,00,000/- FOR THE ASSTT .YEAR 2012-13, RS.1,20,000/- FOR THE ASSTT.YEAR 2013-14 AND RS.2,3 5,000/- FOR THE ASSTT.YEAR 2014-15 ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. IN OTHER WORDS, ASSESSEE ITSELF ADDED BACK THIS MUCH OF AMOUNT TOWARDS EXPEN DITURE REQUIRE TO BE DISALLOWED UNDER SECTION 14A. THIS ALLOCATION WAS NOT FOUND TO BE SUFFICIENT BY THE AO. HE ACCORDINGLY MADE ADDITIONS OF RS.97, 57,920/-, RS.63,72,000/- AND RS.79,05,000/- IN THE ASSTT.YEARS 2012-13 TO 20 14-15 RESPECTIVELY IN ADDITION TO AMOUNT ALREADY DISALLOWED BY THE ASSESS EE ITSELF. THIS WORKING HAS BEEN MADE WITH HELP OF RULE 8D. DISSATISFIED W ITH THE DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). IN THE ASSTT.YEAR ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 3 2013-14 AND 2014-15. THE LD.CIT(A) AFTER FOLLOWING ORDERS OF THE ITAT AS WELL AS HONBLE HIGH COURT IN THE ASSTT.YEAR 2008-0 9 DELETED THE DISALLOWANCE. HOWEVER, IN THE ASSTT.YEAR 2012-13, THE LD.CIT(A) HAS FOLLOWED ORDER OF HIS PREDECESSOR IN THE ASSTT.YEAR 2011-12 AND RECORDED THE FOLLOWING FINDING WHILE GIVING DIRECTIONS TO THE AO : 3.4.1. SINCE THE FACTS ARE IDENTICAL IN THIS YEAR ALSO, I FOLLOWING MY ORDER FOR A.Y. 2011-12 AND FOR THE SAME REASONS, HO LD THAT THE APPELLANT ADMITTEDLY HAD INCURRED EXPENSES FOR EARN ING THE EXEMPTED INCOME AND HENCE THE PROVISIONS OF RULE 8D ARE CLEA RLY APPLICABLE. HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO EXCLU DE THE INTEREST PAID TO ALEMBIC LTD. FROM THE TOTAL INTEREST EXPENDITURE SINCE THE SAME WAS INCURRED FOR EARNING TAXABLE INCOME. THE ASSESSING OFFICER IS ALSO DIRECTED TO EXCLUDE THE INVESTMENT OF RS.73,95,000/ - FROM THE AVERAGE VALUE OF INVESTMENT BECAUSE SUCH INVESTMENTS ARE RE SULTING INTO TAXABLE INCOME. THE INTEREST PAID ON LOANS TAKEN FOR DISCHA RGING ONGC LIABILITY SHOULD ALSO BE EXCLUDED WHILE WORKING OUT THE DEDUCTION U/S. 14A R.W. RULE 8D. IT HAS BEEN ALSO HELD IN EARLIER YEARS THAT DISALLOWANCE OUT OF INTEREST SHOULD BE MADE AFTER T HE INTEREST EARNED BY THE APPELLANT FROM M/S. QUICK FLIGHT LTD. AND OTHER CONCERNS AND HENCE THE ASSESSING OFFICER IS DIRECTED TO WORKS OU T THE DISALLOWANCE ACCORDINGLY IN THIS YEAR ALSO. DISALLOWANCE AT 0.5% OF AVERAGE VALUE OF INVESTMENT IS CONFIRMED FOR THE REASONS RECORDED IN A.Y. 2011-12. HOWEVER, THE ASSESSING OFFICER IS TO DETERMINE TOTA L ASSETS IN THIS REGARD AS DIRECTED IN A.Y. 2011-12 WITHOUT REDUCING THE CURRENT LIABILITIES. OTHER SUB-GROUNDS ARE REJECTED FOR THE REASONS MENTIONED IN A.Y. 2011-12. HENCE APPELLANT SUCCEEDS PARTLY IN RE SPECT OF GROUND NO. 2. 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE AT TH E VERY OUTSET CONTENDED THAT IN THE ASSTT.YEAR 2011-12 ALSO THE TRIBUNAL HA S DELETED THIS ADDITION, AND ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF THE TRIBUNAL PASSED IN THE ASSTT.YEAR 2011-12. HE PLACED ON REC ORD COPY OF THE TRIBUNALS ORDER PASSED IN ITA NO.251/AHD/2016 WHICH IS AVAILA BLE ON PAGE NO.1 TO 14 OF THE PAPER BOOK. ON THE OTHER HAND, THE LD.DR WA S UNABLE TO CONTROVERT THE CONTENTIONS MADE BY THE LD.COUNSEL FOR THE ASSESSEE . ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 4 5. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT IF AN ASSESSEE HAS EARNED EXEMPT INCOME THEN THE EXPENSES ATTRIBUTABLE TO EARNING OF SUCH EXEMPT INCOME WOULD REQUIRE TO BE DISALLOWE D UNDER SECTION 14A OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT IF THE EXP ENDITURE ARE NOT IDENTIFIABLE VIZ. INTEREST EXPENDITURE AND THE FUNDS ARE MIXED FUNDS, THEN SUCH EXPENDITURE ARE TO BE WORKED OUT WITH HELP OF RULE 8D. THE AO IN A LL THESE YEARS FORMED AN OPINION THAT FUNDS OF THE ASSESSEE ARE MIXED, AND T HEREFORE, THE DISALLOWANCE IS TO BE WORKED OUT ON THE BASIS OF RULE 8D. HE CO MPUTED THE DISALLOWANCE IN EACH ASSESSMENT YEAR UNDER RULE 8D. THE CASE O F THE ASSESSEE, ON THE OTHER HAND IS THAT INTEREST ON SPECIFIC LOAN/CHARGE S TO BE EXCLUDED, TAXABLE INVESTMENT TO BE EXCLUDED, ONLY NET INTEREST INCOME IS TO BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE. AT THE TI ME OF HEARING, THE LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMEN T OF HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRMA CREDIT & CHEMICAL LTD., 85 TAXMANN.COM 72 (GUJ). IN ORDER TO BUTTRESS HIS CONTENTION, THE AS SESSEE HAS SUBMITTED THAT IT HAD SUFFICIENT INTEREST FREE FUNDS TO CARRY OUT INV ESTMENT, HENCE NO BORROWED FUNDS WERE UTILIZED. THE ASSESSEE ALSO POINTED OUT THAT CERTAIN ARITHMETICAL ERRORS COMMITTED BY THE AO IN CALCULATING THE DISAL LOWANCE. IN ORDER TO APPRECIATE THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE, WE WOULD LIKE TO TAKE NOTE OF ITS SUBMISSION BEFORE THE AO E XHIBITING THE INVESTMENT MADE FROM 31.3.2005 UPTO ASSTT.YEAR 2014-15. THIS NOTE HAS BEEN REPRODUCED BY THE AO, AND IT READS AS UNDER: 1. 'IN THE PRESENT CASE, THE COMPANY HAD N OT MADE ANY FRESH INVESTMENTS IN SHARES DURING THE YEAR UNDER CONSIDERATION. 2. THE APPELLANT HAD SUFFICIENT INTEREST FR EE FUNDS TO CARRY OUT THE INVESTMENTS AND HENCE NO BORROWED FUNDS WERE UTILIZED. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 5 AT THE OUTSET WE WOULD LIKE TO STATE THAT THE APPEL LANT HEAVILY RELIES ON THE DECISION OF JURISDICTIONAL GUJARAT HIGH COURT IN THE CASE OF GUJARAT POWER CORPORATION LTD (2011) (THE COPY OF THE ORDER IS ENCLOSED AS ANNEXU RE 4(A)). IN THE SAID DECISION THE HIGH COURT HAS HELD THAT: IF THE INVESTMENT IN THE SHARES IS OUT OF TH E NON-INTEREST BEARING FUNDS, DISALLOWANCE U/S 14A IS NOT SUSTAINABLE; IF THE ENTIRE BORROWED FUNDS WAS USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM FOR DEDUCTION OF INTEREST TO THE ASSESSEE; DISALLOWANCE U/S 14A REQUIRES A FINDING OF I NCURRING OF EXPENDITURE. IF IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXP ENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S 14A CANNOT STAND; WITH REGARD TO DISALLOWANCE U/S 14A, WE WISH TO HIG HLIGHT FOLLOWING IMPORTANT FACTS: WITH THE FACTUAL DETAILS AVAILABLE, IT CAN BE SEEN THAT OWN FUNDS HAVE BEEN USED FOR THE PURPOSE OF INVESTMENTS. WE WOULD LIKE TO MAKE REFERENCE TO THE CHART AS ANN EXURE 4(B) ENCLOSED HEREWITH WHICH SHOWS THE QUANTUM OF INVESTMENTS AND BORROWIN G AS WELL AS THE INCREMENTAL BORROWINGS AND INVESTMENTS FROM AY 05-06 TO AY 14-1 5 AND HIGHLIGHT FOLLOWING FACTS. FURTHER, WE SUBMIT THAT THERE HAS NOT BEEN A NY PURCHASE OF INVESTMENT IN SHARES/SECURITIES FOR AY 10-11, AY 11-12, A Y 12-13 , A Y 13-14 AND A Y 14-15: THE CORRELATION OF BORROWED FUNDS & THE INVESTMENTS MADE FOR VARIOUS YEARS CLEARLY ESTABLISHED THAT THE BORROWED FUNDS HAVE NO T BEEN USED FOR MAKING INVESTMENTS. AS ON 31.3.2005 THERE WAS A DECREASE IN BORROWINGS BY RS. 5,44,16,447/- WHEREAS THE INVESTMENTS INCREASED BY RS. 9,82,78,400/-. THUS, IT IS CLEARLY EVIDENT THAT THE INCREMENTAL IN VESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS. AS ON 31.3.2006 THERE HAS BEEN A DECREASE IN BORROW INGS BY RS. 99,01,352/- WITH NO INCREASE IN INVESTMENTS. AS ON 31.3.2007 THERE HAS BEEN A SUBSTANTIAL INCREA SE IN BORROWED FUNDS BY 47,76,37,580 /- AND WHEREAS THE INVESTMENTS MERELY INCREASED BY 4, 75,48,314/-. THE SAID INCREASE IN BORROWINGS WAS FOR PAYING OFF THE LIABILITIES TOWARDS ONGC AMOUNTING TO RS. 45,39,90,000/-. ALSO, DURING AY 07 -08, YOUR OFFICE HAS VERIFIED THE FACT THAT THE ONGC PAYMENTS WERE MADE OUT OF BORROW ED FUNDS. YOUR OFFICE ALSO ALLOWED THE BENEFIT OF EXCLUSION O F INTEREST PAID ON ONGC LIABILITY WHILE WORKING OUT DISALLOWANCE U/S 14 A R.W.R 8D IN AY 07-08, AY 08-09, AY 09-10 ANDAY10-LL. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 6 THUS, IT IS VERY CLEAR THAT THE INCREMENTAL INVESTM ENT AMOUNTING TO RS. 4,75,48,314/- HAVE BEEN MADE OUT OF INTEREST FREE O WN FUNDS OF THE APPELLANT AS ON 31.3.2008 BORROWED FUNDS HAVE DECREASED BY 91 ,36,000/- AND THE INVESTMENTS INCREASED BY 1,94,72,995/-. THUS, THE INCREMENTAL INVESTMENTS HAVE CLEARLY NOT BEEN TOTALLY FUNDED OUT OF THE BORROWINGS BUT FROM OWN FUNDS. AS ON 31.3.2009 BORROWED FUNDS HAVE INCREASED BY RS 9,45,23,000 AND THE INVESTMENTS HAVE DECREASED BY RS. 1,34,000/-. AS ON 31.3.2011 BORROWED FUNDS HAVE INCREASED BY RS 1,50,11,000 AND THERE HAS NOT BEEN ANY FRESH INVESTMENTS DURING FY 10-11 AS ON 31.3.2012 BORROWED FUNDS HAVE INCREASED BY RS 14,59,46,000 AND THE INVESTMENTS HAVE DECREASED BY RS.8,14,46,000/-. AS ON 31.3.2013 BORROWED FUNDS HAVE INCREASED BY RS 4,99,63,000 AND THE INVESTMENTS HAVE DECREASED BY RS. 1,90,00,000/-. AS ON 31.3.2014 BORROWED FUNDS HAVE INCREASED BY RS 32,93,61,502 AND THERE HAS NOT BEEN ANY FRESH INVESTMENTS DURING FY 13-14 IT CAN BE INFERRED THAT THE BORROWINGS ARE NOT UTILIZED FOR THE PURPOSES OF INVESTMENTS BUT FOR BUSINESS PURPOSES. 5. THE ASSESSEE COMPANY'S INTEREST FREE FUNDS I.E. SHARE CAPITAL AND RESERVES AND SURPLUS ARE SUFFICIENTLY TO COVER THE COST PRIC E OF THE SHARES. THUS THERE COULD NOT BE ANY DISALLOWANCE OF INTEREST BECAUSE NONE OF THE INTEREST BEARING FUNDS IS USED FOR THE PURPOSE OF INVESTMENT IN SHARES. THE D ETAILS OF OWN FUND AVAILABLE WITH THE COMPANY IS AS UNDER: PARTICULARS (RS IN LACS) 31.03.2014 SHARE CAPITAL 6404.15 RESERVES 20831.19 TOTAL OWN FUNDS 27235.34 COST OF INVESTMENTS MADE 2444.60 6. IT IS EVIDENT FROM THE ABOVE THERE ARE MUCH SUFF ICIENT INTEREST FREE FUNDS TO COVER THE COSTS OF THE SHARES. IN THE ABSENCE OF TH E DIRECT NEXUS BETWEEN FUNDS DEPLOYED AND SHARES PURCHASED, THE INTEREST FREE FU NDS SHOULD BE CONSIDERED FIRST FOR THE PURPOSE OF THE SHARES ACQUIRED. IF THE COST OF SHARES IS HIGHER THAN THE INTEREST FREE FUNDS THEN ONLY FOR THE BALANCE AMOUN T, INTEREST BEARING FUNDS SHOULD ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 7 BE CONSIDERED. WE RELY ON THE FOLLOWING DECISIONS I N WHICH IT WAS HELD THAT NO DISALLOWANCE SHOULD BE MADE IF THE SUFFICIENT INTER EST FREE FUNDS ARE AVAILABLE. 7. WE RELY UPON DECISION OF HON'BLE HIGH COURT OFGU JARAT IN CASE OFSUZLON ENERGY LTD AND UTI BANK LTD WHEREIN IT IS HELD THAT IF THERE ARE SUFFICIENT OWN FUND AVAILABLE WITH COMPANY AS ON BALANCE SHEET TO COVER COST OF INVESTMENT, NO DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE. THE CO PY OF DECISION IS ENCLOSED HEREWITH AS ANNEXURE 4(C). 8. WE INVITE REFERENCE TO THE CASE OF HDFC BANK LTD 366 ITR 505 (BOMBAY HC) WHICH IS A VERY RECENT DECISION OF THE HON'BLE BOMB AY HIGH COURT. IN THIS CASE, THE HON'BLE BOMBAY HC HAS HELD THAT WHERE THERE ARE FUN DS AVAILABLE, BOTH INTEREST FREE AND BORROWED FUNDS, THEN A PRESUMPTION WOULD A RISE THAT THE INVESTMENTS ARE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILAB LE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENT AND ACCORDINGLY THERE OUGHT NOT BE ANY DISALLOWANCE U/S. 14A OF THE INTER EST PAID ON THE BORROWINGS. CONSEQUENTLY, THE ITAT RIGHTLY HELD THAT WHERE THER E ARE BOTH INTEREST FREE AND BORROWED FUNDS THEN THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIE S. COPY OF DECISION IS ENCLOSED AS ANNEXURE 4(D). 6. IDENTICAL NOTE HAS BEEN FILED IN OTHER TWO ASSES SMENT YEARS, WHEREBY THE ASSESSEE HAS QUANTIFIED THE INVESTMENT UPTO THE END OF THE ACCOUNTING YEARS IN THOSE YEARS. FOR EXAMPLE, IN THE ASSTT.YE AR 2012-13, THE TOTAL AMOUNT OF SHARE CAPITAL AND RESERVE AVAILABLE WITH THE ASSESSEE WAS RS.10419.10 LAKHS, AND HE COST OF INVESTMENT MADE W AS RS.2634.60 LAKHS. IN THE ASSTT.YEAR 2013-14, AGAIN TOTAL FUNDS IN THE SH APE OF SHARE CAPITAL AND RESERVES WERE OF RS.10829.53 LAKHS AND COST OF INVE STMENT MADE WAS RS.2444.60 LAKHS. IT WAS SUBMITTED BY THE ASSESSEE THAT TWO PERSONS LOOKED AFTER THESE INVESTMENTS, WHICH WERE FOR THE PURPOSE OF ACQUIRING THE MANAGEMENT, CONTROL ETC. HENCE, PART SALARY OF THE SE TWO PERSONS MR.RASESH SHAH, AND MR.NILESH MISTRY WERE ALLOCATED FOR LOOKI NG AFTER THE INVESTMENTS. THUS, ON AN ANALYSIS OF THE RECORD WOULD INDICATE T HAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS IN EACH ASSESSMENT Y EAR, AND NO INTEREST EXPENSES WERE REQUIRED TO BE ALLOCATED. A PERUSAL OF THE SU BMISSIONS GIVEN BY THE ASSESSEE WOULD INDICATE THAT IN EVERY YEAR, EITHER INVESTMENT HAS DECREASED OR IF INVESTMENT HAVE INCREASED, THEN BORROWED FUNDS H AVE DECREASED. FOR ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 8 EXAMPLE, AT A PARTICULAR STAGE, IF BORROWED FUNDS H AVE BEEN INCREASED IN A PARTICULAR YEAR, BUT INVESTMENT HAS DECREASED, WHIC H WOULD SHOW THAT THESE BORROWED FUNDS HAVE NOT BEEN USED FOR THE PURPOSE O F INVESTMENT. SIMILARLY, IN A YEAR, INVESTMENT HAS DECREASED, BUT BORROWED F UNDS HAVE BEEN INCREASED, IT MEANS THAT BORROWED FUNDS HAVE NOT BEEN USED FOR THE PURPOSE OF INVESTMENT. COST OF INVESTMENT MIGHT HAVE BEEN COM E FROM INTERNAL SOURCES. A COMPREHENSIVE DETAILS OF INVESTMENT STARTING FROM 31.3.2005 UPTO 31.5.2015, HAS BEEN PLACED BY THE ASSESSEE BEFORE T HE AO. IDENTICAL ISSUE AROSE IN THE ASSTT.YEAR 2008-09, WHEREIN ADDITION O F RS.73.30 LAKHS WERE DELETED BY THE TRIBUNAL, AND ORDER OF THE TRIBUNAL WAS UPHELD BY THE HONBLE HIGH COURT IN TAX APPEAL NO.557 OF 2017. IN THE AS STT.YEAR 2011-12 ALSO ITAT HAS DELETED THE DISALLOWANCE, AND ONE OF US (J M) IS AUTHOR OF THE ORDER. THEREFORE, CONSIDERING PAST HISTORY AND THE AVAILAB ILITY OF FUNDS WITH THE ASSESSEE, WE ARE OF THE VIEW THAT THE AMOUNTS WHICH HAVE BEEN CALCULATED BY THE ASSESSEE ITSELF FOR TAKING CARE OF THE TAX FREE INCOME IS SUFFICIENT, AND NO FURTHER DISALLOWANCE IS REQUIRED TO BE MADE, BECAUS E ONLY TWO PERSONS HAVE BEEN KEPT FOR TRACKING OF THESE INVESTMENTS, AND PA RT SALARY PAYABLE TO THEM HAVE ALREADY BEEN DISALLOWED. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE GROUND NO.1 OF THE ASSESSEES APPEAL IN THE ASSTT.Y EAR 2012-13, AND REJECT GROUND NO.1 AND 2 (ASSTT.YEAR 2012-13) AND GROUND N O.1 IN THE ASSTT.YEAR 2013-14, 2014-15 OF THE REVENUES APPEAL. 7. NEXT ISSUE INVOLVED IN THESE APPEALS IS, WHETHER THE DISALLOWANCE MADE UNDER SECTION 14A IS REQUIRED TO BE ADDED BACK IN T HE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. THOUGH THEORE TICALLY, WE HAVE DELETED THE DISALLOWANCE WORKED OUT BY THE AO, AND NOTHING LEFT FOR MAKING ADJUSTMENT EXCEPT THE AMOUNTS THE ASSESSEE ITSELF A DDED BACK, BUT APART FROM THAT WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF VIREET INVESTMENT, ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 9 165 ITD 27 (SB). FROM THE ASSTT.YEAR 2008-09 TO 2 010-11, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT. IT IS ALSO COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN T HE CASE OF RELIANCE INDUSTRIES LTD., 102 TAXMANN.COM 142 (BOM). THE IT AT HAS CONSIDERED THIS ASPECT IN THE CASE OF GUJARAT FLUROCHEMICALS LTD. A ND OTHER APPEALS. THIS ORDER OF THE ITAT HAS BEEN UPHELD BY THE HONBLE GU JARAT HIGH COURT. ITAT HAS FOLLOWED ORDER OF THE SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT (SUPRA). IN BRIEF, THE OUTCOME OF THIS ORDER IS TH AT THE DISALLOWANCE UNDER SECTION 14A IS NOT REQUIRED TO BE ADDED BACK IN THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THEREFORE, WE ALLOW GROUND NO.2 OF THE ASSESSEES APPEAL (ITA NO.675/AHD/2016 ASSTT.YAR 2012-13) AND REJEC TED GROUND NO.2 AND 3 OF THE REVENUES APPEAL IN THE ASSTT.YEAR 2013-14 A ND 2014-15. 8. NOW WE TAKE UP GROUND NOS.3 TO 5 OF THE REVENUE S APPEAL IN THE ASSTT.YEAR 2012-13 ALONG WITH GROUND NO.4 OF THE RE VENUES APPEAL IN THE ASSTT.YEAR 2013-14 AND 2014-15. 9. GRIEVANCE OF THE REVENUE IN ALL THESE GROUNDS OF APPEAL IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,74,13,000/- RS.1,36,05,045/-, AND RS.5,58,125/- IN THE ASSTT.YE ARS 2012-13 TO 2014-15 RESPECTIVELY, WHICH WERE ADDED BY THE AO ON THE GRO UND THAT THE ASSESSEE MUST HAVE SHOWN INTEREST INCOME FROM ITS SUBSIDIARY . 10. FACTS ON ALL VITAL POINTS ARE COMMON, THEREFORE , WE TAKE FACTS FROM THE ASSTT.YEAR 2012-13. 11. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AD SUBSIDIARY COMPANY VIZ. QUICK FLIGHT LIMITED (QFL). IT HAD ADVANCED INTER- CORPORATE DEPOSIT, AND THE BALANCE OUTSTANDING AS ON 31.3.2012 WAS RS.2284.42 LAKHS. THE ASSESSEE HAS BEEN CHARGING INTEREST AT THE RATE OF 12% ON THE IC D TO QFL UPTO ASSTT.YEAR ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 10 2011-12. IN THESE YEARS INTEREST HAS NOT BEEN CHAR GED. THE LD.AO WAS OF THE OPINION THAT THE ASSESSEE OUGHT TO HAVE CHARGED INT EREST ON THESE ICDS. THE CASE OF THE ASSESSEE IS THAT QFL WAS IN THE BUSINES S OF PROVIDING CHARTERED AIR-CRAFT TO THIRD PARTIES. IT HAS INCURRED HUGE L OSS DUE TO HEAVY EXPENDITURE ON UPKEEP AND MAINTENANCE OF AIRCRAFT. DUE TO HEAV Y LOSS, QFL WAS NOT ABLE TO REPAY THE INTEREST AMOUNT, AND ACCORDINGLY, THE ASSESSEE DID NOT CHARGE INTEREST IN THESE YEARS. THE LD.AO WAS NOT SATISFI ED WITH THE EXPLANATION OF THE ASSESSEE. HE DISALLOWED THE CLAIM. ON APPEAL, THE LD.CIT(A) HAS DELETED SUCH DISALLOWANCE OF INTEREST EXPENSES, OR IN OTHER WORDS, DID NOT ACCEPT HE VIEW POINT OF THE AO FOR ACCOUNTING OF NOTIONAL INT EREST INCOME. THE FINDING RECORDED BY THE LD.CIT(A) IN PARA 6.4 OF ASSTT.YEAR 2012-13, READS AS UNDER: 6.4. I HAVE CAREFULLY CONSIDERED THE FACTS ON RECO RDS AND SUBMISSION OF THE LD. AUTHORIZED REPRESENTATIVE. UNDISPUTEDLY, THE AP PELLANT HAS BORROWED MONEY FROM ALEMBIC LTD. AND ADVANCED THE SAME TO QU ICK FLIGHT LTD. WHICH IS A WHOLLY OWNED SUBSIDIARY OF THE APPELLANT. UPTO A.Y. 2011-12, THE APPELLANT HAS BEEN RECEIVING INTEREST ON SUCH ADVAN CES FROM QUICK FLIGHT LTD. AND THE SAME WAS ALSO OFFERED FOR TAXATION. TH E INTEREST EXPENDITURE ON THE BORROWING ADVANCED TO QUICK FLIGHT LTD. WAS ALS O ALLOWED AS AN EXPENDITURE UPTO A.Y. 2011-12. THUS, ON THIS VERY G ROUND, THE BUSINESS EXPEDIENCY HAS BEEN ESTABLISHED IN THE CASE OF APPE LLANT IN RESPECT OF ADVANCES GIVEN TO SISTER CONCERN. AS A MATTER OF FA CT, DUE TO HUGE LOSSES INCURRED IN THE CASE OF QUICK FLIGHT LTD., THE APPE LLANT HAS NOT CHARGED INTEREST IN THE YEAR UNDER CONSIDERATION WHICH IN N O WAY WILL CHANGE THE PURPOSE OF ADVANCES GIVEN'TO QUICK FLIGHT LTD. IT I S ALSO NOTICED THAT IF THE BUSINESS OF SUBSIDIARY COMPANY IS NOT REVIVED, THEN THE APPELLANT WILL LOSE ENTIRE INVESTMENT THEREIN IN THE FORM OF SHARE CAPI TAL (RS.2 CRORES) AND ADVANCES (RS.22.78 CRORES) AS ON 31.03.2012 ALSO. I N VIEW OF THESE FACTS, THE CLAIM OF APPELLANT THAT THE ADVANCES GIVEN TO QUICK FLIGHT LTD. WERE ON ACCOUNT OF BUSINESS EXPEDIENCY AND FOR COMMERCIAL C ONSIDERATION IS FOUND TO BE ACCEPTABLE. 6.4.1. IT IS ALSO NOTICED THAT UNDER THE SIMILAR FA CTS AND CIRCUMSTANCES OF THE CASE, THE INTEREST EXPENDITURE HAS BEEN HELD TO BE AN ALLOWABLE EXPENDITURE U/S. 36(L)(III) OF THE ACT BY THE HON'BLE SUPREME C OURT IN THE FOLLOWING CASES:- (A) S.A. BUILDERS LTD. 288 ITR 1 (SC) (B) HERO CYCLES (P) LTD. VS. CIT, 2015 - TIOL - 280 - SC - IT, ORDER DATED 05.11.2015. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 11 IN VIEW OF THE ABOVE FACTS AND ALSO THE DECISIONS O F HON'BLE SUPREME COURT, THUS I HOLD THAT THE INTEREST EXPENDITURE INCURRED BY THE APPELLANT ON BORROWED FUNDS UTILIZED FOR GIVING ADVANCES TO SIST ER CONCERN ON ACCOUNT OF COMMERCIAL EXPEDIENCY HAS TO BE ALLOWED U/S. 36(L)( III) OF THE ACT AND ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO DE LETE THE ADDITION. HENCE, APPELLANT SUCCEEDS IN RESPECT OF GROUND NO. 8. 12. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE ABOVE FINDING W OULD INDICATE THAT THE LD.CIT(A) HAS RIGHTLY HELD THAT NO NOTIONAL INTERES T INCOME IS TO BE ASSUMED BECAUSE THE ASSESSEE HAS NOT CHARGED INTEREST ON IC DS. FROM SUBSIDIARY. THE ASSESSEE HAS OFFERED SUCH INTEREST INCOME AS BUSINE SS INCOME IN EARLIER YEARS, AND THEREFORE, ADVANCEMENT OF LOAN WAS CONSIDERED F OR THE PURPOSE OF BUSINESS. TO OUR MIND, THE LD.CIT(A) HAS APPRECIAT ED THE CONTROVERSY IN RIGHT PERSPECTIVE. IT WAS IN THE INTEREST OF THE ASSESSE E TO REVIVE ITS SUBSIDIARY, OTHERWISE, ITS SHARE CAPITAL AS WELL AS ADVANCES OF RS.2278 CRORES WOULD BE IN JEOPARDY. THEREFORE, WE DO NOT FIND ANY MERIT IN T HESE GROUNDS OF APPEAL. THEY ARE REJECTED. 13. NO OTHER GROUND REMAINS IN THE APPEALS OF THE R EVENUE, HENCE ALL THE APPEALS ARE DISMISSED. 14. NOW, WE PROCEED TO DECIDE THE REMAINING GROUNDS OF APPEAL IN ASSESSEES APPEAL FOR THE ASSTT.YEAR 2012-13. 15. GROUND NO.3 : IN THIS GROUND OF APPEAL, GRIEVA NCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF 75% OF FOREIGN TRAVEL EXPENSES. THE LD.COUNSEL FOR THE ASSESSEE A T THE VERY OUTSET SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY EARLIER ORDER OF THE TRIBUNAL IN THE ASSTT.YEAR 2011-12. THE LD.DR WAS UNABLE TO CONTROVERT THIS FACT. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 12 16. WE FIND THAT IN THE ASSTT.YEAR 2011-12, THE TRI BUNAL HAS RECORDED THE FOLLOWING FINDING ON THIS ISSUE. 8. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE ASSESSEE IS THAT LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF F OREIGN TRAVEL EXPENDITURE TO THE EXTENT OF 75%. WITH THE ASSISTANCE OF LEARNED REPR ESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY, IT EMERGED OUT FROM T HE RECORD THAT SIMILAR EXPENDITURE WAS MADE IN ASSESSMENT YEAR 2008-09 AND DISPUTE TRAVELLED UP TO THE TRIBUNAL. THE TRIBUNAL HAS DELETED THE DISALLOWANC E BY OBSERVING AS UNDER: 16. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE :- '3. DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE RS.9 ,74,612/- : 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING 75% OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF EXPEN DITURE ON FOREIGN TRAVEL INCURRED BY THE APPELLANT PRESUMING IT TO BE FOR NON BUSINESS PURPOSES.' 17. SO FAR AS THIS DISALLOWANCE IS CONCERNED, THE R ELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS INCURRED EXPEND ITURE OF RS 12,99,483 ON UK AND USA VISIT UNDERTAKEN BY MS Y R AMIN. IT WAS STATED BY THE ASSESSEE THAT THIS VISIT WAS UNDERTAKEN TO UNDERSTAND OPPORT UNITIES AVAILABLE IN EXPANDING AND DIVERSIFYING IN THE MARKETS. IT WAS A LSO STATED THAT MS AMIN HAD VISITED VARIOUS MANUFACTURING PLANTS AND INTERA CTED WITH KEY PERSONNEL, TECHNOLOGY PROFESSIONALS AND CONSULTANTS ET. THE AS SESSING OFFICER WAS, HOWEVER, NOT CONVINCED WITH THESE EXPLANATIONS. HE WAS OF THE VIEW THAT 'NO TANGIBLE AD RELIABLE EVIDENCE WAS FILED TO PROVE TH AT THE FOREIGN VISIT OF MS Y R AMIN WAS FOR ANY BUSINESS PURPOSE'. THE EXPENSE W AS THUS DISALLOWED. IN APPEAL, LEARNED CIT(A) HELD THAT 'IN THE PRESENT CA SE, THE DETAILS OF VISIT WERE FURNISHED BUT THE SAME ARE NOT SUPPORTED BY THE VOU CHERS AND OTHER DOCUMENTARY EVIDENCES WHICH COULD SHOW THAT ASSESSE E ACTUALLY CARRIED OUT CERTAIN BUSINESS ACTIVITY DURING THE COURSE OF VISI T' BUT 'CONSIDERING THE SUBMISSIONS MADE, THE ENTIRE VISIT CANNOT BE TERMED AS PERSONAL'. HE ALSO NOTED THAT AS PER DECISIONS OF HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF CIT VSSHAHIBAG ENTREPRENEURS [(1995) 215 ITR 810 (GUJ)], A VISIT WHICH IS WHOLLY PERSONAL AND GRATUITOUS CAN BE DISALLOWED . BASED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF PARKAR SECURITIES L TD VS DCIT [(2006) 8 SOT 257 (AHD)], WHICH WAS ON ITS OWN FACTS, DISALLOWED 75% OF THE EXPENSES AND ALLOWED THE DEDUCTION FOR 25% OF THE EXPENSES. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 13 18. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 19. WE HAVE NOTED THAT THERE IS NO DISPUTE, AS THE ASSESSING OFFICER IS NOT IN APPEAL AGAINST THE ORDER OF THE CIT(A), THAT THE VISIT IS UNDERTAKEN FOR SOME BUSINESS PURPOSE EVEN THOUGH THE DIRECTOR OF T HE ASSESSEE HAS USED FOR PERSONAL PURPOSES AS WELL. IT IS NOT THUS EVEN THE CASE OF THE REVENUE AUTHORITIES THAT THE VISIT IS WHOLLY PERSONAL AND G RATUITOUS, AND IS DISALLOWABLE FOR THIS REASON- AS WAS THE CASE BEFOR E HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHAHIBAG ENTREPRENEURS (S UPRA). IN THIS CASE AT BEST THERE IS AN ELEMENT OF PERSONAL EXPENSE BUT TH EN, AS IS THE SETTLED LEGAL POSITION IN THE LIGHT OF HON'BLE JURISDICTIONAL HIG H COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO LTD VS CIT [(2002) 253 ITR 749 (GUJ)] , NO DISALLOWANCE CAN BE MADE FOR THE REASON THAT THE EX PENSES ARE PERSONAL IN NATURE. EVEN IF AN EXPENSE INCURRED IN THE COURSE O F BUSINESS GIVES PERSONAL BENEFIT TO A DIRECTOR, IT IS INCURRED IN THE COURSE OF BUSINESS AND IS ALLOWABLE AS SUCH AND CANNOT BE VIEWED AS A PERSONAL EXPENSE. IN THE LIGHT OF THE FINDINGS OF THE CIT(A), WHICH HAVE NOT BEEN CHALLEN GED BY THE ASSESSING OFFICER, THE FOREIGN VISIT WAS AT LEAST PARTLY FOR BUSINESS PURPOSES AND, THEREFORE, JUST BECAUSE THIS VISIT RESULTED IN, ASS UMING IT IS CORRECT, PERSONAL BENEFIT TO THE DIRECTOR, THE EXPENSES INCURRED ON T HE VISIT CANNOT BE DISALLOWED AS PERSONAL EXPENSES. THIS IS AT BEST EX PENSE OF THE ASSESSEE COMPANY WHICH RESULTED IN BENEFIT TO THE DIRECTOR. IN ANY EVENT, THERE IS NO MATERIAL WHATSOEVER TO COME TO THE CONCLUSION THAT 75% TIME ON THIS TRIP WAS USED FOR PERSONAL PURPOSES OF THE DIRECTOR. THE CASE RELIED UPON BY THE CIT(A) WAS A CASE IN WHICH A DETAILED ANALYSIS OF T HE ACTIVITIES OF THE DIRECTOR WAS CARRIED OUT AND THEN THIS CONCLUSION W AS DRAWN. THERE IS NO SUCH MATERIAL ON RECORD IN THIS CASE. ONCE THE CIT( A) CAME TO THE CONCLUSION THAT THE TRIP WAS FOR SOME BUSINESS PURP OSES, IT WAS NOT OPEN TO HIM TO DENY ANY PART OF DEDUCTION FOR THESE EXPENSE S- PARTICULARLY WHEN THERE IS NO MATERIAL TO HOLD THAT THE VISIT WAS FOR PERSONAL PURPOSES. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIR ETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESS ING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS. 9,74,612. THERE IS NO DISPARITY ON FACTS. THEREFORE, RESPEC TFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, WE DELETE THE DISALLOWANCE IN THIS YE AR ALSO. 17. A PERUSAL OF ORDER OF THE LD.CIT(A) WOULD INDIC ATE THAT THE LD.CIT(A) HAS NOT RECORDED ANY INDEPENDENT FINDING EXCEPT FOL LOWING THE ORDER OF ITS PREDECESSOR. THEREFORE, FOLLOWING THE ORDER OF THE ITAT IN THE ASSTT.YEAR 2011-12, WE DELETE THE DISALLOWANCE OF RS.10,09,380 /-. THIS GROUND OF APPEAL IS ALLOWED. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 14 18. GROUND NO.5: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWA NCE OF BAD DEBTS OF RS.171.91 LAKHS. 19. AS OBSERVED EARLIER, THE ASSESSEE HAS SUBSIDIA RY COMPANY VIZ. QUICK FLIGHT LTD. IT HAD ADVANCED ICDS TO ITS SUBSIDIARY COMPANY. DURING THE ACCOUNTING YEAR, IT HAS ADVANCED A FURTHER SUM OF R S.306.20 LAKSH. IT HAD WRITTEN OFF BAD DEBTS OF RS.171.91 LAKHS. ACCORDIN G TO THE ASSESSEE UPTO THE ASSTT.YEAR 2011-12, THE ASSESSEE WAS SHOWING INTERE ST INCOME ON THE LOANS AND ADVANCES GIVEN TO QFL. IT HAD EARNED INTEREST INCOME OF RS.738 LAKHS DURING THE F.Y.2008-09 TO 2010-11, AND ITS INCOME W AS OFFERED IN THE RESPECTIVE YEARS. HOWEVER, NET WORTH OF QFL WAS ER ODED, AND HENCE BALANCE INTEREST OUTSTANDING IN THE BOOKS OF ACCOUNTS AT RS .170.91 LAKHS HAS BEEN WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION AS IRRECOVERABLE. THE STAND OF THE ASSESSEE WAS REJECTED BY THE LD.REVENUE AUTHORI TIES ON THE GROUND THAT SINCE IT HAS ADVANCED FRESH LOANS DURING THE YEAR, THEREFORE, IT CANNOT BE SAID THAT RECOVERY OF INTEREST HAS BECOME BAD. THE SECO ND REASON GIVEN BY THE LD.CIT(A) IS THAT THOUGH THE LIABILITY OF QFL WERE CEASED QUA THE PAYMENT OF INTEREST EXPENDITURE, BUT ACTUALLY THAT CONCERN DID NOT SUFFER TAX ON CESSATION OF THESE LIABILITY, BECAUSE THAT CONCERN WAS SHOWIN G HUGE LOSS. IN OTHER WORDS, ACCORDING TO THE LD.CIT(A) TAXES IN ACTUALIT Y WERE NOT PAID BY THE QFL ON CESSATION OF THIS LIABILITY. 20. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WHILE ALLOWING THE CLAIM OF THE ASSESSEE THAT NO INTEREST INCOME OUGHT TO BE ASSUMED ON SUCH ADVANCES, AND NO TIONAL INTEREST INCOME IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE, OR IN OTHER WORDS, INTEREST EXPENSES INCURRED BY THE ASSESSEE ON THE BORROWED F UNDS COULD NOT BE ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 15 DISALLOWED TO THE EXTENT THE ASSESSEE FAILED TO REC OVER INTEREST INCOME FROM SUBSIDIARY. 21. DEALING WITH THIS ISSUE, THE LD.CIT(A)HAS HELD THAT IT WAS A GENUINE BUSINESS TRANSACTION. THE ASSESSEE HAS MADE HUGE A DVANCE OF RS.22 CORRES. IT HAS SHARE CAPITAL OF RS.2 CRORES IN THIS CONCERN, A ND EVERYTHING WILL BE AT RISK IF SUBSIDIARY IS NOT BEING REVIVED. THUS, GENUINEN ESS OF THE ADVANCEMENT IN THE SHAPE OF ICDS WAS NOT IN DOUBT. THESE WERE FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS SHOWN THE INTEREST INCOME OF RS.73 8 LAKHS FROM F.Y.2008- 09 TO F.Y.2010-11. THIS AMOUNT WAS OFFERED FOR TAX ATION. IF SOME BALANCE OUTSTANDING REMAINS, AND WRITTEN OFF IN THE ACCOUNT S, THEN IT IS NOT FOR THE REVENUE TO VERIFY THE GENUINENESS OR TO ASK THE ASS ESSEE TO SHOW WHETHER DEBTS HAVE ACTUALLY BEEN BECOME BAD OR NOT. THE MO MENT DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS, IT IS TO BE ALLOWED WITHO UT EXPECTING THE ASSESSEE TO DEMONSTRATE WHETHER DEBTS HAVE ACTUALLY BECOME BAD OR NOT. A RELIANCE CAN BE MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD. 230 CTR 14 (SC). IT IS ALTOGETHER IRRELEVANT, WHET HER QFL ACTUALLY PAID TAX OR NOT. IF A LIABILITY HAS CEASED, THEN IT WILL BE ADDED BACK IN THE TAXABLE INCOME OF THE QFL. NOW, IF THAT CONCERN WAS SUFFER ING HUGE LOSS, THEN THAT CANNOT BE THE REASON TO DISALLOW CLAIM OF THE ASSES SEE. IF THIS TYPE OF LOGIC IS BEING ACCEPTED, THEN EVERY BUSINESS ORGANIZATION WA S REQUIRED TO SHOW PROFIT ONLY. THIS IS A MISPLACED NOTION AT THE END OF THE LD.CIT(A) FOR REJECTING THE CLAIM OF THE ASSESSEE. WE ALLOW THIS GROUND OF APP EAL, AND DELETE DISALLOWANCE OF BAD DEBTS. IN THE OTHER WORDS, CLA IM OF BAD DEBT AT RS.170.91 LAKHS IS ALLOWED. 22. GROUND NO.6: IN THIS GROUND, GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN NOT GRANTING SET OFF BROUGHT FORWARD BUSINESS LOSS AGAINST INCOME FROM HOUSE PROPERTY. THE LD.COUNSEL FOR THE ASSESSEE ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 16 SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE ITAT IN ITA NO.937/AHD/2017. THE RELEVANT PART OF THE ITAT S ORDER READS AS UNDER: 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE JUD GMENT REFERRED AND RELIED BY THE ASSESSEE AS WELL AS THE LD. CIT(A). Q UESTION BEFORE US IS AS TO WHETHER BROUGHT FORWARD BUSINESS LOSSES CAN BE SET OFF AGAINST INCOME FROM HOUSE PROPERTY. 27. WE OBSERVE THAT ASSESSEE OWNS 24 GODOWNS IN BAN GALORE WHICH ARE HELD FOR THE ACTIVITY OF THE LEASING OUT TO VAR IES PERSON. ASSESSEES MAIN BUSINESS IS MANUFACTURING OF GLASS WARE ITEMS, MACHINERY AND EQUIPMENT FOR CHEMICAL GLASS. NET INCOME SHOWN FROM HOUSE PROPERTY AFTER CLAIMING DEDUCTION FOR MUNICIPAL TAXES AND ST ANDARD DEDUCTION @ 30% U/S. 24 OF THE ACT IS SHOWN AT RS. 92,62,996/-. ASSESSEE HAS CLAIMED SET OFF BROUGHT FORWARD BUSINESS LOSSES AGA INST THIS INCOME. 28. VARIOUS JUDGMENTS HAVE BEEN REFERRED AND RELIED BY THE LD. COUNSEL. IN THE CASE OF LAVISH APARTMENT PVT. LTD. (SUPRA). HONBLE HIGH COURT OF DELHI EXAMINING THE ISSUE IN THE CASE OF ASSESSEE ENGAGED IN SALE AND PURCHASE OF PROPERTY HONBLE CO URT OBSERVE THAT RENTAL INCOME WAS EARNED BY LETTING OUT THE PROPERT Y HELD AS STOCK IN TRADE AND THE OBJECT WAS TO EXPLOIT THEM BY LETTING OUT TEMPORARILY TO OTHERS. IT WAS HELD THAT BROUGHT FORWARD BUSINESS L OSSES CAN BE SET OFF AGAINST SUCH INCOME EVEN THOUGH SHOWN AS INCOME FRO M HOUSE PROPERTY. 29. SIMILARLY HONBLE APEX COURT IN THE CASE OF CIT VS. COKANADA RADHASWAMI BANK LIMITED HELD THAT INCOME BY WAY OF INTEREST FROM SECURITY DOES NOT SEIZE TO BE PART OF THE INCOME FR OM BUSINESS IF THE SECURITY ARE PART OF THE TRADING ASSET AND THEREFOR E EVEN THOUGH LOSSES INCURRED IN THE BUSINESS IN THE EARLIER YEARS COULD BE SET OFF AGAINST THAT INCOME. IN ANOTHER CASE RELIED ON BY THE ASSESSEE I N THE CASE OF HICKSON AND DADAJEE PVT. LTD. (SUPRA), THE ISSUE BE FORE THE HONBLE COURT WAS WHETHER THE TRIBUNAL WAS JUSTIFIED IN AL LOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST DEEMED SHORT TERM CAPITAL GAIN ARISING FROM SALE OF BUILDING AND PLANT AND MACHINE RY. FROM PERUSAL OF THE JUDGMENT WE FIND THAT HONBLE COURT HELD THA T THE QUESTION REFERRED ABOVE DOES NOT GIVE RISE TO ANY SUBSTANTIA L QUESTION OF LAW AND THE ISSUE WAS NOT ADMITTED FOR ADJUDICATION. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 17 30. ON THE OTHER HAND WE FIND THAT SPECIAL BENCH DE CISION BY CO- ORDINATE BENCH BANGALORE IN ITA NO. 1546/BANG/2008 DATED 09.12.2011IN THE CASE OF NANDI STEELS VS. ACIT ADJUDICATED SIMILAR ISSUE OF CLAIMING SET OFF OF BROUGHT FORWARD BUSINE SS LOSS AGAINST INCOME FROM CAPITAL GAIN. SPECIAL BENCH HAS EXTENSI VELY DISCUSSED VARIOUS JUDGMENT WHICH MOSTLY INCLUDES THE JUDGMENT REFERRED AND RELIED BY THE ASSESSEE. SPECIAL BENCH DECIDED THE I SSUE FAVOUR OF THE REVENUE BY HOLDING THAT BROUGHT FORWARD BUSINESS LO SS CAN BE SET OFF ONLY AGAINST THE BUSINESS INCOME OF THE ASSESSEE. I N HOLDING SO CO- ORDINATE BENCH OBSERVED AS FOLLOWS:- (A) THE IMPUGNED ORDER OF THE TRIBUNAL ALLOWED THE APPEAL OF THE RESPONDENT- ASSESSEE ON THE ISSUE OF SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AGAINST DEEMED SHORT TERM CAPITAL GAINS ARISING ON SALE OF BUILDIN G, PLANT AND MACHINERY THIS WAS BY FOLLOWING THE DECISION OF ITS CO-ORDINATE BENCH IN DIGITAL ELECTRONICS LTD. V/S. ADDITIONAL COMMISSIONER OF INCOME TAX 49 SOT 65. IN DIGITAL ELECTRONICS LTD. (SUPRA) THE TRIBUNAL HELD THAT UNDER SECTION 72 OF THE ACT, THE LOSS UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' CAN B E CARRIED FORWARD AND THE SAME CAN BE SET OFF AGAINST PROFITS OF ANY BUSINESS OR P ROFESSION. IT IS NOT THE REQUIREMENT OF SECTION 72 OF THE ACT THAT SUCH GAIN OR PROFIT MUST BE TAXABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSIO N'. THUS CARRY FORWARD BUSINESS LOSS WAS SET OFF AGAINST SHORT TERM CAPITAL GAINS O N SALE OF BUILDING. (B) MR. KOTANGALE, THE LEARNED COUNSEL, APPEARING F OR THE REVENUE VERY FAIRLY STATES THAT THE DECISION OF THE TRIBUNAL IN DIGITAL ELECTRONICS LTD. (SUPRA) HAS BEEN ACCEPTED BY THE REVENUE. FURTHER NO DISTINGUISHING FEATURES IN THE PRESENT FACTS HAVE BEEN SHOWN TO US , WHICH WOULD WARRANT TAKING OF A DIFFERENT VIEW FROM THAT TAKEN BY THE T RIBUNAL IN DIGITAL ELECTRONICS LTD. (SUPRA) AND ACCEPTED BY THE REVENUE. (A) IN THE ABOVE VIEW, QUESTION NO.(I) AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS NOT ENTERTAINED. 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ONLY QUEST ION BEFORE US FOR CONSIDERATION IS WHETHER THE BROUGHT FORWARD LOSS FROM THE EARLIER Y EARS CAN BE SET OFF AGAINST THE INCOME FROM 'CAPITAL GAINS' U/S 72 OF THE IT ACT. F OR THE PURPOSE OF READY REFERENCE, THE RELEVANT PORTION OF SEC.72 IS REPROD UCED HERE UNDER; ' 72 (1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RES ULT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' IS LOSS TO THE ASSESSEE, NOT BEING LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SEC.71, SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET OFF OR .. WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD, THE WH OLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FO RWARD TO THE FOLLOWING ASSESSMENT YEAR, AND - ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 18 (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY , OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THA T ASSESSMENT YEAR;.... MUCH STRESS HAS BEEN LAID BY BOTH THE PARTIES ON TH E TERM 'PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION' MENTIO NED IN SUB-CLAUSE -(I) OF SUB- SEC.(L) OF SEC.72 OF THE IT ACT. WHAT ARE THE PROFI TS AND GAINS OF BUSINESS OR PROFESSION ?. WHETHER IT SHOULD BE THE INCOME EARNE D OUT OF THE BUSINESS CARRIED ON BY THE ASSESSEE OR IT MAY BE THE INCOME IN ANY W AY CONNECTED TO THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE ?. THE ANSWER TO THIS QUESTION ENTIRELY DEPENDS ON THE INTERPRETATION TO BE GIVEN TO THE TE RM 'OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THAT ASSESSMENT YEAR' FOR DETERMINATION OF THE ISSUE. IT IS NOT IN DISPUTE TH AT THE LAND, BUILDING AND BORE WELL SOLD BY THE ASSESSEE WERE USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. IT IS ALSO NOT DISPUTED THAT THESE ASSETS WERE FIXED ASSE TS OF THE ASSESSEE. THE ONLY ARGUMENT OF THE ASSESSEE HAS BEEN THAT THEY HAVE DI RECT NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE AND THEREFORE, ARE BUSIN ESS ASSETS AND ANY GAINS FROM THE SALE OF SUCH ASSETS WOULD ALSO HAVE THE CH ARACTER OF BUSINESS INCOME. WE ARE UNABLE TO AGREE WITH THIS CONTENTION OF THE ASSESSEE THAT THE ASSETS SOLD BY THE ASSESSEE WERE BUSINESS ASSETS. UNDISPUTEDLY, THEY WERE CAPITAL ASSETS AND THE CAPITAL RECEIPTS ARE NOT TAXABLE NOR ARE TH E CAPITAL PAYMENTS DEDUCTIBLE FROM THE INCOME OF THE ASSESSEE. THE CAPITAL IS TO BE USED FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND IT SHA LL REMAIN IN THE BUSINESS OF THE ASSESEE TILL IT IS EITHER CONVERTED INTO STOCK- IN-TRADE OR IS DISPOSED OFF. THE INCOME EARNED BY THE ASSESSEE BY CARRYING ON THE BU SINESS BY USE OF THE STOCK IN TRADE ONLY IS THE BUSINESS INCOME OF THE ASSESSE E. LIKEWISE, ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR CARRYING ON OF BUSINES S AND FOR EARNING THE INCOME FROM SUCH BUSINESS OR PROFESSION IS ONLY ALLOWABLE AS DEDUCTION. AFTER TAKING INTO ACCOUNT THE RECEIPTS AND PAYMENTS FOR CARRYING ON THE BUSINESS OF THE ASSESSEE ONLY THE PROFIT OR GAIN OR LOSS FROM THE B USINESS IS COMPUTED. IF THE PROFIT OR LOSS RELATE TO THE SAME ASSESSMENT YEAR F ROM ONE SOURCE THEN IT CAN BE SET OFF FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME U/S 70 ACT, AND IT CAN BE SET OFF AGAINST THE INCOME FROM ANY OTHER HE AD OF INCOME U/S 71 OF THE ACT. SEC.72 OF THE ACT HOWEVER, PERMITS THE CARRY F ORWARD BUSINESS LOSS TO SUBSEQUENT ASSESSMENT YEARS AND ALLOWS IT TO BE SET OFF AGAIN ST PROFIT & GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY TH E ASSESSEE AND ASSESSABLE FOR THE RELEVANT ASSESSMENT YEAR. THUS, IT IS CLEAR THA T IT IS ONLY THE BUSINESS LOSS THAT CAN BE CARRIED FORWARD U/S 72 OF THE ACT AND IT CAN ALSO BE SET OFF ONLY AGAINST THE BUSINESS INCOME OF THE ASSESSEE, BE IT FROM THE SAM E BUSINESS OR FROM ANY OTHER BUSINESS. IN THE CASES RELIED UPON BY THE LEARNED C OUNSEL FOR THE ASSESSEE, THE HONBLE SUPREME COURT WAS DEALING WITH THE CASES OF THE ASSESSEE'S WHOSE BUSINESS WAS DEALING IN SECURITIES ALSO AND IT WAS THUS HELD THAT THESE SECURITIES WERE TRADING ASSETS AND THEREFORE, THE INCOME THERE FROM THOUGH TO BE COMPUTED UNDER THE HEAD 'INCOME FROM SECURITIES' DOES NOT LO SE THE CHARACTER OF 'BUSINESS INCOME'. BUT IN THE CASE OF M/S EXPRESS NEWSPAPERS LTD., CITED SUPRA, THE FACTS OF THE CASE ARE LITTLE DIFFERENT AND AFTER TAKING INTO CONSIDERATION THE FACTS OF THE CASE THEREIN, THE HONTDLE SUPREME COURT HAS HELD THAT TH E CAPITAL GAINS ON SALE OF CAPITAL ASSETS IS NOT TO BE SET OFF AGAINST THE BRO UGHT FORWARD LOSS OF EARLIER YEARS. IN OUR OPINION, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S EXPRESS NEWSPAPERS LTD., IS FAIRLY APPLICABLE TO TH E FACTS OF THE CASE BEFORE US. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S STEELCON INDUSTRIES PVT.LTD., CITED SUPRA, HAS MISPLACED ITS RELIANCE UPON THE DE CISION OF THE APEX COURT IN THE CASES OF M/S UNITED COMMERCIAL BANK LTD., AND M/S C OCANADA RADHASWAMI BANK LTD., IN VIEW OF THE SAME, WE ARE INCLINED TO REJEC T THE GROUNDS OF APPEAL NOS.5 ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 19 & 6 RAISED BY THE ASSESSEE. THUS, THE R EFERENCE IS ANSWERED IN FAVOUR OF REVENUE. 11. THE CASE IS NOW TO BE POSTED BEFORE THE DIVISIO N BENCH TO GIVE EFFECT TO THE ORDER OF THE SPECIAL BENCH AND ALSO TO GIVE EFFECT TO THE ORDER OF THE DIVISION BENCH ON THE GROUNDS OF APPEAL NOS. 1 TO 4 DECIDED BY IT WHILE MAKING THE REFERENCE TO THE HON'BLE PRESIDENT FOR THE CONSTITU TION OF A SPECIAL BENCH. 31. FROM GOING THROUGH THE ABOVE DISCUSSION AS WELL AS THE JUDGMENT IN FAVOUR OF BOTH THE PARTIES WE FIND THAT IN THE JUDGMENT FAVOURING ASSESSEE IT WAS OBSERVED THAT THE NE T INCOME SHOWN UNDER THE HEAD HOUSE PROPERTY/INCOME FROM OTHER S OURCES/CAPITAL GAIN HAS A DIRECT NEXUS WITH THE REGULAR BUSINESS A CTIVITY CARRIED ON BY THE ASSESSEE AND IT WAS THE IDLE FUNDS/STOCK IN TRA DE/BUSINESS ASSET WHICH WERE MERELY EXPLOITED TO FETCH SOME INCOME IN THE INTEREST OF BUSINESS WHEREAS THE SPECIAL BENCH BANGALORE IN NAN DI STEEL (SUPRA) HAS CLEARLY HELD THAT BROUGHT FORWARD BUSINESS LOSS CAN BE SET OFF ONLY AGAINST BUSINESS INCOME. 32. IN ORDER TO APPRECIATE THE FACTS IN THE INSTANC E APPEAL WE WILL FIRST LIKE TO GO THROUGH THE PROVISION OF SECTION 7 2(1) OF THE ACT WHICH READS AS UNDER:- ' 72 (1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RES ULT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' IS LOSS TO THE ASSESSEE, NOT BEING LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SEC.71, SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET OFF OR .. WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD, THE WH OLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FO RWARD TO THE FOLLOWING ASSESSMENT YEAR, AND - (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY , OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THA T ASSESSMENT YEAR;.... 33. IN THE ABOVE PROVISION REFERENCE IS MADE TO THE NET RESULT OF COMPUTATION UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION AS WELL AS SET OFF DURING THE YEAR OF B USINESS LOSS UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISION U/S. 71. THE CATC H WORD IN SECTION 72(1) IS THE WORD HEAD OF INCOME . FURTHER UNDER CHAPTER-VI OF THE INCOME TAX ACT WHICH DEALS WITH S ET OFF OR CARRY FORWARD AND SET OFF OF LOSSES AND THE SECTIONS ENUM ERATED BELOW CHAPTER-VI RELATING TO SET OFF OF OR CARRY FORWARD AND SET OFF, ARE SECTION 70 TO SECTION 80. IN ALL THESE SECTIONS VAR IOUS HEADS OF INCOME HAVE BEEN DISCUSSED. SO ONCE AGAIN THE WORD HEAD I NCOME HAS BEEN COMMONLY USED IN THIS CHAPTER-VI. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 20 34. NOW FOR THE PURPOSE OF COMPUTATION OF TOTAL IN COME AS PROVIDED IN CHAPTER-IV, THERE ARE FIVE HEADS OF INCOME NAMEL Y SALARY, INCOME FROM HOUSE PROPERTY, PROFIT AND GAINS OF BUSINESS O R PROFESSION, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. IN OUR VIEW TH E HEADS OF INCOME REFERRED UNDER CHAPTER-VI RELATING TO SET OFF AND C ARRY FORWARD LOSS REFERS TO THE FIVE HEADS OF INCOME PROVIDED UNDER C HAPTER-IV OF THE INCOME TAX ACT AND THEREFORE WHILE INTERPRETING THE PROVISION U/S. 72(1) OF THE ACT WHICH CLEARLY SPECIFY THAT FOR THE PARTI CULAR ASSESSMENT YEAR IF THE NET RESULT OF THE COMPUTATION UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN SPECULATION LOSS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISION OF SECTION 71 (WHICH DEALS WITH SET OFF O F LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER) THEN SO MUCH OF THE LO SS AS HAS NOT BEEN SO SET OFF OR WHERE IT HAS NO INCOME UNDER ANY OTHE R HEADS, MEANING THEREBY THAT AFTER SETTING OFF THE BUSINESS LOSS OT HER THAN THE SPECULATION LOSS, ASSESSEE CAN SET OFF THE BUSINESS AGAINST OTH ER HEADS OF INCOME IN ACCORDANCE WITH PROVISION U/S. 71 AND STILL IF THER E REMAIN UNABSORBED BUSINESS LOSS THEN THE SAME CAN BE CARRY FORWARD TO SUBSEQUENT YEARS FOR NOT MORE THAN EIGHT ASSESSMENT YEARS AND CAN BE SET OFF AGAINST THE PROFIT AND GAINS IF ANY OF ANY BUSINESS OR PROFESS ION CARRY ON BY HIM. IN OUR VIEW THIS PARTICULAR PHRASE THE PROFIT AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION REFERS TO THE THIRD HEAD OF INCOME I.E. PROFIT AND GAINS OF BUSINESS OR PROFESSION. 35. FURTHER INTENTION OF THE STATUTE IN THIS PROVI SION OF SECTION 72 IS VERY CLEARLY AS IT ALLOWS THE SET OFF OF BUSINESS L OSS AGAINST OTHER HEADS OF INCOME IN ACCORDANCE WITH SECTION 71 OF THE ACT FOR THE YEAR IN WHICH THE BUSINESS LOSS HAS BEEN INCURRED AND IT IS ONLY FOR THE REMAINING UNABSORBED BUSINESS LOSS WHICH NEEDS TO B E SET OFF AGAINST THE BUSINESS INCOME IN EIGHT SUBSEQUENT YEARS. IN T HE CASE OF ASSESSEE WE FIND THAT THE RENTED WAREHOUSES ARE NOT USED FOR THE BUSINESS PURPOSES AND THEY ARE BEING CONSISTENTLY USED FOR E ARNING RENTAL INCOME. THESE WAREHOUSES ARE NOT PART OF STOCK IN T RADE. DURING THE YEAR ACTUAL EXPENDITURE FOR REPAIR OF THESE WAREHOU SES INCURRED AT RS. 9,81,269/- BUT THE ASSESSEE TAKING THE BENEFIT OF S ECTION 24 OF THE ACT HAS CLAIMED STANDARD DEDUCTION OF RS. 29,88,587/- W HICH MEANS THAT REPAIR EXPENSES OF RS. 20,07,318/- HAS BEEN CLAIMED OVER AND ABOVE THE ACTUAL REPAIR EXPENDITURE INCURRED. THIS BENEFIT HA S BEEN CONSISTENTLY TAKEN BY THE ASSESSEE. IF THE INTENTION OF THE ASSE SSEE WAS TO USE THESE WAREHOUSES FOR BUSINESS PURPOSES THEN THE GROSS REN TAL RECEIPT SHOULD ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 21 HAVE BEEN SHOWN AS BUSINESS RECEIPT AND ONLY THE AC TUAL AMOUNT OF REPAIR EXPENDITURE SHOULD HAVE BEEN CLAIMED. BUT IN THE PRESENT CASE IT IS NOT SO AND THE INCOME FROM WAREHOUSE HAS BEEN SH OWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY WHICH CANNOT BE E QUATED BY ANY CANNON OF LAW AS PROFIT AND GAINS FROM BUSINESS OR PROFESSION. 36. WE ARE THEREFORE OF THE CONFIRMED VIEW THAT BOT H THE LOWER AUTHORITIES MADE NO MISTAKE IN NOT ALLOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AGAINST THE INCOME FROM HOUSE PROP ERTY. WE THEREFORE UPHOLD THE VIEW TAKEN BY LD. CIT(A). IN T HE RESULT GROUND NO. 3 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009 -10 IS DISMISSED. RESPECTFULLY FOLLOWING ORDER OF THE COORDINATE BEN CH TRIBUNAL PASSED IN THE ASSESSEES OWN CASE FOR ASSTT.YEAR 2009-10, IN ITA NO.937/AHD/2014, ON SIMILAR ISSUE, WE DISMISS THIS GROUND OF ASSESSE E. 23. GROUND NO.4: GRIEVANCE OF THE ASSESSEE IN GROUND NO.4 IS THAT TH E LD.CIT(A) HAS ERRED IN DELETING THE LOSS SUFFERED BY THE ASSESSEE ON SA LE OF PREFERENTIAL SHARES. 24. BRIEF FACTS OF THE CASE ARE THAT ON SCRUTINY OF ACCOUNTS, THE LD.AO FOUND THAT THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAIN ON SALE OF LAND AT RS.8,33,87,162/-. IT HAS SHOWN LONG TERM CAPITAL L OSS ON SALE OF SHARES AT RS.5,17,02,554/-. THUS, UNDER LONG TERM CAPITAL GA IN OF RS.3,16,04,608/- WAS OFFERED TO TAX BY THE ASSESSEE. THE LD.AO HAS DIRE CTED THE ASSESSEE TO EXPLAIN THE LONG TERM CAPITAL LOSS SUFFERED BY THE ASSESSEE WITH SUPPORTING DOCUMENTARY EVIDENCE. HE ALSO CONFRONTED THE ASSE SSEE TO SHOW AS TO WHY THIS CAPITAL LOSS SHOULD NOT BE TREATED AS A SPECUL ATIVE LOSS IN VIEW PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. THE DETAILS OF LONG TERM LOSS ARISING ON ACCOUNT OF SALE OF PREFERENTIAL SHARES ARE BEING NOTICED BY THE LD.CIT(A) ON PAGE NO.27 OF THE PAPER BOOK WHILE TAKING COGNIZANC E OF THE FINDING OF THE ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 22 AO. THESE DETAILS HAVE BEEN NOTICED ON PAGE NO.32 ALSO WHILE DEALING WITH ASSESSEES SUBMISSIONS. THEY READ AS UNDER: NAME NO OF PREFERENCE SHARES PURCHASE PRICE PER SHARE SALES PRICE PER SHARE SALES VALUE INDEXED COST INDEXED LOSS SIERRA INVESTMENTS LTD. 3,00,000 100 80 2,40,00,000 4,90,62,500 (2,50,62,500) NIRAYU PRIVATE LTD. 5,00,000 100 100 5,00,00,000 7,56,26,20-1 (2,56,26,204) SALE PRICE WAS DETERMINED BASED ON VALUATIO N REPORT GIVEN BY INDEPENDENT CHARTERED ACCOUNTANTS (REFER PAGE: 219-235 OF PAPER BOOK) 25. THE LD.AO ON AN ANALYSIS OF THE EVIDENCE DISALL OWED THIS CLAIM BY ASSIGNING TWO REASONS VIZ. (A) THIS TRANSACTION IS A SPECULATIVE TRANSACTION, AND THEREFORE, IT IS TO BE TREATED AS SPECULATION LOSS, WHICH COULD NOT BE SET OFF THE LONG TERM CAPITAL GAIN ON SALE OF LAND, (B) IT IS A COLOURABLE DEVICE FOR THE PURPOSE OF REDUCING PAYMENT OF CAPITAL GAIN TAX ON SALE OF LAND. DISSATISFIED WITH THE ACTION OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE LD.CIT(A) DID NOT APPROVE THE STAND TAKEN BY THE AO . IN OTHER WORDS, CIT(A) HAS HELD THAT IT IS A GENUINE LOSS ON SALE OF SHARE S HELD AS INVESTMENT. IT COULD NOT BE TERMED AS SPECULATIVE TRANSACTION. SIMILARL Y, THE LD.CIT(A) HAS HELD THAT IT COULD NOT BE TERMED AS COLOURABLE DEVICE. THE FINDING OF THE LD.CIT(A) IN THIS CONNECTION IS AVAILABLE IN PARA 4.3.2.1. I T READS AS UNDER: 4.3.2.1. I FIND THAT THE DECISION OF HON'BLE JURISDICTIONAL ITAT IN THE CASE OF KRUTI MARKETING LTD. (SUPRA) HAS BEEN F OLLOWED IN THE CASE OF ITO MS. RAJVI SECURITIES (P) LTD. (2012) 50 SOT 592 (AND.). IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITION, THUS IT EM ERGES THAT THE APPELLANT COMPANY WAS CARRYING ON BUSINESS OF MANUF ACTURING OF GLASS WARES, MACHINERY AND EQUIPMENTS AND REAL ESTATE DEV ELOPMENT AND NOT THE BUSINESS OF PURCHASE AND SALE 'OF SHARES AND HE NCE THE PROVISIONS OF EXPLANATION TO SECTION 73 WOULD NOT APPLY. I HOL D ACCORDINGLY RELYING UPON THE ABOVE MENTIONED DECISIONS AND PART ICULARLY THE DECISION OF HON'BLE JURISDICTIONAL ITAT WHICH IS BI NDING ON ME. THUS, I FURTHER HOLD THE LOSS ON SALE OF SHARES HELD AS INV ESTMENTS HAS TO BE TREATED AS LONG TERM CAPITAL LOSS. HENCE GROUND NO. 5 IS DECIDED IN FAVOUR OF THE APPELLANT. ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 23 4.3.5. IN VIEW OF THE ABOVE FACTUAL POSITION AND AL SO THE DECISION OF HON'BLE SUPREME COURT/HIGH COURT, I HOLD THAT TRANS ACTION OF PURCHASE AND SALE OF PREFERENCE SHARES ENTERED INTO BY THE A PPELLANT WAS NOT A SHAM TRANSACTION AND COLOURABLE DEVICE. HOWEVER, SI NCE THE TRANSACTIONS WERE CARRIED OUT BETWEEN THE GROUP CON CERNS HAVING SUBSTANTIAL COMMON SHARE HOLDINGS, THE SALE PRICE O F THE PREFERENCE SHARES, IS TO BE EXAMINED ON THE BASIS OF ARM'S LEN GTH PRICE. VALUATION REPORTS OF SALE PRICE OF SHARES ARE ALSO BEING CONS IDERED AFTER ADMITTING THEM IN THE INTEREST OF JUSTICE AS NO SUCH DETAIL W AS CALLED FOR BY THE ASSESSING OFFICER EXCEPT A DAY BEFORE PASSING OF TH E ASSESSMENT ORDER. 26. THE LD.CIT(A), THEREAFTER PROCEEDED TO FIND OU T THE FAIR MARKET VALUE OF THESE SHARES ON THE DATE OF SALE. THE LD.CIT(A) WAS OF THE VIEW THAT THE SALE PRICE ADOPTED AT RS.80/- IN THE CASE OF SIERRA INVESTMENTS LTD. AND NIRAYU P.LTD. AT RS.100/-. ON THE STRENGTH OF REPORT SUBM ITTED BY THE VALUER, VALUATION IS NOT CORRECT. THIS VALUATION REPORT OU GHT TO BE AS UNDER: NAME NO OF PREFERENCE SHARES PURCHASE PRICE PER SHARE SALES PRICE PER SHARE SALES VALUE INDEXED COST INDEXED LOSS SIERRA INVESTMENTS LTD. 3,00,000 100 163 4,89,00,000 4,90,62,500 (1,62,500) NIRAYU PRIVATE LTD. 5,00,000 100 118 59,90,00,000 7,56,26,204 (1,66,26,204) 27. THEREAFTER, AFTER TAKING INTO CONSIDERATION FAI R MARKET VALUE OF THE SHARES ON THE DATE OF SALE AT RS.163/- PER SHARE, I N THE CASE OF SIERRA INVESTMENTS LTD. AND RS.118/- IN THE CASE OF NIRAYU P.LTD., THE LD.CIT(A) HAS WORKED OUT THE FAIR MARKET VALUE OF THE SHARES, AND DIRECTED THE AO TO WORK OUT THE CAPITAL LOSS, IF ANY. 28. WHILE IMPUGNING THE ACTION OF THE CIT(A), THE L D.COUNSEL FOR THE ASSESSEE HAS RAISED THREE FOLD SUBMISSIONS. HE FIR STLY CONTENDED THAT AS FAR AS TREATMENT GIVEN TO THE TRANSACTION BY THE AO AS SPE CULATED TRANSACTION IS ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 24 CONCERNED, THIS VIEW WAS NOT CONFIRMED BY THE LD.CI T(A). THE LD.CIT(A) HAS ACCEPTED THAT IT IS A GENUINE INVESTMENT MADE BY TH E ASSESSEE WHICH HAS GIVEN RISE TO CAPITAL GAIN/LOSS TO THE ASSESSEE. THIS PA RT OF THE LD.CIT(A) ORDER HAS NOT BEEN CHALLENGED BY THE REVENUE IN ITS APPEAL. SIMILARLY, THE LD.CIT(A) DID NOT UPHOLD CONCLUSION OF THE AO THAT THIS TRANS ACTION IS A COLOURABLE TRANSACTION, AND THIS FINDING HAS ALSO NOT BEEN CHA LLENGED BY THE REVENUE. THEREFORE, ACCORDING TO HIM THE ONLY ISSUE REMAINS TO BE ADJUDICATED BY THE TRIBUNAL IS, WHETHER ACTUAL SALE CONSIDERATION OF T HE SHARES SUPPORTED BY THE VALUATION REPORT CAN BE REPLACED WITH FAIR MARKET V ALUE OF THE SHARES. HE POINTED OUT THAT THERE IS NO MECHANISM PROVIDED IN THE ACT, AND THERE IS NO POWER WITH THE LD.CIT(A) TO REPLACE THE CONSIDERATI ON RECEIVED BY THE ASSESSEE WITH FAIR MARKET VALUE CONSIDERATION. A P ROVISION HAS BEEN MADE W.E.F. ASSTT.YEAR 2018-19 BY INSERTING SECTION 50C( A) IN THE ACT. PRIOR TO THIS ASSESSMENT YEAR THERE IS NO SUCH SPECIAL PROVISION FOR THE REVENUE AUTHORITIES TO REPLACE THE SALE CONSIDERATION. HE THEREAFTER J USTIFIED THE VALUATION REPORT ON MERIT IN ORDER TO DEMONSTRATE THAT THE CIT(A) CA NNOT REPLACE THIS VALUE BY ADDING BACK THE VALUE REPRESENTING DIVIDEND WHICH W ERE NOT DISTRIBUTED. A NOTE TO THIS EFFECT HAS BEEN FILED BEFORE US DURING THE COURSE OF HEARING, AND SUCH NOTE READS AS UNDER: 4. IT IS SUBMITTED THAT ONCE IT HAS BEEN CONCLUDE D BY THE CTT(A) THAT THE TRANSACTION OF PURCHASE AND SALE OF PREFERENCE SHAR ES IS BONAFIDE AND GENUINE, AS CAN BE SEEN FROM HIS VARIOUS STATEMENTS IN THE O RDER, COMPUTATION MECHANISM AS PRESCRIBED UNDER INCOME TAX ACT IS TO BE FOLLOWED AND THERE IS NO MECHANISM UNDER INCOME TAX ACT TO SUBSTITUTE FUL L VALUE CONSIDERATION WITH ANY OTHER VALUE UNLESS IT IS SHOWN THAT THE ASSESSE E HAS RECEIVED SOMETHING OVER AND ABOVE FULL VALUE OF CONSIDERATION. IT MUST BE N OTED THAT INCOME TAX ACT STANDS AMENDED WITH EFFECT FROM AY 18-19 BY VIRTUE OF INSERTION OF SECTION 50CA TO PROVIDE FOR SPECIAL PROVISIONS FOR FULL VAL UE OF CONSIDERATION FOR TRANSFER OF SHARES OTHER THAN QUOTED SHARES. FOR YE ARS PRECEDING AY 18-19, NO SUBSTITUTION IS PERMISSIBLE UNDER THE INCOME TAX AC T. RELEVANT JUDGMENTS ARE MENTIONED IN CHART OF ASSESSEE'S APPEAL AGAINST GRO UND NO.4. 5. FURTHER, CIT(A) REFERRING TO GENERAL DISCLAIM ER BY THE VALUER HAS HELD AS UNDER ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 25 THE VALUATION REPORT CLEARLY INDICATES THAT IN PREP ARATION OF VALUATION REPORT, VALUER HAVE SOLELY RELIED ON A STATEMENT OF ACCOUNT AND DATA SUPPLIED BY THE SHRENO LTD. AND SIERRA LTD. WITHOUT ESTABLISHING TH E RELIABILITY OF SUCH INFORMATION AND ALSO WITHOUT CARRYING OUT ANY DUE D ILIGENCE. THUS VALUATION REPORT IS NOT RELIABLE AND DESERVES TO BE REJECTED AND ACCORDINGLY SAME IS REJECTED' (PG 64 PARA 4.3.6) REBUTTAL: THIS IS A STANDARD DISCLAIMER. THE DISCLAIMER DOES NOT IN ANY MANNER PROVIDE ANY OTHER ADVERSE COMMENT RATHER IT IS MERELY A REF LECTION OF THE APPROACH FOLLOWED BY THE INDEPENDENT VALUER TO ITS END USER. VALUATION REPORT CANNOT BE REJECTED BASED ON GENERAL DISCLAIMER. - THE VALUER HAS RELIED ON FINANCIAL STATEMENTS AUDITED BY STATUTORY AUDITORS OF THE COM PANY AND HENCE INFORMATION PROVIDED IS RELIABLE. THIS IS GENERAL PRACTICE FOLL OWED BY THE VALUERS 6. FURTHER, CIT(A) WHILE CALCULATING FAIR MARKET VALUE OF SHARES HAS ADDED UNPAID DIVIDEND TO FACE VALUE OF PREFERENCE SHARES. REBUTTAL: VALUER HAS VALUED BASED ON RECPGNISED VALUATION GUI DELINES PRESCRIBED BY RULE 10 OF SCHEDULE III TO WEALTH TAX ACT. VALUATION RUL ES FACTORS IN WHETHER SHARES ARE CUMULATIVE OR NON-CUMULATIVE AND ALSO NON-PAYME NT OF DIVIDEND. RULE HAS BEEN OMITTED ONLY FOR THE REASON THAT SHARES WERE N O LONGER TAXABLE ASSETS FOR THE PURPOSE OF WEALTH TAX ACT. (TL'(A) HAS ADOPTED ADHOC BASIS OF VALUATION. VALUATION CARRIED OUT BASED ON PRESCRIBED GUIDELINE S, THAT TOO BY THE GOVERNMENT, OUGHT TO BE CONSIDERED BY THE CIT(A). C IT(A) IS NOT AN EXPERT AND CANNOT WORK OUT VALUATION ON HIS OWN. 7. CIT(A) HAS ERRED IN STATING THAT THE APPELLAN T HAS ACCRUED RIGHT TO RECEIVE DIVIDEND (PG 64 PARA 4.3.6 AND PAGE 66 PARA 4.3.7) REBUTTAL: A PERSON HIS RIGHT TO RECEIVE DIVIDEND ONLY WHEN IT IS DECLARED BY THE COMPANY. NO DIVIDEND INCOME ACCRUES UNLESS IT IS DECLARED BY THE COMPANY. SINCE, NO DIVIDEND HAS BEEN DECLARED BY THE BOTH THE COMPANIE S, THERE IS NO ACCRUED RIGHT TO RECEIVE DIVIDEND TO APPELLANT. THIS PRINCIPLE CO NTINUES TO APPLY EVEN IN THE CASE OF CUMULATIVE PREFERENCE SHARES. WITHOUT PREJUDICE TO ABOVE, WE ALSO SUBMITTED REASO NS FOR NON-DISTRIBUTION OF DIVIDEND BY COMPANIES BEFORE CIT(A) AS UNDER: '- SIERRA - CIT(A) HAS STATED THAT TOTAL RESERVES A ND SURPLUS OF SIERRA IN THE BALANCE SHEET IS SHOWN AT RS. 14.27 CRS. (PG 64 PAR A 4.3.6) ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 26 CIT(A) HAS ERRED IN CONSIDERING R&S AMOUNT. SIERRA HAS PROFIT & LOSS ACCOUNT DEBIT BALANCE (LOSSES) TO TUNE OF 5.30 CRS AS ON 31 -03-2011 AS EVIDENT FROM PAGE NO 262 OF PAPER BOOK OF SUBMISSION AND NO DIVIDEND IS TO BE DECLARED IN CASE OF ACCUMULATED LOSSES, FURTHER, RESERVE SHOWN IN BALAN CE SHEET IS CREATED ON ACCOUNT OF AMALGAMATION AND AS PER PROVISIONS OF CO MPANIES ACT, DIVIDEND CANNOT BE DISTRIBUTED OUT OF SAID AMALGAMATION RESE RVE -EVIDENCES IN FORM OF BALANCE SHEET IN THE YEAR OF AMALGAMATION AND PROVI SIONS OF COMPANIES ACT WERE SUBMITTED. PI REFER RELEVANT PAGE NO: 401 FOR AMALGAMATION RESERVE CREATED IN SIERRA AND PAGE NO: 414-415 FOR RESTRICT ION ON DECLARATION OF DIVIDEND OUT OF AMALGAMATION RESERVE. THERE WAS NO RESERVES & SURPLUS IN THE HANDS OF SIERRA FOR THE PURPOSE OF DECLARATION OF D IVIDEND AS ALLEGED BY CIT(A). '- NITAYU - CIT(A) HAS STATED THAT TOTAL RESERVES A ND SURPLUS OF NIRAYU IN THE BALANCE SHEET IS SHOWN AT RS. 9.87 CRS. (PG 65 PARA 4.3.7) CIT(A) HAS ERRED IN CONSIDERING R&S AMOUNT. NIRAYU HAS PROFIT & LOSS ACCOUNT CREDIT BALANCE TO TUNE OF 1.31 CRS AS ON 31-03-2011 AS EVIDENT FROM PAGE NO 244 OF PAPER BOOK OF SUBMISSION WHICH WAS NOT SUFFICIEN T FOR DECLARATION OF DIVIDEND AS ON 31.03.2011. HENCE, NO DIVIDEND WAS DECLARED A S ON 31.03.2011. FURTHER, BALANCE RESERVE SHOWN IN BALANCE SHEET IS CREATED O N ACCOUNT OF CAPITAL REDEMPTION RESERVE, SECURITY PREMIUM AND REVALUATIO N RESERVE AND AS PER PROVISIONS OF COMPANIES ACT, DIVIDEND CANNOT BE DIS TRIBUTED OUT OT SUCH RESERVES - EVIDENCES IN FORM OF PROVISIONS OF COMPA NIES ACT WERE SUBMITTED. PI REFER RELEVANT PAGE NO: 401 FOR AMALGAMATION RESERV E CREATED IN SIERRA AND PAGE NO: 414-415 FOR RESTRICTION ON DECLARATION OF DIVIDEND OUT OF SUCH RESERVES. THERE WAS NO SUFFICIENT RESERVES & SURPLUS IN THE H ANDS OF NIRAYU FOR THE PURPOSE OF DECLARATION OF DIVIDEND AS ALLEGED BY CI T(A) 8. IN VIEW OF ABOVE, THE LEARNED CIT(A) ERRED IN TREATING THE SALE PRICE OF THE PREFERENCE SHARES OF SIERRA INVESTMENTS LIMITED AND NIRAYU PRIVATE LIMITED SOLD BY THE APPELLANT AS SHAM. 29. ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDE RS OF THE REVENUE AUTHORITIES. 30. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND G ONE THROUGH THE RECORD CAREFULLY. HONBLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS. GAURANGINIBEN S. SHODHAN, 45 TAXMANN.COM 356 (GUJ) HAS OBSERVED THAT SECTION 48 OF THE INCOME TAX ACT TALKS ABOUT EXPRES SION FULL VALUE OF THE CONSIDERATION RECEIVED. THIS FULL VALUE OF CONSID ERATION RECEIVED CANNOT BE REPLACED BY FAIR MARKET VALUE WITH THE AID OF EXTER NAL EVIDENCE VIZ. DVOS ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 27 REPORT. THE HONBLE HIGH COURT HAS CONSIDERED CIRC UMSTANCES IN WHICH THE FULL SALE CONSIDERATION SHOULD BE REPLACED. IN THA T A REFERENCE TO SECTION 50C WHEREIN IT HAS BEEN PROVIDED THAT IF A CAPITAL ASSE T BEING LAND OR BUILDING, AND OR BOTH ARE TRANSFERRED AND CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER, IS LESS THAN THE VALUE ADOPTED OR AS SESSED BY ANY AUTHORITY OF A STATE FOR THE PURPOSE OF STAMP VALUATION THEN FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER P ROVIDED IN SECTION 48 WOULD BE DEEMED EQUIVALENT TO THE AMOUNT ON WHICH STAMP D UTY WAS PAID. THUS, FULL VALUE OF CONSIDERATION WOULD BE REPLACED BY WA Y OF DEEMING PROVISION PROVIDED IN SECTION 50C WHICH IS RELATABLE TO TRANS FER OF CAPITAL ASSET IN THE SHAPE OF LAND OR BUILDING OR BOTH. NO SUCH PROVISI ON HAS BEEN PROVIDED WITH REGARD TO THE SALE OF SHARES. WITH EFFECT FROM ASS TT.YEAR 2018-19, A PROVISION HAS BEEN MADE FOR SALE OF SHARES ALSO. IT IS SECTI ON 50CA. THE RELEVANT PART OF THIS PROVISION READ AS UNDER: 50CA. WHERE THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET, BEING SHARE OF A CO MPANY OTHER THAN A QUOTED SHARE, IS LESS THAN THE FAIR MARKET VALUE OF SUCH SHARE DE TERMINED IN SUCH MANNER AS MAY BE PRESCRIBED, THE VALUE SO DETERMINED SHALL, FOR T HE PURPOSES OF SECTION 48, BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIV ED OR ACCRUING AS A RESULT OF SUCH TRANSFER. PROVIDED THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO ANY CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER BY SUC H CLASS OF PERSONS AND SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, 'QUO TED SHARE' MEANS THE SHARE QUOTED ON ANY RECOGNISED STOCK EXCHANGE WITH REGULA RITY FROM TIME TO TIME, WHERE THE QUOTATION OF SUCH SHARE IS BASED ON CURRENT TRA NSACTION MADE IN THE ORDINARY COURSE OF BUSINESS. 31. THIS HAS BEEN MADE APPLICATION FROM THE ASSTT.Y EAR 2018-19, BECAUSE IT HAS BEEN INSERTED BY FINANCE ACT, 2017 W.E.F. 1. 4.2018. PRIOR TO INSERTION OF THIS SECTION, THERE IS NO POWER WITH THE REVENUE AUTHORITIES TO REPLACE THE FULL SALE CONSIDERATION WITH FAIR MARKET VALUE OF T HE SHARES. SINCE THE LD.CIT(A) WAS NOT HAVING JURISDICTION TO REPLACE TH E FULL SALE CONSIDERATION ITA NO.675, 688/AHD/2016 ITA NO.622 AND 623/AHD/2018 28 DISCLOSED BY THE ASSESSEE WITH FMV, THEREFORE, THER E IS NO NEED TO EXAMINE THE JUSTIFICATION OF VALUATION REPORT IN SUPPORT OF SALE CONSIDERATION SHOWN BY THE ASSESSEE VIS--VIS FMV DETERMINED BY THE LD.CIT (A). WE DO NOT DEEM IT NECESSARY TO GO INTO THIS ISSUE, AND MAKE ANY DISCU SSION. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTI TLED FOR CLAIM OF CAPITAL LOSS SUFFERED BY IT ON SALE OF SHARES AMOUNTING TO RS.5, 17,82,554/-. THIS GROUND OF APPEAL IS ALLOWED, AND THE APPEAL OF THE ASSESSEE I S ALLOWED. 32. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 18 TH DECEMBER, 2019 AT AHMEDABAD. SD/- SD/- (WASEEM AHMED ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER