ACIT 20(2), MUMBAI V. RAJENDRA SHUBHKARAN KHEMKA, MUMBAI

ITA 6641/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62327 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K NAIR
• Keywords: Cost of acquisition
• Section: 143(3)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.6641 /MUM/2010 ASSESSMENT YEAR: 2006-2007 ACIT-20(2), MUMBAI SHRI RAJENDRA S. KHEMKA, AKSHAY GIRIKUNJ BLDG.NO.2, FLAT NO.122, PALIRAM RD, ANDHERI(W), MUMBAI-400 058. PAN NO.AAPPK6793D APPELLANT VS. RESPONDENT APPELLANT BY : MR. G.K.NAIR RESPONDENT BY : MR. SATISH R. MODY DATE OF HEARING : 1 ST MAY 2012 DATE OF PRONOUNCEMENT : 11 TH MAY 2012 O R D E R PER AMIT SHUKLA (J.M.) : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 02-07-2010, PASSED BY THE CIT( A)-31, MUMBAI FOR THE QUANTUM OF ASSESSMENT DETERMINED UNDER SE CTION 143(3) FOR THE ASSESSMENT YEAR 2006-200 ON THE FOLLOWING GROUNDS OF APPEAL :- I. THE LEARNED CIT(A) HAS ERRED ON FACT AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN ALLOWING OF INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE IN RESPECT F SHARES APPLIED IN THE IPO BUT ULTIMATELY NOT ALLOTTED TO THE ASSESSEE TO THE EXTENT OF RS.52.76 LACS. ITA NO : 6641/MUM/2010 2 III. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED.. 2. AT THE VERY OUTSET, LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE AFORESAID ISSUE IS COVERED BY THE FOLLOWING DECISIONS OF THE ITAT MUMBAI BENCH :- I) SMT. NEERA JAIN VS. ACIT , PASSED IN ITA NO.1861/MUM/2009, VIDE ORDER DATED 22-2-2010. II) SHRI HARSHAD N. PATEL VS. ITO , PASSED IN ITA NOS.1252&1958/MUM/2010, VIDE ORDER DATED 15-7-11. 3. LEARNED SENIOR DR, HOWEVER, RELIED UPON THE FINDINGS GIVEN BY THE ASSESSING OFFICER. 4. WE HAVE CAREFULLY GONE THROUGH THE ORDER PASSED BY THE ASSESSING OFFICER AS WELL AS CIT( A) AND ALSO THE DECISIONS OF THE COORDINATE BENCH OF THE ITAT AS HAVE BEEN RELIED UPON BY THE LEARNED AR. BRIEF FACTS AS CULLED OUT FROM THE IMPUGNED ORDERS ARE THAT THE ASSESSEE HAD SHOWN SHORT TERM CAPITAL GAIN ON PURCHASE AND SALE OF SHARES ACQUIRED THROUGH IPO MECHANISM. THE ASSESSING OFFICER NOTED THAT OUT OF THE WHOLE LOT OF S HARES APPLIED FOR, BY THE ASSESSEE THROUGH IPO MODE, ONLY A MINUSCULE QUANTITY OF SHARES WERE FINALLY ALLOTTED TO THE ASSESSEE. THE SHARES WERE ACQUIRED DURING THE RELEVANT YEAR THROUGH IPO, WHICH WERE SOLD IMMEDIATELY AFTER ITS LISTING BEFORE THE END OF THE RELEVANT ASSESSMENT YE AR WHICH RESULTED TO SHORT TERM CAPITAL GAIN/LOSS. FOR THE PURPOS E OF APPLYING SHARES THROUGH IPO ITA NO : 6641/MUM/2010 3 MECHANISM, THE ASSESSEE HAS MADE HEAVY BORROWINGS BY TAKING LOANS FROM VARIOUS FINANCIAL INSTITUTION S/BANKS ON WHICH SUBSTANTIAL INTEREST WAS PAID. THE ENTIRE INTEREST CO STS PAID ON SUCH LOANS HAVE BEEN CAPITALIZED TOWARDS THE COST OF THE ACQUISITION OF SHARES. ACCORDING TO THE ASSESSING OFFICER, THE COST OF THE ACQUISITION OF THE SHARES HAS BEEN ARBITRARILY INCREASED AS MOST OF THE BORROWINGS PERTAIN TO THE SHARES WHICH COULD NOT BE ALLOTTED TO THE ASSESSEE AND, THEREFORE, THE INTEREST PAID ON SUCH LOANS TAKEN FROM MAKING SHARE APPLICATION THROUGH IPO MECHANISM TO THE EXTENT OF SHARES NOT ALLOTTED, CANNOT BE ATTRIBUTED TOWARDS THE COST OF SHARES WHICH HAVE BEEN ULTIMATELY ALLOTTED TO THE ASSESSEE. THE ASSESS ING OFFICER HAS GIVEN A VERY DETAIL REASONING AS TO WHY SUCH COST ON AC QUISITION ON ACCOUNT OF INTEREST CANNOT BE ALLOWED. ACCORDINGLY, HE WORKED OUT THE ADDITION ON ACCOUNT OF SHORT TERM CAPITAL GAIN AT ` .52,75,680/- AS PER WORK ING GIVEN AT PAGE 8 OF THE ASSESSMENT ORDER. 5. IN THE FIRST APPEAL, THE CIT (A) AFTER CAREFULLY CONSIDERING THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE DETAIL SUBMISSIONS FILED BY THE ASSESSEE, DECIDED THE ISSUE ULTIMATELY IN FAVOUR OF THE ASSESSEE AND DELETED THE ADDITION RELYING UPON THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF NEERA JAIN (SUPRA). EVEN THOUGH IN HIS ORDER HE HAS GIVEN AN ELABORATE REASONING THAT THE ENTIRE INTEREST EXPENDITURE INCURRED ON SH ARES APPLIED BUT NOT ACTUALLY ALLOTTED TO THE ASSESSEE CANNOT BE C ONSIDERED AS A PART OF THE COST OF ITA NO : 6641/MUM/2010 4 SHARES ACTUALLY ALLOTTED TO THE A SSESSEE. THE REASONING AND FINDING OF THE CIT(A) HAVE BEEN GIVEN IN PARA 2.3.1, 2.3.2 & 2.3.3 IN THE APPELLATE ORDER. 6. WITHOUT GOING INTO THE DEBATE, WE FIND FROM THE PERUSAL OF THE DECISION OF THE ITAT AS AFORESAI D THAT THIS ISSUE STANDS SQUARELY COVERED AND THE CIT (A) HAS RIGHTLY FOLLOWED THE ORDER OF THE ITAT. THE RELEVANT FINDING IN THE CASE OF NEERA JAIN (SUPRA), IS REPRODUCED HEREIN BELOW :- 5. WE HAVE GIVEN OUR ANXIOUS CONSIDERATIONS TO THE RIVAL SUBMISSION OF THE PARTIES. IN THE PRESENT CASE, THERE IS NO DISPUTE ABOUT THE FACT THAT THE ENTIRE LOAN WAS BORROWED FOR THE PURPOSE OF ACQUIRING THE SHARES OF THE PUNJAB NATIONAL BANK AND NTPC LTD. AS PER THE FACTS ON RECORD, THERE IS NO DISPUTE AT ALL THAT IMMEDIATELY AFTER ALLOTMENT OF THE SHARES MONEY REFUNDED BY BOTH THE COMPANY WERE PAID BA CK TO THE FINANCIERS. THE CONTROVERSY IS WHETHER THE ENTIRE INTEREST ON THE BORROWED MONEY PAID BY THE ASSESSEE CAN BE ALLOWED U/S. 48 TREATING THE SAME AS THE COST OF ACQUISITION. THE ARGUMENT OF THE LD COUNSEL IS THAT FUNDS WERE BORROWED WITH SOLE INTENTION FOR ACQUIRING THE SHARES AND THAT IS NOWHERE DISPUTED BY THE A. 0. AND AS ALLOTMENT OF THE SHARES WAS NOT IN THE HANDS OF THE ASSESSEE AND HENCE, THE INTEREST PAID TO THE FINANCIERS ON THE ENTIRE BORROWED MONEY HAS TO BE ALLOWED AND SAME CANNOT BE RESTRICTED TO THE EXTENT OF SHARES ALLOTTED. IN OUR OPINION, THE ASSESSEE HAS TO SUCCEED ON THIS GROUND. AS RIGHTLY SUBMITT ED BY THE LD COUNSEL, THE ENTIRE MONEY HAS BEEN BORROWED BY THE ASSESSEE, WITH THE SOLE PURPOSE FOR ACQUIRING THE SHARES OF THE PUNJAB NATIONAL BANK AND NTPC LTD. THOUGH THE APPLIED SHARES WERE NOT ALLOTTED IN FULL, THAT WILL NOT DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE INTEREST PAID AS THE PART OF THE COST OF THE ACQUISITION OF THE ITA NO : 6641/MUM/2010 5 SHARES ALLOTTED AS THE MONEY BORROWED HAS DIRECT NEXUS WITH THE ACQUISITION OF THE SHARES. WE, THEREF ORE, DIRECT THE A. 0 TO TREAT THE INTEREST PAID BY THE ASSESSEE TO BOTH THE FINANCIERS AS A PART OF COST OF ACQUISITION OF THE SHARES AND ALLOW THE SAME AS A DEDUCTION. ACCORDINGLY, GROUND NO. 1 IS ALLOWED. 6.1 SIMILAR OBSERVATIONS AND FINDI NGS HAVE BEEN GIVEN BY THE ITAT IN THE CASE OF SHRI HARSHIT N. PATEL (SUPRA), WHICH ARE REPRODUCED HEREIN BELOW :- 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORDS. THE LD. COUNSEL SUBMITS THAT NOW, THE ISS UE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE OTHER CO-ORDINATE BENCH OF THE ITAT MUMBAI IN THE CASE OF :- (I) SMT. NEERAJAINVS. ACITITA 1861/M/2009 ORD. DT.22.2.L0 (II) WOOD STOCK BROKING P. LTD. VS. ACIT 6657/M/07 ORD. DT.5.L.01 WE HAVE ALSO HEARD THE IA. D.R. IN BOTH THE CASES, THERE IS NO DISPUTE ABOUT THE FACT THAT MONEY BORROWED BY THE ASSESSEE WAS USED FOR IPO APPLICATIONS. THOUGH THE ASSESSEE HAS APPLIED FOR MORE SHARES BUT ONLY PART OF THE SHARES WERE ALLOTTED TO THE ASSESSEE, BUT, THE ASSESSEE HAS TO PAY THE INTEREST TO THE FINANCIERS. IN THE CASE OF SMT. N EERA JAM (SUPRA) ON IDENTICAL SET OF FACTS; THE ASSESSEE HAS BORROWED THE MONEY FOR IPO APPLICATION BUT ALL THE SHARES WERE NOT ALLOTTED AS APPLIED AND THE PART OF THE SHARES WERE ALLOTTED AND BALANCE AMOUNT WAS REFUNDED TO THE ASSESSEE IN RESPECT OF NON-ALLOTMENT OF THE SHARES. THE ASSESSEE HAS TO PAY THE INTEREST ON THE ENTIRE FINANCE, WHICH WAS BORROWED FOR MAKING THE PAYMENT WITH THE SHARE APPLICATION MONEY. WHEN THE MATTER REACHED BEFORE THE TRIBUNAL, THE TRIBUNAL HAS HELD AS UNDER: 5. WE HAVE GIVEN OUR ANXIOUS CONSIDERATIONS TO THE RIVAL SUBMISSION OF THE PARTIES. IN THE PRESENT CASE, THERE IS NO DISPUTE ABOUT THE FACT THAT THE ENTIRE LOAN WAS BORROWED FOR THE PURPOSE OF ACQUIRING THE SHARES OF THE PUNJAB NATIONAL ITA NO : 6641/MUM/2010 6 BANK AND NTPC LTD. AS PER THE FACTS ON RECORD, THERE IS NO DISPUTE AT ALL THAT IMMEDIATELY AFTER ALLOTMENT OF THE SHARES MONEY REFUNDED BY BOTH THE COMPANY WERE PAID BACK TO THE FINANCIERS. THE CONTROVERSY IS WHETHER THE ENTIRE INTEREST ON THE BORROWED MONEY PAID BY THE ASSESSEE CAN BE ALLOWED U/S. 48 TREATING THE SAME AS THE COST OF ACQUISITION. THE ARGUMENT OF THE LD COUNSEL IS THAT FUNDS WERE BORROWED WITH SOLE INTENTION FOR ACQUIRING THE SHARES AND THAT IS NOWHERE DISPUTED BY THE A. 0. AND AS ALLOTMENT OF THE SHARES WAS NOT IN THE HANDS OF THE ASSESSEE AND HENCE, THE INTEREST PAID TO THE FINANCIERS ON THE ENTIRE BORROWED MONEY HAS TO BE ALLOWED AND SAME CANNOT BE RESTRICTED TO THE EXTENT OF SHARES ALLOTTED. IN OUR OPINION, THE ASSESSEE HAS TO SUCCEED ON THIS GROUND. AS RIGHTLY SUBMITTED BY THE LD COUNSEL, THE ENTIRE MONEY HAS BEEN BORROWED BY THE ASSESSEE, WITH THE SOLE PURPOSE FOR ACQUIRING THE SHARES OF THE PUNJAB NATIONAL BANK AND NTPC LTD. THOUGH THE APPLIED SHARES WERE NOT ALLOTTED IN FULL, THAT WILL NOT DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE INTEREST PAID AS THE PART OF THE COST OF THE ACQUISITION OF THE SHARES ALLOTTED AS THE MONEY BORROWED HAS DIRECT NEXUS WITH THE ACQUISITION OF THE SHARES. WE, THEREFORE, DIRECT THE A. 0 TO TREAT THE INTEREST PAID BY THE ASSESSEE TO BOTH THE FINANCIERS AS A PART OF COST OF ACQUISITION OF THE SHARES AND ALLOW THE SAME AS A DEDUCTION. ACCORDINGLY, GROUND NO. 1 IS ALLOWED. 5. IN THE CASE OF WOOD STOCK BROKING P. LTD. (SUPRA) THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL AND FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON BLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. TRISHUL INVESTMENTS LTD. 305 ITR 434 HELD THAT THE INTEREST PAID ON THE MONEY BORROWED FOR ACQUIRING THE SHARES ON WHICH THE ASSESSEE PAID THE INTEREST WHICH PARTAKES THE CHARACTER OF THE COST OF THE SHARES. WE, THEREFORE, HOLD THAT THE INTEREST PAID BY THE ASSESSEE ON THE MONEY BORROWED FOR IPO ITA NO : 6641/MUM/2010 7 APPLICATION IS PART OF COST OF ACQUISITION AND THE SAME IS TO BE ALLOWED. WE, THEREFORE, DIRECT T HE A.O. TO ALLOW THE INTEREST PAID BY THE ASSESSEE AS THE COST OF ACQUISITION IN COMPUTING THE SHORT-TERM-CAPITAL-GAIN. IF THE ASSESSEE HAS BEEN PAID ANY INTEREST BY THE COMPANY ON AMOUNT OF SHARE APPLICATION MONEY THEN SAME SHOULD BE REDUCED FROM THE INTEREST PAID AND NET AMOUNT ONLY IS TO BE CONSIDERED. 7. THUS, RESPECTFULLY FOLLOWING T HE AFORESAID DECISIONS OF THE COORDINATE BENCH OF ITAT, THE GROUNDS OF APPEAL RAISED BY THE DEPARTMENT STANDS DISMISSED. 8. RESULTANTLY, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON THIS 11 TH DAY OF MAY, 2012. SD/- SD/- (P.M.JAGTAP) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: 11 TH MAY, 2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PKM