Vincent Commercial Company Ltd, Kolkata V. D.C.I.T OSD to CIT - III, Kolkata

ITA 722/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4104 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 10-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2013
• Court: TRIBUNAL
• Assessee Lawyers: A K TIBREWAL FCA LD
• Keywords: Business income; Opportunity of being heard; Speculation loss
• Section: 143(3); 14A; 154

Judgement Text

1 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI S. S. VISWAN ETHRA RAVI, JM] I.T.A NO. 722/KOL/2013 ASSESSMENT YEAR: 2009-10 VINCENT COMMERCIAL COMPANY LTD. VS. DEPUTYCOMMISSI ONER OF INCOME-TAX, (PAN:AABCV0295L) (OSD) TO CIT-III, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 08.12.2016 DATE OF PRONOUNCEMENT: 14.12.2016 FOR THE APPELLANT: SHRI A. K. TIBREWAL, FCA, L D. AR FOR THE RESPONDENT: SHRI NICHOLAS MURMU, JCIT ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-VIII, KOLKATA VIDE APPEAL NO. 186/CIT(A)-VIII/KOL/11-12 DATED 10.01.2013. ASS ESSMENT WAS FRAMED BY DCIT, OSD TO CIT-III, KOLKATA U/S. 143(3) OF THE INCOME TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2009-10 VIDE HIS ORDER DATED 29.11.20 11. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF EXPENSES IN THE SUM O F RS. 19,75,939/- TOWARDS SPECULATION BUSINESS IN THE FACTS AND CIRCUMSTANCES OF THE CASE . 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE CLAIMED LOSS ON PURCHASE AND SALE OF SHARES AMOUNTING TO RS. 14,10,61,738/- AS REGULAR B USINESS LOSS WHICH WAS TREATED AS SPECULATION LOSS BY THE LD AO IN THE ASSESSMENT AND ACCORDINGLY PROCEEDED TO DISALLOW THE EXPENDITURE TO THE TUNE OF RS. 19,75,939/- BEING 10 % OF TOTAL EXPENSES AS ATTRIBUTABLE TO SPECULATION BUSINESS OF THE ASSESSEE. LATER THE L D AO HAD BY WAY OF AN ORDER U/S 154 OF THE ACT HAD ALLOWED THE CLAIM OF THE ASSESSEE AS A REGU LAR BUSINESS LOSS IN RESPECT OF THE LOSS ON SALE AND PURCHASE OF SHARES. THE ASSESSEE BEFORE THE LD CITA BROUGHT THIS FACT TO THE NOTICE OF THE LD CITA VIDE WRITTEN SUBMISSION THAT SINCE T HE LOSS HAD BEEN TREATED AS REGULAR BUSINESS LOSS BY THE LD AO , THE RELEVANT EXPENDITU RE OF RS. 19,75,939/- BECOMES AN 2 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 ALLOWABLE EXPENDITURE. THE ASSESSEE STATED THAT I N VIEW OF THE ORDER OF THE LD AO U/S 154 OF THE ACT , THE GROUNDS RAISED BEFORE THE LD CITA WIT H REGARD TO THE TREATMENT OF LOSS AS SPECULATION LOSS IS NOT PRESSED. BUT THE LD CITA D ISMISSED THE ENTIRE GROUNDS IN THIS REGARD AS NOT PRESSED WITHOUT APPRECIATING THE CONTENTIONS OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1. THAT THE LD. CIT(A) ERRED IN DISMISSING GROUND NO. 3 OF THE APPEAL BEFORE HIM RELATING TO UNJUSTIFIED ALLOCATION OF A SUM OF RS.19,75,939/- T OWARDS SPECULATION BUSINESS DEEMED UNDER EXPLANATION BELOW SEC. 73 OF THE INCOME TAX ACT, 19 61. 2.2. THE LD AR ARGUED THAT IN VIEW OF THE AFORESAI D FACTS AND THE SUBSEQUENT ORDER PASSED BY THE LD AO U/S 154 OF THE ACT, THERE IS NO NEED T O DISALLOW ANY EXPENDITURE IN THE SUM OF RS. 19,75,939/-. IN RESPONSE TO THIS, THE LD DR V EHEMENTLY RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 2.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. WE FIND THAT SINCE THE LOSS ON AC COUNT OF SALE AND PURCHASE OF SHARES AMOUNTING TO RS. 14,10,61,738/- HAVE BEEN ACCEPTED BY THE LD AO U/S 154 OF THE ACT AS REGULAR BUSINESS LOSS AS STATED BY THE LD AR BEFORE THE LD CITA, THERE IS NO NEED TO DISALLOW ANY EXPENSES ON ESTIMATE BASIS AMOUNTING TO RS. 19, 75,939/- AS EXPENSES ATTRIBUTABLE TO SPECULATION BUSINESS. SINCE THERE IS NO SPECULATIO N ACTIVITY IN RESPECT OF THIS LOSS ON SALE OF SHARES IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE EXPENSES DISALLOWED IN THE SUM OF RS. 19,75,939/- WOULD ALSO BECOME REGULAR BUSINESS EXPE NDITURE AND DESERVE TO BE DELETED. WE FIND THAT THESE FACTS WERE DULY BROUGHT TO THE NOTI CE OF THE LD CITA WHO DID NOT UNDERSTAND THE SAME AND SIMPLY DISMISSED THE GROUNDS AS NOT PR ESSED. WE HOLD IN THE FACTS AND CIRCUMSTANCES THAT THE EXPENSES OF RS. 19,75,939/- DOES NOT ATTRIBUTE TO SPECULATION BUSINESS. ACCORDINGLY, WE HAVE NO HESITATION IN DIR ECTING THE LD AO IN DELETING THE DISALLOWANCE OF EXPENSES IN THE SUM OF RS. 19,75,93 9/- IN THE ASSESSMENT. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 3. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE TREATMENT OF LONG TERM CAPITAL LOSS I N THE SUM OF RS. 41,07,607/- ON SALE OF UNQUOTED EQUITY SHARES IN THE FACTS AND CIRCUMSTANC ES OF THE CASE. 3 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE HAD DECLARED LONG TERM CAPITAL GAIN WHICH WAS CLAIMED EXEMPT AMOUNTING TO RS. 53,11,993 /- ; NET LONG TERM CAPITAL LOSS U/S 112 OF THE ACT AMOUNTING TO RS. 36,15,009/- (41,07, 607 4,92,598) WHICH WAS CLAIMED TO BE CARRIED FORWARD TO NEXT YEAR ; SHORT TERM CAPITA L LOSS OF RS. 6,75,67,935/- WHICH WAS CLAIMED TO BE CARRIED FORWARD TO NEXT YEAR IN ITS R ETURN OF INCOME. THE LD AO OBSERVED THAT THE ASSESSEE HAD INCURRED LONG TERM CAPITAL LOSS OF RS. 41,07,607/- ON SALE OF EQUITY SHARES OF PRIVATE LIMITED COMPANIES ON WHICH OBVIOUSLY SEC URITIES TRANSACTION TAX COULD NOT BE INCURRED. THE LD AO OBSERVED THAT THE ASSESSEE HAD TAXABLE LONG TERM CAPITAL GAINS AMOUNTING TO RS. 4,92,598/- ON WHICH TAX IS PAYABLE AT 20%. THE LD AO OBSERVED THAT THE LONG TERM CAPITAL LOSS HAD OCCURRED TO THE ASSESSEE DUE TO TRADING OF SHARES MADE WITH INTERESTED PERSONS BY THE ASSESSEE WITH A MALIGN IN TENTION TO ACCOMMODATE THE INTERESTED PERSON. ACCORDINGLY HE CONCLUDED THAT THE LOSS CL AIMED AMOUNTING TO RS. 41,07,607/- ON THE UNQUOTED SHARES AMONGST GROUP ASSOCIATES ARE NO T GENUINE LOSSES BUT MERE ACCOMMODATION LOSS AND ACCORDINGLY DISALLOWED THE S AME. HENCE HE LEVIED TAX ON THE LONG TERM CAPITAL GAIN OF RS. 4,92,598/- AT THE RAT E OF 20% IN THE ASSESSMENT. 3.2. BEFORE THE LD CITA, THE ASSESSEE SUBMITTED TH AT THE LD AO HAD ALLEGED THAT THE ASSESSEE FAILED TO FURNISH THE BREAK UP VALUE OF SH ARES OF M/S HERBICURE (P) LTD AND M/S MODIPAN LDD AND ON THE BASIS OF SUCH ALLEGATION , T HE LOSS CLAIMED THEREON WAS DISALLOWED. IT WAS CLAIMED THAT THE ALLEGATION WAS INCORRECT IN AS MUCH AS THE ASSESSEE HAD SUBMITTED THE BREAK UP VALUE OF THE SHARES OF HERBICURE (P) LTD A ND ALSO THE RELEVANT BALANCE SHEET OF THE COMPANY AND THAT THE SHARES OF MODIPAN LTD WERE QUO TED ON BSE AND THE TRANSACTION OF SHARES OF MODIPAN LTD WAS AT PREVAILING MARKET RATE . IT WAS EXPLAINED THAT THE ASSESSEE SOLD 613000 SHARES OF HERBICURE (P) LTD WHICH WERE HELD FOR MORE THAN 12 MONTHS AND INCURRED A LOSS OF RS. 8,27,550/-. THE ASSESSEE CLAIMED THE LONG TERM CAPITAL LOSS OF RS. 15,71,654/- ON SUCH SALE AFTER INDEXATION . THE EXPLANATION T OGETHER WITH THE BREAK UP VALUE OF THE SALES AS WELL AS THE RELEVANT BALANCE SHEET OF THE COMPAN Y WAS SUBMITTED TO THE LD AO ON 8.11.2011. IT WAS EXPLAINED THAT THE BREAK UP VALUE OF SHARES WERE RS 1.09 WHEREAS THE SHARES WERE SOLD AT RS. 8.65 PER SHARE WHICH IS MUC H HIGHER THAN THE BREAK UP VALUE. THE 4 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 COPY OF THE LETTER DATED 8.11.2011 TOGETHER WITH IT S ANNEXURES WERE ALSO ENCLOSED BEFORE THE LD CITA. 3.2.1. THE ASSESSEE SOLD 1480000 SHARES OF HERBICUR E (P) LTD WHICH WERE HELD FOR LESS THAN 12 MONTHS AND EARNED A PROFIT OF RS. 9,52,000/-. THE LD AO TREATED THE SAID PROFIT AS SHORT TERM CAPITAL GAIN BUT DISALLOWED THE LOSS ARISING F ROM SUCH SHARE AS STATED SUPRA. IT WAS EXPLAINED THAT THE LD AO WAS NOT JUSTIFIED IN DISAL LOWING THE LONG TERM CAPITAL LOSS OF RS. 15,71,654/- INCURRED BY THE ASSESSEE ON SALE OF LON G TERM INVESTMENT IN SHARES OF HERBICURE (P) LTD WHEN ALL THE DETAILS AND EVIDENCES OF LOSS WERE AVAILABLE ON RECORD. THE ONLY DISPUTE WAS WITH REGARD TO THE SALE PRICE OF SHARES WHICH WAS STRANGELY ACCEPTED BY THE LD AO WHILE TAKING THE SHORT TERM CAPITAL GAINS ON THE VERY SAME SALE PRICE PER SHARE OF HERBICURE (P) LTD ON SHORT TERM HOLDING. 3.2.2. IN RESPECT OF SHARES OF MODIPAN LTD (QUOTED SHARE), THE ASSESSEE SOLD 14800 SHARES THEREON AND INCURRED BOOK LOSS OF RS. 22,39,415/-. SINCE THESE SHARES WERE SOLD OFF MARKET AND WITHOUT PAYMENT OF SECURITIES TRANSACTION TAX ( STT) , IT CLAIMED LOSS TO BE ASSESSED U/S 112 OF THE ACT . THE SAID LOSS WAS COMPUTED AT RS. 25,35,954/- AFTER INDEXATION OF COST . THE SHARES WERE SOLD AT RS 14 PER SHARE WHEREAS THE MARKET QUOTATION OF THE SHARES ON THE DATE OF SALE WAS RS. 13.75 PER SHARE ON 29.12.2008. THUS IT WAS EXPLAINED THAT THE SHARES WERE SOLD PRIVATELY AT A PRICE HIGHER THAN ITS RULI NG MARKET PRICE. IT WAS EXPLAINED THAT THE LD AO DISALLOWED THE SAID LOSS FOR THE SAME AND SIMILA R REASON THAT ASSESSEE DID NOT FURNISH THE BREAK UP VALUE OF THE SAID SHARES. IT WAS EXPLAINE D FURTHER THAT SINCE THE SHARES OF MODIPAN LTD WERE QUOTED AT BSE AND THEREFORE THE MARKET PRI CE OF THE SHARE IS AVAILABLE ALL THE TIME, THE LD AO WAS NOT JUSTIFIED IN ASKING FOR THE BREAK UP VALUE OF THESE SHARES. 3.2.3. THE LD CITA OBSERVED THAT THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN OF RS. 53,11,993/- AND CLAIMED THE SAME AS EXEMPT U/S 10(3 8) OF THE ACT AND ACCORDINGLY THE LONG TERM CAPITAL LOSS NEEDS TO BE ADJUSTED WITH LONG TE RM CAPITAL GAIN AND ONLY BALANCE LOSS SHOULD BE ALLOWED TO BE CARRIED FORWARD TO SUBSEQUE NT YEARS. HE HELD THAT SINCE THE LONG TERM CAPITAL LOSS IS RS. 41,0,7607/- AND AFTER SETT ING OFF THE SAME WITH LONG TERM CAPITAL GAIN OF RS. 53,11,993/- AS STATED SUPRA, THERE WOULD BE NO LOSS LEFT WITH THE ASSESSEE FOR CARRYING 5 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 IT FORWARD AND HENCE HE DISMISSED THE GROUND OF APP EAL RAISED BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWIN G GROUNDS:- 2. THE LD. CIT(A) ERRED IN HOLDING THAT THE LOSS OF RS.41,07,607/- INCURRED BY THE APPELLANT COMPANY ON SALE OF ITS LONG TERM INVESTMENT IN EQUI TY SHARES OF PRIVATE LIMITED COMPANIES AND NOT SUBJECTED TO SECURITIES TRANSACTION TAX (STT) W AS LIABLE TO BE ADJUSTED AGAINST LONG TERM CAPITAL GAINS OF SHARES SUBJECTED TO STT AND EXEMPT UNDER SECTION 10(38) OF THE ACT. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ON THE BASIS OF HIS PERVERSE FINDING AS AFORESAID, FURTHER ERRED IN NOT ALLOWING CARRY FORWARD OF LOSS OF RS.41,07,607/- INCURRED BY THE APPELLANT COMPANY ON SALE OF ITS LO NG TERM INVESTMENT IN EQUITY SHARES OF PRIVATE LIMITED COMPANIES. 3.3. THE LD AR ARGUED THAT THE LD AO DISALLOWED TH E LONG TERM CAPITAL LOSS OF RS. 41,0,7607/- ON THE INCORRECT GROUND THAT THE DETAIL S OF BREAK UP VALUE OF THE SHARES WERE NOT SUBMITTED BY THE ASSESSEE AND SINCE THE SHARES WERE SOLD BETWEEN INTERESTED PERSONS, IT WAS ONLY CARRIED OUT TO ACCOMMODATE THE INTERESTED PERS ON AND HENCE DISALLOWED THE SAME. WHEREAS THE LD CITA ACCEPTED THE CONTENTIONS OF THE ASSESSEE ON THE GENUINITY OF THE LONG TERM CAPITAL LOSS INCURRED THEREON ON APPRECIATING THE DOCUMENTS AVAILABLE ON RECORD BUT MERELY STATED THAT SINCE THE SAME IS SET OFF AGAINS T LONG TERM CAPITAL GAIN , THERE IS NO LOSS LEFT OVER WITH THE ASSESSEE IN ORDER TO BE CARRIED FORWARD. THE LD AR ARGUED THAT THE LD CITA COMPLETELY MISDIRECTED HIMSELF ON THE SET OFF OF LO NG TERM CAPITAL LOSS INCURRED ON SALE OF UNQUOTED SHARES OF PRIVATE LIMITED COMPANY AND SALE OF SHARES OF LISTED COMPANY ON OFF MARKET (WHERE STT IS NOT SUFFERED) WITH LONG TERM C APITAL GAINS DERIVED ON SALE OF QUOTED SHARES ON WHICH STT WAS SUFFERED AND HENCE IT IS EX EMPT U/S 10(38) OF THE ACT. IN SUCH AN EVENT, THE LONG TERM CAPITAL LOSS WOULD ONLY HAVE T O BE CARRIED FORWARD TO SUBSEQUENT YEARS AS PER THE PROVISIONS OF THE ACT. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE ALSO FIND FROM THE COPY OF WRITTEN SUBMISSIONS F ILED BY THE ASSESSEE BEFORE THE LD CITA, THAT THE ENTIRE DETAILS OF LONG TERM CAPITAL LOSS A ND LONG TERM CAPITAL GAINS WERE DULY EXPLAINED BY THE ASSESSEE BEFORE THE LOWER AUTHORIT IES. THE FACTS STATED HEREIN REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FO R THE SAKE OF BREVITY. WE ARE IN COMPLETE AGREEMENT WITH THE ARGUMENTS OF THE LD AR THAT THE LONG TERM CAPITAL LOSS ARISING OUT OF SALE OF SHARES OF UNQUOTED SHARES AND SALE O F SHARES OF QUOTED SHARES IN OFF MARKET ON 6 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 WHICH STT WAS NOT SUFFERED, COULD NOT BE SET OFF AG AINST LONG TERM CAPITAL GAINS ON SALE OF QUOTED SHARES ON WHICH STT WAS SUFFERED. WE HOLD T HAT THE LONG TERM CAPITAL GAINS ON SALE OF SHARES OF QUOTED SHARES ON WHICH STT WAS SUFFERE D WOULD BE ELIGIBLE FOR EXEMPTION U/S 10(38) OF THE ACT. WE FIND FROM THE DETAILS AVAILA BLE ON RECORD, THAT THE ASSESSEE HAD SOLD THE SHARES OF UNQUOTED SHARE (I.E HERBICURE P LTD) AT RS 8.65 PER SHARE WHICH IS MUCH MORE THAN THE BREAK UP VALUE PER SHARE OF THE SAID COMPA NY (BASED ON ITS BALANCE SHEET) OF RS. 1.09 PER SHARE. WE FIND THAT THE ASSESSEE HAD IN CURRED LONG TERM CAPITAL LOSS THEREON AND SHORT TERM CAPITAL GAINS THEREON IN RESPECT OF TWO LOTS OF SHARES SOLD BY IT DEPENDING UPON THE PERIOD OF HOLDING. WE FIND THAT THE REVENUE HAV ING ACCEPTED THE SAID SALE PRICE PER SHARE IN THE EVENT OF DERIVING GAINS OUGHT NOT TO HAVE DI SPUTED THE SAME IN THE EVENT OF INCURRING LOSSES AS STATED SUPRA. WITH REGARD TO MODIPAN LTD , WE FIND THAT THE SHARES OF THE SAID COMPANY ARE LISTED IN BSE AND THE PREVAILING MARKE T PRICE WAS RS. 13.75 PER SHARE AND THE ASSESSEE HAD SOLD THE SHARE ON OFF MARKET BASIS AT RS.14 PER SHARE . ACCORDINGLY, WE HOLD THAT THE LONG TERM CAPITAL LOSS ON SALE OF SHARES O F UNQUOTED SHARES (HERBICURE P LTD) AND SALE OF SHARES OF QUOTED SHARE (MODIPAN LTD) WHICH WAS DONE ON OFF MARKET ON WHICH STT WAS NOT SUFFERED, WOULD BE SEPARATELY ELIGIBLE TO B E CARRIED FORWARD TO SUBSEQUENT YEARS. HENCE THE GROUNDS 2 & 3 RAISED BY THE ASSESSEE ARE ALLOWED. 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS ON A PROPORTIONATE BASIS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT THE ASSESSEE PAID ON ITS BORROWED FUNDS INTEREST OF RS. 54,08,574/- TO M/S R ELIGARE FINVEST LTD AND RS. 1,07,89,090/- TO M/S INDIA BULLS FINANCIAL SERVICES LTD, TOTALING TO RS. 1,62,07,664/-. THE LD AO ALLEGED THAT THE ASSESSEE HAD USED 42.90% OF THE BORROWINGS FROM THESE TWO PARTIES FOR ALLOWING INTEREST FREE ADVANCES TO SISTER CONCERNS AND DISALLOWED RS. 69,53,088/- (42.90% OF RS. 1,62,07,664/-). IT WAS EXPLAINED THAT THE ASS ESSEE WAS CARRYING ON THE BUSINESS OF DEALING IN DERIVATIVES IN EQUITIES AND TRADING IN S ECURITIES THROUGH ITS STOCK BROKERS NAMELY, RELIGARE SECURITIES LTD AND INDIA BULLS SECURITIES LTD. THE ASSESSEE REQUIRED FINANCE FOR SUCH BUSINESS TRANSACTIONS AND THEREFORE THE ASSESS EE AGREED WITH M/S RELIGARE FINVEST LTD 7 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 AND M/S INDIA BULLS FINANCIAL SERVICES LTD, SISTER CONCERNS OF THE AFORESAID TWO STOCK BROKERS THAT FROM TIME TO TIME THESE FINANCING COMP ANIES WOULD PROVIDE FINANCE ON INTEREST FOR THE AFORESAID BUSINESS OF TRADING IN DERIVATIVE S AND EQUITIES. THE ASSESSEE OPENED TWO SEPARATE BANK ACCOUNTS WITH HDFC BANK FOR THE AFORE SAID BUSINESS TRANSACTIONS AS UNDER:- A/C NO. 05982030000034 WITH HDFC BANK, ASAF ALI ROA D, NEW DELHI (FOR BUSINESS TRANSACTIONS WITH RELIGARE SECURITIES LTD) A/C NO. 05982030000542 WITH HDFC BANK, ASAF ALI ROA D, NEW DELHI (FOR BUSINESS TRANSACTIONS WITH INDIA BULLS SECURITIES LTD) 4.2. IT WAS EXPLAINED THAT THE FIRST ACCOUNT WAS U SED FOR FINANCING BUSINESS TRANSACTIONS WITH RELIGARE SECURITIES LTD. ALL CHEQUES RECEIVED FROM RELIGARE FINVEST LTD WERE DEPOSITED IN THE SAID BANK ACCOUNT AND IMMEDIATELY THEREAFTER THE AMOUNTS WERE GIVEN TO M/S RELIGARE SECURITIES LTD FOR ASSESSEES BUSINESS TRANSACTIONS RELATING TO BUSINESS OF DERIVATIVES AND DEALING IN SECURITIES. THE ASSESSEE EXPLAINED ITS CONTENTIONS THROUGH ITS COPY OF BANK STATEMENTS WITH ONE TO ONE CORRELATION THEREON. IT WAS STATED THAT WHENEVER THE ASSESSEE RECEIVED PAYMENTS FROM RELIGARE SECURITIES LTD, THE SAME WAS IMMEDIATELY REFUNDED BACK TO RELIGARE FINVEST LTD . THE PROFITS AND LOSSES A RISING FROM BUSINESS TRANSACTIONS WITH RELIGARE SECURITIES LTD HAVE BEEN TREATED AND TAXED AS BUSINESS INCOME / LOSS OF THE ASSESSEE. HENCE IT WAS SUBMITTED THAT NONE OF THE B ORROWINGS FROM RELIGARE FINVEST LTD WERE EVER USED FOR ADVANCING INTEREST FREE LOANS / ADVANCES TO ANY OF THE SISTER CONCERNS OF THE ASSESSEE OR ANY OTHER CONCERN WHATSOEVER. HEN CE THE ASSESSEE PRAYED FOR ALLOWABILITY OF INTEREST PAID TO RELIGARE FINVEST LTD IN THE SUM OF RS. 54,08,574/- IN FULL AS HELD FOR THE PURPOSE OF BUSINESS. 4.3. SIMILARLY THE SECOND ACCOUNT WAS USED FOR FIN ANCING BUSINESS TRANSACTIONS WITH INDIA BULLS SECURITIES LTD. ALL CHEQUES RECEIVED FROM IND IA BULLS FINANCIAL SERVICES LTD WERE DEPOSITED IN THE SAID BANK ACCOUNT AND IMMEDIATELY THEREAFTER THE AMOUNTS WERE GIVEN TO M/S INDIA BULLS SECURITIES LTD FOR ASSESSEES BUSIN ESS TRANSACTIONS RELATING TO BUSINESS OF DERIVATIVES AND DEALING IN SECURITIES. THE ASSESS EE EXPLAINED ITS CONTENTIONS THROUGH ITS 8 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 COPY OF BANK STATEMENTS WITH ONE TO ONE CORRELATION THEREON. IT WAS STATED THAT WHENEVER THE ASSESSEE RECEIVED PAYMENTS FROM INDIA BULLS SECURIT IES LTD, THE SAME WAS IMMEDIATELY REFUNDED BACK TO INDIA BULLS FINANCIAL SERVICES LT D. THE PROFITS AND LOSSES ARISING FROM BUSINESS TRANSACTIONS WITH INDIA BULLS SECURITIES L TD HAVE BEEN TREATED AND TAXED AS BUSINESS INCOME / LOSS OF THE ASSESSEE. HENCE IT WAS SUBMITT ED THAT NONE OF THE BORROWINGS FROM INDIA BULLS FINANCIAL SERVICES LTD WERE EVER USED F OR ADVANCING INTEREST FREE LOANS / ADVANCES TO ANY OF THE SISTER CONCERNS OF THE ASSES SEE OR ANY OTHER CONCERN WHATSOEVER. HENCE THE ASSESSEE PRAYED FOR ALLOWABILITY OF INTER EST PAID TO INDIA BULLS FINANCIAL SERVICES LTD IN THE SUM OF RS. 1,07,89,090/- IN FULL AS HELD FOR THE PURPOSE OF BUSINESS. 4.4. IT WAS EXPLAINED FURTHER THAT THE TWO SHARE BROKER FIRMS NAMELY RELIGARE SECURITIES LTD AND INDIA BULLS SECURITIES LTD ARE NEITHER THE ASSESSEES SISTER CONCERNS NOR ASSOCIATED CONCERNS. HENCE ON THE BASIS OF DIRECT EVIDENCE OF BORROWINGS FROM THE AFORESAID TWO TRANSACTIONS USED FOR BUSINESS TRANSACTIONS OF THE ASSESSEE, THE LD AO WAS NOT JUSTIFIED IN DISALLOWING 42.90% OF TOTAL AMOUNT OF INTEREST PAID TO THE AFORESAID TWO LENDERS (RELIGARE FINVEST LTD AND INDIA BULLS FINANCIAL SERVICES LTD) ON AN UNFOUNDED AND ARBITRARY ALLEGATION THAT THE ASSESSEE PROVIDED 42.90% OF ITS BORROWINGS FOR ADVANCING INTEREST FREE AMOUNTS TO ITS SISTER CONCERNS. 4.5. THE LD CITA MERELY REITERATED THE CONCLUSIONS OF THE LD AO AND OBSERVED THAT BEFORE HIM ALSO THE LD AR SIMPLY SUBMITTED THAT THE BORROW ED AMOUNT IS USED FOR THE BUSINESS OF THE ASSESSEE WITHOUT ADDUCING ANY EVIDENCE THEREON. ACCORDINGLY HE UPHELD THE DISALLOWANCE OF INTEREST MADE ON PROPORTIONATE BASI S. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND :- 4. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DI SALLOWANCE OF INTEREST OF RS.69,53,088/- PAID BY THE APPELLANT COMPANY ON ITS BORROWING FROM M/S. RELIGARE FINVEST LTD. AND M/S. INDIA BULLS FINANCIAL SERVICES LTD. WRONGLY ALLEGIN G THAT THE APPELLANT FAILED TO PRODUCE EVIDENCES THAT THE AMOUNTS WERE BORROWED FROM THESE TWO PARTIES FOR APPELLANTS BUSINESS OF TRADING IN DERIVATIVES IN SHARES AND SECURITIES AND THAT NO PART OF IT WAS USED FOR GIVING FINANCIAL ACCOMMODATION TO GROUP COMPANIES AND/OR O THERWISE. 4.6. THE LD AR REITERATED THE SUBMISSIONS MADE BEF ORE THE LOWER AUTHORITIES AND IMPRESSED UPON THE BENCH BY REFERRING TO RELEVANT P AGES OF THE PAPER BOOK VIDE PAGES 40 TO 92 CONTAINING THE BANK STATEMENTS OF HDFC BANK VIDE A/C NOS. 05982030000542 AND 9 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 05982030000034 FOR THE PERIOD 1.4.2008 TO 31.3.2009 , LEDGER ACCOUNT OF INDIA BULLS FINANCIAL SERVICES LTD & INDIA BULLS SECURITIES LTD AND LEDGER ACCOUNT OF RELIGARE FINVEST LTD & RELIGARE SECURITIES LTD TO LINK THE ONE TO ON E CORRELATION OF RECEIPTS AND PAYMENTS THEREON. HE ACCORDINGLY ARGUED THAT THIS ASPECT OF THE MATTER HAD NOT BEEN PROPERLY EXAMINED BY THE LOWER AUTHORITIES AND FAIRLY STATED THAT THE SAME BE EXAMINED BY THE LD AO FOR BETTER APPRECIATION OF FACTS. IN RESPONSE TO T HIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 4.7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE RELEVANT PAGES OF THE PAPER BOOK OF T HE ASSESSEE FILED IN THIS REGARD. WE FIND THAT THE DETAILS IN THE PAPER BOOK VIDE PAGES 40 TO 92 WERE NOT PROPERLY EXAMINED BY THE LD AO. HENCE IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, WE DEEM IT FIT AND APPROPRIATE IN THE INTEREST OF JUSTICE AND FAIR PLAY , TO SET ASIDE TH IS ISSUE TO THE FILE OF THE LD AO, TO DECIDE THE SAME AFRESH, IN ACCORDANCE WITH LAW. NEEDLESS TO M ENTION THAT THE ASSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSE E IS DIRECTED TO PRODUCE NECESSARY EVIDENCES IN SUPPORT OF ITS CONTENTIONS. ACCORDIN GLY, THE GROUND NO. 4 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE U/S 14A OF THE ACT IN TH E FACTS AND CIRCUMSTANCES OF THE CASE. 5.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT SINCE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADING AND INVEST MENTS , HE HAVING DISALLOWED THE INTEREST PAID ON BORROWED FUNDS IN THE SUM OF RS. 69,53,088/ - AS DIVERTED FOR NON-BUSINESS PURPOSES ( I.E AS USED FOR ADVANCING INTEREST FREE LOANS AND ADVANCES TO SISTER CONCERNS), CONCLUDED THAT THE REMAINING PORTION OF THE INTEREST PAID OF RS. 92,54,576/- (1,62,07,664 69,53,088) AS ATTRIBUTABLE TO THE INVESTMENT ACTIVITIES OF THE ASSESSEE WHICH IS TO BE DISALLOWED U/S 14A OF THE ACT. BEFORE THE LD CITA, THE ASSESSEE SUBMI TTED THAT NO BORROWINGS WERE USED FOR INVESTMENT IN SHARES AND THEREFORE NO PART OF IT CO ULD BE DISALLOWED GENERALLY WITHOUT BRINGING THE NEXUS OF BORROWED FUNDS VIS A VIS THE INVESTMENT IN SHARES. IT WAS ALSO SUBMITTED THAT THE INVESTMENT IN SHARES WERE MADE O UT OF OWN FUNDS OF THE ASSESSEE AND 10 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 HENCE NO DISALLOWANCE OF INTEREST COULD BE MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES. IT WAS ALSO EXPLAINED THAT THE INVESTMEN T IN SHARES ARE LOWER THAN THE AMOUNT OF SHARE CAPITAL AND FREE RESERVES AND OTHER INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE TO PROVE THE OWN FUNDS. THE LD CITA IGNORED THESE SU BMISSIONS AND CONFIRMED THE ACTION OF THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BE FORE US ON THE FOLLOWING GROUND :- 5. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DI SALLOWANCE OF RS.92,54,876/- REPRESENTING INTEREST ON FUNDS BORROWED FROM RELIGARE FINVEST LT D. AND INDIA BULL FINANCIAL SERVICES LTD. RELYING ON THE PROVISIONS OF SEC. 14A OF THE ACT AL THOUGH THE BORROWED FUNDS WERE ADMITTEDLY USED FOR THE PURPOSES OF ITS BUSINESS OF DEALING IN SHARES AND SECURITIES. 5.2. THE LD AR ARGUED THAT IT WAS ALREADY WELL EST ABLISHED IN THE SUBMISSIONS MADE FOR THE EARLIER GROUND NO. 4 THAT NO PART OF THE BORROW INGS FROM RELIGARE FINVEST LTD AND INDIA BULLS FINANCIAL SERVICES LTD ON WHICH INTEREST WAS PAID BY THE ASSESSEE WERE USED FOR OTHER THAN INVESTMENT IN SHARES (I.E INVESTMENT ACTIVITY) AS THE SAME WERE USED ONLY FOR BUSINESS ACTIVITIES AND IN VIEW OF THE AVAILABILITY OF ADEQU ATE OWN FUNDS WITH THE ASSESSEE COMPANY, NO DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8 D OF THE RULES WOULD OPERATE IN THE INSTANT CASE. IN RESPONSE TO THIS, THE LD DR VEHEM ENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE HAD ALREADY SET ASIDE THE ISSUE TO THE FILE OF T HE LD AO TO VERIFY WHETHER THE BORROWED FUNDS FROM RELIGARE FINVEST LTD AND INDIA BULLS FIN ANCIAL SERVICES LTD ON WHICH INTEREST WAS PAID BY THE ASSESSEE TO VERIFY THE UTILIZATION OF THE SAID LOANS BY THE ASSESSEE IN EARLIER GROUND NO. 4. THE LD AO SHOULD ALSO VERIFY THE A VAILABILITY OF OWN FUNDS WITH THE ASSESSEE COMPANY AND CONSIDER THE SAME WHILE DECIDI NG THE ASPECT OF DISALLOWANCE U/S 14A OF THE ACT, IF ANY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE WE DEEM IT FIT AND APPROPRIATE TO SET ASIDE THIS ISSUE ALSO TO THE FIL E OF THE LD AO TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THAT THE A SSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE IS DIRECTED TO PRODUC E NECESSARY EVIDENCES IN SUPPORT OF ITS CONTENTIONS. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 6. THE LAST GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS. 18,50,250/- U/ S 94(7) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 6.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE A SSESSEE SUFFERED LOSS IN INVESTMENT IN SHARES OF OPTO CIRCUIT (INDIA) LTD AND ALSO RECEIVED DIVID END INCOME FROM THE SAID SHARES AMOUNTING TO RS. 18,50,250/-. THE ASSESSEE RECEIVE D DIVIDEND ON 24.9.2008 I.E WITHIN THREE MONTHS OF THE SHARE PURCHASES. THE LD AO OBSERVED THAT THE ASSESSEE SOLD THE ENTIRE SHARES WITHIN THREE MONTHS OF THE RECORD DATE OF 24.9.2008 AND THEREFORE, THE ASSESSEE HAD INDULGED IN DIVIDEND STRIPPING AND DIVIDEND RECEIVED AMOUNTI NG TO RS. 18,50,250/- IS NOT ALLOWABLE CLAIM BY VIRTUE OF PROVISIONS OF SECTION 94(7) OF T HE ACT. BEFORE THE LD CITA, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 18,50,250/- U/S 94(7) OF THE ACT IN RESPECT OF DIVIDEND EARNED ON SHARES OF OPTO CIRCUITS LTD. THE ASSESSE E SUBMITTED THAT THE DETAILS OF SALE OF SUCH SHARES WITHIN A PERIOD OF THREE MONTHS FROM TH E RECORD DATE WERE 100378 AND DIVIDEND ON SUCH SHARES @ RS 5 PER SHARES COMES TO RS. 5,01, 890/- AND HENCE THE AMOUNT DISALLOWABLE U/S 94(7) OF THE ACT WORKS OUT TO ONLY RS. 5,01,890/- AND NOT RS. 18,50,250/-. THE LD CITA STATED THAT SINCE THIS GROUND HAS BEEN WITHDRAWN BY THE ASSESSEE AND THE SAME IS TO BE DISMISSED. AGGRIEVED, THE ASSESSEE IS IN A PPEAL BEFORE US ON THE FOLLOWING GROUND:- 6. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DI SALLOWANCE OF RS.18,50,250/- MADE BY THE AO UNDER SECTION 94(7) OF THE I. T. ACT, 1961 BY WR ONGLY ALLEGING THAT THE APPELLANT HAD WITHDRAWN THE GROUND OF APPEAL AGAINST THE SAID DIS ALLOWANCE. 6.2. THE LD AR ARGUED THAT THE ASSESSEE HAD NOT WI THDRAWN THIS GROUND BEFORE THE LD CITA AS STATED BY LD CITA IN HIS ORDER. IT ONLY S TATED THAT THE DISALLOWANCE IS TO BE RESTRICTED TO RS. 5,01,890/- AS AGAINST RS. 18,50,2 50/-. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHOR ITIES. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD AR HAD STATED THAT THE SUBJECT MENTIONED SHARES OF OPTO CIRCUITS LTD WHICH WERE SOLD WITHIN A PERIOD OF THREE MONTHS FRO M THE RECORD DATE WERE ONLY TO THE EXTENT OF 100378 SHARES AND DIVIDEND PAID THEREON @ RS 5 PER SHARE WORKED OUT TO RS. 5,01,890/- AND HENCE AGREED FOR DISALLOWANCE U/S 94 (7) OF THE ACT TO THAT EXTENT. WE HEREBY DIRECT THE LD AO TO VERIFY THE VERACITY OF THIS CLA IM BASED ON THE EXAMINATION OF RELEVANT 12 ITA NO.722/KOL/2013 VINCENT COMMERCIAL CO. LTD., AY 2009-10 DOCUMENTS IN THAT REGARD AND DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THAT THE ASSESSEE BE GIVEN REASONABLE OPPOR TUNITY OF BEING HEARD. THE ASSESSEE IS DIRECTED TO PRODUCE NECESSARY EVIDENCES IN SUPPORT OF ITS CONTENTIONS. ACCORDINGLY, THE GROUND NO. 6 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. SD/- SD/- (S.S. VISWANETHRA RAVI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED :14TH DECEMBER, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT VINCENT COMMERCIAL COMPANY LTD., 2 ND FLOOR, 4, LEE ROAD, 5 TH FLOOR, KOLKATA-700 020. 2 RESPONDENT DCIT (OSD) TO CIT-III, KOLKATA 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .