ACIT, Circle - 7, Kolkata, Kolkata V. M/s. South City Projects (Kolkata) Ltd., Kolkata

ITA 732/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54717 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Cost of acquisition

Judgement Text

, ' , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA ( ) . . , , , , , , ) [BEFORE SRI S.V. MEHROTRA, A.M. & SRI MAHAVIR SING H, J.M.] ! ! ! ! / I.T.A NO. 732/KOL/2010 ASSESSMENT YEAR : 2006-2007 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- M/S. SOUTH CITY PROJECTS (KOLKATA) LTD., CIRCLE-7, KOLKATA KOLKATA (PAN : AAACD 8933 A) ( '# /APPELLANT ) ( $%'# / RESPONDENT ) FOR THE APPLICANT ( '# ) : SHRI A.K. PRAMANICK, D.R. FOR THE RESPONDENT ( $%'# ) : SHRI D.K. KOTHARI, A.R. &' ( ) * &' ( ) * &' ( ) * &' ( ) * /DATE OF HEARING : 19.12.2011 +, ) * +, ) * +, ) * +, ) * /DATE OF PRONOUNCEMENT : 19.12.2011 - / ORDER PER SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER/ . . , :- THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME- TAX (APPEALS)-VIII, KOLKATA DATED 19.01.2010 FOR TH E ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE-COMPANY IN THE RELEVANT ASSESSMENT YEAR CARRIED ON THE BUSINESS OF CONSTRUCTION OF BUILDING AND REAL ESTATE DEVELOPMEN T. IT HAD FILED ITS RETURN OF INCOME DISCLOSING TOTAL INCOME OF RS.4,66,46,662/-. THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE HAD EARNED SHORT-TERM CAPITAL GAIN ON VARIOUS SCRIP TS INCLUDING IDFC. HE NOTICED THAT THE IDFC SCRIPT WAS SHOWN TO HAVE BEEN PURCHASED FOR A CONSI DERATION OF RS.2,00,18,434/-, WHICH ALSO INCLUDED INTEREST OF RS.34,87,561/- PAID ON ACCOUNT OF INITIAL PUBLIC OFFER (IPO) FINANCING. HE DID NOT AGREE WITH THE ASSESSEES CONTENTION THAT I NTEREST PORTION IS TO BE CONSIDERED AS PART OF THE ACQUISITION COST FOR THE SHARES AND, THEREFORE, HE DISALLOWED RS.34,87,561/- AND ADDED BACK THE SAME TO THE SHORT-TERM CAPITAL GAINS. BEING AGG RIEVED WITH THE ASSESSMENT ORDER, THE ASSESESE PREFERRED APPEAL BEFORE LD. CIT(APPEALS), WHO ALLOWED THE ASSESSEES APPEAL FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH C OURT IN THE CASE OF CIT VS.- TRISHUL INVESTMENTS LTD. [305 ITR 434]. 3. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ASSESSMENT ORDER. ITA NO. 732/KOL./2010 2 4. LD. COUNSEL FOR THE ASSESSEE REITERATED HIS SUBM ISSIONS MADE BEFORE THE LD. CIT(APPEALS) AND RELIED ON THE FOLLOWING DECISIONS :- (I) CIT VS.- TRISHUL INVESTMENTS LTD. (305 ITR 4 34) (MAD.); (II) ADDL. CIT VS.- K.S. GUPTA {119 ITR 372)(A.P .); (III) CIT VS.- INDIAN OVERSEAS BANK LTD. (222 IT R 77)(MAD.). THE ASSESSEE HAS EXPLAINED BEFORE THE LD. CIT(APPEA LS) IN ITS WRITTEN SUBMISSION, THAT MODE OF FINANCING BEING DONE BY DSP MERYLL LYNCH CAPITAL LT D. (DSP) AGGREGATING TO RS.49.92 CRORES FOR APPLYING 1,56,00,000 SHARES IN INITIAL PUBLIC O FFER (IPO) OF INFRASTRUCTURE DEVELOPMENT FINANCE CO. LTD. (IDFC). THE SUBMISSIONS MADE BEFOR E THE LD. CIT(APPEALS) ARE RE-PRODUCED HEREUNDER :- THE LEARNED AO HAS DISALLOWED INTEREST AMOUNTING T O RS.34,87,561 ON AMOUNT FINANCED BY DSP MERYLL LYNCH CAPITAL LTD. (D SP) AGGREGATING TO RS.49.92 CRORES FOR APPLYING 1,56,00,000 SHARES IN INITIAL PUBLIC OFFER (IPO) OF INFRASTRUCTURE DEVELOPMENT FINANCE CO. LTD . (IDFC). THIS APPLICATION WAS MADE THROUGH DSP BY PAYING A MARGI N AMOUNT OF RS.3,12,00,000. AGAINST THIS APPLICATION THE COMPAN Y WAS ALLOCATED 2,75,952 SHARES AND THE AMOUNT FINANCED BY DSP WAS ADJUSTED BY THEM AGAINST THE REFUND RECEIVED FROM IDFC. THE APPLICATION WAS MADE THROUGH DSP SINCE IT WAS U NDER THEIR FINANCE AND ACCORDINGLY THE REFUND OF THE EXCESS APPLICATIO N MONEY AMOUNTING TO RS.52,10,17,632 WAS RECEIVED BY THEM DIRECTLY FROM IDFC SINCE DSP HAD A LIEN ON THE ENTIRE TRANSACTION. AFTER RECEIPT OF REFUND OF THE EXCESS APPLICATION MONEY BY IDFC, DSP REFUNDED THE EXCESS OF MARGIN MONEY AMOUNTING TO RS.2,18,14,876.19 TO THE APPELLANT COM PANY AFTER ADJUSTING THE COST OF RS.93,82,368 OF 2,75,952 SHARES ALLOTTE D ON 6TH AUGUST 2005 AND CREDITED TO THE DEMAT ACCOUNT OF THE APPELLANT. INTEREST FOR THE PERIOD FROM THE DATE OF APPLICATION TILL THE DATE OF REFUN D I.E. 22-07-05 TO 07-08- 05 AGGREGATING TO RS.34,87,561.56 WAS CHARGED BY DS P ON THE AMOUNT FINANCED BY THEM. THIS INTEREST IS FOR THE PERIOD P RIOR TO THE ACQUISITION OF SHARES BY WAY OF ALLOTMENT. HAD THIS INTEREST NOT B EEN PAID, THE COMPANY WOULD NOT HAVE GOT ALLOTMENT OF THE SHARES ON WHICH IT EARNED A CAPITAL GAIN OF RS.69,15,734 AFTER ADJUSTING THE INTEREST P AID. AS SUCH THIS IS A PART OF THE COST OF ACQUISITION. RELIANCE IS PLACED ON THE JUDGMENT OF MADRAS HIGH C OURT IN THE CASE OF CIT VS. TRISHUL INVESTMENTS LTD. REPORTED IN 305 IT R 434 IN WHICH THE HONBLE COURT HELD THAT THERE IS NO ERROR OR LEGAL INFIRMITY IN THE ORDER OF THE TRIBUNAL WHICH HELD THAT INTEREST PAYABLE FOR A CQUISITION OF SHARES WOULD PARTAKE CHARACTER OF COST OF SHARES AND THERE FORE THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH THE COST OF ACQUISIT ION OF SHARES. ITA NO. 732/KOL./2010 3 THUS, THERE IS NO DISPUTE REGARDING THE FACT THAT I NTEREST AMOUNTING TO RS.34,87,561/- WAS PAID FOR FINANCING SHARES IN INITIAL PUBLIC OFFER (IPO) OF IDFC. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS.- TRISHUL INVESTMENTS LIMITED OBSER VED AT PAGE 438 AS UNDER :- IN RESPECT OF QUESTION NO. 2, THE INTEREST LIABILI TY ON THE BORROWED FUNDS WAS DEBITED IN THE BOOKS OF THE ASSESSEE COMP ANY. THE TRIBUNAL CORRECTLY HELD THAT THE INTEREST PAID FOR ACQUISITI ON OF SHARES WOULD PARTAKE CHARACTER OF COST OF SHARE AND, THEREFORE, THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH THE COST OF ACQUISITION OF S HARES. THERE IS NO DENIAL REGARDING THE BORROWED MONEY FOR THE ACQUISI TION OF SHARES BY THE ASSESSEE. THE TRIBUNAL CORRECTLY HELD THAT THE INTEREST PAYABLE THEREON SHOULD BE ADDED TO THE COST OF ACQUISITION OF SHARES. THE REASONS GIVEN BY THE TRIBUNAL ARE BASED ON VALID MA TERIALS AND EVIDENCE. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY ERROR OR LEGAL INFIRMITY IN THE ORDER OF THE TRIBUNAL SO AS TO WAR RANT INTERFERENCE. HENCE, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CO NSIDERATION OF THIS COURT IN RESPECT OF QUESTION NO. 2. 5. IN VIEW OF THE DECISION OF THE HONBLE MADRAS HI GH COURT (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEA LS). WE UPHOLD THE SAME AND REJECT THE GROUND OF APPEAL TAKEN BY THE REVENUE. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. . / . / . / . / 0 1 0 1 0 1 0 1 .2 .2 .2 .2 3 3 3 3 2 2 2 2 45 4545 45 ORDER PRONOUNCED IN THE OPEN COURT ON 19/ 12 /2011. & 6 7 - 19/12/2011. SD/- SD/- [ MAHAVIR SINGH / ] [S.V. MEHROTRA/ ( . . )] JUDICIAL MEMBER/ ACCOUNTANT MEMBER/ DATED : 19/ 12/ 2011 COPY OF THE ORDER FORWARDED TO: 1. M/S. SOUTH CITY PROJECTS (KOLKATA) LTD., 375, PRINC E ANWAR SHAH ROAD, KOLKATA-68 2 ACIT, CIRCLE-7, KOLKATA, 5 TH FLOOR, ROOM NO. 15, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 3. COMMISSIONER OF INCOME-TAX (APPEALS)- , KOLKATA 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S.