M/s. T.T.Krishnamachari & Co., CHENNAI V. ACIT, CHENNAI

ITA 739/CHNY/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8091 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 17-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI (BEFORE SHRI K.K. GUPTA, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) ..... I.T.A. NO. 739/MDS/2010 ASSESSMENT YEAR : 2006-07 M/S T.T. KRISHNAMACHARI & CO., NO.6, CATHEDRAL ROAD, CHENNAI - 600 086. PAN : AAAFT0395D (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XIII, CHENNAI - 600 034. (RESPONDENT) APPELLANT BY: SHRI R. VIJAYARAGHAVAN RESPONDENT BY: SHRI B. SRINIVAS O R D E R PER K.K. GUPTA, ACCOUNTANT MEMBER : THE ASSESSEE IS IN APPEAL WITH A SOLITARY ISSUE TH AT THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE O F ` 11,19,334/- AS LONG TERM CAPITAL LOSS. 2. THE BRIEF FACTS PERTAINING TO THE ISSUE IN DISPU TE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF CLEARING AND FORWARD ING AND TRADING ACTIVITIES. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE RETURNED INCOME OF ` 8.36 CRORES WHICH WAS SCRUTINIZED BY THE ASSESSING I.T.A. NO. 739/MDS/10 2 OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE ASSESSING OFFICER O BSERVED THAT THE ASSESSEE HAD CLAIMED LONG TERM CAPITAL LOSS AMOUNTI NG TO ` 11,19,334/- BEING COST OF SHARES IN ORIENTAL LABORA TORIES, PRECISION PAPER TUBES LTD. AND TITAN PAPER TUBES COMPANY (P) LTD., WHICH HAD CLOSED THEIR BUSINESS AND FILED UP WINDING UP P ETITIONS BEFORE THE REGISTRAR OF COMPANIES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID COMPANIES WERE IN LIQUIDATION AND HENCE, T HE ASSESSEE IS NOT ENTITLED TO CLAIM ALLOWANCE AS LONG TERM CAPITA L LOSS OF THEIR SHARES. HE DISALLOWED THE ASSESSEES CLAIM FOR WAN T OF PROOF OF APPROPRIATE CONFIRMATION FROM REGISTRAR OF COMPANIE S. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AU THORITY WHO CONSIDERED THE FACTS OF THE ASSESSEES CASE AND OBS ERVED THAT THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING THE LONG TERM CAPITAL LOSS, WITHOUT ASSIGNING ANY REASON. HE NOTED THAT THE ASSESSEE SHOULD HAVE PRODUCED SOME CERTIFICATE OR LETTER FRO M THE REGISTRAR OF COMPANIES THAT THE COMPANIES LISTED FOR VOLUNTARY W INDING UP SCHEME WERE DE-LISTED. IN THE ABSENCE OF SUCH EVID ENCE, THE LD. CIT(APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIB UNAL. I.T.A. NO. 739/MDS/10 3 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT COMPANIES WHERE THE ASSESSEE HAD INVESTED IN SHARES HAD CLOSED THEI R BUSINESS AND FILED WINDING UP PETITIONS BEFORE THE REGISTRAR OF COMPANIES UNDER PROVISION OF SECTION 560 OF THE COMPANIES ACT, 1956 AND THEREFORE, THE ASSESSEE-FIRMS RIGHTS IN SHARES GOT EXTINGUISH ED. HE POINTED OUT THAT THE ASSESSEE-FIRM WAS HOLDING SHARES AS INVEST MENTS AND THEREFORE, ONCE THE EQUITY SHARES WERE TAKEN OVER B Y THE OFFICIAL LIQUIDATOR, THEN THE INVESTMENTS HELD IN THESE COMP ANIES BECOME A LOSS TO THE ASSESSEE AS THE LIABILITIES EXCEED THE ASSETS RENDERING THE SHARE CAPITAL NEGATIVE. THE LOSS, THEREFORE, CLAIM ED WAS ONLY COST OF ACQUISITION OF SHARES, WHICH BY NO STRETCH OF IMAGI NATION COULD BE CONSIDERED AS DISALLOWABLE ON ASSESSEES CAPITAL AC COUNT. THE LEARNED COUNSEL, HOWEVER, PROPOSED TO SUBMIT THE RE QUIREMENTS OF THE LD. CIT(APPEALS), NAMELY, THE OFFICIAL DECLARAT ION FROM REGISTRAR OF COMPANIES DE-LISTING THE SAID COMPANIES, WHICH WERE NOT MADE AVAILABLE TO THE ASSESSING OFFICER AND PRODUCED LAT ER ON IN THE CASE OF THE COMPANIES, NAMELY, PRECISION PAPER TUBES LTD . AND TITAN PAPER TUBES COMPANY (P) LIMITED EVEN AFTER THE GAZE TTE NOTIFICATION, WHICH VERIFICATION MAY BE RESTORED TO THE FILE OF THE I.T.A. NO. 739/MDS/10 4 ASSESSING OFFICER FOR CONSIDERATION IN THE LIGHT OF THE REQUEST MADE BY THE ASSESSING OFFICER AND THE LD. CIT(APPEALS) FOR CONFIRMING THE NON- EXISTENCE OF THESE COMPANIES, FOR CLAIM OF LONG TER M CAPITAL LOSS. 4. THE LEARNED D.R., ON THE OTHER HAND, RELIED ON T HE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. R. CHIDAMBARANATHA MUDALIAR REPORTED IN 240 ITR 552 (M AD.) WHEREIN IT WAS HELD THAT IT IS NOT A LONG TERM CAPITAL LOSS BU T LOSS OF CAPITAL IN VIEW OF THE FACT THAT THE ASSESSEE WAS HOLDING THE SHARES. THEREFORE, AT NO POINT OF TIME COULD IT BE SAID THAT THE CAPIT AL LOSS OCCURRED AS INCIDENTAL TO THE BUSINESS BUT, WAS LOSS OF CAPITAL WHICH THE ASSESSEE CHOSE TO INVEST AS IS ALSO CONFIRMED BY THE HON'BLE GUJARAT HIGH COURT IN THEIR DECISION RENDERED IN THE CASE OF CIT V. JAYKRISHNA HARIVALLABHDAS REPORTED IN 231 ITR 108. HE THEREFO RE SUBMITTED THAT ON THE REQUEST OF THE LEARNED COUNSEL FOR THE ASSES SEE FOR RESTORING THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFYING THE DE-LISTING IN OFFICIAL GAZETTE OBTAINED FROM THE REGISTRAR OF COMPANIES IN THE CASE OF THESE COMPANIES, THE ASSESSEE WOULD BE REQU IRED TO EXPLAIN AS TO HOW THIS AMOUNT WAS NOT PART OF CAPITAL INVES TED IN THESE COMPANIES. I.T.A. NO. 739/MDS/10 5 5. IN A REJOINDER, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE FACT WAS THAT INVESTING IN EQUITY OF THESE COMPANIES WAS THROUGH PROPER BUSINESS CHANNELS AND WERE HELD AS I NVESTMENTS WHICH INCOME THEREON HAD BEEN RENDERED TAXABLE EARL IER. THEREFORE, AT NO POINT OF TIME COULD IT BE SAID THAT THE EQUIT Y SHARES WERE HELD AS CAPITAL OF THE ASSESSEE AS HAS BEEN HELD IN THE CAS E OF CIT V. TATA SONS (P) LTD. REPORTED IN 105 CTR (BOM) 219. IN FI NE TUNING OF THIS CAPITAL LOSS WHETHER CAN BE TERMED AS CAPITAL WHI CH WAS CONSIDERED BY THE GUJARAT HIGH COURT IN THE CASE OF JAYKRISHNA HARIVALLABHDAS (SUPRA) AND BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF R. CHIDAMBARANATHA MUDALIAR (SULPRA) RELIED UPON BY TH E LEARNED D.R. HAS TO BE BORNE IN MIND TO THE EXTENT THE COMPANY L IQUIDATION HAS TAKEN PLACE ON THE DIRECTIONS OF HIGH COURT AND NOT OF EQUITY SHARE OWNERS, THEREFORE, DOES NOT CHANGE THE NATURE OF HO LDING OF THE SHARES AT ANY POINT OF TIME OTHER THAN AS INVESTMEN T. THE ASSESSEE HAS BEEN HOLDING THE SHARES FOR A LONG TIME AS AN I NVESTMENT AND OFFERING INCOME AS DIVIDEND THEREFROM, ETC. TO TAX WHICH JUSTIFIES THE WRITE OFF OF THE AMOUNT AS A LONG TERM CAPITAL LOSS AND NOT OTHERWISE. IN ANY CASE, THE LD. ASSESSING OFFICER AND THE LD. I.T.A. NO. 739/MDS/10 6 CIT(APPEALS) HAD NOT QUESTIONED THE NATURE OF HOLDI NG WHICH MAY KINDLY BE CONSIDERED AS PER FACTS ON RECORD. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THE MATERIAL AVAILABLE ON RECORD. ON CAREFUL PERUSAL O F FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE LEA RNED COUNSEL FOR THE ASSESSEE HAS RIGHTLY REQUESTED FOR RESTORING TH E ISSUE TO THE FILE OF THE ASSESSING OFFICER IN SO FAR AS THE ASSESSING OF FICERS REQUEST TO ALLOW THE LONG TERM CAPITAL LOSS ON SUBMISSION OF P ROOF BY APPROPRIATE CONFIRMATION FROM REGISTRAR OF COMPANIE S IN VIEW OF THE ASSESSEES SUBMISSION BEFORE HIM THAT THESE COMPANI ES HAD OPTED FOR VOLUNTARY WINDING UP BEFORE THE HON'BLE HIGH COU RT AND WERE IN LIQUIDATION. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TATA SONS (P) LTD. (SUPRA) HAS HELD THAT COMPANIES UNDER LIQU IDATION DISTRIBUTED THE CAPITAL HAS TO BE REVENUE LOSS TO THE EXTENT TH AT THE LONG TERM CAPITAL LOSS ARISES IN THE RELEVANT PREVIOUS YEAR O F THE ASSESSEE WHO WAS HOLDING SUCH SHARES FIRST DISTRIBUTED ITS CAPIT AL AFTER GOING INTO LIQUIDATION UNDER THE PROVISIONS OF THE COMPANIES A CT AND DIRECTIONS OF HIGH COURT. THEREFORE, AS PER THE PROVISIONS OF THE INCOME-TAX ACT, AS THE ASSESSEE-FIRM HAD BEEN HOLDING SHARES FOR MO RE THAN A YEAR COULD SUFFER AS LONG TERM CAPITAL LOSS ONLY. THERE FORE, IN OUR I.T.A. NO. 739/MDS/10 7 CONSIDERED VIEW, THE ONLY EVIDENCE LACKING BEFORE T HE AUTHORITIES BELOW WAS THE NOTIFICATION BY THE REGISTRAR OF COMP ANIES DE-LISTING THESE COMPANIES, WHICH IS NOW PLACED BEFORE US, IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION WHO SHOULD SATISFY HIMSELF TO NOTE THAT THE COMPANIES IN WHICH THE ASSESSEE-FI RM HAD HELD SHARES FOR A PERIOD WHICH ULTIMATELY RESULTED IN N IL RETURNS OF THE INVESTMENT. THE LOSS CLAIMED AS LONG TERM CAPITAL LOSS IN ACCORDANCE WITH PROVISIONS OF THE INCOME-TAX ACT BE ALLOWED AS CLAIMED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON THE SEVENTH DAY OF OCTOBER, 2010. SD/- SD/- (GEORGE MATHAN) (K.K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH OCTOBER, 2010. KRI. COPY FORWARDED TO: APPELLANT/RESPONDENT/CIT(A)-XII, CHENNAI-34/ CIT-X, CHENNAI/D.R./GUARD FILE