Shriram Retail Holdings Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 885/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8827 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDU
• Assessee Lawyers: R SIVARAMAN
• Keywords: Business income; Business expenditure; Opportunity of being heard; Revised return
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.885/MDS/2015 # % &% / ASSESSMENT YEAR : 2010-2011 SHRIRAM RETAIL HOLDINGS PRIVATE LIMITED, (SINCE AMALGAMATED WITH SHRIRAM CITY UNION FINANCE LTD) NO.4, MOOKAMBIKA COMPLEX, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. [PAN AAJCS 7325N] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2) CHENNAI 600 034. ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. R. SIVARAMAN, ADVOCATE +,'( ) * /RESPONDENT BY : SMT. PARMINDU, CIT. ! ) - / DATE OF HEARING : 23-06-2016 ./& ) - / DATE OF PRONOUNCEMENT : 10-08-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-15, CHE NNAI IN ITA NO.395/A-15/13-14, DATED 18.02.2015 FOR THE ASSESSM ENT YEAR 2010- ITA NO.885/MDS/2015 :- 2 -: 2011 PASSED U/S.143(3) AND 250 OF THE INCOME TAX A CT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED THREE SUBSTANTIVE GROUNDS, FOR THE SAKE OF CONVENIENCE THE GROUNDS ARE CONCISED (I) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE U/S.14A R.W.R. 8D :1,42,32,769/- APPLY ING THE PROVISIONS U/SEC. 14A R.W. RULE 8D(2) (II) THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) ERRED IN CONFIRMING NON ALLOWABILITY OF SHORT TERM CAPITAL GAINS OF :14,00,00,000/- ON FORFEITURE OF WARRANTS AND (III) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITIONS OF SEC. 14A R.W.R. 8D WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S IN THE BUSINESS OF DEALING IN SHARES AND STOCKS AND FILED RETURN OF INCOME ON 15.10.2010 ADMITTING TOTAL INCOME OF :2,53,25,000/- AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSS OF :1,95,76,595/- . THE ASSESSEE FILED REVISED RETURN OF INCOME ON 29.09.2011 ADMITT ING TOTAL INCOME OF :1,10,92,230/- AFTER CLAIMING SET OFF OF BROUGHT FO RWARD BUSINESS OF EARLIER YEARS. THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT AND CASE WAS SELECTED FOR SCRUTINY AND NOTICE U /S.142(1) AND 143(2) OF THE ACT WERE ISSUED. IN COMPLIANCE TO NO TICES, THE LD. ITA NO.885/MDS/2015 :- 3 -: AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE INFORMATION. THE LD. ASSESSING OFFICER ON PERUSAL OF FINANCIAL STATEMENTS FOUND THAT THE ASSESSEE COMPANY HAS RECE IVED DIVIDEND INCOME OF :3,34,37,502/-,INTEREST INCOME OF :4,49, 00,729/- AND OTHER INCOME OF :866/-. THE DIVIDEND INCOME EARNED ON E QUITY SHARES ARE CLAIMED AS EXEMPTED, WHEREAS INTEREST INCOME ACCRUE D ON THE FIXED DEPOSITS WITH STANDARD CHARTERED BANK. THE LD. ASS ESSING OFFICER ALLEGED THAT THE ASSESSEE COMPANY HAS CLAIMED :13, 00,300/- TOWARDS THE LEAD MANAGEMENT FEE PAID TO DSP MERRILL LYNCH L IMITED, :2,48,175/- TOWARDS ADVISORY FEE FOR RESTRUCTURING WAS INCLUDED IN PROFESSIONAL CHARGES. FURTHER, THE ASSESSEE COMPANY PAID :1,20,00,000/- TOWARDS ESCROW MANAGEMENT FEE. THE LD. ASSESSING OFFICER ISSUED LETTER DATED 17.12.2010 REQUESTING T O PROVIDE DETAILS OF PROFESSIONAL CHARGES AND MANAGEMENT CHARGES AND THE LD. AUTHORISED REPRESENTATIVE EXPLAINED AND FILED THE LETTER REFE RRED AT PAGE 2 OF THE ASSESSMENT ORDER AS UNDER:- . FEE FOR RESTRUCTURING RS. 2,48,175 RELATED TO BUSINESS ACTIVITY OF ASSESSEE. THESE EXPENSES WERE NOT INCURRED TO EARN DIVIDEND INCOME. THE LEAD MANAGEME NT FEE OF RS. 13,00,300 AND ESKROW MANAGEMENT FEE OF RS.1,20,00,OOO PAID TO DSP MERRILT LYNCH LTD AND ST ANDARD CHARTERED BANK RESPECTIVELY RELATED TO OPEN OFFER I SSUED FOR SHARES OF SHRIRAM CITY UNION FINANCE LIMITED. THE E NTIRE EXPENSES RELATED TO OUR BUSINESS OF INVESTMENT PROM OTION. THE RECEIPT OF DIVIDEND IS INCIDENTAL TO OUR BUSINESS. DURING THE YEAR THE APPELLANT RECEIVED ONLY TWO DIVIDENDS FROM SHRIRAM CITY UNION FINANCE LIMITED. THE DIVIDEND WAS CREDIT ED TO OUR ITA NO.885/MDS/2015 :- 4 -: ACCOUNT UNDER ECS. HENCE, NO EXPENSE WAS INCURRED TO COLLECT THE DIVIDEND. HOWEVER, WE HAVE ALREADY DISALLOWED RS.51,220 U/S 14A. HENCE WE REQUEST YOU NOT TO DISALLOW'. THE LD. ASSESSING OFFICER BASED ON THE ASSESSEES S UBMISSIONS FOUND THAT THE AMOUNT PAID TO DSP MERRILL LYNCH LIMITED A ND STANDARD CHARTERED BANK ARE FOR THE PURPOSE OF OPEN OFFER F OR ISSUE OF SHARES OF SHRIRAM CITY UNION FINANCE LIMITED AND THIS SPEC IFIC EXPENDITURE WAS INCURRED FOR INVESTMENT PURPOSE. OTHER EXPENDIT URE ARE FOR ADVISORY FEES RELATED TO BUSINESS PROMOTION INVEST MENTS. THE LD. ASSESSING OFFICER BASED ON THE SUBMISSIONS AND FACT S IS OF THE OPINION THAT THE EXPENDITURE OF :1,20,00,000/- IS RELATED T O THE OPEN OFFER OF SHRIRAM CITY UNION FINANCE LIMITED SHARES INCURRED ON ACQUISITION OF SHARES WERE DIVIDEND INCOME ON SHARES IS EXEMPTED AND THE ENTIRE EXPENDITURE OF :13,00,300/- IS INCURRED FOR EARNIN G DIVIDEND INCOME AND SAME CANNOT BE ALLOWED AND ADDED TO THE RETUNED INCOME. SIMILARLY, THE LD. ASSESSING OFFICER DISALLOWED RES TRUCTURING ADVISORY FEE OF :2,48,175/- RELATING TO THE BUSINESS ACTIVIT Y IS NOT ALLOWABLE AS EXPENDITURE. THE LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS FILED ORIGINAL RETURN OF INCOME ON 15.10.2010 WITH DISALLOWANCE OF EXPENDITURE UNDER RULE 8D :1,42,83,989/-. SUBSEQUE NTLY, THE ASSESSEE FILED REVISED RETURN ON 29.09.2011 AND RED UCED DISALLOWANCE UNDER RULE 8D TO :51,220/-. THE EXPENDITURE CLAIME D IS DIRECTLY ITA NO.885/MDS/2015 :- 5 -: RELATED TO THE INVESTMENTS EARNING DIVIDEND INCOME. DURING THE FINANCIAL YEAR 2009-2010, THE ASSESSEE RECEIVED DIV IDEND INCOME OF :3,34,37,502/- BUT THE ASSESSEE COMPANY SUO MOTU DI SALLOWED EXPENDITURE U/SEC. 14A R.W.R 8D :51,220/-. THE LD . ASSESSING OFFICER ISSUED LETTER DATED 17.12.2012 WITH REASONS FOR DI SALLOWANCE OF EXPENDITURE UNDER RULE 8D R.W.S. 14A. IN COMPLIANC E, THE ASSESSEE COMPANY FILED DETAILED EXPLANATIONS AND LD. AUTHORI SED REPRESENTATIVE ARGUED ON METHODOLOGY AND EXPENDITURE IS PURELY B USINESS EXPENDITURE AND SAME BE ALLOWED. THE LD. ASSESSING OFFICER REFERRED AT PAGE 5, PARA 4.1 OF THE ORDER. BUT THE LD. AS SESSING OFFICER HAS WORKED OUT DISALLOWANCE UNDER RULE 8D(2) UNDER THRE E LIMBS RELYING ON THE TRIBUNAL DECISION IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT (P) LIMITED 117 ITD 169 (MUMBAI) WERE IT WAS HELD THAT WERE THE ASSESSEE ENGAGED IN THE BUSINESS OF DEALI NG IN SHARES AND SECURITIES, THE DISALLOWANCES ARE MANDATORILY REQU IRED TO BE CALCULATED AS PER PROVISIONS OF SECTION 14A READ WITH RULE 8D AND LD. ASSESSING OFFICER COMPUTED THE DISALLOWANCES AND AFTER ADJU STMENT OF DISALLOWANCE WHICH THE ASSESSEE COMPANY HAS ALREAD Y DISALLOWED :51,220/- HAS WORKED OUT TO :6,84,294/- AND THE ASSESSEE AGGRIEVED WITH THE ADDITIONS OF LEAD MANGEMENT FEE AND ESCROW MANAGEMENT FEES, ADVISORY FEE DISALLOWED U/S.14A R .W.R. 8D AND ITA NO.885/MDS/2015 :- 6 -: DISALLOWANCE U/S.14A R.W.R. 8D :6,84,294/-, FILED A N APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE FINDINGS OF THE LD. ASSESSING OFFICER AT PAGE 3 TO 6 OF HIS ORDER AND WRITTEN SU BMISSIONS FILED BY THE ASSESSEE AT PAGE 7 REFERRING SIMILAR BUSINESS A CTIVITY OF GROUP CONCERN M/S. SHRIRAM CAPITAL LIMITED IN ITA NO.638 /MDS/2012, ASSESSMENT YEAR 2005-06 AND ITA NO.639/MDS/2012 FOR ASSESSMENT YEAR 2007-08, ON THE CONCEPT OF BUSINESS EXPEDIENCY AND COMMERCIAL OPERATIONS AND NON APPLICABLE OF PROVISIONS OF SEC. 14A, THE LD. AUTHORISED REPRESENTATIVE PRAYED FOR DELETING THE D ISALLOWANCE OF :1,20,00,000/- :13,00,300/-, :2,48,175/- AND :6, 84,294/-, THE LD. AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT THE ASSESSEE IS DEALING IN SHARES AND SECURITIES AND EXPENDITURE RE LATED ARE ADMINISTRATIVE IN NATURE AND NO EXPENDITURE WAS IN CURRED TO COLLECT DIVIDEND AND ASSESSEE IS HAVING TWO SOURCES OF INCO ME BEING DIVIDEND INCOME AND INTEREST INCOME. THE LD. COMMISSIONER O F INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS ON THE FOUR DI SALLOWANCES RELATING TO THE EXEMPTED INCOME AND GAVE A CATEGORI CAL FINDINGS COMPARING WITH PROFIT AND LOSS ACCOUNT WITH EARLIER YEARS AT PARA 5.2.2 AT PAGE 11 TO 16 AND RELIED ON THE JUDICIAL DECISI ONS AND FUNCTIONAL ITA NO.885/MDS/2015 :- 7 -: APPLICABILITY AND REJECTED THE GROUNDS OF THE ASSES SEE AND CONFIRMED THE ADDITION OF THE LD. ASSESSING OFFICER. AGGRIEV ED BY THE ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITER ATED THE SUBMISSIONS MADE IN THE ASSESSMENT, APPELLATE PROCE EDINGS AND ALSO JUDICIAL DECISIONS RELIED. THE CONTENTIONS OF THE LD. AUTHORISED REPRESENTATIVE BEING THAT THE ASSESSEE IS IN THE BU SINESS OF SHARES AND STOCK AND IN RECEIPT OF DIVIDEND INCOME AND INTERE ST INCOME AND THE EXPENDITURE OF :1,20,00,000/- AND RS. 13,00,300/- W AS INCURRED AS LEAD MANAGEMENT FEES AND ESCROW MANAGEMENT FEES PAI D TO STANDARD CHARTERED BANK AND DSP MERRILL LYNCH IN RESPECT OF OPEN OFFER OF SHARES OF SHRIRAM CITY UNION FINANCE LIMITED. FURT HER, THE ADVISORY FEES PAID TO ERNST & YOUNG PVT. LD IS FOR RESTRUCT URING AND TAKES THE CHARACTERISTIC OF BUSINESS EXPENDITURE AND THE ASSE SSEE COMPANY HAS NOT INCURRED ANY EXPENDITURE FOR RECEIVING THE DIVI DEND INCOME OF :3,34,37,502/- AND THE ASSESSEE HAS DISALLOWED :.51 ,220/-. FURTHER, THE LD. ASSESSING OFFICER HAS DISALLOWED :6,84,284/ - IN ADDITION TO ABOVE DISALLOWANCES MADE IN THE ASSESSMENT ORDER. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. THE LD. AUTHORISED REPRESEN TATIVE SUBMITTED THAT THE DIVIDEND INCOME IS INCIDENTAL TO ASSESSEES BUS INESS WHO IS A ITA NO.885/MDS/2015 :- 8 -: DEALER IN SHARES AND SECURITIES. THE ACQUISITION SHARES SHALL NOT BE CONSIDERED FOR DISALLOWANCES U/SEC. 14A OF THE ACT. IN THE PRESENT CASE, THE MAJOR THREE EXPENDITURES PERTAINS TO ACQU ISITION OF SHARES IN OPEN OFFER OF SHRIRAM CITY UNION FINANCE LIMITED AND PRAYED FOR DELETION OF ADDITION MADE BY THE LD. ASSESSING OFFI CER. 6. CONTRA, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMENTLY OPPOSED TO THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERI AL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHOR ISED REPRESENTATIVE EMPHASIZED THAT THE ASSESSEE COMPANY HAS INCURRED E XPENDITURE FOR ACQUISITION OF SHARES IN OPEN OFFER OF SHRIRAM CIT Y UNION FINANCE LIMITED AND ALSO RESTRUCTURING FEES :2,48,175/- AN D LEAD MANAGEMENT FEES OF :13,00,300/- PAID TO DSP MERRILL LYNCH LIMI TED AND :1,20,00,000/- WAS PAID TO STANDARD CHARTERED BANK AND DSP MERRILL LYNCH LIMITED. THE CONTENTION OF THE LD. AUTHORISE D REPRESENTATIVE THAT THE ASSESSEE IS IN THE BUSINESS ACTIVITY OF SH ARES AND SECURITIES AND 99% OF INCOME CONSIST OF DIVIDEND AND INTEREST INCOME. THEREFORE, THIS EXPENDITURE HAS BE TREATED AS BUSIN ESS EXPENDITURE AND BE ALLOWED. THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE OF ASSESSMENT YEAR ITA NO.885/MDS/2015 :- 9 -: 2009-10 IN ITA NO.981/MDS/2013 WERE SIMILAR ISSUES WERE CONSIDERED IN RESPECT OF EXPENDITURE INCIDENTAL TO THE BUSINES S OF INVESTMENT PROMOTION. FURTHER, WE PERUSED THE ORDER OF KARNAT AKA HIGH COURT OF CCI LTD VS. JCIT. (2012) 20 TAXMAN.COM 196(KAR) WHERE IT WAS HELD AS UNDER:- WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE I N EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITUR E COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT T HE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63 PER CENT OF THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME DERIVED THEREFRO M IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37 PER CENT OF THE SHARES ARE RETAINED. IT HAS REMAINED UN SOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES WHICH HAVE YIELDED DIVIDEND, FOR WHICH THE ASSESSEE HAS NOT IN CURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOME, THE SAID EXPEN DITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO ITS BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HA S TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND TH AT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN C ONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE A CT. THEREFORE, THE IMPUGNED ORDERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. WE HAVE CONSIDERED THE BUSINESS ACTIVITIES, FINANCI AL STATEMENTS AND JUDICIAL DECISIONS, THERE SEEMS TO BE A REALISTIC A PPROACH ON ACQUISITION ITA NO.885/MDS/2015 :- 10 -: OF SHARES BY THE ASSESSEE COMPANY AND THE ABOVE EX PENDITURE WAS INCURRED PURELY ON THE INVESTMENT STRATEGIES OF T HE BUSINESS. THEREFORE, THE LD. ASSESSING OFFICER SHOULD HAVE CO NSIDERED THE EXPENDITURE FROM THE ASSESSEE BUSINESS OBJECTS AND ACTIVITIES AND THE CALCULATE THE DISALLOWANCE UNDER SEC. 14A RULE 8D. WE, THEREFORE ARE OF THE OPINION THAT THE DISPUTED ISSUE HAS TO BE RE -EXAMINED IN LINE WITH THE INVESTMENT ACTIVITY BY THE LD. ASSESSING OFFICER AND WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX ( APPEALS) TO THE FILE OF THE LD. ASSESSING OFFICER FOR EXAMINATION A ND THE ASSESSEE SHALL BE PROVIDED ADEQUATE OPPORTUNITY OF HEARING BEFORE PASSING THE ORDERS ON MERITS AND THE GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. THE NEXT GROUND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF LD. ASS ESSING OFFICER IN REJECTING THE ASSESSEES CLAIM OF SHORT TERM CAPITA L LOSS OF :14,00,00,000/- ON CLAIM OF FORFEITURE OF WARRANTS . 8.1 THE ASSESSEE COMPANY CLAIMED LOSS AS SHORT TERM CAPITAL LOSS :14,00,00,000/- AND THE LOSS PERTAININ G TO FORFEITURE OF WARRANTS ALLOTTED TO THE ASSESSEE COMPANY WHICH C OULD NOT EXERCISED WITHIN THE STIPULATED TIME DUE TO LIQUIDITY CRISIS AND THE LOSS IS ITA NO.885/MDS/2015 :- 11 -: CHARGEABLE UNDER CAPITAL GAINS AS PER SEC. 48 OF TH E ACT. THERE IS NO SALE CONSIDERATION RECEIVED BY THE ASSESSEE AND LD . AUTHORISED REPRESENTATIVE EXPLAINED THAT SHARE WARRANTS ARE PU RCHASED FOR :14,00,00,000/- AND ASSESSEE COMPANY RELINQUISHED RIGHTS TO BUY SHARES OF SHRIRAM CITY UNION FINANCE LIMITED AND TA KEN THE CONSIDERATION AS ZERO OBSERVED AT PAGE 5.1 OF LD. ASSESSING OFFICER ORDER AS UNDER:- 'SHRIRAM CITY UNION FINANCE LIMITED ISSUED 35,00,000 WARRANTS TO US ON 16.05.2008 CONVERTIBLE WITHIN 18 MONTHS FROM THE DATE OF ALLOTMENT AT THE OPTION OF HOLDER INTO EQUITY SHARES OF RS. 10 EACH FOR CASH AT THE RATE OF ONE EQUITY FOR EVERY WARRANT. WE PAID RS.14,00,OO,OOO ON 15.05.2008 I.E. RS.40 FOR WARRANT. ON CONVERSION , WE HAD TO PAY RS.126,00,OO,000 (RS.360 PER WARRANT), A S WE COULD NOT RAISE 126,00,00,000 WE RELINQUISHED OUR RIGHT TO BUY THE SHARES OF SHRIRAM CITY UNION FINANCE LIM ITED, THE CONSIDERATION BEING ZERO. THE AMOUNT ALREADY PA ID OF RS. 14,00,00,000 WAS FORFEITED. THEREFORE THE AMOUNT ALREADY PAID IS ONLY A LOSS. YOU HAVE STATED THAT I N THE ABSENCE OF ANY VALUE BEING ASSIGNED TO THE CONSIDER ATION RECEIVED ON TRANSFER OF WARRANTS, THE CAPITAL LOSS CANNOT BE COMPUTED U/S 45 R.W.S.48 AND HENCE WE ARE NOT ENTITLED TO CLAIM SHORT TERM CAPITAL LOSS. WE SUBMI T THAT WE LOST THE AMOUNT INVESTED AS THE OPTION WAS NOT EXER CISED AND THE BALANCE AMOUNT WAS NOT PAID. HENCE THE SALE CONSIDERATION HAS TO BE TAKEN AS 'ZERO', THEREFORE, WE REQUEST THAT OUR CLAIM MAY BE ALLOWED. THE LD. ASSESSING OFFICER CONSIDERED THE EXPLANATIO NS AND FACTS ON ALLOTMENT OF SHARE WARRANTS AND RELIED ON THE DECIS IONS OF ITAT, AHMEDABAD BENCH IN THE CASE OF AJAY C. MEHTA VS. DCIT, 114 ITD 628 REFERRED AT PAGE 9 TO 11 OF HIS ORDER AND CONCLUDES THAT THE LOSS ON ITA NO.885/MDS/2015 :- 12 -: FORFEITURE OF WARRANTS IS NOT SHORT TERM CAPITAL LO SS AND ASSESSEE COMPANY IS NOT ENTITLED FOR CLAIM OF LOSS OF :14,00 ,00,000/- AND DISALLOWED THE SAME. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 8.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) ON THE BASIS OF THE ARGUMENTS OF THE LD. AUTHORISED REPRESENTATIVE ON THE GROUNDS AND FINDIN GS OF THE LD. ASSESSING OFFICER AND WRITTEN SUBMISSIONS AND OTHER MATERIALS IN THE APPELLATE PROCEEDINGS OBSERVED AT PAGE 18 TO 22 OF HIS ORDER AT PARA 5.3.2 AS UNDER:- I HAVE CONSIDERED THE FINDINGS OF THE AO AND ALSO THE SUBMISSIONS OF THE AR OF THE APPELLANT CAREFULLY. T HERE IS NO DISPUTE ABOUT THE FACTUAL POSITION BROUGHT BY THE A O IN THE ORDER OF ASSESSMENT. THE STAND OF THE AR OF THE APPELLANT THAT THE CONSIDERATION RECEIVED ON FO RFEITURE OF WARRANTS TO BE TAKEN AS NIL IS NOT ACCEPTABLE. THE APPELLANT HAS NOT EXERCISED THE OPTION AND THE WARRANTS WERE LAPSED AND THE ASSESEE HAS NOT GOT ANY AMOUNT ON ACCOUNT FORFEITURE OF WARRANTS. ON THE FACTS OF THE CASE, I AM OF THE CONFIRMED VIEW THAT THE APPELLANT HAS NOT RECEIVED ANY CONSIDERATION ON ACCOUNT OF FORFEITURE OF WARRANTS. HOWEVER, THE AR OF THE APPELLANT RELIED ON THE RATIO OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT V . CHAND RATTAN BAGRI [329 ITR 356] AND RATIO OF THE DECISION OF THE KANATAKA HIGH COURT IN THE CASE OF DCIT V. BPL SANYO FINANCE LTD. [312 ITR 63]. ON THE OTHER H AND, THE AO RELIED UPON THE RATIO OF THE DECISION OF THE HONBLE ITAT, AHMADABAD 'B' BENCH IN THE CASE OF AJAY SINGH MEHTA V. DCIT [ 1 14 ITD 628]. IN THE CASE CITED BY THE AO, THE HON'BLE ITAT AHMADABAD 'B' BENCH, RELIED UPON T HE RATIO OF THE DECISION OF THE SUPREME COURT OF INDIA IN THE CASE OF CIT V. B.C . SRINIVASA SETTY [1981] [128 ITR 294] IN COMING TO THE VIEW THAT ASSESSEE WILL NOT BE ENTITL ED TO CLAIM THE DEDUCTION UNDER SHORT T ERM CAPITAL LOSS IN THE ABSENCE OF VALUE BEING ASSIGNED TO THE CONSIDERATIO N ITA NO.885/MDS/2015 :- 13 -: RECEIVED ON TRANSFER OF WARRANTS FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS U/S . 48 OF THE I. T. ACT. THE RATIO OF THE DECISIONS RELIED UPON BY THE AR OF THE APPELLANT ARE NOT APPLICABLE TO THE FACTS OF THE PR ESENT CASE AS THE DECISIONS RENDERED BY HIGH COURT OF KARNATAK A AND HIGH COURT OF DELHI CITED SUPRA, DID NOT CONSIDER T HE RATIO OF THE DECISION RENDERED BY SUPREME COURT OF INDIA IN THE CASE OF CIT V . B.C . SREENIVASA SETTY [1981] [128 ITR 294]. THERE BEING NO JURISDICTIONAL TRIBUNAL OR HIG H COURT DECISION ON THIS ISSUE, I AM OF THE CONSIDERED VIEW THAT THE AO - RS LEGALLY CORRECT IN COMING TO THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE TOWARDS SHORT TERM CAPITAL LO SS IS NOT ALLOWABLE AND DISMISSED THE GROUND OF THE ASSESSEE. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASS ESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 8.3. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE ARGUED THE GROUNDS AND EXPLAINED THAT THE LOSS IS ON ACCOUNT OF FORFEITURE OF WARRANTS AND ASSESSEE HAS CLAIMED THE SALE CONSIDER ATION AS NIL. FURTHER, THE LOSS IS DUE TO NON EXERCISE OF RIGHT F OR ALLOTMENT OF SHARES. PRIME FACIE, THE ASSESSEE HAS PURCHASED WARRANTS OF GROUP COMPANIES AND PAID :14,00,00,000/- BUT COULD NOT PAY BALANCE AMOUNT WITHIN THE STIPULATED PERIOD DUE TO FINANCIAL CONSTRAINS AND L OSS WAS CLAIMED AS SHORT TERM LOSS AND RELIED ON THE JUDICIAL DECISION S AND PRAYED FOR ALLOWING THE APPEAL. ITA NO.885/MDS/2015 :- 14 -: 8.4 CONTRA, LD. DEPARTMENTAL REPRESENTATIVE RE LIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMEN TLY OPPOSED TO THE GROUNDS. 8.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS. THE CRUX OF THE ISSU E BEING CLAIM OF SHORT TERM CAPITAL LOSS ON ACCOUNT OF FORFEITURE OF WARRA NTS. THE LD. AUTHORISED REPRESENTATIVE EMPHASIZED THAT THE LOSS ON ACCOUNT OF FORFEITURE OF WARRANT FOR NON PAYMENT OF MONEY BECA USE OF FAILURE TO PAY IS ALLOWABLE AS SHORT TERM CAPITAL LOSS EVEN T HOUGH THERE IS NO TRANSFER AND RELIED ON THE JUDICIAL DECISIONS OF KA RNATAKA HIGH COURT OF DCIT VS. BPL SANYO FINANCE LIMITED (312 ITR 63) AND SUPPORTED THE CASE WITH DECISION OF CIT VS. CHAND RATAN BAGRI 329 ITR 356 (DELHI HIGH COURT) AND THE CO-ORDINATE BENCH DECISION OF THE TRIBUNAL ON FORFEITURE OF SHARES IN THE CASE OF K.P.D. SIGAMANI, SHRI. K.P. RAMASAMY AND SHRI. P NATARAJ VS. ACIT IN ITA NO.412/MDS/2010 IN ASSESSMENT YEAR 2007-2008, DATED 30.07.2010 WERE T HE TRIBUNAL HELD AND GAVE A FINDING THAT THE ASSESSEE IS ENTITLED T O CLAIM SHORT TERM CAPITAL LOSS, ON ACCOUNT OF FORFEITURE OF SHARES, IF IT IS NOT SHAM OR COLOURABLE DEVICE. WE PERUSED THE ASSESSMENT ORDE R AND COMMISSIONER OF INCOME TAX (APPEALS) ORDERS ON TH E TRANSACTION OF FORFEITURE OF SHARE WARRANTS OF THE GROUP COMPANY. THE LD. ITA NO.885/MDS/2015 :- 15 -: AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE AUDITED FINANCIAL STATEMENTS OF THE SHRIRAM CITY UNION FINANCE LIMITE D AS ON 31.03.2010 AND SHARE WARRANT CERTIFICATE. THE FACT OF THE SHARE WARRANT CONVERSION FORFEITURE WAS REFERRED IN THE DIRECTORS REPORT AT PAGE 11 AS UNDER:- AS APPROVED BY THE EXTRAORDINARY GENERAL MEETING, OPTIONALLY CONVERTIBLE WARRANTS WERE ISSUED TO VARI OUS SUBSCRIBERS IN THE YEARS, 2008. IN NOVEMBER, 2009 ALL THE SUBSCRIBERS EXCEPT SHRIRAM RETAIL HOLDINGS PVT. LTD (SRHPL) EXERCISED THEIR OPTION AND CONVERTED THE WARRANTS INTO EQUITY SHARES AT A PRICE OF 400/- PER SHARE ( 40/- ON ALLOTMENT AND BALANCE ON CONVERSION OF WARR ANTS INTO EQUITY SHARES). THE NON CONVERSION OF WARRANTS INTO SHARES BY SRHPL RESULTED IN FORFEITURE OF MONEY PAI D BY THEM. FURTHER, THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE PAGE 44 OF THE ANNUAL REPORT AT SCHEDULE 3 RESER VES AND SURPLUS WERE THE FORFEITURE AMOUNT OF OPTIONALLY CONVERTIBL E WARRANTS WERE TRANSFERRED TO CAPITAL RESERVE. NORMALLY AUTHORITIES CONCERNED SHALL PROCEED ON THE BASIS OF THE PROFESSED INTENTION OF THE PARTIES TO A DOCUMENT/ TRANSACTION /ARRANGEMENT. IF THAT IS UNDER DOUBT OR DISPUTED OR CHALLENGED, THEN THE AUTHORITIES HAVE T HE POWER TO FIND OUT THE REAL INTENTION OF THE PARTIES BY REMOVING FACAD E TO EXPOSE THEIR REAL INTENTION CLEVERLY CLOAKED AND IF THAT INTENTI ON IS DISCOVERED TO BE EVASION OF TAX, IT CANNOT BE GIVEN EFFECT TO MERELY BECAUSE OF STEPS TAKEN AS COMPONENT PARTS OF ARRANGEMENT ARE LEGALLY CORRECT OR VALID. ITA NO.885/MDS/2015 :- 16 -: ALL DOCUMENTS OR TRANSACTIONS HAVE TO BE GIVEN EFFE CT TO EVEN THOUGH THEY RESULTED IN REDUCTION OF TAX LIABILITY, PROVI DED THAT THEY ARE GENUINE AND BONA FIDE AND IT CANNOT BE CALLED AS CO LOURABLE DEVICE. IN CASE, A TRANSACTION TOOK PLACE WITH THE SOLE INTENT ION TO DEFRAUD REVENUE AND THAT RESULTED IN DEDUCTION OF TAX LIABI LITY, IT CAN BE CALLED AS A DUBIOUS METHOD FOLLOWED BY THE ASSESSEE, AS TH E PARTIES INVOLVED THEREIN HAVE NO RIGHT TO INDULGE ANY TAX EVASION AN D IT CANNOT BE TAKEN AWAY BY ANY JUDGMENT OF THE COURT. THIS HAS TO BE C ONSIDERED AND IN FAIRNESS, IT SHOULD BE APPRECIATED THAT ALL TRANSACTIONS, WHICH RESULTED IN EVASION OF TAX LIABILITY, CAN BE CONSIDERED AS A DEVICE OR SUBTERFUGE OR COLOURABLE TRANSACTION. WE FOUND ON PERUSAL OF THE SHARE WARRANT CERTIFICATE AND THE FINANCIAL STATEMENTS AND THE A SSESSMENT ORDER, THE LD. ASSESSING OFFICER IN HIS ORDER IS SILENT ON THI S TRANSACTION OF FINANCIAL STATEMENT OF SHRIRAM CITY UNION FINANCE LIMITED AND ACCOUNTING SYSTEM. THEREFORE, WE SET ASIDE ORDER OF THE COM MISSIONER OF INCOME TAX (APPEALS) ORDER AND REMIT THE DISPUTED I SSUE TO THE FILE OF LD. ASSESSING OFFICER FOR RE-EXAMINATION BASED ON T HE INFORMATION SUBMITTED ON WARRANTS AND FINANCIAL STATEMENT OF SH RIRAM CITY UNION FINANCE LIMITED AND THE ASSESSING OFFICER SHALL PA SS THE ORDER ON MERITS AFTER PROVIDING OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH LAW. THE GROUND OF THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSE. ITA NO.885/MDS/2015 :- 17 -: 9. THE LAST GROUND RAISED BY THE ASSESSEE IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE U/S.14 WHILE COMPUTING BOOK PROFIT U/S .115JB OF THE ACT. 9.1 THE LD. ASSESSING OFFICER WHILE CALCULATING BOOK PR OFITS U/S.115JB OF THE ACT FOUND THAT THE ASSESSEE RECEIV ED DIVIDEND INCOME OF :3,34,37,502/- AND DISALLOWANCE U/SEC. 14A R.W.S . RULE 8D WAS CALCULATED AT :1,42,83,969/- WAS ADDED WHILE CALCUL ATING BOOK PROFITS AND ASSESSEE COMPANY. AGGRIEVED THE ASSESSEE HAS FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 9.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIR MED THE ACTION OF THE LD. ASSESSING OFFICER OF DISALLOW ANCE OF SEC 14A EXPENDITURE WHILE CALCULATING BOK PROFITS. AGGRIEV ED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASS ESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 9.3 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE ARGUED THAT THE DISALLOWANCE U/S.14A R.W.R. 8D OF THE ACT IS DISPUT ED AND BEING CHALLENGED. FURTHER, THE PROVISIONS OF SEC. 115 JB OF THE ACT ARE INCLUSIVE PROVISIONS AND ADDITION IN THE ASSESSMEN T PROCEEDINGS TO RETURNED INCOME SHALL NOT BE ADDED FOR CALCULATING THE BOOK PROFITS AND PRAYED FOR ALLOWING THE APPEAL. ITA NO.885/MDS/2015 :- 18 -: 9.4 CONTRA, LD. DEPARTMENTAL REPRESENTATIVE REL IED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMEN TLY OPPOSED TO THE GROUNDS. 9.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS. THE CONTENTION OF T HE LD. AUTHORISED REPRESENTATIVE THAT THE DISALLOWANCE SHOULD NOT BE CONSIDERED FOR COMPUTATION OF BOOK PROFIT U/S.115JB. SIMILAR ISSUE WAS DECIDED BY THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF MANIPAL TECHNOLOGIES LTD. VS. DCIT, IN ITA NO.1222/BANG/2012 DATED 25.07.201 4 WHEREIN IT WAS HELD AS UNDER:- 4. AS REGARDS THE ADDITION OF DISALLOWANCE U/S.14 A OF THE ACT, WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE AC T IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISION OF THE D BENCH OF THE TRIBUNAL AT MUMBAI IN THE CASE OF RELIANCE INDUSTRIAL INFRASTRU CTURE LTD VS. ADD. CIT IN ITA NOS. 69 & 70/MUM/2009, DATED 05.04.2013 WHEREIN, BY FOLLOWING THE DECISION OF TH E DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GOETZE (INDIA) LTD, IT WAS HELD THAT WHILE COMPUTATION OF ADJUSTED BOOK PROFIT S, THE PROVISIONS OF SEC. 14A CANNOT BE IMPORTED IN THE CL AUSE (F) OF THE EXPLANATION TO SEC. 115JB OF THE ACT. COPY OF T HE SAID ORDER IS PRODUCED BEFORE US. LEARNED DEPARTMENTAL REPRESENTATIVE, SHRI. BALAKRIS HNAN, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORI TIES BELOW. 5. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE IS ALSO COVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF THE TRIBUN AL AT MUMBAI CITED SUPRA. THEREFORE, WE DIRECT THAT THE ADDITION OF DISALLOWANCE MADE U/S.14A CANNOT BE MADE WHILE COMP UTING BOOK PROFIT U/S.115JB OF THE ACT. THE ASSESSING OF FICER IS DIRECTED ACCORDINGLY. THIS GROUND OF APPEAL IS ACC ORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.885/MDS/2015 :- 19 -: WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, DIRECT THE LD. ASSESSING OFFICER TO EXCLUDE ADDITION U/SEC. 14 A FOR CALCULATING OF BOOK PROFIT U/S.115JB OF THE ACT AND ALLOW THE APPE AL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 10TH DAY OF AU GUST, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 1 / DATED:10.08.2016 KV 2 ) +#-34 54&- / COPY TO: 1 . '( / APPELLANT 3. ! 6- () / CIT(A) 5. 4 9: +#-# / DR 2. +,'( / RESPONDENT 4. ! 6- / CIT 6. :% ; / GF