TMI Blog2002 (5) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 on which the loss of Rs. 71,03,861 was claimed in the shape of capital loss. As the assessee did not have any income, such loss was requested to be carried forward. 5. At the time of assessment, the AO examined the claim of loss. He observed that the assessee has claimed such loss as revenue loss. He also observed that the assessee cannot claim the loss on account of valuation of investment as the same was a balance sheet item. He also observed that if the value of assets held by the assessee depreciates in any year, the assessee cannot claim the loss due to fall in the price of such assets. He, therefore, disallowed the claim of loss. 6. On appeal, the CIT(A) confirmed the same against which the assessee is in appeal before us. 7. It is argued by the learned counsel that the lower authorities have erroneously felt that the loss of Rs. 71,03,861 claimed by the assessee was on account of depreciation in the value of investment. The fact was that such loss was suffered by the assessee on account of actual sale of the investment and not on account of depreciation in the value of the investment. It was stated that the assessee had sold 6,90,000 shares of HB Portfolio Leasing Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the capital loss did not arise. The learned counsel stated that the assessee itself has debited the loss in the P L a/c. It proves that the assessee has claimed it as a revenue loss. As is evident from the fact that the shares were held by the assessee as an investment and, therefore, any loss suffered on such shares cannot be allowed as revenue loss. 10. Regarding loss suffered on the sale of investment as claimed by the assessee, the learned Departmental Representative stated that merely treating it a sale in the books of account was not enough to hold that the loss was suffered on the sale of investment. As per the provisions of the IT Act, if there was any depreciation in the value of the assets, the same cannot be adjusted in the closing stock. The AO/CIT(A) have, therefore, rightly disallowed the claim of the assessee. 11. We have considered the rival submissions. We have perused the order of the AO as well as CIT(A) and their reasoning for disallowing the loss claimed by the assessee. The first reasoning given by the lower authorities was on account of claiming the loss of investment as business loss because the same was debited to the P L a/c. The second reasoning gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me out with a public issue of convertible debentures in November, 1994. Assessee applied for 6,38,562 debentures on cum-interest basis of Rs. 48 per debenture. The total purchase consideration amounted to Rs. 29.37 crores. The allotment of debentures came in February, 1995 and the purchases were made in July, 1995. As the debentures were convertible in nature, these were converted into shares in Nov., 1995. These debentures were shown by the assessee as its stock-in-trade. As the convertible debentures purchased by the assessee were on cum-interest basis, the interest income of more than Rs. 3.75 crores was offered for taxation as business income and that has also been taxed so. At the end of the year, the assessee valued its stock-in-trade at cost or at market rate whichever was lower. As the market value of the shares held as stock-in-trade had gone down much below the purchase price, the assessee claimed the same as revenue loss. However, the AO held that the shares purchased by the assessee were on account of investment and the treatment of the same as stock-in-trade was only to claim the business loss. The AO further observed that in the earlier year, the assessee was valuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased with an intention to have control over H.B. Portfolio Leasing Ltd. the debentures purchased could not be treated as stock-in-trade. So the debentures/shares received on conversion were investment and not stock-in-trade. (ii) The TDS Certificate regarding interest received on these debentures clearly show that the interest was received by Sh. H.C. Bhasin, Miraculous Investment Co. Ltd., Cornflowers Investment Ltd., Glorious Leasing (P) Ltd. Cornflowers Investment Ltd., Glorious Leasing (P) Ltd. and Yellow Saphires Investment Ltd. (iv) The learned CIT(A) has also observed that these companies have transferred the interest in the company s account. 18. The CIT(A) has observed that H.B. Portfolio Leasing Ltd. and the assessee-company, both were controlled by Shri H.C. Bhasin. By making purchases of debentures of H.B. Portfolio Leasing Ltd. the assessee-company has acquired the controlling shares of other company. 19. Learned counsel argued that only one director, namely, Sh. H.C. Bhasin was common. Shri Lalit Bhasin S/o Shri H.C. Bhasin is director in H.B. Portfolio Leasing Ltd. Thus, it cannot be said that both the companies were under same management. It was stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. were not applicable in the instant case. It was a transaction at arms length. While relying on the decisions in Banyan Berry vs. CIT (1996) 131 CTR (Guj) 127 : (1996) 222 ITR 831 (Guj) at 846 to 850 and CIT vs. H. Holck Larsen (1986) 58 CTR (SC) 53 : (1986) 160 ITR 67 (SC), the learned counsel argued that the CIT(A) was not justified in disallowing the loss claimed by the assessee. 22. On the other hand, learned Departmental Representative stated that the investment in debentures was made to have control over the management of H.B. Portfolio Leasing Ltd. Thus, the purchase made by the assessee were in the nature of purchases of investment and not the purchases of stock-in-trade. Regarding entries in the books of account as stock-in-trade, the learned Departmental Representative while relying on the decisions in Fort Properties (P) Ltd. vs. CIT (1993) 115 CTR (Bom) 355 : (1994) 208 ITR 232 (Bom) stated that the entries in the books of account were not determinative of the nature of the transaction. While relying on the decision in G. Venkataswami Naidu Co. vs. CIT (1959) 35 ITR 594 (SC) at 597, the learned Departmental Representative stated that the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company was having substantial shares of H.B. Portfolio Leasing Ltd. as investment. It sold 6,90,000 shares of that company thus by reducing its investment to that extent. If the intention of the assessee-company behind purchasing the debentures/shares was to have control over that company, the assessee-company would not have sold such huge number of shares of that company which was kept as investment. We find that even after considering the shares acquired by the assessee-company on conversion of debentures, its shareholdings in that company was about 12 per cent only and no person by holding 12 per cent shares of a company can claim to have control over the management of that company. 24. We also find that when these debentures were purchased by the assessee-company on cum-interest basis, the interest of about Rs. 3.75 crores was earned. The same was offered for taxation as business income which has also been taxed so by the AO. Thus, the AO cannot blow hot and blow cold at the same time. 25. There is another important factor in this case. The AO/CIT(A) have held that treating the investment as stock-in-trade, thus claiming loss due to depreciation in the value of stock-in-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed by s. 370(1B) of the Company Act. Moreover, H.B. Portfolio Leasing Ltd. has 7 directors whereas the assessee-company has only 3 directors. Only one director Shri H.C. Bhasin was common. Though the son of Shri Bhasin is also director in H.B. Portfolio Leasing Ltd., he has nothing to do with the assessee-company. Thus, it is not a case of common control or a common management. Similar is the case with the sources of purchase consideration met by Sh. H.C. Bhasin. When Shri Bhasin had advanced the funds to the assessee-company, the assessee-company was merely an investor. Subsequently, the Board of Directors decided to trade in shares. The share capital of the company also increased by about Rs. 10 crores. But all these factors are irrelevant for coming to the conclusion whether the purchases made by the assessee were in the nature of investment or in the nature of stock-in-trade. From the facts, it is clear that the assessee had purchased the debentures/shares as stock-in-trade and the AO is directed to accept the claim of the assessee regarding loss due to depreciation in the value of stock-in-trade. The addition sustained by the CIT(A) is, therefore, deleted and the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
