TMI Blog2007 (12) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... uch liability was ascertained and revenue in nature." 3. Briefly stated facts of the case are that the return of income was filed on 30-11-1998 declaring a loss of Rs. 1,91,53,560. The assessment was completed under section 143(3) on 30-1-2001 determining the taxable income at Rs. 11,64,39,060 under section 115JA. Subsequently the case was reopened under section 148 and notice under section 148 dated 31-3-2003 was issued and duly served on the assessee. The assessment was reopened on the ground that; ( i ) the assessee had made investment in specified securities out of the money mobilized through loans. While for the purpose of claiming deduction under section 54EA, the assessee was required to invest in specified securities out of sales proceeds and ( ii ) the assessee had wrongly claimed an amount of Rs. 1,73,25,000 by way of borrowing charges of income without making any provisions in the books of account and this being unascertained liability and the same needs to be disallowed. The assessee was asked as to why deduction claimed under section 54EA should not be withdrawn. In response to the same, the assessee replied vide its letter dated 5-1-2004 in detail. After taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Thus, the appellant had claimed deduction under section 54EA of the Act as all the conditions set out in the said section was satisfied. Section 54EA deals with the exemption in respect of capital gain arising from the transfer of a long term capital asset in the case of investment made in securities specified in the said section. The provisions of section 54EA is reproduced below : 54EA. (1) Where the capital gain arises from the transfer of a long term capital asset (before 1-4-2000) (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of the net consideration in any of the (bonds, debenture, shares of a public appellant or units of any mutual fund referred to in clause (23D) of section 10) specified by the Board in this behalf by notification in the official gazette (such assets hereafter in this section referred to as the specified securities), the capital gain shall be dealt with in accordance with the following provisions of this section , that is to say ( a )if the cost of (specified se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be impossible for an assessee to claim the deduction under section 54EA as he may not be able to invest within the specified period for want of liquidity. The capital gain gets accrued in the hands of the transferor on the transfers of capital asset in respect of which he may not have received the same proceeds but he is entitled to receive the sale proceeds at a future date which he may actually receive only after six months. If direct nexus were necessary, it would be impossible for the assessee to claim relief by making investment. Thus cannot be the intention of the Legislature. Moreover, it is submitted that for the purpose of levying capital gain tax, it is not necessary that the transferor must get the sale proceeds within certain time limit. The only requirement is that the quantum of net consideration should be invested in order to avail the benefit under section 54EA. In other words, in terms of section 54EA, the clear emphasis is on net consideration in terms of money received/receivable by the transferor in consideration of the sale of the capital assets. The appellant has a bank account wherein all the receipts of any kind are credited therein and simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arallels have been citied in order to bring home the point that the contention of the Assessing Officer that only sale proceeds are to be used for investments and not the borrowed funds is far fetched. In view of the aforesaid, it is submitted that no direct nexus is required between the sale proceeds and the investment in securities as per the provisions of section 54EA and accordingly, the appellant has rightly claimed the deduction under section 54EA." 3.2 After considering the submissions and perusing the material on record, the CIT(A) gave the following findings : "4.2 I have carefully considered the submissions of the ld. AR and also gone through the impugned order of reassessment. It is seen from the assessment order that the Assessing Officer has disallowed the claim made by the appellant under section 54EA only on the ground the investment in specified securities was made by the appellant out of the borrowed funds and had not utilized the sale proceeds. This approach of the Assessing Officer does not correspond with the provisions of section 54EA of the Act. 4.3 The section 54EA was introduced with a view to give relief to the assessee from capital gain in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said section totally redundant. If the intention of the Legislature was to make the direct nexus as a precondition for deduction under section 54EA, the same would have been specifically provided for in the section itself. The Legislature in its wisdom has chosen not to burden the assessee with this embargo. When the section is very clear, it is not necessary to stretch the imagination too fart as to negate the very provisions of the Act. 4.4 In view of the foregoing discussions, I am of the considered view that the Assessing Officer was not justified in disallowing the claim of the appellant under section 54EA of the Act. Accordingly, this ground of appeal is decided in favour of the appellant and against the revenue." 3.3 The ld. DR, who appeared before the Tribunal firstly placed reliance on the order of the Assessing Officer. It was further submitted that what could do directly cannot be done indirectly also. It was further added that for claiming deduction under section 54EA, the sale consideration received by the assessee has to be invested in specified securities for claiming deduction but the assessee has deposited the amount borrowed through banking channel, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A) neither could be controverted by the ld. DR nor any other material was brought on record to establish otherwise. Accordingly, we confirm the findings of the ld. CIA(A) on the reasons discussed above. 5. Regarding the second ground, the briefly stated facts are that the assessee had claimed an amount of Rs. 1,73,25,000 representing stock borrowing charges in the computation of income without making any provision in the profits loss account either as profit or loss. 5.1 According to the Assessing Officer, this being an unascertained liability the same needs to be disallowed, therefore, the assessee was asked to explain the same. Detailed written submissions filed before the Assessing Officer. After examining the detailed written submissions, the Assessing Officer noted that the liability shown cannot be allowed as deduction. The Assessing Officer observed that it is pertinent to note that the assessee has claimed stock-borrowing charges including the corporate benefit in the computation of income and the same has not been debited to the P L account. The assessee has borrowed shares of L T from M/s. Reliance Capital Ltd. (RCL) under stock lending scheme v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 31-3-1998 by a letter dated 15-9-1997 written by the appellant and accepted by Reliance Capital Ltd. The shares so borrowed were sold on 31-3-1997 through Reliance Shares Stock Brokers Limited Shares and Stock Broker. The shares were sold @208 per share being the market rate prevailing on the date of sale. Total sale proceed received on sale of borrowed stock amounted to Rs. 8,00,80,000. The appellant has debited Rs. 1,73,25,000 being stock borrowing charges to sale of share (borrowed stock) A/c leaving a net credit of Rs. 6,27,55,000 in sale of shares (borrowed stock) A/c sales proceeds received by the appellant was utilized for the repayment of liabilities of the appellant. The appellant had incurred Rs. 1,73,25,000 towards stock borrowing charges which had been debited to sale of shares (borrowed stock) a/c . The appellant, in terms of the aforesaid agreement, had incurred and paid the following amount in respect of the shares borrowed : ( a )Rs. 1,50,15,000 towards stock lending fees i.e., @ 75 paise per share per week. ( b )Rs.23,10,000 being dividend @Rs. 6 per share declared by Larsen Toubro Limited. With reference to deductibility of stock borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to make entry in the books of account. If any amount is allowable as a revenue expenditure, it is not material whether the provision has been made in the books of account or not. For this proposition, the appellant relied on the decision of the Hon ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT 82 ITR 363 (SC). The Assessing Officer has further stated that the stock borrowing charges are in the nature of unascertained liability and accordingly the same is not allowable as a business expenditure. This contention of the Assessing Officer is not based on facts. As already stated earlier, the stock borrowing charges accrue on period basis i.e., it would be payable till the shares are returned to the borrower. It is an ascertained liability computed on day-to-day basis and accordingly the same is eligible for deduction." 5.3 After considering the written submissions the CIT(A) recording his findings in para 5.2 at pages 11 12 of his order which are as under : "5.2 I have considered the reasoning advanced by the Assessing Officer in the impugned order of assessment and the submissions of the appellant. The disallowance of stock borrowing charges h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal, Copies of various decisions of the Tribunal were filed by the ld. counsel of the assessee which are placed on record. 5.5 The hearing of the case was completed on 2-8-2007. Thereafter on examination of the records, it is seen that the copy of the agreement on which basis the claim has been made is not placed on record. The case was re-fixed for filing the copy of Stock Lending Agreement and the relevant rules framed by SEBI. Thereafter, the copy of the agreement was filed and the copy of the same was provided to the ld. DR also. On the date of final hearing, the ld. DR fairly stated that the copy was also provided earlier and the same was already considered by the Assessing Officer. During the course of hearing, the ld. counsel of the assessee stated that on the basis of similar agreement in the case of various assessees i.e. M/s. Adbhut Trading Co. Pvt. Ltd. M/s. Vicraze Investments and Trading Co. (P.) Ltd. and M/s. Sandoz Textiles and Trading Pvt. Ltd., the claim of these assessees have been allowed by the ld. CIT(A) and the orders of the ld. CIT(A) have been confirmed by the Tribunal. Attention of the Bench again was drawn on the copy of the orders placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in para 6 which are as under : "6. We have considered the submissions made by both sides, material in record and orders of authorities below. Admittedly, the Assessing Officer had followed findings of his predecessor for the assessment year 1999-2000 and disallowed the stock borrowing charges and added to the income of the assessee, whereas the Tribunal in assessee s own case for the same assessment year in ITA NO. 3597/Mum./2002 vide order dated 25-7-2005 uphold the order of learned CIT(A) and allowed the claim of the assesseee. In this view of the matter, respectfully following the order of co-ordinate Bench, we decide this issue in favour of the assessee." 8. After considering the facts of the present case, findings of the ld. CIT(A) and the findings of the Tribunal in the above mentioned cases, we find that identical issue has been decided by the Tribunal earlier. Therefore, following the orders of the Tribunal, we find no reason to interfere with the findings of the ld. CIT(A) as in all the earlier cases before the Tribunal on the basis of similar agreement, the claim was allowed. As stated above, the facts of the present case in hand and the facts of the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X
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