TMI Blog2012 (8) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as sham transactions as assessee is well within his rights to set off loss incurred on sale of shares - ITA No.1840/Mum/2005, ITA No.1770/Mum/2005 - - - Dated:- 20-4-2012 - B Ramakotaiah, S S Godra, JJ. For Appellants: Shri Ajay R Singh Shri R V Shah For Respondent: Shri Goli Srinivasa Rao ORDER Per: B Ramakotaiah: These are cross appeals filed by assessee and Revenue against the order dated 31.12.2004 of ld. CIT(A) XXI, Mumbai relating to assessment year 1999-2000. 2. The assessee filed elaborate grounds and subsequently revised grounds on two issues. The first issue relates to disallowance of interest of Rs.27,24,724/- made by A.O. by invoking provisions of section 14A of the Act. Since Ld. CIT(A) gave relief of Rs.5,01,904/- in his order, Revenue in its appeal has contested action of Ld. CIT(A) in giving relief to assessee. Thus on this issue there are cross grounds of appeal. The other issue contested by assessee relates to claim of long term capital loss of Rs.1,74,59,306/- on sale of shares. 3. We have heard ld. Counsel for assessee along with ld. D.R in detail. The assessee has also placed on record paper book furnishing various details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of Rs.11.77 crores. Investment in shares and properties of Rs.51.46 lakhs and interest free advances as on 31.3.1999 of Rs.12.46 crores comes to Rs.13.04. Interest free funds and capital as on 31.3.1999 at Rs.16.58 crores was available to assessee. Therefore he submitted that disallowance u/s 14A is not warranted. Ld. CIT(A), however, worked out proportion of funds available to assessee comes to Rs.5.89 crores and since assessee paid interest of Rs.32.26 lakhs, cost of interest bearing loans received and capital comes to 0.05% and gave relief of Rs.5,01,904/-. Hence, assessee is aggrieved on confirmed amount, whereas Revenue is aggrieved on the relief given to assessee of Rs.5.01,904/-. 4. It was the submission of ld. counsel for assessee that CIT(A) was not justified on disallowance made on notional basis by adopting average method inspite of assessee submission that own funds are more than interest free advances made during the year. He further submitted that investment made cannot be considered as non-generating assets and if interest is disallowed the same may be capitalized towards cost of asset. Further even if there was no income from invested asset, interest relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted that loans taken during the year were utilized for repaying the loans of earlier years whereas the investments were carried over from earlier years. The A.O. as well as the ld. CIT(A) without examining the provisions of section 36(1)(iii) u/s 57 made the disallowance which is not correct. We are of the opinion that no disallowance is required considering the facts of the case. 5.1 On similar facts, the co-ordinate Bench of the Tribunal in the case of M/s Zircon Finance Leasing P. Ltd. in ITA No. 5046/Mum/2003 for A.Y. 1999-2000 dated 3.2.2012 has examined the issue and set aside the order of the ld. CIT(A) and directed the A.O. to make addition of Rs.2000/- u/s 14A. The relevant portion of the order is extracted below: We have considered the rival submissions carefully and find force in the submissions of the ld. counsel of the assessee. We find that ld. CIT(A) has observed that total funds available were Rs.13,73,22,719/- and not Rs.12,59,72,752/-. The details of the same have been worked out as under:- Sr. No. Particulars Rs. Rs. Interest free funds 1 Share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect the A.O. to make addition of Rs. 2000/- u/s 14A. Therefore, this ground is partly allowed. 5.2 As the facts are similar and disallowance made was also similar in assessee's case, no disallowance can be made u/s 14A of the Act out of the interest claim. However as seen from the assessment order, the assessee has received interest free dividend income of Rs.1,59,121/- which was claimed exempt u/s 10(33). We are of the opinion that an amount of Rs. 5000/- can be considered as expenditure for earning of suchdividend, therefore, an amount of Rs. 5000/- is appropriate for disallowance u/s 14A. Accordingly, we modify the order of CIT(A) on the issue. We direct the A.O. to make addition of Rs.5000/- only. The ground raised by assessee is partly allowed. Since the confirmation made by the ld. CIT(A) itself was not upheld, there is no question of considering Revenue ground on reduction granted by CIT(A). Accordingly, the ground raised by the Revenue is dismissed. 6. The other issue raised by the assessee relates to claim of long term capital loss of Rs.1,74,59,306/- on sale of shares. The assessee sold some shares to M/s Hotal Jal and has made capital gain of Rs.3,85,72,309/-. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain on the reason that the transactions are colorable transactions. The findings of ITAT in the case of DCIT v. M/s Zircon Finance Leasing P. Ltd. in ITA No. 5046/Mum/2003 order dtd. 3.2.2012 for A.Y. 1999-2000 are as under:- 15. We have considered the rival submissions carefully in the light of the material on record as well as the judgments cited by both the parties. We find force in the submissions of the Ld. Counsel of the assessee. The assessee had claimed total capital loss of Rs.3,30,15,982/- consisting of loss on account of sale of shares of Plus Channel amounting to Rs.2,15,00,000/- and loss on account of sale of shares of Andromeda Holdings Pvt. Ltd amounting to Rs.1,15,15,982/-. As far as the shares of Andromeda Holdings Pvt. Ltd are concerned assessee has purchased 60,000 shares during A.Y 96-97 for Rs.1,00,20,000/-. The shares were issued to the assessee vide certificate no.13 bearing distinctive nos.940001 to 1000000. This certificate was split into two certificates containing 30,000 shares each by certificate nos.15 16 on 17-7-98. The fact regarding splitting up of shares is noted on top of the share certificate itself. Therefore there is no forc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ksi the wife of the director of the assessee company, would not make the transaction sham. Another fact which has been considered by the AO is that assessee could not produce copies of the share certificates. It was stated during the course of the hearing that because of the liquidation proceedings all papers and files were taken over by the liquidator. Though we do not subscribe much significance to this fact because after the transaction shares must have been given by the company to Ms. Dhyuti Choksi, Mr. Pankaj Pandya and Ms. Vipula Choksi in March, 1999, i.e. the date of transfer whereas liquidation proceedings have commenced somewhere in 2000. However, at the same time it is not disputed that money has already been received by the assessee company through cheques in the month of March, 99 itself. Moreover, the Board's resolution showing the transfer of shares was also produced before the AO as well as the ld. CIT(A). Even if it is assumed for the arguments sake that the above only shows that assessee was trying to generate loss in the above transaction, there is nothing wrong with the same because it can be called as an instrument of tax planning. As pointed out by the Ld. Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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