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2016 (6) TMI 555 - ITAT AHMEDABAD

2016 (6) TMI 555 - ITAT AHMEDABAD - TMI - Short Term Capital Loss on sale of unquoted shares - genuity of expenditure - FIFO method of accounting adopted by AO - Held that:- The undisputed facts are that the assessee was already a share holder in said Inter Active Technologies, and after selling about 1/3 share holding remained owner of about 2/3 rd shares in next year, doubts have been raised by ld. Assessing Officer only in respect of this year’s sale of shares tow2ards the end of the year. It .....

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appellant. The aforesaid company had paid the taxes of ₹ 95/- lakhs for the A.Y. 2010-11 after set off of earlier years losses (profit ₹ 614/- lakhs for the A.Y. 2010-11) and also paid advance-tax of ₹ 15/- lakhs for the A.Y. 2011-12.

Thus in consideration of all these undisputed facts, ld. CIT(A) rightly observed that the purchase of these shares by the appellant cannot be considered as non-genuine or paper transactions. Assessee produced necessary evidence that Int .....

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. In order to minimise the losses as the Inter Active’s net worth was reduced from ₹ 800 lakhs to ₹ 400 lakhs. The book value of share of the company slided down to ₹ 38.21 as on 27/03/2008. This was a conscious business decision of the assessee. Besides, the payments for purchase of shares were made by account payee cheques, similarly the consideration for sale of share was also received by account payee cheques. Assessing Officer was not justified in applying FIFO method inst .....

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xpenditure as the assessee failed to provide the nexus of utilization of borrowing for earning offered interest income - Held that:- It has been accepted by the Assessing Officer that interest expenditure has been expended to earn interest income. Sec. 56 does not postulate any condition about the rate of charging interest. The appellant explained the reasons and circumstances as to how the lesser interest was charged on old loans. No discernible case for diversion of borrowed funds for non-busi .....

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terest income and loss arose due to charging of lesser rate of interest on old loans and advances and advances given for shorter period. This contention of the appellant was not controverted by the Assessing Officer either during the course of assessment proceedings nor during remand proceedings. Considering all these facts and circumstances ld. CIT(A) deleted the disallowance. In our considered view there is no inconsistency in the order of ld. CIT(A) on this issue, which is upheld.- Decided in .....

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8-09. 2. Following grounds are raised in Revenue s appeal:- 1. The Ld. CIT(A) has erred in law and on facts in directing to allow the Short Term Capital Loss on sale of unquoted share of ₹ 1,82,10,800/-. 2. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of interest payment of ₹ 9,87,264/- being excess of interest received. 3. On the facts & circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. Following gr .....

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ng the course of the assessment proceedings and not properly appreciating various facts and law in its proper perspective and further erred in passing orders in gross violation of the principles of natural justice. 3. Learned CIT(A) has erred in law and on facts of the case in confirming the action of AO in charging interest u/s 234 A/B/C/D of the Act. 4. Learned CIT(A) has erred in law and on facts in not adjudicating upon the ground challenging the action of AO in initiating penalty under sect .....

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This included STCG of ₹ 1,81,50,000/- on sale of land and loss of ₹ 1,82,10,800/- on account of sale of shares of Inter Active Technologies Pvt. Ltd.. AO called for details of loss in share and held that the claim in this behalf was not genuine. In appeal ld. CIT(A) held that the impugned transaction of sale of shares was genuine and allowed the loss. Aggrieved revenue is before us on this ground. 6. Ld. Departmental Representative relied on the order of the Assessing Officer. 7. Ld. .....

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ll to sale it off his about 1/3rd shareholding, i.e., 3,43,600 shares in Inter Active Technologies @ ₹ 47/- per share so as to restrict his losses. The sale in these market conditions resulted in loss at ₹ 1,82,10,800/-. AO was suspicious mainly on the loss figure being incidentally nearer to STCG on land sale amounting to ₹ 1,81,50,000/-, which was set off. In this connection, the assessee vide letter dated 18/12/2010 submitted a detailed reply explaining that the genuineness .....

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008. 7.1 Ld. Counsel further contends that during the course of assessment proceedings, the assessee filed submission dated 18.12.2010 before the Assessing Officer and explained that, the shares Interactive Technologies were purchased in earlier year also beside purchase and sale in current year about 2/3rd share holding continued in subsequent years. The earlier and subsequent share holding in Interactive Technologies have been accepted by the department; therefore, there is no gainsaying that .....

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he A.Y. 2010-11 after set off of earlier years losses (profit ₹ 614/- lakhs for the A.Y. 2010-11) and also paid advance-tax of ₹ 15/- lakhs for the A.Y. 2011-12. 7.2 Beside assessee furnished all the relevant documents to demonstrate the authenticity of purchase and sale of shares by filing - copy of allotment letter, resolution passed by the Company allotting shares to the assessee, bank statement showing payment for acquisition of such shares, returns filed with the ROC reporting a .....

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n, allotment and distinctive nos. of these shares have been complied with. Similarly the details about of the subsequent sale, the buyer of the shares, receipt of the sale consideration through account payee cheques, transfer of the sold shares from assessee's account to the account of the buyer etc have been demonstrated by relevant documentary evidence. Under the circumstances, the impugned transaction of sale of shares is established by the assessee and has not been proved to be false or .....

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ation" neither refers to the adequacy or inadequacy of the price nor to the market value of the capital asset. Reliance is placed on following authorities:- • CIT vs. Gillanders Arbuthnot & Co. [1973] 87 ITR 407; • CIT vs. George Henderson & Co. Ltd. 66 ITR 622 (SC) 7.4 During the course of appellate proceedings, a remand report was called for by the ld. CIT(A). After considering the material available on record, AO s remand report and submissions of the assessee ld. CIT(A .....

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high premium were purchased to save the company from liquidation and to re-strengthen the company's capital and reserves and the appellant was successful in saving the aforesaid company from adverse consequences. It is evident from the record that the book value of the company had gone upto ₹ 170/- per share as on 18.12.2010 which was for Rs. (-) 40.23 per share as on 29.12.2007 i.e. before the infusion of funds by the appellant. The aforesaid company had paid the taxes of ₹ 95/- .....

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ved. The book value of the shares had rose to ₹ 170/- per share from Rs. (-) 40.23 per share as on 29.12.2007. Thus, the purchase of shares by the appellant at ₹ 100 per share (at a premium of ₹ 90 per share) cannot be any how considered as non-genuine or bogus or paper transactions. The company had furnished necessary information to the Registrar of Companies and no any infirmity was noticed by the ROC in purchase and sale of shares and in maintenance of other records for shar .....

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n that the assessee had made a deliberate attempt to reduce its incidence of tax by adopting a colorable or questionable device, by observing as under:- 2.18 It is evident from the aforesaid submission furnished before the Assessing Officer that the share market was booming at the time of investment in shares. However, all of a sudden, just after the couple of days of investment, the share market was substantially crashed in only one day and then after it continued to show downwards. After the c .....

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s on 27/03/2008. As regards the sale of shares to the close relative it was submitted before the Assessing Officer by the appellant that as per the Companies Act, 1956, the closely held company cannot invite or transfer the equity share of the company to the general public and therefore, the shares were transferred to the HUF of assessee's father. However, by merely transferring the shares to a relative cannot be considered as a non-genuine transaction where the shares with distinctive numbe .....

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justifiable. 7.6 Relying on Hon ble Calcutta High Court judgment in the case of CIT vs. Oberoi Hotels P. Ltd, 334 ITR 293 (Cal.), ld. CIT(A) held that the transactions of the purchase and sale of shares of the assessee were genuine and he accordingly allowed the impugned Short Term Capital Loss of ₹ 1,82,10,800/- attributable to sale of part of the shares of M/s. Inter Active Technologies Pvt Ltd., by observing as under:- ……The shares were actually purchased by the assessee .....

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in considering the entire transaction as a colourable one and considered as having been entered into with the intention of offsetting the short-term capital gain earned from the sale of land. 2.24 There is no substance in the finding of the Assessing Officer without prejudice recorded in para-4.19 of the assessment order. The appellant had acquired shares in the form of physical certificates with distinctive numbers and it was never dematerialized with a depository and therefore, while computing .....

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d submission of the Ld. Counsel, I am of the considered opinion that the Assessing Officer was not justified in applying FIFO method instead of adopting specific distinctive numbers of shares for the purchase and sale of shares while computing capital loss for ₹ 99,10,980/-. However, the Assessing Officer himself had not computed the income by adopting the loss of short-term capital loss of ₹ 99,10,980/-, the aforesaid finding of the Assessing Officer remained academic and the same i .....

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justified in disallowing the short-term capital loss of ₹ 1,82,10,800/-incurred on account of sale of part of the shares of M/s Inter Active Technologies Pvt. Ltd. The Assessing Officer is directed to allow the aforesaid loss of ₹ 1,82,10,800/-. The first ground of appeal is accordingly allowed. 7.7 Ld. Counsel thus contends that assessee s earlier year share holding in Inter Active Technologies has been held to be genuine by Assessing Officer, similarly after the impugned sale 2/3 s .....

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t 1/3 share holding remained owner of about 2/3 rd shares in next year, doubts have been raised by ld. Assessing Officer only in respect of this year s sale of shares tow2ards the end of the year. It emerges from the record that assessee in order to protect his earlier share holding purchased the new shares at higher rate to save Inter Active from liquidation and to re-strengthen the company's capital and reserves, which is claimed to be a prudent business decision. Assessee s efforts are pr .....

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of all these undisputed facts, ld. CIT(A) rightly observed that the purchase of these shares by the appellant cannot be considered as non-genuine or paper transactions. Assessee produced necessary evidence that Inter Active i.e. company furnished necessary information and no any infirmity was indicated by the ROC qua the impugned purchase and sale of shares and in maintenance of other records relating to share transactions. Thus the adverse inference drawn by ld. Assessing Officer that there we .....

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urchase of shares were made by account payee cheques, similarly the consideration for sale of share was also received by account payee cheques. Assessee s reference to the CBDT Circular No.704, dated 28 April, 1995 [213 ITR St. 7] providing that FIFO method is only required to be applied where the dates of purchase and sale could not be correlated with specific numbers of the scripts. Ld. Assessing Officer was not justified in applying FIFO method instead of adopting specific distinctive numbers .....

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9. By ground No.2, Revenue challenges the deletion of disallowance of interest expenditure of ₹ 9,87,264/-. The Assessing Officer disallowed the above interest expenditure of ₹ 9,87,264/- alleging that the assessee failed to provide the nexus of utilization of borrowing for earning offered interest income. In first appeal Ld. CIT(A) deleted the disallowance of interest by following observations: 4. is much substance in the contention of the Ld. Counsel that when it has been accepted .....

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f the Ld. Counsel as well as the finding of the Assessing Officer recorded in the assessment order. I have also considered the remand report of the Assessing Officer. The Assessing Officer had relied upon the discussion made in para-6 of the assessment order. The Ld. Counsel vide para-12 of the comments on the remand report of the Assessing Officer had raised the alternative contention which has also been considered. There is no substance in the alternative contention so raised. The Ld. Counsel .....

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ts are in the nature of capital and not in the regular business of the assessee as has been projected. If that was the position then the Assessing Officer had to allow the same by increasing the cost of the land by the amount of interest treated as capital in nature. Since the contention of the Assessing Officer was without any basis, the alternative contention of the appellant has been rejected. The interest expenditure was actually incurred for earning the interest income and due to charging o .....

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erest income was only disallowed. Considering the facts of the case and the above discussion, I am of the view that the Assessing Officer was not justified in disallowing the excess interest expenditure over the interest income. The disallowance so made for ₹ 9,87,264/- is hereby deleted. 9.1 Ld. DR relied on the order of ld. Assessing Officer. 9.2 Ld. Counsel contends that ld. Assessing Officer observed that the assessee has earned interest income of ₹ 19,03,827/-, whereas interest .....

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interest on borrowed funds assessee, as a prudent measure and in these peculiar circumstances charged lower interest @ 6% on old loan & advance. Ld. Assessing Officer though accepted the contention of the assessee that interest expenditure has been incurred to earn interest income, however, without assigning any tenable reason, disallowed the excess interest expenditure over interest income. It is contended once it has been principally accepted by the Assessing Officer that interest expendit .....

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