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2016 (10) TMI 87 - ITAT MUMBAI

2016 (10) TMI 87 - ITAT MUMBAI - TM - Revision u/s 263 - holding the loss to be not a STCL - Held that:- The assessee subscribing to the share warrants or of providing for loss by writing off the amount paid, in the assessment order. Even no material was led before us during hearing to show itsí consideration during the assessment proceedings. The details in its respect called for during the assessment proceedings, which were adverted to during hearing, are towards the payment of the sum as well .....

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application of mind whatsoever by him. That lack of enquiry, where warranted, gives rise to revision is a part of well settled law - The Honíble Apex Court in Malabar Industrial Co. Ltd. v. CIT [2000 (2) TMI 10 - SUPREME Court ] has laid down a four-way test toward an order being erroneous. Succinctly put, these are: incorrect assumption of facts; incorrect application of law; without applying the principles of natural justice; and without application of mind. It is the fourth category whic .....

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umbai ( CIT for short) qua its assessment u/s. 143(3) dated 01.12.2011 for the assessment year (A.Y.) 2009-10. 2. The basis of the revision in the present case is the acceptance by the Assessing Officer (A.O.) of the assessee s claim for short term capital gain (STCG) on the nonexercise of the option to subscribe to the (equity) share capital in Sintex Industries Ltd. (SIL) at the offered price of ₹ 454.74 per share, including share premium of ₹ 452.74 per share. Share warrants, 66 l .....

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are price of SIL and, accordingly, written off by the assessee in its accounts and claimed as short-term capital loss (STCL) per its return of income for the relevant year. The assessee substantiated its claim in assessment by filing the relevant details, including in respect of the share price of SIL as on 31.3.2009; the write off - as it appears, being in March, 2009 (Schedule 8, Notes to Accounts/PB page 40). Extract of final accounts of SIL was also furnished to exhibit that the amount forfe .....

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s being only in the nature of advance to be adjusted against the price payable on the purchase of shares. The right that inures to the assessee is only to subscribe to the shares (at a price), within a defined period of time, so that it gets lapsed on the expiry of the stipulated period. The share warrant, thus, is only a longterm option, and the amount paid therefor in the nature of an option premium. Further still, the contract being settled otherwise than by delivery of the underlying asset, .....

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er due verification, and that therefore his order cannot be regarded as erroneous and prejudicial to the interest of the Revenue, so as to warrant a revision u/s. 263. On merits, its case is that the share warrant is a capital asset, which stands extinguished on the non-exercise of the option. An extinguishment of a right is a transfer within the meaning of section 2(47) of the Act. The loss arising is thus a short-term capital loss (STCL), as claimed, and as allowed by the AO. Before us, the th .....

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pital asset , which stands very broadly defined u/s. 2(14) of the Act to mean any property - barring some specified exceptions, held by the assessee. This, we may add, would be so even where the share warrant is not transferable and, thus, no more than an advance (non-assignable), toward subscription of a share, as contended by the ld. CIT. The only difference in that case would be that being non-transferable, loss on its forfeiture would be a loss of capital, or a capital loss (refer: Hasimara .....

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f value of the corresponding share warrants (the right or the option attached therewith) is thus only on account of a fall in its value. That is, from whatever value that may have been perceived by the assessee initially when the value of the SIL shares was higher. There is no expiry or extinguishment of the right and, therefore, no transfer, by 31.3.2009. There is, we may emphasize no forfeiture of the amount paid during the current year. The impugned loss, which can in fact also be said to be .....

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ly, is in the nature of a capital loss. The reason is simple. The asset is a right conferred by a contract, which extends to a particular period. That is, the right, which is regarded as a capital asset, is itself defined to exist over a prescribed period, so that it ceases to exist on its lapse. Put differently, is a capital asset only for such period of time, and no further. There is as such no question of it s transfer after 17.7.2009, by which date it could be either exercised or transferred .....

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re the right gets destroyed or annihilated, as by the act of God or law or by the action of third party. Reference in this context may be made to the definition of the word extinguishment in P. Ramanatha Aiyar s - The Law Lexicon - 3rd Edition 2012, reads as under: Extinguishment: The extinction or annihilation, of a right, estate, etc., by means of its being merged in, or consolidated with another, generally a greater or more extensive, right or estate. Wherever a right, title or interest is de .....

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vance which could be set off only against the cost of the asset for the purchase of which it was given. The loss, thus, is a loss of capital, or a capital loss. Our third reason for regarding it as so is by viewing the amount paid as an option premium. The subscriber, as the assessee, is, at the commencement of the contract, aware that in the event of it failing to subscribe to the shares within the contracted period, it stands to loose the amount paid, which could be adjusted only against the v .....

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of any fresh rights. 3.5 We may further, by way of abundant clarification, also state that the Reasons 2 & 3 deliberate the nature of the loss arising while Reason 1 is with regard to as to why the same cannot be considered as having been incurred and, thus, not arising during the current year. Needless to add, the loss in any case, would arise only in the immediately succeeding year. Further, Reasons 2 & 3, which emphasize the absence of the element of transfer in the instant case - th .....

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cribing to the share warrants or of providing for loss by writing off the amount paid, in the assessment order. Even no material was led before us during hearing to show its consideration during the assessment proceedings. The details in its respect called for during the assessment proceedings, which were adverted to during hearing, are towards the payment of the sum as well as the reason for not subscribing to the shares, i.e., qua the quantification and the genuineness of the loss, over which .....

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