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2016 (12) TMI 1078 - ITAT KOLKATA

2016 (12) TMI 1078 - ITAT KOLKATA - TMI - Disallowance of expenses towards speculation business - Held that:- Since there is no speculation activity in respect of this loss on sale of shares in the facts and circumstances of the case, the expenses disallowed would also become regular business expenditure and deserve to be deleted. We find that these facts were duly brought to the notice of the ld CITA who did not understand the same and simply dismissed the grounds as not pressed. We hold in the .....

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per share. We find that the assessee had incurred long term capital loss thereon and short term capital gains thereon in respect of two lots of shares sold by it depending upon the period of holding. We find that the revenue having accepted the said sale price per share in the event of deriving gains ought not to have disputed the same in the event of incurring losses as stated supra. With regard to Modipan Ltd, we find that the shares of the said company are listed in BSE and the prevailing mar .....

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tionate basis - Held that:- We find that the details in the paper book vide pages 40 to 92 were not properly examined by the ld AO. Hence in the facts and circumstances of the case, we deem it fit and appropriate in the interest of justice and fair play , to set aside this issue to the file of the ld AO, to decide the same afresh, in accordance with law. - Disallowance u/s 94(7) - Held that:- We find that the ld AR had stated that the subject mentioned shares of Opto Circuits Ltd which were .....

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being heard. - I.T.A No. 722/Kol/2013 - Dated:- 14-12-2016 - Shri M. Balaganesh, AM And Shri S. S. Viswanethra Ravi, JM For the Appellant : Shri A. K. Tibrewal, FCA, Ld. AR For the Respondent : Shri Nicholas Murmu, JCIT ORDER Per Shri M. Balaganesh, AM This appeal by assessee is arising out of order of CIT(A)-VIII, Kolkata vide Appeal No. 186/CIT(A)-VIII/Kol/11-12 dated 10.01.2013. Assessment was framed by DCIT, OSD to CIT-III, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referr .....

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loss by the ld AO in the assessment and accordingly proceeded to disallow the expenditure to the tune of ₹ 19,75,939/- being 10% of total expenses as attributable to speculation business of the assessee. Later the ld AO had by way of an order u/s 154 of the Act had allowed the claim of the assessee as a regular business loss in respect of the loss on sale and purchase of shares. The assessee before the ld CITA brought this fact to the notice of the ld CITA vide written submission that sinc .....

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appeal before us on the following ground:- 1. That the Ld. CIT(A) erred in dismissing Ground no. 3 of the appeal before him relating to unjustified allocation of a sum of ₹ 19,75,939/- towards speculation business deemed under Explanation below sec. 73 of the Income Tax Act, 1961. 2.2. The ld AR argued that in view of the aforesaid facts and the subsequent order passed by the ld AO u/s 154 of the Act, there is no need to disallow any expenditure in the sum of ₹ 19,75,939/-. In respon .....

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there is no need to disallow any expenses on estimate basis amounting to ₹ 19,75,939/- as expenses attributable to speculation business. Since there is no speculation activity in respect of this loss on sale of shares in the facts and circumstances of the case, the expenses disallowed in the sum of ₹ 19,75,939/- would also become regular business expenditure and deserve to be deleted. We find that these facts were duly brought to the notice of the ld CITA who did not understand the .....

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treatment of long term capital loss in the sum of ₹ 41,07,607/- on sale of unquoted equity shares in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the assessee had declared long term capital gain which was claimed exempt amounting to ₹ 53,11,993/- ; Net Long term Capital Loss u/s 112 of the Act amounting to ₹ 36,15,009/- (41,07,607 - 4,92,598) which was claimed to be carried forward to next year ; Short Term Capital Loss of ₹ 6,75,67, .....

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red to the assessee due to trading of shares made with interested persons by the assessee with a malign intention to accommodate the interested person. Accordingly he concluded that the loss claimed amounting to ₹ 41,07,607/- on the unquoted shares amongst group associates are not genuine losses but mere accommodation loss and accordingly disallowed the same. Hence he levied tax on the Long Term Capital Gain of ₹ 4,92,598/- at the rate of 20% in the assessment. 3.2. Before the ld CIT .....

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ransaction of shares of Modipan Ltd was at prevailing market rate. It was explained that the assessee sold 613000 shares of Herbicure (P) Ltd which were held for more than 12 months and incurred a loss of ₹ 8,27,550/-. The assessee claimed the long term capital loss of ₹ 15,71,654/- on such sale after indexation . The explanation together with the break up value of the sales as well as the relevant balance sheet of the company was submitted to the ld AO on 8.11.2011. It was explained .....

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m such share as stated supra. It was explained that the ld AO was not justified in disallowing the long term capital loss of ₹ 15,71,654/- incurred by the assessee on sale of long term investment in shares of Herbicure (P) Ltd when all the details and evidences of loss were available on record. The only dispute was with regard to the sale price of shares which was strangely accepted by the ld AO while taking the short term capital gains on the very same sale price per share of Herbicure (P .....

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of sale was ₹ 13.75 per share on 29.12.2008. Thus it was explained that the shares were sold privately at a price higher than its ruling market price. It was explained that the ld AO disallowed the said loss for the same and similar reason that assessee did not furnish the break up value of the said shares. It was explained further that since the shares of Modipan Ltd were quoted at BSE and therefore the market price of the share is available all the time, the ld AO was not justified in a .....

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l gain of ₹ 53,11,993/- as stated supra, there would be no loss left with the assessee for carrying it forward and hence he dismissed the ground of appeal raised by the assessee. Aggrieved, the assessee is in appeal before us on the following grounds:- 2. The Ld. CIT(A) erred in holding that the loss of ₹ 41,07,607/- incurred by the Appellant Company on sale of its long term investment in equity shares of private limited companies and not subjected to Securities Transaction Tax (STT) .....

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loss of ₹ 41,0,7607/- on the incorrect ground that the details of break up value of the shares were not submitted by the assessee and since the shares were sold between interested persons, it was only carried out to accommodate the interested person and hence disallowed the same. Whereas the ld CITA accepted the contentions of the assessee on the genuinity of the long term capital loss incurred thereon on appreciating the documents available on record but merely stated that since the same .....

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t. In such an event, the long term capital loss would only have to be carried forward to subsequent years as per the provisions of the Act. In response to this, the ld DR vehemently relied on the orders of the lower authorities. 3.4. We have heard the rival submissions and perused the materials available on record. We also find from the copy of written submissions filed by the assessee before the ld CITA, that the entire details of long term capital loss and long term capital gains were duly exp .....

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he long term capital gains on sale of shares of quoted shares on which STT was suffered would be eligible for exemption u/s 10(38) of the Act. We find from the details available on record, that the assessee had sold the shares of unquoted share (i.e Herbicure P Ltd) at ₹ 8.65 per share which is much more than the break up value per share of the said company (based on its balance sheet) of ₹ 1.09 per share. We find that the assessee had incurred long term capital loss thereon and shor .....

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asis at ₹ 14 per share . Accordingly, we hold that the long term capital loss on sale of shares of unquoted shares (Herbicure P Ltd) and sale of shares of quoted share (Modipan Ltd) which was done on off market on which STT was not suffered, would be separately eligible to be carried forward to subsequent years. Hence the Grounds 2 & 3 raised by the assessee are allowed. 4. The next issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowan .....

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s to sister concerns and disallowed ₹ 69,53,088/- (42.90% of ₹ 1,62,07,664/-). It was explained that the assessee was carrying on the business of dealing in derivatives in equities and trading in securities through its stock brokers namely, Religare Securities Ltd and India Bulls Securities Ltd. The assessee required finance for such business transactions and therefore the assessee agreed with M/s Religare Finvest Ltd and M/s India Bulls Financial Services Ltd, sister concerns of the .....

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ons with India Bulls Securities Ltd) 4.2. It was explained that the first account was used for financing business transactions with Religare Securities Ltd. All cheques received from Religare Finvest Ltd were deposited in the said bank account and immediately thereafter the amounts were given to M/s Religare Securities Ltd for assessee s business transactions relating to business of derivatives and dealing in securities. The assessee explained its contentions through its copy of bank statements .....

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sister concerns of the assessee or any other concern whatsoever. Hence the assessee prayed for allowability of interest paid to Religare Finvest Ltd in the sum of ₹ 54,08,574/- in full as held for the purpose of business. 4.3. Similarly the second account was used for financing business transactions with India Bulls Securities Ltd. All cheques received from India Bulls Financial Services Ltd were deposited in the said bank account and immediately thereafter the amounts were given to M/s In .....

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e been treated and taxed as business income / loss of the assessee. Hence it was submitted that none of the borrowings from India Bulls Financial Services Ltd were ever used for advancing interest free loans / advances to any of the sister concerns of the assessee or any other concern whatsoever. Hence the assessee prayed for allowability of interest paid to India Bulls Financial Services Ltd in the sum of ₹ 1,07,89,090/- in full as held for the purpose of business. 4.4. It was explained f .....

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rbitrary allegation that the assessee provided 42.90% of its borrowings for advancing interest free amounts to its sister concerns. 4.5. The ld CITA merely reiterated the conclusions of the ld AO and observed that before him also the ld AR simply submitted that the borrowed amount is used for the business of the assessee without adducing any evidence thereon. Accordingly he upheld the disallowance of interest made on proportionate basis. Aggrieved, the assessee is in appeal before us on the foll .....

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roup companies and/or otherwise. 4.6. The ld AR reiterated the submissions made before the lower authorities and impressed upon the bench by referring to relevant pages of the paper book vide pages 40 to 92 containing the bank statements of HDFC Bank vide A/c Nos. 05982030000542 and 05982030000034 for the period 1.4.2008 to 31.3.2009 , Ledger account of India Bulls Financial Services Ltd & India Bulls Securities Ltd and Ledger account of Religare Finvest Ltd & Religare Securities Ltd to .....

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ssee filed in this regard. We find that the details in the paper book vide pages 40 to 92 were not properly examined by the ld AO. Hence in the facts and circumstances of the case, we deem it fit and appropriate in the interest of justice and fair play , to set aside this issue to the file of the ld AO, to decide the same afresh, in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is directed to produce necessary evidences in .....

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funds in the sum of ₹ 69,53,088/- as diverted for non-business purposes ( i.e as used for advancing interest free loans and advances to sister concerns), concluded that the remaining portion of the interest paid of ₹ 92,54,576/- (1,62,07,664 - 69,53,088) as attributable to the investment activities of the assessee which is to be disallowed u/s 14A of the Act. Before the ld CITA, the assessee submitted that no borrowings were used for investment in shares and therefore no part of it c .....

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s. The ld CITA ignored these submissions and confirmed the action of the ld AO. Aggrieved, the assessee is in appeal before us on the following ground :- 5. That the Ld. CIT(A) erred in confirming the disallowance of ₹ 92,54,876/- representing interest on funds borrowed from Religare Finvest Ltd. and India Bull Financial Services Ltd. relying on the provisions of sec. 14A of the Act although the borrowed funds were admittedly used for the purposes of its business of dealing in shares and s .....

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read with Rule 8D of the Rules would operate in the instant case. In response to this, the ld DR vehemently relied on the orders of the lower authorities. 5.3. We have heard the rival submissions and perused the materials available on record. We had already set aside the issue to the file of the ld AO to verify whether the borrowed funds from Religare Finvest Ltd and India Bulls Financial Services Ltd on which interest was paid by the assessee to verify the utilization of the said loans by the .....

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rected to produce necessary evidences in support of its contentions. Accordingly, the Ground No. 5 raised by the assessee is allowed for statistical purposes. 6. The last ground to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowance of ₹ 18,50,250/- u/s 94(7) of the Act in the facts and circumstances of the case. 6.1. The brief facts of this issue is that the assessee suffered loss in investment in shares of Opto Circuit (India) Ltd and also re .....

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assessee challenged the disallowance of ₹ 18,50,250/- u/s 94(7) of the Act in respect of dividend earned on shares of Opto Circuits Ltd. The assessee submitted that the details of sale of such shares within a period of three months from the record date were 100378 and dividend on such shares @ ₹ 5 per shares comes to ₹ 5,01,890/- and hence the amount disallowable u/s 94(7) of the Act works out to only ₹ 5,01,890/- and not ₹ 18,50,250/-. The ld CITA stated that since .....

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