THE THANE JANATA SAHAKARI BANK LTD, MUMBAI v. ITO TDS -II, MUMBAI

CO 161/MUM/2010 | 2008-2009
Pronouncement Date: 19-12-2011 | Result: Allowed

Appeal Details

RSA Number 16119923 RSA 2010
Assessee PAN AAEPS7121E
Bench Mumbai
Appeal Number CO 161/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 27 day(s)
Appellant THE THANE JANATA SAHAKARI BANK LTD, MUMBAI
Respondent ITO TDS -II, MUMBAI
Appeal Type Cross Objection
Pronouncement Date 19-12-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted Not Allotted
Tribunal Order Date 19-12-2011
Date Of Final Hearing 05-05-2011
Next Hearing Date 05-05-2011
Assessment Year 2008-2009
Appeal Filed On 23-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.3050/MUM/2009 (ASSESSMENT YEAR: 2004-05) MR. HEMANT S. SONAWALA 16/A.L. JAGMOHANDAS MARG MUMBAI -400 034 ....... APPELLANT VS ITO -16(2(1)) MATRU MANDIR TARDEO MUMBAI -400 034 ..... RESPONDENT PAN: AAEPS 7121 E APPELLANT BY: MS. AARTI VISSANJI RESPONDENT BY: SHRI M.R. KUBAL DATE OF HEARING: 13.07.2011 DATE OF PRONOUNCEMENT: 19.08.2011 O R D E R PER R.S. PADVEKAR JM IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT (A)-16 MUMBAI DATED 4.02.2009 FOR T HE A.Y. 2004-05. GROUND NO.1 READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT ALLOWING LONG TERM CAPITAL LOSS OF RS 6 41 857/ - CLAIMED BY YOUR APPELLANT AND THEREBY CONFIRMING THE LONG T ERM CAPITAL GAINS AT RS 5 81 856/- AS ASSESSED BY THE ASSESSING OFFICER. YOUR APPELLANT SUBMITS THAT THE LONG TERM CAPITAL LOSS OF RS 6 41 857/- CLAIMED BY THE A PPELLANT IS ALLOWABLE AND OUGHT TO HAVE BEEN ALLOWED TO HIM . 2. WE FIND THAT THE FACTS ARE PROPERLY NARRATED IN THE ORDER OF THE LD. CIT (A). WE THEREFORE PREFER TO REPRODUCE THE FACTS AS STATED IN THE ORDER OF THE LD. CIT (A). ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 2 3. THE ASSESSEE CLAIMED LONG TERM CAPITAL LOSS OF RS 7 38 740/- WHICH INCLUDED LOSS OF RS 6 41 857/- ON ACCOUNT OF SALE OF 5450 SHARES OF M/S. HINDITRON SCIENTIFIC INSTRUMENTS (IN DIA) PVT. LTD. IT WAS INDICATED THAT THE SHARES WERE SOLD TO HIS WIFE ON 13.10.2003. THE ASSESSEE WAS THE CHAIRMAN OF THE COMPANY WHOSE SHARES WERE SOLD. IT WAS FURTHER NOTICED THAT OUT OF THE 5450 SHARES THE ASSESSEE HAD PURCHASED 450 SHARES ON 18.10.1988 AND BALANCE OF 5000 SHARES ON 14.6.2002 @ RS 100 PER SHARE. THE SHARES WERE SOLD TO HIS WIFE @ RUPEE 1/- PER SHARE. THE A.O. NOTICED THAT IN THE BALANCE SHEET OF THE COMPANY M/S. HINDITRON SCIENTIFIC INSTRUMENTS (IND IA) PVT. LTD THE SHARE CAPITAL WAS RS 5 00 000/- AS ON 31.3.2002. THIS INCREASED TO RS 15 00 000/- (15 000 EQUITY SHARES OF RS 100 EACH ) AS ON 31.3.2003. THE BOARD OF DIRECTORS OF THE COMPANY C ONSISTED ONLY OF THE CLOSE RELATIVES OF THE ASSESSEE. THE P & L ACC OUNT FOR THE YEAR ENDED 31.3.2002 SHOWED THAT THE COMPANIES RECEIPTS BY WAY OF INTERNET FOR THE YEAR WAS ONLY 4 403/- AND THIS WAS RS 6798/- DURING THE EARLIER YEAR. THE A.O. HAS NOTED THAT THE APPE LLANT-ASSESSEE HELD MORE THAN 1/3 RD OF THE SHARE CAPITAL OF THE COMPANY BESIDES BEING THE CHAIRMAN OF THE COMPANY. IN THIS VIEW OF THE SITUA TION THE APPELLANT WAS ASKED WHY THE CLAIM OF LONG TERM CAPITAL LOSS S HOULD NOT BE DISALLOWED. THE ASSESSEE STATED IN RESPONSE TO QUE RY FROM THE A.O. THAT HE HAD SOLD HIS SHARES TO HIS WIFE AND THAT TH E SAID TRANSACTION RESULTED IN CAPITAL LOSS WHICH SHOULD BE ALLOWED. THE DEDUCTIBILITY OF CAPITAL LOSS WAS NOT DEPENDENT ON WHO THE TRANSFERE E WAS IF THE SHARES WHICH ARE CAPITAL ASSET ARE TRANSFERRED BY AN ASSESSEE TO HIS WIFE FOR A CONSIDERATION AND IF HE MAKES A PROFIT IT IS TAXABLE AS CAPITAL GAINS AND SIMILARLY IF IT RESULTS IN A CAP ITAL LOSS THE CAPITAL LOSS IS ALLOWABLE TO THE ASSESSEE. THE ONLY REQUIR EMENT WAS THAT THERE SHOULD BE A VALID TRANSFER FOR CONSIDERATION AND IN HIS CASE THE TRANSACTION WAS BONA FIDE AS TRANSFER HAD TAKEN PLA CE AND CONSIDERATION HAS BEEN RECEIVED. THE SALE PRICE WA S ALSO JUSTIFIABLE AND REASONABLE LOOKING INTO THE FINANCIAL FIGURES O F THE COMPANY ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 3 WHOSE SHARES WERE SOLD. IF THE CAPITAL LOSS WAS NO T ALLOWED IT WOULD MEAN THE SALE PRICE WAS NOT ACCEPTED AND THE SAME W AS AGAINST THE PROVISIONS OF INCOME TAX ACT. THE PROFITS / LOSS O N SUCH SALE WOULD BE DETERMINED WITH REFERENCE TO THE PRICE AT WHICH THE SHARE HAD BEEN PURCHASED BY HIM/HER AND THE PRICE AT WHICH THESE W ERE SOLD . IN THE APPELLANTS CASE THE SHARES HAVE BEEN TRANSFERRED T O THE PURCHASER AND THE PURCHASER HAD ACTUALLY PAID FOR THE SAME AN D TAKEN DELIVERY AND GOT THE SHARES TRANSFERRED IN HER NAME. 3.1 HOWEVER THE A.O. WAS OF THE VIEW THAT BEFORE ALLOWING THE CAPITAL LOSS IT HAD TO BE ESTABLISHED THAT THE TRAN SFER OF CAPITAL ASSET WAS A GENUINE TRANSACTION. IN ORDER TO DECIDE WHET HER A TRANSACTION GENUINE OR NOT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE HAD TO BE CONSIDERED AND A DECISION CANNOT BE TAKEN BY MERELY VERIFYING WHETHER THE TRANSFER HAD ACTUALLY TAKEN PLACE OR NO T. FIRST OF ALL THE APPELLANT HAD SUBSTANTIAL INTEREST IN THE COMPANY W HOSE SHARES WERE SOLD. SECONDLY PERUSAL OF THE ACCOUNTS OF THE COM PANY SHOWED THAT IT WAS NOT A GOING CONCERN WHEN THE APPELLANT PURCHASE D THE 5000 EQUITY SHARES @ RS 100 PER SHARE IN JUNE 2002. THE FINANCIAL POSITION OF THE COMPANY DID NOT UNDERGO A CHANGE AF TER THE APPELLANT ACQUIRED THE SHARES IN ORDER TO JUSTIFY THE SALE OF THE SAID SHARES @ RS 1 PER SHARE TO HIS WIFE. THE COMPANY HAD NOT CARRI ED ON ANY BUSINESS ACTIVITY SINCE THE A.Y. 2002-03 AND DURING THE A.Y. 2003-04 IT HAD DEBITED AN AMOUNT OF RS 8 32 626/- AS LOSS ON ASSET S RETIRED AND AT THE END OF THE FINANCIAL YEAR THE FIXED ASSET WAS N IL. THE RETIREMENT OF THE ASSETS HAPPENED IN THE YEAR IN WHICH APPELLANT ACQUIRED THE ADDITIONAL 5000 SHARES WHEN THE COMPANY WHICH HAD ONLY THE APPELLANT AND HIS CLOSE FAMILY MEMBERS ON ITS BOARD OF DIRECTORS THE PURCHASE OF HALF OF THE SHARES @ RS 100 PER SHARE BY THE APPELLANT AT A TIME WHEN THE COMPANY WAS ON THE VERGE OF CLOSURE COULD ALL BE EXPLAINED AS NOTHING BUT STRATEGY DERIVED FOR ENABL ING THE APPELLANT AND OTHER SHARE HOLDERS TO CLAIM LOSS ON SALE OF SU CH SHARES SUBSEQUENTLY AND THUS REDUCE THE LIABILITY. THE S ALE OF SUCH SHARES ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 4 WAS MADE TO HIS WIFE @ RE 1 PER SHARE DESPITE THE F ACT THAT THE FINANCIAL POSITION OF THE COMPANY REMAINED THE SAME WHEN THE APPELLANT PURCHASED THE SHARES AND WHEN HE SOLD THE SHARES. THE A.O. THUS CAME TO THE CONCLUSION THAT THE PURCHASE AND SALE OF THE SHARES IN QUESTION WAS NOT GENUINE/BONA FIDE. THIS CONCLUSION OF THE A.O. WAS FORTIFIED BY THE FACT THAT THERE WAS NO OT HER SALE OF ANY UNQUOTED OR QUOTED SHARES TO HIS WIFE DURING THE YE AR. THIS TRANSACTION WAS ONLY DONE WITH AN INTENTION TO CL AIM LOSS AND THUS REDUCE HIS TAXABLE INCOME. THE A.O. ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MC. DOWELL AND COMPANY LTD. V. CTO (154 ITR 148) WHERE IN HAS BEEN HELD TH AT EVEN IF INDIVIDUALLY A TRANSACTION IS LEGALLY CORRECT BUT O N THE WHOLE IF THE TRANSACTIONS ARE DEVISED TO DEFRAUD REVENUE THAT C AN NOT BE ACCEPTED AND THAT TAX PLANNING SHOULD BE CORRECT IN FORM AND SUBSTANCE. THE A.O. FURTHER HELD THAT ALL TRANSACTIONS RELATING T O TAX PLANNING MUST BE IN ACCORDANCE WITH THE GENUINE SPIRIT OF THE STA TUTE. 4. BEFORE THE LD. CIT (A) THE ASSESSEE TRIED TO J USTIFY THE GENUINENESS OF HIS TRANSACTION WITH HIS WIFE. IT I S PLEADED THAT COMPANYS FINANCIAL POSITION WORSEN FROM THE FINANC IAL YEAR 1998-99 ONWARDS AND FINALLY STOPPED AND TO IMPROVE THE FINA NCIAL POSITION OF THE COMPANY SHORT-TERM CAPITAL WAS INCREASED BY 10 LAKH AT PAR VALUE ON 14.2.2002 BUT THAT ALSO DID NOT HELP TO THE ASSE SSEE. HENCE THERE WAS NO ALTERNATE THE ENTIRE SHARES WERE SOLD TO SM T. REKHA SONAWALA AT RUPEE 1/- PER SHARE. SUBSEQUENTLY ON 20.4.2004 THE DIRECTORS OF THE COMPANY RESOLVED TO MAKE AN APPLICATION FOR STR IKING THE NAME OF THE COMPANY. THE LD. CIT (A) WAS NOT IMPRESSED WITH THE REASON GIVEN FOR SELLING THE SHARES TO SMT. REKHA SONAWALA AT TH E PRICE OF RUPEE 1/- PER SHARE. BY RECORDING HIS DETAIL REASONING T HE LD. CIT (A) CONFIRMED THE ORDER OF THE A.O. BY DISALLOWING THE LOSS. NOW THE ASSESSEE IS IN APPEAL BEFORE US. ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 5 5. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES A ND PERUSED RECORD. THE ASSESSEE ACQUIRED 5000 SHARES OF HINDIT RON SCIENTIFIC INSTRUMENTS (INDIA) PVT. LTD. WHICH WAS CONTINUOUSL Y INCURRING LOSSES FROM AY 1995-96 TO 2003-04 AND DUE TO CONTINUOUS LO SSES ENTIRE CAPITAL BASE HAS BEEN ERODED AND THE ASSESSEE WAS F ULLY AWARE OF SAID BAD FINANCIAL STATUS OF SAID COMPANY. IT WAS SO THE N CERTAINLY IT IS STRANGE TO CONSIDER THE ASSESSEE AS PRUDENT BUSINES S MAN THAT THE HE MAKES THE INVESTMENT OF RS 5 LAKH AND PURCHASED SHA RES AND WITHIN A SPAN OF ONE YEAR AND 4 MONTHS THE SAME SHARES WE RE SOLD. NOWHERE IT IS CONTROVERTED THAT THE SAID COMPANY WA S OWNED BY THE ASSESSEE AND HIS CLOSE FAMILY RELATIONS. 6. WE FAIL TO UNDERSTAND WHEN THE ASSESSEE HAS DECI DED TO STRIKE DOWN THE NAME OF THE COMPANY FROM THE RECORD OF THE ROC AS THE COMPANYS FINANCIAL POSITION WAS BAD AND WAS THERE NECESSITY TO SALE THE SHARES TO HIS WIFE GENERATING THE FICTITIOUS LO SS?. IN OUR OPINION APPLYING PRINCIPLES OF PROBABILITY OF PRUDENCE THE ASSESSEE HAS USED DEVICE BY SHOWING THE SALES OF SHARES TO HIS WIFE A T RUPEE 1/- FOR CREATING THE LOSS TO TAKE TAX BENEFIT. AFTER GIVING OUR ANXIOUS CONSIDERATION TO THE DETAILS FINDING OF THE LD. CIT (A) WE CONCUR WITH THE SAME AND WE ARE OF THE OPINION THAT THE TRANSAC TION OF SALE IS A DUBIOUS ONE AS RIGHTLY HELD BY THE A.O.. ACCORDING LY GROUND NO.1 IS DISMISSED. 7. GROUND NO.2 READS AS UNDER:- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE DISALLOWANCE OF RS 16 250/- BEING IN TEREST PAID BY YOUR APPELLANT AND CLAIMED AS A DEDUCTION F ROM INCOME FROM OTHER SOURCES. YOUR APPELLANT SUBMITS THAT THE SAME IS ALLOWABLE AND OUGHT TO HAVE BEEN ALLOWED TO HIM. ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 6 8. THE ASSESSEE HAS SHOWN THE INCOME FROM OTHER SOU RCES AT RS 13 77 097/- AND CLAIMED THE EXPENDITURE OF RS 16 25 0/- TOWARDS THE INTEREST PAID TO ONE MRS. V. MAPARA ON THE LOAN OF RS 1 LAKH TAKEN FROM HER TO ARRIVE AT THE TAXABLE INCOME. THE A.O . ASKED THE ASSESSEE TO JUSTIFY THE CLAIM AS HE WAS OF THE OPINION THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN TO VARIOUS COMPANIES IN WHICH HE HAS SUBSTANTIAL INTEREST. THE A.O. HAS NOTED THAT THE INCOME FROM OTHER SOURCES OFFERED TO TAX BY THE ASSESSEE COMPRISES TH E PENSION ON JEEVAN DHARA POLICY INTEREST FROM SAVING BANK AC COUNTS DIRECTORS DIRECTORS SITTING FEES INCOME ON EXERCISING OF ES OP OPTION AND INTEREST ON DEBENTURES. AS THE ASSESSEE COULD NOT PROVE THE NEXUS BETWEEN THE LOAN BORROWED AGAINST THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES HENCE THE CLAIM OF THE ASSESSEE WAS REJECTED. THE LD. CIT (A) CONFIRMED THE SAME. 9. NOW THE ASSESSEE HAS CHALLENGED THE ORDER OF TH E LD. CIT (A). EXCEPT ORAL ARGUMENT NOTHING HAS BEEN PLACED BEFOR E US TO PROVE NEXUS OF THE LOAN BORROWED FROM MRS. V. MAPARA FOR EARNING THE INCOME AND SAME IS BROUGHT TO TAX UNDER THE HEARD I NCOME FROM OTHER SOURCES AND ASSESSEE HAS TO PROVE HOW CLAIM CAN BE ALLOWED U/S. 57(III) OF THE ACT. AS PER THE STATEMENT OF INCOME FILED BEFORE US WE FIND DETAILS OF THE INCOME GIVEN BY THE A.O. ARE CO RRECT. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT ( A). ACCORDINGLY GROUND NO.2 IS DISMISSED. 10. GROUND NO.3 READS AS UNDER:- 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE DISALLOWANCE OF RS 40 000/- OUT OF E XPENSES TOWARDS TELEPHONE SALARY AND MOTOR CAR EXPENSES. YOUR APPELLANT SUBMITS THAT EACH OF THESE IS ALLOWABLE A ND OUGHT TO HAVE BEEN ALLOWED TO HIM. ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 7 11. WE HAVE HEARD THE PARTIES. THE SOLE GRIEVANCE IS DISALLOWANCE OF EXPENDITURE OF RS 40 000/-. THE ASSESSEE HAS SHOWN THE GROSS PROFESSIONAL FEES OF RS 13 66 960/- AND HAS CLAIMED RS 3 23 072/- AS THE EXPENDITURE INCURRED FOR EARNING THE PROFESSION AL FEES. IT WAS CLAIMED BY THE ASSESSEE THAT THE SAID EXPENDITURE I S ON THE FOLLOWING ACCOUNT:- I) PAY ROLL COST FOR PAYMENT RS 1 14 000/- II) TELEPHONE EXPENSES OFFICE RESIDENCE RS 59 1 72/- III) CAR RS 1 07 116/- IV) SALARY TO DRIVER RS 42 784/- 13. THUS THE CLAIM OF THE ASSESSEE WAS THAT THE TO TAL EXPENDITURE WAS LESS THAN 24% OF THE GROSS PROFESSIONAL FEES. THE ASSESSEE HAS SHOWN THE PROFESSIONAL RECEIPTS ONLY FROM THE TWO P ARTIES NAMELY (I) DIGITAL GLOBAL SOFT LTD. AND (II) SPRAYANCE USA. AS NOTED BY THE A.O. SO FAR AS DETAIL OF DIGITAL GLOBAL SOFT LTD. IS CO NCERNED THE ASSESSEE HAS REQUIRED THE SERVICES ONLY FOR A PERIOD OF ONE MONTH. 14. AFTER CONSIDERING THE TOTALITY OF THE FACTS THE A.O. MADE THE DISALLOWANCE OF RS 40 000/- OUT OF HIS RESIDENTIAL TELEPHONE AND EXPENSES OF CAR EXPENDITURE AND DRIVERS SALARY. T HE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS. IT IS PLEADED BEFORE US THAT AT LEAST SOM E EXPENDITURE IS REQUIRED FOR EARNING THE PROFESSIONAL FEES. WE FIN D NO MERIT IN THE ARGUMENT OF LD. COUNSEL. IN OUR OPINION THE DISAL LOWANCE MADE BY THE A.O. IS REASONABLE WE ACCORDINGLY CONFIRM THE SAME. 15. IN THE RESULT ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9TH AUGUST 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 19TH AUGUST 2011 ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 8 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)8 MUMBAI. 4) THE CIT-4 MUMBAI. 5) THE D.R. E BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 3050/MUM/2009 MR. HEMANT S. SONAWALA 9 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 08.06.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 11.06.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER