HARSHAD N. PATEL, MUMBAI v. ITO WD 1(1)(1), MUMBAI

ITA 1252/MUM/2010 | 2005-2006
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 125219914 RSA 2010
Assessee PAN AADPP0651P
Bench Mumbai
Appeal Number ITA 1252/MUM/2010
Duration Of Justice 1 year(s) 4 month(s) 29 day(s)
Appellant HARSHAD N. PATEL, MUMBAI
Respondent ITO WD 1(1)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 15-07-2011
Date Of Final Hearing 05-07-2011
Next Hearing Date 05-07-2011
Assessment Year 2005-2006
Appeal Filed On 16-02-2010
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 NOS.1252 AND 1958/MUM/2010 (ASSESSMENT YEARS: 2005-06 AND 2006-07) SHRI HARSHAD N. PATEL 601/B AMRUT VILLA DR. AMBEDKAR ROAD MATUNGA (E) MUMBAI -400 019 ....... APPELLANT VS INCOME TAX OFFICER -18/17(3)(2) MUMBAI ..... RESPONDENT PAN: AADPP 0651 P APPELLANT BY: SHRI VIPUL B. JOSHI RESPONDENT BY: SHRI A.G. NAYAK O R D E R PER R.S. PADVEKAR JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE CHALLEN GING THE IMPUGNED ORDERS OF THE LD. CIT (A)-29 MUMBAI FOR T HE A.YS. 2005-06 AND 2006-07 RESPECTIVELY. THE SOLITARY COMMON ISSU E IN BOTH THE APPEALS IS WHETHER THE INTEREST BORROWED FOR INVEST MENT IN THE SHARE IS RIGHTLY CLAIMED BY THE ASSESSEE AS A COST OF PUR CHASE/ACQUISITION OF SHARES. 2. BRIEFLY STATED THE FACTS ARE AS UNDER. IN THE A. Y. 2005-06 ASSESSEE HAS MADE IPO APPLICATION FOR PURCHASE OF N TPC AND TCS SHARES. THE ASSESSEE BORROWED THE LOAN FROM BIRLA GLOBAL FINANCE LTD. AND MASAT TEXTURING AND TWISTING PVT. LTD. WH ICH WAS USED FOR PAYMENT TOWARDS IPO APPLICATION. SUBSEQUENTLY NTP C AND TCS ALLOTTED SHARES TO THE ASSESSEE PARTLY AS PER HIS A PPLICATIONS. THERE IS NO DISPUTE ABOUT THE FACT THAT MONEY BORROWED FROM BIRLA GLOBAL FINANCE LTD. AND MASAT TEXTURING AND TWISTING PVT. LTD. WAS PAID TO ITAS 1252 AND 1958/MUM/2010 SHRI HARSHAD N. PATEL 2 NTPC AND TCS AS AN APPLICATION MONEY. THE ASSESSEE PAID OTHER CHARGES OF RS 2 59 447/- IN RESPECT OF THE TCS SHAR ES AND RS 4 43870/- IN RESPECT OF NTPC SHARES IN THE FINANCIA L YEAR 2004-05 AND SAME WAY THE ASSESSEE CLAIMED THE INTEREST PAY MENT AND OTHER CHARGES AS A COST OF ACQUISITION. THE ASSESSEE SOL D THE SAID SHARES DURING THE YEAR AND WHILE COMPUTING SHORT-TERM CAPI TAL GAIN HE CLAIMED ENTIRE INTEREST PAID ON BORROWED MONEY AS P ART OF COST OF ACQUISITION OF SHARES. THE A.O. REJECTED THE CLAIM OF THE ASSESSEE. 3. SAME WAY IN THE A.Y. 2006-07 THE ASSESSEE MADE THE INVESTMENT IN IPO I.E. THE ASSESSEE HAS APPLIED FOR 35 000 SHARES OF FCSS LTD. BUT HE WAS ALLOTTED 12 971 SHARES. THE A SSESSEE HAS PAID TOTAL APPLICATION MONEY OF RS 8 75 00 000/-. SAME WAY THE ASSESSEE HAS APPLIED FOR 10 00 000 SHARES IN K.M. SUGAR MILL S LTD. BUT HE WAS ALLOTTED 64 706 SHARES. THE ASSESSEE HAS PAID APPL ICATION MONEY OF RS 5 59 000/-. THE ASSESSEE SOLD THE SHARES ALLOTT ED FROM THE ABOVE TWO COMPANIES IN THE FINANCIAL YEAR 2005-06 RELEVAN T TO THE A.Y. 2006-07. THE ASSESSEE HAS BORROWED THE MONEY FROM FCS SOFTWARES SOLUTIONS LTD. AND K.M. SUGARS LTD. ON WHICH THE AS SESSEE WAS REQUIRED TO PAY THE INTEREST. THE ASSESSEE CLAIMED THE INTEREST PAID TO K.M. SUGAR MILLS LTD. AND F.T. SOFTWARES SOLUTIONS LTD. AS A COST OF ACQUISITION OF THE SHARES BUT THE A.O. DECLINED TO ALLOW THE CLAIM OF THE ASSESSEE. THE ASSESSEE CARRIED THE ISSUE BEFOR E THE LD.CIT (A) IN BOTH THE ASSESSMENT YEARS BUT WITHOUT SUCCESS. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. COUNSEL SUBMITS THAT NOW THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE OTHER CO-ORDINATE B ENCH OF THE ITAT MUMBAI IN THE CASE OF :- (I) SMT. NEERA JAIN VS. ACIT ITA 1861/M/2009 ORD. DT.22.2.10 (II) WOOD STOCK BROKING P. LTD. VS. ACIT 6657/M/07 ORD. DT.5.1.01 ITAS 1252 AND 1958/MUM/2010 SHRI HARSHAD N. PATEL 3 WE HAVE ALSO HEARD THE LD. D.R. IN BOTH THE CASES THERE IS NO DISPUTE ABOUT THE FACT THAT MONEY BORROWED BY THE ASSESSEE WAS USED FOR IPO APPLICATIONS. THOUGH THE ASSESSEE HAS APPLIED FOR MORE SHARES BUT ONLY PART OF THE SHARES WERE ALLOTTED TO THE ASSESS EE BUT THE ASSESSEE HAS TO PAY THE INTEREST TO THE FINANCIERS. IN THE CASE OF SMT. NEERA JAIN (SUPRA) ON IDENTICAL SET OF FACTS; THE ASSESSE E HAS BORROWED THE MONEY FOR IPO APPLICATION BUT ALL THE SHARES WERE N OT ALLOTTED AS APPLIED AND THE PART OF THE SHARES WERE ALLOTED AND BALANCE AMOUNT WAS REFUNDED TO THE ASSESSEE IN RESPECT OF NON-ALLO TMENT OF THE SHARES. THE ASSESSEE HAS TO PAY THE INTEREST ON TH E ENTIRE FINANCE WHICH WAS BORROWED FOR MAKING THE PAYMENT WITH THE SHARE APPLICATION MONEY. WHEN THE MATTER REACHED BEFORE THE TRIBUNAL THE TRIBUNAL HAS HELD AS UNDER:- 5. WE HAVE GIVEN OUR ANXIOUS CONSIDERATIONS TO THE RIVAL SUBMISSION OF THE PARTIES. IN THE PRESENT CASE TH ERE IS NO DISPUTE ABOUT THE FACT THAT THE ENTIRE LOAN WAS BOR ROWED FOR THE PURPOSE OF ACQUIRING THE SHARES OF THE PUNJAB N ATIONAL BANK AND NTPC LTD. AS PER THE FACTS ON RECORD THE RE IS NO DISPUTE AT ALL THAT IMMEDIATELY AFTER ALLOTMENT OF THE SHARES MONEY REFUNDED BY BOTH THE COMPANY WERE PAID BACK T O THE FINANCIERS. THE CONTROVERSY IS WHETHER THE ENT IRE INTEREST ON THE BORROWED MONEY PAID BY THE ASSESSEE CAN BE ALLOWED U/S. 48 TREATING THE SAME AS THE COST OF ACQUISITION. THE ARGUMENT OF THE LD COUNSEL IS THA T FUNDS WERE BORROWED WITH SOLE INTENTION FOR ACQUIRING THE SHARES AND THAT IS NOWHERE DISPUTED BY THE A.O. AND AS ALL OTMENT OF THE SHARES WAS NOT IN THE HANDS OF THE ASSESSEE AND HENCE THE INTEREST PAID TO THE FINANCIERS ON THE E NTIRE BORROWED MONEY HAS TO BE ALLOWED AND SAME CANNOT BE RESTRICTED TO THE EXTENT OF SHARES ALLOTTED. IN OU R OPINION THE ASSESSEE HAS TO SUCCEED ON THIS GROUND. AS RIGH TLY SUBMITTED BY THE LD COUNSEL THE ENTIRE MONEY HAS B EEN BORROWED BY THE ASSESSEE WITH THE SOLE PURPOSE FOR ITAS 1252 AND 1958/MUM/2010 SHRI HARSHAD N. PATEL 4 ACQUIRING THE SHARES OF THE PUNJAB NATIONAL BANK AN D NTPC LTD. THOUGH THE APPLIED SHARES WERE NOT ALLO TTED IN FULL THAT WILL NOT DEPRIVE THE ASSESSEE FROM CLAIM ING THE ENTIRE INTEREST PAID AS THE PART OF THE COST OF THE ACQUISITION OF THE SHARES ALLOTTED AS THE MONEY BORROWED HAS DI RECT NEXUS WITH THE ACQUISITION OF THE SHARES. WE THER EFORE DIRECT THE A.O TO TREAT THE INTEREST PAID BY THE AS SESSEE TO BOTH THE FINANCIERS AS A PART OF COST OF ACQUISITIO N OF THE SHARES AND ALLOW THE SAME AS A DEDUCTION. ACCORDIN GLY GROUND NO. 1 IS ALLOWED. 5. IN THE CASE OF WOOD STOCK BROKING P. LTD. (SUPRA ) THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL AND FOLLO WING THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT OF MADRAS IN TH E CASE OF CIT VS. TRISHUL INVESTMENTS LTD. 305 ITR 434 HELD THAT THE INTEREST PAID ON THE MONEY BORROWED FOR ACQUIRING THE SHARES ON WHIC H THE ASSESSEE PAID THE INTEREST WHICH PARTAKES THE CHARACTER OF T HE COST OF THE SHARES. WE THEREFORE HOLD THAT THE INTEREST PAID BY THE ASSESSEE ON THE MONEY BORROWED FOR IPO APPLICATION IS PART OF C OST OF ACQUISITION AND THE SAME IS TO BE ALLOWED. WE THEREFORE DIRE CT THE A.O. TO ALLOW THE INTEREST PAID BY THE ASSESSEE AS THE COST OF AC QUISITION IN COMPUTING THE SHORT-TERM-CAPITAL-GAIN. IF THE ASSE SSEE HAS BEEN PAID ANY INTEREST BY THE COMPANY ON AMOUNT OF SHARE APPL ICATION MONEY THEN SAME SHOULD BE REDUCED FROM THE INTEREST PAID AND NET AMOUNT ONLY IS TO BE CONSIDERED. 6. IN THE RESULT BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 5TH JULY 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 15TH JULY 2011 ITAS 1252 AND 1958/MUM/2010 SHRI HARSHAD N. PATEL 5 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)29 MUMBAI. 4) THE CIT-17 MUMBAI. 5) THE D.R. H BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITAS 1252 AND 1958/MUM/2010 SHRI HARSHAD N. PATEL 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 05.07.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 05.07.2011 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