ALKA RAJESH AGARWAL, MUMBAI v. ASST CIT 17(2), MUMBAI

ITA 2393/MUM/2012 | 2005-2006
Pronouncement Date: 09-10-2013 | Result: Allowed

Appeal Details

RSA Number 239319914 RSA 2012
Assessee PAN AAFPA5985K
Bench Mumbai
Appeal Number ITA 2393/MUM/2012
Duration Of Justice 1 year(s) 5 month(s) 28 day(s)
Appellant ALKA RAJESH AGARWAL, MUMBAI
Respondent ASST CIT 17(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 09-10-2013
Date Of Final Hearing 26-09-2013
Next Hearing Date 26-09-2013
Assessment Year 2005-2006
Appeal Filed On 11-04-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE S/SHRI B.R.MITTAL (JM) AND SANJAY ARORA (AM) . . & ./I.T.A. NO.2393/MUM/2012 ( / ASSESSMENT YEAR:2005-06) ALKA RAJESH AGRAWAL C/O M/S RAVI ANDDEV CHARTERED ACCOUNTANTS 601 A WING AURUS CHAMBERS BEHIND MAHINDRA TOWERW S.S.AMRUTWAR MARG WORLI MUMBAI-400013 / VS. ASSTT. COMMISSIONER OF INCOME TAX 17(2) MUMBAI. ./ ./PAN/GIR NO. : AAFPA5985K ( / APPELLANT) .. ( / RESPONDENT) / APPELLANT BY : SHRI DEVENDRA A MEHTA /RESPONDENT BY : SHRI SURENDRA KU MAR ' / DATE OF HEARING : 26.9.2013 ' /DATE OF PRONOUNCEMENT : 9.10.2013 / O R D E R PER B.R.MITTAL JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2005-06 AGAINST ORDER OF LD. CIT(A) DATED 8.2.2012. 2. ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WHE THER THE ASSESSEE IS ENTITLED TO CAPITALIZE THE INTEREST OF RS.12 58 348/- ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE FOR COMPUTING THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES. 3. RELEVANT FACTS GIVING RISE TO THIS APPEAL ARE TH AT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM HOUSE PROPERTY SHARES IN PRO FITS OF PARTNERSHIP FIRM CAPITAL GAINS ON SALE OF SHARES DIVIDEND AND BANK INTEREST. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE RETURN OF INCOME WAS FILED ON 25 .8.2005 DECLARING INCOME AT RS.57 49 475/-. THE ASSESSMENT WAS COMPLETED U/S 1 43(3) OF THE INCOME TAX ACT 1961 (THE ACT) ON 10.7.2007 DETERMINING THE TOTAL I NCOME AT RS.70 51 180/-. IT IS RELEVANT TO STATE THAT AT THE TIME OF MAKING THE O RIGINAL ASSESSMENT THE AO ALLOWED I.T.A. NO.2393/MUM/2012 2 CAPITALIZATION OF THE INTEREST PAID ON PURCHASE OF SHARES TOWARDS COST OF ACQUISITION WHILE COMPUTING THE CAPITAL GAIN. HOWEVER LD. COMMISSIO NER OF INCOME TAX U/S 263 OF THE ACT SET ASIDE THE ASSESSMENT AND DIRECTED THE AO TO REASSESS THE ASSESSEES INCOME INTERALIA DISALLOWING INTEREST PAID ON FUNDS BOR ROWED FOR INVESTMENT MADE IN SHARES WHILE COMPUTING THE SHORT TERM CAPITAL GAIN. PURSU ANT THERETO AO MADE ASSESSMENT U/S 143(3) R.W. SECTION 263 OF THE ACT VIDE ORDER D ATED 3.11.2009 AND DISALLOWED THE INTEREST AGGREGATING TO RS.12 58 348/- AS PART OF COST OF ACQUISITION OF SHARES WHILE COMPUTING THE SHORT CAPITAL GAIN IN RESPECT OF SHAR ES THE DETAILS OF WHICH ARE GIVEN IN PARA 2 AT PAGE 5 OF ASSESSMENT ORDER AS UNDER : NAME OF COMPANY NTPC LTD. DATAMATICS LTD NDTV LTD. TOTAL NO.OF SHARES APPLIED 15 00 000 1 00 000 7 65 000 ALLOTTED 1 25 690 1 950 6 200 APPLICATION MONEY OWN FUNDS 1 86 00 000 7 50 000 38 25 000 BORROWED FUNDS 7 44 00 000 1 02 50 000 4 97 25 000 TOTAL 9 30 00 000 1 10 00 000 5 35 50 000 INTEREST PAID 7 03 960 82 000 4 72 388 12 58 348 INTEREST PAID PARTLY KOTAK MAHINDRA FINANCE LTD. BIRLA GLOBAL LTD. BIRLA G LOBAL LTD. STCG/STCL 21 20 514 ( - )2 870 ( - )3 87 666 BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY. 4. LD. CIT(A) RELYING ON THE DECISION OF ITAT MUM BAI IN THE CASE OF MACINTOSH FINANCE ESTATES LTD V/S ADDL.CIT (2007) 12 SOT 324 (MUM-TRIB) CONFIRMED THE ACTION OF THE AO. HENCE THIS APPEAL BEFORE THE TRIBUNAL. 5. LD. AR SUBMITTED THAT THE ASSESSEE APPLIED IN TH E IPOS (INITIAL PUBLIC OFFERINGS) OF NTPC LTD. NDTV LTD AND DATAMATICS LTD. AND USED PARTIALLY HER OWN FUNDS AND PARTIALLY OUT OF FUNDING FROM THE FINANCIAL INSTITU TIONS. WE MAY STATE THAT THE DETAILS OF THE SAID SHARES THE DETAILS OF FUNDS OWNED FUNDS BORROWED AND THE PAYMENT OF INTEREST ARE MENTIONED HEREINABOVE IN PARA 3. LD. AR SUBMIT TED THAT INTEREST PAID TO FINANCIAL INSTITUTIONS ON THE AMOUNT BORROWED BY THE ASSESS EE TILL THE DATE OF ALLOTMENT OF THE SAID SHARES HAS DIRECT RELATION TO THE SHARES ALLOT TED UNDER IPOS. THUS THE SAID INTEREST HAS BEEN PAID AS COST OF ACQUISITION FOR T HE PURPOSE OF COMPUTING THE CAPITAL GAINS. LD. AR SUBMITTED THAT THERE IS A CLEAR NEXU S BETWEEN INTEREST PAID AND THE SHARES OF NTPC LTD. DATAMATICS LTD. AND NDTV LTD . ALLOTTED TO THE ASSESSEE ON WHICH THE SHORT TERM CAPITAL GAIN HAS BEEN CLAIMED BY THE ASSESSEE. LD. AR SUBMITTED I.T.A. NO.2393/MUM/2012 3 THAT ASSESSEE HAS NEITHER CLAIMED NOR WAS ALLOWED DEDUCTION OF INTEREST U/S 57 OR SECTION 37(1) OR SEC.36 (1)(III) OF THE ACT. LD. AR SUBMITTED THAT ASSESSEE DID NOT DERIVE ANY DIVIDEND FROM THE SAID SHARES. THE O NLY INCOME DERIVED BY THE ASSESSEE FROM THOSE SHARES IS SHORT TERM CAPITAL GAIN WHI CH IS TAXABLE UNDER THE ACT. SINCE ASSESSEE CAPITALIZED THE INTEREST IT CONSTITUTES COST OF ACQUISITION. LD. AR SUBMITTED THAT THE INCOME FROM THE SAID SHARES IS NOT EXE MPT UNDER THE ACT THE PROVISIONS OF SECTION 14A OF THE ACT DOES NOT APPLY. LD. AR R EFERRED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S RELIANCE INDUSTRIES LTD. (2010) 8 TAXMANN.COM 218 (BOM) AND SUBMITTED THAT NO DISALL OWANCE UNDER SECTION 14A IS CALLED FOR WHEN THERE IS NO FACT OF HAVING INCURRE D ANY EXPENDITURE FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME. LD. AR ALSO REFERRED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S GLENMARK PHARMA CEUTICAL LTD. (2013) 30 TAXMANN.COM 167 (BOM) THE DECISION OF HONBLE PUNJ AB AND HARYANA HIGH COURT IN THE CASE OF CIT V/S HERO CYCLES LTD (2010) 189 TAXMAN 50 (PUNJ & HAR) AND THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE OF JUSTICE SAM P. BHARUCHA V/S ADDL CIT (2012) 25 TAXMANN.COM 381(MUM). HE FURTHER SUBMITTE D THAT THE ITAT DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MODERN INFO TECHNOL OGY P.LTD. V/S ITO IN ITA NO.4294/DEL/2012 (AY-2009-10) OBSERVED AND HELD THAT NO DISALLOWANCE U/S 14A IS CALLED FOR WHEN THE ASSESSEE HAS NOT INCURRED AND C LAIMED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. LD. AR ALSO REFERRED THE FOLLOW ING DECISIONS : (A) CIT V/S TRISHUL INVESTMENT LTD (215 CTR 96) (M AD); (B) SMT. NEERA JAIN V/S ACIT IN ITA NO.1861/MUM/20 09; (C ) RAJESH RAMSWAROP AGARWAL V/S ITO IN ITA NO.51 57/MUM/2008; HE FURTHER SUBMITTED THAT THE DECISION OF MACINTOS H FINANCE ESTATES LTD (SUPRA) RELIED UPON BY THE LD. CIT(A) IS DISTINGUISHABLE AS IN TH AT CASE THE ASSESSEE WAS NOT AN INVESTOR BUT WAS A NON-BANKING FINANCE COMPANY WHI CH PAID INTEREST ON BORROWED FUNDS AND CLAIMED IT AS DEDUCTION U/S 37(1) READ WI TH SECTION 36(1)(III) OF THE ACT AND ALSO DERIVED THE DIVIDEND INCOME. THE TRIBUNAL HE LD THAT INTEREST ON BORROWINGS USED FOR ACQUIRING STOCK-IN-TRADE WHICH WAS ALLOWABLE AS BUSINESS EXPENDITURE AFTER REDUCING THE AMOUNT OF DIVIDEND RECEIVED ON SHARES HELD AS STOCK-IN-TRADE. HOWEVER THE ASSESSEE IS AN INVESTOR AND NOT A TRADER ENGAGED I N THE PURCHASE AND SALE OF SHARES. THAT THE PROFIT ON SALE OF SHARES HAS BEEN ASSESSED AS CAPITAL GAINS. THAT THE ASSESSEE HAS CAPITALIZED THE INTEREST PAID ON PURCHASE OF S HARES AS A PART OF COST OF ACQUISITION AND NEVER CLAIMED DEDUCTION OR ALLOWED DEDUCTION TH EREOF U/S 57/37(1)/36(1)(III) OF THE I.T.A. NO.2393/MUM/2012 4 ACT. FURTHER THE ONLY INCOME WHICH WAS DERIVED FR OM THOSE SHARES ON WHICH THE INTEREST HAS BEEN PAID IS SHORT CAPITAL GAIN WHICH IS TAXABLE UNDER THE PROVISIONS OF ACT. LD.AR SUBMITTED THAT THE PROVISIONS OF SECTION 14A IS NOT APPLICABLE AND THE INTEREST SHOULD BE CONSIDERED AS COST OF ACQUISITION AND THE SHORT TERM CAPITAL GAINS BE COMPUTED ACCORDINGLY. 6. ON THE OTHER HAND LD. DR RELIED ON THE ORDER OF LD. CIT(A). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF AUTHORITIES BELOW. WE HA VE ALSO CONSIDERED THE CASES CITED BEFORE US (SUPRA). ON PERUSAL OF THE DETAILS OF T HE LOAN BORROWED BY THE ASSESSEE FROM THE CONCERNED FINANCIAL COMPANIES AND THE INV ESTMENT MADE IN RESPECT OF SHARES WHICH ARE UNDER CONSIDERATION THE DETAILS GIVEN HE REINABOVE IN PARA 3 WE AGREE THAT THERE IS A CLEAR NEXUS BETWEEN THE INTEREST PAID AN D THE ALLOTMENT OF SHARES OF NTPC LTD. NDTV LTD AND DATAMATICS LTD. TO THE ASSESS EE AND ALSO INCOME ON SALE OF THOSE SHARES HAS BEEN CONSIDERED UNDER THE HEAD SHORT TERM CAPITAL GAIN/SHORT TERM CAPITAL LOSS. WE OBSERVE THAT THE ASSESSEE HAS CONSIDERED THE PAYMENT OF INTEREST IN RESPECT OF SHARES FOR WHICH THE LOAN WAS TAKEN AS COST OF A CQUISITION OF THOSE SHARES. THEREFORE THE ASSESSEE HAS REDUCED FULL VALUE OF COST OF ACQU ISITION FROM THE SALE CONSIDERATION WHILE COMPUTING THE CAPITAL GAIN. IT IS NOT IN DIS PUTE THAT THE ASSESSEE HAS CAPITALIZED THE INTEREST AND CONSIDERED IT AS PART OF COST OF C OST OF ACQUISITION AS PER SECTION 48 OF THE ACT. THE DEPARTMENT HAS NOT DISPUTED THE CONTE NTION OF LD.AR THAT THE ASSESSEE HAS NOT CLAIMED THE SAID INTERESTS AS DEDUCTION U/S 57/ 37(1)/36(1)(III) OF THE ACT. SIMILAR ISSUE CAME BEFORE THE HONBLE MADRAS HIGH COURT I N THE CASE OF TRISHUL INVESTMENT LTD (SUPRA) WHEREIN THE ORDER OF THE TRIBUNAL WAS CONFIRMED BY THEIR LORDSHIPS AS UNDER : THE TRIBUNAL CORRECTLY HELD THAT THE INTEREST PAID FOR ACQUISITION OF SHARES WOULD PARTAKE CHARACTER OF COST OF SHARE AND THEREFORE TH E SAME WAS RIGHTLY CAPITALISED ALONG WITH THE COST OF ACQUISITION OF SHARES. THERE IS NO DENIAL REGARDING THE BORROWED MONEY FOR THE ACQUISITION OF SHARES BY THE ASSESSEE. THE TRIBUNAL CORRECTLY HELD THAT THE INTEREST PAYABLE THEREON SH OULD BE ADDED TO THE COST OF ACQUISITION OF SHARES. THE REASONS GIVEN BY THE TRI BUNAL ARE BASED ON VALID MATERIALS AND EVIDENCE. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY ERROR OR LEGAL INFIRMITY IN THE ORDER OF THE TRIBUNAL SO AS TO WARRANT INTERFERENCE. WE ALSO OBSERVE THAT THE ITAT MUMBAI BENCH IN THE CASE OF SMT.NEERA JAIN (SUPRA) HAS ALSO CONSIDERED THE SIMILAR ISSUE AND DIRECTED AO TO TREAT INTEREST PAID BY THE ASSESSEE FOR ACQUIRING SHARES AS PART OF COST OF ACQUISITIO NS BY OBSERVING AS UNDER : I.T.A. NO.2393/MUM/2012 5 THERE WAS NO DISPUTE THAT THE ENTIRE LOAN WAS BOR ROWED FOR THE PURPOSE OF ACQUIRING THE SHARES OF PUNJAB NATIONAL BANK AND N TPC. ALSO THAT IMMEDIATELY AFTER ALLOTMENT OF SHARES MONEY REFUNDED BY BOTH T HE COMPANIES WAS REFUNDED TO THE FINANCIERS. THE TRIBUNAL HELD THAT THE FAC T THAT APPLIED SHARES WERE NOT ALLOTTED IN FULL WILL NOT DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE INTEREST PAID AS PART OF THE COST OF ACQUISITION OF THE SHARES A LLOWED AS MONEY BORROWED HAS DIRECT NEXUS WITH ACQUISITION OF SHARES. THE TRIB UNAL DIRECTED THE ASSESSING OFFICER TO TREAT THE INTEREST PAID BY THE ASSESSEE TO BOTH THE FINANCIERS AS PART OF COST OF ACQUISITIONS OF SHARES ALLOW THE SAME AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE TRIBUNAL MU MBAI BENCH IN RAJESH RAMSWAROP AGARWAL (SUPRA) HAS HELD AS UNDER : IT IS NOT DISPUTED THAT THE ASSESSEE HAD BORROWED FUNDS FOR INVESTING IN IPO AND THE SHARES ACQUIRED THROUGH IPO WERE SOLD. THEREFO RE WHATEVER THE INTEREST WAS PAID FOR THE PERIOD TILL THE DATE OF ALLOTMENT OF SHARES HAD TO BE TREATED AS PART OF COST OF ACQUISITION OF SHARES. IT IS NOT DISPUTED THAT FINAL ALLOTMENT OF SHARES WAS FULLY COVERED FROM OWN FUNDS AND THERE FORE NO BORROWED FUNDS WERE ALLOCATED TOWARDS ALLOTMENT OF SHARES. WE ACC ORDINGLY CONFIRM THE ORDER OF LD. CIT(A). CONSIDERING THE ABOVE CASES AND ALSO THE CASES CITE D BEFORE US (SUPRA) WE HOLD THAT THE ENTIRE INTEREST HAS BEEN PAID BY THE ASSESSEE AS A PART OF COST OF ACQUISITION OF SHARES ALLOTTED IS TO BE TREATED AS COST OF ACQUISITION BECAUSE ON PERUSAL OF ALL THE DETAILS FROM THE TABLE AS MENTIONED HEREINABOVE IN PARA 3 THERE IS A DIRECT NEXUS BETWEEN THE BORROWED MONEY AND THE COST OF ACQUISITION OF SHARE S BY ASSESSEE. THE ASSESSEE IS ENTITLED TO CAPITALIZE THE SAID INTEREST AS PART OF COST OF ACQUISITION AS PER SECTION 48 OF THE ACT. HENCE SHORT TERM CAPITAL GAIN AS ACCRUED TO THE ASSESSEE ON THE SALE OF SHARES OF NTPC LTD. NDTV LTD AND DATAMATICS LTD HAS TO BE CONSIDERED AFTER CONSIDERING THE PAYMENT OF THE SAID INTEREST AS PART OF COST OF ACQ UISITION. SINCE THE SHORT TERM CAPITAL GAIN IS TAXABLE UNDER THE ACT WE AGREE WITH THE LD .AR THAT THE PROVISIONS OF SECTION 14A IS NOT APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE WE ALLOW GROUNDS OF APPEAL TAKEN BY ASSESSEE BY REVERSING THE ORDERS OF AUTHORITIES BELOW. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THE 9TH OCTOBER 2013 ( * + 9TH OCTOBER 2013 SD SD ( /SANJAY ARORA) ( . . 1 /B.R.MITTAL) / ACCOUNTANT MEMBER ( / JUDICIAL MEMBER MUMBAI; ON THIS 9TH DAY OF OCTOBER 2013 I.T.A. NO.2393/MUM/2012 6 . . ./ SRL SR. PS ) *+ + / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 2 ( ) / THE CIT(A)- 4. 2 / CIT 5. 3 5 ' 5 / DR ITAT MUMBAI 6. / GUARD FILE. / BY ORDER TRUE COPY (ASSTT. REGISTRAR) / ITAT MUMBAI