MALCOLM M. MODAWALA, MUMBAI v. ACIT 20(2), MUMBAI

ITA 3499/MUM/2008 | 2005-2006
Pronouncement Date: 09-09-2011 | Result: Allowed

Appeal Details

RSA Number 349919914 RSA 2008
Assessee PAN AACPM0280C
Bench Mumbai
Appeal Number ITA 3499/MUM/2008
Duration Of Justice 3 year(s) 3 month(s) 18 day(s)
Appellant MALCOLM M. MODAWALA, MUMBAI
Respondent ACIT 20(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 09-09-2011
Date Of Final Hearing 29-08-2011
Next Hearing Date 29-08-2011
Assessment Year 2005-2006
Appeal Filed On 21-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI VIJAY PAL RAO JM ITA NO.3499/MUM/2008 : ASST.YEAR 2005-2006 SHRI MALCOLM M.MOWDAWALA SILVERDALE HOUSE PLOT NO.28/II MIDC MAROL ANDHERI(EAST) MUMBAI 400 093. PAN : AACPM0280C. VS. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 20(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIPUL B.JOSHI RESPONDENT BY : SHRI V.V.SHASTRY DATE OF HEARING : 29.08.2011 DATE OF PRONOUNCEMENT :09.09.2011 O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 14.03.2008 IN RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT SHARES OF SATYAM COMPUTER S ROLTA AND SILVERLINE INDUSTRIES WERE CAPITAL ASSETS AND NOT STOCK-IN-TR ADE AND RESULTANT INCOME THERE FROM SHOULD BE TAXED UNDER THE HEAD `CAPITAL GAINS AND NOT AS BUSINESS INCOME. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE CLAIMED LOSS OF RS.1 13 65 819 FROM TRADING OF SHARES AS BUSINESS L OSS. THE ASSESSEE RECEIVED REMUNERATION OF RS.45 75 048 AS WORKING PARTNER IN A FIRM AND CLAIMED SET OFF OF SUCH REMUNERATION AGAINST THE LOSS OF RS.1.13 CRORE . THE REMAINING AMOUNT OF RS.67.90 LAKH WAS CLAIMED AS CARRIED FORWARD TRADIN G LOSS. THE ASSESSING OFFICER HELD SUCH LOSS AS THE ONE ARISING U/S.45 AND HENCE INELIGIBLE FOR SET OFF AGAINST THE BUSINESS INCOME. THE LEARNED CIT(A) UPHELD THE ASSE SSMENT ORDER ON THIS ISSUE. ITA NO.3499/MUM/2008 SHRI MALCOLM M.MOWDAWALA. 2 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE MAIN REASON FOR WHICH THE LOSS FROM THE SHARES HAS BEEN HELD TO BE NOT BUSINESS LOSS IS THAT SUCH SHARES OF THREE COMPANIE S WERE PURCHASED IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2000-2001 AND 2001 -2002 WHEREAS THE SALE TOOK PLACE IN THE INSTANT YEAR NAMELY ASSESSMENT YEAR 20 05-2006. THE OTHER FACTOR WHICH HAS HEAVILY WEIGHED WITH THE AUTHORITIES BELO W IN REACHING THE CONCLUSION THAT THE SHARES WERE TO BE HELD AS INVESTMENT AND N OT STOCK-IN-TRADE WAS THAT THE SHARES WERE VALUED AT COST IRRESPECTIVE OF THE MARK ET PRICE. 4. IT IS SEEN THAT THE ASSESSEE PURCHASED THE SHARE S OF THESE THREE COMPANIES IN ASSESSMENT YEAR 2000-2001 AND 2001-2002 DURING BULL PHASE WHEN PRICE OF THESE SHARES WERE VERY HIGH. THESE SHARES TREATED AND IN CLUDED IN STOCK-IN-TRADE ALTHOUGH THE ASSESSEE HAD ALSO MADE SOME INVESTMENT IN SHARES. INSOFAR AS THESE SHARES ARE CONCERNED THESE WERE INCLUDED IN THE ST OCK-IN-TRADE IN THE YEAR OF ACQUISITION AND CONTINUED TO BE HELD SO FROM YEAR T O YEAR BASIS. IT IS A MATTER OF RECORD THAT SOME OF THESE SHARES ACQUIRED IN THE YE AR 2000-2001 WERE SOLD BY THE ASSESSEE DURING THE IMMEDIATELY PRECEDING YEAR THE LOSS FROM WHICH WAS DECLARED AS BUSINESS INCOME AND THE SAME WAS ACCEPTED AS SUC H BY THE REVENUE IN ASSESSMENT MADE U/S.143(3) OF THE ACT. A COPY OF CO MPUTATION OF INCOME ALONG WITH THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004- 2005 HAVE BEEN PLACED ON RECORD. FURTHER OVER THE PERIOD THE ASSESSEE CLAIME D DEDUCTION IN RESPECT OF INTEREST PAID ON FUNDS UTILIZED FOR PURCHASING THESE SHARES AS BUSINESS EXPENDITURE WHICH HAS NOT BEEN DISALLOWED WHILE COMPUTING THE BUSINES S INCOME. IN SO FAR AS THE OTHER OBJECTION RAISED BY THE AUTHORITIES THAT THE ASSESSEE VALUED THESE SHARES AT COST OVER THE YEARS IS CONCERNED WE ARE UNABLE TO ACCEPT IT AS A GROUND FOR HOLDING THAT THE SHARES BE TREATED AS `INVESTMENTS AND N OT STOCK IN TRADE. THERE ARE VARIOUS METHODS PRESCRIBED FOR VALUING THE STOCK AN D THE VALUATION AT COST IS ONE OF SUCH RECOGNIZED METHODS. IT IS NOT THAT STOCK HAS T O BE INVARIABLY VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS. ANY PERSON CAN VALU E STOCK AT ITS COST OR MARKET ITA NO.3499/MUM/2008 SHRI MALCOLM M.MOWDAWALA. 3 PRICE OR COST OR MARKET PRICE WHICHEVER IS LESS OR ANY OTHER RECOGNIZED METHOD. THE THINGS IS THAT ONCE A PARTICULAR METHOD OF VALUING THE STOCK IS ADOPTED THAT SHOULD BE CONSISTENTLY FOLLOWED. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS SEEN THAT THE ASSESSEE BY VALUING THESE SHARES AT COST HAS NOT VI OLATED ANY PROVISION OF CHAPTER IV-D. ACCOUNTING STANDARD 13 WHICH HAS BEEN HEAVILY RELIED ON BY THE AUTHORITIES IN SUPPORT OF ITS VIEW POINT THAT THE SHARES SHOULD BE HELD AS INVESTMENT IN FACT DOES NOT APPLY TO ASSETS HELD AS STOCK-IN-TRADE. IT APPLIES ONLY TO THE INVESTMENTS WHICH ARE HELD OTHERWISE THAN AS STOCK. THE DEFINI TION CLAUSE OF ACCOUNTING STANDARD 13 SPECIFICALLY PROVIDES THAT : ASSETS HE LD AS STOCK-IN-TRADE ARE NOT HELD AS INVESTMENT. 5. UNDER THESE CIRCUMSTANCES WE ARE SATISFIED THAT THE SHARES HELD BY THE ASSESSEE WERE STOCK-IN-TRADE AND THE LOSS RESULTING FROM THEIR SALE WAS RIGHTLY CONSIDERED BY THE ASSESSEE AS FALLING UNDER THE HEA D `BUSINESS INCOME. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING SUCH SH ARES AS INVESTMENT RATHER THAN STOCK-IN-TRADE. WE THEREFORE OVERTURN THE IMPUGNE D ORDER ON THIS ISSUE AND HOLD THAT THE LOSS OF RS.1.13 CRORE SHOULD BE CONSIDERED AS LOSS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 6. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH DAY OF SEPTEMBER 2011. SD/- SD/- (VIJAY PAL RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 09 TH SEPTEMBER 2011. DEVDAS*` ITA NO.3499/MUM/2008 SHRI MALCOLM M.MOWDAWALA. 4 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XX MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.