Dr. Neena Ashwinkumar Moses, Surat v. The ACIT.,Circle-2,, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : A HMEDABAD (BEFORE HON'BLE SHRI G.D. AGRAWAL V.P. (AZ) & HON BLE SHRI T.K. SHARMA J.M.) I.T.A. NO. 4033/AHD./2007 ASSESSMENT YEAR : 2004-2005 DR. NEENA ASHWINKUMAR MOSES SURAT -VS.- ASSISTA NT COMMISSIONER OF INCOME TAX (PAN : AAYPM 2015 K) CIRCLE-2 SURAT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.P. SHAH RESPONDENT BY : SHRI M.C. PANDIT SR. D.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 30.08.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II SURAT FOR T HE ASSESSMENT YEAR 2004-05. 2. GROUND NO. 1 IS AGAINST SUSTAINING DISALLOWANCE OF RS.3 33 215/- IN RESPECT OF SHARE TRANSACTIONS UNDER SECTION 94(7) OF THE INCOME TAX ACT 1961. 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL IS THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAD EARNED CAPITAL GAIN ON 159 TRANSACTIONS PERTAINING TO SHARES AND UNITS OF MUTU AL FUNDS AND SUFFERED LOSSES ON 38 CASES (PARA 6 ON PAGES 3 TO 6 OF THE ASSESSMENT ORDER). IN ALL THE 38 CASES IN WHICH LOSSES HAD BEEN CLAIMED DIVIDEND HAD BEEN DECLARED BY THE CONCERNED COMPANI ES/ FUNDS DURING THE PERIOD BETWEEN THE PURCHASE AND SALE OF THEIR SHARES/ UNITS. IN THE AS SESSMENT ORDER THE ASSESSING OFFICER AS PER PROVISIONS CONTAINED IN SECTION 94(7) COMPUTED THE LOSS INCURRED IN RESPECT OF EACH TRANSACTION AND THEN LIMITED THE LOSS OF EACH TRANSACTION TO TH E DIVIDEND EARNED. ON THIS BASIS THE ASSESSING OFFICER IGNORED THE LOSS WORKED OUT IN ACCORDANCE W ITH THE PROVISIONS OF SECTION 94(7) AMOUNTING TO RS.3 81 961/- AND DISALLOWED THE SAME. ON APPEAL BEFORE THE LEARNED 2 ITA NO. 4033/AHD/2007 COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE C ONTENDED THAT IT HAD ENTERED INTO A TOTAL OF 257 TRANSACTIONS RELATING TO CAPITAL GAINS OUT OF WHICH 219 TRANSACTIONS RELATED TO SHORT TERM CAPITAL GAINS OF RS.14 77 543/- WHILE 38 TRANSACTIO NS RELATED TO SHORT-TERM CAPITAL LOSS OF RS.5 72 993/-. OUT OF THIS 38 THE ASSESSING OFFICE R HAD CULLED OUT 18 TRANSACTIONS WHICH HAD BEEN TABLED IN PARA 14 OF THE ASSESSMENT ORDER. WIT H REGARD TO THE APPLICATION OF THE PROVISIONS OF SECTION 94(7) THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT IN THE SECONDARY MARKET FLUCTUATIONS DO HAPPEN ON A DAILY BASIS IN QUOTED SITUATIONS ES PECIALLY WHEN A COMPANY IS LIKELY TO DECLARE DIVIDEND. THE LD. COUNSEL OF THE ASSESSEE CONTENDE D BY EXPLAINING THE BACKGROUND OF INTRODUCTION OF SECTION 94(7) OF THE STATUTE THAT A S FAR AS THE ASSESSEE IS CONCERNED IT WAS NOT THE CASE THAT SHE HAD DELIBERATELY INCURRED CAPITAL LOS S TO OFF-SET THE CAPITAL GAIN AND SINCE THE ASSESSEE HAD ENTERED INTO SUCH A LARGE NUMBER OF TR ANSACTIONS SHE DID NOT PURSUE INDIVIDUAL TRANSACTIONS. THE ASSESSEE HAD RETURNED A TOTAL INC OME OF RS.29 71 130/- AND THERE WAS NO RATIONALE OR REASON FOR HER TO ENTER DELIBERATELY I NTO ANY TRANSACTION TO SAVE TAX BY CLAIMING CAPITAL LOSS. THE LD. COUNSEL CONTENDED THAT EXTRAC TING 15 TRANSACTIONS OUT OF A TOTAL OF 257 TRANSACTIONS AND FITTING THEM TO THE STRAIGHT JACKE T OF SECTION 94(7) WAS NOT WARRANTED. THE ASSESSING OFFICER FAILED TO APPLY HIS MIND TO THE I NTENTION BEHIND THE INTRODUCTION OF THE SAID PROVISION. THE LD. COUNSEL ALSO ARGUED WITHOUT PREJ UDICE EVEN IF THE ACTION OF ASSESSING OFFICER IS TO BE SUSTAINED A SUM OF RS.48 750/- WOULD GO O UT OF THE PURVIEW OF SHORT-TERM CAPITAL LOSS WITHIN THE MEANING OF SECTION 94(7) OF THE INCOME T AX ACT. A DETAILED CHART WAS FURNISHED BY THE LD. COUNSEL OF THE ASSESSEE TO SUPPORT HER CLAI M. 4. AFTER CONSIDERING THE AFORESAID SUBMISSION IN T HE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) UPHELD THE ACTI ON OF ASSESSING OFFICER TO THE EXTENT OF RS.3 33 215/- FOR THE REASONS GIVEN IN PARA 6 & 6.1 OF THE IMPUGNED ORDER WHICH READS AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED THE FINDINGS AND CO NCLUSION OF THE A.O. AS ALSO THE WRITTEN SUBMISSIONS OF THE A.R. I FIND THAT WHILE THE A.O. MADE A DETAILED ENQUIRY AND GAVE SPECIFIC FINDINGS WITH RE GARD TO EACH AND EVERY TRANSACTION IN WHICH LOSS WAS SUFFERED AND WHICH WE RE 38 IN NUMBER AND THE DETAILS INCLUDED THE DATE OF PURCHASE THE DATE OF DECLARATION OF DIVIDEND THE AMOUNT OF DIVIDEND AND THE DATE OF SA LE ETC. THE A.R. HAS ONLY MADE A VERY VAGUE AND GENERAL SUBMISSION. WHILE THE A.O. APPLIED THE SPECIFIC PROVISIONS OF SEC. 94(7) OF THE ACT THE A .R. HAS ONLY TERMED SUCH APPLICATION AS BEING A STRAIGHT-JACKED APPLICATION WHICH COULD NOT HAVE 3 ITA NO. 4033/AHD/2007 PRECEDENCE WHOSE APPLICATION WAS UNWARRANTED. HE HA S HOWEVER NOT EXPLAINED HOW AND WHY SUCH ACTION WAS UNWARRANTED. HIS ONLY EXPLANATION IS THAT THE ASSESSEE HAD ENTERED INTO A VERY LARGE NUMBER OF TRANSACTIONS INVOLVING SHARES AND UNITS AND THAT SHE HAD NOT MA DE ANY DELIBERATE ATTEMPT TO OFF-SET THE CAPITAL GAINS BY CLAIMING CA PITAL LOSS OR CERTAIN TRANSACTIONS. WHATEVER MAY HAVE BEEN THE CASE THE FACT REMAINS THAT AT LEAST 38 TRANSACTIONS ACCORDING TO THE A.O. WERE CLEARLY COVERED BY THE PROVISIONS OF SEC. 94(7) OF THE I.T. ACT. THE FACT THAT THE ASSESSEE HAD ENTERED INTO AN UNUSUAL LARGE NUMBER OF TRANSACTION S COULD NOT BE A GROUND TO CLAIM THAT THE PROVISIONS OF SEC. 94(7) S HOULD NOT HAVE BEEN STRICTLY APPLIED. THERE IS THEREFORE ABSOLUTELY N O SUBSTANCE IN THE CONTENTIONS OF THE A.R. ESPECIALLY WHEN SEEN AGAIN ST THE SPECIFIC AND FACTUAL FINDINGS OF THE A.O. AS ALSO HIS CLEAR APP LICATION OF PROVISIONS OF THE SEC. 94(7) OF THE ACT. 6.1. HOWEVER I AGREE WITH THE A.R. THAT AT LEAST I N RESPECT OF SIX TRANSACTIONS INVOLVING THE SHARES OF WIPRO LTD. P ALARIS SOFT HDFC INCOME FUND BIRLA DIVIDEND YIELD PLUS PRUDENTIAL ICICI POWER AND BIRLA DIVIDEND YIELD PLUS THE PURCHASES WERE MADE MORE THAN 90 DAYS PRIOR TO THE RECORD DATE. IN THE CASE OF DSP MERYLL LYNCH FUND THE DIVIDEND WAS DECLARED AFTER THE UNITS WERE SOLD. WH AT THE A.O. FAILED TO CONSIDER IS THAT FOR THE PROVISIONS OF SEC. 94(7) TO BE APPLICABLE THE PROVISIONS OF BOTH CLAUSES (A) & (B) WOULD HAVE TO APPLY. THIS MEANS THAT BOTH THE PURCHASE AND SALE OF A SHARE OR AN UNIT WO ULD HAVE TO BE WITHIN 3 MONTHS PRIOR TO OR AFTER THE RECORD DATE. EVEN IF O NE OF THE CLAUSES DO NOT APPLY THEN THE PROVISIONS OF THE SECTION AS A WHOLE CANNOT BE APPLIED. IN THE AFORESAID CASES THEREFORE THE LOSS INCURRED WO ULD HAVE TO BE TAKEN INTO CONSIDERATION AND COULD NOT BE IGNORED. THE TOTAL L OSS OF RS.48 750/- INCURRED ON SUCH TRANSACTIONS WOULD HAVE TO BE ALLO WED WHICH MEANS THAT THE DISALLOWANCE OF SHORT TERM CAPITAL LOSS OF RS.3 81 965/- WOULD HAVE TO BE REDUCED BY THE SUM OF RS.48 750/-. THE A.O. IS THEREFORE DIRECTED TO LIMIT THE DISALLOWANCE TO THE SUM OF RS.3 33 215/- . 5. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS) THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING BEFORE US ON BEHALF OF A SSESSEE SHRI J.P. SHAH APPEARED AND REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 7. ON THE OTHER HAND SHRI M.C. PANDIT SR. D.R. AP PEARING ON BEHALF OF REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 4 ITA NO. 4033/AHD/2007 8. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE PROVISIONS CONTAINED IN SECTIO N 94(7) OF THE INCOME TAX ACT. IT IS PERTINENT TO NOTE THAT 38 TRANSACTIONS ARE CLEARLY COVERED BY THE PROVISIONS CONTAINED IN SECTION 94(7) OF THE INCOME TAX ACT 1961. THEREFORE THE ASSESSING OFFI CER WAS HAVING NO OPTION BUT TO COMPUTE THE DISALLOWANCE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 94(7) OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER APPRECIAT ING THE PROVISIONS OF CLAUSE (A) AND (B) OF SECTION 94(7) OF THE ACT TOOK THE VIEW THAT BOTH TH E PURCHASE AND SALE OF A SHARE OR AN UNIT WOULD HAVE TO BE WITHIN THREE MONTHS PRIOR TO OR AFTER TH E RECORD DATE. ON THIS BASIS THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE DISALLOWANCE TO RS.3 33 215/-. IN OUR OPINION THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS FAIR AND REASONABLE AND REQUIRES NO INTERFERENCE AT OUR END. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULT ANTLY THIS GROUND OF APPEAL IS REJECTED. 9. THE ONLY OTHER GROUND OF APPEAL IS AGAINST SUSTA INING A SUM OF RS.22 495/- OUT OF TOTAL SUM OF RS.1 12 477/- IN RESPECT OF CAR AND TELEPHON E EXPENSES. 10. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED 20% OF EXPENSES WITHOUT APPRECIATING THAT THE ASSESSEE IS A DOCTOR. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS EXCESSIVE THEREFORE THE SAME BE REDUCED TO 10%. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE DISA LLOWANCE OF 1/5 TH OF THE EXPENSES IS FAIR AND REASONABLE. 11. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AU THORITIES BELOW AND THE MATERIAL PLACED ON RECORD. THE TOTAL EXPENDITURE INCURRED BY THE AS SESSEE IS RS.1 12 477/-. OUT OF THIS THE ASSESSING OFFICER DISALLOWED 20% I.E. RS.22 495/-. THE ASSESSEE BEING A DOCTOR IS ENGAGED IN THE PROFESSION OF MEDICAL PRACTICE AND IS HAVING A PROPRIETARY CONCERN IN THE NAME AND STYLE OF M/S. ENEM NURSING HOME. IN OUR OPINION THE DISALLO WANCE FOR PERSONAL USER MADE BY THE ASSESSING OFFICER IS EXCESSIVE AND IT WILL MEET THE END OF JUSTICE IF THE SAME IS RESTRICTED TO 10% I.E. RS.11 250/-. THE ASSESSING OFFICER IS ACCORDIN GLY DIRECTED TO RESTRICT THE DISALLOWANCE TO RS.11 250/-. THIS GROUND OF APPEAL IS PARTLY ALLOWE D. 5 ITA NO. 4033/AHD/2007 12. THE LAST GROUND OF APPEAL IS AGAINST THE DELETI ON OF INTEREST UNDER SECTION 234B AND 234C. THE ASSESSING OFFICER IS DIRECTED TO ALLOW CONSEQUE NTIAL RELIEF FOR LEVY OF INTEREST UNDER BOTH THESE SECTIONS. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 14.05.201 0 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 14 / 05 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.