M/s. FAMILY INVESTMENT P. LTD., MUMBAI v. ACIT C.C-32, MUMBAI

ITA 5925/MUM/2006 | 2003-2004
Pronouncement Date: 12-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 592519914 RSA 2006
Assessee PAN AAACF0520D
Bench Mumbai
Appeal Number ITA 5925/MUM/2006
Duration Of Justice 3 year(s) 5 month(s) 1 day(s)
Appellant M/s. FAMILY INVESTMENT P. LTD., MUMBAI
Respondent ACIT C.C-32, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 12-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 12-04-2010
Date Of Final Hearing 15-02-2010
Next Hearing Date 15-02-2010
Assessment Year 2003-2004
Appeal Filed On 10-11-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F: MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SHRI VIJAY PAL RAO (JM) ITA NO. 5925/MUM/2006 & 3155/MUM/2007 (ASSTT. YEAR : 2003-04 & 2004-05) M/S FAMILY INVESTMENT PVT. LTD. APPELLANT F.P. 145 RAM MANDIR ROAD VILEPARLE (E) MUMBAI 400 057 PAN AAACF 0520D V/S. ACIT CC-32 / DCIT CC -32 RESPONDENT AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 APPELLANT BY : SHRI R.R. VORA RESPONDENT BY : SHRI O.P. SHARMA : O R D E R : PER R.S. SYAL A.M THESE TWO APPEALS BY THE ASSESSEE ONE AGAINST THE QUANTUM ORDER AND OTHER AGAINST THE PENALTY ORDER PASSED BY THE LD CIT(A) ARE IN RELATION TO THE A.Y. 2003-04. FOR THE SAKE OF CONVENIENCE THE SE APPEALS ARE TAKEN UP BY WAY OF A CONSOLIDATED ORDER. ITA NO. 5925/MUM/2006 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE AN INVESTMENT COMPANY VALUED 3 65 250 OPTIONALLY FULL Y CONVERTIBLE DEBENTURES (OFCDS) OF M/S. SUN PETROCHEMICALS PRIVATE LIMITED (SPPL) AT RS.2 55 67 500/- AT THE RATE OF RS. 70/- PER DEBENT URE AS ITS STOCK-IN-TRADE. IN THE LAST YEAR THE ASSESSEE HAD VALUED THESE DEB ENTURES AT FACE VALUE OF RS. 100/-. ON BEING CALLED UPON TO EXPLAIN THE BAS IS FOR VALUATION AT A LOWER RATE THE ASSESSEE POINTED OUT THAT IN THE YEAR IN QUESTION IT SOLD 500 DEBENTURES AT THE RATE OF RS. 70/- PER DEBENTURE T O MRS. ALKA B. PAREKH AND ITA NO. 5925/MUM/06 & 3155/MUM/07 2 SUFFERED LOSS OF RS.15 000. THE A.O DID NOT ACCEPT THE GENUINENESS OF THE SAID TRANSACTION AND HELD SUCH LOSS OF RS. 15000/- ON SALE OF 500 OFCDS AS BOGUS. HE ALSO MADE AN ADDITION OF RS. 1 09 57 50 0/- ON ACCOUNT OF UNDER VALUATION OF THE CLOSING STOCK. WHEN THE MATTER CA ME UP BEFORE THE LD CIT(A) HE CAME TO HOLD THAT THE TRANSACTION OF SAL E OF 500 OFCDS AT THE RATE OF RS. 70/- PER DEBENTURE WAS GENUINE AND ACCORDING LY DIRECTED THE A.O TO ALLOW THE LOSS AS CAPITAL LOSS AS AGAINST THE ASSES SEES CLAIM OF BUSINESS LOSS. AS REGARDS THE ADDITION MADE BY THE A.O TO THE TUNE OF RS. 1 09 57 500/- BY VALUING THE CLOSING STOCK AT RS. 100/- OFCD THE L D CIT(A) CONCLUDED THAT THE TRANSACTIONS OF PURCHASE AND SALE OF OFCDS COUL D NOT BE CATEGORIZED AS BUSINESS TRANSACTIONS. HE THEREFORE HELD THAT TH E DEALINGS IN OFCDS WERE NOT INCIDENTAL TO THE MAIN BUSINESS OF THE ASSESSEE AND HENCE WERE NOT FOR BUSINESS PURPOSES. RESULTANTLY THE INVESTMENT MADE BY THE ASSESSEE IN OFCDS OF SPPL WAS HELD AS INVESTMENT AND NOT STOCK- IN-TRADE. THE ADDITION MADE BY THE A.O ON ACCOUNT OF VALUATION OF CLOSING STOCK WAS RESULTANTLY HELD NOT TO BE SUSTAINABLE. HE HOWEVER ENHANCED THE I NCOME BY EQUAL SUM OF RS. 1 09 57 500/- BY TREATING THE ASSESSEE AS NOT ENT ITLED TO ANY LOSS ON ACCOUNT OF REDUCTION IN THE VALUE OF INVESTMENT. THE ASSES SEE IS IN APPEAL AGAINST THE FINDING GIVEN BY THE LD CIT(A) TREATING THE OFCDS O F SPPL AS INVESTMENT AND NOT STOCK-IN-TRADE AND SECONDLY THE LOSS ON SALE O F OFCDS AS ALSO A LOSS UNDER THE HEAD `CAPITAL GAIN INSTEAD OF `BUSINESS LOSS. 2. AT THE VERY OUTSET THE LD COUNSEL FOR THE ASS ESSEE PLACED ON RECORD A COPY OF THE ORDER PASSED BY THE TRIBUNAL IN QUALIT Y INVESTMENT P. LTD. V/S. ACIT IN ITA NO. 5926/MUM/06 AND 3116/MUM/07. WHI LE REFERRING TO THE COPY OF THIS ORDER DT. 30.7.2009 PLACED AT PAPER BO OK PAGE 75 OF THE P/B. ALONG WITH THE ORDER PASSED BY THE BENCH IN MISCELL ANEOUS APPLICATION NO. 655/MUM/09 DT. 25.3.2010 THE LD. A.R. POINTED OUT THAT THE FACTS OF THE INSTANT APPEAL ARE SIMILAR TO THOSE OF QUALITY INV ESTMENT PVT. LTD. IN WHICH THE TRIBUNAL HAS HELD THAT THE HOLDING OF OFCDS HA S TO BE TREATED AS STOCK-IN- TRADE AND NOT INVESTMENT. HE FURTHER POINTED OUT THAT THE LOSS ON ACCOUNT OF DEALING IN OFCDS WAS ALSO HELD TO BE ON ACCOUNT OF TRADING TRANSACTIONS. IN SO FAR AS THE VALUATION OF CLOSING STOCK WAS CONCER NED HE STATED THAT THE TRIBUNAL HAS HELD THAT THE SAME WAS TO BE VALUED ON THE BASIS OF COST PRICE OR MARKET PRICE/REALIZABLE PRICE WHICHEVER IS LOWER AND THEN THE A.O WAS ITA NO. 5925/MUM/06 & 3155/MUM/07 3 DIRECTED TO COMPUTE THE PROFIT OR LOSS AS THE CASE MAY BE. HE SUBMITTED THAT SIMILAR VIEW BE TAKEN IN THE INSTANT APPEAL AS THE FACT OF BOTH THE CASES AS WELL AS EVEN THE ASSESSMENT YEAR ARE SIMILAR AND F URTHER M/S. QUALITY INVESTMENT PVT. LTD.IS A CONCERN OF THE SAME GROUP. THE LD. DR FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF THE IN STANT APPEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF M/S. QUALITY INVESTMEN T PVT. LTD. WHICH HAS BEEN DECIDED BY THE TRIBUNAL. 3. AFTER CONSIDERING THE RIVAL BUT COMMON SUBMISSIONS IT IS NOTED THAT THE BOTH THE CASES HAVE BEEN BASED ON IDENTICAL FAC TS. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE HAVING BEEN POINTED OUT BY T HE LEARNED D.R. WE RESPECTFULLY FOLLOWING THE PRECEDENT HOLD THAT TH E DEALINGS IN OFCDS ARE TO BE CONSIDERED AS TRADING TRANSACTIONS AND THE CLOSING STOCK HAS TO BE VALUED VALUED ON THE BASIS OF COST OR MARKET PRICE/REALIZA BLE PRICE WHICHEVER IS LOWER AS PER THE DIRECTION OF THE TRIBUNAL IN THE CASE OF QUALITY INVESTMENT PVT. LTD. WE THEREFORE SET ASIDE THE IMPUGNED ORDER AND RE STORE THE MATTER TO THE FILE OF THE A.O. FOR RE-COMPUTING THE PROFIT/LOSS AS THE CASE MAY BE IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN THE CA SE OF QUALITY INVESTMENT PVT. LTD. (SUPRA). FURTHER THE LOSS OF RS. 15 000 ON TH E SALE OF OFCDS DURING THE YEAR IS ALSO ACCORDINGLY HELD TO BE BUSINESS LOSS. 4. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ITA NO. 3155/MUM/2007 5. THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE PENALTY OF RS. 40 32 393/- LEVIED BY THE LD CIT(A) U/S. 271(1 )(C ) ON THE ENHANCED INCOME OF RS. 1.09 CRORES. HERE AGAIN THE LD. A. R. SUBMITTED THAT THE TRIBUNAL IN THE CASE OF QUALITY INVESTMENT PVT. LT D. HAS ORDERED FOR THE DELETION OF THE PENALTY BY GIVING LIBERTY TO THE A. O TO CONSIDER THE IMPOSITION THE PENALTY IN THE FRESH ORDER TO BE PASSED IN RELA TION TO THE QUANTUM APPEAL. ITA NO. 5925/MUM/06 & 3155/MUM/07 4 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT DISPUTE THAT THE FACTS OF THIS APPEAL ARE ALSO SIMILAR TO THOSE OF M/S QU ALITY INVESTMENT PVT. LTD. AFTER CONSIDERING THE SUBMISSIONS ADVANCED BY BOTH THE SIDES AND RESPECTFULLY FOLLOWING THE PRECEDENT WE ORDER FOR THE DELETION OF PENALTY U/S. 271(1)(C ) AND GIVE LIBERTY TO THE A.O TO IMPOSE PE NALTY IN THE FRESH PROCEEDINGS TO BE TAKEN UP BY HIM PURSUANT TO OUR O RDER IN THE QUANTUM PROCEEDINGS. 7. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12TH DAY OF APRIL 2010. SD/- SD/- (VIJAY PAL RAO) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ON THIS 12TH DAY OF APRIL 2010. :US COPY TO: 1. APPELLANT 2. RESPONDENT 3.THE CIT(A)- VIII MUMBAI 4.THE CIT CENTRAL MUMBAI 5.THE DR F BENCH MUMBAI 6.GUARD FILE BY ORDER TRUE COPY ASSTT..REGISTRAR ITAT MUMBAI. ITA NO. 5925/MUM/06 & 3155/MUM/07 5 US DATE INITIALS 1. DRAFT DICTATED ON 9/4/10 --------------- SR.P.S. 2. DRAFT PLACED BEFORE AUTHORITY 12/4/10 -------- ------ SR.P.S. 3. DRAFT PROPOSED & PLACED ----------- ---------- --- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED ----------- ----------- -- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO ----------- ------------ - SR.P.S. THE SR. P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON --------- ----------- -- SR.P.S. 7. FILE SENT TO THE BENCH CLERK --------- --------- ---- SR.P.S. 8. DATE ON WHICH FILE GOES TO THE ------- --------- ---- 9. DATE OF DISPATCH OF ORDER --------- --------- ----