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Issues Involved:
1. Disallowance of Loss on Sale of Debentures: Whether the Commissioner of Income-tax (Appeals) erred in upholding the Assessing Officer's disallowance of Rs. 1,57,95,000 on account of loss on sale of debentures. Issue-wise Detailed Analysis: Disallowance of Loss on Sale of Debentures Background and Facts: The assessee, an investment company, declared a loss of Rs. 2,07,98,394 in its return of income, including a loss of Rs. 1,57,94,206 on the sale of debentures. The company was allotted 1,95,000 12.5% secured redeemable non-convertible debentures (NCDs) of Rs. 250 each with detachable warrants from Max India Ltd. The NCDs were sold at Rs. 169 each, and the difference between the face value and the sale value was treated as a loss on the sale of debentures. Assessment Proceedings: During the assessment, the Assessing Officer (AO) examined the terms of the prospectus and offer made by Max India Ltd. The AO concluded that the cost of the warrant should be taken at Rs. 81, not nil, and the transaction did not suggest a loss of Rs. 81 per debenture. Consequently, the AO disallowed the claimed loss of Rs. 1,57,95,000. Appeal to CIT(A): The assessee argued that the NCDs were acquired at Rs. 250 each, and the detachable warrants were allotted without any extra cost. The CIT(A) upheld the AO's decision, agreeing that the entire arrangement was preconceived and that the cost of the warrant should be Rs. 81. Appeal to ITAT: The assessee contended that the cost of acquisition of NCDs should be Rs. 250 each, and the cost of detachable warrants should be nil, relying on section 55(2)(aa)(iiia) of the Income-tax Act. The assessee also cited the decision of the Delhi High Court in the case of Abhinandan Investments Ltd., where a similar issue was decided in favor of the assessee. Arguments by Revenue: The Revenue argued that the facts in the present case were different from those in Abhinandan Investments Ltd. They contended that the detachable warrants had value and the cost of acquisition should be attributed to them. The Revenue also relied on the doctrine of merger, arguing that the decision of the High Court dismissing the appeal on the ground that no substantial question of law arose did not constitute a binding precedent. Tribunal's Findings: The Tribunal compared the facts of the present case with those in Abhinandan Investments Ltd. and found them to be similar. It noted that the scheme of allotment and the terms of payment were almost identical. The Tribunal also considered the decision of the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd., which held that the dismissal of an appeal by the High Court on the ground that no substantial question of law arises implies that the order of the Tribunal stands merged in the order of the High Court. Conclusion: The Tribunal held that the decision of the Hon'ble Delhi High Court in the case of Abhinandan Investments Ltd. constituted a binding precedent. It directed the Assessing Officer to allow the claim of the assessee for the loss incurred on the sale of NCDs. The appeal of the assessee was allowed. Outcome: The Tribunal decided in favor of the assessee, allowing the claimed loss on the sale of debentures.
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