9911796707
TMI Blog2012 (2) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that during the assessment proceedings AO noticed that assessee has paid interest to the tune of ₹ 64,01,824/- and has also received interest amounting to ₹ 32,62,806/- and finance charges of ₹ 7,00,636/-. It was noted that assessee has granted certain interest free advances, therefore, a show cause notice was issued to the assessee as to why proportionate interest should not be disallowed u/s.36[1] and also proportionate disallowance u/s.14A. It was mainly contended that assessee had sufficient interest free funds and interest free loans were granted out of such interest free funds and, therefore, there was no need to disallow any interest. It was also represented that sec.14A was not applicable to the assessee. The AO after examining the submissions worked out the availability of funds as under: INTEREST FREE FUNDS 31.3.96 31.3.99 Share Rs.2,11,240 Rs.2,11,240 Reserves & surplus Nil Rs.1,04,93,970 Int. free borrowings Rs.6,04,52,070 Rs.6,82,02,288 Rs.6,06,63,310 Rs.7,89,07,498 INTEREST BEARING FUNDS Borrowals Rs.3,15,45,081 Rs.4,72,65,254 TOTAL FUNDS Rs.9,22,08,391 Rs.12,61,72,752 Investment in shares ₹ 1,36,73,162 Rs.35,72, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance was justified. In respect of disallowance u/s.14A he argued that the matter may be remanded to the file of the AO in the light of the decision of the Hon'ble High Court in the case of Godrej & Boyce Mfg. Co.Ltd. vs. DCIT [328 ITR 81]. 6. On the other hand, Ld. Counsel of the assessee reiterated the submissions made before the first appellate authority. He also pointed out that it is not correct that AO has calculated the availability of funds as per the chart furnished by the assessee and in this regard referred to various documents in the paper book. In respect of disallowance u/s.14A he submitted that in view of the availability of interest free funds for investment in shares no interest can be disallowed u/s.14A. As far as the disallowance of expenditure is concerned, he contended that no purpose would be served if the matter is restored because it is a very old appeal for the year 1999-2000. In any case, assessee has earned only ₹ 39,474/- as dividend income and the Tribunal may itself make a reasonable disallowance on account of expenditure. 7. We have considered the rival submissions carefully and find force in the submissions of the Ld. Counsel of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 2,000/-. Accordingly, we set aside the order of the ld. CIT(A) to this extent and direct the AO to make addition of ₹ 2000/- u/s.14A. Therefore, this ground is partly allowed. 8. Ground No.2: After hearing both the parties we find that during the assessment proceedings AO noticed that assessee had sold 400 shares of Hotel Jal Ltd. for a sum of ₹ 5,39,84,100/-. On this capital gain amounting to ₹ 5,29,36,936/- was earned. The assessee had also booked short term capital loss amounting to ₹ 2,15,00,000/- in shares of Plus Channel and a sum of ₹ 1,15,15,982/- on sale of shares of Andromeda Holdings Pvt. Ltd. Thus, this loss of ₹ 33,01,59,832/- had been set off against the capital gains arising from the sale of shares of Hotel Jal Ltd. From the details filed it was noticed that shares of Andromeda Holdings Pvt. Ltd. have been sold to Ms. Dhyuti Choksi, Mr. Pankaj Pandya and shares of Plus Channel have been sold to Ms. Vipula Choksi. Ms. Dhyuti Choksi was daughter of the director of the assessee company and Ms. Vipula Choksi was wife of the director of the company. Despite repeated requests assessee could not file copy of the share certificate to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly supported by the documentary evidence and AO has not been able to property appreciate the evidence. It was pointed out that assessee had purchases 60000 shares of Andromeda Holdings Pvt. Ltd. in A.Y 1996- 97 and the purchase had already been admitted as genuine in the earlier year. It was further pointed out that Plus Channel is a subsidiary company of Andromeda Holdings Pvt. Ltd. and those companies were promoted by Mr. Dilip Piramal Group, Mr. J. P. Choksy Group, Mr Amit Khanna, Mr. Mahesh Bhatt, Mr. Ajit Gulabchand of Hindustan Constructions Group. Mr. Jayesh Choksi was holding minority shares in the said company on 31-3-98 since rights shares were issued to a third party, Mr.Choksey also purchased the shares of Andromeda Holdings Pvt. Ltd. because of the well known personalities in the company. Plus Channel was in the entertainment sector and carried on activities like producing television serials, acquiring movies copy rights, production of films and selling music cassettes. There was a big expansion scope in this business. However, during the F.Y 1998-99 certain disputes with PBCI arose on account of levy of excise duty on telecast fees on serials. Due to this dispute it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction because shares have been duly transferred, consideration has been received through bank and sale amount was duly recorded in the assessee's books. Similarly in the case of sale of 2,50,000 shares of Plus Channel to Ms. Vipula Choksi the sale consideration has been received through bank and shares have been transferred on 10-3-1999. Therefore, Ms. Vipula Choksi has become legal owner of the shares. He also observed that these appears to be normal business transactions because a transaction has to be dealt whether same is genuine or sham, from the fact whether all legal formalities have been completed in executing the transaction or not. A transaction can be said to be a sham transaction if the same is not completed as per the norms prevalent in the particular business. The transaction has to be judged, whether the same is genuine or sham, from the facts whether all legal formalities have been completed in executing the transactions or not. A transactions can be said to be a same transactions, if the same is not completed as per the norms prevalent in the particular business. It is noticed that none of these transactions lack any infirmity on account of the procedure etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to pages 36 & 37 which is the copy of the share certificate which shows that these shares have been allotted on the 17th day of July 98 and the same are stated to have been sold to Ms. Dhyuti Choksi on 31-7-98 i.e. within a very short time, which itself shows that the transaction is sham. He also strongly relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More [82 ITR 540] wherein it was clearly observed that the taxing authorities are not expected to put on blinders rather they were entitled to look into the surrounding circumstances to find out the reality of the transaction. 13. On the other hand, Ld. Counsel of the assessee reiterated the submissions made before the CIT(A). He pointed out that as far as 60,000 shares of Andromeda Holdings Pvt. Ltd are concerned, same were purchased in A.Y 96-97 and the purchase had already been affected. He also referred to the share certificate and pointed out that these shares were allotted originally in A.Y 1996-97 only and as submitted before the CIT(A) there was only one certificate no.13 bearing distinctive nos.94,0001 to 10,00,000. this certificate was issued on 31-8-95. The certificate issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the record date i.e. March 24, 2000. The assessee became entitled to dividend of ₹ 4 per unit and earned a dividend of ₹ 18212862.80, as a result of pay out of the dividend the NAV got reduced from ₹ 17.23 per unit on March 24,2000 to ₹ 13.23 per unit on March 27, 2000. The assessee sold all the units on 27-3-2000 at NAV at ₹ 13.23 per unit and received a sum of ₹ 59055207.75. The assessee also received an incentive of ₹ 2376778 on this transaction. Thus, assessee received a total sum of ITA NO.5046 of 17 2003 ₹ 7,96,44,847/- [i.e. ₹ 18212862.80 + ₹ 59055207.75 + ₹ 2376778] against the initial investment of ₹ 8,00,00,000. For the purpose of income tax assessee claimed dividend of ₹ 18212862.90 as exempt u/s.10[33] of the Act and also claimed a set off of ₹ 20944793 as loss incurred on the sale of units thereby seeking to reduce the over all tax liability. The ld. Counsel pointed out that it is absolutely clear from this transaction that though in the financial year assessee had incurred a loss of about ₹ 3.5 lakhs, where as there was definitely lots of gains in terms of taxes to be paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lus Channel amounting to ₹ 2,15,00,000/- and loss on account of sale of shares of Andromeda Holdings Pvt. Ltd amounting to ₹ 1,15,15,982/-. As far as the shares of Andromeda Holdings Pvt. Ltd are concerned assessee has purchased 60,000 shares during A.Y 96-97 for ₹ 1,00,20,000/-. The shares were issued to the assessee vide certificate no.13 bearing distinctive nos.940001 to 1000000. This certificate was split into two certificates containing 30,000 shares each by certificate nos.15 & 16 on 17-7-98. The fact regarding splitting up of shares is noted on top of the share certificate itself. Therefore there is no force in the submissions of Ld. DR that shares of Andromeda Holdings Pvt. Ltd were acquired on 17-7-98. Once the shares of Andromeda Holdings Pvt. Ltd were purchased in A.Y 96-97, naturally the purchase was accepted by the department as no adverse inference was taken in the earlier year. During the year if assessee has sold the shares of Andromeda Holdings Pvt. Ltd because its value has gone down because of the loss in the subsidiary company due to dispute with PBCI, then no fault can be found in such a sale transaction. Merely because 30,000 shares have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Ms. Vipula Choksi in March, 1999, i.e. the date of transfer whereas liquidation proceedings have commenced somewhere in 2000. However, at the same time it is not disputed that money has already been received by the assessee company through cheques in the month of March, 99 itself. Moreover, the Board's resolution showing the transfer of shares was also produced before the AO as well as the ld. CIT(A). Even if it is assumed for the arguments sake that the above only shows that assessee was trying to generate loss in the above transaction, there is nothing wrong with the same because it can be called as an instrument of tax planning. As pointed out by the Ld. Counsel of the assessee that in the case of Walfort Share Brokers P. Ltd. [supra] wherein the Hon'ble Supreme Court was seized with the question whether the transactions of purchase and sale of mutual funds were genuine wherein an advertisement was issued by the Mutual Fund that one could get tax advantage by getting tax free dividend and advantage of capital loss, even then such transaction was held to be genuine by the Hon'ble Apex court. Therefore, in our opinion, these transactions cannot be called sham transact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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