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TMI Blog2019 (4) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect has been clarified by Sh. Harshkumar N. Seksaria (supra) in his affidavit, dated 12.03.2018. We are of the considered view that as the affidavit, dated 12.03.2018 of Sh. Harshkumar N. Seksaria, director of M/s Govindram Brothers Pvt. Ltd. which substantially dislodges the observations and the veracity the material acted upon by the A.O for drawing of adverse inferences as regards the date of acquisition of the property under consideration viz. Unit No. 5 6 (supra) by the assessee, was not there before the A.O, therefore, he had no occasion to verify the genuineness and veracity of the facts as had been deposed therein. We thus in all fairness and in the interest of justice are of the considered view that the matter requires to be revisited by the A.O, who shall verify the veracity of the facts deposed by Sh. Harshkumar N. Seksaria in his affidavit dated 12.03.2018 and after making necessary verifications as he may deem fit, therein readjudicate the issue. The Grounds are allowed for statistical purposes. Addition u/s 14A - HELD THAT:- CIT(A) duly appreciated that the A.O had failed to record the reasons which he was obliged to do for dislodging the claim raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jat Mittal And Shri Arun Kuma Singh, D.Rs ORDER PER RAVISH SOOD, JM The present cross appeals filed by the assessee and the revenue are directed against the order passed by the CIT(Appeals)-17, Mumbai, dated 31.12.2015, which in turn arises from the assessment order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short I.T. Act ), dated 29.03.2014 for A.Y. 2011-12. We shall first take up the appeal of the assessee. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:- Considering WDV of block of assets at only ₹ 20,30,982/- as against ₹ 2,36,30,892/- considered by the Appellant 1. The CIT (A) failed to appreciate that the Appellant had acquired and was possessed of the new off ice premise which was supported by possession letter, and hence, the same was liable to be added to the cost of the block of office premises u/s 50(1)(iii) of the Act for computing capital gains u/s 50 of the Act. 2. The CIT (A) erred in holding that the AO was justified ill relying on third party statements and fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, its case was not covered by the exceptions carved out in Explanation to Sec. 73 of the I.T. Act. On the basis of his aforesaid deliberations the A.O concluded that the loss on sale of shares of ₹ 1,05,62,764/- was liable to be treated as a speculative loss as per Explanation to Sec. 73 of the I.T. Act. In the backdrop of his aforesaid observations the A.O rejected the claim of set off of the loss of ₹ 1,05,62,764/- against the STCG arising on sale of office premises (depreciable assets), as was claimed by the assessee in its return of income. (ii) Further, it was observed by the A.O that the assessee had during the year under consideration earned dividend income of ₹ 17,44,114/- which was claimed as exempt. It was however noticed by the A.O that the assessee had not disallowed any expense attributable to earning of the said exempt income in accordance with Sec. 14A of the I.T. Act. The A.O called upon the assessee to give working of disallowance under Sec. 14A in accordance with Rule 8D(2). In response, the assessee submitted working of such disallowance, as per which the same worked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less Exemption U/s 54EC ₹ 50,00,000/- Sale consideration after exemption ₹ 3,35,00,000/- Less: WDV of assets ₹ 2,36,30,892/- Short Term Capital Gain ₹ 98,69,108/- On a perusal of the revised computation of STCG filed by the assessee, it was observed by the A.O that the assessee had for the first time claimed exemption under Sec. 54EC as regards the investment of ₹ 50,00,000/- made in NHAI Bonds. The A.O observing that as no such claim under Sec. 54EC was raised by the assessee in its return of income, thus declined to accept the same. In support of his aforesaid view the A.O relied on the judgment of the Hon ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 223 (SC). Further, it was noticed by the A.O that the assessee had made an addition of ₹ 2,16,00,000/- to its block of assets during the year. The details furnished by the assessee rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O was of the view that the amount advanced by the assessee could only be treated as a capital work-in-progress and could not be included in the block of assets . In the backdrop of his aforesaid observations the A.O recomputed the STCG in the hands of the assessee [(after reducing the addition to the block of assets of ₹ 2,16,00,000/-)] at ₹ 3,64,69,108/-, as under :- Sale Consideration as per Agreements ₹ 3,85,00,000/- Less : i. Expenditure in connection with transfer Rs. Nil ii. WDV at the beginning of the P.Y. ₹ 20,30,892/- iii. Actual cost of any asset acquired in P.Y. Rs. Nil Rs.20,30,892/- (amount of ₹ 2,16,00,000/- is treated as advance paid for acquiring capital asset as discussed) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual cost of the same was mandatorily required to be reduced for the purpose of computing the STCG as per Sec. 50 of the I.T. Act. The Ld. A.R submitted that though the requirement of ownership of the capital asset was mandatory for claim of depreciation under Sec. 32 of the I.T. Act, however, for the purpose of computing the STCG under Sec. 50 the requirement was circumscribed by acquiring of the asset by the assessee. It was submitted by the Ld. A.R that the word acquired used in Sec. 50 was of a very amorphous nature and an asset could be acquired within the meaning of Sec. 50 without obtaining a valid title. In support of his aforesaid contention the Ld. A.R placed heavy reliance on the order of the ITAT, Mumbai Bench D in the case of Orient Cartons (P) Ltd. Vs. DCIT (1997) 60 ITD 87 (Mum). The Ld. A.R taking us through the aforesaid order of the coordinate bench of the Tribunal submitted, that in the said case the Tribunal had concluded that though the assessee had acquired the two premises within the meaning of Sec. 50 of the I.T. Act, however the same falling short of vesting of the ownership of the same with the assessee would disentitle the latter towards claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for in its hands. 6. Per contra, the Ld. Departmental Representative (for short D.R ) relied on the order of the CIT(A) to the extent the latter had upheld the additions/disallowances made by the A.O. It was submitted by the Ld. D.R that the assessee had made the payment of ₹ 2,16,00,000/- by way of an advance to M/s Govindram Brothers Pvt. Ltd. for assignment of the allotment rights in respect of Unit No. 5 6 in the shopping center cum commercial complex known as Silver Turning Point, Ghatkopar (West), Mumbai. The Ld. D.R submitted that as the assessee had not acquired any capital asset, therefore, the same had rightly been excluded by the A.O from the block of assets of building. It was averred by the Ld. D.R that the CIT(A) appreciating the facts of the case in the right perspective had rightly upheld the exclusion of the amount of ₹ 2,16,00,000/- from the block of assets . Insofar the disallowance made by the A.O under Sec. 14A of the I.T. Act was concerned, it was submitted by the Ld. D.R that the A.O had rightly worked out the disallowance under Sec. 14A r.w. Rule 8D, which thereafter in all fairness was restricted to the extent of the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration and sustained the working of the STCG by the A.O after reducing the addition of ₹ 2,16,00,000/- from the block of assets . 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record in context of the issue under consideration. Insofar, the affidavit of Sh. Harshkumar N. Seksaria, director of M/s M/s Govindram Brothers Pvt. Ltd., dated 12.03.2018, is concerned, the same had been filed by the assessee by way of an additional evidence under Rule 29 of the Appellate Tribunal Rules, 1963. We find that Sh. Harshkumar N. Seksaria (supra) in his aforesaid affidavit had tried to show the incorrectness of the facts as were stated by Sh. Manoj Parihar, accountant of M/s Govindram Brothers Pvt. Ltd., in his statements that were recorded by the A.O in the course of the assessment proceedings on two occasions i.e. on 24.02.2014 and 28.02.2014, as well as had deposed certain other facts which are material for disposing off the present appeal. In the backdrop of the fact that the contents of the affidavit dated 12.03.2018 has a strong bearing on the adjudication of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken (ii) The assessee has paid advance to M/s Govindram Brothers Pvt. Ltd. who was not the owner of the properties, they were merely allottees of units by the builders and their right was restricted to the purchase of Units. It is settled principle of law that nobody can sell what he does not have. M/s Govindram Brothers Pvt. Ltd. were not the owners of the Units. There was no registered deed/Deed in favour of Govindram Brothers Pvt. Ltd. They were also not handed over the possession by the builders. (iii) The owner/builders M/s Silver Land Developers Pvt. Ltd. has submitted that they have not sold any unit to the assessee nor they were aware of any transactions pertaining to units by the assessee company. (iv) As on 31.03.2011 the units were not complete and ready for use/possession as there was no electricity and water connections as evident from the reply to question no. 2 of statement dated 28.02.2014 of Shri Manoj V Parihar of M/s Govindram Brothers Pvt. Ltd. The submission of the AR regarding this that Units were complete and capable of being occupied as on 31.03.2011 is not acceptable as nothing had been brought on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l possession of office units to their customers and the same will be given upon receipt of OC/BCC from Municipal Corporation of Greater Mumbai. The builders also informed that they allotted some of the office units to prospective buyers including Govindram Brothers Pvt. Ltd. and have issued allotment letter to them. From the replies of assessee M/s Govindram Brothers Pvt. Ltd. and M/s Silver Land Developers Pvt. Ltd. it is clear that till 24.03.2014 the Units are not registered in the name of assessee. possession is not handed over to the assessee, the Units are not ready to use as the OC from the Municipal Corporation/Competent Authority is yet to be issued, Builders/owner had not recognized the assessee even as an allottee of the Units. 5.13 In view of the above discussion the amount of ₹ 2,16,00,000/- paid as advance by the assessee to M/s Govindram Brothers Pvt. Ltd. is treated as Capital Work-in-Progress which does not qualify to become part of block of assets of the buildings and accordingly shall not be reduced from sale consideration or included in the aggregate amount referred to in Clause (iii) of Sub-Section 1 of Section 50 of the IT Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers Pvt. Ltd. was in the nature of an advance which not having crystallized into acquisition of the property during the year under consideration, thus did not qualify to become part of the block of assets of the buildings for the year under consideration. 11. We have given a thoughtful consideration to the aforesaid observations of the A.O and find that the same are in contradiction of the facts as had been deposed by Sh. Harshkumar N. Seksaria, director of M/s Govindram Brothers Pvt. Ltd. in his aforesaid affidavit dated 12.03.2018 that has been placed on our record. Insofar, the adverse inferences which had been drawn by the A.O by relying on the statements of Sh. Manoj Parihar, accountant of M/s Govindram Brothers Pvt. Ltd. as were recorded by the A.O on two occasions i.e. on 24.02.2014 and 28.02.2014, are concerned, it is deposed by Sh. Harshkumar N. Seksaria (supra) in his affidavit that Sh. Manoj Parihar was merely an accountant and not familiar with the aforesaid transaction under consideration. It is further stated by him that Sh. Manoj Parihar had made incorrect statement of facts, which as the same beyond his knowledge and instructions. Rather, in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an advance, but was towards the full and final consideration for the Unit No. 5 6 (supra) that were transferred to them. It is further averred by him that due to the evasive approach of the builder viz. M/s Silver Land Developers Pvt. Ltd. the occupation certificate could be obtained after considerable delay in and around the year 2016. 12. We have perused the contents of the affidavit of Sh. Harshkumar N. Seksaria, director of M/s Govindram Brothers Pvt. Ltd. and find that as observed by us hereinabove, the same seriously militates against the observations arrived at by the lower authorities in context thereto. Insofar, the facts as had been gathered and relied upon by the A.O on the basis of the statements of Sh. Manoj Parihar, accountant of M/s Govindram Brothers Pvt. Ltd. that were recorded on oath on 24.02.2014 and 28.02.2014, is concerned, the same in the backdrop of the deposition by Sh. Harshkumar N. Seksaria, director of M/s Govindram Brothers Pvt. Ltd. that the aforesaid person viz. Sh. Manoj Parihar who was an accountant with M/s Govindram Brothers Pvt. Ltd. not being familiar with the facts on the transaction under consideration had thus made incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in his affidavit dated 12.03.2018 that the possession of the said units were handed over by them to the assessee company as per letter dated 31.03.2011. Rather, it has been clarified by him that on the date of handing over the possession to the assessee, though the construction of the aforesaid units was complete, however the occupation certificate was still to be obtained by the builder due to some regulatory issues. We are unable to persuade ourselves to subscribe to the observations of the A.O that de hors ownership of an asset, the same cannot form part of the block of assets . In this regard, as observed by us hereinabove, though the vesting of the title is mandatorily required for claim of depreciation under Sec. 32 of I.T. Act, however, the same would not apply for determining the point of acquisition of the property in terms of Sec. 50(1)(iii) of the I.T. Act. As regards the observations recorded by the A.O that the builder viz. M/s Silver Land Developers Pvt. Ltd. had stated that all rights to use, exploit and access the units under reference remained with them only, and they were yet to give formal possession of the office units to its customers only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 17,44,114/- received by the assessee during the year under consideration. The assessee had not disallowed any expense attributable to earning of aforementioned exempt dividend income in accordance with Sec. 14A of the I.T. Act. In the course of the assessment proceedings the assessee on being called upon by the A.O to furnish a working of a disallowance under Sec. 14A r.w. Rule 8D(2), therein in compliance to the said direction submitted a working on the basis of which the disallowance worked out to ₹ 7,10,977/-. Insofar, expenses directly attributable to the earning of the exempt dividend income were concerned, it was the claim of the assessee that no such direct expenses were incurred. However, as the total expenses debited by the assessee in its profit and loss account for the year under consideration amounted to ₹ 3,42,385/-, therefore, the A.O restricted the disallowance under Sec. 14A to an amount of ₹ 3,42,385/. On appeal, the CIT(A) after deliberating at length on the contentions advanced by the assessee was of the considered view that the relating of the entire expenses of ₹ 3,42,385/- debited in the profit and loss account to the earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) duly appreciated that the A.O had failed to record the reasons which he was obliged to do for dislodging the claim raised by the assessee in its return of income that no expenditure was incurred for earning of the exempt dividend income. In the backdrop of the aforesaid facts, the CIT(A) observing that a part of the expenses would have been incurred by the assessee as regards its other business activities viz. (i) production and marketing of television programs; and (ii) sale and purchase of high value immovable properties, as well as a part of such expenses would have been incurred by the assessee for maintaining its corporate entity, therefore, accepted the disallowance of ₹ 27,234/- as was attributed by the assessee by making a specific reference to all the expenses as stood debited in its profit and loss account for the year under consideration, as having been incurred for earning of the exempt dividend income. In our considered view no infirmity does emerge from the order of the CIT(A) who had scaled down the disallowance under Sec. 14A to an amount of ₹ 30,000/- in the hands of the assessee. The Grounds of Appeal No. 4 5 raised by the assessee are dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll first advert to the deletion by the CIT(A) of the addition of ₹ 1,05,62,764/- made by the A.O by recharacterizing the loss on sale of shares as speculation loss in view of Explanation to section 73 of the I.T. Act. Succinctly stated, in the course of the assessment proceedings it was observed by the A.O that the assessee had claimed capital loss of ₹ 1,05,62,765/- on the sale of shares of Hindustan Zinc Ltd., which was set off against the STCG arising from sale of office premises. The A.O noticed that the gross total income of the assessee mainly consisted of income/loss derived from the business of share trading and the said income was higher than its income from other heads of income. Further, it was observed by the A.O that neither the assessee company was engaged in the business of advancing of loans, nor engaged in share trading business or was an investment company. Apart therefrom, the A.O was of the view that as the assessee was not an investor in shares, therefore, the shares of Hindustan Zinc Ltd. which were acquired and sold during the year under consideration itself, constituted an adventure in the nature of trade . Insofar the negative income/loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, therefore, the assessee could not be brought within the sweep of the Explanation to Sec. 73 of the I.T. Act, and resultantly the loss of ₹ 1,05,62,764/- on the sale of shares of Hindustan Zinc Ltd. could not be treated as a speculation loss in the hands of the assessee. On the basis of his aforesaid observations the CIT(A) vacated the recharacterization of the capital loss of ₹ 1,05,62,764/- as a speculative loss by the A.O. 20. We have heard the authorized representatives in context of the aforesaid issue under consideration and have peruse the orders of the lower authorities. Before adverting to the issue under consideration it would be worthwhile to perused the Explanation of Sec. 73 of the I.T. Act, which reads as under :- Explanation Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources , or a company principal business of which is the business of banking or the granting of loans and advances) consists in the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was to be held as its business of trading in shares. 21. We shall now deliberate on the aspect as to whether the transaction of purchase/sale of 75000 shares of Hindustan Zinc Ltd. by the assessee during the year could be brought within the ambit of a business activity or an adventure in the nature of trade, thereby, making the loss therefrom assessable under the head business income . We find that the assessee company had during the year under consideration carried out a solitary transaction of purchase/sale of shares of Hindustan Zinc Ltd. In the earlier years and in the subsequent year, there was no sale of any equity shares by the assessee. Rather, the aforesaid shares of Hindustan Zinc Ltd. were both acquired and sold during the year under consideration itself and the loss on the sale of the same was reflected by the assessee as a capital loss. Infact, the assessee had sold only a part of its share holding of Hindustan Zinc Ltd. and the balance shares which remained unsold were reflected in its audited accounts as Investments . Further, on a perusal of the audited accounts, it was discernible that share capital of ₹ 12 crores and reser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of ₹ 1,05,62,764/- suffered by the assessee on the sale of the same was rightly claimed as a capital loss, and the same could not have been held to be a speculative loss as had been so done by the A.O by invoking the Explanation to Sec. 73 of the I.T. Act. We thus being persuaded to subscribe to the well reasoned view of the CIT(A) that the loss on sale of shares of Hindustan Zinc Ltd. by the assessee was rightly claimed as a capital loss, thus uphold his order to the said extent. The Ground of Appeal No. 1 raised by the revenue before us is dismissed. 22. We shall now advert to the contention of the revenue that the CIT(A) has erred in reducing the disallowance of ₹ 3,42,385/- made by the A.O under Sec. 14A to an amount of ₹ 30,000/-. In this regard we may herein observe that while disposing off the grounds of appeal no. 4 5 of the assesses appeal i.e. ITA No. 1725/Mum/2016, the order of the CIT(A) sustaining the disallowance made by the A.O under Sec. 14A to the extent of ₹ 30,000/- has been upheld by us after necessary deliberations. In terms of our observations recorded in context of the issue under consideration, the appeal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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