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TMI Blog2002 (5) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... professional charges as revenue expenditure. 2. The assessee is a limited company engaged in manufacturing of taxtile. The assessee's name in the assessment order is mentioned as R.B. Rodda Co., Rakhial Road, Ahmedabad. In the memorandum of appeal Form No. 36, address where notice may be sent to the appellant it has been mentioned as M/s Soma Tetiles Industries Ltd. [Formerly known as M/s R.B. Rodda Co. Ahmedabad]. 3. The first ground relates to disallowance of ₹ 18,30,000 on account of short-term capital loss. The assessee claimed a loss of ₹ 18,30,000 on account of sale of units of Unit Trust of India as short-term capital loss. The AO disallowed the loss as short-term capital loss by application of Explanation to s. 73 of the IT Act, 1961. The CIT(A) has confirmed the action of the AO of disallowance of loss. Therefore, the assessee is in appeal before us. 4. The relevant facts of the case are as under : (a) The AO completed the assessment for the year under consideration under s. 143(3) and disallowed short-term capital loss of ₹ 18,30,000. Before making assessment under s. 143(3), the return was processed vide Intimation under s. 143(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net Profit (before tax) as per Profit Loss a/c prepared in accordance with the provisions of Part-II III of the Sixth Schedule of the Companies Act, (Copy of annual reports final accounts grouping attached herewith). 2,62,49,141 Add 1. Loss on sale of investment 18,30,000 2. Gratuity provision 5,96,430 3. Travelling expenses disallowed as per r. 6D 17,556 4. Payments made to clubs as disallowed under s. 40A(9) 4,228 5. Charity donation expenses 3,100 6. Loss on sale of fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,88,860 Notes : 1. Total taxable income as per return 8,88,860 2. Total tax due as per return 4,08,880 3. Less : (1) Tax paid on advance : On 12-09-1990 ₹ 6,00,000 On 14-12-1990 ₹ 8,00,000 On 14-03-1991 ₹ 14,00,000 28,00,000 Total C/F 28,00,000 4,08,880 2. Tax deducted at source : -(From dividend) 4,18,405 -(From interest) 28,545 4,46,950 32,46,950 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,37,520.00 1,37,552.95 (e) The AO rejected the application of the assessee under s. 154. The relevant abstract from the order under s. 154 (from page book pp. 44 to 46) is as under : The contention of the assessee that the said adjustment is not prima facie adjustment is not correct. The adjustment is squarely covered by Explanation to s. 73 of the Act. With due respect, there is no violation of the Instructions and circulars of the CBDT. So far as the decision of the Hon'ble Supreme Court is concerned, it has no direct bearing on the issue. The assessee's another contention is that, the assessee is dealing in textile, and the units were held as Investments and not for the purpose of carrying out business of sale and purchase of shares, as the assessee is not having licence to do the business of sale and purchase of shares. I agree with the assessee that the main business is of the manufacturing and selling of cloth, but the contention of the assessee that the said units were held as investment is not correct. Proximity of dates of purchases and sale of units makes it obvious that it has never been the intention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee claimed deduction under s. 80M. A short-term capital loss of ₹ 20,30,000 was claimed. The AO has given the details of short-term capital loss at p. 3 of his order for asst. yr. 1992-93 which is reproduced below : Sale of 10,00,000 units of UTI at ₹ 13.07 on 1-6-1991 1,30,70,000 Less 1,51,10,000 Short-term capital loss 0,20,40,000 (A) Sale 1,34,50,000 Less 1,34,40,000 Short-term capital gain 0,00,10,000 (B) Net Short-term capital loss (A-B) 20,30,000 (underlined, italicized in print, by us) 5. The learned authorised representative contended that Explanation to s. 73 is not applicable in this case as the business of the assessee was textile and not the business of purchase and sale of shares of other companies. The assessee purchased 10 lacs unit of UTI at the rate of ₹ 15.0375 per unit on 28th May, 1990, and the same were sold on 17th Jul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration relates to asst. yr. 1991-92. Therefore, AS-13 is not applicable to the case under appeal. It has been submitted by the learned authorised representative that the case of the assessee is covered by Accounting Standard AS-9, Revenue Recognition, issued by The Institute or Chartered Accountants of India. He drew our attention to para 8.4 of AS-9 that dividends from investment in shares are not recognised in the statement of P L A/c until a right to receive payment is established. The relevant para. 8.4 of AS-9 is reproduced below; 9. Dividends from investments in shares are not recognised in the statement of profit and loss until a right to receive payment is established. Here, we may clarify that effective date of AS-13 is for the purpose of audit, that it is mandatory for the Chartered Accountants to consider AS-13 while preparing audit report after 1st April, 1995, but the accounting principle of AS-13 is very much there even before 1st April, 1995. AS-9 is not relevant for the case under consideration as it deals with accrual of income. The learned authorised representative vehemently argued that the issue before the Revenue authorities was that whether Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole purpose of the transactions was to reduce the tax burden. In support of his arguments he submitted that the assessee deposited advance tax of ₹ 28,00,000 and same was claimed as refund. He also contended that the assessee has not taken the delivery of the disputed 10 lacs units. Therefore, according to s. 43(5) the transaction was clearly in the nature of a speculative transaction. It has also been submitted by the learned Departmental Representative that it has been prima facie found by the AO that there was a speculation loss and he has not gone to other aspects. According to s.43(5) it was a speculation loss; the AO has simply applied Explanation to s. 73 and treatment as speculation loss. In support of his arguments he referred some judgments of Hon'ble Supreme Court viz. CIT vs. Sutlej Cotton Mills Supply Agency 1975 CTR (SC) 226: (1975) 100 ITR 706(SC); Rajputana Textiles (Agencies) Ltd. vs. CIT (1961) 42 ITR 743(SC) and Saroj Kumar Mazumdar vs. CIT (1959) 37 ITR 242(SC). He concluded his arguments and urged that the orders of the Revenue authorities may be confirmed or the matter may be sent back to Revenue authorities for verifying the facts whether the delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iced that Hongkong Bank through which the transaction made was in the name of Lyon Lyon Proprietor M/s R.B. Rodda Co. Ltd. In other words it can be said that when M/s Lyon Lyon was proprietor of M/s R.B. Rodda Co. Ltd. the assessee-company cannot be said to be the proprietor of M/s R.B. Rodda Co. Ltd. (2) In Form No. 16, name and address of the person to whom payment made is written as R.B. Rodda Co. Ltd. C/o MRPK Banerji (A.G.M.), United Bank of India, DCH St. RRN 16 Old Court House Street, Calcutta-700001, why address of assessee was not given ? (3) In Form No. 16, column of Permanent Account Number/AO Code, is left blank. In subsequent year, i.e., 1992-93 the TDS certificate form was related to the period 1st July, 1990 to 30th June, 1991, whereas the related units were sold on 1st June, 1991. As per the material on record it has been noticed that so called dividend received by assessee on 17th July, 1990. The UTI has deposited TDS amount on four different dates 19th July, 1990, 24th July, 1990, 17th Sept., 1990 and 12th Sept., 1990. The reasons and explanations for that different dates are not on record. (4) A copy of Unit certificate No. 290145022 is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the actual delivery or transfer of the commodity or scrips, such transaction is called as speculative transaction. Now let us examine whether the transaction of units of UTI under consideration has been settled by actual delivery or transfer. There are no material on record on which basis it can be said that the transaction has been settled by actual delivery or units were transferred in the name of assessee. 7.5 A question arises as to who is to discharge the burden of proof that the transaction was settled through actual delivery or transfer. In this regard the relevant observations of Hon'ble Madras High Court in case of CIT vs. Krishna Veni Amma (1984) 38 CTR (Mad) 331: (1986) 158 ITR 826(Mad) is reproduced below (pp. 829-830) : The law of evidence mandates that if the best evidence is not placed before the Court, an adverse inference can be drawn as against the person who ought to have produced it. In this case, there were cross cheques but they were not produced. In that case cross cheques were not produced by the assessee, therefore, an adverse inference was taken against the assessee. Since the burden of proof regarding actual delivery or transfer of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculation it is not material that the Revenue authorities have quoted a wrong section or given different reasons or basis for disallowing the claim regarding short-term capital loss of the assessee. The AO found, since the transaction is in the nature of speculation in accordance with Explanation to s. 73, therefore, he did not find necessary to consider s. 43(5). It does not mean that the burden of assessee to prove that the loss was not speculative loss, stands automatically discharged. 7.9 In subsequent year in asst. yr. 1992-93 the AO applied s. 94 of the Act and dividend income ₹ 19,50,000 from units of UTI has been taxed substantively in the hands of M/s Peerless General Finance Investment Co. Ltd. based at Calcutta and protectively in the hands of the assessee. The related loss of ₹ 20,40,000 has not been taken into consideration for computing the income of the assessee, as the transactions were treated as no transactions had taken place . This fact also supports the view that the transaction for the year under consideration is speculative transaction in accordance with s. 43(5). In the light of above discussion the action of the Revenue authorities in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany ex-dividend basis . The similar nature of transaction is there for the year under consideration. Therefore, the above type of transaction is B in the nature of 'cum dividend' and 'ex dividend'. How these transactions are to be recorded in books of account, has been illustrated in above referred book at p. 968 Illustration No. 16. The assessee purchased 10 lacs units of UTI on 28th May, 1990, at the rate which was 'cum dividend'. That any dividend received on pre-acquisition profit is credited to investment account. It is to be recorded in the 'cost column'. However, dividend received out of post-acquisition period is credited to 'income column'. The dividend received from pre-acquisition profit will reduce average cost of units and dividend from post-acquisition profit will increase the income. The holding period in the case of the assessee under consideration was 33 days only, 28th May, 1990 to 30th June, 1990, if the said dividend of UTI was pertaining to the year ended 30th June, 1990, then from following units accounts the calculation of dividend income from the disputed transactions comes to ₹ 1,62,740 and short-term capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the case under consideration. But it is relevant to note the observations of the Hon'ble Kerala High Court regarding object of insertion of Explanation to s. 73. The observation of the Court was based on a circular of CBDT. Circular No. 204, dt. 24th July, 1976 (1977) 110 ITR (St) 22, Paragraph 19.2 of the Circular says that the object of this provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control. After considering the stands of both sides, we think it proper to examine the intention of the assessee for carrying the transaction because to determine whether the transaction was in the nature of a business or in the nature of an investment, the intention of acquirer is the deciding factor. The principles underlying the distinction between a capital sale and an adventure in the nature of trade were examined by Hon'ble Supreme Court in G. Venkataswami Naidu Co. vs. CIT (1959) 35 ITR 594(SC) where their Lordships held that the character of a transaction cannot be determined solely on the application of any abstract rule, principle or test bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o subterfuges. At the cost of repetition it may be held that even if short-term capital loss was to be allowed as per para No. 8 of this order, the short-term capital loss of ₹ 1,92,740 only and dividend income of ₹ 1,62,740 are allowable. But it is pertinent to mention here that above loss cannot be allowed because an excess relief has been already granted under s. 80M for ₹ 8,77,260 (10,40,000-1,62,740) as in that case the dividend income is to be considered only for ₹ 1,62,740. Under the facts of the case we are of the considered opinion that disallowance of loss of ₹ 18,30,000 is warranted, in view of it we uphold the disallowance of loss by the Revenue authorities on the aforementioned grounds. 9. The second ground relates to disallowance of ₹ 35,451 on account of garden expenses as business expenditure. The AO disallowed garden expenditure of ₹ 35,451 as the same was disallowed in last year. The CIT(A) also confirmed the said addition on the basis of his order of last year. 9.1 The learned authorised representative submitted that the issue is covered by the decision of Tribunal Ahmedabad A Bench in ITA No. 3594/Ahd/94. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a better site produced an advantage which enabled the trade to prosper and which could be expected to last for ever and was, therefore, capital expenditure. We refer a decision of Hon'ble Madras High Court CIT vs. Bimetal Bearing Ltd. (supra). The issue is decided against the assessee and in favour of the Revenue. The orders of Revenue authorities are confirmed. 11. The fourth ground relates to disallowance of ₹ 52,963 of architect fees. The AO disallowed an amount of ₹ 52,963 on account of architect fees as no details were produced. The CIT(A) confirmed the action of the AO and treated it as capital expenditure. 11.1 The learned authorised representative drew our attention on p. 61 of the paper book where details of provision of architect fees is given. The details given are as under : Bill No. Date Particulars of job Amount (Rs.) SR/R-3 6-4-91 Repairing of Bldg. of Spg. Ring Frame Deptt. buildings 2,60,146.40 SP/2 4-4-91 Repairing of bldg. of Spg. Preparatory ..... X X X X Extracts X X X X X X X X Extracts X X X X
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