2019 (4) TMI 1571 - AT - Income Tax

Tribunal's Decision: Partial Appeal Success, Remand on Office Acquisition, Upheld Disallowance, AO Verification

The tribunal partly allowed the assessee's appeal, remanding the matter of the acquisition of office premises for fresh adjudication. The tribunal upheld ... Computing capital gains u/s 50 - reduction of cost of new assets acquired but not owned for considering WDV of block of assets - ‘acquiring’ of the asset vs ‘ownership’ of the capital asset - HELD THAT:- 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 herein above, though the vesting of the title is mandatorily required for claim of depreciation u/s 32, however, the same would not apply for determining the point of acquisition of the property in terms of Sec. 50(1)(iii). 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 after receiving the OC/BCC from Municipal Corporation of Greater Mumbai, we find that the said 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 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 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. No infirmity does emerge from the order of the CIT(A) who had scaled down the disallowance under Sec. 14A in the hands of the assessee Recharacterization of the capital loss on sale of shares as a speculative loss - HELD THAT:- As the transaction involved in purchase and sale of shares of Hindustan Zinc Ltd. by the assessee company during the year was a solitary transaction, therefore, the presumption would be that the said shares as claimed by the assessee were held as an investment, unless the same is rebutted by the department on the basis of irrefutable material. As the solitary transaction of purchase and sale of shares of Hindustan Zinc Ltd. by the assessee company during the year under consideration cannot be held to be a part of its business, therefore, the loss 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. 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 revenue is dismissed. Issues Involved:1. Whether the CIT(A) erred in not considering the appellant's acquisition of office premises for computing capital gains under Section 50 of the Income Tax Act.2. Whether the CIT(A) erred in holding that the AO was justified in relying on third-party statements without providing an opportunity for cross-examination.3. Whether the provisions of Explanation to Section 73 can be invoked if the benefit of Rs. 2,16,00,000 is denied under Section 50.4. Whether the disallowance of Rs. 3,42,385 under Section 14A of the Income Tax Act was justified.5. Whether the CIT(A) erred in deleting the addition of Rs. 1,05,62,764 relating to the loss on the sale of shares treated as speculation loss under Explanation to Section 73.Detailed Analysis:1. Acquisition of Office Premises for Computing Capital Gains:The assessee argued that the new office premises acquired should be added to the cost of the block of assets under Section 50(1)(iii). The AO observed that the acquisition of the property was not completed during the year under consideration and treated the payment as an advance. The CIT(A) upheld the AO's decision, stating the property was not acquired within the meaning of Section 50(1)(iii). The tribunal found that the affidavit of the director of the intermediary company contradicted the AO's observations and remanded the matter to the AO for fresh adjudication, allowing the assessee to substantiate its claim.2. Reliance on Third-Party Statements:The assessee contended that the AO relied on third-party statements without providing an opportunity for cross-examination. The tribunal noted that the CIT(A) did not address this issue adequately. The tribunal directed the AO to verify the veracity of the facts deposed in the affidavit and readjudicate the issue, ensuring a fair opportunity for the assessee.3. Invocation of Explanation to Section 73:The AO treated the loss on the sale of shares as a speculative loss under Explanation to Section 73. The CIT(A) reversed this, stating the isolated transaction of share acquisition/sale did not constitute a business activity. The tribunal upheld the CIT(A)'s decision, agreeing that the solitary transaction could not be characterized as a business activity or an adventure in the nature of trade, thus the loss was rightly claimed as a capital loss.4. Disallowance under Section 14A:The AO disallowed Rs. 3,42,385 under Section 14A, which was scaled down by the CIT(A) to Rs. 30,000. The tribunal upheld the CIT(A)'s decision, agreeing that attributing the entire expenses to the earning of exempt income was untenable. The CIT(A)'s modest disallowance of Rs. 30,000 was deemed reasonable.5. Deletion of Addition Relating to Loss on Sale of Shares:The AO recharacterized the loss on the sale of shares as a speculative loss. The CIT(A) deleted this addition, stating the transaction did not meet the criteria for invoking Explanation to Section 73. The tribunal upheld the CIT(A)'s decision, agreeing that the isolated transaction did not constitute a share trading business and thus could not be deemed speculative.Conclusion:The tribunal partly allowed the assessee's appeal, remanding the matter regarding the acquisition of office premises to the AO for fresh adjudication. The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on the disallowance under Section 14A and the deletion of the addition relating to the loss on the sale of shares. The tribunal directed the AO to verify the facts and provide a fair opportunity for the assessee to substantiate its claims.