TaxTMI 
TaxTMI 
2012 (2) TMI 589
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.... After hearing both the parties, we find that during the assessment proceedings AO noticed that assessee has paid interest to the tune of Rs. 64,01,824/- and has also received interest amounting to Rs. 32,62,806/- and finance charges of Rs. 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....
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....ut the disallowance. It was submitted that availability of funds was considered as per the chart furnished by the assessee therefore the disallowance 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 Rs. 39,474/- as dividend income and the Tribunal may itself make a reasonable disallowance on ac....
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.... disallowance of expenditure is concerned, we agree with the submissions of the Ld. Counsel of the assessee that no purpose would be served if the matter is remanded back because a small amount of Rs. 39,474/- has been received as dividend. Considering the over all circumstances we estimate the expenditure for earning this exempt income at Rs. 2,000/-. Accordingly, we set aside the order of the ld. CIT(A) to this extent and direct the AO to make addition of Rs. 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 Rs. 5,39,84,100/-. On this capital gain amounting to Rs. 5,29,36,936/- was earned. The assessee had also booked short term capital loss amounting to Rs. 2,15,00,000/- in shares of Plus Channel and a sum of Rs. 1,15,15,982/- on sale of shares of Andromeda Holdings Pvt. Ltd. Thus, this loss of Rs. 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 t....
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....d accordingly he disallowed the loss incurred on account of sale of shares of Plus Channel and Andromeda Holdings Pvt. Ltd. 9. On appeal before the Ld. CIT[A] it was mainly submitted that the transaction regarding sale of shares of Plus Channel and Andromeda Holdings Pvt. Ltd. was a genuine transaction 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 pr....
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....0,20,000/-, 30,000 shares were sold to Ms. Dhyuti Choksi on 31-7-98 and balance 30,000 shares were sold to Mr. Pankaj Pandya on 8-3-1999. The sales have been affected as per the market value. Since purchase of these shares was never in dispute, therefore, there was no question of doubting the transaction 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....
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....ale of shares of Hotel Jal Ltd. The transaction has not been proved fully and even the copy of the share certificate showing the transfer of shares was not filed by the assessee, which only shows that assessee has not handed over the shares. He also referred 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 a....
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.... case of Walfort Share And Stock Brokers P. Ltd. [326 ITR 1] wherein assessee had purchased certain units of Chola Freedom Technology Mutual Fund. This fund had advertised in Newspapers that tax free dividend of 40% could be earned if investments were made before the record date i.e. March 24, 2000. The assessee became entitled to dividend of Rs. 4 per unit and earned a dividend of Rs. 18212862.80, as a result of pay out of the dividend the NAV got reduced from Rs. 17.23 per unit on March 24,2000 to Rs. 13.23 per unit on March 27, 2000. The assessee sold all the units on 27-3-2000 at NAV at Rs. 13.23 per unit and received a sum of Rs. 59055207.75. The assessee also received an incentive of Rs. 2376778 on this transaction. Thus, assessee received a total sum of ITA NO.5046 of 17 2003 Rs. 7,96,44,847/- [i.e. Rs. 18212862.80 + Rs. 59055207.75 + Rs. 2376778] against the initial investment of Rs. 8,00,00,000. For the purpose of income tax assessee claimed dividend of Rs. 18212862.90 as exempt u/s.10[33] of the Act and also claimed a set off of Rs. 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 a....
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....ies. We find force in the submissions of the Ld. Counsel of the assessee. The assessee had claimed total capital loss of Rs. 3,30,15,982/- consisting of loss on account of sale of shares of Plus Channel amounting to Rs. 2,15,00,000/- and loss on account of sale of shares of Andromeda Holdings Pvt. Ltd amounting to Rs. 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 Rs. 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 ....