Fwd: Rev Fav ITAT orders : issues relating to conversion of stock to investment of shares to take concessional benefits of capital gains head found on facts not proper/genuine ; interest element can be claimed against cost of capital asset provided same is capitalized as per accounting ; inflated purchases book rejection & profit estimation upheld; charitable trust selling immovable property at less than circle rate held if actual sale price investment in new FDR (AS PER 11(1a)) then as per Gyna chand batra itat, no capital gains on trust for excess deemed consideration u/s 50C; prior period expense issue dealt in detail

[Kapil Goel]

 

 

 

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI I.T.A. No.7122/Mum/2012 Assessment Year : 2009-10L.K.Earth Developers Pvt. Ltd.,

(formerly known as Excellent

Exports Pvt.Ltd), Date of Pronouncement : 20.8.2014

 

The assessee is aggrieved by the decision of Ld CIT(A) in confirming the

disallowance of 29.23 lakhs made by the AO as prior period expenses.

 

We have heard the rival contentions and carefully perused the record. The

issue before us is whether the amount of Rs.29.23 lakhs can be claimed as

deduction during the year under consideration. Before us, the Ld A.R has

furnished a paper book, wherein he has included correspondences exchanged

between the assessee and the contractor about the quality of work. The

assessee has written a letter dated 24.02.2008, wherein it has categorically

stated that it will not pay any amount to the Contractor. In the letter dated

22.02.2008, the Contractor had acknowledged the defects in his works and has

sought for a payment of Rs.10.00 lakhs. According to Ld A.R, the work was

redone by the Contractor and he has finally raised the bill on 30-06-2008. Thus,

it is seen that the assessee did not acknowledge its liability to pay the amount to

the Contractor, vide its letter dated 24.02.2008. When the assessee is disputing

his liability to pay the amount, in our view, it is not correct on the part of the tax

authorities to impose the said liability on the assessee, unless it is shown that the

assessee had acknowledged the liability by 31.3.2008. In the instant case, there

is no material to show that the assessee had acknowledged the liability by

31.3.2008. Since the contractor has raised the bill on 30-06-2008 and both the

parties have agreed for the said amount by that date, the liability relating to the

above bill gets crystallized only on 30-06-2008 and accordingly, in our view, it

cannot be considered as prior period expenses. 8. We find merit in the alternative contention of the Ld A.R also, i.e., even, if

it is considered as an item of prior period expenses, the same is required to be

allowed as deduction during the instant year only since the assessee has

deducted TDS during the current year.

9. During the course of hearing, the assessee submitted that it is declaring

income on completion of flats for accounting the income from building activities.

If that be the case, the construction expenses will have been shown as Work in

progress only in the immediately preceding year and the same would have been

allowed as deduction only in the year in which the flats are sold. In that angle

also, the impuimpugned expenses may not fall in the category of “Prior period

expenses”.

IN THE INCOME TAX APPELLATE TRIBUNAL

LUCKNOW BENCH “B”, LUCKNOW ITA Nos.256 & 257/LKW/2011

Assessment years:2007-08 & 2008-09 Shri Dwarikadhish Temple Trust Date of pronouncement 21/08/2014

 

From the order of CIT(A), we find that the assessee is a charitable and

religious trust registered u/s 12A of the Act. It is also noted by the Assessing

Officer that the assessee has sold immovable property for total sale

consideration of Rs.2.25 lac and the entire sale consideration was invested in

other capital asset i.e. fixed asset with bank. The Assessing Officer invoked

the provisions of section 50C of the Act and computed the capital income at

Rs.66.38 lac based on the value adopted by stamp duty authorities for stamp

duty purposes. We find that the CIT(A) has decided this issue in favour of the

assessee by following the Tribunal decision in the case of Gyanchand Batra vs.

Income Tax Officer 115 DTR 45 (JP-Trib).

6.2 We also find that it is specifically mentioned in section 50C(1) of the Act

that the stamp duty value is to be considered as full value of consideration

received or accruing as a result of transfer for the purpose of section 48 of

the Act. It is true that the assessee is a charitable trust and the income of the

assessee has to be computed u/s 11 of the Act. As per sub section (1A) of

section 11 of the Act, if the net consideration for transfer of capital asset of a

charitable trust is utilized for acquiring new capital asset, then the whole of

the capital gain is exempt. Considering all these facts, we do not find any

reason to interfere in the order of CIT(A) on this issue.

 

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI I.T.A. No.6349/Mum/2012   /Date of Pronouncement : 20. 8.2014 Mrs.Deepi Singh Arora

Assessment Years : 2008-09) 

We have heard the rival contentions and perused the record. The first

issue relates to the claim for deduction of interest expenditure against the Short

term Capital gain. We notice that the assessee has placed reliance on the

following case law before Ld CIT(A) to support her claim:-

(a) CIT Vs. Maithreyi Pai (152 ITR 247)

(b) ACIT Vs. K.S.Gupta (119 ITR 372)(AP)

(c) Challapalli Sugars Ltd (98 ITR 167)(SC)

In all the above cited cases, the expression “actual cost” has been explained. As

observed by the assessing officer, the question of ascertaining the “actual cost”

arises only for a “Capital asset” under the head “Income from business”. In this

regard, we may make a gainful reference to sec. 43 of the Act, wherein the

expression “actual cost” is defined. Further Explanation-8 to sec. 43, which

reads as under, is more relevant:-

“Explanation -8 – For the removal of doubts, it is hereby declared that

where any amount is paid or is payable as interest in connection with the

acquisition of an asset, so much of such amount as is relatable to any

period after such asset is first put to use shall not be included, and shall

be deemed never to have been included, in the actual cost of such asset.”

Under accountancy principles also, all the expenses incurred upto the date of

installing the Plant and machinery and also expenses incurred to make it

operational are considered as forming part of the cost of the Plant and

Machinery. Thus, it can be seen that the interest expenditure up to the period

when an asset is first put to use is required to be capitalized and the interest

pertaining to the subsequent period is allowable as revenue expenditure. By applying the above principles, in our view, we have to examine the

present case. The assessee has purchased “Shares” and hence the question of

“putting the same to use” does not arise in those cases. Consequently, the

question of capitalizing part of interest expenditure also will not arise. The gain

arising on sale of shares constitutes Capital receipt and it is taxed under the Act

under the head “Capital Gain”. The dividend earned out of the shares

constitutes revenue expenditure and the assessee can claim the interest

expenditure as deduction against the dividend income, if any, earned from the

Shares. The above said view gets support from the decision rendered in the

case of V. Mahesh, ITO Vs. Vikram Sadanand Hoskote (2007)(18 SOT

130)(Mum), wherein it is held that the interest expenditure incurred on borrowed

funds for the period commencing from the date of acquisition of shares till date

of sale would not form part of cost of acquisition of shares.

 

 In the instant case, it is not the case of the assessee that she has applied

for Shares under Initial Public Offering. Hence, the case laws relied upon by Ld

A.R is not applicable to the instant case. The question of deduction of interest

against the sale value of shares would arise only if the interest expenditure is

capitalized under the principles discussed in the preceding paragraphs. In the

instant case, it is not shown to us that the assessee has capitalized the interest

expenditure in accordance with the principles discussed above. Accordingly, in

our view, the Ld CIT(A) was justified in holding that the interest expenditure is

not deductible against short term capital gains.

 

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI

I.T.A.No.3472/Mum/2010’

Assessment Year: 2006-07

Indo Stosec Private Limited, Date of Pronouncement : 20.8.2014

We have heard the rival contentions on this issue and perused the record.

As submitted by Ld D.R, the assessee has been consistently declaring the Shares

as its Stock in trade. Only on the opening date of this year, i.e., on 1-04-2005,

the assessee seems to have converted the stock in trade into Investments in its

books of account and thereafter sold most of the shares within a period of about

20 days. When questioned about the compliance of the provisions of the

Companies Act, if any, in this regard, the Ld A.R submitted that the decision

taken by the assessee is reflected in the books of account. Thus, it is seen that

the entry passed in the books of account to convert stock in trade into

investments is not substantiated with any document. The Ld A.R contended that

the Ld CIT(A) did not examine the applicability of various tests prescribed by the

CBDT in its Circular to determine the nature of transactions. In our view, the

examination of the applicability of various tests is not required in the instant

case, since the assessee has clearly brought out its intention by classifying the

shares as its “Stock in Trade” in all the earlier years. Further the assessee is a

legal person and its intention can be ascertained only through the documents,

resolutions passed in Board meetings etc. The question of conduct of the

assessee may be more relevant in the case of human beings. Further, the

question of application of various test criterias prescribed by the CBDT would

arise only when there is confusion about the intention of the assessee. In the

instant case, there appears to be no confusion at all. On the contrary, it is clear

that the assessee has decided to convert the stock in trade into Investments on 1.4.2005 only when it took the decision to sell the shares immediately thereafter

and the purpose is very clear, i.e., to avail the benefit of exemption and

concessional rate of tax. Hence, in our view, the assessee cannot take support

of the decision rendered by the Hon’ble Supreme Court in the case of Investment

Ltd (supra), since the assessee has, all along, shown the shares as its stock in

trade and further it has also declared the gains arising on sale of shares as its

business profit only. In the case of M/s Express Securities Pvt Ltd (supra), the

Hon’ble Delhi High Court has noticed that the assessee has held the shares as

investments for a period of two years after the date of conversion from “Stock in

trade”. On the contrary, in the instant case, the assessee has immediately sold

the shares after the alleged conversion. Hence, under these set of facts, in our

view, the Ld CIT(A) was justified in confirming the gains arising on sale of shares

as the business income of the assessee by disregarding the claim of Long term

Capital gain and Short term Capital gain. Accordingly, the Ground No.1 and

Ground No.2 are disposed of.

 

IN THE INCOME TAX APPELLATE TRIBUNAL

PUNE BENCH “A”, PUNE ITA No. 1027/PN/2013

(Assessment Year : 2008-09)  M/s. Viraj Steels Date of Pronouncement : 19-08-2014

We have considered the rival arguments made by both the sides,

perused the orders of the Assessing Officer and the CIT(A) and the

Paper Book filed on behalf of the assessee. We have also considered

the various decisions cited before us. There is no dispute to the fact

that out of the 34 notices issued u/s.133(6) by the Assessing Officer, 14

notices were returned unserved. There is also no dispute to the fact that

in one case, i.e. M/s. Bharat Steel Company from whom the assessee has

made substantial purchases it was reported by the Inspector that the said

party is not available at that address. Even the Telephone number

mentioned in the invoice was found to be incorrect. It is also a fact that

the price paid to M/s. Bharat Steel Company is more than the price

charged by other traders for purchase of identical products on same

date. All these facts were brought to the notice of the assessee by the

Assessing Officer. Since the purchases from Bharat Steel Company

were held to be non-genuine and it was brought to the notice of the

assessee by the Assessing Officer that the price paid to Bharat Steel

Company is higher than price charged by other traders for the same

product on the same date, the Assessing Officer, in our opinion, has

discharged his onus and onus was on the assessee to prove the

genuineness of purchases. The assessee has failed to do so. It has

been held by the Mumbai Bench of the Tribunal in the case of M/s.

Fortune Steel Industries Vs. ACIT (Supra) vide ITA No.2894 & 2895 that in a case where the purchase prices are not verifiable as the parties

were not found and in such cases the books should be rejected and the

gross profit rate could be estimated. In view of the above decision

which was relied on by the Ld. Counsel for the assessee himself, we are

of the considered opinion that the CIT(A) was justified in upholding the

action of the Assessing Officer in rejecting the book results.

7.1 Although the Ld. Counsel for the assessee has relied on a series of

decisions, he has not answered the basic query raised by the Assessing

Officer as to why the assessee has paid higher price to Bharat Steel

Company for purchase of the identical products which are available at

lower rate from reputed companies on the same day. This in our

opinions shows that the activities of the assessee are not above board

and the assessee is trying to just rely on various decisions without

giving the reasons. Therefore, the various decisions relied on by the

Ld. Counsel for the assessee, in our opinion, are not applicable to the

facts of the present case. Once the Assessing Officer has established

that the price paid to a party is higher as compared to similar products

supplied by other parties on the same date and the party to whom

higher price has been paid is not traceable and the assessee has not made

any efforts to produce the party or give his present address, therefore,

the socalled purchases from the said party become suspicious and under

these circumstances the Assessing Officer, in our opinion, is fully

justified in rejecting the book results and going for estimation. In none

of the cases relied on by the Ld. Counsel for the assessee, it has been

held that books of accounts of an assessee who paid higher price to a party which is not traceable or which could not be produced has to be

accepted as genuine. In this view of the matter we uphold the order of

the CIT(A) on this issue.