Income Tax Appellate Tribunal - Mumbai
Chandravadan Bhaichand Muchhala, ... vs Assessee on 27 November, 2013
आयकर अपील य अ धकरण "सी" यायपीठ मंब
ु ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "C", MUMBAI
ी पी.एम. जगताप, लेखा सद य एवं ी ववेक वमा, या यक सद य के सम ।
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
आयकर अपील सं. : 3457/मम
ु /2012
नधारण वष A.Y. 2008-2009
ITA No. : 3457/Mum/2012
(Assessment year: 2008-2009)
Shri Chandravadan B. Muchhala, Vs ITO - 4(1)-2,
619, Rotunda Building, Mumbai
Bombay Samachar Marg,
Fort,
Mumbai -400 023
PAN: AAHPM 5222 H
अपीलाथ (Appellant) यथ (Respondent)
Appellant by : Shri K. Gopal
Respondent by : Shri Sanjeev Jain
सनवाई
ु क तार ख /Date of Hearing : 27-11-2013
घोषणा क तार ख /Date of Pronouncement : 06-12-2013
आ दे श
ORDER
ववेक वमा, या स:
PER VIVEK VARMA, JM:
The instant appeal arise from the order of CIT(A) 8, Mumbai, dated 08.02.2012, wherein, the assessee has raised following grounds:
1. The learned CIT (Appeal) erred in confirming addition made by AO in respect of long-term capital gain of Rs. 46,75,354/- on sale of share without considering facts and circumstances of case.
2. The learned CIT (Appeal) erred in confirming addition made by AO u/s 14(a) read with rule 8D of Rs. 64,406/- without considering facts and circumstances of case".
2. Brief facts are that the assessee is an individual, who declared his income at Rs. 21,93,430/-. In the scrutiny proceedings, the assessee declared a LTCG of Rs. 1,42,29,494/- on the sale of shares of Bombay Stock Exchange under the "Buy Back" scheme. In the instant year, the assessee sold certain shares held by him in his individual capacity and along with his brother Shri Ajit Muchhala to Shri Ajit Muchhala. These shares held by the assessee in his individual 2 Shri Chandravadan B. Muchhala ITA 3457/Mum/2012 capacity or as joint owner, pertained to certain de-listed companies and because of which, the shares were sold to the brother, Shri Ajit Muchhala as "off market sales". It was noticed by the AO, that the sale consideration of these shares were Rs. 17,389/-, on which, the assessee claimed a LTCG at Rs. 46,75,354/-. The AO did not accept the conduct of the assessee, he, therefore, summoned the assessee to record his statement. In the statement, in one of the questions asked, the assessee deposed that, "the rate determined was based on our experience/assumption and no documentary evidence was available". On this deposition, the revenue authorities took the stand that the assessee did not provide any documentary evidence to give effect to the sale of the shares. Thus, the revenue authorities disallowed the loss claimed by the assessee, holding the sale transactions to be sham.
3. Before us, the AR submitted the details of the share sold along with the xerox copies of the share scrips (Page 4 APB).
4. The AR submitted that since the share scrips bore the name of the assessee, the revenue authorities have presumed that the sale transactions were bogus. He pointed out from the detail placed at APB 4 that the assessee had sent the scrips for transfer to the respective companies (wherever noted), but they were yet to receive the intimation of change of name.
5. The AR also submitted that the AO had examined the assessee on oath u/s 131, wherein the assessee has deposed that the assessee had sold the shares to his brother, Shri Ajit Muchhala and not to any outside party, just to keep the shares within the family. He also submitted that the sale transaction was genuine and if the revenue authorities had any doubt, they could have likewise examined Shri Ajit Muchhla, as well. He also submitted that the transactions were actual transactions of sale by the assessee to his brother, but the transaction has been held to be sham, simply because the shares still were in the 3 Shri Chandravadan B. Muchhala ITA 3457/Mum/2012 name of the assessee and that they were sold as off market transactions.
6. The DR submitted that the assessee had planned the sale of shares to reduce the LTCG on sale of buy back of BSE shares, where the assessee had earned a LTCG at Rs. 1,42,29,494/-. The whole idea was to reduce the LTCG and the means available with the assessee was the shares held by him of those de-listed companies.
7. The DR emphasized that assessee was unable to provide documentary proof, to show that the sale actually took place, as the shares were still in the name of the assessee and assessee and his brother. This, according to the AO was a good enough proof to hold the sale transactions to be sham.
8. We have heard the arguments from both the sides and have perused the papers appended in the APB along with the order of the revenue authorities. We have also carefully gone through the extracts of the statement recorded by the AO u/s 131 and reproduced in the order and whose cognizance has been taken by the CIT(A) as well. On the enquiry made by us, as to why the documentary evidence was not placed, as taken by the CIT(A), the AR replied that there was a distinction in the interpretation, because as per the answer, the assessee had stated that "no documentary evidence was available with regard to the rate" and not that the assessee was unable to provide evidence with regard to transactions of sale. Even at this stage, the assessee was unable to bring the copy of statement recorded by the revenue officers, on record.
9. When we examine from the angle of the assessee that there was sale transaction, this fact is not disputed by the revenue authorities. Still, the transactions leave a big question mark as to why to effect the sale in the year, where there is a huge capital gain and how the aggregate sale price was determined at Rs. 17,389/-, why not less or 4 Shri Chandravadan B. Muchhala ITA 3457/Mum/2012 more. We agree with the finding of the CIT(A) that off market transactions are also good transaction. In the instant case, the off market sale transactions of so many companies put together in our basket, sold to Shri Ajit Muchhala without even the transfers having been effected. On our own, we know that share transfer deed is valid for 3 months, after which, it has to be validated. In these cases, even if the assessee "sent" the scrips for transfer, were never transferred and the deeds never renewed. Even if we accept the fact that shares were sent for transfer, what is/are the date of sending the shares and where have they sent & why there has been no communication, if at all, from the company, as to why the shares have not been transferred. All these facts have left gaping holes in the case and arguments of the assessee/AR.
10. In these circumstances, the transactions shown as sale transaction does not inspire any confidence and according to us, the disallowance of loss of Rs. 46,75,354/- is sustained.
11. Ground no. 1 is therefore, rejected.
12. Ground no. 2 pertains to disallowance computed by the AO at Rs. 78,252/- u/s 14A.
13. The facts are that the assessee during the current year earned dividend income of Rs. 3,22,933/- and claimed the same to be exempt u/s 10(34) of the Income Tax Act. In the assessment proceedings, the AO sought the comments from the assessee as to why 14A should not be invoked. The assessee vide his letter dated 07.10.2010 submitted before the AO that, "no expense had been incurred to earn exempt income, hence there is no disallowance u/s 14A read with Rule 8D". This submissions of the assessee was not accepted by the AO, and he invoked the provisions of section 14A and in accordance with the prescribed formula under Rule 8D, computed the disallowance at Rs. 78,252/-.
5 Shri Chandravadan B. Muchhala ITA 3457/Mum/2012
14. Aggrieved, the assessee approached the CIT(A), before whom the assessee contended that out of the total disallowance computed, keeping in view the financial expenses, Rs. 21,870/- is paid on car loan and which had nothing to do with the interest on investments. It was also pointed out that that out of this proportionate disallowance works out at Rs. 13,846/-. This plea of the assessee was accepted by the CIT(A), who reduced Rs. 13,846/- from the disallowance computed at Rs. 78,353/- to Rs. 64,406/- (it should be Rs. 64,507). In effect, the CIT(A) sustained the disallowance u/s 14A at Rs. 64,406/-.
15. Aggrieved, the assessee is before the ITAT.
16. Before us, the AR reiterated the contentions and submissions made before the revenue authorities and further submitted that even in the case of Godrej & Boyce Mfg. Co. Ltd. vs CIT, reported in 328 ITR 81, the Hon'ble Bombay High Court has accepted the argument that where there is no expense actually incurred by the assessee, provisions of section 14A shall not be attracted. The AR, however, submitted that though the disallowance is untenable, but because the smallness of the figure, the Bench may take an appropriate view.
17. The DR relied on the working done by the AO and submitted that the CIT(A) has actually allowed, what should have allowed by the AO. He further submitted that the provisions of section 14A are mandatory and hence any income which does not form part of the total income a disallowance has to be computed.
18. We have heard the arguments and have perused the impugned orders. As per the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra), disallowance of expense has to be computed in accordance with Rule 8D with effect from assessment year 2008-09. In these circumstances, disallowance has to be made on the income not forming part of the total income. There is no escape to this legal proposition. The argument advanced by the AR that no 6 Shri Chandravadan B. Muchhala ITA 3457/Mum/2012 expense was incurred by the assessee to earn the exempt income, is covered by section 14A(3), which nails the argument of the assessee/AR. In any case, the AR has accepted to the smallness of the amount, resulting into a disallowance.
19. Taking into view, the facts, the judicial pronouncement, legal position and submission of the AR, we do not find any reasonable ground to differ and interfere with the decision of the CIT(A).
20. Ground no. 2 is, therefore, rejected.
21. In the result, the appeal as filed by the assessee is dismissed. Order pronounced in the open Court on 6th December, 2013.
Sd/- Sd/-
(पी.एम. जगताप) ( ववेक वमा)
लेखा सद य याईक सद य
(P.M. JAGTAP) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 6th December, 2013
त/Copy to:-
1) अपीलाथ /The Appellant.
2) यथ /The Respondent.
3) आयकर आयु त(अपील) -8 Mumbai / The CIT (A)-8, Mumbai.
4) आयकर आयु त-4, Mumbai /The CIT-4, Mumbai,
5) वभागीय त न ध "सी" , आयकर अपील य अ धकरण, मंुबई/ The D.R. "C" Bench, Mumbai.
6) गाड फाईल Copy to Guard File.
आदे शानसार ु /By Order / / True Copy / / [ उप/सहायक पंजीकार आयकर अपील य अ धकरण, मंुबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च हान व. न.स *Chavan, Sr. PS