Income Tax Appellate Tribunal - Mumbai
Parle Biscuits P. Ltd., Mumbai vs Department Of Income Tax on 28 November, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C" : MUMBAI
BEFORE SHRI D. MANMOHAN, HON'BLE VICE PRESIDENT
AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA. No. 684/M um/2009
Assessment year 2005-2006
DCIT, CC.25 M/s. Parle Biscuits Pvt. Ltd.
Mumbai - 020 vs. Mumbai - 57
PAN AAACP-0485-D
(Appellant) (Respondent)
For appellant : Shri Vivek Batra (DR)
For respondent : MS. Anjana Singh (AR)
ORDER
SHRI D. MANMOHAN, V.P.
1. This appeal, filed at the instance of the Revenue, is directed against the Order dated 28-11-2008 passed by the CIT(A), Central- V, Mumbai and it pertains to the assessment year 2005-2006. The only ground urged by the Revenue reads as under :
"On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing short term capital loss claimed by the assessee on transfer of bonds by not appreciating that provisions of section 94(7) of the I.T. Act, 1961 apply to this case."
2. The assessee-company is engaged in manufacture of biscuits under the brand name of Parle-G, Krackjack, Monaco, Nimkin etc., In respect of previous year relevant to the assessment year 2005-2006 it declared total income of Rs.106.27 crores. During the course of scrutiny, the Assessing Officer noticed that the assessee claimed long term and short term capital loss on maturity of tax free bonds of IRFC, RECL, HUDCO, KRCL and IDBI etc., All these bonds were tax free interest bearing bonds which have been redeemed at face value during the year of maturity though some of those bonds were purchased in the open market at a price above the face value.
2According to the Assessing Officer loss on sale of bonds should not be allowed to be set off in the light of provisions of section 94 (7) of the Act and accordingly disallowed the loss on sale of bonds which were held for less than one year. It may be noticed that there is no dispute with regard to long term capital loss/profit but the dispute centres around the applicability of section 94 (7) vis-à-vis short term capital loss on sale of tax free bonds.
3. Aggrieved by the Order of the Assessing Officer, assessee contended before the learned CIT(A) that the view taken by the Assessing Officer is not in accordance with law and the decision of Hon'ble Punjab and Haryana High Court in the case of Vaneet Jain vs. CIT 205 CTR 92 is not applicable to the facts of this case.
4. Learned CIT(A) accepted the contention of the assessee for the reasons given by him in the appellate order for the assessment year 2004-2005. It may be noticed that in so far as the appellate order for the assessment year 2004-2005 is concerned detailed reasons were given by the learned CIT(A) while coming to the conclusion that provisions of section 94 (7) are not applicable in respect of sale of bonds. He observed that section 94 (7) deals with securities and units from which dividend is earned whereas, tax free bonds, which are subject matter of investment in the assessee's case, yield interest and section 94 (7) does not cover a case of loss on sale of bonds as it is confined to the sale of securities and units only. He also noticed that legislature intended to plug in cases of 'dividend stripping', by inserting section 94 (7) of the Act, bearing in mind the possibility of purchase of securities and units at higher price in the open market to obtain tax free dividend in order to sell the same at a later date at reduced price to claim short term capital loss and thus availing double benefit of tax, by way of exemption on dividends as well as deduction on short term capital loss, whereas, there is no question of reduction of prices, post interest, in respect of bonds since there is no dividend involved (interest being fixed) and bonds are ordinarily redeemed at face value. He also observed that section 94 (7) does not apply to the assessee's case because the bonds were held for more than six months. Detailed written submissions were filed before the CIT(A) and the same is placed in the paper book filed before us (pages 58 to 65).
35. Aggrieved by the Order of the learned CIT(A), Revenue is in appeal before us. The case of the learned DR is that the expression 'securities' is a generic term which encompasses bonds also. It was further contended that the assessee enjoyed the benefit of tax exemption on the interest earned on investment made in bonds and hence, going by the broader intention of the legislature, provisions of section 94 (7) should be applied to the sale of bonds in the event of sales made in a short span.
6. On the other hand, learned Counsel vehemently contended that the intention of the legislature in inserting the provisions of section 94 has to be taken into consideration in order to appreciate as to whether bonds are intended to be considered within the meaning of expression 'securities'. She has taken us through the explanatory notes on the provisions relating to Direct Taxes - vis-à-vis Finance Act, 2001 - to highlight that the legislature intended to curb creation of short term loss upon purchase of "-cum- dividend" securities/units and sale thereof within a period of 3 months after the record date whereas bonds do not earn any dividend and it carries fixed interest rate. Therefore, provisions of section 94 (7) are not applicable to sale of bonds. She also submitted that this very issue was considered by the first appellate authority in the appeal for the assessment year 2004-2005 against which Revenue has not preferred any appeal and in the subsequent years also Revenue did not rake up this issue. Therefore, consistent with the stand taken by the Revenue - by accepting the view of the first appellate authority in respect of the assessment year 2004-2005 - the Revenue ought not to have preferred an appeal even for this year.
7. We have carefully considered the rival submissions and perused the record. In our considered opinion provisions of section 94 (7) are not applicable with regard to sale of tax free bonds. As rightly pointed out by the learned CIT(A) there is no question of purchase of bonds on 'cum dividend basis' and it is not in dispute that the bonds were redeemed at face value on the maturity dates unlike securities/units which are normally sold in the open market at a price, which depends upon various other factors. Revenue having accepted the view taken by the learned CIT(A) in the case of same assessee for the assessment year 2004-2005, even on the principle of consistency we do not find any merit in the appeal filed by the Revenue. Thus, on a conspectus of the 4 matter, we are of the view that the Order passed by the learned CIT(A) does not call for any interference. Therefore, the appeal filed by the Revenue is dismissed.
Order pronounced on this the 22nd day of March, 2010.
Sd/- Sd/- (A.L.GEHLOT) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDET Mumbai, Dated 22nd March, 2010 VBP/- Copy to
1. DCIT, C.C. 25, Room No. 404, 4th Floor, Aayakar Bhavan, M.K. Road, Mumbai - 020.
2. M/s. Parle Biscuits Pvt. Ltd. North Level Crossing, Vile Parle (E), Mumbai - 57. PAN AAACP-0485-D
3. CIT(A), Central-V, Mumbai
4. CIT, Central-II, Mumbai
5. D.R. "C" Bench, Mumbai
6. Guard File (True copy) By Order Asst. Registrar, ITAT, Mumbai Benches MUMBAI.
5Sl. No. Particulars Date Initial 1. Draft dictated on 18-03-2010 Sr. P.S. 2. Draft placed before the Member 19-03-2010 Sr. P.S. 3 Draft a pprove d an d sent to second Member 19-03-2010 V.P. 4. Draft a pprove d by Second Member 19-03-2010 A.M. 5. Draft received by Sr. P.S . Sr. P.S. 6. Kept for pronouncement Sr. P.S. 7. Sent to Bench Clerk Sr. P.S. 8. Date of dispatch of the Order