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Facts
The assessee made cash deposits in their bank account during the demonetization period and claimed a long-term capital loss from the forfeiture of a commercial property right. The revenue questioned the source of the cash deposits and the genuineness of the capital loss claim. The appeals arose from the orders of the CIT(A) concerning these issues.
Held
The Tribunal held that the cash deposits were proved by the assessee's opening cash balance and audited balance sheet. Regarding the capital loss, it was held that the extinguishment of the right in the property due to forfeiture constitutes a 'transfer' and the loss claimed with indexation benefit is allowable. The disallowance of commission expenses and the restriction of disallowance under Section 14A were also upheld.
Key Issues
Whether the source of cash deposits made during demonetization is proved and whether a long-term capital loss arising from forfeiture of a property right is allowable.
Sections Cited
144, 68, 115BBE, 2(47), 133(6), 40A(2)(b), 14A, 8D(2)
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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in for AY 2015-16 raised by the assessee and Commissioner of Income Tax (Appeals)-23, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. CIT(A),Delhi- 4/10871/2019-20 dated 30.09.2022 against the order of assessment passed u/s 144 of the Income-tax Act, 1961 (hereinafter referred to as Page | 1 ‘the Act’) dated 226.12.2019 by the Assessing Officer, ACIT, Circle-10(2), New Delhi (hereinafter referred to as ‘ld. AO’). As these are cross appeals, these appeals are disposed of together by way of this common order for the sake of convenience.
– Asst Year 2017-18 – Assessee Appeal 2. The Ground No.1 raised by the assessee challenging the confirmation of the addition by the Learned CIT(A) in the sum of Rs 12,00,000/- on account of cash deposits made in the bank account on 18.11.2016 during the demonetization period.
We have heard the rival submissions and perused the materials available on record. During the year under consideration, the assessee has shown income from rent, sale of shares, interest, dividend and long-term capital gains. The return of income for the Assessment year 2017-18 was electronically filed by the assessee on 17-03-2018 declaring taxable income of Rs 41,11,540/-. The learned AO noticed that assessee had deposited a sum of Rs 12 lakhs in cash in its bank account during the demonetization period on 18-11-2016 in specified bank notes. The assessee was asked to explain the source of the same. In response, assessee submitted the cash book for the period 1-4-2016 to 31-03- 2017, wherein it proved that assessee had opening cash balance as on 1-4- 2016 to the tune of Rs 14,53,068/-. The assessee submitted that out of the said opening balance, a sum of Rs 12 lakhs stood deposited in State Bank of Patiala on 18-11-2016. The assessee also placed on record its audited balance sheet as on 31-03-2016, wherein a sum of Rs 14,53,068/- was duly shown as cash balance as on 31-03-2016. The learned AO however not satisfied with the reply given by the assessee, observed that assessee could not have held cash balance for such a long time and hence the source of cash deposits to the tune of Rs 12 lakhs stood not proved by the assessee. Accordingly, an addition under section 68 read with section 115BBE of the Act was made for the same in the assessment. This addition was upheld by the learned CIT(A).
The case of the revenue is that it is highly improbable for the assessee to continue to hold the opening cash balance of Rs 14,53,068/- till the time of cash deposit. The revenue submitted that normally any businessman would withdraw cash only when there is a specific requirement in order to meet the business exigencies and that no rational businessman will withdraw cash and accumulate it without being utilized in the business. However, we find that the revenue had not doubted the existence of opening cash balance of Rs 14,53,068/- as on 1- 04-2016, which figure is also reflected in the audited balance sheet of the assessee company as on 31-03-2016. The case of the revenue is that it is highly improbable for any assessee/businessman to hold the cash for such a long time. This aspect has to be viewed from the viewpoint of the businessman and not from the point of view of the revenue. The revenue cannot dictate terms as to how the businessman should conduct its affairs. The businessman knows his interest best. Reliance in this regard is placed on the decision of Hon’ble Supreme Court in the case of CIT vs Dhanrajgirji Raja Narsingirji reported in 91 ITR 544(SC). Further, we find that the onus is on the revenue to prove that the opening cash balance stood utilized for some other purposes by the assessee and that the same was not available as a cash source with the assessee as on the date of making the deposit. Reliance in this regard has been placed rightly by the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Kulwant Rai reported in 291 ITR 36(Del). Since the onus has not been proved by the revenue in the instant case and assessee on its part had filed the entire cash book for the whole year wherein it is established that the cash deposit has been met out of the cash balance available as per books, there is no scope for making any addition in the sum of Rs 12 lakhs. Hence, we hold that the source of cash deposits stands duly proved and established by the assessee. The addition made under section 68 read with section 115BBE of the Act is hereby deleted. Accordingly, the Ground No.1 raised by the assessee is allowed.
The Ground No. 2 raised by the assessee is challenging the confirmation of disallowance of long-term capital loss of Rs. 1,30,06,057/- incurred on commercial property with BPTP Ltd. The interconnected issue involved therein is not granting the benefit of cost of indexation to the assessee.
We have heard the rival submissions and perused the materials available on record. The assessee booked commercial plot with BPTP limited and the payments in respect of the same were made by cheque on various dates commencing from 10-04-2008 till 11-10-2012 totaling to Rs. 73,37,900/-. These payments were made by the assessee to BPTP limited for purchasing commercial plot unit number SCO-G06 in Faridabad project, Haryana of BPTP limited. The concerned unit number was duly allotted in the project ‘commercial plots’ at Faridabad, Haryana by BPTP limited to the assessee company. Hence, the assessee had indeed acquired a right in the said commercial plot. Since, assessee failed to pay the remaining payments of Rs. 31,96,467/- to BPTP limited, BPTP limited forfeited the amounts paid earlier by the assessee in the sum of Rs. 73,37,900/-. To this effect, BPTP limited gave a letter addressed to the assessee company on 15-06-2015. In the said letter, it was very clearly and categorically stated by BPTP limited that against the allotment made to the assessee for unit number SCO-G06 in project commercial plots at Faridabad, Haryana which was originally allotted to the assessee, since the assessee had failed to make the balance payment of Rs. 31,96,467/- on the allotted date, the earlier payments made were duly forfeited by BPTP limited and the allotment given to the assessee in the said commercial plot was duly terminated and cancelled. This letter is enclosed in pages 194 and 195 of the paper book filed before us. Since the assessee’s right in the commercial plot stood extinguished, the assessee considered the same as a ‘transfer of a capital asset’ and since no consideration was received by the assessee company, the sale consideration was reflected as nil and since the amount to the tune of Rs. 73,37,900/- was paid actually by the assessee towards the said plot to BPTP limited, the same was claimed as deduction towards cost of acquisition of right with indexation benefit there on, which resulted in long term capital loss of Rs. 1,30,06,057/- in the return of income.
The assessee duly furnished the complete details of payments made to BPTP Ltd along with the termination letter dated 15-06-2015 issued by BPTP Ltd before the Learned AO during the course of assessment proceedings. Despite that, the Learned AO observed in Para 11 page 12 of its order that no evidences were filed by the assessee company in support of loss claimed on transfer of right in BPTP commercial plot. Accordingly, the Learned AO proceeded to disallow the entire long term capital loss of Rs 1,30,06,057/- claimed by the assessee in the return of income.
The Learned CIT(A) narrated the entire facts of the case which are narrated hereinabove in Para 37 to 41 of its order. But the Learned CIT(A) observed that deduction towards indexed cost of acquisition could be granted only against the full value of sale consideration received on ‘transfer of a capital asset’. The Learned CIT(A) observed that there was no transfer of capital asset which had happened in the instant case and accordingly the assessee is not entitled for deduction of indexed cost of acquisition resulting in long term capital loss of Rs 1,30,06,057/- and upheld the action of the Learned AO.
We find the assessee by making advance payment from 10-04-2008 till October 2012 in the sum of Rs 73,37,900/- had indeed acquired a right in the project commercial plots at Faridabad, Haryana launched by BPTP limited. In fact, the assessee was also allotted the concerned unit number SCO-G06 in the said project. Hence the assessee had indeed acquired a right in a capital asset which is a commercial plot. Since BPTP limited had forfeited the amounts paid by the assessee towards the plot and having observed that there is absolutely no chance of recovery of the said amount which is based on an legal opinion given by an advocate, the assessee chose to write off the same in Assessment year 2017-18 i.e. the year under consideration even though the allotment was cancelled or terminated by BPTP limited on 15-06-2015 which is relevant to Assessment year 2016- 17.The assessee hence gave due explanation before the Learned CIT(A) as to why the said claim of long term capital loss was indeed made by the assessee company in Assessment year 2017-18 instead of Assessment year 2016-17 i.e. the year in which the allotment in the commercial plot was terminated by BPTP limited. The only grievance of the Learned CIT(A) is that there was no transfer of a capital asset. But we find by getting the allotment of a plot vide unit number SCO-G06 in commercial plot in the project of BPTP limited, the assessee had indeed acquired a ‘right in the said property’ which is a capital asset. When such ‘right in a capital asset gets extinguished’ pursuant to forfeiture by BPTP limited, it amounts to ‘transfer’ within the meaning of section 2(47) of the Act. Since no sale consideration was received by the assessee, the cost actually paid by the assessee were claimed as deduction after along with due benefit of indexation there on which is statutorily provided in the statute. Hence, we find no error in the action of the assessee claiming the long term capital loss in the return of income. Accordingly, we direct the Learned AO to grant deduction towards long term capital loss by allowing it to be set off with the long term capital gains reported by the assessee. Accordingly, the Ground No. 2 raised by the assessee is hereby allowed.
The Ground No. 3 raised by the assessee is general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is allowed.
Asst Year 2017-18 – Revenue Appeal 12. The Ground No. 1 raised by the revenue is challenging the action of the Learned CIT(A) in allowing short term capital loss of Rs 1,64,18,473/- claimed by the assessee on sale of shares.
We have heard the rival submissions and perused the materials available on record. The Learned AO observed that assessee has claimed loss of Rs 1,64,18,473/- from the trading of shares of M/s Vishal Fabrics Limited. On examination of share details, the Learned AO noticed that assessee had purchased and sold 1,80,000 shares of M/s Vishal Fabrics Ltd and claimed loss of Rs 1,64,18,473/-. Most of the shares were purchased in short span of a week i.e. from 23-01-2017 to 31-01-2017 at a rate between Rs 440 to 450 per share in secondary market, while the shares were sold in the months of February and March for a price ranging between Rs 245 to 285 per share. Since the price had drastically fallen and the shares were held for a very short span of time, the Learned AO concluded that assessee had deliberately sold the shares at a loss and doubted the genuineness of the said loss and proceeded to disallow the short term capital loss of Rs 1,64,18,473/- claimed by the assessee. Further, the Learned AO also took strength of his decision to disallow the short term capital loss by stating that M/s SS Corporate Securities Limited which is the broker through whom the assessee transacted the purchase and sale of shares of M/s Vishal Fabrics Ltd failed to respond to the notice issued under section 133(6) of the Act. The assessee furnished the complete details of the purchase and sale of shares of M/s Vishal Fabrics Ltd which were done on various dates at various prices prevailing in the secondary market. The Learned CIT(A) tabulated the same in page 40 of his order. The Learned CIT(A) observed that both purchase and sale of the shares of Vishal Fabrics Limited were carried out by the assessee in open market / secondary market for which assessee had produced the copy of contract notes along with the DEMAT statements. The assessee had also suffered securities transaction tax on both purchases as well as the sales in the said transaction together with the brokerage paid to the registered broker. The shares were purchased and sold through a registered share broker SS Corporate Securities Limited through a recognized stock exchange. Since the shares were purchased and sold by the assessee at the prevailing market prices through a registered share broker in the recognized stock exchange after due suffering of securities transaction tax, the Learned CIT(A) directed the Learned AO to grant deduction on account of short term capital loss of Rs 1,64,18,473/-. We do not find any infirmity in the said action of the Learned CIT(A) as no contrary evidences were submitted by the revenue before us at the time of arguments. Accordingly, the Ground No. 1 raised by the revenue is dismissed.
The Ground No. 2 raised by the revenue is challenging the action of the Learned CIT(A) in allowing commission expenses of Rs 17,70,000/- while computing the capital gain of the assessee.
We have heard the rival submissions and peruse the materials available on record. During the year under consideration, the assessee sold building on 1-12-2016 and received a sum of Rs. 5,82,63,621/- and offered long-term capital gains. While declaring the long-term capital gains, the assessee claimed transfer expenses of Rs. 59,00,193/- as deduction. Out of this, a sum of Rs. 35,25,000/- was accepted by the Learned AO. The Learned AO disputed the transfer expenses incurred of Rs. 23,75,193/- which admittedly included commission payments of Rs 17,70,000/- made to Ms. Mansi Bansal, wife and Ms. Sonakshi Bansal, daughter of Shri Pawan Bansal, who is director of the assessee company, being related parties covered within the ambit of provisions of Section 40A(2)(b) of the Act. After disallowing the transfer expenses of Rs 23,75,193/-, the Learned AO re-computed the long-term capital gain in the assessment. The Learned CIT(A) observed that total disallowance of Rs. 23,75,193/- included stamp charges paid in the sum of Rs. 6,05,193/- paid to Stockholding Corporation of India Limited which is squarely allowable as deduction. The Learned CIT(A) directed the Learned AO to allow deduction of Rs. 6,05,193/- on account of transfer expenses while computing long- term capital gains.
With respect to commission payment of Rs.17,70,000/- paid to relatives of the director of the assessee company, the Learned CIT(A) observed that assessee had submitted bank statement, income tax return and computation of income of the related parties for Assessment year 2017-18 and the payments were made to them by account payee cheques through regular banking channels after due deduction of tax at source. The Learned CIT(A) also observed that the payments were made on account of commission for sale of property. These findings clearly prove the nature of services rendered by the daughter and wife of director of the assessee company for enabling the transfer of the subject mentioned property. Hence, it is squarely allowable as deduction as transfer expenses while computing long-term capital gains on sale of building. Further there is no bar for making commission payments to the relatives of the director of the assessee company. As long as the services were indeed rendered by those parties for enabling the sale of property, commission payments made to them would squarely fall within the ambit of ‘Expenses on Transfer’ eligible for deduction while computing long term capital gains on sale of building. Accordingly, the Ground No. 2 raised by the revenue is dismissed.
The Ground No. 3 raised by the revenue is challenging the action of the Learned CIT(A) in restricting the disallowance of expenses under section 14A of the Act to the extent of exempt income earned by the assessee.
We have heard the rival submissions and perused the materials available on record. It is not in dispute that assessee during the year under consideration had earned dividend income from investment in shares of Capital Power Infrastructure Limited of Rs 3 lakhs and claimed the same as exempt in the computation of income. The assessee submitted that there was no expenditure incurred for the purpose of earning such exempt income and accordingly no disallowance under section 14A of the Act was warranted. The Learned AO however did not agree to the contentions of the assessee and proceeded to invoke the computation mechanism as provided in Rule 8D(2) of the Income Tax Rules and made disallowance under section 14A of the Act in the sum of Rs 10,07,596/- in the assessment. The Learned CIT(A) restricted the said disallowance to the extent of actual exempt income earned by the assessee i.e. Rs 3 lakhs and granted relief of remaining sum of Rs 7,07,596/-. We find that the action of the Learned CIT(A) was supported by the decision of Hon’ble Jurisdictional High Court in the case of Joint Investments reported in 372 ITR 694 (Del) and decision of Hon’ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640 (SC) wherein it was categorically held that disallowance under section 14A of the Act cannot exceed the exempt income. Further, the Hon’ble Jurisdictional High Court in the case of PCIT vs ERA Infrastructure India Limited in Income Tax Appeal No. 204/2022 had categorically held that the amendment made to the provisions of section 14A of the Act vide Finance Act 2022 is prospective in nature and cannot be applied for the earlier years. Accordingly, we do not find any infirmity in the action of the Learned CIT(A). The Ground No. 3 raised by the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
To sum up, the appeal of the assessee is allowed and appeal of the revenue is dismissed.