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Income Tax Appellate Tribunal, DELHI BENCH, ‘B’: NEW DELHI
Before: SHRI KUL BHARAT & DR. B.R.R. KUMAR
ORDER PER KUL BHARAT, JM This appeal filed by the assessee is directed against the order dated 31.03.2016 of the learned CIT(A), New Delhi, relating to Assessment Year 2009-10. The assessee has raised following grounds of appeal:-
. That, the order of the Ld. Commissioner of Income Tax - 1) (Appeals) - 2, New Delhi is bad in law, wrong on the facts and against the principles of natural justice. . That on the facts and in the circumstances of the 2) case, the Ld. CIT-(A) erred in confirming the disallowances in the impugned assessment order framed u/s 153C of the act on the issues which has no nexus with the alleged material unearthed during the course of search operations and thereby making a de-novo assessment, which needs to be deleted. . That on the facts and in the circumstances of the 3) case, the Ld. CIT-(A) has erred in law in confirming the disallowance of the Short Term Capital Loss on forfeiture of convertible share warrants amounting to Rs. 4,18,50,000/- which needs to be deleted. 3.1) That on the facts and circumstances of the case, the Ld. CIT-(A) has erred in law in disallowing the Short Term Capital Loss on forfeiture of convertible share warrants of Rs.4,18,50,000/- without appreciating the facts that such loss was allowed by the Assessing Officer vide order u/s 143(3) dated 26/12/2011 after considering the evidences and submissions filed during assessment proceedings. 3.2) The Ld. CIT-(A) has erred in concluding that subscription to the convertible warrant by the appellant company in warrants of Monnet Ispat & Energy Ltd is not a capital asset u/s 2(14) of the Income Tax Act, 1961 when in fact it is extinguishment of rights therein and covered u/s 2(47)(ii) of the Income Tax Act, 1961. 3.3) The Ld. CIT-(A) has concluded that forfeiture of share warrant is not genuine and bonafide transaction but is a colorable transaction entered with a motive to create loss in one company without getting it taxed in another group company. The Ld CIT-(A) has grossly erred in making the aforesaid conclusion as the forfeiture of share warrant is a genuine and bonafide transaction.”
At the time of hearing, the learned counsel for the assessee submitted that he does not wish to press ground no.2. Therefore, the ground no. 2 of the assessee’s appeal is dismissed as not pressed.
Groun no. 1 is general in nature needs no separate adjudication.
4. The only effective ground no. 3 to 3.3 is against confirming disallowance of Short Term Capital Loss on forfeiture of convertible share warrants amounting to Rs.4,18,50,000/-.
5. The facts giving rise to this ground are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter ‘the Act’) was conducted at the Monnet Group including the assessee. During the course of search, certain documents belonging to the assessee was found and seized.
The case of the assessee was centralized with DCIT, Central Cirlce-20, New Delhi. Thereafter, notice u/s 153C of the Act was issued. In response to the notice u/s 153C issued by the Assessing Officer, the Ld. AR of the assessee company vide letter dated 05.03.2013 challenged the validity of the notice, however, return of income for the year under appeal, was filed declaring income of Rs.11,46,720/-. Thereafter, the Assessing Officer proceeded to frame assessment thereby disallowed the Short Term Capital Loss on forfeiture of convertible share warrants.
Aggrieved against this, the assessee is in appeal before the Tribunal.
The learned counsel for the assessee reiterated the submissions as made in the written synopsis. The synopsis is reproduced as under:-
Original Return of income was filed declaring a income of Rs 11,46,720/- on 14/09/2009.
2. In the original assessment order passed u/s 143(3) of the Income Tax Act, 1961 by I.T.O., Ward 3(4), New Delhi on 26/12/2011, assessing income at Rs 16,63,402/-. The Ld. A.O. had allowed the short term capital loss on the forfeiture of convertible share warrants amounting to Rs 4,18,50,000/- while passing the assessment order. Photocopy of the assessment order is enclosed herewith at Pages 1 to 2. 3. Thereafter the cases of the appellant company were centralized and assessment order for A.Y. 2009-10 was passed u/s 153C/143(3) of the Act, on 28/3/2013 wherein loss on the forfeiture of convertible share warrants amounting to Rs.4,18,50,000/- was disallowed. The Ld. A.O. in the assessment order u/s 153C/143(3) of the Act, dated 28/3/2013 while disallowing the loss on forfeiture of share warrant had stated as under at para 5(2)(iv):-
“……..v In view of the above facts, it is clear that forfeiture of share warrant is not genuine and bonafide transaction. It is a colorable transaction entered with a malafide motive to evade tax which creates a Loss in one company without getting it taxed in another group company. It will be pertinent to mentioned here that addition on this issue has already been confirmed by the Ld. CIT-(A) in the same proup company namely, M/s Pavitra Commercials Ltd for the A.Y. 2009-10….”
4) a) In the case of the group company M/s Pavitra Commercials Ltd, for A.Y. 2009- 10, Hon’bie ITAT, Bench “F”, New Delhi in ITA 5389/Del/2Q12 vide its order dated 10/12/2014, has allowed the short term capital loss on the forfeiture of share warrants. Hon’bie ITAT stated at para 7.3 as under: - “...7.3 After Hearing the rival contentions, we hold as follows. Hon’ble Delhi High Court in the case of CIT vs Chand Ratan Bagri reported in 329 ITR 356 has held as follows.
More importantly, the second issue as to whether the forfeiture of the convertible warrant amounted to a transfer within the meaning of s.2(47) of the said Act has now been made clear by the Supreme Court in the case of Mrs Grace Collis (2001) 248 ITR 323 as also by the Karnataka High Court in BPL Sanyo Finance Ltd (2009) 312 ITR 63. We agree with the interpretation given by Karnataka High Court in BPL Sanyo Finance Ltd (supra) and we see no reason to take a different view. The restrictive meaning given to the word transfer by the Supreme Court decision in Vania Silk Mills P. Ltd (1991) 191 ITR 647 has been over ruled by the larger bench of the Supreme Court in the case of Mrs. Grace Collis (2001) 248 ITR 323. In the present case, we find that the forfeiture of the convertible warrant has resulted in extinguishment of the right of the assesse to obtain a share in BLB Ltd. It is not a case where the asset itself has been extinguished or destroyed. A share in a company is nothing but a share in the ownership of the company. While the right of the assesse to share in the ownership of the company BLB Ltd. Stands extinguished on account of the forfeiture, the company, with all its assets, continue to exist. The forfeiture only results in one less shareholder. It is not as if the asset in which a share was being claimed was also extinguished. Thus, the second point urged by the Ld. counsel for the Revenue is also not tenable. In view of the foregoing reasons no substantial question of law arises for our consideration. The appeal is dismissed. ” 7.4 Respectfully following the judgement of the Jurisdictional High Court, we allow the claim of the assesse. Ground no. 2(e) is allowed ” Photocopy of the order of Hon’ble ITAT is enclosed at Pages No 3 to 9. b). The Income Tax Department, in the case of M/s Pavitra Commercials Ltd had filed an appeal with the Hon’ble Delhi High Court. The Hon’ble Delhi High Court in vide its order dated 14/10/2015 had dismissed the appeal of the department. The Hon’ble Delhi High Court while dismissing the appeal at para 3 and 4 had stated as under:- “………3 In the impugned order, the ITAT has relied upon the judgment of this Court in CIT v. Chand Ratan Bagri (2010) 329 ITR 356 (Del) which holds that the share warrant is a capital asset. It is stated that the revenue has not filed an appeal against the said judgment on account of low tax effect.
Be that as it may, since the aforementioned judgment of this Court holds the field, no substantial question of law arises in this appeal.
The appeal is dismissed ”
Photocopy of the order of Hon’ble Delhi High Court is enclosed at pages No 10 to 11.”
The learned counsel for the assessee further submitted that this issue is squarely covered in favour of the assessee as the Assessing Officer while making disallowance has categorically recorded that the Ld. CIT(A) in same group companies for the AY 2009-10 has confirmed the addition. The Ld. Counsel for the assessee submitted that in the case of M/s Pavitra Commercials Ltd. this disallowance was challenged before the Tribunal and the Tribunal has deleted the disallowance by following the judgments of the Hon’ble Delhi High Court. The learned counsel took us through the relevant finding of the Tribunal as enclosed with the written synopsis.
Further, the learned counsel for the assessee also took us through the judgment of the Hon’ble Delhi High Court dated 14/10/2015 in in Pr. CIT vs M/s Pavitra
On the contrary, the Ld. DR supported the orders of the authorities below and submitted that the Assessing Officer in the assessment order at para 5D has recorded that the payment of 10% amount towards share warrant cannot be treated as creating a substantial right in the share when the major amount is yet to be paid. At the best it can be treated as advance towards acquisition of shares which are subjected to many conditions. He submitted that the Assessing Officer has distinguished the facts of the case in the CIT vs Chand Rattan Bagri 329 ITR 356. In rejoinder, the learned counsel for the assessee submitted that the observations of the Assessing Officer is misplaced.
We have heard the rival contention and perused the records. The Revenue has not controverted the fact that similar addition was made in the case of group companies M/s Pavitra Commercial Ltd. for AY 2009-10. However, the Tribunal in that case in vide its order dated 10/12/2014 has allowed the Short Term Capital Loss on the forfeiture of Convertible Share Warrants. The relevant content of the Tribunal are reproduced as under:-
“7.3. After hearing rival contentions, we hold as follows. Hon’ble Delhi High Court in the case of CIT vs. Chand Ratan Bagri reported in 329 ITR 356 has held as follows. “More importantly, the second issue as to whether the forfeiture of the convertible warrant amounted to a transfer within the meaning of s.2(47) of the said Act has now been made clear by the Supreme Court in the case of Mrs.Grace Collis (2001) 248 ITR 323 as also by the Karnataka High Court in BPL Sanyo Finance Ltd. (2009) 312 ITR 63. We agree with the interpretation given by the Karnataka High Court in BPL Sanyo Finance Ltd. (supra) and we see no reason to take a different view. The restrictive meaning given to the word transfer by the Supreme Court decision in Vania Silk Mills P.Ltd. (1991) 191 ITR 647 has been over ruled by the larger Bench of the Supreme Court in the case of Mrs.Grace Collis (2001) 248 ITR 323. In the present case, we find that the forfeiture of the convertible warrant has resulted in extinguishment of the right of the assessee to obtain a share in BLB Ltd. It is not a case where the asset itself has been extinguished or destroyed. A share in a company is nothing but a share in the ownership of the company. While the right of the assessee to share in the ownership of the company BLB Ltd. Stands extinguished on account of the forfeiture, the company, with all its assets, continues to exist. The forfeiture only results in one less shareholder. It is not as if the asset in which a share was being claimed was also extinguished. Thus, the second point urged by the ld. counsel for the Revenue is also not tenable. In view of the foregoing reasons no substantial question of law arises for our consideration. The appeal is dismissed.”
This order of the Tribunal was confirmed by the Hon’ble Delhi High Court in by observing as under:-
“3. In the impugned order, the ITAT has relied upon the judgment of this Court in CIT vs Chand Ratan Bagri (2010) 329 ITR 356(Del), which holds that the share warrant is a capital asset. It is stated that the Revenue has not filed an appeal against the said judgment on account of the low tax effect. 4. Be that as it may, since the aforementioned judgment of this Court holds the field no substantial question of law arises in this appeal. 5. The appeal is dismissed.”
The Revenue has not brought any other contrary binding precedent by the Hon’ble Delhi High Court or by the Hon’ble Supreme Court, therefore, respectfully following the decision of the Tribunal in the case of M/s Pavitra Commercial Ltd. (supra), the Assessing Officer is hereby directed to delete the addition. Accordingly, the ground of the assessee’s appeal is allowed.
Above decision was pronounced in the open court on conclusion of Virtual Hearing on 30.09.2021.