DCIT, NEW DELHI vs. SH. JUGAL KISHORE ARORA, NEW DELHI

This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-3, New Delhi, dated 07th October, 2014, for the A.Y. 2010-2011 on the following grounds :

1. “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred allowing the claim of carry forward of short term capital loss amounting to Rs.1,37,89,600/-

2 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. contrary to the express provisions of Section 80 of the IT Act.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that so far as any loss is concerned, it can be carried forward only if it is determined in pursuance of return filed u/s 139(3) and not u/s 139(1), as provided in section 80 of the I.T. Act.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the question of considering revised return is not applicable to the returns filed u/s 139(3) read with section 80 of the I.T. Act.”

3 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. warrant in M/s. Kohinoor Foods Limited. This claim of short term capital loss was however not claimed in the return of income filed, but, claim was made during assessment proceedings, which, in the view of the A.O. was not permitted.

Hence, A.O. did not entertain the assessee’s claim of short term capital loss. The assessee challenged the order of the A.O. before Ld. CIT(A) and the submissions of the assessee are reproduced as under :

“………………Submission on Claim of Short Term Loss of Rs. 1,37,89,600

The Kohinoor Foods Limited (FOR SHORT 'Company') had issued 1,02,00,000 Share Warrants to promoters on 11th March, 2008 as per the SEBI Guideline and after obtaining in-principal approval from both the Stock Exchange. It took 10% of the total value (As per the SEBI Guideline) as advance payment before issuance of warrant with a validity to convert it within 18 month from the date of issuance. The warrants were valid till 11th September 2009.

4 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. The assessee appellant being a promoter of the Company, 20,00,000 (20 lakhs) share warrants were issued to the assessee appellant at the value of Rs.78.35/- per share warrant at Rs.15,67,00,000/-. The assessee appellant has paid Rs.1,56,70,000/- i.e. 10% of the total value as advance. The assessee appellant has exercised its option and converted 2,40,000 share warrants into shares in the month of February 2009, with the intention that the rest of warrant will be converted in due course. After the conversion of part of the Share Warrants, in the month of February, the price of equity shares dropped in the share market and therefore the assessee appellant had not exercise their option to convert the balance warrant within the validity period. The assessee appellant did not pay the balance 90% of the total amount payable towards the balance 17,60,000 share warrants. The company has forfeited the advance amount paid for the allotment of the share warrant. Therefore the assessee appellant has suffered loss of Rs. 1,37,89,600/- paid for the allotment of the said share warrants. (17,60,000 x 7.835 (being 10% of 78.35)

5 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. In the facts and circumstances, the assessee appellant had suffered loss of the amount paid for the allotment of share warrants of the company. The said loss is incurred due to extinguishment of right of the promoters in the balance share warrants and forfeiture of the amount by the company. The said amount forfeited by the company is also reflected in the balance sheet of the Kohinoor Foods Ltd Company and shown in the capital reserves. The extinguishment of any right in the capital asset amounts to transfer as held by the Larger Bench of Flon'ble apex court in the decision of CIT v. Mrs. Grace Col I is & Ors. [2001] 166 CTR (SC) 201: [2001)248 ITR 323 (SC). Therefore if the net result of the computation under the head capital gain is loss then it is to be dealt according to law.

The Hon'ble Jurisdictional High court in the case of CIT vs, Ratan Chand Bagri 329 ITR 356 held that forfeiture of amount paid towards convertible warrants is to be treated as Capital loss. The similar view was also taken by the Hon'ble Karnataka High court in the case of DCIT vs. BPL Sanyo Finance Limited [2009] 312 ITR 63.

6 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. In view of the above, the loss suffered on forfeiture of the amount paid as advance for share warrants to the company is a capital loss and is assessable accordingly.

The promoters inadvertently has not claimed the said loss in their Return of Income filed for the relevant year i.e. A.Y. 2010-11 and claimed during assessment proceedings U/s 143(3) by filing the letter and revised computation of income. It is important to mention that a letter dt 07.01.2013 was filed with the AO and the same has been acknowledged by the AO in its order. The assessee had even filed revised computation of income before the AO.

The A.O. did not doubted the genuineness of the claim and merely disallowed the claim on the basis that the assessee has not claimed any loss in the original return of income therefore he is not entitled to claim the said loss as the assessee has not filed any revised return of income U/s 139(5) of the Act. The time of filling the revised return has expired on 31.03.2012.

7 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. It is submitted that the Assessing Officer is bound to assess the correct income and for this purpose, the Assessing Officer may grant reliefs/refunds suo moto or can do so on being pointed out by the assessee during the course of assessment proceedings for which the assessee has not filed revised return. Also, CBDT Circular No. 114 XL-35 of 1955 dated 11.04.1955 states that officer of the department must not take advantage of the ignorance of an assessee as to his rights.

Also, if the AO has not considered the claim of the assessee without filling the revised return, the CIT(A) is having co-terminus powers with the powers of Assessing Officer and the fact that appellate proceedings are the continuation of original proceedings, we request your honours to allow the claim of the assessee and the carry forward of the capital loss should be allowed to the assessee.

Also it is a well settled position of law that a claim cannot be denied to the assessee just because the assessee did not make the claim in the original return or filed a revised return.

8 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. To buttress the above arguments, the appellant has relied upon the following case laws :- (i) Chicago Pneumatic India Ltd. v. DCIT, Bombay 15 SOT 252 (Mum)

(ii) Sam Global Securities Ltd. vs. ITO (DELHI) I.T.A. No. 1760/Del/2009. (iii) Kanpur Coal Syndicate vs. CIT 53 ITR 225 (iv) CIT vs. Sam Global Securities Ltd. 360 ITR 682 (Delhi High Court). (v) NTPC vs. CIT 229 ITR 383 (Supreme Court). (vi) Sushil Kumar Das vs. ITO (ITA No. 193/Kol/2011) (vii) NHK Spring Ltd. (Delhi ITAT)

In the light of the above facts and circumstances and the case laws cited by us, your honours may kindly accept the claim of short term capital loss of Rs.1,37,89,600 of the assessee claimed during the course of assessment and direct the assessing officer to allow the short term capital loss to carry forward for subsequent year.

We may add here that recently as per the decision of your honours in the case of Satnam Arora (brother of the appellant) your honours have held on identical

9 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. facts and circumstances that such a claim is allowable and directed the AO to allow the claim after verification.... "

3. Ld. CIT(A) considering the explanation of assessee and material on record held that assessee is not legally barred from making a fresh claim even if the revised return could not be filed. A.O. was, therefore, directed to carry forward all the short term capital loss as per law, after due verification of the claim made by assessee. The findings of the Ld. CIT(A) are reproduced as under :

6. I have gone through the appellant's submissions, facts and evidences available on records and considered the decision relied upon by the appellant and AO.

With regard to the appellant's contention that the AO's order is not valid on the ground that it does not allow the appellant to carry forward of the short term capital loss since the appellant did not file the revised return of income under section 139 of the Act, it is stated that this objection of the appellant has some force. The AO has failed to consider that after the decision of Goetze (India) Ltd. vs. CIT

10 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. 284 ITR 323 (SC) there have been a number of decisions that have held that just because the assessee could not file a revise return, the claim made by the assessee cannot be ignored.

In the case of CIT vs. Sam Global Securities Ltd. 360 ITR 682 Delhi, it has been held that if the assessee files a revised computation of income before the AO during the assessment proceedings the same needs to be considered by the AO and the claim of the assessee should be verified and examined. The Hon'ble Delhi High Court has relied on a number of previous judgments. The appeal filed by the revenue in the Supreme Court against the decision of Delhi High Court has also been dismissed in the above case.

The appellant has also relied upon a decision of ACIT vs. NHK Spring India Ltd. ITA No. 285/Del/2012. The ITAT in this case has observed that the decision of Goetze (supra) does not lay any fetters on the power of appellate authorities.

Thus, from the above, in my humble view there is no impediment under the law for the AO to consider the claim of the appellant of carry forward of short term capital loss that the appellant sought to claim by filing a revised computation of income before the AO in assessment

11 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. proceedings. The appellant is not legally barred from making a fresh claim even if the revised return could not be filed. Hence the AO is directed to allow the carry forward of short term capital loss as per law after due verification of the claim made by the appellant since the verification of the claim was not made by the AO earlier.

However, none appeared on behalf of the assessee.

12 ITA.No.157/Del./2015 Shri Jugal Kishore Arora, New Delhi. to consider the claim of carry forward of the short term capital loss. The assessee is, therefore, not legally barred from making such claim. Ld. CIT(A), therefore, correctly directed the A.O. to consider the claim of assessee for carry forward of short term capital loss. However, the directions of the Ld. CIT(A) are modified to that extent that the A.O. shall verify the claim of assessee of carry forward of the short term capital loss as per law and shall pass the order accordingly, by giving reasonable, sufficient opportunity of being heard to the assessee. With these directions and modifications in the order of the Ld. CIT(A), the departmental appeal stands dismissed.

Order pronounced in the open Court.