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Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These cross appeals are directed against the order of Ld. Commissioner of Income-tax (Appeals)-17 [Ld. CIT(A)], Mumbai dated 08.04.2014 in the assessment order passed under section 143(3) rws 147 of the Act on 17.02.2014 for Assessment Year 2006-07. The assessee has raised following grounds of appeal: & 67/M/2015 Lyka Labs Pvt Ltd (1) The ld CIT(A) has erred in law and on facts of the case in confirming the action of assessing officer in disallowing claim of long-term capital loss of Rs. 4,77,61,969/- incurred on sale of shares of unlisted company. The action is unjustified and unwarranted.
The Revenue in its cross appeal has raised the following grounds of appeal:
(1) On the facts and in the circumstances of the case and in law, ld CIT(A) erred in allowing the claim of long-term capital loss on the sale of plot of land without appreciating that assessee has not been able to substantiate the date of purchase and purchase price by producing the original purchase agreement. (2) On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in allowing the claim of long-term capital loss on the sale of plot of land on the basis of purchase date and price mentioned on the sale agreement and not on the basis of original purchase agreement.
Brief facts of the case are that the assessee company filed its return of income for relevant assessment year on 24 November 2006 declaring total loss at Rs. 21,98,30,186 /-. Later on a revised return was filed on 14.11.2007 declaring total loss of Rs. 23,68,52,714/- which was assessed by assessing officer at a loss of Rs.16,58,26,868 /-. The assessing officer made certain disallowances, against the assessee filed appeal before CIT(A). Subsequently, the assessment was reopened under section 147 on 20th March 2013. Notice under section 148 was served upon the assessee to furnish return of income vide notice dated 20th March 2013. & 67/M/2015 Lyka Labs Pvt Ltd In response to the said notice the assessee contended that return already filed may be treated as return in response to the notice under section 148.
The assessment was reopened by assessing officer on three issues, which consist of (i) Double claim of insurance expenses of Rs. 19,04,519/-,(ii)
Short-term advances written off of Rs.2,75,863/-, and (iii) Claim of loss of Rs. 6,65,38,546/- on account of transfer of long-term capital asset (Plot of land), and equity shares in a company not allowable to be carried forward as per the provisions of section 10(38) of the Act. The assessee vide its reply filed on 29th January 20014 contended that they have no objection in making the disallowance of insurance claim of Rs.19,04,519/- and Sundry write off of Rs. 2,75,863/-. However, for carry forward claim of long term capital loss the assessee contended that loss of Rs.1,87,76,577/- was incurred on sale of land and Rs. 4,77,61,969/- was incurred on sale of share of Lyka Hetero Healthcare ltd (LHHL), an unlisted closely company held company on which no security transaction tax (STT) was to be paid. The provisions of section 10(38) are not applicable on these two transaction. The contention of the assessee was not accepted by the assessing officer the assessing officer proceeded to make re-assessment. The assessing officer passed the assessment order on 17.02.2014 and disallowed loss of Rs.1,87,76,577/- & 67/M/2015 Lyka Labs Pvt Ltd on sale of land holding the assessee failed to substantiate the cost of acquisition. The assessing officer also disallowed Rs. 4,77,61,969/- on sale of share of LHHL holding it was a internal transaction entered only to create losses. On appeal before CIT(A) the assessee the action of assessing officer in disallowing loss of Rs.1,87,76,577/- on sale of land was reversed. However, the action of assessing officer in disallowance Rs. 4,77,61,969/- on sale of share of LHHL was confirmed. Therefore, further aggrieved by the order of the ld. CIT (A) both the parties filed their respective appeal raising the grounds of appeal as mentioned above.
Therefore, both the parties have filed their respective appeals assailing the order of ld CIT (A) by raising the grounds of appeal as stated above.
ITA No. 7734/M/2014 by assessee 4. We have heard the submissions of the ld. representatives of the parties and gone through the orders of the lower authorities. The sole Ground of appeal raised by the assessee relates to disallowance of long term capital loss. The ld. Authorised representative (AR) for the assessee submits that during the year under consideration the assessee claimed long term capital loss of Rs. 4,77,61,969/-. The loss was incurred on sale of shares of LHHL. The assessing officer allowed the loss in assessment order under section 143(3). During the assessment proceeding the assessee & 67/M/2015 Lyka Labs Pvt Ltd furnished the all the evidence regarding the acquisition of shares and the working of long-term capital loss. The said loss is not allowed by assessing officer to be carry forward by invoking the provisions of section 10(38) of the act. The provision of section 10(38) are not applicable to the unlisted company. LHHL is not the listed company, accordingly the provision of section 10(38) are not applicable on these connections. The ld AR of the assessee further submits that it is not a case of purchase of shares but investment in joint venture, and the assessee was allotted equity share of 9800000 of LHHL @ Rs. 10 per share during financial year 2002-03. Subsequently, the said shares were sold to existing shareholders of the company during the financial year 2005-06@ Rs. 6.24 per share as the assessee exiled the joint venture. The assessee furnished the working of the loss before the assessing officer.
The assessing officer disallowed the claim of assessee holding that the assessee has not provided copy of valuation report of the shares 5. On the other hand the ld. departmental representative (DR) for the revenue supported the order of authorities below. The ld. DR for the revenue submits that the assessee has shown the shame transaction only to create losses in the books through internal arrangement. In support of his submission the ld DR of the assessee relied upon the decision of & 67/M/2015 Lyka Labs Pvt Ltd Kolkata bench of Tribunal in Edward Keventor (P) Ltd Vs DCIT [2004] 89ITD 347 (KOL).
We have considered the rival submission of the parties and perused the orders of authorities below. The assessing officer disallowed the claim of assessee holding that the assessee has not provided the book value of shares and the Audited accounts of LHHL for the year of purchase and the profit and loss account for the year ended on 31 March 2005. The assessing officer also concluded that transaction was entered only to create losses in the books of assessee. The ld CIT (A) also confirmed the action of assessing officer on is observation that the assessee has not provided the Audited account of LHHL for financial year 2002-03 and that for the year ended on 31 March 2005. The brought forward losses figure would be losses at 31st of March 2003 that is the year of purchase of share. The book value of share of LHHL in the year of purchase was negative. We have noted that even before us the assessee has not filed the audited balance sheet of LHHL for the year ended on 31 March 2003 and for the year in which the assessee has sold these share in the market. In nutshell the assessee has neither shown any reason to invest in the joint venture nor the reason for exiling, and that too at a loss. No reason or justification has been shown for the loss, and therefore, we do not find ITA No.7734/M/2014 & 67/M/2015 Lyka Labs Pvt Ltd any reason to interfere with the findings of ld CIT(A). No contrary law or facts are brought to our notice to take other view. In the result the ground of appeal
raised by the assessee is dismissed.
7. In the result appeal of the assessee is dismissed.
ITA No. 67/M/2005 by revenue 8. The sole ground of appeal raised by revenue relates to the disallowance of long-term capital loss on sale of plot. The ld. DR for the revenue submits that the learned CIT(A) appeal allowed the claim of long-term capital loss on sale of plot without appreciating the fact that the assessee has not been able to substantiate and to prove the date of purchase and the purchase price of the said plot. No original of the title deed or the other evidences were furnished by the assessee. The ld. DR submits that order of assessing officer be restored by reversing order of ld. CIT (A).
9. On the other hand the ld. AR for the assessee supported the order of ld. CIT (A). The ld. AR further submits that the date of purchase and the cost of acquisition are clearly mentioned in the transfer deed executed by the assessee on 18.05.2005. The ld. AR further submits that all documents were shown to the assessing officer. The assessing officer has not appreciated evidences furnished before him. The learned AR of the assessee submits that his estimated to file the copy of agreement by virtue & 67/M/2015 Lyka Labs Pvt Ltd of which the property was acquired. On our instruction the ld. AR of the assessee furnished the copy of conveyance deed 18th May 2005, executed by the assessee in favour of transferee and the copy of agreement dated 15/06/2000.
10. We have considered the rival submission of the parties and have gone through the orders of authorities below and the material placed before us.
During the assessment proceeding the assessing officer noted that assessee purchased the plot on 15.06.200 for Rs. 1.67 Crore (approx). The said plot was sold by assessee on 18th May 2005 for a consideration of Rs. 1.60 Crore. The assessee has shown the long-term capital loss of Rs. 1.87 Crore. The assessing officer disallowed the long term capital loss on his observation that the assessee has not placed on record the copy of purchase document to substantiate the purchase price. However, the learned CIT(A) appeal while considering the contention of the assessee observed that the disallowance of long-term capital loss on the sale of plot not justified. The assessee sold plot of land for Rs. 1.60 Crore and claimed long-term capital loss of Rs. 1.87 Crore. The ld CIT(A) further observed that this loss was allowed to the assessee while passing the assessment order under section 143(3). The ld CIT(A) further noted that the observation of the assessing officer that price of the plot is & 67/M/2015 Lyka Labs Pvt Ltd not verifiable is far from the truth. The sale deed executed by assessee clearly indicates the purchase price on which the assessee acquired the property. The assessing officer has not doubted the sale price of the property/plot. The only objection of the assessing officer is that the price is not verifiable, which cannot be the ground to disallow the capital loss, the assessing officer has not made any enquiry before arriving at the conclusion for disallowing the loss. The learned CIT(A) after verifying the facts allowed the claim of long term capital loss to the assessee.
Before us the assessee has placed on record the copy of conveyance deed executed by the assessee on 18th by 2005 in favour of transferee. The clause ‘O’ of the conveyance deed appearing at page No. 6 has clearly mentions that the plot was purchased by assessee by way of agreement to sell dated 15 June 2000 on a consideration of Rs. 1.60 Crore. the conveyance deed of the plot was executed by the original owners of the plot and the Managing Director of the assessee signed it as a confirming part. The consideration received by assessee is also shown in the conveyance deed. In our view in absence of any contrary material, the assessing officer was not justified in denying the long-term capital loss to the assessee. Therefore, we are in agreement with the finding of ld CIT(A) in allowing long-term capital loss to the assessee on the sale of & 67/M/2015 Lyka Labs Pvt Ltd said plot. No contrary evidence or law is brought to our notice to take the contrary view. In the result the ground of appeal raised by revenue is dismissed.
In the result appeal filed by revenue is dismissed.