M/S PANCHSHEEL TEXTILE MANFAC. & TRAD. vs. C I T AND ANR.

ITA-109-2025 (

IN T

M/s Panchsheel

Commissioner o

M/s Panchsheel

Commissioner o

M/s Panchsheel

Commissioner o

CORAM : HON HO

Present: Mr. A

Mr. S

Mr. R

(O&M) and other connected ca

THE HIGH COURT OF PUNJ AT CHANDIGA

Date of D

-2007 (O&M) Textile Manufacturing and Trad

VERSUS of Income Tax (Appeals)-1 Ludh

-2007 (O&M) Textile Manufacturing and Trad

VERSUS of Income Tax (Appeals)-1 Ludh

-2007 (O&M) Textile Manufacturing and Trad

VERSUS of Income Tax (Appeals)-1 Ludh

N'BLE MRS. JUSTICE LISA N’BLE MRS. JUSTICE SUDE Akshay Bhan, Sr. Advocate with Shantanu Bansal, Advocate for t Ranvijay Singh, Sr. Standing Co

-.-

ases

-1- JAB AND HARYANA ARH Decision:-13.05.2025 ding Co. Pvt. Ltd.

....Appellant hiana and Another

....Respondents ding Co. Pvt. Ltd.

....Appellant hiana and Another

....Respondents ding Co. Pvt. Ltd.

....Appellant hiana and Another

....Respondents GILL EEPTI SHARMA h the appellant. ounsel for the respondents.

TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

ITA-109-2025 (

SUDEEPTI SH 1.

The and 2000-2001, learned Income 15/Chandi/2005 2.

The appeals.

(i)

(ii)

Sin Assessment Yea impugned order years is the sam and decision at r BRIEF FACTS 4.

The business of man 1997-1998, the

(O&M) and other connected ca

HARMA, J.

ese appeals pertaining to Assess have been preferred against ord e Tax Appellate Tribunal, Cha 5 for the Assessment Years 1998 e following substantial questions Whether in fact and circumst authorities below not to con purchase and of sale outsid activities of a business need n

Whether in fact and circumst authorities below, the impug are legally sustainable in the nce substantial question of law in ars 1998-1999, 1999-2000, 200 r dated 31.07.2006 dealing with a me, therefore, all the appeals are request and with consent of learn S e brief facts of the case are t nufacture and trading of Yarn/C appellant was not doing any sh

ases

-2- sment Years 1998-1999, 1999-20 der dated 31.07.2006 passed by andigarh in ITA No.171, 14 a -1999, 1999-2000 and 2000-200 s of law are involved in the pres tances of the case, the action of nsider that a single transaction de is a business and the vari not be simultaneous? tances of the case, the action of gned orders Anneuxre A-1 and A eyes of law? nvolved in all three appeals for 00-2001, is the same and even all the above referred to assessm e taken up together for adjudicat ned counsel for the parties. that appellant was engaged in Cloths. Upto the Assessment Y hare trading activity and as per

000 the and 01. sent the n of ous the A-3 the the ment tion the Year the TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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memorandum a carry on such ac was amended. O “To in s sec Sta bod and firm else Boa hol the sha am star act 5.

In v trading in share

(O&M) and other connected ca

and articles of association also, ctivity. On 13.03.1997, the mem Object No.28 in the memorandum To deal, invest in and acquire an shares, debentures, debenture-s curities issued or guaranteed by ate, Dominions, Sovereigns, Mun dies and shares, stocks, debentu d securities issued and guarant m or person whether incorpor ewhere. The amendments in the me ard of Directors in the meeti lders in their annual general m e Board of Directors of the Co ares. The relevant portion of the “To carry on the business of The Board was informed t ount of surplus funds and it wa rt trading activities in shares tivities.” view of the amendment as refer es. For the same, the appellant

ases

-3- , the appellant was not entitled morandum of articles of associat m was amended as under:- nd hold, sell, buy or otherwise d stock, bonds, units, obligations a y Indian or Foreign Governme nicipalities, or Public authorities ures, debenture stocks, obligati teed by any company, corporati rated or established in India emorandum were approved by ing held on 10.03.97 and sha meeting on 13.03.97. On 13.03. mpany decided to start trading e minutes is reproduced hereunde f trading in shares/securities” that the company is having la as proposed that the company m and other securities and fina rred to above, the appellant star t borrowed money for purchase

d to tion deal and nts, s or ons ion, or the ares .97, g in er:- arge may nce rted e of TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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shares. The Ass 1998-1999, 19 28.02.2002 and disallowed the e amount for inv ground that pur purpose of tradin 6.

The Commissioner o 05.10.2004 allo order dated 17.0 1999-2000 and 05.10.2004 and who vide its ord 7.

Hen SUBMISSIONS 8.

Lea appellant to car amendment in th their meeting da stock-in-trade an learned Assessin the appellant ha

(O&M) and other connected ca

sessing Officer while framing as 99-2000 and 2000-2001 vid 28.02.2003 respectively, for the entire business loss on account o vesting in the shares of M/s V rchase of shares of M/s Vardhm ng but is in the nature of an inve e appellant challenged the sam of Income Tax (Appeals) – 1, L owed the appeal for the Assessm 09.2004 partly allowed the appe 2000-2001. The respondent 17.09.2004 before the learned der dated 31.07.2006, allowed the nce the present appeals. S arned counsel for the appellan rry on business of trading in he memorandum which was app ated 10.03.1997. Further, the ap nd the balance sheet was duly au ng Officer as well as learned Tr ad duly reflected the shares as sto

ases

-4- ssessment for the Assessment Ye e his orders dated 19.03.20 e above referred to assessment ye of interest paid on borrowing of Vardhman Polytex Limited on man Polytex Limited is not for estment. me by filing an appeal before Ludhiana, who vide its order da ment Year 1998-1999 and vide als pertaining to Assessment Ye filed appeal against orders da Income Tax Tribunal, Chandiga e appeals filed by the respondent nt contended that intention of shares/securities is clear from proved by the Board of Directors ppellant had duly reflected shares udited by the auditors. Therefo ribunal totally ignored the fact t ock-in-trade and not as an asset a

ears 001, ears the the the the ated e its ears ated arh, ts. the the s in s as ore, that and TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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wrongly held th Ltd. not with th therefore, is no borrowed for ac

He treatment to the companies are investment. Th 31.07.2006 pass for Assessment 9.

Per Tribunal has rig had purchased a inspite of the fa the same to ea purchased the sa prays that presen 10.

We these cases. 11.

The whether the sha M/s Vardhman

(O&M) and other connected ca

at the appellant had purchased th he intention of trading in such s t entitled to deduction on acco cquisition of such shares. further contended that the Ass e shares of other companies by h meant for trading and of M/ herefore, he prayed that present a sed by learned Tribunal, while d Years 1998-1999, 1999-2000 an r contra, learned counsel for the ghtly allowed the appeal filed by a large amount of shares and kep act that the price of shares arose arn huge profit, therefore, it c aid shares as long term investme nt appeals be dismissed. e have heard learned counsel for e question involved for consider ares purchased and held by the ap Polytex Ltd., constitute stock-in

ases

-5- he shares of M/s Vardhman Poly shares but purely as an investme ount of the interest paid on mon sessing Officer has given differ holding that sale of shares of ot /s Vardhman Polytex Ltd. as appeals be allowed and order da deciding appeals of the responde nd 2000-2001 be set aside. e respondents contends that learn the respondents since the appell pt the same for a long duration a upto Rs.48.25 but still did not clearly reveals that appellant h ent and not for trade. He, therefo r the parties and perused the files ration in the present appeals is as ppellant of its group companies n-trade and the appellant would

ytex ent, ney rent ther an ated ents ned lant and sell had ore, s of s to i.e. d be TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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entitled to dedu respect of mone 12.

Bef 36(1) (iii) of Inc which was relev 2001 and to re passed by the le 13.

Rel

Sec “Se sha com xxx (iii) for Exp sha suc bor

14.

Rel Tax Appellate T 13. pur rele trad

(O&M) and other connected ca

uction under Section 36(1)(iii) ey borrowed for utilisation in the fore proceeding further it would come Tax Act, 1961 before ame vant and applicable in the years eproduce relevant portion of the arned Income Tax Tribunal, Cha levant portion of Section 36(1)(i ther Deductions:- ction 36(1)(iii) of the Act, is repr ection 36 (1) The deductions pr all be allowed in respect of t mputing the income referred to in xx

xxxx ) the amount of the interest p the purpose of the business or p planation :- Recurring subs areholders, or subscribers in M ch conditions as may be prescri rrowed within the meaning of thi levant portion of order dated 31 Tribunal, Chandigarh is reproduc In the present case, the assess rchase and sale of shares. H evant to assessment year 98-9 ding in shares. Some shares ha

ases

-6- on the amount of interest paid purchase of said shares? d be relevant to reproduce Sect endment by Finance Act, 2003 a s 1998-1999, 1999-2000 and 20 e impugned order dated 31.07.20 andigarh. ii) is reproduced as under:- roduced as under:- rovided for in the following clau the matters dealt with therein, n Section 28:-

xxxx paid in respect of capital borrow profession. scriptions paid periodically Mutual Benefit Societies which fu ibed, shall be deemed to be cap is clause;” .07.2006 passed by learned Inco ced as under:- see was not earlier engaged in However, from the previous ye 99, it has started the business ave been purchased and some s

d in tion and 000- 006 uses in wed by ulfil pital ome the ear, s of sold TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

ITA-109-2025 (

and trad and trea So, sha the cas of s 14. sha find ass in M oth sha virt the sha as app hol pro inte cas of inv nam 15. con hol

(O&M) and other connected ca

d, therefore, the activity of th ding of shares has been accep d 2000-2001. We therefore, do ating the assessee as a trader ev however, as pointed out earli ares purchased by the assessee a erefore, necessary to consider th se to record a finding regarding specified shares.

Assessee has made substan ares of M/S Vardhman Polyte dings of the Assessing Officer r sessee group of companies. The M/S Vardhman Polytex Ltd is a her group companies are include areholdings of the assessee grou tue of which the control of M/S e assessee group of companies. T ares of M/S Vardhman Polytex L confirmed by the Id. Counsel du peals barring sale of shares to o lding the shares for some years ofit may not necessarily lead to t ention of trading in such shares, se clearly demonstrate that the i acquisition of the shares wa vestment as also having contro mely M/S Vardhman Polytex Ltd

Taking the totality of facts a nsideration, we are of the view t lding that assessee had purcha

ases

-7- he assessee being engaged in ted in assessment year 1999-20 o not find any justification for ven for assessment year 98-99 a er, it is not necessary that all are for the purpose of trading. It he facts and circumstances of t g the nature of purchases in resp tial investment in the purchase ex Ltd. We have reproduced relating to the shareholdings of holdings of the assessee compa about 25% and when the share ed, it becomes abundantly clear t up companies is more than 50% S Vardhman Polytex Ltd. vests w The Assessee having purchased Ltd. has retained the shares till d uring the course of hearing of th own associates. Though, admitted s for the purpose of earning m the conclusive that assessee had yet facts and circumstances of t intention of the assessee at the ti as for the purpose of long te olling interest over the compa d. and circumstances of this case i that the CIT(A) was not justified ased the shares of M/S Vardhm

the 000 not lso, the t is, this pect e of the f the any e of that % by with the date hese dly, more d no this ime erm any, into d in man TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

ITA-109-2025 (

Pol of t was bor sha cou on exp Sup V.C car be the lord i) i inc resp in t ii) inc alo the the iii) ass the be con app Sup

(O&M) and other connected ca

lytex Ltd., with the intention of the said finding we proceed to c s entitled to deduction on ac rrowed for the acquisition of su ares by the assessee of M/S Va urse of business of trading in sh borrowed money for the purcha penditure incurred for the pu preme Court in the case of Raja CIT, 242 ITR 450(SC) laid dow rriers on different ventures, the allowed as a deduction against e business of different venture is dships laid down the following p if the income of an assessee come, he is entitled to claim pective head whether or not co taxable income; if the income of an assessee come but from different items, an one is taxable whereas income fr e Act, the entire permissible expe e head is deductible; and in computing 'profits and gains sessee is carrying on business in em yield taxable income and the deductible under section 37 if nstituted one indivisible business portionment of the expenditure w It is evident from the prin preme Court that if the income

ases

-8- trading in such shares. In the li consider as to whether the asses count of interest paid on mo uch shares. Since the purchase rdhman Polytex Ltd., is not in hares, no deduction of interest p ase of such shares is deductible urpose of business. The Hon asthan State Warehousing Corp n the principle that if the asses expenditure of one venture, can the income of other venture, unl s indivisible. In the said case, th principles of law:- is derived from various heads deduction permissible under mputation under each head resu arises under any of the heads nd income from one or more ite from the other item is exempt un enditure in earning the income fr of business or profession', when n various ventures and some amo others do not, the expenditure w all the ventures carried on by h s; but if they do not, the principle will apply. nciple laid down by the Hon e of the assessee is derived fr

ight ssee ney e of the paid e as 'ble pon. ssee nnot less heir s of the ults s of ems nder rom n an ong will him e of 'ble rom TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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var und can ass diff whe ent was by its sha The util Pol 'pro 16. whe inte Var We V. lord inte sou said inv adm com how ass

(O&M) and other connected ca

rious heads of income, he is enti der the respective heads, Dedu nnot be claimed under a differen sessee arises under the head p fferent ventures and income from ereas income from the other ve tire permissible expenditure in s held to be deductible. In the present case, once it the assessee of M/S Vardhman activity of trading in shares, a ares is not assessable under the h erefore, the interest which is pai lized for the purpose of acquis lytex Ltd. would not be admissi ofits and gains of business'. The next question that arise ether the assessee would be en erest on borrowed money utilize rdhman Polytex Ltd. under the e are conscious of the decision of Rajendra Prasad Moody, 11 dships of the Supreme Court h erest would be permissible un urces' even if no dividend is rec d case, their lordships held tha vestment in shares which had missible as deduction u/s 57(iii) mputing its income from head wever, deduction u/s 57(iii) is p sessable u/s 56 under the head

ases

-9- itled to claim deduction permissi uction permissible under one he t head. It is only if the income of profits and gains of business fr m one or more ventures is taxa enture is exempt under the Act, earning the income from the he is held that the purchase of sha Polytex Ltd is not in the course any income derived from the s head 'profits and gains of busine id by the assessee on the borrow sition of shares of M/S Vardhm ible as a deduction under the he es for our consideration is as ntitled to deduction on account d for the purchase of shares of M head 'Income from other sourc of Supreme Court in the case of C 15 ITR 519 (SC), wherein th held that deduction on account nder the head income from ot eived in the particular year. In at interest on moneys borrowed d not yielded any dividend w i) of the Income Tax Act, 1961 'Income from other sources. permissible only out of the inco 'income from other sources.' Fr

ible ead f an rom able the ead ares e of said ess'. wing man ead s to t of M/S ces.' CIT heir t of ther the for was 1 in So, ome rom TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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Ass the Fin inc ded con of Var 17. com of p file the oth ded ma by The wh 18. aid Ass disa par prej 19. rev rele sec Fin

(O&M) and other connected ca

sessment year 98-99, the divide e Income Tax Act, 1961. The sa nance Act, 1997 w.e.f. 1.4.98. T come does not fall within the a duction u/s 57 would be perm nsidered view that the AO was ju interest on money borrowed fo rdhman Polytex Ltd. However, since a doubt ha mputation of interest attributabl purchase of such shares done by e of the Assessing Officer for ca e assessee on such borrowings. T her shares which are for the pu duction as business expenditure ke the disallowance of actual ex way of interest on the borrowing e estimation made by the CIT ich is being discussed hereafter. As a consequence of our decisi d of section 14A for making the sessing Officer has referred allowance and the issue has a rties, we consider it appropria ejudice to our earlier view. It is also pertinent to mention th versed by any superior court, ap evant. We accordingly proceed ction 14A in this case. Section 1 nance Act, 2001, w.e.f. 1.4.1962,

ases

-10- end income is exempt u/s 10(33) aid sub section was inserted by Therefore, computation of divide ambit of u/s 56. Consequently, missible. We are, therefore, of ustified in making the disallowa for the purchase of shares of M as been expressed in regard le to the borrowing for the purp y the AO, the issue is remitted to alculation of actual interest paid The interest utilized for purchase urpose of trading is allowable a u/s 36(1)(iii). We direct the AO xpenditure incurred by the asses gs utilized or the purpose of shar (A) of 15% is without any ba

ion it would be unnecessary to t e disallowance. However, since to the section to support also been argued before us by ate to deal with the issue with hat in the event of our order gett pplication of section 14A would d to consider the applicability 4A which has been inserted by reads as under:-

) of the end no the nce M/S to pose the d by e of as a O to ssee res. asis take the the the hout ting d be y of the TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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Cha inc par con rea ass inc ass It i the be Inc hel Ltd util We eve Raj ear Cou per 14A of R

(O&M) and other connected ca

"14A. For the purpose of com apter, no deduction shall be a curred by the assessee in relatio rt of the total income under ntained in this section shall empo assess under Section 147 or sessment or reducing a refu creasing the liability of the ass sessment year beginning on or be is evident from a plain reading e computation of total income un applicable in such cases where t come under Chapter IV has bee ld that the activity of purchase o d., is a separate activity and, ther lized for such activity is not allow e have also held that no deduct en on the basis of the decision of jsthan State Warehousing Corpn rlier, in the event of our decisio urt, application of section 14A rtinent to mention that the nece A had arisen as a result of the S Rajasthan State Warehousing Co The assessee has derived divi lytex Ltd. which would fall for c m other sources. There is a direc ares of M/S Vardhman Polytex e assessee. The said nexus is no such borrowings shall have to b

ases

-11- mputing the total income under t allowed in respect of expendit on to income which does not fo this Act. Provided that noth ower the Assessing Officer eithe r pass an order enhancing und already made or otherw sessee under Section 154, for a efore the 1st day of April, 2001. of the said section that it refers nder Chapter IV. Section 14A wo the assessee has indivisible inco en computed in this case. We h of share of M/S Vardhman Poly refore, interest on borrowed mo wable as a deduction u/s 36(1)( tion is permissible to the asses of the Supreme Court in the case n (supra). However, as pointed on getting reversed by any super A would come into play. It may essity for incorporation of sect Supreme Court decision in the c orpn. V.CIT, 242 ITR 450 SC). idend income from M/S Vardhm computation under the head inco ct nexus between the investments Ltd. with the borrowings made t disputed. Therefore, interest p be deducted from the gross divide

this ture orm hing r to the wise any s to ould me. ave ytex ney (iii). ssee e of out rior ybe tion case man ome s in e by paid end TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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from und not sak for of Wa to b wer disa in inv any cas and for not the for 21. der rep to s The how and by wit arb in

(O&M) and other connected ca

m the said company. However, der section 10(33), the resultan t fall in the computation of gro ke of arguments that deduction purchase of shares was allowab the decision of the Supreme arehousing Corporation (supra), bar the deduction. We hold acco We may, however, place o re to be made only with ref allowance shall not be warrante view of the proviso to section voking section 14A by resorting y assessment year beginning or b se, assessment for assessment ye d, therefore, section 14A, if at a this assessment year. So, howev t entitled to deduction out of the e head 'income from other sourc making the disallowance, in our For assessment year 1999-20 rived income from interest as we peated his findings as recorded i shares purchased by the assess e CIT (A) has followed his ord wever, he has upheld the applica d has restricted the disallowance the AO. Proceeding on the bas th the issue. We have no hesitatio bitrary yardstick applied by him. this case disallowance of intere

ases

-12- , since dividend income is exem nt figure, positive or negative, w oss total income. Assuming for of interest on borrowings utili ble as a deduction on the autho Court in the case of Rajasth Section 14A would come into p rdingly. n record that if the disallowa ference to section 14A, the s ed for the assessment year 1998 n 14A which debars the AO fr g to section 154 or section 147 before Ist day of April, 2001. In t ear 98-99 was completed on 19.3 all applicable, could not be invo ver, as held earlier, the assesse e exempted dividend income un es.' As such, the aid of section 1 r view is unnecessary. 00 and 2000-01, the assessee ell as dividend income. The AO in assessment year 98-99 in reg see of M/S Vardhman Polytex L der for assessment year 98-99. ability of provisions of section 1 e to 15% of the disallowance ma sis on which the CIT (A) has de on in expressing our surprise by No basis has been given as to w est could be made to the extent

mpt will the ized rity han play nce said 8-99 rom for this 3.01 ked e is nder 14A has has gard Ltd. So, 14A ade ealt the why t of TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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15% giv disa of (P& eve ord aut req inte hel the cryp hav the bei inte pur The rem pur on Pol 22. cas 14A for the bor be 199

(O&M) and other connected ca

% only of the disallowance mad ven any reasons much less v allowance to 15% of the disallow CIT V. Palwal Co operative S &H), their Lordships of Punjab ery judicial and quasi judicial bo der which should reflect applic thority to the issues/points raised quirement of recording of reason egral part of the concept of fair p ld that superior courts can effec e order under challenge conta yptic grossly violates natural jus ving given any reasons for restr e disallowance made by the AO, ing contrary to law. In our consi erest paid by the assessee on rchase of shares of M/S Vard erefore, there is no reason for r mit the issue to the file of the rpose of computation of disallo borrowings utilized for the pur lytex Ltd. To wind up, we may clarify tha se it is not necessary to take re A for the purpose of disallowan the purchase of shares of M/S ere is direct nexus between the i rrowings made by the assessee, t warranted with reference to s 99-2000 and 2000-01. However

ases

-13- de by the AO. The CIT (A) has valid reasons for restricting wance made by the AO. In the c Sugar Mills Ltd., 197 CTGR 2 and Haryana high Court held t ody/authority must pass a reason cation of mind by the concern d before it. It was further held t ns and communication thereof is procedure. Their Lordships furt ctively exercise their power only ains reasons. Any order which stice. In this case, the CIT (A) ricting the disallowance to 15% we cannot but set aside this or idered view, in this case, the act n the borrowings utilized for dhman Polytex Ltd. is workab resorting to estimate. We therefo Assessing Officer for the limi wance on account of interest p rchase of shares of M/S Vardhm at whereas we have held that in t course to the provisions of sect nce of interest on borrowings ma Vardhman Polytex Ltd. in so far investments in such shares and the disallowance in any case wo section 14A for assessment ye r, we having held that in this c

not the case 230 that ned ned that s an ther ly if h is not % of rder tual the ble. fore, ited paid man this tion ade r as the ould ears case TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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the all disa 23. pur ANALYSIS OF 15.

A b the amount of business or prof of capital is bor respect of the sa Section 28 of th business or prof 16.

Ad trading of yarn/ share trading ac shares/securities approved by the 17.

The reflected shares auditor. The app the relevant asse 18.

It Vardhman Poly shares were fre

(O&M) and other connected ca

e aid of section 14A is unnecessa the three assessment years s allowance as directed earlier. In the result, appeals of the R rposes.” F THE RECORD bare reading of Section 36(1)(iii) interest paid in respect of cap fession shall be allowed. Meanin rrowed for the purpose of busin ame shall be deducted while com he Act. Section 28 of the Act fession which are chargeable to i dmittedly, appellant was doing /cloths upto the Assessment Yea ctivity. With the intention to c s certain amendments were mad e Board of Directors in their mee ereafter, the appellant started s as stock-in-trade. The balanc pellant purchased/sold shares of essment years. is not the case of the respon ytex Ltd. were pledged, a perus e between 01.04.1997 to 12.05

ases

-14- ary, we restore the disallowance subject to recalculation of act Revenue are allowed for statisti ) of the Act shows that deduction pital borrowed for the purpose ng thereby, if any amount in resp ness, the amount of interest paid mputing the income as referred to deals with the profits and gains ncome tax. the business of manufacture a ar 1997-1998 and was not into a arry on the business of trading de in the memorandum which w eting held on 10.03.1997. trading in shares. Appellant d ce sheet was duly audited by about 24 various companies dur ndent that all the shares of M sal of the record shows that 27 5.1997, 26,02,700 shares were f

for tual ical n of e of pect d in o in s of and any g in was duly the ring M/s 700 free TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

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between 13.05. Similarly 17,40, 1,60,000 shares were free betw business sense d 19.

A p lakhs shares of 27.10.1997 and the rate as per i off during that y per the price of succeeding Ass Assessment Yea 20.

A p appellant was to were held as sto hold the shares Vardhman Poly above. ANALYSIS OF 21.

The which were sol Vardhman Poly

(O&M) and other connected ca

1997 to 26.10.1997 and then ,755 shares were free between 1 were free between 19.07.1999 een 13.12.1999 to 31.03.2000. did not sell the shares because of perusal of the record further sho f M/s Vardhman Polytex Ltd. 1,93,400 shares on 27.09.1999, its expectation, therefore it did n year. However, when the appe its expectation it sold shares wo essment Year 1999-2000 and s ar 2000-2001. perusal of the whole record fu o trade in shares of M/s Vardhm ock-in-trade and not as an invest as stock-in-trade is clear and co ytex Ltd worth crores of rupees a F THE ASSESSMENT ORDER e Assessing Officer has treate ld by the appellant as meant f ytex Ltd. as investment. Wherea

ases

-15- from 27.10.1997 to 10.11.19 11.11.1997 to 12.12.1998. Anot to 25.07.1999 and 1,93,400 sha The appellant in its wisdom a f depressed share market. ows that the appellant purchased . on 30.06.1997, 3500 shares , but since the appellant did not not consider it prudent to sell th llant found it appropriate to sell orth Rs.1.66 crore during immedi shares worth Rs.1.64 crores in urther shows that intention of man Polytex Ltd. since these sha tment. Intention of the appellan orroborated by sale of shares of M at later point of time, as referred RS ed the shares of other compan for trading whereas shares of M s the admitted fact as per record

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that shares of M intention to sell. for purchase of the ground tha appellant compa sold, therefore th 22.

Fur engaged in trad derived from tra Vardhman Polyt asset and not sto 23.

The shares of other investment show 24.

Fur different compa to be trading in amount of intere of such shares w borrowed for th concerned, the that shares of M some of the s

(O&M) and other connected ca

M/s Vardhman Polytex Ltd. we . Assessing Officer disallowed th shares of M/s Vardhman Polyte at all shares of M/s Vardhman any belong to its group compani hese shares were purchased as an rther, Assessing Officer accep ding of shares and on that prem ading of shares of other compan tex Ltd. a separate treatment is g ock-in-trade. erefore, action of the Assessin r companies as trading and of ws total non-application of mind rther, perusal of record shows anies in all these years and Asses n shares and allowed the deduct est paid in respect of capital bor whereas so far as the amount of in he purpose of purchase of shares deduction under Section 36(1)( M/s Vardhman Polytex Ltd. we shares of M/s Vardhman Pol

ases

-16- ere held as stock-in-trade, with he interest paid on money borrow ex Ltd. in his assessment orders n Polytex Ltd. purchased by ies and no part of these shares w n asset and not stock-in-trade. pted the fact that appellant w mise computed the profit and ga nies but in the case of shares of M given by treating these shares as ng Officer in treating the sale f M/s Vardhman Polytex Ltd. while framing the assessment. that the appellant sold shares ssing Officer accepted the appell tion under Section 36(1)(iii) on rrowed for the purpose of purch nterest paid in respect of the cap s of M/s Vardhman Polytex Ltd (iii) was disallowed on the grou ere not sold for long time and t lytex Ltd were pledged with

h an wed s on the were was ains M/s s an e of as s of lant the hase pital d. is und that hout TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

ITA-109-2025 (

appreciating the were free from more profit out o 25.

Rea deduction unde money borrowe Ltd in his assess Assessment Yea since it is based 26.

The the Assessing companies by a capital borrowe weight. 27.

In v capital borrowe Ltd by the Asse be set aside bein ANALYSIS OF 28.

A p that the learned appellant was no the previous yea

(O&M) and other connected ca

e fact that even the shares of M any pledge were not sold duri of it. asoning given by the Assessin r Section 36(1)(iii) on the amo ed for utilisation in purchase of sment orders dated 19.03.2001, ars 1998-99, 1999-2000 and 200 on assumptions and presumptio erefore, argument raised by lear Officer has given different t allowing the deduction of amo ed for the purpose of trading in view of the above, the reasonin d for the purpose of purchase o ssing Officer, which is accepted ng unacceptable. F THE ORDERS PASSED BY perusal of the order dated 31.0 d Tribunal has specifically state ot earlier engaged in the purchas ar relevant to Assessment Year 1

ases

-17- M/s Vardhman Polytex Ltd wh ing the relevant years only to g ng Officer while disallowing ount of interest paid in respect f shares of M/s Vardhman Poly 28.02.2002 and 28.02.2003, for 00-2001 respectively, is not justif ns. rned counsel for the appellant t treatment to the shares of ot ount of interest paid in respect n shares is reasonable and carr ng given to disallow the interest of shares of M/s Vardhman Poly by the learned Tribunal, is liable Y THE LEARNED TRIBUNAL 07.2006 of learned Tribunal sho ed in para 13 of its order that se and sale of shares, however fr 1998-1999, it started the business

hich gain the t of ytex the fied that ther t of ries t on ytex e to L ows the rom s of TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

ITA-109-2025 (

trading in share therefore, the ac accepted in Ass Tribunal did not for the Assessm Tribunal has ob appellant are for 29.

Lea contradictory sta in trading of sh purchased the sh investment and Vardhman Polyt lying unsold for appellant over M shares were purc 30.

The can hold the pur escalation in pr shares would wa by itself canno investment and n

(O&M) and other connected ca

es. Further that, some shares h ctivity of the appellant being eng sessment Years 1999-2000 and 2 t find any justification for not tre ment Year 1998-1999 also, wher bserved that it is not necessary t r the purpose of trading. arned Tribunal without appr ands since on the one hand it is hares whereas on the other hand hares of M/s Vardhman Polytex d not for trading and, therefor tex Ltd were not stock-in-trade, r many years in their stock. Fur M/s Vardhman Polytex Ltd, so chased for investment and not fo e reasoning given by learned Tr rchased shares over a long time rices of shares. Any prudent pe ait for the best price before sellin ot be presumed to be an inte not for trading (selling).

ases

-18- have been purchased and sold a gaged in trading of shares has b 2000-2001. Therefore, the learn eating the appellant as a trader ev reas on the other hand the learn that all the shares purchased by reciating the record has tak accepted that appellant is involv d it is observed that appellant h x Limited mainly for the purpose re, it is held that shares of M only on the ground that same w rther, that controlling interest of olidify the conclusion that the s or trading purpose. ribunal is not sustainable since o e to earn more profit because of erson in the business of trading ng in order to gain more profit. T ention to retain the shares as

and een ned ven ned the ken ved had e of M/s were the said one the g in This an TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

ITA-109-2025 (

31.

Vid matter to the disallowance on shares of M/s V counsel for the for appellant ha incompliance o matter was remi disallowance on shares of M/s V reply filed by t under Section 1 under Section 1 asked under S disallowance on purchase of sha sold 32,650 shar 2006 as well. CONCLUSION 32.

In appellant had in Vardhman Poly Vardhman Poly

(O&M) and other connected ca

de impugned order dated 31.07.2 Assessing Officer for the lim n account of interest paid on bor Vardhman Polytex Ltd. During parties were asked about the sta s produced before us the assessm of the order dated 31.07.2006 itted to the Assessing Officer for n account of interest paid on borr Vardhman Polytex Ltd. In asses the appellant to the notices dat 143(2) of the Income Tax Act, 142(1) of the Income Tax Act, Section 142(1) of the Income n account of interest paid on bor ares of M/s Vardhman Polytex L ares of M/s Vardhman Polytex L N view of the discussion herein ntention to do business of tradi ytex Ltd. and does not show its i ytex Ltd. as an asset, which is

ases

-19- 2006, learned Tribunal remitted mited purpose of computation rrowing utilised for the purchase g the course of arguments, learn atus of the same. Learned coun ment order dated 20.12.2007 pas of learned Tribunal whereby r limited purpose of computation rowings utilised for the purchase ssment order dated 20.12.2007, ted 27.11.2006, 28.09.2007 issu 1961 and notice dated 05.10.20 1961, whereby the appellant w e Tax Act, 1961 to re-comp rrowings utilised for the purpose Ltd, the appellant stated that it h Ltd., during the financial year 20 n-above, this Court concludes t ing even in case of shares of M intention to keep the shares of M apparent from the record as w

the of e of ned nsel ssed the n of e of the ued 007 was pute e of had 005- that M/s M/s well. TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document

ITA-109-2025 (

Since appellant different interva Vardhman Poly in-trade just like an investment. 33.

The the appellant-as 34.

In Order dated 31 Chandigarh is se 35.

Pen

(LISA GILL JUDGE

May 13, 2025 tripti

(O&M) and other connected ca

had been selling the shares of M als of time, therefore, it can safe ytex Ltd purchased by the appell e shares of other companies pur erefore, the substantial question sessee and against the responden view of the above, all the thr .07.2006 passed by the learned et aside. nding applications, if any, also st

hether speaking/non-speaking : S hether reportable

: Y

ases

-20- M/s Vardhman Polytex Ltd also ely be concluded that shares of M ant should also be treated as sto rchased by the appellant, and not ns of law are answered in favour nt-revenue. ree aforesaid appeals are allow d Income Tax Appellate Tribun tand disposed of.

(SUDEEPTI SHARMA)

JUDGE

Speaking Yes

o, at M/s ock- t as r of wed. nal,

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