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Income Tax Appellate Tribunal, BENCH ‘D’ KOLKATA
Before: Hon’ble Shri P.M.Jagtap, AM & Shri S.S.Viswanethra Ravi, JM ]
Per S.S.Viswanethra Ravi, JM
This is an appeal by the Revenue against the order dated 04.08.2016 passed by C.I.T-(A)-18, Kolkata for A.Y.2011-12.
The only issue is to be decided as to whether the CIT(A) is justified in deleting the addition of Rs.70,10,160/- made on account of disallowance on interest claimed on total outstanding loan u/s 24(b) of the Act in the facts and circumstances of the case.
The ld. DR relied on the order of the AO and referred to page-2 of the AO’s order and argued that the assessee could not explain by filing relevant details of expenses incurred supporting the claim. The ld. AR submits that the issue is covered in assessee’s own case for A.Y.2009-10 in ITA No.90/Kol/2013 The ld. AR referred to para – 5 of the said order and argued that the claim of deduction u/s 24(b) of the Income Tax Act, 1961 (Act) is applicable to the subsequent loan availed by the assesse mentioned in the original return. The ld. AR argued that the coordinate bench of this tribunal by order dated 24.11.2015 held that the assessee is entitled to claim
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deduction u/s 24(b) of the Act on total outstanding which was availed by the assessee by way of restructuring the existing loan.
Heard rival submissions and perused the material available on record. We find that the assessee availed loan from its holding company which was repaid from the loan initially availed from State Bank of Mysore and again the assessee availed additional loan from State Bank of Mysore after restructuring the existing loan that was initially taken and the outstanding stood at Rs. 20 crore and whether interest paid on such outstanding is covered by provisions of Section 24(b) of the Act. The Co- ordinate Bench in assessee’s own case held that subsequent loan availed by the assessee to repay his original loan is very much covered to claim deduction u/s 24(b) of the Act. We note that the CIT(A) by placing reliance on the decision of the Co- ordinate Bench in the assessee’s own case (supra) deleted the addition by the AO. The relevant portion of which is reproduced herein below : “From the aforesaid explanation, it is very much clear that the subsequent loan taken by assessee to repay his original loan is very much covered for claim the deduction u/s. 24(b) of the Act. It is also important to note that assessee has taken a loan from SBM and same loan from the same bank was enhanced as a result of restructuring of the existing loan. Therefore, in this case no third loan was obtained by assessee. Therefore, we do not find any good and justifiable reason to interfere in the order of Ld. CIT(A). Hence, this ground of Revenue’s appeal is dismissed.
Coming to Revenue’s second ground. The issue raised by Revenue in this appeal is that Ld. CIT(A) has erred in deleting the addition made by AO on account of treating Long Term Capital Loss (LTCG for short) as Short Term Capital Gains (STCG for short) as business loss. In this case, assessee-company purchased 1.80 lakh share of premier Ltd. in the month of February, 2008 as investment for a total consideration of Rs.2,06,48,950/- in the financial year 2007-08 and this investment in shares was shown as LTCG investment. However, assessee-company converted this LTCG share into stock-in-trade by passing a resolution on 01.04.2008 on the date of conversion the market value of the share was Rs.1,50,84,000/- as a result of conversion there was a loss for an amount of Rs.55,64,950/- which the assessee-company claimed in its books of account. This loss was booked at the time of conversion of Long Term Investment as stock-in- trade during the FY 2008-09. The assessee-company sold these shares for an amount of Rs.53,03,228/-. As a result of sale, there was a business loss for an ITA No.1945/Kol/2016 M/s Patton Developers (P)Ltd. A.Y.2011-12
amount of Rs.97,80,772/- and assessee-company claimed this loss as business loss in the FY 2008-09. However, AO has disregarded the above transactions by observing that assessee has never been a trader in share and neither purchase nor sold any other shares during the year under consideration. So the conversion into stock-in-trade done by the assessee-company was not in normal course of the business of assessee. Accordingly, the AO treated the loss arising out of the purchase-sale transactions amounting to Rs.1,53,45,722/- (2,06,48,950 – 53,03,228/-) as LTCG loss and covered u/s 10(38) of the Act..
9 Aggrieved, assessee preferred appeal before Ld. CIT(A) who has deleted the addition made by AO by observing that as per CBDT Circular No. 4/2007 dated 15.06.2007 the assessee can have two portfolio i.e., an investment portfolio and another of trading portfolio and section 45(2) of the Act also provides that assessee can convert its capital assets in stock-in-trade. The Ld. CIT(A) has made reference to the following judgments :- i) ACIT v. Jehangir T. Nagree (2008) 23 SOT 512 (Mumbai) ii) CIT v. Walfort Share And Stock Brokers P. Ltd. (2010) 326 ITR 1 (SC) iii) Union of India v. Azadi Bachao Andolan (2003) 263 ITR 796 (SC)
Now aggrieved with the order of Ld. CIT(A), Revenue is in appeal before the Tribunal.
We have heard rival parties and perused the materials available on record. Before us Ld. DR supported the order of AO whereas Ld. AR supported the order of Ld. CIT(A). In this case, AO has disallowed the conversion of the capital asset into stock-in-trade on the ground that there was no business activities carried on by assessee-company during the relevant previous year and Ld. CIT(A) has rejected the claim of the AO on the ground that Sec.45(2) of the Act provides the assessee to convert the capital asset into stock-in-trade at any time during the year. There is no prohibition under the Act, therefore the act of the assessee for converting the capital asset into stock-in-trade is within the ambit of law. Before us, Ld. AR drew our attention on page-78 of the paper book of assessee, wherein the details of share held as stock-in-trade was furnished. A plain reading of Sec. 45 sub-(2) allows as below:-
“Capital gains. 45 [(1)] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections [***] [54, 54B, [***] [54D, [54E, [54EA, 54EB,] 54F [54G and 54H]]] be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.
[(1A) … … ..
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[(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.]
From the aforesaid Section 45, it is very clear that action done by assessee for converting the investment into stock-in-trade is within the purview of the law. Therefore, we dismiss the ground of Revenue’s appeal.”
In view of the above, we find no infirmity in the order of CIT(A) and ground no.1 raised by the revenue is dismissed. Ground No.2 is general and needs no adjudication. 5. In the result the appeal of the revenue is dismissed. Order pronounced in the open Court on 04.04.2018.
Sd/- Sd/- [P.M.Jagtap] [ S.S.Viswanethra Ravi ] Accountant Member Judicial Member Dated : 04.04.2018. [RG Sr.PS] Copy of the order forwarded to: 1.M/s Patton Developers Pvt. Ltd., 3C, Camac Street, 8th Floor, Kolkata-700016. 2. A.C.I.T., Circle-8 (2), Kolkata. 3. C.I.T.(A)-18, Kolkata 4. C.I.T.-3, Kolkata.. 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,
Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches
ITA No.1945/Kol/2016 M/s Patton Developers (P)Ltd. A.Y.2011-12
ITA No.1945/Kol/2016 M/s Patton Developers (P)Ltd. A.Y.2011-12