NIMA SPECIFIC FAMILY TRUST,AHMEDABAD vs. THE ACIT, CIRCLE-10, AHMEDABAD

With this appeal, the Assessee has challenged the correctness of the order of the Ld. CIT(A)-XVI, Ahmedabad dated 29.01.2014 pertaining to A.Y. 2002-03. 2 . A.Y. 2002-03

The sum and substance of the grievance of the assessee is that the ld. CIT(A)

Facts on record show that the returned income at Rs. Nil was assessed at total income of Rs. 18.32 crores vide order dated 24.03.2005 framed u/s. 143(3) of the Act.

The assessment travelled up to the Tribunal and the Tribunal vide order dated 30.04.2010 in ITA No. 1251/Ahd/2006 directed the A.O. to consider certain

Pursuant to the directions of the Tribunal the A.O. asked the assessee to explain its claim by furnishing details of interest expenditure. The assessee vide a submission dated 18.11.2011 submitted the details and the relevant part reads as under:- (a) The Hon 'ble Tribunal vide para no. 38 on page no. 59 in ground no. 12 mentioned that as the assessee trust had sold 13 DDBs in the preceding Assessment year and remaining 12 DDBs -were repurchased by the issuer in the year under consideration, both the transactions are considered similar. As a result, gain arising on sale of DDBs has to be worked out as accepted by A.O. for A. Y.2001-02. The issue has been set aside to the Ld. A.O. and is directed to examine the claim of interest as part of cost of acquisition after allowing sufficient opportunity of being heard to the assessee trust. (b) It is requested to allow the loss of Rs. 6,00,000/- as Short term capital loss as the same has been allowed by the Assessing Officer in the preceding asst. Year 2001- 3 . A.Y. 2002-03

Copy of R.O.I. of A.Y. 2001-02 and assessment order are enclosed marked Annexure B & C. (c) It is further submitted that interest capitalized during Asst. Year 2001-02 was not claimed as expense in Asst. Year 2001-02.”

The submissions made by the assessee did not find any favour with the A.O. who was of the opinion that the assessee has sold 13 DDBs in A.Y. 2001-02 but has not claimed the amount of interest as expenditure and in A.Y. 2002-03, the assessee has claimed the entire interest of A.Y. 2001-02 as an expense. The A.O. further observed that the assessee itself has not considered this interest expense as not being the cost of acquisition in the A.Y. 2001-02. Taking a leaf out of this, the A.O. concluded by holding that the interest expenses are not part of the cost of acquisition. The A.O. completed the assessment by making similar addition of Rs. 54 lacs as made by the A.O. in the first round of litigation.

The assessee assailed the matter before the ld. CIT(A)and reiterated its claim of interest as part of the cost of acquisition.

After considering the facts and the submissions, the ld. CIT(A) held as under:-

I have carefully considered the facts of the case in the light of submissions made by the appellant and the arguments taken by the A O. The argument of the appellant have been examined and found to be untenable. The A O has elaborately discussed the reasons for making the disallowance. I find force in the arguments of the A O that when certain expenses were capitalized in a particular year they cannot be claimed as deduction in subsequent year. Without prejudice, it is seen that the appellant was required to submit details which was not given to the A O as indicated in the assessment order. Consequently the addition made 4 . A.Y. 2002-03 by the Id A O of Rs. 54,00,000/- is confirmed and the ground of appeal No. 2 raised is dismissed.

Aggrieved by this, the assessee is before us.

The ld. counsel for the assessee vehemently stated that both the lower authorities have grossly erred in not appreciating the facts in true perspective. It is the say of the ld. counsel that in the first round of litigation, the Tribunal has directed the A.O. to verify whether cost of acquisition included the interest expenses when the Deep Discount Bonds were sold in A.Y. 2001-02. The ld. counsel stated that in A.Y. 2001-02, the Revenue has accepted the computation of capital gains made by the assessee on the sale of the Deep Discount Bonds of Shree Developers Pvt. Ltd. The ld. counsel continued by saying that the cost of acquisition very much included the interest expenditure. Therefore, it cannot be said that the assessee has not furnished the relevant details as directed by the Tribunal in the first round of litigation. Per contra, the ld. D.R. strongly supported the findings of the revenue authorities.

We have given a thoughtful consideration to the orders of the authorities below. Let us first consider the relevant findings of the Tribunal in the first round of litigation and the same reads as under:-

The assessee is in now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. A.R. while relying on a decision dated 08.01.2010 of the ITAT in the case of Ashutosh R Majmudar in ITA No. 124/Ahd/2008 as also decisions reported in CIT vs. Mithlesh Kumari, 92 ITR 9 and Addl. CIT vs. K.S. Gupta, 119 ITR 372 (AP) contended that interest of Rs. 60,00,000/- has to be treated as part of cost while working out capital gains or loss. To a query by the Bench, the ld. A.R. did not reply as to the basis adopted in the A.Y. 2001-02 while 5 . A.Y. 2002-03 working out gains in the A.Y. 2001-02 on sale of 13DDBs. On the other hand, the ld. D.R. supported the findings of the ld. CIT(A).

We have heard botht he parties and gone through the facts of the case. As is apparent from the aforesaid facts, the assessee sold 13 bonds in the preceding assessment year while the remaining 12 have been repurchased by the issuer before redemption in the year under consideration. Despite a specific query by us, the ld. A.R. did not explain the basis adopted by the assessee in working out gains on sale of bonds in the preceding assessment year . Admittedly, interest expenditure of Rs. 60,00,000 had been capitalized in the period relevant to the AY 2001-02 while transactions of sale of aforesaid bonds in the preceding assessment year and that of repurchase in the year under consideration are similar. In these circumstances, gains on sale or repurchase by the issuer of these bonds has to be worked out on the same basis as had been accepted by the AO in the preceding AY 2001-02. Accordingly, especially when the Id. CIT(A) did not record his specific findings on the decision cited before him, we consider it fair and appropriate to vacate' the findings of the Id. CIT(A) and restore the matter to the file of the AO with the directions to examine the claim of interest as part of cost of acquisition of the aforesaid bonds after allowing sufficient opportunity to the assessee, in the light of our aforesaid observations and various judicial pronouncements including those cited before us and thereafter pass appropriate orders in accordance with law. With these directions, ground no. 12 in this is disposed of.

A perusal of the afore-stated directions of the Co-ordinate Bench shows that the Co-ordinate Bench has specifically directed to examine the treatment given in A.Y. 2001-02. The computation of total income for A.Y. 2001-02 as exhibited on page 6 of the paper books is as under:- MIMA SPECIFIC FAMJLY TRUST 707, Maker Chamber V Nariman Point, Mumbai Status : Individual ASST YEAR: 2001-2002 6 . A.Y. 2002-03 P.A/C.NO AAATN0269J / JT, CIT SR-45, Mumbai ACCT YEAR: 2000-2001 COMPUTATION OF TOTAL INCOME I NCOME FROM HOUSE PROPERTY Rent Income 30,000 Less : 1/4th for repairs 7,500 22,50 II BUSINESS INCOME : Add: Lease Rent 3212000 Interest on I.T. Refund 519447 8406447 8406447 Less: Consultation Expense 456000 Depreciation allowable as per Income Tax As per statement 3238326 3694326 4712121 III CAPITAL GAIN:

As can be seen from the aforementioned computation, the short term capital loss is as per Annexure-A and the said Annexure-A is exhibited at page 8 of the paper book as under:- Nima Specific Family Trust 7 . A.Y. 2002-03 Statement of Short Term Capital Gain/(Loss) Sr. No. Name of securities Purchase Cost Sale Amount Capital Gain/(Loss) 1 Arvind Mills Ltd. 651713 619400 (32313) 2 G.E. Shipping 34 31 (3) 3 H.D.F.C. 138210 114747 (23463) 4 M.T.N.L. 20361782 10275000 (10086782) 5 Nirma Ltd. 4805243 3890000 (915243) 6 Reliance Capital Ltd. 12655608 5877600 (6778008) 7 Shree Rama Multitech 4510240 4278400 (231840) Ltd. 8 Surana Telecom Ltd. 5404917 4626418 (778499) 9 Sterlite Ind. Ltd. 8606058 8270946 (335112) 10 Arvind Mills Ltd. 21099240 3019372 910132 11 Shree Developers Pvt. 70218000 70850000 632000 Ltd. 12 Bajaj Auto Ltd. 11933825 12830000 896175 13 Hindustan Lever Ltd. 14603758 16638774 2035016 14 Gesco Corporation 622107 1919386 1297279 15 Reliance Ind. Ltd. 7492905 11274121 3781216 16 State Bank of India 3403783 5400689 1906900 17 Zee Telefilm 1541172 1635465 94293 18 Balaji Distileries (Bonus) Nil 634754 634754 Total Short Term Capital Loss O/f 6903492

It can be seen from the above that at Serial No. 11, the purchase cost of DDBs of Shree Developers Pvt. Ltd is shown at Rs. 7,02,18,000/-. 13 Deep Discount Bonds @ Rs. 50 lacs amounting to Rs. 6.50 crores were sold in A.Y. 2001-02. The purchase cost is shown at Rs. 7,02,18,000/- which means that the difference of Rs. 52 lacs related to the interest expenditure capitalized in the cost of acquisition. The assessment order is exhibited at pages 13 to 23 of the paper books and the total income of the assessee is assessed as under:- 8 . A.Y. 2002-03 Rs. 47,34,620 Income as per return

It can be seen that the total loss of Rs. 72,12,414/- as claimed by the assessee was assessed at a total loss of Rs. 61,69,762/-. This means that after thorough scrutiny, the A.O. has accepted the cost of acquisition of 13 Deep Discount Bonds of Shree Developers Pvt. Ltd. at Rs. 7,02,18,000/- which included the interest expenses capitalized by the assessee. Now let us consider the computation of total income for the year under consideration and the same is exhibited at page 149 of the paper book as under:- MIMA SPECIFIC FAMJLY TRUST Nirma House Ashram Road Ahmedabad Status : Individual ASST YEAR: 2002-2003 P.A/C.NO AAATN0269J ACCT YEAR: 2001-2002 COMPUTATION OF TOTAL INCOME NCOME FROM HOUSE PROPERTY Rent Income 30,000 Less : 30% for repairs 9,000 21,000 BUSINESS INCOME : Net Profit as per P & L A/c 190,604,934 Less: Allowable/Treated separately Dividend 25,207,994 Rent 30,000 Profit on sale of securities (Net) 193,292,781 Share in Profit/(Loss) from AOP 1,438,022 219,968,797 (29,363,863) Add. Disallowable/Treated separately Bank Commission 164,088 Depreciation 2,284,864 9 . A.Y. 2002-03 Other Expenses 127,232 2,576,184 (26,787,679) Less: Depreciation under I.T.Act.as per Annexure A 2,378,598 (29,166,277) However claimed up (28,059,514) CAPITAL GAIN : As per statement attached herewith 28,038,514 Total Loss NIL Income tax Payable NIL Less: T.D.S. (as per statement) 9,469,603 REFUND DUE 9,469,603

The capital gain as per statement is at page 152 of the paper book and the same is as under:- NIMA SPECIFIC FAMILY TRUST STATEMENT OF CAPITAL GAIN

And the statement of short term capital gain which is at page 153 of the paper book is as under:- Sr. No. Name of Securities Purchase Cost Sale Consideration Capital Gain 1 Deep Discount 66,000,000 65,4000.000 (600.000) Bond of Shree Developers Pvt. 10 . A.Y. 2002-03 Ltd. 2 Hindustan Leverl 7,079,467 8,935,089 1,855,622 Ltd. 3 Reliance Ind. Ltd. 4,603,722 5,519,795 916,073 Total Short Term Capital Gain 2,171,695

It can be seen from the above that during the year under consideration, the assessee has sold 12 Deep Discount Bonds of Shree Developers Pvt. Ltd. which were purchased at a cost of Rs. 50 lacs per bond which makes the total purchase cost of 12 DDBs at Rs. 6 crores whereas the purchase cost as shown hereinabove is 6.60 crores which means that 60 lacs is the interest cost capitalized by the assessee.

As mentioned elsewhere, similar treatment was given in A.Y. 2001-02 and as mentioned elsewhere after thorough scrutiny, the same has been accepted by the Assessing Officer in A.Y. 2001-02. This conclusively shows that the directions of the Co-ordinate Bench stands verified and there remains no ambiguity whatsoever. Considering the factual matrix as discussed hereinabove, we do not find any substance in the findings of the ld. CIT(A) and the same are vacated. The addition of interest is directed to be deleted. This grievance is allowed.

The next grievance relates to taxing the long term capital gain on sale of Deep Discount Bonds of Nirma Ltd.-Series A at Rs. 15,32,34,552/- instead of 15,32,19,552/-.

We find that the difference of Rs. 15,000/- has been directed by the ld. CIT(A) to be verified by the A.O. and subject to the verification, the ld. CIT(A) has 11 . A.Y. 2002-03 allowed the grievance of the assessee. We do not find any error or infirmity in such directions of the ld. CIT(A) and we decline to interfere. This ground is dismissed.

The next grievance relates to the calculation of interest u/s. 244A of the Act. This was not pressed before us and the same is dismissed as not pressed.

In the result, the appeal filed by the Assessee is partly allowed.