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30-10-2019,Lustre Merchants, Section 2(47), 2, 223D, 234D, Tribunal Delhi

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7 months 2 days ago #11268 by amit
Section - 2(47), 2, 223D, 234D, 263
Order Date - 30-10.2019
Favouring - Assessee
Court - Tribunal Delhi
Appellant - Lustre Merchants Pvt. Ltd.
Respondent - DCIT
Citation - 1119Taxpundit10
Appeal No. - ITA No.6396/Del/2015
Asstt. Year - 2008-09



This appeal filed by the assessee is directed against the order dated 21st September, 2015 of the CIT(A)-5, New Delhi, relating to assessment year 2008-09.

2. This is the second round of litigation before the Tribunal.

3. Facts of the case, in brief, are that the assessee is a company engaged in the business of dealing in shares and securities. It filed its return of income on 19th September, 2008, declaring a loss of Rs.64,34,736/-. The Assessing Officer, during the course of assessment proceedings, observed that the assessee company applied for 750000 convertible warrants @ Rs.64/- per warrant of a listed company on 16th January, 2006 and remitted the application money amounting to Rs.48 lakhs. On 23rd September, 2006, the assessee company opted for conversion of 1 lakh share warrants into equity shares by making a payment of Rs.57,60,000/- being 90% of the value of share warrants and adjusting an amount of Rs.6,40,000/- out of Rs.48 lakhs paid at the time of making application for 750000 share warrants. The balance amount of Rs.41,60,000/- was outstanding as on 31.03.2006 representing application money of 10% value of balance 650000 convertible warrants. As per the terms and conditions of the preferential issue of optional convertible warrants, the assessee was required to make payment for balance amount on or before 15th July, 2007 as per SEBI guidelines. Since the assessee company failed to remit the balance outstanding amount of allotment money for which the said listed company forfeited the application money amounting to Rs.41,60,000/-, the assessee claimed the same as a business loss. The Assessing Officer, in the order passed u/s 143(3) on 25th January, 2010, disallowed the said loss debited to the Profit & Loss Account and added to the total income of the assessee. While doing so, the Assessing Officer relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Mrs. Grace Collis (2001) 248 ITR 323, the decision of the Hon'ble Karnataka High Court in the case of DCIT vs. BPL Sanyo Finance Ltd., 312 ITR 63, the decision of the Hon'ble Delhi High Court in the case of CIT vs. Chand Ratan Bagri, 230 CTR 258 and the decision of the Hon'ble Supreme Court in the case of Vania Silk Mills Pvt. Ltd. vs. CIT, 98 CTR 153.

4. The assessee preferred an appeal, but, without any success. Subsequently, the Tribunal, vide ITA No.3836/Del/2011, order dated 13th February, 2012, restored the issue to the file of the Assessing Officer for fresh adjudication of the issue by observing as under:-

“5. We have heard rival contentions and gone through the entire material available on record. As the facts emerge, the lower authorities have not adverted to the crucial facts i.e. assessee's investment in Surya Roshni Ltd., a group company, by way of subscription to convertible debentures being held as stock in trade not only in this year but earlier year also. These facts have a material bearing on taking a proper decision as to whether assessee's investment was a business asset. Besides, the AO has heavily relied on the issue of lock in period as a determinate factor to hold the impugned investment as accrual of a right while denying the assessee's claim. In our considered view the contentions raised by the assessee have not been duly considered by AO. The observations about the assessee's convertible debentures/ warrants because of the lock in period becoming capital asset has also not been substantiated in a justified manner. In the entirety of facts and circumstances, we are inclined to set aside the issue back to the file of AO to consider the same afresh after giving the assessee an opportunity of being heard and keeping in mind the Bombay High Court judgment (supra).”

5. In the set aside proceedings, the Assessing Officer noted that the facts of the case are distinguishable from the case of CIT vs. Tainwala Trading & Investment Company Ltd. decided by the Hon'ble Bombay High Court. He observed that in the case of Tainwala Trading & Investment Co. Ltd., as against the agreed price of Rs72.70 at the time of debentures were quoted, the share price had gone down substantially to Rs.14 per share and, therefore, the decision to forego the amount invested in the convertible debentures was held to be a commercial decision to avoid higher loss and, therefore, the Hon'ble High Court held it to be an allowable business loss. However, in the instant case, the convertible debentures were agreed to be purchased at a price of Rs.64 per share. The assessee also exercised the option for conversion of 1 lakh convertible debentures on 22nd March, 2006 when the price of each share was Rs.65.85. He noted that at the time the decision was taken to forego the amount invested, the share price was more than Rs.60/-. Since the investment was made with a view to earn profit it would have been commercially expedient to utilize the option to renounce the share rather than acquiring the said shares which would have resulted in loss of Rs.5 lakhs approximately rather than Rs.41.60 lakh which the assessee incurred in the current year. The Assessing Officer further noted that the decision to invest in the shares of M/s Surya Roshni Ltd., was not a normal business transaction. The assessee was the promoter company of M/s Surya Roshni Ltd. and the impugned transactions showed that they were set up to avoid tax liability. He, therefore, was of the view that the corporate veil of the company can be lifted to examine the real character of transaction. Since according to the Assessing Officer the transaction was a colourable device, he held that the same could not be allowed as a business loss too, but, has to be treated as a capital loss. He accordingly rejected the claim of the assessee of the said loss of Rs.41,60,000/- on account of forfeiture of convertible debentures as business loss.

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