Commissioner Of Income Tax v. Bhanuben Chimanlal Malavia....opponent(S

O/TAXAP/1287/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1287 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus BHANUBEN CHIMANLAL MALAVIA....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKERDate : 01/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this appeals, the appellant-revenue have challenged the judgment and order dated 30.12.2005, passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot [for the “the Tribunal”], in ITA No.1128/Rjt/04. 2.The facts in brief are that the assessee filed its return of income on 30.10.2001 for the Assessment Year 2001-02, declaring total income at Rs.1,39,828/-. The case of the assessee was selected for scrutiny and the Assessing Officer completed the assessement under Section 143(3) of the Income Tax Act. During the scrutiny, the Assessing Officer found that the assessee had purcahsed shares/units of Kothari Pioneer Mutual Fund on 17.01.2001 for Rs.1 crore and sold the same on 19.1.2001 at Rs.81,41,303 and also received income of Rs.16,47,877/- as dividend on the same day. The Assessing Officer passed his order and made certain additions. Against the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax(appeals). The CIT(A) dismissed the appeal filed by the assessee and upheld the order of the Assessing Officer. 2.1.Being aggrieved and dissatisfied with O/TAXAP/1287/2006 JUDGMENT the order of the CIT(A), the assessee filed an appeal before the Income Tax Appellate Tribunal. The Tribunal, after hearing the parties, remanded the matter to the Assessing Officer deciding de novo after making observations on the additions. Hence, this appeal is filed at the instance of the revenue. “Whether on the facts and in the circumstances of the case, the appellate Tribunal was right in holding that short term capital loss on sale of mutual fund within two days of purcahse to earn tax free divided would not fall within the purview of Section 94(7) or Section 14A of the Income Tax Act, 1961” 4.Learned counsel for the appellant-revenue has submitted that the Tribunal has committed error in remanding the matter to the Assessing Officer. He further submitted that the Tribunal has not appreciated the fact that the purcahse and sale of shares and receiving dividend was clearly indicated oblique motive of the assessee. 4.1.By making such submissions, learned counsel for the appellant-revenue has urged that the present appeal deserves to be allowed and the question of law raised in this appeal is required to be answered in favour of the revenue. 4.Learned counsel for the appellant-revenue has submitted that the Tribunal has committed error in remanding the matter to the Assessing Officer. He further submitted that the Tribunal has not appreciated the fact that the purcahse and sale of shares and receiving dividend was clearly indicated oblique motive of the assessee. 4.1.By making such submissions, learned counsel for the appellant-revenue has urged that the present appeal deserves to be allowed and the question of law raised in this appeal is required to be answered in favour of the revenue. 5.On the other hand, learned advocate for the respondent-assessee has contended that the issue involved in this appeal is squarely covered by the decision of the Apex Court in the case of Commissioner of Income Tax v. Walfor Share and Stock Brokers P. Ltd, reported in [2010] 326 ITR 1. Therefore, she submitted that in view of the above decision the present appeal deserves to be dismissed. 6.We have heard learned advocate for the parties and considered their submissions. We have gone through the decision of the Apex Court in the case of Walfort Share and Stock Borkers P. Ltd (supra), wherein it is held that it was established that there was a sale, the assessee received a dividend, and that dividend was tax-free. The assessee had made use of provisions of Section 10(33) and such use could not be said to be “abuse of law”. Even assuming that the transaction was pre-planned, there was nothing to impeach the genuineness of the transaction. In O/TAXAP/1287/2006 JUDGMENT the case of assessments before April 1, 2002 i.e. before insertion of Section 94(7) losses pertaining to exempted income could not be disallowed. However, after April 1, 2002 such losss to the extent of dividend received by the assessee could be ignored by the Assessing Officer in view of Section 94(7). Applying section 94(7) to cases for assessment year falling after April 1, 2002, the loose to be ignored would be only to the extent of the dividend received and not the entire loss. In other words, loss over and above the amount of dividend received would still be allowed from which it followed that parliament had not treated the dividend stripping transaction as sham or bogus. After April 1, 2002, loss over and above the dividend received would not be ignored under Section 94(7). Sections 14A and 94(7) operated in different fields. Section 14A dealt with disallowance of expenditure incurred in earning tax-free income against the profits; on the other hand, Section 94(7) dealt with disallowance of the loss on the acquisition of an asset. A mere receipt of dividend subsequent purchase of units, on the basis of a period holding units at the time of declaration of dividend on the record date, could not offset the cost of acquisition of the units. O/TAXAP/1287/2006 JUDGMENT 7.In view of the above, the issue is already concluded by the above decision of the Apex Court, therefore, no elaborate reasons are required to be assigned for disposing this appeal. Hence, the present appeal is dismissed. Accordingly, we answer the question raised in this appeal in affirmative i.e. in favour of the assessee and against the revenue. (K.S.JHAVERI, J.) (K.J.THAKER, J) pawan