COA of debentures allotted in consideration of dividend to be the sum on which Co. paid DDT: ITAT

Case Details: JP Morgan Funds v. DCIT - [2022] 140 taxmann.com 210 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Pramod Kumar, Vice-president & Sandeep S. Karhail, Judicial Member
  • Rajan R. Vora & Hemen Chandariya for the Appellant.
  • Milind Chavan for the Respondent.

Facts of the Case

Assessee, a non-resident company, engaged in the business as a foreign portfolio investor. It was also a shareholder in Blue Dart Express Ltd. During assessee, the Assessing Officer (AO) noticed that assessee was allotted debentures of Blue Dart in respect of which it had claimed cost of acquisition of Rs. 13,85,580.

AO asked the assessee to justify the cost of acquisition. The assessee explained that the consideration for acquiring these debentures was dividend of Rs. 13,85,580. However, AO rejected assessee’s claim. On appeal, the CIT(A) confirmed the order of AO. Aggrieved-assessee carried the matter in appeal before the ITAT.

ITAT Held

The Tribunal held that the learned CIT(A) had not dealt with issues so raised by the assessee. If he had cared to look at the relevant facts, his conclusions could not have been the same.

The debentures were allotted to the assessee in consideration of the dividend, which was received by a merchant banker on his behalf and reinvested by the merchant banker in debentures issued by Blue Dart Express Limited.

The debentures were not ‘bonus’ debentures and the nomenclature given by the AO was incorrect. The taxes were duly paid on the deemed dividend and it did constitute income of the assessee, even though received by a merchant banker on behalf of the assessee.
The scheme under which the amount is received by the merchant banker, on behalf of the shareholders-including the assessee, and reinvested on behalf of these shareholders, is duly approved by the High Court.

Thus, the fact of, and bonafides of, the transaction cannot be disputed. The amount so reinvested, out of dividend, was the consideration paid for debentures. In the light of these discussions, we uphold the plea of the assessee that AO erred in declining the claim of the assessee with respect to the cost of acquisition in respect of these debentures.