TMI Blog2017 (2) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 143(3) would indicate that all these facts have duly been considered and the AO has accepted the stand of the assessee. Allegation of the AO in the reasons is that in the memorandum of arrangement to the sale of shares shows that a sum of ₹ 28,90,500/- was to be received by the assessee from M/s.Manish Multi Packfilms Pvt. Ltd. It was a sum advanced by the assessee to the company. The AO has observed that a perusal of the balance sheet for the F.Y.2002-03 i.e. 31.3.2003 does not discern that the assessee has advanced any amount. The stand of the assessee is that this sum was advanced after 31.3.2003 and it was repaid during the F.Y.2003-04 itself. Therefore, it will not reflect in the balance sheet of Manish Multi Packingfilms Pvt. Ltd. in F.Y.2002-03. The AO has sought to reopen the assessment after expiry of four years without establishing nexus of the details. He has not analytically examined the alleged advance given by the assessee and his belief that this amount should be available in the balance sheet for F.Y.2002-03. When the assessee has not paid any amount in F.Y.2002-03 to the company how it will appear in the balance sheet. Without looking to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manish Multi Pack firms Pvt. Ltd. of the Manish Group. In the said companies, the assessee and his family was a 25% shareholder and certain Patel family 'held 75% share. Owing to some dispute, the assessee and his family based on the agreement reached and executed on 24.11.2003, transferred their shareholding to the Patel family. a) Assessee incurred Short Term Capital Loss of ₹ 26,44,800/1 on transfer of his shareholding of 304000 shares in M/s, Manish Multi Packfilms Pvt. Ltd. for a consideration of ₹ 3,95,200/- @ Rs.l.30/-.The Short Term Capital Loss so incurred is, adjusted against Long Term Capital Gain of 58,76,830/-. The rate per share of ₹ 1.30 is arrived at based on the intrinsic value of the share of the company, on the last date of the Audited Balance Sheet for the year ending 31st March, 2003. The intrinsic value is the average value per share arrived at by dividing the net of assets (gross assets less gross liabilities) of the company by the total number of its shares. On perusal of the records, it is seen that- assessee was not a shareholder in the company as on 31.03.2003 i.e. cut off date for fixing the value of share. as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted to evade tax. Incidentally, the intrinsic value of the share on the record date or on the actual date of transfer i.e. on 24.11.2003, if computed in accordance with the method adopted by the company would have been much higher. For the fact that in computing the intrinsic value of share, the paid up share capital is not taken into account but share application money is considered as liability for reducing gross assets. In the instance case, on the date of transfer; shares had been allotted against the share application money, discharging that liability and hence, the value per share would have been much higher. In view of the above facts and taking into account the observations of the Hon. S.C. in the case of M/s. McDowell Co.Ltd., the Short term Capital Loss of ₹ 26,44,800/- requires disallowance and income from the transaction treated as 'NIL'. As Short Term Capital Loss is set off against Long Term Capital Gain; the underassessment of income from Long Term Capital Gain works out to ₹ 26,44,800/- b) As per clause-ll(i) of the agreement, the valuation of the shares of the three companies in respect of which the shares were transferred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Multi Packfilms Pvt. ltd. In view of these facts, the sum of ₹ 28,90,500/- is required be treated as .deemed income. In view of the above, I have reason to believe that the Short Term Capital Loss of ₹ 26,44,800/- claimed on transfer of share holding in M/s. Manish Multi Packfilms Pvt. Ltd. is require to be disallowed and a sum of ₹ 28,90,500/- is shown as amount of deposit and capital repayable to the assessee by M/s. Manish M|ulti Packfilms Pvt. Ltd. is requires to be treated as deemed income for A.Y.2004-05, has 'escaped assessment within the meaning of section 147 of the I.T. Act. 4. The ld.AO has accordingly disallowed short term loss as well as made addition of ₹ 28,90,500/- to the total income of the assessee. 5. On appeal, the ld.CIT(A) has quashed the reassessment order. The ld.CIT(A) has further examined the issue on merit and deleted both the additions. Discussion made by the ld.CIT(A) on these two issues reads as under: 4.4 DECISION: I have both gone through the assessment order as well as submission of the ARs. Basically, as discussed in Ground No. 1, the assessment is liable to be quashed but even on merits the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to the same provisions of section 48 and on the basis of same section 48 of the Act, it was held that since section 48 of the Act does not have any reference to the market value but only to the consideration referred to in the sale deed,... Hence ratio of this decision of Hon'ble Gujarat High Court is this that for the purpose of working out capital gain, the sale consideration received by the assessee or accrued sale consideration has to be adopted because there is no reference in section 48 to the market value of the asset for the purpose of computing the capital gain. .... 8. Considering the facts of the present case in its entirety as discussed above and by respectfully following the judgment of the Hon'ble Gujarat High Court rendered in the case of CIT Vs. Girish Damjibhai Patel (supra), we are of the considered opinion that for the computation of capital gain in the present case, the AO shall work out the capital gain/capital loss on the basis of consideration received by the assessee and not on the basis of alleged market value of the shares sold by the assessee. Respectfully following the above decision of Hon'ble ITAT,Ahmedabad d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order as well as submission of the ARs. Basically, as discussed in Ground No. 1, the assessment is liable to be quashed but even on merits also I have discussed this issue in Ground No. 1. The details submitted by the appellant clearly showed that the account was squared up in the F.Y. 2003-2004 and all the transactions had taken place after 31-03-2003 and therefore, the contention of the AO that the said sum was not reflected in the balance sheet of M/s. Manish Multipack Films Pvt. Ltd. as on 31-03-2003 is illogical. When any transaction has not taken place on or before 31-03- 2003, then obviously, the same could not be reflected in the balance sheet as on 31-03-2003. It is clearly seen that the AO has grossly misunderstood the fact in as much as all the transactions were made by cheques and the cross confirmation from the books of the accounts of the appellant as well as M/s. Manish Multipack Films Pvt. Ltd. were also submitted during the assessment and reassessment proceedings. Also there is no material on record to suggest that any such transaction had taken place before 31-03-2003 and remained unrecorded in the books of accounts. Under such circumstances, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd four years have expired, he cannot take action under section 147 of the Income Tax Act. A perusal of the reasons (extracted supra) would indicate that the AO has nowhere demonstrated this fact. Apart from the above, a perusal of the assessment order passed under section 143(3) would indicate that all these facts have duly been considered and the AO has accepted the stand of the assessee. The finding recorded by the AO in the original assessment order is worth to note. It reads as under: 4. During the year under consideration the assessee has shown total Long Term Capital Gain of ₹ 58,76,830/- and has shown a short term capital loss of ₹ 26,44,800/-. Thus totaling net Long Term Capital Gain ₹ 32,32,030/-. After setting off by the last year capital gain of ₹ 6,21,547/- but assessee has shown total capital gain of ₹ 26,10,483/- for taxation. The assessee was asked to explain the reason for such a huge loss and the reasons why he needed to sale of such stock during the year. The assessee vide his letter dated 17-10- 2006 has stated that :- 1. Our above named client Shri S. Venkataraman lyer was a Director and Share Holder of M/s. Manish Packa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e but to quit in as much as it was felt by him that otherwise in future he would not fetch this value. Moreover, the huge amount of deposit in form of unsecured loans with the companies as well as Capital balance and loans in various partnership firms were also stuck up and therefore, our client had to agree with the terms of settlement and the offered price of equity shares of the companies. Thus it was a kind of distressed sale. The entire settlement of partition was made in terms of a Memorandum of Understanding made by the two groups and the same was made as per the terms and conditions of the said MOU. Accordingly, our client had actually received the sale consideration for transfer of shares as per the agreed price between both the parties. 3. Thus your honour will appreciate that our client had to sell the shares as per the prevailing circumstances and out of commercial expediency and the value of shares was determined as per the method as recognized by the Institute of Chartered Accountants of India and after considering the correct, just and fair and agreed value by both the groups and approved by the auditors of the Companies. Under these circumstances our client ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made by the assessee and after going though a copy of the MOD which is placed on record, it appears that the reasons stated by the assessee's A.R appears to true and the assessee has sold the shares in distress and thus has incurred a loss which has been set off against the long term capital gain. Further, the calculation of value of shares has been determined as per the balance sheet submitted by the assessee and as per accounting norms set by the Chartered Account's Association of India. 8. As far as second aspect is concerned, allegation of the AO in the reasons is that in the memorandum of arrangement to the sale of shares shows that a sum of ₹ 28,90,500/- was to be received by the assessee from M/s.Manish Multi Packfilms Pvt. Ltd. It was a sum advanced by the assessee to the company. The AO has observed that a perusal of the balance sheet for the F.Y.2002-03 i.e. 31.3.2003 does not discern that the assessee has advanced any amount. The stand of the assessee is that this sum was advanced after 31.3.2003 and it was repaid during the F.Y.2003-04 itself. Therefore, it will not reflect in the balance sheet of Manish Multi Packingfilms Pvt. Ltd. in F.Y.2002-03 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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