TMI Blog2019 (8) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... n oral submission that purchase transactions are not disbelieved for other assessee in the same flowchart and that the same is disbelieved only for the assessee herein. We find that the assessee had derived net long term capital gains on sale of equity shares and preference shares of ₹ 1007.40 crores. Out of this huge long term capital gains of ₹ 1007.40 crores, a meager amount of short term capital loss of ₹ 69.36 crores was sought to be set off by the assessee on sale of CCDs of ICSL. Even after this set off, there was substantial net taxable long term capital gains left with the assessee to the tune of ₹ 938.04 crores. This was however sought to be adjusted with the brought forward long term and short term capital losses of the assessee from the earlier years, which is totally different altogether and even after this set off of brought forward losses, there is substantial amount of long term and short term capital losses of earlier years available with the assessee which were also carried forward to subsequent years. Short term capital loss of ₹ 69.36 crores on sale of CCDs of ICSL to related concern is not available to the assessee , then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese cross appeals taken together and disposed off by this common order for the sake of convenience. Assessee Appeal ITA No.1958/Mum/2018 2. The only issue involved in this appeal is as to whether the ld CITA was justified in confirming the disallowance of short term capital loss of ₹ 69.36 crores on sale of compulsorily convertible debentures (CCD in short) on the ground that it is not bonafide in nature and is more of a colorable device, in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee is a public limited company engaged in the business of investment in shares and securities of other companies. The assessee had filed its return of income for the Asst Year 2012-13 on 30.9.2012 declaring total loss of ₹ 3,99,98,822/-. The ld AO observed in his order that perusal of details filed on record by the assessee showed that assessee had sold scrip of M/s Imperial Consultants Sec. Pvt Ltd to M/s Kroner Investments Ltd which resulted in a short term capital loss of ₹ 69,36,00,000/-. The assessee was asked to furnish the basis of valuation for cost price and selling price . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report dated 22.12.2009 prepared on the basis of the balance sheet of ICSPL as on 31,03.2009 which was obtained by ECSPL for a completely different purpose and at a point of time which was 15 months prior to the purchase of CCDs by the appellant. This valuation report has no relevance for justifying the purchase price of the CCDs by the appellant on 31.03.2011. 3) The appellant purchased the CCDs at the face value of ₹ 85/- per CCD itself without providing for any discount on the face value in order to consider the impact of the illiquid nature of the CCD on its fair market value. On the other hand, the appellant applied a discount of 15% towards illiquid nature of the CCDs for arriving at the fair market value of the CCDs for the purpose of determining the sale price of ₹ 61.88/- per CCD at the time of their sale. 4) The appellant failed to furnish any plausible commercial or compelling reasons for its decision to sell the CCDs within seven months of purchasing them at a substantial loss of ₹ 69.36 Crores. 5) The transaction of sale of CCDs resulting in such huge loss took place on 16.10.2011, which was just t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) The 100% shares of Essar Telecommunications Pvt Ltd were held by the assessee. Accordingly, Essar Telecommunications Holdings Ltd sold 3 Crores CCDs to the assessee herein on 31.3.2011 at ₹ 85 per debenture. d) The assessee in turn sold 3 Crores CCDs on 16.10.2011 at ₹ 61.88 to Kroner Investment Ltd, which was holding only 99.83% shareholding in assessee company. e) Hence the purchase price of 3 Crores CCDs for the assessee from Essar Telcommunications Holdings Pvt Ltd was ₹ 85 per debenture on 31.3.2011. The assessee sold these CCDs to Kroner Investment Ltd (holding company of assessee) on 16.10.2011 at ₹ 61.88 per debenture. This transaction resulted in a loss of ₹ 69.36 crores to the assessee and assessee claimed the same as short term capital loss as the debentures were held by the assessee for a period of less than one year from the date of its purchase. On the aspect of colorable device 6.1. The assessee submitted that the sale price of the debenture at ₹ 61.88 was determined based on the valuation report of an independent chartered accountant, who valued the debentu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4.2011 to 31.3.2012 in view of the fact that the major portion of the loss was contributed by finance cost which is a period cost. Hence the loss for the relevant period i.e 1.4.2011 to 16.10.2011 (being the date of sale) should also be considered by the valuer while determining the fair market value. The ld AR had placed on record the broken period loss at ₹ 23.02 per debenture which is worked out as under:- (A) Loss during the year ₹ 894.81 crores (B) Number of equity shares (after dilution as per Vauation report) 210.28 crores (C ) Loss per equity share (A) / (B) 4.25 per share (D) Loss per debenture (multiply by 10) 42.50 per debenture (E) Pro rata loss till 16.10.2011 23.02 per debenture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price of ₹ 85 per debenture cannot be construed as a colorable device. 6.5. We find that one of the main objections of ld CITA was that the independent valuer had not applied the same discount rate of 15% on the purchase price of ₹ 85 per debenture in view of the fact that the transactions are with related concerns, despite the fact that valuation report was also given by the very same valuer. In this regard, it would be pertinent to note that the issue price of ₹ 85 per debenture had been approved by the Hon ble High Courts in the scheme of merger of Essar Holdings Ltd with ICSL and the CCDs were issued to the respective holding companies at the very same rate of ₹ 85 per debenture as could be evident from the flow chart reproduced hereinabove. We find that the assessee had already adduced reason for purchasing the CCDs at the very same rate of ₹ 85 per debenture in order to ensure that the subsidiary and step down subsidiary should not incur any loss on the said transaction. This explanation , in our considered opinion, is very reasonable in the totality of the facts and circumstances. With regard to this objection raised by the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Assistant Commissioner and has dealt with the same in paragraph 5 of its appellate order. We are in substantial agreement with the approach of the Tribunal. Having stated this, it would follow that we see no reason to interfere with the conclusion arrived at by the Tribunal from the facts found; and if that be our view, then the question referred to us is required to be answered in the affirmative and in favour of the assessee. The question is accordingly so answered. 6.5.1. Yet another decision was also relied upon by the ld AR on this issue rendered by the Hon ble Jurisdictional High Court in the case of CIT vs Mehta (P) Ltd reported in 220 CTR 148 (Bom) wherein the operative portion is as under:- 5. As regards the contention of the revenue that the three concerns/ companies were under the control and management of the same group of persons and, therefore, warranted application of principles initiated in McDowel Co. Ltd.'s case (supra), we are of the view that such a contention in the absence of any material in support thereof should be outright rejected. It is argued by the assessee before all the authorities that the said three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as per the Companies Act, 1956. The sale of shares resulting in long term capital gain had happened subsequent to the sale of CCDs resulting in loss and hence the same cannot be viewed with a jaundiced eye, merely because the loss had arose out of transactions with a related concern and the same being carried out by coinciding to a nearer date. We hold that it is for the assessee to decide when to sell the CCDs and similarly when to sell the equity shares and the revenue cannot step into the shoes of the assessee in this regard. In this regard, we find that the ld AR rightly placed reliance on the decision of Hon ble Delhi High Court in the case of CIT vs Gillette Diversified Operations P Ltd reported in 324 ITR 226 (Del) wherein the facts of that case and the operative portion are reproduced as under:- 3. The assessee had also purchased shares of GDOPL on April 4, 1996 for a consideration of ₹ 8,40,83,094 and had sold those shares to Gillette Group India Private Limited (GGIPL) on December 30, 1999 for a sale consideration of ₹ 8,36,64,770, thereby resulting in loss of ₹ 4,18,324. However, due to application of cost index, the capital loss on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on sale of such shares to a group company. All these factors could have been relevant had the Tribunal found that the transactions undertaken by the assessee-company were a colourable device with a view to cause a loss to the Revenue. As noted by the Tribunal, neither the assessee-company nor the amalgamated company adjusted the capital loss on account of sale of these shares against any long-term capital gain even till the assessment year 2002-03. No tax benefit was, therefore, obtained by the assessee-company for at least two years after the capital loss was booked by it. Hence, it cannot be said that the transactions in question were a colourable device, meant to gain some unfair tax advantage. 9. The Income-tax Appellate Tribunal being the final fact finding authority, we cannot interfere with the finding recorded by it unless it is shown to be perverse. The appellant has failed to show any perversity in the finding recorded by the Income-tax Appellate Tribunal. No substantial question of law, therefore, arises for our consideration. The appeal is, accordingly, dismissed. 6.7. We find that the assessee could sell the CCDs of ICSL at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction F O and increased its loss. Such transactions stopped immediately after the end of Ass. Year 2007-08 because assess thereafter was not in need of any further Loss even prior to or post AY 2007-08. In the circumstances, the AO was of the view that the loss was a make belief affair arranged in manner to manufacture loss and thus the same being a sham transaction which lead to a bogus loss. .. 15. We have given a very careful consideration to the rival submissions. The law as laid down by the Hon'ble Supreme Court in the case of Mc.Dowell Co. (supra) has been explained in a later judgment in the case of Vodafone International Holdings B.V. v. Union of India [2012] 17 taxmann.com 202/204 Taxman 408/341 ITR 1 (SC) and the ratio laid down therein is that all tax planning is not illegal/illegitimate/impermissible. It is only when colourable or dubious devices are employed or transactions are sham or when arrangements are a mere subterfuge, as part of tax planning can it be said that they are illegal, illegitimate, and impermissible. For ascertaining what the real intention of the parties was, it is permissible to go behind t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with related concerns and it had resulted in a loss. The professed intention and the real intention of the assessee is proved in the instant case in the various documents filed before the lower authorities. If the same are to be treated as different, then the onus is on the revenue to prove it, which in the instant case, in our considered opinion, has not been proved by the revenue. The ld AR also made an oral submission that purchase transactions are not disbelieved for other assessees in the same flowchart and that the same is disbelieved only for the assessee herein. 6.9. We find that the ld CITA had reproduced the entire computation of total income of the assessee under the head income from business and income from capital gains . From the said details with regard to income from capital gains , we find that the assessee had derived net long term capital gains on sale of equity shares and preference shares of ₹ 1007.40 crores. Out of this huge long term capital gains of ₹ 1007.40 crores, a meager amount of short term capital loss of ₹ 69.36 crores was sought to be set off by the assessee on sale of CCDs of ICSL. Even after this set off, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the grounds raised by the assessee in this regard are allowed. 7. In the result, the appeal of the assessee is allowed. 8. Let us now take up revenue appeal in ITA No. 2236/Mum/2018. The only issue involved is with regard to deletion of disallowance u/s 14A of the Act made by the ld CITA. 8.1. We have heard the rival submissions. We find that the ld CITA had granted relief to the assessee on the ground that there is no exempt income claimed by the assessee during the year under consideration and also on the ground that there were no expenses that were debited in the profit and loss account which were claimed as deduction in the return of income. The ld CITA had given a categorical finding that no deduction of expenses has been claimed by the assessee and hence there is no question of disallowance of expenses u/s 14A of the Act. These factual findings were not controverted by the ld DR before us. We also find that the Hon ble Supreme Court in assessee s own case reported in 401 ITR 445 (SC) had held that disallowance u/s 14A of the Act cannot be made when there is no exempt income claimed by the assessee. Respectfully foll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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