TMI Blog2013 (7) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... action is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and consequently earn any disqualification. - Tax Appeal No. 332 of 2013 - - - Dated:- 15-4-2013 - AKIL KURESHI AND MS. SONIA GOKANI, JJ. For the Appellant : Sudhir M. Mehta. For the Respondent : J.P. Shah and Manish J. Shah. PER : MR.JUSTICE AKIL KURESHI ORDER:- Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad [Tribunal for short] dated 26th October 2010, raising following questions for our consideration :- {A} Whether on the facts and in the circumstances of the case and in law, the Honble Tribunal was justified in deleting the addition of Rs. 6,43,81,967/= by not taking into consideration the tax exploitative scheme adopted by the assessee to defraud the revenue ? {B} Whether on the facts and in the circumstances of the case and in law, the Honble ITAT was justified in not appreciating the fact that there was no commercial purpose of the transaction of Cumulative Convertible Preference Shares other than avoidance by setting off the short term capital gain into long term capital loss? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned judgment, dismissed Revenues appeal. The Tribunal held that the valuation report was on the basis of consideration of relevant factors and did not suffer from any infirmity. Against such judgment of the Tribunal, Revenue has preferred the present Tax Appeal. 2.6 Learned advocate Shri Sudhir Mehta appearing for the Revenue vehemently contended that the Assessing Officer had pointed out several defects in the valuation of shares adopted by the assessee. He submitted that the assessee had acquired such shares less than five years back at a high cost of Rs. 45/= per share and such shares were sold at a heavy loss during the period when the assessee had earned substantial capital gain. There was no justification for sale of shares and the only motive was to avoid tax for which such a colorable device was adopted. 3. On the other hand, learned advocate Shri Shah for the respondent, appearing on Caveat, supported the decisions of CIT [A] and the Tribunal. He submitted that the Assessing Officer had rejected the valuation report without any basis. He had neither examined the valuer nor called for independent valuation of the shares. Only on the basis of suspicion, he had disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchasers into controlling power on Garden Finmark Limited as these 12,00,000/= shares are going to be converted into equity shares before 20.03.2007 which is fast approaching. The plan of the Garden Group is so deliberate, that it did not allow outsider to come into controlling power of Garden Finmark Limited which again is holding huge number of equity shares of Garden Silk Mills Limited and thereby in a controlling capacity. It is clear in this case that the assessee has carried out transaction which has no commercial (business) purpose apart from the avoidance of liability of tax as held in the case of Dawson. This inserted step is to be disregarded and the Court is to look at the end result of the taxing it in accordance with the provisions of taxing statutes. In the result, I assessment satisfied that to sell the 1% Cumulative Convertible Preference share of SPS Silk Limited is colorable device of the assessee to defeat the interest of the revenue and such device deserves to be rejected. Accordingly, the claim of long term capital loss of Rs. 6,36,92,624/- is disallowed. 5. CIT [A], however, dealt with each individual objection of the Assessing Officer and found that - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets would work out to Rs. 17.41. [ii] Profit earnings method : Under this method, value of shares of a company is arrived at by capitalizing its future maintainable profits by an appropriate Price Earning Ratio. In the present circumstances, as the past profits of the company as tabulated have shown a declining trend they have considered it reasonable to apply weights of 1, 2 and 3 to the profits for the years 1997-98, 1998-99 and 1999-2000 respectively to arrive at the future maintainable profits. Considering all the relevant facts in respect of the business, past track record of revenues and profits, nature of business and industry, quality of the assets and so on, in our opinion, it would be appropriate and reasonable to apply a capitalization rate of 20% corresponding to a PE ratio of 5, in the present case. Applying the PE ratio of 5 to the weighted average profits for the three years ended 31.3.2000, the value per share of Rs. 10/= fully paid up works out to Rs. 5.92. 4.29 In consonance with the ruling of the Honble Supreme Court in the case of Hindustan Lever Employees Union v. Hindustan Lever Limited [1995) 83 Com. Cases 30, in the present case, the valuer had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into the transaction with an object of earning set off, may be a case of tax planning but as long as such tax planning is achieved through legitimate means, the revenue surely cannot object to the same. 7.1 The fact that the assessee sold only 12 lakh shares out of more than 15 lakh shares of a certain scrip held by it again by itself can hardly be a factor to brand the assessee of colourable device. It may be one of the factors to set the Assessing Officer thinking, without there being anything additional in the form of the valuation itself being artificial, the Revenue cannot object to the assessee selling part of its share holding. 8. In the present case therefore, what essentially boils down to is whether the shares were sold at a correct price or at the price which was artificially arrived at to inflate the loss. In this respect, we have already noticed that the CIT [A] as well as the Tribunal both had gone to the factual findings pertaining to the methodology adopted by the valuer in valuing the shares. We have also noticed that the Assessing Officer; except for doubting such valuation, on the basis of circumstances, did not have anything concrete at hand to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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