TMI Blog2013 (7) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... iduals of the same group held 98.73 per cent. of the shares in BFSL, it means without any contradiction that the assessee along with its group owned all the assets and properties of BFSL even though those assets and properties are technically held in the name of BFSL as an independent corporate entity. Once this corporate veil is pierced, which is within the powers of the Revenue authorities, we find that the properties and assets of BFSL were held and de facto owned by the assessee-company and its group – Landed property purchased for ₹ 3.75 crores has become substantially the property of DLF-CDL when 98.73 percent in BFSL were transferred to DLF-CDL on sale - If the formalities of the transactions and the legal nature of the corporate bodies are ignored for a moment, the stark fact coming to surface is that the assessee's group has sold the property belonging to one of its concerns to DLF-CDL for a consideration of more than ₹ 89 crores through the medium of sale and transfer of shares which property was purchased for ₹ 3.75 crores and thereby made attempt to avoid payment of short-term capital gains tax – Decided against the Assessee. - I.T.A No.1139/Bang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held 1,98,850 equity shares and 2,550 shares alone were held by public shareholders. The Assessing Officer further found that even though BFSL is a listed company with the Bangalore Stock Exchange, the sale was made on the floor of the Magadh Stock Exchange. The Bangalore Stock Exchange declined to deal with the share transaction of BFSL for reasons according to the assessee communicated orally and not through any written communication. On the above basis, the assessee approached the Magadh Stock Exchange and got the shares sold and transferred to DLF-CDL. The Assessing Officer further held that the Magadh Stock Exchange was not permitted by the Securities Exchange Board of India (SEBI) to trade in shares as the said stock exchange had not complied with the conditions laid down by SEBI for granting recognition to the said exchange. The permission was later granted to the Magadh Stock Exchange after it paid penalty to the SEBI, when the case was determined by the hon'ble Supreme Court. It is the case of the assessing authority that the transaction carried out with the help of the Magadh Stock Exchange which at that point of time was not permitted to deal in shares was a clear ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination of short-term capital gains of Rs.20,25,49,549 and including for taxation in the case of the appellant. (ii) The learned Commissioner (Appeals) ought to have appreciated that the transaction in shares of BFSL held by the appellant with DLF Commercial Developers Ltd. (DLFCDL) was genuine and the appellant having paid securities transaction tax, the capital gains exempted from taxation under section 10(38) of the Act. (iii) The learned Commissioner (Appeals) ought to have appreciated that the transaction of the appellant was legal and consequently it has no tax liability under the Act in respect of the said transaction and accordingly he ought to have refrained from upholding the impugned addition of the assessing authority which was made only on surmises. (iv) The learned Commissioner (Appeals) in his perverse order held that the ratio of the hon'ble Supreme Court judgment in McDowell and Co. Ltd.'s case [1985] 154 ITR 148 would apply, whereas the Supreme Court had already explained in the case of Union of India v. Azadi Bachao Andolanreported in [2003] 263 ITR 706 and also recent judgment of the Supreme Court in the case of CIT v. Walfort Share and Stock Brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of BEIL. What the assessee-BEIL sold to DLF-CDL was its shares in the capital of BFSL and not any landed property. For that matter the assessee BEIL does not have such landed property to be sold. In these circumstances, all the findings made by the assessing authority are based only on surmises and far fetched imagination. Learned counsel argued that there is no colouring of any transaction in the present case as every transaction is transparent. BFSL had purchased landed property in the previous year relevant to the assessment year under appeal. That is not a transaction with which the assessee BEIL had any connection. The decision of BEIL to sell its shares in BFSL to DLF-CDL is another independent transaction nothing to do with purchase and sale of immovable properties. The case of the assessing authority is that the surplus arising in the hands of the assessee is short-term capital gains on the ground that what was sold by the assessee is land and not shares. There is no basis for such a finding at all. The assessee-company never owned such a piece of land. Therefore, there is no question of the assessee selling the land to DLF-CDL and earning short-term capital gains liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sely held group companies owned by Agarwal group. Even though BEIL, BFSL and Bhoruka Steels Ltd. are different corporate entities for the purpose of the Companies Act, they are all controlled by the same interest group of Agarwal family as common shareholders which is very prominent in the entire course of transaction involved in the present appeal. The assessee-company along with individuals belonging to the Agarwal group had entered into an agreement on July 20, 2005 with DLF-CDL to sell the shares in BFSL to that company, DLF-CDL. As per the agreement itself, the assessee, its group of individuals together held 1,88,850 equity shares representing 98.73 percent of fully paid-up equity capital of BFSL. The facts speak for themselves. When the assessee and its group associates along with the concerned individuals of the same group held 98.73 per cent. of the shares in BFSL, it means without any contradiction that the assessee along with its group owned all the assets and properties of BFSL even though those assets and properties are technically held in the name of BFSL as an independent corporate entity. Once this corporate veil is pierced, which is within the powers of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Rs. 3.75 crores ; immediately thereafter the assessee-company and its entire group holding 98.73 percent of shares in BFSL selling the shareholding to DLF-CDL for a consideration of Rs. 89,28,36,500 without attracting any levy of taxation. This episode has been made possible by getting away from the Bangalore Stock Exchange and going to the Magadh Stock Exchange to carry out the sale transaction of shares and by paying securities transaction tax for claiming exemption from long-term capital gains arising on sale of shares under section 10(38) of the Income-tax Act, 1961. The assessee-company and its group have on the face of it sold their shareholding in BFSL, but in fact, sold land itself to DLF-CDL and at the same time giving a colour of exempted long-term capital gains against the short-term capital gains arising on the transfer of the landed property. In the facts and circumstances of the case, we find that this is a clear case of colourable device to evade payment of taxation on short-term capital gains. By selling the shares to DLF-CDL, the assessee-company and its associates have in fact sold the assets and properties of BFSL which included the land as well, which i ..... 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