TMI Blog2014 (12) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Sanjay Gupta and others [2014 (12) TMI 793 - ITAT LUCKNOW] the assessee has not claimed any long term capital loss. Only short term capital loss was claimed on purchase made between 11.9.2007 to 12.12.2007 and the sales made on 15.12.2007. The purchase and sales were made within a short period, therefore, there cannot be change in the market value of shares. Therefore, there is no question of short term capital loss to be suffered by the assessee. - Decided in favour of revenue. - ITA No. 400/LKW/2012, ITA No. 531/LKW/2012 - - - Dated:- 18-12-2014 - Shri Sunil Kumar Yadav And Shri. A. K. Garodia,JJ. For the Appellant : Shri. Alok Mitra, D.R. For the Respondent : Shri. P. K. Kapoor, C.A. ORDER Per Sunil Kumar Yadav: These appeals are preferred by the assessees against the respective order of the ld. CIT(A) on common grounds that the ld. CIT(A) has erred in law and on facts in deleting the disallowance of short term capital loss inspite of the fact that the shares were purchased by the assessee on an extraneous consideration for the benefit of preference share holders being the assessee himself a promoter Director of the company, which is in violatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2460000 @ ₹ 27/-per share Rs.66420000/- (11.09.2007) 1010000 @ ₹ 10/- per share Rs.10100000/- (07.12.2007) 1900000 @ ₹ 10/-per share Rs.19000000/- (12.12.2007) Rs.9,55,20,000/- Profit/(Loss) (Rs.7,85,92,860) 4.1 A careful analysis of the above working indicated that aforesaid loss amounting to ₹ 7,85,92,860/- accrued to assessee mainly on account of acquisition of as many as 5370000 shares of M/s Shakumbari Sugar Allied Industries at their face value of ₹ 10/- per share within few days before the date of their sales at highly discounted price of ₹ 3.02/- per share on 15.12.2007 except 2460000 shares purchased on 11.9.2007 @ ₹ 27/- per share. Accordingly, the assessee vide para-4 of the order sheet entry dt. 09.11.2010 was specifically required to clarify the issue including the reason for acquiring the shares at a face price as also on substantially higher price then the face value (2460000 shares were purchased @ ₹ 27/- per shares on 11.9.2007 and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted and explained, in order to redeem the preference shares and repay the unsecured loans, equity capital of ₹ 23 crores was raised in terms of understanding with the Purchaser. Your honor's attention is invited to Annexure 3 to the Agreement which clearly shows the Enterprise Value and Equity Value of the company as at 31st October 2007 being the date considered for valuation and transaction. In the said Annexure, you would notice that these unsecured loans and preference shares have not been deducted from the Enterprise Value to arrive at the Equity Value or purchase price of 100% equity shares because before the sale of shares we were obligated to redeem the preference shares and unsecured loans by raising equity capital as in no other way the non-refundable funds could have been brought in the company to comply with the condition precedent to sale of shares. 4.4 The submissions made by the assessee in his reply dt.16.11.2010 and 29.11.2010, the relevant portion from which have been extracted herein before, were carefully considered and as a result thereof the following factual position in the matter emerges i) The assessee had acquired 5370000 shares of M/s S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and lenders of unsecured loan were the group companies and the family members of the assesseer Accordingly it is more than clear that the shares were acquired at the face value and also at the price which was substantially high then the face value knowing fully well that the market value of the same was much below the price at which they were purchased only to extend benefit to the group companies and the family members of the assessee. Further, it was also equally clear that the shares were acquired at the face value knowing fully well that the company was in the process of sale as the assessee happened to be one of the promoter directors and in that capacity was fully conversant and in the know of the developments relating to transfer of management which were going around. These facts establishes beyond doubts that the transaction relating to the acquisition and sales of shares which resulted in the huge short term capital loss was not a normal human transaction expected of a normal human being rather the same was under taken to benefit the others including the preference shares holder and the lender of the unsecured loan who were the group companies with which the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sameer Gupta, Sandeep Gupta and Yogendra Mohan Gupta along with the assessee in the instant case (Shailendra Mohan Gupta) at a higher rate and were sold within a short period of time at lesser rate. In the case of Yogendra Mohan Gupta, the shares were purchased @ ₹ 10 per share on 7.12.2007 and these shares were sold after 8 days @ ₹ 3.15 per share. In that case, the Tribunal in para 5 of his order has observed that it is not understandable as to when 19 lakhs shares were acquired by the assessee on 7.12.2007, how the shares held in SSAIL on 15.12.2007 was only 10.10 lakhs shares. The Tribunal has also held in para 6 of its order that the market value of these shares should be worked out on the basis of net asset value of the company, SSAIL on 7.12.2007 by dividing the total net asset value on that date by the total number of shares of that company before further issue of shares on that date. The Tribunal has further observed that sale of shares on 15.12.2007 should be presumed at the same price, because the market value of the asset/shares of the company will remain the same, because increase in share capital will result into decrease of liability i.e. preference shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of total income that had been submitted along with the return of income. The corrected computation of short term capital gain was submitted before the ld. CIT(A). It was further contended that the case laws referred by the ld. D.R. are distinguishable on facts. 8. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below, we find that undisputedly SSAIL is a closely held company, in which the assessee in this case and other cases, which was disposed of by the Tribunal vide its order dated 13.6.2014 in I.T.A. No. 217 to 221 and 226/LKW/2012, are promoters of the company and Shri. Mahendra Mohan Gupta was Chairman and Shri. Shailendra Mogan Gupta was the Managing Director of the Company. The details of shareholdings by these promoters are available at pages 29 and 30 of the compilation of the assessee. In the instant case, the issue in dispute is with regard to the short term capital loss claimed by the assessee on purchase of shares of SSAIL on 11.9.2007; 7.12.2007 and 12.12.2007 at a higher rate and sold these shares to M/s India Glycol Ltd. at a lesser rate on 15.12.2007. The details of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are on 15.12.2007 within a period of three months. It was also brought to our notice that the shares of SSAIL are not listed shares, therefore, its market value is not available. But when the shares are not listed shares, the market value of the shares can be worked out on the basis of the net asset value of the company, SSAIL on 10.9.2007; 7.12.2007; 12.12.2007 and 15.12.2007. Therefore, under such circumstances, where the shares are not listed on the Stock Exchange, the market value of shares can be determined by adopting the aforesaid formula and if there is any short term capital loss, that can be allowed. But, the assessee cannot be permitted to inflate the purchase price and to sell it out at a nominal price and to book a short term capital loss in order to reduce its income. It was contended on behalf of the assessee that the assessee is a promoter of SSAIL and the purchase and sales were made pursuant to the agreement executed with M/s India Glycol Ltd. to provide a financial help to SSAIL. The assessee may be free to execute any agreement for the commercial expediency but in the garb of agreement, the assessee cannot be allowed to book the loss in order to set it off again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order or in the order of learned CIT (A). It is noted by the Assessing Officer on page No. 3 of the assessment order that the total holding of the shares of SSAIL with the assessee as on 15/12/2007 (date of sale) was 10.10 lacs shares valuing ₹ 101 lac including 19 lacs shares acquired on 07/12/2007 for ₹ 190 lac. In our considered opinion, even if it is noted by the Assessing Officer that the sale price in respect of fresh purchase of shares to the extent of 19 lac shares of SSAIL on 07/12/2007 on the face value of ₹ 10/- per share was excessive, then he can disallow the Short Term Capital Loss in respect of sale of 19 lacs shares but the loss in respect of remaining old shares has to be allowed as Long Term Capital Loss. In course of hearing, it was required by the Bench and the Learned A.R. of the assessee was directed to file copy of computation of income filed by the assessee along with the return of income in which the assessee has claimed short term capital loss of ₹ 1,30,10,881/- as per noting of the Assessing Officer in Para 4 of the assessment order because it is not clear from the assessment order as to how much long term capital loss was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It should be presumed that more shares were issued to garner enough funds for making repayment of preference shares along with the accumulated dividend and other liabilities. Thereafter, the sale of shares on 15/12/2007 should be presumed at the same price because the market value of the assets/shares of the company will remain same because increase in share capital will result into decrease of liability i.e. preference shares, accumulated dividend and other bank loans etc. by same amount and as a consequence thereof, the new shares to be acquired by the assessee on 07/12/2007 will be sold at the same price and it will not result into any short term capital loss but the long term capital loss in respect of sale of old shares will go up. In our considered opinion, such increased long term capital loss on sale of old shares should be allowed to the assessee as long term capital loss. Learned CIT (A) should decide the issue in this manner. We want to make it clear that the assessee should co operate and bring on record all details and evidences before learned CIT (A) to enable him to carry out these directions. Learned CIT (A) may obtain remand report from the A.O. if he feels necess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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