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2016 (1) TMI 1081 - ITAT PUNE

2016 (1) TMI 1081 - ITAT PUNE - TMI - Addition as Long Term Capital Gain - Held that:- A perusal of the agreements would show that nowhere in the agreement it has been stated that the consideration paid by M/s. DEN Network is in respect of the three components as stated by assessee, and no such bifurcation has been given in any of the agreements placed on record by the assessee. On the contrary a perusal of Share Purchase Agreement would show that M/s. DEN Network has purchased 10 equity shares .....

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In so far as the payment towards transfer of fixed asset is concerned, a perusal of asset transfer agreement at pages 32 to 35 of the paper book would show that the assessee had transferred the assets of the proprietorship firm to M/s. Manoranjan Satellite Pvt. Ltd. for a consideration of ₹ 9 lacs in compliance of the JV agreement. Thus, the consideration received by assessee on transfer of shares from M/s. DEN Network does not include consideration for transfer of assets.

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Decided against assessee - ITA No. 2144/PN/2012 - Dated:- 4-1-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri S.N. Doshi For The Revenue : Shri Dheeraj Kumar Jain ORDER PER VIKAS AWASTHY, JM : The appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-V, Pune dated 01-08-2012 for the assessment year 2008-09. 2. In appeal, the assessee has raised solitary ground against confirming the addition of ₹ 6,25,49,232/- as Long .....

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case as emanating from the records are: The assessee is an individual and is a cable operator. The assessee is carrying its business under the name and style of M/s. Manoranjan Video and Cable Services. The assessee filed her return of income for the assessment year under appeal on 31-10-2008 declaring total income of ₹ 5,88,90,700/-. The case of the assessee was selected for scrutiny and accordingly notice u/s. 143(2) was issued to the assessee on 22-06-2010. In the return of income, the .....

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margin. The Assessing Officer computed the total income of the assessee as ₹ 6,48,62,782/-. Aggrieved by the assessment order dated 27-12-2010, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order confirmed the addition in respect of Long Term Capital Gain. Now, the assessee is in second appeal before the Tribunal assailing the findings of Commissioner of Income Tax (Appeals). 4. Shri S.N. Doshi appea .....

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ri Lalit R. Shinde entered into a joint venture agreement with M/s. DEN Digital Entertainment Network P. Ltd. (hereinafter referred to as the DEN Network ) on 28-12-2007. As per the joint venture agreement the assessee and Shri Lalit R. Shinde agreed to sell 253 and 252 shares respectively to DEN Network for a sale consideration of ₹ 12,50,00,000/- w.e.f. 01-03-2008. The joint venture agreement is at pages 6 to 14 of the paper book. The assessee and Shri Lalit R. Shinde agreed to merge the .....

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r a sale consideration of ₹ 6,49,13,718/-. During the course of submissions, the ld. AR contended that the assessee had committed error in offering the said amount as Capital Gain. Before the Commissioner of Income Tax (Appeals), the assessee had raised additional ground that the assessee was not liable for Long Term Capital Gain on the sale of business at all. An examination of agreements executed with DEN Network would show that the assessee had received ₹ 6,26,23,763/-. This amoun .....

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e bifurcation of the total consideration received by the assessee. The Commissioner of Income Tax (Appeals) has erred in holding that the amount of ₹ 6,26,23,763/- is towards the sale consideration of 253 equity shares of M/s. Manoranjan Satellite Pvt. Ltd. It would be evident from the records that the shares of M/s. Manoranjan Satellite Pvt. Ltd. would not have so much of value for the reason that the said company is a Private Limited Company and its shares are not listed. Moreover, right .....

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sale consideration for 253 shares would be ₹ 7,52,928/-. The sale consideration for the transfer of assets as per the joint venture agreement is ₹ 9 lacs. The balance amount of ₹ 6,09,70,835/- is received towards the performance undertaking/guarantee given by the assessee. The ld. AR submitted that on the transfer of 253 equity shares the Long Term Capital Gain would be : Sale consideration as per intrinsic value Rs.7,52,928/- Less: Indexed cost of acquisition of the shares tr .....

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e in the assessment year 2011-12 as the performance warranties would come to an end on 28-12-2010 i.e. in the financial year 2010-11. In any case the amount received in respect of performance guarantee cannot be treated as income in the impugned assessment year as the amount is refundable on non-compliance of the undertaking and termination of the agreement on or before 28-12-2010. 4.2 The ld. AR submitted that merely because the assessee has erroneously declared the Long Term Capital Gain in re .....

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e Association Ltd. Vs. CIT, 41 ITR 495 (SC); ii. CIT Vs. J.D. Italia, 141 ITR 948 (AP). 5. On the other hand Shri Dheeraj Kumar Jain representing the Department vehemently supported the findings of the Commissioner of Income Tax (Appeals). The ld. DR submitted that the contentions of the ld. AR that sum of ₹ 6,09,70,835/- is towards performance guarantee is erroneous and afterthought. The ld. DR referred to clause (2) of the joint venture agreement at page 9 to show that the total consider .....

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the said amount in the return of income for assessment year 2011-12. The assessee has artificially bifurcated the sale consideration to suppress the income and thereby reducing the tax incidence. The ld. DR strongly defended the findings on the Commissioner of Income Tax (Appeals) on this issue and prayed for dismissing the appeal of the assessee. 6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also examin .....

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nd M/s. Manoranjan Satellite Pvt. Ltd. for transfer of shares, assets and business. A joint venture agreement dated 28-12-2007 was executed amongst the aforesaid parties. Apart from the joint venture agreement, Share subscription, Share purchase and Shareholders agreement dated 01-03-2008 (hereinafter referred to as the Share Purchase Agreement ) and Asset Transfer agreement dated 01-03-2008 were executed. The latter agreement was between M/s. Manoranjan Satellite Pvt. Ltd. and M/s. Manoranjan V .....

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e and Shri Lalit R. Shinde for transferring assets of the proprietorship firm to M/s. Manoranjan Satellite Pvt. Ltd. and shares to M/s. DEN Network. The relevant extract of the agreement is reproduced here-in-under: 1. Business Purchase 1.1 Based on the representation and warranties given by the Existing Shareholders/Existing Company in Clause 4 of this Agreement, DEN shall acquire 51% of the Existing Company s business, subject to conduct of the following events: (a) Xxxxxxxxxx (b) Asset Transf .....

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regard, the Existing Shareholder A, Existing Firm A, and the Existing Company shall execute an Asset Transfer Agreement. The Asset Transfer Agreement must be executed and the assets must be transferred on the 30th day from the Effective Date. ii. xxxxxxxxxx xxxxxxxxx 2. Consideration Based on the representation and warranties given by the Existing Shareholders/Existing Company in Clause 4 of this Agreement, DEN has agreed to pay a consideration of ₹ 12,75,00,000/- (Rupees Twelve Crores Sev .....

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n of the Definitive Agreements: • ₹ 25 Lacs to the Existing Company; and • ₹ 25 Lacs to the Existing Shareholder B (c) By March 10th, 2008: • ₹ 2,04,06,859/- to Existing Shareholder A • ₹ 2,04,93,141/- to Existing Shareholder B (d) By March 30th, 2008: • ₹ 2,04,06,859/- to Existing Shareholder A • ₹ 2,04,93,141/- to Existing Shareholder B (e) Upon IPO: • ₹ 1.91 Crores worth shares of DEN (at IPO Price) to Existing Share .....

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rporation of the JVC. • Revenue from minimum 10000 additional indirect connections start coming In the JVC within 12 months of Incorporation of the JVC. However, It is agreed between the Parties that in case, within 12 months of Incorporation of JVC, the new direct connections brought In by the Existing Shareholder are less than such numbers as are mentioned above, the Performance Bonus lo be paid by DEN shall be adjusted and the Existing Shareholders will be paid proportionately. 7. As per .....

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e-in-below: ARTICLE 3 Consideration In lieu of the above mentioned acquisition, DEN shall pay a consideration of ₹ 25,00,000/- (Rupees Twenty Five Lacs Only) to the Existing Company for subscribing to 10 equity shares of the Existing Company for ₹ 100/- each at a premium of ₹ 2,49,900/- (Approx) per share and a consideration of ₹ 12,50,00,000/- (Rupees Twelve Crores Fifty Lacs Only) to the Existing Shareholders for acquiring 503 equity shares of the Existing Company. (Det .....

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older B on behalf of the Existing Company. This amount of ₹ 25 lacs shall be utilized by the Existing Company for immediate settlement of dues accruing on account the Existing Shareholder A transferring the assets of his proprietorship firm, Manoranjan Satellite Cable Network (Existing Firm A). In favor of the Existing Company under the Asset Transfer Agreement dated February….., 2008, and The Existing Shareholder B transferring the assets of his proprietorship firm, Manoranjan Vide .....

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ellite Cable Network wherein the Existing Shareholder A is the proprietor, the receipt of which is acknowledged by the Existing Shareholder A. Upon execution of the this Agreements: • ₹ 25 Lacs to the Existing Shareholder B Upon execution of this Agreement, DEN has already paid an amount of ₹ 25 lacs (Rupees Twenty Five Lacs) vide Cheque no. 401313 dated December 26th, 2008 drawn on Syndicate Bank, Hauz Khas, New Delhi to the Existing Shareholder B the receipt of which is acknow .....

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f DEN does not take plae on or before 31st July 2009, the entire amount of ₹ 3.82 Crores Shall be paid forthwith to the existing shareholders alongwith interest @ 12% P.A. from 30th April, 2008. 3.2 In addition to the above mentioned Consideration, DEN shall pay an additionally ₹ 5 Crores (Rupees Five Crores Only) as Performance Bonus to Existing Shareholder only if the following targets are fulfilled by the Existing Company: • 10000 direct connections, over and above the direct .....

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tionately. 8. The ld. AR has also placed on record Asset Transfer Agreement between M/s. Manoranjan Satellite Pvt. Ltd. and M/s. Manoranjan Video and Cable Services a proprietorship firm of the assessee. A perusal of the said agreement would show that the company M/s. Manoranjan Satellite Cable Network purchased assets of the proprietorship firm from the assessee for a consideration of ₹ 9 lacs. 9. The assessee in its return of income admitted slump sale of its proprietary business for a c .....

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of selling Rs. Nil Cost of Acquistion (21/8/2000) (27,300 x 551/406) Rs.37,050/- LONG TERM CAPITAL GAIN Rs.6,25,49,232/- The contention of the assessee is that the assessee is not liable for any Long Term Capital Gain on the transfer of shares. In the return of income the assessee has erroneously offered the amount from transfer of shares as Long Term Capital Gain in the impugned assessment year. 10. According to the ld. AR the equity shares of M/s. Manoranjan Satellite Pvt. Ltd. transferred to .....

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as per intrinsic value Rs.7,52,928/- Less: Indexed cost of acquisition of the shares transferred Rs.3,43,36/- Long Term Capital Gain Rs.7,18,592/- According to the assessee the amount of ₹ 6,26,23,763/- received by the assessee from M/s. DEN Network is on account of : (i) Sale consideration of shares ₹ 7,52,928/-, (ii) Sale consideration of assets as agreed in JV agreement ₹ 9 lacs and (iii) the balance ₹ 6,09,70,835/- is towards warranties and guarantees given by the as .....

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t any basis as the agreement value has to be taken as sale consideration. It is not a case of notional valuation that intrinsic valuation of share can be resorted too. The appellant's contention that certain) commitments to be fulfilled by the appellant for 3 years i.e. upto 28.10.2010, failing which agreement could have been renegotiated or even terminated and DEN was entitled to such refund of the amount paid, capital gain was liable to be taxed in A.Y. 2011-12, is bereft of any merit Warr .....

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ellant s case on account of these case laws. We concur with the findings of the First Appellate Authority. 12. A perusal of the agreements would show that nowhere in the agreement it has been stated that the consideration paid by M/s. DEN Network is in respect of the three components as stated by assessee, and no such bifurcation has been given in any of the agreements placed on record by the assessee. On the contrary a perusal of Share Purchase Agreement would show that M/s. DEN Network has pur .....

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