TMI Blog2016 (2) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... es under taken by the assessee company during the relevant financial period, with group company was a sham transaction and the loss booked under said transaction cannot be held as allowable claim of short term capital loss for the assessee. Finally, we uphold the impugned order which confirm the disallowance and addition made by the AO. - Decided against assessee Disallowance u/s 14A - Held that:- When we analyse the facts and circumstances of the present case, admittedly and undisputedly, the assessee has not claimed any exempt income for AY 2009-10, thus, in the view of dicta laid down by Hon’ble Jurisdictional High Court of Delhi in the case of Holcim India (supra) we hold that there could be not disallowance u/s 14A read with rule 8D of the Act and respectfully following the same the issue is decided in favour of the assessee - ITA No. 2483/Del./2014 - - - Dated:- 20-1-2016 - Sri J.Sudhaker Reddy, AM And Sri C.M.Garg, JM For The Appellant : Sh. R.M.Mehta, CA For The Respondent : Sh. Ashis Mohanty, Sr. DR ORDER PER C.M.Garg, J.M. This appeal has been filed by the assessee against the order of the CIT(A) IV, New Delhi dated 13.01.2014 passed in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of ₹ 8,48,019/- made by the AO u/s 14A of the Act. Ground no. 1 and 2 of the assessee :- 4. Apropos these grounds, we have heard arguments of both the sides and carefully perused the relevant material placed on record before us, inter alia, impugned assessment order, first appellate order, assessee s paper book spread over 48 pages and copies of the order of Hon ble High Court of Gujarat in the case of ACIT vs. Biraj Investment (P) Ltd. 210 Taxman 418 (Gujarat) and judgment of Hon ble High Court of Madras in the case of CIT Madurai vs. M. Ramaswamy 151 ITR 122 (Madras). The ld. Counsel of the assessee reiterating the written arguments dated 19.03.2013 before CIT(A) submitted that the assessee purchased ₹ 16,25,225/- equity shares of Escort Ltd. from HPC at a price of ₹ 83.79 per share. The HPS acquired these shares from Escorts Ltd. as preferential allotment of shares warrants was made by the Escorts Ltd. to Har Parshad Company Pvt. Ltd. (hereinafter HPS) as per SEBI guidelines and HPC had an option to convert each share warrants into one equity share of Escorts Ltd. share at a conversion price of ₹ 83.79 per share. The Ld. Counsel furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el pointed out that the loss claimed by the asessee was actually suffered on sale of these shares during the relevant financial period and the same was claimed as short term capital loss. The ld. Counsel vehemently contended that the AO disallowed the entire claim on the ground that the transaction is completely sham to book artificial loss because the transaction of purchase/ sale of these shares of a group company was between the two group companies. The ld. Counsel vehemently point out that during the assessment proceedings the assessee provided complete evidence to prove the genuineness of the transaction both at the time of purchase as well as at the time of sale and he further strenuously contended that merely because the transaction has been entered into by two group companies does not automatically mean that it is sham. The ld. Counsel reiterating assessee submissions dated 19.3.2013 before Ld. CIT(A), submitted that once the assessee has proved genuineness of the transaction the onus is shifted to the AO to prove that the transaction is sham and the AO has failed to discharge the onus shifted on him. The ld. Counsel also contended that the purchase is supported by an tripa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that the shares were purchased and sold back to HPC to generate funds is not acceptable and transactions of purchase and sale during the lock-in period was rightly held as sham transaction because the same was legally prohibited during lock in period up to 30.03.2009. The ld. DR vehemently pointed out when the seller has no right to sale the shares during lock-in period then any transaction without any transfer in the name of buyer as to be held as speculative transactions and the same cannot be held as acceptable short term capital loss. The ld. DR lastly pointed out that the case laws relied by the ld Counsel of the assessee are not applicable to the present case as the ratio of the judgment of Hon ble Gujarat High Court in the case of ACIT vs. Biraj Investment (P) Ltd. (supra) and the judgment of Hon ble Madras High Court in the case of CIT Madurai vs. M. Ramaswamy (supra) are not related with a situation were the transaction of purchase and sale back of preferential share was affected during the lock-in period against the conditions of the allotment, and facts and circumstances of the present case quite dissimilar and distinguishable with these cases. Therefore, proposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd and M/s Big Apple clothing Pvt Ltd, reproduced as under:- HPC shall immediately after the expiry of the lock in period transfer to Big Apple and AAA respectively or their nominee as may be desired by Big Apple and AAA, Escorts Equity Shares in proportion to the money paid them As stated above, the lock-in-period as stated in the share certificate is upto 31/03/2009 and the same cannot be transferred to any concern before 31/03/2009, then how could the assessee claims to have acquired the shares from M/s Har Parshad and Co. Pvt. Ltd. on 31/03/2007. Here, the question which needs consideration is that whether the assessee is the owner of the capital asset during the previous year relevant to the AY 2009-10 which it claimed to have transferred and on which it booked short term capital loss. The shares were continued to be held by M/s Harprashad Co Private Ltd which is also established on the basis of name of M/s Harprashad co Private Ltd on share certificate. Moreover, these certificates were under a lockin- period till 31/03/2009. Before this date, M/s Harprashad Co Private Ltd could not transfer these shares to any one. Therefore, there was no transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded: to do so is not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded. For this there is authority in the law relating to income tax and capital gains tax. The transactions entered into by the assessee with its related parties in respect of shares of the same group concern resulting in substantial losses to the assessee cannot be taken to be genuine by any stretch of imagination. The assessee has claimed to have bought and then sold the rights in shares of list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto one equity share of Escorts Ltd. at a conversion price of ₹ 83.79 per share. 10% of the value was payable upfront by HPC to Escorts Limited and the balance 90% at the time of conversion of each warrant into equity share. Failure to exercise the conversion option before would have resulted in forfeiture of initial 10% already paid. ii) Around the time of conversion of warrants into equity shares, the said HPC did not have adequate financial resources to exercise the conversion option and thus approached the appellant company to finance the payment of balance 90% of the conversion price and in turn acquire the equity shares of Escorts Ltd. at a price of ₹ 83.70 per share. Both the parties were in a win-win situation under this arrangement because HPC would save its 10% amount from forfeiture whereas the appellant company would acquire the equity shares of Escorts Ltd. at a price of ₹ 83.79 per share when the weighted average market price of the share at the stock exchange ranged between ₹ 106 to ₹ 133 per share. c) The equity shares acquired by the appellant were however, under a lock-in period three years which was to expire on 31.03.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asted by the AO. It is an admitted fact that M/s Harprasad Co. Pvt. Ltd., M/s Big Apple Clothing Pvt. Ltd. and the appellant company are group companies of Escorts Ltd. having common directors. It is also an admitted fact that the Escorts Ltd. has allotted 16,25,000 equity shares of paid up value of ₹ 10 per share to Harprasad Co. Pvt. Ltd. on 18th September, 2008 with a lock-in period till 30th March, 2009. As per the guidelines issued by the Securities Exchange Board of India (SEBI), it was a statutory requirement that these shares could neither be sold, nor hypothecated, nor pledged, nor transferred till 30th March, 2009. The tripartite agreement entered by the appellant company with its group companies namely Harprasad Co. Pvt. Ltd. and Big Apple Clothing Pvt. Ltd. cannot over-ride the statutory conditions. Since the appellant company could have neither purchased these shares nor could take them for hypothecation or pledge from Harprasad Co. Pvt. Ltd., the claim of the appellant that these shares were purchased at the rate of ₹ 83.79 per share cannot be accepted as that will amount to violation of law as contained in the share certificates quoted above. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the rights in the shares of listed company Escort Ltd. which is also a group concern, outside the share market in the form of a private bulk deal and the transaction has taken place at a rate which was lower then the market rate on that date, therefore, the transaction s claim to have been entered is a completely sham transactions to book artificial losses and to evade legally payable taxes. 12. The CIT(A) dismissed appeal of the assessee by holding that the claim of the assessee that the transaction was genuine and made as per tripartite agreement between the group companies deserve to be rejected and he agreed with the conclusion of the AO that entered transaction was a sham transaction and oriented with a view to book artificial loss for tax evasion and the same was not a genuine claim of long term capital loss. 13. When we respectfully consider the ratio laid down by Hon ble Gujarat High Court in the case of ACIT vs. Biraj Investment Pvt. Ltd. (Supra), we note that in that case the assessee sold the shares and booked capital loss therefrom which were pledged with the Industrial Development Bank of India and Hon ble High Court held that the transaction in question canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the cited cases, therefore, we respectfully hold that benefit of the ratio of these decisions are not available for the assessee in the present case. 15. The ld. Counsel of the assessee, during the arguments, also placed copies of the tax payment challans and reiterating the written submissions dated 03.11.2011 place before AO submitted that the demand of tax after rectification order dated 21.08.2009 passed u/s 154/143(3)/143(1) has been communicated at ₹ 4,69,45,501/- and this amount has been worked out after giving credit for deposit of 6 crores in March 2009 and thereafter the assessee has deposited further amount of ₹ 2.50 crore on 30.12.2009. 2.10 crore on 29.1.2010 copies of challans were placed before us. The ld. Counsel of the assessee also drawn out attention towares para (d) of the written submissions of the assessee placed before CIT(A) dated 19.03.2013 and contended that in the assessment year 2009-10. The appellant was faced with huge tax demands for which it had to liquidate its investments in these shares. The ld. DR vehemently contended that the ld. Counsel of the assessee is misleading the facts before the court and there was no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le at pages 41 and 42 of the assessee s paper book and stock prices of the shares of Escort Ltd. during 01.09.2007 to 30.09.2008 available at page 43 of the assessee s paper book it is ample clear that the assessee sold the shares back to HPC Ltd. on 30.09.2008. Whereas in the written submission before the CIT(A) dated 09.01.2014 available at pages 23 to 27 of the assesseeps paper book, we note that at page 3 top line the assessee submitted that the shares were sold back to HPC in September, 2009 based on the prevailing market price of these shares in the stock exchanges. 17. Firstly we may pointed out that if the shares were sold in September, 2009 then the same cannot be held within lock-in period which was only up to 30.03.2009 and there would be no controversy about the loss claimed by the assessee but shares were actually sold in the month of September, 2008. Therefore, the controversy arose and claim of the assessee was dismissed. Furthermore, in the written submission dated 19.03.2013 filed before first appellate authority available at pages 16 to 20 of the assessee s paper book, which were also read out and reiterated by the ld. counsel of the assessee during the hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough for some other purpose; again on 15-11-1996 the assessed reiterated the same explanation and an affidavit of the accountant was filed stating that the figures mentioned on the document were imaginary figures; this explanation was again retracted and one Babulal Goenka was produced to own the said entries, which, according to Goenka were again typed by assessed's accountant. The Tribunal found that the assessed had knowingly and admittedly given different explanations in respect of the same document and, therefore, its yet another explanation that the subject transactions, though typed by its accountant, were made by the said Goenka lacked credence. It is pertinent to note that the assessed had not only owned up the document but had also explained the cheque transactions reflected in the lower portion of the same very document. In view of the factual scenario projected above, we unhesitatingly affirm the view taken by the Tribunal that section 158BC had been correctly invoked in the case of the assessed company and that section 158BD of the Act had no application in the matter. 12. For the foregoing reasons, we are of the view that this appeal by the assessed is whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory which is baseless and not acceptable. 21. On the basis of foregoing discussion, we reach to a logical conclusion that the assessee had no bonafide reason or cause in September, 2008 which forced the assessee to sale shares during the lock-in period which resulted into huge loss to the assessee. In this situation, we are also inclined to agree with the conclusion of the authorities below that sale of share was effected between two group companies having the same directors about the shares of the group company during the lock-in period wherein the transactions of sale and purchase of these shares were expressly prohibited by the allotting authority during lockin period which was to be expired on 30.03.2009. There was no good cause for the assessee to sale these shares back to HPC group company which was purchased from HPC and thus, we have hasitation to hold that the transaction of sale of shares under taken by the assessee company during the relevant financial period, with group company was a sham transaction and the loss booked under said transaction cannot be held as allowable claim of short term capital loss for the assessee. Finally, we uphold the impugned order which con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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