TMI Blog2008 (10) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... maceutical Co. (P) Ltd. (hereinafter referred to as MPL ) and, M/s Swift Formulations (P) Ltd. (hereinafter referred to as SFL ) through M/s B. Finlease (India) (P) Ltd., a share-broker, for an aggregate consideration of ₹ 30 lacs. Subsequently, the Hon ble Punjab Haryana High Court vide order dt. 19th May, 2004 approved/sanctioned the scheme of amalgamation of M/s MPL and M/s SFL with M/s ISL. According to the above scheme of amalgamation, every equity shareholder of M/s MPL shall be entitled to and be allotted equity shares of ISL in proportion of 72 (seventy-two) shares of ₹ 10 each credited and fully paid-up in place of every 10 (Ten) equity shares of ₹ 100 each held in MPL. Likewise, every equity shareholder of M/s SFL shall be entitled to and be allotted equity shares of M/s ISL in proportion of 54 (fifty-four) shares of ₹ 100 each held in M/s SFL. Accordingly, the assessee was allotted 1,26,000 equity shares of ₹ 10 each, as is evidenced from the transaction inquiry summary report of M/s Uttam Financial Services Ltd., depository participant of M/s NSDL. Thereafter, the assessee company on 10th Nov., 2004, sold 1,26,000 shares of M/s ISL thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuine. On the other hand, the assessee in its appeal has contended that the CIT(A) ought to have held that the capital gain on sale of shares was not short-term capital gain but long-term capital gain as the shares held by the assessee were for a period of more than 12 months and as such, the entire gain was assessable as long-term capital gain. We have heard both the sides in the above background and perused the relevant record. Before us, the learned Departmental Representative has contended that the CIT(A) was not correct in holding that the shares were purchased and sold by the assessee .He contended that enquiries made by the AO clearly revealed that the brokers through whom allegedly shares were purchased and sold were not traceable. He submitted that the assessee company is based in Sangrur and the brokers are based in Delhi, this itself showed that the entire transaction was a manipulated affair, more particularly when the investee companies whose shares have been purchased, namely, M/s MPL Ltd. and M/s SFL are private limited companies. He further submitted the fact that substantial funds have been advanced to M/s ISL for a purported joint venture whose shares have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was invited to p. 43 of the paper book, wherein is placed a copy of the investment account, which has been accepted by the Revenue for the asst. yr. 2004-05. The learned counsel has highlighted and relied upon the findings of the CIT (A) to the effect that the purchase of shares stands proved on the basis of the evidences on record. He further submitted that the CIT(A) was unjustified in holding that the transactions of purchase and sale of shares resulted in a short-term capital gain to the assessee instead of long-term capital gain. He submitted that once the consideration for purchase of shares had been paid in the year prior to the sale of shares, it could not be held that the assessee had not purchased the shares for a period of more than twelve months and as such, it ought to have been held that the capital gain arising to the assessee was a long-term capital gain, which was exempt under s. 10(38) of the Act. With regard to the period of holding, the counsel has placed reliance on the circular of the CBDT No. 704, dt. 28th April, 1995 [reported in (1995) 125 CTR (St) 86 : (1995) 213 ITR (St) 17] to submit that the date of holding of shares should be reckoned with referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which shows that the shares had been d-mated in the name of the assessee company and, thereafter sold by the assessee company which statement remains unrebutted and unquestioned. Also, the entire sale consideration has been received by account payee cheques, which is evidenced from the copy of the bank statement of the assessee company showing the receipt of sale consideration. Further, the copy of account of M/s Sterling Finman (P) Ltd., the broker through whom the shares were sold and its transaction statement and the transfer statement of the investee company and certificate of STT have also been placed on record. However, despite the above documentary evidence, the AO did not accept the transactions of shares on the following basis : (a) that the brokers through whom the purchase and sale of shares have taken place were not found; (b) that the shares purchased of M/s MPL and M/s SFL had never been transferred in the name of the assessee company. Further, even after the scheme of amalgamation approved by the Hon ble High Court, shares of M/s SFL had been transferred in the name of the original shareholders and only thereafter, the same had been transferred in the name of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of registered office or outside the limits of the place where the registered office of the company is situated. For this, the company is not required to inform any authority. The board of the company is empowered to keep any branch office(s) of the company anywhere in the country. Similary, as per SEBI guidelines a member broker of any stock exchange can have its terminals scattered all over the country. Few of the examples are M/s Rathi Securities, M/s Kotak Securities, M/s Moti Lal Oswal, M/s Karvy, M/s SMC Securities, etc., which are having their branch offices, terminals in more than 20 to 30 cities all over the country and even more than one terminal/ branch within the same city, therefore, SEBI empowers a broker to have its offices in more then one place in the same city/in different cities. Hence, in the case of M/s BFinlease (India) (P) Ltd., it might have more than one branch office in New Delhi or in other cities as the case may be. For a company as you are aware, it is the requirement of the Companies Act, 1956 to file its balance sheet and P L a/c under s. 220 along with specified forms and annual returns under s. 159 along with the relevant form and compliance certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and which shares had been sold after paying the securities transaction tax, then it could not be said that the transaction was not genuine or bogus. The certificate of securities transactions tax has been furnished before the AO itself. In fact, the particulars of the depository, namely, M/s Uttam Financial Services Ltd. who had d-mated shares of the assessee are available on record. We find that no enquiries were made by the AO in that regard from the depository concerned. In such circumstances, in our opinion, it was incorrect for the AO to hold and conclude that the assessee had not purchased and sold shares and that the capital gain so declared was not on account of purchase and sale of shares. We therefore are in agreement with the findings recorded by the CIT (A) in para 3.9 of his order wherein it has been held as under : Taking up the issue of purchase of shares while the claim of the assessee is supported by transfer documents which are duly witnessed, the balance sheets of the companies, the certificates issued by the management of the company, the learned AO could not cross-verify the same as neither the broker was found at his premises nor the seller be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is with regard to the fact that the shares of M/s MPL and M/s SFL had not been transferred in the name of the assessee company. In this regard, the assessee has consistently contended and placed on record that it had purchased the shares by way of blank transfer deeds from its sellers. It is seen that all such transfer deeds are dt. 22nd July, 2003 and the consideration for such sale of shares had been paid by account payee cheque. It was thus submitted that transfer deeds had never been lodged by the assessee for transfer prior to amalgamation and had been lodged only after the scheme of amalgamation was approved by the Hon ble Punjab Haryana High Court. Sec. 108 of the Companies Act, 1956, in this context provides that blank transfer means where transferor signs the transfer deed under the head Transferor s signature and does not fill other particulars. A transfer in blank when accompanied by the share certificate/script transfer and after payment of agreed consideration to the transferor, confers legal and equitable right of the transferee in the shares and also the right to call upon the company to register the transfer. The assessee has duly furnished all the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as conclusion of the AO that the assessee has not clarified the status of the remaining 63,000 shares which had been allotted to it in exchange of shares held by it of M/s MPL and M/s SFL is concerned, the same is factually an incorrect contention. In fact, evidence has been led and confirmed by the assessee that no such shares had been allotted to it. On the contrary, the assessee had sold 5,000 shares each of M/s MPL and M/s SFL on 14th April, 2004 i.e. prior to the sanction of the scheme of amalgamation by the Hon ble Punjab Haryana High Court an aspect which is not assailed but is only doubted by the AO. Before concluding on this aspect, we may observe as follows. The AO in this case has attempted to show that the transaction as reflected by the purchase and sale of shares is not genuine and in fact is an arrangement made by the assessee company to introduce its unaccounted income in the garb of share profit. In other words, the claim of the AO is that the real transaction is not what is stated on record. In this connection, in our considered opinion, it is for the AO to lead evidence and establish that what is stated is not the real. The AO has not discharged such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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