TMI Blog2016 (9) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... long term capital loss shown by the assessee is there not at all. The only material to support the conclusion of the AO is that either the purchase of shares by the assessee was at ₹ 31.19 per share or the assessee has sold the shares to the sister concern, TVS e-Access Pvt. Ltd. at a cost of Rs. one paise per share, whereas the same shares were sold to one of the Directors, Smt. Mallika Srinivasan at the rate ₹ 25 per share. However, none of the judicial pronouncements support this plea of the AO. While making this kind of addition by the AO, the burden on the AO is very heavy to establish that the assessee has actually received the excess consideration than disclosed by the assessee. We have also considered the entire background of the case and circumstances under which the assessee was forced to sale the shares at very very low price. Actually, when the companies networth is negative, it is endeavour of the every person to get rid of that liability to save from future liabilities. In other words, in this modern economy, the share price is subject to high volatile and value of shares, which may be very high on one day and due to change of circumstances it may coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be recognised. - ITA No. 329/Mds/2016, C.O.No.45/Mds/2016 - - - Dated:- 11-8-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Shri V. Vivekanandan, CIT For The Respondent : Shri R. Vijayaraghavan, Advocate ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER The appeal by the Revenue and the cross objection by the assessee are directed against the order of the Commissioner of Income-tax(Appeals) dated 23.11.2015 for the assessment year 2010-11. 2. The first ground in Revenue s appeal is as under : 2.1 The learned CIT(A) erred in directing the Assessing Officer to restrict the disallowance to Rs. 56,64,493/- as claimed by the assessee without considering the provision of section 14A r.w.s.8D wherein applying the Rule 8D for calculating disallowance is mandatory as per section 14A(2) with effect from 1.4.2007. 2.1 Corresponding ground in assessee s appeal reads as under : 2. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of Rs. 56,64,493/- u/s.14A of the Income tax Act. The Commissioner of Income tax (Appeals) ought to have appreciated that only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance under Rule 8D. e) Similarly the investment out of which no dividend was declared should been excluded from the calculation under Rule 8D. f) It is clear from the assessment order that during the assessment proceedings, the appellant had voluntarily offered for disallowance u/s.14A, a sum of ₹ 56,64,493/- as per the working given in Annexure-1. However, before the CIT(A), the appellant has submitted the working as in Annexure-2 as per which, the disallowance u/s. 14A works out to ₹ 6,46,250/-. 6.4 In view of my remarks in Para 6.3, after considering the appellant's submission and the decisions relied on as mentioned under Para 6.2, I am of the considered opinion that the appellant's voluntary offer of disallowance u s. 14A during the assessment proceedings as perAnnexure-1 to this order is acceptable. The AO is directed to verify the figures in the calculation given in Annexure-1 with reference to the assessment record and to restrict the disallowance u/s. 14A to 56,64,493 - in place of ₹ 1,59,52,574 as admitted by the AO in the assessment order. This ground is partly allowed. 4.1 Against this, the Revenue is in appeal before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not utilized for making any investments having tax free income. While holding so, the Commissioner of Income Tax (Appeals) held as under:- 5.2.1 Having held that provisions of rule 0D are applicable, let us now examine whether the amount has been correctly quantified. The AO had calculated the disallowance at ` Nil, ₹ 1,04,38,000/- and ₹ 26,87,000/- under (i), (ii) (iii) of rule 80 (2)respectively. There is no dispute regarding the first component, because it is Nil. With regard to the second component being the expenditure by way of interest which is not directly attributable to any particular income or receipt, the AO has determined the amount at ₹ 1,04,38,000/. The AO has taken into account the entire interest expenditure of ₹ 5,79,46,000/- for computing the above disallowance. The Id.AR, in his submission, has given the break- Up of interest which includes (1) interest on bank loans: ₹ 67,92,000/- (2) interest on term loans ₹ 3,82,11,000/- and (3) interest on other accounts: ₹ 1,29,43,000/-. If loans have been sanctioned for specific projects/expansion and have been utilized towards the same, then obviously they could not have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax (Appeals). The Tribunal had considered a situation when the loans were utilized for the purchase of machineries, interest arising out of such loans, whether such interest is to be excluded for the purpose of computing disallowance under Rule 8D(2)(ii), the Tribunal held that such interest has to be excluded. While holding so, it has held as under:- 11. There is no dispute about working of this method so far as rule 8D(2)(i) and (iii) is concerned. It is only with regard to the computation under rule 8D(2)(ii) that the Assessing Officer and the CIT(A) have different approaches. This provision admittedly deals with a situation in which the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt . Clearly, therefore, this sub clause seeks to allocate common interest expenses to taxable income and tax exempt income. In other words, going by the plain wordings of rule 8D(2)(ii) what is sought to be allocated is expenditure by way of interest ..which is not directly attributable to any particular income or receipt and the only categories of income and receipt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , out of total interest expenses, interest expenses directly relatable to tax exempt income are excluded, interest expenses directly relatable to taxable income, even if any, are not excluded. 14. The question then arises whether we can tinker with the formula prescribed under rule 8D(2)(ii) of the Income Tax Rules, or construe it any other manner other than what is supported by plain words of the rule 8 D (2)(ii). 15. We find that notwithstanding the rigid words of Rule 8D(2)(ii), the stand taken by the revenue authorities about its application, as was before Hon ble Bombay High Court in the case of Godrej Boyce Mfg Co Ltd Vs DCIT (328 ITR 81) when constitutional validity of rule 8 D was in challenge, is that It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt (for example-any aspect of the assessee's business such as plant/machinery etc.) . Therefore, it is not only the interest directly attributable to tax exempt income, i.e. under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to any particular income or receipt (for example-any aspect of the assessee's business such as plant/machinery etc.) . Accordingly, even by revenue s own admission, interest expenses directly attributable to tax exempt income as also directly attributable to taxable income, are required to be excluded from computation of common interest expenses to be allocated under rule 8D(2)(ii). 17. To the above extent, therefore, we have to proceed on the basis that rigour of rule 8 D (2)(ii) is relaxed in actual implementation, and revenue authorities, having taken that stand when constitutional validity of rule 8 D was in challenge before Hon ble High Court, cannot now decline the same. Ideally, it is for the Central Board of Direct Taxes to make the position clear one way or the other either by initiating suitable amendment to rule 8D(2)(ii) or by adopting an interpretation as per plain words of the said rule, but even on the face of things as they are at present , in our humble understanding, revenue authorities cannot take one stand when demonstrating lack of perversity, caprice or irrationality in rule 8D before Hon ble High Court, and take another stand when it com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st-free funds in share capital and mutual funds. Furthermore, making investment in sister concerns is for commercial expediency in view of the judgment of Apex Court in S.A. Builders Ltd. v. CIT (2007) 288 ITR 1. It is not the case of the Revenue that the sister concern or any of the Directors has misused the funds invested by the assessee. When the sister concern uses the funds only for business purpose, there was commercial expediency for making investment. Therefore, this Tribunal is of the considered opinion that there cannot be any disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962. 13. In view of the above, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside. The entire addition made by the Assessing Officer is deleted. 6.2 We also rely in the case of Beach Miners Co. Pvt Ltd. Vs. ACIT in ITA No.2110/Mds./14 dated 06.08.15 wherein held that: 6.1. Ground No.3 Disallowance of expenditure by invoking the provisions of section 14A of the Act for ₹ 3,11,34,630/- since the assessee had made investments of ₹ 71,55,33,570/- for earnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the aforesaid transactions were legal, and as per the corporate practice and SEBI regulations. 9.1 The Assessing Officer observed that the assessee submitted that TVS Motor Company Ltd (TMCL for brevity) had entered into an agreement with M/s. TVS Investments Ltd. for purchase of shares of M/s. TVS Finance and Services Ltd (TFSL for brevity) in financial year 2008-09 for a total value of ₹ 3 crores, in order to have interest in the business of TFSL, which would help in financing the products manufactured by TMCL. The assessee was asked to produce copy of the above mentioned agreement entered into with TVS Investments Ltd with the assessee company. However, despite several opportunities given, the assessee was not able to produce the same. Further, the amount of ₹ 3 crores has been shown as Inter Corporate Deposits in the financials of the company, M/s. TVS Investments Ltd against which the assessee company was receiving interest. If, as claimed by the assessee that the amount of ₹ 3 crores was only an advance paid towards purchase of shares of TESL, then the same need not have been classified as `Inter corporate deposit in the financials of TVS Investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year 2009-10 the case of M/s. TVS Investments Ltd, it was noticed that one Smt. Mallika Srinivasan has sold such shares at a cost of ₹ 25 per share resulting in capital gains. The same sale consideration was adopted in the assessee's case also and due addition was made. It was the contention of the assessee that such comparison between individual (Smt. Mallika Srinivasan) and itself cannot be done as the price of Rs-25 per share is exit price available to a retail investor . By this contention, the said company has. meant that for Other than retail investor ' the sale price would be @ 1 paisa only. If this specific contention is to be admitted, then the assessee which is a listed company, should have also bought the shares of TFSL @ 1 paisa only which is not the case. 9.5 In view of the above discussion, the AO held that the entire gamut of transaction between the assessee company and its group concerns was carried out with a single motive to evade tax in the guise of transfer of a capital asset i.e shares of TFSL. This is only a colourable device and a design adopted by the assessee company to evade payment of tax consistently over a period of years. 9.6 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03), wherein it was held as under: Sec 254 of the Income tax Act, 1961 read with rule 11 of the Income tax (Appellate Tribunal) Rules, 1963 - Appellate Tribunal - Orders of - Assessment Year 2001- 02- Assessee transferred certain land to bank - Assessee claimed to have incurred long term and short term capital losses on share trading transactions- Accordingly, it set off said losses against capital gain earned on sale of land - Assessing officer found that assessee entered into sham and bogus share trading transactions resulting in capital loss with purpose to reduce tax liability arose on capital gain - Assessing officer, therefore, discarded capital losses- Commissioner (Appeals) confirmed order of assessing officer Tribunal also confirmed order of assessing officer and while doing so, referred to a decision of Supreme Court in the case of Sumati Dayal V CIT (1995) 214 ITR 801/80 Taxman 80 to held that evidence produced must be analysed by applying theory of surrounding circumstances and human probabilities Assessee alleged that without bringing said case to notice of parties, revenue had caused prejudice to its case; all in violation of principles of natural justice and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the purchase price or selling price was not correct. The AO has not explained as to how the purchase price of a share based on SEBI regulations can be deemed to be the selling price. b. The AO has not disputed that TVSF S had a negative net worth, was delisted and its shares could not be sold to any third party. c. In view of the strong contention of the appellant, I am of the opinion that the payment of a price fixed by SEBI regulations cannot be treated as a dubious method . Therefore, neither the purchase price of ₹ 31.19 nor the selling price of one paisa per share can be termed as resorting to dubious methods . d. In the absence of a specific provision under the I-T Act, the AO's adoption of ₹ 31.19 per share is untenable. e. It appears that the AO has not considered the factual background which required TVSM to pay ₹ 31.19 per share. The AO has simply assumed that TVSM had adopted this price when this was the actual cost incurred by TVSM in complying with SEBI regulations. It is a usual and legal corporate procedure that as a co-promoter, TVSM had to acquire the shares from the public under the circumstances mentioned abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions, M/s. TVS Motor Company Limited (TMCL for brevity) had entered into an agreement with M/s. TVS Investments Ltd, for purchase of shares of M/s. TVS Finance Services Limited. (TFSL for brevity) in financial year 2008-09 for a total value of ₹ 3 Crores, in order to have interest in the business of TFSL which would help in financing the products manufactured by TMCL. The assessee was asked to produce copy of the above mentioned agreement entered into with TVS Investment Ltd with the assessee company. However, despite several opportunities given, the assessee was not able to produce the same. Further, the amount of ₹ 3 Crores has been shown as Inter Corporate Deposits in the financials of the company, M/s. T'VS Investment Ltd, against which the assessee company was receiving interest. If, as claimed by the assessee that the amount of ₹ 3 Crores was only an advance paid towards purchase of shares of TFSL, then the same need not have been classified as `Inter Corporate Deposits' in the financials of M/s. TVS Investments Ltd and more further, there is no need to receive interest on such sum. Moreover, the agreement is set to have been entered to provide t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suage the public, paying the right price as laid down under the listing regulations became a necessity. So the main promoters holding nearly 89% of the share capital of TVSFS i.e., TVS Investments Limited and TVSM, the Appellant Company agreed to buy back the shares in accordance with the listing agreement regulations mainly and with the sole intention of safeguarding the name TVS Group Protection of the TVS brand and credibility of the Group. 5) It was not any tax planning or tax avoidance method which was intended to be adopted in selling TVSFS shares at a nominal price of 1 paisa per share. This was an unpleasant and inevitable necessity to cut down the losses of failedbeleaguered finance arm, only to safeguard the public image of TVS among the investing community. 6) It was no doubt a Hobson's choice of either closing down the business agreeing to suffer with all related consequences or to continue the business by restructuring only through making addition al infusion of capital which was itself an impossible strain on the promoters. So, the choice of closing down the unit was taken, though at the same time anything affecting the credibility of the promoter co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same shares to M.s TVS E-Access India Ltd within 47 days. During the course of hearing, the assessee was requested to explain as to why such differential rate per share was adopted for sale of shares of TVS Finance Services Limited. Para 11.6 in Assessment Order dated 3.3.2014: Thus it is clearly evident that the averment of the assessee that they purchased the shares of TFSL for furthering its business is devoid of any rational or business prudence as they would not have sold the shares of TFSL immediately if its true intention was to have business interest in TFSL. Further, no prudent businessman would buy a share whose net worth is negative and which was sold to one of its related companies at a paltry rate of 1 paisa per share for a huge consideration @Rs. 31.19 per share. In other words, the assessee had purchased the share of TFSL at a cost which is 3119 times its tradeable value. Assessee's (TVSM) Rebuttal of AO's contention TVSF S was initially engaged in providing corporate finance and made profits till the financial year 2000-01. Thereafter, it began providing finance for purchase of two-wheelers manufactured by TV SM and became an in-ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F S and manufacturer, TVSM. This also would explain that there was no tax planning or tax avoidance intended when the sale of TVSF S shares at one paisa per share, This became an unpleasant inevitable necessity to get out of failed loss beleaguered finance arm. TVSF S, a NBFC governed by prudential regulations of Reserve Bank of India (RBI) has been incurring huge losses in its business and up to the financial year 2006-07 the accumulated losses of the company stood at ₹ 75 crores. During the financial year 2007-08, consequent on the inadequate Capital Adequacy Ratio (CAR) of TVSF S, RBI advised the company that the company had not complied with the norms of minimum net owned funds base to continue the NBFC business and also had not complied with the, CAR norms. The economic meltdown of 2008-09 made it difficult for TVSM to offer support TVSF S in any substantial way and the losses of TVSF S were mounting on the one side and the business stood suspended on the other. From 2008-09 onwards, the company was faced with the Hobson's choice of closing down the business with all related consequences or continue the business by restructuring by making fresh investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh equity shares and go for delisting. This was considered in the best interest of the public shareholders. TVS Investments Ltd. also believed that the acquisition from public shareholder of the Equity Shares was in the larger interests of the Company, creditors and shareholders themselves, besides being in the larger interest of the TVS Group itself. However, the promoters held 90% of the capital of TVSF S and the public holding was only 10%. The promoters of TVSF S had to either increase the public holding to 25% or buy-back the remaining 10% shares by an open offer after following the book-building process prescribed in the relevant SEBI guidelines. As TVSF S had suspended its business from November 2007, there was no question of increasing the public shareholding to 25%; there was thus no option but to make an open offer as mentioned above. The SEBI guidelines determine the floor price of equity shares but details of how the offer price was arrived at ₹ 20.29 per share. As per the book building process, the maximum number of shares were tendered at ₹ 25 and a company called TVS Investment Ltd., which was one of the promoters of TVSF S, acquired all the shares t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not able to produce the same. Further, the amount of ₹ 3 crores has been shown as Inter Corporate Deposits in the financials of the company, M/s TVS Investment Ltd., against which the assessee company was receiving interest. If, as claimed by the assessee that the amount of ₹ 3 crores was only an advance paid towards purchase of shares of TFSL, then the same need not have been classified as Inter Corporate Deposits in the financials of M/s TVS Investments Ltd and more further, there is no need to receive interest on such sum. Moreover, the agreement is set to have been entered to provide the Assessee company, to further business opportunities by way of credit support to its customers. However, as seen from the financials of the Assessee company for the financial year 2009-10, the company has disposed the shares purchased, immediately, i.e., on 03.03.2010 for a paltry sum of Re. 0.01 (i.e., 1 paisa) per share. Appellant s (TVSM) Rebuttal of AO s contention The amount given as ICD with interest is perfectly normal transaction. The facility is to avail the benefit of Finance arm. What was given as ICD with interest, with subsequent developments the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed through book building process. TVSF S shares were acquired by TVSI from the public through book building process as laid down under SEBI Regulations. Both TVSM and TVSI agreed to share the acquisition cost and expenses of book building in the ratio in which TVSI and TVSM hold TVSF S shares in the capital structure of TVSF S. Copy of the understanding signed by both TVSM and TVSI is enclosed ( Annexure 1 ). It is the obligation of TVSM, as co-promoter, to get TVSF S shares from TVSI because TVSI bought TVSF S shares from the public under open offer laid down for delisting through book building process under SEBI Regulations. Hence TVSM, as a co- promoter, is obliged to buy TVSF S shares to the extent of TVSM's holding in the share capital of TVSF S from TVSI and also at the same price at which it, was acquired from the public under book building process viz., 31.19 per share which is the agreed price for co- promoter to acquire from TVSI. It is not correct to say that TVSM bought these shares of TVSF S from TVSI, arbitrarily and with a view to book capital loss, at ₹ 31.19 per share. The fact is TVSM has acquired TVSF S shares in various stages in various ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious that to attribute singular motive in selling TVSF S shares at a loss to adjust against capital gains accruing on sale of land is a baseless argument. In fact there was no intention to retain TVSF S shares within the group since subsequently they were disposed and TVSF S is getting a scheme approved by the Court for making TVSF S defunct and liquidated. 4. Para 11.8 in Assessment Order dated 3.3.2014 It is pertinent to note that the assessee company had sold the shares of TFSL during the financial year and booked long term capital loss. During the scrutiny proceedings, it was found that, for the assessment year 2009-10 int eh case of M/s.TVS Investments Ltd. it was noticed that one Smt.Mallika Srinviasan has sold such shares at a cost of ₹ 25 per' share resulting in capital gains. The same sale consideration was adopted in the assessee's case also and due addition was made. While filing. the application for stay of demand in that Assessment Year, the company M/s.TVS Investme nts Ltd had contended that such comparison between an individual (Smt.Maliika Srinivasan) and itself cannot be done as the price of ₹ 25 /- per share is exit price available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 3.3.2014 Decisions relied on by the A.O and the appellant The Hon'ble Supreme Court in the case of Mc dowell vs CTO (154 ITR 148) (SC) on the issue of whether a colourable device can be used to evade tax, has held as under: Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief' that it is honourable to avoid the payment of tax resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of `emerging' techniques of interpretation was done in Ramsay, Burma Oil and Dawson, to expose the devices for what they really are and to refuse to give judicial benediction Further, the Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount from the sale of such an unlisted share. Therefore, neither the purchase price of ₹ 31,19 nor the selling price of one paisa per share can be called as resorting to dubious methods . Indeed, the purchase price could not have been altered nor could TVSM have received any price for a company that had closed its operations and had a negative net worth. Section 48 of IT Act provides for mode of computation of capital gains. The starting point of computation is the full value of consideration received or accruing. What infact never accrued or was never received cannot be computed as capital gains u/s 48. KP Vargheese vs ITO Ernakulam 131 ITR 597 (SC). Purchase and sale of TVSF S was not part of any tax planning programme. Even if the share had been sold at a later point of time, there is no chance of a higher value being realized. The AO has cited the decision of the Madhya Pradesh High Court in Binodiram Balchand Co. CIT (2001)'l 18 Taxman 544. Indeed, the observations of the Madhya Pradesh High Court decision actually assist TVSM as the purchase price was based on SEBI regulations and the sale price was based on a valuation certificate. These cannot be call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of Securities) Guidelines 2003. Further, TVS Investments Ltd. holds 2,07,06,435 fully paid-up equity shares in the TVSF S representing 50.01% of fully paid-up equity share capital of the company as on Feb., 9th 2008. The other promoter, being assesse company and Anusha Investments Ltd. hold in the aggregate 39.76% of the total paid-up equity share capital of the TVSF S as on Feb. 9th, 2008. TVS Investments Ltd. along with other promoters are together the promoters of the assessee company. The Directors and relatives hold in aggregate 7,162 equity shares consisting of 0.01% of the total paid-up equity share capital of the TVSF S as on Feb. 9th , 2008. The accumulated losses of TVSF S was ₹ 99 crores as on 31.12.2007. Out of such losses, it is required to strengthen the net owned funds position and increase the long term capital base for future operations of the company. So, the main promoters holding nearly 89% of the share capital of TVSF S i.e. TVS Investments Ltd. and TVSM, the assessee company agreed to buy the shares in accordance with the listing agreement regulations mainly and with the sole intention of safeguarding the name TVS, protection of the TVS brand and cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orting to dubious methods . Indeed, the purchase price could not have been altered nor could TVSM have received any price for a company that had closed its operations and had a negative net worth. Further, normally authorities concerned shall proceed on the basis of the professed intention of the parties to a document/ transaction/arrangement. If that is under doubt or disputed or challenged, then the authorities have the power to find out the real intention of the parties by removing facade to expose their real intention cleverly cloaked and if that intention is discovered to be evasion of tax, it cannot be given effect to merely because of steps taken as component parts of arrangement are legally correct or valid. All documents or transactions have to be given effect to even though they resulted in tax liability, provided that they are genuine and bona fide and it cannot be called as colourable device. In case, a transaction took place with the sole intention to protect the image of the company and that resulted in deduction of tax liability, it cannot be called as a dubious method followed by the assessee, as the parties involved therein have the right to indulge any tax plannin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, there is no such finding by the AO. The AO has no power to ignore the price which was arrived at on the basis of SEBI regulations. It is also not disputed that TVSF S had a negative net worth, was delisted and its shares could not be sold to any third party. In other words, the shares of TVSF S were worthless. 13.3 In the case of CIT vs Biraj Investments Pvt Ltd. (2012) 24 Taxmann.com 273 (Guj), the assessee M/s Biraj investment Put Ltd had made LTCG on sale of shares in M/s Rustom spinners Ltd and incurred Long term capital loss on sale of shares in M/s Rustorn Mills industries Ltd, and the purchase/sales were effected to another investment company of the same group viz Bijal investments Ltd. An held that since the husband of a common director of these companies was the MD of Rustom Mills, the transaction was a colorable device to evade the tax on LTCG. He also held that since the shares were pledged with IDBI Bank, there cannot be a delivery to effect the transfer of the shares in which Long term, capital loss was incurred. The High Court after accepting the contention that there was a transfer since seller had given an irrevocable power of attorney to the buyer and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. 13.5 It is pertinent to mention the following phase of above judgments: ...a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. Under the circumstances, even without referring to the decision of the Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Jurisdictional High Court of Madras in the case of CIT v. S.S.Sankaralingam, 176 CTR 520 is in similar line which supports the assessee s case. 13.9 Another allegation of the ld. DR is that the assessee company sold the shares to its sister concerns, TVS e-Access India Ltd. at the cost of one paise and where public shares to the sister concern is one paise, the cost is ₹ 25/- per share to one of the Directors, Smt. Mallika Srinivasan. In our opinion, simply because loss making shares were sold during the previous year, when the assessee has sold some shares at profit by itself would not mean that is a case of colourable device or that there is case of tax avoidance. This view is supported by the judgment of the Gujarat High Court in the case of ACIT v. Biraj Investment Pvt. Ltd. (86 CTR 69). Further, the ld. DR relied on the decision of the Apex Court in the case of McDowell Co. Ltd., cited supa. In our opinion, the facts of that case cannot be applied to the present case as discussed in earlier para. 13.10 It is to be noted that in the case of CIT v. Oberoi Hotels (P) Ltd. (334 ITR 293), the Calcutta High Court has held as under: There is no dispute wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further amount of ₹ 9 to 10 crores to revive the business of SKB is not appreciable. It is not within the province of the AO to ignore an otherwise genuine transaction and to brand it as a colourable one on the ground that it was the duty of the company to invest further amount or it should have waited for a reasonable period. Therefore, the view of the Tribunal and the CIT(A) as regards the nature of the transaction is found to be quite in conformity with the law of the land. 13.11 Further, on merits also, the issue is squarely covered by the same judgment, wherein it was observed that capital loss attributable to share transaction could not be disallowed; it is not within the province of the AO to ignore an otherwise genuine transaction and to brand it as a colourable one. 14. In our opinion, it was the duty of the AO to bring on record sufficient evidences and materials to prove that the documents filed by the assessee were bogus, false or fabricated and the long term capital loss shown by the assessee is there not at all. The only material to support the conclusion of the AO is that either the purchase of shares by the assessee was at ₹ 31.19 per share or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholder of the company. He had made the investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simpliciter a device to camouflage activities to defraud the Revenue. No such presumption could be drawn by the AO, merely on surmises and conjectures. 14.3 The Tribunal, Agra Bench in the case of Smt. Memo Devi (ITA No.396/Ag/2004 reported as 7 DTR 158) wherein the Co-ordinate Bench observed as under :- The assessee has no relation with the directors of the company and was in no way in the capacity to affect the market price of shares. The increase in share prices by more than 25 times too cannot be the basis to assume that the transaction was bogus. Abnormal fluctuation in share prices is a normal phenomena the learned counsel for the assessee filed a chart showing low and high prices of some quoted shares during the 52 weeks as per Economic Times dated 27.02.2007 from which it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of human conduct. The circumstances surrounding the case also, in our view, are not strong enough to justify the rejection of the assesse s plea as fantastic or outrageous. 16. We have also considered the entire background of the case and circumstances under which the assessee was forced to sale the shares at very very low price. Actually, when the companies networth is negative, it is endeavour of the every person to get rid of that liability to save from future liabilities. In other words, in this modern economy, the share price is subject to high volatile and value of shares, which may be very high on one day and due to change of circumstances it may collapse in the market on very next day and it may go even nil value, due to circumstances beyond the control of the Directors or management of the company. A person, who is dealing in shares would become a millionaire in a single day. Similarly, a person may become penniless or insolvent on very next day. It is not uncommon in the share market, happening of such events. For these things, we cannot attribute any motives and it is because of market conditions prevailing at the particular point of time or because of governme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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