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TMI Blog2017 (3) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments and contentions advanced by the assessee. The learned CIT(A) further erred in holding that the relevant shares should have been sold at book value as against the market value adopted by the assessee for which necessary evidence and justification was furnished to the CIT(A) and on her record. The learned CIT(A) thus erred in observing that the resultant loss on difference between book value and market value amounting to Rs. 2,75,83,524/- needs to be ignored for set off. 3. The only issue raised in the appeal filed by the assessee is against non- adjustment of long term capital loss of Rs. 8,39,57,040/- on sale of listed shares against taxable long term capital gains of sale of unlisted shares, on both the transactions where STT was not paid and the transactions were outside the purview of section 10(32) of the Act. The assessee is also aggrieved with the order of CIT(A) in holding that the relevant shares should have been sold at book value as against the market value adopted by the assessee and thus observing that the resultant loss on difference between book value and market value amounting to Rs. 2.75 crores needs to be ignored for set off. 4. Briefly, in the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unlisted securities and pointed out that the long term capital loss in respect of GGDL and ING Vysya Liquid fund, no STT was paid as sale of GGDL was off market sale and ING Vysya Liquid fund units were redeemed on maturity. As such, the said transactions were outside the purview of section 10(38) of the Act and therefore, form part of computation of total income. He pointed out that the transactions which were not entered into in any recognized Stock Exchange were not chargeable to STT and hence, were outside purview of section 10(38) of the Act, as such, the loss on sale of such listed shares was correctly claimed in the computation of income. The Assessing Officer noted that the assessee had purchased the shares of GGDL in 2006 through broker M/s. Sajag Securities Pvt. Ltd. @ Rs. 74.10 per share through Stock Exchange, after payment of STT of Rs. 2,20,252/-. The Assessing Officer observed that the transaction in the said shares was thus, eligible for charging of STT. Once the shares were acquired through recognized Stock Exchange after paying STT, then once they are sold after holding for more than four months, then the long term capital gains or loss shall be exempt under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as held by the Hon'ble Supreme Court in Padamjee R. Kadambande reported in 195 ITR 877 (SC) and other decisions. Further, reliance was placed on series of decisions to look into surrounding circumstances to find out the reality of transaction at hand and it was held that the long term capital loss of Rs. 8.39 crores on sale of shares of listed companies would not be set off in the current year against the long term capital gains of sale of listed shares nor it would be allowed to carry forward to be set off in future and the long term capital gains of Rs. 4.53 crores on sale of shares of unlisted group company would be chargeable to tax in the year itself as long term capital gains @ 20%. 5. Another aspect noted by the Assessing Officer was that the shares of GGDL shares were sold at less than book, whereas the sales of other unlisted companies were sold at higher than listed value. In this regard, the Assessing Officer computed the loss on sale of shares of GGDL was below the book value at Rs. 2.75 crores and it was observed that the same would be ignored while setting it off other income, if any, in the current year or for carry forward and set off in subsequent years. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s funds for investment in sister concern which are unquoted shares, whereas as on 31.03.2008, investment in Kirloskar group company was Rs. 3.94 crores out of total investment of Rs. 5.38 crores. The said investment was partly liquidated by the assessee during the financial year 2008-09 and the total investment in unquoted shares reduced to Rs. 2.31 crores as against 5.38 crores as on 31.03.2008. The learned Authorized Representative for the assessee pointed out that it was business decision to sell those shares in order to repay the loan of Rs. 18 crores. He further pointed out that all the ICD loan raised in the year 2007 was invested in shares of GGDL which were purchased @ Rs. 74/- per share. In 2008, all the shares were sold for Rs. 11.41 crores @ Rs. 48/- per share. He stressed that the assessee has undertaken off market route which is recognized by NSDL and are routine transactions which happened between group companies. He concluded by stating that the transaction was not a colourable transaction as the desire of the assessee was to arrest his business loss. He further pointed out that there was no harm in parking funds with group concerns and also better value was of group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in money lending business. The assessee was Kirloskar group holding company, which in turn, acquired shares of Kirloskar group companies as and when opportunity arose. The assessee had taken loan to the tune of Rs. 18 crores from another group company namely BVHPL. The said loan was carrying an interest @ 8% per annum. However, since for the past three years, there was lull in the business activities and there was difficulty in servicing interest on the loan, it was decided that the loan be settled through sale of shares to BVHPL to prevent any further loss or eroding of worth. The assessee claims that it had sold the shares of GGDL, another group concern, to BVHPL on purely business needs and without any ulterior motive. Since the shares were being sold to group concern, the assessee thought that there was no need to route through the Stock Exchange. Since GGDL was Kirloskar group company, the assessee hesitated to sell it on the Stock Exchange as the same could have been picked up by a stranger and the groups holding in GGDL would have diluted; in order to prevent the same, shares were sold to BVHPL in off market. The assessee claimed that in the past also, many transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be paid on such transactions. However, in case the shares are sold between two parties in off market transaction, then there is no question of charging of STT. Once no STT is charged, the provisions of section 10(38) of the Act would not be attracted. In case the transaction is routed through Stock Exchange, then undoubtedly, the assessee would be liable to pay STT; but in the facts of the present case, the assessee has not sold listed shares through Stock Exchange and had not paid any STT and consequently, the provisions of section 10(38) of the Act are not applicable. Reading the provisions of section 10(38) of the Act and section 88 of the Finance (No.2) Act, 2004, literal interpretation of the section needs to be made in order to adjudicate the present issue before us. On reading of section 10(38) of the Act, it is very clear that where any income arising on the transfer of any long term asset being an equity share or unit of equity funds and where the transaction is undertaken on Stock Exchange then, such transaction is chargeable to STT and where it is chargeable to STT, the provisions of section 10(38) of the Act are attracted and the gain arising therefrom can be set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain can be adjusted against the loss arising on sale of such shares on which no STT is paid. 15. Even the website of NSDL recognizes the market trades and off market trades and it is observed as under:- "12.2 Market Trades 12.2.1 The participant shall effect a debit or credit to the accounts of its Clients only on receipt of proper authorization from the Clients in the forms laid out in Annexures L and M. Alternatively, a Client may give standing instructions to its Participant to credit its account. 12.2.2 The aforementioned forms submitted by the Clients and Clearing Members shall be checked by the Participant to ensure the completeness of the form and validity of the signature of the Client and the Clearing Member before the requests on these forms are executed. 12.3 Off - Market Trades 12.3.1 Transfer of securities in respect of off market trades shall be effected on receipt of a duly filled in securities transfer instruction form from the Clients for delivery as well as a securities transfer instruction form from the Clients for receipt. The specimen of these forms have been laid out in Annexure L and M respectively as specified in Rule 12.2.1 above. Alternatively, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer has held the transaction to be a colourable device adopted by the assessee in order to adjust the loss against the gain arising in its hands during the year, wherein the shares were sold to sister concern. We have already referred to the factual aspects of the issue where the shares of GGDL were sold to sister concern BVHPL in order to settle the loan raised from the said concern, the said concern was not 100% subsidiary of the assessee but the assessee had only 24% shareholding in the said group company. In order to maintain the shares of listed group concern GGDL within group, the decision taken by the assessee to arrest the loss arising on account of liability to pay interest on the loan raised from BVHPL cannot be doubted. It is a business decision taken by the assessee to arrest the losses and the same cannot be called as colourable devise. Accordingly, we reverse the findings of Assessing Officer and CIT(A) in this regard. 19. Another aspect of the issue is the allegation of Assessing Officer that as against book value of share as on 31.03.2008 at Rs. 59.61 per share, the shares of GGDL were sold at Rs. 48/- per share to another group concern BVHPL. These shares were ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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