TMI Blog2016 (11) TMI 1469X X X X Extracts X X X X X X X X Extracts X X X X ..... y and has claimed certain expenditure against the revenue or has claimed expenditure under income from other sources u/s 57 of the Act then Revenue would have a case for calculating the disallowance. However, no such facts are existing in the case of assessee as assessee has not claimed any expenditure against salary income, or income from other sources as verifiable from the computation of income placed at page 10 to 14 of the paper book. We are, therefore, of the view that no disallowance is called for u/s 14A of the Act and no interference is called for in the order of ld. CIT(A). Assessee should be allowed set off of long term capital loss from sale of shares off market against the long term capital gain on sale of land as they have been entered within the permissible four corners of law and the modus operandi of the assessee is not that of tax evasion but of tax planning. - ITA No. 1879/Ahd/2011 Along with CO No. 211/Ahd/2011 And ITA No. 2015/Ahd/2011 Along with CO 212/Ahd/2011 - - - Dated:- 7-11-2016 - S. S. Godara (Judicial Member) And Manish Borad (Accountant Member) For the Appellant : K. Madhusudan, Sr.DR For the Respondent : S. N. Soparkar, AR ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led and examined during the course of assessment proceedings ld. Assessing Officer observed that assessee earned long term capital gain from sale of land and adjusted some portion of it by setting off with the long term capital loss from sale of shares. Ld. Assessing Officer was of the view that assessee has sold some portion of equity shares through recognized stock exchange claimed exemption u/s 10(38) of the Act and remaining portion of equity shares which were mainly gifted during the year by relatives were sold off-market incurring long term capital loss which was hitherto set off against the long term capital gain from sale of land. Ld. Assessing Officer was of the view that assessee has resorted to colourable device with the intention to lower down the tax liability on account of long term capital gain from sale of land and therefore, did not allow the set off of long term capital loss of ₹ 3,85,28,505/- incurred from off market sale of equity shares. Ld. Assessing Officer also made a disallowance u/s 14A of the Act r.w.r 8D of the IT Rules, 1962 (in short the Rules) at ₹ 115043/- being 0.5% of the average value of investment of ₹ 2.30 crores. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. 3. Order of Hon. Gujarat High Court in case of Atir Textile Indus. P. Ltd. 230 Taxman 104 4. Order of ITAT, Ahmedabad Bench in the case of Suhrid S. Sarabhai Kaivana.34 ITR (T) 342 5. Order of ITAT, Mumbai in case of Raptakos Brett Co. Ltd. 58 taxmann.con 115 6. Decision of ITAT Mumbai in case of Legg Mason Asin (Ex Japan) analyst Fund 61 SOT 277 7. Order of ITAT Ahmedabad in case of Hina Nitin Parikh 144 ITR 157 8. Judgment of Hon. Gujarat High Court in case of Prudent Finance P. Ltd. 225 Taxman 125s Ld. AR also submitted that impugned equity shares on sale of which assessee has suffered long term capital loss were received as gift from relative on 30 th April, 2007. Ld. Assessing Officer has not challenged the genuineness of the gift at any point of time during assessment proceedings. Further there is no prohibition in the law to enter into sale of equity shares off market and the facts need to be appreciated that the off market sale was at the same price at which the equity shares were traded online on recognized stock exchange. Assessee has worked only within the four corners of law by claiming exemption at some portion of long term capital gain u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income declaring total income of ₹ 4,81,02,307/- on 31/07/2008. The return was processed u/s. 143(1) of the Act. The case was selected for scrutiny and the notice u/s. 143(2) of the Act was issued. Subsequently, notices u/s. 142(1) of the Act were also issued. In response to the same, the appellant, through authorized representative submitted all the details/information/explanations called for by the A.O. 4.1 The facts of the case in brief is that the appellant is the Director of M. H. Mills and Industries Ltd. The main sources of income are the salary received from said Mill and the Capital Gain - Long Term as well as Short term. There are three sources of long term capital gain: 1) Sale of shares of other companies - on market, which has been claimed as exempt. 2) Sale of shares of M.H. Mills Industries Ltd. - off market. The loss suffered by the appellant has been set off against the long term capital gain on sale of land. 3) Sale of land. The long term capital gain is offered for tax after set off of long term capital loss on sale of shares of M. H. Mills Industries Ltd. 4.2 During the course of assessment proceedings, the A.O. asked to provide the deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case, the A.O. is of the view that the transaction of sale of shares entered into by the appellant resulting into long term capital loss is merely an artifice or a device employed so as to reduce tax liability. The A.O. has considered the transaction of sale of the shares of M. H. Mills Industries Ltd. off market as colourable device so as to reduce the tax liability of the appellant resulting out of the long term capita! gain. The A.O. has relied upon the judgments of Hon'ble Supreme Court in the case of McDowell Co. Ltd. Vs. Commercial Tax Officer 154 ITR 148 and Workmen Vs. Associated Rubber Industry Ltd. 157 ITR 77. 4.5 On the other hand, the authorized representative of the appellant has submitted with supporting evidences that the transaction of sale of shares of M.H. Mills Industries Ltd. is factual, valid and genuine. All the details in connection with the sale of the shares of the said company were furnished to the A.O. which has been verified by him and accepted as genuine. Merely because the sale of the shares have been done off market, which is one of the valid and legal option available to the appellant, it can not be said that the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term Tax Avoidance and Tax Evasion . Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. On the other hand, tax Evasion is the general term for efforts not to pay taxes by illegal means. In respect of the reliance on the decision in case of McDowell Co. (cited supra) by the A.O the authorized representative has drawn my attention to the observations made in the said case on page no. 171 which is 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 by resorting to dubious method. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges . Further, it has been submitted on behalf of the appellant that after the decision of Hon'ble Supreme Court in case of McDowell, ther are number of judgments wherein the case of McDowell has been considered at length and then the Hon'ble Supreme Court and other High Courts have consistently held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the long term capital gain tax liability on sale of land. Therefore, the case relied on by ld. DR cannot be applied to the case before us as the facts are different. 11.1 Further from going through the decisions/judgments referred and relied on by ld. AR we find that Hon. Jurisdictional High Court in the case of ACIT vs. Biraj Investment (P) Ltd. (supra) has observed as under :- 17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne (supra), we do not find that this a case which would fall within the parameters of the decision in the case of McDowell Company Ltd (supra). 12. Further Hon. Jurisdictional High Court in the case of CIT vs. Special Prints Ltd. (2013) 33 taxman.com 463 (Gujarat) adjudicated similar facts and observed as under :- 6. We are of the opinion that the appellate Commissioner as well as the Tribunal having examined all aspects of the matter and in particular the valuation report and having come to the conclusion that such report did not suffer from any legal infirmities, no interference is called for. 7. If one peruses the order of the Assessing Officer as a whole, primarily, he was concerned about the assessee having sold sizeable number of shares inviting considerable loss during the same period, when the assessee had sold certain assets and earned capital gain. Surely, merely because the assessee claimed set off of capital loss against the capital gain incurred during the same period by itself cannot be branded as a colourable device or method for tax avoidance. If both the transactions arc genuine and also traded at proper valuation, merely because the period co-existed or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able devise and consequently earn any disqualification.Hon. the Supreme Court in the concluding paras of its judgment in Azadi Bachao Andolon has rejected the submission that an act, which is otherwise valid in law, cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the Revenue. The aforesaid view looks to be the correct view. It has ready-support from the Division Bench judgment of this Court rendered in the case of Satya Nand Munjal (supra) and the Division Bench judgment of Orissa High Court in the case of Industrial Development Corporation of Orissa) Ltd (supra) and various other judgments of Delhi and Madras High Courts (supra) 13. Summarizing the facts of the assessee s case in the light of above referred judicial pronouncements, we find that ld. Assessing Officer has not challenged the genuineness of following transactions related to the issue before us: (1) Long term capital gain on sale of agricultural land. (2) Gift of 179750 of equity shares of M.H. Mills Ltd. on 30.4.2007 and gift of 145317 equity shares of M. H. Mills from Jana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f total income provided in the Paper Book filed by the appellant and it has been noticed that the appellant has not claimed any expenses from any of the income under the different heads of income. From the provisions of Sec. 14A, it is clear that for the purpose of disallowance u/s. 14A, there must be some expenditure incurred by the assessee in relation to the income which does not form part of the total income and such expenditure must have been claimed by the assessee while computing the total income. Therefore, if there is no expenditure incurred by the assessee in relation to the income which does not form part of the total income and has not been claimed by the assessee while computing the total income, the provisions of Section 14A of the Act would not apply. The decision of Hon'ble Mumbai IT AT (SB) in the case of M/s. Daga Capital Management Pvt. Ltd. and the decision of Hon'ble Delhi Tribunal in the case of Cheminvest Ltd. Vs. 1TO relied upon by the Ld. A.O. are not applicable in appellant's case since the facts of the said cases and the facts of the appellant's case are different. In view of the above discussion, I am of the considered view that the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the appellant has earned long term capital gain was in coownership with her son Shri Deepakbhai N. Parikh. In case of said co-owner Shri Deepakbhai N. Parikh, similar disallowance on account of set otf long term capital loss on sale of shares was made by the A.O. In the appeal, the Ld. CIT(A)-VIII, Ahmedabad has passed the Appellate Order allowing the appeal for the Asst. Year 2008-09 on this ground in favor of the said coowner. I have gone through the appeal order dated 18-05-2011 passed by CIT (A) VIII, Ahmedabad in the case of co-owner. The relevant part of decision is quoted below- I have gone through the above judgments and found that even after the decision of Mc-dowel's case, the honorable Supreme Court and other high Courts have consistently held that the assessee can still arrange his affairs legitimately to reduce the impact of tax, if it is done within the four corners of law. In the present case of the appellant, he has done the same absolutely genuine within the four corners of law and the set off of long-term capital loss on the sale of shares against the long-term capital gain on sale of land is the consequence of the different provisions of the act and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese shares were sold off market resulting in long-term capital loss which was set off against long-term capital gain received on sale of land. Therefore it is clear that issue involved and facts in both the cases are identical.Considering the appellant's submission on facts and law, I agree with the decision given in the aforesaid appeal order. Respectfully following the order of CIT (A) VIII, Ahmedabad, I also delete the addition made by the assessing officer on the same reasons mentioned above. 20. From going through the decision of ld. CIT(A) and the facts placed before us, we find that they are verbatim similar to the facts dealt by us in ITA No.1879/Ahd/2011. We have decided the issue in favour of assessee by observing that the assessee should be allowed set off of long term capital loss from sale of shares off market against the long term capital gain on sale of land as they have been entered within the permissible four corners of law and the modus operandi of the assessee is not that of tax evasion but of tax planning. Applying our decision in ITA No.1789/Ahd/2011, we find no reason to interfere with the order of ld. CIT(A) and uphold the same. This ground of Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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