TMI Blog2018 (10) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable. - Set off allowed - Decided against the revenue. - I.T.A. No. 1441/Kol/2016 - - - Dated:- 10-10-2018 - Shri A. T. Varkey, JM Shri M. Balaganesh, AM For the Appellant : Shri Goulen Hangshing, CIT, DR For the Respondent : Shri D. S. Damle, FCA ORDER PER SHRI A.T.VARKEY, JM This is an appeal preferred by the revenue against the order of the Ld. CIT(A)-9, Kolkata dated 29.03.2016 for AY 2010-11. 2. The issue involved in this appeal relate to the liability of Short Term Capital Loss of ₹ 34,96,00,895/- incurred by the assessee on sale of investments against Short Term Capital Gain of ₹ 1,33,67,748/- earned on sale of shares. 3. Brief facts of the case are that during the year under consideration, the assessee company had declared income under the head Short Term Capital Gain in respect of which STT has been paid and non-STT paid, cess all belonging to RPG Group Companies. The AO noted that the assessee was also a company belonging to the RPG Group and the shares purchased and sold by the assessee company also belonged to the same RPG Group as also the purchasers and the sellers of shares were entities belonging to RPG. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crued on transfer of shares was an artificial loss or gain and whether for the purposes of income-tax assessment these transactions could be ignored by regarding them as fiscal nullity. In the impugned order the AO has stated that that the loss incurred was not assessable since the assessee had adopted a colourable device for avoidance of tax and therefore these transactions were required to be ignored for tax purposes. I however find that the conclusions reached by the AO are not well-founded. 6. During the relevant year the assessee carried out transactions in shares of 8 companies all of which belonged to RPG Group. In the impugned order the AO disbelieved and doubted the genuineness of purchase and sale transactions only in shares of 4 companies wherein loss was incurred. However, the material on record shows that during the same period the assessee also conducted transactions of purchase and sale of other 4 RPG Group companies where it had gain of ₹ 2,86,59,932/-. The transactional documents and evidences maintained by the assessee in relation to purchase and sale of all companies were identical. In all 8 cases securities transacted were of RPG group companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and brought to tax such gain. In the circumstances if the transactions with group companies under the identical circumstances resulting in gain were accepted by the AO to be genuine, then on the same set of circumstances it was not open to the AO to doubt the genuineness of the transactions which resulted in loss. 8. I further note that the AO disbelieved and doubted the genuineness of the transaction on the ground that the loss was artificially created to derive undue tax benefit. From the facts which are placed on record I however find that the loss which the assessee suffered during the relevant year was ₹ 34,96,09,895/-. During the FY 2009-10, the assessee had made gain of ₹ 2,86,59,932/- under the head short term capital gain (non-STT paid) and short term capital gain (SIT Paid) of ₹ 1,33,67,748/-. The non-STT paid short term capital gain was derived from the transfer of shares of group companies and these shares were transacted in the identical circumstances in which loss was incurred. As such one cannot say that the loss of ₹ 35 crores was required to be generated as artificial loss for claiming set-off against STT paid short term capital gain o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt was concerned with a case where during the year under consideration, the assessee had first earned substantial capital gain on sale of its land amounting to ₹ 49.72 crores. During the same year the assessee incurred a matching loss of ₹ 49.73 crores on account of transaction of trading in shares. The AO brought on record material to show that these transactions were colourable device adopted to avoid payment of tax on the capital gain derived on sale of land. The AO had therefore substantiated his finding that the assessee had actually derived undue gain by setting-off short term capital loss on sale of shares against long term capital gains on sale of land. In the present case however I find that that the total short term capital loss was ₹ 35 crores and short term capital gain was ₹ 2.86 crores and both of which were from transactions within group and of the group companies. The mode and manner of group transactions was identical and the AO doubted the genuineness of only transactions resulting in loss. As such it cannot be said that the assessee created artificial gain and loss for tax avoidance purposes. It is seen that the transactions which led to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-off either in AY 2010-11 or in any subsequent year and therefore the AO's conclusion that the loss was artificially created by the assessee by adopting a colourable device is bereft of any factual foundation. The AO's reliance on the judgement of the Supreme Court in case of Azadi Bachao Andolan (supra) is also factually and legally untenable. Rather the said decision advances the case of the assessee. In the later judgement in the case of Azadi Bachao Andolan, the Supreme Court specifically dissented from the view earlier expressed in the case of Mc Dowell Co Ltd (supra) and reiterated that the Ramsey's principle laid by the House of Lords still holds field in the matter. 11. The A/R of the assessee in his submissions has relied on several judicial decisions in which the view has consistently been taken that the assessing authorities cannot doubt the genuineness of the transaction merely because the assessee has incurred loss on transfer of a capital asset or that the full value of consideration received by the assessee is not commensurate with the market value of the capital asset. The judgement of the Supreme Court in case of CIT vs George Henderson C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short span of time, proper explanation was not furnished by the assessee company as to why there was such difference between the purchase price and sale price. According to hi, since the entire transaction resulted in loss was carried out within the entities belonging to the RPG group and since the AO did not find any commercial rationale behind the prices at which the investments were purchased and sold. According to Ld. DR, the AO rightly concluded that the only motive for undertaking the sale transaction was to create an artificial loss which has partly set off by the assessee against the current year s gain realized on sale of short term investments and the balance was carried forward with a view to set off the same against the profits to be derived in coming years. In support of the aforesaid contention, the Ld. DR placed heavy reliance on the judgment of the Hon ble Bombay High Court in the case of Killick Nixon Ltd. Vs. DCIT 208 Taxman 45 and urged before us that the AO s order needs to be upheld. 5. Per contra, the Ld. AR submitted that the STT paid short term capital gain of ₹ 1,33,67,748/- and non-STT paid short term capital gain of ₹ 2,86,59,932/- was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scrip Qty. Book Value Sale Value Gain/Loss Ceat Ltd 3882 134900 553302 418402 KEC International Ltd 28879 263 12949610 12949347 135163 13502911 13367748 6. The Ld. AR submitted that if in AO s opinion the shares transferred by the assessee belonging to the RPG group were manipulated by the assessee then there would have been no necessity for the assessee to declare substantial gain in respect of sale of 4 investments and in such case also, the assessee would not have reported any gain, if the intention of the assessee was to avoid taxes. The Ld. AR further submitted that if the intention of the assessee was only to reduce its taxable income in the relevant year in which it had earned STCG of only ₹ 4,20,27,680/- there would not have created loss of ₹ 34,96,00,895/- particularly when assessee has loss in investment transaction of group c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which Shri R. P. Goenka the eminent industrialist who was the principal promoter and the said group had a Pan-India presence throughout India and carried on business in diverse fields such as manufacture tyres, generation of power, power distribution, carbon black, hospitality, information technology etc. According to Ld. AR, economic activities were conducted through the aegis of various listed companies whose shares were held through entities belonging to RPG group companies. Since the group s size was increasing, the need was felt for carrying out restructuring of management and control over these operating companies, particularly in view of the advancing age of the patron of the group Shri R. P. Goenka. In the circumstances, with a view to disentangle the intra group investments and to ensure the smooth transition to the revised control structure, transfer of shares were carried out within the group, consequently had transactions which resulted either in profit or loss. However, the Ld. AR pointed out as demonstrated before the lower authorities, the assessee never claimed benefit of the net loss given in future years. Thus, we take into account the peculiar facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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