TMI Blog2019 (4) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... same, the loss claimed by assessee is not justified and we uphold the orders of authorities below in denying the set off of short term capital loss of ₹ 15.08 crores on sale of shares of Vadhivare Specialty Chemicals Ltd. The grounds of appeal No.1 and 3 raised by assessee are thus, dismissed. Denial of set off of capital loss - sale of shares of Pentagon Manufacturing and Marketing Ltd. against long term capital gains arising on sale of shares of FEM - HELD THAT:- We thus, find no merit in the stand of AO that the transaction of booking loss by selling shares by the assessee to his daughter is colourable device, cannot be accepted. Once the transaction has been entered into within four corners of law and the transaction has not been doubted; where the shares which were held by assessee for long period were sold at a price which was more than NAV value of shares as on date of sale of shares, then it may be case of tax planning within four corners of law and the same cannot be brushed aside. Applying the ratio laid down by the Hon ble High Court of Punjab Haryana in Porrits Spencer (Asia) Ltd. Vs. CIT [ 2010 (3) TMI 179 - PUNJAB HARYANA HIGH COURT] wherein it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares of Vadivarhe Speciality Chemicals Ltd.@ a premium of ₹ 9,900 per share and sale of 16,500 shares @ ₹ 860 per share by the appellant were :- (i) not genuine and, (ii) had no business purpose and, (iii) were undertaken with the sole purpose of avoiding tax. 4. The CIT(A) erred in holding that the transaction of sale of the shares of Pentagon Manufacturing and Marketing Ltd. @ Re. 1 per share was not a genuine business transaction. 5. The CIT(A) erred in : (a) holding that there was no basis for determining the sale price of the share of Pentagon Manufacturing and Marketing Ltd.@ Re.1 per share (b) determining the value of the said share at ₹ 3.35 instead of Re.0.11 on 22.02.2010, the date of sale of the said shares. 4. The Revenue in ITA No.448/PUN/2014, relating to assessment year 2010-11 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of ₹ 5,34,47,817/- on account of loss claimed from sale of shares of Reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. The first transaction was sale of shares of Vadhivare Specialty Chemicals Ltd. and the assessee had claimed loss of ₹ 15.08 crores. The Assessing Officer noted that the assessee had floated this company on 23.02.2009 and he was holding 4,940 shares at the face value of ₹ 100/-. Subsequently, the assessee purchased 16,500 shares on 13.01.2010 again at face value of ₹ 100/- and at premium of ₹ 9,900/-. The assessee thus, had shown cost of acquisition of the said shares at ₹ 16,50,00,000/-. The said company had issued 8 bonus shares on one share held on 27.01.2010 (within 13 days of acquiring the said shares, the company had issued 8 bonus shares). Immediately after the announcement of bonus shares, the assessee sold original 16,500 shares on 22.02.2010 to Manasi S. Pophale at the face value of ₹ 100/- and at premium of ₹ 760/- per share. The total sale consideration was ₹ 1.41 crores as against cost of acquisition of ₹ 16.50 crores and hence short term capital loss of ₹ 15.08 crores. On show cause notice, the assessee explained the transactions of sale of shares of Vadhivare Specialty Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that premium of ₹ 9,900/- per share was decided by assessee on his own wish as he was the major shareholder of the company and the other shareholders were also his family members. The assessee thus, had no bonafide justification to purchase the shares at a premium of ₹ 9,900/- per share and this purchase clearly reflected the intention of assessee when subsequently, he sold the shares to his daughter. The Assessing Officer further notes that when the shares were sold to daughter on 26.02.2010, the premium had reduced to ₹ 760/-, whereas on 13.01.2010, he had purchased the shares at premium of ₹ 9,900/- per share. The Assessing Officer questioned the fall in premium of shares from ₹ 9,900/- per share to ₹ 760/- per share within period of 44 days when there was no change in the company s functions. On the analysis of said facts, the Assessing Officer came to the conclusion that short term capital loss shown by the assessee on account of sale of shares of Vadhivare Specialty Chemical Ltd. was not genuine. Hence the Assessing Officer held the entire transaction to be colourable and self- serving and hence, the explanation of assessee vis- -vis loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of ₹ 9,900/- per share for total consideration of ₹ 16.50 crores. The assessee claims that since it needed to purchase the unit of Specialty Chemicals, the funding was provided through share capital. The company on 27.01.2010 issued bonus shares in the ratio of 8:1 and on 29.01.2010 the assessee sold 16,500 shares at face value of ₹ 100/- and premium of ₹ 760/- per share. The said sale was to his daughter Manasi S. Pophale for total consideration of ₹ 1.42 crores and hence, the short term capital loss of ₹ 15.08 crores. The perusal of Balance Sheet, financials of the said company, wherein the company had not entered into any major transactions of carrying on the business reflects that there was no merit in purchase of shares at face value with premium of ₹ 9,900/- per share after few days of incorporation of the said company. Further, this purchase was on 13.01.2010 and on 27.01.2010 bonus shares were issued and on 29.01.2010 the shares were sold at face value of ₹ 100/- plus premium of ₹ 760/- per share. The assessee has failed to justify first the cost of purchase i.e. with premium of ₹ 9,900/- per share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any worked out to ₹ 15.70 per share. The company had not reduced losses from Reserves Surplus. However, in order to derive correct net worth, the Assessing Officer was of the view that losses shown as on 31.03.2009 of ₹ 1.73 crores were to be reduced. Thus, net worth worked out to ₹ 47,00,602/- and considering this value of net worth, the net asset value per share came to ₹ 3.35. The Assessing Officer was of the view that on the basis of NAV as on 31.03.2009, the value of shares was ₹ 1570/- per share but after considering the effect of loss, the value of shares was ₹ 3.35 per share. However, the assessee had sold shares at the value of ₹ 1 per share which was sold to the daughter of assessee. The Assessing Officer noted that this company was closely held company of the assessee and his family members and the assessee himself was the major shareholder of the company. The Assessing Officer was of the view that there was no rationale justification of selling the shares at the price of ₹ 1 per share. The Assessing Officer further held that The above transaction show that the assessee has sold the shares to his daughter a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 80 lakhs was out of share premium and were not out of profits of earlier years. The breakup value of shares as on 31.03.2010 was negligible and the details were given at page 124 of Paper Book of Sunita A. Ramnathkar, which worked out to 0.11 per share. The assessee had sold the said shares @ ₹ 1/- per share to his daughter and had claimed capital loss of ₹ 1.93 crores. He challenged the orders of Assessing Officer and CIT(A) in denying the set off of this loss for the reason that there was no justification for valuing the shares so low; the assessee had lots of money and therefore, there was no reason to sell the shares and also that the sale was made to his daughter was not tax planning but device to evade taxes. He then placed reliance on series of decisions to point out that even where the transaction was pre-planned, but not a colourable device although entered into with motive that plan to reduce tax, the transaction cannot be brushed aside. We will refer to the said decisions at the relevant point of time. 17. The learned Departmental Representative for the Revenue on the other hand pointed out that the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters of Pentagon, which was floated in 1995. The said company had incurred losses over the period of years. The perusal of Balance Sheet at pages 39 to 76 of Paper Book with special reference to page 70 reflects that capital of the company totaled to ₹ 1.40 crores; while the accumulated losses were to the tune of ₹ 2.18 crores. In other words, the entire capital of the said concern was wiped out by the losses incurred over the period of years. Further, at page 72 of Paper Book, Reserves of ₹ 80 lakhs were out of share premium and not out of profits of earlier years. Taking the said figure, the breakup value of shares as on 31.03.2010 as worked out at page 124 of Paper Book in the case of Sunita A. Ramnathkar was ₹ 0.11 per share. The assessee had held 5,39,800 original shares and 3,00,000 preference shares for total value of ₹ 83,98,000/-. The entire shareholding was sold by the assessee to his daughter Manasi Pophale on 22.02.2010 @ 1/- per share for total consideration of ₹ 8,39,800/-, which resulted in loss of ₹ 1.93 crores (after indexation). The assessee claimed capital loss of ₹ 1.93 crores on sale of said shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him. As pointed out in the paras hereinabove, the Revenue has not brought on record any such evidence to prove that the assessee has received anything over and above ₹ 1/- from his daughter and in the absence of the same, the Assessing Officer is incorrect in taking NAV of the shares for the purpose of computing capital gains at ₹ 3.35 per share. 23. Now, coming to the next aspect of the issue whether even if it is held that the assessee has indulged in some tax planning i.e. sold shares held by it and the transaction being not doubted and thereafter claimed the set off of the capital loss against capital gains shown by the assessee on sale of another set of shares, then is it a case of tax planning or tax avoidance. 24. The Hon'ble Supreme Court in Union of India Anr. Vs. Azadi Bachao Andolan Anr. (2003) 263 ITR 706 (SC) held that citizen is free to carry on his business within four corners of law and mere tax planning without any motive to avoid taxes through colourable device is not frowned upon. The Apex Court further held that the principle laid down in Mc Dowell Co. Ltd. Vs. Commercial Tax Officer (supra) relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta in CIT Vs. Oberoi Hotels (P) Ltd. (2011) 334 ITR 293 (Cal) had considered the similar proposition. In the facts before the Hon ble High Court, the assessee purchased the shares of the company SKB in 1991 and later on, also subscribed to the additional shares at a hefty premium of ₹ 1800/- per share of ₹ 100/- face value. However, immediately thereafter, the assessee sold his shares at the price of ₹ 18,33,752/- as against the cost of ₹ 8,78,11,500/-. Thus, it booked the short term capital loss of ₹ 8,59,77,725/-. The said loss was allowed on the ground that the transaction was genuine. The Assessing Officer had disallowed the claim holding it to be a colourable transaction on the ground that the company could have invested further amount or waited for a reasonable period for the business to grow. The contention of Assessing Officer was rejected and the loss was allowed in the hands of assessee. 30. Another reason why the said loss was disallowed in the hands of assessee was that shares were sold by the assessee to his daughter. In this regard, we find support from the ratio laid down by Delhi Bench of Tribunal in Raghvendra Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.34 crores. The Assessing Officer was of the view that this was colourable device in order to book losses against gain arising from the sale of shares of FEM. 35. The CIT(A) allowed the plea of assessee holding the transaction to be genuine and legitimate tax planning within framework of law, since the shares of Reliance Industries Ltd. were quoted shares. 36. The Revenue is in appeal against the order of CIT(A). 37. The learned Authorized Representative for the assessee before us has pointed out that the issue stands covered by the ratio laid down by the Hon ble Bombay High Court in Pr. CIT Vs. Adar Cyrus Poonawalla in Income Tax Appeal (IT) No.226 of 2016, judgment dated 19.11.2018, which has upheld the decision of the Pune Bench of Tribunal in Adar Poonawalla Vs. Addl.CIT in ITA No.764/PN/2012 and cross appeal in ITA No.824/PN/2012, relating to assessment year 2007-08, order dated 30.01.2015. 38. In the case before the Tribunal in Adar Poonawalla Vs. Addl.CIT (supra), facts were similar. The assessee therein had purchased shares of HCL Technologies Ltd. and after announcement of bonus shares of one share for every one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue arising vide grounds of appeal No.2 and 4 in the case of Sunil Haripant Pophale i.e. against allowance of set off of long term capital loss of ₹ 1.28 crores arising on sale of shares of Pentagon. The said loss was allowed in the hands of Sunil Haripant Pophale to be set off against long term capital gains arising on sale of shares of FEM. Following the same parity of reasoning as discussed in the paras hereinabove, we allow the grounds of appeal raised by assessee. 42. The Revenue in the case of Sunita A. Ramnathkar vide ITA No.447/PUN/2014, relating to assessment year 2010-11 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of ₹ 90,71,917/- on account of loss claimed from sale of shares of Reliance Industries Ltd. 2. On the facts and in the circumstances of the case, the CIT(A) has erred in holding the transactions of purchase and sale of Reliance Industries shares by the assessee as tax planning within the four corners of law and subsequently permitting the same. 3. The order of the CIT(A) be vacated and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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