TMI Blog2019 (12) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Advocate with Parin Shah For the Respondent : Shri L. P. Jain, Sr.D.R. ORDER PER Ms. MADHUMITA ROY - JM: The instant appeal filed by the assessee is directed against theorder dated 04.07.2012passed by the Commissioner of Income Tax (Appeals) 6, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to the Act )arising out of the order dated 29.12.2011 passed by the Dy. Commissioner of Income Tax, Circle 1, Ahmedabadfor Assessment Year 2009-10 with the following concise grounds of appeal: 1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 1 of the appellant's appeal challenging the validity of the assessment order impugned before him, on the ground that it was general in nature not requiring adjudication by him. 2. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the disallowance of Long Term Capital Loss of ₹ 2,41,93,750/- incurred by the appellant on the sale of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares are off-market transaction, the assessee was directed to explain the same whereupon following reply was made by the assessee: On being enquired, the assessee vide submission dated 04/09/2011 submitted as under:- 1. Your good self has sought details of short term capital loss incurred on sale of shares of I-Call India Pvt. Ltd. In this regard we submit that the assessee company had acquired the said shares with a view to earn profits in future on sale of shares of the said company as the said company is engaged in the business of BPO and operation of Call Center for various known Domestic as well as international companies. However, in view of the economic conditions in the western countries more particularly USA which contributed significant portion of revenue for the said investee company, the assessor company thought It fit to sale the shares even at loss. It is worth noting that in the year when the shares were acquired the invites company was making profit but in the year under consideration, the said investee company has had huge amount of accumulated loss. We are submitting herewith the financial statements of F.Y.2007-08 and 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt Ltd. In this regard we submit that the assessee company has already detailed submission explaining the reasons for incurring the loss along with the valuation of shares vide point no 1 and 2 of our reply dated 4th September, 2011. As the assessee company has incurred capital loss on sale of shares of unlisted companies in off market transactions, the said capital loss incurred during the course of carrying on of the business is allowable in terms of Section 45 read with Section 48 of the IT Act. (Annexure-1). According to the Learned AO the assessee since not entered into any agreement with the Anand Tradelink Pvt. Ltd. and Paras Tradelink Pvt. Ltd., nor any timeline was decided for purchase of those shares and not even the number of shares and the prices at which the shares were required to be transferred. The assessee failed to substantiate its genuineness. Further that, it has been concluded by the Learned AO that the said transaction of purchase and sales of the shares within the group was a mere artifice or device so as to reduce the tax liability of the assessee-company and hence said loss of ₹ 2,41,93,750/- was disallowed and added to the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erused the materials available on record. At the outset, we note that the ITAT in the own case of the assessee involving identical issues in ITA No. 218/AHD/2016 pertaining to the assessment year 2010-11 vide order dated 31st December 2018 has decided the issue in favour of the assessee and against the Revenue. The relevant extract of the order is reproduced as under: 10. We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee has sold equity shares of Arvind Ltd at ₹ 28.83 per share which is less than the price listed on the stock exchange by ₹ 4.99 per share. The assessee has sold 30 Lacs shares of Arvind Ltd which resulted in the long-term capital loss of ₹ 1,49,70,000/- on account of the difference in the price as discussed above. The assessee sold these shares to Shri Sanjay Lalbhai who is the director in assessee company as well as Arvind Ltd. Accordingly, the AO was of the view that the loss claimed by the assessee has been generated through the use of a colorable device. 10.1 Therefore, the same was disallowed. The view taken by the AO was subsequently confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any specific provision to determine the sale price of the shares of the listed company, we are inclined to hold that the price declared by the assessee is correct and within the provisions of law. 10.7 We also find that a new section 50CA of the Act was inserted by the Finance Act 2018 which is applicable from 1st April 2018, the relevant extract of the section is reproduced as under: [ Special provision for full value of consideration for transfer of share other than quoted share. 50CA. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed 40a , the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Explanation.-For the purposes of this section, quoted share means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o fathom how the tribunal had distinguished the said decision solely and entirely on the ground that in the present case the transaction was not at arm's length (see paragraphs 18 and 19 of the order of the tribunal quoted above in paragraph 16). K.P. Varghese case (supra) case holds that sub-sections (1) and (2) relate to transactions, which were not at arm's length between related parties and third parties respectively, but the two provisions were integrally connected inasmuch as they would apply when there was evidence and material to show that the consideration declared and disclosed was under-stated and not the actual consideration received by the assessee. Only when the said pre-condition was satisfied, the Assessing Officer was entitled to treat the fair market value as the full value of consideration. Difference between the consideration actually received and market value of consideration by itself would not justify invoking the said Section. The aforesaid ratio has been followed by the Supreme Court in CIT v. Shivakami Co. (P.) Ltd. [1986] 25 Taxman 80K/159 ITR 71, which observes that the provision would apply only when there was consideration and which considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax liability on the excise duty even after the amendment in the distillery rules 76 79 w.e.f. 4-8-1981. As such before the amendment in the rules, i.e., distillery rules 76 79 w.e.f. 4-8-1981, the buyers were liable to deposit the excise duty directly to the state government. Therefore the assessee did not collect the sales tax on such excise duty. It is pertinent to note that the Hon ble SC before the amendment in the rules 76 79 decided the issue in favor of the assessee reported in 1 SCR 914 dated 25-10-1976. Thus the assessee defaulted in complying the amended distillery rules 76 79 w.e.f. 4-8- 1981. Thus the Hon ble Apex Court decided the issue in favor of Revenue. Hence we are of the considered view that the principles laid down by the Hon ble Apex Court cannot be applied in the case before us as the facts are different. 11.2 It is also pertinent to note here that the Hon ble apex court in case of Union Of India And Anrvs.AzadiBachaoAndolan (263 ITR 705) discussed the case McDowell Co. Ltd vs. Commercial tax officer (supra) in detail and distinguished from it by observing as under: We may in this connection usefully refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision has to be understoodin the context it has been made. The facts and circumstances which led to McDowell's decision (supra) leaves us in no doubt that the principle enunciated in the above case has not affected the freedom of citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the frame work of law, unless the same fall in the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. It was with this consciousness that the Court has used these expressions while depreciating the schemes of tax avoidance in the name of tax planning. All the expressions used by their Lordships in depreciating the methodology of tax avoidance through tax planning of resorting to 'colorable device', 'dubious methods or subterfuge' have special significance in legal world. In the context of the present discussion, the meaning assigned to 'colorable' in Brown's Judicial Dictionary has been defined as 'reverse of bona fide'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Revenue needs to see it in entirety, as held by the Hon ble Gujarat high court in the abovementioned case. 11.5 The AO in his order also relied on the judgment of Supreme Court in the case of workmen vs. Associated Rubber Industry limited (157 ITR 77) (SC) and held that facts of the above case are similar to assessee s case. However, we note that the above decision was in respect to the calculation of bonus payable to workers where an artificial entity was created to divert the income so that bonus liability can be reduced as the bonus was to be calculated at a fixed rate and diverting the income resulted in reducing the bonus liability. Therefore, Hon ble Supreme Court held that it is not permissible as the artificial entity was later wound up in 2 years. But we find that facts in the case on hand are different from the case as mentioned in the immediately preceding paragraph. Further, we also note that the above case was related to the issue of labors while the present case is related to tax planning. Thus, the principles laid down concerning the labor laws cannot be adopted in the case before us. 11.6 We also note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the definition of the transfer. Accordingly, the value of such extinguishment of right was determined by the assessee at ₹ 36,19,050/-. However, the AO treated the same as a colorable device on the ground that the transaction was carried out among the related parties which were belonging to the same group. Accordingly, the loss on account of forfeiture of shares as discussed above claimed by the assessee was disallowed by the AO. However, the view taken by the AO was subsequently reversed by the learned CIT (A). 19.2 Now the controversy before us arises whether the loss claimed by the assessee on the sale of shares of AKAL is generated as a tool of a colorable device. It is an undisputed the fact that all the parties involved in such transaction were identifiable and the whole transaction was based on the documentary evidence. Now the question arises to determine the price at which the assessee sold these shares. It is an undisputed fact that the assessee acquired shares of AKAL at a premium of ₹ 490 per share having face value at ₹ 10 per share only. These shares were sold at a price of 150 per share which is in excess than the fair marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value of such property; (B) For a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: 19.6 A plain reading of the above provision reveals that the person being the recipient is subject to tax if it acquires anything at a value lesser than the fair market price. These provisions have been brought under the statute with effect from 01.04.2017. We also note that the same provision was also there in the old provision under clause (vii) to section 56(2) of the Act. However, on reading the same, we note that the tax liability, if any arises will be applicable in the hands of the recipient and no liability, can be imposed on the transferor. Therefore, we are of the view that the assessee being the transferor of shares cannot be subject to tax in the instant case. 19.7 In holding so, we also find support and guidance from the judgment of Asara Sales and Investments Private Limited (ITA No. 1345/PUN/2014) wherein it was held as under: 19. Another aspect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer or investor. It is an undisputed fact that the assessee has invested in AKAL by acquiring the shares at a premium. The act of acquiring the shares at a premium by the assessee does not result in any income in its hands. Thus there cannot be any tax in the hands of the assessee on account of the investment in shares in AKAL at a premium. In this regard, we draw the principles from the order of Mumbai Tribunal in the case of Pratik Syntex Pvt. Ltd. Vs. ITO reported in 94 taxmann.com 12 wherein the headnote reads as under: Section 68 of the Income-tax Act, 1961 - Cash credits (Share capital) - Assessment year 2012-13 - During relevant year, assessee received huge amount from three companies as share capital - Assessing Officer taking a view that transaction of issue of share capital was bogus, added said amount to assessee's taxable income under section 68 - It was noted that even though shares had been issued at a very high premium to new shareholders, yet assessee could not even give correct addresses of three applicant companies where they were located - Further, assessee did not file any cogent material/evidences to justify chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ABC Ltd having a face value of _ 10 per share at a premium of rupees 490.00 per share in the financial year 2009-10. Accordingly, Mr. X has shown an investment of _ 5000 in its balance sheet as on 31.3.2010. On the acquisition of the shares, there is no question of working out any taxable income in the hands of the assessee. Thus the value of the investment shown by the assessee in its balance sheet will certainly be accepted by the Revenue. There cannot be any question of any income in the hands of Mr. X on account of investment in ABC Ltd. at a premium. 20.2 However, the provisions of the Act requires ABC Ltd. to justify the share capital share premium in its hands. ABC Ltd. is required to explain the source of share capital and premium under section 68 of the Act. Similarly, ABC Ltd. is also required to explain the source of share premium in its hands under section 56(2) of the Act. Thus if ABC Ltd. fails to justify the same under the relevant section 68/ 56(2) of the Act, then it will be subject to tax in the hands of ABC Ltd. Thus the value of share price along with premium at the most can be brought to tax in the hands of the ABC Ltd if it fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off of such loss. So that there should not have been any question of any disallowance. On the contrary, the assessee has not done so rather incurred the loss within 5 days from the acquisition of the shares. It is also pertinent to note that the shares were acquired at the fag end of the previous year, and there were few days left for the expiry of such financial year. The assessee could have planned such transaction by splitting into2 different financial years as it was the matter of few days only. Thus the action of the assessee does not show any malafide intention to use the sale of shares as the colourable device in creating such a loss. Accordingly, we are of the view that had there been any malafide intention of the assessee then it could have booked such loss in the more planned manner so that there should not have been any doubt. We are forming our view on the basis that the assessee did not set off such loss till the date of passing the order by the learned CIT-A. Had there been any malafide intention of the assessee, then it could have claimed the set off of such loss in the same financial year or the subsequent financial year. 20.7 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be allowed to him on account devaluation of the investment at the year-end unless Mr. X sells these. Thus the loss allowable to the trader of shares cannot be disallowed if such shares were held as an investment. But such loss will be allowed only on the sale of such shares. 21.3 We also find support guidance from the order of this Tribunal in the case of DCIT Vs. Orbit Finmark Pvt. Ltd. in ITA 100/Ahd/1999 dated 9/11/2012 wherein it was held as under : 10. After hearing both the parties and perusing the record we find that ld. CIT(A) has given relief to the assessee by holding that the case of the assesseeis squarely covered by the Hon'ble Calcutta High Court decision in the case of CIT vs. Smt. NandiniNopany (230 ITR 679), the relevant portion of which reads as under:- The genuineness of the transaction of the sale and purchase of the shares between the assessee and VishwaMangal Trading Co. Pvt. Ltd., has not been doubted by the Assessing Officer. This has not even been questioned by the Department. It is not disputed that the assessee had transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchaser as profit of the company. 11. In view of the above and since no contrary decision was cited by the Revenue, we are not inclined to interfere with the order passed by ld. CIT(A) deleting the addition of ₹ 14,14,06,326/- and the same is hereby upheld. This ground of the Revenue is dismissed. 21.4 Further, in almost in a similar case Hon ble Gujarat high court in case of Assistant Commissioner of Income-tax vs. Biraj Investment (P.) Ltd ( 24 taxmann.com 273) held as under: 14. Having thus heard the learned counsel for the parties, we find that the relevant facts are not in dispute. The respondent assessee sold shares of Rustom Mills and Industries Ltd for a sum of ₹ 4,01,000/- on which transaction, theassessee claimed long term capital loss of ₹ 8,38,790/-. During the same period, the assessee also sold certain shares of Rustom Spinners Ltd. and showed long term capital gain of ₹ 1,46,792 and short term capital gain of ₹ 7,41,563/-. It is also not in dispute that the shares of Rustom Mills and Industries Ltd. were pledged by the assessee with IDBI Bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eek set off against the capital gain received by it during the year under consideration. 18. In the case of CIT v. SakarlalBalabhai [1968] 69 ITR 186 (Raj.), a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, 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. Thiscannot 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. 19. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) and the observations made in the later decision in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, 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. In the present case, of course, there is a further angle of the shares in question being pledged to IDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms. As already noted, such special angle may have repercussion insofar as the legal relation between the assessee and the IDBI is concerned and insofar as the purchaser's right to have shares transferred in its name is concerned. This, however, by itself would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This ground of appeal is thus allowed. Ground No.3 The Learned CIT(A) has upheld the amount of expenditure disallowed u/s 14A while computing the appellant s book profit u/s 115JB. Upon examination of the computation of the total income, it appears that the assessee added back provision for doubtful debts of ₹ 27,625/- and provisions for doubtful loan of ₹ 3,48,19,097/-. The assessee has not added back the same while calculating the computation u/s.115JB of the Act against which the assessee submitted as follows before the Learned AO: 7. our good self has asked us to show cause as to why provision for doubtful loan of ₹ 3,48,19,097 should not be added to the book profit while computing tax as per the MAT provisions contained in Sec 115JB of the IT Act We reiterate the submission made vide point no 3 of our reply dated 4th September, 2009 wherein we stated that #?e said provision for loan represents diminution in the value of asset being Lo3,~ itself and it 1$ not in the. nature of provision for unascertained liability. The Hon'bie Supreme Court in the case of CIT Vs HCL Comnet Syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses was disallowed u/s 14A to the tune of ₹ 2,01,79,762/- and was added to the book profits u/s 115JB explanation 1(f) of the Act which was, in turn, confirmed by the first appellate authority. At the time of hearing of the instant appeal, the Learned Sr. Counsel appearing for the assessee submitted before that this issue is squarely covered by the Jurisdictional High Court in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 wherein the disallowance made u/s 14A of the Act has been held not to be disallowed u/s 115JB of the Act. The Learned DR, however, failed to make any contrary submission to that of the contentions made by the Learned AR. 18. We have heard the rival contentions of both the parties and perused the materials available on record. The AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for ₹ 35825/- while determining the incomeunder normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has added the disallowance made under the normal computation ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
