TMI Blog2019 (3) TMI 1713X X X X Extracts X X X X X X X X Extracts X X X X ..... al Returns of the companies for the year, filed with the ROC (Registrar of Companies). Thus, in this way, as per the assessee, the transfer of shares had taken place within the four corners of law. It is important to mention here that the share Purchase agreements bear the signature of witnesses and in case the AO doubted the genuineness of the said share purchase agreements, then he could have verified the same by examining the witnesses, but the said exercise had not been done by the AO. The other objection raised by the AO was that no actual consideration was paid for the purchase of the shares but the transfer was by merely passing a journal entry and thus there was a book loss or paper loss. In this respect, we find from the records that purchase consideration was paid through banking channels‟ and was thus not merely by passing journal entries. Therefore this objection raised by the AO is factually incorrect. In the present case, the shares were purchased out of moneys provided by M/s SVJ holdings which is a third party and further shares were purchased at cost to group company and not at a premium. Also, such circuitous nature of transactions are not involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the ld. Assessing Officer, in disallowing the claim of short term capital loss to the extent of ₹ 81,69,60,025/-. The action of the ld. Commissioner of Income tax (Appeals) is contrary to the facts of the case and deserves to be deleted. 5. On appreciation of the facts and circumstances of the case the ld. Commissioner of Income tax (appeals) ought to have deleted the action of the ld. Assessing officer, in disallowing the claim of Software Consultancy expense of ₹ 2,42,66,000/-. The action of the ld. Commissioner of Income tax (Appeals) is contrary to the facts of the case and deserves to be deleted. 6. On appreciation of the facts and circumstances of the case the ld. Commissioner of Income tax (Appeals) ought to have deleted the action of the ld. AO, in initiating penalty proceedings u/s. 271(1)(c) of the I.T. Act on suo moto agreed additions declared by way of filing revised income during assessment proceedings. The action of the ld. Commissioner of Income tax (Appeals) is contrary to the facts of the case and deserves to be deleted. 7. Your petitioner reserves the right to add, amend, modify or alter the above grounds of appeal at any stage of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is inspite of several opportunities being given to the assessee to justify the above contention. (d) By the same logic, the assessee has failed to justify as to why the said shares were not sold by it at the cost it incurred to acquire them. (e) The assessee has failed to discharge the onus cast upon it by Sec 40A(2)(b).The assessee has not been able to furnish any evidences to establish that the shares of such concerns were purchased by some outside entities at the same price at which they were purchased by the assesse. Even in respect of the sale price, no evidence has been furnished to establish similar transactions entered into at the same price. (f) No evidence has been furnished to justify as to why the face value was taken as sale price. Merely furnishing the balance sheet as on 31 03 2009 do not in any way justify the sale of the said shares at face value when the said shares have been acquired at a much higher cost during the same financial year (and in some cases during the same month, and in one extreme case during the same date') 3.8.13 Thus it is evident that the assessee has failed to prove that the acquisition of the shares of the private limited g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 8,80.94.970/- + ₹ 9,80,00,000/- + ₹ 35.50,00,278/-) have been brought into existence. Considering the discussion in paras 3.8.1 to 3.10 above, the total contrived losses amounting to ₹ 81,69,60.025/- (₹ 19.76.37.955/- + ₹ 7,82.26.822/- + ₹ 8,80,94,970/- + ₹ 9.80,00.000/- + ₹ 35,50,00.278/-) are hereby treated as bogus losses and hence disallowed. 8 Ld. CIT(A) confirmed the order of AO and the relevant portion of Ld. CIT(A) is reproduced below:- 3.4 The AO's order, the contentions of the appellant and materials on record have been considered. The AO has disallowed loss declared on purchase and sale of shares in the short term. The appellant has in the main contended that (a) the acquisition of shares was in the nature of strategic investment and to consolidate before selling the same, (b) the original intention was to sell the appellant company but the same did not materialize, (c) all share transactions do not necessarily result in profit and all transactions have to be viewed as a whole, (d) the balance sheets support the valuation of the shares purchased, the net worth of a company is not always indicative of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at such high prices, nor sales at face value, no basis of valuation for either have been filed, in spite of several opportunities provided to the appellant in assessment as also appellate proceedings. The companies being group companies, the onus also lay on the appellant u/s 40A(2)(b) of the Act. The appellant claims that the companies were closely held companies in which there were no transactions with outside entities, however even in these circumstances the appellant has failed to show how valuation of shares was arrived at either on their purchase or at the time of their sale. If the companies were not viable for the appellant, there is no reason as to why the same companies would be viable to outside entities. The Apex Court has in the case of McDowell Co. v Commercial Tax Officer 154 ITR 148 (SC) held that the Courts are now concerning themselves with not merely the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can get away with a tax avoidance project with the mere statement that there is nothing illegal about it. Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ldings Ltd as Investor, Vijay Television Pvt Ltd as the company , Jupiter Entertainment Ventures Pvt Ltd and the assessee company as Sponsors in April 2008 to carry on the business in entertainment sector in a strategic partnership, for which the assessee had agreed to sell the stake in the subsidiaries for a consideration the detail of which is mentioned below: Name of the Company Activities of the Company Estimated Consideration [Pg 56] Asianet Communications Ltd. Entertainment ₹ 1,092.66 Crs Asianet News Pvt. Ltd. News Channel ₹ 4.80 Crs Asianet Radio Pvt. Ltd. FM Radio Station ₹ 1.80 Crs Asianet Infrastructure Pvt. Ltd. Teleport Uplinking ₹ 9.40 Crs 11 As per Ld. AR, M/s SVJ Holdings others also expressed a possibility of looking at further investments in other companies of the assessees group and thus with a view to expand business opportunities and to increase the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering Pvt Ltd 05-04-08 657,810 32,890,500 4 Advance Audio Solutions (P) Ltd Hindustan Infra Projects Engineering Pvt Ltd 05-04-08 2,658 17,500,000 5 Vidhyacom Technologies (P) Ltd Jupiter Strategic Technologies P Ltd (Axis Aerospace Technologies P. Ltd) 11-06-08 373,020 23,993,568 6 Microcon International Ltd Jupiter Strategic (Axis Areospace TechnologiesP. Ltd) 11-06-08 10,013,727 67,977,181 7 Asianet Media Ltd Asianet Communication Ltd 12-05-08 905,030 89,000,000 8 Fedex Finance Ltd Initial Allotment 12-12-08 200,000 100,000,000 9 Jupiter Capital (P) Ltd M K Chandrashekar 31-03-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sale No. of Shares Amt/Rs. 1 Crystal Resorts (P) Ltd Surya Samudra Hospitality Ventrues P Ltd 27-03-09 249,876 2,498,760 2 Nahal Properties (P)Ltd Surya Samudra Hospitality Ventrues P Ltd 27-03-09 56,563 5,656,300 3 Enertec Controls (P)Ltd HIPE Realty Developers P Ltd 27-03-09 657,810 6,578,100 4 Advance Audio Solutions (P) Ltd Jupiter Entertainment Ventures Pvt Ltd 27-03-09 2,658 26,580 5 Vidhyacom Technologies (P) Ltd Hindustan Infra Projects Engineering PvtLtd 27-03-09 373,020 3,730,200 6 Microcon International Ltd Hindustan Infra Projects Engineering Pvt Ltd 27-03-09 10,013, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial long term gain was not wiped out by the short term capital loss. The Long Term Capital Gains was to the tune of ₹ 911.84 crores, whereas the short term capital loss which had been set-off was only to the tue of ₹ 81.69 crores. Hence, in the circumstances, it is difficult to ipso-facto attribute any motive to the assessee for avoiding the Tax. 18 We have also perused the MOU dtd 26/4/2008, which was entered into with independent third parties i.e. SVJ Holding Pvt Ltd [Investor Co ]and Vijay Television Private Limited. The genuineness or the veracity of the MOU was not doubted by the AO. As per the MOU, it was manifestly clear that the investor was ready to purchase GEC operations i.e. entertainment business‟ carried out by Asianet communications Ltd as well as Non GEC operations i.e News, radio and Teleport carried out by other Group Companies. However, eventually when the ultimate share purchase agreement was entered into on 27/8/2008 at that time, only the entertainment business‟ was purchased. According to Assessee, the fact that though the Investor co. had agreed to buy other business, but eventually bought only entertainment business goes to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e successful, so as to avoid double payment of share transfer fees. Accordingly it entered into a share purchase agreement with the companies for buying their stakes, to justify and strengthen their claim of having investments in Hospitality and Real Estate sector at the time of negotiations with M/s. SVJ Holdings Others. Thus, according to the submissions of the assessee, that instead of borrowing and paying interest it was prudent to pay the purchase consideration after receiving the sale consideration from M/s SVJ Holdings Others. We find the above explanation of the assessee appeals to the conscious, even otherwise it was after-all a commercial business decision of the assesse. Therefore, we find merit in the argument of the Assessee that as a prudent businessman in order to avoid double share transfer fees and further instead of borrowing and paying interest, it was more prudent to pay purchase consideration out of sale consideration as receiving said sale consideration was almost certain in view of the MOU. 20. The AO could not bring on record any evidence to show that share purchase agreements were back dated or product of an afterthought, therefore in such circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed for valuing the shares of Pvt Ltd company and it is only w.e.f 1/10/2009 that Rule 11U and Rule 11UA had been introduced prescribing method for valuation of shares. As discussed above, we feel that Assessee while purchasing the shares was justified to pay more than the book value of shares i.e at least the cost to the sellers as purchase of said shares would give more benefits to the assesse company. Further, while selling the shares the maximum assesse could have got is the face value as same was more than the book value and holding of said shares was not beneficial to the assesse company after M/s SVJ Holdings refused to purchase said shares. In totality in this way, the assessee company earned a huge profit of ₹ 830.15 Crs and capital gains were declared for the same. 23 The Hon‟ble Supreme Court in the case of Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1(SC) had explained the correct interpretation of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) that legitimate tax planning cannot be considered as sham. The relevant portion of said decision is as under : The majority judgment in McDowell Co. Ltd. case (supra) he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticipants. Furthermore, shareholders/participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in consideration of their shareholding/participations, such as capital gains. Now a days, it is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct taxpayers. 24. Thus, as the transactions in the above case were carried out within the framework of law and between two separate legal entities, therefore the transactions cannot be termed as sham just because there is lower outflow of taxes. The decision of the Hon‟ble Supreme Court had been applied by the Hon‟ble Bombay High Court in the case of CIT v Hede Consultancy Co. (P.) Ltd [2015] 231 Taxman 421 (Bom)(HC) wherein the court was dealing with a case wherein revenue Alleged that shares of sister concern were sold at a loss to reduce profits on sale of shares on stock exchange. The Hon‟ble Bombay High Court held that there was no evidence to show that transactions were illegitimate. The Chennai Tribunal in Coromandel Cables Ltd v ACIT [2016] 71 taxmann.com 346 (Chennai)(Trib.) has held as under : Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser test would seem to us to be that of commercial expediency. If the payment is made under -the honest belief that the claim by the employee for compensation or damages is justified and the assessee has acted in the matter of the settlement of the claim as an ordinary prudent business man would act, it would not be for the Department to say that the claim would not have succeeded in its entirety or even partly in a Court of law. In such a case the Department cannot insist on framing its own standard of reasonableness or prudence. When faced with a claim for compensation or damages by a servant whose services have been wrongfully terminated, it is the employer to view the matter as one of commercial expediency. If he finds that the claim is justified and does not allow any collateral consideration to colour his judgment, it would certainly be open to him to settle the claim for a reasonable amount and it is difficult to see show in such a case it should be competent to the Department to set up its own views of the matter and say that the claim of the employee was not legally very sound. 27 It is also a fundamental principle under the Income tax act that the contract between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of loss has paid tax on LTCG of ₹ 830.15 crores. Further, in this case, the Assessee purchased shares or made investments in its subsidiaries by subscribing shares at a premium even though it was a cash starved company. The funds for investment came from G.K. Rathi Group. The amount invested in the subsidiaries were transferred by the said subsidiaries to G K Rathigroup company. Thus, Assessee had given guarantee in favour of GK Rathi group which led to sale of land, the amount invested for purchase of shares came from GK Rathi group and said amounted was again routed back to G.K. Rathi Group. 32. However the facts of the present case are altogether different. In the present case, the shares were purchased out of moneys provided by M/s SVJ holdings which is a third party and further shares were purchased at cost to group company and not at a premium. Also, such circuitous nature of transactions are not involved in the facts of the present case. 33 Secondly the Ld DR has relied upon the decision in the case of DCIT v M/s B.S Infosolution Pvt. Ltd. ITA No 2989/Del/2016 AY 2012-2013 Bench E, New Delhi, ITAT dtd. 23.8.2018. The said decision is not applicable to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect perspective. Therefore, keeping in view the totality of facts and circumstances of the present case, we are of the considered view that the disallowance of short term capital loss is not justified. Resultantly, this ground raised by the assessee stands allowed. 36 Now we take up ground No 5. In this ground the Assessee has challenged the disallowance of the claim of ₹ 2,42,66,000/- paid towards software consultancy charges. 37. As per the brief facts of the case, the assessee company paid professional charges of ₹ 2,42,66,000/- to M/s. Axis Aerospace And Technologies (P) Ltd on the basis of an agreement entered into on 05.01.2009. The said company was required to provide technical and software consultancy service as turnkey solution, for upgrading the Broadcasting Software and integrating various embedded software in the equipments in PCR and for insertion of advertisements, Montage etc. PCR has equipment from Sony, Panasonic and Apple. The said software is required to integrate all these programmes. As per the assessee, the agreement was entered into basically with an intention to develop a Broadcasting Software required for running a channel. 38 Whereas, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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