9911796707
TMI Blog2023 (4) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... see cancelled the agreement dated 02/07/2012 for sale of shares entered in to with Nilesh Steel and Alloys Pvt. Ltd. and Dhanlaxmi TMT Bars Pvt. Ltd. and agreed to pay consideration of Rs. 4,80,20,000/- and Rs. 3,03,80,000/- to above two parties respectively for breach of contract entered in to with these parties without paying any stamp duty and these parties instead of going to court for settlement of dispute objected the sale of shares to KSL Holding Pvt. Ltd. and finally agreed to execute cancellation deed, which is a colourable device to minimize the tax liability. 4. The Ld. CIT(A) erred in ignoring the fact that the as per profit & loss account of Nilesh Steel & Alloys Pvt. Ltd. and Dhanlaxmi TMT Bars Pvt. Ltd. for the AY 2013-14, the profit before tax (including the profit on sale of rights in shares of Rs. 4,80,20,000/- and Rs. 3,03,80,000/- respectively) is Rs. 9,18,636/- and Rs. 1,35,26,542/-. There is loss excluding these amounts in both the cases. From this it is evident that these companies have used the cancellation agreement as a colourable device to minimize the tax liability and hence the deduction of Rs. 7,84,00,000/claimed by assessee as selling expenses while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the entire scheme herein. 5. The assessee has placed strong reliance on the CIT(A)'s detailed discussion deleting the impugned addition as under: 5. I have duly considered the submissions of the appellant. The brief facts of the case are that the appellant is engaged in the manufacturing of plastic water tanks and milk canes under the name and style as M/s. Shree Maruti Udyog. The appellant was holding 3,50,000 shares of Lord Ganesha Minerals Pvt. Ltd. The said company was holding rights in mining of iron-ores at Sundur, Hospet, Karnataka. During the financial year 2012-13, the appellant came into contact with two parties namely Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT bars Pvt. Ltd. who showed interest in purchase of shares of Lord Ganesha Minerals Pvt. Ltd. Both the potential buyers were engaged in the manufacturing of M.S. Billets & Steel Bars and therefore required iron-ore as raw material. As a result, the appellant entered into an agreement to sell the shares whereby he agreed to sell 1,35,625 shares of Lord Ganesha Minerals Pvt. Ltd. to Nilesh Steel & Alloys Pvt. Ltd. and 2,14,375 shares M/s. Dhanlaxmi TMT bars Pvt. Ltd. at the rate of Rs. 305/- per sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sale dated 09.04.2012 & 07.05.2012 also provided that if the appellant failed to obtain said consent or failed to give delivery of share or for any reason he, in future, intended to sell shares at higher rate than agreed between parties, then such excess price shall be shared between Nilesh Steel & Alloys Pvt. Ltd./Dhanlaxmi TMT Bars Pvt. Ltd. and the appellant namely Shri Somnath Sakre in ratio of 70:30 i.e. 70% of excess price realized over and above Rs. 305/- per share, if any. The said clauses are reproduced as under: "13. The purchaser shall have right to assign all beneficial rights, interests and obligations arising out of this agreement to any third party and inform the seller accordingly in writing. The vendor shall have no objection if the purchaser manages to secure buyers for the said shares at a price/rate which may be higher than the agreed consideration under this agreement. It was mutually agreed and decided that whatever superfluous amount that the purchaser may be able to negotiate over and above the base price under this agreement, the excess consideration shall be shared in ratio of 70:30 between purchaser and the vendor respectively. The vendor should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure on the ground that cancellation agreement entered into by the appellant and other two parties was in the nature of colourable device to minimize the long term capital gains. The following observations were made by the AO while disallowing said claim: "4.3 On verification of the case record, it is found that the assessee has sold 3,50,000 equity shares of Lord Ganesha Minerals Pvt. Ltd., Pune (LGMPL) to KSL Holding Pvt. Ltd. & received consideration of Rs. 21,87,50,000/- vide share transfer Form no. 075773 dated 03.07.2012. The assessee had claimed the selling expenses at Rs. 7,84,00,000/-. 4.4 Further, on going through the case record, it is observed that the assessee had cancelled the agreement dated 02.07.2012 for sale of shares entered into with Nilesh Steel & Alloys Pvt. Ltd. for 2,14,375 shares out of 3,50,000 shares and with M/s. Dhanlaxmi TMT Bars Pvt. Ltd. for 1,35,625 shares out of 3,50,000 shares of LGMPL and agreed to pay consideration of Rs. 3,03,80,000/- to Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT Bars Pvt. Ltd. respectively for breach of contract entered into with both the parties on 07.05.2012 & 09.04.2012 respectively. However, while entering i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, final transfer of shares did not take place as the agreement was cancelled. Article 15 to schedule-1 of Bombay Stamp Act also provided stamp duty of Rs. 100/- for instrument of cancellation. It was argued that claim of the appellant was genuine and therefore it was needed to be allowed fully. On careful consideration of facts and circumstances of the present case, I am inclined to accept the arguments of the appellants. At the outset, both the recipients are assessed to tax. They have also filed confirmatory letters before the AO which indicate their PANs. Both the recipients have also been regularly filing their returns of income including that for AY 2013-14. Both the recipients namely Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT bars Pvt. Ltd. have credited the amounts of Rs. 4,80,20,000/- and Rs. 3,03,80,000/- to their profit and loss accounts for AY 2013-14. Thus the receipts in question have been offered to tax. The monies in question have been paid through banking channels and there is nothing on record to indicate that such payments were sham or the appellant had received equivalent amount in cash on earlier or later dates. Further both the recipients were cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee for loss by holding that once it was found that the transactions were genuine, then it could not be dubbed with 'colorable device'. In support of this conclusion, the Hon'ble Punjab & Haryana High Court relied on the decision of Hon'ble Supreme Court in the case of Union of India Vs. Azadi Bachao Andolan (263 ITR 706) wherein it was held that an act of the assessee 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 perceived by the department. The decision of Hon'ble Punjab & Haryana in the case of Pivete Finance Ltd. (supra) is squarely applicable to the facts of the present case. The Hon'ble Bombay High Court in the case of CIT Vs. Hede Consultancy Co. (P.) Ltd. (49 taxmann.com 56) held that when the assessee sold shares of a company at a price quoted at stock exchange whereas shares of sister concern were sold at loss because said company was in red, there being no doubt about genuineness of share transactions, assessee's claim for set off of loss arising from sale of shares of siste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge Board of India which made promoter equity shareholding above a certain limit impermissible, these securities could not be converted into equity shares. Jindal Polyfilms Limited modified some of these securities into redeemable convertible preference shares. The assessee sold some of the optionally convertible securities and redeemed the remaining. Overall, after the sale and redemption, the assessee claimed long term capital loss on these transactions. As it had no long-term capital gain to set-off the capital loss against, the assessee claimed carry-forward of the loss in its returns of income. The Assessing Officer disallowed the loss on the ground that the series of transactions was a sham designed to transfer funds from the assessee to Jindal Polyfilms Limited and it enabled the assessee to show a capital loss. On appeal, the Hon'ble Delhi Tribunal observed that the AO could not support his conclusion with any reasoning or evidence except to state that the transaction resulted in long term capital loss that itself was a ground for holding it to be a sham. The Tribunal also "served that while the mere fact that a transaction between sister concerns resulted in a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
