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TMI Blog2024 (4) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... otment of shares to the appellant ranged from Rs. Nil to Rs. 5.92 per share and not Rs. 10 as quoted by the appellant and that the cost price of shares has been escalated by the appellant to derive short term capital loss. In response to the notice, the appellant had filed its reply relying upon Sec. 53 of the Companies Act which prohibits issue of equity shares at a discount. However the PCIT without considering the reply filed has proceeded to pass the order finding fault with the fair market value arrived as per Rule 11UA(1)(c) of the IT. Rules during transfer/sale of the said shares which was not spelt out in the show cause notice. C. The PCIT ought to have seen that the provisions of Sec. 53(1) of the Companies Act prohibits issue of shares at a discount and as per Sec. 53(2) any share issued at a discounted price is void. The PCIT ought to have further seen that under Sec. 53(3), any contravention of Sec. 53 (1) is also an offence punishable with fine in the hands of the issuing company and every officer of the issuing company are liable for imprisonment or fine or both. Therefore the PCIT ought to have taken note of the mandatory statutory provisions of the Companies Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are unquoted shares and the fair market price of such shares has been arrived at and certified by a qualified Chartered Accountant. The valuation having been done in accordance with Rule 11 UA(C)(c) of the I. T. Rules ought not to have been found fault with. In any event even as per the show notice issued by the PCIT the fair market price on the date of purchase/acquisition of shares by the appellant ranged between Rs. Nil to Rs. 5.92 per share and the fair market price valued (estimated) by the appellant at the time of transfer/sale of the said shares ^ranged between Rs. 0.50 to Rs. 6 per share which are almost in the same range. H. The PCIT is -wrong in treating the transaction of allotment of shares by the eight companies to the appellant as between related enterprises even while rendering a specific finding that the shareholding pattern of the appellant company may not connect with that of the eight companies as related enterprise. I. Therefore viewed from any angle the order passed by the PCIT is unsustainable in law and requires to be set aside. J. The appellant reserves its right to raise additional grounds at the time of hearing of the appeal. 3. At the outset, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l loss' of Rs. 30,34,45,783/- which has been carried forward to subsequent year. The case was selected for scrutiny and the assessment has been completed u/s. 143(3) of the Act on 21.12.2019 and accepted the income declared by the assessee. 6. The case has been, subsequently, taken up for revision proceedings and accordingly, show cause notice u/s. 263 of the Act, dated 01.12.2022 was served on the assessee. In the said show cause notice, the PCIT was of the opinion that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue, because, the AO has failed to verify the issue of 'short term capital loss' declared by the assessee from sale of unquoted equity shares pertaining to eight investment companies in right perspective of law, even though, the assessee has escalated the price of the shares to derive artificial 'short term capital loss'. Since, the AO has completed assessment without carrying out required enquiries he ought to have been carried out in light of provisions of the Act, which resulted in excessive loss/allowance allowed to the assessee. Therefore, the PCIT opined that the assessment order passed by the AO is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss', but the AO has failed to examine the issue in light of relevant details filed by the assessee to ascertain the correct nature of transactions, which rendered the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. Thus, rejected arguments of the assessee and set aside the assessment order passed by the AO u/s. 143(3) of the Act, dated 21.12.2019 and direct the AO to disallow the claim of 'short term capital loss' claimed by the assessee. The AO is also simultaneously directed to invoke the rectification proceedings u/s. 154 of the Act, and exclude appropriate portion of 'short term capital loss' undoubtedly created in AY 2017-18 and adjusted against the Capital Gains earned in the succeeding years. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. 8. The Ld.Counsel for the assessee, Shri P.V.Sudhakar, Advocate, submitted that the PCIT is erred in setting aside the assessment order passed by the AO u/s. 143(3) of the Act, dated 21.12.2019 by exercising his powers conferred u/s. 263 of the Act, even though, the assessment order passed by the AO is neither erroneous nor prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record by the PCIT, the assessee has got allotment of equity shares at face value of Rs. 10/- per share and within one month, sold said shares at the rate of Rs. 0.50 to Rs. 6/- per share. Further, the assessee is not disputing the Fair Market Value of the shares when the shares were sold. Therefore, from the above, it is undisputedly clear that when the shares got allotted to the assessee, the prices were escalated and within one month, said shares were sold at Fair Market Value which resulted in artificial 'short term capital loss'. Although, the assessee has structured the transactions in collusion with related companies and created artificial 'short term capital loss', but the AO failed to carry out required enquiries he ought to have been carried out. Thus, invocation of jurisdiction by the PCIT u/s. 263 of the Act, is in accordance with law and the order of the PCIT should be upheld. 11. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered the reasons given by the PCIT to set aside the assessment order passed by the AO by exercising his powers conferred u/s. 263 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the investment companies were unable to repay the loan, the assessee decided to convert loans into equity and accordingly, got allotment of equity shares of eight companies. Further, although, Fair Market Value of equity shares of said companies is less than the face value, but, because there is a restriction under u/s. 53(1) & (2) of the Companies Act, 2013 for allotment of shares at discount except as provided u/s. 54 of the said Act, the assessee has taken allotment of equity shares at face value in order to recover the unpaid/unsecured loans from said companies. Since, the Fair Market Value of unquoted equity shares of eight investment companies were not worth keeping, the assessee has sold said shares in the month of March, 2017 to another company ranging from Rs. 0.50 to Rs. 6/- per share and received consideration of Rs. 822.03 lakhs through proper banking channel. The said transactions had resulted in 'short term capital loss' of Rs. 3098.48 lakhs. 13. We have given our thoughtful consideration to the reasons given by the Ld.Counsel for the assessee in light of relevant reasons given by the PCIT in their order dated 31.03.2022 and we do not find any merit in the argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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