TaxTMI 
TaxTMI 
2011 (9) TMI 48
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....the assessee, NBFC Company, had invested in unquoted shares which were a group concern company and those shares were also sold to its group concern company. Assessing Officer has observed that the rates were not determined on the basis of market value as there was no market of the unquoted shares. Details of transactions of shares were as under :- Script sold Year of purchase Purchase Price Sale Price To whom sold Beri Mercurio 1995-96 & 1996-97 110/- per Share 132.25 per share Sweet Marketing (India) P. Ltd. & Beri United P. Ltd. Berlin Securities 1995-96 & 2000-01 110/- per Share 110/- per Share Beri United Metals P. Ltd. Major Metals 1998-99 50/- per share 66.20 per share Sweet Marketing (India) P. Ltd. Beri Finvest 1997-98 & 2000-01 110/- per Share 60/- per Share Sweet Marketing (India) P. Ltd. Assessing Officer further noticed from the details of investment in unquoted shares of assessee-company that assessee-company had invested in Sweat Marketing (India) Pvt. Ltd. in 1990. Further it was also found that Sweat Marketing (India) Pvt. Ltd. was also a shareholder of Beri Finvest Pvt. Ltd. and its holdi....
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....sessee has earned Long Term Capital Gain of Rs.27,45,865/- and is added to the total income of the assessee." Before Ld. CIT(A) assessee had, inter alia, submitted that long term capital gain/loss is to be computed in the manner laid down in Section 48 of the Income Tax Act as per which sale consideration is that which is actually received or accrued and, therefore, there was no scope for estimation as done by Assessing Officer. Ld. CIT(A) deleted the addition for the following reasons :- (i) No enquiry was visible on the face of the assessment order to indicate that the physical process of transaction had been challenged by the Assessing Officer. (ii) Assessing Officer had not disputed the assessee's contention that all the shares were sold above the book value. His point was that they were not purchased at book value. (iii) Purchase transactions had been accepted by the Department as bonafide in the years of purchase. (iv) All investments can not lead to a positive return. (v) Assessing Officer did not point out any circumstances which could logically lead to believe that the consideration at which the shares were sold by the assessee should have been higher. Su....
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....d to determine the true intentions resulting from the transaction. If the parties had chosen to conceal the income by a device, it is always open to the taxing authorities to unveil the device. In this regard, we may refer to the decision of I.T.A.T., Kolkata Bench in the case of Edward Keventer (P) Ltd. vs. DCIT [2004] 89 ITD 347 (Kol.). In this decision the Tribunal has examined the legal position vis-à-vis powers of the Income Tax Authorities in relation to sham transactions as emerging from the various judicial authorities and has summarized them as below :- "(i) The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. Motive alone can not make unlawful what the law allows but at the same time if there is presence of bad faith or fraud or lack of bonafide in the transaction, the taxing authorities are not found to consider the legal effect of the transaction. If the assessee's acts are not bonafide but are ambiguous, sham or make-believe, it is open to the taxing authorities to question and doubt the transaction and to find out the true, correct meaning and real meaning and result thereof. The make-b....
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....plication where the devices though seemingly legal are adopted in collusion or where devices adopted are not genuine or bona fide but are sham, make-believe or camouflaged to escape the liability for tax or to obtain certain benefit for tax purpose." Ld. Counsel appearing on behalf of the assessee has vehemently relied on the decision of Hon'ble Supreme Court in the case of K. P. Varghese vs. ITO [1981] 131 ITR 597 (SC). In this case facts were that the assessee was the owner of a house situated in Ernakulam, which he had purchased in 1958 for the price of Rs.16,500/-. On 25th December, 1965, assessee sold the house for the same price of Rs.16,500/- to his Daughter-in-Law and 5 of his children. The assessments were completed but subsequently notice under section 148 was issued for fixing fair market value of the assessee on 25.12.1965 at Rs.65,000/- for which the house was sold and to assess difference of Rs.48,500/- as capital gains in the hands of the assessee. There was no dispute regarding bonafides of the transaction because of the relationship between transferor and transferee. Only dispute was whether market value could be substituted in place of actual sale consideration....