TaxTMI 
TaxTMI 
2013 (7) TMI 448
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....etting off the short term capital gain into long term capital loss? 2. These questions arise in the following factual background. 2.1 Respondent-assessee is a limited company. During the previous year relevant to A.Y 2001-02, the assessee had sold its plant and machinery to a group company viz., M/s. Garden Silk Mills Limited for a consideration of Rs. 8.95 Crores [rounded off] against the written down value of Rs. 2.58 crores [rounded off] and had thus earned short term capital gain of Rs. 6.37 crores [rounded off]. During the same period, the assessee company had also entered into another transaction with another group company viz.,SPS Silks Limited, to whom the assessee had sold 12,00,000 1% Cumulative Convertible Preference shares of M/s. Garden Finmark Limited at Rs. 6.25 per share. These shares were allotted to the assessee by M/s. Garden Finmark Limited on 21st March 1997 at the rate of Rs. 45/= per share; which included Rs. 10/= as Face value and Rs. 35/= as Premium. In the process of this transaction of sale of CCPS, the assessee-company had incurred long term capital loss of Rs. 6.34 Crores [rounded off]. This loss, the assessee had set-off against capital gain of R....
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....dent valuation of the shares. Only on the basis of suspicion, he had disallowed the entire loss incurred by the assessee in the process of selling the shares. 4. Having thus heard learned counsel for the parties and having perused the documents on record, we find that the CIT as well as the Tribunal both had concurrently come to the conclusion that the shares were sold on the basis of the valuation report, which did not suffer from any infirmity. We notice that the Assessing Officer had doubted the valuation report, however, did not chose to obtain any independent valuation. Additionally, the entire transaction was seen as colourable device for tax avoidance on the following grounds :- [1] Assessee did not produce minutes register and therefore, according to him, it was not possible to ascertain the correct sequence of events of the transactions in question; [2] The assessee had sold only 12,00,000 shares out of total holding of 15.36 lakh shares. The sale proceeds of which was sufficient to set-off short term capital gain; [3] According to him, the assessee did not suffer from any liquidity crisis since from the balance-sheet of the assessee company, it could be seen t....
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....A], however, dealt with each individual objection of the Assessing Officer and found that - (i) the valuation report was based on proper considerations and the valuer had adviced the company to sell the shares in the range of Rs. 6 to Rs. 6.50 per share; (ii) the assertion that the assessee was not suffering from liquidity crisis was not correct. He accepted the assessees explanation that though the assessee had a balance of Rs. 2.22 Crores; out of it, a sum of Rs. 1.34 Crores comprised of fixed deposit in the form Excise Duty margin, lying with the Bank of Baroda and a sum of Rs. 69 lakhs had to be kept aside as per the order of the High Court; and a sum of Rs. 80 lakhs represented non-refundable deposits. It was also found that the entire transaction was entered into after obtaining appropriate report from the valuer. In other words, merely because certain minor details viz., minutes of meetings were not produced, would not be fatal. 5.1 In his judgment, the appellate Commissioner had paid sufficient attention on the valuation method adopted by the valuer. He noticed that such valuation was arrived at after taking into account the profit earnings as well as net asset value. ....
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....oyees Union v. Hindustan Lever Limited [1995) 83 Com. Cases 30, in the present case, the valuer had considered it appropriate to apply a weightage of 75% to the value as per the profit earning capacity method and 25% to the value based on net assets method, resulting in the value of the equity shares of GFL, working out to Rs. 8.79/= per share. The valuer had further reasoned that although the CCPS carry an option to convert them into equity shares, their holders do not enjoy the same rights as holders of equity shares of the Company. Hence, the value of the equity share of GFL would have to be appropriately discounted to arrive at the value of CCPS. 4.30 In conformity with the ruling of the Honble Supreme Court in the case of A.R Krishnamurthy & Anr. v. CIT, reported in [1989] 176 ITR 417 (SC), the valuer had concluded in its valuation report as under : On consideration of the above factors and issues, in our opinion, SPL can sell the 15236650 1% Cumulative Convertible Preference Shares of Rs. 10/= each fully paid up of Garden Finmark Limited, at a price in the range of Rs. 6/= (Rupees Six only) to Rs. 6.50 (Rupees Six and paise Fifty] per share. 4.31 After due considerat....