TaxTMI 
TaxTMI 
2015 (7) TMI 1021
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.... stated in brief. Smt.A Rajyalakshmi is the spouse of Sri A. Janakiram and both of them are in appeal before us. Shri A. Janakiram and Smt. A Rajyalakshmi held 40000 and 35000 shares respectively in a company named M/s. Varun Motors Pvt Ltd (VMPL). During the year under consideration, Shri A Janakiram sold 40000 shares for a consideration of Rs. 10,00,000/- and Smt. A Rajyalakshmi sold 31000 shares, out of 35000 shares held by her, for a consideration of Rs. 7,75,000/-. Both the assessees sold the shares to a person named Shri V Prabhu Kishore, who is the Managing Director of VMPL. It is also pertinent to note that Shri A. Janakiram was also one of the directors of M/s VMPL. Both the parties declared long term capital gain arising from the sale of the shares in the returns filed by them. 5. The department carried out a search and seizure operation in the residential premises of the assessees u/s.132 of the Act, in consequence to the search conducted in the hands of Shri V. Prabhu Kishore, the Managing Director of M/s. Varun Motors Pvt Ltd. During the course of search and seizure operation at the residential premises of the assessee Shri A Janakiram, a paper was found and the con....
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....n that Rs. 2 crores is the consideration to be paid against his transfer of 7.5% shareholding. Ans: Generally, Mr V. Prabhu Kishore is very cautious and systematic. This Rs. 2 crores is a gift to be received and has no relevance whatsoever with the transfer of 7.5% shares of M/s. Varun Motors Pvt Ltd." 8. To sum up, the assessee has denied that the amount of Rs. 2,00,00,000/- represented the sale consideration for transfer of 75,000 shares (40000 shares held by him and 35,000 shares held by his wife Smt. A Rajyalakshmi). However, the Assessing Officer did not agree with the contentions of the assessees and, accordingly, held that the difference of sales consideration of Rs. 1.9 crores (Rs.2,00,00,000 - Rs. 10,00,000/- received by Shri Janakiram) is assessable as capital gain on accrual basis, even though, the sale consideration was not paid on that date. Accordingly, he assessed the amount of Rs. 1.90 crores in the hands of Shri A. Janakiram. 9. In the hands of Smt. A Rajyalakshmi, the Assessing Officer assessed a sum of Rs. 1 crore as long term capital gain, which was calculated at 50% of the amount of Rs. 2 crores referred to in the letter found during the course of sear....
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....fact, came forward to admit the unaccounted income, where ever it was available, which is evidenced by the answer given by him to Q. No.24 and 25. In reply to those questions, he has admitted about the existence of unaccounted income and agreed to offer the same. The said admission of unaccounted income and the reply of the assessee with regard to the amount of Rs. 2.00 crores, according to Learned A.R, show the bona fides of the assessee, i.e., according to Learned A.R, Shri Janakiram would have admitted undisclosed income, if any, arising on transfer of shares. Since the assessee did not earn unaccounted income from transfer of shares to V. Prabhu Kishore, the Learned A.R submitted that Shri Janakiram has clearly mentioned that it was only a commitment given. The Learned A.R further submitted that the assessee Shri Janakiram further explained the facts in the sworn statement taken from him on 15.4.2008, wherein, in the answer given to Q. No.7, he has stated that the amount of Rs. 2.00 crores mentioned in the letter was a gift to be given to him and the same does not have any connection with the sale of shares. The Learned A.R submitted that the said clarification can be considere....
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....so placed reliance on the decision rendered by Hon'ble Gujarat High Court in the case of CIT Vs. Fairdeal Textile Part P Ltd (362 ITR 497) and also on the decision rendered by Hon'ble Calcutta High Court in the case of Macneill & Barry Ltd Vs. CIT (158 ITR 374) to contend that the addition cannot be made merely on the basis of letter, which was not claimed to have been not acted upon. He also relied upon the decision rendered by the Hon'ble jurisdictional A.P High Court rendered in the case of CIT Vs. Naresh Kumar Agarwal (369 ITR 0171) to submit that the addition cannot be made on the basis of mere confessional statement. 15. The Learned A.R further submitted that Shri Janakiram and Shri Prabu Kishore had entered into a Memorandum of Understanding (MOU), as per which the assessees herein was barred from doing identical business. The AO has referred to the MOU in the assessment order. The impugned letter was written at that relevant point of time. However, the MOU was not acted upon and hence Shri Janakiram has continued to provide his services to VMPL. This fact clearly shows that the letter was also not acted upon. The Ld A.R further submitted that the letter speaks about tran....
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....o section 5 of the Sale of Goods Act, 1930, which reads as under:- "5. Contract of sale how made:- (1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed." Accordingly, the Ld D.R submitted that the agreement to pay the consideration of Rs. 2.00 crores at a future date, i.e., at the time of marriage of daughter of Shri Janakiram, is a case of mere postponement of payment in respect of a concluded sale contract. In the instant case, since the property in 71,000 shares has already been transferred, the postponement of the payment would not invalidate the concluded sale. Accordingly the Learned D.R submitted that the tax authorities are justified in assessing the capital gain on accrual basis. 19. The Ld D.R further submitted that assessees as well as Shri V. Prabu Kishore has not disowned the letter. Though the assessees have transferred 71,000 shares out of 75,000 shares, the Learned CIT(A) has observed tha....
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....er, which reads as under: "Mr Janaki Ram shall not start any independent business in isolation of Mr Prabhu Kishore. Every business opportunity will be taken up jointly only, unless both came to an understanding otherwise. The existing proprietory concern Varun Motors, dealing in Bajaj Auto Ltd belonging to Sri V Prabhu Kishore will continue to be exclusive and any future business opening provided by Bajaj Auto Limited will be dealt exclusively by proprietory concern M/s. Varun Motors Only. Since, Sri V Prabhu Kishore is the key person for joint business venture of Mr Janaki Ram and Sri V Prabhu Kishore, in the event of any difference of opinion or dispute, Mr Prabhu Kishore's word shall be the final word i.e. Sri V Prabhu Kishore will have a final say." The following observations made by the assessing officer with regard to the MOU, in our view, are also very much relevant:- "Further, the memorandum of understanding entered into by Mr. A. Janakiram and Mr. V. Prabhu Kishore clearly establishes the fact that Rs. 2 crores consideration is promised to be given to Mr. A. Janakiram because he has acceded his interests and did not start his own business operations so as t....
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....d. could be Rs. 2.00 crores. We notice that the Learned CIT(A) has observed that the market price of shares of Pvt Ltd Company would be much more than the book value in view of the intrinsic value of the shares and the good will of the concern. The said observations may be partially true, but what is required to be shown is that the market price of 7.5% of share holding could be Rs. 2.00 crores or not. Secondly, we have seen that the MOU was also reached between the parties and the same was not examined by the tax authorities in order to find out as to whether the said MOU was given effect to or not. It is a well settled proposition that the noting found in a piece of paper, if not accepted by the assessee, should be corroborated with other materials. In the instant case the tax authorities have not brought any material on record to ascertain intrinsic value of shares of M/s. Varun Motors Pvt Ltd., in order to corroborate the amount of Rs. 2 crores, which was claimed to be the sale consideration of 75000 shares and hence, we are of the view that the inference drawn by the tax authorities that the amount of Rs. 2 crores actually represents the sale consideration of 7.5% of share hol....
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....id to Shri Janakiram actually represents the gratuitous payment mentioned in the letter does not appear to be correct. The observations of the Learned CIT(A) that the assessee Shri Janakiram has preserved the letter with the intention to enforce the same is also an inference drawn by him, when both Janakiram and Shri Prabu Kishore has offered explanations about the letter. Further, it was seen that the assessees have not transferred the entire 75,000 shares (i.e., 7.5% of the share holding) as stated in the letter, but only 71,000 shares have been transferred. 28. In view of the foregoing discussions, we are of the view that the inference drawn by the tax authorities that the letter was acted upon by the parties and the amount of Rs. 2.00 crores represented the value of 7.5% of the share holding is not supported by any material. On the contrary, a combined reading of MOU and the letter written by Shri V. Prabu Kishore would show that there is a possibility to infer that the amount of Rs. 2.00 crores was a consolidated amount agreed to be paid towards the value of shares as well as for non-compete agreement. The very fact that Shri Janakiram continue to work in the Varun motor gr....