AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1148
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.... at Rs. 202/- as against Rs. 1195/- per shares shown by the assessee, thereby assessing the consideration of Rs. 20,25,720/- as unexplained income without appreciating that there is no provision under the Act whereby the AO could reduce the value of sale consideration of shares sold and tax the difference amount as unexplained income . 2. The Id. CIT(A) failed to appreciate that the value of shares is accepted by department in A.Y. 2007-08 in case of Mr. Satish A. Shah (Son) thus the computation capital gain by the assessee may be allowed and benefit u/s. 54EC of the Act may also be allowed." 3. The brief facts of the case are that assessee is an individual deriving income from salary, income from house property, capital gains and income from other sources. During the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act, it was observed by the A.O. that the assessee has sold 2040 equity shares of face value of Rs. 100/- per share in BEC Industrial Investment Company Pvt. Ltd. to another company BAT Enterprises Ltd. and booked a net profit of Rs. 22,33,800/-. The details of which are as under:- Sale of 2040 shares @ Rs. 1195/- per share at a total sal....
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....as on 31st March, 2007 , and apart from the above goodwill valuation is also to be considered as well necessity of the buyer is to be taken into account while negotiating price of the share. It was also submitted that when valuation of shares of principal company is derived, valuation of subsidiary is also taken into account. The A.O. considered the submission of the assessee but rejected the same. The A.O. observed that the assessee has not provided any working or basis of valuation of adopting sale price at Rs. 1,195/- per share of BEC Industrial Investment Company Private Limited. Therefore, it seems that the same is taken arbitrarily without any calculation or base. The A.O. observed from the Balance Sheet of the above company BEC Chemicals Private Limited that the said company is in-fact a loss making company. It has incurred a loss of Rs. 16,43,220/- for the year ended March, 2007, which was further increased to net loss of Rs. 31,43,652/- for the year ended March, 2008 and moreover the company has not declared any dividend also. Thus, It was observed that the subsidiary company which is loss making and not paying any dividend cannot add value to the holding company and henc....
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....of the Act. 4. Aggrieved by the assessment order dated 20-12-2010 passed by the A.O. u/s. 143(3) of the Act, the assessee filed the first appeal before the ld. CIT(A). 5. Before the ld. CIT(A) , the assessee reiterated the submissions what were made before the A.O. which are not repeated and submitted that the sale of shares to its promoters by BEC Chemicals Pvt. Ltd. at par is for subsequent period and hence not relevant. It was submitted that the rate of Rs. 1195/- per share of BEC Industrial Investment Company Private Limited was fixed in pursuance to mutual agreement and there is no provision under the Act whereby to reduce the value of share sold. The ld. CIT(A) rejected the contentions of the assessee and agreed with the finding of the A.O. that there was no basis for taking an exorbitant value @ Rs. 1195 per share as compared to the NAV of Rs. 202/- worked out by the A.O. . It was observed by learned CIT(A) that M/s BEC Chemicals Pvt. Ltd. is a loss making company and hence valuation of shares of BEC Industrial Investment Company Private Limited @ Rs. 1195/- per share against face value of Rs. 100 per share was not reasonable. Further it was observed that the assessee him....
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.....O. wherein detail explanations was given by the assessee to justify the valuation of shares . The ld. Counsel also took us through the audited accounts of BEC Industrial Investment Co. Pvt. Ltd. and the BEC Chemicals Pvt. Ltd. as on 31st March, 2007. The share capital of BEC Industrial Investment Co. Pvt. Ltd. is Rs. 70 lakhs while the reserves and surplus is Rs. 3.23 crores. The ld. Counsel also took us through paper book page 108 wherein the calculation of book value of BEC Chemicals P. Ltd. is worked out which comes to Rs. 562/- per share of Rs. 100/- face value and market value of fixed assets such as land and building was not considered. It was also submitted that the assessee has entered into share purchase agreement dated 6th March, 2007 whereby the sellers have agreed to sell their equity shares at an agreed price of Rs. 1195/- per share, which is placed at paper book page 57 to 79. The ld. Counsel also drew our attention to the share transfer form which is placed at paper book page 80 & 81 wherein the assessee has transferred 2040 shares of BEC Industrial Investment Company Pvt. Limited to BAT Enterprises Limited for a total consideration of Rs. 24,37,800/-. The considera....
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....ng 35000 equity shares issued by BEC Industrial Investment Company Private Limited. Out of the shareholding consisting of 5000 equity shares of BEC Industrial Investment Company Private Limited , the assessee holds 2040 equity shares jointly with Mrs. Shantaben Amritlal Shah , Mrs Shantaben Amritlal Shah holds 1295 equity shares jointly with Mr. Amritlal T. Shah i.e. the assessee , while Mr Satish Amritlal Shah holds 1665 equity shares jointly with Mr. Amritlal T. Shah i.e. the assessee in BEC Industrial Investment Company Private Limited. The assessee had sold 2040 equity shares of face value of Rs. 100/- per share of BEC Industrial Investment Company Private Ltd. to BAT Enterprises Ltd. @ Rs. 1195/- per share whereby the assessee has received Rs. 24,37,800/- as sales consideration and the long term capital gain was worked out as per provisions and scheme of the Act and the same was invested by the assessee in REC Bonds claiming exemption u/s 54EC of the Act whereby long term capital gain declared in the return of income was at Rs. Nil. The assessee along with his family members namely Mrs Shantiben Amritlal Shah and Mr Satish Amritlal Shah entered into two share purchase agreemen....
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....ls Private Limited is also to be factored while valuing BEC Chemicals Private Limited apart from goodwill of BEC Chemicals Private Limited. On perusal of the share purchase agreements dated 06-03-2007 and 07-04-2007, it clearly reveals that the assessee was Director of BEC Industrial Investment Company Private Limited and BEC Chemicals Private Limited on the date of sale of afore-stated and he resigned from directorship of these companies persuant to sale of 5000 equity shares held by himself and his family members held in BEC Industrial Investment Company Private Limited which were sold to BAT Enterprises Limited which is borne out from clause 2.3(iv) of the share purchase agreement dated 06-03-2007 whereby Resolutions were also obtained from these companies accepting the resignation of the assessee as Director of these companies. The said share purchase agreement dated 06- 03-2007 also stipulates that the assessee shall be relieved from the personal guarantees provided by him for working capital finance as well as term loan or any other personal guarantees' to Bank and financial institution in his capacity as a Director of these companies namely BEC Industrial Investment Company ....
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.... 2040 equity shares @ Rs. 1195/- per share as full value of consideration as contemplated u/s. 48 of the Act. The issue of shares by BEC Chemicals Private Limited to the promoters subsequently at face value at Rs. 100 per shares is all irrelevant consideration having no bearing on establishing the genuineness and bonafide of transactions for sale and purchase of share executed by the assessee and his family members with BAT Enterprises Limited vide share purchase agreements dated 06-03-2007 and 07-04-2007.Similarly that the BEC Industrial Investment Company Private Limited and BAT Enterprises Limited has common address etc and the assessee ould be able to manipulate the transaction are again having no relevance and are merely conjectures and conjectures . In-fact on perusal of share purchase agreement dated 06-03- 2007 and 07-04-2007 will reveal that persuant to these agreement, the assessee and his family members have agreed to shift the offices of their companies and concerns from IBI house by 30-4-2007 , clause 4.6 of the agreement dated 06-3-2007(page 65/paper book). Nothing incriminating has been brought on record by the Revenue and conjectures and surmises has no place while ....